Galaxy Missiles, Inc.

and Sharp, LLC

A Case Study in Supply Management developed for class purposes at the Mays Business School, Texas A & M University

Developed by students under the guidance of Professor Xen Koufteros.

Fall, 2009

Document List
Negotiation Case Study Case Background Noncompetitive Acquisition Justification Form [Exhibit 1] Request for Proposal [Exhibit 2] Statement of Work Proposal [Exhibit 3] Propricer (Ad Hoc) Groundrules and Assumptions Basis of Estimate Bill of Materials Schedule Technical Evaluation DCAA Rate Audit Milestones [Exhibit 4] Buyer Tips Supplier Tips

PROCESS Stage 1: All teams work as a buyer. Look at the case (conceptually and analytically) and identify whether the proposal is reasonable. Prepare spreadsheets to show all your calculations and describe their logic in simple language. Clearly identify all points of contention and the reasoning. The spreadsheets have to be user friendly. Provide explanations what all the columns mean and the logic. Organize your work to make it easy for somebody to follow what you did. To be turned in on November 18. Label this part of the project as the original position. Stage 2: On November 2 there will be a drawing to split the teams into buyers and suppliers. I will make the supplier tips only available to the supplier teams and buyer tips only available to buyer teams later in the week. Stage 3: On November 4 during class time, a buyer team will be matched with a supplier team to negotiate the contract price and conditions. Remember that most of the time is consumed in preparations for the negotiations. You may begin the preliminary negotiations once you ready. You cannot possibly negotiate all issues on November 18. Stage 4: The final negotiations will take place on November 18 where the final positions for the negotiation will be presented before the Lockheed Martin Panel. Each team will present the starting point and their final recommendation along with supporting evidence (conceptual and analytical). You need a PPT presentation to help you articulate your position. You may summarize the analytical work in a user friendly format. Label the revised spreadsheets as final position. All material (PPT and Excel files) including an explanatory report (similar to the one you turned in for BP) has to be turned in as hard copy on November 18 during class time.

Negotiation Case Study Galaxy Missiles, Inc. and Sharp, LLC

Summer 2009

SMAS
Satellite-Based Missile Attack System
May 2009 Program Award Galaxy Missiles, Inc. (GMI) in Chicago, IL quickly evolved as a major player in the Defense Industry in the years following establishment in 1979. Prior to the 1990s, GMI primarily contracted for development programs with the United States Army. In the past two decades, however, Galaxy Missiles gradually entered into missile development with other Military divisions in the United States, and various international governments around the globe. Currently, GMI is in development of the newly-awarded Satellite-based Missile Attack System (SMAS). The system is conceived to attack stationary ground targets anywhere across the world within 5 minutes of launch. Development of the tactical missile began due to the growing global unrest and events following September 11, 2001. The SMAS system consists of multiple satellites in geostationary orbit above the earth. Each satellite bears 12 missiles that carry 50 pound warheads. The customer is the United States Air Force (USAF), and they require an operational system within 5 years of award (completed by 2010). In September 2004, the USAF issued a Request for Proposal (RFP) to the top defense contractors in the country. USAF ran an eight month long competition for award of the SMAS program. The contract award went to Galaxy Missiles, Inc in May, 2005. Navigation System Subcontract Source Selection In early 2006, GMI ran a competition to determine the supplier of the Navigation System (NS) for the SMAS. GMI issued RFPs to four companies; StingRay, Boulder Corp., Slowing, and Kat Corp. In response to the RFP, StingRay and Boulder Corp. formed a LLC under the name Sharp, LLC. Under Sharp, LLC, StingRay is known as Sharp West, and Boulder Corp. known as Sharp East. Sharp, LLC submitted a proposal to GMI for the navigation system and competed against the two remaining companies. Later that year, GMI awarded the Firm Fixed Price Navigation System subcontract to Sharp based on product reliability, cost, and schedule support. Launch Shock Testing Solicitation In early 2009, the customer (USAF) required launch shock testing for qualification of the NS design created by Sharp, LLC. Launch shock testing is acknowledged by the USAF as additional scope to the original NS. Single Source Justification is provided to explain why Sharp has been chosen to run testing [Exhibit 1]. GMI issued Sharp a RFP dated 03 February 2009 for a Firm Fixed Price Proposal [Exhibit 2]. The level of risk associated with Launch Shock Testing for Galaxy Missiles is moderate. Therefore, a Firm Fixed Price (FFP) type contract was chosen, allowing Sharp to determine profit based on cost control. Launch Shock Testing Proposal It is now May of 2009 and GMI is reviewing Sharps Launch Shock Testing FFP Firm Proposal received on the twentieth of this month [Exhibit 3]. Looking at the schedule below, we notice that work for the launch shock testing began on April 20, 2009, prior to Sharps proposal submission. GMI established this early start date as a

way to maintain the time sensitive schedule of the SMAS program. To begin work, GMI decided to issue a Letter Contract Not To Exceed (NTE) $1,700,000 to Sharp. GMI received a NTE Proposal from Sharp on April 6, 2009, and the NTE letter of acknowledgement was issued to Sharp on April 13, 2009. The letter contract authorizes initiation of work activity to preserve schedule, pending definitization. The proposal included in this case study is the Firm Proposal submitted by Sharp on 20 May 2009. As a result of the letter contract, Sharps firm proposal includes actuals for the amount of work completed to date, and estimates for the amount of work remaining. The firm proposal submitted by Sharp on May 20, 2009 includes a Propricer (Ad Hoc), Groundrules and Assumptions, Summaries of the Basis of Estimates (BOE) for Sharp West and Sharp East, a Bill of Materials (BOM), and a Schedule. Navigation System Testing Schedule RFP Issue Date 03 February 2009 NTE Proposal Received 6 April 2009 Letter Contract 13 April 2009 Period of Performance 20 April 2009 20 July 2009 (12 weeks) Firm Proposal Received 20 May 2009 SMAS Program Length May 2005 May 2010

Additional Information GMI strives to maintain favorable relationships with suppliers, no matter the size of the proposal. GMI currently holds positive relationships with StingRay and Boulder, Corp. As a result, Sharp LLCs cost analyst disclosed information to a GMI cost analyst. Of the information disclosed, GMI learned that Sharp typically performs better than expected regarding overhead rates. On average, Sharps actual rate incurred is 5% to 8% less than expected. Due to time sensitivity of the SMAS Program, the Government closely monitors GMIs schedule. The Government threatens to cancel the SMAS contract if scheduled completion falls too far past the date proposed. Therefore, GMI must maintain schedule. To ensure timely completion, GMI prefers to beat the schedule provided by Sharp, LLC. To encourage a faster pace, GMI provided Launch Shock Testing Milestones with the Letter Contract [Exhibit 4]. Should Sharp, LLC reach one of the proposed Milestones, GMI will provide milestone payments accordingly. StingRay and Boulder Corp. are American owned companies with branches located around the globe. As such, Sharp has access to the worldwide divisions of the companies. Due to the recession and its effects on international business, StingRay and Boulder find themselves in similar financial positions. Both companies are in desperate need of cash flow. This need prompted each company to issue a Stop Work order to various production programs so they may direct resources to work on the SMAS Program. Each company expects a significant increase in cash flow as a result of the program, should the Government fund it to completion. Thus, Sharp strives to receive the quickest flow of cash possible.

Table of Acronyms BC BOE COM DCAA ETC FFP G&A GMI ITAR LOE NS NTE Boulder Corp. Basis of Estimate Cost of Money Defense Contract Audit Agency Estimate to Complete Firm Fixed Price Groundrules and Assumptions, General and Administrative Galaxy Missiles, Inc International Traffic and Arms Regulation Level of Effort Navigation System Not To Exceed PM POP PP&C RFP SMAS SOR SOW SR TD TIM TO USAF WBS Program Manager Period of Performance Program Pricing and Control Request for Proposal Satellite-based Missile Attack System Statement of Requirements Statement of Work StingRay Technical Director Technical Interchange Meeting Task Order United States Air Force Work Breakdown Structure

Exhibit 1 Noncompetitive Acquisition Justification

Check one or more of the following noncompetitive acquisition justifications. Insure that the justification is properly documented below as identified on page two. Proprietary Items Spare Items Restrictive Time Limit Specific Brand Name Modification service, maintenance, repair, failure analysis, rework, or warranty with OEM Software License Renewals/Software License Maintenance Previously Tested/Approved Item, Qualified, or Approved for a Similar Application and Additional Testing is not Economically Feasible - Cost Considerations: $_____ X Follow-on. Changing Suppliers Generates New Costs - Cost Considerations: $_____ Economic Considerations Item is Qualified and Qualification of Another Supplier is not Feasible - Cost Considerations: $_____ Source Controlled Drawing Environmental Direction - Compliance Requirement Prime Contract Direction Teaming Agreement Corporate Agreement

Mentor-Protg Agreement with Lockheed Martin Unauthorized Commitment Consulting Services Only Known Supplier Other

Requisition No:

TBD

1. Description of item or service: Development and execution of the Navigation Launch Shock Testing in support of SMAS program. 2. Supplier/Address: Sharp, LLC 1549 El Prado San Diego, CA 92101

Phone: (619) 848-7893

Estimated Price: $1,700,000 NTE 3. Description of unique features of the desired materials or services that must meet minimum requirements: Sharp, LLC was awarded the contract for the development of the SMAS NS in the original competition. Their understanding of critical program technical and schedule requirements uniquely qualifies them as a viable source for this Launch Shock Testing effort.

Noncompetitive Acquisition Justification

4. Description of other items, services, and/or alternate sources that were considered and why they were rejected: The completion of this testing effort is critical to the schedule of the SMAS program. The schedule and technical issues of contracting with another supplier threaten to severely impact the SMAS program schedule. This would lead to additional and unnecessary costs.

5. The above requirement is noncompetitive for the following reason(s): Based on GMI experience in developing and testing Navigation Systems, Sharp, LLC is a viable source. It is in the best interest of GMI and our customer to award a contract for Launch Shock Testing to Sharp, LLC.

NCJF2009 (01/09) Noncompetitive Justification

Page 8 of 36

Exhibit 2
Letter No. 9878-9/L-456 03 February 2009

Galaxy Missiles, Inc 3800 N Lake Shore Dr 60614 SHARP, LLC 1549 El Prado San Diego, CA 92101 Attention: Subject: Enclosure: Reference: Mr. Micky Watts Request for Proposal (RFP) SMAS Program: Navigation Launch Shock Testing (1) Statement of Work, dated 29 January 2009 Proprietary Information Agreement Ref # 188008 dated 04 March 2006

Dear Mr. Watts:

Galaxy Missiles, Inc (GMI) hereby solicits your Firm Fixed Price proposal for the Navigation Launch Shock Testing of the SMAS program in accordance with Enclosure (1) Statement of Work. In order to protect schedule, please submit your Not to Exceed (NTE) proposal on or before 6 April 2009. Your firm proposal, complete with Basis of Estimate (BOE), is due to GMI not later than close of business 20 May 2009. The Proposal shall remain valid for 180 days. Anticipated Period of Performance for Launch Shock Testing shall be 12 weeks from letter contract issuance. Your proposal may be e-mailed to the undersigned. This solicitation, or any subsequent changes to it, shall not be construed in any manner to be an obligation on the part of GMI to enter into a subcontract with you and shall not result in any claim whatsoever against GMI or the United States Government for any reimbursement associated with this proposal effort. Your proposal should identify and discuss any exceptions to the attached Statement of Work. Include a preliminary Bill of Materials (BOM) and your Work Breakdown Structure (WBS). Provide labor and material pricing breakdowns within your BOE by WBS item. Your rationale must clearly establish the basis of your estimate and justify its reasonableness. Be sure to include cost support data for any material costs, including prior purchasing history and price history. When justifying labor hours according to past work assignments, be sure to explicitly validate any deviances using complexity factors or escalated costs.

All of our requirements are UNCLASSIFIED and we expect an UNCLASSIFIED response. Do not include any CLASSIFIED data with your Proposal. This RFP must be treated as Competitive Sensitive. No information contained herein may be reproduced or transmitted in whole or in part to any third party except as required to produce a responsive proposal unless authorized in advance by Galaxy Missiles, Inc in writing. Information concerning this proposal is not releasable to foreign governments, foreign nationals, representatives of a foreign government or nation, or U.S. citizens residing in a foreign country unless authorized in writing by Galaxy Missiles, Inc. Any and all export activity will result in a violation of International Traffic and Arms Regulation (ITAR) requirements. Correspondingly, your proposal submittal will be treated in the same manner. All proprietary information shall be protected in accordance with the Proprietary Information Agreement referenced. Galaxy Missiles, Inc values your interest and participation in the SMAS Program. Please advise the undersigned that you have received this RFP and of your intention to respond by the required date.

Sincerely,

Holly Shark Subcontract Manager Galaxy Missiles, Inc Phone: (312) 555-7890

Prepared by Name : Title Date : :

Holly Shark Subcontract Manager 02/01/2009

Provide this justification to Acquisition to support your requirement.

Galaxy Missiles, Inc.

Statement of Work (SOW) Support to: SMAS Program: Navigation Unit Launch Shock Testing Submitted To: Sharp, LLC

INTRODUCTION

The purpose of this statement of work is to describe the level of testing required to satisfy the launch shock testing requirements for qualification of the navigation unit for the Satellite-based Missile Attack System (SMAS).

BACKGROUND
Launching electronic parts inside of a missile puts abnormal stress on the components. It is necessary to test these parts extensively to insure that they can withstand the shock forces associated with a missile launch.

OBJECTIVES
This testing will satisfy the shock requirements for the qualification of the SMAS. The navigation unit shall meet performance requirements after exposure to random shock spectra testing per specifications listed below. Three (3) separate navigation units, provided by Sharp, LLC, will be tested for a total of 12 response tests. The units shall be subjected to transit drop shock profiles, three shocks per axis, to the SRS amplitude given in the table and figure below, with an effective pulse duration less than 60 msec in general accordance with MIL-STD-810, Method 516.3, Procedure I. Environmental testing will include temperature ranging from -50 to 220 degrees centigrade. After qualification shock testing, the Seller shall subject the sample to standard conformance testing. Testing and Analysis will only be performed over Navigation Unit. No work or analysis is to be performed over antennae.

TRANSIT DROP Pulse Duration less than 60 ms Frequency, Hz 20 30 300 1000 2000 SRS Amplitude, G-pk 30 55 65 250 300

REPORTS, DATA AND DELIVERABLES

Reports
Monthly technical and monthly financial status reports shall be submitted by the 7th day of each month. Reports will be in Microsoft Word format and will be submitted electronically to the GMI Program Manager.

Other Contractual Deliverables

The subcontractor shall provide input as requested by GMI to support submission of any other deliverables that may be required under the prime contract, including informal project review materials and contributions to monthly and final research reports.
TRAVEL

Travel is anticipated in support this subcontract. Travel is NTE $10,000.

OTHER

Security Provisions
This effort will involve handling of export controlled information.

Place of Performance
The work shall be performed at Subcontractors facilities.

Period of Performance
The period of performance for costing purposes shall be: April 20, 2009 until July 20, 2009 (12 weeks)

Inspection and Acceptance

Sharp, LLC work hereunder is under GMI Program Management supervision and as such is subject to approval, conditional approval, disapproval or corrective action by the appropriate GMI personnel.

Exhibit 3
Document: 20-1020-10

1549 El Prado San Diego, CA 92101 20 May 2009 Galaxy Missiles, Inc 3800 N Lake Shore Dr Chicago, IL 60614 Attention: Subject: Ms. Holly Shark Subcontract Manager SMAS Program Sub Contract Launch Shock FFP Proposal (1) Propricer (Ad Hoc) (2) Groundrules and Assumptions (3) Sharp West and East Basis of Estimates (BOE) Summary (4) Bill of Materials (5) Schedule (a) RFP Letter No. 9878-9/L-456 dated 03 February 2009 (b) Prime Contract WC 19-8719-88

Enclosures:

References:

Dear Ms. Holly Shark: Sharp, LLC submits a Firm Fixed Price Proposal $1,464,533 to test the performance of the Navigation System launch shock test, implement algorithms, design shock test fixtures, provide support through telecoms, technical interchanges, etc. in support of the SMAS program. This proposed price includes all testing within the scope of the given Statement of Work from Galaxy Missiles within the 12 week period of performance beginning April 20, 2009. This proposed price includes all work authorized by the Letter Contract NTE $1,700,000.00 issued April 13, 2009.

Sharp, LLC Confidential & Proprietary

Exhibit 3
Document: 20-1020-10

Enclosed are ground-rules and assumptions that apply to this proposal along with the schedule for this effort. All must be mutually agreed upon. This proposal is sufficient for all testing mutually discussed during the meeting between Sharp LLC and GMI on April 03, 2009. Any changes are to occur in writing and the subsequent proposal price is subject to change. This proposal is valid for 90 days or until it is revised. If you have any questions regarding this submittal, please direct them to the undersigned or to Program Manager Roper Cornell at (619) 555-1224.

Sincerely,

Micky Watts Sr. Contracts Manager Sharp, LLC (619) 555-7893

RFP/Proposal Reviewed By: Micky Watts Sr. Contracts Manager San Diego, CA Roper Cornell Program Manager San Diego, CA Bob Browntree Sr. Electrical Engineer Norfolk, VA Tiffany Morris Test Engineer Staff San Diego, CA Megan Rodriguez Dir. Quality Management Norfolk, VA Rustam Mirziyoyev Dir. Test Engineering Tashkent, Uzbekistan
Sharp, LLC Confidential & Proprietary

Ground Rules and Assumptions

1. Performance will require no scrap or rework. 2. Any work required or desired over total LOE proposed must be handled as a separate contract. (Total costs proposed are not to be exceeded) 3. Testing will be performed on 3 units. 4. Period of Performance is 12 weeks. Actuals are based on first 4 weeks. 5. Testing will not deviate from the proposed tasks. 6. Travel Expenses NTE $10,000

Basis of Estimate
Sharp, LLC, for Galaxy Missiles, Inc. SMAS Program: Navigation Unit Launch Shock Testing

Prepared Approved

18 Apr 2009 19 Apr 2009

By By

Elliott Frank Roper Cornell

Task ID 1.1 Sharp West PP&C Analyst Support StingRay Basis of Estimate Planning and Set Up 14 Hours Baseline MGMT and Baseline Change Logs 15 Hours Performance Measure 15 Hours Reports and Cost Control 25 Hours Interaction 15 Hours PO Tracking 15 Hours Project Close 6 Hours Monthly Updates 15 Hours PP&C Support 24 Hours Labor Total 144 Hours Bsup002 25 Hours Business Bsup003 119 Hours Business Task ID 1.1.2 Program Management Boulder Corp. Basis of Estimate 11 hours are actuals. Level of Effort (LOE) for previous tasks on the same program was 120 hours total = 10 hours/month. LOE: (10 hours/month)*(2 months) = 20 hours Estimated to Completion (ETC) 11 hours + 20 hours = 31 hours total Labor Total 31 Hours BPM 31 Hours Program Manager Task ID 1.2 Sharp West Technical Director StingRay Basis of Estimate 48 hours are actuals. Hours for estimate are based on Task Order 03, completed March 2008, which totaled 30 hours per month. TO 03 actuals are representative except that this task (1.2) has additional complexity. Amount of technical assistance required will multiply by a factor of 6 (6 x 30 = 180 Hours x 2 Months = 360 Hours ETC). Labor Total 408 Hours TDEng001 408 Hours Technical Director Task ID 1.2.2 Sharp East Tech Director Boulder Corp. Basis of Estimate LOE for technical director on previous tasks for this program was 661.5 hours. A complexity factor of 10/20 is used because the effort being estimated is 10-weeks and the source of the data is 20-weeks (5 months including holidays). A complexity factor of .2 is used because it is believed that the TD effort for the Launch Shock Testing will include 1/5 of the LOE tasks on the previous effort for the program. (661.5 Hours x 10/20 x .2 = 66.15 Hours Total) Labor Total 66.2 Hours BTD 66.15 Hours Technical Director Task ID 1.3.1.1 Sharp West Weekly Teleconference StingRay Basis of Estimate Weekly 1-hour teleconferences to perform status updates with the customer. Technical lead and systems engineer will be present. Labor Total 24 Hours TDeng001 12 Technical Director

SYeng002 12 Systems Task ID 1.3.2 Program Pricing and Control Boulder Corp. Basis of Estimate PP&C efforts in setting up cost accounts and monitoring program financials. Labor Total 32 Hours BSUP 32 Software Support Task ID 1.3.3 Technical Interchange Meeting - West StingRay Basis of Estimate Attendance at 5 all-day Technical Interchange Meetings (TIM) with customer. Labor Total 210.6 Hours DMeng001 21.6 Engineering Labor Teng003 21.6 Test SDEeng001 43.2 Software Design SDeng003 32.4 Software Design SYGSeng001 10.8 Systems GS SYGSeng002 32.4 Systems GS TDeng001 27 Tech Director/Lead/Manager SYIeng001 21.6 Systems Inertial Components Task ID 1.3.3.2 Technical Interchange Meeting - East Basis of Estimate Hours estimated based on discrete task: 1 Program Manager (PM) 1 Technical Director 2 System Engineers 2 Hardware Engineers (4 x 8 Hours) + (1 TD x 8 Hours) + (1 PM x 8 Hours) = 48 Hours Labor Total 48 Hours BPM 8 Hours BTD 8 Hours BENG 32 Hours

Boulder Corp

Task ID 1.4.1 Sharp W/E Biweekly Test Monitoring StingRay Basis of Estimate Test result interchange and scheduling meetings. Will be 2 meetings per week, resulting in 26 one-hour meetings. Labor Total 104 Hours TEeng003 26 Hours Test electrical Teng003 26 Hours Test SYGSeng002 26 Hours Systems GS TDeng001 26 Hours Tech Task ID 1.4.2 Sharp W/E Tech Meetings Boulder Corp Basis of Estimate Bi-weekly W/E technical meetings with 2 employees. 2 per week x 1 Hour x 2 Employees x 12 Weeks = 48 Hours Labor Total 48 Hours BENG 48 Hours Task ID 1.5 Travel Boulder Corp Basis of Estimate There will be two 3-day trips that are taken during test months 2 and 3 POP. Labor Travel charge is $25,731.

Task ID 2.1.1 Systems Engineering Support StingRay Basis of Estimate a) Implementation of turbo ring b) Pipe leveling c) Guidance Connectors configuration system d) Response Testing Documentation e) Test documentation - launch shock testing f) Perform systems analysis on guidance connector improvement g) Antennae conformal coating Quality Engineer Labor Total 269 Hours CMsup001 30 Hours Configuration Management Qeng001 30 Hours Quality SYGSeng002 209 Hours Systems GS Task ID 2.1.2.2 Shock Test Procedure Preparation Boulder Corp Basis of Estimate Based on historical testing. Monitoring and Controlling 1 Hour Procedural Development 8 Hours Labor Total 9 Hours BENG 9 Hours Task ID 2.3.1.1 Turbo Ring Investigation StingRay Basis of Estimate Support of the turbo ring investigation based on past program tests. Labor Total 42 Hours EDsup001 4.2 Hours Electrical Design SDeng003 3.6 Hours Software Design TMsup002 0.5 Hours Test - Mechanical SYIeng003 6 Hours Systems Inertial Components SDeng002 4 Hours Software Design TEsup002 12 Hours Test - Electrical EDeng003 1 Hours Electrical Design EDsup001 3 Hours Electrical Design Tsup002 6.6 Hours Test SDMTeng003 1 Hours Software Design Microsoft Technologies Material M64 $29,602.22 Total Task ID 2.3.2.2 Turbo Ring Components StingRay Basis of Estimate Support Task 3.2.4.1 Production Integration Update by producing a turbo ring system which is implementable without additional adjustments. Actuals are based upon previous program activities 7 hours. Labor Total 16 Hours (including actuals) SYIeng003 2 Hours Systems Inertial Components MDeng003 4 Hours Mechanical Design (2 Actual) SYeng001 2 Hours Systems (1 Actual) SYGSeng001 2 Hours Systems GS (1 Actual) EDeng003 5 Hours Electrical Design (3 Actual) SYGSeng002 1 Hours Systems GS

Material M71 - $63,940.80 Total Task ID 2.3.2.4.1 Production Integration Update StingRay Basis of Estimate Resembles a prior production activity. Between September 23, 2008 to October 26, 2008 an SDeng003 and SDeng001 logged a combined 75.5 hours with an additional 15.5 hrs of SDeng001 activity for validation and review. (Total = 91 Hours). Due to additional complexity, SDeng001 will be completing work alone on this test. 2008 production activity cost $9,730 in Turbo Ring support for 1 axis. This design is for all 3 axes. Labor Total 91 Hours SDeng001 91 Hours Software Design Material M64 - $14,801.11 Total Task ID 2.3.2.4.2 Software Update Basis of Estimate This estimate is based on similar Sharp tasks. Labor Total 144 Hours SDeng001 86 Hours Software Design SDeng003 58 Hours Software Design Task ID 2.3.2.4.3 Connector Guidance Configuration System Basis of Estimate This estimate is based on similar Sharp tasks on this program. Labor Total 144 Hours SDeng001 98 Hours Software Design SDeng003 46 Hours Software Design StingRay

StingRay

Task ID 3.1.1 Response Test StingRay Basis of Estimate No actuals available. Given the lack of prior actuals, prior engineering experience and judgment was used. 15 tests are to be completed over the stated POP. Labor Total 203 Hours TEeng003 6 Test Electrical TEsup002 67 Test Electrical Tsup001 40 Test SDeng001 12 Software SYeng002 12 Systems SYGSeng001 64 Systems GS TDeng001 2 Tech Director-Lead Manager Material M76 - $31,259.95 Task ID 3.1.2 Turbo Ring Shock Validation StingRay Basis of Estimate Rings need to be designed for 3 units. This task is similar to previous ring validations. The task estimated involves evaluating test results of implementation. The complexity factor is considered to be the same from prior validations, but estimated design calls for an increase to 3 units.

The previous BOE addressed a design for one unit. Learning factor of 1/3 is applicable. Labor Total 15 Hours SDeng001 15 Hours Software-Design Material M64 - $44,403.33 Total Task ID 3.2.1.1 Sharp West Shock Testing StingRay Basis of Estimate Similar testing was done on one unit on program in the past. The individuals were identified that were related to testing the device. Estimated testing will require more technician labor than prior tests. The additional volume of tests (3 units) and test complexity translates into a complexity factor of 5. Tests are done over temperature, -50 to 200 degrees Celsius. 93 Hours x 5 = 465 Hours Labor Total 465 Hours Teng002 38 Hours Test Teng003 46 Hours Test TEsup001 205 Hours Test-Electrical TSsup001 73 Hours Test Shock TENVsup001 103 Hours Test Environmental Task ID 3.2.1.2 Sharp East Test Support Boulder Corp Basis of Estimate Support based on expected hours necessary for West to support East on technical issues that may arise as well as results interchange. Two support trips to occur in months 2 and 3 of POP, each being 3 days in length. Labor Total 167 Hours BENG 167 Hours

Travel Covered in Task 1.5 Task ID 3.2.3.1.1 Sharp West Data Analysis StingRay Basis of Estimate Similar tasks run on TO 03. Tests include both high and low shock response tests, 3 units, axis testing, and environmental testing. Query from TO 03 showed 58 hours were spent analyzing information. Given larger amount, overall effort should be 2 times prior. Labor Total 116 Hours SYeng001 8 Hours Systems SYeng002 46 Hours Systems SYGSeng001 22 Hours Systems GS SYGSeng003 40 Hours Systems GS Task ID 3.2.3.1.2 Sharp East Data Analysis Boulder Corp

Basis of Estimate Similar analysis done on past aspects of this program, as well as general engineering expertise. Labor Total 84 Hours BENG 84 Hours Task ID 3.2.3.3.1 Sharp West External Reports StingRay Basis of Estimate Required to provide information for the technical interchange meeting 1.3.3. Post completion of tests, information from the analysts, test leads , and ongoing investigations will be collected into a single report providing the basis for the TIM. Labor Total 58 Hours TEeng003 16 Hours Test Electrical Teng003 16 Hours Test SYGSeng002 16 Hours Systems - GS TDeng001 10 Hours Technical Director-Lead Manager Task ID 3.2.4.1 Sharp West Shock Test Wiring Harness Development StingRay Basis of Estimate Estimated hours came from past program where a single axis test wiring harness of the same type was designed. MDeng003 35 Hours Mechanical Design Teng003 30 Hours Test TDeng001 4 Hours Technical Director/Lead/Chief Eng MDeng002 3 Hours Mechanical Design Total = 72 Hours 2 additional axes have not been done for this design previously, and as such, no efficiency is obtained. The wiring for the first design also has to be reworked. Given that all 3 axes of the wiring have additional complexity, total hours are estimated at 3x the effort for the original wiring. Three harnesses will be produced for the three units being tested. 3 x 72 Hours = 216 Hours Labor Total - 216 Hours TMsup001-32 Hours Test Mechanical Teng002 8 Test Teng003 148 Test Tsup001- 15 Test MDeng002 5 Mechanical Design MDeng003 5 Mechanical Design SYsup001 3 Systems Material M96 - $21,316.60 Task ID 3.3.1 Combined Shock Vibration StingRay Basis of Estimate This test has never been run, but is similar to the rate and shock results from TO 03. Actuals from TO 03 were 54 hours. This test is considered 20% more complex than the baseline test in TO 03, given the lack of standardized test equipment during vibration testing (65 hours ETC). Labor Total - 65 Hours Teng003 15 Test TEsup002 14 Test-Electrical TENVsup001 14 Test Environmental SYGSeng001 14 Systems - GS SYGSeng002 4 Systems - GS

TDeng001 4 TD/Lead/Manager Task ID 3.3.2 Environmental Shock Tests StingRay Basis of Estimate Based on actuals from TO 03, this test was previously accomplished at 54.4 hours. Although some efficiency could be obtained by running a second time, the test has additional complexity due to customer specifications. Engineering judgment gives complexity factor of 1.25 (1.25 x 54.4 hr = 68 ETC). Labor Total 68 Hours TEeng003 4 Hours Test Electrical Teng002 16 Hours Test Teng003 10 Hours Test TEsup002 10 Hours Test Electrical Tsup001 15 Hours Test SYGSeng001 13 Hours Systems GS Task ID 3.4 Customer Success Testing StingRay Basis of Estimate Comprised of actuals from first 4 weeks of testing as well as expected level of effort to be used in remaining 8 weeks. Based on engineering expertise and similar testing done in the past on this and other programs. Actuals: Teng003 4 Hours Test Tsup001 4 Hours Test SYeng002 28 Hours Systems TEsup002 2 Hours Test Electrical TDeng001 8 Hours TD/Lead/Manager MDeng002 2 Hours Mechanical Design

Labor Total 146 Hours Bsup002 2 Hours Business Teng003 47 Hours Test TEsup002 10 Hours Test Electrical Tsup001 12 Hours Test TENVsup001 2 Hours Test Environmental MDeng002 4 Hours Mechanical Design SYeng002 39 Hours Systems SYGSeng002 4 Hours Systems GS TDeng001 26 Hours TD/Lead/Manager Task ID 3.5 Shock Test Failure Analysis StingRay Basis of Estimate The activity is needed to investigate test issues and failures. Estimates based on similar analysis done on program. Labor Total 110 Hours Teng003 15 Hours Test MDeng002 3 Hours Mechanical Design TDIMUeng001 18 Hours TD/Lead/Manager Bsup002 2 Hours Business TEsup002 6 Hours Test Electrical

SYIMUeng002 30 Hours Systems SYIMUeng002 22 Hours Systems SYINSeng002 3 Hours Systems GS Tsup001 9 Hours Test TENVsup001 2 Hours Test Environment

Task ID 5.1 Proposal Costs StingRay Basis of Estimate This estimate is based on the originators best judgment, general knowledge, and experience. There are no actuals for this estimate.

Task ID 5.1.1 Sharp West Proposal Costs StingRay Basis of Estimate Proposal costs are based on actuals and entered prior to pricing. Labor Total 267 Hours Bsup001 1 Hour Business Bsup002 34 Hours Business Bsup003 1 Hours Business TEeng003 7 Hours Test Electrical Teng003 22 Hours Test TEsup002 2 Hours Test Electrical MDeng003 14 Hours Mechanical Design SDeng003 36 Hours Software Design SYGSeng002 16 Hours Systems - GS TDeng001 134Hours TD/Lead/Manager Task ID 5.2.1 Sharp West Fact Finding &Negotiation Costs StingRay Basis of Estimate Estimated on actuals from Navigation System developmental work on the SMAS program. Total hours for prior task were 324 hours; it is assumed that the negotiations for this current proposal will be of the proposal for development of the Navigation Unit (awarded to Sharp, LLC) = 81 hours. Labor Total 81 Hours Teng003 18 Hours Test SDMeng001 18 Hours Software-Design SDeng003 15 Hours Software-Design SYGSeng002 15 Hours Systems - GS TDeng001 15 Hours TD/Lead/Manager Task ID 5.2.2 Prior Evaluation & Proposal StingRay Basis of Estimate Actuals for this effort to support Launch Shock discussions, analysis, and proposal total 435 Hours.

Labor Total 435 Hours PMsup001 118 Hours TDeng001 102 Hours

SDeng003 20 Hours SYGSeng002 195 Hours Task ID 5.2.3 Current Proposal Prep Basis of Estimate Actuals for the proposal effort are 206 hours. Labor Total 206 Hours BPM 20 Hours BTD 20 Hours BSUP 6 Hours BENG 160 Hours

Boulder Corp.

Task ID 5.2.4 Fact Finding/Negotiation Boulder Corp. Basis of Estimate Discrete estimate based on two people (1 PM, 1 TD) for one week each, plus 44 hours of engineering support. 32 (PM) + 32(TD) + 44(ENG)= 108 hours total Labor Total 108 Hours BPM 32 Hours BTD 32 Hours BENG 44 Hours

Sharp, LLC Proprietary Information

Bill of Materials
1549 El Prado San Diego, CA 92101 Customer: Galaxy Missiles, Inc 3800 N Lake Shore Dr Chicago, IL 60614 Material No. M64 M71 M76 M96 Nomenclature GM & S GM & S GM & S GM & S Quantity 6 2 4 3 Proposal No: 20-1020-10 SMAS Program Launch Shock Testing Cost $75,000.00 $54,000.00 $26,400.00 $18,000.00 Escalation* $13,806.67 $9,940.80 $4,859.95 $3,316.60

20 May 2009

*Base date 4/20/09; See attached escalation table

StingRay
1549 El Prado San Diego, CA 92101 Purchase Date Material No. Nov-08 M64 Dec-08 M64 Jul-08 M64 Nov-08 M64 Dec-08 M64 Jun-08 M64 Apr-08 M64 Nov-08 Sep-08 Dec-08 Jun-08 Nov-08 Nov-08 Dec-08 Aug-08 M71 M71 M71 M71 M76 M76 M76 M76 No. Units 2 1 6 5 3 5 8 1 2 4 2 5 10 7 3 3 5 4 2

Material Buy History

Quoted Price $27,000 $14,000 $73,500 $65,000 $44,000 $64,000 $79,200 $29,000 $50,000 $120,000 $49,000 $32,500 $62,000 $58,000 $15,005 $20,000 $40,000 $27,580 $14,000 Purchased Price $26,190 $13,720 $69,825 $60,450 $41,360 $62,720 $76,428 $28,130 $48,000 $109,200 $47,285 $30,875 $58,280 $55,390 $13,805 $19,200 $38,720 $26,201 $13,160

Nov-08 M96 Dec-08 M96 May-08 M96 Jun-08 M96 Payment Terms: Net 3%, 30 days Net 1.5%, 45 days

Material Escalation Rates:

Guided Missiles & Rubber & Misc. Space Plastics Apr-08 4.00% 4.16% May-08 5.00% 5.26% Jun-08 3.90% 4.10% Jul-08 4.68% 3.66% Aug-08 5.26% 5.10% Sep-08 3.20% 4.56% Oct-08 4.80% 4.98% Nov-08 5.10% 4.68% Dec-08 5.90% 4.99% Jan-09 5.99% 5.62% Feb-09 6.27% 7.56% Mar-09 6.10% 7.89% Apr-09 6.80% 6.99% May-09 7.60% 8.26% Jun-09 7.46% 8.33% Jul-09 8.20% 8.49% Aug-09 8.16% 9.26% Sep-09 8.25% 9.77% Oct-09 8.56% 9.10% Nov-09 8.76% 8.56% Dec-09 8.89% 7.88% Jan-10 8.94% 9.56% Feb-10 8.99% 10.26% Mar-10 9.45% 9.11% Apr-10 10.68% 11.56% Total Cost Calculation: Cost(n)x Where n = Number of Months x = Escalation Rate in Base Month Industrial Components 3.55% 3.12% 4.69% 4.55% 4.12% 5.68% 5.99% 6.46% 6.98% 6.10% 5.80% 7.98% 8.15% 8.11% 7.99% 8.98% 9.56% 9.77% 10.26% 10.89% 8.50% 7.59% 7.46% 6.23% 8.90%

Schedule
Sharp, LLC 1549 El Prado San Diego, CA 92101 Critical Event Launch Shock Test Preparation Testing Analysis

SMAS Launch Shock Testing POP 12 weeks Customer: Galaxy Missiles, Inc

Completion Date 5-May 28-Jun 20-Jul

Defense Contract Audit Agency Audit Report No. 1567-2009J270096

PREPARED FOR:

Divisional Administrative Contracting Officer (DACO) ATTN: Ms. Linda Mays DCMA Charleston DCAA Tampa Bay Branch Office 3756 42nd Street West Little Rock, FL 798343 Report on Audit of Rates and Factors Included in Subcontract Proposal No. 20-1020-10 for Navigation System Launch Shock Testing for the SMAS Program for GFY09 submitted to Galaxy Missiles, Inc. Chicago, IL.

PREPARED BY:

SUBJECT:

SUBCONTRACTOR: Sharp, LLC 1549 El Prado San Diego, CA 92101 CONTENTS: Results of Audit Pages 2-4

Results of Audit

Proposed/Accepted West Direct Labor Rates

Description ENG001 ENG002 ENG003 SUP001 SUP002 SUP003 2008 $80.68 $67.27 $53.22 $52.43 $31.36 $27.53 2009 $83.78 $69.85 $55.26 $54.44 $32.56 $28.59 2010 $86.88 $72.43 $57.30 $56.45 $33.76 $29.65

Proposed/Accepted East Direct Labor Rates

Description BPM BTD BENG BSUP

2008 $84.00 $77.58 $59.58 $42.49

2009 $87.23 $80.56 $61.87 $44.12

2010 $90.46 $83.54 $64.16 $45.75

Labor Burden Rates - West

Support (SUP) Proposed Questioned Difference Engineering (ENG) Proposed Questioned Difference 2009-Fwd 180.0% 15.0% 165.0% 2009-Fwd 130.0% 3.3% 126.7%

Labor Burden Rates - East

Support (BSUP) Proposed Questioned Difference Engineering (BENG) Proposed Questioned Difference 2009-Fwd 195.0% 12.0% 183.0% 2009-Fwd 145.0% 4.8% 140.2%

We do not challenge Sharp, LLCs BPM and BTD rates.

G&A Rates - West

Composite G&A Proposed Questioned Difference 2008 2009-Fwd 17.6% 17.6% 0.78% 0.9% 16.8% 16.7%

G&A Rates - East

Composite G&A Proposed Questioned Difference 2008 2009-Fwd 16.9% 15.8% 0.54% 0.7% 16.4% 15.1%

Cost of Money (COM) Factors - West

Proposed Questioned Difference 2009 4.681% 0.059% 4.622%

Cost of Money (COM) Factors - East

Proposed Questioned Difference 2009 5.946% 1.699% 4.247%

Exhibit 4

SMAS Launch Shock Testing Milestones

Prepared by: Galaxy Missiles, Inc 04 May 2009 Sharp, LLC Critical Event Launch Shock Test Preparation Testing Analysis Launch Shock Test Preparation Testing Analysis Launch Shock Test Preparation Testing Analysis Date Completed By Completed 28-Jun 20-Jul Completed 22-Jun 15-Jul Completed 15-Jun 1-Jul Percentage of Payment Received 15% 35% 50% 15% 48% 37% 15% 52% 33%