oversight

DOD Competitive Sourcing: Air Force Reserve Command A-76 Competitions

Published by the Government Accountability Office on 1999-09-13.

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

B-283503

September 13,1999

The Honorable Bruce F. Vent0
House of Representatives

Subject: DOD Comnetitive Sourcing: Air Force Reserve Command A-76 Comnetitions

Dear Mr. Vento:

The Air Force Reserve Command is conducting public/private competitions for base
operating support functions at its various bases under the Office of Management and Budget
Circular A-76. Because of concerns about the process and its impact on a reserve facility in
your state, you requested that we review the Command’s completed competitions for
contracts recently won by the private sector for functions at Dobbins Air Reserve Base,
Georgia, and Niagara Falls Air Reserve Station, New York.’ This report summarizes the
briefing we provided to your office on August 4,1999. Specifically, we evaluated (1) the
Commands process for conducting the competitions, including the development of the
performance work statements, and (2) the estimates of expected savings and cost to conduct
the studies, and the likelihood that base operating efficiency can be expected to improve.
Also, because some functions of the Niagara Falls Air Reserve Station base operations were
previously contracted out, we determined the extent of and the reasons for modifications to
the previous contract.

RESULTS IN BRIEF

According to the information we reviewed, the A-76 competitions at Dobbins and Niagara
Falls were conducted following the Office of Management and Budget Circular A-76
guidelines. The Air Force Reserve Command developed the performance work statements
and determined the in-house most efficient organization at the headquarters level to ensure a
comparable level of service among the bases under its command. According to various
installation officials at both Niagara Falls and Dobbins, the centrally developed performance
work statements adequately captured the work that needed to be done when they were
written. However, because the Niagara Falls and Dobbins contracts have been in place since
April 1, 1999, and June 1,1999, respectively, it is too soon to assess the completeness of the
performance work statements.

Data available from the Reserve Command indicate that savings over 5 years from these
recent competitions are estimated to be approximately $8 million for Dobbins and $1.8


’ Under A-76, agencies conduct public/private competitions to determine whether the public or private
sector will perform selected commercial activities and functions. In conducting competitions for in-
house functions, agencies review or@nizational structures, staffing, and operatin:: procedures to
determine the most efficient or@nization and most cost-effective way of performing the functions.

                                                 GAO/N&AD 99-235R DOD Competitive Sourcing
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million for Niagara Falls.’ However, these projections do not take into account the cost of
completing the studies and transition costs. Also, initial A-76 projected savings may not
necessarily represent long-term savings. The contracts have not been in place long enough to
assess the likelihood of changes in contract requirements that could affect costs and savings,
nor have they been in place long enough to assess improved efficiencies in base operations.

Most of the modifications to the prior contract at Niagara Falls were due to technical changes
or changes in labor wage rates that are normal and expected. According to officials at
Niagara Falls, the prior contract’s performance work statement adequately captured the work
that needed to be done at that time.

BACKGROUND

The Air Force Reserve Command (AFRC) conducted A-76 competitions for base operating
support functions at nine of its bases in the 1980s. As a result of these competitions, the
functions remained in-house at all but one base-Niagara Falls Air Reserve Station. The
original contract award was for 3 years. At the end of the contract period, the functions were
offered for full and open competition among private sector companies.

In November 1995, AFRC began an aggressive competitive sourcing program because of the
need to reexamine its business processes and achieve efficiencies. At 13 Air Force reserve
bases, command officials identified base operating support functions (involving 1,244
authorized positions) that could be studied under the Office of Management and Budget
(OMB) Circular A-76 for possible contract performance. Many of the same functions studied
at bases in the 1980s were identified for review under this effort again. AFRC officials
determined that all the private sector competitions undertaken as part of these studies would
be small business set-asides. When we began our review, A-76 studies were completed only
at Dobbins Air Reserve Base and Niagara Falls Air Reserve Station.

The A-76 study at Dobbins Air Reserve Base began on June 13, 1996. The study included
eight base operating support functions-base supply, motor vehicle management, traffic
management, communications and information management, real property maintenance,
transient aircraft services, au-field management, and meteorological services. Government
employees performed all functions except meteorological services and the communications
portion of communications and information management, which were performed under
separate contracts.

The study at Niagara Falls Air Reserve Station also began on June 13,1996. The study
included the same support functions as those at Dobbins, except for transient aircraft
services. As a result of the previous OMB Circular A-76 competition, all functions except the
communications portion of communications and information management, airfield
management, and meteorological services had been contracted out. Command officials
decided to. develop an in-house most efficient organization (MEO) for all functions, including
those that were previously contracted out.


’ The savings for Dobbins are based on the difference between the winning bid and baseline costs. The
savings for Niagara Falls are based on the difference between the winning bid and the cost to return
performance of the functions to the government.

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After the A-76 competitions at Dobbins and Niagara Falls had begun, AFRC removed the
communication and information management function from the remaining 11 competitions.
Command officials decided a Command-wide A-76 competition would be more beneficial due
to the rapidly changing nature of communication and information technology. AFRC
announced an A-76 competition for communications and information management in March
1999.

AFRC TOOK A CENTRALIZED
APPROACH TO A-76 COMPETITIONS

Based on the information we reviewed concerning the two completed A-76 competitions at
Dobbins and Niagara Falls and interviews with officials associated with the competitions, the
competitions were conducted following OMB Circular A-76 guidelines. AFRC’s headquarters
centrally managed the development of both the performance work statements and the MEOs.
This was a change from the decentralized management approach used by AFRC in the 198Os,
when each installation undertook its own A-76 study. One of the Command’s purposes in
centralizing the development of the performance work statements and MEOs at the
headquarters was to standardize the level of services across installations. No employees
appealed the outsourcing decisions under the administrative appeals process. Also, officials
at both Dobbins and Niagara Falls told us that thus far the performance work statements had
adequately captured the work that needed to be done.

Performance Work Statement Develoument

AFRC centralized the development of the performance work statement at its headquarters to
ensure consistency and a standard level of service across all the Command’s installations and
to eliminate major differences in base support functions. Command officials developed a
generic performance work statement template for each base operating support functional
area to be used in all base operating support A-76 competitions. The template was based on
the contract for the contracted base operating support operations at Niagara Falls Air
Reserve Station and related service standards. We were told that functional representatives
from each of the bases met to discuss what should be included in the template. The
functions not previously contracted out at Niagara Falls but included in the recent
competition were added to this generic template. AFRC officials developed a base-specific
performance work statement by modifying the template to meet each base’s unique needs.
Because of the Command’s desire to standardize base operating support, not all
modifications requested by base personnel were made to the final performance work
statement. However, to ensure that the performance work statement was sufficient to meet
each base’s minimum acceptable level of service, the wing commander’s approval was
required.

AFRC instituted a standard level of service so that all bases in the Command would operate
with similar service levels and processes. For example, according to AFRC officials, the
contract template specified that grass is to be maintained between 2 and 4 inches. Another
example is specification of breakdown maintenance versus periodic maintenance on certain
noncritical items such as bathroom fans. Command officials determined it would be cheaper
to replace the fans when they broke rather than provide periodic maintenance. The
Command also looked at what education and experience levels were required to perform
base operation support tasks in the contract. A mandatory level of education that was too

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high could result in an unnecessary inflation of the cost of doing business and might mean
that current employees could not meet the requirements of their jobs, according to AFRC
officials.

Command officials, under guidance from Air Force officials, determined that the Davis-Bacon
Act3 did not apply to the base operating support A-76 competitions because the requirements
did not include substantial and segregable construction work.

Officials at both Dobbins and Niagara Falls told us that the performance work statements
adequately captured the work that needed to be done at their locations when they were
written. However, in our March 1997 report on competitive sour~ing,~ we noted that
difficulties in preparing performance work statements had often required contract
modifications by the Department of Defense (DOD). According to the contracting officer
both of these contracts have been in operation for only a short period of time, and AFRC has
made no major modifications. Therefore, at this early date, we cannot evaluate whether the
performance work statements adequately captured the work that needed to be done.

AFRC officials acknowledged the Niagara Falls solicitation inadvertently omitted the number
of hours-7,200-required      for snowplowing and grounds maintenance work. This led the
private sector offeror to calculate fewer hours for the work than the government calculated.
When this oversight was discovered, AFRC investigated the impact of adding the 7,200 hours
to the contractor’s cost. It found that the private sector’s offer would still win the cost
comparison.

Most Efficient Organization Develonment

When developing the MEO, a team comprised of management representatives from the AFRC
headquarters level visited each base and sought input from all base officials. 10 U.S.C. 2467
requires that employee representatives be consulted during the preparation and development
of the MEO. We were told that the ME0 team received input from management and
functional officials and union representatives and that the final ME0 represented a
management decision based on relevant input.

Under the centralized process, according to an AFRC official, the ME0 team calculates a
staffing baseline using the Command’s manpower standards and then adjusts the baseline
based on discussions with the functional area chiefs at each installation and union
representatives. The centralized ME0 team adjusts the staffing levels in the ME0 if base
officials can support changes with objective evidence. We were told adjustments have been
made to reflect changes in technology, multiskilling of positions, reorganization of functions,
and use of seasonal employees. According to AFRC officials, the wing commander at each
installation and key members of the management staff review the final MEO, which requires
the wing commander’s approval. The commander must attest that the work of the base can
be done w@h the workforce estimate in the ME0 and that the base will not be adversely

” The Davis-Bacon Act (40 U.S.C. 276a) states that federal construction contracts over $2,000must
provide that laborers or mechanics be paid the prevailing labor rates as determined by the Secretary of
Labor.
1Base ODerations: Challenges Confrontix DOD as It Renews EmDhasis on Outsourcing (GAO/NSIAD-
97-86, Mar. 11, 1997).

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B-283503



affected. The wing commander at Niagara FalIs told us that he and his management team
reviewed and approved the recent ME0 with no changes.

The functional area chiefs at Niagara Falls believed the centralized ME0 team did a good job
of developing the ME0 for Niagara Falls. However, some of the functional area chiefs at
Dobbins said that they were not given enough time for input into the ME0 development
process.

A-76 COMPETITIONS CONTEMPLATE SAVINGS,
BUT IT IS TOO SOON TO FULLY ASSESS EFFICIENCY IMPACTS

AFRC data indicate that savings over 5 years from these recent competitions are estimated to
be approximately $8 million for Dobbins and $1.8 million for Niagara Falls. However, any
changes made to work requirements after award of the contracts could affect these savings
estimates. In addition, the Air Force does not fully identify the cost to conduct A-76
competitions. Because these contractors have only been performing work for a short time, it
is too soon to fully assess impacts on the efficiency of base operations.

AFRC’s projected savings do not necessarily represent long-term savings. The Command’s
projected savings do not include the cost to complete the studies or transition costs. In
addition, as we have previously reported, savings estimates can change over time because of
changes in scope of work, mandated wage increases, or poorly written performance work
statements.5 Further, DOD and the services have not traditionally tracked cost changes that
occurred after their competitions and revised projected savings. DOD officials, however,
have recognized these limitations and have initiatives underway to improve its information
systems to more fuIly capture cost and savings data from A-76 competitions. G

The Air Force does not completely track and account for the various costs involved in
conducting and implementing an A-76 study. Thus, the Air Force’s savings estimates did not
include the estimated cost of developing the m-house MEO. As our February 1999 report
noted, study costs as well as employee separation costs can have the effect of reducing
projected savings in the short-term.

The contractors at both Niagara Falls and Dobbins have been in charge of base operations for
a relatively short period of time. The contractor at Niagara Falls took over operations on
April 1, 1999, while the contractor at Dobbins took over operations on June 1,1999. This
short period of time makes it difficult to provide a meaningful assessment of any improved
efficiencies in base operating support.




’ DOD Competitive Sourcin~~ Questions About Goals. Pace, and Risks of Key Reform Initiative
(GAO/NSIAD-9946, Feb. 22, 1999)and DOD Comnetitive Sourcing: Results of Recent Competitions
(GAO/NSIAD-99-44, Feb. 23,1999).
’ At the same time, DOD has acknowledged, and our financial statement audits have confirmed, that it
cannot adequately measure the cost of its operations and programs. Lacking reliable cost data, DOD
will continue to have difficulty determining performance against projected savings estimates.

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B-283503



MODIFICATIONS TO THE PREVIOUS CONTRACT
AT NIAGARA FALLS AIR RESERVE STATION

Due to the award of two successive contracts for base operations at Niagara Falls and the
many modifications that have been made to the second contract, it is difficult to establish a
meaningful baseline against which to measure savings. For example, the prior contract at
Niagara Falls was modified 73 times.’ Our review indicated that the modifications were not
due to a poorly written performance work statement. Officials at Niagara Falls stated that
the prior performance work statement adequately captured the work that needed to be done
at the time. Most of the contract modifications were either technical changes or funding
changes, such as increased or changed work requirements or labor wage rate increases.

AGENCY COMMENTS AND OUR EVALUATION

We requested comments on a draft of this report from the Secretary of Defense or his
designee. On August 30,1999, officials in DOD’s Office of the Deputy Under Secretary for
Installations and the Air Force’s Commercial Activities Program Office orally concurred with
our report findings.

SCOPE AND METHODOLOGY

To determine the process AFRC followed in conducting the A-76 competitions and assess
whether the performance work statements adequately captured the work to be done, we met
with Command and base officials at the Air Force Reserve Command, Warner-Robins,
Georgia; Dobbins Air Reserve Base, Marietta, Georgia; and Niagara Falls Air Reserve Station,
Niagara Falls, New York We spoke with a union representative at Niagara Falls and
attempted to meet with union representatives at Robins and Dobbins. We also reviewed the
performance work statements and other documents associated with the competitions. To
determine the cost of the studies, expected savings, and improved efficiencies from the A-76
competitions, we interviewed officials and obtained data from officials at the Department of
the Air Force, Washington, D.C.; Randolph Air Force Base, Texas; and the Air Force Reserve
Command at Robins Air Force Base, Georgia. We also relied on our prior work in this area.
To determine the extent to which the previous contract at Niagara Falls Air Reserve Station
was modified and why, we interviewed officials at the Air Force Reserve Command and
Niagara Falls Air Reserve Station. We also reviewed all of the contract modifications.

We performed our work from April through August 1999 in accordance with generally
accepted government auditing standards.



We are sending copies of this report to Senator James M. Inhofe, Chairman, and Senator
Charles Robb, Ranking Minority Member, Subcommittee on Readiness and Management
Support, Senate Committee on Armed Services, and to Representative Herbert Bateman,
Chairman, and Representative Soloman Ortiz, Ranking Minority Member, Subcommittee on
Military Readiness, House Committee on Armed Services. We are also sending this report to

’ Our review of the contract modifications focused on the contract from the second competition at
Niagara Falls.

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 the Honorable William S. Cohen, Secretary of Defense; the Honorable F. W. Peters, Secretary
 of the Air Force; and the Honorable Jacob Lew, Director, Office of Management and Budget.
 Copies will also be available to others upon request.

 If you or your staff have any questions concerning this report, please contact Barry Holman
 or me on (202) 512-8412. Key contributors to this assignment were Marilyn Wasleski, Neal
 Gottlieb, and David Rowan.

 Sincerely yours,


&Q,~f~
 David R. Warren, Director
 Defense Management Issues




 (709411)



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