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

OSD CAIG 2 Outline Context Purpose of the project Results to date Issues Next steps

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

OSD CAIG 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

OSD CAIG 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)

OSD CAIG 6 The O&S Work Breakdown Structure 1.Mission Personnel – operators, maintenance personnel, staffs 2.Unit-Level Consumption – fuel/energy, consumable material and repair parts and depot-level reparables 3.Intermediate Maintenance 4.Depot Level Maintenance – overhaul, re-work and other costs 5.Contractor Support – burdened cost of labor, material, and assets 6.Sustaining Support -- tools, test sets, modifications, sustaining engineering support and software maintenance 7.Indirect Support URL:

OSD CAIG 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

OSD CAIG 8 Today’s VAMOSC Program Army (OSMIS) Navy (VAMOSC) Air Force (AFTOC) Number of systems tracked ~1,400~1,740 > 200 weapons, hundreds of sub-systems > 200 base operating accounts Data sources Active user accounts1, More than 3,000 active users across DoD.

OSD CAIG 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…

OSD CAIG 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.

OSD CAIG 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

OSD CAIG 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”

OSD CAIG 13 Programs Reviewed System/ProgramDeptPrimary ContractorKey Points C-17*AF Boeing Integrated Defense Systems Total System Support Responsibility (TSSR) C-130JAFLockheed Martin F/A-18*NavyBoeing Many PBL-focused contracts Guardrail Common Sensor ArmyDynCorp Total Life Cycle Support Hunter UAVArmyTRW/Northrop Grumman Standard CLS Joint STARS*AFNorthrop Grumman TSSR LPD-17NavyNorthrop Grumman Focuses on technology upgrades, software support * On-site discussions with PMO.

OSD CAIG 14 Programs Reviewed (Cont’d) System/ProgramDeptPrimary Contractors Key Points Navy Inventory Control Point –- Philadelphia* NavyVarious Major user of PBL contracts Predator UAVAFGeneral Atomics Traditional CLS Sentinel Air Defense Radar* ArmyRaytheon PBL Shadow UAV*ArmyAAI Corp. PBL Stryker*Army General Dynamics Land Systems Army’s largest CLS arrangement T-45TS Goshawk Training Aircraft* Navy Boeing, BAE, Rolls Royce Extensive use of PBL V-22 EngineNavyRolls Royce Power-by-the-Hour TM * On-site discussions with PMO.

OSD CAIG 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

OSD CAIG 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.

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

OSD CAIG 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 and O&S Cost Guide