Defense Logistics: Opportunities to Improve the Army's and Navy's
Decision-making Process for Weapons Systems Support (28-FEB-02,
GAO-02-306).
The armed services have significantly reduced their procurement
of new weapons systems and are keeping their existing systems
longer than originally anticipated. The Department of Defense
(DOD) estimates that it is spending $59 billion a year on
logistics support to operate and sustain weapons systems, but DOD
believes that better logistics support practices could reduce
these costs by as much as 20 percent. To cut costs and improve
efficiency, the military services have begun implementing
logistics support strategies that rely on the private sector. DOD
Regulation 5000.2-R expresses a preference for using long-term
contractor logistics support but requires that an analysis be
done first to determine how logistics support work is to be
allocated to public or private entities. It is impossible to
determine whether initial cost-effectiveness estimates for
proposed contractor-logistics-support approaches are being
achieved because the Army and Navy lack the required data.
Consequently, the services may be adopting support approaches
without knowing whether expected readiness improvements and
cost-reduction goals are being met, where adjustments are needed,
or the conditions under which the various support approaches are
likely to achieve the most cost-effective results. Comparisons of
the same or similar work done by military and private facilities
are not possible or were inconclusive in determining which is
more cost-effective. No comparisons were possible for the Army
because, as a matter of policy, it does not divide its
depot-level maintenance work for the same items between Army and
contractor facilities. Only four comparisons of aircraft systems
were possible in the Navy, and these showed mixed results.
Although contractors have provided some logistics support needs,
major Army and Navy commands have concerns about widespread
contractor logistics support. However, the DOD's and the
services' actions so far do not fully address these concerns, or
the issues have not been fully resolved.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-306
ACCNO: A02826
TITLE: Defense Logistics: Opportunities to Improve the Army's
and Navy's Decision-making Process for Weapons Systems Support
DATE: 02/28/2002
SUBJECT: Best practices
Comparative analysis
Contractors
Cost effectiveness analysis
Defense cost control
Defense procurement
Equipment maintenance
Logistics
Maintenance costs
Privatization
Strategic planning
Weapons systems
EA-6B Aircraft
F-14 Aircraft
H-60 Helicopter
P-3 Aircraft
Prowler Aircraft
Tomcat Aircraft
Orion Aircraft
Pavehawk Helicopter
******************************************************************
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GAO-02-306
United States General Accounting Office
GAO
Report to Congressional Committees
February 2002
DEFENSE LOGISTICS
Opportunities to Improve the Army's and the Navy's Decision-making Process
for Weapons Systems Support
GAO-02-306
Contents
Letter
Results in Brief
Background
Data Needed to Assess Contractor Logistics Support Approaches
Are Insufficient Comparisons of Private and Government Depot Maintenance
Performance Are Either Not Possible or Are Inconclusive Major Commands'
Concerns Have Not Been Fully Addressed Conclusions Recommendations for
Executive Action Agency Comments and Our Evaluation
1
3 4
7
10 12 18 19 20
Appendix I Scope and Methodology
Appendix II Comments from the Department of Defense
Appendix III Staff Acknowledgments
Tables
Table 1: Service Data Reviewed to Compare Contractors' Performance with
Initial Expectations
Table 2: Army Contractors' Overall Performance Ratings, 1998 through 2001
Table 3: Navy Contractors' Overall Performance Ratings, 1998 through 2001
Table 4: Comparison of Average Overhaul Prices for the P-3, H-60, F-14, and
EA-6B Aircraft Performed by Private Contractors and Navy Depots
8 9 10
11
Abbreviations
DOD Department of Defense GAO General Accounting Office
United States General Accounting Office Washington, DC 20548
February 28, 2002
The Honorable Carl Levin
Chairman
The Honorable John W. Warner
Ranking Minority Member
Committee on Armed Services
United States Senate
The Honorable Bob Stump
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representatives
Since the end of the Cold War, the Department of Defense (DOD) has
dramatically reduced its forces and associated logistics support.1 The
armed services have also significantly reduced their procurement of new
weapons systems and are keeping their existing systems longer than
originally anticipated. DOD has estimated that it is spending about
$59 billion a year on logistics support to operate and sustain weapons
systems,2 but the Department has estimated that these costs could be
reduced as much as 20 percent by adopting improved logistics support
practices. In fiscal year 1998, the Department directed the armed services
to pursue logistics support "reengineering"3 efforts to achieve significant
savings and to improve efficiencies. To this end, the services have begun
implementing logistics support strategies that rely on the private sector to
provide most of the support that was traditionally provided by the
1 The services, materiel, and transportation required to support deployed
forces.
2 DOD does not routinely capture these costs in its accounting and
estimating systems. However, beginning in fiscal year 1999, the Office of
the Under Secretary of Defense for Acquisition, Technology, and Logistics
started estimating the amounts spent annually on logistics support.
3 This is the term DOD uses to describe its efforts to make the sustainment
of weapons systems more cost-effective throughout their life cycle by
ensuring that support infrastructures are competitive, efficient, timely,
and unobtrusive.
government. This approach is generally referred to as "contractor logistics
support."4
The services are responsible for developing a logistics support "concept"
before a weapon system is produced. Department of Defense Regulation
5000.2-R5 expresses a preference for using long-term contractor logistics
support, but also provides that an analysis must first be performed to
determine how logistics support work is to be allocated to public or private
entities. To decide which option to use, the services identify cost and
performance expectations for a specific system. When the services choose the
contractor-logistics-support approach, they are to develop and implement a
contracting strategy, including an analysis of the performance and costs
expected from the contractor. After a contract award, the service is to
measure the contractor's performance against the performance and cost
requirements defined in the contract.
Your committees expressed concerns about the cost-effectiveness of expanding
the use of the contractor-logistics-support approach and about the
management challenges it may create for major commands. As agreed with your
offices, we first reviewed and reported on the Air Force's experience with
this approach because the Air Force has had more experience with it over a
longer time period. We issued our report on that work in September 2001.6 A
summary of the issues covered in that report is in the background section of
this report.
This report covers the Army's and Navy's use of contractor logistics support
and (1) addresses to what extent these services have sufficient data to
assess whether the initial cost-effectiveness estimates used to justify a
contractor-logistics-support approach are being achieved; (2) compares the
performance of contractors, with that of Army and Navy depots in terms of
cost and responsiveness for the same or similar depot
4 Contractor logistics support is expected to be a long-term support
arrangement and is generally associated with multiple functions such as
maintenance, supply, and engineering. This approach was first used with
commercial derivative systems to allow the military to benefit from a
support system already established in the commercial market place. More
recently the concept is being used for military-unique systems.
5 Mandatory Procedures for Major Defense Acquisition Programs and Major
Automated Information System Acquisition Programs, Department of Defense
Regulation 5000.2-R (June 2001).
6 See U.S. General Accounting Office, Defense Logistics: Air Force Lacks
Data to Assess Contractor Logistics Support Approaches, GAO-01-618
(Washington, D.C.: 2001).
Results in Brief
maintenance work; and (3) addresses to what extent the services are
addressing their major commands' concerns about the increased use of
long-term contractor logistics support. This report completes our work in
response to your request for an analysis of contractor-logistics-support
issues.
In general, it is impossible to determine whether initial cost-effectiveness
estimates for proposed contractor-logistics-support approaches are being
achieved because the Army and the Navy do not have the data required to make
these assessments. Consequently, the services may be adopting support
approaches without knowing whether expected readiness improvements and
cost-reduction goals are being met, where adjustments are needed, or the
conditions under which the various support approaches are likely to achieve
the most cost-effective results. The Defense Department's policy requires
that initial cost and performance analyses be performed before selecting a
logistics support approach for weapons systems, but it does not require a
detailed quantification of the alternatives or require that this information
be retained throughout the system's life cycle. We found that the services
created and retained documentation justifying their selected approaches for
only 11 of the 75 weapons systems reviewed. Furthermore, data for 6 of the
11 systems do not allow a comparison of initial expectations with contractor
performance. The data for the remaining five systems do not provide a
sufficient basis for drawing any conclusions about the cost-effectiveness of
contractor logistics support. Data comparing contractor performance with
contract requirements indicate that requirements are being met. However, the
lack of information precludes the services from determining whether the
original support approach expectations are being met and whether the
Department will achieve its goal of a 20-percent reduction in logistics
support costs using by contractor logistics support.
Comparisons of the same or similar work performed by military and private
facilities are not possible or were inconclusive in determining which option
is more cost-effective. No comparisons were possible for the Army because,
as a matter of policy, it does not divide its depot-level maintenance work
for the same items between Army and contractor facilities. Only four
comparisons of aircraft systems were possible in the Navy, and these showed
mixed results: Navy depots were more cost-effective in two cases, the
contractor was more cost-effective in the third case, and both were equally
cost-effective in the fourth. Furthermore, comparisons of available cost
data for 53 aircraft and ship components
also showed mixed results; Navy depots and contractors each were more
cost-effective in about half the comparisons.
While contractors have provided certain logistics support needs, major Army
and Navy commands have several concerns about the widespread use of
contractor logistics support. However, either the Department's and the
services' actions so far do not fully address these concerns, or the issues
have not been fully resolved. Major command officials expressed concern
about (1) their ability to develop and maintain critical technical skills
and knowledge, (2) contractors deployed on the battlefield and how
protecting and supporting these contractors may affect their troops' ability
to accomplish their missions, (3) their ability to shift funds in response
to changing conditions, and (4) not having affordable technical data on hand
to develop additional or new sources of repair and maintenance to ensure a
competitive market.
We are making recommendations to improve the Army's and the Navy's
decision-making process for weapons systems support and, thus, the
Department's ability to assess the cost-effectiveness of logistics support
strategies and reduce its logistics support costs. We are also recommending
that the Department assess the validity of major command concerns related to
expanding the use of contractor logistics support. In commenting on a draft
of this report, DOD generally concurred with our recommendations and
identified specific actions it plans to take.
Background DOD is moving to greater reliance on the private sector for
logistics support for new weapons systems and major upgrades of existing
systems. DOD Regulation 5000.2-R states that within statutory limitations,
support concepts for weapons systems shall use contractor-provided long-term
logistics support based on best value7 over the system's life cycle.8 Our
7 DOD Regulation 5000.2-R does not define "best value," which is generally
considered to be a process that uses other factors in addition to cost or
price to achieve the greatest overall benefit in selecting support
approaches.
8 A system's life cycle spans from the time it is initially developed to the
time it is removed from the inventory.
review of 71 new and upgraded weapons systems showed that these programs are
using the private sector for most depot maintenance.9
DOD is using 30 pilot programs to test logistics support reengineering
concepts that place greater reliance on the private sector. Many involve
contractor logistics support, direct vendor delivery, or performance-based
logistics.10 We recently reported, however, that the pilot programs have
problems in evaluating the cost-effectiveness of logistics reengineering
concepts and are unlikely to provide the data needed to compare initial
expectations with results.11
Various DOD studies-including the 1995 Commission on Roles and Missions and
Defense Science Board reports and the 1997 Defense Reform Initiative and
Quadrennial Defense Review reports-discussed the adoption of long-term
contractor logistics support to improve logistics processes and achieve
savings.12 Generally, each study focused on increasing reliance on the
private sector to meet the military's logistical support needs, as well as
on making greater use of improved technologies, new business processes, and
commercial transportation. However, as we have previously reported, the
studies contained little substantive data to support their savings
projections or made inaccurate assumptions about how work done by the
private sector might relate to depot maintenance activities. For example,
DOD officials used projected savings from the outsourcing of relatively
simple commercial-type activities to estimate savings of 20 percent or more
for outsourcing logistics support activities. However, their projected
savings were based on conditions that do not
9 See U.S. General Accounting Office, Defense Depot Maintenance: DOD
Shifting More Workload for New Weapon Systems to the Private Sector,
GAO/NSIAD-98-8 (Washington, D.C.:1998). Repair and maintenance are usually
performed at three levels, depending on magnitude or complexity. Individual
squadrons or units do most routine smaller repairs, while progressively more
difficult jobs are done at the "intermediate" or "depot" levels.
10 Under direct vendor delivery, a contractor manages inventory and delivers
parts (or items) directly to the user. Under performance-based logistics,
the contractor agrees to provide a given level of performance and is
responsible for all the required elements of logistics. The contractor may
enter into an agreement with a government activity in which the government
provides the contractor with some maintenance or other support.
11See U.S. General Accounting Office, Defense Logistics: Actions Needed to
Enhance Success of Reengineering Initiatives, GAO/NSIAD-00-89 (Washington,
D.C.: 2000).
12 For details of these studies, see appendix I of GAO-01-618.
currently exist for most military depot maintenance work.13 The
commercial-type activities were unlike military depot maintenance in that
they involved relatively simple, routine, and repetitive tasks that do not
generally require large capital investment or highly skilled and trained
personnel.
As with this report, our September 2001 report on the Air Force (1) analyzed
the differences between the cost-effectiveness estimates for proposed
contractor-logistics-support approaches and actual implementation
experience, (2) compared the performance of contractors and Air Force depots
in terms of cost and responsiveness for the same or similar depot
maintenance work, and (3) determined to what extent the Air Force had
addressed concerns raised by major commands regarding the increased use of
long-term contractor logistics support. Both reports contain similar
findings and conclusions.
For our report on the Air Force, we reported that it is impossible to
determine whether the cost-effectiveness estimates for proposed
contractor-logistics-support approaches are being attained during
implementation because the Air Force does not have the data required to do
so. Similarly, a comparison of the same or similar depot maintenance work
performed by Air Force depots and contractors did not provide a sufficient
basis for determining the more cost-effective option. We also reported that
the Air Force has not fully addressed major commands' concerns about the
possible effects of the increased use of contractor logistics support. These
concerns included potential impacts on funding flexibility, reductions in
the ability to perform essential logistics management functions, reductions
in the commands' authority over contractors, and the unavailability of
technical data. We made recommendations aimed at improving the Air Force's
ability to assess the cost-effectiveness of contractor-logistics-support
approaches and to address management concerns raised by major Air Force
commands associated with these approaches. DOD generally concurred with our
recommendations.
13 See U.S. General Accounting Office, Defense Depot Maintenance: Commission
on Roles and Mission's Privatization Assumptions Are Questionable,
GAO/NSIAD-96-161 (Washington D.C.: 1996) and Outsourcing DOD Logistics:
Savings Achievable but Defense Science Board's Projections Are Overstated,
GAO/NSIAD-98-48 (Washington, D.C.: 1997).
Data Needed to Assess Contractor Logistics Support Approaches Are
Insufficient
The Army and the Navy do not routinely capture the data needed to allow them
to compare the cost and performance of weapons systems sustainment with the
services' initial expectations.14 DOD's policy requires initial cost and
performance analyses, but does not require a detailed quantification of the
alternative support approaches or require that this information be retained
throughout the system's life cycle. The available data are not sufficiently
detailed or reliable to allow for an evaluation of the support approach
chosen for most of the weapons systems and subsystems we reviewed. DOD does
assess contractor performance against contract requirements, and available
indicators show that contractors generally met or exceeded contract
criteria. However, without specific information on initial expectations,
program offices may not be able to assess existing or newly emerging support
strategies to determine where adjustments are needed. Furthermore, the
services will not be able to assess whether greater reliance on the private
sector will help them achieve DOD's goal of a 20-percent reduction in
logistics support costs.
The Army and the Navy Do Not Have Sufficient Data to Assess the
Cost-Effectiveness of Proposed Contractor-Logistics-Support Approaches
The Army and the Navy generally did not perform a cost-benefit analysis or
did not retain information on the analysis used to support the decision to
use the private sector to support weapons systems.15 Consequently, they
cannot determine whether contractor support approaches have performed better
or worse than initially expected and may not have sufficient data to assess
whether greater reliance on the private sector will help them achieve DOD's
goal of a 20-percent reduction in logistics support costs.
Weapons systems program offices are responsible for analyzing the
cost-effectiveness of contractor support approaches in developing life-cycle
support plans. Although DOD Regulation 5000.2-R expresses a preference for
using long-term contractor logistics support, it also requires that support
approaches be analyzed to provide a basis for a final decision. We found
that the required analyses had not always been performed, and even if they
had, their documentation had not always been retained. The
14 DOD has acknowledged that the lack of a cost-accounting system is the
single largest impediment to controlling and managing weapons systems costs,
including the cost of acquiring, managing, and disposing of weapons systems
(See U.S. General Accounting Office, DOD Financial Management: Integrated
Approach, Accountability, and Incentives Are Keys to Effective Reform,
GAO-01-681T [Washington, D.C.: 2001]).
15 The issue of not performing cost-benefit analysis or retaining
support-decision documentation may also apply to weapons systems supported
by the public sector; however, we did not review these systems as part of
our review.
regulation does not require the services to retain their initial analyses
and does not specify whether the analyses should include detailed estimates
quantifying the cost or performance of various alternatives. As a result,
even those analyses that had been retained did not always contain a detailed
quantification of anticipated life-cycle cost and performance expectations.
We were able to compare the original estimated expectations and actual
results for only 5 of the 75 contractor-supported systems or subsystems we
reviewed. Forty-nine had no documentation of the original cost and
performance expectations, 15 either had not developed any detailed
expectations or had incomplete documentation, and 6 showed that contract
performance was not comparable to expectations for various reasons such as
differences between the initial decision criteria and the approach used by
the contractors. Service-specific data from this analysis are shown in table
1.
Table 1: Service Data Reviewed to Compare Contractors' Performance with
Initial Expectations
Source: GAO's
analysis of
service logistics
support decision
documentation.
Contractors'
performance met
initial
performance and
cost expectations
in four of the
five cases in
which a
comparison was possible. However, because these five cases account for less
than 10 percent of all the systems we examined, they do not provide a
sufficient basis for drawing any conclusions about the cost-effectiveness of
contractor logistics support.
Officials at service headquarters and at the Office of the Secretary of
Defense acknowledged that program offices did not always perform the
required analyses and that some analyses were not sufficiently rigorous to
ensure a thorough and complete comparison of all support alternatives. For
example, we found that in supporting its decision to use contractor
logistics support for the Trojan II SPIRIT radio transmission equipment, the
Army stated that (1) the complexity of the equipment and the lack of
technical documentation made it uneconomical to develop in-house capability
and that (2) a more cost-effective commercial facility already existed.
However, the program office did not calculate or compare the costs of
alternatives.
Services Satisfied with Contractor Logistics Support
While data are not generally available to compare results with expectations,
contractors are measured against performance criteria in contracts, and on
the basis of these measurements, the Army and Navy are generally satisfied
with contractors' performance. According to DOD's contractor performance
database, Army and Navy program mangers evaluated most contractor
performance as having met and, in some cases, exceeded all contractual
requirements from 1998 through 2001. Program offices conduct assessments
periodically and complete performance assessment reports once a year.16
Performance is assessed using measures such as on-time delivery, schedule
rates, and product quality standards. (See table 2 for data on Army
contracts and table 3 for data on Navy contracts.)
Table 2: Army Contractors' Overall Performance Ratings, 1998 through 2001
a
Data for 1998 are
less than those
for other years
because the Army
did not begin to
complete and
submit
performance reports until late in the year.
b All data for 2001 are not complete, pending completion of 2001 contracts.
Source: DOD's contractor performance database.
16 The services are required to complete annual performance assessment
reports for contracts with performance periods exceeding 1 year. The data
are used to evaluate contractor performance when making future contract
award decisions.
Table 3: Navy Contractors' Overall Performance Ratings, 1998 through 2001
Rating 1998 1999 2000 2001a Total
Exceptional 54 61 56 23 194
Very good 56 83 85 38 262
Satisfactory 63 102 89 39 293
Marginal 17 12 15 5 49
Unsatisfactory 1 1 1 1 4
Total 191 259 256 106 802
a
All data for 2001 are not complete, pending completion of 2001 contracts.
Source: DOD's contractor performance database.
The comments we received from program management officials were consistent
with DOD's summary data. Program managers for 66 of the 75 systems we
reviewed were satisfied with contractor performance in relation to the
requirements of Army and Navy contracts.
Comparisons of Private and Government Depot Maintenance Performance Are
Either Not Possible or Are Inconclusive
Comparisons of the same or similar work performed by military and private
facilities are not possible or were inconclusive in determining which option
is more cost-effective. As a matter of policy, the Army does not use
contractors along with its own depots to perform the same work on the same
weapons systems or components. As for the Navy, we identified no ships17 and
only four aircraft that have comparable work performed by both the public
and private sector, and the available data for these showed mixed results.
Furthermore, a comparison of 53 aircraft and ship components that have
comparable work performed by both the public and private sector also showed
mixed results.
Data for Navy Aircraft Overhauls Show Mixed Results
Navy data indicated that the private contractor was more cost-effective in
overhauls of the P-3 aircraft, Navy depots were more cost-effective in
overhauls of the F-14 and EA-6B aircraft, and neither was clearly more
cost-effective in overhauls of the H-60 aircraft. However, the quality of
the financial data generated by the Navy's accounting systems is
questionable,
17 While the Navy overhauls ships of the same class in both public and
private shipyards, the scope of work for each individual ship is
significantly different and therefore did not support a comparison.
which may limit the usefulness of these comparisons.18 Table 4 shows the
details of our analysis of depot overhauls of Navy aircraft.
Table 4: Comparison of Average Overhaul Prices for the P-3, H-60, F-14, and
EA-6B Aircraft Performed by Private Contractors and Navy Depots
Average price per depot repair Price difference (percentage)
Aircraft
workloada Contractor Navy depot
Contractor lower than Navy depot
Navy depot lower than contractor
a
Cost data
available varied
by time period
for different
aircraft: P-3
data cover the
past 3 years; F-14A/B data cover the past 5 years; EA-6B data cover the past
4 years; and H-60 data cover the past 4 years.
b The H-60 work is performed by two Navy depots and one contractor. The
table shows comparisons between the contractor and both Navy depots.
Source: GAO's analysis of the Navy's data.
There are only two clear examples of significant cost savings for work
performed by a contractor (the P-3 aircraft) or by a Navy depot (the F-14).
For the H-60, the contractor was less costly than one Navy depot, but more
costly than a second Navy depot. Given these limited findings and the lack
of reliable data, it is impossible to draw conclusions about which source is
more cost-effective. Thus, data are not available to support the premise
that the expanded use of contractors is likely to reduce the cost of weapons
systems support.
Component Repair Data Provide Inconclusive Results
Similarly, data on the price of component repairs for similar Navy workloads
by private facilities and government depots are limited and inconclusive for
determining which option is more cost-effective. Again, we were unable to
make any comparisons in the Army, and we reviewed 53 Navy components that
allowed for an objective comparison of price
18 As we reported in May 2001 (see GAO-01-681T), DOD does not yet have the
systems and processes in place to capture the required cost information.
and performance. 19 The contractors' prices were lower in 27 cases, and the
Navy's were lower in the remaining 26. For example,
* a Navy depot repaired ship's master compass units for $6,763 each, while
the contractor repaired them for $3,222 (52 percent less);
* a Navy depot repaired flight control torquemeters for $4,064 each, while
the contractor repaired them for $1,920 (53 percent less);
* a contractor repaired video system converter assemblies for $22,294 each,
while the Navy depot did so for $8,450 (62 percent less); and
* a contractor repaired circuit card assemblies for $1,627 each, while the
Navy depot repaired them for $758 (53 percent less).
According to Navy officials, the cost of repair is not the main criterion
for deciding who performs component repairs. In most cases, Navy depots were
chosen because of their ability to meet the service's need to have a certain
amount of public-sector depot maintenance capability
requirements-technically referred to as "core logistics capability."20
Private contractors were chosen in some cases, even though they were the
more expensive option, because the Navy needs to maintain commercial sources
of repair to meet potential surge21 and contingency requirements, and to
offset capacity shortfalls.
Overall, Navy officials said that Navy depots and contractors both performed
their work at acceptable levels for the component repairs we reviewed. Navy
officials stated they had no problems with the quality of the contractors'
or Navy depots' recent performance.
Although DOD and the services have taken some steps to address the concerns
raised by major Army and Navy commands about the potential impact of
expanding the use of contractor logistics support, efforts made so far are
not yet complete or have not fully addressed these concerns. While
contractors have stepped in to fill shortfalls in needed capability, command
officials are still concerned that greatly expanding this approach
19 Because of limitations in the financial data, the price data are of
questionable reliability.
20 10 U.S.C. 2464 provides for a core logistics capability that is to be
identified by the secretary of defense and is government owned and operated.
These provisions can limit the amount of depot-level maintenance that can be
performed by contractors.
21 Surge refers to the sudden and temporary increase in requirements during
the early phases of a military operation or conflict.
Major Commands' Concerns Have Not Been Fully Addressed
may (1) create a shortage of adequately trained soldiers and sailors needed
to maintain weapons systems during a conflict, (2) require additional
planning for contractors on the battlefield, (3) reduce funding flexibility,
and (4) make the technical data required to maintain a competitive market
unaffordable or unavailable. If DOD and the services do not address these
issues, they risk having insufficient numbers of trained personnel when and
where they are needed and not having a competitive environment to promote
affordable repair and maintenance capabilities.
Availability of Required Maintenance Skills
Army and Navy command officials were concerned that greater use of
contractors to provide logistics support for weapons systems could reduce
their operational capabilities by decreasing their ability to develop and
maintain the critical technical skills and knowledge that soldiers and
sailors need to sustain weapons systems during conflicts. According to these
officials, maintaining a minimum essential level of maintenance capability
at the operational level is essential to providing required warfighting
capability. However, they added that the services have had to replace some
military logistics personnel with contractor personnel to manage force
structure reductions and that this increased use of contractors has reduced
on-the-job training opportunities for military personnel who need to
maintain and develop their required logistics skills. Combat officers stated
that the Army is having difficulty with retaining highly skilled,
better-trained soldiers in those logistics functions that are now being
augmented or performed by contractors because contractors have been
attracting the best and brightest soldiers with prospects of higher pay and
benefits. In addition, these combat officers stated that the number of
experienced soldiers available to train newcomers has been reduced and that
the skill level of soldiers is not what it needs to be. This could generate
a capability gap in maintenance at the operational level that could affect
the Army's ability to generate required warfighting capability. Officials
said they would probably have to compensate for such a gap by relying even
more on contractors on the battlefield.
Combat command officials are also concerned that increasing the number of
contractors who perform maintenance and other logistics functions at home
bases and home ports could affect morale, and therefore retention. Having
more contractors perform these functions reduces the number of available
stateside assignments for military personnel assigned overseas or
at sea.22 This could increase the length of overseas or at-sea tours for
military personnel wishing to be assigned closer to home.
According to a Navy logistics headquarters official, the issue needs to be
addressed at the service headquarters level because it involves program
managers who are primarily concerned about their individual system's
performance. However, these managers are not necessarily aware of, nor is
anyone assessing, the effects that their decisions to hire contractors may
have servicewide. For example, a program office may allow a contractor to
modify the design of an item that originally shared common parts and
maintenance procedures with other items. This action would increase the
number of spare parts stocked aboard ships and add new maintenance
requirements. To address this issue, the Navy's office of Logistics Policy
and Programs is developing policy that would increase the oversight role of
logistics in the acquisition process.23 The proposed policy would apply more
focus on overarching support issues such as maintaining critical military
logistics skills and capabilities.
For their part, senior Office of the Secretary of Defense logistics
officials said they recognize the potential gap in critical maintenance
capability at the combat-unit level. They also noted that DOD has not
quantified essential logistics capabilities that need to be performed by
military personnel. According to Army headquarters logistics officials, the
Army has an effort under way to identify essential unit-level positions,
including those that should be performed by military personnel, civilians,
or contractors. The Army expects this effort to be completed in fiscal year
2002.
Management of Officials from the Office of the Secretary of Defense noted
that the use and Contractors on the management of contractors on the
battlefield is a controversial issue for Battlefield the Army but not a
significant issue for the Navy.24 Although Army policy
addresses the issue, implementation challenges remain. Army officials stated
that contractors are becoming increasingly essential for deployed combat
units, even though Army policy states that, generally, contractors
22 See GAO/NSIAD-00-89.
23 Secretary of Navy Instruction 5000.2-C, a revision of 5000.2-B.
24 Navy officials stated that the incorporation of plans for the deployment,
sustainment, protection, and management of contractors is dealt with
regularly, since some Navy ships routinely deploy with contractors.
are not to be used forward of the rear boundary of a division (i.e., on the
battlefield).25 Army officials also told us they are concerned about the
extent to which DOD has incorporated the growing numbers of contractors into
deployment schedules and operational plans and has assessed the impact that
contractors have on military personnel issues and battlefield management.
Command officials indicated that a relatively small number of contractors on
the battlefield might be manageable but that large numbers would accentuate
problems. They could not specify this threshold in terms of numbers. Army
officials said there are limits on how much contractors can be used on the
battlefield for the following reasons:
* Combat units' ability to conduct wartime missions could be weakened if
contractors are withdrawn or are unwilling to stay on or near the
battlefield during hostilities.
* Providing the required support for and protection of contractors on or
near a battlefield may require extra personnel and may divert resources from
the wartime mission at a time when the services are trying to reduce their
logistical presence in areas close to the battlefield.
* Contractors that are included in battlefield plans would also have to be
included in the deployment-planning process; otherwise, combat forces may be
required to take extraordinary actions at the time of deployment to send
needed contractors to the battlefield.
The Army now requires that every unit operation and contingency plan contain
provisions for managing, deploying, sustaining, and protecting contractors
on the battlefield. However, the Army has recently learned that because some
plans may not be complete or fully developed, some units may not be in
compliance with the Army's planning requirements. One division has had
problems with developing the plans for its units and has asked Army
headquarters for assistance. Army headquarters logistics officials stated
that they have not reviewed other divisions' plans and do not have in place
a mechanism for verifying compliance with these requirements.
Funding Flexibility Army and Navy operating command officials generally
believe that logistics support contracts, to a degree, represent fixed
obligations and could limit their ability to transfer funds in and out of
various weapons
25See Contractors on the Battlefield, FM 100-21 (Mar. 2000).
systems' budget accounts to adjust for changing requirements or budget cuts.
Although the Army and the Navy do not yet use contractor logistics support
as much as the Air Force does, they are moving to greater reliance on
contractors, and as they do, funding flexibility is likely to become more of
a problem. Army and Navy officials noted that funding flexibility is already
an issue that is likely to grow as the use of contractor logistics support
increases.
Although funding for contractors is not necessarily fixed, officials said it
is often treated as if it were. Army Forces Command officials cited a case
in which they were recently directed to spread a reduction in the operation
and maintenance budget evenly across all operation and maintenance accounts.
However, because of the costs of reducing contract quantities, and because
they did not want to risk losing contractor support over the long term, they
applied most of the budget cuts to fuel and spare parts. Operating command
officials stated that they have been able to accomplish their missions in
spite of funding constraints, but they warned that such constraints could
increase as their ability to transfer funds decreases. These officials could
not specify at what point expanding the use of contractor logistics support
might reduce their funding flexibility to the point that it might affect
their ability to accomplish their missions.
Different military components are dealing with the issue in different ways.
Navy logistics officials stated that upcoming policy revisions would create
a headquarters oversight process for reviewing logistics support decisions
for individual weapons systems.26 They believe that this should address
concerns about funding flexibility from a Navy-wide perspective. But there
are tensions in the Army. According to Army headquarters logistics
officials, the Army weapons systems program managers are trying to achieve
greater control over logistics funding by expanding contractor logistics
support. However, Army headquarters logistics, and financial and resource
management officials are concerned that this may reduce the flexibility
needed to deal with higher or changing priorities. Office of the Secretary
of Defense officials said that stable funding commitments are needed to
optimize new logistics support strategies, but they also noted that these
would potentially limit a command's funding flexibility. The officials said
that DOD is trying to develop innovative ways to implement its new logistics
support strategies while allowing unit commanders the continued funding
flexibility they need.
26 See Secretary of the Navy Instruction 5000.2-C.
Access to Technical Data
While DOD's acquisition regulations require that program managers have
enough technical data27 to be able to support competition for logistics
sustainment throughout the life of the weapons systems,28 command and
headquarters logistics officials stated that program offices often do not
put adequate emphasis on obtaining required access to the needed technical
data during the acquisition process. These officials are concerned that the
expanded use of contractor logistics support will result in reducing the
availability of affordable technical data needed to competitively support
weapons systems and that without such a competitive base, future contractor
support costs may increase disproportionately compared with what would be
expected in a competitive environment. Officials stated that even though
contractor logistics support is theoretically supposed to sustain a weapons
system for its entire life cycle, a contractor may not want to do so,
especially if the system remains in service longer than initially planned.
Consequently, when the data are needed later in the life cycle, they may be
prohibitively expensive.
Currently, some program offices do not have sufficient access to technical
data because they believe that the prices being requested by the contractors
that own the data are unaffordable. For example, the Army tried to buy
technical data to develop in-house capability to repair its SPITFIRE radio
terminals. The manufacturer was willing to sell the data for $100
million?almost as much as what the entire program cost ($120 million)29 from
1996 through 2001. Program officials decided they could not afford the data,
and the Army will continue to buy repair services noncompetitively from the
manufacturer. Another example shows how access to adequate and affordable
technical data can reduce costs and improve repair times significantly.
According to a program management official, a private manufacturer was not
repairing a commercial satellite communications radio quickly enough to meet
the Army's needs. By using data in the user's technical manual (which comes
with the radio), the Army was able to have a government-owned,
contractor-operated facility repair the units for an average of $5,000 less
27 Technical data consist of descriptions and drawings that provide the
necessary level of detail for repair and maintain items or equipment
purchased and, in some cases, to produce needed component repair parts.
28 See Mandatory Procedures for Major Defense Acquisition Programs (MDAP)
and Major Automated Information System Acquisition Programs, DOD 5000.2-R
(June 2001).
29 This figure includes the radios, spare parts, depot repair, and training
for the system.
per repair than the original contractor's price, with an average turnaround
time of 1 week (instead of 6 months).
A high-level official in the Office of the Under Secretary of Defense for
Acquisition, Technology, and Logistics stated that while DOD Regulation
5000.2-R requires that program offices ensure access to needed technical
data, frequently, this has not occurred. If this does not occur as part of
the initial acquisition process, the government will have less bargaining
power in future negotiations for the data. He noted that more emphasis on
oversight is needed in the acquisition process. This, he said, would ensure
that the program offices maintain adequate access to technical data
throughout the life of the weapons systems to foster a competitive
environment for making logistics support arrangements for weapons systems.
Army and Navy headquarters logistics officials also warned that the lack of
access to sufficient technical data could jeopardize the services' ability
to maintain weapons systems in the long term. In our previous report on the
Air Force's use of contractor logistics support,30 Air Force officials
recognized the difficulty resulting from not having affordable technical
data and noted that one way to deal with this issue is for program offices
to include a priced option for the purchase of technical data when proposals
for new weapons systems or modifications to existing systems are being
considered. Army and Navy logistics officials agreed with this approach.
Conclusions The Army and Navy are working to find ways to significantly
improve the effectiveness of logistics support strategies and to reduce
weapons systems' life-cycle costs. However, they do not have key management
data necessary to measure whether anticipated cost and performance
projections for new logistics strategies are being achieved. New logistics
support strategies are being introduced and tested, but often, baseline data
are not being developed or retained to assess actual cost and effectiveness
results against the initial business-case analysis that was used to select a
specific support strategy. Without such information, management assessments
of the strategies' strengths and weaknesses cannot be made; impacts on
budget estimates are difficult to assess; and, most importantly, substantial
resources may be wasted in implementing logistics support strategies that
may be more costly or less efficient than initial estimates had projected.
Also, sufficient data for early assessments of new logistics
30 See GAO-01-618.
support strategies are not available to assess whether life-cycle support
costs and effectiveness goals are being met and to help identify where
program strategy adjustments might be needed to meet goals.
While many new logistics support strategies include the performance of
logistics activities by contractors, major commands are concerned that the
impact of these strategies has not been fully evaluated. The impact of using
contractors in increasing numbers in military units has not been adequately
assessed, particularly with respect to the effect on the services' ability
to develop and retain sufficient military maintenance personnel to
accomplish the required repair work during a military conflict. Given that
some contractors will continue to be required for logistics support during
conflicts, more may need to be done to ensure that operational plans
effectively provide for the deployment, sustainment, protection, and
management of contractors. Furthermore, as DOD continues with its plans to
increase the use of contractor logistics support, and particularly as it
considers transferring the control of maintenance funding to program
managers, an assessment of the effects of such strategies on the flexibility
of operational commanders would provide meaningful insights into the full
impact of the implementation of these initiatives. Lastly, although DOD's
regulation 5000.2-R requires that program managers have enough data to be
able to support competition throughout the life of the weapons systems,
little is being done to achieve this goal in a consistent and cost-effective
manner. The Air Force has suggested including priced options for technical
data when systems are being purchased as a potential solution. If the
availability of technical data is not more fully addressed in the
acquisition process, DOD runs the risk that weapons systems and their key
components will likely not be available to meet mission needs or that they
will be obtainable only at unnecessarily high costs.
To enhance accountability over life-cycle cost and effectiveness decisions
regarding logistics support, we recommend that the secretary of defense take
action to strengthen Department of Defense Regulation 5000.2-R to require
that a detailed quantification of the expected life-cycle costs of
alternative support approaches be made before making logistics support
decisions for a weapon system. We also recommend that the secretary of
defense develop a requirement to ensure that weapons systems acquisition
program offices retain the documentation of analyses used to support the
initial life-cycle logistics support decisions and, using the data from
these analyses, conduct periodic reviews to (1) assess the
cost-effectiveness of logistics support, (2) develop budgetary implications
of life-cycle cost changes, (3) assess existing and newly emerging support
strategies to
Recommendations for Executive Action
determine where adjustments may be needed, and (4) identify the conditions
under which the various support approaches are likely to achieve the most
cost-effective results.
To enhance the services' ability to make sound logistics management and
policy decisions, we recommend that the secretary of defense require the
Departments of the Army and Navy to assess and report to him on any actions
needed to address the concerns raised by operating commands regarding the
(1) requirements for logistics military personnel in each logistics
specialty required to support operational plans, (2) planning for the use of
contractors to support operational and contingency plans, and (3) impact of
increasing contractor-logistics-support arrangements on command spending
flexibility.
To help reduce the risk of increased life-cycle support costs and foster a
competitive logistics support environment, we recommend that the secretary
of defense take actions to enforce the requirement in Department of Defense
Regulation 5000.2-R, related to the acquisition of technical data rights to
foster source of support competition throughout the life of the system, by
(1) placing greater emphasis on the importance of addressing the
availability of technical data during the acquisition oversight process and
(2) requiring program offices to assess the merits of including a priced
option for the purchase of technical data when proposals for new weapons
systems or modifications to existing systems are being considered.
DOD provided written comments on a draft of this report, generally agreeing
with our recommendations. DOD's response identified steps that the
Department is taking to address our recommendations, noting that the
Department is attempting to improve DOD's logistics support through its new
Future Logistics Enterprise initiative. According to the response, this
initiative, which includes a life-cycle weapon system management approach,
should address the deficiencies identified in our report. DOD's comments are
included in this report as appendix II.
While fully concurring with three recommendations, DOD partially concurred
with our recommendation to direct the secretaries of the Army and of the
Navy to retain logistics support decision documentation and conduct periodic
follow-up reviews for assessing and improving selected support approaches.
DOD stated that, rather than directing a specific service to develop
requirements for retaining logistics support decision-making criteria, the
Department will include requirements in the next
Agency Comments
and Our Evaluation
update of DOD Regulation 5000.2-R that are applicable to all the services.
Furthermore, DOD plans to periodically assess selected systems to measure
supportability factors such as the readiness, availability, reliability, and
costs of new programs. DOD stated that these reviews will assess the degree
to which logistics support decisions achieve their stated purpose and
identify the actions needed to alter support strategies. We agree that
modifications to DOD Regulation 5000.2R could provide needed direction to
the military departments regarding assessing the cost and performance
effectiveness of logistics support decisions. Once implemented, these
actions would satisfy the intent of our recommendation. Therefore, we have
modified this recommendation to make it consistent with DOD's promised
action plan.
We met with officials at headquarters, U.S. Army; Army Aviation and Missile
Command; Army Communication and Electronics Command; Army Tank and
Automotive Command; Army Forces Command; Army III Corps; Army Materiel
Systems Analysis Activity; Army Test and Evaluation Command; headquarters,
U.S. Navy; Naval Sea Systems Command; Naval Air Systems Command; U.S.
Atlantic Fleet; Naval Inventory Control Point, Mechanicsburg; and Naval
Inventory Control Point, Philadelphia. We also met with officials from the
Office of the Under Secretary of Defense for Acquisition, Technology, and
Logistics. We conducted our review from May through December 2001 in
accordance with generally accepted government auditing standards. For more
details on our scope and methodology, see appendix I.
We are sending copies of this report to the appropriate congressional
committees; the secretary of defense; the secretary of the Army; the
secretary of the Navy; the secretary of the Air Force; and the director,
Office of Management and Budget. We will also make copies available to
others upon request. Please contact me on (202) 512-8412 if you or your
staff have any questions concerning this report. Key contributors to this
report are listed in appendix III.
David R. Warren, Director
Defense Capabilities and Management
Appendix I: Scope and Methodology
To determine whether the Department of Defense (DOD) has sufficient data to
assess whether initial cost-effectiveness estimates for proposed
contractor-logistics-support approaches are being achieved during program
implementation, we identified weapons systems that relied on contractor
logistics support and systems that used a lesser degree of
contractor-provided support through discussions with officials at Army and
Navy headquarters, system program offices, and weapons systems commands. We
looked at 75 systems (47 Army and 28 Navy) that were in use at the time of
our review. Because neither the Army nor the Navy had listings of systems
that are supported by contractor logistics support,1 we asked service
officials to identify those operational systems that have the highest amount
of contractor support. Using the Air Force's definition of contractor
logistics support, we then separated the systems into two
categories-"contractor logistics support" and "other." We made this
assessment after discussing the scope of logistics support for each system
with program managers. For the systems we reviewed that used contractor
logistics support, we determined whether the systems were either
commercially available items or derivatives of commercially available items
through discussions with program managers. For the systems in both
categories, we collected and reviewed cost and performance data and, to the
extent that sufficient information was available, compared initial estimates
with actual results of contractors' performance. To provide information on
the overall performance of contractor-provided logistics support against
contract requirements, we obtained summary data from DOD's contractor
performance assessment database to determine how contractors performed
against those contract requirements. We did not independently verify the
quality of contractors' performance in providing logistics support or the
reliability of contractor-reported cost data. However, we did discuss the
quality of contractors' performance with weapons systems program managers.
To determine the extent to which the services have data to compare the
performance of contractors and military depots in terms of cost and
responsiveness for the same or similar overhaul and repair work, we reviewed
the policies and procedures for the performance and allocation of depot
maintenance workload, interviewed Army and Navy logistics officials, and
collected and analyzed cost and performance data for similar
1 The Navy has not defined a category of support called "contractor
logistics support," and the Army considers any logistics activity performed
by a contractor as contractor logistics support.
Appendix I: Scope and Methodology
depot maintenance workloads. As a matter of policy, the Army does not use
contractors and military depots to perform the same or similar work.
Therefore, no Army system and component overhauls were included in our
analyses. Navy aviation and ship logistics officials provided lists of
aircraft systems, and aircraft and ship components for which such data and
experience were available.2 For the five Navy aircraft systems identified,
we interviewed program management and logistics officials to determine
whether (1) the scope of work performed by the military depot and contractor
were the same or sufficiently similar to allow a meaningful comparison and
(2) variations in the conditions of individual aircraft were not so
extensive that they did not negate the meaningfulness of the comparison. We
then collected and analyzed available cost and performance data for the five
aircraft repaired by both Navy depots and contractors, and compared the
costs of each repair source with the other repair source to determine
whether one source was more or less costly than the other. We determined
that one of the five aircraft, the S-3, did not provide sufficient
comparable data for our analysis. For components, we obtained a Navy listing
of the components repaired at both military depots and contractor
facilities. The listing was developed by the supply systems commands in
response to our request for this information. We reviewed 71 components for
an analysis of repair costs and performance. We selected 31 ship components
by identifying those items that had at least five repairs by both
contractors and Navy depots for fiscal year 2000. We selected 40 aviation
components by identifying those items that had at least 15 repairs by both
contractors and Navy depots for fiscal year 2000. For the identified
components, we met with the responsible item managers, contracting officers,
and equipment specialists to ensure that the same repairs were being
performed at both military and contractor facilities. As a result, we
determined that the repairs being performed by the military and contractors
were comparable for 53 components. We excluded 18 of the 71 components
because we determined that the circumstances surrounding the repairs of
these items did not permit an objective comparison of contractors' and the
military's repair costs. In these cases, either the contractor or the Navy
depot (but not both) was performing more extensive repairs or upgrading
components in conjunction with those repairs or we determined that the
pricing data available were insufficient. Thus, the work was not comparable.
We relied on, but did not independently verify, the military's and
contractors' repair cost data
2 The Navy did not identify any ships that use contractor and military
depots to perform the same or similar work.
Appendix I: Scope and Methodology
provided by Navy item managers, contracting officers, equipment specialists,
and production specialist. During our work to address this objective, we
also collected, analyzed, and discussed data regarding the relative
performance of contractors' and the Navy's depots for the workloads with
systems command and program office officials.
To determine to what extent the Army and Navy have addressed concerns raised
by their major commands regarding the increased use of contractor logistics
support, we held discussions with U.S. Atlantic Fleet, Naval Surface Force
U.S. Atlantic Fleet, Naval Submarine Force U.S. Atlantic Fleet, and Naval
Air Force U.S. Atlantic Fleet logistics officials; and Army Forces Command
and Army III Corps operations, finance, and logistics officials. We
discussed the challenges identified with a high-ranking official from the
Office of the Deputy Under Secretary of Defense for Acquisition, Technology
and Logistics to determine whether the Department views the issues as
relevant and valid.
Appendix II: Comments from the Department of Defense
Appendix II: Comments from the Department of Defense Appendix II: Comments
from the Department of Defense Appendix II: Comments from the Department of
Defense
Appendix III: Staff Acknowledgments
Julia Denman, Larry Junek, Robert Malpass, Bobby Worrell, John Brosnan,
Stefano Petrucci, and John Strong made key contributions to this report.
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