From: Langley Research Center
Posted: Thursday, March 10, 2005
CD COMM #2005-3
Cost Efficiencies Critical to Our Competitive Future
March 10, 2005
To: All Civil Service and Contractor Employees at Langley Research Center
This communication highlights critical Center cost management changes that are essential to our future.
Many of you have expressed grave concern with the cost rates we charge our customers in research and development proposals. Given the importance of winning as much new business as possible to reduce the requirement for downsizing from recent budget changes, I concur that addressing our cost rates is a very relevant and important issue. As you know, our projected budget is estimated to decrease by approximately $200 million (30%) over the next two years. You will also recall that our current and likely future customers are moving to a new competition model for much of our Center business. In that regard, we must reduce our cost rates to match our projected future state and establish a competitive advantage for bidding and winning future work via proposals.
Our General & Administrative (G&A) rate and our Science & Engineering (S&E) cost rates combined with civil service salaries make up a number that I will call the fully burdened rate for an S&E Full Time Equivalent (FTE). These rates will ultimately be determined by our decisions on cost issues. Our analysis of what a competitive range should be determined that the fully burdened rates for FY 07 should be $220,000 to $240,000 per direct depending on the organization/technical area, as S&E rates vary for different technical areas. It may be slightly higher in FY 06 due to short-term financial challenges; however our goal is to get as close to the FY 07 figure as possible. If we take no action, our rates would be in a range of appropriately $375,000, which is clearly uncompetitive.
Recently, I asked our Associate Director for Operations, Doug Dwoyer who also the Center's G&A manager, to chair a team to recommend reductions to Center services and overhead. The team spent nearly three months studying Center operations and costs. The team recommended a target to reduce approximately $100 million dollars from Center services and overhead. These reductions help address the estimated budget changes and put our fully burdened rate in the competitive range for proposal activities.
The Senior Leadership Team has reviewed the cost proposals and approved most of them. Now we are proceeding into implementation. We have assigned Carl Gray to assist Doug in following up assuring that each cost change proposal is pursued relentlessly until the noted savings are realized. Many, if not all, of these cost reduction proposals will be painful since change is never easy, and we have become accustomed to using many of the services provided by these funds. Many reductions will impact services from our business organizations and service operations. In addition, some of the proposed changes may require us to negotiate with our partners and stakeholders prior to implementation. Details on the changes and reductions will be discussed in the coming months.
We can either feel victimized by these types of changes or decide to take action to help. I have decided that I can actually do a lot to help. First, I can accept the fact that we need to cut substantial dollars and not complain about the lost services, unless a proposed cut interferes with safety, health, or the delivery of a funded product. Second, I am personally nominating a few items to add to the list, and I hope that you will survey your situation and recommend things to your supervisor as well. The following items may seem trivial; however, integrated over our total operation, they can yield substantial sums. While maintaining my laptop, I plan to relinquish my printer, keyboard, flat screen monitor, pager, and video office phone. Some of you may need your keyboard and monitor for ergonomic reasons, however; I do not since my sessions on the computer are primarily devoted to reading and responding to emails. My laptop computer is fine for that purpose. I will also give up my government car and car phone.
I have not approved some items that appeared to me to detract from safety, health, or other essential services such as childcare, fitness center, clinic, emergency services and a decent cafeteria for meals. Also, while changes are being implemented we will be careful to avoid disruptions to our technical capabilities that serve current customers or have a high potential to help us win competitions in the near future. This does not mean business as usual. For example, we are going to take a hard look at laboratory consolidations to see if we can reduce our footprint and save on utilities and maintenance costs. Ultimately, we want each of you to understand the cost of items that you have as tools for your work so that you can help us make wise decisions about which to keep and which to relinquish.
When we all have a profound understanding of these costs, "full cost" will be a non-issue because it will be something that we all feel we have control over rather than something that is done to us. Carl Gray volunteered to assist in helping each of us come to grips with those things we need to do our work and consider the cost versus benefit of such tools. Please assist Carl and Doug as they try to help us all achieve competitive rates while ensuring we have a Center with essential services that provides valued technical content for our customers and offers an exciting place to work for our employees.
If we all work together, we can ensure Langley is in a competitive posture moving forward to bid and win work that is technically challenging and professionally rewarding.
Roy D. Bridges, Jr.
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