Chinook team drives hard bargain
April 25, 2013
REDSTONE ARSENAL, Ala.--If you're thinking about making a major purchase you may want to enlist the help of the team that just saved the government more than $810 million on a multiyear contract to buy 155 CH-47F Chinook cargo helicopters.
The contract will provide "war fighters with affordable, world-class heavy lift helicopters," said Rod Matthews, director, CH-47 Cargo Contracts, Army Contracting Command -- Redstone.
He said the cost savings were the result of tough negotiations with the Boeing Co., the prime contractor, employing lessons learned from the prior multiyear contract, enlisting a talented evaluation team, and using initiatives in the Department of Defense Better Buying Power program.
According to Matthews, a lot of the savings can be attributed to the Multiyear II Contract Evaluation Team pushing Boeing to provide updated actual costs and "heavily relied on" the program manager, Cargo technical subject matter experts. The team included representatives from the Defense Contract Management Agency, Defense Contract Audit Agency and ACC-Redstone Pricing and Cargo Contracts divisions.
"A lot of the MY II savings can be attributed to the fact that the MY II evaluation team required Boeing to provide updated actuals," Matthews said. "The MY II evaluation team insisted that the contractor adopt the government's maintenance work order standard hours methodology as opposed to the contractor's labor methodology based on cost estimating relationships and gained an advantage with this approach."
Material evaluation was another area where the negotiators created savings.
"Boeing was reluctant to accept any decrements to their pricing bases, insisting that their subcontractor memorandums of understanding were firm-priced documents not subject to change," he said. "To mitigate the government's risk, the MY II team negotiated a clause that requires Boeing to make adjustments to MY II contract pricing if Boeing benefits from range pricing or quantity discounts in the future."
The MY II evaluation team benefitted from increased competition in subcontracting. In the prior CH-47 MY the material/subcontracted competitive base was less than 5 percent. In this MY it is 56 percent due to Boeing increasing competition of their subcontractors. This increased competition resulted in substantial savings.
Another contentious negotiation concerned the material requirements list.
"The MRL parts are used as replacement parts during the recapitalization/overhaul process.
Instead of going with Boeing's extensive material requirements list, the government negotiated a reduced list of high-risk MRL parts that Boeing would have to buy and those not consumed for the program would go to the government inventory for future use. This was not the case on the first multiyear contract."
Matthews said the best practices and lessons learned can be applied to future contract negotiations. He also said the team's efforts were recognized by senior defense procurement officials.
Matthews said Shay Assad, director of Defense Procurement, Acquisition Policy and Strategic Sourcing, sent the MY II evaluation team a memo acknowledging its exemplary efforts during the negotiation process and post award business clearance preparation. Assad also sent an email Frank Kendall, the undersecretary of Defense for Acquisition, Technology and Logistics, with copies to several senior officials, acknowledging the MY II evaluation team.
The CH-47F provides improved situational awareness and dramatically improved flight control capabilities, Matthews said. It is purchased as either a new build or renewed--rebuilt-- aircraft, Matthews explained. The new build is a completely new aircraft. The renewed aircraft uses 74 recapitalized components from a CH-47D. Both aircraft have an all-new monolithic airframe, tuned to significantly reduce vibration. They come equipped with a common avionics architecture system cockpit and digital advanced flight control system.
Under the contact, the Army plans to buy 34 new build, 121 rebuilt Chinooks, with an option to buy another 60 new aircraft. The contract includes advance procurement of required long-lead items, implementation of engineering change proposals and recapitalization of CH-47D aircraft components.
The Army anticipates contract award of CH-47 Multiyear II in May.