Summary

The United States Air Force contracted with Lockheed Martin to upgrade and modernize 49 of its C-5 cargo aircraft (one of the largest planes in the world). Lockheed Martin alleged that the Air Force directed it to perform excessive and disruptive “Over and Above” (O&A) work outside the scope of the Reliability Enhancement and Re-engineering Program (RERP) and sought to recover $131 million related to that additional work. The Air Force claimed, among other things, that Lockheed Martin failed to prove and support its claim for disruption and additional work.

A Secretariat expert team with extensive experience in aircraft manufacturing and government contracts was retained by Crowell & Moring to represent their client, Lockheed Martin. Under its contract with the Air Force, Lockheed Martin had previously submitted a Certified Claim for disruption and related damages. Secretariat’s role was to analyze the claim, review Lockheed Martin’s performance, and evaluate, quantify, and provide support for the cumulative impact of the disruptions that Lockheed Martin experienced when executing its work on the RERP.

Secretariat’s team of experts, including Neil Gaudion, Miro Moutaftchiev, Tim Diffendall, Tony Doganiero, Kyle Dalrymple, Tyler Breitbach, and Mason Mullins, conducted a measured mile analysis of Lockheed Martin’s work on the RERP and concluded that the cumulative impacts of the O&A work disrupted Lockheed Martin’s expected learning curve and labor productivity.

Secretariat submitted an expert report and Neil Gaudion provided expert testimony at the hearing before the Armed Services Board of Contract Appeals (ASBCA). The ASBCA found that Secretariat’s testimony corroborated Lockheed Martin’s claim and ruled in favor of Lockheed Martin, awarding 100% of the requested damages, plus interest.

C-5 Galaxy in RERP (Photo Credit: Defense Industry Daily)

The Challenge

A unique aspect of the case involved the concept of Lockheed Martin employees working on a “learning curve.” The learning curve concept assumes that, as Lockheed Martin employees repeat tasks over time, they achieve improvements in performance and productivity. These efficiency-gain or productivity improvements allow Lockheed Martin to incrementally reduce the cost of performance over time as cumulative production increases.[1]

Lockheed Martin used a learning curve to price its RERP proposal with the Air Force, lowering the expected cost of performance for each additional aircraft with the expectation that repeating the same modernization tasks would improve efficiency and decrease costs for each successive aircraft. The Secretariat team had to analyze Lockheed Martin’s labor, cost and progress data to understand exactly how the Air Force’s requested O&A work disrupted the learning curve and caused a loss of labor productivity.

“Our team had to not only understand and validate Lockheed Martin’s claim but also perform our own, independent assessment of Lockheed’s C-5 program over a decade of performance,” says Secretariat Managing Director Neil Gaudion.  “We faced the challenge of proving and quantifying the O&A work’s cumulative impact on Lockheed’s labor productivity.”

“Our team had to not only understand and validate Lockheed Martin’s claim but also perform our own, independent assessment of Lockheed’s C-5 program over a decade of performance, we faced the challenge of proving and quantifying the O&A work’s cumulative impact on Lockheed’s labor productivity.”

— Neil Gaudion, Managing Director

Our Analysis

Secretariat began its research by compiling detailed labor and accounting records and analyzing manufacturing progress documents in which Lockheed Martin tracked its performance of the RERP work. As a result, Secretariat’s experts were able to extract the millions of labor transactions associated with the program and use the data to analyze and compare Lockheed Martin’s labor productivity for the first few aircraft (which did not experience the same excessive O&A work) to the learning curve of the later aircraft, which Lockheed Martin identified as the aircraft affected by the cumulative impact of O&A work.

Additionally, Secretariat investigated Lockheed Martin’s claim and its use of the “measured mile” method to evaluate and quantify labor productivity, which compares a production period affected by a disruption with an unaffected production period.[2]

The Secretariat team members prepared thorough and understandable supporting data to present at the ASBCA hearing, including summaries of extensive accounting data and visual graphics. They also developed a series of adjusted or alternative claim quantifications that were dependent upon the ASBCA’s potential legal determinations.

C-5 Galaxy Flies During its First Flight Ceremony at Lockheed Martin’s Marietta, GA Plant (Photo Credit: Air Force and Lockheed Martin Aeronautics)

Outcome

Secretariat’s team of experts concluded that the cumulative impact of the O&A work resulted in additional labor hours for the RERP base scope, increasing Lockheed Martin’s costs. Neil Gaudion, serving as Lockheed Martin’s testifying expert on disruption, testified to the ASBCA that “the measured mile is considered the most reliable approach [to quantify disruption] . . . because it eliminates any impacts associated with a contractor’s bid assumptions and performance issues.”[3] Mr. Gaudion further opined that the measured mile method “is the most appropriate and reliable method to analyze and quantify the additional touch labor hours incurred by [Lockheed Martin] on the Base Scope RERP work as a result of the disruption from Over and Above work.”[4]

The ASBCA concluded that “Lockheed Martin’s data and methods were corroborated by Mr. Gaudion’s report” and that Lockheed had sufficiently met its burden of proof on entitlement and quantum by applying the measured mile methodology from Mr. Gaudion’s report and testimony.[5] The ASBCA ruled in favor of Lockheed Martin, awarding 100% of the damages requested under the original claim, plus interest.

Secretariat’s team helped to independently verify and quantify Lockheed Martin’s claim by concentrating on data related to legacy repairs or O&A issues, focusing on objective data, and developing an approach that accounted for and removed potential impacts from factors other than O&A work. In The Federal Drive with Tom Temin podcast, Haynes Boone procurement attorney Dan Ramish noted “Lockheed here provides an example of how you can [prove damages] with an appropriate expert…their expert backed off costs that were unrelated to the legacy repair issues, and that really helps the credibility of a contractor’s claim to show the board affirmatively that you’re pulling out things that the contractor could have been responsible for and aren’t overclaiming.”[6]

The Board’s decision in full can be read here.

[1] Bongers, Anelí. (2017). Learning and forgetting in the jet fighter aircraft industry. PLOS ONE. 12. e0185364. 10.1371/journal.pone.0185364.  
[2] AACE International. AACE Recommended Practice No. 25R-03 – Estimating Lost Labor Productivity in Construction Claims. 2004.
[3] Appeal of Lockheed Martin Aeronautics Company Under Contract No. FA8625-07-C-6471, ASBCA No. 62209. 54 (2024). https://www.asbca.mil/Portals/143/Decisions/2024/ASBCA No. 62209 Lockheed Martin Aeronautics Company Redacted April 23 2024 Board Decision.pdf
[4] Appeal of Lockheed Martin, ASBCA No. 62209 at 54.
[5] Appeal of Lockheed Martin, ASBCA No. 62209 at 54.
[6] Ramish, Dan (Guest). (2024, July 18). What happened when the Air Force neglected its biggest plane for too long? [Audio podcast]. Retrieved from https://federalnewsnetwork.com/contracting/2024/07/what-happened-when-the-air-force-neglected-its-biggest-plane-for-too-long/

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