Fixed Price Development and Other Acquisition Initiatives 4 March 10

1. Air Armament Center War-Winning Capabilities…On Time, On Cost Fixed Price Development and Other Acquisition Initiatives4 March 10 Emily Jay AAC/PK 850-882-0150 Emily.jay@eglin.af.mil

2. Agenda • Why Fixed Price Development? • Weapons Systems Acquisition Reform Act (WSARA) • DoD Major Reforms • Did They Mean It? • Government Trends • Conclusion

3. Why Fixed Price Development? GAO Report on Contract Incentives • Dec 2005 – GAO report • “Power of monetary incentives to motivate excellent contractor performance is diluted by the way DOD structures and implements incentives.”

4. Why Fixed Price Development Contracts? FY07 Authorization Act – PL 109-364, sec 818 DFARS Case 2006-D053 MS B – MDA, with advice of the Contracting Officer, selects contract type for development program Basis for Contract Type Documented in Acq Strategy Include explanation of level of risk If high risk, steps taken to taken to reduce program risk and reasons for proceeding despite the high level of program risk Cost Type Contract Requires a Written Determination Program is so complex and technically challenging…not practicable to reduce program risk to a level permitting FP contract” Complexity and technical challenge is not a result of failure to meet 10USC2366a DFARS Case – Public Comments Received 24 Mar 08, Public Comments Reviewed and Staffed

5. Why Fixed Price Development?MDA Certification National Defense Authorization Act for 2006 Implemented in USD/ATL letter dated 2 May 06 Prior to MSB approval, MDA must certify Technology has been demonstrated in a relevant environment Program demonstrates high likelihood of accomplishing its mission Program is affordable when considering the per unit cost and total acquisition cost AoA has been conducted Program is affordable when considering alternative systems JROC has completed review, including analysis of reqts Program complies with all policies, regs, directives

6. Why Fixed Price Development? Analysis of DOD Major Defense Acquisition Program Portfolio Source of Data: GAO Analysis of DoD Data

7. Why Fixed Price Contracts? Memo for Heads of Executive Departments and Agencies “Cost-reimbursement contracts shall be used only when circumstances do not allow the agency to define its requirements sufficiently to allow for a fixed-price type contract. Moreover, the Federal Government shall ensure that taxpayer dollars are not spent on contracts that are wasteful, inefficient, subject to misuse, or otherwise not well designed to serve the Federal Government's needs and to manage the risk associated with the goods and services being procured.” President Barack Obama, 4 March 09

8. Weapons Systems Acquisition Reform Act (WSARA) of 2009 • Basic Provisions of WSARA • New approvals required to prevent cost overruns • Termination of costly programs • Life Cycle Competition • Additional OCI provisions • New Acquisition Personnel Positions “A dollar of wasted defense spending is a dollar not spent on supporting US troops, preparing for future threats or protecting the American people.” President Obama/SecDef Gates

9. DoD Major Reforms • Increasing acquisition work force by 20,000 positions • to ensure we have a strong workforce with the skills necessary to manage major systems • Rely on independent cost estimates at the start and bring more discipline to the process • to reduce the risk that costs will spiral out of control • Competitive Prototyping before choosing the best, most affordable ones to produce • to better harness the creative and economic power of competition • Use more fixed-price development contracts and institute new mechanisms to prevent endless requirements creep • To prevent programs from ballooning in cost and schedule • Be prepared to reform or cancel programs that are not on track to provide warfighters what they need when they need it DepSecDef Lynn, Jun 09, Washington Times

10. Did They Mean It? • Increase workforce • AAC received 118 new positions in FY09, 203 in FY10 • AAC/PK received 28 new positions in FY 2009 and 4 new positions in 2010. • Rely on independent cost estimates • Establishment of Director of Cost Assessment and Evaluation • Competitive Prototyping • AAC continues to lead in widespread use of competitive prototypes • Increased use of fixed price development contracts • Changed Acquisition Strategies for Small Diameter Bomb II, QF-16, Harm Control Section Modification, TAMS—all Fixed Price, CRIIS ? • Reform or cancel programs • Reshaped Army’s Future Combat System • Cancelled $19B Transformational Satellite Program • Cancelled the $13B presidential helicopter, VH-71

11. Government Trends - Contract Type • More disciplined use of contract types • Contract type is a fundamental building block for incentivizing cost, schedule, and performance outcomes • Development efforts: FPIF or CPIF • Production: FPIF or FFP • Small award fees above incentives based on objective events • A CPFF contract type with back loaded performance incentives payable only if cost, schedule, and performance outcomes are achieved is preferable to CPAF contracts • Steep share lines • Time and materiel contracts - least preferred contract type to be used as a last resort for limited requirements

12. How Do We Change a Culture? • Develop firm requirements • Lower Risk • Work within the realm of the possible • Manage risk using Technology/Production Maturity entrance and exit criteria • Compete whenever possible • Transparent Processes • Shorter Duration Contracts

13. Example of Implemented Trends

14. AFPEO/CM Programs at AAC

15. AAC Services Contracts Update AF/AFMC Implementation • Expectation Management Agreement (EMA), Between AFPEO/CM and AFMC, 1 Aug 08 • AFMC receives Probationary Silver level delegation • Responsibility to oversee source selections between $100M-$500M • Outlines roles & responsibilities for AFPEO/CM & AFMC to collectively manage & oversee services • Names AFMC Services Advocate as Dr. Butler, AFMC/CA

16. Delegation Decision Analysis

17. Delegation Decision Analysis

18. Contract Type Balance between Risk and Innovation “The acquisition of the Wright flyer is a story of our own time, how commercial activity, when properly channeled with the appropriate incentives, can spur extraordinary technical innovation and battlefield success” DepSecDef William Lynn, 2 Dec 09, Aerospace and Defense Finance Conference

19. The Wright Flyer---Political Perspective on Balance Between Risk and Innovation • US Gov’t invested $50K in technology development of aerodrome with Smithsonian Institute Secretary Samuel Langley • No significant capability resulted from contract • Army Signal Corps issued solicitation for Flying Machine • $25K for demonstrated performance, $5k incentive for meeting objective vs threshold performance (40 mph) • 41 prospective bidders, three actual bidders, Wright brothers are the only bidders who made it to flight trials • Significant Congressional oversight-Senate watched the demonstration • Resulted in Army fielding first aviation squadron

20. Conclusion “There is broad agreement on the need for acquisition and contracting reform in the Department of Defense. There have been enough studies. Enough hand-wringing. Enough rhetoric. Now is the time for action.” Secretary Gates

21. Back Up • Other Government/Contractor Trends

22. Government Trends • Extremely limited use of Undefinitized Contractual Actions (UCAs) • Acquisition Planning should consider time for proposal, audit, negotiation prior to award • Enhance Competition/Transparency • Shorter Contract Lengths, Fewer class J&As, Publishing J&As in Fedbizops • Become more efficient with Taxpayer Dollars • Increased use of LPTA and PPT source selections • HCSM-LTPA, TAMS-PPT • More oversight/scrutiny of the business deal • OSD Peer Reviews/AF MIRTS – 2 Peer Reviews/27 Mirts • Historical costs, qualification/production break costs, proposal prep cost, profit/fee

23. Contractor Trends • Sole Source • Proposals are not timely • Proposals are incomplete, not sufficient for audit • Increasing budget dollars not going to product • Proposal Preparation Costs • Production Breaks, Additional Qual tests to build in quality • Source Selection • Proposals Reflect DRFP vs. RFP • Conflicting information within proposals • Math errors, mismatch in unit vs. total item pricing • Not Following Instructions: Page count, font size • “Fill-Ins” left blank • No basis for rates

24. Proposal Tips • Sole Source • Establish a proposal planning meeting with program office, DCMA, and DCAA to establish timelines and common expectations • Meet your timelines, communicate risk areas • Use proposal checklist • Source Selection • Perform a quality check of your proposal to ensure: • Current version of RFP used in proposal prep • Consistency of approach throughout proposal • Error free pricing • Completely responsive to RFP

25. How Does This Affect You? • New people • Changing paradigm • Help us help you • Give us realistic costs and schedules in proposals • Plan for definitized contracts in your schedules • Give us well documented, auditable proposals first submission – Use proposal checklist • Work with us to reduce requirements creep/proposal churn • Keep the communication flowing both ways Common Objective: Re-establish Congressional Confidence. Together, We Can Meet Warfighter Needs—On Cost, On Schedule!

26. Call to Action “American taxpayers and our men and women in uniform are understandably skeptical when they hear promises to reform the Defense Department’s sprawling acquisition system, which often delivers major weapons systems to our troops years behind schedule and billions of dollars over budget. Like Mark Twain’s famous observation about the weather, it seems everybody talks about it, but nobody does anything about it. In President Obama, we have a commander in chief who has made acquisition reform a priority. With our troops engaged in two wars and with the country facing record deficits and an economic crisis, the president understands, as we all do, that wasting billions of dollars on weapons ill-suited for today’s conflicts is an affront to our warfighters and taxpayers alike. So he has spoken clearly to those of us charged with fixing these problems. ‘No more excuses, no more delays.’ ” DepSecDef William Lynn III