Contract Management: Service Contract Approach to Aircraft Simulator Training Has Room for Improvement
Published: 2006-09-22T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Air Force has turned to service contracts for the F-15C, F-16, Airborne Warning and Control System, and F-15E, and the Army has done the same for helicopter simulator training at its Flight School XXI. The contractors own, operate, and maintain the simulator hardware and software. The military services rely on industry to capitalize the required up-front investment, with the understanding that the contractors will amortize this investment by selling training services by the hour. GAO was asked to address (1) the factors that led the Air Force and Army to acquire simulator training as a service and whether the decision to use this approach was adequately supported; (2) whether implementation of the approach has resulted in the planned number of simulator training sites being activated; and (3) whether the Air Force and Army are effectively tracking the return on their expenditure of taxpayer dollars. GAO makes recommendations to the Secretary of Defense intended to improve management and oversight of these service contracts to help ensure that the best approach is used to provide the war-fighter with needed training. In written comments on a draft of this report, DOD concurred with all but one of the recommendations, only partially concurring with one pertaining to the Army's simulator utilization rates. GAO continues to believe that the Army needs to track the extent to which it is using simulator availability.
section_title: What GAO Found
paragraphs: The Air Force and Army turned to service contracts for simulator training primarily because efforts to modernize existing simulator hardware and software had lost out in the competition for procurement funds. As a result, the simulators were becoming increasingly obsolete. Buying training as a service meant that operation and maintenance (O&M) funds could be used instead of procurement funds. Shifting the responsibility for simulator ownership, operation, and maintenance from the government to the contractor was thought to more quickly enable simulator upgrades to match the changing configurations of aircraft. However, the decision to take a service contract approach was not supported by a thorough analysis of the costs and benefits as compared to other alternatives, despite a Department of Defense directive that provided for such an analysis. While Air Force and Army officials told GAO the new simulators are significant improvements over the previous ones, the expected number of Air Force training sites have not been activated. For the Air Force, O&M funds have not been allocated at the anticipated levels, leading to schedule slippages. The F-16 simulator contractor cited the funding problems and subsequent schedule slippages as the basis for notifying the Air Force that its situation under the contract was no longer financially viable. The Air Force is in the process of re-competing the F-16 training contract, which will likely result in a training gap for pilots--possibly over 2 years--and additional costs to the Air Force. The start date of the Army's flight simulator training was rebaselined twice, but Army officials told us that adequate training was in place for the flight school participants. The return on expenditure of taxpayer dollars is not being effectively tracked in three key ways: Air Force utilization of simulator training frequently falls well below the hours for which the government is paying. The Army is not collecting data on utilization rates at all. The government has little insight into what it is paying for during the development period before training is activated, which can take more than a year. While invoices for preparatory efforts reflect only discrete tasks such as training capabilities assessments, the wide range of invoice amounts and GAO's discussions with contractor representatives suggest that the government is actually making milestone payments to the contractors for a portion of their up-front costs to acquire and develop the simulators. Most of the contracts contain award-term provisions, where the contractors can earn an extension of the contract period for good performance. GAO found that the award-term evaluation factors do not always measure key acquisition outcomes such as simulator availability and concurrency with aircraft upgrades.

section_title: Letter
paragraphs: In the late 1990s, the Air Force embarked upon an innovative strategy for  In the late 1990s, the Air Force embarked upon an innovative strategy for  acquiring flight simulator training for several of its aircraft platforms.  acquiring flight simulator training for several of its aircraft platforms.  Faced with increasingly obsolete simulators and growing competition for  Faced with increasingly obsolete simulators and growing competition for  procurement dollars, the Air Force decided to buy simulator services from  procurement dollars, the Air Force decided to buy simulator services from  contractors—using operation and maintenance (O&M) funds—rather than  contractors—using operation and maintenance (O&M) funds—rather than  continue the practice of having the government own and operate the  continue the practice of having the government own and operate the  simulators. This strategy was the beginning of an approach to war-fighting,  simulators. This strategy was the beginning of an approach to war-fighting,  known as Distributed Mission Operations (DMO), in which high-fidelity  known as Distributed Mission Operations (DMO), in which high-fidelity  simulators would be used for training across dispersed locations. The  simulators would be used for training across dispersed locations. The  initial platforms included in the DMO program were the F-15C, F-16,  initial platforms included in the DMO program were the F-15C, F-16,  Airborne Warning and Control System (AWACS), and F-15E. In 2003, the  Airborne Warning and Control System (AWACS), and F-15E. In 2003, the  Army followed the Air Force lead and awarded a service contract to obtain  Army followed the Air Force lead and awarded a service contract to obtain  simulator training for the helicopters in its Flight School XXI program. The  simulator training for the helicopters in its Flight School XXI program. The  estimated value of the Air Force and Army contracts is nearly $2 billion. A  estimated value of the Air Force and Army contracts is nearly $2 billion. A  key aspect of the service contract approach is the increased reliance on  key aspect of the service contract approach is the increased reliance on  contractors to keep the simulators concurrent with aircraft upgrades and  contractors to keep the simulators concurrent with aircraft upgrades and  ensure they are available for use.  ensure they are available for use.
At your request, we addressed (1) the factors that led the Air Force and  At your request, we addressed (1) the factors that led the Air Force and  Army to acquire simulator training as a service and whether the decision  Army to acquire simulator training as a service and whether the decision  to use this approach was adequately supported, (2) whether  to use this approach was adequately supported, (2) whether  implementation of this approach has resulted in the planned number of  implementation of this approach has resulted in the planned number of  simulator training sites being activated, and (3) whether the Air Force and  simulator training sites being activated, and (3) whether the Air Force and  Army are effectively tracking the return on their expenditure of taxpayer  Army are effectively tracking the return on their expenditure of taxpayer  dollars.  dollars.
To address these objectives, we interviewed Air Force and Army officials,  To address these objectives, we interviewed Air Force and Army officials,  as well as contractor representatives; performed a detailed analysis of the  as well as contractor representatives; performed a detailed analysis of the  Air Force and Army service contracts; reviewed contractor performance  Air Force and Army service contracts; reviewed contractor performance  measurements, annual evaluations, and payment invoices; and analyzed  measurements, annual evaluations, and payment invoices; and analyzed  historical documents such as acquisition plans, briefings, and decision  historical documents such as acquisition plans, briefings, and decision  memorandums. We visited Langley Air Force Base (AFB), Virginia, to view  memorandums. We visited Langley Air Force Base (AFB), Virginia, to view  F-15C simulator training; Shaw AFB, South Carolina, to view F-16 training;  and the U. S. Army Aviation Center, Fort Rucker, Alabama to view the use  of Flight School XXI training helicopters (TH), the TH-67 Virtual  Simulators and the Blackhawk and Chinook simulators. At each of these  installations, we met with military officials and the contractor officials  responsible for the training simulators. See appendix I for additional  details on our scope and methodology. We performed our review from  September 2005 to July 2006 in accordance with generally accepted  government auditing standards.
subsections: section_title: Background
paragraphs: Air Force and Army cite the increasingly complex training requirements  needed to prepare for the ever more lethal battlefield environment as a  factor that has led to greater reliance on flight simulators. A flight  simulator is a system that tries to realistically replicate, or simulate, the  experience of flying an aircraft. Flight simulators range from video games  to full-sized cockpit replicas mounted on hydraulic (or electromechanical)  actuators and controlled by state-of-the-art computer technology.  According to Air Force and Army officials, aircraft simulators are a cost- effective way of helping to develop and refine operational flight skills.  Simulators can facilitate training that might be impractical or unsafe if  done with actual systems and allow for concentrated pilot practice in  selected normal and emergency actions. Simulators also can train  operators and maintainers to diagnose and address possible equipment  faults, and enhance proficiency despite shortages of equipment, space,  ranges, or time.
In the late 1990s, the Air Force and Army were faced with increasingly  obsolete simulators and the need to quickly acquire up-to-date pilot and  aircrew training. In 1997, the then-Commander of the Air Force’s Air  Combat Command proposed an innovative approach of buying training as  a service, under which the contractors would own, operate, and maintain  the simulator hardware and software. The simulator service contracts are  one component of a much broader effort, now known as the DMO  program. The DMO goal is to provide state-of-the-art simulator training on- demand at the location of the trainee, with the ultimate vision of  networking different sites together to create more realistic flying  scenarios. Plans call for each fighter unit eventually to be equipped with  high-fidelity simulators. As of the fiscal year 2002 budget, the DMO  program was formalized in the Air Force budget with the assignment of a  program element line item that combined previous program elements for  the various simulator systems. For fiscal year 2006, over $200 million was  budgeted for the program.
In the early 2000s, Army use of rotary-wing aviation simulation training  was limited because the simulators being used were grossly obsolete and  based on late 1970s’ technology. To revamp its helicopter training, the  Army in late 2001 began the Flight School XXI program. Following the Air  Force’s lead, the Army decided to acquire up-to-date simulator training  using a service contract.
Congress and the Office of Management and Budget (OMB) have recently  addressed the growing level of procurement of services. For example,  Congress included provisions in Section 801 of the National Defense  Authorization Act for Fiscal Year 2002 designed to improve management  and oversight of procurement of services. To ensure that DOD acquires  services by means that are in its best interest and managed in compliance  with applicable statutes, regulations, directives, and other requirements,  the Act required DOD to establish a service acquisition management  structure, comparable to the management structure that applies to the  procurement of products. In September 2003, we reported that DOD and  the military services had a management structure in place for reviewing  individual services acquisitions valued at $500 million or more, but that  approach did not provide a departmentwide assessment of how spending  for services could be more effective. Also, OMB Circular A-11’s Appendix  B, “Budgetary Treatment of Lease-Purchases and Leases of Capital  Assets,” was amended in 2005 to require agencies to submit to OMB for  review any service contracts that require the contractor to acquire or  construct assets valued over $50 million. While these provisions do not  apply to the previously-awarded simulator training contracts, future  replacement contracts will be covered.
subsections: section_title: Contract Information
paragraphs: All of the Air Force and Army simulator service contracts are funded with  O&M funds. O&M funds are typically used for such things as military force  operations, training and education, and depot maintenance. The contracts  are requirements contracts, meaning that the government, within available  funds, shall order from the contractor all the training services specified for  each of the aircraft platforms that are required during the effective  performance periods. Additionally, each contract contains language  limiting the government’s liability in the event the contract is terminated.  For example, the Air Force F-15C contract states that the government  reserves the right to terminate the contract for its sole convenience and  that such termination prior to the issuance of a funded task order shall  result in no payment to the contractor of any amount for any work  performed or costs incurred. Table 1 provides additional descriptive  information for each contract.
The military services are relying on industry to capitalize the required up- front investment needed to acquire simulator hardware and software, with  the understanding that the contractors will amortize this investment by  selling training services by the hour. Each contract establishes operating  hours and the hourly payment rates for the life of the contracts, with rates  structured to provide the contractor with higher income in the initial years  of service. In calendar year 2004, for example, if the F-16 contractor  provided Shaw AFB with simulator availability that met 95 percent of the  required system elements, the hourly rate would be $5,225, whereas in  calendar year 2006, it would drop to $709 per hour.
We have previously identified the need to examine the appropriate role for  contractors to be among the challenges in meeting the nation’s defense  needs in the 21st century. We recently reported that the government’s  increasing reliance on contractors for missions previously performed by  government employees highlights the need for sound planning and  contract execution.
section_title: Acquisition Reforms Shaped Contract Structures
paragraphs: The structure of the simulator service contracts was heavily influenced by  mid-1990s’ acquisition reform initiatives such as the Federal Acquisition  Streamlining Act of 1994 and the Clinger-Cohen Act of 1996. These Acts  encouraged agencies to use commercial acquisition procedures as a way  to streamline the acquisition process. Differences under commercial  versus non-commercial procedures pertain, for example, to the  contracting officer’s determination of price reasonableness, the  government’s right to inspect and test, and government rights to acquire  technical data. Appendix III outlines these and other key differences. The  Air Force contracts for simulator training are structured as commercial  acquisitions, but the Army’s is not. Army officials told us they could not  justify calling the requirement “commercial” because the simulators would  be configured to reflect combat helicopters, which do not exist in the  commercial market. In August 2005, a DOD Inspector General review of  the procurement procedures for the F-16 contract concluded that the  simulator service did not meet the definition or intent of a commercial  service and recommended that the Air Force not use commercial  procedures for the re-competed F-16 contract. The Air Force is using non- commercial procedures for the new contract.
To allow for contractor recoupment of up-front investment, the strategy to  acquire simulator services envisioned longer duration contracts. This  coincided with practices in commercial industry, where long-term  relationships between buyer and seller were becoming common. The Air  Force and Army adopted this approach by including award-term incentives  in the contracts. This incentive can best be described as a variant of an  award-fee incentive, where the contractor is rewarded for excellent  performance with an extension of the contract period instead of additional  fee. Under the award-term concept, an assessment of the contractor’s  performance is presented to the term determining official, who unilaterally  determines whether to award an extension or a reduction to the contract  ordering period. The potential total years of contract performance under  the simulator contracts range from 13 to 19.5 years. Appendix IV contains  the details of each contract. Award-term incentives are relatively new in  government contracting and are not addressed in the Federal Acquisition  Regulation (FAR).
section_title: Key Players
paragraphs: Several key players are involved with acquisition and use of simulator  training.
For the Air Force:    Air Combat Command: The requiring entity—the user of simulator  training services—is located at Langley AFB, Virginia. The command  trains, equips and maintains combat-ready forces for rapid deployment  and employment.
Aeronautical Systems Center: This organization is the acquisition  agency for the simulator contracts. Located at Wright-Patterson AFB,  Ohio, it manages development, acquisition, modification, and in some  cases, sustainment for a wide variety of aircraft and related equipment  programs. The center develops attack, bomber, cargo, fighter, trainer, and  reconnaissance aircraft for the Air Force.
Air Force fighter units: These are the users of the simulator training,  which currently is taking place in 10 fighter units.
Fort Rucker, Alabama: Fort Rucker is the requiring entity for the Army’s  helicopter flight simulator services. It is the home of all Army aviation  flight training and the location of the initial training for new aviators,  known as Flight School XXI. The types of helicopters used in Flight School  XXI training are the TH-67 basic training helicopter, Chinook, Blackhawk,  Apache, and the Attack Reconnaissance Helicopter. Unlike the Air Force’s  multiple sites, the helicopter simulators provided under the service  contract are located at only this one training site, not at each operational  unit.
Army Program Executive Office for Simulation, Training and  Instrumentation: This office’s mission is to provide training, testing, and  simulation solutions for soldier readiness. The office is co-located in  Orlando, Florida, with the Naval Air Systems Command, which awarded  the contract on behalf of the Army.
section_title: Service Contract Approach Had Perceived Benefits but Was Not Adequately Supported
paragraphs: Both the Air Force and Army were faced with obsolete simulators due to  decisions to not devote sufficient procurement funds to upgrade existing  simulator hardware and software. The decision to buy simulator training  as a service allowed use of O&M funds, which would alleviate the need to  compete for procurement funds. Further, it was envisioned that service  contracts would allow for automatic simulator upgrades to match the  changing aircraft configurations, because industry would be responsible  for acquiring, operating, and maintaining the simulators and keeping them  concurrent. However, the decision to embark on a services approach was  not supported by a thorough analysis of the costs and benefits, despite a  DOD directive providing that the acquisition of simulators is to be based  on an evaluation of the benefits and trade-offs of potential alternative  training solutions.
subsections: section_title: Simulators Had Lost Out in Competition for Procurement Funds
paragraphs: The difficulty associated with competition for limited procurement dollars  was a key factor in the decision to turn to service contracts for war- fighting training. Frequently, simulators have lost out in this competition  and ended up under-funded. In 1997, the Air Force identified simulators  for four aircraft—the F-15C, F-16, F-15E, and AWACS—as “obsolete or  grossly non-concurrent” due to age, technological obsolescence, and lack  of concurrency with operational aircraft. By early 2002, the Army was also  faced with non-concurrent helicopter simulators, and field unit  commanders were reporting decreased unit readiness. For example, while  the goal of the training at Fort Rucker is to produce aviators trained at a  proficiency level of two (with level one being the highest), Army officials  reported that most of the aviators were leaving school with only a  proficiency level of three.
These degraded situations existed despite a DOD directive that provides  for the military services to ensure that all development, procurement,  operation, and support costs for the acquisition of training simulators  were programmed and funded. Recognizing the need to keep simulators  current with aircraft configurations, particularly as the use of simulators  to substitute for live flying hours was rising, the Air Force issued specific  guidance on training devices. For example, Air Force Instruction 36-2248,  Operation and Maintenance of Aircrew Training Devices, provides that  funding be established for simulator modifications concurrently with  modifications to the weapon system. Also, Air Force Instruction 36-2251,  Management of Air Force Training Systems, provides that the training  system receive the same precedence rating as the prime mission system it  supports and the same visibility, funding, and documentation.  Nevertheless, Air Force funding decisions had not kept flight training  simulators for the four aircraft systems concurrent with aircraft  configurations.
Also in the late 1990s, the Air Combat Command had unexpended O&M  flying hour funds available due to flight crew deployments and obstacles in  scheduling training. Use of these funds for service contracts would  alleviate the need to compete for procurement funds in an increasingly  tight arena. The competition for procurement dollars was also a factor for  the Army, which noted that the funds necessary to maintain and upgrade  its helicopter training simulators had “not competed effectively against  other Army operational and logistics requirements.”
section_title: Service Contracts Intended to Yield More Concurrent Simulators
paragraphs: Air Force acquisition officials conducted market research to determine  how civilian airlines acquired flight training. They found “turnkey” training  services contracts in place in the commercial airline industry. These  officials envisioned that services contracts would provide quicker state-of- the-art pilot and aircrew training and keep up with the rapid pace of  technology development by shifting the responsibilities for simulator  ownership, operation, and maintenance from the government to the  contractor. Further, with the contractor responsible for any development,  production, and testing necessary to ready the simulators for use, the Air  Force saw that it would be relieved of these multiple acquisition efforts, an  important factor given the recently downsized acquisition offices. In  addition, a stated benefit of the service contracting approach for simulator  training as initially implemented was the streamlining or reduction in  government oversight. Since commercial acquisition procedures were  used to buy these services, fewer government system reviews were  required.
When it decided to take a new approach to solve its helicopter simulator  concurrency problems, the Army conducted its own market research,  solicited business solutions from industry, and conferred with Air Force  DMO officials.
section_title: Decision to Use Service Approach Not Supported with Thorough Analysis of Costs and Benefits of Alternatives
paragraphs: Neither the Air Force nor the Army thoroughly analyzed the costs and  benefits of alternative approaches before pursuing this new approach.  DOD’s August 1986, Directive 1430.13, Training Simulators and Devices,  provides that the acquisition of simulators be based on an analysis of the  training need, the potential use of existing devices to satisfy that need, and  an evaluation of the benefits and trade-offs of potential alternative training  solutions. A 1999 report to the Air Force on the DMO program also noted  the importance of identifying key business factors before embarking on a  major acquisition. As a result of the failure to conduct a thorough review  of the various alternatives to solving the problem of non-concurrent  simulators, decision makers lacked information on the potential cost and  benefit estimates that would be encountered should facts, circumstances,  and assumptions change.
The historical documents we reviewed demonstrate that within the Air  Force there was uncertainty about the cost-effectiveness of the service  contract approach to simulator training. Although the potential for  reduced costs through outsourcing certain responsibilities and eliminating  government logistics support were cited in some decision documents,  other documents indicated that the service contract approach would not  cost significantly more or less than the traditional ownership strategy. Air  Force officials told us that a comprehensive study of various options for  providing simulator training had been commissioned. However, they have  been unable to locate it.
In preparing to re-compete the F-16 simulator contract, the DMO program  office completed a formal business case analysis in November 2005, in  response to a July 2005 congressional request. Air Force officials  acknowledged that, if not for the request, the formal business case  analysis would not have been completed.
The Army completed two business case analyses prior to contracting for  simulator services under the Flight School XXI program, but the analyses  lacked sufficient detail to provide a thorough examination of the pros and  cons of the new approach. The scope of the analyses was limited to  determining (1) what length of service contract would be appropriate to  justify the large up-front investment required of the contractor and   (2) whether projected funding was sufficient to meet program costs in the  event the Army was required to follow the traditional acquisition  approach. The Army provided us with decision briefings that set forth  various options for simulator training, but the documents ruled out all but  the service contract approach without providing supporting analyses of  the costs and benefits associated with each alternative. Further, the  traditional method, where the government bought the simulators, was  eliminated as an option due its perceived inability to meet the Flight  School XXI 15-month start-up time frame. This schedule eventually slipped  more than 10 months with, according to Army officials, no detrimental  effect on student training schedules. The briefings do not address the  possibility that the 15-month time frame was flexible.
section_title: While Training Has Improved, the Expected Number of Simulator Sites Has Not Been Activated
paragraphs: Air Force and Army officials told us the new simulators are big  improvements over what they had previously. However, the Air Force has  faced funding uncertainties using O&M funds for the contracts, and  subsequent schedule slippages have resulted in fewer simulator sites  activated than planned. In particular, the F-16 simulator training  contractor, citing the reduced activations, notified the Air Force as early  as May 2001, that it was unable to provide simulator services as originally  agreed and wished to restructure the contract. Later, the company cited  Air Force funding problems and schedule slips as the basis for claims  against the Air Force and notified the Air Force that its financial situation  under the contract was no longer viable. The Air Force will let the current  F-16 simulator training contract expire in June 2007 and is in the process  of re-competing the contract, which will likely result in a training gap for  pilots and additional costs to the Air Force.
subsections: section_title: Some Air Force and Army Sites Are Operating and Officials Cite Improved Training Results
paragraphs: At the locations we visited, officials told us they were pleased with the  quality of the simulator training, particularly when compared with the  level of training they had in the past. Pilots are routinely surveyed about  the training they receive, and officials told us that, generally, the results  have been very positive. For example, the Director of Operations for the  F-16 mission training center at Shaw AFB told us that the simulation  hardware and software are outstanding and that the training received by  young pilots is great. Initial training began under the Army’s Flight School  XXI contract in November 2005. While all planned simulators have not yet  been activated, according to Flight School XXI officials the school is now  meeting its training goal and producing aviators with a proficiency level of  two, an improvement over the old regime.
As of July 2006, the Air Force had 16 training simulator sites operational,  as shown in table 2.
section_title: Air Force Funding Uncertainties Have Resulted in Schedule Slippages
paragraphs: The use of O&M funds under the service contract approach was intended  to overcome the situation the military services had faced in the past, when  internal decisions on funding priorities had resulted in inadequate  procurement funds being made available for simulators. However, almost  from the start of the DMO program, funding has been less than projected.  As a result, schedule slippages have occurred for many sites compared  with original Air Force requirements set forth in acquisition plans. Army  officials told us that, to date, O&M funding for the Flight School XXI  program has not been reduced. Army officials committed at the outset to  fully fund the contract in accordance with the originally projected funding  profile and, to date, the funding level has remained stable.
As early as the 2002 budget planning process, Air Force budget requests  did not fully fund planned activations, with a total difference between  estimated requirements and funding of $524 million over the future year  defense plan, as shown in table 3.
An October 2000 Air Force “roadmap” report stated that this funding  scenario would “severely impact the executability of the current  contracted efforts, as well as the entire  vision.” Further, other Air  Force decisions, in reaction to fiscal constraints and programs viewed as  higher priority, have led to additional funding differences. The Air Combat  Command sought to mitigate the impact of these funding differences by  shifting flying hour funds into the DMO program in 2003. Table 4 depicts  some key events pertaining to the program’s funding impacts and the  command’s attempts to secure additional O&M funds.
Largely as a result of these funding uncertainties, many Air Force mission  training centers have been activated significantly behind the planned  schedule contained in acquisition management plans. These schedule  slippages for AWACs, F-15C, and F-16 are shown in tables 5, 6, and 7,  respectively.
Air Force officials told us that since most of the original dates were  “notional,” meaning that they were not firm requirements, but rather were  intended to provide contractors with information about potential mission  training center sites, the timely achievement of the schedules was not  required. However, contractor representatives told us that their proposals  relied upon the planned site activation schedules contained in the  contracts, and delays could directly affect their profitability.
section_title: Army’s Simulator Activation Schedule Was Also Delayed
paragraphs: The Army has twice rebaselined the activation schedules for the Flight  School XXI simulators—the TH-67 and the advanced aircraft virtual  simulators (AAVS)—as shown in figure 1.
In the original contract, the TH-67 basic training helicopter simulators  were scheduled to begin operation in December 2004, 15 months after  contract award. The Flight School XXI project manager could not provide  documentation to support this time frame and, in fact, told us that the  flight school could not have been ready for students at that time. The Army  subsequently rebaselined the schedule to allow for an 8-month delay.  Similarly, the Army revised the AAVS activation schedule—originally set at  18 months after contract award—to allow a 7-month delay. According to  the project manager, these delays resulted from a protest of the contract  award by a competitor and the contractor’s renegotiation with its  subcontractors. The schedule was rebaselined a second time, as shown  above, because the contractor was not able to meet the adjusted schedule.  The Army agreed to the further slippages in exchange for the contractor’s  providing two extra terrain databases as consideration. Despite these  schedule changes, the necessary simulators and facilities were ready for  the first flight school class in November 2005, in accordance with the final  revisions to the contract schedule.
section_title: F-16 Simulator Training Gap Anticipated
paragraphs: The risk the government faces if a contractor fails to perform as expected  under the service contracts is heightened because the government does  not own anything—the hardware, software, and data rights are owned by  the contractor. In the traditional approach, the government would own the  hardware and any software or data it had acquired rights to. While there  would be no guarantees as to the condition of these items if the contractor  had failed to perform, the government would at least be able to provide  them to the replacement contractor, who could potentially make use of  them under a new contract. The situation the Air Force has faced with the  F-16 simulator contract is illustrative of the potential for not only a  degradation in training, but also increased costs to the government when  contract performance does not occur as planned.
From the outset, the Air Force believed that the F-16 simulator  contractor’s cost estimate was low, as it was about $70 million less than  the government’s estimate. According to Air Force and contractor  officials, the reason for the low cost estimate was that the contractor  amortized its development costs over all the sites that were planned to be  activated rather than the minimum number that were contractually  required. When schedule delays occurred and the expected sites were not  activated, the contractor reported that it lacked the financial viability to  continue work under the contract. In April 2003, the contractor stopped  work toward making the simulators concurrent with the aircraft, stating  that it considered the tasks beyond the contract scope. Subsequently, it  told the Air Force it was not in its best interest to activate additional  training sites.
The Air Force will allow the F-16 simulator training contract to expire in  June 2007 because, according to DOD, the contractor failed to earn  enough award-term points to extend the period of performance. The Air  Force plans to re-compete the contract. Two aspects of the original  contract, awarding it as a commercial acquisition and including an award-  term provision, will not be included in the new contract.
Because of the time needed to re-compete the contract and for the  winning contractor to provide initial training capabilities, the Air Force  faces a potential training gap of over 2 years, during which even the  current degraded level of F-16 simulator training services will not be  available to pilots. In an effort to ensure some level of continued training  during that period, the Air Force plans to award a contract for interim  service capability at three air bases. This interim capability will be  available for block 50 aircraft only. For the block 40 aircraft, the Air  Combat Command plans to spend approximately $20 million to refurbish  old F-16 unit training devices. These devices are limited in training  potential compared to the current level of simulation.
section_title: Return on the Expenditure of Taxpayer Dollars Is Not Effectively Tracked
paragraphs: The Air Force and the Army are not effectively tracking the return on their  expenditure of taxpayer dollars to acquire simulator training services. The  extent to which the simulators are being used is either not measured or is  measured inconsistently. The government is paying for activities  conducted during the simulator development period but lacks insight into  what it is actually paying for. Finally, award-term evaluations that were  established to encourage excellent contractor performance do not always  measure key acquisition outcomes such as simulator availability and  concurrency, and can result in additional contract years being awarded for  only “satisfactory” performance.
subsections: section_title: Information on Utilization Rates Is Lacking
paragraphs: The utilization rate is the percentage of available hours the simulators are  actually used. The Army is not tracking the extent to which aviators are  using the contracted service for Flight School XXI simulators, even though  for simulators the Army owns, utilization rates are tracked. Program  officials told us that, because the Army is contracting for simulator  training to be available, there was no need to track the extent to which the  government is using this availability. Without data on utilization rates, the  Army has no basis for determining the extent to which it is using the  services it is buying.
We found that Air Force installations are collecting information on  monthly utilization rates, as provided for in a May 1998 Air Force  instruction. However, rates at the locations we examined were often far  less than the hours the government purchased. For the three AWACS  mission training centers at Tinker AFB, for example, we found that, during  the 2-year period ending December 2005, monthly utilization rates were  frequently reported at less than 50 percent, as shown in figure 2.
The Air Force Audit Agency has reported that installations had acquired  excess simulator capacity and unnecessarily consumed O&M funds that  could have been applied to other mission requirements. At Shaw AFB, for  example, the agency found that the Air Force had paid to use the simulator  10 hours a day, but only used it about 6 hours per day over a 4-month  period. The underutilization was attributed to missions being either not  scheduled or cancelled. Deployment requirements and range training were  identified as contributing factors. At Spangdahlem AB, the audit agency  reported that the Air Force had contracted for excess hours of simulator  availability to provide the maximum flexibility for pilot schedules. As a  result, the Air Force paid for enough simulator availability to hold 3,952  training events in fiscal year 2005, even though it needed only 1,982  training events to meet training requirements.
Our analysis also found that monthly utilization rate calculations are  inconsistent among DMO system sites, even though an Air Force  instruction provides guidance on how to calculate and report utilization  data. We asked six installation quality assurance representatives how they  calculated utilization rates. Four of the six representatives were unaware  of the instruction, telling us that they had not received any guidance for  calculating simulator use. Several different calculation methods are being  used, as described in table 8.
Air Combat Command officials told us the reported utilization rates are  used to determine whether or when to activate another training center at a  site. They also said they are using utilization rate information to determine  how many additional “live” flying hours can be moved to the simulators, in  particular to alleviate the burden of high fuel costs for aircraft. Because of  the very different methods being used to calculate the rates, however,  decisions are being made based on non-comparable information.
In addition, we found that the Air Force’s instruction for calculating  monthly simulator utilization rates could result in overstating the rates,  thus overstating the return on the expenditures made. The instruction  directs that utilization be reported when any or all devices at a given  location are used. Thus, the Air Force can pay to have four simulators  available at a site, use only one of the four during a training period, and  still report that simulator utilization was 100 percent as opposed to 25  percent of the paid availability.
section_title: Payments for Tasks during Development Period Are Not Transparent
paragraphs: Under the services approach, contractors commit to major investment at  the front end, with the return on their investment to come from hourly fees  received for providing simulator service. As an additional way to help the  contractor recoup its costs earlier, the government added “preparatory”  tasks during the development period prior to the start of service. These  tasks are defined in the contracts as discrete events, such as site surveys  and training capability assessments, that are ordered and paid for prior to  the start of service. Payments for these tasks provide the contractor cash  flow between contract award and the planned service start dates and give  the government a contractual avenue for contract oversight prior to  receiving services. We found that the Air Force and Army have little  insight into what they are paying for under the preparatory tasks. Although  the invoices reflect only the discrete tasks, such as training capabilities  assessments, the wide range of invoice amounts—from $91,000 to more  than $6.5 million for similar tasks—and our discussions with contractor  officials suggest that the government is actually making milestone  payments to the contractors for a portion of their up-front costs to acquire  and develop the simulators.
The original service contract concept for the F-15C, the first simulator  contract awarded, had no provision for the contractor to recoup any costs  during the development period, which usually lasts more than a year.  Figure 3 shows the development period before the start of simulator  services and the original hourly rate structure under the F-15C contract.
This original approach, according to Air Force and contractor officials,  contributed to schedule and certification delays with the F-15C. Air Force  officials told us that they had no contractual avenue to obtain insight into  the contractor’s performance during the development period and thus  were not aware that the contractor had encountered delays in obtaining  information from other programs and in determining the complexity of  some simulation elements. As a result, full service was not implemented  on schedule and certification of simulation service was delayed until after  the start of initial service. Further, according to the contractor, it suffered  an unrecoverable loss of income during the high-rate, initial service  period. Subsequently, based on feedback received from industry, the Air  Force changed its approach and incorporated preparatory services into  the F-15C contract and all subsequent DMO system contracts to obtain  more visibility into contractor activities during the development period.  The Army also paid for preparatory services during the development  period of the Flight School XXI contract.
Our analysis of the Air Force’s payments for preparatory services found  significantly disparate costs for site surveys and training assessments, as  reflected in tables 9 and 10, respectively.
We asked Air Force and Army officials what was specifically included in  these preparatory services and how they determined what they received in  return for payments made. They told us that the contractors determine  what is included and needed for each service at each site.
Three of the four contractors we spoke with agreed that funding for  preparatory tasks helped defray their development costs. They said that, in  effect, they bill for these tasks as milestone payments rather than for the  discrete tasks themselves. Thus, they are able to begin defraying hardware  and software development costs before the start of services. Officials from  the fourth contractor stated that site survey tasks are standard but that  there is some leeway in what is to be done for training capability  assessments and training capability requirements assessments.
With the upcoming re-competition of the F-16 simulator training contract,  the Air Force may pay again for the preparatory service tasks in the new  contract’s development period, having already spent nearly $42 million on  these tasks in the initial contract. Air Force officials told us they cannot  assume that potential offerors would make use of the preparatory work  the original contractor has performed.
section_title: Award-term Evaluations Do Not Measure Key Acquisition Outcomes
paragraphs: In an effort to measure performance and encourage the contractors to  perform in an efficient and effective manner, both the Air Force and Army  employ award-term incentives. However, while the award-term evaluation  areas include pilot and crew satisfaction, they do not always measure the  key acquisition outcomes of system availability and concurrency with  aircraft upgrades.
While the Air Force does include system availability as an evaluation area,  it is assigned only 25 to 30 percent of the total score. Concurrency is not  included as a separate evaluation area. The Army’s evaluation areas, on  the other hand, include concurrency but not system availability. While the  Army requires the tabulation and submission of such data as operational  availability and training service completion rate, these data are not  included in the award-term evaluations. In addition, several of the  evaluation areas include assessments of such things as responsiveness to  government requests for cost and pricing data for proposed work not in  the initial contract. We recently recommended that DOD move toward  more outcome-based award-fee criteria that would promote accountability  for acquisition outcomes, rather than include criteria such as  responsiveness to government customers or the quality of proposals  submitted.
Table 11 compares the award-term evaluation areas and the weight given  to each area.
The Air Force and Army both assign the largest weight to “pilot/crew  satisfaction.” However, this measure has limitations, particularly when it is  heavily relied on to inform award-term decisions. Air Force officials told  us that it is in the pilots’ best interests to assign a high rating to this factor;  otherwise, they could be viewed as not having received adequate training  and could be asked to retake it. Additionally, pilots are frequently hurried  in completing their surveys and dash off check marks without much  consideration. Also, the distinction between the levels of satisfaction can  be blurry. For the Army, for example, if training and support are adversely  impacted for an “extended period,” user satisfaction is to be rated as  unsatisfactory. However, if the adverse impact occurs “infrequently or  temporarily,” it is considered marginal. Because the terms are not defined,  the Army cannot be certain that pilots are providing consistent ratings.
We also found that, under the Air Force’s award-term plan, contractors  can earn an additional award-term year for only satisfactory performance  because awarded points are rolled over to the next evaluation period. A  contractor with only satisfactory performance in each of five rating areas  can receive up to 51 points each year; thus, within 2 years, it can  accumulate the 100 points needed for a 1-year contract extension. The   F-16 simulator training contractor, for example, which recently notified  the government that it could not continue to perform under the contract,  received overall award-term evaluations of “very good” for the first two  rating periods (May 2002 through July 2003) and “satisfactory” in the third  and fourth periods (July 2003 through January 2005) and earned one  contract year extension. The Army has taken a different approach; under  its award-term plan it is very unlikely that the contractor can be awarded  contract extensions for “satisfactory” performance because rollover is  allowed only when more than 100 points are earned. Thus, the contractor  with only satisfactory performance cannot accumulate enough points for  an additional contract year.
While service is not yet available, the F-15E simulator training contract,  awarded in August 2003, does not include an award-term incentive  because, according to the contracting officer, “it doesn’t work.” Contractor  officials told us that the subjective nature of the criteria and the manner in  which they are applied negate the award term as a performance incentive.  Both the Air Force and Army indicated that they are moving away from  using award-term incentives on future contracts. The Air Force will not  include such an incentive in its re-competition for the F-16 simulator  training contract because, according to the DMO director, it has not been  found to be a significant motivator to the contractor; experience has  shown that withholding payment for poor service is a much more effective  tool to induce improved performance. In addition, since a recent statutory  provision limits future total contract periods of performance to 10 years,  an award-term provision can no longer be used to implement long-term  arrangements such as those in place for the existing simulator training  contracts.
We recently reported that DOD has little evidence to support its belief that  award fees improve contractor performance and acquisition outcomes  and, in fact, frequently pays out most of the available award fee to  contractors regardless of their performance outcomes. We also found  that DOD contracts frequently included rollover provisions, where  unearned award fee from one evaluation period was shifted to a  subsequent evaluation period or periods, thus providing the contractor an  additional opportunity to earn previously unearned fee. We recommended  that DOD issue guidance on when rollover of award fee is appropriate. A  March 2006 guidance on award fee contracts states, among other things,  that use of rollover provisions should be the exception rather than the rule  and that the decision to use rollover provisions should be addressed in the  acquisition strategy, including a rationale as to why a rollover provision is  appropriate.
section_title: Conclusion
paragraphs: Because simulator training had lost out in the internal competition for  procurement funds, the Air Force and Army turned to service contracts,  expecting that O&M funds would be made available to meet requirements.  In the case of the Air Force, this expectation has not materialized and  planned site activations have been slowed. In addition, although the Air  Force and Army plan to continue with the service contract approach for  simulator training, neither supported the decision with a thorough analysis  of the costs and benefits of alternative approaches to delivering the  training. Finally, the heightened risks associated with increased reliance  on contractors to deliver simulator training calls for careful attention to  contract management and oversight. Effective and well-managed  incentives for motivating performance are especially important. Better  government visibility into the contractors’ activities, such as preparatory  tasks, during the development period is critical so that the government can  understand the basis for what are essentially milestone payments during  that phase. In addition, unless utilization rates are tracked in a consistent  manner, the government will not know whether it is making the best use  of what it is buying.
section_title: Recommendations for Executive Action
paragraphs: To help ensure that the best approach is used to provide the war-fighter  with needed training, we recommend that the Secretary of Defense direct  the Secretaries of the Air Force and Army to conduct a thorough analysis  of the costs and benefits of using service contracts for simulator training  to determine if it is indeed the best approach. The analysis should  proactively address potential risks associated with the service contract  approach and identify the level of simulator training needed to meet  requirements.
To help ensure that the required training is provided to pilots, we  recommend that the Secretary of the Air Force reconcile the funding level  needed for simulator training with the requirements identified in the  evaluation of costs and benefits of the service contract approach and take  steps to allocate funds accordingly.
To help ensure that the incentives motivate contractor performance  toward achieving desired training outcomes, we recommend that the  Secretary of Defense direct the Secretaries of the Air Force and Army to  take the following two actions:    Determine whether it is in the government’s best interest to retain the  award-term incentive under these service contracts.
If the award-term incentive is retained, take appropriate steps to improve  the approach by reassessing the areas to be rated and the definitions of  performance levels for the various grade categories. For the Air Force,  improvements to the approach should include a determination as to  whether to continue allowing rollover of award-term points.
To help ensure greater transparency into what the government is paying  for preparatory tasks during the development phase, we recommend that  the Secretary of Defense direct the Secretaries of the Air Force and Army  to take the following two actions:    Reassess the pricing of any up-front payments made to the contractors  during the development period on future replacement or restructured  contracts.
If retained, take appropriate measures to (1) create an appropriate and  transparent contract payment mechanism, separate from the preparatory  tasks, if development costs are to be reimbursed; and (2) increase visibility  into the percentage of upfront development costs contractors are  recouping from these preparatory tasks and development payments.
To help ensure that available simulator training for the warfighter is used  in the most effective and efficient manner, we recommend that the  Secretary of Defense take the following four actions:    Direct the Secretaries of the Air Force and Army to determine whether and  how simulator utilization can be increased in order to maximize use of  taxpayer dollars.
Direct the Secretary of the Army to track and record monthly utilization  rates on Flight School XXI contracted simulator training in order to have  the data necessary to adjust training requirements and contract provisions,  as necessary.
Direct the Secretary of the Air Force to revise Air Force Instruction   36-2248, Operation and Management of Aircrew Training Devices, to  ensure that, for the purposes of reporting utilization rates, the usage of  individual training simulators is calculated.
Direct the Secretary of the Air Force to ensure that all sites consistently  track and report simulator utilization.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, DOD concurred with all but  one of our recommendations. DOD partially concurred with our  recommendation that the Army track and record monthly utilization rates  on simulators at Flight School XXI. DOD stated that the service contract  approach requires only that the vendor meet the programmed student  training load. Nevertheless, DOD stated that the contractor is required to  submit utilization data and that the data are available for use in future  adjustments to the contracting strategy, requirements, or provisions. Our  recommendation was intended to encourage DOD to fully understand its  student training requirements and to collect the information to decide  whether it needs to adjust requirements or contract provisions regarding  simulator availability. Whether the utilization rates pertain to individual  simulators or the student training load as a whole, we believe that the  Army needs to know the extent to which it is actually using the simulator  availability it is buying. DOD also offered two corrections to information  in the draft, and we made changes as appropriate. DOD’s comments are  included in their entirety in appendix II.
We will send copies of this report to the Secretaries of Defense, the Air  Force, and the Army; appropriate congressional committees; and other  interested parties. We 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 concerning this report, please contact me  at (202) 512-4841 or by e-mail at shamesl@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine which factors led the Air Force and Army to acquire  simulator training as a service contract using operation and maintenance  funds, we analyzed historical documents such as acquisition plans,  briefings, and decision memorandums. For the Air Force, we interviewed  Air Force management, including officials at the Office of the Assistant  Secretary of the Air Force, Acquisition; Aeronautical Systems Center  (responsible for contracting the simulator training services) and the Air  Combat Command (funds and uses the simulator training). For the Army,  we interviewed officials at the Office of the Assistant Secretary of the  Army for Acquisition, Logistics, and Technology; and Army officials  responsible for managing the Army’s Flight School XXI initiative, including  officials of the Program Executive Office for Simulation, Training and  Instrumentation. We visited Langley Air Force Base, Virginia, to observe  F-15C simulator training; Shaw Air Force Base, South Carolina, to observe  F-16 simulator training; and Fort Rucker, Alabama, to observe the Flight  School XXI helicopter simulator training. Additionally, to evaluate whether  the military services adequately justified the new service contract  approach, we reviewed the Office of Management and Budget’s Circular   A-11, Appendix B, “Budgetary Treatment of Lease-Purchases and Leases of  Capital Assets,” and Air Force and Army regulations and guidance  regarding business case analyses. We also drew from our prior reviews of  Department of Defense systems, in particular our recent review of the  Army’s Future Combat System.
To assess whether the new approach has resulted in the planned number  of simulator training sites being activated, we evaluated contract  documents and information provided by the Air Combat Command and  Aeronautical Systems Center to compare planned to actual schedule  activations. We gathered and analyzed budget data related to program  schedules and interviewed program officials. We analyzed contract  documents and other program documents from Flight School XXI and  discussed the schedule rebaselining with Army officials. We analyzed the  Air Force’s request for proposals for the F-16 simulator training contract  re-competition to determine whether key differences in the acquisition  approach were incorporated.
To determine if the Air Force and Army are effectively tracking the return  on their expenditure of taxpayer dollars, we analyzed simulator utilization  data and military service guidance on utilization rates; analyzed contractor  performance measurements, annual evaluations, and award-term plans for  the simulator training contracts; and compared preparatory service costs  charged to the government under each of the four Air Force contracts and  the Army contract. We also interviewed contractor representatives and  government officials.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: Comparison of Contractor Requirements under Commercial and Non- commercial Acquisition Procedures
paragraphs: The following table shows differences, as set forth in the Federal  Acquisition Regulation (FAR), for contractor requirements under  commercial versus non-commercial acquisition procedures.
A wide selection of contract types is available in  order to provide flexibility. (FAR 16.101(a))
Limited contract types are authorized. Agencies shall  use firm-fixed-price contracts or fixed-price contracts  with economic price adjustment. These contract  types may be used in conjunction with an award fee  and performance or delivery incentives when the  award fee or incentive is based solely on factors  other than cost. (FAR 12.207)
To implement the Services Acquisition Reform Act of  2003 (contained in Section 1432 of the National  Defense Authorization Act for Fiscal Year 2004, Pub.  L. No. 108-136 (2003)), a proposed amendment to  FAR would expressly authorize the use of time-and- materials and labor-hour contracts for certain  categories of commercial services under specified  conditions. (FAR Case 2003-027, 70 Federal  Register 56318, Sept. 26, 2005.)
Inspection and testing  Government has right to inspect and test. (FAR  46.102 & 46.202-3)
Contracts for commercial items shall rely on  contractors’ existing quality assurance systems as a  substitute for Government inspection and testing  before tender for acceptance unless customary  market practices for the commercial item being  acquired include in-process inspection. Any in- process inspection by the Government shall be  conducted in a manner consistent with commercial  practice. (FAR 12.208)
Price must be determined fair and reasonable  through various proposal analysis techniques. (FAR  15.404-1)
While price reasonableness must be established, the  contracting officer should be aware of customary  commercial terms and conditions when pricing  commercial items. Commercial item prices are  affected by factors that include, but are not limited to,  speed of delivery, length and extent of warranty,  limitations of seller’s liability, quantities ordered,  length of the performance period, and specific  performance requirements. (FAR 12.209)
Commercial items are exempt (FAR 15.403-1(b)(3)  and (c)(3))
Required for contract award and modifications unless  applicable exception, such as adequate competition  or prices agreed upon are based on prices set by law  or regulation. Threshold for application is $550,000.  (FAR 15.403-1 and -4)
The contracting officer must consider the following  order of preference when a contractor requests  contract financing.,  (a) Private financing without Government guarantee. (b) Customary contract financing.  (c) Loan guarantees.  (d) Unusual contract financing.   (e) advance payments. (FAR 32.106)
For purchases of commercial items, financing of the  contract is normally the contractor’s responsibility.  (32.202-1) However, customary market practice for  some commercial items may include buyer contract  financing. In these circumstances, the contracting  officer may offer Government financing in  accordance with the policies and procedures in  Part 32. (FAR 12.210)
However, government financing provided only to  extent actually needed for prompt and efficient  performance, considering availability of private  financing and probable impact on working capital of  predelivery expenditures and productions lead-times.  (FAR 32.104)
Government financing of commercial purchases is  expected to be different from that used for non- commercial purchases. While the contracting officer  may adapt non-commercial techniques and  procedures for use in implementing commercial  contract financing arrangements, the contracting  officer must have a full understanding of effects of  the differing contract environments and of what is  needed to protect the interests of the Government in  commercial contract financing. (FAR 32.202-1(c))   Types of payments for commercial item purchases.  (FAR 32.202-2)  1. Commercial advance payment:   payment made before any performance of work  (not to exceed 15 percent of contract price)  2. Commercial interim payment:   payment made after some, but not all, work has  been performed  3. Delivery payment:   payment made for accepted supplies or services,  including partial deliveries (FAR 32.001)
The Government may acquire technical data and  rights in technical data for multiple purposes.   Agencies shall strike a balance between the  government’s need and the contractor’s legitimate  proprietary interest. (FAR 27.4)
Generally, the Government shall acquire only the  technical data and the rights in that data customarily  provided to the public with a commercial item or  process. The contracting officer shall presume that  data delivered under a contract for commercial items  was developed exclusively at private expense. When  a contract for commercial items requires delivery of  technical data, the contracting officer shall include  appropriate provisions and clauses delineating the  rights in the technical data in the contract. (FAR  12.211)
The Government may acquire computer  software/documentation for multiple purposes.  Agencies shall strike a balance between the  government’s need and the contractor’s legitimate  proprietary interest. (FAR 27.402)
Commercial computer software or commercial  computer software documentation shall be acquired  under licenses customarily provided to the public to  the extent such licenses are consistent with federal  law and otherwise satisfy the government’s needs.  Generally, offerors and contractors shall not be  required to—  1.  Furnish technical information related to  commercial computer software or commercial  computer software documentation that is not  customarily provided to the public; or  2.  Relinquish to, or otherwise provide, the  Government rights to use, modify, reproduce,  release, perform, display, or disclose commercial  computer software or commercial computer  software documentation except as mutually  agreed to by the parties. (FAR 12.212(a))
Compliance generally required for contractors in  connection with negotiated contracts in excess of  $500,000.
Cost Accounting Standards do not apply to contracts  for acquisition of commercial items when they are  firm-fixed-price or fixed-price with economic price  adjustment. (FAR 12.214)
Contractors must disclose and consistently follow  their cost accounting practices. (FAR 30.101)
In determining whether a potential awardee is a  responsible contractor, per criteria in FAR 9.104-1,  contracting officers may require a preaward survey  when the information on hand or readily available is  not sufficient to make such a determination. (FAR  9.106-1)
If the contemplated contract will involve the  acquisition of commercial items, the contracting  officer should not request a preaward survey unless  circumstances justify its cost. (FAR 9.106-1(a))
When contracting by negotiation, the contracting  officer shall insert the clause at FAR 52.215-2, Audit  and Records—Negotiation in solicitations and  contracts which allows contracting officer  examination of costs when cost or pricing data is  required or for cost-reimbursement, incentive, time- and-materials, labor-hour, or price redeterminable  contracts. (FAR 15.209(b) and 52.215-2)
Commercial item contracts exempted. (FAR  15.209(b)(1)(iii))
On contracts for supplies over $10,000, contractors  must adhere to provisions pertaining to minimum  wages, maximum hours, child labor, convict labor,  safe/sanitary working conditions. (FAR 22.602)
Not applicable. (FAR 12.503(a))
Contractor must warrant that it has not employed or  retained anyone, on a contingent fee basis, to obtain  this contract.
Not applicable. (FAR 12.503(a)) (FAR 3.404, 52.203-5)
Contractor must agree that it will provide a drug-free  workplace (FAR 23.504(a))
Not applicable. (FAR 12.503(a))
Contractor must report on its affirmative actions to  employ and advance covered veterans (FAR  22.1302(a))
Law’s limitation on use of appropriated funds for  contracts with entities not meeting veterans  employment reporting requirements is not applicable.  (FAR 12.503(a))
Contracts for services must prohibit contractor  activities regarding, and require contractor policies to  combat, severe forms of trafficking in persons, the  procurement of commercial sex acts, and use of  forced labor. (FAR 22.1705)
Not applicable. (FAR 12.503(a))
Contract clause required providing that contractors  employing laborers or mechanics are required to  compensate them for overtime. (FAR 52.222-4)
Requirements for a certificate and contract clause  related to the Act are not applicable. (FAR 12.503(b))
Contract clause requires prime contractors to (1)  have in place and follow reasonable procedures  designed to prevent and detect violations of the Act;  and (2) cooperate fully with any Federal agency  investigating a possible violation of the Act. (FAR  3.502-2(i))
Requirements for a clause and certain other  requirements related to the Act are not applicable.  (FAR 12.503(b))
Contracts must include clause requiring use of U.S- Flag Air Carriers by government contractors when  available (FAR 47.405)
Requirement for a clause related to the Act is not  applicable. (FAR 12.503(b))
Contracts must include clause precluding contractors  from restricting direct subcontractor sales to the  Government. (FAR 3.503-2 and 52.203-6(a))
Contractors may restrict subcontractors’ sales to the  Government, as long as the Government is treated  no differently than other prospective purchaser. (FAR  52.203-6, Alternate I)
Generally, contracting officer permitted to make  unilateral changes within the scope of the contract  and to require continued contractor performance of  the contract as changed. (FAR 43.201)
Changes may be made only by written agreement of  the parties (bilateral). (FAR 12.301(b)(3); 52.212- 4(c))
Generally, termination costs for fixed-price contracts  limited to total contract price less payments made or  to be made under contract plus reasonable costs  incurred in performance of work terminated, to  include fair and reasonable profit, and reasonable  settlement costs. Cost principles and procedures of  FAR Part 31 apply to costs. (FAR 49.502(b); 52.249- 2)
Termination costs limited to percentage of contract  price reflecting percentage of work performed prior to  termination plus reasonable charges resulting from  termination. For payments thereunder, contractor not  required to comply with cost accounting standards or  contract cost principles in FAR Part 31. (FAR  12.301(b)(3); 52.212-4(l))
section_title: Appendix IV: Potential Duration of Air Force and Army Simulation Contracts
subsections: section_title: Aug. 2003 to July 2016 (13 years)
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the individual named above, Michele Mackin, Assistant  Director; Marie Ahearn; Christine Bonham; Gary Delaney; Carlos Diz;  Benjamin Federlein; Victoria Klepacz; and Sanford Reigle made key  contributions to this report.