Defense Depot Maintenance: Information on Public and Private Sector
Workload Allocations (Letter Report, 01/20/98, GAO/NSIAD-98-41).

Pursuant to a congressional request, GAO reviewed the Department of
Defense's (DOD) guidelines and procedures for identifying depot
maintenance workloads and quantifying the public and private sectors'
share of depot maintenance funding, focusing on: (1) public and private
workload distributions as reported by the military departments and
defense agencies for fiscal years 1996 through 2002; and (2) the
procedures DOD uses to define and quantify depot workload distribution.

GAO noted that: (1) DOD's May 1997 report of public and private sector
depot maintenance workload distribution for fiscal years 1996 through
2002 did not provide a complete, consistent, and accurate assessment of
DOD's public and private sector funding; (2) vague Office of the
Secretary of Defense guidance and incomplete and inconsistent reporting
of data by the military departments and defense agencies contributed to
this condition; (3) the workload distribution analysis showed that in
fiscal year 1996 DOD spent $7.1 billion for work assigned to public
sector facilities and about $3.4 billion for work assigned to the
private sector; (4) in addition, DOD's analysis shows that DOD provided
an additional $706 million for depot maintenance-related work acquired
from the private sector through interim contractor support and
contractor logistics support arrangements; (5) DOD's depot maintenance
workload distribution and supporting data shows that: (a) in some cases
modification and conversion work obtained from private sector
contractors was not reported but similar work in public depots was
included; (b) reporting of computer software maintenance work was
inconsistent and perhaps incomplete; (c) public sector depot maintenance
funding included substantial expenditures for goods and services
purchased from private sector contractors, and resulted in inconsistent
reporting of the allocation between the public and private sector; and
(d) depot maintenance expenditures for equipment and software owned by
various defense agencies were not reported.

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

 REPORTNUM:  NSIAD-98-41
     TITLE:  Defense Depot Maintenance: Information on Public and 
             Private Sector Workload Allocations
      DATE:  01/20/98
   SUBJECT:  Privatization
             Maintenance services contracts
             Equipment maintenance
             Computer software
             Maintenance costs
             Department of Defense contractors
             Reporting requirements
             Cost analysis
             Military materiel
IDENTIFIER:  C-5 Aircraft
             
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Cover
================================================================ COVER


Report to Congressional Requesters

January 1998

DEFENSE DEPOT MAINTENANCE -
INFORMATION ON PUBLIC AND PRIVATE
SECTOR WORKLOAD ALLOCATIONS

GAO/NSIAD-98-41

Defense Depot Maintenance

(709267)


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

  CLS - contractor logistics support
  DOD - Department of Defense
  ICS - interim contractor support
  OSD - Office of the Secretary of Defense

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


B-277291

January 20, 1998

Congressional Requesters

As requested, we reviewed the Department of Defense's (DOD)
guidelines and procedures for identifying depot maintenance workloads
and quantifying the public and private sectors' share of depot
maintenance funding.  Specifically, this report (1) summarizes public
and private workload distributions as reported by the military
departments and defense agencies for fiscal years 1996 through 2002
and (2) analyzes the procedures DOD uses to define and quantify depot
workload distribution. 


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

Depot-level maintenance and repair of military weapons and equipment
involve extensive shop facilities, specialized equipment, and highly
skilled technical and engineering personnel.  In recent years, the
distinction between depot maintenance and lower levels of maintenance
has become less pronounced.  Public sector depot maintenance work is
currently conducted in 22 major government-owned and
government-operated maintenance depots and a number of other
government-owned facilities, including post-production software
support activities, laboratories, and Army arsenals.  According to
DOD officials, private sector depot maintenance work is conducted by
commercial contractors at about 1,100 contractor-owned and -operated
facilities at various geographic locations. 


      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.  According to the
statute, at the time of our review, not more than 40 percent of funds
made available to a military department or defense agency for
depot-level maintenance and repair was to be used to contract for
performance by nonfederal government personnel--also referred to as
the 60/40 rule.  The fiscal
year 1998 Defense Authorization Act increased the percentage of
depot-level maintenance and repair work that can be contracted to
nonfederal government personnel to not more than 50 percent, from the
previous 40-percent maximum. 

Other statutes that affect the extent to which depot-level workloads
can be converted to private sector performance include 10 U.S.C. 
2469, which provides that DOD-performed depot maintenance and repair
workloads valued at not less than $3 million cannot be changed to
contractor performance without a public-private competition, and 10
U.S.C.  2464, which, at the time of our review, provided that DOD
activities should maintain a logistics capability sufficient to
ensure technical competence and resources necessary for an effective
and timely response to a national defense emergency. 


      PRIOR GAO STATEMENTS
      CONCERNING 60/40
      REQUIREMENTS AND THE
      ACCURACY AND COMPLETENESS OF
      REPORTED PUBLIC AND PRIVATE
      WORKLOAD DATA
---------------------------------------------------------- Letter :1.2

In April 1996, we testified before the Subcommittee on Readiness,
Senate Committee on Armed Services, and the Subcommittee on Military
Readiness, House Committee on National Security,\1 on DOD's revised
depot maintenance policy and its report on public-private depot
workload allocations.  We noted that DOD's policy clearly intended to
shift additional workload to the private sector when readiness,
sustainability, and technology risks can be overcome.  In May 1996,
we reported on DOD's reported public-private depot workload
allocations.\2 We noted that

  -- with few exceptions, the 60/40 rule had not affected past
     public-private workload allocation decisions;

  -- without repeal of the 60/40 rule, the military departments would
     not be able to follow through on large-scale plans to compete
     depot maintenance workloads between public and private sector
     activities;

  -- DOD's report did not provide a complete, consistent, and
     accurate picture of depot maintenance workloads because it did
     not include (1) interim contractor support and contractor
     logistics support costs, (2) labor costs to install modification
     and conversion kits, and (3) software maintenance support, most
     of which was obtained from private sector firms using
     procurement funding; and

  -- DOD's reported public sector workload allocation included costs
     for parts and services the public depots purchased from private
     sector contractors, some of which were costs for
     government-furnished material provided to private contractors. 

In our report, we suggested that Congress may wish to require that
(1) all depot maintenance workload categories\3 be included in future
60/40 reports, regardless of funding source, and (2) outlays by
public depots for purchases of repair parts and services be included
in the private sector's workload share. 


--------------------
\1 Defense Depot Maintenance:  Privatization and the Debate Over the
Public-Private Mix (GAO/T-NSIAD-96-146, Apr.  16, 1996) and Defense
Depot Maintenance:  Privatization and the Debate Over the
Public-Private Mix (GAO/T-NSIAD-96-148, Apr.  17, 1996). 

\2 Defense Depot Maintenance:  More Comprehensive and Consistent
Workload Data Needed for Decisionmakers (GAO/NSIAD 96-166, May 21,
1996). 

\3 The workload categories include interim contractor support and
contractor logistics support, labor costs for installing modification
and conversion kits, and computer software maintenance. 


      DOD EFFORTS TO ADDRESS 60/40
      REQUIREMENTS
---------------------------------------------------------- Letter :1.3

For fiscal years 1994 through 1996, DOD was required by law to report
to Congress on the public and private sector workload mix for each
military department and agency.  Although this requirement was not
effective for fiscal year 1997, the Deputy Under Secretary of Defense
(Logistics), in January 1997, as part of his oversight
responsibilities to verify current and projected compliance with
60/40 statutory requirements, asked the military departments to
quantify planned funding for depot maintenance workloads assigned to
the public and private sectors for fiscal years 1996 through 2002.\4
The military departments were requested to follow an approach similar
to the one used in responding to previously mandated congressional
reporting requirements.  The military departments and the Defense
Logistics Agency developed summary workload distribution reports for
the Office of the Secretary of Defense (OSD) based on financial
information contained in readily available budget data.  In May 1997,
OSD prepared a briefing for the Defense Depot Maintenance Council
that showed the percentage of public and private sector depot
maintenance workload distribution for each military department.\5

Our review does not address subsequent changes in the law impacting
public-private depot workload allocation requirements contained in
the fiscal year 1998 Defense Authorization Act, approved November 18,
1997.  This act contains an amendment to 10 U.S.C.  2466 mandating
annual reports of public and private sector workload allocations.  It
also contains a new section 2460 of title 10, which specifies the
kinds of work DOD is to include within the definition of depot-level
maintenance.  This will impact DOD's future quantifications of public
and private sector workload allocations.  These changes address
several workload reporting issues raised in this report.  DOD's first
report to be submitted to Congress by February 1, 1998, is to include
information on public and private sector depot-level maintenance
spending for fiscal year 1997. 


--------------------
\4 The data reported by the defense components represents obligation
data for fiscal year 1996 and planned funding for fiscal years
1997-2002.  Hereafter in this report we refer to this information as
funding data. 

\5 The Maintenance Council provides a mechanism for senior military
leaders to jointly plan, monitor, and evaluate depot maintenance
policies, programs, and activities. 


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

DOD's May 1997 report of public and private sector depot maintenance
workload distribution for fiscal years 1996 through 2002 did not
provide a complete, consistent, and accurate assessment of DOD's
public and private sector funding.  Vague OSD guidance and incomplete
and inconsistent reporting of data by the military departments and
defense agencies contributed to this condition. 

The workload distribution analysis showed that in fiscal year 1996
DOD provided funding of $7.1 billion for work assigned to public
sector facilities and about $3.4 billion for work assigned to the
private sector.  In addition, DOD's analysis shows that DOD provided
an additional $706 million for depot maintenance-related work
acquired from the private sector through interim contractor support
and contractor logistics support arrangements. 

Our review of DOD's depot maintenance workload distribution and
supporting data shows that

  -- in some cases modification and conversion work obtained from
     private sector contractors was not reported but similar work in
     public depots was included;

  -- reporting of computer software maintenance work was inconsistent
     and perhaps incomplete;

  -- public sector depot maintenance funding included substantial
     expenditures for goods and services purchased from private
     sector contractors, and resulted in inconsistent reporting of
     the allocation between the public and private sector; and

  -- depot maintenance expenditures for equipment and software owned
     by various defense agencies were not reported. 


   DOD'S ANALYSIS OF WORKLOAD
   DISTRIBUTION
------------------------------------------------------------ Letter :3

DOD's analysis of depot maintenance workload distribution showed that
it provided funding of about $10.5 billion for depot maintenance
requirements in fiscal year 1996, of which workload valued at $7.1
billion, or 68 percent, was assigned to public sector facilities and
about $3.4 billion, or 32 percent, was assigned to the private
sector.  In addition, DOD's data showed that it provided an
additional $706 million for work acquired from the private sector
through interim contractor support (ICS) and contractor logistics
support (CLS) contracts.  At the time of our review, the law did not
specifically state whether such contractor-provided maintenance
should be considered in 60/40 calculations.  The recently passed
provisions at 10 U.S.C.  2460 would establish a statutory definition
of depot-level maintenance and repair.  Among other things, it
specifies that both ICS and CLS are to be included within the
definition.  As a result both ICS and CLS must be included in private
sector workload calculations required under the newly amended
provision of 10 U.S.C.  2466. 


      DOD'S ANALYSIS SHOWS IMPACT
      OF ICS/CLS FUNDING
---------------------------------------------------------- Letter :3.1

According to the data in DOD's analysis, Army and Navy depot
maintenance funding provided to the private sector will not exceed 40
percent in any year from fiscal year 1996 to 2002, whether or not ICS
and CLS are included.  The percentage of Air Force depot maintenance
funding provided to the private sector will vary considerably
depending on the outcome of planned public and private sector
workload competitions.\6 In September 1997, the Air Force announced
that Warner Robins Air Logistics Center won a public-private
competition for the C-5 aircraft depot-level workload.  Should the
private sector win the remaining competitions, DOD data shows that
its share will only exceed 40-percent when ICS and CLS costs are
included. 

The percentage of public and private sector depot maintenance work
reported by the military departments for fiscal years 1996 through
2002 and the potential impact of including ICS and CLS funding in the
private sector workload distribution are shown in table 1.  For the
Air Force, the table provides percentage allocations for two
scenarios.  The first scenario assumes that public depots win all
ongoing public-private workload competitions, and the second reflects
that the public sector wins the C-5 workload and that the private
sector wins all others. 



                                     Table 1
                     
                        Public and Private Workload Mix as
                               Quantified by OSD\a

                              (Dollars in millions)

            FY 96     FY 97     FY 98     FY 99     FY 00     FY 01     FY 02
----------  --------  --------  --------  --------  --------  --------  --------
Army:
--------------------------------------------------------------------------------
Public $    838       810       888       763       993       918       999

Private $   403       482       429       442       460       425       464

ICS/CLS $   73        49        51        57        58        56        51

Public/     68/32     63/37     67/33     63/37     68/32     68/32     68/32
private %

Public/     64/36     60/40     65/35     60/40     66/34     66/34     66/34
private %
(with ICS/
CLS)


Navy: (includes Marines)
--------------------------------------------------------------------------------
Public $    3,460     3,662     3,796     3,770     3,959     3,743     4,220

Private $   1,886     2,047     1,858     2,121     2,186     2,190     2,204

ICS/CLS $   33        45        49        52        52        52        52

Public/     65/35     64/36     67/33     64/36     64/36     63/37     66/34
private %

Public/     64/36     64/36     67/33     63/37     64/36     63/37     65/35
private %
(with ICS/
CLS)


Air Force:
--------------------------------------------------------------------------------

(Public wins all)
--------------------------------------------------------------------------------
Public $    2,828     2,678     3,174     3,011     3,122     3,036     3,068

Private $   1,128     1,122     1,262     1,199     1,242     1,301     1,315

ICS/CLS $   600       537       582       534       550       582       550

Public/     71/29     70/30     72/28     72/28     72/28     70/30     70/30
private %

Public/     62/38     62/38     63/37     63/37     64/36     62/38     62/38
private %
(with ICS/
CLS)


(Public wins C-5; private wins others)
--------------------------------------------------------------------------------
Public $    2,828     2,678     2,923     2,768     2,882     2,798     2,832

Private $   1,128     1,122     1,513     1,442     1,482     1,539     1,551

ICS/CLS $   600       537       582       534       550       582       550

Public/     71/29     70/30     66/34     66/34     66/34     65/35     65/35
private %

Public/     62/38     62/38     58/42     58/42     59/41     57/42     57/43
private %
(with ICS/
CLS)
--------------------------------------------------------------------------------
\a The above information was developed by the military departments. 
As discussed on the following pages, we found that the workload
allocation data does not provide a complete, consistent, and accurate
assessment of DOD's public and private sector depot-level maintenance
funding. 

Source:  OSD. 

The Deputy Under Secretary's January 1997 request for data on depot
maintenance funding required that the military departments develop
supplemental information for certain maintenance-related funding
obtained through ICS contracts, CLS contracts, and other innovative
logistics support arrangements.  OSD program officials told us they
asked the military departments to report these data separately
because without collection of these data, DOD would have no vehicle
for determining the impact on the public and private sector's
workload allocation. 


--------------------
\6 These competitions are being conducted to determine the most
cost-effective means for transitioning workloads currently performed
by government employees assigned to the Sacramento and San Antonio
Air Logistics Centers, facilities recommended for closure by the 1995
Base Realignment and Closure Commission. 


   VAGUE GUIDANCE AND INCONSISTENT
   REPORTING HAS RESULTED IN
   INACCURATE, INCONSISTENT, AND
   INCOMPLETE WORKLOAD
   DISTRIBUTION DATA
------------------------------------------------------------ Letter :4

DOD does not have accurate data on public and private sector workload
distributions.  OSD's January 1997 guidance to the military
departments for identifying and reporting public-private depot
maintenance activities, and workload distribution was vague and
subject to interpretation.  Consequently, the military departments
used what OSD officials described as an ad hoc data collection
process.  As a result, workload distribution data reported by the
services was inconsistent and incomplete. 


      VAGUE GUIDANCE AND AD HOC
      PROCEDURES
---------------------------------------------------------- Letter :4.1

DOD directives, regulations, and publications provide a broad working
definition for depot maintenance workloads, including the repairing,
rebuilding, and major overhaul of major end items, parts, assemblies
and subassemblies and limited manufacture of parts, technical
support, modifications, testing, reclamation, and computer software
maintenance.  We found that the military departments' efforts to
accurately define and quantify their depot maintenance workloads were
complicated by vague and conflicting supplemental OSD guidance.  For
example, the Deputy Under Secretary's January 1997 request for public
and private sector depot maintenance funding information states that
60/40 reporting (1) should consider all depot maintenance work,
irrespective of funding source, and (2) should be based on only
"maintenance and repair work," while modification work was to be
considered "non-maintenance work."

Our discussions with officials from the services and the defense
agencies showed that officials responsible for public-private
workload data collection and quantification differed on which defense
activities and components should be reporting, and which types of
workloads should be included.  For example, service and defense
agency officials stated that guidance is unclear if repair and
maintenance funding for items not normally repaired in a traditional
depot environment are to be included.  These workloads include repair
and maintenance funding of space systems, medical equipment, computer
hardware, and classified programs. 


      INCONSISTENT AND INCOMPLETE
      DATA ANALYSIS
---------------------------------------------------------- Letter :4.2

OSD has not established a uniform and consistent approach for
collecting and quantifying current and planned public and private
sector depot maintenance funding.  As a result the military
departments adopted an ad hoc data collection process, relying on
what they considered to be the best available information and their
interpretation of DOD reporting guidance.  Consequently, we found the
data reported by the services and agencies to be inaccurate,
inconsistent, and incomplete. 


      PRIVATE SECTOR FUNDING FOR
      INSTALLING MODIFICATION AND
      CONVERSION KITS NOT
      CONSISTENTLY REPORTED
---------------------------------------------------------- Letter :4.3

Our review of pertinent DOD and military department regulations and
directives indicates that teardown, overhaul, and repair work
accomplished by public and private sector activities concurrent with
modification, conversion, and upgrade programs is included under
DOD's broadly defined list of depot maintenance workload categories. 
However, some military department officials responsible for workload
allocation data collection told us that OSD had advised them to
include such work in quantifying the portion of depot funds provided
to the public sector but suggested excluding similar funding from the
private sector workload quantification.  The military departments
spend over a billion dollars annually to install modification kits to
upgrade and modernize existing weapon systems in the private sector. 

Due to the ad hoc nature of the data collection process, each of the
military departments treated modification, conversion, and upgrade
projects differently.  For example, the Air Force and the Naval Air
Systems Command included funding for installing modification kits
provided through procurement appropriations in their quantifications
of both the public and private sector workload allocations, while the
Naval Sea Systems Command for fleet modernization programs included
such funding in public sector expenditures but excluded them for
programs performed by private sector activities.  The Army excluded
such funding for modification programs accomplished by both public
and private sector activities. 

Adding the funding for teardown, overhaul, repair, and installation
of modification and conversion kits in the Army's workload mix
calculations could show as much as 60 percent of the available fiscal
year 1996 depot maintenance funding going to the private sector,
rather than the
32 percent the Army reported.  For example, audit work being
conducted by the Army Audit Agency shows that funding for installing
modification and upgrade hardware on two major modification
efforts--the M1 Abrams upgrade and Apache Longbow conversion
programs--could total more than $700 million in fiscal year 1996,
with most work being done by private sector activities. 

Army program officials told us they excluded funding for teardown,
overhaul, and repair work involved with modification and conversion
programs from 60/40 reporting because (1) they interpreted the 60/40
statute to only address work funded by the operations and maintenance
appropriation and (2) OSD data collection guidelines specifically
state that modification and conversion work was to be considered
"non-maintenance" work for purposes of 60/40 reporting.  In
commenting on a draft of this report, Army officials stated that
procurement appropriation funded modification and conversion work was
not considered for 60/40 reporting because the data was not readily
available.  However, they indicated that this reporting deficiency
would be corrected for future quantifications of public and private
sector workload data. 


      REPORTED SOFTWARE
      MAINTENANCE FUNDS ARE
      INCONSISTENT AND INCOMPLETE
---------------------------------------------------------- Letter :4.4

DOD directives and regulations specify that depot maintenance
includes all aspects of software maintenance; however, DOD has not
clearly defined the kinds of software maintenance work that should be
quantified and considered in its 60/40 reports.  Our work shows that
the military departments reported some software maintenance support
funding when they were readily identifiable but excluded others.  The
value of the excluded software maintenance workloads could exceed $1
billion.  For example: 

  -- The Air Force's analysis included software maintenance support
     funding for workloads funded by the Air Force Materiel Command
     but excluded most software maintenance funding for the
     Centralized Integration Support Facility in Colorado Springs,
     Colorado, a facility funded by the Air Force Space Command.  Air
     Force officials acknowledged that funds for this activity should
     have been included in its workload analysis and stated that this
     deficiency will be corrected in future reports. 

  -- The Navy's analysis included software maintenance support costs
     for workloads funded through traditional depot facilities,
     including naval aviation depots, naval shipyards, or Marine
     Corps logistics centers, using operational and maintenance
     appropriation funding.  However, software support obtained with
     procurement funding was not included.  For example, the Marine
     Corps did not report funding for software maintenance work
     performed by an approximate 300-person support center located at
     Camp Pendleton, California, which reports to the Marine Corps
     Systems Command--an organization not traditionally recognized as
     being a provider of depot maintenance support. 

We also found that when software work was included in the 60/40
report, the public sector workload quantification included funding
for work being accomplished by private sector personnel assigned to
work on government-owned and -operated installations.  For example,
our work showed that the Army's analysis included $37.7 million under
the public sector for software support workloads assigned to the
Communications and Electronics Command, Fort Monmouth, New Jersey;
the Tank Automotive Command, Warren, Michigan; and the Aviation and
Missile Command, Redstone Arsenal, Alabama; even though 734 of the
1,150 software specialists at these locations are private sector
employees.  In addition the Army's analysis included $97.4 million
under the private sector share for software maintenance workloads
assigned directly to private sector contractors. 

In discussing a draft of this report, DOD stated that only
depot-level software maintenance was to be included in public-private
workload allocation reports.  As stated previously, the distinction
between the depot-level and lower levels of maintenance has become
less pronounced.  Subsequent to DOD's response, in December 1997 the
Deputy Under Secretary of Defense (Logistics) issued a memorandum to
more clearly define depot-level software maintenance. 


      INCONSISTENT REPORTING OF
      TRANSPORTATION COMMAND
      EQUIPMENT
---------------------------------------------------------- Letter :4.5

The U.S.  Transportation Command, which has principal components
including the Military Traffic Management Command, the Air Mobility
Command, and the Military Sealift Command, was not specifically
tasked by OSD to develop public and private sector depot maintenance
funding information.  We found that the Air Force's analysis of
fiscal year 1996 depot maintenance funding included $295 million for
support of the Air Mobility Command aircraft.  Military Sealift
Command officials told us they provided funding of about $83.5
million in fiscal year 1996 for maintenance-related activities, but
the portion of the funding attributable to depot-level maintenance
was not included in the Navy's workload allocation analysis. 
Military Sealift Command officials told us they could not readily
determine the public and private sector distribution of maintenance
workloads but indicated that most services were obtained from private
contractors. 


      REPORTED PUBLIC SECTOR
      EXPENDITURES INCLUDE OUTLAYS
      TO PRIVATE SECTOR
---------------------------------------------------------- Letter :4.6

Our work also shows that a substantial portion of the funds provided
to public depots is ultimately contracted out to the private sector
for parts, materials, and labor.  OSD's guidance mentions that public
sector depots typically obtain support directly from the private
sector for items such as raw materials, replacement parts, and
personnel services, but it provides no direction as to how these
items should be treated in computing the public and private sector
workload mix.  This results in inconsistent reporting that overstates
the public sector share and understates the private sector share. 
For example, parts purchased from the private sector and furnished to
private sector contractors as government-furnished material are
sometimes counted as a public sector cost.  An Army official told us
that about 40 percent of the total fiscal year 1996 funding provided
to the Army's five public sector depots will be used to purchase
materials, supplies, and services from private sector contractors. 
In addition, the Army's major depots currently have 181
contractor-employed artisans, working with government employees, and
these costs were included for reporting purposes as public sector
funding.  In commenting on a draft of this report, DOD officials
noted that there is nothing in the legislative history indicating how
parts, material, and labor costs are to be counted for the 60/40
requirement. 


      SOME AGENCIES DO NOT REPORT
      DEPOT MAINTENANCE WORKLOAD
      DATA
---------------------------------------------------------- Letter :4.7

The 60/40 statute applies to the military departments and defense
agencies receiving depot maintenance funds; however, OSD only asked
the three military departments and the Defense Logistics Agency to
report on its current and planned public and private sector depot
maintenance funding.\7 Our limited review showed that several defense
agencies received funding for depot-level maintenance and that some
received a substantial amount of their depot maintenance support from
private sector contractors.  For example: 

  -- Officials from the National Security Agency told us they
     received funding of about $15 million per year to maintain
     equipment and about $83 million per year to maintain computer
     software.  The agency employs a full-time staff of federal and
     nonfederal employees to repair equipment on-site and if
     equipment can not be fixed in-house it is discarded.  Officials
     also told us the agency employs a substantial number of computer
     software specialists, who develop and maintain computer software
     programs. 

  -- Officials from the National Imagery and Mapping Agency told us
     their depot maintenance budgets for fiscal years 1996 and 1997
     averaged about $85 million for each year, of which about 90
     percent was attributable to private sector support. 

  -- Officials from the Defense Intelligence Agency did not report
     any depot-level maintenance.  It reported that the Air Force is
     the executive agent and maintains the Imagery Exploitation
     Support System, which involves complex computer programs. 
     However, neither the Air Force nor the Defense Intelligence
     Agency reported the funding for maintaining this software. 

In discussing a draft of this report, DOD stated that some of the
previously described maintenance funding for the defense agencies may
have been for other than depot-level maintenance support.  However,
they stated that they would clarify these uncertainties before the
next reporting cycle.  Subsequently, in December 1997 the Deputy
Under Secretary of Defense (Logistics) asked each of the
aforementioned defense agencies to provide public and private sector
depot maintenance spending data for the fiscal year 1997 reporting
cycle. 


--------------------
\7 The Defense Logistics Agency reported that in fiscal year 1996 it
spent $13 million for depot maintenance work on equipment owned by
the services. 


      NAVY WORKLOAD AT LOUISVILLE
      DEPOT NOT COMPLETELY
      REPORTED
---------------------------------------------------------- Letter :4.8

The Navy collected planned depot maintenance funding for the newly
privatized Louisville depot, but due to the ad hoc nature of the data
collection process, funding totaling $70 million for fiscal years
1997, 1998, and 1999 was excluded from the Navy's quantification of
private sector depot maintenance data.  Navy officials told us the
funding projections for Louisville were not readily available when
the current 60/40 report was developed for OSD.  They stated that
future reporting will include funding information for the Louisville
facility under the private sector share. 


   CONCLUSION
------------------------------------------------------------ Letter :5

DOD's current approach for collecting information on the allocation
of depot maintenance workload between the public and private sectors
results in incomplete and inconsistent reporting.  This is because
the guidance provided to the military departments is imprecise,
leaving room for varying interpretations on the data to be reported. 
Further, it appears that a number of defense components that perform
depot maintenance were not included in the data collection effort. 
Given these conditions, DOD, while reporting that about 68 percent of
its depot maintenance is performed by the public sector, does not
have complete, consistent, and accurate information on this
public/private sector workload distribution.  If DOD's analysis of
its compliance with 10 U.S.C.  2466 is to be meaningful, improvements
are needed in the data collection and reporting process. 


   RECOMMENDATION
------------------------------------------------------------ Letter :6

To improve the accuracy of reporting on the amount of funding for
depot maintenance in the public and private sectors, we recommend
that the Secretary of Defense develop a standardized methodology for
annually collecting depot maintenance funding data for the public and
private sectors.  This should include (1) a specific definition of
the types of activities to be reported, (2) the defense components
that should be reporting, and (3) specific data collection processes
and procedures the military departments are to follow to insure
complete, accurate, and consistent reporting of the amount of funding
provided for public and private sector depot maintenance workloads. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

DOD officials commented on a draft of this report.  They concurred
with our findings and recommendations.  We made technical corrections
in several areas to address their comments.  DOD's response is
included in appendix I.  Subsequent to DOD's response, the Deputy
Under Secretary of Defense (Logistics), in a memorandum dated
December 5, 1997, established an annual process for reporting public
and private sector maintenance costs as required by the fiscal year
1998 Defense Authorization Act, which amended 10 U.S.C.  2466.  The
Secretary's memorandum also provided new guidance to more clearly
define the types of workloads that are to be included in future
workload allocation reports, and the defense components that should
be reporting.  This should lead to more accurate and consistent
reporting of public and private sector workload allocations. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

We reviewed OSD's analysis of public and private sector depot
maintenance workload distribution and accompanying reports prepared
by the Army, the Navy, the Marine Corps, the Air Force, and the
Defense Logistics Agency.  We also reviewed pertinent DOD, OSD, and
military department directives, regulations, and publications to
determine how DOD, OSD, and the military departments define depot
maintenance work.  We drew extensively from our prior work concerning
the public and private sector workload mix.  We also reviewed
preliminary results of ongoing audit work being conducted by the U.S. 
Army Audit Agency and a study of depot maintenance software
activities being conducted by the Logistics Management Institute. 

From each of the military departments and OSD, we obtained and
reviewed pertinent correspondence and back-up documentation
supporting OSD's public and private sector workload report.  Back-up
documentation included budget exhibits, computerized worksheets, and
summary reports.  We did not independently assess the accuracy of the
data contained in back-up documentation.  We interviewed officials
and examined documents at OSD, Army, Navy, Marine Corps, and Air
Force headquarters, Washington, D.C.; the Army Materiel Command,
Alexandria, Virginia; the Air Force Materiel Command, Dayton, Ohio;
the Naval Sea and Air Systems Commands, Arlington, Virginia; and the
National Security Agency, Fort Meade, Maryland. 

To determine if defense agencies and organizations received depot
maintenance funds that were not included in OSD's analysis of public
and private sector depot maintenance workload distribution, we
selected several defense agencies and nontraditional depot
maintenance commands.  At the selected agencies and commands, we
interviewed officials to determine the extent of maintenance funding
received and the distribution between the public and private sectors. 
These activities included the U.S.  Transportation Command, the
Military Traffic Management Command, the Air Mobility Command, the
Military Sealift Command, the National Security Agency, the Defense
Intelligence Agency, and the National Imagery and Mapping Agency. 

We conducted our review from May to August 1997, and except where
noted, in accordance with generally accepted government auditing
standards. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to the Secretaries of Defense,
the Army, the Navy, and the Air Force; the Directors of the Defense
Logistics Agency, National Security Agency, Defense Special Weapons
Agency, National Imagery and Mapping Agency, and Defense Intelligence
Agency; and the Commander, U.  S.  Transportation Command.  Copies
will be made available to others upon request. 

Please contact me at (202) 512-8412 if you or your staff have any
questions concerning this report.  Major contributors to this report
were Julia Denman, Glenn Knoepfle, and David Epstein from the
National Security and International Affairs Division and John Brosnan
from the Office of General Counsel. 

David R.  Warren
Director, Defense Management Issues

List of Requesters

The Honorable James M.  Inhofe
The Honorable Charles S.  Robb
United States Senate

The Honorable Neil Abercrombie
The Honorable Saxby Chambliss
The Honorable Tillie K.  Fowler
The Honorable James V.  Hansen
The Honorable John N.  Hostettler
The Honorable Ernest J.  Istook
The Honorable Walter B.  Jones, Jr.
The Honorable Solomon P.  Ortiz
The Honorable Norman Sisisky
The Honorable J.  C.  Watts, Jr.
House of Representatives



(See figure in printed edition.)Appendix I

*** End of document. ***