Air Force Logistics: C-17 Support Plan Does Not Adequately Address Key
Issues (Letter Report, 07/08/1999, GAO/NSIAD-99-147).
The Air Force is working to pilot test a new logistics support concept
for the C-17 aircraft that relies more on the private sector. The Air
Force plan supporting this idea that was sent to Congress has three key
shortcomings that need to be addressed so that the pilots' merits can be
adequately assessed. First, the plan does not identify C-17 core
requirements or provide information on a process for establishing the
capabilities needed to support such requirements. Second, the Air
Force's conclusions that C-17 depot maintenance would be less
cost-effective in Air Force depots are not adequately supported. Third,
GAO questions whether the Air Force plan could be implemented under
current law. The Air Force is required to determine that the services to
be obtained from public depots are not commercially available. Past Air
Force assessments have shown that commercial sources are available that
can perform depot maintenance on the same or similar commodities for
other aircraft.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: NSIAD-99-147
TITLE: Air Force Logistics: C-17 Support Plan Does Not Adequately
Address Key Issues
DATE: 07/08/1999
SUBJECT: Equipment maintenance
Strategic planning
Military cost control
Department of Defense contractors
Defense capabilities
Logistics
Military aircraft
Cost effectiveness analysis
Air Force procurement
Privatization
IDENTIFIER: C-17 Aircraft
Air Force C-17 Aircraft Logistics Support Plan
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United States General Accounting Office GAO Report
to Congressional Requesters July 1999 AIR FORCE
LOGISTICS C-17 Support Plan Does Not Adequately Address Key Issues
GAO/NSIAD-99-147 United States General Accounting Office
National Security and Washington, D.C. 20548
International Affairs Division B-282640
Letter July 8, 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 In 1998, Congress
mandated1 that the Secretary of the Air Force submit a plan to
Congress by March 1, 1999, identifying core2 logistics
capabilities for the C-17 aircraft consistent with the
requirements of 10 U.S.C. 2464.3 Congress also mandated that we
review the Air Force's C-17 plan and submit a report to Congress
evaluating its merits. This report addresses the extent to which
the Air Force's plan (1) identifies core logistics capabilities,
(2) provides assurance of the cost effectiveness of the planned
support strategy, and (3) allows implementation under current law.
Results in Brief The Air Force is working to
pilot test a new logistics support concept for the C-17 that
places increased reliance on the private sector for support. The
Air Force plan incorporating this concept was provided to the 1
Section 351 of the Strom Thurmond National Defense Authorization
Act for Fiscal Year 1999 (Public Law 105-261). 2Section 2464 of
title 10 requires that the core logistics capability be
government-owned and operated and sufficient to ensure a source of
technical competence and resources necessary to ensure an
effective and timely response to mobilization, national defense
contingency situations, and other emergencies. 3 This provision
calls for core requirements to be identified within 4 years of a
mission-essential weapon system attaining initial operating
capability. Initial operating capability represents the date when
a service determines that a new system has been fielded at its
first operating base in sufficient numbers. Page 1
GAO/NSIAD-99-147 Depot Maintenance B-282640 Congress. The plan
has three key shortcomings that need to be addressed so the
pilot's merits can be adequately assessed. These shortcomings
relate to identifying C-17 core requirements, the strategy's cost-
effectiveness, and the Air Force's ability to implement the plan
under current law. The plan the Air Force submitted to Congress
did not identify C-17 core requirements or provide information on
a process for establishing the specific capabilities needed to
support such requirements. The Air Force outlined its current
process for analyzing core requirements and capabilities and
indicated that its current approach to such analysis is not
weapon-system specific. To date, requirements for the C-17
aircraft have not been included in the Air Force's core process.
Further, the Air Force stated that it does not expect to complete
a core analysis incorporating the C-17 requirements until 2002.
This would be 8 years after the C-17 achieved its initial
operational capability. The 1999 Air Force plan's conclusion that
C-17 depot maintenance would be less cost-effective in Air Force
depots is not adequately supported. Our first concern is that the
analysis is based on 1996 data, and more current information
should have been used. The Air Force plans to complete an updated
cost analysis in 2002. However, work remains to fully develop the
methodology, metrics, criteria, and data sources that will be used
in making any future sourcing decisions for C-17 logistics work.
Secondly, the conclusions drawn from the 1996 data about the cost-
effectiveness of the private sector under the flexible sustainment
approach are based on incomplete analysis. Finally, the Air Force
is not programming the funds that would be required to establish
in-house logistics support capabilities, without which there may
not be a viable in-house alternative. We question whether the Air
Force plan can be implemented under current law. The Air Force
plan envisions that the C-17 contractor will contract with public
depots for selected maintenance services for some C-17 systems and
equipment. Under applicable law, the Air Force must determine
that the services to be obtained from public depots are not
commercially available. Past assessments by the Air Force have
shown that commercial sources are available to perform depot
maintenance on the same or similar commodities for other aircraft.
This report includes recommendations concerning the Air Force's
approach to conducting a cost analysis and implementing its
planned support approach. Page 2
GAO/NSIAD-99-147 Depot Maintenance B-282640 Background
For many years the Air Force has relied on contractors to provide
logistics support for commercial derivative systems such as the
KC-10 aircraft as well as for some high-cost, highly classified
systems produced in small quantities, such as the U2. In recent
years the Department of Defense (DOD) and the services have
initiated actions to expand contractor logistics support to other
military systems that were not derived from similar commercial
systems. The Air Force has designated the C-17 as 1 of the 10 Air
Force systems that will be used as a pilot to implement a DOD
initiative that will emphasize contracting with the private sector
for support services as a part of its logistics reengineering
efforts. This designation of the C-17 as a pilot project is
consistent with defense reform initiatives, which called for a
strategic shift toward increased reliance on the private sector to
meet support needs. Overview of C-17 Program The C-17 is a
four-engine, wide-bodied, strategic airlift aircraft designed to
accomplish a wide variety of tasks, including (1) transporting
vehicles, equipment, cargo, and personnel over intercontinental
ranges and (2) landing at small, austere airfields. The aircraft
has a demanding and diverse worldwide mission, and it is designed
to provide significant improvements in performance and reduced
operational costs relative to other strategic air-lifters. The
number of aircraft to be bought has changed over time, ranging
from an initial quantity of 210 to the currently approved quantity
of 120. Although the Air Force had originally determined that the
C-17 would largely use in-house support, the reduction in fleet
size prompted officials to reconsider support options. Forty-nine
aircraft have been produced and will be based at four operating
locations. C-17 production is expected to extend through 2005.
Program Management Since program inception in 1981, C-17
development and production has Organization been
managed by the C-17 System Program Office at Wright-Patterson Air
Force Base, Ohio. In 1984 the San Antonio Air Logistics Center
became the C-17 systems support manager, responsible for
sustainment management functions4 such as materiel management,
depot maintenance, and 4 Sustainment management is the support of
a system after it becomes operational. Recently proposed changes
in DOD's sustainment management process would retain more of these
functions in the acquisition program office rather than
transferring them to the system support management office, which
is generally collocated with the responsible Air Force depot. Page
3 GAO/NSIAD-
99-147 Depot Maintenance B-282640 configuration control. After
the San Antonio Air Logistics Center was identified for closure
during the 1995 Base Realignment and Closure process, the Air
Force designated Warner Robins Air Logistics Center as the new C-
17 systems support manager, with some C-17 functions previously
performed at San Antonio transferring to Warner Robins, while
others are to be performed by contract. Flexible Sustainment
Strategy On November 1, 1996, the Air Force C-17 program office
issued its analysis of alternative long-term support options for
the C-17. This report estimated in-house and contractor support
costs for the materiel management and depot maintenance functions.
The report summary stated that certain subsystems are more
economical to accomplish organically and others by contractors and
the addition of materiel management costs shows that a significant
savings may be gained by consolidating functions at a contractor
location. In 1997, based on this conclusion and on uncertainties
surrounding the future Air Force depot maintenance structure, the
Air Force postponed its final decision on where both materiel
management and depot maintenance activities would be performed and
it adopted a support strategy for the C-17 referred to as
"flexible sustainment."5 Under flexible sustainment, the Air
Force expected to rely principally on contractor supported
logistics for the C-17, at least through 2003. The contractor,
Boeing Company, would be expected to provide materiel management,6
depot maintenance, and engineering support for the total system
during this time. At the same time, the contractor could use the
military depot system to provide some support. The Air Force's C-
17 flexible sustainment strategy involves * having Boeing, the C-
17 aircraft manufacturer, retain responsibility for depot
maintenance; * moving materiel management-including inventory
management, engineering, data management, and some program
management-from 5 Although the C-17 support program is the only
Air Force system that is referred to as using flexible
sustainment, it is similar to traditional contractor logistics
support or the newer concept of total system program
responsibility, except that it is approved for a limited period of
time rather than for the life of the system. 6 Materiel management
involves the determination of requirements for spare and repair
parts, stock issuance and supply parts support, and engineering.
Page 4
GAO/NSIAD-99-147 Depot Maintenance B-282640 the closing San
Antonio Air Logistics Center to Boeing between 1998 and 2000;7 *
moving remaining systems support management responsibilities to
Warner Robins Air Logistics Center; * evaluating the flexible
sustainment approach between 2001 and 2002; and * conducting a
final depot support decision process in 2003. Air Force Plan in
Response In response to the congressional mandate for a plan
addressing C-17 core to Congressional Mandate
capabilities, the Air Force submitted a plan consisting of two
volumes: * a resubmission of an October 10, 1997, report sent to
the Senate Appropriations Committee entitled Depot Support
Strategy: Flexible Sustainment and * the March 1, 1999, report to
Congress entitled Depot Support Strategy: Flexible Sustainment
Strategic Plan. The first volume had previously been issued in
response to a requirement in Senate Report 104-286 on the
Department of Defense Appropriations Bill of 1997. It pointed out
that the C-17 Flexible Sustainment strategy takes advantage of the
strengths of both industry and the government by establishing an
"intelligent partnership." It defines this strategy as a joint
venture between the public and private sector that relies on
support from the source providing the best value, based on
technical competence and economic factors. Air Force officials
said that, under flexible sustainment, Boeing could award specific
depot maintenance work to the most cost- effective provider from
the private or public sector. The second volume of the Air Force
plan stated that the Air Force intends to postpone the C-17
source-of-repair decision until 2003-2 years prior to 7 The
conversion of non-depot commercial functions, such as materiel
management, to contractor performance is generally subject to OMB
Circular A-76. The C-17 program office believes that A-76 does
not apply to the materiel management services because the circular
provides for a waiver for functions performed at installations
scheduled for closure. Further, the program office believes that
the study and notification provisions of 10 U.S.C. 2461 do not
apply to the C-17 materiel management function since the law
applies only to functions that were being performed by DOD
civilian employees as of October 1, 1980. The program office
states that the C-17 full-scale engineering and development
contract was not awarded until 1982 and that the first sustainment
contract for the C-17 did not begin until 1995. Given the limited
time available for this review, we were unable to fully evaluate
these issues. Page 5
GAO/NSIAD-99-147 Depot Maintenance B-282640 the projected end of
C-17 production. This process would be accomplished using three
separate but related subprocesses: * a core determination process;
* a cost-benefit analysis comparing costs of in-house and
contractor support options over the life of the C-17 and
including both recurring and non-recurring costs; and * an
analysis providing an assessment of the current and projected
balance of depot maintenance workloads between the public and
private sectors for purposes of addressing requirements of 10
U.S.C. 2466, which provides that not more than 50 percent of the
depot maintenance funding may be used for maintenance performed by
nongovernmental personnel.8 At the current time, the interim
contractor support arrangement that was established with Boeing is
being extended under the flexible sustainment strategy.
Additionally, materiel management work is being moved to Boeing
from the San Antonio Air Logistics Center, where the C-17 system
support manager currently is located. Air Force Plan Does
While the Air Force C-17 plan provided information about its
support Not Identify Core strategy and plans for long-term
decision-making, it did not identify any current core capability
requirements for the C-17. Since specific core Capability
requirements were not identified, there was also no information
provided Requirements for the on a plan for establishing the
capabilities needed to support the core C-17
requirements. The Air Force outlined its current process for
analyzing core requirements, which, to date, have not included
consideration of the C-17. The Air Force stated that it did not
expect to complete a core analysis incorporating the C-17 until
2002. This will be 8 years after the C-17 achieved an initial
operating capability. A core assessment of the C-17 is necessary
to identify specific C-17 maintenance capabilities needed in
military depots to support DOD core logistics capability now or in
the future. For several reasons we question the Air Force's
rationale for postponing the core logistics assessment. Delaying
making this assessment could create the risk that some maintenance
capabilities might not be available when needed. 8 Section 2460 of
title 10 provides that depot maintenance includes overhaul,
upgrading, or rebuilding of parts regardless of the source of
funds for the maintenance or repair. It also specifies that depot
maintenance includes all aspects of depot-level software
maintenance. Page 6
GAO/NSIAD-99-147 Depot Maintenance B-282640 Department of Defense
The Department of Defense's core determination process is designed
to use Core Methodology the Joint Chiefs of Staff
strategic planning scenario to identify contingency requirements
for tasked systems and ensure that in-house maintenance
capabilities can surge and expand to meet wartime requirements.
However, DOD's core policy, which was modified in 1996, does not
require that a DOD depot have repair capabilities for each tasked
system.9 The policy requires that depots have the capability to
be able to support all tasked systems, unless an analysis of
private sector capability determines that sufficient reliable
commercial sector capability exists. For example, the DOD policy
states that if the facilities, equipment, and skilled personnel to
perform maintenance on one type of aircraft enable a depot to be
capable of performing maintenance on other types of aircraft, then
the core capability does not necessarily have to include each
individual system. Air Force Postponed Core The Air Force's
March 1999 plan stated that the Air Force has postponed
Determination the incorporation of C-17 surge
requirements into its core determination Incorporating C-17
Aircraft process until 2002. The plan indicates that it would
be premature to do such an analysis now given the limited number
of C-17 aircraft in the active inventory. The plan does describe
how the Air Force expected to address core logistics capabilities
related to the C-17. However, by the time such an analysis is
completed, the Air Force will have relied largely on the
contractor to support the C-17 for 8 years after achieving initial
operational capability. If, at that later date, the Air Force
were to identify the need for establishing C-17 specific
capability in an Air Force depot, some additional period of time
could be required to develop that capability. For example, the C-
17 Program Director indicated the need for surge capability at the
Warner Robins depot to complement the contractor's capacity. He
stated that the C-17 fleet might require a mission-unique
modification to perform in a specific theater of operations, such
as adding enhanced defense systems. Given such a requirement, the
program director said that because of the (1) time that would be
required to increase capacity and (2) limitations on support
equipment and hangar space at the Boeing facility, a fleet-wide
modification would take significantly longer without Warner Robins
Air Logistics Center as an immediately available source.
Meanwhile, the C-141 workload-the in-house workload that the Air
Force says is supporting much of the current, large airframe surge
9 Under this policy, the Air Force identified core capability
requirements by commodity (i.e., airframe, engine, landing gear,
avionics, etc) versus whole new weapons. Page 7
GAO/NSIAD-99-147 Depot Maintenance B-282640 requirements-is
declining as the aircraft is being phased out of the inventory.10
Given the requirement in 10 U.S.C. 2464, the Air Force's past
practices, and workload considerations, the Air Force's position
that it is premature to include the C-17 into the current core
determination process is not reasonably supported. For example,
and most importantly, the Air Force is required by statute to
identify a core logistics capability not later than 4 years after
a mission-essential weapon system achieves an initial operating
capability. The C-17 achieved this capability in January 1995.
Also, while the Air Force is delaying assessing core requirements
for its military unique C-17 aircraft system, it has already made
a core assessment for the C-17's commercial engine. Further, the
Air Force has previously completed other core assessments as a
normal part of the logistics planning process during the systems
acquisition phase.11 Lastly, the Air Force is contracting out
depot maintenance workloads from its closing Sacramento and San
Antonio depots that are valued at about $238 million annually.
With this transfer the Air Force is moving increasingly toward the
limit in 10 U.S.C. 2466 that prohibits contracting out more than
50 percent of its depot maintenance workload. As this happens,
the Air Force could be faced with difficult choices regarding what
workloads it wants to retain in-house and contract out. Given the
mandate in 10 U.S.C. 2466, the Air Force's past practices, and
workload considerations, it is unclear why the Air Force maintains
it is premature to include the C-17 into the current core
determination process. Uncertainties The 1999 Air Force
plan's conclusion that C-17 depot maintenance would Regarding Cost
be less cost-effective in Air Force depots is not adequately
supported. Our first concern is that the analysis is based on
1996 data and more current Effectiveness of the information
should have been used. The Air Force plans to complete an Current
Plan updated cost analysis in 2002. However, work
remains to fully develop the methodology, metrics, criteria, and
data sources that will be used in making any future sourcing
decisions for C-17 logistics work. Secondly, the conclusions
drawn from the 1996 data about the cost-effectiveness of the 10
The last programmed C-141 depot maintenance work will be performed
in 2004. Unless other large airframe workloads are designated as
core, C-17 core may be needed. 11 For example, the Joint Stars
program office made decisions regarding depot maintenance and
materiel management support in 1988, during the acquisition
process and prior to the initial operating capability being
established. Page 8
GAO/NSIAD-99-147 Depot Maintenance B-282640 private sector under
the flexible sustainment approach are based on incomplete
analysis. Additionally, the Air Force is not programming the
funds that would be required to establish in-house logistics
support capabilities, without which there may not be a viable in-
house alternative. Improved Cost Data Needed The Air Force used
its 1996 cost analysis to support its 1999 plan. In completing
its 1996 cost analysis, an Air Force cost team collected projected
usage data (failure rates, repair times, repair parts
requirements, etc.) and overlaid a projected flying hour program
to estimate repair and maintenance requirements in direct labor
hours for the C-17 over a 30-year life cycle. The team applied
then current labor rates for the appropriate contractor or DOD
depot to develop recurring cost estimates for the projected depot
repair requirements. They did not include the cost of material,
which they assumed would be the same for both providers. They
also identified nonrecurring cost estimates for both the
contractor and DOD depots. The basic methodology employed by the
Air Force to develop the cost data is sound. However, we are
concerned about the lack of more recent data for the 1999 plan.
Air Force officials said they plan to collect data during the C-17
flexible sustainment contract period that will allow a more up-to-
date assessment in support of its planned 2003 source-of-repair
decision. The Air Force will use a cost benefit analysis to
determine whether continued contractor or public sector support
would be the most cost-effective, long-term support option.
However, the Air Force has not identified the methodology, for
estimating recurring and nonrecurring cost elements or the
metrics, criteria, and data sources that will be used in making
any future sourcing decisions for non-core C-17 logistics work.
Air Force officials said they recognize the need to develop cost
metrics to be used in the future C-17 sourcing assessment, but
they have not yet done so. The information is needed to ensure the
Department will be in a position to make the most cost-effective
decision; for example, to ensure that it has data available to
evaluate in-house costs. DOD's March 1999 update to its November
1997 Defense Reform Initiative report said that the Department
intends to increase the competitiveness of its depot maintenance
contracts. While the program office has not yet determined if a
competition will be conducted to determine the long-term C-17
source of support, they believe they have acquired the necessary
technical data to conduct a competition. We have reported in the
past that it is difficult to control costs for sole source
contracts. We also reported Page 9
GAO/NSIAD-99-147 Depot Maintenance B-282640 that 91 percent of the
depot maintenance contract actions we reviewed- representing 69
percent of the DOD non-ship depot maintenance contracts-were
awarded on a sole source basis.12 One of the major factors
inhibiting competition was not having required technical data.
Weaknesses in Air Force The Air Force based its
increased reliance on the private sector in the Analysis
flexible sustainment concept on data in its 1996 depot support
strategy study. However, the Air Force's analysis of data in that
study produced some conclusions about the cost-effectiveness of
the materiel management and depot repair functions that were not
adequately supported. The 1996 Cost Study Conclusions The Air
Force's March 1999 plan concluded that there is an insignificant
Are Inaccurate cost difference when
comparing government and private sector performance of the
materiel management function. The Air Force's plan reached a
different conclusion than the 1996 Depot Support Strategy Study.
The 1996 study concluded that significant savings could be
achieved by consolidating materiel management and depot
maintenance with the contractor. The 1996 conclusion was a key
factor in the Air Force's 1997 decision to implement the flexible
sustainment concept. Air Force officials told us that its 1996
conclusion was not supported by its cost data. Nevertheless, its
1999 plan indicated that the Department still plans to transfer
materiel management to the contractor by the end of fiscal year
1999. Weaknesses in 1999 Plan The 1999 plan did not
provide a complete analysis of the share of C-17 Methodology Gave
Incomplete depot maintenance workload estimated to be
more cost-effectively Results on Cost-Effectiveness of performed
in Air Force depots. The analysis assessed the maintenance Public
Sector Maintenance requirements for C-17 subsystems by
aggregating the number of systems being evaluated, but did not
consider the dollars associated with the maintenance. The
analysis approach gives an incomplete picture of the optimum mix
of depot maintenance workload between the public and private
sectors. As indicated in figure 1, the 1999 study concluded that
33 percent of the C-17 depot maintenance work would be performed
more cost-effectively by the private sector and 29 percent more
cost-effectively by Air Force depots. 12 Defense Depot
Maintenance: Contracting Approaches Should Address Workload
Characteristics (GAO/NSIAD-98-130, June 15, 1998). Page 10
GAO/NSIAD-99-147 Depot Maintenance B-282640 For the remaining 38
percent, it concluded that there was no meaningful cost difference
between public and private sector sources of repair. Figure 1:
Air Force Analysis of Optimum C-17 Depot Workload Mix Contractor
33% 29% Government 38%
No Clear Advantage Source: Air Force March 1999 Plan to Congress
on C-17 Flexible Sustainment. The plan indicated that the mix was
based on total life cycle cost. Our analysis showed the Air Force
calculations were based on the number of systems or subsystems
that would fall in each category, but did not include the total
dollar value represented in each category. (See app. I for the
analysis showing individual subsystems categorized as performing
more cost-effectively by the private and public sectors or not
having a clear difference.) We recomputed the public-private
sector mix percentages using the cost data from the study. The
results are shown in figure 2. Page 11
GAO/NSIAD-99-147 Depot Maintenance B-282640 Figure 2: GAO
Analysis of Optimum C-17 Depot Workload Mix 30%
Contractor 55% Government 15%
No Clear Advantage Source: GAO calculations based on data from
1996 C-17 Depot Support Strategy Study. The results indicate that
30 percent of the dollar value of the depot maintenance work would
be performed more cost-effectively by the private sector and 55
percent more cost-effectively by Air Force depots. For the
remaining 15 percent, the cost team's data showed there was no
meaningful cost difference between public and private sector
sources of repair. These figures include repair costs for the C-
17's commercial engine, which has been designated for contractor
logistics support for the life of the system. Funding Not
Currently While the Air Force C-17 support strategy
calls for postponing a depot Programmed for
maintenance support decision until 2003, maintaining a viable
Air Force Maintaining a C-17 In-house depot option requires that
the Air Force program funds to establish depot Option
capabilities. Program officials said that some funds had been
programmed, but were shifted to support other flexible sustainment
needs. Without programming funds in a timely manner to support
depot activation, the Air Force may not be able to pursue an in-
house option, even if otherwise determined to be the most cost-
effective alternative. Air logistics center officials said that
funds should be programmed to preserve the option to revert to in-
house depot support. Page 12
GAO/NSIAD-99-147 Depot Maintenance B-282640 Additional Authority
The Air Force plan also envisions that the C-17 contractor will
contract Needed to Implement with public depots for selected
maintenance services for some C-17 systems and equipment. Under
current law, the Air Force must determine the Plan
that the services to be obtained from public depots are not
commercially available. Past assessments by the Air Force of the
same or similar commodities have concluded that commercial
maintenance services are available. Given these assessments,
additional statutory authority would likely be required to
implement the Air Force's planned strategy to have military depots
sell maintenance services to the support contractor. Commercial
Nonavailability Boeing expects to purchase services from military
depots using the sales Requirements Under 10
provisions of 10 U.S.C. 2553. Section 2553 of title 10 authorizes
sales under U.S.C. 2553 Could Limit certain conditions
of services and articles by DOD industrial facilities- 13 Public
Depot Participation including depots-to the private sector.
This authority is predicated on an agency determination that these
services or articles are not available commercially in the United
States. To what extent capabilities to perform C-17 maintenance
workloads are not available in the private sector is unclear given
conflicting historical information available on this subject. For
example, in 1996, as a part of its core determination process for
workloads at the closing Sacramento depot, the Air Force performed
repair base analyses to assess private sector capabilities and
capacities for repairing flight instruments, electrical
accessories, hydraulics, and software engineering maintenance
work. The assessment determined that considerable private sector
capability was available for these commodities; therefore the Air
Force determined that it did not need to retain these capabilities
in-house. It should also be noted that the C-17 workloads
initially identified as candidates for private sector performance
were identified based on cost rather than on an assessment of
commercial availability. Given this information, it is uncertain
to what extent a market assessment for similar items on the C-17
would produce different results. 13 Air Force officials originally
had anticipated using 10 U.S.C. 2474 as a basis for Boeing to
contract with military depots for some depot maintenance
workloads, but did not since DOD has not implemented the
legislation. As we previously reported [Defense Depot
Maintenance: Public-Private Partnering Arrangements (GAO/NSIAD-98-
91, May 7, 1998)], the statute does not contain any specific sales
or leasing authority. Page 13
GAO/NSIAD-99-147 Depot Maintenance B-282640 According to program
officials, they recognize the limitations of selling goods and
services under 10 U.S.C. 2553, but they believe it is the only
option available at this time. These officials said they plan to
acquire services from public depots in support of the C-17 program
under 10 U.S.C. 2553, and initially they are pursuing two private-
public partnering projects. Conclusions The Air Force is
implementing a pilot for a new logistics support approach for its
C-17 aircraft. However, the support plan it submitted to Congress
had several key shortcomings. These issues must be addressed
before the pilot program's merits can be adequately assessed. The
plan did not identify the core logistics capabilities for the C-17
or provide specifics about establishing the in-house workload
necessary to maintain such capabilities. Also, the plan's cost
effectiveness conclusions are not adequately supported due to the
age of the data and incomplete supporting analysis. The Air Force
plans to reassess C-17 support options and make a long-term
support decision in 2003. However, it has not identified the
methodology, metrics, criteria, and data sources that will be used
in making such an assessment. Also, funds have not been
programmed for public depot support for the C-17, which may limit
the viability of a public sector alternative in 2003. These
issues need to be resolved quickly so all needed data can be
identified and gathered as the Air Force moves toward the 2003
decision-making timeframe. Further, current law does not provide
the required authority to implement the Air Force's C-17 plan to
have the military depots sell services to the support contractor
for some of the C-17 depot maintenance work. Recommendations
We recommend that the Secretary of Defense direct the Secretary of
the Air Force to 1. update the Air Force's core analysis to
include the C-17 airframe and subsystems and provide this
information with the fiscal year 2001 president's budget , 2.
develop a more specific logistics resourcing plan that includes a
comprehensive cost effectiveness analysis and evaluation metrics
prior to the submission of the 2001 budget, and Page 14
GAO/NSIAD-99-147 Depot Maintenance B-282640 3. develop budget
requirements for public depot funding consistent with having this
capability as a support option, including incorporating
requirements in the fiscal year 2001 Program Objective Memorandum.
Also, if DOD decides to implement the current support plan, we
also recommend that the Secretary of Defense seek legislative
authority to allow military depots to sell depot maintenance goods
and services to the C-17 support contractor, notwithstanding the
commercial availability of those repair services. Agency Comments
In providing oral comments on a draft of this report. Air Force
officials said that they generally agreed with the intent of our
recommendations, but they also said the Air Force plans already
address these recommendations. Regarding our recommendation to
update the Air Force's core analysis to include the C-17
requirements, the Air Force stated that its plan to complete the
C-17 core analysis by 2002 dovetails precisely with the flexible
sustainment approach leading to a final support decision in 2003.
Air Force officials noted that the flexible sustainment approach
was implemented prior to the fiscal year 1998 National Defense
Authorization Act changes to 10 U.S.C. 2464, which added the
requirement that DOD identify core logistics capability within 4
years of a mission-essential system attaining initial operating
capability. While we recognize that the Air Force implemented its
flexible sustainment program prior to the fiscal year 1998
amendment to 10 U.S.C. 2464, there is no provision that would
exempt the C-17 aircraft system. Consequently, we believe that
the Air Force must comply with the 10 U.S.C. 2464 requirement. By
maintaining the existing schedule for performing a C-17 core
workload assessment in 2002, the Air Force is delaying compliance
with the requirement. Therefore we have modified our
recommendation to specify an earlier core determination. In
commenting on our recommendation that the Air Force develop a more
specific logistics resource plan that includes a comprehensive
cost- effectiveness analysis and evaluation metrics, the Air Force
stated that it will use the source-of-repair assignment process
methodology, which includes a cost-benefit analysis. The Air
Force also stated it will use a best value criteria for making a
source-of-repair decision for the C-17 should it not be designated
as a core workload. Although the Air Force's source-of- repair
decision process requires a cost analysis, as we pointed out, it
does not identify the recurring and non-recurring cost elements,
data sources, or methodology for performing the required cost
analysis. The intent of our Page 15
GAO/NSIAD-99-147 Depot Maintenance B-282640 draft recommendation
was to focus on developing a cost analysis methodology earlier
than the 2003 source-of-repair decision to ensure that the
appropriate cost data are collected during the flexible
sustainment period and thereby available at the time of the final
support decision. Therefore we modified our recommendation to
clarify the actions we believe are needed. In response to our
recommendation that the Air Force develop budget requirements for
public depot funding consistent with the plan to have this
capability as a support option at the time of the final support
decision, the Air Force stated that it will ensure full funding to
establish depot maintenance capabilities wherever dictated by the
long-term depot decision. However, during further discussions
with Air Force officials we determined that funding has not yet
been included in the Air Force Program Objective Memorandum (POM).
Officials said that during the fiscal year 2002 POM development,
the Air Force plans to include an undetermined amount of funding
for fiscal years 2004 and 2005. They noted that this allowance
could represent about 10 percent of the estimated funding
requirement for developing depot capability. We question whether
the timing of such a funding decision or the level of funding, if
approved, would be adequate to ensure timely public depot
activation if in-house maintenance were determined to be the more
cost-effective alternative. We continue to believe that adequate
funds should be programmed to preserve the option to revert to in-
house depot support. Thus, we modified our recommendation to more
specifically represent that view. Regarding our recommendation on
seeking legislative authority to allow military depots to sell
goods and services to the C-17 support contractor, the Air Force
stated that presently-identified contracting opportunities can be
implemented under current law. Nevertheless, they said the Air
Force would support an amendment to allow military depots to sell
depot maintenance goods and services to the C-17 support
contractor, notwithstanding the commercial availability of those
repair services. We continue to believe it is unclear whether a
determination of non-availability could be made for potential C-17
maintenance work the contractor may wish to obtain from a
government depot. Scope and In conducting our work, we
contacted officials at Headquarters, United Methodology States
Air Force, Washington, D.C.; Headquarters, Air Force Materiel
Command, Wright Patterson Air Force Base, Ohio; Headquarters Air
Mobility Command, Scott Air Force Base, Illinois; the San Antonio
Air Page 16 GAO/NSIAD-99-147
Depot Maintenance B-282640 Logistics Center, Kelly Air Force Base,
Texas; the Warner Robins Air Logistics Center, Robins Air Force
Base, Georgia; the Air Force Audit Agency, Wright Patterson Air
Force Base; as well as the Boeing Company, Long Beach California;
PEMCO, Birmingham, Alabama; American Airlines, Tulsa, Oklahoma;
and BF Goodrich Aerospace, Everett, Washington. To evaluate the
merits of the Air Force's C-17 March 1999 report, we interviewed
officials and collected relevant corroborating documents from
Headquarters, Department of the Air Force; Headquarters, Air Force
Materiel Command; Air Force C-17 System Program Office team
members. We reviewed the methodology for the cost analysis
underlying the first volume of the Air Force's report and analyzed
the summary cost estimates to test the resulting conclusions. To
determine the optimum public-private mix of depot workloads based
on the projected maintenance costs for the C-17 subsystems, we
sorted the costs for each alternative and calculated the resulting
percentage shares. We also collected actual cost data from the
contractor for depot repairs accomplished during 1998 and 1999 and
compared the data to cost estimates in the 1996 depot support
strategy report. We were not able to analyze differences between
the actual contract data and the earlier estimates because the
data were in incompatible formats. To assess the Air Force
decision to postpone its determination of core logistics
capabilities for the C-17 aircraft until 2002, we collected
information on DOD and Air Force policies and procedures for
determining core logistics capabilities. We also reviewed
projected depot maintenance workloads currently supporting Air
Force core capacities for cargo aircraft and surge requirements
for the C-17 aircraft. To assess assertions in the second volume
of the report regarding adequate technical data that would be
procured and be available, we discussed and reviewed the technical
data for both repair and procurement of spare parts available with
both the Air Force Audit and C-17 managers for engineering
configuration and technical data. To determine whether the Air
Force's C-17 flexible sustainment plan is compatible within the
existing legal framework, we performed a legal assessment. To
test the sufficiency of the Air Force's determination regarding
non-commercial availability, we reviewed the Air Force's
determination and findings documentation; interviewed officials
from the Boeing Company, PEMCO, American Airlines, and BF Goodrich
Aerospace; and reviewed all additional documentation provided to
support Boeing's Page 17
GAO/NSIAD-99-147 Depot Maintenance B-282640 market research. We
performed our review between February 1999 and April 1999 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. Whitten Peters,
Acting Secretary of the Air Force; the Honorable Jacob J. Lew,
Director, Office of Management and Budget; and to interested
congressional committees. Copies will be made available to others
upon request. If you have any questions regarding this report,
please call the contacts listed in appendix II. David R. Warren,
Director Defense Management Issues Page 18
GAO/NSIAD-99-147 Depot Maintenance Page 19 GAO/NSIAD-99-147
Depot Maintenance Contents Letter
1 Appendix I
22 Potential for Public Support to Private Sector Contractors
Sorted by Subsystems Appendix II
23 GAO Contacts and Staff Acknowledgements Related GAO Products
28 Tables Table I.1: C-17 Subsystems Sorted by
Most Cost-effective Source of Repair 22 Figures
Figure 1: Air Force Analysis of Optimum C-17 Depot Workload Mix
11 Figure 2: GAO Analysis of Optimum C-17 Depot Workload Mix
12 Abbreviations DOD Department of Defense GAO
General Accounting Office POM Program Objective Memorandum
Page 20 GAO/NSIAD-99-147 Depot
Maintenance Page 21 GAO/NSIAD-99-147 Depot Maintenance Appendix
I Potential for Public Support to Private Sector Contractors
Sorted by Subsystems
Appendix I In its 1996 depot support strategy report, which is
part I of its March 1999 Flexible Sustainment Plan submitted to
Congress, the Air Force identified types of workload that it
believed could be performed more cost-effectively in public and
private facilities, and some workloads where they did not believe
the cost difference was significant between the two. The results
of the 1996 study were used to justify the Air Force's flexible
sustainment strategy. Table I shows subsystems for which the
private or public sector would likely be the most cost-effective
source of repair. It also shows the extent to which the Air Force
concluded that a determination could not be made where there was
less than a 10 percent difference between the cost estimates for
the public and private sector providers. Table I.1: C-17
Subsystems Sorted by Most Cost-effective Source of Repair Private
sector Public depots Not clear
Engine Automatic test equipment
Environmental control systems Quick engine change
Operational flight programs Structures Auxiliary power units
Heavy aircraft maintenance Mechanical flight controls Electrical
Landing gear Lighting Fuel Fuselage
Recorders Hydraulics Instruments
Utilities Oxygen Integrated flight controls
Navigation Composites
Intercom Misc. communications Source: Air Force C-17 Depot Support
Strategy Study, November 1, 1996. Page 22
GAO/NSIAD-99-147 Depot Maintenance Appendix II GAO Contacts and
Staff Acknowledgements Appendix II GAO Contacts David
Warren, (202)512-5581 Julia Denman, (202)512-4290 Acknowledgements
In addition to those named above, John Strong, Larry Junek, Pam
Valentine, and John Brosnan. made key contributions to this
report. Page 23 GAO/NSIAD-99-147
Depot Maintenance Page 24 GAO/NSIAD-99-147 Depot Maintenance
Page 25 GAO/NSIAD-99-147 Depot Maintenance Page 26
GAO/NSIAD-99-147 Depot Maintenance Related GAO Products Depot
Maintenance: Improvements Still Needed in Workload Allocation
Reporting (GAO/NSIAD-99-154, July 1999). Army Logistics: Status
of Proposed Support Plan for Apache Helicopter (GAO/NSIAD-99-140,
July 1999). Navy Ship Maintenance: Allocation of Ship Maintenance
Work in the Norfolk, Virginia Area (GAO/NSIAD-99-54, Feb. 24,
1999). Army Industrial Facilities: Workforce Requirements and
Related Issues Affecting Depots and Arsenals (GAO/NSIAD-99-31,
Nov. 1999). Public-Private Competitions: Processes Used For
Sacramento Depot Maintenance Award Appear Reasonable (GAO/NSIAD-
99-42, November 23, 1998). Navy Depot Maintenance: Weaknesses in
the T406 Engine Logistics Support Decision (GAO/NSIAD-98-221,
Sept. 14, 1998). Defense Depot Maintenance: Public and Private
Sector Workload Distribution Reporting Can Be Further Improved
(GAO/NSIAD-98-175, July 23, 1998). Defense Depot Maintenance:
Contracting Approaches Should Address Workload Characteristics
(GAO/NSIAD-98-130, June 15, 1998). Defense Depot Maintenance: Use
of Public-Private Partnering Arrangements (GAO/NSIAD-98-91, May 7,
1998). Public-Private Competitions: DOD's Additional Support for
Combining Depot Workloads Contains Weaknesses (GAO/NSIAD-98-143,
Apr. 17, 1998). Defense Depot Maintenance: DOD Shifting More
Workload for New Weapon Systems to the Private Sector (GAO/NSIAD-
98-8, Mar. 31, 1998). Public-Private Competitions: DOD's
Determination to Combine Depot Workloads Is Not Adequately
Supported (GAO/NSIAD-98-76, Jan. 20, 1998). Public-Private
Competitions: Processes Used for C-5 Aircraft Award Appear
Reasonable (GAO/NSIAD-98-72, Jan. 20, 1998). Page 28
GAO/NSIAD-99-147 Depot Maintenance Related GAO Products Defense
Depot Maintenance: Information on Public and Private Sector
Workload Allocations (GAO/NSIAD-98-41, Jan. 20, 1998). Air Force
Privatization-in-Place: Analysis of Aircraft and Missile System
Depot Repair Costs (GAO/NSIAD-98-35, Dec. 22, 1997). Outsourcing
DOD Logistics: Savings Achievable But Defense Science Board's
Projections Are Overstated (GAO/NSIAD-98-48, Dec. 8, 1997). Navy
Regional Maintenance: Substantial Opportunities Exist to Build on
Infrastructure Streamlining Progress (GAO/NSIAD-98-4, Nov. 13,
1997). Air Force Depot Maintenance: Information on the Cost-
Effectiveness of B-1 and B-52 Support Options (GAO/NSIAD-97-210BR,
Sept. 12, 1997). Navy Depot Maintenance: Privatizing Louisville
Operations in Place Is Not Cost- Effective (GAO/NSIAD-97-52, July
31, 1997). Defense Depot Maintenance: Challenges Facing DOD in
Managing Working Capital Funds (GAO/T-NSIAD/AIMD-97-152, May 7,
1997). Defense Depot Maintenance: Uncertainties and Challenges DOD
Faces in Restructuring Its Depot Maintenance Program (GAO/T-NSIAD-
97-112, May 1,1997)and (GAO/T-NSIAD-97-111, Mar. 18, 1997). Navy
Ordnance: Analysis of Business Area Price Increases and Financial
Losses (GAO/AIMD/NSIAD-97-74, Mar. 14, 1997). Defense Outsourcing:
Challenges Facing DOD as It Attempts to Save Billions In
Infrastructure Costs (GAO/T-NSIAD-97-110, Mar. 12, 1997). High-
Risk Series: Defense Infrastructure (GAO/HR-97-7, Feb. 1997).
(709393) Letter Page 29
GAO/NSIAD-99-147 Depot Maintenance Related GAO Products Page 30
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Address Correction Requested Contents Tables Table I.1: C-17
Subsystems Sorted by Most Cost-effective Source of Repair 22 Page
33 GAO/XXXX
??? Contents Figures Figure 1: Air Force Analysis of Optimum
C-17 Depot Workload Mix 11 Figure 2: GAO Analysis of Optimum
C-17 Depot Workload Mix 12 Page 34
GAO/XXXX ??? Contents Page 35 GAO/XXXX ???
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