By Vicky Falcón
NAVAIR Public Affairs Office

New processes for closing out large Naval Air Warfare Center (NAWC) contracts will lead to savings of more than $1 million in 2007 with the potential for millions more as those processes are gradually adopted by different Navy commands.

The NAVAIR AIRSpeed Black Belt project that led to these new processes was run by former NAVAIR Black Belt Renee Lesniak, now a Process/Program Analyst for the Infrastructure Business Operations Office at NAVAIR China Lake, Ca.

“NAVAIR has many large contracts that are physically completed, but not administratively closed, causing rework and multiple reviews,” said Lesniak. “Many of these contracts have funds obligated on them that could potentially be ‘deobligated’ and returned to the sponsor for other purposes.”

According to Lesniak, if the funds are not deobligated within their expiration or appropriation dates they can no longer be used for other mission requirements and eventually are canceled and lost.

Statistics from a Naval Postgraduate School Study in February 2003 show that cancelled and unexpended funds are a huge problem for the U.S. Navy. Of the 47,700 completed Navy contracts for that year, 23.4% (11,000) were overaged, accounting for $2,400,000,000.

Overaged contracts are physically complete contracts that have gone beyond their regulation timeframe – sometimes by ten years or more – yet have not be administratively closed out.

“This is a DoD-wide problem,” said Carole Lindemann, Contracting Officer and Black Belt team member. “But our command has made a significant effort to clean up overaged contracts and this project is another step in that direction.”

Once a NAVAIR or NAWC contract is awarded, most go to the Defense Contracting Management Agency (DCMA) for administration. DCMA is the DOD component that works directly with defense suppliers to help ensure that DOD, Federal and allied government supplies and services are delivered on time, at projected cost, meeting all performance requirements.

DCMA administers the majority of the C- and D-contracts at NAWC. C-contracts include all types of contracts except indefinite delivery contracts, facilities and sales contracts and contracts with or for agencies outside of DOD. D-contracts are indefinite delivery contracts.

Doris Sciara, the DCMA Customer Liaison at NAVAIR, was also a member of the Black Belt team. “When DCMA administers contracts we track the funds that are in jeopardy of canceling prior to paying the bill,” she said. “We work proactively with NAVAIR to pay today’s bills with the money obligated by the contract for that intended purpose, negating the need to pull current year program dollars to pay yesterday’s bills.”

The amount of funds lost due to cancellation in 2005 on DCMA-administered NAWC contracts was quite small – less than $150,000. “DCMA has done a stellar job,” said Lindemann. “They are on top of things and rarely have an overage contract.”

However, more than a quarter of C- and D-contracts at NAWC’s Weapons Division are not administered by DCMA but instead are locally administered. Four percent of C- and D-contracts are administered locally at the Aircraft Division. In 2005, $400,000 at AD and $712,000 at WD cancelled and was lost on large contract obligations. If a contractor sends an invoice after funds have cancelled or any other payment is due, the sponsor will be asked for current year funding to cover the bill.

Chris Cummings was the deployment champion for the project, and is presently working as the Value Stream Champion for Business Operations at NAVAIR.

“This project has tremendous potential to return real money to our customers,” she said. “But we first needed to document and streamline our processes – no one had a full understanding of the end-to-end process steps required to close out a contract.”

That was the main problem, according to project sponsor Scott Holden, Department Head for Policy and Process Management within NAVAIR’s Contracts Department – there was no one entity incentivized to close out contracts within the organization.

“Once the money is no longer available for obligation and can’t be used, the compelling need to close out a contract is diminished,” said Holden. “It required all of us to come together to solve this problem.”

The team that worked on this Black Belt project for nine months was a national, cross-competency group sponsored by NAVAIR’s Comptroller and Contracts departments that included team members from the Contracts, Comptroller and Business/Financial Management Community, as well as a representative from DCMA. Members from Lakehurst, N.J., China Lake and Pt. Mugu, Ca., and Patuxent River, Md., met via video-teleconference for meetings.

“We discovered that there was no standardized process for contract closeout within the NAWCs and there was no clear understanding of roles and responsibilities between the competencies and DCMA,” said Lesniak.

The team also discovered that the processes were so broken that they needed a complete redesign. To accomplish that, the team used DMEDI – Define, Measure, Explore, Develop and Implement – a Lean Six Sigma tool for designing a new process.

“We began by documenting existing processes for both cost and fixed price contracts, as well as those administered by both DCMA and NAWC,” Lesniak said.

Twelve flowcharts resulted from the team exercise. Eventually, they were able to reduce the 12 flowcharts to four, standardizing the processes across NAWC. The team also incorporated several preventative steps to alert funds holders when the contract period of performance has ended, giving them more lead time to investigate why the funds are stuck in obligation.

According to Sciara, DCMA produces a quarterly report that follows physically complete and recently closed contracts by DCMA site. This report is now being automatically distributed to all NAWC sites.

“Locally administered contracts are also being monitored with a report that mirrors our processes,” she said. That weekly report is called a Standard Procurement System Closeout Work in Process report and is posted to an internal Web site.

The team has provided both reports, the new process flowcharts and several tools (including a directory of contract closeout points of contact and a listing of links to closeout data and resources) to the DCMA, financial and contracts communities.

Since then, several other organizations have requested the tools and process flowcharts and are applying the findings of the team to their organization, including the Naval Aviation Technical Data and Engineering Service Command and the Space and Naval Warfare System Center.

Based on results from the projects pilot, Type I savings for 2007 are estimated at $81,800, with Type II savings of $1,200,000 across the NAWC. Type I savings have a direct and certain impact on the Naval Aviation Enterprise (NAE) resources made available to the Navy for recapitalization. Type II savings are actually waste elimination where assets/resources are freed up to be reassigned to other value-added work and/or potential future savings.

“This was a complicated project that took interfacing with a lot of databases,” said Holden. “And we still have a lot of work to do. But where we had no momentum before, we are now moving forward.”

For more information about NAVAIR AIRSpeed, go to http://www.navair.navy.mil/navairairspeed/.