Weapon System Sustainment: A Project to Identify Requirements for Collection of Contractor Costs

1. Weapon System Sustainment:A Project to Identify Requirements for Collection of Contractor Costs OSD Cost Analysis Improvement Group and ODUSD (L&MR)/LPP and MR&MP April 26, 2007

2. Outline • Context • Purpose of the project • Results to date • Issues • Next steps

3. O&S Costs Represent Largest Fraction of Life Cycle Costs, by Far O&S RDT&E Procurement

4. Major CAIG Responsibilities in O&S Costing • Preparation of independent cost estimates, per statute • Reviews and analyses, e.g., • O&S Cost Guide • Fully Burdened Cost of Fuel • Budget and program displays -- depot maintenance, materiel system readiness • Oversight of Visibility and Management of Operating and Support Costs (VAMOSC) program • Establish policy • Promote standardization of cost element structures across the Components • Promote use of VAMOSC data to predict future costs

5. O&S Cost Analysts’ Major Responsibilities • Preparation of life cycle cost estimates • Formulation of budgets and programs • Analysis of working capital funds • Development of business case analyses • Support of contract negotiations Success depends on analysis of actual O&S costs organized in a standard O&S Work Breakdown Structure (WBS)

6. The O&S Work Breakdown Structure • Mission Personnel – operators, maintenance personnel, staffs • Unit-Level Consumption– fuel/energy, consumable material and repair parts and depot-level reparables • Intermediate Maintenance • Depot Level Maintenance – overhaul, re-work and other costs • Contractor Support– burdened cost of labor, material, and assets • Sustaining Support -- tools, test sets, modifications, sustaining engineering support and software maintenance • Indirect Support URL: http://dcarc.pae.osd.mil/osd_ces/index.html

7. The Source of O&S Actuals:Visibility and Management of Operating and Support Costs (VAMOSC) • Only source of ready data on actual operating and support (O&S) costs of weapon systems • Evolution • In 1974, Military Departments began developing programs for collection of actual O&S costs • Initial systems largely manual • In mid-1990s, Military Departments introduced automation • Army OSMIS (Operating & Support Management Information System) • Navy: Naval VAMOSC and USMC VAMOSC • Air Force Total Ownership Cost (AFTOC) • Today, VAMOSC systems are state-of-the-art information systems with growing numbers of users • Data provided in standard WBS

8. Today’s VAMOSC Program More than 3,000 active users across DoD.

9. An Illustration – The Navy’s F-18C($M, FY 2005 constant) Historically, contractor support has represented a small percentage of O&S costs. But that is changing…

10. Some Current Dynamics • Greater reliance on industry partners for sustainment • Many forms -- traditional Contractor Logistics Support (CLS), PBL, DVD • More use of public-private maintenance partnerships • Establishment of Product Support Integrators • Significant interest in the integration of acquisition and logistics strategies • New, mandatory Key Performance Parameter (KPP): Materiel Availability • Several mandatory Key System Attributes, including Ownership Cost • Requirements for business case analyses of any proposed PBL strategies To provide useful advice to decision makers, cost analysts must have detailed functional and cost information from contractors in sustainment arrangements.

11. About The Project • Requested by OUSD (AT&L) • Co-sponsored by OUSD (AT&L) and OSD CAIG • Collaborative effort among OSD and all three Military Departments • Objective: To recommend policy and procedures for collection of contractor costs in weapon system sustainment arrangements • To be completed by fall 2007

12. Project Approach • Understanding fully how contractors are providing sustainment support • Scope • Contract types • Cost reporting • Issues • Identify specific cost data requirements, e.g., • Frequency • Formats • Level of detail • Vet with industry partners • Formalize in next update of DoDI 500.2, “Defense Acquisition Management Policies and Procedures”

13. Programs Reviewed * On-site discussions with PMO.

14. Programs Reviewed (Cont’d) * On-site discussions with PMO.

15. Key Findings • Contract scopes can address more than one function • Total System Support Responsibility • Product Support Integrator • Use of public/private partnering agreements in depots is significant, and growing • Most major contracts are firm fixed price • Cost reporting reflects requirements in CLINs… tends to not conform to standard O&S cost WBS that cost analysts use

16. Cost Analysts’ Desired Outcomes • Periodic reports needed -- annual submissions preferred • To be used for updating budgets and programs, analysis of Working Capital Fund requirements • Consistent with VAMOSC system updates • However, must be synchronized with contract milestones • Program and contract plans consistent with CSDR • O&S cost WBS plus… • Reporting contractor’s G&A • Other reporting contractor’s miscellaneous • Reporting contractor undistributed budget • Reporting contractor’s management reserve • Reporting contractor’s FCCM • Reporting contractor’s profit or fee • Reports submitted directly to DCARC Training program will be needed. Many issues still to be worked with Military Departments and industry.

17. Issues to Address • Collection of contractor cost data on fixed price contracts • Reporting frequency • WBS/Level of detail • Compliance

18. Next Steps • Resolve issues in IPT process • Continue discussions with industry… Conduct follow-on discussions in August NDIA forum? • Identify staffing requirements at Defense Cost and Resources Center • Draft policy memo… Pilot programs likely • Update DoDI 5000.2 and O&S Cost Guide