|From:||CPEO Moderator <firstname.lastname@example.org>|
|Date:||21 Nov 2003 15:44:01 -0000|
|Subject:||[CPEO-MEF] Resource Management- GPFR Article|
The following article was extracted from the 2003 3rd Quarter Issue of Resource Management. It can be viewed online at: http://www.asafm.army.mil/proponency/rm-mag/fy2003/3rdQ.pdf (pp. 10-11) ______________________________________________________ Guaranteed Fixed-Price Remediation Major Paul B. Olsen A little over one year ago, Guaranteed Fixed Price Remediation (GFPR) was a sleepy environmental action in an inbox.Within six months, Army briefed GFPR to the Under Secretary of Defense, the President signed GFPR expanding legislation into public law, and the Army and Air Force created contracts totaling almost $1 billion to execute this initiative. How did an idea at action-officer level get implemented so quickly? The answer is the Department of Defense and Army’s Business Initiative Council (BIC). This article presents an overview of GFPR, and demonstrates one example of how the BIC served as an implementation catalyst. Background GFPR is a performance-based contracting vehicle obligating the contractor to guarantee the fulfillment of an environmental remediation requirement (including regulatory site closure). The Army and the contractor agree on a fixed price, up front, for the contract award, then stick to it. By using either a services contract, or a construction contract (with the differing site conditions clause removed), all avenues for the contractor to come back to the Army for cost over-runs are closed. The contractor buys insurance, or absorbs costs to cover over-runs if the cleanup becomes more expensive than the contract award. The insurance suites available are by nature as different as environmental remediation requirements. The contractor buys the best mix of insurance policies to match the environmental cleanup risks. Although new to the Army, GFPR is not a new concept. The first examples are found in the private sector in the late 1970’s. The most common examples were banks that had foreclosed on contaminated properties. Like foreclosing on a house or car, the banks were not interested in keeping the asset, but rather liquidating these properties as quickly as possible. In their search for the quickest way to accomplish this task, many banks preferred the GFPR contract. An Army analysis of 40 GFPR contracts showed a very desirable cost savings of 40% when compared against costbased cleanups for the same projects. The Department of Energy (DOE) pioneered GFPR for environmental remediation for the Federal Government. GFPR contracts did not succeed for DOE, but the Army learned many basic lessons from their efforts. The Navy was the next Federal entity to attempt a public sector GFPR cleanup. Although successful, the Navy did not see savings in cost or time compared to cost-based cleanups. The Army was next to pick up the GFPR torch. From 1999 to 2002, Forces Command (FORSCOM) and Training and Doctrine Command (TRADOC) awarded nine GFPRs, totaling $80 million. When the GFPR contract cost of these nine are compared to the estimated cost-based contracts, at least 14% savings is seen ($12.5 million). The 14% savings is a conservative figure, grounded in empirical data. In the 40 GFPR contracts analyzed in the private sector (Chevron, DuPont, Shell, etc.) an average of 40% cost savings is normally seen. Besides cost savings, GFPRs also show time savings.When compared with original cleanup plans, GFPR timelines tend to be half as long. Although it is too early to confirm these timelines, this trend is supported by 40 private sector GFPRs that have shown an average of 45% acceleration to site closure. GFPR becomes a BIC Initiative The savings in time and money seen by the nine Army GFPRs caught the attention of the Army’s Deputy Assistant Chief of Staff for Installation Management, who submitted this initiative to the Army BIC. The BIC exists to improve the efficiency of Defense business operations. The reforms identified and implemented by BIC allow savings to be reallocated to higher priority efforts (i.e., people, readiness, modernization and transformation). The DoD BIC approved the GFPR initiative Sept. 4th 2002, requiring the services to maximize the use of GFPR contracts where feasible. The initiative took only 120 days from initial submission to DoD approval. The BIC Catalyst The importance of the BIC process cannot be understated in this example. The BIC puts a good idea on the fast track, providing the initiative with senior leadership support and visibility to cut through organizational and administrative processes. In the case of GFPR, the initiative was constrained by a statutory requirement preventing expensive environmental remediation services from being multi-year funded. In other government programs, such as tank acquisition, the government can pay the contractor every year by the number of deliverables created (i.e., tanks). This stretches the large contract into smaller payments, like a home loan. In environmental cleanup, no discernable interim products (like tanks) are created, so they can’t be funded that way. Instead, the government had to obligate the entire cleanup cost in one year and disburse it over five. With active installation GFPR contracts ranging up to $25 million, this limited the scope and frequency. The BIC took the lead, and convinced Department of Defense leadership that the Army’s legislative fix was a priority on Capital Hill, and must be passed by Congress. The Multiyear Funding provision was passed in the FY03 Defense Authorization Bill. This suggests the legislation’s success is attributed to the visibility provided by the BIC, because although the same legislation was proposed in Fiscal Years 01 and 02, it was not successful due to low visibility and priority. Current Status Of GFPR The Army is moving out aggressively with GFPR contracts. It is a three-pronged attack consisting of the U.S. Army Corps of Engineers (USACE), the U.S. Army Environmental Center (AEC), and the ACSIM’s BRAC Office. USACE has established a $500M GFPR contracting capability under a suite of contracts that will support both large and small cleanups in Army, Navy, Air Force and the Environmental Protection Agency, including provisions for small businesses. These contracts will be fully operational the fourth quarter, FY03. AEC plans to award six major GFPR contracts in 4th Quarter, FY03 at Fort Dix, Fort Jackson, Ravenna and Lake City Army Ammunition Plants, Sierra Army Depot, and a bundled GFPR of U.S. Army Reserve sites. The ACSIM’s BRAC Office has three additional GFPR contracts planed for FY03 and more in FY04. The Air Force is also executing GFPR contracts this fiscal year. The Army OACSIM provided Air Staff environmentalengineers many models and lessons learned to promote their program. This partnership and information sharing is enabling the services to grow their cost savings together. The latest Air Force GFPR awarded showed a 20% cost savings compared to the cost-based contract estimate. The Army is focusing its future GFPR contracting efforts by making the contracting process even more streamlined and performance based. Contracts with Statements of Work averaging 60-100 pages are being set aside for more agile Statement of Objectives (SOO) or Performance Work Statements (PWS) familiar to Performance Based Contracts. Conclusion The GFPR contracting initiative integrates the best practices from engineering, environmental science, and the private sector. The professionals who developed this initiative, and those currently working on awarding new GFPR contracts will save both time and money. However, being a good steward of tax dollars is only part of the equation. Knowing that an initiative will result in better protection of human health and our environment provides the remaining, non-quantifiable balance. About the Author Major Paul Olsen, of the Office of the Assistant Chief of Staff for Installation Management, is the Army’s and DoD’s designated point of contact for GFPR policy, strategy and implementation. He holds Masters Degrees in Environmental Engineering and Business Management. Where do the Savings Go? Many of the initiatives approved by the Army BIC are intended to spend dollars more wisely, and save money. However, past reform efforts have taken whatever savings were generated by the Services and given them to OSD to re-allocate. BIC is different. One of the guiding principles of the DoD BIC process is that savings stay with the organization that generated them. In fact, the BIC Charter, which was revised and signed by all seven DoD Principals in June, 2002, specifically states, “When a DoD component implements an initiative, and thereby generates savings, it will retain both the savings and the ability to reallocate their use.” And the Army has decided to have the same policy internally as does the BIC. Savings from BIC initiatives will be retained by the MACOM that generates them. MACOM commanders will be permitted to reapply the savings to programs as they see fit, consistent with Army priorities. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CPEO: A DECADE OF SUCCESS. Your generous support will ensure that our important work on military and environmental issues will continue. Please consider one of our donation options. Thank you. http://www.groundspring.org/donate/index.cfm?ID=2086-0|721-0
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