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GAO-08-761R: 

United States Government Accountability Office:
Washington, DC 20548: 

May 15, 2008: 

Congressional Committees: 

Subject: Depot Maintenance: Issues and Options for Reporting on 
Military Depots: 

This report formally transmits the attached briefing in response to the 
Senate Report on the National Defense Authorization Act for Fiscal Year 
2008. The report required GAO to review and make recommendations 
regarding the reports, assessments, analyses, and documents used for 
determining the compliance of the Department of Defense and military 
departments with the percentage limitation in 10 U.S.C. 2466--
frequently referred to as the 50/50 requirement. On April 23 and 24, 
2008, we provided the briefing to staff of your committees to satisfy 
the mandate requirement. 

We are sending copies of this report to the appropriate congressional 
committees. We are also sending copies to the Secretary of Defense; the 
Deputy Secretary of Defense; the Under Secretary of Defense 
(Acquisition, Technology, and Logistics); the Secretaries of the Army, 
Navy, and Air Force; and the Commandant of the Marine Corps. This 
report will also be available at no charge on GAO's Web site at 
[hyperlink, http://www.gao.gov]. Should you or your staff have any 
questions concerning this report, please contact me at (202) 512-8365 
or solisw@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. Key contributors to this report were Julia Denman, Assistant 
Director; Carleen Bennett; Dawn Godfrey; LaShawnda Lindsey; and Randy 
Neice. 

Signed by: 

William M. Solis: 
Director, Defense Capabilities and Management: 

List of Congressional Committees: 

The Honorable Carl Levin: 
Chairman: 
The Honorable John McCain: 
Ranking Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Daniel K. Akaka: 
Chairman: 
The Honorable John Thune: 
Ranking Member: 
Subcommittee on Readiness and Management Support: 
Committee on Armed Services: 
United States Senate: 

The Honorable Ike Skelton: 
Chairman: 
The Honorable Duncan L. Hunter: 
Ranking Member: 
Committee on Armed Services: 
House of Representatives: 

The Honorable Solomon Ortiz: 
Chairman: 
The Honorable Randy Forbes: 
Ranking Member: 
Subcommittee on Readiness: 
Committee on Armed Services: 
House of Representatives: 

[End of section] 

Enclosure: Briefing Slides: 

Issues and Options for Reporting on Military Depots: 

Briefing for the Senate and House Committees on Armed Services: 

April 23, 2008: 

Briefing Agenda: 

* Introduction; 
* Objectives: 
* Scope and Methodology; 
* Summary of Preliminary Observations; 
* Background; 
* Preliminary Observations. 

Introduction: 

The Senate Report on the National Defense Authorization Act for Fiscal 
Year 2008 requires GAO to review and make recommendations regarding the 
reports, assessments, analyses, and documents used for determining the 
compliance of the Department of Defense (DOD) and military departments 
with the percentage limitation in 10 U.S.C. 2466 - frequently referred 
to as the 50/50 requirement. The committee expressed particular 
interest in learning whether there are better methods than the current 
system for meeting its oversight responsibilities of DOD compliance 
with the 50/50 requirement. 

The 50/50 requirement, which under certain circumstances can be waived 
by the Secretary of Defense, provides that not more than 50 percent of 
the funds made available in a fiscal year to a military department or a 
defense agency for depot-level maintenance and repair workload may be 
contracted to non-federal government personnel. DOD must report 
annually on the percentage of depot maintenance funds expended during 
the preceding fiscal year, and are projected to be expended during the 
current fiscal year and the ensuing fiscal year, for performance of 
depot-level maintenance and repair workloads by the public and private 
sectors. 

Objectives: 

1. To what extent does the current 50/50 reporting on the mix of depot 
maintenance funding between the public and private sectors provide 
information for congressional oversight? 

2. To what extent could reporting on core depot capabilities to 
Congress provide an alternative measure for assessing the balance of 
public and private sector depot maintenance workload? 

3. What issues might Congress wish to consider to enhance reporting on 
military depots capabilities or funding allocations of the public 
sector versus private sector? 

This briefing is intended to satisfy the mandate that GAO review 50/50 
reporting requirements. 

Scope and Methodology: 

* To determine the extent to which the current 50/50 reporting on the 
mix of depot maintenance funding between the public and private sectors 
provides information for congressional oversight, we reviewed prior GAO 
and other audit agency products on 50/50 and core and we discussed 
50/50 issues with cognizant DOD officials. 

* To determine the extent to which the reporting on core depot 
capabilities could provide an alternative measure for assessing the 
balance of public and private sector depot maintenance workload, we 
incorporated preliminary findings from our ongoing audit work on depot 
maintenance issues. 

* To identify issues Congress might wish to consider to enhance 
reporting on military depot capabilities or funding allocations in the 
public and private sectors, we reviewed DODís depot maintenance 
policies and procedures, reviewed GAO and other audit agenciesí 
reports, incorporated preliminary findings from our ongoing audit work, 
and met with OSD and service officials to discuss alternatives for 
50/50 reporting. 

Summary of Preliminary Observations: 

* While the 50/50 reporting does not provide a precise accounting of 
the mix of depot maintenance funding between the public and private 
sectors, it provides information for approximating this mix. If 
Congress wishes to assess this mix, 50/50 may continue to provide a 
useful metric until a more meaningful process can be implemented. 
However, oversight could be enhanced with additional information such 
as analyses of annual funding allocation to prior years data, funding 
allocation variances from year to year, and analyses of long term 
trends. Nonetheless, absence of information about workload limits 
50/50ís usefulness to Congress as a stand-alone metric for evaluating 
the mix of depot maintenance between the public and private sectors. 

* The concept of defining a level of core workload to be maintained in 
government depots is an appropriate approach for addressing 
congressional requirements for organic maintenance. Since the current 
core policy and implementation has limitations and does not provide a 
comprehensive process for determining core requirements and capability, 
it is not a viable stand-alone alternative for measuring the depot 
maintenance workload mix, but as a complement to 50/50 does provide 
additional data that would be useful to congressional oversight if it 
were improved and provided to Congress. If improved to provide a more 
comprehensive assessment of core, this process could be used as an 
alternative to 50/50. 

* Additional information would benefit the decision-making process 
regarding the future of organic depot maintenance, 50/50, and core. 

Background: 

While both public and private sector activities have contributed to the 
performance of depot maintenance work, the statutory limitations on the 
percentage of private and public work have been amended several times 
since the inception of the legislative language on the mix of depot 
maintenance workload between the public and private sectors. Several 
selected developments are listed below: 

* 1982: DOD directed that services plan for not more than 70 percent of 
depot maintenance to be repaired at organic [military] depots. 

* 1984: National Defense Authorization Act (NDAA), 1985 provided for 
maintaining core logistics capability. 

* 1991: NDAA for FY 1992 and FY 1993 set a 60 percent floor for organic 
depot maintenance. 

* 1996: DODís policy shifted to relying more on the private sector for 
depot maintenance. 

* 1997: NDAA for FY 1998 established that no more than 50 percent of 
depot maintenance funding can be allocated to the private sector. 

* 1998: Definition of depot maintenance at Section 2460 of Title 10 was 
expanded to include all depot level maintenance and repair workload 
regardless of location of where the work was performed, adding to the 
complexity of 50/50 reporting. 

From 1998-2006 GAO was required to review DODís compliance with 50/50 
requirement. 

Although there is a legislative requirement for core to provide for 
retaining a minimum capability in military depots to support surge 
requirements to meet contingencies, the Secretary of Defense is not 
required to submit to Congress an annual report regarding core 
capability requirements. The Secretary is required to report waivers of 
the core statute and a notification and justification of the 
determination that a weapon system is a commercial item and not subject 
to core. According to the services, they have not submitted reports 
under these requirements. 

Objective 1: Current 50/50 Reports Provide Information on 
Public/Private Funding Mix But Shortcomings Limit Usefulness: 

* The 50/50 process collects and aggregates funding data for depot 
maintenance work accomplished in both the public and private sectors, 
but the existing process has shortcomings that limit its ability to 
provide an exact measure of this funding mix. Some of the weaknesses 
identified in GAO and service audit agency reports are listed below. 
- Inadequate guidance and insufficient internal processes and 
procedures make it difficult to maintain consistency in 50/50 reporting 
methods. 
- Mathematical errors, under-and over-reporting workload, and the 
exclusion of certain reportable depot workload raise questions about 
data accuracy. 
- The commingling of depot and intermediate level maintenance and use 
of multiple types of funding complicates 50/50 reporting. 
- Use of funding rather than workload provides a misleading 
representation of the public/private mix since funding for military 
depots includes the price of parts which are often procured from the 
private sector. Further, because 50/50 does not provide information 
about workloads, it provides no insights about specific workload 
capabilities in the maintenance depots. 
- During the years when GAO was required to review and report on 50/50 
compliance, generally the reports noted that GAO could not determine 
compliance with precision due to factors such as weaknesses in DODís 
financial systems and the processes used to collect and report the 
data. 

* OSD and the services have worked to improve the 50/50 data accuracy 
by developing improved guidelines and using service audit agencies to 
review the data. 

* Despite some continued weaknesses, the collection and aggregation of 
50/50 data allows an approximation of depot maintenance dollars between 
the public and private sectors Ėinformation not available through other 
sources. 

* The availability of 50/50 data and the need to follow 50/50 
procedures have in certain cases, influenced the services to consider 
shifting maintenance work to military depots to improve their 50/50 
postures. 
- The requirement to develop a mitigation plan when the service comes 
within 2 percent of the 50 percent private sector ceiling has impacted 
the Air Force and more recently the Army to develop plans for shifting 
workloads to military depots.
- The requirement that only the Secretary of Defense may waive the 
50/50 requirement has generated discussions among high level officials 
in the Air Force regarding source of repair decisions. 

* We have reported that 50/50 reporting could be made more useful to 
Congress with the addition of such information as analyses of annual 
funding allocation to prior years data, funding allocation variances 
from year to year, and analyses of long term trends. 

Objective 2: Information on Core Capabilities at Military Depots has 
Shortcomings But If Improved Could Provide an Alternative Measure for 
Congressional Oversight: 

The concept of identifying a core workload that should be maintained in 
military depots is a systematic process for delineating what should be 
performed in the public sector, but the existing core process has 
limitations. 

* The legislative requirement for core provides, in part, that a 
minimum capability should be retained in military depots to support the 
surge requirement to meet contingencies. 

* DODís biennial core process is designed to identify required core 
capabilities for depot maintenance and the associated workloads needed 
to sustain those capabilities. But our preliminary work indicates that 
the process may not be comprehensive in establishing core capabilities 
required by DOD guidance in the military depots. 
- The core requirement is vague and results in different service 
interpretations. 
- The core process, which uses direct labor hours is more difficult to 
quantify than 50/50, which uses dollars. Workload information is 
collected by each depot in a work breakdown structure format, 
aggregated for each service, and reported to Office of Secretary of 
Defense Ė but not to Congress. 
- Our preliminary work indicates that each service implements DODís 
core policies differently. 
- The biennial core process, which addresses legacy and modified 
systems does not interface with the acquisition process, which 
addresses emerging requirements for new and future systems.
- Lack of internal controls within DOD (1) brings into question the 
accuracy of the core data and (2) does not ensure maintaining 
sufficient core workloads to meet core capability requirements. 

* To address core requirements for new and modified systems, DODís 
acquisition guidance requires that a core logistics analysis be 
conducted before acquisition milestone B (or milestone C (if no 
milestone B)) and the core logistics capability be established within 
four years of initial operational capability for mission essential 
weapon systems and materiel, but the process for performing the core 
logistics analysis is not clearly defined and implementation varies 
among the services. 
- Based on our ongoing work, it is not clear that program offices are 
establishing core within timeframes required by DOD guidance. 
- Program office officials cited an inconsistency between the core 
requirement and their perception of DODís preference for private 
contractor support. 
- Not having technical data and lack of funding for depot plant 
equipment are reasons program offices gave for not establishing core. 

Despite its weaknesses, the core process does provide information about 
required capabilities and the workloads needed to sustain it 
Ėinformation not available from other sources. As such it is a 
complement to 50/50 and if improved could be used as an alternative 
measure for assessing the balance of public and private sector depot 
maintenance workload. 

Objective 3: Key Issues for Congress as it Considers Reporting Options 
for Oversight of the Public/Private Mix: 

To better evaluate potential changes to existing requirements on depot 
maintenance, consideration of a number of issues would provide 
meaningful insights to aid in the decision-making process. 

* To what extent are 50/50 and core still relevant for assessing a 
required level of organic maintenance capability? 

* What role are the depots to have in DOD weapons system support? Are 
they to be only used for legacy systems and as repairers of last resort 
when a contractor is not available, or are they to be a key source of 
repair for new and modified weapon systems? 

* How does core depot maintenance fit into a DOD support scenario in 
light of DODís preference for using performance-based logistics? 

* If the maintenance depots are to remain relevant in the future, what 
actions are needed to ensure they are modernized and capable of 
performing maintenance on new systems? 

* As it becomes more difficult to distinguish depot from intermediate 
maintenance and maintenance from other supportability functions, to 
what extent does it remain practicable to quantify a balance of public 
and private sector depot maintenance? 

* Is it important for DOD to continue to define some level of core 
capability that it should perform using DOD military or civilian 
employees? 

* What kind of capability, if any, should DOD retain in organic depots 
to assure that they have a ready and controlled source of technical 
competence and the resources necessary to ensure its ability to respond 
to current and future national defense emergencies? 

* To what extent should the depots be capable of performing maintenance 
on weapon system commodities? 

* How would DOD assure that maintenance would continue to be cost 
effective if the depots were no longer available as an alternative 
source of repair? 

* Should there continue to be a required level of organic logistics 
capability and if so should it be only for maintenance? 

* What changes can be made to the 50/50 and or core process to improve 
their accuracy and internal controls? 

* Could a modified strategic-level core process be developed to 
simplify the development of required information regarding essential 
capabilities to be retained in the military depots? 

Agency Views: 

We obtained oral comments and the agency concurred with the facts 
presented. On the basis of the comments, we made several technical 
changes as appropriate. 

Generally Accepted Government Auditing Standards (GAGAS) Statement: 

We conducted this performance audit from February 2008 through April 
2008 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of enclosure] 

[End of correspondence] 

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