oversight

Spare Parts: Air Force Reports Progress and Problems in Obtaining Competition

Published by the Government Accountability Office on 1990-02-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

GAO



      Air Force Reports
      Progress and Problems
      in Obtaining
      Competition
        United States
G&l!0   General Accounting Office
        Washington, D.C. 20548

        National Security and
        International Affairs Division

        B-237221

        February 14,lQfX)
        The Honorable Donald B. Rice
        The Secretary of the Air Force
        Dear Mr. Secretary:

        This report discussesthe progress and problems of Air Force competition advocates in
        obtaining competition on spare parts purchases.The report contains recommendations
        to you.
        We are sending copies of this report to the Chairmen, House Committeeson Government
        Operations and on Armed Servicesand SenateCommitteeson Governmental Affairs and on
        Armed Services;the Director, Office of Managementand Budget; the Secretary of Defense;
        and other interested parties,
        This report was prepared under the direction of Nancy R. Kingsbury, Director, Air Force
        Issues, who may be reached on (202) 276-4268 if you or your staff have any questions
        concerning this report. Other major contributors to this report are listed in appendix I.
        Sincerely yours,




        Frank C. Conahan
        Assistant Comptroller General
Executive Summary


Pbrpose            The Air Force spends about $6 billion annually on spare parts to sup-
                   port its weapon systems,Air Force statistics show that for fiscal year
                   1988 over half the spare parts dollars were for contracts awarded
                   noncompetitively. Purchasing parts competitively is preferred becauseit
                   helps ensure fair and reasonableprices and can save millions of dollars.
                   In 1984 the Congressestablished competition advocates within the Air
                   Force and other executive agenciesto promote competition and chal-
                   lenge the barriers to competition. Becauseof the large dollar amounts
                   spent for noncompetitive spare parts purchases and the long-standing
                   congressionalinterest in competition, GAO reviewed Air Force competi-
                   tion advocate programs to evaluate the progress and problems advo-
                   cates have experienced in obtaining competition when purchasing spare
                   parts.




Background         The Air Force Logistics Command is responsible for purchasing spare
                   parts within the Air Force through its five Air Logistics Centers. Each
                   Logistics Center has a competition advocate directorate, a materiel man-
                   agement directorate, and a contracting and manufacturing directorate
                   that are involved in purchasing spare parts.
                   After item managers in the materiel managementdirectorate identify
                   the requirement to purchase a part, advocates in the competition advo-
                   cate directorate screen the part to determine if circumstanceswarrant a
                   competitive acquisition strategy. Screeninginvolves identifying if more
                   than one supplier can provide the part and ensuring that the engineering
                   data neededto produce the part are available to potential manufactur-
                   ers. Additionally, advocates responsible for source development seek
                   additional sources and assist potential manufacturers in demonstrating
                   their technical capabilities to produce the part. Buyers in the con-
                   tracting and manufacturing directorate then solicit qualified suppliers
                   and negotiate contracts for the part.


Results in Brief   Air Force statistics and reports indicate that advocates have helped
                   increase competition on spare parts purchases. For example, in fiscal
                   year 1988,43 percent of the amount spent for spare parts was for con-
                   tracts awarded competitively, which is almost double the percent for
                   contracts awarded competitively in fiscal year 1984.
           Y
                   Despite this progress, more than half of the funds spent for spare parts
                   were for contracts awarded noncompetitively. The lack of engineering


                   Page 2                                 GAO/NSIAD9@75   Spare Parts Competition
                           EXeCutive Summary




                           data neededfor additional manufacturers to produce the parts was the
                           primary reason cited by advocatesfor parts not being suitable for com-
                           petition. Valid reasonsexist for not having somedata; however, GAO, the
                           Air Force, and the Department of Defensehave reported on data prob-
                           lems for years and have generally concludedin previous reports that the
                           Air Force needsto (1) provide increasedmanagementattention early in
                           the weapon system’s acquisition phase and (2) better coordinate the
                           delivery and the review of engineeringdata. These conclusionsare gen-
                           erally still applicable. Moreover, screeningand other programs con-
                           ducted by the competition advocatesdo not eliminate the reasonsfor the
                           data problems.
                           Even though desired engineeringdata are often unavailable, advocates
                           can take other actions to increase competition. Specifically, the current
                           screeningprocesscan be revised to focus managementattention on the
                           more expensive noncompetitive parts with high competitive potential.
                           Identifying and concentrating on these parts require a different
                           approach to screeningand more involvement by materiel management
                           personnel. In addition, advocatesneed better measuresto assesstheir
                           program’s effectiveness.


GAO’s Analysis

Air Force Advocates Have   The amount of competition obtained in purchasing spare parts-as mea-
Made Progress              sured by the percent of dollars for contracts awarded competitively, the
                           amounts for contracts awarded competitively, and the number of com-
                           petitive actions-has increased.For example, in fiscal year 1984 only
                           22 percent of the amount spent for spare parts was for contracts
                           awarded competitively, whereas in fiscal year 1988 the amount was 43
                           percent.
                           In addition, Logistics Commandreports on item screeningand source
                           development at the Logistics Centers indicate that advocatescontinue to
                           identify previously noncompetitive items as suitable for competition and
                           seek additional sources.


Data Problems*Continueto   Despite the Air Force’s progress in increasing competition, about 67 per-
Impede Competition         cent of the $6.7 billion spent for spare parts in fiscal year 1988 was for
                           contracts awarded noncompetitively. Statistics indicate that about


                           Page 3                                  GAO/NSIAD-90-75   Spare Parts Competition
                                 Jhxutive   Summary




                                 76 percent of the noncompetitive procurements were attributable in part
                                 to unavailable engineeringdata neededfor additional manufacturers.
                                 Valid reasonsexist for not having some data. However, prior reports
                                 have generally concludedthat the Air Force needsto do more to ensure
                                 availability of neededengineeringdata. The Air Force has taken some
                                 actions to improve item screeningand facilitate reverse engineering.
                                 Nevertheless,GAO'S review showed data problems continue to substanti-
                                 ate the previous conclusions.
                                 Moreover, the competition advocates’programs do not addressthe rea-
                                 sons for unavailable data. Item screening,for example, attempts to iden-
                                 tify and obtain missing data but does not addressthe reasonsfor
                                 unavailable data. Accordingly, item screeningis not intended to prevent
                                 future occurrencesof similar data problems.


NM Approaches and          Most of the dollars for noncompetitive purchasesare for a relatively
                           few high-dollar parts, and these purchasespotentially offer the opportu-
Beitter Information Needed nity
                                to competemore dollars. For example, the top 9 percent of the parts
                                 due in to the Oklahoma City Air Logistics Center accountedfor 76 per-
                                 cent of the dollars. A sample of the most recent purchasesof those parts
                                 showed that 76 percent of those purchased by the Logistics Center were
                                 not competed.Focusing attention on the noncompetitive high-dollar
                                 parts could increasethe dollars competedbut would require a different
                                 approach than the current process,which focusesattention on parts
                                 currently in the procurement process.
                                 Materiel managers,who are familiar with parts’requirements and man-
                                 ufacturers, could be more involved in working with the advocatesto
                                 obtain competition. These managersare in the best position to identify
                                 those noncompetitive parts with the most potential for competition and
                                 create a competitive environment before the parts enter the purchasing
                                 process.Early identification of competitive opportunities would allow
                                 advocatestime to overcomecompetitive barriers such as unavailable
                                 data.
                                 Furthermore, advocatesneed better managementinformation to assess
                                 program results. Even though Air Force competition indicators show
                                 progress, they are influenced by too many other factors to measure
                                 effectiveness adequately. Competition advocatescannot determine the
                                 effectiveness of program initiatives. For example, the advocatesdo not
                                 track statistics on item screeningto determine if parts recommendedfor
                                 competition were competed.


                                 Page 4                                 GAO/hWAD-90-75   Spare Parts Competition
                      Execntive   Snmmary




Recommendations       tion Advocate General to develop, considering costs and benefits,
                  . proceduresthat supplement the current screeningprogram and involve
                    materiel managersin developing strategies for eliminating barriers to
                    competition in their program area specialties, paying particular atten-
                    tion to high-dollar parts, and
                  . information to identify the competitive results of source development
                    initiatives and screeningactions taken by the competition advocates.

                         requestedwritten commentsfrom the Department of Defense,but
Ag$ncy Comments       GAO
                      none were provided.




                      Page6                                  GAO/NSIAD-90-7SSparePartsCompetition
                                                                                                            --




Contents


E$ecutive Summary                                                                                          2

Ckiapter 1                                                                                                 8
Introduction            Role of Competition Advocates in PurchasingSpare Parts                             8
                        Objectives,Scope,and Methodology                                                   9

Chapter 2                                                                                              10
Air Force Competition   Increasing Competitive Rates Reported
                        ProgressReported in Item Screeningand Source
                                                                                                       10
                                                                                                       14
Advocates Have Made         DevelopmentPrograms
Progress                Competition AdvocateGeneral Reports Progress                                   16

Chapter 3                                                                                              17
Eagineering Data        Unavailable Data Is the Major Causeof Noncompetitive
                           Procurements
                                                                                                       17
Problems Continue to    Unavailable Data Has Been the Major Barrier for Years
Impede Competition      Advocates’Efforts Do Not Address the Reasonsfor Data                           8;
                           Problems
                        Conclusions                                                                    22

Chapter 4                                                                                              24
New Approaches and      Current ProcessHas Limitations                                                 24
                        IncreasedAttention on High-Dollar Parts Needed                                 24
Better Information      ManagementInvolvement in Targeting High-Dollar Parts                           26
Should Help                 Needed
Advocates               Better ManagementInformation Needed                                            26
                        Recommendations                                                                27

Appendix                Appendix I: Major Contributors to This Report                                  28

Tables                  Table 2.1: Spare Parts Reviewedand Found Suitable for                          16
                            Competition
                        Table 2.2: Number of Contractors Approved as Sources                           16

Figures                 Figure 2.1: AFLC’s Fiscal Year 1988 Procurement                                11
                            Expenditures by Category
                        Figure 2.2: Percent of Total and Spare Parts Dollars                           12
                            Awarded Competitively
                        Figure 2.3: Dollars Awarded Competitively                                      13


                        Page 6                                 GAO/NSIAD-90-76   Spare Parts Competition
Content.8




Figure 2.4: Percent of Contract Actions Awarded                              14
    Competitively
Figure 3.1: ReasonsThat Items Were Unsuitable for                            18
    Competition
Figure 3.2: ReasonsThat Items Were Unsuitable for                            19
    Competition at the Oklahoma City ALC
Figure 4.1: Fiscal Year 1988 Competition Rates at Each                      26
    ALC




Abbreviations

            Air Force Logistics Command
AFSC        Air Force SystemsCommand
ALC         Air Logistics Center
GAO         GeneralAccounting Office


Page 7                                GAO/NSIAD9O-75   Spare Parts Competition




                             .*
Chabter 1

Introduction


                      The Air Force spendsabout $6 billion per year for spare parts to sup-
                      port its weapon systems.When more than one qualified supplier has the
                      opportunity to bid on a contract for spare parts, the contract can be
                      awarded competitively. However, if only one qualified source is avail-
                      able, the contract must be awarded sole source or noncompetitively.
                      Purchasingparts competitively helps ensure that the government pays
                      fair and reasonableprices. It also can lead to improved ideas, designs,
                      technology, delivery, and quality of products and services and save the
                      government millions of dollars. When competition is impeded,the gov-
                      ernment may lose opportunities to obtain lower prices and increasethe
                      productivity and the effectivenessof its programs.
                      The Congresshas had a long-standinggoal to eliminate unnecessary
                      noncompetitive contracts in the military ljrocurement process.In 1984
                      the Congressestablishedcompetition advocatesin the Air Force and
                      other executive agenciesto promote the use of competition and help
                      eliminate barriers to competition. The Air Force reported an increasein
                      the level of competition for spare parts from 22 percent in fiscal year
                      1984 to 43 percent in fiscal year 1988,the last completereporting year.
                      Even though competitive rates have increased,67 percent of the dollars
                      spent for spare parts in fiscal year 1988 were for contracts awarded
                      noncompetitively.

                      The Air Force Logistics Command(Am) maintains and supports Air
Role of Competition   Force weapon systemsthrough five Air Logistics Centers(ALC).One of
Advocates in          the primary activities of the ALCS is to purchase spare parts. Each ALC
Purchasing Spare      has a competition advocate directorate, a materiel managementdirector-
                      ate, and a contracting and manufacturing directorate that are involved
Parts                 in purchasing spare parts. The competition advocate directorate is
                      responsiblefor promoting competition and challengingbarriers through
                      two primary programs: item screeningand source development.The
                      materiel managementdirectorate determinesand funds spare parts
                      requirements and has responsibility for the design,development,con-
                      trol, and performance and reliability of assignedsystems and equip-
                      ment. The contracting and manufacturing directorate solicits
                      competition, negotiates,and contracts for the purchase of the spare
                      parts.
                      The processof purchasing spare parts beginswhen item managersin the
                      materiel managementdirectorate determine the purchase requirements
                      for spare parts. Oncea purchaserequirement is identified, analysts in
                      the competition advocate directorate’s engineeringdata management


                      Page 8                                 GAO/NSIAJMO-75   Spare Parts Competition
                        chapter 1
                        Intnxluctlon




                        division screenor review the item to determine if a competitive acquisi-
                        tion strategy is warranted. First, they consider whether (I) the Air
                        Force possessesadequatedata for other potential manufacturers to pro-
                        duce the item and (2) more than one qualified supplier can produce the
                        part. Next, personnel in the competition advocate directorate’s source
                        development division attempt to identify additional manufacturers and
                        assist the manufacturers in demonstrating to engineersin the materiel
                        managementdirectorate that the manufacturers have the technical
                        capability to produce the parts. Last, buyers in the contracting and man-
                        ufacturing directorate issue solicitations to qualified suppliers and nego-
                        tiate contracts to purchase the parts.


Objektives, Scope,and   The objectives of our review were to identify the progress and the prob-
                        lems experiencedby Air Force advocatesin obtaining competition for
Metfiodology            spare parts. To accomplish our objectives, we reviewed the competition
                        advocate programs in the ALCS, annual statistics on the rates of competi-
                        tion, reports on results of program activities, the AFU:competition plans,
                        and studies on the effectiveness of the competition advocates.(We did
                        not verify the accuracy of the statistics.) Also, we reviewed a sample of
                        84 high-dollar parts from the reparable parts managementsystem at the
                        Oklahoma City ALCto determine the extent of competition and the rea-
                        sons competition was not obtained.
                        We did our work at Air Force Headquarters, Washington, D.C.;AFl.C,
                        Ohio; Oklahoma City ALC,Oklahoma; Warner Robins ALC,Georgia; and
                        OgdenALC,Utah. At each location we interviewed responsible agency
                        personnel and reviewed applicable policies, procedures, and pertinent
                        documents.
                        We performed our review between September1988 and August 1989 in
                        accordancewith generally acceptedgovernment audit standards. We
                        requested written commentsfrom the Department of Defense,but none
                        were provided.




                        Page 9                                  (fAO/NSIADW-75   Spare Parta Competition
Ch,apter2

Ah ForceCompetitionAdvocatesHave
Made Progress

                    Air Force reports on competition indicate that advocateshave made
                    progress.Sincethe Congressestablishedcompetition advocatesin 1984,
                    the AFLChas reported annual increasesin most measuresof competition,
                    including percent of dollars, amounts of dollars, and percent of contract
                    actions. In addition, the AFLChas reported annually to the Congresson
                    the progressof item screeningand source development,the major pro-
                    grams for improving competition. Moreover, a study by the Competition
                    Advocate Generalof the Air Force concludedthat the competition pro-
                    gram has been institutionalized and is effective.


Increasing          AFLCstatistics on (1) the percent of dollars for contracts awarded com-
                    petitively, (2) the amounts for contracts awarded competitively, and
Competitive Rates   (3) the percent of competitive contract actions indicated progress in
Reported            increasing competition since 1984. Competition on spare parts accounted
                    for most of the increasedrates becausespare parts comprisethe largest
                    portion of the AFLC’S expenditures. For example,the AFLCreported that
                    spare parts made up about 62 percent of its total procurement spending
                    for fiscal year 1988, as shown in figure 2.1. The AFLC reported that 43
                    percent of the amount spent for spare parts was for contracts awarded
                    competitively.




                    Page 10                                GAO/NSIAJHO-75   Spare Parts Competition
  .



                                      chapter 2
                                      Air Force Competition   Advocates   Have
                                      Made Progress




Flgure 2) : AFLC’8 Fircal Year 1g88
ProcurWmt Expendlturer by Category




                                                                                 spare parts




                                                 I                               Setvices

                                      The AFW reported that the percent of dollars for contracts awarded
                                      competitively for all expenditures increasedfrom 25 percent in fiscal
                                      year 1984 to 46 percent in fiscal year 1988 and that the percent of spare
                                      parts dollars for contracts awarded competitively increasedfrom 22
                                      percent in fiscal year 1984 to 43 percent in fiscal year 1988, as shown in
                                      figure 2.2.




                                      Page 11                                    GAO/NSIAD-90-76   Spare Parts Competition
                                                                                                                                 c



                                         Chapter 2
                                         Air Force Competition   Advocate6 Have
                                         Made Progress




Figu(e 2.2: Percent of Total and Spare
Part4 Dollars Awarded Competitively
                                         BobWIlt


                                         40




                                         20


                                         20



                                         10




                                          0

                                          1224                   1925             1986                     1927
                                          FMY=




                                         The AFLC reported that the amount of dollars for contracts awarded
                                         competitively also increasedfrom about $2.8 billion in fiscal year 1984
                                         to about $4.3 billion in fiscal year 1988, as shown in figure 2.3.




                                         Page 12                                         GAO/NSIAD-So-76    Spare Parts Competition
                               Chapter 2
                               Air Forca CompeMtlon   Advocatee   Have
                               MadeProgmss




Flgur4 2.3: Dollere Awarded
Comp~tltively

                              4.0

                              9.8

                              a.0

                              2.2

                              2.0

                              1.5

                              1.0

                              0.8

                                0

                                1981                  1985               lS08                     1981                  1988
                                -YWr


                              Likewise, the AFLCreported the percent of contract actions awarded
                              competitively increased from about 67 percent in fiscal year 1984 to
                              about 73 percent in fiscal year 1988, as shown in figure 2.4.




                              Page 13                                           GAO/NSIAIMlO-76    Spare Parta Competition
                                                                                                                                              T



                                                                                                                                          .
                                          Chapter      2
                                          Air      Competition
                                                Form             Advocates   Have
                                          Made Progreas




Flgurb 2.4: Percent of Contract Actlons
Awa(ded Competitively
                                          BoFuosnl

                                          70

                                          80

                                          80

                                          40

                                          20

                                          20

                                          10


                                           0


                                           1904                                     1984                    1907                   1988




                                          The Competition Advocate General of the Air Force attributes these
                                          trends primarily to the programs and efforts of the competition
                                          advocates.

Progress Reported in                      petition advocates’major programs for improving competition, showed
Item Screening and                        increasesin the percent of items deemedsuitable for competition and in
                                          the percent of contractors approved as sources for parts.
Source Development
Programs

Item Screening                            Air Force regulations require annual reports, called Command Competi-
                                          tion Plans, on the competition programs. According to the AFW’S1989
                                          Command Competition Plan, competition advocates at the five ALCScon-
                                          tinue to identify items that were previously awarded sole source as suit-
                                          able for competition. During fiscal year 1988 the advocates reviewed
                                          fewer items than in fiscal year 1987 but identified a slightly higher per-
                                          cent of items that were suitable for competition, as shown in table2 1.




                                          Page 14                                          GAO/NSIAMlO-76      Spare Pad   Competition
                                      Chapter 2
                                      Air Force Competition   Advocatea   Have
                                      Made ProgrwS




       1


Table 2,h: Spare Parts Reviewed end
Found $&able for Competltlon                                                       Number of parts
                                                                                                     Sultable for
                                      F&al year                      Reviewed                        competltlon            Percent
                                      1987                                59,693                           24,936                 42
                                      1988                                55,259                           23,938                 43


                                      The AU% have also reported a number of successfulcompetitive
                                      procurements resulting directly from the screeningprocess.For exam-
                                      ple, the OgdenALL?estimated that costs of about $8 million were avoided
                                      through 1992 as a result of identifying vendors and subcontractors as
                                      competitive sourcesfor F-4 aircraft radome components.The Air Force
                                      had previously purchased these items sole source from the prime
                                      contractor.


Source Development                    Competition advocatesat the AIL% have undertaken several activities to
                                      identify additional manufacturing sourcesto increase the likelihood of
                                      competition. These activities include conducting vendor fairs, visiting
                                      manufacturers, and publishing brochures.

                                      Regardingvendor fairs, AFLC officials set a goal that each ALC hold at
                                      least one fair every year and participate in other fairs sponsoredby var-
                                      ious organizations. The ALCS hosted a total of 13 fairs in fiscal year 1988
                                      and participated in 20 fairs hosted by other organizations.The fairs dis-
                                      play sole-sourcereplenishment spares and contractor-supported mainte-
                                      nance items to attract industry personnel who want either to start or
                                      expand businesswith the Air Force. The Oklahoma City ALCimple-
                                      mented a fair at which items remained on display for about three
                                      months. Oklahoma City ALCofficials believe that having continuous
                                      accessto the items encouragesmore contractors to participate.
                                      Sourcedevelopmentpersonnel also visit contractor facilities to identify
                                      additional manufacturers. According to AFLC reports, source develop-
                                      ment personnel made 668 visits during fiscal years 1986 through 1988,
                                      and 1 of these visits resulted in approving 2 alternative manufacturing
                                      sourcesfor B-1B windshields. ALCofficials estimated that the competi-
                                      tion would save the Air Force about $2.4 million over a 5-year period,
                                      In addition, four ALCSpublish a brochure referred to as a “hit list,”
                                      which is sent to potential manufacturers. It identifies selectedparts cur-
                                      rently being purchased noncompetitively that the Air Force would like



                                      Page 18                                            GAO/NSIAD-!hT76    Spare Parts Competition
                                    Air Force Chmpdtlon   Advocates   Have
                                    MadeProg.ret40




                                    to obtain competitively. The ALCS do not report the number of conver-
                                    sions to competition resulting from these lists.
                                    Overall, the Air Force has reported an increasein the percent of contrac-
                                    tors that are being approved as sourcesfor items. According to AFLC sta-
                                    tistics, contractors requestedapproval as sourcesfor over 27,000 items
                                    during fiscal years 1986 through 1988 (see table 2.2). The engineersin
                                    the materiel managementdirectorate approved over 19,000of these
                                    requests and therefore increasedopportunities for competition.
Tatjle 2.2: Number of Contractors
Ap@roved as Sources                                                         Number of contractors
                                                                      Requesting
                                    Fiscal year                         approval                Approved                 Percent
                                    1985                                      7,327                     4,315                 59
                                    1986                                      6,670                     4,696                 70
                                    1987                                      6,957                     5,449                 78
                                    1988                                      6,298                     5,116                 81
                                    Total                                    27.252                    19,576                 72




Competition Advocate                tionalization and effectivenessof competition programs. As part of the
General Reports                     study, both the Air Force SystemsCommand(AFSC) and the AFW con-
Progress                            ducted self-evaluations basedon criteria establishedby a steering com-
                                    mittee. The criteria for institutionalization included having policies and
                                    procedures,an organization and resources,a training program, and a
                                    method of monitoring performance. The criteria for effectiveness
                                    included cost avoidanceby competition, proper utilization of resources,
                                    and sufficient resourcesto accomplishprograms. Another part of the
                                    study looked at the competition advocates’efforts to promote competi-
                                    tion and challengenoncompetitive procurements.

                                    The Competition Advocate General,the AFSC,and the AFIX concluded
                                    that the competition program has been institutionalized and is effective.
                                    The AFW report said that substantial achievementshad been made and
                                    that competition statistics indicated that its field units have effectively
                                    implemented the programs. Both the AFLCand the AFSC identified the
                                    developmentof competition policies and procedures,their commitment
                                    to competition, and dollar savings as the strengths of their competition
                                    programs. However, both raised concernsabout the need for engineering
                                    data so that additional manufacturers could compete,and the AFLCindi-
                                    cated a need for meaningful managementindicators of effectiveness.


                                    Page10                                            GAO/NSIAD-gO-76SparePartsCompetition
&rq$imeringData ProblemsContinueto
hqjede Competition

                        Even with the reported increasesin competition, the Air Force is missing
                        potential opportunities to achieve savings and other benefits derived
                        from competition. This is occurring primarily becausethe Air Force
                        lacks adequate engineering data needed for additional manufacturers to
                        produce the parts. This problem is not new. Reports by us, the Air
                        Force, and the Department of Defensehave identified for years that
                        unnecessarily unavailable engineering data has been the major impedi-
                        ment to increasing competition for parts. Furthermore, the conclusions
                        of these reports-that the Air Force needsto (1) provide increased man-
                        agement attention early in a weapon system’s acquisition to ensure that
                        the engineering data needed for additional manufacturers to produce
                        the part are obtained when appropriate and (2) better coordinate the
                        delivery and the review of engineering data-are generally still applica-
                        ble. Although the Air Force competition advocates’approachesto
                        increasing competition and the AFL& technical improvements to
                        enhance the quality of data are helpful, they do not eliminate the rea-
                        sons for the data problems.

                        In fiscal year 1988 the AFLCspent about $6.7 billion for spare parts, of
Unavailable Data Is     which about $3.2 billion, or about 67 percent, was for contracts awarded
the Major Cause of      noncompetitively. AF’LC statistics on the results of spare parts procure-
Noncompetitive          ment screening and a sample of high-dollar procurements at the
                        Oklahoma City AIX:showed that a high percent of all the noncompetitive
Procurements            Am    procurement actions were partly due to unavailable engineering
                        data.


Procurement Screening   Screeningprogram personnel review for competition those parts identi-
Statistics              fied to be purchased. By the end of fiscal year 1988, the AFLChad
                        reviewed or screenedfor competition 313,673 items. Competition advo-
                        cates determined that 127,996,or 41 percent, of these items could be
                        procured competitively and that 186,677,or 69 percent, were not suit-
                        able for competition. Unavailable data accounted for about 76 percent
                        of the items determined by the advocates to be unsuitable for competi-
                        tion, as shown in figure 3.1,




                        Page 17                                GAO/NSIALbS@75   Spare Parts Competi~On
                                   Chapter
                                        a
                                   Englnem’ing Data Probhnw   Continue   to
                                   Impede Competition




F&e 3.1: Reaaonr That Item0 Were
Un+ultable for Competltlon                                                    Require source approval
                                                                              9%
                                                                              Other




                                                                              No data or incomplete data




                                             I                                Proprietary data



Spare Parts Sample                 At the Oklahoma City ALC, a sample of the top 386 reparable spares on
                                   order with the highest dollar values showed that unavailable data
                                   accounted for about 70 percent of the items determined to be unsuitable
                                   for competition, as shown in figure 3.2.




                                   Page 18                                    GAO/NSIAD-90-75    Spare Parts Competition
                                    EX@MW&     Data h’Ob18lU9 c0ilthU8    to
                                    Impede competition




Fig+ 3.2: Rea#onr That Item8 Were
Unr~ltable for Competition at the
                                         11                                            Require souTcBapproval
Oklahoma City ALC
    ,                                    I     y                                       Other




                                                                                       No data or incomplete data




                                                                                       Proprietary data

                                    In addition, AFW’Scompetition effectiveness study, discussedprevi-
                                    ously, concludedthat no data or incomplete data is consistently the
                                    major reason for being unable to competeitems.

                                    Although valid reasonsexist for not having someof the engineering
Unavailable Data Has                data that additional manufacturers need to produce the parts, we, the
Been the Major Barrier              Air Force, and the Department of Defensehave reported that unnecessa-
for Years                           rily unavailable engineeringdata neededfor the procurement of spare
                                    parts has been the major impediment to competition in parts purchases.
                                    For example, as early as 1961 we reported’unsatisfactory conditions in
                                    the military services’receipt, control, and use of contractor-furnished
                                    data. In responseto the report, the Department of Defensesaid these
                                    conditions were among the most intricate and difficult problems con-
                                    fronting management,and, until they are corrected, progress by the mil-
                                    itary services in increasing competitive procurement of aeronautical
                                    replacement spare parts will be seriously impeded.

                                    In October 1983 the Air Force ManagementAnalysis Group reported
                                    that Air Force efforts to obtain the data necessaryto purchase spare

                                    ‘Review of Noncompetitive Procurement of Aeronautical Replacement Spare Parts Within the
                                    Department of Defense (B-133396, Sept. 18,196l).



                                    Page 19                                            GAO/NSIAJMfJ-75    Spare Parts Competition
Chapter 8
EngIn-     Data Problem@ tinthue   to
Impede Competition




parts competitively were not effective and that proceduresfor accepting
engineeringdata focusedon format with little attention to usability. The
report further stated that adequatecriteria for evaluating the usability
of data did not exist. The usability of the data can only be determ ined,
in most cases,at the time of use for competitive procurement, which
generally takes place long after the data have been developed,delivered,
and accepted.According to the report, oncethe data entered the Air
Force system,serious problems occurred with storage,distribution, and
control. The report also stated that managementunderemphasizedplan-
ning for spare parts competition during a weapon system’sdevelopment
and acquisition.
According to a 1988 report by the Air Force Inspector General,much of
the future competitivenessin spare parts acquisition is directly related
to the up-front emphasis,or lack thereof, in engineeringdata and its
management.Furthermore, a long-term commitmentto improving en@ -
neering data managementis essentialto ensuring lasting improvements
in competitive spare parts procurement.
During this review we found that reasonsfor unnecessarilyunavailable
data included late delivery of the data, incompleteor illegible data, and
lost data. For example,about 16 percent of the high-dollar reparable
items in our sampleat the OklahomaCity ALCwere judged not suitable
for competition becausecontractors had not delivered engineeringdata
neededfor additional manufacturers to produce sparesfor the B-LB
bomber. The B-1B contracts required the contractors to deliver the engi-
neermg data before December1986, but by August 1988 the Air Force
had received only 4 percent of the data. Sincethat time additional data
have been received, and all data are expectedby March 1990. However,
the Air Force has rejected the first three data deliveries becauseof tech-
nical problems and errors in the data. Until acceptabledata are deliv-
ered, the Air Force will be precluded from obtaining competition on
most B-1B spare parts.
The conclusionsin previous reports are generally still applicable. The
Air Force needsto (1) provide increasedmanagementattention early in
a weapon system’sacquisition to ensure that neededengineeringdata
are obtained when appropriate and (2) better coordinate the delivery
and the review of such data.




Page 20                                 GAO/NSIAD90-75   Spare Parta Competkion
       .

.
                           chapter 3
                           Engineering Data hbl8nU   Continue   to
                           Impede Competition




                           The Competition Advocate Generalestablisheda goal for fiscal year
    Addocates’Efforts Do   1988 to improve data quality and availability. Two programs to improve
    Not /Address the       data availability are item screeningand reverse engineering.Thesepro-
    Reabonsfor Data        grams addressproblems with unavailable data after they occur rather
                           than prevent the problems. The programs also attempt to obtain the
    Problems               engineeringdata neededto achieve competition on individual parts
                           before procurement. Also, technologicalimprovementsthat are under-
           I               way in the AFIX:should help support item screeningand facilitate
                           reverse engineering.Theseimprovements addressconcernsexpressedin
                           earlier reports regarding data storage, but they do not addressdata
                           problems that occur early in the acquisition process.The AFSC’advo-
                                                                                            S
                           cates that are involved in the early phasesof the acquisition process
                           have no specific program for ensuring the adequacyof engineeringdata
           /               during the acquisition of major systems.


    AFLC Efforts           Item screeningand reverse engineeringare two programs used by com-
                           petition advocatesin the AFLCto addressthe problem of unavailable
                           data. Technologicalimprovements will also be used to facilitate the pro-
                           grams. Item screeningdetermines,on a case-by-casebasis, if engineering
                           data are available to allow other manufacturers to bid on an item.
                           According to analysts and officials at the ALCS, obtaining the necessary
                           engineeringdata to enable competitive procurement of spares can, and
                           often does,take a long time. The processof assemblinga complete data
                           packageoften requires a seriesof requests for data from contractors.
                           The receipt of one drawing can often identify the need for additional
                           drawings or for the drawings to be clarified.

                           During the screeningof an F-16 spare part included in our Oklahoma
                           City ALCsample,a data technician identified the need for additional
                           data, In a May 12, 1986, letter, the technician requestedcertain engi-
                           neering drawings from the manufacturer. The AU: received the drawings
                           on August 29, 1986, but these drawings identified that additional draw-
                           ings were neededto manufacture the part. Becausesufficient data were
                           not available in time to completethe data package,the ALC,on Septem-
                           ber 26, 1986, awarded a noncompetitive contract totaling $8.3 million to
                           the manufacturer for 43 of the parts. On May 1,1987, in preparation for
                           a reprocurement of the samepart, engineersagain requestedthe addi-
                           tional neededdrawings. Onceagain, the ALCdid not receive the drawings
                           in time and awarded noncompetitive contracts for this part on May 28,
                           1987, and on September27, 1987, for $1.6 million and $3.6 million,
                           respectively.



                           Page 21                                   GAO/NSLADBO-75   Spare Parts Competition
               Engheering Data Problem   CoUtinUe to
               Impede Competition




               When engineeringdata are unavailable, reverse engineeringmay be
               used to develop neededengineeringdrawings. Under this process,the
               Air Force provides sample parts to contracting firms and solicits com-
               petitive bids for the developmentof complete engineeringdrawings.
               According to Air Force officials, spare parts funding may be used for
               this processas long as requirements exist for the part. Otherwise, opera-
               tion and maintenancefunds must be used. According to the Competition
               Advocate General,obtaining operation and maintenancefunds for this
               processis difficult becausefunding must competewith other high-prior-
               ity operation and maintenanceprojects.
               The AFLCis also involved in a number of technological improvements to
               increaseefficiency and improve quality. These include computer-aided
               design/computer-aidedmanufacturing, engineeringdata computer-
               assistedretrieval, contract data management,and engineeringdata inte-
               grated distribution systems. Although these improvements should facili-
               tate competition and enhancedata quality through improved storage
               and retrieval and faster reverse engineering,they do not addressother
               up-front reasonsfor unavailable engineeringdata. For example, since
               the engineeringdata computer-assistedretrieval system is designedto
               automate the requisitioning, indexing, filing, retrieving, and distributing
               functions of engineeringdata depositories,it should facilitate the item
               screeningprogram. However, the system does not resolve or address
               such problems as undelivered data or unacceptabledata. Furthermore,
               the Air Force does not expect to complete the system until 1996.


AF’SCEfforts    According to the Competition Advocate General and the AF’SC Competi-
                tion Advocate, advocatesin the AFX are involved in obtaining engineer-
                ing data. They participate in the planning of the acquisition of
                engineeringdata and, from time to time, answer inquiries from ALCS
                about specific data problems, However, advocatesin the AFSCsaid that
                they primarily focus on obtaining competition in the procurement of the
                major weapon systems. For example, the Aeronautical System Division’s
               ‘competition plan for fiscal years 1989 through 1991 emphasizes
                attempts to increase competition in major acquisitions but does not men-
                tion efforts to ensure that the contractors provide adequateengineering
                data to allow competition in the future purchase of spare parts.

               Despite efforts to improve data quality and availability, unnecessarily
Conclusions    unavailable data remains the major impediment to increasing competi-
               tion Programs need to addressthe reasonsfor unavailable data. The


               Page 22                                 GAO/NSIAD-90-75   Spare Parta Competition
cllaptera
lhglneem   Data Problem   Continue   to
Impede Competition




competition advocates’efforts to obtain unavailable data, although
helpful, primarily addressthe problem after it occurs. Therefore, the
conclusionsof previous reports-that the Air Force needsto (1) provide
increasedmanagementattention early in a weapon system’sacquisition
to ensure that the engineeringdata neededfor additional manufacturers
to produce the part are obtained when appropriate and (2) better coor-
dinate the delivery and the review of engineeringdata-are generally
still applicable.




Page 23                                   GAO/NSIAlMO-75   Spare Parts Competition
Chapter 4

@ewApproachesand Better Infomtion
should Help Advocates

                         In addition to ensuring that engineeringdata are available to obtain
                         competition on spare parts, new approachesand better management
                         information should help competition advocatesimprove the effective-
                         nessof their programs and measureresults. According to the Competi-
                         tion Advocate General,the Air Force is obtaining most of its competition
                         on spare parts when competition is most easily achieved.The Competi-
                         tion Advocate Generalbelievesthat increasingcompetition on future
                         spare parts purchaseswill not be easy. The current processfocuseson
                         achieving competition on those parts that are currently being pur-
                         chased.However, AFLC statistics and a sample of high-dollar spare parts
                         at the OklahomaCity ALC indicated that most of the dollars for noncom-
                         petitive purchasesare for a relatively few high-dollar parts. Identifying
                         and focusing managementattention on the high-dollar parts with high
                         competitive potential will require another approach. Also, better man-
                         agementinformation is neededin assessingthe effectivenessof the
                         advocate’sprograms.

                         Under the current process,the AL.CS initiate screeningfor competition
Current ProcessHas       when they receive purchase requirements.The Competition Advocate
Limitations              General said that advocateswait until receipt of a purchase requirement
                         to initiate screeningbecausethey do not want to waste time screening
                         parts that may not be purchased.This process,however, focuseson
                         those noncompetitive parts currently being purchasedand limits the
                         advocatesto obtaining competition in time to meet the part’s require-
                         ment date. As the advocatesdeal with more challengingproblems, such
                         as multiple requestsfor data, an approach that identifies and focuseson
                         parts before the purchasing processstarts should help in increasing
                         competitive purchases.

                         High-dollar parts can have more of an impact on the dollars for con-
Increased Attention on   tracts awarded competitively. For example, a March 31,1988, list of
High-Dollar Parts        parts due in to the OklahomaCity AIX showedthat the top 400 items,
Needed                   about 9 percent of the items on the list, accountedfor about 76 percent
                         of the total cost of those parts. Furthermore, the top 16 items, less than
                         1 percent, accountedfor about 21 percent of the total cost. A sample of
                         the most recent purchasesof the items indicated that high-dollar items
                         are less competitive. The sample also showedthat about 75 percent of
                         the most recent buys of the top items applicable to the OklahomaCity
                         ALC were not competed,including 13 of the top 16 items. Also, the 1988
                         AFLC competitive statistics indicated that high-dollar items are less com-
                         petitive. For example, 27 percent of the contract actions that were not


                         Page 24                                 GAO/NSIAIHO-75   Spare Parts Competition
                        Chapter 4
                        New Appztm&en and Better Information
                        Should Help Advocatee




                        competitive accountedfor over half (64 percent) of the dollars. Thus, an
                        approach that focuseson identifying and eliminating barriers to compet-
                        itive buys of high-dollar parts offer the most potential to competemore
                        dollars.

                        Materiel managersshould identify those high-dollar parts that offer the
MAagement               greatest potential for competition becausethese managersknow how
Invdlvement in          the parts are used and which parts will most likely be needed.They also
Targeting High-Dollar   make decisionsthat affect the competitivenessof those parts, such as
                        determining if manufacturers are qualified to produce the parts. There-
Parts Needed            fore, involving materiel managersin identifying parts for competition,
                        setting competition goals, and carrying out plans to increase competition
                        should help increase competition for high-dollar parts.
                        Targeting items for improved competition has been successful.For I
                        example, the San Antonio AU’S competition advocate directorate coordi-
                        nated efforts with the materiel managementdirectorate and the con-
                        tracting and manufacturing directorate to increasethe competition rate
                        (the competitive obligations divided by the total obligations) for the T66
                        engine.According to the AFU=, the competition rate on the T66 was ini-
                        tially below 6 percent. Goals were set at 26 percent for fiscal year 1988,
                        40 percent for fiscal year 1989, and 60 percent for fiscal year 1990. The
                        rate reported through June 1988 was about 24 percent.
                        The Warner Robins AIL is involving materiel managementpersonnel in
                        planning and developing competition. The competition advocate at the
                        Warner Robins ALCasked the Director of Materiel Managementto make
                        a commitment to competition and obtain a commitment from the various
                        materiel managementdivisions and system program managers.The
                        advocate provided information on past division-level competition rates
                        and asked that they identify at least 10 high-dollar items for each &vi-
                        sion that could be targeted for competition. Although the results of this
                        effort are not yet known, the concept appears to offer a valuable sup-
                        plemental method for breaking down barriers to competition on high-
                        dollar parts.


Better Management       evaluate the effectiveness of the efforts being taken to achieve competi-
Information Needed      tion. The competition advocate currently judges progress by broad




                        Page 25                                 GAO/NSIAIHO-75   Spare Parts Competition
                                           chapter 4
                                           New Approacha   and Better InformatIon
                                           Should Help Advocate13




                                           measuresof competition rates. Without additional information the advo-
                                           cate cannot determine whether competition is being effectively obtained
                                           by the various programs.


Cgmpetition Rates Do Not                   Although the trends in competitive rates indicate that advocateshave
yeasure Effectiveness                      had a positive effect in increasing competition, the trends do not mea-
                                           sure the effectivenessof advocates’programs. A high competition rate
                                           at one AU does not necessarily mean that a more effective job is being
                                           done. Figure 4.1 shows the range of competition rates reported for fiscal
                                           year 1988 at each ALC.

Figure 4.1: Fiscal Year 1988 Competition
Rafes at Each ALC                          00Pueml
                                                              \
                                           50




                                           The competition rate at each AU: may be affected by differences in the
                                           types of parts being procured, total obligations, regulatory interpreta-
                                           tions, foreign military sales,and initial provisioning parts. For example,
                                           the competition rate at Warner RobinsALC is affected by large follow-on
                                           production acquisitions of electronic warfare systems and subsystems.
                                           (The ALC’Scompetition rate for spare parts other than electronic war-
                                           fare was 46 percent in fiscal year 1988.)



                                           Page 26                                  GAO/NSIAD-90-75   Spare Parts Competition
                                  Chapter 4
                                  New Approachee and Better Formation
                                  Should Help Advocatea




                                  The rates can also be affected by events unrelated to competition pro-
                                  grams. For example, the AFIC’S competition effectiveness study reported
                                  that the competition rate is distorted becausedeobligations of funds
                                  from prior fiscal years were combinedwith obligations from the current
                                  fiscal year. The fiscal year 1989 AFLCcompetition plan pointed out that
                                  including deobligationsof noncompetitive purchasesfrom a prior fiscal
                                  year improved the competition rate by lowering the overall obligations
                                  but not competitive obligations. This increasedthe competition rate
                                  without increasedcompetition.

                           AFLC’S advocatescannot determine to what extent program initiatives
Management Information
Is Neededto Relate         enhancecompetition. The existing information describesthe work load
                           completed but not competition achievements.For example, the advo-
Prop-am Efforts to Results cates know that in fiscal year 1988 they screened65,269 spare parts
                                  and identified 23,938 as suitable for competition, However, the advo-
                                  cates do not track statistics on item screeningto determine if the parts
                                  they recommendedfor competition were actually competed.In another
                                  example, the advocatesknow that they made 568 visits to contractor
                                  facilities during fiscal years 1986 through 1988, but they do not identify
                                  how much more competition resulted from these visits.
                                  Without detailed information on program initiatives, the AFU: advocates
                                  cannot determine whether the limited resourcesthey use are effective.
                                  Information on how well program initiatives enhancecompetition could
                                  lead to changesin where resourcesare placed and help maximize the
                                  competitive posture of the Air Force.

                                  We recommendthat the Secretary of the Air Force direct the Competi-
Recommendations                   tion Advocate General to develop, considering costs and benefits,
                              l proceduresthat supplement the current screeningprogram and involve
                                materiel managersin developing strategies for eliminating barriers to
                                competition in their program area specialties, paying particular atten-
                                tion to high-dollar parts, and
                              . information to identify the competitive results of source development
                                initiatives and screeningactions taken by the competition advocates.




                                  Page 27                                 GAO/NSIAD-90-75   Spare Parts Competition
 Ai>pendixI                                                                                              J

 #!IqjorContributorsto This &port


                          Norman J. Rabkin, AssociateDirector, Air Force Issues
 Nktional Security and    David Childress,Assistant Director
 Ifiternational Affairs   Benjamin W, Smith, Evaluator
 Division, Washington,
 DC.

                          Robert R. Seely,Jr., Evaluator-in-Charge
Kansas City Regional      Fredrick C. Light, Evaluator
Office




(302467)                  Page 28                              GAO/NSIAD-90-76 Spare Parts Competition
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