05/11/2012 09:22 am ET Updated Jul 11, 2012

DynCorp Does Due Diligence

Previously I wrote about the seminar on labor trafficking, or what we should more bluntly call gross exploitation of workers in the private military and security contracting industry, sponsored by ISOA, an industry trade group.

As I've previously mentioned, trafficking was a major aspect of the report I wrote last year, regarding illegal practices done by a KBR subcontractor. It is important to remember that when abuses like this happen it is usually done at the subcontractor level. So for those interested in preventing this it is crucial to have better transparency of and control over the subcontractor. How might this work?

One of the speakers at the seminar was Joe Kale, Chief Ethics and Compliance Officer at DynCorp International (DI). DynCorp is a major player in the industry. Its clout is such that it is similar to the old E.F. Hutton commercial, so when a DynCorp official speaks, we should listen.

What he mentioned was that DynCorp has recently put into place a new program for monitoring its subcontractors. He didn't get into specifics but subsequently another DynCorp official provided more details.

Now bear in mind that the standard contract between a prime contractor and its subcontractor(s) has standard clauses allowing, at least theoretically, for audits and inspections by the prime. But even if that happens, and it did in the KBR case I wrote about, that is no guarantee anything will be done. So clearly something else is needed.

Dyncorp's new Supply Chain organization, stood up last year, has introduced several tools that are updated regularly to evaluate subcontractors on an ongoing basis. It has three main parts:

  • Scorecards: performance-based surveillance tools that evaluate key areas of the subcontractor's performance (compliance, cost containment, delivery, quality, relationship, and responsiveness) and provide visibility to DI leadership regarding such performance; scorecards are reviewed regularly by senior management and updates are sent to the subcontractors to alert them of our assessment of their performance/compliance.
  • Performance Surveys: performed by Supplier Management with input from internal stakeholders to evaluate that the services being provided by the subcontractor meet the Key Performance Indicators of the Statement of Work.
  • Site Surveys: joint surveys performed by Supplier Management in conjunction with Quality Assurance, Health and Safety, and Operations, to ensure the subcontractor is compliant with all performance requirements.

What kind of metrics are used to ensure the subcontractor is doing what it is supposed to be doing? As these are company proprietary documents I can't go into too much detail but with respect to labor trafficking, "compliance" measures various aspects of the subcontract or purchase order including certifications submission, health and safety compliance and incident reporting, and Combatting Trafficking in Persons (TIPS) compliance.

Data in all categories is collected at the site level for each subcontract (there is a specific scoring system that accompanies each of the evaluation criteria) and supplier management personnel assess supplier performance based on the data and feedback received from all relevant stakeholders.

Once scoring is complete in each area, overall scoring is then represented in a Traffic Light system, (sort of like the old Department of Homeland Security color alert system) Rating classes and definitions under the system are:

A. Excellent - Outstanding performance (Blue): Clearly exceeds the "acceptable" status of green over a period of time. Has a "demonstrated track record" showing that it exceeds GREEN or better performance and has performed without significant incidents over an extended period of time. A supplier cannot receive a Blue rating if it is the first time they are being evaluated. Has achieved these results via repeatable and documented processes. As evidence of repeatability, must have been GREEN for at least three prior consecutive reporting periods.

B. Good - Requirements met (Green): Generally meets contract requirements and DI expectations. Has performed without significant incidents for the current reporting period.

C. Underperforming - Requirements not fully met (Yellow): Has generally performed well overall but requires some corrective actions. Has not met some requirements of the subcontract and/or had problem(s) reported by management that required additional and immediate attention.

D. Unacceptable - Requirements not met (Red): Has not performed according to subcontract or customer expectations. Significant issues exist that mandate immediate attention on the part of the supplier.

The scorecards are reviewed on a monthly basis.