Army continues refinement of software acquisition plans after industry criticism

The Army is in the midst of overhauling how it buys and manages modern software solutions to better align with commercial practices. But after receiving mixed reviews from industry on its new strategy, the service is making a few tweaks it hopes will address some industry concerns.

Officials published a new directive in March that aims to streamline and standardize the Army’s approach to developing software — an extensive policy outlining how it plans to develop requirements, perform testing, procure, sustain and manage personnel for software-based capabilities. The Army later posted a notice to Sam.gov in May which sought industry feedback on a multiple-award contract vehicle for its software efforts, estimated to be worth more than $1 billion over a 10-year period of performance.

Not long after, members of industry — mainly non-traditional and venture-backed defense contractors — began publicly sharing their concerns with both the directive and the request for information (RFI). Many took issue with the Army’s push to use cost-plus contracts for software “to the maximum extent possible” while minimizing firm fixed-priced models, as stated in the service’s software directive.

Several company executives, who all spoke to DefenseScoop on the condition of anonymity to talk candidly, claimed that the contract language showed preference for large, traditional defense prime contractors and would cause smaller, non-traditional vendors to avoid bidding on future Army software programs.

“It’s not worth trying to bid or convince them if what they’re stipulating as sort of a requirement to even enter isn’t something you can meet,” one defense tech executive said. “I think they would see a lot less innovation in their responses, and it sort of starts leading down the path of custom-build, services-companies approach — which in some cases could be appropriate, but we find it a little affronting for the Army to say, ‘You must agree to this as a condition to even participate.’”

Cost-plus versus firm-fixed-price

During a roundtable with reporters Sept. 5, Army acquisition lead Doug Bush emphasized that the service never planned to exclusively use cost-plus contract types for its future software programs. Rather, he said the organization is committed to customizing acquisition strategy to each specific capability and is open to using hybrid-contract approaches.

“Every contract needs to be tailored to the task, and it’s not a simple world of cost-plus versus fixed-price,” Bush said. “Those are ends of a spectrum. In between those things are a vast array of hybrid approaches that are tailored to different things.”

Under cost-plus contracts, the Defense Department agrees to pay contractors for a project’s expenses — including labor hours, materials and any other costs accrued while under the contract’s terms — as well as an additional fee to account for profit once the project is completed.

While cost-plus contracts do guarantee reimbursement for contractors and mitigate risk to them, the model requires companies to use government-approved cost-accounting systems that track their software engineers’ hours and other expenses for the contract. One defense tech executive explained that implementing and approving the necessary infrastructure is a time-consuming, expensive effort — especially for smaller companies.

Others shared that overall, cost-plus contracts have made development cumbersome, are contradictory to the culture of how non-traditional defense companies operate, and do not value software the way that it should be.

“Through a cost-type contract, it is valued through what the government can count,” a source told DefenseScoop. “It can count the number of people working on it, it can count the number of hours that they’re billing — and that is almost antithetical to how value is generated in software.”

On the other hand, many software-focused companies prefer contracting using a firm-fixed-price model, in which the Defense Department and vendor agree on a set price for products at the start of the contract. This means companies do take on added risk if there are cost overruns during the program, but they would not have to implement additional infrastructure to track labor hours.

“I think startups and more innovative companies — because of our model and how we’re valued in the market — we’re willing to eat some of the costs to make the changes and deliver the best thing where necessary,” one defense tech executive explained.

When asked why the service intended to maximize use of cost-plus contracts for software, an Army spokesperson told DefenseScoop that agile software development and continuous delivery hinge on iterative requirements based on user feedback. Therefore, assessing the price of a software capability before awarding the contract award becomes “impossible,” they said.

The Army has since clarified that it won’t solely be using cost-plus contract types for its software capabilities. In response to industry feedback, the service has added all contract types to the IDIQ in order to provide flexibility, Jennifer Swanson, the Army’s deputy assistant secretary for data, engineering and software, told reporters at the roundtable.

In an upcoming RFI set to be released in October, the Army will also update how it differentiates labor-category costs that will allow the service to better understand how industry pays its software engineers, she said. Where the government historically uses education degrees to differentiate, industry has largely moved away from that practice, she added.

The Army is also looking to initiate a pilot program that would allow the service to not specify contract types upfront in a task order requirement for the IDIQ. Rather, vendors can pitch software solutions and a proposed contract type they believe would fit best, giving both the service and industry more flexibility, Swanson said.

“The reason we’re doing that is so that we are able to consider all solutions that are out there,” she said. “There may be a commercial solution we’re not aware of, and so this would allow a company to bring that forward with a firm-fixed-price contract type that would make sense for a commercial solution.”

Although the Army is now considering all contract types moving forward, the service will use cost-plus models in some cases, Bush said.

“There will be times when a cost-type contract of some flavor is the appropriate thing to use to protect the government’s interest. I’m not going to apologize for that,” he told reporters. “This is the American people’s money. Our contracting approaches are gauged to both achieve the capability, but also make sure funding is not wasted.”

Remaining concerns

In the software directive, the Army noted that “[c]ustomization to commercial software solutions will be minimized to limit risk to the government. Where appropriate, microservices will be used to add capabilities not present in commercial software solutions. Customization to commercial software should only proceed where potential cost and technical risks are understood and mitigated.”

Defense tech executives told DefenseScoop that they believed the policy would steer the Army away from commercial products and services in favor of custom-built solutions — shutting themselves off to large segments of industry. Many non-traditional vendors have existing software products sold commercially that can be customized with new tools so they can be sold to the government as well, they said. 

“You can think about bringing into an architecture some software that was commercially developed that you are accessing by virtue of a license or some other type of agreement — a fixed-price contract agreement of some kind — because it’s already built, you only have to modify it,” one defense tech executive said.

The Army spokesperson said the service still fully supports customizing commercial software, but previous experiences in doing so have resulted in cost increases and cybersecurity risks to their systems, while also decreasing the capability’s quality and ability for the Army to update to newer versions. 

Because of those experiences, the service plans to “maximize configuration of commercial software while limiting customization” for systems using commercial software products at their core — such as most of the Army’s business systems, they said.

“This will reduce costs, increase capability and encourage more widespread use of commercial software while allowing the Army to leverage firm-fixed-price contracts,” the spokesperson said. “Commercial-off-the-shelf software products will remain the Army’s primary choice. The Army will only develop software when no viable commercial capability is available.”

One defense tech executive said that while they understood concerns with commercial software customization, industry must realize that not every software tool can meet the Army’s requirements — especially for military-specific capabilities.

“The easiest way is you use what is out there, but I think it’s incumbent upon industry to recognize that industry hasn’t created every piece of software that the government is going to need,” the defense tech executive said.

Despite some negative opinions, Bush emphasized that a majority of industry’s feedback to the RFI was positive. He said the Army continues to field industry’s responses and will reasonably address any concerns companies still have moving forward, adding that it’s okay for people to not fully agree with what the service is doing.

“Of course there’s always going to be some people who have concerns. And that’s fine,” he said. “I think we’ve listened to a lot of it. But if some companies don’t want to bid on a contract, it’s a free country. Don’t bid, others will. My goal is simply to get the capability for the Army, not to make everybody happy.”

A final request for proposals for the IDIQ contract vehicle will likely be published before the end of 2024, Swanson said.