Open Book, Risk/Reward Relationship Model

1. Open Book, Risk/Reward Relationship Model Steve Ayers Senior Vice President for Contracts & Procurement Science Applications International Corporation July 17, 2003 NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

2. Outsourcing Relationships Service Provider Enterprise Service Provider Enterprise NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

3. One Size Doesn’t Fit All Outsourcing Agreement NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

4. Key Contract Model Principles • The Open Book, Shared Risk/Reward Relationship is a performance based contract that creates a collaborative approach to managing complex contract relationships • Open book accounting • Mutually agreed upon baseline for scope of work and Client’s actual current cost experience • Periodic cost target setting • Incentives for technical performance, cost reduction, and improved client satisfaction NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

5. Key Contract Model Principles TANSTAAFL There Ain’t No Such Thing As A Free Lunch NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

6. Primary Benefits • Ensures that SAIC’s and the Enterprise’sbusiness objectives are aligned - Transparency • Both Parties are equally committed to control costs • Well defined and documented service levels • Improved client/user satisfaction • Achievement of overall business objectives • Non-adversarial – Forges a collaborativeapproach to managing Enterprise’s IT needs • Flexibility to change requirements and scope NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

7. Appropriate for Enterprises… • Undergoing significant change • Requiring step change in technology • Undergoing mergers/acquisitions • Business process changes that may be taking place in the market space of the enterprise • Requiring extraordinary flexibility to alter services, service levels or volumes • With highly complex or dynamic IT environments • Where IT costs and service quality has not been previously baselined or benchmarked NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

8. Model Provisions • Contract agreement is structured with incentives that ensures that performance aligns with the primary objectives of the enterprise • Cost reduction • Service quality improvement • Technology revitalization • Open communication, trust • Commitment to work together NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

9. Commercial Approaches:Fixed-Price versus SAIC Model In typical IT industry Fixed-Price contracts all savings become profit to the contractor for the life of the contract. Savings retained as profit by contractor Yr 5 Yr 4 Yr 3 Base Yr 1 Yr 2 Reducing Cost profile SAIC’s Target-based Risk/Reward Model Savings returned to client Contractor profit Yr 5 Yr 4 Yr 3 Base Yr 1 Yr 2 Reducing Cost profile (Commercial Approaches: Fixed-Price versus SAIC Model) NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

10. Continuous Cost Reduction Incentive • A significant portion of SAIC’s profit is earned by reducing the client’s actual cost of the services • Target setting mechanism and the share ratio promotes rapid cost reductions so the Enterprise receives the benefit of the reduced cost base throughout the balance of the contract term • Share ratios at the beginning of the contract typically favors the service provider thereby creating a powerful incentive to quickly reduce costs • Client retains all savings from prior years in the succeeding years NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

11. Model for Continuous Cost Improvement $100 Agreed upon cost target $90 New Cost target $90 Actual cost $80 Actual cost Yr 1 Yr 2 Yr 2 Yr 1 Client Share $10 Savings Share Ratio SAIC Share $10 Savings NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

12. Balanced Business Scorecard Approach Multiple “Levers” to fine tune objectives • Cost Share ratios • Sharing ratios typically put emphasis on driving costs down early & quickly • Quality Incentive Fee/Penalty • Ensures that cost reductions are not at the expense of service quality • Customer Satisfaction Ratings • Can be fine tuned to meet the needs of the different stakeholders in an account. • Alignment with other Client objectives • Risk sharing takes contingency $$$ out of the price NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

13. Balanced Business Scorecard Approach Continuous Quality/Performance Incentive • Service quality incentives ensure that minimum service requirements are met and encourages enhanced service • A portion of profit paid to SAIC is based on a sliding scale of performance measurements • A significant portion of SAIC’s profit is achievable based on the satisfaction of the enterprise and exceeding performance goals, thus providing the incentive for SAIC to provide quality services as well as cost reductions NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

14. Balanced Business Scorecard Approach Continuous Focus on Customer Satisfaction • Meeting minimum service levels does not ensure high end user satisfaction • SAIC regularly conducts customer surveys at a variety of level to establish a satisfaction baseline against which subsequent performance is measured • Results of external satisfaction measurement results can also be incorporated • Establishment of business facing service metrics NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

15. Balanced Business Scorecard Cost Control Client Vision & Strategy Customer Satisfaction Technical Performance Other Objectives NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

16. Target Setting Process • Cost Target is detailed by cost element • Cost Target is segregated by service line • It can be further broken down into a unit cost target for certain service lines • Facilitates benchmarking and simplifies adjustments for volume changes • Information and data is shared and easily accessible to facilitate adjustments as a result of the changes in the environment • Costs are can be verified by the client (open book) • Periodic review of service levels and other objectives NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance

17. Key Benefits • Open Book environment creates a trust based relationship – simplifying the negotiation of changes • IT services are focused on the Enterprise’s current and strategic business environment • Balanced Business Scorecard methodology helps to ensure that SAIC’s performance is aligned with the clients objectives • Client remains in control of its IT strategy • A collaborative approach to risk management • Results in long term relationship between the client and the service provider NCMA 41st Annual West Coast Educational Conference Risks And Rewards--Achieving the Proper Balance