2. 2 2 Eleanor Spector Vice President, Contracts Lockheed Martin Corporation August 5, 2008 9:30-10:15AM Industry Acquisition Issues

3. 3 3 International Defense 58% 27% 15% Civil Government/ Homeland Security/ Intelligence and Other Lockheed Martin 2007 Sales Total Sales - $41.9B Air Force 23%Navy/USMC23%Army9% Other DoD 3%

4. 4 4 LM Contracting Statistics 46% of contracts fixed price 31% cost reimbursable

5. 5 5 Hot issues Award/incentive fees (not “bonuses”) Ethics, OCI, PCI Mandatory disclosures prior to company investigations Data rights Industrial base and protectionist legislation Information assurance Fixed price production contracts prior to demonstration of technology

6. 6 6 Congressional Perceptions Impatience with cost estimating and control on development contracts –Incentive and award fee changes –Minimizing cost reimbursable contracts –Nunn-McCurdy Act Changes

7. 7 7 Congressional Perceptions Perception executive branch losing ability to manage contracts –Redefining inherently governmental definition –Acquisition workforce enhancements –LSI restrictions

8. 8 8 Congressional Perceptions Need more openness in acquisition process –Limitations on IDIQ services – competition over $100M –Expanded protest rights (while DoD concern with protests grows) –Public postings of past performance, contract information, justifications, executive compensation

9. 9 9 Congressional Perceptions Frustration with stories of fraud, waste and abuse –Anti-profiteering bills –Mandating self-reporting of potential violations –Expansion of FCA’s reach/whistleblower rights –UCA definitization schedules and fee limitations –Demands for additional data rights

10. 10 Congressional Perceptions DoD and industry not maintaining arm’s- length or preserving competition –Inherently Governmental functions redefined –OCI/PCI treatment and reporting –Increased access to protest system –More compliance and integrity reporting –Lead System Integrator prohibitions –Expanded protest authority

11. 11 FAR Cases of Interest Reporting subcontract award data Exemption of commercial services from SCA Contractor compliance and integrity reporting E-Verify (employment eligibility verification) Conflicts of Interest

12. 12 DFARS Cases of Interest Excessive pass through charges Technical data rights Open source software

13. 13 Industry Acquisition Agenda Requirements generation and stabilization –Rational restrictions on changes in development –Greater stabilization of requirements before milestone B

14. 14 Industry Acquisition Agenda Technology maturation –Quantum leap vs. evolutionary Cost estimation and analysis –Award at Government estimate –Cost realism as major selection factor

15. 15 Industry Acquisition Agenda Protect Company Intellectual Property –New rules designed to aid sustainment discourage private investment in technology innovation and the use of commercial technologies by requiring rights to privately developed technology as a condition of doing business. –E.g., Requirement for all technical data on a satellite contract. –Obtaining more rights in data will not solve most logistics support problems.

16. 16 Industry Acquisition Agenda Multiyear contracting –Enhanced use creates economies of scale Reasonable returns –Award fees are not bonuses –Development programs must be profitable Workforce enhancement and training –Implementation of Gansler recommendations

17. 17 Industry Acquisition Agenda Contract type determination –FAR Guidance is appropriate –Contract type determined by risk Funding stability, reprogramming flexibility –Fund and fence program reserves –Allow greater flexibility in reprogramming

18. 18 Industry Acquisition Agenda Draft standard, workable rules on protection of unclassified information on contractor networks. Concerns: –No clear definition of information to be protected –Dissemination of network vulnerabilities –Costs to protect sensitive unclassified information

19. 19 Cost Growth Acquisition community has failed to convince GAO and senior Government personnel the causes of cost growth on development contracts which include: –Optimism in competitions –Unpredictability of required technological innovations –Major changes in requirements after award –Funding instability Defense contractors develop the best systems in the world, yet earn minimal returns on development contracts. Contractors often supplement insufficient budgets on incrementally funded development contracts, or risk disruptive work stoppages, yet are given no credit in fee determinations.

20. 20 Summary Considerable activity in acquisition policy areas. Likely to be new focus with either new administration. Acquisition is never dull!