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 “...“““. ..“. .” _-....._... .--. ._.. ..-_. --.. .__......._-_ -- . . ..-._._._..
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)