Report to Congressional Committees 

United States General Accounting Office 

GAO 

September 2003 DEPOT 

MAINTENANCE 

DOD’s 50-50 Reporting 

Should Be 

Streamlined 

GAO-03-1023 
Continuing weaknesses in DOD’s data gathering, reporting processes, and 

financial systems prevented GAO from determining with precision if the 

military services complied with the 50-50 requirement in fiscal years 2001-2. 

DOD data show all the services, except the Air Force in fiscal year 2001, to 

be below the 50-percent funding limit on private sector work. However, as 

before, GAO found errors in the data that, if corrected, would overall 

increase funding of the private sector and move each service closer to the 

contract limit. For example, for fiscal year 2002, the Navy did not include 

about $401 million in private sector maintenance work on aircraft carriers 

and surface ships. Correcting for these and other errors would increase the 

Navy’s percentage of private sector depot maintenance funds for that year 

from the 42.6 percent reported to 46.9 percent. Such data weaknesses show 

that prior-years reports do not precisely measure the division of 

maintenance funding. At best, over time these results provide rough 

approximations and indicate trends that may be useful to decision makers. 

Because of data deficiencies and changing budget projections, the futureyears report does not provide reasonable estimates of public and private 

sector maintenance funding for fiscal years 2003-7 and limits its usefulness 

to decision makers. GAO reported this shortcoming in the past, and 

problems continue. For example, the Army underreported maintenance 

work at nondepot locations as it continues to consolidate the work and 

better control it at such locations. Other Army work was not reported 

because some commands did not receive guidance and others misapplied it. 

These errors would add about $200 million annually to the Army’s future 

estimate and increase the percent of projected funding in the private sector. 

Opportunities still exist for improvements, including for streamlining the 50-

50 reports, continued service audit agency support, and data development. 

Streamlining the 50-50 reports could help address problems caused by, 

among other factors, inexact program estimates. Second, although DOD is 

concerned that recent revisions to federal audit standards could keep 

service auditors from further participation in the 50-50 process, GAO 

believes that a way can be developed to enable auditors’ continued support 

yet ensure their independence. Third, data development could be helped by 

better disseminating guidance and training participating personnel. 

DOD’s Reported Fiscal Year 2002 50-50 Data and GAO’s Adjustments 

Numbers in percent 

Service 

Public work 

reported 

Public work 

adjusted 

Private work 

reported

Private work 

adjusted 

Army 51.5 49.2 46.5 49.0 

Navy/Marine 

Corps 

54.5 50.3 42.6 46.9 

Air Force 54.1 51.4 45.8 48.5 

Source: GAO analysis of DOD data. 

Note: Totals reported and adjusted will not equal 100 percent due to rounding and legislatively 

excluded public-private partnerships.

Under 10 U.S.C. 2466, not more 

than 50 percent of each military 

department’s annual depot 

maintenance funding can be used 

for work done by private-sector 

contractors. The Department of 

Defense (DOD) also must submit 

two reports to the Congress 

annually on the division of depot 

maintenance funding between the 

public and private sectors—one 

about the percentage of funds 

spent in the previous 2 fiscal years 

(prior-years report) and one about 

the current and 4 succeeding fiscal 

years (future-years report). As 

required, GAO reviewed the two 

DOD reports submitted in early 

2003 and is, with this report, 

submitting its views to the 

Congress on whether (1) the 

military services met the so-called 

“50-50 requirement” for fiscal years 

2001-2 and (2) the projections for 

fiscal years 2003-7 are reasonable 

estimates. GAO also identified 

opportunities to improve the 

reporting process. 

GAO suggests that the Congress 

consider amending 10 U.S.C. 2466 

to require only one annual 50-50 

report to cover the prior, current, 

and budget years for which data 

are generally more reliable and 

potential impacts more immediate. 

GAO also recommends that DOD 

improve 50-50 data collection and 

validation by, among other actions, 

using service audit agencies for 

timely review and validation of 50-

50 data. DOD concurs with the 

report recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-03-1023. 

 To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Barry W. 

Holman at (202) 512-5581 or 

holmanb@gao.gov. 

Highlights of GAO-03-1023, a report to 

Congressional Committees 

September 2003

DEPOT MAINTENANCE

DOD's 50-50 Reporting Should Be 

Streamlined 
Page i GAO-03-1023 Depot Maintenance 

Letter 1

Results in Brief 2

Background 4

Weaknesses in Data Preclude Determinations of Compliance in 

Prior-Years Report 9

Future-Year Projections Are Not Reasonable and Not Very Useful 12

Opportunities Exist to Improve DOD Reporting 13

Conclusions 16

Matter for Congressional Consideration 17

Recommendations for Executive Action 17

Agency Comments and Our Evaluation 18

Appendix I GAO Adjustments for Errors, Omissions, and 

Inconsistencies in Military Departments 50-50 Data for 

Fiscal Year 2002 19 

Department of the Army 19

Department of the Navy 20

Department of the Air Force 21

Appendix II Scope and Methodology 24 

Appendix III Comments from the Department of Defense 27 

Related GAO Products 34 

Tables 

Table 1: DOD Reported Depot Maintenance Funding Allocations 8

Table 2: GAO Changes to Army’s FY 2002 50-50 Data 19

Table 3: GAO Changes to Navy’s and Marine Corps’ FY 2002 50-50 

Data20

Table 4: GAO Changes to Air Force’s FY 2002 50-50 Data 22

Contents 
Page ii GAO-03-1023 Depot Maintenance 

Abbreviations 

DOD Department of Defense 

OSD Office of the Secretary of Defense 

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

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Page 1 GAO-03-1023 Depot Maintenance 

September 15, 2003 

The Honorable John Warner 

Chairman 

The Honorable Carl Levin 

Ranking Minority Member 

Committee on Armed Services 

United States Senate 

The Honorable Duncan Hunter 

Chairman 

The Honorable Ike Skelton 

Ranking Minority Member 

Committee on Armed Services 

House of Representatives 

Under 10 U.S.C. 2466, not more than 50 percent of annual depot 

maintenance funding provided to the military departments and 

defense agencies can be used for work accomplished by private-sector 

contractors. Section 2466 also directs the Department of Defense (DOD) 

to submit two annual reports to the Congress on the distribution of depot 

maintenance funding between the public and private sectors. The first 

report is to identify the percentage of funds expended by each military 

department and defense agency during the preceding 2 fiscal years for the 

performance of depot maintenance workloads by the public and private 

sectors (the “prior-years report”). The second report is to project the same 

information for the current and 4 succeeding fiscal years (the “future-years 

report”). For 2003, DOD issued the prior-years report on 

February 11, 2003, and the future-years report on April 7, 2003. 

Section 2466 also requires us to submit our views to the Congress on 

whether DOD complied with the so-called “50-50 requirement” in the 

prior-years report and whether the projections in the future-years report 

are reasonable. Accordingly, this report discusses whether (1) the military 

departments met the 50-50 requirement for fiscal years 2001 and 2002 and 

(2) the projections for fiscal years 2003 through 2007 represent reasonable 

estimates. As part of our work, we also identified opportunities to improve 

the reporting process. To accomplish these objectives, we analyzed the 

50-50 reported data and each service’s procedures and internal 

management controls for collecting, aggregating, and validating depot 

maintenance information for purposes of responding to the section 2466 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-03-1023 Depot Maintenance 

requirements. We limited our analysis of future-years data because initial 

audit efforts identified significant continuing problem areas, similar to 

those found in prior audits, that are not likely to change. 

Continuing weaknesses in DOD’s data gathering, reporting processes, and 

financial systems prevented us from determining with precision whether 

the services were in compliance with the 50-50 requirement for fiscal years 

2001 and 2002. DOD’s data as submitted to the Congress shows the 

military departments to be below the 50-percent funding limitation on 

private sector work, except for the Air Force, which for 2001 reported 

itself above the limit1

 but below it in 2002. However, as in past years, we 

found errors and omissions in the data that, if corrected, would overall 

increase the percentages of funding going to the private sector and move 

each department closer to the contract limit. For example, in its data for 

fiscal year 2002, the Navy did not include about $401 million in private 

sector maintenance work on aircraft carriers accomplished during the 

same time as nuclear refueling and on surface ships being placed in an 

inactive status. The Marine Corps, which compared to the other services 

has the smallest workload but the largest proportion of errors, did not 

report most depot maintenance workloads from the command responsible 

for system acquisitions and upgrades, understating private-sector 

workloads by about $32 million and public sector workloads by about 

$7 million. Correcting for these and other errors we found would increase 

the Department of the Navy’s percentage of depot funds for work 

accomplished in the private sector during fiscal year 2002 from the 

42.6 percent reported to 46.9 percent, a gain of over 4 percentage points. 

These weaknesses indicate the data in the prior-years report cannot be 

relied on to provide a precise measure of the balance of funding between 

the public and private sectors for the military departments. At best, over 

time these reports provide rough approximations of the public-private 

funding allocations, with some indications of trends that may be useful 

information to the Congress in exercising its oversight role and to DOD 

officials in managing the depot maintenance program. 

Because of supporting data deficiencies and the changing nature of budget 

projections, the future-years report does not provide reasonable estimates 

 1

 The Secretary of the Air Force issued a national security waiver for fiscal year 2001 as 

provided by 10 U.S.C. 2466(b) at that time. This provision was subsequently amended 

(sec. 341, P.L. 107-107, Dec. 28, 2001) to designate the Secretary of Defense as the waiver 

authority instead of the secretaries of the military departments. 

Results in Brief 
Page 3 GAO-03-1023 Depot Maintenance 

of public and private sector depot maintenance funding allocations for 

fiscal years 2003 through 2007, thereby limiting its usefulness to 

congressional and DOD decision makers. We have reported this 

shortcoming with the future-years report in the past, and the problems 

continue to occur. For example, as in past years, the Army underreported 

public and private sector depot-level maintenance work at field locations 

as it continues unfinished efforts to consolidate maintenance activities and 

better control the proliferation of depot-level tasks at nondepot locations. 

Other Army work was not reported because some commands did not 

receive 50-50 guidance and others misapplied the guidance. While the 

Army’s supporting documentation for the projected data was inadequate, 

errors and omissions of similar magnitude to the prior years data would 

add more than $200 million annually to the Army’s reported future work 

for both public and private sectors. As with the prior years, the net effect 

of the problems we found generally increases the percentage of workload 

expected to be accomplished by the private sector. Besides reporting 

errors, other internal and external factors can create large fluctuations in 

reported data, which in turn can provide a distorted and misleading view 

to outside observers about efforts to remain compliant with the 50-50 

requirement. For example, in the current future-years report, the Air 

Force’s projected public sector work financed through the working capital 

fund is $3.0 billion higher than the amount reported for the same 4-year 

time period in the future-years report submitted in 2002. Although this 

would appear to indicate a large influx of new work to the public depots, 

in reality the amount of work, according to budget estimates and 

management reports, is expected to remain fairly level during this 

reporting period in terms of production hours and size of workforce. Most 

of the dollar (and percentage) increase in public sector work is the result 

of price hikes in the sales rate charged to its customers, a condition 

primarily caused by increases in the cost of spare and repair parts used in 

the maintenance process. 

Recently DOD’s improvements in 50-50 guidance and operating processes 

have reached a plateau in terms of quality and direction. However, 

opportunities still exist to improve 50-50 data and management processes 

and controls, including through a streamlined 50-50 report, service audit 

agency participation in that process, and an improved data development 

process. Streamlining the 50-50 report to focus on the data that are likely 

to be more accurate and extending the time DOD officials have to put the 

data together should improve the quality of the reported 50-50 data. 

Furthermore, DOD officials indicated their concerns that the issue of 

auditor independence, arising from a recent revision of government 

auditing standards, could keep service auditors from further participation 
Page 4 GAO-03-1023 Depot Maintenance 

in 50-50 reviews. However, the continued participation of the service audit 

agencies—to verify data and identify errors to be corrected by 50-50 

managers before reports are submitted to the Congress—is critical to 

improving data accuracy and completeness. We believe that, as such 

participation by auditors has been done with regard to the base 

realignment and closure process, a process can be developed to enable 

service auditors’ valuable participation to continue while the services are 

compiling their data, with audit agencies still maintaining their 

independence. Lastly, opportunities for improvement in the data 

development process include better dissemination of guidance and 

enhanced training for personnel who collect and report the data. 

We are including a matter for congressional consideration regarding the 

streamlining of the 50-50 reports by reducing the number of years of future 

data that are collected and combining the prior-year and future-year 

reports into one report with a later reporting date. We are also making 

recommendations to the Department of Defense for improving the 50-50 

data reported to the Congress (1) by assuring the timely participation of 

the service audit agencies in reviewing the data before reports are 

submitted to the Congress and (2) by increasing management’s attention 

to the dissemination of guidance to all organizations and personnel 

participating in the process and to the improvement of training for 

personnel responsible for developing and aggregating data. 

In written comments on a draft of this report, DOD concurred with the 

report’s recommendations while disagreeing with limited portions of our 

analyses. The department’s comments are included in appendix III. 

In addition to the 50-50 requirement in 10 U.S.C. 2466, two other title 10 

provisions directly affect the reporting of workload allocations to the 

public and private sectors. 

• Section 2460 defines depot maintenance to encompass material 

maintenance or repair requiring the overhaul, upgrade, or rebuilding of 

parts, assemblies, or subassemblies and the testing and reclamation of 

equipment, regardless of the source of funds or the location at which 

maintenance or repair is performed. Depot maintenance also 

Background 

Governing Legislation and 

Previous Reports 

Concerning the 50-50 

Requirement 
Page 5 GAO-03-1023 Depot Maintenance 

encompasses software maintenance, interim contractor support,2 and 

contractor logistics support3

 to the extent that work performed in these 

categories is depot maintenance. The statute excludes from depot 

maintenance the nuclear refueling of an aircraft carrier, the 

procurement of major modifications or upgrades of weapon systems, 

and the procurement of parts for safety modifications, although the 

term does include the installation of parts for safety modifications. 

• Section 2474 directs DOD to designate public depots as Centers of 

Industrial and Technical Excellence and to improve their operations so 

as to serve as recognized leaders in their core competencies.4

 Section 

342 of the National Defense Authorization Act for Fiscal Year 2002 

(P.L. 107-107, Dec. 28, 2001) amended this statute to exclude qualifying 

public-private partnerships5

 from the 50-percent funding limitation on 

contracting in section 2466. Section 342 provides that the funds 

expended for the performance of depot-level maintenance by 

nonfederal government personnel located at the centers shall not be 

counted when applying the 50-percent limitation if the personnel are 

provided pursuant to a public-private partnership. This exclusion 

initially applied to depot maintenance funding for fiscal years 2002 

through 2005. Section 334 of the National Defense Authorization Act 

for Fiscal Year 2003 (P.L. 107-314, Dec. 2, 2002) extended this period to 

include all contracts entered into through fiscal year 2006. 

The Office of the Secretary of Defense (OSD) has issued guidance to the 

military departments for reporting public-private workload allocations. 

 2

 Interim contractor support is designed to be an interim support arrangement in which a 

contractor provides depot maintenance (and sometimes other logistics support) as part of 

the acquisition strategy for new systems. 

3

 Contractor logistics support is designed to be a lifetime support concept in which a 

contractor provides most or all elements of logistics support, including depot maintenance. 

4

 Core competencies are depot-level maintenance capabilities to be retained in public 

depots to meet defense strategic and contingency plans and for which the military 

departments believe that DOD should be a recognized leader in the national technology and 

industrial base. 

5

 DOD guidance defines a public-private partnership for depot maintenance as an 

agreement between a public-sector depot maintenance activity and one or more private 

industry or other entities to perform work or utilize facilities and equipment. Such an 

arrangement includes use of public facilities, equipment, and employees to perform work 

for the private sector under certain defined circumstances; private-sector use of publicsector equipment and facilities to perform work for the public sector; and work-sharing 

agreements using both public- and private-sector facilities and/or employees. 
Page 6 GAO-03-1023 Depot Maintenance 

The guidance is consistent with the definition of depot-level maintenance 

and repair in 10 U.S.C. 2460.6

 The military departments have also issued 

internal instructions to manage the data collection and reporting process, 

tailored to their individual organizations and operating environments. 

Based on the congressional mandate regarding the DOD 50-50 

requirement, this is the sixth year that we have reported on the prior-year 

numbers and the fourth year reporting on the future-year numbers.7

 In past 

years, we have reported on continuing data errors and inconsistencies in 

reporting by the military departments and problems in documenting and 

independently validating 50-50 data. We have recommended increasing 

management attention to and emphasis on the 50-50 reporting process, 

improving guidance in specific maintenance categories, and implementing 

better internal controls. We have also observed that the 50-50 process is 

complex, involving numerous reporting entities and commands, and 

requiring the incorporation of evolving new concepts of logistics support, 

changing locations and organizations for accomplishing depot 

maintenance, and changes in statutory provisions. Service officials told us 

that the reporting process is somewhat burdensome and time frames for 

collecting data are constrictive. Further complications in reporting result 

from relatively high turnover in staff responsible for collecting and 

managing data and uneven management attention and priority accorded 

the 50-50 process. 

Our work has historically been augmented by the efforts of the service 

audit agencies, which have participated in the 50-50 processes in varying 

degrees. We have recommended the continued involvement of the auditors 

to review and validate reporting processes and results and to correct 

substantial errors and omissions before the 50-50 data are submitted to the 

Congress. 

 6

 Because of the difficulty of segregating installation costs for safety modifications from 

costs for installing other modifications (e.g., for improved performance), OSD’s guidance 

specifies that all modification installation costs be reported when an installation is 

considered to be a depot-level service. 

7

 For the two most recent reports, see U.S. General Accounting Office, Depot Maintenance: 

Change in Reporting Practices and Requirements Could Enhance Congressional 

Oversight, GAO-03-16 (Washington, D.C.: Oct. 18, 2002) and Depot Maintenance: 

Management Attention Required to Further Improve Workload Allocation Data, 

GAO-02-95 (Washington, D.C.: Nov. 9, 2001). Other related GAO products are listed at the 

end of this report. 
Page 7 GAO-03-1023 Depot Maintenance 

Our prior reports also recognized the limitations of DOD’s financial 

systems, operations, and controls. Our audits of DOD’s financial 

management operations have routinely identified pervasive weaknesses in 

financial systems, operations, and internal controls that impede its ability 

to provide useful, reliable, and timely financial information for day-to-day 

management and decision making. In the financial management systems 

area, DOD continues to struggle in its efforts to implement systems to 

support managerial decision-making. As we recently reported,8

 DOD can ill 

afford to invest in systems that are not capable of providing DOD 

management with more accurate, timely, and reliable information on the 

results of the department’s business operations. 

To date, none of the military services or major DOD components has 

passed the test of an independent financial audit. A continuing inability to 

capture and report the full cost of its programs represents one of the most 

significant impediments facing DOD. Nonetheless, the data used to 

develop the 50-50 report are the only data available and are accepted and 

used for DOD decision making and for congressional oversight. 

Table 1 provides a consolidated summary of DOD’s 2003 prior-years and 

future-years reports to the Congress on public and private sector workload 

allocations for depot maintenance. The amounts shown are DOD’s record 

of actual obligations incurred for depot maintenance work in fiscal years 

2001 and 2002 and projected obligations for fiscal years 2003-2007 based 

on the defense budget and service funding baselines.9

 The percentages 

show the relative allocations between the public and private sectors and 

the exempted workloads. Adding the private and private-exempted 

percentages together shows what the private-sector amount would have 

been reported as, absent the recent legislation to exempt qualified 

partnership workload. 

 8

 See U.S. General Accounting Office, Department of Defense: Status of Financial 

Management Weaknesses and Progress Toward Reform, GAO-03-931T (Washington, D.C.: 

June 25, 2003). 

9

 Although 10 U.S.C. 2466 specifies reporting of funds expended in the prior years and 

projected to be expended in the future years, DOD’s past and current 50-50 reports are 

based on obligation data. A DOD official explained that obligation data are considered to 

be more appropriate because of the statutory requirement to report funds made available in 

a given fiscal year and because expenditure data may not be completely recognized in the 

accounting records for a year or more following the funds’ obligation. 

Summary of Data in DOD’s 

50-50 Reports 
Page 8 GAO-03-1023 Depot Maintenance 

Table 1: DOD Reported Depot Maintenance Funding Allocations 

Dollars in millions 

Prior fiscal years Future fiscal years 

2001 2002 2003 2004 2005 2006 2007

Army 

Public $1,205 $1,373 $1,781 $1,790 $1,907 $2,017 $2,008

52.2% 51.5% 55.8% 52.8% 53.6% 52.6% 52.7%

Private $1,102 $1,239 $1,325 $1,517 $1,562 $1,729 $1,716

47.8% 46.5% 41.5% 44.7% 43.9% 45.1% 45.0%

Private exempta - $51 $84 $86 $87 $87 $87

 1.9% 2.6% 2.5% 2.4% 2.3% 2.3%

Total $2,307 $2,663 $3,190 $3,393 $3,556 $3,833 $3,812

 

Navy/Marine Corps 

Public $4,342 $5,258 $4,986 $4,594 $5,237 $5,172 $5,178

54.7% 54.5% 54.1% 54.2% 55.2% 55.0% 56.3%

Private $3,593 $4,110 $4,188 $3,836 $4,173 $4,144 $3,903

45.3% 42.6% 45.4% 45.2% 44.0% 44.0% 42.5%

Private exempta - $273 $46 $51 $74 $94 $111

 2.8% 0.5% 0.6% 0.8% 1.0% 1.2%

Total $7,935 $9,642 $9,220 $8,481 $9,484 $9,411 $9,192

 

Air Force 

Public $3,322 $4,467 $4,456 $4,993 $5,404 $5,530 $5,629

47.7% 54.1% 51.9% 56.8% 57.9% 56.6% 53.7%

Private $3,643 $3,781 $4,120 $3,791 $3,922 $4,230 $4,848

52.3% 45.8% 48.0% 43.1% 42.0% 43.3% 46.2%

Private exempta - $12 $9 $8 $7 $7 $8

 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%

Total $6,965 $8,260 $8,585 $8,792 $9,333 $9,768 $10,484

Source: DOD’s “50-50” Reports, dated Feb. 11 and Apr. 7, 2003. 

a

The provision in 10 U.S.C. 2474 to exempt qualified public-private partnerships from the 50-percent 

funding limitation began with the 2002 reporting year and is now continued for all contracts entered 

into through fiscal year 2006. DOD interpreted this to mean that exemptions should also be reported 

for fiscal year 2007 for contracts initiated in 2002 through 2006. 
Page 9 GAO-03-1023 Depot Maintenance 

DOD’s prior-years report for fiscal years 2001 and 2002 as submitted to the 

Congress shows the Departments of the Army and Navy to be below the 

50-percent funding limitation on private sector workloads for both years. 

The Air Force reported itself over the limitation in 2001 and below it in 

2002. (See table 1.) The net effects of correcting for the errors and 

omissions we identified would increase the percentages of workload going 

to the private sector and move each department closer to the contract 

limit. Appendix I shows the amounts and effects of our adjustments to the 

reported data submitted by the military departments for fiscal year 2002 

and provides a description of the major deficiencies we found. Overall, 

however, recurring weaknesses in DOD’s data gathering, reporting 

processes, and financial systems prevented us from determining with 

precision whether the services were in compliance with the 50-50 

requirement for fiscal years 2001 and 2002. 

The Army reported its private sector funding to be below the 50-percent 

limit for both fiscal years 2001 and 2002. Army 50-50 reporting involves 

multiple commands with somewhat different processes for collecting, 

summarizing, and validating data. Although the Army utilized a new, more 

centralized financial system to collect 50-50 data that corrected some of 

the transcription errors we found last year,10 we continued to find errors, 

omissions, and inconsistencies in its data. 

For example, as in past years, the Army underreported public and private 

sector depot-level maintenance work at field locations as it continues 

unfinished efforts to consolidate maintenance activities and better control 

the proliferation of depot-level tasks at nondepot locations. Other Army 

work was not reported because some commands did not receive 50-50 

instructions and others misapplied the guidance. Unfamiliarity with the 

guidance was caused in some instances by the large turnover from last 

year in the staff responsible for collecting and summarizing data. Staff 

turnover was cited by each of the military services as contributing to 

increased errors and training needs. To the extent we identified them, 

these specific errors would add about $228 million in total to the Army’s 

public and private sector workloads in 2002; the net effect of correcting 

for these errors would add 2.5 percent to the private sector percentage 

allocation in 2002. (See table 2 in app. I.) 

 10 GAO-03-16. 

Weaknesses in Data 

Preclude 

Determinations of 

Compliance in PriorYears Report 

Department of the Army 
Page 10 GAO-03-1023 Depot Maintenance 

The Navy reported its private sector funding to be below the 50-percent 

limit for both fiscal years. Similar to the Army, the Navy’s 50-50 process 

also involves multiple naval commands as well as the Marine Corps. As in 

prior years, we believe this increases the complexity in managing the 

process and in ensuring consistency in application of the guidance. It also 

exacerbates the less than adequate data validation efforts. 

We identified several problems that carried over from last year’s 50-50 

efforts. The Navy did not report any depot maintenance work 

accomplished along with the nuclear refueling of its aircraft carriers, citing 

the exclusion of nuclear refueling from the 10 U.S.C. 2460 definition of 

depot maintenance. We continue to believe that depot repairs not directly 

associated with refueling tasks should be reported because these kinds of 

repair actions are reported by other organizations and funding for these 

tasks are identifiable in contracts and financial systems. The Navy also 

continues to inconsistently report inactivation activities that involve the 

servicing and preservation of systems and equipment before it is placed in 

storage or in an inactive status. Officials report public sector workloads 

for inactivation activities on nuclear ships but do not report such work on 

nonnuclear ships, saying that the former workload is complex while the 

latter is not. We think all such depot-level work should be counted since 

the statute and implementing guidance does not make a distinction of 

complexity. These two examples would add about $401 million to the 

private sector workloads in fiscal year 2002. 

We also determined that about $41 million of partnership workloads were 

incorrectly exempted from reporting because the work was not 

accomplished at a designated depot or was not performed by contract 

employees. 

The Marine Corps data are included as part of the Department of the Navy 

50-50 report for compliance purposes, but the Corps exercises a separate 

process for collecting data. Compared to the other services, the Marine 

Corps has a small depot program but makes more relative errors and has 

substantial shortcomings in its management oversight and control actions. 

For example, most of the program offices in the command that is 

responsible for acquiring and upgrading weapon systems did not report at 

all. Our review found that this understated the private sector total for 

fiscal year 2002 by about $32 million and the public sector total by almost 

$7 million. We also identified other errors including a nearly $19 million 

overstatement of the public sector when an official incorrectly included 

obligations from fiscal year 2001 in the total for 2002. 

Department of the Navy, 

including the Marine Corps 
Page 11 GAO-03-1023 Depot Maintenance 

On balance, for the Department of the Navy as a whole we found the total 

dollar amount of errors affected the private sector data more than the 

public sector. Correcting for the errors we found substantially increases 

the private sector percentage share in fiscal year 2002 from 42.6 percent to 

46.9 percent, a gain of over 4 percent. (See table 3 in app. I.) 

The Air Force reported that it exceeded the 50-percent funding limitation 

for the private sector in 2001. As provided by law at the time, the Secretary 

of the Air Force issued a waiver.11 The Air Force reported itself back below 

the limitation for fiscal year 2002. 

Most of the errors we found were the same or similar from past reviews. 

For example, the Air Force continues to make a significant adjustment in 

its reporting for contract administration and oversight costs. The 

adjustment increases the reported public sector funding and decreases the 

private sector. The total adjustment was $125 million (in absolute terms) 

for fiscal year 2002. Consistent with the 50-50 guidance, which states that 

costs should be associated with the end product (i.e., the repaired item), 

we think these costs should instead be treated as contracting expenses. 

Accordingly, we reversed this adjustment in our analysis. The Air Force 

also continues to count some component repair costs twice, once when 

the component is repaired and again when it is installed in an equipment 

item or assembly during a periodic overhaul. Officials said these are both 

reportable events, while we think this overstates the amount of actual 

repair work done. Eliminating the double count would affect about $666 

million in 2002—a $485 million decrease in the public sector amount and a 

$181 million decrease in the private sector. 

As in past years, we also identified many errors in the amounts reported 

for programs supported by interim and contractor logistics support 

contracts. We determined that several programs used incorrect factors and 

assumptions to calculate the depot portion of total contract costs. We 

found other programs that could not adequately explain or justify their 

estimating methods—some had been developed years ago by officials no 

longer in the program and simply applied by new staff without checking 

their validity nor maintaining adequate supporting documentation to 

explain and rationalize the results. Relatively high turnover of staff 

 11 The Air Force also reported itself as exceeding the 50-percent limit in fiscal year 2000, 

and a notice of the waiver was duly issued to the Congress. 

Department of the Air 

Force 
Page 12 GAO-03-1023 Depot Maintenance 

responsible for collecting and managing 50-50 data tends to increase the 

number and persistence of errors and omissions. In total, the net effect of 

the errors we found would increase the private sector allocation in 2002 by 

about 2.7 percent. (See table 4 in app. I.) 

Because of the changing nature of budget projections and supporting data 

deficiencies, the future-years report does not provide reasonable estimates 

of public and private sector depot maintenance funding allocations for 

fiscal years 2003 through 2007. Furthermore, the services tend to place 

less emphasis and priority on collecting and validating future-years data. 

The reported projections are based, in part, on incorrect data, 

questionable assumptions and estimating factors, and some 

inconsistencies with existing budgets and management plans. As with the 

prior years, the net effect of the problems we found generally increases 

the percentage of funding for projected private sector work. The 

uncertainty and instability of budget estimates combined with the errors 

and omissions we found result in a future-years report that is not very 

useful to congressional and DOD decision makers. 

We found many of the same problems identified in the prior-years data 

were continued in the future-years projections. The Army continued to 

underreport maintenance work at field locations and made other errors 

similar to its prior-years presentation. While supporting documentation for 

the Army’s projected data was inadequate, errors and omissions of the 

same magnitude as fiscal year 2002 would add more than $200 million 

annually to the totals projected for the public and private sectors in the 

Army’s future-years report. Similarly, in its respective projections, the 

Navy continued to not report depot maintenance accomplished with, but 

not directly related to nuclear refueling; the Marine Corps underreported 

work from the acquisition command; and the Air Force contract estimates 

again involved some questionable estimating factors and assumptions. 

Overall, we found this year as in the past that the services tend to place 

less emphasis and priority on collecting and validating the future-years 

data compared to efforts on the prior-years data. 

Besides errors in reporting, other internal and external factors can create 

large fluctuations in reported data, which in turn can provide a distorted 

and misleading view to outside observers about efforts to remain 

compliant with the 50-50 requirement. For example, in the current futureyears report, the Air Force’s projected public-sector work financed 

through the working capital fund is about $3.0 billion higher than the total 

amount reported for the same 4-year time period in the future-years report 

Future-Year 

Projections Are Not 

Reasonable and Not 

Very Useful 
Page 13 GAO-03-1023 Depot Maintenance 

submitted in 2002. Although this would appear to indicate a large influx of 

new work to the public depots, in reality the amount of work, according to 

budget estimates and management reports, is expected to remain fairly 

level during this reporting period in terms of production hours and size of 

workforce. Most of the dollar (and percentage) increase in public-sector 

work is the result of price hikes in the sales rate charged to its customers. 

Price hikes were caused primarily by increases in the cost of spare and 

repair parts that were used in the repair process. 

The future-year estimates are not reasonable because they represent 

budget and planning data that change over time, incorporate the same 

errors found in prior-year data, and also have other problems. The budget 

and planning data used to project the share of depot maintenance work to 

be performed in the public and private sectors in the future are estimates. 

At best, they provide only rough estimates of future funding allocations; 

and these estimates change over time. As an illustration, our comparison 

of the consistency of the 2003 reported data with that in DOD’s 50-50 

reports submitted in 2002 showed that congressional and DOD decision 

makers were given quite a different view this year of the public-private 

sector workload mix than that presented just last year. With so many 

errors and frequent changes, the future-years data may be misleading and 

not very useful to congressional and DOD decision makers, particularly 

the further estimates are in the future. While we have identified these 

shortcomings in the past, the problems continue and show no signs of 

getting better. 

DOD officials agreed that the planning and budget data available for 

making future projections beyond the budget year are not very useful as 

predictors of the balance of future workloads between the public and 

private sectors. They also noted that when the services are within a few 

percentage points of the 50-50 ceiling, as they are now, the accuracy of the 

conclusions drawn from the unreliable future projections does not provide 

a very good basis for forecasting the future. 

Despite prior improvements, opportunities continue to exist to make 50-50 

data a more complete and accurate representation of the balance of 

funding for depot maintenance work assigned to the public and private 

sectors. First, streamlining the 50-50 report would offer an opportunity to 

focus improvement efforts on the data where improvements are most 

likely to be realized. Second, continued participation of the service audit 

agencies should improve the quality of the 50-50 data, particularly if the 

audit support is timely to allow for corrections to be made before the 50-50 

Opportunities Exist to 

Improve DOD 

Reporting 
Page 14 GAO-03-1023 Depot Maintenance 

report goes to the Congress. Finally, there are opportunities to improve 

the data development process. 

As previously discussed, the future-years dataparticularly that estimated 

for the years beyond the current year and budget yeardo not provide a 

reasonable estimate of the future balance of funding for depot 

maintenance between the public and private sectors. Further, the data may 

be so bad as to be misleading. Streamlining the data collected to provide 

data for a shorter period of time could allow responsible officials to focus 

more closely on the data that are more accurate. Additionally, if the report 

date to the Congress were extended, the report could be based on more 

actual costs and require fewer projections, improving the quality of the 

reported data. 

While we continue to believe that the service audit agencies could help the 

military departments improve 50-50 reporting, their future involvement is 

uncertain. As we have reported in the past, auditor involvement typically 

identified and corrected substantial errors in the data before the 50-50 

reports went to the Congress. However, this year the Air Force Audit 

Agency did not participate; while the Army did participate, some of the 

errors they identified were not corrected in the reports to the Congress; 

and the Navy audit was not done in time to result in changes to the 50-50 

data submitted to the Congress. A more meaningful review would be one 

that was carried on when the data are being aggregated, with input to the 

process in time to influence the reported data. DOD officials told us that 

the audit services were not expecting to work on future 50-50 efforts. 

Audit services are reconsidering their roles because of recent changes to 

government auditing standards regarding auditor independence when 

performing both audit and nonaudit management assistance services to 

the same client.12

Air Force auditors have had a positive role in the 50-50 process in past 

years. Serving in an advisory capacity, they identified errors and cognizant 

program officials made corrections before the Air Force input was 

finalized and forwarded to the Office of the Secretary of Defense. This 

year, however, Air Force auditors decided not to participate. Officials said 

 12 See revised standards in U.S. General Accounting Office, Government Auditing 

Standards: 2003 Revision, GAO-03-673G (Washington, D.C.: June 1, 2003). 

Streamlining the 50-50 

Report 

Participation of Service 

Audit Agencies 
Page 15 GAO-03-1023 Depot Maintenance 

they were concerned about conflict of interest because auditors 

participating in the management services review could also be involved in 

audit service reviews of depot maintenance programs, processes, and 

funds. While Army auditors participated in the process during this year’s 

cycle and some of their work influenced changes in this year’s reported 

data, some errors were not corrected because of time constraints imposed 

by the 50-50 reporting schedule. Army officials said the Army Audit 

Agency would not likely be involved in next year’s 50-50 process primarily 

because of concerns about independence. Navy auditors became involved 

in the process this year after we recommended their participation in prior 

reports. However, the Navy Audit Service work was not done in time to 

influence the Navy’s 50-50 report. According to audit service officials, their 

decision to do an audit of the data after it was submitted rather than 

providing advisory services to cognizant officials developing the Navy’s 50-

50 report was influenced by the before-mentioned change in audit 

standards. Navy program officials said that because a post-process audit 

did not improve the 50-50 data, the audit service would not be used next 

year. 

We recognize that recent changes in government auditing standards have 

been made to better address and specify independence issues arising 

when an audit organization undertakes both audit and nonaudit services 

for the same client. Nonetheless, the new auditing standards do not 

preclude auditors from verifying the accuracy of data; providing other 

technical assistance to the 50-50 process; and accomplishing other audits 

of the depot maintenance process, programs, and activities. Improved 

planning, management involvement, and documentation of roles and 

responsibilities may be required; but a process can be developed to ensure 

independence will not be compromised. This has already been done so 

that the service audit agencies can perform similar functions—evaluating 

validity and consistency of data as it is being developed for subsequent 

decision making—in support of the base realignment and closure process. 

Incremental improvements in data development were noticeable in the 

first several years of 50-50 reporting as guidance was clarified and 

expanded. However, as we reported last year, the quality of the 50-50 data 

is not continuing to improve as it did in earlier years of the reporting 

requirement.13 Overall quality and direction of DOD’s reporting seems to 

 13 GAO-03-16. 

Improving the Data 

Development Process 
Page 16 GAO-03-1023 Depot Maintenance 

have reached a plateau where further major improvements have been 

limited. As we have previously discussed, one of the reasons this has 

occurred is that 50-50 guidance was not always distributed to the people 

who needed it. Further, significant turnover of personnel responsible for 

developing the data without providing sufficient time and training to 

familiarize them regarding the 50-50 requirement and process adversely 

affected the quality of the 50-50 data. In short, the priority afforded this 

process by management at all levels in the department is not sufficient to 

ensure that the data are as accurate as possible. 

Continuing errors and omissions in the data for both the prior- and futureyears reports indicate that each of the service components is closer to 

exceeding the limitation on percentage of work permitted to be performed 

by the private sector than DOD’s reporting would indicate. At best, DOD’s 

data over time should be treated as providing a rough approximation of 

the allocation of depot maintenance workloads between the public and 

private sectors with some indication of trends. As such, the information on 

actual prior-years allocations can be useful to the Congress in its oversight 

role and to DOD officials in deciding support strategies for new systems 

and in evaluating depot policies and practices. On the other hand, because 

it provides an increasingly less reliable estimate of projected allocations 

the further it gets from the current year, the future-years report is not a 

very useful tool for informing the Congress or DOD officials about likely 

future compliance. This occurs because of the changing nature of 

projections, a combination of errors and omissions, less emphasis by the 

services on the collection and validation of future-years data, and the use 

of ever-changing budgetary estimates to construct projections. These 

budgetary estimates—and built-in assumptions—become more inexact 

and more problematic the further into the future the projections are made 

due to their very speculative and volatile natures. Indeed, tracking the 50-

50 projected data from year to year reveals wide swings in the total 

amounts reported and in the relative allocations to the public and private 

sectors. As a result, congressional and DOD decision makers were given 

quite a different view this year of the public-private sector workload mix 

than that presented just last year. We believe that these problems are 

likely to continue and we question the cost-effectiveness of collecting and 

aggregating data for 3 years past the current and budget years given the 

problems identified with the estimates. 

Furthermore, after the first several years of 50-50 reporting, the overall 

quality of DOD reporting in terms of accuracy and completeness has not 

improved significantly. Indeed, the overall quality and direction seem to 

Conclusions 
Page 17 GAO-03-1023 Depot Maintenance 

have reached a plateau where further major improvements to reporting 

may be unachievable and where the environmental factors that complicate 

reporting are not expected to change much. These complicating factors—

including a burdensome collection process, tight timeframes for collecting 

data, high staff turnover, uneven management attention, changing 

concepts about maintenance organization and delivery—present 

continued challenges to the services in their ability to make significant 

improvements to their collection, documentation, and reporting processes. 

Notwithstanding these constraints, opportunities still exist to improve the 

reporting, including continued use of the audit services and renewed 

efforts to ensure guidance is appropriately disseminated and staff trained 

in its use. 

Given that we continue to see the same problems and complicating factors 

in our current and past assessments of 50-50 reports and considering that 

the volatile nature of budget estimates is not likely to change, the 

Congress should consider amending 10 U.S.C. 2466 to require only one 

annual 50-50 report. The single report would cover a 3-year period (prior 

year, current year, and budget year) for which the data are generally more 

reliable and the potential impacts more immediate. The Congress should 

also consider extending the due date for the single report from February 1 

of each year to April 1; this would provide more time for the military 

departments to collect and validate data and allow for the incorporation of 

more actual cost data for the current year estimate. 

To enhance data verification and validation, we recommend that the 

Secretary of Defense require the secretaries of the military departments to 

direct the use of service audit agencies, or an agreed-upon alternate 

method, for third-party review and validation of 50-50 data and to ensure 

that auditor-identified errors in the data are rectified before reports are 

submitted to the Congress. 

To ensure consistent and complete reporting, we recommend that the 

Secretary of Defense direct the secretaries of the military departments to 

ensure that 50-50 reporting guidance is appropriately disseminated to 

reporting organizations and individuals and that staff are properly and 

timely trained in the application of the guidance. 

Matter for 

Congressional 

Consideration 

Recommendations for 

Executive Action 
Page 18 GAO-03-1023 Depot Maintenance 

In written comments on a draft of this report from the Deputy Under 

Secretary of Defense for Logistics and Materiel Readiness, DOD concurred 

with the report’s recommendations. However, the department did not 

agree with limited portions of our analyses regarding some selected 

workloads and the resulting impacts on the percentage allocation of funds 

between the public and private sectors. These workloads involve the 

Navy’s nuclear carrier refueling and surface ship inactivation and the Air 

Force’s adjustment for general and administrative expenses and double 

counting of some reparable workloads. DOD’s written comments, and our 

evaluation of these items in question, are reprinted in appendix III. 

We are sending copies of this report to congressional committees; the 

Secretary of Defense; the Secretaries of the Army, the Navy, and the Air 

Force; and the Director, Office of Management and Budget. We will make 

copies available to others upon request. In addition, the report will be 

available at no charge on the GAO Web site at http://www.gao.gov. 

If you or your staff has questions regarding this report, please contact me 

at (202) 512-8412 or holman@gao.gov or Julia Denman, Assistant Director, 

at (202) 512-4290 or denmanj@gao.gov. Other major contributors to this 

report were David Epstein, Bruce Fairbairn, Jane Hunt, Larry Junek, 

Robert Malpass, Andy Marek, Marjorie Pratt, John Strong, and Bobby 

Worrell. 

Barry W. Holman 

Director, Defense Capabilities 

 and Management 

Agency Comments 

and Our Evaluation 
Appendix I: GAO Adjustments for Errors, 

Omissions, and Inconsistencies in Military 

Departments 50-50 Data for Fiscal Year 2002 

Page 19 GAO-03-1023 Depot Maintenance 

Our review of the data supporting the Department of Defense’s (DOD) 

prior-years report identified errors, omissions, and inconsistencies that, if 

corrected, would revise the total workloads and increase the privatesector allocations for each of the military departments. Brief descriptions 

of the larger and more extensive problems found follow the adjusted 

figures. 

Our review of fiscal year 2002 data reported by the Army and of supporting 

documentation for selected activities identified errors, omissions, and 

inconsistencies that, if corrected, would result in significant adjustments 

in the public and private sector percentages reported to the Congress, as 

shown in table 2. 

Table 2: GAO Changes to Army’s FY 2002 50-50 Data 

Dollars in millions 

Public work reported $1,372.6 51.5% 

 Net adjustments 50.9 

Public work adjusted $1,423.5 49.2% 

 

Private work reported $1,238.7 46.5% 

 Net adjustments 177.0 

Private work adjusted $1,415.7 49.0% 

 

Private work exempted $51.4 1.9% 

 Net adjustments 0 

Exempted adjusted $51.4 1.8% 

Source: GAO analysis of DOD data. 

Errors we found included the following examples: 

• Unreported depot-level work associated with the Army’s ongoing 

efforts to consolidate maintenance activities and craft a national 

maintenance program. Our prior 50-50 reports have documented 

continuing problems and shortcomings in accurately and consistently 

reporting depot maintenance accomplished by both public and private 

sector sources at nondepot locations. 

Appendix I: GAO Adjustments for Errors, 

Omissions, and Inconsistencies in Military 

Departments 50-50 Data for Fiscal Year 2002 

Department of the 

Army 
Appendix I: GAO Adjustments for Errors, 

Omissions, and Inconsistencies in Military 

Departments 50-50 Data for Fiscal Year 2002 

Page 20 GAO-03-1023 Depot Maintenance 

• Unreported one-time repair actions. These are depot repairs that are 

accomplished at non-depot locations following an organization’s 

request and approval to do this work on a limited basis. 

• Unreported work by commands that did not receive Army reporting 

guidance and other misreported and understated work by some 

commands that received but misapplied the guidance. 

• Other adjustments included (1) errors identified by the Army Audit 

Agency but not corrected in the data sent to the Office of the Secretary 

of Defense (OSD) for inclusion in the prior-years 50-50 report to the 

Congress; and (2) depot support work identified in a contractor’s study 

of the proliferation of depot work at non-depot locations. 

Our review of fiscal year 2002 data reported by the Navy and Marine Corps 

and of supporting documentation for selected activities identified errors, 

omissions, and inconsistencies that, if corrected, would result in 

significant adjustments in the public and private sector percentages 

reported to the Congress, as shown table 3. 

Table 3: GAO Changes to Navy’s and Marine Corps’ FY 2002 50-50 Data 

Dollars in millions 

Public work reported $5,258.1 54.5% 

 Net adjustments (115.5) 

Public work adjusted $5,142.6 50.8% 

Private work reported $4,110.4 42.6% 

 Net adjustments 640.9 

Private work adjusted $4,751.3 46.9% 

Private work exempted $273.1 2.8% 

 Net adjustments (40.7) 

Exempted adjusted $232.4 2.3% 

Source: GAO analysis of DOD data. 

Note: Numbers in parentheses are negative. 

Department of the 

Navy 
Appendix I: GAO Adjustments for Errors, 

Omissions, and Inconsistencies in Military 

Departments 50-50 Data for Fiscal Year 2002 

Page 21 GAO-03-1023 Depot Maintenance 

Errors we found included the following examples: 

• Unreported depot work on nuclear aircraft carriers. As reported last 

year, Navy officials cite the definition in 10 U.S.C. 2460, which excludes 

from depot maintenance the nuclear refueling of aircraft carriers, in 

justifying why they do not report any of the depot work accomplished 

at the same time as refueling. We believe that depot work that is 

reportable elsewhere and separate from the refueling tasks should be 

reported. 

• Inconsistent reporting of ship inactivations, which include depot tasks 

for servicing and preserving equipment before they are placed in 

storage or in an inactive status. Navy officials report for 50-50 purposes 

the nuclear ship inactivation work performed in the public sector but 

do not report surface ship inactivation work performed by the private 

sector. 

• Underreporting of maintenance work by the command responsible for 

acquiring and upgrading Marine Corps weapon systems. Failure to 

report has several causes, including misunderstanding of what should 

be reported, limited dissemination of the 50-50 guidance, and 

inadequate management and oversight of the collection process to 

identify and resolve reporting deficiencies. 

• Incorrectly exempting some private-sector activities from reporting. 

The Navy exempted more work than did the other departments; but we 

found some in error, including partnering work accomplished at a 

contractor facility and some work actually performed by government 

employees. Partnership work qualifying for the exemption must be 

accomplished at designated public depots by contractor employees. 

• Other errors included (1) work subcontracted by the public shipyards 

to the private sector reported as public sector work and (2) 

misreporting by the Marine Corps of work obligated in fiscal year 2001 

rather than 2002. 

Our review of fiscal year 2002 data reported by the Air Force and of 

supporting documentation for selected activities identified errors, 

omissions, and inconsistencies that, if corrected, would result in 

significant adjustments in the public and private sector percentages 

reported to the Congress, as shown in table 4. 

Department of the Air 

Force 
Appendix I: GAO Adjustments for Errors, 

Omissions, and Inconsistencies in Military 

Departments 50-50 Data for Fiscal Year 2002 

Page 22 GAO-03-1023 Depot Maintenance 

Table 4: GAO Changes to Air Force’s FY 2002 50-50 Data 

Dollars in millions 

Public work reported $4,467.0 54.1% 

 Net adjustments (547.9) 

Public work adjusted $3,919.1 51.4% 

Private work reported $3,781.4 45.8% 

 Net adjustments (82.5) 

Private work adjusted $3,698.9 48.5% 

Private work exempted $11.9 0.1% 

 Net adjustments 0 

Exempted adjusted $11.9 0.2% 

Source: GAO analysis of DOD data. 

Note: Numbers in parentheses are negative. 

Errors we found included the following examples: 

• As in past years, Air Force officials continue to adjust the 50-50 data for 

the salaries and overhead expenses of government employees 

administering depot maintenance contracts funded through the 

working capital fund. Officials subtract these amounts from the 

reported private sector amount—where they are accounted for within 

the working capital fund—and add them to the public sector funding 

for 50-50 reporting. Consistent with the 50-50 guidance that states that 

costs should be associated with the end product, we think these costs 

should be treated as contracting expenses. 

• Our review of Air Force workloads determined that funding for some 

component repairs was counted twice in 50-50 data, once when the 

item was repaired and the second time when it was installed into a 

weapon system or major subsystem during its overhaul. This resulted 

in overstating both public sector work and, by a lesser amount, private 

sector work. 

• Errors occurred in reporting depot costs on interim contractor support 

and contractor logistics support contracts. Our review of selected 

programs identified numerous errors resulting in net underreporting of 

depot maintenance work performed by contractors. Many problems 

resulted from questionable factors and assumptions used in developing 
Appendix I: GAO Adjustments for Errors, 

Omissions, and Inconsistencies in Military 

Departments 50-50 Data for Fiscal Year 2002 

Page 23 GAO-03-1023 Depot Maintenance 

estimating methodologies. Because interim contractor support and 

contractor logistics support contracts often cover more than just depot 

maintenance (including lower levels of maintenance, supply 

operations, and logistics program management), the OSD guidance 

allows for the use of estimating methods. This can cause complications 

and introduce subjectivity into the data collection process. Newer 

contract approaches under acquisition reform efforts pose particularly 

challenging problems in identifying the depot portion. 

Examples of errors and questionable practices we found included 

• not updating a methodology when contract provisions and 

circumstances change, resulting in not reporting additional 

maintenance work from increased operational contingencies and new 

orders of materials; 

• assuming a straight percentage of total cost as depot work where data 

exists to make a more exact accounting; 

• not reporting maintenance on a newly acquired modification; and 

• not reporting software depot maintenance. 
Appendix II: Scope and Methodology 

Page 24 GAO-03-1023 Depot Maintenance 

To determine whether the military departments met the 50-50 requirement 

in the prior-years report, we analyzed each service’s procedures and 

internal management controls for collecting and reporting depot 

maintenance information for purposes of responding to the section 2466 

requirement. We reviewed supporting details (summary records, 

accounting reports, budget submissions, and contract documents) at 

departmental headquarters, major commands, and selected maintenance 

activities. We compared processes to determine consistency and 

compliance with legislative provisions, OSD guidance, and military service 

instructions. We selected certain programs and maintenance activities for 

a more detailed review.1

 We particularly examined reporting categories 

that DOD personnel and we had identified as problem areas in current and 

past reviews. These areas included interserviced workloads,2

 contractor 

logistics support, warranties, software maintenance, and depot 

maintenance at nondepot locations. We evaluated processes for collecting 

and aggregating data to ensure accurate and complete reporting and to 

identify errors, omissions, and inconsistencies. We coordinated our work, 

shared information, and obtained results of the Army and Air Force 

service audit agencies’ data validation efforts. 

To determine whether the future-year projections were based on accurate 

data, valid assumptions, and existing plans and represented reasonable 

estimates, we followed the same general approach and methodology used 

to review the prior-years report. Although the future-years report is a 

budget-based projection of obligations, the definitions, guidance, 

organization, and processes used to report future data are much the same 

as for the prior-years report of actual obligations. We discussed with DOD 

officials the main differences between the two processes and the manner 

in which the data were derived from budgets and planning requirements 

and key assumptions made in the outyear data. 

For reviews of both 50-50 reports, we performed certain checks and tests, 

including variance analyses, to judge the consistency of this information 

with data from prior years and with the future-years budgeting and 

 1

 We selected the programs reviewed based on size and importance, leads obtained from 

internal auditors, and any previously identified areas of concern. Given the nature of our 

sample, the results are not projectible to the universe of depot maintenance activities. We 

also did not audit the integrity of DOD’s financial systems and accounting data used to 

prepare the 50-50 reports. 

2

 Interserviced workload is maintenance that one military service performs on equipment 

owned and funded by another service. 

Appendix II: Scope and Methodology 
Appendix II: Scope and Methodology 

Page 25 GAO-03-1023 Depot Maintenance 

programming data used in DOD’s budget submissions and reports to the 

Congress. For example, we compared each service’s 50-50 data reported in 

February and April 2003 for the period 2001 through 2006 with data 

reported for these same years in the 50-50 reports submitted in 2002. We 

found repeated and significant changes, even though the estimates were 

prepared only about 1 year apart. We used this analysis to further discuss 

with officials and analyze reasons for changes in reported data and 

percentage allocations between the 2002 and 2003 reports submitted to the 

Congress. Variance analysis showed that congressional and DOD decision 

makers were given quite a different view of the public-private sector 

workload mix than that presented just last year. 

Several factors concerning data validity and completeness were 

considered in our methodology and approach to reviewing the prior- and 

future-years reports. One key factor is the continuing deficiencies we 

have noted in DOD’s financial systems and reports that preclude a clean 

opinion on its financial statements and that result in limited accuracy of 

budget and cost information. Another factor is that documenting depot 

maintenance workload allocations between the public and private sectors 

is becoming more complicated by the consolidation of maintenance 

activities and the performance of depot-level maintenance at field 

locations. These complicating factors (1) make it more difficult to identify 

work that meets the statutory definition of depot maintenance, 

(2) complicate workload reporting, and (3) result in underreporting of 

depot maintenance for both the public and private sectors. In addition, 

changes in business philosophy and approach can make analysis more 

difficult. For example, many new contracts are performance-based and 

may not discretely identify maintenance activities or account separately 

for their costs. This can result in under- and overreporting of depot 

maintenance work performed in the private sector. It also forces more 

reliance on the contractor for providing information needed in 50-50 

reporting and may result in DOD officials having to use more assumptions 

and estimating methodologies in lieu of contract data. 

As part of our efforts to identify areas for improvement, we reviewed 

DOD’s efforts to improve the accuracy and completeness of reports. We 

discussed with officials managing and coordinating the reporting process 

their efforts to address known problem areas and respond to 

recommendations by the audit agencies and us. We compared this year’s 

sets of instructions with last year’s to identify changes and additions. We 

reviewed efforts to identify reporting sources and to distribute guidance 

and taskings. We asked primary data collectors to provide their opinions 

on how well efforts were managed and data verified and to identify “pain 
Appendix II: Scope and Methodology 

Page 26 GAO-03-1023 Depot Maintenance 

points” and ideas they had to improve reporting. We reviewed prior 

recommendations and service audit agency findings to determine whether 

known problem areas were being addressed and resolved. We applied this 

knowledge to identify additional areas for improving the reporting process 

and management controls. 

We interviewed officials, examined documents, and obtained data at OSD, 

Army, Navy, Marine Corps, and Air Force headquarters in the Washington, 

D.C., area; Army Materiel Command in Alexandria, Virginia; Naval Sea 

Systems Command in Washington, D.C.; Naval Air Systems Command in 

Patuxent River, Maryland; Marine Corps Materiel Command in Albany, 

Georgia; Air Force Materiel Command in Dayton, Ohio; Army Audit 

Agency in Washington, D.C.; Naval Audit Service in Crystal City, Virginia; 

several public depots managed by the military departments’ materiel 

commands; and selected operating bases. We conducted our review from 

February to July 2003 in accordance with generally accepted government 

auditing standards. 
Appendix III: Comments from the Department 

of Defense 

Page 27 GAO-03-1023 Depot Maintenance 

Appendix III: Comments from the 

Department of Defense 

Note: GAO’s comments 

supplementing those in 

the report text appear at 

the end of this appendix. 
Appendix III: Comments from the Department 

of Defense 

Page 28 GAO-03-1023 Depot Maintenance 

Report language 

is now on p. 18. 

Report language 

is now on p. 18. 
Appendix III: Comments from the Department 

of Defense 

Page 29 GAO-03-1023 Depot Maintenance 

See comment 2. 

Report language is 

now on p. 21. See 

also p. 10. 

Report language is 

now on p. 17. 

See comment 1. 
Appendix III: Comments from the Department 

of Defense 

Page 30 GAO-03-1023 Depot Maintenance 

Report language is now 

on p. 23. See also p. 11. 

Report language is now 

on p. 23. See also p. 11. 

See comment 3. 

See comment 4. 
Appendix III: Comments from 

the Department of Defense 

Page 31 GAO-03-1023 Depot Maintenance 

The following are GAO’s comments on the Department of Defense’s letter 

dated August 26, 2003. 

1. The department did not agree with our adjustment for nuclear aircraft 

carriers. The Navy interprets the 10 U.S.C. 2460 exclusion of nuclear 

refueling of aircraft carriers from the definition of depot maintenance 

to mean that no work associated with the refueling complex overhaul 

of nuclear carriers is reportable for 50-50 purposes. Navy officials also 

said that non-nuclear depot repairs on carriers are not severable tasks 

to be split out from contracts. We continue to believe that the costs of 

depot repairs and tasks not directly associated with nuclear refueling 

tasks during carrier overhauls should be reported. Many maintenance 

tasks performed at the same time as the nuclear refueling are not 

related to the refueling; and when these and similar tasks are 

performed during other maintenance activities, the Navy does report 

them as depot maintenance. We found that the funding for these tasks 

is clearly identifiable in the contract financial records and could be 

counted just like other 50-50 work. In our view, without some nexus 

between that work and refueling work, it would be inconsistent with 

the plain language of section 2460 to exempt that work simply because 

it was performed during a refueling complex overhaul of nuclear 

carriers. We deleted the reference to severable tasks in the body of the 

report, as our intent was not to suggest that the Navy break out nonnuclear work from nuclear work onto separate contracts or work 

orders, but rather that the funding for non-nuclear refueling work 

accomplished on existing contracts be identified and reported. 

2. The department did not agree with our adjustment for surface ship 

inactivations. DOD considers nuclear ship inactivation work to be a 

relatively complex process that is equivalent to depot level 

maintenance, but that conventional ship inactivation work performed 

by the private sector is not as complex and is not equivalent to depotlevel maintenance. In addition, the department’s written response 

indicated that surface ship inactivation work accomplished by the 

public sector is also not reported in the 50-50 data. We believe that 

inactivation work should be reported because the relevant title 10 

statutes and OSD’s 50-50 guidance do not make this distinction of 

relative complexity and requires reporting of all depot maintenance, 

regardless of location and source of funding. Further, DOD’s Financial 

Management Regulation 7000.14-R, vol. 6A, ch. 14 (which prescribes 

depot maintenance reporting requirements) includes inactivation as a 

depot maintenance activity. Although we did not review inactivation 

GAO Comments 
Appendix III: Comments from 

the Department of Defense 

Page 32 GAO-03-1023 Depot Maintenance 

work accomplished by public sector workers, it should also be 

reported if it meets the definition of depot maintenance. 

3. The Air Force did not agree with our reversal of the 50-50 reporting 

adjustment it makes for the salaries and overhead expenses of 

government employees administering depot maintenance contracts. 

The Air Force believes that the costs for government personnel 

managing depot maintenance contracts represent public sector costs; 

therefore, to report them as contract would misrepresent the publicprivate sector percentage allocations. However, OSD’s 50-50 guidance 

requires that all the costs associated with accomplishing a specific 

depot workload—labor, material, parts, indirect, and overhead—

should be counted for 50-50 purposes in the sector accomplishing the 

actual maintenance. The guidance cites examples, such as counting the 

contract maintenance on depot plant equipment as public sector costs 

because the plant equipment is part of the costs incurred to perform 

maintenance at the depot. Similarly, we think that contract 

administrative costs should be counted as part of the costs incurred to 

accomplish the work in the private sector. We note that the Air Force 

will stop making this adjustment after this year when financing for the 

depot contracts is moved from the working capital fund to direct 

appropriations. It remains to be seen, however, how the Air Force will 

account for contract administrative expenses in the future. 

4. The department did not agree that counting the repair costs twice for 

some components installed in higher level assemblies is inconsistent 

with the statutory requirements of 10 U.S.C. 2466(e) and 10 U.S.C. 

2460. The Air Force believes that the original repair cost for a 

component and its subsequent cost as material used in system or 

subsystem overhaul are two distinct and separate transactions and that 

both costs should be reported for 50-50 purposes. We continue to 

believe that counting some component repair costs twice when the 

components are incorporated in a higher-level assembly distorts the 

50-50 reports and the actual amount of work accomplished by both the 

public and private sectors. In our view, there is no reason to conclude 

that the intent of title 10 requires double counting component repairs 

and that a more reasonable reading is that DOD can implement those 

provisions so as to allow for adjustments in reporting to more 

accurately reflect the cost of depot work. DOD adopted a similar 

approach in response to a recommendation in our 2001 report.1

 In that 

 1 GAO-02-95. 
Appendix III: Comments from 

the Department of Defense 

Page 33 GAO-03-1023 Depot Maintenance 

report, we found that unrealistic and outdated budget data were being 

reported when there were other, more accurate information sources. 

Accordingly, OSD revised its 50-50 guidance to allow for revising 

budgetary estimates to better reflect known and anticipated changes in 

workloads, workforce, priorities, and performance execution rates. 

This resulted in the Air Force reporting additional hundreds of millions 

of dollars in projected depot work based on current workload 

estimates. A similar approach could be used to eliminate the effects of 

double counting reparables later used in higher-level assemblies. 
Related GAO Products 

Page 34 GAO-03-1023 Depot Maintenance 

Depot Maintenance: Key Unresolved Issues Affect the Army Depot 

System’s Viability. GAO-03-682. Washington, D.C.: July 7, 2003. 

Department of Defense: Status of Financial Management Weaknesses 

and Progress Toward Reform. GAO-03-931T. Washington, D.C.: June 25, 

2003. 

Depot Maintenance: Change in Reporting Practices and Requirements 

Could Enhance Congressional Oversight. GAO-03-16. Washington D.C.: 

October 18, 2002. 

Depot Maintenance: Management Attention Needed to Further Improve 

Workload Allocation Data. GAO-02-95. Washington, D.C.: November 9, 

2001. 

Defense Logistics: Actions Needed to Overcome Capability Gaps in the 

Public Depot System. GAO-02-105. Washington, D.C.: October 12, 2001. 

Defense Maintenance: Sustaining Readiness Support Capabilities 

Requires a Comprehensive Plan. GAO-01-533T. Washington, D.C.: 

March 23, 2001. 

Depot Maintenance: Key Financial Issues for Consolidations at Pearl 

Harbor and Elsewhere Are Still Unresolved. GAO-01-19. Washington, D.C.: 

January 22, 2001. 

Depot Maintenance: Action Needed to Avoid Exceeding Ceiling on 

Contract Workloads. GAO/NSIAD-00-193. Washington, D.C.: 

August 24, 2000. 

Depot Maintenance: Air Force Waiver to 10 U.S.C. 2466.

GAO/NSIAD-00-152R. Washington, D.C.: May 22, 2000. 

Depot Maintenance: Air Force Faces Challenges in Managing to 50-50 

Ceiling. GAO/T-NSIAD-00-112. Washington, D.C.: March 3, 2000. 

Depot Maintenance: Future Year Estimates of Public and Private 

Workloads Are Likely to Change. GAO/NSIAD-00-69. Washington, D.C.: 

March 1, 2000. 

Depot Maintenance: Army Report Provides Incomplete Assessment of 

Depot-type Capabilities. GAO/NSIAD-00-20. Washington, D.C.: October 15, 

1999. 

Related GAO Products 
Related GAO Products 

Page 35 GAO-03-1023 Depot Maintenance 

Depot Maintenance: Status of the Navy’s Pearl Harbor Project.

GAO/NSIAD-99-199. Washington, D.C.: September 10, 1999. 

Depot Maintenance: Workload Allocation Reporting Improved, but 

Lingering Problems Remain. GAO/NSIAD-99-154. Washington, D.C.: 

July 13, 1999. 

Navy Ship Maintenance: Allocation of Ship Maintenance Work in the 

Norfolk, Virginia, Area. GAO/NSIAD-99-54. Washington, D.C.: February 

24, 1999. 

Defense Depot Maintenance: Public and Private Sector Workload 

Distribution Reporting Can Be Further Improved. GAO/NSIAD-98-175. 

Washington, D.C.: July 23, 1998. 

Defense Depot Maintenance: DOD Shifting More Workload for 

New Weapon Systems to the Private Sector. GAO/NSIAD-98-8. 

Washington, D.C.: March 31, 1998. 

Defense Depot Maintenance: Information on Public and Private Sector 

Workload Allocations. GAO/NSIAD-98-41. Washington, D.C.: January 20, 

1998. 

Defense Depot Maintenance: Uncertainties and Challenges DOD Faces in 

Restructuring Its Depot Maintenance Program. GAO/T-NSIAD-97-112. 

Washington, D.C.: May 1, 1997. Also GAO/T-NSIAD-97-111. Washington, 

D.C.: March 18, 1997. 

Defense Depot Maintenance: DOD’s Policy Report Leaves Future Role of 

Depot System Uncertain. GAO/NSIAD-96-165. Washington, D.C.: May 21, 

1996. 

Defense Depot Maintenance: More Comprehensive and Consistent 

Workload Data Needed for Decisionmakers. GAO/NSIAD-96-166. 

Washington, D.C.: May 21, 1996. 

Defense Depot Maintenance: Privatization and the Debate Over the 

Public-Private Mix. GAO/T-NSIAD-96-148. Washington, D.C.: April 17, 

1996. Also GAO/T-NSIAD-96-146. Washington, D.C.: April 16, 1996. 

Depot Maintenance: Issues in Allocating Workload Between the Public 

and Private Sectors. GAO/T-NSIAD-94-161. Washington, D.C.: April 12, 

1994. 

(350315) 
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