Siobhan TackBCF, C&NE Department Chair

Defense Acquisition University, Capital & Northeast Campus(703) 805-4449 (DSN 655)

E-mail: siobhan.tack@dau.mil

Funds Management UpdatesAnd

Planning, Programming, Budgeting and Execution

EPMC

#1 Identify the Requirement

#2 Develop A Cost Estimate

#3 Apply Appropriations and Funding Policies

#4 Budget using PPBE

#5 Congress Appropriates through the Enactment Process

#6 Get to Work during the Execution Process

Lesson Overview• Cost Estimating Process

• Breaches

• Appropriation Categories

• Funding Policies

- Incremental Funding

- Full Funding

• Congress

• New Starts

• Reprogramming Rules

• Execution Laws

• PPBE

- Building Blocks

- Planning

- Programming

- Budgeting

- Execution Review DoD 7000.14-R

FMR

Cost Estimates and Players

• Program Office - Program Office Estimate (POE)- Cost Analysis Requirements Description

(CARD)

• Service Cost Agencies- Component Cost Analysis (CCA)

• OSD Cost Analysis Improvement Group (CAIG)

- Independent Cost Estimate (ICE)

Budget to the ICE

MDAP Cost Review Process

Service Acquisition

DecisionPanel

AssistantSecretary

(FM)Reconciliation

Service CostAgency

DefenseAcquisition

BoardCost Analysis

Improvement Group

ProgramOffice

POE CCA

ICE

Svc Cost Position(ACAT ID)

OIPT+

Svc Cost Position

Svc Cost Position

(ACAT IC)

POECARD

DiscretionarySufficiency ReviewSensitivity AnalysisCPIPTACAT IC

ACAT IC

ASARCN/MC PDMAF IPT

ACAT IDICE

MAIS Cost Review Process

Service Acquisition

DecisionPanel

(ACAT IAC)

AssistantSecretary

(FM)Reconciliation

Service CostAgency

ProgramOffice

POE CCA

ITOIPT

POE + CCA(ACAT IAM)

POE+

CCA(ACAT IAC)

PA&EAnalysts

POEEconomic Analysis

CCA

ACAT IACCIO

ACAT IAM

Review Cost Analysis

ITABPOE

+ CCA

(ACAT IAM)

Breach Parameters

SAR APB Unit Cost Rpt (UCR)

Schedule Milestones 6 Month Slip From 6 Month Slip From N/APrevious SAR APB Objective

Cost 15% Program Acquisition 15% PAUC Growth 15% PAUC Cost Unit Cost (PAUC) 15% APUC Growth GrowthGrowth RDT&E Growth

Procurement Growth 15% Avg Procurement15% Avg Procurement MilCon or O&M Growth Unit Cost GrowthUnit Cost Growth(APUC)

Reports Required Quarterly SAR Program Deviation Rpt Quarterly/Exception DAES(PM notifies MDA) Component notifies Congress (>=15%)

SecDef Certification (>=25%)

PAUC = Program Acquisition Unit Cost

APUC = Average Procurement Unit Cost

Nunn - McCurdyTitle 10 US Code, Section 2433

• PAUC or PUC increases of 15% “reportable” to Congress

• PAUC or PUC increases of 25% require Sec Def certification to Congress:

- Essential to National Defense

- No alternatives - New estimates are

reasonable- Management structure

is adequate

Major Appropriation Categories

APPN CAT

FUNDING POLICY

OBLIGATION PERIOD

O&M

SCOPE OF WORK EFFORT

RDT&E Activities & Exp, AIS Equip & SW, R&D Facilities, Minor Const

Incremental

3 Years[ 5 for SCN ]

Replenishment Spares, Civilian Salaries, Minor Const < $750K, Travel, AIS Equip & SW < $250K, SW Dev/Mod/Purch/Lease

Annual 1 Year

1 Year

5 Years

2 Years

Annual

Full

Full

Military Pay & Allowances, PCS Moves, Retired Pay Accrual

Major Construction Projects >$750K

Production Labor/HW, Initial Spares, AIS Equip & SW, non-centrally managed items >= $250K

MILPERS

MILCON

RDT & E

PROC[SCN]

Inv

Exp

Exp

Inv

Inv/Exp

AIS=Automated Information Systems, SW=Software, HW=HardwareRDT&E=Research, Development, Test & Evaluation, PROC=Procurement, O&M=Operations and MaintenanceMILPERS=Military Personnel, MILCON=Military Construction

Service AppropriationsNumerical Codes

Appropriation Army Navy USMC Air Force

RDT&E 2040 1319 3600Procurement

Aircraft 2031 1506 3010Missiles 2032 3020Weapons 1507W & TCV 2033SCN 1611Ammunition 2034 1508 3011USMC 1109Other 2035 1810 3080

MILPERS 2010 1453 1105 3500O & M 2020 1804 1106 3400MILCON 2050 1205 3300

Incremental Funding Policy

• Research, Development, Test & Evaluation

• Annual budget request will be limited to budget authority necessary to cover all costs expected to be incurred during that fiscal year.

• Incremental Funding Policy provides flexibility to the government in the uncertain environment of RDT&E

RDT&E

• Procurement and Military Construction• Annual budget request must cover the total cost to

deliver a given quantity of complete, militarily usable end items in a 12 month funded delivery period.

• Governing Concepts

- Usable End Items - No piecemeal procurement of systems is permitted. - Funded Delivery Period - 12 month period

starting with delivery of first item.

Full Funding Policy

Procurement

MILCON

Usable End Items

Funded Delivery Period

FY1 FY 2 FY 3 FY 4 FY 5

PRODUCTION LEAD TIME

FUNDED DELIVERYSCHEDULE

12 MONTHSFROM 1STDELIVERY

(FUNDED DELIVERY PERIOD)

DEFER TO LATER FISCALYEARS

LOT 1

5 5 5 5

PRODUCTION LEAD TIME 12 MONTHSFROM 1STDELIVERY

LOT 2

8 10

PRODUCTION LEAD TIME

LOT 3

CONTRACT AWARD

2 2 3 3 5 5 5 5 8 10

108th Congress

HOUSE

435 MEMBERS

- 229 REPUBLICANS- 205 DEMOCRATS

• 1 Independent

SENATE

100 MEMBERS

- 51 REPUBLICANS

- 48 DEMOCRATS

Few with military experience

- 1 INDEPENDENT

www.house.gov www.senate.gov

AUTHORIZATIONS

BUDGET RESOLUTION

APPROPRIATIONS

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT

COMMITTEE

INPUTS

15 10

HOUSE

SENATE

HOUSE

SENATE

HOUSE

SENATE

HASC HRNGS MARK-UP FLOOR FLOOR

SASC HRNGS MARK-UP FLOOR FLOOR

Authorization

Bill

15 1 30

CBO

REPORT

PRES

BUDGET“TARGET”

FISCAL

YEAR

HAC HRNGS MARK-UP FLOOR FLOOR

SAC HRNGS MARK-UP FLOOR FLOOR

Conf

^

^

Congressional Enactment Timetable

HRNGS Marks FLOOR

HRNGS Marks FLOOR

Budget

Resolution ^

Conf

AppropriationsBill

Conf

New Starts

• What is it?- Any new program, project, modification, sub-

project, task that you haven’t told Congress about

• How do you determine a new start?- Budget submission R-Forms and P-Forms

• Why should you care?- Congress mad at Air Force about this- Congress now watching other services- Appn Law says you won’t get paid, if you don’t

follow the rules

New Starts Rules of Engagement:

DD 1415-1 Prior Approval Reprogramming Action required for:

• Any new RDT&E program, project or sub project estimated to cost $10M or more in three years.

•Any new Procurement program, subprogram or modification estimated to cost $20M or more within the first 3 years. Exceptions are safety programs and safety modifications costing less than $20M. • Programs under this dollar threshold must do a letter notification to Congress in advance of initiating.

•No New Starts under a Continuing Resolution (CR)

Reprogramming Actions• Process of redirecting funds for purposes other than those

contemplated at the time of appropriation.

• Reprogramming rules are based on agreements between DoD and Congress.

• DoD informs Congress of all Reprogramming actions via a semi-annual report. Must go through OMB( 10 days) for this administration

• Types of “Reprogramming” actions:

- Congressional Prior Approval - Internal DoD Reprogramming- Prior Notification to Congress- Below Threshold (BTR)

• Any movement of funds between appropriations or between legal sub-divisions requires legislative transfer authority (i.e., prior approval)

FY 04 Below Threshold Reprogramming

RDT & E PROGRAM ELEMENT 2 YEARS

LINE ITEM3 YEARS

( 5 YEARS SCN)

BUDGET ACTIVITY

1 YEAR

1 YEAR

5 YEARSPROJECT

PROC

MILPERS

MILCON

O & MBUDGET ACTIVITY

SOME BA 1 SUB-ACTIVITY LIMITATIONS ON DECREASES

(OPERATING FORCES)

Reference Source: DoD 7000.14R, Vol 3, Ch 6, dated Aug 2000 RDT&E & Proc thresholds increased from $4M & $10M to $10M & $20M per USD (C) Memo, 15 May 03 (valid for FY03 and FY04)

* MAX DECREASE for FY04 changed to “LESSER of threshold amt or 20% of appropriation amt” per USD (C) Memo, 4 Nov 03-- For FY03 and prior, MAX DECREASE is “GREATER of threshold amt or 20% of appropriation amt”

$10 M* Lesser of$10 M or

20%

$20 M* Lesser of$20 M or

20%

$15 MNo Limit, unless specified

$10 MNo

Congressional restriction

Lesser of$2 M or

25%

NoCongressional

restriction

APPRN MAX INCREASE

MAX DECREASE LEVEL OF CONTROL OBL AVAIL

FY 03 Below Threshold Reprogramming

RDT & E PROGRAM ELEMENT 2 YEARS

LINE ITEM3 YEARS

( 5 YEARS SCN)

BUDGET ACTIVITY

1 YEAR

1 YEAR

5 YEARSPROJECT

PROC

MILPERS

MILCON

O & MBUDGET ACTIVITY

SOME BA 1 SUB-ACTIVITY LIMITATIONS ON DECREASES

(OPERATING FORCES)

Reference Source: DoD 7000.14R, Vol 3, Ch 6, dated Aug 2000

RDT&E & Proc thresholds increased from $4M & $10M to $10M & $20M per USD (C) Memo, Subject: Below Threshold Reprogramming Authority Policy, 15 May 2003 (valid for FY03 and FY04)

$10 MGreater of$10 M or

20%

$20 MGreater of$20 M or

20%

$15 MNo Limit, unless specified

$10 MNo

Congressional restriction

Lesser of$2 M or

25%

NoCongressional

restriction

APPRN MAX INCREASE

MAX DECREASE LEVEL OF CONTROL OBL AVAIL

Fiscal Laws

Misappropriation Act [Title 31, U.S. Code, Sec 1301] • Requires funds to be used only for the purposes and programs for which the appropriation was made.• AKA “The Purpose Statute”

Anti-Deficiency Act [Title 31, U.S. Code, Sec 1341 & 1517 ] • Prohibits making or authorizing an obligation in excess of the amount available. • Forbids obligation to pay money from the US Treasury in advance of an appropriation. • Requires agency to fix responsibility for violations of the Act.

Bona Fide Need Rule• Requires funds to be used only for needs or services in the year of the appropriations obligation period.

Execution - OSD Goals

By End of First Year of Funds Availability

RDT&E Obligations 80%Expenditures 55%Focus: Expenditures

ProcurementObligations 80%Focus: Obligations

Impact Statements (AKA Reclamas)

• When to Reclama?

- Anytime there is a query on reducing program funds

• Why answer?

- A non answer = ambivalence = funding cut (maybe more than one)

• Who prepares the answer?

- Program Office best knows the impacts

- Sys Coord best equipped to shape language of response

- Well written responses from the Program Office results in fewer re-writes

up the chain

• “Quick and Dirty” Reclama Using Burn Rate

- Using actual data from CPR/CFSR/CSSR, show that the current level of

performance will not be maintained if funds are reduced

Reclama No Nos

• No response - Program seen as easy target• “#1 Program in the Navy!”

- If it were, it probably would not be targeted for a cut• Failure to know the audience• Claiming unexecutability

- If cut is small, no one will believe it- If cut is large, chance of cancellation grows

• Making statements not supported by facts- Overly optimistic EACs not supported by Earned Value data- Poorly performing contractors will not dramatically improve

• Chicken Little - The sky will not fall if your program has a little cut

• Whining - Especially when lengthy• Blaming DFAS – Everyone uses DFAS, everyone has same

problem

Reclama Must Haves

• Respond only to the question

• Be brief, just the facts,– no time for fluff

• Use non-technical language

• Spell out acronyms

• Operational Impact

- Ensure User agrees with your version of operational impacts

- Must be believable

– Small cut to a large program will not cause a large problem

- “Loss of funds will delay operational ability to <perform a task, counter a

threat> for <x number of> months/years”

- “Warfighter will lose xyz capability”

- “User’s #1 ECP for this system this fiscal year”

– Must be backed up by User that it really is their #1 ECP for the system

PPBE

Planning, Programming, Budgeting and Execution

Decision Support Systems

Planning, Programming & Budgeting System

Acquisition Management System

Requirements Generation System

Planning,Programming,Budgeting, &

Execution(PPBE)

NewDoDD 5000.1DoDI 5000.2

Joint Capabilities Integration & Development System

QDRQDRQDRQDR

PPBE Phases

• Planning - Assess capabilities / review threat- Develop guidance

• Programming - Turn guidance into achievable, affordable packages- Six-year program (Future Years Defense Program)

• Budgeting - Test for efficient funds execution - Scrub budget years- Prepare defensible budget

• Execution Review (concurrent with program/budget review)- Develop performance metrics- Assess actual output against planned performance- Adjust resources to achieve desired performance

goals

Future Years Defense Program (FYDP)

• Computer database maintained by D,PA&E

• Approved force structure and resources in SECDEF Defense Program

• Contains PY, CY, BY1, BY2 + 4 Out-Years + 3 additional years for force structure only

• Updated two times per PPBE Cycle:- Program/Budget Review – August / September

- President’s Budget – January / February

FY12

FY13

FY14

FY08

FY09

FY 10

FY 11

FY06

FY 07

Budget Years

OutYears

ForceStructure

Only

BY 1= FY 06BY 2= FY 07BY 2+1= FY 08...

FY 06-11

Management Initiative Decision (MID) 913

Major Initiatives:

• Quadrennial Defense Review (QDR) shifted to the second

year of a new administration

• Move to a two-year cycle

• Off-year SPG/JPG is optional (at the discretion of SECDEF);

will not introduce major changes in off-year

• Off-year review focus on execution and performance

• Create a single standardized programming and budgeting

system for data collection and management

JPG

PresidentNational Security CouncilCIA/DIA/JCS/OSD

JCSCOCOMsSERVICES

NMS JPD

NSS

CPR

SPG

APR/MAY

JCS, OSD,COCOMs,SVC HQs,ETC.

SEP DEC MAR

SECDEF

1st Year 2nd Year

1st year of a new administration

Planning Phase

COCOM – Combatant CommanderCPR – Chairman’s Pgm RecommendationJPD – Joint Planning DocumentJPG – Joint Programming GuidanceNSS – National Security StrategyNMS – National Military StrategyQDR – Quadrennial Defense ReviewSPG – Strategic Planning Guidance

Strategyalso reflected in QDR

Notes• SPG replaces Draft Defense Planning Guidance (DPG)• JPG replaces DPG

JAN

MID 913Changes to

Program/Budget/Execution Review:

• Transition to a true biennial process

• Incorporate metrics and cost models - Focus on outputs: what are we getting

for our money?

• Over time, metrics will become the analytical underpinning to ascertain whether the appropriate allocation of resources exists

PBDs

PDM

ServicesPEO/PM,SVC HQsCOCOMs

BESPBMBI

Adv Ques/Hearings

AUG JAN/FEBOCT

Issue Resolution

SECDEFSLRG

POM

OSD/OMB

CPA

DECNOV

Services / PEO / PM Answer / Reclama

JCS

OSD/OMB

BES – Budget Estimate SubmissionCOCOM – Combatant CommanderCPA – Chairman’s Pgm AssessmentMBI – Major Budget IssuesPB – President’s BudgetPBD – Program Budget DecisionPDM – Program Decision MemoPOM – Program Objectives MemoSLRG – Senior Leadership Review Group

Concurrent Program/Budget Review

UpdatesFYDP

UpdatesFYDP

3-Star Group

Notes• 3-Star Group replaces Program Review Group (PRG)• SLRG replaces Defense Resources Board (DRB)

Jun/July Summer Review

DEPSECDEF Direction forFY 2005 - 2009 Submission

• No DPG-05- Components comply with DPG-04 and PDM direction

• No FY05-09 Program Objective Memorandum (POM) or Budget Estimate Submission (BES) submittal to OSD

• Components instead submit Program Change Proposals (PCPs) or Budget Change Proposals (BCPs)- Both BCPs and PCPs will be cost neutral (offsets

required)- PCPs resolved thru Program Decision Memorandums

(PDMs) - BCPs resolved thru Program Budget Decisions (PBDs)

Program Change Proposals(PCPs)

• Identify areas to take additional risk (offsets)

• Limited to items that exceed $250 million across FYDP- Threshold at individual programmatic issue level- PCPs may accommodate smaller issues if serious

programmatic problem- If less than $250 million, may submit as BCP if budget

year is affected

• Must comply with PDM decisions

• Combatant Commanders may submit up to six prioritized PCPs regardless of dollar value

Budget Change Proposals(BCPs)

• Generally limited to fact-of-life changes:- Cost increases- Schedule delays- Management reform savings- Workload changes- Funding execution experience- Congressional action

• May involve FYDP years if total cost is less than $250 million and budget year is affected

• Backed up with appropriate budget exhibits

• Offsets required

PBDs

PDM

ServicesPEO/PM,SVC HQsCOCOMs

BCPsPBMBI

Adv Ques/Hearings

AUG JAN/FEBOCT

Accepted PCP Resolution

SECDEFSLRG

PCPs

OSD/OMB

CPA

DECNOV

Services / PEO / PM Answer / Reclama

JCS

OSD/OMB

BCP – Budget Change ProposalCOCOM – Combatant CommanderCPA – Chairman’s Pgm AssessmentMBI – Major Budget IssuesPB – President’s BudgetPBD – Program Budget DecisionPCP – Program Change ProposalPDM – Program Decision MemoSLRG – Senior Leadership Review Group

Off-Year Program/Budget Review

3-Star Group

UpdatesFYDP

Notes• 3-Star Group replaces Program Review Group (PRG)• SLRG replaces Defense Resources Board (DRB)

Year 1:Year 1: FY 07-11FY 07-11Early National Security Strategy (NSS)Early National Security Strategy (NSS)Off-year SPG/JPG as required (at discretion of SECDEF)Off-year SPG/JPG as required (at discretion of SECDEF)Limited Changes to Baseline ProgramLimited Changes to Baseline Program

Year 2:Year 2: FY 08-13FY 08-13Quadrennial Defense Review (QDR) – Aligned with PB submission in Quadrennial Defense Review (QDR) – Aligned with PB submission in second year of an administrationsecond year of an administrationFiscal Guidance IssuedFiscal Guidance IssuedOn-year SPG/JPG (implementing QDR)On-year SPG/JPG (implementing QDR)POM/BES SubmissionsPOM/BES Submissions

**Year 3:**Year 3: FY 05-09FY 05-09 (FY 09-13)(FY 09-13)Off-year SPG/JPG as required (at discretion of SECDEF)Off-year SPG/JPG as required (at discretion of SECDEF)Limited Changes to Baseline ProgramLimited Changes to Baseline Program

Year 4:Year 4: FY 06-11FY 06-11 (FY 10-15)(FY 10-15)Fiscal Guidance IssuedFiscal Guidance IssuedOn-year SPG/JPG (refining alignment of strategy and programs)On-year SPG/JPG (refining alignment of strategy and programs)POM/BES SubmissionsPOM/BES Submissions

Four Years in the Biennial Cycle Corresponding to Four-Year Presidential Terms

OSD Balanced/Coherent/Consistent Budget

Program Phasing

1. Contract award date-executable?- 4th quarter award? doable?- testing schedule on track?- Approvals-reviews/MS?

2. Deliveries- actuals vs planned (P-21)- funded delivery schedule: actuals, backlogs - impact of delays

3. R&D/Production relationship- Concurrency: degree?- MS status- testing complete?- LRIP: how funded, type of contract, risk?-Production ramp executable? reasonable?

4. Production Schedule- reasonable- 12 month delivery period - lead times? Same or different each yr?

OSD Balanced/Coherent/Consistent Budget

Program Pricing1. Does it make sense to by this item at the requested quantity?

- P-21: economic production rate- IOC date?- Mod installation schedule?

2. What other systems does it interface with?- Funding adjustment may affect another program

3. Budget to most likely cost!!!- Contracts: type?, current budget status?- Termination Liability

4. Unit Cost audit trail- P-5: learning curve-justify, compare to similar system- last negotiated unit cost?

5. Escalation-current indices used6. Does everything add? Consistent from one exhibit to another?7. Production rate changes

- overhead rate changes?- basis for cost estimate- contract savings?

8. ECP/ECO estimated-similar to other programs?

9. Metrics-What did we get for bucks spent-ROI?

OSD Balanced/Coherent/Consistent Budget

Budget Policy

1. Color of Money-correct? Soo, tasks, clearly defined.2. Current obligation/expenditures day of hearing3. R&D-

- Incrementally funded?- 12 month effort? (look at expenditures-tells the story)- forward financing?-unobligated balance, prior history- prior yr funding availability/expenditures

4. Procurement- Full funding policy- Funded delivery schedule

5. Fully funded across FYDP?- Compare to independent cost estimate

6. Management Reserve?- Why?- Degree of technical risk?- Compare to like program

7. Growth in effort from one year to next-unusual?

OSD Balanced/Coherent/Consistent Budget

Budget Execution

1. Current status-obligation/expenditures

- R&D: 80% ob, 55% expended -Expenditures better indicator than obligations

- Procurement: % Obs/Exp depends on type of Weapon System- focus on obligations

2. Past performance- indicator of future performance

3. What did you say last year?- Look at old exhibits several years back

How to Survive

• Acquaint yourself with key OSD staff• Prepare for hearing

• Focus on Advance Questions• Conduct an internal budget review• Ensure your submission answers all their questions• Understand Issues:Budget policy, programmatic

• Hearing• Focus on Advance Questions• Limit attendance at Hearing

• Follow-up Hearing Questions• Appeals - Address Specific PBD Rationale• Recognize that outside “macro” issues will impact acquisition programs

Good PPBE Websites

OSD Program Analysis & Evaluation (PA&E)• http://www.pae.osd.mil/

Air Force Programmers• http://www.xp.hq.af.mil/XPP/Panels/xppe_library.htm

Navy Programmers• http://www.hq.navy.mil/cno/n8/n80/ (requires password)

Army Programmers• http://www.paed.army.mil/

Army Staff Orientation Brief (includes Army Budget brief)• http://www.hqda.army.mil/stafforientation/homepage.htm

FM Knowledge Management• http://center.dau.mil/Topical_Sessions_templates/FM_Main/template.htm

FY04

DJJ F M A M J A S O NJJ F M A M J A S O N D JJ F M A M J A S O N D

FY03 Execution

FY03 and prior

FY04

Program/Budgeting Execution

FY05

FY05

FY06 Planning

CY03 CY04 CY05

Enactment Execution

FY04 and prior

Enactment

FY06

Plan?

2nd Yr

2nd Yr

2nd

Enactment

FY07

3rd Yr

3rd Yr

FY05 and prior

FY 06-11 SPG/JPG FY 06-11 POM

Exec

FY06+FY 06-11 BES

Planning

Program/Budgeting

Program/Budgeting

SPG/JPG – Strategic Planning Guidance PCP – Program Change Proposal BCP – Budget Change Proposal

Joint Programming Guidance

FY05-09

Resource Allocation Process

FY 07-11

FY 05-09 PCPFY 05-05 BCP

FY 07-11 PCPFY 07-11 BCP

I have a question

I think I know

this “stuff”

I don’t have a clue

Questions or Comments???

BACKUP SLIDES

Advance ProcurementLong Lead Items

• Finances Long Lead (Recurring) Components

- To protect production schedule - To maintain a critical skill in the workforce

• Exception to Full Funding Policy- Contained in Acquisition Strategy- Approved in Milestone Decision- Separate initial contract

• Generally, Budget Authority requested / granted one Fiscal Year in advance of the related end item contract

• Shown as a separate line item on the budget request

FY0 FY 1 FY 2 FY 3 FY 4

2 2 3 3LOT 110 Tanks

$400M

Less AdvanceProcurement: + $50M - $50M

$ 350 M

$ 50 M

Budget Request System:

Budget Request Adv Proc (AP):

Full Funding of $400 M

=

Advance Procurement (Example)

Multiyear Procurement (MYP)

• Under a multiyear contract, government agrees to buy multiple years’ requirements (usually up to 5 years) of usable end items without exercising contract options

- Annual procurement contracts may have a base year plus one or more option years exercised at government’s discretion (no penalty/cost for not exercising option)

• Full MYP contract amount not funded in year of contract award. Congress provides annual appropriations for each year covered by contract.

Multiyear Procurement (cont.)

• Reasons to use MYP: - Reduce program cost growth

– Provides assurance to Contractor of future years procurement– Facilitates economic order quantities (EOQ)– Encourages Contractor investment in productivity

improvements

- Provide program stability – Government liable for large payment (decreasing over time) for

early cancellation of contract (cancellation ceiling)– Reluctance to cancel MYP contract once it is in place

• Problem with MYP:- Reduces Service/OSD/Congressional flexibility

• Exception to Full Funding Policy- Due to EOQ buys

Multi-Year Procurement (cont.)

Units 13 35 36 36 27

$M $2,275 $5,600 $5,400 $5,300 $3,900

Budgeted the same wayas Full Funding

1 2 4 6 8 9 9 9 9 9 9 9 9 9 9 9 9 9 9

1 2 3 4

FY1 FY2 FY3 FY4 FY5 FY6 FY7

CAT#

01

02

03

04

05

06

#FYDP(CAPS)

ACTIVITY

Basic Research*/RESEARCH#

Appl Research/EXPLOR DEVEL

Adv Tech Devel/ADV DEVEL

Adv Comp Dev & Prototypes/DEM / VAL

Sys Dev & Demo/ENGR DEVEL

RDTE Mgmt Spt/MGMT & SPT

OperationalSystems Devel

PURPOSE

EXPAND KNOWLEDGE/STUDIES / EXPERIMENTS

DEVELOP & EVALUATETECHNICAL FEASIBILITY

PROOF OF CONCEPT/MODELS

SPECIFIC WEAPONSYSTEM

ENGR & MFG DEVEL/INTEGRATION/DEMO

TEST RANGES /CIVILIAN RANGES

IMPROVE PERFORMANCEOF PRODUCTION SYSTEM (R&M)

WHO

UNIV /LABS

UNIV / LABS /CONTRACTOR

LABS / FIELD /CONTRACTOR

LABS /CONTRACTOR

CONTRACTORS /FIELD ACTIVITY

TEST RANGES

CONTRACTOR/FIELD ACTIVITY

FUND MANAGED

RDT & E COMMANDS /SERVICES

RDT & E COMMANDS /SERVICES

RDT & E COMMANDS /SERVICES

PMO

PMO

RDT & E COMMANDS / HEADQUARTERS

PMO (FUNDING IS NOTALWAYS RDT&E, THE MFP IS NOT 6, R & D)

BA*

BA-1

BA-2

BA-3

BA-4

BA-5

BA-6

BA-7

*FMR(Title Case)

Major Force Program 6 - RDT&E

Note: FMR BA titles consistent with Summer 2002 DoD 7000.14-R Financial Management Regulation (FMR) update