The program, called "Pick-a-Base," is being undertaken to meet a Pentagon directive to competitively source the services currently provided by more than 5,000 AETC personnel, both military and civilians. It is expected to slash a minimum of 25 percent, or $625 million, from the command's five-year cost of operations at five installations being studied. The current price tag for those efforts is approximately $2.5 billion.

To pave the way to better-performing, more cost-effective support operations, AETC took the unaccustomed step of conducting strategic market research, including visits to Fortune 100 companies and attendance at business conferences such as those sponsored by Tradeline, producer of FM DATA.COM. The private-sector expertise provided invaluable advice on contemporary FM practices such as benchmarking and performance measurement.

"While we engage in strategic market research all the time in areas like aircraft development, we rarely do it for activities connected to our BOS, base operating support," says Maj. Drew Obermeyer, Performance Management Contract Advisor, Contract Management Branch, HQ AETC, Randolph Air Force Base, Texas. "But BOS expenditures take up half of our budget. When you spend that kind of money, you ought to put some dollars into strategic market research to find out about cutting-edge technology in facility management and information services."

Pick-a-Base

The cost cutting is part of larger federal economy measures promulgated in the Office of Management and Budget in Circular No. A-76, a policy document that outlines the process of competitively sourcing non-core government activities.

Each area to be competitively sourced undergoes what is known as an A-76 study, a multi-faceted process of collecting workload data and defining requirements. The results are compiled in a comprehensive solicitation document, which will ultimately go to both commercial entities and MEOs--Most Efficient Organizations, groups of highly trained government employees who compete with the private sector--for bid.

According to Obermeyer, the effort to complete an A-76 study can tie up anywhere from 20 to 50 people for a period of 18 months to two years. That administrative burden is one reason why the command wanted to conduct as few studies as possible.

"Ideally, if we had one facility that could come up with 5,000 positions, we would have picked one base and been done with our program," he says.

Instead, AETC had to pick five bases (hence the program name, Pick-a-Base) out of the 13 under its jurisdiction to arrive at the total program volume.

Fewer Contractors, Greater Savings

Another reason to limit the number of studies was the extent of future savings. The military has learned that piecemeal contracting is less cost-effective than more comprehensive efforts, Obermeyer says.

Information gathered by the Pentagon since 1976 revealed that although fragmented competitive sourcing of individual functions--mailroom or grounds maintenance, for example--produced savings, economies were greater with broader contracts.

"The data show that outsourcing 26 to 50 positions produces an average savings of 15 percent over current operation costs, but as you move upward to 300 or more positions, the savings range up to 41 percent," says Obermeyer.

Experience also shows that the fewer contractors per base, the easier it is to get things done.

With the exception of its pilot training instructors, a single contractor has been operating one of the bases in the AETC organization since 1962. The commander need only contact one person when he wants to address a special need, for instance, conducting a flying mission on a Saturday. That example stands in contrast to other bases with multiple providers where it might require communicating with six to 12 different entities to accomplish the same thing.

"You can just imagine the administrative costs of working in that type of multi-provider environment," says Obermeyer. "One of our AETC goals is to have as few studies as possible, not only because of the disruption associated with putting those 5,000 individuals through the process, but also because in the end you have fewer service providers so your administrative costs are dramatically reduced as well."

Strategic Market Research

AETC's market research confirmed that well-managed partnering efforts with the service providers ultimately selected offered many opportunities for gain. One aspect of its new business strategy is an emphasis on insight, not oversight.

"Our goal is to hire the experts," says Obermeyer. "We want to develop supplier relationships that give us insight into the business process, because it yields the results we needed to execute our mission. But we don't want to be in the business of managing that process."

In fact, expertise is key to maximizing performance per dollar spent. A very significant lesson emerged from the company visits and conferences: competitive sourcing can simultaneously reduce operating costs while also improving the quality of services delivered. This conclusion is also borne out in research by the Center for Advanced Purchasing Studies (CAPS), an arm of the National Association of Purchasing Management, in Tempe, Ariz.

"Our market research confirmed the finding of a CAPS study which found that as service requirements are consolidated, economies of scale can produce further savings," Obermeyer says. "Prices remain at or below market levels, quality goes up by 33 percent, scheduled performance across the board increases 14 percent, and lead time drops by 33 percent. The reason for this is that the people you hire know better and more cost-efficient ways to do the work. We, in turn, can then concentrate on what is important to us."

Another conclusion is that savings can be expected to continue in the follow-on years of a contract as the service provider becomes more familiar with the needs and requirements of base operation and recommends additional ways to reduce costs.

Benchmarking

Benchmarking was the next step in building a new BOS business strategy. Working with the UMS Group of Parsippany, N.J., AETC measured its current performance in a number of areas against similar data gathered from Fortune 500 companies. The findings were instrumental in highlighting issues that needed to be addressed in order to meet future goals. They also provided milestones to measure progress.

"The power of benchmarking lies not so much in seeing exactly where you fall on the scale but in knowing why you are at a particular point," says Obermeyer. "Why is another company paying the same price but getting twice the service level? It's very important to understand what those differences are."

For example, in the category of custodial services, AETC found that although its labor costs were almost two-thirds lower per hour than that of other well-performing organizations, it took almost three and a half times as long to do the same work.

"Maybe if pay scales were more competitive, people would work more efficiently, and we'd come out better in the long run," Obermeyer observes.

Repackaging

Despite objections that military installations should not be benchmarked with industry, Obermeyer maintains that a strong commonality underlies activities in both environments.

"What I'm benchmarking is not a military installation, it's service delivered, whether carpet cleaning, heating and cooling, or grounds maintenance," he explains.

However, to achieve true apples-to-apples equivalence, AETC needed to translate the duties traditionally performed by groups like its civil engineering, transportation, and supply squadrons into language compatible with private sector job descriptions and performance criteria--no easy task.

"To do that, we had to lay our normal Air Force structure on its side and pull it apart," he says.

Cross-flight (interdisciplinary) teams and internal customers studied the work and formulated new service level definitions, customer expectations, and financial goals, essentially repackaging existing tasks into 22 commercial service areas, each with a new statement of work that closely resembles what would be found in private industry.

Performance Management Plan

AETC has also developed a performance management plan to assure quality in the new commercial service areas.

One side of the plan is a 100-point Quality Performance Index (QPI), which consists of customer satisfaction, metrics, and business goal components. Vendors essentially will be reporting the results of their own customer surveys, a practice that Obermeyer is comfortable with.

"How the survey is done is not that important as long as the vendor proves his sample represents a good cross-section of the customer base," he says.

The list of metrics ranges from 100 to 200 items, depending on the individual base. Business goals are tied to federal targets for contracting with organizations such as minority or women-owned firms.

The other side of the plan is shared savings. As motivation for continued cost reductions over the five- to seven-year span of the competitive sourcing contracts, AETC decided to offer an unusually generous incentive, amounting to 50 percent of the savings over bid price for the appropriate year. However, to make sure service levels are met, the total available profit will be pegged to the contractor's score on the QPI.

This method puts part of the contractor's fee at risk in the case of poor performance. For example, a bid of $50 million to run a base for a particular year might include $45 million in actual costs and $5 million as the contractor fee. If the total came in at $46 million, $4 million under budget, the contractor would be eligible for an additional $2 million. However, the AETC incentive plan takes the contractor's total available profit (or fee) of $7 million and multiplies it by the QPI rating. If the score were 82 percent, total earnings would be reduced to $5.74 million.

"I think that if you leave $1.25 million on the table at the end of the year because of failure to deliver the service quality specified in the statement of work, someone in your management is going to talk to you about that," says Obermeyer.

By Nicole Stahl

We welcome your Questions and Comments

Copyright 2008 Tradeline Inc.
All Rights Reserved
ISSN: 1096-4894