Tuesday, July 10, 2012

F-35 PAUC and APUC

Sheesh. I shouldn't surf the web after midnight (or at least not comment)

What I MEANT to type last night while commenting on a very good F-35 "Costs" article:

You honestly expand on a difficulty where many have seen opportunity to sow confusion.
PAUC among other things includes RDT&E and all costs associated with production of the item such as hardware/software, systems engineering (SE), engineering changes and warranties plus the costs of procuring technical data, training, support equipment, and initial spares. But there is one aspect of PAUC that can make it VERY inappropriate for telling people what something WILL cost them: PAUC includes ‘sunk’ cost.
Most notably, in the F-35’s case, it includes the percentage of the RDT&E, Production, Engineering, and Technical Data costs that have already been incurred. Since the primary production line and RDT&E capabilities for the F-35 are already stood up, and all the suppliers' engineering and production capabilities are running in place waiting for the higher production demand, this has to represent a huge chunk of PAUC [though APUC is still correct and part of PAUC I meant to type the latter] that is already sunk cost.
Try explaining to the man in the street that the PAUC went up because of conscious decisions to defer higher rates of production and stretch development to ‘reduce risks’ and NOT because the Contractor is jacking up the price. People’s eyes will glaze over if you try and explain everything that goes into the PAUC or APUC: Many of the costs tacked on to the PAUC would make no sense to the average citizen because we don’t buy things like a government does. Example: The Man in the Street doesn’t add the cost of a new garage to the cost of his new 4x4 because it is too big to put in the garage he already has. He pays the money and then observes he has bought a new 4&4 AND a new garage.
While PAUC is considered ‘true' costs of the plane by ‘some’, it isn’t. It is just an aggregation of a lot of direct costs that are then booked against each plane by dividing by the number of units. Obviously it includes the costs of infrastructure, new technology, and new knowledge. Much of it will invariably be used to advantage elsewhere – it just gets BOOKED against the program of record.
On the other hand URF is something people will understand because it’s the dollar cost number to buy ‘just one’. Just like the store down the street.
If you must, use both numbers. But only PAUC requires extensive explanation to prevent misrepresentation. And once you have significant sunk costs, to be completely honest with the public, you should also provide the PAUC for producing NO more units, including cancellation costs. If the requirement demands a new program after a cancellation, add the estimated PAUC for that program as well. Let the public see the true cost tradeoffs involved.

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