1 Walt Cooper – OSD CAPE Jim York – Technomics August 27, 2009 Weapon System Sustainment: Collection of Contractor Costs

2 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

3 Example: C-17A O&S Costs Source: AFTOC, air staff Cost analysts need more visibility into contractor costs.

4 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 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)

5 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 L. Roark, et. al.

6 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 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 , clarifying sustainment contract cost reporting policy

7 Workshops ProgramDateLocation Participating Contractor F-22ADec 4, 08Ft. WorthLockheed Martin T-45Dec 8, 08Patuxent RiverL3 StrykerDec 10, 08Detroit Army ArsenalGD Land Systems C-17AApril 28, 09Robins AFBBoeing Global HawkApril 28, 09Robins AFBNorthrop Grumman JSTARSApril 29, 09Robins AFBNorthrop Grumman

8 8 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

9 9 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 (Current categories: Engineering, Tooling, Quality Control, Manufacturing.) –What are appropriate material cost categories? 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

10 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

11 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: Technomics, CAPE present draft requirements to WG in September WG deliberates, reports to Focus Group in October. Proposed revision to CSDR Manual (DOD M-1) then formally coordinated.

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13 Backup

14 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 ProgramContractor F-119 Engine (F-22A)Pratt and Whitney F-22A Air VehicleLockheed Martin F-414 Engine (F/A-18E/F)General Electric Joint Cargo AircraftL-3 C-5M Reliability Enhancement and Re-Engining Program Lockheed Martin StrykerGeneral Dynamics V-22Bell-Boeing Lightweight Utility HeloEADS F-35 (JSF)Lockheed Martin F/A-18E/F FIRSTBoeing Background (Cont’d)

15 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?

16 Strawman WBS Based on MILHDBK-881A Based on OSD CAPE 2007 O&S WBS * This element will likely require additional level(s) of indenture to provide product-oriented (e.g., subsystem, assembly, subassembly, etc.) visibility

17 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?