We determined whether the performance metrics included in the Navy’s AN/SPY-1 Phased Array Radar (SPY-1 radar) performance-based logistics contracts appropriately incentivized the support contractors. This audit is the second in a series on SPY-1 radar spare parts.
The SPY-1 radar is an advanced, automatic detect and track radar system. The SPY-1 radar is one of 13 major subsystems in the AEGIS Weapon System that searches, detects, and tracks air and surface targets to support Anti-Air Warfare and Ballistic Missile Defense missions.
Naval Supply Systems Command Weapon Systems Support (NAVSUP WSS) did not develop and incorporate appropriate performance metrics into the performance-based logistics contracts used to sustain SPY-1 radars. Specifically, the metrics did not effectively incentivize Lockheed Martin and Raytheon to achieve Navy warfighter requirements or reduce the total ownership cost associated with the 327 critical SPY-1 radar parts supported by the contracts. This condition occurred because NAVSUP WSS personnel did not follow DoD guidance when developing the performance metrics. As a result, supply support and cost reduction objectives for SPY-1 radar parts were not met. In addition, operational availability of the AEGIS Weapon System could be adversely impacted if parts needed to maintain the SPY-1 radars are not transported to the warfighters when needed.
Furthermore, NAVSUP WSS personnel did not adequately assess the contractors’ performance against established metrics. This occurred because NAVSUP WSS did not have written procedures to evaluate contractors’ performance toward meeting the contract metrics. As a result, NAVSUP WSS paid the contractors $18 million during NAVSUP WSS performance reviews without deducting incentive fees for poor performance that was not found during these reviews.
We recommend that the Commander, Naval Supply Systems Command, require the Naval Supply Systems Command Weapon Systems Support to follow DoD guidance when developing the performance metrics incorporated in future performance-based logistics contracts used to sustain the SPY-1 radar. Specifically, the Commander should:
- establish formal support agreements with Advance Traceability and Control and the operational commands used to supply SPY-1 radar parts to fleet customers;
- review the readiness and sustainment performance history and costs of the AEGIS and SPY-1 radars, and use that data to identify the difference between existing and desired SPY-1 radar performance outcomes;
- breakdown system-level requirements into lower-level metrics that appropriately link contractor performance to the accomplishment of warfighter readiness and performance needs;
- establish written procedures that clearly describe the process to conduct semiannual performance reviews for the performance-based logistics contracts; and
- perform additional reviews of the completed semiannual reports for contracts N00104-12-D-ZD21 and N00104-13-D-ZD00, to determine if there is a change to the amount of incentives the contractors received and take corrective actions if appropriate.
Management Comments and Our Response
The Commander, NAVSUP, addressed the specifics of the recommendation that NAVSUP WSS consult with the Navy stakeholders when reevaluating the SPY-1 radar’s product support strategy and designing performance metrics included in future performance-based logistics contracts. However, the Commander did not provide the date when those actions would be completed. In addition, the Commander did not adequately address establishing a formal agreement between the two NAVSUP organizations involved in supplying SPY-1 radar parts to fleet customers.
The Commander, NAVSUP, agreed to:
- review the AEGIS and SPY-1 historical performance and costs to assess operational readiness;
- review the PBL performance metrics that we determined were not adequate; and
- assess whether the metrics need refinement.
However, comments from the Commander did not address all the specifics of the recommendations to use the data to develop lower-level metrics that incentivize the contractors to deliver the desired SPY-1 radar performance outcomes.
The Commander agreed to develop written procedures for conducting semiannual performance reviews. The Commander also agreed to reexamine the completed reviews for accuracy. However, the Commander did not specify what actions the contracting officers would take in response to the review reassessment results. We request that the Commander, NAVSUP, provide comments in response to the report by August 31, 2016.
This report is a result of Project No. D2015-D000AG-0109.000.