[Federal Register Volume 65, Number 71 (Wednesday, April 12, 2000)]
[Notices]
[Pages 19744-19746]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9061]


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DEPARTMENT OF DEFENSE

Office of the Secretary


New Challenge Program

AGENCY: Department of Defense (DoD).

ACTION:  Notice.

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SUMMARY: Section 812 of the National Defense Authorization Act for 
Fiscal Year 2000 (Pub. L. 106-65) requires DoD to implement ``a plan to 
provide for increased innovative technology for acquisition programs of 
the Department of Defense from commercial private sector entities, 
including small-business concerns.'' To accomplish this, DoD will 
implement at new ``Challenge'' program on a pilot basis in at least 20 
Acquisition Category 1 or 2 programs, starting in fiscal year 2001. A 
full description of the new program is discussed under Supplementary 
Information. DoD seeks comments on the program, particularly on such 
issues as: (i) Program implementation during the pilot period; (ii) 
criteria for evaluating the pilot program; and (iii) consideration in 
deciding whether and how to continue the program after the pilot 
period.

DATES: Comments are due no later than May 12, 2000.

FOR FURTHER INFORMATION CONTACT: Jon Baron, OUSD(AT&L)/SADBU, 1777 
North Kent Street, Suite 9100, Arlington, VA 22209; telephone (703) 
588-8636; facsimile (703) 588-7561; email [email protected].

SUPPLEMENTARY INFORMATION: The Under Secretary of Defense for 
Acquisition, Technology, and Logistics has approved the recommendation 
of an Integrated Product Team that DoD implement a new ``Challenge'' 
program on a pilot basis in at least 20 Acquisition Category (ACAT) 1 
or 2 programs. A summary of the Team's main findings; the provision it 
has developed for inclusion in the solicitations of participating 
acquisition programs; and the procedures for acquisition program office 
implementation of the Challenge program follow.
    The Under Secretary of Defense for Acquisition, Technology, and 
Logistics will request that each Military Department nominate for 
participation in the pilot (i) by June 1, 2000, at least four ACAT 1 or 
2 programs that will initiate a contracting action for a new phase of 
the program in FY 2001; and (ii) by June 1, 2001, at least 3 other ACAT 
1 or 2 programs that will initiate a contracting action for a new phase 
of the program in FY 2002. The Military Departments will be asked to 
include among their nominations competitive and sole-source development 
programs and production programs (especially production programs 
involving significant modifications) and, if desired, a maintenance 
program. In order to facilitate a systematic evaluation of the pilot 
effort, the Military Departments will be asked to identify, for each 
nominated program, an acquisition program of similar size, scope, and 
phase of acquisition to participate in a control group.
    The Under Secretary of Defense for Acquisition, Technology, and 
Logistics asked the Director of the Office of Small and Disadvantaged 
Business Utilization (SADBU) to coordinate this initiative and report 
on its implementation on a semi-annual basis. The Military Departments 
will be asked to provide their Department's nominated programs to Jon 
Baron (tel. 703/588-8636; fax 703/588-7561; email [email protected]) 
by the designated dates. For each nominee, the Military Departments 
will be asked to identify both the acquisition program manager and a 
point of contact in the responsible Program Executive Office.
    In addition, the Under Secretary of Defense for Acquisition, 
Technology, and Logistics asked the Director, SADBU, in consultation 
with the Military Departments, to develop metrics of the effectiveness 
of the pilot program and to arrange for an independent evaluation of 
the program. The evaluation should include a preliminary report by May 
1, 2002 addressing (i) whether the program appears to be accomplishing 
its goals, and (ii) whether and how the program should be continued 
after the pilot period.

Summary of the Team's Main Findings and Goals

    Main findings: After the competition in an acquisition program has 
ended and a prime contractor is selected for contract award, that prime 
contractor generally faces little competitive pressure to bring 
innovative new technologies from commercial firms into the program.
    Indeed, the Team found that, in some cases, the prime contractors 
resist the adoption of outside technologies or seek to bring subsystem 
work-in-house, even when there are more capable and innovative sources 
outside the firm. This finding is consistent with the results of a 1997 
Defense Science Board study, which found that DoD's vertically-
integrated prime contractors have economic incentives to use in-house 
suppliers in ways that are at odds with DoD's interest in fostering 
competition and innovation at the subsystem level.
    In this respect, defense procurement markets differ significantly 
from competitive commercial markets, where there are competitive 
pressures to bring innovative new technologies into a program 
throughout development and production, and to outsource when stronger 
capabilities exist outside the firm.
    Based on its findings, the Team developed a set of recommendations 
designed to:
    (i) Foster competition among alternative technological approaches 
and suppliers wherever possible in the development of subsystems of DoD 
acquisition programs. The rationale is that such competition is needed 
to create the incentives for the development and rapid insertion into

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acquisition programs of technological innovations developed by 
commercial firms, including small technology companies.
    (ii) Create other incentives and opportunities for insertion of new 
technology during the course of an acquisition program (e.g., 
technology upgrade cycles).
    The Team recommended a provision to be inserted into the 
solicitations of DoD acquisition programs and a set of procedures for 
acquisition program office implementation of the Challenge program.

Provision To Be Inserted Into the Solicitations of Acquisition 
Programs

I. This Acquisition Program Is Participating in the New ``Challenge'' 
Program, Based on Section 812 of Public Law 106-65

    The Challenge program, as approved for implementation by the Under 
Secretary of Defense for Acquisition, Technology and Logistics 
(USD(AT&L)), is designed to:
    (A) Foster competition among alternative technological approaches 
and suppliers wherever possible in the development of subsystems of DoD 
acquisition programs. The rationale is that such competition is needed 
to create the incentives for the development and rapid insertion into 
acquisition programs of technological innovations developed by 
commercial firms, including small technology companies. These 
innovations are essential to reducing the cost and improving the 
performance of acquisition programs.
    (B) Create other incentives and opportunities for insertion of new 
technology throughout the acquisition cycle.

II. As Part of the Challenge Program, Your Firm Is Required To Submit a 
Brief Innovative Technology Insertion Plan as Part of Its Proposal (No 
More Than Five Pages in Length)

    In the Insertion Plan, please describe how your firm plans to 
implement the following practices, which are encouraged to foster 
subtier competition and technology insertion from commercial firms:
    (A) Competitive sourcing of subsystem development and production. 
Please list the 10 subsystems involving the largest expenditure of 
federal funds under this contract, and also any other subsystems that 
offer significant opportunities for technology insertion. (Please show 
the expected federal funding associated with each listed subsystem.) 
Indicate:
    (a) Which of these subsystems your firm will award to another firm 
(unaffiliated with your firm) that has already been selected through a 
competitive process; and
    (b) Which of these subsystems your firm will award to a source that 
will be selected in the future through a competitive process.
    (B) Adaptability of the acquisition program and its subsystems, 
through such features as open-system architecture, to enable a wide 
array of competing approaches to the subsystems' design and production. 
Please describe the adaptability of the acquisition program and the 
proposed subsystems listed in (A).
    (C) Technology upgrade cycles, to foster the insertion of new cost-
saving and performance-enhancing technologies into the acquisition 
program and its subsystems through the course of the contract. For the 
acquisition program and the subsystems listed in (A), please describe 
(i) the features that will be subject to technology upgrade cycles, and 
(ii) the nature of those cycles and the extent to which they will 
involve competitive sourcing.
    (D) Subcontracting of the RDT&E effort to small technology 
companies, which are a particularly potent source of innovation and 
effective vehicle for technology insertion. Please indicate the total 
amount of RDT&E funding provided under the contract that your firm 
plans to outsource to small businesses, as defined in 13 CFR 121.702 to 
include firms which employ not more than 500 employees, including 
affiliates, and which are at least 51 percent owned and controlled by 
U.S. citizens or permanent resident aliens.
    Please also identify incentives that your firm would like to be 
included in the contract to facilitate successful implementation of the 
Insertion Plan, including (i) an award fee, or an award-fee bonus, that 
is based on your firm's progress in successfully implementing the 
Insertion Plan; and/or (ii) (for production or maintenance contracts:) 
opportunities for your firm to share significantly in the cost savings 
and performance benefits resulting from the technology insertion, 
through such mechanisms as Value Engineering Change Proposals. Where 
appropriate, identify the technologies or subsystems to which these 
incentives might be applied.

III. If Your Firm's Proposal Is Selected for Contract Award, Its 
Insertion Plan Will Be Included as a Requirement in the Contract. 
The Contract Will Also Provide That

    (A) Your firm establish a comparable Challenge program and process 
in awarding subcontracts for the major subsystems (i.e., those expected 
to involve an expenditure for RDT&E of more than $25 million, or for 
procurement of more than $75 million under this contract).
    (B) Your firm's Insertion plan, and the Insertion Plan of your 
firm's major subsystem suppliers, be publicly released on the USD(AT&L) 
web site, so that potential offerors are made aware of the competitive 
opportunities that are available.
    (C) Your firm receive significant incentives for successful 
implementation of its Insertion Plan, as described in the last 
paragraph of Section II.
    (D) Your firm provide written notification to the acquisition 
program office, with a copy to the Office of the USD(AT&L) (attn: 
[email protected]), before undertaking actions including the following 
that may be incompatible with the Insertion Plan in the contract:
    (a) Your firm proposes not to competitive source a subsysten or 
upgrade designated for competitive sourcing in its Insertion Plan, and 
instead to use in-house source;
    (b) Your firm's competitive sourcing results in the proposed 
selection of an in-house supplier; or
    (c) Your firm proposes to reduce the amount of RDT&E funds 
designated in the Insertion Plan for outsourcing to small technology 
companies. Such proposed actions may not be undertaken without 
government approval.
    (E) Your firm submit a brief annual report (no more than five 
pages) on its progress in implementing the Insertion Plan to both the 
acquisition program office and the Office of the USD(AT&L)(attn: 
[email protected]), for inclusion in the Challenge program's report to 
the USD(AT&L).

Procedures for Acquisition Program Office Implementation of the 
Challenge Program

    (A) Please include the provision above (or a reasonable variation 
containing its main elements) in your Office's program solicitation to 
potential offerors.
    (B) In competitive acquisitions, include the quality of the 
Innovative Technology Insertion Plan as a significant source selection 
criterion, with the specific weighting to be determined by the 
contracting officer in conjunction with the source selection authority.
    In sole-source acquisitions, the Insertion Plan of the offeror is 
subject to an independent review before contract award by a panel 
appointed by the Program Executive Officer (or

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equivalent individual) under whom this acquisition program falls, who 
is encouraged to include significant participation from individuals 
outside the acquisition program office. The review panel will--
    (a) Where feasible, use the Insertion Plans developed in other, 
competitive acquisitions as a benchmark for assessing the sole-source 
offeror's Innovation Plan; and
    (b) Provide specific recommendations to the acquisiton program 
manager and the contracting officer on whether and how the offeror's 
Insertion Plan should be improved before it is included in the 
contract.
    The reviewers' recommendations and the extent to which they are 
implemented in the contract, will be included in the Challenge 
program's report to the USD(AT&L).
    (C) For the firm that is selected for contract award, include as 
requirements of the contact (i) the firm's Innovative Technology 
Insertion Plan, and (ii) the items listed in Section III of the 
solicitation provision above. The acquisition program office is 
particularly encouraged to work with the contractor to include in the 
contract significant positive incentives for successful implementation 
of the Insertion Plan, as discussed in Section III (C) of the 
solicitation provision.
    (D) If, after contract award, the contractor proposes, through 
written notification (per Section III (D) of the solicitation 
provision), to undertake actions that may be incompatible with its 
Insertion Plan, such actions are subject to government review and 
approval through the following process.
    (a) The acquisition program office, after consultation with the 
Office of the USD(AT&L) (POC: Jon Baron,OUSD(AT&L)/SADBU, tel. 703/588-
8636, fax 703/588-7561, email [email protected]), will make an initial 
determination of whether the proposed action potentially represents a 
non-trivial deviation from the letter or intent of the Insertion Plan 
contract.
    (b) If such a determination is made, the proposed action will be 
subject to an independent review by a panel (i) appointed by the 
Program Executive Officer (or equivalent individual) under whom this 
acquisition program falls, and (ii) consisting of individuals outside 
the acquisition program office. The contractor will be asked to show 
that conditions have significantly changed since the contract was 
awarded, such that there are substantial and compelling reasons why the 
potential supplier base cannot now adequately meet the requirement. The 
contractor's proposed action and rationale will be publicly released 
for comment by potential suppliers and others. Based on such inputs and 
the criterion described above, the reviewers will make a formal 
recommendation to the acquisition program manager and the contracting 
officer on whether to approve or disapprove the proposed action. The 
reviewers' recommendation, and the contracting officer's resulting 
action, will be included in the Challenge program's report to the 
USD(AT&L).

    Dated: April 4, 2000.
Patricia L. Toppings.
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 00-9061 Filed 4-11-00; 8:45 am]
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