WASHINGTON — The Army’s recent announcement to award Anduril a 10 year, $20 billion ceiling contract raised some eyebrows, and not just for its shocking price tag, but also because of the way the contract was laid out.
The award, which was a firm-fixed-price contract to “consolidate current and future commercial solutions,” is the latest example of an enterprise licensing agreement — a fairly unusual, more flexible arrangement that an expert and two former officials said can be a sound approach that helps speed services to the force. But it could also come with risks to innovation and potentially less stability even for the winners themselves.
The service has awarded 14 such contracts, consolidating 118 separate contracts over the last eight months, resulting in an 88 percent reduction in the total number of contracts, according to an Army article published in early March. The service plans to keep up the momentum in awarding such types of contracts, Michael Obadal, under secretary of the Army, told reporters at the Global Force Symposium March 24.
“I think in the past eight months, I think it’s about 15 Enterprise License Agreements that we’ve signed, I think you would see that same pace for the next, for the remainder of the year,” Obadal said. “That should be an indication that this is a tool that we believe in, from a centralization of contracting to save probably 10s of 1,000s of hours in a year, as well as centralize the negotiated price for essentially things that are commodities, hardware and software.”
Besides the Anduril contract, another high profile ELA was awarded by the Army over the summer to Palantir for a 10-year, $10 billion enterprise agreement.
Moving Faster
The draw of ELA arrangements is they essentially provide a financial and contracting structure in which the Army isn’t buying the same thing several dozen different ways with various pricing and contracting teams, while also improving transparency, according to Danielle Moyer, executive director of the Army Contracting Command at Aberdeen-Proving Ground, who spoke about ELAs at the time of Palantir’s award.
To an extent, the experts and former officials who spoke to Breaking Defense agreed.
“It’s really taking a lot of disparate existing contracts and consolidating them into one agreement with [a] higher ceiling to enable them to handle it a little bit more consistently across the board,” Gabe Camarillo, former under secretary of the Army, told Breaking Defense. “There were multiple instances in which the Army, through separate organizations, had contracted with the same vendors for multiple instances of either commercial software or specific enterprise tools. To consolidate them into one particular enterprise agreement, in many cases, can save time and money.”
A former senior Army acquisition official said they recalled a few instances where a company was on contract in multiple places across an organization but under different agreements, leading to inefficiencies from a pricing and software licensing standpoint, and even multiple renegotiations of separate agreements that led to the Army not getting its money’s worth.
Now, these agreements allow the Army to collapse these multiple agreements for better oversight and overall efficiency. In the case of Anduril, officials noted there were 120 different contracts with the Army that have now been collapsed.
To date, most of these deals have centered around software, which former officials said made sense. However, the Anduril deal pertains to hardware as well, according to Anduril executives.
Risk Of The ‘Easy Button’
ELAs are not necessarily a novel approach. Camarillo pointed to prior efforts such as the years-old Computer Hardware Enterprise Software and Solutions (CHESS) where a handful of vendors on a master list could be onboarded.
But there remains some worry about how these contracts will be implemented and whether it gives officials an incentive to stick with an already-signed vendor over a potentially better outside option.
“Over time, while you’re moving fast and achieving some scale initially, if you don’t account for the natural tendencies when it comes to organizations to just push the easy button, so to speak, you could actually see it where you become less innovative,” the former acquisition official told Breaking Defense on the condition of anonymity. “For the long-term health of the industrial base and the long-term path to ensure that you’re able to rapidly adjust to innovation and adopt it, I don’t know, I’m a little more skeptical when it comes to that, quite honestly.”
The Army has maintained these arrangements will remain competitive. But the other side of the coin is ensuring there is incentive for industry.
“I think the proof will be in how profitable is it for industry? And how cost efficient? And is it effective for [the] government?” Alek Jovovik, deputy director of the Center for the Industrial Base and senior fellow in the Defense and Security Department at CSIS, told Breaking Defense. “You’ve got to be able to satisfy both of those sides to really want to see these happen over and over again, and I think we’ll see how this plays out.”
Similarly, Camarillo noted that it will be important to see what is budgeted from year to year, given the amount of funding could vary or be smaller than anticipated despite the large ceilings.
Further, Jovovik said that industry will need to be “agile” to survive under such contracting mechanisms as their flexibility could equate to inconsistency in demand.
“From an industry perspective, you’ve got this great opportunity, you’ve got a broad portfolio of items, so you need to now be prepared to deal with what could be fluctuating demand over time and over the various things that you’re providing,” he said. “You just have to be agile to be able to deliver those without knowing.
“Remember, one of the benefits of the other contract types is that you have a very clear path and you can plan, and you can structure the contract in a way that makes sense for you,” he said. “These enterprise contracts are going to require some agility, because you may not have a lot of lead time.”
All in all, the former official noted that it is likely too early to tell how successful the approach will be, and it could take a few years before trends reveal themselves.
“The tendency is going to be measured how many task orders, how fast were they moving and how many of the dollars were obligated,” the ex-official said.
“It would not surprise me if you start to see just little clusters of the same people getting the same work,” they added.
