Candid Voices - military readiness; effects of outsourcing repairs

Military Readiness and Outsourcing Depot Repair

Chaos theory attempts to explain the fact that complex and unpredictable results will occur in systems that are sensitive to their initial conditions. A common example of this is known as the Butterfly Effect. In theory, the flutter of a butterfly's wings in China could affect weather patterns in New Mexico, thousands of miles away. In other words, it is possible for a very small occurrence to produce unpredictable and sometimes drastic results by triggering a series of increasingly significant events.

When near-term fiscal expediency becomes the prime driver behind weapon system sustainment, we put long-term military readiness at great risk. The choice to outsource Air Force depot-level repair in a tightly constrained budgetary environment has neglected long-term, investment-based planning and chosen, instead, near-term executability. Leveraging the revolution in business affairs and acquisition reforms are constantly talked-up as a cure to the ills of the acquisition and logistics business and as sources for desperately needed modernization funding. The dialogue is unbalanced, and the proof is lacking. Thus, the question, are we declaring victory without results?

Background

A former Chairman of the Joint Chiefs of Staff told Congress several years ago, "Today's modernization is tomorrow's readiness." This is an outstanding statement! However, the statement is more instructive when restated in the following way, Today's modernization [with proper life-cycle planning and investment, to support complex, eventually decades-old, military-unique hardware that is the linchpin of national security] is tomorrow's readiness. The crux of this article is proper life-cycle planning and investment are not taking place and the primary culprit is the Source of Repair Assignment Process (SORAP).

Long-term investors understand a fundamental concept: the earliest investments reap the greatest returns over a long term. In other words, because time is so powerful, make your biggest investments as soon as possible. Another well-understood concept is nearly intuitive--scarce resources with high demand drive up prices. Finally, business practices call for providing services at the lowest cost in order to maximize profit and minimize loss. All of these are simple, instructive, and useful in many aspects of life, including long-term support of major weapon systems.

In this case, the investment to be made occurs (or should occur) in repair technologies, infrastructure, training, technical data, and human capital at the Air Force's air logistics centers (ALC), also referred to as depots. Second, the limited resources being considered are depot-level repair contractors. Finally, the business question is, what is the long-term best business choice for depot-level repair of our weapons systems, especially considering two primary factors:

* The Air Force cannot divest itself of its mission and go into a more lucrative market sector.

* The weapon systems being repaired today will be around for at least the next two generations.

So a limited contractor base is driving up repair costs (if we rely on them), and long-term support must get cheaper or face insolvency. These seem to be divergent planning factors, but they are not. We can and must plan for both because this is reality. Today, more than ever, planners, budgeters, and managers fail to recognize the macroeconomics lesson that reveals the proper perspective: near-term investment provides long-term payback.

I am not claiming subject matter expertise. In fact, Joint Publication 4-0, Doctrine for Logistic Support of Joint Operations, requires the individual Services to balance sustainability of combat capability with economy in the context of long-term objectives and capabilities. [1] It further states that this balancing act is the greatest challenge to the logistician. This is an unchallenged truth. With great pain, many senior leaders recognize supporting military-unique hardware for up to 4 or 5 decades (for example, B-52, KC-135, C-141, C-5, F-15, F-16, and Minuteman III) is expensive and complex. Also self-evident is the fact that reducing operations and support costs, particularly for an aging fleet, is the key to realizing long-term savings to be rolled into modernization efforts.

Competition Is Key

One way to achieve these cost savings is competition, according to Secretary of Defense William S. Cohen in his November 1997 Defense Reform Initiative Report. [2] "Competition between the public and private sectors works." This may be true, but competing weapon system support with a sharply decreased defense industrial base can have unintended pitfalls unless they are identified and avoided. The government's efforts to encourage defense industry consolidation were certainly prudent, but the results are today's near absence of private (that is, nongovernment) competition. In the aerospace sector, for example, some 40 different companies have consolidated into 5: Lockheed Martin, Boeing, Pratt & Whitney, General Electric, and Raytheon.

Critics of the consolidation warn that we are in danger of compromising our security as a result. Further, the present situation creates the danger of monopolistic behavior on the part of surviving companies. They also call for increased competition from defense business as the real cost-saver for future programs.

Fortunately, the government has, in the case of long-term sustainment of aerospace systems, had a built-in competitor. Over the last decade, air logistics centers have been able to compete effectively with the consolidated defense sector, thus keeping prices for outsourced work within reasonable limits. However, with the closing of two of the Air Force's five logistics centers and ever-increasing, aging-aircraft complications, the Air Force is relying more and more on outside repair contracts. Recently, this has been throttled by 50/50 issues that have been reached and exceeded. Nonetheless, there is a continuing pressure to move toward a Total System Performance Responsibility (TSPR) form of outsourcing.

While it is clear that TSPR can alleviate the reliance on depot infrastructure, it is not clear whether this will result in a long-term cost savings arrangement. There are several examples, both successful and not successful. In the near-term, TSPR contracts require little or no depot investment (infrastructure, training, manpower, technical data, and so forth). In the latter stages of a weapon system's life-cycle, the risk of having no competition (public or private) for repair will ultimately lead to cost growth and inflation (monopolistic behavior). Monopolies are broken up for this very reason. Finally, in spite of TSPR and best intentions, repairs and readiness cost are eating our lunch.

Regrettably, the Department of Defense and the Air Force, in particular, have leveraged tomorrow's readiness in an attempt to remain solvent in a budgetary drought. As a short-term fix, we continue to increase modification programs that extend the life of our aging aircraft, while leaders look to acquisition and logistics reforms (particularly at our depots) to do the monumental task of creating savings for future modernization investment.

Acquisition Reforms

As early as 1986, the Packard Commission suggested methods to reform the acquisition business. Clearly, their suggestions were well intended but had an obvious focus on the buying side of the acquisition equation. The Goldwater-Nichols Act codified several of the commission's suggestions, primarily by moving acquisition from military to civilian control and establishing portfolio managers for classes of weapon systems called program executive officers. Further, in the early 1990s, the Air Force established a concept called Integrated Weapon System Management (IWSM). This paradigm emerged as the first real step toward radical reform in defense acquisition and logistics for the Air Force.

A keystone of IWSM is the single-manager concept, where one individual has cradle-to-grave responsibility for an entire weapon system. In theory, IWSM would solve a long disliked process of one organization acquiring a weapon system and then tossing it over the wall for loggies to maintain.

From the long-term sustainment perspective, the problem with IWSM is that many development system managers (DSM) at Air Force product centers (Aeronautical Systems Center, Electronic Systems Center, Air Armament Center, Space and Missile Systems Center) retain single-manager responsibility decades after a system has been fielded, unlike system support managers (SSM) at air logistic centers (Oklahoma City ALC, Ogden ALC, Warner-Robins ALC). This is problematic because very few single-manager (DSM) offices are staffed with experts in depot logistics support. Further, these single managers continue to press for long-term sustainment by prime contractors via extremely limited competitions or sole-source contracts such as TSPR.

By default, single managers (DSMs) are, first and foremost, advocates for their single system, not necessarily for the Air Force enterprise. For this reason, they are primarily fielding advocates. But single managers are not just responsible for acquisition; they are cradle-to-grave owners, responsible for the entire life cycle. Reality is different. Putting rubber-on-the-ramp mentalities and political pressures did not disappear when IWSM was initiated. Therefore, ISMs are under tremendous pressure to field a system--their system. The argument is that without a cradle there is no reason for a grave. Some assert the opposing view: if you cannot support the weapon, then why birth it in the first place?

Early in the phase of an acquisition program, DSMs holding the single-manager title lack a true peer who is the proponent for long-term sustainment of individual weapon systems and the Air Force enterprise as a whole. Later in the program, long after many key decisions (investment-type) have been made, a system support manager is designated, usually at the target depot. In many cases, tension surfaces in the relationship between the SSM and single manager (still wearing the DSM hat). The SSM reports to the single manager for programmatic issues. Frequently, the single manager does not have a clear understanding of sustainment issues and maintains the rubber-on-the-ramp view that does not deal with the realities of lifetime sustainment. Unthrottled, near-term executability is absolutely paramount on this single manager's list.

This dilemma ignores the long-term commitment of sustainment and its daily changes. One reason is sustainment relies on the private sector, which expands and contracts to supply and demand, or the public sector (for example, depots) that base realignment and closure shut down by 40 percent. Further complicating the issue, there is no mechanism that forces disagreements between SSMs and DSMs to be resolved by program executive offices in consultation with the target ALC commanders.

In some cases, this does happen. The problem is that the SSM usually does not get a strong voice above the single manager (their boss). Logistics support considerations often take a back seat, placing great risk on ownership costs for the warfighters and long-term readiness of the force. It flies in the face of Defense Acquisition University course lessons teaching that, during the system engineering process, long-term logistics support considerations are equal to cost and performance considerations when tradeoffs are being considered. Critics contend reality differs from theory. Therefore, let us reconcile reality and theory with an example.

Case in Point

SORAP is the primary process for making depot maintenance source-of-repair (SOR) determinations and for assessing organic depot-maintenance requirements in accordance with Department of Defense Directive (DoDD) 4151.18, Maintenance of Military Materiel, [3] and Air Force Instruction (AFI) 21-102, Depot Maintenance Management. [4] SOR decisions fall under a very broad umbrella called the Acquisition Strategy Panel, which is usually chaired by a program executive office and briefed by the DSM very early in the programs life-cycle. SORAP is used to determine the best-value source of depot-level repair to support life-cycle readiness. Further, the SORAP must be completed and approved for all depot-level maintenance workloads generated by new acquisitions and modifications. The process is flawed because it is implemented with loopholes and final decisions based on near-term benefits and politically motivated rationales.

The definition of the phrase best value is an ambiguous loophole that lends itself to being misapplied for near-term gain and pressures to field a system or modification without delay, despite known logistics concerns. Prior to IWSM, there were two four-star commands, Air Force Systems Command and Air Force Logistics Command, that were strong advocates for acquisition and sustainment during the acquisition cycle. True, they were operating under very different fiscal constraints, but they were always equal advocates. Today, proper advocacy should come from within the IWSM framework. The integrated product team (IPT) concept is designed to alleviate gross oversight of life-cycle cost considerations. While advocacy will not always solve problems, a clear imbalance removes a safety net and has become the overarching flaw in this process. If the IPT fails, balanced risk management does not exist for the long term. Unfortunately, advocacy is not the only problem with the SORAP.

Premature SOR determinations are the second misapplication of SORAP methodology and occur when SOR determinations (either contractor or organic) are made too early in the acquisition cycle. The reason for this is, again, shortsightedness. The SORAP manual states, "It is essential that actions required to obtain a SOR decision be taken as early as possible to avoid the expense and program turbulence associated with protecting both options until a decision is made." [5] It also states, "life-cycle support decisions are made early in the design ... rather than waiting until after the design is completed." I agree that waiting until the design is completed is overly cautious, but protecting both options until the design stabilizes is prudent. The manual goes on to state, "The single manager should initiate actions as soon as reasonable ... but not later than the decision to proceed into engineering and manufacturing development." The design is only conceptual at this point for many of the subsystems of the end i tem. Detailed support planning, by all accounts, consists of bare estimates at this early stage, guesswork in many cases. If we plan to have no organic repair for an item and the design is substantially altered and/or logistics analyses prove inaccurate, the unprotected option becomes far more expensive than it would have been if we had paid the liability insurance to protect against this possibility.

The third miss in the SORAP process revolves around defining who bears the fiscal load. Single managers see investing in a new repair technology at an air logistics center as a burden to their program. Hypothetically, if the engine selected for the F-22 were similar to that of the joint strike fighter and others, the F-22 program might have to bear the fiscal load of the initial investment to establish the repair capability at the depot. The investment required might be large compared to other program costs (special tools, training, depot-level technical orders, facilities, and so forth.). The good news is that repair costs are controllable and not subject to the whims of market forces. The problem for the single manager is this is a must pay bill now. The single manager may not have sufficient insight into the design to properly budget for such a large bill in a particular year. This lapse creates a supportability issue for the program.

Then the contractor estimate arrives, and it is much lower because it can do the repairs for a slightly higher cost than the government but without any up-front investment because it already owns the capital equipment, facilities, and skilled labor (all used in production and testing). The likely result is no investment is made for organic repair. The effort goes sole-source to the original developer, and the life-cycle risk jumped another notch. This is especially, even catastrophically, true if that contractor's business base contracts as it responds to the market's supply and demand.

The investment decision would have provided the opportunity to reduce life-cycle costs for multiple weapon systems. This is the greater-good concept that the SORAP ignores. It is the best-value loophole in action. The decision appeared to be the best value, but it was measured only in that year, and we again declared victory before results. The lost savings in out years would have provided needed funds for future modernization efforts. At the same time, it would keep the work force at the air logistics centers current on new technology. Instead, the decision relegates the blue-collar work force at the depots to antique fixer and dealer status (nothing new to repair, just the old stuff). As an aside, ask yourself, what youth today would want a job fixing half-century old parts at a government depot when they could work for a defense contractor making higher pay repairing new technology? The implications are astounding.

Until there is a fundamental change in policy, there is no chance this trend will reverse naturally. According to DoDD 5000.2-R, Mandatory Procedures for Major Acquisition Programs and Major Automated Information Acquisition Programs, [6] cost must be viewed as an independent variable. Accordingly, single managers are required to establish aggressive but realistic objectives for all programs and follow through by trading performance, supportability, cost, and schedule, beginning early in the program. This is not happening because withholding program funds for unknown support investments is nearly taboo, especially when that investment will not realize a positive return on the investment for many years. The fact remains: organic supportability requires investment in infrastructure, equipment, and training, but it usually goes unplanned and unbudgeted.

The fourth flaw in the process focuses on logistics support analyses (LSA). These analyses-including mean time between failure, failure mode effects and criticality, repair level, and other maintenance-related analyses-are completed by prime contractors. Two problems arise. First, the decisions of the SORAP are often complete before these LSAs are mature; therefore, decisions about repair requirements and their associated costs are basically guesses. Two, the entity that stands to gain the most if repairs are contracted out is the prime contractor. The cost comparison model of the SORAP considers numbers of repairs, difficulty of repairs, cost of repairs, and so on as part of the best-value calculation. All these are outputs from the LSA process. Carefully crafted analyses by profit-minded contractors, in a shrinking business base, desperate for more business will almost certainly drive SOR determinations (especially for new technology) back into their own hands.

Outsourcing Reality

Acquisition and logistics reforms and the movement toward outsourcing are reality. They are unproven in the long term, but a reality, nonetheless. According to Secretary of Defense Cohen, "We see its [outsourcing and competition] fruits every day in the better service it gives our troops and the better balance it gives our ledgers. It empowers workers, both public and

private, challenging them to provide higher quality and lower cost."

I agree we can see short-term fruits every day. Will we see them in 20 or 30 years is the question. What is not said about the short term is equally alarming. Overhead rates for outsourced work are skyrocketing, especially for sole-source vendors. This unplanned backlash is not easily disentangled or publicly touted.

Final Thoughts

Commercial entities are loyal primarily to stockholders and profit-minded executives, not taxpayers. Therefore, when a business segment is 10, 20, or 30 years old or becomes inefficient, it is divested. What remains? Diminishing sources of repair, poor supply response, and parts shortages. Every day there are businesses going out of the business and the victims of outsourcing (warriors) frantically returning to the organic depot repair facility for emergency situations-a day late and a dollar short.

Historically, senior leaders and strategic planners mistrusted ideas that were radical, rapid, and revolutionary. They preferred calculated, complete, and correct. The SORAP and outsourcing, in general, stand as examples of getting the order wrong. The, "Fire! Ready! Aim!" syndrome has arrived. Ultimately, it is a question of who pays the highest price? Is it the warfighters in the battlespace, American who pays taxes, or a country that loses an irreplaceable treasure-a son, a daughter, or perhaps worse yet, freedom?

Notes

(1.) Joint Publication 4-0, Doctrine for Logistic Support of Joint Operations, 6 Apr 00.

(2.) Secretary of Defense William S. Cohen, Defense Reform Initiative Report, Nov 97.

(3.) DoDD 4151.18, Maintenance of Military Materiel, 12 Aug 92.

(4.) AFI 21-102, Depot Maintenance Management, 19 Jul 94.

(5.) SORAP Guide, AFI 63-107, Integrated Weapon system Management Program Planning and Assessment, 3 May 00.

(6.) DoDD 5000.2-R, Mandatory Procedures for Major Acquisition Programs and Major Automated Information System Acquisition Programs, 23 Mar 68.

                     Percent of Life-Cycle Dollars
Support Costs      70%
Acquisition Costs  30%
Note: Table made from pie chart

COPYRIGHT 2000 U.S. Air Force, Logistics Management Agency
COPYRIGHT 2004 Gale Group