United States General Accounting Office

GAO Report to Congressional Committees

January 1998 PUBLIC-PRIVATE

COMPETITIONS

Processes Used for C-5

Aircraft Award Appear

Reasonable

GAO/NSIAD-98-72

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-278991 

January 20, 1998

The Honorable Strom Thurmond

Chairman

The Honorable Carl Levin

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Floyd Spence

Chairman

The Honorable Ronald Dellums

Ranking Minority Member

Committee on National Security

House of Representatives

This report responds to one of several reporting requirements contained in

the National Defense Authorization Act for Fiscal Year 1998, relating to

depot maintenance activities. Appendix I lists the depot maintenance

reporting requirements contained in the act. As required, we reviewed the

Air Force’s solicitation and selection of a source for C-5 aircraft depot

maintenance being performed at the closing San Antonio Air Logistics

Center. This report provides our assessment of whether the (1) procedures

used to conduct the C-5 competition provided substantially equal

opportunity for the public and private offerors to compete for the

workload without regard to work performance location, (2) procedures

complied with the requirements of all applicable provisions of law and the

Federal Acquisition Regulation (FAR), and (3) C-5 award results in the

lowest total cost to the Department of Defense (DOD) for performance of

the workload.

Background As a result of a 1995 Base Realignment and Closure (BRAC) Act decision,

the San Antonio and Sacramento Air Logistics Centers, including their

maintenance depots, are to close by the year 2001. To mitigate the impact

of the closings on the local communities and employees, the

administration announced its intention to maintain employment levels by

privatizing the depots’ workloads in place. The Air Force followed by

announcing a strategy to privatize-in-place five prototype depot

maintenance workloads at the two closing centers. Since then, there has

been a continuing debate between Congress and DOD over where and by

whom the workloads at the closing depots would be performed. Central to

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this debate are concerns about the excess facility capacity that exists at

the Air Force’s three remaining depots and the legislative requirement that

workloads exceeding $3 million dollars in value be subject to a

public-private competition before being moved to the private sector.

Appendix II provides a more detailed description of the closure history for

the two logistics centers.

In response to congressional concerns regarding the appropriateness of its

privatization-in-place plans, the Air Force revised its strategy to allow the

public depots to participate in public-private competitions for the closing

depot workloads. Congress included provisions in the fiscal year 1998

Authorization Act that require us to review and report on the process,

procedures, and results of these competitions. The C-5 aircraft depot

maintenance workload was the first of such competitions.

On February 11, 1997, the Air Force, Aircraft Directorate at Kelly Air Force

Base issued a request for proposals for the purpose of conducting a

public-private competition for the C-5 aircraft business area workload

being performed at the closing San Antonio Air Logistics Center. The Air

Force received proposals from private sector offerors and from one public

offeror—the Air Force’s Warner Robins Air Logistics Center. Following

technical and cost evaluations, the Air Force selected Warner Robins to

perform the C-5 workload on the basis that its proposal represented the

lowest total evaluated cost to the government.

Results in Brief Our assessment of the issues required under the 1998 Defense

Authorization Act relating to the C-5 aircraft competition concluded that

(1) the C-5 competition procedures provided an equal opportunity for

public and private offerors to compete without regard to where work

could be performed; (2) the procedures did not appear to deviate in any

material respect from the applicable laws or the FAR; and (3) based on Air

Force assumptions and conditions at the time of award, the award resulted

in the lowest total cost to the government. A discussion of these

conclusions follows, with a detailed description and assessment of the

competition in appendix III.

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C-5 Competition

Placed No Limitation

on Performance

Location

The Air Force’s procedures provided an equal opportunity for public and

private offerors to compete for the C-5 workload without regard to where

the work could be performed. Both public and private offerors

acknowledged that the solicitation contained no limitations on location of

performance. Since the San Antonio facilities were designed to support

C-5 depot maintenance, the private offerors stated that the site had a

natural advantage that they found attractive in competing for the

workload. Therefore, the private offerors stated they proposed performing

the C-5 workload at San Antonio. Because the competition placed no

limitation on the location, the Warner Robins depot—the public

offeror—was able to propose the use of its facilities.

Competition

Procedures Complied

With Applicable Laws

and Acquisition

Regulations

In assessing the C-5 competition’s compliance with applicable laws and

regulations, we reviewed the solicitation, proposal evaluation, and award

in the context of applicable laws and regulations. This review included

examining documents, reviewing processes and procedures, and

conducting discussions with cognizant Air Force and DOD officials. We also

assessed several specific concerns raised by the participants. We found no

reason to conclude that the procedures used in selecting the successful

offeror deviated in a material way from applicable laws or relevant

provisions of the FAR.

Competition Procedures The Air Force issued a competitive solicitation that provided for the

participation of a public sector depot. Pursuant to its Depot Competition

Procedures, the Air Force issued the solicitation in accordance with FAR

part 12, which prescribes the policies and procedures for the acquisition of

commercial items, and FAR part 15, which sets forth the source selection

procedures for competitively negotiated acquisitions. The solicitation

called for proposals from public and private sector sources for the C-5

business area workload currently being performed at the closing San

Antonio Air Logistics Center at Kelly Air Force Base. The solicitation

provided for award to the public sector source if its proposal conformed

to the solicitation requirements, showed it had the necessary technical

capabilities, and represented the lowest total evaluated cost over the life

of the requirement. Proposals were evaluated in accordance with

management criteria, a risk assessment, cost criteria, and other general

considerations.

Applicable Laws and

Regulations

Several statutes govern the use of public-private competitions for the

performance of depot workloads. In particular, 10 U.S.C. 2469 provides for

Page 3 GAO/NSIAD-98-72 Public-Private Depot Competition
B-278991 

the use of “competitive procedures for competitions among private and

public sector entities” whenever DOD contemplates changing the

performance of public depot workloads of $3 million or more to

contractor performance.

Neither 10 U.S.C. 2469 nor the other statutes governing public-private

competitions for depot workloads prescribe the specific elements that

constitute a competition. Because the Air Force’s Depot Competition

Procedures use the competitive acquisition system, the standards in

chapter 137 of title 10 of the United States Code (governing DOD

acquisitions) and the FAR apply to the extent they are consistent with the

basic public-private competition statutes.1

 Among other things, these

standards require that the requirements in a solicitation be stated clearly

and unambiguously and that restrictive provisions be included only to the

extent necessary to satisfy an agency’s needs. Further, under these

standards, an agency must follow the criteria announced in the solicitation

and exercise its judgment in a reasonable manner in determining which of

the competing offers is to be selected.

Review Results Based on our review of the C-5 competition, we found no basis to

conclude that procedures used in selecting the successful offeror deviated

in any material respect from the applicable laws or relevant provisions of

the FAR. The Air Force issued a solicitation providing for the participation

of a public sector depot consistent with the requirement for public-private

competition, and the solicitation was issued competitively in accordance

with the FAR. Overall, the evaluation appeared to be reasonable, fair, and

consistent with the solicitation and the Air Force’s Depot Competition

Procedures.

Private Sector Concerns The private sector offerors raised several concerns about the conduct of

the C-5 competition. A summary of their concerns and our conclusions

follows.

Public-Private Cost

Comparison

Private sector sources believe there is an inherent inequity in

public-private depot competitions that is created by the solicitation of

offers on a fixed-price basis because the government often pays for any

cost overruns incurred by a public sector source from public funds.

Because public and private sector entities are fundamentally different in

1

GAO bid protest decision Newport News Shipbuilding and Dry Dock Company, B-221888, July 2, 1986,

86-2 CPD 23.

Page 4 GAO/NSIAD-98-72 Public-Private Depot Competition
B-278991 

this regard, agencies conducting public-private competitions are required

to make a reasoned judgment as to the actual cost the government will

incur if work is to be performed by a public depot. We believe that the

procedures used in the C-5 competition reasonably addressed the issue of

public sector cost accountability. Among other things, the solicitation

required the public depot to certify that its offer represented the full costs

of performance, and the Air Force conducted an extensive realism analysis

of Warner Robins’ cost proposal. The Defense Contract Audit Agency

reviewed Warner Robins’ cost proposal and its accounting and estimating

systems, as required by the Air Force’s Depot Competition Procedures.

Credit for Overhead Savings Private sector participants in the C-5 competition believe that Warner

Robins was unfairly advantaged when it was given a $153-million cost

credit to reflect expected savings in overhead costs. We found that,

although the amount was large and became the primary determining factor

in the selection of Warner Robins, it was properly used in the Air Force

evaluation. The overhead savings evaluation was provided for in the

solicitation and the Depot Competition Procedures, and we found that the

Air Force followed the evaluation scheme in calculating the savings

proposed by Warner Robins.

Evaluation of Risks Private sector participants were concerned that the selection did not

account for, or put a dollar value on, certain identified risks or

weaknesses, in the respective proposals. The solicitation provided that the

calculation of an offeror’s total evaluated cost would include the dollar

impact of significant discriminators based on identified proposal

strengths, weaknesses, and risks. The evaluation record shows that, for

the highest priority management factors, transition and production

operations, the lowest cost private sector offeror received a low-risk rating

while the public offeror approach was rated as a moderate risk. Overall,

the private sector offeror was credited with more strengths under the

management factors than was the public sector offeror. In the final

selection decision, the source selection authority did not quantify the risk

differences or all the strengths or weaknesses but only included

adjustments representing discriminators based on reduction of flow days

and a lack of capacity at one of Warner Robins’ proposed facilities.

Under the applicable legal standards, a procuring agency has broad

discretion to decide whether it will include any particular feature of a

proposal in its cost calculations. In our view, the dollar valuation approach

the Air Force adopted represented a reasonable exercise of its discretion

under the solicitation. The solicitation did not explain in any detail how

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B-278991 

dollar values were to be assigned, but left it to the Air Force to determine

an appropriate approach. Further, our review of the evaluation record did

not disclose that the Air Force’s approach was uneven or unfair.

Public Sector Concern Warner Robins officials stated that they were not permitted to include

private sector firms as part of their proposed effort to perform the

workload. Although Warner Robins won the competition, depot officials

believe that the use of private sector support would have enhanced their

competitiveness by providing a better way to perform the paint and

depaint operations on the C-5 aircraft. According to Air Force officials,

significant use of private sector support as part of the public offeror’s

proposal would have been inherently inconsistent with a public-private

competition. Consequently, Warner Robins developed an alternative

approach to perform the C-5 aircraft paint and depaint workload at its

depot facilities.

This matter had no impact on the outcome of the C-5 competition, and it

has been resolved for any future public-private competitions for

workloads at the closing San Antonio and Sacramento depots by the 1998

Defense Authorization Act. The act added section 2469a to title 10, United

States Code, which provides for special procedures for public-private

competitions for the workloads at the two closing depots. The new section

allows public sector offerors to use private sector firms as part of their

proposed effort.

Contract Award

Resulted in the

Lowest Total Cost to

the Government

The Warner Robins proposal after cost comparability adjustments, as

provided for in the solicitation and the depot maintenance cost

comparability handbook, was determined by the source selection

authority to offer the lowest total evaluated cost to the government.

Before the cost comparability adjustments, the Warner Robins proposal

was higher than the lowest private sector proposal and was determined to

represent a higher risk under the two most important management

evaluation factors. Both the public and private competitors raised

questions about the proposal’s cost evaluation and adjustments. As stated

above, our review of these adjustments in the context of compliance with

applicable laws and regulations found them to be consistent with the

solicitation and reasonable. We further examined the accuracy and

soundness of the data and assumptions supporting a number of these

adjustments. Except for a large adjustment for overhead savings, the

adjustments we reviewed would not have affected the selection decision.

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To determine whether adjustments made in the source selection

evaluation were accurate and supported, we (1) discussed the selection

process with cognizant Air Force and DOD officials, as well as the offerors;

(2) reviewed the calculation methods for the various cost element

estimates used in the cost evaluation; (3) compared the cost elements

among offerors to test for reasonableness; (4) discussed the rational for

cost element treatment in the evaluation with the evaluation team

members; and (5) discussed each offeror’s assessment of cost element

treatment in the evaluation and followed up on issues or concerns raised.

Since several of these adjustments were presented to us as concerns, we

briefly address each of these below.

Review Results Our review of the proposal cost evaluation and adjustments showed that

the award resulted in the lowest cost to the government given Air Force

assumptions and conditions at the time of award.

Adjustment for Overhead

Savings

Warner Robins’ total evaluated cost—after adjustments—for the 7-year

period was $746,519,392. This amount included a $153-million downward

evaluation adjustment to reflect expected savings in overhead costs. This

adjustment made Warner Robins’ total evaluated cost about $42 million

less than the lowest private sector offeror’s cost. Accordingly, the

$153-million overhead adjustment became the primary determining factor

of the competition. The adjustment was large because the evaluation

showed that Warner Robins, due to its excess capacity, could absorb the

additional C-5 workload with no significant increase in total overhead

costs and that the overhead was primarily a fixed-cost that would be

incurred with or without the additional workload for the 7-year period.

The savings were determined by calculating the reduced overhead charges

to existing workloads resulting from adding the C-5 workload over the

7-year period.

Industry officials questioned Warner Robins’ ability to achieve these

savings. According to one private sector offeror, the Air Force did not

clearly explain how the public offeror could achieve such large savings

relative to the proposed cost for performing the workload.2

 Additionally,

while stating that some savings may be achievable, contractors said the

overhead savings estimate in the Air Force’s cost evaluation was too high.

Further, they considered this adjustment a reward for maintaining existing

depot inefficiency. One private sector offeror characterized the overhead

2

Prior to making cost adjustments, the evaluators determined each offeror’s “customer cost”—in

essence, its proposed price for performing the requirement, excluding material. Warner Robins’

customer cost was $434,378,781.

Page 7 GAO/NSIAD-98-72 Public-Private Depot Competition
B-278991 

savings adjustment as the one factor that most favored the public depots,

and said that unless this factor is changed, they may not participate in

future public-private competitions.

The evaluation records show that the cost evaluators questioned the

overhead savings initially proposed by Warner Robins and made

downward adjustments to that amount. For example, the evaluators

deleted workload hours included in the Warner Robins’ savings

calculations for work on the KC-135 aircraft because that requirement had

not been committed to the Warner Robins facility. After extensive

discussions with the offeror concerning the proposed overhead savings,

the evaluators calculated that $153,935,160 in savings could be attributed

to the other workloads to be performed at the public facility during the

performance of the C-5 requirement. These savings were primarily due to

the more efficient use of the existing workforce and facilities, which

before the addition of the C-5 workload had been underused.

We have reported that Air Force depots have significant excess capacity

and that significant savings could be achieved by reducing this excess

capacity. The excess capacity consists of both people and facilities. In

addition to downsizing and streamlining depot operations, excess capacity

can be reduced by bringing in additional workloads to achieve savings by

spreading personnel and facility costs over a larger workload base. We

also have reported that over $200 million in overhead savings could be

achieved annually by consolidating the closing San Antonio and

Sacramento depots’ workloads into remaining DOD depots.3

In calculating the overhead savings, the Air Force assumed that the excess

capacity and overhead cost condition at Warner Robins would not

otherwise be significantly reduced over the 7-year period. We did not

explore the cost effectiveness of other potential measures and

opportunities to reduce Warner Robins’ excess capacity. As a result, given

the Air Force’s assumption and the excess capacity condition at the time

of award, the projected overhead savings appear reasonable.

Cost of Facilities Capital

Adjustment

Private sector offerors questioned a $4.25-million upward adjustment

made to their proposals. The adjustment was based on a $104-million

interest free mortgage grant to the Greater Kelly Development Corporation

by the federal government. According to the Air Force, the interest free

3

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

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

Page 8 GAO/NSIAD-98-72 Public-Private Depot Competition
B-278991 

mortgage enabled the Corporation to subsidize the private offerors’ lease

below market levels. The private sector offeror stated that the lease costs

charged by the local redevelopment authority were higher than those at

comparable commercial locations. Further, the offeror stated that the high

cost of operating at the privatized facility created a competitive

disadvantage. Our review of the subsidy and the private sector offeror’s

lease cost data found that the Air Force’s adjustment relating to the

interest free loan was reasonable.

Private Industry Questions

Government Depots’

Ability to Control Costs

Private industry raised concerns about the public depot’s ability to

accurately control costs for the C-5 workload. According to industry

aircraft maintenance officials, if an Air Force depot overruns its proposed

costs, the Air Force recovers the cost overruns by charging higher rates to

other depot customers. According to these officials, this means a higher

cost to DOD and eventually the taxpayer pays.

Documentation prepared by the Warner Robins Center as a part of its C-5

proposal indicated that private sector concerns about the Warner Robins

depot not being able to accurately control costs for the C-5 workload were

not supported by the depot’s performance in earlier public-private

competitions. Warner Robins officials note that they demonstrated cost

control for the $64 million C-141 Center Wing Box Replacement Program,

which was won in a public-private competition, by performing within 

2 percent of the proposal cost. The Air Force considered this evidence as a

part of its proposal evaluation.

The Air Force plans to ensure that Warner Robins performs at its

proposed cost, and that the anticipated savings are achieved. For example,

the Air Force plans to involve the Defense Contract Audit Agency and

Defense Contract Management Command in ensuring the cost

performance of the C-5 depot maintenance workload and to develop

special tracking procedures to monitor and report cost, schedule, and

performance data.

Disputed Cost Adjustment

to Public Proposal

Warner Robins questioned the Air Force’s treatment of a $20-million

downward adjustment to its overhead costs. Warner Robins officials

believe the adjustment may limit the Air Force’s ability to accurately

measure its cost performance. The Air Force concluded that the

adjustment was necessary based on its evaluation of the proposal.

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B-278991 

However, Warner Robins officials state that the Air Force misinterpreted

the proposal.

In its initial proposal, Warner Robins noted the existence of overhead

savings on the C-5 workload. The contracting officer questioned whether

the overhead savings were already included in Warner Robins’ proposed

overhead rate. To preclude double counting the savings, the contracting

officer requested that Warner Robins clarify its treatment of C-5 overhead

savings. According to Air Force officials, Warner Robins’ response did not

adequately explain whether the C-5 overhead savings were included in its

proposed rate. Consequently, the Air Force included a downward

adjustment for the savings in its cost evaluation. Warner Robins officials

maintained that they clearly communicated that all C-5 overhead savings

had been included in its proposed overhead rate.

The Air Force maintains that the C-5 contracting officer made a sound

decision at the time given the information provided by Warner Robins

during the selection process. The adjustment, had it not been made, would

not have affected the selection decision. If a corresponding post award

adjustment is finalized, Warner Robins could have problems meeting its

cost objectives in performing the workload. The Air Force has not made a

final determination as to how to resolve this dispute.

Public Sector Questions

Capital Depreciation

Method Used

Warner Robins officials stated that the Air Force required them to use a

depreciation method that resulted in a higher charge than depreciation

methods the private sector was permitted to use. The Air Force required

the public depots to depreciate proposed capital expenditures over the

contract period, rather than the longer depreciation periods allowed the

private sector offerors. According to Air Logistics Center officials, the

depreciation requirement created a disadvantage for their offer.

Ultimately, the Warner Robins’ proposal did not include large capital

expenditures and consequently, the impact of the Air Force’s depreciation

policy was not material to the selection.

This matter was included in the special procedures for future

public-private competitions added by the 1998 Defense Authorization Act

for workloads at the closing San Antonio and Sacramento depots. The

procedures at 10 U.S.C. 2469a provide that to the maximum extent

practicable, the cost standards used to determine depreciation of facilities

and equipment should provide for identical treatment to public and private

offerors.

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B-278991 

Agency and

Contractor Comments

and Our Evaluation

Air Force and Defense Contract Audit Agency officials reviewed a draft of

this report and provided oral comments. They generally agreed with the

report. The Air Force spokesperson stated that the report accurately

characterized and reflects the process and procedures the Air Force used

in conducting the C-5 aircraft depot workload competition. The

spokesperson specifically noted agreement with our statement that the Air

Force could have taken a more expansive approach to dollarization. The

Air Force spokesman added that due to the lessons learned from the C-5

aircraft competition, and legislative changes resulting from the fiscal 

year 1998 Defense Authorization Act, the processes and procedures that

the Air Force will use in upcoming public-private depot competitions will

be different. Both the Air Force and Audit Agency spokespersons

suggested several technical changes for clarity and accuracy. We agreed

on specific wording changes and incorporated them in the final report.

We also provided a copy of the draft report to relevant public and private

sector participants in the C-5 competition. Warner Robins, the public

sector participant, said that the report accurately reflected their concerns

with the competition. However, they noted that while the report said the

competition placed no limitation on the location, they were not able to

propose accomplishing the 7-year contract using the depot facilities at the

closing San Antonio Air Logistics Center beyond the July 2001 date when

the Kelly realignment will be completed. We believe this does not reflect a

limitation on the competition, but does reflect the fact that the public

depot at San Antonio is closing pursuant to the BRAC.

Warner Robins also noted that despite their proposal being evaluated as

moderate risk for transition and production, their C-5 transition and

production operations are on schedule.

Private sector officials stated that given our reporting schedule, they did

not have time to review and comment on the draft report.

Scope and

Methodology

In conducting our work, we obtained information from and interviewed

officials at Air Force Headquarters, Washington, D.C.; Headquarters, Air

Force Materiel Command, Wright-Patterson Air Force Base, Ohio; the San

Antonio Air Logistics Center, Kelly Air Force Base, Texas; and the Warner

Robins Air Logistics Center, Robins Air Force Base, Georgia. We also

discussed C-5 contracting issues with the two unsuccessful private sector

offerors as well as Defense Contract Audit Agency officials.

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To analyze the Air Force’s decision to award the C-5 aircraft’s

programmed depot maintenance to the Warner Robins Air Logistics

Center, we interviewed officials and collected relevant documents from

Headquarters, Department of the Air Force; Headquarters, Air Force

Materiel Command; and Air Force source selection team members,

representatives from the three competing offerors, and the Defense

Contract Audit Agency. To verify compliance of the C-5 competition and

award with applicable laws and regulations, we reviewed the solicitation,

proposed evaluation, and award in the context of applicable laws and

regulations. To determine whether cost elements considered in the source

selection evaluation were complete and reasonable, we discussed the

selection structure with cognizant Air Force and DOD officials, as well as

the offerors determined to be within the competitive range. We also

reviewed the calculation methods for the various cost element estimates

used in the award evaluation for reasonableness, and compared the cost

elements between offerors to identify material drivers and to further test

for reasonableness. We discussed with the evaluation team members their

rational for cost element treatment in the evaluation. We discussed with

each competitive range offeror, their assessment of cost element

treatment in the evaluation and followed up on issues or concerns raised.

A listing of our related reports we have issued is provided at the end of

this report.

We performed our review between October 1997 and January 1998 in

accordance with generally accepted government auditing standards.

Please contact me at (202) 512-8412 if you or your staff have questions

concerning this report. The major contributors to this report are listed in

appendix IV.

David R. Warren, Director

Defense Management Issues

Page 12 GAO/NSIAD-98-72 Public-Private Depot Competition
Page 13 GAO/NSIAD-98-72 Public-Private Depot Competition
Contents

Letter 1

Appendix I 

Summary of Our

Depot Reporting

Requirements

Contained in the

National Defense

Authorization Act for

Fiscal Year 1998

16

Appendix II 

San Antonio and

Sacramento Air

Logistics Centers’

Closure History

18

Appendix III 

Legal Review of

Competition for the

C-5 Aircraft Workload

21

Applicable Legal Standards 21

Solicitation 23

Evaluation of Proposals 24

Award 31

Analysis of Evaluation and Award 31

Appendix IV 

Major Contributors to

This Report

38

Related GAO Products 42

Page 14 GAO/NSIAD-98-72 Public-Private Depot Competition
Contents

Abbreviations

BEQ Best Estimated Quantity

BRAC Base Realignment and Closure Commission

CCH Cost Comparability Handbook

CPD Comptroller General Procurement Decision

DCAA Defense Contract Audit Agency

DOD Department of Defense

FAR Federal Acquisition Regulation

GKDC Greater Kelly Development Corporation

PDM Programmed Depot Maintenance

RFP request for proposal

SSA Source Selection Authority

SSAC Source Selection Authority Council

SSEB Source Selection Evaluation Board

Page 15 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix I 

Summary of Our Depot Reporting

Requirements Contained in the National

Defense Authorization Act for Fiscal Year

1998

The National Defense Authorization Act for Fiscal Year 1998 includes the

following depot-related reporting requirements for our office.

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

The act amends 10 U.S.C. 2466(a) by increasing the amount of depot-level

maintenance and repair workload funds that the Department of Defense

(DOD) can use for contractor performance from 40 to 50 percent and

revises 10 U.S.C. 2466(e) by requiring the Secretary of Defense to submit a

report to Congress identifying the percentage of funds expended for

contractor performance by February 1 of each year.

Within 90 days of DOD’s annual report to Congress, we must review the

report and submit our views to Congress on whether DOD has complied

with the 50-percent limitation.

II. Reports Concerning Public-Private Competitions for the Depot

Maintenance Workloads at the Closing San Antonio and Sacramento

Depots (section 359)

The act adds section 2469a to title 10 of the United States Code, which

provides for special public-private competition for workloads at these two

closing depots. It also requires us to issue reports in four areas.

First, the Secretary of Defense is required to submit a determination to

Congress if DOD finds it necessary to consolidate workloads into a single

solicitation. We must report our views on the DOD determination within 

30 days.

Second, we are required to review all DOD solicitations for the workloads

at the San Antonio and Sacramento centers and report to Congress within

45 days of the solicitations’ issuance regarding whether the solicitations

provide “substantially equal” opportunity to compete without regard to

performance location and is otherwise in compliance with applicable laws

and regulations.

Third, we must review all DOD awards for the workloads at the two closing

Air Logistics Centers and report to Congress within 45 days of the contract

award on whether (1) the procedures used complied with applicable laws

and regulations and provided a “substantially equal” opportunity to

compete without regard to performance location; (2) “appropriate

consideration was given to factors other than cost” in the selection; and

Page 16 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix I 

Summary of Our Depot Reporting

Requirements Contained in the National

Defense Authorization Act for Fiscal Year

1998

(3) the selection resulted in the lowest total cost to DOD for performance of

the workload.

Fourth, within 60 days of its enactment, the 1998 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 to compete without regard to performance

location, (2) are in compliance with applicable law and the Federal

Acquisition Regulation (FAR), and (3) whether the award results in the

lowest total cost to DOD.

III. Report on the Navy’s Practice of Using Temporary Duty Assignments

for Ship Maintenance and Repair (section 366)

The act requires us to report by May 1, 1998, on the Navy’s use of

temporary duty workers to perform ship maintenance and repair at

homeports not having shipyards.

Page 17 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix II 

San Antonio and Sacramento Air Logistics

Centers’ Closure History

The 1995 Base Realignment and Closure (BRAC) Commission

recommended closing the Sacramento and San Antonio Air Logistics

Centers and transferring their workloads to the remaining depots or

private sector commercial activities. In making these recommendations,

the Commission considered the effects on the local communities,

workload transfer costs, and potential effects on readiness and concluded

that the savings and benefits outweighed the drawbacks. The

Commission’s report noted that given the significant amount of excess

depot capacity and limited DOD resources, closure is a necessity. Further,

closing these activities would improve the use of the remaining centers

and substantially reduce DOD operating costs. The specific Commission

recommendations were as follows:

• Realign Kelly Air Force Base, including the air logistics center; disestablish

the defense distribution depot; consolidate the workloads to other DOD

depots or to private sector commercial activities as determined by the

Defense Depot Maintenance Council;1

 and move the required equipment

and personnel to the receiving locations.

• Close McClellan Air Force Base, including the air logistics center;

disestablish the defense distribution depot; move the common-use ground

communication electronics to Tobyhanna Army Depot, Pennsylvania;

retain the radiation center and make it available for dual use and/or

research, or close as appropriate; consolidate the remaining workloads

with other DOD depots or private sector commercial activities as

determined by the Council; and move the required equipment and any

required personnel to receiving locations. All other activities and facilities

at the base will close.

In considering the BRAC recommendations to close the two centers, the

President and the Secretary of Defense expressed concerns about the

near-term costs and potential effects on local communities and Air Force

readiness. In response to these concerns, the administration, in forwarding

the Commission’s recommendations to Congress, indicated that the air

logistics centers’ work should be privatized-in-place or in the local

communities. He also directed the Secretary of Defense to retain 

8,700 jobs at McClellan Air Force Base, which had been recommended for

closure, and 16,000 jobs at Kelly Air Force Base, which had been

recommended for realignment, until 2001 to further mitigate the closures’

impact on the local communities. Additionally, the size of the workforce

1

The Defense Depot Maintenance Council is a senior-level council established to advise the Deputy

Under Secretary of Defense for Logistics on depot maintenance within DOD.

Page 18 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix II 

San Antonio and Sacramento Air Logistics

Centers’ Closure History

remaining in the Sacramento and San Antonio areas through 2004 was

expected to remain above 4,350 and 11,000, respectively.

The Air Force initially focused on privatizing five prototype

workloads—three at Sacramento (for hydraulics, electric accessories, and

software) and two at San Antonio (for C-5 aircraft paint/depaint and fuel

accessories). The Defense Depot Maintenance Council approved the Air

Force’s plans for the five prototype workloads on February 1, 1996. The

prototype workloads involved about 11 percent of the San Antonio depot’s

maintenance personnel and about 27 percent of the Sacramento’s

personnel.2

Shortly after the Council approved the prototype program, the

appropriateness of the concept began to be questioned. Community and

industry groups expressed an interest in having larger packages, and DOD

officials were concerned about the cost of administering a large number of

smaller contracts.

Implementation of the prototype concept was put on hold in May 1996 as

the Air Force considered various options. Further, in April 1996, we

testified that privatizing depot maintenance activities, if not effectively

managed, including the downsizing of remaining DOD depot infrastructure,

could exacerbate existing excess capacity problems and the inefficiencies

inherent in underused depot maintenance capacity. Privatizing workloads

in place at two closing Air Force depots does not reduce the excess

capacity in the remaining depots or the private sector and consequently, is

not a cost-effective approach to reducing depot infrastructure.3

 Later that

year, we reported that privatizing-in-place, rather than closing and

transferring the depot maintenance workloads at the Sacramento and San

Antonio air logistics centers, would leave a costly excess capacity

situation at remaining Air Force depots that a workload consolidation

would have mitigated.4

 Our analysis showed that transferring the depot

maintenance workloads to other depots could yield additional economy

and efficiency savings of over $200 million annually.

2

The BRAC report specified that the Council should determine where depot maintenance workloads

from closing Air Force depots should be moved.

3

Defense Depot Maintenance: Privatization and the Debate Over the Public-Private Mix

(GAO/T-NSIAD-96-146, Apr. 16, 1996) and (GAO/T-NSIAD-96-148, Apr. 17, 1996).

4

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

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

Page 19 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix II 

San Antonio and Sacramento Air Logistics

Centers’ Closure History

We recommended that the Secretary of Defense require the Secretary of

the Air Force to take the following actions:

• Before privatizing any Sacramento or San Antonio workloads, complete a

cost analysis that considers the savings potential of consolidating the

Sacramento and San Antonio depot maintenance workloads at other DOD

depots, including savings that can be achieved for existing workloads by

reducing overhead rates through more efficient capacity utilization and

reduction of fixed overhead that is applied to each production unit at

underused military depots that could receive this workload.

• Use competitive procedures, where applicable, for determining the most

cost-effective source of repair for workloads at the closing Air Force

depots.

In August 1996, the Air Force announced a revised strategy for allocating

the depot workloads at the Sacramento and San Antonio centers, which

involved several large consolidated work packages, essentially one at

Sacramento and two at San Antonio (one for the C-5 aircraft and one for

engines). In December 1996, the Air Force issued procedures to conduct

public-private competitions for the workloads and to allow one of the

remaining public depots to compete with the private sector for each of the

three workload packages. The Air Force’s procedures included an

evaluation adjustment to public and private sector proposals for overhead

savings to other government workloads.

In February 1997, the Air Force issued a request for proposals for the C-5

aircraft depot maintenance workload. In September 1997, the Air Force

awarded the C-5 workload to the Warner Robins Air Logistics Center

based on lowest total evaluated cost.

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Legal Review of Competition for the C-5

Aircraft Workload

On February 11, 1997, the Air Force, Aircraft Directorate at Kelly Air Force

Base, issued a request for proposal (RFP) for the purpose of conducting a

public-private competition for the C-5 aircraft business area workload

being performed at the closing San Antonio Air Logistics Center at Kelly.

The Air Force received proposals from private sector offerors and from

one public offeror—the Air Force’s Warner Robins Air Logistics Center.

Following technical and cost evaluations, the Air Force selected Warner

Robins to perform the C-5 workload on the basis that its proposal

represented the lowest total evaluated cost to the government.

Section 359 of the National Defense Authorization Act for Fiscal Year 1998,

Public Law 105-85, requires that we, among other things, determine

whether the procedures used to conduct the competition for the C-5

aircraft workload were in compliance with applicable laws and the FAR.

Based on our review of the procedures the Air Force used to conduct the

C-5 competition in the context of concerns that were raised by the private

sector, we found no basis to conclude that the procedures used in

selecting the successful offeror deviated in any material respect from the

applicable laws or relevant provisions of the FAR.

The following sections describe the legal standards applicable to the C-5

competition, relevant aspects of the solicitation and evaluation procedures

used by the Air Force, and our analysis of those procedures under the

applicable legal standards.

Applicable Legal

Standards

The basic authority for the C-5 competition is 10 U.S.C. 2469, which

provides for the use of “competitive procedures for competitions among

private and public sector entities” when DOD contemplates changing the

performance of a depot workload, valued at $3 million or more, to

contractor performance. In addition, section 8041 of the Department of

Defense Appropriations Act for Fiscal Year 1997, Public Law 104-208,

authorizes public-private competitions for depot workloads as long as the

“successful bids” are certified to “include comparable estimates of all

direct and indirect costs for both public and private bids.” Both provisions

state that Office of Management and Budget Circular A-76 is not to apply

to the competitions. Other than the reference in section 8041 of the act to

the use of comparable estimates of all costs, neither provision prescribes

the elements that constitute a competition. Further, 10 U.S.C. 2470

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Legal Review of Competition for the C-5

Aircraft Workload

provides that DOD depot-level activities are eligible to compete for depot

workloads.1

The Air Force implements these authorities through the Air Force Materiel

Command, Procedures for Depot Level Public-Private Competition,

December 20, 1996 (Depot Competition Procedures). Among other things,

the procedures provide for issuing a solicitation calling for offers from

public and private sector sources and they establish the criteria for

deciding how the Air Force will select a source for the performance of

depot workloads from the private or public sector. According to these

procedures, a competitive solicitation is to be issued in accordance with

the applicable provisions of the FAR. The FAR sets forth uniform policies

and procedures for the competitive acquisition system used by all

executive agencies and implements the provisions of chapter 137 of title

10 of the United States Code, which govern DOD acquisitions.

This use of the competitive acquisition system subjects a depot workload

competition to the applicable provisions of chapter 137 and the FAR to the

extent that they do not conflict with the public-private competition

statutes cited above. (Newport News Shipbuilding and Dry Dock

Company, B-221888, July 2, 1986, 86-2 CPD 23.) Further, aspects of a

competition that fall outside the competitive acquisition system’s

parameters as defined by chapter 137 and the FAR, such as the selection of

the public depot offeror to participate in the competition, are governed by

the statutes applicable to public-private depot competitions as

implemented by the Depot Competition Procedures.

In general, the standards in chapter 137 and the FAR (1) require that a

solicitation clearly and unambiguously state what is required so that all

offerors can compete on an equal basis and (2) allow restrictive provisions

to be included only to the extent necessary to satisfy an agency’s needs.

Further, under these standards, an agency must follow the criteria

announced in the solicitation and exercise its judgment in a reasonable

manner in determining which of the competing offers is to be selected.

1

There are other provisions that apply, generally, to conversions of DOD functions to private sector

performance. For example, section 8015 of the 1997 DOD Appropriations Act requires that DOD certify

its in-house estimate to congressional committees before converting any activity performed by more

than 10 civilian employees to contractor performance; 10 U.S.C. 2461 requires cost studies and

congressional notification for certain conversions. The competition in this case did not result in a

conversion to private sector performance. In addition, 10 U.S.C. 2462 generally requires DOD to

contract with the private sector if a source can provide the supply or service at a lower cost than DOD

can and to ensure that all costs considered in a cost comparison are realistic and fair. The competition

here resulted in the conclusion that the public sector source was less costly than the private sector

sources.

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Appendix III 

Legal Review of Competition for the C-5

Aircraft Workload

(Dimensions International/QSOFT, Inc. , B-270966.2, May 28, 1996, 96-1 

CPD 257.)

Solicitation The RFP for the C-5 workload contemplated the award of a fixed-price

requirements type contract, with economic price adjustment and award

fee, for a 7-year term. The contract was to include a transition period; an

assumption of work in process that had been begun by the government at

Kelly Air Force Base; and the scheduled workload for fiscal years 1998

through 2004, including any “over and above” work.2

 According to the

solicitation, the public-private competition was to be conducted pursuant

to FAR part 12, which prescribes the policies and procedures for the

acquisition of commercial items, and FAR part 15, which sets forth the

source selection procedures for competitive negotiated acquisitions.

Further, the solicitation provided that the selection would be governed in

part by the Defense Depot Maintenance Cost Comparability Handbook

(CCH), dated August 10, 1993, and its interim amendments dated

December 21, 1995, and December 4, 1996, as well as by the Depot

Competition Procedures.

The RFP stated that the award would be made to the public offeror if its

proposal conformed to the RFP, showed that it had the necessary technical

capabilities, and represented the lowest total evaluated cost over the life

of the requirement. On the other hand, if one of the private offerors’

proposals represented the lowest evaluated cost and had these same

technical characteristics then that offeror would receive the award.

Finally, if two or more private offerors’ proposals were acceptable and

each represented a lower cost than the public offeror’s proposal, the

award would be made to the private offeror judged to represent the best

value to the government based upon a combined assessment of cost and

other technical factors not considered discriminators (distinguishing

factors) in the initial evaluation, as well as certain other factors.

The RFP evaluation criteria that were to be used for the selection consisted

of management criteria, which relate to program characteristics; a risk

assessment; cost criteria, which relate to the proposed cost; and general

considerations. Management criteria were made up of five factors:

transition, production operations, corporate operations, logistics support,

and source of repair qualification. The risk assessment consisted of two

parts: proposal risk and performance risk. Proposal risk was to measure

2

“Over and above” work consists of work items that are not included in the scope of the line item

requirements in the solicitation but are within the overall scope of the proposed contract and may be

ordered by the agency on an hourly basis.

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Legal Review of Competition for the C-5

Aircraft Workload

the risk associated with an offeror’s proposed approach to accomplishing

the solicitation requirements relating to each of the five management

factors. Performance risk was to assess, based on an offeror’s present and

past performance, the probability of the offeror successfully

accomplishing its proposed effort. General considerations were to relate

to matters such as the results of preaward surveys.

Cost was to be evaluated by first conducting realism and reasonableness

assessments of the cost proposals.3

 Then each offeror’s total alternative

cost was to be developed by applying numerous adjustments made to the

proposals in accordance with the CCH and the RFP. Next, each offer’s total

evaluated cost was to be determined by adjusting the total alternative cost

to reflect the evaluators’ quantification or “dollarization”4

 of the significant

discriminators among the proposals based upon strengths, weaknesses,

and risks identified in the proposals in accordance with the RFP evaluation

criteria. Under the RFP evaluation scheme, in order for the technical merits

or risks associated with an offeror, or an offeror’s particular approach to

performing the workload, to affect whether a public or private source is to

be selected—assuming the minimum standards were met by both—the

merits or risks were to be “dollarized” or quantified and included in the

calculation of the offeror’s total evaluated cost.

The proposals were evaluated in the first instance by specialized teams,

which reported to a Source Selection Evaluation Board (SSEB), which in

turn reported its conclusions to a Source Selection Advisory Council

(SSAC). The SSAC then advised the Source Selection Authority (SSA), who

made the final selection decision on the merits of the proposals.

Evaluation of

Proposals

Four offerors submitted proposals in response to the solicitation. Warner

Robins Air Logistics Center, the public depot chosen by the Air Force to

submit the public sector offer, proposed to perform the work at Robins Air

Force Base, Georgia. The three private sector offerors all proposed to

perform the work at the facilities at the closing Air Logistics Center at

Kelly Air Force Base, where the C-5 workload is currently being performed

by government employees.

3

According to the RFP, realism was to be evaluated by assessing the compatibility of proposal costs

with the offeror’s proposed scope and effort. Reasonableness was to be assessed through an analysis

of either the cost elements or of the overall price.

4

Dollarization, as we understand it, is the process of assigning an estimated dollar value to the

evaluator’s assessments of the benefit or detriment to the Air Force that would result from aspects of

the offeror’s technical proposal for the purpose of calculating an offeror’s total evaluated cost.

Page 24 GAO/NSIAD-98-72 Public-Private Depot Competition
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Legal Review of Competition for the C-5

Aircraft Workload

Initially, the four proposals were evaluated to determine which was to be

included in the competitive range in accordance with FAR 15.609 and

considered for award.5

 One of the proposals from the private sector was

eliminated from the competitive range and not considered further

because, in the SSA’s view, it failed to adequately address the solicitation

requirements.6

Discussions were held with the three offerors remaining within the

competitive range. As a result of the discussions, each offeror revised its

proposal and submitted a best and final offer, which was the subject of the

Air Force’s final cost adjustments and evaluation. Based on the results of

the evaluations and cost adjustments, the advice of the SSAC, and the SSA’s

own analysis in the context of the RFP evaluation criteria, the SSA decided

that the Warner Robins Air Logistics Center’s proposal met all of the RFP

requirements and represented the lowest total evaluated cost at

$746,519,392 7

 for the 7-year requirement. Consequently, the SSA selected

Warner Robins to perform the C-5 workload. Of the three offerors within

the competitive range, two of them, the winning public sector

offeror—Warner Robins—and one of the private sector offerors

(offeror A), had evaluated costs that were reasonably close. The other

private sector offeror (offeror B) had considerably higher evaluated costs.8

Technical Evaluation As noted previously, the solicitation stated that five factors would be used

to evaluate the offerors’ management approach. The priority of these

factors—except for corporate operations and logistics support, which

were co-equal—was (1) transition, (2) production operations,

(3) corporate operations, (4) logistics support, and (5) source of repair

qualifications. The SSA rated the proposals under each of the five factors.

5

FAR 15.609 provides that the contracting officer shall determine which proposals are in the

competitive range for the purpose of conducting written or oral discussions.

6

The firm, whose proposal was excluded from the competitive range, filed an action in the U.S. Court

of Federal Claims contending that its proposal was improperly eliminated from the competition. The

court dismissed the action, concluding that the Air Force’s action in eliminating the proposal from the

competitive range had not been shown to be improper. Aero Corp., S.A. v United States, 38 Fed.Cl. 739

(1997).

7

The SSAC report cited the total evaluated cost as $746,518,032. We understand that the $746,519,392

figure cited by SSA is the correct cost. The figure used by SSAC was the result of a calculation error.

The error had no impact on the selection, so we will use the corrected cost.

8

While we have carefully reviewed the Air Force’s evaluation of all of the offerors, our description of

the evaluation results focuses principally on the two most competitive offerors.

Page 25 GAO/NSIAD-98-72 Public-Private Depot Competition
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Legal Review of Competition for the C-5

Aircraft Workload

The first factor, transition, was to measure the offeror’s approach to

transferring program responsibility and accountability from Kelly Air

Force Base to the new operation, including such tasks as manpower

build-up, material procurement, and production ramp-up. Under this

factor, the SSA concluded that offeror B had the best approach to

transferring performance of the workload to its proposed facility, with an

exceptional technical rating and low proposal risk. Offeror A was next,

with an acceptable technical rating and a low proposal risk. Warner

Robins followed with an acceptable rating and a moderate risk. The SSA

noted that while Warner Robins’ approach posed a moderate risk, it did

meet the minimum standard and, in fact, offered a strength in the

availability of skilled workers. Overall, the SSA concluded that the

strengths of the approaches of offerors A and B increased the chances of

success but did not offer a specific cost impact that could be “dollarized”

and, thus, have a positive impact on their total evaluated costs. On the

other hand, according to the SSA, the cost impact of Warner Robins’

weaknesses could be ameliorated with close monitoring. Consequently,

the SSA decided not to include this as a matter for dollarization.

Under the production operations factor, an offeror was to provide its plan

to perform the work, including the proposed sequence for all major tasks

and the identification of facilities and shops to be used. The SSA concluded

that offeror A “far exceeded” the RFP minimum standard and merited an

exceptional rating by proposing a significant reduction in the “flow days”

(i.e. , time required to perform the work) needed to maintain the aircraft

over the life of the requirement. In addition, the SSA assigned the offeror a

low-risk rating for its approach to the performance of the workload.

Offeror B received an acceptable rating with low risk for its approach. The

SSA assigned Warner Robins a marginal rating with moderate risk. The SSA

was concerned that while Warner Robins proposed to reduce flow days,

two of its facilities, the “programmed depot maintenance (PDM) facility”

and the “paint/depaint facility,” might not have the capacity to handle the

workload within the proposed time frame. The SSA concluded that while

close monitoring could overcome these difficulties, the production

schedule could be disrupted. Accordingly, the SSA determined that the

potential for problems in the paint/depaint facility should be reflected or

dollarized as an added cost in the evaluation. The cost associated with the

potential problems related to the PDM facility was, according to the SSA,

already reflected in Warner Robins’ cost proposal, and thus, was not added

as a “dollarized” cost in the evaluation. In sum, the SSA concluded that the

reduced flow days proposed by both offeror A and Warner Robins were

significant discriminators and merited a downward dollarization cost

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Legal Review of Competition for the C-5

Aircraft Workload

adjustment in the determination of total evaluated cost. The evaluation of

Warner Robins’ cost was, in addition, to include an estimated cost increase

for the potential paint/depaint problems in its dollarization evaluation.

Offeror B’s proposal did not merit a dollarization cost adjustment in either

direction.

Under the third factor (corporate operations), the SSA concluded that all

offerors had extensive relevant experience and assigned each a rating of

exceptional with a low proposal risk. Since all were equally rated, there

was no discriminator and consequently no dollarization.

All of the offerors were rated by the SSA as acceptable and low risk under

the logistics support factor. Again, there was no discriminator or

corresponding dollarization adjustment.

Under the final factor (source of repair qualification), the SSA rated

offerors A and B as exceptional with low risk. Warner Robins met the

minimum standard and was assigned a rating of acceptable with low risk.

There was, according to the SSA, no discriminator or dollarization.

As for the more general category of performance risk, all three proposals

were determined to represent low risk in the management and cost areas,

with no discriminators.

Cost Evaluation As noted previously, the cost evaluation consisted of (1) an assessment of

the realism and reasonableness of the cost proposals; (2) a determination

of the “total alternative cost” of each proposal, calculated through

adjustments required by the CCH and RFP; and (3) a determination of the

total evaluated cost of each proposal, calculated by taking the total

alternative cost and adjusting it to reflect the dollarization of significant

discriminators among the proposals. The evaluation results for each of

these analyses are summarized below.

Realism and Reasonableness

Evaluation

The cost team evaluators initially reviewed each offeror’s cost proposal to

determine its completeness, realism, and reasonableness. As a result of

this review, the evaluators ultimately were satisfied that each cost

proposal met these standards. In accordance with the Depot Competition

Procedures, the Defense Contract Audit Agency (DCAA) audited the Warner

Robins’ cost proposal and reviewed the public offeror’s disclosure

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Legal Review of Competition for the C-5

Aircraft Workload

statement9 and accounting and estimating systems. The disclosure

statement was in the first instance found to be adequate. After discussions

with Warner Robins and some adjustments to the cost proposal, the

proposal was determined to be realistic.

DCAA also reviewed Warner Robins’ accounting and estimating systems and

found them deficient in certain respects. In an August 1, 1997,

memorandum, DCAA noted that the deficiencies would not significantly

affect Warner Robbins’ cost proposal. In a subsequent audit

report—issued on November 26, 1997, after the selection of Warner

Robins—DCAA stated that although most of the deficiencies in Warner

Robins’ accounting and estimating systems had been corrected, all of them

had not been fully addressed. While Warner Robins had not met all the

correction milestones at the time of its selection, the deficiencies

remaining at that time, were not significant enough to preclude its

selection.

Determination of Total

Alternative Cost

The cost evaluators determined each offeror’s total alternative cost by first

calculating the offeror’s “customer cost”—in essence, its proposed price

for performing the requirement, excluding material—and then making

upward and downward adjustments to this cost in accordance with the RFP

and the CCH. Offeror A’s customer cost was calculated to be $409,042,577.

Warner Robins’ customer cost was $434,378,781.10 Offeror B’s cost was

considerably higher than either of these.

Using the customer cost for each offeror as a base, the evaluators made

the depot maintenance comparability adjustments called for in the CCH and

the RFP. Two sets of adjustments were made to the public and the private

sector offers. The first set, required by form number 1 of the CCH,

encompassed adjustments to the public sector offer; and the second set,

required by form number 2 of the CCH, governed adjustments applicable to

the public and private sector proposals. The comparability adjustments

were identified either in the RFP directly or in the CCH.

9

The Air Force Depot Competition Procedures require that public offerors provide a disclosure

statement of their cost accounting practices.

10The calculation of Warner Robins’ customer cost included a downward adjustment of $20,302,485,

which in the evaluators’ view, represented overhead cost savings attributed by Warner Robins to the

C-5 workload. The question of whether these savings were captured in the overhead rates in Warner

Robins’ proposal was the subject of a clarification request from the evaluators. Based on Warner

Robins’ response, the evaluators concluded that it was not, and consequently made the adjustment in

calculating the depot’s customer cost. Subsequently, after the selection, the Air Force concluded that

the $20,302,485 “savings” was, in fact, included in the rates to be charged for the work. This had no

impact on the selection of Warner Robins because after the final cost calculations were made, the

difference between the two lowest offerors was considerably larger than the evaluation credit.

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The CCH form number 1 adjustments made to the Warner Robins’ proposal

included upward and downward changes in a number of categories.11 The

most significant were upward adjustments of $19,887,441 for unfunded

civilian retirement, $18,872,571 for base operating support, and $12,467,409

for employee casualty insurance. The net result of the upward and

downward adjustments was an upward adjustment to the public depot’s

proposal of $57,812,033. This resulted in an adjusted cost of $492,189,454

for Warner Robins.

The CCH form number 2 adjustments were made to the private and public

sector proposals.12 Some adjustments were made to both types of

proposals. For example, upward adjustments were made to both types for

contract administration, additional overhead costs due to the new

workload, reduction-in-force costs, and costs associated with the

transition of government personnel (i.e., costs of retaining current C-5

workforce at Kelly that will be subject to a reduction in force and not be

rehired by the new source after the workload is transitioned pending their

separation). Most of these adjustments were similar in size for both

proposals. The largest difference was in the transition of government

personnel, resulting in an $10,956,997 increase to Warner Robins’ cost and

an $5,663,324 increase for offeror A.13

Other form number 2 adjustments applied solely to the private sector

proposals. For example, a downward adjustment of $12,271,277 was made

to offeror A’s proposal to represent the amount the firm would have to pay

in income taxes on the contract proceeds. An upward adjustment of

$4,251,429 was made to reflect the firm’s planned use of the facilities

transferred by the Air Force to the Greater Kelly Development Corp.

(GKDC). The transfer was under terms that were considered by the Air

Force to result in a subsidy to GKDC, which it passed on through

11Upward adjustments were made for state unemployment payments, unfunded civilian retirement,

depreciation for military construction program facilities, casualty insurance, other recurring costs

consisting of impact aid, retiree health benefits, base operating support, and other nonrecurring costs.

Downward adjustments were made for military nondepot costs (time military members of depot staff

spend on non-depot military duties) and for aircraft test flights imbedded in Warner Robins’ rates.

12In view of the cost disparity between offeror B and the other two offerors, we will not detail the

adjustments to offeror B’s proposal.

13In addition, there were significant differences in adjustments made for the purpose of establishing a

common evaluation base for each offeror’s proposal for work in process during the transition period.

One of these—the so called “best estimated quantity (BEQ)” adjustment—resulted in an upward

adjustment of $5,697,020 to Warner Robbins’ proposal and a downward change of $4,407,697 in offeror

A’s proposal. In the related area of government transition of work in process, an upward adjustment of

$11,514,409 was made in offeror A’s proposal, while an upward adjustment of $5,503,497 was applied

to Warner Robins’ proposal.

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Aircraft Workload

advantageous lease rates to private firms, such as offeror A, proposing to

perform work at the Kelly location.

The most significant of all of the adjustments made was a downward

adjustment to Warner Robins’ proposal of $153,935,160. This represented

the evaluators’ estimate of the overhead savings that would be attributable

to the other workloads performed by Warner Robins as a result of the

addition of the C-5 workload to its currently underutilized facilities.

The net result of the form number 2 comparability analysis was a

downward adjustment of $57,229,727 to Warner Robins’ proposal and a

final upward adjustment of $81,890,194 to offeror A’s proposal. A cost of

$312,474,994 was added to each that represented the cost of material. This

final cost adjustment resulted in a total alternative cost for Warner Robins

of $747,434,721 and for offeror A, a cost of $803,407,765. The most

significant single element contributing to the more than $55,000,000 cost

advantage for Warner Robins was the cost reduction made to reflect the

depot’s overhead cost savings.

Determination of Total

Evaluated Cost

To arrive at the total evaluated cost of each proposal, the evaluators took

the total alternative cost, as determined above, and applied the

dollarization adjustments that were identified during the technical

evaluation. The dollarization adjustments reflected the evaluators’

assessments of the benefit or detriment to the Air Force that would result

from aspects of the proposed performance considered to be

discriminators among the proposals.

The one aspect of offeror A’s proposal that was considered to be a

significant discriminator suitable for quantification was its offer to

significantly reduce the flow days to complete the work under the

production operations evaluation factor. This resulted in a downward

adjustment of $14,560,019 in the evaluation of its total cost. Similarly, the

evaluators concluded that Warner Robins’ proposal to reduce flow days

merited dollarization. The downward adjustment was tempered, however,

by the evaluators’ belief that the risk associated with the lack of capacity

at Warner Robins’ paint/depaint facility also qualified as a significant

discriminator and, thus, a dollarization candidate: this time, for an upward

adjustment. As a result of an upward adjustment of $1,838,767 to represent

the risk associated with the paint/depaint facility and a downward

adjustment of $2,755,456 representing the benefit to the Air Force of the

reduced flow days proposed, Warner Robins’ total cost was reduced by

Page 30 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix III 

Legal Review of Competition for the C-5

Aircraft Workload

$916,689. The total evaluated costs for the two lowest offerors were

$746,519,392 for Warner Robins and $788,847,746 for offeror A.14

Award Based on the evaluation results, the SSA concluded that all of the offers

were technically acceptable and that all three offerors were responsible.

The SSA found the prices proposed by each, as adjusted through the cost

analysis, to be reasonable and realistic.15 The SSA selected Warner Robins

to perform the C-5 workload on the basis that its proposal represented the

lowest total evaluated cost over the life of the requirement.

Analysis of Evaluation

and Award

As discussed previously, several statutes govern the use of public-private

competitions for the performance of depot workloads. In particular, 

10 U.S.C. 2469 provides for the use of “competitive procedures for

competitions among private and public sector entities” whenever DOD

contemplates changing the performance of depot workloads of $3 million

or more to contractor performance. Neither 10 U.S.C. 2469 nor the other

statutes governing public-private competitions for depot workloads

prescribe the specific elements that constitute a competition. Because,

however, the Air Force’s Depot Competition Procedures use the

competitive acquisition system, the standards in chapter 137 of title 10 of

the United States Code and the FAR apply to the extent they are consistent

with the basic public-private competition statutes. (See Newport News

Shipbuilding and Dry Dock Co., cited above.)

Reviewing the C-5 competition in this context, we found no basis to

conclude that the procedures used in selecting the successful offeror

deviated in any material respect from the applicable laws or relevant

provisions of the FAR. The Air Force issued a competitive solicitation in

accordance with FAR parts 12 and 15, which provided for the participation

of a public sector depot. Overall, the evaluation process appeared to be

reasonable, fair, and consistent with the evaluation scheme in the

solicitation, the Depot Competition Procedures, and the CCH.

14A dollarization adjustment was also made in offeror B’s proposal. This was a downward adjustment

reflecting the perceived benefit from offeror B’s proposal of an additional warranty.

15In considering the cost evaluation results, the SSA made a final adjustment that did not change the

order of the proposals. Specifically, the SSA requested an analysis of the possible impact of declining

labor efficiencies at Kelly on each offeror’s probable cost to complete the work already in process

there. The analysis resulted in an upward adjustment of $11,031,843 to Warner Robins’ total evaluated

cost, bringing it to $757,551,235, and a corresponding increase of $12,090,870 to offeror A’s cost, for a

new total of $800,938,616.

Page 31 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix III 

Legal Review of Competition for the C-5

Aircraft Workload

The private sector has raised several specific concerns about the conduct

of the C-5 competition. The concerns are that (1) there is an inherent

inequity in public-private depot competitions created by the solicitation of

offers on a fixed-price basis, since the government often pays for any cost

overruns incurred by a public sector source from public funds; (2) Warner

Robins was unfairly advantaged during the cost evaluation by the large

cost credit representing projected overhead savings in its other workloads;

and (3) the selection did not account for, or dollarize, identified risks and

weaknesses in the proposals.

Public-Private Cost

Comparison

Private sector representatives stated that the Air Force’s solicitation of

offers on a fixed-price basis revealed the inequity inherent in the

procedures used in the C-5 public-private competition. According to

industry representatives, the fixed-price concept is only relevant to private

sector offerors who must assume the risk that their costs will be less than

the price offered or they will incur losses. On the other hand, public sector

offerors are subject to no contractually enforceable cost risk, as any

overruns will simply be paid for by the government from public funds.

Public and private sector entities are fundamentally different; therefore, it

is unlikely that a completely equal comparison of the projected costs of

public and private sector performance of a particular function could be

achieved. However, the cost comparison aspect of a public-private

competition needs to be conducted in as fair a manner as practicable. To

this end, our decisions involving public-private competitions have held

that, to ascertain whether a public depot’s costs are fairly stated and

reasonable, an agency must make a reasoned judgment of the actual cost

the government will incur if work is to be performed by the depot. (See

Department of the Air Force; DCAA; Canadian Commercial

Corporation/Heroux, Inc., B-253278, Apr. 7, 1994, 94-1 CPD 247.)

Recognizing the concerns now being raised in the context of the C-5

competition, we have observed that, because a public source’s cost

overruns are paid for by the government, its arrangement to perform work

is more closely analogous to a cost reimbursement type contract than to

the fixed-price contract a private sector offeror is bound to perform. As a

result, we have stated that in a solicitation for a fixed-price type contract,

an agency must treat the public sector offer as if it were one for a cost type

contract and subject it to a cost realism analysis in accordance with FAR

15.805-3. (See Newport News Shipbuilding and Dry Dock Co., cited above.)

Page 32 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix III 

Legal Review of Competition for the C-5

Aircraft Workload

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

addressed the issue of public sector accountability for costs. Both the

solicitation and the Depot Competition Procedures contained a number of

provisions designed to ensure that Warner Robins’ full costs were

disclosed and supported. For example, the solicitation required the public

sector offeror to certify that its offer represented the full cost of

performance, subject to criminal penalties for false statements. Warner

Robins included this certification in its proposal.

Also, under the Depot Competition Procedures, DCAA is required to provide

an opinion that a public depot’s proposal complies with the CCH, is not

materially understated, and is acceptable for evaluation. These

requirements are not applicable to private sector offers. In fact, the

procedures state that proposals “submitted by private firms will generally

not require auditing.”16 In addition, the procedures mandate that proposals

from both public and private offerors be supported by systems and

procedures maintained by the offeror that are in accord with generally

accepted accounting principles.

The evaluation record for the C-5 competition shows that the Air Force

conducted an extensive realism analysis of the Warner Robins proposal,

consistent with FAR 15.805-3 and the previously cited decisions. In this

connection, the Air Force developed a pre-solicitation estimate of what it

would cost to perform the requirement. The evaluators compared this

figure with the overall cost proposed by the depot and reviewed individual

cost elements. In addition, DCAA reviewed Warner Robins’ disclosure

statement and the depot’s accounting and estimating systems.17 After

extensive discussions, including a site visit, and a number of revisions to

both the public offeror’s proposal—including a number of upward

adjustments—and its accounting and estimating systems, the SSA

concluded that Warner Robins’ proposal was realistic and reasonable. As

required by section 8041 of the Department of Defense Appropriations Act

for Fiscal Year 1997, Public Law 104-208, the SSA certified that the proposal

16The Depot Competition Procedures also contain provisions that are intended to ensure that public

depots that are awarded workloads perform in accordance with the terms of the award. For example,

there is a requirement for monitoring the depot’s cost and schedule performance. According to the

procedures, potential consequences for poor performance include a “show cause” procedure, which

“could result in termination of the award and recompetition with the terminated depot being barred

from the recompetition.” An analysis of the process established in this competition to ensure the

performance of the depot is discussed previously in this report.

17As discussed earlier, DCAA reported that while most of the deficiencies found in Warner Robins’

accounting system had been remedied at the time of the selection, some remained. According to

DCAA, the deficiencies did not have a significant impact on the Warner Robins’ cost proposal and the

few problems remaining at the time of the selection were not of sufficient magnitude to bar the

selection.

Page 33 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix III 

Legal Review of Competition for the C-5

Aircraft Workload

included estimates of direct and indirect costs that were comparable to

those in the other proposals.

Credit for Overhead

Savings

Private sector sources expressed concern about the large 

amount—$153,935,160—of projected overhead savings attributable to the

public depot’s other existing workloads. Although the amount was large

and became the primary determining factor in the selection of Warner

Robins, it was properly used in the evaluation by the Air Force.

The concept of assessing and evaluating the overhead savings attributable

to an offeror’s other government workloads resulting from the addition of

the C-5 workload was spelled out in the solicitation and the Depot

Competition Procedures. Specifically, both sources provided for an

adjustment to be made to a public or private sector proposal for

“identified and reasonable” overhead savings to other government

workloads performed by the offeror that would be realized during the

7-year period.

The evaluation records show that the cost evaluators questioned the

overhead savings initially proposed by Warner Robins and made

downward adjustments in the amount originally proposed. For example,

the evaluators deleted workload hours included in the Warner Robins’

savings calculations for work on the KC-135 aircraft because that

requirement had not been committed to the Warner Robins facility. After

extensive discussions with the offeror concerning the proposed overhead

savings, the evaluators calculated that $153,935,160 could be attributed to

the other workloads to be performed at the public facility during the

performance of the C-5 requirement. These savings were primarily due to

the more efficient use of the existing workforce and facilities, which

before the addition of the C-5 workload had been underused.

The overhead savings credit was provided for in the solicitation and the

Depot Competition Procedures, and the Air Force followed the evaluation

scheme in calculating the savings proposed by Warner Robins. The size of

the savings and their significance in Warner Robins’ selection were due to

the excess capacity that existed in Warner Robins’ facilities and the

underutilization of the existing workforce, to the fact that the savings were

to be applied to a 7-year performance period, and to the fact that offeror A

did not propose any similar overhead savings.

Page 34 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix III 

Legal Review of Competition for the C-5

Aircraft Workload

Dollarization of Evaluated

Risks

Private sector firms raised concerns about the Air Force’s failure to

consider some of the evaluated risks in the respective proposals in its final

selection decision.

The evaluation records show that under the two highest priority

management factors, transition and production operations, offeror A

received a low-risk rating while the public offeror’s approach was rated as

representing a moderate risk. Overall, offeror A was credited with more

strengths under the management factors than was the public offeror. In

the final selection decision, the SSA did not dollarize or quantify the risk

differences or all the strengths or weaknesses but only included

adjustments that represented discriminators based upon reduction of flow

days and a lack of capacity at one of Warner Robins’ proposed facilities.

The result was that all of the superior risk or strength ratings given offeror

A did not enter into the calculation of its total evaluated cost and were not

a factor in the final selection.

The RFP provided that the calculation of an offeror’s total evaluated cost

would include “the dollarized impact of significant discriminators based

on identified proposal strengths, weaknesses and risks.” Since the RFP

stated that these elements would be considered for inclusion in the

dollarization, the Air Force had to do so. However, an agency has

discretion to decide whether any particular feature of an individual

proposal should or should not enter into cost calculations, and such

decisions generally will not be questioned as long as they are fair,

reasonable, and consistent with the solicitation. (See Universal Shipping

Co., Inc., B-223905.2, Apr. 20, 1987, 87-1 CPD 424.) In our view, the

dollarization approach adopted by the Air Force represented a reasonable

exercise of its discretion under the RFP.

As noted previously, some evaluated risks for the two highest priority

management factors were dollarized and reflected in the final selection

decision, and some were not. Under the transition factor, the SSA noted

that Warner Robins met the minimum standard, but that its approach of

operating dual locations—Kelly and Robins Air Force Bases—for work

performed during the transition period posed a moderate risk because of

the close monitoring that would be required to avoid schedule disruption

and performance degradation. On the other hand, the SSA stated that

offeror A merited a low-risk rating because it had experience managing the

type of transition it proposed. The SSA noted that the strength of offeror A’s

approach increased confidence that the transition would be successful,

but did not offer “specific cost impacts or savings.” The SSA expressed

Page 35 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix III 

Legal Review of Competition for the C-5

Aircraft Workload

concern regarding Warner Robins’ approach but concluded that close

monitoring should ameliorate any cost impact. The SSA determined that

while offeror A’s approach involved less risk than Warner Robins’ plan, the

difference would not have an impact on the cost of performance.

Under the production operations factor, the SSA concluded that offeror A

far exceeded the minimum standard by proposing a low-risk approach that

would significantly reduce the flow days needed to perform the work on

the aircraft. The SSA considered this approach to be a significant

discriminator offering a cost benefit to the Air Force. Thus, the offeror was

given a dollarized cost credit in the evaluation. Similarly, Warner Robins

was given an estimated cost reduction in the dollarization evaluation for

its proposal to reduce flow days in processing the aircraft. This was

tempered by a corresponding dollarization because the SSA concluded that

the public offeror’s moderately risky approach could in one

respect—potential schedule conflicts in the use of its paint/depaint

facility—result in a negative cost impact during performance. A similar

problem involving potential schedule conflicts in the use of another

Warner Robins’ facility was not dollarized because the SSA concluded that

the potential cost impact was already reflected in the proposed costs.

As these facts demonstrate, the Air Force evaluators took a conservative

approach in implementing the dollarization concept announced in the RFP.

The evaluation record indicates that they included only those elements

that were judged to be discriminators among the proposals and would

offer “specific cost impacts or savings.” For example, if a proposal offered

a plan to reduce a specific number of flow days, a feature that could be

readily quantified, it was dollarized. On the other hand, more subjective

elements of the evaluation, such as the overall risk of a particular

approach, were not as susceptible to quantification and were not

dollarized.

In our view, while the Air Force could have taken a more expansive

approach to dollarization, it was within its discretion under the RFP to take

the approach that it did. The RFP did not explain in any detail how

dollarization was to be accomplished; the determination of an appropriate

approach was left to the Air Force. Further, our review of the evaluation

record disclosed nothing to suggest that the Air Force applied the

dollarization approach it selected unevenly or unfairly. For example, both

offeror A and Warner Robins were given dollarization credit for their plans

to reduce the flow days needed to maintain the aircraft. Considering the

subjective nature of such evaluation judgments and the discretion

Page 36 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix III 

Legal Review of Competition for the C-5

Aircraft Workload

procuring agencies have in this area, we believe that the Air Force’s

approach to dollarization was consistent with the solicitation and

reasonable. (See URS Consultants, B-275068.2, Jan. 21, 1997, 97-1 

CPD 100.)

Page 37 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix IV 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

James Wiggins, Associate Director

Julia Denman, Assistant Director

Office of General

Counsel

John Brosnan, Assistant General Counsel

Dallas Field Office John Strong, Evaluator-in-Charge

Larry Junek, Senior Evaluator

Page 38 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix IV 

Major Contributors to This Report

Page 39 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix IV 

Major Contributors to This Report

Page 40 GAO/NSIAD-98-72 Public-Private Depot Competition
Appendix IV 

Major Contributors to This Report

Page 41 GAO/NSIAD-98-72 Public-Private Depot Competition
Related GAO Products

Public-Private Competitions: DOD’s Determination to Combine Depot

Workloads Is Not Adequately Supported (GAO/NSIAD-98-76, Jan. 20, 1998).

DOD Depot Maintenance: Information on Public and Private Sector

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

Air Force Privatization-in-Place: Analysis of Aircraft and Missile System

Depot Repair Costs (GAO/NSIAD-98-35, Dec. 22,1997).

Outsourcing DOD Logistics: Savings Achievable But Defense Science

Board’s Projections Are Overstated (GAO/NSIAD-98-48, Dec. 8, 1997).

Air Force Depot Maintenance: Information on the Cost Effectiveness of

B-1B and B-52 Support Options (GAO/NSIAD-97-210BR, Sept. 12, 1997).

Navy Depot Maintenance: Privatizing the Louisville Operations in Place Is

Not Cost Effective (GAO/NSIAD-97-52, July 31, 1997).

Defense Depot Maintenance: Challenges Facing DOD in Managing Working

Capital Funds (GAO/T-NSIAD/AIMD-97-152, May 7, 1997).

Depot Maintenance: Uncertainties and Challenges DOD Faces in

Restructuring Its Depot Maintenance Program (GAO/T-NSIAD-97-111, Mar. 18,

1997) and (GAO/T-NSIAD-112, Apr. 10,1997).

Defense Outsourcing: Challenges Facing DOD As It Attempts to Save

Billions in Infrastructure Costs (GAO/T-NSIAD-97-110, Mar. 12, 1997).

Navy Ordnance: Analysis of Business Area Price Increases and Financial

Losses (GAO/AIMD/NSIAD-97-74, Mar. 14,1997).

High-Risk Series: Defense Infrastructure (GAO/HR-97-7, Feb. 1997).

Air Force Depot Maintenance: Privatization-in-Place Plans Are Costly

While Excess Capacity Exists (GAO/NSIAD-97-13, Dec. 31, 1996).

Army Depot Maintenance: Privatization Without Further Downsizing

Increases Costly Excess Capacity (GAO/NSIAD-96-201, Sept. 18, 1996).

Navy Depot Maintenance: Cost and Savings Issues Related to

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Page 42 GAO/NSIAD-98-72 Public-Private Depot Competition
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Privatization Assumptions Are Questionable (GAO/NSIAD-96-161, July 15,

1996).

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Depot System Uncertain (GAO/NSIAD-96-165, May 21, 1996).

Defense Depot Maintenance: More Comprehensive and Consistent

Workload Data Needed for Decisionmakers (GAO/NSIAD-96-166, May 21, 1996).

Defense Depot Maintenance: Privatization and the Debate Over the

Public-Private Mix (GAO/T-NSIAD-96-146, Apr. 16, 1996 ) and (GAO/T-NSIAD-96-148,

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Depot Maintenance: Opportunities to Privatize Repair of Military Engines

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Air Logistics Center (GAO/NSIAD-96-31, Dec. 15, 1995).

Military Bases: Case Studies on Selected Bases Closed in 1988 and 1991

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Military Base Closure: Analysis of DOD’s Process and Recommendations

for 1995 (GAO/T-NSIAD-95-132, Apr. 17, 1995).

Military Bases: Analysis of DOD’s 1995 Process and Recommendations for

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

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Downsized Military (GAO/T-NSIAD-93-13, May 6, 1993).

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

Defense Force Management: Challenges Facing DOD as It Continues to

Downsize Its Civilian Workforce (GAO/NSIAD-93-123, Feb. 12, 1993).

(709305) Page 44 GAO/NSIAD-98-72 Public-Private Depot Competition
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