Incentivizing An Incentive Policy

The Pentagon earlier this month agreed to draft new policies that will guide future investments at private shipyards -- which have totaled nearly $2 billion over the last decade, according to a new Government Accountability Office report -- where Navy ships are built, according to Brett Lambert, the Pentagon's industrial policy chief.

In response to a congressional investigation that concluded the Navy lacks a coherent approach to how it allocates incentives to the U.S. shipbuilding industrial sector, Lambert in a July 9 memo said the Navy agreed with the GAO recommendation for such a policy:

The Navy agrees to issue guidance on the intended goals and objectives of investment incentives, criteria for using incentives, and methods for validating outcomes. When shipyard investment is considered, it is done as a part of a holistic approach to negotiating a contract. Recognizing that there is no one-size-fits-all approach for contract incentives, the Navy's guidance will provide direction to the program managers and contracting officers while preserving their flexibility to tailor investment incentives appropriate to their particular program needs.

The GAO, in its July 2010 report published yesterday, “Defense Acquisitions: Guidance Needed on Navy's Use of Investment Incentives at Private Shipyards,” concluded:

The Navy lacks policy to help ensure it achieves goals and objectives from providing facility and equipment investment incentives at private shipyards. Absent this policy, individual program offices and contracting officers make decisions about what type of incentive to use, desired return on investments, and what kinds of investments to support. Without policy, program officers and contracting officers use different methods to validate expected outcomes and safeguard the Navy’s financial support.