Defense Depot Maintenance: Public and Private Sector Workload
Distribution Reporting Can Be Further Improved (Letter Report, 07/23/98,
GAO/NSIAD-98-175).

Pursuant to a legislative requirement, GAO reviewed the Department of
Defense's (DOD) report on the percentage of depot maintenance funding
provided to the public- and private-sector depot maintenance activities,
focusing on: (1) GAO's assessment of the completeness and the
consistency of workload distribution data reported by the military
departments and defense agencies for fiscal year (FY) 1997; and (2) the
procedures DOD used to define and quantify funding for depot maintenance
workloads.

GAO noted that: (1) in February 1998, DOD reported that the military
departments and defense agencies allocated a total of $10.3 billion in
depot maintenance funds for FY 1997--$6.5 billion to public-sector
facilities and $3.8 billion to private-sector contractors; (2) GAO's
work shows that the military departments did not develop complete and
consistent workload distribution information; (3) while recognizing the
lack of clarity in the reporting requirements, if included the
public-sector share of depot maintenance funding would have been $6.8
billion, and the private-sector share about $5.4 billion; (4) this
condition exists for three reasons: (a) Office of the Secretary of
Defense (OSD) guidance--while substantially improved over prior
years--leaves room for varying interpretations of reporting requirements
for several workload categories; (b) the military departments and
defense agencies have not developed internal procedures and systems to
facilitate timely and accurate reporting; and (c) the military
departments, defense agencies and OSD have not resolved questions
concerning whether funding for some depot-level workloads should be
included in computing the public-private mix as required by 10 U.S.C.
2466; (5) without accurate data and consistent reporting between the two
sectors, the data provides only a broad indication of the relative mix
of funding provided to the public and private sectors; (6) thus, until
the problems are corrected, future reports of public- and private-sector
workload distribution will continue to be inaccurate; (7) although DOD
is not required by statute to report estimates of future workload mix,
it is essential that DOD maintain this data to support the oversight and
management of depot maintenance activities and to monitor compliance
with 10 U.S.C. 2466; (8) based on preliminary data developed by the
military departments and defense agencies, total DOD-wide depot-level
maintenance funding will increase from $13.4 billion in FY 1998 to $15.4
billion in FY 2003; and (9) while not yet resolved, the Air Force and
Army are considering changes in future reporting criteria for several
workload categories that could reduce the amount of reported depot-level
funding in future years.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-98-175
     TITLE:  Defense Depot Maintenance: Public and Private Sector 
             Workload Distribution Reporting Can Be Further Improved
      DATE:  07/23/98
   SUBJECT:  Privatization
             Maintenance services contracts
             Equipment maintenance
             Reporting requirements
             Data collection
             Military materiel
             Department of Defense contractors
             Maintenance costs

             
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Cover
================================================================ COVER


Report to Congressional Committees

July 1998

DEFENSE DEPOT MAINTENANCE - PUBLIC
AND PRIVATE SECTOR WORKLOAD
DISTRIBUTION REPORTING CAN BE
FURTHER IMPROVED

GAO/NSIAD-98-175

Defense Depot Maintenance

(702319)


Abbreviations
=============================================================== ABBREV

  CLS - Contractor Logistics Support
  DIA - Defense Intelligence Agency
  DOD - Department of Defense
  GAO - General Accounting Office
  ICS - Interim Contractor Support
  OSD - Office of the Secretary of Defense
  SOCOM - Special Operations Command

Letter
=============================================================== LETTER


B-279949

July 23, 1998

The Honorable Strom Thurmond
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Floyd Spence
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on National Security
House of Representatives

On February 5, 1998, the Department of Defense (DOD) submitted a
report to Congress on the distribution of depot maintenance workloads
for fiscal year 1997.  As required by the National Defense
Authorization Act for Fiscal Year 1998, we reviewed DOD's report on
the percentage of depot maintenance funding provided to the public
and private sector activities.  Specifically, this report (1)
provides our assessment of the completeness and consistency of
workload distribution data reported by the military departments and
defense agencies for fiscal year 1997, and (2) analyzes the
procedures DOD used to define and quantify funding for depot
maintenance workloads.  In addition, as requested by the Readiness
Subcommittee of the Senate Armed Services Committee and the Military
Readiness Subcommittee of the House Committee on National Security,
the report provides preliminary information on public and private
sector workload distributions projected for fiscal years 1998 through
2003 and changes being considered by the Office of the Secretary of
Defense (OSD) and the military departments that could impact future
reporting. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Depot-level maintenance and repair involves the overhaul, upgrade,
and rebuilding of military systems, subsystems, parts, and
assemblies.  This requires extensive shop facilities, specialized
equipment, and highly skilled technical and engineering personnel. 
Traditionally, public sector maintenance and repair activities are
conducted at 22 major government-owned and government-operated
depots\1 and a number of other government-owned facilities, including
post-production software support activities, naval warfare centers,
and Army arsenals.  According to DOD officials, private sector
maintenance and repair is conducted at about 1,100
contractor-operated facilities at various geographic locations. 

Since the early 1990s, the distinction between depot-level
maintenance and other levels of maintenance and manufacturing work
has become increasingly vague.  Depot-level maintenance activities
are performed in traditional situations, but are also performed by
civilian and active-duty military personnel in military units and by
contractors at various field locations.  Funds for depot-level
maintenance activities come from several sources--DOD's working
capital fund; its operations and maintenance appropriation; its
research, development, testing and evaluation appropriation; and its
procurement appropriation. 


--------------------
\1 Major depots employ at least 400 personnel.  Two major Air Force
logistics centers (San Antonio and Sacramento) are in the process of
closing and a naval warfare center (Keyport) is being downsized to
less than 400 employees. 


      LEGISLATIVE REQUIREMENTS ON
      PUBLIC AND PRIVATE SECTOR
      WORKLOAD DISTRIBUTION
---------------------------------------------------------- Letter :1.1

The allocation of depot maintenance workload between the public and
private sectors is governed by 10 U.S.C.  2466.  The statute
applicable during fiscal year 1997, which was often referred to as
the 60/40 rule, provided that not more than 40 percent of funds\2
made available to a military department or defense agency for
depot-level repair and maintenance was to be used to contract for
performance by nonfederal personnel.  These percentages apply to each
individual military department and defense agency.  The fiscal year
1998 Defense Authorization Act, which was approved on November 18,
1997, amended 10 U.S.C.  2466, increasing the percentage of work that
can be contracted to nonfederal government personnel to not more than
50 percent.  The act also amended 10 U.S.C.  2466 to require that no
later than February 1 of each year, the Secretary of Defense is to
submit a report to Congress concerning performance during the
preceding fiscal year of depot-level maintenance and repair workloads
for the public and private sectors.  Further, not later than 90 days
after the Secretary has submitted the annual report to Congress, we
are to report on whether the DOD complied with the public and private
sector workload distribution requirements for the preceding fiscal
year. 

How depot maintenance workloads are defined and what factors of
production are included are key factors influencing the collection
and analysis of depot-level maintenance funding provided to the
public and private sectors.  Although Congress has required DOD to
report public and private sector workload distribution data in all
but one year since 1991, definitions describing the workloads for
reporting purposes were not separately identified in statute. 
Moreover, working definitions were provided in a variety of DOD
directives, regulations and publications.  The services applied these
definitions using ad hoc procedures to prepare the prior-year
reports. 

The 1998 Defense Authorization Act added a new provision, 10 U.S.C. 
2460, which defines depot-level maintenance and repair workloads. 
The provision specifies that depot-level repair and maintenance
includes (1) the overhaul, upgrading or rebuilding of parts,
assemblies, or subassemblies; (2) testing and reclamation of
equipment; (3) all aspects of software maintenance classified by DOD
as depot maintenance as of July 1, 1995; and (4) interim contractor
support (ICS) and contractor logistics support (CLS) to the extent it
involves depot-level maintenance services.\3 The provision also
specifies that all depot-level repair and maintenance workloads are
to be included, regardless of funding source.  The provision excludes
from depot-level maintenance workload (1) the procurement of major
modification or upgrades of weapon systems that are designed to
improve program performance, (2) the procurement of parts for safety
modifications, and (3) the nuclear refueling of aircraft carriers. 


--------------------
\2 As requested by OSD's implementing guidance, the data reported by
the military departments and defense agencies represents obligations
for fiscal year 1997 and projected obligations for fiscal years
1998-2003.  Hereafter in this report, we refer to this information as
funding data. 

\3 Contractor Logistics Support (CLS) is contractor-provided,
long-term, total life-cycle logistics support that combines
depot-level maintenance along with wholesale and selected retail
material management functions.  Interim Contractor Support (ICS) is
contractor-provided logistics support, including depot-level
maintenance work obtained as part of the initial acquisition strategy
for new systems. 


      PRIOR REPORTS CONCERNING
      PUBLIC AND PRIVATE SECTOR
      WORKLOAD DISTRIBUTION
      REPORTING
---------------------------------------------------------- Letter :1.2

In May 1996, we reported that DOD's report of public and private
sector depot maintenance workload allocations did not provide a
complete, consistent, and accurate picture of depot maintenance
workloads because it did not include funding for (1) interim
contractor support and contractor logistics support, (2) labor for
installation of modification and upgrade kits, and (3) software
maintenance support costs.\4 In that report, we suggested that
Congress may wish to consider requiring that these workload
categories be included in future 60/40 reports, regardless of funding
source. 

Similarly, in January 1998, we reported that DOD's approach for
collecting information on public and private sector depot maintenance
workload allocations did not provide complete and consistent
reporting for the same workload categories that we reported in May
1996.  We noted that DOD's guidance to the military departments was
imprecise, leaving room for varying interpretations on data to be
reported.  To improve upon the accuracy of future 60/40 reports, we
recommended that DOD develop a standardized methodology for annually
collecting depot maintenance funding data for the public and private
sectors, including specific definitions of the types of workloads and
defense activities that should be reported.\5 As discussed later, OSD
acted upon information contained in a September 1997 draft of our
January 1998 report.  In December 1997, OSD issued guidance that
addressed many of the concerns we raised regarding how the workload
distribution data should be collected and aggregated to provide more
complete and consistent reporting. 


--------------------
\4 Defense Depot Maintenance:  More Comprehensive and Consistent
Workload Data Needed for Decisionmakers (GAO/NSIAD 96-166, May 21,
1996). 

\5 Defense Depot Maintenance:  Information on Public and Private
Sector Workload Allocations (GAO/NSIAD-98-41, Jan.  20, 1998). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

In February 1998, DOD reported that the military departments and
defense agencies allocated a total of $10.3 billion in depot
maintenance funds for fiscal year 1997--$6.5 billion, or 63 percent,
to public sector facilities and $3.8 billion, or 37 percent, to
private sector contractors.  Our work shows that the military
departments did not develop complete and consistent workload
distribution information.  For example, for fiscal year 1997, we
identified depot-level maintenance workloads valued at about $1.9
billion--about $300 million for public sector workloads and $1.6
billion for private sector workloads--that were not included in DOD's
report.  While recognizing the lack of clarity in the reporting
requirements, if included the public sector share of depot
maintenance funding would have been $6.8 billion, or about 56
percent, and the private sector share about $5.4 billion, or about 44
percent. 

This condition exists for three reasons.  First, OSD guidance--while
substantially improved over prior years--leaves room for varying
interpretations of reporting requirements for several workload
categories.  Second, the military departments and defense agencies
have not developed internal procedures and systems to facilitate
timely and accurate reporting.  Third, the military departments,
defense agencies and OSD have not resolved questions concerning
whether or not funding for some depot-level workloads should be
included in computing the public-private mix as required by 10 U.S.C. 
2466.  Without accurate data and consistent reporting between the two
sectors, the data provides only a broad indication of the relative
mix of funding provided to the public and private sectors.  Thus,
until the problems are corrected, future reports of public and
private sector workload distribution will continue to be inaccurate. 

Although DOD is not required by statute to report estimates of future
workload mix, it is essential that DOD maintain this data to support
the oversight and management of depot maintenance activities and to
monitor compliance with 10 U.S.C.  2466.  Based on preliminary data
developed by the military departments and defense agencies, total
DOD-wide depot-level maintenance funding will increase from $13.4
billion in fiscal year 1998 to $15.4 billion in fiscal year 2003. 
While not yet resolved, the Air Force and Army are considering
changes in future reporting criteria for several workload categories
that could reduce the amount of reported depot-level funding in
future years. 


   DOD REPORT OF DEPOT MAINTENANCE
   FUNDS ALLOCATED TO THE PUBLIC
   AND PRIVATE SECTORS IS
   INACCURATE
------------------------------------------------------------ Letter :3

In February 1998, DOD reported that the military departments and
defense agencies allocated a total of $10.3 billion in depot
maintenance funds for fiscal year 1997--$6.5 billion, or 63 percent,
to public sector facilities and $3.8 billion, or 37 percent, to
private sector contractors.  Our work shows that the military
departments did not develop complete and consistent workload
distribution information.  For example, for fiscal year 1997, we
identified depot-level maintenance workloads valued at about $1.9
billion--about $300 million for public sector workloads and $1.6
billion for private sector workloads--that were not included in DOD's
report.  These categories are summarized in table 1.  While
recognizing the lack of clarity in the reporting requirements, if
included the public sector share of depot maintenance funding would
have been $6.8 billion, or about 56 percent, and the private sector
share about $5.4 billion, or about 44 percent. 



                                     Table 1
                     
                        GAO Estimate of Depot Maintenance
                       Funding Not Reported in DOD's Fiscal
                      Year 1997 Workload Distribution Report

                              (Dollars in millions)

Category           SOCOM          Navy          Army     Air Force         Total
----------  ------------  ------------  ------------  ------------  ============
ICS/CLS            $85.0         $40.7         $97.0        $622.5        $845.2
Modificati                                      51.7          67.0         118.7
 on/
 upgrade
Software                                                      48.3          48.3
 support
Non-                              84.0          51.0           2.7         137.7
 working
 capital
 fund
 facilitie
 s
Classified                                                   358.0         358.0
 and
 intellige
 nce
 support
Ship                             259.8                                     259.8
 maintenan
 ce
Air Guard                                                     81.0          81.0
 & Reserve
Materials                         42.3           2.8                        45.1
================================================================================
Total              $85.0        $426.8        $202.5      $1,179.5      $1,893.8
--------------------------------------------------------------------------------
Note:  SOCOM (Special Operations Command). 

In reviewing a draft of this report, DOD questioned or provided
clarifying information about several of the estimates in our draft
report.  We analyzed the data provided and in some cases, revised the
estimates.  DOD's comments and our changes, where appropriate, are
presented in the following discussions describing each workload
category.  In the subsequent report section, we show that these
reporting problems occurred primarily because of weaknesses in the
DOD criteria for identifying depot-level maintenance workloads and in
the military services' data collection procedures. 


      FUNDING FOR ICS AND CLS
      WORKLOADS
---------------------------------------------------------- Letter :3.1

As requested by OSD's December 1997 data collection and reporting
guidance, the services identified about $845.2 million for the
funding of depot-level maintenance workloads categorized as ICS, CLS,
and other similar arrangements such as flexible sustainment. 
However, DOD chose not to report this amount in the 1997 report
because (1) the Air Force developed preliminary data but did not
report this information to OSD, (2) DOD officials did not want to
report data for the other services without similar information from
the Air Force, and (3) in its view, DOD had no statutory obligation
to report these funds until fiscal year 1998. 

We agree that the statute did not specifically require these
workloads to be reported until fiscal year 1998.  Nevertheless, we
previously reported that DOD did not include interim contractor
support and contractor logistics support in calculating the
percentage of depot maintenance funding allocated to the private
sector.\6 We have also reported that these contract maintenance
activities are increasing significantly, particularly for new
systems.\7 Each year since DOD has been developing public-private
sector workload distribution data, including fiscal year 1997, OSD
has asked the services to identify the amount of workload included in
the ICS and CLS categories.  Further, in most of the years DOD
reported public-private sector mix data to Congress, it provided the
ICS and CLS data separately to enable the decisionmakers to assess
the overall impact on public and private sector workload
distribution. 

The Air Force Materiel Command identified $622.5 million in ICS and
CLS funding, but Air Force headquarters staff did not report this
information to OSD.  The Air Force said it was uncertain of the
amount of depot-level maintenance funding in the ICS and CLS
categories because of data inconsistencies identified by the Air
Force Audit Agency.  Subsequent to DOD's congressional report, the
Air Force added this information to its internal records identifying
public and private sector workload distribution.  We did not review
in detail the information supporting this data.  However, we did note
that OSD guidance specifically directed the Air Force to report C-9
maintenance funding it manages for the Defense Health Program. 
Supplemental reporting instructions from Air Force headquarters
specified that funding for the cryptology systems support office was
to be included in the workload distribution report.  The ICS and CLS
funding data includes $25.2 million for maintenance and repair of C-9
aircraft for the health program and $60.2 million for depot-level
support of cryptology programs.  On page 22 of this report we discuss
other public and private sector funding provided to non-working
capital funded facilities for cryptology programs. 


--------------------
\6 Defense Depot Maintenance:  Information on Public and Private
Sector Workload Allocations (GAO/NSIAD-98-41, Jan.  20, 1998);
Defense Depot Maintenance:  More Comprehensive and Consistent Data
Needed for Decisionmakers (GAO/NSIAD 96-166, May 21, 1996); and Depot
Maintenance:  Issues in Allocating Workloads Between the Public and
Private Sectors (GAO/T-NSIAD-94-161, Apr.  12, 1994). 

\7 Defense Depot Maintenance:  DOD Shifting More Workload for New
Weapon Systems to the Private Sector (GAO/NSIAD-98-8, Mar.  31,
1998). 


      FUNDING FOR MODIFICATION AND
      UPGRADE WORKLOADS
---------------------------------------------------------- Letter :3.2

OSD directed the military departments and defense agencies to report
maintenance and repair workloads involving the overhaul, upgrade, or
rebuilding of weapon systems, regardless of the source of funds. 
While OSD's guidance states that depot-level maintenance workloads do
not include procurement of modifications or upgrades that are
designed to improve performance, or the procurement of parts for
safety modifications, OSD directed the services to report funding for
installation of all modification and upgrade kits. 

Our work did not disclose any incomplete reports of Navy funding for
installation of modification and upgrade kits.  While the Air Force
and Army data for 1997 included funding provided to public sector
facilities for installation of modification and upgrade kits, they
did not report about $118 million in procurement funding provided to
private sector contractors for this work.  Reporting funding data for
one sector but not the other is inconsistent with OSD guidance and
provides misleading information about the relative mix of funding. 


         NAVY'S REPORT
-------------------------------------------------------- Letter :3.2.1

The Navy reported $290.3 million in procurement and operations and
maintenance appropriation funding for installing modification kits on
naval aircraft and ships; 43 percent was provided to public depot
activities and 57 percent to private sector contractors.  Navy
aviation officials stated that because OSD's guidance specified that
all modification installation work should be included, they made no
effort to separate funding for installation of modifications designed
to improve weapon system performance from installation of
modifications designed to correct safety deficiencies.  For example,
the Navy's report included $7.6 million for public depot employees to
install laser designators to enhance the operational capabilities of
F-14 aircraft. 

In addition, the report includes $12.8 million for contractor
installation of new airframe components and systems to extend the
operational service life of P-3 aircraft. 


         AIR FORCE'S REPORT
-------------------------------------------------------- Letter :3.2.2

The Air Force reported $119.7 million in procurement appropriation
funds paid through the Air Force depot maintenance working capital
fund for installation of modification and upgrade kits by public
depots and $1.2 million for installation of modification and upgrade
kits by private sector contractors.  However, the Air Force did not
report at least $67.0 million in direct appropriation funded
payments.  Air Force officials were initially concerned about
duplicate reporting and errors found by the Air Force Audit Agency in
similar types of contractor support and decided not to report this
funding to OSD and the Congress.  After the workload distribution
report was sent to Congress, the Air Force internally revised its
fiscal year 1997 workload distribution data to include $47.3 million
recorded in a headquarters-managed data base for monitoring
modification installation contract funding.  Further, the Air Force
is using this database to support its fiscal year 1998 through 2003
workload distribution estimates.  In reviewing the database and other
supporting documents, we noted that an additional $19.7 million for
contractor installation of modification kits on aircraft for
intelligence programs was not recorded in the database and should
have been reported under the current guidelines.  Air Force Materiel
Command workload distribution data for fiscal years 1998 through 2003
indicates that these workloads will be included in future reports. 
We also noted other possible errors and omissions in the data base. 
For example, the T-1A aircraft and simulator programs are not part of
the database, but budget documents and information reported by the
Air Force Materiel Command indicate modification installation efforts
during fiscal year 1997. 


         ARMY'S REPORT
-------------------------------------------------------- Letter :3.2.3

For five major Army weapon systems,\8 the Army reported operations
and maintenance funding totaling $137.2 million for support of
various modification and upgrade projects, of which $120.2 million
was provided to public sector depots.  However, we identified at
least $51.7 million in procurement funding for contractor and public
depot installation of modification and upgrade kits that were not
reported.\9 An official representing the Assistant Secretary of the
Army for Research, Development, and Acquisition stated this funding
was not reported because the Army believes 10 U.S.C.  2460 does not
require that funding should be reported for major modification and
upgrade projects financed through the procurement appropriation. 
However, this interpretation was not consistent with OSD's December
1997 reporting guidance, which directed the services to report
funding for installation of modification and upgrade kits when the
installation is considered a depot-level service.  Further,
subsection (a) of 10 U.S.C.  2460 states that depot-level maintenance
is to include all of the specified workload functions "regardless of
the source of funds for the maintenance or repair."


--------------------
\8 These weapon systems are the Paladin, Abrams, Bradley, M113 family
of vehicles, and Apache.  These are the Army's five largest upgrade
and modification projects involving depot-level maintenance tasks. 

\9 We also identified an additional $1.1 billion in procurement
funding that supported major modification and conversion projects;
however, program officials could not separately identify funding for
new hardware (kits) and funding for installation services. 


      FUNDING FOR SOFTWARE
      MAINTENANCE WORKLOADS
---------------------------------------------------------- Letter :3.3

OSD specified that depot-level maintenance included funding for the
maintenance and repair of computer software supporting deployable
weapon systems and their components, space control systems and their
components, and automated test equipment.  The Army report included
$142 million, the Navy $168 million, and the Air Force $443
million.\10 However, the Air Force did not report $48.3 million in
non-working capital funds provided for depot-level software
maintenance accomplished at the Space Systems Software Group at
Peterson Air Force Base, Colorado--$47 million for work performed by
private sector employees and $1.3 million for work performed by
federal employees.  In commenting on a draft of this report, Air
Force officials told us they did not report these funds because, in
their view, the Space Systems Support Group generally did not perform
depot-level maintenance.  In its November 1997 report, the Logistics
Management Institute stated that the military departments had not
adopted a consistent approach and methodology for identifying and
reporting depot-level software maintenance funding.\11

We continue to believe the $48.3 million should have been reported
based on the Space Systems Software Group charter and the memorandum
of understanding signed by the Air Force Materiel Command and Space
Command in 1993 which makes the Materiel Command responsible for
lifetime system support, to include level 2 software maintenance on
launch vehicles and critical ground systems.  Level 2 tasks are
defined as designing, coding, modifying, and testing all changes in
operational mission and support software and databases, which,
according to Air Force officials, are categorized as depot-level
maintenance workloads. 

In January 1998 we reported\12 that for the previous reporting
period, the Air Force did not report software maintenance funding for
the Peterson Air Force Base, Colorado, software support activity.  In
commenting on our 1997 draft report on the public-private mix of
depot maintenance workloads, the Air Force acknowledged that funding
for the Colorado facility should have been included in the Air
Force's depot maintenance data for that year and it is unclear why
the Air Force has changed its position on this issue.  We continue to
believe the work is depot maintenance and should be reported. 


--------------------
\10 This amount includes funding of $17.9 million processed through
the working capital fund for depot-level software maintenance by the
Space Systems Support Group at Peterson Air Force Base, Colorado. 

\11 Maintenance of Department of Defense Mission Critical and Mission
Support Software:  A Preliminary Characterization, Logistics
Management Institute (LG518TI/Nov.  1997). 

\12 Defense Depot Maintenance:  Information on Public and Private
Sector Workload Allocations (GAO/NSIAD-98-41, Jan.  20, 1998). 


      FUNDING FOR DEPOT-LEVEL
      MAINTENANCE WORKLOADS
      PERFORMED BY NON-WORKING
      CAPITAL FUND ACTIVITIES
---------------------------------------------------------- Letter :3.4

OSD directed the services to include in their compilations of public
and private sector workload distributions the funding for maintenance
work done by non-working capital funded activities.  Traditionally,
DOD has not recognized these activities as depot maintenance
providers.\13 DOD was not consistent in reporting the amount of
funding for depot-level maintenance tasks accomplished by these
providers.  For example, the active Army did not report about $51
million for depot-level tasks accomplished at integrated sustainment
maintenance and repair sites at various Army field activities.  The
Army categorizes integrated sustainment maintenance facilities as
direct support and general support facilities, which are maintenance
support layers below depot-level.  However, the Army Materiel Command
allows integrated sustainment maintenance facilities to accomplish
depot-level tasks under special repair authorities.  Army officials
told us funding for these workloads was not included in the Army's
report of depot-level maintenance funding because the integrated
sustainment maintenance facilities are not traditionally recognized
as depot-level maintenance providers.  On the other hand, the Army
Reserve and National Guard reported $17.6 million in operations and
maintenance funding for repairing wheeled vehicles at these same type
facilities.  In commenting on a draft of this report, Army officials
stated that depot-level work accomplished at integrated sustainment
maintenance facilities under special repair authorities would be
included in future reports and that the reporting inconsistencies
between the active and reserve components will be addressed in future
workload distribution reporting. 

Likewise, the Navy did not report any of the $168.1 million\14 it
received for maintenance support at Trident Refit Facilities in
Bangor, Washington, and Kings Bay, Georgia.  While officially labeled
as intermediate-level maintenance and repair facilities, the
activities were specifically designed to provide incremental depot
overhaul and repair of the Trident submarine fleet and depot-level
repair of Trident equipment.  OSD and Navy officials agreed that
these funds supported some depot-level maintenance tasks.  However,
the amounts specifically provided for depot-level workloads could not
be separately identified.  Our analysis of depot-level maintenance
funding that was not included in DOD's workload distribution report
assumes that 50 percent of the total funding for these facilities, or
$84 million, supports depot-level maintenance work. 

In providing comments on a draft of this report, OSD and Navy
officials acknowledged that the Trident Refit Facilities do
accomplish some depot-level tasks.  However, while they did not agree
with our assumption that as much as half of the total funding for the
facilities could be attributed to depot-level work, they could not
provide an alternative estimate.  Officials also stated that funding
for the refit facilities should not be reported because the
facilities have no refueling capability and are excluded from DOD's
list of major depot-level maintenance depot activities. 
Notwithstanding these comments, we believe the portion of the refit
facilities' workload that is depot-level work should be reported as
such.  Further, the capability to do a refueling is not a requirement
for a ship repair facility--either public or private--to be
considered as a depot-level maintenance provider.  For example,
currently only two private shipyards have refueling capability, yet
many others are considered by the Navy to be depot-level repair
facilities.  Finally, the refit facilities are authorized to perform
depot-level repairs of numerous repairable components and were
specifically designed for the incremental overhaul and repair of the
Trident fleet.  Therefore, we believe the Navy needs to develop a
methodology to analyze and document the amount of depot-level
maintenance funding made available to the refit facilities prior to
the next public and private sector workload distribution reporting
cycle. 

The Air Force did not report $2.7 million for private sector support
of depot-level maintenance work at a non-working capital funded
facility supporting cryptology workloads.  However, the Air Force
reported $10.5 million in public sector funding for the same
facility.  As previously discussed, the Air Force also did not fully
report non-working capital funding for installation of modification
and upgrade kits and space system software maintenance.  Further,
former San Antonio engine repair workloads are now being performed by
contractors working at Military Airlift Command bases in California
and Delaware; however, these non-working capital funded activities
were not included in the Air Force's data call.  In commenting on a
draft of this report, Air Force officials acknowledged that work on
the TF39 engine was previously performed in a public depot and
reported as depot-level workload under the two-level maintenance
concept.  However, they stated that an Air Force policy change
transitioned the TF39 engine to a three-level maintenance concept and
reclassified the former San Antonio work as an intermediate-level
workload.  Further, this policy change and workload reclassification
from depot-level to intermediate-level enabled the Air Force to drop
this work from its workload distribution report.  While we agree that
the distinction between depot-level repair and other levels of repair
has become increasingly obscure, we continue to believe funding for
the repair of TF-39 engine workloads should be reported in the public
and private sector workload allocations. 


--------------------
\13 In recent years the distinction between depot-level repair and
other levels of repair has become increasingly obscure.  DOD's 22
public depots are financed with working capital funds.  Customers
desiring depot-level services from these facilities reimburse the
working capital fund with appropriated monies.  Non-working capital
funded maintenance and repair facilities are financed through direct
appropriations, and customers are not charged on a per-item basis as
they are for operations funded through the working capital fund. 

\14 This amount does not include funds received for military
salaries. 


      FUNDING FOR CLASSIFIED AND
      INTELLIGENCE PROGRAMS
---------------------------------------------------------- Letter :3.5

OSD asked the services to include in their public and private sector
workload distribution reports depot-level maintenance funds for
classified programs (special access required) and military systems
and equipment required for foreign intelligence support whenever the
military department managed or controlled the source of funds. 
However, we observed one instance where the Air Force reported $1.4
million for public sector work in this area, but did not report $358
million for private sector work.  Air Force officials cited several
reasons for not reporting this work:  (1) concerns raised by the Air
Force Audit Agency for similar contractor supported workloads; (2)
concerns about releasing sensitive data; and (3) because funding for
most of the work was programmed and budgeted by other agencies.  The
Air Force gave no explanation of why it could report the data for the
public sector.  We observed that, in previous years, the Air Force
has included funding for some classified and intelligence programs in
its collection of depot workload allocation data.  We also noted that
this data was presented in an unclassified summary form. 


      REPORTING OF SHIP
      MAINTENANCE FUNDING
---------------------------------------------------------- Letter :3.6

The Navy reported $1.5 billion in operations and maintenance funding
for the overhaul and repair of naval ships.  The public shipyards
received $786 million, or 51 percent, and the private sector $741
million, or about 49 percent.  We found that the Navy did not report
about $259.8 million in miscellaneous support funding.  According to
Navy officials, they did not have enough time to do the data
collection and analysis required to allocate this amount between the
public and private sectors. 


      FUNDING FOR AIR NATIONAL
      GUARD AND AIR FORCE RESERVE
---------------------------------------------------------- Letter :3.7

Our work shows that the Air Force understated by about $81.3 million,
the amount of funding managed by one of its air logistics center for
depot-level support of Air National Guard and Air Force Reserve
aircraft and related components.  An initial draft of this report
estimated this amount at $198 million.  In commenting on a draft of
this report Air Force officials acknowledged confusion over
responsibilities for reporting and documenting audit trails for this
workload.  Air Force officials claimed that funding for this workload
was included in the compilation of public and private sector workload
distribution report provided to Congress.  However, our follow-on
review and analysis indicates that the center included $117 million
of the $198 million in its compilation of public and private sector
workload distribution data that was submitted to Congress in February
1998.  Subsequently, after the workload distribution report was sent
to Congress, the Air Force determined that the center managed funding
totaling $198 million, or an additional $81 million over the amount
included in the report to Congress.  We adjusted the figure contained
in our draft report to reflect the understated reporting of $81
million, rather than the $198 million reflected in our earlier draft. 

During the data collection process, the Air Force collected several
sets of data from its logistics centers and changed data collection
methodologies.  For example, the data developed by the center for the
report that was sent to Congress was based on the agent perspective
(funding for work accomplished at the center).  The later update was
developed on the principal perspective (total funding managed by the
reporting entity without regard to the location where the work is
performed).  It is possible that some of this funding could have been
reflected in the amounts reported for the other air logistics
centers.  Nonetheless, variations in reported funding were shown in
several successive data submissions where funding estimates changed
substantially in total for each center and by percents of public and
private sector distribution. 

The Air Force's inability to crosswalk from one data set to another
raises questions about the accuracy and completeness of reported
depot-level funding data.  Further, these uncertainties and
inconsistencies illustrate why we believe the services need to
establish and implement detailed procedures and systems to
consistently identify and report funds made available for depot-level
maintenance workloads. 


      FUNDING FOR
      GOVERNMENT-FURNISHED
      MATERIAL
---------------------------------------------------------- Letter :3.8

OSD required that the public and private sector workload funding
distribution data collection include all factors of production. 
Thus, public sector workload data should include purchases of
government-furnished material used in the production of repair and
maintenance services conducted by public depots and private sector
workload data should include the value of parts provided by the
contractor as well as government-furnished materials provided by DOD
in the production of repair and maintenance workloads assigned to the
contractors.  In two instances, we found that the services did not
report the value of government-furnished materials provided to
private sector contractors.  The Navy did not report $42.3 million
for purchases of parts and materials provided to the private sector
ship maintenance contractors.  Likewise, the Army did not report
material costs for reparable items furnished to contractors for use
in contract repair.  For example, the Army did not report $2.8
million for parts financed with procurement appropriation funding
that were furnished to the contractor for repair of the Apache
Longbow aircraft. 


      FUNDING PROVIDED TO
      NONFEDERAL WORKERS
      CLASSIFIED AS PUBLIC SECTOR
      WORKLOAD
---------------------------------------------------------- Letter :3.9

Our work shows that the Army reported funding provided to nonfederal
workers as public sector workloads.  For example: 

  -- The Army National Guard reported as a public sector workload
     about $7 million in operations and maintenance funding provided
     to nonfederal employees in several states for depot-level repair
     of night vision devices and tactical wheeled vehicles.  National
     Guard officials stated that they reported it this way because
     they considered the employees as federal workers, even though
     they were not.  Our discussions with officials from the Oregon
     National Guard indicate that depot-level repair of night vision
     devices is performed by 16 state employees who were hired to
     accomplish this workload.  Once the work is completed, they will
     be terminated.  In commenting on a draft of this report, Army
     officials stated that this reporting discrepancy will be
     corrected prior to the next public and private sector workload
     distribution reporting cycle. 

  -- The active Army inadvertently classified $1.1 million in funding
     for contractor-employed field teams as public sector workload. 


   DATA COLLECTION PROCEDURES ARE
   BETTER BUT MORE NEEDS TO BE
   DONE
------------------------------------------------------------ Letter :4

The reporting problems identified in the preceding section are
largely attributable to weaknesses in the DOD criteria for
identifying depot-level maintenance workloads and the military
departments' data collection and reporting procedures for compiling
and summarizing the percentage of public and private sector workload
distribution.  Although Congress has required reports on public and
private sector workload distribution data in all but one year since
1991, the data has been collected each year on an ad hoc basis.  In
December 1997, shortly after Congress established the current data
collection and reporting process in the 1998 Defense Authorization
Act, OSD issued more thorough data collection requirements to the
military departments.  However, as in the past, the services used ad
hoc procedures to collect the requested information.  As a
consequence, the services' responsiveness to the request varied and
each service experienced varying degrees of difficulty developing the
data.  Because they did not have adequate internal data collection
procedures and systems to facilitate timely, complete, and accurate
workload distribution reports, the Air Force and the Army asked their
audit agencies to review and comment on the data collection and
reporting process.  Without accurate and consistent reporting between
the public and private sectors, the data reported to Congress
provides only a broad indication of the relative mix of work assigned
to the two sectors.  Until reporting problems are corrected, future
reports of public and private sector workload distribution will
continue to be inaccurate. 


      OSD SUBSTANTIALLY IMPROVED
      ITS GUIDANCE
---------------------------------------------------------- Letter :4.1

Overall, OSD's new data collection guidance to the military
departments is more comprehensive than earlier guidance it issued for
prior reporting periods.  However, we found that the guidance could
have been more specific for reporting (1) modifications and upgrade
work and (2) funds for work performed by one military department but
budgeted and received by another service or defense agency. 

On December 5, 1997, about 2 weeks after Congress established the
current workload reporting process, the Deputy Under Secretary of
Defense (Logistics) issued detailed guidance to establish a
standardized methodology for collecting and reporting depot-level
maintenance funds provided to the public and private sectors.  In
line with the fiscal year 1998 Defense Authorization Act, this
guidance summarized depot maintenance workload definitions specified
by 10 U.S.C.  2460 and included various supplemental workload
definitions and reporting instructions. 

Also, OSD held meetings with key personnel from each military
department and defense agency to discuss and clarify data
requirements.  OSD's guidance specifically required them to report
funding for (1) depot-level maintenance performed by DOD employees;
(2) depot-level maintenance work contracted for performance by
nonfederal employees; (3) depot-level maintenance work obtained from
interim contractor support, contractor logistics support, and other
similar contractual arrangements; (4) depot-level software
maintenance performed by DOD employees; (5) depot-level software
maintenance contracted for performance by nonfederal employees; and
(6) depot-level maintenance work done by nonfederal employees working
at government-owned and operated facilities. 

Based on our review, this guidance, though improved from prior years,
contained several ambiguities that contributed to inconsistent and
incomplete reporting.  For example,

  -- The guidance required the services to report all funding for
     installation of modification and upgrade kits when the
     installations were considered depot-level services.  The
     guidance also stated that procurement of modifications and
     upgrades were to be excluded from reporting when the
     modifications were designed to improve program performance.  As
     stated previously, Navy aviation officials interpreted the
     guidance to require reporting of all modification work, but the
     Army interpreted the guidance to exclude funding for
     modification and upgrade installation work financed through the
     procurement appropriation. 

  -- The guidance specifies that the principal military department or
     agency responsible for programming and budgeting should report
     funding made available for depot maintenance workloads.  The
     military department or defense agency performing the work on
     behalf of another would be considered an agent and, therefore,
     would not be required to report.  However, the guidance
     specifically required the Air Force to report funding for
     maintenance programs it managed in support of Defense Medical
     Program funded aircraft.  Similar questions have not been
     resolved with regard to reporting responsibilities for other
     workload categories including intelligence programs, foreign
     military sales, interserviced workloads, and items having dual
     sources of repair. 

OSD officials stated that guidance for these situations will be
updated for the next reporting cycle. 


      MILITARY SERVICES STILL LACK
      COMPREHENSIVE PROCEDURES AND
      SYSTEMS TO FACILITATE TIMELY
      AND ACCURATE WORKLOAD
      DISTRIBUTION REPORTS
---------------------------------------------------------- Letter :4.2

The military services do not have the procedures and support systems
to provide consistent, accurate, and timely reporting of public and
private sector depot maintenance workload distribution data.  Further
complicating the 1997 report, the military departments solicited
information from hundreds of different commands, organizations, and
program management offices, some of which had not been involved in
identifying and reporting depot maintenance workload distribution
data in the past. 

OSD directed the services and defense agencies to provide information
on fiscal year 1997 depot-level maintenance funding no later than
January 5, 1998, and to submit a second report of planned depot-level
maintenance funding for fiscal years 1998 through 2003 by February
17, 1998.  However, these time frames were not met.  The Navy
submitted its information for fiscal year 1997 funding on January 6,
the Army on January 16, and the Air Force on February 2, 1998.  The
Navy submitted its report on future year funding on March 17 and the
Army on April 1, 1998.  As of June 1998, the Air Force headquarters
staff said they had not yet completed their analysis of future year
workload information.  However, the Air Force Materiel Command
developed preliminary data that was submitted to Air Force
Headquarters for further analysis. 


      SERVICES SEEK ASSISTANCE
      FROM AUDIT AGENCIES
---------------------------------------------------------- Letter :4.3

The Air Force and Army recognized the potential for incomplete and
inconsistent reporting of public and private workload distribution
reports.  Accordingly, each asked its audit service to review its
data collection process and recommend procedural changes. 

Air Force auditors identified numerous errors and inconsistencies in
workload distribution data compiled by the Air Force Materiel
Command, including duplicate reporting, overstated reporting of
funding provided to contractors, and use of budget projections rather
than actual obligations.  As a result of the Air Force Audit Agency's
findings, the Command required a second data call of its field
activities to improve the consistency and quality of the data. 
However, this updated information was not provided to Congress.  Air
Force officials stated that the updated information was not provided
to Congress, because the revised numbers would not impact compliance
with 60/40 thresholds. 

Army auditors identified funding for depot-level maintenance services
that the Army did not include in its workload distribution reports,
including (1) private sector support obtained through manufacturer
warranties, (2) funding for depot-level maintenance workloads at
non-working capital funded repair activities, (3) software
maintenance workloads funded by program executive offices, and (4)
funding for contract administration.  OSD officials plan to issue
clarifying guidance for these and other workload categories prior to
the next reporting cycle. 


   IMPLICATIONS OF CHANGES BEING
   CONSIDERED FOR FUTURE REPORTING
------------------------------------------------------------ Letter :5

Based on preliminary data developed by the military departments and
defense agencies, total DOD-wide depot-level maintenance funding will
increase from $13.4 billion in fiscal year 1998 to $15.4 billion in
fiscal year 2003.  While not yet resolved, the Air Force and Army are
considering changes in future reporting criteria for several workload
categories that could reduce the amount of reported depot-level
funding in future years. 

Even though the military departments and defense agencies are not
required by statute to provide estimates of future public and private
sector workload allocations, OSD requested the information as part of
its oversight responsibility to monitor compliance with 10 U.S.C. 
2466.  In prior years DOD has furnished this information to Congress
in its report on the allocation of depot maintenance workload between
the public and private sectors.  While we obtained the outyear
information, DOD did not provide it to Congress as a part of its
annual report on the public private mix.  Table 2 shows the workload
forecasts reported to OSD by the defense agencies and the Army and
the Navy for fiscal years 1998 through 2003.  The table also includes
preliminary estimates of future data developed by the Air Force
Materiel Command. 



                                     Table 2
                     
                       DOD's Estimate of Public and Private
                     Depot Maintenance Workload Distribution
                        for Fiscal Years 1998 through 2003

                              (Dollars in millions)

           Wor
           klo
           ad
           dis
           tri
Agency/    but
Service    ion       1998       1999       2000       2001       2002       2003
---------  ---  ---------  ---------  ---------  ---------  ---------  ---------
DIA        Pub       0 .1       0 .1       0 .1       0 .1       0 .1       0 .1
            lic      0 .0       0 .0       0 .0       0 .0       0 .0       0 .0
            wo      100/0      100/0      100/0      100/0      100/0      100/0
            rk
            Pr
            iv
            at
            e
            wo
            rk
            Pu
            b/
            pr
            iv
            sp
            li
            t
SOCOM      Pub       22.6       29.2       30.8       31.6       38.7       39.6
            lic     112.2      129.0      125.4      114.8       99.6      101.3
            wo      17/83      18/82      20/80      21/79      28/72      28/72
            rk
            Pr
            iv
            at
            e
            wo
            rk
            Pu
            b/
            pr
            iv
            sp
            li
            t

Navy       Pub    4,074.2    3,987.9    4,223.3    4,104.1    4,234.9    4,659.9
            lic   2,097.4    2,401.7    2,319.7    2,377.5    2,245.0    2,337.5
            wo      66/34      62/38      64/36      63/37      65/35      67/33
            rk
            Pr
            iv
            at
            e
            wo
            rk
            Pu
            b/
            pr
            iv
            sp
            li
            t
Army       Pub      914.1      940.3      941.5      927.6     1052.9     1111.5
            lic     611.3      606.2      639.2      643.0      654.1      622.6
            wo      60/40      61/39      60/40      59/41      62/38      64/36
            rk
            Pr
            iv
            at
            e
            wo
            rk
            Pu
            b/
            pr
            iv
            sp
            li
            t

Air Force  Pub    3,112.3    3,259.7    3,379.2    3,447.6    3,482.6    3,600.7
            lic   2,503.8    2,675.2    2,752.5    2,737.8    2,840.7    2,947.5
            wo      55/45      55/45      55/45      56/44      55/45      55/45
            rk
            Pr
            iv
            at
            e
            wo
            rk
            Pu
            b/
            pr
            iv
            sp
            li
            t

--------------------------------------------------------------------------------
Note:  DIA (Defense Intelligence Agency); SOCOM (Special Operations
Command). 

Source:  DOD and Military Departments


      CHANGES IN REPORTING
      CRITERIA PROPOSED BY THE AIR
      FORCE
---------------------------------------------------------- Letter :5.1

The Air Force has not yet finalized its report to OSD of planned
public and private sector depot maintenance funding for fiscal years
1998 through 2003.  Tentative numbers, as shown above, include
estimates of future year funding for several workload categories for
which the Air Force has proposed changes in reporting criteria. 
Included are proposals to eliminate funds provided for depot-level
maintenance workloads involving (1) classified and intelligence
programs, and (2) medical support aircraft, that the Air Force
manages for other agencies.  If adopted, these changes would reduce
the amount of contract maintenance reported in future years. 

The Air Force's preliminary estimates of future year depot-level
maintenance funding reflects other decisions which decrease the
amount of reported private sector depot-level maintenance funding. 
For example, the Air Force estimate of future funding (1) includes a
1.5-percent reduction in the amount of contracted depot-level
maintenance funding to provide for the government's contract
administration costs, (2) reports as public sector workload funding
for material and overhead expenses incurred by contractor personnel
working at government-owned and-operated depots, and (3) excludes
funding for space systems software support as previously discussed. 


      CHANGES IN REPORTING
      CRITERIA PROPOSED BY THE
      ARMY
---------------------------------------------------------- Letter :5.2

The Army's report of planned future year public sector depot-level
maintenance workload includes funding for work to be conducted in
public depots in support of various modification and upgrade
projects.\15 As directed by an OSD program budget decision, funding
for this work will be transferred from the operations and maintenance
appropriation to the procurement appropriation.  Although depot-level
maintenance tasks will continue to be conducted in support of the
major upgrade programs, the Army will classify funding for such
purposes as acquisition expenses, not depot maintenance. 
Consequently, Army acquisition officials plan to delete these type
funds from future public-private sector workload distribution reports
based on their interpretation of 10 U.S.C.  2460, which excludes
funding for procurement of major modifications of weapon systems that
are designed to improve program performance.  If implemented, this
change will reduce the amount of public sector depot maintenance
reported in future years. 


--------------------
\15 These annual amounts range between $156 million in fiscal year
1999 and $187 million in fiscal year 2003. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

In February 1998, DOD reported that the military departments and
defense agencies allocated a total of $10.3 billion in depot
maintenance funds for fiscal year 1997--$6.5 billion, or 63 percent,
to public sector facilities and $3.8 billion, or 37 percent, to
private sector contractors.  Our work shows that the military
departments did not develop complete and consistent workload
distribution information.  For example, for fiscal year 1997, we
identified depot-level maintenance workloads valued at about $1.9
billion--about $300 million for public sector workloads and $1.6
billion for private sector workloads--that were not included in DOD's
report.  While recognizing the lack of clarity in the reporting
requirements, if included the public sector share of depot
maintenance funding would have been $6.8 billion, or about 56
percent, and the private sector share about $5.4 billion, or about 44
percent. 

This condition exists for three reasons.  First, OSD guidance--while
substantially improved over prior years--leaves room for varying
interpretations of reporting requirements for several workload
categories.  Second, the military departments and defense agencies
have not developed internal procedures and systems to facilitate
timely and accurate reporting.  Third, the military departments,
defense agencies and OSD have not resolved questions concerning
whether or not funding for some depot-level workloads should be
included in computing the public-private mix as required by 10 U.S.C. 
2466.  Without accurate data and consistent reporting between the two
sectors, the data provides only a broad indication of the relative
mix of funding provided to the public and private sectors.  Thus,
until the problems are corrected, future reports of public and
private sector workload distribution will continue to be inaccurate. 

Although DOD is not required by statute to report estimates of future
workload mix, it is essential that DOD maintain this data to support
the overall management of depot maintenance activities and to monitor
compliance with 10 U.S.C.  2466.  Based on preliminary data developed
by the military departments and defense agencies, total DOD-wide
depot-level maintenance funding will increase from $13.4 billion in
fiscal year 1998 to $15.4 billion in fiscal year 2003.  While not yet
resolved, the Air Force and Army are considering changes in future
reporting criteria for several workload categories that could reduce
the amount of reported depot-level funding in future years. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

To improve the accuracy of future mandated public and private sector
workload distribution reports, we recommend that the Secretary of
Defense

  -- direct that the Secretaries of the military departments and
     commanders of the defense agencies establish and document
     internal operating procedures for collecting data and reporting
     public and private sector depot-level workload distribution. 
     The procedures should clearly identify the specific commands and
     activities responsible for submitting data and describe the
     records and systems from which documentation will be pulled and
     the minimum documentation to be retained for follow-up. 
     Procedures should also require monitoring of the implementation,
     to assure consistency of reporting between the services, and
     facilitate timely and accurate collection of data for the next
     annual report. 

  -- establish milestones for issuing clarifying instructions stating
     whether or not installation of modification and upgrade hardware
     financed with procurement appropriation funding should be
     included in future public and private workload distribution
     reports and assure consistency in reporting among the public and
     private sectors.  The milestones should be established to allow
     for timely collection and reporting of data for the next
     congressional reporting cycle. 

  -- establish milestones and issue guidance to resolve questions
     concerning responsibilities for reporting depot-level
     maintenance funding for (1) classified and intelligence
     programs, (2) medical support equipment, (3) space systems
     software, and (4) contract administration.  The milestones
     should be established to allow for timely collection and
     reporting of data for the next congressional reporting cycle. 

  -- direct the Secretaries of the military departments to develop
     methodologies for aggregating and reporting the amount of
     funding--regardless of the source of funding--for depot-level
     work accomplished at non-working capital funded repair sites,
     including Navy Trident Refit Facilities, Army Integrated
     Sustainment Maintenance Activities, and other similar repair
     sites prior to the next congressional reporting period. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

GAO requested comments on a draft of this report from the Secretary
of Defense.  On May 20, 1998 the Acting Principal Assistant Deputy
Under Secretary of Defense (Logistics) and representatives from the
military departments provided the following comments on the draft
report.  DOD generally concurred with the intent of our
recommendations and stated that appropriate actions will be taken to
(1) establish and document data collection systems and procedures for
each military department and defense agency, and (2) further clarify
reporting guidance.  If effective implementation plans and milestones
are adopted along the lines we recommended, DOD's planned actions
should improve the accuracy, consistency, and completeness of future
public and private sector workload distribution reports.  DOD
officials also commented that extending the congressionally imposed
reporting date from February 1 to March 1 would increase the
completeness and accuracy of future workload distribution reporting. 

DOD did not agree that its report to Congress on fiscal year 1997
workload allocations understated the amount of depot-level funding
made available to the military departments and defense agencies for
certain workload categories.  As discussed below, we continue to
believe that various workload categories were not reported. 

  -- Most of DOD's concerns related to whether $1.3 billion in
     funding for ICS, CLS and similar contracted workloads was to be
     reported.  DOD stated that the statute did not specifically
     require it to report these workloads until fiscal year 1998. 
     However, in most of its previous reports of public and private
     sector workload mix, DOD provided ICS and CLS data to Congress
     separately, to enable the decisionmakers to assess the overall
     impact on public and private sector workload distribution.  We
     have supported the inclusion of ICS and CLS funding in the
     assessment of public and private sector workload distribution to
     the extent it represents depot-level maintenance workload. 
     Further, the fiscal year 1998 Defense Authorization Act requires
     that the next annual report include these workload categories. 

  -- DOD acknowledged that Trident Refit Facilities accomplish
     limited depot-level maintenance tasks.  However, it stated that
     actual depot-level work accomplished at these facilities was
     less than the 50 percent on which our estimate is based, but
     could not provide an alternative estimate.  Lacking additional
     information, we did not change our estimate of funding for this
     workload category that was not reported.  Based on DOD's
     comments, we added a recommendation concerning the future
     reporting of funding for this workload category. 

  -- DOD stated that $198 million in funding provided for support of
     Air National Guard and Air Force Reserve aircraft was included
     in DOD's congressional report of public and private sector
     workload distribution.  However, Air Force officials
     acknowledged weaknesses in the Air Force procedures for
     adequately documenting its quantification and reporting of this
     information.  Our follow-on review and analysis indicates that
     $117 million of the $198 million was included in the workload
     distribution report that was sent to Congress in February 1998. 
     However, an additional $81 million in funding was not reported. 
     Therefore, we lowered our estimate of depot-level funding that
     was not reported to reflect $81 million for Air National Guard
     and Air Force Reserve aircraft, rather than the $198 million
     reflected in our earlier draft report. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9

We reviewed DOD's process for collecting and analyzing depot-level
maintenance funding information.  We discussed and analyzed detailed
reporting instructions issued by OSD, and supplemental guidance
issued by the military departments.  To evaluate the accuracy and
consistency of reported depot-level maintenance funding, we
judgmentally selected, reviewed, and analyzed back-up materials
developed by the Army, Navy, Marine Corps, Air Force, and related
defense agencies.  Back-up documentation included budget exhibits,
computerized worksheets, electronic mail messages and summary
reports.  We did not independently assess the accuracy of the data
contained in the back-up documentation.  We drew extensively from our
prior work concerning the public and private sector depot workload
mix and reviewed the results of ongoing audit work being conducted by
the Air Force and Army Audit Agencies.  Because DOD did not have
procedures in place to identify and collect information on the full
range of potential depot-level maintenance funding made available to
the military departments and defense agencies, our estimate of funds
not reported addresses only the areas identified during our work. 
Once better procedures are in place, other areas may be identified. 

We interviewed officials and examined documents at OSD and Army,
Navy, Air Force, and Marine Corps headquarters, Washington, D.C.;
Army Materiel Command, Alexandria, Virginia; Air Force Materiel
Command, Dayton, Ohio; Naval Sea Systems Command, Arlington,
Virginia; Naval Air Systems Command, Patuxent River, Maryland; Space
and Naval Warfare Systems Command, San Diego, California; Space
Systems Support Group, Peterson Air Force Base, Colorado; Air Force
Audit Agency, Dayton, Ohio; Army Audit Agency, Alexandria, Virginia;
Army Tank Automotive Command and the Program Executive Office for
Ground Combat and Support Systems, Warren, Michigan; and the Army
Aviation Missile Command and the Program Executive Office for
Aviation, Huntsville, Alabama.  For fiscal years 1998 through 2003,
we obtained and reviewed preliminary reports of public and private
sector workload distributions from Navy and Army headquarters,
Washington, D.C.; Air Force Materiel Command, Dayton, Ohio; and
pertinent defense agencies. 

We conducted our review from February to May 1998, and, except where
noted, in accordance with generally accepted government audit
standards. 

We are sending copies of this report to the Secretaries of Defense,
the Army, the Navy, and the Air Force; and the Directors of the
Defense Intelligence Agency and the Special Operations Command. 
Copies will be made available to others on request. 


Please contact me at (202) 512-8412 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix I. 

David R.  Warren, Director
Defense Management Issues


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I


   NATIONAL SECURITY AND
   INTERNATIONAL AFFAIRS DIVISION,
   WASHINGTON, D.C
--------------------------------------------------------- Appendix I:1

Barry Holman
Julia Denman
Glenn Knoepfle
Andrew Marek


   OFFICE OF GENERAL COUNSEL
--------------------------------------------------------- Appendix I:2

John Brosnan


   ATLANTA FIELD OFFICE
--------------------------------------------------------- Appendix I:3

Bobby Worrell
Terry Wyatt


   CHICAGO FIELD OFFICE
--------------------------------------------------------- Appendix I:4

Bruce Fairbairn


   LOS ANGELES FIELD OFFICE
--------------------------------------------------------- Appendix I:5

Jean Orland

RELATED GAO PRODUCTS

Defense Depot Maintenance:  Contracting Approaches Should Address
Workload Characteristics (GAO/NSIAD-98-130, June 15, 1998). 

Public-Private Competitions:  Review of San Antonio Air Force Depot
Solicitation (GAO/OGC-98-49, May 14, 1998). 

Defense Depot Maintenance:  Use of Public-Private Partnership
Arrangements (GAO/NSIAD-98-91, May 7, 1998). 

Public-Private Competitions:  Review of Sacramento Air Force Depot
Solicitation (GAO/OGC-98-48, May 4, 1998). 

Navy Ship Maintenance:  Temporary Duty Assignments of Temporarily
Excess Shipyeard Personnel Are Reasonable (GAO/NSIAD-98-93, Apr.  21,
1998). 

Public-Private Competitions:  DOD's Additional Support for Combining
Depot Workloads Contains Weaknesses (GAO/NSIAD-98-143, Apr.  17,
1998). 

Defense Depot Maintenance:  DOD Shifting More Workload for New Weapon
Systems to the Private Sector (GAO/NSIAD-98-8, Mar.  31, 1998). 

Depot Maintenance:  Lessons Learned From Transferring Alameda Naval
Aviation Depot Engine Workloads (GAO/NSIAD-98-10BR, Mar.  25, 1998). 

Public-Private Competitions:  Access to Records Is Inhibiting Work on
Congressional Mandates (GAO/T-NSIAD-98-111, Mar.  4, 1998). 

Force Structure:  Army's Efforts to Improve Efficiency of
Institutional Forces Have Produced Few Results (GAO/NSIAD-98-65, Feb. 
26, 1998). 

Public-Private Competitions:  Access to Records Is Inhibiting Work on
Congressional Mandates (GAO/T-NSIAD-98-101, Feb.  24, 1998). 

Public-Private Competitions:  DOD's Determination to Combine Depot
Workloads Is Not Adequately Supported (GAO/NSIAD-98-76, Jan.  20,
1998). 

Public-Private Competition:  Processes Used for C-5 Aircraft Award
Appear Reasonable (GAO/NSIAD-98-72, Jan.  20, 1998). 

DOD Depot Maintenance:  Information on Public and Private Sector
Workload Allocations (GAO/NSIAD-98-41, Jan.  20, 1998). 

Air Force Privatization-in-Place:  Analysis of Aircraft and Missile
System Depot Repair Costs (GAO/NSIAD-98-35, Dec.  22, 1997). 

Outsourcing DOD Logistics:  Savings Achievable but Defense Science
Board's Projections Are Overstated (GAO/NSIAD-98-48, Dec.  8, 1997). 

Navy Regional Maintenance:  Substantial Opportunities Exist to Build
on Infrastructure Streamlining Process (GAO/NSIAD-98-4, Nov.  13,
1997). 

Air Force Depot Maintenance:  Information on the Cost Effectiveness
of B-1B and B-52 Support Options (GAO/NSIAD-97-210BR, Sept.  12,
1997). 

Navy Depot Maintenance:  Privatizing the Louisville Operations in
Place Is Not Cost-Effective (GAO/NSIAD-97-52, July 31, 1997). 

Defense Depot Maintenance:  Challenges Facing DOD in Managing Working
Capital Funds (GAO/T-NSIAD/AIMD-97-152, May 7, 1997). 

Depot Maintenance:  Uncertainties and Challenges DOD Faces in
Restructuring Its Depot Maintenance Program (GAO/T-NSIAD-97-111, Mar. 
18, 1997, and GAO/T-NSIAD-97--112, May 1, 1997). 

Navy Ordnance:  Analysis of Business Area Price Increases and
Financial Losses (GAO/AIMD/NSIAD-97-74, Mar.  14, 1997). 

Defense Outsourcing:  Challenges Facing DOD as It Attempts to Save
Billions in Infrastructure Costs (GAO/T-NSIAD-97-110, Mar.  12,
1997). 

High-Risk Series:  Defense Infrastructure (GAO/HR-97-7, Feb.  1997). 

Air Force Depot Maintenance:  Privatization-in-Place Plans Are Costly
While Excess Capacity Exists (GAO/NSIAD-97-13, Dec.  31, 1996). 

Army Depot Maintenance:  Privatization Without Further Downsizing
Increases Costly Excess Capacity (GAO/NSIAD-96-201, Sept.  18, 1996). 

Navy Depot Maintenance:  Cost and Savings Issues Related to
Privatizing-in-Place the Louisville, Kentucky, Depot
(GAO/NSIAD-96-202, Sept.  18, 1996). 

Defense Depot Maintenance:  Commission on Roles and Mission's
Privatization Assumptions Are Questionable (GAO/NSIAD-96-161, July
15, 1996). 

Defense Depot Maintenance:  DOD's Policy Report Leaves Future Role of
Depot System Uncertain (GAO/NSIAD-96-165, May 21, 1996). 

Defense Depot Maintenance:  More Comprehensive and Consistent
Workload Data Needed for Decisionmakers (GAO/NSIAD-96-166, May 21,
1996). 

Defense Depot Maintenance:  Privatization and the Debate Over the
Public-Private Mix (GAO/T-NSIAD-96-146, Apr.  16, 1996, and
GAO/T-NSIAD-96-148, Apr.  17, 1996). 

Military Bases:  Closure and Realignment Savings Are Significant, but
Not Easily Quantified (GAO/NSIAD-96-67, Apr.  8, 1996). 

Depot Maintenance:  Opportunities to Privatize Repair of Military
Engines (GAO/NSIAD-96-33, Mar.  5, 1996). 

Closing Maintenance Depots:  Savings, Personnel, and Workload
Redistribution Issues (GAO/NSIAD-96-29, Mar.  4, 1996). 

Navy Maintenance:  Assessment of the Public-Private Competition
Program for Aviation Maintenance (GAO/NSIAD-96-30, Jan.  22, 1996). 

Depot Maintenance:  The Navy's Decision to Stop F/A-18 Repairs at
Ogden Air Logistics Center (GAO/NSIAD-96-31, Dec.  15, 1995). 

Military Bases:  Case Studies on Selected Bases Closed in 1988 and
1991 (GAO/NSIAD-95-139, Aug.  15, 1995). 

Military Base Closure:  Analysis of DOD's Process and Recommendations
for 1995 (GAO/T-NSIAD-95-132, Apr.  17, 1995). 

Military Bases:  Analysis of DOD's 1995 Process and Recommendations
for Closure and Realignment (GAO/NSIAD-95-133, Apr.  14, 1995). 

Aerospace Guidance and Metrology Center:  Cost Growth and Other
Factors Affect Closure and Privatization (GAO/NSIAD-95-60, Dec.  9,
1994). 

Navy Maintenance:  Assessment of the Public and Private Shipyard
Competition Program (GAO/NSIAD-94-184, May 25, 1994). 

Depot Maintenance:  Issues in Allocating Workload Between the Public
and Private Sectors (GAO/T-NSIAD-94-161, Apr.  12, 1994). 

Depot Maintenance (GAO/NSIAD-93-292R, Sept.  30, 1993). 

Depot Maintenance:  Issues in Management and Restructuring to Support
a Downsized Military (GAO/T-NSIAD-93-13, May 6, 1993). 

Air Logistics Center Indicators (GAO/NSIAD-93-146R, Feb.  25, 1993). 

Defense Force Management:  Challenges Facing DOD as It Continues to
Downsize Its Civilian Workforce (GAO/NSIAD-93-123, Feb.  12, 1993). 

*** End of document. ***