Cover: Price-Based Acquisition

Price-Based Acquisition

Issues and Challenges for Defense Department Procurement of Weapon Systems

Published Oct 5, 2005

by Mark A. Lorell, John C. Graser, Cynthia R. Cook


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Price-based acquisition (PBA) is a major acquisition reform measure being used by the Department of Defense (DoD) in an effort to reduce costs and enhance acquisition efficiency. The essence of PBA is the simple but radical notion that DoD should establish “fair and reasonable” prices for goods and services without obtaining extensive cost data from suppliers. The thinking is that PBA, with its more commercial-like market pricing strategy, is more beneficial to the government than the traditionally used, heavily regulated cost-based acquisition method, which bases prices on contractor-provided certified cost data. Supporters of PBA argue that this approach will eliminate the “regulatory premium” paid by DoD, motivate suppliers to cut costs, and encourage civil-commercial firms to bid on DoD contracts for military-unique systems. The end result, according to PBA advocates, is that DoD will be able to procure more-capable, cheaper systems in less time. DoD has had relatively little real-world experience with “pure” PBA, but it has undertaken many programs with numerous PBA-like characteristics. The most important goal of this research was to systematically review the available evidence to determine whether PBA offers the benefits its advocates claim, to ascertain possible pitfalls inherent in PBA, and to identify the most appropriate circumstances and strategies for implementing PBA. The findings are based on extensive structured interviews with government and private-sector individuals involved in major PBA-like programs and on a review of more than thirty case studies of programs having important PBA-like features. A systematic taxonomy of PBA-like approaches used by DoD in the past was developed as an aid for the case study assessment and for integrating the interview findings. All findings and lessons learned are enumerated.

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The research described in this report was sponsored by the United States Air Force and conducted by RAND Project AIR FORCE.

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