United States General Accounting Office

GAO Report to Congressional Committees

September 1995 INVENTORY

MANAGEMENT

Purchasing Parts From

Contractor-Operated

Parts Stores and

Commercial Sources

GAO/NSIAD-95-176

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-260360 

September 11, 1995

Congressional Committees

This report responds to the conference report accompanying the Fiscal

Year 1995 Department of Defense Appropriations Act, which required us

to conduct a cost comparison study of vehicle repair parts purchased from

Air Force Contractor Operated Parts Stores (COPARS) with those purchased

directly from commercial suppliers. Also, we are reporting on whether the

provisions of Office of Management and Budget (OMB) Circular A-76 are to

be applied before terminating a COPARS contract.

Background Air Force bases have a variety of vehicles to support base operations and

meet mission needs. The mix of vehicles differs at each base but typically

includes common commercial vehicles such as Plymouth and Dodge

sedans and Ford and Chevrolet pickup trucks. Other vehicles can include

commercial lawn mowers, forklifts, ambulances, fire trucks, buses, and

fuel trucks.

The policies and procedures for acquiring vehicle repair parts are

prescribed in the Federal Acquisition Regulation for small purchases. The

regulation directs the bases to use the small purchase procedure that is

most suitable, efficient, and economical for each acquisition. Small

purchase procedures include blanket purchase agreements, purchase

orders, and the International Merchant Purchase Authorization Card.1

Bases may also meet their vehicle repair parts needs by establishing

COPARS. These stores were authorized in the early 1960s because the Air

Force believed they would usually be more responsive and less costly than

the traditional Air Force base supply system. The stores are operated

under a requirements-type supply contract that is competitively awarded

for 1 year with annual renewable options. The contract calls for pricing

parts on the basis of discounts from suggested list prices. Each bidder

offers a separate discount for each market category, and the contract is

awarded to the bidder with the greatest overall discount. Space and

utilities for the stores are furnished by the bases.

1

A blanket purchase agreement is a simplified method of filling anticipated recurring needs for

supplies or services by establishing charge accounts with qualified supply sources. Purchase orders

are used for on-the-spot, over-the-counter purchases of supplies or services. The International

Merchant Purchase Authorization Card is a commercial credit card that permits customers to buy

directly from a supplier without going through the contracting office, unlike the previous two methods.

It reduces the administrative burden associated with other procurement methods.

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Currently, the Air Force contracts with COPARS at 46 of its bases, and the

value of these contracts totals $79.6 million. Numerous purchases are

made daily from each store, and each purchase is expected to be priced

according to the contract. Most items cost less than $25, and only a few

cost more than $500. The stores also carry, at the contractor’s expense, an

inventory of frequently required parts.

Results in Brief Our review showed that the most cost-effective method for purchasing

vehicle repair parts can vary from base to base. Every base is unique in

terms of the mission that it must support and the nature of its local

economy. Factors such as the types of vehicles in the fleet, volume of

business conducted, vendor availability in the community, vendor delivery

preferences, and vendor payment preferences differ among bases and

affect the price of parts. Also, various mission-related factors, such as

deployments, may affect the availability of personnel needed to manage a

commercial-source parts procurement operation. Given these differences,

installation commanders are in the best position to determine which

approach for acquiring parts will best meet their needs. In making this

decision, the commanders would need to thoroughly analyze all relevant

factors to arrive at a reasonable judgment of the preferred purchase

option.

Our cost analyses at two bases showed that controlling personnel costs is

key to determining whether savings could be achieved in a

commercial-source procurement system. To achieve savings, maintenance

units would need to (1) perform the purchasing function with

approximately the same number of personnel as the COPARS contractor and

(2) assign personnel in mid-level enlisted pay grades. Because neither base

has initiated a commercial-source procurement system, it is unknown

whether bases can operate within these parameters.

OMB Circular A-76 does not apply to the Air Force’s vehicle repair parts

support decision. The establishment of a commercial-source procurement

system is simply an alternative way of doing business. The Air Force is not

replacing a COPARS with an identical in-house service. As a result, no study

is required.

The Best Approach

for Purchasing Parts

Varies by Installation

Our study showed that the most cost-effective method for purchasing

vehicle parts can vary from base to base. Each one is unique in terms of

the mission that it must support and the nature of its local economy.

Factors such as the types of vehicles in the fleet, volume of business

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conducted, vendor availability in the community, vendor delivery

preferences, and vendor payment preferences differ among bases. At the

two bases we visited—Dyess Air Force Base in Abilene, Texas, and Little

Rock Air Force Base in Jacksonville, Arkansas—we identified numerous

local factors affecting the price of parts that would need to be analyzed to

determine the most cost-effective approach. For example, at Dyess two

large parts distributors do not make deliveries. If parts were bought from

these distributors, it would raise the base’s vehicle usage costs. Also, two

parts distributors at Little Rock do not accept credit cards. To buy parts

from these distributors, the base would have to use other procurement

methods, such as purchase orders, that would raise transaction costs.

Similarly, mission factors differ by base, and installation commanders

need to determine whether the additional personnel resources needed to

start up a commercial-source procurement operation are available. For

example, at Dyess approximately 10 percent of the vehicle maintenance

unit’s personnel are deployed at any given time, and the vehicle

maintenance supervisor values the assistance provided by the COPARS

employee. However, bases supporting units that deploy infrequently may

not derive as great a benefit from their COPARS. An analysis at each base

would determine which procurement method or combination of methods

constitutes the best approach for a particular installation. In our opinion,

installation commanders are in the best position to make this analysis.

Results of Cost

Analyses at Two Bases

For Dyess and Little Rock Air Force Bases, we obtained price quotes from

local commercial suppliers and compared them with parts prices charged

by COPARS. At Little Rock, we did not obtain statistically projectable parts

cost data. However, the data we did obtain allowed us to analyze cost

trends. At the two bases, we found that commercial suppliers could

generally provide parts at lower cost. However, other costs incurred in

making the purchases, particularly personnel costs, could offset or

perhaps exceed any parts savings. To be cost-effective, bases must

(1) perform the purchasing function with approximately the same number

of personnel as the COPARS contractor and (2) assign personnel in mid-level

enlisted pay grades. Maintenance supervisors believe that more people

would be needed for the first 6 to 12 months of operation until personnel

gain experience in operating a commercial-source procurement system.

Table 1 shows the results of our cost comparisons and estimates of the

costs of operating a commercial-source procurement system for the first 

6 to 12 months while units gain experience. Table 2 shows estimated costs

after the units gain experience.

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Table 1: Projected Annual Costs of Purchasing Parts From Commercial Sources During the First 6 to 12 Months of

Operation

Dyess Air Force Base Little Rock Air Force Base

Fiscal year 1995 dollars

Cost COPARS

Commercial

sources Difference COPARS

Commercial

sources Difference

Parts $217,000 $199,000 $18,000a $405,000 Unknown Unknownb

Service charge 4,000c 0 4,000 8,000c 0 $8,000

Personnel

COPARS contract monitor 19,000d 0 19,000 12,000d 0 12,000

Pay grade E-4 0 63,000 –63,000 0 $94,000 –94,000

Pay grade E-6 0 88,000 –88,000 0 132,000 –132,000

Vehicle usage 0 2,000 –2,000 0 5,000 –5,000

Assets, supplies, and equipment 0 0 0 0 0 0

Total

Pay grade E-4 $240,000 $264,000e –$24,000 $425,000 Unknown Unknown

Pay grade E-6 $240,000 $289,000f –$49,000 $425,000 Unknown Unknown

Note: See table 2 for an explanation of table notes.

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Table 2: Projected Annual Costs of Purchasing Parts From COPARS and Commercial Sources Using the Same Number of

Personnel

Dyess Air Force Base Little Rock Air Force Base

Fiscal year 1995 dollars

Cost COPARS

Commercial

sources Difference COPARS

Commercial

sources Difference

Parts $217,000 $199,000 $18,000a $405,000 Unknown Unknownb

Service charge 4,000c 0 4,000 8,000c 0 $8,000

Personnel

COPARS contract monitor 19,000d 0 19,000 12,000d 0 12,000

Pay grade E-4 0 23,000 –23,000 0 $47,000 –47,000

Pay grade E-6 0 33,000 –33,000 0 66,000 –66,000

Vehicle usage 0 2,000 –2,000 0 5,000 –5,000

Assets, supplies, and equipment 0 0 0 0 0 0

Total

Pay grade E-4 $240,000 $224,000e $16,000 $425,000 Unknown Unknown

Pay grade E-6 $240,000 $234,000f $6,000 $425,000 Unknown Unknown

aWe estimated, at the 95-percent confidence level, that the COPARS price for parts would be

$216,656 ± $2,012 and the local vendor price would be $198,680 ± $3,526. The difference

between the midpoint of these two ranges, rounded to the nearest $1,000, is $18,000.

bOur sample was not large enough to statistically project an annual savings.

cContractors may impose a service charge when they are required to obtain parts that are not

already priced in the contract.

dThis number is the cost of Air Force personnel (at pay grade E-5) that monitor the COPARS

contract.

eThis number is the sum of parts; service charge; personnel (pay grade E-4); vehicle usage; and

assets, supplies, and equipment.

f

This number is the sum of parts; service charge; personnel (pay grade E-6); vehicle usage; and

assets, supplies and equipment.

Parts Cost Our analysis of vehicle parts prices was based on a sample of repair

activity over 20 random days. We obtained price quotes for items in our

sample from vendors or specialized parts suppliers and obtained the

current COPARS price for these same items and determined the difference.

At Dyess Air Force Base, our sample included 466 parts purchased by the

vehicle maintenance unit. Over the 20 days, parts quotes from commercial

sources were $3,115 less than equivalent parts purchased from COPARS. We

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estimated that Dyess could save about $22,000 annually by buying parts

from commercial sources. The savings includes $4,000 in service charges

now paid to COPARS that would not be incurred in a commercial-source

procurement operation.

At Little Rock Air Force Base, our sample included 772 items purchased

from COPARS by the vehicle maintenance unit. However, at the conclusion

of our fieldwork, we had collected price quotes on only 133 parts

purchased by the vehicle maintenance unit over 4 random days. For these

parts, commercial suppliers were $1,142 less than the same parts

purchased from COPARS. This sample is not large enough to statistically

project a total annual savings, and the sample would have to be completed

to determine the amount of savings. However, this information provides

sufficient data to do a cost-trend analysis. If this savings trend were to

continue, the base would achieve an annual savings of $64,000. This

includes $8,000 in service charges paid to COPARS that would not be

incurred in a commercial-source procurement operation.

Generally, COPARS parts prices are higher than parts purchased directly

from commercial sources because COPARS prices include service costs

(e.g., employee and home and field office operating expenses) and profit

that are applied against the parts it sells to the Air Force. Contractors must

add sufficient surcharge to the parts sold to the base to cover these

expenses. Therefore, we believe our savings estimates are reasonable.

Personnel Cost To operate a commercial-source procurement system, vehicle

maintenance units would have to assign personnel to do work now

performed by COPARS employees. This work includes assisting mechanics

in identifying parts, identifying sources of supply, placing orders,

arranging the pickup or delivery of parts, returning wrong parts, and

performing administrative functions related to parts distribution and

tracking. At Dyess these services are provided by one full-time COPARS

employee. At Little Rock these services are provided by two full-time

COPARS employees.2 Personnel costs for COPARS employees were not

included in our analysis as a COPARS program cost because the employees’

salaries are paid by their employers and are included in the price of parts

sold to the unit. COPARS personnel costs are for Air Force personnel that

monitor the COPARS contract. This job would not be required in a

commercial-source procurement system.

2

Each employee spends about 6 hours per day on tasks that would be directly transferable to Air Force

personnel in a commercial-source procurement system.

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Two factors determine the Air Force’s personnel costs in a commercialsource procurement system: the number of people assigned to provide the

services now provided by COPARS employees and their pay grade. Because

neither Dyess nor Little Rock has instituted a commercial-source

procurement system, the number of personnel that would be required and

their grades are not known.

To achieve savings at both bases, our analysis showed that the

maintenance units would need to (1) control the number of personnel

assigned to perform the purchasing function and (2) assign personnel in

mid-level enlisted pay grades. For example, if the one COPARS employee at

Dyess and the two COPARS employees at Little Rock were replaced with Air

Force personnel at pay grade E-4, the bases would incur personnel costs

of $23,000 and $47,000, respectively, and would generate savings of

$16,000 and $24,000, respectively. At pay grade E-6, personnel costs at

Dyess and Little Rock would be $33,000 and $66,000, respectively, and

savings would decrease to $6,000 and $5,000, respectively.3

Maintenance supervisors at both bases believe that it would take 6 to 

12 months to identify suppliers and gain experience in parts research and

procurement. Until Air Force personnel gained that experience, more

people would be required. The Dyess maintenance supervisor told us he

would initially need to assign two people to operate a commercial-source

procurement system. Currently, one person spends 4 hours a day

monitoring the COPARS contract. This person would be reassigned for a net

addition of 1.5 personnel. At Little Rock, the vehicle maintenance unit

commander told us that she would need three people to operate a

commercial-source procurement system. Currently, one person spends

approximately 2-1/2 hours a day monitoring the COPARS contract. This

person would similarly be reassigned for a net addition of 2.7 personnel.

With the use of Air Force personnel cost data for pay grade E-4, we

estimated the cost of the additional personnel during the start-up period

would be $44,000 annually at Dyess and $82,000 annually at Little Rock.4

At pay grade E-6, the cost of the additional personnel would be $69,000

annually at Dyess and $120,000 at Little Rock. Additionally, the supervisors

3

The savings for Little Rock are the net differences between the savings identified in our parts

cost-trend analysis (including service charge) and costs for personnel (pay grades E-4 and E-6); vehicle

usage; and assets, supplies, and equipment.

4

The estimates for Dyess and Little Rock are derived by subtracting the cost of the individual who

monitors the COPARS contract from the cost of personnel assigned to operate the commercial-source

procurement system.

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noted that deployments and reassignments of personnel could

occasionally disrupt operations.

Both Air Force and contractor officials commented on our personnel cost

analysis. Air Force officials agreed that personnel would need to be

assigned to perform those functions now performed by the COPARS

contractor. However, they stated that the functions would be performed

by personnel already in the units and that no additional personnel would

be assigned. Thus, even though parts procurement transaction costs,

including personnel costs, would increase, the units would incur no

additional personnel costs overall.

Contractor officials questioned whether the units could train personnel to

the same degree of proficiency at parts identification and research as

COPARS employees within 6 months. One contractor believed it would take

3 years or more for Air Force personnel to become adequately trained in

this field.

Vehicle Usage Cost In a commercial-source procurement system, Air Force personnel would

have to use government vehicles to pick up parts from commercial

suppliers that do not make deliveries. Because the bases would essentially

be dealing with the same commercial suppliers as their existing COPARS, we

based our vehicle usage estimates on the average number of miles, at 

30 cents per mile, the COPARS contractor drives in 1 week picking up parts.

At Dyess and Little Rock Air Force Bases, we estimated that annual

vehicle usage costs would be $2,000 and $5,000, respectively.

Assets, Supplies, and

Equipment Cost

Our analysis did not identify any significant cost differences in assets,

supplies, or equipment needed to operate either a COPARS or

commercial-source procurement system.

OMB Circular A-76

Study Is Not Required

OMB Circular A-76 establishes the federal policy that governs whether

commercial services should be performed under contract with commercial

sources or with in-house government facilities and personnel. According

to the policy, the government generally relies on commercial sources to

supply the products and services it needs. However, government

performance of a commercial activity is authorized if a cost comparison

shows that the government can operate the activity at an estimated lower

cost.

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According to an OMB official, an A-76 study is required when identical

functions are transferred from the contractor to the government or vice

versa. For example, if the Air Force planned to replace a COPARS with an

identical in-house system, such as a Government Operated Parts Store, an

A-76 study would be required.

Purchasing parts from commercial sources rather than from COPARS is not

a transfer of identical functions; it is an established alternative method for

meeting repair parts needs. Authority for purchases would be delegated to

base personnel, and the base would no longer use COPARS’ services. As a

result, we believe the Air Force is not required to perform an OMB A-76 cost

study before terminating a COPARS contract and purchasing automotive

repair parts in the local market.

Agency and

Contractor Comments

and Our Evaluation

The Department of Defense fully concurred with our findings, conclusions,

and methodology (see app. II). We also discussed our findings with

officials from the Office of the Secretary of the Air Force and incorporated

their comments where appropriate.

We received comments from three COPARS contractors. The contractors’

overall concern was that our report would be interpreted as saying that

the local purchase option is less costly than COPARS. That is not our overall

conclusion, and we revised our report to more prominently state that the

cost-effectiveness decision depends on local circumstances and therefore

should be decided on a case-by-case basis after careful analysis.

The contractors specifically raised concerns in two areas. First, they

commented that our comparison presents an optimistic picture of prices

that government personnel can obtain. According to one contractor,

vendors are under no obligation to actually sell at the prices we obtained,

whereas COPARS prices are firm and valid for the duration of the contract,

regardless of outside market factors and fleet changes.

Although we agree with this contractor’s position, we believe that bases

that initiate commercial-source procurement systems will likely obtain

parts from the same suppliers used by COPARS. Since no additional charges

will be added to cover service costs and profit, we also believe that bases

should be able to obtain most parts at less cost.

Second, the contractors disagreed with our personnel cost analysis, stating

that our conclusion assumed that savings could be achieved if the Air

Page 9 GAO/NSIAD-95-176 Inventory Management
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Force performed the purchasing functions with the same number of

personnel as the COPARS contractors. The contractors questioned whether

the Air Force could achieve the same degree of proficiency as COPARS

personnel in identifying parts and conducting research in 6 to 12 months.

Also, they questioned whether our analysis adequately assessed the pay

grades of personnel who would perform the parts purchasing function.

We recognized the contractors’ concerns about our personnel cost

analysis by presenting these costs as a range to reflect the uncertainty of

these costs and by incorporating their comments where appropriate. The

contractors also provided other detailed comments, and we considered

these in finalizing our report.

Scope and

Methodology

We conducted our study at two Air Force Air Combat Command bases:

Dyess Air Force Base, Abilene, Texas, and Little Rock Air Force Base,

Jacksonville, Arkansas. These bases were selected based on

recommendations from the COPARS contractors and Air Force officials.

Additional information on our scope and methodology appears in

appendix I. We performed our review from January to May 1995 in

accordance with generally accepted government auditing standards.

We will send copies of this report to the Director, OMB; the Secretaries of

Defense and the Air Force; and other interested parties. We will also

provide copies to others upon request.

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

concerning this report. Major contributors to this report are listed in

appendix III.

David R. Warren

Director, Defense Management

 and NASA Issues

Page 10 GAO/NSIAD-95-176 Inventory Management
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List of Committees

The Honorable Strom Thurmond

Chairman

The Honorable Sam Nunn

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Mark O. Hatfield

Chairman

The Honorable Robert C. Byrd

Ranking Minority Member

Committee on Appropriations

United States Senate

The Honorable Floyd D. Spence

Chairman

The Honorable Ronald V. Dellums

Ranking Minority Member

Committee on National Security

House of Representatives

The Honorable Bob Livingston

Chairman

The Honorable David R. Obey

Ranking Minority Member

Committee on Appropriations

House of Representatives

Page 11 GAO/NSIAD-95-176 Inventory Management
Appendix I 

Scope and Methodology

Our sampling methodology considered the cost of parts, frequency that the

parts are needed, and maintenance workload associated with the parts

requirement. We discussed the methodology with Contractor Operated

Parts Store (COPARS) contractors and Air Force personnel.

To compare parts prices, we obtained a listing of actual repair parts

purchases between February 1994 and February 1995 from the Air Force’s

On-Line Vehicle Information Management System. Other data for

nonvehicle parts necessary for repair activity but not recorded in the

system were contained on individual requisitions. These parts represent

shop supplies and parts that a repair facility would need but are not

attributed to a specific vehicle or engine. We automated the requisition

data used by the maintenance personnel to order nonvehicle parts and

combined this information with the system’s data.

We used these data to sample repair activities over 20 randomly selected

days at the two locations (more costly days had a higher chance of

selection) and obtained prices from vendors or specialized parts suppliers.

We obtained the current COPARS price for these same items and determined

the difference between the commercial suppliers’ and the COPARS’ prices

for each day’s activity and estimated our results to reflect 1 year of daily

maintenance activities. We were able to obtain prices for all 20 days of

activity at Dyess. At Little Rock, we did not complete the parts cost

comparison because our analysis was showing that decisions would still

have to be made on a case-by-case basis and the 4 days of activity we did

obtain was sufficient to show cost trends.

Because some of the data lacked detail, we could not obtain local supplier

prices for all items. For these items, we assumed that the difference

between the suppliers’ and the COPARS’ prices would be zero.

We did not verify the accuracy of the Air Force’s data or the completeness

of the nonvehicle parts requisitions. If the Air Force’s data contained

maintenance activity errors, our results would be directly affected by

these errors.

Our personnel estimates were based on interviews with managers within

each bases’ contracting squadron, finance office, and vehicle maintenance

unit. These individuals identified the time required to administer the

COPARS contract and estimated the amount of time that would be required

to administer a commercial-source procurement system for vehicle repair

parts. We used estimates of the number of personnel needed to procure

Page 12 GAO/NSIAD-95-176 Inventory Management
Appendix I 

Scope and Methodology

parts from commercial sources because we could not find any bases with

a comparable size and mix of vehicles that currently manage a

commercial-source procurement operation. We discussed our conclusions

regarding personnel with maintenance supervisors at both bases, and they

agreed with our numbers.

Our analysis of vehicle usage costs was based on an analysis of vehicle

usage reimbursement records maintained by the COPARS contractor. Assets,

supplies, and equipment costs were based on interviews with Air Force

vehicle maintenance supervisors and COPARS employees.

Page 13 GAO/NSIAD-95-176 Inventory Management
Appendix II 

Comments From the Department of Defense

Page 14 GAO/NSIAD-95-176 Inventory Management
Appendix III 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Kenneth R. Knouse, Jr.

Glenn D. Furbish

Arthur L. James, Jr.

Dallas Field Office Mary Kay Muse

Cary Russell

Robert Malpass

Kansas City Field

Office

Richard E. Burrell

(709115) Page 15 GAO/NSIAD-95-176 Inventory Management
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