Atch_23_Halvorsen_Metrics_Determination_and_Incentive_Fee_Arrangement.pdf

30 May 2013 Attachment 23

Halvorsen Performance Metrics Determination and Incentive Fee Arrangement

Overview: This attachment contains the following sections:

I. METHODOLOGY FOR HALVORSEN PERFORMANCE METRICS: The methodology to be followed during contract execution to measure the Contractor’s performance by use of the defined Halvorsen Metrics.

II. HALVORSEN INCENTIVE FEE ALLOCATION BY REGION: The methodology for allocating the Halvorsen Metrics incentive fee by geographic regions and incentive fee periods.

III. INCENTIVE ARRANGEMENT FOR NON-OVERHAUL FPI(F) CLINs: Detailed information on cost and performance incentive fee for Non-Overhaul FPI(F) CLINs

IV. INCENTIVE ARRANGEMENT FOR OVERHAUL FPI(F) CLINs (EXCLUDING CLIN 0002):

Detailed information on cost, performance, and schedule incentive fees for Overhaul FPI(F) CLINs.

V. INCENTIVE ARRANGEMENT FOR OVERHAUL QUALIFICATION FPI(F) CLIN 0002

VI. INCENTIVE FEE EXAMPLE

I. METHODOLOGY FOR HALVORSEN PERFORMANCE METRICS:

1. There are three contractual metrics:

a. Not-Mission Capable for Supply (NMCS) rate

b. Logistics Response Time (LRT)

c. Technical and Engineering Support (TES) response time

2. The performance requirements for the three metrics are listed in the Material Management (MM) Performance Work Statements (PWS). The Contractor will be evaluated for compliance with these requirements on a monthly basis.

3. A concerted effort shall be made to minimize the amount of reconciliation of the data collected by both the Contractor and the Government without sacrificing reliability of the Halvorsen Metrics.

4. The first two metrics (NMCS and LRT) will be measured and reported by region, with four world-wide geographic regions defined: CONUS‐North, CONUS‐South, Eastern, and Western. The four regions are defined as follows:

CONUS-North: Within the 48 contiguous United States, north of 37.0 degrees north latitude

CONUS-South: Within the 48 contiguous United States, south of 37.0 degrees north latitude

Eastern: Outside of the 48 contiguous United States, east of 85.0 degrees west longitude and west of 60.0 degrees east longitude

Western: Outside of the 48 contiguous United States, west of 85.0 degrees west longitude and east of 60.0 degrees east longitude

The third metric (TES) will be measured and reported for all bases together (i.e., not divided by regions).

5. Data Adjustments:

a. Some of the data used for measuring Contractor compliance will be obtained from the USAF’s Online Vehicle Interactive Management System (OLVIMS). OLVIMS data is not perfectly clean and reliable. Sometimes field maintainers will claim Not Mission Capable for Supply (NMCS) status before they order parts, and sometimes bases will inconsistently enter data into OLVIMS.

The Halvorsen team (Government and Contractor) will jointly analyze and reconcile the applicable data each month to correct NMCS times, and the Government will contact bases that have not reported.

b. If data is not provided for any loader(s), the Government will calculate the monthly Elapsed Time Indicator (ETI) values based on any other available information (such as field reports). Lacking that, the Government will set the ETI reading to the prior month’s value, resulting in zero hours for the month.

c. Any other errors discovered during this process will be addressed by the team. The Government is the final approval authority for adjustments to the data.

6. Halvorsen Performance Metrics Definitions:

a. Not-Mission Capable for Supply (NMCS) rate

NMCS rate (also known as Vehicle Down for Parts, or VDP) is defined as the total of all field-reported NMCS hours for each region for work orders closed out in the month being measured, divided by the total number of hours in the month times the number of loaders in that region.

Example (using CONUS-North region)

- total of reported NMCS hours in CONUS-N = 1,500 hours

- a 31-day month has 31 * 24 hours = 744 hours

- number of loaders in CONUS-N is 103

NMCS rate = 1,500 / (744 * 103) * 100% = 1.96%

The Government will provide data from the field operating bases to the Contractor, from the USAF’s Online Vehicle Information Management System (OLVIMS). The Contractor shall consider the NMCS data provided from OLVIMS to be accurate. Only work order entries with NMCS declared in OLVIMS shall be considered for NMCS calculations.

The Contractor may propose to the Government, on a monthly basis, that the NMCS data be revised. This revision shall be based on the actual date and time the order is placed, and the actual date and time the part is delivered to the unit (as documented in the Contractor’s records).

Proposed revisions to NMCS shall be calculated using:

the latter of either the date and time when the USAF ordered the part from the Contractor or the date and time when the USAF declared NMCS in OLVIMS (starts NMCS clock) the earlier of either the date and time of signature/receipt at the base, or the date and time when the USAF declares the end of NMCS in OLVIMS (stops NMCS clock).

(The Contractor shall convert all times to a single standard time zone, and use for all NMCS calculations, to ensure actual elapsed time is recorded.)

The Government is the final approval authority for adjustments to the data.

b. Logistics Response Time (LRT)

LRT is defined as the total elapsed time required for delivery of parts, measured from the time the field maintenance unit (hereafter referred to as “unit”) places the order to the time of delivery of the part to the unit, using a 24-hour clock. Any change to the unit as being the final destination must be approved by the Government.

For the purpose of determining compliance with LRT requirements, “CONUS” consists of the bases in the CONUS-North and CONUS-South regions, and “OCONUS” consists of the bases in the Eastern and Western regions.

The LRT requirements will be measured monthly for each of the four regions. The basic source of information will be the Contractor’s records: date and time of incoming orders, and date and time of receipt by the Government at the unit. The Government will verify the Contractor’s records.

c. Technical and Engineering Support (TES) response time:

TES response time is defined as the time required to respond to a call for support from a field unit. Timeliness of Technical Support response is measured on a 24-hour basis; timeliness of Engineering Support response is measured by business days.

These requirements will be measured monthly for all bases considered together. The basic source of information will be the Contractor’s records: date and time of technical or engineering support request from the field unit, and date and time of Contractor’s response. The Government will verify the Contractor’s records.

d. Other Definitions:

i. Failure: event, or inoperable state, in which any item does not or did not perform as intended

ii. Field Data Inputs: data used to calculate metrics provided by base-level maintenance personnel. These data shall come from OLVIMS and the Contractor’s metric database

iii. Not Mission Capable for Maintenance (NMCM): the total clock time (24 hours per day) the system is rendered not mission capable while maintenance is being performed

iv. Not Mission Capable for Supply (NMCS): the total clock time (24 hours per day) the system is rendered not mission capable while awaiting parts; same as vehicle down for parts; applies only when NMCS status is declared by the Government and entered into OLVIMS; if Saturday, Sunday or holiday delivery of an NMCS causing part was possible but refused by the Government, the NMCS end date will be amended as if it was delivered on that Saturday, Sunday or holiday; if an attempted delivery on any given day of an NMCS causing part at a Government base or port was not accepted and was documented by a third party, the NMCS end date will be amended as if the part was delivered that day

v. Online Vehicle Interactive Management System (OLVIMS): a Government information management system used at each maintenance facility to track vehicles, fleet operations, vehicle dispatch operations, maintenance cost, and utilization data

vi. Scheduled Maintenance: periodic prescribed inspection and/or servicing of loader accomplished on a calendar, mileage, or hours of operation basis

vii. Unscheduled Maintenance: any maintenance activity required as a result of random failures of the loader and not of a periodic or scheduled basis

viii. Vehicle Down for Parts (VDP): Another term for NMCS

ix. Work Order: the OLVIMS form used to record maintenance data

7. Each Month – Process for Metrics Determination

a. By the 5th working day of each month (“working days” are defined as excluding weekends (Saturday and Sunday) and Federal holidays):

o the Contractor shall make available to the Government all data for parts ordered in the previous month, including:

Part number Loader for which the part was ordered (identified by Air Force registration number) and assigned base Field unit-generated work order number Date and time order was received by the Contractor Date and time parts ordered were received by the Government customer

b. By the 10th working day of the month:

o The Government will receive data from OLVIMS from the field operating bases for each loader, including information on operating hours, work orders, jobs, and parts ordered in the previous month.

o The Government will process the received data to correct significant errors.

c. By the 11th working day of the month:

o The Government will provide the processed OLVIMS data from the field operating bases to the Contractor.

(This data, as of the 10th working day of the month, will be considered the total of all field reports, and will not be updated further throughout the monthly analysis process.)

d. From the 11th–15th working days of the month:

o The Contractor shall perform analysis of the NMCS hours in the OLVIMS data provided by the Government.

e. No later than close of business on the 25th of the month (not 25th working day) o The Contractor shall work with the Government representative to come to mutually agreed data for the previous month, for all four regions and all three metrics.

f. The Government will issue a final report for each month. The report will include NMCS and LRT, reported as totals for each of the four regions, and will include TES, reported as a single number for all bases. The report will not include results by base or by loader.

II. INCENTIVE FEE ALLOCATION BY REGION

1. Incentive fee will be divided as follows for meeting the requirements in each of the four regions:

Metric Region Percentage of Incentive Fee

Not-Mission Capable for Supply CONUS-N 7.5%

CONUS-S 7.5%

Eastern 15% Western 15% Logistics Response Time CONUS-N 7.5%

CONUS-S 7.5%

Eastern 15% Western 15% Technical and Engineering Support All 10%

2. Performance for all requirements will be measured on a monthly basis, with the Contractor either meeting or not meeting each requirement. Incentive fee is awarded after the end of each evaluation period for each region. For example, if the NMCS requirement is met in all except the Eastern region, the Contractor will earn fee associated with the three successful regions for that month.

III. INCENTIVE ARRANGEMENT FOR NON-OVERHAUL FPI(F) CLINs:

1. General: This is a Fixed Price Incentive Firm target (FPI(F)) contract with cost and performance incentives. The maximum total price paid on each task order, including incentives earned under this clause, shall not exceed the established ceiling price (120% of target cost). Total Incentive Fee = Cost Incentive Fee + Performance Incentive Fee. 50% of the negotiated profit amount will be placed in the performance incentive fee pool, and 50% will be a fee payable to the contractor as normal profit subject to adjustment IAW Clause I-166 (FAR 52.216-16, Incentive Price Revision – Firm Target).

2. Cost: The cost incentive will be subject to a share ratio of 50%/50% (Government/Contractor).

3. Performance: The Contractor will earn performance incentive for achieving the required performance on the Halvorsen Performance Metrics. The definition and calculation methodology for the metrics is defined above.

IV. INCENTIVE ARRANGEMENT FOR OVERHAUL FPI(F) CLINs (EXCLUDING CLIN 0002)

1. General: This is a Fixed Price Incentive Firm target (FPI(F)) contract with cost and performance incentives. The maximum total price paid on each task order, including incentives earned under this clause, shall not exceed the established ceiling price (120% of target cost). Total Incentive Fee = Cost Incentive Fee + Delivery Incentive Fee. 50% of the negotiated profit amount will be placed in the delivery incentive fee pool (see note below), and 50% will be a fee payable to the contractor as normal profit subject to adjustment IAW Clause I-166 (FAR 52.216-16, Incentive Price Revision – Firm Target).

2. Cost: The cost incentive will be subject to a share ratio of 50%/50% Government/Contractor).

3. Delivery: The delivery incentive to be earned will be based on “on-time” delivery of each of the overhauled loaders. The Contractor will earn the delivery incentive fee for each "on-time" delivery as set forth in the Schedule, based on the due dates established therein. Loader delivery milestone dates will be defined at time of task order award. Although the delivery incentive will be obligated, the Contractor is not authorized to invoice for the delivery incentive fee earned for the "on-time" delivery until all of the following conditions are met:

a. The Contractor has completed the loader overhaul in accordance with the terms of this delivery order on or before the delivery date set forth in the Schedule, with acceptance as documented on a DD Form 250,

b. The Contractor submits a request for payment of the "on-time" schedule incentive along with the signed DD Form 250 as documentation that delivery of the overhauled loader occurred on or before the delivery date set forth in the Schedule of each task order,

c. The Government reviews the submitted documentation and the Contractor provides any additional information necessary to support the Contractor's request for schedule incentive payment, and

d. The Contractor's request for payment of the schedule incentive is approved by the cognizant

Contracting Officer as evidenced by the signed request for payment on the "on-time" schedule incentive.

V. INCENTIVE ARRANGEMENT FOR OVERHAUL QUALIFICATION FPI(F) CLIN 0002

1. General: This is a Fixed Price Incentive Firm target (FPI(F)) contract with cost incentives. The maximum total price paid on this task order, including incentives earned under this clause, shall not exceed the established ceiling price (120% of target cost). 100% of the target profit will be payable to the Contractor as normal profit subject to adjustment IAW Clause I-166 (FAR 52.216-16, Incentive Price Revision – Firm Target).

2. The share ratio for this CLIN is 50%/50% Government/Contractor.

VI. INCENTIVE FEE EXAMPLE

1. The following is an example of how performance and cost incentives will be applied. All dollars in this example are for illustrative purposes only and do not reflect actual contractual amounts. Ceilings prices are set at 120% of Target Cost. This example assumes a task order period of one year with two 6-month performance evaluation periods and a cost share ratio of 50/50 (Government/Contractor). It also assumes the Contractor earns 100% of the performance incentive but overruns by $1,000K.

CLIN Name unit BEQ Tgt Cost Tgt Profit Tgt Price Ceiling price 0006 PES mo. 12 $300K $30K $330K $360K

2. Target Profit will be divided at time of task order award as follows: 50% allocated for performance incentive and 50% for cost incentive. The first 6 month performance assessment period will be performance only.

- 12 month target profit is $360K ($30K X 12 mo.)

- 12 month cost incentive is $180K (50% of the 12 mo. target profit)

- 12 month performance incentive target cost is $3,600K ($300K X 12 mo.)

- 12 month ceiling price is $4,320 ($360K X 12 mo.)

3. First 6 months evaluation period represents ½ of the total effort and includes performance incentive only

- Available performance incentive is $90K ($180K/2)

- Earned performance incentive is $90K ($90K X 100%)

4. Last 6 mo performance evaluation: first for cost and then performance

- $3,600K tgt cost + ½ of the $1,000K overrun for Govt’s share (i.e. $500K @ 50/50 share ratio) = $4,100K - $180K for cost incentive

- $90K for this performance incentive plus 90K for last period for a total of $180K - Final total task order calculation: $4,100K + $180K (cost incentive) +$180K (performance incentive) = $4,460K

5. Final total task order obligations (combined cost, profit, and incentives) are $4,320K (the lesser of final task order calculation or ceiling price). See table below:

Target Neg/Final Cost $ 3,600,000.00 $ 4,600,000.00 Share ratio 50/50 ($500,000.00) Profit $ 360,000.00 $ 360,000.00 Subtotal $ 3,960,000.00 $ 4,460,000.00 Ceiling (120%) $ 4,320,000.00 $ 4,320,000.00

If the final negotiated cost exceeds the ceiling, the contractor absorbs the difference as a loss. In this example the Government would pay the ceiling and the contractor would absorb the $140,000 as a loss.