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Base operations support competitive sourcing and privatization: How are we doing? (Logistics Challenges).

The Air Force is pursuing competitive sourcing and privatization to free up dollars for its highest priorities, especially modernization.

The Air Force is committed to pursuing outsourcing and privatization initiatives across our service ... we are stepping back and taking a broad look across our service to identify opportunities to produce a better Air Force, based on excellence in processes and performance in both combat and support areas that will provide the air and space capabilities required for the future.

General Ronald Fogleman

Since 1955, the Department of Defense (DoD) has been encouraged to obtain commercially available goods and services from the private sector through competitions when such action was cost-effective. However, over the years, numerous changes in law inhibited DoD outsourcing efforts. Then, in 1996, shrinking defense budgets, force downsizing, and lack of procurement money for modernization led to a relaxing of some legislative restrictions, thus sparking renewed interest in outsourcing. Today, at the forefront of DoD's outsourcing revolution, the Air Force is aggressively pursuing competitive sourcing and privatization (CS&P) to free up dollars for its highest priorities, especially modernization. As defense budgets have continued their decline, the Air Force has turned to outsourced base operations support (BOS) services as a key opportunity for cost savings and improved efficiencies. Enormously diverse-- both in size and complexity--the practice of consolidating or bundling separate base services into one lar ge BOS contract has been steadily growing across the Air Force. These BOS initiatives range from continental United States (CONUS) main operating bases to forward operating bases, air stations, and remote radar sites in the United States and foreign countries. Accordingly, many different government BOS program and contract management organizational structures have been created to oversee or manage contractor performance--some more successfully than others.

Many early BOS challenges grew out of the initial rush to outsource and lack of a comprehensive, Air Force-level strategic direction or policy to organize, educate, train, and facilitate the radical paradigm shift to commercially provided BOS services. The result has been fewer cost savings and less effective BOS management. But significant cost savings and improved BOS support to the warfighter can be achieved through careful organizational restructuring, strong investment in personnel education and training, and continuing BOS process improvements.

Competitive sourcing is designed to maximize cost-effectiveness and efficiency, thus enhancing mission capability, by using services available in the commercial sector, with the government retaining ownership and control of the activity. On the other hand, privatization is the actual transfer of control and ownership of a target business asset and associated activity from the public sector to the private sector. Here, the government gives up responsibility and control of the activity. Another essential feature of privatization is the shift to the private sector of long-term financial investment to sustain the activity. (1) Although most BOS services fall under competitive sourcing, other areas such as base housing and utilities and those installations affected by base realignment and closures are becoming privatized, with a host of possibilities for strategic alliances with a number of players. This article addresses only those BOS activities related to competitive sourcing.

Beginning in 1997, the Air Force established four principal CS&P goals: sustain readiness, improve performance and quality by doing business more efficiently and cost-effectively, generate funds for force modernization, and focus personnel and resources on core Air Force missions. (2) To achieve these ambitious goals, the expanded outsourcing of BOS services was viewed as a key area for potential improvements and future cost savings. Since every Air Force installation has an extensive and well-developed service support infrastructure, the possibilities for outsourcing various combinations of support services are substantial. However, because the initial wave of CS&P was implemented so quickly (before clear, Air Force-level policy and detailed guidance were available), major commands (MAJCOM) and bases developed their own, often ad hoc, approaches to select activities for outsourcing. Even more problematic was the requirement to follow a cumbersome, bureaucratic, and slow A76 process while trying to develop (o ften from scratch) good performance work statements (PWS), quality assurance surveillance plans (QASP), and contracts. This often resulted in an ambiguously worded, military specification/military standard (MILSPEC/MILSTD), how to work statement developed separately from a compliance-oriented military inspection checklist QASP, both of which were disconnected from the legally binding service contract instrument.

Fortunately, recent acquisition reforms and steady improvements in Federal, DoD, and Air Force statutory guidance and policy direction have led to overall improvements in CS&P and BOS management. Today, Performance-Based Service Acquisition (PBSA) and Business Requirements Advisory Group (BRAG) initiatives offer the promise to achieve all four CS&P goals--and most importantly--to optimize support to the warfighter. Perhaps even more promising are the many leading-edge practices and innovations coming from a growing number of Air Force BOS management organizations. Successful BOS implementation by these organizations is putting the theory into practice and helping pave the way for future BOS improvements.

Base Operations Support Problem Areas

Analyzing your present culture is like going to history class, when you could learn more valuable stuff from studying the future.... Cultural change should be guided by where the organization needs to go, not by where it's been.

--Price Pritchett

High-Velocity Culture Change

Problems in Defining and Measuring BOS

BOS services are generally those functions necessary to support, operate, and maintain DoD installations. Although the Office of Management and Budget identified 29 different services as base support functions, neither DoD nor the military has a generally accepted definition for them. Without the framework of a common definition, it is difficult to measure the size and cost of the base support work force. Yet, there is a clear need to do so since DoD estimates that BOS activities cost more than $30B in fiscal year (FY) 1997. (3)

Numerous studies--including the 1993 Bottom-Up Review, Quadrennial Defense Review, Defense Reform Initiative, and National Defense Panel--have concluded that DoD could achieve the largest savings by using a single omnibus (that is, bundled, umbrella, or BOS) contract, instead of several smaller contracts, to encompass multiple BOS services. (4) This conclusion has fueled the growing interest in BOS across DoD. In particular, the Air Force is projecting a 20-percent cost savings of $l.26B, most of which would come from the outsourcing of BOS functions between FY98 and FY03. Based on prior outsourcing experience, projecting an average 29-percent savings, this number is conservative. (5) However, because no common understanding of BOS exists, attempting to compare services between contracts and installations (or even among the Services) to accurately identify what services are included or excluded is extremely difficult. For example, the Army developed the Service Base Costing methodology (reflecting spending, n ot budgets) to better understand where its installation support money was being spent. A subsequent cost study examined 2 years of spending data in 95 different base service areas (both contracted-out and organic) at every Army installation. Analysis of these data performed by the Institute for Defense Analysis showed, "There was no systematic tendency for increased contracting to be associated with reduced costs." (6)

In contrast, the Air Force is boasting of many successes coming out of its A-76 competitions. After 1,399 competitions in 10 years, it has claimed a cost avoidance of more than $9B, manpower reductions of more than 37,621 full-time equivalents, and an average 38-percent cost savings (regardless of whether the work was awarded in-house or contract). (7) Table 1 illustrates some examples of BOS manpower savings.

Another problem in measuring cost savings (single BOS contracts for multiple base services) is the lack of a requirement to do so once a commercial activities study has been completed. (9) Moreover, since contracts are continually being modified and changed, the cost data from initial commercial studies quickly become obsolete. Indeed, the total costs of outsourcing are difficult to measure for other reasons as well. For example, a study by RAND found, "Because outsourcing influences management and monitoring costs, long-term investment needs, and the strategic focus of the organization, in addition to the short-term direct costs, its overall costs and benefits must be carefully evaluated." (10) Nevertheless, the study also demonstrated that the development of long-term partnerships does not require more people or time than managing large numbers of (less trusting) arms-length relationships but is likely to require a more professional and highly trained staff. (11)

In short, this lack of common understanding, within DoD, of what BOS is and how it can be measured and priced makes it hard to validate and justify claims of savings and generate greater support for expanded BOS outsourcing. Yet, despite these problems, a very important consideration of BOS is that each base or installation is unique in terms of its mission, infrastructure, location, and many other factors. Therefore, decisions about what activities to outsource and how to arrange the BOS service area groupings should be carefully tailored around the unique requirements of each installation and its mission. Likewise, it is essential that serious attention be directed to establishing the optimal government organization to perform program management and contract administration after the contract is awarded.

Recurring BOS Program Management and Contract Administration Problem Areas

In its guide, Best Practices for Contract Administration, the Office of Federal Procurement Policy (OFPP) cited several weaknesses in contract administration practices. Some of these included improperly trained officials' performing contract oversight, unclear roles and responsibilities of technical representatives, unclear statements of work (SOW) that hinder contractor performance, lack of a well-defined relationship between the contracting officer (CO) and program personnel, inadequate surveillance and monitoring of contracts, and contracting officials' allocating more time to awarding contracts than administering them. (12) Moreover, a RAND research brief argues, "Without significant managerial and organizational changes, the Pentagon will have a difficult time applying the lessons it has learned in these initial competitive-sourcing experiences to large segments of its uniformed and civilian work force." (13) Indeed, these kinds of problems can often be traced back to weaknesses in how the government tea m was selected, organized, educated, and trained. In turn, these problems have led to poor work statements, inadequate quality assurance surveillance, and difficulties in contract administration.

Government Team. There is no standard government structure to manage BOS contracts. Even so, based on the greater size, complexity, and diversity of BOS contracts, it is essential to have a well-educated, trained, and experienced team of cross-functional experts knowledgeable in commercial industry philosophies and practices. These are foundational to efficient and effective BOS management. Strong teamwork and partnering must occur both internally (one team, one goal, one voice) and externally between the government and the commercial-service provider. Unfortunately, the traditional Air Force organizational structure, culture, and functional specialization are resistant to this.

In fact, the Defense Science Board stated that one of the main impediments to outsourcing and privatization is the "resistance of the DoD culture to fundamental change." (14) Influenced by the bipolar Cold War experience, military warfighter thinking has been focused on readiness and the ability to carry out successful military operations--cost-consciousness and process efficiencies have taken a backseat. To support this Cold War thinking, the military built a stovepipe system of functional specialization (for both officers and enlisted) that has remained largely unchanged since World War II. Hence, critical in-depth knowledge and appreciation of commercial philosophies and business practices are quite foreign to most blue-suiters. An article in the Air Force Logistics Management Agency's Issues and Strategy 2000: Contractors on the Battlefield is especially critical in addressing the need for change:

The time has come for military officers to stop rowing against the tide and plunge into the world of privatization.... The uniformed military needs a vastly expanded pool of well-trained professionals ... to be effective, these military brain trusts must have true expertise in real-world military operations, public sector privatization lessons learned, federal law, and policy issues, as well as a thorough knowledge of commercial capabilities in the private sector. (15)

The article goes on to suggest that, instead of sending our best and brightest officers to intermediate and senior service schools, it might be better to send them to institutions such as the Wharton School of Business. This would be followed by internships with cutting-edge businesses whose success is centered on information management, outsourcing, and a complex web of suppliers. (16) The bottom line is the government team--as it is currently educated, trained, and experienced--is ill-prepared to fully capitalize on the many opportunities that exist through commercially provided BOS services. Accordingly, one of the most urgent areas requiring this commercial understanding is base-level program management and contract administration.

It must be emphasized that the organizational structure created to manage BOS contracts varies tremendously across MAJCOMs and between bases. Thus, the generic BOS management model discussed here will be the program management office (PMO). This generally includes a military officer (or civilian equivalent) program manager (PM) and deputy and staff consisting of functional specialists (for example, civil engineering, supply, or transportation), program analysts, financial managers, quality assurance evaluators (QAE), manpower and quality advisors, or others. The CO and other contracting administrators may or may not be part of the PMO but, in any case, should always work closely with the PMO on all phases of the contract.

A key aspect of effective BOS management lies in how the PMO is organized in terms of skills, specialties, grades, and numbers of people (military and government civilian mix). Indeed, a big problem with BOS management is the lack of an Air Force standard officer specialty to serve in the PM capacity. Thus, the typical PM may come from a variety of career fields and be assigned with little or no education or training in commercial industry practices or service contracting. There have been situations where officers from four different career fields (civil engineering, logistics plans, supply, and acquisition) were successively assigned to the same PM position. None had any formal education, training, or prior hands-on experience in outsourced BOS services. This lack of experience, coupled with inconsistent directions to the contractor, led to serious disagreements and broken trusts that ultimately resulted in the contractor's winning a sizable lawsuit against the Air Force.

Likewise, other members of the PMO (usually enlisted or civilian functional specialists), though very experienced in their core specialties, often have little experience dealing with contractors using commercial practices. Also, when several single base services are consolidated into one large BOS contract, a PMO' s responsibilities and span of control quickly grow in size and complexity. Add to this increased requirements for quality assurance, contracting, manpower, finance, legal, and multiple end-user customer requirements, along with contractor and subcontractor technical and management issues, and the job can become overwhelming. Management difficulties in bundling multiple, single-service contracts into a single, large BOS contract are underscored by an audit by the Air Force Audit Agency (AFAA).

In this case, five contracts supporting 22 base organizations were combined into one contract valued at $35M. The key problems were:

* Due to of the magnitude of the consolidated acquisition, the PM was not fully prepared to monitor the fund status for the numerous organizations receiving support.

* Contracting personnel had reserved, competed, and awarded the contract to a small business. Consequently, the PM could not adequately assist contractor personnel who were inexperienced with maintaining the multitier cost schedules necessary to accurately report operations.

* The quality assurance director did not implement an effective quality assurance plan. Functional area chiefs (FAG) did not always report or document contract surveillance. FACs did not promptly develop and submit functional area surveillance plans or nominate quality assurance personnel. (17)

In this example, the PMO, contracting office, and quality assurance office were not working together as a single, unified team.

In building an effective PMO, there are some fundamental questions to be answered, such as:

* What kind of PMO organizational structure will work best based on the types and numbers of consolidated services and base mission?

* How does one effectively involve and integrate the different base functionals, end-user customers, QAE, and contracting officials to carry out cradle-to-grave BOS program and contract management?

* Who is ultimately going to be in charge and responsible for bringing these diverse elements together?

Based on the diverse workload and associated management complexities, it is important that a single PM be responsible for overall BOS management. Such unity of control is central to efficient and effective base-level BOS support to the warfighter. An important question that remains unanswered, however, is, what career field is best qualified to manage the unique, multifaceted skills BOS demands?

PWS Development. The OFPP says the PWS should describe the specific requirements the contractor must meet, standard of performance for the required tasks, and level of quality the government expects the contractor to provide. However, it should not include detailed procedures that dictate how the work is to be performed. Instead, it should center on what is to be performed. (18) Certainly, an accurate, complete, and well-written PWS is probably the most critical element for ensuring the government customer gets what it pays for. Yet, stories still abound concerning poorly written, ambiguously worded, and unclear old-style statements of work. Again, the causes for these problems are rooted in the traditional differences between the government and commercial ways of doing business, coupled with not enough education, training, and reinforcement to transition away from the military approach. Military-based (MILSPEC/MILSTD) how to technical orders are very different than commercial industry's flexible, ever-changi ng practices. Learning to speak the same language has been a slow process as the following examples illustrate.

An AFAA audit of custodial services found "Personnel did not establish custodial standards...22 buildings...received, but did not qualify for, daily cleaning services." (19) Revising the contract to meet current standards of the Air Force Civil Engineering Standards Agency could save nearly $400K over 6 years. (20) Similarly, a Government Accounting Office (GAO) study of BOS contracts at ten DoD installations identified "a well-defined performance work statement is the key to meeting these [results-oriented] requirements and preventing excessive modifications to contracts and unanticipated cost increases." (21) On the positive side, as the government shifts its emphasis from what and how the work is performed to results and outcome, improved PWS should result.

Quality Assurance Evaluation. At the heart of measuring and documenting how well the contractor is performing (both negative and positive incentives) lies the QAE function. Properly performed QAE is essential to enabling the PM and CO to accurately assess all aspects of contract performance, including operations and maintenance, business management, and technical and engineering performance. However, once again, recent experience has shown that government QAE oversight of contractor work is deficient in a number of ways. A recent AFAA audit of a housing maintenance contract found "the quality surveillance plan (QASP) was not properly developed and the QAE did not correctly document all inspections." (22) Accurate and complete QASPs and documentation of inspection results are essential to effective contract administration and good working relations with the contractor.

Trust is another key element of QAE. A RAND study on commercial practices in facility management (FM) found that the degree of mutual trust between the FM service buyer and seller determined the potential for mutual gain. Without trust, the relationship tends to be adversarial, and the focus is on close control with a reliance on many QAEs to ensure execution. Consequently, the relationship is typically short-term with frequent contract rebids and changes in providers. (23) This is not too different from the way DoD has traditionally carried out QAE, and it needs to change to become a cooperative partnership based on shared goals and outcomes.

Another important aspect about QAE is that too much monitoring of the contractor's performance can be costly. A 2000 RAND study on strategic sourcing found:

Customers may have a strong compulsion to track many different dimensions of operational performance and cost, feeling that it is necessary to maintain control and verify that their providers are achieving the agreed-upon level of performance within the specified budget. (34)

However, this control comes at a price since, in the end, the government customer pays for all information used to monitor service providers (for example, contract data requirement lists) and the time spent examining this information. Therefore, customers hurt only themselves by requesting any information that is not essential for making important decisions. (25)

Contract Administration. Once the PWS and QASP have been written and the contract source selection made, it is the quality of contract administration that ultimately determines the success or failure of outsourced BOS. Of all the members of the government program or contract team, the COs probably have the most influential role. Based on their warrant to obligate government funds, they have a special responsibility to ensure the government gets all the services for which it has contracted and paid. Indeed, they are the central players in developing commercial business plans and acquisition strategies and advising, training, and supporting the other government team members in carrying out BOS management. Since they are the contract experts, they are relied on more heavily to ensure others become knowledgeable about commercial industry practices and changes to acquisition and contract requirements.

Nonetheless, these high expectations may be unrealistic for several reasons. First, the normal, heavy contracting workload makes it difficult for COs to keep themselves fully apprised of the latest acquisition reforms, much less find time to train the PMO. Second, the government typically does not provide training on ever-changing commercial practices and how they might influence the customer. Third, depending on the complexity of the service area, a CO may not have the technical background necessary to provide advice on military versus commercial practices.

In any event, it is essential that the contracting office work closely with the PMO every step of the way. Together, they must ensure all parts of the source selection and follow-on management (for example, PWS, QASP, and incentives) are fully integrated, completely understood, and properly executed by all parties, including the contractor.

Regarding future outsourcing, as the size and number of outsourced BOS contracts increase, the responsibilities of the contracting office and CO are certain to grow. However, in making the transition to BOS, COs have a new ally. Of growing importance is the role of manpower and organization (MO) as an ongoing advisor or full member of the PMO. The MO is expected to play a key role in educating, training, facilitating, strategic planning, and guiding the development of performance metrics for BOS contracts. Following the integration of the old total quality management program into the MO career field, they now have responsibility for planning, advising, and facilitating organizational and functional process improvements, productivity enhancement studies, commercial industry best practices, wartime manpower requirements support, and others. The MO is also the focal point for performance management planning at the wing and MAJCOM levels. (26) Thus, the MO should be relied on to facilitate the integration of str ategic performance goals of the warfighter with all the base support functions, no matter who provides the service (contract or most efficient organization [MEO]). Moreover, this could help encourage the cultural paradigm shift to seamless integration of commercially provided BOS services.

Improvements in Acquisition Reform and Air Force CS&P Policy

It is the policy of the Department of Defense that, in order to maximize performance, innovation, and competition, often at lower cost, performance-based strategies for the acquisition of services are to be used wherever possible .... Those cases in which performance-based strategies are not employed should become the exceptions.

J. S. Gansler

Services account for nearly half the nearly $200B the government spends annually through contracts. (27) Over the last 7 years, many improvements have been made to the statutory and regulatory structures that oversee procurement policy. In this regard, the OFPP has been pursuing acquisition reform to ensure full implementation of key practices to move the government closer to the commercial model:

* Making contractor performance a substantial factor in contract administration and source selection

* Encouraging contractors to innovate in deciding how to perform the work and tying payment to performance

* Using new contmcting tools to obtain up-to-date technology and better prices (28)

Performance-Based Service Contracting

Before implementing these changes, in 1994, the OFPP sponsored a performance-based service contracting (PBSC) project to test PBSC methods on contracts for recurring services (that were not performance-based) and measure the impact of PBSC. The goal was to test the hypothesis that PBSC saves money and encourage contractor performance that better supports mission attainment. Twenty-seven agencies and four industry groups, representing more than 1,000 companies, endorsed the project. Overall, 26 contracts ($585M) from 15 agencies due to expire were resolicited using PBSC methods. The project's findings were based on before-and-after comparison and measured effects on price, performance, competition, audit workload, and procurement lead time. (29) The results were as follows:

* Price: on average, contract price decreased by 15 percent.

* Performance: customer (agency) satisfaction with the contractor's performance improved more than 18 percent. Ratings were obtained on five factors: quality, quantity, timeliness, cost-effectiveness, and overall performance. Significantly increased customer satisfaction was reported on all criteria.

* Competition: the average number of offers increased from 5.3 to 7.3.

* Audit workload: the total number of contract audits decreased 93 percent.

* Procurement lead time: average total procurement lead time increased by 38 days (from 237 to 275), and average solicitation-to-award lead time increased by 33 days (from 140 to 173). However, almost half the contracts experienced decreases or remained the same. The overall increase was expected since agencies had to develop new PWS, performance standards, and quality assurance plans and incorporate untried and significantly different contracting methods to apply PBSC. (30)

While the overall study results are impressive, a closer look at an individual project illustrates the kinds of improvement opportunity that PBSC offers.

The Navy applied PBSC to a $350M, 5-year contract for aircraft maintenance support for 357 T-34C and T-44A aircraft at 12 locations. (31) Important changes made by the Navy included:

* Separate tasks were defined in the PWs, and offerors fixed prices for each task. The minimum work statement read, "Provide Federal Aviation Administration (FAA)-certified personnel and facilities to perform scheduled and preventive maintenance in accordance with manufacturers' publications, FAA directives, and Navy maintenance engineering directives over a range of aircraft quantities."

* Measurable, performance-based metrics were then imposed (for example, aircraft 80-percent mission capable, ground abort rate less than 5 percent, and flight schedules met 100 percent).

* Streamlined acquisition procedures were used for the solicitation, and best-value award procedures were applied. A draft request for proposal was issued seeking industry inputs on alternatives to military specifications and standards. In response, many were deleted--some with no replacement--others were replaced with commercial standards (International Standardization Organization [ISO] for 9000 series), and mitigating language was applied to the remainder.

* Under the contract, the contractor is held to a high standard of performance and is empowered to use the best commercial practices and management innovation to continually improve performance.

* The contract provided both positive and negative incentives based on quantifiable standards. On the positive side, materiel management functions were turned over to the contractor. Materiel is purchased on a cost-reimbursable basis, but the contractor can earn a 15-percent incentive for cost avoidance. On the negative side, the contract is priced at a ready-for-training rate of 75 percent. If this rate is not met, the contract price is reduced proportionately (for example, a 60-percent training rate would result in a 20-percent reduction in contract price). This incentive encourages optimum contractor performance in a critical customer area. (32)

This conversion to performance-based contracting resulted in immediate savings of $25M from the previous nonperformance-based contract, and the Navy expects even more savings through positive and negative contract incentives. (33)

In light of PBSC's early successes, the Federal Acquisition Regulation (FAR) has been changed to include PBSC. FAR 37.601 defines the requirements of a performance-based contract as:

Requirements described in terms of results required rather than to methods of performance of the work.

Use of measurable performance standards (that is, terms of quality, timeliness, quantity, etc) and quality assurance surveillance plans.

Procedures for reduction of fee or for reductions to the price of fixed-price contract when services are not performed or do not meet contract requirements.

Use of performance incentives where appropriate.34

Likewise, senior DoD leadership has embraced PBSC. On 5 April 2000, the Under Secretary of Defense (Acquisition, Technology, and Logistics) directed all DoD departments and agencies to acquire 50 percent of all services, measured in both actions and dollars, in a performance-based manner by the year 20O5. (35) In concert with this, the Assistant Secretary of the Air Force for Acquisition sponsored the Acquisition Reform Reinvention Team with the goal of revolutionizing Air Force service contracting. They developed policies, procedures, and tools to remove barriers to implementing commercial practices. They also created the Air Force Service Contract Advisory Group II, consisting of functional experts for the particular service and contracting personnel from all levels (Air Staff, MAJCOM, wing) and commercial contractors. Moreover, in June 2000, the Air Force issued the PBSA implementation plan outlining current policies, procedures, and initiatives. This included a massive education and training effort to en sure quality assurance personnel, the functional communities, and others, from Headquarters Air Force to individual Air Force installations, understood and began applying PBSC to meet the 50-percent 2005 goal. (36) These aggressive initiatives suggest that better quality, performance-based PWSs, QASPs, and contracts should result and lead to improved BOS management.

BRAG

To institutionalize PBSC, the Air Force had to overhaul procedures used to contract for services. Therefore, Air Force Instruction (AFT) 63-124, Performance-Based Service Contracting, was written to establish the framework and procedures for effective execution of PBSC. (37) It established the concept of the BRAG as the means to carry out PB SC. Established by installation commanders, the Business Requirements Advisory Group is, "A business solution team that consists of cross-functional personnel that plan and manage service contract outcomes to the satisfaction of its customers." (38) BRAGs plan and manage service contracts throughout the life of a requirement. Working together, BRAG members conduct market research, define requirements, develop the contract structure, and set up quality and surveillance approaches. In addition, the BRAG has responsibilities for acquisition planning, development, and performance management for new (including A-76 studies) and follow-on service contracts. (39)

One big advantage of the BRAG is its flexible organization that can be tailored to fit the needs of an individual base. BRAGs can also be centralized for regional, MAICOM, or combined MAJCOM-type acquisitions. (40) For BOS contracts, this flexibility is essential. Moreover, the standardized structural framework of BRAGs that brings together the PMs, contracting office, manpower, legal, financial, and functional communities could help improve cooperation and coordination on the government side of BOS.

However, there are some downsides to the BRAG. The flexibility built into BRAGs can also lead to too little structure concerning the roles, responsibilities, and boundaries of the different organizations. Moreover, the larger, more diverse, and complex the BOS, the greater the management challenges, leaving the question--who is in charge? The CO cannot do it, the MO cannot do it, and a functional specialist may not have the proper background, education, training, or experience to do it. Furthermore, AFI 63-124 does not address who can or should do it. Based on their extensive project management experience and the many similarities between procurement acquisition and services acquisition (for example, PMOs, integrated product teams [IPT]), acquisition officers may be a good choice. However, since they do not normally perform BOS-type, services-based acquisition and are not usually assigned at base level, more study is needed to see what role they could play.

In any case, senior Air Force leaders see the creation of BRAGs as a positive step toward implementing PBSC across the Air Force.

Leading-Edge BOS Program Management

The legacy of obsolete institutional structures and processes and organizations does not merely create unnecessary cost, which of course it does; it also imposes an unacceptable burden on national defense.

-Donald Rumsfeld

In step with the recent improvements in acquisition reform and Air Force-level CS&P policy guidance, innovative leading-edge BOS program and performance-management organizations have emerged and are moving toward building strategic partnerships between the government and commercial service providers.

ACC Program Management Squadron

The Air Combat Command (ACC) Program Management Squadron, located at Langley AFB, Virginia, has been in the outsourcing business since the late 1980s. The squadron is ACC's lead organization for directing and managing all aspects of operations, logistics, communications, and engineering for seven large-scale operations and maintenance contracts. The organization includes 134 military and civilians administering more than $840M in contracts and $3.5B in assets at 29 sites in the United States and 12 countries. The organization provides a unique cross-functional activity charged with program management of outsourced operational systems. (41)

These systems are operated and maintained through large-scale contracts supporting various government agencies in multinational environments. Overall responsibilities include planning, coordinating, managing, and budgeting services executed by contract or international support agreement. Other duties include contract management, performance certification, and assistance to other Air Force and ACC agencies in the development, program management, and administration of complex, large-scale contracts. (42)

This relatively flat organizational structure depicts seven major functional program and support divisions including civil engineering, computer-communications, logistics, surveillance, aircraft maintenance, plans and programs, and quality assurance. The program managers each receive support from the various functional areas and quality assurance rather than having these personnel embedded into the program management divisions. Other specialized support offices (information management, command data management, and financial management) are also located within the squadron. (43) The ACC Contracting Squadron provides contract administration. Based on the specialized nature and diversity of their contracts, the PMS maintains a balanced military and civilian mix to ensure program continuity and an infusion of new ideas and experiences.

Education and training are a top priority--assigned personnel receive a variety of on-the-job training, government continuing education, and training on commercial standards (for example, ISO 9000) and are also afforded the opportunity to earn master's certificates in areas such as project management and government contracting from George Washington University. This education and training is reinforced through writing PWS and QASPs for new and recurring source selections. (44)

For long-term acquisition planning, the PMS Plans and Programs Division performs strategic planning activities, prepares and coordinates acquisition planning, and heads new source selections and recompetitions. (45) One significant benefit of a separate division to study long-range issues (for example, mission evolution, commercial industry trends, and acquisition reform) is the program management personnel's ability to focus on current contracts.

The organization's management was very proactive in communicating information and strategies across programs that were well-supported by a robust, self-contained functional specialization support structure. Yet, they maintained a ready capability to contract outside help through consultants (for example, Army Corps of Engineers and specialized commercial consultants) when additional experience was needed. This just in time labor approach provided added capability at minimal cost. (46) The PMS has been transitioning to PBSC for new and recurring source selections.

The success of the ACC PMS is evident through growth in the number of ACC-wide programs within the organization. Also, the synergy gained from lessons learned and best practices within the different programs continues to benefit the squadron's success, making it a useful model for further study of BOS management.

AETC Pick-A-Base Concept

The Pick-A-Base (PaB) program is Air Education and Training Command's (AETC) strategic program for competitively sourcing BOS. The PaB concept grew out of Jump Start (a 1997 Air Staff initiative to identify potential competitive sourcing candidates) and AETC outsourcing lessons learned. Specifically, AETC found:

* Outsourcing done without a comprehensive plan leads to mission fragmentation--and multiple fragmented contracts and MEOs across the command.

* A-76 studies were very labor- and time-intensive, and transition to MEO or contract was turbulent.

* The larger the study, the larger the savings (for example, 301+ positions yielded an average 41-percent savings).

Based on these experiences, AETC decided to include as many base functions as possible within each A-76 study. It also combined existing contracts where possible. Together, these resulted in a reduction in the number of contracts at each base studied, which, in turn, meant larger BOS contracts that would attract world-class bidders and result in a higher class service. Thus, the PaB concept was born. (47)

Maxwell AFB, Alabama, is the first of five AETC bases to be competitively sourced under the PaB program. The four other PaB locations are Lackland AFB, Randolph AFB, and Sheppard AFB, Texas, and Keesler AFB, Mississippi. (48)

By actively incorporating PBSC principles, AETC is defining requirements in performance-based commercial terms and then monitoring contract performance using commercial methods. Accordingly, AETC is proactively building partnerships between the government and service providers. It does this by using modified, cost-reimbursement contracts to allow the sharing of savings (between the government and service provider) and through consolidation of varied facility management services. (49)

Since the PaB concept is so new, it does not yet have the benefit of experience to back up just how successful it will be. However, the initial numbers from the Maxwell experience, in spite of turbulence in awarding the contract, appear promising. The overall manpower savings will be more than 300 people, and a lean PMO staff (9 to 12 people) will be responsible for BOS management. This will include contracting, manpower, and functional specialists covering the various contracted service functions. Functional specialists will be expected to perform three main duties--functional and technical, performance management, and data analysis. (50)

Overall, the approach is sound, but there are still many questions that need to be resolved, such as:

* Should the PMO be structured differently for an MEO versus a contractor win?

* How will performance monitoring and risk-sharing be carried out?

* Where will the PMO staff come from?

* What kinds of education and training will be provided?

* Who will be in charge of running the PMO (that is, have authority, responsibility, and accountability)?

Thus far, some of the biggest AETC PaB successes are the aggressive command-wide shift to PBSC and the incorporation of BRAGs. AETC's thorough market research, performance-management focus, emphasis on building long-term relationships through strategic partnering with the contractor, innovative contract incentives, and risk-sharing are best practices. Another potentially successful area (though still untested) is the much smaller, streamlined government PMO to perform contractor insight versus the old QAE oversight.

AETC has put tremendous effort into developing a comprehensive PaR program and is committed to ensuring its success. However, it still needs a lot of help from the senior Air Force leadership to make this happen. In a recent briefing, the AETC Director of Contracting cited four needs to ensure PaB's s successful implementation.

* A business strategy for competitive sourcing integrated at the Air Force/MAJCOM/base level

* A reassessment of small business roles

* Cross-functional cooperation starting at the top

* A system to make this all happen (51)

NASA-Patrick AFB: Joint Performance Management Office

The Joint Performance Management Office (JPMO), a National Aeronautics and Space Administration (Kennedy Space Center) and Air Force Space Command (Patrick AFB) partnership, was established for contact management of the Joint Base Operation and Support Contract (J-BOSC). These partnering efforts were focused on improving efficiencies and greatly reducing costs to support the nation's spacelift requirements while strengthening the reality of a Cape Canaveral spaceport. J-BOSC is a PBSC, awarded in October 1998, and covers a 5-year base period with one 5-year option valued at approximately $2.2B over the 10-year period. (52) It replaced 18 separate base-support contracts encompassing more than 160,000 acres and three geographically separated locations and saved $35M through the consolidation. (53) Figure 1 shows the projected savings between J-BOSC and separate contracts.

Military and civilian personnel from NASA and the Air Force staff the JPMO, which reports through an executive director to the 45th Space Wing and Kennedy Space Center board of directors. Consisting of senior management from both agencies (for example, financial, contracting, legal, operations and support commanders and directors), the board issues policy and guidance for the JPMO.

The JPMO structure is divided into five offices--Executive Management, Contracting, Staff, and Integration. Eighteen IPTs, consisting of JPMO members as lead, with contractor and stakeholders, provide a forum where new requirements can be discussed and contract issues resolved. The IPTs also provide regular customer feedback directly to the contractor, establish performance standards, and perform contract insight (versus the old-style notion of QAE oversight). (55)

To ensure unified operations, the JPMO incorporated the best practices of NASA and the Air Force to develop a single business system that includes daily operations procedures and a strategic planning system that complies with both NASA and Air Force policies. This system was certified ISO-9001 1 compliant in June 1999. (56)

Besides the huge, initial cost savings, the results of the consolidation have been enormously successful in improving BOS management. For example, earlier contracts required 200 people to perform contract oversight. Now the JPMO--using insight--requires only 40 NASA and Air Force civilian and military people to assess contractor performance. (57) In addition, both agencies have benefited from one stop shopping for customer service. When someone needs NASA support or Air Force support, be it a government or commercial customer, only one number has to be called for assistance. Perhaps the most important improvement is the 24-hour-turnaround on the launch range. Consecutive launches within 24 hours of each other are now possible--this had never been done before JPMO was established. (58)

The increased efficiencies gained by J-BOSC have allowed the Kennedy Space Center and the 45th Space Wing to recapitalize and improve their infrastructure and initiative innovations to improve customer service and satisfaction. They also underscore that joint partnerships in the out sourced BOS arena can achieve winning outcomes, not only far the partners but also for the numerous customers and stakeholders and the service-provider contractor. The JPMO effectively communicates updates and announcements through the quarterly Joint Update Newsletter and a well-maintained website that contains a wealth of useful links, including contract, award fee, 1Ff, and customer web pages.

In summary, the innovative BOS management approaches illustrated above prove that CS&P can be successful. Similarly, many other DoD organizations have achieved comparable successes with their BOS outsourcing programs. Likewise, as more is learned about commercially provided BOS services and best practices are learned and shared with others, even greater BOS success can be expected.

Conclusion and Recommendations

Our success to date doesn,t mean that our task is complete--on he contrary, so long as inefficient practices still exist--defense reform will remain one of my highest priorities.

William S. Cohen

In conclusion, BOS contracting is a unique, complex, and challenging but vitally important Air Force CS&P program that will continue to grow. In its zeal to quickly implement outsourcing, the Air Force allowed many nonstandard approaches in program management and contract administration that led to problems and negatively impacted casts, efficiencies, and overall BOS performance. However, new Air Force-level CS&P guidance and improved acquisition practices such as PBSC and the widespread establishment of BRAGs suggest more BOS improvements will be forthcoming. Also promising are an increasing number of innovative, leading-edge BOS organizations that are benchmarking and sharing best practices with others.

In assessing the progress in BOS management against the four principal Air Force CS&P goals, one gains a little clearer picture of where we have been and where we still need to go.

Sustain Readiness. At this time, it is too early to say, but if the CS&P promise to free military members to cancentrate more an their core competencies holds true, it could provide some badly needed relief. However, there are many unknowns, and much more study lies ahead far the manpower, personnel, and other functional communities.

Improve Performance and Quality by Doing Business More Efficiently and Cost Effectively. All the CS&P evidence suggests that, whether the in-house MEO or contractor bid wins, the service becomes leaner and more efficient. Yet, mare study is needed to determine the optimal PMO structures and staffing for manitoring either MEO or commercial contractor performance and ensuring efficiencies and performance can be maintained and improved aver time.

Generate Funds for Force Modernization. Available Air Farce cost data suggest that outsourced BOS is generating significant savings that can be applied toward modernizatian. Still, many problems must be resolved to improve and continue this positive trend. DoD-wide, there needs to be a common definition and framework for BOS along with a standardized cost-accounting system that can generate and track accurate, comparable cast data. Also, it must be remembered that, over time, changes in mission requirements, technologies, competitive pressures, politics, and a host of other factors could impact these savings in unpredictable ways.

Focus Personnel and Resources on Core Air Force Missions. Great care must be exercised to maintain the right balance and mix of highly skilled and motivated airmen necessary to fully meet the needs of the new expeditionary aerospace farce. When all is said anti done, it is essential that the many promises of outsourced BOS be realized through mare effective support to the end-user--the warfighter.

Overall, the Air Farce is heading dawn the right path with BOS CS&P but still has a long way to go. The following recommendations are offered to help facilitate greater cast savings and improved BOS management.

* The Air Farce must be aggressive in ensuring the rules and tools far successful implementation of acquisition reform and CS&P policies (for example, PBSC) are known anti applied everywhere anti at all levels. This will require senior Air Farce leadership t0 set the tone and lead the way. Moreover, continued support from MAJCOMs anti various CS&P support and advisory agencies to base-level BOS managers will help ensure outsourced BOS services are successful.

* The Air Farce should reevaluate anti restructure the PMO organization anti practices to optimize its efficiency and effectiveness but leave it flexible enough to be tailored to best meet a base's support needs anti mission requirements. The question of who is in charge still needs to be answered. The BRAG concept is a good start, but it offers no answers on how to organize anti build an effective PMO team.

* Greater emphasis an education and training an commercial philosophies and business practices needs to take place at the base-level PMO. This should result in a more cohesive and capable government (military anti civilian) team that can strategically partner with commercial service providers far improved BOS performance at a lower cost. It will also require a greater commitment from senior Air Farce leadership to provide funding anti opportunities for world-doss education and training to help build a motivated and professional PMO staff.

* The Air Farce should reevaluate officer, enlisted, anti civilian career-field job descriptions and core competencies against those required for BOS management. The growing demands of outsourced BOS services demonstrate that the functional career fields now require balanced sets of competencies anti skills (core warfighting anti contracted mission support) to be most effective both at home station and while deployed.

* Because commercially supplied BOS services will became the norm in the future, the Air Farce must find new ways to influence a cultural shift (within the military and civilian work farce) to actively foster anti build long-term relationships with world-doss BOS service providers based an mutual trust. Once again, the vision, leadership, anti example must begin at the top anti permeate through the MAJCOM functional staffs down to the base-level environment.

* There must also be a shift in emphasis from QAE (oversight) toward performance management (insight). This implies a significant reduction in QA staffs that currently perform oversight and a corresponding shift based on greater trust and reliance on the contractor's quality control and improvement processes.

* Improvements and refinements will be required in how incentives (for example, award-fee programs and award terms) are managed to attract, secure, and retain only the best service providers. Furthermore, it must be remembered that this is a two-way street. To attract the best service providers, the Air Force needs to prove itself a trustworthy and reliable buyer of BOS services.

The success of CS&P and outsourced BOS services is important to the future of the Air Force. If done right, better managed BOS services can lead to significantly greater cost savings for future procurement, more efficient and effective base support business practices, and improved readiness--all of which can contribute to increased military capability and better support to the warfighter.

[Graph omitted]
Table 1.

BOS A-76 (8)

Base Pre Post Savings Decision

Patrick 118 69 42% In-house
(FY98) ($2M)

Wright-Patterson 503 254 50% Contract
(FY98) ($14M)

Vandenberg 211 142 33% Contract
(FY98) ($3M)

Columbus 341 227 33% In-house
(FY97) ($6M)

Tyndall 1,034 666 36% Contract
(FY97) ($18M)

Laughlin 278 187 33% Contract
(FY96) ($6M)

Goodfellow 277 176 36% In-house
(FY94) ($1M)

Niagara Falls 117 75 36% Contract
(FY90) ($2M)


Notes

(1.) AETC CS&P Web page [Online] Available: https://www.aetc.af.mil/xp/xpm/FAQs.html, 25 Sep 00.

(2.) Air Force Policy Directive 38-6, Outsourcing and Privatization, 1 Sep 97, 12.

(3.) GAO Report, Base Operations, DoD's Use of Single Contracts for Multiple Support Services, GAO/NSIAD-98-82, Feb 98, 1.

(4.) Base Operations, DoD's Use of Single Contracts for Multiple Support Services, 2.

(5.) GAO Report, Base Operations, Challenges Confronting DoD As It Renews Emphasis on Outsourcing GAO/NSIAD-97-86, Mar 97, 7.

(6.) Stan Horowitz and Peter Evanovich Briefing, "A Serendipitous Analysis of Contracting Out, Institute for Defense Analysis," Oct 00, 6.

(7.) Briefing, Air Force A-76 Good News, Air Force Manpower and Innovation Agency, Undated, 2.

(8.) Air Force A-76 Good News, 7.

(9.) Base Operations, DoD's Use of Single Contracts for Multiple Support Services, 3.

(10.) James Brian Quinn and Frederick G. Hilmer, "Strategic Outsourcing," Sloan Management Review, Summer 1994, 43-45, and Ellen M. Pint and Laura H. Baldwin, RAND Report, "Strategic Sourcing, Theory and Evidence from Economics and Business Management," 1997, 39.

(11.) Ibid.

(12.) OFPP, A Guide to Best Practices for Contract Administration. Oct 94, 4,7.

(13.) RAND Research Brief, "Does Competitive Sourcing Pay Off?: The DoD Experience" [Online] Available: http://www.rand.org/ publications/RB/RB7536/, 22 Feb 01.

(14.) "Outsourcing and Privatization," Defense Science Board Task Force, Office of the Under Secretary of Defense for Acquisition and Technology, Aug 96, 7A.

(15.) Col R. Philip Deavel "The Political Economy of Privatization: Its Impact on the American Military," Issues and Strategy 2000: Contractors on the Battlefield, Air Force Logistics Management Agency, Maxwell AFB, Gunter Annex, Alabama, Dec 99, 41.

(16.) Ibid.

(17.) AFAA, Launch Operations and Support Contract, 30th Space Wing, Vandenberg AFB, California, Audit No. WP000062, 22 Jun 00, 3 and 7.

(18.) Office of Federal Procurement Policy, A Guide to Best Practices for Performance-Based Service Contracting, Oct 98, 15.

(19.) TIG Brief, Nov-Dec 00, 7.

(20.) Ibid.

(21.) Base Operations, DoD's Use of Single Contracts for Multiple Support Services, 11.

(22.) TIG Brief, Sep-Oct 00, 7.

(23.) RAND, "Commercial Sourcing: Patterns & Practices in Facility Management," Undocumented Briefing, May 97, 24.

(24.) Laura H. Baldwin, Frank Camm, and Nancy Y. Moore, RAND, "Strategic Sourcing: Measuring and Managing Performance," Documented Briefing, 2000, 56.

(25.) Ibid.

(26.) Air Force Management and Innovation Agency, Performance Management Lesson Plan, Apr 00, 4, 13-14.

(27.) Deidre A. Lee, Administer for Federal Procurement Policy, Statement Before the Subcommittee on Government Management, Information and Technology Committee on Government Reform, United States House of Representatives, 16 Mar 00, 1.

(28.) Lee, 2.

(29.) OFPP, A Report on the Performance-Based Service Contracting Pilot Project, May 98, 4.

(30.) A Report on the Performance-Based Service Contracting Pilot Project, 4-5.

(31.) William A. John, "Performance-Based Contracting for Aircraft Maintenance," Exhibit 10, The Positive Results of OFPP's Performance-Based Service Contracting Pilot Project, May 98, 3 [Online] Available: http://www.arnet.gov/Library/OFPP/PolicyLetters/Other/pbscexhibit1 0.html, 24 Oct 99.

(32.) William 3-5.

(33.) William, 5.

(34.) FAR 37.601, USAF Performance-Based Services Acquisition (PBSA) Implementation Plan, Jun 00, 4.

(35.) J. S. Gansler, Under Secretary of Defense, Acquisition, Technology, and Logistics, Memorandum for Secretaries of the Military Departments, Directors Defense Agencies, Director, Defense Logistics Agency, "Performance-Based Services Acquisition," 5 Apr 00.

(36.) Maj Brian Bellacicco, SAF/AQC, Briefing, "Performance-Based Service Contracting" to Navy ACE Workshop, 15 Mar 99, 8-9.

(37.) USAF PESA Implementation Plan, Jun 00, 6.

(38.) AFI 63-124, Performance-Based Service Contracts (PBSC), 1 Apr 99, 10.

(39.) SW L30ZR64P4-000, Business Requirements and Advisory Group Training Guide, Contracting and Acquisitions Training Flight, Lackland AFB, Texas, 13 Mar 00, 4-5.

(40.) AFI 63-124, 5.

(41.) Briefing, ACC Program Management Squadron, "ACC Program Management Squadron," Undated, 4 [Online] Available: https:// wwwmil.acc.af.mil/pms/mission.htm, 13 Jan 01.

(42.) "ACC Program Management Squadron," 2-3.

(43.) "ACC Program Management Squadron," 8.

(44.) John Heiser, Deputy Director, ACC Program Management Squadron, interviewed by author, 26 Oct 00.

(45.) "ACC Program Management Squadron," 14.

(46.) Heiser.

(47.) Headquarters AETC/XPMBP Talking Paper, 11 Jan 99.

(48.) Background Paper, Headquarters AETC, Competitive Sourcing Congressional Discussions, Undated, 2.

(49.) Barbara K. Dobbins, Sharon Lovelace, and Linda R. Lowmiller, 42 CONS, Maxwell AFB, Alabama, interviewed by author, 23 Jan 01.

(50.) MSgt Felix Rodriguez, 42 MO, Maxwell AFB, Alabama, interviewed by author, 6 Feb 01.

(51.) Briefing, Headquarters AETC/Directorate of Contracting, "AETC Competitive Sourcing (Pick-a-Base)," Undated, 32.

(52.) JPMO, "Home Page" [Online] Available: http://www-jpmo.ksc.nasa.gov/, 12 Dec 00.

(53.) JPMO, Award Package, "2000 Chief of Staff Team Excellence Award," Atch 3, Abstract, Undated, 1.

(54.) "2000 Chief of Staff Team Excellence Award," Atch 4, Narrative, 2.

(55.) "Home Page."

(56.) "2000 Chief of Staff Team Excellence Award," Atch 4, Narrative, 6.

(57.) "2000 Chief of Staff Team Excellence Award," Atch 3, Abstract, 1.

(58.) Lori Weller, JPMO E-mail, 9 Mar 01.

Major Kitti at the time of the writing of this article was a student at the Air Command and Staff Colleg, Maxwell AFB, Alabama. Presently, he is the commander, [92.sup.d] Logistics Support Squadron, Fairchild AFB, Washington.
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Publication:Air Force Journal of Logistics
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Date:Sep 22, 2001
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