Depot Maintenance:

Opportunities to Privatize Repair of Military Engines

NSIAD-96-33: Published: Mar 5, 1996. Publicly Released: Mar 5, 1996.

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GAO examined the Department of Defense's (DOD) depot maintenance program, focusing on whether the: (1) DOD depots should retain their engine repair capabilities; (2) opportunities exist to privatize additional engine repair workloads; and (3) excess capacity within the DOD depot system adversely affects privatization decisions.

GAO found that: (1) DOD maintains its engine repair capability in the public depot system to comply with statutory requirements and to reduce the costs and readiness risks associated with private-sector repairs; (2) most companies have the capacity to absorb additional military workloads, but doing so would increase per-unit repair costs; (3) the decision to realign Kelly Air Force Base and to close the San Antonio Air Logistics Center allows DOD to reduce excess engine capacity, improve the cost-effectiveness of its remaining engine repair facilities, and privatize additional commercial counterpart engine work; and (4) the decision to keep the depot open by privatizing its workload will limit or preclude any reduction in excess depot capacity and associated overhead costs.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: During congressional hearings and in discussions with DOD officials regarding report language for the fiscal year 1997 authorization and appropriations bills, key committees questioned DOD officials regarding their plans for the privatization-in-place of engines and other workloads. DOD revised its strategy for outsourcing the San Antonio and Sacramento depot workloads and is conducting public-private competitions. GAO has been following the evolving strategy and providing updated information to both the House and the Senate. The 1998 Defense Authorization Act included requirements for GAO to review and report on the Air Force's solicitation for a public-private competition for the engine workloads at San Antonio, the Air Force's decision to bundle the three engine workloads into a single solicitation, and the contract award.

    Matter: Congress may wish to require DOD to report its plan for privatizing-in-place the engine workload at the San Antonio Air Logistics Center. The plan should include its strategy for determining the source of repair for engine workloads currently at the San Antonio Air Logistics Center and a discussion of the cost-effectiveness of various source-of-repair alternatives, including transferring the workload to other military depots and privatizing-in-place.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Air Force conducted a public-private competition for the San Antonio ALC engine workload, and, on February 12, 1999, selected Oklahoma City ALC as representing the best value to the government. The Air Force calculated that a 9-year savings of $225.5 million was achievable by reducing overhead rates through improved capacity utilization at Oklahoma City.

    Recommendation: The Secretary of Defense should develop a plan for reducing excess engine capacity and improving the utilization of military depots not identified for closure. This plan should address how DOD intends to reduce excess engine capacity at other DOD engine depots in light of planned privatization.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DOD's response noted that it had sent a policy report to Congress in April 1996 that addressed performance of all depot maintenance, including competition and excess capacity. However, the policy report did not provide a plan for dealing with excess capacity, and did not recognize the requirement to use competitive procedures before privatizing depot maintenance workloads greater than $3 million. Subsequently, DOD reinstituted its public-private competition program. The Air Force conducted a public-private competition for the San Antonio ALC engine workload, and, on February 12, 1999, selected Oklahoma City ALC as representing the best value to the government. The Air Force calculated that a nine-year savings of $225.5 million was achievable by reducing overhead rates through improved capacity utilization at Oklahoma City.

    Recommendation: The Secretary of Defense should develop a plan for reducing excess engine capacity and improving the utilization of military depots not identified for closure. This plan should address how DOD intends to comply with existing statutes regarding the use of competitive procedures when changing depot maintenance workload to the private sector.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: During congressional hearings and in discussions with DOD officials regarding report language for the fiscal year 1997 authorization and appropriations bills, key committees questioned DOD officials regarding their plans for the privatization-in-place of engines and other workloads. DOD revised its strategy for outsourcing the San Antonio and Sacramento depot workloads to include holding public-private competitions. As a part of these competitions, DOD agreed to evaluate the impact on the cost of other workloads from consolidating workloads from the closing depots with workloads in the remaining facilities. The 1998 Defense Authorization Act included requirements for GAO to review and report on the Air Force's solicitation for a public-private competition for the engine workloads at San Antonio, the Air Force's decision to bundle the three engine workloads into a single solicitation, and the contract award.

    Recommendation: The Secretary of Defense should require the Secretary of the Air Force to assess the cost-effectiveness of various alternatives for allocating engine workload from the San Antonio Air Logistics Center among the public and private sector, including privatization-in-place and transferring work to other depots.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: The Navy agreed to evaluate the comparative repair prices for the LM2500 engine to determine what its future acquisition repair strategy will be. In March 1998, a Navy contract study calculated the total in-house cost of supporting the LM2500 engine and expressed these costs in terms of a dollar rate per operating engine hour. General Electric was the only U.S. company that responded to a Navy request for firms interested in providing complete logistics support for the LM2500 under a "power by the hour" arrangement. The Navy's discussions with GE did not indicate that large savings would be achieved by contracting for logistics support on the total engine workload. The Navy now plans to retain maintenance of older versions of the engine at North Island, but will contract for logistics support on newer versions of the LM2500. Navy officials do not believe a public-private competition is required since North Island does not repair the newer versions of the engine.

    Recommendation: The Secretary of Defense should require the Secretary of the Navy to conduct a public-private competition for the LM2500 engine workload.

    Agency Affected: Department of Defense

 

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