United States General Accounting Office

GAO Testimony

Before the Subcommittee on Military Readiness,

Committee on National Security, House of Representatives

For Release on Delivery

Expected at

2:00 p.m., EDT

Tuesday,

February 24, 1998

PUBLIC-PRIVATE

COMPETITIONS

Access to Records Is

Inhibiting Work on

Congressional Mandates

Statement of Henry L. Hinton, Jr., Assistant Comptroller

General, National Security and International Affairs

Division

GAO/T-NSIAD-98-101

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss issues related to the

public-private competitions for workloads at two maintenance depots

identified for closure during the 1995 base realignment and closure

process. First, I will address the problems we are having in obtaining

access to Department of Defense (DOD) information that we need

regarding these competitions to meet our reporting responsibilities under

the 1998 Defense Authorization Act. In relation to those responsibilities, I

will also discuss

• the recent competition for C-5 aircraft workload and our assessment of it;

• the adequacy of DOD’s support for its determination that competing

combined, rather than individual workloads of each maintenance depot is

more logical and economical; and

• concerns participants have raised about the upcoming competitions for

the workloads at the air logistics centers in Sacramento, California, and

San Antonio, Texas.

Before I discuss specifics, I will summarize the key points in my testimony.

Results in Brief First of all, our lack of access to information within DOD is seriously

impairing our ability to carry out our reporting requirements. We

completed, with difficulty, our required report to Congress concerning

DOD’s determination to combine individual workloads at two closing

logistics centers into a single solicitation at each location. However, the

Air Force has not been responsive to some of our continuing requests for

information relative to the Sacramento and San Antonio competitions. If

the Department continues to delay and restrict our access to information

we need to do our work, we will be unable to provide Congress timely and

thorough responses regarding the competitions for the remaining depot

maintenance workloads at Sacramento and San Antonio.

To meet our reporting requirements regarding these competitions, we will

need to review DOD documents relating to solicitations, competitors’

proposals, DOD evaluations of the proposals, and the selection of

successful offerors as they become available to Air Force procurement

officials. We recognize the sensitivity of this material and are prepared to

discuss with the Air Force steps for safeguarding the material and

facilitating the selection process, while allowing us to fulfill our statutory

responsibility.

Page 1 GAO/T-NSIAD-98-101 Public-Private Competitions
In assessing the competition process for the C-5 aircraft workloads, we

found that (1) the Air Force provided public and private sources an equal

opportunity to compete for the workloads without regard to where the

work could be done; (2) the Air Force’s procedures for competing the

workloads did not appear to deviate materially from applicable laws or the

Federal Acquisition Regulation (FAR); and (3) the award resulted in the

lowest total cost to the government, based on Air Force assumptions and

conditions at the time.

For the remaining workloads at Sacramento and San Antonio, DOD reports

and other data do not support the Defense Secretary’s determination that

using a single contract with combined workloads is more logical and

cost-effective than using separate contracts for individual workloads.

Much remains uncertain about the upcoming competitions for the

Sacramento and San Antonio depot maintenance workloads. Potential

participants have raised several concerns that they believe may affect the

conduct of the competitions. One concern is the impact of the statutory

limit on the amount of depot maintenance work that can be done by

non-DOD personnel. The Air Force has not yet determined the current and

projected public-private sector workload mix using criteria provided in the

1998 Defense Authorization Act, but is working on it. Nonetheless,

preliminary data indicates there is little opportunity to contract out

additional depot maintenance workloads to the private sector. Another

concern is the Air Force’s proposed change in the overhead savings the

Department may factor into the cost evaluations. For the C-5 workload

competition, overhead savings were considered for the duration of the

performance period. However, for the Sacramento and San Antonio

competitions, the Air Force is considering limiting overhead savings to the

first year and possibly reducing the savings for the second year.

Background As a result of a 1995 Defense Base Closure and Realignment Commission

decision, Kelly Air Force Base, Texas, is to be realigned and the San

Antonio Air Logistics Center, including the Air Force maintenance depot,

is to be closed by 2001. Additionally, McClellan Air Force Base, California,

and the Sacramento Air Logistics Center, including the Air Force

maintenance depot, is to be closed by July 2001. To mitigate the impact of

the closures on the local communities and center employees, in 1995 the

administration announced its decision to maintain certain employment

levels at these locations. Privatization-in-place was one initiative for

retaining these employment goals.

Page 2 GAO/T-NSIAD-98-101 Public-Private Competitions
Since that decision, Congress and the administration have debated the

process and procedures for deciding where and by whom the workloads at

the closing depots should be performed.1

 Central to this debate are

concerns about the excess facility capacity at the Air Force’s three

remaining maintenance depots and the legislative requirement—

10 U.S.C. 2469—that for workloads exceeding $3 million in value, a

public-private competition must be held before the workloads can be

moved from a public depot to a private sector company. Because of

congressional concerns raised in 1996, the Air Force revised its

privatization-in-place plans to provide for competitions between the public

and private sectors as a means to decide where the depot maintenance

workloads would be performed. The first competition was for the C-5

aircraft depot maintenance workload, which the Air Force awarded to the

Warner Robins depot in Georgia on September 4, 1997. During 1997,

Congress continued to oversee DOD’s strategy for allocating workloads

currently performed at the closing depots. The 1998 Defense Authorization

Act required that we and DOD analyze various issues related to the

competitions at the closing depots and report to Congress concerning

several areas.

First, within 60 days of its enactment, the Defense Authorization Act

requires us to review the C-5 aircraft workload competition and

subsequent award to the Warner Robins Air Logistics Center and report to

Congress on whether (1) the procedures used provided an equal

opportunity for offerors without regard to performance location; (2) are in

compliance with applicable law and the FAR; and (3) whether the award

results in the lowest total cost to DOD.

Second, the act provides that a solicitation may be issued for a single

contract for the performance of multiple depot-level maintenance or repair

workloads. However, the Secretary of Defense must first (1) determine in

writing that the individual workloads cannot as logically and economically

be performed without combination by sources that are potentially

qualified to submit an offer and to be awarded a contract to perform those

individual workloads and (2) submit a report to Congress setting forth the

reasons for the determination. Further, the Air Force cannot issue a

solicitation for combined workloads until at least 60 days after the

Secretary submits the required report.

1

The workloads at these activities involve the KC-135, ground communication equipment, and

hydraulics and other commodities at the Sacramento depot, and the F100, TF39, and T56 engines and

fuel accessories at the San Antonio depot.

Page 3 GAO/T-NSIAD-98-101 Public-Private Competitions
Third, the authorization act also provides special procedures for the

public-private competitions for the San Antonio and Sacramento

workloads. For example, total estimated direct and indirect cost and

savings to DOD must be considered in any evaluation. Further, no offeror

may be given preferential consideration for, or be limited to, performing

the workload at a particular location. As previously stated, the act also

requires that we review the solicitations and the competitions to

determine if DOD has complied with the act and applicable law. We must

provide a status report on the Sacramento and San Antonio competitions

within 45 days after the Air Force issues the solicitations, and our

evaluations of the completed competitions are due 45 days after the award

for each workload.

Finally, the act requires that DOD report on the procedures established for

the Sacramento and San Antonio competitions and on the Department’s

planned allocation of workloads performed at the closing depots as of 

July 1, 1995. DOD issued these reports on February 3, 1998.

Access to Records

Problems

We have had problems in gaining access to information required to

respond to reporting requirements under the 1998 National Defense

Authorization Act. Our lack of access to information is seriously impairing

our ability to carry out our reporting responsibilities under this act.

We experienced this problem in doing our work for our recent report to

Congress concerning DOD’s determination to combine individual

workloads at the two closing logistics centers into a single solicitation. We

originally requested access to and copies of contractor-prepared studies

involving depot workloads at the Sacramento Air Logistics Center on

December 18, 1997. The Air Force denied our request, citing concerns

regarding the release of proprietary and competition-sensitive data.

It was not until January 14, 1998, and only after we had sent a formal

demand letter to the Secretary of Defense on January 8, 1998, that the Air

Force agreed to allow us to review the studies. Even then, however, the

Air Force limited our review to reading the documents in Air Force offices

and required that without further permission, no notes, copies, or other

materials could leave those premises.

The limited access provided came so late that we were unable to review

the documents adequately and still meet our statutorily mandated

reporting deadline of January 20. As of this date, we have been provided

Page 4 GAO/T-NSIAD-98-101 Public-Private Competitions
only heavily redacted pages from two studies. These pages do not contain

the information we need. Further, the Air Force did not provide us even

limited access to the final phase of the studies, which were dated

December 15, 1997.

Although we were able, with difficulty, to complete our report, we simply

cannot fulfill our responsibilities adequately and in a timely manner unless

we receive full cooperation of the Department. To meet our remaining

statutory requirements, we have requested several documents and other

information related to the upcoming competitions for the closing depots’

workloads. Air Force officials said they would not provide this information

until the competitions are completed. However, we will need to review

solicitation, proposal, evaluation, and selection documents as they become

available. For example, we will need such things as the acquisition and

source selection plans, the proposals from each of the competing entities,

and documents relating to the evaluation of the proposals and to the

selection decision. Appendix I to this statement contains our letter to this

subcommittee detailing our access problems.

Our basic authority to access records is contained in 31 U.S.C. 716. This

statute gives us a very broad right of access to agency records, including

the procurement records that we are requiring here, for the purpose of

conducting audits and evaluations. Moreover, the procurement integrity

provision in 41 U.S.C. 423 that prohibits the disclosure of

competition-sensitive information before the award of a government

contract specifies at subsection (h) that it does not authorize withholding

information from Congress or the Comptroller General.

We have told the Air Force that we appreciate the sensitivity of agency

procurement records and have established procedures for safeguarding

them. As required by 31 U.S.C. 716(e)(1), we maintain the same level of

confidentiality for a record as the head of the agency from which it is

obtained. Further, our managers and employees, like all federal officers

and employees, are precluded by 18 U.S.C. 1905 from disclosing

proprietary or business-confidential information to the extent not

authorized by law.

Finally, we do not presume to have a role in the selection of the successful

offeror. We recognize the need for Air Force officials to make their

selection with minimal interference. Thus, we are prepared to discuss with

the Air Force steps for safeguarding the information and facilitating the

Page 5 GAO/T-NSIAD-98-101 Public-Private Competitions
Air Force’s selection process while allowing us to meet statutory reporting

responsibilities.

Processes for the C-5

Aircraft Competition

Appear Reasonable

In response to congressional concerns regarding the appropriateness of its

plans to privatize-in-place the Sacramento and San Antonio maintenance

depot workloads, the Air Force revised its strategy to allow the public

depots to participate in public-private competitions for the workloads. In

the 1998 Defense Authorization Act, Congress required us to review and

report on the procedures and results of these competitions. The C-5

aircraft workload was the first such competition. We issued our required

report evaluating the C-5 competition and award on January 20, 1998.2

After assessing the issues required under the act relating to the C-5 aircraft

competition, we concluded that (1) the Air Force provided public and

private offerors an equal opportunity to compete without regard to where

work would be performed; (2) the procedures did not appear to deviate

materially from applicable laws or the FAR; and (3) the award resulted in

the lowest total cost to the government, based on Air Force assumptions

and conditions at the time of award.

Nonetheless, public and private offerors raised issues during and after the

award regarding the fairness of the competition. First, the private sector

participants noted that public and private depot competitions awarded on

a fixed-price basis are inequitable because the government often pays from

public funds for any cost overruns it incurs. Private sector participants

also questioned the public depot’s ability to accurately control costs for

the C-5 workload. In our view, the procedures used in the C-5 competition

reasonably addressed the issue of public sector cost accountability.

Further, private sector participants viewed the $153-million overhead cost

savings credit given to Warner Robins as unrealistically high and argued

that the selection did not account for, or put a dollar value on, certain

identified risks or weaknesses in the respective proposals. We found that

the Air Force followed its evaluation scheme in making its overhead

savings adjustment to the Warner Robins proposal and that the Air Force’s

treatment of risk and weaknesses represented a reasonable exercise of its

discretion under the solicitation.

2

Public-Private Competitions: Processes Used for C-5 Aircraft Award Appear Reasonable

(GAO/NSIAD-98-72, Jan. 20, 1998).

Page 6 GAO/T-NSIAD-98-101 Public-Private Competitions
Although the public sector source was selected to perform the C-5

workload, it questioned some aspects of the competition. Warner Robins

officials stated that they were not allowed to include private sector firms

as part of their proposal. Additionally, the officials questioned the Air

Force requirement to use a depreciation method that resulted in a higher

charge than the depreciation method private sector participants were

permitted to use. Finally, they questioned a $20-million downward

adjustment to its overhead cost, contending that it was erroneous and

might limit the Air Force’s ability to accurately measure the depot’s cost

performance.

While the issues raised by the Warner Robins depot did not have an impact

on the award decision, the $20-million adjustment, if finalized, may cause

the depot problems meeting its cost objectives in performing the contract.

The Air Force maintains that the adjustment was necessary based on its

interpretation of the Warner Robins proposal. Depot officials disagree. At

this time, the Air Force has not made a final determination as to how to

resolve this dispute.

DOD’s Determination

to Combine

Workloads Not

Adequately Supported

DOD decided to issue a single solicitation combining multi-aircraft and

commodity workloads at the Sacramento depot and a single solicitation

for multi-engine workloads at the San Antonio depot. Under the 1998

Defense Authorization Act, DOD issued the required determinations that

the workloads at these two depots “cannot as logically and economically

be performed without combination by sources that are potentially

qualified to submit an offer and to be awarded a contract to perform those

individual workloads.” As required, we reviewed the DOD reports and

supporting data and issued our report to Congress on January 20, 1998.3

We found that the accompanying DOD reports and supporting data do not

provide adequate information supporting the determinations.

First, the Air Force provided no analysis of the logic and economies

associated with having the workload performed individually by potentially

qualified offerors. Consequently, there was no support for the

Department’s determination that the individual workloads cannot as

logically and economically be performed without combination. Air Force

officials stated that they were uncertain as to how they would do an

analysis of performing the workloads on an individual basis. However, Air

Force studies indicate that the information to make such an analysis is

3

Public-Private Competitions: DOD’s Determination to Combine Depot Workloads Is Not Adequately

Supported (GAO/NSIAD-98-76, Jan. 20, 1998).

Page 7 GAO/T-NSIAD-98-101 Public-Private Competitions
available. For example, in 1996 the Air Force performed six individual

analyses of depot-level workloads performed by the Sacramento depot to

identify industry capabilities and capacity. The workloads were

hydraulics, software electrical accessories, flight instruments, A-10

aircraft, and KC-135 aircraft. As a part of the analyses, the Air Force

identified sufficient numbers of qualified contractors interested in various

segments of the Sacramento workload to support a conclusion that it

could rely on the private sector to handle these workloads.

Second, the reports and available supporting data did not adequately

support DOD’s determination. For example, DOD’s determination relating to

the Sacramento Air Logistics Center states that all competitors indicated

throughout their workload studies that consolidating workloads offered

the most logical and economical performance possibilities. This statement

was based on studies performed by the offerors as part of the competition

process.4

 However, one offeror’s study states that the present competition

format is not in the best interest of the government and recommends that

the workload be separated into two competitive packages.

After DOD issued its determination and we completed our mandated

review, the Air Force did additional analyses to support its determinations

to combine the workloads at Sacramento and San Antonio. The Air Force

briefed congressional staff on the interim results of these analyses on

February 13, 1998, and at that time provided us copies of the briefing

charts. Examples of the Air Force’s analysis regarding the combination of

the San Antonio engine workloads include

• the level of common backshop support for the F100, T56, and TF39 aircraft

engines;

• the results of a market survey of potential offerors that shows more

offerors would be attracted to a competition of combined workloads; and

• the potential delay in transition if the competition were restructured to

compete individual engine workloads.

Examples of the Air Force’s analysis regarding the combination of the

Sacramento workloads include

• the common skills among commodity and aircraft workers, which allows

for increased staffing flexibility with combined workloads;

4

Prior to the planned competition, the Air Force engaged three offerors to identify work processes at

Sacramento and determine how those processes could be performed more efficiently.

Page 8 GAO/T-NSIAD-98-101 Public-Private Competitions
• the estimated delay resulting from competing the workload in five

separate packages; and

• the added cost of conducting five competitions rather than one.

The Air Force has not provided us the information supporting its briefing

charts. Therefore, we cannot comment on the specific points. However, in

general, this information still does not provide an adequate basis for DOD’s

determination that the depot maintenance workloads cannot as logically

and economically be performed without combination. For example, the

Air Force did not provide a comparative analysis considering other

feasible workload combination alternatives.

Concerns Raised

Regarding the

Sacramento and San

Antonio Competitions

As part of our mandated review of the solicitations and awards for the

Sacramento and San Antonio engine workloads, we reviewed DOD reports

to Congress in connection with the workloads, draft requests for

proposals, and other competition-related information. Further, we

discussed competition issues with potential public and private sector

participants. These participants raised several concerns that they believe

may affect the competitions. Much remains uncertain about these

competitions, and we have not had the opportunity to evaluate these

issues, but I will present them to the Subcommittee.

Ability to Privatize

Sacramento and San

Antonio Workloads

Limited by 1998 Act

The 1998 Defense Authorization Act modifies 10 U.S.C. 2466 to allow the

services to use up to 50 percent of their depot maintenance and repair

funds for private sector work. However, the act also

• provides for a new section (2460) in title 10 to establish a statutory

definition of depot-level maintenance and repair work, including work

done under interim and contractor logistic support arrangements and

other contract depot maintenance work and

• requires under 10 U.S.C. 2466, that DOD report to Congress on its public

and private sector workload allocations and that we review and evaluate

DOD’s report. These changes, which will affect the assessment of public

and private sector mix, are in effect for the fiscal year 1998 workload

comparison, and DOD must submit its report to Congress for that period by

February 1, 1999.

Determining the current and future public-private sector mix using the

revised criteria is essential before awards are made for the Sacramento

and San Antonio workloads. Preliminary data indicates that using the

Page 9 GAO/T-NSIAD-98-101 Public-Private Competitions
revised criteria, about 47 to 49 percent of the Air Force’s depot

maintenance workload is currently performed by the private sector.

However, the Air Force is still in the process of analyzing workload data to

determine how much additional workload can be contracted out without

exceeding the 50 percent statutory ceiling.

Air Force Draft Proposal to

Reduce Overhead Cost

Savings on Existing Depot

Workload

In December 1996, we reported that consolidating the Sacramento and San

Antonio depot maintenance workloads with existing workloads in

remaining Air Force depots could produce savings of as much as

$182 million annually.5

 Our estimate was based on a workload

redistribution plan that would relocate 78 percent of the available depot

maintenance work to Air Force depots. We recommended that DOD

consider the savings potential achievable on existing workloads by

transferring workload from closing depots to the remaining depots,

thereby reducing overhead rates through more efficient use of the depots.

The Air Force revised its planned acquisition strategy for privatizing the

workloads in place and adopted competitive procedures that included

incorporation of an overhead savings factor in the evaluation.

During the recent C-5 workload competition evaluation, the Air Force

included a $153-million overhead savings estimate for the impact that the

added C-5 workload would have on reducing the cost of DOD workload

already performed at the military depot’s facilities. The overhead savings

adjustment, which represented estimated savings over the 7-year contract

performance period, was a material factor in the decision to award the C-5

workload to Warner Robins. The private sector offerors questioned the

military depot’s ability to achieve these savings.

In response to private sector concerns, the Air Force is considering

limiting the credit given for overhead savings in the Sacramento and San

Antonio competitions. For example, in the draft Sacramento depot

workload solicitation, the Air Force states, “The first year savings, if

reasonable, will be allowed. The second year savings, if reasonable, will be

allowed but discounted. For years three and beyond, the savings, if

defensible, will be subject to a risk assessment and considered under the

best value analysis.”

5

Air Force Depot Maintenance: Privatization-in-Place Plans Are Costly While Excess Capacity Exists

(GAO/NSIAD-97-13, Dec. 31, 1996).

Page 10 GAO/T-NSIAD-98-101 Public-Private Competitions
Other Potential Solicitation

Issues

Questions have been raised about the structure of the draft solicitations.

One concerns the proposed use of best-value evaluation criteria. The draft

solicitations contain selection criteria that differ from those used in the

recent competition for the C-5 workload. They provide that a contract will

be awarded to the public or private offeror whose proposal conforms to

the solicitation and is judged to represent the best value to the government

under the evaluation criteria. The evaluation scheme provides that the

selection will be based on an integrated assessment of the cost and

technical factors, including risk assessments. Thus, the selection may not

be based on lowest total evaluated cost. For the C-5 solicitation, the public

offeror would receive the workload if its offer conformed with the

solicitation requirements and represented the lowest total evaluated cost.

The questions concern the propriety of a selection between a public or

private source on a basis other than cost. Other questions concern

whether multiple workloads should be packaged in a single solicitation

and whether the inclusion of multiple workloads could prevent some

otherwise qualified sources from competing.

As noted, the solicitations are still in draft form. As required by the 1998

act, we will evaluate the solicitations once issued, in the context of the

views of the relevant parties to determine whether they are in compliance

with applicable laws and regulations.

Mr. Chairman, we are working diligently to meet the Committee’s

mandates and to safeguard sensitive Air Force information that is

necessary to accomplish this work. We are prepared to discuss with the

Air Force the steps that can be taken to safeguard the material and

facilitate the source selection process while allowing us to carry out our

statutory responsibility. However, we simply will be unable to meet our

mandated reporting requirements unless we are provided timely access to

this information.

This concludes my prepared remarks. I will be happy to answer your

questions at this time.

Page 11 GAO/T-NSIAD-98-101 Public-Private Competitions
Appendix I 

GAO Letters on Access to Records

Regarding Public-Private Competitions

Page 12 GAO/T-NSIAD-98-101 Public-Private Competitions
Appendix I 

GAO Letters on Access to Records

Regarding Public-Private Competitions

Page 13 GAO/T-NSIAD-98-101 Public-Private Competitions
Appendix I 

GAO Letters on Access to Records

Regarding Public-Private Competitions

Page 14 GAO/T-NSIAD-98-101 Public-Private Competitions
Appendix I 

GAO Letters on Access to Records

Regarding Public-Private Competitions

Page 15 GAO/T-NSIAD-98-101 Public-Private Competitions
Appendix I 

GAO Letters on Access to Records

Regarding Public-Private Competitions

Page 16 GAO/T-NSIAD-98-101 Public-Private Competitions
Appendix I 

GAO Letters on Access to Records

Regarding Public-Private Competitions

Page 17 GAO/T-NSIAD-98-101 Public-Private Competitions
Appendix I 

GAO Letters on Access to Records

Regarding Public-Private Competitions

Page 18 GAO/T-NSIAD-98-101 Public-Private Competitions
Appendix I 

GAO Letters on Access to Records

Regarding Public-Private Competitions

Page 19 GAO/T-NSIAD-98-101 Public-Private Competitions
Appendix I 

GAO Letters on Access to Records

Regarding Public-Private Competitions

Page 20 GAO/T-NSIAD-98-101 Public-Private Competitions
Appendix I 

GAO Letters on Access to Records

Regarding Public-Private Competitions

Page 21 GAO/T-NSIAD-98-101 Public-Private Competitions
Appendix I 

GAO Letters on Access to Records

Regarding Public-Private Competitions

(709328) Page 22 GAO/T-NSIAD-98-101 Public-Private Competitions
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