[CPEO-MEF] Resource Management- GPFR Article

[CPEO Moderator <cpeo@cpeo.org>]

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