Electronic Justification and Approval - M109A7 FoV Production Redacted (Final 2Feb2021).pdf

Control Number: 2020-051

DEPARTMENT OF THE ARMY

CLASS JUSTIFICATION AND APPROVAL FOR OTHER THAN FULL AND

OPEN COMPETITION

1. Contracting Activity: Army Contracting Command – Detroit Arsenal (ACC-DTA), Detroit Arsenal, Michigan 48397-5000, is the responsible contracting activity for this Class Justification.

2. Description of Action: This Class Justification and Approval (J&A) covers two major contractual efforts for the Project Manager Self Propelled Howitzer Systems (PM SPHS), both actions are sole source to BAE Systems Land & Armaments as summarized below:

a. The initial contract action will be a modification to extend the existing production Contract W56HZV-17-C-0001 for a period of three years, which includes Fixed Price Incentive (Cost Based), Firm Fixed Price (FFP), and Cost Reimbursable Contract Line Item Numbers (CLINs). The extension will be funded with Army Procurement Appropriation (APA) funds allowable during the year in which the contract actions are executed. Anticipated award date is second quarter Fiscal Year (FY) 21.

b. The second contract action will be a new five year Requirements Contract, consisting of Fixed Price Incentive (Cost Based) CLINs, with some FFP and Cost Reimbursable CLINs. Anticipated award date is second quarter FY24, utilizing the FY APA funds allowable during the ordering year in which contract actions are executed.

3. Description of Supplies/Services: Requirements to support the production of M109A7s -Self-Propelled Howitzer (SPH) and M992A3s - Carrier, Ammunition, Tracked (CAT) vehicles also includes procurement of Engineering Support in Production (ESIP) during the course of build, test, Systems Engineering Program Management (SEPM), and material to support Total Package Fielding (TPF) efforts. Production of the vehicle system addresses the Size, Weight and Power (SWaP) limitations by integrating technologies from the Bradley platform into this chassis. This systems engineering approach incorporates emerging capabilities through technology insertion and upgrades to the vehicle which will aid in long-term interoperability. The continuation of needed support (follow-on to production contract W56HZV-17-C-0001), for eight years, between the two actions is estimated at $3 billion (B) to procure and obtain the following vehicle quantities:

a. Action 1

i. Up to 127 M109A7s - SPH

ii. Up to 127 M992A3s - CAT vehicles

iii. Total Package Fielding Material - up to 9 packages

b. Action 2

i. An estimated 199 M109A7s - SPH

ii. An estimated 199 M992A3 - CAT vehicles

iii. Total Package Fielding Material – an estimated 15 packages

The Independent Government Cost Estimate (IGCE), completed in February 2020, summarized the requirements over the next eight years, reflecting an estimated total value of $3B. The cost summary is below:

4. Authority Cited: The statutory authority permitting other than full and open competition for both contract actions is 10 United States Code (U.S.C.) 2304(c)(1), as implemented by Federal Acquisition Regulation (FAR) 6.302-1, Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements.

Specifically, the use of this authority for other than full and open competition is supported by FAR 6.302-1(a)(2)(ii)(A), which provides that supplies may be deemed to be available only from the original source in the case of a follow-on contract for the continued development or production of a major system or highly specialized equipment, including major components thereof, when it is likely that award to any other source would result in substantial duplication of cost to the Government that is not expected to be recovered through competition.

5. Reason for Authority Cited: History and current market research supports BAE as the Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements.

a. History/Background: BAE is the designer and developer of the M109A7 and M992A3 vehicles in their current configuration, procured under the current production contract W56HZV-17-C-0001. BAE has knowledge of the new M109A7 and M992A3 subsystems as well as the predecessor subsystems; how they interface with each other and function at the overall vehicle system level. Currently, there is no other potential manufacturer that has the unique detailed design and engineering understanding of the M109A7 and M992A3 platforms to be able to integrate new, redesigned, and off-the-shelf components into a new chassis while maintaining their performance.

The Government has a production level TDP with some exceptions involving components developed exclusively at BAEs private expense. The Government does not have in its possession technical data for key components of each vehicle in sufficient detail for a competitive procurement, . Furthermore, it does not have sufficient data rights for competition to some key components, . For these reasons the Government is unable to

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compete the current as built configuration of the vehicle. The data assertions included in previous contracts state what was developed at private expense.

Regarding software, the Government does not have in its possession certain key components of the computer software package.

The Government has sought to obtain such technical data and/or better data rights, several times. BAE has declined to sell the technical data to the Government as recently as 30 March 2020.

b. Duplication of Cost: BAE is the only source capable of providing the vehicle systems and subsequent support, described herein, without substantial duplication of costs not expected to be recovered through competition. PM SPHS subject matter experts used program history to make this determination. The chart below provides estimates based on similar efforts performed on the related SPHS Engineering and Manufacturing Development (EMD) and System Technical Support (STS) contracts.

Activity Dollars (Million(M)) Paragraph Reference Development Engineering (Hardware and Software) i.

Production Engineering and Planning ii.

Prototype Manufacturing iii.

Systems Engineering/Program Management iv.

Systems Test and Evaluation (Developmental Test, Operational Test and Live Fire) v.

Technical Data vi.

Other (Small Business Innovation Research/Small Business Technology Transfer) vii.

TOTAL

i. Development Engineering: Estimated value of considers a learning curve of a new vendor and the cost to: redesign the hull structure (incorporating lessons learned), replace and qualify Original Equipment Manufacturer (OEM) electronic line replaceable units (LRU), develop new software in support of the new LRUs and physically and electronically integrate the vehicles (SPH and CAT). Requirements and Constraints to be incorporated into design that will drive cost and time of effort assumes: the cost of the chassis, , accounting for cost associated with Survivability and Force Protection, Human System Integration, Transportability, Producibility, Weight Constraints, Engine Compartment and

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Physical Integration of Hardware in Crew Compartment; the redesign cost of Line Replaceable Units (LRU) valued at , which assumes cost to replace LRUs that cannot be built to print, redesign new LRUs, qualify an existing design if appropriate and electronically integrate new LRUs; cost of to develop software which assumes reuse of less than , a significant learning curve and considers current program status as it has been spending about a year for software revisions.

ii. Production Engineering and Planning - Estimate includes the cost to Create a Manufacturing Plan, develop facilitization and manufacturing processes, design production fixtures and develop fabrication work instructions, for a total of .

iii. Prototype Manufacturing – Estimate includes the cost to build seven prototypes, verify the build process and modify prototypes based on a test-fix-test scenario. The additional prototypes will validate the integration through a bigger sample and mitigate schedule risk during testing, which is high risk to compete in such an aggressive timeline. The estimate of is based on the actual M109A7 and M992A3 prototype OEM expenditure of to build five baseline prototypes, maintain and incorporate test fixes on the prototypes.

The remaining of the total estimate assumes a escalation to account for two additional prototype vehicles which are needed to meet the compressed time frame for testing and other risk factors.

iv. Systems Engineering/Program Management – The estimate of includes the cost for additional Government Staff and contractors to support current production and engineering development and program management efforts concurrently. Estimate utilizes current Government burn rates and contractor actuals which are currently at respectively.

v. Systems Test and Evaluation (Contractor and Other Government Agency) - The estimate of accounts for in tailored developmental testing, in operational testing, in contractor test and support, and to conduct live fire testing.

vi. Technical Data - The estimate of is based on a reuse rate and is of funding used on OEM Level 3 Technical Data Package (TDP) development.

vii. Other (Small Business Innovation Research/Small Business Technology Transfer) – The estimate of , assumes of funds will be taken to satisfy the army’s requirement that a portion of funds be set aside/withheld and taxed for every program to support innovative small business and federally funded research and development projects.

Due to technical restrictions and limitation on data rights, there would be significant costs spent for an alternative vendor to perform the requirements of these contracts. A Cost

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. This rate can also be assumed for this M109A7 and M992A3 program due to the similarity in the programs and would equate to a value of . This confirms that, awarding this effort to a source other than BAE would result in a substantial duplication of cost not expected to be recovered through competition as this savings value is considerably less than the total cost duplication amount of needed to qualify a new contractor at the level in which BAE is currently operating.

6. Efforts to Obtain Competition:

a. Effective Competition: Based on the detailed rationale provided in paragraph 5 above, the Government has no plans to obtain competition for either proposed contract action at the prime contractor level. In accordance with FAR 5.201, both actions will be synopsized in beta.SAM.gov to identify contracting and subcontracting opportunities and to notify potential offerors that all proposals received after the date of publication of both notices, will be considered by the Government.

b. Subcontracting Competition:

i. Modification: The current contract includes FAR clauses 52.244-5 “Competition in Subcontracting”, and 52.219-16, “Liquidated Damages – Subcontracting Plan”. In addition, BAE will be required to submit an amended Small Business Subcontracting Plan.

ii. New Contract: To ensure BAE competitively awards subcontracts to the maximum extent possible, the contract will contain FAR clauses 52.244-5 “Competition in Subcontracting”, and 52.219-16, “Liquidated Damages – Subcontracting Plan”. BAE will be required to submit a Small Business Subcontracting Plan as part of its proposals, in accordance with FAR Clause 52.219-9. This plan along with BAE’s bi-annual report submissions will be used by the Government to monitor the contractors’ actual subcontracting activity.

7. Actions to Increase Competition: Since the Government does not have the technical data to key components, such as the chassis and hull-welded structure, or key production processes, the Government is hindered in its ability to facilitate a competitive procurement. The Government will continue to conduct market research in an effort to enhance competition.

8. Market Research: In accordance with FAR 10.002(b)(2), PM SPHS issued a market survey in the form of a Sources Sought Notice to determine the level of interest in this acquisition. The Sources Sought was posted for 30 days to Federal Business Opportunities (FBO) website, from 22 October 2019 to 21 November 2019. The Sources Sought requested information from vendors regarding their production history, production rate, quality, configuration management, cost, schedule support, supply chain and life cycle support. BAE was the only contractor who responded to the questionnaire.

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Further information gathered from the results was BAE’s response to the question, “Please describe technologies your organization has designed, developed and/or integrated into existing tracked combat systems”, is summarized below:

a. BAE Systems has extensive experience as a platform designer and systems integrator with technical responsibility for the current fleet of self-propelled howitzers, developed and successfully integrated the first high-voltage, combat vehicle power generation and distribution system, leveraged its structure design expertise to develop improved hull structures, and integrated countless other technologies and line replacement units (LRUs) such as engines, transmissions, auxiliary power units, weapons and associated fire control systems, as well as microclimate conditioning systems, smart displays, and a host of battle management systems.

As noted above, there was only one response to the Sources Sought Notice. PM SPHS staff reviewed the response from BAE, and BAE was deemed capable of manufacturing the entire vehicle system.

Market Research will be conducted again, prior to issuing the award in response to Action 2 (reference 3.b above), to reflect the current position of the market at that time.

9. Interested Sources: Other than the OEM, who responded to the Sources Sought Notice, no other sources have written to express an interest in the system level procurement.

10. Other Facts:

a. Procurement History

i. M109A7 and M992A3 Production

(1) Contract number and award date: W56HZV-17-C-0001; Undefinitized Contract Action 31 March 2017, Definitized 30 December 2017

(2) Competition status: Sole Source

(3) Authority previously cited: FAR 6.302-1, Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements.

(4) Actions to increase competition: Restrictions on the Government’s data rights to key components, as well as limitations on delivery of manufacturing data will hinder the Government’s ability to compete M109A7 and M992A3 production. The contractor shall make the maximum use of competition between qualified sources. PM SPHS is working with the contractor to qualify second sources for key components to the greatest extent practicable, keeping quality and fiscal considerations in mind.

(5) Prior Full and Open Competition: Not applicable.

(6) Unusual Patterns: Full Rate Production (FRP) decision delayed/postponed several times. FRP granted 24 January 2020.

(7) Justification for Sole Source Procurement: Award to any other source would result in “unacceptable delays attributable to learning and a substantial duplication of cost to the Government that is not expected to be recovered through competition.” “Without the ability to provide a complete, competitive production level TDP to another vendor, .” PM SPHS has worked with BAE to qualify second sources for key components since approval of this J&A. Examples include: the Rammer Chain Links, which were resourced from

, and the Final Drive Sprocket production which is now split between three machine shops

, noting that an additional foundry was added for Sprocket production, with now casting parts.”

ii. Low Rate Initial Production (LRIP) M109A7 (SPH) and M992A3 (CAT)

(1) Contract number and award date: W56HZV-14-C-0002; 30 October

(2) Competition status: Sole Source to BAE

(3) Authority Previously Cited: FAR 6.302-1(a)(2)(ii), Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements.

(4) Actions to Increase Competition: The Government intends to require delivery of a Production level TDP as part of the PIM LRIP contract.

Restrictions on the Governments data rights to key components, as well as limitations on delivery of manufacturing data (work instructions), will hinder the Government’s ability to compete future PIM production.

(5) Prior Full and Open Competition: Not applicable.

(6) Unusual Patterns: None.

(7) Justification for Sole Source Procurement: Award to any other source would result in unacceptable delays attributable to learning and a duplication of cost to the Government that is not likely to be recovered through competition. Since approval of this J&A, the Government acquired a production level TDP, however, it is restricted in its ability to compete the production of the vehicle systems using it due to the number of key contractor components for which it only has limited rights, OPSEC

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11. Technical Certification: I certify that the supporting data under my cognizance, which are included in the justification are accurate and complete to the best of my knowledge and belief.

Typed Name: Marlin D. Carlsen Date:

Title: Deputy Project Manager Signature:

Self-Propelled Howitzer Systems

12. Requirements Certification: I certify that the supporting data under my cognizance, which are included in the justification are accurate and complete to the best of my knowledge and belief.

Typed Name: Timothy R. Fuller Date:

Title: COL, Signature:

Project Manager Self-Propelled Howitzer Systems

13. Fair and Reasonable Cost Determination: I hereby determine that the anticipated cost to the Government for this contract action will be fair and reasonable. The contractor’s proposal will be reviewed by Government requirements personnel who will address the appropriateness of the proposed vehicle production cost and support ensuring that it is consistent with the IGCE and historical pricing. Cost/Price Analysis and audit recommendations will be used to discern whether the proposed cost/prices are current and justifiable. ACC-DTA has a dedicated Cost and Pricing Division with trained Analysts who will assist the Contracting Officer by performing the necessary analyses.

Engineers familiar with the program and its systems will be requested to review the proposal for technical validity to ensure that it meets the requirements and is fair and reasonable. Additionally, due to the dollar value of the actions, the Defense Contract Audit Agency and the Defense Contract Management Agency will provide expertise and audit support. The recommendations, as contained in the various analyses, audits, technical reports and historical data will be used by the internal Cost/Price Analyst to develop a negotiating position. This detailed Government negotiation position will be approved under a Business clearance review at the Defense Pricing and Contracting level. Certified Cost or Pricing Data will be required and form the basis for this analysis.

The final negotiated agreement will give full consideration to all contractual requirements, including the delivery schedule, to support a determination of fair and reasonable price for this action. The results of the negotiations and detail of price fairness and reasonableness will be documented in a Post Negotiation Memorandum that will be reviewed and concurred on by the Contracting Officer and at the senior pricing division level.

Typed Name: Julianna Santi Date:

Title: Contracting Officer Signature:

14. Contracting Officer Certification: I certify that this justification is accurate and complete to the best of my knowledge and belief.

Typed Name: Julianna Santi Date:

Title: Contracting Officer Signature:

APPROVAL

Based on the foregoing class justification, I hereby approve the procurement of an estimated 326 sets of M109A7 Self Propelled Howitzer (SPH) and M992A3 Carrier, Ammunition, Tracked (CAT) vehicles, and production support requirements needed to build and field these vehicles as well as the Total Package Fielding material on an other than full and open competition basis pursuant to the authority of 10 United States Code 2304(c)(1), as implemented by Federal Acquisition Regulation 6.302-1(a)(2)(ii)(A), Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements. The total estimated value of this acquisition is $3.0 Billion. This approval is subject to the availability of funds and provided that the services and property herein described have otherwise been authorized for acquisition..

Date BRUCE D. JETTE

Senior Procurement Executive