Breakout Session # 1803 Gary Poleskey Vice President, Dayton Aerospace, Inc.

2. Joint STARSTotal System Support ResponsibilityContract – Key Ingredients Breakout Session # 1803 Gary Poleskey Vice President, Dayton Aerospace, Inc. Member, NCMA Board of Directors April 10, 2006 2:45 to 3:45 PM NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

3. IntegratedAcquisition Solutions www.daytonaero.com NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

4. Joint STARS TSSR Contract Why Should You Care? • Contract Contains Elements That Are Being Actively Pursued • Key ingredients: TSSR – Partnering – Performance-based incentives • Programs in the hunt include: F-22, CV-22, C-17, F-35, and others • Public – Private Partnering Is Supported By All Sides Of The Public Depot Debate • Joint STARS is one of the most aggressive Air Force example • Performance-Based Logistics & Performance-Based Business Environment Remain “Hot Topics” In And Around DoD • DoD 5000.1 requires PMs to develop PBL strategies • GAO Aug 16, 2004 report supports PBL but attacks platform-level PBL • DEPSECDEF MID 917 (Oct 18, 2004) identified six pilot programs to demonstrate innovative contracting and financial techniques toward the • “Purchase of weapon system sustainment as an integrated package based on output measures.” NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

5. Joint STARSTSSR Contract Key Ingredients OVERVIEW • Joint STARS Program Backdrop • Public-Private Partnering • Integrated Award Fee & Award Term Incentives NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

6. Joint STARS Program BackdropHistory & Current Status • Spring 1999 – Total System Support Responsibility (TSSR) Discussions Began • Spring 1999 – Joint STARS Named LB 99-7 Prototype (Partnerships) • July 1999 – Initial Partnering Discussions Between Northrop Grumman & Warner Robins ALC • Nov 1999 – Joint STARS TSSR Acquisition Strategy Panel • June 2000 – Major Partnering Document Agreement • Sept 2000 – Joint STARS TSSR Contract Award * Max Points = 150/175 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

7. Background: Joint STARSReal Program Environment • As of Spring 1999 – • 4 aircraft had been delivered • 3 aircraft had gone through normal PDM • 1 aircraft had wing structural integrity enhancement installed • Prime Mission Equipment and Software maintenance declared CORE by HQAFMC (Work must be performed by Air Force Depot) • Between Then and 2002 – • 10 aircraft were scheduled to be delivered • All delivered aircraft would go back through PDM • 9 of first 10 aircraft – wing structural integrity enhancement installed • Between 2002 and 2004 – • Two major block upgrades were scheduled to be designed, tested, produced, and installed • Including changing computer configuration to commercial baseline NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

8. TSSR Program Organization FS Integration Mgmt Team SSM and FS PM to Co-Chair Sustainment Integration Team Development IPT Production IPT Future Support IPT ACC JPO LY 93rd ICPs SSM Joint STARS IMP/IMS Modification/Retrofit Planning Joint STARS Integrated Release/Impact Analysis Integrating Processes OSS&E P3I/DMS PME & Material Management Supply Chain Management Training Sustainment IPTs IPTs IPTs LYP LYS LKS Office IPTs Units SLAs Future Support Integration Management Team Owns All Integrating Processes NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

9. Public-Private Partnering NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

10. Public-Private PartneringPolicy Still Evolving • Joint STARS Partnering Consistent With 1999 Laws & Rules • Without high-level approvals • Not a commercial subcontract relationship – close as possible • Called GFS/S, Workshare Partnerships, or Hybrid Partnering • Jan 2001 CITE* Designation Allows Direct Sale Agreements (Subcontracts) in Accordance with Sect 2474 • No recent specific experience exists • Certain unique public depot characteristics will need to be accommodated • USD (A,T &L) 13 Feb 2002 Memo Strongly Support Partnering * CITE = Center of Industrial & Technical Excellence NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

11. Joint STARS TSSRPartnering Overview • NGC Assumes Depot-level TSSR Responsibility -- • Sustainment of the air vehicle • Sustainment of ground support systems • Sustainment of operational and maintenance trainers • Supply chain and spares management • Systems engineering and technical data management • Integration of TSSR activities with operational level maintenance • NGC is the Systems Integrator, Including Being Directly Responsible And Accountable For Total Weapon System Availability And Performance • Unique Agreements Signed To Enable NGC To Control The Depot Work Effort Without Directly Managing Or Funding it • Agreements Treat CORE and Non-CORE Identically NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

12. Joint STARS TSSR Partnering Documents • Three Party agreement among • USAF Program Director, Senior Depot • Official, and NGC • Overarching objectives & overview of • necessary implementing documents Long Range Memorandum of Agreement LRMOA Partnering Agreement PA • Baseline agreement under which the • Depot provides GFSS to NGC • Specific agreement for each Depot work • area includes: line items, firm or estimated • costs, and detailed terms & conditions Implementation Agreement IA • Provides funding from PCO to • the performing Depot organization -- • normally uses an AFMC form 181 Project Order PO • Authorizes specific work to be performed • initiated by NGC and approved by PCO -- • normally an AFMC form 206 Temporary Work Request TWR NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

13. Implementation Agreement 4 Implementation Agreement 3 Implementation Agreement 2 Implementation Agreement 1 PA & IAs Funding & Work Authorization Flow SAF/AQ ESC/CC Joint STARS SPD WR-ALC/CD & N-G VP Partnering Agreement Joint STARS SSM SCR Enabling Clause N-G TSSR Contract Project Orders Authorization & Funding Work Content TWR-1 TWR-2 Temporary Work Requests TWR-3 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

14. SLA TITLE Common Avionics Joint STARS Engines DLA Common Items Interim Supply Chain Management DMAG Support Joint STARS TSSRService Level Agreements PARTIES • ESC/JS – WR-ALC/LY – NGC • ESC/JS – OC-ALC – NGC • ESC/JS – DLA ICP – NGC • ESC/JS – WR-ALC/LG – NGC • (Implementation delayed until • De-capitalization was Approved Nov 2001) • ESC/JS – WR-ALC/CD NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

15. Joint STARS TSSRKey Partnering Agreement Articles • Customer Interface (Article 5) • Quality Standards and Compliance (Article 7) • Depot Performance Responsibility (Article 11) • Termination (Article 14) • Resolution of Disputes & Disagreements (Article 13) • Contracting Out (Article 15) • Audit and Oversight (Article 18) • Limitation of Liability (Article 21) NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

16. Joint STARS TSSR Integrated Award Fee & Award Term Incentives NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

17. Firm Priced Firm Priced New Budgetary Revised Budgetary Revised Budgetary Joint STARS TSSR Pricing Structure 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 ... 2023 Fiscal Year Initial Proposal Firm Priced Budgetary June 2002 New Budgetary June 2004 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

18. Integrated Incentives Objectives • Output Based And Performance Orientated Focus On Warfighter’s Needs – Both Near And Long-term • 71% of Award Fee pool driven by performance-based metrics • 44% of Award Term points from cost containment, TPMs and customer support • Separate, Mutually Reinforcing Award Fee and Award Term Plans • Integrated incentives clause avoids duplication, overlap, or conflict • 21% of Award Term points driven directly by Award Fee results • Reasonable Profit Potential Consistent With Industry Expectations, Performance Challenges, And Risks • Orderly, Performance-based Approach To Off-Ramp Joint STARS Integrated Incentives Approach Fully Embraces Performance Based Business Environment NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

19. Award Fee Details • Focus: Excellent Performance On Current Contract • Fee Pool – 10% • Base Fee – 0% • Award Fee Applied At Contract Level • In Lieu Of DO Level • Semi-Annual Assessment And Disbursement • Rollover (For One Period Only) At FDO Discretion NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

20. Quantitative Input Quantitative Input Qualitative Input Initial Award Fee Measures Expected Weights Deviation in Total Aircraft Possessed Days NMCS(C) Average MICAP Delivery RSPFillRate IFT Effectiveness Cost Performance to Estimate Engineering Support Technical Data Management Training Effectiveness Program Control 93rd Wing Support Quality Program Technical Performance Measures (Availability & Training) 36% Cost Performance 35% Customer Support 29% 71%Quantitative 29% Qualitative NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

21. Initial Award Fee Measurement Quantitative Metrics (Notional) NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

22. 2005 Revised Award Fee Weightings Cost Control Supply Chain Mgt Aircraft Avail & Quality Software Prod & Qual. Training Effectiveness Deployment Support Tech Data Mgt Customer Support NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

23. Initial Award Term Details • Focus: ExcellentAnd Continued Performance As Weapon System Integrator & Overall Sustainment Manager • Basic Contract Guarantees Minimum Of 6 Years • Term Adjustments • Maximum points allowed per year range from – 100 to + 150 • Range of + 1 or – 1 year term for each +/ – 100 points • Off-ramp process would commence in year 5 if no term extension is earned • Award Fee Results (21%) Translate Into Award Term Points • Remaining Points Qualitatively Earned By Effective Integration Activity And Long-term Cost Containment Actions • Excess Earned Points (+ or –) Are Carried Over To Next Period NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

24. Integration Measures Quantitative Input Quantitative Input Qualitative Input Qualitative Input Initial Award Term Measurement Summary Expected Weights • Integration (24%) • Program Management (14%) • OSS&E/Systems Engineering/CM (14%) • Cost Performance to Estimate(7%)(FromAF) • Cost Containment & Continuous • Improvement(13%) • CAIV Effectiveness • Subcontracting-Competition/Best Value • RTOC (14%) 52% Cost Performance 34% Technical Performance Measures (From AF) 9% Customer Support (From AF) 5% 79% Qualitative21%Quantitative NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

25. Quantitative Input Quantitative Input Qualitative Input Qualitative Input 2005 Revised Award Term Weightings Expected Weights • Integration (24%) (14%) • Program Management (14%) • OSS&E/Systems Engineering/CM (14%) • Cost Performance to Estimate (7%)(FromAF) • Cost Containment & Continuous • Improvement(13%) (9%) • CAIV Effectiveness • Subcontracting-Competition/Best Value • RTOC (14%) (7%) 52% 42% Integration Measures 14% Cost Performance 34% 30% Technical Performance Measures (From AF) 9% 18% Customer Support (From AF) 5% 10% 79% 58% Qualitative 21% 42%Quantitative NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

26. Award Term/Award FeeMeasurement Integration * • Contractor Is Highly Motivated To Achieve Very Good + Performance • Satisfactory Performance Yields Unsatisfactory Results • Award Fee at Expected mid range = 79% of Fee Pool • Award Fee generated Award Term points = 39 Points • Award Term at top of Sat range = 71 Points • Very Good Performance Only Yields Acceptable Results • Award Fee above Expected range = 90% of Fee Pool • Award Fee generated Award Term points = 45 Points • Award Term at mid Very Good range = 98 Points * Based Upon Initial Award Term Values NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

27. Off-Ramp Requirements • Use Integrated Off-Ramp Strategy – “Big Bang” • Initiated anytime only 2-years remain on contract • Removal of all non-sole source activities • Detailed list is included in the Award Term plan • Data required to support off-ramp will be specified in Off-Ramp Transition Plan • Elements Incentivized During Off-Ramp Period • Failure to perform would effect Award Fee and CPAR ratings • Data (as necessary & agreed) for acquisition planning process and selecting replacement contractor(s) • Cooperation with government to effect off-ramp • Cooperation with new contractor(s) NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

28. Joint STARS TSSR Contract “H-Clauses” • H-900 – Total System Support Responsibility • H-905 – Contract Pricing and Budget Updates • H-906 – Joint STARS TSSR Depot Maintenance Public/Private Partnering • H-907 – Common Item Service Level Agreements (SLAs) • H-908 – Contractor Efforts to Support Establishment of Depot Capability • H-909 – Integrated Incentives • H-934 – Joint STARS Cost & Performance System (JCAPS) • H-937 – Joint STARS Program Interdependencies • H-943 – Alternate Disputes Resolution Process NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

29. Joint STARS TSSR Conclusions • Meaningful Public-private Partnering Can Be Done Without Reliance On Formal Subcontract • Recent policy changes may open door for tougher provisions • Output Based Performance Measures Can Be Effectively Integrated Into A Subjective Award Fee Structure • Integrated Award Fee/Award Term Incentive Strategy Ensures Consistent, Mutually Reinforcing Assessments For Both Plans • Contractor is challenged to achieve excellent fee & point levels • Supports CPAR evaluations Joint STARS TSSR Construct and Incentive Plan Motivates Contractor and Sharpens Team Focus on Warfighter Needs NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

30. Back-Up Charts NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

31. Partnering Agreement Key Articles NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

32. Joint STARS Future SupportKey Partnering Agreement Articles • Customer Interface (Article 5) • NGC is the primary contact with the customer concerning Program • Depot may continue to report normal management reporting • Parties will cooperate to ensure accurate reporting of depot maintenance activity • Provide each other with copies of applicable briefings and reports • Depot will be informed of NGC meetings where Depot workloads will be discussed • Quality Standards and Compliance (Article 7) • Depot will comply with current AFMC quality standards • Unique quality standards may be specified in individual IAs NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

33. Joint STARS Future SupportKey Partnering Agreement Articles (Con’t) • Depot Performance Responsibility (Article 11) • Meet cost, schedule, and performance requirements of TWR • If item fails final inspection • Depot will correct the defective work at no additional cost • Depot liability limited to the cost of the rework • Depot responsibility for latent defects or other warranty requirements are as specified in the individual IAs • Depot must anticipate schedule problems and notify NGC promptly • Work with NGC to determine cause and remedy • May consider depot acceleration or other alternative corrective actions • If work is moved outside of Depot – treated like TWR termination • Disputes resolved in accordance with Disagreement Resolution Article NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

34. Joint STARS Future SupportKey Partnering Agreement Articles (Con’t) • Termination (Article 14) • Partnering and Implementation Agreements – Bilateral Action • Joint STARS program is cancelled • Mutual consent of the Parties • Customer (SPO) directs NGC to stop using the Depot • NGC elects not to pursue future Joint STARS contracts (Reasonable advance notice required) • Temporary Work Requests – NGC unilateral action • Changed program requirements • Reprioritization of program funding • Depot failure to perform • Notify Depot and allow corrective action • Depot retains price of delivered units, cost of work in progress and direct termination costs NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

35. Joint STARS Future SupportKey Partnering Agreement Articles (Con’t) • Resolution of Disputes & Disagreements (Article 13) • Both Parties committed to direct negotiations • Issues in controversy elevated through channels to WR-ALC/CD and NGC General Manager • Unresolved issues in controversy get elevated to the Prime Contract Contracting Officer • Contracting Out (Article 15) • Depot must identify any significant portion of work to be contracted out • Depot may propose temporary TWR contracting out • Depot continues to be responsible for quality and timeliness of work • NGC has option of terminating TWR, with CO approval, and bringing work into NGC • If NGC takes work, TWR terminated in accordance with Article 14 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

36. Joint STARS Future SupportKey Partnering Agreement Articles (Con’t) • Audit and Oversight (Article 18) • Audit • NGC does not have the right to directly audit the Depot • Depot records will be kept in accordance with normal organic policies • Depot subject to DCAA and DCMA audit caused by Prime Contract needs • Oversight • Depot cost, schedule, and performance reporting specified in individual IAs • May include Limitation of Cost or LOGO type clauses • Limitation of Liability (Article 21) • Neither party shall be liable to the other for consequential, incidental, or special damages • Any claims arising out of the non-performance shall be solely remedied under the TSSE Prime contract NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

37. Joint STARS Key Contract “H-Clauses” NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

38. Joint STARS Future SupportKey Contract “H-Clauses” • H-900 – Total System Support Responsibility • TSSR defined with words from the SOO and states that annual Delivery Orders will be issued under the contract • H-905 – Contract Pricing and Budget Updates • Describes pricing and budgeting support expectations and calls upon the contractor to support POM process • H-906 – Joint STARS TSSR Depot Maintenance Public/Private Partnering • Recognizes and enables partnering documents and processes • Describes PCO’s role in additions, changes, terminations, etc. of PA and IAs • Provides and limits NGC rights to equitable adjustment for Depot performance • NGC must plan, maintain oversight of, and integrate Depot work • Relieves NGC from any responsibility for approving Depot rates • Audits by DCMA or DCMA arranged through the Contracting Officer • Limits NGC responsibility for Contract Security to providing Security Guide • Conditions Depot performance to receipt of appropriate engineering support NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

39. Joint STARS Future SupportKey Contract “H-Clauses” (Con’t) • H-907 – Common Item Service Level Agreements (SLAs) • Calls upon NGC support the SPO to establish SLAs with ALCs and DLA • Goal – enhance communication and foster integrated weapon system support • H-908 – Contractor Efforts to Support Establishment of Depot Capability • Contractor efforts to establish a Core capability subject to separate negotiations • H-909 – Integrated Incentives • Integrated direction on how the Award Fee and Award Term processes will function in a mutually supportive way • Changes to both plans subject to mutual agreement • H-934 – Joint STARS Cost & Performance System (JCAPS) • Budget planning and marginal analysis, EVMS, & common single database • H-937 – Joint STARS Program Interdependencies • Performance dependant but remedies independent • H-943 – Alternate Disputes Resolution Process • Details a 3-tiered, non-binding disputes resolution process • Provides timelines for each step of process NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

40. Controversy Management AgreementH-943 (Continued) • Introduction, Cost, and Objectives • Commitment to Integrated Product & Process Development principles and resolving issues at lowest possible level • Covers any issue, disagreement, or dispute that results in any manner related to any contract endeavor • Cost of Level 3 neutral paid by loser with reminder to the CO to reserve funds before start of Level 3 • Termination and Relation to Litigation • Agree to use process before judicial or other resolution process • Results of total process are non-binding • Silent on litigation options NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

41. Controversy Management AgreementEscalation Levels and Participants H-943 (Continued) • Level 1 – Joint STARS TSSR Oversight Group (JOG) – 6 people SPO Director (Chair) NGC TSSR Manager System Support Manager NGC Vice President WR-ALC TSSR Contracting NGC Business Manager • Level 2 – Joint STARS TSSR Executive Panel (JEP) – 5 people ESC/CC (Chair) NGC Sector VP WR-ALC/CD NGC VP Business Manager WR-ALC/PK • Level 3 – Alternate Dispute Resolution Panel (ADRP) – 3 people Government selected person Contractor selected person Neutral member from American Arbitration Association (Chair) NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

42. Controversy Management AgreementsDocument Limitations and Confidentiality H-943 (Continued) • Documents • Process starts with written document to System Support Manager • No document limit • Level 1 may have discussions among parties and must keep minutes • Position paper triggers Level 2 and supplemental material is allowed • No document limit • Level 2 may have discussions, puts decision in writing, and must keep minutes • Level 3 is provided all paper from Levels 1 and 2 • Confidentiality • All information prior to Level 3 is shared with both sides but protected from external release • Some Level 3 data can be shielded from other side • Either side can mark documents “Attorney-Client Privileged”, thus precluding unilateral release outside the ADR process NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

43. Controversy Management AgreementsProcess Timeline H-943 (Continued) • Level 1 – Issue can be referred here at any time • Written notice sent to Joint STARS SSM • Level 1 meeting within 5 days • Level 1 decision within 21 days • Level 1A – Within 10 days of unacceptable Level 1 decision • Either party sends position paper to other party • Other party has 10 days to accept, negotiate, or reject in writing • Level 2 – Anytime after receipt of Level 1A rejection position paper • Position papers sent to Level 2 Chairperson and may supplement paper • Other party has 10 days to respond to any supplemental material • Initial party has 30 days to respond • Level 2 has 30 days to review material and may hold meeting to discuss • Level 2 written decision targeted for 90 days after referral from Level 1A • Level 3 – Anytime after receipt of rejection by either party • Conducted in accordance with procedures of AAA and ABA • Level 3 target completion date is 120 days after referral from Level 2 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management