January 2020
° Under the main end item subprogram, report the quantity produced or planned, and the estimated cost if those units had been produced to the original design. ° Under the Planned Upgrades subprogram, report zero quantity, and the additional marginal procurement cost for the lot due to design changes. This additional cost should be split among EIRF, nonrecurring, and support costs in the usual reporting method. ° Report RDT&E costs for the original design under the primary end-item subprogram. ° Report RDT&E costs associated with planned design changes in the Planned Upgrades subprogram.
This systemwould allowcost analysts to clearly understandhowmuchof the price change over time was driven by planned improvements and howmuch was unexpected. It would support meaningful learning curve modeling, and also provide some progress tracking of new capability insertions. The narrative portions of the SARwould describe the capability enhancements obtained to date, the plan for future insertion of new capabilities, and the unexpected changes made to the base program. On the other hand, this system introduces a potentially onerous new type of reporting—namely, the hypothetical cost of the units if they had all been made to the original design. This is not information program planners and cost analysts currently possess, and potential pitfalls and perverse incentives may emerge in how they might choose to compute and report these counterfactual costs. In particular, cost growth due to design changes that may have been necessary in the base program(e.g., for safety reasons, to meet threshold requirements, or due to diminishingmanufacturing sources) could be allocated either to the base subprogram or to the P3I subprogram, whichever seemed least likely to risk an N-M breach. For N-M purposes, several regulatory changes might be benefcial. First, the primary end item and the Planned Upgrades should be treated as separate triggers. The primary end item would use the usual PAUC and APUC thresholds. The Planned Upgrades subprogram might have limits based only on total cost growth, or perhaps time-phased cost growth (e.g., average cost per year, rather than average cost per unit). Ideally, a breach on the Planned Upgrades subprogram would not imply a breach on the base subprogram (although the reverse would not be true).
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Defense ARJ, January 2020, Vol. 27No. 1 : 28-59
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