Prepared Statement by Henry L. Hinton, Jr.
Mr. Chairman and Members of the Subcommittee: I am pleased to be here today to discuss issues
related to the public-private competitions for workloads at two maintenance depots identified for
closure during the 1995 base realignment and closure process. First, I will address the problems
we are having in obtaining access to Department of Defense (DOD) information that we need
regarding these competitions to meet our reporting responsibilities under the 1998 Defense
Authorization Act. In relation to those responsibilities, I will also discuss
the recent competition for C095 aircraft workload and our assessment of it;
the adequacy of DOD's support for its determination that competing combined, rather than individual workloads of each maintenance depot is more logical and economical; and
concerns participants have raised about the upcoming competitions for the workloads at the air logistics centers in Sacramento, California, and San Antonio, Texas.
Before I discuss specifics, I will summarize the key points in my testimony.
RESULTS IN BRIEF
First of all, our lack of access to information within DOD is seriously impairing our ability to
carry out our reporting requirements. We completed, with difficulty, our required report to
Congress concerning DOD's determination to combine individual workloads at two closing
logistics centers into a single solicitation at each location. However, the Air Force has not been
responsive to some of our continuing requests for information relative to the Sacramento and San
Antonio competitions. If the Department continues to delay and restrict our access to information
we need to do our work, we will be unable to provide Congress timely and thorough responses
regarding the competitions for the remaining depot maintenance workloads at Sacramento and
To meet our reporting requirements regarding these competitions, we will need to review DOD
documents relating to solicitations, competitors' proposals, DOD evaluations of the proposals,
and the selection of successful offerors as they become available to Air Force procurement
officials. We recognize the sensitivity of this material and are prepared to discuss with the Air
Force steps for safeguarding the material and facilitating the selection process, while allowing us
to fulfill our statutory responsibility.
In assessing the competition process for the C095 aircraft workloads, we found that (1) the Air
Force provided public and private sources an equal opportunity to compete for the workloads
without regard to where the work could be done; (2) the Air Force's procedures for competing the
workloads did not appear to deviate materially from applicable laws or the Federal Acquisition
Regulation (FAR); and (3) the award resulted in the lowest total cost to the government, based on
Air Force assumptions and conditions at the time.
For the remaining workloads at Sacramento and San Antonio, DOD reports and other data do not
support the Defense Secretary's determination that using a single contract with combined
workloads is more logical and cost-effective than using separate contracts for individual
Much remains uncertain about the upcoming competitions for the Sacramento and San Antonio
depot maintenance workloads. Potential participants have raised several concerns that they
believe may affect the conduct of the competitions. One concern is the impact of the statutory
limit on the amount of depot maintenance work that can be done by non-DOD personnel. The
Air Force has not yet determined the current and projected public-private sector workload mix
using criteria provided in the 1998 Defense Authorization Act, but is working on it. Nonetheless,
preliminary data indicates there is little opportunity to contract out additional depot maintenance
workloads to the private sector. Another concern is the Air Force's proposed change in the
overhead savings the Department may factor into the cost evaluations. For the C095 workload
competition, overhead savings were considered for the duration of the performance period.
However, for the Sacramento and San Antonio competitions, the Air Force is considering
limiting overhead savings to the first year and possibly reducing the savings for the second year.
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 theSacramento Air Logistics Center, including the Air Force maintenance depot,
is to be closed by July 2001. To mitigate the impact of the closures on thelocal 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
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.\1\
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 C095
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 overseeDOD'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.
\1\ The workloads at these activities involve the KC09135, ground communication equipment,
and hydraulics and other commodities at the Sacramento depot, and the F100, TF39, and T56
engines and fuel accessories at the San Antonio Depot.
First, within 60 days of its enactment, the Defense Authorization Act requires us to review the
C095 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) are in compliance with applicable law
and the FAR; and (3) whether the 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. OD issued these reports on February 3, 1998. The Air force
cannot issue finalsolicitations 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
We experienced this problem in doing our work for our recent report to the 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
AirForce denied our request, citing concerns regarding the release of proprietary and
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 heavilyredacted 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
Our basic authority to access records is contained in 31 U.S.C. 716. Thisstatute 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 C095 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 C095 aircraft workload was the first such competition. We issued our required report evaluating the C095 competition and award on January 20, 1998.\2\
\2\ Public-Private Competitions: Processes Used for C095 Aircraft Award Appear Reasonable
(GAO/NSIAD09980972, Jan. 20, 1998).
After assessing the issues required under the act relating to the C095 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 C095 workload. In our view, the
procedures used in the C095 competition reasonably addressed the issue of public sector cost
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 C095 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
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.\3\ We found that the
accompanying DOD reportsand supporting data do not provide adequate information supporting
\3\ Public-Private Competitions: DOD's Determination to Combine Depot Workloads Is Not
Adequately Supported (GAO/NSIAD09980976, Jan. 20, 1998).
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, A0910 aircraft,
and KC09135 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.\4\ 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.
\4\ Prior to the planned competition, the Air Force engaged three offerors to identify work
processes at Sacramento and determine how those processes could be performed more
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 the Department of Defense 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 mentioned
above, 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 atSacramento and $92.4 million to
$259.6 million at San Antonio. However, allrecurring 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 two- 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
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 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
f 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
f 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.\5\ 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.
\5\ Air Force Depot Maintenance: Privatization-in-Place Plans Are Costly While Excess
Capacity Exists (GAO/NSIAD09970913, Dec. 31, 1996).
During the recent C095 workload competition evaluation, the Air Force included a $153-million
overhead savings estimate for the impact that the added C095 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 C095 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 latest
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 C095 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 C095 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.