Description
Organization: NAVAIR
Team Name: V-22 Osprey Program Team
Related Acquisition Topic(s): Commercial Practices, Commercial and Non Developmental Items (CANDI), Contract Logistics Support (CLS), Risk Management
Description:
On 8 May 1998, the V-22 program definitized a commercial fixed-price contract for the commercial procurement and commercial logistic support of the Allison T-406-400 engine. The contract provides for two base years and five option years. The post contract award life cycle cost model, which reflects the negotiated prices, will save the V-22 program and the DoD $533 million.
This process, completed in 1998, is actually the culmination of a three-year effort that began in March 1995. At that time, the Defense Science Board (DSB) recommended that the engine for the V-22 Osprey be purchased commercially. This recommendation was based on the fact that the V-22 engine was anticipated to be over ninety percent common with its commercial variants, and that the V-22 engine represented only a small percent of the total projected commercial engine production.
To begin this process, the V-22 program office required the developmental engine manufacturer, Allison Engine Company to submit two proposals, one for commercial procurement and a second for a typical military procurement. Allison Engine Company’s commercial proposal not only included a commercial engine but linked commercial logistic support to the commercial engine procurement. The commercial logistics support for the engine would be provided through Allison Engine Company’s Power by the Hour (PBTH) (1) program. The V-22 program office formed a broad-based Integrated Product Team (IPT) (2) to evaluate the commercial proposal to determine its feasibility. This IPT evaluated the commercial proposal in the following three areas: cost, risk and operational feasibility. Cost: The cost evaluation was conducted by completing a side by side engine life cycle cost comparison of the V-22 operating with a commercial engine supported by PBTH and the V-22 operating with a military engine supported organically. The team’s life cycle cost comparison evaluated the engine acquisition costs, Integrated Logistic Support (ILS) costs and the Operating and Support (O&S) costs in constant calendar year 1996 dollars.
The cost evaluation identified that V-22 engine life cycle costs could be reduced with commercial engine acquisition and support. By purchasing an engine that was a commercial variant, the increased engine population and corresponding increased total engine flying hours would provide earlier introduction of reliability improvements and reduced production costs. Organic infrastructure investments would not be required. Most importantly the PBTH program with it’s fixed cost per engine hour incentivizes the contractor to improve reliability.
Risk: The commercial proposal was reviewed and evaluated for the risks and potential risks it would have on the V-22 program. It was assumed that the risk associated with a typical military engine procurement was acceptable. The risk evaluation identified the commercial proposal’s risk to the Department of Defense in four areas: contractual, technical, cost and schedule. The team identified 26 separate risk items. These risk items laid the groundwork for identifying specific contractual requirements i.e. Federal Acquisition Regulation (FAR) clauses, developing a template for the statement of work and the Government position during subsequent negotiations with the contractor. Risk was determined to be higher with the commercial procurement due to the potential loss of data rights and configuration control. Secondly, subsequent contracts posed unknown cost risk due to the contractor’s sole source position. Operational Feasibility: The commercial proposal was evaluated to determine its operational feasibility for fleet use. The major criteria used were as follows: does it meet operational readiness goals; can it integrate with current logistic and financial support structures, and is it invisible to fleet personnel? The commercial proposal was identified as being operationally feasible and could be virtually invisible at the fleet level. However, there would be less control with a commercial engine and logistic support due to the contractor’s logistic operations being out of the purview of the military.
After reviewing all evaluation areas the decision was made to proceed with procurement of a commercial engine with commercial logistics support. The next step in the process was to define implementation in the areas of financial integration, logistic integration and contracting.
Financial: Identify all current Department of Defense financial accounts that presently fund or in the future would fund logistics support for the V-22 engine. Consolidate those funds into one account that can be used to fund the contractor’s commercial logistic support PBTH program.
The financial team identified two Operations and Maintenance, Navy (O&MN) major sources of funding that should be utilized to support the PBTH program. To meet the challenge of consolidating them into one account, coordination was required of NAVAIR, Navy Type-Commanders and the Chief of Naval Operations office for aviation. The decision was made to consolidate these funds into the depot maintenance account, administered by NAVAIR.
Logistic Integration: Establish the process by which material and information flows to and from the military and contractor to support all maintenance and supply actions. This process should be invisible to the end operator. Thus no new systems or processes were to be required of the end operators. The logistic team was able to create a seamless channel from the operator to the contractor utilizing the existing DoD infrastructure.
Contractual: Major emphasis during the contracting process was placed on reducing the risks that had been previously identified by the risk team during the evaluation process. These were the risks associated with the loss of data rights and the risk associated with the cost increase of future subsequent contracts. The contracting team’s major objective was structuring a long-term contract that would motivate the contractor to increase engine reliability and combat readiness. This, in turn would reduce engine life-cycle costs. The contracting team took an innovative approach to reducing the identified risks. Engine data rights were to be retained by the contractor via a licensing agreement, which stipulated the contractor could only retain these rights if, in subsequent contracts, the price for engine flight hours did not increase (with the exception of escalation for inflation). The contractor must also continue to meet all supply support metrics stipulated in the statement of work. If the contractor cannot maintain the price and metrics, he is required to provide the Government a complete technical data package reflecting the most current engine configuration.
