Public-Private Competitions: Access to Records Is Inhibiting Work on
Congressional Mandates (Testimony, 02/24/98, GAO/T-NSIAD-98-101).
Defense Department (DOD) unwillingness to provide GAO with the
information it needs to meet congressional mandates may prevent the
agency from providing Congress with timely and thorough information on
competition at the air logistics centers being closed in Sacramento and
San Antonio. GAO recognizes the sensitivity of DOD documents on
solicitations, competitors' proposals, and the military's evaluation of
the proposals, and GAO is prepared to discuss with the Air Force steps
to safeguard them while GAO has access to them. In assessing the
competition process for the C-5 aircraft workloads, GAO found that (1)
the Air Force provided public and private sources equal opportunity to
compete for the workloads without regard to where the work could be
done; (2) the Air Force's procedures for competing the workloads did not
appear to deviate materially from applicable laws or the Federal
Acquisition Regulation; and (3) the award resulted in the lowest total
cost to the government, given the Air Force's assumptions and conditions
at that time. For the remaining workloads at Sacramento and San Antonio,
DOD reports and other data do not support the military's contention that
using a single contract with combined workloads is more logical and
cost-effective than using separate contracts for individual workloads.
Much remains uncertain about the upcoming competitions for the
Sacramento and San Antonio depot maintenance workloads. Potential
participants have raised several concerns about the conduct of the
competitions. One concern centers on the impact of the statutory limit
on the amount of depot maintenance work that can be done by non-DOD
personnel. Another concern relates to the Air Force's proposed change in
the overhead savings that DOD may factor into the cost evaluations.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-NSIAD-98-101
TITLE: Public-Private Competitions: Access to Records Is
Inhibiting Work on Congressional Mandates
DATE: 02/24/98
SUBJECT: Base closures
Base realignments
Cost effectiveness analysis
Military downsizing
Privatization
Aircraft maintenance
Logistics
Competitive procurement
Military aircraft
IDENTIFIER: C-5 Aircraft
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Cover
================================================================ COVER
Before the Subcommittee on Military Readiness, Committee on National
Security, House of Representatives
For Release on Delivery
Expected at
2:00 p.m., EDT
Tuesday,
February 24, 1998
PUBLIC-PRIVATE COMPETITIONS -
ACCESS TO RECORDS IS INHIBITING
WORK ON CONGRESSIONAL MANDATES
Statement of Henry L. Hinton, Jr., Assistant Comptroller General,
National Security and International Affairs Division
GAO/T-NSIAD-98-101
GAO/NSIAD-98-101T
Public-Private Competitions
(709328)
Abbreviations
=============================================================== ABBREV
DOD - Department of Defense
FAR - Federal Acquisition Regulations
============================================================ Chapter 0
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss issues related to the
public-private competitions for workloads at two maintenance depots
identified for closure during the 1995 base realignment and closure
process. First, I will address the problems we are having in
obtaining access to Department of Defense (DOD) information that we
need regarding these competitions to meet our reporting
responsibilities under the 1998 Defense Authorization Act. In
relation to those responsibilities, I will also discuss
-- the recent competition for C-5 aircraft workload and our
assessment of it;
-- the adequacy of DOD's support for its determination that
competing combined, rather than individual workloads of each
maintenance depot is more logical and economical; and
-- concerns participants have raised about the upcoming
competitions for the workloads at the air logistics centers in
Sacramento, California, and San Antonio, Texas.
Before I discuss specifics, I will summarize the key points in my
testimony.
RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:1
First of all, our lack of access to information within DOD is
seriously impairing our ability to carry out our reporting
requirements. We completed, with difficulty, our required report to
Congress concerning DOD's determination to combine individual
workloads at two closing logistics centers into a single solicitation
at each location. However, the Air Force has not been responsive to
some of our continuing requests for information relative to the
Sacramento and San Antonio competitions. If the Department continues
to delay and restrict our access to information we need to do our
work, we will be unable to provide Congress timely and thorough
responses regarding the competitions for the remaining depot
maintenance workloads at Sacramento and San Antonio.
To meet our reporting requirements regarding these competitions, we
will need to review DOD documents relating to solicitations,
competitors' proposals, DOD evaluations of the proposals, and the
selection of successful offerors as they become available to Air
Force procurement officials. We recognize the sensitivity of this
material and are prepared to discuss with the Air Force steps for
safeguarding the material and facilitating the selection process,
while allowing us to fulfill our statutory responsibility.
In assessing the competition process for the C-5 aircraft workloads,
we found that (1) the Air Force provided public and private sources
an equal opportunity to compete for the workloads without regard to
where the work could be done; (2) the Air Force's procedures for
competing the workloads did not appear to deviate materially from
applicable laws or the Federal Acquisition Regulation (FAR); and (3)
the award resulted in the lowest total cost to the government, based
on Air Force assumptions and conditions at the time.
For the remaining workloads at Sacramento and San Antonio, DOD
reports and other data do not support the Defense Secretary's
determination that using a single contract with combined workloads is
more logical and cost-effective than using separate contracts for
individual workloads.
Much remains uncertain about the upcoming competitions for the
Sacramento and San Antonio depot maintenance workloads. Potential
participants have raised several concerns that they believe may
affect the conduct of the competitions. One concern is the impact of
the statutory limit on the amount of depot maintenance work that can
be done by non-DOD personnel. The Air Force has not yet determined
the current and projected public-private sector workload mix using
criteria provided in the 1998 Defense Authorization Act, but is
working on it. Nonetheless, preliminary data indicates there is
little opportunity to contract out additional depot maintenance
workloads to the private sector. Another concern is the Air Force's
proposed change in the overhead savings the Department may factor
into the cost evaluations. For the C-5 workload competition,
overhead savings were considered for the duration of the performance
period. However, for the Sacramento and San Antonio competitions,
the Air Force is considering limiting overhead savings to the first
year and possibly reducing the savings for the second year.
BACKGROUND
---------------------------------------------------------- Chapter 0:2
As a result of a 1995 Defense Base Closure and Realignment Commission
decision, Kelly Air Force Base, Texas, is to be realigned and the San
Antonio Air Logistics Center, including the Air Force maintenance
depot, is to be closed by 2001. Additionally, McClellan Air Force
Base, California, and the Sacramento Air Logistics Center, including
the Air Force maintenance depot, is to be closed by July 2001. To
mitigate the impact of the closures on the local communities and
center employees, in 1995 the administration announced its decision
to maintain certain employment levels at these locations.
Privatization-in-place was one initiative for retaining these
employment goals.
Since that decision, Congress and the administration have debated the
process and procedures for deciding where and by whom the workloads
at the closing depots should be performed.\1 Central to this debate
are concerns about the excess facility capacity at the Air Force's
three remaining maintenance depots and the legislative requirement--
10 U.S.C. 2469--that for workloads exceeding $3 million in value, a
public-private competition must be held before the workloads can be
moved from a public depot to a private sector company. Because of
congressional concerns raised in 1996, the Air Force revised its
privatization-in-place plans to provide for competitions between the
public and private sectors as a means to decide where the depot
maintenance workloads would be performed. The first competition was
for the C-5 aircraft depot maintenance workload, which the Air Force
awarded to the Warner Robins depot in Georgia on September 4, 1997.
During 1997, Congress continued to oversee DOD's strategy for
allocating workloads currently performed at the closing depots. The
1998 Defense Authorization Act required that we and DOD analyze
various issues related to the competitions at the closing depots and
report to Congress concerning several areas.
First, within 60 days of its enactment, the Defense Authorization Act
requires us to review the C-5 aircraft workload competition and
subsequent award to the Warner Robins Air Logistics Center and report
to Congress on whether (1) the procedures used provided an equal
opportunity for offerors without regard to performance location; (2)
are in compliance with applicable law and the FAR; and (3) whether
the award results in the lowest total cost to DOD.
Second, the act provides that a solicitation may be issued for a
single contract for the performance of multiple depot-level
maintenance or repair workloads. However, the Secretary of Defense
must first (1) determine in writing that the individual workloads
cannot as logically and economically be performed without combination
by sources that are potentially qualified to submit an offer and to
be awarded a contract to perform those individual workloads and (2)
submit a report to Congress setting forth the reasons for the
determination. Further, the Air Force cannot issue a solicitation
for combined workloads until at least 60 days after the Secretary
submits the required report.
Third, the authorization act also provides special procedures for the
public-private competitions for the San Antonio and Sacramento
workloads. For example, total estimated direct and indirect cost and
savings to DOD must be considered in any evaluation. Further, no
offeror may be given preferential consideration for, or be limited
to, performing the workload at a particular location. As previously
stated, the act also requires that we review the solicitations and
the competitions to determine if DOD has complied with the act and
applicable law. We must provide a status report on the Sacramento
and San Antonio competitions within 45 days after the Air Force
issues the solicitations, and our evaluations of the completed
competitions are due 45 days after the award for each workload.
Finally, the act requires that DOD report on the procedures
established for the Sacramento and San Antonio competitions and on
the Department's planned allocation of workloads performed at the
closing depots as of
July 1, 1995. DOD issued these reports on February 3, 1998.
--------------------
\1 The workloads at these activities involve the KC-135, ground
communication equipment, and hydraulics and other commodities at the
Sacramento depot, and the F100, TF39, and T56 engines and fuel
accessories at the San Antonio depot.
ACCESS TO RECORDS PROBLEMS
---------------------------------------------------------- Chapter 0:3
We have had problems in gaining access to information required to
respond to reporting requirements under the 1998 National Defense
Authorization Act. Our lack of access to information is seriously
impairing our ability to carry out our reporting responsibilities
under this act.
We experienced this problem in doing our work for our recent report
to Congress concerning DOD's determination to combine individual
workloads at the two closing logistics centers into a single
solicitation. We originally requested access to and copies of
contractor-prepared studies involving depot workloads at the
Sacramento Air Logistics Center on December 18, 1997. The Air Force
denied our request, citing concerns regarding the release of
proprietary and competition-sensitive data.
It was not until January 14, 1998, and only after we had sent a
formal demand letter to the Secretary of Defense on January 8, 1998,
that the Air Force agreed to allow us to review the studies. Even
then, however, the Air Force limited our review to reading the
documents in Air Force offices and required that without further
permission, no notes, copies, or other materials could leave those
premises.
The limited access provided came so late that we were unable to
review the documents adequately and still meet our statutorily
mandated reporting deadline of January 20. As of this date, we have
been provided only heavily redacted pages from two studies. These
pages do not contain the information we need. Further, the Air Force
did not provide us even limited access to the final phase of the
studies, which were dated December 15, 1997.
Although we were able, with difficulty, to complete our report, we
simply cannot fulfill our responsibilities adequately and in a timely
manner unless we receive full cooperation of the Department. To meet
our remaining statutory requirements, we have requested several
documents and other information related to the upcoming competitions
for the closing depots' workloads. Air Force officials said they
would not provide this information until the competitions are
completed. However, we will need to review solicitation, proposal,
evaluation, and selection documents as they become available. For
example, we will need such things as the acquisition and source
selection plans, the proposals from each of the competing entities,
and documents relating to the evaluation of the proposals and to the
selection decision. Appendix I to this statement contains our letter
to this subcommittee detailing our access problems.
Our basic authority to access records is contained in 31 U.S.C. 716.
This statute gives us a very broad right of access to agency records,
including the procurement records that we are requiring here, for the
purpose of conducting audits and evaluations. Moreover, the
procurement integrity provision in 41 U.S.C. 423 that prohibits the
disclosure of competition-sensitive information before the award of a
government contract specifies at subsection (h) that it does not
authorize withholding information from Congress or the Comptroller
General.
We have told the Air Force that we appreciate the sensitivity of
agency procurement records and have established procedures for
safeguarding them. As required by 31 U.S.C. 716(e)(1), we maintain
the same level of confidentiality for a record as the head of the
agency from which it is obtained. Further, our managers and
employees, like all federal officers and employees, are precluded by
18 U.S.C. 1905 from disclosing proprietary or business-confidential
information to the extent not authorized by law.
Finally, we do not presume to have a role in the selection of the
successful offeror. We recognize the need for Air Force officials to
make their selection with minimal interference. Thus, we are
prepared to discuss with the Air Force steps for safeguarding the
information and facilitating the Air Force's selection process while
allowing us to meet statutory reporting responsibilities.
PROCESSES FOR THE C-5 AIRCRAFT
COMPETITION APPEAR REASONABLE
---------------------------------------------------------- Chapter 0:4
In response to congressional concerns regarding the appropriateness
of its plans to privatize-in-place the Sacramento and San Antonio
maintenance depot workloads, the Air Force revised its strategy to
allow the public depots to participate in public-private competitions
for the workloads. In the 1998 Defense Authorization Act, Congress
required us to review and report on the procedures and results of
these competitions. The C-5 aircraft workload was the first such
competition. We issued our required report evaluating the C-5
competition and award on January 20, 1998.\2
After assessing the issues required under the act relating to the C-5
aircraft competition, we concluded that (1) the Air Force provided
public and private offerors an equal opportunity to compete without
regard to where work would be performed; (2) the procedures did not
appear to deviate materially from applicable laws or the FAR; and (3)
the award resulted in the lowest total cost to the government, based
on Air Force assumptions and conditions at the time of award.
Nonetheless, public and private offerors raised issues during and
after the award regarding the fairness of the competition. First,
the private sector participants noted that public and private depot
competitions awarded on a fixed-price basis are inequitable because
the government often pays from public funds for any cost overruns it
incurs. Private sector participants also questioned the public
depot's ability to accurately control costs for the C-5 workload. In
our view, the procedures used in the C-5 competition reasonably
addressed the issue of public sector cost accountability.
Further, private sector participants viewed the $153-million overhead
cost savings credit given to Warner Robins as unrealistically high
and argued that the selection did not account for, or put a dollar
value on, certain identified risks or weaknesses in the respective
proposals. We found that the Air Force followed its evaluation
scheme in making its overhead savings adjustment to the Warner Robins
proposal and that the Air Force's treatment of risk and weaknesses
represented a reasonable exercise of its discretion under the
solicitation.
Although the public sector source was selected to perform the C-5
workload, it questioned some aspects of the competition. Warner
Robins officials stated that they were not allowed to include private
sector firms as part of their proposal. Additionally, the officials
questioned the Air Force requirement to use a depreciation method
that resulted in a higher charge than the depreciation method private
sector participants were permitted to use. Finally, they questioned
a $20-million downward adjustment to its overhead cost, contending
that it was erroneous and might limit the Air Force's ability to
accurately measure the depot's cost performance.
While the issues raised by the Warner Robins depot did not have an
impact on the award decision, the $20-million adjustment, if
finalized, may cause the depot problems meeting its cost objectives
in performing the contract. The Air Force maintains that the
adjustment was necessary based on its interpretation of the Warner
Robins proposal. Depot officials disagree. At this time, the Air
Force has not made a final determination as to how to resolve this
dispute.
--------------------
\2 Public-Private Competitions: Processes Used for C-5 Aircraft
Award Appear Reasonable (GAO/NSIAD-98-72, Jan. 20, 1998).
DOD'S DETERMINATION TO COMBINE
WORKLOADS NOT ADEQUATELY
SUPPORTED
---------------------------------------------------------- Chapter 0:5
DOD decided to issue a single solicitation combining multi-aircraft
and commodity workloads at the Sacramento depot and a single
solicitation for multi-engine workloads at the San Antonio depot.
Under the 1998 Defense Authorization Act, DOD issued the required
determinations that the workloads at these two depots "cannot as
logically and economically be performed without combination by
sources that are potentially qualified to submit an offer and to be
awarded a contract to perform those individual workloads." As
required, we reviewed the DOD reports and supporting data and issued
our report to Congress on January 20, 1998.\3 We found that the
accompanying DOD reports and supporting data do not provide adequate
information supporting the determinations.
First, the Air Force provided no analysis of the logic and economies
associated with having the workload performed individually by
potentially qualified offerors. Consequently, there was no support
for the Department's determination that the individual workloads
cannot as logically and economically be performed without
combination. Air Force officials stated that they were uncertain as
to how they would do an analysis of performing the workloads on an
individual basis. However, Air Force studies indicate that the
information to make such an analysis is available. For example, in
1996 the Air Force performed six individual analyses of depot-level
workloads performed by the Sacramento depot to identify industry
capabilities and capacity. The workloads were hydraulics, software
electrical accessories, flight instruments, A-10 aircraft, and KC-135
aircraft. As a part of the analyses, the Air Force identified
sufficient numbers of qualified contractors interested in various
segments of the Sacramento workload to support a conclusion that it
could rely on the private sector to handle these workloads.
Second, the reports and available supporting data did not adequately
support DOD's determination. For example, DOD's determination
relating to the Sacramento Air Logistics Center states that all
competitors indicated throughout their workload studies that
consolidating workloads offered the most logical and economical
performance possibilities. This statement was based on studies
performed by the offerors as part of the competition process.\4
However, one offeror's study states that the present competition
format is not in the best interest of the government and recommends
that the workload be separated into two competitive packages.
After DOD issued its determination and we completed our mandated
review, the Air Force did additional analyses to support its
determinations to combine the workloads at Sacramento and San
Antonio. The Air Force briefed congressional staff on the interim
results of these analyses on February 13, 1998, and at that time
provided us copies of the briefing charts. Examples of the Air
Force's analysis regarding the combination of the San Antonio engine
workloads include
-- the level of common backshop support for the F100, T56, and TF39
aircraft engines;
-- the results of a market survey of potential offerors that shows
more offerors would be attracted to a competition of combined
workloads; and
-- the potential delay in transition if the competition were
restructured to compete individual engine workloads.
Examples of the Air Force's analysis regarding the combination of the
Sacramento workloads include
-- the common skills among commodity and aircraft workers, which
allows for increased staffing flexibility with combined
workloads;
-- the estimated delay resulting from competing the workload in
five separate packages; and
-- the added cost of conducting five competitions rather than one.
The Air Force has not provided us the information supporting its
briefing charts. Therefore, we cannot comment on the specific
points. However, in general, this information still does not provide
an adequate basis for DOD's determination that the depot maintenance
workloads cannot as logically and economically be performed without
combination. For example, the Air Force did not provide a
comparative analysis considering other feasible workload combination
alternatives.
--------------------
\3 Public-Private Competitions: DOD's Determination to Combine Depot
Workloads Is Not Adequately Supported (GAO/NSIAD-98-76, Jan. 20,
1998).
\4 Prior to the planned competition, the Air Force engaged three
offerors to identify work processes at Sacramento and determine how
those processes could be performed more efficiently.
CONCERNS RAISED REGARDING THE
SACRAMENTO AND SAN ANTONIO
COMPETITIONS
---------------------------------------------------------- Chapter 0:6
As part of our mandated review of the solicitations and awards for
the Sacramento and San Antonio engine workloads, we reviewed DOD
reports to Congress in connection with the workloads, draft requests
for proposals, and other competition-related information. Further,
we discussed competition issues with potential public and private
sector participants. These participants raised several concerns that
they believe may affect the competitions. Much remains uncertain
about these competitions, and we have not had the opportunity to
evaluate these issues, but I will present them to the Subcommittee.
ABILITY TO PRIVATIZE
SACRAMENTO AND SAN ANTONIO
WORKLOADS LIMITED BY 1998
ACT
-------------------------------------------------------- Chapter 0:6.1
The 1998 Defense Authorization Act modifies 10 U.S.C. 2466 to allow
the services to use up to 50 percent of their depot maintenance and
repair funds for private sector work. However, the act also
-- provides for a new section (2460) in title 10 to establish a
statutory definition of depot-level maintenance and repair work,
including work done under interim and contractor logistic
support arrangements and other contract depot maintenance work
and
-- requires under 10 U.S.C. 2466, that DOD report to Congress on
its public and private sector workload allocations and that we
review and evaluate DOD's report. These changes, which will
affect the assessment of public and private sector mix, are in
effect for the fiscal year 1998 workload comparison, and DOD
must submit its report to Congress for that period by February
1, 1999.
Determining the current and future public-private sector mix using
the revised criteria is essential before awards are made for the
Sacramento and San Antonio workloads. Preliminary data indicates
that using the revised criteria, about 47 to 49 percent of the Air
Force's depot maintenance workload is currently performed by the
private sector. However, the Air Force is still in the process of
analyzing workload data to determine how much additional workload can
be contracted out without exceeding the 50 percent statutory ceiling.
AIR FORCE DRAFT PROPOSAL TO
REDUCE OVERHEAD COST SAVINGS
ON EXISTING DEPOT WORKLOAD
-------------------------------------------------------- Chapter 0:6.2
In December 1996, we reported that consolidating the Sacramento and
San Antonio depot maintenance workloads with existing workloads in
remaining Air Force depots could produce savings of as much as $182
million annually.\5 Our estimate was based on a workload
redistribution plan that would relocate 78 percent of the available
depot maintenance work to Air Force depots. We recommended that DOD
consider the savings potential achievable on existing workloads by
transferring workload from closing depots to the remaining depots,
thereby reducing overhead rates through more efficient use of the
depots. The Air Force revised its planned acquisition strategy for
privatizing the workloads in place and adopted competitive procedures
that included incorporation of an overhead savings factor in the
evaluation.
During the recent C-5 workload competition evaluation, the Air Force
included a $153- million overhead savings estimate for the impact
that the added C-5 workload would have on reducing the cost of DOD
workload already performed at the military depot's facilities. The
overhead savings adjustment, which represented estimated savings over
the 7-year contract performance period, was a material factor in the
decision to award the C-5 workload to Warner Robins. The private
sector offerors questioned the military depot's ability to achieve
these savings.
In response to private sector concerns, the Air Force is considering
limiting the credit given for overhead savings in the Sacramento and
San Antonio competitions. For example, in the draft Sacramento depot
workload solicitation, the Air Force states, "The first year savings,
if reasonable, will be allowed. The second year savings, if
reasonable, will be allowed but discounted. For years three and
beyond, the savings, if defensible, will be subject to a risk
assessment and considered under the best value analysis."
--------------------
\5 Air Force Depot Maintenance: Privatization-in-Place Plans Are
Costly While Excess Capacity Exists (GAO/NSIAD-97-13, Dec. 31,
1996).
OTHER POTENTIAL SOLICITATION
ISSUES
-------------------------------------------------------- Chapter 0:6.3
Questions have been raised about the structure of the draft
solicitations. One concerns the proposed use of best-value
evaluation criteria. The draft solicitations contain selection
criteria that differ from those used in the recent competition for
the C-5 workload. They provide that a contract will be awarded to
the public or private offeror whose proposal conforms to the
solicitation and is judged to represent the best value to the
government under the evaluation criteria. The evaluation scheme
provides that the selection will be based on an integrated assessment
of the cost and technical factors, including risk assessments. Thus,
the selection may not be based on lowest total evaluated cost. For
the C-5 solicitation, the public offeror would receive the workload
if its offer conformed with the solicitation requirements and
represented the lowest total evaluated cost. The questions concern
the propriety of a selection between a public or private source on a
basis other than cost. Other questions concern whether multiple
workloads should be packaged in a single solicitation and whether the
inclusion of multiple workloads could prevent some otherwise
qualified sources from competing.
As noted, the solicitations are still in draft form. As required by
the 1998 act, we will evaluate the solicitations once issued, in the
context of the views of the relevant parties to determine whether
they are in compliance with applicable laws and regulations.
-------------------------------------------------------- Chapter 0:6.4
Mr. Chairman, we are working diligently to meet the Committee's
mandates and to safeguard sensitive Air Force information that is
necessary to accomplish this work. We are prepared to discuss with
the Air Force the steps that can be taken to safeguard the material
and facilitate the source selection process while allowing us to
carry out our statutory responsibility. However, we simply will be
unable to meet our mandated reporting requirements unless we are
provided timely access to this information.
This concludes my prepared remarks. I will be happy to answer your
questions at this time.
(See figure in printed edition.)Appendix I
GAO LETTERS ON ACCESS TO RECORDS
REGARDING PUBLIC-PRIVATE
COMPETITIONS
============================================================ Chapter 0
(See figure in printed edition.)
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*** End of document. ***