Magazine article National Defense

Boeing Seeks Opportunities in Performance-Based Logistics

Magazine article National Defense

Boeing Seeks Opportunities in Performance-Based Logistics

Article excerpt

* Boeing is looking to increase investments in performance-based logistics in order to win more contracts with the Defense Department, a company executive told National Defense.

Unlike traditional transactional contracts, vendors in a performancebased logistics contract are not paid for repairing a platform. Instead, they are paid for a pre-agreed outcome to ensure a required level of performance--in readiness and cost--for defense systems. Because these agreements typically come in the form of a firm fixed-price contract, vendors are incentivized to increase the time between failures and repairs to reduce costs and boost profits.

Boeing wants to invest in areas where there is real market potential and performance-based logistics represents one of those opportunities, said Stephen King, senior manager of product support for global services and support at Boeing. He noted that sustainment of an aircraft comprises about 70 percent of total lifecycle costs, resulting in a significant incentive for companies to pursue PBL contracts. "Against all of Boeing's platforms, PBL is being assessed as a standard offer so every potential aircraft sale and/or sustainment business that we do, the question of, 'Why not a PBL?' is being asked internally and ... most of the time externally with our customers."

The company has 13 such contracts in place with U.S. defense agencies and international customers. Some of the platforms that are currently under contract are the Marine Corps' MV-22 Osprey, the Army's AH-64 Apache and the Air Force's C-17 Globemaster III.

King said positive signs from topranking defense officials have bolstered the company's confidence to pursue a more aggressive performance-based logistics strategy.

The office of the secretary of defense "has doubled down on PBLs," he said. If the agreements are constructed properly from both a contract standpoint and incentive model standpoint, OSD officials have said they are beneficial, he noted.

In April, Undersecretary of Defense for Acquisition, Technology and Logistics Frank Kendall ordered the implementation of Better Buying Power 3.0, an acquisition reform initiative. Within the guidelines for BBP 3.0, Kendall stressed the importance of "incentivizing productivity in industry and government." One of the ways in which the document said this could be achieved was by "ensuring effective use of performance-based logistics."

"When properly established and executed, performance-based logistics is an effective way to balance cost and performance regardless of whether industry or the government is providing the logistics service," BBP 3.0 said. "PBL also provides explicit productivity incentives and ensures the best value for the DoD"

Terry Emmert, assistant secretary of defense for logistics and materiel readiness, said, "absolutely we should be seeing more of these" performance-based contracts in the near future.

The Defense Department is "very committed to using the arrangements and using them more effectively," he added.

A lot of effort and resources have been placed into educating defense officials on the benefits of PBL, debunking myths and hyperbole that have surrounded these contracts and expanding training programs to grow the skill set for crafting complex performance-based arrangements, he said.

Emmert noted that the nature of such contracts is changing as the department faces downward budgetary pressure. "We're seeing a lot of dynamics that could both expand the utility of performance-based arrangements in ways we haven't used them before and maybe constrain the ways we have used them before because we're having more need to make better use of our organic depots and our supply systems."

Additionally, a core law requirement for the use of government depots, Title 10 United States Code 2466, stipulates that no more than 50 percent of the funds made available in a fiscal year to a military department or a defense agency for depot-level maintenance and repair work may be contracted to third parties to carry out those tasks. …

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