BRAC Leads to $6.2B Privatization Contract for DLA
As part of the USA’s 2005 BRAC (Base Realignment and Closing) process, recommendations were handed down to the US Defense Logistics Agency to privatize a series of product commodities, and eliminate the government’s wholesale stock in key areas. The DLA manages logistics on behalf of all US military branches, and federal civilian agencies as well. These Commodity Management Privatization (CMP) activities would have to take place within a framework of public-private partnership, with goals that included improved delivery, improved management, and lower cost of ownership. It is just one component of the DLA’s Transformation Roadmap.
In January 2007, DID covered privatization efforts by the Defense Supply Center Columbus (DSCC) in Columbus, OH, in the areas of aircraft tires (up to $700 million) and vehicle tires (up to $1.7 billion). Now the Defense Supply Center Richmond has issued a CMP contract worth up to $6.2 billion for chemicals and packaged petroleum, oils and lubricants. There were 3 contestants – but just 1 winning team. The forklift please… and the winner is…
Science Applications International Corp. in Fairfield, NJ received the firm-fixed-price with economic price adjustments, indefinite-delivery/ indefinite-quantity commodity materials privatization contract. It has a 5-year base period, a 5-year option, and a ceiling value of $6.2 billion if the DSCR exercises all options. Proposals were Web-solicited and 3 responded. Date of performance completion is May 1, 2012.
The Defense Supply Center Richmond (DSCR) in Richmond, VA issued the contract (SPM4AR-07-D-0001). Defense Supply Center Richmond is the aviation supply and demand chain manager for the Defense Logistics Agency, and serves as the primary source of supply for more than 1.2 million repair parts and operating supply items. These items range from critical, safety-of-flight air frame structural components, bearings, and aircraft engine parts, to electric cable and electrical power products; lubricating oils; batteries; industrial gases, bearings; precision instruments; environmental products; metalworking machinery and consumable items. DSCR also operates an industrial plant equipment repair facility in Mechanicsburg, PA.
The privatization contract will have a wider scope than this, however, addressing requirements for weapon systems that include vehicles and ships, as well as the requirements of base maintenance and federal installations. SAIC’s major subcontractor will be Haas TCM of West Chester, PA, who recently picked up a $2 billion DLA privatization win of their own. Together, they will provide the comprehensive management of chemicals and packaged petroleum, oils and lubricants previously handled by the Defense Logistics Agency. This will include demand forecasting, order processing, procurement, inventory management, quality control, environmental compliance, hazardous materials management, storage, packaging, worldwide distribution, obsolescence management, data management and customer support services. To that end, the firm will use a suite of existing proprietary software they’ve developed called the SAIC Integrated Logistics Toolset; it includes forecasting, inventory, modeling, and other required functions for managing integrated supply chain contracts.
SAIC and DLA formalized their broader relationship through a Supply Chain Alliance (SCA) charter back in 2006, a document that helped lay the groundwork for this win. The chemicals and packaged petroleum, oils and lubricants award is a performance-based contract with 2 primary metrics.
The most important metric is fill rate objectives, which mostly consists of delivery accuracy and timeliness. Mike McGovern, SAIC’s VP Business Development, told DID that the contract is associated with about 3,000 National Stock Numbers and also includes Foreign Military Sales orders. There’s a transition program wherein SAIC is initially delivering direct within the USA, but through the US government’s containerization control points outside the Continental United States (OCONUS). Eventually, however, all deliveries around the world will be direct.
The second primary metric involves small business subcontracting. The DSCR has long-standing targets in this area, and maintaining that focus was politically and contractually important. SAIC’s partner Haas TCM is a small business qualifier, with under 500 employees. SAIC also has a long-standing small business partner program, and McGovern says they consistently exceed their small business subcontracting goals on other contracts in their integrated supply chain portfolio (incl. contracts for tires, wheels and tracked vehicle parts, aircraft parts, and commercial based maintenance). In April 2007, SAIC received a 2006 Dwight D. Eisenhower Award for Excellence from the Small Business Administration (SBA).
There is also a cost-share/ gain-share program associated with some of the products in this contract, which allows the partnership to both deal with cost overruns and reward performance.
As one might imagine, a contract of this magnitude, in an area of growing focus, for a firm that recently went through the IPO process to become a public company, attracts top-level attention. From SAIC’s press release, Ken Dahlberg, SAIC chairman and CEO:
“This contract is a strategic win for SAIC and further solidifies SAIC’s position as a leader in integrated supply and logistics support services for the U.S. government and the Department of Defense. We are committed to making this program a success and to securing outstanding customer satisfaction.”
Normal press-release bromides – but in this case, the operational commitment actually will go all the way to the top.