Military bases are a great place to marshal cost savings through outsourcing. Outsourcing is a natural process for the military because each service must prove to Congress it is getting the best service at the best price, says Rob Payton, a former president and CEO of Serco North America, a defense outsourcing supplier in New Jersey.
Due to the size and complexity of the outsourcing contracts, the savings can be in the multi-million dollar range. Payton says the multi-year contract at Goose Bay, a NATO low level flying facility in Canada, yielded more than $100 million in savings by converting to a private contractor over government military and civil servants.
Payton says outsourcing non-core military duties to private contractors in a competitive procurement can generate up to 40 percent savings to the government. Private contractors can be more productive because they have no military duties and are therefore free to give 100 percent of their attention to the task at hand. Since the airplane mechanic does not have to go to formation or participate in maneuvers, he has more time to repair the aircraft.
In addition, private industry uses cutting edge management tools and techniques to optimize labor savings.
The military, as well as federal and state governments, are storming their budgets to rescue every dollar. With the U.S. Defense budget at a 13 year low, Payton says every dollar the military saves for every service becomes important to the overall budget. In competitive outsourcing, if a lower price for the same service is not achievable, the military expects a high level of service performance for the same price.
Running A City
A facilities management contract for the military is like “running a city,” Payton says. For example, at one time his former company he was responsible for the maintenance and the operation of the Diego Garcia Naval Base in the Indian Ocean. The facilities management contract there covered everything from maintaining the grounds to repairing ships. Fueling airplanes and upgrading computers were on the list, too.
Determining how to bid these contracts used to be tricky. The military base would hand bidders a list of equipment. A government staffer would write the desired duties and services to be provided, usually with run-on sentences that were difficult to understand. It was not unusual for as many as 50 people to be involved over a three year period to develop a specification, conduct the competition and award a contract for a military base.
Government contracts have been using service level agreements (SLAs) for years. But Payton says they’ve always had difficulty in determining the correct level of service they needed. Moreover, officers and civil servants who were responsible for the activity typically wrote the SLAs. Payton says they knew their jobs, but had a difficult time articulating what they wanted. “This situation led to a Request for Proposal that made it nearly impossible for the bidder to guess at the SLAs they wanted,” says Payton.
Easier Tabulations With Tabular Format
Today, many defense outsourcers use procurement cycle management software called Tabular Format (TF!) from Acquisition Services Consulting Group. The name of the software describes how the specifications are horizontally arranged on the page. The philosophy behind this approach is that the entire procurement cycle process should be based on the buyer’s original technical specifications. The program concisely delineates each requirement and SLA. Because the specifications are so clear, Payton says disputes about performance have been reduced considerably.
Payton says a military specification department has been able to develop superior technical requirements in as little as three months using Tabular Format.
Once developed, the specifications move through the procurement process. Bidders respond to the individual line items and complete the TF! Bidding software, which links resource, cost and pricing data. This ensures consistency in the preparation of the technical and price proposals. Buyers perform bid evaluations and score the line item and resource responses in the TF! software.
Simultaneously, the buyer’s commercial analysts review the linked cost/price information. This allows them to make a best value selection.
Once the buyer selects a supplier, the buyer uses the software for performance monitoring, financial management and amendment negotiation. The program allows the buyer and the supplier to work together, further reducing misinterpretation and dispute.
The program always users to figure out operational and preventative maintenance savings on a long-term basis. Before Tabular Format, the maintenance charge for each year remained the same. Now users can use an efficiency curve to calculate a more accurate price for actually performing the services and maintaining the equipment since the specifications are cleared stated in TF!. The program allows Payton to prepare more competitive bids using these lower costs.
Lessons from the Outsourcing Primer:
- Outsourcing can save the military up to 40 percent because of civilian efficiency.
- Tabular Format, a computer program, has made bidding and post-award management easier. It has also prevented disputes because SLAs are more accurate.
- Tabular Format can reduce acquisition time form 18 to 36 months to 12 months or less.
- Outsourcers and suppliers can work together using Tabular Format, which fosters greater understanding and cooperation.