June 29, 2007
Using a single three-year contract to buy 60 F-22A fighter jets along with engines and spare parts – rather than using three separate annual contracts – would save the U.S. Air Force hundreds of millions of dollars, according to a RAND Corporation study issued today.
The study estimates the savings to the Air Force would range from $270 million to $640 million, with the most likely savings figure being about $410 million.
The savings would be realized through efficiencies such as improving competition among parts suppliers, better manufacturing scheduling, and eliminating the need to prepare new proposals for future one-year contracts, according to researchers for RAND, a nonprofit research organization.
The RAND study was a congressionally mandated review of an Air Force request to purchase a final group of F-22A fighters and spare engines with a multiyear agreement rather than three single-year contracts like those used to buy the fighters previously.
The multiyear agreement was approved by Congress in the Fiscal Year 2007 National Defense Authorization Act and the Fiscal Year 2007 Appropriations Act. The RAND study was sponsored of the Office of the Secretary of Defense to satisfy requirements of the National Defense Authorization Act prior to Secretary of Defense certification of the multiyear procurement.
Based on the $410 million savings figure, RAND researchers estimate the multiyear agreement would result in a 4.5 percent savings on the cost of acquiring 60 airplanes, 133 engines and spare parts scheduled to be purchased over the next three years.
“A multiyear agreement to purchase F-22A's offers the potential of savings because it allows manufacturers to optimize the purchase of parts as well as the production schedule and avoid the need for proposals for future lots,” said Obaid Younossi, the report's lead author and a management scientist at RAND.
Also known as the Raptor, the F-22A is a two-engine fighter jet with both air-to-air and air-to-ground tactical systems. The first 123 F-22A fighters purchased by the Air Force were acquired during the past six years using one-year contracts that require annual approval of the Congress.
The Air Force expects to spend about $10 billion to purchase an additional 60 of the airplanes and related equipment over the next three years.
In order to understand the types of savings possible under multiyear contracts, RAND researchers visited the main contractors building the F-22A – Lockheed Martin, Boeing, and Pratt and Whitney – and their major suppliers to gather details about potential cost savings. This included reviewing documents such as subcontractor purchase agreements and other detailed information.
RAND researchers found that about 70 percent of the estimated savings could be substantiated by initiatives already identified by contractors. The rest of the savings are expected to come from efficiencies not yet identified.
The study, titled “F-22A Multi-Year Procurement Program: An Assessment of Cost Savings,” is available at www.rand.org.
In addition to Younossi, other authors of the study are Mark V. Arena, Kevin Brancato, John C. Graser, Benjamin W. Goldsmith, Mark Lorell, Fred Timson and Jerry Sollinger.
The RAND National Defense Research Institute conducted the study. It is a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Department of the Navy, the Marine Corps, the defense agencies and the defense Intelligence Community.