Force Structure: A-76 Not Applicable to Air Force 38th Engineering
Installation Wing Plan (Letter Report, 02/26/99, GAO/NSIAD-99-73).

Pursuant to a legislative requirement, GAO provided information on
whether the Air Force complied with relevant policy and congressional
notification requirements in reaching a decision to deactivate the 38th
Engineering Installation Wing (EIW) at Tinker Air Force Base (AFB),
Oklahoma, focusing on: (1) the scope of the Air Force's planned action;
(2) whether it is subject to the requirements of Office and Management
Budget (OMB) Circular A-76 and 10 U.S.C. 2461; and (3) whether an
analysis was completed to examine the cost-effectiveness of the planned
action.

GAO noted that: (1) the Air Force plans to deactivate the 38th EIW,
headquartered at Tinker AFB, Oklahoma, and transfer its wartime mission
to the Air National Guard without increasing the Guard's authorized
end-strength; (2) about 75 percent, or 1,752, of the unit's authorized
positions will be eliminated, while 591 positions will be reassigned to
existing or new organizations to assume responsibilities previously
assigned to the 38th EIW; (3) these changes are expected to result in
one-time savings of $33 million and annual recurring savings of $28
million; (4) the proposed action is a comprehensive restructuring of an
active component unit, largely transferring its wartime mission to the
National Guard; (5) it is not the type of action historically associated
with OMB Circular A-76 and is not a conversion as envisioned under the
circular; (6) accordingly, a cost comparison under that circular is not
required; (7) likewise, the planned action is not a change in the
performance from civilian personnel to contractor employees of the kind
subject to the requirements of 10 U.S.C. 2461; (8) accordingly, the Air
Force was not required to perform the cost study and provide
congressional notification under that provision; and (9) at the same
time, the Air Force's business case analysis supports the
cost-effectiveness of the proposed action, with the reduction of a
significant number of personnel.

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

 REPORTNUM:  NSIAD-99-73
     TITLE:  Force Structure: A-76 Not Applicable to Air Force 38th 
             Engineering Installation Wing Plan
      DATE:  02/26/99
   SUBJECT:  Air Force bases
             Military downsizing
             Air Force personnel
             Cost effectiveness analysis
             Military cost control
             Reductions in force
             Civilian employees
             Base realignments
IDENTIFIER:  DOD Quadrennial Defense Review
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to Congressional Requesters

February 1999

FORCE STRUCTURE - A-76 NOT
APPLICABLE TO AIR FORCE
38TH ENGINEERING
INSTALLATION WING PLAN

GAO/NSIAD-99-73

Force Structure

(709353)


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

  AFB - Air Force Base
  ANG - Air National Guard
  DOD - Department of Defense
  EIW - Engineering Installation Wing
  E&I - Engineering and Installation
  IFB - Invitation for Bid
  MEO - most efficient organization
  OMB - Office of Management and Budget
  RFP - Request for Proposals

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


B-280525

February 26, 1999

The Honorable James M.  Inhofe
Chairman, Subcommittee on Readiness
 and Management Support
Committee on Armed Services
United States Senate

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

This report responds to the request of the Chairman of the Senate
Subcommittee on Readiness and Management Support, Committee on Armed
Services, that we determine whether the Air Force complied with
relevant policy and congressional notification requirements in
reaching a decision to deactivate the 38th Engineering Installation
Wing (EIW) at Tinker Air Force Base (AFB), Oklahoma, and reassign its
work elsewhere.  It also fulfills a requirement of the House National
Security Committee's\1 report on the National Defense Authorization
Act for Fiscal Year 1999, which directed us to analyze and determine
whether information provided by the Air Force supports this proposed
action.  Specifically, this report discusses (1) the scope of the Air
Force's planned action, (2) whether it is subject to the requirements
of Office of Management and Budget (OMB) Circular A-76 and 10 U.S.C. 
2461, and (3) whether an analysis was completed to examine the
cost-effectiveness of the planned action. 


--------------------
\1 Now known as the House Armed Services Committee. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The Air Force plans to deactivate the 38th EIW, headquartered at
Tinker Air Force Base, Oklahoma, and transfer its wartime mission to
the Air National Guard (ANG) without increasing the Guard's
authorized end-strength.  About 75 percent, or 1,752, of the unit's
authorized positions will be eliminated, while 591 positions will be
reassigned to existing or new organizations to assume
responsibilities previously assigned to the 38th EIW.  These changes
are expected to result in one-time savings of $33 million and annual
recurring savings of $28 million. 

Concerning questions raised about the need for notice and cost
studies related to the proposed action, we found: 

  -- The proposed action is a comprehensive restructuring of an
     active component unit, largely transferring its wartime mission
     to the Air National Guard.  It is not the type of action
     historically associated with OMB Circular A-76 and is not a
     conversion as envisioned under the circular.  Accordingly, a
     cost comparison under that circular is not required. 

  -- Likewise, the planned action is not a change in the performance
     from civilian personnel to contractor employees of the kind
     subject to the requirements of 10 U.S.C.  2461; accordingly, the
     Air Force was not required to perform the cost study and provide
     congressional notification under that provision. 

  -- At the same time, the Air Force's business case analysis
     supports the cost-effectiveness of the proposed action, with the
     reduction of a significant number of personnel. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Since 1955, federal agencies have been encouraged to obtain
commercially available goods and services from the private sector if
doing so is cost-effective.  In 1966, OMB issued Circular A-76, which
established federal policy for the government's performance of
commercial activities and set forth the procedures for studying them
for potential contracting.  In 1979, OMB issued a supplemental
handbook to the circular that included cost comparison procedures for
determining whether commercial activities should be performed
in-house, by another federal agency through an interservice support
agreement, or by the private sector.  OMB updated this handbook in
1983 and again in March 1996. 

The March 1996 Revised Supplemental Handbook clarified numerous
areas, including the application of the A-76 cost comparison
requirements.  The handbook's introduction describes a wide range of
options government officials must consider as they contemplate
reinventing government operations.  They include "the consolidation,
restructuring or reengineering of activities, privatization options,
make or buy decisions, the adoption of better business management
practices, the development of joint ventures with the private sector,
asset sales, the possible devolution of activities to state and local
governments and the termination of obsolete services or programs."
The introduction also explains that "in the context of this larger
reinvention effort, the scope of the Supplemental Handbook is limited
to conversion of recurring commercial activities to or from in-house,
contract or interservice support agreement performance."\2

Where A-76 cost comparison procedures apply, the initial step is to
develop a performance work statement describing what is needed to
perform the activity.  That statement is used as the technical
performance section of a solicitation for private-sector offers.  The
government also develops a management plan that describes the most
efficient organization for in-house performance of the activity
described in the performance work statement.  The cost of performance
by the government in accordance with the most efficient organization
is compared to the cost proposed by the private-sector source
selected pursuant to the solicitation.  The activity will be
converted to performance by the private sector if the private
sector's offer represents a reduction of at least
10 percent of direct personnel costs or $10 million over the
performance period.  Further information about the A-76 process is
included in
appendix I. 

In addition to A-76, the Department of Defense (DOD) must consider
the effect of 10 U.S.C.  2461 when it plans changes to an industrial
or commercial type function performed by its civilian employees. 
Section 2461, as amended by the Strom Thurmond National Defense
Authorization Act for Fiscal Year 1999, Public Law 105-261, requires
an analysis of the activity, including a comparison of the cost of
performance by DOD civilian employees and by a contractor, to
determine whether contractor performance could result in a savings to
the government.  It also requires DOD to notify Congress of the
analysis and to provide other information prior to instituting a
change in performance.\3


--------------------
\2 While A-76 addresses conversions in both directions, for purposes
of this report, we will focus on conversions from performance by
government employees to the private sector. 

\3 Further, section 8014 of the Department of Defense Appropriations
Act for Fiscal Year 1999, Public Law 105-262, requires that DOD
certify its in-house estimate to congressional committees before
converting any activity performed by more than 10 DOD civilian
employees to contractor performance. 


   PROCESS OF DEACTIVATING 38TH
   EIW INVOLVES MULTIPLE ACTIONS
------------------------------------------------------------ Letter :3

The 38th EIW is an active component Air Force unit with a wartime
support mission that has been greatly diminished since the end of the
Cold War.  Deactivation of the 38th EIW will involve multiple actions
to realign the wartime mission and reassign other peacetime roles. 

The 38th EIW provides engineering and installation (E&I) services in
support of the Air Force's communications needs.  It supports flight
facilities, intrusion detection, ground radio, wideband/satellite
systems, local area networks, cable/fiber optic distribution systems,
switching systems, and other communications systems.  The 38th EIW is
an Air Force Materiel Command unit headquartered at Tinker AFB,
Oklahoma, with squadrons at Keesler AFB, Mississippi; Kelly AFB,
Texas; and McClellan AFB, California.  In addition, an active duty
military advisor is stationed at each of the 19 ANG units--units that
also provide engineering and installation services.  Currently, the
38th EIW consists of 2,343 personnel (1,358 military and 985
civilian) at these bases and various ANG locations.  Table 1 shows
the active component military and civilian personnel authorized for
the 38th EIW at each location. 



                                Table 1
                
                   Current 38th EIW Active Component
                        Manpower Authorizations

Location                              Military    Civilian       Total
----------------------------------  ----------  ----------  ==========
Keesler AFB,                               293         111         404
 Mississippi
Kelly AFB, Texas                           290          24         314
McClellan AFB, California                  290          24         314
Tinker AFB, Oklahoma                       466         826       1,292
ANG units, various locations                19           0          19
======================================================================
Total                                    1,358         985       2,343
----------------------------------------------------------------------
Source:  Air Force Engineering and Installation Reengineering
Briefing Document, June 18, 1998. 

The squadrons at Keesler, Kelly, and McClellan AFBs are composed
primarily of military personnel.  About a third of the total EIW
authorized personnel (726 military and 40 civilian) perform
installation services.  The remainder of the military and civilian
personnel perform engineering; logistics; and other support
functions. 

The 19 ANG units noted above have 2,314 authorized guard personnel: 
they perform peacetime installation services as part of their
training.  Further, the Air Force relies on the private sector to
provide E&I services using approximately 40 different indefinite
delivery/indefinite quantity contracts.\4

The 38th EIW's structure was premised on its cold war mission of
reconstituting damaged fixed communications systems (radars, phone
lines, cables, etc.) at overseas bases.  However, under the new Air
Expeditionary Force concept, existing military forces will go into
bare bases and use tactical, or mobile, communications gear. 
Consequently, the need to repair these fixed communications is
reduced and there is greater reliance on tactical communications. 

Based on the reassessment of its wartime mission requirements and the
Quadrennial Defense Review process (which recommended DOD improve the
efficiency and performance of support activities by reengineering),
the Air Force decided that the wartime E&I mission could be
transferred to the ANG.  At the same time, the Air Force would retain
a minimal active-duty capability, provided by a new rapid response
squadron at Keesler AFB.  Since there will no longer be a need for
the 38th EIW to supply the Air Force's peacetime E&I needs in order
to maintain wartime skills, the Air Force no longer has a requirement
to maintain the large E&I infrastructure of the 38th EIW.\5

As currently proposed, the deactivation of the 38th EIW would
eliminate 1,200 of its 1,358 military positions and 552 of its 985
civilian positions.  After the wing is deactivated, the remaining 158
military personnel and 433 civilian personnel will be reassigned to
existing or new organizations, located principally at Tinker and
Keesler AFBs.  With the deactivation of the 38th EIW and transfer of
the wartime mission to the ANG, other actions will also occur: 

  -- The Kelly and McClellan squadrons will be disestablished
     concurrent with the realignment and closure actions being
     implemented as part of the 1995 base realignment and closure
     decision. 

  -- All 19 active-duty authorizations at the ANG units will be
     eliminated. 

  -- The squadron at Keesler AFB will become a rapid response
     squadron whose mission would be wartime deployment, and also
     provide a quick reaction E&I capability for emergency needs, and
     provide specialized engineering. 

  -- A portion of the positions formerly with the 38th EIW will be
     reassigned to a new organizational unit at Tinker AFB that will
     become a base communication and information infrastructure
     planning and program management office. 

  -- Fifty civilian authorizations which are being eliminated at
     Tinker will be transferred to the Air Force Communications
     Agency at Scott AFB, Illinois, to more closely align their
     telecommunications sustainment workload with the Air Force unit
     responsible for telecommunications policy. 

  -- The wartime E&I mission will be substantially transferred to the
     existing ANG E&I units without an increase in authorized
     positions. 

Figure 1 portrays the planned actions. 

   Figure 1:  Actions Affecting
   Positions Formerly Associated
   with the 38th EIW

   (See figure in printed
   edition.)

   Source:  Air Force Engineering
   and Installation Reengineering
   Briefing Document, June 18,
   1998.

   (See figure in printed
   edition.)

Viewed another way, of 1,358 authorized military positions, over 88
percent would be eliminated and out of the 985 authorized civilian
positions, 56 percent would be eliminated, while the remainder would
be shifted to other organizations.\6 Table 2 shows the number of 38th
EIW military and civilian positions that would be reduced at affected
bases and the numbers reassigned to other organizations. 



                                     Table 2
                     
                       38th EIW Active Component Personnel
                        Reductions and Transfers to Other
                                  Organizations

                                                Military   Civilians
                        Civilian       Total    assigned    assigned
            Military  reductions  reductions      to new      to new       Total
Location  reductions     or gain     or gain        org.        org.  reassigned
--------  ----------  ----------  ----------  ----------  ----------  ==========
Keesler        (136)        (76)      ( 212)         157          35         192
 AFB
Kelly         ( 290)       ( 24)      ( 314)           0           0           0
 AFB
McClella      ( 290)       ( 24)      ( 314)           0           0           0
 n AFB
Tinker        ( 465)      ( 478)      ( 943)           1         348         349
 AFB
Scott              0          50          50           0          50          50
 AFB
ANG             (19)           0        (19)           0           0           0
 units
 at
 various
 locatio
 ns
================================================================================
Total        (1,200)       (552)     (1,752)         158         433         591
--------------------------------------------------------------------------------
Source:  Air Force Engineering and Installation Reengineering
Briefing Document, June 18, 1998. 

As a result of the deactivation and restructuring, 1,752, or 75
percent, of the unit's 2,343 positions would be eliminated, while 591
would be reassigned elsewhere. 

Following the deactivation of the 38th EIW, the responsibility for
obtaining peacetime E&I services will be transferred to the
individual major commands.  These commands may acquire such services
from (1) contracts, (2) the ANG E&I units, or (3) the rapid response
squadron at Keesler, based on availability.  The military units will
need to perform some of this peacetime work to maintain their wartime
skills. 


--------------------
\4 An indefinite delivery/indefinite quantity contract provides for
an indefinite quantity, within stated limits, of supplies or services
to be furnished during a fixed period with deliveries or performance
to be scheduled by placing orders with the contractor.  See Federal
Acquisition Regulation 16.504. 

\5 The Air Force proposed deactivating the 38th EIW by July 2000. 

\6 Air Force officials told us that military end-strength would be
reduced along with the civilian positions that are not being
reassigned elsewhere.  The Air Force did notify Congress of these
changes through the annual force structure announcement of February
10, 1998. 


   APPLICABILITY OF OMB CIRCULAR
   A-76 AND 10 U.S.C.  2461
------------------------------------------------------------ Letter :4

OMB Circular A-76 and the cost comparison requirements of its
accompanying handbook apply to the conversion of the performance of a
commercial activity from government civilian employees to the private
sector.  According to the Air Force, A-76 does not apply to its plan
because the deactivation of the 38th EIW does not constitute a
conversion of the performance of an activity by civilian DOD
employees as envisioned under the circular.  The Air Force's changed
wartime requirements have caused it to propose a realignment of the
responsibilities and missions of the 38th EIW.  Consequently, the
original function of the 38th EIW has been fundamentally altered and
the need for civilian employee support is significantly reduced.  We
find the Air Force's conclusion that A-76 does not apply to be
reasonable.  \7

The Air Force made a reasonable judgment in deciding that its
deactivation of the 38th EIW and the restructuring of the delivery of
E&I services is not subject to the requirements of 10 U.S.C.  2461
since the plan does not constitute a change from performance of a
particular workload by DOD civilian employees to private sector
performance. 


--------------------
\7 However, this is not to say other business case analyses or
cost-effectiveness studies should not be done to validate the
benefits of the proposed change as a matter of prudent management
practice. 


      AIR FORCE PLAN DOES NOT
      CONSTITUTE AN A-76
      CONVERSION
---------------------------------------------------------- Letter :4.1

The handbook does not provide detailed guidance as to what
constitutes a conversion of a commercial activity for purposes of
A-76.  Between 1979 and 1994, DOD conducted over 2,000 competitions
using the A-76 process.  Most of these involved activities, such as
groundskeeping, laundry, and food service, where the conversions
proposed were straightforward exchanges of a government employee
workforce for a contractor workforce to perform a particular service. 
An agency must base its judgment about whether A-76 applies on the
individual facts of each initiative.  As each case usually involves a
unique situation, an agency has the discretion to determine the
applicability of A-76 to its particular initiative as long as the
agency has exercised its judgment reasonably.\8

The handbook introduction explains that a commercial activity is a
process resulting in a product or service that may be obtained from
the private sector and that some management initiatives, such as
ï¿½reengineering,ï¿½ ï¿½privatization,ï¿½ or ï¿½restructuring,ï¿½ involving such
activities are beyond conversions and are not subject to the
cost-comparison requirements of A-76.\9 Therefore, it is reasonable
to interpret the guidance to mean that A-76 conversions are not
intended to encompass every initiative that results in the loss of
civilian government jobs.  Further, the handbook provides that it is
not to apply to the conversion of activities performed by uniformed
military personnel.\10

The Air Force plan to deactivate the 38th EIW and transfer its E&I
activities to other organizations within the Air Force or to the ANG
is a comprehensive change to the missions and responsibilities of the
38th EIW.  The Air Force has decided that the 38th EIW's wartime
mission should be transferred to the ANG.  As a result, it appears
that the Air Force no longer has a requirement to maintain a large,
centralized E&I infrastructure to train personnel to meet this
mission.  The peacetime E&I work was performed by the 38th EIW, in
large part, to maintain its skills and capabilities to perform its
wartime mission.  This included a large civilian workforce performing
peacetime E&I work to support the wartime mission of the uniformed
military personnel.  Now that this wartime mission has been
transferred to the ANG, which does not need this civilian support,
there is no longer a requirement to maintain the infrastructure. 

The type of E&I work being impacted by the Air Force plan would
generally fit within the definition of commercial activity for A-76
purposes.  However, the Air Force plan is not simply a changeover of
this commercial activity from performance by civilian employees to
private sector workers.  In fact, the majority of positions affected
are uniformed military personnel, which are not subject to A-76.  Of
1,358 military personnel assigned to the 38th EIW, only 158 will
remain.  The civilians in the 38th EIW were primarily performing
commercial E&I activities to provide continuity during contingencies
and support for military personnel to enhance their wartime skills. 
Absent the military requirement, the E&I services could have been
supplied by contract with the private sector. 

Under the restructuring, civilian positions will be lost and the
different Air Force units could meet some of their new
responsibilities by obtaining E&I services through contractors.\11
However, this is an incidental result of a plan that primarily
involves the reassignment of uniformed military personnel and the
transfer of their responsibilities to other organizations.  The
civilian performance of the commercial E&I activity was essentially
an adjunct of the military mission.  The civilians who remain will be
reassigned to different organizations and locations.  Thus, we find
reasonable the Air Force decision that its plan to change the wartime
mission of the 38th EIW is not the type of management initiative that
is subject to A-76. 


--------------------
\8 Department of the Air Forceï¿½Reconsideration, 72 Comptroller
General 241 (1993). 

\9 A-76 does not define ï¿½restructuringï¿½ or ï¿½reengineering.ï¿½ It does
provide that ï¿½privatizationï¿½ is a change of a public entity or
enterprise to private control or ownership. 

\10 OMB Circular No.  A-76 Revised Supplemental Handbook (Mar. 
1996), chapter 1, section D.7. 

\11 The handbook provides that new requirements are generally to be
obtained by contract.  See chapter 1, section D.2. 


      AIR FORCE PLAN DOES NOT
      CONSTITUTE CHANGE IN
      PERFORMANCE OF A FUNCTION
      UNDER 10 U.S.C.  2461
---------------------------------------------------------- Letter :4.2

We believe that the Air Force made a reasonable judgment in deciding
that its deactivation of the 38th EIW and the restructuring of the
delivery of E&I services which that necessitates is not subject to
the requirements of section 2461 since the plan does not constitute a
change from performance of a particular workload by DOD civilian
employees to private-sector performance.\12

Section 2461 requires that before any commercial or industrial type
function is changed from performance by DOD civilian employees to
private-sector performance, DOD must report to Congress and perform
an analysis showing that private sector performance will result in a
savings to the government over the life of the contract.  As under
A-76, the cost of performance of the function by the government
employees is to be based on an estimate of their most cost-effective
manner for performance of the function. 

Section 2461 applies to initiatives that result in functions
performed by DOD civilian employees being changed to performance by
private-sector employees.  As discussed earlier, the Air Force
proposal is more than just a change of the 38th EIW function from DOD
civilian employees to contractors.  Rather, it is a transfer of the
E&I wartime mission to the ANG units which primarily affects
uniformed military personnel who are not subject to 10 U.S.C.  2461. 
Once this occurs, there will no longer be a need for the 38th EIW,
which was designed to support the military personnel and their
wartime mission.  The action being taken in this case is not a change
of the kind contemplated by section 2461.\13


--------------------
\12 See Israel Aircraft Industries, Ltd.--Reconsideration (B-258229,
July 26, 1995). 

\13 For the same reasons we believe that the requirement to certify
the government estimate in section 8014 of the 1999 DOD
Appropriations Act is not applicable. 


   COST-EFFECTIVENESS OF THE
   CHANGE PROPOSED BY THE AIR
   FORCE
------------------------------------------------------------ Letter :5

While neither an A-76 cost comparison nor a section 2461 cost study
was required, the Air Force nevertheless did complete a business case
analysis to estimate the cost-effectiveness of restructuring the 38th
EIW.  That analysis showed an estimated annual recurring savings of
approximately $28 million, based on reported fiscal year 1997 costs
and projected costs (including contract costs) of the restructured
organizations.  The estimated contract costs were based on existing
negotiated contract rates for an equivalent level of effort.  The
analysis showed that most of the recurring savings would result from
engineer and installer manpower cuts and unit operations and
maintenance reductions.  Also, the business case analysis found that
the Air Force will realize an estimated one-time savings of $33
million, of which $28 million is due to the cancellation of planned
Base Realignment and Closure construction projects associated with
the future realignment of Kelly AFB and the closure of McClellan AFB. 
(These construction projects were planned at other bases in order to
accommodate the E&I workload being transferred from the squadrons at
McClellan and Kelly AFBs as the result of 1995 base realignment and
closure decisions.) The study also found that another $5 million will
be saved due to the cancellation of building construction projects at
Tinker AFB. 

The Air Force Audit Agency performed a management advisory review of
the 38th EIW business case analysis.\14 The Audit Agency sampled two
of the five wing functions, representing 78 percent of the wing's
total functions.  It concluded that the methodology the Air Force had
used for its analysis was sound and that the analysis was materially
correct and well documented.  It also concluded that the estimate of
expected savings was conservative because the Air Force used the most
conservative rates in place.  We also found the analysis to be
reasonable based on the cost factors and type of methodology the Air
Force used. 


--------------------
\14 A management advisory review is done in accordance with the Air
Force Audit Agency's management advisory service.  This service does
not follow the traditional audit process and is not subject to formal
reporting requirements.  Instead, the service is completed in
response to specific management requests for independent data
gathering and analysis on taskings such as evaluating management
alternatives, performing fact finding, and scoping known problems. 
The results are communicated in a briefing or memorandum. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

The Air Force's proposal concerning the 38th EIW is a comprehensive
change to the missions and responsibilities performed by the 38th EIW
and does not constitute a conversion of civilian to contractor
personnel as envisioned under A-76.  Thus, the Air Force was
reasonable in concluding that it did not have to undergo the A-76
process in this instance.  Similarly, the planned action is not a
change of the kind contemplated by 10 U.S.C.  2461.  Accordingly, the
Air Force was not required to perform the cost study and provide
congressional notification under that provision.  At the same time,
the Air Force's business case analysis supports the
cost-effectiveness of the proposed action, with the reduction of a
significant number of personnel. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

We requested comments on a draft of this report from the Secretary of
Defense or his designee.  On February 11, 1999, DOD officials
concurred with the report findings.  They also provided technical
comments which have been incorporated as approriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

To determine whether the planned action was subject to the
requirements of OMB Circular A-76, we reviewed the Air Force's
programming and implementation plans and reviewed and analyzed
Circular A-76.  Also, we interviewed senior officials at Air Force
Headquarters, Washington, D.C.; the 38th EIW, Tinker AFB, Oklahoma;
and the Office of Management and Budget, Washington, D.C.  We also
reviewed our prior work reviewing
A-76 issues. 

To determine whether the Air Force action was subject to the
requirements of 10 U.S.C.  2461, we identified and reviewed relevant
legislation and discussed the applicability of section 2461 with
senior officials of the Office of Management and Budget and the Air
Force's Office of General Counsel. 

To determine whether the Air Force analyzed the cost-effectiveness of
the proposed action, we reviewed its business case analysis and
discussed it with the Air Force Audit Agency.  We also reviewed the
Air Force's rates and cost methodology. 

We conducted our review from May 1998 to January 1999 in accordance
with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to the Ranking Minority Member
of the Subcommittee on Readiness and Management Support, Senate Armed
Services Committee; Chairmen and Ranking Minority Members of the
Senate and House Committees on Appropriations; the Secretaries of
Defense and the Air Force; and the Director of OMB.  We will make
copies available to others upon request. 

Please contact me at 202-512-8412 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix II. 

David R.  Warren, Director
Defense Management Issues


THE A-76 PROCESS
=========================================================== Appendix I

In general, the A-76 process consists of six key activities.  They
are:  (1) developing a performance work statement and quality
assurance surveillance plan; (2) conducting a management study to
determine the government's most efficient organization (MEO); (3)
developing an in-house government cost estimate for the MEO; (4)
issuing a Request for Proposals (RFP) or Invitation for Bid (IFB);
(5) evaluating the proposals or bids and comparing the in-house
estimate with a private sector offer or interservice support
agreement and selecting the winner of the cost comparison; and (6)
addressing any appeals submitted under the administrative appeals
process, which is designed to ensure that all costs are fair,
accurate, and calculated in the manner prescribed by the A-76
handbook. 

Figure I.1 shows an overview of the process.  The solid lines
indicate the process used when the government issues an IFB,
requesting firm bids on the cost of performing a commercial activity. 
This process is normally used for more routine commercial activities,
such as grass-cutting or cafeteria operations, where the work process
and requirements are well defined.  The dotted lines indicate the
additional steps that take place when the government wants to pursue
a negotiated, "best value" procurement.  While it may not be
appropriate for use in all cases, this process is often used when the
commercial activity involves high levels of complexity, expertise,
and risk. 

   Figure I.1:  Overview of the
   A-76 Process

   (See figure in printed
   edition.)

Source:  Air Force Air Education and Training Command documents. 


The circular requires the government to develop a performance work
statement.  This statement, which is incorporated into either the IFB
or RFP, serves as the basis for both government estimates and private
sector offers.  If the IFB process is used, each private sector
company develops and submits a bid, giving its firm price for
performing the commercial activity.  While this process is taking
place, the government activity performs a management study to
determine the most efficient and effective way of performing the
activity with in-house staff.  Based on this "most efficient
organization," the government develops a cost estimate and submits it
to the selecting authority.  The selecting authority concurrently
opens the government's estimate along with the bids of all private
sector firms.  According to OMB's A-76 guidance, the government's
in-house estimate wins the competition unless the private sector's
offer meets a threshold of savings that is at least 10 percent of
direct personnel costs or $10 million over the performance period. 
This minimum cost differential was established by OMB to ensure that
the government would not contract out for marginal estimated savings. 

If the RFP--best value process--is used, the Federal Procurement
Regulations and the A-76 Supplemental Handbook require several
additional steps.  The private sector offerors submit proposals that
often include a technical performance proposal, and a price.  The
government prepares an in-house management plan and cost estimate
based strictly on the performance work statement.  On the other hand,
private sector proposals can offer a higher level of performance or
service. 

The government's selection authority reviews the private sector
proposals to determine which one represents the best overall value to
the government based on such considerations as (1) higher performance
levels, (2) lower proposal risk, (3) better past performance, and (4)
cost to do the work.  After the completion of this analysis, the
selection authority prepares a written justification supporting its
decision.  This includes the basis for selecting a contractor other
than the one that offered the lowest price to the government.  Next,
the authority evaluates the government's offer and determines whether
it can achieve the same level of performance and quality as the
selected private sector proposal.  If not, the government must then
make changes to meet the performance standards accepted by the
authority.  This ensures that the in-house cost estimate is based
upon the same scope of work and performance levels as the best value
private sector offer.  After determining that the offers are based on
the same level of performance, the cost estimates are compared.  As
with the IFB process, the work will remain in-house unless the
private offer is (1) 10 percent less in direct personnel costs or (2)
$10 million less over the performance period. 

Participants in the process--for either the IFB or RFP process--may
appeal the selection authority's decision if they believe the costs
submitted by one or more of the participants were not fair, accurate,
or calculated in the manner prescribed by the A-76 handbook.  Appeals
must be submitted in writing and within 20 days after the date that
all supporting documentation is made publicly available.  The appeal
period may be extended to 30 days if the cost comparison is
particularly complex.  Appeals are supposed to be adjudicated within
30 days after they are received. 


      WAIVERS OF COST COMPARISON
      REQUIREMENT
------------------------------------------------------- Appendix I:0.1

The A-76 Supplemental Handbook provides that, under certain
circumstances, agencies may authorize cost comparison waivers and
direct conversions to or from in-house, contract or interservice
support agreements.  A waiver may be granted where: 

  -- The conversion will result in a significant financial or service
     quality improvement and a finding that the conversion will not
     serve to reduce significantly the level or quality of
     competition in the future award or performance of work; or

  -- The waiver will establish why in-house or contract offers have
     no reasonable expectation of winning a competition conducted
     under the cost comparison procedures of the Handbook. 

Additionally, the supplemental handbook provides that under certain
circumstances, such as situations involving 65 or less full time
equivalent personnel, streamlined cost comparisons may be permitted. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

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

Barry Holman, Associate Director
Marilyn Wasleski, Assistant Director
Debra McKinney, Evaluator-in-Charge
Bonita Page, Senior Evaluator

OFFICE OF THE GENERAL COUNSEL

John Brosnan, Assistant General Counsel
Stephanie May, Senior Attorney

DALLAS FIELD OFFICE

Kimberly Seay, Site Senior
Bonnie Carter, Senior Evaluator


*** End of document. ***