Opportunities to Enhance the Implementation of Performance-Based Logistics
GAO-04-715: Published: Aug 16, 2004. Publicly Released: Aug 16, 2004.
The Department of Defense (DOD) is pursuing a policy that promotes performance-based logistics at the platform level as the preferred product support strategy for its weapon systems, based in part on DOD's perception that this is an industry best practice. GAO was asked to compare industry practices for activities using complex and costly equipment with life-cycle management issues similar to those of military systems to identify lessons learned that can be useful to DOD. This is the first of two reports addressing DOD's implementation of performance-based logistics and is intended to facilitate DOD's development of new guidance on the use of this approach.
DOD's current policy for implementing performance-based logistics as a preferred support approach at the weapon system platform level does not reflect the practices of private-sector companies that support expensive and complex equipment with life-cycle management issues. The companies GAO interviewed use performance-based contracting as a tool rather than as a preferred support concept at the weapon system platform level. While 7 of the 14 companies GAO interviewed use some type of performance-based contracting, they use it at the subsystem or component level--for commodities such as engines, wheels, and brakes--when it is cost-effective and reduces risk in a noncompetitive environment. DOD's proposed policy of pursuing performance-based logistics as the preferred support approach at the platform level results in contracting out the program-integration function--a core process the private-sector firms consider integral to successful business operations. Further, this proposed policy could limit opportunities to take advantage of competition when it is available for subsystems or components as well as limit opportunities to gain purchasing power from volume discounts on components across an entire fleet and avoid the administrative costs charged by a prime integrator. While DOD is proposing the aggressive use of performance-based logistics on both older and new weapon system platforms, the companies GAO interviewed use performance-based contracting at the subsystem or component level when it is cost-effective--often in a noncompetitive environment when the manufacturer controls expensive repair parts, such as engines. In general company officials said they rely more widely on other contracting vehicles, such as time and material contracts, particularly for new systems. Company officials noted that in the absence of accurate and reliable information on system performance to establish a baseline for evaluating the cost-effectiveness of a performance-based contract for new systems, the risk of the negotiated price's being excessive is increased. The companies GAO interviewed also emphasized the importance of having rights to the technical data--such as maintenance drawings, specifications, and tolerances--needed to support the management of all logistics contracts and, should the service provider arrangements fail, to support competition among alternate providers. In contrast, DOD program managers often opt to spend limited acquisition dollars on increased weapon system capability rather than on rights to the technical data--thus limiting their flexibility to perform work in-house or to support alternate source development should contractual arrangements fail.
Recommendations for Executive Action
Status: Closed - Implemented
Comments: In response to GAO's recommendation, the Department stated that it recognizes the need to emphasize the use of performance-based logistics for subsystems and components in its policy memorandum and guidebooks. Shortly after GAO's report was provided to the agency for comment, the Department issued a policy memorandum that states that performance based logistics strategies may be applied at the system, subsystem, or major assembly level depending upon program unique circumstances. DOD also has also finalized its Defense Acquisition Guidebook and updated its guidance for implementing performance based logistics found in the Performance Based Logistics: A Program Manager's Product Support Guide. GAO believes this policy and new guidance adequately changes the Department's previous policy, which was to implement performance-based logistics at the weapons system platform level.
Recommendation: In order for the department to improve the implementation of performance-based logistics, the Secretary of Defense should direct that the Under Secretary of Defense (Acquisition, Technology and Logistics) and the Under Secretary of Defense (Comptroller) to incorporate in DOD's guidance to the services the private sector's practice of using performance-based logistics as a tool to achieve economies at the subsystem or component level, rather than as a preferred practice at the platform level. Also, the Secretary of Defense should direct the Undersecretaries to incorporate the private sector's practice of using it when sufficient performance data are available to establish a meaningful cost baseline.
Agency Affected: Department of Defense
Status: Closed - Implemented
Comments: In response to GAO's recommendation, DOD stated that it will take corrective action in its next revision of acquisition regulations DOD 5000.1 and 5000.2. DOD stated that its revised policy will require program managers to develop data management strategies that provide access to the minimum data necessary to sustain the fielded system, re-compete or reconstitute the sustainment workload, and promote the real time access to data at the point of need for the intended user. According to DOD, the strategies will include acquiring the appropriate technical data to support a sustainment exit strategy should performance-based sustainment fail or become too expensive. In May 2005, the Defense Acquisition Policy Working Group (DAPWG) announced its intention to update the DOD 5000 series of acquisition regulations. DOD officials said that they submitted technical data policy language to the DAPWG for its consideration. However, the DAPWG personnel responsible for updating the 5000 series were subsequently re-directed to support the efforts of the Quadrennial Defense Review (QDR). While the DAPWG plan to begin addressing changes to the 5000 series in May 2006, OSD officials said the group will not take up revision this summer. At this point, it does not appear that revisions to DOD acquisition policy will be seriously considered until after the first of fiscal year 2007. However, in October 2004 DOD released its Defense Acquisition Guidebookin and in November 2004, DOD updated its Performance Based Logistics Product Support Guide. Both of these guides now contain a discussion of the minimum level of data which program managers must have access to in order to implement alternative sustainment options.
Recommendation: In order for the department to improve the implementation of performance-based logistics, the Secretary of Defense should direct that the Under Secretary of Defense (Acquisition, Technology and Logistics) and the Under Secretary of Defense(Comptroller) to consider requiring program offices, during weapon system acquisition, to develop acquisition strategies that provide for the future delivery of sufficient technical data to enable the program office to select an alternate source--public or private--or to offer the work out for competition if the performance-based arrangement fails or becomes prohibitively expensive.
Agency Affected: Department of Defense