Air Force Depot Maintenance:

Management Improvements Needed for Backlog of Funded Contract Maintenance Work

GAO-02-623: Published: Jun 20, 2002. Publicly Released: Jun 20, 2002.

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The Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 requires GAO to review various aspects of the Department of Defense (DOD) policy that allows Defense Working Capital Fund activities to carry over a 3-month level of work from one fiscal year to the next. The DOD 3-month carryover standard applies to all DOD activity groups except for the contract portion of the Air Force depot maintenance activity group, for which DOD established a 4.5-month carryover standard because of the additional administrative functions associated with awarding contracts. Reported carryover balances for fiscal years 2000 and 2001 were inaccurate and, therefore, the balances were not reliable for decision-making or budget review purposes. The reported carryover balances were not accurate due to (1) faulty assumptions used in calculating work-in-process and (2) records not accurately reflecting work that was actually completed by year-end. As a result, the amount of carryover reported by the Air Force was understated by tens of millions of dollars and customers' funds were idle that could have been used for other purposes during the fiscal year. Even though the carryover was understated, Air Force reports show that the contract portion of the depot maintenance activity group exceeded the 4.5-month carryover standard at the end of fiscal year 2000 and fiscal year 2001 by $44 million and $134 million, respectively. Air Force headquarters officials stated the primary reason that they exceeded the standard for fiscal year 2001 was the receipt of a large amount of orders late in the fiscal year.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On June 20, 2002, GAO reported that our analysis of about $1.6 billion of reported unfilled orders showed that a substantial amount of the work that the Air Force depot maintenance activity group carried over into fiscal year 2001 was work that it had planned to, but did not complete prior to the end of fiscal year 2000 due to logistical and production problems. Specifically, we estimated that about $208 million of the work was not completed by September 30, 2000, because work on the items was not started as planned at the contractors' facilities. One of the underlying causes of the activity group's induction problem is that the Air Force Material Command has not established effective internal control procedures to ensure production management specialists are complying with its policy guidance. For example, Air Force Materiel Command (AFMC) Instruction 21-113 states that at a minimum "review of asset generation (did assets needing repair arrive at a depot for repair) should be done on a quarterly basis and, if assets will not generate (assets needing repair did not arrive at a depot) within a reasonable period of time (60 days), the scheduled input quantities and obligated dollars must be reduced accordingly." However our analysis showed and AFMC agreed that there was no systematic process or effective internal control to ensure that the production management specialists are complying with this guidance. We recommended that the Air Force direct the Commander, AFMC to provide clear and consistent guidance on how, when and by whom the induction of assets at a depot should be monitored. The Air Force concurred with our recommendation and agreed to update its guidance on the induction of assets. On June 2, 2005, the Air Force issued a revised AFMC Instruction 21-113 that requires the seller production management specialist to review asset generation quarterly. If assets did not arrive at a depot within a reasonable period of time (60 days), the instruction requires the specialist to reduce the input quantities and obligated dollars on the contract. Further, the specialist is expected to perform a final reconciliation of the contract at a minimum of 60 days before contract expiration. As a result of these changes, congressional and Defense decision makers should have more reliable carryover information to make key budget decisions, such as whether or not to enhance or reduce customer budgets.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Material Command, to provide clear and consistent guidance on how, when, and by whom the induction of assets should be monitored.

    Agency Affected: Department of Defense: Department of the Air Force

  2. Status: Closed - Implemented

    Comments: In response to GAO's recommendation, the Air Force Materiel Command implemented a plan for addressing the underlying causes of the awaiting parts problem for contract repair activities. First, the AFMC signed a memorandum dated September 8, 2003, directing the air logistics centers to review all government-furnished material contracts and change all Defense Logistics Agency (DLA) managed consumables on the contracts to contractor furnished material. The policy states that no contract will be authorized that has DLA managed consumables of government furnished material. According to the Air Force, this will reduce the AFMC inventory of government furnished material at contract facilities from approximately $500 million to $90 million. In addition, in September 2003, the AFMC established Due-in From Maintenance/Due-out to Maintenance procedures to track material and inventory as it moves from Air Force supply to contractor supply and back through the repair pipeline. By implementing these procedures, the Air Force expects to gain better visibility over awaiting parts end items and critical driver parts, a key underlying cause of the awaiting parts problem.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Material Command, to develop an action plan to address the underlying causes for the "awaiting parts" problems similar to the plan that was recently developed to address the "awaiting parts" problems for the air logistics centers' in-house depot maintenance operations.

    Agency Affected: Department of Defense: Department of the Air Force

  3. Status: Closed - Implemented

    Comments: In response to this recommendation, the Air Force established a team to identify the "awaiting parts" problem for both in-house and contract workload. After reviewing the problem, the Air Force determined that the primary cause was insufficient support for bit and piece items, and poor insight into contractor awaiting parts problem requirements. The Air Force Material Command is reviewing opportunities to maximize the use of contractor-furnished material versus government-furnished material contracts, which the Air Force feels will reduce government obligations to provide the day-to-day management of low-price expendable items available to the contractor in the open market. In addition, the Air Force is looking at options to provide greater visibility into awaiting parts requirements and the status at contractor facilities.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Material Command, to identify underlying causes of the contract depot maintenance "awaiting parts" problem.

    Agency Affected: Department of Defense: Department of the Air Force

  4. Status: Closed - Implemented

    Comments: In response to GAO's recommendation, the Air Force implemented an approach to manage contracts that were transferred from the closed ALCs. The Air Force established a formal group that is systematically investigating and reconciling contracts that were transferred from the closed ALCs and throughout the process it is providing the status of reconciliation to each ALC Commander. This has been accomplished through a monthly briefing to the Center Commanders on metrics showing the number of contracts reviewed and reconciled by Oklahoma City and Ogden ALCs or the reduction in dollar value of contracts still needing reconciliation at Warner Robins ALC. AFMC has substantially completed its review and reconciliation of the contracts transferred from the closed ALCs. For example, two of the three ALCs have reviewed over 1700 contracts and reconciled 1285 of these contracts and the other ALC has reduced the dollar value of contracts still needing reconciliation by $44 million as of April 2003.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Material Command, to develop accurate and complete information on contracts that were awarded by the San Antonio and Sacramento Air Logistics Centers and subsequently transferred to the three remaining centers to avoid loss of control that may result in fraud, waste, and abuse. This will require, at a minimum, (1) establishing milestones for completing both the review of transferred contracts and resolving data problems identified during the reviews, (2) using metrics to monitor progress, and (3) ensuring that sufficient resources are dedicated to the resolution of the problem.

    Agency Affected: Department of Defense: Department of the Air Force

  5. Status: Closed - Implemented

    Comments: To improve performance in the area, the Air Force hired additional production management specialists to improve the timeliness and accuracy of repair parts data. In addition, the Air Force developed seven courses to address the data accuracy weaknesses identified in GAO's report including introduction to production management specialist seller, maintenance management, and production management specialist. All 168 production management specialists are required to complete these courses by end of fiscal year 2004. Furthermore, in fiscal year 2003 the Air Force (1) developed five new metrics that act as "red flags" to alert management on the possible data problems and (2) began holding monthly meetings with the three Air Logistics Centers to identify and correct issues with data integrity.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Material Command, to improve the accuracy of the data in its systems that track repair actions and account for costs by (1) holding managers accountable for ensuring the accuracy of the data, (2) developing standard operating procedures that provide detailed guidance on production management specialists' day-to-day responsibilities, particularly in the area of ensuring data accuracy, (3) providing additional training to production management specialists on these procedures, and (4) developing metrics that act as "red flags" to alert management of possible data problems. At a minimum, the systems should provide timely and accurate information on when contractors receive broken items for repair, repair work starts on the items, repairs are completed, and required items are returned to customers.

    Agency Affected: Department of Defense: Department of the Air Force

  6. Status: Closed - Not Implemented

    Comments: In June 2002, GAO recommended that the Commander, Air Force Material Command, use the date contractors actually start work, rather than the planned start date, to calculate work-in-process for all workload categories as long as the contract portion of the activity group remains in the working fund. Since the issuance of GAO's report, the OSD (Comptroller) granted to the Air Force the authority to move contract depot maintenance out of the working capital fund. As of April 2003, all contractor-furnished material contracts have been transitioned out of the working capital fund and government-furnished material contracts will be transitioned as soon as the systems are in place to track the government-furnished material on these contracts. Upon transfer of the government furnished material contracts out of the working capital fund, work-in-process will no longer be a valid measure of performance. This was originally expected to be completed by the end of fiscal year 2005. However, the Air Force redesigned its management approach to achieve the desired end state. This redesign drove a one-year slip in the completion date. The Air Force will begin the transition of government-furnished material out of the working capital fund in October 2006. Further, an Air Force official stated that the Air Force has no plans to change the method for calculating its work-in-process by using the contractors' actual start work date while the contract portion remains in the activity group.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Material Command, to use the date contractors actually start work, rather than the planned start date, to calculate work-in-process for all workload categories as long as the contract portion of the activity group remains in the working capital fund.

    Agency Affected: Department of Defense: Department of the Air Force

  7. Status: Closed - Implemented

    Comments: On June 20, 2002, GAO reported that our analysis of about $1.6 billion of reported unfilled orders showed that a substantial amount of work that the Air Force depot maintenance activity group carried over into fiscal year 2001 was work that it had planned to, but did not complete prior to the end of fiscal year 2000 due to logistical and production problems. Specifically, we estimated that about $208 million of the work was not completed by September 30, 2000, because work on the items was not started as planned at the contractors' facilities. One of the underlying causes of the activity group's induction (work begins on an item) problem is that the Air Force Materiel Command has not established effective internal control procedures to ensure production management specialists are complying with its policy guidance. For example, Air Force Materiel Command (AFMC) Instruction 21-113 states that, at a minimum "review of asset generation (asset arrives at depot) should be done on a quarterly basis and, if assets will not generate within a reasonable period of time (60 days), the scheduled input quantities and obligated dollars must be reduced accordingly." However, our analysis showed and AFMC agreed that there was no systematic process or internal control to ensure that the production management specialists are complying with this guidance. We recommended that the Air Force direct the Commander, AFMC to establish internal control procedures to ensure the guidance on the induction of assets is followed. The Air Force concurred with our recommendation and stated that updating their guidance on the induction of assets will strengthen its internal controls. On June 2, 2005, the Air Force issued a revised AFMC Instruction 21-113 that further describes the policies and operating procedures of the Air Force depot maintenance activity group contract maintenance program. This instruction provides a more detailed description of the responsibilities of the production management specialist and when reconciliation of the contract file should take place. Further, the instruction requires the seller production management specialist, at a minimum, to monitor (review) asset generation quarterly and reduce scheduled input quantities and obligated dollars if the assets will not arrive at the depot within a reasonable period of time (60 days). As a result of these changes, congressional and Defense decision makers should have more reliable carryover information to make key budget decisions, such as whether or not to enhance or reduce customer budgets.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Material Command, to establish internal control procedures to ensure that the guidance on the induction of assets is followed.

    Agency Affected: Department of Defense: Department of the Air Force

 

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