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A few good reasons to support R&R contract under PBL

January 2, 2013

My experience in the defense industry

I used to:-

  1.  Forecast Repair & Return (R&R) work load and sales based on the user’s planned flight hours and Line replacement Unit (LRU) filed Mean Time Between Demand (MTBD)
  2. Identify LRU MTBD drivers from periodic FRACAS (failure reporting, analysis and corrective action system )  reviews
  3. Monitored customer’s future R&R funding

Unfortunately the customer’s future funding did not match with my forecast. This was a red flag that the system my company supports will be unaffordable down the road. The business management believed that if the customer needs these systems, there will be funding.

From analyzed R&R cost driver it appeared possible that inserting new technology could replace / eliminate LRUs and reduce the total user cost. The dilemma in the company was that reducing system (life Cycle Cost) LCC would lower the sales forecast, but not doing the right thing may bring a new party  that may take our market share. This discussion took a few years, and eventually my opinion that if we will not do the right thing somebody else will do it was adopted.

In my opinion this delay would not happen if our system support was covered under a multiyear PBL contract.

 

Working funds

According to my experience, the current way the USG funded R&R is: next year working funds = last year actual repair cost *([next year plan flight hours]/ [last year actual flight hours]).

This method drives few budgeting shorts on the USG side:-

  1. Holding repairs at the yearend by the user to save this year’s spending reduces the budget for next year.
  2. Next year’s contract budget will be too low, driving longer negotiation, and missing date for signing the new contract drives lower funding for coming years.

An unrealistic budget usually  creates more unfulfilled back orders and may mean an Aircraft On Ground (AOG) or mission cancelled.

The common way to overcome this issue according to my experience was a contract spanning a few years that may exhaust before the contract end period of performance. This solution will push the problem a few years down the road.

A better option is a multiyear PBL contract with contractor obligation to reduce user total cost by X% every year and commit for availability performance. This formula will motivate the R&R provider to invest to reduce LCC.

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