What is the formula used to determine when you should purchase and item versus repairing? At what percent of the total cost deems it more economical to repair?
The question of a formula to determine purchase versus repair will require your office to analyze the equipment to determine the best price.
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The Federal Acquisition Regulations requires that the Contracting Officer determine that a contract price be determined “fair and reasonable” price. (See 15.402 -- Pricing Policy).
You may wish to consult the published DoD Product Support Business Case Analysis (BCA) Guidebook, 2011, that provides guidance on preparing a Business Case. A BCA is an expanded cost/benefit analysis with the intent of determining the best value source for product support. While providing guidance and information on BCAs, the document states that it does not replace the judgment of a decision maker.
DoD Financial Management Regulation Volume 4, Chapter 4 - States: For material management purposes, “reparables” are items of supply subject to economical repair and for which the repair is considered in satisfying computed requirements at any inventory level. For financial management and accounting purposes, the Department’s depot level repair program for inventory replenishment and resale is considered to be a remanufacturing process.
I understand that Army has a tool that they use, COMPASS, to assist them with this decision. As taken from the Portal
" Overview: Computerized Optimization Model for Predicting and Analyzing Support Structures (COMPASS).
The Computerized Optimization Model for Predicting and Analyzing Support and Structures (COMPASS) is the US Army's standard system Level of Repair Analysis (LORA) model. The objective of COMPASS is to simultaneously optimize both the maintenance concept and supply while achieving a given operational availability goal. Its chief purpose is Acquisition Logistics. COMPASS is sponsored by the US Army Logistics Support Activity (LOGSA) and used throughout the Army Materiel Command.
COMPASS is a PC-based computer model designed to assist the analyst in conducting a Level of Repair Analysis (LORA) study. LORA is an analytical methodology used to determine the maintenance level at which repair or discard of an item should be performed. COMPASS uses the same supply algorithms that are imbedded in the Selected Essential-Item Stockage for Availability Method (SESAME) model. SESAME is the Army approved model for computing initial provisioning requirements. COMPASS considers up to four levels of maintenance and supply support and/or contractor support. It will identify the most economical maintenance level to repair or discard the end item and all line replaceable (LRU) and shop replaceable units (SRU) that make up the end item. COMPASS also has the ability to evaluate the life cycle maintenance and support costs associated with a user defined maintenance concept.
COMPASS will provide decision makers with other maintenance and support related information pertaining to the identified maintenance concept. The types of information that COMPASS provides include: 1) Cost and allocation of man-power required to repair the item, 2) Cost and allocation of support equipment required to repair the item, 3) Design for discard candidates, 4) Economical assessment to develop the test program sets, 5) Economics of contractor versus organic repair, 6) Economical assessment to screen an item before it is transferred to another maintenance level for repair, 7) Cost of initial and replenishment spares over system life, 8) Economical assessment of redundancy, 9) Overall costs associated with transportation, cataloging, training, technical manuals, etc., and 10) Source for development of the Maintenance Allocation Chart (MAC) and source, maintenance, and recoverability code."
In summary, based upon your market research and business case analysis, you should determine the best value to the program office.