oversight

Public-Private Competitions: Reasonable Processes Used for San Antonio Engine Depot Maintenance Award

Published by the Government Accountability Office on 1999-05-27.

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

                   United States General Accounting Office

GAO                Report to Congressional Committees




May 1999
                   PUBLIC-PRIVATE
                   COMPETITIONS

                   Reasonable Processes
                   Used for San Antonio
                   Engine Depot
                   Maintenance Award




GAO/NSIAD-99-155
United States General Accounting Office                                                                 National Security and
Washington, D.C. 20548                    Leter
                                                                                                 International Affairs Division



                                    B-282343.2                                                                                     Letter

                                    May 27, 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

                                    This report is a redacted version of a report issued on April 1, 1999, which
                                    contained procurement sensitive information. This report responds to one
                                    of several requirements in the National Defense Authorization Act for
                                    Fiscal Year 1998 relating to depot maintenance activities.1 As required, we
                                    reviewed the Air Force’s selection of a source of repair for depot
                                    maintenance work at the closing San Antonio Air Logistics Center, Kelly Air
                                    Force Base, Texas.2 Specifically, we assessed whether (1) the Air Force’s
                                    procedures for conducting the San Antonio competition provided a
                                    substantially equal opportunity for the public and private offerors to
                                    compete for the work without regard to performance location,
                                    (2) procedures for conducting the competition were in compliance with
                                    10 U.S.C. 2469a and other applicable laws and regulations, (3) appropriate
                                    consideration was given to factors other than cost, and (4) the award
                                    resulted in the lowest total cost to the Department of Defense (DOD) for
                                    performance of the work.




                                    1
                                     Appendix I lists the depot maintenance reporting requirements contained in the act.

                                    2The engine competition workload included F100 turbine engine (noncore work), TF39 turbine engine,
                                    T56 turbine engine, fuel accessories, engine electronics, TF39 two-level maintenance, and T56 two-level
                                    maintenance.




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                      B-282343.2




Results in Brief      The processes used for the San Antonio engine maintenance competition
                      award were reasonable. Specifically, (1) the competition procedures
                      provided an equal opportunity for public and private competitors without
                      regard to where the work could be performed; (2) the procedures did not
                      deviate in any material respect from applicable laws and regulations;
                      (3) the Air Force appropriately considered factors other than cost in the
                      selection; and (4) within the framework set forth for the competition, the
                      award resulted in the lowest total cost to DOD for performance of the
                      work.

                      We also identified several methodological and process issues related to the
                      cost evaluations that, while not materially affecting the selection, may be
                      useful for the Air Force to consider in future competitions.



Background            As the result of a 1995 Base Realignment and Closure decision, the
                      Sacramento and San Antonio Air Logistics Centers, including their
                      maintenance depots, are to close by 2001. To mitigate the impact of the
                      closings on the local communities and employees, the administration
                      announced its intention to maintain employment levels by privatizing the
                      maintenance depots’ workloads in place at each location. As a result, the
                      Air Force announced a strategy to privatize in place five prototype depot
                      maintenance work packages at the two closing centers. In response to
                      congressional concerns regarding this strategy, the Air Force decided to
                      use public-private competitions to determine the most cost-effective
                      source of repair for the closing maintenance depots’ work. Appendix II
                      provides a more detailed description of the closure history for both
                      centers.

                      On March 20, 1998, the Air Force issued a solicitation for the purpose of
                      conducting a public-private competition for multiple engine depot
                      maintenance workloads being performed at the San Antonio Air Logistics
                      Center.3 The Air Force received one private sector proposal from Pratt &
                      Whitney San Antonio Engine Services Corporation, which had General
                      Electric Company, Allison/Rolls Royce/Standard Aero, Allied Signal, and


                      3
                       A small portion of San Antonio’s workload was transferred to other DOD depots outside the
                      competition process. For example, F100 workloads identified as core (this refers to work that is to be
                      performed in a DOD facility) were transferred outside the competition process to the Oklahoma City
                      depot. Additionally, core workloads from the nuclear weapons directorate were transferred to the
                      Ogden Air Logistics Center in Utah.




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                        Caterpillar Logistics as major subcontractors. Also, one public sector
                        proposal was received from the Air Force's Oklahoma City Air Logistics
                        Center, which was teamed with Lockheed Martin Kelly Aircraft Company.
                        Lockheed Martin’s major subcontractors were Standard Aero Limited,
                        Chromalloy Gas Turbine, and Woodward Governor.

                        The Air Force planned to make an award in October 1998. However, the
                        award decision was delayed based on the evaluation team’s concerns
                        regarding certain pricing data received from both offerors. Consequently,
                        the Air Force issued a solicitation amendment on September 28, 1998, that
                        required detailed cost information for high-dollar contract line items.
                        Revised best and final offers were submitted by both offerors on
                        January 16, 1999. On February 12, 1999, the Air Force selected the
                        Oklahoma City Air Logistics Center's proposal as representing the best
                        value to the government.



San Antonio Air Force   Under 10 U.S.C. 2469a(d), a competitor must be allowed to perform at the
                        location of its choosing and is not to be given preferential treatment for or
Depot Competition       be limited to performing the work in place or at any other single location.
Placed No Limitation    On the basis of our review of the San Antonio engine competition
                        evaluation and selection documents, we found no basis to conclude that
on Performance          the procedures did not provide a substantially equal opportunity for the
Location                offerors to compete without regard to performance location. For example,
                        in its evaluation the Air Force expressed concern about the risks inherent
                        in Oklahoma City’s plan to transition the F100 engine work to its facilities
                        at Oklahoma City. This concern was based on legitimate performance
                        considerations regarding the availability of trained workers and did not
                        reflect a bias toward performing the work at the closing San Antonio
                        facility. Appendix III provides the details of our legal analysis.



Competition             Overall, the Air Force’s evaluation and selection of Oklahoma City were
                        reasonable, fair, and consistent with the solicitation and the depot
Procedures Complied     competition procedures. We found no reason to conclude that the
With Applicable Laws    competition procedures used deviated in a material way from 10 U.S.C.
                        2469a and other applicable laws and regulations. (See app. III for our
and Regulations         detailed legal analysis.) In assessing the Air Force’s compliance with
                        applicable laws and regulations relating to the competition for San
                        Antonio’s work, we reviewed the Air Force’s evaluation of the proposals
                        and the selection in the context of applicable laws and regulations.



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                         B-282343.2




                         This review included examining documents, reviewing processes and
                         procedures, and discussing the competition with Air Force officials.


Competition Procedures   The Air Force materially complied with the required procedures. For
                         example, pursuant to 10 U.S.C. 2469a and its depot competition
                         procedures, the Air Force issued the solicitation under Federal Acquisition
                         Regulation (FAR) part 12, which prescribes the policies and procedures for
                         the acquisition of commercial items and FAR part 15, which sets forth the
                         source selection procedures for competitively negotiated acquisitions.
                         Also, as required by the law, the solicitation called for proposals from
                         public and private sector sources for aircraft engine maintenance work
                         currently being performed at the closing San Antonio Air Logistics Center.
                         Further, consistent with applicable law, the solicitation provided for award
                         to the public or private competitor that was responsible and whose
                         proposal conformed to the solicitation and represented the best value to
                         the government.


Applicable Laws and      The Air Force materially complied with applicable laws and regulations.
Regulations              Several statutes, in particular 10 U.S.C. 2469a, govern the solicitation and
                         award process for public-private competitions for depot workloads of the
                         closing San Antonio and Sacramento Air Logistics Centers. Because the Air
                         Force used the competitive acquisition system, the standards in
                         chapter 137 of title 10 of the United States Code and the FAR apply to the
                         extent they are consistent with 10 U.S.C. 2469a and the other applicable
                         provisions relating to the outsourcing of depot workloads. Consistent with
                         these standards, the Air Force followed the criteria announced in the
                         solicitation, which included those required by 10 U.S.C. 2469a, and
                         exercised its judgment in a reasonable manner in selecting the successful
                         competitor.



Air Force Considered     While the competitor selected represented the lowest evaluated cost to the
                         government, the Air Force considered the relative merits of the technical
Factors Other Than       and management approaches of both proposals. For example, the Air Force
Cost




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                         B-282343.2




                         considered Pratt & Whitney’s “reliability centered maintenance”4 approach
                         combined with its warranties and guaranties to be a benefit. On the other
                         hand, the Air Force concluded that Oklahoma City’s plan to perform
                         in-house a number of repair processes currently contracted out was risky,
                         largely because of the proposed qualification schedule. Thus, for these and
                         other reasons, we found no basis to conclude that factors other than cost
                         were not appropriately considered. (See app. III for our detailed legal
                         analysis.)



Evaluation Resulted in   Overall, the San Antonio engine competition cost evaluation results were
                         reasonable. The Air Force awarded the Oklahoma Air Logistics Center the
the Lowest Total Cost    multiple engine depot maintenance workload. Oklahoma City’s total
to the Government        evaluated cost of $10,516,225,557 was about 5 percent less than Pratt &
                         Whitney’s evaluated cost of $11,066,342,080.

                         While not affecting the selection, we do question the accuracy and
                         completeness of some of the estimates used in the evaluation. The
                         cumulative dollar impact of our findings is not significant enough to
                         eliminate the $550-million difference between the total evaluated costs of
                         the offerors. The areas where we have questions about the accuracy and
                         completeness of evaluated costs include (1) overhead, (2) depreciation of
                         government-furnished equipment, (3) warehouse services, (4) material,
                         (5) fair market value of government-furnished equipment, and
                         (6) warranties.


Cost Evaluation Was      The overall San Antonio engine cost evaluation was reasonable. We
Reasonable               reviewed the accuracy and soundness of the data, assumptions, and
                         methodology supporting selected items in the evaluation. To do this, we
                         analyzed the key cost elements in each proposal and the final adjustments
                         the Air Force made. We selected cost elements having variances of
                         10 percent or more between the competitors or between amounts
                         contained in the competitors’ final proposals versus the final evaluated cost
                         estimated by the evaluation team. For these cost elements, we (1) held
                         discussions with the cost evaluation team regarding the methodology used
                         in determining the evaluated cost; (2) reviewed the calculations and


                         4Reliability centered maintenance was defined in Pratt & Whitney’s proposal as an approach for
                         implementing improved maintenance practices and rapidly incorporating design and configuration
                         modifications that would improve engine reliability.




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                       supporting documentation for the various cost elements; (3) on a selective
                       basis, independently verified data to corroborate the evaluated cost
                       estimates; and (4) discussed competition issues with the public offeror. We
                       question several of the cost estimates and present them here as information
                       for the Air Force to consider in future competitions.

Overhead Savings Are   The evaluation team’s calculation of the public offeror’s overhead savings is
Understated            understated.5 Correcting this understatement would decrease the total
                       evaluated cost of the public offeror because the team considered some
                       costs as variable when they should have been treated as fixed or partially
                       fixed. Oklahoma City’s estimate of overhead savings was reduced by
                       65 percent.

                       During the early stages of the evaluation process, the evaluation team
                       initially reduced Oklahoma City’s overhead savings estimate to
                       $210.6 million. The team determined that the averaging technique used by
                       Oklahoma City did not accurately estimate overhead savings and
                       developed its own methodology. While we agree that the Oklahoma City
                       estimate was inaccurate, the approach used by the evaluation team
                       understated overhead savings. For example, in the commodity directorate,
                       the evaluation team’s calculations assumed that the $15.5 million in annual
                       shop equipment depreciation was 100 percent variable and would increase
                       on a directly proportional basis as additional workload is added. Using this
                       assumption, rates for equipment depreciation expense would remain
                       constant, and no overhead savings would result from adding workload.

                       However, this assumption is inaccurate. We reviewed shop equipment
                       depreciation data to determine the impact that added workload would have
                       on Oklahoma City’s cost projections. We found that the estimated shop
                       equipment depreciation did not increase as much as the cost evaluation
                       team assumed. The data we reviewed showed that equipment depreciation
                       was fixed and would result in a reduced overhead cost for each unit
                       produced as workload was added. We estimated that overhead savings in
                       the commodity and propulsion directorates were understated by about
                       $5 million per year, or about $67 million over the performance period.6 We



                       5
                        Understated means that the evaluated cost would be lower than that estimated by the evaluation team.
                       Conversely, overstated means that the evaluated cost would be higher than that estimated by the
                       evaluation team.

                       6
                       The basic performance period is 7 years, which may be extended up to 15 years.




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                              did not estimate the total effect of the team’s cost assumptions on the
                              remaining expense categories.

                              In the final stage of the selection process, the source selection authority
                              further reduced Oklahoma City’s overhead savings from $210.6 million to
                              $138.6 million to reflect the uncertainty in achieving overhead savings in
                              the latter years of the performance period. In this regard, the final
                              evaluated overhead savings estimate for the public offeror was understated
                              because the evaluation team’s error in the early phase of the final process
                              was reflected in the source selection authority’s final decision.

Government-Furnished          Government-furnished equipment depreciation is understated for both
Equipment Depreciation Cost   offerors. Correcting this understatement would increase the total evaluated
Understated                   cost of both offerors. Our review of the supporting data shows that the Air
                              Force’s calculations of depreciation were not consistent with the stated
                              methodology and differed between offerors. These errors resulted in a
                              $22.7 million understatement of Oklahoma City’s depreciation costs and a
                              $9.9 million understatement of Pratt & Whitney’s depreciation costs.

                              The evaluation team increased Oklahoma’s evaluated cost by $15.7 million
                              and Pratt & Whitney’s evaluated cost by $2.3 million to reflect the
                              depreciation cost associated with government-furnished equipment. The
                              depreciation adjustment was to account for equipment with an acquisition
                              cost of $100,000 or greater provided by the government directly to a private
                              contractor and depreciated over a period of 12 years with no residual value.
                              The Air Force stated that its depreciation adjustment was based on
                              applying an average annual equipment depreciation value to account for
                              replacing retired equipment with new equipment during the performance
                              period.

                              The evaluation team’s stated methodology for calculating depreciation for
                              government-furnished equipment was to calculate the average annual
                              depreciation and apply this average to the performance period. Instead, for
                              the public offeror, the team used a different approach. It totaled the
                              undepreciated book value of all government-furnished equipment items
                              valued at $100,000 or more. We estimated the depreciation adjustment
                              using the team’s stated methodology to be $38.4 million versus the
                              $15.7 million estimate made by the evaluation team—for a difference of
                              $22.7 million. The evaluation team members were uncertain why this error
                              occurred.




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                                 The evaluation team used its stated methodology in evaluating the private
                                 offeror’s government-furnished equipment depreciation. However, the team
                                 did not include all applicable equipment items in its calculations.
                                 Additionally, the team made an error in its averaging calculations. We
                                 determined that the equipment depreciation expense should have been
                                 $12.2 million instead of the $2.3 million used—an understatement of
                                 $9.9 million.

Fair Market Value of Equipment   The evaluation team understated the cost of government-furnished
to Private Offerors Was          equipment for the public offeror’s private partners. Correcting this
Understated                      understatement would have increased the total evaluated cost of the public
                                 offeror. We were unable to estimate the value of this understatement
                                 because the Air Force is uncertain how much of this equipment will be
                                 used or its fair market value. The acquisition cost of this equipment is
                                 reported at about $126.6 million.

                                 The Fiscal Year 1998 Defense Authorization Act provides that the
                                 evaluators give consideration to the fair market value of land, plant, or
                                 equipment used by a private offeror to perform competition workloads
                                 from a closing military installation. While the evaluation team considered
                                 the fair market value of equipment to be used by the private offeror’s team,
                                 it did not consider the fair market value of equipment to be used by the
                                 private sector members of the public offeror’s team.

Warehousing Adjustment           The evaluation team overstated the warehousing function adjustment for
Overstated                       the public offeror by about $16.6 million, or about 57 percent. Correcting
                                 this overstatement would reduce the total evaluated cost of the public
                                 offeror. The overstatement resulted from (1) using an incorrect amount to
                                 represent the warehousing services rate charges and (2) assuming
                                 incorrectly that all warehousing costs are variable.

                                 The Defense Logistics Agency provides the Air Force warehousing
                                 services, such as storing, issuing, and receiving inventory. The logistics
                                 agency charges customers standard prices that are computed annually for
                                 each type of service. The evaluation team concluded that the Oklahoma
                                 City offer did not include the cost associated with the logistics agency’s
                                 warehousing function. The team estimated that the warehousing function
                                 cost should be about $28.7 million.

                                 However, the team’s estimate was overstated by about $16.6-million for two
                                 reasons. First, it used incorrect source data, resulting in a $2.5-million
                                 overstatement. Second, the team incorrectly assumed that all logistics



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                                  B-282343.2




                                  agency warehousing costs are variable, resulting in a $14.1-million
                                  overstatement. Our prior work shows that no more than 51 percent of costs
                                  for the warehousing function are variable. 7

Material Cost Adjustment Is       We question one part of the methodology used to compute material cost
Questionable                      adjustment. It is unclear whether correcting this adjustment would
                                  increase or decrease the total evaluated cost of the public offeror.
                                  Specifically, the evaluation team used an inappropriate indicator as a basis
                                  for computing the adjustment for the public offeror. To compute
                                  $110.8 million of the $175.8-million material cost adjustment, the evaluation
                                  team used an overhead management cost factor that is not related to the
                                  depot’s material costs.8 This cost factor is not an indicator of historical
                                  material cost performance, and it was not a reliable basis for the material
                                  cost adjustment.

Other Risks Associated With       The evaluation team could have considered another factor in evaluating the
Warranties and Guaranties Could   credit provided to both offerors for warranties and guaranties. While
Have Been Considered              substantial reductions were made in the evaluation of the private offeror’s
                                  warranties and guaranties, we noted that the methodology did not account
                                  for the risk that the government might not realize all estimated warranty
                                  and guaranty benefits. Our prior work shows that such risks exist.
                                  Addressing this factor could have increased the total evaluated cost of each
                                  offeror.

                                  The evaluation team estimated that Pratt & Whitney’s proposed engine
                                  reliability improvements and the associated warranties and guaranties
                                  contained in their proposal could be worth as much as $608 million to the
                                  Air Force. However, the source selection authority determined that most of
                                  the associated savings were to occur in the latter part of the program.
                                  Therefore, the source selection authority reduced the warranties and
                                  guaranties estimate by $359 million to reflect the fact that Pratt & Whitney
                                  might not qualify for the entire 15-year performance period under the
                                  award-term provisions.




                                  7
                                   Public-Private Competition: Processes Used for Sacramento Depot Maintenance Award Appear
                                  Reasonable (GAO/NSIAD-99-42, Nov. 23, 1998).

                                  8This factor is for overhead costs not directly related to the depot’s operations, such as the charge to
                                  the depots for the Joint Logistics Systems Center.




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                  The evaluation team used historic failure rates and projected engine usage
                  rates to estimate the value of Pratt & Whitney’s warranties and guaranties.
                  However, it did not assess the Air Force’s historic realization of such
                  warranties or historic administrative costs. In 1996, we reported9 that Air
                  Force cost-benefit analyses of warranties were inadequate because the
                  analyses assumed all potential defects would be identified and claims
                  submitted. At that time, the Air Force estimated that 80 to 85 percent of
                  failures subject to warranty benefits go unreported. Additionally, in cases
                  where claims data were available for our review, we reported that the
                  warranty price paid exceeded the value of the claims made against the
                  warranty. For example, the combined warranty price was $94 million, the
                  value of the warranty claims was $5 million, and the quantified price
                  exceeded the quantified benefit by $89 million.

                  The warranty credit given to Oklahoma City in the evaluated cost was
                  $3.6 million. Therefore, any adjustment to warranty claim risk would be
                  limited to this amount.



Conclusions       The processes used for the San Antonio engine depot maintenance award
                  were reasonable. The Air Force materially complied with the requirements
                  of applicable laws and regulations in the competition for depot
                  maintenance work at the San Antonio Air Logistics Center. While not
                  affecting the selection, some cost estimates used in the evaluation could
                  have been more accurate and complete. These cost estimates relate to
                  overhead, government-furnished equipment depreciation, warehousing
                  services, material, fair market value of government-furnished equipment,
                  and warranties. The issues that are related to these cost estimates provide
                  information for the Air Force to consider in its future competitions.



Agency Comments   Air Force officials reviewed a draft of this report. They agreed with our
                  conclusion that the Air Force followed the criteria announced in the
                  solicitation and exercised sound judgment in selecting the successful
                  competitor for the San Antonio workloads. They generally disagreed with
                  our conclusions that the savings to the government were understated and
                  with our observations regarding the accuracy and completeness of costs
                  for depreciation of government-furnished equipment, warehouse services,


                  9
                  Weapons Acquisition: Warranty Law Should Be Repealed (GAO/NSIAD-96-88, June 28, 1996.)




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              material, fair market value of government-furnished equipment, and
              warranties. Air Force officials said that they recognized the time
              constraints associated with this report, and as such, they could only
              provide general comments at this time.

              We will need further information to comment on the areas where the Air
              Force disagrees with our report. The Air Force said it would provide a
              detailed reply to each of the cost issues at a later date. We will evaluate and
              report, as appropriate, on any additional information provided in response
              to this report. Not having specific information about procurement sensitive
              information, we have marked the report to indicate that the entire report
              must be safeguarded.



Scope and     In conducting our work, we obtained information from and interviewed
              officials at Headquarters, U.S. Air Force, Washington, D.C.; Headquarters,
Methodology   Air Force Materiel Command, Wright Patterson Air Force Base, Ohio; the
              San Antonio Air Logistics Center, Kelly Air Force Base, Texas; the
              Oklahoma City Air Logistics Center, Tinker Air Force Base, Oklahoma; and
              the Defense Contract Audit Agency, Ogden, Utah. We offered to discuss the
              San Antonio engine competition and award issues with both the public and
              private competitors; however, the private offeror declined.

              To analyze the Air Force’s decision to award the San Antonio depot
              maintenance workload to the Oklahoma City Air Logistics Center, we
              interviewed officials and collected relevant documents from Headquarters,
              Department of the Air Force; Headquarters, Air Force Materiel Command;
              Air Force source selection team members; representatives from the public
              competitor; the independent advisors to the source selection authority; and
              the Defense Contract Audit Agency. To verify compliance with the San
              Antonio engine competition and selection with applicable laws and
              regulations, our Office of General Counsel performed a legal compliance
              review.

              To determine whether cost elements considered in the source selection
              evaluation were complete and reasonable, we discussed the selection
              structure with cognizant Air Force and DOD officials, as well as with
              representatives of the public offeror. We also reviewed the evaluation
              team’s calculating methods for the various cost elements for
              reasonableness and compared the cost elements between competitors to
              identify material drivers and to further test for reasonableness. We
              discussed with the evaluation team members their rationale for treating



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cost elements in the evaluation and in some cases recalculated cost
estimates.

We performed our review between September 1998 and March 1999 in
accordance with generally accepted government auditing standards.

A list of our related reports is provided at the end of this report.


We are sending copies of this report to the Honorable William S. Cohen,
Secretary of Defense; the Honorable F. W. Peters, Acting Secretary of the
Air Force; the Honorable Jacob J. Lew, Director, Office of Management and
Budget; and interested congressional committees and members.

Please contact me at (202) 512-8412 if you or your staff have questions
concerning this report. The major contributors to this report are listed in
appendix IV.




David R. Warren, Director
Defense Management Issues




Page 12                         GAO/NSIAD-99-155 Public-Private Depot Competitions
Contents



Letter                                                                            1


Appendix I                                                                       16
Summary of Depot
Reporting
Requirements in the
National Defense
Authorization Act for
Fiscal Year 1998

Appendix II                                                                      18
San Antonio and
Sacramento Air
Logistic Centers’
Closure History

Appendix III                                                                     23
Legal Review of
Competition for San
Antonio Air Logistics
Center Workloads

Appendix IV                                                                      52
Major Contributors to
This Report

Related GAO Products                                                             53




                        Page 13   GAO/NSIAD-99-155 Public-Private Depot Competitions
Contents




Abbreviations

ALC             Air Logistics Center
BRAC            Base Realignment and Closure
DOD             Department of Defense
GKDC            Greater Kelly Development Corporation
RFP             request for proposal
SSA             Source Selection Authority
SSAC            Source Selection Advisory Council



Page 14                  GAO/NSIAD-99-155 Public-Private Depot Competitions
Contents




Page 15    GAO/NSIAD-99-155 Public-Private Depot Competitions
Appendix I

Summary of Depot Reporting Requirements in
the National Defense Authorization Act for
Fiscal Year 1998                                                                              ApIpenxdi




              The National Defense Authorization Act for Fiscal Year 1998 contained the
              following depot-related reporting requirements for our office.

              I. Report on DOD’s Compliance With 50-Percent Limitation (Section 358)

              The act amended 10 U.S.C. 2466(a) by increasing from 40 to 50 percent the
              amount of depot-level maintenance and repair workload funds that the
              Department of Defense (DOD) can use for contractor performance and
              revised 10 U.S.C. 2466(e) by requiring the Secretary of Defense to submit to
              Congress by February 1, 1998, a report identifying the percentage of funds
              expended for contractor performance.

              Within 90 days of DOD’s annual report to Congress, we were required to
              review DOD’s report and inform Congress whether DOD had complied with
              the 50-percent limitation.

              II. Reports Concerning Public-Private Competitions for the Depot
              Maintenance Workloads at the Closing San Antonio and Sacramento Air
              Logistics Centers (Section 359)

              The act added section 2469a to title 10 the United States Code to provide
              for special procedures for public-private competitions concerning the
              workloads of these two closing depots. It also required us to issue four
              reports.

              First, within 60 days of its enactment, the 1998 Defense Authorization Act
              required us to review the C-5 aircraft workload competition and
              subsequent award and report to Congress on whether (1) the procedures
              used provided an equal opportunity for offerors to compete without regard
              to performance location, (2) the procedures complied with applicable law
              and the Federal Acquisition Regulation, and (3) the award resulted in the
              lowest total cost to DOD.

              Second, the act required the Secretary of Defense to submit a
              determination to Congress if any of the workloads were bundled in a single
              solicitation. We were required to report our views on the DOD
              determination within 30 days.

              Third, the act required us to review all DOD solicitations for the workloads
              at the San Antonio and Sacramento Air Logistics Centers and report to
              Congress within 45 days of the solicitations’ issuance whether the




              Page 16                        GAO/NSIAD-99-155 Public-Private Depot Competitions
Appendix I
Summary of Depot Reporting Requirements
in the National Defense Authorization Act
for Fiscal Year 1998




solicitations provided “substantially equal” opportunity to compete without
regard to performance location and otherwise complied with applicable
laws and regulations.

Fourth, the act required us to (1) review all DOD awards for the workloads
at the two closing Centers and report to Congress within 45 days of the
contract award whether (1) the procedures used complied with applicable
laws and regulations and provided a “substantially equal” opportunity to
compete without regard to performance location, (2) “appropriate
consideration was given to factors other than cost” in the selection, and
(3) the selection resulted in the lowest total cost to DOD for performance
of the workloads.

This report addresses the fourth requirement for the award of the aircraft
engine workload at the San Antonio Air Logistics Center.




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Appendix II

San Antonio and Sacramento Air Logistic
Centers’ Closure History                                                                                          ApIpIexndi




              The 1995 Base Realignment and Closure (BRAC) Commission
              recommended closing the Sacramento and San Antonio Air Logistics
              Centers and transferring their workloads to the remaining depots or to
              private sector commercial activities. In making these recommendations,
              the Commission considered the effects of the closures on the local
              communities, on workload transfer costs, and the potential effects on
              readiness and concluded that the savings and benefits outweighed the
              drawbacks. The Commission’s report noted that given the significant
              amount of excess depot capacity and limited DOD resources, closure was a
              necessity and would increase the use of the remaining centers and
              substantially reduce DOD operating costs. The specific Commission
              recommendations were as follows:

              • Realign Kelly Air Force Base, including the air logistics center;
                disestablish the defense distribution depot; consolidate the workloads
                to other DOD depots or to private sector commercial activities as
                determined by the Defense Depot Maintenance Council;1 and move the
                required equipment and personnel to the receiving locations.
              • Close McClellan Air Force Base, including the air logistics center;
                disestablish the defense distribution depot; move the common-use
                ground communication electronics to Tobyhanna Army Depot,
                Pennsylvania; retain the radiation center and make it available for dual
                use and/or research, or close as appropriate; consolidate the remaining
                workloads with other DOD depots or private sector commercial
                activities as determined by the Council; and move the required
                equipment and any required personnel to receiving locations. All other
                activities and facilities at the base were to close.

              In considering the BRAC recommendations to close the two centers, the
              President and the Secretary of Defense expressed concerns about the
              near-term costs and potential effects on local communities and Air Force
              readiness. In response to these concerns, the President, in forwarding the
              Commission’s recommendations to Congress, indicated that the air
              logistics centers’ work should be privatized in place or in the local
              communities. He also directed the Secretary of Defense to retain 8,700 jobs
              at McClellan Air Force Base, which had been recommended for closure,
              and 16,000 jobs at Kelly Air Force Base, which had been recommended for
              realignment, until 2001 to further mitigate the closures’ impact on the local


              1The Defense Depot Maintenance Council is a senior-level council established to advise the Deputy
              Under Secretary of Defense for Logistics on depot maintenance within DOD.




              Page 18                                  GAO/NSIAD-99-155 Public-Private Depot Competitions
Appendix II
San Antonio and Sacramento Air Logistic
Centers’ Closure History




communities. Additionally, the size of the workforce remaining in the
Sacramento and San Antonio areas through 2004 was expected to remain
above 4,350 and 11,000, respectively.

The Air Force initially focused on privatizing five prototype workloads—
three at Sacramento (for hydraulics, electric accessories, and software)
and two at San Antonio (for C-5 aircraft paint/depaint and fuel
accessories). The Defense Depot Maintenance Council approved the Air
Force's plans for the five prototype workloads on February 1, 1996. The
prototype workloads involved about 11 percent of the San Antonio depot’s
maintenance personnel and about 27 percent of Sacramento's personnel.2

Shortly after the Council approved the prototype program, the concept’s
appropriateness was questioned. Community and industry groups
expressed an interest in having larger packages, and DOD officials were
concerned about the cost of administering a large number of smaller
contracts. Implementation of the prototype program was put on hold in
May 1996 as the Air Force considered various options. In April 1996, we
testified that, if not effectively managed, privatizing depot maintenance
activities, including the downsizing of remaining DOD depot infrastructure,
could exacerbate excess capacity problems and the inefficiencies inherent
in underused depot maintenance capacity. Privatizing workloads in place at
two closing Air Force depots would not reduce the excess capacity in the
remaining depots or the private sector and consequently would not be a
cost-effective approach to reducing depot infrastructure.3 Later that year,
we reported that privatizing in place, rather than closing and transferring
the depot maintenance workloads at the Sacramento and San Antonio
centers, would leave the Air Force with costly excess capacity at its
remaining depots that a workload consolidation would mitigate.4 Our
analysis showed that transferring the depot maintenance workloads to
other depots could yield additional economy and efficiency savings of over
$200 million annually. We recommended that the Secretary of Defense
require the Secretary of the Air Force to take the following actions:

• Before privatizing any Sacramento or San Antonio workload, complete a
  cost analysis that considers the savings potential of consolidating the


2
 The BRAC report specified that the Council should determine where depot maintenance workloads
from closing Air Force depots should be moved.
3
 Defense Depot Maintenance: Privatization and the Debate Over the Public-Private Mix
(GAO/T-NSIAD-96-146, Apr. 16, 1996) and (GAO/T-NSIAD-96-148, Apr. 17, 1996).
4
 Air Force Depot Maintenance: Privatization-in-Place Plans Are Costly While Excess Capacity Exists
(GAO/NSIAD-97-13, Dec. 31, 1996).


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Appendix II
San Antonio and Sacramento Air Logistic
Centers’ Closure History




  two centers’ depot maintenance workloads at other DOD depots,
  including savings that can be achieved for existing workloads by
  reducing overhead rates through more efficient capacity utilization of
  fixed overhead at underused military depots that could receive this
  workload.
• Use competitive procedures, where applicable, for determining the most
  cost-effective source of repair for workloads at the closing Air Force
  depots.

In August 1996, the Air Force announced a revised strategy for allocating
the depot workloads at the Sacramento and San Antonio centers. The
strategy involved several large consolidated work packages, essentially one
at Sacramento and two at San Antonio (one for the C-5 aircraft and one for
engines). In December 1996, the Air Force issued procedures to conduct
public-private competitions for the workloads and to allow one of the
remaining public depots to compete with the private sector for each of the
three workload packages. The Air Force's procedures allowed evaluation
credit for public and private sector proposals that offered overhead savings
to other government workloads.

In February 1997, the Air Force issued a request for proposals (RFP) for the
C-5 aircraft depot maintenance workload. In September 1997, the Air Force
awarded the C-5 workload to the Warner Robins Air Logistics Center based
on the Air Force’s conclusion that it had the lowest total evaluated cost. As
required by the 1998 Defense Authorization Act, we reviewed the C-5
award, issuing our report on January 20, 1998. We concluded that (1) the
C-5 competition procedures provided an equal opportunity for public and
private offerors to compete without regard to where the work could be
performed; (2) the procedures did not appear to deviate in any material
respect from the applicable laws or the FAR; and (3) based on Air Force
assumptions and conditions at the time of award, the award resulted in the
lowest total cost to the government.5

On December 19, 1997, DOD submitted to Congress a determination and
report to support bundling the engine workloads at the San Antonio depot
and a determination and report to support bundling the commodity and
aircraft workloads at the Sacramento depot. DOD was required to submit
these documents before issuing single solicitations at each location for the


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




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Appendix II
San Antonio and Sacramento Air Logistic
Centers’ Closure History




combined work. In response to 1998 Authorization Act requirements and
subsequent requests from the Senate Committee on Armed Services and
the House Committee on National Security, we issued two reports and two
testimonies providing our assessment of DOD’s determinations that it was
more logical and economical to combine the workloads being competed at
the closing depots.6 We reported that

• the determinations and reports contained significant weaknesses in
  logic, assumptions, and data;
• DOD had not considered alternatives that appeared to be logical and
  potentially cost-effective;
• DOD's assumption that efficiencies from shared personnel and facilities
  would be best achieved with a single solicitation for combined
  workloads at each location was questionable; and
• the Air Force's conclusion from its cost analysis that the workload
  combination would save $22 million to $130 million at Sacramento and
  $92 million to $259 million at San Antonio was questionable because the
  Air Force did not consider all cost factors, such as the cost benefits of
  increased competition resulting from solicitations for individual
  workloads.

On March 20, 1998, the Air Force issued a solicitation for the combined
aircraft and commodity workloads at the Sacramento depot and on
March 30, 1998, issued a solicitation for the combined engine workloads at
the San Antonio depot. We issued our required report on the Sacramento
solicitation on May 4, 1998.7 We concluded that the Air Force had not
provided a sufficient basis to show that soliciting the workloads on a
combined basis was necessary to satisfy its needs. Otherwise, we found
that the solicitation complied with applicable laws, including 10 U.S.C.
2469a. On May 14, 1998, we issued our report on the San Antonio
solicitation, similarly concluding that the Air Force had not provided a
sufficient basis to show that soliciting the workloads on a combined


6
 Public-Private Competitions: DOD's Determination to Combine Depot Workloads Is Not Adequately
Supported (GAO/NSIAD-98-76, Jan. 20, 1998); Public-Private Competitions: Access to Records Is
Inhibiting Work on Congressional Mandates (GAO/T-NSIAD-98-101, Feb. 24, 1998) and
(GAO/T-NSIAD-98-111, Mar. 4, 1998); and Public-Private Competitions: DOD's Additional Support for
Combining Depot Workloads Contains Weaknesses (GAO/NSIAD-98-143, Apr. 17, 1998).
7
 Public-Private Competitions: Review of Sacramento Air Force Depot Solicitation
(GAO/OGC-98-48, May 4, 1998).




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San Antonio and Sacramento Air Logistic
Centers’ Closure History




basis(was necessary to satisfy its needs but that otherwise the solicitation
complied with applicable laws, including 10 U.S.C. 2469a.8

In October 1998, the Air Force awarded the Sacramento workload to the
Ogden Air Logistics Center. As required by the 1998 Defense Authorization
Act, we reviewed the Sacramento award, issuing our report on
November 23, 1998.9 We concluded that (1) the Air Force met the
requirements of applicable laws and regulations in awarding the
Sacramento workload to the Ogden Air Logistics Center; (2) the process
used for estimating overhead, commodity rate risk, warehousing, base
operating support, and material surcharge costs provided issues for the Air
Force to consider in its future competitions; and (3) the evaluation team
could have better documented support for certain key cost estimates,
followed more appropriate or consistent approaches for estimating costs,
and used more accurate or appropriate data.




8Public-Private Competitions: Review of San Antonio Depot Solicitation (GAO/OGC-98-49,
May 14, 1998).
9Public-Private
              Competitions: Processes Used for Sacramento Depot Maintenance Award Appear
Reasonable (GAO/NSIAD-99-42, Nov. 23, 1998).




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Appendix III

Legal Review of Competition for San Antonio
Air Logistics Center Workloads                                                                                           AIpIexndi




               On March 30, 1998, the Department of the Air Force, San Antonio Air
               Logistics Center (ALC) at Kelly Air Force Base, Texas, issued request for
               proposals (RFP) No. F41608-98-R-0084 for the purpose of conducting a
               public-private competition for the propulsion business area depot-level
               workloads being performed at the closing San Antonio ALC. The Air Force
               received proposals from one private sector offeror–Pratt & Whitney San
               Antonio Engine Services, Inc. (Pratt & Whitney) and from one public
               offeror--the Air Force’s Oklahoma City ALC. Following technical and cost
               evaluations, the Air Force selected Oklahoma City ALC to perform the San
               Antonio workloads on the basis that its proposal represented the best value
               to the government. The Oklahoma City ALC proposal represented the
               lowest “most probable total evaluated” cost at $10,516,225,557 over the
               15-year performance period.1

               Section 359 of the National Defense Authorization Act for Fiscal Year 1998,
               Public Law 105-85 (1998 Authorization Act) added section 2469a to title 10
               of the United States Code, which provided for special procedures for
               public-private competitions for the workloads at the closing San Antonio
               and Sacramento ALCs. Section 2469a also requires us to review the
               selection process for the awards made for the workloads at the two closing
               ALCs and report to Congress within 45 days of each award on whether (1)
               the procedures used to conduct the competition provided a substantially
               equal opportunity for offerors to compete without regard to performance
               location and complied with 10 U.S.C. 2469a and all applicable laws and
               regulations, (2) appropriate consideration was given to factors other than
               cost in the selection, and (3) the award resulted in the lowest total cost to
               the Department of Defense (DOD) for the performance of the workloads.2

               Our review was based on the record of the proposal evaluation and the
               selection. In addition, we spoke to Air Force officials and considered
               concerns raised informally by one of the competitors. We recognize that an
               offeror can file a protest with our Office pursuant to 31 U.S.C. 3551-3556, or
               file an action with the courts, or an objection to the award with DOD under
               10 U.S.C. 2469a(h). If a protest is filed with our Office or an action is filed
               in court, factual information, issues, and arguments raised by the interested
               parties would be reviewed in the context of an adversarial process.


               1The “most probable total evaluated cost” represents the offeror’s costs as adjusted by cost
               comparability factors as well as a range of "dollarized" discriminators and projected overhead savings.
               2Our   analysis of the cost of the award is contained in the body of the report.




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Appendix III
Legal Review of Competition for San Antonio
Air Logistics Center Workloads




Thus, the result of a protest or court action may differ from that of our
current review. Similarly, the result of an objection filed with DOD may
differ from our review.

Our review of the procedures the Air Force used to conduct the San
Antonio competition in the context of the concerns that were raised by the
competitor revealed no basis to conclude that (1) the procedures did not
provide a substantially equal opportunity for the offerors to compete
without regard to performance location, (2) appropriate consideration was
not given to factors other than cost in the selection, and (3) the procedures
used in selecting the successful offeror deviated in any material respect
from the applicable laws and regulations. While not affecting the legal
sufficiency of the selection, we nevertheless identified several issues
related to the estimates used in the cost evaluation. These issues are
discussed in the body of the report.

In our 1998 review of the San Antonio solicitation, we concluded that the
Air Force had not provided a sufficient basis to show that soliciting the
workloads on a combined basis was necessary to satisfy its needs. We also
concluded that the solicitation was otherwise in compliance with
applicable laws, including the provisions of 10 U.S.C. 2469a, and that it
provided a substantially equal opportunity for offerors to compete without
regard to performance location.3

On May 29, 1998, the National Airmotive Corporation (National Airmotive)
filed a protest of the solicitation’s provisions with our Office pursuant to
31 U.S.C. 3551-3556. National Airmotive objected to the solicitation of the
workloads on a combined basis. In a decision dated September 4, our
Office denied the protest, concluding that the Air Force was able to show,
based, in part, on evidence concerning readiness risks not considered in
our earlier report, that combining the workloads was reasonably required
to satisfy its needs.4 On November 12, National Airmotive filed an action in
the United States District Court for the Northern District of California,
Oakland Division, seeking a declaration that the solicitation was illegally

3
 10 U.S.C. 2469a(g) provides that we review all solicitations issued for the workloads at the two closing
ALCs and report to Congress within 45 days of the solicitations’ issuance regarding whether the
solicitations (1) are in compliance with the provisions of section 2469a “and all applicable provisions of
law and regulations” and (2) provide a substantially equal opportunity for offerors to compete without
regard to performance location. The review of the San Antonio solicitation was the subject of our
report entitled Public-Private Competitions: Review of San Antonio Air Force Depot Solicitation
(GAO/OGC-98-49, May 14, 1998).
4
National Airmotive Corp., B-280194, Sept. 4, 1998.




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                   Appendix III
                   Legal Review of Competition for San Antonio
                   Air Logistics Center Workloads




                   issued and void and an injunction preventing the Air Force from going
                   forward with the award or performance of a contract awarded pursuant to
                   the solicitation. The action was dismissed by decision dated February 25,
                   1999.5 The following describes the legal standards applicable to the San
                   Antonio competition, relevant aspects of the solicitation and evaluation
                   procedures the Air Force used, and our analysis of those procedures under
                   the applicable legal standards.6



Applicable Legal   The basic authority for the San Antonio workload competition is
                   10 U.S.C. 2469a, which provides procedures for public-private competitions
Standards          for the workloads of the closing San Antonio and Sacramento ALCs that are
                   proposed to be outsourced after the November 18, 1997, enactment of the
                   1998 Authorization Act. Section 2469a sets forth a number of requirements
                   that the Air Force must satisfy in its solicitations and the source selection
                   process it uses to make awards for the specified workloads. Particularly,
                   the solicitations and the source selection process must (1) permit both
                   public and private offerors to submit offers; (2) take into account the fair
                   market value of any land, plant, or equipment at a closed or realigned
                   military installation that a private offeror proposes to use in the
                   performance of the workload; (3) take into account the total estimated
                   direct and indirect costs that DOD will be incur and the total estimated
                   direct and indirect savings (including overhead) that DOD will be derive;
                   (4) use cost standards to determine the depreciation of facilities and
                   equipment that provide, to the maximum extent practicable, identical
                   treatment to public and private offerors; (5) permit any offeror, whether
                   public or private, to team with any other public or private entity to perform
                   the workload at any location or locations they choose; and (6) ensure that


                   5
                    National Airmotive v. Cohen, Civ. Action No. C 98-4381 SC., DC., ND., and Cal., Feb. 25, 1999. The court
                   concluded that the combination of the workloads was required to satisfy the Air Force’s needs.
                   6
                    As stated earlier, in the prior review of the San Antonio solicitation in our report, Public-Private
                   Competitions: Review of San Antonio Air Force Depot Solicitation, we found that the Air Force did not
                   provide a sufficient basis to show that the combined workloads were necessary to meet its needs. We
                   changed our view, based on new information, in our bid protest decision, National Airmotive Corp. We
                   will not again address the issue of the bundled workloads in the solicitation, because the subject of our
                   review is the selection, not the solicitation.




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Legal Review of Competition for San Antonio
Air Logistics Center Workloads




no offeror is given any preferential consideration for, or is in any way
limited to, performing the workload in place or at any other single
location.7

In addition to 10 U.S.C. 2469a, a number of other laws are generally
applicable to the outsourcing of government-performed depot workloads.
One of the principal laws is 10 U.S.C. 2469, which provides for the use of
“competitive procedures for competitions among private and public sector
entities” when DOD contemplates changing from in-house to contractor
performance of a depot workload valued at $3 million or more. In addition,
section 8039 of the Department of Defense Appropriations Act for Fiscal
Year 1998, Public Law 105-56, authorizes public-private competitions for
depot workloads as long as the “successful bids” are certified to “include
comparable estimates of all direct and indirect costs for both public and
private bids.” Both provisions state that Office of Management and Budget
Circular A-76 is not to apply to the competitions. Other than the reference
in section 8039 to the use of comparable estimates of all costs, neither
provision prescribes the elements that constitute a competition. Further,
10 U.S.C. 2470 provides that depot-level activities are eligible to compete
for depot workloads.8

Other provisions apply, generally, to converting DOD functions to
private-sector performance. Section 8014 of the 1998 DOD Appropriations
Act requires that DOD certify its in-house estimate to congressional
committees before converting any activity performed by more than

7In addition, 10 U.S.C. 2469a(e) provides that DOD may issue a solicitation for multiple workloads
under 10 U.S.C. 2469a only if DOD first determines that individual workloads cannot as logically and
economically be performed without combination by potentially qualified sources and submits a report
to Congress setting forth the reasons for the determination. The provision also requires us to review
and provide our views on the DOD report. DOD decided to issue RFPs, including the one here,
containing combined workloads and submitted the required determinations and reports on
December 19, 1997. We reported on January 20, 1998, that the DOD reports did not support the
determination. Public-Private Competitions: DOD’s Determination to Combine Depot Workloads Is Not
Adequately Supported (GAO/NSIAD-98-76, Jan. 20, 1998). Under 10 U.S.C. 2469a(e) DOD must wait 60
days from the submission of its report to issue an RFP containing combined workloads. There is no
other restriction in subsection (e). The Air Force issued the San Antonio solicitation containing
multiple workloads on March 30, 1998. After our January report, the Air Force provided additional
supporting rationale for the combined workloads. We reported that the additional rationale was not
well supported. Public-Private Competitions: DOD’s Additional Support for Combining Workloads
Contains Weaknesses (GAO/NSIAD-98-143, Apr. 17, 1998).
8
 We see nothing in the other applicable provisions governing the outsourcing of depot workloads that is
inconsistent with 10 U.S.C. 2469a. In fact, the use of comparable cost estimates and the participation of
DOD depot-level activities are provided for in 10 U.S.C. 2469a. Consequently, consistent with the rule of
statutory construction that statutes be construed harmoniously to give effect to all provisions whenever
possible, all of the above-cited provisions are effective and applicable to the San Antonio competition.
See Posadas v. National City Bank, 296 U.S. 503-504 (1936); 53 Comp. Gen. 853 (1974).




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Legal Review of Competition for San Antonio
Air Logistics Center Workloads




10 civilian employees to contractor performance. The provisions of
10 U.S.C. 2461 require that when a DOD-performed function, such as the
workloads involved in this competition, is changed to performance by a
contractor, DOD must report to Congress and perform an analysis that
shows that a savings will result. Under 10 U.S.C. 2462, DOD is generally
required to contract with the private sector if a source can provide the
supply or service at a lower cost than DOD can and to ensure that all costs
considered are realistic and fair.9

The Air Force implements these outsourcing authorities through the Air
Force Materiel Command's Procedures for Depot Level Public-Private
Competition, December 20, 1996 (Depot Competition Procedures). The
Depot Competition Procedures are supplemented by the Defense Depot
Maintenance Council Cost Comparability Handbook (CCH), including the
January 28, 1998, revision; the Air Force Materiel Command Guide to the
Cost Comparability Handbook; and the SAF/AQ Public-Private Competition
Cost Procedures of February 21, 1998. The Depot Competition Procedures
provide for issuing a solicitation calling for offers from public and private
sector sources and establish the criteria, including those listed in
10 U.S.C. 2469a, for deciding how the Air Force will select a source from
either sector to perform depot workloads. According to these procedures,
a competitive solicitation is to be issued under the applicable provisions of
the Federal Acquisition Regulation (FAR). This regulation sets forth
uniform policies and procedures for the competitive acquisition system
that all executive agencies use and implements the provisions of chapter
137 of title 10 of the United States Code, which govern DOD acquisitions.

This use of the competitive acquisition system subjects a depot workload
competition to the applicable provisions of chapter 137 and the FAR to the
extent that they do not conflict with the public-private competition statutes
cited previously. Newport News Shipbuilding and Dry Dock Company,
B-221888, July 2, 1986, 86-2 CPD 23. Further, aspects of a competition that
fall outside the competitive acquisition system's parameters as defined by
chapter 137 and the FAR, such as the comparison of public and private
offers for the workloads from the two closing ALCs, are governed by
10 U.S.C. 2469a and the other statutes applicable to public-private depot
competitions as implemented by the Air Force.



9Again, these provisions do not conflict with the six 10 U.S.C. 2469a competition requirements listed
previously and may also apply to the San Antonio competition. See Posadas v. City Bank cited above.




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                       Appendix III
                       Legal Review of Competition for San Antonio
                       Air Logistics Center Workloads




                       In general, the standards in chapter 137 and the FAR (1) require that a
                       solicitation clearly and unambiguously state what is required so that all
                       offerors can compete on an equal basis and (2) allow restrictive provisions
                       to be included only to the extent necessary to satisfy an agency’s needs.
                       Under these standards, an agency must follow the criteria announced in the
                       solicitation, which in this case include those required by 10 U.S.C. 2469a,
                       and exercise its judgment in a reasonable manner in determining which
                       competing offer is to be selected. Dimensions International/QSOFT, Inc.,
                       B-270966.2, May 28, 1996, 96-1 CPD 257.



Solicitation           The RFP for the San Antonio workloads contains several line items
                       representing the transition and performance of various combinations of the
                       propulsion workload. For example, (1) line item no. 0001 calls for offers
                       for transition, completion of work in process (WIP), and repair of the T56,
                       TF39, and F100 engines; (2) line item no. 0002, for transition, WIP, and
                       repair of the same three engines, and fuel accessories; (3) line item no.
                       0003, for transition, WIP, and repair of the same three engines, the fuel
                       accessories and for two-level maintenance on the T56 engine; (4) line item
                       0004, for transition, WIP, and repair of the three engines and the fuel
                       accessories and for two-level maintenance for the T56 and TF39 engines;
                       and (5) for “over and above” work related to each of the four line items.10

                       The RFP provides for a transition period, which is to begin at the award
                       and to end by July 13, 2001, and a 7-year basic performance period, which
                       may be extended up to 15 years based upon the performance of the
                       awardee. The fixed-price requirements-type award is to be based on the
                       work as represented by line item nos. 0001, 0002, 0003, or 0004. 11 The size
                       of the workload to be awarded to a private sector source is, according to
                       the solicitation, to be determined based on the constraints of 10 U.S.C.
                       2466(a). That provision restricts the funds, which can be expended for
                       private sector performance of depot-level workloads, to no more than 50
                       percent of the funds made available to the Air Force for such work in a
                       particular fiscal year.



                       10“Overand above” work is not included in the basic work requirements but is within the scope of the
                       award and may be ordered on the basis of a fixed hourly rate.
                       11According   to the solicitation, the prices would be subject to economic adjustment based on various
                       measurement standards and to prospective redetermination based on revisions in the estimated
                       quantities of the work and process improvements.




               eL
                rtet   Page 28                                   GAO/NSIAD-99-155 Public-Private Depot Competitions
        Appendix III
        Legal Review of Competition for San Antonio
        Air Logistics Center Workloads




        According to the solicitation, the competition is to be conducted under
        FAR part 12, which prescribes the policies and procedures for the
        acquisition of commercial items; FAR 15.101, which sets forth the source
        selection processes and techniques to be used in competitive negotiated
        acquisitions; and the applicable Air Force and Air Force Materiel Command
        supplements. Further, the solicitation provides that the Depot Competition
        Procedures, the CCH and their updates are to govern the selection.

        The solicitation states that the award will be made to the offeror—either
        public or private—that is deemed responsible under the FAR,12 whose
        proposal conforms with the solicitation, and that is judged to represent the
        best value to the government. According to the RFP, the source selection
        authority (SSA) will integrate the source selection team's assessments of
        the proposals under the evaluation criteria listed in the solicitation to arrive
        at a best value selection.13

        The evaluation criteria cover transition, repair operations, cost, and
        assessment. Transition covers capability and resources, equipment,
        responsibility transfer milestones, and risk management. The repair
        operations criteria consist of five factors: (1) continuing operations plan,
        (2) risk management, (3) process improvements, (4) additional workloads,
        and (5) small business. The assessment criteria, which will be used to
        measure the extent to which a proposal meets the transition, repair
        operations, and cost criteria, are: (1) understanding of/compliance with the
        solicitation requirements and (2) soundness of approach.

        Under the cost criteria, proposals will first be assessed for completeness,
        realism, and reasonableness.14 Then each offeror’s total proposed cost is
        to be determined by calculating the various cost estimates, unit prices, and
        hourly rates proposed for the different line items. Next, each offeror’s total


        12
          According to FAR subpart 9.1, a responsible prospective contractor is one that meets the FAR 9-104
        standards, which include having adequate financial resources, or the ability to obtain them; the ability
        to comply with the performance schedule; a satisfactory performance record; and the necessary
        facilities and equipment or the ability to obtain them.
        13
          The solicitation provides that if the award is limited by the constraints of 10 U.S.C. 2466(a), the award
        may consist of the work in line items nos. 0001, 0002, 0003, or 0004. According to the RFP, the award of
        any line item may be made to the offeror whose proposal represents the best value for line item
        nos. 0004 and 0006 (over and above work), considering the risks associated with the awarded line item.
        14Under  FAR 15.404-1(d) a cost realism analysis is the process of reviewing and evaluating specific
        elements of an offeror’s cost estimate to determine whether the proposed elements are realistic for the
        work to be performed. According to FAR 15.404-1, reasonableness is to be assessed through an analysis
        of either cost elements or overall price.




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        alternative cost is to be developed by factoring in the numerous
        adjustments to public and private offerors’ total proposed cost under the
        CCH and the RFP. Finally, each offeror’s total evaluated cost is to be
        determined by adjusting the total alternative cost to reflect the “dollarized
        impact of significant discriminators, to the extent that a dollar value can be
        assigned to such discriminators, based on identified proposal strengths,
        weaknesses and risks.”15

        Further, the RFP provides for the evaluation of general considerations such
        as the results of pre-award surveys, site visits, and fair market value. In
        addition, two risk assessments are done: one on the proposal and one on
        performance. A proposal risk assessment measures the risk that is
        associated with an offeror's proposed approach to accomplishing the
        solicitation requirements relating to each of the four transition area factors
        and each of the five repair operations area factors. A performance risk
        assessment determines, based on an offeror's present and past
        performance, the probability of the offeror’s successfully accomplishing
        the proposed effort.

        Finally, the solicitation provides that in the SSA's best value assessment,
        the criteria for transition and repair operations areas and cost criteria are
        to be equally important, while the general considerations are to be
        “considered substantially less important than transition, repair operations,
        or cost.” According to the RFP, this assessment is also to include “as
        appropriate” items listed in the solicitation as “Other Considerations.” This
        category essentially reiterates five of the six requirements for the
        competition listed in the 1998 Authorization Act.16

        The proposals were first evaluated by specialized teams, which reported to
        a source selection evaluation board (SSEB), which in turn, reported its
        conclusions to a source selection advisory council (SSAC). The council
        then advised the SSA, who made the final selection.


        15
          “Dollarized impact,” as we understand it, is the assignment of an estimated dollar value to the
        assessment of the benefit or detriment to the Air Force that would result from aspects of an offeror's
        proposal in calculating the offeror's total evaluated cost.
        16
          The one requirement not listed in section M-902 of the RFP is the requirement that the cost standards
        used to determine the depreciation of facilities and equipment provide, to the maximum extent
        practicable, identical treatment to public and private offerors. This requirement is addressed in the
        RFP at paragraph 5.f.6 of section L and paragraphs 2.6.b. (7) and (8) of section M-901.




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Evaluation of           Two offerors submitted proposals in response to the solicitation.
                        Oklahoma City ALC, the public depot chosen by the Air Force to submit the
Proposals               public sector offer, proposed to perform the F100 engine work at its
                        facilities in Oklahoma City. The public offeror chose Lockheed Martin
                        Kelly Aircraft Company (Lockheed) as its principal partner. Lockheed’s
                        major subcontractors are Standard Aero Limited, Chromalloy Gas Turbine,
                        and Woodward Governor. Lockheed proposed using the San Antonio
                        facilities transferred by the Air Force to the Greater Kelly Development
                        Corp. (GKDC) and leased by GKDC to Lockheed. Lockheed, along with
                        Standard Aero, would perform most of the T56 work at San Antonio.
                        Lockheed would also head the TF39 effort, much of which is to be
                        performed at San Antonio along with Woodward Governor and Chromalloy.
                        The private sector offeror, Pratt & Whitney, proposed to perform most of
                        the work on all three engines and accessories at the San Antonio facilities
                        to be leased from GKDC.17 Pratt & Whitney proposed performing most of
                        the F100 work itself. The major subcontractors are General Electric Co. for
                        the TF39 engine work, Allison/Rolls Royce/Standard Aero for the T56 work,
                        and a joint venture of Caterpillar Logistics and Allied Signal for supply
                        management and logistics support.

                        The proposals were initially evaluated to determine whether they were to
                        be included in the competitive range in accordance with FAR 15.306(c) and
                        considered for award.18 On July 10, 1998, the Air Force determined that
                        both proposals were within the competitive range.

                        Accordingly, the Air Force held discussions with the offerors consisting of
                        written evaluation notices raising concerns about each of the proposals
                        and face-to-face exchanges about the concerns. As a result, each offeror
                        revised its proposal. The Air Force requested final proposal revisions on
                        August 31, 1999. Both offerors submitted final revisions by September 14.
                        The evaluators found pricing problems in both proposals that caused them
                        to question the cost realism of each. According to the evaluators, the
                        Oklahoma City ALC proposal contained a significant unsupported drop in
                        material prices and instances of unbalanced pricing. The Pratt & Whitney
                        proposal contained unexplained variances from the Air Force estimates;
                        some prices were significantly higher and some unrealistically low. The Air


                        17
                         A significant part of the TF39 engine work will be performed at locations other than San Antonio.
                        18FAR15.306(c) provides that the contracting officer shall determine which proposals are in the
                        competitive range for the purpose of conducting discussions.




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                       Force therefore decided to amend the RFP to provide for the submission of
                       detailed pricing information from both offerors on a sample of 50 from the
                       694 exhibit line items (ELINS) that represented all of the required work.19
                       Both offerors submitted the information requested, which the Air Force
                       evaluated and discussed with the offerors. The evaluators were later
                       satisfied that the offerors’ amended prices were realistic, and a second
                       round of final proposal revisions was submitted by January 16, 1999.

                       The Air Force made final cost adjustments and evaluated the January 16
                       proposal revisions. Based on the results of the evaluations and cost
                       adjustments, the advice of the SSAC, and the SSA’s analysis in the context
                       of the RFP evaluation criteria, the SSA decided that the Oklahoma City ALC
                       proposal met all of the RFP requirements and represented the best value to
                       the Air Force over the life of the requirement. While the SSA recognized
                       that Pratt &Whitney submitted a “slightly better technical proposal,” the
                       SSA found that the differences between the two proposals had been
                       normalized by the “dollarization” adjustments and concluded that the
                       Oklahoma City ALC proposal would meet the needs of the Air Force at less
                       cost.



Technical Evaluation   As noted previously, the solicitation evaluation criteria provided that the
                       offerors’ management approaches were to be evaluated in the transition
                       and repair operations areas. Under transition, four factors were to be
                       evaluated: (1) capability and resources, (2) equipment, (3) responsibility
                       transfer milestones, and (4) risk management. Repair operations included
                       five factors: (1) continuing operations plan, (2) risk management,
                       (3) process improvements, (4) additional workloads, and (5) small
                       business. Under each of the factors the proposal risk was to be assessed.


Transition             Capability and resources, the first factor under transition, were assessed by
                       examining the offerors’ proposed processes to improve the availability of
                       engines and its capability to achieve the flow days proposed for the
                       estimated quantities. The SSA noted that the SSAC had assigned Oklahoma
                       City ALC a green, or acceptable, rating with moderate risk. Pratt &
                       Whitney had been given a blue, or exceptional, rating with low risk. The
                       SSA stated that Oklahoma City ALC had experience in military engine

                       19According  to the Air Force the 50 ELINS selected for detailed review represented 85 percent of the
                       baseline value of the total requirement.




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        repair and provided a low risk approach to transition of the TF39 and T56
        work, which was to be done in place at the San Antonio facility. The SSA
        recognized that Oklahoma City ALC’s proposal to transition the F100 work
        to its Oklahoma City ALC facility met the RFP requirements. Nevertheless,
        the SSA was concerned with the plan to hire 1,251 workers, 81 percent of
        whom would need some training before the public offeror’s assumption of
        full responsibility for the work in January 2000. According to the SSA, only
        60 percent of the workers would be fully trained by that date. While the
        SSA was concerned that this lack of training could cause problems in
        meeting production requirements, she believed that through the
        implementation of the Oklahoma City ALC’s contingency plans, production
        impacts and schedule concerns could be mitigated. The SSA concluded
        that training was a weakness in the ALC’s transition plan for the F100 work
        that justified the moderate risk rating. The SSA further concluded,
        however, that the risk could be offset by an upward “dollarization” cost
        adjustment to cover the cost risks of implementing any needed contingency
        actions.20 The SSA found several strengths in the Pratt & Whitney
        approach, including (1) its plan to conduct a 9-day “stand-down” for
        employee orientation and training and to inventory equipment, material,
        and WIP; (2) its plan for multi-skill training; and (3) its direct access to
        parts purchasing and manufacturing. While recognizing the advantages of
        these and other strengths, the SSA concluded that they were reflected in
        Pratt & Whitney’s prices and plans to reduce flow days and were therefore
        not susceptible to separate “dollarization” credit.

        For the equipment factor, an offeror was to set forth its plans for acquiring
        equipment from the Air Force and other sources to support the work. The
        SSA concurred with the SSAC's green rating with low risk for both
        proposals. The SSA concluded that both proposals were essentially equal
        and proposed no “dollarization” adjustment.

        For the responsibility transfer milestones factor, the Air Force evaluators
        measured the offerors’ ability to pass from transition to full performance.
        The SSAC gave both offerors green, or acceptable, ratings and assigned
        Oklahoma City ALC’s proposal a moderate risk rating and Pratt & Whitney’s
        proposal a low risk rating. According to the SSA, both proposals met the
        RFP requirements, but the SSA was concerned about Oklahoma City ALC’s
        plan to qualify itself to perform an additional 61 critical F100 repair


        20As discussed later, the SSEB cost evaluators developed proposed “dollarization” cost adjustment
        figures under appropriate factors, which were provided to the SSAC and the SSA.




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                       processes that are currently contracted out. An independent technical
                       team reviewed Oklahoma City ALC’s plan to become qualified in all of the
                       repair processes within a 17.5-month schedule. According to the team,
                       Oklahoma City ALC could be qualified to perform 43 percent of the repairs
                       within the planned 17.5 months, 78 percent of the repairs within 36 months,
                       and 98 percent (all but two of the repairs) within 60 months. On the basis
                       of this assessment, the SSA concluded that Oklahoma City ALC could meet
                       all of the RFP requirements, but to do so on schedule, it might have to use
                       outside sources. Therefore, the SSA proposed to offset the risk of having to
                       use more costly outside sources by an upward “dollarization” cost
                       adjustment. After making the cost adjustment, the SSA concluded that
                       both proposals demonstrated the technical capability and resources to
                       meet the requirements and were essentially equal under this factor.

                       For the risk management factor, the Air Force measured the offeror’s
                       ability to identify areas of transition risk and to provide a credible approach
                       to manage it. The SSA concurred with the SSAC’s rating of each proposal
                       as green with low risk. The SSA concluded that both proposals were
                       essentially equal and proposed no “dollarization” adjustment.


Repair Operations      Under the continuing operations plan factor, an offeror was to provide a
                       realistic time-phased production operations plan for achieving its proposed
                       flow days, providing the required quantities, and improving the availability
                       of all three engines. The SSA concurred with the SSAC’s rating of each
                       proposal as blue with low risk. The SSA noted that Oklahoma City ALC
                       offered extended warranties on the T56 and TF39 engines that exceeded
                       the RFP requirements by a minimum of 500 percent in operational time and
                       should result in savings to the Air Force. In addition, the SSA stated that
                       the public offeror committed to a significant flow day reduction of
                       11 percent from the current baseline across the entire requirement and
                       planned to support early induction of T56 and TF39 reparable components
                       prior to orders creating a pool of serviceable items. The SSA proposed to
                       capture these benefits by a downward “dollarization” evaluation credit.
                       Pratt & Whitney proposed to use a single logistics company (formed by
                       Allied Signal and Caterpillar Logistics) to provide logistics support, which
                       according to the SSA had the potential to expedite material movement,
                       centralize material tracking and control, and provide for other efficiencies.
                       Further, the SSA noted that the private offeror proposed extended
                       warranties for the T56 and TF39 engines and reliability guarantees for the
                       F100. Pratt & Whitney exceeded the RFP warranty requirements by 400 to
                       500 percent for the T56 and TF39 engines and committed to what the SSA



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                      termed as a “significant flowday reduction” of 32.1 percent for the total
                      requirement. The private offeror also proposed to support early induction
                      of T56 and TF39 reparable components. The SSA proposed to make a
                      downward “dollarization” adjustment in her evaluation of the Pratt &
                      Whitney proposal for these benefits.

                      For the risk management factor, which was used to assess an offeror’s
                      ability to identify repair operation risk areas and manage them, the SSA
                      agreed with the SSAC’s rating of both proposals as green with low risk. The
                      SSA stated that both proposals were essentially equal and proposed no
                      “dollarization” adjustments.

                      For the process improvement factor, the Air Force measured the offerors’
                      approach to systematic improvements of processes and related resources.
                      The SSA agreed with the SSAC rating of Pratt & Whitney’s proposal as blue
                      with low risk and the public sector proposal as green with low risk. While
                      recognizing that Oklahoma City ALC proposed an acceptable approach, the
                      SSA noted several strengths in the Pratt & Whitney proposal. The SSA was
                      particularly impressed with the private offeror’s approach to “reliability
                      centered maintenance” that included depot visit guarantees if reliability
                      performance objectives were not met. The SSA found that these benefits,
                      though significant, had already resulted in “dollarization” credits for Pratt
                      & Whitney under other factors, so no additional adjustments were
                      proposed.

                      Neither offeror proposed any additional work, and neither was given a
                      rating under the additional work factor.

                      For the small business factor, the SSA adopted the SSAC ratings of green
                      with low risk for Oklahoma City ALC and blue with low risk for Pratt &
                      Whitney. The SSA considered the private offeror’s approach as a strength
                      but did not consider the ratings under this factor “to be a discriminator.”


Performance Risk      For the performance risk analysis of the transition, repair operations, and
Assessment            cost areas, the SSA determined that the Oklahoma City ALC transition area
                      represented a low risk, but represented a moderate risk in the repair
                      operations and cost areas. Likewise, Pratt & Whitney’s repair operations
                      area represented a moderate risk, but the cost and transition areas were
                      considered a low risk. The SSA stated that Oklahoma City ALC’s cost could
                      be volatile due to factors beyond the public offeror’s control. However, the
                      SSA noted that Oklahoma City ALC had been a good cost manager in areas



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                            under its control. The SSA concluded that the difference in cost risk
                            represented by the two offerors could be accommodated by making
                            upward adjustments for cost realism to the Oklahoma City ALC proposal.


General Considerations      Under the general consideration category, the SSA concluded that both
                            offerors met the solicitation and responsibility requirements. The SSA
                            noted that both offerors proposed to lease facilities from GKDC.21 The SSA
                            stated that the Air Force’s sale of the closing San Antonio facilities to
                            GKDC for $108 million appeared to be reasonable and represented the fair
                            market value of the property. Further, the SSA noted that while she did not
                            have insight into the lease arrangements between GKDC and the two
                            offerors or their partners, she assumed that neither offeror had received
                            preferential treatment, since the leases were competitive agreements.



Cost Evaluation             As noted previously, the cost evaluation consisted of (1) an assessment of
                            the realism and reasonableness of the cost proposals; (2) a determination
                            of the “total alternative cost” of each proposal, calculated through
                            adjustments required by the CCH and RFP; and (3) a determination of the
                            total evaluated cost of each proposal, calculated by adjusting the total
                            alternative cost to reflect the “dollarization” of significant discriminators
                            among the proposals. In determining the total evaluated cost, the SSA used
                            ranges based on different estimates for overhead savings and risk
                            “dollarization.” The results of these analyses are summarized below.22


Realism and                 The cost team evaluators initially reviewed each offeror’s cost proposal to
Reasonableness Evaluation   determine its completeness, realism, and reasonableness. The evaluators
                            were ultimately satisfied that each cost proposal met these standards.
                            Under the Depot Competition Procedures, the Defense Contract Audit
                            Agency (DCAA) audited the Oklahoma City ALC cost proposal and
                            reviewed the public offeror’s disclosure statement23 and accounting and


                            21Thepublic offeror’s private partners proposed to perform much of their work at the closing San
                            Antonio facilities. The lease was to be between the private firms and GKDC.
                            22SSEB  cost team evaluators calculated the various cost adjustments and ranges for overhead savings
                            and “dollarization,” which were approved by the SSAC. As discussed later, the SSA adopted the
                            adjustments and considered the proposed ranges for overhead savings and “dollarization” in the
                            selection.
                            23
                              The Depot Competition Procedures require that a public offeror provide a disclosure statement of its
                            cost accounting practices under the requirements of the Cost Accounting Standards Board.



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                         estimating systems. DCAA found that the disclosure statement was
                         adequate and the cost proposal was realistic.24 DCAA found the Oklahoma
                         City ALC accounting system to be adequate.25


Determination of Total   The cost evaluators determined each offeror's total alternative cost by
Alternative Cost         calculating the offeror's “customer cost”—in essence, its proposed price
                         for performing the requirement represented by line items 0004 and 0006,
                         and making upward and downward adjustments to the cost in accordance
                         with the RFP and the CCH. Oklahoma City ALC's customer cost was
                         calculated to be $10,164,013,176. Pratt & Whitney’s customer cost was
                         $11,559,347,993. At this point, the Oklahoma City ALC proposal was about
                         $1.395 billion lower.

                         Using the customer cost for each offeror as a base, the evaluators made the
                         comparability adjustments called for in the CCH and the RFP. The
                         evaluators made two sets of adjustments. The first set, required by form
                         number 1 of the CCH,26 encompassed adjustments to the public sector
                         offer to reflect its full performance cost. The second set, required by form
                         number 2 of the CCH, to reflect other cost differences between public and
                         private entities, were applicable to the public and private sector proposals.

                         The CCH form number 1 adjustments made to the Oklahoma City ALC
                         proposal included upward and downward changes in a number of


                         24
                           As stated in the Air Force’s February 1998 Competition Cost Procedures, a public offeror is
                         considered to have a funding advantage over a private-sector offeror under the fixed-price portions of
                         the requirement in that cost overruns may be paid for by the government through the working capital
                         fund. Thus, in "dollarizing" the risks inherent in the Oklahoma City ALC proposal, the SSAC proposed
                         upward adjustments from $110,193,523 to $175,752,377 to represent material cost risk and $30,572,635
                         to represent labor cost risk. These adjustments seem to have been in lieu of adjustments to the
                         Oklahoma City ALC cost proposal during the initial cost realism evaluation. They are different from
                         most of the other "dollarization" adjustments as they primarily relate to the method of developing the
                         cost estimates rather than a quantification of a technical performance risk.
                         25DCAA   did not review Oklahoma City ALC’s estimating system because, according to the Air Force,
                         such a review is “normally done only when the anticipated number of future cost proposals warrants
                         such a review.”
                         26
                           Since Oklahoma City ALC proposed that a private firm, Lockheed, be responsible for the T56 and
                         TF39 work, the portion of the Oklahoma City ALC cost proposal that represented the work to be
                         performed by Lockheed or its subcontractors was not subject to the form number 1 adjustments. The
                         Lockheed portion was, however, subject to the form number 2 adjustments applicable to private
                         offerors.




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        categories.27 The most significant were upward adjustments of $97,919,767
        for base operating support, $27,100,211 for unfunded civilian retirement,
        and $36,334,858 for retiree health benefits. The net result of all of the
        adjustments was an upward adjustment to the public offeror’s proposal of
        $135,038,131 that resulted in a form number 1 adjusted cost of
        $10,299,051,307. The adjusted cost was still lower than Pratt & Whitney’s
        customer cost of $11,559,347,993.

        CCH form number 2 adjustments were made to both proposals. Upward
        adjustments were made to both proposals for contract administration
        costs, reduction-in-force (RIF) costs, personnel carrying costs (that is,
        costs of retaining the current workforce at San Antonio that will be subject
        to a RIF and not be rehired by the new source after the workload is
        transitioned), a transition adjustment for costs of performing the WIP
        during the transition that each offeror elected not to perform, and the
        depreciation of government furnished equipment provided to a private
        source.28

        Some downward adjustments were made to the public offeror. For
        example, an adjustment of $28,731,413 was made for warehousing services
        provided by the Defense Logistics Agency.29 Other downward adjustments
        were $56,793,362 to the Oklahoma City ALC proposal to account for the
        cost in the public offeror’s rates for contract management and oversight
        that would not be needed for in-house performance of the F100 work, and
        $346,780,440 to the Pratt & Whitney proposal for the payment of federal
        income tax on profits and $78,424,733 to the Oklahoma City ALC proposal
        for the payment of tax on profits.30


        27Upward   adjustments were made for state unemployment payments, unfunded civilian retirement,
        depreciation for military construction program facilities, casualty insurance, F-100 packaging costs, and
        other recurring costs consisting of impact aid, retiree health benefits, and base operating support.
        Downward adjustments were made for mobilization support (cost of mobilization support plans and of
        underused capacity for mobilization requirements), for the Oklahoma Quality Jobs Credit (a special
        state incentive for the creation of local jobs), and for the use of specified sources (surcharges and other
        costs added to the cost of materials by the government supply system). For each form number 1
        category; the public offeror submitted a proposed adjustment in its offer, which was subject to
        evaluation and adjustment by the SSEB, the SSAC, and the SSA.
        28The SSAC also included an upward adjustment of $12,755,639 to the Oklahoma City ALC proposal
        because of underpricing on T56 material found after the evaluation of the final proposal revision. This
        was to correct an error and was not actually a form 2 adjustment.
        29
         The body of the report contains a detailed discussion of the calculation of the adjustment.
        30Sincethis adjustment was for private offerors, it applied to the Lockheed portion of the Oklahoma
        City ALC proposal.




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        Form number 2 also provided for a downward adjustment for either a
        public or private offeror that proposed and supported overhead savings
        resulting from the addition of work from the competition.31 Pratt &
        Whitney proposed no overhead savings. The evaluators initially determined
        that a downward adjustment of $210,617,658 to $160,119,093 should be
        applied to the Oklahoma City ALC proposal to represent the savings
        applicable to other workloads at the Oklahoma City ALC facility during the
        15-year performance period. Later, the SSAC decided that the savings
        should be applied to only the first 3 years of performance because of the
        RFP provision governing the evaluation of such savings. Accordingly, the
        SSAC recommended that the overhead savings range be adjusted to
        $41,804,513 through $45,440,612.

        The net result of the form number 2 comparability analysis for the Pratt &
        Whitney proposal was a downward adjustment of $233,923,488. The form
        number 2 downward adjustments to the Oklahoma City ALC proposal,
        including the high and low ranges for overhead savings, were $13,542,977
        (high overhead savings) and $9,906,878 (low overhead savings). The SSA
        agreed with the SSAC form number 1 and number 2 adjustment
        recommendations, including the recommendation relating to the use of the
        3-year period for the calculation of the overhead savings proposed by
        Oklahoma City ALC. In this regard, the SSA chose the low range of
        $41,804,513.32

        The cost adjustments adopted by the SSA resulted in a total alternative cost
        for Pratt & Whitney of $11,325,424,505 and $10,289,144,429 for Oklahoma
        City ALC. No single adjustment accounts for the cost difference at this
        point, and Oklahoma City ALC’s cost is more than $1 billion less than Pratt
        & Whitney’s.



        31The solicitation stated that an offeror's proposed overhead savings for its workloads performed
        outside of the competition would be allowed for the first year if determined to be reasonable, while
        second year savings, if supportable, would also be allowed, but discounted for risk. The solicitation
        explains that proposed savings for 3 years and beyond "may be allowed if clearly appropriate, but in any
        event will be considered under the best value analysis." The overhead savings evaluation provision was
        included in the solicitation under the February 21, 1998, SAF/AQ competition cost procedures.
        32
          While the SSA’s decision document states that the SSAC recommended that the overhead savings be
        considered for the full 15 years, the proposal analysis report approved by the SSAC states that it
        “adjusted the figures to consider only the first three years savings” and proposed a “revised” overhead
        savings of between $41,804,513 and $45,440,612. In any event, the SSA, in the first instance, chose an
        overhead savings figure of $41,804,513 that was based upon the 3-year limit; no matter whose idea it
        was. As discussed later, this figure was increased in the SSA’s best value analysis. A detailed discussion
        of the calculation of the projected overhead savings is contained in the body of the report.




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Determination of Total   To arrive at the total evaluated cost of each proposal, the evaluators took
Evaluated Cost           the total alternative cost and applied “dollarization” adjustments. These
                         adjustments were reviewed by the SSA and used in the final selection
                         decision.

                         The initial aspect of the Oklahoma City ALC proposal that was considered
                         to be suitable for quantification was the moderate risk under the transition
                         capability and resources factor. The risk involved Oklahoma City ALC's
                         proposal to hire 1,251 new workers to perform the F100 workload. The
                         evaluators were concerned that only 60 percent of these workers would be
                         fully trained by the time Oklahoma City ALC was to assume the workload
                         at its facility. To compensate for the potential labor inefficiencies that
                         could result from the need to provide training while meeting production
                         requirements, the evaluators calculated an upward adjustment of the
                         Oklahoma City ALC proposal between $19,974,001 and $126,816,454.33

                         The evaluators were also concerned, under the responsibility transfer
                         milestones factor, about Oklahoma City ALC’s plan to convert
                         61 outsourced repair operations to in-house performance within
                         17.5 months. The evaluators concluded, based upon the findings of an
                         independent review team, that it would likely take the public offeror longer
                         than planned to achieve successful implementation of the repairs. As a
                         result, Oklahoma City ALC was assigned a moderate risk rating in the
                         technical evaluation under the responsibility transfer milestones factor.
                         Since Oklahoma City ALC based its prices on its performance of the
                         repairs, the evaluators calculated an upward cost adjustment range
                         ($26,335,737 to $71,850,386) to represent the risk of incurring the additional
                         cost of contractor repairs during delays in implementing the in-house
                         repair capability.

                         The evaluators proposed a downward “dollarization” credit under the
                         continuing operations plan factor for flow day improvements and
                         warranties and guarantees proposed by both the public and private


                         33
                           As we understand it, the SSEB and the SSAC calculated this range as a composite representing the
                         labor efficiency risks in the Oklahoma City ALC proposal because of its training weakness under the
                         capabilities and resources factor and of concerns about the impact of the training plans on the ability of
                         the public offeror to achieve full operations for the F100 work under the responsibility milestones
                         factor. It appears that the range calculations also included factors representing the projected efficiency
                         of the San Antonio workforce in performing new F100 work under the supervision of Oklahoma City
                         ALC during transition and of the workforce at Oklahoma City ALC during startup. As discussed next,
                         the SSAC proposed a separate upward “dollarization” adjustment under the responsibility milestones
                         factor representing the cost risk of converting contracted repairs to in-house performance.




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        offerors. In the case of Oklahoma City ALC, the SSAC recommended a
        downward adjustment of $10,067,417 based on the public offeror’s proposal
        to reduce the flow days 11 percent from the current baseline for
        accomplishing the repairs. Further, the public offeror proposed warranties
        that exceeded the RFP requirements on the T56 and TF39 work that,
        according to the SSAC, were worth $3,600,000. Thus, the SSAC proposed
        adjusting the public proposal downward by that amount.

        Pratt & Whitney proposed larger flow day reductions totaling up to
        32.1 percent. According to the SSAC, this merited a downward evaluation
        credit of $37,665,886. Pratt & Whitney further proposed to implement its
        “reliability centered maintenance” approach to the work through an
        extensive variety of warranties and guarantees that exceeded the RFP
        requirements and impacted most of the repairs. The benefits of this
        approach were to be accrued through reduced engine removal rates,
        guaranteed engine availability, warranted or guaranteed reliability, and
        reduced intermediate maintenance costs. According to the evaluators, the
        benefits, though significant, were often “heavily” weighted towards the
        later portion of the performance period—10 years and later. This aspect of
        the proposal caused concern that changes over time could reduce the
        future value of the warranties and guarantees. Based upon an analysis of
        the benefits, the SSAC, however, concluded that they could extend over the
        entire 15-year potential performance period and proposed a large
        downward credit between $605,500,000 and $505,700,00034 to represent
        the cumulative estimated value of the Pratt & Whitney approach.

        In addition to the quantification of the technical aspects of the proposals,
        the evaluators proposed adjustments to the Oklahoma City ALC proposal
        to take into account the risk inherent in the nature of the public depot’s
        funding under the working capital fund and the possibility that the
        government would have to shoulder additional costs if Oklahoma City ALC
        could not perform its portion of the work at its proposed rates. The
        evaluators were concerned that Oklahoma City ALC had underestimated
        the cost of the materials needed to perform the F100 work. After analyzing
        the materials proposed under the 50 ELINS (as discussed earlier, these
        items represent about 85 percent of the baseline value of the requirement)


        34
          While the table of proposed “dollarization” adjustments in the SSAC’s report lists $605,500,000 as the
        high end of the range. There is a summary graph in the report representing the evaluated warranty and
        guarantee savings using $608.3 million as the high end. An appendix to the report containing a detailed
        analysis of the savings also used $608.3 million. As discussed later, the SSA used $608.3 million in the
        initial evaluation.




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        they found that the public offeror proposed fewer materials than had been
        used in the past and had included a 5-percent material price reduction
        without a detailed implementation plan.

        Later, the SSAC considered the impact of past cost growth in materials due
        to factors beyond the control of the public offeror. Accordingly, the SSAC
        proposed an upward cost adjustment, based upon the 50 ELIN and past
        cost growth analyses, ranging from $175,752,377 to $110,193,523 to
        represent the risk that Oklahoma City ALC would not be able to perform
        within its material cost estimate.35 Similarly, the evaluators were
        concerned that the public offeror had underestimated the labor costs of
        performing the F100 work. In this regard, the SSAC concluded, based on
        Oklahoma City ALC’s past performance history and on historical cost
        growth beyond the ALC’s control, that an upward adjustment of
        $30,572,635 was justified to represent the risk of potential labor cost
        growth.

        Finally, the SSAC proposed upward adjustments to both the public and
        private proposals to account for the potential decline in the workforce
        efficiency at the closing San Antonio ALC. The adjustments were to
        represent the declining efficiency at San Antonio between the award and
        the offeror’s assumption of the work in process, or WIP.36 The SSAC
        proposed upward adjustments between $21,900,000 and $32,600,000 for
        Oklahoma City ALC and between $27,600,000 and $41,900,000 for Pratt &
        Whitney.

        As a result of these evaluations, the SSAC presented the SSA with a
        recommended total evaluated cost range for each offeror. The
        recommendation consisted of a high range, including the lowest overhead
        savings, if any, combined with the highest upward and lowest downward,
        “dollarization” adjustments; and a low range consisting of the highest
        overhead savings, if any, and the lowest upward and largest downward
        adjustments. The high range for Pratt & Whitney was $10,823,958,619,
        while its low range was $10,709,858,619. The high range for Oklahoma City
        ALC was $10,713,068,863, and the low range was $10,480,816,809. Thus,
        according to the SSAC recommendation, while the Oklahoma City ALC

        35See   the body of the report for a further discussion of the adjustment.
        36Under  both proposals, after the award, the San Antonio workforce would perform the WIP for a
        period until assumed by the new source. The difference in the proposed adjustments is due to the
        different period proposed by each offeror between award and assumption of the work; the range in
        each proposed adjustment is due to varying efficiency assumptions.




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        high and low ranges were below the Pratt & Whitney high range, the private
        offeror’s low range was slightly below the public offeror’s high range.

        The SSA took a two-step approach in the review of the SSAC cost and
        “dollarization” recommendations. The SSA first considered the SSAC
        recommendations directly and later gave further consideration to certain of
        them in the context of a “best value” analysis.

        As mentioned before, the SSA initially adopted the SSAC form number 1
        and number 2 cost adjustments and $41,804,513 in overhead savings for
        other government work performed at the Oklahoma City ALC. The SSA
        chose $37,400,000 (from a range of $19,974,001 to $126,816,454) to
        represent the cost risk to cover potential labor inefficiencies inherent in
        Oklahoma City ALC’s transition plan and $71,850,386 (from a range of
        $26,335,737 to $71,850,386) to represent the risk that the public offeror
        would not be able to perform all of the F100 repair processes on schedule.
        The SSA further agreed with the SSAC’s assessment that Oklahoma City
        ALC offered $10,067,417 worth of flow day improvements and $3,600,000 in
        warranties and guaranties. The SSA agreed with the SSAC that the
        Oklahoma City ALC proposal represented a cost risk in both its material
        and labor cost estimates by making an upward cost adjustment of
        $175,752,377 for material (from a range of $110,193,523 to $175,752,377)
        and $30,572,635 for labor. The SSA also agreed with the low range of the
        upward adjustments ($21,900,000 for the public offeror and $27,600,000 for
        the private offeror) proposed by the SSAC to compensate for likely labor
        inefficiencies in connection with the WIP to be performed by the workforce
        at the closing San Antonio ALC. The SSA agreed with the SSAC that Pratt &
        Whitney offered flow day reductions that would benefit the Air Force and
        adopted a $37,666,886 downward adjustment. Finally, the SSA agreed with
        the SSAC that Pratt & Whitney’s “reliability centered maintenance”
        approach, as implemented by its series of guarantees and warrantees,
        would be a significant benefit to the Air Force. The SSA accordingly
        adopted the SSAC’s high range downward adjustment of $608,300,000 to
        recognize the potential savings.

        At this point in the evaluation, the SSA concluded that the total evaluated
        cost was $10,613,000,000 for Oklahoma City ALC and $10,707,100,000 for




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        Pratt &Whitney. The Oklahoma City ALC proposal maintained a cost
        advantage of $94.1 million.37

        The SSA conducted a further “best value analysis” of three areas that had
        been considered earlier. The SSA first reconsidered the $41,804,513
        representing the savings to other government workloads performed at the
        Oklahoma City ALC that had been credited to the public proposal. The SSA
        noted that the $41.8 million savings was based on a strict reading of the
        RFP provisions as limiting such overhead savings to only 3 years of
        performance. The SSA stated that there were reasonable savings beyond
        the 3-year limit and added a credit based on a 10-year performance period.
        According to the SSA, the savings were to be allowed in full for the first
        5 years and discounted over the second 5 years at 5 percent per year. The
        SSA explained that for the first 5 years, the Air Force flying hour program
        and force structure as well as workload projections are reasonably certain
        under the DOD’s Future Year Defense Plan. Beyond that, according to the
        SSA, projected savings for the next 5 years should be discounted due to
        uncertainties about the workload. After 10 years, the SSA reasoned that
        the uncertainties in the workloads would be such that savings could not be
        reasonably projected. Based upon this reevaluation, the SSA concluded
        that the overhead savings credit should be increased to $138.6 million.

        Similarly, the SSA revisited the $608.3 million credit given to Pratt &
        Whitney due to the potential savings over the 15-year performance period
        associated with the private offeror’s proposed warranties and guarantees.
        The SSA noted that most of the savings would occur in the later
        performance years. The savings would further depend on Pratt & Whitney
        qualifying under the award term provision for additional performance time
        after the basic 7-year period. Therefore, the SSA concluded that
        recognition of savings beyond 10 years “would not be prudent” and reduced
        the savings adjustment for Pratt & Whitney from $608.3 million to
        $249 million.38

        Also, the SSA reconsidered the depreciation adjustments applied to both
        proposals for equipment to be provided to private firms for use in the


        37
         The SSA’s source selection decision document contains cost figures rounded to the nearest million
        dollars. Where it is clear from supporting documents, such as the SSAC report, what the exact figure is;
        we use the exact amount. Where it is not clear, we use the rounded figure from the SSA decision
        document.
        38See the body of the report for a further discussion of the evaluation of the warranties and guarantees
        offered by both competitors.




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        performance of the workloads.39 The SSA concluded that the $2,338,359
        adjustment added to the Pratt & Whitney proposal was appropriate based
        on the small amount of equipment that the firm was to be given. For the
        public offeror, the SSA noted that the depreciation for the F100 equipment
        was in Oklahoma City ALC’s rates and that the $15,707,232 depreciation
        adjustment to the public proposal for government equipment to be
        provided to Lockheed was reasonable. The SSA concluded that
        depreciation was “appropriately considered and each offeror was treated
        equitably.”40

        Finally, the SSA acknowledged Pratt & Whitney’s strength under the small
        business factor, but concluded the strength would not be significant
        enough to overcome Oklahoma City ALC’s cost advantage. A summary of
        the final cost adjustments made by the SSA follows.




        39One  of the requirements for the competition set forth in 10 U.S.C. 2469a is that standards used to
        determine the depreciation of facilities and equipment provide, to the maximum extent practicable,
        identical treatment to public and private offerors. The amounts added to each proposal for
        depreciation were initially made as form number 2 adjustments.
        40
         See the body of the report for a detailed discussion of the calculation of the depreciation.




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                                                                 Oklahoma City ALC       Pratt & Whitney
                   Total Customer Cost                              $10,164,013,176      $11,559,347,993
                   Cost Adjustments
                    Form 1 Adjustments                                  135,038,131                    0
                    Form 2 Adjustments                                 (106,669,239)       (233,923,488)
                   Total “Dollarized” Adjustments                       323,843,490        (259,082,225)
                   Total Evaluated Cost                             $10,516,225,557      $11,066,342,080




Award              Based on the evaluation results, the SSA concluded that although Pratt &
                   Whitney submitted a “slightly better technical proposal,” the “dollarization”
                   adjustments “effectively normalized” the differences between them. The
                   SSA noted that after “dollarization” of the risks and projected savings, a
                   significant difference remained between the projected cost of the
                   Oklahoma City ALC proposal and that of Pratt & Whitney. Accordingly, the
                   SSA selected Oklahoma City ALC as providing the best value to the Air
                   Force because, in the SSA’s view, the public offeror can capably meet the
                   needs of the Air Force at a “far greater level of affordability.”



GAO Analysis       As discussed previously, several statutes govern the solicitation and award
                   process for public-private competitions for the depot workloads of the
                   closing San Antonio and Sacramento ALCs. In particular, 10 U.S.C. 2469a
                   sets forth the elements that must be considered in selecting the public or
                   private source to perform the workloads. Further, because the Air Force
                   used the competitive acquisition system, the standards in chapter 137 of
                   title 10 of the United States Code and the FAR apply to the extent they are
                   consistent with 10 U.S.C. 2469a and the other applicable provisions relating
                   to the outsourcing of depot workloads and to conversions of DOD
                   functions to private-sector performance. See Newport News Shipbuilding
                   and Dry Dock Co., cited above.

                   After reviewing the evaluation and selection records and speaking to
                   relevant Air Force officials and to the public offeror, we found no basis to
                   conclude that the procedures used in selecting the successful offeror
                   deviated in any material respect from the section 2469a requirements or




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                       other applicable laws or relevant provisions of the FAR. The Air Force
                       issued a competitive solicitation in accordance with FAR parts 12 and 15,
                       which provided for the participation of a public sector depot. We found no
                       basis to conclude that the selection did not provide for a substantially equal
                       opportunity for public and private offerors to compete without regard to
                       performance location or that appropriate consideration was not given to
                       noncost factors in the selection. Overall, the evaluation process was
                       reasonable, fair, and the selection consistent with the evaluation scheme in
                       the solicitation, the Depot Competition Procedures, and the CCH. While
                       not affecting the legal sufficiency of the selection, we nevertheless
                       identified several issues related to the estimates used for the cost
                       evaluation. These issues are discussed in the body of the report.


Performance Location   Subsection (g) of 10 U.S.C. 2469a provides that our report on the
                       competitive procedures is to include our view as to whether the procedures
                       “provided substantially equal opportunity for public and private offerors to
                       compete for the contract without regard to the location at which the
                       workload is to be performed.” In addition, 10 U.S.C. 2469a(d), which lists
                       the requirements for the selection process, provides that a public or private
                       competitor must be permitted to perform at the location of its choosing and
                       a competitor is not to be given preferential treatment for, or be limited to,
                       performing the workload in place or at any other single location.

                       As stated in our prior review of the solicitation for the San Antonio
                       workloads, we found no provisions in the solicitation that designated a
                       particular location at which performance was required or preferred or that
                       evidenced a bias toward any particular performance location.41 Similarly,
                       in our review of the selection process, we found nothing to indicate that a
                       particular performance location was required or that there was a bias
                       toward a particular location in the evaluation of the proposals or the
                       selection of Oklahoma City ALC.




                       41
                         Public-Private Competitions: Review of San Antonio Air Force Depot Solicitation, cited above. In this
                       review, we also concluded that the solicitation's workload combination did not favor an offeror
                       proposing to perform at the San Antonio facility.




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                           In the selection, the SSA recognized under the transition area that
                           Oklahoma City ALC would have to move the F100 workload from the
                           closing San Antonio facilities to those at Oklahoma City. While the SSA
                           was not concerned about the public offeror’s ability to move the workload
                           to its facilities, the SSA did assign Oklahoma City ALC a moderate risk
                           because of its plan to hire and train 1,251 new workers; only 240 of which
                           would be experienced F100 workers from the closing San Antonio ALC. On
                           the other hand, Pratt & Whitney, which planned to perform most of the
                           work at the closing San Antonio ALC, using for the most part the workers
                           currently performing the workloads, was assigned low risk ratings under
                           all of the transition factors.

                           As we understand the 10 U.S.C. 2469a provisions concerning performance
                           location, they are to prevent the Air Force from creating an advantage for a
                           particular location for reasons that are not reasonably related to
                           performance or cost.42 We believe that the SSA’s concerns in the
                           evaluation, which centered on Oklahoma City ALC’s likely inability to
                           attract more than more than 240 experienced San Antonio workers to
                           relocate to Oklahoma City, were based upon legitimate performance
                           considerations related to Oklahoma City ALC's transition plan and did not
                           reflect bias towards performance at San Antonio.


Consideration of Noncost   In accordance with 10 U.S.C. 2469a(g), our review of the selection process
Factors                    is to include our view as to whether “appropriate consideration was given
                           to factors other than cost in the selection of the source for performance of
                           the workload.” We found no basis to conclude that the Air Force did not




                           42The statement of managers accompanying the 1998 Authorization Act provides that the Air Force
                           "would be expected to consider real differences between bidders in cost or capability to perform the
                           work based on factors that would include the proposed location or locations of the workloads." (Conf.
                           Rept. No.105-340 on H.R. 1119, at 717 (1997)).




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        give “appropriate consideration to noncost factors in the selection
        process.”43

        As discussed in our review of the San Antonio solicitation,44 the selection
        was to be based upon “the best value to the Government.” This selection
        scheme integrated a relative assessment of such noncost factors as
        transition, repair operations, and risk along with an extensive evaluation of
        the proposed costs. Under this evaluation method, the entity selected might
        or might not be the competitor whose proposal was determined to
        represent the lowest total evaluated cost.

        The selection of Oklahoma City ALC was based on the SSA’s assessment
        that the private offeror's “slightly better technical proposal” (a noncost
        consideration) was normalized in the “dollarization” of the respective
        strengths and weaknesses in each proposal. In the SSA’s view, Pratt &
        Whitney’s technical advantage was simply not enough to overcome
        Oklahoma City ALC’s lower costs. The evaluation and selection record
        shows an intensive assessment of the noncost elements of each proposal.
        For example, the SSA considered Pratt & Whitney’s “reliability centered
        maintenance” approach combined with its warranties and guaranties to be
        a benefit. The SSA also was impressed with the private offeror’s plan to use
        a single logistics company to handle material for all of the workloads. On
        the other hand, the SSA concluded that Oklahoma City ALC’s plan to
        perform in-house a number of repair processes currently contracted out
        was risky. The record shows that many of these aspects of the proposals,
        as well as others, were reflected as “dollarization” credits or penalties in
        the evaluation.




        43
          We consider noncost factors in this competition to include all of the elements that were evaluated
        under the transition and repair operation factors as well as such more general considerations as past
        performance. Cost factors include all of the elements under the solicitation’s cost criterion. The Air
        Force “dollarized,” or assigned an estimated dollar value to the benefit or detriment believed to be
        inherent in particular aspects of the offerors' technical or management approaches under the transition
        and repair operations factors. As we understand the provision in 10 U.S.C. 2469a(g) regarding the
        evaluation of noncost factors, it was to ensure that the Air Force placed the proper emphasis on
        matters such as an offeror’s management approach to the transition of the workloads and its technical
        capability to perform. We do not think the “dollarization” of the some of the results under these factors
        changes the nature of this portion of the evaluation, which was to measure technical and management
        aspects of a proposal, rather than cost. On the other hand, we believe the “dollarization” of the risk
        determined by the SSA to be inherent in Oklahoma City ALC’s labor rates and material cost in its
        proposal was, in fact, the evaluation of a cost factor.
        44
         Public-Private Competitions: Review of San Antonio Air Force Depot Solicitation, cited above.




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                           While the competitor selected did represent the lowest evaluated cost to
                           the government, as the examples show, the SSA and the other evaluators
                           considered the relative merits of the technical and management
                           approaches of the offerors. Thus, the record provides no basis for us to
                           conclude that factors other than cost were not given appropriate
                           consideration as required by 10 U.S.C. 2469a.


Compliance With Other      In addition to addressing the section 2469a provisions, including
Applicable Provisions of   performance location and consideration given to factors other than cost,
                           we reviewed the San Antonio competition to determine whether it
10 U.S.C. 2469a
                           otherwise complied with the requirements of section 2469a. As noted
                           previously, 10 U.S.C. 2469a sets forth six requirements that must be
                           satisfied in the San Antonio solicitation and selection process. 45

                           In reviewing the evaluation and selection records in the context of the
                           10 U.S.C. 2469a requirements, we found that the six requirements were
                           addressed during the evaluation and selection process. However, we found
                           errors in the evaluation conducted in relation to two of the six
                           requirements. The first concerned the depreciation calculations for
                           government-furnished equipment.46 The second concerned the evaluation
                           of the fair market value of the government-furnished equipment provided
                           to private entities.47 The errors, which are discussed in the body of the
                           report, did not affect the selection. Thus, we have no basis to conclude that
                           the selection of Oklahoma City ALC deviated in any material from the
                           requirements of 10 U.S.C. 2469a.


Compliance With Other      As stated earlier, the provisions of 10 U.S.C. 2461 requiring a notice to
Applicable Provisions of   Congress of the savings to be achieved from a conversion of a DOD
                           function to private-sector performance, and the requirement in 10 U.S.C.
Law
                           2462 that DOD is to contract with the private sector if a private firm can
                           provide the supply or service needed at a lower cost, apply generally to


                           45As discussed earlier, in our prior review of the solicitation in Public-Private Competitions: Review of
                           San Antonio Air Force Depot Solicitation, cited above, we concluded that all of the 10 U.S.C. 2469a
                           requirements were specifically acknowledged in the solicitation.
                           46Section
                                  2469a requires that the Air Force use cost standards for depreciation that provide, to the
                           maximum extent practicable, identical treatment to public and private offerors.
                           47Section
                                   2469a requires that the Air Force take into account the fair market value of any land, plant or
                           equipment from a military installation that is to be used by a private offeror.




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                conversions of DOD functions such as these workloads. Whether the Air
                Force must comply with either statute in a particular competition depends
                upon whether a public or private offeror is selected. In this case, the Air
                Force selected the proposal of the public-sector offeror, Oklahoma City
                ALC, which represented the lowest total evaluated cost for the
                performance of the workloads. While the public offeror will use private
                firms to perform the T56 and TF39 workloads and other portions of the
                workload, Oklahoma City ALC submitted the proposal in its name and
                retains the overall responsibility for the performance of all workloads.
                Since the public offeror representing the lowest total evaluated cost was
                selected, the award was consistent with 10 U.S.C. 2462 and did not trigger
                the notice requirements of 10 U.S.C. 2461.48



Other Matters   We conclude that the evaluation and selection process did not deviate in
                any material respect from the provisions of 10 U.S.C. 2469a and other
                applicable provisions of law. While the overall selection was reasonable,
                we identified several issues related to the estimates used in the cost
                evaluation. These issues are discussed in the body of the report.




                48Similarly, we think that the requirement tocertify the government estimate in section 8014 of the 1998
                Appropriations Act is not triggered, as the award is one to the public-sector at the lowest evaluated
                cost. Further, we do not think that the evaluation and selection were inconsistent with section 8039 of
                the act regarding the use of “comparable estimates” for public and private offers.




                Page 51                                    GAO/NSIAD-99-155 Public-Private Depot Competitions
Appendix IV

Major Contributors to This Report                                                                     ApV
                                                                                                        Ienxdi




National Security and   Barry Holman, Associate Director
                        Julia Denman, Assistant Director
International Affairs
Division, Washington,
D.C.

Office of the General   John Brosnan, Assistant General Counsel

Counsel

Dallas Field Office     Larry Junek, Evaluator-in-Charge
                        John Strong, Evaluator
                        Pam Valentine, Evaluator




                        Page 52                      GAO/NSIAD-99-155 Public-Private Depot Competitions
Related GAO Products


             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. 30, 1999).

             Public-Private Competitions: Processes Used for Sacramento Depot
             Maintenance Award Appear Reasonable (GAO/NSIAD-99-42, Nov. 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).

             Public-Private Competitions: Review of San Antonio Depot Solicitation
             (GAO/OGC-98-49, May 14, 1998).

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

             Public-Private Competitions: Review of Sacramento Air Force Depot
             Solicitation (GAO/OGC-98-48, May 4, 1998).

             Navy Ship Maintenance: Temporary Duty Assignments of Temporarily
             Excess Shipyard Personnel Are Reasonable (GAO/NSIAD-98-93, Apr. 21,
             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).

             Depot Maintenance: Lessons Learned From Transferring Alameda Naval
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             Page 53                      GAO/NSIAD-99-155 Public-Private Depot Competitions
Related GAO Products




Public-Private Competitions: Access to Records Is Inhibiting Work on
Congressional Mandates (GAO/T-NSIAD-98-111, Mar. 4, 1998).

Force Structure: Army’s Efforts to Improve Efficiency of Institutional
Forces Have Produced Few Results (GAO/NSIAD-98-65, Feb. 26, 1998).

Public-Private Competitions: Access to Records Is Inhibiting Work on
Congressional Mandates (GAO/T-NSIAD-98-101, Feb. 24, 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).

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).



Page 54                        GAO/NSIAD-99-155 Public-Private Depot Competitions
Related GAO Products




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).

Air Force Depot Maintenance: Privatization-in-Place Plans Are Costly
While Excess Capacity Exists (GAO/NSIAD-97-13, Dec. 31, 1996).

Army Depot Maintenance: Privatization Without Further Downsizing
Increases Costly Excess Capacity (GAO/NSIAD-96-201, Sept. 18, 1996).

Navy Depot Maintenance: Cost and Savings Issues Related to Privatizing-in-
Place at the Louisville, Kentucky, Depot (GAO/NSIAD-96-202, Sept. 18,
1996).

Defense Depot Maintenance: Commission on Roles and Mission’s
Privatization Assumptions Are Questionable (GAO/NSIAD-96-161, July 15,
1996).

Defense Depot Maintenance: DOD’s Policy Report Leaves Future Role of
Depot System Uncertain (GAO/NSIAD-96-165, May 21, 1996).

Defense Depot Maintenance: More Comprehensive and Consistent
Workload Data Needed for Decisionmakers (GAO/NSIAD-96-166, May 21,
1996).

Defense Depot Maintenance: Privatization and the Debate Over the
Public-Private Mix and (GAO/T-NSIAD-96-148, Apr. 17, 1996) and
(GAO/T-NSIAD-96-146, Apr. 16, 1996 ).

Military Bases: Closure and Realignment Savings Are Significant, but Not
Easily Quantified (GAO/NSIAD-96-67, Apr. 8, 1996).

Depot Maintenance: Opportunities to Privatize Repair of Military Engines
(GAO/NSIAD-96-33, Mar. 5, 1996).

Closing Maintenance Depots: Savings, Workload, and Redistribution Issues
(GAO/NSIAD-96-29, Mar. 4, 1996).

Navy Maintenance: Assessment of the Public-Private Competition Program
for Aviation Maintenance (GAO/NSIAD-96-30, Jan. 22, 1996).




Page 55                       GAO/NSIAD-99-155 Public-Private Depot Competitions
                   Related GAO Products




                   Depot Maintenance: The Navy's Decision to Stop F/A-18 Repairs at Ogden
                   Air Logistics Center (GAO/NSIAD-96-31, Dec. 15, 1995).

                   Military Bases: Case Studies on Selected Bases Closed in 1988 and 1991
                   (GAO/NSIAD-95-139, Aug. 15, 1995).

                   Military Base Closures: Analysis of DOD’s Process and Recommendations
                   for 1995 (GAO/T-NSIAD-95-132, Apr. 17, 1995).

                   Military Bases: Analysis of DOD's 1995 Process and Recommendations for
                   Closure and Realignment (GAO/NSIAD-95-133, Apr. 14, 1995).

                   Aerospace Guidance and Metrology Center: Cost Growth and Other
                   Factors Affect Closure and Privatization (GAO/NSIAD-95-60, Dec. 9, 1994).

                   Navy Maintenance: Assessment of the Public and Private Shipyard
                   Competition Program (GAO/NSIAD-94-184, May 25, 1994).

                   Depot Maintenance: Issues in Allocating Workload Between the Public and
                   Private Sectors (GAO/T-NSIAD-94-161, Apr. 12, 1994).

                   Depot Maintenance (GAO/NSIAD-93-292R, Sept. 30, 1993).

                   Depot Maintenance: Issues in Management and Restructuring to Support a
                   Downsized Military (GAO/T-NSIAD-93-13, May 6, 1993).

                   Air Logistics Center Indicators (GAO/NSIAD-93-146R, Feb. 25, 1993).

                   Defense Force Management: Challenges Facing DOD as It Continues to
                   Downsize Its Civilian Work Force (GAO/NSIAD-93-123, Feb. 12, 1993).




(709420)   Leter   Page 56                       GAO/NSIAD-99-155 Public-Private Depot Competitions
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