Public-Private Competitions: DOD's Determination to Combine Depot
Workloads Is Not Adequately Supported (Letter Report, 01/20/98,
GAO/NSIAD-98-76).

Pursuant to a legislative requirement, GAO reviewed the requirements
relating to the public-private competitions for maintenance workloads at
two closing Air Force maintenance depots.

GAO noted that: (1) it may be that the individual workloads at the
closing San Antonio, Texas, and Sacramento, California, Air Force
maintenance depots cannot as logically and economically be performed
without combination by sources that are potentially qualified to submit
an offer and be awarded a contract to perform those individual
workloads; (2) however, Department of Defense (DOD) reports and
supporting data do not provide adequate information supporting the
determinations; (3) there is no analysis of the logic and economies
associated with having the workload performed individually by
potentially qualified offerors; (4) there is no support for determining
that the individual workloads cannot as logically and economically be
performed without combination by sources that would do them
individually; (5) Air Force officials stated that they were uncertain as
to how an analysis of performing the workloads on an individual basis
would be done; (6) however, Air Force studies indicate that the
information to make such an analysis is available; (7) in 1996 the Air
Force performed analyses for six depot-level workloads performed by the
Sacramento depot to identify industry capabilities and capacity; (8) as
a part of these analyses, the Air Force identified sufficient numbers of
qualified contractors interested in various segments of the Sacramento
workload to support a conclusion that it could rely on the private
sector to support these workloads; (9) the reports and available
supporting data did not adequately support DOD's determination that the
individual workloads cannot as logically and economically be performed
without combination by sources that are potentially qualified to submit
an offer and to be awarded a contract to perform those individual
workloads; (10) DOD's determination report relating to the Sacramento
Air Logistics Center states that all competitors indicated throughout
their Sacramento workload studies that consolidating workloads offered
the most logical and economical performance possibilities; (11) this
statement was based on studies performed by the offerors as part of the
competition process; (12) one offeror's study states that the present
competition format is not in the best interest of the government and
recommended that the workload be separated into two competitive
packages; and (13) GAO was unable to determine whether the other two
contractor studies support the statement in the DOD report that all
competitors favored consolidating the workloads because the Air Force
did not provide it adequate or timely access to the studies cited in the
report.

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

 REPORTNUM:  NSIAD-98-76
     TITLE:  Public-Private Competitions: DOD's Determination to Combine 
             Depot Workloads Is Not Adequately Supported
      DATE:  01/20/98
   SUBJECT:  Privatization
             Air Force procurement
             Reporting requirements
             Base closures
             Military downsizing
             Maintenance costs
             Defense economic analysis
             Aircraft maintenance
             Military cost control
             Agency reports
IDENTIFIER:  A-10 Aircraft
             KC-135 Aircraft
             
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Cover
================================================================ COVER


Report to Congressional Committees

January 1998

PUBLIC-PRIVATE COMPETITIONS -
DOD'S DETERMINATION TO COMBINE
DEPOT WORKLOADS IS NOT ADEQUATELY
SUPPORTED

GAO/NSIAD-98-76

Public-Private Depot Competition

(709318)


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

  DOD - Department of Defense

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


B-279018

January 20, 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 Ronald Dellums
Ranking Minority Member
Committee on National Security
House of Representatives

As required by the National Defense Authorization Act for Fiscal Year
1998 (1998 Defense Authorization Act),\1 this report is in response
to one of our several reporting requirements relating to the
public-private competitions for maintenance workloads at two closing
Air Force maintenance depots.  Specifically, the act provides that
certain depot-level maintenance and repair workloads now being
performed at the closing San Antonio, Texas, and Sacramento,
California, Air Force maintenance depots may be combined in a
solicitation for a single contract.  However, this can only be done
if the Secretary of Defense determines that the individual workloads
cannot as logically and economically be competed separately. 
Further, the Secretary must submit to Congress a report setting forth
the determination together with the reasons for the determination. 
Lastly, we are required to review and provide our views to Congress
on any such report not later than 30 days after it is issued. 

In accordance with the act, the Department of Defense (DOD) issued
the required determination and accompanying reports on December 19,
1997.\2 This report provides our views on the adequacy of the support
for DOD's determinations that the workloads at the two centers
"cannot as logically and economically be performed without
combination by sources that are potentially qualified to submit an
offer and to be awarded a contract to perform those individual
workloads." However, as discussed later, it was impossible for us to
fully evaluate the support for the DOD report on Sacramento because
the Air Force refused to give us adequate or timely access to
contractor studies.  These studies were cited in the DOD report as
indications that consolidating the workloads at Sacramento offered
the most logical and economic performance possibilities. 


--------------------
\1 Appendix I lists the other depot maintenance reporting
requirements contained in the act. 

\2 The Deputy Secretary of Defense delegated to the Under Secretary
of Defense (Acquisition and Technology) the authority to decide
whether individual workloads cannot as logically and economically be
performed without combination and to submit reports to Congress. 
These determinations and accompanying reports were provided to the
President of the Senate and the Speaker of the House of
Representatives. 


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

As a result of a 1995 Defense Base Realignment and Closure Commission
recommendation, Kelly Air Force Base, Texas, is to be realigned and
the San Antonio Air Logistics Center, including the Air Force
maintenance depot, is to be closed by 2001.  Additionally, McClellan
Air Force Base, California, and the Sacramento Air Logistics Center,
California, including the Air Force maintenance depot, is to be
closed by July 2001.  To mitigate the impact of the closing on the
local communities and center employees, the administration, in 1995,
announced its decision to maintain certain employment levels at these
locations.  Privatization-in-place was one of the initiatives to be
used in achieving these employment goals. 

Since that decision, there has been a continuing debate between
Congress and the administration over the process for deciding where,
and by whom, the workloads at the closing depots would be
performed.\3 Central to this debate are concerns about the excess
facility capacity that exists at the Air Force's three remaining
maintenance depots and the legislative requirement, 10 U.S.C.  2469,
that workloads exceeding $3 million in value that are being moved
from a public depot to private sector performance must be subject to
a public-private competition.\4 Based on congressional concerns
raised in 1996, the Air Force revised its privatization-in-place
plans to provide for competitions between the public and private
sectors as a means to decide where the depot maintenance workloads
will be performed.  The first competition was for the C-5 aircraft
depot maintenance workload, which the Air Force awarded to the Warner
Robins depot in Georgia on September 4, 1997.\5

During 1997, Congress continued to provide oversight of DOD's
strategy for allocating workloads currently performed at the closing
depots.  The 1998 Defense Authorization Act required that we and DOD
analyze various issues related to the competitions at the closing
depots and report to Congress concerning several areas.  The act
provides special procedures for public-private competitions for the
San Antonio and Sacramento workloads and requires that we review the
solicitations and the competitions to determine if DOD has complied
with the act and applicable law. 

Further, Congress was concerned that the workloads be offered to
competitors in the most logical and economical manner.  Consequently,
the act requires that a solicitation may be issued for a single
contract for the performance of multiple depot-level maintenance or
repair workloads, only if (1) the Secretary of Defense determines in
writing that the individual workloads cannot as logically and
economically be performed without combination by sources that are
potentially qualified to submit an offer and to be awarded a contract
to perform those individual workloads, (2) the Secretary submits a
report setting forth the determination together with the reasons for
the determination, and (3) the solicitation of offers for the
contract is issued more than 60 days after the date on which the
Secretary submits the report. 


--------------------
\3 The workloads performed at these activities include such things as
the KC-135 aircraft, ground communications equipment, and hydraulics
and other commodities at the Sacramento depot and the F100, T39, and
T56 engines and fuel accessories at the San Antonio depot.  See
appendix II for a more detailed description of the workloads
performed at each activity. 

\4 We have issued several reports addressing these issues.  For more
details see related GAO products at the end of this report. 

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


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

It may be that the individual workloads at the closing San Antonio,
Texas, and Sacramento, California, Air Force maintenance depots
cannot as logically and economically be performed without combination
by sources that are potentially qualified to submit an offer and be
awarded a contract to perform those individual workloads.  However,
the DOD reports and supporting data do not provide adequate
information supporting the determinations. 

First, there is no analysis of the logic and economies associated
with having the workload performed individually by potentially
qualified offerors.  Consequently, there is no support for
determining that the individual workloads cannot as logically and
economically be performed without combination by sources that would
do them individually.  Air Force officials stated that they were
uncertain as to how an analysis of performing the workloads on an
individual basis would be done.  However, Air Force studies indicate
that the information to make such an analysis is available.  For
example, in 1996 the Air Force performed analyses for six depot-level
workloads performed by the Sacramento depot to identify industry
capabilities and capacity.  Individual analyses were accomplished for
hydraulics, software, electrical accessories, flight instruments,
A-10 aircraft, and KC-135 aircraft depot-level workloads.  As a part
of these analyses, the Air Force identified sufficient numbers of
qualified contractors interested in various segments of the
Sacramento workload to support a conclusion that it could rely on the
private sector to support these workloads. 

Second, the reports and available supporting data did not adequately
support DOD's determination "that the individual workloads cannot as
logically and economically be performed without combination by
sources that are potentially qualified to submit an offer and to be
awarded a contract to perform those individual workloads." For
example, DOD's determination report relating to the Sacramento Air
Logistics Center, McClellan Air Force Base, California, states that
all competitors indicated throughout their Sacramento workload
studies that consolidating workloads offered the most logical and
economical performance possibilities.  This statement was based on
studies performed by the offerors as part of the competition
process.\6 However, one offeror's study states that the present
competition format is not in the best interest of the government and
recommended that the workload be separated into two competitive
packages.  We were unable to determine whether the other two
contractor studies support the statement in the DOD report that all
competitors favored consolidating the workloads because the Air Force
did not provide us adequate or timely access to the studies cited in
the report. 


--------------------
\6 Prior to the planned competition, the Air Force engaged three
offerors to identify work processes at Sacramento and determine how
those processes could be performed more efficiently. 


   DOD'S REPORTS DO NOT PROVIDE
   SUFFICIENT SUPPORT FOR THE
   DETERMINATION
------------------------------------------------------------ Letter :3

DOD's reports and supporting data do not provide adequate support for
the determinations that the Sacramento and San Antonio competition
workloads cannot as logically and economically be performed without
combination by sources that are potentially qualified to submit an
offer and to be awarded a contract to perform those workloads.  While
each report presents reasons for performing the workload at a single
location, it does not provide any reasons why the individual
workloads cannot be logically and economically performed without
combination.  Further, certain key statements contained in the
reports are not well supported. 


      DOD REPORTS PRESENTED
      RATIONALE FOR PERFORMING THE
      WORKLOADS AT A SINGLE
      LOCATION
---------------------------------------------------------- Letter :3.1

On December 19, 1997, DOD submitted determinations and accompanying
reports to the President of the Senate and the Speaker of the House
of Representatives.  The reasons provided in the reports generally
discussed the potential for achieving economies at integrated
industrial facilities and the reduced risk of transitioning a
combined workload managed under a single contract.  More
specifically, the key points were: 

  -- The workloads are currently performed at integrated facilities
     with common backshop (areas where individual work processes are
     performed) resources and a shared pool of highly skilled
     workers. 

  -- With a larger workload base achieved through combining
     individual workloads, significant cost savings can be achieved
     through process improvements. 

  -- Combining workloads into one solicitation helps to establish and
     retain a stable skilled workforce by leveling out the
     unpredictable requirements inherent in the separate workloads. 

  -- Combined workloads create an incentive for the successful
     offeror to invest in capital equipment since there will be
     enhanced opportunities for a more significant return on
     investment. 

  -- A single solicitation reduces the risks that would be associated
     with multiple transitions. 


      REPORTS AND AVAILABLE
      SUPPORTING DATA DO NOT
      ADDRESS SOLICITING THE WORK
      IN INDIVIDUAL SEGMENTS
---------------------------------------------------------- Letter :3.2

A review of DOD's reports and supporting documentation shows that DOD
did not do any analysis to determine the logic or economics of having
the workload performed by separate offerors.  As a consequence, we
had no basis for assessing how DOD considered this issue in making
its determinations.  Air Force officials indicated they were
uncertain about how to perform this analysis.  However, our work
indicates that there is sufficient information to make an analysis of
the logic and economics of having solicitations for individual
workloads. 


      REPORTS DO NOT ANALYZE LOGIC
      AND ECONOMICS OF INDIVIDUAL
      SOLICITATIONS
---------------------------------------------------------- Letter :3.3

DOD's reports identified workload segments, but did not comment as to
whether these segments were a logical or economical way to segment
the workload for purposes of individual solicitations to be
considered in the DOD determinations.  Further, the reports did not
analyze the logic or economies that may or may not be associated with
the breakout of these or any other specific segments of work at
either Sacramento or San Antonio depot.  The DOD reports identified
the following work segments at the two closing depots: 

  -- KC-135 aircraft, A-10 aircraft, hydraulics,
     instruments/electronics, electrical accessories, and backshop
     support services at Sacramento, and

  -- F100 turbine engine (noncore work), TF39 turbine engine, T56
     turbine engine, fuel accessories, engine electronics, TF39
     two-level maintenance, and T56 two-level maintenance at San
     Antonio.\7

A responsible air staff official stated that he believed the reports
met the requirements of the act and the approach used for presenting
the material is a matter of judgment.  The official also said that
guidance and instructions, regarding how to approach drafting the
determination and report, were provided orally to the San Antonio and
Sacramento program offices responsible for the competitions. 
Consequently, there is no written documentation regarding the process
used in preparing the reports.  Program management officials at
Sacramento said that the acquisition strategy the Air Force has
adopted was to combine the workloads to be competed into one
solicitation and that it was too late to change that approach. 
Further, they stated they did not know how to go about analyzing the
logic and economies of individual workload breakouts.  Thus, they
relied on the institutional knowledge of center officials and on
information developed by offerors who were studying the Sacramento
workload to explore business development approaches for reducing
costs.  Program management officials at San Antonio said that they
believe the only way to test whether separate workload packages would
be more or less cost-effective would be to hold a competition where
the workloads could be done either in combination or separately. 
They further stated that the strategy of combining the engine
workloads has been in place since 1995 and to change strategies now
is not practical given the time constraints. 


--------------------
\7 As we understand it, core workloads refers to those workloads that
are necessary to maintain minimum facilities, equipment, and skilled
personnel necessary to ensure a high level of technical expertise and
combat readiness repair capabilities in a military depot. 


         INFORMATION IS AVAILABLE
         TO EVALUATE LOGIC AND
         ECONOMIC ANALYSIS OF
         INDIVIDUAL SOLICITATIONS
-------------------------------------------------------- Letter :3.3.1

We recognize that the Air Force has considerable latitude to choose
the process and format for meeting the legislative reporting
requirement.  However, we believe that the reports, as presented, do
not fully address the requirement as it relates to the logic and
economic analysis of individual solicitations.  Regarding the
reports' content, our review shows that there was no discussion of
the logic and economics of individual workloads that might be
performed without combination by sources that are potentially
qualified to submit an offer and to be awarded a contract to perform
those individual workloads.  Further, as discussed in the following
paragraphs, we believe that there is sufficient information available
to make an analysis of that issue. 

Other Air Force studies show that the Air Force has analyzed
information related to the performance of individual workloads by
qualified offerors.  For example, in late 1996, the Air Force
accomplished repair base analyses for six depot-level workloads
currently performed by the Sacramento depot.  The objective of each
analysis was to identify industry capabilities and capacity to repair
and overhaul specific workloads.  Individual analyses were
accomplished for the hydraulics, software, electrical accessories,
flight instruments, A-10 aircraft, and KC-135 aircraft depot-level
workloads. 

These analyses indicate that there are substantial numbers of private
sector companies willing and able to maintain and repair the
Sacramento workloads.  For each type of workload, the analyses
identified a number of companies with the capabilities, capacities,
and interest in repairing specific commodities or selected portions
of the workload.  The analyses show that while some firms were
interested in the entire workload associated with a commodity, other
firms were primarily interested in repairing only their own
proprietary items or selected classes of items.  Some firms stated
that they could not or did not want to be responsible for an entire
commodity or for the packaged workload of all six commodities.  Most
firms also wanted to perform the work in their own facilities.  Some
constraints were noted but were expected to be overcome by, among
other ways, supplying companies with available government-furnished
equipment and test stands. 

To illustrate, 10 private sector companies were surveyed for their
capabilities and capacities to perform hydraulics maintenance.  Three
of the companies were commercial airlines.  The analyses concluded
that each airline had extensive depot repair and overhaul
capabilities, backshop support, well organized and managed repair
processes, and well developed supplier networks.  All three were
judged to have the capacity and interest in performing hydraulics
work for the Air Force, but would require military test stands.  Five
equipment manufacturers were also assessed and all expressed an
interest in performing repairs only on their own proprietary items. 
The remaining two firms (a manufacturer of automated hydraulics test
equipment and the company currently managing the recently privatized
Air Force Aerospace Guidance and Metrology Center) expressed some
interest in assuming the workload under a privatization-in-place
arrangement.  The analyses found similar results for the other five
Sacramento workloads. 

Other Air Force studies also show that analyses can be made
evaluating the logic and economies of alternative breakouts and
transfers of individual segments of work.  In recent years, the Air
Force has conducted many analyses of the cost-effectiveness of
alternative repair sources.  For example, in developing
recommendations for the 1995 base closure and realignment process,
the Air Force conducted an analysis of alternative movements of
workload among the five Air Force depots.  The Air Force evaluation,
which was considered to be a regular part of the depot workload
planning process, was designed to evaluate the feasibility and
cost-effectiveness of realigning 35 commodity or process workloads. 
As a result of this process, the Air Force proposed major workload
realignments that were projected to result in net savings of $138.7
million during a 6-year implementation period. 

While we recognize that the studies previously mentioned do not
address the specific analysis called for in the 1998 Defense
Authorization Act, we do believe they illustrate that information is
available or could be developed to specifically address the
legislative mandate.  Further, we believe various prior Air Force
workload planning studies, including the two we previously cited,
illustrate that information is available or could be developed to
specifically address the legislative mandate. 


         CONCERNS ABOUT THE
         ADEQUACY OF SUPPORT FOR
         SOME STATEMENTS IN DOD'S
         REPORTS
-------------------------------------------------------- Letter :3.3.2

Our review of DOD's Report of Determination to Combine Multiple
Depot-Level Maintenance and Repair Workloads for Sacramento and San
Antonio workloads also identified several questions about the
adequacy of support for some specific statements in the reports. 


         CONCERNS RELATED TO
         SACRAMENTO DETERMINATION
-------------------------------------------------------- Letter :3.3.3

We question the adequacy of support for the Sacramento Determination
Report in the following areas. 

  -- The report states that all competitors indicated throughout
     their separate workload studies for Sacramento that
     consolidating workloads offered the most logical and economical
     performance possibilities.  As support for this statement, the
     report referred to individual studies that had been prepared by
     the three potential offerors for the Sacramento workloads. 
     However, the objectives of these studies were not the same as
     those identified by the authorization act.\8 Further, one
     offeror's study states that the present competition format is
     not in the best interest of the government.  More specifically,
     the SM-ALC Depot Workload Competition Study Contract Extension
     Transition Report, December 15, 1997, stated that the KC-135
     workload should either be competed separately if the estimated
     quantity remains at 35 aircraft, or transferred to an existing
     public depot if the estimated quantity is reduced to 15--the
     number of aircraft currently produced at Sacramento.  This
     option also recommended that for various reasons, other segments
     of the work should also be transferred to other depots.  A
     second option recommended in this study was that the Sacramento
     workload be separated into two competitive packages--aircraft
     and commodities--with the A-10 workload being transferred within
     the Air Force rather than being included in the competition
     package.  These statements are inconsistent with the overall
     generalization presented in DOD's report.  We were unable to
     fully evaluate the support for the report because the Air Force
     did not give us adequate or timely access to the contractor
     studies. 

  -- The report states that workloads share common facilities and
     equipment in seven areas such as plating, sheet metal, and
     machining, which are used across the workloads for a variety of
     tasks.  Further, the report states that the combination of this
     workload provides the offerors with a greater opportunity to
     maintain and operate efficient combined facilities and provide
     an avenue for significant cost savings through process
     improvements.  However, workload data indicates that while
     common equipment and facilities may be shared, the workload
     performed in common facilities represents a relatively
     insignificant amount, thus raising questions about the
     likelihood of achieving significant savings.  For example, of
     the 1.8 million direct labor hours estimated for the Sacramento
     competition workload, about 114,000 hours, or 6 percent, of the
     work is done in common facilities.  Thus, while there may be
     opportunities for cost savings by sharing these facilities; the
     savings opportunities, contrary to the statement in DOD's
     report, are not significant. 

  -- The report states that a single competition for all of the
     workloads provides for a single coordinated transition of the
     common areas, which will reduce the risks associated with
     managing multiple transitions.  While we agree that there can be
     risks associated with the transition of any workload, the report
     and supporting documentation contained no evidence that this
     risk is any greater than a single transition of a larger
     workload.  Further, as a part of prior depot closures and its
     workload leveling process, the Air Force has successfully
     transitioned many individual workloads from one location to
     another. 


--------------------
\8 The strategy implemented by the Air Force for the public-private
competition for the Sacramento depot maintenance workloads is to
conduct the program in two phases:  one for the study contract(s),
and one for the maintenance contract(s).  Each phase has a separate
statement of work.  The primary objectives for the study contract are
for the offerors to (1) become familiar with the workloads available
for competition, understand current maintenance processes and
systems, and identify areas for improvement; (2) explore business
development approaches for reducing costs and /or adding value to the
maintenance acquisition; and (3) make recommendations for development
of the maintenance contract solicitation.  Three offerors--two
private contractors and one public depot were each awarded $750,000
contracts for this effort.  The studies were submitted by each
contractor and the depot in October 1997.  The study phase was
extended to expand the scope and the offerors were required to submit
final studies for the extended phase on December 15, 1997.  The DOD
report to Congress on the Sacramento determination referenced these
studies. 


         CONCERNS RELATED TO SAN
         ANTONIO DETERMINATION
-------------------------------------------------------- Letter :3.3.4

We question the adequacy of support for the San Antonio determination
report in the following areas. 

  -- We have an overall concern that there is no supporting
     documentation for the report.  In discussing this issue with San
     Antonio officials, they indicated that they did not provide any
     analytical data supporting the report.  According to them, they
     based their reasons on the professional judgment of senior
     officials at the San Antonio Air Logistics Center. 

  -- The report states that the combination of the San Antonio
     workload provides the offerors with a greater opportunity to
     maintain and operate an efficient facility and provides an
     avenue for significant cost savings through process
     improvements.  However, these same opportunities exist to
     achieve efficiencies for individual workloads performed either
     at the existing facility or in combination with the same or
     similar workloads in other existing facilities. 

  -- The report states that a single competition for all of the
     workloads provides for a single coordinated transition
     mitigating the risk of managing multiple transitions of mission
     critical engines.  As with our concern about the Sacramento
     report, we agree that there can be risks associated with the
     transition of any workload.  However, the report contained no
     evidence that this risk is any greater than a single transition
     of a larger workload.  Further, these risks have been
     successfully managed in the past. 


   CONCLUSIONS
------------------------------------------------------------ Letter :4

DOD's reports and supporting documentation do not provide adequate
support for its determinations that the individual workloads at the
Sacramento and San Antonio depots cannot as logically and
economically be performed without combination by sources that are
potentially qualified to submit an offer and to be awarded a contract
to perform those workloads. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :5

On January 15, 1998, we provided DOD a draft of this report for
comment.  DOD informed us that, given the short amount of time
available, it chose not to comment on the report at this time.  The
scope and methodology for our review are discussed in appendix III. 


---------------------------------------------------------- Letter :5.1

We are sending copies of this report to the Secretaries of Defense
and the Air Force; the Director, Office of Management and Budget; and
interested congressional committees and members.  Copies will be
available to others upon request.  If you have any questions about
this report, please contact me at (202) 512-8412.  Major contributors
to this report are listed in appendix IV. 

David R.  Warren, Director
Defense Management Issues


SUMMARY OF OUR DEPOT REPORTING
REQUIREMENTS CONTAINED IN THE
NATIONAL DEFENSE AUTHORIZATION ACT
FOR FISCAL YEAR 1998
=========================================================== Appendix I

The National Defense Authorization Act for Fiscal Year 1998 contains
several depot-related reporting requirements for our office. 

I.  Report on DOD's Compliance With 50-Percent Limitation (section
358)

The act amends 10 U.S.C.  2466(a) by increasing the amount of
depot-level maintenance and repair workload funds that the Department
of Defense (DOD) can use for contractor performance from 40 to 50
percent and revises 10 U.S.C.  2466(e) by requiring the Secretary of
Defense to submit a report to Congress identifying the percentage of
funds expended for contractor performance by February 1 of each year. 

Within 90 days of the annual DOD report's submission to Congress, we
must review the DOD report and submit our views to Congress on
whether DOD has complied with the 50-percent limitation. 

II.  Reports Concerning Public-Private Competitions for the Depot
Maintenance Workloads at the Closing San Antonio and Sacramento
Depots (section 359)

The act adds a new section 2469a to title 10 of the United States
Code, which provides for special procedures for public-private
competitions concerning the workloads of these two closing depots. 
It also requires that we report in the following areas: 

First, the Secretary of Defense is required to submit a determination
to Congress if DOD finds it necessary to bundle any of the workloads
into a single solicitation.  We must report our views on the DOD
determination within 30 days. 

Second, we are required to review all DOD solicitations for the
workloads at San Antonio and Sacramento, and to report to Congress
within 45 days of the solicitations' issuance regarding whether the
solicitations provide "substantially equal" opportunity to compete
without regard to performance location and are otherwise in
compliance with applicable laws and regulations. 

Third, we must review all DOD awards for the workloads at the two
closing Air Logistics Centers and report to Congress within 45 days
of the contract awards on whether the procedures used complied with
applicable laws and regulations, provided a "substantially equal"
opportunity to compete without regard to performance location,
determine if "appropriate consideration was given to factors other
than cost" in the selection, and ascertain whether the selection
resulted in the lowest total cost to DOD for performance of the
workload. 

Fourth, within 60 days of its enactment, the 1998 Defense
Authorization Act requires us to review the C-5 aircraft workload
competition and subsequent award to the Warner Robins Air Logistics
Center and report to Congress on whether the procedures used provided
an equal opportunity for offerors to compete without regard to
performance location, were in compliance with applicable law and the
Federal Acquisition Regulation, and whether the award results in the
lowest total cost to DOD. 

III.  Report on Navy's Practice of Using Temporary Duty Assignments
for Ship Maintenance and Repair (section 366)

The act requires us to report by May 1, 1998, on the Navy's use of
temporary duty workers to perform ship maintenance and repair at
homeports not having shipyards. 


OVERVIEW OF SAN ANTONIO AND
SACRAMENTO DEPOT MAINTENANCE
WORKLOADS
========================================================== Appendix II

SACRAMENTO

At the time it was identified for closure during the 1995 base
realignment and closure process, the Air Force's Sacramento depot had
responsibility for repair of four aircraft and four commodity groups. 
The depot also had a significant body of manufacturing or repair work
it performed in small quantities for various non-Air Force customers. 
Additionally, it had a microelectronics facility that performed
reverse engineering on parts to provide technical data to support
parts manufacturing or developing repair procedures. 

Two of the four aircraft repaired at the Sacramento depot will not be
included in the competition package.  F-15 repair is being
consolidated at the Warner Robins depot, which is the F-15 center of
excellence and already performs most of the F-15 work.  The EF-111
repair requirement is expected to end, as that aircraft is phased out
of operations.  KC-135 and A-10 aircraft requirements are expected to
be included in the Sacramento competition package.  The KC-135
aircraft is currently repaired at the Oklahoma City depot and at a
contractor facility in Birmingham, Alabama.  Table II.1 provides
production hours for 1995, 1996, and 1997 for the KC-135 and A-10
aircraft.  The KC-135 workload may be increased in the competition
package.  The future A-10 requirement is expected to decrease and to
be erratic as that aircraft is phased out of the inventory. 



                               Table II.1
                
                   Sacramento Depot Aircraft Workload
                   Breakout for Fiscal Years 1995-97

                (Direct production actual hours based on
                            customer orders)

                                    1995           1996           1997
-------------------------  -------------  -------------  -------------
KC-135                           823,755      1,045,027        696,760
A-10                              77,090        102,819         87,939
======================================================================
Total                            900,845      1,147,846        784,699
----------------------------------------------------------------------
As recommended by the 1995 Base Realignment and Closure Commission,
the Sacramento depot's largest commodity grouping--ground
communications and electronics, which has a projected workload of
about 825,000 hours--is being transitioned to the Tobyhanna Army
Depot between 1998 and 2001.  The Sacramento depot's software
maintenance workload has been declining significantly and the
remaining software work is expected to be transferred outside the
competition process to the Ogden depot.  The remaining commodity
groups currently repaired at Sacramento include hydraulics,
instruments and avionics, and electrical accessories. 

Table II.2 provides an overview of the actual direct labor hours
incurred between fiscal year 1995 and 1997 for the commodity
groupings currently repaired at the Sacramento depot that are
expected to be a part of the competitive package. 



                               Table II.2
                
                  Sacramento Depot Commodity Workload
                   Breakout for Fiscal Years 1995-97

                (Direct production actual hours based on
                            customer orders)

                                          1995        1996        1997
----------------------------------  ----------  ----------  ----------
Hydraulics                             449,803     479,702     436,659
Electrical Accessories                 377,765     350,979     291,449
Instruments & Avionics                 325,626     289,300     312,226
======================================================================
Total                                1,153,194   1,119,981   1,040,334
----------------------------------------------------------------------
The Air Force made a core assessment of the Sacramento competition
workloads, including a repair base analysis of the private sector.\1
Through this process, which was approved by the Defense Depot
Maintenance Council, none of the Sacramento workload was determined
to be a core workload. 

SAN ANTONIO

At the time of closure, the San Antonio depot consisted largely of
modification and repair of aircraft, turbine engines, and support
equipment, along with a smaller amount of nuclear ordnance work and
engine software.  The source of repair for the C-5 aircraft was
determined through a separate public-private competition.  That
workload was won by the Warner Robins military depot, which assumed
responsibility for the
C-5 workload in November 1997, with work-in-process continuing at San
Antonio until the summer of 1998.  The Warner Robins depot inducted
its first C-5 aircraft in January 1998.  The nuclear ordnance
commodity management workload is being transferred outside the
competition to Ogden, Oklahoma City, and Kirkland, with the bulk of
the work going to Ogden. 

Table II.3 shows a breakout of the San Antonio engine workload based
on direct production actual hours for fiscal years 1995 through 1997. 



                               Table II.3
                
                   San Antonio Depot Engine Workload
                   Breakout for Fiscal Years 1995-97

                    (Direct production actual hours)

                                    1995           1996           1997
-------------------------  -------------  -------------  -------------
F100                           1,693,031      1,688,945      1,414,954
T56                              627,199        917,017        981,068
TF39                             462,704        676,837        654,632
======================================================================
Total                          2,782,934      3,282,799      3,050,654
----------------------------------------------------------------------
For various reasons, the engine competition will not include all of
the engine workload currently performed at the San Antonio depot. 
For example, core workload will be moved outside the competition
process to the Oklahoma City depot.  Further, as previously noted,
statutory limits on the percentage of depot maintenance work that can
be performed by the private sector may result in some of the engine
workloads that might otherwise be included in the competition being
transitioned to the Oklahoma City depot outside the competition
process. 

The Air Force made a core assessment of the Air Force engine
workloads at the San Antonio and Oklahoma depots.  As a result of
this process, which included a repair base analysis, the Air Force
determined that capability to repair about 24 percent of the annual
F100 engine module workloads and 50 percent of the workload required
to maintain capability to repair and check out whole engines--or
about nine whole engines--should be retained in a military depot. 
Accordingly, the Air Force is planning to transition the F100 core
workload to the Oklahoma City depot outside the engine competition. 

With regard to the San Antonio non-core engine workload, the engine
competition package is expected to include non-core F100 engine
repair and checkout, which is expected to be about 9 whole engines
per year; the remaining F100 modules (or about 76 percent of the
workload currently repaired in-house at the San Antonio depot); F100
exchangeable spares workload, which consists of components below the
module level; TF39 two-level maintenance; and Air Force and Navy T-56
maintenance.  The Air Force also plans to transition several other
San Antonio workloads that the Air Force determined to be non-core,
including gas turbine engines, independent of the competition.  A key
factor in how much of the non-core engine work will be included in
the competition package is the statutory requirement that at least 50
percent of the funds made available for the Air Force's depot
maintenance work is expended for performance by DOD employees as
required by 10 U.S.C.  2466.  According to Air Force officials, they
plan to include the F100, T56, and TF39 engines in the competition
package.  It is unknown how the Air Force will adjust the competition
package to accommodate any limitations resulting from the 50/50
requirement.  For example, the competition package may or may not
include fuel accessories for these engines.  The fuel accessories
workload involves fuel system components such as filters, valves,
pumps, manifolds, fuel/oil coolers, fuel controls, bleed cylinders,
actuators, temperature sensors, spray rings, pressure switches, and
refueling receptacles.  The fiscal year 1996 fuel accessories
workload was 464,000 manhours and is projected to decline to 277,000
manhours in fiscal year 2001. 

AIR FORCE MANAGEMENT STRUCTURE FOR
THE SACRAMENTO AND SAN ANTONIO
COMPETITIONS

The Air Force is expected to use a similar management structure to
administer and manage the Sacramento and San Antonio competitions as
it used for the C-5 competition.  That would include a program office
and evaluation team at each center, as well as an advisory council
and source selection official at Air Force Headquarters.  The program
office has general responsibility for preparing and managing the
request for proposals.  The evaluation team reports its assessments
to the council made up of representatives from the Office of the
Secretary of Defense, Air Force Headquarters, and Air Force Materiel
Command staff.  The team reviews the assessment and advises the
source selection official. 


--------------------
\1 As we understand it, core capabilities consist of the minimum
facilities, equipment, and skilled personnel necessary to ensure a
high level of technical expertise and combat readiness by maintaining
weapon systems, or components in a military depot.  The objective of
the repair base analysis was to identify industry capabilities and
capacity to repair and overhaul specific workloads. 


SCOPE AND METHODOLOGY
========================================================= Appendix III

The scope of our work included a review of the reports provided by
the DOD to Congress pursuant to section 2469a(e) added to title 10 of
the United States Code by section 359(a) of the National Defense
Authorization Act for fiscal year 1998, and other information
relevant to the preparation of these reports. 

Our methodology for an analysis of DOD's reports included a review of
(1) information contained in the reports; (2) documentation and other
data supporting the reports; (3) discussions with Air Force officials
responsible for preparing the reports and managing depot maintenance
workloads; (4) discussions with contractor officials who are planning
to participate in the competitions for workloads currently performed
at the Sacramento and San Antonio depots; (5) a review of related Air
Force studies, reports, and data; (6) our prior work regarding
related depot maintenance issues; and (7) a review of applicable laws
and regulations. 

Beginning December 18, 1997, we repeatedly requested access to
studies prepared for the Air Force under contract with Boeing
Aircraft Company and AAI.  These studies are cited in the DOD report
on Sacramento as support for the determination that the individual
workloads in Sacramento cannot as logically or economically be
competed separately.  The Air Force declined to provide adequate or
timely access to the studies.  According to the Air Force, the
companies that prepared the studies were concerned that they contain
competition sensitive and proprietary information. 

After efforts to resolve this matter informally, on January 8, we
sent a formal request for the studies to the Secretary of Defense
pursuant to
31 U.S.C.  716(b), citing our statutory right of access to the
studies.  The Air Force did not agree to let us see the studies until
January 14, 1998, and the Air Force limited our review to reading the
documents in Air Force offices and required that without further
permission no notes, copies or other materials could leave those
premises.  This limited opportunity to read the studies came too late
for us to adequately determine whether they supported the DOD report. 

Further, because the reports and supporting documentation did not
contain information related to individually performing the workloads
at closing depot by individual potential offerors, we were unable to
review DOD's position on that issue.  As a result using information
available, we assessed the adequacy of support of the reports'
statements and the determinations contained therein. 

We conducted this review and are reporting our findings within the
30-day period allowed by the statute.  We conducted our review
between December 17, 1997, and January 20, 1998, in accordance with
generally accepted government auditing standards. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

James Wiggins, Associate Director
Julia Denman, Assistant Director

OFFICE OF GENERAL COUNSEL

John Brosnan, Assistant General Counsel

DALLAS FIELD OFFICE

Penney Harwell, Evaluator-in-Charge
Larry Junek, Deputy Project Manager
John Strong, Site Senior
Pam Valentine, Evaluator

CHICAGO FIELD OFFICE

Bruce Fairbairn, Senior Evaluator





RELATED GAO PRODUCTS
============================================================ Chapter 0

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). 

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-112, Apr.  10, 1997). 

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

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