oversight

Air Force Logistics: C-17 Support Plan Does Not Adequately Address Key Issues

Published by the Government Accountability Office on 1999-07-08.

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

                   United States General Accounting Office

GAO                Report to Congressional Requesters




July 1999
                   AIR FORCE
                   LOGISTICS

                   C-17 Support Plan
                   Does Not Adequately
                   Address Key Issues




GAO/NSIAD-99-147
United States General Accounting Office                                                                 National Security and
Washington, D.C. 20548                                                                           International Affairs Division



                                    B-282640                                                                                         Letter

                                    July 8, 1999

                                    The Honorable John Warner
                                    Chairman
                                    The Honorable Carl Levin
                                    Ranking Minority Member
                                    Committee on Armed Services
                                    United States Senate

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

                                    In 1998, Congress mandated 1 that the Secretary of the Air Force submit a
                                    plan to Congress by March 1, 1999, identifying core 2 logistics capabilities
                                    for the C-17 aircraft consistent with the requirements of 10 U.S.C. 2464.3
                                    Congress also mandated that we review the Air Force’s C-17 plan and
                                    submit a report to Congress evaluating its merits. This report addresses
                                    the extent to which the Air Force’s plan (1) identifies core logistics
                                    capabilities, (2) provides assurance of the cost effectiveness of the planned
                                    support strategy, and (3) allows implementation under current law.



Results in Brief                    The Air Force is working to pilot test a new logistics support concept for
                                    the C-17 that places increased reliance on the private sector for support.
                                    The Air Force plan incorporating this concept was provided to the


                                    1Section 351 of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999
                                    (Public Law 105-261).

                                    2
                                     Section 2464 of title 10 requires that the core logistics capability be government-owned and operated
                                    and sufficient to ensure a source of technical competence and resources necessary to ensure an
                                    effective and timely response to mobilization, national defense contingency situations, and other
                                    emergencies.

                                    3 This provision calls for core requirements to be identified within 4 years of a mission-essential
                                    weapon system attaining initial operating capability. Initial operating capability represents the date
                                    when a service determines that a new system has been fielded at its first operating base in sufficient
                                    numbers.




                                    Page 1                                                      GAO/NSIAD-99-147 Depot Maintenance
B-282640




Congress. The plan has three key shortcomings that need to be addressed
so the pilot’s merits can be adequately assessed. These shortcomings relate
to identifying
C-17 core requirements, the strategy’s cost-effectiveness, and the Air
Force’s ability to implement the plan under current law.

The plan the Air Force submitted to Congress did not identify C-17 core
requirements or provide information on a process for establishing the
specific capabilities needed to support such requirements. The Air Force
outlined its current process for analyzing core requirements and
capabilities and indicated that its current approach to such analysis is not
weapon-system specific. To date, requirements for the C-17 aircraft have
not been included in the Air Force’s core process. Further, the Air Force
stated that it does not expect to complete a core analysis incorporating the
C-17 requirements until 2002. This would be 8 years after the C-17 achieved
its initial operational capability.

The 1999 Air Force plan’s conclusion that C-17 depot maintenance would
be less cost-effective in Air Force depots is not adequately supported. Our
first concern is that the analysis is based on 1996 data, and more current
information should have been used. The Air Force plans to complete an
updated cost analysis in 2002. However, work remains to fully develop the
methodology, metrics, criteria, and data sources that will be used in making
any future sourcing decisions for C-17 logistics work. Secondly, the
conclusions drawn from the 1996 data about the cost-effectiveness of the
private sector under the flexible sustainment approach are based on
incomplete analysis. Finally, the Air Force is not programming the funds
that would be required to establish in-house logistics support capabilities,
without which there may not be a viable in-house alternative.

We question whether the Air Force plan can be implemented under current
law. The Air Force plan envisions that the C-17 contractor will contract
with public depots for selected maintenance services for some C-17
systems and equipment. Under applicable law, the Air Force must
determine that the services to be obtained from public depots are not
commercially available. Past assessments by the Air Force have shown
that commercial sources are available to perform depot maintenance on
the same or similar commodities for other aircraft.

This report includes recommendations concerning the Air Force’s
approach to conducting a cost analysis and implementing its planned
support approach.



Page 2                                     GAO/NSIAD-99-147 Depot Maintenance
                           B-282640




Background                 For many years the Air Force has relied on contractors to provide logistics
                           support for commercial derivative systems such as the KC-10 aircraft as
                           well as for some high-cost, highly classified systems produced in small
                           quantities, such as the U2. In recent years the Department of Defense
                           (DOD) and the services have initiated actions to expand contractor
                           logistics support to other military systems that were not derived from
                           similar commercial systems.

                           The Air Force has designated the C-17 as 1 of the 10 Air Force systems that
                           will be used as a pilot to implement a DOD initiative that will emphasize
                           contracting with the private sector for support services as a part of its
                           logistics reengineering efforts. This designation of the C-17 as a pilot
                           project is consistent with defense reform initiatives, which called for a
                           strategic shift toward increased reliance on the private sector to meet
                           support needs.


Overview of C-17 Program   The C-17 is a four-engine, wide-bodied, strategic airlift aircraft designed to
                           accomplish a wide variety of tasks, including (1) transporting vehicles,
                           equipment, cargo, and personnel over intercontinental ranges and
                           (2) landing at small, austere airfields. The aircraft has a demanding and
                           diverse worldwide mission, and it is designed to provide significant
                           improvements in performance and reduced operational costs relative to
                           other strategic air-lifters. The number of aircraft to be bought has changed
                           over time, ranging from an initial quantity of 210 to the currently approved
                           quantity of 120. Although the Air Force had originally determined that the
                           C-17 would largely use in-house support, the reduction in fleet size
                           prompted officials to reconsider support options. Forty-nine aircraft have
                           been produced and will be based at four operating locations. C-17
                           production is expected to extend through 2005.

Program Management         Since program inception in 1981, C-17 development and production has
Organization               been managed by the C-17 System Program Office at Wright-Patterson Air
                           Force Base, Ohio. In 1984 the San Antonio Air Logistics Center became the
                           C-17 systems support manager, responsible for sustainment management
                           functions4 such as materiel management, depot maintenance, and


                           4 Sustainment management is the support of a system after it becomes operational. Recently proposed
                           changes in DOD’s sustainment management process would retain more of these functions in the
                           acquisition program office rather than transferring them to the system support management office,
                           which is generally collocated with the responsible Air Force depot.




                           Page 3                                                   GAO/NSIAD-99-147 Depot Maintenance
                                B-282640




                                configuration control. After the San Antonio Air Logistics Center was
                                identified for closure during the 1995 Base Realignment and Closure
                                process, the Air Force designated Warner Robins Air Logistics Center as
                                the new C-17 systems support manager, with some C-17 functions
                                previously performed at San Antonio transferring to Warner Robins, while
                                others are to be performed by contract.

Flexible Sustainment Strategy   On November 1, 1996, the Air Force C-17 program office issued its analysis
                                of alternative long-term support options for the C-17. This report estimated
                                in-house and contractor support costs for the materiel management and
                                depot maintenance functions. The report summary stated that certain
                                subsystems are more economical to accomplish organically and others by
                                contractors and the addition of materiel management costs shows that a
                                significant savings may be gained by consolidating functions at a
                                contractor location.

                                In 1997, based on this conclusion and on uncertainties surrounding the
                                future Air Force depot maintenance structure, the Air Force postponed its
                                final decision on where both materiel management and depot maintenance
                                activities would be performed and it adopted a support strategy for the
                                C-17 referred to as “flexible sustainment.”5 Under flexible sustainment, the
                                Air Force expected to rely principally on contractor supported logistics for
                                the C-17, at least through 2003. The contractor, Boeing Company, would be
                                expected to provide materiel management,6 depot maintenance, and
                                engineering support for the total system during this time. At the same time,
                                the contractor could use the military depot system to provide some
                                support.

                                The Air Force’s C-17 flexible sustainment strategy involves

                                • having Boeing, the C-17 aircraft manufacturer, retain responsibility for
                                  depot maintenance;
                                • moving materiel management—including inventory management,
                                  engineering, data management, and some program management—from


                                5
                                  Although the C-17 support program is the only Air Force system that is referred to as using flexible
                                sustainment, it is similar to traditional contractor logistics support or the newer concept of total system
                                program responsibility, except that it is approved for a limited period of time rather than for the life of
                                the system.

                                6 Materiel management involves the determination of requirements for spare and repair parts, stock
                                issuance and supply parts support, and engineering.




                                Page 4                                                       GAO/NSIAD-99-147 Depot Maintenance
                             B-282640




                               the closing San Antonio Air Logistics Center to Boeing between
                               1998 and 2000;7
                             • moving remaining systems support management responsibilities to
                               Warner Robins Air Logistics Center;
                             • evaluating the flexible sustainment approach between 2001 and 2002;
                               and
                             • conducting a final depot support decision process in 2003.


Air Force Plan in Response   In response to the congressional mandate for a plan addressing C-17 core
to Congressional Mandate     capabilities, the Air Force submitted a plan consisting of two volumes:

                             • a resubmission of an October 10, 1997, report sent to the Senate
                               Appropriations Committee entitled Depot Support Strategy: Flexible
                               Sustainment and
                             • the March 1, 1999, report to Congress entitled Depot Support Strategy:
                               Flexible Sustainment Strategic Plan.

                             The first volume had previously been issued in response to a requirement in
                             Senate Report 104-286 on the Department of Defense Appropriations Bill
                             of 1997. It pointed out that the C-17 Flexible Sustainment strategy takes
                             advantage of the strengths of both industry and the government by
                             establishing an “intelligent partnership.” It defines this strategy as a joint
                             venture between the public and private sector that relies on support from
                             the source providing the best value, based on technical competence and
                             economic factors. Air Force officials said that, under flexible sustainment,
                             Boeing could award specific depot maintenance work to the most cost-
                             effective provider from the private or public sector.

                             The second volume of the Air Force plan stated that the Air Force intends
                             to postpone the C-17 source-of-repair decision until 2003—2 years prior to




                             7 The conversion of non-depot commercial functions, such as materiel management, to contractor
                             performance is generally subject to OMB Circular A-76. The C-17 program office believes that A-76
                             does not apply to the materiel management services because the circular provides for a waiver for
                             functions performed at installations scheduled for closure. Further, the program office believes that
                             the study and notification provisions of 10 U.S.C. 2461 do not apply to the C-17 materiel management
                             function since the law applies only to functions that were being performed by DOD civilian employees
                             as of October 1, 1980. The program office states that the C-17 full-scale engineering and development
                             contract was not awarded until 1982 and that the first sustainment contract for the C-17 did not begin
                             until 1995. Given the limited time available for this review, we were unable to fully evaluate these
                             issues.




                             Page 5                                                     GAO/NSIAD-99-147 Depot Maintenance
                       B-282640




                       the projected end of C-17 production. This process would be accomplished
                       using three separate but related subprocesses:

                       • a core determination process;
                       • a cost-benefit analysis comparing costs of in-house and contractor
                         support options over the life of the C-17 and including both recurring
                         and non-recurring costs; and
                       • an analysis providing an assessment of the current and projected
                         balance of depot maintenance workloads between the public and
                         private sectors for purposes of addressing requirements of
                         10 U.S.C. 2466, which provides that not more than 50 percent of the
                         depot maintenance funding may be used for maintenance performed by
                         nongovernmental personnel.8

                       At the current time, the interim contractor support arrangement that was
                       established with Boeing is being extended under the flexible sustainment
                       strategy. Additionally, materiel management work is being moved to
                       Boeing from the San Antonio Air Logistics Center, where the C-17 system
                       support manager currently is located.



Air Force Plan Does    While the Air Force C-17 plan provided information about its support
                       strategy and plans for long-term decision-making, it did not identify any
Not Identify Core      current core capability requirements for the C-17. Since specific core
Capability             requirements were not identified, there was also no information provided
                       on a plan for establishing the capabilities needed to support the core
Requirements for the   requirements. The Air Force outlined its current process for analyzing core
C-17                   requirements, which, to date, have not included consideration of the C-17.
                       The Air Force stated that it did not expect to complete a core analysis
                       incorporating the C-17 until 2002. This will be 8 years after the C-17
                       achieved an initial operating capability. A core assessment of the C-17 is
                       necessary to identify specific C-17 maintenance capabilities needed in
                       military depots to support DOD core logistics capability now or in the
                       future. For several reasons we question the Air Force’s rationale for
                       postponing the core logistics assessment. Delaying making this
                       assessment could create the risk that some maintenance capabilities might
                       not be available when needed.


                       8Section 2460 of title 10 provides that depot maintenance includes overhaul, upgrading, or rebuilding of
                       parts regardless of the source of funds for the maintenance or repair. It also specifies that depot
                       maintenance includes all aspects of depot-level software maintenance.




                       Page 6                                                      GAO/NSIAD-99-147 Depot Maintenance
                              B-282640




Department of Defense         The Department of Defense’s core determination process is designed to use
Core Methodology              the Joint Chiefs of Staff strategic planning scenario to identify contingency
                              requirements for tasked systems and ensure that in-house maintenance
                              capabilities can surge and expand to meet wartime requirements.
                              However, DOD’s core policy, which was modified in 1996, does not require
                              that a DOD depot have repair capabilities for each tasked system.9 The
                              policy requires that depots have the capability to be able to support all
                              tasked systems, unless an analysis of private sector capability determines
                              that sufficient reliable commercial sector capability exists. For example,
                              the DOD policy states that if the facilities, equipment, and skilled personnel
                              to perform maintenance on one type of aircraft enable a depot to be
                              capable of performing maintenance on other types of aircraft, then the core
                              capability does not necessarily have to include each individual system.


Air Force Postponed Core      The Air Force’s March 1999 plan stated that the Air Force has postponed
Determination                 the incorporation of C-17 surge requirements into its core determination
                              process until 2002. The plan indicates that it would be premature to do
Incorporating C-17 Aircraft   such an analysis now given the limited number of C-17 aircraft in the active
                              inventory. The plan does describe how the Air Force expected to address
                              core logistics capabilities related to the C-17. However, by the time such an
                              analysis is completed, the Air Force will have relied largely on the
                              contractor to support the C-17 for 8 years after achieving initial operational
                              capability. If, at that later date, the Air Force were to identify the need for
                              establishing C-17 specific capability in an Air Force depot, some additional
                              period of time could be required to develop that capability. For example,
                              the C-17 Program Director indicated the need for surge capability at the
                              Warner Robins depot to complement the contractor’s capacity. He stated
                              that the C-17 fleet might require a mission-unique modification to perform
                              in a specific theater of operations, such as adding enhanced defense
                              systems. Given such a requirement, the program director said that because
                              of the (1) time that would be required to increase capacity and
                              (2) limitations on support equipment and hangar space at the Boeing
                              facility, a fleet-wide modification would take significantly longer without
                              Warner Robins Air Logistics Center as an immediately available source.
                              Meanwhile, the C-141 workload—the in-house workload that the Air Force
                              says is supporting much of the current, large airframe surge



                              9Under this policy, the Air Force identified core capability requirements by commodity (i.e., airframe,
                              engine, landing gear, avionics, etc) versus whole new weapons.




                              Page 7                                                      GAO/NSIAD-99-147 Depot Maintenance
                       B-282640




                       requirements—is declining as the aircraft is being phased out of the
                       inventory.10

                       Given the requirement in 10 U.S.C. 2464, the Air Force’s past practices, and
                       workload considerations, the Air Force’s position that it is premature to
                       include the C-17 into the current core determination process is not
                       reasonably supported. For example, and most importantly, the Air Force is
                       required by statute to identify a core logistics capability not later than
                       4 years after a mission-essential weapon system achieves an initial
                       operating capability. The C-17 achieved this capability in January 1995.
                       Also, while the Air Force is delaying assessing core requirements for its
                       military unique C-17 aircraft system, it has already made a core assessment
                       for the C-17’s commercial engine. Further, the Air Force has previously
                       completed other core assessments as a normal part of the logistics
                       planning process during the systems acquisition phase.11 Lastly, the Air
                       Force is contracting out depot maintenance workloads from its closing
                       Sacramento and San Antonio depots that are valued at about $238 million
                       annually. With this transfer the Air Force is moving increasingly toward the
                       limit in 10 U.S.C. 2466 that prohibits contracting out more than 50 percent
                       of its depot maintenance workload. As this happens, the Air Force could
                       be faced with difficult choices regarding what workloads it wants to retain
                       in-house and contract out. Given the mandate in 10 U.S.C. 2466, the Air
                       Force’s past practices, and workload considerations, it is unclear why the
                       Air Force maintains it is premature to include the C-17 into the current core
                       determination process.



Uncertainties          The 1999 Air Force plan’s conclusion that C-17 depot maintenance would
                       be less cost-effective in Air Force depots is not adequately supported. Our
Regarding Cost         first concern is that the analysis is based on 1996 data and more current
Effectiveness of the   information should have been used. The Air Force plans to complete an
                       updated cost analysis in 2002. However, work remains to fully develop the
Current Plan           methodology, metrics, criteria, and data sources that will be used in making
                       any future sourcing decisions for C-17 logistics work. Secondly, the
                       conclusions drawn from the 1996 data about the cost-effectiveness of the


                       10 The last programmed C-141 depot maintenance work will be performed in 2004. Unless other large
                       airframe workloads are designated as core, C-17 core may be needed.

                       11 For example, the Joint Stars program office made decisions regarding depot maintenance and
                       materiel management support in 1988, during the acquisition process and prior to the initial operating
                       capability being established.




                       Page 8                                                     GAO/NSIAD-99-147 Depot Maintenance
                            B-282640




                            private sector under the flexible sustainment approach are based on
                            incomplete analysis. Additionally, the Air Force is not programming the
                            funds that would be required to establish in-house logistics support
                            capabilities, without which there may not be a viable in-house alternative.


Improved Cost Data Needed   The Air Force used its 1996 cost analysis to support its 1999 plan. In
                            completing its 1996 cost analysis, an Air Force cost team collected
                            projected usage data (failure rates, repair times, repair parts requirements,
                            etc.) and overlaid a projected flying hour program to estimate repair and
                            maintenance requirements in direct labor hours for the C-17 over a 30-year
                            life cycle. The team applied then current labor rates for the appropriate
                            contractor or DOD depot to develop recurring cost estimates for the
                            projected depot repair requirements. They did not include the cost of
                            material, which they assumed would be the same for both providers. They
                            also identified nonrecurring cost estimates for both the contractor and
                            DOD depots.

                             The basic methodology employed by the Air Force to develop the cost data
                            is sound. However, we are concerned about the lack of more recent data
                            for the 1999 plan. Air Force officials said they plan to collect data during
                            the C-17 flexible sustainment contract period that will allow a more
                            up-to-date assessment in support of its planned 2003 source-of-repair
                            decision. The Air Force will use a cost benefit analysis to determine
                            whether continued contractor or public sector support would be the most
                            cost-effective, long-term support option. However, the Air Force has not
                            identified the methodology, for estimating recurring and nonrecurring cost
                            elements or the metrics, criteria, and data sources that will be used in
                            making any future sourcing decisions for non-core C-17 logistics work. Air
                            Force officials said they recognize the need to develop cost metrics to be
                            used in the future C-17 sourcing assessment, but they have not yet done so.
                            The information is needed to ensure the Department will be in a position to
                            make the most cost-effective decision; for example, to ensure that it has
                            data available to evaluate in-house costs.

                            DOD’s March 1999 update to its November 1997 Defense Reform Initiative
                            report said that the Department intends to increase the competitiveness of
                            its depot maintenance contracts. While the program office has not yet
                            determined if a competition will be conducted to determine the long-term
                            C-17 source of support, they believe they have acquired the necessary
                            technical data to conduct a competition. We have reported in the past that
                            it is difficult to control costs for sole source contracts. We also reported



                            Page 9                                      GAO/NSIAD-99-147 Depot Maintenance
                                   B-282640




                                   that 91 percent of the depot maintenance contract actions we reviewed—
                                   representing 69 percent of the DOD non-ship depot maintenance
                                   contracts—were awarded on a sole source basis.12 One of the major
                                   factors inhibiting competition was not having required technical data.


Weaknesses in Air Force            The Air Force based its increased reliance on the private sector in the
Analysis                           flexible sustainment concept on data in its 1996 depot support strategy
                                   study. However, the Air Force’s analysis of data in that study produced
                                   some conclusions about the cost-effectiveness of the materiel management
                                   and depot repair functions that were not adequately supported.

The 1996 Cost Study Conclusions    The Air Force’s March 1999 plan concluded that there is an insignificant
Are Inaccurate                     cost difference when comparing government and private sector
                                   performance of the materiel management function. The Air Force’s plan
                                   reached a different conclusion than the 1996 Depot Support Strategy Study.
                                   The 1996 study concluded that significant savings could be achieved by
                                   consolidating materiel management and depot maintenance with the
                                   contractor. The 1996 conclusion was a key factor in the Air Force’s 1997
                                   decision to implement the flexible sustainment concept. Air Force officials
                                   told us that its 1996 conclusion was not supported by its cost data.
                                   Nevertheless, its 1999 plan indicated that the Department still plans to
                                   transfer materiel management to the contractor by the end of fiscal year
                                   1999.

Weaknesses in 1999 Plan            The 1999 plan did not provide a complete analysis of the share of C-17
Methodology Gave Incomplete        depot maintenance workload estimated to be more cost-effectively
Results on Cost-Effectiveness of   performed in Air Force depots. The analysis assessed the maintenance
Public Sector Maintenance          requirements for C-17 subsystems by aggregating the number of systems
                                   being evaluated, but did not consider the dollars associated with the
                                   maintenance. The analysis approach gives an incomplete picture of the
                                   optimum mix of depot maintenance workload between the public and
                                   private sectors.

                                   As indicated in figure 1, the 1999 study concluded that 33 percent of the
                                   C-17 depot maintenance work would be performed more cost-effectively by
                                   the private sector and 29 percent more cost-effectively by Air Force depots.



                                   12Defense Depot Maintenance: Contracting Approaches Should Address Workload Characteristics
                                   (GAO/NSIAD-98-130, June 15, 1998).




                                   Page 10                                               GAO/NSIAD-99-147 Depot Maintenance
B-282640




For the remaining 38 percent, it concluded that there was no meaningful
cost difference between public and private sector sources of repair.



Figure 1: Air Force Analysis of Optimum C-17 Depot Workload Mix




                                                           Contractor
          33%

                               29%                             Government




                   38%                                       No Clear
                                                             Advantage




Source: Air Force March 1999 Plan to Congress on C-17 Flexible Sustainment.


The plan indicated that the mix was based on total life cycle cost. Our
analysis showed the Air Force calculations were based on the number of
systems or subsystems that would fall in each category, but did not include
the total dollar value represented in each category. (See app. I for the
analysis showing individual subsystems categorized as performing more
cost-effectively by the private and public sectors or not having a clear
difference.) We recomputed the public-private sector mix percentages
using the cost data from the study. The results are shown in figure 2.




Page 11                                                GAO/NSIAD-99-147 Depot Maintenance
                              B-282640




                              Figure 2: GAO Analysis of Optimum C-17 Depot Workload Mix




                                         30%                                                Contractor



                                                          55%                               Government


                                        15%                                               No Clear
                                                                                          Advantage




                              Source: GAO calculations based on data from 1996 C-17 Depot Support Strategy Study.


                              The results indicate that 30 percent of the dollar value of the depot
                              maintenance work would be performed more cost-effectively by the private
                              sector and 55 percent more cost-effectively by Air Force depots. For the
                              remaining 15 percent, the cost team’s data showed there was no meaningful
                              cost difference between public and private sector sources of repair. These
                              figures include repair costs for the C-17’s commercial engine, which has
                              been designated for contractor logistics support for the life of the system.


Funding Not Currently         While the Air Force C-17 support strategy calls for postponing a depot
Programmed for                maintenance support decision until 2003, maintaining a viable Air Force
                              depot option requires that the Air Force program funds to establish depot
Maintaining a C-17 In-house
                              capabilities. Program officials said that some funds had been programmed,
Option                        but were shifted to support other flexible sustainment needs. Without
                              programming funds in a timely manner to support depot activation, the Air
                              Force may not be able to pursue an in-house option, even if otherwise
                              determined to be the most cost-effective alternative. Air logistics center
                              officials said that funds should be programmed to preserve the option to
                              revert to in-house depot support.




                              Page 12                                                GAO/NSIAD-99-147 Depot Maintenance
                             B-282640




Additional Authority         The Air Force plan also envisions that the C-17 contractor will contract
                             with public depots for selected maintenance services for some C-17
Needed to Implement          systems and equipment. Under current law, the Air Force must determine
the Plan                     that the services to be obtained from public depots are not commercially
                             available. Past assessments by the Air Force of the same or similar
                             commodities have concluded that commercial maintenance services are
                             available. Given these assessments, additional statutory authority would
                             likely be required to implement the Air Force’s planned strategy to have
                             military depots sell maintenance services to the support contractor.


Commercial Nonavailability   Boeing expects to purchase services from military depots using the sales
Requirements Under 10        provisions of 10 U.S.C. 2553. Section 2553 of title 10 authorizes sales under
                             certain conditions of services and articles by DOD industrial facilities—
U.S.C. 2553 Could Limit      including depots—to the private sector. 13 This authority is predicated on
Public Depot Participation   an agency determination that these services or articles are not available
                             commercially in the United States.

                             To what extent capabilities to perform C-17 maintenance workloads are not
                             available in the private sector is unclear given conflicting historical
                             information available on this subject. For example, in 1996, as a part of its
                             core determination process for workloads at the closing Sacramento depot,
                             the Air Force performed repair base analyses to assess private sector
                             capabilities and capacities for repairing flight instruments, electrical
                             accessories, hydraulics, and software engineering maintenance work. The
                             assessment determined that considerable private sector capability was
                             available for these commodities; therefore the Air Force determined that it
                             did not need to retain these capabilities in-house. It should also be noted
                             that the C-17 workloads initially identified as candidates for private sector
                             performance were identified based on cost rather than on an assessment of
                             commercial availability. Given this information, it is uncertain to what
                             extent a market assessment for similar items on the C-17 would produce
                             different results.




                             13 Air Force officials originally had anticipated using 10 U.S.C. 2474 as a basis for Boeing to contract
                             with military depots for some depot maintenance workloads, but did not since DOD has not
                             implemented the legislation. As we previously reported [Defense Depot Maintenance: Public-Private
                             Partnering Arrangements (GAO/NSIAD-98-91, May 7, 1998)], the statute does not contain any specific
                             sales or leasing authority.




                             Page 13                                                     GAO/NSIAD-99-147 Depot Maintenance
                  B-282640




                  According to program officials, they recognize the limitations of selling
                  goods and services under 10 U.S.C. 2553, but they believe it is the only
                  option available at this time. These officials said they plan to acquire
                  services from public depots in support of the C-17 program under
                  10 U.S.C. 2553, and initially they are pursuing two private-public partnering
                  projects.



Conclusions       The Air Force is implementing a pilot for a new logistics support approach
                  for its C-17 aircraft. However, the support plan it submitted to Congress
                  had several key shortcomings. These issues must be addressed before the
                  pilot program’s merits can be adequately assessed.

                  The plan did not identify the core logistics capabilities for the C-17 or
                  provide specifics about establishing the in-house workload necessary to
                  maintain such capabilities. Also, the plan’s cost effectiveness conclusions
                  are not adequately supported due to the age of the data and incomplete
                  supporting analysis. The Air Force plans to reassess C-17 support options
                  and make a long-term support decision in 2003. However, it has not
                  identified the methodology, metrics, criteria, and data sources that will be
                  used in making such an assessment. Also, funds have not been
                  programmed for public depot support for the C-17, which may limit the
                  viability of a public sector alternative in 2003. These issues need to be
                  resolved quickly so all needed data can be identified and gathered as the
                  Air Force moves toward the 2003 decision-making timeframe. Further,
                  current law does not provide the required authority to implement the Air
                  Force’s C-17 plan to have the military depots sell services to the support
                  contractor for some of the C-17 depot maintenance work.



Recommendations   We recommend that the Secretary of Defense direct the Secretary of the Air
                  Force to

                  1. update the Air Force’s core analysis to include the C-17 airframe and
                  subsystems and provide this information with the fiscal year 2001
                  president’s budget ,

                  2. develop a more specific logistics resourcing plan that includes a
                  comprehensive cost effectiveness analysis and evaluation metrics prior to
                  the submission of the 2001 budget, and




                  Page 14                                     GAO/NSIAD-99-147 Depot Maintenance
                  B-282640




                  3. develop budget requirements for public depot funding consistent with
                  having this capability as a support option, including incorporating
                  requirements in the fiscal year 2001 Program Objective Memorandum.

                  Also, if DOD decides to implement the current support plan, we also
                  recommend that the Secretary of Defense seek legislative authority to
                  allow military depots to sell depot maintenance goods and services to the
                  C-17 support contractor, notwithstanding the commercial availability of
                  those repair services.



Agency Comments   In providing oral comments on a draft of this report. Air Force officials said
                  that they generally agreed with the intent of our recommendations, but
                  they also said the Air Force plans already address these recommendations.
                  Regarding our recommendation to update the Air Force’s core analysis to
                  include the C-17 requirements, the Air Force stated that its plan to
                  complete the C-17 core analysis by 2002 dovetails precisely with the
                  flexible sustainment approach leading to a final support decision in 2003.
                  Air Force officials noted that the flexible sustainment approach was
                  implemented prior to the fiscal year 1998 National Defense Authorization
                  Act changes to 10 U.S.C. 2464, which added the requirement that DOD
                  identify core logistics capability within 4 years of a mission-essential
                  system attaining initial operating capability. While we recognize that the
                  Air Force implemented its flexible sustainment program prior to the fiscal
                  year 1998 amendment to 10 U.S.C. 2464, there is no provision that would
                  exempt the C-17 aircraft system. Consequently, we believe that the Air
                  Force must comply with the 10 U.S.C. 2464 requirement. By maintaining
                  the existing schedule for performing a C-17 core workload assessment in
                  2002, the Air Force is delaying compliance with the requirement. Therefore
                  we have modified our recommendation to specify an earlier core
                  determination.

                  In commenting on our recommendation that the Air Force develop a more
                  specific logistics resource plan that includes a comprehensive cost-
                  effectiveness analysis and evaluation metrics, the Air Force stated that it
                  will use the source-of-repair assignment process methodology, which
                  includes a cost-benefit analysis. The Air Force also stated it will use a best
                  value criteria for making a source-of-repair decision for the C-17 should it
                  not be designated as a core workload. Although the Air Force’s source-of-
                  repair decision process requires a cost analysis, as we pointed out, it does
                  not identify the recurring and non-recurring cost elements, data sources, or
                  methodology for performing the required cost analysis. The intent of our



                  Page 15                                      GAO/NSIAD-99-147 Depot Maintenance
              B-282640




              draft recommendation was to focus on developing a cost analysis
              methodology earlier than the 2003 source-of-repair decision to ensure that
              the appropriate cost data are collected during the flexible sustainment
              period and thereby available at the time of the final support decision.
              Therefore we modified our recommendation to clarify the actions we
              believe are needed.

              In response to our recommendation that the Air Force develop budget
              requirements for public depot funding consistent with the plan to have this
              capability as a support option at the time of the final support decision, the
              Air Force stated that it will ensure full funding to establish depot
              maintenance capabilities wherever dictated by the long-term depot
              decision. However, during further discussions with Air Force officials we
              determined that funding has not yet been included in the Air Force
              Program Objective Memorandum (POM). Officials said that during the
              fiscal year 2002 POM development, the Air Force plans to include an
              undetermined amount of funding for fiscal years 2004 and 2005. They
              noted that this allowance could represent about 10 percent of the estimated
              funding requirement for developing depot capability. We question whether
              the timing of such a funding decision or the level of funding, if approved,
              would be adequate to ensure timely public depot activation if in-house
              maintenance were determined to be the more cost-effective alternative.
              We continue to believe that adequate funds should be programmed to
              preserve the option to revert to in-house depot support. Thus, we modified
              our recommendation to more specifically represent that view.

              Regarding our recommendation on seeking legislative authority to allow
              military depots to sell goods and services to the C-17 support contractor,
              the Air Force stated that presently-identified contracting opportunities can
              be implemented under current law. Nevertheless, they said the Air Force
              would support an amendment to allow military depots to sell depot
              maintenance goods and services to the C-17 support contractor,
              notwithstanding the commercial availability of those repair services. We
              continue to believe it is unclear whether a determination of non-availability
              could be made for potential C-17 maintenance work the contractor may
              wish to obtain from a government depot.



Scope and     In conducting our work, we contacted officials at Headquarters, United
              States Air Force, Washington, D.C.; Headquarters, Air Force Materiel
Methodology   Command, Wright Patterson Air Force Base, Ohio; Headquarters Air
              Mobility Command, Scott Air Force Base, Illinois; the San Antonio Air



              Page 16                                     GAO/NSIAD-99-147 Depot Maintenance
B-282640




Logistics Center, Kelly Air Force Base, Texas; the Warner Robins Air
Logistics Center, Robins Air Force Base, Georgia; the Air Force Audit
Agency, Wright Patterson Air Force Base; as well as the Boeing Company,
Long Beach California; PEMCO, Birmingham, Alabama; American Airlines,
Tulsa, Oklahoma; and BF Goodrich Aerospace, Everett, Washington.

To evaluate the merits of the Air Force’s C-17 March 1999 report, we
interviewed officials and collected relevant corroborating documents from
Headquarters, Department of the Air Force; Headquarters, Air Force
Materiel Command; Air Force C-17 System Program Office team members.
We reviewed the methodology for the cost analysis underlying the first
volume of the Air Force’s report and analyzed the summary cost estimates
to test the resulting conclusions.

To determine the optimum public-private mix of depot workloads based on
the projected maintenance costs for the C-17 subsystems, we sorted the
costs for each alternative and calculated the resulting percentage shares.
We also collected actual cost data from the contractor for depot repairs
accomplished during 1998 and 1999 and compared the data to cost
estimates in the 1996 depot support strategy report. We were not able to
analyze differences between the actual contract data and the earlier
estimates because the data were in incompatible formats.

 To assess the Air Force decision to postpone its determination of core
logistics capabilities for the C-17 aircraft until 2002, we collected
information on DOD and Air Force policies and procedures for determining
core logistics capabilities. We also reviewed projected depot maintenance
workloads currently supporting Air Force core capacities for cargo aircraft
and surge requirements for the C-17 aircraft. To assess assertions in the
second volume of the report regarding adequate technical data that would
be procured and be available, we discussed and reviewed the technical
data for both repair and procurement of spare parts available with both the
Air Force Audit and C-17 managers for engineering configuration and
technical data.

To determine whether the Air Force’s C-17 flexible sustainment plan is
compatible within the existing legal framework, we performed a legal
assessment. To test the sufficiency of the Air Force’s determination
regarding non-commercial availability, we reviewed the Air Force’s
determination and findings documentation; interviewed officials from the
Boeing Company, PEMCO, American Airlines, and BF Goodrich Aerospace;
and reviewed all additional documentation provided to support Boeing’s



Page 17                                    GAO/NSIAD-99-147 Depot Maintenance
B-282640




market research. We performed our review between February 1999 and
April 1999 in accordance with generally accepted government auditing
standards.


We are sending copies of this report to the Honorable William S. Cohen,
Secretary of Defense; the Honorable F. Whitten Peters, Acting Secretary of
the Air Force; the Honorable Jacob J. Lew, Director, Office of Management
and Budget; and to interested congressional committees. Copies will be
made available to others upon request. If you have any questions regarding
this report, please call the contacts listed in appendix II.




David R. Warren, Director
Defense Management Issues




Page 18                                   GAO/NSIAD-99-147 Depot Maintenance
Page 19   GAO/NSIAD-99-147 Depot Maintenance
Contents



Letter                                                                                           1


Appendix I                                                                                      22
Potential for Public
Support to Private
Sector Contractors
Sorted by Subsystems

Appendix II                                                                                     23
GAO Contacts
and Staff
Acknowledgements

Related GAO Products                                                                            28


Tables                 Table I.1: C-17 Subsystems Sorted by Most Cost-effective Source of Repair
                         22


Figures                Figure 1: Air Force Analysis of Optimum C-17 Depot Workload Mix          11
                       Figure 2: GAO Analysis of Optimum C-17 Depot Workload Mix                12




                       Abbreviations

                       DOD        Department of Defense
                       GAO        General Accounting Office
                       POM        Program Objective Memorandum




                       Page 20                                   GAO/NSIAD-99-147 Depot Maintenance
Page 21   GAO/NSIAD-99-147 Depot Maintenance
Appendix I

Potential for Public Support to Private Sector
Contractors Sorted by Subsystems                                                                         Appenx
                                                                                                              Idi




               In its 1996 depot support strategy report, which is part I of its March 1999
               Flexible Sustainment Plan submitted to Congress, the Air Force identified
               types of workload that it believed could be performed more cost-effectively
               in public and private facilities, and some workloads where they did not
               believe the cost difference was significant between the two. The results of
               the 1996 study were used to justify the Air Force’s flexible sustainment
               strategy.

               Table I shows subsystems for which the private or public sector would
               likely be the most cost-effective source of repair. It also shows the extent
               to which the Air Force concluded that a determination could not be made
               where there was less than a 10 percent difference between the cost
               estimates for the public and private sector providers.



               Table I.1: C-17 Subsystems Sorted by Most Cost-effective Source of Repair
               Private sector             Public depots                  Not clear
               Engine                     Automatic test equipment       Environmental control systems
               Quick engine change        Operational flight programs Structures
               Auxiliary power units      Heavy aircraft maintenance Mechanical flight controls
               Electrical                 Landing gear                   Lighting
               Fuel                       Fuselage                       Recorders
               Hydraulics                 Instruments                    Utilities
               Oxygen                     Integrated flight controls     Navigation
               Composites                                                Intercom
                                                                         Misc. communications

               Source: Air Force C-17 Depot Support Strategy Study, November 1, 1996.




               Page 22                                                 GAO/NSIAD-99-147 Depot Maintenance
Appendix II

GAO Contacts and Staff Acknowledgements                                                       AppenIx
                                                                                                    Idi




GAO Contacts       David Warren, (202)512-5581
                   Julia Denman, (202)512-4290



Acknowledgements   In addition to those named above, John Strong, Larry Junek, Pam
                   Valentine, and John Brosnan. made key contributions to this report.




                   Page 23                                   GAO/NSIAD-99-147 Depot Maintenance
Page 24   GAO/NSIAD-99-147 Depot Maintenance
Page 25   GAO/NSIAD-99-147 Depot Maintenance
Page 26   GAO/NSIAD-99-147 Depot Maintenance
Related GAO Products


             Depot Maintenance: Improvements Still Needed in Workload Allocation
             Reporting (GAO/NSIAD-99-154, July 1999).

             Army Logistics: Status of Proposed Support Plan for Apache Helicopter
             (GAO/NSIAD-99-140, July 1999).

             Navy Ship Maintenance: Allocation of Ship Maintenance Work in the
             Norfolk, Virginia Area (GAO/NSIAD-99-54, Feb. 24, 1999).

             Army Industrial Facilities: Workforce Requirements and Related Issues
             Affecting Depots and Arsenals (GAO/NSIAD-99-31, Nov. 1999).

             Public-Private Competitions: Processes Used For Sacramento Depot
             Maintenance Award Appear Reasonable (GAO/NSIAD-99-42, November 23,
             1998).

             Navy Depot Maintenance: Weaknesses in the T406 Engine Logistics
             Support Decision (GAO/NSIAD-98-221, Sept. 14, 1998).

             Defense Depot Maintenance: Public and Private Sector Workload
             Distribution Reporting Can Be Further Improved (GAO/NSIAD-98-175,
             July 23, 1998).

             Defense Depot Maintenance: Contracting Approaches Should Address
             Workload Characteristics (GAO/NSIAD-98-130, June 15, 1998).

             Defense Depot Maintenance: Use of Public-Private Partnering
             Arrangements (GAO/NSIAD-98-91, May 7, 1998).

             Public-Private Competitions: DOD's Additional Support for Combining
             Depot Workloads Contains Weaknesses (GAO/NSIAD-98-143, Apr. 17,
             1998).

             Defense Depot Maintenance: DOD Shifting More Workload for New
             Weapon Systems to the Private Sector (GAO/NSIAD-98-8, Mar. 31, 1998).

             Public-Private Competitions: DOD's Determination to Combine Depot
             Workloads Is Not Adequately Supported (GAO/NSIAD-98-76, Jan. 20, 1998).

             Public-Private Competitions: Processes Used for C-5 Aircraft Award
             Appear Reasonable (GAO/NSIAD-98-72, Jan. 20, 1998).




             Page 28                                   GAO/NSIAD-99-147 Depot Maintenance
                   Related GAO Products




                   Defense Depot Maintenance: Information on Public and Private Sector
                   Workload Allocations (GAO/NSIAD-98-41, Jan. 20, 1998).

                   Air Force Privatization-in-Place: Analysis of Aircraft and Missile System
                   Depot Repair Costs (GAO/NSIAD-98-35, Dec. 22, 1997).

                   Outsourcing DOD Logistics: Savings Achievable But Defense Science
                   Board's Projections Are Overstated (GAO/NSIAD-98-48, Dec. 8, 1997).

                   Navy Regional Maintenance: Substantial Opportunities Exist to Build on
                   Infrastructure Streamlining Progress (GAO/NSIAD-98-4, Nov. 13, 1997).

                   Air Force Depot Maintenance: Information on the Cost-Effectiveness of
                   B-1 and B-52 Support Options (GAO/NSIAD-97-210BR, Sept. 12, 1997).

                   Navy Depot Maintenance: Privatizing Louisville Operations in Place Is Not
                   Cost- Effective (GAO/NSIAD-97-52, July 31, 1997).

                   Defense Depot Maintenance: Challenges Facing DOD in Managing Working
                   Capital Funds (GAO/T-NSIAD/AIMD-97-152, May 7, 1997).

                   Defense Depot Maintenance: Uncertainties and Challenges DOD Faces in
                   Restructuring Its Depot Maintenance Program (GAO/T-NSIAD-97-112,
                   May 1,1997)and (GAO/T-NSIAD-97-111, Mar. 18, 1997).

                   Navy Ordnance: Analysis of Business Area Price Increases and Financial
                   Losses (GAO/AIMD/NSIAD-97-74, Mar. 14, 1997).

                   Defense Outsourcing: Challenges Facing DOD as It Attempts to Save
                   Billions In Infrastructure Costs (GAO/T-NSIAD-97-110, Mar. 12, 1997).

                   High-Risk Series: Defense Infrastructure (GAO/HR-97-7, Feb. 1997).




(709393)   Leter   Page 29                                     GAO/NSIAD-99-147 Depot Maintenance
Related GAO Products




Page 30                GAO/NSIAD-99-147 Depot Maintenance
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order made
out to the Superintendent of Documents, when necessary, VISA and
MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address are
discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any list
from the past 30 days, please call (202) 512-6000 using a touchtone
phone. A recorded menu will provide information on how to obtain
these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with “info” in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. GI00
Official Business
Penalty for Private Use $300

Address Correction Requested
Contents



Tables     Table I.1: C-17 Subsystems Sorted by Most Cost-effective Source of Repair
             22




           Page 33                                                      GAO/XXXX ???
Contents



Figures    Figure 1: Air Force Analysis of Optimum C-17 Depot Workload Mix    11
           Figure 2: GAO Analysis of Optimum C-17 Depot Workload Mix          12




           Page 34                                                   GAO/XXXX ???
Contents




Page 35    GAO/XXXX ???