GAO-03-16, Depot Maintenance: Change in Reporting Practices and Requirements Could Enhance Congressional Oversight


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entitled 'Depot Maintenance: Change in Reporting Practices and 
Requirements Could Enhance Congressional Oversight' which was released 
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United States General Accounting Office:



Report to Congressional Committees:



GAO:



October 2002:



DEPOT MAINTENANCE:



Change in Reporting Practices and Requirements Could Enhance 

Congressional Oversight:



GAO Highlights: Highlights of GAO-03-16, a report to Congressional 

Committees:



October 2002:



DEPOT MAINTENANCE:



Change in Reporting Practices and Requirements Could Enhance 

Congressional Oversight:



Why GAO Did This Study:



Under 10 U.S.C. 2466, the military services and defense agencies can 

use no more than 50 percent of annual depot maintenance funding for 

work by private-sector contractors. The Department of Defense (DOD) is 

to submit two reports to the Congress annually on the costs of public-

and private-sector depot maintenance workloads: a “prior-years” report 

on the past 2 fiscal years and a “future-years” report on the next 5. 

Section 2466 also requires GAO to report to the Congress on whether DOD 

complied with the so-called “50-50 requirement” in the prior-years 

report and whether the future-years projections are reasonable. This 

report fulfills that requirement.:



What GAO Found:



While DOD’s prior-years report for fiscal years 2000 and 2001 showed 

the U.S. Army and Navy to be below the 50-percent funding limitation on 

private sector workloads and the Air Force to be above it, continuing 

weaknesses in DOD’s data gathering and reporting processes prevented 

GAO from determining with precision whether the services complied with 

the 50-50 requirement. As in past years, GAO found errors and omissions 

in the data. For example, the Army erroneously reported workloads at 

two commands in millions of dollars instead of thousands of dollars, 

resulting in a $414 million--or 8 percent--overstatement of both 

public-and private-sector obligations for the 2 years in total.



Because of the changing nature of budget projections and supporting 

data deficiencies, the future-years report does not provide reasonable 

estimates of public-and private-sector depot maintenance funding 

allocations for fiscal years 2002 through 2006. The services tend to 

place less emphasis and priority on collecting and validating future-

years data. The reported projections are based, in part, on incorrect 

data, questionable assumptions, and some inconsistencies with existing 

budgets and management plans. For example, the Navy did not report 

depot maintenance workloads for a missile system and a ship defensive 

system, understating funding for private-sector work each year by an 

estimated $162 million and public-sector work by about $80 million.



Past and Projected Percentage of Depot Maintenance Funds Allocated to 

the Private Sector, as DOD Reported:



[See PDF for image]



Source: DOD “50-50” Reports, Feb. 4 and Apr. 12, 2002.



[End of figure]



What GAO Recommends:



Because of the inexactness of budget estimates beyond the current and 

upcoming budget years, the future-years report has limited utility. 

Since GAO cited the same problem in prior reviews and the volatile 

nature of budget estimates will likely continue, GAO makes the 

elimination or modification of the future-years-report requirement a 

matter for congressional consideration. GAO also recommends that the 

Secretary of Defense act to improve 50-50 reporting in problem areas. 

DOD agreed with most GAO recommendations, but disagreed with parts of 

two recommendations.



www.gao.gov/cgi-bin/getrpt?GAO-03-16.



To view the full report, including the scope and methodology, click on 

the link above. For more information, contact David Warren at (202) 

512-8412 or warrend@gao.gov.



Contents:



Letter:



Results in Brief:



Background:



Weaknesses in Data Preclude Determinations of Compliance in Prior-

Years Report:



Future-Year Projections Are Not Reasonable and Not Very Useful:



Opportunities Exist to Improve 50-50 Reporting:



Conclusions:



Matter For Congressional Consideration:



Recommendations for Executive Action:



Agency Comments and Our Evaluation:



Appendix I: Scope and Methodology:



Appendix II: GAO Contact and Staff Acknowledgments:



Related GAO Products:



Tables:



Table 1: DOD Reported Depot Maintenance Workload Allocations:



Table 2: GAO Changes to Army Prior-Years Report:



Table 3: GAO Changes to Navy Prior-Years Report:



Table 4: GAO Changes to Marine Corps Prior-Years Report:



Table 5: GAO Changes to Air Force Prior-Years Report:



Table 6: Reporting Quality Compared to Last Year:



Abbreviations:



DOD:Department of Defense



OSD: Office of the Secretary of Defense:



United States General Accounting Office:



Washington, DC 20548:



October 18, 2002:



The Honorable Carl Levin

Chairman

The Honorable John Warner

Ranking Minority Member

Committee on Armed Services

United States Senate:



The Honorable Bob Stump

Chairman

The Honorable Ike Skelton

Ranking Minority Member

Committee on Armed Services

House of Representatives:



Under 10 U.S.C. 2466, not more than 50 percent of annual depot 

maintenance funding provided to the military departments and 

defense agencies can be used for work accomplished by private-sector 

contractors. The legislation provides that the 50-percent limitation 

for a fiscal year can be waived based on a determination that a waiver 

is necessary for reasons of national security and notification to the 

Congress of the reasons for the waiver.[Footnote 1] Section 2466 also 

directs the Department of Defense (DOD) to submit two reports to the 

Congress annually on public-and private-sector depot maintenance 

workloads. The first report is to identify the percentage of funds 

expended by each military department and defense agency during the 

preceding 2 fiscal years for the performance of depot maintenance 

workloads by the public and private sectors (the “prior-years report”). 

The second report is to project the same information for the current 

and 4 succeeding fiscal years (the “future-years report”). For 2002, 

DOD issued the prior-years report in February 2002 and the future-years 

report in April 2002.



Section 2466 also requires us to submit our views to the Congress on 

whether DOD complied with the so-called “50-50 requirement” in the 

prior-years report and whether the projections in the future-years 

report are reasonable.[Footnote 2] Accordingly, this report discusses 

whether (1) the military departments met the 50-50 requirement for 

fiscal years 2000 and 2001 and (2) the projections for fiscal years 

2002 through 2006 represent reasonable estimates. As agreed with your 

offices, we also examined DOD’s efforts to improve the reporting 

process and sought to identify further opportunities for improvement. 

To accomplish these objectives, we analyzed the 50-50 reported data and 

each service’s procedures and internal management controls for 

collecting, aggregating, and validating depot maintenance information 

for purposes of responding to the section 2466 requirements.



Results in Brief:



While DOD’s prior-years report for fiscal years 2000 and 2001 showed 

the Departments of the Army and Navy to be below the 50-percent funding 

limitation on private-sector workloads and the Air Force to be above 

it, continuing weaknesses in DOD’s data gathering and reporting 

processes prevented us from determining with precision whether the 

services were in compliance with the 50-50 requirement.[Footnote 3] As 

in past years, we found errors and omissions in the data. For example, 

the Army erroneously reported workloads at two commands in millions of 

dollars rather than in thousands of dollars, resulting in a 

$414 million--or 8 percent--overstatement of both public-and private-

sector obligations for the 2 years. Also, the Marine Corps did not 

report most depot maintenance workloads from the command responsible 

for system acquisitions and upgrades, understating private-sector work 

by $59 million and public-sector work by $43 million for the 2 years. 

Given these weaknesses, the prior-years report at best provides a rough 

approximation of the allocation of depot maintenance workload between 

the public and private sectors. In that regard, it does provide useful 

information to the Congress in exercising its oversight role and to DOD 

officials in managing the depot maintenance program.



Because of the changing nature of budget projections and supporting 

data deficiencies, the future-years report does not provide reasonable 

estimates of public-and private-sector depot maintenance funding 

allocations for fiscal years 2002 through 2006. The services tend to 

place less emphasis and priority on collecting and validating future-

years data. The reported projections are based, in part, on incorrect 

data, questionable assumptions, and some inconsistencies with existing 

budgets and management plans. For example, the Navy did not report 

depot maintenance workloads for a missile system and a ship defensive 

system, understating funding for private-sector work each year by an 

estimated $162 million and public-sector work by about $80 million. The 

Air Force understated the installation of modifications and contract 

baseline changes totaling $336 million over the 5-year reporting 

period, which would increase the private-sector percentages, and 

understated exempted private-sector workloads by a total of 

$206 million for the 4 years specified by the amended statute,[Footnote 

4] which would decrease private-sector percentages. Such problems, 

coupled with the inexactness of program estimates beyond the budget 

year, limit the usefulness of the future-years report for congressional 

and DOD decision makers. For example, although the Air Force future-

years report does not project a need for additional waivers during this 

period, we believe the Air Force will continue to be significantly 

challenged in this regard, particularly because the conditions that led 

to the waivers for the past 2 years have not materially changed.



There are abundant opportunities to improve both the 50-50 reporting 

process and results. Although in past years the services’ reporting 

improved incrementally, their efforts to improve 50-50 data collection 

and reporting during this most recent reporting period were not as 

widely apparent. Indeed, the overall quality of the reporting process 

in terms of data accuracy, procedures, and supporting documentation 

stayed about the same or declined. The Office of the Secretary of 

Defense and each service did improve guidance somewhat to incorporate 

some of our findings and recommendations from last year’s report, but 

priority and emphasis from top management of the services appear to be 

flagging. Army and Air Force auditors reviewed and corrected 50-50 data 

before it was reported to the Congress, but the Navy again did not use 

its audit service to independently validate data. In addition to 

addressing the individual errors and inconsistencies we found in each 

service’s data, we identified three systemic problem areas that the 

services could improve for future 50-50 reports--the double counting of 

repair costs for components incorporated into an overhaul of a larger 

system or subsystem, the underreporting of depot work performed at 

nondepot locations, and the underreporting of depot repair work managed 

by system program offices. Expanding and clarifying guidance, improving 

management processes and controls, and addressing several 

problem-reporting areas can provide better, more useful information 

for congressional oversight and DOD management.



Because of the inexactness of the budget estimates for those years 

beyond the current year and the upcoming budget year, the future-years 

report has limited utility. Given that we have seen the same problem in 

our prior assessments of earlier 50-50 reports and that the volatile 

nature of budget estimates is not likely to change, we are making the 

elimination or modification of the requirement for the future-years 

report a matter for congressional consideration. We are also 

recommending executive action by the Secretary of Defense to improve 

50-50 reporting in several problem areas.



DOD provided official oral comments on a draft of this report. The 

department agreed with most of our recommendations and cited a number 

of corrective actions they plan to take. However, DOD disagreed with 

portions dealing with the potential double counting of some depot-level 

reparables and the reporting of nonnuclear carrier workload. The agency 

comments section of this report contains more details on DOD’s 

positions and why we believe the recommendations are still appropriate.



Background:



Governing Legislation and Previous Reports Concerning the 50-50 

Requirement:



The Congress has on several occasions amended section 2466 and other 

title 10 provisions to provide guidance to DOD regarding the allocation 

of depot maintenance work between the public and private sectors. 

Amendments in 1997 increased the annual amount of depot funds that 

could be used for contracting from 40 percent to 50 percent and defined 

“depot maintenance” in statute for the first time, including additional 

categories of contract work that DOD had not always reported as depot 

work before.[Footnote 5] A 1999 amendment established the requirement 

for the future-years report.[Footnote 6]



Section 2460 of title 10 defines depot maintenance to encompass 

material maintenance or repair requiring the overhaul, upgrade, or 

rebuilding of parts, assemblies, or subassemblies and the testing and 

reclamation of equipment, regardless of the source of funds or the 

location at which maintenance or repair is performed. Depot maintenance 

also encompasses software maintenance, interim contractor 

support,[Footnote 7] and contractor logistics support[Footnote 8] to 

the extent that work performed in these categories is depot 

maintenance. The statute excludes from depot maintenance the nuclear 

refueling of an aircraft carrier, the procurement of major 

modifications or upgrades of weapon systems, and the procurement of 

parts for safety modifications, although the term does include the 

installation of parts for safety modifications.



The Office of the Secretary of Defense (OSD) has issued guidance to the 

military departments for reporting public-private workload 

allocations. The guidance is consistent with the definition of depot-

level maintenance and repair in 10 U.S.C. 2460.[Footnote 9] The 

military departments have also issued internal instructions to manage 

the data collection and reporting process, tailored to their individual 

organizations and operating environments.



Section 2474 of title 10 directs DOD to designate public depots as 

Centers of Industrial and Technical Excellence and to improve their 

operations so as to serve as recognized leaders in their core 

competencies.[Footnote 10] Section 342 of the National Defense 

Authorization Act for Fiscal Year 2002 amended 10 U.S.C. 2474 to 

exclude qualifying public-private partnerships[Footnote 11] from the 

50-percent funding limitation on contracting. Section 342 provides that 

the funds expended for the performance of depot-level maintenance by 

nonfederal government personnel located at the centers shall not be 

counted when applying the 50-percent limitation if the personnel are 

provided pursuant to a public-private partnership. This exclusion only 

applies to depot maintenance funding for fiscal years 2002 through 

2005, although DOD is still required to report the exempted funds 

separately in the 50-50 reports. On January 10, 2002, OSD issued an 

addendum to the 50-50 guidance for implementing the partnering 

exclusion and setting criteria for qualifying partnerships. Additional 

clarification was issued on February 5, 2002.



This report is one in a series on the 50-50 requirement.[Footnote 12] 

In prior years, we have reported on continuing data errors and 

inconsistencies in reporting by the military departments and problems 

in documenting and independently validating 50-50 data. We have 

recommended increasing management attention to and emphasis on the 50-

50 reporting process, improving guidance in specific maintenance 

categories, and using the service audit agencies to check the data and 

procedures. Our prior reports also recognized the limitations of DOD’s 

financial systems, operations, and controls. Our audits of DOD’s 

financial management operations have routinely identified pervasive 

weaknesses in financial systems, operations, and internal controls that 

impede its ability to provide useful, reliable, and timely financial 

information for day-to-day management and decision making.[Footnote 13] 

To date, none of the military services or major DOD components has 

passed the test of an independent financial audit. A continuing 

inability to capture and report the full cost of its programs 

represents one of the most significant impediments facing DOD. 

Nonetheless, the data used to develop the 50-50 report are the only 

data available and are accepted and used for DOD decision making and 

for congressional oversight.



Summary of Data in DOD’s 50-50 Reports:



Table 1 provides a consolidated summary of DOD’s 2002 prior-years and 

future-years reports to the Congress on public-and private-sector 

workload allocations for depot maintenance. The amounts shown are DOD’s 

record of actual obligations incurred for depot maintenance work in 

fiscal years 2000 and 2001 and projected obligations for fiscal years 

2002-2006 based on the defense budget and service funding 

baselines.[Footnote 14] The percentages show the relative allocations 

between the public and private sectors and the exempted workloads. 

Adding the private and private-exempted percentages together shows what 

the private-sector amount would be reported as, absent the recent 

legislation. The Army projects that it will exceed the 50-percent 

limitation in fiscal year 2006, but the report to the Congress stated 

that appropriate action will be taken to address this issue and to 

ensure that the Army complies with the 50-50 requirement. The Navy 

projects that its percentage of funds for private-sector work will be 

relatively level. After issuing waivers for the past 2 years, the Air 

Force projects that it will be under the 50-percent limitation 

throughout this period.



Table 1: DOD Reported Depot Maintenance Workload Allocations:



Dollars in millions.



Army:



Public; Prior fiscal year: 2000: $1,362; Prior fiscal year: 2001: 

$1,460; Future fiscal year: 2002: $1,532; Future fiscal year: 2003: 

$1,854; Future fiscal year: 2004: $2,049; Future fiscal year: 2005: 

$2,115; Future fiscal year: 2006: $2,223.



Prior fiscal year: 2000: 55.1%; Prior fiscal year: 2001: 54.8%; Future 

fiscal year: 2002: 52.7%; Future fiscal year: 2003: 57.2%; Future 

fiscal year: 2004: 53.7%; Future fiscal year: 2005: 53.5%; Future 

fiscal year: 2006: 49.1%.



Private; Prior fiscal year: 2000: $1,108; Prior fiscal year: 2001: 

$1,204; Future fiscal year: 2002: $1,285; Future fiscal year: 2003: 

$1,297; Future fiscal year: 2004: $1,679; Future fiscal year: 2005: 

$1,749; Future fiscal year: 2006: $2,307.



Prior fiscal year: 2000: 44.9%; Prior fiscal year: 2001: 45.2%; Future 

fiscal year: 2002: 44.2%; Future fiscal year: 2003: 40.0%; Future 

fiscal year: 2004: 44.0%; Future fiscal year: 2005: 44.3%; Future 

fiscal year: 2006: 50.9%.



Private exempted; Prior fiscal year: 2000: [A]; Prior fiscal year: 

2001: [A]; Future fiscal year: 2002: $89; Future fiscal year: 2003: 

$90; Future fiscal year: 2004: $86; Future fiscal year: 2005: $89; 

Future fiscal year: 2006: [A].



Prior fiscal year: 2000: [A]; Prior fiscal year: 2001: [A]; Future 

fiscal year: 2002: 3.1%; Future fiscal year: 2003: 2.8%; Future 

fiscal year: 2004: 2.2%; Future fiscal year: 2005: 2.2%; Future fiscal 

years: 2006: [A].



Total; Prior fiscal year: 2000: $2,470; Prior fiscal year: 2001: 

$2,664; Future fiscal year: 2002: $2,905; Future fiscal year: 

2003: $3,241; Future fiscal year: 2004: $3,814; Future fiscal year: 

2005: $3,953; Future fiscal year: 2006: $4,530.



Navy[B]; 



Public; Prior fiscal year: 2000: $4,292; Prior 

fiscal year: 2001: $4,194; Future fiscal year: 2002: $4,701; Future 

fiscal year: 2003: $4,856; Future fiscal year: 2004: $4,940; Future 

fiscal year: 2005: $4,746; Future fiscal year: 2006: $5,295.



Prior fiscal year: 2000: 56.7%; Prior fiscal year: 2001: 54.4%; Future 

fiscal year: 2002: 53.4%; Future fiscal year: 2003: 53.2%; Future 

fiscal year: 2004: 53.8%; Future fiscal year: 2005: 51.7%; Future 

fiscal year: 2006: 57.3%.



Private; Prior fiscal year: 2000: $3,274; Prior fiscal year: 2001: 

$3,512; Future fiscal year: 2002: $4,075; Future fiscal year: 2003: 

$4,237; Future fiscal year: 2004: $4,175; Future fiscal year: 2005: 

$4,376; Future fiscal year: 2006: $3,945.



Prior fiscal year: 2000: 43.3%;  Prior fiscal year: 2001: 45.6%; 

Future fiscal year: 2002: 46.3%; Future fiscal year: 2003: 46.5%; 

Future fiscal year: 2004: 45.5%; Future fiscal year: 2005: 47.6%; 

Future fiscal year: 2006: 42.7%.



Private exempted; Prior fiscal year: 2000: [A]; Prior fiscal year: 

2001: [A]; Future fiscal year: 2002: $30; Future fiscal years 2003: 

$29; Future fiscal year: 2004: $59; Future fiscal year: 2005: $66; 

Future fiscal year: 2006: [A].



Prior fiscal year: 2000: [A]; Prior fiscal year: 2001: [A]; Future 

fiscal year: 2002: 0.3%; Future fiscal year: 2003: 0.3%; Future fiscal 

years: 2004: 0.6%; Future fiscal year: 2005: 0.7%; Future fiscal 

years: 2006: [A].



Total; Prior fiscal year: 2000: $7,566; Prior fiscal year: 2001: 

$7,706; Future fiscal year: 2002: $8,807; Future fiscal year: 2003: 

$9,122; Future fiscal year: 2004: $9,174; Future fiscal year: 2005: 

$9,188; Future fiscal year: 2006: $9,240.



Air Force; 



Public; Prior fiscal year: 2000: $3,000; Prior fiscal year: 2001: 

$3,289; Future fiscal year: 2002: $4,117; Future fiscal year: 2003: 

$4,261; Future fiscal year: 2004: $4,386; Future fiscal year: 2005: 

$4,485; Future fiscal year: 2006: $4,557.



Prior fiscal year: 2000: 48.5%; Prior fiscal year: 2001: 48.1%; ; 

Future fiscal year: 2002: 53.3%; Future fiscal year: 2003: 53.5%; 

Future fiscal year: 2004: 53.9%; Future fiscal year: 2005: 54.2%; 

Future fiscal year: 2006: 53.7%.



Private; Prior fiscal year: 2000: $3,181; Prior fiscal year: 2001: 

$3,551; Future fiscal year: 2002: $3,599; Future fiscal year: 2003: 

$3,686; Future fiscal year: 2004: $3,734; Future fiscal year: 2005: 

$3,774; Future fiscal year: 2006: $3,935.



Prior fiscal year: 2000: 51.5%; Prior fiscal year: 2001: 51.9%; Future 

fiscal year: 2002: 46.6%; Future fiscal year: 2003: 46.3%; Future 

fiscal year: 2004: 45.9%; Future fiscal year: 2005: 45.6%; Future 

fiscal year: 2006: 46.3%.



Private exempted; Prior fiscal year: 2000: [A]; Prior fiscal year: 

2001: [A]; Future fiscal year: 2002: $14; Future fiscal year: 2003: 

$16; Future fiscal year: 2004: $16; Future fiscal year: 2005: $16; 

Future fiscal year: 2006: [A].



Prior fiscal year: 2000: [A]; Prior fiscal year: 2001: [A]; Future 

fiscal year: 2002: 0.2%; Future fiscal year: 2003: 0.2%; Future fiscal 

years: 2004: 0.2%; Future fiscal year: 2005: 0.2%; Future fiscal 

years: 2006: [A].



Total; Prior fiscal year: 2000: $6,181; Prior fiscal year: 2001: 

$6,840; Future fiscal year: 2002: $7,729; Future fiscal year: 2003: 

$7,962; Future fiscal year: 2004: $8,136; Future fiscal year: 2005: 

$8,275; Future fiscal year: 2006: $8,491.



[A] Under section 342 of the National Defense Authorization Act for 

Fiscal Year 2002 (P.L. 107-107), contract funds for qualified public-

private partnerships are excluded from the calculation of 

privateworkload percentages for fiscal years 2002-2005, but must be 

reported separately.



[B] Marine Corps data are reported as part of the Navy total. The 50-

percent limitation on contracting in 10 U.S.C. 2466 applies to each 

military department.



Source: DOD’s “50-50 Reports,” dated Feb. 4 and Apr. 12, 2002.



[End of table]



Weaknesses in Data Preclude Determinations of Compliance in Prior-

Years Report:



DOD’s prior-years report for fiscal years 2000 and 2001 showed the 

Departments of the Army and Navy to be below the 50-percent funding 

limitation on private-sector workloads and the Air Force to be above it 

(see table 1). However, recurring weaknesses in DOD’s data gathering 

and reporting processes prevented us from determining with precision 

whether the services had complied with the 50-50 requirement. We 

identified significant errors and omissions in 50-50 data, such as the 

Army mistakenly reporting funds for some workloads in millions rather 

than thousands of dollars and the Navy not reporting depot maintenance 

on a missile program and a ship defensive system.



Army:



We could not determine with precision whether the Army was in 

compliance with the 50-50 requirement for fiscal years 2000 and 2001. 

This is in contrast to last year, when we found relatively few errors 

in the Army’s data and reported that its reporting process was 

generally sound and adequately implemented. We concluded in that report 

that the Army met the 50-50 requirement for 1999 and 2000. However, 

this year we found a significant number of errors in the Army’s data 

and do not have sufficient confidence in the reporting process to 

conclude that the Army met the 50-50 requirement for 2000 and 2001. In 

this year’s review, we identified errors and revised the Army’s 50-50 

report by a total of $328 million in fiscal year 2000 and $499 million 

in fiscal year 2001.[Footnote 15] In contrast, last year’s review 

identified errors totaling $53 million for fiscal year 2000 and only 

$4 million for fiscal year 1999. These results indicate a trend that 

undermines our confidence in the Army’s data and reporting process. We 

acknowledge that our revision of the Army’s private-sector workload 

percentages for 2000 and 2001 are approximately the same as the revised 

percentages we calculated last year for 1999 and 2000. Nonetheless, due 

to the significant number and dollar value of errors in the Army’s data 

and the trend we describe above, we do not have sufficient confidence 

in the reporting process to conclude that the Army met the 50-50 

requirement for 2000 and 2001.



Table 2 summarizes the errors and omissions we identified during this 

year’s review and the resulting impacts on the public-and private-

sector allocations. Correcting for the problems we found would increase 

the private-sector percentages by 2 percent and 1.6 percent for fiscal 

years 2000 and 2001, respectively.



Table 2: GAO Changes to Army Prior-Years Report:



Dollars in millions.



Public workload dollars reported; Prior fiscal year: 2000: $1,361.5; 

Prior fiscal year: 2001: $1,460.4.



Percentage reported; Prior fiscal year: 2000: 55.1%;  

Prior fiscal year: 2001: 54.8%.



Transcription errors; Prior fiscal year: 2000: ($168.3);

Prior fiscal year: 2001: ($113.2).



Reported other command’s funds; Prior fiscal year: 2000: ($5.5); 

Prior fiscal year: 2001: ($5.9).



Outdated data; Prior fiscal year: 2000: ($10.1); 

Prior fiscal year: 2001: ($117.6).



Repairs at nondepot locations; Prior fiscal year: 2000: $0; 

Prior fiscal year: 2001: $27.3.



Upgrades and rebuilds; Prior fiscal year: 2000: $1.6; 

Prior fiscal year: 2001: $3.8.



Revised public workload; Prior fiscal year: 2000: $1,179.2; 

Prior fiscal year: 2001: $1,254.8.



Revised percentage; Prior fiscal year: 2000: 53.1%; 

Prior fiscal year: 2001: 53.2%.



Private workload dollars reported; Prior fiscal year: 2000: $1,108.0; 

Prior fiscal year: 2001: $1,203.8.



Percentage reported; Prior fiscal year: 2000: 44.9%; 

Prior fiscal year: 2001: 45.2%.



Transcription errors; Prior fiscal year: 2000: ($37.0); 

Prior fiscal year: 2001: ($95.3).



Reported other command’s funds; Prior fiscal year: 2000: ($66.4); 

Prior fiscal year: 2001: ($69.7).



Outdated data; Prior fiscal year: 2000: $30.3; 

Prior fiscal year: 2001: $10.8.



Repairs at nondepot locations; Prior fiscal year: 2000: $0;

Prior fiscal year: 2001: $51.3.



Upgrades and rebuilds; Prior fiscal year: 2000: $8.3; 

Prior fiscal year: 2001: $4.3.



Revised private workload; Prior fiscal year: 2000: $1,043.2; 

Prior fiscal year: 2001: $1,105.2.



Revised percentage; Prior fiscal year: 2000: 46.9%; 

Prior fiscal year: 2001: 46.8%.



Note: Dollar amounts in parenthesis are negative.



Source: GAO analysis of DOD data.



[End of table]



* Transcription errors. As a result of transcription errors in 

compiling the Army’s prior-years report, depot maintenance funds for 

two major commands were reported in the millions rather than thousands 

of dollars, greatly overstating both public and private workloads by a 

total of $414 million for 2000 and 2001--an 8 percent overstatement. 

The overstatement is greater for the public sector.



* Other command’s funds. The Army’s report incorrectly included funds 

that were to be reported by the U.S. Special Operations Command. Both 

public and private workloads were overstated, but more so on the 

latter. OSD’s guidance specifies that each military service should 

report its appropriated funds for support of special operations and 

that the U.S. Special Operations Command should report depot 

maintenance funded by its defensewide appropriation. The U.S. Special 

Operations Command properly reported these funds.



* Outdated data. Several errors involved data used in the prior-years 

report that was subsequently changed. One command initially used 

outdated budget estimates to report its depot maintenance funding, 

later updating the information to reflect actual recorded obligations 

for the year. The data were not revised in time to be incorporated in 

the Army’s report. Another command’s submission was not adjusted to 

correct for an error identified by the Army Audit Agency.



* Nondepot locations. Two commands did not report depot maintenance 

workloads associated with the Army’s ongoing efforts to consolidate 

maintenance activities. This understated private-sector funds by 

$51.3 million and public-sector funds by $27.3 million. Officials at 

these commands said it was now the responsibility of a third command to 

report those funds, but an official from that command replied that it 

was not yet ready to assume reporting responsibilities.



* Upgrades and rebuilds. We identified several other errors with 

relatively small impacts on the 50-50 allocations: an unreported 

vehicle upgrade effort, whose program officials were unaware of the 50-

50 reporting requirement, and two programs that reported old 

information.



Navy:



We also could not determine precisely whether the Navy complied with 

the 50-50 requirement. The net effect of the errors and inconsistencies 

we identified would add more than 4 percent to the private-sector share 

in both 2000 and 2001. Table 3 shows our adjustments to the Navy’s 

reported data and impacts on public-private sector allocations. Note 

that this table does not include the Marine Corps’ data, which are 

added to the Navy’s data for reporting compliance with the 50-50 

requirement. Our adjustments show the Navy-only data as exceeding the 

50-percent private-sector limitation in 2001. Adding in the adjustments 

we made to the Marine Corps’ data (from table 4 following this section) 

would also show the Department of the Navy as exceeding the 50-percent 

limit. Although the lack of precision in the data and the limited 

number of reporting programs we reviewed do not enable us to determine 

compliance with the 50-50 requirement, we believe that the Navy is much 

closer to the private-sector limitation than what was reported to the 

Congress.



Table 3: GAO Changes to Navy Prior-Years Report:



Dollars in millions.



Public workload dollars reported; Prior fiscal year: 2000: $4,140.7; 

Prior fiscal year: 2001: $3,999.8.



Percentage reported; Prior fiscal year: 2000: 56.2%; 

 Prior fiscal year: 2001: 53.6%.



Missile maintenance; Prior fiscal year: 2000: $50.0; 

Prior fiscal year: 2001: $50.0.



Component repairs; Prior fiscal year: 2000: ($69.4); 

Prior fiscal year: 2001: ($67.0).



Private workload reported as public; Prior fiscal year: 2000: $0; 

Prior fiscal year: 2001: ($78.2).



Public workload reported as private; Prior fiscal year: 2000: $0; 

Prior fiscal year: 2001: $0.9.



Depot-level software maintenance; Prior fiscal year: 2000: $29.8; 

Prior fiscal year: 2001: $29.8.



Modifications installations; Prior fiscal year: 2000: $0; 

Prior fiscal year: 2001: $23.0.



Revised public workload; Prior fiscal year: 2000: $4,151.1; 

Prior fiscal year: 2001: $3,958.3.



Revised percentage; Prior fiscal year: 2000: 52.4%; 

Prior fiscal year: 2001: 49.4%.



Private workload dollars reported; Prior fiscal year: 2000: $3,229.6; 

Prior fiscal year: 2001: $3,459.6.



Percentage reported; Prior fiscal year: 2000: 43.8%; 

Prior fiscal year: 2001: 46.4%.



Missile maintenance; Prior fiscal year: 2000: $150.0; 

Prior fiscal year: 2001: $150.0.



Component repairs; Prior fiscal year: 2000: ($30.8); 

Prior fiscal year: 2001: ($33.0).



Private workload reported as public; Prior fiscal year: 2000: $0; 

Prior fiscal year: 2001: $78.2.



Public workload reported as private; Prior fiscal year: 2000: $0; 

Prior fiscal year: 2001: ($0.9).



Depot-level software maintenance; Prior fiscal year: 2000: $12.2; 

Prior fiscal year: 2001: $12.2.



Carrier overhaul and modifications; Prior fiscal year: 2000: $387.1; 

Prior fiscal year: 2001: $356.7.



Surface ship inactivations; Prior fiscal year: 2000: $29.1; 

Prior fiscal year: 2001: $53.6.



Duplicate reporting; Prior fiscal year: 2000: -; 

Prior fiscal year: 2001: ($22.0).



Revised private workload; Prior fiscal year: 2000: $3,777.2; 

Prior fiscal year: 2001: $4,054.4.



Revised percentage; Prior fiscal year: 2000: 47.6%; 

Prior fiscal year: 2001: 50.6%.



Note: Dollar amounts in parenthesis are negative.



Source: GAO analysis of DOD data.



[End of table]



* Missile maintenance. One command did not report $200 million in 

fiscal year 2001 funding for depot maintenance on the Trident missile-

-$150 million for contract work and $50 million for work accomplished 

by government personnel. Navy officials did not initially consider the 

component repairs and missile recertification efforts to be depot-level 

maintenance, but they later agreed with us and stated that the funds 

will be reported in the future. For illustrative purposes in table 3, 

we assumed the same amounts were unreported for fiscal year 2000.



* Component repairs. Some repairs were counted twice in the 50-50 data, 

once when a component was repaired and the second time when it was 

installed into a weapon system or subsystem. Available data for fiscal 

year 2001 indicate that the amounts double counted were about 

$67 million and $33 million, respectively, for the public and private 

sectors. To estimate the overstatements in fiscal year 2000, we assumed 

the same magnitude of the double count relative to the total reported 

workload that year. In commenting on a draft of this report, DOD 

officials argued that the repair of components and use of those 

components during system overhaul are separate and distinct 

transactions, and both should be reported as consistent with title 10. 

We continue to believe that reporting both distorts the actual amount 

of depot work and that an adjustment should be made in these situations 

to give a more accurate accounting for 50-50 purposes. This issue is 

discussed further in the agency comments section of this report.



* Public and private workloads wrongly reported. Several commands 

wrongly reported private-sector work as public sector or vice versa. 

For example, a spreadsheet formula error caused one command to 

misreport $29 million of contract work as public. Another command’s 

clerical error in compiling its submission had the same effect. An 

official discovered the error when preparing for our visit. A more 

rigorous up-front review and data validation effort might have 

corrected these mistakes before their inclusion in the annual report to 

the Congress.



* Software maintenance. Officials did not report $42 million of depot-

level software maintenance for the Aegis program. Government employees 

accomplished $29.8 million of the total workload--about three-fourths-

-while the private sector did the remaining $12.2 million. We assumed 

the same amount of work for both years.



* Modification installations. The Navy’s report did not include 

$23 million in funding for installing two major upgrades. Although they 

had received 50-50 guidance, officials did not know that major upgrades 

accomplished with procurement funds were defined as depot maintenance 

for reporting purposes.



* Carrier overhauls. The Navy apparently underreported the costs of 

depot maintenance work on nuclear aircraft carriers when that work was 

done in the private sector in conjunction with the nuclear refueling of 

the carriers. Section 2460 excludes from depot maintenance the nuclear 

refueling of an aircraft carrier. However, nuclear refueling work 

typically is done under contracts that include other, separately priced 

work that does not appear to relate to nuclear refueling. For example, 

one of those contracts called for work on the underwater part of the 

carrier hull and on catapults and arresting gear, which are used for 

launching and landing aircraft. Although this work often has been done 

during the same time frame and under the same contract as nuclear 

refueling work, in some cases, this work has been done separately from 

the nuclear refueling. In this latter case, the nonnuclear work has 

been counted as depot maintenance. Nonetheless, the Navy treats the 

costs of all work under contracts that include nuclear refueling work 

as subject to the exception for nuclear refueling of an aircraft 

carrier and therefore reports none of the costs of those contracts as 

depot maintenance. Navy program officials reviewed the contracts and 

identified the funding for depot maintenance and repair workloads that 

are not related to nuclear refueling. Table 3 shows the impact if 

that portion of the maintenance work is counted for 50-50 purposes--

$387.1 million for fiscal year 2000 and $356.7 million for fiscal year 

2001. We note that the guidance provided by the Navy for depot 

maintenance reporting does not directly address this issue; rather, it 

simply states that nuclear refueling of aircraft carriers is to be 

excluded from depot maintenance reporting. This issue is further 

discussed in the agency comments section of this report.



* Surface ship inactivations. Reporting funds for inactivation work on 

nonnuclear surface ships would increase private-sector reporting by a 

total of $82.7 million for the 2-year reporting period. As we reported 

last year, the Navy inconsistently reports inactivation activities. Its 

reports include the funding for public-sector nuclear ship 

inactivations but do not include funding for nonnuclear ship 

inactivations done by contractors. Navy officials said that the 

relatively complex nuclear ship inactivations are considered to be 

equivalent to depot maintenance, while the less complex nonnuclear ship 

inactivations are not. The Navy’s revised 50-50 guidance reflects this 

concept, and officials reiterated this position in commenting on our 

draft report. According to a Navy maintenance official, however, 

inactivation workloads on nuclear and nonnuclear ships have much in 

common, differing mainly in the removal and disposal of the nuclear 

power plant. We continue to believe that inactivations of nonnuclear 

ships should be included in the 50-50 reports because OSD’s reporting 

guidance does not make this distinction of relative complexity and 

requires reporting of all depot maintenance, regardless of location and 

source of funding. Also, DOD’s financial management regulation includes 

inactivation activities as depot maintenance.[Footnote 16]



* Duplicate reporting. One command mistakenly reported funds for 

contract work that were properly reported by another command. This 

mistake resulted in double counting $22 million.



Marine Corps:



The Marine Corps’ data for the prior-years report--which is included 

with the Navy’s data for purposes of determining compliance with the 

private-sector limitation--are incomplete and inaccurate. Compared to 

the other military services’ programs, the Marine Corps’ depot 

maintenance program is small, but the errors we found were substantial 

relative to the size of the total workload. Table 4 summarizes the 

collective errors we found and shows that, if corrected, the private-

sector allocations would decrease by 5 percent for fiscal year 2000 and 

would increase by about 9 percent for fiscal year 2001.



Table 4: GAO Changes to Marine Corps Prior-Years Report:



Dollars in millions.



Public workload dollars reported; Prior fiscal year: 2000: $150.8; 

Prior fiscal year: 2001: $194.3.



Percentage reported; Prior fiscal year: 2000: 77.2%; 

Prior fiscal year: 2001: 78.8%.



Mathematical and recording errors; Prior fiscal year: 2000: $7.8; 

Prior fiscal year: 2001: $16.9.



Systems Command programs; Prior fiscal year: 2000: $40.4; 

Prior fiscal year: 2001: $2.2.



Contracting-out work; Prior fiscal year: 2000: ($1.0);  

Prior fiscal year: 2001: ($1.6).



Revised public workload; Prior fiscal year: 2000: $198.0;  

Prior fiscal year: 2001: $211.8.



Revised percentage; Prior fiscal year: 2000: 82.2%;  

Prior fiscal year: 2001: 70.0%.



Private workload dollars reported; Prior fiscal year: 2000: $44.5; 

Prior fiscal year: 2001: $52.2.



Percentage reported; Prior fiscal year: 2000: 22.8%;  

Prior fiscal year: 2001: 21.2%.



Mathematical and recording errors; Prior fiscal year: 2000: ($7.8); 

Prior fiscal year: 2001: ($17.2).



Systems Command programs; Prior fiscal year: 2000: $5.1;  

Prior fiscal year: 2001: $54.3.



Contracting-out work; Prior fiscal year: 2000: $1.0;  

Prior fiscal year: 2001: $1.6.



Revised private workload; Prior fiscal year: 2000: $42.8;  

Prior fiscal year: 2001: $90.9.



Revised percentage; Prior fiscal year: 2000: 17.8%;  

Prior fiscal year: 2001: 30.0%.



Note: Dollar amounts in parenthesis are negative.



Source: GAO analysis of DOD data.



[End of table]



* Mathematical and recording errors. The Marine Corps’ prior-years 

submission contained several mathematical and recording errors due to 

inaccurately transcribing data from source documentation to the final 

report. These errors resulted in categorizing work on numerous items as 

contract work, even though the command providing the source data 

clearly reported the work as performed by government depots. For the 

2 years, funding for the public sector was understated by $24.7 million 

and for the private sector overstated by $25 million.



* Systems Command programs. The Systems Command is responsible for 

acquiring and upgrading weapon systems. Most of its seven product 

groups and five program managers, which are independent from the 

product groups, did not report procurement funds mainly used for 

private sector depot-level-maintenance work. The Systems Command also 

did not report depot maintenance for the largest program maintained in 

the public sector. These errors understated private-sector funding by 

$59 million and public-sector funding by $43 million for 2 years. 

Failure to report the depot maintenance appears to have resulted from a 

combination of factors, including misunderstanding as to what should be 

reported, limited dissemination of the 50-50 reporting guidance, and an 

ongoing reorganization in the Systems Command that further complicated 

the situation.



* Contracting-out work. Officials at the two maintenance bases did not 

correctly report a total of $2.6 million in fiscal year 2000 and 2001 

workloads. These workloads were contracted out but were reported as 

part of the public-sector amounts. This resulted in overstating public 

work and understating private work by the same amounts.



Air Force:



The Air Force’s data, as presented, reaffirmed last year’s 50-50 

reports to the Congress that the Air Force had exceeded the 50-percent 

limitation on funds for private-sector work in both fiscal years 2000 

and 2001. We identified errors in the data that add almost 3 percent to 

the private sector’s share in each year, thereby increasing the amount 

by which the Air Force exceeded the limitation.



As authorized under 10 U.S.C. 2466, the Secretary of the Air Force 

waived the 50-50 requirement for fiscal years 2000 and 2001, citing 

reasons of national security. On January 11, 2000, the Air Force 

notified the Congress that the Secretary was waiving the requirement 

for fiscal year 2000. The Air Force’s explanation for the waiver was 

based primarily on the need to use temporary contracts to support 

transitioning workloads from closing depots. We reported, however, that 

those temporary contracts represented only a minor share of the 

contract workload.[Footnote 17] We noted that the more significant 

factors were recent Air Force policies and management actions that 

substantially increased outsourcing and left little flexibility for the 

Air Force to respond to emergencies and stay under the 50-percent 

limitation. On July 31, 2001, the Air Force notified the Congress that 

the Secretary was also waiving the requirement for fiscal year 2001. 

The Air Force again cited the impacts from transitioning workloads, 

contractor field teams, and temporary contract personnel performing 

depot maintenance at a government facility. It also cited significant 

increases in workload and cost on several existing depot maintenance 

contracts.



Table 5 summarizes the errors we found and the impacts on the 

public-private sector allocations.



Table 5: GAO Changes to Air Force Prior-Years Report:



Dollars in millions.



Public workload dollars reported; Prior fiscal year: 2000: $3,000.0; 

Prior fiscal year: 2001: $3,288.5.



Percentage reported; Prior fiscal year: 2000: 48.5%; 

Prior fiscal year: 2001: 48.1%.



Component repairs; Prior fiscal year: 2000: ($315.7);  

Prior fiscal year: 2001: ($354.0).



General and administrative; Prior fiscal year: 2000: ($45.8); 

Prior fiscal year: 2001: ($64.7).



Other; Prior fiscal year: 2000: $0; Prior fiscal year: 2001: $1.9.



Revised public workload; Prior fiscal year: 2000: $2,638.5; 

Prior fiscal year: 2001: $2,871.7.



Revised percentage; Prior fiscal year: 2000: 46.1%;  

Prior fiscal year: 2001: 45.3%.



Private workload dollars reported; Prior fiscal year: 2000: $3,181.3; 

Prior fiscal year: 2001: $3,550.9.



Percentage reported; Prior fiscal year: 2000: 51.5%; 

Prior fiscal year: 2001: 51.9%.



Component repairs; Prior fiscal year: 2000: ($156.7);  

Prior fiscal year: 2001: ($175.0).



General and administrative; Prior fiscal year: 2000: $45.8; 

Prior fiscal year: 2001: $64.7.



Modification installations; Prior fiscal year: 2000: $16.8; 

Prior fiscal year: 2001: $15.8.



Support contracts; Prior fiscal year: 2000: ($5.8);  

Prior fiscal year: 2001: $5.6.



Contractor augmentees; Prior fiscal year: 2000: $5.4;  

Prior fiscal year: 2001: $5.2.



Other; Prior fiscal year: 2000: $0; Prior 

fiscal year: 2001: ($4.0).



Revised private workload; Prior fiscal year: 2000: $3,086.8; 

Prior fiscal year: 2001: $3,463.2.



Revised percentage; Prior fiscal year: 2000: 53.9%;  

Prior fiscal year: 2001: 54.7%.



Note: Dollar amounts in parenthesis are negative.



Source: GAO analysis of DOD data.



[End of table]



* Component repairs. Our review of Air Force workloads determined that 

funding for some component repairs was counted twice in 50-50 data, 

once when the item was repaired and the second time when it was 

installed into a weapon system or major subsystem during its overhaul. 

According to fiscal year 2001 data, the duplicate reporting for the Air 

Force was about $354 million and $175 million for the public and 

private sectors, respectively. We calculated the estimated amounts for 

fiscal year 2000 by assuming the same magnitude of the double count 

relative to the total workloads financed through the working capital 

fund. As discussed in the earlier section on the Navy, DOD did not 

agree with our adjustments for components when they are installed in 

systems; the agency comments section includes a fuller discussion of 

this issue.



* General and administrative. As in past years, Air Force officials 

continue to adjust the 50-50 data for the salaries and overhead 

expenses of government employees administering depot maintenance 

contracts funded through the working capital fund. Officials subtract 

these amounts (for example, $64.7 million in fiscal year 2001) from the 

private-sector funding--where they are accounted for within the working 

capital fund--and add them to the public-sector funding for 50-50 

reporting. Air Force officials told us that they believe these costs 

should be reported as part of the public sector since government 

employees incur them. However, consistent with our prior assessments, 

we believe that it is appropriate to count these general and 

administrative costs for managing depot maintenance contracts as part 

of the private-sector costs of doing business. Although this type of 

cost is not specifically addressed, OSD’s 50-50 guidance requires that 

the costs for all factors of production--labor, material, parts, 

indirect, and overhead--associated with a particular repair workload 

should be counted in the sector accomplishing the actual maintenance. 

Accordingly, in table 5 we reversed the Air Force adjustments to again 

report these funds in the private-sector amounts. We note that this may 

not be an issue much longer if the Air Force implements its plan to 

remove contract depot maintenance from the working capital fund by 

2004.



* Modification installations. We identified numerous modification 

installation projects performed by contractors that were not reported 

or were reported incorrectly in the Air Force’s 50-50 report. 

Correcting for these would add a total of $32.6 million to private-

sector funding for the 2 years. Installations are funded and reported 

in several different ways, which complicates reporting. Also, officials 

recognize that the data sources used are not always complete and up-to-

date.



* Support contracts. We identified several errors in reported funding 

for interim and contractor logistics support contracts. Funding for one 

contract was reported according to the year of appropriation rather 

than the year of obligation, as prescribed by guidance. Another 

workload had been reported twice in the 50-50 data, once as funded by 

direct appropriation and once as financed through the working capital 

account. We also identified software depot maintenance costs that had 

not been reported on trainer programs.



* Contractor augmentees. We identified some augmentees working on 

engines at one depot that were not included in the 50-50 report. The 

underreporting totaled $10.6 million for the 2 years. Augmentees are 

contractor personnel working temporarily at a government facility to 

accomplish work originally planned for the public sector. We have noted 

the underreporting of augmentees in prior reviews.



* Other. We identified several other relatively small errors in the 50-

50 data for fiscal year 2001, including public-sector workload that was 

reported as private sector, a transcription error, and an uncorrected 

error found by Air Force auditors.



Future-Year Projections Are Not Reasonable and Not Very Useful:



The projections of the Army, the Navy, and the Air Force in DOD’s 50-50 

report for fiscal years 2002 through 2006 are not reasonable estimates 

of the future allocations of funding for public-and private-sector 

workloads. The future-year projections have constantly changed, 

particularly for years beyond the budget year. We also noted that they 

are based, in part, on incorrect data, questionable assumptions, and 

some inconsistencies with existing budgets and management plans. With 

so many errors and frequent changes, the future-years data may be 

misleading and not very useful to congressional and DOD decision 

makers, particularly the further estimates are in the future. While we 

have identified these shortcomings in the past, the problems continue.



Future-Year Estimates Are Not Reasonable:



Future-year estimates are not reasonable because they represent budget 

and planning data that change over time, incorporate the same errors 

found in prior-year data, and also have other problems. The budget and 

planning data used to project the share of depot maintenance work to be 

performed in the public and private sectors in the future are 

estimates. At best, they provide only rough estimates of future funding 

allocations and these estimates change over time. We analyzed the 

services’ past projections of the mix of their depot maintenance work 

1, 2, 3, and 4 years in the future and found that predictability 

declined as time moved out into the future. For example, compared to 

the future-years report submitted to the Congress last year, the Army 

reported substantially more workload in total and increased private-

sector percentages this year. This year’s projections for the 

allocation of depot maintenance work to the private sector increased 

about 1.5 percent over last year’s estimates for both fiscal years 2002 

and 2003, and increased 6.5 percent and 7.8 percent over last year’s 

estimates of the percentage of private-sector Army maintenance work in 

fiscal years 2004 and 2005, respectively. We saw similar patterns in 

the Navy’s and Air Force’s projections of the future workload mix. 

Again, changes in reporting from prior years were more pronounced as 

time into the future increased. In the Navy’s case, between the report 

issued in 2001 and the report issued in 2002, the Navy’s projected mix 

for fiscal year 2002 changed only about 1.7 percent from last year’s 

estimate, but the mix for fiscal year 2005 varied by 5.5 percent from 

last year’s estimate. Given the closeness of the services to the 

percentage limitation on funding for private-sector work, a change in 

outyear estimates of 5 percent over a year suggests the instability of 

this information could greatly limit its value to decision makers as a 

predictor of the actual balance of workload in some future year.



The services made many of the same errors in their future-year 

projections as they made in the prior-years report and made other 

mistakes as well. Regarding the repeat of errors, we found the 

following in the future-years data:



* The Army’s data had errors due to clerical mistakes, unreported 

programs, and uncertain reporting responsibility for workloads 

associated with the national maintenance program. The net effect of 

these errors would add about 1 percent to the private-sector 

allocations during each year of the reporting period.



* The Navy’s data did not include the Trident missile work and Aegis 

software maintenance, understating private-sector funding an estimated 

$162 million per year and understating public-sector funding about 

$80 million per year. In addition, depot maintenance work on nuclear 

aircraft carriers and inactivation of nonnuclear ships were not 

reported and component repairs were double counted. The net effect of 

all the errors we found would add from 3½ to 4 percent to the private-

sector allocations annually, moving the Navy very close to the limit, 

if not over.



* The Marine Corps’ data did not include millions of dollars in planned 

work for both the public and private sectors that was not reported for 

numerous acquisition programs managed by the Systems Command and 

programs that were in the source-of-repair process. We estimate that 

the net effect of this error would more than double the private 

sector’s percentage share of the Marine Corps’ maintenance work over 

the 5-year reporting period.



* The Air Force’s data did not include private-sector funding for 

modification installations and contract-cost growth totaling about 

$336 million for the reporting period. Other problems noted included 

double counting of component repairs, inappropriate adjustment for 

general and administrative expenses, and unreported contractor 

augmentees. The double-counted reparables would significantly reduce 

both the public-and private workloads while the other errors would 

increase the private-sector work. For the 5-year reporting period taken 

as a whole, the net effect from these adjustments would add 2.5 percent 

to the private-sector share, with varying but similar amounts added 

each year.



We also identified additional errors in the future-years report not 

found in the prior-years report, particularly with the amounts 

considered exempt from the section 2466 percentage limitation as a 

result of recent legislation. The Navy overstated the funds it excluded 

because officials misapplied the new guidance concerning public-private 

partnerships. For example, under that guidance, workload must be 

performed by private industry or other entity outside of DOD at a 

Center for Industrial and Technical Excellence in order to be 

considered exempt from the 50-percent limitation. The Navy, however, 

exempted the cost of contractor-provided material to its naval air 

depot partner, even though government personnel were responsible for 

performing the maintenance workload. Under the circumstances, since the 

workload was not performed by private industry or other entity outside 

of DOD, it does not appear that this situation qualified for the 

exemption. Correcting for the error increases the private-sector 

funding and percentage share by a small amount.



The Air Force understated exempted private-sector workloads by a total 

of $206 million over the 4 years specified by the amended statute. In 

the 50-50 report, officials excluded only part of the budgeted funding 

for a software maintenance workload accomplished by a contractor at a 

public depot. It appears that the entire workload should have been 

excluded. Correcting for the error decreases the private-sector funding 

and percentage share by a small amount. Officials said the excluded 

provision was passed in the midst of the reporting cycle and that there 

were questions about implementing guidance and uncertainties as to the 

application of this new requirement.



Future-Years Data Are Not Very Useful:



The uncertainty and instability of budget estimates combined with the 

errors and omissions we found result in a future-years report that is 

not very useful to congressional and DOD decision makers. As previously 

discussed, the further into the future the estimate is, the more errors 

and assumptions are made in the projection, and the less likely the 

data will be useful as a predictor. For example, in 2001, we reported 

that while the Army future-years’ workload allocations showed an 

increasing public-sector share, after adjusting the reported numbers to 

correct for errors and omissions, the net effect was an increase in the 

private-sector share of work.[Footnote 18] We also reported that the 

Marine Corps’ future-year data did not accurately reflect the planned 

decrease in total revenues, the impact of new systems going to the 

private sector for support, and the anticipated decrease in the public 

depot workforce.



The future-years report issued in 2002 also included some potentially 

misleading information. For example, after 2 years of waiving the 

50-percent limitation on private-sector work, the Air Force now 

projects that it will not exceed the ceiling in any of the next 5 

years. Our analysis of the backup support for the Air Force’s data 

indicates this assessment is likely to change and the service will 

continue to be challenged to comply with the 50-50 requirement. First, 

the conditions leading to the need for waivers in fiscal years 2000 and 

2001--policies and management actions to increase outsourcing--have not 

materially changed. Also, as discussed previously, our review of 

selected data identified errors and omissions that would collectively 

increase the private-sector share each year, placing additional 

pressure on the Air Force as it seeks to manage within the 50-percent 

limitation.



Additionally, the Air Force’s expectations about future compliance are 

based not on performing more work in the public depots, but rather on 

projections of big price increases for public-sector work already being 

performed. The assumptions about workload execution, business plans, 

and budgets that would need to occur for this to happen are already 

changing. For example, the Air Force’s projections assume that 

100 percent of the programmed public-sector work will be performed. 

However, in 7 of the last 8 years, actual production hours accomplished 

by Air Force depots were less than estimated in budgets--by as much as 

9 percent less. Further, Air Force officials told us that large price 

increases generally cause customers to order less work than planned, 

since there is a limited depot maintenance budget to work with. They 

also noted that “must-pay” bills created by contractual arrangements 

for high priority systems such as the C-17 and F-117 are increasing and 

tying up repair budget resources. Finally, the biggest factor in the 

projected public-sector price increases is the result of parts 

increases, which are also likely to have an effect on the prices of 

repairs accomplished in the private sector.



DOD officials agreed that the planning and budget data available for 

making future projections beyond the budget year are not very useful as 

a predictor of the balance of future workloads between the public and 

private sectors. They also noted that when the services are within a 

few percentage points of the 50-50 ceiling, as they are now, the 

accuracy of the conclusions drawn from the unreliable future 

projections do not provide a very good basis for forecasting the 

future. Some suggested eliminating the future-years report and 

combining information in the prior-years report with estimated funding 

for the current year in which DOD is operating and the budget year, 

which is 1 year beyond the current year.



Opportunities Exist to Improve 50-50 Reporting:



Notwithstanding the reporting problems discussed in previous sections, 

opportunities still exist to improve the 50-50 process and results. 

Improving the quality and accuracy of data can make the reports more 

useful to the Congress in exercising its oversight role and more useful 

to DOD as a management tool. In addition to helping maintain compliance 

with the 50-50 requirement, such data can be used by DOD officials in 

determining whether to support a new weapon system or major upgrade in 

the public or private sector and in evaluating the impacts of depot 

policies and practices.



Compared to prior years, service efforts to improve 50-50 data 

collection and reporting for this most recent reporting period were not 

as widely apparent. Our assessment this year is that the overall 

quality of the services’ efforts stayed about the same or declined 

compared with last year’s effort. We also identified three unresolved 

systemic problem areas that complicate reporting and distort data, and 

which could be improved by the services.



Improvements Minimal This Year:



In prior years we noted incremental improvements by DOD in the 50-50 

reporting process and results. But our overall assessment this year is 

that quality of reporting--in terms of accuracy, procedures, and 

supporting documentation--has stayed about the same or has declined, as 

shown in table 6. Individually, the Army and Marine Corps’ efforts were 

of lesser quality, the Air Force stayed about the same, and the Navy 

improved its management process, although we found more errors and 

inconsistencies in the Navy’s data this year than last. OSD and each 

service did improve guidance somewhat to incorporate the findings and 

recommendations in our 2001 report;[Footnote 19] but the services’ 

priority and overall emphasis from top management on the 50-50 

reporting requirement seem to be waning. The Navy and the Marine Corps 

did not use their audit services to validate data; the Army and the Air 

Force did to good effect, but we note that the Air Force is considering 

reducing audit service efforts next year.



Table 6: Reporting Quality Compared to Last Year:



Service: Army; Accuracy: Declined; Procedures: Declined; 

Documentation: Declined.



Service: Navy; Accuracy: Declined; Procedures: Improved; 

Documentation: About the same.



Service: Marine Corps; Accuracy: Declined; Procedures: Declined; 

Documentation: Declined.



Service: Air Force; Accuracy: About the same; Procedures: About the 

same; Documentation: Declined.



Source: GAO analysis of service reporting processes, management 

controls, and data.



[End of table]



Army:



Overall, we found the Army’s errors were more numerous and more 

significant than those found in previous 50-50 reports. Some errors can 

be attributed to reorganizations or changeover in personnel and the 

resulting loss of institutional knowledge about 50-50 reporting 

processes and procedures. While a variance analysis likely would have 

spotlighted the most significant error--the mistaken reporting of depot 

funding for two commands in millions, rather than thousands of dollars, 

Army officials did not conduct even a simple check to compare the 

reporting commands’ data in the current report with that in last year’s 

report. Although Army Audit Agency auditors found and corrected a 

number of errors in the initial submissions of 50-50 data by various 

Army commands, the auditors did not catch this error because these two 

relatively small commands were not included in the scope of the audit.



Navy:



While the Navy has taken steps to improve its reporting process, we 

found a higher error percentage in the Navy’s 50-50 reports this year 

than we have found in previous years. The Navy improved its guidance to 

focus on areas we had cited previously as needing improvement and the 

50-50 office selectively reviewed more submissions this year to check 

accuracy and documentation. Nonetheless, our review identified 

substantial errors and inconsistencies in the Navy’s data. Further, 

although we have previously recommended audit service review of 50-50 

data, the Navy again did not ask for an independent review by the Naval 

Audit Service or the Navy Inspector General. Consequently, very little 

of the Navy’s data were validated through an extensive third-party 

review.



The benefit of independent review is illustrated by the Philadelphia 

supply office’s use of its command evaluation office to improve the 

quality of its submission. The reviewer detected and corrected a 

computation error that overstated maintenance work. Also, upon 

reviewing the errors and omissions that we identified in the 50-50 

data, Atlantic Fleet officials said they are considering asking their 

Inspector General to review current and subsequent submissions. 

According to these officials, all of the errors we found would likely 

have been detected and corrected had it undergone a third-party review.



Marine Corps:



The Marine Corps’ data collection and validation processes were very 

inadequate, and it appears that little priority and management 

attention was accorded the 50-50 reporting process. Officials did not 

disseminate the guidance to all potential reporting offices or follow 

up to ensure that offices understood data reporting responsibilities. 

Most weapon system and support system managers were unfamiliar with the 

guidance and 50-50 reporting requirements. Several organizations that 

should have reported did not report at all and various transcription 

errors and omissions would likely have been caught with even limited 

management oversight and account reconciliation.



Internal checks and balances were also inadequate to ensure that all 

appropriate organizations reported or that the reported data were 

accurate and complete. Little data validation was accomplished at any 

level in the reporting chain and few attempts were made to ensure 

compliance with OSD, Navy, and Marine Corps guidance. For example, the 

largest Marine Corps reporting component did not have a focal point for 

checking information before forwarding it to the central 50-50 office 

compiling the overall report. This situation was made even more 

difficult because of the Systems Command’s reorganization.



Finally, the Marine Corps did not perform an internal or external audit 

of the 50-50 reporting, and documentation was inadequate. A 1999 Naval 

Audit Service “quick look” identified several weaknesses with the 

reporting process. While the guidance was subsequently improved, it 

appears that other corrective actions were not taken. We found that an 

audit trail was not adequately maintained to support the collection and 

aggregation of data, making data review and verification difficult. 

Worksheets to support the numbers reported in the future-years report 

were not maintained.



Air Force:



After several years of steady improvement, the Air Force 50-50 data 

collection process plateaued this year in terms of quality. The 

management process and controls were very similar to last year’s. Air 

Force auditors and we identified about the same level of problems as 

last year and continued to find that the records to document data 

collection processes, data sources, and estimating methods were not 

always adequately maintained, particularly for acquisition programs.



As before, the Air Force held a planning meeting of major reporting 

offices to discuss this year’s taskings and problem areas that had been 

previously identified. The most notable addition to guidance resulted 

from a recommendation we made last year regarding modifying budget 

estimates in the future-years report to better reflect changes in 

plans. Past reviews noted that the Air Force projections did not 

accurately reflect historical program execution rates and expected 

changes in workload from source-of-repair decisions for new and 

upgraded weapon systems. Execution data and source-of-repair 

information indicated that the future contract workload was expected to 

increase the private-sector share significantly. Accordingly, we 

recommended last year that guidance be expanded and clarified to allow 

for revising budgetary estimates to better reflect known and 

anticipated changes to workloads, workforce, priorities, and 

performance execution rates. Such actions would achieve more reasonable 

projections of depot requirements where historical data indicate that 

budget and programming data are unrealistic. In implementing this 

recommendation, Air Force officials in the future-years report added 

$314.7 million for new contract workload estimates in fiscal year 2002 

and an additional amount of $224.5 million to the private-sector 

amounts for the remaining 4 years of the reporting period. Officials 

added less than $4 million for new public workload estimates in the 

same time period.



The Air Force Audit Agency again reviewed portions of the Air Force’s 

data, making substantial corrections to the data submission. It did not 

review quite as much workload as in prior years, but the error rate was 

comparable with recent years. Air Force officials said that the audit 

effort might be reduced or eliminated in the future to focus on other 

areas. Clearly, the participation of the audit agency has improved the 

quality of the Air Force’s data.



Unresolved Systemic Problems Complicate Reporting and Distort Data:



While we have been reviewing DOD’s 50-50 reports for 4 years, we 

continue to find unresolved systemic problems complicating 50-50 

reporting and distorting the data. These problems include the double 

counting of funding for repair of components incorporated into an 

overhaul of a larger system or subsystem, the underreporting of depot 

work performed at nondepot locations, and the underreporting of repair 

work managed by system program offices.



Double Counting Repair Costs:



As discussed earlier in this report, the process the Air Force and the 

Navy use to calculate their 50-50 data can result in some component 

repair costs being reported twice: once when the item is repaired and a 

second time when the repaired item is installed into a piece of 

equipment at a contractor or military depot repair activity. For 

example, when a service has a radio circuit card repaired, the service 

includes the repair cost in its 50-50 report. Later, when that circuit 

card is installed into a radio as part of a depot-level overhaul of the 

weapon system, the service again reports the cost of the circuit card 

in its 50-50 report as part of the material costs for the overhaul. 

While a lack of data precludes precisely quantifying the impact of 

duplicate 50-50 repair-cost reporting, indications are that the 

magnitude may be material in the Air Force and less so in the Navy. 

Correcting for the double count would reduce the public-sector amounts 

more than the private sector’s in both services, thereby increasing the 

private-sector share of the total funds reported. We did not review 

this issue in the Army, but OSD officials stated that the same 

condition would likely exist in the Army.



The double counting of repair costs is particularly problematic since 

the Congress in 1996 asked DOD to report the depot maintenance mix in 

direct labor hours as well as in dollars. DOD officials, however, 

stated that they did not collect direct labor hour data from 

contractors and could not provide a reasonable labor hour comparison 

estimate. Since that time, DOD has reported 50-50 data in total 

dollars, which include labor and material costs. We have previously 

reported[Footnote 20] that including the cost of material in the 50-50 

reporting is a complicating factor and that it is difficult to 

accurately associate all material costs to assure that public-and 

private-sector activities are being measured based on comparable data. 

In our 1996 report, we stated that reporting workload in direct labor 

hours could address the material cost issue and provide a more accurate 

picture of the workload mix. This could potentially be useful also in 

rectifying the double counting of reparables since the double count 

occurs when the reparable cost is included as a material cost in the 

overhaul of the system or subsystem.



In its comments on our draft report, DOD stated that it was appropriate 

to count both the initial repair and subsequent cost of material since 

both were separate transactions. We think an adjustment is warranted in 

these situations to more accurately reflect work. The agency comments 

section later in this report discusses this issue further.



Underreporting of Work at Nondepot Locations:



Since the early 1990s, the distinction between depot-level maintenance 

and lower levels of maintenance at field and regional locations has 

become increasingly vague as the services move depot workloads to 

operating locations, redefine required levels of maintenance, 

consolidate maintenance organizations, and adopt new business 

philosophies. We have previously reported how these actions have 

complicated the 50-50 process and resulted in underreporting depot 

maintenance in the Army and the Navy.[Footnote 21] Our 50-50 review 

this year focused on the Air Force and found similar circumstances.



The Air Force appears to be underreporting public-and private-sector 

depot maintenance workloads by an undetermined amount because its 50-50 

reporting focuses primarily on those workloads and maintenance 

locations managed and funded by the Air Force Materiel Command, 

including operations financed through the working capital fund. It does 

not capture depot-type work being performed at field locations that are 

funded directly by the training and combat commands. Our work shows 

that this command-centric approach may be too limiting because we 

identified depot maintenance-like tasks being carried out in a wide 

variety of locales outside the Materiel Command’s purview that have not 

been reported in the 50-50 data. These locales include operating bases, 

regional maintenance sites, contract field teams,[Footnote 22] and Air 

National Guard maintenance shops.



Historically, the Air Force organized the depot maintenance mission to 

encompass only Materiel Command organizations and operations financed 

through the working capital fund and acquisition program office 

appropriations. As a consequence, only Materiel Command organizations 

receive 50-50 guidance and are tasked to report depot maintenance work. 

This does not appear to be sufficient due to changes in maintenance 

philosophy and approach and a clarification of the definition of depot 

maintenance in title 10. Depot maintenance is defined there as material 

maintenance or repair requiring the overhaul, upgrading, or rebuilding 

of parts, assemblies, or subassemblies, and the testing and reclamation 

of equipment as necessary, regardless of the source of funds for the 

maintenance or repair or the location at which the maintenance or 

repair is performed.



Examples of maintenance activities we identified that appear to include 

depot maintenance follow:



* Ninety percent of B-1B engine overhauls is not reported in 50-50 

data. It is accomplished at Dyess and McConnell Air Force Bases by both 

contract and government personnel and is funded by direct 

appropriations of the Air Combat Command and the Air National Guard. 

Ten percent of the overhauls, accomplished at the Materiel Command’s 

Oklahoma City Air Logistics Center and financed through the working 

capital fund, is reported in the 50-50 data. Officials at McConnell 

said the overhauls accomplished there and at Dyess--and the repair 

capabilities at the bases--are essentially the same as that at the air 

logistics center. The fiscal year 2001 work at McConnell was valued at 

$30 million for materials used; personnel salaries and other costs were 

not charged to the Air Force customer. Dyess did not provide a cost 

estimate, but officials said the workload is comparable to McConnell’s.



* McConnell also opened a B-1B avionics repair facility in 1998 that, 

although classified as an intermediate facility, frequently does depot-

type repairs and has an agreement with the Materiel Command’s Warner 

Robins Air Logistics Center to handle its depot maintenance overflow. 

Officials said the facility has depot-type repair equipment and that 

its mechanics are trained in depot repairs. None of the $27.2 million 

in work done at the avionics facility in fiscal year 2001 was reported 

as depot maintenance for 50-50 purposes. However, much of the work is 

equivalent in complexity and skills involved to the B-1B avionics work 

done at Warner-Robins Air Logistics Center, which is reported in the 

50-50 data. For example, the McConnell facility repaired transmitters 

for the depot, which did not have enough capacity to do the entire 

transmitter workload. The Air Force plans to shut down the McConnell 

avionics facility in 2003.



* A contract field team at Randolph Air Force Base accomplishes 

maintenance work on trainer aircraft, about $10 million annually. 

Funds for this workload are reported in the 50-50 data because the work 

is financed through the working capital fund managed by the Materiel 

Command. Other contract field teams accomplish maintenance work on the 

same trainer aircraft at regional locations, including engine work at 

Laughlin Air Force Base. This work, about $8 million per year at 

Laughlin and an unknown amount at other locations, is funded and 

managed by the Air Education and Training Command, but is not reported 

in the 50-50 data. Much of the work at these sites is considered to be 

intermediate level tasks, but officials say the workload and the site 

capabilities in terms of skilled technicians and plant equipment are 

very similar to that of the public and private depots.



* The location and reporting status of C-5 engine overhauls and 

modifications have changed over the years because of changed 

maintenance philosophy and base closures. The workloads are now 

accomplished at a contractor facility and at two Air Mobility Command 

regional repair centers located on Dover and Travis Air Force Bases. 

The work at the contractor facility is counted as depot maintenance in 

the 50-50 reports, but the work at the regional sites--valued at about 

$5.5 million per year and performed by contract and government 

personnel--is not reported. Several years ago, the Air Force revised 

its maintenance philosophy and moved some work from these regional 

sites to the Materiel Command’s San Antonio Air Logistics Center, where 

it was reported as depot maintenance. With the 1999 closure of San 

Antonio, some of the depot work returned to the regional sites and was 

not reported as depot maintenance. Now, officials plan to decrease the 

work at one or more of the regional sites and send it to the privatized 

facility located on the site of the closed San Antonio depot, where it 

will again be reported for 50-50 purposes. Air Mobility Command 

maintenance officials said the capabilities at the regional sites to do 

complete engine overhauls and major modifications are equivalent to 

those at public depots and major contractor facilities.



* In November 2001, the Air Force Materiel Command and the Air National 

Guard signed a memorandum of agreement for the Guard to assist in 

overflow depot maintenance work from the air logistics centers. The 

Guard had already been doing this at several sites, including McConnell 

as previously discussed. Also, Guard personnel at the Rickenbacker 

Airport overhaul small gas turbine engines and auxiliary power units 

for several Air Force customers. During its 8 years of operation, they 

charged about $26 million in material and transportation costs to their 

customers, but they did not charge for personnel costs, which are paid 

by the Guard. None of this work was reported for 50-50 purposes. 

According to Guard officials, they are doing depot and depot-type work 

at several other locations and are looking to expand opportunities in 

this area. Under the agreement, funding for these workloads is to be 

reported in the future as depot maintenance to the extent the Guard 

substitutes or performs overflow work for the public depots. It is 

unclear, however, whether all costs associated with the Guard’s 

performance of future depot maintenance work will be captured. For 

comparability with repairs done at depots and contractor facilities, 

labor costs would have to be included, lest the depot workload be 

understated.



It is unclear what portion of the work in the situations above and at 

other nondepot activities should be reported as depot maintenance. The 

previous examples illustrate the transitory nature of reporting as 

locations and funding sources change. We recognize that much of the 

work is properly categorized as intermediate level maintenance work and 

that there is a difference between the depot and intermediate levels in 

terms of the skills involved, the equipment used, and the repair 

specifications involved. However, it appears that government and 

contractor personnel at several non-Materiel Command and nonworking 

capital funded locations are performing work that is very similar if 

not equivalent to depot maintenance and that the Air Force is not 

considering this at all in the 50-50 mix. These locations and their 

operating commands do not receive the 50-50 data call instructions, 

which would at least offer an opportunity to determine its 

applicability. In determining not to report certain activities in the 

50-50 data, the Air Force is in effect adopting a de facto policy of 

using location, command affiliation, and funding source as bases for 

decisions, whereas OSD and Air Force guidance clearly states that depot 

maintenance should be reported regardless of the location or funding 

source used.



We also note that the Air Force has prescribed procedures for making 

changes in the level of maintenance for individual workloads and for 

obtaining approval to do depot maintenance at nondepot locations. From 

our discussions with Air Force and Air National Guard personnel, it 

appears that the formal process is not always followed and that there 

is no tracking mechanism to determine how often such actions occur, 

where they occur, and for which items. According to officials, an 

informal system is used more often to get approvals for depot repairs 

over the telephone from Materiel Command officials. The command focal 

point told us that they are evaluating improvements to the formal 

system.



In comments on our draft report, DOD stated that Air Force policy 

provides that depot level repair can only be done at approved 

locations. In providing oral comments, Air Force officials said they 

had reviewed some of the situations we cited and believed the work to 

be intermediate-level maintenance. They agreed with the intent of our 

recommendation, which was to determine the potential and extent of 

depot-level maintenance accomplished at nondepot locations, and stated 

that they would further evaluate this issue to ensure the next 50-50 

data call was complete and comprehensive.



In previous years we have reported on similar matters concerning the 

Army and the Navy. With regard to the Army, we reported[Footnote 23] 

about the proliferation of its depot maintenance work at nondepot 

locations and its efforts to consolidate workloads and craft a national 

maintenance program. We determined that the Army did not sufficiently 

identify the extent of depot maintenance-type work performed at 

nondepot facilities and was unable to develop accurate and consistent 

estimates of its depot maintenance-type work. This occurred partly 

because its reporting criteria were not consistent with the definition 

in 10 U.S.C. 2460. Since then the Army has made efforts to identify all 

depot maintenance performed in field-level activities. Although some 

progress has been made, a recent Army-sponsored study of the 

proliferation of depot maintenance-type activities concluded that not 

all depot maintenance being performed in specialized repair activities 

is being reported. Army officials said the study determined that the 

definition of depot maintenance has not been institutionalized and much 

depot maintenance data are not being reported. For example, several 

major commands did not report component repair, refurbishment, and 

other overhaul programs. This would suggest that the Army requires 

additional emphasis in the oversight and control of its maintenance 

activities and processes. When depot work is performed at field 

locations without the rigorous standards maintained at a depot, the 

Army cannot assure that its equipment will be as reliable as it needs 

to be to respond to future contingencies.



We have also previously reported[Footnote 24] on the Navy’s 

regionalization of maintenance activities, which is consolidating depot 

and intermediate levels of maintenance at common locations. After 

attempting to develop a reporting system at Pearl Harbor--the first 

regional site--that would isolate depot from intermediate tasks, the 

Navy revised its 50-50 guidance for this year to require that all 

maintenance at consolidated locations should be reported as depot 

maintenance. Accordingly, the Navy’s prior-years report includes work 

at Pearl Harbor that is classified as intermediate-level maintenance 

and that was not reported previously for 50-50 purposes. The Navy’s 

future-years report includes similar actions at other regional sites as 

they come on board.



Underreporting of Depot Repair Funding Provided by System Program 

Offices:



As previously discussed, some weapon system program offices in each of 

the military departments did not report depot maintenance funding for 

weapon systems that should have been reported. These errors are 

difficult to identify, because it is more difficult to identify 

something that is not reported at all than to find errors in data that 

are reported. Nonreporting system office officials told us that they 

did not think they were required to report depot repair costs they 

managed under temporary or long-term logistics support contracts. Both 

OSD and the military departments have developed guidance that specifies 

that depot maintenance and repair costs should be reported, regardless 

of the source of the funds or the location of the work. However, we 

reported[Footnote 25] in the past that system program offices sometimes 

do not recognize or respond to logistics guidance regarding 50-50 

reporting requirements or adequately consider impacts on the 50-percent 

limitation during the decision-making process when determining whether 

a new system or upgrade should be supported in the private or the 

public sector. For example, the failure to recognize the impact on 50-

50 requirements led to the assignment of the repair work for so many 

new weapon systems to the private sector that the Air Force has for 2 

years exceeded the 50-percent funding limitation on work performed in 

the private sector.



Conclusions:



Although we cannot tell with precision whether the military departments 

met the 50-50 requirement, the prior-years report does provide a rough 

approximation of the allocation of depot maintenance workload between 

the public and private sectors. This information is useful to the 

Congress in its oversight role and to DOD officials in deciding support 

strategies for new systems and in evaluating depot policies and 

practices. On the other hand, the future-years report is not a very 

useful tool for informing the Congress and DOD officials about likely 

future compliance because it does not provide a reasonable estimate of 

projected public-private sector workload balances. This occurs because 

of the changing nature of projections, a combination of errors and 

omissions, less emphasis by the services on the collection and 

validation of future-years data, and the use of ever-changing budgetary 

estimates to construct projections. Furthermore, such budget 

projections and assumptions get more difficult to make accurately as 

the distance into the future increases because of their very 

speculative and volatile nature. We believe that these problems are 

likely to continue because of the uncertainty associated with 

estimating depot maintenance workload allocations between the public 

and private sectors beyond 2 years. The cost-effectiveness of 

continuing to collect and aggregate data for 4 years in the future is 

questionable given the problems we have identified with the estimates. 

With such estimating problems added to reports of the Air Force being 

above the ceiling and the Army and the Navy approaching the ceiling, 

all military departments will be challenged to managing their depot 

maintenance programs to remain within the 50-percent limitation.



Furthermore, after several years of incremental improvements, the 

overall quality and direction of DOD’s reporting seem to have 

plateaued. In addition, service plans to not use third-party checks or 

to decrease the involvement of auditors without identifying controls or 

plans to substitute for the loss of independent review are a concern. 

Acting on these plans is likely to result in less accurate and 

comprehensive 50-50 reports. While the 50-50 guidance has improved over 

the years, several areas of guidance still do not adequately address a 

number of problems, including (1) exemption for partnering workloads, 

(2) double counting of component repair costs, (3) depot workloads 

accomplished at nondepot locations, and (4) proper reporting by system 

program offices. In addition, the complexity of the 50-50 process and 

changes in how maintenance is managed will present continued challenges 

to the services in making significant improvements to their collection, 

documentation, and reporting processes.



Matter For Congressional Consideration:



Because of the continuing limitations in the value of outyear 

information, inherent difficulties in projecting future requirements 

and capabilities and the volatility of such projections, the Congress 

should consider altering the 50-50 reporting requirement in 10 U.S.C. 

2466 to recognize the current shortcomings in the future-years 

reporting. Possible alternatives are to (1) eliminate the requirement 

for the future-years report; (2) modify the future-years report to 

include only the current year and the next budget year (the 2 future-

year projections that are generally more realistic); or (3) combine the 

prior-and future-years reports to include the prior, current, and the 

next budget years. The revised 50-50 report could also be required to 

include an explanation of actions each military department is taking to 

comply, or remain in compliance, with the 50-percent ceiling.



Recommendations for Executive Action:



To improve the 50-50 data collection, validation, and reporting 

processes, we recommend that the Secretary of Defense require:



* the Assistant Deputy Under Secretary of Defense for Maintenance 

Policy, Programs, and Resources, in conjunction with the secretaries of 

the military departments, clarify guidance on (1) the exemption of 

partnering workloads from the 50-50 requirement and (2) the treatment 

of component repair costs to prevent the double counting in 50-50 

reports when the repaired items are used in higher-level assemblies;



* the Secretary of the Navy to (1) direct the use of the Naval Audit 

Service to review and validate 50-50 processes and data during next 

year’s and subsequent reporting cycles and (2) revise its guidance in 

order to report nonnuclear-related depot maintenance and modification 

work accomplished on aircraft carriers in conjunction with nuclear 

refueling overhauls as discussed in this report;



* the Secretary of the Army to (1) initiate steps to improve management 

and controls of the 50-50 data collection and documentation process and 

(2) finalize and issue guidance concerning the reporting of depot 

maintenance at nondepot locations;



* the Secretary of the Air Force to determine the extent and nature of 

depot maintenance and depot-like tasks accomplished at nondepot 

locations (including field and regional maintenance centers) and apart 

from Air Force Materiel Command reporting responsibility and, pending 

the outcome of that determination, revise Air Force 50-50 guidance and 

management processes for tasking, collecting, and validating data in 

order to ensure more complete and consistent reporting of 50-50 data; 

and:



* the Commandant of the Marine Corps to (1) initiate steps to improve 

management and controls of the 50-50 data collection and documentation 

process and (2) ensure that 50-50 reporting guidance is disseminated 

and understood by all potential reporting organizations.



Agency Comments and Our Evaluation:



DOD provided official oral comments on a draft of this report. DOD 

agreed with most of our recommendations and cited a number of 

corrective actions it plans to take. However, DOD disagreed with parts 

of two recommendations; these are discussed below. DOD also provided 

technical comments, which we incorporated in the report as appropriate.



DOD disagreed with the part of our first recommendation addressing the 

double counting of repair costs of components used in higher-level 

assemblies. We stated that reporting both the cost of the original 

repair of a component as well as the cost of that repaired component 

when it is installed in a system or subsystem during an overhaul 

distorts the aggregation of workload data for determining the mix of 

work between the public and private sectors. DOD officials said that 

the repairs of components and the use of those items during system 

overhaul are two distinct and separate transactions. According to DOD, 

both transactions are depot-level maintenance events that must be 

reported based on the provisions of title 10.



We continue to believe that reporting both actions distorts the 

reporting because the cost of the repair of some items can be counted 

twice. For example, an item can be counted when it is repaired and a 

second time as a material cost of installing the item in a system 

overhaul. DOD does not disagree that its treatment of component repair 

costs results in counting those costs twice in some cases. 

Nevertheless, according to DOD, it is consistent with congressional 

intent to report both as funds made available for depot maintenance. In 

our view, there is no reason to conclude that the intent of title 10 

requires double counting component repair costs. A more reasonable 

reading is that DOD can implement those provisions so as to allow for 

adjustments in reporting to more accurately reflect the cost of depot 

work. We continue to believe that DOD can clarify its guidance to 

prevent double counting of repairs when the repaired items are used in 

higher-level assemblies.



DOD also disagreed with the part of the recommendation made to the Navy 

concerning the reporting of nuclear carrier overhauls. DOD officials 

noted that for a variety of practical reasons, a Navy contract for the 

nuclear refueling of an aircraft carrier typically includes not only 

the removal and replacement of the nuclear reactor core but also 

necessary repair and modernization efforts for the ship. They stated 

that to date the Navy has treated all costs associated with the nuclear 

refueling of an aircraft carrier, including all such non-nuclear repair 

and modernization efforts, as subject to the exclusion. Therefore, the 

Navy has reported none of the funds made available for aircraft carrier 

nuclear refueling overhauls as depot-level maintenance and repair.



We continue to believe that the cost of depot repairs and upgrades not 

directly associated with nuclear refueling tasks during a refueling 

availability should be reported. Many maintenance tasks performed at 

the same time as a nuclear refueling are not related to refueling 

activities, and when these tasks are performed during other types of 

availabilities, they are reported as depot maintenance. Further, the 

funding associated with these other tasks is clearly identifiable in 

the carrier overhaul contract and in financial records. In our view, 

without some nexus between that work and nuclear refueling, it would be 

inconsistent with the plain language of section 2460 to exempt that 

work from reporting simply because it was performed during a nuclear 

refueling availability.



We are sending copies of this report to the Secretary of Defense, the 

Secretary of the Army, the Secretary of the Navy, the Commandant of 

the Marine Corps, the Secretary of the Air Force, the Director of 

Office of Management and Budget, and interested congressional 

committees. We will also make copies available to others upon request. 

In addition, the report will be available at no charge on the GAO Web 

site at http://www.gao.gov.



Appendix I contains our review scope and methodology and appendix II 

lists key contributors. Please call me on (202) 512-8412 or Julia 

Denman on (202) 512-4290 if you or your staff have any questions 

concerning this report.



David R. Warren, Director

Defense Capabilities and Management:



Signed by David R. Warren



[End of section]



Appendix I: Scope and Methodology:



To determine whether the military departments met the 50-50 requirement 

in the prior-years report, we analyzed each service’s procedures and 

internal management controls for collecting and reporting depot 

maintenance information for purposes of responding to the section 2466 

requirement. We reviewed supporting details (summary records, 

accounting reports, budget submissions, and contract documents) at 

departmental headquarters, major commands, and selected maintenance 

activities. We compared processes to determine consistency and 

compliance with legislative provisions, Office of the Secretary of 

Defense (OSD) guidance, and military service instructions. We selected 

certain programs and maintenance activities for a more detailed 

review.[Footnote 26] We particularly examined reporting categories that 

Department of Defense (DOD) personnel and we had identified as problem 

areas in current and past reviews; these areas included 

interserviced[Footnote 27] workloads, contractor logistics support, 

warranties, software maintenance, and depot maintenance at nondepot 

locations. We evaluated processes for collecting and aggregating data 

to ensure accurate and complete reporting and to identify errors, 

omissions, and inconsistencies. We coordinated our work, shared 

information, and obtained results of the Army and Air Force service 

audit agencies’ data validation efforts.



To determine whether the future-year projections were based on accurate 

data, valid assumptions, and existing plans and represented reasonable 

estimates, we followed the same general approach and methodology used 

to review the prior-years report. Although the future-years report is a 

budget-based projection of obligations, the definitions, guidance, 

organization, and processes used to report future data are much the 

same as for the prior-years report of actual obligations. We discussed 

with DOD officials the main differences between the two processes and 

the manner in which the data were derived from budgets and planning 

requirements and key assumptions made in the outyear data.



For reviews of both 50-50 reports, we performed certain checks and 

tests, including variance analyses, to judge the consistency of this 

information with data from prior years and with the future-years 

budgeting and programming data used in DOD’s budget submissions and 

reports to the Congress. For example, we compared each service’s 50-50 

data reported in February and April 2002 for the period 2000 through 

2005 with data reported for these same years in the 50-50 reports 

submitted in 2001. We found repeated and significant changes, even 

though the estimates were prepared only about 1 year apart. This 

comparison helped us identify large transcription errors and unreported 

costs that the Army had made, which resulted in the data reported to 

the Congress erroneously indicating an increase in the percentage of 

depot maintenance work assigned to the public sector. This comparison 

also revealed a greater increase in the Navy’s shift to more private-

sector workload than had been projected last year.



Variance analysis showed that congressional and DOD decision makers 

were given quite a different view of the public-private sector workload 

mix than that presented just last year.



Several factors concerning data validity and completeness were 

considered in our methodology and approach to reviewing the prior-and 

future-years reports. One key factor is the continuing deficiencies we 

have noted in DOD’s financial systems and reports that preclude a clean 

opinion on its financial statements and that result in limited accuracy 

of budget and cost information. Another factor is that documenting 

depot maintenance workload allocations between the public and private 

sectors is becoming more complicated by the consolidation of 

maintenance activities and the performance of depot-level maintenance 

at field locations. These complicating factors (1) make it more 

difficult to identify work that meets the statutory definition of depot 

maintenance, (2) complicate workload reporting, and (3) result in 

underreporting of depot maintenance for both the public and private 

sectors. In addition, changes in business philosophy and approach can 

make analysis more difficult. For example, many new contracts are 

performance-based and may not discretely identify maintenance 

activities or account separately for their costs. This can result in 

under-and overreporting of depot maintenance work performed in the 

private sector. It also forces more reliance on the contractor for 

providing information needed in 50-50 reporting and may result in DOD 

officials having to use more assumptions and estimating methodologies 

in lieu of contract data.



To review DOD’s efforts to improve the accuracy and completeness of 

reports, we discussed with officials managing and coordinating the 

reporting process their efforts to address known problem areas and 

respond to recommendations by the audit agencies and us. We compared 

this year’s sets of instructions with last year’s to identify changes 

and additions. We reviewed efforts to identify reporting sources and to 

distribute guidance and taskings. We asked primary data collectors to 

provide their opinions on how well efforts were managed and data 

verified and to identify “pain points” and ideas they had to improve 

reporting. We reviewed prior recommendations and service audit agency 

findings to determine whether known problem areas were being addressed 

and resolved.



We interviewed officials, examined documents, and obtained data at OSD, 

Army, Navy, Marine Corps, and Air Force Headquarters in the Washington, 

D.C., area; Army Materiel Command in Alexandria, Virginia; Naval Sea 

Systems Command in Washington, D.C.; Naval Air Systems Command in 

Patuxent River, Maryland; Marine Corps Materiel Command in Albany, 

Georgia; Air Force Materiel Command in Dayton, Ohio; Army Audit Agency 

in Washington, D.C.; Air Force Audit Agency in Dayton, Ohio; several 

public depots managed by the military departments’ materiel commands; 

and selected operating bases. We conducted our review from February to 

June 2002 in accordance with generally accepted government auditing 

standards.



[End of section]



Appendix II: GAO Contact and Staff Acknowledgments:



GAO Contact:



Julia C. Denman (202) 512-4290:



Acknowledgments:



In addition to the name above, John Van Schaik, Bruce Fairbairn, Chris 

DePerro, Jane Hunt, Larry Junek, Robert Malpass, Andy Marek, Frederick 

Naas, John Strong, and Bobby Worrell made key contributions to this 

report.



[End of section]



Related GAO Products:



Depot Maintenance: Management Attention Needed to Further 

Improve Workload Allocation Data. GAO-02-95. Washington, D.C.: 

November 9, 2001.



Defense Logistics: Actions Needed to Overcome Capability Gaps in the 

Public Depot System. GAO-02-105. Washington, D.C.: October 12, 2001.



Defense Maintenance: Sustaining Readiness Support Capabilities 

Requires a Comprehensive Plan. GAO-01-533T. Washington, D.C.: March 23, 

2001.



Depot Maintenance: Key Financial Issues for Consolidations at Pearl 

Harbor and Elsewhere Are Still Unresolved. GAO-01-19. Washington, D.C.: 

January 22, 2001.



Depot Maintenance: Action Needed to Avoid Exceeding Ceiling on Contract 

Workloads. GAO/NSIAD-00-193. Washington, D.C.: August 24, 2000.



Depot Maintenance: Air Force Waiver to 10 U.S.C. 2466. GAO/

NSIAD-00-152R. Washington, D.C.: May 22, 2000.



Depot Maintenance: Air Force Faces Challenges in Managing to 50-50 

Ceiling. GAO/T-NSIAD-00-112. Washington, D.C.: March 3, 2000.



Depot Maintenance: Future Year Estimates of Public and Private 

Workloads Are Likely to Change. GAO/NSIAD-00-69. Washington, D.C.: 

March 1, 2000.



Depot Maintenance: Army Report Provides Incomplete Assessment of Depot-

type Capabilities. GAO/NSIAD-00-20. Washington, D.C.: October 15, 

1999.



Depot Maintenance: Status of the Navy’s Pearl Harbor Project. GAO/

NSIAD-99-199. Washington, D.C.: September 10, 1999.



Depot Maintenance: Workload Allocation Reporting Improved, but 

Lingering Problems Remain. GAO/NSIAD-99-154. Washington, D.C.: 

July 13, 1999.



Navy Ship Maintenance: Allocation of Ship Maintenance Work in 

the Norfolk, Virginia, Area. GAO/NSIAD-99-54. Washington, D.C.: 

February 24, 1999.



Defense Depot Maintenance: Public and Private Sector Workload 

Distribution Reporting Can Be Further Improved. GAO/NSIAD-98-175. 

Washington, D.C.: July 23, 1998.



Defense Depot Maintenance: DOD Shifting More Workload for New Weapon 

Systems to the Private Sector. GAO/NSIAD-98-8. Washington, D.C.: March 

31, 1998.



Defense Depot Maintenance: Information on Public and Private 

Sector Workload Allocations. GAO/NSIAD-98-41. Washington, D.C.: 

January 20, 1998.



Defense Depot Maintenance: Uncertainties and Challenges DOD Faces 

in Restructuring Its Depot Maintenance Program. GAO/T-NSIAD-97-112. 

Washington, D.C.: May 1, 1997. Also GAO/T-NSIAD-97-111. Washington, 

D.C.: March 18, 1997.



Defense Depot Maintenance: DOD’s Policy Report Leaves Future Role 

of Depot System Uncertain. GAO/NSIAD-96-165. Washington, D.C.: May 21, 

1996.



Defense Depot Maintenance: More Comprehensive and Consistent Workload 

Data Needed for Decisionmakers. GAO/NSIAD-96-166. Washington, D.C.: May 

21, 1996.



Defense Depot Maintenance: Privatization and the Debate Over 

the Public-Private Mix. GAO/T-NSIAD-96-148. Washington, D.C.: April 

17, 1996. Also GAO/T-NSIAD-96-146. Washington, D.C.: April 16, 1996.



Depot Maintenance: Issues in Allocating Workload Between the Public and 

Private Sectors. (GAO/T-NSIAD-94-161. Washington, D.C.: April 12, 

1994).





FOOTNOTES



[1] Section 2466(b) was recently amended to permit only the Secretary 

of Defense to waive the requirement. (Sec. 341, P.L. 107-107, Dec. 28, 

2001). Previously, the secretary of a military department could waive 

the requirement.



[2] Based on the congressional mandate regarding the DOD 50-50 

requirement, this will be the fifth year that we have reported on the 

prior-year numbers and the third year reporting on the future-year 

numbers.



[3] The Secretary of the Air Force issued a national security waiver 

for both years as provided by 10 U.S.C. 2466.



[4] The National Defense Authorization Act for Fiscal Year 2002 (P.L. 

107-107, Dec. 28, 2001) amended 10 U.S.C. 2474 to exempt qualified 

public-private partnerships from the 50-percent limitation for fiscal 

years 2002-2005.



[5] These provisions were contained in the National Defense 

Authorization Act of Fiscal Year 1998 (P.L. 105-85, Nov. 18, 1997).



[6] This provision was in the National Defense Authorization Act for 

Fiscal Year 2000 (P.L. 106-65, Oct. 5, 1999).



[7] Interim contractor support is designed to be an interim support 

arrangement in which a contractor provides depot maintenance (and 

sometimes other logistics support) as part of the acquisition strategy 

for new systems.



[8] Contractor logistics support is designed to be a lifetime support 

concept in which a contractor provides most or all elements of 

logistics support, including depot maintenance.



[9] Because of the difficulty of segregating installation costs for 

safety modifications from costs for installing other modifications 

(e.g., for improved performance), OSD’s guidance specifies that all 

modification installation costs be reported when an installation is 

considered to be a depot-level service.



[10] Core competencies are depot-level maintenance capabilities to be 

retained in public depots to meet defense strategic and contingency 

plans and for which the military departments believe that DOD should be 

a recognized leader in the national technology and industrial base.



[11] OSD’s guidance defines a public-private partnership for depot 

maintenance as an agreement between a public-sector depot maintenance 

activity and one or more private industry or other entities to perform 

work or utilize facilities and equipment. Such an arrangement includes 

use of public facilities, equipment, and employees to perform work for 

the private sector under certain defined circumstances; private-sector 

use of public-sector equipment and facilities to perform work for the 

public sector; and work-sharing agreements using both public-and 

private-sector facilities and/or employees.



[12] See U.S. General Accounting Office, Depot Maintenance: Management 

Attention Required to Further Improve Workload Allocation Data, GAO-02-

95 (Washington, D.C.: Nov. 9, 2001) and Depot Maintenance: Action 

Needed to Avoid Ceiling on Contract Workloads, GAO/NSIAD-00-193 

(Washington, D.C.: Aug. 24, 2000). Other related reports are listed at 

the end of this report.



[13] See U.S. General Accounting Office, DOD Financial Management: 

Integrated Approach, Transparency, and Incentives Are Keys to Effective 

Reform, GAO-02-537T (Washington, D.C.: Mar. 20, 2002).



[14] Although 10 U.S.C. 2466 specifies reporting of funds expended in 

the prior years and projected to be expended in the future years, DOD’s 

past and current 50-50 reports are based on obligation data. A DOD 

official explained that obligation data are considered to be more 

appropriate because of the statutory requirement to report funds made 

available in a given fiscal year and because expenditure data may not 

be completely recognized in the accounting records for a year or more 

following the funds’ obligation.



[15] These figures constitute the absolute value of all errors found, 

in other words the summing of all errors whether positive or negative, 

public or private.



[16] DOD Financial Management Regulation 7000.14-R, vol. 6, ch. 14 

prescribes depot maintenance reporting requirements and includes 

inactivation as a depot maintenance activity. It defines inactivation 

as the servicing and preservation of an item before it is placed in 

storage or in an inactive status.



[17] See U.S. General Accounting Office, Depot Maintenance: Air Force 

Faces Challenges in Managing to 50-50 Ceiling, GAO/T-NSIAD-00-112 

(Washington, D.C.: Mar. 3, 2000) and Depot Maintenance: Air Force 

Waiver to 10 U.S.C. 2466, GAO/NSIAD-00-152R (Washington, D.C.: May 22, 

2000).



[18] GAO-02-95.



[19] GAO-02-95.



[20] U.S. General Accounting Office, Defense Depot Maintenance: More 

Comprehensive and Consistent Workload Data Needed for Decisionmakers, 

GAO/NSIAD-96-166 (Washington, D.C.: May 21, 1996).



[21] GAO-02-95.



[22] Air Force regulations define a contract field team as contract 

maintenance personnel accomplishing depot-level maintenance and 

modification at military installations or on-site. The work involves 

depot-level maintenance tasks and may include concurrent organizational 

and intermediate level tasks. The contractor provides supervision, 

personnel, and hand tools, and the government provides maintenance 

equipment, supplies, and special tools. The Air Force 50-50 guidance 

defines depot maintenance to include depot field teams, which can be 

contract field teams or organic field teams of government workers 

deployed to field locations. The Air Force manages several contracts 

that the services use to order contract field team services.



[23] See U.S. General Accounting Office, Depot Maintenance: Army Report 

Provides Incomplete Assessment of Depot-type Capabilities, GAO/NSIAD-

00-20 (Washington, D.C.: Oct. 15, 1999).



[24] See U.S. General Accounting Office, Depot Maintenance: Key 

Financial Issues for Consolidations at Pearl Harbor and Elsewhere Are 

Still Unresolved, GAO-01-19 (Washington, D.C.: Jan. 22, 2001).



[25] See GAO/NSIAD-00-193, GAO/T-NSIAD-00-112, and U.S. General 

Accounting Office, Defense Depot Maintenance: DOD Shifting More 

Workload for New Weapon Systems to the Private Sector, GAO/NSIAD-98-8 

(Washington, D.C.: Mar. 31, 1998).



[26] We selected the programs reviewed based on size and importance, 

leads obtained from internal auditors, and any previously identified 

areas of concern. Given the nature of our sample, the results are not 

projectible to the universe of depot maintenance activities. We also 

did not audit the integrity of DOD’s financial systems and accounting 

data used to prepare the 50-50 reports.



[27] Interserviced workload is maintenance that one military service 

performs on equipment owned and funded by another service.



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