Performance Based Logistics
Performance Based Logistics (PBL) arrangements for product support have repeatedly proven to improve system performance outcomes and deliver cost savings to Department of Defense (DoD). Over the 2000-2015 timeframe, 15 PBL arrangements provided up to 70 percent in savings over alternative logistics approaches, while 20 out of 21 PBL arrangements in that time resulted in performance improvements ranging from the mid-single digits to 160 percent. The 2001 Quadrennial Defense Review established PBL as the preferred sustainment strategy and Better Buying Power 3.0 says that PBL “provides explicit productivity incentives and ensures best value for the DoD.” Despite this, DoD guidance still requires the product support manager (PSM) to do a business case analysis (BCA) to support the use of PBL. DoD only has 79 PBL arrangements in place, constituting less than 5% of DoD’s repair, maintenance, and overhaul functions. Increasing PBL to 25-30 percent would yield an additional $10 billion in cost savings annually.
Given that the majority of a system’s lifecycle costs are incurred during logistics and sustainment, the effective use of PBL should be adopted more broadly, although in fairness, developing an effective PBL arrangement is challenging. Still, major barriers remain. First, some in Congress view PBL as pitting the private industrial base against the organic industrial base. Ironically, PBL arrangements generally utilize Public-Private Partnerships to leverage the best of each sector to deliver the best value solution. Second, despite flexibility authorized by Congress to allow for longer-term PBL contracts that are necessary to incentivize the desired industry investment, the Office of Defense Procurement and Acquisition Policy (DPAP) has pushed back on contracts lasting more than 3-5 years in length, driven by a concern about competition rates.
Given future budgetary pressures and concerns surrounding organic overcapacity, DoD leadership needs to do more than just establish PBL as the preferred sustainment approach in policy. Instead, the Department should actively push for broader effective use of PBL to reap proven cost savings and performance improvements at a time of budgetary uncertainty.
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