United States General Accounting Office

GAO Report to Congressional Committees

May 1996 DEFENSE DEPOT

MAINTENANCE

More Comprehensive

and Consistent

Workload Data Needed

for Decisionmakers

G O A

years

1921 - 1996

GAO/NSIAD-96-166

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-272043 

May 21, 1996

The Honorable Strom Thurmond

Chairman

The Honorable Sam Nunn

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Floyd Spence

Chairman

The Honorable Ronald Dellums

Ranking Minority Member

Committee on National Security

House of Representatives

As required by section 311 of the National Defense Authorization Act for

Fiscal Year 1996, we analyzed the Department of Defense’s (DOD) report,

Depot Maintenance and Repair Workload, which was submitted to

Congress April 4, 1996. Specifically, we focused on DOD’s analysis of (1) the

need for and effect of the 60/40 legislative requirement concerning the

allocation of depot maintenance workloads between the public and private

sectors, (2) historical public and private sector depot maintenance

workload allocations, and (3) projected public and private depot

maintenance workload allocations.

Background DOD spends about $15 billion annually—or about 6 percent of its

$243-billion fiscal year 1996 budget—on depot maintenance activities.

Depot maintenance involves repairing, overhauling, and modifying and

upgrading defense systems and equipment. It also includes limited

manufacture of parts, technical support, modifications, testing, and

reclamation as well as software maintenance. About $2 billion is spent on

contractor logistics support, interim contractor support, and labor used to

install some major modifications and parts of depot software maintenance,

which are contracted to the private sector using procurement, rather than

operation and maintenance funds. Depot maintenance is accomplished in

both the DOD depot system and by about 1,300 defense contractors.

Currently, there are 29 DOD depot maintenance facilities; 15 depots have

been or are in the process of being closed. The DOD depot system employs

about 89,000 DOD civilian personnel. This is 43 percent lower than the

employment level in the peak year, 1987.

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The depot maintenance workload mix has been the subject of

considerable debate in recent years. Historically, depot maintenance on

most wartime critical systems was largely performed in DOD depots. The

peacetime workload for such critical systems constituted what is referred

to as depot maintenance core workload. During the Cold War, there was

not much pressure to move work from DOD depots to the private sector.

Military leaders expressed a clear preference for retaining much of their

work in DOD depots. They expressed the view that the defense depots were

highly flexible and responsive to changing military requirements and

priorities and produced high-quality work. However, with the end of the

Cold War and the subsequent declines in defense spending, there is now

increased pressure to privatize more depot maintenance work. As

acquisition programs began to decline, a growing concern focused on how

the industrial base can be maintained without large development and

production programs. Attention began to shift to DOD depot workloads as a

potential source of work to keep the industrial base viable and reduce DOD

infrastructure costs.

Efforts to increase the private sector’s share are affected by several

statutes that relate to the mix of maintenance work performed by the

public and private sectors. Three of the most significant statutes affecting

the workload mix are 10 U.S.C. 2464, 10 U.S.C. 2466, and 10 U.S.C. 2469.

Title 10 U.S.C. 2464 provides that DOD activities should maintain a logistics

capability sufficient to ensure technical competence and resources

necessary for an effective and timely response to a mobilization or other

national defense emergency. Title 10 U.S.C. 2466 prohibits the use of more

than 40 percent of the funds made available in a fiscal year for depot-level

maintenance or repair for private sector performance: the so-called “60/40”

rule. Title 10 U.S.C. 2469 provides that DOD-performed depot maintenance

and repair workloads valued at $3 million or more cannot be changed to

another DOD activity without the use of merit-based selection procedures

or changed to contractor performance without the use of competitive

procedures for competitions among private and public sector entities. In

recent years DOD has sought relief from statutes DOD officials believe limit

their flexibility to contract out additional depot maintenance

workloads—including 10 U.S.C. 2466 and 2469 and other statutes affecting

competition and privatization.

Directions for Defense, the 1995 report of the Commission on Roles and

Missions, recommended that DOD privatize most existing depot

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maintenance work and all support for new and future weapon systems.1 In

his letter forwarding the Commission Report to Congress, the Secretary of

Defense agreed with the Commission’s recommendations but expressed a

need for DOD to retain a limited organic core capability to meet essential

wartime surge demands, promote competition, and sustain institutional

expertise. DOD established joint teams and working groups to plan and

direct efforts aimed at increasing privatization and outsourcing. DOD’s

January 1996 Plan for Increasing Depot Maintenance Privatization and

Outsourcing provides for substantially increasing reliance on the private

sector.

Section 311 of the National Defense Authorization Act for Fiscal Year 1996

reiterated long-standing congressional support for maintaining core

capabilities within DOD depots as essential to national security.2

 Congress

found that DOD did not have a comprehensive policy regarding the

performance of depot-level maintenance and repair and expressed a

compelling need for DOD to (1) articulate known and anticipated core

maintenance and repair requirements, (2) organize its resources to meet

those requirements economically and efficiently, and (3) determine what

work should be performed by the private sector and how such work

should be managed. Congress specified that DOD submit a policy report

that provides for properly sizing depot capabilities to meet security

requirements effectively and efficiently, competition between public and

private entities for noncore workload, and performance of maintenance

and repair for any new weapon systems defined as core in facilities owned

and operated by the United States.

Section 311 also required DOD to provide a workload distribution report

that included (1) an analysis of the need for 10 U.S.C. 2466—the 60/40 rule,

its effects on readiness and national security, and a description of specific

difficulties experienced by DOD as a result of that requirement; (2) an

analysis of the public-private distribution of depot maintenance and repair

workloads for fiscal years 1991 through 1995; and (3) a projection of the

public-private workload distribution for fiscal years 1997 through 2001.

1

The Commission was formed in accordance with section 954(b) of the National Defense Authorization

Act for Fiscal Year 1994. The Commission’s report was submitted to the DOD May 24, 1995. The

Secretary of Defense forwarded this report to Congress on August 24, 1995.

2

Core maintenance is the capability maintained within DOD depots to meet readiness and

sustainability requirements of the weapon systems that support the Joint Chiefs of Staff contingency

scenarios. Core exists to minimize operational risks and to guarantee required readiness for these

weapon systems. Core depot maintenance capabilities are intended to comprise only the minimum

essential facilities, equipment, and skilled personnel necessary to ensure a ready and controlled source

of required technical competence. Depot maintenance for the designated weapon systems have

historically been the primary workloads assigned to DOD depots to support core depot maintenance

capabilities.

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The act also required us to analyze and report to Congress on each of

these reports within 45 days of their submission. Our analysis of DOD’s

policy report is being provided separately.3

Results in Brief DOD generally complied with the section 311 requirements regarding

workload data, except that it did not provide direct labor hour data as

required by Congress. DOD stated that it does not collect labor hour

statistics from private contractors. However, our analysis of DOD’s

workload report shows that the use of more comprehensive and

consistent data would provide Congress and DOD decisionmakers a more

accurate picture of historical and future projections of depot maintenance

workload allocations between the public and private sectors. Without such

data, the reports are of limited use to Congress and defense

decisionmakers when considering public and private sector workload

allocation policy. Specifically:

• The 60/40 rule has not adversely affected military readiness. DOD’s

workload report primarily justifies eliminating the 60/40 rule on the

premise that the allocation is arbitrary and the restriction does not allow

the Department to operate in a business-like manner. Our work shows

that, with few exceptions, the 60/40 rule has not affected past

public-private workload allocation decisions. When DOD’s workload

allocation decision process determined that the most cost-effective source

of repair should be in the private sector, workloads were privatized.

However, if not repealed, the 60/40 rule would restrict DOD’s plans for

large-scale privatization. In this context, we believe any large-scale

privatization initiative will also require actions to resolve the excess

capacity problem that currently exists at defense depots. Also, a depot

maintenance privatization initiative that is cost-effective will require a

more competitive environment than exists today.

• The historical public-private depot workload data for fiscal years 1991 to

1995 presented in the workload distribution report includes in the public

sector workload share, the value of repair parts and services they

purchase from the private sector. Some of these parts are furnished to the

private sector as government-furnished material. Also, although requested

by Congress to report workload data in direct labor hours, the report does

not do so. DOD states that it does not collect such data from the private

sector.

3

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

(GAO/NSIAD-96-165, May 21,1996).

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• The report’s projections of public-private depot workloads for fiscal years

1997 to 2001 are not consistent and comparable to historical data. Like the

historical data, the future data includes in the public workload share the

repair parts and services DOD purchases from the private sector, including

those that are provided to private sector contractors as

government-furnished material. However, the future data does not include

certain types of private sector depot maintenance costs, including interim

contractor support and contractor logistics support, which are included in

the historical data. Projections of workload mix will be further affected by

risk assessments relating to repair workloads that are yet to be made. Our

report includes a matter for congressional consideration for improving the

methodology and process DOD uses to collect, analyze, and report depot

maintenance workload data for the public and private sectors.

Effects of the 60/40

Provision

DOD’s report questions the need for the 60/40 legislative rule (10 U.S.C.

2466) that limits the percentage of depot maintenance work performed in

the private sector. The report stated that the provision has influenced

DOD’s approach to depot maintenance management and cited various types

of privatization options that the rule has precluded. It noted that such

options could be more cost-effective. The report does not cite any

readiness effects, adverse or otherwise. If the 60/40 provision is repealed,

DOD’s policy preference for privatizing depot maintenance could result in a

large shift of work from the public to the private sector. Under current

conditions, a large shift to the private sector, if not properly managed,

could result in a more costly depot maintenance system and could

increase readiness risks. We found that (1) depot workload competition is

limited and privatization without competition may not achieve expected

savings, (2) privatization could increase public depot excess capacity and

increase depot maintenance costs, and (3) privatization of some

mission-essential workloads could increase readiness risks.

Readiness Not Seen as a

Problem

DOD’s workload distribution report did not cite any direct effects of the

60/40 provision on military readiness or national security. DOD officials

stated that there were no readiness concerns to report. However, the

report discussed potential costs and the need to downsize DOD’s Cold War

depot maintenance infrastructure. Further, the report noted that relief

from 10 U.S.C. 2466 would allow DOD to consider lower cost depot

maintenance options, such as establishing government-owned and

contractor-operated operations, outsourcing new systems, teaming with

industry, and using contract employees at DOD facilities.

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Section 311 also provided that the DOD report describe any specific

difficulties experienced as a result of the 60/40 provision. Although the

report indicated the section 2466 requirement has influenced the

Department’s approach to depot management for some time, it provided

no examples of particular instances when the 60/40 provision has inhibited

the Department from contracting out depot maintenance workload that it

wanted to privatize. We asked service officials to identify examples of this

situation, but only the Army was able to identify one. According to Army

officials, when DOD was conducting public-private competitions, one

planned Army aviation public-private competition was changed to a

public-public competition. This was done because of concern that if a

contractor won the competition, the resulting reallocation of Army

aviation maintenance would have violated the 60/40 rule for this particular

Army commodity, although not for the Army as a whole. This situation

caused the Army to discontinue public-private competitions for aviation

programs before DOD terminated the program.

DOD officials noted that they have not experienced negative effects on

military readiness resulting from 60/40. Further, DOD depots historically

have produced high-quality work and have been responsive to the needs of

military commanders. The issue is whether, as DOD reported, the 60/40

provision limited the Department’s flexibility to move depot maintenance

workloads to the private sector, where contractor maintenance can be

more cost-effective.

Management Flexibility Is

the Key Concern

DOD’s workload distribution report emphasized that DOD needs the

flexibility to make source of repair decisions without being constrained by

mandated limits. However, DOD officials acknowledged that given the

current methodology for computing public-private workload mix, the

services have some latitude to contract out additional depot maintenance

work without breaching the 40-percent threshold for almost all services

and commodities. Using the 60/40 rule and the current methodology for

developing the mix for fiscal year 1996, we estimate that the Air Force can

contract out additional workloads valued at $559 million, the Army

$69 million, the Marine Corps $40 million, the naval aviation community

$33 million, and the naval ship community $223 million. As discussed later

in our report, we are concerned that the current methodology for

computing the public-private workload mix overstates the public sector’s

share and understates the private sector’s share.

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DOD’s workload report states that relief from the 60/40 rule is needed to

permit a shift in the workload mix to the private sector and that the

Department has developed a reasonable, quantitative approach for

identifying the need for and size of required organic core capabilities.

However, as discussed in our companion report analyzing DOD’s depot

maintenance policy report, DOD’s new core methodology is based on

subjective judgments of risks—the procedures and criteria for which have

not yet been established. Further, DOD’s depot maintenance policy limits

DOD depots from competing with the private sector for noncore workloads,

even though the current DOD depot market is not highly competitive, which

limits the potential for privatization savings. Lastly, DOD depots that will

remain open after completion of depot closures directed by previous Base

Realignment and Closure processes, have substantial excess capacity—a

factor that also reduces potential cost-saving opportunities resulting from

large-scale privatizations.

Current Depot

Maintenance Market Is Not

Highly Competitive

Although DOD’s workload distribution report stated that privatization

would lower depot maintenance costs, DOD offered no documentation to

show that its plans to rapidly increase the private sector’s share of depot

maintenance workload will be cost-effective. Our work has found that

privatization savings result primarily from market place competition and

that such an environment does not currently exist for many depot

maintenance workloads.

While the DOD policy discusses competition for depot maintenance work,

we found that the actual contracting environment for most types of

equipment is largely noncompetitive. We asked 12 DOD buying commands

to identify depot maintenance contracts that were open during 1995. They

identified 8,452 contracts valued at $7.3 billion. We selected 

240 high-dollar value contracts valued at $4.3 billion to analyze the

commands’ use of competitive procedures for the contracted workloads.

Table 1 shows the results of our analysis.

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Table 1: Procedures for Contract Award (dollars in billions)

Full and open Limiteda Sole source Total awards

Competition

Service command Number Value Number Value Number Value Number Value

Army 10 $.578 3 $0.017 43 $0.538 56 $1.133

Air Force 37 1.348 1 0.100 60 0.900 98 2.348

Navy 2 0.286 5 0.048 79 0.518 86 0.852

Total 49 $2.212 9 $0.165 182 $1.956 240 $4.333

aLimited competition refers to those that are conducted using other than full and open

competition.

As shown, the 12 buying commands awarded 182, or 76 percent, of the

contracts through sole-source negotiation; 49, or 20 percent, through full

and open competition; and 9, or 4 percent, through limited competition.

The 49 fully competitive awards accounted for about 51 percent of the

total dollar value, while the 182 sole-source contracts accounted for about

45 percent of the dollar value.

In reviewing the number of offerors for the 49 contracts valued at 

$2.2 billion that were awarded through full and open competition, we

found that the commands averaged 3.6 offers for the 49 contracts—

ranging from a low of only 2 offers to a high of 10. For 30 of the

49 contracts—about 86 percent of the $2.2 billion—the number of offers

was 4 or less. Five contracts valued at $525.8 million had only 2 offers,

while only 19 contracts valued at $309.4 million had 5 or more offers.

A large portion of the dollar value of the contracts went to 71 contractors.

Of these 71 contractors, 13 had about 76 percent of the $4.3 billion. Three

of these 13 contractors had workload valued at $1.3 billion—30 percent of

the $4.3 billion.

The private sector market was more competitive for certain types of

systems and equipment than for others. For example, competitive awards

were more frequent for repair of ground vehicles, trucks, airframes,

engines, and other items while sole-source contracts were prevalent for

fire control systems, communications and radar equipment, electronic

components, and other components. We noted that one buying activity

that obligates about $180 million per year for depot maintenance contracts

for repair of ship components used sole-source contracts 100 percent of

the time—with many of the awards based on cost-type contracts. Officials

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said they did not have the technical data, technical manpower, or

contracting skills to use competitive contracting. Additionally, officials

noted that the process for qualifying repair sources is difficult and

time-consuming.

We also analyzed the impact of other conditions on competition. DOD

buying commands reported that not having access to required technical

data and their inability to precisely define the repair work that must be

done frequently influenced their using sole-source repair contracts. The

buying commands reported that adequately defining the types of depot

maintenance tasks required to complete any given repair or overhaul

presents a difficult challenge. For much of the depot maintenance work,

specific tasks that must be done, spare and repair parts that will be

required, and the type and skill level of the labor required cannot be

identified until the equipment or component is inducted into the repair

facility for inspection and repair. Our review of depot maintenance

contracts showed the difficulty in constraining cost growth in this

environment—particularly when cost-type contracts are used. It also

showed the large costs normally associated with drafting statements of

work, conducting the competitions, and administering the contracts. DOD

officials stated that because of these difficulties, DOD depots can often

perform depot maintenance work more cost-effectively than contractors.

For example, DOD buying commands sometimes used both DOD depots and

private sector repair sources for repairing a limited number of items. To

compare prices, we looked at 414 items that both sectors maintained. For

62 percent of the items, the contractor’s repair price was higher than the

DOD depot’s price for the same item. Further, our review of DOD’s

public-private competition program showed that DOD depots won

67 percent of the nonship competitions.

Given the influence that competition has on the potential for savings when

outsourcing DOD work, achieving savings from contracting out depot

maintenance workloads will require significant changes in the way the

Department manages its contract workload. However, given that the DOD

policy proposes using a contractor logistic support model for depot

maintenance and that this model has historically involved sole-source

contracting to the original equipment manufacturer, it is unclear that

large-scale contracting will get the savings DOD states it expects to achieve.

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DOD Depot System Has

Large Excess Capacity

Another factor that must be considered when assessing the 60/40 rule is

the excess capacity that exists in DOD’s depot system. A combination of

factors created the extensive excess capacity in the DOD depot system.

These factors include (1) the downsizing of the armed forces due to the

end of the Cold War; (2) efforts by some DOD components to conduct more

repairs in field-level maintenance activities; (3) contracting out more

depot work to the private sector; and (4) the increased reliability,

maintainability, and durability of most military systems and equipment.

While depot maintenance personnel have been reduced by 43 percent

since 1987, similar depot infrastructure reductions have not been made.

DOD’s depot system had 40 percent excess capacity for fiscal year 1996,

based on an analysis of maximum potential capacity and programmed

workload as the basis for comparison and assuming a 5-day week, one

8-hour-per-day shift operation. The excess capacity varied in each service,

from a low of 33 percent in naval aviation, to 35 percent for naval

shipyards, 42 percent for the Army, and a high of 45 percent for the Air

Force. Some initiatives have been used in recent years to reduce some of

DOD’s excess capacity. These initiatives include consolidating workloads,

implementing competition between government depots and the private

sector, mothballing depot plant equipment, and tearing down unused

buildings or converting them to other military uses. However, depot

downsizing has largely occurred through the Base Realignment and

Closure process.

Fifteen depots have closed or are in the process of being closed as a result

of base closure decisions.4

 Although this will eliminate some excess

capacity, privatization-in-place rather than closure and consolidation of

workloads in remaining depots has been proposed for seven depots.

Privatization-in-place will result in privatizing excess capacity rather than

eliminating it. We are reporting separately on in-place privatizations.

Reported Historical

Workloads Could Be

More Comprehensive

Section 311 did not provide specific guidance on data to be included in the

workload reports. The data reported in DOD’s historical public-private

workloads for fiscal years 1991 through 1993 were extracted from data

collected by the Defense Science Board. This data collection included the

value of parts and services the depots purchase from the private sector as

public sector costs. Some of these repair parts were provided to private

sector contractors as government-furnished material and should have

4

Additionally, the Red River Army Depot, which is being realigned rather than closed, is not included in

this number.

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been reported as costs of contractor maintenance. Additionally, repair

contracts awarded by DOD depots were included as public depot

maintenance costs rather than private sector maintenance costs and some

contractor depot maintenance costs for classified systems were not

included in the private sector data. The services followed a similar

approach for fiscal years 1994 and 1995. These conditions resulted in

overstating the public sector’s reported share of depot maintenance

workload and understating the private sector’s share. Reporting workload

in direct labor hours would provide a more accurate picture of workload

mix in that it would address the repair parts problem. Section 311 of the

Authorization Act specified that, in addition to dollar values, DOD should

report workload mix in direct labor hours. However, DOD’s report did not

include such data. DOD officials stated that they do not collect direct labor

hour data from commercial contractors and could not provide such data

or provide a reasonable labor hour comparison estimate.

In 1994, we testified about our concern that repair parts and materials,

maintenance and engineering services, and other goods and services

procured from the private sector were included in the public sector’s

depot maintenance funding.5

 Additionally, the costs associated with

private contractors did not include maintenance costs for some classified

systems. Further, the cost for parts and materials that were provided to

contractors as government-furnished material were included as public

sector rather than private sector costs. In quantifying the impact of these

factors, we noted that in 1994 about $437 million of the $1.2 billion

expended by Army depots in fiscal year 1993—about 31 percent—went to

the private sector. About 21 percent of the dollars expended by the Army

depots went to buy parts and material and about 10 percent for other

goods and services. If these expenditures were added to the amount of

depot maintenance funds spent directly in the private sector, we estimated

that about 58 percent of the Army’s depot maintenance budget was spent

at that time in the private sector. We identified similar results in the Navy

and the Air Force. Further, we found that a Defense Science Board Task

Force Report estimated that the public-private ratio becomes nearly 50-50

when dollars spent at DOD depots for parts and components—but

purchased from the private sector—are included as part of the private

sector’s share. If included, other goods and services procured from the

private sector would increase the private sector’s share above 50 percent.

5

Depot Maintenance: Issues in Allocating Workload Between the Public and Private Sectors

(GAO/T-NSIAD-94-161, Apr. 12, 1994).

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Data Reported in

Historical Workloads

Excluded From

Future Projections

Like the historical data provided for fiscal years 1991 through 1995, the

future workload projections for fiscal years 1997 through 2001 also

overstate the public sector’s share by the treatment of funding for repair

parts and subcontracts to the private sector and understate the private

sector’s share by including the funding of government-furnished material

in the public sector’s share and by not including in the private sector share

the costs of contract depot maintenance for some classified systems and

the cost of contracts awarded by DOD depots for maintenance and repair

services. The future projections further understate the private sector share

by not including maintenance costs for interim contractor support and

contractor logistics support—although these costs were included in the

historical analysis. DOD officials noted that section 311 did not provide

specific guidance on what data should be included in the reports. The

reported projected workload data could be further understating the

private share since it reflects only preliminary calculations of revised core

requirements. Since the services do not have an approved methodology for

conducting repair base assessments or risk analyses, they have not yet

conducted these assessments. Therefore, it is not possible to determine

how much of the existing DOD depot workload may be privatized. Our

companion report analyzing DOD’s report, Policy Regarding Performance of

Depot-Level Maintenance and Repair, discusses this issue further. After

the risk assessments are completed, additional workloads will likely be

privatized. However, the precise amounts cannot be estimated.

Reported Workload

Projections Exclude Some

Contracted Workloads

DOD’s future workload projections exclude funding for two categories of

contractor maintenance activities, interim contractor support and

contractor logistics support, that are included in the historical data.

Although the services included funding for these categories in the fiscal

years 1997 through 2001 data they forwarded to the Office of the Secretary

of Defense (OSD), the decision was made to exclude this information from

the projected workload report. Officials stated that congressional

direction was not specific regarding what should be included. We noted

that for the Air Force, which has considerably more contractor

maintenance in these categories than the other services, including these

categories would significantly limit the Air Force’s ability to implement

planned privatization initiatives if 60/40 is not repealed. It would have little

impact in the other services. Nonetheless, as a result of the exclusion of

interim contractor support and contractor logistics support from the

projected workloads, the historical and future workload data are not

directly comparable.

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Appendix I shows adjusted future workload data that includes interim

contractor support and contractor logistics support funding projections as

contractor costs. The percentage split between public and private for

fiscal year 1997 is 60/40 when these contractor maintenance categories are

included compared to DOD’s reported 64/36. In 2001, the workload going to

the private sector would increase to 53 percent from the reported

50 percent. The impact of these two categories of contractor maintenance

would be far more significant on the Air Force, altering its projections of

public-private sector mix in 2001 from 46/54 to 40/60. We asked DOD

officials about the reliability of the data reported for interim contractor

support and contractor logistics support. They stated that these estimates

are probably understated to some extent since some costs are covered in

weapon system program costs and are not readily available.

Also as part of our analysis of DOD’s workload data, we noted that the

Marine Corps included several categories of contractor maintenance in the

future workload projections that it did not include in the historical data.

Consequently, a comparison of the Marine Corps’ historical and future

data gives the impression that the Marine Corps will significantly increase

its contractor maintenance. However, when we adjusted the data to make

it comparable, the historical and future data are relatively consistent.

Reported Workload

Projections Will Likely

Change

In January 1996, the services were directed by OSD to submit two views of

their estimated depot maintenance workload distribution projections. The

first view of the future workload distribution projection was to show the

actual fiscal year 1995 results and projected workload distributions for

fiscal years 1996 through 2001 based on the services’ existing assessment

of core requirements. The second was to show a revised projection of

fiscal year 1996 through 2001 workloads based on the recomputation of

core using a revised core methodology and an assumption that all noncore

workload would be privatized. The revised methodology includes a risk

assessment of mission-essential workloads previously defined as core to

determine if they can be outsourced. For the most part, the services were

not able to complete the assessments for the second requirement.

With the exception of the naval ship community, the services have not

completed calculations of their core requirements using their new

methodology. They are only now beginning to conduct risk assessments of

critical workloads to determine which ones can be contracted out to the

private sector with an acceptable risk. Until the services conduct these

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assessments, it is uncertain what workloads DOD will move to the private

sector.

Air Force The public-private sector mix in 2001 for the Air Force is projected to be

46/54, if interim contractor support and contractor logistics support costs

of $524 million are excluded as contractor maintenance. The Air Force

public-private mix for 2001, including these additional contractor

maintenance costs is 40/60.

The Air Force data shows a 57-percent increase in contract depot

maintenance, representing a projected $723 million increase between 1997

and 2001. The Air Force’s projections of future workload distribution used

the fiscal year 1997 core computation as its base. The Air Force workload

projections assumed that all workloads from the three closing Air Force

depots will be privatized, except for workload expected to be transferred

to an Army depot. These projections show no additional privatizations

would likely result from future risk analyses. Further, they do not reflect

significant new system workloads. Most of the Air Force’s major new

system acquisitions will be managed under interim contractor support or

contractor logistics support during this time period. As previously

reported, these expenditures are not included in the reported workload

projections.

The Air Force’s calculation of its fiscal year 1997 core is 25.5 million direct

labor hours, down from 27.7 million direct labor hours calculated for fiscal

year 1994. The Air Force’s projection of future depot maintenance

workload distribution was based on the following assumptions:

• privatization-in-place of depot maintenance and metrology and calibration

workloads at the Aerospace Guidance and Metrology Center (fiscal year

1996);

• privatization of five prototype workloads, including hydraulics, electronic

accessories, software, C-5 paint/depaint, and fuel accessories at San

Antonio and Sacramento Air Logistics Centers (fiscal year 1997);

• privatization of remaining San Antonio and Sacramento depot

maintenance workloads by 2001, when these activities are to be closed as

government depots; and

• establishment of joint venture private sector partnerships at Warner

Robins and Oklahoma City Air Logistics Centers (fiscal years 1998 through

2001).

Page 14 GAO/NSIAD-96-166 Defense Depot Maintenance
B-272043 

Army Using the data provided in the workload report, the public-private sector

mix in 2001 is projected to be 56/44 for the Army. The Army workload data

shows a 28-percent increase in contract depot maintenance, which

represents a projected $111-million increase between 1997 and 2001. When

including $72 million for interim contractor support and contractor

logistics support, the Army public-private mix for 2001 is 53/47.

In projecting public-private workload distribution, the Army recomputed

its core capability requirements, slightly reducing its previous depot

maintenance core requirements to support the two-major regional

contingency scenario. The Army did not use the revised methodology to

determine if any mission-essential workloads previously identified as core

could be privatized. Instead, top-level Army managers met and approved

plans to change the status of some workloads previously identified as core

to noncore—thereby allowing these workloads to be privatized over the

next few years. This reduced the Army’s core workload requirement by

about 3.4 million direct labor hours.

The Army, in developing its projected workload distribution, made the

following assumptions:

• All the missile work at Letterkenny Army Depot would be privatized by

creating a government-owned, contractor-operated missile facility and a

government-owned, contractor-operated Paladin operation.6

• All troop support vehicles and trucks currently repaired at the Red River

Army Depot would be privatized and a public-private partnership

arrangement would be created to support the Bradley Fighting Vehicle

system core workload.

• Noncore small arms workload currently repaired at the Anniston Army

Depot would be privatized, and partnership agreements would be

established with private sector firms for combat vehicles and artillery

support.

• Repair work on the OH-58D and CH-47D helicopters currently repaired at

the Corpus Christi Army Depot would be privatized, if the peacetime

workload requirements for the Apache and Blackhawk helicopters equal

or exceed core.

Marine Corps Using the data provided in the workload report, the public-private sector

mix in 2001 for the Marine Corps is projected to be 81/19. The Marine

Corps data shows a $12-million decline in the amount of contract depot

6

We are currently reviewing privatization-in-place options being considered for Army depots and plan

to issue a report on this work at a later date.

Page 15 GAO/NSIAD-96-166 Defense Depot Maintenance
B-272043 

maintenance workload between 1997 and 2001, when the Marine Corps

data is normalized by taking out contract data included in the future data,

but not in the historical data. The Marine Corps public-private mix for 2001

using corrected data is 95/05.

Marine Corps officials stated that its depot maintenance core requirements

will not significantly change over the 5-year period. Further, officials noted

that because of the small quantities and irregular and varied nature of

workloads maintained in its depots, it is usually not cost-effective to

privatize noncore workloads. Although some future privatization

initiatives are under consideration, since they have not yet been studied

for feasibility and interest, they were not factored into the Marine Corps’

workload distribution analysis. The potential Marine Corps privatization

initiatives are the paint booth and blast booth facilities on both Marine

Corps ground system depots, outsourcing disassembly functions of certain

commodity lines, and developing a partnership with the private sector for

the amphibious assault vehicle hull rework.

Naval Ships Using the data provided in the workload report, the public-private sector

mix in 2001 is projected to be 48/52 for naval ships. The $8 million

reported for interim contractor support and contractor logistics support is

not large enough to affect the workload mix for ships. The naval shipyard

workload data shows a 70-percent increase in contract work between 1997

and 2001, a projected $797-million increase in privatized work. The growth

in contracted ship workload will result from the closure of four naval

shipyards, which will eliminate the two DOD shipyards that only performed

nonnuclear work.

Only the Naval Sea Systems Command has completed its 1996 core

determination, including risk assessments. The Command calculated its

revised ship repair core as 23.3 million direct labor hours, down

16.5 million from 39.8 million in fiscal year 1994. In revising its core

computation, it used the same risk analysis process as in fiscal year 1994,

which was based on the following three risk factors:

• the absence of an assured competitive private sector source of depot-level

maintenance and modernization;

• scenario numerical requirements in relation to total ship-class inventory

(number of ships in class compared with scenario requirement); and

• unique maintenance requirement, including large deck ship drydocking

and maintenance, complex combatant modernization and depot-level

Page 16 GAO/NSIAD-96-166 Defense Depot Maintenance
B-272043 

maintenance, nuclear ship defueling or refueling, maintenance and

modernization engineering, and battle damage repair.

Each class containing ships specified by the Joint Chiefs of Staff

contingency scenarios was evaluated on the basis of the above risk

factors. If there were no risk factors present, the ship class was classified

as low risk and considered noncore. If one or two risk factors were

present, the class was considered moderate and could be considered core

or noncore. If all three risk factors were present, the class was placed in

the high-risk category and considered core. These ships are assigned to

the public or private sector on the basis of assured capability. Naval

shipyards were assigned 43 scenario ships as core, while private shipyards

were assigned 148 scenario ships on the basis of assured capability.

The results of the revised risk assessment were the same as the results in

1994. However, to better reflect workload schedule realities, such as

homeporting issues and split work packages on aircraft carriers, the

closure or planned closure of 4 naval shipyards, and the planned

deactivation of four ballistic missile submarines, Navy officials said that

they reduced the 1994 requirement by 11 ships. This reduction includes the

planned deactivations of the four ballistic missile submarines and seven

ships that will move from pre-risk core to mission-essential but noncore in

the private sector—two ballistic missile submarines, two aircraft carriers,

two amphibious ships, and one surface combatant.

Naval Aviation Using the data provided in the workload report, the public-private sector

mix in 2001 is projected to be 55/45 for naval aviation. Adjusting the

private sector to account for the projected $26 million interim contractor

support and contractor logistics support program would change the mix to

54/46. The naval aviation workload data shows a $62-million decline in

projected contract workload between 1997 and 2001, and a $120-million

decline in projected DOD depot workload over this period.

The Naval Aviation Systems Command did not use the revised core

methodology when calculating its core requirements. Accordingly, the

computation did not change from the 13-million direct labor hour

requirement previously identified. Navy officials stated that a contractor is

helping to develop a risk assessment methodology, but this has not yet

been completed. When a methodology is approved and risk assessments

are completed for core workloads, the Navy’s core requirements will be

revised.

Page 17 GAO/NSIAD-96-166 Defense Depot Maintenance
B-272043 

Given the current status of its reassessment, the revised projected

workload distribution for naval aviation was developed using the

assumption that workload valued at $184 million that had been identified

as noncore using the old criteria would be privatized. This workload

includes various engine overhauls; modifications and upgrades on the F-14

aircraft; maintenance work on missiles, components, ground support

equipment, gear boxes, and torque meters; and scheduled depot-level

maintenance on various aircraft. According to Navy officials, a significant

portion of this work is currently interserviced to other service depots.

Naval Warfare Centers Additionally, the Navy is also privatizing-in-place the Naval Surface

Warfare Center, Crane Division Detachment, Louisville, Kentucky, and

Naval Air Warfare Center, Aircraft Division, Indianapolis, Indiana. The

Louisville privatization involves sole-source awards to two original

equipment manufacturers. The Navy expects to award these contracts in

July 1996. The Indianapolis privatization is expected in 1997.

Matters for

Congressional

Consideration

More comprehensive and consistent workload data would improve

congressional oversight of the allocation of workload between the public

and private sectors. Congress may wish to consider providing specific

guidance to DOD regarding how depot maintenance data should be

collected, analyzed, and reported to reflect the balance of workload

between DOD depots and the private sector. More specifically, Congress

may wish to require that (1) all contractor maintenance categories be

included, regardless of the funding source or security classification of the

systems, (2) repair parts be appropriately categorized or excluded, and

(3) local purchases of maintenance and repair services be allocated to the

private sector’s share.

Agency Comments DOD officials commented orally on a draft of this report. The officials were

concerned that the report’s discussion of reported workload data implied

that DOD had not complied with the guidance contained in section 311 of

the Authorization Act. They noted that the act did not provide specific

guidance on the data to be included in the report and that the DOD

workload report noted that certain logistic support data was not included

in the workload projections. The officials also noted that the report’s

treatment of public depot purchases of repair parts and services from the

private sector is consistent with how DOD has historically reported the

data. We revised the report to make it clear that our concerns with the

reported data were not implying noncompliance with the section 311

Page 18 GAO/NSIAD-96-166 Defense Depot Maintenance
B-272043 

reporting requirement. We also deleted one draft recommendation that

DOD change its methodology for reporting workload data and added

matters for congressional consideration that address this issue. With the

above exceptions and a few technical corrections, DOD officials stated that

they did not disagree with the data presented in our report.

Scope and

Methodology

We reviewed DOD’s Depot-Level Maintenance and Repair Workload Report,

which DOD submitted to Congress April 4, 1996. We compared the DOD data

and commentary with the requirements cited in section 311 of the National

Defense Authorization Act for Fiscal Year 1996. From each military service

and OSD, we obtained back-up data and discussed privatization initiatives.

We also drew extensively from information gathered in our related

reviews of depot maintenance, including privatization-in-place, closing

depots, public-private competitions, and depot maintenance contracting.

We interviewed officials and examined documents at OSD, the Army, the

Navy, the Marine Corps, and the Air Force headquarters, Washington, D.C.;

Army Materiel Command, Alexandria, Virginia; Naval Air Systems

Command, Arlington, Virginia; Marine Corps’ Logistics Plan and Strategic

Mobility Division, Arlington, Virginia; Naval Sea Systems Command,

Arlington, Virginia; Air Force Materiel Command, Dayton, Ohio; Army

Industrial Operations Command, Rock Island, Illinois; Naval Aviation

Depot, Jacksonville, Florida; Ogden Air Logistics Center, Ogden, Utah;

Oklahoma City Air Logistics Center, Oklahoma City, Oklahoma; and

Warner Robins Air Logistics Center, Warner Robins, Georgia.

We conducted our review from February to May 1996 in accordance with

generally accepted government auditing standards. We discussed our draft

report with agency officials and included their comments where

appropriate.

We are sending copies of this report to the Chairmen and Ranking

Minority Members, House and Senate Committees on Appropriations, the

Page 19 GAO/NSIAD-96-166 Defense Depot Maintenance
B-272043 

Senate Committee on Governmental Affairs, and the House Committee on

Government Reform and Oversight; the Secretaries of Defense, the Army,

the Navy, and the Air Force; and the Director, Office of Management and

Budget. Please contact me at (202) 512-8412 if you have any questions.

Major contributors to this report are listed in appendix II.

David R. Warren

Director, Defense Management Issues

Page 20 GAO/NSIAD-96-166 Defense Depot Maintenance
Page 21 GAO/NSIAD-96-166 Defense Depot Maintenance
Appendix I 

Services’ Projected Workload Including

Interim Contractor Support/Contractor

Logistics Support

Constant Fiscal Year 1996 (dollars in millions)

Army

Air

Force Navy

Marine

Corps DOD

Fiscal year 1997

Total workload (including ICS/CLS)a $1,329 $4,261 $5,338 $213 $11,141

Public 872 2,421 3,223 163 6,679

Private 398 1,279 2,089 50 3,816

ICS/CLSa 59 561 26 0 646

Total private $457 $1,840 $2,115 $50 $4,462

Public-private mix (percent) 66/34 57/43 60/40 77/23 60/40

Fiscal year 1998

Total workload (including ICS/CLS)a $1,225 $4,202 $5,316 $186 $10,929

Public 678 2,054 3,115 152 5,999

Private 494 1,549 2,173 34 4,250

ICS/CLSa 53 598 28 0 679

Total private $547 $2,147 $2,201 $34 $4,929

Public-private mix (percent) 55/45 49/51 59/41 82/18 55/45

Fiscal year 1999

Total workload (including ICS/CLS)a $1,314 $4,341 $5,754 $187 $11,596

Public 729 1,834 2,983 147 5,693

Private 520 1,930 2,740 39 5,229

ICS/CLSa 65 577 31 0 673

Total private $585 $2,507 $2,771 $39 $5,902

Public-private mix (percent) 55/45 42/58 52/48 79/21 49/51

Fiscal year 2000

Total workload (including ICS/CLS)a $1,266 $4,378 $6,060 $187 $11,891

Public 669 1,755 3,184 144 5,752

Private 529 2,060 2,842 43 5,474

ICS/CLSa 68 563 34 0 665

Total private $597 $2,623 $2,876 $43 $6,139

Public-private mix (percent) 53/47 40/60 53/47 77/23 48/52

Fiscal year 2001

Total workload (including ICS/CLS)a $1,238 $4,236 $5,628 $186 $11,287

Public 657 1,710 2,788 151 5,306

Private 509 2,002 2,806 35 5,352

ICS/CLSa 72 524 34 0 630

Total private $581 $2,526 $2,840 $35 $5,982

Public-private mix (percent) 53/47 40/60 50/50 81/19 47/53

aInterim Contractor Support/Contractor Logistics Support.

Page 22 GAO/NSIAD-96-166 Defense Depot Maintenance
Appendix II 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

James Wiggins, Associate Director

Julia Denman, Assistant Director

Marilyn Wasleski, Evaluator-in-Charge

Glenn Knoepfle, Senior Evaluator

Gregory Harmon, Evaluator

Edward Waytel, Senior Evaluator

Office of General

Counsel, Washington,

D.C.

John Brosnan, Assistant General Counsel

Chicago Field Office Bruce Fairbairn, Senior Evaluator

Los Angeles Field

Office

Dennis DeHart, Senior Evaluator

Jean Orland, Evaluator

Atlanta Field Office Bobby Worrell, Senior Evaluator

(709187) Page 23 GAO/NSIAD-96-166 Defense Depot Maintenance
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