Public-Private Competitions: Reasonable Processes Used for Sacramento
Depot Maintenance Award (Letter Report, 05/12/99, GAO/NSIAD-99-124).

Pursuant to a legislative requirement, GAO reviewed the Air Force's
selection of a source of repair for depot maintenance work at the
closing Sacramento Air Logistics Center (ALC), focusing on whether the:
(1) Air Force's procedures for conducting the Sacramento competition
provided substantially equal opportunity for the public and private
offerors to compete for the work without regard to performance location;
(2) procedures for conducting the competition were in compliance with 10
U.S.C. 2469a and other applicable laws and regulations; (3) appropriate
consideration was given to factors other than cost; and (4) award
resulted in the lowest total cost to the Department of Defense (DOD) for
performance of the work.

GAO noted that: (1) the Air Force's competition for work at the
Sacramento ALC showed that: (a) the competition procedures provided an
equal opportunity for public and private competitors without regard to
where the work could be performed; (b) the procedures did not appear to
deviate in any material respect from applicable laws and regulations;
(c) the Air Force appropriately considered factors other than cost in
the selection; and (d) within the framework set forth for the
competition, the award resulted in the lowest total cost to DOD for
performance of the work; and (2) GAO also identified several issues that
may be useful for the Air Force to consider in future competitions.

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

 REPORTNUM:  NSIAD-99-124
     TITLE:  Public-Private Competitions: Reasonable Processes Used for
	     Sacramento Depot Maintenance Award
      DATE:  05/12/99
   SUBJECT:  Base closures
	     Military downsizing
	     Privatization
	     Cost effectiveness analysis
	     Defense economic analysis
	     Air Force procurement
	     Aircraft maintenance
	     Maintenance services contracts

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NS99124.book GAO United States General Accounting Office

Report to Congressional Committees

May 1999 PUBLIC- PRIVATE COMPETITIONS

Reasonable Processes Used for Sacramento Depot Maintenance Award

GAO/NSIAD-99-124

  GAO/NSIAD-99-124

United States General Accounting Office Washington, D. C. 20548
Lett er

Page 1 GAO/NSIAD-99-124 Public- Private Depot Competitions

GAO

National Security and International Affairs Division

B-281525. 2 Letter May 12, 1999 The Honorable John Warner Chairman
The Honorable Carl Levin Ranking Minority Member Committee on
Armed Services United States Senate

The Honorable Floyd Spence Chairman The Honorable Ike Skelton
Ranking Minority Member Committee on Armed Services House of
Representatives

This report is a redacted version of a report issued on November
23, 1998, which contained sensitive and protected information. The
report responds to one of several requirements in the National
Defense Authorization Act for Fiscal Year 1998 relating to depot
maintenance activities. 1 As required, we reviewed the Air Force's
selection of a source of repair for

depot maintenance work at the closing Sacramento Air Logistics
Center (ALC), McClellan Air Force Base, California. Specifically,
we assessed whether the (1) Air Force's procedures for conducting
the Sacramento competition provided substantially equal
opportunity for the public and private offerors to compete for the
work without regard to performance location, (2) procedures for
conducting the competition were in compliance with 10 U. S. C.
2469a and other applicable laws and regulations,

(3) appropriate consideration was given to factors other than
cost, and (4) award resulted in the lowest total cost to the
Department of Defense (DOD) for performance of the work.

Results in Brief Our review of the Air Force's competition for
work at the Sacramento ALC showed that (1) the competition
procedures provided an equal opportunity

for public and private competitors without regard to where the
work could be performed; (2) the procedures did not appear to
deviate in any material respect from applicable laws and
regulations; (3) the Air Force

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

B-281525.2 Page 2 GAO/NSIAD-99-124 Public- Private Depot
Competitions

appropriately considered factors other than cost in the selection;
and (4) within the framework set forth for the competition, the
award resulted in the lowest total cost to DOD for performance of
the work. 2 We also identified several issues that may be useful
for the Air Force to consider in future competitions. Background
As a result of a 1995 Base Realignment and Closure (BRAC) Act
decision,

the Sacramento and San Antonio ALCs, including their maintenance
depots, are to close by 2001. To mitigate the impact of the
closings on the local communities and employees, the
administration announced its intention to maintain employment
levels by privatizing the maintenance depots' workloads in place
at each location. The Air Force followed by announcing a strategy
to privatize in place five prototype depot

maintenance work packages at the two closing centers. In response
to congressional concerns regarding this strategy, the Air Force
decided to use public- private competitions to determine the most
cost- effective source of repair for the closing maintenance
depots' work. Appendix II provides a more detailed description of
the closure history for both the Sacramento and San Antonio
centers. On March 20, 1998, the Air Force issued a solicitation
for the purpose of conducting a public- private competition for
various aircraft and commodity depot maintenance workloads being
performed at the Sacramento ALC. 3 The Air Force received one
private sector proposal from Lockheed Martin Corporation, which
had AAI Aerospace Corporation

and GEC- Marconi Avionics Incorporated as major subcontractors,
and one public sector proposal from the Air Force's Ogden ALC,
which was teamed with Boeing Aerospace Corporation. After
performing technical and cost evaluations, on September 21, 1998,
the Air Force selected the Ogden ALC's proposal as the best value
to the government. Following

2 In our previous report entitled Public- Private Competitions:
Review of Sacramento Air Force Depot Solicitation (GAO/OGC-98-48,
May 4, 1998) and in a bid protest decision, Pemco Aeroplex, Inc.,
cited earlier, we concluded that the Air Force had not provided a
sufficient basis to show that the combined workloads were
necessary to meet its needs. We have not changed our view.

3 Some of Sacramento's maintenance work was to be transferred to
other DOD depots outside the competition process. For example, the
BRAC Commission required that ground communications and
electronics work be transferred to the Tobyhanna Army Depot in
Pennsylvania. The Air Force F- 15 repair work has been
consolidated with other F- 15 work at the Warner Robins ALC in
Georgia, and software work has been transferred to the Ogden ALC
in Utah.

B-281525.2 Page 3 GAO/NSIAD-99-124 Public- Private Depot
Competitions

resolution of a bid protest filed with our Office, the Air Force
proceeded to award the work to Ogden, on October 9, 1998. 4
Sacramento Air Force Depot Competition Placed No Limitation on
Performance Location

Under 10 U. S. C. 2469a( d), a competitor must be allowed to
perform at the location of its choosing and is not to be given
preferential treatment for, or be limited to, performing the work
in place or at any other single location. On the basis of our
review of the Air Force's evaluation and selection documents
related to the Sacramento competition, we found no basis to
conclude that the procedures did not provide a substantially equal
opportunity for the offerors to compete without regard to
performance

location. For example, while, in its evaluation, the Air Force
expressed concerns about the risks inherent in Ogden's plan to
transition the workloads to facilities at San Antonio, Texas, and
Ogden, Utah, these concerns were based upon legitimate performance
considerations related to the transition plan and did not reflect
a bias toward performing the work at the closing Sacramento
facility. Appendix III provides the details of our analysis.

Competition Procedures Complied With Applicable Laws and
Regulations

Overall, the Air Force's evaluation and selection of Ogden
appeared to be reasonable, fair, and consistent with the
solicitation and depot competition procedures. We found no reason
to conclude that the competition procedures used in selecting
Ogden deviated in a material way from 10 U. S. C. 2469a and other
applicable laws and regulations. (See app. III for our detailed
analysis.) In assessing the Air Force's compliance with

applicable laws and regulations relating to the competition for
Sacramento's work, we reviewed the Air Force's evaluation of the
proposals and the selection in the context of applicable laws and
regulations. This review included examining documents, reviewing

processes and procedures, and discussing the competition with Air
Force and DOD officials. 4 Pemco Aeroplex, Inc. (B-280397, Sept.
25, 1998). On June 17, 1998, Pemco Aeroplex, Inc. (Pemco), filed a
protest of the provisions of the solicitation with our Office
under 31 U. S. C. 3551- 3556. Pemco objected to the solicitation
of the workloads on a combined basis. In a decision dated
September 25, 1998, our Office sustained the protest, concluding
that the Air Force was unable to show that combining the
requirements was reasonably required to satisfy its needs and
recommending that the agency cancel the solicitation and resolicit
its requirements without bundling the workloads. On October 9,
1998, the

Air Force decided to proceed with the award to Ogden. On October
13, 1998, Pemco filed civil action no. Cv. 98- B-2584- S, in the
U. S. District Court for the Northern District of Alabama,
Southern Division, seeking a declaration that the award is void
and an injunction preventing the Air Force from moving forward
with performance.

B-281525.2 Page 4 GAO/NSIAD-99-124 Public- Private Depot
Competitions

Competition Procedures Pursuant to 10 U. S. C. 2469a and its depot
competition procedures, the Air Force issued the solicitation in
accordance with the Federal Acquisition

Regulation (FAR), part 15, which sets forth the source selection
procedures for competitively negotiated acquisitions. The
solicitation called for proposals from public and private sector
sources for some of the aircraft and commodity work currently
being performed at the closing Sacramento ALC at McClellan Air
Force Base. The solicitation also provided for award

to the public or private competitor that was responsible and whose
proposal conformed with the solicitation and represented the best
value to the government. The proposals were to be evaluated using
transition, operation, and cost criteria; a risk assessment; and
other general considerations.

Applicable Laws and Regulations

Several statutes, in particular, 10 U. S. C. 2469a, govern the
solicitation and award process for public- private competitions
for the depot workloads of the closing Sacramento and San Antonio
ALCs. Because the Air Force used

the competitive acquisition system, the standards in chapter 137
of title 10 of the United States Code and the FAR apply to the
extent they are consistent with 10 U. S. C. 2469a and the other
applicable provisions relating to the outsourcing of depot
workloads.

Consistent with these standards, the Air Force followed the
criteria announced in the solicitation, which in this case
included those required by 10 U. S. C. 2469a, and exercised its
judgment in a reasonable manner in selecting the successful
competitor. Air Force Considered Factors Other Than Cost

While the competitor selected represented the lowest evaluated
cost to the government, the Air Force considered the relative
merits of the technical and management approaches of both
proposals. For example, the Air Force considered the private
competitor's plan to recruit and maintain the existing work force
in place at the Sacramento facility was beneficial. On the other
hand, the Air Force concluded that Ogden's plans for relocating
the workloads to San Antonio and Ogden were risky. Thus, for these
and other reasons, we found no basis to conclude that factors
other than cost were not appropriately considered.

B-281525.2 Page 5 GAO/NSIAD-99-124 Public- Private Depot
Competitions

Evaluation Resulted in the Lowest Total Cost to the Government

The Air Force's award of aircraft and commodity depot maintenance
work previously performed at the Sacramento depot was made to the
Ogden ALC. The award, which was valued at $1,794,488, 861, was
made in accordance with the provisions of the solicitation and
resulted in the

lowest total cost to the government. 5 Overall, the cost
evaluation results appear reasonable. However, while not affecting
the selection, we do question some of the estimates supporting the
evaluation. However, the selection decision would not have been
affected by these questions. Questions relate to estimating costs
for (1) overhead, (2) commodity rate risk, (3) warehousing, (4)
base operating support, and (5) material surcharge.

Cost Evaluation Appears Reasonable Ogden's total evaluated cost of
$1, 794, 488,861 for the competed

Sacramento depot maintenance workloads was about 6 percent less
than Lockheed's evaluated cost of $1,902,848,080. The Ogden
proposal, after cost comparability adjustments provided for in the
solicitation and the depot maintenance cost comparability
handbook, was determined by the source selection authority to
offer the lowest total evaluated cost to the government. Both
before and after the cost comparability adjustments, the Ogden
proposal was evaluated lower than the private sector proposal.

We examined the accuracy and soundness of the data, assumptions,
and methodology supporting a number of these adjustments,
including an analysis of the various cost elements in each
proposal and the final adjustments made by the cost evaluation
team in its proposal analysis report. For our analysis, we
selected cost elements having variances of

10 percent or more between the competitors or between amounts
contained in the competitors' final proposals versus the final
evaluated cost estimated by the evaluation team. For these cost
elements, we (1) discussed with members of the evaluation team,
the methodology they used in determining the evaluated cost; (2)
reviewed the calculations and supporting documentation for the
various cost elements; (3) attempted to independently collect data
to corroborate the evaluated cost estimates,

where warranted; and (4) offered to discuss competition issues
with both the public and private sector competitors. In some
instances, our review

5 As we have previously reported, we were concerned that because
the Department bundled the aircraft and commodity workloads,
competition may have been limited. Consequently, there may have
been opportunities for increased savings had there been more
competition. Notwithstanding this, we based

our review of costs under the terms of the existing solicitation.

B-281525.2 Page 6 GAO/NSIAD-99-124 Public- Private Depot
Competitions

was limited by a lack of supporting source data. Notwithstanding
this limitation, our analysis did not disclose any material
weaknesses in the overall cost evaluation. However, as discussed
below, in several cases, we identified weaknesses in the evaluated
cost estimates. Cost Estimate Issues While the overall cost
evaluation was reasonable, we question several of

the cost estimates. In each case, these questions relate to
actions that would have decreased the evaluated cost of the public
sector's offer. Therefore, these cases had no impact on the award
decision. However, we present them as potential opportunities for
improving cost estimates for future competitions. These issues
relate primarily to refining cost estimating methodologies and
using more accurate data.

Overhead Savings The Air Force evaluation team reduced Ogden's
projection of overhead savings by 85 percent from $294.5 million
to $46.2 million. 6 The team based the reductions primarily on (1)
the Defense Contract Audit Agency's (DCAA) assessment of Ogden's
overhead savings analysis, (2) its decision to limit the number of
years overhead savings would be considered, and (3) its assessment
of Boeing Aircraft's proposed cost savings on the C- 17
maintenance program. 7 The first two adjustments were based on
conservative assumptions and likely understated the savings
between the

proposals. Also, in some cases, supporting documentation was
lacking or inconsistent approaches to estimating costs were used.
Given these issues, we did not attempt to determine a cumulative
effect of these adjustments. Directions regarding the preparation
of overhead savings were provided in the Sacramento solicitation.
It stated that the evaluation of overhead savings would emphasize
a competitor's analysis and documentation of proposed management
initiatives to ensure that the projected savings would occur
particularly those predicted for more than 24 months after

6 Ogden's projection of $294.5 million in overhead savings over
the performance period consisted primarily of savings for existing
maintenance workloads performed at the Ogden depot as a result of
the consolidation of the competition work at that facility, a
lesser amount in overhead savings on the C- 17 aircraft
maintenance program proposed by Boeing Aerospace Corporation as a
result of consolidating the KC- 135 work with the C- 17 and KC- 10
work at its new San Antonio facility, and a minor amount in
contractor engineering technical support at Sacramento that would
no longer be

needed if the KC- 135 workload was performed by Boeing, the
original equipment manufacturer. 7 The evaluation team did not
include the proposed savings in the total evaluated cost because
the evaluators concluded that they were not adequately supported
in the proposal. Air Force officials stated that they intend to
pursue this issue further with the C- 17 Program Office.

B-281525.2 Page 7 GAO/NSIAD-99-124 Public- Private Depot
Competitions

award. The solicitation evaluation criteria provided that the
proposed first- year savings, if determined to be reasonable,
would be allowed. The second- year savings, if supportable, would
also be allowed but discounted for risk. The solicitation also
stated that proposed savings for 3 years and beyond might be
allowed if clearly appropriate but would be considered under the
best- value analysis.

Ogden used a regression- based methodology to develop its estimate
of projected overhead savings that should result from
consolidating the commodity and A- 10 aircraft work with existing
work at Ogden. Ogden based its analysis on 8 years of historical
data to capture the relationship between changing workloads and
their effect on overhead rates. In its assessment, Ogden
normalized the data to reflect cost accounting changes that
occurred over the 8- year period.

After reviewing Ogden's projections, the Air Force evaluation team
concluded that the regression methodology was an adequate starting
point for projecting future overhead and general and
administrative savings. However, they expressed concern about
Ogden's application of this methodology and asked DCAA to evaluate
Ogden's overhead savings

analysis. DCAA concurred with the use of the regression
methodology but questioned the workload baseline Ogden used in
developing the savings estimate. DCAA found that in establishing
the baseline, Ogden did not include all the workload that is
expected to be transferred into the depot separate from the
competition process. 8 The evaluation team reduced Ogden's
proposed overhead savings for the commodity and A- 10 workload by
a significant amount over the 8- year performance period. The team
said they based this reduction on a more realistic projection of
Ogden's baseline due to the transition of workloads transferring
separate from the competition. We were unable to reconstruct how
this figure was derived because the Air Force did not provide
supporting documentation. After making this adjustment, the
evaluation team determined the number of years that overhead
savings would be allowed. Team members said they

had a general lack of confidence in the regression analysis, the
overhead 8 The Air Force's plan for transitioning workloads from
the closing Sacramento and San Antonio depots includes the
transfer of core workloads to remaining military depots outside
the competition process. For example, Sacramento's F- 15 aircraft
were transferred to Warner Robins and San Antonio's gas turbine
engines will be transferred to Ogden. Additionally, Ogden is
expected to receive depot maintenance work from other sources
during the performance period. About 1. 6 million hours of work is
expected to be transferred to Ogden separate from the competition
process.

B-281525.2 Page 8 GAO/NSIAD-99-124 Public- Private Depot
Competitions

rates, and the application of savings beyond the initial years of
the performance period. They said that all overhead fixed costs
associated with excess capacity would be eliminated in the long
run. Consequently, the team said that production overhead savings
would occur only on a prorated basis for the first 3 years. 9
Likewise, the team estimated general and administrative savings
for 8 years with the annual amount prorated progressively
beginning with the second year. 10 Taken together these

estimates represent the evaluation team's $46.2 million estimate
for overhead savings. The Air Force's estimate of overhead savings
is conservative and is likely understated. We question the Air
Force's assumption that overhead fixed

costs associated with excess capacity would be eliminated
beginning in the first and second year through reductions in force
or attrition. For example, a significant percentage of Ogden's
proposed production overhead cost savings were related to
nonpersonnel costs such as facilities and capital equipment, which
by their nature are long- term assets and would not likely be
eliminated in the evaluators' estimated time frame. Additionally,
the projected organizational structure in the directorates and
divisions projected to gain competition work showed that some
positions have only

one person assigned and that the costs associated with these
positions would likely remain fixed for the life of the
requirement. Therefore, it appears reasonable to assume that some
level of overhead savings relative

to these positions would be achieved during the entire performance
period. We noted an inconsistency in how the evaluation team
treated Ogden's regression analysis. On the one hand, the
evaluation team accepted the proposed overhead costs for the
competition workload that had been developed using Ogden's
regression analysis. DCAA officials expressed confidence in this
procedure and stated that it provided a reasonable estimate of
savings and is applied fairly regularly to commercial firms. On
the other hand, when assessing the overhead savings associated
with existing workload at the Ogden facility, the evaluation team
expressed a lack of confidence in the same regression analysis
and, based on these concerns, prorated projected overhead savings
associated with this 9 Using the recalculated production overhead
cost savings, the evaluation team estimated 75 percent

savings the first year, 50 percent the second, and 25 percent the
third. The evaluation team estimated no production overhead
savings for the remaining 5 years. 10 Using the recalculated
general and administrative overhead cost savings, the evaluation
team gave full credit for the first year of the performance
period. The team estimated 75 percent the second year, 50 percent
the third year, and 25 percent for each of the remaining 5 years
of the performance period.

B-281525.2 Page 9 GAO/NSIAD-99-124 Public- Private Depot
Competitions

workload. This approach also likely resulted in underestimating
overhead savings.

Commodity Rate Risk Commodity rate risk refers to the uncertainty
the evaluation team placed in Ogden's proposed overhead rates on
the commodity workloads. The evaluation team did not question
Ogden's identification of projected overhead costs for the
combined competition and noncompetition work, but it was concerned
that not enough of the total overhead had been

allocated to the competition work. Consequently, it made an
adjustment to increase Ogden's proposed overhead costs for the
competed commodity workloads. However, the team did not make a
corresponding adjustment to reduce the overhead costs for the
noncompetition work to fairly represent the total government cost.
Consequently, this resulted in a corresponding overstatement of
the noncompetition overhead costs and a corresponding
understatement of overhead savings for the noncompetition
workloads. While making this corresponding adjustment would not
have had a material effect on the selection, it would have
increased overhead

savings. Ensuring that adjustments of this nature are made
correctly is important in future competitions. Warehouse While an
upward cost adjustment to the Ogden proposal for the

warehousing function was appropriate, the method the evaluation
team used for making this adjustment could have been more
accurate. As a result of the adjustment, the team significantly
overstated costs. The Defense Logistics Agency (DLA) provides the
Air Force material storage, warehousing, and issuing and receiving
support. DLA accumulates

costs for these services and allocates them to its customers based
on standard prices that are computed annually for each type of
service. The solicitation required that competitors for the
Sacramento workloads

provide these services as a part of their proposals. The
evaluation team concluded that Ogden's offer did not represent all
the costs associated with the warehousing, storage, and receipt
and issuance services. The team estimated that DLA's full costs to
support the competed

workload at the closing Sacramento depot would be significantly
higher than Ogden's proposed costs. Air Force evaluators said that
while it is possible that Ogden could add the competed work to its
existing workload at a marginal cost, they had no basis for
estimating the incremental costs of the Ogden warehouse
operations. Therefore, they used the full costs of the Sacramento
operations.

B-281525.2 Page 10 GAO/NSIAD-99-124 Public- Private Depot
Competitions

After considering cost information and discussions with agency
officials, we estimated that not more than about half of DLA's
costs for the warehousing function are variable. Consequently, the
added warehousing costs were overstated by a significant amount.

Base Operating Support The evaluation team added a cost
comparability adjustment to capture base operating support costs
not included in Ogden's proposal. The methodology used to make
this estimate was inappropriate, and as a result, the adjustment
was overstated by almost half.

The Defense Depot Maintenance Council Cost Comparability Handbook
provides procedures and techniques to address cost comparability
when competing depot maintenance workloads between the public and
private sectors. Base operating support cost is one cost category
recognized by the handbook. According to the Air Force's
evaluation report, DCAA performed a review of base operating
support costs and recommended an adjustment. However, we found no
references to base operating support costs in DCAA's report.
Additionally, DCAA officials said that they had not recommended
any adjustments in this area.

Evaluation team members said that their adjustment was based on
McClellan Air Force Base operating support costs for 1996. They
said that they did not collect base operating support cost data
for Hill Air Force Base because there should be no difference in
the base operating support costs

at the two locations. A more appropriate approach would be to use
reported costs at the location being evaluated. Based on reported
Hill Air Force Base operating cost data for 1996, we estimated
that the comparability adjustment should have been about half of
the evaluation team's adjustment.

Material Surcharge The evaluation team disallowed Ogden's proposed
cost comparability adjustment for a material surcharge. While this
action was appropriate for this competition, one technical issue
may be important for future competitions. The team said that it
disallowed the adjustment because

Ogden did not include material in its cost proposal. The more
appropriate rationale for disallowing this adjustment was that the
cost of government furnished material was added as an adjustment
to both proposals. Therefore, there was no need for a
comparability adjustment. While this was not a factor for this
competition, it may be relevant for future competitions if a
private competitor chooses to use contractor furnished material.

B-281525.2 Page 11 GAO/NSIAD-99-124 Public- Private Depot
Competitions

Conclusions The Air Force met the requirements of applicable laws
and regulations in the competition for depot maintenance work at
the Sacramento ALC. However, the process used for estimating
overhead, commodity rate risk, warehousing, base operating
support, and material surcharge costs provides issues for the Air
Force to consider in its future competitions.

Specifically, the evaluation team could have better documented
support for certain key cost estimates, followed more appropriate
or consistent approaches for estimating costs, and used more
accurate or appropriate data.

Agency Comments and Our Evaluation

We provided a draft copy of this report to the Air Force for
comment and review for procurement sensitive information.
Responsible officials stated that they did not have sufficient
time to review and comment on the report. As agreed with the
responsible committees, to respond to the

congressionally mandated reporting date, we issued prepublication
and printed copies of this report with appropriate markings to
indicate that the report contained procurement sensitive
information that must be safeguarded. Subsequently, Air Force
officials identified specific data that they said should be
removed from the published report. We have removed the sensitive
data identified by the Air Force from this version of the report.

Scope and Methodology In conducting our work, we obtained
information from and interviewed

officials at the Air Force Headquarters, Washington, D. C.; the
Air Force Materiel Command Headquarters, Wright Patterson Air
Force Base, Ohio; the Sacramento ALC, McClellan Air Force Base,
California; and the Ogden ALC, Hill Air Force Base, Utah. We also
discussed contracting issues with DCAA officials. We offered to
discuss the Sacramento competition and

award with both the public and private sector competitors;
however, because of the pending litigation the Air Force has not
provided either competitor with a debriefing. Since the
competitors were not familiar with the specifics of the
evaluation, they could not provide us with detailed concerns
regarding the evaluation process. Particularly, when we contacted
the private- sector competitor, its representative stated that
discussions of the selection with our Office, without the benefit
of a

debriefing, would not be productive. To analyze the Air Force's
decision to award the Sacramento depot maintenance workload to the
Ogden ALC, we interviewed officials and collected relevant
documents from Headquarters, Department of the Air

B-281525.2 Page 12 GAO/NSIAD-99-124 Public- Private Depot
Competitions

Force; Headquarters, Air Force Materiel Command; Air Force source
selection team members; representatives from the two competitor;
and DCAA. To verify compliance with the Sacramento competition and
selection with applicable laws and regulations, our Office of the
General Counsel performed a legal compliance review. To determine
whether cost elements considered in the source selection
evaluation were complete and

reasonable, we discussed the selection structure with cognizant
Air Force and DOD officials, as well as the qualified competitors.
We also reviewed the Air Force evaluation team's calculating
methods for the various cost estimates for reasonableness and
compared the cost elements between competitors to identify
material drivers and to further test for reasonableness. We
discussed with the evaluation team members their rationale for
treating cost elements in the evaluation and in some cases

recalculated cost estimates. A list of our related reports is
provided at the end of this report. We performed our review
between September and November 1998 in accordance with generally
accepted government auditing standards. We are sending copies of
this report to the Honorable William S. Cohen, Secretary of
Defense; the Honorable F. W. Peters, Acting Secretary of the Air
Force; the Honorable Jacob J. Lew, Director, Office of Management
and Budget; and interested congressional committees and members.
We will also make copies available to others upon request.

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

David R. Warren, Director Defense Management Issues

Page 13 GAO/NSIAD-99-124 Public- Private Depot Competitions

Page 14 GAO/NSIAD-99-124 Public- Private Depot Competitions

Contents Letter 1 Appendix I Summary of Depot Reporting
Requirements in the National Defense

Authorization Act for Fiscal Year 1998

16 Appendix II San Antonio and Sacramento Air

Logistic Centers' Closure History

18 Appendix III Legal Review of Competition for Sacramento Air
Logistics Center Workloads

23 Appendix IV Major Contributors to This Report

47 Related GAO Products 49

Contents Page 15 GAO/NSIAD-99-124 Public- Private Depot
Competitions

Table Table III. 1: Cost Adjustments Adopted by the SSA 41

Abbreviations

ALC Air Logistics Center BRAC Base Realignment and Closure CCH
Cost Comparability Handbook DCAA Defense Contract Audit Agency DLA
Defense Logistics Agency DOD Department of Defense FAR Federal
Acquisition Regulation GFE government furnished equipment GFM
government furnished material GKDC Greater Kelly Development
Corporation RIF reduction- in- force RFP request for proposals SSA
source selection authority SSAC source selection advisory council
SSEB source selection evaluation board

Page 16 GAO/NSIAD-99-124 Public- Private Depot Competitions

Appendix I Summary of Depot Reporting Requirements in the National
Defense Authorization Act for Fiscal Year 1998 Appendi x I

The National Defense Authorization Act for Fiscal Year 1998
contained the following depot- related reporting requirements for
our Office.

I. Report on DOD's Compliance with 50- Percent Limitation (Section
358) The act amended 10 U. S. C. 2466( a) by increasing from 40 to
50 percent the amount of depot- level maintenance and repair
workload funds that the Department of Defense (DOD) can use for
contractor performance and revised 10 U. S. C. 2466( e) by
requiring the Secretary of Defense to submit to Congress by
February 1, 1998, a report identifying the percentage of funds
expended for contractor performance.

Within 90 days of DOD's annual report to Congress, we were
required to review DOD's report and inform Congress whether DOD
had complied with the 50- percent limitation. II. Reports
Concerning Public- Private Competitions for the Depot Maintenance
Workloads at the Closing San Antonio and Sacramento Air Logistics
Centers (Section 359)

The act added section 2469a to title 10 the United States Code to
provide for special procedures for public- private competitions
concerning the workloads of these two closing depots. It also
required us to issue four

reports. First, within 60 days of its enactment, the 1998 Defense
Authorization Act required us to review the C- 5 aircraft workload
competition and subsequent award and report to Congress on whether
(1) the procedures used provided an equal opportunity for offerors
to compete without regard to performance location, (2) the
procedures complied with applicable law and the Federal
Acquisition Regulation (FAR), and (3) the award resulted in the
lowest total cost to DOD.

Second, the act required the Secretary of Defense to submit a
determination to Congress if any of the workloads were bundled in
a single solicitation. We were required to report our views on the
DOD

determination within 30 days. Third, the act required us to review
all DOD solicitations for the workloads at the San Antonio and
Sacramento ALCs and report to Congress within 45 days of the
solicitations' issuance whether the solicitations provided
substantially equal opportunity to compete without regard to

Appendix I Summary of Depot Reporting Requirements in the National
Defense Authorization Act for Fiscal Year 1998

Page 17 GAO/NSIAD-99-124 Public- Private Depot Competitions

performance location and otherwise complied with applicable laws
and regulations.

Fourth, the act required us to review all DOD awards for the
workloads at the two closing ALCs and report to Congress within 45
days of the contract award whether (1) the procedures used
complied with applicable laws and regulations and provided a
substantially equal opportunity to compete without regard to
performance location, (2) appropriate consideration

was given to factors other than cost in the selection, and (3) the
selection resulted in the lowest total cost to DOD for performance
of the workloads.

This report addresses the fourth requirement for the award of the
Sacramento aircraft and commodity workloads.

Page 18 GAO/NSIAD-99-124 Public- Private Depot Competitions

Appendix II San Antonio and Sacramento Air Logistic Centers'
Closure History Appendi x I I

The 1995 Base Realignment and Closure (BRAC) Commission
recommended closing the Sacramento and San Antonio Air Logistics
Centers (ALC) and transferring their workloads to the remaining
depots or to private sector commercial activities. In making these
recommendations,

the Commission considered the effects of the closures on the local
communities, on workload transfer costs, and the potential effects
on readiness and concluded that the savings and benefits
outweighed the drawbacks. The Commission's report noted that given
the significant amount of excess depot capacity and limited DOD
resources, closure was a

necessity and would increase the use of the remaining centers and
substantially reduce DOD operating costs. The specific Commission
recommendations were as follows:

 Realign Kelly Air Force Base, including the ALC; disestablish the
defense distribution depot; consolidate the workloads to other DOD
depots or to private sector commercial activities as determined by
the Defense Depot Maintenance Council; 1 and move the required
equipment and personnel to the receiving locations.

 Close McClellan Air Force Base, including the ALC; disestablish
the defense distribution depot; move the common- use ground
communication electronics to Tobyhanna Army Depot, Pennsylvania;
retain the radiation center and make it available for dual use
and/ or research, or close as appropriate; consolidate the
remaining workloads with other DOD depots or private sector
commercial activities as determined by the Council; and move the
required equipment and any required personnel to receiving
locations. All other activities and

facilities at the base were to close. In considering the BRAC
recommendations to close the two centers, the President and the
Secretary of Defense expressed concerns about the near- term costs
and potential effects on local communities and Air Force
readiness. In response to these concerns, the President, in
forwarding the Commission's recommendations to Congress, indicated
that the ALCs' work should be privatized in place or in the local
communities. He also directed the Secretary of Defense to retain
8,700 jobs at McClellan Air

Force Base, which had been recommended for closure, and 16, 000
jobs at Kelly Air Force Base, which had been recommended for
realignment, until 2001 to further mitigate the closures' impact
on the local communities. 1 The Defense Depot Maintenance Council
is a senior- level council established to advise the Deputy Under
Secretary of Defense for Logistics on depot maintenance within
DOD.

Appendix II San Antonio and Sacramento Air Logistic Centers'
Closure History

Page 19 GAO/NSIAD-99-124 Public- Private Depot Competitions

Additionally, the size of the workforce remaining in the
Sacramento and San Antonio areas through 2004 was expected to
remain above 4,350 and 11, 000, respectively. The Air Force
initially focused on privatizing five prototype workloads

three at Sacramento (for hydraulics, electric accessories, and
software) and two at San Antonio (for C- 5 aircraft paint/ depaint
and fuel accessories). The Council approved the Air Force's plans
for the five prototype workloads on February 1, 1996. The
prototype workloads involved about 11 percent of the San Antonio
depot's maintenance

personnel and about 27 percent of the Sacramento depot's
personnel. 2 Shortly after the Council approved the prototype
program, the concept's appropriateness was questioned. Community
and industry groups expressed an interest in having larger
packages, and DOD officials were concerned about the cost of
administering a large number of smaller contracts. Implementation
of the prototype concept was put on hold in May 1996 as the Air
Force considered various options. In April 1996, we testified
that, if not effectively managed, privatizing depot maintenance
activities, including the downsizing of remaining DOD depot
infrastructure, could exacerbate existing excess capacity problems
and the inefficiencies inherent in underused depot maintenance
capacity. Privatizing workloads in place at two closing Air Force
depots would not reduce the excess capacity in the remaining
depots or the private sector and consequently

would not be a cost- effective approach to reducing depot
infrastructure. 3 Later that year, we reported that privatizing in
place, rather than closing and transferring the depot maintenance
workloads at the Sacramento and San Antonio centers, would leave
the Air Force with costly excess capacity at its remaining depots
that a workload consolidation would mitigate. 4 Our analysis
showed that transferring the depot maintenance workloads to

other depots could yield additional economy and efficiency savings
of over $200 million annually. 2 The BRAC report specified that
the Council should determine where depot maintenance workloads
from closing Air Force depots should be moved. 3 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). 4 Air Force Depot Maintenance: Privatization- in-
Place Plans Are Costly While Excess Capacity Exists (GAO/NSIAD-97-
13, Dec. 31, 1996).

Appendix II San Antonio and Sacramento Air Logistic Centers'
Closure History

Page 20 GAO/NSIAD-99-124 Public- Private Depot Competitions

We recommended that the Secretary of Defense require the Secretary
of the Air Force to take the following actions:

 Before privatizing any Sacramento or San Antonio center workload,
complete a cost analysis that considers the savings potential of
consolidating the two centers' depot maintenance workloads at
other

DOD depots, including savings that can be achieved for existing
workloads by reducing overhead rates through more efficient
capacity utilization of fixed overhead at underused military
depots that could

receive this workload.  Use competitive procedures, where
applicable, for determining the most cost- effective source of
repair for workloads at the closing Air Force

depots. In August 1996, the Air Force announced a revised strategy
for allocating the depot workloads at the Sacramento and San
Antonio centers. The strategy involved several large consolidated
work packages, essentially one at Sacramento and two at San
Antonio (one for the C- 5 aircraft and one for engines). In
December 1996, the Air Force issued procedures to conduct public-
private competitions for the workloads and to allow one of the

remaining public depots to compete with the private sector for
each of the three workload packages. The Air Force's procedures
allowed evaluation credit for public and private sector proposals
that offered overhead savings to other government workloads.

In February 1997, the Air Force issued a request for proposals for
the C- 5 aircraft depot maintenance workload. In September 1997,
the Air Force awarded the C- 5 workload to the Warner Robins Air
Logistics Center based

on the Air Force conclusion that it had the lowest total evaluated
cost. As required by the 1998 Defense Authorization Act, we
reviewed the C- 5 award, issuing our report on January 20, 1998.
We concluded that (1) the C- 5 competition procedures provided an
equal opportunity for public and private offerors to compete
without regard to where the work could be performed; (2) the
procedures did not appear to deviate in any material respect from
the applicable laws or the FAR; and (3) based on Air Force
assumptions and conditions at the time of award, the award
resulted in the

lowest total cost to the government. 5 5 Public- Private
Competitions: Processes Used for C- 5 Aircraft Award Appear
Reasonable (GAO/NSIAD-98-72, Jan. 20, 1998).

Appendix II San Antonio and Sacramento Air Logistic Centers'
Closure History

Page 21 GAO/NSIAD-99-124 Public- Private Depot Competitions

On December 19, 1997, DOD submitted to Congress a determination
and report to support bundling the engine workloads at the San
Antonio depot and a determination and report to support bundling
the commodity and aircraft workloads at the Sacramento depot. DOD
was required to submit these documents before issuing single
solicitations at each location for the combined work. In response
to 1998 Authorization Act requirements and

subsequent requests from the Senate Committee on Armed Services
and the House Committee on National Security, we issued two
reports and two testimonies providing our assessment of DOD's
determinations that it was more logical and economical to combine
the workloads being competed at the closing depots. 6 We reported
that:

 the determination and reports contained significant weaknesses in
logic, assumptions, and data;  DOD had not considered alternatives
that appeared to be logical and

potentially cost- effective;  DOD's assumption that efficiencies
from shared personnel and facilities

would be best achieved with a single solicitation for combined
workloads at each location was questionable; and  the Air Force's
conclusion from its cost analysis that the workload combination
would save $22 million to $130 million at Sacramento and

$92 million to $259 million at San Antonio was questionable
because the Air Force did not consider all cost factors, such as
the cost benefits of increased competition resulting from
solicitations for individual workloads.

On March 20, 1998, the Air Force issued a solicitation for the
combined aircraft and commodity workloads at the Sacramento depot
and on March 30, 1998, issued a solicitation for the combined
engine workloads at the San Antonio depot. We issued our required
report on the Sacramento solicitation on May 4, 1998. 7 We
concluded that the Air Force had not provided a sufficient basis
to show that soliciting the workloads on a

combined basis was necessary to satisfy its needs. Otherwise, we
found that the solicitation complied with applicable laws,
including 10 U. S. C.

6 Public- Private Competitions: DOD's Determination to Combine
Depot Workloads Is Not Adequately Supported (GAO/NSIAD-98-76, Jan.
20, 1998); Public- Private Competitions: Access to Records Is
Inhibiting Work on Congressional Mandates (GAO/T-NSIAD-98-101,
Feb. 24, 1998) and

GAO/T-NSIAD-98-111, Mar. 4, 1998); and Public- Private
Competitions: DOD's Additional Support for Combining Depot
Workloads Contains Weaknesses (GAO/NSIAD-98-143, Apr. 17, 1998). 7
Public- Private Competitions: Review of Sacramento Air Force Depot
Solicitation (GAO/OGC-98-48, May 4, 1998).

Appendix II San Antonio and Sacramento Air Logistic Centers'
Closure History

Page 22 GAO/NSIAD-99-124 Public- Private Depot Competitions

2469a. On May 14, 1998, we issued our report on the San Antonio
solicitation, similarly concluding that the Air Force had not
provided a sufficient basis to show that soliciting the workloads
on a combined basis was necessary to satisfy its needs but that
otherwise the solicitation complied with applicable laws,
including 10 U. S. C. 2469a. 8

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

Page 23 GAO/NSIAD-99-124 Public- Private Depot Competitions

Appendix III Legal Review of Competition for Sacramento Air
Logistics Center Workloads Appendi x I I I

On March 20, 1998, the Department of the Air Force, Sacramento ALC
at McClellan Air Force Base, California issued requests for
proposal (RFP) No. F04606- 98- R- 0007 for the purpose of
conducting a public- private

competition for the depot- level workloads being performed at the
closing Sacramento ALC. The Air Force received proposals from one
private sector offeror Lockheed Martin Corporation (Lockheed) and
from one public offeror the Air Force's Ogden ALC. Following
technical and cost evaluations, the Air Force selected Ogden ALC
to perform the Sacramento workloads on the basis that its proposal
represented the best value to the

government. The Ogden ALC proposal also represented the lowest
most probable total evaluated cost at $1,794,488,861 over the 9-
year requirement. 1

Section 359 of the National Defense Authorization Act for Fiscal
Year 1998, Public Law 105- 85 (1998 Authorization Act), added
section 2469a to title 10 of the United States Code, which
provided for special procedures for public- private competitions
for the workloads at the closing Sacramento and San Antonio ALCs.
Section 2469a also requires us to review the selection process for
the awards made for the workloads at the two closing ALCs and
report to Congress within 45 days of each award on whether (1) the
procedures used to conduct the competition provided a
substantially equal opportunity for offerors to compete without
regard to performance

location and complied with 10 U. S. C. 2469a and all applicable
laws and regulations, (2) appropriate consideration was given to
factors other than cost in the selection, and (3) the award
resulted in the lowest total cost to

the DOD for the performance of the workloads. 2 Our review is
based on the record of the proposal evaluation and the selection.
In addition, we spoke to Air Force officials and considered
concerns raised informally by one of the competitors. We recognize
that an offeror may file a protest with our Office pursuant to 31
U. S. C. 3551- 3556,

or with the courts, or may file an objection to the award with DOD
under 10 U. S. C. 2469a( h). If a protest is filed, factual
information, issues, and arguments raised by the interested
parties will be reviewed in the context of an adversarial process.
For that reason, the result of a protest may differ from that of
our current review. Similarly, the result of an objection filed

with DOD may differ from our review. 1 The most probable total
evaluated cost represents the offeror's proposed costs as adjusted
by cost comparability factors as well as a range of dollarized
discriminators and projected overhead savings. 2 Our analysis of
the cost of the award is contained in the body of the report.

Appendix III Legal Review of Competition for Sacramento Air
Logistics Center Workloads

Page 24 GAO/NSIAD-99-124 Public- Private Depot Competitions

Based on our review of the procedures the Air Force used to
conduct the Sacramento competition in context of the concerns that
were raised by the competitor, we found no basis to conclude that
(1) the procedures did not provide a substantially equal
opportunity for the offerors to compete

without regard to performance location, (2) appropriate
consideration was not given to factors other than cost in the
selection, and (3) the procedures used in selecting the successful
offeror deviated in any material respect from the applicable laws
and regulations. While not affecting the legal sufficiency of the
selection, we nevertheless identified several issues related to
the estimates supporting the cost evaluation. These issues are
discussed in the body of the report. In an earlier review of the
Sacramento solicitation, we concluded that the Air Force had not
provided a sufficient basis to show that soliciting the workloads
on a combined basis was necessary to satisfy its needs. We also
concluded that the solicitation was otherwise in compliance with
applicable laws, including the provisions of 10 U. S. C. 2469a,
and that it provided a substantially equal opportunity for
offerors to compete without regard to performance location. 3 On
June 17, 1998, Pemco Aeroplex, Inc. (Pemco) filed a protest of the
solicitation's provisions with our Office pursuant to 31 U. S. C.
3551- 3556.

Pemco objected to the solicitation of the workloads on a combined
basis. In a decision dated September 25, 1998, our Office
sustained the protest, concluding that the Air Force was unable to
show that combining the requirements was reasonably required to
satisfy its needs and recommending that the agency cancel the
solicitation and resolicit its requirements without combining the
workloads. 4 On October 9, the Air Force decided to proceed with
the award to Ogden ALC notwithstanding the protest recommendation.
On October 13, Pemco filed civil action no. Cv. 98- B-2584- S in
the United States District Court for the Northern District of
Alabama, Southern Division, seeking a declaration that the

award is void 3 10 U. S. C. 2469a( g) provides that we review all
solicitations issued for the workloads at the two closing ALCs and
report to Congress within 45 days of the solicitations' issuance
regarding whether the solicitations (1) are in compliance with the
provisions of section 2469a and all applicable provisions of law
and regulations and (2) provide a substantially equal opportunity
for offerors to compete without

regard to performance location. The review of the Sacramento
solicitation was the subject of our report entitled Public-
Private Competitions: Review of Sacramento Air Force Depot
Solicitation (GAO/OGC-98-48, May 4, 1998). 4 Pemco Aeroplex, Inc.,
B-280397, Sept. 25, 1998.

Appendix III Legal Review of Competition for Sacramento Air
Logistics Center Workloads

Page 25 GAO/NSIAD-99-124 Public- Private Depot Competitions

and an injunction preventing the Air Force from going forward with
performance. 5 The following describes the legal standards
applicable to the Sacramento

competition, relevant aspects of the solicitation and evaluation
procedures the Air Force used, and our analysis of those
procedures under the applicable legal standards. 6

Applicable Legal Standards

The basic authority for the Sacramento workload competition is 10
U. S. C. 2469a, which provides procedures for public- private
competitions for the workloads of the closing Sacramento and San
Antonio ALCs that are proposed to be outsourced after the November
18, 1997, enactment of the 1998 Authorization Act. Section 2469a
sets forth a number of requirements that the Air Force must
satisfy in the solicitations it issues and the source selection
process it uses, to make awards for the specified workloads.

Particularly, the solicitation and the source selection process
must (1) permit both public and private offerors to submit offers;
(2) take into account the fair market value of any land, plant, or
equipment at a closed or realigned military installation that is
proposed to be used by a private

offeror in the performance of the workload; (3) take into account
the total estimated direct and indirect costs that will be
incurred by DOD and the total estimated direct and indirect
savings (including overhead) that will be derived by DOD; (4) use
cost standards to determine the depreciation of facilities and
equipment that provide, to the maximum extent practicable,

identical treatment to public and private offerors; (5) permit any
offeror, whether public or private, to team with any other public
or private entity to perform the workload at any location or
locations of their choosing; and 5 Because of the pending
litigation, the Air Force did not provide either competitor with a
debriefing. Consequently, the competitors were not familiar with
the specifics of the evaluation and were unable to provide us with
detailed concerns regarding the evaluation process. Also, the
private- sector offeror's representative stated that discussions
of the selection with us, without the benefit of a debriefing,
would not be productive. 6 As stated earlier, in the prior reviews
of the Sacramento solicitation in our report, Public- Private

Competitions: Review of Sacramento Air Force Depot Solicitation,
and in a bid protest decision, Pemco Aeroplex, Inc., we found that
the Air Force did not provide a sufficient basis to show that the
combined workloads were necessary to meet its needs. We have not
changed our view. However, in the review of

the selection process, we will not again address the issue of the
bundled workloads in the solicitation, as our position on the
matter is clear and the subject of our review is the selection,
not the solicitation.

Appendix III Legal Review of Competition for Sacramento Air
Logistics Center Workloads

Page 26 GAO/NSIAD-99-124 Public- Private Depot Competitions

(6) ensure that no offeror may be given any preferential
consideration for, or in any way be limited to, performing the
workload in place or at any other single location. 7 In addition
to 10 U. S. C. 2469a, there are a number of other laws that are

generally applicable to the outsourcing of government- performed
depot workloads. One of the principal laws is 10 U. S. C. 2469,
which provides for the use of competitive procedures for
competitions among private and public sector entities when DOD
contemplates changing the performance of a depot workload, valued
at $3 million or more, to contractor performance. In addition,
section 8039 of the Department of Defense Appropriations Act for
Fiscal Year 1998, Public Law 105- 56, authorizes

public- private competitions for depot workloads as long as the
successful bids" are certified to "include comparable estimates of
all direct and indirect costs for both public and private bids.
Both provisions state that Office of Management and Budget
Circular A- 76 is not to apply to the competitions. Other than the
reference in section 8039 to the use of comparable estimates of
all costs, neither provision prescribes the elements that
constitute a competition. Further, 10 U. S. C. 2470 provides that
depot- level activities are eligible to compete for depot
workloads. 8 There are other provisions that apply, generally, to
converting DOD

functions to private- sector performance. Section 8014 of the 1998
DOD Appropriations Act requires that DOD certify its in- house
estimate to congressional committees before converting any
activity performed by 7 In addition, 10 U. S. C. 2469a( e)
provides that DOD may issue a solicitation for multiple workloads
under 10 U. S. C. 2469a only if DOD first determines that
individual workloads cannot as logically and economically be
performed without combination by potentially qualified sources and
submits a report to Congress setting forth the reasons for the
determination. The provision also requires us to review and
provide our views on the DOD report. DOD decided to issue RFPs,
including the one here, containing combined workloads and
submitted the required determinations and reports on

December 19, 1997. We reported on January 20, 1998, that the DOD
reports did not support the determinations. See Public- Private
Competitions: DOD's Determination to Combine Depot Workloads Is
Not Adequately Supported (GAO/NSIAD-98-76, Jan. 20, 1998). Under
10 U. S. C. 2469a( e), DOD must wait 60 days from the submission
of its report to issue an RFP containing combined workloads. There
is no other restriction in subsection (e). The Air Force issued
the Sacramento solicitation containing multiple workloads on March
20. After our January report, the Air Force provided additional
supporting rationale for the combined workloads. We reported that
the additional rationale was not well- supported. See Public-
Private Competitions: DOD's Additional Support for Combining
Workloads Contains Weaknesses (GAO/NSIAD-98-143, Apr. 17, 1998). 8
We see nothing in the other applicable provisions governing the
outsourcing of depot workloads that is inconsistent with 10 U. S.
C. 2469a. In fact, the use of comparable cost estimates and the
participation of

DOD depot- level activities are provided for in 10 U. S. C. 2469a.
Consequently, consistent with the rule of statutory construction
that statutes be construed harmoniously to give effect to all
provisions whenever possible, all of the above- cited provisions
are effective and applicable to the Sacramento competition. See
Posadas v. National City Bank, 296 U. S. 503- 504 (1936); 53 Comp.
Gen. 853 (1974).

Appendix III Legal Review of Competition for Sacramento Air
Logistics Center Workloads

Page 27 GAO/NSIAD-99-124 Public- Private Depot Competitions

more than 10 civilian employees to contractor performance; the
provisions of 10 U. S. C. 2461 require that whenever a DOD-
performed function, such as the workloads involved in this
competition, is converted to performance by

a contractor, DOD must provide to Congress a cost comparison that
shows that a savings will result. Under 10 U. S. C. 2462, DOD is
generally required to contract with the private sector if a source
can provide the supply or service at a lower cost than DOD can and
to ensure that all costs considered are realistic and fair. 9 The
Air Force implements these outsourcing authorities through the Air
Force Materiel Command's Procedures for Depot Level Public-
Private Competition, December 20, 1996 (Depot Competition
Procedures). The procedures are supplemented by the Defense Depot
Maintenance Council Cost Comparability Handbook (CCH), including
the January 28, 1998,

revision, the Air Force Materiel Command Guide to the Cost
Comparability Handbook and the SAF/ AQ Public- Private Competition
Cost Procedures of February 21, 1998. The procedures provide for
issuing a solicitation calling for offers from public and private
sector sources and establish the criteria, including those listed
in 10 U. S. C. 2469a, for deciding how the Air Force will select a
source from either sector to perform depot workloads. According to
these procedures, a competitive solicitation is to be issued in
accordance with the applicable provisions of the FAR, which set
forth uniform policies and procedures for the competitive
acquisition

system that all executive agencies use and implements the
provisions of chapter 137 of title 10 of the United States Code,
which govern DOD acquisitions.

This use of the competitive acquisition system subjects a depot
workload competition to the applicable provisions of chapter 137
and the FAR to the extent that they do not conflict with the
public- private competition statutes cited previously. (Newport
News Shipbuilding and Dry Dock Company,

B-221888, July 2, 1986, 86- 2 CPD 23.) Further, aspects of a
competition that fall outside the competitive acquisition system's
parameters as defined by chapter 137 and the FAR, such as the
comparison of public and private offers for the workloads from the
two closing ALCs, are governed by 10 U. S. C. 2469a and the other
statutes applicable to public- private depot competitions as
implemented by the Air Force. 9 Again, these provisions do not
conflict with the six 10 U. S. C. 2469a competition requirements
listed

previously and are also applicable to the Sacramento competition.
See Posadas v. City Bank, cited above.

Appendix III Legal Review of Competition for Sacramento Air
Logistics Center Workloads

Page 28 GAO/NSIAD-99-124 Public- Private Depot Competitions

In general, the standards in chapter 137 and the FAR (1) require
that a solicitation clearly and unambiguously state what is
required so that all offerors can compete on an equal basis and
(2) allow restrictive provisions to be included only to the extent
necessary to satisfy an agency's needs. Under these standards, an
agency must follow the criteria announced in the

solicitation, which in this case include those required by 10 U.
S. C. 2469a, and exercise its judgment in a reasonable manner in
determining which of the competing offers is to be selected.
(Dimensions International/ QSOFT,

Inc. , B-270966.2, May 28, 1996, 96- 1 CPD 257.) Solicitation The
RFP for the Sacramento workloads provides for the award of several

line items representing various performance phases for each of the
different workloads to be competed. For example, line item no.
0001, among other things, calls for offers on a cost- plus- award
fee basis 10 for the

transition period for the KC- 135 aircraft, the A- 10 aircraft,
and commodities, including hydraulics, instruments/ electronics,
electrical accessories, and nonrouted backshop/ manufacturing.
Other line items

provide for firm- fixed priced offers for the performance of these
various workloads, including over and above work, 11 once the
transition is completed, and for other miscellaneous work
requirements. The RFP also provides for a transition period, which
is to begin at the award and to end by September 30, 1999, a 5-
year basic performance period, and up to 3 additional years based
upon the performance of the awardee. The line items representing
the work for the KC- 135 aircraft and the A- 10 aircraft during
the basic performance period are to be awarded on a multi- year

basis, with guaranteed minimum quantities, while the other
workloads are to be awarded on a requirements- type basis, with no
minimum quantity guaranteed. 12

10 Public sector offers are to be on a cost reimbursement basis.
Public offerors will not be paid an award fee. 11 Over and above
work consists of work items that are not included in the basic
work requirements but are within the scope of the award and may be
ordered on the basis of a fixed hourly rate.

12 The requirements type line items provide that the Air Force
will order all the work specified under a particular line item
that it needs during the performance period. The estimated
quantities stated in the solicitation are for information only;
they do not constitute an order obligation. See FAR 16. 503. On
the other hand, under the multiyear line items, the Air Force is
obligated to order the minimum quantity or

be subject to cancellation charges that represent costs incurred
that would have been amortized over the multiyear period plus a
reasonable profit. See 10 U. S. C. 2306( g) and FAR part 17.

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According to the solicitation, the competition is to be conducted
in accordance with FAR 15. 101, which sets forth the source
selection processes and techniques to be used in competitive
negotiated acquisitions, as well as the applicable Air Force and
Air Force Materiel Command supplements. Further, the solicitation
provides that the Depot Competition Procedures, the CCH, and their
updates are to govern the

selection. The solicitation states that the award will be made to
the offeror either public or private who is deemed responsible in
accordance with the FAR, 13 whose proposal conforms with the
solicitation and is judged to represent the best value to the
government. According to the RFP, the Source Selection Authority
(SSA) will integrate the source selection team's assessments of
the proposals under the evaluation criteria listed in the

solicitation to arrive at a best value selection. The evaluation
criteria consist of criteria for transition, operations, cost, and
assessment. Transition is made up of the integrated master plan,
personnel plan, and integrated master schedule. The operations
criteria consist of five factors representing the major workloads:
(1) KC- 135

aircraft, (2) hydraulics, (3) instruments/ electronics, (4)
electrical accessories, and (5) A- 10 aircraft. The assessment
criteria, which will be used for measuring the extent to which a
proposal meets the transition,

operations, and cost criteria, are made up of two parts: (1)
understanding of/ compliance with the solicitation requirements
and (2) soundness of approach.

Under the cost criteria, proposals will first be assessed for
completeness, realism, and reasonableness. 14 Then each offeror's
total proposed cost is to be determined by calculating the various
cost estimates, unit prices, and

hourly rates proposed for the different line items. Next, the
offerors' total alternative cost is to be developed by factoring
in the numerous adjustments to public and private offerors' total
proposed cost in accordance with the CCH and the RFP. Finally, the
offerors' total evaluated

13 According to FAR subpart 9. 1, a responsible prospective
contractor is one that meets the standards in FAR 9- 104, which
include having adequate financial resources or the ability to
obtain them; the ability to comply with the performance schedule;
a satisfactory performance record; and the necessary facilities
and equipment or the ability to obtain them.

14 Under FAR 15.404- 1( d), a cost realism analysis is the process
of reviewing and evaluating specific elements of an offeror's cost
estimate to determine whether the proposed elements are realistic
for the work to be performed. According to FAR 15. 404- 1,
reasonableness is to be assessed through an analysis of either
cost elements or overall price.

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cost is to be determined by adjusting the total alternative cost
to reflect the dollarized impact of significant discriminators, to
the extent that a dollar value can be assigned to such
discriminators, based on identified proposal strengths, weaknesses
and risks. 15

Further, the RFP provides for the evaluation of general
considerations such as the results of preaward surveys, site
visits, and fair market value. In addition, the proposals are to
be the subject of two risk assessments: proposal and performance.
A proposal risk assessment is to measure the risk that is
associated with an offeror's proposed approach to accomplishing
the solicitation requirements relating to each of the three
transition area factors and each of the five operations area
factors. A performance risk assessment is to assess, based on an
offeror's present and past performance, the probability of the
offeror successfully accomplishing the proposed effort.

Finally, the solicitation provides that in the SSA's best value
assessment, the criteria for transition and operations areas, and
cost criteria are to be equally important, while the general
considerations are to be considered substantially less important
than Cost, Transition, or Operations. According to the RFP, this
assessment is also to include as appropriate items listed in the
solicitation as Other Considerations. This category essentially
reiterates five of the six requirements for the competition listed
in the 1998 Authorization Act. 16 The proposals were first
evaluated by specialized teams, which reported to

a source selection evaluation board (SSEB), which in turn,
reported its conclusions to a source selection advisory council
(SSAC). The SSAC then advised the SSA, who made the final
selection decision on the merits of the proposals.

15 Dollarized impact, as we understand it, is the assignment of an
estimated dollar value to the assessment of the benefit or
detriment to the Air Force that would result from aspects of an
offeror's proposal in calculating the offeror's total evaluated
cost. 16 The one requirement not listed in section M- 903 of the
RFP is the one that the cost standards used to determine the
depreciation of facilities and equipment provide, to the maximum
extent practicable, identical treatment to public and private
offerors. This requirement is addressed in the RFP at paragraph
6.1.5.6 of section L and paragraph 1.2b( 6) of section M- 901.

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Evaluation of Proposals

Two offerors submitted proposals in response to the solicitation.
Ogden ALC, the public depot chosen by the Air Force to submit the
public sector offer, proposed (1) to perform the commodities work
and the A- 10 aircraft work at its facilities in Utah and (2) to
have the KC- 135 aircraft work performed by the Boeing Aerospace
Corporation (Boeing) at the Boeing

Aerospace Support Center located at the closing San Antonio ALC at
Kelly Air Force Base. Boeing, a partner to Ogden in the public
sector offer, proposes to use the San Antonio facilities that have
been transferred by the Air Force to the Greater Kelly Development
Corp. (GKDC) and leased by

GKDC to Boeing. The private sector offeror, Lockheed, proposed to
perform all of the work at the closing Sacramento ALC at McClellan
Air Force Base, where the workloads are currently being performed
by government employees. The Sacramento ALC facilities are to be
transferred by the Air Force to Sacramento County. Under the
Lockheed proposal, the facilities would be leased by the county to
Lockheed.

Lockheed's major subcontractors are AAI Aerospace Corporation
(AAI) for the hydraulics workload and GEC- Marconi Avionics
Incorporated (GEC- Marconi) for the instruments/ electronics and
the electrical accessories.

The proposals were initially evaluated to determine whether they
were to be included in the competitive range in accordance with
FAR 15. 306( c) and considered for award. 17 On June 23, 1998, the
Air Force determined both proposals to be within the competitive
range. Accordingly, discussions were held with the offerors
consisting of written

evaluation notices raising concerns about each of the proposals
and face- to- face and telephone exchanges about the concerns. As
a result, each offeror submitted proposal revisions. The Air Force
requested final proposal revisions on August 26, which were the
subject of the Air Force's final cost adjustments and evaluation.
Based on the results of the

evaluations and cost adjustments, the advice of the SSAC, and the
SSA's own analysis in the context of the RFP evaluation criteria,
the SSA decided that the Ogden ALC proposal met all of the RFP
requirements and represented the best value to the government over
the life of the requirement. The SSA's conclusion was based upon
Ogden ALC's slight advantage in the operations area and its lower
most probable total

17 FAR 15.306( c) provides that the contracting officer shall
determine which proposals are in the competitive range for the
purpose of conducting discussions.

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evaluated cost of performance. Consequently, the SSA selected
Ogden ALC to perform the Sacramento workloads.

Technical Evaluation As noted previously, the solicitation
evaluation criteria provided that the offerors' management
approaches were to be evaluated in the transition

and operations areas. Under transition, three factors were to be
evaluated: (1) integrated master plan, (2) personnel plan, and (3)
integrated master schedule. Operations included five factors: (1)
KC- 135 aircraft,

(2) hydraulics, (3) instruments/ electronics, (4) electrical
accessories, and (5) A- 10 aircraft. Under each of the factors,
the proposal risk was assessed.

Transition The first factor under transition, integrated
management plan, was to assess the management, transition
activities, and logistics plans and activities of the offerors.
Under this factor, the SSA noted that both offerors had been
assigned a green, or acceptable, rating, with low risk by the
SSAC. The SSA stated that Lockheed's approach, which was to
perform all of the work at the Sacramento ALC facilities, had less
potential for

disruption to the ongoing operations than the Ogden ALC plan,
which involved the transition of the KC- 135 aircraft work to the
Boeing facility at the San Antonio ALC. The A- 10 aircraft and the
commodities work was to be done at the Ogden ALC facilities in
Utah. While recognizing that the Ogden ALC approach was sound and
would minimize disruption to workload production, the SSA
nevertheless concluded that the Lockheed plan, which would
maintain the existing, experienced government workforce in place
at Sacramento was a benefit. Since the SSA concluded that neither
offeror had significant strengths or weaknesses under this factor,
she did not propose to make a dollarization adjustment.

Under the personnel plan factor, an offeror was to provide a plan
that detailed the staffing necessary to perform the workloads and
a plan to acquire, train, and maintain the staff. The SSA
concurred with the SSAC's green rating for both proposals and the
assignment of a low risk rating to the Lockheed proposal and a
moderate risk rating to the Ogden ALC proposal. The SSA noted that
Lockheed would use the trained and experienced workforce at the
Sacramento ALC. The SSA believed that there was risk that some of
the current workforce would not wish to leave

government service but concluded that a significant portion would
want to continue working at the Sacramento location. On the other
hand, the SSA had concerns about the Ogden ALC's ability to hire
328 people from the Sacramento workforce to work on the
commodities at Ogden. In this

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regard, the SSA noted that Boeing intended to hire its workforce
for the KC- 135 aircraft from San Antonio, Texas, and Wichita,
Kansas, where it currently maintains a facility. The SSA found
real differences between

the proposals under this factor, concluding that the weakness in
the Ogden ALC proposal regarding the availability of the
experienced workforce resulted in a moderate risk rating.
Consequently, the SSA concluded that the risk should be offset by
an upward dollarization cost adjustment 18 in the determination of
Ogden ALC's most probable total evaluated cost.

Under the integrated master schedule factor, an offeror was to
submit a comprehensive transition time line based on the
integrated master plan that identified all tasks and major event
milestones required to transition all of the workloads. Both
offerors were given green, or acceptable, ratings with a low risk
by the SSAC. The SSA had a concern with the Ogden ALC approach,
which would transfer the workload to two locations: Ogden, Utah,
for the commodities and the A- 10 aircraft and San Antonio, Texas,
for the KC- 135 aircraft, which would involve completely a new
workforce for the KC- 135. This concern did not raise to the level
of a weakness because the SSA had confidence in Ogden ALC's risk
mitigation strategy of using

intense integrated product team oversight. Overall, the SSA
considered both offerors to be equal under this factor and saw no
need for a dollarization adjustment.

Operations Under the KC- 135 factor, an offeror must submit a
contractor work specification that will become the contract
statement of work, define all of the work requirements, and
identify work flow and processes to reflect the offeror's specific
approach to accomplishing the work. Other information to be
provided includes (1) a work activity flow plan for one complete
aircraft to show the sequence of movement through the required
processes

and (2) waterfall plans, which are to describe the work flow
activity using the number of aircraft represented by the best
estimated quantity and, in the alternative, the maximum order
quantity. In addition, any process improvements to current
practices of performing the work are to be explained under this
factor. 19 18 As discussed later, the cost evaluators developed
proposed dollarization cost adjustment figures under the
appropriate factors, which were provided to the SSA. 19 The
submission of similar information was required under each of the
operations factors; however, waterfall plans only were required
for the aircraft workloads.

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For the KC- 135 aircraft, the SSAC rated both proposals as blue
(exceptional) and assigned Ogden ALC a low risk rating and
Lockheed a low/ moderate rating. In adopting the ratings, the SSA
noted that both proposals contained strengths concerning the
reduction of the flowdays needed for the programmed aircraft depot
maintenance. She nevertheless

concluded that the Ogden ALC proposal was the strongest under this
factor. 20 According to the SSA, this advantage was grounded in
Ogden ALC's proposal to exceed the RFP flowday requirement of 175
days by contractually committing to a reduction to 150 days by
fiscal year 2002 and to 140 days by fiscal year 2003. In addition,
the SSA was impressed by Ogden ALC's proposal to use in- line
jacking to accomplish over and above structural work concurrently
with the planned programmed work and its

plan to use a continuous fluid sampling analysis to ensure early
recognition of defects. The SSA, however, did note a weakness in
Ogden ALC's approach concerning its plan to use fewer labor hours
than considered

readily achievable by the evaluation team. The SSA concluded that
this risk could be mitigated by normal monitoring and was not
significant enough for a moderate risk rating. The SSA recognized
that Lockheed also had proposed to reduce the required flowdays
(to 165 in fiscal year 2002 and to 155 by fiscal year 2004), but
Lockheed's approach, which involved using two shifts, had some
risk because Lockheed had not documented the availability of the
workforce

for the extra shift or the way the proposed productivity increases
would be achieved. Another element contributing to Lockheed's low/
moderate risk rating was the SSA's concern about the plan to use
field team employees to meet the proposed productivity increases
and flowday reductions. The SSA decided that Ogden ALC's superior
flowday reduction could not be dollarized because the KC- 135 was
not an aircraft that generated revenue for the Air Force. However,
the SSA recognized that this was a significant

benefit and concluded that Ogden ALC offered an approach to the
KC- 135 aircraft work that had greater strengths and was more
advantageous than Lockheed's approach.

Under the hydraulics factor, the SSA concurred with the SSAC's
rating of each proposal as green and low risk. The SSA concluded
both proposals were essentially equal and proposed no
dollarization.

20 Boeing was to perform this work under the Ogden ALC proposal.

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Under the factor for instruments/ electronics, the SSA agreed with
the SSAC's ratings of both proposals as green and low risk. Again,
the SSA concluded that both offerors were essentially equal and
proposed no dollarization.

Under the electrical accessories factor, the SSAC rated both
proposals as green; Lockheed was given a low risk rating, while
Odgen ALC was rated as a moderate risk. This rating was caused by
a process improvement concerning the pretesting of oil- cooled
generators and a change in the painting sequence of the repair
process. According to the SSA, the new test process could create
production bottlenecks due to test equipment

constraints with the potential of increased flowdays and the new
paint process could increase flowtime. Thus, the SSA concluded
that to offset this moderate risk, an upward dollarization
adjustment to the evaluated cost of the Ogden ALC proposal would
be added. This adjustment would reduce, in the SSA's view, the
risk rating to low. Under the A- 10 aircraft factor, the SSA
concurred with the SSAC's ratings

of both proposals as blue and low risk. The SSA concluded that
both had equal strengths and proposed no dollarization.

Risk and General Considerations

Under the performance risk analysis for the transition,
operations, and cost areas, the SSA determined that each
represented a low risk and that there was not a discriminator
among them. Further, under the general consideration category, the
SSA concluded that both offerors meet all solicitation and
responsibility requirements and had acceptable small business
plans.

The SSA agreed with the SSAC's analysis of fair market value of
the assets of the closing McClellan Air Force Base that were to be
transferred to Sacramento County and then leased to Lockheed to
perform the workloads. According to the SSA, Lockheed would lease
the facilities at a composite rate of $0. 33 per square foot a
month, the local market rate for similar industrial facilities.
Further, the SSA concluded that the Air Force would transfer the
facilities to the County at fair market value. Finally, the SSA
agreed that the SSAC's $25,038,804 adjustment to Lockheed's cost
proposal for depreciation of the government furnished equipment
(GFE)

reflected the fair market value of the equipment. The SSA also
evaluated Boeing's lease of the closing San Antonio ALC facility
in connection with its performance of the KC- 135 aircraft work

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under the Ogden ALC proposal and concluded there was no basis to
make any further adjustment (other than that already made for GFE)
to either proposal for fair market value. In this regard, the SSA
concluded that the

lease between GKDC and Boeing was an arms length transaction, not
contingent on the competition, made at a fair market price.

Cost Evaluation As noted previously, the cost evaluation consisted
of (1) an assessment of the realism and reasonableness of the cost
proposals; (2) a determination of the total alternative cost of
each proposal, calculated through adjustments required by the CCH
and RFP; and (3) a determination of the total evaluated cost of
each proposal, calculated by taking the total alternative cost and
adjusting it to reflect the dollarization of significant
discriminators among the proposals. In determining the total
evaluated

cost, the evaluators used ranges based on different estimates for
overhead savings and risk dollarization. The results for each of
these analyses conducted by the cost evaluators are summarized
below. 21

Realism and Reasonableness Evaluation

The cost team evaluators initially reviewed each offeror's cost
proposal to determine its completeness, realism, and
reasonableness. The evaluators ultimately were satisfied that each
cost proposal met these standards. In accordance with the Depot
Competition Procedures, the Defense Contract Audit Agency (DCAA)
audited the Ogden ALC cost proposal and reviewed the public
offeror's disclosure statement 22 and accounting and estimating
systems. The disclosure statement was found to be adequate and the
proposal was determined to be realistic. 23

21 The calculation of the various cost adjustments and ranges for
overhead savings and dollarization was made by the cost team and
approved by the SSAC. As discussed later, the SSA adopted the
adjustments and chose from the ranges for overhead savings and
dollarization for use in the selection. 22 The Depot Competition
Procedures require that a public offeror provide a disclosure
statement of its cost accounting practices in accordance with the
requirements of the Cost Accounting Standards Board.

23 As stated in the Air Force's February 1998 Competition Cost
Procedures, a public offeror is considered to have a funding
advantage over the private- sector offeror under the fixed price
portions of the requirement in that cost overruns may be paid for
by the government through the working capital fund. Thus, in
dollarizing the risks inherent in the Ogden ALC proposal, the
evaluators proposed an upward adjustment of $37,373, 690 to
represent the risk of cost overruns. This seems to have been in
lieu of adjustments to the Ogden ALC cost proposal during the
initial evaluation. It is different from the other dollarization
adjustments as it relates to the method of developing the cost
estimates rather

than a quantification of a technical performance risk. The body of
the report contains a further discussion of this adjustment.

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DCAA also reviewed Ogden ALC's accounting and estimating systems
and found in a report dated December 22, 1997, that the accounting
system was inadequate, in part, for assuring that all workload
costs are properly recorded and that the estimating system was
also inadequate, in part, because it relied on accounting system
data. Nevertheless, we were informed by the DCAA auditors who
performed the review that these

inadequacies did not affect the validity of the Ogden ALC cost
proposal. Determination of Total Alternative Cost

The cost evaluators determined each offeror's total alternative
cost by first calculating the offeror's customer cost-- in
essence, its proposed price for performing the requirement, and
then making upward and downward

adjustments to this figure in accordance with the RFP and the CCH.
Ogden ALC's customer cost was calculated to be $1,097,615,652.
Lockheed's customer cost was $1,256,721, 586. Using the customer
cost for each offeror as a base, the evaluators made the
comparability adjustments called for in the CCH and the RFP. Two
sets of

adjustments were made. The first set, required by form number 1 of
the CCH, 24 encompassed adjustments to the public sector offer and
the second set, required by form number 2 of the CCH, governed
adjustments applicable to the public and private sector proposals.
The CCH form number 1 adjustments made to the Ogden ALC proposal
included upward and downward changes in a number of categories. 25
The

most significant were upward adjustments for base operating
support, unfunded civilian retirement, and retiree health
benefits. The upward and downward adjustments resulted in an
adjusted cost of $1, 153, 415,260 to the proposal. The adjusted
cost was lower than Lockheed's customer cost of $1, 256,721,586.

24 Since Ogden ALC proposed to have a private firm, Boeing,
perform the KC- 135 aircraft work, the portion of the Ogden ALC
cost proposal that represented the work Boeing was to perform was
not subject to the form number 1 adjustments. The Boeing portion
was, however, subject to the form number 2 adjustments applicable
to private offerors. 25 Upward adjustments were made for state
unemployment payments, unfunded civilian retirement, depreciation
for military construction program facilities, casualty insurance,
other recurring costs consisting of impact aid, retiree health
benefits, and base operating support. A downward adjustment was
made for military nondepot costs (time military members of depot
staff spend on nondepot military duties). For each form number 1
category, the public offeror submitted a proposed adjustment in
its offer, which was subject to evaluation and adjustment by the
SSAC and the SSA.

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Some CCH form number 2 adjustments were made to both proposals.
Upward adjustments were made to both types for GFM for both the
commodities and the KC- 135 aircraft, contract administration,
reduction- inforce

(RIF) costs; costs associated with the transition of government
personnel (i. e., costs of retaining current work force at
McClellan that will be subject to a RIF and not be rehired by the
new source after the workload is transitioned pending their
separation); and costs of performing the work in process during
the transition that each offeror elected not to perform. Most of
these adjustments were similar in size for both proposals. The

largest difference was in the RIF cost adjustment, resulting in
increases to Ogden ALC's and Lockheed's costs. Examples of
downward adjustments were those made for the payment of federal
income tax on profits to the Lockheed and Ogden ALC proposals. 26
Form number 2 also provided for a downward adjustment for a public
or

private offeror that proposed and supported overhead savings to
other government work resulting from the increased work from the
competition sharing the costs of fixed assets. 27 While no such
savings were proposed by Lockheed, the evaluators determined that
a downward adjustment of between $70,357,189 and $24,665, 837
could be applied to the Ogden ALC

proposal to represent the savings applicable to other workloads at
the Ogden ALC facility during the performance period. 28

The net result of the form number 2 comparability analysis for the
Lockheed proposal was an upward adjustment of $630,058,494. The
form number 2 upward adjustments to the Ogden ALC proposal
included the high and low ranges for overhead savings. This final
cost adjustment resulted in a total alternative cost for Lockheed
of $1, 886, 780,080 and a range of between $1,694,862, 974 and
$1,740,554,326 for Ogden ALC. No single adjustment accounts for
the cost difference at 26 Since this adjustment was for private
offerors, it only was applied to the Boeing portion of the Ogden

ALC proposal. 27 The solicitation provided that an offeror's
proposed overhead savings for its workloads performed outside of
the competition would be allowed for the first year if determined
to be reasonable, while

second year savings, if supportable, would also be allowed, but
discounted for risk. The solicitation explains that proposed
savings for 3 years and beyond may be allowed if clearly
appropriate, but in any event will be considered under the best
value analysis. 28 The range set by the evaluators represented a
considerable reduction of Ogden ALC's proposed overhead savings of
$294.5 million. A detailed discussion of this adjustment is
contained in the body of

the report.

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this point, and at the highest range for Ogden ALC, its
alternative cost was more than $140, 000,000 lower than
Lockheed's.

Determination of Total Evaluated Cost

To arrive at the total evaluated cost of each proposal, the
evaluators took the total alternative cost and applied
dollarization adjustments. The initial aspect of the Ogden ALC
proposal that was considered to be

suitable for quantification was the transition risk as it related
to both the KC- 135 aircraft and the commodities. 29 The first
concern was Ogden ALC's proposal to have the workforce at the
closing Sacramento depot perform most of the work in process on
the KC- 135 aircraft before the workload was transitioned to the
Boeing facility at San Antonio. While the adjustment for this work
in form number 2 assumed normal workforce efficiency (80 percent),
the evaluators, based on the experience of previous transitions
from closing depots, concluded that it was likely that the

closing depot would experience declining efficiency. Consequently,
the evaluators calculated the impact of a lower efficiency rate
(45 percent) on the work to be completed at Sacramento. This rate
resulted in a quantification of the risk of performing the
remaining KC- 135 work at

Sacramento. Next, the evaluators added another adjustment that
represented the risk that Boeing would not achieve its proposed
90- percent efficiency rate as it began the KC- 135 aircraft work
at its new facility.

The evaluators were similarly concerned about the transition risks
in the Ogden ALC proposal for commodities workload. The evaluators
calculated the Sacramento efficiency rate for the completion of
commodities work in process to be 65 percent. 30 Further, the
evaluators reduced the efficiency rate proposed for the new
commodity work to be performed by the combined workforces at
Sacramento and Ogden. 31 The total recommendation for dollarized
transition risk for all the affected workloads (KC- 135 aircraft
and commodities) under the Ogden ALC

proposal was $20,732,000. 29 There does not appear to have been
dollarization calculations for transition risk associated with the
A- 10 aircraft for either offeror. 30 The evaluators assumed that
since the commodities transition would be to another public depot
the efficiency would not decline as drastically as was the
assumption for the KC- 135 aircraft work. 31 As we understand it,
during the transition Ogden ALC will assume responsibility for the
commodity work at Sacramento, which will be gradually transitioned
to the Ogden ALC facility.

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The evaluators were also concerned about transition risk in
connection with the Lockheed proposal. Their concerns centered
around the efficiency of the Sacramento workforce in accomplishing
the work in process for both the KC- 135 aircraft and commodity
workloads. In both

cases the evaluators assumed a Sacramento efficiency rate of 65
percent (higher than the rates of Ogden ALC and its partner
Boeing, as Lockheed proposed to perform the work at the closing
Sacramento facility using much of the current workforce). Further,
for both workloads, the evaluators did not think that Lockheed
could achieve its proposed efficiency rates at the start of full
performance. The calculations resulted in a proposed total
dollarization of $16,068,000 for the Lockheed proposal. The
evaluators concluded that the risks inherent in two aspects of
Ogden ALC's proposed performance of the commodities workload after
transition

should be dollarized. The first risk involved Ogden ALC's process
improvements and whether those improvements (particularly those in
the electrical accessories area) would result in a reduction of
workhours. The

evaluators were skeptical that the reduction could be achieved,
and they consequently calculated a proposed upward dollarization
adjustment of $17,380, 738 to represent the risk that the
predicted reduction would not occur. The second risk related to
the nature of the public depots' funding under the working capital
fund and the possibility that the government will have to shoulder
the additional cost if Ogden ALC cannot perform at its proposed
labor rates. The evaluators requested DCAA to conduct a raterisk
analysis on the Ogden ALC cost proposal, comparing the proposed
rates to Ogden ALC's current and past labor rates. DCAA calculated
what it believed to be more realistic rates and concluded that its
rates would result in a $37,373, 690 increase in Ogden ALC's cost.
The evaluators concluded

that a dollarized risk range representing the high and low
historical rates analyzed by DCAA should be established for this
factor. 32 As the result of these evaluations, the SSAC presented
the SSA with a recommended total evaluated cost range for each
offeror. The recommendation consisted of a high range, including
the lowest overhead savings, if any, combined with the highest
upward dollarization

32 As discussed earlier, this proposed dollarization adjustment
was different from the others as it was based on the Ogden ALC
cost proposal rather than the offeror's proposed technical
performance.

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adjustments, and a low range consisting of the highest overhead
savings, if any, and the lowest upward dollarization adjustments.
33 The high range was $1,819,717, 982, and the low range was $1,
707, 243,712 for Ogden ALC. The high range for Lockheed was
$1,902,848,080, while the low range was $1, 886,780,080. Ogden
ALC's high range is below Lockheed's low range by over $65,000,
000.

The SSA reviewed the recommended total evaluated ranges and
concluded that the high range estimate for Lockheed of $1, 902,
848,080, including the recommended $16,068,000 dollarization for
transition risk represented Lockheed's most probable cost. The SSA
concluded that the most probable cost for Ogden ALC was
$1,794,488, 861, about $25, 000,000 below the SSAC's high range.
The SSA's estimate for Ogden ALC included $46, 217,730 for
overhead savings (about midway between the SSAC high and low
ranges), the total amounts recommended by the SSAC for transition
risk ($ 20,732,000) and for performance risk related to commodity
workload process improvements ($ 17,380,738) and the DCAA
recommendation of $37,373, 690, for overall cost risk for the
workloads to be performed at the

public depot. A summary of the cost adjustments adopted by the SSA
is shown in table III. 1.

Table III. 1: Cost Adjustments Adopted by the SSA

a This includes the $37,373,690 adjustment to Ogden ALC's cost
proposal to represent the risk of overruns.

33 There were no recommended downward dollarization adjustments.

Ogden ALC Lockheed

Total Customer Cost $1, 097, 615, 652 $1,256, 721, 586 Cost
Adjustments

Form 1 Adjustments 55, 799, 608 0 Overhead Savings (46, 217,730) 0
Form 2 Adjustments 611,804,903 630, 058, 494

Total Alternative Cost 1, 719,002,433 1, 886, 780, 080 Total
Dollarized Adjustments a 75, 486, 428 16, 068, 000 Most Probable
Total Evaluated Cost $1, 794, 488, 861 $1,902, 848, 080

Appendix III Legal Review of Competition for Sacramento Air
Logistics Center Workloads

Page 42 GAO/NSIAD-99-124 Public- Private Depot Competitions

Award Based on the evaluation results, the SSA concluded that the
offerors were essentially equal in performance risk and general
considerations. The SSA noted that Lockheed had a slight advantage
in transition, while Ogden ALC had a slight advantage in
operations. The SSA selected Ogden ALC for award, as the
competitor representing the best value to the government based
upon the public offeror's operations advantage combined with its
lower most probable total evaluated cost.

GAO Analysis As discussed previously, several statutes govern the
solicitation and award process for public- private competitions
for the depot workloads of the

closing Sacramento and San Antonio ALCs. In particular, 10 U. S.
C. 2469a sets forth the elements that must be considered in
selecting the public or private source to perform the workloads.
Further, because the Air Force used the competitive acquisition
system, the standards in chapter 137 of title 10 of the United
States Code and the FAR apply to the extent they are consistent
with 10 U. S. C. 2469a and the other applicable provisions
relating to the outsourcing of depot workloads and to conversions
of DOD functions to private- sector performance. See (Newport News
Shipbuilding and Dry Dock Co.,) cited above.

In addition to reviewing the evaluation and selection records, we
spoke to relevant Air Force officials and to the public- sector
offeror. While the public offeror won the competition, it still
had some concerns that primarily centered around its preliminary
understanding of the treatment of its proposed overhead savings
and some of its proposed cost adjustments.

Reviewing the Sacramento competition in this context, we found no
basis to conclude that the procedures used in selecting the
successful offeror deviated in any material respect from the
section 2469a requirements or other applicable laws or relevant
provisions of the FAR. The Air Force issued a competitive
solicitation in accordance with FAR part 15, which

provided for the participation of a public sector depot. We found
no basis to conclude that the selection did not provide for a
substantially equal opportunity for public and private offerors to
compete without regard to performance location or that appropriate
consideration was not given to noncost factors in the selection.
Overall, the evaluation process appeared

to be reasonable, fair, and consistent with the evaluation scheme
in the solicitation, the Depot Competition Procedures, and the
CCH. While not affecting the legal sufficiency of the selection,
we nevertheless identified

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