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I am pleased to introduce today's guest, Shay Assad, to the podcast. Mr. Assad is one of our country's most recognized experts in defense procurement, acquisition, and policymaking. He served as Director of Defense Pricing, responsible for contract pricing matters within the Department of Defense. He also served as the Principal Advisor to the Undersecretary of Defense for Acquisition Technology and Logistics, and the Defense Acquisition Board on Acquisition and Procurement Negotiation Strategies for all major weapons systems, programs, and major automated information systems programs. Mr. Assad was the Department of Defense's Senior Advisor for all program-related contract negotiation matters.

After graduating with distinction from the US Naval Academy, he served two tours of duty aboard US Navy destroyers. He then served as the Naval Procurement Officer at the Navy Sea Systems Command.

Mr. Assad then entered the civilian workforce with the Raytheon Company and rose through the ranks to ultimately become the Chairman and Chief Executive officer of Raytheon's engineering and construction businesses with 11 offices worldwide, revenues of $2.7 billion, and 15,000 employees.  

After retiring from Raytheon, Mr. Assad assumed the role of Director of Defense Procurement and Acquisition Policy. He then assumed the position of Acting Deputy Undersecretary of Defense for Acquisition and Technology, serving in an advisory function to the Secretary, Deputy Secretary, and Undersecretary of Defense on matters relating to the acquisition, integration, and protection of technology. From 2009 to 2011, he performed the duties of the Assistant Secretary of Defense for Acquisition. 

Shay has received an impressive number of federal service awards and recognitions that are truly too numerous to cover in this introduction. However, I would like to point out a few: Mr. Assad was awarded the Secretary of Defense Distinguished Service Medal. He was also inducted into the Defense Acquisition University Hall of Fame in recognition of his service to the University. In 2015, Mr. Assad was the recipient of a distinguished Presidential Rank Award. 

Shay, I am very excited to welcome you to the Speed to Contract podcast.

Mr. Assad:
Well, thanks very much, Tim. It's really a pleasure to be here today, have an opportunity to speak with you, and talk about a subject that's really important these days.

Yep, absolutely. You know, you and I have had a discussion leading up to today's show. And as I have shared with you, it's been very interesting. We've had a number of guests on the show, very intelligent and farsighted folks with their own points of view. Whether it's been on the contracting side, or the policymaking side working directly in the Department of Defense—all are great insights. 

Everybody's brought some phenomenal views to the table in terms of speed to contract, and how to find better efficiencies in our current program. Yours is really unique because of your body of work, obviously, in the Department of Defense at the highest levels, but also on the commercial side with the Raytheon Company, serving in the capacity you did, all through those ranks that it took to become CEO, of the particular division you led.

So, I wanna just set the bar right for our listeners today, because I was really excited by our conversation leading up to today's recording. As I've shared with other guests, the questions are really simple. There are two basic questions. Based on your vast experience, what have you seen, what have you experienced and been involved with that has really moved the needle on speed to contract or speed to market when it comes to our warfighters? Then moving to the second question: With a blank canvas, if you will, how would you paint, that picture so that we as a country can make some change that will really make a difference in the protection of our nation and of those around the world that we partner with?


Mr. Assad:
I think when you look at speed to contract, you have to look at it through several different prisms. One is traditional. What I call traditional procurement: the existing weapons systems, the existing military items that we're buying today in the environment of dealing with traditional defense companies.

The second, which is extremely important and has been for several years, is “How do we bring a commercial innovative environment into our defense work? How, how do we get that brought to the table in a big way? 

The third is, we're also dealing with, I'll call very traditional commercial companies, right? We're buying the same products that folks buy every day from these commercial vendors. And it's really three different perspectives, totally. You have to have three different views, and you have to have different skill sets to deal with those three environments.




Mr. Assad:
And I think that the most important thing in terms of speed to contract is—I used to call it “deliberate speed.” And that means that you can, in fact, take risks. Taking risks is not something that we should avoid if it's deliberately thought out, right? It's not just, “I'm gonna decide to take risks because it would just make things go faster.” It's, “ I had a plan. I executed that plan, and I, yes, took some risks. Here’s why I took the risk. And here's the benefit that the taxpayers and the warfighters got for my risk. And I think if you can operate in that environment, you can be very successful. The problem that we have is that we're trying to deal with all three of those environments with the same rule set.



Mr. Assad:
It's just not gonna work. And I think the Department is kidding itself a little bit if it thinks it's going to be able to get commercial innovative technologies, if you will, brought to bear by significant commercial companies when we try to apply the same set of rules that are applied to the defense industry. The defense industry for a variety of reasons is the beneficiary of a number of different policies that some would say are subsidies, that commercial companies just don't take advantage of.  

They can't take advantage of it cause they're not in that environment. The risk posture of a commercial company is completely different than the risk posture of a defense company. A lot of people think that there's a significant difference between the accounting practices of commercial companies versus the accounting practices of defense contractors.

But the reality of life is many accounting practices are very, very similar. It's just the manner in which those companies decide to proceed with business. In the case of the defense industry, the traditional defense contractor wants a contract in hand and funding in hand, and then they'll build to whatever that contract tells 'em to build. Whereas in a commercial environment, they're really building to a forecasted, risk-based, revenue projection. 

And that's a totally different animal than what the defense companies deal with. But if we're under some kind of an assumption that commercial companies don't understand what things cost,  that's a fool's paradise. It's different, right? They collect their costs maybe a little bit differently, but in many, many ways it's the same on the commercial side, which is strictly, “I'm going to buy a commercial item that everybody else buys.”

That's the simplest thing for us to deal with. We've got pricing information that says, “This is what a variety of different buyers pay for that item.” And in general, the department's position has always been, “We're going to pay what a variety of customers pay for any particular item.” If it's competition that’s totally different—this is where I see the speed can come in. Let's talk about the traditional environment first.


Mr. Assad:
I think that many companies don't understand the data requirements they're obligated to meet. They oftentimes talk about, “I had to submit volumes of data, it was seven feet high.” And the reality is:  How they choose to estimate a particular proposal or provide the data for a particular proposal is really up to them in terms of how they estimate. But the underlying fact base is really pretty simple, right?

And I think most times companies think, “I gave them all the information that was associated with preparing my proposal.” But that's not what the requirement is.  The requirement is “Just give me the factual data that a prudent buyer and seller would consider could effectively or could significantly affect price.”  And I think they fall down on their face a little bit. And I think if we can create some systems that make it easy for companies to say; “Okay, I'm going to meet that fact-based requirement, and here's how I'm submitting.” And if a system and a process get put in place that they understand and that the government says, “Yes, that'll do the trick from a fact-based point of view,” then they can go off and develop their proposal in terms of, “I've got it that this is the fact base, but I chose to develop my proposal on this basis and here are the reasons why that's fair game.” Then, that's fair game, too.

Let me stop you on that. I think that's really interesting. This is where you're talking about a system because obviously there is lots of technology out there now, but everybody is using many different formats, right? And in this case, the example you're talking about is companies not knowing exactly what to present. So, they're presenting mountains of information. Not all is correct in terms of information input. And I don't want to get you off track of your point, because I know you're driving to a point here, but in putting together a system that would be driven by the government for all contractors in the playing field to then to say “This is how we collect in this system.” Am I correct in saying that?


Mr. Assad:
Well, no, what I'm suggesting is that we shouldn't force companies to translate their data into some format that the government will accept. But there are certain fundamental elements of costs. These are material costs. This is an indirect cost, right? This is overhead. This is G&A, this is direct engineering labor, whatever it might be. And I think that what we need to have —are commercial systems.

Companies like yourself (ProPricer) and others that can provide systems, or the companies themselves, any particular company that can simply say, “All right, I got it. I'm going to be able to extract that information from my accounting records and present it to you.”  And I think what we're really looking for, at least in terms of what I think is important is, at the end of the day, can you demonstrate? And this is really when I say traditional systems, Tim. Let's talk about products that are supplied that are either the same or similar year over year, right?


Mr. Assad: 
That you can say, “This was what we proposed, this was the expected result, which is what we negotiated, and here's the actual result, and is there a correlation between the two?”

And eventually where do I think the government should go?  Establishing if there's a high degree of correlation. Let's ask the companies, not the government. “This is your product. Demonstrate to me that you can develop an estimating model that has as its foundation, the disclosure of factual, actual cost.” That says, “If you use my model and you make these, you put these actual inputs in it, and the assumption is, you know, we're going to go down a learning curve. We've got so much indirect or so much variable and fixed cost, and we're going to go down a learning curve - and here's how it's going to impact those things, and here's the number.” And at the end of the day, I think companies ought to be able to say, “If you use my model, here’s what we negotiated for fiscal year 12 or 14.”


Mr. Assad:
“Because if you use my model, here's the outcome, and here's what the model said it was going to be. If you can create that high degree of correlation, which would require both the prime and its subs—don't let the subs off the hook. Now you’ve got to be reasonable about the level of subcontracted data you go down to, but the big dogs, they’ve got to play just like everybody else. 

Everybody's got to be in the same kennel. And so if you can create that, then what I would recommend is we create contracting instruments that enable us to not only contract for the current year, we ought to be able to use that very same data and just contract out for the next year or two, not so far out that it places an unreasonable risk on the company or frankly causes the company to want to put in some type of reserve that will cover that risk and/or be transparent about it.


Mr. Assad:
But to have the government say, “No, that's not necessary. Let's stay in a range where both of us can assume a degree of risk. We both can participate; we can reasonably expect an outcome.”. Yes. I think if we can create that kind of approach, we can really lop a lot of time from the process. 
But there's another part of this process, Tim, it's the tail wagging the dog, and that's the requirement side, right? When I was in the department, it was not unusual for a requirement to take three years to get generated and come through the system. We have to be able to work faster, and that's another degree of risk that we have to be able to take.


Mr. Assad: 
Look, we may not get this exactly right, but you know, I never met a flag officer or a general officer who wasn't willing to take some risk if they could get a capability to the field a lot quicker. And so, the idea is that we need to accelerate the requirements process, and then we need to also streamline and accelerate how we actually get the contract. 

Once we've got a requirement, how we get the contract, the next prism is what I'll call the “non-traditionals.” We got to deal with them in a totally different way because most of what they have created was done on a risk basis. There was no government requirement that existed. They created it, they paid for it. And in many cases, it was a capital investment made by entrepreneurs and folks of that nature that realized this is really risk-based, but then said, “By the way, I want to get a return when I'm taking that kind of risk.”


Mr. Assad:
So we can't treat those companies in the same way we treat traditional defense companies, who are fully reimbursed. There is no risk. They don't invest any of their own money. The government makes the entire investment. Risk, here,  is basically non-existent. Then you go into a non-traditional world and it’s the opposite. They're funding everything—not just their capital equipment, but their technology and trying to put it together, then also whatever testing has to be done.



Mr. Assad:
In my mind, the most important thing about speed to contract is: How quickly can you determine that you pay a fair price, and this is going to require dealing with non-traditional firms. It’s going to require a level of sophistication that we typically do not have in the department. And the traditional defense company doesn't have it either.
So, let's get that out on the table. They don't have those skill sets. So, you're dealing in an environment where there still has to be a degree of transparency. But then there have to be other factors that get taken into account.


Mr. Assad:
For example, the existing profit policies are basically cost-based and frankly don't incentivize companies to reduce their cost.


Mr. Assad:
In traditional defense work, but involving non-traditionals, I think we need to be talking about the speed of capability, magnitude of improvement, innovation brought to the table, and ultimately price benefit and cost benefit.
What are we gaining as a warfighting entity, in doing business with this particular company? And what's a reasonable amount of money to pay for that kind of capability? What that means is you're going to have to take it out of the traditional contracting officer and contract administrator or contract manager from the other company, the traditional transaction into a much broader evaluation.


Mr. Assad: 
You're going to have to get the PEO involved. They must be willing to put their name on a document that says, “Yes, I thought this was a reasonable price to pay, not just the contracting officer.” And then in most cases, it's probably going to involve the sponsor,  The warfighting sponsor who's the resource general, Who says, “This is a remarkable improvement to our warfighting capability, or to what it costs us to maintain things, and brings into account a different approach.” I'm not going to call it value-based pricing. Because in my mind we have a lot of companies that use value-based pricing and try to use that term as a basis to just overprice things. I'm talking about really bringing to the table a demonstrated technical improvement or warfighting capability improvement.


Mr. Assad: 
Many commercial tech companies can—such as the one you’re involved with (ProPricer)—can say “Look, I can process data 10 times as fast as you can, and oh, by the way, I can assure you it will be accurate, and here's how we do it. And I can develop a system that can interface with other companies, extract their actual data, and get it to you. And here it is.” Well, that's worth money, right? That's value. And so, we have to be able to deal with that.


 Mr. Assad: 
Now, you can't do that for every single non-traditional you do business with who might be bringing a $500,000 or a million-dollar procurement to the table. I'm talking about significant changes in technology or significant spending, where a company has come forward, put a lot of their money upfront into this, and then says, “In order for us to modify this technology to meet your requirements, here's what we need do it.”


Mr. Assad:
Now, what's the partnership in that investment? “Here's the kind of return that I've got to have in order for me to make the investment.” I don't think there's anybody who begrudges any company from saying, “Well, you made an investment, so you have to get a return on that investment.” In technology, you did the R&D and you’ve got to get a return on it. You ask, “Isn’t some of it going to fail?”  That's part of the deal. But, we want to encourage companies, frankly, to do things like that. And so, we shouldn't dissuade and say, “I'm not going to pay you for that because you failed.” Well, wait a minute, you know what, it took me four different approaches and seven months to figure it out. But I finally did figure it out. So, if I hadn't failed, I wouldn't have known that I had a particular problem.


Mr. Assad:
So, where I'm going with this, Tim, is that takes a sophisticated buyer who's going to have leadership, who's going to have their back, right? And a degree of substantiation to anybody who wants to look at it. You ought to be able to go into Congress or anybody else and say, “Here's why we made the decision.”

My biggest hangup Tim, with a number of companies that we dealt with, was when we pay a premium, we want to know that we are paying the premium, and there's got to be a purpose and a reason for us to pay the premium. Not simply that we overpaid. I mean any dodo can do that. What we want to be able to do in this environment is to say, “Yes, we paid a premium in the traditional sense, but it really wasn't a premium.”

It was actually a hell of a deal. Let me explain why.


Mr. Assad: 
And then you go to the commercial side, which is “How do we get companies to say, ‘Look, when you’ve got a commercial product, you have to quickly bring that pricing data to the table. Don't make it look like I'm going in to get a root canal every time we do business.’” It ought to be simple and really easy for you to provide the data.


Mr. Assad:
Now, the legitimate concern of a number of commercial companies is, “Look, I provide different prices to different customers for a variety of reasons. And I cannot afford to have my pricing practices divulged to the world.”  Well then, we need to assure those companies that adequate protections are going to be in place that enable them to make disclosure without having a fear that the government will not blow up their entire business model.

I mean they let so-and-so company know that I was given a better deal. And, you make decisions sometimes, Tim, as you probably have experienced in your career when December 31st comes along, you can give some really good deals to people <laugh>. And there are reasons for that. And so, we have to be mature enough on the government side to recognize that. And they say, “Well, I understand why they did that. They were under intense pressure. They had significant revenue shortfalls. They had numbers to meet. And so, they cut their normal price for the following reason. And when we look at the other data, they didn't do that at any other time. So, of course, the prudent government guy would say, “Let's wait until December 31st every year.” No, I’m only kidding. 




Mr. Assad:

So there are three different ways that we have to look at this. And of course, buying products is different than buying services. Buying services ought to be very easy. And my view is not the fact basis. The disclosure ought to be really simple. And there should be no excuse for an untimely award of a contract.

 In the services world, if both sides are dealing in a transparent environment, the big challenge, and I'll flip back if I can, when you're dealing with the non-traditional, the challenge is going to be to say, “No.” You have got to be transparent. Right? I have to understand what it is you did and how you did it.

And there has to be a degree of trust that says, “Look, I'm trying to understand this because I'm looking at it in a very different way. I'm not looking at it necessarily from what was the marginal cost for you to develop that particular service, or provide data. I have to look at who developed it, why they developed it, and how long it took to develop; there are a lot of different things. What you invested, how you invested, what your expected return was, these kinds of things.”

So there has to be a degree of disclosure in all three sets, but they're different. And we need to develop these processes in the Department of Defense. I think we should take the existing profit policy we have and throw it out the window. We need to take a totally different approach to how we deal with traditional companies, and how we should be rewarding innovation.


Mr. Assad:
We ought to be rewarding speed. We ought to be rewarding quality. And a lot of other things. Yes, price is absolutely important. But I always stress to people, “Look, if you were paying a hundred dollars or so and the company was making 10 bucks, if they could figure out a way where you would pay $80, but they're going to make $15, is that a problem? I don't think so.” That's a pretty good deal. We're paying less, we're paying $80. Alright. Okay, so they made $15, they should make more money if we're going to pay that much less. And it's what I'm stressing in the traditional defense world, is to understand that cost basis up front. What it did cost, what it does cost, and then open the door to the companies and say, “Look, if you can find ways to get what it should cost down through efficient manufacturing, changes in technology, changes in testing methodology, whatever it might be, then you're going to get the lion’s share.” And incentivize them that way. 



Mr. Assad:
But you can't get there, Tim, until you actually create an environment of trust, which fundamentally doesn't exist. The trust of saying, “Yes, I do understand what this costs, and I understand what it did cost, and yes, I'm on my way to try to get to a place of understanding what it should cost.” And as the company takes on more responsibility to take the risk, to get it to where it should cost, they ought to be rewarded for that in a very different way than we have rewarded in the past.

So I have to say, just backing up for a second, looking at these three different buckets that you have outlined, you've done it in such a way that it's very logical, it's approachable. Summing up, the big word is “systems.” You talked about data, and being able to get that with transparency for all parties.
In technology, we call it a single source of truth, right? The database is lined up, where it's not trying to figure out new models, match your model up, download, and fat-finger input numbers that get into those problems. But basically, click a key and it's all downloaded and it's in front of you, but it's across all departments. It's back and forth where we can move in a perfect world, much quicker. It's really innovative when you start to look at the companies that are on the innovative side, on the commercial side, how do we approach them effectively and what are the systems needed to do so?

I really like this thought process of saying, “Look, we can't do it with everyone. There is a size, a number of the contract, and the dollar volume it must be, or the innovation, the amount of difference it's going to make for the warfighter.” And if we set these levels, then we have a box where the key people can play that can make a difference or aspire to make a difference because we only have so much bandwidth and for those types of ideas, it's worth that bandwidth to go forward.
And then finally, you talk about the commercial world, about what we need to do, and again, you're getting back to systems where we can think through that process but see the numbers and it's transparent and it's real-time, as opposed to taking too much time going through the process along with sprinkling in some requirements that need to get changed. Yes. Just get straightforward about the way we think. You're going down three separate paths. And for our listeners, I think as we continue this conversation, it's really the right way to approach this; at least that’s my opinion after listening to you.

Mr. Assad:
Yes. It's a completely different problem that we have, Tim. It’s that we're very transactional, right? And there isn't a lot of understanding on both sides of the table, at least based on my experience at the table level. They don't have the experience and understanding when we talk about simple things like cash flow, right? What does that actually mean to a company? Why is it so important? And how do you use cash flow fairly, not unfairly, right? Not to bring a company to its knees, but how do you use cash flow to say we ought to be able to distinguish between the outstanding performers, those that seem to get it right most of the time, and then those that almost never get it right? Right now, we treat them all the same way. That doesn’t make a lot of sense to me. 


Mr. Assad:
You ought to be able to reward the outstanding companies who are transparent and get their proposals in on time. They produce quality products, and there ought to be a difference in how we deal with them. And it doesn't take a rocket scientist to listen to any one of the conference calls of these major companies to know that they know what's important to the Department. You pretty much get it in the first, say, 45 seconds of their calls. And so, you ought to be able to mold that into this equation—a better understanding of what commercial companies really do.  How do they actually pay for their products and services?

How do they treat those environments? And why is it so different? And it just takes understanding what we're going to need to do. When I say I'm retired, I still like to think I’m a government guy, right? But what do we have to do? We've got to do a hell of a lot better training people.  To work in this environment and then secondly, and probably just as important, we have to help our leadership have a really good understanding of how these companies work and why, and then flow down that support to enable their folks. Yes. You can take some risks.




As we bring this to a close, Shay, I just have to state again, the linear thought process that you're laying out, and now you've added this fourth process, if you will, it really gets down to understanding how business is done across the table and rewarding the people who are doing it right.

And not rewarding the people that aren't doing it right. And again, what are the systems that measure that? It's my hope, as this discussion goes forward and ultimately changes what does happen, the value of your experience,  certainly your insights, and your intelligence can continue to play a big part. 

You may say I'm retired, but I authored a book with a good friend of mine; his name is Ken Blanchard, the fellow who wrote The One Minute Manager.

Mr. Assad:
Yes, yes.

He wrote another book that was called, Don't Retire, Refire <laugh>. And my thought my friend is that you better refire because you're on top of this issue. And certainly, as we go forward, we'd love to continue the conversation on speed to contract with you. So, with that said, Shay, I'd like to thank you very much on behalf of the podcast team for your insights, and look forward to being able to invite you back to get your insights and opinions as we move forward.

Mr. Assad:
Well, Tim, I very much appreciate the opportunity to join you in this discussion. It's so very important.  When we began with the discussion, you made the comment that Cameron Holt made when he said, “Look, we need to figure out a way to speed things up and buy things cheaper, where it's a mathematics scheme, it’s arithmetic.” He's right about that. And so, we've got to figure this out, and it's going to require a degree of trust that doesn't presently exist. And it’s important that on both sides, and I'll end with this, most of the time the lack of trust is really rooted in ignorance, right? The fact that people really don't understand what they think they're talking about.

And so, once you get people on the same wavelength and they start to understand that there's a mutual benefit here, things can improve. From a warfighter point of view, we want products for the field that work and we want to pay a fair price. From the company's point of view, they want to supply products that work and get to the field, but they have to make a reasonable return. What they view as a reasonable return. Those things can't be totally divorced. Right? They're not the same, it's not the same goal, but both can achieve their goals if they're willing to trust each other and work together.

Right. A great exclamation point to this important topic of speed to contract. And so again Shay, on behalf of our team, thank you so much for your insights.

Mr. Assad:
You're welcome. And have a very happy holiday season, Tim.

Same to you, Shay. Take care.

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