Securing new Defence contracts with compliance automation technologies

There are new opportunities for aerospace and defence manufacturers on the horizon. Recent geopolitical shifts have led to a rise in defence spending across the globe, fuelling new potential business for defence manufacturers. There were always bureaucratic hurdles from the US Department of Defense for defence manufacturers to deal with, but now, new technological developments and an acceleration of regulatory change have made the necessary compliance and reporting even more of a challenge. Matt Medley, industry director, A&D manufacturing, IFS, argues that to capitalise on the new market growth and keep up with complex levels of compliance for future contracts, defence manufacturers need defence contract management procurement software that not only enhances efficiency but provides essential oversight of the whole process.

Figures from the Aerospace Industries Association show the industry accounts for 18.8 per cent of the entire non-food manufacturing annual revenue, worth $874 billion — that’s nearly 2 per cent of total US GDP, and a market that is too big for manufacturers to ignore. The anticipated growth of the A&D sector from increased defence demand following recent shifts in global international relations provides the opportunity for new government partnerships. However, this can only be achieved if the regulatory and bureaucratic requirements of the US Department of Defense (DoD) are met in full — regulatory hoops which could encumber even the most well-established manufacturer.

If aerospace and defence manufacturers fail to comply with all regulatory requirements of the contracted period, they could face significant damage to future procurement contracts. Now with the constant change in defence protocols, such as the recent invoking of the Defense Production Act in the US, complicating existing procurement systems, the need for a comprehensive contract management and compliance solution is essential.

Unprecedented times bring unprecedented opportunity

A shift in defence budgets can already be seen domestically and internationally. US President Joe Biden is reportedly considering increasing domestic spending to over $800 billion for 2023, which will prioritise the procurement of new tanks and F-35s, shipbuilding, investment in space capabilities, and the continued upgrade of the nuclear triad and early warning capabilities.

Global defence spending is set to increase at rates unseen in this generation due to the unprecedented level of recent geopolitical change, so the aerospace and defence industry will need to prepare for the implications of such great shifts, especially an increase in procurement and contractual protocols that manufacturers must follow.

Germany’s new chancellor is looking to buy F-35As in response to events in Europe, while South Korea, also under new leadership, is investing in new defence capabilities. This trend is emulated in other militaries and a large percentage of these increased budgets will be spent on US hardware — meaning the demand on the intricate supply chain required to manufacture these military assets and equipment will increase, as too will be the opportunity to profit. These new assets, however, must pass the same stringent US compliance requirements in order to be exported. 

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The compliance conundrum

The market opportunity presented by global growth in demand for defence products will certainly provide fiscal benefits to defence manufacturers, but it will also come with a new set of challenges, namely an increased volume of compliance conditions, alongside the burden of increased production.

Defence assets, equipment, and services that are built in the US both 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 introduced to support an effort to improve supply chain resilience and protect against material shortages which led to a DoD assessment of defence critical supply chains to improve its capacity to defend the nation.

There are two specific functionalities that are both vital to successful contractual compliance when delivering manufacturing services in line with the US DoD in the current climate — both of which will ease the burden of heavy regulations and ensure manufacturing companies can achieve the level of compliance that the DoD demands. Defence contract reporting and defence supplier management are two of the integral components of the defence contact management software that will enable successful contract procurement.

Document and demonstrate compliance with defence contract reporting

Despite DoD procedures for processing receipt and acceptance migrating to a web-based application, doing business with the DoD is nonetheless a complicated task. However, this online process known as the Wide Area Workflow (WAWF) has now been enhanced by the Invoicing, Receipt, Acceptance, and Property Transfer (iRAPT) process which handles for $383B+ of invoicing annually and has cut invoicing time by over 50 per cent.

It has several advantages from the previous paper-based model, as it allows for better cashflow management, eliminates lost documents, and offers global accessibility and auditing. This secure system leverages technology to manage invoicing, receipts, and advanced shipping data which allows, in turn, for submission and tracking of documentation.

Managed manually, this can be labour-intensive, complex, leaves room for human error, and can cause delayed payments and other issues if done incorrectly. But the new generation of cloud-based defence manufacturing software with functionality to support defence 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 labour and accelerating payments.

As a result, defence 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.

Perfect procurement with defence supplier classification

To fulfil DoD product requirements, an automated and simplified system for sorting and reporting supplier classification is needed to help manufacturers manage supplier classification requirements over the entire procurement period and input this data accurately into the DoD’s electronic subcontracting reporting system (eSRS).

Defence manufacturing software designed around these DoD classification requirements enables organisations to classify suppliers over a given period and surface this information during the procurement process. This allows a government contractor to calculate and set professional goals for these classifications. Then, once a project is underway, progress can be analysed against goals so organisations 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, defence supplier classification allows defence manufacturers to quickly and consistently demonstrate how they and their suppliers comply with defence services requirements.

Harnessing the power of solid contract management to gain new business opportunities

Ensuring full compliance of defence contract terms and conditions will set defence manufacturers up to benefit from the growth opportunities facing the industry right now. As demand for defence products increases, so will the value of defence manufacturing contracts. But only those manufacturers who can guarantee complete adherence to DoD regulations will clinch this new business.

Here the integration of a purpose-built, A&D specific solution for contract management into existing cloud-based software architecture will help to ensure full compliance. A complete defence contract management solution will seamlessly integrate with DoD reporting platforms, such as the iRAPT system, to provide enhanced visibility over the entire reporting and invoice process, allowing defence manufacturers to keep manufacturing projects on track. Defence contract management solutions will also help to improve the efficiency of subcontractor classification reporting by automating the input process into the DoD’s eSRS — reducing human error and costs. 

This level of automation and oversight provides defence manufacturers with the precision and efficiency required to be awarded high-stake government contracts and take advantage of this unprecedented market opportunity.

Matt Medley is the industry director, A&D manufacturing, IFS.