Defense contract management

With defense spending on the rise and increased demand for U.S. military equipment domestically and overseas, the current market climate offers opportunity to drive new revenue. However, defense manufacturing is hampered by complex, ever-evolving regulations and paperwork – mandated by the U.S. Department of Defense (DOD). Although this process has moved online, failing to meet audit and oversight requirements during a contract period – from initial bid through project reporting – can result in lost contracts. Supporting defense manufacturers with a defense contract management solution can bring transparency, efficiency, and oversight to the process, allowing government contractors to capitalize on market opportunity without compromising on compliance requirements.

The need for solutions to ease contracts and comply with regulations is evident considering the current size of the aerospace and defense (A&D) market. Figures released by the Aerospace Industries Association, the A&D market in the U.S. equals 18.8% of the entire non-food manufacturing revenue at $874 billion a year – nearly 2% of all U.S. gross domestic product (GDP). Shifting regulatory mandates can change and complicate the existing system, a recent example being the invoking of the Defense Production Act.

With defense sector growth due to recent geopolitical shifts, there’s market opportunity if government contractors can manage the burden of bureaucracy and paperwork needed to provide defense products to the DOD – an obstacle with the potential to turn a market leader into a laggard, and vice versa.

A geopolitical shift

As global military spending is set to increase at levels not seen in decades, the A&D sector is bracing for the largest change in a generation.

A shift in defense budgets can already be seen domestically and internationally. U.S. domestic spending is more than $800 billion for 2023, which prioritizes procurement of new tanks and F-35s, shipbuilding, investment in space capabilities, and the continued upgrade of the nuclear triad and early warning capabilities.

Abroad, Germany’s new chancellor is buying F-35As in response to events in Europe, while South Korea, also under new leadership, is investing in new defense capabilities. This trend’s emulated in other militaries and a large percentage of these increased budgets will be spent on U.S. hardware, increasing demand on the intricate supply chain required to manufacture these military assets and equipment and the opportunity to profit. However, these new assets must pass the same stringent U.S. compliance requirements to be exported.

Regulatory quandary

The growth within defense will have challenges. Defense assets, equipment, and services built in the U.S. for domestic use and export, such as components for an F-35, are all subject to strict supplier classification tracking, reporting standards, and compliance. This is also set against a backdrop of an Executive Order on America’s Supply Chains supporting an effort to improve supply chain resilience and protect against material shortages, which led to a DOD assessment of defense critical supply chains to improve its capacity to defend the nation.

Two specific functionalities – defense contract reporting and defense supplier management – are vital to successful contractual compliance when delivering manufacturing services to the DOD in the current climate. The two integral components of Defense Contact Management software ease the burden of heavy regulations and ensure manufacturing companies can achieve the level of compliance the DOD demands. Here’s how it works.

Tracking procurement requirements

Working with the DOD can be complex, as today’s process is paperless and uses a web-based application for the receipt and acceptance throughout a contract’s life cycle. The online process, known as the Wide Area Workflow (WAWF), has been enhanced by the Invoicing, Receipt, Acceptance, and Property Transfer (iRAPT) process. The process deals with $383+ billion of invoicing annually and has cut invoicing time by more than 50%.

It has several advantages from the previous paper-based model, allowing for better cash flow management, eliminates lost documents, and offers global accessibility and auditing. The secure system leverages technology to manage invoicing, receipts, and advanced shipping data allowing documentation submission and tracking.

Managed manually, this process can be labor-intensive, complex, leave room for human error, and cause delayed payments and other issues if done incorrectly. But the new generation of cloud-based defense manufacturing software with functionality to support defense contract reporting addresses this challenge by allowing integration to the WAWF/iRAPT Business Suite, which enables automatic WAWF data upload to government websites, reducing manual labor and accelerating payments.

As a result, defense manufacturers can easily record quality requirements at the supplier and parts levels, manage and audit quality programs, and track against those same requirements throughout the entire procurement process.

Demonstrating compliance

Supporting software is required to help automate and simplify the defense supplier classification process, where organizations must classify suppliers and report throughout a contracted procurement period. This is traditionally submitted through the DOD’s electronic subcontracting reporting system (eSRS).

Defense manufacturing software designed around these DOD classification requirements enables organizations to classify suppliers throughout a given period and surface this information during the procurement process, allowing a government contractor to calculate and set professional goals for these classifications. Once a project is underway, progress can be analyzed against goals so organizations can report back within eSRS.

With this process, suppliers can confidently meet government reporting standards, ensure project goals are on track, and meet compliance requirements. Ultimately, Defense Supplier Classification allows defense manufacturers to quickly and consistently demonstrate how they and their suppliers comply with defense services requirements.

Contracting for success

Implementing a specially designed solution for defense contract management into an existing cloud-based defense manufacturing software ecosystem has several key advantages for manufacturers. It allows for seamless integration into the iRAPT system, making contracts and invoices easy to oversee, audit, and track. It also allows organizations to classify suppliers throughout the procurement process, to clearly calculate and set expenditure goals, and automate reporting within eSRS. Defense manufacturers can be confident they have the functionalities required to unlock revenue potential in a sector witnessing a generational uptick in global military spending.

Defense manufacturing software with industry-specific defense contract management functionality is the best way to provide safeguards to ensure government compliance across a supply chain in the rapidly evolving and heavily regulated U.S. government contracting domain.

IFS

About the author: Matt Medley is industry director, A&D manufacturing for IFS.