Description
Organization: NAVSEA, PEO (USW)
Team Name: MK46 and MK54 Torpedo Asset Exchange Program Team
Related Acquisition Topic(s): Acquisition Practices Streamlining, Partnering
Description:
The Undersea Weapons Program Office and Naval Sea Systems Command (NAVSEA) have developed an innovative Program Management tool that applies the provisions of existing statutes and regulations allowing the exchange of obsolete non-excess assets within its Lightweight Torpedo Programs. Application of this tool has resulted in $6.7M cost avoidance for the Navy and has paved the way for significant future savings across the Department of the Navy.
Specifically, the Navy and Raytheon Systems Company have executed an Exchange Agreement in which 131 MK46 Mod 5 torpedo main assemblies, valued at $47K each, will be provided to Raytheon Systems Company in exchange for 14 MK54 torpedo main assemblies. The agreement allows Raytheon to refurbish and sell, at a reduced price, the exchanged MK46 assemblies to allied navies. The exchange further allows the U. S. Navy to continue its development of an affordable, COTS based, state-of-the-art, shallow water Anti-Submarine Warfare torpedo, the MK54 Lightweight Hybrid Torpedo.
In February 1997, Alliant Techsystems, now Raytheon Systems Company, proposed to PEO(USW) PMS 404 that Alliant accept responsibility for storing and disposing of several thousand obsolete MK46 torpedoes, as they became available, via a no cost contract with NAVSEA. In consideration for assuming that responsibility, Alliant proposed that it be authorized to remanufacture and sell a percentage of the obsolete forebody and afterbody components to allied navies, thus helping to maintain a competitive commercial lightweight torpedo industrial base.
During 1997 and 1998, Raytheon experienced significant cost growth under the MK54 Lightweight Hybrid Torpedo development contract. The most recent estimate at completion was determined to be nearly $28M, which exceeded the appropriated funding by over $6M. In this cost-plus-fixed-fee contract, Raytheon is required to design and build MK54 torpedo assemblies for use in the Navy's developmental testing.
The February 1997 proposal from Raytheon to accept responsibility for obsolete MK46 torpedoes, combined with the developing cost-overrun situation on the MK54 program, presented a unique opportunity to apply the provisions of 40 USC § 481(c), which allows the exchange of non-excess property for new assets. Throughout 1998, the Navy-Raytheon team worked diligently to obtain the necessary approvals for an exchange from their respective chains of command.
The team briefed senior management in both Department of the Navy and Raytheon concerning the savings and other advantages of this arrangement:
assuaging concerns stemming from this never-before-attempted innovative use of the exchange provisions in a major weapon system program; and
shaping the detailed acquisition contractual changes necessary to enact the exchange once it was approved. This included devising a sound plan which would facilitate the completion of deliveries under the MK54 developmental contract; provide the necessary test torpedoes; and provide an opportunity for the industrial base to affordably sell MK46 torpedoes to allied navies.
Both parties negotiated and agreed to the terms and conditions of the Exchange Agreement, the modification to the MK54 development contract, and the MK46 production contract to support the sale of the 131 MK46 torpedoes to a Foreign Military Sales customer, by mid-December 1998. The Navy-Raytheon team, by a combination of hard work and mastery of all key acquisition disciplines, completely accomplished these tasks in less than eight months.
The initial Exchange Agreement will produce $6.2M of cost avoidance for the MK54 program by providing 14 additional hardware assets required to support the MK54 test efforts. Raytheon will use the MK46 Mod 5 main assemblies for the remanufacture and production of MK46 Mod 5A(S) torpedoes to a Foreign Military Sales customer. The use of the USN assets in this sale resulted in 20% sales price savings ($6.2M) to the foreign customer, compared to new manufacture MK46 torpedoes. As an added benefit, the USN has avoided an additional $525K in demilitarization costs on the obsolete MK46 torpedoes.
As future foreign sale opportunities arise for MK46 torpedoes, the USN plans to offer to exchange additional MK46 assets in return for MK54 main assembly procurements. For each torpedo exchanged, at least $23.5K per torpedo will be earned as an exchange allowance, and $4K per torpedo will be saved in demilitarization cost avoidance. Future torpedo exchanges could result in up to $13M of savings based on anticipated MK46 foreign sale opportunities.
The immediate benefits of this effort are evident. Of equal importance, however, is the establishment of a precedent and process within the Department of the Navy for the application of the Exchange Provisions of 40 USC § 481(c) on other major weapon systems. This will afford significant opportunities to recapitalize the Navy's warfighting capabilities via asset exchange, while affording industry the parallel benefit of cost-effective expansion of the current Foreign Military Sales base. This is a classic "win-win" situation, particularly in an era of austere budgets.
In summary, this is the first application of the Exchange Provisions for the Department of the Navy within a Major Weapon System Program. The Navy-Raytheon Team demonstrated the highest level of innovation, ingenuity, and perseverance in bringing effort to fruition. This exchange has resulted in substantial cost avoidance, enabled the continuation of the MK54 program, enhanced the lightweight torpedo industrial base, established a precedent and process for invoking this provision in other Department of the Navy programs, and provides a invaluable tool for recapitalizing the Navy's warfighting capabilities in an era of austere budgets.
