United States General Accounting Office

GAO Report to the Honorable

James V. Hansen, House of

Representatives

December 1995 DEPOT

MAINTENANCE

The Navy’s Decision to

Stop F/A-18 Repairs at

Ogden Air Logistics

Center

GAO/NSIAD-96-31

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-261501 

December 15, 1995

The Honorable James V. Hansen

House of Representatives

Dear Mr. Hansen:

As you requested, we reviewed the Navy’s analysis to support its

December 1994 decision to move F/A-18 depot maintenance work from the

Air Force Ogden Air Logistics Center, Ogden, Utah, to the North Island

Naval Aviation Depot, San Diego, California. This report addresses (1) our

review of the Navy’s analysis and adjustments for cost and performance

comparability used to justify the decision to move its F/A-18 repair

activities from Ogden to North Island, (2) our independent analysis using

more current data than that available at the time of the Navy’s decision,

and (3) our analysis of the adequacy of guidance regarding the conduct of

a merit-based analysis.

Background The F/A-18 is a modern, first-line fighter and attack aircraft used by both

the Navy and the Marine Corps. Each F/A-18 is periodically inspected to

determine whether it needs to be sent to a depot for maintenance and

repairs that cannot be performed at the squadron level. The depot

maintenance specification for the F/A-18 is called the Modification,

Corrosion, and Paint Program (MCAPP) and consists of inspections to

identify needed repairs, the actual repairs, and the incorporation of

needed aircraft modifications. Prior to fiscal year 1994, the Navy assigned

all F/A-18 MCAPP work to the North Island depot.

In an effort to minimize costs, the Navy decided in 1992 to subject its

F/A-18 MCAPP maintenance to public/private competition. The competition

package consisted of an expected quantity of 72 MCAPPs with minimum and

maximum quantities of 36 and 90 MCAPPs in the first year, and options to

continue the contract for up to 4 additional years. The minimum,

maximum, and expected quantities were lower for each successive option

year, and the estimated value of the contract if all options were exercised

was about $61 million.

North Island, Ogden, and two private contractors submitted bids. Ogden’s

was substantially lower than the others and the Navy cost-evaluation team

generally found the bid to be well-supported. Ogden was awarded the

contract on August 24, 1993, and started work on the first F/A-18 MCAPP on

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December 8, 1993. The Air Force subsequently was informed that it would

only get 36 MCAPPs, the minimum number in the competition package,

because the Navy wanted to maintain core capability at North Island.1

Although the Air Force attempted to have Ogden assigned as the source of

repair designation for the F/A-18, the Navy, with the Office of the Secretary

of Defense (OSD) approval, continued to maintain F/A-18 aircraft

maintenance at North Island. Thus, the MCAPP workload was split between

the Navy depot and the Air Force depot. Between August 1993, when

Ogden was awarded the F/A-18 contract, and November 1994, when the

last F/A-18 was inducted at Ogden, North Island inducted 34 F/A-18s and

Ogden 36. Navy core analysis data indicates the core capability for the

F/A-18 is 18 aircraft.

Following the competition, the Navy reengineered its work processes at

North Island and reduced its cost of the F/A-18 repair work. In

September 1994, the Navy began evaluating whether to exercise its option

for the second year of the F/A-18 contract. North Island submitted a

proposal to give it the F/A-18 workload that otherwise would have

continued at Ogden. Since the Navy was planning to add additional

maintenance requirements to the MCAPP repair specification, the

contracting officer asked Ogden to provide a bid for the additional work.

According to Ogden officials, they were not told that this bid was to

support a competitive comparison with North Island.

Title 10 U.S.C. 2469 requires DOD to use competitive, merit-based

procedures before depot-level work valued at $3 million or more can be

moved from one DOD depot to another or from a DOD depot to the private

sector. In response to this requirement the Navy, in December 1994,

prepared an analysis that compared the estimated quality, schedule, and

cost of MCAPP work at Ogden and North Island. The Navy concluded that

quality was the same at both activities but that North Island could perform

the work in fewer days and at less cost to the government. As a result, the

Navy decided not to exercise its option for the second year at Ogden, but

rather to consolidate all F/A-18 MCAPP work at North Island.

1

Depot maintenance core capability is generally to be maintained within the Department of Defense

(DOD) depots to meet readiness and sustainability requirements of weapon systems and equipment

that are critical to mission performance to support the Joint Chiefs of Staff approved combat

contingency scenarios. The services designate certain weapon systems, equipment, and components as

mission essential for support of Joint Chief of Staff-approved contingency plans. Depot maintenance

for these mission-essential weapon systems and equipment will be the primary workloads used to

support required core depot maintenance capabilities. Core is said to be defined not by individual

service but for DOD as a whole. However, in practice it appears each service will be allowed to define

a core capability requirement for its own essential systems and equipment, even though they may be

very similar to systems and equipment maintenance capability maintained in another service.

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Results in Brief Comparing F/A-18 MCAPP cost and performance at North Island and Ogden

depots was complicated because a number of data judgments and

adjustments were required. The Navy’s analysis did not always use the

most current and complete information available and did not make

adjustments for all known differences in work completed at each depot.

Our analysis, using more current and complete information, showed that

Ogden’s costs were slightly lower. Nevertheless, given DOD’s decision to

retain F/A-18 repair capability at the Navy’s North Island facility, it appears

consolidation of the workload at that location is the most cost-effective

approach.

There is no clear statutory or DOD guidance that defines the steps,

processes, analyses, and validation procedures required for a merit-based

selection process. Such guidance is needed if DOD intends to base future

depot maintenance workload allocation decisions on such merit-based

analyses.

Navy Adjustments for

Comparability

The Navy’s decision to consolidate F/A-18 work was based on its analysis

of F/A-18 MCAPP schedule and cost differences between Ogden and North

Island. In evaluating schedule differences, the Navy compared the

estimated days required by each activity to complete an MCAPP. In

evaluating cost differences, it compared the estimated total cost to the

government for each activity to complete an MCAPP by estimating the labor

hours, the labor-hour rate, and the resulting total cost at each activity. The

cost analysis included labor and overhead costs but excluded direct

material costs, which the Navy stated should be the same at both

activities. The cost analysis also excluded airframe modification costs

performed concurrently with MCAPP work because modifications vary

considerably from airframe to airframe.

Details of the Navy’s December 1994 analysis, including the adjustments

made to Ogden and North Island data, follow. Also, appendix II

summarizes the cost comparison made by the Navy.

Schedule Comparison The Navy attempts to minimize the time each aircraft is out of service for

depot maintenance because of readiness concerns and to help minimize

the number of aircraft required for the maintenance pipeline. In its

comparison of the time Ogden and North Island took to complete an

F/A-18 MCAPP, the Navy used the number of repair days bid by each

activity. Ogden had bid 143 days to complete an MCAPP II and North Island

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110 days. Based on this comparison, the Navy concluded that North Island

could complete an MCAPP in less time than Ogden.

The Navy made no adjustments to the repair days bid by each depot.

However, it noted that Ogden’s average repair days on completed F/A-18s

were greater than its bid while North Island’s average repair days were

less than its bid. Ogden delivered only the first aircraft ahead of schedule,

with the next 15 delivered between 17 to 217 days late. Ogden officials

estimated that the remaining 20 aircraft would be delivered between 35 to

298 days late. Navy officials acknowledged that the Navy caused some

Ogden schedule delays through such actions as late delivery of parts and

late approval of funding, but did not quantify the extent of these delays.

In its review of North Island production, the Navy developed turnaround

data for North Island using only the last six F/A-18 MCAPPs. This data

supported a turnaround time of 107 days for those aircraft. However, a

review of production schedules for all F/A-18 MCAPPs completed at North

Island during fiscal year 1994 revealed that the average turnaround time

over that period was 269 days—almost 2-1/2 times longer than the 110-day

bid submitted by North Island. Navy officials noted that process

improvements at North Island had significantly reduced the F/A-18

turnaround time, and this improvement was demonstrated by the

production turnaround time achieved for the six MCAPPs used as a basis for

the Navy analysis.

While Ogden’s production turnaround time was also significantly longer

than its bid supported, Ogden officials gave us data showing that the

depot’s late delivery of 15 of the first 16 aircraft was caused primarily by a

number of Navy actions. Air Force officials cited approval of engineering

repair proposals as the most frequent reason for work delays. For repairs

not covered by maintenance manuals provided the Air Force, Ogden’s

engineers must design and submit for approval proposed repairs under the

Rapid Response Repair (3R) System to the F/A-18s Cognizant Field Activity

at the North Island Naval Aviation Depot. This approval is required before

proposed repairs can be made. Ogden officials reported that work delays

occurred because it often took several weeks to obtain required technical

information from the Navy’s Cognizant Field Activity before a repair could

be designed and once designed, it took too long to get Navy approval.

Usually proposed repairs had to be submitted multiple times before being

approved.

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Data provided by Ogden showed that they had experienced delays of 11 to

90 days in obtaining 3R approval on 18 of the 36 aircraft inducted as of

March 1995. North Island officials said that the time they took to

respond—but not necessarily approve—Ogden’s 3R requests met or was

less than the time called for in the contract and that the average response

time was 2.7 days. They also noted that the response time in support of

Ogden was better than the response time required to process 3Rs for the

North Island depot. We noted that 3R response times do not reflect the

time required to obtain the technical data needed to prepare the proposal

or the number of times the proposal is resubmitted before being approved.

Late funding by the Navy was the second most frequent reason Ogden

cited for work delays. Before applying an engineering modification called

for by the contract, the Navy F/A-18 program office had to approve the

expenditure of procurement funds for this purpose. According to Ogden

officials, work on 28 of the 36 aircraft was delayed from 5 to 259 days

because of late funding. F/A-18 Program Office officials stated that late

funding was a problem caused by an archaic funding system. This funding

system was not used for similar work by the Navy’s North Island depot.

Data provided by the Air Force indicated that late receipt of replacement

parts was the third most significant cause of work delays at Ogden.

Contractually, Ogden must obtain replacement parts from the Navy supply

system; however, the system was frequently unable to provide items when

Ogden needed them. Aircraft processing records show that 17 of 36

aircraft experienced work delays because replacement parts were not

available from the Navy supply system when needed. Delays caused by

late replacement parts ranged from 2 to 52 days. Navy officials

acknowledged that F/A-18 spare parts shortages are a Navy-wide problem,

but they said that since North Island is the approved overhaul depot for

F/A-18 components, parts shortages had less of an impact on North

Island’s F/A-18 delivery schedule. Ogden officials noted that they had the

capability to repair some of the parts had they been allowed to do so.

Ogden incurred other significant delays because the Navy required the

reinspection of certain aircraft using a procedure that included the

removal of wings from some completed aircraft. Nine aircraft were

delayed from 14 to 30 days—a total of 211 days—because the Navy

required Ogden to remove the wings and reinspect the wing attach lugs for

possible damage, after an Ogden crew used an unapproved mechanical

process to remove an anticorrosive compound from the wing lugs on one

of the earlier aircraft. Reinspection of the aircraft in question did not find

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damage. All measurements were within the specifications outlined by the

Navy for surface roughness and lug thickness. Three other aircraft that

had been worked on by the crew using the unapproved procedure were

also reinspected and showed no evidence that an unauthorized machine

process had been used or that the wing lugs were out of tolerance.

Although no damage was found, the Navy required Ogden to inspect five

additional aircraft, even though these aircraft had not been worked on by

the same crew. These inspections produced no evidence of the

unauthorized machine process and only one out-of-tolerance condition

concerning surface roughness. The cause of that discrepancy, a small

scratch, could not be determined by either the Navy or Ogden. Air Force

and Defense Contract Management Command (DCMC) officials questioned

the need to require the removal of wings on completed aircraft. The Navy

believes that requiring Ogden to remove the wings and reinspect the lugs

was justified because the area involved was a flight critical structure from

an aircraft safety standpoint.

According to Ogden officials, various work delays caused by the Navy

prompted over 100 letters to the Navy contracting officer asking for

corrective action on various problems causing the delays and also asking

for schedule extensions resulting from prior delays. The Navy contracting

officer did not respond to any of the letters, and only after the F/A-18

MCAPP contract was terminated did it allow the DCMC to act on Ogden

requests for schedule extensions. According to DCMC officials, on other

programs they are routinely allowed to modify schedule delivery dates

when conditions are appropriate. These officials noted that a private

contractor may have stopped work.

Ogden officials attempted to analyze the collective impact of various

delays on the depot’s ability to repair aircraft. They noted that various

delays were ongoing concurrently, but their analysis revealed that one

aircraft experienced delays attributed to the Navy totaling 546 days.

Noting that they overlapped for the various conditions, Air Force officials

concluded that work was delayed 82 days while 6 3Rs were being

processed, 259 days because funding was approved late, and 205 days for

other reasons such as late receipt of replacement parts and a faulty

engineering repair solution. Navy officials dispute that delays were caused

by the length of 3R processing times and noted that delays due to the lack

of spare parts in critical supply were also experienced across the entire

Navy.

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Labor Hour Comparison The Navy’s first step in analyzing F/A-18 MCAPP costs at Ogden and North

Island was to compare MCAPP labor-hour requirements. However, for

several reasons making such a comparison is difficult. First, the two

activities used different MCAPP repair specifications, which affect the labor

hours required to perform the work. After the competitive contract was

awarded to Ogden, the F/A-18 repair specification was changed to

incorporate additional inspection requirements. The extra inspections

normally identify additional repair tasks, which also require more labor

hours to complete. North Island has used the revised repair specification,

called MCAPP II, since May 1994, while Ogden had continued to use the

original MCAPP specification as called for by the terms of the contract. We

noted that during fiscal year 1994, the Navy completed 82 MCAPPs using the

same specification as that used by Ogden and that the labor hours required

to complete these aircraft averaged 7,299 labor hours. F/A-18s inducted at

North Island after December 18, 1993, the date when the first Ogden

F/A-18 was inducted, averaged 6,819 labor hours. Navy officials stated that

process improvements to reduce the labor hours required at North Island

to complete an F/A-18 MCAPP had only been completed in time to fully

benefit F/A-18 MCAPP II aircraft, which were first inducted in April 1994. We

determined that although the MCAPP II specification was expected to

require more labor hours than MCAPP I, the average labor hours for the 6

MCAPP II aircraft completed before the time of the Navy’s analysis was

5,684—a significant reduction over the historical average time required for

MCAPP Is at North Island. The Navy attributed these labor-hour reductions

to increased efficiencies at the North Island depot—primarily because it

reduced the number of components that were overhauled concurrently

with the MCAPP.

Second, differences in the number of carrier-based and land-based F/A-18s

repaired also complicate a labor-hour comparison by each activity. Navy

officials stated that this comparison is important because the F/A-18 repair

specification makes a distinction between carrier-based and land-based

F/A-18s. Specifically, the repair specification requires more inspections for

carrier-based F/A-18s because they normally are subjected to a harsher

environment and more physical stress due to salt water, catapult launches,

and arrested landings. According to the Navy, the additional inspections

normally result in more repair work. At the time of the Navy’s analysis,

North Island had recently completed six carrier-based F/A-18s while

Ogden had completed two carrier-based and five land-based F/A-18s. The

Navy did not use data from the carrier-based aircraft repaired at Ogden.

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Third, differences in F/A-18 component repair procedures at each activity

also complicate a labor-hour comparison between the two activities.

Under terms of the Ogden contract, most components requiring repair are

to be exchanged for replacement components provided by the Navy for

installation on the aircraft. At North Island, many components requiring

repair are to be repaired concurrently with the aircraft and then reinstalled

on the aircraft. The additional labor hours used by North Island for

component repairs are included in the total labor hours charged to each

aircraft. North Island officials told us that the biggest factor influencing its

process improvement was that the depot significantly reduced the number

of components that were overhauled concurrently with MCAPP. Rather than

routinely overhauling components that had been removed from aircraft

being inducted for an MCAPP, revised procedures called for only

overhauling components if they did not meet technical requirements.

Fourth, there are differences in the amount of work required on each

aircraft. Each aircraft is unique and the amount of needed repairs

identified during the inspections varies considerably from aircraft to

aircraft. The use of averages tends to normalize these variations in work

content. However, the averages used in the Navy’s analysis were based on

small quantities of completed aircraft at both depots. As a result, the

averages may not have normalized labor-hour differences caused by

differences in the repairs required on each aircraft. This problem probably

affected analysis of the Ogden hours even more than North Island since

Ogden had not advanced far enough along in the F/A-18 repair program to

reach a normalized production level.

Finally, there are other differences between the activities that affect labor

hours used for MCAPP work that also complicate a labor-hour comparison.

For example, there are differences in (1) the cost accounting systems used

to collect labor-hour expenditures, (2) operation and administration

procedures for work performed, and (3) the numbers of F/A-18 MCAPPs

completed in the past that affects the comparability of performance data

and the potential for future improvement.

Adjustments to Ogden’s

Labor Hours

The Navy made several adjustments to the historical data used in its

analysis. Through the adjustments, the Navy estimated the labor hours

required by each depot to perform an MCAPP II on a land-based F/A-18 with

no concurrent repair of components. These adjustments increased

Ogden’s labor hours and reduced North Island’s labor hours below

Ogden’s. The Navy did not make adjustments to account for known factors

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causing labor-hour increases at Ogden, such as delays caused by the

nonavailability of parts, time awaiting approval of proposed maintenance

actions, a Navy required wing removal and reinspection, front-end training

time, or increases due to the type of contract administration used for the

Ogden repair work. The Navy also did not recognize Ogden’s potential for

reducing labor hours as additional aircraft were produced or consider

basing its land-based versus carrier-based analysis on Ogden aircraft

results rather than North Island’s even though Ogden had produced both

types.

As the starting point for Ogden, the analysis used the 3,069 average labor

hours approved for payment by the contract administrator for the 5

land-based F/A-18s completed by Ogden at the time of the analysis. Actual

labor-hour expenditures at Ogden were not used because the work at

Ogden was being administered similar to a contract with a private

company. As a result, the Navy said it only had access to the labor hours

approved for payment by the contract administrator.

The Navy made three adjustments to the Ogden average. First, the

contract administrator had made a decision in November 1994 to approve

12 to 17 percent additional labor hours for personal, fatigue, and delay

time associated with certain work at Ogden. Based on this decision, the

Navy adjusted some of Ogden’s proposed labor hours using a 12-percent

factor, which added 153 hours. In January 1995, Ogden formally requested

approval for compensation for additional hours to reflect personal fatigue,

and delay time using a 16.7-percent factor.

The Navy made a second adjustment to add the labor hours required for

the additional MCAPP II inspection requirements. In September 1994, the

Navy asked Ogden to submit a bid for these additional requirements, and

in response, Ogden submitted a proposal for 228 additional labor hours.

Based on this proposal, the Navy added 228 hours to Ogden’s labor-hour

estimate.

The third adjustment made to Ogden’s labor hours added 480 hours

estimated for the additional repair work that would result from the

additional MCAPP II inspections. When Ogden bid the 228 hours for MCAPP II

inspections, the activity did not submit a bid for the needed repair work

that would be identified during the inspections. The F/A-18 field

engineering activity that developed the MCAPP II specification estimated

that 3 labor hours of repair work would result from each additional

inspection hour. Use of this ratio would have added 864 labor hours to the

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Ogden average. Navy officials stated that to be conservative in making this

adjustment, they used a ratio of 2.1 repair hours for each inspection hour.

This ratio was based on the approved labor hours for inspections and the

resulting repair work on Ogden’s five completed land-based F/A-18s.

While the second and third adjustments appear logical, we could not

determine whether Ogden would have needed all of the additional time

related to these adjustments. As previously discussed, North Island

reduced both its turnaround time and labor hours for MCAPP II aircraft. We

did not analyze the two specifications to determine if there were changes

that might have reduced the production time at Ogden as it had of North

Island.

The Navy, as previously noted, did not adjust Ogden’s hours to reflect

improved performance normally expected from the learning curve as a

depot gains experience with a new workload. DCAA officials told us

learning curve analyses are routine in their normal bid proposal

evaluations. Learning curve theory states that, for repetitive tasks, as

quantities double, the time to perform a task reduces at relatively constant

percentages. Over time, the quantities required to reach a doubling can

become very large, causing an apparent significant slowing of the rate of

learning. On the F/A-18 MCAPP, North Island would have already

experienced a significant amount of learning due to the quantities

performed. Ogden, on the other hand, having just begun the program

should have been expected to experience significant learning (decreases

in hours) if the program had continued. According to DCAA officials, in

projecting future labor-hour requirements at Ogden, use of a learning

curve would have been appropriate since Ogden’s hours for its first few

aircraft were being compared with those of North Island, which already

had many years performance experience. Navy officials stated that the

data on approved labor hours provided by DCMC provided no indication of

a learning curve because so few aircraft had been completed.

Adjustments to North

Island’s Labor Hours

As the starting point for North Island, the Navy used the 5,684 average

labor hours expended on the last 6 completed F/A-18s at North Island. All

six F/A-18s were carrier-based aircraft, and all were repaired using the

MCAPP II specification.

The labor-hour average for these aircraft represents a significant decrease

in the historical labor hours expended by North Island for MCAPP work. For

example, in fiscal year 1994, North Island completed 82 MCAPPs at an

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average of 7,299 labor hours. The 5,684 labor-hour average for the last 

6 completed aircraft represents an average decrease of 1,618 labor hours,

or 22 percent less than each completed MCAPP I, even though the MCAPP II

specifications require additional hours for inspection and repairs.

North Island officials attributed labor-hour reductions to process

improvements identified as a result of the public-private competition for

F/A-18 MCAPPs. After the competition, North Island made a detailed review

of its F/A-18 repair operations with a view to reducing costs, including

visits to Ogden to review that depot’s processes and procedures. Although

North Island lost the competition, the changes were incorporated into the

depot’s operations for the F/A-18 core aircraft that were not included in

the competition package. Changes that reduced labor and processing time

included establishing central approval authority for recommended repair

tasks, conducting daily progress meetings between the managers and

artisans at the site of each aircraft in the plant, reducing component repair

time by only repairing the items needed for safe operation instead of

completely overhauling the entire component, and moving work crews to

each aircraft as work progressed instead of physically moving the aircraft

to different work stations. North Island data indicated that repair costs for

the six MCAPPs used as a basis for the Navy’s analysis were 37 percent

below previous F/A-18 MCAPP costs at this depot.

The Navy made 2 adjustments to the North Island 5,684 labor-hour

average. First, it reduced the average by 493 hours to account for the labor

hours used to repair components. Ogden replaces broken components but

does not repair them. The adjustment was less than the average labor

hours historically used for component repairs. However, the Navy stated

that North Island adopted new repair practices that reduced component

repairs. We noted that the Ogden labor hours included some off-equipment

component repair work, but these hours were not separately identified for

purposes of the Navy analysis. Navy officials said they do not classify this

work as depot-level repair; furthermore, they noted that Ogden had not

been approved by the Navy to do any depot-level component rework.

The second adjustment was made because Ogden’s five aircraft used in the

comparison were land-based and North Island’s six aircraft were

carrier-based. The Navy stated that historical data at North Island showed

that land-based F/A-18 MCAPPs on average require 27.5 percent fewer labor

hours than carrier-based F/A-18s because of fewer corrosion and structure

problems. To estimate the labor hours that North Island would have used

if all aircraft had been land-based, the Navy reduced the average by

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27.5 percent, or 1,430 labor hours. To differentiate between land-based and

carrier-based aircraft, the Navy used as a measure the number of catapult

launches. Aircraft with at least 200 catapult launches were said to be

carrier-based and those with less were said to be land-based.

We identified several factors that would question the appropriateness of

the Navy’s large reduction of North Island labor hours based upon its

carrier- versus land-based analysis. For example, Ogden was operating

under different instructions from the Navy regarding how to define a

carrier-based aircraft. Thus, Ogden incurred additional labor hours for

inspections using criteria defined in the MCAPP inspection procedures even

though the aircraft would not have qualified as a carrier-based aircraft

using the 200 catapult launch criteria. Additionally, the 27.5-percent

reduction was not well-supported based on an analysis of North Island

data. We also noted that at the time the Navy collected data for its

analysis, Ogden had already repaired several aircraft that had over

200 catapult launches. The Ogden data showed a 7-percent increase in

hours for carrier-based aircraft. Further, in isolating the relative influence

of various factors on the number of labor hours required to perform an

MCAPP, we found that other factors such as number of flying hours and

time since previous major repair appeared to be much more statistically

meaningful indicators of how many hours would be required to conduct an

MCAPP.

The Navy did not ask DCAA to review the proposed labor hours or to

determine if its adjustments to those hours were supported. Navy officials

noted that this was consistent with the process used in the original

competition in which DCAA assessed rates and Naval Air Systems

Command assessed labor hours. However, we noted that DCAA’s audit

reports of Ogden and North Island’s original bids included evaluations of

both rates and hours. DCAA was responsible for ensuring that bids prepared

by public depots included all relevant costs.

Rate Adjustments With labor-hour estimates determined, the Navy then estimated the rates,

or cost per hour, to perform MCAPP work at Ogden and at North Island. To

do this, the Navy asked DCAA to review actual F/A-18 costs at both depots

and estimate actual rates for fiscal year 1995 work. The Navy requested

DCAA to complete its review and report the results in less than 1 week.

Although DCAA complied with the request, the resulting reports were highly

qualified. DCAA reported that its review was limited to verifying reported

actual cost information and making an estimate of actual costs for the next

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year. DCAA reported that it did not have sufficient time to perform the

procedures necessary to comply with generally accepted government

auditing standards. DCAA officials stated that in at least one case their

analysis was based on incomplete data.

DCAA initially reported that Ogden’s expected actual hourly rate for fiscal

year 1995 for F/A-18 MCAPP work was $81.00. After considering additional

information provided by Ogden officials, DCAA revised its estimate to

$68.83. In its analysis, the Navy used the $68.83 rate for Ogden with no

adjustments. DCAA officials later reported that the Ogden rate should have

been $61.68. They stated that the initial rate estimate did not fully discount

the impacts of first-year training and the Navy requirement to perform

wing removals and reinspection on several aircraft.

DCAA reported that North Island’s expected actual hourly rate for fiscal

year 1995 for F/A-18 MCAPP work was $67.89. In its analysis, the Navy made

several adjustments that reduced the DCAA estimated rate to $62.86, a $5.03

reduction. Navy officials stated that most of the reduction was made to

provide for differences between Ogden and North Island in the accounting

of certain F/A-18 material costs. Under the contract, some F/A-18 material

is provided to Ogden at no cost as government-furnished material. This

same material is included in North Island’s costs. The adjustments account

for these differences as well as for a minor error in the accounting for

building depreciation at North Island.

In estimating rates at Ogden and North Island, the Navy did not fully adjust

for extra costs Ogden incurred from: (1) operating under DCMC contract

administration rather than a less costly interservice support agreement,

(2) first-year training because the F/A-18 workload was new, (3) Navy

delays in providing spare parts and approving maintenance procedures, or

(4) conducting the Navy-required wing removal and reinspection

procedure on several aircraft that revealed no quality problems. Navy

officials stated that (1) despite the higher cost under DCMC contract

management, they had a contract with Ogden that required the use of DCMC

contract administrators; (2) adjustments for first-year training and

reinspection costs were included in the $68.83 qualified rate estimate

provided by DCAA; and (3) Ogden did not incur increased labor cost while

awaiting spare parts and that repair approval procedures were timely.

Total Cost Comparison To arrive at the estimated cost to the government for MCAPP work at

Ogden, the Navy multiplied Ogden’s adjusted average labor hours by the

Page 13 GAO/NSIAD-96-31 Depot Maintenance
B-261501 

DCAA rate. The result was $270,502. The Navy added $9,000 to account for

MCAPP II equipment that the Navy said Ogden would need to perform MCAPP

II inspections. The $9,000 was calculated by dividing the $207,000 cost of

the machinery by the minimum 23 F/A-18 MCAPP IIs that would be

performed in fiscal year 1995. For North Island, the Navy multiplied North

Island’s adjusted average labor hours by the adjusted DCAA rate. The result

was $236,416, or $34,086 less than Ogden.

Other Cost Considerations

When F/A-18 Workload Is

Dual-Cited

Although the Navy’s decision to move F/A-18 MCAPP work from Ogden to

North Island was based primarily on the cost and schedule differences

discussed above, the Navy analysis also noted other costs associated with

having MCAPP work performed at two locations. The Navy, with DOD

concurrence, is requiring that F/A-18 core repair capability be maintained

at a Navy depot. Thus, when Ogden won the F/A-18 competition, the Navy

did not send all F/A-18 MCAPPs to the Air Force depot. Instead, North Island

performed about half of the MCAPPs to maintain a Navy core capability to

repair the aircraft.

The Navy identified six factors associated with performing F/A-18 work at

two depots that increase the total cost of the work. The Navy estimated

that these factors add $43,000 to the government’s cost for each F/A-18

MCAPP accomplished at Ogden. According to the Navy, the additional costs

are eliminated by consolidating all F/A-18 MCAPP work at one site.

We agree there are additional costs to the government when the same

work is performed at two depots. As a result of its recognition of the

advantages of single-siting depot maintenance workload, in recent years

DOD has single-sited numerous depot maintenance workloads that had

previously been split among two or more depot activities. Nonetheless,

our review indicated that quantifying these costs is difficult, and in most

cases, the Navy overestimated the amounts. The six cost factors identified

in the Navy’s analysis are discussed below.

• The Navy estimated that the difference in the days required to complete

MCAPP work at Ogden and North Island would cost the government $11,000

in additional depreciation costs for each MCAPP performed by Ogden. This

amount was based on Ogden’s bid of 143 days to perform an MCAPP and

North Island’s bid of 110 days. As discussed earlier, we believe the Navy’s

use of this factor was inappropriate. North Island’s bid reflected a

substantial reduction from its yearly average and assumed that recent

reductions in turnaround times would be maintained. Ogden’s bid, on the

Page 14 GAO/NSIAD-96-31 Depot Maintenance
B-261501 

other hand, reflected delays and other factors experienced during its first

year that should have been reduced or eliminated in subsequent years.

• The Navy estimated that engineering support costs provided to Ogden

added $8,000 to the cost of each MCAPP. However, this is not an additional

cost since similar engineering support is required regardless of where the

repair work is performed.

• The Navy estimated that $1,600 in added costs per MCAPP resulted from the

Navy having an on-site representative at Ogden to help oversee and

monitor work. We noted that the Navy elected to have an on-site

representative at Ogden, even though the contract did not require one.

Also, it is not clear that all costs associated with this function were added

costs to the government since the on-site representatives were from the

North Island cognizant field activity and were assigned F/A-18 work

regardless of where the work was performed. Travel and per-diem costs

were, however, attributable to the Ogden contract.

• The Navy estimated that the cost of having DCMC administer the contract at

Ogden added $15,700 to the cost of each MCAPP. While we did not verify

these costs, we agree that if correct, the Navy’s chosen method of contract

administration at Ogden was costly. However, the Navy did not have to use

DCMC to administer the contract at Ogden. The F/A-18 workload could have

been administered at less cost through an interservice support agreement,

as called for in the DOD Cost Comparability Handbook. Thus, it was

inappropriate in this case to include the DCMC contract administration

costs as a differential factor for purposes of the F/A-18 analysis.

• The Navy estimated that the additional material costs for the Aviation

Supply Office to support MCAPP work at two locations was $5,750 for each

MCAPP completed by Ogden. We did not verify the Navy’s estimate of the

cost. However, we noted that the Air Force and the Navy were negotiating

a no-cost contract modification that would have allowed Ogden to use the

Air Force supply system for the option years. While Ogden would have had

to continue to rely on the Aviation Supply Office for reparable components

not available through the Air Force system, its reliance on the Navy system

should have been significantly reduced.

• The Navy estimated that the additional cost to fly each F/A-18 from Ogden

to North Island was $1,090. We believe that this is not an additional cost

because an aircraft should be flown from its squadron to the depot and

back. Also, F/A-18s from East Coast locations would incur less costs by

flying to Ogden rather than to North Island due to geographic differences.

Although we could not validate most of the Navy’s estimates of specific

costs associated with maintaining the F/A-18 workload at two different

locations, we recognize that in recent years DOD has identified advantages

Page 15 GAO/NSIAD-96-31 Depot Maintenance
B-261501 

from eliminating redundancies in its depot maintenance workload

capability and has consolidated many depot workloads formerly

accomplished in multiple locations at a single site. In general, we have

supported such consolidations.

Navy Analysis

Understates North

Island’s MCAPP Labor

Hours

The Navy made a 27.5-percent downward adjustment to North Island’s

labor hours based on limited sample data. Using more current and

complete data would have significantly reduced the adjustment. Without

this adjustment, the Navy’s analysis would have shown North Island’s

costs to be higher than Ogden’s.

To determine North Island’s MCAPP labor hours, the Navy used North

Island’s recent experience performing MCAPP IIs on five carrier-based

aircraft. These MCAPPs reflected significant labor-hour reductions from

historical levels. Ogden’s labor hours were based on its experience

performing the original MCAPP work on five land-based aircraft. To adjust

for any differences between land-based and carrier-based aircraft, the

Navy compared labor hours on a sample of land- and carrier-based F/A-18

MCAPPs performed at North Island during the first 6 months of fiscal year

1994. The sampled MCAPPs were prior to process improvements at North

Island that significantly reduced labor hours and prior to MCAPP II work. A

comparison of labor-hour costs for all financially completed F/A-18 MCAPPs

at North Island in fiscal year 1994 would have reduced the downward

adjustment from 27.5 to 14 percent. Using a comparison of the last 6

months of fiscal year 1994, which reflects more of the current MCAPP II

work, the downward adjustment would have been even less.

To test the basis for the large labor-hour adjustment for carrier-based

aircraft, we analyzed the approved labor hours for completing MCAPPs at

Ogden for both carrier-based and land-based aircraft. We noted there was

only a 7-percent difference. To understand further the relationship

between catapult launches and labor hours, we also performed a

regression analysis, comparing North Island catapult launches and hours,

to determine how much of the change in hours is explained by the change

in catapult launches. The resulting correlation was approximately

9 percent. This means that only 9 percent of the change in hours is

explained in catapult launches. In other words, 91 percent of the change in

hours is related to factors other than number of catapult launches, such as

number of flying hours and age of the aircraft.

Page 16 GAO/NSIAD-96-31 Depot Maintenance
B-261501 

We also performed an additional review of the hours and numbers of

catapult launches. That analysis indicated that there is not a strong

relationship between the number of catapult launches and the hours

required for MCAPP work.

We recomputed the Navy’s analysis using a 14-percent downward

adjustment. As shown in appendix III, the recomputed Navy analysis

shows Ogden’s cost is $272,900 and North Island’s cost is $275,900 for an

F/A-18 MCAPP. Navy officials concurred with the analysis using a larger

sample size provided the sample was based on all labor completed aircraft,

not the more inclusive financially completed aircraft. The Navy officials

commented that by using labor completed aircraft the downward

adjustment would be 16.7 percent rather than 14 percent—making Ogden’s

cost slightly higher. However, since labor complete figures do not capture

the final total labor hours that are included in financially complete figures,

the financially completed measure is more commonly used. Additionally,

as previously noted, our analysis of Ogden’s labor-hour differential

between carrier-based and land-based aircraft showed only a 7-percent

difference.

The Ogden total, shown in appendix III, included $2,379 that the Navy

added for equipment that Ogden would have to purchase for MCAPP II

inspections. Navy officials stated that including the equipment cost was

appropriate because the contract required the equipment for the

performance of MCAPP II. Ogden officials stated that they did not believe

the equipment adjustment was appropriate. They noted that similar

equipment had been called for as part of the MCAPP I work. However,

because of the infrequency of the repair requirement for components

needing the equipment, the Navy had determined it to be more economical

to send the parts to North Island rather than purchase the equipment for

Ogden. It is not clear why this same procedure would not have been used

for MCAPP II repairs at Ogden.

The recomputed Navy analysis in appendix III shows Ogden’s cost was

slightly less than North Island’s. Further, if DCAA’s revised labor rate of

$61.68 had been used, Ogden’s per-aircraft cost would have been more

than $30,000 less per aircraft. Nonetheless, the decision may still have

been made to move the workload back to North Island due to the Navy’s

assessment regarding potential cost savings from consolidation.

Page 17 GAO/NSIAD-96-31 Depot Maintenance
B-261501 

Comparison of Costs

Using Current

Information

We performed a separate analysis comparing estimated costs for

performing MCAPP work at Ogden and North Island using (1) the most

current data available at the time of our review in March 1995, (2) actual

labor hours expended by Ogden and North Island for completed MCAPPs for

carrier-based F/A-18s, and (3) actual rates at Ogden and North Island

based on actual costs for completed F/A-18 MCAPPs. This analysis is

summarized in appendix IV.

We adjusted North Island labor hours to account for the labor hours used

for concurrent repair of components. We adjusted Ogden labor hours to

estimate the additional labor hours required to perform MCAPP II work.

Because we compared only carrier-based aircraft completed by each

depot, we did not make an adjustment for differences in the proportion of

carrier-based and land-based F/A-18s at each depot.

We made two estimates of the total cost to the government using the

adjusted labor-hour estimates and two different rate estimates. The first

estimate used the actual rate at each activity for F/A-18 MCAPPs completed

in fiscal year 1995. The second estimate used the actual rate at each

activity adjusted for differences in accounting for material costs, the cost

of Ogden F/A-18 work that was outside of normal MCAPP requirements, and

the additional cost of contract administration at Ogden in dealing with

DCMC. Navy officials state that since Ogden’s contract was structured with

DCMC as the administrator, an adjustment is not necessary.

Using the actual rates, the analysis showed that the cost to the government

for F/A-18 MCAPPs was less at North Island. Using the adjusted rates, the

analysis showed that the cost was less at Ogden. We did not include in the

analysis an estimate for the added costs to the government from having

two depots perform F/A-18 work. Also, our analysis did not account for all

differences in the work historically performed at the two depots because

some differences cannot be accurately quantified.

Lack of DOD

Guidance on What

Procedures to Be

Used

Title 10 U.S.C. 2469 contains provisions that restrict the movement of

depot-level maintenance work from one depot to another or to the private

sector if the value of the work is $3 million dollars or more. The legislation

requires that before such work is moved, the Secretary of Defense must

ensure that the change is made using (1) merit-based selection procedures

for competitions among all DOD depot-level activities or (2) competitive

procedures for competitions among private and public sector entities.

Page 18 GAO/NSIAD-96-31 Depot Maintenance
B-261501 

Since the value of the F/A-18 MCAPP work moved from Ogden to North

Island exceeded $3 million, the decision was subject to the provisions of

the legislation. In a December 20, 1994, letter, the Deputy Under Secretary

of Defense for Logistics confirmed that he had reviewed the Navy’s

decision and supporting analysis. The letter stated that there were only

two DOD depot maintenance activities capable of accomplishing the MCAPP

work, Ogden and North Island, and that the Navy had performed a

merit-based analysis and selection by evaluating proposals from these

activities using quality, schedule, and cost criteria. The Deputy Under

Secretary stated that the decision was based on the best value to the

government and satisfied the requirements of section 2469.

Our review indicated that DOD has not developed guidance implementing

the legislation that specifically defines the steps, processes, and analyses

required for merit-based selection. In other words, the services do not

have defined guidance on what they must do to ensure that decisions to

move depot workload are based on merit-based selection procedures.

Without such guidance, it appears that any selection decision using

reasonable criteria and accurate data could be considered merit-based.

In the absence of guidance, the Navy established a process it believed was

merit-based by using quality, schedule, and cost criteria in comparing

F/A-18 MCAPP work at Ogden and North Island. However, our review

indicated the Navy’s implementation of that process had a number of

shortcomings. For example, as we discussed previously, the Navy did not

use the most current and complete data available in determining

labor-hour differences between carrier- and land-based aircraft. Using

more current and complete data significantly impacts the Navy’s analysis.

In addition, the Navy only allowed DCAA 1 week to determine the rates that

were used in the cost comparison. DCAA qualified the information provided

to the Navy at the time and subsequent DCAA analyses have resulted in

different rate estimates. Further, the Navy analysis did not adjust for the

extra costs incurred by Ogden in operating under DCMC contract

administration even though the work could have been performed through

an interservice support agreement at less cost.

The Deputy Under Secretary stated in the December letter that Ogden and

North Island were the only activities considered in the selection decision

because they were the only DOD activities capable of performing the F/A-18

MCAPP work. We would agree that at the time of the decision, Ogden and

North Island were the only DOD activities performing F/A-18 MCAPP work.

However, we question whether Ogden and North Island are the only DOD

Page 19 GAO/NSIAD-96-31 Depot Maintenance
B-261501 

activities capable of performing the work. Other Air Logistics Centers and

Naval Aviation Depots routinely provide depot-level maintenance on

several other types of fighter and attack aircraft. While these activities may

not have all of the equipment and skills in place to start MCAPP work

immediately, it would appear reasonable that with some preparation, other

DOD activities could perform the work.

In view of the requirement to use merit-based selection procedures among

all depot-level activities, other Air Logistics Centers, and Naval Aviation

Depots could have been considered in the overall analysis. However, even

if other activities had been considered, it is uncertain whether any would

have submitted a proposal, and we recognize that start-up costs may have

prevented other activities from being competitive.

Recommendation We recommend that the Secretary of Defense develop and implement

guidance on using merit-based selection procedures when moving depot

workload as prescribed by title 10 U.S.C. 2469.

Agency Comments We provided a draft of this report to DOD for comment. DOD provided

official oral comments. OSD officials agreed with the report’s overall

conclusion that the F/A-18 MCAPP workload should be single-sited and also

agreed with the recommendation. They stated that events discussed in this

report demonstrate the difficulties created when one service’s depot is

pitted against another service’s depot in a competitive environment.

However, at the same time, they agreed that this case also demonstrates

the potential cost savings that can be generated when competition

motivates public depots to implement efficiencies by reengineering depot

maintenance processes and workloads.

Air Force officials indicated overall concurrence with the report. Navy

officials agreed with the overall conclusion that single siting all F/A-18

depot workload is in the best interest of the Navy. However, they raised

concerns that the report did not accurately characterize the reasons why

there were differences between their and our analyses. They stated that

the Navy’s analysis was based on the best information available at the

time. We revised the report to reflect the Navy’s concerns by more clearly

explaining the reasons for the differences between their analyses and ours.

Page 20 GAO/NSIAD-96-31 Depot Maintenance
B-261501 

Appendix I describes our scope and methodology.

As arranged with your staff, unless you announce its contents earlier, we

plan no further distribution of this report until 7 days from its issue date.

At that time, we will send copies of this report to the Secretaries of

Defense, the Air Force, and the Navy. Copies will also be made available to

others on request.

Please contact me on (202) 512-8412 if you or your staff have any

questions concerning this report. Major contributors to this report were

Julia Denman, Gary Phillips, James Ellis, and Donald Lentz.

Sincerely yours,

David R. Warren

Director, Defense Management

 and NASA Issues

Page 21 GAO/NSIAD-96-31 Depot Maintenance
Contents

Letter 1

Appendix I 

Scope and

Methodology

24

Appendix II 

Navy’s Original

Analysis of Ogden and

North Island F/A-18

Costs

26

Appendix III 

Navy Analysis With

Corrected Data

Available in

December 1994

27

Appendix IV 

Comparison of North

Island and Ogden

F/A-18 MCAPP Hours

Based on 1995 Data

28

Abbreviations

DCAA Defense Contract Audit Agency

DCMC Defense Contract Management Command

DOD Department of Defense

MCAPP Modification, Corrosion, and Paint Program

OSD Office of the Secretary of Defense

3R Rapid Response Repair System

Page 22 GAO/NSIAD-96-31 Depot Maintenance
Page 23 GAO/NSIAD-96-31 Depot Maintenance
Appendix I 

Scope and Methodology

To address our objectives, we performed audit work at the activities

involved with the decision to move F/A-18 Modification, Corrosion, and

Paint Program work: the Naval Air Systems Command, Washington, D.C.;

the Ogden Air Logistics Center, Ogden, Utah; the North Island Naval

Aviation Depot, San Diego, California; and the Defense Contract Audit

Agency, Salt Lake City, Utah, and San Diego, California. At each activity,

we interviewed responsible agency officials and examined documents and

other data related to the decision.

To identify the adjustments that were made to Ogden’s and North Island’s

costs, we reviewed documentation supporting the Navy’s cost analysis and

discussed with Navy officials the reasons for and the methodology used

for each adjustment. To determine whether the data used in the analysis

was accurate and verifiable, we examined source documents supporting

the data and performed independent analyses to assess the accuracy of the

data and the adjustments made to the data. In preparing our separate cost

analysis, we obtained the most current data available based on actual

costs for completed work in fiscal year 1995 and made adjustments based

on supportable differences in operations at Ogden and North Island.

In considering whether the decision to move the F/A-18 work was a

merit-based decision as required by law, we reviewed the analysis

supporting the Navy’s decision in view of the language in section 2469 of

title 10, U.S.C., as amended by section 338 of the fiscal year 1995 National

Defense Authorization Act. We also discussed the matter with Navy

officials.

Our examination and analyses used cost data reported by the Air Forces’

Depot Maintenance Automated Data Systems and the Navy’s Naval Air

Systems Command Industrial Financial Management System. These

standardized, automated cost accounting systems provide the official cost

information for the services’ depot operations. We did not make an

independent assessment of the reliability of the data reported by these

systems.

In addition, it should be noted that the Air Force and the Navy cost

systems are not compatible. There are differences between the systems in

the way costs are collected and accounted for. Although we made some

adjustments in the data used, we cannot state with certainty that the data

used, even with the adjustments, is directly comparable and consistent.

Thus, the results of our analysis must be viewed with this limitation.

Page 24 GAO/NSIAD-96-31 Depot Maintenance
Appendix I 

Scope and Methodology

Our review was conducted between January and August 1995 in

accordance with generally accepted government auditing standards.

Page 25 GAO/NSIAD-96-31 Depot Maintenance
Appendix II 

Navy’s Original Analysis of Ogden and North

Island F/A-18 Costs

North Island Ogden Air Logistics Center

Labor

hours Rate Total cost

Labor

hours Rate Total cost

Total cost

difference

Less

costly

activity

North Island labor hours:

Average actual hours for

last six MCAPP IIs

5,684

Adjustment for concurrent

repairs (10.3%)

–493

Adjustment for

carrier-based (27.5%

based on Navy estimate)

–1,430

North Island rate:

DCAA estimate of actual

rate

$67.89

Adjustment for concurrent

repairs and material

provided to Ogden at no

cost

–5.03

Ogden labor hours:

Average approved hours

for five land-based aircraft

3,069

Adjustment for personal,

fatigue, and delay time

153

Adjustment for added

MCAPP II inspections

(Ogden bid)

228

Adjustment for MCAPP II

over and above work

(estimate)

480

Ogden rate:

DCAA estimate of actual

rate

$68.83

Subtotal cost estimate 3,761 $62.86 $236,416 3,930 $68.83 $270,502 $34,086 North

Island

Adjustment for equipment

for MCAPP II work at

Ogden based on 1

contract option year

9,000

Total 3,761 $62.86 $236,416 3,930 $68.83 $279,502 $43,086 North

Island

Page 26 GAO/NSIAD-96-31 Depot Maintenance
Appendix III 

Navy Analysis With Corrected Data

Available in December 1994

North Island Ogden Air Logistics Center

Labor

hours Rate Total cost

Labor

hours Rate Total cost

Total cost

difference

Less

costly

activity

North Island labor hours:

Average actual hours for

last five MCAPP IIsa

5,587

Adjustments for concurrent

repairs (10.3%)

–483

Adjustments for

carrier-based (14% based

on fiscal year 1994 data)

–715

North Island rate:

DCAA estimate of actual rate $67.89

Adjustment for concurrent

repairs and material

provided to Ogden at no

cost

–5.03

Ogden labor hours:

Average approved hours for

five land-based aircraft

3,069

Adjustment for personal,

fatigue, and delay time

153

Adjustment for added

MCAPP II inspections

(Ogden bid)

228

Adjustment for estimated

MCAPP II over and above

work

480

Ogden rate:

DCAA estimate of actual rate $68.83

Subtotal cost estimate 4,389 $62.86 $275,893 3,930 $68.83 $270,502 $5,391 Ogden

Adjustment for equipment

for MCAPP II work at Ogden

based on 4 contract option

years

$2,379

Total 4,389 $62.86 $275,893 3,930 $68.83 $272,881 $3,012 Ogden

aExcludes one aircraft the Navy included in its analysis as an MCAPP II that was actually an

MCAPP I.

Page 27 GAO/NSIAD-96-31 Depot Maintenance
Appendix IV 

Comparison of North Island and Ogden

F/A-18 MCAPP Hours Based on 1995 Data

North Island Ogden Air Logistics Center

Aircraft

Average

hours Aircraft

Average

hours Difference

Less costly

activity

Labor hours:

Average actual hours for

carrier-based aircraft

8 5,408 6 4,704

Adjustments to hours:

Added MCAPP II requirementsa 547

Component rework differencesb –464

Adjusted labor hours 4,944 5,251

Rates:

Actual ratec $64.56 $65.97

Adjusted rated $59.04 $52.98

Total coste

Estimated cost per MCAPP II based

on actual rate

$319,185 $348,787 $29,602 North

Island

Estimated cost per MCAPP II based

on adjusted rate

$291,894 $280,577 $11,317 Ogden

a North Island F/A-18s were repaired using the MCAPP II specification and Ogden F/A-18s were

repaired using the MCAPP I specification. The adjustment estimates the labor hours needed for

Ogden to perform the additional MCAPP II inspections and repair work.

bThe adjustment provides for North Island repairing some components that are provided to

Ogden as government-furnished equipment.

cRates are the actual rates for completed F/A-18 MCAPPs in fiscal year 1995.

dThe adjustment to North Island’s rate reduces the rate to account for concurrent repair of

components and other material provided at no cost to Ogden. The adjustment to Ogden’s rate

reduces the rate to account for extra work (wing drops) performed outside of the normal MCAPP

work and to account for the estimated extra cost incurred in dealing with the contract

administrator, the Defense Contract Management Command.

eThe total cost estimates were computed by multiplying the adjusted labor hours for each activity

by the rate estimates for each activity. For Ogden, $2,379 was added to each result to account for

the cost of equipment needed to perform MCAPP II work. This amount was determined by

dividing the cost of the equipment by the minimum aircraft that would be completed during the 

4 option years of the contract. The total cost estimates do not include any estimates for additional

costs to the government associated with performing work at two locations.

(709043, 709136) Page 28 GAO/NSIAD-96-31 Depot Maintenance
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