a1bill,
What I saved for last and most important is this:
5.60 The renewed emphasis on controlling costs includes a proactive approach to establishing cost and price data, based on fair dealing established by the Truth in Negotiations Act. The new approach, which has been termed Will‐Cost/Should‐Cost Management, aims to control and lower prices before they have been agreed on:
Will‐Cost: decision‐makers and Congress use independent cost estimates—forecasts of what a program will cost based upon reasonable extrapolations from historical experience—to support budgeting and programming; and
Should‐Cost: the manager of each major program is required to conduct a Should‐Cost analysis justifying each element of program cost and showing how it is improving year by year or meeting other relevant benchmarks and/or value.
5.61 The US Under Secretary of Defense for Acquisition, Technology, and Logistics has announced that the JSF Program is implementing Will‐ Cost/Should‐Cost Management:
We will use this method, for example, to drive cost down in the Joint Strike Fighter (JSF) program, the Department’s largest program and the backbone of tactical air power for the U.S. and many other countries in the future. This aircraft’s ICE [independent cost estimate] (Will Cost) average unit price grew from $50 million Average Unit Procurement Cost (APUC) when the program began (in 2002 dollars, when the program was baselined) to $92 million in the most recent ICE. Accordingly, the JSF Program had a Nunn‐McCurdy breach last year and had to be restructured by the Secretary of Defense. As a result of that restructuring, a Should Cost analysis is being done in association with the negotiation of the early lot production contracts. The Department is scrubbing costs with the aim of identifying unneeded cost and rewarding its elimination over time. The result should be a negotiated price substantially lower than the Will Cost ICE to which the Department has forecasted and budgeted. Secretary Gates indicated in his Efficiency Initiative that monies saved in this way could be retained by the Service that achieved the efficiency; in this case the Air Force, Navy, and Marine Corps could reallocate JSF funds to buy other capabilities.286
I am here to tell you this process dates back to the mid 1970s and it blows my mind that it hasn't been used in the F-35 Program. When we received our first desktop computers and learned how to use them, I asked one of my more computer literate staff members to put together a should cost computer program to develop costs for turbine blades and vanes, both simple solid and complex air-cooled ones that we had been doing by hand. We then used it two ways, first to show the design engineers the would cost of what they were designing and how they could reduce costs. Then we would use it as a basis to negotiate procurement costs with suppliers. No request for quotes left the purchasing department without having first received a should cost estimate. Subsequently, the program was expanded to include all castings, airfoils and structural alike. We had really big and expensive one piece structural castings. Other areas liked what we did and developed similar should cost programs. It then became very easy for the project department to roll up the costs for an entire engine and begin to develop the learning curve to determine the break-even point based on what the engines were proposed to be sold for.
So I can't express how surprised and disappointed I was to learn that this process, 37 years later, hasn't been used on the most sophisticated and expensive aircraft program ever undertaken by the US DoD, the F-35 program. It is no wonder the program has run amok from a cost point of view which always is a contributor to technical snafus... Just amazing, can you see why my point of view tend to be negative relative to the program and its management?