EPMC

1. EPMC FM Update Ellen Rosenthal Bldg 204, Rm 203 703-805-4430 ellen.rosenthal@dau.mil

2. Topics • FM Scope • FM Updates • Time Now • OSD/OMB Budget Review

3. Estimate President’s Budget Budget Execution Financial Management Scope Planning, Programming Budgeting & Execution Life Cycle Cost Annual Funding Funding Policies ICE Cost Analysis FYDP DPG PDM PBD MFP POM BES Full Funding (Exceptions) MBIs CAIV Incremental Funding CCA Fiscal Environment POE Congressional Enactment HAC HASC HBC SAC SASC SBC Budget Resolution Authorization & Appropriation Laws APB Operational Concept Force Structure Modernization Operational Capability Readiness Sustainability Commitment Reprogramming Feedback Budget Authority Obligation Outlay ICD

4. FM Updates • Cost Analysis: Affordability, CAIV, Breaches • Funding Policies: Funding Limitations, Severable Contracts, Multi-Year Service Contracts, 18 Month RDT&E Exception, AIS Systems, LRIP • PPBE: FY-05-09/MID-913 • Congressional Enactment: 108th Congress • Budget Execution: Reprogramming Limits. New Starts, OSD Goals, CFSR, Termination Liability, Fiscal Law

5. Affordability • Programs must be consistent with overall DoD planning and funding priorities • Applies to all programs • Foster greater program stability: • Fully Funded in the FYDP • Assess affordability at each milestone • CAIG and CPIPT shall address affordability

6. Cost As An Independent Variable(CAIV) • Essential to balance three significant parameters or variables in acquisition programs: • Cost • Schedule • Performance • Two of those variables are dependent on the third. • Under CAIV philosophy, performance and schedule are dependent on cost • Applies to all programs by end of FY 02

7. Nunn-McCurdy Breach Implications • Law requires cancellation of acquisition program with 25% or greater unit cost overrun unless DAE provides specific “certifications” • Certifications required to continue program: • Program is “vital” to national security; • There are no alternatives that provide equal or greater capability at less cost; • Latest cost estimates for program are reasonable; and • The current acquisition strategy is adequate to manage and control cost.

8. Nunn-McCurdy Breach Implications(cont.) • Program cancelled under provisions of Nunn-McCurdy unit cost breach: • Area Missile Defense Program (Navy; 65% cost growth) • Programs currently “on – watch” for cancellation: • CH-47 Chinook Helicopter Upgrade (Army; 117%) • Guided Multiple Launch Rocket System (Army; 153%) • Chemical Demilitarization (Army; 80%) • Space Based Infrared System High (Air Force; 66%) • LPD-17 Amphibious Ship (Navy; 75%) • UH-1 Huey Helicopter Upgrade (Marine Corps; 68%)

9. Major Appropriation Categories FUNDINGPOLICY APPN CAT OBLIGATION PERIOD SCOPE OF WORK EFFORT RDT & E RDT&E Activities & Exp, Minor Const & AIS E/SW @ R&D Fac Incremental 2 Years PROC (SCN) Production Labor/HW, Initial Spares, HW &AIS E/SW>$250K Full 3 Years 5 Years - SCN O&M Replenishment Spares, Civilian Salaries, Travel, Fuel, Supplies, Minor Const<$750K, H/W & AIS E/SW <=$250K Annual 1 Year MILPERS Military Pay & Allowances, PCS Moves, Retired Pay Accrual Annual 1 Year MILCON Major Construction Projects >$750K Full 5 Years * Minor Construction threshold changed by FY2002 Authorization Act, O&M threshold changed by Joint Appropriation Res. FY 2003

10. Severable Services • May enter into a contract for severable services that begins in one fiscal year and ends in the next fiscal year if the contract period does not exceed one year • Funds made available for a fiscal year may be obligated for the total amount of the contract

11. Multi-Year Service Contracts • Operations & Maintenance • Continuing requirement for services • Furnishing of services will require substantial initial investment in plant/equipment, or incur substantial contingent liabilities for the assembly, training, or transportation of a specialized work force • The use of such a contract will promote the best interest of the U.S. by encouraging • competition and promoting • economies of operation.

12. Multi-Year Service Contracts(cont.) • O & M - Covered Services • Operation, maintenance and support of facilities and installations • Maintenance or modification of aircraft, ships, vehicles, and other highly complex military equipment • Specialized training necessitating high quality instructor skills (eg. Pilot and aircrew members; foreign language training) • Base services (eg. Ground maintenance; plane refueling; bus transportation; refuse collection and disposal.) Chapter 137 of title 10, United States Code, Sec 2306C, Multiyear Services Contracts. (Originated in 2000 Authorization language).

13. RDT&E - 18 Month Exception • There are requirements in which there is no logical way to divide the work, it is clearly unfeasible to limit the contract to a shorter period; or the planned technical effort is such that no responsible contractor can be found who will accept a contract for a less than completion increment. For these type of efforts that take longer than 12 months, but less than 18 months, the Service or Defense Agency Comptroller may approve financing the total requirement in one fiscal year.

14. Funding Rules for Communications & Information Systems Procurement - Investment - New Equipment / SW > $250K - Upgrades / Replacement Equipment > $250K O&M - Expenses - New Equipment / SW < $250K - Upgrades/Replacement Equipment < $250K - Routine maintenance, Lease RDT&E - Development, test and evaluation costs - Development of major upgrades - HW / SW for RDT&E Facilities < $250K

15. LRIP According to FMR - Designed to be flexible Article UseAppropriation DT or OT RDT&E Operational Use Procurement Testing subsequent to acceptance Procurement Modification of Test Articles Procurement

16. - 51 REPUBLICANS - 229 REPUBLICANS - 48 DEMOCRATS - 205 DEMOCRATS - 1 INDEPENDENT - 1 INDEPENDENT 108th CongressThe “Sitting Congress” for 2003 – 2004 (1st Session) HOUSE SENATE 100 MEMBERS 435 MEMBERS www.house.gov www.senate.gov Few with military experience

17. SASC / HASC SubcommitteesDifferent Subcommittee Titles in House and Senate • Senate Armed Services Subcommittees • Readiness and Management Support • Emerging Threats and Capabilities • Personnel • Seapower • Strategic • Air-Land • House Armed Services Subcommittees • Tactical Air and Land Forces • Readiness • Terrorism, Unconventional Threats and Capabilities • Total Force • Strategic Forces • Projection Forces

18. SAC / HAC SubcommitteesSame Titles in House and Senate • Agriculture and Rural Development • Commerce, Justice, State and Judiciary • Defense • District of Columbia • Energy and Water Development • Foreign Operations • Homeland Security • Interior • Labor, Health and Human Services and Education • Legislative Branch • Military Construction • Transportation/Treasury and Postal Service • VA, HUD and Independent Agencies

19. DoD Appropriation Structure Sub Activity Level of Control for “Below Threshold” Reprogramming Purposes MILCON RDT&E Procurement O&M MILPERS Budget Activity Budget Activity Budget Activity Budget Activity Budget Activity Activity Group Program Elements Line Item Activity Group Activity Group Project Projects Sub Activity

20. Reprogramming Obligation Level of Control Appropriations Max In Max Out Period RDT&E Procurement O&M MILPERS MILCON Below-Threshold Reprogramming Program Element Greater of $10M or 20% $10M 2 Yrs Line Item Greater of $20M or 20% $20M 3 Yrs Budget Activity None, unless otherwise spec $15M 1 Yr Budget Activity No Restriction 1 Yr $10M Lesser of $2M or 25% No Restriction 5 Yrs Project * Over Threshold Reprogramming requires notification of Congress

21. New Starts • What is it? • Any new program, project, sub-project, task that you haven’t told Congress about • How do you determine a new start? • Budget submission R-Forms and P-Forms • Why should you care? • Congress mad at Air Force about this • Congress now watching other services • Appropriation Law says you won’t get paid, if you don’t follow the rules

22. New Starts (cont.) Any New Starts over $10M RDT&E or $20M Procurement in first three years requires written Congressional approval in the Authorization Act If your program has not been approved in the Authorization Act, you must get written approval of the Congressional Authorization committees. Programs under this dollar threshold must do a letter notification to Congress and wait 30 days

23. Congressional Interest • HAC-D issued strong language in FY 00 House report criticizing DoD for initiating new programs without proper notification • Identified specific programs • Cited lax management • FY 01 Appropriation Bill Sec 8091 “None of the funds in this Act may be used to compensate an employee of the Department of Defense who initiates a new start program without notification to the Office of the Secretary of Defense, the Office of Management and Budget, and the congressional defense committees, as required by Department of Defense financial management regulations.”

24. OSD Goals – End of 1st Year RDT&E Obligations 80% Expenditures 55% Procurement Obligations 80% Advance Procurement Obligations 100%

25. Contract Funds Status Report (DD Form 1586) • Required to obtain funding data on contracts over six months in duration • No dollar threshold specified but generally applicable to non- firm fixed priced contracts in excess of $1.2 million (in FY 96 constant dollars) • Purpose of CFSR is to assist Components in: • Updating and forecasting contract fund requirements • Planning and decision making on funding changes • Developing fund requirements and budget estimates in support of approved programs • Determining funds in excess of contract needs and available for deobligation • Obtaining rough estimates of termination costs

26. Contract Funds Status Report

27. Termination Liability • No laws or regulations governing how to cover/budget for termination liability • Termination liability over $100M requires written notification to the Congressional Defense Committees at least 30 days prior to contract award. • MYP contracts cannot be terminated without notifying Congress 10 days prior

28. Execution Laws • Misappropriation Act (Title 31, U.S. Code, Sec 1301) • Requires funds to be used only for the purposes and programs for which the appropriation was made. • AKA “The Purpose Statute” • Anti-Deficiency Act (Title 31, U.S. Code, Sec 1341 & 1517) • Prohibits making or authorizing an obligation in excess of the amount available. • Forbids obligation to pay money from the US Treasury in advance of an appropriation. • Requires agency to fix responsibility for violations of the Act. • Bona Fide Need Rule • Requires funds to be used only for needs or services in the year of the appropriations obligation availability period.

29. OSD Budget Review • Balance Requirements to Available Resources • Topline • Readiness vs Modernization • Address Administration / DoD Priorities • National Programs • Defense Planning Guidance (DPG) • Programming Decisions (PDM) • QDR

30. OSD Budget Review (cont.) • Address Departmental Initiatives • Readiness Levels/OPTEMPO Rates • Quality of Life • Defense Reform Initiative • Infrastructure Savings • Modernization Target • Affordability • Science & Technology

31. OSD Budget Review (cont.) • Acquisition Initiatives • Program Stability • Acquisition Reform • Total Ownership Cost • ADM/Baseline Conformity • Assure Joint Programs Are Consistent

32. OSD Budget Review (cont.) • Balanced / Coherent / Consistent Budget • Budget Scrub • Programs Are Properly Priced • Development / Production Transition • Duplicative Programs • Follow-on Systems • Support Costs • Budget Execution Rates • Conform With Budget Policies • Departmental Outlay Projections

33. OSD Balanced/Coherent/Consistent Budget Program Phasing Development / Production Concurrency Acquisition Schedule: Milestone Approvals, Testing First Quarter/Fourth Quarter new starts at risk Production Lead-time/Non-recurring Costs Funded Delivery Period Should not exceed 12 months Program Pricing Basis of estimates for programs and cost exhibits Analysis of: Learning curves and Production rates OSD Escalation Indices Contract data/Configuration changes Budget to most likely cost (Target / Ceiling)

34. OSD Balanced/Coherent/Consistent Budget Budget Policy Incremental Funding - RDT&E Full Funding - Procurement, MILCON Annual Funding - MILPERS, O&M Explanation of Funding Anomalies Appropriation Cognizance (“Color” of Money) Budget Execution Analysis of Accounting Reports Historical (3-5 years) track record Likelihood budget request can be executed Obligation Rates, Expenditure Rates Availability of prior yr funds for budget yr efforts

35. How to Survive • Acquaint yourself with key OSD staff • Prepare for hearing • Focus on Advance Questions • Conduct an internal budget review • Ensure your submission answers all their questions • Understand Issues:Budget policy, programmatic • Hearing • Focus on Advance Questions • Limit attendance at Hearing • Follow-up Hearing Questions • Appeals - Address Specific PBD Rationale • Recognize that outside “macro” issues will impact • acquisition programs

36. Impact Statements Tips for Effective Impact Statements: - Operational Impact Capabilities to Warfighter/User Impact to Program Believable - Business Case Greater Cost to the Government - Non-compliance with Policy

37. Back-Up

38. Available for Obligation Expired Funds Years 1 2 3 4 5 6 7 8 9 10 O&M RDT&E Procurement Ships MILCON MILPERS Available for Outlay

39. Expired Funds • National Defense Authorization Act of FY 1991 • Effective 1993 • Remains available for obligation adjustments and payments for 5 years after the obligation period • Keeps fiscal identity (appropriation, fiscal year, line item, etc. • After 5 year period, all obligated and unobligated balances are cancelled • Any additional payments funded out of current appropriation - Limited to lesser of: • - 1% of current appropriation • - Unexpended balance of cancelled appropriation

40. Types of Reprogramming • Congressional Prior Approval Reprogramming • Internal Reprogramming • Below Threshold Reprogramming

41. Congressional Prior Approval Applies to Actions Involving: - General Transfer Authority - Major System Procurement Quantity Increases - Congressional Special Interest Items - Amounts exceeding those specified for below threshold - Initiating a new start above $2M in the first year or $10M over a 3 year period Requires: - Approval by Comptroller, DoD - Approval by HAC / SAC and HASC / SASC - Approval by House and Senate Committees on Intelligence

42. Omnibus Reprogramming • DoD sends Congress one annual integrated package of • reprogramming requests containing all “Bills” and “Bill- • payers” • DoD/Congress will not revisit any rejected “Bills” or • “Bill-payers” • DoD prioritized Congressionally approved “Bills” and • pays to the extent funds are available from • Congressionally approved “Billpayers” • Major acquisition reprogramming requests sent to • Congress on “exception” basis “Bills and Bill-payers” Approvals or Rejections

43. Internal Reprogramming Applies to: - Reprogramming actions that do not involve changes from the purpose and amounts justified in budget presentations to Congress Requires: - Approval by the DoD Comptroller

44. Life Cycle Cost Categories PDRR CE EMD Notional % of LCC ~16% Space system ~53 - 54% Surface vehicle ~66 - 68% Ship ~66% ~0% ~37% ~18% ~0 - 1% ~31% Operating & Support Cost Program Cost % ~9% ~0 - 2% Disposal Cost ~1% R&D Cost Investment Cost Production, Fielding / Deployment & Operational Support

45. Total Ownership Cost (TOC) • Reduction of Total Ownership Cost (TOC) is an initiative of the Defense Systems Affordability Council (DSAC). • “DoD TOC is comprised of costs toresearch, develop, acquire, own, operate and dispose of weapon and support systems,other equipment and real property;the costs to recruit, train, retain, separate and otherwise support military and civilian personnel; and all other costs of business operations of the DoD.” • One of the many dimensions of DoD TOC is “Defense Systems TOC”; this is defined specifically as the “Life Cycle Cost (LCC) of that system” (further defined in DoD 5000.4M). The PM should focus primarily on this dimension of DoD TOC and support reduction on DoD TOC through a continuous reduction of the system’s LCC. Reference: USD (A&T) Letter, Subject: Definition of Total Ownership Cost (TOC), Life Cycle Cost (LCC), and the Responsibilities of Program Managers, 13 Nov 98

46. Total Ownership Cost (TOC)- Representative “Type” Costs $ $ $ $ $ $ $ $ $ $ $ • Direct Costs of Acquisition System: Research, Development and Testing (Prime and Support Items); Production (Prime and Support Items); Initial Spares; Construction of Unique Facilities; Manpower Costs; Disposal Costs PM Primary Focus: The “Life Cycle Cost” of the specific acquisition system • Indirect Costs Attributable to System: Program Management/System Program Office (PMO/SPO) operations; Other Infrastructure that plans, manages and executes the acquisition program; Training of Personnel; POL; Ammunition; Replenishment spares; Maintenance • Indirect Costs of Command Infrastructure not directly involved with System : Operational Command HQ; Service HQ; OSD; Recruitment, training, retaining and separation of military and civilian personnel PM Interest (Beyond PM Influence and Control) : Generally, based on an incremental “fair share” that might be assigned to or associated with an Acquisition System • Indirect Costs of Installations where Deployed: “Routine” BASEOPS (e.g., Maintenance of Grounds and Buildings; Snow Removal; Chapel; etc.); Personnel and Support - Related Costs at Post, Base or Ship

47. FY99 C-5 Budget Justification BUDGET ITEM JUSTIFICATION (EXHIBIT P-40) Date February 1998 APPROPRIATION/BUDGET ACTIVITY AIRCRAFT PROCUREMENT-AIR FORCE/Aircraft Modifications P-1 ITEM NOMENCLATURE: C-5 This line item funds modifications to the C-5 aircraft. The four engine C-5 carries outsized and heavy cargo (tanks, helicopters, etc.) between main operating bases. The primary modificaiton budgeted in FY99 is the TF-39 High pressure Turbine (HPT). Other modifications enhance operational capability while improving flight safety, reliability and maintainability. The specific modifications budgeted and programmed are below. MOD MODIFICATION COST TOTAL NR TITLEFY-97 FY-98 FY-99 FY-00 FY-01 FY-02 FY-03 TO GO PROG. 3150 NAVSTAR GLOBAL POSITIONING 11.9 8.3 6.7 5.3 88.5 4252 AIRLIFT DEFENSIVE SYSTEMS 1.3 4.3 2.7 2.8 5.1 30.8 6032 COMPARTMENT FLOOR CORROS 0.4 0.3 0.7 6037 TF39 ENGINE HIGH PRESSURE 19.7 34.2 33.1 37.0 41.1 24.9 190.0 6038 AVIONICS MODERN PROGRAM 113.4 53.7 123.2 107.0 200.6 597.9 96001 STATION KEEPING EQUIPMENT 10.8 2.4 13.6 10.2 0.4 37.5 96004 SINCGARS 7.9 13.1 13.2 34.3 99999X LOW COST MODIFICATI 0.9 0.1 0.1 2.8 Z88888 REPROGRAMMINGS 1.7 1.7 TOTAL FOR C-5 61.6 81.2 63.6 193.0 121.0 154.4 107.5 200.6 P-1 SHOPP LIST ITEM NO. 035 PAGE NO. 214

48. Case Study - C-5 AMP • Requirement • FY 98 DEPSECDEF direction - passenger safety high priority • Air Force decides to start Traffic and Collision Avoidance System (TCAS) effort on the C-5 in FY 99 instead of FY 00 • Budget Justification • FY9 9 President’s Budget (PB) showed C-5 AMP (Avionics Modernization Program) totaling $600M beginning in FY 00 • TCAS effort included as part of overall C-5 AMP program • Answer to Congressional Inquiry (Aug 98) states AF intent to accelerate TCAS portion of C-5 AMP • During Staffer Days (Feb 99) briefed House Appropriations Committee (HAC) staffer - intent to accelerate TCAS portion of AMP from FY 00 to FY 99 • Decision - New Start Notification Not Required • AF believed Congress notified and agreed with approach

49. FY00 C-5 Budget Justification BUDGET ITEM JUSTIFICATION (EXHIBIT P-40) Date February 1999 APPROPRIATION/BUDGET ACTIVITY AIRCRAFT PROCUREMENT-AIR FORCE/Aircraft Modifications P-1 ITEM NOMENCLATURE: C-5 This line item funds modifications to the C-5 aircraft. The four engine C-5 carries outsized and heavy cargo (tanks, helicopters, etc.) between main operating bases. The primary modificaiton budgeted in FY00 is the TF-39 High pressure Turbine (HPT). Other modifications enhance operational capability while improving flight safety, reliability and maintainability. The specific modifications budgeted and programmed are below. MOD MODIFICATION COST TOTAL NR TITLEFY-98 FY-99 FY-00 FY-01 FY-02 FY-03 FY-04 FY-05 TO GO PROG. 3150 NAVSTAR GLOBAL POSI 8.1 8.1 5.3 78.6 4252 AIRLIFT DEFENSIVE SYS 5.0 6.4 3.1 0.4 30.7 6032 COMPARTMENT FLOOR 1.2 0.4 0.3 5.4 6037 TF39 ENGINE HIGH PRE 40.2 39.7 37.6 45.8 24.9 207.7 6038 AVIONICS MODERNIZATI 9.7 22.6 129.9 195.3 217.3 163.1 2.4 740.3 96001 STATION KEEPING EQUI 1.4 11.4 96004 8.33 RADIO 13.3 1.9 15.2 99999X LOW COST MODIFICATI 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 3.0 Z88888 REPROGRAMMINGS 6.9 6.9 TOTAL FOR C-5 84.7 82.4 70.0 180.6 237.6 235.9 260.3 455.6 4700.8 6729.5 P-1 SHOPP LIST ITEM NO. 33 PAGE NO. 1

50. Case StudyC-5 AMP - Lessons Learned • Conclusion - Formal Congressional Notification Required • Staffer Day briefing does not constitute notification • Discussion • $9.7M spent in FY 99 for TCAS, using funds from other C-5 modification efforts • FY 00 PB sent to Congress with FY 99 updates • Budget depicted $9.7M for C-5 AMP (which was not supposed to start until FY 00) • HAC criticism published in NY Times • Appearance that Air Force diverted funds from Congressional special interest item to fund the new start KEY POINT: Formal Notification