GOVERNMENT CAN SAVE TIME & MONEY
USING COMMERCIAL APPROACHES
WITH DAVID CADE, VP OF US GOVERNMENT SERVICES BUSINESS TRANSFORMATION FOR THE BOEING CO.
Welcome. Today's guest is David Cade. Mr. Cade currently serves as Vice President of US Government Services Business Transformation for the Boeing Company. David previously served as Vice President of Corporate Contracts, as well as the company's representative to government and industry regarding acquisition and industrial policy issues. He guided all related strategies, policies, procedures, and compliance activities.
Prior to that, Mr. Cade was the functional leader of nearly 600 professionals in Boeing Global Services for the Contracts Estimating and Cash Management Group. He's also served as the Vice President of Contracts, Pricing, Estimating, and Supply Chain Finance for Boeing's Defense Space and Security Business Unit.
Mr. Cade began with Boeing by joining its law department in September, 2008. Previously, he spent 10 years as in-house counsel for General Motors Corporation. David earned his BA at the University of Pennsylvania. In 1996, he became the fourth generation of his family to receive a Juris Doctorate degree from the University of Michigan Law School.
David, welcome to the podcast.
Thanks, Tim. Welcome to be here.
Yes, this is really great. On a personal note, you had the opportunity to present at the last summit we sponsored—as we do every year at ProPricer. And there was this throughline David, of a national security issue, and that’s what this podcast is about, specifically Speed to Contract, Speed to Market.
At the summit, you talked about building relationships and what that meant from your point of view, with your experience of well over a dozen years, in top management in regard to representing Boeing.
Going forward, when it gets down to making change, I know you've had a lot of experience in seeing methodologies and processes that could have sped the contract process up for Boeing going to market. So, perhaps you can unpack some of those ideas, some of those processes that you've experienced that have worked in the past. And then we'll get to that next big question that involves a blank canvas if you will. I'll give you the paints and ask you to lay out what it would take, from your point of view, to make effective change, to increase speed to contract going forward. Sound good?
With that said, what about your past? What's been your experience?
Well, I always joke, “You have problems when you get the lawyers involved.” What tends to happen is basic game theory. I have an Economics and Political Science degree from Penn. And really, I focused on strategy and game theory. And if you just break down contracting through its most entry levels, if you're only going to see a person one time, the incentive to take advantage of them is very high. And as you recognize you're going to have more and more interaction, it's always like, well, I can't do anything to take advantage of them this time because I'm going to see them tomorrow and tomorrow and tomorrow. And that's really the contracting realm, it’s building around trust and recognizing you're going to see that person again.
THE SAME CONTRACTS CAN TAKE UP REDUNDANT RESOURCES & TIMEFRAMES
Back when I got to Boeing in 2008, my internal client was Supplier Management. And eventually, I ended up going onto the business side and actually being =in= Supplier Management. One of the things that we talked about was all of the transactions that were occurring with our suppliers. It was the same supplier if we were having the same negotiations. But the contracts were all unique and it really depended on who was involved.
And so, one person had a particular proclivity, and they wanted their contract a certain way at Boeing, in terms of dealing with a supplier. And you could have the exact same procurement two months later with a different person. And there were different things emphasized in the contract. And so, you never had any one contract ‘look’ in common. It required a lot of personnel. And it also required reading a contract and going through all its details to understand if there was a dispute in what was happening
FORMING TEMPLATED OR PATTERNED CONTRACTS
One of the first things we did when I got there was, we formed patterned or templated contracts. We recognized, right off the bat, that our suppliers were going to see us and each other again, and we were going to keep having a fight. It's a lot of mental energy wasted on the same issue over and over and over again.
PRESENT THE 90% OF THE CONTRACT YOU AGREE ON, PRIOR TO THE 10% YOU DON’T
Now initially, and I won't name the supplier, but the first one out of the chute: They came in and did a bunch of machinations, and they were upset about our term contract and our standard terms and conditions. And there were all these objections. And I said, “I'm so glad you raised them.” I had a PowerPoint and I pulled up their standard Terms and Conditions, and then showed both documents, which I cross-referenced. So, I cut and pasted so we could see where they had limitational liability, choice of law, you name it.
I had it all there. And then I crossed out the different words so we could see that our contracts were about 90% similar. And I said, “Okay, do we want to argue and discuss the 10% or do we want to start from the beginning and argue over all of it?” And that really set the tone with them. They said, “Okay, we get it. I said, “Your issue is not with my Terms and Conditions as much as with the 10% that we can agree to disagree on, and you're just not used to what I have or how I have it presented. And because of the change—and change is difficult—you're automatically throwing up an objection to say, “No, let's take a step back and let's see where we agree, and then let's see where we disagree, and really where we can move the needle.”
PATTERNED AGREEMENTS REQUIRE FEWER PEOPLE & ARE EASIER TO UNDERSTAND
We ended up going through a series of meetings with all of our major suppliers, where we had these patterned agreements, and we didn't always get everything we wanted. They didn't always get everything they wanted, but we standardized it so you could utilize fewer people to manage a contract. It made it a lot easier to know what was in the contract. Because it was a standard, rather than a differentiation. And the focus became on price, the delivery dates—the stuff that really mattered to the ultimate customer, the warfighter.
GOVERNMENT CONTRACTS COULD BE STANDARDIZED FOR SPEED TO CONTRACT
So I think that was a step function that really promulgated or pushed the supplier management function forward. The flipside is we haven't done that enough, if at all, on the side with the government customer. And I think when we talk about speed to contract, again, it's the same issues we had before.
You can buy the same part or sell the same part. It depends on who the Contracting Officer is. And again, they rotate, we rotate internally. It depends on the volume. It depends on who might be the Program Officer or where the functional direction is coming from in the government. It could be things such as “What is the use of the product?” If it's an F-18 and it's in theater, there's going to be a lot more attention paid to it versus when they're not running. Or maybe we're doing depo work and we're upgrading.
So, I think that's the first place we need to look. How do we get past these issues that use up so much mental energy? They become so emotional for people.
And at the end of the day, it's like a tug of war, but you end up in the same place, most of the time. I think if we recognize that right off the bat, we could avoid a lot of these problems and really focus on the things that are critical, which is “What is the delivery date? What is the price? What are things we can tweak, maybe to get a better price?” If it's either a long-term or a greater quantity buy. If it’s seasonal. For instance, wheels, tires, and brakes, if they're buying on the sustainment side. But we don't end up focusing on that. We focus on liability limitation and everything that's out there.
If I could stop you on that. I just want to share my first impression—that's brilliant! And, if that's all we took home from this interview David, that is huge for any company, certainly for the government, because what you did was, you isolated the issues.
Because we've all been there, right? But you took the time to invest into looking at their contract and what yours was and showed the differences. You lined up that you were 90% basically on the same page and showed it, right? You cross-referenced it and you isolated the issue of 10%, then posed the question “Do you want to go over the whole thing, or should we focus on the 10% where we differ?” And the latter is achievable. So, I think that's brilliant. Just good stuff. Really good stuff.
I appreciate that Tim. And, we did the same thing on the customer side.
CASE STUDY: ISOLATING THE ‘10% ISSUES’ WITH A FOREIGN GOVERNMENT
I won't name the foreign government, but it was the same thing here. Our customer found some additional funding. They wanted to buy some products. And the business unit I was supporting, the financials were off a little bit. So, we're like, “Hey, this will help us obviously increase sales.” So they send three of us over to negotiate. And before we went, I called the insurance guys, I talked to others, I said, “What are the issues we've always fought?” And they had two issues, but one was paramount, which is a limitation of liability. So, we go into this meeting, they've got senior staff, government staff there from their military.
And I said, “Before we can get started, =this= is going to be the issue: We fight about all this stuff and it’s noise. We can simplify it. We're going to fight over this one issue and here is going to be the problem. I can't sell you this product without a limitation of liability. You don't want to grant it to me, but this would go through a foreign military sale. You don't have an agreement right now with the government or the US government, so technically there are certain parts you can't even buy. So, I'm not even selling you a full product. I'm really selling you a bag of parts. And I said, just think about it, you go to a toy store for your kid, and you buy an incomplete kit and batteries are required, but they don't include the batteries. But you’ve got to get government permission to go buy the batteries.”
“That's really what you're buying here. So are we going to fight about this or are we going to recognize that you can't get a complete product without US government approval, which you don't have yet? You're seeking it and we're not going to sell it to you without the limitation of liability. But if you have US government approval, you would have a limitation of liability. The government would give it to us, and you in turn would have it. So, we're fighting over noise.”
We ended up actually doing a deal as you do with your car when you take it to a garage. So, we convinced them they could save money. I'm not going to ship an unassembled product to you, and then you have to send it back to me.
Let's just recognize we're fighting over noise. And once they accepted that, they said, “You're right. Why are we arguing over all of this other stuff that will fall into place the way price and quantity do?”
So, we focused on the real issue. About six months later they got the foreign military sale approval. They came back a year later and said, “We found more money <laugh> and we want to do it again.” And so, we've convinced them with some other products, by stating “It's the same thing.”
So, with these other products, they knew right off the bat, “We know what Boeing's issues are; we understand where they're coming from.” And it made that conversation easier as well. I think so often we get wrapped around noise, and people either want to be able to demonstrate or say, “ I won.”
And, if there's an aggressiveness or there's some hostility, maybe from a prior negotiation, versus just saying, “What is the essence that we need to agree upon? And I always joked around when I was acting as a lawyer by saying, “I'm a divorce attorney,” because I used to practice bankruptcy law. And so, I always say “What happens when the relationship goes bad?” Usually, the business development people, everyone, is initially happy. They're shaking hands, <laugh> and it's always positive on the front end.
IDENTIFY & EXPLAIN THE ISSUES SO AN 8-YEAR-OLD UNDERSTANDS THEM
You go in to negotiate something, then there's a dispute. And the wording in the contract isn't clear. People didn't lay it out. There were certain assumptions that weren't put to paper. And you end up fighting over it. I like to focus on, “Let's really discuss the issue of the fight.” And if we can address that issue so that we can clarify what things mean absolutely—so that we don't have to assume we've got terminology in there or acronyms we haven't spelled out—such that an eight-year-old can understand it, then, this is great and we're all happy now.
In two or three years when we've moved on to other roles, we're going to be called back and memories are fuzzy. And, so let's just address this now and boil it down to the essence of what we think the fight will be, get clarity on it, even if we don't agree on it, let's put a procedure in place that we can talk about. This is what the parties assume and here's how they want to handle a dispute on this issue. And it makes it so much easier. Then when you get to that point, people would say, “Oh good, someone thought of this, and we don't have to spend the mental calories arguing about it. We've already got something established.”
The two examples you just shared: In the first one, you performed the meeting before the meeting.
Basically, you knew from your experience what the issue was going to be in advance. So, instead of waiting for the meeting to start and trying to tackle the whole problem on the front end, you actually isolated the issue and did the advance meeting. And before you got started, you were able to do the research, isolate the issue, and take care of that.
Secondly, the next point that came through was, you made the statement, “We're going to discuss this so a grade-school person could understand it.” I've spent a lot of time in business development. It's the honeymoon period; everybody's getting along great. But to actually take the time to go through the agreement and spell the examples out in very clear English, not only if you have to come back to the table later, but those new people that may now be trying to interpret the contract—if it's laid out in that detail, with simple English, all have had a better opportunity to come to an agreement.
That's excellent and great advice. So, David, I thank you for those two examples because they are well worth the time for this interview. And as I I shared with you, they are going to take individuals down a pathway of thought. I can see those examples as we approach this whole goal of knocking down the silos in the next step to try to make a change in our current process. That mindset and those processes certainly will lend themselves to it.
Going forward, the big pink elephant in the room: We want to make big change. We've got a national security issue. Obviously, we understand that we do well in wartime when we have to speed things up. But as it's been laid out by many, we're facing threats in 2027. Now is the time to get prepared, not 2027, if that does in fact happen.
So say you've got a blank canvas before you and your paints are your experiences. How would you go about it in terms of affecting change that would be lasting and could actually get us across the goal line for more Speed to Contract, Speed to Market?
START AT THE TOP AND BUILD TRUST
I would say the tone always starts at the top. And really you would need to get the head of an agency, the lead of one of the service branches, and those at the top of Boeing, or one of our competitors, and they would have to have a meeting of the minds. That sometimes happens, but then they assume it has filtered down through the ranks and it's at the negotiation level and commander's intent and it will be done. And usually, it's like the game of telephone: You whisper in someone’s ear, and you come around the circle, and the original message is so garbled, it's not recognizable. So, I would say if you really wanted to have change, start at the top, and recognize that you're going to have to trust, first and foremost.
ONCE THERE’S TOP-LEVEL AGREEMENT, HAVE MANAGERS IMPLEMENT
As I said at the conference, we have to assume that our government and our partners want the best for the warfighter, and they want a healthy defense industrial base. At the same time, they have to recognize, “Yes, these industrial companies want to turn a profit, but they also want to support the warfighter, too.”
And those notions are not mutually exclusive, but then they have to filter down. And the easy way to filter down is to have the leader of one of the services, the contracting side, and one of the defense leaders sit down—and have the people who've been negotiating be there with them. A small meeting won’t do it.
Some ideas are thrown around, and they agree, but they don’t assume it's all done. Actually have the working teams that are hearing the message check in with the senior leaders, so that every two weeks, four weeks, there's a report out that states, “Here’s where we are on this.”
Then the implementers have their standard meetings. Now, obviously, that means time and everything else that entails, but that's the way you are going to drive the trust that’s necessary because everyone knows the senior leaders are agreeing on the message. We are in the room, we're hearing the message, and then you go forth.
WHEN TRYING TO AFFECT CHANGE, THE ISSUES ARE THE SAME ON BOTH SIDES
I think the problem really boils down to a couple of issues. First, everyone's afraid, and I talked about this on our customer side. There's going to be a congressional hearing and you're going to have the supplier that's making too much. And they’re saying, they've got a markup of 500% or 600% on a part, and they're ripping off the taxpayer. So there's a fear that if I work with the supplier, or the OEM and I try to get something, there's this thought in the back of the person’s mind saying, “I'm going to get blamed or it's going to impact my career; it's going to affect my warrant.”
So, their reaction is, “Let me not go there.” And then on the business side, obviously the concern is, “If I don't get it done, I have long-range business plans, certain internal targets.” And then we're both saying the same thing.
And we've not sat down to translate and say, “We're saying the same thing.” When I joined Boeing, the gentleman who hired me into the law department asked me what my familiarity with the FAR was. And I said, “Well, I've seen it once. But if you want someone who's an expert on the FAR, that's not me, it's nice meeting you, and we can go our separate ways. But I do know the Uniform Commercial Code, I was part of a working group for Article Two on sales. And when I look at the FAR and I look at the UCC, there's a lot of commonalities.”
LEARN WHAT ‘COMMERCIAL’ IS. THEN CONTRACTORS AND OEMS CAN MOVE FASTER
In different spots, we call it different things, but the concepts are there. And I think we have to learn to sit each other down and have that dialogue, that openness, that trust.
So as an example, when you deal with one commercial item or another, that's the hot topic of the day. Because the government, or at least Congress, presumes that's going to move things faster. But you've got a lot of people in the government who don't really understand what commercial is, but they have the FAR and it's deep and a warm blanket that gives them comfort. They know exactly what it is. I put these requirements in there and you have to give me this stuff. You have commercial entities and defense OEMs who say, “But I can't move as fast, as all these regulations are in here.”
GOVERNMENT SHOULD LEARN COMMERCIAL ANALYSIS
When a contracting officer looks at a commercial item or what we are promulgating and they're doing their analysis, they're not necessarily trained to do that analysis. They're not necessarily trained to understand what the market is going through. The first question I would ask is, “Rather than show me all this data and show me prices paid by someone else, can you show me how your folks analyze the market because you don't set price according to cost.” We set price according to what the market will bear. “If you demonstrate how you set your market up and what you view that as, that'll give me a greater understanding on the government side of how I should be analyzing this because you've set up a particular method.”
THE COMMERCIAL SECTOR SHOULD UNDERSTAND GOVERNMENT NEEDS
Likewise, we need to understand the government side. “They've got to do certain analysis. How do I help them do the analysis? And how do I understand when I'm not providing sufficient data to them and just saying, ‘Well, the pricing's the price.’” They don't have comfort.
Eventually, they have to resort to, I think it's step eight, which is, “Show me your costs, and other than certified cost and the pricing connection.” Again, we talk past each other. We really need to have senior leaders sit us in a room, and give us the message. The teams will stumble a little bit, but eventually, they'll figure it out because they'll get corrected by the leaders and the leaders will say, “That's not what we intended.” And they'll find a way to come to some agreement to say, “Okay, it's there.”
HOW TO BUILD A STANDARDIZED CONTRACT PROCESS THAT WORKS FOR ALL
I personally think OTA authority is perfect. And a lot of people say it's not. It's not magical, but there's actually an application for the service acquisition executive when they say, “It's exceptional circumstances, so it’s innovative business models or something else.” So, if I were a service leader, I would pick a $50 million procurement, give or take, something that's meaningful, and then list “these are the five or 10 things I want to get out of it.” The business, the OEM that I'm going with—have them say, “These are the five or 10 things I want to get out of it.” Have some conversation about the metrics and how we would view success. Try it.
WHAT ARE THE LESSONS LEARNED FROM THE EXPERIENCE?
And then afterward do a hotwash on it, do a deep dive. Go back and ask, “What did we get wrong? What assumptions did I make that didn't pan out on both sides?”
Not, “Well, you made too much profit,” or “I made too little.” Or “You low-balled me, and I've got a loss.” That may happen. But I think the wonder of working together, is that you come to realizations that can sound like “Okay, we can move past those hurdles, we can adjust.” And have the teams then go back, look at it, look at the assumptions, have those leaders involved again, and say, “Okay, now we're going to do it again and we're going to repeat and we're going to tweak it to how our assumptions didn't pan out.” And you do that a couple of times. Eventually, you build a model that makes a lot of sense.
Now you can talk about a much longer-term relationship. And so rather than a one-year contract or buying X number of widgets, you can say, we're going to fund this for five years.
We're going to get authority and I may not like this price now, but I want to get to =this= price. You have the contractor give a burndown plan that says how you got there and what you need me to do to help him get this price down to something that I think is acceptable. I as the contractor, say, “Government, here are some things that you're doing to my business practices. If you're asking for information beyond what is necessary if you're changing quantity or different requirements, if you're adding things on … let's get it out there.
PUT A LEGAL EXPERT IN THE ROOM FROM THE ONSET
And then as an added twist, I would involve the DCAA and DCMA from the onset. And not to put them in a position where they're saying “yes” or “no” upfront, but so that they can say, “We are all going to look at this in two or three years.”
“You're going to have certain objections. What are the concerns you have right now, about how we've spelled out this deal? Let us tweak it so we can at least alleviate your concerns.” Now, this doesn't mean we eliminate them, it doesn't mean you're not going to audit, or go through and manage the agreement and find problems. We hope you will because that's pressure-testing it. But at least we get you involved early and have you say, “Yes, if you do this, you tweak it here a little bit, I can see that working.” And we can use that as a guide to then say, “Okay, we're going to work to it.” And when that eventual audit happens, you say, “Okay, what did we get wrong?” And frankly, a lot of times it's stuff that simply wasn't documented well.
WHEN PEOPLE MOVE ON, THE CONTRACT IS STILL EASILY UNDERSTOOD
We didn't spell out certain things or expectations. We didn't have certain metrics on how we would do some of the accounting, or how we would measure elements. And then usually people have moved on, but everyone is smart and everyone in their mind, at the time, said, “Yes, that makes sense.” But again, boil it down so that an 8-year-old can understand it. My wife's attorney’s nephew is nine, and it's like I want to be able to hand it to him <laugh> and have him read something and say, “Yeah, I know what they're talking about.”
Now there may be some terminology and some big words that are above his pay grade, but at least have him nod to a basic understanding. And I think if you can distill it down to that, then you're communicating effectively with each other and you can hand this to anyone and they can manage a contract, they can manage the relationship and they can understand what the expectations are.
Wow, that's great advice. It's a throughline certainly of what your experience has been and how you found success and apply that in the future. And I love the thought process, again of going back to the agreements and the words.
Because words are important. And getting everybody in the room and gaining an understanding of going through a process together and then adding those individuals mentioned so that they can understand and give input along the way. So you're isolating the issues, setting the 90% aside that everybody agrees on, but with the right language and then with the tough 10%, really doing a deep dive on that to get a line down to get started with an opportunity.
Good stuff. David, this is great. I trust that you'll join us as we continue the conversation. Your experience and your input and your ability really to synthesize these difficult issues down to an English that we can understand is a good thing. And if I can understand it, I believe most of our listeners can understand it as well. As a moderator, obviously, I don't have the experience that you do, but your business experience comes through and certainly, the communication side of it makes all the sense in the world. So I want to thank you for taking your time and look forward to keeping you included in the conversation as we move forward.
I appreciate it Tim, thank you very much.