Use of r&m measures in australian defence aerospace performance based contracts

Abstract

The groundswell of interest in Performance Based Contracting (PBC), particularly in the US, UK and Australia, has the potential to cause a paradigm shift in contracting best practice. PBC can be defined as contracts where the provider is held to performance requirement, which reflect high value outcomes, such as systems readiness and supply chain efficiencies. Accordingly, PBC provides an opportunity to use R&M metrics as objective measures of contract outcomes which, when used as the basis for contractor payments, ensures the convergence of contractor and provider behaviors to better achieve these outcomes. In the Australian Defence aerospace environment, service contracts support complex technical systems that make excellent candidates for PBC arrangements. In order to study the benefits of PBC in service contracts, a research team was established in Aerospace Systems Division (ASD), responsible for the management of all aerospace equipment in both the acquisition and utilisation (in-service) phases for the Australian Defence Materiel Organisation (DMO). The team was charged with defining corporate outcomes, identifying appropriate performance metrics and developing a complementary payment regime. The team has produced a Handbook (approved January 2005) to assist new acquisition projects in adopting PBC and are currently assisting the implementation of PBC in utilisation contracts with a financial value of almost USD 2B. This paper identifies a four-step process for the development and implementation of a Performance Based contract from R&M theory, in the Australian Defence Aerospace environment. The first step is the identification of performance drivers (outcomes). The key outcomes for the sector were determined to be systems readiness, light footprint, mission success and assurance of supply. Step 2 was the identification of performance measures using reliability theory and the principles of selecting simple, meaningful and measurable metrics. ASD views the continuous monitoring of available aircraft, mean time between critical failure (MTBCF) and demand satisfaction rate (DSR) as highly representative of its strategic outcomes. The use of these metrics in contracting relationships require explicit success and failure criterion which through causal analysis can be clearly attributed to the actions of one party. In practice, the customer's activities in support of common objectives can complicate the interpretation and consequent application of metric data. Step 3 is specifying the target values for each metric. ASD takes a systems engineering approach to determining appropriate performance standards, using requirements initially determined in the acquisition specification. Having identified appropriate metrics and targets, Step 4 involves establishing a payment regime which effectively supports the performance framework. Recent implementation activities have given ASD the benefit of some practical experience in negotiating PBC contracts. The ASD metrics, in particular MTBCF, have proven challenging to aerospace support contractors. Although mission success remains a highly valuable outcome for ASD, contracts have traditionally relied on predictive (analysis) verification and validation methods in the acquisition phase rather than treating the utilisation phase as a long term, continuous reliability demonstration