Unique Partnership Yields Results

mployees at Letterkenny Army Depot in Chambersburg, Pa., are quick to say they keep contractor United Defense at arm's length. The description reflects the relationship between depot workers and contractor personnel working together on a contract to upgrade the Army's Paladin howitzer-close enough to reach out and shake hands.

It wasn't always this way.

The program to upgrade Paladin, an armored vehicle carrying a 155 mm howitzer that provides indirect fire support to heavy divisions, was once plagued with problems. Under an initial low-rate production contract with BMY Combat Systems, the unit cost for the Paladin upgrade tripled from $500,000 to nearly $1.5 million when production began in September 1991. As a result of the dramatic increase in costs, along with late deliveries and other contract problems, the Army opened the full-rate production contract to new bidders.

"You can build all the world-class stuff you want, but if the soldiers can't afford it, it's of no use," says Jerry Nitterhouse, director of Maintenance Engineering, Operations and Analysis at Letterkenny.

FMC Corp. was the surprise winner of the best-value, fixed-price production contract in April 1993. (After the award, FMC and BMY merged. The company is now known as United Defense.)

Because of the acrimony that had developed between the depot and contractor over the course of the initial contract, the first thing United Defense did was bring in a professional consultant to do team building.

"Our sister division, who used to be our competitor, had a relationship with Letterkenny that hadn't worked real well, so when we put in our proposal we had to address that," says John Kotlanger, the Paladin program manager for United Defense.

"There was a lot of distrust of contractors. We were seen as scurvy bastards who do nothing but steal, cheat and fool people, so we felt it was important for all of us to get a common understanding of what our goal was to make Paladin successful," he says.

The three-day team-building exercise at a local hotel was critical, according to Kotlanger and depot managers. "It was different from most team-building sessions because we actually worked issues related to how we would do work. From that we derived a series of principles and beliefs that we would use to operate the Paladin enterprise," Kotlanger says.

Guiding the enterprise is a 3-inch thick binder containing the Paladin management plan, developed by staff from United Defense and the depot. It spells out responsibilities and procedures for virtually every aspect of the program.

Responsibilities are divided according to strengths of the partners. Since Letterkenny already had an up-to-date paint facility meeting environmental standards, it took responsibility for paint operations. United Defense assembles new turrets and integrates them with the chassis that have been refurbished by Letterkenny. Together they test the upgraded howitzers before United Defense delivers them to the field, shipping from the depot railhead.

Managers from Letterkenny and United Defense say they deliberately set out to structure the program so that neither the government nor the contractor could be successful without the other, forcing a kind of teamwork that had not previously existed. But overcoming years of ingrained attitudes about how things should be done, as opposed to how they could be done better, was an all-consuming task initially, Nitterhouse says. Just as difficult was overcoming dozens of property management regulations that precluded integration of the workload.

In the end, the Paladin team received waivers from three Defense Department and 27 Army Materiel Command regulations. The waivers eliminated many materiel handling and packaging requirements and allowed United Defense to deliver parts directly to Letterkenny instead of passing the parts through the Defense Logistics Agency, which would have added time and costs to the process. The waivers alone resulted in a $15 million savings, Nitterhouse says.

United Defense also set up shop at Letterkenny, spending $3.4 million to turn an abandoned warehouse into a modern facility. The company has rent-free use of the building since it is used exclusively for government work.

The strength of the plan was realized when the first Paladin was produced in October 1994, two months ahead of schedule. The more than 500 Paladins completed to date have all been delivered early and accepted unconditionally by the Army.

What is most remarkable about the partnership between Letterkenny and United Defense is that it is essentially a handshake agreement, says Robert Shively, director of vehicle shops at the depot.

"This is a totally non-contractual relationship. That's what's so unique about this vs. all the other partnering arrangements," Kotlanger says. "There's no paper between Letterkenny and [United Defense] other than a memorandum of understanding. It explicitly states in there that this is not a contractual relationship, it's a style of work."

A contractual agreement would have set the wrong tone for the partnership, Nitterhouse says.

"If you want to know who's at fault in any given situation, all you have to do is look at the [management plan]. That book will tell you whose fault it is specifically. You can concentrate on that. But that's not the way to do business," says Nitterhouse.

"The fact of the matter is we see all our problems as all our problems," he says. "I think that's the difference."