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Lockheed Propulsion Company, Thiokol Corporation, B-173677, June 24, 1974 - Part 5: Apples and Oranges and O-Rings


bob7947

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What did I do in Huntsville, Wifcon?

For the 3 months in 1974 that I was there, I worked, drove around the Huntsville area in my 1971 240Z and began collecting and reading books.  I'm looking at one of the those books now.  It's still in my library:  Will Rogers, The Man and His Times by Richard M. Ketchum.   One of my colleagues from Atlanta took me to see "Contractors Row," in Huntsville which is a group of federal contractors and subcontractors lined up together on the same street.  Then there was the French kid selling peanuts in one of the nearby shopping malls.  Me with a Philadelphia accent and him with a French one.  I bought a bag of the peanuts.

The SRM Contractor Selection

The Solid Rocket Motor (SRM) solicitation was for a Cost-Plus-Award-Fee procurement and the offerors in the table below were ranked according to technical factors in the following order.  Although, the first three offerors were rated very good the numerical score favored Lockheed by 4 points.  However, the Source Evaluation Board (SEB) evaluated Thiokol as the lowest most probable cost performer by $122 million on this estimated $800 million procurement.  The SEB submitted its written report to the NASA Administrator who was the Source Selection Official (SSO)

  Score Overall Adjective Rating
Lockheed 714 Very Good
Thiokol 710 Very Good
UTC 710 Very Good
Aerojet 655 Good

After selecting Thiokol, the SSO issued a selection statement that read

Quote

We reviewed the Mission Suitability factors in light of our judgement that cost favored Thiokol.  We concluded that the main criticisms of the Thiokol proposal in the Mission Suitability evaluation were technical in nature, were readily correctable, and the cost to correct did not negate the sizable Thiokol cost advantage.  Accordingly, we selected Thiokol for final negotiations.

A protest was inevitable and Lockheed protested.

My Work Evaluating Offerors' Proposals and NASA's Evaluation

As I look back now, I believe my 3 months in Hunstville was supposed to be little more than a learning experience or a training exercise.  GAO was big on getting its auditors to experience field work and this was problably my chance.  I had graduated from college in May 1971 and now I was in Huntsville in the Spring of 1974 effectively delaying the Space Program.  GAO took pride in calling itself Congresses' Watchdog.  With my lack of experience I, at best, was a Watchpuppy.  In the beginning, I didn't know what a work breakdown structure (WBS) was nor did I know how a learning curve worked.  And I surely didn't know how to build a solid rocket motor.  By the end of my stay in Huntsville, I had memorized every WBS of manufacturing labor in both Thiokol's and Lockheed's proposals, understood Lockheed's Best & Final Offer with its troubling and unsupported learning curve projection, and knew enough to run the other way as fast as I could if someone mentioned ammonium perchlorate in my presence.

Each member of our small audit team had a section of the offerors' proposals to study.  I had to study the manufacturing labor hours section of the two proposals and then NASA's evaluation of them.  In studying the two proposals, I noticed that one offeror presented manufacturing hours and quality assurance hours separately and the other presented them as one.  However, they came out roughly the same.  When I looked at NASA's evaluation of the offerors' presentation of labor hours, there was no mention of the differences.  I was looking for precision and there wasn't any.  

After I finished my analysis, my Audit Manager from Washington arrived for my presentation to NASA's evaluators.  I discussed in detail, from the smallest WBS to the largest, what the NASA evaluators had missed.  In the end, I told the NASA evaluators they had compared apples to oranges in their evaluation.  Here is what GAO wrote in its bid protest decision.

Quote

Although the varying degrees to which the SEB attempted to verify the respective proposers' labor hours may have increased the cost uncertainty, examination of the records showed that no prejudice inured to Lockheed from the SEB's evaluation.

In English, that meant that NASA did not make any adjustment to either offerors' cost.  It accepted them as proposed.

Then there was Lockheed's Best and Final Offer (BAFO) which reduced its estimated costs based on a learning curve adjustment.  Learning curves are based on the theory that the more times you do the same task, the less time it takes you to do the task as one gains experience at it.

In the protest decision, GAO wrote

Quote

. . . in its best and final offer, Lockheed substantially reduced its proposed labor hours without significant substantiation and did not relate the reductions to the work performed.

* * * * *

In our view, the SEB probably should have questioned Lockheed's significant learning curve reduction in the best and final offer.  Lockheed supported the reduction by references, without further substantiation, to support lower learning curves achieved on its small solid rocket motor program and two larger solid rocket motor programs of other companies.

GAO was being kind.  However, NASA accepted Lockheed's BAFO as submitted.

What About Those O-rings

Well, it comes from an offeror's technical proposal.  I don't remember which offeror but we were having a discussion with a NASA evaluator.  It was a drawing that showed the SRM before it was ignited and then after ignition.  After ignition the sides of the SRM expanded and the O-rings were shown holding the gasses within the SRM.  I was amazed that the O-rings could withstand that pressure.  That drawing remains etched in my brain.

GAO's and NASA's Decision

After about 6 months, GAO issued its bid protest decision on June 24, 1974.  GAO's decision lists 25 bullets.  The first one said

Quote

On basis of GAO review of NASA evaluation of cost-plus-award-fee proposals for Solid Rocket Motor Project of Space Shuttle Program covering 15-year period in estimated price range of $800 million, it is recommended that NASA determine whether, in view of substantial net decrease in probable cost between two lowest proposers, selection decision should be reconsiderd.

Within hours of GAO's bid protest decision, NASA chose not to reconsider its selection decision and moved ahead with the Shuttle Program.

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Wow, I just saw your Blog entry, Bob. Thank you. It was fascinating. It did raise one question in my mind. It seemed to me that Thiokol’s long term costs could also be effected by a learning curve adjustment . Thus, even though it may not have addressed it in its proposal, the effect should be similar.

At any rate, your experience was fascinating! 

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