International Cooperative Program (ICP) Equitability – A Practitioner's Perspective
How does DoD assess equitability in the development, negotiation, approval, and implementation of ICP IAs?
Here's a brief refresher.
ICP Policy & Process “Basics”
OUSD(A&S) oversees and manages the DoD acquisition ICP IA process described in the DoD International Acquisition & Exportability (IA&E) Practices Guidebook. DAU has developed and published an ICP Job Support Tool (JST) to assist DoD acquisition workforce members in understanding and navigating this process.
The overall ICP Process described in the IA&E Guidebook and ICP JST contains three steps:
Step 1: Cooperative Opportunity Identification and Assessment
Step 2: ICP IA Process
Step 3: ICP Implementation
During Step 1, the DoD Component organization that has decided to establish a new ICP – commonly referred to as the ICP Proponent – is responsible for formulating an ICP that will be considered equitable from both a DoD and prospective partner nation(s)’ perspective(s) during higher level review.
DoD's ICP IA review and approval process in Step 2 consists of four phases:
- Request for Authority to Develop (RAD) (internal to USG/DoD)
- International Agreement Negotiation (with other nation(s))
- Request for Final Approval (RFA) (internal to USG/DoD)
- International Agreement Signature (with other nation(s))
During Step 2, the OSD senior officials’ staffs – and their counterparts in the prospective partner nation(s) -- evaluate the ICP Proponent’s approach to confirm that the ICP IA is equitable. The other nation(s)’ perspective(s) on equitability are provided during the negotiation and signature phases of the ICP IA process.
During Step 3, the ICP Proponent and their partner nation counterpart(s) are mutually responsible for implementing the ICP described in the IA in an equitable manner until the IA either expires or is terminated.
This blog will focus on what ICP Proponents must accomplish in Steps 1 & 2 from an equitability perspective to arrive at Step 3; successful signature of the ICP IA leading to actual implementation of the cooperative acquisition program by the U.S. partner(s) ... the proverbial 'pot of gold' at the end of the rainbow.
Before proceeding onward, I feel obligated to let you know that the insights provided in this blog have worked well for me and other DoD ICP IA experts over the years from a best practice perspective. That said, beyond the FMR quotations provided below, please consider my observations and suggestions as practical advice from a DAU professor who has helped many DoD acquisition workforce members negotiate and implement ICP IAs rather than formal DoD policy in this area.
Step 1: "Framing" Equitability
Step 1 moves into high gear when DoD ICP Proponents decide to enter into Exploratory Discussions with prospective Partner Nations -- referred to as "PNs" from this point onward -- to determine a proposed ICP's benefits and feasibility. The key players are in this process step are the ICP Proponent's acquisition organization -- for ease of reference, we'll use the generic term Program Management Organization (PMO) -- and their supporting International Programs Organization (IPO). IPO ICP experts advise the PMO to follow the DoD Financial Management Manual (FMR) guidance in Volume 12, Chapter 9, paragraph 5.5 "Determination of Program Equitableness" to assess this aspect of a proposed ICP.
FMR Equitability Approaches
The FMR's guidance contains several ‘standard’ equitability approaches to ICP IA cost sharing that the OUSD(Comptroller) organization finds acceptable. We'll review each one to learn more about them.
Number of Participants Equal Sharing
This approach is typically used for bilateral and multilateral Science & Technology (S&T) ICP IAs where the primary scope of work result is new, cooperatively (jointly) created Intellectual Property (IP) and associated IP Rights (IPR) funded by DoD 6.1 and/or 6.2 RDT&E dollars matched by an equal share amount of PN funding.
In some situations, RDT&E ICP IAs that focus primarily on IP results generation are also funded on an equal share basis using DoD 6.3a RDT&E dollars matched by an equal amount of PN funds.
Example: DoD and three other PNs decide to establish an S&T ICP IA focused on research into cold fusion technology. The estimated cost of the scope of work is $12M over four years. The cost sharing arrangements are DoD $3M, with the other PNs also contributing $3M each for total of $12M over three Calendar Years (CYs) based on the following estimated ICP scope funding ‘curve’: CY1 - $1M each ($4M total); CY2 - $1.5M each ($6M total); and CY3 - $0.5M each ($2M total) = $12M.
Key Insights: Note that the contributions mutually agreed upon in the ICP IA may be all Financial Contributions (FCs) (in other words ‘cash’), a mix of FCs and Non-Financial Contributions (NFCs) (e.g., research efforts, nationally (rather than jointly) generated IP, use of national research-related equipment/facilities, etc.), or all NFCs (unusual but possible). Since the value of FCs are easy to account for, while the value of NFCs is more subjective (and thus more challenging to evaluate), the DoD FMR Volume 12 Chapter 9, paragraph 5.4 contains detailed provisions regarding how NFCs must be valued.
Estimated Unit Production Proportional Sharing
This approach is typically used for bilateral and multilateral Engineering & Manufacturing Development (EMD), Production, Sustainment & Follow-On Development (PSFD), or Sustainment & Follow-On Development (SFD) ICP IAs where the scope of work focuses on development or production of equipment and associated services for DoD and PN operational forces, noting that IP associated with such efforts is also jointly generated.
Example: DoD and two other PNs decide to establish a PSFD ICP IA on System X. DoD plans to acquire a total of 800 System Xs and the other PNs plan to acquire 100 System Xs each. All three nations plan to operate and upgrade their System Xs over the next 30 years. The estimated Non-Recurring Cost (NRC) of System X production facilitization is $200M; the estimated NRC to establish and operate a product support infrastructure is $50M; and the estimated NRC for follow-on development of product support improvements and upgrades is $150M. These costs will be shared based on Cost Share Ratio of DoD 80%; other PNs 10% each spread over the next 30 years based on program cost estimates. The three PNs’ annual procurement of System X production units, product support articles and services, and product improvement/upgrade kits and modifications are accomplished through the PSFD ICP IA using consolidated contracting actions to maximize economic order quantity (EOQ) benefits for all three PNs throughout the System X program’s lifecycle.
Key Insights: The approach and ‘business rules’ agreed upon and implemented by the PNs in the PSFD ICP IA regarding FCs and NFCs work the same way in principle as the Equal Sharing methodology. In practice, however, most PSFD ICP IA costs are FCs rather than NFCs.
Benefitting Assets Proportional Sharing
This approach is very similar to Estimated Production Unit Proportional Sharing except that it can be applied to RDT&E ICPs IAs and PSFD/SFD ICP IAs that are logically based on a benefitting assets scenario.
Example: DoD and three other PNs decide to establish an RDT&E ICP IA to develop a specialized, defense-specific simulation training software “app” that all of them will field on their own national computer systems and networks. DoD plans to provide this software app to 8,000 MILPERS and CIVPERS specialists; the other PNs plan to provide this app to 1,500 and 500 specialists in their Ministry Of Defense (MoD) workforces, respectively. The RDT&E ICP IA will be based on a benefitting assets Cost Share Ratio of DoD 80%; PN A 15%; and PN B 5%, which may be accomplished through a mix of FCs and NFCs.
Key Insights: So what happens if the app RDT&E ICP IA is successful? The three PNs typically would want to continue as partners to collectively provide app users in DoD and their MoDs with common software support and upgrades after fielding to enhance the app’s overall interoperability and affordability until it becomes obsolete. To accomplish this, they would typically agree in principle in the RDT&E ICP IA to use their best efforts in the future to negotiate and establish a second Sustainment & Follow-on Development (SFD) ICP IA for this purpose. Costs for this second SFD ICP IA would probably be shared based on the initial Cost Share Ratio in the RDT&E ICP IA — DoD 80%; PN A 15%; and PN B 5%, accomplished through a mix of FCs and NFCs — unless the app user populations in the three PNs changed significantly. If they changed, a revised Cost Share Ratio would be established in the future SFD ICP IA based on the PNs revised user population calculated during SFD MOU negotiations.
Other Methods Proportional Sharing
This approach is very similar to Benefitting Assets Proportional Sharing in that it can also be applied to RDT&E ICPs IAs and PSFD/SFD ICP IAs, but the sharing methodology used may be based on one that the U.S. has agreed upon in another defense treaty or agreement.
Example: The most common example is the NATO Security Investment Program (NSIP) share ratio used fund common NATO defense investment projects. For many NATO ICP IAs, a Proportional Sharing cost sharing approach known as “Modified NSIP” is used. It is rare that all NATO member nations decide to participate in these types of ICP IAs. Accordingly, Modified NSIP cost sharing is calculated for such ICP IAs by subtracting the NATO member NSIP percentage shares for nations that are not participating, then proportionally redistributing them among the NATO member nations that have decided to participate.
Key Insights: The math needed to accomplish Modified NSIP calculations is both variable and complex, so I haven't provided a quantitative example of this type of cost sharing. Other than this aspect, however, ICP IAs based on this cost sharing principle are structured using the same approach described in the Benefitting Assets Proportional Sharing example above.
PMOs typically work with their DoD IPOs to prepare for Exploratory/Technical Discussions (ExDs) with prospective PN(s). The primary focus of ExDs is the discussion and initial definition of a proposed ICP's objectives, scope, estimated cost, and duration among the prospective PNs. Proposed cost sharing approaches are typically discussed with the PN(s) during ExDs, but should not be formally negotiated by the PMO or IPO representatives since DoD higher level authorities in OUSD/A&S/IBP/IC or the DoD Component IPO have not approved a Request for Authority to Develop (RAD) authorizing DoD participation in formal ICP IA negotiations as defined in DoDI 5530.03.
It's worthwhile noting at this point that it's much easier to conduct ExDs and discuss key topics on a bilateral than a multilateral basis. As general rule, reaching a mutual understanding of the areas of proposed convergence and divergence during ExDs with PN counterparts on a bilateral ICP is relatively simple. For multilateral ICP initiatives, the greater the number of PNs that are involved, the more difficult it becomes to achieve all of their expectations. Experience has shown that the challenge of harmonizing PNs' desires tends to increase exponentially as the number of prospective PNs increases. That is why ExDs on proposed multilateral ICPs often start with several prospective PNs represented, but end with a much smaller number willing to move forward into formal ICP IA negotiations.
Step 2: "Confirming" Equitability
DoD ICP Proponents use ExD results to assess whether or not they are ready to begin development of a RAD package. RAD approval occurs during Step 2 after a comprehensive review of the proposed ICP IA, including its equitability approach, has been completed. The RAD package submitted to DoD higher authorities by PMOs and IPOs for review and approval must contain a Summary Statement of Intent (SSOI) and draft ICP IA that, among other things, contains a proposed equitability approach based on the FMR guidance in Volume 12, Chapter 9, paragraph 5.5 "Determination of Program Equitableness." Accordingly, the PMO and IPO must be ready to present a clear and compelling case in their RAD that the proposed ICP IA they want to negotiate with one or more PNs is equitable. Failure to do so will result in a RAD that is either 'Returned without Action' or disapproved until the issues associated with equitability are resolved.
The simplest and most compelling RAD equitability approach is Number of Participants Equal Sharing. In certain circumstances, Estimated Unit Production or Benefitting Assets Proportional Sharing is also an acceptable equitability approach. Other Methods Proportional Sharing tends to be the most challenging equitability approach, and may be difficult to justify at higher levels unless a precedent exists in a previously approved and signed ICP IA.
It's not surprising then that most PMOs and IPOs propose either Equal Sharing or Unit Production or Benefitting Assets Proportional Sharing in their RAD SSOIs and draft ICP IAs to obtain DoD higher authority approval to begin ICP IA negotiations. Hopefully the PMOs and IPOs submitting RADs based on these two equitability approaches established reasonable cost sharing expectations with their PN counterparts during ExDs. If so, ICP IA negotiations should go well, at least in the equitability area. If not, ICP IA negotiations may reach an impasse that could be difficult, if not impossible, to resolve either during ICP IA negotiations or DoD higher authority's Request for Final Approval (RFA) review.
The equitability of many proposed ICP IAs is often clear to both DoD and partner nation higher level evaluators … or as our UK colleagues would call them “scrutineers.” However, this is not always the case. Reasonable people in various DoD organizations may have divergent views on an ICP IA’s equitability which must be assessed and reconciled during Step 2's RAD review, ICP IA negotiation, or RFA review phases.
My next blog on this topic will explore how DoD Component PMOs and IPOs organize and conduct Exploratory Discussions with prospective Partner Nations during Step 1 to evaluate and document a proposed ICP's overall benefits, feasibility, and equitability prior to preparing a RAD package.
Until next time,