WASHINGTON – Lockheed Martin’s aircraft, information systems and missile units and BAE Systems’s electronics unit are among the Army’s and Air Force’s best- performing suppliers, according to the services’ new rankings.
The Army and Air Force ratings follow a Navy ranking last June in the Pentagon’s Superior Supplier Incentive program, which is intended to prompt the best performance from contractors. There is no immediate financial benefit or relief from regulatory oversight for the most highly ranked companies.
The contractor ratings are a key tenet of the Pentagon’s “Better Buying Power” initiatives launched in 2010 by then- Defense Secretary Robert Gates. They are intended to reduce weapons costs, streamline the weapons-buying bureaucracy and provide incentives for companies to improve their internal processes.
“It recognizes the better performers,” Frank Kendall, the Pentagon’s top weapons buyer said in an interview. “They get recognition— the ones that are performing at the top end. And I think it’s useful for the companies not at the top end to understand where they are and to benchmark themselves against others.”
The ratings will now be released annually and likely used by corporate boards to demand better performance and in compensation calculations, Kendall said.
“I think this is something investors will be interested in” although “I don’t think it will outweigh financial performance,” Kendall said. None of companies listed in the rankings released Monday was notified in advance.
Other “Tier 1” Air Force suppliers of the 13 selected include: Boeing’s commercial aircraft unit; Sparks, Nevada- based Sierra Nevada, an electronics firm; United Technologies’ Pratt &Whitney unit; Northrop Grumman’s information systems sector; General Dynamics’ aerospace unit; Cedar Rapids, Iowa-based Rockwell Collins Inc.’s commercial systems unit; and Rolls Royce Holdings.
The Army’s 11-company list includes: Chicago-based Boeing’s global services unit; Harris Corp., a Melbourne, Florida-based telecommunications firm; Science Applications International Corp.’s research unit; General Electric’s aviation unit in Evendale, Ohio; and DRS Technologies, a unit of Finmeccanica, based in Rome, Italy.
The recognition carries no tangible benefits now.
“We can’t give anybody a competitive advantage directly, and we can’t give anybody money directly, but there are other things we can do which I think are of benefit to the company and the service,” Kendall said. “That’s a work in progress.”
Various rewards that don’t require revisions to federal acquisition regulations, such as accelerated progress payments, are under discussion between the Navy and its top-tier suppliers, Kendall said.
Still, the publicity value to a unit being named to the top tier and the subsequent employee morale boost is a plus, said Army acquisition chief Heidi Shyu.
Achieving Tier 1 status meant the business unit met a “high bar,” she said. “Business sectors are very competitive.”
The manager of a lower-ranked unit “is well aware of that and highly motivated to do something about it,” Kendall said.
Kendall recounted one executive of a Tier 3 unit in the Navy evaluations who said: “‘We didn’t do very well, and I now have to explain to my board why I’m not at the top.’ And I thought ‘Yes, that’s what I want them to have to do.’ “
Air Force acquisition head William LaPlante said in an interview that corporate boards likely will use the rankings in compensation decisions. They also may serve as a reality check for corporate heads hearing from unit managers, he said.
“When you are inside one of these organizations, you may pitch that your customer loves you. And it may be true, but when you have external data that suggests how you are rated, it at least provides some control over the narrative” inside a company, he said.
Kendall, Shyu and LaPlante stressed that Tier 3 business units should not be viewed as having major problems.
“They are not performing at the top level of their peers,” said Kendall. “That doesn’t mean necessarily there are problems.”
All the business units were assessed using government-wide “Contractor Performance Assessment Reporting” system reviews completed from fiscal 2011 to 2013, with the last year carrying the greatest weight. Execution issues with one major program can skew the business unit’s overall rating into Tier 3 territory, Kendall said.
Evaluating the Pentagon’s contractor force by business unit rather than overall corporation meant that, “It’s possible one unit comes out well with one service and not so well with another,” Kendall said.
The Air Force’s 15 Tier 3 units include: the Lockheed Martin-Boeing United Launch Alliance’s United Launch Services unit; Textron Inc.’s systems unit; United Technologies’ Sikorsky Aircraft; BAE Systems’ intelligence and security; Northrop’s technical services; Raytheon’s missile systems and intelligence, information units and Exelis’ electronics and information units.
The Army’s 14 Tier 3 units includes its biggest wheeled and combat vehicle makers: Oshkosh; General Dynamics’s combat systems; BAE’s land &armaments subsidiary. It also includes Boeing’s network &space systems; Linden, New Jersey-based Alliant Techsystems’ defense group; Textron’s Bell Helicopter and systems units, and Honeywell International Inc.’s aerospace unit.
Raytheon’s missile’s unit also made the Army’s lowest tier.
Being placed in Tier 3 indicates that the supplier has programs that are behind schedule or over costs, Shyu said. The ranking is a signal for the supplier to perform a “dive deep into programs to see what’s the root cause,” Shyu said.
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