GAO

United States General Accounting Office

Report to Congressional Committees

August 2000 DEPOT 

MAINTENANCE

Action Needed to 

Avoid Exceeding 

Ceiling on Contract 

Workloads

GAO/NSIAD-00-193

Page 1 GAO/NSIAD-00-193 Depot Maintenance

Contents

Letter 3

Appendixes Appendix I: Problem Areas in Workload Reports 28

Appendix II: GAO Contacts and Staff Acknowledgements 37

Related GAO Products 38

Tables Table 1: Reported Depot Maintenance Workload Allocations 5

Table 2: Amount of Workload That Could Have Been Shifted

From Public to Private Sector in Fiscal Year 1999 Without 

Exceeding 50-percent Ceiling 9

Figures Figure 1: Percentage of Depot Maintenance Work Performed 

by the Private Sector 8

Abbreviations

DOD Department of Defense

OSD Office of the Secretary of Defense
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Page 3 GAO/NSIAD-00-193 Depot Maintenance

United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-285518 Letr

August 24, 2000

Congressional Committees

Section 2466 of title 10, United States Code, stipulates that not more than 

50 percent of the funds made available in a fiscal year to a military 

department or defense agency for depot-level maintenance and repair may 

be used for work performed by private sector contractors. As amended by 

the National Defense Authorization Act for Fiscal Year 2000, the statute 

requires the Department of Defense to submit two reports to the Congress 

annually on public and private sector depot maintenance and repair 

workloads. The first is to report on the percentage of funds associated with 

such workloads during the preceding 2 fiscal years. The second is to report 

projected expenditures for the current and for 4 succeeding fiscal years. 

As required by 10 U.S.C. 2466 (e)(3), we reviewed the Department’s reports, 

which were submitted in February and April 2000, respectively, on the 

percentage of depot maintenance funding. Accordingly, this report

(1) provides information on the Department’s compliance with the 50-50 

requirement for fiscal years 1998 and 1999, (2) sets forth our views on the 

Department’s progress in improving the quality of the workload data for the 

previous fiscal years, and (3) assesses the reasonableness of the 

Department’s estimates of expenditures for fiscal years 2000 through 2004.

Results in Brief Although the Defense Department’s report covering fiscal year 1998 and 

1999 workloads shows that the Air Force, the Army, and the Navy1

 were in 

compliance with the 50-percent ceiling set by section 2466, because of 

continuing errors and weaknesses in the Department’s data, we could not 

determine whether the military services were in compliance with the 

50-percent ceiling for the percentage of depot maintenance performed by 

the private sector in fiscal year 1999. 

The quality of the data reported for fiscal year 1999 was substantially 

improved from prior years. Improvements made in the data and reporting 

1

Since data is reported by individual military department, the Marine Corps data is included 

with that of the Navy.
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process reduced the amount of errors found or led to corrections of errors 

before data were reported to the Congress. We attribute these 

improvements largely to better guidance provided by the Office of the 

Secretary of Defense, the reporting of more comprehensive data, improved 

audit coverage by the military services, and the correction of errors by the 

services before the data were reported to the Congress. However, we 

continue to find errors and inconsistencies in the reporting of depot-level 

workload and limitations in how well the services documented their 

analyses supporting their workload reports.

We do not believe that the Department’s projections of depot maintenance 

workloads for fiscal years 2000 through 2004 are a reasonably accurate 

projection of future depot maintenance expenditures. Future year 

expenditure projections, at best, provide a rough estimate of future 

workload funding split between the public and private sectors since the 

projections are constructed using budgetary estimates that by their nature, 

will change over time. The Department’s future year projections do not 

show the reporting services exceeding the 50-percent ceiling on contract 

work in fiscal year 2000 and beyond. However, the reasonableness of the 

estimates is doubtful because of uncertainties that exist regarding the 

extent to which the services have fully identified private sector depot 

maintenance workloads. Further, our analysis of available data indicates 

that the Air Force (1) may exceed the ceiling by about $200 million this 

fiscal year and (2) faces significant management challenges to remain 

under the ceiling in future years. While the Army does not face as severe a 

problem as the Air Force, available data suggest it too could be confronted 

with management challenges if it is to stay within the 50-percent ceiling in 

future years.

This report contains recommendations to the Secretary of Defense to 

direct actions to improve the accuracy and completeness of departmental 

reporting and management actions to help meet the requirements of 

section 2466 that limit the amount of depot maintenance work that can be 

performed by the private sector to not more than 50 percent of the depot 

maintenance program. DOD officials agreed with our findings and 

recommendations, and offered additional comments about the actions 

undertaken or planned to address the issues discussed.
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Background Section 2466 of title 10 of the United States Code governs the allocation of 

depot maintenance work between the public and private sectors. It 

prohibits each military department and defense agency from using more 

than 50 percent of the total funds that are provided annually for depot-level 

maintenance and repair on work done by contractors. This is referred to as 

the 50-50 requirement. 

The National Defense Authorization Act for Fiscal Year 2000 amended 

section 2466 to require the Department of Defense (DOD) to annually 

submit two reports to the Congress, one on expenditures in the preceding 

years and the other on estimated allocations in future years.2

 Before this 

amendment, DOD was only required to report each year the depot 

maintenance funding allocations for the preceding fiscal year. Section 2466 

currently requires us to submit to the Congress our views on whether 

(1) DOD has complied with the 50-50 requirement in the preceding years’ 

report and (2) the expenditure projections in the future years’ report are 

reasonable. The report on fiscal year 1998 and 1999 workloads, dated 

February 4, 2000, and the report on fiscal year 2000 through 2004 estimates, 

submitted April 7, 2000, were the initial reports submitted under the 

amended statute. Table 1 provides a consolidated summary of DOD’s 

reported depot maintenance public and private sector workload 

allocations.

2

P.L. 106-65, section 333.
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Table 1: Reported Depot Maintenance Workload Allocations

Source: DOD data reported to the Congress.

Dollars in millions by fiscal year

 1998 1999 2000 2001 2002 2003 2004

Army

Public $1,011.1 $1,010.3 $1,084.3 $1,033.7 $1,098.2 $1,126.8 $1,189.2

 58.3% 54.3% 56.6% 57.2% 54.0% 53.9% 54.5%

Private $722.8 $849.5 $832.7 $772.5 $935.5 $963.2 $992.1

 41.7% 45.7% 43.4% 42.8% 46.0% 46.1% 45.5%

Total $1,733.9 $1,859.8 $1,917.0 $1,806.2 $2,033.7 $2,090.0 $2,181.3

Navy

Public $4,040.1 $3,898.7 $4,290.4 $3,884.1 $4,358.5 $4,997.3 $4,584.8

 63.6% 57.0% 59.6% 58.4% 61.5% 65.1% 61.7%

Private $2,310.2 $2,938.4 $2,908.4 $2,768.1 $2,733.8 $2,682.1 $2,851.8

 36.4% 43.0% 40.4% 41.6% 38.5% 34.9% 38.3%

Total $6,350.3 $6,837.1 $7,198.8 $6,652.2 $7,092.3 $7,679.4 $7,436.6

Air Force

Public $3,335.1 $3,281.9 $3,130.3 $3,292.3 $3,573.2 $3,601.9 $3,681.7

 58.2% 53.1% 50.5% 52.0% 52.7% 52.1% 52.0%

Private $2,397.6 $2,902.7 $3,066.6 $3,041.6 $3,206.7 $3,310.2 $3,396.4

 41.8% 46.9% 49.5% 48.0% 47.3% 47.9% 48.0%

Total $5,732.7 $6,184.6 $6,196.9 $6,333.9 $6,779.9 $6,912.1 $7,078.1
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Section 2460 of title 10 defines depot-level maintenance and repair 

workloads. The Office of the Secretary of Defense (OSD) has issued 

guidance implementing section 2460. The guidance provides a 

comprehensive definition of depot maintenance to ensure that the 

reporting includes all work associated with the overhaul, upgrade, or 

rebuild of parts, assemblies, and subassemblies, and the testing and 

reclamation of equipment as necessary, regardless of the source of funds or 

the location at which maintenance is performed. The definition provides 

that software maintenance and interim contractor support and contractor 

logistics support, to the extent work performed in these two categories is 

depot maintenance, should be reported. Prior to the enactment of this 

section,3

 depot maintenance was often viewed as limited to that 

maintenance work performed at traditional military depots or contractor 

facilities and funded using operation and maintenance dollars.

Data Weaknesses 

Preclude 

Determination of 

Compliance

The military services’ data in the February 2000 report were more complete 

than in prior years’ reports. However, because of errors and weaknesses in 

components’ data and reporting processes,4

 combined with the increasing 

closeness of two of the services to the 50-percent ceiling, we were unable 

to determine whether the services had complied with section 2466. DOD’s 

report, as presented, indicates that each of the reporting military services 

was in compliance with the 50-50 requirement for fiscal years 1998 and 

1999, even as the Air Force and the Army showed a general trend of 

increased reliance on the private sector. 

Because of weaknesses in reporting, we cannot be sure of the precise 

amounts of depot workload being performed by government and private 

sector employees. However, DOD reports an increasing trend among its 

services in relying on the private sector for this work. Figure 1 shows the 

percentage of the total reported depot maintenance workloads identified 

3

This provision was contained in the National Defense Authorization Act of Fiscal Year 1998 

(P.L. 105-85, Nov. 18, 1997).

4

In addition to the data reliability weaknesses identified in this review, our audits of DOD’s 

financial management operations routinely identify pervasive weaknesses in financial 

systems and fund controls that adversely affect the Department’s ability to accumulate costs 

and reliably determine expenditures obligations, and funding availability. (See Department 

of Defense: Progress in Financial Management Reform (GAO/T-AIMD/NSIAD-00-163, May 7, 

2000.)
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by the military services as being performed by the private sector from fiscal 

years 1994 through 1999. 

Figure 1: Percentage of Depot Maintenance Work Performed by the Private Sector

Note: The reporting baseline changed with the addition of contractor logistics support and interim 

contractor support costs in 1998. While the annual data points are not directly comparable as a result, 

this figure still illustrates DOD’s overall movement closer to the 50-percent ceiling.

Sources: DOD depot workload reports for March 1996, February 1998, February 1999, and February 

2000.

0

5

10

15

20

25

30

35

40

45

50 Percent

Army

Navy

Air Force

1994 1995 1996 1997 1998 1999

Fiscal Year
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As the services get closer to the 50-percent ceiling, there is less room for 

error in the reported data. According to DOD’s reported fiscal year 1999 

depot maintenance workload allocation data, the amount of additional 

contract maintenance work that could have been shifted from the public to 

the private sector without exceeding the 50-percent limit was about 

$80 million in the Army,5

 about $190 million in the Air Force, and about 

$480 million in the Navy. However, our review of DOD’s data identified 

various errors and omissions, some of which we were able to quantify. 

(These errors and omissions are discussed more fully in a subsequent 

section and app. I.) After considering those errors, we found that each of 

the military services was brought closer to the ceiling.6

 The revised amount 

and the percentage of maintenance workload that could have been shifted 

from the public to the private sector for each military department before 

exceeding the 1999 ceiling is shown in table 2.

Table 2: Amount of Workload That Could Have Been Shifted From Public to Private 

Sector in Fiscal Year 1999 Without Exceeding 50-percent Ceiling

Source: Our analysis and adjustment of service data to correct for errors and omissions that could be 

quantified.

Given the closeness of the Army and the Air Force to the 50-percent ceiling 

and, as discussed later, questions about the accuracy and completeness of 

components’ reporting that cannot be readily quantified, we cannot be 

certain of the potential impact on the 50-percent ceiling for contracted 

5

According to an Army official, while this figure is technically accurate, it is premised on 

taking that amount of work from public depots and transferring it to the private sector. The 

official said a more useful measure to Army management is $161 million—the total 

difference between the reported public and private sector amounts for fiscal year 1999, as 

shown in table 1. We believe both figures provide important perspectives on the closeness of 

the Army’s workload to the 50-50 ceiling. 

6

This does not include the impact of the uncertainties regarding the completeness of 

reporting that we were unable to quantify.

Dollars in millions

Revised total workload Available dollars Percent

Army $1,898.3 $63.9 3.4

Navy 6,875.0 442.9 6.4

Air Force 6,218.8 129.5 2.1
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work. While the Navy is not nearly as close to the ceiling, we have some 

concerns about the accuracy and completeness of its data.

Significant Progress in 

Reporting but Material 

Errors Still Remain

The quality and comprehensiveness of the data in DOD’s February 4, 2000, 

report on depot maintenance workloads are significantly better than the 

data in prior reports. Nonetheless, material reporting weaknesses still 

exist. Our analysis of the most recent prior year data for the fiscal year 1999 

depot maintenance program identified fewer errors than in the past. 

However, some areas still require increased focus, particularly the isolation 

of reportable data in areas not traditionally considered to be included in 

depot maintenance reporting. These areas include identifying 

government-furnished material that should be reported as a contract 

maintenance cost and correctly identifying maintenance work that (1) has 

sometimes not been identified as depot maintenance because it is not 

funded with operation and maintenance dollars, (2) is not performed in 

traditional depot activities, or (3) is managed by activities such as system 

program offices that historically did not deal with traditional depot 

activities. Additionally, problems in documentation and financial 

management reporting continue to affect the quality of the data. 

Improved Depot 

Maintenance Workload 

Reporting 

DOD has made significant progress in its workload reporting over the past 

3 years. By issuing improved guidance, increasing the awareness of the 

reporting requirements to activities not previously involved, and more 

effectively using internal audit groups, it improved the February 2000 

report over last year’s report and detected and corrected many errors in the 

services’ data before the consolidated report was submitted to the 

Congress.
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Expanded Guidance and 

Corrections of Prior Problems

In response to our prior audit reports,7 OSD expanded its guidance to 

address several areas of concern we noted in last year’s report, and the 

revised guidance is generally comprehensive. These areas included 

depot-level maintenance provided in remanufacturing8

 programs, 

interserviced9

 workloads, repair of reparable parts, warranties for depot 

repair, and suggested use of audit agencies to verify data. Better, more 

expansive guidance resulted in improved and more complete reporting. For 

example, the Navy reported $12.0 million in fiscal year 1998 and 

$10.7 million in fiscal year 1999 for disassembly and refurbishment costs 

for the AV-8B Harrier remanufacture program, whereas it did not report the 

cost of these workloads in last year’s 50-50 report on fiscal year 1998. Also, 

the distribution of instructions was improved throughout the Department, 

a key factor in increasing the scope and number of reporting commands.

The military services also increased the amount and scope of reporting by 

correcting errors and expanding the number of reporting activities from 

last year. The Navy and the Army made significant corrections in the 

amounts included in this year’s report relative to last year’s report.10 The 

military departments also more fully reported maintenance in several 

problem areas we noted last year. For example, the Naval Sea Systems 

Command reported about $350 million in fiscal year 1999 for installation 

modifications compared to only $62 million last year, when an official 

incorrectly decided that such work was not depot maintenance. 

Additionally, more Army organizations reported depot maintenance than in 

past years (14 commands compared to 11 last year and only 4 the year 

7

Depot Maintenance: Workload Allocation Reporting Improved, but Lingering Problems 

Remain (GAO/NSIAD-99-154, July 13, 1999) and companion reports noted in the related 

documents section of this report. 

8

A remanufacture program is an upgrade effort that typically results in a new model number 

and serial number of the modified system. An upgrade is the alteration, conversion, or 

modernization of an end item of investment equipment that changes or improves its original 

purpose or operational capacity in relation to the effectiveness, efficiency, reliability, or 

safety of the item.

9

Interserviced workload is depot maintenance work that one service performs for 

equipment owned and funded by another military service. DOD depot reporting guidance 

specifies that the owning service reports the work for purposes of depot maintenance 

workload reporting.

10The Army’s and the Navy’s corrections in fiscal year 1998 reporting resulted in increased 

percentages for the public sector. The Navy, for example, corrected data that had been 

reversed in developing the initial report on 1998 last year and corrected another significant 

error in which a $267,000 expenditure had been reported as $267 million.
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before) and additional program offices in the Navy and the Air Force 

reported for the first time. 

Audit agencies’ reviews The quality and consistency of the data reported were significantly 

improved by the services’ audit agencies reviewing collection procedures 

and preliminary data. In response to our recommendation that the services 

make greater use of audit agencies, the Army expanded its use of its 

auditors, the Navy used its audit agency for the first time, and the Air Force 

continued to use its audit agency as in the past two report cycles. The audit 

agencies identified many errors, and the reports of each military service 

were corrected before being forwarded to OSD for consolidation and 

submission to the Congress. Notwithstanding those corrective actions, as 

noted later, reviews by two audit agencies raised unresolved issues 

concerning the accuracy and completeness of the services’ data.

Despite Improvements, 

Errors and Weaknesses 

Remain

Although the extent of errors and omissions we identified in our review of 

the fiscal year 1998 and 1999 depot maintenance workload data submitted 

to the Congress was significantly less than in prior reports, we continued to 

find reporting errors and weaknesses. Most were not as systemic in nature 

as they were in the past and, in some instances, they were exacerbated by 

shortcomings in component specific guidance, documentation, or quality of 

financial data. Moreover, issues identified in Army and Navy audit service 

reports on data developed by the individual services raise unresolved 

issues about the magnitude of reporting problems and their effect. 

Types of Problems Identified We identified a range of reporting problems, resulting in both over and 

underreporting of depot workloads being performed in public facilities and 

by the private sector. Several examples follow.

OSD guidance requires the cost of government-furnished material provided 

to contractors to be reported as private sector costs in the workload report. 

This requirement is to ensure comparability in reporting, since public 

sector costs include material costs and other factors of production. The 

Army and the Navy did not fully report the costs of government-furnished 

material to contractors. Through a review of workload data and 

discussions with reporting officials, we found that an Army command did 

not report up to $30 million in fiscal year 1999 material costs recorded for 

contract repairs of components funded by the Army’s working capital fund 

and a Navy command did not report a total of about $125 million for the 

recorded cost of government-furnished material to contractors for fiscal 

years 1998 and 1999. 
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As we reported last year, consolidating the levels of maintenance and 

performing depot-level maintenance at field locations complicate workload 

reporting and result in an underreporting of depot maintenance for both 

the public and private sectors. Our report11 on the Army’s review of the 

proliferation of depot workloads at consolidated and non depot locations 

states that the Army is not sufficiently identifying the amount of depot 

maintenance work accomplished at nondepot facilities. While the Army 

identified some maintenance in nondepot facilities, the actual amount 

could be much greater than the Army reported, but Army officials told us it 

would be several years before they will have a realistic accounting of this 

workload. This accounting is expected to increase the total amounts 

reported for both the public and private sectors. 

The identification of depot maintenance work in activities not previously 

identified as depots is also problematic in the Navy and the Air Force. The 

Navy’s Pacific Fleet report of fiscal year 1999 workloads was based on a 

rough estimate rather than actual obligation data to represent the depot 

maintenance work accomplished at the Pearl Harbor Naval Shipyard and 

Intermediate Repair Facility because they did not maintain the obligation 

data for the newly consolidated activity. This problem will become even 

more challenging as the Navy continues with its consolidation of 

intermediate and depot maintenance activities.

In all three military services, we identified problems in reporting the costs 

of interim and contractor logistic support contracts. These types of 

contracts require some judgment and the use of estimating techniques in 

determining the portion of total recorded contract costs meeting the 

definition of depot maintenance. For example, through a review of contract 

files and discussions with officials, we determined that an Air Force 

program office did not report about $33 million in recorded software 

maintenance and related management support costs. As we reported in the 

past, officials said that there is still some uncertainty and disagreement 

within the acquisition offices regarding what constitutes reportable depot 

maintenance. Another problem was that it is often difficult to identify 

depot maintenance costs when there is no specific contract line item for 

this specific support category. 

11Depot Maintenance: Army Report Provides Incomplete Assessment of Depot-Type 

Capabilities (GAO/NSIAD-00-20, Oct. 15, 1999).
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Warranty provisions specifying the performance of depot maintenance 

services was another area identified where the services did not fully report 

some contractor costs. The DOD reporting guidance states that warranty 

support that occurs prior to the initial operational capability of a system 

should not be reported. This guidance leaves open the question how to 

report warranty costs that are obligated prior to initial operational 

capability but which will provide support for the system after initial 

operational capability. While we cannot quantify the amount of warranty 

work that should be reported as depot maintenance, this is an area that 

needs further examination in future years.

In those cases when either the public or private sector contracts with the 

other sector for labor or for repair of a component or system that is a 

subset of a larger maintenance package, the work should be reported for 

the sector performing the work. Through a review of accounting data, we 

identified four at the Oklahoma City Air Force depot where specific tasks 

or the repair of specific items was reported as public sector maintenance 

when it was actually performed by contractors and should have been 

reported as contract maintenance. This work represented about 

$1.15 million in fiscal year 1999. We do not know how often this is 

happening, but it is likely to grow as DOD increases its use of public-private 

partnering arrangements.

Limitations in Guidance May 

Have Contributed to Some 

Problems

Despite improved guidance issued by OSD, and to a lesser extent the Army 

and the Air Force, there are still some opportunities to improve policy 

guidance—in particular that of the reporting components, where 

limitations in, or an absence of, service specific guidance may have 

contributed to reporting problems. Continued problems with the reporting 

of maintenance costs associated with warranties and with depot 

maintenance performed in activities not traditionally considered as depots 

or funded with procurement or research and development dollars, rather 

than operation and maintenance dollars, suggest that additional refinement 

of guidance could help officials less experienced in such matters better 

understand the reporting requirements. This issue was more prominent in 

the Navy, which had not provided component-specific guidance to its 

reporting activities, resulting in some differences in interpretation and 

application of DOD’s guidance and the absence of a standardized process 

among different Navy commands. Navy officials said that they issued some 

guidance in October 1999 based in large part on our findings in last year’s
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report12 and that they are developing a standardized process handbook for 

use by the different commands.

Although the Army revised its internal instructions to expand upon the 

OSD guidance, further refinements could reduce ambiguities, particularly 

with respect to reporting contractor costs, and could emphasize the need 

for all project managers to report. In its review of preliminary data for 

fiscal year 1999, the Army Audit Agency added almost $114 million in 

contractor maintenance costs to the total reported. Among other errors, 

auditors determined that the program manager for the Apache helicopter 

did not report about $38 million in contractor costs shown in Army records, 

the program manager for the Kiowa helicopter did not report about 

$31 million in contractor costs, seven program managers initially reported 

program estimates rather than the actual amount of recorded obligations, 

and one command did not report about $20 million in recorded contractor 

costs for software maintenance. The Army Audit Agency also pointed out 

that the Army needs to develop a reasonable method of determining 

reportable contract obligations when other logistics support functions are 

included on contract line items that include depot maintenance.

The Air Force’s supplemental guidance was not changed significantly for 

this year’s report, but additional supplemental guidance may still be needed 

to clarify several areas. For example, we continued to identify problems 

associated with the reporting of warranties, some contract work performed 

in support of Air Force depot maintenance programs, and contract work 

where maintenance was not a specific contract line item. 

Inadequate Documentation of 

Services’ Analyses Creates Some 

Uncertainties Regarding Data

Our review this year, as in the past, determined that each of the 

departments could better maintain auditable records for documenting data 

collection methodology, estimating techniques, and results. While some 

central records are maintained, information and reporting rationales at 

program offices and maintenance activities are sometimes lacking, and it is 

difficult for a third party to understand and reconstruct the methodology 

and verify results. 

The federal government’s internal control standard for appropriate 

documentation of transactions and internal control states that internal 

control and all transactions and other significant events need to be clearly 

12Depot Maintenance: Workload Allocation Reporting Improved, but Lingering Problems 

Remain (GAO/NSIAD-99-154, July 13, 1999).
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documented and readily available for examination. It further states that all 

documentation and records should be properly managed and maintained.13

Good records, documentation of processes followed, and identification of 

data sources used are important not only for audit and management 

oversight but also for use as a historical record that can be followed by 

newly assigned staff to assist in data collection and by programs reporting 

for the first time. Air Force officials said the relatively high turnover of 

personnel assigned each year to compute workload data increased training 

time and errors. The documentation and process problems appeared to be 

more severe in the Navy than in the other military departments. 

Service Audit Agency Issues While the quality and consistency of data reported by the services were 

significantly improved by the participation of the service audit agencies, 

reviews by two of these agencies highlighted uncertainties about the 

components’ data.

The Army Audit Agency reviewed about $1 billion of the Army’s fiscal year 

1999 reported obligations (about 58 percent of the total) and recommended 

adjustments totaling $149 million. This represented an error rate of 

14.9 percent. These adjustments increased the private sector share by 

3.6 percent above that represented by the Army’s unaudited data. If similar 

problems were prevalent in remaining data the Audit Agency did not 

review, and corresponding adjustments made, the private sector share 

would increase even more. These additional adjustments, and those errors 

we identified (to the extent values could be quantified), would place the 

Army very close to the ceiling.

Army auditors identified unreported costs for remanufacturing programs 

and modifications and some programs that used estimates rather than 

actual recorded obligations. They also identified problems similar to those 

they reported on in 1998 involving software maintenance, contractor 

logistics support, government-furnished material to contractors, and 

modifications and upgrades. They found that not all project managers were 

included in the requests for data and had not reported depot maintenance 

data until the Army audit pointed out the omission.

13Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, Nov. 

1999).
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In completing their review of the Navy’s workload data, the Naval Audit 

Service personnel identified reporting errors and omitted data that 

increased the total amount of workload reported for fiscal year 1999 by 

$106 million (an increase of 1.5 percent) but caused little change in the 

public-private workload percentages. Much of the increase resulted from 

correcting the Naval Sea Systems Command’s omission of about 

$85 million for installation of nuclear modifications. At the same time, 

Naval Audit Service personnel expressed concerns over the absence of a 

standard reporting process and the inadequate documentation of the basis 

for some of the data and generally questioned the quality of the data they 

reviewed. 

Accuracy of Future 

Year Estimates Is in 

Doubt

Because of data limitations and other weaknesses, we do not believe the 

Department’s report provides a reasonably accurate projection of public 

and private sector workload expenditures for fiscal years 2000 through 

2004. Future year projections, at best, provide a rough estimate of future 

workload funding split between the public and private sectors, particularly 

since the projections are constructed using budgetary estimates that, by 

their nature, will change over time. The reasonableness of the estimates 

becomes less certain where, as indicated earlier, uncertainties exist 

regarding the extent to which the Air Force, the Army, and the Navy have 

fully identified depot maintenance workloads in preparing their reports on 

prior fiscal year expenditures. While DOD’s future year projections do not 

show its components exceeding the 50-percent ceiling on contract work in 

fiscal year 2000 and beyond, our analysis indicates that the Air Force may 

exceed the ceiling this fiscal year and faces significant challenges to remain 

under the ceiling in future years. While the Army does not face as severe a 

problem as the Air Force, available data suggest it too will be confronted 

with difficulties in staying within the 50-percent ceiling in future years, as 

more maintenance work is expected to go to the private sector.

Future Year Data Are Rough 

Estimates and Subject to 

Change

We have previously reported that future year projections of depot 

maintenance workloads should be considered as only a rough estimate of 

the workload funding split between the public and private sectors.14 The 

services’ projected depot maintenance expenditures for fiscal years 2000 

14Depot Maintenance: Future Year Estimates of Public and Private Workloads Are Likely to 

Change (GAO/NSIAD-00-69, Mar. 1, 2000).
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through 2004 are based on the current funded workloads from the fiscal 

year 2001 budget submission and future years programming data. However, 

as previously noted, budget plans frequently change, and the actual 

workload mix may be significantly different than planned. Further, budget 

and programming estimates do not include new requirements that have not 

yet been officially approved. 

Despite these factors, some of the input data may represent the best data 

available, assuming it represents all categories and quantities of work that 

is supposed to be accounted for, that the relative mix between the public 

and the private sector represents actual plans, and that all contractor costs, 

which are generally the most difficult to obtain, are accurately shown. 

Air Force’s Future 

Projections for Contract 

Work Are Understated and 

the Ceiling Will Likely Be 

Exceeded

As permitted by 10 U.S.C. 2466, the Secretary of the Air Force waived the 

50-percent limitation on private sector work for fiscal year 2000 and 

notified the Congress that a waiver could also be required for 2001. 

Nevertheless, the Air Force’s projection data for fiscal years 2000 through 

2004 show it nearing, but not exceeding, the 50-percent ceiling. Other data 

indicate the Air Force will likely exceed the ceiling this year and will face 

considerable challenges remaining under the ceiling in future years.

Our recent testimony and congressional report discussed the Air Force’s 

determination to waive the section 2466 limitation on private sector 

workloads for fiscal year 2000 (and perhaps in 2001).15 We pointed out that 

recent and continuing Air Force plans and initiatives to move more work to 

the private sector were key factors leading to the need for the waiver and 

that these actions had increased the private sector share of Air Force depot 

maintenance work from 36 percent in 1991 to near the 50-percent ceiling in 

2000. 

Air Force contract maintenance is increasing more than previously 

estimated. For example, the value of long-term depot contracts is expected 

to increase from $1.1 billion in fiscal year 2000 to $1.5 billion in fiscal year 

2004, yet this amount does not include some workload information for new

15Depot Maintenance: Air Force Faces Challenges in Managing to 50-50 Ceiling

(GAO/T-NSIAD-00-112, Mar. 3, 2000) and Depot Maintenance: Air Force Waiver to 10 U.S.C. 

2466 (GAO/NSIAD-00-152R, May 22, 2000).
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or upgraded systems that do not have final support plans. Nonetheless, as 

we recently reported,16 the Air Force is using or planning to use 

multifunction, long-term contractor support for 75 new or upgraded 

systems and subsystems. Furthermore, we reviewed 13 programs that had 

entered the source-of-repair process between September 1999 and 

February 2000 and determined that 11 had been recommended for private 

sector contract repair. Thus, the trend toward increased contractor repair 

continues. According to Air Force officials, these are the current 

recommendations of the program managers and not the final approved 

recommendations by the Air Force. They said 50-50 compliance will be 

fully considered before making the final source-of-repair decisions. Finally, 

some of the data used in projecting the future Air Force 50-50 allocations 

understate contract repair workloads.

An April 17, 2000, memorandum from the Commander of the Air Force 

Materiel Command to command organizations directed that they identify 

current and new workloads that could be moved to public depots to help 

the Air Force stay under the 50-percent ceiling on contract work for fiscal 

years 2000 and 2001, as well as in the longer term. While a plan was to have 

been developed by May 31, 2000, according to Air Force officials, this 

process has thus far failed to achieve its goals and no workload has yet 

been approved for movement to the public sector.

The Air Force’s fiscal year 2000-2004 depot allocation data include several 

significant adjustments that result in understating the Air Force’s 

contracted maintenance, keeping it below the 50-percent ceiling. Our 

assessment of the current status of the workload mix for fiscal year 2000 

and the projections for 2001 indicates the Air Force could exceed the 

ceiling by over $200 million in fiscal year 2000 and will be significantly 

challenged to make planned source of repair changes in time to correct the 

imbalance for 2001. Since the report on future years was sent to the 

Congress, more private sector workloads for bridge and emergency 

contracts have been identified than were previously estimated and some 

new contract workloads resulting from source-of-repair decisions have 

been recognized.17

16Defense Logistics: Air Force Report on Contractor Support Is Narrowly Focused

(GAO/NSIAD-00-115, Apr. 20, 2000).

17Bridge contracts are for short-term workloads performed by a contractor to support 

requirements during workload transitions from closing depots to other military depots. 
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Air Force officials said that as of May 2000, the Air Force had determined 

that it could be $115 million over the ceiling in fiscal year 2000. They noted, 

and we agree, that the depot maintenance execution data fluctuate and that 

the data will continue to fluctuate through the end of 2000. Our 

$200-million estimate represented a mid-June 2000 Air Force Materiel 

Command assessment of the fiscal year 2000 depot maintenance execution 

information. Moreover, available information indicates that the Air Force 

plans to increase its fiscal year 2000 contract workload by moving program 

depot maintenance work for the KC-135 aircraft from the Oklahoma City 

depot to a contractor. Thus, unless the Air Force is able to perform more 

workload in its military depots than is currently programmed, the fiscal 

year 2000 contract imbalance could grow even larger. 

Air Force officials told us that fiscal year 2001 will pose an equally big 

challenge. However, they outlined an ongoing three-pronged effort to 

conform workload assignments to legislative guidelines: first, identify 

candidate workloads that could be shifted from private to public sources in 

2001; second, identify longer term candidates; and third, focus on new 

weapon system support planning. However, to date there have been few 

concrete results that mitigate the potential contractor imbalance for 2000 

or 2001.

In developing its projected depot maintenance workloads for fiscal years 

2000 through 2004, the Air Force assumed that it would be able to shift 

work currently being performed by the private sector to public depots and 

adjusted its funding to reflect this shift. While these adjustments represent 

the amount of workload that the Air Force is hopeful of moving to public 

depots during the fiscal years 2000 to 2004 time period, a lack of success 

thus far in accomplishing such changes in fiscal year 2000 makes it 

uncertain to what extent such transfers will be made between 2001 and 

2004. 

Air Force officials at Air Force Materiel Command headquarters and at the 

three logistics centers remaining open after base closure decisions are 

implemented said that there are no quick fixes to the problem and that 

without a commitment to designate new and upgraded systems for repair in 

the military depots, the Air Force is not likely to be successful in resolving 

its ceiling problem. These officials said that the problem is not getting 

better; rather it is getting worse. The fact that no program offices have 

identified future repair source changes that would improve the workload 

allocation imbalance indicates the difficulty the Air Force faces in the 

future. Air Force officials point to a May 31, 2000, Air Force decision to 
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delay source-of-repair decisions on the F-22 aircraft until 2008 as a further 

example of the 50-50 imbalance problem. They also note that preliminary 

planning for the Joint Strike Fighter program, an aircraft that may comprise 

75 percent of the U.S. fighter aircraft in the future, is moving toward a 

decision for total contractor support. Officials said that before the Air 

Force can make meaningful progress in resolving its 50-50 imbalance, these 

trends must change and the Air Force must adopt a different support 

strategy than the one it has pursued for the past 4 or 5 years. However, no 

overall management plan exists to specifically meet the requirements of 

section 2466. 

Army Also Faces a

Long-term Challenge to Stay 

Within the Contract Ceiling

While the reported 50-50 outyear data show that the Army is also moving 

close to the 50-percent ceiling on contract work, Army officials do not 

believe the Army will exceed the 50-percent ceiling between fiscal year 

2000 and 2004. Army leadership holds quarterly discussions to consider 

whether execution changes from the current year’s plan could adversely 

affect compliance with the ceiling requirement. Army officials said they 

would adjust the plan if required to stay below the ceiling. Given that the 

errors Army Audit Agency and we identified in the data put the Army right 

at the 50-percent ceiling for fiscal year 1999, if similar errors and omissions 

apply to the future data, the Army is also facing a 50-50 imbalance in the 

future, unless it revises its plans for support of new and upgraded systems 

coming into the inventory. 

Army officials said that with regards to the future challenge, depot 

maintenance source-of-repair decisions will be documented and the impact 

of these decisions on the ceiling will be discussed at the milestone review 

point authorizing the start of the engineering and manufacturing 

development phase for new weapon systems. At this point, only one new 

system, the Commanche, has gone through this milestone review since the 

new procedures were instituted in November 1999, and it was granted a 

temporary waiver of the requirement to complete a source-of repair and 

core analysis. While early planning calls for the Commanche to be a 

contractor-supported system, it is unclear whether the new process will 

affect the final decision. 
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Conclusions Although the military services have significantly improved the quality and 

completeness of their depot maintenance reporting data, material reporting 

weaknesses remain. As a consequence, we were unable to determine with 

precision whether DOD complied with the 50-percent limitation on private 

sector performance under section 2466, even though the services reported 

that they did not exceed the 50-50 ceiling for fiscal years 1998 and 1999. 

Policy and execution issues must be addressed to improve the accuracy 

and completeness of the prior year data. While OSD and the Army and Air 

Force supplementary policy guidance have improved each year, some areas 

still require further attention and may require more specific 

implementation guidance at the service level as well as closer scrutiny by 

the services to ensure consistent implementation throughout their 

organizations. Of particular concern is the reporting of depot maintenance 

associated with new and upgraded weapon systems, software, warranties, 

workloads performed in nontraditional depot maintenance activities, and 

workloads that are performed by one sector but which are part of a 

maintenance package that is allocated to a different sector. These and 

other areas continue to be problematic and will require greater emphasis in 

the future.

As the military services approach the 50-percent ceiling, it is increasingly 

important to gain a more realistic perspective of the expected future 

balance of the public and private sector mix of depot maintenance work so 

that DOD can better define a workable strategy for meeting support needs 

while complying with the 10 U.S.C. 2466 requirement establishing the 

ceiling. While the Air Force and the Army have initiated some actions they 

believe will address the problem, it is too early to tell if they have a 

long-term strategy in place that will assure their ability to deal effectively 

with the contract maintenance management challenge in the future.

Recommendations To improve the reporting of depot maintenance workload data to 

accurately reflect the allocation of work between the public and private 

sectors and comply with the requirement that not more than 50 percent of 

the depot maintenance work be performed by the private sector, we 

recommend that the Secretary of Defense

• require that the military services, in preparing the future year estimates 

of depot maintenance workloads that will be submitted each April, 

accurately reflect, to the extent practical, the projected maintenance 
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costs and public-private sector allocations for new and upgraded 

systems; 

• require the Secretary of the Air Force to implement a long-term strategy 

to manage its weapon system support programs to comply with the 

funding requirement that not more than 50 percent of the depot 

maintenance program be used for work performed by the private sector; 

• require the Secretary of the Navy to issue comprehensive 

supplementary instructions tailoring OSD’s guidance to the Navy’s 

operating environment to improve workload reporting and to implement 

adequate management controls and documentation requirements; and. 

• direct that reporting services provide improved guidance and increased 

management attention to improve workload reporting in the areas of 

government-furnished material, warranties and software maintenance, 

as well as in identifying depot maintenance work accomplished in 

non-traditional activities and identifying reportable obligations for 

depot maintenance on contracts where such amounts are not readily 

identifiable. 

Agency Comments Representatives from the OSD (Maintenance Policy, Programs, and 

Resources) and similar offices in the Air Force, the Army, and the Navy 

provided oral comments on a draft of this report. The officials agreed with 

the recommendations and provided technical comments, which we 

incorporated in the report as appropriate.

Scope and 

Methodology

To review DOD’s reported amount of depot maintenance performed and 

the percentage of the workload allocated to the public and private sectors 

for fiscal years 1998 and 1999, we analyzed each service’s procedures and 

internal management controls for collecting and reporting depot 

maintenance information for purposes of responding to the section 2466 

requirement. We reviewed supporting details (summary records, 

accounting reports, budget submissions, and contract documents) at 

departmental headquarters, major commands, and selected maintenance 

activities. We compared processes to the legislative provisions, OSD 

guidance, and military service instructions. We judgmentally selected 

certain programs and maintenance activities for a more detailed review.18

18Given the nature of our sample, the results are not projectible to the universe of depot 

maintenance activities.
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We particularly examined reporting categories that we and DOD personnel 

had identified as problem areas, including interserviced workloads, 

contractor logistics support, maintenance funded with procurement or 

research and development dollars, software maintenance, and 

maintenance for such programs as the C-17 aircraft and the Apache 

helicopter. We evaluated processes for collecting and aggregating data to 

ensure accurate and complete reporting and to identify errors, omissions, 

and inconsistencies. We coordinated our work and mutually shared 

information with service audit agencies, which had a more extensive role 

this reporting period in reviewing individual service’s data collection 

efforts.

We used much the same approach and methodology in reviewing the future 

years’ estimates for fiscal years 2000-2004. Although this is a budget-based 

projection of expenditures, the definitions, guidance, organization, and 

processes used to report future data are much the same as for the report on 

actual obligations of the two preceding years. We discussed with DOD 

officials the main differences between the two processes and the way the 

data are derived from budgets and planning requirements. We performed 

certain checks and tests, such as deviance analyses, for consistency of this 

information with prior years and with the outyear budgeting and 

programming data used in DOD’s budget submissions and reports to the 

Congress. We used to a great extent our prior and ongoing audits in such 

areas as sustainment planning, depot policies, financial systems and 

controls, and DOD pilots and initiatives for increasing contractor 

involvement in maintenance.

We conducted our review from February to June 2000, in accordance with 

generally accepted government auditing standards. 

We are sending copies of this report to the Honorable William S. Cohen, 

Secretary of Defense; the Honorable F. W. Peters, Secretary of the Air 

Force; the Honorable Louis Caldera, Secretary of the Army; the Honorable 

Richard Danzig, Secretary of the Navy; the Honorable Jacob J. Lew, 

Director, Office of Management and Budget; and interested congressional 

committees. We will also make copies available to others upon request.
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GAO’s contacts and key contributors to this report are listed in 

appendix II. 

David R. Warren, Director

Defense Management Issues
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List of Congressional Committees

The Honorable John Warner

Chairman

The Honorable Carl Levin

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Ted Stevens

Chairman

The Honorable Daniel Inouye

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Floyd Spence

Chairman 

The Honorable Ike Skelton

Ranking Minority Member

Committee on Armed Services

House of Representatives

The Honorable Jerry Lewis

Chairman

The Honorable John Murtha

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives
Page 27 GAO/NSIAD-00-193 Depot Maintenance
Page 28 GAO/NSIAD-00-193 Depot Maintenance

Appendix I

Problem Areas in Workload Reports ApApenednxidexiIs

Our review of the Department of Defense’s (DOD) two reports on depot 

maintenance workloads, collectively encompassing fiscal years 1998 

through 2004, identified errors, omissions, and inconsistencies in the 

military departments’ data.

Government-Furnished 

Material

Office of the Secretary of Defense (OSD) guidance requires that the cost of 

government-furnished material provided to contractors should be reported 

as funding that has been obligated to the private sector. This requirement is 

to ensure comparability in reporting since public sector obligations include 

the costs of material and other factors of production. For purposes of 

reporting funding obligations, all factors of production are to be counted as 

a part of the reporting data for both the public and private sectors 

according to which sector accomplishes the maintenance. Examples of 

problems that we noted in this reporting area follow.

Two Army commands did not fully report the costs of material provided to 

contractors. The Aviation and Missile Command did not report any costs 

for government-furnished material for its reparable components contract 

workloads funded by the Army’s working capital fund. After submitting its 

fiscal year 1999 data to the Army, officials identified about $30 million of 

material furnished to aviation and missile secondary item contracts, but 

others decided not to adjust the reported data. Command officials told us 

that government-furnished material for reparable components is not 

tracked and would require an accounting adjustment. Material is tracked 

for major aviation and missile equipment items, and officials reported 

$3.9 million in fiscal year 1999 for government-furnished material to 

contractors. The Army’s Communications Electronics Command also did 

not report any costs for government-furnished material to its contractors. 

Command officials advised the Army Audit Agency that they do not have a 

system to track material provided to their contractors and that they could 

not provide an estimate on the total amount requisitioned by contractors 

during fiscal year 1999.

The Navy’s Inventory Control Point at Philadelphia, Pennsylvania, which 

manages aircraft parts, did not report about $125 million for the cost of 

government-furnished material to contractors for fiscal years 1998 and 

1999. This material was used by contractors in repairing components 

managed by the Navy and was accounted for as an expense item. The 

Inventory Control Point does report government-furnished material for 

contractor repair of components that are not directly managed by the Navy 

because those are considered sales. This office also did not report 
Appendix I

Problem Areas in Workload Reports

Page 29 GAO/NSIAD-00-193 Depot Maintenance

government-furnished material projected to be about $300 million for the 

fiscal years 2000-2004 period.

Contract Maintenance The statutory definition of depot maintenance includes depot maintenance 

and repairs accomplished under interim contractor support, contractor 

logistics support, and similar types of contracts.1

 If it is not practical to 

determine the amount of depot maintenance based on specific contract line 

items, OSD and service supplemental guidance provides for the use of 

estimating techniques. The reporting service is required to maintain 

records on the amounts reported and descriptions of estimating techniques 

used. As in past reviews, we found a number of errors and other problems 

in reporting contract maintenance. Individuals charged with reporting must 

exercise judgment that may result in errors or inconsistencies with other 

programs. The errors and problems we noted follow.

Several Army program offices misreported contractor support costs. Some 

amounts were overstated by including nondepot maintenance related costs 

and others were understated when officials reported budgeted rather than 

actual costs. For example, officials at the Intelligence and Security 

Command overstated contract depot maintenance for a program by about 

$830,000 by including nondepot maintenance related obligations for 

training and office administration. Another command misreported costs 

because it reported on a calendar year basis, rather than a fiscal year basis.

Three Navy program offices overreported contract costs by about 

$39 million. Officials reported activities such as contractor support to 

headquarters and support for a database on aircraft discrepancy reports 

and mishaps. These kinds of activities do not meet the definition of depot 

maintenance.

The Air Force’s C-17 program office did not report logistics program 

management costs and technical data associated with the provision of 

depot maintenance services. Air Force guidance provides that a pro rata 

share of contractor management support and data costs should be included 

in the depot maintenance reported for 50-50 purposes. The C-17 office 

could have used an estimating technique to derive the percentage of these 

costs that are attributable to the depot maintenance responsibilities and 

1

10 U.S.C. 2460.
Appendix I

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Page 30 GAO/NSIAD-00-193 Depot Maintenance

therefore reportable in the 50-50 report. Applying a 10-percent estimating 

factor to the substantial flexible sustainment contract would add about 

$18.6 million to the private sector total in fiscal year 1999. 

Air Force officials agreed that they had not reported about $3 million in 

technical data costs, but they stated that they had included some 

management costs in the 50-50 report. However, they were unable to 

reconcile the data reported in the 50-50 report with supporting accounting 

data, indicating an underreporting of total depot costs consistent with our 

findings. Air Force officials said they would thoroughly review the C-17 

reporting methodology to improve accuracy and support for next year’s 

50-50 report. 

Officials at the Aeronautical Systems Center did not report about 

$2.1 million obligated for depot maintenance on nine training systems 

during fiscal year 1999. According to Air Force officials who are charged 

with coordinating the Center’s call for data, there is still some uncertainty 

and disagreement within the acquisition offices regarding what constitutes 

reportable depot maintenance. In this service, as in the others, depot 

maintenance is still sometimes associated only with the operation and 

maintenance appropriation account. However, the statutory definition of 

depot maintenance includes all depot work regardless of funding source 

and location. The Air Force did report these items in the future years’ 

report.

Software Maintenance OSD guidance implementing the statutory definition and reporting 

requirements calls for reporting all aspects of depot maintenance on 

software, which consists of changes to operational software in weapon 

systems, components, and associated automated test equipment. Activities 

to be reported after initial operating capability of the weapon system is 

achieved include correcting errors in the software, adding incremental 

capability improvements (or deleting unneeded features) through software 

changes, and adapting software to retain compatibility with hardware or 

with other systems with which the software interfaces. Examples of 

problems that we noted in these areas follow.

The C-17 program officials did not report any depot-level software 

maintenance. The program office obligated about $28 million per year in 

fiscal years 1998 and 1999 for software workloads accomplished by 

contract. Program officials said that the work involved both depot-level 

maintenance and other tasks considered to be developmental in nature, 
Appendix I

Problem Areas in Workload Reports

Page 31 GAO/NSIAD-00-193 Depot Maintenance

which are not reportable. Contractor personnel performed block changes 

in code and upgraded software to ensure compatibility with the newest 

configuration. Air Force officials said they generally perform depot 

maintenance concurrent with production block upgrades, which they 

consider the primary factor driving software maintenance work. Officials 

did not determine how much of the $28 million should be classified as 

depot-level maintenance. Officials also did not include software 

maintenance in their future years’ projections.

B-1B program officials overreported contractor software maintenance 

workloads by including developmental activities. Estimated 

overstatements were $7.5 million combined for fiscal years 1998 and 1999 

and an estimated $111.8 million over the fiscal years 2000-2004 reporting 

period. 

The B-2 program office estimates for contractor software included about 

$14.3 million in software maintenance expected to be accomplished by the 

public depot.

Depot Maintenance in 

Field or Other 

Nondepot Locations

Depot-level maintenance is to be reported regardless of where it is 

accomplished. All repairs designated or coded as depot-level that are 

performed at locations other than a depot are to be included. Added to 

guidance this year was the direction that the military services issue 

guidance, as necessary, concerning consolidation of depot and nondepot 

work at individual locations.

The distinction between depot-level maintenance and other levels of 

maintenance and manufacturing work has become increasingly vague as 

the services move depot workloads to operating locations, redefine 

required levels of maintenance, and consolidate maintenance 

organizations. While depot-level maintenance workloads continue to be 

performed at traditional depot activities, they are also performed by 

civilian and active-duty military personnel in military units and by 

contractors at various field locations and local repair activities.
Appendix I

Problem Areas in Workload Reports

Page 32 GAO/NSIAD-00-193 Depot Maintenance

We identified about $6.6 million in depot-level repairs accomplished by 

contractor personnel in Europe and $2.7 million accomplished by Army 

personnel in Korea that was not reported in fiscal year 1999. Potentially, 

there is much more depot-level work at consolidated maintenance 

locations and at Army bases not being reported. As we reported last year, 

the Army’s move to consolidate maintenance activities and to perform 

maintenance at field locations continues to pose reporting challenges and 

may have resulted in an underreporting of depot maintenance for both the 

public and private sectors. Our report2

 on the Army’s review of the 

proliferation of depot workloads at consolidated and nondepot locations 

states that the Army is not sufficiently identifying the amount of depot 

maintenance work accomplished at nondepot facilities. Additional 

amounts of depot maintenance-type work and repair capabilities exist at 

various nondepot facilities and could be much greater than the Army 

reported. 

For example, the Army overhauls and rebuilds numerous components, 

including engines, transmissions, circuit cards, and generators, at more 

than 100 local maintenance facilities that are managed under the integrated 

sustainment maintenance program. In fiscal year 1998, the cost of this 

program’s secondary item repair work exceeded $260 million. While much 

of this work appears to meet the definition of depot maintenance as 

specified in 10 U.S.C. 2460, current Army policies and procedures allow it 

to be done at nondepot locations, and the workload was not included in the 

Department’s 50-50 report. 

We concluded in our October 1999 report that the Army was unable to 

develop accurate and consistent estimates of depot maintenance-type work 

because its reporting criteria are not consistent with 10 U.S.C. 2460 

guidance and that its management information systems and procedures are 

not equipped to assess the magnitude and cost-effectiveness of all 

maintenance and supply functions. The Army is transiting to the national 

maintenance strategy, and it plans to revise its maintenance manuals and 

policy statements to redefine levels of maintenance. The current depot and 

general support levels will be combined and relabeled as sustainment 

maintenance workload tasks that involve overhauling and rebuilding items. 

2

Depot Maintenance: Army Report Provides Incomplete Assessment of Depot-Type 

Capabilities (GAO/NSIAD-00-20, Oct. 15, 1999).
Appendix I

Problem Areas in Workload Reports

Page 33 GAO/NSIAD-00-193 Depot Maintenance

In March 1999, Army officials advised that all national maintenance 

workloads would be reported as depot maintenance for the 50-50 public 

and private sector workload allocations, without regard to the location 

where work is performed. This policy change should eliminate much of the 

current confusion regarding the identification of depot type workloads and 

enable the Army to develop more accurate and consistent 50-50 reports. 

The officials said that this change likely will not take place until October 

2000. This change could materially increase the total amount of depot 

workload reported and alter the relative public-private mix compared to 

the Army’s current projections for 2000-2004.

Changes in reporting definitions and work locations also contribute to 

inconsistency in reporting. For the fiscal year 1999 workload report, the 

Army National Guard and Reserves reported about $34.7 million in repairs 

of trucks and vehicles. The Eighth Army in Korea reported (1) about 

$11.7 million for work performed by government employees for their 

general support repair program that extends the life of equipment like 

combat and wheeled vehicles and (2) about $4.9 million for repair of major 

assemblies and components that were repaired up to the general support 

level. Forces Command, on the other hand, did not report wheeled vehicle 

repair at contractor operated facilities at Forts Polk and Riley because the 

work was classified as general support, which is considered to be below 

depot maintenance. 

The Navy had a similar problem as the Army in identifying and reporting 

depot-level workloads at consolidated and field-level activities. The Pacific 

Fleet’s reporting of fiscal year 1999 through 2004 workloads included a 

rough estimate of depot maintenance accomplished at the newly 

consolidated Pearl Harbor Naval Shipyard and Intermediate Repair Facility. 

Fiscal year 1999 was the first year that the consolidated facility operated, 

used a single financial system, and received mission funding rather than the 

Navy Working Capital Funds. The amount reported for depot work was 

estimated, rather than actual obligations, because a system to identify and 

account for depot-level work had not been established. Officials derived 

the estimate by subtracting material costs associated with the military 

workforce at the activity from the total mission funding received. Last year, 

we were told that this consolidated activity could have difficulty 

determining the depot-level work for purposes of the depot workload 

report. Pacific Fleet has not yet developed a system to track and account 

for work meeting the definition of depot workload used for the workload 

reporting requirement.
Appendix I

Problem Areas in Workload Reports

Page 34 GAO/NSIAD-00-193 Depot Maintenance

The Navy did not report about $10 million spent annually for submarine 

component repairs. An official said that government workers accomplish 

about 80 to 90 percent of the workload and contractors do the rest. 

Intermediate-level monies fund the work. In previous reports, we 

questioned the Navy’s position that no depot-level work was performed at 

the two Trident Refit Facilities because they were classified as 

intermediate level activities and funded with intermediate level dollars. We 

determined that the Navy’s reported data for fiscal year 1999 included 

about $18 million for depot-level work done at one facility. Our review of 

maintenance plans for Trident submarines, however, showed that a 

considerable number of tasks were coded as depot-level, indicating that 

depot is the recommended level that should do the work. This work was 

done at private and government facilities, including the two Trident 

facilities, and was not reported in the 50-50 data. In addition, Atlantic Fleet 

data indicates that at least a small amount—about $300,000—for repair of 

various submarine components at the Kings Bay facility should have been 

reported. We do not know how much should be reported as depot 

maintenance out of the total obligated of about $160 million annually. 

Warranties A provision for reporting contract warranties for depot maintenance and 

repair was added to the OSD guidance this year. Warranty support 

occurring after the initial operating capability date should be reported to 

the extent that the terms and conditions specify performance of depot 

maintenance services. The use of maintenance warranties appears to be 

increasing as a result of acquisition reforms and adoption of commercial 

sector practices. The errors we noted in this area follow.

We identified two Navy programs and about $1.5 million for fiscal year 1999 

where warranties appeared to meet the reporting definitions in OSD 

guidance. However, no costs of extended warranties for depot-level 

support were reported. Because several officials we talked to were not 

aware of the OSD requirement to report extended maintenance warranties 

and because the limited Navy instructions did not mention it, there could 

be additional programs with reportable warranties that should have been 

included in the 50-50 report. 

Although the Air Force reported more warranties this year than last, we 

identified one program that was not reported, with applicable depot costs 

of about $371,000 in fiscal year 1999.
Appendix I

Problem Areas in Workload Reports

Page 35 GAO/NSIAD-00-193 Depot Maintenance

Interservice Interserviced workload is depot maintenance work performed by one 

military department on equipment owned and funded by another military 

service. OSD guidance directs that the service owning the equipment and 

managing the funds should report the depot maintenance. The reporting 

service must also determine whether the workload was done by 

government workers or by contractor personnel. The Marine Corps 

incorrectly reported about $8.2 million in organic interserviced workload 

as contract in its report on fiscal year 1998.

Contractor Personnel 

Augmenting Public 

Sector Work

OSD guidance states that contracts for depot maintenance and repair 

accomplished by contractor personnel assigned to work on government 

owned and operated installations should be counted as private sector 

workload. This workload includes direct labor augmentation of public 

depot maintenance by contractor personnel. The Air Force increased the 

use of augmentees to assist on repairs during the transition of workloads 

from closing to receiving depots, and, except for the following instances, 

appeared to have properly accounted for the work as private sector.

• We identified four instances at the Oklahoma City Air Logistics Center 

where some specific tasks on items reported as public sector 

maintenance were actually accomplished by contractors, either because 

it involved a proprietary process or because of temporary constrained 

capacity in the depot. These tasks cost about $1.15 million in fiscal year 

1999 and $0.5 million in fiscal year 1998. We could not determine the 

extent of such activities occurring in other workloads at other Air Force 

depots.

• We identified another instance that resulted in misreporting $1.2 million 

in fiscal year 2000 as public sector workload. One office had to contract 

out more of its public sector workload than initially projected and 

reported in the 50-50 report. These kinds of errors double the impact 

because the dollars must be subtracted from one sector and added to 

the other.

Other According to OSD and Air Force guidance, the costs or projected 

expenditures for all factors of production—labor, material, parts, indirect, 

and overhead—associated with a particular workload should be aggregated 

and reported as either public or private workload depending on who does 

the actual maintenance. In other words, for 50-50 reporting, costs should be 

allocated depending on which sector is performing the maintenance on the 
Appendix I

Problem Areas in Workload Reports

Page 36 GAO/NSIAD-00-193 Depot Maintenance

end item. For example, contract maintenance required for depot 

maintenance plant equipment that government workers use to repair items 

should be counted as public sector costs because it is part of the overall 

cost incurred by the government in producing the repair.

Air Force officials, however, continue to make an adjustment for general 

and administrative expenses associated with contracts. They added 

$24.0 million and $41.9 million in fiscal years 1998 and 1999, respectively, to 

the reported public sector total and subtracted like amounts from the 

private sector side. These amounts were for the overhead and salary costs 

incurred by government personnel in administering depot maintenance 

contracts funded through the working capital funds. Air Force officials 

believe these costs should be reported as part of the public sector since 

they involve public sector employees. This area is not clearly dealt with in 

existing guidance.

Air Force officials said that to count this cost as contract would 

misrepresent the percentages of funds expended for work by DOD versus 

nongovernment employees. OSD 50-50 reporting guidance requires that 

overhead and indirect costs be counted in the sector that accomplished the 

maintenance. Thus, we believe that it would be appropriate for costs 

associated with administering the contract to be counted as private sector 

costs of doing business. 

OSD guidance on the future years’ report was to express projected 

obligations in then-year (inflated) dollars. We determined that several Air 

Force offices did not inflate their future projections, resulting in an 

understatement of future workloads for both public and private sectors.
Page 37 GAO/NSIAD-00-193 Depot Maintenance

Appendix II

GAO Contacts and Staff Acknowledgements ApendxiI

GAO Contacts Barry W. Holman (202) 512-5581

Julia C. Denman (202) 512-4290

Acknowledgements In addition to the above contacts, Bruce Fairbairn, Raymond Cooksey, 

Andrew Marek, Fred Naas, Steven Hunter, and Robert Preston made 

contributions to this report.
Page 38 GAO/NSIAD-00-193 Depot Maintenance

Related GAO Products

Depot Maintenance: Air Force Waiver to 10 U.S.C. 2466

(GAO/NSIAD-00-152R, May 22, 2000).

Defense Logistics: Air Force Report on Contractor Support Is Narrowly 

Focused (GAO/NSIAD-00-115, Apr. 20, 2000).

Depot Maintenance: Air Force Faces Challenges in Managing to 50-50 

Ceiling (GAO/T-NSIAD-00-112, Mar. 3, 2000).

Depot Maintenance: Future Year Estimates of Public and Private 

Workloads Are Likely to Change (GAO/NSIAD-00-69, Mar. 1, 2000).

Depot Maintenance: Workload Allocation Reporting Improved, but 

Lingering Problems Remain (GAO/NSIAD-99-154, July 13, 1999).

Navy Ship Maintenance: Allocation of Ship Maintenance Work in the 

Norfolk, Virginia Area (GAO/NSIAD-99-54, Feb. 24, 1999).

Defense Depot Maintenance: Public and Private Sector Workload 

Distribution Reporting Can Be Further Improved (GAO/NSIAD-98-175, July 

23, 1998).

Defense Depot Maintenance: DOD Shifting More Workload for New 

Weapon Systems to the Private Sector (GAO/NSIAD-98-8, Mar. 31, 1998).

DOD Depot Maintenance: Information on Public and Private Sector 

Workload Allocations (GAO/NSIAD-98-41, Jan. 20, 1998).

Defense Depot Maintenance: Uncertainties and Challenges DOD Faces in 

Restructuring Its Depot Maintenance Program (GAO/T-NSIAD-97-111, 

Mar. 18, 1997, and GAO/T-NSIAD-97-112, Apr. 10, 1997).

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 (GAO/T-NSIAD-96-146, Apr. 16, 1996, and 

GAO/T-NSIAD-96-148, Apr. 17, 1996).
Related GAO Products

Page 39 GAO/NSIAD-00-193 Depot Maintenance

Depot Maintenance: Issues in Allocating Workload Between the Public and 

Private Sectors (GAO/T-NSIAD-94-161, Apr. 12, 1994).

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