Using Indefinite Delivery Indefinite Quantity (IDIQ) contracts in Security Cooperation (SC) purchases can help meet U.S. defense objectives.
IDIQ contracts reduce costs and streamline the contracting process. This often speeds delivery of major end items to partner nations (PNs), which allows PNs to remain interoperable with the United States. IDIQ contracts already are a large part of defense contracting, now accounting for nearly half of all DoD contracts.
The 2018 National Defense Strategy (NDS) stated that the main priority of the Department of Defense (DoD) is the long-term strategic competition with China and Russia. Both countries pose a threat to U.S. security and prosperity. The DoD will pursue three lines of effort to expand the competitive space and challenge its competitors:
- Build a more lethal force
- Strengthen alliances and attract new partners
- Reform the DoD for greater performance and affordability
The DoD emphasizes extraordinary performance, which can complicate providing prompt decisions, policies, and Warfighter capabilities. U.S. global influence, cohesion among allies and partners, and access to markets are at risk if the DoD does not meet the defense objectives. Increased utilization of IDIQ contracts among SC purchases will help the DoD achieve two of the “lines of effort” listed in the 2018 NDS: (1) Reform the department for greater performance, and affordability; (2) strengthen alliances and attract new partners.
Single- Versus Multi-Award IDIQ Contracts
According to the Federal Acquisition Regulation (FAR), IDIQ contracts can be used to provide an indefinite quantity, within stated limits, of supplies or services during a fixed period. There are two types of IDIQ contracts: single-award and multiple-award. Single-award contracts are granted to a single contractor under one solicitation. Multiple-award IDIQ contracts are granted to two or more contractors under a single solicitation. While the FAR prefers multiple-award IDIQ contracts, numerous Government Accountability Office (GAO) reports state that the majority of IDIQ contracts are single-award. In either instance, no funding is placed on the initial contract. However, there is a minimum purchase amount and a not-to-exceed amount.
Prices can be negotiated at the IDIQ base contract level or at the order level or both. If services or supplies are well defined, prices are negotiated at the base contract level. If services or supplies are less well defined, they are negotiated at the order level. This allows for greater flexibility in pricing and budgeting.
Ordering against a single-award contract differs slightly from ordering against a multiple-award contract. When an order is placed on a single-award contract, the contractor fulfills the task order in accordance with the contract. The amount charged to the purchaser will be based on the contract terms. If some of the pricing has not been pre-negotiated, it will be negotiated when the order is placed. When an order is placed against a multiple-award IDIQ contract, it will be competed through the fair opportunity procedures among the various contractors.
DoD Reform for Performance and Affordability
The U.S. Government works to be good stewards of taxpayer dollars. The 2018 NDS calls on the government to spend every taxpayer dollar on defense in the most effective manner possible. In the realm of Security Cooperation, in accordance with the Security Assistance Management Manual (SAMM), the United States procures for its PN in the same manner as it does for itself. Therefore, the United States needs to be a good steward of PN funds as well. In order to reform the department for greater performance and affordability for the United States and PNs, the NDS lays out three elements of focus: deliver performance at the speed of relevance, organize for innovation, and drive budget discipline and affordability to achieve solvency.
Deliver at the Speed of Relevance
To deliver performance at the speed of relevance, the United States needs to prioritize timeliness. The NDS states that new technologies come late to meet our needs. IDIQ contracts can help to achieve faster delivery times. In a typical security cooperation procurement scenario, a PN has a requirement via their Letter of Offer and Acceptance (LOA). This requirement results in an order being placed. To fulfill the order, a contract is required. The contracting process includes but is not limited to:
- Drafting a request for proposal (RFP)
- Waiting for companies to respond
- Performing technical evaluations of the proposal
- Requesting information at multiple iterations
- Ensuring product support
- Considering configuration management necessities
- Considering systems engineering specifications
- Negotiating to ensure fair and reasonable pricing
This can be a long process, taking 6 to 12 months or more for major weapon systems. Once an agreement is made, contractor work may begin. With a single-award IDIQ contract, a majority of the negotiations, if not all, have taken place before the order. With the use of an IDIQ contract, a PN has a requirement on its LOA, an order is placed on the existing IDIQ contract, and work from the contractor begins immediately. The negotiation timeline is reduced significantly or altogether, depending on the terms of the IDIQ contract, resulting in an earlier delivery to the PN.
Organize for Innovation
As the NDS states, the DoD’s structure and processes constantly evolve. Organizations must be adaptable to provide the best support. Processes and organizations must be streamlined to advance innovation. Reducing or eliminating the upfront negotiations via a single-award IDIQ contract streamlines the initial ordering process.
The process for multiple-award IDIQ contracts also is streamlined by reducing the number of competitive bidders on a an RFP. Case closure can be shortened where IDIQ contracts are used rather than traditional contracts. Orders on IDIQ contracts can be closed out after the final payment is made instead of waiting until the entire contract is complete. This allows the LOA lines with complete orders to transition onto closure.
Drive Budget Discipline and Affordability
Some PNs may have difficulty with large purchases depending on the country’s internal budgeting process and budget cycle. IDIQ contracts may assist PNs with budgeting. IDIQ contracts may result in more affordable purchases for the PN. Contractor fees for service can be pre-negotiated in addition to some of the items purchased through the contract. By leveraging economies of scale, the PNs save costs on an IDIQ contract with many PNs involved as opposed to individual contracts for each PN.
Strengthen Alliances, Attract New Partners
The United States has always valued our relationships with our PNs dating back to World War II; however, the value of these relationships became even more apparent after the 9/11 terrorist attacks. Our allies supported the United States during our time of need. These alliances have proven to be critical for the success of both the United States and the PNs. The NDS addresses two elements of focus in effectively strengthening our alliances and the ability to attract new partners: We need to (1) expand regional consultative mechanisms and collaborative planning, and (2) deepen interoperability.
Regional Consultation and Collaborative Planning
The traditional contracting process upon LOA implementation is roughly 6 to 12 months or more; however, utilizing an existing IDIQ contract removes the contracting delay. The streamlined process attracts new PNs who often demand that their assets be delivered expeditiously.
The NDS emphasizes the importance of developing new partnerships. Building up partnerships and alliances increases defense cooperation globally. Increasing our base of PNs purchasing items of common configurations through IDIQ contracts strengthens alliances, builds relationships, and deepens interoperability.
Deepen Interoperability
This is not only a strategic objective of the NDS but a main goal of Security Cooperation. The United States prioritizes increasing the capabilities and self-sufficiency of our allies, and also stresses the importance of the PN compatibility with U.S. systems. The PN’s compatibility with the U.S. systems is extremely important for assisting in peacekeeping and even for conflict operations. IDIQ contracts support interoperability by delivering items in a timely manner and assisting maintenance of PN interoperability.
Successful IDIQ Contracts
Current programs, such as Cartridge Actuated Devices/Propellant Actuated Devices (CAD/PAD) and Parts Repair and Ordering System (PROS), have provided PNs with support for their major weapon systems by utilizing IDIQ contracts successfully for years. Recently, the F-16 office awarded a first-of-its-kind IDIQ contract for the entire weapon system valued at up to $62 billion. This contract award has the potential to be a pioneer for future major system buys within SC.
Cartridge Actuated Device/Propellant Actuated Device
(CAD/PAD)
Long lead times have always been a concern when it comes to CAD/PAD items. PNs have expressed concerns for many years regarding not only the length of time it takes to put a requested asset on contract but the time to deliver the asset upon contract award. The unpredictable lead times present a challenge for the PN to project the demand of the assets as well as budgeting for the assets. Some U.S. officials knew that they needed a solution to benefit both the United States and our PNs. The U.S. Air Force (USAF) CAD/PAD office explored various solutions and determined that IDIQ contracts were the best fit for procuring CAD/PAD. They knew that this might be a hard sell to the vendors, contracting personnel, and various shareholders, so they decided to start small with a single vendor and attempt to transition several assets to IDIQ contracts for a possible three-year period. This proved successful in many ways: shortened lead time for contract award (360-day award period reduced to 15 days), PN cost savings, vendors allowed to project capacity and staffing required, and fewer Defense Contract Management Agency (DCMA) inspections. Due to the overall success of the IDIQ contracts, the office is beginning to transition other assets to IDIQ with even longer option years (three to five years). The future of CAD/PAD for the USAF is IDIQ.
Parts Repair and Ordering System (PROS)
IDIQ contracts have been utilized for decades on the PROS program, which is set up to procure those hard-to-find, nonstandard items for our PNs. These typically are items not in the DoD inventory. PROS is currently operating on its fifth IDIQ contract, and each contract has slightly different terms.
The PN can purchase through the program as long as it has a line on its LOA for the item it orders through PROS or a PROS-specific line. If a PN or Building Partnership Capacity (BPC) case has some funding, the money will be lost if it isn’t used. The PROS IDIQ contract is a great option for the PN to order items without going through the typical contracting process. Because the PROS program provides nonstandard, hard-to-find items, there can be a long lead time. The benefit an IDIQ contract for this service is that the government does not have to put out an RFP and evaluate every bid received for every order placed by various PNs.
The PROS program processes thousands of orders a month. Processing that many RFPs would be a huge undertaking for the United States (funded through the administrative surcharge) requiring many individuals of various functions to keep the program running. Utilizing an IDIQ contract allows the United States to manage the day-to-day operations with a smaller team. Part of those operations includes periodic inspections of the contractor performing the work for the program. Because of these inspections, which are similar to the CAD/PAD program, DCMA inspects less frequently and this allows a speedier closeout. Reducing the contract close-out timeline also allows the PNs to close out their LOA lines and cases quicker.
The PROS program has been utilizing IDIQ contracts for decades, tweaking the terms with each new iteration as lessons learned are realized. Prior to creation of the PROS program, the majority of nonstandard requisitions were canceled. The streamlined process with the PROS IDIQ contracts has resulted in the fulfillment of nonstandard requisitions of the PNs, which helps maintain their interoperability with the United States.
F-16 Major Weapon System Buy
In 2020, Lockheed Martin was awarded a one-of-its-kind “then-year” (including the effects of inflation or cost escalation), Foreign Military Sales (FMS) IDIQ contract valued at up to $62 billion for the F-16 fighter jet. Morocco and Taiwan were the first FMS customers to utilize the contract. The IDIQ contract offers customers the opportunity to purchase a common configuration of the F-16 and modify it to their needs. Without IDIQ contracts, it can take six months to a year or longer to work through all the steps to get a major weapon system on contract. Now FMS customers who want to procure a new F-16 can immediately place orders through the existing IDIQ contract upon implementation of their FMS LOA. This streamlines the process and results in quicker deliveries. The positive outlook on this new contract has led to discussions within the F-16 program office to expand the use IDIQ contracts. The next one may be geared toward upgrading previously purchased F16s by FMS customers.
Conclusion
Programs that have existed for decades, such as CAD/PAD and PROS, have seen great success utilizing IDIQ contracts. According to GAO, from Fiscal Years 2015 to 2017, IDIQ contracts accounted for 40 percent of DoD contract obligations, and this will continue trending upward with additional contract awards such as the $62 billion F-16 IDIQ contract with Lockheed Martin.
IDIQ contracts streamline the FMS contracting process, resulting in cost savings and earlier deliveries of major end items and support equipment to our PNs. These positive results help attract new PNs, strengthen relationships with current PNs, and maintain PNs’ interoperability with the United States.
In conclusion, the benefits show that using an IDIQ contract to procure FMS materiel helps to meet the goals of the 2018 NDS to “Strengthen Alliances and Attract New Partners” and “Reform the Department for Greater Performance and Affordability.”
Begley is an instructor of Security Cooperation Management at the Defense Security Cooperation University (DSCU) at the Wright-Patterson Air Force Base in Ohio. She has an MBA from Wright State University and a bachelor’s degree in Education from Miami University. She holds a Life Cycle Logistics Level II certification from DAU.
Dennis also is a DSCU instructor of Security Cooperation Management. She has an MBA and a bachelor’s degree in Accounting from Wright State University. She holds a Financial Management Level III certification from DAU, is a certified Defense Financial Manager with the American Society of Military Comptrollers, and completed Air Command and Staff College at Air University.
The authors can be contacted at
rachel.e.begley.civ@mail.mil and
jeannette.a.dennis2.civ@mail.mil.
The views expressed in this article are those of the authors alone and not the Department of Defense. Reproduction or reposting of articles from Defense Acquisition magazine should credit the author and the magazine.
