The Department of Defense (DoD) last week released the annual performance review of the DoD acquisition system.

Initiated last year, this year’s report “provides a review of the efficiency of incentives in improving costs and performance as well as updating earlier analyses with more recent data,” according to a press release issued at the pentagon.

The report provides includes background material on acquisition budgets and trends, analyzes performance outcomes by commodity type, military department, and by prime contractor, and discusses insights and lessons learned.

The review focuses on incentive techniques (contract types, profits, fees, etc.) used by organizations in the acquisition process. It placed special attention on how effective the incentive techniques are in controlling costs, schedules, and technical performance.

Frank Kendall, Under Secretary of Defense for Acquisition, Technology, and Logistics, noted in the report that analysis is showing that not all the incentives being used work. For example, the report concludes that contractual incentives are effective only if “they are significant, stable, and predictable and they are tied to our [acquisition] objectives.”

The report notes that the use of either Cost-plus or Fixed-price contracts is not clear cut when evaluating their effectiveness. Not all cost type contracts effectively control costs. And, while fixed-price contracts can effectively control costs, evidence shows that they should not be considered the “magic bullet” that solves all acquisition problems.

It is not the type of contract that necessarily controls costs the report concludes. Rather, incentives that link profit to performance, control price, and share costs savings are the best determinants of the effectiveness of controlling costs. The findings from this analysis may lead to a wider variety of contract type, Kendall said.

Kendall called uncertainty about defense budgets the primary obstacle to improving the efficiency of the defense acquisition process. He said that sequestration is the main driver of this uncertainty.

He also cited declining budget levels as having limited the number of opportunities to achieve more effective competition. But, he said many opportunities still remain especially in the area of improving tradecraft by the acquisition workforce in acquiring services. He said DoD has done much to educate and train the acquisition workforce to be creative and think critically. Current analysis is looking beyond that however, seeking to determine correlations between workforce factors—technical background, certifications, and experience—to program outcomes..

Kendall said much progress has been made to improve DoD’s acquisition process, but much work remains. He cautioned that “defense acquisition is complicated and varying and there are no simple ‘schoolhouse’ solutions that should be mandated.” The performance report and its findings provide “fresh insights into what generally works in what circumstances, and why,’ he stressed.