Bending The Cost Curve (BTCC)

Bending The Cost Curve (BTCC) A Discussion with Northrop Grumman January 2015 Catherine Rice VP Contracts, Pricing & Program Business Operations Northrop Grumman Aerospace Systems Sector

Utilizing Joint Council Meetings to Drive Systemic/Process Improvements Northrop Grumman has a long legacy of strong management council engagements Corporate Management Council All Company Sectors, DCMA, DCAA, Services and PEOs Sector Joint Management Councils Sector Divisions, DCMA, DCAA and Government Program Offices Internal Functional Management Councils Contract & Pricing and Supply Chain Leadership Councils Contracts, Pricing and Supply Chain Sub-councils Corporate Management Council addresses company-wide strategic systemic level topics while Sector Joint Management Councils focus on Sector and Division level operational topics 2

Aerospace Management Council Participants June 2014 El Segundo, CA NGAS Participants: Sector Vice President Contracts, Pricing & Program Business Operations Sector Vice President, Global Supply Chain Sector Vice President, Quality Assurance Vice President, Supply Chain Vice President, F-35 Program Sector & Space Systems Director, Contracts Sector & Advanced Programs & Technology Director, Cost & Schedule Sector & Military Aircraft Systems Director, Pricing & Estimating Unmanned Business Area Director, Contracts Advanced Programs & Technology Director, Contracts Military Aircraft Business Area Director, Pricing & Estimating Manager, Contracts Director, Quality ASC Participants: Chief, Analysis & Negotiation Branch B Pricing Division Chief Pricing Division AF Life Cycle Management Center Chief of Pricing Division, Contracting Directorate, AS Material Command Chief of Contracting GH Program Office Commander of GH Program Office Sr. Cost/Price Analyst DCMA Participants: Director, Fixed Wing Commander, DCMA Palmdale Program Manager, Fixed Wing Deputy, NG El Segundo Chief Engineering & Manufacturing Group, Palmdale DACO, NG Redondo Beach Commander, NG El Segundo Commander, NG Bethpage Customer Liaison Representative to ASC/AFMC Defense Contract Management DCAA Participants: Resident Auditor, NG El Segundo Senior Auditor Resident Auditor, NG Redondo Beach Hanscom Participants: Ron M. 3

Actionable Enablers Initiative RFP Maturity Checklist Reinstate Alpha Contracting Data-Driven Estimating Model-Based Estimating as a Basis for Firm Proposals Collapse Company and Customer Reviews to Reduce Cycle Time Supply Chain Proposal Prep/PCA Optimization Require a Standard Single Proposal Adequacy Checklist Allow Contractors to work directly to DCAA Field Offices Agree to Use Negotiations to resolve Differences, Disclosures and Current Price Updates Impact Gaining agreement with customer on RFP maturity checklist timely Lock down of the SOW and regulatory requirements Return to up-front Government and Industry functional and P&E collaboration on data normalization, estimating models, and SOW/cost trades Reduced number of higher-level BOE; easier to understand; less time and money spent to achieve same end result going below WBS level 3 on Firm Price efforts is not necessary Should Cost vice Will Cost pricing is expected by customers. Model-based pricing produces a more cost effective Should Cost price. Reducing the number of proposal reviews within the Company and the Customers approval process could improve cycle times: Company sector and corporate approval authorities, Gov t Peer Reviews, etc Limiting number of personnel on supplier visits, first-time quality writing SOW/RFP, mutual understanding of cost or pricing data requirements; reducing price updates, relying on previous negotiations if current, etc Current should language allows for variations and too much interpretation Saves time by not having to go through an intermediary step Repeated RFIs for additional information when agreement to disagree is reached increases the time it takes to get to the table for negotiations 4

Actionable Enablers (continued) Initiative Timely negotiation and establishment of FPRAs Determine DCAA Audits on a Risk Based Model to Streamline the Audit Process Timely Approval of Contractor Estimating Systems Establish and Agree to a Proposal Timeline Schedule (fact-finding, audit, negotiations and definitization) with All Parties Impact Without approved estimating systems each proposal audit is approached Key on significant financial or performance risk to achieving overall prime contract execution success - focus on the 20% that constitutes 80% of costs Establish a joint timeline between customer, DCAA and contractor to complete Proposal Audits on the 20% that constitutes to 80% of costs Includes Contractor, Customer, DCMA and DCAA covering all aspects of the proposal need strong commitment to apply the resources necessary to achieve the schedule Lock down the SOW and regulatory requirements 5 Limit Updated Proposal Requests to Specific Areas vs. the Entire Proposal Include the Negotiation of Consideration for Performance Based Payments (PBPs) During the Price Negotiations When Cost or Pricing Data is Deemed Not Supported DCAA Should Still Make a Recommendation to the PCO vs. Zeroing out the Costs Drive to get updated proposals from all Suppliers, when not warranted or necessary, increases both time and cost, either Contractor s B&P or Gov t Proposal Prep costs Current process of negotiation after price settlement adds to the time to definitize. Assad guidance for PCOs to utilize non-monetary consideration for PBPs is not widely accepted Zeroing out the entire costs for a proposed effort (ie subcontractor s proposal) is not realistic and causes significant delays in proceeding. Need to accept a schedule for submission of PCARS and allow the audit to begin vs. insisting the actual PCARs be submitted before the audit is initiated.

Joint Industry Training BOE Training Package Available to All CIPTs frequently a focus topic with FM community RFP Language Briefed to Acquisition at NRO and SMC Training 6

What is Needed to Make This Successful Top down support from senior Contractor and Government Leadership Flow down to PCOs, DCMA, DCAA and the boots on the ground personnel RFP language that reflects support to these initiatives: Ex: Contractor is encouraged to implement affordability initiatives that would reduce the number of cost estimates subject to Government review, expedite proposal submittal, and/or yield reductions to contract definitization cost and schedule, while ensuring compliance to applicable Cost Accounting Standards, Federal Acquisition Regulations, and Public Law. Examples include, but are not limited to, estimating at a higher level of the Work Breakdown Structure (e.g. level 3 vs. level 4 or 5) or estimating at a higher level of the accounting structure (e.g. summary cost element vs. cost center). Must institute a closed-loop jointly conducted review process after each negotiation and award to identify and share lessons learned Same fair and reasonable prices achieved Less time and money spent getting there 7