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Frequently Asked Questions
Note: While the answers to these PBL frequently asked questions (FAQ) represent potentially useful reference material, they are provided for informational purposes only and do not replace, supersede, or take precedence over any statutory or FAR/DFARS requirements, or DoD/Service policy, instructions, regulations, and/or guidance.
BUSINESS CASE ANALYSIS
1. Question: What is a Product Support BCA?
Answer: A BCA is a structured methodology and document that aids decision making by identifying and comparing alternatives by examining the mission and business impacts (both financial and non-financial), risks, and sensitivities. decision support tool that compares alternative product support strategies. It is also an expanded cost/benefit analysis with the intent of determining a best value solution for product support. The BCA assesses each alternative and weighs total cost against total benefits to arrive at the optimum solution. The BCA process goes beyond cost/benefit or traditional economic analyses by documenting how each alternative fulfills the strategic objectives of the program; how it complies with product support performance measures; and the resulting impact on stakeholders. A BCA is a tailored process driven by the dynamics of the pending investment (PBL) decision. The BCA identifies which alternative support options provide optimum mission performance given cost and other constraints, including qualitative or subjective factors.
2. Question: Why are Product Support BCAs important and when are they required?
Answer: BCAs assist the Program Manager (PM) and Product Support Manager (PSM) in developing affordable and effective product support (sustainment) strategies. Per Public Law 111-84, Section 805 (FY 10 NDAA) and subsequently incorporated into 10 USC 2337 (renumbered in 2022 to 10 USC 4324), covered system product support strategies (PSS) must be supported by a BCA and revalidated prior to changes in the PSS or every five years, whichever occurs first.
3. Question: How much time do Product Support BCAs generally take to prepare/complete?
Answer: It depends on the scope (including aspects such as which platform/subsystem(s)/component(s) and which IPS elements are evaluated) as well as the complexity of the COAs (PBL, transactional, or mix; and organic, industry, or mix). It is not uncommon for BCAs to take 6, 12, or even 18 months.
4. Question: Who is responsible for the development of the Product Support BCA?
Answer: The PM and PSM are responsible and accountable for the development of product support BCAs. In addition, supporting commands may conduct BCAs to justify award of a PBL contract, e.g. Naval Supply Systems Command (NAVSUP) accomplishment of a "contract BCA" to support award of a PBL contract covering a specific market basket, scope of work, and period of performance.
5. Question: Where can I find additional information about Product Support BCAs?
Answer: Extensive references and training are available, including but not limited to:
- DoDI 5000.91, Product Support Management for the Adaptive Acquisition Framework
- DoD Product Support Business Case Analysis (BCA) Guidebook
- DoD Product Support Manager (PSM) Guidebook
- Product Support Business Case Analysis (BCA) ACQuipedia Article
- LOG 0150, Product Support BCA online course
CONTRACTING STRATEGIES
1. Question: What is the optimal contract type for a PBL effort?
Answer: Generally, the optimal contract type for a PBL effort is a fixed price vehicle. As part of Better Buying Power (BBP) 3.0, USD(AT&L) stated the desired PBL pricing approach is a fixed price model: “When robust competition already exists, or there is recent competitive pricing history ... components [should be] predisposed toward Firm-Fixed-Price (FFP) type contract arrangements. FFP should also be used to the maximum extent reasonable when ongoing competition is utilized in multiple award contract scenarios.” However, cost type contracts are appropriate in certain situations.
2. Question: If PBL program pricing history is not available, then what contract type is recommended?
Answer: It is usually necessary to begin with cost reimbursement (or cost plus) contracts in the early phases of PBL implementation while the appropriate cost and resource baselines are maturing. It is rare that a program matures to the point where all elements appropriate for cost plus elements are eliminated, and it is risky to implement fixed price agreements without first understanding the baseline performance and cost of the existing business model. Greater maturity allows the program to develop realistic cost and performance profiles. This maturity leads to program stability as cost uncertainty is driven down. As a result, programs can then transition to a PBL pricing model with more of a fixed price emphasis.
3. Question: What are appropriate PBL incentives?
Answer: All PBLs implicitly use incentives. Best practice PBL programs use incentive strategies that are tightly aligned across industry and government, promoting behaviors and outcomes that benefit both the customer and supplier. The incentives should include an explicit reflection of factors like program maturity, scope of agreement, complexity of the system, context of use, etc.
A PBL agreement can leverage various types of incentives. Contracts can be incentivized based on award fees (cash payments/bonuses) or extended contract terms. Award term extensions of the contract whereby the contract will be extended if desired outcomes are being achieved. Cost-cutting targets are inherent if a fixed price model is used; the more the supplier cuts costs the more margin they make; contract price adjustments are made at pre-defined timeframes to review costs and re-price the work. However, not all PBL programs are fixed price and as such, any cost plus type contract should include some form of cost savings incentive.
It is important to keep in mind that the government has wide discretion in assembling and blending contract types and incentive types, tailored to fit the circumstances of the program. There is no one-size fits-all, universally applicable contract and incentive template.
4. Question: What is the optimal PBL contract length?
Answer: Longer-term contracts encourage long-term investments to improve product or process efficiencies—a key desired outcome of a PBL – but there is no real guidance or “right answer” for the appropriate length of a contract. The general rule of thumb is that the contract length should be commensurate with the payback period for the supplier’s investments. There have been some successful PBL contracts of up to 10 years for the US government and up to 20 years with foreign governments – although this period of performance is more the exception than the rule.
The government gives guidance on this in 10 USC 2304, which reads that contract length may be “any period up to five years and may extend the contract period for one or more successive periods pursuant to an option provided in the contract or a modification of the contract. The total contract period as extended may not exceed 10 years unless such head of an agency determines in writing that exceptional circumstances necessitate a longer contract period.”
DoD guidance recognizes that effective PBL contracts include multi-year contracts (i.e., 3 to 5 years with additional option or award term years), with high confidence level for exercising options/award term years. They also typically feature provisions to recognize supplier investment and opportunities to recoup investments.
Longer-term contracts are more conducive to effective PBL implementation because of simple economics. Up-front investment drives performance improvement and the annual “payback” for a PBL investment - as reflected in financial returns in the “out years” - is what justifies the up-front investment. Therefore, longer planning horizons justify higher up-front investments because of the higher total return opportunity for both the provider in terms of “paybacks” and the government in terms of improved performance and/or cost savings. One year contracts do not encourage support provider investment, and therefore are less effective in generating performance or cost improvements.
5. Question: What is the difference between multi-year and multiple year contracts?
Answer: The primary characteristics of each type are:
Multi-Year:
- Buys more than one year’s requirement without having to exercise options
- Beyond one-year investments can be recovered if contract terminated
Multiple Year:
- Contract written for multiple years
- Only first year is ‘guaranteed’
- No recovery of investments if contract terminated
It is also important to note that the PM generally does not have the authority to implement multi-year contracts, but exceptions do exist. Working capital fund authorities can be used for multi-year contracts, for example.
6. Question: What is the optimal contracting approach?
Answer: There are two major types of methodologies to implement PBL contracts: the supply or service contracting approach. Both types have been used successfully.
PBL Contracts as Supply Contracts – Supplies are broadly defined by FAR Part 2 to mean all property except land or interest in land. It includes (but is not limited to) public works, buildings, and facilities; ships, floating equipment, and vessels of every character, type, and description, together with parts and accessories; aircraft and aircraft parts, accessories, and equipment; machine tools; and the alteration or installation of any of the foregoing.
The supply contracting PBL approach has been used extensively, particularly by the Navy and the Naval Supply Systems Command (NAVSUP). The PBL contract does not procure work in terms of an amount of effort, and the contractor is not paid based upon performance of any number of labor hours or labor years in the contract. The PBL contract requires delivery of end items of supply and measures the performance of the end item delivered to the Fleet.
Since the PBL contract requires delivery of an end item of supply, it is within the discretion of the contractor to deliver a new spare, overhaul the item, or remanufacture the item to provide the specified availability and reliability. The Government receives a rebuilt or new end item with a new (or nearly new) life expectancy resulting from processes similar to original manufacturing.
Under the PBL contract, end items of supplies are delivered, which are measured against availability and reliability metrics. The PBL contract does not result in the Government procuring a task, but in the delivery of an end item of supply.
PBL Contract as Service Contracts – A service contract is defined by FAR Part 37 to mean a contract that directly engages the time and effort of a contractor whose primary purpose is to perform an identifiable task rather than to furnish an end item of supply. A service contract may be either a non-personal or personal service contract. It can also cover services performed by either professional or nonprofessional personnel whether on an individual or organizational basis.
As listed on the Defense Pricing, Contracting, and Acquisition Policy webpage, service contracts can include the following:
- Equipment-related services
- Knowledge-based services
- Facility-related services
- Electronic and Communications services
- Transportation services
- Research and development
- Logistics Management Services
- Construction Services
- Medical Services
It should be noted that the Department of Labor (DOL) Field Operations Handbook provide the basis for distinguishing between supply and service contracts based on the nature of the repair- i.e. when remanufacturing or overhaul is involved. The Walsh-Healey Public Contract Act generally applies to the remanufacturing and furnishing of supplies.
Contracting agencies are required to initially determine whether the work to be performed under a proposed contract would principally involve remanufacturing work or service work based on the above guidelines and incorporate the appropriate Walsh-Healey or SCA labor standards clauses into the contract prior to issuing a solicitation.
7. Question: Where can I find training and more information on PBL contracting?
Answer:
- LOG 0310, PBL Contracting Strategies
- PBL Contracting Strategies ACQuipedia article
- PBL Contract Length ACQuipedia article
- DoD PBL Guidebook
FUNDING STRATEGIES
1. Question: How can I execute a long-term PBL contract when there is so much budget uncertainty?
Answer: One of the biggest challenges to PBL is funding stability and budget instability. Contract provisions should reflect fact-of-life funding variability and provide both the customer and supplier adequate adjustment mechanisms to mitigate risk to accommodate funding variability. While PBL programs can be optimized when funding is stable, it is important to accept budget realities. In today’s austere budget environment, there is no such thing as certainty in appropriated funds. Therefore, all parties to a PBL agreement should work to identify and codify a “funding baseline” or “floor,” i.e, the minimum funding level that will allow the program to endure, with flexible structures above the baseline given requisite funds availability.
2. Question: I keep hearing about “colors of money.” What does this term mean?
Answer: “Colors of money” refers to different types of funding appropriations. A thorough overview of the types of appropriations can be found in the DAU ACQuipedia article entitled Types of Funds. A summary of the primary categories are as follows, along with their overall scope and statutory time limits:
- Research, Development, Test, and Evaluation (RDT&E) – Covers RDT&E activities and expenses. Policy allows incremental funding, and the funds are available for two years.
- Procurement – For procurement of end items greater than or equal to $250K per unit, all centrally managed items, initial spares and labor for certain production-related functions (e.g., item assembly, quality assurance). Policy requires full funding, and the funds are available for three years.
- Operations and Maintenance (O&M) – For replenishment spares, fuel, civilian salaries, construction projects less than $4M, travel, non-centrally managed end items less than $250K per unit cost. Policy requires annual funding, and the funds are available for one year.
- Military Personnel (MILPER) – For Military Personnel expenses. Policy requires annual funding, and the funds are available for one year.
- Military Construction (MILCON) – Covers construction projects greater than or equal to $4M. Policy requires full funding, and the funds are available for five years.
Another type of fund is the Working Capital Fund (WCF), which is a non-expiring, revolving fund that allows for contracts with multiple year performance periods. Congressional multi-year contract authority is not required for these contracts, greatly simplifying contract execution. Funding is applied to long term contracts in annual increments, reducing the amount of funding that must be obligated at any given time.
3. Question: How do “colors of funding” affect PBL contacts?
Answer: As described in the response above, current funding requirements stipulate that specific appropriation types be used at various points in the life cycle, that these appropriation types be used to address discrete types of products or support, and that these funds be used within statutory time limits. In order for PBL to be effective, many of these different colors of money may be needed to procure, support and sustain DoD weapons systems and equipment over the life cycle.
Time and scope restrictions on various appropriations are a challenge to manage, and often result in less than optimal PBL contracting structures. During System Acquisition, PBL may be funded with Procurement and, depending on scope of support, RDT&E funds. After fielding, O&M funds are the predominant source of funding for system sustainment, although multiple ‘lines of accounting’ may be required to address the disparate sustainment functions, e.g., depot maintenance, spares, software and personnel. The use of multiple funding types and lines of accounting restricts flexibility in PBL execution activities, and complicates tracking and baselining of sustainment costs.
In order to capitalize on the flexibility inherent in WCF, there has been an increased use of revolving funds to enable PBL strategies. It facilitates award of long-term PBL contracts, which allow industry to make investments not possible in a traditional support environment. The Navy has been very successful in utilizing the Navy Working Capital Fund (NWCF) to implement PBL. Their success with NWCF allows for direct interface with the Integrated Supply System and use of existing supply system infrastructure. Use of the Integrated Supply System has guaranteed transparency to Fleet users…as identical systems and procedures are employed by Fleet customers under PBL.
Per numerous studies and real world examples, funding through the WCF can be a significant financial enabler of the PBL strategy though the use of revolving funds.
METRICS AND INCENTIVES
1. Question: What do we mean when we say “PBL is all about Performance”?
Answer: Performance considerations permeate all aspects of PBLs:
- When obtaining Performance, need to specify what is needed - Performance Outcomes
- Outcomes must be clearly defined and measurable - Performance Measures
- Support Providers must be motivated to achieve outcomes - Performance Incentives
2. Question: What are the key considerations of performance measurement?
Answer:
- Translating performance outcomes specified by warfighter into Performance Metrics (with measurable unit & timeframe) is a critical process in effective PBL arrangements
- Product Support Integrators must be motivated to achieve performance outcomes through well-crafted Performance Incentives
- Refer to the following ACQuipedia articles for more information:
- And consult the DoD PBL Guidebook
3. Question: I’ve heard of something called "SMART" metrics. What are they?
Answer: SMART is an acronym that recommends metrics be:
- Specific: The metric should be clear in what it is measuring. It should be specific and targeted to the area you are measuring.
- Measurable: Enables collection of data that is accurate and complete. Some metrics are not easily measurable, due to the lack of accurate or timely information or to disagreement about how to measure data.
- Actionable: Metric should be easy to understand and be clear that there must be some action you should be able to take to influence performance.
- Relevant: Focus on important areas with leverage associated with them.
- Timely (or Time-bound): Information must be available in a time frame that enables action.
4. Question: What constitutes a good performance metric?
Answer: Qualities of effective performance metrics include:
- Linked to system level objectives
- Appropriate to scope and responsibility of the product support integrator/provider
- Reflect processes the PBL provider has control of
- Specify unit(s) of measure
- Specify acceptable range(s) or threshold
- Motivate desired long-term behavior
- Well-understood and accepted
- Easy to collect data and verify
- Readily assessed
- Provide timely feedback
5. Question: What are good examples of potential measurement units for performance metrics?
Answer: See the DoD PBL Guidebook Appendix F for a comprehensive list. Types of units include:
- Time: Delivery time, schedule adherence, cost per unit of operating time
- Accuracy Rates: Most often stated in %
- Error Rates: Number of mistakes/errors allowed in meeting performance standard
- Milestones: % complete by target date
- Cost: Hourly, annual, life-cycle
6. Question: Is it appropriate to use performance thresholds?
Answer: Yes! For example:
- Measurement during a period
- Time (delivery within 36 hours in CONUS)
- Number (maximum of 4 days late from depot)
- Percentage (5% not mission capable supply)
- Improvement over multiple periods
- Product (improve quality by 3% each quarter)
- Process (increase efficiency 10% during 12 months)
- Cost (reduce support cost from previous fiscal year)
7. Question: How do I select performance metrics? Or what constitutes a good performance metric?
Answer: Considerations include:
- Link metrics to top risks and problem areas
- Multiple metrics can reinforce desired behavior or create undesirable conflicts
- Avoid too many metrics and over-measurement
- Metrics only as accurate as the underlying data
- Metrics should be incentivized
8. Question: Aren’t there required DoD product support metrics?
Answer: Metrics should support the performance outcomes of the PBL arrangement. Recommend reviewing Appendix F of the DoD PBL Guidebook, paragraph 3.3 of the DoD Product Support Manager (PSM) Guidebook, and the Life Cycle Sustainment Outcome Metrics ACQuipedia article.
9. Question: Can these top-level life cycle sustainment outcome metrics be put on contract or should we use tailored lower-tier metrics?
Answer: Either or both. “One of the most critical elements of a PBL strategy is the tailoring of metrics to the operational role of the system and ensuring synchronization of the metrics with the scope of responsibility of the support provider.”
10. Question: What about incentivizing performance? What should I consider when selecting performance incentives?
Answer: These include but are not limited to:
- Make sure incentives are built upon performance objectives and standards and ensure that they are realistic, measurable, and attainable
- Incentives should be consistent with the effort and contract value
- Incentives must be carefully structured to consider overall impact and to avoid any unintended consequences while providing value for achieving mission
- Be careful what you ask for, you will likely get it (and may not be able to afford it – or may not have really needed or wanted it!)
11. Question: What kinds of incentives are available?
Answer: See also the contracting strategies section of these FAQs. However, award fee, incentive fee, award term, shared savings/gain sharing, exercising option years are all examples of the kinds of incentivizes available.
12. Question: What are some courses of action if my PSI or PSP does not meet my performance requirements?
Answer: Consult with your Contracting Officer and Program Manager. Remedies may potentially include but are not limited to:
- Requiring provider to perform the services at no additional cost until the performance metrics are met
- Not exercising the award term agreement extension or contract termination if performance goals fail to be attained
- Reducing or eliminating award/incentive fee
13. Question: What else should I consider when incentivizing performance?
Answer: Other considerations include:
- PBL arrangements should strive to include metrics that support OSD’s "Top Level Life Cycle Sustainment Outcome Metrics"
- Realize that it may not always be feasible for Availability to be a performance metric: the integrator or provider may not control all contributing logistics support elements
- Critical elements of a PBL strategy include the tailoring of metrics and ensuring synchronization with the support provider scope of responsibility
- A good metric is imposed on the organization that controls the process producing the metric and is accepted as meaningful by the customer
- A Performance Assessment Plan that provides appropriate level of monitoring and management is vital to achieving the desired performance
14. Question: How do warranties from industry differ from a PBL arrangement?
Answer: Warranties and PBL arrangements are not synonymous. Generally, for a PBL, the government is buying performance based on a standard of use such as flight hours, operating hours, or cycles. If the government is paying a fixed price per operating hour, a warranty isn’t needed. The contract is self-governing since the contractor is on the hook for any failures. In fact they have a built-in incentive to reduce failures. Outside of a PBL, If the government is buying non-commercial items of supply or a repair process performed to a set specification, there is no need for an express warranty since it is required that the contractor perform to specification.
