After blogging about a 20 Dec 2010 ASD (L&MR) Policy Memo "Maximum Utilization of Government-Owned Inventory in Performance-Based Logistics (PBL) Arrangements” late last year, one of our readers posted a comment containing some thought provoking questions:

“How does this policy resolve the impact on a PBL where the Contractor has made substantial investments in wholesale inventories over the past 13-years?  Implementation could require the Contractor to write-off existing inventory by disposing of it.  The Government has collected up residual assets for re-use in order to extend life cycle support.  Under this PBL, the Government has been using those inventories to offset carcass loss, support unscheduled requirements and fill supportability gaps due to part obsolescence as a common practice.  With a Contractor inventory investment in the $ Millions, they feel it may no longer make business sense for them to continue the PBL if they cannot expend their existing inventories first; or make a planned transition to a mixed Contractor/Government inventories over a negotiated time period.  Should the PBL end, the risk to Government would be significant increase in manpower and material costs.  It could cost twice as much funding to transition to traditional sustainment support using Government inventories and buying into extensive DMSMS costs; verses the existing funding trend at half the projected cost with an annual carcass exchange cost avoidance.  Are economic impacts and risks to the Government to be considered prior to policy implementation?  Can the Government choose a planned transition to using more of the Government inventories and adjust stockage objectives over a negotiated time period?  Thank you.”

Below is an unofficial response from our colleagues at the Office of the Secretary of Defense staff, provided as a public service without attribution to any specific individual. Note that this response should not be construed in any way to be official DoD policy:

“In the case of (this) question, yes economic impacts and program supportability risks should be considered.  Yes, the Government can choose a planned transition based upon cost, availability, and risk. DoD 4140.01R dated May 23, 2003 requires that Military Service program managers collaborate with Military Service and DLA materiel managers and invite their participation in developing and selecting performance-based materiel support strategies.  The bottom-line of the policy memo is to ensure good sound business practices are implemented efficiently and effectively.”