TF33_Consolidation_Memo(3Feb22)_Redacted.pdf

DEFENSE LOGISTICS AGENCY

HEADQUARTERS

8725 JOHN J. KINGMAN ROAD

FORT BELVOIR, VIRGINIA 22060-6221

Source Selection Info-See FAR 2.101 & 3.102

CUI

MEMORANDUM FOR RECORD

Subject: Consolidation Determination: Solicitation SPE4A5-22-R-XXXX

Introduction:

DLA Aviation intends to award a performance-based supplier capability contract (SCC) to Raytheon Technologies Corporation DBA Pratt & Whitney Military Engines (CAGE 52661) in support of the United States Air Force (USAF) and worldwide US Military and Foreign Military Sales (FMS) customers for the TF33 Aircraft Engine. Pratt & Whitney (P&W) is the Original Equipment Manufacturer (OEM) for this engine. The SCC will be a subsumable contract under the Pratt & Whitney (P&W) Umbrella Captains of Industry Contract (COI), SPE4AX-22-D-0001 (awarded October 1, 2021) and will utilize a DLA Direct (DD) Supplier Initiated Order (SIO) approach, under which the contractor will push sole source material into the DLA Distribution network based on the contractor's demand forecast via Stock Transfer Orders (STOs). The contract will be a performance-based contract covering the entire TF33 Bill of Material (BOM) of 9,594 National Stock Numbers (NSNs). The NSNs are a combination of USAF-managed Depot Level Reparables (DLRs) and DLA- and other-managed Consumables. Within the BOM are 1,538 NSNs that are Sole Source to P&W (1,295 DLA-managed consumables and 243 USAF-managed DLRs). P&W will be responsible for forecasting the entire BOM of 9,594 NSNs; and supplying the 1,538 NSNs to the Government under the proposed contract. The overarching goal of the resultant contract is to improve TF33 engine availability for the USAF and other customers worldwide. The acquisition will be conducted using Other Than Full and Open Competition as prescribed by FAR 6.302-1, Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements. The action is covered under the Class Justification and Approval (J&A) of SPE4AX-22-D-0001.

The 10-year contract term consists of a five-year base period and a five-year option. The total maximum dollar value of this requirement is 1. Within the structure of the contract, P&W will be responsible for the demand forecasting of the entire TF33 BOM, supplying the 1,538 sole source NSNs to the Government and providing the engineering support required to bring NSNs into full production for any P&W sole source NSNs that have not been procured within the last two years. The broad spectrum of support required for this holistic effort requires multiple contract types. The planning and forecasting element will be procured for the five-year base period as Firm Fixed Price (FFP). The 1,538 sole source NSNs will be Fixed Priced with Prospective Price Redetermination over two three-year periods (one of which will cover the end of the base period and beginning of the option period) and one four-year period. The engineering support will be procured as Time and Materials to cover the labor hours involved in bringing NSNs that have not been procured from Pratt in two or more years back into full production.

The proposed Letter Request for Proposal (RFP) solicitation includes items that have been previously procured via various acquisition methods including other long term contracts and transactional spot buys. Therefore, joining these TF33 NSN requirements under a single contract constitutes a consolidation of contract requirements as defined in FAR 2.101. The demand forecasting and engineering elements are not consolidations because they have not previously been procured for the TF33 engine.

Market Research:

DLA Aviation performed a comprehensive market research effort to identify potential sources in accordance with FAR 10.002(b)(2). A Sources Sought was posted to the Government Point of Entry (GPE) on October 5, 2021, to assist in determining capability and interest among potential suppliers.

P&W, a large business and the OEM, was the only respondent. P&W’s response to the Sources Sought included a description of its extensive experience executing performance-based programs in support of military and commercial customers. P&W elaborated on its experience executing military Performance Based Logistics (PBL) programs since the late 1990s, beginning with its first PBL contract on the C-17 program followed by additional successful PBL programs for the US Services and US Allies on virtually all its military engines, including the F100, F119, and F135 engines. P&W further explained it works with its customers to deploy industry best practices to meet required objectives focused on operational readiness and time on wing (TOW), which are key requirements of this contract. P&W also explained its experience in teaming with military engine centers, particularly at Tinker Air Force Base (AFB), Oklahoma, and how the collaborative depot environment merges customer knowledge with P&W experiential practices to provide dedicated, first line support on multiple engines, including the TF33.

The results of the market research efforts did not identify any source other than P&W with the capability to meet the entirety of the requirement to provide holistic TF33 Aircraft Engine support.

A technical review will certify the items to be solicited are all coded as sole source to P&W.

Coordination with the DLA Aviation Competition Advocate reveals that DLA Aviation has extensive history to support that these items have been and will continue to be sole source to P&W. If at any time an item changes from sole source to competitive, it will be removed from the project. A synopsis will be posted to the GPE to advise industry of the pending procurement. It is anticipated that no source other than P&W, the only known source capable of meeting this requirement, will be interested in this procurement. The synopsis will include an invitation to companies other than the OEM, including surplus dealers, to respond to the synopsis announcement identifying items of interest along with supporting documentation. As this will be a Letter RFP to the sole source OEM, and small business dealers and surplus providers will be able to submit offers for consideration in response to the synopsis, bundling does not apply.

Small Business Mitigation

As required by the FAR and DFARS, umbrella contract SPE4AX-22-D-0001 includes clauses FAR 52.219-8, Utilization of Small Business Concerns, DFARS 252.219-7004 Small Business Subcontracting Plan (Test Program) and DFARS 252.226-7001 Utilization of Indian Organizations, Indian-Owned Economic Enterprises, and Native Hawaiian Small Business Concerns. These clauses will be applicable to the resultant subsumable contract. Furthermore, small business concerns are expected to be utilized by P&W as evidenced by its Defense Contract Management Agency (DCMA)-approved Fiscal Year 2022 (October 2021 – October 2022) Department of Defense (DoD)

Strategy Manual PR Count Material Value

Inventory Holding Cost

(IHC)

Management Cost Get Well Cost Total Cost

BAU 5296

DD SIO 0

Projected Savings:

(8%)

The cost elements of DLA’s BAU Costs consist of:

Manual Purchase Request (PR) Count: Number of manual PRs projected over the simulated horizon (5 years).

Material Value: Calculated as the cost of direct material investment (BAU Purchase Order Quantity x DLA Cost Basis Unit Price).

Inventory Holding Cost (IHC): Calculated as 10% of the average annual inventory value (3% Invested Funds + 6% Obsolescence and Losses + 1% Storage Cost).

Management Cost: Calculated as the sum of the following two cost factors:

o Manual Procurement Activity Costs: $876.37 for manual PRs with a total value less than

$250K or $6,341.46 for manual PRs with a total value greater than or equal to $250K.

o Manual PR Delivery Order Costs: $20.84 for each projected manual PR.

Get-Well Cost: Calculated as the amount of additional safety stock investment DLA would need to make to raise performance to 90% MA from current baseline MA. To simulate this added investment, DLA ASA utilized the Material Availability Investment Calculator (MAIC). The MAIC is a probabilistic tool that is able to determine the required dollar investment to achieve a target MA level and is powered by a Monte Carlo simulation method. The MAIC sampled demand over each item’s lead-time to determine the necessary safety stock to support a target MA objective of 90%. Lead times were rounded to nearest whole month to accommodate monthly demand rates.

The estimated savings value for the DLRs was derived from the USAF “What If” Analysis to determine Obligation Authority (OA) savings attributed to reduction in Administrative Lead Time (ALT). A reduction in ALT enables the USAF to hold less safety stock due to an increase in inventory cycle time, which leads to a one-time savings in obligation authority spend. The USAF analysis concluded that savings would be realized by Fiscal Year 2024 (FY24) with no other savings for the life of the 10-year contract. As such, the savings was applied to the 10-year DLR spend of

, yielding a 12% DLR material cost savings for the USAF.

The other benefits of consolidating requirements under the proposed contract include:

a. Improved TF33 Aircraft Engine forecast development and collaboration with and expansion of the current TF33 manufacturing base through P&W’s expertise and experience as the

TF33 engine OEM. P&W will be engaging with other suppliers in order to develop viable sources to expand the TF33 manufacturing base. These improvements are expected to directly impact recovery of the USAF’s War Readiness Engine (WRE) levels, to maintain a worst case war scenario, that are currently not being met due to the organic depot engine production not keeping pace with TF33 production due to lack of parts availability.

b. Improved Material Availability and Order Response Time and reduced backorders through performance metrics with incentives and disincentives for the sole source parts provided by P&W to achieve Government metric goals and satisfy customer demand.

c. Optimized depot repair through enhanced engine repair status monitoring and management support by a P&W Engine Life Management Team (ELMT).

d. Improved TF33 engine time on wing, a measure of the operational reliability of an engine, by developing a robust manufacturing base and implementing more stringent quality controls for TF33 parts.

e. More accurate and comprehensive forecasted demand associated with Government requirements including monitoring the supply chain and providing recommendations to the Government while supporting delivery requirements.

f. Reduction in administrative lead time (ALT) and set-up cost because of a much simpler acquisition approach using a single master contract instead of numerous individual contract actions.

Identification of Alternative Contracting Approach

DLA Aviation considered the alternative contracting strategy of using the traditional transactional buy approach in order to lessen the effect of consolidation. The traditional approach would avoid any consolidation of requirements and would allow for more frequent negotiations with P&W, which possibly could allow the Government to obtain better prices. It would not, however, offset the cost savings from the ALT benefits arising from the proposed acquisition strategy, which could also result in lower prices because of its long-term commitment. Furthermore, and equally important, the alternative approach would not accomplish the USAF’s desired TF33 WRE level improvements. The alternative approach does not include the comprehensive forecasting intelligence and management support that can only be provided by P&W, the OEM, and would not achieve the overall benefits of the proposed approach, including substantial cost savings.

Determination

For the reasons stated above and in accordance with FAR 7.107-2(b), I hereby determine:

a. The proposed acquisition constitutes a consolidation of contract requirements.