RRAD CAT JA CMO 2020-110 Redacted_Redacted.pdf

RRAD Control No.: C A T v 0 4 - 1 9

Program: Depot Caterpillar Engine Supply Chain and TARDEC CMO Control Number: 2020-110 Approved Caterpillar/ RRAD CBM practices IAW DoDI 4151.22 Estimated Dollar Value: $48,400,000

DEPARTMENT OF THE ARMY

Justification and approval for other than full and open competition

1. Contracting Activity: Army Contracting Command-Red River Army Depot (ACC- RRAD) is the procuring activity for this action.

2. Description of Action: ACC-RRAD proposes to award a new five-year Requirements contract to Caterpillar Defense (Caterpillar) of Peoria, Illinois. This contract will be a combination of Firm Fixed Price (FFP), Fixed Price Economic Price Adjustment (FF-EPA) and Cost Plus Fixed Fee (CPFF). Technical services will be procured on a FFP basis. Original equipment manufacturer (OEM) mandatory replacement parts (MRPs) and OEM non-MRPs will procured on a FF-EPA basis. Non- OEM parts will be procured on a CPFF basis. The proposed contract will be funded with Army Working Capital Funds (AWCF).

3. Description of Supplies/ Services: The proposed action will be executed on behalf of the Directorate for Logistics, Red River Army Depot (RRAD). Caterpillar will be required to provide technical support, supply chain management services to include parts, engineering services, warranty services, and data collection and analysis services in support of RRAD‘s Ground Vehicle Systems Center (GVSC) (formerly TARDEC) approved Caterpillar Condition Based Maintenance (CBM). Caterpillar will support depot level maintenance operations performed by the depot workforce on, but not limited to, Caterpillar 3,000 series engines (3116, 3126, & 3176) and “C” family of engines (C7, C9, C12, C13, C15, & C18), as well as all other engine configurations where Caterpillar owns the Technical Data Package (TDP). A more detailed description of services is as follows:

a. Technical support requires the contractor to remain on site at RRAD in support of RRAD personnel during all phases of engine inspection, repair, validation, and certification of the final product.

b. Supply chain management will include the furnishing of all OEM Caterpillar and Non-Caterpillar parts and materials required by RRAD to support the repair of the engine configurations covered under this contract.

c. Engineering services will include accessing technical data packages, engineering data, and condition based maintenance data to produce trend analyses that could result in engine design improvements.

d. Warranty services will include 12 month warranty coverage for all parts provided by Caterpillar.

e. Data collection and analysis services will include the collection of inspection and repair process data and identification and evaluation of trends for life cycle recommendations through Caterpillar leveraging engineering expertise and its expansive network to continuously improve the average (or mean) life of the engine and improve the time between engine failures. All data collected is to be maintained on a contractor supported historical database with data accessibility provided on an as needed basis.

Based on the Independent Government Cost Estimate (IGCE), the total estimated dollar value of this five year contract is $48.4M (reference Table 1.1. below).

Table 1.1

Total Contract Cost

YEARS Small Caterpillar TOTAL Large Caterpillar Total Total Cost per Year Total Contract Value

Base Year $6,607,340.64 $2,314,835.00 $8,922,175.64

Year One $6,883,356.34 $2,399,279.75 $9,282,636.09

Year Two $7,170,919.92 $2,486,887.83 $9,657,807.75

Year Three $7,470,515.05 $2,577,780.60 $10,048,295.65

Year Four $7,782,645.67 $2,672,084.17 $10,454,729.84 $48,365,644.97

*Note: The fee portions of the CPFF were wrapped into the non- Caterpillar parts cost totals per engine. Estimates were based on Ordering Year (OY) 5 of the current contract (W911RQ-15-D-0006), which equaled $440.50 per engine. Estimates then applied a compounding 3% increase to the fixed fee for OY 1-5 of the contract. Total estimated fixed fee for this action is $1,488,659.75.

4. Authority Cited: The statutory authority permitting Other Than Full and Open Competition for this action 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 and Services Will Satisfy Agency Requirements. The specific citation applied is FAR 6.302-1(a)(2)(ii) and (iii)(A): “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 (A) Substantial duplication of cost to the Government that is not expected to be recovered through competition.” and (iii) “For DoD, NASA, and the Coast Guard, services may be deemed to be available only from the original source in the case of follow-on contracts for the continued provision of highly specialized services when it is likely that award to any other source would result in -- (A) Substantial duplication of cost to the Government that is not expected to be recovered through competition.”

5. Reason for Authority Cited: These vehicles were produced by Caterpillar under prior Department of Defense (DoD) contracts. All engines are versions of Caterpillar’s commercial products that Caterpillar modified to meet unique military requirements for Program Executive Office (PEO) Combat Service and Combat Service Support (CS&CSS) platforms. As the Original Equipment Manufacturer (OEM), Caterpillar retains the technical data rights to the engine. Caterpillar’s technical data also includes specifications for the changes it made to meet Army requirements for which there is no commercial equivalent. Caterpillar will not sell its engine technical data to the Government because it contains proprietary data. A request for quote was sent to Caterpillar Inc., on 8 June 2020, regarding the TDPs for 3000 series and “C” model engines. On the same day, Caterpillar responded, stating the following: “Our Technical Data Packages for the 3000 series and “C” model engines are not for sale at any price.”

a. The Government does not possess the pertinent technical data to enable competitive re-procurement. As Caterpillar is unwilling to sell the TDP to the Government, any pursuance of competition would require the Government to reverse engineer and conduct extensive testing on engine models and their associated platforms in order to develop a competitive TDP. The undertaking of such actions would result in a substantial duplication of cost to the Government that is not expected to be recovered through competition.

b. Duplication of Cost. Data supporting substantial duplication of cost is based on a study conducted by the CCDCGVSC reverse engineering team, on the 6.5L Turbocharged Diesel Engine Assembly with Container for use on the Enhanced Capability Vehicle (EVC) series of High Mobility Multipurpose Wheeled Vehicle (HMMWV) Family of Vehicles (FoV). Although the engines are not exactly the same, the process to reverse engineer the engines covered under this action would mirror that of the CCDC GVSC study, as confirmed in an email from the Subject Matter Expert (SME) on 12 August 2020.

It is estimated that the total cost to reverse engineer a single engine would be approximately $104,106,000 to reach total development. The following section (b(i) and table were pulled directly from the GVSC study on the 6.5L engine.

(i) Reverse Engineering (RE) and Remanufacturing

The primary objective of reverse engineering is the development of unrestricted technical data, adequate for competitive procurement, through engineering evaluations of existing hardware; in this case the 6.5L V-8 Turbo or Naturally Aspirated Diesel engine. Advantages in this reverse engineering solution include minimized vehicle integration costs, as the reverse engineered product would be a direct replacement for the original 6.5L engine. The Army would then own the resultant technical data, which would include any 3-D models and drawings. This technique could also be applied to any component of the 6.5L engine, enabling competitive pricing of components.

Costs were estimated by the CCDC GVSC SME for the 6.5L engine reverse engineering effort. Primary components include the engine block, head casting, crankshaft, connecting rod, pistons, flywheel and the flywheel housing, etc.

Envelope drawings can also be used in certain scenarios that allow for alternate substitute parts. Using an envelope drawing that includes all the connections of the alternate part to the engine could lower the cost versus creating a full TDP. Further investigation will be needed on a part by part basis.

The reverse engineered components must be subjected to the same test rigors (both component and system level) as the original AM Gen 6.5L engine. As these parts would be identical and therefore backwards compatible with OEM parts, the ramifications on existing OEM warranty agreements must also be considered before embarking on any reverse engineering course of action.

The competitive TDP will include all the documentation necessary to describe the design configuration, manufacturing, quality assurance, testing, and packaging requirements of the equipment. The TDP for a reverse engineering candidate may include restricted or inadequate end-item documentation and drawings which must be developed through engineering analyses of existing hardware.

Based on similar past reverse engineering experiences, the estimated cost to develop a reverse engineered competitive product is approx. $104 M, with an estimated delay of no less than ninety six (96) months. Required funding should include: $6.0M for personnel to support reverse engineering and validation of the design; $2M funding CAD/CAE model development; $18-$20M to develop prototypes; funds to test and finalize the product (verify that the newly created item provides equivalent performance when compared against the original). To complete the reverse engineering process successfully, the Government will require a sufficient sample size of existing parts to provide a 95% probability and 90% confidence level in the actual size of the existing item to be studied.

The chart below describes the major tasks, along with associated time and estimated costs required for reverse-engineering and testing:

Action Costs

Reverse-Engineer NSN 2815-01-439-8164 Engine Assembly, 6.5 Liter, Turbocharged, $92,700,000

RAM Vehicle testing $9,000,000

(5 vehicles per platform (i.e., 15 total vehicles) at 5000 miles per vehicle)

(included in $93.7M above)

NATO 400 Hour Test

(3 engines) $750,000

Full Load Cooling Test

(3 vehicles, 1 per platform) $846,000

Cold Test

(3 vehicles, 1 per platform) $7,250,000

White Sands Missile Range Test

(3 vehicles, 1 per platform) $60,000

Develop Technical Data Package $2,500,000

Total Development Time $104,106,000

In addition to the cost and delay for an R&D action or RE effort, Pd-LTV estimates that it would take approximately one additional year to establish another source and procure these kits on a competitive basis using FAR PART 15 Source Selection procedures.

Based on the above findings, GVPM-GVSC engineering does not recommend Reverse Engineering course of action for the 6.5L engine.

(ii) This action covers the 3,000 series and “C” family engines the Government does not retain access to TDPs that would permit a competition. This encompasses no less than nine top level engine variations, all of which would need to undergo reverse engineering. Taking the study’s single engine estimate for reverse engineering ($104M) and applying it to each of the currently known nine top level variations, the total amount to reverse engineer the engines for this action climbs to a staggering $936,954,000.00.

6. Efforts to Obtain Competition:

a. Effective Competition: Competition will not be pursued for this action for reasons stated in Section 5 above. Pursuant to FAR 5.201, this proposed contract action will be synopsized on www.betaSAM.gov and all bids or proposals received shall be considered.

b. Subcontracting Competition: Caterpillar is considered a large business and will be required to submit a Small Business Subcontracting Plan. In addition, this contract will include FAR clauses 52.244-5 “Competition in Subcontracting,” and 52.244-2 “Subcontracts”, to ensure that the prime contractor competitively awards subcontracts to the maximum extent possible.

7. Actions to Increase Competition: The Government does not plan to seek additional competition for this effort. As detailed in Section 5 above, there is a substantial duplication of cost associated with fulfilling the agency’s requirements if this were a competitive procurement. The Government will continue to survey the marketplace and will review its acquisition strategy should additional requirements or additional sources be identified.

8. Market Research: On 23 April 2020, a sources sought questionnaire was posted for a period of 30 days to BETA.SAM by ACC-RRAD on behalf of Directorate for Logistics, RRAD in accordance with FAR 10.002. The purpose of the questionnaire was to solicit responses from industry that would allow the Government to assess whether or not capabilities exist that could accomplish the proposed acquisition. The research included questions regarding the ability of contractors to acquire proprietary parts, and whether any contractors have detailed knowledge of the original assembly specifications, interface requirements, and tolerances required to meet Government requirements. Three interested party responses were received, all from privately owned CAT dealerships. The three interested parties were:

a.

b.

c.

There was no further inquiry with the listed interested parties because of the known fact that Caterpillar will not allow dealerships full access to its proprietary processes and data as listed in section 5. This fact was supported further by an inquiry to Caterpillar on 9 June 2020, where Caterpillar was requested to provide clarifications on the difference between Caterpillar Inc. and CAT dealerships, and what information “was and was not” accessible at the dealership level. In summary, Caterpillar regards all proprietary processes and data as competition sensitive and exclusive to Caterpillar due to Caterpillar being in direct competition with dealerships.

9. Interested Sources: Caterpillar, Inc., 13209 Galena Rd, TC-A, Mossville, IL 61552- 7547. Other than those listed in section 8, no other sources have expressed interest in this effort.

10. Other Facts:

a. Procurement History: ACC-RRAD previously acquired a pilot and production services as described in the subject contracts below:

1. Contract W911RQ-15-D-0006, was awarded in June 2015 on a sole source basis under the authority of FAR 6.302-1 to Caterpillar for Technical Support and Supply Chain Management supporting the Caterpillar/ RRAD CBM process.

Award of the base contract was authorized by J&A (CMO Number 14-047) approved by Brigadier General Theodore C. Harrison III for the Principle Assistant Responsible for Contracting (PARC) Army Contracting Command – Warren, on 27 February 2014. The rationale for J&A was FAR 6.302-1(b)(2), only one responsible source and no other supplies and services will satisfy agency requirements. The contract is set to expire 28 December 2020.

2. Procurement History: Contract W911RQ-11-D-0012, total value of $1,358,670.32, awarded as a sole source to Caterpillar for technical support and supply chain management in support of the Caterpillar Engine Condition Based Maintenance Program to repair or overhaul 3126 and C7 Family of Medium Tactical Vehicles at RRAD.

b. Other Facts: None.

11/12. Technical and 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.

Signature: //JEB// 16 September 2020 James E. Bass Director – Directorate for Logistics

Date:

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 labor hours and labor categories, materiel, other direct costs, and other cost elements as requested by the Contracting Officer. Cost/Price analysis will be used to discern whether the costs proposed are current and justifiable. The final negotiated agreement will give full consideration to all contractual requirements, including the delivery schedule, to support a determination of fair and reasonable prices for this action. The contractor will be required to submit Certified Cost and Pricing Data, which will form the basis for negotiating a fair and reasonable price.

Signature: //REJ// 17 September 2020 Robyn E. James Date:

Procuring Contracting Officer

14. Contracting Officer Certification:

I certify the facts and representations under my cognizance which are included in the J&A are accurate and complete to the best of my knowledge and belief.

Signature: //REJ// 17 September 2020 Robyn E. James Procuring Contracting Officer

Date: