Could the sun finally be setting on lowest-price, technically acceptable contracts?
Few industry veterans have their pulse on LPTAs and the shift toward best-value options like David Dacquino. Before the start of the year, the longtime industry veteran, who previously held executive management positions at companies such as Raytheon and Lockheed Martin, came onboard Serco’s North America division as Senior Vice President of Defense Services — and as he sees it, the outlook for best-value partners looks good.
“The government is looking for a lot more capability than they have in the past,” says Dacquino, citing Defense Secretary Ash Carter’s push over the last year for a greater focus on innovation initiatives that, by extension, favor capabilities over price. That slow shift has thrust mid-tier companies like Serco, which generates yearly revenue in the billion-dollar range, “right in the sweet spot,” as Dacquino puts it. Here’s how he plans to keep the Reston, Va.-based company a long-term partner, focused on value.
WashingtonExec: The overall federal budget seems to be flat-lining but of course there are still pockets of growth. Where do you see them?
David Dacquino: We see opportunities with the Navy in the area of C4I installations, primarily installing new computer networking and communication equipment as well as other electronic systems into all ships, from the large-deck carriers to the submarines, what we call ship modernization. We are also seeing growth in building out those racks and then installing them, what we call shore/base modernization, as evidenced by Serco’s recent Navy Facilities Engineering Command $131 million win of the Anti-Terrorism/Force Protection (AT/FP) global sustainment contract.
We see pockets of growth on the acquisition support side as well, where we’re helping the government do better buying. In many respects, acquisition support is becoming more important, for the Air Force and the Army, as an example, as they try to buy more efficiently. What they are buying is much more complicated, making depth of technical knowledge critical in helping the government buy the best service they can.
WashingtonExec: When it comes to everyone’s favorite topic of acquisition reform, what are you seeing?
David Dacquino: There are a couple areas we have noticed. One is small business and the other is LPTA.
On the small business side, the government pushed hard – probably too hard – to put small businesses in the prime positions. As a result, the government has suffered a bit in the execution of some of their programs. Of course we all support small business but being smarter about how they are positioned with respect to prime and sub is probably a better approach. In the early days, industry had mentor-protégé programs where large companies would bring in small businesses and help them grow their capabilities. That worked well and I think we are drifting back toward that because many of these contracts are complicated and financially difficult to manage.
[With LPTAs], I would say that over the last three or four years, industry saw an incredible push toward LPTA on everything. But lowest price, technically acceptable wasn’t quite what the government was getting; instead, it was usually what I call LPTQ – lowest-price, technically questionable. Contractors went very, very far in reducing costs and it was all about cost. If it is strictly a commodity and if the quality could be at minimal or acceptable levels, you can go that way. But in other cases, we’ve seen LPTA for complicated electronics assembly and installations. I think the government is getting a little concerned about that and seeing some problems. We are going to be the lowest cost we can be but without sacrificing quality.
WashingtonExec: In terms of building the Defense Services Division at Serco, will we see either organic growth or acquisitions between now and the end of the year?
David Dacquino: Acquisitions are not currently our focus. Our focus is growth on the organic side. Serco has been investing in tools and capabilities inside the company – key talent and technology tools as well. We’re looking to leverage those investments in our proposals and relationships to grow organically. So while strategic acquisitions are not ruled out, I think you can look for Serco to grow more on the organic side.
WashingtonExec: What’s your prognosis for mid-tiers in the midst of the overall shift toward best-value contracts?
David Dacquino: This is the time for mid-tier companies. Mid-tiers that are focused on service are well-positioned because of the shift in LPTA we see underway; we’re also the right size to bring in the financial strength and technical depth, plus we’re agile enough to adapt to what the defense customer needs.
I want to be very clear about that – what we are looking for are opportunities where the government wants a long-term partner not just a commodity purchase. We are willing to make the investment if the opportunity is right. That’s a good place to be.