PRODUCT SUPPORT
A Program Manager's Guide
To Buying Performance
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TABLE OF CONTENTS
I.
WHY IS PRODUCT S UPPORT IMPORTANT? .......................................................................................4
PRODUCT SUPPORT - A K EY ELEMENT OF M ILITARY CAPABILIT Y..................................................................... 4
W HAT 'S DIFFERENT ABOUT PRODUCT SUPPORT TODAY ?................................................................................... 5
THE M ANDATE FOR THE PURSUIT OF PBL............................................................................................................. 7
A NEW FOCUS FOR PERFORMANCE, C OST AND SCHEDULE................................................................................. 9
M EETING THE NEW REQUIREMENTS FOR PRODUCT SUPPORT .......................................................................... 11
II.
WHAT IS PERFORMANCE BASED LOGISTICS (PBL)? .............................................................12
DEFINING PBL........................................................................................................................................................... 12
M AKING PBL W ARFIGHTER-FOCUSED AND W EAPON SYSTEM -CENTRIC....................................................... 13
M ANAGING RISK AS A BASIC PREMISE OF PBL.................................................................................................... 15
OBTAINING BETTER SYSTEM KNOWLEDGE THROUGH THE PBL SHARED DATA ENVIRONMENT............... 15
PROVIDING THE FOUNDATION OF PBL FOR SUSTAINMENT .............................................................................. 16
III.
HOW CAN PBL BENEFIT A PROGRAM? ..........................................................................................17
BUILDING W ARFIGHTER CONFIDENCE AND SATISFACTION.............................................................................. 17
REDUCING THE TOTAL COST OF W EAPON SYSTEM OWNERSHIP ...................................................................... 17
REDUCING THE DEMAND FOR LOGISTICS ............................................................................................................. 18
REALIZING RELIABILITY AND SUSTAINABILITY ENHANCEMENTS THROUGH PROACTIVE PLANNING ........ 18
M INIMIZING AND POSSIBLY ELIMINATING THE IMPACT OF OBSOLESCENCE................................................. 18
ENHANCING SUPPORT INTEROPERABILITY ........................................................................................................... 18
IV.
WHERE AND HOW TO BEGIN? ............................................................................................................19
UNDERSTANDING CUSTOMER PERFORMANCE REQUIREMENTS........................................................................ 19
M AKING PRODUCT SUPPORT PLANNING A KEY ELEMENT OF THE ACQUISITION STRATEGY ....................... 20
ESTABLISHING A PRODUCT SUPPORT INTEGRATOR............................................................................................. 20
DEVELOPING THE PROGRAM BASELINE PERFORMANCE AND COST................................................................. 21
CONDUCTING BUSINESS CASE ANALYSIS .............................................................................................................. 23
INTEGRATING SUPPORTABILITY ANALYSIS AS A KEY ELEMENT OF SYSTEMS ENGINEERING ...................... 24
BUILDING TEAMS FOR EFFECTIVE PERFORMANCE M ANAGEMENT ................................................................. 25
PRIORITIZING TARGETS OF OPPORTUNITY FOR LEGACY SYSTEMS................................................................... 26
TRANSITIONING TO PBL - EXAMPLES OF HOW PROGRAMS HAVE BEGUN ..................................................... 26
V.
HOW TO BUY PERFORMANCE? ..........................................................................................................30
DEFINING W HAT CAPABILITY TO BUY................................................................................................................... 30
FORMALIZING A PERFORMANCE AGREEMENT WITH THE W ARFIGHTER........................................................ 31
DESIGNING PERFORMANCE M EASURES AND MONITORING PERFORMANCE .................................................. 32
CREATING PERFORMANCE-BASED BUSINESS RELATIONSHIPS ......................................................................... 34
ESTABLISHING INCENTIVES..................................................................................................................................... 35
M ANAGING/SHARING RISKS...................................................................................................................................... 36
ASSESSING THE TOTAL COST TO THE GOVERNMENT .......................................................................................... 37
M AKING SOUND BUSINESS DECISIONS REGARDING THE SOURCE OF PRODUCT SUPPORT .......................... 38
ADDRESSING LEGISLATIVE AND STATUTORY ISSUES .......................................................................................... 39
FACING FINANCIAL M ANAGEMENT ISSUES .......................................................................................................... 40
CONSIDERING THE IMPLICATIONS OF CONTRACTORS ON THE BATTLEFIELD ................................................ 41
M ANAGING INDUSTRIAL BASE VULNERABILITY/GLOBALIZATION.................................................................... 42
LEVERAGING PUBLIC/PRIVATE PARTNERSHIPS................................................................................................... 42
VI.
HOW TO ENSURE LONG TERM PBL SUCCESS?..........................................................................44
M AINTAINING A F OCUS ON EVOLVING CUSTOMER REQUIREMENTS............................................................... 44
STAYING A STEP AHEAD OF SYSTEM RELIABILITY AND READINESS DEGRADERS......................................... 44
BUILDING LONG -TERM BUSINESS RELATIONSHIPS W ITH PRODUCT SUPPORT PROVIDERS........................ 44
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INCENTIVIZING TEAM PERFORMANCE................................................................................................................... 44
BALANCING NEAR-TERM AND LONG-TERM INVESTMENTS................................................................................. 44
EVOLVING A SYSTEM KNOWLEDGE BASE BY PROMOTING INFORMATION SHARING..................................... 45
APPENDIX A :
STATUTORY REQUIREMENTS ......................................................................................46
U.S. C ODE: T ITLE 10, C HAPTER 146..................................................................................................................... 46
SECTION 2460............................................................................................................................................................. 46
SECTION 2461............................................................................................................................................................. 46
SECTION 2462............................................................................................................................................................. 46
SECTION 2463............................................................................................................................................................. 46
SECTION 2464............................................................................................................................................................. 46
SECTION 2465............................................................................................................................................................. 46
SECTION 2466............................................................................................................................................................. 46
SECTION 2467............................................................................................................................................................. 46
SECTION 2468............................................................................................................................................................. 46
SECTION 2469............................................................................................................................................................. 46
SECTION 2469A .......................................................................................................................................................... 46
SECTION 2470............................................................................................................................................................. 46
SECTION 2472............................................................................................................................................................. 47
SECTION 2473............................................................................................................................................................. 47
SECTION 2474............................................................................................................................................................. 47
APPENDIX B: DOD GUIDANCE..........................................................................................................................48
DODD 5000.1; THE DEFENSE ACQUISITION SYSTEM , 23 OCTOBER 2000 .................................................... 48
DODI 5000.2; OPERATION OF THE DEFENSE ACQUISITION SYSTEM , 4 JANUARY 2001.............................. 48
DOD 5000.2-R (INTERIM); M ANDATORY PROCEDURES FOR M AJOR DEFENSE ACQUISITION.................... 48
PROGRAMS (MDAPS) AND M AJOR AUTOMATED INFORMATION SYSTEM (MAIS) ........................................ 48
ACQUISITION PROGRAMS; 4 JANUARY 2001......................................................................................................... 48
FY2000 DOD LOGISTICS STRATEGIC PLAN, A UGUST 1999............................................................................... 48
JOINT LOGISTICS COMMANDERS JOINT AERONAUTICAL COMMANDERS' GROUP M EMO ............................ 48
ALTERNATIVE LOGISTICS SUPPORT CANDIDATE SELECTION FLOW PROCESS............................................... 48
ALTERNATIVE LOGISTICS SUPPORT CANDIDATE SELECTION DESCRIPTION................................................... 48
APPENDIX C: ARMY GUIDANCE RELATED TO PRODUCT SUPPORT...........................................49
ARMY REGULATION 70-1 - RESEARCH , DEVELOPMENT, AND ACQUISITION, A RMY ACQUISITION POLICY
...................................................................................................................................................................................... 49
ARMY 700-127, INTEGRATED LOGISTICS SUPPORT ............................................................................................. 49
FM-100-10-2 C ONTRACTING SUPPORT ON THE BATTLEFIELD......................................................................... 49
ARMY POLICY M EMO - SUPPORTABILITY CO-EQUAL WITH COST , SCHEDULE AND PERFORMANCE........... 49
ARMY POLICY M EMO - LIFE CYCLE M ANAGEMENT............................................................................................ 49
ARMY POLICY M EMO - M ANAGEMENT OF THE TOTAL LIFE CYCLE FOR ACQUISITION CATEGORY (ACAT)
SYSTEMS...................................................................................................................................................................... 49
ARMY POLICY M EMO - TOTAL OWNERSHIP COST REDUCT ION......................................................................... 49
APPENDIX D: NAVY GUIDANCE RELATED TO PRODUCT SUPPORT............................................50
SECNAVINST 5000.2B IMPLEMENTATION OF M ANDATORY PROCEDURES FOR M AJOR AND NON-MAJOR
DEFENSE ACQUISITION PROGRAMS ....................................................................................................................... 50
SECNAVINST 4105.1 N432 INTEGRATED LOGISTICS SUPPORT : A SSESSMENT AND CERTIFICATION
REQUIREMENTS ......................................................................................................................................................... 50
OPNAVINST 3000.12A OPERATIONAL AVAILABILITY HANDBOOK, DRAFT 12 F EB 2001......................... 50
NAVAIR - M AINTENANCE TRADE COST GUIDE.................................................................................................. 50
NAVAIR - CONTRACTING FOR SUPPORTABILITY GUIDE ................................................................................... 50
NAVAIRINST 4081.2 POLICY GUIDANCE FOR ALTERNATIVE LOGISTICS SUPPORT CANDIDATES ........... 50
APPENDIX E: AIR FORCE GUIDANCE RELATED TO PRODUCT SUPPORT................................51
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AIR FORCE INSTRUCTION 63-107, INTEGRATED W EAPON SYSTEM M ANAGEMENT PROGRAM PLANNING
AND ASSESSMENT ...................................................................................................................................................... 51
AIR FORCE INSTRUCTION 63-111, C ONTRACT SUPPORT FOR SYSTEMS AND EQUIPMENT ........................... 51
AIR FORCE INSTRUCTION 63-124, PERFORMANCE-BASED SERVICE CONTRACTS......................................... 51
AIR FORCE INSTRUCTION 63-1201 A SSURANCE OF OPERATIONAL SAFETY, SUITABILITY AND
EFFECTIVENESS......................................................................................................................................................... 51
AIR FORCE INSTRUCTION 10-601, M ISSION NEEDS AND OPERATIONAL REQUIREMENTS GUIDANCE AND
PROCEDURES .............................................................................................................................................................. 51
AIR FORCE INSTRUCTION 10-602, DETERMINING LOGISTICS SUPPORT AND READINESS REQUIREMENTS
...................................................................................................................................................................................... 51
AIR FORCE INSTRUCTION 25-201, SUPPORT AGREEMENT PROCEDURES........................................................ 51
AIR FORCE INSTRUCTION 21-101, M AINTENANCE M ANAGEMENT OF AIRCRAFT ......................................... 51
APPENDIX F: DEFENSE LOGISTICS AGENCY RELATED EFFORTS...............................................52
DLA C ORPORATE CONTRACTS................................................................................................................................ 52
DLA V IRTUAL PRIME VENDOR INITIATIVE .......................................................................................................... 52
DLA INDUSTRIAL PRIME VENDOR INITIATIVE .................................................................................................... 52
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Why Is Product Support Important?
Section Highlights:
• Product support entails harnessing logistics knowledge and resources to deliver weapon system availability
and performance.
• Section 912(c ) of the National Defense Authorization Act for FY 1998 is the legislative basis for the
establishment of program manager oversight of product support.
• The integration of DoD acquisition and logistics efforts has led to the development of new, innovative
product support strategies and approaches.
• The DoD 5000-series acquisition regulations are the key policy documents supporting performance-driven
product support.
• The traditional program goals of performance, cost and schedule have a new scope and definition, which
elevate the imp ortance of product support.
Product Support - A Key Element of Military Capability
How well weapon systems are supported affects all four major components of military
capability: force structure, modernization, readiness and sustainability. Force structure is
enhanced if weapon system availability levels are high and corresponding support
requirements for military manpower are minimized. The result is more manpower for
core warfighting missions. In addition, recapitalization and modernization objectives are
achieved if weapon system support costs are reduced and the freed-up funds are applied
to these objectives. Readiness is improved when product support strategies are designed
and executed to meet specific customer performance requirements. And, finally, forces
are more sustainable if weapon systems are reliable and product support mechanisms
accurately anticipate support requirements, including interoperability and provide ready
resources when needed.
Life cycle product support management is directed at ensuring and continuously
improving the operational effectiveness of weapon systems for the warfighter. Joint
Vision 2010 and 2020 define the warfighter's requirement for focused logistics.
Information and logistics technologies are fused to "provide rapid crisis response, to track
and shift assets even while en route and to deliver tailored logistics packages and
sustainment directly to the strategic, operational and tactical levels of operations."1
Product support management strategies, effectively tailored, can provide the flexibility
responsiveness, and visibility demanded by the warfighter. The application of diagnostics
and prognostics to weapon systems further enhances the warfighter's operational logistics
effectiveness.
A continuous challenge for program managers is to provide a ready, technologically
superior weapon system capability that meets the warfighter's evolving requirements.
This task includes the life-cycle management of warfighter requirements, continuous
monitoring of the performance of the weapon system, the assessment of how well actual
performance matches warfighter requirements, the identification and insertion of
1
U.S. Department of Defense, The Joint Staff, Joint Vision 2010, Focused Logistics - A Logistics
Roadmap, 1996, p.24
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technology enhancements and the continual refinement of the "best value" product
support solutions. The product support solutions must ensure compliance with all
statutory and regulatory requirements and in particular, the statutory limitations of
both Title 10 USC, Sections 2464 and 2466. (See Appendix A for further details.)
What's Different About Product Support Today?
In the past, the product support strategy was developed by the logistics community in
coordination with, but not partnership with the acquisition community. As illustrated
below, the logistics community addressed supportability design interface issues such as
reliability and maintainability and coordinated these as input to the acquisition
community. The acquisition community acquired integrated logistics data (formerly
MIL-STD 1388-2B, now MIL-PRF 49506) so that the logistics community could then
undertake the logistics planning function. This logistics data was then used to plan and
implement the logistics support of weapon systems within the DoD-provided design for
support. This design typically included three levels of maintenance, two major types of
inventory control points, one for reparables and one for consumables, DoD configuration
and technical data management, DoD managed computer resources, DoD training and
DoD specified packaging, handling and transportation. While these elements are all
essential factors to consider, their appropriate balancing, mix and integration depends on
the unique requirements, design characteristics, and operating limits of a weapon system.
The traditional DoD approach to support segmented the functions across organizations
with each organization maintaining accountability for their respective functions. No one
organization or entity had visibility or accountability for the integrated output of these
various activities. In addition, continuous analysis, assessments and updates of the
product support plan was often lacking.
Product Support of the Past
Product Support of the Past
ACQUISITION COMMUNITY ACQUISITION COMMUNITY Product
AsProduct
Designed
As Designed
Design Interface
Design Interface
MA Planning
MA Planning
LOGISTICS COMMUNITY LOGISTICS COMMUNITY -
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Product,
AsProduct,
Delivered
As Delivered
ILS Data
ILS Data
Manpower
Manpower
Facilities
Facilities
Support
Support
Equipment
Equipment
Supply
Supply
Support
Support
Computer
Computer
Resources
Resources
Tech
Data
Tech Data
Training
Training
Packaging,
Packaging,
Handling &
Handling &
Transportation
Transportation
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O-level
O-level
I- level
I- level
D-level
D-level
DOD-furnished
DOD-furnished
Design
Design
SYSTEM
SYSTEM
CAPABILITY
CAPABILITY
Support
AsSupport
Planned
As Planned
Legend:
ILS-integrated logistics data
MA-maintenance
O-organizational
I-intermediate
D-depot
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DoD has recognized that product support solutions can be more effectively designed and
implemented if the acquisition and logistics communities work in partnership. As
illustrated below, integrated acquisition and logistics functions conduct supportability
analysis as an integral element of the systems engineering process, beginning at program
initiation to ensure designed in reliability and maintainability, and throughout the
program life cycle to ensure that the system as operated continues to meet the
warfighter's supportability requirements.
Functions
Attributes
Priorities
Technical
Effectiveness
Product
Effectiveness
Reliability
Maintainability
Supportability
Inherent
Availability
Operation/Use
Maintenance
Logistics
System
Effectiveness
Operational
Effectiveness
Process
Efficiency
System Total Ownership Cost/
Design for Affordability & Supportability
Source: Stevens Institute of Technology
In order to fully realize the benefits of acquisition and logistics integration, DoD has
determined that performance-based logistics (PBL) is the preferred approach for
executing product support so that the accountability and responsibility for the
integration of support elements are linked to the specific warfighter performance
requirements for weapon system readiness and operational capability.
. Product support is a package of logistics support functions necessary to maintain the readiness and
operational capability of a system or subsystems
These logistics support functions include, designing in reliability and maintainability, weapon system
diagnostics and prognostics, configuration management, reliability-centered maintenance, supply chain
integration, sustaining engineering, obsolescence management, distributed training, development and
management of a shared integrated weapon system data environment, and interoperability with logistics
command and control.
The PM shall use the most effective source of support that optimizes performance and life cycle cost,
consistent with military and statutory requirements. The source of support may be organic or
commercial, but its primary focus is to optimize customer support, achieve maximum weapon system
availability at the lowest total ownership cost (TOC).
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The Mandate for the Pursuit of PBL
The movement toward product support and PBL as a means to implement, began with
Section 912(c) of the National Defense Authorization Act for Fiscal Year 1998. It
directed the Secretary of Defense to develop a plan to streamline acquisition
organizations, workforce, and infrastructure. The plan committed the Department to
giving Program Managers (PMs) the responsibility for oversight of efforts to reduce total
ownership costs. Product support and PBL are the ways the Department has elected to
implement the PMs’ oversight responsibilities.
Concurrently, the Joint Aviation Logistics Board (JALB) began to examine PBL in the
context of military aviation systems. In its 1999 report2 , the Board addressed commercial
support of defense systems, the role of acquisition reform, business rules, core
requirements, and barriers to implementing cost-effective support. Among its conclusions
and recommendations, the Board endorsed the further refinement and use of PBL.
"The Department of Defense and the Military Departments should undertake a planned transformation
in logistics which is based upon the concept of PBL support. As such, all providers of support,
regardless of the organic or commercial nature of such support, are held to the same concept and its
associated metrics." JALB Report on Commercial Support of Aviation Systems, June 1999, page 4
In addition, a comprehensive product support strategy, titled Product Support for the 21st
Century,3 was prepared by a joint military service/defense agency team chaired by the
Office of the Deputy Under Secretary of Defense (DUSD) for Logistics and Materiel
Readiness. Their July 1999 report established key enabling actions to permit DoD to
migrate to a product support process based on output measures such as availability of
mission equipment. The strategy was directed at the development of a customer-focused
product support environment.
The customer focused product support environment would be characterized by the following attributes:
• Customer relationships that are based on performance outputs (such as flying hours or the mission
availability of equipment).
• Integrated logistics chains across government and industry that focus on system readiness and
customer service - driven by the unique requirements of the services.
• Best-value providers selected from government or industry or government/industry partnerships.
• A support environment that maintains long-term competitive pressures.
• Secure, integrated information systems across industry and government that enable comprehensive
logistics chain integration and full asset visibility.
• Continuous improvement of weapon system supportability and reduction in operating costs by
dedicated investments.
• Effective integration of weapon -focused support that is transparent to the warfighter and provides
total combat logistics capability.
Source: Product Support for the 21st Century: A Year Later, September 2000, page v.
An essential element of the product support strategy included the establishment of 30
pilot weapon system programs to test innovative product support practices. These
programs are representative across the military services, weapon system types and stage
2
3
JALB Report on Commercial Support of Aviation Systems, June 1999, available at TBD
Available at: http://www.acq.osd.mil/log/lpp/ps/prod_suprt.htm
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of the life cycle as shown below. Examples of how these programs are leading the way
for new approaches to product support are provided throughout this guide.
Army
Abrams M-1 Tank
Advanced Field Artillery Tactical Data System
Apache AH-64
Chinook CH-47
Commanche RAH-66
Crusader
Guardrail/Common Sensor
Heavy Expanded Mobility Tactical Trucks
High Mobility Artillery Rocket System
Tube-launched, Optically-tracked, Wire-guided
Improved Target Acquisition System
Navy
Air Force
Advanced Amphibious Assault Vehicle Airborne Warning & Control System
AEGIS Cruiser
B-1B Lancer
Aviation Support Equipment/ConsolidatedC-17 Globemaster
Automated Support System
Common Ship
C-5 Galaxy
CVN-68
Cheyenne Mountain Complex
EA-6B Prowler
F-117 Nighthawk
H-60 Helicopter
F-16 Falcon
LPD-17
Joint Surveillance Target Attack Radar
Medium Tactical Vehicle Replacement KC-135 Stratotanker
Standoff Land At tack MissileSpace-Based Infrared Systems
Expanded Response
The momentum begun by the Secretary’s plan is being carried forward to other
initiatives. The new DoD systems acquisition process, as defined in the DoD 5000-series
acquisition regulations4 sets specific direction for product support. A key policy of DoD
Directive 5000.1 entails integrated and effective operational support, which is based upon
a total systems approach and logistics transformation.
"The Department shall strive for an integrated acquisition and logistics process characterized by
constant focus on total cost of ownership; supportability as a key design and performance factor;
logistics emphasis in the systems engineering process; and that meets the challenges of rapidly
evolving logistics systems supporting joint operational forces." Source: DoD Directive 5000.1
DoD Regulation 5000.2-R provides further direction related to product support. It
requires the PM to develop a support strategy as part of the acquisition strategy and as an
integral element of the systems engineering process.
"…the PM shall develop and document a support strategy for the life-cycle sustainment and
continuous improvement of product affordability, reliability, and supportability, while sustaining
readiness. This effort shall ensure that system support and life-cycle affordability considerations are
addressed and documented as an integral part of the program's overall acquisition strategy. The
support strategy shall define the supportability planning, analyses, and trade-offs conducted to
determine the optimum support concept for a material system and strategies for continuous
affordability improvement throughout the product life cycle." Source: Interim Regulation DoD 5000.2R,
2001, page 2-9
The support strategy is applied throughout the life cycle of the weapon system. It begins
with the delineation of the warfighter's supportability performance parameters and
evolves throughout the life of the program. DoDD 5000.1 states, "Acquisition program
managers shall focus on logistics considerations early in the design process to ensure that
they deliver reliable systems that can be cost-effectively supported and provide users with
the necessary support infrastructure to meet peacetime and wartime readiness
requirements."
4
Available at http://www.acq.osd.mil/ar/
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DoD Instruction 5000.2 also directs planning for full-life-cycle support management as
part of the support strategy documented in the acquisition strategy, which the PM will
develop in coordination with the Military Service logistics command. This planning
applies to programs in initial procurement, reprocurement, and post-production support.
The planning for product support is to meet, at a minimum, the objectives listed below.
•
•
•
•
•
•
•
Integrate supply chains to achieve cross-functional efficiencies and provide improved customer service
through performance-based arrangements or contracts.
Segment support by system or subsystem and delineate agreements to meet specific customer needs.
Maintain relationship with user/warfighter based on system readiness.
Provide standard user interfaces for the customer via integrated sustainment support centers.
Select best-value, long-term product support providers and integrators based on competition.
Measure support performance based on high level metrics, such as availability of mission capable
systems, instead of on distinct elements such as parts, maintenance and data.
Improve product supportability, system reliability, maintainability, and supportability via continuous,
dedicated investment in technology refreshment through adoption of performance specifications,
commercial standards, non-developmental items, and commercial-off-the-shelf items where feasible, in
both the initial acquisition design phase and in all subsequent modification and reprocurement actions.
Source: Interim Regulation, DoD 5000.2R, 2001, page 2-10
An integrator may serve to manage the product support of a weapon system as stated in
DoD 5000.2-R, "The PM may select a product support integrator from the DoD or private
sector. Activities coordinated by support integrators can include, as appropriate,
functions provided by organic organizations, private sector providers or a partnership
between organic and private sector providers."
The DoD 5000 series also promotes the use of performance-based acquisition for all
program elements which should be tailored to maximize the return for all stakeholders.
There is no "one size fits all." 5
"In order to maximize competition, innovation, and interoperability, and to enable greater flexibility
in capitalizing on commercial technologies to reduce costs, performance-based strategies for the
acquisition of products and services shall be considered and used whenever practical. For products,
this includes all new procurements and major modifications and upgrades, as well as the
reprocurement of systems, subsystems, and spares that are procured beyond the initial production
contract award. When using performance-based strategies, contractual requirements shall be stated
in performance terms, limiting the use of military specifications and standards to Governmentunique requirements. Configuration management decisions shall be based on factors that best
support implementation of performance-based strategies throughout the product life cycle."
Source: DoDD 5000.1, October 23, 2000, page 5
A New Focus for Performance, Cost and Schedule
The new 5000 series emphasis on product support has led to a new scope and definition
of the traditional program factors of performance, cost and schedule.
As illustrated below, the traditional focus on performance entailed demonstrating
technical performance and promising supportability performance. While much attention
was centered on the technical parameters, supportability was a promise that was often
5
Guidebook for Performance-Based Services Acquisition (PBSA) in the Department of Defense,
December 2000
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negated to a "not on my watch" status. The focus on cost was limited to RDT&E,
military construction and procurement costs. PMs were evaluated on managing the costs
of developing and producing the system. The focus on schedule involved developing and
producing a weapon system on time. Meeting these three criteria was centered on
developing, producing and delivering a weapon system. Responsibility for delivering the
capability that the weapon system was designed to deliver, was a disparate responsibility
that did not rest solely with the Program Manager.
The past focus: --------------PM delivers---------------A System
Performance
Demonstrated Technical/ Promised Supportability
Cost
RDT&E and Procurement Costs
Schedule
Develop and Produce Product On Time
The new focus on performance, cost and schedule is illustrated below. The Program
Manager is now tasked to deliver a capability to the warfighter, not just a system.
Performance is based on demonstrated technical capability and supportability for the life
of the system. Cost is based on the total cost of weapon system ownership for its life
cycle. Schedule is based on meeting development and production schedules, as well as
meeting the warfighter's schedule for a weapon system capability. The new focus and
scope of these criteria demand that product support approaches and strategies be designed
to meet these new challenges.
The new focus: ----------------PM delivers ---------A Capability
Performance
Demonstrated Technical & Supportability
Cost
Total Cost of Ownership
Schedule
Delivery of a Capability On Time/When Needed
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Meeting the New Requirements for Product Support
This guide serves to provide the tools and techniques for Program Managers and their
teams as they design product support strategies for new programs or major modifications
or re-engineer product support strategies for legacy weapon systems to leverage the
benefits of performance-based logistics. All programs regardless of life cycle phase begin
with the warfighter requirements and the delineation of support objectives to meet those
requirements and result in buying specified levels of support. The difference is that a new
or modified program can design the approach to product support whereas legacy systems
must focus on re-engineering existing support functions.
This guide is structured to cover basic challenges which apply to both new, modified and
legacy weapon system programs. The sections that follow:
§
§
§
§
§
define performance-based logistics,
present the potential benefits of PBL,
identify where and how to begin PBL,
discuss how to buy performance, and
describe how to ensure long-term PBL success.
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What Is Performance Based Logistics (PBL)?
Section Highlights:
• PBL is about buying a capability.
• The approach to PBL is warfighter-focused and weapon system centric.
• PBL leverages the PM's expertise at buying technical performance.
• PBL is guided by risk management versus risk avoidance.
• The PBL shared data environment will enable the development of weapon system knowledge.
• PBL for weapon systems are designed to be interoperable in the PBL sustainment environment.
Defining PBL
PBL is the delineation of output performance goals/thresholds which represent a
weapon system ready capability, the assignment of responsibilities and implementation
of incentives for the attainment of these goals/thresholds, and the overall life cycle
management of system reliability, sustainability, and total ownership costs. The
definition of PBL begins with a common understanding of logistics. Key to warfighting
capability, logistics is defined as "the process of planning and executing the projection,
movement and sustainment, reconstitution, and redeployment of operating forces in the
execution of national security policy." (JCS - Pub 4 - Executive Summary). Two essential
elements driving this process are the ability of weapon systems to perform in combat
which is based upon their availability and mission reliability, and the type and volume of
resources required for their sustainment. The responsibility for the logistics support of
weapon systems, also defined as product support, now resides with the Program
Manager. This responsibility is addressed through the integration of acquisition and
logistics as they work in partnership for the life of the program to design and deliver the
capability that the warfighters require as illustrated below. The process for PBL is
iterative throughout the life cycle of the program.
Product Support Today
ACQUISITION/LOGISTICS COMMUNITY - Partners For Life
Product,
Designed to
Meet Tech.&
Support Performance
Design/Technology
Improvements
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Solution Focused
on Output Performance
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Warfighter
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Making PBL Warfighter-Focused and Weapon System-Centric
As is illustrated below, the warfighter requirements drive the process. The challenge with
PBL is to translate those readiness requirements into output performance goals/thresholds
for a weapon system. Thus, PBL is warfighter-focused and weapon system centric. The
ready capability of a weapon system depends upon having qualified operators and a
mission capable system. The factors that impact these output measures are all dependent
upon product support. The goal of PBL is to design and build a reliable system that will
reduce the demand for logistics and a maintainable system that reduces the resources,
such as manpower, equipment and time, required to provide the logistics support.
As such, the Program Manager Team must ensure that logistics as a process for weapon
system support serves two key objectives. First, the system as designed, maintained and
modified must reduce the demand for logistics. Second, the resources required to fulfill
logistics or support requirements must be minimized. These two objectives are interrelated throughout the life cycle of the weapon system. PBL is a product support strategy
for meeting these two objectives by balancing and integrating the logistics support
elements.
PBL Framework
Weapon System
Ready Capability
Warfighter
Requirements
Logistics
Performance
Reduce
the
Demand
for
Logistics
Optimize
Logistics
Delivery
Effectiveness
Empowering Program Managers with PBL
Today, there is a growing recognition that Program Managers must be empowered to
manage life cycle support of their weapon systems. Performance-based logistics (PBL) is
an approach designed for Program Managers to obtain control over the integrated support
of their system to better serve the warfighter's requirements. Program management teams
are well-seasoned experts at buying and delivering technical performance. The
technological capability of our weapon systems is proof of this assertion. Now, there is
recognition that this expertise can also be applied to buying set levels of support
performance. Just as Program Managers ensure that a weapon system, such as an aircraft
performs at a specified speed, they can also ensure that the weapon system provides a
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specified level of availability or sortie generation rate. Performance parameters for
support are targeted at output measures, such as weapon system availability, power by the
hour (for propulsion), sortie generation (for aircraft) or mission reliability, just to name a
few. The performance parameters for support, just as those for technical performance are
tailored to the specific requirements of the weapon system and its respective
customers/warfighters.
Program management teams work with the warfighters to determine the appropriate goals
and thresholds for the support performance parameters. In structuring PBL for a weapon
system program, it is critical that a continuous effort be placed on reducing the support
requirements from day one of the concept through system disposal. Support requirements
will always exist, but the challenge of PBL is to design business relationships, whether
organic or industrial or some combination, that create incentives to reduce not only the
resource requirements for logistics, but also the requirement for logistics, itself. Program
Managers are keenly aware of the increasing portion of life cycle costs that operating and
support costs represent - upwards of seventy-five percent and the growing dissatisfaction
of the warfighters, with poor support performance which results in reduced readiness and
more importantly, safety concerns. PBL incentives can be structured to improve system
performance and reduce total ownership costs. Successful PBL can reduce the
requirement for military support manpower and return this manpower to their core
warfighting mission. PBL efforts can serve as a force multiplier.
There has been much discussion in recent years regarding the importance of providing
program managers with better visibility and understanding of the total cost of system
ownership. Equally important, but perhaps less recognized, is the importance of
providing program managers with better visibility and understanding of the reliability and
sustainability of their weapon systems and its components -- projected reliability and
actual operating reliability and planned sustainability and actual sustainability. Program
managers need to know if the promised levels of weapon system support performance,
such as reliability and sustainability, are being met. Through this knowledge and
understanding, maintenance/support requirements which are not needed can be reduced
(i.e. operating reliability is greater than projected and maintenance requirements can
safely be extended or unnecessary requirements eliminated) and items with lower
reliability than projected can be targeted for upgrades or mods to improve the "bad
actors." Cost visibility alone will not resolve the challenges of product support. It must
be coupled with continual visibility and management of the reliability and sustainability
of our weapon systems. The exhibit below illustrates the major factors associated with
managing the "uptime" and "downtime" of equipment. Measures such as the time to and
cost of failures are driven by the inherent reliability of the equipment, whereas measures
such as the time to and cost of support and maintenance are driven by the supportability
and maintainability of the equipment.
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System Uptime
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System Downtime
Time & Cost to
Failure (TTF)
Design Cause
Reliability/
Operation
Operational Effect
Time &Cost to Time & Cost to
Support (TTS) Maintain (TTM)
Supportability/ Maintainability/
Logistics
Maintenance
Source: Stevens Institute of Technology
Managing Risk as a Basic Premise of PBL
In the past, DoD tended to accept all of the risk related to product support. This practice
contributed to escalating operations and support costs and the lack of visibility to the
factors driving poor support performance. For example, if systems didn't meet projected
reliability objectives, DoD carried the burden of buying more and more spares. If support
equipment was not accurate, DoD carried the burden of false positive tests and false
removals. The PBL approach is based on DoD managing and sharing risk with those
who promise set levels of reliability and sustainability- the providers of weapon systems
and their components and those who promise that product support will be available and
effective in restoring operational capability within set timeframes and costs - the
suppliers of product support.
Depending upon the stage of the life cycle, the amount of risk that can be shared varies. If
a system is in its early phase, a PBL approach to support could give industry the incentive
to design and produce a system that will minimize its life cycle support costs.
Furthermore, if technologies stand a high risk of obsolescence, then evolutionary
upgrades may be used, which would result in throwaway versus repair philosophies for
certain items. If a program is an aging system, risk may be shared with the support
provider through incentives to improve practices and/or system reliability.
Obtaining Better System Knowledge Through The PBL Shared Data Environment
Performance-based logistics implementation takes place within an environment where
weapon system data is shared to facilitate improved support performance. If producers of
weapon systems or components have profit or other incentives to reduce or eliminate any
repair/support transactions, then they will become very interested in obtaining a better
understanding of how their respective items perform. Thus, whereas in today's
environment when Program Managers are called to task to reduce total ownership costs,
there is no significant source of system knowledge and understanding, in a PBL
environment, that system knowledge will pay dividends and thus be the basis of action.
The application of reliability-centered maintenance, as a continuous management tool,
will be used to guide system support planning proactively. The output of reliabilitycentered maintenance will become a central source of weapon system knowledge - an
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understanding of not just how the system was projected to perform, but of how the actual
performance measures up to that projection and how support plans and tasks need to
evolve with the system as it performs in the field.
Providing the Foundation of PBL for Sustainment
PBL weapon system solutions must be designed to be interoperable in the operational
logistics environment. The illustration below presents the major elements of the
operational environment that will be comprised of all weapon systems supporting the
operational commander. Customer driven anticipatory logistics evolve from the various
individual PBL efforts for weapon systems which are driven by the health monitoring of
systems and supported by an optimized infrastructure. Real-time operational and support
status is leveraged by fleet management to provide simultaneous deployment and
sustainment of forces and provides the basis for integrated theater logistics management.
Performance Based Logistics
in the Operational Environment
Fleet
Management
Global
Vendors
Commercial
Vendors
Consolidation
Point
Weapon
System Mgr
Organic/Partnered
Depots
Customer-driven
Anticipatory
Logistics
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Point
Interactive
Technical
Manuals
Health
Monitoring
Tailored Unit
Consumption
Packages
Tailored Unit
Consumption
Packages
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How Can PBL Benefit A Program?
Section Highlights:
§ Warfighter confidence and satisfaction can increase.
§ The total cost of ownership can be reduced.
§ The overall demand for logistics can be continuously reduced.
§ Reliability enhancement can evolve from proactive planning.
§ The impact of obsolescence can be minimized and possibly eliminated.
§ Support interoperability for operational logistics can be enhanced.
Building Warfighter Confidence and Satisfaction
The application of performance-based logistics can provide numerous benefits. First and
foremost, is the potential that PBL has to build the warfighter's confidence and
satisfaction with the capability that a weapon system will deliver when needed. While
today Program Managers may not be in a position to control the various functional
elements delivering DoD's traditional logistics support, they are definitely held
accountable when support for their system falls short. A decision to pursue or transition
to PBL will place Program Managers in more direct control of their system's support
destiny. It will help to ensure that responsibility and accountability for a system's product
support is appropriately assigned. The requisite performance parameters, goals and
thresholds are determined in conjunction with the warfighter customer base and then a
business relationship is established and managed to meet those support requirements. By
beginning the process with the warfighter and evaluating success based on meeting the
warfighter's requirements, the probability of building the warfighter's confidence and
satisfaction should increase substantially. In DoD's traditional approach, all the support
functional elements could meet or even exceed their own individual stovepipe
performance goals and still leave the warfighter dissatisfied when it came to the output
measure of weapon system availability and/or readiness.
Reducing the Total Cost of Weapon System Ownership
PBL will provide more visibility and control over operations and support costs. PBL,
which can be structured to deliver a set level of support performance at a specific price,
improves the ability to manage limited program funds. As such, it provides an
opportunity to reduce the total cost of weapon system performance while maintaining or
improving the current level of support performance. If incentives are creatively
structured, costs and cycle times can be reduced, performance can be improved and the
providers can increase their profits while programs realize benefits. Internal DoD support
providers can also realize a working capital profit or loss and other benefits which
contribute to their overall organizational effectiveness. The key to these cost reduction
efforts is never to lose sight of meeting the warfighter's performance objectives. The
challenge is to modify the behavior of support providers to ensure a ready capability with
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less expenditure of resources based upon support that is continuously tailored to the
operational behavior of the weapon system.
Reducing the Demand for Logistics
Another significant benefit of PBL is the potential to reduce the overall demand for
logistics. If support providers can realize more profit or benefit from other incentives, by
ensuring that the item, component or system never fails or fails less, then the overall
demand for logistics will decrease. Thus, the downtime of equipment is minimized and
the overall system availability increases. Not only does availability increase, any DoD
resources that were expended on logistics requirements can be set free to be assigned to
other priorities. In the case of military support personnel, PBL can serve as a force
multiplier by refocusing the military on their core mission.
Realizing Reliability and Sustainability Enhancements through Proactive Planning
In today's environment, "bad actors" or readiness degraders are recognized only after
their impact has already seriously reduced performance. In a PBL environment, support
planning which is driven by controlling the expenditure of resources on logistics support,
will be done to identify and predict support problems before they become serious. This
will result in the benefit of reliability enhancements, which will be planned proactively,
as opposed to reactively. The result will be that the weapon system will be ready when
the warfighters need it, without any delay in their planned operations. While a weapon
system may be aging, the support solutions that PBL provides will capitalize on the
knowledge gained through tracking and monitoring the system's operational behavior.
Minimizing and Possibly Eliminating the Impact of Obsolescence
Yet another potential benefit of PBL relates to technological obsolescence. The discrete,
functional organizations associated with traditional support often find it difficult to
manage obsolescence. Thus, we tend to deal with its consequences rather than to
proactively manage and control its impact on system support. In a PBL environment,
obsolescence will be managed by the support provider who is given a financial or award
term incentive to ensure that set levels of system support performance are achieved.
Enhancing Support Interoperability
The focus on output measures for PBL provides the opportunity to better address support
interoperability. For example, the health monitoring of systems through diagnostics and
prognostics enables better logistics command and control information for the operational
commander. This information could also form the foundation of a consolidated list of
support requirements. This enables the virtual support team, representing all weapon
systems providing a given capability, to better leverage their resources to the operational
logistics priorities of the CINC.
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Where and How To Begin?
Section Highlights:
• A comprehensive understanding of performance requirements is essential.
• Product support planning must be an integral element of the acquisition strategy.
• A product support integrator may be established.
• The baseline performance must be delineated and a business case analysis conducted.
• Supportability analysis must be an integral element of systems engineering.
• Stakeholders must be identified and team-building for effective support must be planned.
• For legacy weapon programs, evolutionary change entails prioritizing targets of opportunity.
• Transitioning to PBL - factors, timing and results.
Understanding Customer Performance Requirements
Regardless of the life cycle stage of a program, the first issue that must be addressed is
making sure that there is a comprehensive understanding of what the customer wants in
terms of performance. As a program manager, the operational commands/organizations
that support the warfighting CINCs are, in general, your customers. The performance
requirements of customer organizations should have been defined and negotiated early in
a weapon system program. For newer platforms/systems, supportability performance
requirements to include specified goals and/or thresholds for weapon system availability
and total ownership cost may have been specified in documents such as the Operational
Requirements Document (ORD) and the Acquisition Program Baseline (APB). For
legacy weapon systems, there may not be a clear linkage from earlier program
documentation. The customer must identify the support performance requirements in
measures such as, weapon system availability, or whatever output measure is most
relevant for their operating environment. Understanding the customer's performance
requirements is not a one-time event. As warfighting scenarios change and the
operational environment evolves, customer performance requirements may change. Thus,
understanding the customer's requirements is a continual management process.
Recommendation of Joint TSPR Working Group - USAF SMC/AX & HQ AFSPC/LG
"USSPACE, AFSPC and AFMC revitalize active and pervasive user involvement/requirements
identification throughout the acquisition process to ensure needs and concerns are accurately and
completely addressed." Ensuring Wing Commanders Have Effective Resource Command and
Control & Funding Flexibility Under Total Systems Performance Responsibility, February 2000
Joint STARS - Importance of cooperative decision-making
"By co-chairing a requirements review board with the HQ ACC/DR Joint STARS is able to
identify the requirements, prioritize them and then execute the limited dollars against as many of
the requirements as possible." Program impacts resulting from funding decisions are identified
and discussed - proactively
NOTE: The green boxes provide program specific information and comments.
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Making Product Support Planning a Key Element of the Acquisition Strategy
The Program Manager must develop and document a support strategy as part of the
acquisition strategy. The support strategy serves to minimize the time and cost associated
with satisfying the customer's support performance requirements and to maximize
affordability throughout a program's useful life cycle. The traditional integrated logistics
planning is no longer a mandatory requirement. Product support planning is not
standardized and support strategies are tailored to the unique requirements of weapon
system programs. The product support planning process evolves through the life of a
program -- from initiation through reprocurement of systems, subsystems, components,
spares and services beyond the initial production contract award and during postproduction support. The product support strategy must be updated at least every five
years during the product life cycle or with greater frequency depending on the pace of
technology. A product support strategy should be formally documented for all legacy
systems, as any modifications to a system will now require this as an integral element of
the acquisition strategy.
The Army RAH-66 Comanche program which successfully completed the Army Systems
Acquisition Review Council and Milestone II Defense Acquisition Board review in March/April
2000 is conducting a support strategy study to determine performance-based acquisition
applications. Specific peacetime and wartime operational availability levels have been set as the
support performance metrics.
Establishing a Product Support Integrator
In order to better manage product support, Program Managers may establish a product
support integrator (PSI). The application of PBL to a weapon system will depend upon
the unique characteristics of the program, the warfighter's requirements and the current
state and structure of the weapon system's product support. For new programs, there is
an opportunity to design the product support strategy around buying a ready capability as
an integrated weapon system and its support. In such cases a total system performance
responsibility (TSPR) may be appropriate. The product support integrator function would
be an integral element of TSPR. For major modifications and upgrades, depending upon
the scope of the change, a TSPR approach may be appropriate, if not for the entire
system, then for the modified elements.
The scope of the product support integrator function may also vary depending upon the
unique circumstances of a program. In some cases, the PSI may be the direct recipient of
PBL requirements and then integrate the various providers of support. In other cases, the
PSI may identify and manage the integration of PBL for the program, but the program
office would retain the various business relationships directly with PBL providers.
Regardless of who performs the PSI function, the task for legacy programs is extensive
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and entails a large amount of baselining of current activities and business case analysis
before effective integration can take place.
Example of DoD Product Support Integrator:
The Army Program Executive Office for Intelligence, Electronic Warfare and Sensors (IEWS) and
Communications and Electronics Command (CECOM), as agreed to in their Memorandum of
Agreement (MOA) dated 12 April 2000, will have joint, co-equal decision authority over finance
and management of Guardrail/Common Sensor sustainment and future improvements through a
series of Integrated Product Teams (IPTs)
Developing the Program Baseline Performance and Cost
Once an understanding of customer performance requirements is gained, it is important to
determine the current level of performance and the costs associated with achieving this
level of performance along with a delineation of how support is currently being provided
and by whom. For new programs, the baseline is the costs associated with the replaced
weapon system. For legacy weapon systems, the various elements of the existing support
structure and approach must be delineated and a baseline of performance and cost
developed. In developing these program baselines, one of the challenges is to relate costs
to resulting levels of performance. This process is essential to reduction in total
ownership cost initiatives. The Section 912 pilot programs were all challenged to reduce
their total ownership costs. Thus, the pilot programs have all developed their program
baselines and identified cost reduction initiatives.
"R-TOC is not a program. It is easy to call it that but it does not sit on top or underneath any other
program. It is a philosophy, a mindset, a culture that is integrated and institutionalized into the
acquisition and support processes. If it is not, it will fail."
Determining the scope of your baseline
The scope of a baselining effort is often determined by the life cycle stage of a program.
For new programs, with no existing logistics structure, the baseline often includes an
examination of the cost to support the replaced systems and sometimes includes an
extrapolation of what it "would cost" to support the new system under the traditional
support approach. These two baselines are then compared to what it "could cost" to
support the new system under PBL. The "could cost" is usually a price versus cost given
that a common business strategy for performance-based support is to purchase a set level
of performance in terms of weapon system availability at a set price.
The scope of the baselining activity for legacy weapon systems is determined by the
impetus for the move to PBL. In the case of system modifications or upgrades, the
potential of transitioning to performance-based support for the new items/components
should always be considered. In such cases, the scope of the baselining activity will
depend upon the role of the new item/component within the overall weapon system. If
support for the specific item is easily separated from the overall system, then a simple
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baseline of the support as currently structured for the item(s) would be undertaken. If
support for the item is not easily separated from the overall system, then the baselining
activity may be much broader in scope. In other situations, escalating ownership costs
and/or poor performance may lead to the pursuit of alternative logistics support solutions.
In those cases, the baselining activity is targeted at the poor performance areas or the high
cost drivers.
Delineating elements of the baseline
There are several basic elements of most baseline activities for product support. Each of
the services has specific approaches for assessing a program support baseline to include
performance and cost. Some of the major elements of performance and cost include:
Weapon system/equipment readiness levels
Weapon system/equipment mission capable rates
Weapon system/equipment availability
Weapon system/equipment reliability
Mission personnel costs
Unit level consumption costs
Intermediate maintenance (external to unit) costs
Depot maintenance costs
Contractor support costs
Sustaining support costs
Indirect support costs
Identifying sources of data
The availability and credibility of operating and support cost data has been increasing in
recent years with the emphasis on reducing the total cost of ownership for weapon
systems. The process of ensuring and improving the accuracy of this data requires
feedback from Program Offices to the offices that manage and control the various
databases.
Program Office Comments on data accuracy and feedback"By being proactive, we can assist the AFTOC Program Office to deliver data to the field that is
verified, corroborative, and credible. We have provided feedback to the AFTOC Program Office
showing that different data bases had missing data, overlooked transactions, inflated prices, etc. Each
time these items are found and fixed the AFTOC data bases become better, more credible and useful
to the field."
The Army, Navy, and Air Force have all established web-based logistics databases that
are accessible with authorized passwords. The Army has a database link called,
WEBLOG which provides a wide range of logistics data and information. The Navy has
established a Naval Aviation Logistics Data Analysis (NALDA) database/repository,
which provides various information sources not only on cost, but also performance. The
Air Force has on-line access to AFTOC data, which includes only cost data. The web
sites are provided below:
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Army: http://www.weblog.logsa.army.mil
Navy: http://www.nalda.navy.mil
Air Force: http://www.saffm.hq.af.mil
Specifying the methodology and approach
Each of the military services has developed methodologies and approaches for
conducting program baseline assessments. The Army has also established TOCR
handbook for reduction in total ownership cost initiatives. The Navy has an "affordable
readiness" template and methodology for program managers to use to assess potential
alternative logistics approaches that improve performance and reduce cost. The Air
Force has also developed a CAIV/TOC Guidebook as part of their Reduction in Total
Ownership Cost initiative. The web sites for the service RTOC initiatives are:
Army: http://www.sarda.army.mil/armytoc
Navy: http://www.nalda.navy.mil/3.6/coo
Air Force: http://www.safaqxt.rtoc.hq.af.mil
The Army's GUARDRAIL/Common Sensor product support pilot program has included as part of its
baselining activity an effort to identify and evaluate the performance-based content of all existing
contracts/agreements between all support providers, including contractors, Army and DLA inventory
control points and supporting depots.
Defining the assumptions
It is essential to clearly define the assumptions regarding the baseline. These assumptions
include the justification of the time period being used, the credibility of the source data,
the link between resources expended and performance achieved, the way sunk costs are
considered, and the way overall costs are allocated. The assumptions regarding the
baseline should be built with stakeholder participation, so that the assumptions made are
fair and reasonable.
All stakeholders including the prime contractor, should be included in the identification of
R-TOC initiatives, Business Case Analysis (BCA) development and R-TOC project execution.
"Each organization brings it's own perspective and expertise to the table and facilitates the
development of end-to-end solutions that do not benefit one organization to the detriment of
others. The addition of the prime contractor can be especially beneficial as an avenue
that has traditionally been excluded from this type of activity to bring fresh ideas from industry."
Conducting Business Case Analysis
The results from baseline assessments form the basis for conducting business case
analysis of the product support solution(s). "A business case is a tool used to manage
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business process improvement activities from inception through implementation. A
business case is a document that identifies functional alternatives and presents
economical and technical arguments for carrying out alternatives over the life cycle to
achieve stated business objectives or imperatives."6 In conducting business case analysis
for PBL, alternative solutions will be assessed in terms of their ability to meet the
logistics performance objectives of the warfighters. Each of the services have established
guidelines for the cost/benefit analysis that is used to make the business trade-off
decisions for determining the most cost effective product support solution(s).
Naval Inventory Control Point PBL Business Case Analysis Fact Sheet
For each PBL initiative, NAVICP will conduct a BCA. This BCA is designed to quantify any
cost benefits the Navy will realize through the initiation of a PBL contract. The BCA process
involves determining the Navy's current cost of doing business. This "without PBL" cost is then
compared to the cost to the Navy if they execute a PBL arrangement. This "with PBL" cost
includes both the PBL supplier's costs as well as the residual costs the Navy will retain even
under a PBL arrangement. All savings must be quantifiable and trackable. All savings used in
the calculation will be approved by the appropriate Navy resource sponsor in order to be used to
support approval of the BCA. Savings not approved by the appropriate resource sponsor will not
be identified in the BCA as savings.
Integrating Supportability Analysis as a Key Element of Systems Engineering
Systems engineering permeates the design, manufacturing, test and evaluation and
support of the product. A key element of systems engineering is supportability analysis
which is performed throughout all phases of the life cycle. Acquisition logistics
management activities are conducted throughout the life cycle and are no longer confined
to only development and design. A key element of supportability analysis includes
reliability, availability and maintainability (RAM).
"RAM system requirements shall address all elements of the system, including support and training
equipment. They shall be derived from, and support, the user's system readiness objectives. Reliability
requirements shall address mission reliability and logistics reliability. Availability requirements shall
address the readiness of the system. Maintainability requirements shall address the servicing,
preventive and corrective maintenance." DoD 5000.2R, 2001, p.5-11
A useful management tool for accomplishing RAM objectives is reliability-centered
maintenance (RCM) analysis. RCM is a life cycle process for establishing and adjusting
preventive maintenance requirements for all levels of maintenance. RCM ensures that the
preventive maintenance requirements are based on the failure characteristics of the
equipment and enables it to realize its inherent reliability. If a weapon system does not
have an ongoing RCM analysis, establishment of one should be considered as an element
of program baselining activities. Whereas baselining is typically associated with cost,
RCM can serve as a baseline of your system's technical operating performance,
identifying actual reliability and comparing it to projected or estimated reliability.
6
Business Case Model for the DoD Logistics Community: A Guide to Business Case Development,
Deputy Under Secretary of Defense (Logistics), Logistics Reinvention Office, March 1, 1999
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The RCM process entails asking seven questions about the asset or system under review as
follows:
• What are the functions and associated performance standards of the asset in its present
operating context?
• In what ways does it fail to fulfill its functions?
• What causes each functional failure?
• What happens when each failure occurs?
• In what way does each failure matter?
• What can be done to predict or prevent each failure?
• What should be done if a suitable proactive task cannot be found?
Source: "Society of Automotive Engineers (SAE) Standard, SAE JA1011, August 1999, p. 6"
Standard, SAE JA1011, August 1999, p. 6"
NAVICP under a ten-year fixed price PBL contract for F414 engine will realize the benefits of life
management and trending to identify and resolve problems before they impact readiness.
The Army's GUARDRAIL/Common Sensor Program had as one of its initial efforts, an
evaluation of the current sustainment engineering process and the development of an
implementation plan for a holistic legacy systems engineering process.
Lesson Learned from USAF's C-17 Program:
"…early attention to reliability is paying dividends today. Since the lion's share of future life cycle
costs flow from the aircraft design, reliability, maintainability and availability must be built into
the system."
Building Teams for Effective Performance Management
In order to develop and build a credible baseline assessment, conduct a business case
analysis and establish effective systems engineering, a team approach must be utilized.
Integrated product teams (IPTs) are essential to successful product support planning. This
mechanism serves to bring in and build the team of stakeholders who are an essential
ingredient to effective transitions to PBL. The insights and experiences of existing
support organizations can serve a "smart buyer" function as move to purchasing a support
capability versus a specific logistics tasking.
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On the T45TS Naval Undergraduate Flight Training System
"The Government-industry team produced a CLS organization that continues to set the standard.
Through an innovative and aggressive program of "right sourcing", the team formed an optimum mix of
government and contractor support elements destined to equal the perfect 100 percent sortie completion
rate currently boasted by the NAS Kingsville, Texas T45TS CLS."
Prioritizing Targets of Opportunity for Legacy Systems
As with most changes, the migration to PBL will be more evolutionary versus
revolutionary. The task of ensuring weapon system availability is taken very seriously
and has been traditionally managed with DoD assuming all risk and shredding
responsibility so that no one organization or entity is accountable for performance. The
transition to PBL will entail a "letting go" of some control by DoD, to enable support
providers to share in some of the risk. As such, the process will be evolutionary,
especially for legacy weapon systems. In the case of legacy weapon systems, targets of
opportunity can be prioritized based upon customer requirements, technical and
operational issues, cost drivers, etc. For example, for some systems which have a
National Guard or Reserve customer base, there may be ideal opportunities to transition
to performance-based support in a more limited environment to test and refine its
implementation. In other instances, modifications to legacy weapon platforms also
provide an opportunity to apply PBL to the modified elements of the system.
Transitioning to PBL - Examples of How Programs Have Begun
The transition from DoD's traditional approach to performance-based support must be
carefully planned. This transition does not necessarily mean that logistics support will
move from organic DoD providers to industry providers. This transition does mean that
the business relationships that are structured to meet the customer's performance
requirements will be different from those of the past. Under PBL support, the focus and
incentive is to meet established performance goals and objectives at an established price.
If the provider, organic or commercial, provides the specified level of service at less cost
than the price, then the provider reaps the profit. This structure promotes the incentive of
automating or streamlining tasks to reduce manpower costs. Timing is also important for
this transition to performance-based support. Both DoD and industry alike must develop
plans to accommodate the shrinking workforce in this era of aging weapon system
platforms and consequently, growing support requirements.
Numerous programs have begun efforts to move to PBL under various initiatives
designed to meet the specific requirements of their programs. There is no "one size fits
all" approach to PBL. Each program has tailored the PBL application to its own unique
circumstances. These systems range from new systems, such as the Joint Strike Fighter,
to current platforms such as the Air Force F-117 aircraft. The product support concepts
range from autonomic logistics which leverages technology and virtual support teams, to
total systems performance responsibility (TSPR) which is a product support strategy for
major weapon system platforms whereby one or a limited number of contractors are
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responsible for system modifications, integration tasks, and sustainment tasks to meet
warfighter requirements. The Government remains accountable for program execution. A
key objective of TSPR is to reduce systems integration concerns by having a single focal
point manage all integration tasks. Another objective is to reduce costs by eliminating
redundant management systems. In the long term, TSPR enhances weapon system
capability by ensuring accountability for key performance parameters.
The Joint Strike Fighter Program, which has not yet entered EMD, has designed a PBL approach
entitled, "autonomic logistics." Autonomic logistics is essentially an automatic set of processes to
ensure maximum sortie generation with minimum logistic footprint and costs, while maintaining high
mission reliability. That concept and those processes will also provide an adaptive responsiveness to the
Commander's intent and the warfighter's needs.
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The Air Force transitioned to PBL on its F-117 aircraft program when faced with a base closure which
resulted in a significant downsizing of its system program office. The F-117 is operating under a Total
System Performance Responsibility (TSPR) concept. The TSPR contract awarded to Lockheed
Martin is a five-year contract with an option to extend for three additional years. It is a cost plus
incentive fee with an award fee feature. The core Government functions are: program direction,
requirements determination, budgeting/financial execution, contract management, product/service
acceptance, and security. The contractor role is focused on modification, integration and sustainment
and includes: system engineering, subcontractor management, system/subsystem integration,
configuration management, item/material management, warehousing/transportation, direct supply
support to the 49th FW, reporting requirements support to the Air Force, and tech data management.
In September of 2000, a TSPR contract was awarded to Lockheed Martin Mission Systems to
perform Integrated Space Command and Control (ISC2) work for the Strategic and Nuclear
Deterrence Command and Control (SNDC2) System Program Office. As the single, integrated
sustainment contractor team for the SPO, the ISC2 contractor provides for the maintenance, evolution
and development of current and future Cheyenne Mountain Complex (CMC) systems.
The H-3 transitioned to PBL beginning with intermediate level maintenance. In August 1994, Chief
of Naval Air Training (CNATRA) awarded a contract for the operation of the Aircraft Intermediate
Maintenance Department at NAS Pensacola.
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On Total Systems Support Responsibility -- (TSSR) The Joint STARS TSSR contract is an Air
Force Lightning Bolt 99-7 initiative that integrates all Joint STARS sustainment efforts under a single
integrating contractor, Northrop Grumman Corporation. An integral element of this TSSR is a
partnership with a DoD depot. These efforts should be accomplished as early as possible in a Low
Density/High Demand program's life cycle.
The V-22 program has implemented PBL for its engine. The V-22 engine will be maintained through
a Power By the Hour contract with Allison Engine Company.
The Navy is implementing a Government/Industry Logistics Support (GILS) effort for the F-414
engine. The Government is performing all levels of maintenance, while industry provides a majority
of the logistics support. GILS team members include NAVAIR, NAVICP, DLA, NADEP
Jacksonville, NADEP Cherry Point and General Electric. NAVICP will award a tem-year fixed price
contract for guaranteed engine availability based upon cost per flight hour pricing.
The Air Force is utilizing a single contractor, Boeing, as an integrator for the commercial derivative
KC-10 aircraft. Boeing was awarded a contract for 5 years with 1 year options in October of 1998.
Boeing maintains all aircraft to Federal Aviation Administration (FAA) standards. The major portions
of the contract are fixed costs to include: landing gear, engines, paint, Contractor Operated and
Maintained Base Supply (COMBS) management and an aircraft "C" check inspection. There are also
contingency/wartime and drop-in maintenance contract clauses.
The Army Abrams M-1 tank is transitioning to PBL efforts through the Team Abrams Partnership, a
public-private partnership that leverages the core competencies of each sector.
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NAVICP awarded a five-year PBL fixed-price award fee contract to Lockheed Martin NESS - Marine
Systems in support of all components of the MK-41 Vertical Launching System. Lockheed Martin
will assume the full range of requirements forecasting, repairs and new builds, inventory
management, warehousing and transportation functions. Limited configuration authority will also be
assumed for approximately 344 Navy-managed items.
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The Army's Heavy Expanded Mobility Tactical Truck (HEMTT) Pilot Program
The HEMTT's approach to innovative support focuses on three major elements. (1) An Extended
Service Program, targeted at high failure items is applying commercial technologies to improve
performance and reduce costs. (2). A continuous support improvement effort through a
partnership between the program, DLA and industry suppliers providing direct vendor delivery.
(3). The development of interactive electronic technical manuals to provide enhanced support to
the soldier.
The Army's GUARDRAIL/Common Sensor Product Support Pilot Program
This program is implementing innovative support solutions to reduce life cycle sustainment costs,
without causing a negative impact to unit readiness. They have established metrics to measure
their progress which include: annual O&S savings against 1998 baseline; overall cost avoidance
dollars; overall return on investment; percentage of reinvestment into the program; unit
satisfaction based on GR/CS IPT results; and waivers and cost savings associated with waivers.
Military Sealift Command (MSC)- Buying the Capability
MSC pursued an innovative effort to privatize the Combat Stores Ships (T-AFS Class Vessels)
vertical replenishment mission. During 1999, MSC privatized vertical replenishment and rotary
wing logistics services for the CINCANTFLT aboard T-AFS vessels in the Atlantic and
Mediterranean Area of Operations. A five- year contract that provides for commercial helicopters,
pilots and support personnel to replace the military personnel and aircraft previously assigned.
The use of commercial assets and commercial standards to meet this critical service for the
warfighter on a long-term basis required careful planning and execution. It required the use of
innovative performance specifications, integration of commercial procurement practices in
solicitations and contracts and extensive communication with the helicopter industry to eliminate
unnecessary administrative burdens for the contractor while ensuring that customers' needs would
be met."
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How To Buy Performance?
Section Highlights:
• Clearly defining desired output performance metrics is essential to success.
• Product support performance should be measured & tracked based on the direct contribution to the
warfighter's measure of support effectiveness.
• A Statement of Objectives (SOO) expresses what the PM wants; how to do the job is up to the provider.
• DoD policy is to use performance-based strategies for the acquisition of services wherever possible.
• Business arrangements can be structured so that the support provider shares risk with the PM.
• Source of support comes down to making sound business decisions.
Defining What Capability to Buy
The goal of PBL is to make sure the weapon system provides a ready capability that
meets the warfighter requirements. PMs and warfighters realize that they must work
together to determine what is reasonable and attainable—but tied to stretch goals—given
the state of technology and resources. The process for defining the PBL requirements will
be tailored based upon the stage of a weapon system program -- new -- current -- or
modification/upgrade.
In the early stages of a weapon system program, the supportability performance
requirements are established in the Operational Requirements Document (ORD). The
Service Chief or DoD Component Head approves the requirements and the Joint
Requirements Oversight Council (JROC) validates the requirements. These performance
parameters form the basis of the acquisition program baseline and represent the user
performance expectations for the system capability which is to be delivered.
"The total number of performance parameters shall be the minimum number needed to characterize the
major drivers of operational performance, supportability, and interoperability (10 USC 2435). This
minimum number shall include the KPPs (key performance parameters) identified in the ORD." Interim
Regulation, DoD 5000.2R, January 4, 2001
The performance parameters are defined in terms of thresholds and objectives. The
thresholds represent the minimum acceptable value that in the user's judgement is
necessary to satisfy the need. The objectives represent the values desired by the user.
Some examples of thresholds and objectives for logistics and readiness performance
parameters for the Marine Corps Infrared Laser Pointer [IRLP] are provided below.
Logistics Supportability: The IRLP will use batteries commonly stocked by the Marine Corps and will
be capable of 30 minutes or more of cumulative lasing time before requiring a battery change
(threshold).
Reliability, Availability and Maintainability: Mission reliability is defined as the probability the IRLP
will function properly when correctly employed by the user. The IRLP must have a .70 mission
reliability (threshold). The objective is .95. The Mean Time Between Operational Mission Failure
(MTBOMF) for the IRLP will be no less than 942 (threshold) . The MTBOMF objective is 6,551.
Source: U.S. Marine Corps: ORD Development process Handbook, July 1998
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Key elements of the ORD related to PBL are: a general description of the operational
capability to including the support concept, a description of the capabilities required to
include logistics and readiness capabilities and a description of the program support. For
new programs these requirements can form the basis of the PBL capability. For
modifications and upgrades the ORD should be updated and thus, should also form the
basis for your PBL capability.
For legacy weapon systems with no major modification or upgrade, the PBL capability
requirements should be developed with the warfighter customer representatives. In other
words, what capability does the system need to provide, when and where.
In this Guide, “warfighter” is a generic term encompassing theater operations personnel
(“shooters”) and the related personnel (e.g., Maintenance; Command, Control, and
Communications; Intelligence) who directly support those who fight. Warfighters are represented
by the operational components that support the CINCs.
Formalizing A Performance Agreement with the Warfighter
A performance agreement between the PM and the warfighter is part of the PM’s overall
PBL support strategy. Typically, an agreement between these organizations will spell out
output performance thresholds and objectives and the target price for the set level of PBL
capability. This agreement should also delineate any specific constraints or boundary
conditions for the PBL capability and specific terms and conditions related to warfighterprovided items such as physical space for maintenance, and information about the quality
of the weapon system, and its operational availability. The performance agreement may
be recorded in the updated operational requirements document (ORD) and should serve
as a separate living document. As noted below, the Section 912 (c) Program Manager
Oversight of Life Cycle Support report emphasized the importance of implementing
formal commitments for product support through agreements among warfighters and the
PMs.
"The warfighter defines, revises, and prioritizes requirements, while the PM acts as the product
support manager and presents investment and support alternatives and associated costs. Agreements
and commitments would be formal and enforceable, thereby avoiding a conflict of interest, closing
loopholes so responsibility cannot shift from one party to another, and providing a system of checks
and balances." Source: Program Manager Oversight of Life Cycle Support, October 1999, p. 3-8
This concept of warfighter-driven support requirements and formalized agreements
between the customers and the PMs has been successfully demonstrated in foreign
military sales (FMS) programs. In such cases, the customer determines the requirements
and the PM develops and prices support options. The negotiations between the customer
and the PM result in a letter of agreement (LOA) that provides nearly 100% visibility of
all aspects of the FMS cost. The LOA serves as the contract or business agreement for all
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support providers with the PM having full execution and funding authority for the
product support.
The Army's GUARDRAIL/Common Sensor Product Support Pilot Program has set the
establishment of a formal performance agreement between the GR/CS major commands and the
PM, ACS/CECOM as one of its goals. This agreement in the form of a MOA will identify the
subsystems and/or functions that will be measured and the metrics that will be used to measure
performance of these selected subsystems and/or functions.
Designing Performance Measures and Monitoring Performance
The performance agreement that is formalized with the warfighter will provide specific
performance objectives that will form the basis of the PBL effort. The next task is to
operationalize these objectives. In other words, delineate a few good measures that will
serve as effective performance indicators. Given the traditional approach to product
support, there is a tendency to want to use a large number of metrics. However, a focus
on a few such as, weapon system availability, mission reliability, logistics footprint
and overall system readiness levels will lead to more effective solutions.
In some instances, where a specified level of PBL capability is provided at a set price, the
Program Manager team does not need specific cost data on components of support. The
only cost data which may be required in price-based PBL would be any cost data
associated with DoD that are incurred, either planned or unplanned, above and beyond
the specific price paid to the PBL provider which may be organic or commercial.
Another factor, which must be addressed, involves the actual measurement, monitoring
and the evaluation of performance. The metrics that operationalize the performance
objectives must be easily and readily measured. Linking metrics to existing warfighter
measures of performance and reporting systems is preferable. In structuring the metrics
and evaluation of performance, it is important to clearly delineate any potential factors,
which could impact the performance outcome that are outside the control of the PBL
providers.
While objective, easily measurable metrics should form the bulk of the evaluation of a
PBL provider's performance, there may be elements of product support requirements that
would be more appropriately evaluated through subjective evaluations by the warfighter
and the PM team. This approach provides some flexibility for adjusting to potential
support contingencies that could arise due to conflict or war.
Every effort should be made to obtain timely feedback from customers regarding logistics
process responsiveness and the quality of products and services. Deficiency reporting
should be an integral part of analyzing customer satisfaction.
NAVICP's PBL contract for the F414 engine will include daily fleet interface via field service
representatives and the fleet support team to ensure that there is continuous feedback from the
customers.
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Examples of How Programs Have Set Metrics
"Warfighter involvement in metrics development and incentives is critical to incentivizing the right
behaviors from the Total System Support Responsibility provider."
One example of how a legacy weapon system has set performance metrics and evaluation
criteria and mechanisms is the U.S. Air Force F-117 Total System Performance
Responsibility (TSPR) PBL effort. The TSPR contract is based on seven quantitative
objectives listed below along with their respective standards. These seven metrics are
weighted for the purposes of determining an award fee incentive.
F-117 TSPR Performance Metrics, Standards and Weights
Metric
Standard
Weight
Non Mission Capable Non-NSN Items
Mission Capable Supply Delivery
Readiness Spares Kits Availability
Depot Quality - # of discrepancies
Depot Delivery - days late
Delinquent Deficiency Report Responses
Weapon System Trainer Availability
5%
72 hours
96%
0- 20
0 days
1 delinquency
99%
25
15
15
15
15
10
5
NAVICP awarded a five-year PBL contract to Rockwell Collins, Inc. in January 2001 in support of
the ARC-210 Radio set. The contract includes an availability guarantee of 85% that requires the
contractor to deliver replacement assets to the fleet within two to five days depending upon the
priority. Measurement begins with receipt of an electronic requisition at the contractor's facility and
ends with receipt of the replacement asset at a predetermined customer location. In addition,
guaranteed reliability is included with gainsharing provisions if the contractor can achieve
significantly higher reliability levels.
NAVICP awarded a six-year PBL contract to Raytheon Systems for support of the ALR-67(v) 3
Radar Warning System in September of 1999. This contract tasks industry to become a full service
provider encompassing overall program management, inventory control and engineering support for
the ALR-67(v). Raytheon is required to ensure fleet users receive shipments at sites within CONUS
within 30 business days for year two and within 5 business days for years 3-6 from receipt of a
customer requisition. The contractor has guaranteed a 90% availability rate which is defined as the
number of requisitions filled on time divided by the total number of requisitions for each measuring
period. The contractor has also guaranteed to improve system reliability in annual increments as
measured in mean time between failures (MTBF) from 300 hours to 475 hours at the end of year six
of the contract.
The Navy's T45 training system is maintained under a five year PBL fixed price contract with Boeing
based on the performance metric of ready for training aircraft. There are also three types of material
condition performance metrics: (1) the number of flyable aircraft discrepancies; (2) the number of
outstanding discrepancies after phase inspection; and (3) the number of corrosion discrepancies after
the 84 day inspection .
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Creating Performance-based Business Relationships
In a performance-based business relationship, a performance work statement (PWS) or a
statement of objectives (SOO) is often used to describe what performance requirements
the provider must meet. These documents describe the requirements in terms of
measurable outcomes rather than by means of prescriptive methods. The PWS or SOO
also describes how the output will be measured and evaluated, and the payment
(monetary or otherwise) that will be made for successful performance. The provider has
considerable leeway to determine how to meet the performance objectives and quality
levels spelled out by the PM.
The Office of Federal Procurement Policy’s “ A Guide to Best Practices for PerformanceBased Service Contracting” has a good discussion of best practices for drafting
statements of work, solicitations, quality assurance plans, and awarding and
administering performance-based contracts7 . OFPP has also produced a checklist that
contains required elements that must be present for an acquisition to be considered
performance-based8 .
These characteristics must be present for a performance-based contract to exist:
• Performance requirements that define the work in measurable, mission-related terms
• Performance standards (i.e., quality, quantity, timeliness) tied to performance requirements
• A quality assurance plan that describes how the contractor’s performance will be measured against the
performance standards
• If the acquisition is either critical to mission accomplishment or requires relatively large expenditures of
funds, positive and negative incentives tied to the quality assurance plan measurements
DoD also has a guidebook for Performance-Based Services Acquisition (PBSA), dated
December 2000, and has established a policy requiring that 50% of all service
acquisitions must meet the Performance-Based Services Acquisition (PBSA) by 2005. A
selected list of top level guiding principles of DoD's guidebook is provided below.
•
•
•
Strive to define requirements in clear, concise language. Focus on specific work outcomes and ensure
that they are measurable to the greatest extent practicable.
Contractor performance assessments (the process known as quality assurance) should focus on outcomes
rather than on contractor processes. Focus on insight of contractor performance, not oversight.
Incentives should motivate the contractor to achieve performance levels of the highest quality consistent
with economic efficiency. Ensure that incentives are effective and that they reflect value both to the
government and to the contractor.
Source: Guidebook for Performance-Based Services Acquisition (PBSA) in the Department of Defense, December 2000
7
8
Available at http://www.arnet.gov/BestP/PPBSC/BestPPBSC.html
Available at http://www.arnet.gov/References/Policy_Letters/pbscckls.html
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It is important to recognize that PBL is a performance-based services acquisition.
However, while the PBSA guidebook is directed at contracting with industry, the
principles and mechanisms of PBSAs can also be applied to business relationships
between PMs and internal (organic) DoD PBL providers.
Establishing Incentives
DoD has recently emphasized the importance of the effective application of incentives for
defense acquisitions. In a policy memo, dated, January 5, 2001, the Under Secretary of
Defense for Acquisition, Technology and Logistics, stated that "incentives can be
monetary or non-monetary, and should be positive but balanced, when necessary, with
remedies for missing specific program targets or objectives." 9 He also acknowledged that
cost-based incentives sometimes result in unintended consequences and that non-cost
based incentives more closely approximate commercial agreements. Various incentive
tools that are identified in the policy are included below.
•
•
•
•
•
•
•
•
•
Incentive Tools
Contract length considerations
Strategic supplier alliances
Performance-based payments
Performance incentives
Schedule incentives
Award fee contract arrangements
Past performance
Competition considerations
Remedies for non-performance
Source: Incentive Strategies and Tools for Acquisition, dated January 5, 2001
The contract length considerations are of special importance to PBL efforts where longterm business relationships enable the necessary investments to reduce both the demand
for logistics and the resource requirements for logistics. Of particular relevance to
contracts greater than five years are four acquisition strategy considerations, which must
be addressed. These considerations are listed below.
•
•
•
•
The strategy must articulate when and how the provisions of the Competition in Contracting Act
(CICA) will be addressed, including at what point in the future it will be re-addressed.
Continued performance or contract term must be coordinated on continual successful performance.
Performance outcomes must be clearly articulated.
Price guarantees, options, and cost-based ceilings should be agreed upon by both parties, either
competitively or non-competitively, to ensure that commitments are established and maintained
throughout the period of performance. Acquisition personnel are urged to build in flexible pricing
guarantees or alternatives to adapt to budget and quantity fluctuations.
Contract terms must be consistent with statutory funding limitations on the purpose and amount of
appropriated funds expenditures. Availability of funds provisions are key to the use of long term
contracts.
Source: Incentive Strategies and Tools for Acquisition, dated January 5, 2001
9
Policy Memorandum on Incentive Strategies for Defense Acquisitions, dated January 5, 2001, Under
Secretary of Defense for Acquisition, Technology and Logistics
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Another relatively new incentive approach for DoD contracts related to contract length is
award term contracts. In award term contracting, the government establishes objective
performance parameters and announces that it intends to lengthen or shorten the period of
the contract based upon the contractor's performance. This approach enables providers to
make investments to improve performance and reduce costs they might not otherwise
make when facing uncertainty or short-term periods of performance. An example of an
award term contract is the Air Force’s “Propulsion Business Area” contract, which
includes maintenance of aircraft engines and modules. This contract was awarded to the
Oklahoma Air Logistics Center, which teamed with a contractor. The contract contains an
initial ordering period of seven years. This period may be reduced to a minimum of five
years or extended to a maximum of fifteen years based on contract performance.
The DoD Incentives Guidebook contains information useful to DoD and industry
acquisition personnel about establishing incentives. It provides “the necessary framework
and tools with which to effectively structure contractual incentives to achieve overall best
value as part of a successful business relationship.” Through a series of pertinent
questions and links to Web sites, it presents multiple steps and considerations that lead to
a satisfactory incentive arrangement.
Another good publication on incentives is the Flexible Sustainment Guide, Appendix E,
Use of Incentives10 . Whereas the DoD Incentives Guidebook focuses on establishing
trust- and information-based business relationships, the Flexible Sustainment Guide
focuses on the different types of contracts that can be employed, and the advantages and
disadvantages of each type.
It is also important to realize that there are incentives for DoD organic providers to
become partners with industry PBL providers. Some of those incentives can include:
workload stabilization; insertion of commercial practices; capital investment; and
commercial workload opportunities.
Managing/sharing risks
The effective structure of a PBL business relationship entails the effective identification
and sharing of risks. Numerous unpredictable factors can impact the support
requirements for a weapon system, especially with aging, legacy weapon platforms. As
such, it is important that these risk factors be identified and carefully managed by the PM
team and the PBL provider(s). The DoD Risk Management Guide states that risk
management “is concerned with the identification of uncertainties that threaten cost,
schedule, and performance objectives, and the development and implementation of
actions to best deal with those uncertainties within established limits.”11 The Guide
10
11
Available at http://lrc3.monmouth.army.mil/cecom/lrc/leo/eladiv/logistics/flexguide/flexguide-e.html
Risk Management Guide for DoD Acquisitions, January 2001, Defense Systems Management College
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identifies external risks such as changes in threat, funding changes, contractor problems,
political decisions, and acts of nature. Among the internal threats are poorly defined
manufacturing, support reliability and availability, cost and schedule estimates, and
modeling and simulation capabilities.
In section II of this Guide, we noted that PBL is based on DoD managing and sharing risk PBL
providers. Some areas where risks can be shared with vendors include:
• Demand forecasting and the sharing and joint analysis of item lead times, demand variances, and
safety level allocation with vendors
• Maintenance planning and scheduling
• Inventory management
• Distribution and transportation operations
• Surge supply and transportation, and maintenance production risk mitigation
The Defense Systems Management College’s Risk Management Guide for DoD
Acquisitions12 provides an extensive discussion of risk management and program
management.
Significant Logistics Risks, as identified in the DSMC Risk Management Guide
• Inadequate supportability late in development or after fielding resulting in the need for engineering
changes, increased costs, and/or schedule delays.
• Life cycle costs not accurate because of poor logistics supportability analyses.
• Logistics analyses results not included in cost-performance tradeoffs.
• Design trade studies do not include supportability considerations.
The USAF C-17 Program is using performance-based award fees to implement its flexible sustainment PBL
contract as its primary incentive tool with specific incentives tied to the Performance Work Statement
performance outcomes. The contractor is the total systems integrator with broad authority to implement
changes to improve aircraft readiness and reduce operations and support costs through reliability-based
logistics and trigger-based item management. However, the segregation of funding sources for Interim
Contractor Support, initial spares, modifications and Contractor Logistics Support/replenishment
spares/consumables/etc. prevents optimum implementation of this authority. This restricts the degree to which
the contractor can be held accountable for total systems integration….Until authority is granted to accomplish
Flexible Sustainment with a single source of funds, this acquisition reform initiative will never achieve its full
potential with respect to RTOC."
NAVICP will share savings for reliability growth with General Electric under a ten-year fixed price contract
for guaranteed F414 engine availability at set levels.
Assessing the Total Cost to the Government
The Acquisition Strategy Guide states that “a strategy that considers the total cost to the
government over the entire cradle-to-grave life cycle of the system is necessary to
provide balance and perspective to the program in consideration of the performance and
12
Available at http://web.deskbook.osd.mil/reflib/DDOD/001EC/005/001EC005DOC.HTM
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schedule requirements to avoid sub-optimization."13 In this regard, program managers are
responsible for reducing DoD Total Ownership Cost (TOC) for their systems.” The
subject of life cycle cost is covered in DoD 5000.4M.14
Product support planning is a key factor in managing and controlling total cost of
ownership. As such, the trade-off decisions for product support alternatives must consider
the total cost of ownership for the life of the system.
"The goal is to reduce C-17 life cycle costs and make the system more affordable. The challenge is
to create a robust modeling concept capable of relating all areas of readiness with the associated
costs. The model should be capable of changing rules and reformulation of results to aid managers
in making intelligent decisions as operational factors or environmental constraints evolve and
change."
Making Sound Business Decisions Regarding the Source of Product Support
Source of support decisions for PBL do not discriminate against either organic or
commercial providers. The decision is based upon a best-value determination of the
provider's product support capability to meet set performance objectives. While PMs may
be more comfortable or familiar with holding commercial providers accountable for
performance through incentives, financial or otherwise, the Government Performance
Results Act (GPRA) has clearly demonstrated that public sector organizations can also be
held accountable for set levels of performance.
DoD has traditionally and effectively placed the emphasis on determining the source of
repair when the support functions sought were clearly specified, predetermined tasks,
such as programmed depot maintenance or the repair of a component or item, in
accordance with detailed specifications of the repair process and material requirements.
DoD typically took ownership of all the necessary technical data when acquiring the
system to enable the detailed specifications of tasks that would be used as the basis of
qualifying sources of repair and acquiring repair services and products. In today's
environment with evolving systems, technology and warfighter requirements, the
emphasis has shifted away from a focus solely on repair to a focus on product support.
Decisions regarding the best source of product support are based on factors which are
broader than those for source of repair. The output measures of performance are different.
For repair decisions the issues are cost to repair, quality and turn-around time. For
product support decisions, the issues are total cost of ownership, and output measures of
support performance, such as weapon system availability.
Program Managers are bound by statutory limitations regarding depot maintenance
source of repair decisions. However, as long as the criteria for meeting these
requirements are clearly specified and stable, then PMs can incorporate these
requirements into their product support planning needs as necessary. The PM's decision
13
14
Available at http://web.deskbook.osd.mil/
Available at http://web7.whs.osd.mil/pdf2/50004m(12-92)/50004m.pdf
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can still focus on the source of product support, but include requirements for DoD depot
maintenance as a product support element. The definition of core, as provided in DoDD
4151.18 is shown below. Over time, new product support requirements may demonstrate
that proven peacetime capability can meet any contingency requirements that may arise.
At that point in time, organic depots may no longer have a unique role in filling
contingency requirements, but could very well have an important role in contributing a
vital core technical competency as an industrial partner of a broader-based product
support team.
"10 USC 2464 and DoD policy require organic core maintenance capabilities; such capabilities
provide effective and timely response to surge demands, ensure competitive capabilities and sustain
institutional expertise." DoD 5000.2-R, 2001, p. 2-12
"An integral part of a depot maintenance skill and resource base shall be maintained within depot
activities to meet contingency requirements. Core will comprise only a minimum level of missionessential capability and must be under the control of an assigned or jointly determined component
where economic and strategic considerations warrant." (DoDD 4151.18, Maintenance of Military
Material, August 12, 1992
Program Managers are also provided guidance in the 5000 series with regards to the
supply source of support, as noted below. However, they too, are only one element of
product support, just as repair or depot source of support decisions. A key element of
product support decisions for PBL solutions is that the repair and supply choices reside
with the product support provider, not the PM. The PM may provide Governmentdirected source of repair, in the case of statutory requirements or supply in the case of
existing DoD inventory unique to the particular weapon system. However, these
constraints may limit the potential effectiveness and cost of potential solutions.
"The PM shall select a source of supply support that gives the PM and/or the support integrator
sufficient control over financial and support functions to effectively make tradeoff decisions that
affect system readiness and cost. The PM shall select organic supply sources of support when they
offer the best value." DoD 5000.2-R, 2001, p.2-13
Addressing Legislative and Statutory Issues
Congress has enacted a number of statutes that place controls on what actions the
Department can take in using commercial sector maintenance capabilities. These
legislative and statutory issues must be considered as an integral and evolving aspect of
product support acquisition decisions. 15 For example, DoD is required by Title 10 USC
Section 2464 to maintain a core logistics capability in order to perform maintenance and
support of mission essential equipment.
DoD is also required by Title 10 USC Section 2466 to ensure that not more than 50% of
the funds available in a fiscal year to a military department or defense agency for depot-
15
See Appendix A for a more detailed list of existing statutes.
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level maintenance and repair workload are used to contract for the performance of this
workload by non-Federal government personnel.
In addition, Title 10 USC Section 2469, stipulates that existing depot-level maintenance
or repair workload valued at $3 million or more that is identified for outsourcing must
first be the subject of a public/private competition.
Section 346 of the National Defense Authorization Act for FY 1999, as amended by
Section 336 of the Act for FY 2000, prohibits the Secretary of Defense or the head of a
military department from entering into a prime vendor contract for depot-level
maintenance or repair of a weapon system or other military equipment prior to the end of
a 30 day waiting period following submission to Congress by DoD of a report describing
the nature, cost, impact and competition procedures used to award the prime vendor
support contract.
The competitive sourcing process is a DoD term for the competitive process required by
the Office of Management and Budget (OMB) Circular A-76, Performance of
Commercial Activities. The A-76 Home Page 16 contains the current policies and
procedures on the competitive sourcing process.
Facing Financial Management Issues
The program manager faces three financial management issues when transitioning to
product support for a legacy weapon system or establishing product support for a new
weapon system or for a major modification to a legacy weapon system. These financial
issues are restrictions on the use of operations and maintenance funds (color of money),
the expiration of funds, and the flow of funding to the program manger.
Color of money issues restricts the kind of services that the program manager can buy.
This restriction often results in less than optimal allocation of funding for high priority
requirements that could not have been anticipated in the budgeting process.
Time restrictions on when funds can be spent vary by appropriation. Often, modifying a
component or a support system requires multiple appropriations to complete, e.g.,
research and development, procurement, and operations and maintenance funding.
Having funding available when it is needed within its expiration limits is a difficult
balancing act.
The third financial issue occurs when the program manager becomes the buyer of support
services for a major modification or a weapon system. Traditional organic support uses
the working capital fund as the funding mechanism for depot maintenance and supply
support. Operational commands receive operations and maintenance funding to buy
support on a transaction basis from working capital fund activities. When the program
manager becomes the buyer of support services, funds must flow directly to the program
16
Available at http://emissary.acq.osd.mil/inst/share.nsf
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manager and not to the operational commands. This reduction in budget authority is a
great concern to the operational commands because it reduces their funding flexibility.
The working capital fund can be used to solve these problems by creating a product
support activity group. Each Service and DLA is responsible for its part of the Defense
Working Capital Fund (DWCF). Within each Component, the DWCF is divided into
activity groups. Depot maintenance and supply management are examples of activity
groups within the DWCF. The product support activity group could be created by
weapon system or several weapon systems could be managed within a single product
support activity group.
In the near-term, using the working capital fund for product support would allow funding
to flow, as it currently does, to the operating commands. The program manager could bill
operating commands by flight hour, miles driven, equipment operating time or some
other parameter that related to the consumption of support services. Operating
commands would pay the working capital fund for the support services using operating
and maintenance funds. Once the operating and maintenance funds are paid into the
working capital fund, the funds become part of the fund corpus and lose their expiration
and buying restrictions. The program manager can use the working capital funds to buy
the kind of support services that are required in the time period they are required. The
Services are testing the working capital fund on four legacy weapon systems as a product
support funding mechanism.
Considering the Implications of Contractors on the Battlefield
Joint Publication 4-0, Doctrine for Logistic Support of Joint Operations 17 , 6 April 2000,
notes that “contractor support can augment existing capabilities, provide expanded
sources of supplies and services, bridge gaps in the deployed force structure, leverage
assets, and reduce dependence on US-based logistics. This force multiplier effect
enhances the CINC’s fighting capability.”
When contractors are selected to support weapon systems located in a theater, PMs
should include the contractors in the time-phased force and deployment data plans. These
plans ensure that contractor personnel arrive properly equipped and trained and ready to
be integrated into the force flow.
PMs and supporting contractors should become familiar with laws and agreements associated with a
particular theater. There may be limitations on contractors set by:
• international law
• host-nation law
• treaties
• status of forces agreements
• status of mission agreements
• acquisition cross-service agreements
• memoranda of understanding
• memoranda of agreements
• theater-specific policies
17
Chapter V, Contractors in the Theater, available at http://www.dtic.mil/doctrine/jel/new_pubs/jp4_0.pdf
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Managing Industrial Base Vulnerability/Globalization
Another potential challenge to consider when designing the approach to PBL is the nature
of the industrial base, which will provide support. DoD is no longer driving the market.
The defense portion has been overshadowed by the growing, globalization of the
industrial base. Chances are good that the team structured to support the weapon system
will include international team members. As such, the role of these team members, given
potential conflicts or war, should be assessed as part of the overall product support
strategy. The particular team member may be the best in their class and play a very
valuable role on the overall team. In order to address potential contingencies, there may
need to be consideration of alternative sources for contingencies or a potential role for
guard or reserve forces.
Leveraging Public/Private Partnerships
In many instances, PBL solutions can be enhanced through public/private sector
partnerships. DoD industrial and supply organizations have experience, knowledge and
resources that can often be leveraged as an integral element of PBL provider teams.
Public/private partnerships take many forms. 18
F/A-18E/F Integrated Readiness Support Team (FIRST)
The FIRST program is a government /industry partnership that will significantly reduce total cost of
ownership for the F/A-18E/F through improved supply chain management, reliability/engineering
improvements, integrated information systems, and the Hornet support network. Team members
include NAVAIR, NAVICP, DLA, North Island, NADEP Jacksonville, NADEP Cherry Point,
Boeing and Northrop Grumman.
"Partnering with depots versus competing with depots provides more benefit to the warfighter. Joint
STARS was able to develop and implement a partnership for Total System Support Responsibility
(TSSR) in 10 months. Competition would have taken years with possible protest protracting the
issue."
"Public-private partnering (PPP) is a partnering approach which allows the prime contractor and an
ALC to enter into a traditional subcontract relationship if the ALC is determined by the prime
contractor to be the best value source of repair. The PPP goals are to integrate and benefit from the
mutual strengths of the Government depot system and private industry and to ensure contract
performance responsibility remains with the prime contractor for performance outcome guarantees.
The specific outcome of all this has been the pursuit of PPP between the prime contractor and WRALC for C-17 Analytical Condition Inspection and OO-ALC for C-17 landing gear, wheels, and
brakes. This effort is cognizant of the FY98 National Defense Authorization Act, which provides
statutory authority for Government depots and industry to enter into partnerships." C-17 Lessons
Learned
18
Public-Private Partnerships for Depot-Level Maintenance, September 1999, Prepared by the Deputy
Under Secretary of Defense (Logistics)
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Auxiliary Power Unit (APU) Government/Industry Partnership -- The Navy has awarded
Honeywell a PBL contract for APUs supporting the P-3, S-3, C-2 and F/A-18 aircraft which provides
a guaranteed level of availability. A key element of this PBL solution is a DoD/industry partnership
between Honeywell and the Naval Aviation Depot, Cherry Point.
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How To Ensure Long Term PBL Success?
Maintaining A Focus on Evolving Customer Requirements
The management of PBL must accommodate the dynamics of the customer's environment
- the warfighter. As strategies, missions and force structure evolve to meet the changing
world situation, the warfighter's PBL requirements may change. As such, one of the key
elements of the long-term success of a PBL effort will be the continual coordination and
communication with the customers to ensure that their needs are continually met.
Staying A Step Ahead of System Reliability and Readiness Degraders
Another key element of a successful PBL effort entails continually monitoring and
addressing any reliability change to ensure that the sustainability of the system is
effectively provided. The application of reliability-centered maintenance by a PBL
provider will help ensure that the most effective support solutions for the weapon system
as it ages is continually provided.
Building Long-Term Business Relationships With Product Support Providers
An indicator of the long-term success of a PBL effort will be how well the PBL
integrator/provider was selected and in turn, how well they selected all the PBL team
members. The stability and commitments of PBL providers will contribute to wellintegrated and effectively balanced PBL solutions.
Incentivizing Team Performance
In a similar fashion, the selection and effective implementation of appropriate incentives
for the PBL integrator and their ability to flow-down similar incentives to their PBL team
members will facilitate the necessary investments to reduce the demand for logistics and
minimize the resource requirements.
Balancing Near-term and Long-term Investments
The long-term success of the PBL effort will also depend upon the effective balancing of
near-term and long-term investments both by the integrator and the team members. The
technology cycle of the various systems, sub-systems and components should drive these
decisions.
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Evolving a System Knowledge Base By Promoting Information Sharing
Promoting information sharing throughout the PBL effort can facilitate the development
of a weapon system knowledge base. This involves the warfighter community, the PBL
integrator, all the PBL providers and the Program Office. The appropriate trade-offs and
support decisions can be facilitated through better system knowledge, which is shared by
all participants.
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APPENDIX A :
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Statutory Requirements
U.S. Code: Title 10, Chapter 146
Section 2460
Definition of depot-level maintenance and repair
Section 2461
Commercial or industrial type functions: required studies and reports before conversion
to contractor performance
Section 2462
Contracting for certain supplies and services required when cost is lower
Section 2463
Collection and retention of cost information data on converted services and functions
Section 2464
Core logistics capabilities
Section 2465
Prohibition on contracts for performance of firefighting or security-guard functions
Section 2466
Limitations on the performance of depot-level maintenance of materiel
Section 2467
Cost comparisons: inclusion of retirement costs; consultation with employees; waiver of
comparison
Section 2468
Military installations: authority of base commanders over contracting for commercial
activities
Section 2469
Contracts to perform workloads previously performed by depot-level activities of the
Department of Defense: requirement of competition
Section 2469a
Use of competitive procedures in contracting for performance of depot-level maintenance
and repair workloads formerly performed at certain military installations
Section 2470
Depot-level activities of the Department of Defense: authority to compete for
maintenance and repair workloads of other Federal agencies
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Section 2472
Management of depot employees
Section 2473
Procurements from the small arms production industrial base
Section 2474
Centers of Industrial and Technical Excellence: designation; public-private partnerships
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Appendix B: DoD Guidance
DoDD 5000.1; The Defense Acquisition System , 23 October 2000
DoDI 5000.2; Operation of the Defense Acquisition System, 4 January 2001
DoD 5000.2-R (Interim); Mandatory Procedures for Major Defense Acquisition
Programs (MDAPs) and Major Automated Information System (MAIS)
Acquisition Programs; 4 January 2001
FY2000 DoD Logistics Strategic Plan, August 1999
Joint Logistics Commanders Joint Aeronautical Commanders' Group Memo
Alternative Logistics Support Candidate Selection Flow Process
Alternative Logistics Support Candidate Selection Description
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Appendix C: Army Guidance Related to Product Support
Army Regulation 70-1 - Research, Development, and Acquisition, Army Acquisition
Policy
Army 700-127, Integrated Logistics Support
FM-100-10-2 Contracting Support on the Battlefield
Army Policy Memo - Supportability Co-equal with Cost, Schedule and Performance
Army Policy Memo - Life Cycle Management
Army Policy Memo - Management of the Total Life Cycle for Acquisition Category
(ACAT) Systems
Army Policy Memo - Total Ownership Cost Reduction
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Appendix D: Navy Guidance Related to Product Support
SECNAVINST 5000.2B Implementation of Mandatory Procedures for Major and NonMajor Defense Acquisition Programs
SECNAVINST 4105.1 N432 Integrated Logistics Support: Assessment and
Certification Requirements
OPNAVINST 3000.12A Operational Availability Handbook, Draft 12 Feb 2001
NAVAIR - Maintenance Trade Cost Guide
NAVAIR - Contracting for Supportability Guide
NAVAIRINST 4081.2 Policy Guidance for Alternative Logistics Support Candidates
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Appendix E: Air Force Guidance Related to Product Support
Air Force Instruction 63-107, Integrated Weapon System Management Program
Planning and Assessment
Air Force Instruction 63-111, Contract Support for Systems and Equipment
Air Force Instruction 63-124, Performance-Based Service Contracts
Air Force Instruction 63-1201 Assurance of Operational Safety, Suitability and
Effectiveness
Air Force Instruction 10-601, Mission Needs and Operational Requirements Guidance
and Procedures
Air Force Instruction 10-602, Determining Logistics Support and Readiness
Requirements
Air Force Instruction 25-201, Support Agreement Procedures
Air Force Instruction 21-101, Maintenance Management of Aircraft
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Appendix F: Defense Logistics Agency Related Efforts
DLA Corporate Contracts
DLA Virtual Prime Vendor Initiative
DLA Industrial Prime Vendor Initiative
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