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OSD CAIG

Walt CooperOSD Cost Analysis Improvement Group (CAIG)

August 13, 2008

Weapon System Sustainment:Collection of Contractor Costs

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OSD CAIG

Outline

• Background and purpose

• Current status

• Issues

• Next steps

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OSD CAIG

O&S Costs Represent Largest Fraction of Life Cycle Costs, by Far

RDT&E Procurement O&S

Surface Ships

1%

39%

60%

Fighter Aircraft

4%

25%

71%

Rotary Wing Aircraft

3%

24%

73%

Ground Combat Systems

4%

28%

68%

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OSD CAIG

O&S Cost Analysts’ Major Responsibilities

• Preparation of life cycle cost estimates

• Formulation of budgets and programs

• Analysis of working capital funds

• Development of business case analyses

• Support of contract negotiations

Success depends on analysis of actual O&S costs organized in a standard O&S Work Breakdown Structure (WBS)

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OSD CAIG

The Source of O&S Actuals:Visibility and Management of Operating and Support Costs

(VAMOSC)

• Only source of ready data on actual operating and support (O&S) costs of weapon systems

• Evolution

– In 1974, Military Departments began developing programs for collection of actual O&S costs

– Initial systems largely manual

– In mid-1990s, Military Departments introduced automation• Army OSMIS (Operating & Support Management Information System)• Navy: Naval VAMOSC and USMC VAMOSC• Air Force Total Ownership Cost (AFTOC)

– Today, VAMOSC systems are state-of-the-art information systems with growing numbers of users

• Data provided in standard WBS

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OSD CAIG

Today’s VAMOSC Program

Army (OSMIS)

Navy (VAMOSC)

Air Force (AFTOC)

Number of systems tracked

Almost 1,500

1,800+ > 200 weapons, hundreds

of sub-systems

> 200 base operating

accounts

Data sources 35 138 14

Active user accounts 1,000+ 700+ 700+

More than 2,500 active users across DoD.

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OSD CAIG

An Illustration – The Navy’s F-18C($M, FY 2005 constant)

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005

1.0 Mission Personnel 320 328 339 333 3372.0 Unit Level Consumption 700 827 865 772 7613.0 Intermediate Maintenance 137 132 159 176 2004.0 Depot Maintenance 68 96 80 78 1315.0 Contractor Support 13 17 25 15 176.0 Sustaining Support 168 122 173 186 2367.0 Indirect Support 7 7 7 6 6

1,406 1,522 1,640 1,560 1,682

Historically, contractor support has represented a small percentage of O&S costs.But that is changing…

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OSD CAIG

Current Trends

• Greater reliance on industry partners for sustainment– Many forms -- traditional Contractor Logistics Support (CLS), PBL,

DVD– More use of public-private maintenance partnerships– Establishment of Product Support Integrators

• Industry supports sustainment of a growing number of aviation systems

• MRAP JPO relying extensively on industry for sustainment of MRAP in theater

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OSD CAIG

F-22A O&S Costs(Then-year dollars in millions)

Sources: AFTOC, AFMC 778 AESG/FM

FY 2003 FY 2004 FY 2005 FY 2006 FY 2007

1.0 Mission Personnel 3 17 47 89 1232.0 Unit-Level Consumption 3 8 18 51 725.0 Contractor Support 8 13 17 408 4716.0 Sustaining Support <.5 <.5 <.5 <.5 <.57.0 Indirect Support 6 17 11 15 32

Total from AFTOC 20 56 92 564 699ICS (not reported in AFTOC) 237 337 376 0 0

Grand Total 257 393 469 564 699

Average Inventory 3 12 34 56 80YTD Flying Hours 123 1,637 3,333 8,764 13,512

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OSD CAIG

Demand for CLS data is growing… top queries in FY 2008 for OSMIS

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Type of Query

# o

f Q

ue

rie

s

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OSD CAIG

About The Project

• Objective: To recommend policy and procedures for collection of contractor costs in weapon system sustainment arrangements

• To be completed in FY 2009

• Collaborative effort among the CAIG, OUSD (AT&L), and all military departments

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OSD CAIG

Current Status

• Currently, numerous programs have proposed CSDR plans– Working these on a case-by-case basis– Plans map to O&S Cost-Estimating Guide WBS

• Long term

– Establish formal regulatory requirements• Draft DoDI 5000.2 establishes requirement for sustainment contract cost

reporting• AR 700-142 (approved 26 Mar 08) requires program offices to provide O&S

costs

– Develop formats and procedures for collection• Draft to be vetted with military departments this summer• Will conduct workshops with selected program offices

– Global Hawk (August 14)– JSTARS (August 15)– T-45 (August)– Stryker (?)

• Maintain dialog with industry

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OSD CAIG

CSDR Sustainment Plans

Program Contractor StatusF-119 engine (F-22A) Pratt & Whitney • Approved

• Under contract week of 11 Aug 08; expected CY 2008 value of $215 million

F-22A air vehicle Lockheed Martin • In final review• Expect to submit for approval week shortly;

expected CY 2008 value is $653 million

F-414 engine sustainment (F/E-18E/F)

General Electric • Approved• Under contract; PoP: 1 Apr 2008 – 31 Dec 2010;

contract value: $90 million

F/A-18E/F Integrated Logistics Support

Boeing • Approved; undergoing mods to reflect contract changes

• Will be re-submitted shortly

F-35 Lockheed Martin, Northrop Grumman, BAE

• Approved• Under contract

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OSD CAIG

CSDR Sustainment Plans (Cont’d)

Program Contractor StatusStryker General Dynamics In development

Joint Cargo Aircraft L-3 • Approved• Under contract; PoP: 29 Aug 2007 – 29 Nov 2011;

contract value: $2 billion

C-5M RERP Interim Contractor Support Lockheed Martin In development

Light Utility Helicopter EADS • Approved• Data submitted

V-22 Air Vehicle Joint PBL Bell-Boeing • Approved• Will go under contract 1st Qtr, FY 2009

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OSD CAIG

Cost Analysts’ Desired Outcomes

• Periodic reports needed -- annual submissions preferred– To be used for updating budgets and programs, analysis of Working

Capital Fund requirements– Consistent with VAMOSC system updates– However, must be synchronized with contract milestones

• Program and contract plans consistent with CSDR– O&S cost WBS– Other items, e.g, G&A, undistributed budget, fee

• Reports submitted directly to DCARC

• Subsequently sanitized and incorporated into VAMOSC systems

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OSD CAIG

Issues to Address

• Protection of proprietary data

• Reporting frequency

• WBS/Level of detail

• Thresholds

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OSD CAIG

Next Steps

• Continue to work with program offices on current plans

• Vet proposed standard formats and instructions with departments and industry

• Update cost-reporting appendix to DoD 5000.4-M, “Department of Defense Cost Analysis Guidance and Procedures Manual”