[NDIA Logistics Forum] Program Commonalities Good; Long Term Contracts Hard to Pull Off Domestically
Ed. note: This entry is part of DID’s coverage of the NDIA’s National Logistics Forum 2013.
In his keynote, Dale Bennett, EVP of Mission Systems and Training at Lockheed Martin, listed a few things DoD and industry can do to get better results despite increased funding constraints.
First, Bennett thinks that sharing technologies across programs can not only improve interoperability, but also reduce sustainment costs, presumably thanks to shared spare parts and better familiarity (because of repeat exposure) from the people doing the maintenance. AEGIS and its various spin-offs (e.g. AEGIS Ashore) is the program that he used to illustrate this trend.
Second, Dale Bennett offered rather unequivocal support for Performance Based Logistics (PBL), which he sees as a flexible and viable model. He went as far as naming PBL contracts as a key initiative to make Better Buying Power a success. As an example of a PBL that worked, Bennett mentioned a tire management program – often showcased [PDF] to demonstrate PBL’s benefits – run by Lockheed Martin for the US Navy (it is an industry event after all, so an underlying sales pitch is to be expected). The Navy used to manage an inventory of about 50,000 tires. These days they can focus on outcomes – in this case the availability of the right tire at the right place and time – rather than individual assets, which are the contractor’s to worry about. (One of the event’s award winners would later in the day also sing the praises of PBLs.)
Finally Bennett offered a glimpse of “turnkey operations” offered by a contractor with a broad focus on performance rather than product delivery. He took the example of a contract done by LockMart with Singapore for their Basic Wings Course, based on a holistic view that encompassed initial procurement, recap and even finance. The customer already had a very good knowledge of their costs, and was willing to commit upfront to a 20-year contract. Bennett quipped that the contractual framework was not phrased as a 1-year contract with 19 1-year options. Such long-term deals are hard to put together in the US, though DID notes that in practice many initial short-term are followed by decades of sole-source J&As anyway, because of intellectual property and know-how proprietary to a single vendor.
When we asked Mr. Bennett whether he thought similar long-term contracts might have a future in the US, he responded that Congress was the main barrier: “The Hill doesn’t want to get into such mortgages and lose their flexibility. This becomes a political issue very quickly.” It is too bad, since DoD seems inclined to get into more MYP contracts lately, and prime contractors, especially if they are publicly traded, may well be willing to give up some cost transparency and margin points in exchange for the earnings predictability of a well-funded backlog.