Public-Private Competitions: Access to Records Is Inhibiting Work on Congressional Mandates
Released: 1998-03-04T00:00:00

Letter

Background

As a result of a 1995 Defense Base Closure and Realignment Commission decision, Kelly Air Force Base, Texas, is to be realigned and the San Antonio Air Logistics Center, including the Air Force maintenance depot, is to be closed by 2001. Additionally, McClellan Air Force Base, California, and the Sacramento Air Logistics Center, including the Air Force maintenance depot, is to be closed by July 2001. To mitigate the impact of the closures on the local communities and center employees, in 1995 the administration announced its decision to maintain certain employment levels at these locations. Privatization-in-place was one initiative for retaining these employment goals.

Since that decision, Congress and the administration have debated the process and procedures for deciding where and by whom the workloads at the closing depots should be performed. Central to this debate are concerns about the excess facility capacity at the Air Force’s three remaining maintenance depots and the legislative requirement— 10 U.S.C. 2469—that for workloads exceeding $3 million in value, a public-private competition must be held before the workloads can be moved from a public depot to a private sector company. Because of congressional concerns raised in 1996, the Air Force revised its privatization-in-place plans to provide for competitions between the public and private sectors as a means to decide where the depot maintenance workloads would be performed. The first competition was for the C-5 aircraft depot maintenance workload, which the Air Force awarded to the Warner Robins depot in Georgia on September 4, 1997. During 1997, Congress continued to oversee DOD’s strategy for allocating workloads currently performed at the closing depots. The 1998 Defense Authorization Act required that we and DOD analyze various issues related to the competitions at the closing depots and report to Congress concerning several areas.

First, within 60 days of its enactment, the Defense Authorization Act requires us to review the C-5 aircraft workload competition and subsequent award to the Warner Robins Air Logistics Center and report to Congress on whether (1) the procedures used provided an equal opportunity for offerors without regard to performance location; (2) procedures are in compliance with applicable law and the FAR; and (3) award results in the lowest total cost to DOD.

Second, the act provides that a solicitation may be issued for a single contract for the performance of multiple depot-level maintenance or repair workloads. However, the Secretary of Defense must first (1) determine in writing that the individual workloads cannot as logically and economically be performed without combination by sources that are potentially qualified to submit an offer and to be awarded a contract to perform those individual workloads and (2) submit a report to Congress setting forth the reasons for the determination. Further, the Air Force cannot issue a solicitation for combined workloads until at least 60 days after the Secretary submits the required report.

Third, the authorization act also provides special procedures for the public-private competitions for the San Antonio and Sacramento workloads. For example, total estimated direct and indirect cost and savings to DOD must be considered in any evaluation. Further, no offeror may be given preferential consideration for, or be limited to, performing the workload at a particular location. As previously stated, the act also requires that we review the solicitations and the competitions to determine if DOD has complied with the act and applicable law. We must provide a status report on the Sacramento and San Antonio competitions within 45 days after the Air Force issues the solicitations, and our evaluations of the completed competitions are due 45 days after the award for each workload.

Finally, the act requires that DOD report on the procedures established for the Sacramento and San Antonio competitions and on the Department’s planned allocation of workloads performed at the closing depots as of July 1, 1995. DOD issued these reports on February 3, 1998. The Air Force cannot issue final solicitations until at least 30 days after these reports are submitted and all other requirements of the act are completed.

Access to Records Problems

We have had problems in gaining access to information required to respond to reporting requirements under the 1998 National Defense Authorization Act. Our lack of access to information is seriously impairing our ability to carry out our reporting responsibilities under this act.

We experienced this problem in doing our work for our recent report to Congress concerning DOD’s determination to combine individual workloads at the two closing logistics centers into a single solicitation. We originally requested access to and copies of contractor-prepared studies involving depot workloads at the Sacramento Air Logistics Center on December 18, 1997. The Air Force denied our request, citing concerns regarding the release of proprietary and competition-sensitive data.

It was not until January 14, 1998, and only after we had sent a formal demand letter to the Secretary of Defense on January 8, 1998, that the Air Force agreed to allow us to review the studies. Even then, however, the Air Force limited our review to reading the documents in Air Force offices and required that without further permission, no notes, copies, or other materials could leave those premises.

The limited access provided came so late that we were unable to review the documents adequately and still meet our statutorily mandated reporting deadline of January 20. As of this date, we have been provided only heavily redacted pages from two studies. These pages do not contain the information we need. Further, the Air Force did not provide us even limited access to the final phase of the studies, which were dated December 15, 1997.

Although we were able, with difficulty, to complete our report, we simply cannot fulfill our responsibilities adequately and in a timely manner unless we receive full cooperation of the Department. To meet our remaining statutory requirements, we have requested several documents and other information related to the upcoming competitions for the closing depots’ workloads. Air Force officials said they would not provide this information until the competitions are completed. However, we will need to review solicitation, proposal, evaluation, and selection documents as they become available. For example, we will need such things as the acquisition and source selection plans, the proposals from each of the competing entities, and documents relating to the evaluation of the proposals and to the selection decision. Appendix I to this statement contains our letter to the Senate Armed Services Committee detailing our access problems.

Our basic authority to access records is contained in 31 U.S.C. 716. This statute gives us a very broad right of access to agency records, including the procurement records that we are requiring here, for the purpose of conducting audits and evaluations. Moreover, the procurement integrity provision in 41 U.S.C. 423 that prohibits the disclosure of competition-sensitive information before the award of a government contract specifies at subsection (h) that it does not authorize withholding information from Congress or the Comptroller General.

We have told the Air Force that we appreciate the sensitivity of agency procurement records and have established procedures for safeguarding them. As required by 31 U.S.C. 716(e)(1), we maintain the same level of confidentiality for a record as the head of the agency from which it is obtained. Further, our managers and employees, like all federal officers and employees, are precluded by 18 U.S.C. 1905 from disclosing proprietary or business-confidential information to the extent not authorized by law.

Finally, we do not presume to have a role in the selection of the successful offeror. We recognize the need for Air Force officials to make their selection with minimal interference. Thus, we are prepared to discuss with the Air Force steps for safeguarding the information and facilitating the Air Force’s selection process while allowing us to meet statutory reporting responsibilities.

Processes for C-5 Aircraft Competition Appear Reasonable

In response to congressional concerns regarding the appropriateness of its plans to privatize-in-place the Sacramento and San Antonio maintenance depot workloads, the Air Force revised its strategy to allow the public depots to participate in public-private competitions for the workloads. In the 1998 Defense Authorization Act, Congress required us to review and report on the procedures and results of these competitions. The C-5 aircraft workload was the first such competition. We issued our required report evaluating the C-5 competition and award on January 20, 1998.

After assessing the issues required under the act relating to the C-5 aircraft competition, we concluded that (1) the Air Force provided public and private offerors an equal opportunity to compete without regard to where work would be performed, (2) the procedures did not appear to deviate materially from applicable laws or the FAR; and (3) the award resulted in the lowest total cost to the government, based on Air Force assumptions and conditions at the time of award.

Nonetheless, public and private offerors raised issues during and after the award regarding the fairness of the competition. First, the private sector participants noted that public and private depot competitions awarded on a fixed-price basis are inequitable because the government often pays from public funds for any cost overruns it incurs. Private sector participants also questioned the public depot’s ability to accurately control costs for the C-5 workload. In our view, the procedures used in the C-5 competition reasonably addressed the issue of public sector cost accountability.

Further, private sector participants viewed the $153-million overhead cost savings credit given to Warner Robins as unrealistically high and argued that the selection did not account for, or put a dollar value on, certain identified risks or weaknesses in the respective proposals. We found that the Air Force followed its evaluation scheme in making its overhead savings adjustment to the Warner Robins proposal and that the Air Force’s treatment of risk and weaknesses represented a reasonable exercise of its discretion under the solicitation.

Although the public sector source was selected to perform the C-5 workload, it questioned some aspects of the competition. Warner Robins officials stated that they were not allowed to include private sector firms as part of their proposal. Additionally, the officials questioned the Air Force requirement to use a depreciation method that resulted in a higher charge than the depreciation method private sector participants were permitted to use. Finally, they questioned a $20-million downward adjustment to its overhead cost, contending that it was erroneous and might limit the Air Force’s ability to accurately measure the depot’s cost performance.

While the issues raised by the Warner Robins depot did not have an impact on the award decision, the $20-million adjustment, if finalized, may cause the depot problems meeting its cost objectives in performing the contract. The Air Force maintains that the adjustment was necessary based on its interpretation of the Warner Robins proposal. Depot officials disagree. At this time, the Air Force has not made a final determination as to how to resolve this dispute.

DOD’s Determination to Combine Workloads Not Adequately Supported

DOD decided to issue a single solicitation combining multi-aircraft and commodity workloads at the Sacramento depot and a single solicitation for multi-engine workloads at the San Antonio depot. Under the 1998 Defense Authorization Act, DOD issued the required determinations that the workloads at these two depots “cannot as logically and economically be performed without combination by sources that are potentially qualified to submit an offer and to be awarded a contract to perform those individual workloads.” As required, we reviewed the DOD reports and supporting data and issued our report to Congress on January 20, 1998.We found that the accompanying DOD reports and supporting data do not provide adequate information supporting the determinations.

First, the Air Force provided no analysis of the logic and economies associated with having the workload performed individually by potentially qualified offerors. Consequently, there was no support for the Department’s determination that the individual workloads cannot as logically and economically be performed without combination. Air Force officials stated that they were uncertain as to how they would do an analysis of performing the workloads on an individual basis. However, Air Force studies indicate that the information to make such an analysis is available. For example, in 1996 the Air Force performed six individual analyses of depot-level workloads performed by the Sacramento depot to identify industry capabilities and capacity. The workloads were hydraulics, software electrical accessories, flight instruments, A-10 aircraft, and KC-135 aircraft. As a part of the analyses, the Air Force identified sufficient numbers of qualified contractors interested in various segments of the Sacramento workload to support a conclusion that it could rely on the private sector to handle these workloads.

Second, the reports and available supporting data did not adequately support DOD’s determination. For example, DOD’s determination relating to the Sacramento Air Logistics Center states that all competitors indicated throughout their workload studies that consolidating workloads offered the most logical and economical performance possibilities. This statement was based on studies performed by the offerors as part of the competition process. However, one offeror’s study states that the present competition format is not in the best interest of the government and recommends that the workload be separated into two competitive packages.

On February 24, 1998, the Air Force provided additional information in support of the Department’s December 19, 1997, determination. This information included two documents: (1) a report containing the rationale for combining the San Antonio engine workloads into a single solicitation and (2) a white paper containing the rationale for combining the Sacramento aircraft and commodity workloads. These two papers supported the testimony provided by DOD before the Military Readiness Subcommittee of the House National Security Committee on February 25, 1998.

During our February 24, 1998, testimony before the same subcommittee, we were asked to review the additional support provided by the Air Force. We are in the process of making that review. In this regard, we have several preliminary observations. First, the information contained within the two papers does provide supporting data for the logic and the economies of combining the workloads in the solicitations if the workloads are all to be performed at one location. While we are encouraged to see that the Air Force has provided a substantial amount of information supporting this position, we would have expected to see more analysis relating to the consideration of other feasible alternatives. Other alternatives that appear to be logical and potentially cost-effective were not considered or were considered only in a general manner. For example: (1) solicitations with alternate offer schedules permitting the competitors to offer on any combination of workloads, from one to all, were not considered; (2) transferring some of the workloads to another public depot outside the competition process, an option that was discussed in at least one offeror’s study report, was not considered; and (3) dividing the Sacramento workload into two, rather than five separate work packages, as was done for the San Antonio acquisition strategy, was given only general consideration.

Second, the papers stated that managing multiple source selections would lengthen the competition process and increase costs. However, the paper did not discuss the option of having program management teams at two different locations and different source selection teams managing each of the individual competitions. Using the two-package scenario previously mentioned, may be a logical and cost-effective alternative. Also, the papers stated that some of the workloads are too small and sporadic to attract interested offerors unless this undesirable workload is combined with more attractive work. The option of transferring these workloads outside the competition process was not considered, although their inclusion in the work package may increase the cost of other competition workloads.

Third, regarding cost issues, the Air Force analysis projected an increased cost from issuing separate solicitations of $55.3 million to $130.7 million at Sacramento and $92.4 million to $259.6 million at San Antonio. However, all recurring cost elements were not considered. For example, the analysis did not consider the additional layer of cost associated with subcontracting under the combined work package scenario. Since these costs could be significant and could exceed the projected savings estimated by the Air Force from using combined workloads, it is important that they be considered. Additionally, the Air Force analysis assumed that the cost of operations would be the same for each option, while the possibility of increased competition could reduce the costs for unbundled workloads.

Lastly, Air Force Audit Agency officials informed us that they performed a management advisory service review of the papers. They stated that given the 2-day time frame available they did “a cursory review” of the source documents and a general assessment of the logic of the two alternatives discussed in the Air Force papers. This review assessed the logic of the two alternatives reviewed in each case, but did not include an audit of the underlying data nor a consideration of other feasible alternatives.

Concerns Raised Regarding the Sacramento and San Antonio Competitions

As part of our mandated review of the solicitations and awards for the Sacramento and San Antonio engine workloads, we reviewed DOD reports to Congress in connection with the workloads, draft requests for proposals, and other competition-related information. Further, we discussed competition issues with potential public and private sector participants. These participants raised several concerns that they believe may affect the competitions. Much remains uncertain about these competitions, and we have not had the opportunity to evaluate these issues, but I will present them to the Subcommittee.

Ability to Privatize Sacramento and San Antonio Workloads Limited by the 1998 Act

The 1998 Defense Authorization Act modifies 10 U.S.C. 2466 to allow the services to use up to 50 percent of their depot maintenance and repair funds for private sector work. However, the act also provides for a new section (2460) in title 10 to establish a statutory definition of depot-level maintenance and repair work, including work done under interim and contractor logistic support arrangements and other contract depot maintenance work and requires under 10 U.S.C. 2466, that DOD report to Congress on its public and private sector workload allocations and that we review and evaluate DOD’s report. These changes, which will affect the assessment of public and private sector mix, are in effect for the fiscal year 1998 workload comparison, and DOD must submit its report to Congress for that period by February 1, 1999.

Determining the current and future public-private sector mix using the revised criteria is essential before awards are made for the Sacramento and San Antonio workloads. Preliminary data indicates that using the revised criteria, about 47 to 49 percent of the Air Force’s depot maintenance workload is currently performed by the private sector. However, the Air Force is still in the process of analyzing workload data to determine how much additional workload can be contracted out without exceeding the 50 percent statutory ceiling.

Air Force Draft Proposal to Reduce Overhead Cost Savings on Existing Depot Workload

In December 1996, we reported that consolidating the Sacramento and San Antonio depot maintenance workloads with existing workloads in remaining Air Force depots could produce savings of as much as $182 million annually. Our estimate was based on a workload redistribution plan that would relocate 78 percent of the available depot maintenance work to Air Force depots. We recommended that DOD consider the savings potential achievable on existing workloads by transferring workload from closing depots to the remaining depots, thereby reducing overhead rates through more efficient use of the depots. The Air Force revised its planned acquisition strategy for privatizing the workloads in place and adopted competitive procedures that included incorporation of an overhead savings factor in the evaluation.

During the recent C-5 workload competition evaluation, the Air Force included a $153-million overhead savings estimate for the impact that the added C-5 workload would have on reducing the cost of DOD workload already performed at the military depot’s facilities. The overhead savings adjustment, which represented estimated savings over the 7-year contract performance period, was a material factor in the decision to award the C-5 workload to Warner Robins. The private sector offerors questioned the military depot’s ability to achieve these savings.

In response to private sector concerns, the Air Force is considering limiting the credit given for overhead savings in the Sacramento and San Antonio competitions. For example, in the draft Sacramento depot workload solicitation, the Air Force states that “the first year savings, if reasonable, will be allowed. The second year savings, if supportable, will be allowed but discounted for risk. For three years and beyond, the savings, may be allowed if clearly appropriate, but will be considered under the best-value analysis.”

Other Potential Solicitation Issues

Questions have been raised about the structure of the draft solicitations. One concerns the proposed use of best-value evaluation criteria. The draft solicitations contain selection criteria that differ from those used in the recent competition for the C-5 workload. They provide that a contract will be awarded to the public or private offeror whose proposal conforms to the solicitation and is judged to represent the best value to the government under the evaluation criteria. The evaluation scheme provides that the selection will be based on an integrated assessment of the cost and technical factors, including risk assessments. Thus, the selection may not be based on lowest total evaluated cost. For the C-5 solicitation, the public offeror would receive the workload if its offer conformed with the solicitation requirements and represented the lowest total evaluated cost. The questions concern the propriety of a selection between a public or private source on a basis other than cost. Other questions concern whether multiple workloads should be packaged in a single solicitation and whether the inclusion of multiple workloads could prevent some otherwise qualified sources from competing.

As noted, the solicitations are still in draft form. As required by the 1998 act, we will evaluate the solicitations once issued, in the context of the views of the relevant parties to determine whether they are in compliance with applicable laws and regulations.

Mr. Chairman, we are working diligently to meet the Committee’s mandates and to safeguard sensitive Air Force information that is necessary to accomplish this work. We are prepared to discuss with the Air Force the steps that can be taken to safeguard the material and facilitate the source selection process while allowing us to carry out our statutory responsibility. However, we simply will be unable to meet our mandated reporting requirements unless we are provided timely access to this information.

This concludes my prepared remarks. I will be happy to answer your questions at this time.

DOD Letters on Access to Records Regarding Public-Private Competitions

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