Acquisition and Competition Strategy for the DD: The U.S. Navy's 21st Century Destroyer
176
Acquisition and Competition Strategy for the DD: The U.S. Navy's 21st Century Destroyer
176Paperback
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Product Details
| ISBN-13: | 9780833038708 |
|---|---|
| Publisher: | RAND Corporation |
| Publication date: | 01/15/2006 |
| Pages: | 176 |
| Product dimensions: | 6.68(w) x 8.88(h) x 0.45(d) |
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Acquisition and Competition Strategy Options for the DD(X)
By John F. Schank Giles K. Smith John Birkler Brien Alkire Michael Boito Gordon Lee Raj Raman John Ablard
Rand Corporation
Copyright © 2006 RAND CorporationAll right reserved.
Chapter One
Introduction
In 1994, the U.S. Navy initiated a program to develop a new family of ships to transform its surface combatant fleet. That program, originally designated the SC 21 program to signify the surface combatants for the twenty-first century, was conceived as including a new destroyer (DD 21 class) and a new cruiser (CG 21 class). The initial focus of the program was to be on developing and procuring the destroyer version, to be followed later by the cruiser version.
Early Navy documents stated that the DD 21 system would provide an advanced level of land attack in support of the ground campaign and contribute to naval, joint, and combined battlespace dominance in littoral operations. The ships would possess the operational flexibility to meet the multimission forward presence and war-fighting requirements of the littoral environment and employ self-defense against the threats anticipated for the twenty-first century. The ships would also be capable of taking advantage of, and maintaining the benefits of, the military revolution stimulated by the rapid advances in information and information-related technologies and exploit them through automation and system architectures capable of disseminating information to widely dispersed and dissimilar units to achievean overall dominant maneuver concept of operations, as outlined in Joint Vision 2010 and concepts for future joint operations.
The Navy's surface combatant fleet currently consists of four classes-a cruiser class (CG 47), a guided-missile frigate class (FFG 8), and two destroyer classes (DDG 51 and DDG 963)-only one of which (the DDG 51) is still in production. By the end of the present decade, two of the older designs will have been largely retired, and the DDG 51 class will no longer be in production. Thus, the proposed new family of ships will fill important roles of modernizing and transforming the fleet while providing an active production base.
Total production quantities for the new destroyer cannot be predicted with confidence, but the acquisition plan in place at the time we conducted and documented this research suggested about two dozen ships to be delivered between about 2011 and 2022. The contribution of the new class to the surface warfare force over the next couple of decades is depicted in Figure 1.1. Note that this figure does not reflect the 2005 changes to the program that we discuss in Chapter Six.
As reflected in the early planning documents, the SC 21 program was to follow a conventional acquisition process as outlined in the DoD 5000 series of acquisition policy directives. Those plans called for competitive development of design concepts, followed by a source selection for final system development and production, with the winner announced in 2001.
Since the initial formulation in 1994, the program has evolved, reflecting a number of uncertainties, difficulties, and opportunities:
a rapidly changing threat, and the corresponding desire to incorporate a wide range of new combat capabilities, many of them requiring untested operational employment strategies;
new technologies offering opportunities for new operational capabilities but also posing new risks; and
continuing budget pressure and competition from other Navy shipbuilding needs, as well as other Navy needs, such as aircraft procurement, readiness, and personnel funding.
These forces led to several revisions in the original acquisition plan, with detail design and lead ship construction expected to be authorized in the first half of CY 2005. Those revisions, summarized below, also introduced some new issues and options for subsequent phases of the program. In July 2003, the program manager asked RAND to examine some of those issues, including the best use of competition, the effects of different strategies for sustaining the shipbuilding industry, and the use of alternative contracting methods for future program activities. Results of the RAND analysis were provided to the Navy during the period from mid-October 2003 to early January 2004. This report describes the issues that RAND addressed, how the analysis was conducted, and the research results.
Program Overview
In January 1998, Jacques Gansler, then Under Secretary of Defense for Acquisition and Technology, issued an Acquisition Decision Memorandum signifying completion of Milestone I for the SC 21 program and authorizing the start of program definition and risk reduction for the DD 21 portion of the program. As described in Navy documents, the program would consist of five phases:
Phase I: development of the DD 21 system concept designs;
Phase II: development of initial system designs and smart product models;
Phase III: completion of system and subsystem design;
Phase IV: detailed design and construction of the lead ship and subsequent serial production of the remaining ships;
Phase V: initial engineering and logistics life-cycle support.
It was anticipated that as many as three firms might compete during Phase I. If necessary, a down-select at the end of Phase I would leave two firms competing during Phase II. Another down-select would then award subsequent phases to a single firm. However, that final down-select would not result in a winner-take-all award. The winner would be selected on the basis of a design rivalry, and that winner would become the lead design agent but would not have exclusive right to produce the ship. Only two shipyards, Bath Iron Works (BIW) and Ingalls Shipbuilding Inc., had a demonstrated ability to produce such ships, based on the then-current DDG 51 program. The Navy wished to ensure that both shipyards would participate in the DD 21 production program in order to provide cost competition throughout the production phase and be available for competitive sourcing in future programs.
The organization of the DD 21 program was further influenced by a second factor. The combat system, consisting of electronics, communications, fire control, and ordnance, would be substantially more complex and costly than in previous systems, and the integration of those elements with the ship's hull and mechanical and electrical elements would pose new challenges in integration management. In the then-current DDG 51 system, the Aegis combat system was procured separately by the Navy and provided to the shipbuilders as government-furnished equipment (GFE). For the DD 21 system, the Navy wanted industry to be responsible for the entire system-integration task. Neither shipyard was prepared to perform such a task, so it seemed necessary to create a contractual and business relationship that would combine several firms that together would possess the requisite technical and management capabilities.
A draft request for proposal (RFP) for Phase I of the DD 21 program was released to industry for comment and questions in November 1997, but informal discussions indicated that only one bid would be received, from a team consisting of both shipyards and a systems integrator. Such an arrangement would preclude any opportunity for competition between suppliers. After exploring alternatives, the Navy elected to "designate [BIW and Ingalls] as the two DD 21 shipbuilders that would form an alliance for the purpose of establishing two separate teams to competitively develop two robust DD 21 design concepts. Ultimately, the designated shipbuilders will competitively produce the DD 21 ships."
Two industry teams responded, each consisting of a ship builder and a warfare system developer/integrator. One, called the Gold Team, consisted of Ingalls Shipbuilding Inc. (now NGSS Ingalls Operations) and Raytheon Systems Co., while the other, called the Blue Team, consisted of Bath Iron Works Corp. (BIW) and Lockheed Martin Corp. Those two teams competed throughout Phases I and II. Both phases were conducted under "Other Transaction Authority" (Smith, Drezner, and Lachow, 2002).
The original plan was for Phase II to end in spring 2001, followed by down-select to a single full-service contractor who would complete the system design and construct the lead ship. However, in May 2001 the source selection was held in abeyance pending results of several major studies and reviews of military force structure then being conducted within the Department of Defense. During the intervening period, the two industry teams were instructed to continue design efforts.
In November 2001 the program was restructured and redesignated DD(X). The revised Single Acquisition Management Plan (SAMP) issued in November 2001 describes the change (DD[X] Land Attack Destroyer Single Acquisition Management Plan, Revision D, November 27, 2001, Section 4):
At the completion of Phase II, the plan was to down-select a DD 21 Full Service Contractor to complete the system design as a Single Step to Full Capability approach, construct the first four DD 21 ships (two shipbuilders), and establish the basis of industry's responsibilities for Life Cycle Engineering and Support to the DD 21 class. A Request for Proposals was released in September 2000, with down-select originally planned for Spring 2001 and subsequently extended to June 2001. The DD 21 Source Selection was held in abeyance on 1 May 2001 by the Under Secretary of the Navy pending results of the [Quadrennial Defense Review], OSD Shipbuilding Study and DPG reviews.
[The Under Secretary of Defense for Acquisition, Technology, and Logistics] approved restructuring the DD 21 Program and revising the acquisition strategy on 13 November 2001. The DD 21 Program was redesigned as DD(X), and the program focus was shifted to technology development and maturation, including robust land-based and at-sea testing of transformational technologies that could be leveraged across multiple ship classes. In conjunction with the DD(X) Phase III technology development contract, the Navy will conduct a spiral design review that permits early Milestone B activities to revalidate [operational requirements document] requirements. The spiral design review will also assess the merits of achieving various levels of capability across a family of multi-mission ships, including a future cruiser, CG(X), and a Littoral Combat Ship (LCS).
The revised acquisition plan also specified that Phase III would include development and testing of ten Engineering Development Models (EDMs) outlined in Table 1.1. These EDMs involve technologies that will be used throughout the ship, as shown in Figure 1.2. Some of the EDMs were included in the Phase II designs, including an advanced gun and reduced manning. However, the system concept outlined in the above statement reflected a much more aggressive effort to incorporate new and innovative technologies into the DD(X) design, making it more responsive to emerging threats and technological opportunities. Thus the intent of Phase III was expanded to incorporate both development and demonstration of advanced concepts, some of which might be used in other new ships, such as the CG(X) and the LCS.
A new RFP for Phase III was issued to the two teams that had been competing during Phases I and II. That solicitation called only for technology development and maturation and did not include options for subsequent ship construction, which was expected to be competitively awarded in the FY 2005 time period.
In April 2002, the Ingalls-Raytheon Gold Team was selected as winner of the competition for Phase III and awarded a three-year contract with a value of approximately $2.9 billion.
At the end of Phase III, it is envisioned that one or more new contracts will be issued for Phase IV that will include detail design of the ship and associated warfare system, production of the lead ship, and production of the second ship at the alternative shipyard. The key events of the resulting program are outlined in Figure 1.3.
Thus, after ten years of planning, design studies, and technology development, the program is approaching a key decision point in the DoD acquisition process: Milestone B, authorizing start of system development and demonstration, which will include detail design of the ship and warfare system and construction and test of the lead ship. At the time we conducted this study, Milestone B review was scheduled for spring 2005. In most major system acquisition programs, the transition across Milestone B involves the final source selection of a single prime contractor that is then authorized to perform the remainder of the development and production process. However, the unusual evolution of the DD(X) program, and the special constraints and objectives posed for the next phase, present a complex set of options for managing the remainder of the program. Therefore, the design of an overall acquisition strategy for Phase IV demands careful scrutiny.
Issues for Phase IV
Two aspects of the DD(X) program pose special challenges for the organization and management of Phase IV. One stems from the goal of achieving sustained competition throughout a production phase when there are only two qualified producers and the buyer is publicly committed to keeping both producers in business. The situation becomes especially troublesome when the DD(X) program is expected to constitute the vast majority of the production business at one or both suppliers. That situation existed throughout the DDG 51 program and is expected to exist throughout the DD(X) program.
The second challenging aspect of the program is to devise a contractual and business relationship that will satisfy two goals: to shift overall system integration management to industry while retaining some capability to achieve competition between shipbuilders and to establish and maintain a substantial degree of synergy and cooperation among the shipyards, the combat system supplier, and the system integrator throughout the detail design and construction of the DD(X) system. How the enabling contractual and business arrangements should be made with the firms is far from obvious.
Research Strategy
The strategy used to examine these two issues was to first decompose the initial issue into two elements: how to achieve competition among suppliers and how to ensure that each shipyard remains a viable business enterprise, but at the lowest cost to the Navy. Each goal was individually examined, while recognizing and accounting for the inherent tensions between the two goals. Building on the results of those two investigations, the third issue of contractual and business arrangements was then examined. That led to the following three research tasks: examining the appropriate use of competition throughout Phase IV, evaluating ways to sustain the industrial base, and exploring contracting strategies for Phase IV.
Examining the Appropriate Use of Competition Throughout Phase IV
In the original design of the DD 21 program, it was envisioned that at the end of Phase II a source selection would be made and the winner would be awarded a contract for further development and production of the system. That plan included a provision that ship construction would be distributed to both shipyards, without specifying how such distribution was to be managed. This was the same practice the Navy had followed in construction of the DDG 51 ships, which had been divided between the same two shipyards, sometimes on the basis of cost competition and sometimes through allocation and other unique contract provisions. A study was made of the DDG 51 acquisition history (reported in Appendix A). Results from that experience were combined with results of numerous other competitive acquisitions and prior surveys of competitive acquisition of weapon systems and components. That body of information provided a basis for estimating the balance of costs and benefits for each of several different ways that competition might be employed in the DD(X) Phase IV circumstances and objectives. Results are described in Chapter Two.
(Continues...)
Excerpted from Acquisition and Competition Strategy Options for the DD(X) by John F. Schank Giles K. Smith John Birkler Brien Alkire Michael Boito Gordon Lee Raj Raman John Ablard Copyright © 2006 by RAND Corporation. Excerpted by permission.
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