Logistics: Making Performance Pay

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December 9, 2013: The UAE (United Arab Emirates) recently signed a $5.8 billion contract with commercial firms to handle maintenance and technical support for all the aircraft and helicopters in the UAE armed forces for five years. The contract was won by a consortium consisting of a UAE firm and two American ones (Sikorsky and Lockheed Martin). Deals like this are called PBL (Performance Based Logistics) and save a lot of money while providing better service.

PBL is yet another new commercial concept that is being adopted by the military. Think of it as outsourcing on steroids. Put simply, PBL is buying a complete support program for a major piece of equipment (ship, aircraft) over its entire lifetime or a fixed number of years. The fixed (with adjustments for inflation and some other uncontrollable elements) price also comes with minimum availability and performance requirements for the supported equipment.

Over the last decade PBL has become increasingly popular in the West. The U.S. Department of Defense has saved a lot of money with PBL and went from a few billion dollars a year in PBS contracts a decade ago to over $100 billion a year by 2006 and continues to climb because most of these deals have proved to save the user a lot of money while providing better service.

In the West Britain took the lead in using PBL for military organizations. Back in 2006, the Royal Air Force arranged a PBL deal to have its fleet of fifty C-130 transports maintained over the next 24 years. Total cost of the contract was $2.86 billion (about $120 million a year, or about $2.4 million a year per aircraft). The deal is expected to save the RAF about $12 million a year and be one less headache for RAF commanders. The U.S. Air Force then got a similar PBL deal for its C-17s.

PBL deals don't replace the maintenance done by the crew in the course of regular operations. But the cost of major repairs, periodic refurbishment, and the like is typically done at centralized maintenance facility. The military PBL deals also make provision for war related damage, which is taken care of by surcharges.

 

 


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