DEFENSE 

ACQUISITIONS

Further Action 

Needed to Improve 

DOD’s Insight and 

Management of Longterm Maintenance 

Contracts

Report to the Subcommittee on 

Readiness, Committee on Armed 

Services, House of Representatives

May 2012

GAO-12-558

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-558, a report to 

Subcommittee on Readiness, Committee on 

Armed Services, House of Representatives

May 2012

DEFENSE ACQUISITIONS 

Further Action Needed to Improve DOD's Insight 

and Management of Long-term Maintenance 

Contracts

Why GAO Did This Study

DOD spends billions annually to 

maintain its weapon systems and, at 

times, uses long-term maintenance 

contracts with a potential period of 

performance of 5 years or more. These 

contracts can encourage contractors to 

invest in new facilities, equipment, and 

processes, but may hinder DOD’s 

ability to incentivize contractors’ 

performance and control costs, 

especially in the absence of a 

competitive environment or if DOD 

does not acquire access to technical 

data that can enable DOD to select an 

alternative maintenance provider. 

GAO was asked to evaluate (1) the 

extent to which DOD uses long-term 

maintenance contracts, (2) DOD’s

ability to select alternative 

maintenance providers, and (3) how 

these contracts have been structured 

to incentivize performance and 

manage cost. GAO reviewed a 

nongeneralizable sample of 10 longterm contracts to illustrate different 

maintenance approaches. GAO 

interviewed program officials and 

reviewed contract documentation. 

GAO also reviewed information on 

eight programs recently reviewed by 

DOD to determine how these programs 

addressed technical data needs.

What GAO Recommends

GAO recommends that DOD collect 

information on the extent to which 

DOD uses long-term maintenance 

contracts and develop lessons learned 

regarding the use of incentives and 

cost-control tools. DOD concurred with 

each of the recommendations and 

indicated that it would develop 

methodologies to implement them. 

What GAO Found

At the departmental level, neither the Department of Defense (DOD) nor the 

individual military departments know the extent to which weapon system 

programs rely on long-term maintenance contracts. DOD policy requires DOD 

and the military departments to approve acquisition strategies and lifecycle 

sustainment plans, which include information on contractor support, but DOD 

officials reported that they do not collect information on the use of long-term 

contracts. DOD’s limited visibility over long-term maintenance contracts reflects 

broader DOD challenges with managing services acquisition. GAO’s past work 

has identified the need for DOD to obtain better data on its contracted services to 

enable it to make more strategic decisions. DOD is considering a number of 

policy- and data-related initiatives that could improve its knowledge of these 

contracts, but these efforts are in the early stages of development. 

Decisions made early in the acquisition process can limit DOD’s ability to select 

alternative maintenance providers over the life cycle of a weapon system 

program. Program officials believed that DOD had the ability to select alternative 

service providers for half of the contracts GAO reviewed, as DOD either had 

sufficient technical data or there was an existing competitive environment. DOD 

officials believed the lack of technical data, funding, or expertise would hinder

them from selecting alternative service providers on the other contracts GAO 

reviewed. Recent legislation and DOD’s 2010 efficiency initiatives emphasize the 

importance of technical data considerations. GAO found that eight weapon 

systems that underwent DOD acquisition-related reviews between October 2010 

and October 2011 considered technical data issues, but not all have determined 

the extent to which they will acquire these data or the cost to do so. 

Once the decision is made to use long-term contracts, DOD faces choices on 

how to best incentivize contractor performance and manage costs. GAO found 

that the 10 long-term maintenance contracts reviewed varied in terms of the 

incentives employed and tools used to gain insight into contractor costs. For 

example, GAO found that all 5 contracts with the longest durations, potentially 

ranging from 9 to 22 years, used monetary incentives such as award or incentive 

fees, or contract term incentives that can extend the life of the contract by several 

years. However, DOD and program officials expressed some concerns about the 

lack of insight on contractors’ costs. In two cases, program offices established 

fixed prices for the entire potential length of the 9- and 15-year contracts without 

the ability to renegotiate prices or obtain incurred cost data. In comparison to the 

contracts with the longest durations, the five contracts GAO reviewed with 

maximum lengths of 5 years made less use of incentives or cost-control tools

and generally did not have the ability to renegotiate contract prices, but program 

officials believed that the shorter-term nature of the contracts mitigated some of 

their risks. DOD does not collect information concerning the effectiveness of the 

various incentives or cost control tools used on long-term maintenance contracts, 

but it has identified efforts made by individual programs to improve acquisition of 

maintenance services. Developing lessons learned on what incentives and costcontrol tools work best would help inform future acquisition strategies and reduce 

risk. View GAO-12-558. For more information, 

contact Belva M. Martin at (202) 512-4841 or 

martinb@gao.gov or Cary Russell at (202) 

512-5431 or russellc@gao.gov. 
Page i GAO-12-558 Long-term Maintenance Contracts

Letter 1 

Background 4

DOD Does Not Know the Extent to Which It Relies on Long-term 

Maintenance Contracts 8

Early Acquisition Decisions Limit DOD’s Ability to Select 

Alternative Maintenance Providers 14

Programs Use Different Approaches to Incentivize Performance 

and Obtain Insights into Contractor Costs 21

Conclusions 28

Recommendations for Executive Action 28

Agency Comments and Our Evaluation 29

Appendix I Scope and Methodology 30

Appendix II Comments from the Department of Defense 33

Appendix III GAO Contact and Staff Acknowledgments 35

Tables

Table 1: Selected Characteristics of Long-term Maintenance 

Contracts Reviewed by GAO 12

Table 2: Impact of Technical Data Access on Ability to Change 

Maintenance Service Providers for the Contracts GAO 

Reviewed 15

Table 3: Weapon System Programs’ Plans to Acquire Technical 

Data during Development and Production 19

Table 4: Longer-term Contracts’ Use of Incentives and Tools to 

Control Costs 22

Table 5: Program Offices’ Use of Incentives and Tools to Control 

Costs on Shorter Duration Maintenance Contracts GAO 

Reviewed 25

Contents
Page ii GAO-12-558 Long-term Maintenance Contracts

Abbreviations

USD(AT&L) Office of the Under Secretary of Defense for 

 Acquisition, Technology, and Logistics

JSTARS Joint Surveillance Target Attack Radar System

DOD Department of Defense

FPDS-NG Federal Procurement Data System-Next 

 Generation

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-12-558 Long-term Maintenance Contracts

United States Government Accountability Office

Washington, DC 20548

May 31, 2012

The Honorable J. Randy Forbes

Chairman

The Honorable Madeleine Z. Bordallo

Ranking Member

Subcommittee on Readiness

Committee on Armed Services

House of Representatives

The Department of Defense (DOD) spends billions of dollars each year 

on operating and support costs for weapon systems, including for 

maintenance, engineering support, and personnel. Such costs historically 

account for approximately 70 percent of a weapon system’s total life-cycle 

cost.1

 

1

According to DOD officials, operating and support costs generally range from 60 to 80 

percent of a weapon system’s total costs, depending on the weapon system type. 

According to DOD, product support encompasses materiel management, distribution, 

technical data management, maintenance, training, cataloging, configuration 

management, engineering support, repair parts management, failure reporting and 

analysis, and reliability growth. 

Among such expenses are those associated with depot-level repair 

of weapon systems, which includes overhaul, upgrades, and rebuilding of 

parts and assemblies. According to a recent DOD report, the department 

spent approximately $33 billion in fiscal year 2010 to maintain its weapon 

systems through both government and commercial providers. In some 

instances, DOD may determine that depot-level maintenance will be 

performed through a contractor using long-term contracts for 

maintenance services that can span more than a decade. DOD officials 

note that a long-term contract can encourage contractors to invest in new 

facilities, equipment, and processes, but may also hinder the 

government’s ability to appropriately incentivize the contractor’s 

performance and control costs, especially in the absence of a competitive 

 
 

Page 2 GAO-12-558 Long-term Maintenance Contracts

environment or if the government does not acquire access to the 

technical data needed to maintain the weapon system.2

In May 2011, GAO reported that DOD continues to face challenges that 

could undermine competition of maintenance contracts, including 

shortcomings in how programs’ technical data rights requirements 

necessary for competition are determined.3 Additionally, GAO has 

previously reported on DOD’s increased reliance on contractors for 

maintenance and other logistics support for its weapon systems, 

management challenges associated with the acquisition of major weapon 

systems, and the department’s lack of insight into costs associated with 

depot maintenance and other weapon support contracts.4

For the purposes of this report, we defined long-term maintenance 

contracts as those with a potential period of performance of five years or 

Consequently, 

given these issues and the long-term nature of certain maintenance 

contracts, you requested that we review various aspects of DOD’s use of 

long-term contracts for maintaining its weapon systems. To address this 

request, we evaluated (1) the extent to which DOD uses long-term 

maintenance contracts to support major weapon system programs, (2) 

DOD’s ability to select alternative maintenance services providers for its 

major weapon system programs, and (3) how long-term maintenance 

contracts have been structured to incentivize contractors’ performance

and manage contractor costs.

 

2

Defense Federal Acquisition Regulation Supplement contract clause 252.227-7013 

defines technical data as “recorded information, regardless of the form or method of the 

recording of a scientific or technical nature (including computer software documentation)... 

[but not including] computer software or data incidental to contract administration, such as 

financial and/or management information.” Technical data for weapon systems includes 

drawings, specifications, standards, and other details necessary to ensure the adequacy 

of item performance, as well as manuals that contain instructions for installation, 

operation, maintenance, and other actions needed to support weapon systems. GAO, 

Defense Acquisition: DOD Should Clarify Requirements for Assessing and Documenting 

Technical-Data Needs, GAO-11-469 (Washington, D.C.: May 11, 2011).

3

GAO-11-469. 

4

GAO, Defense Management: DOD Needs to Reexamine its Extensive Reliance on 

Contractors and Continue to Improve Management and Oversight, GAO-08-572T

(Washington, D.C.: Mar. 11, 2008); Defense Acquisitions: Assessments of Selected 

Weapon Programs, GAO-10-388SP (Washington, D.C.: Mar. 30, 2010); and Defense 

Logistics: Improvements Needed to Enhance Oversight of Estimated Long-term Costs for 

Operating and Supporting Major Weapon Systems, GAO-12-340 (Washington, D.C.: Feb. 

2, 2012).
 

Page 3 GAO-12-558 Long-term Maintenance Contracts

more that provide depot-level maintenance services or support 

performance of maintenance functions. Further, this report focuses on the 

policies and practices that pertain to major defense acquisition 

programs.5 To determine the extent to which DOD uses long-term 

maintenance contracts, GAO discussed with DOD and military 

department officials the data DOD collects on maintenance approaches 

and related contract information and reviewed various reports, including 

Distribution of DOD Depot Maintenance Workload, as well as DOD’s 

analysis of Federal Procurement Data System-Next Generation (FPDSNG) data related to maintenance services.6

To determine the extent to which major weapon system programs could 

select alternate maintenance services providers, we reviewed acquisition 

plans and interviewed program officials to obtain their insight on the 

factors that would hinder or facilitate the department’s ability to do so. We 

also interviewed program officials and reviewed documents on eight 

major defense acquisition programs identified by the Office of the Under 

Secretary of Defense for Acquisition, Technology, and Logistics 

(USD(AT&L)) as having a major acquisition review between October 2010 

and October 2011 to determine whether program officials had considered 

technical data rights in their acquisition strategies or life-cycle 

sustainment plans submitted as part of these reviews.

After determining departmentwide data concerning the use of such contracts was unavailable, we 

worked with military department officials to identify long-term 

maintenance contracts used by major weapon system programs. Based 

on these discussions, we reviewed 10 long-term contracts supporting 

seven major defense acquisition programs. We selected these contracts 

to represent each of the three military departments and to illustrate 

different maintenance approaches.

To determine how long-term maintenance contracts were structured to 

incentivize performance and provide insight into costs, we reviewed 

 

5

Major defense acquisition programs are those estimated by the Under Secretary of 

Defense for Acquisition, Technology, and Logistics to require an eventual total 

expenditure of more than $365 million for research, development, test, and evaluation, 

based on fiscal year 2000 constant dollars; $2.190 billion for procurement in fiscal year 

2000 constant dollars; or are designated as a major defense acquisition program by the 

milestone decision authority. 

6

The Federal Procurement Data System-Next Generation is the federal government’s 

current system for tracking information on contracting actions. 
 

Page 4 GAO-12-558 Long-term Maintenance Contracts

available acquisition plans, contractual information such as pricing data 

and price negotiation memoranda, incentive plans, and performance data 

and interviewed cognizant program officials for the long-term contracts we 

reviewed. As part of this effort, we reviewed the program offices’ use of 

monetary incentives such as award and incentive fees, performance 

bonuses, and downward price adjustments, as well as their use of 

contract term incentives, including award terms and incentive options, 

which can extend the contract’s period of performance. Further, to 

determine the extent to which programs gained insight into contractor 

costs, we identified whether they had the ability to renegotiate contract 

prices, obtained incurred cost data, or used cost-based incentive metrics. 

Appendix I provides more detailed information on our scope and 

methodology.

We conducted this performance audit from February 2011 through 

May 2012 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

DOD spends billions of dollars annually to maintain complex weapon 

systems including aircraft, ships, ground-based systems, missiles, 

communications equipment, and other types of electronic equipment that 

require regular and emergency maintenance to support national security 

goals. Maintenance of this equipment is divided into three levels 

corresponding to the extent and complexity of these repairs—depot-level, 

intermediate, and organizational. DOD defines depot maintenance as the 

highest level of maintenance and it generally refers to major maintenance 

and repairs, such as overhauling, upgrading, or rebuilding parts, 

assemblies, or subassemblies. This level of maintenance can consist of 

repair to entire weapon systems, major assemblies that comprise a 

system, or the components that make up those assemblies. Depot 

maintenance also includes installation of system modifications that extend 

the operational life of weapon systems. Such repairs and overhauls have 

long been provided by DOD maintenance personnel, private contractors, 

or a mixture of the two through public-private partnerships performed at 

government-owned and private facilities. Intermediate maintenance 

consists of repair capabilities possessed by operating units and in-theater 

sustainment organizations that include remove-and-replace operations for 

subcomponents, local manufacture, and other repair capabilities. 

Background 
 

Page 5 GAO-12-558 Long-term Maintenance Contracts

Organizational maintenance consists of the tasks necessary for day-today operation including inspection and servicing.

The department’s overarching acquisition guidance, DOD Directive 

5000.01, states that the program manager shall be the single point of 

accountability for accomplishing program objectives for total life-cycle 

systems management, including sustainment. DOD Instruction 5000.02, 

which provides additional DOD guidance for managing and overseeing 

defense acquisition programs, requires that program managers perform a 

core logistics analysis to support major acquisition milestone reviews after 

the technology or system development phase.7 Such logistics 

considerations, to include those related to maintenance, are contained 

within the life-cycle sustainment plan that was, until recently, reviewed as 

part of the acquisition strategy for major weapon system programs. In 

April 2011, DOD directed that the life-cycle sustainment plan be reviewed 

separately from the acquisition strategy and, in September 2011, directed 

that those sustainment plans associated with certain major weapon 

systems be approved by the Assistant Secretary of Defense for Logistics 

and Materiel Readiness at all milestone decision points during weapon 

system development and at the full-rate production decision.8

DOD has issued instructions that provide guidance to the military 

departments and program offices on defining maintenance requirements 

and approaches. For example, DOD Directive 4151.18 requires that the 

source of depot-level repair for major weapon systems be determined 

during the weapon system’s development.

Further, 

DOD has established a new template for the plans’ content to include the 

extent to which contractor services will support maintenance.

9

 

7

Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, 

Department of Defense Instruction 5000.02, Operation of the Defense Acquisition System, 

December 8, 2008.

It also provides instruction on 

8

Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, 

Document Streamlining—Program Strategies and Systems Engineering Plan, April 20, 

2011; and Document Streamlining—Life-Cycle Sustainment Plan, September 14, 2011. 

Specifically, the Assistant Secretary of Defense for Logistics and Materiel Readiness is to 

review and approve sustainment plans for major defense acquisition programs designated 

as Acquisition Category ID or those that are designated as being of special interest.

9

Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics,

Department of Defense Directive 4151.18, Maintenance of Military Materiel, March 31, 

2004.

Several Policies Guide 

Decisions on Maintenance 

Approaches 
 

Page 6 GAO-12-558 Long-term Maintenance Contracts

determining if depot-level maintenance for a weapon system will be 

performed at a government-owned and government-operated (hereinafter 

referred to as “organic”) depot, by a private-sector contractor, or some 

combination of the two. Section 2466 of Title 10 of the U.S. Code places 

limitations, however, on contracted depot-level maintenance of materiel. 

The statute provides that not more than 50 percent of funds made 

available in a fiscal year for depot-level maintenance and repair may be 

used for contracted services. This is known as the 50/50 requirement. 

DOD is also required to report annually on past and projected workload 

allocations. DOD Directive 4151.18 requires that USD(AT&L) monitor 

compliance with the directive and review the adequacy of DOD 

maintenance programs and resources. Additionally, it requires DOD 

components develop tools and management procedures to implement the 

content of the directive.10

Additionally, DOD Instruction 4151.20 provides instruction for determining 

“core” maintenance requirements as defined in Section 2464 of Title 10 of 

the U.S. Code.11 These core requirements are considered essential for 

the national defense and require that DOD maintain a logistics capability 

that is government-owned and government-operated to ensure DOD can 

effectively respond to a mobilization, national defense contingency 

situations, and other emergency requirements in a timely manner. To 

ensure that life-cycle sustainment planning is done early in a weapon 

system’s development phase, the National Defense Authorization Act for 

fiscal year 2012 revised the assessment of core maintenance 

requirements and directed DOD to identify such requirements at 

acquisition milestones.12

In recent years, Congress and DOD have emphasized the need to 

maintain competition throughout the life cycle of weapon system 

programs and improve how the department acquires services. For 

 

10DOD components include the Office of the Secretary of Defense, the military 

departments, the Chairman of the Joint Chiefs of Staff, the combatant commands, the 

Office of the Inspector General, the defense agencies, DOD field activities, and all other 

organizational entities in DOD.

11Department of Defense Instruction 4151.20, Depot Maintenance Core Capabilities 

Determination Process, January 5, 2007.

12Pub. L. No. 112-81 § 801 (2011).

Recent Legislative and 

DOD Efforts to Enhance 

Competition 
 

Page 7 GAO-12-558 Long-term Maintenance Contracts

example, Congress passed the Weapon System Acquisition Reform Act 

of 2009, requiring DOD to ensure competition or the option of competition 

throughout a weapon system program’s life cycle, in part, by requiring 

DOD to consider purchase of complete technical data packages when 

cost-effective.13 In May 2011, however, we reported that DOD continues 

to face challenges that could undermine competition of maintenance 

contracts, including shortcomings in how programs’ technical data rights 

requirements that are necessary for competition are determined.14 We 

recommended, and DOD agreed, that the department should update its 

acquisition and procurement policies to clarify requirements for 

documenting technical data requirements and to issue instructions for 

program managers to use when conducting analyses used to determine 

technical data rights needs for a weapon program.15

More recently, in September 2010, as part of DOD’s efficiencies initiative, 

USD(AT&L) issued guidance intended to improve affordability and cost 

control, competition, and management of services acquisitions, among 

other areas.16

 

13Pub. L. No. 111-23 § 202(b)(7) (2009). 

Among the specific actions called for are taking steps to 

improve insight into contract costs, increasing competition in services 

contracting, and setting rules for the acquisition of technical data rights. 

For example, DOD’s September 2010 guidance noted that military 

departments and DOD components will be required to review the length 

of time that services contracts remain in effect before recompetition, 

noting that single-award services contracts should be limited to 3 years 

unless justified by the senior manager for services. It also notes that 

certain other types of services contracts, such as those for logistics, may 

not be appropriate for such limits. Subsequently, DOD issued guidance in 

November 2010 requiring program managers for all acquisition programs 

14GAO-11-469. 

15DOD may obtain different levels of rights to technical data, including unlimited rights, 

government-purpose rights, and limited rights. If DOD obtains unlimited rights, it may 

provide the data to anyone for any reason. However, if DOD obtains government-purpose 

rights, it may provide the data to third-party contractors only for activities in which DOD is 

involved, including competitive reprocurement but not including commercial purposes. If 

DOD obtains limited rights, it may only use the data internally and may provide the data to 

third parties in a limited number of circumstances. 

16Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, 

Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in 

Defense Spending, September 14, 2010. 
 

Page 8 GAO-12-558 Long-term Maintenance Contracts

to (1) conduct a business-case analysis that outlines the technical data 

rights the government will pursue to ensure competition and (2) include 

the results of this analysis in acquisition strategies at a program’s 

entrance into the engineering and manufacturing development phase of 

the acquisition.17

At the departmental level, neither DOD nor the individual military 

departments know the extent to which weapon system programs rely on 

long-term maintenance contracts. This includes the most basic 

information—how many of such contracts are currently in use. DOD does 

not collect or maintain such information during its reviews of acquisition 

strategies or life-cycle sustainment plans, nor do existing data collection 

systems provide the type of information needed to do so. Consequently, 

we worked with the military departments to identify a number of long-term 

maintenance contracts and selected 10 contracts supporting seven major 

weapon systems for detailed review. We found that these contracts varied 

widely in terms of breadth of requirements, potential period of 

performance, and value. For example, our work found that these 

contracts could extend up to 22 years if the contractor meets performance 

criteria and earns award terms. These contracts also constituted a 

significant investment for the government. Program offices reported 

obligations of over $18.4 billion on these 10 contracts through the end of 

fiscal year 2011. In that fiscal year alone, programs obligated nearly 

$1.7 billion on the 10 contracts we reviewed.

DOD was unable to provide us a list of ongoing long-term maintenance 

contracts. Further, DOD officials noted that existing reports and data 

collection systems do not provide the department information on the use 

of long-term maintenance contracts. For example, USD(AT&L) reports to 

Congress annually on the percentage of funds expended during the 

preceding fiscal year for public and private maintenance and repair 

activities, and project funding requirements for the current and ensuing 

 

17Under Secretary of Defense for Acquisition, Technology, and Logistics, Implementation 

Directive for Better Buying Power – Obtaining Greater Efficiency and Productivity in 

Defense Spending, November 3, 2010. 

DOD Does Not Know 

the Extent to Which It 

Relies on Long-term 

Maintenance 

Contracts 

Lack of Data on Long-Term 

Maintenance Contracts 

Reflect Broader DOD 

Challenges with Managing 

Services Acquisition
 

Page 9 GAO-12-558 Long-term Maintenance Contracts

fiscal year.18

DOD’s limited visibility over long-term maintenance contracts reflects 

broader DOD challenges with managing services acquisition. Over the 

past decade, our work has identified the need for DOD to obtain better 

data on its contracted services to enable it to make more strategic 

decisions. For example, in 2006, we reported that DOD’s approach to 

managing services acquisition tended to be reactive and had not fully 

addressed the key factors for success at either a strategic or transactional 

level.

However, USD(AT&L) is not required to include information 

on the distribution of these contracts among the department’s weapon 

system programs, the total number of contracts used, or the length of 

performance of these contracts in these reports. Similarly, USD(AT&L) 

officials noted that while they have used FPDS-NG to perform contract 

spend analysis for various categories of services, including maintenance 

services, FPDS-NG does not record the potential period of performance 

for all contracts, including those that use incentives that may extend the 

life of the contract. Additionally, while some contract actions associated 

with maintenance are coded as such in FPDS-NG, our analysis found that 

other maintenance-related activities may be reported as management 

support, logistics support, and system engineering services. Further, we 

found that the Defense Acquisition Management Information Retrieval 

System, DOD’s web-based data system that tracks programmatic 

information on major defense acquisition programs, did not contain 

accurate information on what major weapon systems were currently 

fielded and are being maintained.

19

 

18Prior GAO work found systemic weaknesses in DOD’s data gathering and reporting 

processes to support these efforts, which prevents the precise calculation of DOD’s 

funding for public and private-sector depot maintenance and repair workloads, even at the 

aggregate level. See GAO, Depot Maintenance: Issues and Options for Reporting on 

Military Depots, 

The strategic level is where the enterprise sets a direction for what 

it needs, captures knowledge to make informed management decisions, 

ensures departmentwide goals and objectives are achieved, and 

assesses the resources it has to achieve desired outcomes. The strategic 

level sets the context for the transactional level, where the focus is on 

making sound decisions on individual service acquisition using valid and 

well-defined requirements, appropriate business arrangements, and 

adequate management of contractor performance.

GAO-08-761R (Washington, D.C.: May 15, 2008). 

19GAO, Defense Acquisitions: Tailored Approach Needed to Improve Service Acquisition 

Outcomes, GAO-07-20 (Washington, D.C.: Nov. 9, 2006). 
 

Page 10 GAO-12-558 Long-term Maintenance Contracts

Our prior work has shown, however, that while DOD obtains insight into 

individual programs through various program reviews, DOD does not 

collect or maintain that information to inform strategic decisions. For 

example:

• In response to congressional direction, DOD and the military 

departments have established procedures for reviewing, approving 

and monitoring services acquisitions, including those for maintenance. 

Further, since 2006, all proposed services acquisitions with a value 

estimated at more than $1 billion or designated as “special interest” 

are reviewed by USD(AT&L), while military department or other 

defense component officials review acquisition strategies for those 

below this threshold. Contract requirements, risks, and business 

arrangements are among the items included in reviewed acquisition 

strategies. Though these reviews take place, DOD does not collect or 

aggregate the information they produce to provide department-wide 

insight into the use of long-term maintenance contracts.

• Additionally, to improve DOD’s services acquisition process, 

USD(AT&L) implemented an independent management review, or 

peer review, process for its service contracts in 2008.20 Occurring 

after approval of the acquisition strategy, these peer reviews are 

conducted prior to and after award of services contracts, and are 

published to facilitate cross-sharing of best practices and lessons 

learned on various contracting issues, including the use of 

competition, contract structure and type, definition of contract 

requirements, and cost or pricing methods. Each of these reviews 

provides for the discussion of issues related to contracting strategy, 

but DOD officials noted that they do not collect or maintain information 

on what type of contracting approach was used to acquire all services 

that support DOD weapon systems. Further, while DOD collects and 

makes available lessons learned from these reviews in areas such as 

source selection and use of incentives, DOD officials stated that the 

process has not resulted in lessons learned or best practices specific 

to the use of long-term maintenance contracts.

• Similarly, DOD policy and guidance require USD(AT&L) and military 

department senior acquisition executives approve acquisition 

 

20For more information see GAO, Defense Acquisitions: Status of DOD’s Implementation 

of Independent Management Reviews for Services Acquisitions, GAO-10-284

(Washington, D.C.: Jan. 28, 2010).
 

Page 11 GAO-12-558 Long-term Maintenance Contracts

strategies and life-cycle sustainment plans during program milestone 

reviews. Each of these documents is to include information on the 

proposed acquisition approach, including the use of contractor 

support. Our discussions with USD(AT&L) and representatives from 

the military department offices responsible for reviewing these plans 

found these offices do not maintain information on the extent to which 

long-term maintenance contracts are used by weapon system 

programs.

In the absence of department-wide data on the use of long-term 

maintenance contracts, we selected 10 long-term maintenance contracts 

that supported seven major weapon systems. We found that these 

contracts varied widely in terms of breadth of requirements, potential 

period of performance, and value.21

 

21We were unable to determine, even after working with military department and program 

officials, the number of long-term maintenance contracts used to maintain major defense 

acquisition programs. For example, we requested information from offices responsible for 

major defense acquisition programs as identified by the military departments, but found 

that in many instances program offices either did not provide the requested information or 

the information provided was incomplete, precluding a department-wide assessment. 

Consequently, we worked with officials from the military departments to identify potential 

programs that might be using long-term contracts. Air Force acquisition officials identified 

at least nine programs that used long-term maintenance contracts, including the F-22 and 

C-17. Navy and Army officials indicated that we needed to contact program executive 

offices or program offices to obtain more precise information on the extent to which such 

contracts are used.

For example, the contracts we 

reviewed included those that supported maintenance of an entire weapon 

system platform such the Air Force’s Joint Surveillance Target Attack 

Radar System (JSTARS) to more specific depot-level maintenance 

support activities for system components, such as the Navy’s T-45 engine 

contract. Table 1 shows selected characteristics of the 10 contracts we 

reviewed.

Long-term Maintenance 

Contracts GAO Reviewed 

Had Widely Varied 

Characteristics
 

Page 12 GAO-12-558 Long-term Maintenance Contracts

Table 1: Selected Characteristics of Long-term Maintenance Contracts Reviewed by GAO

Military 

department/system

Component/platform 

supported by longterm contractContract type and 

incentives Potential contract term a Award 

year

Obligations 

through 

September 

30, 2011 

(in billions)

Air Force

C-130 transport 

aircraft

C-130J airframe Firm-fixed price

contract/award fee

10 years: 2-year base + 3-

year option + 3-year option 

+ 2-year option 2006 $0.3

C-130J engine Firm-fixed price

requirements 

contract/incentive fee

9 years:1-year base + eight 

1-year options

2007 $0.5

T56 engine Fixed-price-award-term 

requirements contract with 

economic price 

adjustment/award term

15 years: 7-year base + 8 

possible award term years

1999 $13.9

JSTARS surveillance 

aircraft

Platform Cost-plus award fee

contract/award term

22 years: 6-year base + 16 

possible award term years 2000 $1.9

KC-10 tanker 

aircraft

Platform Firm-fixed price indefinite 

delivery/indefinite quantity 

contract/incentive option 

years

9 years: 2-year base + 

2-year option + 2 year 

option + 3 possible 

incentive option years 2009 $0.8

Army

AH-64 helicopter Airframe Firm-fixed price contract b 5 years: 1-year base + four 

1-year options 2010 $0.2

CH-47 helicopter Engine Firm-fixed price

contract/incentive fee

5 years: 1-year base + four 

1-year options 2011 <$0.1

Navy

MH-60 helicopter Airframe and avionics Firm-fixed price

requirements contract

4-year base with no 

options 2011 c $0.2

T-45 trainer aircraft

Airframe Firm-fixed price contract 5 years: 1-year base + four 

1-year options 2008 $0.3

Engine Firm-fixed price

requirements contract

5 years: 1-year base + four 

1-year options 2008 $0.2

Source: GAO analysis of DOD data.

a

Contract type and incentives represent the predominant type of contract vehicle and incentives used. 

A requirements contract provides for filling all purchase requirements of a government activity for 

supplies or services during the contract period from a single contractor. Indefinite delivery, indefinite 

quantity contracts provide for an indefinite quantity of supplies or services for a fixed time. A firmfixed price contract provides for a price that is not subject to any adjustment on the basis of the 

contractor’s cost experience in performing the contract. A fixed-price contract with economic price 

adjustment provides for upward and downward revision of the stated contract price upon the 

occurrence of specified contingencies. Cost-plus-award-fee contract is a cost-reimbursement contract 

that provides for a fee consisting of a base amount fixed at inception of the contract and an award 

amount based upon a judgmental evaluation by the government. Federal Acquisition Regulation Part 

16.

b

Contract also provides for maintenance of the CH-47 airframe.
 

Page 13 GAO-12-558 Long-term Maintenance Contracts

c

According to program documentation, initial acquisition strategy called for a 5-year contract. Pricing 

for the current contract was negotiated together with the preceding 1-year bridge contract for a total 

5-year pricing negotiation.

In addition to maintenance activities, the contracts we reviewed also 

provide supply chain management, technical data management, training, 

equipment configuration management, and engineering support, among 

other requirements. Further, we found that long-term maintenance 

contracts could extend up to 22 years if the contractor meets performance 

criteria and earns award terms. Lastly, we found that these contracts 

constituted a significant investment for the government, as program 

offices reported obligations of over $18.4 billion on these contracts 

through the end of fiscal year 2011. In that fiscal year alone, programs 

obligated nearly $1.7 billion on the 10 contracts we reviewed.

DOD officials noted that although long-term contracts can encourage 

contractors to invest in new facilities, equipment, and processes to 

support depot-level maintenance, such contracts may hinder the 

government’s ability to appropriately incentivize the contractor’s 

performance and control costs. DOD officials noted that the department is 

pursuing a number of initiatives that could potentially improve DOD’s 

insight into long-term maintenance contracts and their management. For 

example, USD(AT&L) officials pointed out that the department is creating 

a standalone instruction for service acquisitions, based on DOD 

Instruction 5000.02. Although the instruction is in the early stages of 

development, USD(AT&L) officials said that it will provide more detailed 

guidance for the acquisition of specific services and reflect issues such as 

duration that have been raised in recent DOD guidance. USD(AT&L) 

officials said that the department is currently considering expanding or 

updating the Defense Acquisition Management Information Retrieval 

system to retain contract information for major service contracts, such as 

contractors’ performance histories, contract lengths, contract types, and 

incentives used for these services.
 

Page 14 GAO-12-558 Long-term Maintenance Contracts

Decisions made early in the acquisition process can limit DOD’s ability to 

select alternative maintenance providers over the life cycle of a weapon 

system program. Program officials believed they could select an 

alternative service provider in the future for 5 of the 10 contracts we 

reviewed, but the degree to which the government obtained access to 

technical data would be an obstacle in doing so for the other half. DOD 

has updated its policies to emphasize determining technical data needs 

earlier in the acquisition life cycle. Information we collected on eight 

weapon system programs in development or early stages of production 

that were reviewed by USD(AT&L) between October 2010 and October 

2011 indicated that at least half have acquired or plan to acquire sufficient

technical data to compete maintenance services or to perform 

maintenance with organic depot personnel should the need arise. The 

programs, however, had yet to determine the extent to which they will 

acquire these data or the cost to do so.

DOD program officials said that decisions made early in the acquisition 

cycle, especially with regard to acquiring technical data, may hinder the 

department’s ability to change maintenance service providers for depotlevel activities. As we reported in May 2011, technical data can enable 

the government to complete maintenance work in-house, as well as to 

competitively award contracts for the acquisition and sustainment of a 

weapon system.22 More recently, we reported that for contracts pertaining 

to DOD weapon programs, which can involve products as well as support 

services, the lack of access to proprietary technical data and a heavy 

reliance on specific contractors for expertise limits or even precludes the 

possibility of competition. Even when access to technical data is not an 

issue, the government may have little choice other than to rely on the 

contractors that were the original equipment manufacturers, and that, in 

some cases, designed and developed the weapon system.23

 

22

Of the ten 

contracts we reviewed only three were competitively awarded. Table 2 

summarizes the impact of technical data access on DOD programs’ ability 

to select alternate services providers for maintenance on the contracts we 

reviewed.

GAO-11-469. 

23GAO, Defense Contracting: Competition for Services and Recent Initiatives to Increase 

Competitive Procurements, GAO-12-384 (Washington, D.C.: Mar. 15, 2012).

Early Acquisition 

Decisions Limit 

DOD’s Ability to 

Select Alternative 

Maintenance 

Providers 

Some Major Weapon 

System Programs Could 

Select an Alternative 

Maintenance Service 

Provider but Others Faced 

Obstacles
 

Page 15 GAO-12-558 Long-term Maintenance Contracts

Table 2: Impact of Technical Data Access on Ability to Change Maintenance Service Providers for the Contracts GAO 

Reviewed

Military 

department/

system

Component/platform 

supported by

long-term contract

Competed 

contract?

Ability to transition

contracted maintenance

work to an organic depot?

Ability to recompete

maintenance contracts?

Yes/No Yes/No Reason Yes/No Reason

Air Force

C-130

C-130J airframe No No Insufficient access to 

technical data

No Insufficient access to 

technical data

C-130J engine No No Insufficient access to 

technical data

No Insufficient access to 

technical data

T56 engine Yes Yes Sufficient access to 

technical data; engine 

maintenance was once 

done organically

Yes Access to technical data 

allows the program to 

recompete the current 

contract

JSTARS Platform No No Insufficient access to 

technical data

No Insufficient access to 

technical data

KC-10 Platform Yes No Insufficient access to 

technical data

Yes The aircraft is commercially 

derived and there is a 

competitive environment

Army

AH-64 Airframe No a Yes Sufficient access to 

technical data; the airframe 

maintenance is done 

organically with contractor 

support

No Insufficient access to 

technical data for 

recompetition

CH-47 Engine No Yes Sufficient access to 

technical data; engine 

maintenance is done 

organically with contractor 

support

No Insufficient access to 

technical data for 

recompetition

Navy

MH-60 Airframe and avionics No No Insufficient access to 

technical data

No Insufficient access to 

technical data

T-45

Airframe Yes No Insufficient access to 

technical data

Yes Sufficient amount of 

technical data procured to 

recompete contract for this 

commercially derived 

aircraft 

Engine No No Insufficient access to 

technical data

No Insufficient access to 

technical data

Source: GAO analysis of DOD data.

a

Contract also provides for maintenance of the CH-47 airframe.

DOD acquired technical data sufficient to potentially select an alternative 

service provider—either by transitioning contracted maintenance work to 
 

Page 16 GAO-12-558 Long-term Maintenance Contracts

an organic depot or recompeting maintenance contracts—for 5 of the 10 

maintenance contracts we reviewed. Three of these programs had 

sufficient access to technical data to perform maintenance services 

organically. For example,

• Depot maintenance for the AH-64 and CH-47 helicopter airframe 

components was already performed organically at the Corpus Christi 

Army Depot prior to the use of contractor support. However, the 

program determined that contractor support could improve its 

maintenance practices and the availability of components. While 

government personnel continue to do all maintenance work on 

airframe components, since 2004 the Army has used a contractor to 

provide parts integration, technical engineering and logistics support 

which has significantly increased system availability.

• As a result of a 1995 Base Realignment and Closure decision, the 

military depot that maintained the T56 engines for the C-130 program 

was closed. To mitigate the impact of the closing on the local 

community and employees, the maintenance workload was performed 

by the private sector at the same location. The Air Force used a 

public-private competition—an opportunity for the public and private 

offerors to compete for the work—to determine the most cost-effective 

source of repair, and the T56 engine maintenance is now provided by 

a contractor.24

Two other programs reported they are able to recompete maintenance 

services contracts even though neither program purchased complete 

technical data associated with the weapon system. According to program 

officials, they could compete contracts for maintenance services either 

because they acquired sufficient technical data for specific portions of the 

aircraft or because there was a competitive environment for maintenance 

services for commercially-derived systems. The latter are weapon 

systems that were adapted for military use from a commercial item as 

opposed to weapon systems developed for the military. For example,

• The Navy’s T-45 trainer aircraft program was designated to be 

maintained by contractors for the life of the program, as it is not a core 

asset and there was a competitive environment with multiple vendors 

 

24GAO, Depot Maintenance: Air Force Is Assessing Engine Maintenance Options for Work 

Currently Performed at Kelly Aviation Center, GAO-11-274R (Washington, D.C.: Feb. 11, 

2011).
 

Page 17 GAO-12-558 Long-term Maintenance Contracts

to provide maintenance support for this commercially available 

aircraft. During development, the Navy purchased technical data for 

DOD-specific aspects of the plane’s airframe design, allowing the 

program office to recompete maintenance contracts throughout the 

life cycle of the system. Specifically, after the program split its systemlevel maintenance contract into separate engine and airframe 

contracts, it was able to leverage its access to technical data to 

competitively award the airframe contract. When the airframe contract 

was recompeted in 2007, five vendors submitted capability 

statements. Program officials told us that they expect a similar 

industry response when the contract is recompeted again this year.

• Similarly, for the KC-10 aircraft, the aircraft is based on a commercial 

design and uses contractor logistics support for maintenance 

services. The Air Force has competitively awarded five maintenance 

contracts since the KC-10 was acquired in 1978. The last competition 

occurred in 2010 and there were two proposals which resulted in the 

selection of a new contractor.

For 5 of the 10 contracts, however, programs reported they could neither 

transition contracted maintenance services to an organic depot nor 

recompete the contract due to insufficient access to technical data as well 

as factors such as insufficient funding, staffing, and expertise in some 

cases. For example,

• According to JSTARS program officials, the Air Force currently cannot 

convert contracted maintenance work to an organic depot or 

recompete the work because it has insufficient access to technical 

data for the aircraft’s unique systems and equipment. Prior to 

awarding the current contract, the JSTARS program utilized 17 

sustainment contracts with the government managing these contracts 

and performing some portions of maintenance organically. However, 

in September 2000, the Air Force noncompetitively awarded a 

contract so that a single contractor would be responsible for 

sustainment activities that were previously performed under contracts 

or by government personnel. Program officials said that when the Air 

Force took on the more limited role of oversight of the prime 

contractor, program staffing and expertise were reduced significantly. 

They added that, as a result, the program office currently lacks the 

engineers, equipment specialists, inventory managers, and other staff 

and skills needed to manage all sustainment activities if the 

requirements included in the current contract were to be performed by 

multiple service providers.
 

Page 18 GAO-12-558 Long-term Maintenance Contracts

• Though previous models of the Air Force’s C-130 fleet are maintained 

organically, contractors developed the C-130J model (both the 

airframe and engine) as a commercial item and it was acquired by the 

Air Force without related technical data. As a result, the program 

office must acquire maintenance services for all components unique 

to this model of the aircraft from the original equipment manufacturers 

through contracts. Program officials noted that there is a requirement 

to eventually bring the aircraft maintenance to organic depots, but 

noted that even if it were able to acquire the necessary technical data, 

the program office would need substantial funding to develop 

capabilities at the organic depots.

Recent acquisition reforms such as the Weapon System Acquisition 

Reform Act of 2009 and DOD’s recent initiatives seeking greater 

efficiency and cost savings in acquisitions have put greater emphasis on 

obtaining technical data rights and on maintaining competition throughout 

the life cycle of weapon systems. For example, Congress has required 

that DOD issue comprehensive guidance on life-cycle management, 

develop and implement product support strategies, and appoint product 

support managers for major weapon systems, while DOD’s September 

2010 efficiency initiatives memorandum includes a requirement that each 

military department set rules for acquisition of technical data rights as part 

of a plan to improve competition. DOD has taken a number of actions, 

including revising its acquisition policy to ensure that technical data 

requirements are considered during the acquisition process at key 

milestones. More recently, DOD has drafted guidance for developing 

open systems architecture contracts. This guidance will provide additional 

information to program managers regarding purchase of technical data 

and planning for an open systems architecture that may allow for 

increased flexibility in maintenance and purchase of such data.

Data we collected on eight DOD weapon systems currently in 

development or early stages of production that were reviewed by 

USD(AT&L) between October 2010 and October 2011 as part of an 

acquisition review indicates that the programs have considered 

maintenance and other sustainment issues when making decisions 

regarding technical data needs. Table 3 summarizes these eight 

programs’ plans to acquire access to technical data rights.

Technical Data Rights 

Need to Be Considered 

Early in the Acquisition 

Process
 

Page 19 GAO-12-558 Long-term Maintenance Contracts

Table 3: Weapon System Programs’ Plans to Acquire Technical Data during Development and Production 

Military 

department Program Technical data decision

Air Force

a

MQ-9 Reaper unmanned

aircraft system

Program officials said the Air Force is assessing the technical data required to 

maintain the weapon system at the component level.

Army 

AH-64 Apache Block III 

helicopter 

Army officials stated that the program will leverage the existing maintenance 

arrangement for previous variants of the aircraft and assess what technical data 

are necessary to maintain the Block III-unique components. 

XM982 Excalibur guided

artillery projectile

The program reports that it is working with the contractor to ensure negotiated 

technical data are received, including those for certain proprietary technologies. 

MQ-1C Gray Eagle unmanned 

aircraft system

According to Army officials, the Army will assess the technical data required for 

specific system components.

Navy

AIM 9X Sidewinder air-to-air 

missile

Navy officials stated that the Navy is pursuing unlimited data rights for this new 

missile variant.

E2D AHE Advanced Hawkeye 

aircraft 

Navy officials stated that the Navy plans to obtain access to technical data as it is 

being developed for components unique to this variant, and will take possession 

of this data at the time the last aircraft is delivered.

Littoral Combat Ship surface 

combatant 

The Navy’s acquisition strategy states that technical data will be acquired to 

support organic and private support to the system. According to officials, the 

department purchased government purpose rights and unlimited technical data 

rights for over 95 percent of the sea frame and the interface of the mission

package components.

SSBN(X) Ohio-class replacement 

ballistic missile submarine

Program officials said the Navy plans to acquire unlimited technical data rights to 

support depot maintenance at government facilities.

Source: GAO analysis of DOD data.

a

DOD may obtain different levels of rights to technical data including unlimited rights, governmentpurpose rights, and limited rights. If DOD obtains unlimited rights, it may provide the data to anyone 

for any reason. However, if DOD obtains government-purpose rights, it may provide the data to thirdparty contractors only for activities in which DOD is involved, including competitive reprocurement but 

not including commercial purposes. If DOD obtains limited rights, it may only use the data internally 

and may provide the data to third parties in a limited number of circumstances.

For the eight programs we reviewed, at least four have acquired or plan 

to acquire sufficient data to compete maintenance services or to perform 

maintenance with organic depot personnel while others had yet to 

determine the extent to which they will acquire these data or the cost to 

do so. For example:

• The Navy acquired government purpose rights and unlimited technical 

data rights for over 95 percent of major components for the Littoral 

Combat Ship, according to program officials.25

 

25Specifically, Navy officials said that under this acquisition, the government purchased 

technical data for the sea frame and mission package component interface.

They said that most of 
 

Page 20 GAO-12-558 Long-term Maintenance Contracts

the depot-level maintenance on the Littoral Combat Ship is expected 

to be performed by the private sector, and the Navy reports that 

competitive environment should enhance the ability of the Navy to 

control life-cycle sustainment costs.

• The Air Force has begun to analyze components on the MQ-9 aircraft 

and to determine what technical data is required to maintain the 

aircraft, according to program officials. They told us they are 

performing a business case analysis that will determine if technical 

data should be acquired for approximately 600 aircraft parts and 

major air frame components, but only a small percentage of these 

components have been assessed through this process to date.

• The Army will assess the technical data needs to maintain specific 

system components for components of the MQ-1C Gray Eagle as a 

means of retaining flexibility of maintenance options during 

sustainment. According to Army officials, the sustainment plan calls 

for the current contracting arrangement to transition to a public-private 

partnership in the future.

We previously reported that DOD program managers often opt to spend 

limited acquisition dollars on increased weapon system capability rather 

than on acquiring the rights to technical data, thus limiting their flexibility 

to perform maintenance work in house or to support the development of 

an alternative source should contractual arrangements fail.26 Unless DOD 

assesses and secures its rights for the use of technical data early in the 

weapon system acquisition process when it has the greatest leverage to 

negotiate, DOD may face later challenges in developing sustainment 

plans or changing these plans as necessary over the life cycle of its 

weapon systems. Delaying action in acquiring technical data rights can 

make these data cost-prohibitive or difficult to obtain later in a weapon 

system’s life cycle.

 

26GAO, Defense Management: Opportunities to Enhance the Implementation of 

Performance-Based Logistics, GAO-04-715 (Washington, D.C.: Aug. 16, 2004). 
 

Page 21 GAO-12-558 Long-term Maintenance Contracts

Once the decision is made to use long-term contracts, DOD faces 

choices on how to best incentivize contractor performance and manage 

costs. Of the 10 contacts we reviewed, we found that DOD programs that 

used contracts extending longer than 5 years made frequent use of 

incentives to motivate performance and tools that provide insight into and 

control of costs. Program officials acknowledged, however, that in some 

instances incentive structures needed to be periodically revised to better 

incentivize contractor performance and they may not have sufficient 

insight on contractor costs. Program offices using contracts lasting 5 

years, on the other hand, made less use of incentives and generally did 

not have the ability to renegotiate contract prices, but believed that the 

shorter-term nature of the contracts mitigated some of their risks. Further, 

program offices now obtain incurred cost data for two contracts, which 

they expect will help in the negotiation of better contract prices. The 

various contract lengths, incentives and cost-control tools across the 

programs we reviewed reflects the differences of each acquisition and the 

mission-specific maintenance approaches taken to support each weapon 

system, but the department has not collected information on their 

effectiveness on long-term maintenance contracts.

Of the programs we reviewed, we found that the Air Force awarded five 

relatively longer-term contracts—between 9 and 22 years—that 

incentivized contractor performance and attempted to gain insight into 

and control costs in various ways. All five of these contracts used some 

combination of monetary or contract term incentives to encourage 

contractor performance. These programs varied, however, in terms of the 

approaches used to gain insights into the contractors’ costs. For example, 

the JSTARS program used cost-based incentive metrics, scheduled 

specific opportunities to renegotiate the contract’s price, and received 

incurred cost data. In contrast, the contract to maintain the C-130’s T56 

engine did not use any of these approaches to gain cost insight. Table 4 

summarizes the incentives and tools used to gain cost insight and cost 

control.

Programs Use 

Different Approaches 

to Incentivize 

Performance and 

Obtain Insights into 

Contractor Costs

Programs with Longerterm Contracts Used 

Different Incentives and 

Tools to Provide Visibility 

on Costs
 

Page 22 GAO-12-558 Long-term Maintenance Contracts

Table 4: Longer-term Contracts’ Use of Incentives and Tools to Control Costs

Military 

department/contract

Potential 

contract length

Monetary 

incentive

Contract-term 

incentive

Cost-based 

incentive 

metric

Scheduled 

price 

renegotiation

Incurred cost 

data 

Air Force

JSTARS 22 years     

C-130 T56 engine 15 years -  - - - 

C-130J airframe 10 years  - -  

C-130J engine 9 years  - -  - 

KC-10 9 years -   - - 

Source: GAO analysis of DOD data.

Program offices can use incentives to motivate contractors to provide 

exceptional levels of contract performance. Three longer-term contracts 

we reviewed include monetary incentives in the form of an award fee or 

an incentive fee, while three contracts use contract term incentives where 

a point system is used to award additional contract years. Program 

officials acknowledged that the incentives needed to be adjusted at times. 

For example, the JSTARS program uses an award fee incentive to 

motivate short-term contractor performance and an award term incentive 

to motivate the contractor’s long-term performance. Over the course of 

the JSTARS contract, the contractor has earned nearly all the available 

award fee and award term years despite some serious performance 

issues in 2009. In this case, the Air Force identified several serious 

maintenance failures, including the presence of foreign objects in engine 

filters and aircraft structural damage resulting from maintenance errors, 

that were caused by the JSTARS contractor and which could have 

resulted in serious personal injury and loss of aircraft. Because the 

incentive structure encompasses the broad range of responsibilities 

assigned to the contractor, the contractor still earned most of that 

evaluation period’s available fee and enough award term points to earn 

another year of contractor performance. The fee-determining official 

noted that if it were possible, he would have given the contractor a much 

lower award fee and rating. While the failures were reflected in the award 

fee evaluation under three performance metrics, the contractor’s 

aggregate performance against the remaining metrics allowed it to earn 

90 percent of the eligible fee for this 2009 evaluation period. The JSTARS 

program subsequently amended its award fee plan to make the contractor 

ineligible for 40 percent of the award fee if its performance caused or 

contributed to a major accident. The contractor has earned at least 95 
 

Page 23 GAO-12-558 Long-term Maintenance Contracts

percent of the available award fee for every other evaluation period since 

the contract was awarded in 2000.

Program offices structured contract term incentives differently, which 

provided DOD different degrees of flexibility to award additional years of 

performance. For example, the award term plans for the JSTARS and 

C-130 T56 engine contracts we reviewed guarantee additional years of

work if contractors meet or exceed incentive metrics. Both the JSTARS 

and C-130 T56 engine contractors have earned the maximum number of 

possible award term years. Conversely, the current incentive option 

offered by the KC-10 program differs from the award terms used by the 

JSTARS or C-130 T56 contracts in key respects. The KC-10 program’s 

incentive includes “must-meet” metrics and a high degree of government 

discretion in awarding the additional incentive year. For example, even if 

the contractor meets all incentive metrics and earns the maximum 

available number of points needed to be considered for an additional 

incentive year, the program office can still decline to award the additional 

year. Additionally, if the contractor does not meet the standard set for any 

“must-meet” metric, it will not receive an incentive year. By structuring the 

incentive in this way, the program office mitigates the risk of the 

contractor earning incentives despite unsatisfactory performance, as in 

the previous JSTARS example. According to KC-10 officials, the 

contactor would not earn its first available incentive year with an 

approximate contract value of $450 million because it failed to provide 

continuous support for the initiation of global tanker support activities, a 

“must-meet” metric, among other performance shortcomings.

Some of the programs that use longer-term contracts adjusted incentive 

metrics to influence contractor performance in areas needing 

improvement. For example, C-130J program officials said that since 

awarding the airframe maintenance contract in 2006, they gradually 

added more incentive metrics to the airframe contract’s award fee plan to 

incentivize contractor performance in other areas. After the contractor 

improved performance in providing engineering services, the program 

office added an incentive metric to improve the contractor’s performance 

for supply chain management.

The programs using the five longer-term contracts we reviewed also use 

to varying degrees different tools to gain insight into and control costs 

over the term of the contracts, as illustrated by the following examples.
 

Page 24 GAO-12-558 Long-term Maintenance Contracts

• The JSTARS cost-type contract was awarded on a non-competitive 

basis to the system’s original equipment manufacturer and the 

contractor bears little risk under this long-term arrangement, but the 

program office has taken measures to obtain insights into and control 

the contractor’s costs. The program office used the incurred cost data 

it receives under the cost-type contract to help renegotiate contract 

prices during triennial reviews.27 Additionally, the program uses costbased incentive metrics to evaluate performance for award fee and 

award term determinations. For example, under the terms of the 

program’s January 2012 award fee plan, 10 percent of the 

contractor’s award fee is determined by tracking cost performance 

against contract estimates. This same metric is used to represent 10 

percent of award term determinations. In addition, cost containment is 

also evaluated as part of a weapon system improvement metric that 

accounts for 37 percent of award term determinations.

• The C-130J program structured its potentially 10-year airframe and 9-

year engine maintenance firm-fixed price contracts so that prices 

would be renegotiated at certain points during the contracts’ 

durations. For example, the program office receives incurred cost data 

for the airframe contract, and has renegotiated prices three times 

since the contract was awarded in 2006, with another renegotiation 

scheduled for January 2014. Program officials said that receiving 

incurred cost data helped them negotiate a 13 percent reduction in 

total contract costs during the last scheduled price renegotiation in 

January 2012. Program officials told us they can also gain insight into 

cost baselines through regular contractor performance monitoring and 

evaluation. For example, according to officials, the contractor 

supporting airframe maintenance used a new system to track parts 

that allowed for better utilization of spare parts and led to a decrease 

in hours needed to perform the contract requirement. Program 

officials were able to negotiate a lower price for that contract 

requirement during the next scheduled price negotiation.

 

27We reported in 2008 that the United Kingdom used an “open book accounting” 

arrangement to gain visibility into contractors’ costs. Additionally, the four long-term 

contracts used as examples by the United Kingdom’s Ministry of Defence each scheduled 

price negotiations during their 10- to 25-year terms. See GAO, Defense Logistics: 

Improved Analysis and Cost Data Needed to Evaluate the Cost-effectiveness of 

Performance Based Logistics, GAO-09-41 (Washington, D.C.: Dec. 19, 2008). 
 

Page 25 GAO-12-558 Long-term Maintenance Contracts

• In contrast, neither the C-130 T56 engine contract nor the KC-10 

program scheduled price renegotiations despite establishing firm-fixed 

prices for the entire potential length of the 15- and 9-year life of the 

respective contracts. For example, the C-130 T56 engine contract has 

prices fixed for the entire 15-year potential term of the contract with 

adjustments made for changes in best estimated quantities and for 

economic adjustments. Program officials expressed concern over 

their lack of insight into the contractor’s incurred costs and added that 

having such information, along with scheduled price renegotiations at 

the 5-year and 10-year points in the contract, would likely have been 

helpful in controlling maintenance costs. While KC-10 program 

officials cited the benefit of competition to drive down prices for 

maintenance services, USD(AT&L) officials indicated that proposed 

contracts reflecting a similar approach, where prices for the entire 

duration of a long-term contract are priced at award, would be 

reviewed carefully to ensure that the government’s interests were 

adequately protected.

The Army and Navy programs we reviewed used contracts with a 

maximum length of five years and generally did not make as frequent use 

of incentives or cost-control tools as programs using longer contracts. 

Army and Navy program officials indicated that they would prefer to use 

longer contracts in the future to enable contractors to invest in support 

infrastructure and improvements. Table summarizes the incentives and 

tools used for cost insight and cost control.

Table 5: Program Offices’ Use of Incentives and Tools to Control Costs on Shorter Duration Maintenance Contracts GAO 

Reviewed

Military

department/ contract

Potential 

contract length

Monetary 

incentive

Contractterm 

incentive

Cost-based 

incentive metric

Scheduled price 

renegotiation

Incurred cost 

data 

Army

AH-64 and CH-47 

airframes 

5 years - - -  

CH-47 engine 5 years  - - - - 

Navy

T-45 airframe 5 years  - - - - 

T-45 engine 5 years - - - - - 

MH-60 4 years  a - - - 

Source: GAO analysis of DOD data.

a

Programs with Shorterterm Contracts Tended Not 

to Use Incentives or Price 

Renegotiation Techniques

According to program documentation, the initial acquisition strategy called for a 5-year contract. Due 

to delays in contract award the current contract is for only 4 years.
 

Page 26 GAO-12-558 Long-term Maintenance Contracts

Across the five contracts with a maximum length of five years, three used 

monetary incentives and none used incentives that lengthen the 

contract’s term. The T-45 program office uses a performance bonus 

incentive, which allows the program to withhold monthly performance 

bonuses for contractor performance that did not meet or exceed 

thresholds on both incentive metrics. The program measures ready-fortraining availability and the maintenance cancellation rate. The contractor 

must meet or exceed performance thresholds for these metrics at all 

three locations where the aircraft are based to receive an overall bonus. 

As a result, the contractor could lose as much as 65 percent of the 

available bonus by not meeting requirements at a single location. 

According to program officials, this incentivizes the contractor to perform 

optimally at all three locations. Performance records show that the 

contractor has earned most of the available bonus since the contract was 

awarded in 2008. Similarly, the contract for CH-47 engine maintenance 

support includes a clause which allows the contractor to earn an incentive 

fee for reducing engine repair turn-around time. Since the contract began 

in 2011, there has been one evaluation period; the contractor did not 

meet the incentive metric and did not earn any incentive fee. On the other 

hand, MH-60 program officials told us that incentives in the form of 

additional payments are not necessary for their program’s maintenance 

support contract. They added that the contractor is self-incentivized to 

maximize its profit in this firm-fixed price contracting arrangement, which 

can be achieved through realizing efficiencies. Furthermore, they 

questioned the value of paying a contractor to provide services above and 

beyond what the program requires.28

Programs are now receiving incurred cost data to control maintenance 

costs for two five-year, firm-fixed price contracts, though this approach 

was not used in previous contracts for the same services. Since 2009, the 

MH-60 program office has required the contractor to submit incurred cost 

data semiannually. Program officials said that they were directed by the 

Instead, contract provisions allow 

the government to reduce the contractor’s payment if the contractor’s 

work does not meet minimum thresholds. MH-60 program officials 

reported that they have not had to make any downward price adjustments 

because the contractor is exceeding contract requirements.

 

28In 2008, GAO reported on the department’s awarding of incentives for performance 

exceeding contract requirements in performance based logistics arrangements, noting that 

paying for excess performance may not provide the best value to the government. See 

GAO-09-41.
 

Page 27 GAO-12-558 Long-term Maintenance Contracts

Office of the Assistant Secretary of the Navy to request the contractor’s 

incurred cost data and were supported by USD(AT&L) in negotiating for it. 

By comparing incurred costs and contract prices, program officials said 

that they were able to negotiate more favorable prices for the 2011 followon maintenance support contract. During the previous contract, the 

contractor was able to realize efficiencies that drove down its incurred 

costs. With access to this information, the MH-60 program was able to rebaseline contract costs and negotiate lower prices to reflect these 

efficiencies. The AH-64 and CH-47 programs also receive incurred cost 

data. A May 2011 DOD Inspector General audit found that the AH-64 and 

CH-47 programs were paying above fair and reasonable prices for parts 

supplied through their 5-year maintenance support contract.29

DOD has not collected information concerning the effectiveness of the 

various incentives or cost-control tools used on long-term maintenance 

contracts, but it has recognized efforts made by individual programs to 

improve acquisitions of such services. For example, during a December 

2010 peer review of the MH-60 airframe contract, USD(AT&L) officials 

noted that the use of incurred cost data allowed the program to negotiate 

lower prices for certain services. Program officials told us that it was 

difficult to negotiate for incurred cost data for fixed-priced contracts as 

contractors are generally reluctant to share their actual costs and seek to 

protect business-sensitive information. USD(AT&L) and military 

department officials told us that they are encouraging program officials to 

be more aggressive when asking for incurred costs, especially in 

situations where the government does not have the benefit of leveraging 

competition.

The 

Inspector General reviewed costs for 24 high-dollar parts and calculated 

that the contractor charged the Army about $13 million more than the fair 

and reasonable prices for 18 of the parts. Based on this finding, these 

programs began reviewing incurred costs for the highest-value parts 

supplied through this contract. The incurred cost review is being 

performed in parallel with a major update of total parts pricing on the 

contract, and program officials expect that there will be many downward 

price changes as a result. The program office plans to perform this review 

annually over the term of the contract.

 

29Department of Defense Inspector General, Excess Inventory and Contract Pricing 

Problems Jeopardize the Army Contract with Boeing to Support the Corpus Christi Army 

Depot, D-2011-061 (Arlington, Va.: May 3, 2011). 
 

Page 28 GAO-12-558 Long-term Maintenance Contracts

DOD does not collect data on the extent to which long-term contracts are 

currently used and managed, but our assessment of 10 contracts shows 

the value of having such information. Decisions made early in the 

acquisition cycle, and in particular, whether DOD will buy the rights to 

technical data are critical to availing itself of choices later in a program’s 

life cycle. However, in the early stages, programs are often confronted 

with the choice between allocating scarce resources to enhance 

capability or maintaining future flexibility in terms of maintaining the 

system. Once the decision to forgo buying technical data is made, DOD’s 

leverage in terms of being able to compete maintenance support or to 

provide it in house is largely lost. Programs must then rely on other, less 

powerful tools to assure good performance and good prices. The data we 

collected on eight programs that are in the process of making decisions 

related to securing access to technical data indicate that DOD is 

considering its future needs, but final decisions have yet to be made in 

several cases. The department also does not have information on the 

approaches used by various programs with long-term maintenance 

contracts to incentivize contractor performance and gain insight into 

contractor costs to help ensure that the government is getting the best 

value for its investment. DOD is considering several policy and datarelated initiatives that could improve its insight on these contracts, but 

these efforts are in the early stages of development. Gaining insight into 

the department’s use of long-term maintenance contracts as well as 

identifying lessons learned on what approaches work best to incentivize 

performance and control costs would help inform future acquisition 

strategies and reduce risk.

To help inform DOD’s use of long-term maintenance contracts, we 

recommend that the Secretary of Defense direct the Under Secretary of 

Defense for Acquisition, Technology, and Logistics, in coordination with 

cognizant offices within each of the military departments, to take the 

following two actions:

• Collect and analyze information on the use of long-term maintenance 

contracts by major weapon system programs; and

• Collect and disseminate lessons learned or best practices regarding 

the use of incentives and cost-control tools that can maximize the 

government’s leverage when considering the future use of such 

contracts. 

Conclusions 

Recommendations for 

Executive Action
 

Page 29 GAO-12-558 Long-term Maintenance Contracts

DOD provided written comments on a draft of this report, stating that it 

concurred with both recommendations. DOD stated that it planned to 

develop methodologies to collect the needed information and disseminate 

best practices and lessons learned, but did not provide timeframes for 

doing so. We recognize that weighing options will take some time, but 

encourage the department to do so in a timely fashion. DOD’s written 

response is reprinted in appendix II. DOD also provided technical 

comments that were incorporated as appropriate.

We are sending copies of this report to the Secretary of Defense and 

other interested parties. In addition, the report is available at no charge on 

the GAO website at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

Belva M. Martin at (202) 512-4841 or martinb@gao.gov or Cary Russell 

at (202) 512-5431 or russellc@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made key contributions to this report are 

listed in appendix III.

Belva M. Martin

Director, Acquisition and Sourcing Management

Cary B. Russell

Acting Director, Defense Capabilities and Management

Agency Comments 

and Our Evaluation
Appendix I: Scope and Methodology

Page 30 GAO-12-558 Long-term Maintenance Contracts

To gain insight into the how long-term maintenance contracts are 

managed by the Department of Defense (DOD), we assessed (1) the 

extent to which DOD uses long-term maintenance contracts to support 

major weapon system programs, (2) DOD’s ability to select alternative 

maintenance services providers for its major weapon system programs, 

and (3) how long-term maintenance contracts have been structured to 

incentivize contractors’ performance and manage contractor costs. After 

consulting with DOD acquisition and logistics officials, for the purposes of 

this report we defined long-term maintenance contracts as those with a 

total potential period of performance of at least 5 years that provide 

depot-level maintenance services or support performance of maintenance 

functions. Additionally, we limited the scope of our review to include those 

long-term contracts that support major defense acquisition programs.1

To assess the extent to which DOD uses long-term maintenance 

contracts, we reviewed pertinent DOD acquisition and maintenance 

policies and DOD’s four most recent reports to Congress on the 

distribution of funds for public and private depot maintenance work 

compiled by the Office of the Assistant Secretary of Defense for Logistics 

and Materiel Readiness. Additionally, we examined a recent services 

portfolio analysis of Federal Procurement of Data System-Next 

Generation (FPDS-NG) data performed by the Office of Defense 

Procurement and Acquisition Policy to determine department spending for 

maintenance services.2

 

1

Major defense acquisition programs are those estimated by the Under Secretary of 

Defense for Acquisition, Technology, and Logistics to require an eventual total 

expenditure of more than $365 million for research, development, test, and evaluation, 

based on fiscal year 2000 constant dollars; $2.190 billion for procurement in fiscal year 

2000 constant dollars; or are designated as a major defense acquisition program by the 

milestone decision authority.

We interviewed senior acquisition and logistics 

officials from the Office of the Under Secretary of Defense for Acquisition, 

Technology, and Logistics and the military departments to determine what 

department-wide data was collected, reported, and analyzed regarding 

long-term maintenance contracts. We also performed independent 

analysis of FPDS-NG data to determine the extent to which this system 

provides insight into DOD’s use of long-term maintenance contracts. After 

determining that DOD lacked department-wide data on the use of longterm maintenance contracts, GAO attempted to gather this information 

2

The Federal Procurement Data System-Next Generation is the federal government’s 

current system for tracking information on contracting actions. 

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 31 GAO-12-558 Long-term Maintenance Contracts

from program offices and program executive offices in each of the military 

departments. However, due to data reliability issues and incomplete 

responses, GAO determined that it could not use the information 

collected with reasonable assurance of accuracy for department-wide 

analysis of long-term maintenance contracting use and management.

Based on further discussions with military department officials, we 

reviewed 10 long-term contracts supporting seven major defense 

acquisition programs. We selected these contracts to represent each of 

the military departments and to illustrate different maintenance 

approaches. The programs we selected included the following:

Air Force

• Joint Surveillance Target Attack Radar System (JSTARS)

• C-130 Hercules transport aircraft

• KC-10 Extender refueling tanker aircraft

Army

• AH-64 Apache helicopter

• CH-47 Chinook helicopter

Navy

• MH-60 Seahawk helicopter

• T-45 Goshawk training aircraft

To determine the extent to which DOD has the ability to select alternative 

maintenance services providers for its major weapon system programs, 

we reviewed DOD and military department policy and interviewed senior 

officials in the Office of the Under Secretary of Defense for Acquisition, 

Technology, and Logistics and military department officials to determine 

how maintenance options are considered and what factors contribute to 

retaining program flexibility for sourcing depot-level maintenance. For the 

programs we reviewed, we examined acquisition plans to determine how 

the government decided upon a contract-based approach to 

maintenance. We interviewed cognizant program officials to determine 

the factors that impact the government’s ability to change maintenance 

providers, focusing on the ability to transition contracted maintenance 

work to a government-owned and government-operated depot and the 

ability to recompete maintenance contracts. We also requested a list of 
Appendix I: Scope and Methodology

Page 32 GAO-12-558 Long-term Maintenance Contracts

major defense acquisition programs that recently went through an 

acquisition review and preliminary information on provisions for acquiring 

technical data rights. For the eight programs DOD identified as having 

such a review between October 2010 and October 2011, we interviewed 

program officials and reviewed acquisition documents, such as 

acquisition strategies and life-cycle sustainment plans, which described 

the rationale for the program’s plans to acquire technical data rights.

To assess how long-term maintenance contracts were structured to 

incentivize contractors’ performance and manage contractor costs, we 

reviewed acquisition plans, contractual information, including pricing data 

and price negotiation memorandums, and interviewed cognizant 

acquisition and logistics officials to understand the incentives and tools 

used by program offices to motivate contractor performance and provide 

visibility into contractor costs. For the 10 contracts we selected, we 

reviewed programs’ use of monetary incentives such as award and 

incentive fees, performance bonuses, and downward price adjustments. 

Additionally, we reviewed programs’ use of contract term incentives, 

specifically award terms and incentive options, which can extend a 

contract’s period of performance. We analyzed incentive plans and 

contractor performance data to determine how performance was 

assessed, recorded, and resulted in the award of fee or additional years 

of contracted work. We also interviewed program officials on the use of 

incentives and compared prior versions of incentive plans to determine 

how incentive metrics changed over time. For the 10 contracts we 

reviewed, we identified the extent to which programs used incurred cost 

data, price renegotiations, and cost-based incentive metrics as a means 

to gain insight into contractor costs. We also interviewed officials from the 

Office of the Under Secretary of Defense for Acquisition, Technology, and 

Logistics, the military departments, and program offices on the benefits 

and risks associated with long-term contracts.

We conducted this performance audit from February 2011 through 

May 2012 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Appendix II: Comments from the Department 

of Defense

Page 33 GAO-12-558 Long-term Maintenance Contracts

Appendix II: Comments from the Department 

of Defense
Appendix II: Comments from the Department 

of Defense

Page 34 GAO-12-558 Long-term Maintenance Contracts
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 35 GAO-12-558 Long-term Maintenance Contracts

Belva M. Martin, (202) 512-4841 or martinb@gao.gov

Cary B. Russell, (202) 512-5431 or russellc@gao.gov

In addition to the contacts named above, Carleen Bennett, Assistant 

Director; Timothy DiNapoli, Assistant Director; Steven Banovac; Lee 

Cooper; Julia Kennon; John Krump; Wiktor Niewiadomski; Bob 

Swierczek; and Tom Twambly made key contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contacts

Staff 

Acknowledgments 

(120968)
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