Solving the Obsolete Spare Parts Problem with Other Transactions

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    The problem: Because defense systems cost too much and take too long to field, DOD tends not to refresh or replace its systems on a timely basis. Instead legacy systems remain operational for decades; sometimes many decades. This in turn results in systems and their components remaining in service long after production has ended. When necessary spare parts are needed but out of production, serious problems can be encountered. First, is simply the time and cost involved in re-starting a production line in order to provide the parts needed to maintain the system. The mere idea of starting a production line to build obsolete parts is amazing in itself. Another problem is that as a result of turbulence in the defense industrial base since the end of the Cold War many former defense contractors are no longer in business. These defunct companies may own the intellectual property rights (e.g., patents, technical data) necessary for production.

    The solution: (1) The solution to this problem existed in the form of a highly successful program that was allowed to fade away more than a decade ago. The program was called COSSI – The Commercial Operations and Support Savings Initiative. The essential idea is to replace the obsolete component with a commercially available part that has been modified and qualified to do the same job as the obsolete part in an affordable and often superior manner. In its original form COSSI consisted of two phases with different organizations and different funding in each phase.

    The goals of COSSI were to improve readiness and reduce operations and support (O&S) costs by inserting existing commercial items or technology into military legacy systems. COSSI emphasized the rapid development of prototypes and fielding of production items based on current commercial technology. The program also implemented the goals of: (1) expand the use of commercial practices and products that will facilitate the modernization of our military forces, (2) improve the acquisition process, and (3) make near-term investments to acquire modern capabilities based upon U.S. scientific and industrial preeminence.

    COSSI funding leveraged technology developments made by commercial firms, reducing research and development (R&D) costs for the DoD. Other Transactions (OTs) were used in phase I so that participation in COSSI would be attractive to commercial firms. They would not need to adopt costly defense-specific business practices in order to participate in the program. Projects might be fully funded by the government or in some cases cost-shared with private industry.

    COSSI involved a two-stage process. In Stage I, dedicated COSSI R&D funds were used to perform the non-recurring engineering (NRE), testing, and qualification that are typically needed to adapt a commercial item/technology for use in a military system. Selected contractors develop, fabricate, and deliver a prototype “kit” to a military customer for installation into a fielded DoD system. Each prototype kit consisted of a commercial item, or a combination of commercial items, that were adapted, qualification-tested, and readied for insertion. Stage I typically lasted for months or a year or more. Stage II involved the purchase of production quantities of the prototype kits typically as FAR Part 12 commercial items.

    Between FY 1997 and 2000, 77 projects were funded through the program. COSSI contributed an investment of $234 million, and contractor spending contributed another $143 million. The projected O&S cost savings for 30 projects from FY 1997 and 1999 that transitioned or were in process of transitioning into Stage II was over $5 billion. Subsequent net present value analysis over four years established that 36 O&M dollars were saved for each R&D dollar invested.  

    Although COSSI established a record of success it also encountered a number of challenges. These includeded some organizations requiring a competition rather than award a sole source production contract after successful demonstration of the qualified “kit”. In some cases production funds that had been promised were not forthcoming. Finally when COSSI no longer had a dedicated line of centrally managed R&D funding the military departments failed to prioritize their own R&D funding to continue the program and it fell into disuse with only a remnant of its technique remaining.

    As can be seen from this brief discussion COSSI serves as a model not only for replacing obsolete, out of production components but for gaining the cost and scheduling advantages of leveraging commercial developments and investments.

    The solution: (2) Today DOD not only has the opportunity to replicate COSSI to solve a serious problem but to improve on the COSSI model. Thanks to Congress a successful OT prototype project can transition to follow on production on a commercially friendly basis. Pursuant to subsection (f) of prototype OT authority (10 U.S.C. 2371b) follow on production can take place under a modification to the prototype OT, under a production OT, or sole source FAR contract.

    The solution: (3). While an updated version of COSSI surely will help solve the problem outlined above, it is actually only part of a broader approach to solving the problem. DOD has issued a Diminishing Manufacturing Shortages and Material Shortages Guidebook that reviews the the subject in some detail. One of the issues highlighted is the Modular Open Systems Approach (MOSA) which has been DOD policy for decades but never implemented as robustly as warranted.

    The COSSI model is merely a starting position for innovation. COSSI used R&D funds in phase I but for system upgrades O&M might also be used. Phase II might be funded with either O&M or procurement funds. Industry cofunding can be encouraged using either section 2371 or 2371b OTs as the basis for non-recurring engineering and qualification of the replacement kit.

    What is needed is leadership commitment to forge new ways of doing business. New ways of doing business may include a Back to the Future approach! Government must be honest in dealing with industry and speak the language of commercial industry. The potential to solve a serious problem and save money and time in defense acquisition exists. Leadership is needed at the top. The ability to deal effectively with commercial industry is needed at the execution level. Stuck in the past deadwood bureaucrats need to get out of the way.  

 

written by Richard L. Dunn

2 Responses

  1. Is it possible to see a copy of the governance document that the commercial firms agreed too? If we were to re-apply this initiative where do you imagine this capability would reside? In R&E or A&S?

    • A useful review of COSSI can be found in the attached Naval Postgraduate School thesis. It contains a copy of the model agreement used. The COSSI solicitation told prospective proposers to include terms and conditions that differed from the model in a specific section of their proposal. We have a hard copy of a COSSI solicitation but not in electronic form.

      The original COSSI fell under R&E. However, COSSI requires close coordination of R&D effort and Systems/Buying Command customers. As with so many other aspects of innovative contracting it transcends the usual DOD either/or – swim lane/stove pipe approach.

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