Performance-Based Logistics Contracting: Does it Work?
One of the biggest problems with government procurement (and government in general) is that there seems to be no incentive to produce at either a higher level of quality or a faster rate. Cost overruns are a lot more than just a meme in defense contracting; they have been a way of life for decades.
Read this quick excerpt from the Defense Technical Information Center from May 2010 (linked above):
“Cost and time overruns in Major Defense Acquisition Programs MDAPs have become a high-profile problem attracting the interest of Congress, government and watchdog groups. According to the GAO, the 96 MDAPs (Major Defense Acquisition Program) from FY2008 collectively ran 296 billion over budget and were an average of 22 months behind schedule.”
You read that right. On average, nearly two years late. That reduces our weapon system availability, which reduces our warfighting capabilities.
Performance outcomes matter, and product support matters. The way the DoD improves performance will make a difference in overall total system availability going forward, and Performance-Based Logistics Contracts will be a major part of this.
Let’s take a look at how this all comes together.
Why Does It Matter To Supply Chain Management?
Every supply chain relies heavily upon a reliable set of distributors to ensure that there are sufficient parts or components to maintain operations. All equipment operates on a baseline of mean time between failure, and many major components do as well. There are complicated formulas in place for every weapon system to determine system performance and what key component generally requires replacement.
However, improving system availability is impossible when program performance is unreliable to begin with.
Performance Based Logistics contracts incentivize the contractors to come in on time and on budget, or preferably below.
How Performance-Based Logistics Works
Performance Based Logistics is a product support strategy focused on delivering results and optimizing system readiness. The secondary benefit of PBl is that it seeks to minimize costs and logistical footprints, both of which are always welcome perks.
One of the most fundamental core missions of PBL is to ensure that the transactional nature of contracts is elevated. The contractor is incentivized for performance in an ongoing capacity. This is a serious shift from the old way of doing things, where there was generally no incentive to be on time or budget. The contract would eventually be fulfilled, which would more or less be the end of things. This is not a positive model for anyone.
Challenges And Benefits Of Implementing A PBL Strategy
First off, challenges. There is a long history of badly conducted contracts to overcome, and by this, we mean probably millions of contracts and trillions of dollars. The figures are staggering when you consider that the federal government executes
- Over $600 billion in services annually
- Millions of individual contracts
The sheer magnitude of federal contracting makes a shift like this extremely hard to do, but not impossible.
However, the benefits likely will largely outweigh the difficulty in establishing PBL. The overall costs will actually be a net decrease when the contracts, services, or physical products are executed and delivered on time and on target. Remember those figures from early? Billions of dollars over budget? What if the contracts were delivered on budget or, even better, below budget? And the incentives only cost in the millions, or low billions, as opposed to being billions of dollars in the hole? It’s a no-brainer.
The Impact of PBL on Supply Chain Efficiency
One of the core vital statistics of PBL and its impact on the mission at hand is that we need to have an understanding of the goal.
There are several primary objectives of PBL, one of which is to maximize the net of competitors in the contracting process. We want more innovation and interoperability in designs and contracted products and services.
As manufacturers and service providers are incentivized to produce a more efficient end product, they will do exactly that. There is no incentive to produce faster or better products when there is nothing disincentivizing poor production quality. The performance-based logistics strategy aims to put poor performers out of the game and reward those enterprising agencies who come to the table with innovation and a compressed timeline.
Streamlining Sustainment Strategies
Obviously, there are monetary advantages, which is the whole point. The government wants and needs to get back on track; at the end of the day, it will always be transactional. These are monetary contracts, so monetary reward is the most logical and practical way to incentivize contractors.
However, streamlining is a purely governmental objective. Plain and simple, without involving a lot of regulations and regulatory frameworks, the very best way to streamline sustainability lies in long-term partnerships.
The purpose of PBL is to manage performance throughout the entire lifecycle of any given machinery, ultimately minimizing cost. Few things add more cost to a weapon system or any system than changing up the product support management mid-cycle. Yet most of you in government procurement positions have seen it at one point or another.
There are few things more wasteful than watching system performance lapse because of an arbitrary contract end date. The end re
sult will be much better by practicing continuity and rewarding one prime contractor to increase system performance than having to source a new contract mid-cycle.
Implementing a PBL Approach: Steps and Considerations
One of the more important considerations of product support arrangements and performance-based logistics contracts is the logistics footprint required to execute the contract. The goal is to minimize the logistics footprint, which is best done by hiring ingenuity. First and foremost, understand the rules to play by: PBL is all about supporting weapon systems. It is also codified and addressed with specific Title 10 USC 4324 rules, Life-cycle Management and Product Support. The more granular specifics of PBL are detailed in DoD Directive (DoDD) 5000.01, The Defense Acquisition System, and DoD Instruction (DoDI) 5000.91, Product Support Management for the Adaptive Acquisition Framework.
In a nutshell, PBL exists to make sure that weapon systems have what they need at all times throughout their lifecycle, including during wartime when demand is the highest. Military services are charged with defining the performance goals, and the contractors are incentivized to be creative, use more streamlined methods, and reduce waste to support fielded systems. PBL contracts are a reliable means to lower the cost of product support.
One of the most important parts of PBL programs is establishing the metrics for performance evaluation.
- What are the performance goals?
- How will performance goals be identified?
- Who will determine what the performance goals are?
- Is there existing performance data to work with, or will it start from scratch?
Again, make sure to read up on all the rules of PBL programs and observe some basic best practices:
- Conduct a readiness assessment for performance-based logistics contracts. You need to identify common factors like performance agreements, metrics, how data will be collected, and how performance will be reported.
- You should perform a gap analysis to identify gaps in your plan, usually between performance goals and the agreement.
- An SOP, which all parties use, needs to lay out all processes, roles, and responsibilities clearly.
Miscommunication or a lack of communication will wreck working relationships in a PBL, as will a lack of clear expectations during the process.
Greenwood Aerospace Are Your PBL Experts
Greenwood Aerospace is your government contract, government procurement, and defense acquisition system expert. We have been in this business for many years now, and we have extensive experience in the Performance-Based Life-Cycle Product Support (PBL) concept and process.
Greenwood Aerospace navigates the myriad challenges inherent in government aerospace contracting through our advanced procurement software, optimized supply and distribution strategies, flexible aircraft leasing options, and unwavering dedication to compliance and quality.
Our solutions address the immediate needs of government clients and anticipate future trends and requirements, ensuring that they remain at the forefront of the aerospace industry.
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