The Current State of Performance Based Logistics (PBL)

The Current State of Performance Based Logistics (PBL)
Instructor: Michael D. “Bo” Gourley (703) Lockheed Martin Corporate Engineering, Technology, & Operations Logistics & Sustainment 10530 Rosehaven St., Ste. 600 Fairfax, VA

Agenda Session 1: PBL Background and History Session 2: PBL Basics
Levels Scope PBL Application Model Session 3: PBL Contracts & PSAs Session 4: PBL Roles Session 5: PBL Depot Involvement Session 6: S&RP for PBL Session 7: PBL Enablers and Barriers Session 8: Summary

Background Performance Based Logistics (PBL) has become the preferred life cycle product support strategy for U.S. Department of Defense (DoD) systems and International customers, and as such offers significant business opportunities matched to customers’ outcomes needs. The objective of PBL is to improve weapons system readiness by procuring top level performance outcomes while optimizing support cost by capitalizing on integrated logistics chains and public-private partnerships.

Session Objectives Know the history of PBL
Understand the fundamental concepts of PBL arrangements Recognize the attributes of successful PBL strategies Describe the levels and scope of PBL application Identify the current laws, policies, and directives that impact PBL implementation and execution Describe the Standard and Repeatable Processes (S&RP) that facilitate effective performance-based Product Support Arrangements (PSAs) Understand the constraints and enablers influencing development and execution of PBL strategies

PBL Background and History
Session 1 PBL Background and History

PBL Legacy: Performance Based Logistics
Emerging: Performance Based Lifecycle Product Support Legacy: Performance Based Logistics “PBL is synonymous with performance-based lifecycle product support, where outcomes are acquired through performance-based arrangements that deliver Warfighter requirements and incentivize product support providers to reduce costs through innovation. These arrangements are contracts with industry or intragovernmental agreements.”1

https://acc.dau.mil/CommunityBrowser.aspx?id=527144#definition
PBL Definition An outcome based product support strategy that plans and delivers an integrated, affordable performance solution that optimizes weapon system readiness.

Outcomes PBL focuses on delivering weapon system outcomes across the lifecycle

Some PBL examples Aircraft Tires PBL Army HIMARS PBL
Scope: Availability of Naval aircraft tires Outcomes Availability: 95% Delivery: 2 days CONUS; 4 Days OCONUS Army HIMARS PBL Scope: Availability of HIMARS Rocket Launcher System Availability: 92% Delivery: 24 hours CONUS; 96 Hours OCONUS Repair Turnaround: 5 days Field; 45 days Vendor H-60 “Tip to Tail” Scope: Depot-Level Repair/Overhaul Fill Rate: 88% (vs. 80% contract requirement) High priority SMI supply response time: 100% All-time low backorders on 1,286 components: 24

A more effective system sustainment approach was required!
How did PBL get its start? Situation with U.S. military systems, mid-1990s Aging weapon systems Procurement decline following Cold War Fewer new systems, keeping old ones longer Aging systems need more support Fixed Defense Budget Sustainment was rising as a total life cycle cost percentage No strategy to correct the downward spiral DoD lacked funds to invest in modernization or replace systems Systems were never ‘designed for supportability’ A crisis was clearly imminent U.S. Congress mandated action A more effective system sustainment approach was required!

PBL History CONCEPT POLICY adoption evolution PSAT Implementation NDAA: DoD must report to Congress on Product Support Reengineering Product Support Reengineering Report to Congress 30 RTOC Pilot Programs 1999 QDR Mandates PBL: (First official use of the term) DoD Program Managers Guidebook published 2001 DoD 5000 policy: PBL is DoD’s preferred Product Support Strategy ACAT 1 &2: Use PBL or justify why not 2003 Revised DoD is released Product Support Assessment Team launched 2008 DoD Weapon System Acquisition Reform Product Support Assessment DoD WSAR-PSA implementation 2009 PSM, BCA, ILA Post-IOC review “Proof Point” phase II 2011 F-117 APU Sustainment Quad Chart “Proof Point” phase I 2010 NextGen 2012 1998

PBL History (cont.) IMPLEMENTATION AND EXECUTION “A recently completed study by ASD(L&MR) provided compelling evidence that properly constructed and executed performance-based product support strategies (commonly referred to as PBLs) deliver best-value weapon system support.” Endorsement of Next Generation PBL Strategies 2012

PBL Progress 2012 2013 IMPLEMENTATION AND EXECUTION
DoDI 26 Nov 2013 IMPLEMENTATION AND EXECUTION Endorsement of Next Generation PBL Strategies “A recently completed study by ASD(L&MR) provided compelling evidence that properly constructed and executed performance-based product support strategies (commonly referred to as PBLs) deliver best-value weapon system support.” “The PM shall employ effective Performance-Based Life-Cycle Product Support (PBL) planning, development, implementation, and management. Performance-Based Life-Cycle Product Support represents the latest evolution of Performance-Based Logistics.” 2012 2013

PBL Progress AT&L(M&R) 22 Nov 2013 IMPLEMENTATION AND EXECUTION Endorsement of Next Generation PBL Strategies “CAEs, PEOs, and PMs will emphasize through appropriate communication vehicles the importance of pursuing performance based product support strategies.” “A recently completed study by ASD(L&MR) provided compelling evidence that properly constructed and executed performance-based product support strategies (commonly referred to as PBLs) deliver best-value weapon system support.” “The PM shall employ effective Performance-Based Life-Cycle Product Support (PBL) planning, development, implementation, and management. Performance-Based Life-Cycle Product Support represents the latest evolution of Performance-Based Logistics.” 2012 2013 Performance Based Logistics Comprehensive Guidance

AT&L 24 Apr 2013 IMPLEMENTATION AND EXECUTION Endorsement of Next Generation PBL Strategies “The Department will broadly implement effective PBL strategies. PBL’s success, however, is dependent on ensuring the workforce has the expertise and support to properly develop and implement PBL arrangements.” “A recently completed study by ASD(L&MR) provided compelling evidence that properly constructed and executed performance-based product support strategies (commonly referred to as PBLs) deliver best-value weapon system support.” “The PM shall employ effective Performance-Based Life-Cycle Product Support (PBL) planning, development, implementation, and management. Performance-Based Life-Cycle Product Support represents the latest evolution of Performance-Based Logistics.” 2012 2013 Better Buying Power 2.0 Achieving Greater Efficiency and Productivity in Defense Spending

Endorsement of Next Generation PBL Strategies “A recently completed study by ASD(L&MR) provided compelling evidence that properly constructed and executed performance-based product support strategies (commonly referred to as PBLs) deliver best-value weapon system support.” “The PM shall employ effective Performance-Based Life-Cycle Product Support (PBL) planning, development, implementation, and management. Performance-Based Life-Cycle Product Support represents the latest evolution of Performance-Based Logistics.” “The Department will broadly implement effective PBL strategies. PBL’s success, however, is dependent on ensuring the workforce has the expertise and support to properly develop and implement PBL arrangements.” “CAEs, PEOs, and PMs will emphasize through appropriate communication vehicles the importance of pursuing performance based product support strategies.” 2012 2013

“INCREASE THE USE OF PBL”
Moving Forward PBL GUIDEBOOK 3.0 “When properly established and effectively executed, PBL is an effective way to balance cost and performance regardless of whether industry or the government is providing the logistics service. If industry is the provider, PBL also provides explicit productivity incentives and ensures the best value for the DoD, particularly for service contracts such as maintenance and support contracts. We believe there is opportunity for more progress in expanding the use of PBL, and it will be receiving additional emphasis and management attention going forward.” “PBL has been the preferred sustainment strategy since the 2001 Quadrennial Defense Review.” “The policies governing these strategies have gone through several iterations since 2001, but the intent has remained the same. . .” ASD(L&MR) “Recent studies point to additional opportunity to be realized through more broadly applying properly structured and executed PBL arrangements.” May September “INCREASE THE USE OF PBL”

It works in the Army

And the Navy… Performance Improvements

And the Air Force Met or exceeded all performance metrics

PBL Comprehensive Guidance
22 November 2013 CAEs will provide a summary of their PBL implementation efforts to the Business Senior Integration Group (B-SIG) on an annual basis. Continue to provide sustainment quad charts for DAB and DAE summary reviews. Ensure PMs list specific PBL arrangements.

“The Quad Chart” The Product Support Quad Chart is a recent addition to formal program review process The Chart are required for Defense Acquisition Board reviews for major programs The four reportable quadrants are: Product Support Strategy Sustainment Schedule Metrics Data O&S Data

Session 2 PBL Basics

PBL Levels of Implementation
Supply Chain Services Logistics Chain Services Whole System Availability Operational Availability Material Availability Delivery Speed Contract Scope System Distribution Performance Subsystem PBL can be implemented at the (click) Component Level, (click) Subsystem level, (click) Platform Level, and (click) hopefully even at the Mission completion level In short, there are no boundaries to how, and to what degree, you implement PBL. Wherever, however, whenever you can buy “Performance” rather than support transactions, support improves Your strategy will, of necessity, be tailored to your Program – we’ll talk about how you do that later – but the important point from this chart is that you can start small and grow, or you can start big – the range of strategies is there, with ample precedent programs across the board, to prove it can be done Component Level 1 Level 2 Level 3

PBL Levels of Implementation (Component Level)
Performance Outcomes… Supply Chain Services Delivery Speed Contract Scope Distribution Performance PBL can be implemented at the (click) Component Level, (click) Subsystem level, (click) Platform Level, and (click) hopefully even at the Mission completion level In short, there are no boundaries to how, and to what degree, you implement PBL. Wherever, however, whenever you can buy “Performance” rather than support transactions, support improves Your strategy will, of necessity, be tailored to your Program – we’ll talk about how you do that later – but the important point from this chart is that you can start small and grow, or you can start big – the range of strategies is there, with ample precedent programs across the board, to prove it can be done Component Level 1

EXAMPLE: Navy Aircraft Tires Contract
Supply Chain Services Situation prior to PBL contract Supply Availability 81% Aircraft tires treated as commodity, bought in bulk, stored until needed Large on-hand 365 day inventory (wholesale and retail) Use of organic (DoD) distribution system; delivery times as long as 60 days May or may not have right mix of tires The contract is an IDIQ with a fixed unit price. There are essentially two average prices – small tires under $500 and large tires over $500. There is an agreed to escalation in the price from year to year. (Note that some of the current solicitations are basing escalation on a CPI that is related to the product.) The contract is structured into twelve monthly payments based on the anticipated demand quantity for the year. In the twelfth month, an adjudication of the actual verse the anticipated is conducted and the books are balanced. The basic contract is 5 years with two 5-year options. We completed the basic contract and are in the first 5-year option period.

EXAMPLE: Navy Aircraft Tires Contract
Supply Chain Services Navy awarded a $260M PBL contract in 2001 to supply Naval Aircraft Tires 5 year Fixed Price base with two 5 year option periods Contractor role: Supply Chain Management Demand forecasting, order fulfillment Warehousing, inventory Contractual Goals 95% on-time fill rate Delivery: 2-day CONUS; 4-Day OCONUS The contract is an IDIQ with a fixed unit price. There are essentially two average prices – small tires under $500 and large tires over $500. There is an agreed to escalation in the price from year to year. (Note that some of the current solicitations are basing escalation on a CPI that is related to the product.) The contract is structured into twelve monthly payments based on the anticipated demand quantity for the year. In the twelfth month, an adjudication of the actual verse the anticipated is conducted and the books are balanced. The basic contract is 5 years with two 5-year options. We completed the basic contract and are in the first 5-year option period.

EXAMPLE: Navy Aircraft Tires
Supply Chain Services Contractor actions Contractors own the entire wholesale/retail tire inventory Sub-contract let for warehouse services Modeled several warehouse configurations to balance transportation costs against on-time delivery Selected 2 warehouse sites: Charlotte NC and Sacramento CA Distribution One for international shipments One primarily for for CONUS shipments FEDEX supplements

EXAMPLE: Navy Aircraft Tires
Supply Chain Services Results Supply availability 98% over contract term Deliveries average 32.5 hours CONUS & hours OCONUS Reduced warehouse inventory level from 365 days to 90 days Virtually eliminated retail inventories (4769 reduced to 1626) On track to a projected $48M 15-year savings Learning Point: Good business opportunities even in lower level PBLs

PBL Levels of Implementation (Subsystem Level)
Performance Outcomes… Supply Chain Services Logistics Chain Services Material Availability Delivery Speed Contract Scope Distribution Performance Subsystem PBL can be implemented at the (click) Component Level, (click) Subsystem level, (click) Platform Level, and (click) hopefully even at the Mission completion level In short, there are no boundaries to how, and to what degree, you implement PBL. Wherever, however, whenever you can buy “Performance” rather than support transactions, support improves Your strategy will, of necessity, be tailored to your Program – we’ll talk about how you do that later – but the important point from this chart is that you can start small and grow, or you can start big – the range of strategies is there, with ample precedent programs across the board, to prove it can be done Component Level 1 Level 2 Level 3

EXAMPLE: Navy Auxiliary Power Unit (APU) contract
Situation prior to PBL contract Supply Availability 65% APUs were aging; support costs escalating Reliability and Availability declining; no funding to modernize Contractual Goals Supply and delivery response time: % on-time Reliability guarantees ranging from % to 300% improvement

Navy awarded a $189M 10 Yr PBL contract Subsequently expanded to $500M covering APUs across 6 platforms FAR Part 12 (commercial) Fixed Price per flight hour Contractor role Total system performance (availability and reliability) Supply chain management, configuration management, tech insertion

Contractor actions Sub-contract for Supply Chain Management Partnered with Fleet Readiness Center – East (Naval Depot (NADEP) Cherry Point) NADEP Cherry Point a ‘subcontractor’ to Prime Contractor Cherry Point does depot overhaul. Contractor ensures they have parts and technical support (on-site)

Results Supply availability 97% over contract term 25% inventory reduction Reliability improvements up to 300% Gainsharing provision when reliability improvements > 25% On track to a projected $70M savings Learning Point: Public-Private Partnerships Work!

PBL Levels of Implementation (Platform/System Level)
Performance Outcomes… Supply Chain Services Logistics Chain Services Whole System Availability Operational Availability Material Availability Delivery Speed Contract Scope System Distribution Performance Subsystem PBL can be implemented at the (click) Component Level, (click) Subsystem level, (click) Platform Level, and (click) hopefully even at the Mission completion level In short, there are no boundaries to how, and to what degree, you implement PBL. Wherever, however, whenever you can buy “Performance” rather than support transactions, support improves Your strategy will, of necessity, be tailored to your Program – we’ll talk about how you do that later – but the important point from this chart is that you can start small and grow, or you can start big – the range of strategies is there, with ample precedent programs across the board, to prove it can be done Component Level 1 Level 2 Level 3

EXAMPLE: Ground-based mobile missile system
U.S. Army awarded a 4-year (1 base year, 3 option years) $55M Fixed Price PBL contract Contingency support is CPFF 3 Metrics: 3% positive (meet/exceed metrics) and 3% negative (do not meet metrics) incentive structure System Status Readiness: 92% target Mission Capable (MICAP) deliveries: 24 hour CONUS; 96 hours OCONUS Repair TAT: 5 day average – on site repair; 45 day average – vendor repair

Contractor role Supply: manage wholesale spares inventory Maintenance: ICS Depot Level maintenance with a plan to transition to a Partnership with an Army Depot Sustaining Engineering, Training, Technical Data, Configuration Management, Obsolescence Management

Learning Point: OEMs can deliver system-level performance! PBL Contract Results Successful System Status Readiness every quarter since contract award MICAPs: No launcher has been down for 24 hours due to PBL components since contract awarded Repair TAT has been 2 days (vs. 5 day goal) for on-site repair and 34 days (vs. 45 day goal) for vendor repair Cost savings predictions are $400M+ over contract term

PBL Levels summary Single Multiple All System Level Sub-System Level
PBL can be implemented at any “Level” of end item… Single Multiple All System Level Single element for an entire system elements for entire system All elements for entire system Sub-System Level Single element for a single sub-system for sub-system All elements Component Level Single element for a single component for a single component EXAMPLE: F117 Aircraft EXAMPLE: Auxiliary Power Unit EXAMPLE: Aircraft Tires

Scope of PBL Applications

Understanding “Scope”
PBL contracts will be different than “traditional” sustainment contracts PBL metrics are specific to outcome needs Outcomes can be achieved by properly assessing the IPS areas, and aligning the range of the scope with desired outcomes and contract metrics

Integrated Logistics Support Elements
(Through 2009)

Remember what “PBL” is Performance Based Lifecycle Product Support
Title 10, USC 2337 defines “product support” “The term “product support” means the package of support functions required to field and maintain the readiness and operational capability of major weapon systems, subsystems, and components, including all functions related to weapon system readiness.”

Integrated Product Support Elements

Lockheed Martin Proprietary Information
DoD IPS Element Guidebook December 2011 575 pages Lockheed Martin Proprietary Information

Lockheed Martin Proprietary Information
PBL and the IPS Elements Lockheed Martin Proprietary Information

Not all Product Support Elements are equal in PBL
99%+ of all PBL contracts include Supply Chain Management (including PHS&T) Availability of spares, components, or subsystems Next highest included element is Maintenance, Repair, & Overhaul A critical part of the DoD/Defense Supply Chain (primary source of inventory replenishment)

PBL Implementation Scope
Integrated Product Support Elements Single Multiple All System Level Single element for an entire system elements for entire system All elements for entire system Sub-System Level Single element for a single sub-system for sub-system All elements Component Level Single element for a single component for a single component

Long-term PBL strategy Subsystem Subsystem Subsystem Subsystem SYSTEM Component Component Component Component Component Component Component Component Component

The PBL Application Model

The PBL Application Model
PBL: Simple in concept; more complex in application. The solution varies depending on: the Level of implementation (Component, Subsystem, or System/Platform) the scope of implementation The 12 Integrated Product Support (IPS) Elements the Outcome Metrics the Life Cycle Phase of the objective system Early (immature data), Later (mature data)? the constraints that prescribe how maintenance workload is allocated and performed Title 10 US Code, Military Department policies

PBL Basics Desired Outcomes Traditional Strategy PBL Strategy
(Non-PBL) PBL Strategy Availability Reliability Response times Supply chain Maintenance and repairs Repairs REPAIRS Desired Outcomes Spares SPARES PHS&T - Smaller Footprint …at an affordable cost SUPPLIES

Traditional vs. PBL The Traditional Strategy
“Bottom-Up” Traditional Strategy The Traditional Strategy is based upon individual transactions REPAIRS SPARES SUPPLIES

Traditional Transactional
“Bottom-Up” The historic DoD approach Non-integrated, stove-piped support Does not enable the critical inter-relationships across the product support elements A negative action in Supply Chain Management (e.g., poor demand forecasting) has significant impacts on maintenance, transportation, etc.) Sub-optimizes within stovepipes The PM “hopes” that the sum total of support will meet the warfighter readiness requirements Reality says it seldom does . . . . . . nor is it affordable It is a “Win-Lose” construct The worse performance gets, the more customer pays, a portion of which goes to industry.

Transactional approach
“Bottom-Up” Is reactive, not proactive Its goal is to repair or replace things that break, not prevent them from breaking. Lacks an inherent improvement component Factors that increase failure (decreasing reliability, obsolescence) must be initiated and funded externally; They are not inherently initiated. Over time, performance declines and cost rises. Its focus is on continually treating the symptoms, not on making the patient well

“Bottom-Up” Contractor Logistics Support (CLS) The traditional historic CLS approach was and is transactional. By design beginning in a program’s overall Acquisition Strategy, the contractor provides lifetime support. The contractor will be responsible to: Develop the support Acquire maintenance capability Provide the necessary support resources PBL is not CLS! The type of contractor support employed, Interim Contractor Support (ICS) or Contractor Logistics Support (CLS), will significantly affect the overall acquisition strategy. When using ICS, it is generally the services intent to eventually establish an organic support capability in which case the government would be responsible to acquire the needed support resources. However, recent strategies use temporary contractor support until a sufficient quantity of end items are fielded to justify the investment in an organic capability or to defer a final decision on organic versus life time contractor support until sufficient data is available to support such a decision. For CLS, the contractor provides lifetime support and will likely be responsible to develop/acquire and provide the necessary support resources. The program office's strategy and contractual approach in the acquisition of the commodities or services will vary depending on which version of contractor support is anticipated. DAU LOG 101 Course definition

Traditional Transactional
Contract Support “Bottom-Up” Military Customer Responsibilities The more I sell, the more profit I make! Parts Repairs PHS&T Forecast requirements Specify buy quantities Pay for each spare part and repair on a Unit Price basis More Risk Less Risk Assumes all risk for: right parts right repairs right time right quantities Contractor

“Bottom-Up” “In transactional sustainment arrangements, the incentives are neutral at best and more likely tilted against the military Services and Defense Logistics Agency. Compounding this problem is that essentially all financial and performance risks reside with the Services.” November 30, 2011

Top-Down Product Support Business model (The PBL system outcome view)
System-level availability focus Outcome-based Natural “Win-Win” construct is mutually beneficial to customer and contractor Needs of customer are met Needs of contractor (to include profit opportunity) Continuous Process Improvement is inherent

Specify Performance Outcomes
Top-Down approach Fixed Price PBL Contract The less I use, the more profit I make! Improve Reliability Improve Repair processes Motivated to: Military Customer Responsibilities Parts Repairs PHS&T Less Risk Contractor Forecast requirements Specify buy quantities Pay for each on a Unit Price basis Assume all risk for: right parts right repairs right time right quantities Specify Performance Outcomes More Risk

Project “Proof Point” Sustaining weapon systems, subsystems, and major components via Performance Based Logistics arrangements deliver improved readiness at reduced life cycle costs when compared to traditional, transactional sustainment arrangements. November 30, 2011 The Global Support Network is being built and deployed to provide our programs with a more affordable set of product support elements—an approach that allows new programs to take advantage of years of prior knowledge from across our corporation. By offering tailored solutions based on proven solutions to all of the product support elements, and by leveraging existing common logistics IT tools, processes, data and information management applications, programs can minimize up front investments and thus increase the win probability of competitive pursuits, or improve performance on existing PBL contracts.

What DoD says… Defense Acquisition Guidebook
“The essence of PBL is buying performance outcomes…versus individual parts and repair actions” “This is accomplished through a business relationship that is structured to meet the warfighter's requirements” . . .(while) “continually improving the cost-effectiveness of logistics products and services” 1,246 pages

PBL changes how support is acquired
PBL doesn’t fundamentally change Product Support; it changes how it is acquired At the operating level, all systems still require the same resources and activities to keep them operational Spares, Repairs, Technical Support, Training, Distribution, Transportation, Warehousing, etc. What it changes is the business relationship by which these elements are obtained Risk and accountability for performance outcomes are assigned to a Product Support Integrator, who determines ‘how’ to achieve them

Traditional Bottom-Up Historical Results
COST AVAILABILITY RELIABILITY Time

PBL Top-Down Approach Who benefits from PBL? Time Fixed Price Contract
COST AVAILABILITY RELIABILITY Who benefits from PBL? Time

Who benefits from PBL? The contractor The customer Other programs
Opportunity to improve product reliability Opportunity to improve process efficiency Opportunity to decrease costs Opportunity to increase profit The customer Increased availability of system Increased reliability of: Systems Processes Decreased Program costs Confidence in achieving desired outcomes Other programs Freed-up capacity Lessons learned

Session 3 PBL Contracts & PSAs

What makes a contract a “PBL” contract?
Characteristics of a “PBL” contract: Incentivizes contractor achievement of specified ‘outcomes’ Contractor is financially at risk for performance Contractor receives positive financial (and other) benefits for positive performance Contractor suffers tangible negative consequences for non-performance Contractor has broad flexibility in ‘how’ to achieve the ‘what’ specified by the contract Contractor either manages, performs, or has strong agreements in place over those support functions leading to achievement of the specified outcomes

Contract types vis-à-vis PBL
CPFF Cost Plus Fixed Fee Not PBL Early PBL CPAF Cost Plus Award Fee CPIF Cost Plus Incentive Fee FPI Fixed Price Incentive FPAF Fixed Price Award Fee FFP Firm Fixed Price Robust PBL

Risk-to-Profit opportunity ratio
High Firm Fixed Price Fixed Price Incentive Fixed Price Award Fee Cost Plus Incentive Fee Cost Plus Award Fee Cost Plus Fixed Fee High Contractor Profit Opportunity Contractor Risk Low Low

PBL contracting strategy should align to the DoD Acquisition process
DoD Lifecycle Management Framework A B Program Initiation C IOC FOC Materiel Solution Analysis Technology Maturation & Risk Reduction Engineering and Manufacturing Development Production & Deployment Operations & Support For F-22, entry into Concept Refinement occurred in 1981, M/S B occurred in 1986, M/S C in XXXX, FRP in 1996?

. . . which drives the need for a contracting strategy
Acquisition Milestones IOC Technology Maturation & Risk Reduction Production & Deployment Operations & Support FRP Decision Review FOC Materiel Solution Analysis Materiel Development Decision Program Initiation B A C Engineering and Manufacturing Development Post-CDR Assessment Post PDR } } } Sustainment Systems Acquisition Cost Plus (CPAF or CPIF) Fixed Price; or CP with Cost Targets Pre-Planning Transition to FP when pricing risk is acceptably low Forecast Supply Data Forecast Repair Data Forecast Cost Baseline Develop Initial Metrics Develop Initial Incentives Collect Supply Data Collect Repair Data Compile Cost Baseline Apply Initial Metrics Apply Initial Incentives Assess Results Finalize Metrics Final Incentives Assess Results For F-22, entry into Concept Refinement occurred in 1981, M/S B occurred in 1986, M/S C in XXXX, FRP in 1996? RUN WALK CRAWL

Component Subsystem SYSTEM Long-term PBL strategy MSA TM & RR E&MD P&D O&S A B C IOC FOC FPIF FFP FPAF CPIF FPn CPFF CPAF CPIF FPIF

The PBL contracting strategy…
. . . is CRITICAL Best PBL strategy can be handicapped by a poor contracting strategy Priority actions in devising a contracting strategy are: Contract type Contract phasing Primary objectives: Tailor contract type to correspond to: Level of risk consistent with the phase of the program Level of risk is associated with the maturity of the data Ultimate goal is a Fixed Price contract Crawl, Walk, Run towards a Fixed Price contract This is a ‘TEACHING’ slide to prepare the students for the second exercise

Component Subsystem SYSTEM Long-term PBL strategy Data Maturity MSA TM & RR E&MD P&D O&S A B C IOC FOC FPIF FFP FPAF CPIF FPn CPFF CPAF CPIF FPIF

Product Support Agreements
Product Support Arrangements (PSAs) are implemented by Product Support Agreements “Product Support Arrangement” is a generic term that includes a wide range of relationships between organizations associated with product support. If I had to pick one of the most singular characteristics of PBL versus our traditional support concept, it would be the inclusion of Performance Agreements For perhaps the first time ever, the creation of the PBA creates more than just a “promise” to the warfighter It provides something concrete and tangible, that clearly defines the expectations of the Force Provider Now, as I mentioned earlier – those expectations have to be realistic – every weapon system program is not fully funded Also, the agreements need to have built in flexibility, because priorities change Execution year funding can go up or down, and that has a literal affect on the level of support possible Therefore PBAs need to specify a RANGE of support, from minimal open the door level of effort all the way up to surge and wartime requirements That way, changes in requirements don’t precipitate going back to a clean sheet of paper startup again for the PBA Since they are in fact the document that all parties will be assessed against, getting them right is critical, as is getting the buy-in of the parties to the agreement

Types of PSAs The Contract MOA – Memorandum of Agreement
Parties to the agreement are dependent on actions by the other party MOU – Memorandum of Understanding Parties to the agreement are not dependent upon actions by the other party CSA – Commercial Services Agreement Agreement between a Contractor and DoD entity that provides for a Contractor to buy DoD goods and services SLA – Service Level Agreement Used in commercial processes more than in DoD systems; primarily used in software-related relationships

Product Support Agreements
Even beyond the contract, the Product Support Agreements are critical elements in implementing PBL Define expectations of Force Provider Define roles and responsibilities Define range of support requirements Basis for negotiating support contracts Ensure accountability in meeting Warfighter requirements Getting them right is critical! PSA If I had to pick one of the most singular characteristics of PBL versus our traditional support concept, it would be the inclusion of Performance Agreements For perhaps the first time ever, the creation of the PBA creates more than just a “promise” to the warfighter It provides something concrete and tangible, that clearly defines the expectations of the Force Provider Now, as I mentioned earlier – those expectations have to be realistic – every weapon system program is not fully funded Also, the agreements need to have built in flexibility, because priorities change Execution year funding can go up or down, and that has a literal affect on the level of support possible Therefore PBAs need to specify a RANGE of support, from minimal open the door level of effort all the way up to surge and wartime requirements That way, changes in requirements don’t precipitate going back to a clean sheet of paper startup again for the PBA Since they are in fact the document that all parties will be assessed against, getting them right is critical, as is getting the buy-in of the parties to the agreement Clarify Support Expectations!

PBL Roles & Responsibilities
Session 4 PBL Roles & Responsibilities

Product Support Manager
Roles and Responsibilities in a PBL Strategy Warfighter Program Manager Product Support Manager Product Support Integrator  Product Support Providers

PBL Roles – Historical view
Inherently Government PM Could be Government or Contractor PSI PSPs

The Product Support Business Model
PBL Roles – Current view Top-level Government accountability and Product Support management role Retains Product Support Integrator role Recognizes possibility of multiple PSIs The Product Support Business Model

Product Support Providers (PSP)
Supply/ Warehousing Depot Repair Transportation Any supplier, public or private, that provides products or services in the sustainment of a DoD system Common Commodities Contract Support Maintenance

The PSI (Product Support Integrator)
“The PSI is an entity performing as a formally bound agent (e.g., contract, MOA, MOU) charged with integrating all sources of support, public and private, defined within the scope of the Performance-Based Logistics agreements to achieve the documented outcomes” (DoD Product Support Guide) PSI “An entity within the Federal Government or outside the Federal Government charged with integrating all sources of product support, both private and public, defined within the scope of a product support arrangement” (2010 NDAA, Section 805) PSIs are RESPONSIBLE and ACCOUNTABLE for delivering the designated PERFORMANCE OUTCOMES to the Warfighter customer

Who can be a PSI? Industry Government (Organic)
OEM usually default choice Has knowledge of system; technical data, proprietary rights & licenses; unique parts; maintenance expertise Example: LM for F-117 aircraft 3PL (Third Party Logistics Provider) Not OEM, but has required integration/other expertise Examples: LM contract with DLA as broad scope parts supplier LM partner with Michelin for Aircraft tires contract Government (Organic) Program Management Office, Depot, Inventory Control Point Growing impetus for Government to assume PSI role Example: Navy Subsystem/Component PBLs

The DoD Product Support Manager
Also Inherently Government Title 10 USC 2337: “The Secretary of Defense shall require that each major weapon system be supported by a product support manager” “. . . ensure achievement of desired product support outcomes through development and implementation of appropriate product support arrangements” “. . .use appropriate predictive analysis and modeling tools that can improve material availability and reliability, increase operational availability rates, and reduce operation and sustainment costs” PSM

How the roles fit together
Product Support Agreement PM Product Support Providers Contracts or Performance Based Agreements Program Office Supply/DLA PSM Warfighter Outcomes Product Support Integrator Contractor Support Contract Transportation Delivers Outcomes Depot Repair

Session 5 PBL Depot Involvement

Depot Workload Allocation
In major weapons systems, long-term depot-level maintenance is going to be a major factor Government maintenance depots and commercial maintenance facilities may be able to perform the system’s depot-level tasks The Government PM, PSM, and the support contractor will play a role in determining where this kind of activity will occur

PSI Workload determination
PBL gives significant top-level integration responsibility to the Product Support Integrator The PSI has great latitude in determining how the support will be provided to achieve the outcomes

DoD boundary and enabler conditions
HOWEVER, DoD is governed by statutes, policy, and formal guidance that significantly bound where, and by whom workloads can be performed

Depot Workload Allocation Process
Statutory Requirements DoD Policy Best Value Title 10 What the program WANTS to do What the Program MUST do Workload Allocation Agreements Planning Process Sequence We have more flexibility now in determining where, how, and by whom our support workloads will be accomplished, but we are still constrained by key filters that must be addressed in making those determinations In broad terms, we must address What we HAVE to do (Statute) What we will GENERALLY HAVE to do (Policy) And What we WANT to do (Best Value) 1 2 3 4 Statutory Workload Allocation Agreements Requirements DoD Policy Best Value Title 10

Workload Allocation is determined along two axes
Performance Based Support 1. Best mix of Public/Private capabilities 2. Maximize use of Performance Based strategies ORGANIC Organic Support CONTRACTOR Best Mix Contractor Support Determined by: Title 10 US Code Partnering Opportunities Service Policies OSD/Service Guidance Existing Infrastructures Best Competencies & Value Determined by: DoD 5000-series Policy DoD Guidance Service Policies & Guidance Business Case Analysis Need to Optimize Performance A Product Support workload allocation strategy will be built along two major axis: The ratio of organic to contractor performed work The ratio of Performance-based support to non Performance-based (Transaction based) There are varying degrees of flexibility in how and where these workloads can be assigned, especially for Depot Maintenance workloads Law (Title 10) and Policy (e.g. Contractors on the Battlefield) dictate many workload assignment decisions Beyond compliance with Law and Policy, workloads are assigned based on a best value analysis that will consider best capabilities, existing infrastructure, and similar factors Since PBL is POLICY (DoDD ), then there should be a natural preference for Performance-based workloads Transaction Based Support

DoDI 4151.21 – Depot-level PPP (2012)
Public-private partnerships for depot-level maintenance shall be employed whenever cost-effective in providing improved support to the warfighter, and to maximize the utilization of the government’s facilities, equipment, and personnel at DoD depot-level maintenance activities. Performance-Based Logistics implementation strategies shall consider public-private partnerships . . . We’ll now talk about development of the core of your PBL support strategy – workload allocation. The reason we want to select our PSI prior to accomplishing this activity is because they are going to have ultimate responsibility for managing all of the sources of support, so it is important for them to be involved in and aware of the allocation of workloads DoD 5000 policy now states that sustainment strategies shall include the best use of both PUBLIC and PRIVATE sector capabilities through partnering

Title 10 and Depot activities
SECTION DLM 2460 Definition of Depot-Level Maintenance & Repair Reporting 2461 Commercial or Industrial type functions: Required studies and reports before conversion to contractor performance Core 2464 Core Logistics Capabilities 50/50 2466 Limitations on the performance of Depot-Level maintenance of material $3M Rule 2469 Requirements of competition for contracts to perform workloads previously performed by Depot-Level activities of the DoD Procedures 2469a Use of competitive procedures formerly performed at certain military installations Authority 2470 DLM – Authority to compete for other Federal Agency workload Lease of Excess Material 2471 Persons outside the DoD: Lease of excess Depot-level equipment and facilities End Strength 2472 Management of Depot-Level employees Public-Private Partnering 2474 Centers of Industrial and Technical Excellence (CITEs) / Designation of PPPs BRAC 2687 Base Realignment and Closures WCF 2208 Working Capital Funds

Section 2464: Core Logistics
DoD must maintain a core logistics capability that is Government-owned and Government-operated To ensure effective and timely response to a mobilization, national defense contingency situations, and other emergency requirements

Section 2466: The “50/50 Rule” Government Industry At least 50% of the money allocated annually for depot-level maintenance and repair must be performed by a Government organic entity no more than 50% can be “contracted out” Computed annually at the Military Department level – it is not weapon system specific Calculated based on FUNDS, not MANHOURS

Section 2474 CITEs & Partnerships
Authorizes the Designation of Depot Maintenance activities within the Military Departments “as a Center of Industrial and Technical Excellence (CITE) in the recognized core competencies of the designee” also authorizes partnering

Types of Partnerships Workshare Direct Sales

Types of Partnerships summarized
Workshare (10 USC 2474) Government Buying Activity Contractor USG Depot $$$ “Subcontract” (CSA) Direct Sales (10 USC 2563) Contractor ‘subcontracts’ with Depot USG Depot does overhaul Compliance with Core, 50-50 Paid by Contractor Contractor is ‘accountable’ for end item in PBL contract Depot accountable via ‘Hold Harmless’ Contract Government Buying Activity Contract $$$ $$$ Contractor USG Depot Agreement Each is paid separately Contractor and Depot establish a partnering agreement May engage in a “teaming” arrangement 10 USC 2474 is the “foundation” statute for Public-Private Partnering Established in 1998 Specifies that when Depots are designated (by Service Secretaries) as Centers of Industrial and Technical Excellence (CITES), that they may establish Partnerships in their “core competencies”. All Major Depots (19) have been designated as CITES Example: In the Air Force, Aircraft Engine overhaul is done at Oklahoma City Air Logistics Center (Tinker AFB) Tinker is the “CITE” for Air Force Engines Tinker is allowed to form Public-Private Partnerships involving Aircraft Engine Overhaul Partnerships are established with a formal agreement (e.g. Commercial Services Agreement, MOA) 10 USC 2563 (“Direct Sales”) Allows the Depot to accomplish work as a ‘subcontractor’ to a Contractor with a government prime contract Established by a partnering agreement (e.g. Commercial Service Agreement) Depot is paid by the Contractor Section 2563 contains the “Hold Harmless” clause Depot can be held accountable for default in accomplishing workloads due to: Gross negligence the failure of the Government to comply with quality, schedule, or cost performance requirements Increased accountability for Contractor and Depot in PBL arrangements ‘Hold Harmless” not applicable unless inserted in partnering agreement

Public-Private Partnering Guidebook (2012)
“Defense acquisition policy requires PMs to develop and implement performance-based logistics (PBL) strategies that include the best use of public and private-sector capabilities through government-industry partnering initiatives.” We’ll now talk about development of the core of your PBL support strategy – workload allocation. The reason we want to select our PSI prior to accomplishing this activity is because they are going to have ultimate responsibility for managing all of the sources of support, so it is important for them to be involved in and aware of the allocation of workloads DoD 5000 policy now states that sustainment strategies shall include the best use of both PUBLIC and PRIVATE sector capabilities through partnering

Depot Partnering Examples
The Guidebook (Section 3) lists case studies: Sniper Pod Warner Robins ALC / Lockheed Martin F404 Engine Fleet Readiness Center / GE M1 Abrams Anniston Army Depot / GD Land-Honeywell F-35 Lightning II Fighter USAF/USN/USMC / Lockheed Martin – Pratt & Whitney Rock Island Arsenal Rock Island Arsenal / BAE Systems HMMWV DLA/Army TACOM / AM General

Session 6 S&RP for PBL

Standard & Repeatable Processes (S&RP) for PBL
“A gap identified by DoD through the course of the OSD-charted PBL Study (Proof Point) was the need for standardized repeatable processes to facilitate effective performance-based Product Support Arrangements.”

S&RP for PBL The “12-Step Model” stages Foundation Planning Execution
Oversight PBL Guidebook: Figure 4. the DoD Product Support Strategy Process Model

It is a Guide It is not intended to be a rigid one-size-fits-all process chart It can be used as a checklist of things to consider It is intentionally flexible, to be tailored to the needs of the specific program The “steps” do not need to be performed sequentially

1. Integrate Warfighter Requirements & Support
“The PM/PSM should coordinate with Warfighter representatives to ensure product support requirements are identified/ documented and threshold values are established/updated.” - PBL Guidebook 2.1.3

1. Integrate Warfighter Requirements & Support
JROC requires a sustainment KPP JROC – Joint Requirements Oversight Council KPP – Key Performance Parameter AM Materiel Availability Of the four mandatory KPPs, there is one that specifically addresses sustainment: AM Operational Availability (AO) can apply all the way down to the LRU level. AM is a fleet-level metric. The Materiel Availability KPP is a de facto requirement. PBL Guidebook: Figure 5: Relationship between AO and AM

2. Form the PSM IPT A collaboration of key functional areas
Lifecycle Logistics Engineering Finance Contracting Legal Others, as deemed relevant by PSM Other consultants could also be used Can include Contractor and Government personnel

2. Form the PSM IPT PBL Guidebook - Figure 6: Product Support Management IPT

3. Baseline the System Assess the “as-is” state of the system
For a new system, engineering and supportability data must be developed. For active, fielded “legacy” systems, inventory of assets, assessment of services, and understand current process and availability metrics is key. MTBF, RTAT, CWT, Fill Rates, OTD, NMCS, NMCM, etc.

4. Identify/Refine Performance Outcomes
Establish outcome goals In a PBL Arrangement in particularly, establishing outcome-base metrics is key Establish at what level(s) within the system should be addressed (component, subsystem, system)

5. Business Case Analysis
May include trade-off analyses, cost:benefit analysis, product support analysis, analysis of alternatives, economic analysis, etc. The intent is to identify a best value support solution, balancing desired outcomes with associated costs A best practice is to ensure consideration of Public-Private Partnerships

6. Product Support Value Analysis
The analysis of product support alternatives includes both financial and non-financial considerations. Programs may assign weights relative to cost, benefits, and risk with product support alternatives The weighting of these three criteria is critical to the decision-making process\ A PBL Leading Practice is to use modeling and simulation to give insight

7. Determine Support Method(s)
The PSMIPT will engage in structuring an appropriate support strategy Assess product support work scope relative to Product components Product Support Elements Consider the scope and kinds of relevant product support metrics to be used Develop a performance-based contracting strategy and plan

8. Designate PSI(s) Consider the complexity of the program being supported, and the complexity of the supportability itself If the use of the PSI concept is in order, select from relevant ones. Typical candidates include The system’s Prime Contractor/OEM The system’s own Logistics organization A third-party logistics (3PL) provider from the private sector An organic agency (e.g., DLA, Depot, ICP, et al)

9. Identify PSPs Define the scope of support
Communicate with all stakeholders to generate a mutual understanding of support requirements. Document the warfighter and stakeholder support requirements Clearly identify the specific items to be covered Align PSP requirements to current and future support posture Define configuration control Begin DMS/MS planning, to include obsolescence Plan for lifecycle cost considerations Ensure compliance with statutory requirements (i.e., Title 10 USC 2464, 2466, etc.)

10. Identify/Refine Financial Enablers
Effective PBL arrangements require active PSM involvement in establishing long-term financial planning A best practice is to for the PSM to maintain continual interaction with a Program’s Financial Officer PBL Guidebook Figure 21 Alternatives to Fund a PBL Contract

11. Establish/Refine Product Support Arrangements
Effective Product Support Arrangements include: Objective and measurable outcome focused product support work description Outcomes-focused contracting strategy Contract type Contract length Pricing strategies Outcomes-focused metrics, few in number Incentives to achieve and improve outcome objectives Consideration given to lifecycle cost reductions Shared risks and rewards with Government and commercial PSIs and PSPs

12. Implement and Assess Tracking performance is integral to a PBL arrangement Best practices include: Operating with a Quality Assurance Surveillance Plan (QASP) Routine reviews Continual performance monitoring Close collaboration with stakeholders Continual alignment with evolving warfighter requirements

S&RP for PBL Summary and Discussion

PBL Enablers & Barriers
Session 7 PBL Enablers & Barriers

Enablers and Barriers to PBL
PBL has been in the DoD inventory for over 15 years There are factors that enhance PBL’s probability of success There are factors that inhibit PBL

Defense Acquisition Research Journal Research asked the question, “What factors impact PBL?” Funding Statutory-Regulatory Requirements Cultural Paradigms Existing Infrastructure or Organization Tech Data Rights PBL Awareness and Training Incentives/Awards Supply Chain Management Strategic Alliances/Partnerships Performance Based Contracting Performance Metrics TLCSM Adoption of COTS Total Ownership Costs “Scholarly peer-reviewed journal published by DAU. All submissions receive a blind review to ensure impartial evaluation.”

WARFIGHTER CULTURE Barriers

Discussion

Session 8 Summary & Resources

Defense Acquisition PBL resource

Defense Acquisition PBL resource
Online Continuous Learning Modules

Defense Acquisition resource
Improving DoD Materiel Availability and Reliability While Reducing O&S Costs and Mean Down Time PBL Community of Practice

Questions, comments? The End

The Current State of Performance Based Logistics (PBL)

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The Current State of Performance Based Logistics (PBL)

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