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Walt Cooper – OSD CAPE

Jim York – Technomics

August 27, 2009

Weapon System Sustainment:Collection of Contractor Costs

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Background

• DoD’s philosophy and approach to weapon system sustainment has been evolving since the mid-90s– From mostly organic support with limited contractor involvement

(e.g., depot maintenance)– To varying degrees and types of contractor support

• Requirements for O&S cost data has been largely satisfied by the Services’ respective Visibility and Management of Operating & Support Cost (VAMOSC) systems

• Implementation of CLS strategies has generated growing DoD demand for contract cost data that VAMOSC’s feeder databases cannot satisfy– VAMOSC feeder databases provide detail on organics costs, but

– have no insight into details of contract cost

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Example: C-17A O&S Costs

Source: AFTOC, air staff

C-17 Total O&S CostsTY$M

FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 20081.0 Mission Personnel 161 183 273 335 410 486 567 620 694 2.0 Unit-Level Consumption 140 252 325 449 493 773 1,140 1,305 1,881 4.0 Depot Maintenance (not DLRs) - - - - - - - - -5.0 Contractor Support 74 145 216 237 334 377 1,281 1,392 1,138 6.0 Sustaining Support 1 1 2 6 3 4 5 5 4 7.0 Indirect Support 29 50 71 108 95 133 159 131 140 AFTOC Total 406 632 887 1,134 1,335 1,773 3,151 3,452 3,857 ICS (not reported in AFTOC) 370 421 489 536 916 946 - - - Grand Total 775 1,053 1,377 1,671 2,251 2,718 3,151 3,452 3,857

Average Inventory 60 72 84 101 115 135 148 161 166 YTD Flying Hours 57,167 79,741 94,101 155,134 151,311 154,353 149,995 170,074 181,555

Cost analysts need more visibility into contractor costs.

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• A number ACAT I programs have established sustainment contract cost reporting within the Cost and Software Data Reporting (CSDR) process administered by the Defense Cost & Resource Center (DCARC)

• Disparate reporting to date pending formal guidance on standard cost reporting

• The 2008 update of DODD 5000.02 mandates that reports of sustainment contractors’ costs be collected within the domain of the CSDR system – Establishment of mandatory reporting requirements are in

process

Background (Cont’d)

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Establishing Mandatory Reporting Requirements

• Phase 1 (completed in August 2008)*– Performed by Institute for Defense Analyses for OSD PA&E and OUSD(AT&L) – Reviewed DoD policies for weapon system support and identified key issues– Researched actual field-level experiences and perspectives– Developed a conceptual framework

• Phase 2 and 3 (Fall 2008 to Winter 2010)– Technomics performing for OSD PA&E and DCARC– Refine and vet WBS, formats and procedures via Service/Industry workshops

and OSD/Service coordination… acquire a good understanding of program-specific implementations

– Address the implications of including this data in VAMOSC

* Collection of Operating and Support Data from Weapon System Support Contracts, IDA, Aug 2008. L. Roark, et. al.

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Establishing Mandatory Reporting Requirements (Cont’d)

• Phase 3 Details– Establish final reporting requirement inputs – WBS & definitions, Formats, DID’s

– Update the “CSDR Manual”, the cost-reporting appendix to DoD 5000.04-M, “Department of Defense Cost Analysis Guidance and Procedures Manual”

– Revise OSD CAPE “Operating and Support Cost-Estimating Guide,” specifically revisions to the cost element structure and associated cost element definitions

– Prepare recommended revision to MIL-STD-881, specifically, the addition of O&S guidance that is consistent with the aforementioned OSD CAPE O&S Cost Estimating Guide revision

– Prepare a recommended revision to DODI 5000.02, clarifying sustainment contract cost reporting policy

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Workshops

Program Date LocationParticipating Contractor

F-22A Dec 4, 08 Ft. Worth Lockheed Martin

T-45 Dec 8, 08 Patuxent River L3

Stryker Dec 10, 08Detroit Army

ArsenalGD Land Systems

C-17A April 28, 09 Robins AFB Boeing

Global Hawk April 28, 09 Robins AFB Northrop Grumman

JSTARS April 29, 09 Robins AFB Northrop Grumman

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Workshop Lessons Learned

• WBS

– Can industry report to de facto standard DOD O&S WBS (i.e., CAPE O&S WBS)?• Primary WBS issue with contractors is assignment of maintenance material

cost to maintenance level… some indicate they can, others assert they can’t.

• CAPE/VAMOSC WBS tracks demand in units and at maintenance levels; contractors provide supply, not necessarily correlated to maintenance levels.

– What WBS level best facilitates understanding of CLS costs, including product-level visibility & supply chain management visibility? Draft WBS appears to satisfy requirement

– At what level of indenture does the WBS need to be tailored to commodity-specific attributes? Draft WBS appears to satisfy requirement

– At what level of indenture does the WBS expose contractor proprietary information? Draft WBS appears to satisfy requirement; lower levels of indenture showing processes may be proprietary

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Workshop Lessons Learned(Cont’d)

• Cost Elements

– What are the appropriate functional labor categories? Contractors are researching, but it seems likely that CLS functional categories are different than those currently identified on DD 1921-1

(Current categories: Engineering, Tooling, Quality Control, Manufacturing.)

– What are appropriate material cost categories? 1921-1 categories appropriate

(Current Categories: Raw Material, Purchased Parts, Purchased Equipment, Subcontract.)

– Recurring vs. non-recurring or another (e.g., fixed vs. variable) distinction by WBS? Contractors generally seem ambivalent; some stated recurring/non-recurring are workable

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Workshop Lessons Learned(Cont’d)

• Non-cost elements – OPTEMPO, quantities, other

– Metrics are generally available, especially for PBL contracts

– In some cases, contractors maintain technical metrics databases

• Other

– Do lower contract dollar thresholds for sustainment cost reporting make sense? No definitive response from programs as yet

– Does more frequent reporting (e.g., bi-annual reports) make sense? Annual reporting followed by a final (annual) report seems most appropriate

– What program criteria should there be for inclusion under the reporting requirement? Dollar threshold based, vice ACAT based

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Next Steps

• Technomics, CAPE drafting reporting requirements – formats, procedures, definitions, DIDs

• Establishment of a Sustainment CSDR Working Group (WG)in process

– Industry has requested full participation

– Please contact: walt.cooper@osd.mil or

jyork@techomics.net

• Technomics, CAPE present draft requirements to WG in September

• WG deliberates, reports to Focus Group in October. Proposed revision to CSDR Manual (DOD 5000.04-M-1) then formally coordinated.

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Backup

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• Numerous ACAT I programs have submitted sustainment cost reporting plans to the Defense Cost & Resource Center (DCARC), which administers the Cost and Software Data Reporting (CSDR) process

• Disparate reporting to date pending formal guidance on standard cost reporting

Program Contractor

F-119 Engine (F-22A) Pratt and Whitney

F-22A Air Vehicle Lockheed Martin

F-414 Engine (F/A-18E/F) General Electric

Joint Cargo Aircraft L-3

C-5M Reliability Enhancement and Re-Engining Program

Lockheed Martin

Stryker General Dynamics

V-22 Bell-Boeing

Lightweight Utility Helo EADS

F-35 (JSF) Lockheed Martin

F/A-18E/F FIRST Boeing

Background (Cont’d)

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Workshop Discussion Topics

• WBS

– Can industry report to a de facto standard DoD O&S WBS (i.e., 1992 or 2007 WBS contained in O&S cost guides)?

– Levels of indenture

• What level best facilitates understanding of sustainment costs, including product-level visibility and supply chain management visibility

• What level provides for tailoring for commodity-specific attributes?

• What level best protects contractor proprietary information?

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Strawman WBS

Acquisition Elements Prime Mission Equipment SE/PM System T&E Training Data PSE CSE Operational/Site Activation Industrial Facilities Initial Spares and Repair Parts

Based on MILHDBK-881A

Based on OSD CAPE 2007 O&S WBS

Operations and Support elements Unit Level Manpower Operations Maintenance Other unit level Unit Operations Material Support Services TDY Maintenance Organizational Consumables Repairables

Repair of Repairables* Procurement of Repairables*

Maintenance Services (incl. Field Service Reps) Intermediate Consumables Repairables

Repair of Repairables* Procurement of Repairables*

Maintenance Services (incl. Field Service Reps) Depot Consumables Repairables

Repair of Repairables* Procurement of Repairables*

Overhauls* Supply Chain Management

Inventory Control Packaging, Handling & Shipping Transportation

Sustaining Support Training Operator Training Maintenance Training Other Training Support Equipment Replacement Sustaining SE/PM Other Continuing System Improvements Hardware Mods/Modernization Software Mods/Modernization Indirect Support Installation Support Personnel Support General Training & Education

* This element will likely require additional level(s) of indenture to provide product-oriented (e.g., subsystem, assembly, subassembly, etc.) visibility

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Workshop Discussion Topics (Cont’d)

• Cost Elements– What are the appropriate functional labor categories?– What are the appropriate material cost categories?– Can recurring vs non-recurring, fixed vs variable distinctions be made?

• Non-cost elements, e.g,– OPTEMPO, e.g., flying hours)– Quantity, e.g., system, sub-system– Other, e.g., mean time between failures

• Other– What contract dollar thresholds for sustainment cost reporting make

sense?– Does more frequent reporting (e.g., bi-annual reports) make sense?– What program criteria should there be for inclusion under the reporting

requirement?