Business Models for Cost Sharing & Capability Sustainment

Abstract

Cost sharing in defense acquisition, with contractors sharing part of the burden of research, development, test and evaluation (RDT&E) costs, has been suggested as a way of reducing the liability of government to program cost overruns. While capping the costs of RDT&E, and production, is an excellent objective, incentivizing contractors may benefit from business models that span the entire lifecycle of a program. The potential to share the risk of cost overruns outside RDT&E and production, and into the operations and support (O&S) area provides a powerful incentive to get contractors to buy in to cost sharing, and to control total program lifecycle costs. The research presented in this report aims to identify potential new business models that would allow contractors to benefit from cost sharing across all stages of program lifecycles, with a view to limiting costs during RDT&E, production, and O&S. Experience from the United Kingdom on availability contracting shows possible business models that could form the basis of an approach to cost sharing in O&S, as well as the weaknesses of some approaches tried.