Multi-ship, Multi-Option (MSMO) Contracting

Transcription

1 UNCLASS Multi-ship, Multi-Option (MSMO) Contracting USFF N43 & NAVSEA 21 July 2009 Ready Fleet Global Reach 1

2 Context / Agenda UNCLASSIFIED Context Multi-ship, Multi-option (MSMO) Program is employed as the primary maintenance procurement strategy for surface ships, and is used to supplement CVN maintenance execution at naval shipyards. Desired Outcome Understanding of the elements, controls and performance of the MSMO program in support of FRP. Agenda 1) Objectives of MSMO what we wanted 2) MSMO performance what we got 3) Improving MSMO being smart with our money Navy process controls, and contractual improvements UNCLASSIFIED Ready Fleet Global Reach 2

3 Background Surface Ship Maintenance prior to 2004: No structured approach to provide depot-level continuous maintenance in support of FRP & SHIPMAIN concepts CNO availability contract structure (single-use firm-fixed price) led to undesirable outcomes: Excessive cost growth w/ wide variation in final cost outcomes Navy-industry relationship: contentious vice collaborative; opposed objectives; bid-low, grow-hard to make fee No ownership by contractor in Navy objectives CNSF: how can we improve maintenance execution? Consulted with commercial ship-line operators: Multi-ship, Multi-option maintenance strategy Ready Fleet Global Reach 3

4 MSMO Objectives Support FRP/ improved maintenance readiness Trusted advisor/program manager on maintenance & mod n mgt Long-term, vested relationship, with accountability Stable, flexible, responsive industrial base Approved by formal Acquisition Decision Memo [ASN(RDA), Nov 2004]; Re-affirmed by ASN(RDA) May 2009 (MSMO Spiral 2 Release) Expectations: A partnership - Navy is the MSMO primary customer Allegiance is to primary customer, not other customers or sub-contractors MSMO becomes SME for the product line (ship class) Learning curves and efficiency in depot production operations Navy provides predictable workload forecast MSMO develops complimentary business lines to defray Navy cost burden Also allows MSMO to invest in work force and modernize plant & facility Ready Fleet Global Reach 4

5 MSMO Basic Structure One long-term (~5 year) contract providing maintenance & modernization services for one class of ships per homeport: ~ 20 contracts competitively awarded; total volume $4.3B FY05-09 Scope includes CNO, CM & emergent (24/7) maint, & Modernization Contractor plans the work he executes end-to-end accountability Cost-reimbursement contract: Navy liable for all allowable costs incurred MSMO contractor fee is capped (11.2%); avg. fee earned approx 7-9% All costs and fees are audited by Defense Contract Auditing Agency Performance: all MSMO contractor fee is at risk : Fee pay-out based on Navy s assessment of contractor s performance Same team, consistent expectations ownership accountability Ready Fleet Global Reach 5

6 MSMO a Beneficial Relationship Navy needs a healthy ship repair private sector Industry is at low end of wage scales for similar industrial classifications competition for labor and capital difficult Corporate objectives: customer satisfaction & financial performance Customer satisfaction not relevant pre-msmo no accountability Financial performance: MSMO or not, profit margins are smaller compared to other industries ship repair not an attractive investment for capital Cash Flow investors will lower profit expectations if cash flow stream is stable MSMO provides critical stability: To meet customers expectations thru an accountable relationship To attract investment (due to cash flow stability): improve plant and equipment, process efficiency, work force training and development Ready Fleet Global Reach 6

7 Results: Readiness vs. Maint Investment Navy initiates FRP Start MSMO 1,600 1,400 Steaming days/yr/ship , , Maint $M $M CNO Clark: buy-down maint backlog (2003) Large increase in steaming days/yr (HOA, APS, POA, HADR, etc.) Avg Days per Yr OPTEMPO Actual (Avg Days per Yr) Increased steaming at same maint investment levels: MSMO enabling FRP Ready Fleet Global Reach 7

8 Results: MSMO Contract Performance Cost: rates stable, affordable, and w/i programmed levels Cumulative cost performance (thru FY08): ~ 2% cost under-run, all contracts, all performance periods Schedule: response to current readiness exceptional supports FRP 170+ CNO MSMO availabilities 2 late due solely to contractor performance Incorporation of change scope w/o sked impact significant (range 20-30%) Technical performance solid & improving Govt QA-point reject rate < 2% 3.50% 3.00% QA Reject trends Partnership: All MSMOs productively engaged in many Navy initiatives 1.00% 1 st -order MSMO program 0.50% objectives being met 0.00% Average Rejection Percentage for all Contractors 2.50% 2.00% 1.50% Period 1 Period 2 Period 3 Period 4 Observation Period Period 5 Period 6 Period 7 Ready Fleet Global Reach 8

9 MSMO Controls, Oversight, Governance MSMO success due to: Rigorous oversight by ASN(RDA) & Congress Balancing competition, performance incentives, stability Approved additional contract strengthening in MSMO Spiral 2 (FY10-14) Navy report to Congress w/ FY10 Budget Request substantiating rationale for executing DDG Modernization w/ MSMO Contract stability: permits focus, investment, process improvement RMC - exercising contractual authorities DCAA - frequent cost realism assessments and audits Award fee evaluation boards frequent feedback & accountability Standing MSMO Acqn IPT providing dynamic review & adjustment All contracts issued under proper Navy contract & technical warrants MSMO Program closely scrutinized it is NOT in a closet Ready Fleet Global Reach 9

10 Improving MSMO USFF 2009 Annual Plan Goal 1.3: Align Ship Maintenance & Modernization Sub-goal (1): May ASN(RDA) approved MSMO Spiral 2 contract fee terms & conditions (incentives) Cost-savings incentives: Navy & contractor share in savings associated with under-runs Schedule incentives: contractor earns fee for achieving critical milestones on-time Award fee component retained in Spiral 2 to make midcourse adjustments (every 6 mos.) on mgt and technical performance. Incremental fee payments (cash flow) permitted if strong performance is sustained. Ready Fleet Global Reach 10

11 Improving MSMO USFF 2009 Annual Plan Goal 1.3: Align Ship Maintenance & Modernization Sub-goal (2): Achieve approval for, and implement Comprehensive Contracting & Depot Work Integration Policy Policy signed by ASN(RDA) 27 March 2009 Amongst other beneficial effects, policy drives MSMO-capable work through MSMOs, to increase work volume and reduce hourly rates charged to Navy customers. Higher utilization of MSMO decreases their marginal costs, which enables greater purchasing power by Navy customer Ready Fleet Global Reach 11

12 Improving MSMO Other measures taken to improve MSMO efficiency Reducing variation in Navy input (schedule variation) PR11 CNO availability schedules adjusted (within the bounds of empskeds) to reduce costly variation in regional workloads. Improved & defensible awards Sustained protests have churned waterfront maint execution BAE East-West-HI summit BAE-initiated forum to export & exploit Lesson s Learned in CG Modernization program MSMO supporting Surface Ship Lifecycle Maint Activity with identification of critical ICMP tasks Industry Partner Trusted Advisor Aligned Objectives Ready Fleet Global Reach 12

13 Potential for more improvement Royal Navy Ops-Maint model: flatten the depot loading curve Completely flattening the curve not feasible in our FRP/Surge environment, but is there more trade space? Residual cost in MARMC for current loading curve, after N3 sked adjustments still ~$ M in PR11 Navy-driven process differences CRMC/SEA 04Y continues to address boards standardized (FY09) Cost reporting formats need to be standardized QA, repeated work processes & technical acceptance stnds require standardization Consistent training of waterfront maintenance teams on processes & IT systems Evaluation of reducing low-criticality government inspections Ready Fleet Global Reach 13

14 MARMC PRIVATE SECTOR WORKLOAD (Oct 2008 Sep 2012) More efficiencies possible! R e s o u r c e s ASHLAND FREEDOM FY-09 FY-10 FY-11 FY-12 BLUE LINE INDICATES ORIGINAL WORKLOAD TOTAL PORT PRODUCTIVE RPD AVAILABLE (3770 based on 3 year avg) P e r D a y NORMANDY MONTEREY ANZIO BATAAN CM FORT MCHENRY PORTER CHURCHILL KEARSARGE BULKELEY COOK COLE LABOON BARRY LE GEND SMALL BOATS/ LCACs (includes SLEPs) 0 CNO AVAI LS SHI FTED AVAI LS PROPOSED SHI FT O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O Data date: 10 Jun 2009 Prepared by: C-1250 Data source: United SEA States 04XF2 Fleet and Forces C-1250 BUSINESS SENSITIVE Ready Fleet Global Reach 14

15 Alternatives to MSMO Only alternative is to return to previous maint procurement methodology (single-purpose firm-fixed price procurement) Relationship was contentious, unproductive, self-centered Navy goes it alone no industry partner RMC s divested their capability (spec planning) and capacity (change negotiation) used in the previous procurement methods. Expect higher infrastructure and project costs for maint & mod n if fixed-price is used Current MSMO structure is a more accommodating change vehicle, necessary given Surface Navy s difficulty in precisely defining maint requirements. Return to previous practice requires unprogrammed re-staffing & training, with no identifiable benefit to maintenance program Ready Fleet Global Reach 15

16 Summary MSMO is enabling FRP and supports increasing Surface Navy operational tasking. MSMO provides a long-term, vested, accountable relationship between the Navy and contractor to better plan, schedule and execute maintenance. Contract performance meets or exceeds targets Contract oversight & control mechanisms are dynamic and robust. Top Navy leadership focused on program integrity & performance. Cost savings incentives included in next generation of MSMO (FY10-14) Navy implementing other measures to stabilize process input MSMO improvements are delineated in USFF 2009 Annual Plan, and have been achieved Ready Fleet Global Reach 16

17 UNCLASS Ready Fleet Global Reach 17

18 Back-up Ready Fleet Global Reach 18

19 Comparative Shipbuilding Contract Types (Competition Sensitive do not release outside DoN) Contract Type Programs Target fee Firm-fixed price Small craft, barges -none- Fixed-price with incentive Cost-plus incentive with award fee component DDG Const T-AKE Const LPD Const CVN Const CVN RCOH CVN EDSRA LPD Const LCS Const MSMO % (excludes award fee) 12% % (excludes award fee) 17.8% 11.9% 11.9% 12-14% (excludes award fee) 4% (9% maximum) % MSMO fee levels fair & reasonable relative to other shipbuilding & repair contracts Ready Fleet Global Reach 19

20 Program stability & affordability Norfolk Non-nuke private sector manday rate comparison RMC Rate Trend (FY09 Base Year) $ $ FY10 rate increase: low Navy-wide depot work load Manday Rate ( FY09 Base Year) $ $ $ $ $ $ $ st MSMO Norfolk M ARM C Port Rate SERM C Port Rate SWRM C Port Rate NWRM C Port Rate HRM C Port Rate Norfolk rates: stable, competitive, affordable Ready Fleet Global Reach 20

21 Fleet Response Plan & Ao Support: Schedule Adherence CNO Availability Schedule Adherence Total Production Milestones San Diego and Norfolk Ship Class Total Avails On Time Early MSMO contractors consistently meet Production Milestones to ensure CNO end-dates are met Flexible Work Management Practices to absorb growth/new work with minimal or no impact to operational schedules MSMO schedule adherence rated Exceptional by Fleet Maintenance Officer Responsive to contract changes and administrative requirements Use lessons learned from previous availabilities DDG CG LHA/LHD LPD Late Schedule Adherence: San Diego & Norfolk Ready Fleet Global Reach 21

22 Fleet Response Plan & Ao Support: Emergent Readiness Response 2006 Emergent* Responses USS CHURCHILL (Collision Repairs) USS MCFAUL (Collision Repairs) USS SHILOH (Fire Damage #3 Switchboard) USS MOBILE BAY (Pre-Deployment Casualties) USS LAKE CHAMPLAIN (Pre-Deployment Casualties) 2007 Emergent* Responses USS KEARSARGE (Main Engine Turbine Casualty) USS HALSEY (Main Reduction Change Out) USS LAKE CHAMPLAIN (Pre-Deployment Casualties) USS PRINCETON (Pre-Deployment Casualties) USS NORMANDY (Pre-Deployment Casualty) USS SAIPAN (Pre-Deployment Boiler and Fuel Oil Casualties) 2008 Emergent* Responses USS CHOSIN (Docking) USS NITZE (Docking - Propulsion Train Casualty) USS COLE (Sonar Dome - Docking) USS SAN ANTONIO (Pre-Deployment Casualty) USS MOBILE BAY (Pre-Deployment Casualties) USS PRINCETON (Surge- Deployment Repairs) USS DECATUR (Pre-Deployment Casualties) USS JOHN PAUL JONES (Sonar Dome Transducers Docking) 2009 Emergent* Responses USS NASSUA (Docking Tanks) USS HOWARD (Docking Hub Change-out) * Unplanned Events to Support Deployment/Further Operational Service Examples of the MSMO Program Supporting Emergent Work Ready Fleet Global Reach 22

23 MSMO QA Reject rates Norfolk 3.50% 3.00% Average Rejection Percentage for all Contractors 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Observation Period Product performance: 3 warranty action in 13,600 MSMO work items Ready Fleet Global Reach 23

24 Spiral 2 Contract Structure Changes (Enhanced Cost Control Mechanisms) Spiral 1 (FY05-09) Competitive awards CPAF Not exercising options Denial of sub-ktr consent TAR process Navy also drives cost outcomes: Port loading, AIT erosion, process differences Recognized and vigorously managed: C-RMC, MCIT, ASN Policy (proposed) Spiral 2 (FY10-14) Competitive awards CPAF/IF Not exercising options Denial of sub-ktr consent Strengthened TAR Process Contractor Purchasing Review System: places ceiling on AF pool at 80% Corrects bad teaming behavior EVMS cert: ktr value decision only Cost incentive (IF) in lieu of additional Small Business incentive fee Perf-based AF progress payments 1-year Rate Caps (in RFP) Invoke excessive fee on fee limitation clause in all contracts Pre-priced standard work-items Ready Fleet Global Reach 24

25 DDG building yards - cost impacts (FYDP) Cost impacts to Fleet Maint & Modernization programs 20% cost escalation in remaining homeport work due to volume loss/rate increase 80% cost escalation due to higher construction yard rates 1) All DDG BIW $1.17B 2) DDG Modn BIW-NGSB 0.79B 3) Other costs: (TADTAR, man/de-man, etc.) not estimated Ready Fleet Global Reach 25