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Operating and Support Cost Management Army Perspective: Joint Light Tactical Vehicle Case Study

Operating and Support Cost Management Army Perspective: Joint Light Tactical Vehicle Case Study. David Holm Director US Army TACOM LCMC Cost and Systems Analysis. Distribution A: Approved for Public Release. Distribution unlimited. UNCLASSIFIED. Agenda. Setting the Stage

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Operating and Support Cost Management Army Perspective: Joint Light Tactical Vehicle Case Study

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  1. Operating and Support Cost ManagementArmy Perspective: Joint Light Tactical Vehicle Case Study David Holm Director US Army TACOM LCMC Cost and Systems Analysis Distribution A: Approved for Public Release. Distribution unlimited. UNCLASSIFIED

  2. Agenda • Setting the Stage • JLTV Program History • MS C LRIP/FRP Downselect Criteria • Life Cycle Cost Adjustment • Summary

  3. Army bought 160K+ HMMWVs since 1980s and the Iraq War revealed the vulnerability to IEDs. Could no longer modify HMMWV with armor kits to protect Soldiers due to original design constraints. • The sheer magnitude of the LTV fleet dictates that modernization will have to be approached incrementally; - New technologies/fiscal realities/resource availabilities - Need to balance Protection, Payload and Performance - Maximize commonality and minimize platform variants among the family of vehicles to enhance logistics supportability • Senior leader demands for increased visibility and reporting • Focus on detailed unit cost and the cost drivers • Historically, focus in vehicle source selections was on technical performance and price. Vendors were not getting any credit for designs that helped lower sustainment costs. • Competition would be high for a large quantity new vehicle program Setting the Stage…

  4. Available Ground Vehicle Reports A long drought where historical cost data was not being collected on ground vehicle programs CSDR – Cost and Software Data Reports

  5. Competitive Prototyping Directive In compliance with Honorable Young’s 2007 Prototyping and Competition directive, ‘…provide for two or more competitors through EMD in order to reduce risk, validate designs, validate cost estimates, evaluate manufacturing processes and refine requirements’

  6. The Joint Light Tactical Vehicle (JLTV) Family of Vehicles (FoV) is a Joint Army and Marine Corps program that provides vehicles, along with companion trailers, capable of performing multiple mission roles while providing protected, sustained, and networked mobility for personnel and payloads across the full spectrum of military operations. CDD & CPD Approved: MAR 2012 & NOV 2014 ACAT Level: 1C (Delegated from ACAT 1D) MDA: AAE ASA(ALT) Lead CAE: AAE ASA(ALT) Participating CAE: ASN(RDA) PEO: PEO CS&CSS (USA) PEO:PEO LS (USMC) JPO: PM-JLTV (USA) PM LTV (USMC) JLTV Program Description 4 Seat GP: General Purpose CCWC: Close Combat Weapon Carrier HGC: Heavy Gun Carrier 2 Seat UTL: Utility

  7. JLTV Industry Prototypes during TD Phase General Tactical Vehicles, as of 29 Oct 08 BAE Systems/ Navistar, as of 29 Oct 08 Lockheed Martin, as of 29 Oct 08 • After Full and Open Competition, Government awarded Cost Share contracts to three Contractors - October 29, 2008 • - BAE Systems Land & Armament Systems – Ground Systems Division; Santa Clara, CA • - General Tactical Vehicles (Joint Venture between GDLS and AM General) • - Lockheed Martin Systems Integration – Owego; Owego, NY • - Two protests were filed and denied by the GAO, allowing work to resume on Feb 17 2009 • 7 Vehicle, 4 Ballistic Hulls & 4 Trailers were provided by each vendor for testing and validating requirements • Australia joined the program in Jan 2009. All three vendors received contracts to build additional right • hand versions of the JLTV. • The following cost-related deliverables were required from each contractor: • TD Cost and Software Data Reporting (CSDR). • Average Unit Manufacturing Cost (AUMC) Estimate (Level 3 WBS)

  8. JLTV Industry Prototypes during EMD Phase • On 22 August 2012 the government awarded contracts to three vendors (Lockheed Martin, AM General, and Oshkosh) for the Engineering & Manufacturing Development (EMD) phase, after a Full and Open competition for approximately $65M per vendor. • On 22 August 2013, the government received 66 total prototype JLTVs and 18 total trailers from the three EMD vendors followed by 14-months of performance, reliability, and ballistics testing. • EMD contracts also included work scope with separately priced CLINs relating to support of Government testing, data deliverables, and formal testing assigned by the Government to each of the EMD contractors. • Common elements of the Family of Vehicles (FoV) were cost shared by the Services, with Service-unique requirements separately funded. • The following cost-related deliverables were required from each contractor: • EMD Cost and Software Data Reporting (CSDR) • Average Unit Manufacturing Cost (AUMC) Estimate (Level 3 WBS) • Cost estimate for delivery of technical data and competitive data rights. AM General LLC South Bend, IN Lockheed Martin Corporation Grand Prairie, TX Oshkosh Corporation Oshkosh, WI

  9. Milestone C - EMD to LRIP/FRP Contract Down-select • Culmination of 2007 USD memo “Prototyping & Competition” - Carry at least two competing Offerors through EMD • Reduce Technical Risk, Validate Requirements, and Cost Estimates • Maintain competitive pressure on Offerors - Down-select to a single source for production • Concerns in developing Source Selection Criteria • Request for Proposal should communicate how much Government is willing to pay for increased capability • Help Offerors make informed trades • Incentivize balance between performance, procurement costs, and sustainment costs - Subjectivity in best value decision increases difficulty & protest risk • Create a “digital” scheme to evaluate potentially diverse proposalsand shift portion of protest risk from Post-Award to the Request For Proposal

  10. LRIP/FRP Source Selection Criteria • Resulting best value trade-off between three factors • Primary Technical (PT): Adjectival risk (e.g., high, low) rating of meeting mandatory requirements (i.e., KPPs & KSAs) • Total Evaluated Cost/Price (TEC/P): Proposed prices modified by various credits for increased performance and anticipated future savings. • Small Business Participation (SBP): Adjectival rating with strengths and weaknesses of the offeror’s proposal to meet the solicitation goals and the probability that the offeror will achieve the goals. • PT and SBP factors were relatively “traditional” while many aspects of TEC/P were new and novel 1. Primary Technical (PT) 2. Total Evaluated Cost/Price (TEC/P) 3. Small Business Participation (SBP) >> >>> Non Cost/Price (When Combined) Total Evaluated Cost/Price 2.1. Evaluated Contract Cost/Price 2.2. Life Cycle Cost Adjustment 2.3. TDP Adjustment 2.5. Secondary Tech Adjustment 2.4. Tier 1 Obj Adjustment >>> - - - - Indicator Key =:Approximately Equal>> : More Important >: Slightly More Important >>>:Significantly More Important

  11. TEC/P Factor Overview • Results in a single base-year adjusted “price” - Proposed (not evaluated) prices are put on contract - Proposed levels of performance are contractually binding Notional Examples: Offeror A is more favorable by $0.3B within TEC/P factor

  12. Life Cycle Cost Adjustment • Assessed Government’s anticipated future Operations and Sustainment (O&S) costs • Monetary credit for expected savings • Based on Offeror’s proposed prices and levels of performance • Adjustment automatically calculated by RFP attachment (Attachment 70) • Offeror’s knew adjustment at time of proposal submission • Ensured compliance with Army Federal Acquisition Regulation Supplement (AFARS) 5115.304(d) (Evaluation factors and significant subfactors) • Adjustment inputs capture two of the three items making up the majority of JLTV O&S costs - Inputs selected based on ability to meaningfully discriminate between Offerors • Offeror’s proposed price and performance were contractually binding

  13. Creating the LCC Adjustment/Incentivizing Offerors to Consider O&S Costs • Step 1: Identifying Cost Drivers Offerors Can Effect - Decompose JLTV O&S elements to determine drivers • 34% Manpower • 33% Consumables & Reparable Parts • 12% Fuel & Lubricants • 21% All Other O&S Elements - Offerors design decisions could directly effect consumables & reparable parts costs and fuel efficiency • Step 2: Derive Cost Estimating Relationships (CERs) for those elements - Analyzed historical costs of portfolio of wheeled vehicle fleet historical costs utilizing regression analysis • Consumables & Reparable Parts Cost = f(unit price new, reliability) • Fuel & Lubricants = f(operating fuel efficiency, idle fuel efficiency)

  14. Incentivizing Offerors to Consider O&S Costs (cont.) • Step 3: Calculate “worst-case” O&S cost at threshold performance requirements • Cons & Reps Cost = f($250K AUMC, 3,800 Mean Miles Between Hardware Mission Failure) = $4.5B • Fuel & Lubricants = f(10 mpg, 1.5 gal/hour) = $1.5B • Step 4: Calculate “proposed” O&S cost using Offeror proposed values • Cons & Reps Cost = f($240K AUMC, 5,000miles between failure) = $3.9B • Fuel & Lubricants = f(15mpg, 1.1gal/hour) = $1.1B • Step 5: Offeror receives difference between “worst-case” and “proposed” O&S cost in the TEC/P factor • Cons & Reps Cost = $4.5B – $3.9B = $0.6B credit • Fuel & Lubricants = $1.5B – $1.1B = $0.4B credit • $0.6B + $0.4B = $1.0B Life Cycle Adjustment Selection Criteria and CERs are Provided to Offerors During Development to Shift Incentives from “Lowest Unit Price” to “Lowest Total Price” Note: All examples above use notional values to illustrate adjustment method

  15. After a restricted competition with the EMD vendors, on August 25, 2015 the Army awarded a $6.7 billion low rate initial production (LRIP) contract with eight options to Oshkosh Defense to procure the initial 16,901 vehicles and support for the Army and Marines. - On 8 Sep 2015, a protest was filed by Lockheed Martin with GAO which was subsequently dropped on 11 Dec as they informed GAO they would file its JLTV protest instead with the United States Court of Federal Claims, which was subsequently withdrawn on 16 Feb 2016. . • The following cost-related deliverables are required from the contractor: • LRIP/FRP Cost and Software Data Reporting (CSDR) • Other financial reports (Project Expenditure Report, Funds and Management Expenditure Report & Contract Funds Status Report) • Other cost reports (Provides datanecessary to facilitate future cost estimating, sustainment tracking, and request multi-year procurement authority) - Production Indentured Bill of Materials (BoM) - Current Inventory Report - Current and Prior Configuration BoM - Parts Repair Report - ASL Procurement Report - Service Consumption Report - Inventory Receipt Report - Multi-Year Procurement Estimate JLTV Production Phase

  16. Effectiveness of Criteria & Life Cycle Incentives • Was the incentive effective? - Target Contractor O&S Cost = $5.95B (BY16$) • Calculated using max allowable unit prices and threshold performance values • Includes consumable and reparable costs, fuel, and lubricants over the 20 year effective life of vehicles procured on the contract - Anticipated Contractor O&S Cost = $4.34 (BY16$) • Calculated using contractually binding prices and levels of performance - Anticipated Contractor O&S Life Cycle Savings = • $1.61B (BY16$) for vehicles procured on current contract (~17k vehicles) • $5.22B (BY16$) for total program AAO (~55k vehicles)

  17. CSDRs supported the rare opportunity to collect cost data on a tactical vehicle system early on in development. - Without CSDRs, the JLTV team would not have the necessary evidence and data to seriously affect requirements trades resulting in the Army and USMC substantially modifying the program in order to make it affordable as it entered the EMD phase. • The CSDR collection process for JLTV and other ground vehicles enabled the program to identify, target, and incentivize offerors to make life cycle cost informed design decisions. - $1.6B in anticipated contractor O&S savings on current production contract • Incentives drive contractor behavior but getting the incentives right takes significate intellectual investment. - Each acquisition/program/commodity/contract is different. - Early and frequent communication with Industry is critical - Detailed planning is critical to prevent Offerors from gaming the criteria - Proposed performance should be contractually binding Summary Early data collection enables data driving acquisitions which are intellectually intensive but can provide a high return on investment

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