Cover: F-35 Block Buy — An Assessment of Potential Savings

F-35 Block Buy — An Assessment of Potential Savings

Appendix B, Historical Case Studies of Multiyear Procurement and Block Buy Contracts

Published Jul 18, 2018

by Mark A. Lorell, Abby Doll, Thomas C. Whitmore, James D. Powers, Guy Weichenberg


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Research Questions

  1. What were the methodology and data sources used for analyzing historical MYP and BB contracts?
  2. What trends were observed across the case studies?
  3. How does historical programs' use of these contracts compare with the proposed F-35 BB contract?
  4. What lessons learned from historical programs are applicable to the proposed F-35 BB contract?

This appendix discusses how historical multiyear procurement (MYP) and block buy (BB) contracts have been implemented and how they compare with each other. As context for an analysis of potential savings in an F-35 BB contract, researchers examined 28 historical multiyear contracts, spanning 17 different weapon systems (15 aircraft and two naval vessels). This appendix outlines the methodology and data sources for analyzing historical MYP and BB contracts, provides a high-level overview of trends observed across the case studies, and provides in-depth discussion of the more-recent historical multiyear program case studies.

Key Findings

Methodology and Data Sources

  • In total, we reviewed 17 programs, encompassing 26 separate formal MYP contracts and two BB contracting efforts. These include all of the fixed-wing aircraft and most rotary-wing aircraft major defense acquisition programs since the late 1970s that have used formal MYP contracts.
  • For purposes of direct comparison among programs, we used formal President's Budget exhibits or justification packages for each program whenever possible. For a rough comparison to actual program outcomes, we used the official data presented in Selected Acquisition Reports, which are formally reported to Congress each year as required by statute.

Observed Trends and Potential Savings

  • There are significant differences among the key elements characterizing historical multiyear aircraft programs (e.g., program length, program size, annual production numbers, amount of economic order quantity [EOQ] funding or cost reduction initiative [CRI] funding). Each program must be evaluated in depth and on its own terms with respect to its unique characteristics. Notwithstanding this great diversity, there is a consensus among most program officials and subject matter experts that EOQ and CRIs are important drivers of savings on most MYPs.
  • Comprehensive and in-depth analysis of contractor cost structure, particularly on the lower tiers, beyond what has typically been done in the past, can substantially increase estimated program savings, particularly during the contract negotiation phase.
  • Development of an appropriate baseline estimate of the likely cost of comparable single-year contracts is difficult but crucial, as it is the basis for determining government estimated multiyear savings.

Research conducted by

The research reported here was sponsored by Lt Gen Christopher Bogdan, Program Executive Officer for the F-35 Lightning II Joint Program Office, and was conducted by the Resource Management Program within RAND Project AIR FORCE.

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