10.9 Make-or-Buy Program

The contractor's make-or-buy program is that part of a contractor's written plan for the development or production of an end item that outlines the subsystems, major components, assemblies, subassemblies, and parts the contractor intends to manufacture (make); and those the contractor intends to purchase from others (buy).  A "make" item is defined as an item or work effort to be produced or performed by the prime contractor or its affiliates, subsidiaries, or divisions.

The prime contractor is responsible for managing contract performance, including planning, placing, and administering subcontracts as necessary to ensure the lowest overall risk to the government. Although the government does not expect to participate in every management decision, it may reserve the right to review and agree on the contractor's make-or-buy program when necessary to ensure: negotiation of reasonable contract prices; satisfactory performance; or implementation of socio-economic policies. A make-or-buy program is a contractor's written plan identifying major items to be produced or work efforts to be performed in the prime contractors facilities, and major items to be contracted.

The FAR 15.407-2 outlines the requirements for make-or-buy programs.  For acquisitions requiring make-or-buy programs contracting officers may require prospective contractors to submit make-or-buy program plans for negotiated acquisitions requiring cost or pricing data whose estimated value is $10 million or more, except when the proposed contract is for research or development and, if prototypes or hardware are involved, no significant follow-on production is anticipated.

Contracting officers must evaluate and negotiate proposed make-or-buy programs as soon as practicable after their receipt and before contract award. In preparing to evaluate and negotiate prospective contractor's make-or-buy programs, the contracting officer must request the recommendations of appropriate personnel, including technical and program management personnel, and the small and disadvantaged business utilization specialist.

In the evaluation, primary consideration must be given to the effect of the proposed make or buy program on total contract price, quality, delivery, and performance. Socioeconomic considerations, such as labor surplus area and small business support, must also be considered. The government will not normally agree to proposed "make items" when the products or services are (1) not regularly manufactured or provided by the contractor and are available from another firm at equal or lower prices or when they are (2) regularly manufactured or provided by the contractor, but available from another firm at lower prices.

In addition to special provisions containing the make-or-buy program features, the FAR clause 52.215-21, "Changes or Additions to Make or Buy Program," must be included in the contract. This clause describes procedures that must be followed to make changes to the make-or-buy program described in the contract.

Component breakout is technically not a part of a make-or-buy decision made by contractors, but is a decision made by the program office on whether to continue buying the item from the prime contractor or breaking out the item and have the program office buy that item directly.  It is a DoD policy to breakout components of weapons systems or other major end items under the following circumstances:

• If the prime contract will be awarded without adequate price competition, and the prime contractor is expected to buy a component without adequate price competition, breakout that component if:
  • Substantial net cost savings probably will be achieved; and
  • Breakout action will not jeopardize the quality, reliability, performance, or timely delivery of the end item.
• If either the prime contract and the component will be acquired with adequate price competition, consider breakout of the component if substantial net cost savings will result from:
  • Greater quantity acquisitions; or
  • Such factors as improved logistics support (through reduction in varieties of spare parts) and economies in operations and training (through standardization of design).
• Breakout normally is not justified for a component that is not expected to exceed $1 million for the current year's requirement.

There are many issues of importance to the program manager in the implementation of a component breakout program. How are breakout candidates to be identified? What logistics system risks are involved? How will economic and quantity change factors influence cost? What responsibilities will the government share or assume as a result of providing government-furnished components? Will the item be purchased competitively or on a sole source basis? The answers to these questions cross many disciplines including production, engineering, finance, and contract administration. Most weapon systems involve relatively large numbers of end items procured over the program life cycle which often extends over a number of years.