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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