“The Aerospace Guidance and Metrology Center (AGMC) depot will be closed; some workload will move to other depot maintenance activities including the private sector.” After the BRAC recommendation to close AGMC was finalized, (1) the Air Force moved a small portion of AGMC’s Air Force workload to other Air Force depots, (2) the Navy moved most of its AGMC workload to other sites, and (3) the Army moved all of its AGMC workload to other sites. The Air Force decided to privatize-in-place the remaining AGMC workloads. At the time it made this decision, the Air Force relied on an analysis that estimated privatizing would save about $5 million in 1997. However, the preaward analysis was not documented and Air Force officials do not know the basis for the costs included. Consequently, the Air Force was not able to reconcile its current interim study to its precontract award analysis. Since October 1996, the Newark, Ohio facility has been operated as the Boeing Guidance Repair Center by two contractors—Boeing North American, Inc., (Autonetics Electronics Systems Division) and Wyle Laboratories, Inc. The BGRC repair contract is managed by the Air Force’s Ogden, Utah, Air Logistics Center program office. Weapon system and item management functions for missile inertial guidance systems are performed at Ogden and the same functions for aircraft inertial guidance systems are managed at the Air Force’s Oklahoma City Air Logistics Center. The Air Force is retaining ownership of depot plant equipment with an estimated value of $326 million. The Newark-Heath-Licking County Port Authority is in the process of purchasing the Newark Air Force Base real property. The Port Authority currently leases the facility to Boeing, which then subleases a portion of the facility to Wyle Laboratories. Additional details regarding the AGMC’s mission and the depot’s closure and privatization-in-place are found in appendix I. The Air Force’s AGMC and two Navy facilities are the only privatizations-in-place resulting from BRAC decisions and have, consequently, created much interest in the cost and benefits of this concept. The question of whether closing and privatizing-in-place AGMC’s workload would result in savings arose soon after the 1993 BRAC closure decision. After the decision, Air Force organizations conducted several studies comparing the projected cost of privatizing-in-place the AGMC depot maintenance workload against the historical costs of the Air Force depot. These studies concluded that costs of a privatized-in-place operation would exceed the historic costs by $6.2 million to $20 million, on a projected workload of about $82 million to $90 million. However, in late 1995, at the time of the decision to award the contract, an Air Force Materiel Command (AFMC) analysis concluded that privatization-in-place would save about $5 million in 1997 and a total of $20 million over the 5-year contract period. In April 1996, we testified that preliminary data showed (1) unit costs were higher after privatization-in-place for 201, or about 79 percent of the items we reviewed; and (2) overall, repair costs increased by about $6 million for the 254 items reviewed. We also noted that AFMC’s projected 5-year savings of $20 million did not include all relevant costs. For example, estimated contract costs excluded $15 million in material costs for eight contract items. Following a 9-month transition period, the first full year of the BGRC contract operations began in October 1996. After the first quarter, Ogden and Oklahoma City logistics center personnel noted that funds were being expended faster than anticipated for the BGRC contract. The most significant factor appeared to be the increased amount of material being ordered. After reviewing Ogden and Oklahoma City information, we requested that the aircraft guidance program office at the Oklahoma City Air Logistics Center and the missile guidance program office at Ogden Air Logistics Center compare contractor versus Air Force depot costs for the fiscal year 1997 workload. Headquarters, AFMC, managed this evaluation. The Air Force’s July 1997 interim study projected that the privatization-in-place of guidance repair and metrology workloads at BGRC will result in fiscal year 1997 costs being from $3 million to $32 million more than the costs of performing the same work when the facility was operated as an Air Force depot. Actual data was used to determine AGMC’s pre-closure costs and actual cost data available to date and estimates were used to project BGRC’s costs for 1997. The Air Force plans to update BGRC’s costs using complete actual data after the 1997 workload is closed out. The contractor disagreed with the AFMC interim study and provided its own analysis. Air Force officials said the Boeing analysis was not comprehensive because it (1) did not include contract administration and oversight costs and (2) overstated AGMC costs prior to privatization-in-place. In April 1997, AFMC estimated that privatized-in-place repair operations for the year would cost from $7.7 million to $31.2 million more than historical costs of AGMC operations—a 10.2- to 44.8-percent increase—with a most likely increase of $16.1 million. In July 1997, AFMC expanded its interim cost analysis to include the metrology costs and revised its prior estimates based on a reevaluation of overhead and base operation and support costs. Using actual cost data, this reevaluation increased the costs of each workload repaired prior to privatization by allocating all base operation and support costs from the Newark Air Force Base, including those not directly affecting the depot maintenance business area, to the maintenance and metrology workloads. The later projection indicated that the privatized-in-place repair and metrology operations during the first year of the contract would cost from $3.4 to $32 million more than the historical AGMC cost—a 3.8- to 39-percent increase—with a most likely increase of $14.1 million, or about 16 percent. Because these comparisons are subject to change, AFMC officials noted that they would be revisited when the fiscal year 1997 contract period is over. Appendix II summarizes the results of these analyses. Boeing officials disagreed with the results of AFMC’s most recent interim study. They believe it overstates the contractor’s material consumption and neglected to adjust for historic military construction expenditures. As a result, they are concerned that AFMC miscalculated the cost of privatization-in-place. In response, Boeing did its own analysis estimating that privatization-in-place would cost $67.2 million compared to its estimate of $74.0 million for government operations—a $6.8 million savings over government operations in fiscal year 1997. Boeing officials met with AFMC officials on August 5, 1997, to present their analysis and to gain an understanding of the AFMC methodology. According to Boeing and AFMC officials, the Boeing estimate did not include a detailed analysis of specific workloads and costs. AFMC officials added that the Boeing analysis was not comprehensive. For example, they pointed out that Boeing’s estimate did not include contract administration and oversight costs of about $3.4 million, and it overstated historic AGMC operations and maintenance costs by about $5 million. However, AFMC did acknowledge the need to address Boeing’s concern about historic military construction expenditures and to meet with Boeing to discuss the need for some adjustments to its cost comparison. AFMC stated that the issue of material consumption would be resolved through an Air Force Audit Agency review that is scheduled to be completed in December 1997. Boeing officials also pointed out that they are meeting or exceeding contract requirements for cost, schedule, and performance. For example, Boeing officials, noted that they are: underrunning target costs by 5 percent and 15 percent for Intercontinental Ballistic Missile and aircraft guidance system repair; exceeding minimum delivery schedules and delivering more end-items per month than AGMC had been tasked to deliver in fiscal year 1995; and exceeding quality requirements by achieving less than a 3-percent quality deficiency report rate versus the contract goal of 10 percent or less. We agree with Boeing that preliminary indications show that it is meeting contract goals. It will not be until all the costs are available for 1997, the first full year of privatized operations, that we will be able to determine how the cost of the privatized maintenance operations compares with cost of comparable maintenance operations by the Air Force depot. Our work indicates that, in general, AFMC’s methodology for estimating the cost of work performed at the privatized-in-place BGRC facility and the cost for the same work based on AGMC cost data was reasonable. The methodology was analytically sound and used the best available data. In selecting its methodology and identifying the appropriate data, AFMC gathered input and addressed criticisms from various Air Force, Defense Contract Management Command, and contractor officials. AFMC’s methodology is consistent with DOD guidance on public-private depot competitions found in the Defense Depot Maintenance Council Cost Comparability Handbook and in supplemental Air Force procedures for conducting public-private competitions. Defense contractors participated in the development of the handbook and in subsequent revisions. We previously reviewed the handbook as a part of our assessment of depot maintenance public-private competitions and found that it generally covers the factors that should be considered in such competitions. In performing its analysis, the Air Force Materiel Command used actual data where it was known and estimated costs when actual costs were not available. Estimated costs were expressed as ranges, using most likely, low, and high estimates. A summary of the methodology used for the analysis is provided in appendix III.