Acquisition Strategy: Bridging the Gap Between Requirements and Source Selection #302

2. Ginny Wydler, Senior Associate, Booz Allen Hamilton Paul Tetrault, Senior Associate, Booz Allen Hamilton Doug Zwiselsberger, Senior Associate, Booz Allen Hamilton Acquisition Strategy:Bridging the Gap Between Requirements and Source Selection#302

3. Agenda Introductions Current Acquisition Environment/Challenges Case Studies #1: International Acquisition – Abu Dhabi #2: Commercial Client – IT Outsourcing #3: Federal Acquisition – DoD Military System Summation and Best Practices Questions

4. Overview: Acquisition Strategies Acquisition Environment Major systems acquisitions have been struggling with strategies that ensure programs meet contracting goals and performance results Key activities and events happen between the time that the requirement is defined, and the time of contract award to industry Many organizations have structured procurement processes and products in place, but the acquisition and contracting strategy can still be difficult to develop and implement Often there is a gap between what the books say should be done and the actual practice. This presentation will concentrate on innovative approaches that can close that gap, and it will offer some solutions to improve the acquisition strategy and contracting process and practice

5. Overview: Acquisition Strategies – “Ideal World” Many factors play into a successful acquisition Achieving milestone approvals, with a critical eye toward program health metrics and setting realistic contracting schedules Developing a contracting strategy that identifies dependencies on a critical path and engages industry to foster partnerships Ensuring the capabilities requirements, alternatives analysis, independent cost estimates and market research are reflected in the contracting strategy and the resulting source selection Implementing Program Management Office (PMO) governance to ensure stakeholder involvement, and effective use of integrated product and process teams and collaboration of acquisition activities Balancing risk and reward through Risk Management Strategies that recognize the use of executable contracting methods Quantitative Tools that can support performance management

6. Overview: Acquisition Strategies - Issues Cost overruns Requirements creep Performance Based acquisitions Outside pressures Teaming Risk Management • Government spending for services has increased from $235B in 2001 to $415B in 2006 and continues to climb, according to GAO • The Pentagon faces a potential implosion with a $650-750B/yr appetite and but only $500B/yr in funding • New weapons programs have doubled in cost and time to deliver • Department of Homeland Security faces Spiraling War on Terror costs • Systems, such as US-VISIT, have seen extensive delays and cost overruns • Hostile budgetary climate is created among the Federal Agencies of Social Security, Medicare and DHS GWOT • Economic Recession has hit hard with Defense manufacturing, causing costs to go up

7. Thecost of major acquisitions has exploded The Navy’s Littoral Combat Ship Program The Air Force F-22 program Army’s Future Combat Systems (FCS) Program

8. Engineering & Manufacturing Development B A C Materiel Solution Analysis Technology Development Production and Deployment Operations and Support The Acquisition Process is complicated DoDModel Program/Contract Strategy and Planning • Program/Project Lifecycle Planning and Management • Earned Value Management Strategies • Cost/Schedule Baseline Development • Risk Management Planning • Stakeholder Relationship Management • Contract Strategy Development • Source Selection Support • Policy/Legislative Analysis • Implementation of Performance Based Contracting Commercial ProcurementModel Contract Management Contract Formation Civilian Agency Model Initiation Planning Execution Close out

9. The most recent 2009 Defense Acquisition Reform Bill focuses on problems with requirements through delivery “Report after report has indicated that the key to successful acquisition programs is getting things right from the start with sound systems engineering, cost-estimating, and developmental testing early in the program cycle. Over the last twenty years, however, DOD has eliminated acquisition organizations and cut the workforce responsible for taking these actions, and has tried to “reform” the acquisition process by taking shortcuts around early program phases in which these actions should be taken. The result has been excessive cost growth in weapon systems and excessive delays in fielding those systems.” - Senator Levin’s office, Feb 24, 2009 Section 101. Systems Engineering Capabilities. The Defense Science Board Task Force on Developmental Test and Evaluation reported in May 2008 that “the single most important step necessary” to address high rates of failure on defense acquisition programs is “a viable systems engineering strategy from the beginning.” Section 201. Trade-offs of Cost, Schedule and Performance. The January 2006 report of the Defense Acquisition Performance Assessment Project (DAPA) concluded that “the budget, acquisition and requirements processes [of the Department of Defense] are not connected organizationally at any level below the Deputy Secretary of Defense.” Section 204. Nunn-McCurdy Breaches. Since the beginning of 2006, nearly half of DOD’s 95 Major Defense Acquisition Programs (MDAPs) have experienced critical cost growth, as defined in the Nunn- McCurdy provision, as amended. Overall, these 95 MDAPs have exceeded their research and development budgets by an average of 40 percent, seen their acquisition costs grow by an average of 26 percent, and experienced an average schedule delay of almost two years.

10. Case Study #1 - Abu Dhabi Public Gardens Outsourcing Review

11. Background Abu Dhabi spends upwards of $300M per year in maintaining and improving its public garden infrastructure including parks, forests and roadside plantings with underlying water distribution. Work was outsourced in 2006 20,000 workers were affected 28 new contracts were awarded 5 oversight contracts used We assessed this arrangement

12. The outsourcing met its a goal of transferring Public Garden O&M from the Government to private companies but fell short in a number of other objectives Outsourcing Goals and Early Results Results Achieved Outsourcing Goals • Municipal headcount reduced to target • After 2 years, no tangible quality improvements • Saving not clearly realized • Municipality transition to oversight and management role in progress • O&M function transferred from public to private sector without interruption of service or deterioration of quality • Reduce Municipal headcount through a partnership with the private sector • Beautify Abu Dhabi through increased professional expertise • Save money • Strengthen management focus • Prevent service interruption and corresponding quality deterioration

13. We reviewed a number of key issues as part of our assessment Key Issues and Assignment Scope Key issues Scope of contract review • Is the Municipality paying a fair price? • Has service quality improved? • Are the contractual arrangements working and producing the desired outcomes? • Can the contractual arrangements be improved? • Should the Municipality exercise the option years of the current contracts (e.g., extend the contracts with current contractors)? • Are there areas where additional cost savings can be realized? • Are there opportunities to better align incentives to improve performance? • Interview stakeholders (contractors, consultants, municipality officials and managers) • Review contractor and consultant contracts • Analyze costs • Compare current contractual arrangements to international best practice outsourcing contractual arrangements • Recommend improvements Confidential

14. An “Ideal" Outsourcing Contract should be specific, accurate, clear, and solve the customers needs Key Criteria Detailed Description of Required Services Defined Roles and Responsibilities Open Communications Effective Performance and Reporting Fair Prices and Payments Appropriate Performance Incentives Flexibility to Adapt to Changing Conditions Special Provisions for Unique Requirements Clear Exit Strategy Confidential

15. We found the new O&M contracts were awarded without first defining the requirements accurately, leading to later performance issues Findings on Contracting Process • Emphasis was on meeting prescribed award dates (6 month period) • RFPs were prepared and process run by 5 separate consultant firms • Little standardization of RFPs across 5 consultants • Inadequate time to define actual requirements for O&M, condition of assets and limited site surveys were employed • RFPs from 4 consultants lacked adequate detail on size and scope of required maintenance • Contractors had to bid FFP, little allowance for correction of scope issues

16. Unit prices varied widely across the contracts with no clear justification Dispersion in Annual Maintenance Costs By Consultant Zone – Hedges (m) (In AED) Large Cost Components Provisional Sums 3% Stormwater 3% Access Roads 6% Irrigation 6% Other 19% Landscape 64% 205 202 204 101 102 104 206 203 201 Contractor A Contractor B Contract #

17. Assessing consultant performance was difficult because there are no relevant scopes of work or performance metrics in the contracts Management of “Contract Manager” Contracts Current Performance Management Future Performance Management • Work is not specifically defined or tied to specific requirements • Payments are made for labor hours expended in performing general tasks • No up-to-date contract or statement of work • No performance metrics • No clear municipality oversight role for consultant contracts • No centralized management information is maintained for consultant performance • Efforts aligned to specific statement of work and performance metrics • Fixed pricing utilized • Tied to incentives (positive and negative) for performance against relevant key performance indicators of quality and end results • Clearly assigned Municipality oversight role and resources for managing the consultant contracts

18. We proposed a migration to an active contract management to create the foundation for success… Service Provider Management Capability Levels Must Have Should Have Best to Have Minimal Management Basic Management Best Practice Management • Service levels (KPIs) not defined • No performance tracking • Service provider handling processes are ad hoc, with obscure variations and multiple touch points • Service provider interaction and integration inconsistent • Contract terms viewed as fixed • Relationship not defined • Transactional service levels defined by limited sources • Limited performance target monitoring • Some standard processes defined • Some contract terms tied to targets • Service provider points of contact defined • Service provider relationships defined • Meaningful service levels defined by stakeholders • Performance actively monitored against results and benchmarks • Central service provider management group standardizes processes and policies, & manage contracts • Contracts structured to coordinate behavior amongst service providers; payment terms tied to integrated service delivery • Differentiated relationships defined contractually for long-term strategic partners and preferred service providers

19. Contracts should be actively managed, with transparency and alignment to end results Management Tools • Tools support active service provider management • Performance monitoring and reporting • Contract management • Project management Solution Levers Outsourcing Impacts Management Processes • Smooth contract and service operations — fewer issues and faster resolution • Clearly defined roles and points of contact • Reduced management complexity • Open communication between service provider and the client • Establish robust set of processes, beyond just contract administration — Including: • Service provider relationship management • Performance management and reporting • Communications • Key Performance Indicators (KPIs) enforced; problems caught and corrected early • Management has visibility into duplicate services, gaps, etc… — can optimize service provider operating model Incentives & Accountability • Incentive for continuous price and quality improvement • Trusting partner relationships • Satisfied customers • Structure / restructure contract metrics and incentives with mutually beneficial terms • Define KPIs that directly support business priorities

20. Public Gardens outsourcing effectiveness can be improved by focusing on consultants, contractors and governance Summary Recommendations Consultants/Contract Managers Governance O&M Contractors • Define and standardize the Statement of Work and performance metrics • Develop new contracting strategy and bidding documents to re-compete Abu Dhabi Municipality (target award October 2008) • Develop new contracting strategy and bidding documents to re-compete Western Region (target award March 2009) • Execute strategies and award new contracts for AD and WR • Define the roles, responsibilities and authorities of the Municipality staff to reduce ambiguity and overlap vis a vis Consultants/Contract Managers • Provide project and contract management training and coaching for Municipality managers • Improve priority business processes (e.g., payment, work orders, prioritization of new works and new beautification investments) • Strengthen conflict of interest rules and enforcement mechanisms • Improve current contracts (e.g., rationalize/remove minimum resource requirements) • Finalize KPIs (establish, link to incentives and incorporate in contracts) • Develop new contracting strategy and bidding documents including draft performance-based contract • Execute strategy and award new contracts Confidential

21. Summary • Recommendations were made last summer • The Municipality has taken action to re- compete the first consultant contract and embarked on a project to improve its contract management process Confidential

22. Case Study #2 – Global Multi-Industry Manufacturing Company

23. Case Study #2 - Global Multi-Industry Manufacturing Company Overview • After 10 years obtaining information technology support from the same vendor, the client faced the several challenges: • Costs associated with each component of their IT infrastructure were not available or enmeshed with other costs • An inventory or IT assets was not available to support the RFP/Bid process • Software license information and data rights were not available to ensure license transfer or re-procurement • A complete set of contracts or service agreements was not available to enable an understanding of what needed to be outsourced The client had an annual IT expenditure valued at exceeding $3.0 billion per year…

24. Case Study #2: Approach To execute this project several workstreams were stood up to execute a unique aspect of this project: Request for Information (RFI) RFP Segmentation Purchasing Transaction Re-sourcing RFP Bid Management RFP Data Collection Collect Current Costs Supplier Education Software Access Rights

25. Case Study #2: Approach (cont’d) Request for Information (RFI): Developed a high-level RFI to capture their thoughts and comments on pending competition RFP Segmentation: This workstream analyzed the clients IT requirements and categorize them into logical segments that can be packaged into individual request for proposals Purchasing Transaction Re-sourcing: This workstream isolated items that are routinely purchased in more of a commodity manner and examine mechanisms to standardize the process RFP Bid Management: Oversaw the acquisition process, developing processes for releasing RFPs, evaluating RFPs, awarding contracts and managing contracts.

26. Case Study #2: Approach (cont’d) RFP Data Collection: Responsible for identifying the data and information required for each RFP to ensure that potential vendors had the information they needed to develop competitive proposals. Collect Current Costs: Responsible for capturing and segmenting IT expenditures Supplier Education: Responsible for educating the potential vendors about the outsourcing process and timelines. Software Access Rights: Responsible for working to ensure access to all of its mission critical software remained available to the client

27. Case Study #2: Outcomes Upon completion of this assignment the following outcomes had been achieved: Executed the RFP process in a phased manner to allow for maximum competition Implemented a new standardization process the required vendors to adhere to a common set of standards Terms and Conditions that were advantageous to both parties – “made whole” Reduced overall IT costs by hundreds of millions of dollars Effectively transitioned from a single vendor environment to a multi-vendor environment Improved performance against agreed to Service Level Agreements Instituted a process for managing multiple vendors in a competitive environment

28. Cast Study #2: Lessons Learned Start early Leverage outsourcing best practices and lessons learned Communicate early and often (transparency) and educate the vendor base Use of rigorous “stage gate” or milestones keeps the program specific to the mission and on schedule Define stated outcomes and align RFP process to achieving those outcomes Develop RFPs that you can manage from a performance, oversight, funding and execution perspective Never lose control over data, licenses and equipment that is central to your business

29. Case Study #3 – Military System Acquisition

30. Acquisition Strategies – Case Studies #3 Military System Acquisition • A Military Department has a requirement to field a major IT System • Major Acquisition, $Multi-Million Value • Major Milestone Decision for Production • Proven Technology, with integration challenges • “Traditional” Source Selection Process • Competitive environment for Turnkey hardware, software, sustainment services • DoD 5000 Process with Source Selection Authority • Best Value analysis with technical and cost trade offs

31. The Acquisition involved a Complex Set of Factors for Source Selection Decision Making Market Analysis to Determine Competitive Landscape Determining Requirements Over the Life Cycle Understanding Requirements for Integration with other Equipment/Systems Understanding the stability of Cost Over Time Understanding the Total Value of Proposed Procurement (or Program) with AoA and IGCE Determining Incentives for the Contractor Identifying Existing Contract Vehicles available Other factors, including National Security, Maintenance of Alternate Production Lines, etc Balancing multiple factors to develop a strategy that maximizes success factors and minimizes risk

32. Awarding a large, complex contract presented challenges to the Program and Contracts Office Critical Success Factors: Successful Milestone Decision Reviews Timely Contract Award Award without protest Adequate competition Receipt of reasonable price proposals Integration of Performance Based Contracting techniques Compliance with regulations, legislation, and mandates Positive findings when subjected to scrutiny of oversight organizations (GAO, IG, OMB, etc…) Capability for success: Use experienced professionals to develop and implement strategies Use proven processes Apply best practices Apply proven tools

33. The acquisition had to comply with major systems processes and documents • Acquisition approach • Best Practices • Business Considerations • Capability needs • Environment, Safety, Health • Human Systems Integration • Information Assurance • Information Technology • Integrated Test and Evaluation • Open Systems • Product Support • Program Structure • Relief, Exemption and waiver • Research and technology Protection • Resource Management • Risk Management • Systems Engineering Strategy Considerations: Requirements Synopsis Operational Capability Cost Benefit Analysis • Acquisitions have requirements documents • Analysis of Alternatives (AoA) • Independent Government Cost Estimate (IGCE) • Life Cycle Cost Estimates (LCCE) • Statement of Work (SOW) • Metrics for Service Level Agreements (SLAs) • Acquisition Plan (AP) • Source Selection Plan (SSP) • CLIN List • Evaluation Criteria (L&M) • Technical Evaluation Panel documentation • Pricing Negotiation Memos Acquisition Strategy Clinger Cohen Compliance Risk Management Plan Acquisition Plan Performance Work Statement Performance Assessment Plan Source Selection Plan Request for Proposals Pre-Proposal Industry Days Proposal Evaluations) Negotiations with Industry Final Proposals Evals) Contract Awards Program and Contract Transition

34. The Acquisition was embedded into the PMO Structure during execution of the acquisition PROJECT OPERATIONS ACQUISITION FUNCTIONAL TECHNICAL CHANGE MANAGEMENT • Cost Management • Schedule Management • Resource Management • Performance Measurement • OMB Exhibit 300 Reporting • Risk Management • Requirements Management • System Development Life-Cycle Management • Knowledge Management • Concept Development • Acquisition Strategy • Market Research • Solicitation Development • Source Selection and Award • Protest support • Contract Management • Requirements Identification • BPR Participation • Functional Representation of Evaluation Criteria & Materials Development • Requirements Identification • Technical Representation of Evaluation Criteria & Materials Development • IT Architecture • Data Management • Configuration Management • Security • Communications & Outreach • End-Users Relations Management • Business Process Reengineering

35. Military System Acquisition – Lessons Learned • Source Selection Training was vital • All on same page (rules and tools) • All dependencies were clear • Milestone approvals to SSA were met • SSA, SSET, Evaluators, Advisors all on task and motivated • Leadership was strong, team understand the objectives and commitments • Consensus of evaluation ratings critical (spirited dialog) • Best Value Decision was quantified for requirements • Differentiators supported trade off analysis for best value • Follow the procedures! (Tanker) Capability for success: • Use experienced professionals to develop and implement strategies • Use proven processes • Apply best practices • Apply proven tools • Develop Source Selection training modules • Develop Source Selection templates • Utilize proven tools

36. Acquisition Strategies – Best Practices • Methodologies that provide processes and products to support requirements determination through execution • Tools and templates must be integrated and relevant • Best practices for strategy, planning, source selection and performance measurement are critical throughout the life cycle

37. Processes and products are needed across the acquisition life cycle framework

38. Tools are available to support requirements analysis and source selection Risk tools RISC-IQ Active Risk Manager Pertmaster – Risk Expert Risk + Risk Radar @Risk Risk Trak RiskWatch TopVue Welcom Risk Risky Project Project Management Tools PMI’s OPM3 iCAM Planning System Scope Data Schedule Data • Planning and Scheduling tools • PERT Chart Expert • WBS Chart Pro • Kidasa Milestones • Primavera • MS Project • Prosight • Project Management Environment • Performance Measurement Tools • Database • MySQL • Enterprise Elements • Troux Architect • Reports • MS Office • Crystal Reports • Dashboards– COTS • Crystal Xcelsius • Cognos • Oracle • MS PerformancePoint • DataDrill • Dashboards – Manual • MS Office • SharePoint • Software Development • MS .Net Platform • Cold Fusion • Rational • Requisite Pro • JIRA • Plumtree • Adobe Flex • LCMP • Statistical Analysis • SPSS • SAS • Acquisition tools • Performance Based Acquisitions Guidebook • Contract Type Decision Tool diagnostic • Contract Management Process Guide • A-76 Source Selection Guidebook • DoD Acquisition Desk guide • Award Tracking Software

39. Best practices in planning is required for success and to ensure requirements are met Procurement Life Cycle – Acquisition Planning / Solicitation Best Practices

40. Best Practices in source selection should support a well-structured process Procurement Life Cycle – Evaluation of Offers and Source SelectionBest Practices

41. Best Practices in defined performance criteria and structured monitoring are critical to ensure delivery Procurement Life Cycle – Contract Award, Administration, and Management Best Practices

42. Pointsof Contact Ginny Wydler 703 377-5577 Wydler_Virginia@bah.com Paul Tetrault 703 917-2737 Tetrault_Paul@bah.com Doug Zwiselsberger 703-824-3783 Zwiselsberger_Douglas@bah.com

43. QUESTIONS?