Public-Private Competitions: Reasonable Processes Used for San Antonio
Engine Depot Maintenance Award (Letter Report, 05/27/99,
GAO/NSIAD-99-155).

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

GAO noted that: (1) the processes used for the San Antonio engine
maintenance competition award were reasonable; (2) the competition
procedures provided an equal opportunity for public and private
competitors without regard to where the work could be performed; (3) the
procedures did not deviate in any material respect from applicable laws
and regulations; (4) the Air Force appropriately considered factors
other than cost in the selection; (5) within the framework set forth for
the competition, the award resulted in the lowest total cost to DOD for
performance of the work; and (6) GAO also identified several
methodological and process issues related to the cost evaluation that,
while not materially affecting the selection, may be useful for the Air
Force to consider in future competitions.

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

 REPORTNUM:  NSIAD-99-155
     TITLE:  Public-Private Competitions: Reasonable Processes Used for
	     San Antonio Engine Depot Maintenance Award
      DATE:  05/27/99
   SUBJECT:  Cost effectiveness analysis
	     Federal procurement policy
	     Military downsizing
	     Equipment maintenance
	     Privatization
	     Base closures
	     Military cost control
	     Maintenance services contracts
	     Aircraft engines
	     Air Force procurement

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ns99155 GAO United States General Accounting Office

Report to Congressional Committees

May 1999 PUBLIC- PRIVATE COMPETITIONS

Reasonable Processes Used for San Antonio Engine Depot Maintenance
Award

GAO/NSIAD-99-155

  GAO/NSIAD-99-155

Page 1 GAO/NSIAD-99-155 Public- Private Depot Competitions United
States General Accounting Office

Washington, D. C. 20548 Let ter National Security and

International Affairs Division

B-282343.2 Letter May 27, 1999 The Honorable John Warner Chairman
The Honorable Carl Levin Ranking Minority Member Committee on
Armed Services United States Senate

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

This report is a redacted version of a report issued on April 1,
1999, which contained procurement sensitive information. This
report responds to one of several requirements in the National
Defense Authorization Act for Fiscal Year 1998 relating to depot
maintenance activities. 1 As required, we

reviewed the Air Force's selection of a source of repair for depot
maintenance work at the closing San Antonio Air Logistics Center,
Kelly Air Force Base, Texas. 2 Specifically, we assessed whether
(1) the Air Force's procedures for conducting the San Antonio
competition provided a substantially equal opportunity for the
public and private offerors to compete for the work without regard
to performance location, (2) procedures for conducting the
competition were in compliance with

10 U. S. C. 2469a and other applicable laws and regulations, (3)
appropriate consideration was given to factors other than cost,
and (4) the award resulted in the lowest total cost to the
Department of Defense (DOD) for performance of the work.

1 Appendix I lists the depot maintenance reporting requirements
contained in the act. 2 The engine competition workload included
F100 turbine engine (noncore work), TF39 turbine engine, T56
turbine engine, fuel accessories, engine electronics, TF39 two-
level maintenance, and T56 two- level maintenance.

Lett er

B-282343.2 Page 2 GAO/NSIAD-99-155 Public- Private Depot
Competitions

Results in Brief The processes used for the San Antonio engine
maintenance competition award were reasonable. Specifically, (1)
the competition procedures provided an equal opportunity for
public and private competitors without

regard to where the work could be performed; (2) the procedures
did not deviate in any material respect from applicable laws and
regulations; (3) the Air Force appropriately considered factors
other than cost in the selection; and (4) within the framework set
forth for the competition, the award resulted in the lowest total
cost to DOD for performance of the work.

We also identified several methodological and process issues
related to the cost evaluations that, while not materially
affecting the selection, may be useful for the Air Force to
consider in future competitions.

Background As the result of a 1995 Base Realignment and Closure
decision, the Sacramento and San Antonio Air Logistics Centers,
including their

maintenance depots, are to close by 2001. To mitigate the impact
of the closings on the local communities and employees, the
administration announced its intention to maintain employment
levels by privatizing the maintenance depots' workloads in place
at each location. As a result, the Air Force announced a strategy
to privatize in place five prototype depot maintenance work
packages at the two closing centers. In response to congressional
concerns regarding this strategy, the Air Force decided to use
public- private competitions to determine the most cost- effective
source of repair for the closing maintenance depots' work.
Appendix II provides a more detailed description of the closure
history for both

centers. On March 20, 1998, the Air Force issued a solicitation
for the purpose of conducting a public- private competition for
multiple engine depot maintenance workloads being performed at the
San Antonio Air Logistics

Center. 3 The Air Force received one private sector proposal from
Pratt & Whitney San Antonio Engine Services Corporation, which had
General Electric Company, Allison/ Rolls Royce/ Standard Aero,
Allied Signal, and

3 A small portion of San Antonio's workload was transferred to
other DOD depots outside the competition process. For example,
F100 workloads identified as core (this refers to work that is to
be performed in a DOD facility) were transferred outside the
competition process to the Oklahoma City depot. Additionally, core
workloads from the nuclear weapons directorate were transferred to
the Ogden Air Logistics Center in Utah. Lett er

B-282343.2 Page 3 GAO/NSIAD-99-155 Public- Private Depot
Competitions

Caterpillar Logistics as major subcontractors. Also, one public
sector proposal was received from the Air Force's Oklahoma City
Air Logistics Center, which was teamed with Lockheed Martin Kelly
Aircraft Company. Lockheed Martin's major subcontractors were
Standard Aero Limited,

Chromalloy Gas Turbine, and Woodward Governor. The Air Force
planned to make an award in October 1998. However, the award
decision was delayed based on the evaluation team's concerns
regarding certain pricing data received from both offerors.
Consequently, the Air Force issued a solicitation amendment on
September 28, 1998, that required detailed cost information for
high- dollar contract line items. Revised best and final offers
were submitted by both offerors on

January 16, 1999. On February 12, 1999, the Air Force selected the
Oklahoma City Air Logistics Center's proposal as representing the
best value to the government.

San Antonio Air Force Depot Competition Placed No Limitation on
Performance Location

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

in Oklahoma City's plan to transition the F100 engine work to its
facilities at Oklahoma City. This concern was based on legitimate
performance considerations regarding the availability of trained
workers and did not reflect a bias toward performing the work at
the closing San Antonio facility. Appendix III provides the
details of our legal analysis. Competition Procedures Complied
With Applicable Laws and Regulations

Overall, the Air Force's evaluation and selection of Oklahoma City
were reasonable, fair, and consistent with the solicitation and
the depot competition procedures. We found no reason to conclude
that the

competition procedures used deviated in a material way from 10 U.
S. C. 2469a and other applicable laws and regulations. (See app.
III for our detailed legal analysis.) In assessing the Air Force's
compliance with applicable laws and regulations relating to the
competition for San

Antonio's work, we reviewed the Air Force's evaluation of the
proposals and the selection in the context of applicable laws and
regulations.

B-282343.2 Page 4 GAO/NSIAD-99-155 Public- Private Depot
Competitions

This review included examining documents, reviewing processes and
procedures, and discussing the competition with Air Force
officials.

Competition Procedures The Air Force materially complied with the
required procedures. For example, pursuant to 10 U. S. C. 2469a
and its depot competition procedures, the Air Force issued the
solicitation under Federal Acquisition Regulation (FAR) part 12,
which prescribes the policies and procedures for the acquisition
of commercial items and FAR part 15, which sets forth the source
selection procedures for competitively negotiated acquisitions.
Also, as required by the law, the solicitation called for
proposals from public and private sector sources for aircraft
engine maintenance work currently being performed at the closing
San Antonio Air Logistics Center. Further, consistent with
applicable law, the solicitation provided for award to the public
or private competitor that was responsible and whose proposal
conformed to the solicitation and represented the best value to
the government. Applicable Laws and

Regulations The Air Force materially complied with applicable laws
and regulations.

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

chapter 137 of title 10 of the United States Code and the FAR
apply to the extent they are consistent with 10 U. S. C. 2469a and
the other applicable provisions relating to the outsourcing of
depot workloads. Consistent with these standards, the Air Force
followed the criteria announced in the

solicitation, which included those required by 10 U. S. C. 2469a,
and exercised its judgment in a reasonable manner in selecting the
successful competitor.

Air Force Considered Factors Other Than Cost

While the competitor selected represented the lowest evaluated
cost to the government, the Air Force considered the relative
merits of the technical and management approaches of both
proposals. For example, the Air Force

B-282343.2 Page 5 GAO/NSIAD-99-155 Public- Private Depot
Competitions

considered Pratt & Whitney's reliability centered maintenance 4
approach combined with its warranties and guaranties to be a
benefit. On the other hand, the Air Force concluded that Oklahoma
City's plan to perform

in- house a number of repair processes currently contracted out
was risky, largely because of the proposed qualification schedule.
Thus, for these and other reasons, we found no basis to conclude
that factors other than cost were not appropriately considered.
(See app. III for our detailed legal analysis.)

Evaluation Resulted in the Lowest Total Cost to the Government

Overall, the San Antonio engine competition cost evaluation
results were reasonable. The Air Force awarded the Oklahoma Air
Logistics Center the multiple engine depot maintenance workload.
Oklahoma City's total evaluated cost of $10,516,225,557 was about
5 percent less than Pratt &

Whitney's evaluated cost of $11,066,342,080. While not affecting
the selection, we do question the accuracy and completeness of
some of the estimates used in the evaluation. The cumulative
dollar impact of our findings is not significant enough to
eliminate the $550- million difference between the total evaluated
costs of the offerors. The areas where we have questions about the
accuracy and

completeness of evaluated costs include (1) overhead, (2)
depreciation of government- furnished equipment, (3) warehouse
services, (4) material, (5) fair market value of government-
furnished equipment, and (6) warranties.

Cost Evaluation Was Reasonable

The overall San Antonio engine cost evaluation was reasonable. We
reviewed the accuracy and soundness of the data, assumptions, and
methodology supporting selected items in the evaluation. To do
this, we analyzed the key cost elements in each proposal and the
final adjustments the Air Force made. We selected cost elements
having variances of 10 percent or more between the competitors or
between amounts contained in the competitors' final proposals
versus the final evaluated cost estimated by the evaluation team.
For these cost elements, we (1) held discussions with the cost
evaluation team regarding the methodology used

in determining the evaluated cost; (2) reviewed the calculations
and 4 Reliability centered maintenance was defined in Pratt &
Whitney's proposal as an approach for implementing improved
maintenance practices and rapidly incorporating design and
configuration modifications that would improve engine reliability.

B-282343.2 Page 6 GAO/NSIAD-99-155 Public- Private Depot
Competitions

supporting documentation for the various cost elements; (3) on a
selective basis, independently verified data to corroborate the
evaluated cost estimates; and (4) discussed competition issues
with the public offeror. We question several of the cost estimates
and present them here as information

for the Air Force to consider in future competitions. Overhead
Savings Are Understated

The evaluation team's calculation of the public offeror's overhead
savings is understated. 5 Correcting this understatement would
decrease the total evaluated cost of the public offeror because
the team considered some costs as variable when they should have
been treated as fixed or partially fixed. Oklahoma City's estimate
of overhead savings was reduced by 65 percent. During the early
stages of the evaluation process, the evaluation team

initially reduced Oklahoma City's overhead savings estimate to
$210.6 million. The team determined that the averaging technique
used by Oklahoma City did not accurately estimate overhead savings
and developed its own methodology. While we agree that the
Oklahoma City estimate was inaccurate, the approach used by the
evaluation team

understated overhead savings. For example, in the commodity
directorate, the evaluation team's calculations assumed that the
$15.5 million in annual shop equipment depreciation was 100
percent variable and would increase on a directly proportional
basis as additional workload is added. Using this assumption,
rates for equipment depreciation expense would remain

constant, and no overhead savings would result from adding
workload. However, this assumption is inaccurate. We reviewed shop
equipment depreciation data to determine the impact that added
workload would have on Oklahoma City's cost projections. We found
that the estimated shop equipment depreciation did not increase as
much as the cost evaluation team assumed. The data we reviewed
showed that equipment depreciation was fixed and would result in a
reduced overhead cost for each unit produced as workload was
added. We estimated that overhead savings in

the commodity and propulsion directorates were understated by
about $5 million per year, or about $67 million over the
performance period. 6 We 5 Understated means that the evaluated
cost would be lower than that estimated by the evaluation team.
Conversely, overstated means that the evaluated cost would be
higher than that estimated by the evaluation team. 6 The basic
performance period is 7 years, which may be extended up to 15
years.

B-282343.2 Page 7 GAO/NSIAD-99-155 Public- Private Depot
Competitions

did not estimate the total effect of the team's cost assumptions
on the remaining expense categories.

In the final stage of the selection process, the source selection
authority further reduced Oklahoma City's overhead savings from
$210. 6 million to $138.6 million to reflect the uncertainty in
achieving overhead savings in the latter years of the performance
period. In this regard, the final evaluated overhead savings
estimate for the public offeror was understated because the
evaluation team's error in the early phase of the final process
was reflected in the source selection authority's final decision.
Government- Furnished Equipment Depreciation Cost

Understated Government- furnished equipment depreciation is
understated for both

offerors. Correcting this understatement would increase the total
evaluated cost of both offerors. Our review of the supporting data
shows that the Air Force's calculations of depreciation were not
consistent with the stated methodology and differed between
offerors. These errors resulted in a $22. 7 million understatement
of Oklahoma City's depreciation costs and a $9.9 million
understatement of Pratt & Whitney's depreciation costs.

The evaluation team increased Oklahoma's evaluated cost by $15.7
million and Pratt & Whitney's evaluated cost by $2.3 million to
reflect the depreciation cost associated with government-
furnished equipment. The depreciation adjustment was to account
for equipment with an acquisition cost of $100,000 or greater
provided by the government directly to a private contractor and
depreciated over a period of 12 years with no residual value.

The Air Force stated that its depreciation adjustment was based on
applying an average annual equipment depreciation value to account
for replacing retired equipment with new equipment during the
performance period.

The evaluation team's stated methodology for calculating
depreciation for government- furnished equipment was to calculate
the average annual depreciation and apply this average to the
performance period. Instead, for the public offeror, the team used
a different approach. It totaled the undepreciated book value of
all government- furnished equipment items valued at $100,000 or
more. We estimated the depreciation adjustment using the team's
stated methodology to be $38.4 million versus the

$15. 7 million estimate made by the evaluation team for a
difference of $22. 7 million. The evaluation team members were
uncertain why this error occurred.

B-282343.2 Page 8 GAO/NSIAD-99-155 Public- Private Depot
Competitions

The evaluation team used its stated methodology in evaluating the
private offeror's government- furnished equipment depreciation.
However, the team did not include all applicable equipment items
in its calculations.

Additionally, the team made an error in its averaging
calculations. We determined that the equipment depreciation
expense should have been $12. 2 million instead of the $2. 3
million used an understatement of $9.9 million. Fair Market Value
of Equipment to Private Offerors Was Understated

The evaluation team understated the cost of government- furnished
equipment for the public offeror's private partners. Correcting
this understatement would have increased the total evaluated cost
of the public offeror. We were unable to estimate the value of
this understatement because the Air Force is uncertain how much of
this equipment will be used or its fair market value. The
acquisition cost of this equipment is reported at about $126. 6
million.

The Fiscal Year 1998 Defense Authorization Act provides that the
evaluators give consideration to the fair market value of land,
plant, or equipment used by a private offeror to perform
competition workloads

from a closing military installation. While the evaluation team
considered the fair market value of equipment to be used by the
private offeror's team, it did not consider the fair market value
of equipment to be used by the private sector members of the
public offeror's team.

Warehousing Adjustment Overstated The evaluation team overstated
the warehousing function adjustment for

the public offeror by about $16.6 million, or about 57 percent.
Correcting this overstatement would reduce the total evaluated
cost of the public offeror. The overstatement resulted from (1)
using an incorrect amount to represent the warehousing services
rate charges and (2) assuming

incorrectly that all warehousing costs are variable. The Defense
Logistics Agency provides the Air Force warehousing services, such
as storing, issuing, and receiving inventory. The logistics agency
charges customers standard prices that are computed annually for
each type of service. The evaluation team concluded that the
Oklahoma City offer did not include the cost associated with the
logistics agency's warehousing function. The team estimated that
the warehousing function cost should be about $28.7 million.

However, the team's estimate was overstated by about $16.6-
million for two reasons. First, it used incorrect source data,
resulting in a $2.5- million overstatement. Second, the team
incorrectly assumed that all logistics

B-282343.2 Page 9 GAO/NSIAD-99-155 Public- Private Depot
Competitions

agency warehousing costs are variable, resulting in a $14.1-
million overstatement. Our prior work shows that no more than 51
percent of costs for the warehousing function are variable. 7

Material Cost Adjustment Is Questionable We question one part of
the methodology used to compute material cost adjustment. It is
unclear whether correcting this adjustment would increase or
decrease the total evaluated cost of the public offeror.
Specifically, the evaluation team used an inappropriate indicator
as a basis

for computing the adjustment for the public offeror. To compute
$110.8 million of the $175.8- million material cost adjustment,
the evaluation team used an overhead management cost factor that
is not related to the depot's material costs. 8 This cost factor
is not an indicator of historical material cost performance, and
it was not a reliable basis for the material cost adjustment.

Other Risks Associated With Warranties and Guaranties Could Have
Been Considered

The evaluation team could have considered another factor in
evaluating the credit provided to both offerors for warranties and
guaranties. While substantial reductions were made in the
evaluation of the private offeror's warranties and guaranties, we
noted that the methodology did not account for the risk that the
government might not realize all estimated warranty and guaranty
benefits. Our prior work shows that such risks exist.

Addressing this factor could have increased the total evaluated
cost of each offeror.

The evaluation team estimated that Pratt & Whitney's proposed
engine reliability improvements and the associated warranties and
guaranties contained in their proposal could be worth as much as
$608 million to the Air Force. However, the source selection
authority determined that most of the associated savings were to
occur in the latter part of the program. Therefore, the source
selection authority reduced the warranties and

guaranties estimate by $359 million to reflect the fact that Pratt
& Whitney might not qualify for the entire 15- year performance
period under the award- term provisions.

7 Public- Private Competition: Processes Used for Sacramento Depot
Maintenance Award Appear Reasonable (GAO/NSIAD-99-42, Nov. 23,
1998). 8 This factor is for overhead costs not directly related to
the depot's operations, such as the charge to

the depots for the Joint Logistics Systems Center.

B-282343.2 Page 10 GAO/NSIAD-99-155 Public- Private Depot
Competitions

The evaluation team used historic failure rates and projected
engine usage rates to estimate the value of Pratt & Whitney's
warranties and guaranties. However, it did not assess the Air
Force's historic realization of such warranties or historic
administrative costs. In 1996, we reported 9 that Air Force cost-
benefit analyses of warranties were inadequate because the
analyses assumed all potential defects would be identified and
claims submitted. At that time, the Air Force estimated that 80 to
85 percent of

failures subject to warranty benefits go unreported. Additionally,
in cases where claims data were available for our review, we
reported that the warranty price paid exceeded the value of the
claims made against the warranty. For example, the combined
warranty price was $94 million, the value of the warranty claims
was $5 million, and the quantified price exceeded the quantified
benefit by $89 million.

The warranty credit given to Oklahoma City in the evaluated cost
was $3.6 million. Therefore, any adjustment to warranty claim risk
would be limited to this amount.

Conclusions The processes used for the San Antonio engine depot
maintenance award were reasonable. The Air Force materially
complied with the requirements of applicable laws and regulations
in the competition for depot

maintenance work at the San Antonio Air Logistics Center. While
not affecting the selection, some cost estimates used in the
evaluation could have been more accurate and complete. These cost
estimates relate to overhead, government- furnished equipment
depreciation, warehousing services, material, fair market value of
government- furnished equipment, and warranties. The issues that
are related to these cost estimates provide

information for the Air Force to consider in its future
competitions. Agency Comments Air Force officials reviewed a draft
of this report. They agreed with our conclusion that the Air Force
followed the criteria announced in the solicitation and exercised
sound judgment in selecting the successful competitor for the San
Antonio workloads. They generally disagreed with our conclusions
that the savings to the government were understated and with our
observations regarding the accuracy and completeness of costs for
depreciation of government- furnished equipment, warehouse
services,

9 Weapons Acquisition: Warranty Law Should Be Repealed (GAO/NSIAD-
96-88, June 28, 1996.)

B-282343.2 Page 11 GAO/NSIAD-99-155 Public- Private Depot
Competitions

material, fair market value of government- furnished equipment,
and warranties. Air Force officials said that they recognized the
time constraints associated with this report, and as such, they
could only provide general comments at this time.

We will need further information to comment on the areas where the
Air Force disagrees with our report. The Air Force said it would
provide a detailed reply to each of the cost issues at a later
date. We will evaluate and report, as appropriate, on any
additional information provided in response to this report. Not
having specific information about procurement sensitive
information, we have marked the report to indicate that the entire
report

must be safeguarded. Scope and Methodology

In conducting our work, we obtained information from and
interviewed officials at Headquarters, U. S. Air Force,
Washington, D. C.; Headquarters, Air Force Materiel Command,
Wright Patterson Air Force Base, Ohio; the San Antonio Air
Logistics Center, Kelly Air Force Base, Texas; the

Oklahoma City Air Logistics Center, Tinker Air Force Base,
Oklahoma; and the Defense Contract Audit Agency, Ogden, Utah. We
offered to discuss the San Antonio engine competition and award
issues with both the public and private competitors; however, the
private offeror declined.

To analyze the Air Force's decision to award the San Antonio depot
maintenance workload to the Oklahoma City Air Logistics Center, we
interviewed officials and collected relevant documents from
Headquarters,

Department of the Air Force; Headquarters, Air Force Materiel
Command; Air Force source selection team members; representatives
from the public competitor; the independent advisors to the source
selection authority; and

the Defense Contract Audit Agency. To verify compliance with the
San Antonio engine competition and selection with applicable laws
and regulations, our Office of General Counsel performed a legal
compliance review.

To determine whether cost elements considered in the source
selection evaluation were complete and reasonable, we discussed
the selection structure with cognizant Air Force and DOD
officials, as well as with representatives of the public offeror.
We also reviewed the evaluation

team's calculating methods for the various cost elements for
reasonableness and compared the cost elements between competitors
to identify material drivers and to further test for
reasonableness. We discussed with the evaluation team members
their rationale for treating

B-282343.2 Page 12 GAO/NSIAD-99-155 Public- Private Depot
Competitions

cost elements in the evaluation and in some cases recalculated
cost estimates. We performed our review between September 1998 and
March 1999 in accordance with generally accepted government
auditing standards.

A list of our related reports is provided at the end of this
report. We are sending copies of this report to the Honorable
William S. Cohen, Secretary of Defense; the Honorable F. W.
Peters, Acting Secretary of the Air Force; the Honorable Jacob J.
Lew, Director, Office of Management and Budget; and interested
congressional committees and members.

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

David R. Warren, Director Defense Management Issues

Page 13 GAO/NSIAD-99-155 Public- Private Depot Competitions

Contents Letter 1 Appendix I Summary of Depot Reporting
Requirements in the National Defense Authorization Act for Fiscal
Year 1998

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

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

23 Appendix IV Major Contributors to This Report

52 Related GAO Products 53

Contents Page 14 GAO/NSIAD-99-155 Public- Private Depot
Competitions Abbreviations

ALC Air Logistics Center BRAC Base Realignment and Closure DOD
Department of Defense GKDC Greater Kelly Development Corporation
RFP request for proposal SSA Source Selection Authority SSAC
Source Selection Advisory Council

Contents Page 15 GAO/NSIAD-99-155 Public- Private Depot
Competitions

Page 16 GAO/NSIAD-99-155 Public- Private Depot Competitions

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

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

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

Within 90 days of DOD's annual report to Congress, we were
required to review DOD's report and inform Congress whether DOD
had complied with the 50- percent limitation.

II. Reports Concerning Public- Private Competitions for the Depot
Maintenance Workloads at the Closing San Antonio and Sacramento
Air Logistics Centers (Section 359) The act added section 2469a to
title 10 the United States Code to provide for special procedures
for public- private competitions concerning the workloads of these
two closing depots. It also required us to issue four reports.

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

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

determination within 30 days. Third, the act required us to review
all DOD solicitations for the workloads at the San Antonio and
Sacramento Air Logistics Centers and report to Congress within 45
days of the solicitations' issuance whether the

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

Page 17 GAO/NSIAD-99-155 Public- Private Depot Competitions

solicitations provided substantially equal opportunity to compete
without regard to performance location and otherwise complied with
applicable laws and regulations.

Fourth, the act required us to (1) review all DOD awards for the
workloads at the two closing Centers and report to Congress within
45 days of the contract award whether (1) the procedures used
complied with applicable laws and regulations and provided a
substantially equal opportunity to

compete without regard to performance location, (2) appropriate
consideration was given to factors other than cost in the
selection, and (3) the selection resulted in the lowest total cost
to DOD for performance of the workloads.

This report addresses the fourth requirement for the award of the
aircraft engine workload at the San Antonio Air Logistics Center.

Page 18 GAO/NSIAD-99-155 Public- Private Depot Competitions

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

The 1995 Base Realignment and Closure (BRAC) Commission
recommended closing the Sacramento and San Antonio Air Logistics
Centers and transferring their workloads to the remaining depots
or to private sector commercial activities. In making these
recommendations, the Commission considered the effects of the
closures on the local communities, on workload transfer costs, and
the potential effects on readiness and concluded that the savings
and benefits outweighed the drawbacks. The Commission's report
noted that given the significant amount of excess depot capacity
and limited DOD resources, closure was a

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

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

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

equipment and any required personnel to receiving locations. All
other activities and facilities at the base were to close. In
considering the BRAC recommendations to close the two centers, the
President and the Secretary of Defense expressed concerns about
the near- term costs and potential effects on local communities
and Air Force readiness. In response to these concerns, the
President, in forwarding the Commission's recommendations to
Congress, indicated that the air logistics centers' work should be
privatized in place or in the local communities. He also directed
the Secretary of Defense to retain 8,700 jobs at McClellan Air
Force Base, which had been recommended for closure,

and 16, 000 jobs at Kelly Air Force Base, which had been
recommended for realignment, until 2001 to further mitigate the
closures' impact on the local

1 The Defense Depot Maintenance Council is a senior- level council
established to advise the Deputy Under Secretary of Defense for
Logistics on depot maintenance within DOD.

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

Page 19 GAO/NSIAD-99-155 Public- Private Depot Competitions

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

three at Sacramento (for hydraulics, electric accessories, and
software) and two at San Antonio (for C- 5 aircraft paint/ depaint
and fuel accessories). The Defense Depot Maintenance Council
approved the Air Force's plans for the five prototype workloads on
February 1, 1996. The prototype workloads involved about 11
percent of the San Antonio depot's maintenance personnel and about
27 percent of Sacramento's personnel. 2 Shortly after the Council
approved the prototype program, the concept's appropriateness was
questioned. Community and industry groups expressed an interest in
having larger packages, and DOD officials were concerned about the
cost of administering a large number of smaller contracts.
Implementation of the prototype program was put on hold in May
1996 as the Air Force considered various options. In April 1996,
we

testified that, if not effectively managed, privatizing depot
maintenance activities, including the downsizing of remaining DOD
depot infrastructure, could exacerbate excess capacity problems
and the inefficiencies inherent in underused depot maintenance
capacity. Privatizing workloads in place at two closing Air Force
depots would not reduce the excess capacity in the remaining
depots or the private sector and consequently would not be a cost-
effective approach to reducing depot infrastructure. 3 Later that
year, we reported that privatizing in place, rather than closing
and transferring

the depot maintenance workloads at the Sacramento and San Antonio
centers, would leave the Air Force with costly excess capacity at
its remaining depots that a workload consolidation would mitigate.
4 Our analysis showed that transferring the depot maintenance
workloads to other depots could yield additional economy and
efficiency savings of over $200 million annually. We recommended
that the Secretary of Defense

require the Secretary of the Air Force to take the following
actions:  Before privatizing any Sacramento or San Antonio
workload, complete a

cost analysis that considers the savings potential of
consolidating the 2 The BRAC report specified that the Council
should determine where depot maintenance workloads from closing
Air Force depots should be moved. 3 Defense Depot Maintenance:
Privatization and the Debate Over the Public- Private Mix (GAO/T-
NSIAD-96-146, Apr. 16, 1996) and (GAO/T-NSIAD-96-148, Apr. 17,
1996). 4 Air Force Depot Maintenance: Privatization- in- Place
Plans Are Costly While Excess Capacity Exists (GAO/NSIAD-97-13,
Dec. 31, 1996).

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

Page 20 GAO/NSIAD-99-155 Public- Private Depot Competitions

two centers' depot maintenance workloads at other DOD depots,
including savings that can be achieved for existing workloads by
reducing overhead rates through more efficient capacity
utilization of fixed overhead at underused military depots that
could receive this workload.

 Use competitive procedures, where applicable, for determining the
most cost- effective source of repair for workloads at the closing
Air Force depots. In August 1996, the Air Force announced a
revised strategy for allocating the depot workloads at the
Sacramento and San Antonio centers. The strategy involved several
large consolidated work packages, essentially one at Sacramento
and two at San Antonio (one for the C- 5 aircraft and one for
engines). In December 1996, the Air Force issued procedures to
conduct public- private competitions for the workloads and to
allow one of the remaining public depots to compete with the
private sector for each of the

three workload packages. The Air Force's procedures allowed
evaluation credit for public and private sector proposals that
offered overhead savings to other government workloads. In
February 1997, the Air Force issued a request for proposals (RFP)
for the

C- 5 aircraft depot maintenance workload. In September 1997, the
Air Force awarded the C- 5 workload to the Warner Robins Air
Logistics Center based on the Air Force's conclusion that it had
the lowest total evaluated cost. As required by the 1998 Defense
Authorization Act, we reviewed the C- 5 award, issuing our report
on January 20, 1998. We concluded that (1) the C- 5 competition
procedures provided an equal opportunity for public and private
offerors to compete without regard to where the work could be
performed; (2) the procedures did not appear to deviate in any
material respect from the applicable laws or the FAR; and (3)
based on Air Force assumptions and conditions at the time of
award, the award resulted in the

lowest total cost to the government. 5 On December 19, 1997, DOD
submitted to Congress a determination and report to support
bundling the engine workloads at the San Antonio depot and a
determination and report to support bundling the commodity and
aircraft workloads at the Sacramento depot. DOD was required to
submit these documents before issuing single solicitations at each
location for the 5 Public- Private Competitions: Processes Used
for C- 5 Aircraft Award Appear Reasonable (GAO/NSIAD-98-72, Jan.
20, 1998).

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

Page 21 GAO/NSIAD-99-155 Public- Private Depot Competitions

combined work. In response to 1998 Authorization Act requirements
and subsequent requests from the Senate Committee on Armed
Services and the House Committee on National Security, we issued
two reports and two testimonies providing our assessment of DOD's
determinations that it was more logical and economical to combine
the workloads being competed at the closing depots. 6 We reported
that

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

potentially cost- effective;  DOD's assumption that efficiencies
from shared personnel and facilities would be best achieved with a
single solicitation for combined

workloads at each location was questionable; and  the Air Force's
conclusion from its cost analysis that the workload

combination would save $22 million to $130 million at Sacramento
and $92 million to $259 million at San Antonio was questionable
because the Air Force did not consider all cost factors, such as
the cost benefits of increased competition resulting from
solicitations for individual workloads.

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

combined basis was necessary to satisfy its needs. Otherwise, we
found that the solicitation complied with applicable laws,
including 10 U. S. C. 2469a. On May 14, 1998, we issued our report
on the San Antonio solicitation, similarly concluding that the Air
Force had not provided a sufficient basis to show that soliciting
the workloads on a combined 6 Public- Private Competitions: DOD's
Determination to Combine Depot Workloads Is Not Adequately

Supported (GAO/NSIAD-98-76, Jan. 20, 1998); Public- Private
Competitions: Access to Records Is Inhibiting Work on
Congressional Mandates (GAO/T-NSIAD-98-101, Feb. 24, 1998) and
(GAO/T-NSIAD-98-111, Mar. 4, 1998); and Public- Private
Competitions: DOD's Additional Support for Combining Depot
Workloads Contains Weaknesses (GAO/NSIAD-98-143, Apr. 17, 1998).

7 Public- Private Competitions: Review of Sacramento Air Force
Depot Solicitation (GAO/OGC-98-48, May 4, 1998).

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

Page 22 GAO/NSIAD-99-155 Public- Private Depot Competitions

basis( was necessary to satisfy its needs but that otherwise the
solicitation complied with applicable laws, including 10 U. S. C.
2469a. 8

In October 1998, the Air Force awarded the Sacramento workload to
the Ogden Air Logistics Center. As required by the 1998 Defense
Authorization Act, we reviewed the Sacramento award, issuing our
report on November 23, 1998. 9 We concluded that (1) the Air Force
met the requirements of applicable laws and regulations in
awarding the Sacramento workload to the Ogden Air Logistics
Center; (2) the process used for estimating overhead, commodity
rate risk, warehousing, base operating support, and material
surcharge costs provided issues for the Air Force to consider in
its future competitions; and (3) the evaluation team could have
better documented support for certain key cost estimates, followed
more appropriate or consistent approaches for estimating costs,
and used more accurate or appropriate data.

8 Public- Private Competitions: Review of San Antonio Depot
Solicitation (GAO/OGC-98-49, May 14, 1998). 9 Public- Private
Competitions: Processes Used for Sacramento Depot Maintenance
Award Appear Reasonable (GAO/NSIAD-99-42, Nov. 23, 1998).

Page 23 GAO/NSIAD-99-155 Public- Private Depot Competitions

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

On March 30, 1998, the Department of the Air Force, San Antonio
Air Logistics Center (ALC) at Kelly Air Force Base, Texas, issued
request for proposals (RFP) No. F41608- 98- R- 0084 for the
purpose of conducting a public- private competition for the
propulsion business area depot- level workloads being performed at
the closing San Antonio ALC. The Air Force

received proposals from one private sector offeror Pratt & Whitney
San Antonio Engine Services, Inc. (Pratt & Whitney) and from one
public offeror-- the Air Force's Oklahoma City ALC. Following
technical and cost evaluations, the Air Force selected Oklahoma
City ALC to perform the San Antonio workloads on the basis that
its proposal represented the best value to the government. The
Oklahoma City ALC proposal represented the lowest most probable
total evaluated cost at $10,516,225,557 over the

15- year performance period. 1 Section 359 of the National Defense
Authorization Act for Fiscal Year 1998, Public Law 105- 85 (1998
Authorization Act) added section 2469a to title 10 of the United
States Code, which provided for special procedures for public-
private competitions for the workloads at the closing San Antonio

and Sacramento ALCs. Section 2469a also requires us to review the
selection process for the awards made for the workloads at the two
closing ALCs and report to Congress within 45 days of each award
on whether (1) the procedures used to conduct the competition
provided a substantially

equal opportunity for offerors to compete without regard to
performance location and complied with 10 U. S. C. 2469a and all
applicable laws and regulations, (2) appropriate consideration was
given to factors other than cost in the selection, and (3) the
award resulted in the lowest total cost to the Department of
Defense (DOD) for the performance of the workloads. 2 Our review
was based on the record of the proposal evaluation and the
selection. In addition, we spoke to Air Force officials and
considered

concerns raised informally by one of the competitors. We recognize
that an offeror can file a protest with our Office pursuant to 31
U. S. C. 3551- 3556, or file an action with the courts, or an
objection to the award with DOD under 10 U. S. C. 2469a( h). If a
protest is filed with our Office or an action is filed in court,
factual information, issues, and arguments raised by the
interested parties would be reviewed in the context of an
adversarial process.

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

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 24 GAO/NSIAD-99-155 Public- Private Depot Competitions

Thus, the result of a protest or court action may differ from that
of our current review. Similarly, the result of an objection filed
with DOD may differ from our review.

Our review of the procedures the Air Force used to conduct the San
Antonio competition in the context of the concerns that were
raised by the competitor revealed no basis to conclude that (1)
the procedures did not provide a substantially equal opportunity
for the offerors to compete

without regard to performance location, (2) appropriate
consideration was not given to factors other than cost in the
selection, and (3) the procedures used in selecting the successful
offeror deviated in any material respect from the applicable laws
and regulations. While not affecting the legal sufficiency of the
selection, we nevertheless identified several issues related to
the estimates used in the cost evaluation. These issues are
discussed in the body of the report.

In our 1998 review of the San Antonio solicitation, we concluded
that the Air Force had not provided a sufficient basis to show
that soliciting the workloads on a combined basis was necessary to
satisfy its needs. We also concluded that the solicitation was
otherwise in compliance with applicable laws, including the
provisions of 10 U. S. C. 2469a, and that it provided a
substantially equal opportunity for offerors to compete without
regard to performance location. 3 On May 29, 1998, the National
Airmotive Corporation (National Airmotive) filed a protest of the
solicitation's provisions with our Office pursuant to

31 U. S. C. 3551- 3556. National Airmotive objected to the
solicitation of the workloads on a combined basis. In a decision
dated September 4, our Office denied the protest, concluding that
the Air Force was able to show, based, in part, on evidence
concerning readiness risks not considered in our earlier report,
that combining the workloads was reasonably required to satisfy
its needs. 4 On November 12, National Airmotive filed an action in

the United States District Court for the Northern District of
California, Oakland Division, seeking a declaration that the
solicitation was illegally

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

regard to performance location. The review of the San Antonio
solicitation was the subject of our report entitled Public-
Private Competitions: Review of San Antonio Air Force Depot
Solicitation (GAO/OGC-98-49, May 14, 1998). 4 National Airmotive
Corp., B-280194, Sept. 4, 1998.

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 25 GAO/NSIAD-99-155 Public- Private Depot Competitions

issued and void and an injunction preventing the Air Force from
going forward with the award or performance of a contract awarded
pursuant to the solicitation. The action was dismissed by decision
dated February 25, 1999. 5 The following describes the legal
standards applicable to the San Antonio competition, relevant
aspects of the solicitation and evaluation procedures the Air
Force used, and our analysis of those procedures under the
applicable legal standards. 6

Applicable Legal Standards

The basic authority for the San Antonio workload competition is 10
U. S. C. 2469a, which provides procedures for public- private
competitions for the workloads of the closing San Antonio and
Sacramento ALCs that are proposed to be outsourced after the
November 18, 1997, enactment of the 1998 Authorization Act.
Section 2469a sets forth a number of requirements that the Air
Force must satisfy in its solicitations and the source selection
process it uses to make awards for the specified workloads.
Particularly, the solicitations and the source selection process
must (1) permit both public and private offerors to submit offers;
(2) take into account the fair market value of any land, plant, or
equipment at a closed or realigned

military installation that a private offeror proposes to use in
the performance of the workload; (3) take into account the total
estimated direct and indirect costs that DOD will be incur and the
total estimated direct and indirect savings (including overhead)
that DOD will be derive; (4) use cost standards to determine the
depreciation of facilities and equipment that provide, to the
maximum extent practicable, identical treatment to public and
private offerors; (5) permit any offeror, whether public or
private, to team with any other public or private entity to
perform the workload at any location or locations they choose; and
(6) ensure that 5 National Airmotive v. Cohen, Civ. Action No. C
98- 4381 SC., DC., ND., and Cal., Feb. 25, 1999. The court
concluded that the combination of the workloads was required to
satisfy the Air Force's needs.

6 As stated earlier, in the prior review of the San Antonio
solicitation in our report, Public- Private Competitions: Review
of San Antonio Air Force Depot Solicitation, we found that the Air
Force did not provide a sufficient basis to show that the combined
workloads were necessary to meet its needs. We changed our view,
based on new information, in our bid protest decision, National
Airmotive Corp. We will not again address the issue of the bundled
workloads in the solicitation, because the subject of our review
is the selection, not the solicitation.

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 26 GAO/NSIAD-99-155 Public- Private Depot Competitions

no offeror is given any preferential consideration for, or is in
any way limited to, performing the workload in place or at any
other single location. 7 In addition to 10 U. S. C. 2469a, a
number of other laws are generally applicable to the outsourcing
of government- performed depot workloads. One of the principal
laws is 10 U. S. C. 2469, which provides for the use of
competitive procedures for competitions among private and public
sector entities when DOD contemplates changing from in- house to
contractor

performance of a depot workload valued at $3 million or more. In
addition, section 8039 of the Department of Defense Appropriations
Act for Fiscal Year 1998, Public Law 105- 56, authorizes public-
private competitions for depot workloads as long as the successful
bids are certified to include

comparable estimates of all direct and indirect costs for both
public and private bids. Both provisions state that Office of
Management and Budget Circular A- 76 is not to apply to the
competitions. Other than the reference

in section 8039 to the use of comparable estimates of all costs,
neither provision prescribes the elements that constitute a
competition. Further, 10 U. S. C. 2470 provides that depot- level
activities are eligible to compete for depot workloads. 8 Other
provisions apply, generally, to converting DOD functions to

private- sector performance. Section 8014 of the 1998 DOD
Appropriations Act requires that DOD certify its in- house
estimate to congressional committees before converting any
activity performed by more than 7 In addition, 10 U. S. C. 2469a(
e) provides that DOD may issue a solicitation for multiple
workloads under 10 U. S. C. 2469a only if DOD first determines
that individual workloads cannot as logically and economically be
performed without combination by potentially qualified sources and
submits a report to Congress setting forth the reasons for the
determination. The provision also requires us to review and
provide our views on the DOD report. DOD decided to issue RFPs,
including the one here, containing combined workloads and
submitted the required determinations and reports on December 19,
1997. We reported on January 20, 1998, that the DOD reports did
not support the determination. Public- Private Competitions: DOD's
Determination to Combine Depot Workloads Is Not

Adequately Supported (GAO/NSIAD-98-76, Jan. 20, 1998). Under 10 U.
S. C. 2469a( e) DOD must wait 60 days from the submission of its
report to issue an RFP containing combined workloads. There is no
other restriction in subsection (e). The Air Force issued the San
Antonio solicitation containing multiple workloads on March 30,
1998. After our January report, the Air Force provided additional
supporting rationale for the combined workloads. We reported that
the additional rationale was not well supported. Public- Private
Competitions: DOD's Additional Support for Combining Workloads
Contains Weaknesses (GAO/NSIAD-98-143, Apr. 17, 1998). 8 We see
nothing in the other applicable provisions governing the
outsourcing of depot workloads that is inconsistent with 10 U. S.
C. 2469a. In fact, the use of comparable cost estimates and the
participation of

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

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 27 GAO/NSIAD-99-155 Public- Private Depot Competitions

10 civilian employees to contractor performance. The provisions of
10 U. S. C. 2461 require that when a DOD- performed function, such
as the workloads involved in this competition, is changed to
performance by a contractor, DOD must report to Congress and
perform an analysis that shows that a savings will result. Under
10 U. S. C. 2462, DOD is generally

required to contract with the private sector if a source can
provide the supply or service at a lower cost than DOD can and to
ensure that all costs considered are realistic and fair. 9

The Air Force implements these outsourcing authorities through the
Air Force Materiel Command's Procedures for Depot Level Public-
Private Competition, December 20, 1996 (Depot Competition
Procedures). The Depot Competition Procedures are supplemented by
the Defense Depot Maintenance Council Cost Comparability Handbook
(CCH), including the January 28, 1998, revision; the Air Force
Materiel Command Guide to the Cost Comparability Handbook; and the
SAF/ AQ Public- Private Competition

Cost Procedures of February 21, 1998. The Depot Competition
Procedures provide for issuing a solicitation calling for offers
from public and private sector sources and establish the criteria,
including those listed in 10 U. S. C. 2469a, for deciding how the
Air Force will select a source from either sector to perform depot
workloads. According to these procedures,

a competitive solicitation is to be issued under the applicable
provisions of the Federal Acquisition Regulation (FAR). This
regulation sets forth uniform policies and procedures for the
competitive acquisition system that all executive agencies use and
implements the provisions of chapter 137 of title 10 of the United
States Code, which govern DOD acquisitions.

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

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

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 28 GAO/NSIAD-99-155 Public- Private Depot Competitions

In general, the standards in chapter 137 and the FAR (1) require
that a solicitation clearly and unambiguously state what is
required so that all offerors can compete on an equal basis and
(2) allow restrictive provisions

to be included only to the extent necessary to satisfy an agency's
needs. Under these standards, an agency must follow the criteria
announced in the solicitation, which in this case include those
required by 10 U. S. C. 2469a, and exercise its judgment in a
reasonable manner in determining which competing offer is to be
selected. Dimensions International/ QSOFT, Inc., B-270966.2, May
28, 1996, 96- 1 CPD 257.

Solicitation The RFP for the San Antonio workloads contains
several line items representing the transition and performance of
various combinations of the propulsion workload. For example, (1)
line item no. 0001 calls for offers for transition, completion of
work in process (WIP), and repair of the T56, TF39, and F100
engines; (2) line item no. 0002, for transition, WIP, and repair
of the same three engines, and fuel accessories; (3) line item no.
0003, for transition, WIP, and repair of the same three engines,
the fuel accessories and for two- level maintenance on the T56
engine; (4) line item 0004, for transition, WIP, and repair of the
three engines and the fuel accessories and for two- level
maintenance for the T56 and TF39 engines;

and (5) for over and above work related to each of the four line
items. 10 The RFP provides for a transition period, which is to
begin at the award and to end by July 13, 2001, and a 7- year
basic performance period, which may be extended up to 15 years
based upon the performance of the awardee. The fixed- price
requirements- type award is to be based on the

work as represented by line item nos. 0001, 0002, 0003, or 0004.
11 The size of the workload to be awarded to a private sector
source is, according to the solicitation, to be determined based
on the constraints of 10 U. S. C. 2466( a). That provision
restricts the funds, which can be expended for private sector
performance of depot- level workloads, to no more than 50 percent
of the funds made available to the Air Force for such work in a
particular fiscal year. 10 Over and above work is not included in
the basic work requirements but is within the scope of the

award and may be ordered on the basis of a fixed hourly rate. 11
According to the solicitation, the prices would be subject to
economic adjustment based on various measurement standards and to
prospective redetermination based on revisions in the estimated

quantities of the work and process improvements.

Let t er

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 29 GAO/NSIAD-99-155 Public- Private Depot Competitions

According to the solicitation, the competition is to be conducted
under FAR part 12, which prescribes the policies and procedures
for the acquisition of commercial items; FAR 15. 101, which sets
forth the source selection processes and techniques to be used in
competitive negotiated acquisitions; and the applicable Air Force
and Air Force Materiel Command supplements. Further, the
solicitation provides that the Depot Competition Procedures, the
CCH and their updates are to govern the selection.

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

The evaluation criteria cover transition, repair operations, cost,
and assessment. Transition covers capability and resources,
equipment, responsibility transfer milestones, and risk
management. The repair operations criteria consist of five
factors: (1) continuing operations plan,

(2) risk management, (3) process improvements, (4) additional
workloads, and (5) small business. The assessment criteria, which
will be used to measure the extent to which a proposal meets the
transition, repair operations, and cost criteria, are: (1)
understanding of/ compliance with the solicitation requirements
and (2) soundness of approach. Under the cost criteria, proposals
will first be assessed for completeness, realism, and
reasonableness. 14 Then each offeror's total proposed cost is to
be determined by calculating the various cost estimates, unit
prices, and

hourly rates proposed for the different line items. Next, each
offeror's total 12 According to FAR subpart 9.1, a responsible
prospective contractor is one that meets the FAR 9- 104 standards,
which include having adequate financial resources, or the ability
to obtain them; the ability to comply with the performance
schedule; a satisfactory performance record; and the necessary
facilities and equipment or the ability to obtain them.

13 The solicitation provides that if the award is limited by the
constraints of 10 U. S. C. 2466( a), the award may consist of the
work in line items nos. 0001, 0002, 0003, or 0004. According to
the RFP, the award of any line item may be made to the offeror
whose proposal represents the best value for line item nos. 0004
and 0006 (over and above work), considering the risks associated
with the awarded line item. 14 Under FAR 15. 404- 1( d) a cost
realism analysis is the process of reviewing and evaluating
specific

elements of an offeror's cost estimate to determine whether the
proposed elements are realistic for the work to be performed.
According to FAR 15. 404- 1, reasonableness is to be assessed
through an analysis of either cost elements or overall price. Let
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alternative cost is to be developed by factoring in the numerous
adjustments to public and private offerors' total proposed cost
under the CCH and the RFP. Finally, each offeror's total evaluated
cost is to be

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

Further, the RFP provides for the evaluation of general
considerations such as the results of pre- award surveys, site
visits, and fair market value. In addition, two risk assessments
are done: one on the proposal and one on

performance. A proposal risk assessment measures the risk that is
associated with an offeror's proposed approach to accomplishing
the solicitation requirements relating to each of the four
transition area factors and each of the five repair operations
area factors. A performance risk assessment determines, based on
an offeror's present and past performance, the probability of the
offeror's successfully accomplishing

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

a source selection evaluation board (SSEB), which in turn,
reported its conclusions to a source selection advisory council
(SSAC). The council then advised the SSA, who made the final
selection. 15 Dollarized impact, as we understand it, is the
assignment of an estimated dollar value to the assessment of the
benefit or detriment to the Air Force that would result from
aspects of an offeror's proposal in calculating the offeror's
total evaluated cost.

16 The one requirement not listed in section M- 902 of the RFP is
the requirement that the cost standards used to determine the
depreciation of facilities and equipment provide, to the maximum
extent practicable, identical treatment to public and private
offerors. This requirement is addressed in the RFP at paragraph 5.
f. 6 of section L and paragraphs 2.6. b. (7) and (8) of section M-
901.

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Evaluation of Proposals

Two offerors submitted proposals in response to the solicitation.
Oklahoma City ALC, the public depot chosen by the Air Force to
submit the public sector offer, proposed to perform the F100
engine work at its facilities in Oklahoma City. The public offeror
chose Lockheed Martin Kelly Aircraft Company (Lockheed) as its
principal partner. Lockheed's major subcontractors are Standard
Aero Limited, Chromalloy Gas Turbine, and Woodward Governor.
Lockheed proposed using the San Antonio facilities transferred by
the Air Force to the Greater Kelly Development Corp. (GKDC) and
leased by GKDC to Lockheed. Lockheed, along with Standard Aero,
would perform most of the T56 work at San Antonio.

Lockheed would also head the TF39 effort, much of which is to be
performed at San Antonio along with Woodward Governor and
Chromalloy. The private sector offeror, Pratt & Whitney, proposed
to perform most of

the work on all three engines and accessories at the San Antonio
facilities to be leased from GKDC. 17 Pratt & Whitney proposed
performing most of the F100 work itself. The major subcontractors
are General Electric Co. for the TF39 engine work, Allison/ Rolls
Royce/ Standard Aero for the T56 work, and a joint venture of
Caterpillar Logistics and Allied Signal for supply management and
logistics support. The proposals were initially evaluated to
determine whether they were to be included in the competitive
range in accordance with FAR 15.306( c) and

considered for award. 18 On July 10, 1998, the Air Force
determined that both proposals were within the competitive range.
Accordingly, the Air Force held discussions with the offerors
consisting of

written evaluation notices raising concerns about each of the
proposals and face- to- face exchanges about the concerns. As a
result, each offeror revised its proposal. The Air Force requested
final proposal revisions on August 31, 1999. Both offerors
submitted final revisions by September 14. The evaluators found
pricing problems in both proposals that caused them to question
the cost realism of each. According to the evaluators, the
Oklahoma City ALC proposal contained a significant unsupported
drop in material prices and instances of unbalanced pricing. The
Pratt & Whitney

proposal contained unexplained variances from the Air Force
estimates; some prices were significantly higher and some
unrealistically low. The Air

17 A significant part of the TF39 engine work will be performed at
locations other than San Antonio. 18 FAR 15.306( c) provides that
the contracting officer shall determine which proposals are in the
competitive range for the purpose of conducting discussions.

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Force therefore decided to amend the RFP to provide for the
submission of detailed pricing information from both offerors on a
sample of 50 from the 694 exhibit line items (ELINS) that
represented all of the required work. 19 Both offerors submitted
the information requested, which the Air Force

evaluated and discussed with the offerors. The evaluators were
later satisfied that the offerors' amended prices were realistic,
and a second round of final proposal revisions was submitted by
January 16, 1999.

The Air Force made final cost adjustments and evaluated the
January 16 proposal revisions. Based on the results of the
evaluations and cost adjustments, the advice of the SSAC, and the
SSA's analysis in the context of the RFP evaluation criteria, the
SSA decided that the Oklahoma City ALC proposal met all of the RFP
requirements and represented the best value to the Air Force over
the life of the requirement. While the SSA recognized that Pratt
&Whitney submitted a slightly better technical proposal, the SSA
found that the differences between the two proposals had been
normalized by the dollarization adjustments and concluded that the
Oklahoma City ALC proposal would meet the needs of the Air Force
at less cost.

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

and repair operations areas. Under transition, four factors were
to be evaluated: (1) capability and resources, (2) equipment, (3)
responsibility transfer milestones, and (4) risk management.
Repair operations included five factors: (1) continuing operations
plan, (2) risk management, (3) process improvements, (4)
additional workloads, and (5) small

business. Under each of the factors the proposal risk was to be
assessed. Transition Capability and resources, the first factor
under transition, were assessed by

examining the offerors' proposed processes to improve the
availability of engines and its capability to achieve the flow
days proposed for the estimated quantities. The SSA noted that the
SSAC had assigned Oklahoma City ALC a green, or acceptable, rating
with moderate risk. Pratt & Whitney had been given a blue, or
exceptional, rating with low risk. The

SSA stated that Oklahoma City ALC had experience in military
engine 19 According to the Air Force the 50 ELINS selected for
detailed review represented 85 percent of the baseline value of
the total requirement.

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repair and provided a low risk approach to transition of the TF39
and T56 work, which was to be done in place at the San Antonio
facility. The SSA recognized that Oklahoma City ALC's proposal to
transition the F100 work to its Oklahoma City ALC facility met the
RFP requirements. Nevertheless, the SSA was concerned with the
plan to hire 1,251 workers, 81 percent of

whom would need some training before the public offeror's
assumption of full responsibility for the work in January 2000.
According to the SSA, only 60 percent of the workers would be
fully trained by that date. While the SSA was concerned that this
lack of training could cause problems in meeting production
requirements, she believed that through the implementation of the
Oklahoma City ALC's contingency plans, production impacts and
schedule concerns could be mitigated. The SSA concluded that
training was a weakness in the ALC's transition plan for the F100
work that justified the moderate risk rating. The SSA further
concluded, however, that the risk could be offset by an upward
dollarization cost adjustment to cover the cost risks of
implementing any needed contingency

actions. 20 The SSA found several strengths in the Pratt & Whitney
approach, including (1) its plan to conduct a 9- day stand- down
for employee orientation and training and to inventory equipment,
material, and WIP; (2) its plan for multi- skill training; and (3)
its direct access to parts purchasing and manufacturing. While
recognizing the advantages of

these and other strengths, the SSA concluded that they were
reflected in Pratt & Whitney's prices and plans to reduce flow
days and were therefore not susceptible to separate dollarization
credit. For the equipment factor, an offeror was to set forth its
plans for acquiring equipment from the Air Force and other sources
to support the work. The SSA concurred with the SSAC's green
rating with low risk for both proposals. The SSA concluded that
both proposals were essentially equal and proposed no
dollarization adjustment.

For the responsibility transfer milestones factor, the Air Force
evaluators measured the offerors' ability to pass from transition
to full performance. The SSAC gave both offerors green, or
acceptable, ratings and assigned Oklahoma City ALC's proposal a
moderate risk rating and Pratt & Whitney's proposal a low risk
rating. According to the SSA, both proposals met the RFP
requirements, but the SSA was concerned about Oklahoma City ALC's

plan to qualify itself to perform an additional 61 critical F100
repair 20 As discussed later, the SSEB cost evaluators developed
proposed dollarization cost adjustment figures under appropriate
factors, which were provided to the SSAC and the SSA.

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processes that are currently contracted out. An independent
technical team reviewed Oklahoma City ALC's plan to become
qualified in all of the repair processes within a 17.5- month
schedule. According to the team, Oklahoma City ALC could be
qualified to perform 43 percent of the repairs within the planned
17.5 months, 78 percent of the repairs within 36 months,

and 98 percent (all but two of the repairs) within 60 months. On
the basis of this assessment, the SSA concluded that Oklahoma City
ALC could meet all of the RFP requirements, but to do so on
schedule, it might have to use outside sources. Therefore, the SSA
proposed to offset the risk of having to use more costly outside
sources by an upward dollarization cost adjustment. After making
the cost adjustment, the SSA concluded that both proposals
demonstrated the technical capability and resources to

meet the requirements and were essentially equal under this
factor. For the risk management factor, the Air Force measured the
offeror's ability to identify areas of transition risk and to
provide a credible approach to manage it. The SSA concurred with
the SSAC's rating of each proposal as green with low risk. The SSA
concluded that both proposals were essentially equal and proposed
no dollarization adjustment.

Repair Operations Under the continuing operations plan factor, an
offeror was to provide a realistic time- phased production
operations plan for achieving its proposed

flow days, providing the required quantities, and improving the
availability of all three engines. The SSA concurred with the
SSAC's rating of each proposal as blue with low risk. The SSA
noted that Oklahoma City ALC offered extended warranties on the
T56 and TF39 engines that exceeded the RFP requirements by a
minimum of 500 percent in operational time and should result in
savings to the Air Force. In addition, the SSA stated that the
public offeror committed to a significant flow day reduction of 11
percent from the current baseline across the entire requirement
and planned to support early induction of T56 and TF39 reparable
components prior to orders creating a pool of serviceable items.
The SSA proposed to capture these benefits by a downward
dollarization evaluation credit.

Pratt & Whitney proposed to use a single logistics company (formed
by Allied Signal and Caterpillar Logistics) to provide logistics
support, which according to the SSA had the potential to expedite
material movement, centralize material tracking and control, and
provide for other efficiencies. Further, the SSA noted that the
private offeror proposed extended

warranties for the T56 and TF39 engines and reliability guarantees
for the F100. Pratt & Whitney exceeded the RFP warranty
requirements by 400 to 500 percent for the T56 and TF39 engines
and committed to what the SSA Let t er

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termed as a significant flowday reduction of 32.1 percent for the
total requirement. The private offeror also proposed to support
early induction of T56 and TF39 reparable components. The SSA
proposed to make a downward dollarization adjustment in her
evaluation of the Pratt & Whitney proposal for these benefits.

For the risk management factor, which was used to assess an
offeror's ability to identify repair operation risk areas and
manage them, the SSA agreed with the SSAC's rating of both
proposals as green with low risk. The SSA stated that both
proposals were essentially equal and proposed no

dollarization adjustments. For the process improvement factor, the
Air Force measured the offerors' approach to systematic
improvements of processes and related resources. The SSA agreed
with the SSAC rating of Pratt & Whitney's proposal as blue with
low risk and the public sector proposal as green with low risk.
While recognizing that Oklahoma City ALC proposed an acceptable
approach, the

SSA noted several strengths in the Pratt & Whitney proposal. The
SSA was particularly impressed with the private offeror's approach
to reliability centered maintenance that included depot visit
guarantees if reliability

performance objectives were not met. The SSA found that these
benefits, though significant, had already resulted in
dollarization credits for Pratt & Whitney under other factors, so
no additional adjustments were proposed.

Neither offeror proposed any additional work, and neither was
given a rating under the additional work factor.

For the small business factor, the SSA adopted the SSAC ratings of
green with low risk for Oklahoma City ALC and blue with low risk
for Pratt & Whitney. The SSA considered the private offeror's
approach as a strength

but did not consider the ratings under this factor to be a
discriminator. Performance Risk Assessment

For the performance risk analysis of the transition, repair
operations, and cost areas, the SSA determined that the Oklahoma
City ALC transition area represented a low risk, but represented a
moderate risk in the repair operations and cost areas. Likewise,
Pratt & Whitney's repair operations

area represented a moderate risk, but the cost and transition
areas were considered a low risk. The SSA stated that Oklahoma
City ALC's cost could be volatile due to factors beyond the public
offeror's control. However, the SSA noted that Oklahoma City ALC
had been a good cost manager in areas Let t er

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under its control. The SSA concluded that the difference in cost
risk represented by the two offerors could be accommodated by
making upward adjustments for cost realism to the Oklahoma City
ALC proposal. General Considerations Under the general
consideration category, the SSA concluded that both

offerors met the solicitation and responsibility requirements. The
SSA noted that both offerors proposed to lease facilities from
GKDC. 21 The SSA stated that the Air Force's sale of the closing
San Antonio facilities to GKDC for $108 million appeared to be
reasonable and represented the fair market value of the property.
Further, the SSA noted that while she did not

have insight into the lease arrangements between GKDC and the two
offerors or their partners, she assumed that neither offeror had
received preferential treatment, since the leases were competitive
agreements.

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

ranges based on different estimates for overhead savings and risk
dollarization. The results of these analyses are summarized below.
22 Realism and Reasonableness Evaluation

The cost team evaluators initially reviewed each offeror's cost
proposal to determine its completeness, realism, and
reasonableness. The evaluators were ultimately satisfied that each
cost proposal met these standards.

Under the Depot Competition Procedures, the Defense Contract Audit
Agency (DCAA) audited the Oklahoma City ALC cost proposal and
reviewed the public offeror's disclosure statement 23 and
accounting and

21 The public offeror's private partners proposed to perform much
of their work at the closing San Antonio facilities. The lease was
to be between the private firms and GKDC. 22 SSEB cost team
evaluators calculated the various cost adjustments and ranges for
overhead savings and dollarization, which were approved by the
SSAC. As discussed later, the SSA adopted the

adjustments and considered the proposed ranges for overhead
savings and dollarization in the selection. 23 The Depot
Competition Procedures require that a public offeror provide a
disclosure statement of its cost accounting practices under the
requirements of the Cost Accounting Standards Board.

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estimating systems. DCAA found that the disclosure statement was
adequate and the cost proposal was realistic. 24 DCAA found the
Oklahoma City ALC accounting system to be adequate. 25

Determination of Total Alternative Cost

The cost evaluators determined each offeror's total alternative
cost by calculating the offeror's customer cost in essence, its
proposed price for performing the requirement represented by line
items 0004 and 0006,

and making upward and downward adjustments to the cost in
accordance with the RFP and the CCH. Oklahoma City ALC's customer
cost was calculated to be $10,164,013,176. Pratt & Whitney's
customer cost was $11, 559,347, 993. At this point, the Oklahoma
City ALC proposal was about $1.395 billion lower.

Using the customer cost for each offeror as a base, the evaluators
made the comparability adjustments called for in the CCH and the
RFP. The evaluators made two sets of adjustments. The first set,
required by form number 1 of the CCH, 26 encompassed adjustments
to the public sector offer to reflect its full performance cost.
The second set, required by form

number 2 of the CCH, to reflect other cost differences between
public and private entities, were applicable to the public and
private sector proposals.

The CCH form number 1 adjustments made to the Oklahoma City ALC
proposal included upward and downward changes in a number of 24 As
stated in the Air Force's February 1998 Competition Cost
Procedures, a public offeror is considered to have a funding
advantage over a private- sector offeror under the fixed- price
portions of the requirement in that cost overruns may be paid for
by the government through the working capital

fund. Thus, in "dollarizing" the risks inherent in the Oklahoma
City ALC proposal, the SSAC proposed upward adjustments from $110,
193, 523 to $175, 752,377 to represent material cost risk and $30,
572, 635 to represent labor cost risk. These adjustments seem to
have been in lieu of adjustments to the Oklahoma City ALC cost
proposal during the initial cost realism evaluation. They are
different from most of the other "dollarization" adjustments as
they primarily relate to the method of developing the cost
estimates rather than a quantification of a technical performance
risk. 25 DCAA did not review Oklahoma City ALC's estimating system
because, according to the Air Force, such a review is normally
done only when the anticipated number of future cost proposals
warrants such a review. 26 Since Oklahoma City ALC proposed that a
private firm, Lockheed, be responsible for the T56 and TF39 work,
the portion of the Oklahoma City ALC cost proposal that
represented the work to be performed by Lockheed or its
subcontractors was not subject to the form number 1 adjustments.
The Lockheed portion was, however, subject to the form number 2
adjustments applicable to private offerors.

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categories. 27 The most significant were upward adjustments of
$97,919,767 for base operating support, $27,100,211 for unfunded
civilian retirement, and $36,334,858 for retiree health benefits.
The net result of all of the adjustments was an upward adjustment
to the public offeror's proposal of $135,038,131 that resulted in
a form number 1 adjusted cost of $10, 299,051, 307. The adjusted
cost was still lower than Pratt & Whitney's

customer cost of $11,559,347,993. CCH form number 2 adjustments
were made to both proposals. Upward adjustments were made to both
proposals for contract administration costs, reduction- in- force
(RIF) costs, personnel carrying costs (that is, costs of retaining
the current workforce at San Antonio that will be subject to a RIF
and not be rehired by the new source after the workload is

transitioned), a transition adjustment for costs of performing the
WIP during the transition that each offeror elected not to
perform, and the depreciation of government furnished equipment
provided to a private source. 28 Some downward adjustments were
made to the public offeror. For example, an adjustment of
$28,731,413 was made for warehousing services

provided by the Defense Logistics Agency. 29 Other downward
adjustments were $56,793,362 to the Oklahoma City ALC proposal to
account for the cost in the public offeror's rates for contract
management and oversight that would not be needed for in- house
performance of the F100 work, and $346,780,440 to the Pratt &
Whitney proposal for the payment of federal income tax on profits
and $78,424, 733 to the Oklahoma City ALC proposal for the payment
of tax on profits. 30 27 Upward adjustments were made for state
unemployment payments, unfunded civilian retirement,

depreciation for military construction program facilities,
casualty insurance, F- 100 packaging costs, and other recurring
costs consisting of impact aid, retiree health benefits, and base
operating support. Downward adjustments were made for mobilization
support (cost of mobilization support plans and of underused
capacity for mobilization requirements), for the Oklahoma Quality
Jobs Credit (a special state incentive for the creation of local
jobs), and for the use of specified sources (surcharges and other

costs added to the cost of materials by the government supply
system). For each form number 1 category; the public offeror
submitted a proposed adjustment in its offer, which was subject to
evaluation and adjustment by the SSEB, the SSAC, and the SSA. 28
The SSAC also included an upward adjustment of $12,755, 639 to the
Oklahoma City ALC proposal because of underpricing on T56 material
found after the evaluation of the final proposal revision. This
was to correct an error and was not actually a form 2 adjustment.

29 The body of the report contains a detailed discussion of the
calculation of the adjustment. 30 Since this adjustment was for
private offerors, it applied to the Lockheed portion of the
Oklahoma City ALC proposal.

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Form number 2 also provided for a downward adjustment for either a
public or private offeror that proposed and supported overhead
savings resulting from the addition of work from the competition.
31 Pratt & Whitney proposed no overhead savings. The evaluators
initially determined

that a downward adjustment of $210,617,658 to $160,119,093 should
be applied to the Oklahoma City ALC proposal to represent the
savings applicable to other workloads at the Oklahoma City ALC
facility during the 15- year performance period. Later, the SSAC
decided that the savings should be applied to only the first 3
years of performance because of the RFP provision governing the
evaluation of such savings. Accordingly, the SSAC recommended that
the overhead savings range be adjusted to $41, 804,513 through
$45,440,612.

The net result of the form number 2 comparability analysis for the
Pratt & Whitney proposal was a downward adjustment of $233,
923,488. The form number 2 downward adjustments to the Oklahoma
City ALC proposal, including the high and low ranges for overhead
savings, were $13,542,977 (high overhead savings) and $9, 906,878
(low overhead savings). The SSA agreed with the SSAC form number 1
and number 2 adjustment

recommendations, including the recommendation relating to the use
of the 3- year period for the calculation of the overhead savings
proposed by Oklahoma City ALC. In this regard, the SSA chose the
low range of $41, 804,513. 32

The cost adjustments adopted by the SSA resulted in a total
alternative cost for Pratt & Whitney of $11,325, 424,505 and
$10,289,144,429 for Oklahoma City ALC. No single adjustment
accounts for the cost difference at this point, and Oklahoma City
ALC's cost is more than $1 billion less than Pratt & Whitney's. 31
The solicitation stated that an offeror's proposed overhead
savings for its workloads performed

outside of the competition would be allowed for the first year if
determined to be reasonable, while second year savings, if
supportable, would also be allowed, but discounted for risk. The
solicitation explains that proposed savings for 3 years and beyond
"may be allowed if clearly appropriate, but in any event will be
considered under the best value analysis." The overhead savings
evaluation provision was included in the solicitation under the
February 21, 1998, SAF/ AQ competition cost procedures. 32 While
the SSA's decision document states that the SSAC recommended that
the overhead savings be

considered for the full 15 years, the proposal analysis report
approved by the SSAC states that it adjusted the figures to
consider only the first three years savings and proposed a revised
overhead savings of between $41,804, 513 and $45, 440,612. In any
event, the SSA, in the first instance, chose an

overhead savings figure of $41,804,513 that was based upon the 3-
year limit; no matter whose idea it was. As discussed later, this
figure was increased in the SSA's best value analysis. A detailed
discussion of the calculation of the projected overhead savings is
contained in the body of the report.

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Determination of Total Evaluated Cost

To arrive at the total evaluated cost of each proposal, the
evaluators took the total alternative cost and applied
dollarization adjustments. These adjustments were reviewed by the
SSA and used in the final selection decision.

The initial aspect of the Oklahoma City ALC proposal that was
considered to be suitable for quantification was the moderate risk
under the transition capability and resources factor. The risk
involved Oklahoma City ALC's proposal to hire 1,251 new workers to
perform the F100 workload. The evaluators were concerned that only
60 percent of these workers would be fully trained by the time
Oklahoma City ALC was to assume the workload at its facility. To
compensate for the potential labor inefficiencies that could
result from the need to provide training while meeting production

requirements, the evaluators calculated an upward adjustment of
the Oklahoma City ALC proposal between $19,974,001 and $126,
816,454. 33

The evaluators were also concerned, under the responsibility
transfer milestones factor, about Oklahoma City ALC's plan to
convert 61 outsourced repair operations to in- house performance
within

17.5 months. The evaluators concluded, based upon the findings of
an independent review team, that it would likely take the public
offeror longer than planned to achieve successful implementation
of the repairs. As a

result, Oklahoma City ALC was assigned a moderate risk rating in
the technical evaluation under the responsibility transfer
milestones factor. Since Oklahoma City ALC based its prices on its
performance of the repairs, the evaluators calculated an upward
cost adjustment range

($ 26,335,737 to $71,850,386) to represent the risk of incurring
the additional cost of contractor repairs during delays in
implementing the in- house repair capability.

The evaluators proposed a downward dollarization credit under the
continuing operations plan factor for flow day improvements and
warranties and guarantees proposed by both the public and private

33 As we understand it, the SSEB and the SSAC calculated this
range as a composite representing the labor efficiency risks in
the Oklahoma City ALC proposal because of its training weakness
under the capabilities and resources factor and of concerns about
the impact of the training plans on the ability of the public
offeror to achieve full operations for the F100 work under the
responsibility milestones factor. It appears that the range
calculations also included factors representing the projected
efficiency of the San Antonio workforce in performing new F100
work under the supervision of Oklahoma City

ALC during transition and of the workforce at Oklahoma City ALC
during startup. As discussed next, the SSAC proposed a separate
upward dollarization adjustment under the responsibility
milestones factor representing the cost risk of converting
contracted repairs to in- house performance. Let t er

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offerors. In the case of Oklahoma City ALC, the SSAC recommended a
downward adjustment of $10,067,417 based on the public offeror's
proposal to reduce the flow days 11 percent from the current
baseline for accomplishing the repairs. Further, the public
offeror proposed warranties

that exceeded the RFP requirements on the T56 and TF39 work that,
according to the SSAC, were worth $3,600,000. Thus, the SSAC
proposed adjusting the public proposal downward by that amount.

Pratt & Whitney proposed larger flow day reductions totaling up to
32.1 percent. According to the SSAC, this merited a downward
evaluation credit of $37,665,886. Pratt & Whitney further proposed
to implement its reliability centered maintenance approach to the
work through an extensive variety of warranties and guarantees
that exceeded the RFP requirements and impacted most of the
repairs. The benefits of this approach were to be accrued through
reduced engine removal rates, guaranteed engine availability,
warranted or guaranteed reliability, and reduced intermediate
maintenance costs. According to the evaluators, the benefits,
though significant, were often heavily weighted towards the later
portion of the performance period 10 years and later. This aspect
of the proposal caused concern that changes over time could reduce
the

future value of the warranties and guarantees. Based upon an
analysis of the benefits, the SSAC, however, concluded that they
could extend over the entire 15- year potential performance period
and proposed a large downward credit between $605,500,000 and
$505,700,000 34 to represent the cumulative estimated value of the
Pratt & Whitney approach.

In addition to the quantification of the technical aspects of the
proposals, the evaluators proposed adjustments to the Oklahoma
City ALC proposal to take into account the risk inherent in the
nature of the public depot's funding under the working capital
fund and the possibility that the

government would have to shoulder additional costs if Oklahoma
City ALC could not perform its portion of the work at its proposed
rates. The evaluators were concerned that Oklahoma City ALC had
underestimated the cost of the materials needed to perform the
F100 work. After analyzing the materials proposed under the 50
ELINS (as discussed earlier, these items represent about 85
percent of the baseline value of the requirement) 34 While the
table of proposed dollarization adjustments in the SSAC's report
lists $605,500,000 as the

high end of the range. There is a summary graph in the report
representing the evaluated warranty and guarantee savings using
$608. 3 million as the high end. An appendix to the report
containing a detailed analysis of the savings also used $608.3
million. As discussed later, the SSA used $608. 3 million in the
initial evaluation.

Let t er

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 42 GAO/NSIAD-99-155 Public- Private Depot Competitions

they found that the public offeror proposed fewer materials than
had been used in the past and had included a 5- percent material
price reduction without a detailed implementation plan. Later, the
SSAC considered the impact of past cost growth in materials due

to factors beyond the control of the public offeror. Accordingly,
the SSAC proposed an upward cost adjustment, based upon the 50
ELIN and past cost growth analyses, ranging from $175,752, 377 to
$110,193,523 to represent the risk that Oklahoma City ALC would
not be able to perform within its material cost estimate. 35
Similarly, the evaluators were concerned that the public offeror
had underestimated the labor costs of performing the F100 work. In
this regard, the SSAC concluded, based on Oklahoma City ALC's past
performance history and on historical cost growth beyond the ALC's
control, that an upward adjustment of $30, 572,635 was justified
to represent the risk of potential labor cost growth.

Finally, the SSAC proposed upward adjustments to both the public
and private proposals to account for the potential decline in the
workforce efficiency at the closing San Antonio ALC. The
adjustments were to represent the declining efficiency at San
Antonio between the award and the offeror's assumption of the work
in process, or WIP. 36 The SSAC proposed upward adjustments
between $21,900,000 and $32,600, 000 for Oklahoma City ALC and
between $27, 600,000 and $41,900,000 for Pratt & Whitney. As a
result of these evaluations, the SSAC presented the SSA with a

recommended total evaluated cost range for each offeror. The
recommendation consisted of a high range, including the lowest
overhead savings, if any, combined with the highest upward and
lowest downward, dollarization adjustments; and a low range
consisting of the highest overhead savings, if any, and the lowest
upward and largest downward adjustments. The high range for Pratt
& Whitney was $10,823,958,619, while its low range was
$10,709,858,619. The high range for Oklahoma City ALC was
$10,713,068, 863, and the low range was $10,480,816,809. Thus,
according to the SSAC recommendation, while the Oklahoma City ALC

35 See the body of the report for a further discussion of the
adjustment. 36 Under both proposals, after the award, the San
Antonio workforce would perform the WIP for a period until assumed
by the new source. The difference in the proposed adjustments is
due to the different period proposed by each offeror between award
and assumption of the work; the range in each proposed adjustment
is due to varying efficiency assumptions. Let t er

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 43 GAO/NSIAD-99-155 Public- Private Depot Competitions

high and low ranges were below the Pratt & Whitney high range, the
private offeror's low range was slightly below the public
offeror's high range.

The SSA took a two- step approach in the review of the SSAC cost
and dollarization recommendations. The SSA first considered the
SSAC recommendations directly and later gave further consideration
to certain of them in the context of a best value analysis.

As mentioned before, the SSA initially adopted the SSAC form
number 1 and number 2 cost adjustments and $41,804,513 in overhead
savings for other government work performed at the Oklahoma City
ALC. The SSA chose $37,400,000 (from a range of $19,974,001 to
$126,816,454) to represent the cost risk to cover potential labor
inefficiencies inherent in Oklahoma City ALC's transition plan and
$71,850, 386 (from a range of $26, 335,737 to $71, 850,386) to
represent the risk that the public offeror

would not be able to perform all of the F100 repair processes on
schedule. The SSA further agreed with the SSAC's assessment that
Oklahoma City ALC offered $10,067,417 worth of flow day
improvements and $3,600,000 in warranties and guaranties. The SSA
agreed with the SSAC that the

Oklahoma City ALC proposal represented a cost risk in both its
material and labor cost estimates by making an upward cost
adjustment of $175,752,377 for material (from a range of $110,
193,523 to $175,752,377)

and $30,572,635 for labor. The SSA also agreed with the low range
of the upward adjustments ($ 21,900,000 for the public offeror and
$27,600,000 for the private offeror) proposed by the SSAC to
compensate for likely labor inefficiencies in connection with the
WIP to be performed by the workforce at the closing San Antonio
ALC. The SSA agreed with the SSAC that Pratt & Whitney offered
flow day reductions that would benefit the Air Force and adopted a
$37,666,886 downward adjustment. Finally, the SSA agreed with the
SSAC that Pratt & Whitney's reliability centered maintenance
approach, as implemented by its series of guarantees and
warrantees,

would be a significant benefit to the Air Force. The SSA
accordingly adopted the SSAC's high range downward adjustment of
$608, 300,000 to recognize the potential savings.

At this point in the evaluation, the SSA concluded that the total
evaluated cost was $10,613,000,000 for Oklahoma City ALC and
$10,707,100,000 for

Let t er

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 44 GAO/NSIAD-99-155 Public- Private Depot Competitions

Pratt &Whitney. The Oklahoma City ALC proposal maintained a cost
advantage of $94. 1 million. 37

The SSA conducted a further best value analysis of three areas
that had been considered earlier. The SSA first reconsidered the
$41,804,513 representing the savings to other government workloads
performed at the Oklahoma City ALC that had been credited to the
public proposal. The SSA noted that the $41.8 million savings was
based on a strict reading of the RFP provisions as limiting such
overhead savings to only 3 years of performance. The SSA stated
that there were reasonable savings beyond the 3- year limit and
added a credit based on a 10- year performance period. According
to the SSA, the savings were to be allowed in full for the first 5
years and discounted over the second 5 years at 5 percent per
year. The

SSA explained that for the first 5 years, the Air Force flying
hour program and force structure as well as workload projections
are reasonably certain under the DOD's Future Year Defense Plan.
Beyond that, according to the SSA, projected savings for the next
5 years should be discounted due to uncertainties about the
workload. After 10 years, the SSA reasoned that

the uncertainties in the workloads would be such that savings
could not be reasonably projected. Based upon this reevaluation,
the SSA concluded that the overhead savings credit should be
increased to $138.6 million.

Similarly, the SSA revisited the $608.3 million credit given to
Pratt & Whitney due to the potential savings over the 15- year
performance period associated with the private offeror's proposed
warranties and guarantees. The SSA noted that most of the savings
would occur in the later performance years. The savings would
further depend on Pratt & Whitney qualifying under the award term
provision for additional performance time after the basic 7- year
period. Therefore, the SSA concluded that recognition of savings
beyond 10 years would not be prudent and reduced

the savings adjustment for Pratt & Whitney from $608.3 million to
$249 million. 38 Also, the SSA reconsidered the depreciation
adjustments applied to both proposals for equipment to be provided
to private firms for use in the 37 The SSA's source selection
decision document contains cost figures rounded to the nearest
million dollars. Where it is clear from supporting documents, such
as the SSAC report, what the exact figure is; we use the exact
amount. Where it is not clear, we use the rounded figure from the
SSA decision document.

38 See the body of the report for a further discussion of the
evaluation of the warranties and guarantees offered by both
competitors.

Let t er

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 45 GAO/NSIAD-99-155 Public- Private Depot Competitions

performance of the workloads. 39 The SSA concluded that the
$2,338,359 adjustment added to the Pratt & Whitney proposal was
appropriate based on the small amount of equipment that the firm
was to be given. For the

public offeror, the SSA noted that the depreciation for the F100
equipment was in Oklahoma City ALC's rates and that the $15,
707,232 depreciation adjustment to the public proposal for
government equipment to be provided to Lockheed was reasonable.
The SSA concluded that depreciation was appropriately considered
and each offeror was treated

equitably. 40 Finally, the SSA acknowledged Pratt & Whitney's
strength under the small business factor, but concluded the
strength would not be significant enough to overcome Oklahoma City
ALC's cost advantage. A summary of the final cost adjustments made
by the SSA follows.

39 One of the requirements for the competition set forth in 10 U.
S. C. 2469a is that standards used to determine the depreciation
of facilities and equipment provide, to the maximum extent
practicable, identical treatment to public and private offerors.
The amounts added to each proposal for depreciation were initially
made as form number 2 adjustments. 40 See the body of the report
for a detailed discussion of the calculation of the depreciation.
Let t er

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 46 GAO/NSIAD-99-155 Public- Private Depot Competitions

Award Based on the evaluation results, the SSA concluded that
although Pratt & Whitney submitted a slightly better technical
proposal, the dollarization

adjustments effectively normalized the differences between them.
The SSA noted that after dollarization of the risks and projected
savings, a significant difference remained between the projected
cost of the Oklahoma City ALC proposal and that of Pratt &
Whitney. Accordingly, the SSA selected Oklahoma City ALC as
providing the best value to the Air

Force because, in the SSA's view, the public offeror can capably
meet the needs of the Air Force at a far greater level of
affordability.

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

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

and Dry Dock Co., cited above. After reviewing the evaluation and
selection records and speaking to relevant Air Force officials and
to the public offeror, we found no basis to conclude that the
procedures used in selecting the successful offeror deviated in
any material respect from the section 2469a requirements or

Oklahoma City ALC Pratt & Whitney Total Customer Cost
$10,164,013,176 $11, 559, 347, 993 Cost Adjustments

Form 1 Adjustments 135, 038, 131 0 Form 2 Adjustments (106, 669,
239) (233,923,488)

Total Dollarized Adjustments 323,843,490 (259,082,225) Total
Evaluated Cost $10,516,225,557 $11, 066, 342, 080

Let t er

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 47 GAO/NSIAD-99-155 Public- Private Depot Competitions

other applicable laws or relevant provisions of the FAR. The Air
Force issued a competitive solicitation in accordance with FAR
parts 12 and 15, which provided for the participation of a public
sector depot. We found no basis to conclude that the selection did
not provide for a substantially equal opportunity for public and
private offerors to compete without regard to

performance location or that appropriate consideration was not
given to noncost factors in the selection. Overall, the evaluation
process was reasonable, fair, and the selection consistent with
the evaluation scheme in

the solicitation, the Depot Competition Procedures, and the CCH.
While not affecting the legal sufficiency of the selection, we
nevertheless identified several issues related to the estimates
used for the cost evaluation. These issues are discussed in the
body of the report.

Performance Location Subsection (g) of 10 U. S. C. 2469a provides
that our report on the competitive procedures is to include our
view as to whether the procedures provided substantially equal
opportunity for public and private offerors to compete for the
contract without regard to the location at which the

workload is to be performed. In addition, 10 U. S. C. 2469a( d),
which lists the requirements for the selection process, provides
that a public or private competitor must be permitted to perform
at the location of its choosing and a competitor is not to be
given preferential treatment for, or be limited to, performing the
workload in place or at any other single location.

As stated in our prior review of the solicitation for the San
Antonio workloads, we found no provisions in the solicitation that
designated a particular location at which performance was required
or preferred or that evidenced a bias toward any particular
performance location. 41 Similarly, in our review of the selection
process, we found nothing to indicate that a particular
performance location was required or that there was a bias

toward a particular location in the evaluation of the proposals or
the selection of Oklahoma City ALC.

41 Public- Private Competitions: Review of San Antonio Air Force
Depot Solicitation, cited above. In this review, we also concluded
that the solicitation's workload combination did not favor an
offeror proposing to perform at the San Antonio facility. Let t er

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 48 GAO/NSIAD-99-155 Public- Private Depot Competitions

In the selection, the SSA recognized under the transition area
that Oklahoma City ALC would have to move the F100 workload from
the closing San Antonio facilities to those at Oklahoma City.
While the SSA was not concerned about the public offeror's ability
to move the workload

to its facilities, the SSA did assign Oklahoma City ALC a moderate
risk because of its plan to hire and train 1,251 new workers; only
240 of which would be experienced F100 workers from the closing
San Antonio ALC. On the other hand, Pratt & Whitney, which planned
to perform most of the

work at the closing San Antonio ALC, using for the most part the
workers currently performing the workloads, was assigned low risk
ratings under all of the transition factors. As we understand the
10 U. S. C. 2469a provisions concerning performance

location, they are to prevent the Air Force from creating an
advantage for a particular location for reasons that are not
reasonably related to performance or cost. 42 We believe that the
SSA's concerns in the evaluation, which centered on Oklahoma City
ALC's likely inability to attract more than more than 240
experienced San Antonio workers to relocate to Oklahoma City, were
based upon legitimate performance

considerations related to Oklahoma City ALC's transition plan and
did not reflect bias towards performance at San Antonio.

Consideration of Noncost Factors

In accordance with 10 U. S. C. 2469a( g), our review of the
selection process is to include our view as to whether appropriate
consideration was given to factors other than cost in the
selection of the source for performance of the workload. We found
no basis to conclude that the Air Force did not

42 The statement of managers accompanying the 1998 Authorization
Act provides that the Air Force "would be expected to consider
real differences between bidders in cost or capability to perform
the work based on factors that would include the proposed location
or locations of the workloads." (Conf. Rept. No. 105- 340 on H. R.
1119, at 717 (1997)).

Let t er

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 49 GAO/NSIAD-99-155 Public- Private Depot Competitions

give appropriate consideration to noncost factors in the selection
process. 43

As discussed in our review of the San Antonio solicitation, 44 the
selection was to be based upon the best value to the Government.
This selection scheme integrated a relative assessment of such
noncost factors as transition, repair operations, and risk along
with an extensive evaluation of the proposed costs. Under this
evaluation method, the entity selected might or might not be the
competitor whose proposal was determined to

represent the lowest total evaluated cost. The selection of
Oklahoma City ALC was based on the SSA's assessment that the
private offeror's slightly better technical proposal (a noncost
consideration) was normalized in the dollarization of the
respective strengths and weaknesses in each proposal. In the SSA's
view, Pratt & Whitney's technical advantage was simply not enough
to overcome Oklahoma City ALC's lower costs. The evaluation and
selection record

shows an intensive assessment of the noncost elements of each
proposal. For example, the SSA considered Pratt & Whitney's
reliability centered maintenance approach combined with its
warranties and guaranties to be a benefit. The SSA also was
impressed with the private offeror's plan to use a single
logistics company to handle material for all of the workloads. On

the other hand, the SSA concluded that Oklahoma City ALC's plan to
perform in- house a number of repair processes currently
contracted out was risky. The record shows that many of these
aspects of the proposals, as well as others, were reflected as
dollarization credits or penalties in the evaluation.

43 We consider noncost factors in this competition to include all
of the elements that were evaluated under the transition and
repair operation factors as well as such more general
considerations as past performance. Cost factors include all of
the elements under the solicitation's cost criterion. The Air

Force dollarized, or assigned an estimated dollar value to the
benefit or detriment believed to be inherent in particular aspects
of the offerors' technical or management approaches under the
transition and repair operations factors. As we understand the
provision in 10 U. S. C. 2469a( g) regarding the evaluation of
noncost factors, it was to ensure that the Air Force placed the
proper emphasis on matters such as an offeror's management
approach to the transition of the workloads and its technical
capability to perform. We do not think the dollarization of the
some of the results under these factors changes the nature of this
portion of the evaluation, which was to measure technical and
management

aspects of a proposal, rather than cost. On the other hand, we
believe the dollarization of the risk determined by the SSA to be
inherent in Oklahoma City ALC's labor rates and material cost in
its proposal was, in fact, the evaluation of a cost factor. 44
Public- Private Competitions: Review of San Antonio Air Force
Depot Solicitation, cited above.

Let t er

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 50 GAO/NSIAD-99-155 Public- Private Depot Competitions

While the competitor selected did represent the lowest evaluated
cost to the government, as the examples show, the SSA and the
other evaluators considered the relative merits of the technical
and management approaches of the offerors. Thus, the record
provides no basis for us to conclude that factors other than cost
were not given appropriate consideration as required by 10 U. S.
C. 2469a.

Compliance With Other Applicable Provisions of 10 U. S. C. 2469a

In addition to addressing the section 2469a provisions, including
performance location and consideration given to factors other than
cost, we reviewed the San Antonio competition to determine whether
it otherwise complied with the requirements of section 2469a. As
noted previously, 10 U. S. C. 2469a sets forth six requirements
that must be satisfied in the San Antonio solicitation and
selection process. 45 In reviewing the evaluation and selection
records in the context of the

10 U. S. C. 2469a requirements, we found that the six requirements
were addressed during the evaluation and selection process.
However, we found errors in the evaluation conducted in relation
to two of the six requirements. The first concerned the
depreciation calculations for government- furnished equipment. 46
The second concerned the evaluation

of the fair market value of the government- furnished equipment
provided to private entities. 47 The errors, which are discussed
in the body of the report, did not affect the selection. Thus, we
have no basis to conclude that the selection of Oklahoma City ALC
deviated in any material from the requirements of 10 U. S. C.
2469a.

Compliance With Other Applicable Provisions of Law

As stated earlier, the provisions of 10 U. S. C. 2461 requiring a
notice to Congress of the savings to be achieved from a conversion
of a DOD function to private- sector performance, and the
requirement in 10 U. S. C. 2462 that DOD is to contract with the
private sector if a private firm can provide the supply or service
needed at a lower cost, apply generally to

45 As discussed earlier, in our prior review of the solicitation
in Public- Private Competitions: Review of San Antonio Air Force
Depot Solicitation, cited above, we concluded that all of the 10
U. S. C. 2469a requirements were specifically acknowledged in the
solicitation.

46 Section 2469a requires that the Air Force use cost standards
for depreciation that provide, to the maximum extent practicable,
identical treatment to public and private offerors. 47 Section
2469a requires that the Air Force take into account the fair
market value of any land, plant or equipment from a military
installation that is to be used by a private offeror.

Appendix III Legal Review of Competition for San Antonio Air
Logistics Center Workloads

Page 51 GAO/NSIAD-99-155 Public- Private Depot Competitions

conversions of DOD functions such as these workloads. Whether the
Air Force must comply with either statute in a particular
competition depends upon whether a public or private offeror is
selected. In this case, the Air Force selected the proposal of the
public- sector offeror, Oklahoma City ALC, which represented the
lowest total evaluated cost for the

performance of the workloads. While the public offeror will use
private firms to perform the T56 and TF39 workloads and other
portions of the workload, Oklahoma City ALC submitted the proposal
in its name and

retains the overall responsibility for the performance of all
workloads. Since the public offeror representing the lowest total
evaluated cost was selected, the award was consistent with 10 U.
S. C. 2462 and did not trigger the notice requirements of 10 U. S.
C. 2461. 48

Other Matters We conclude that the evaluation and selection
process did not deviate in any material respect from the
provisions of 10 U. S. C. 2469a and other applicable provisions of
law. While the overall selection was reasonable, we identified
several issues related to the estimates used in the cost
evaluation. These issues are discussed in the body of the report.

48 Similarly, we think that the requirement to certify the
government estimate in section 8014 of the 1998 Appropriations Act
is not triggered, as the award is one to the public- sector at the
lowest evaluated cost. Further, we do not think that the
evaluation and selection were inconsistent with section 8039 of
the act regarding the use of comparable estimates for public and
private offers.

Page 52 GAO/NSIAD-99-155 Public- Private Depot Competitions

Appendix IV Major Contributors to This Report Appe ndi x I V

National Security and International Affairs Division, Washington,
D. C.

Barry Holman, Associate Director Julia Denman, Assistant Director

Office of the General Counsel

John Brosnan, Assistant General Counsel Dallas Field Office Larry
Junek, Evaluator- in- Charge

John Strong, Evaluator Pam Valentine, Evaluator

Page 53 GAO/NSIAD-99-155 Public- Private Depot Competitions

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Privatization Assumptions Are Questionable (GAO/NSIAD-96-161, July
15, 1996).

Defense Depot Maintenance: DOD's Policy Report Leaves Future Role
of Depot System Uncertain (GAO/NSIAD-96-165, May 21, 1996).
Defense Depot Maintenance: More Comprehensive and Consistent
Workload Data Needed for Decisionmakers (GAO/NSIAD-96-166, May 21,
1996). Defense Depot Maintenance: Privatization and the Debate
Over the Public- Private Mix and (GAO/T-NSIAD-96-148, Apr. 17,
1996) and (GAO/T-NSIAD-96-146, Apr. 16, 1996 ). Military Bases:
Closure and Realignment Savings Are Significant, but Not Easily
Quantified (GAO/NSIAD-96-67, Apr. 8, 1996).

Depot Maintenance: Opportunities to Privatize Repair of Military
Engines (GAO/NSIAD-96-33, Mar. 5, 1996). Closing Maintenance
Depots: Savings, Workload, and Redistribution Issues (GAO/NSIAD-
96-29, Mar. 4, 1996). Navy Maintenance: Assessment of the Public-
Private Competition Program for Aviation Maintenance (GAO/NSIAD-
96-30, Jan. 22, 1996).

Related GAO Products Page 56 GAO/NSIAD-99-155 Public- Private
Depot Competitions

Depot Maintenance: The Navy's Decision to Stop F/ A- 18 Repairs at
Ogden Air Logistics Center (GAO/NSIAD-96-31, Dec. 15, 1995).

Military Bases: Case Studies on Selected Bases Closed in 1988 and
1991 (GAO/NSIAD-95-139, Aug. 15, 1995). Military Base Closures:
Analysis of DOD's Process and Recommendations for 1995 (GAO/T-
NSIAD-95-132, Apr. 17, 1995).

Military Bases: Analysis of DOD's 1995 Process and Recommendations
for Closure and Realignment (GAO/NSIAD-95-133, Apr. 14, 1995).

Aerospace Guidance and Metrology Center: Cost Growth and Other
Factors Affect Closure and Privatization (GAO/NSIAD-95-60, Dec. 9,
1994).

Navy Maintenance: Assessment of the Public and Private Shipyard
Competition Program (GAO/NSIAD-94-184, May 25, 1994).

Depot Maintenance: Issues in Allocating Workload Between the
Public and Private Sectors (GAO/T-NSIAD-94-161, Apr. 12, 1994).

Depot Maintenance (GAO/NSIAD-93-292R, Sept. 30, 1993). Depot
Maintenance: Issues in Management and Restructuring to Support a
Downsized Military (GAO/T-NSIAD-93-13, May 6, 1993).

Air Logistics Center Indicators (GAO/NSIAD-93-146R, Feb. 25,
1993). Defense Force Management: Challenges Facing DOD as It
Continues to Downsize Its Civilian Work Force (GAO/NSIAD-93-123,
Feb. 12, 1993).

(709420) Lett er

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