I. Introduction
Textron Lycoming Corporation (TLC) and the U. S. Coast Guard have entered into a tentative settlement agreement (subject to approval) of various false claims and contract claims arising from the HH-65 system contract and subsequent spare parts and engine contracts in support of the HH-65 Helicopter. At the present time, the proposed settlement has been reduced to a Memorandum of Understanding (MOU) which sets out the understandings reached during the lengthy settlement negotiations.
TLC is the manufacturer of the LTS-101 series engine utilized on the HH-65 aircraft. TLC was a subcontractor to Aerospatiale Helicopter Corporation (AHC) on the HH-65 system contract and is the prime contractor with the Coast Guard for continuing support of the engine; i.e., spares and spare engines and technical assistance. TLC is the sole-source for the engine and most of the high cost, critical spare parts. (End of Page 1)
This analysis merely identifies the factual determinations, conclusions, assumptions and "best guesses" the agency and DOJ representatives considered relevant to a successful settlement and in a very abbreviated manner attempts to explain the rational underlying the Government's negotiation strategy and settlement goals. Key terms of the proposed settlement are also analyzed to demonstrate, how ultimately, those goals are to be achieved via the mechanics of the settlement.
Although the legal issues central to the underlying Government claims are necessarily discussed, the legal analysis of relevant law and facts that led to the conclusions and legal theories relied on is beyond the scope of this analysis. Similarly, the voluminous technical analysis, cost compilations, computer models and other supporting documentation and analytical devices are only referred to herein in a conclusionary manner and only insofar as they support a fact, assumption or projection relied upon in the settlement negotiations.
II. Overview
The proposed settlement is composed of three separate but related elements as summarized below: (End of Page 2)
a. Past Damages: $17 million cash payments bearing interest from the "shake hands" date of the agreement;
b. Transition Period: Five free engine overhauls per month at an average savings to the Coast Guard of approximately $50,000.00 to $60,000.00 per engine starting from the date of the MOU until beginning of the "future period" but in no case to exceed six months. (The value of this element is $50K/each x 5/month x 6/months = $1,500,000.00)
c. Future Damages: Limits total repair and overhaul cost to an average cost of $ 79.00 per engine hour for the HH-65. This figure is based on 80,000 total fleet engine hours a year for a period of six years. Depending on the occurrence of future contingencies the value of this element as discussed below is worth between $30 and $100 million. (The lower value actually represents the best "deal" for the Coast Guard since to achieve this figure TLC must improve engine reliability thus lowering excess cost it would otherwise incur while at the same time, enhancing mission readiness.)
III. Basis of Settlement
The proposed settlement resulted from Government claims against (P.4) TLC pursuant to the False Claims Act as well as contract claims based on breech of the original system contract with AHC and various after-market parts and spare engine contracts directly with TLC.
Identifying the specific damages that were caused by the various contract breeches was a very
technical endeavor and involved some fine judgment calls since the various defects in the LTS-101 engine
are for the most part related. The actual classification of the damages into the appropriate
category was in large part done by the DOJ attorneys assigned to the case with input,
primarily regarding contractual matters from agency representatives. The cost data, technical analysis
and certain "what if analysis" supporting the classification were based on agency estimates, reports and records as well information gained from extensive information gained from extensive investigation and "civil discovery" performed by the DOJ. The proper classification of damages as either false claims damages or contract damages was particularly sensitive since treble damages can be recovered for false claims while consequential damages (at least in defective product cases) are most likely only recoverable on contract claims.(P.5)
(A) Past Damages: The $17 million cash
settlement for past damages is based largely on false claims made by TLC in connection with the claimed
operating temperature of the LTS-101 engine and/or its critical components. Smaller,
but significant, amounts were allocated to various contract claims.
By any analysis the settlement for past damages represents at least 100% recovery of the damages recoverable under prevailing theories of damage, incurred by the Coast Guard in connection with the various false claims; that is, the difference in value between what the Coast Guard contracted for and the value it actually received based on the percentage of the contracted reliability actually achieved. Because of the false claims multiplier and consequential damages attributable to the contract claims, the $17 million recovery is actually significantly above the false claims damages suffered by the Coast Guard to date.
The cash payment covered damages incurred on account of all defective engines and parts delivered under the systems contract and all subsequent spares contracts to date. None of the claims at issue in the settlement were pursued through AHC, the prime contractor, which would have been the case had this been a "pure" (P.6) contractual settlement of contract claims arising or related to the system contract.
(B) Transition: As discussed in detailed below, the
settlement for future damages involves a new contract which requires TLC to take responsibility for
repairing the entire fleet of LTS-101 equipped HH-65s at a fixed rate. This agreement involves
issues of considerable complexities and will necessarily take some time to implement and still more time
for TLC to reach full capacity. During the "transition" period beginning on the execution
of the MOU and continuing until the contract implementing the future damages element of the settlement is
executed (not to exceed six months) TLC will overhaul/repair, free of charge, five engines per month at no
cost to the Coast Guard. Once the contract is implementing the future portion of the settlement is executed there will be a separate six month start-up period.
(C) Future: The remainder of the analysis will deal exclusively with the settlement for future damages. Unlike the cash settlement for past damages which was largely false claims based, and as such within the exclusive jurisdiction of DOJ, the recovery for projected future cost is largely contractually based and within the perview of agency discretion.(P.7)
Though the method of recovery is very difficult for the transition and future elements of the settlement, conceptually they should be considered together since these elements are designed to limit the Coast Guards losses (excess overhaul and repair cost) on the LTS-101 from the date of the MOU extending for a period not to exceed 6-1/2 years.
IV. Analysis of Future Damages Settlement
From the Coast Guard's standpoint, the worth of this settlement agreement will depend almost entirely on whether it provides the Coast Guard with a means of assuring future operational capability and reliability of the HH-65 aircraft at a reasonable price while at the same time preserving the Coast Guard's unfettered discretion in managing the HH-65 program.
An analysis of the future damages portion of this settlement agreement must begin with two basic understandings:
a. The Coast Guard has no choice but to continue to do business with TLC to support the HH-65 for an indefinite period of time and;
b. If the Coast Guard continues to do business with TLC it will continue to receive defective engine components as (P.8) the defects are in many ways inherent to engine design and are not quickly or inexpensively remedied.
Once this state of reality is understood it is axiomatic that some sort of agreement covering future business relationships is the only way to achieve the dual goals of mission capability at reasonable cost. How long this agreement should last, the format it should take, and the incentives and disincentives that should be incorporated into it, depends on a myriad of often competing as well as conflicting considerations. Determining the most favorable vehicle for achieving the Coast Guard's settlement goals entailed the very difficult task of evaluating these considerations within the framework of possible and probable future conditions.
A commercially based "Power by the hour" (PBTH) concept, in which all necessary repair and overhaul work is performed at a fixed price per engine operating hour, was determined by agency representatives as the most appropriate vehicle to achieve the Coast Guard's settlement objectives provided the fixed hourly rate reflected the support cost the Coast Guard anticipated at the inception of the program and that sufficient incentives could (P.9) be built into the agreement to provide some assurance that TLC would it improve its product. These objectives had to be met without compromising the absolute flexibility the Coast Guard must have in reacting to future conditions.
The Coast Guard's decision to enter into some type of (Alternate Remedy #1) PBTH contract is best illustrated by a consideration of alternative solutions as discussed below:
a. (Alternate Remedy #2) Insist on future conformance to specifications and sue for breach if nonconforming parts are delivered on spare parts or engine contracts: This might best be described as the status quo alternative; that is, once recovery is made for past damages the Coast Guard insist on strict compliance with stated performance and reliability specifications on all future parts or engine procurements with TLC. As noted above, however, conforming parts cannot be delivered without considerable investment by TLC into product improvement. Merely insisting on strict conformance with specifications on future procurements would almost certainly result in TLC's refusal to bid or propose on future solicitations. Even if TLC were to agree to future contracts the Coast Guard would have to pursue a new contractual (P.10) claim for each delivery of defective items if TLC again failed to deliver conforming parts. In addition, it would take some time for all the engines to go through enough repair cycles to benefit from the improved parts.
b. (Alternate Remedy #3) Contract for future parts requirements at reduced prices: The Coast Guard could insist on price reductions on all future spare parts contracts because of the deminished value based on the same formula that past damages were calculated. This again would likely result in TLC's refusal to bid or propose. Even if defective parts could be bought at a reasonable discount they would be exactly that, defective parts. Operational readiness would still be severely impacted with no real incentive for TLC to improve its product. Additionally, Coast Guard facilities would continue to be devoted to the repair and overhaul of the HH-65 engine when they might be utilized in support of other programs that are now suffering due to the HH-65 problem.
C. (Alternate Remedy #4) Rely on the commercial market place for repairs; Much like the status quo alternative discussed above, this alternative depends on taking the past cash settlement and (P.11) starting with a clean slate for future transactions. The problem with this approach is the same as with the status quo alternative, though it is true there are other commercial concerns with the capability to overhaul/repair the LTS-101 engines the parts critical to the reliability of the engine are sole-source to TLC. Except for labor which only comprises between seven and ten percent of the total repair effort, dealing with other commercial concerns for repairs is in reality dealing with TLC but with the added disadvantage of dealing with it as a subcontractor. The Aircraft Repair and Supply Center (AR&SC) did in fact solicit bids for overhaul and repair of the LTS-101 during fiscal year 1987. Only one bid was received for overhaul of the entire engine at a price of $100,000, $40 to $50 thousand more than AR&SC was spending to overhaul engines in-house. Limited parts availability from TLC was most likely the reason other commercial repair centers declined to bid on this solicitation. Assuming a continued supply of parts could be made available to other repair centers (and for the sake of argument at reduced prices) either as direct buys by the commercial repair facility or as government-furnished property, the Coast Guard would still be receiving engines with defective parts. (P.12)
D. (Alternate Remedy #5)Cash Payments: Although it
may have been possible to reduce the expected future losses to a cash settlement, based on either
diminution in value or excess repair cost, this was perhaps the least desirable alternative. The amount of cash that could be "squeezed" out of TLC in addition to the
$17 million was limited by financial realities of TLC and by the litigation strength of the Coast
Guard claims. Cash payments could have been made in installments, but the total cash possible would
have still been less than the possible value of a PBTH agreement to the Coast Guard. As discussed
in detail below the PBTH agreement is not only effective at cutting Coast Guard losses, it provides TLC
with incentive to both improve its product and control its cost. These incentives are difficult if not impossible to achieve in a cash settlement. In addition fiscal constraints make it very difficult to return a cash recovery to an agency appropriation account. Though recent Comptroller General opinions indicate that cash recoveries from contractors can be used to fund the cost of repair or correction, in this case the appropriate agency account would have to be credited on a fiscal year basis. It would be administratively very difficult to apply the full cash settlement towards the excess cost of repair in any given fiscal year. To the extent (P.13) that the Coast Guard was unable to return cash payments to an agency account for repair/overhaul, it would have been in the worst possible position of buying defective parts in effect without a corresponding reduction in price since "unused" cash payments would be deposited in the "miscellaneous receipts" account of the U. S. Treasury. Perhaps the most serious drawback to a present cash settlement for projected future cost is that it puts the Coast Guard at risk if projections prove to be understated. Under the PBTH agreement TLC bears the excess cost whatever they may be.
As can be seen, except for a cash settlement the common failure of the alternatives discussed above is they to some extent all turn on the Coast Guard being able to effectively enforce its contract rights in future dealings with TLC. The fallacy in this approach is twofold; first, though the Coast Guard must continue to do business with TLC to support the HH-65, absent political reasons, TLC does not have to and in fact may not want to enter into future business relations with the Coast Guard. More importantly, the Coast Guard's contractual claims standing alone are subject to considerable litigative risk. Once the false (P.14) claims allegations against TLC are settled, the Coast Guard loses the considerable leverage that flows from the tremendous civil and criminal liability that could result if DOJ pursued the false claims allegations to litigation. Even weak contractual claims which would otherwise not be pursued at all or settled for a fraction on the dollar can be pursued to a successful resolution as part-and-parcel of a false claims settlement. In this regard, it should be noted that among agency and DOJ attorneys who evaluated the "performance specification" based claim there were as many opinions as to its (USCG contract claims standing alone) relative strength.
V. Power By The Hour (PBTH)
It was thus imperative that the Coast Guard obtain some relief from expected future costs in conjunction with the present settlement of all false claims. As noted above, a commercially derived PBTH format (Alternate Remedy #1) was considered the best contractual vehicle for obtaining the Coast Guard's settlement goals. A PBTH agreement entails TLC assuming responsibility for all future overhaul and repair (excluding only line maintenance and consumables) for a fixed rate based on the number of engine hours in service, hence "Power by the Hour". Under this type agreement, TLC must absorb any excess costs incurred over the fixed rate. Under the agreement, TLC provides all labor, parts, (P.15) plant, tooling and facilities necessary to repair/overhaul the LTS-101.
Though the PBTH agreement was designed around a standard commercial format for such agreements, the terms and conditions of the proposed PBTH agreement vary significantly from standard commercial agreements. These differences reflect the unique considerations that flow from the fact that this agreement is in consequence of a contractual breach, and is thus primarily designed to limit the Coast Guard's costs.
The proposed PBTH agreement is tremendously complex and must address a myriad of technical and logistical questions unique to the Coast Guard's HH-65 program. This is further complicated by the fact that it was necessary to "fit" the PBTH concept in a government contract format that could be administered by Government contracting personnel while at the same time complying with the multitude of statutory and regulatory requirements applicable to such an agreement. The contract type most amenable to the PBTH format was a firm-fixed-price indefinite quantity contract with guaranteed minimums. The total possible duration of the contract
is six years based on six option periods to be (P.16) exercised at the sole discretion of the U. S. Coast Guard. Option terms are coextensive with the fiscal year except that the base year and last option period are "short years".
The hourly rate for the agreement is based on a guaranteed minimum of 80,000 hours total fleet engine time per year prorated across the short years.
The hourly rate for the first 80,000 hour "flight year" is $85.00 and for the last 80,000 increment is $73.00. The price decrease in equal increments for each intervening 80,000 hour flight year for an average price of $79.00 provided all options are exercised and the fleet logs at least the minimum quantity of 80,000 hours per year. The fleet presently logs over 105,000 hours yearly and this number would probably increase if aircraft reliability improved.
Obviously, if the program is terminated early, i.e., all options are not exercised or the guaranteed 80,000 hour per year fleet engine time is not achieved, the cost per hour will be effectively greater. On the other hand, if LTS-101 reliability increases and fleet engine time exceeds 80,000 hours in flight years 4, 5 and 6, the average price per hour will be effectively lower. Analyzing the factors that influence the Coast Guard's position with respect to price and contract duration will lead to (P.17) an understanding of how the PBTH agreement is designed to meet the Coast Guards program goals.
(A) PRICE: The hourly rates incorporated into the PBTH settlement represents the rate that the Coast Guard believes reasonable for the support of the HH-65 aircraft. As discussed below, the settlement rate was derived from should cost analysis, actual cost history, and market data.
(1) Should Cost: since this is a contractual settlement the "should cost" figure must ultimately be determined with respect to the contractual documents, i.e., analysis of "reliability/performance" specifications in conjunction with the expected cost of parts and labor. It must be emphasized at the outset that the contractual documents do not expressly provide a stated engine reliability figure, e.g., meantime between depot visits (MTBD) or meantime between overhauls (MTBO). The contractually derived reliability is an amorphous concept based on analysis of certain life/cycle, performance specifications contained in the contract documents applicable to specific piece parts. The analysis is further complicated by the fact (P.18) that after-market purchases of spares and spare engines were made directly with TLC outside the system.
These contracts were designed to be, and essentially were, contracts, for commercially priced parts that arguably did not contain the same performance specifications found in the original system contract. If so, these contracts represent a very different bargain than was struck in the initial procurement. The difficulty in determining the contractual reliability standard for after-market purchase (if any), and for that matter the initial system contract, was one of the weaknesses of the contractual claims for excess repair costs and would have been a major liability if a contract claim for excess costs had been pursued outside the false claims settlement.
Once a contractual reliability standard was determined it was necessary to convert this standard into the contractually expected cost, per hour, required to overhaul and repair the LTS-101 engine. Neither MTBD or MTBO nor any other standard is meaningful unless the costs of parts and labor required to meet the standard is known.
(I) Parts: The cost of parts is initially easily (P.19) ascertained. The Coast Guard has been buying parts at "commercial rates" from TLC for four years. There has been essentially no increase in the price of parts during this time period. This is presumably due to intense market pressure from irate commercial users of this series of engine as well as the Coast Guard.
Though sole-source to TLC most parts have qualified for an exemption from submittal of cost and pricing data under the Truth in Negotiation Act and applicable regulations. Apparently high cost items would continue to qualify for an exemption. Whether the Coast Guard could obtain better prices if the exemptions were not granted and cost and pricing data were obtained is conjectural. In this regard, it must be emphasized that the LTS-101 series was designed as a commercial product and is manufactured by a division that is not accustomed to providing cost and pricing data. Whether TLC would have furnished parts or would furnish parts in the future if cost data were required is even more conjectural. Given the stability in the pricing structure over the last four years, it is probably safe to assume that TLC's margin is not as great as would be expected for commercial market sole-source items but perhaps greater than the (P.20) government would allow in pricing negotiations based on certified cost data.
Whether the Coast Guard might obtain slightly better parts prices in the future by requesting cost and pricing data is made academic by the fact as noted above that the Coast Guard must determine expected future excess costs in the context of the present false claims settlement. Although the uncertainty in parts prices or more precisely TLC's costs to produce the parts, was certainly a factor that was considered in the final negotiated settlement, the final price is based on the Coast Guard's determination of what repair costs should have been with reference to the contractual documents. TLC's costs are for the most part irrelevant to that determination.
(ii) Labor: Labor costs are, of course, directly related to the number of repair parts installed and can be expressed as a percentage of the parts costs. Actual costs records for the AR&SC facility indicate that the in-house labor costs average 7% of the costs of parts. This rate would likely be fairly consistent across a wide range of basic parts costs and thus the actual 7% rate was applied directly against the "should costs" (P.21) figure for parts to arrive at the "should cost" price for labor. TLC, on the other hand, estimated the labor cost to be approximately 10% of the costs of parts. Both estimates are probably correct in that wage rates for the skills involved are likely higher in private industry than in Government. TLC has agreed to credit Coast Guard the more favorable 10% rate for Coast Guard labor utilized for overhaul/repairs performed at Coast Guard facilities during the initial 6 month "start-up" period of the PBTH agreement should TLC be unable to perform to required capacity with their assets.
The should cost hourly rate for the engine was determined to be approximately $70.00 to $75.00 after application of the contractual reliability standard for the various piece parts against the labor and the parts cost. The composite rate negotiated for the PBTH agreement was $79.00 per hour. Though direct comparison with maintenance cost for other engines is not always meaningful due to differences in technology, operational, environmental and mission requirements it is interesting to note that the targeted support cost for the Army Light Helicopter (LHX) program is approximately $70.00 an hour. The LHX is similar to the HH-65, and the power plant for the LHX as discussed below is under consideration as a replacement for the (P.22) LTS-101 engine.
(2) Actual Cost: Once a should cost figure was established, it was possible to compare the should cost with actual costs experienced in order to determine excess costs of repairs. This involved a tremendous effort by AR&SC personnel in analyzing cost data accumulated over the program life and then reducing the data to a usable format. Ultimately this data was programmed in a format that allowed various "what if analysis" so that the effect of future contingencies and other variables could be analyzed.
This analysis showed that as recently as 18 months ago the MTBD has been as low as 250 hours or less. More recently due to a variety of factors MTBD has approached 400 hours. Present time actual cost analysis was based on the 400 hour figure at the current part prices and usage as discussed above. This equated to between 140 and 150 dollars per engine hour. Whether recent improvements in engine reliability are due to actual product improvement or to Coast Guard operating practice is uncertain. Whether further increases in reliability will be achieved is even more problematic. Coast Guard operating practices are now as (P.23) "easy" on the engine as mission requirements will allow. Future improvements in product reliability reasonably must come from product improvements.
(3) Independent Analysis/Market Data: The Coast Guard Cost Analysis of the LTS-101 engine was supported by an independent cost analysis performed by the Transportation System Center at the Coast Guard Aircraft Repair and Supply Center at Elizabeth City, North Carolina (AR&SC) in 1989.
This conservative analysis showed that the actual cost was on the order of $140.00 per hour, almost twice the average hourly rate of the PBTH agreement and in line with the Coast Guard internal analysis. Further support for the should cost differential is found in AR&SC efforts to secure overhaul and repair services on a competitive basis. As discussed above, an IFB for such services yielded only one bid for $100,000 dollars for a depot overhaul. Assuming a MTBD of about 250 hours during that time frame at a fairly constant parts consumption yields an hourly rate of approximately $400.00 per hour. Though this figure is not directly comparable to the cost TLC will incur in a depot visit due to differences in overhaul specifications and somewhat increased reliability, it does indicate the commercial (P.24) market for overhaul for this engine far exceeds the PBTH hourly price.
(B) DURATION: The TLC should cost/actual cost analysis supporting the settlement is a fairly accurate snapshot of present time conditions. It was necessary, however, to project the actual and should cost figures over a period of time subjected to various "what if" analysis to determine the most beneficial term or duration of the settlement agreement. This of course involved identifying and weighing the probability of occurrence or non-occurrence of various contingencies weighed against the commercial realities faced by TLC and the concessions the Coast Guard could expect to exact based on the strength of the Government's claim in a negotiated settlement.
(1) Reliability: The major factors in determining the most favorable term of the agreement were the projected reliability of the LTS-101 engines and the availability of suitable alternative power plants. If engine reliability increases the Cost Guard could conceivably utilize the LTS-101 for the expected lifetime of the air frame approximately 20 to 25 years. Should the LTS-101 not improve substantially in reliability the Cost Guard would be looking for a replacement engine (P.25) or aircraft notwithstanding the fact that the PBTH agreement effectively caps the cost of repairs.
The term of the agreement then, had to allow the Cost Guard absolute flexibility to pursue alternatives if engine reliability was not improved, but at the same time had to provide some security for TLC that it might had a realistic chance to implement product improvements and make the LTS-101 a viable product for a period of years. The term of the Proposed Agreement as negotiated is for a period of 72 months. Since the term is composed of a series of 1 year option periods exercisable at the discretion of the Cost Guard, the Cost Guard may end the agreement at the end of any option period by simply declining to exercise the next option.
Though TLC's desire for a fixed term for a period of years could not be addressed directly, TLC's and the Cost Guard's concern that the agreement provide incentive for a long term product improvement was addressed via the pricing structure. The option periods are priced to provide a disincentive to early termination of the agreement. As noted above, the PBTH rate decreases from $85.00 to $73.00 in equal increments over each successive 12 month period. To obtain the average price of $79.00 per hour the (P.26) Coast Guard must exercise all options. Since the option prices are based on 80,000 engine hours per year, there is further incentive for the Cost Guard to fly in excess of 80,000 hours in the last 3 years of the agreement driving the average price even lower.
TLC can provide the incentive for the Cost Guard to extend the term should it implement meaningful product improvements. If TLC is successful in its efforts there is a possibility to perhaps realize a modest profit in the fifth or sixth year (excluding improvement costs which will be substantial). More importantly, if TLC make the LTS-101 a viable product it has the opportunity to secure a commercial and military market for the engine for the long term.
Aside from the financial and commercial incentive built into the structure of the agreement, an express provision requiring TLC to replace the Critical Power Turbine (PT) wheel with a new generation rebladeable PT wheel on all Cost Guard-owned LTS-101 engines is included in the MOU.
(2) Alternatives: Reliability then is the key factor in determining whether the agreement will be extended to the full 72 months, assuming availability of realistic alternatives. The earliest projected availability of a realistic alternative, on (P.27) the other hand, determines the minimum term that the agreement must be in effect. Whether the Cost Guard would have the resources to pursue some alternative to the present situation (i.e., new engine or aircraft) depends on political and fiscal constraints, that are beyond the scope of this analysis. It is sufficient to note that the possibility, however problematic of the Coast Guard obtaining the necessary funds to pursue any alternative had to be considered in setting the term of the agreement.
Though it is possible other sources might become available, at the point the Cost Guard has identified two possible power plants for the HH-65 air frame. The T-800 turbo shaft engine presently being developed for the Army's Light Helicopter Program and the Arriel Turbo shaft engine. The Arriel is thought to be a short term solution as it is a less powerful engine and limits mission profile. The T-800 is a more powerful engine than the LTS-101 and would provide greater capability. Since the T-800 would be delivered against Army contracts it offers the added benefit of freeing the Cost Guard from a new major systems procurement. The T-800 is a developmental engine and would require a new transmission as well as considerable electronics (P.28) integration for application in the HH-65.
The T-800 was accepted as a base line for setting the maximum terms of the agreement as it represented the longest lead-time away known realistic alternative. Existing production engines such as Arriel could probably take a significant fraction of the remaining useful life of the air frame and was not considered a realistic alternative. The earliest possible date that the T-800 could be installed in production quantities is fiscal year 92, with a production run time to retrofit all Coast Guard HH-65 aircraft of 4 years. The maximum possible duration of the PBTH agreement was set to coincide with the T-800 production schedule.
VI. Start-Up
The PBTH concept represents a major change in the relationship between the Coast Guard and TLC. The Coast Guard over the years has reluctantly become very involved in the repair and support of the LTS-101. This required "
- dedication of facilities and manpower
- as well as the creation, of a major procurement function.
Supply logistics, lead time away delays in repair cycles, emergency procurements and confrontation with TLC over everything from configuration control to MRB policy has dominated operations at (P.29) the AR&SC for the past 4 years. In contrast, other than sole-source supplier of parts TLC has increasingly been cut out of LTS-101 support as the numerous problem forced the Coast Guard to devise Coast Guard unique service procedures, and temporary fixes.
...In recognition of this the PBTH agreement provides a 6 month start-up period in which responsibility for support of the LTS-101 will be gradually transferred to TLC without a detrimental effect on fleet readiness and at no cost to the Coast Guard. After the end of the start-up period TLC will have full responsibility for LTS-101 support under the PBTH agreement.
a. All outstanding spare parts orders with TLC may be terminated at no cost to the government. (P.30)
b. Repairs that TLC are unable to perform will be accomplished by the Coast Guard. A 10% credit towards the PBTH price will be provided for engines repaired at Coast Guard facilities.
c. Excess inventory in the Coast Guard possession will be applied towards the PBTH contract as Government furnished property and will be credited against the PBTH price at the Coast Guard purchase price.
d. Certain stand alone technical representative contracts may be merged into the PBTH services.
VII. Conclusion
Despite the complexities of the associated details the concept underlying the PBTH agreement is quite simple - return the HH-65 program to the commercially based program that was intended from the start. To the extent possible the proposed PBTH agreement is designed to free the Coast Guard and the contractor from the tremendous administrative burden inherent in the procurement process when the Government must separately contract for all necessary parts and outside labor to support a major system. This is accomplished by putting program control as well as responsibility into the hands of the manufacturer for a price that all parties intended at the inception of the program. (P.31) If the PBTH agreement is successful it will take the Coast Guard out of depot repair business with respect to the LTS-101. More importantly the LTS-101 will cease to evolve as separate military and commercial versions and at some point in the future will become a viable commercial off-the-shelf engine. If the PBTH agreement proves unsuccessful the Coast Guard will have at least contained its cost without compromising its ability to pursue...
