Defense Spending Hero

Defense Spending: A Smarter Approach to Securing Competitive Pricing

When it comes to military defense spending, it’s a mistake to overrely on so-called actuals—suppliers’ historical cost records—to assess price reasonableness. BCG helps defense and security agencies take a far more strategic approach.

Defense and security agencies procure products and services essential for fulfilling their missions and for navigating a landscape marked by stiffening competition from other global powers. They face a tough mandate: maximize capabilities and readiness through smart defense spending while also reducing costs.

To determine if proposed pricing for a product or service seems reasonable, buyers can analyze contractors’ actuals. Though the use of actuals isn’t inherently wrong, serious flaws in their analysis can ultimately cause costs to increase over time.

For instance:

  • A contractor’s historical costs can be riddled with inefficiencies that get incorporated into future proposals.
  • Suppliers can cherry-pick expensive time periods, complex and irrelevant tasks, or unnecessarily expensive labor rates to justify high cost estimates.
  • Contractors are incentivized to keep costs higher over time, especially in the absence of competition. In particular, maintaining a higher cost base during earlier phases in a program can provide a significant profit cushion under future production contracts.
  • Actuals tend to reflect a supplier’s internally focused perspective on costs instead of a market-based view. In a single-source environment, this can eventually cause a growing divergence from what a prudent person in the conduct of competitive business should pay.

BCG’s defense spending consulting teams help procurement teams apply a rigorous approach to avoid these—and other—perils inherent in the actuals-analysis process. The result? Buyers can increase the odds of securing the most competitive pricing for every product or service needed to strengthen their capabilities and readiness.

How BCG’s Defense Spending Consulting Teams Help

BCG helps military defense spending clients get the best value for their money over time by analyzing contractors’ actuals and future estimates through a critical, market-based lens.

Our approach centers on three key areas of opportunity:

Meet Our Defense Spending Consultants

Public Sector