2012-MGM22

A Holistic Approach to Multiyear Procurements

Management Track

MGM22_Presentation_AHolisticApproachtoMultiyearProcurements_Hawpe

Abstract:

Multi-year contracts have the potential to save the Government a substantial amount of money if they are executed on stable programs in an environment with stable requirements and funding. With the current economic pressure for defense programs to do more with less, multi-year contracts are a good option for programs that meet these criteria. The largest amount of savings is the result of procuring a larger quantity of parts than would be procured with a year-over-year contract structure, thus realizing economies of scale. Savings are also captured when the labor hours to develop and submit year-over-year proposals are factored into the calculations. Depending on the scope of work, additional savings could be realized via reduced labor hours for continuous learning (i.e., no breaks in production). It is very important to accurately identify the projected costs and savings to be able to weigh the benefits against the risks. Multi-year contract risks include the obligation of future-year dollars resulting in a lack of flexibility for the Government, the additional commitment of funds in the first year when Economic Order Quantity (EOQ) is included, and the commitment to a certain system configuration for the life of the contract. Herren Associates has been performing Production Cost Analysis on sole-source System Integrator production proposals since 1989. During this time, our consultants have developed an analytical framework to evaluate the material costs, labor hours, and other direct costs of the Combat Systems onboard Navy surface combatants. Herren Associates’ consultants use their Industrial Engineering backgrounds and Cost Analysis skills to provide fair and reasonable cost projections based on current production data for our clients including PEO IWS, PEO SHIPS, and SPAWAR. Herren Associates’ consultants have developed an approach for evaluating the cost savings for a Multi-year contract. Our approach uses the following five steps: 1. Evaluation of the current state of the program 2. Evaluation of historical costs a. Material unit prices and lot buys b. Labor learning curves c. Proposal preparation costs 3. Year-over-year cost calculation 4. Multi-year cost calculation 5. Savings Analysis To compliment this approach, Herren Associates’ consultants have developed an automated Budget Year versus Multi-Year Projection Tool that will allow the user to input the range of fiscal years as well as the profile of procurements over those fiscal years. The tool calculates various cost-points based on the historical cost evaluations that were performed and associated cost model. The resulting cost report includes year-by-year projections if the program stays with the status quo of single fiscal year procurements and an EOQ cost projection if a multi-year contract were to be exercised. This automated tool has reduced the time required to produce an accurate multi-year projection for use in budget submissions, POM Issue papers, and general program strategy.

Author(s):

Ann Hawpe
Herren Associates
Ms. Hawpe began working for Herren Associates in 2003 and has experience across multiple major Department of Navy programs. She earned a bachelor’s degree in industrial and systems engineering from Virginia Tech and a master’s degree in engineering management and systems engineering from The George Washington University. She is a Society of Cost Estimating and Analysis (SCEA) Certified Cost Estimator/Analyst (CCEA(R)) and has received her Lean Six Sigma (LSS) Green Belt Certification from the American Society for Quality (ASQ). A key part of Herren’s program analysis and cost engineering team, Ms. Hawpe has led projects in Navy Combat System Modernization, Technology Baseline Integration, Enterprise Resource Planning (ERP), and Surface Missile Acquisition. Her expertise lies in production planning and engineering, program and project management, cost engineering and analysis, systems engineering, and acquisition management. Specifically, Ms. Hawpe is practiced in reducing total ownership costs for Herren’s clients. She develops dynamic cost models, cost/benefit analyses, learning curve and quantity curve models, and regression analyses to recommend specific cost avoidance/reduction initiatives to identify non-value added processes and procedures, which ultimately reduces costs.
Ms. Hawpe currently provides Acquisition, Cost Engineering, and Program Management support to the North Atlantic Treaty Organization (NATO) SeaSparrow Project Office (NSPO), a leading Project Management Organization and a forum for International Cooperation, effectively supporting the needs of Participating Governments and Client Nations. She works closely with the SEA02 Division of the Naval Sea Systems Command (NAVSEA) to evaluate proposals and negotiate fair contract values for all Consortium members while reducing total program costs and ensuring standardization. In support of NSPO Acquisition Planning efforts, she coordinates requirements and Statements of Work (SOWs) for all 12 consortium member nations and ensures planned delivery schedules are met. She develops Independent Government Cost Estimates (IGEs) for future missile variants and provides Program Office inputs to SEA02 for development of Request for Proposals (RFPs), including recommendations and strategies related to Multi-Year Procurements.

Travis Winstead
Herren Associates
Mr. Winstead has over four years of professional experience. He was part of the Test Engineering team at Northrop Grumman that tested shipboard systems on aircraft carriers to ensure these systems were compliant with Navy specifications. He has also worked with various Program Offices in the Navy in the area of Program Management and has also done extensive cost analysis and engineering in the form of proposal evaluation. Mr. Winstead has also written multiple Microsoft Excel databases using Visual Basic for Applications that have helped to standardize and automate processes and tools within Herren Associates. He has also delivered an Excel tool to the Navy as part of an initiative to track Ordering Data Sheets (ODS) more effectively. Mr. Winstead currently manages all of the Raytheon Missile Systems Technical Instructions for the North Atlantic Treaty Organization (NATO) SeaSparrow Project Office. He has created numerous budgetary spreadsheets and databases to ensure that requirements are captured when planning TIs and has also contributed to the improvement of the TI system as a whole and the relationship with Raytheon with regards to TIs. Mr. Winstead is currently working with the TI manager from Raytheon Missile Systems to overhaul the process for how TIs are processed and handled. Mr. Winstead has also evaluated numerous proposals for the NSPO, which includes participating in fact-finding activities, working with technical leads to determine validity of labor hour and material dollar bids, submitting a Technical Analysis Report (TAR), and participating in contract negotiations. Mr. Winstead graduated with a Bachelors of Science in Industrial and Systems Engineering with a Minor in Business from Virginia Tech in 2008. Mr. Winstead also earned the Professional Cost Estimator/Analyst (PCEA(R)) certification (CCEA(R) pending five years experience) in June of 2011.