Description
Organization: DRPM Strategic Systems Programs
Team Name: TRIDENT II (D5) Missile Procurement IPT
Related Acquisition Topic(s): Acquisition Practices Streamlining, Financial Management, Integrated Product Teams (IPT), Performance Based Acquisition, Performance Based Logistics
Description:
The introduction of the Equivalent Unit concept in contracting addressed a major challenge in the TRIDENT II (D5) procurement contracts. The problem and solution are described below:
Production of the TRIDENT II (D5) Missile, the sixth generation of Fleet Ballistic Missiles (FBM) began in 1987. As production continued into the 1990’s, an increasing number of FBM suppliers began to withdraw from the marketplace on short notice putting missile assembly schedules in jeopardy. In addition, many FBM suppliers were changing processes resulting in the need for rapid requalification efforts adding cost and technical risk to the program. The causes for the instability of the FBM suppliers were two-fold. First, the TRIDENT II missile was an evolutionary design of the TRIDENT I missile and, as such, utilized very mature technologies (i.e. 1970’s vintage). It became difficult over time to retain sources and convince them to continue to supply the ‘old technology’ parts through the 1990’s. Second, as Defense budgets and missile production quantities started to shrink, suppliers were forced to adapt to this change and either become more efficient, focus on commercial products, or in some cases leave the business completely.
The end result of this instability within the FBM supplier base was a constant need to respond in a reactive manner with technical decisions relative to pursuing requalification versus Life-of-Type (LOT), Schedule Protection, or Production Continuity (PC) buys. In addition, a high volume of contract actions with extremely short lead times, dictated by the supplier dates to pursue final orders, were placing tremendous pressure on the Contracting Officer to issue contract actions for these last minute buys, given the various regulatory requirements, and time, associated with new procurements. SSP and the prime contractor for the TRIDENT II (D5) Missile, Lockheed Martin Missiles and Space (LMMS), recognized the problem with the FBM supplier base and set out to find a solution that would put the FBM team in a proactive, rather than reactive, stance when it came to managing the FBM supplier base.
Working as a cross-functional IPT, the D5 procurement team from the Navy SSP and its prime contractor Lockheed Martin Missiles and Space (LMMS), structured the D5 Missile Production contract to include a fixed amount of Equivalent Unit (EU) deliverables. The EU deliverables were limited to requalifications, LOT, Schedule Protection, and PC hardware. EU values are determined for various requalifications and the LOT, Schedule Protection, and PC hardware based on negotiated values for the instant contract; each deliverable EU equates to a price of $1,000,000. The exact composition of the EUs to be delivered is determined by LMMS based on emerging program needs. The team established a link between supplier management and acquisition reform initiatives (ie partnering, performance, affordability) with the implementation of the Equivalent Unit contracting methodology, assuring missile affordability while providing flexibility within the prime contract for responding to emerging industrial base issues. While still required to deliver a fixed amount of "equivalent units", the exact composition of the equivalent units will be determined by LMMS based on program needs. While we do not know which specific components will be delivered as EUs at the beginning of the contract, there are resources priced into the contract to cover these emerging requirements. This innovative contracting concept gave LMMS the flexibility to make decisions with respect to emerging supplier issues and to respond quickly based on the fact that a deliverable requirement for EU, and the associated funding, were already on contract. It requires LMMS to be performance based and make the right decisions with regard to the supplier base, because now they are responsible for the maintenance of the FBM supplier chain since the funding is included on the contract up front. The introduction of this EU concept into the D5 contracts is an outstanding example of streamlining the procurement process. By incorporating this flexibility into the contract, we allow the contractor to make decisions that reduce the total cost of ownership and the procurement administrative lead time. In summary these innovations have resulted in millions of dollars in contract cost avoidance in 1999 and will result in 10’s of millions of dollars in cost avoidance over the life of the contract.
