Air Force Depot Maintenance: Improved Pricing and Financial Management Practices Needed

On March 27, 1993, the DOD Comptroller's office directed the Air Force to bill for past efforts noted by GAO. In addition, Air Force headquarters issued a letter dated September 30, 1993, to the Commander, Air Force Material Command, directing implementation of the GAO recommendation. Further, the Air Force Operation and Maintenance appropriation was billed $75.4 million for work performed, but not previously billed.

The Air Force issued guidelines on April 30, 1993 on the (1) specific billing policy for appropriate adjustments in response to changes in customer requirements or contractor prices, (2) specific policy on adjusting prices in accordance with cost adjustments experienced in finalizing contract prices. Further, on September 30, 1993, the Air Force issued a letter to the Commander, Air Force Materiel Command, directing them to implement GAO's recommendations concerning DBOF activities charging the stabilized price for work performed.

On April 30, 1993, Air Force issued guidelines directing the five Air Logistics Centers to comply with current DOD policies. The guidelines also rescinded existing Air Force policy to bill customers for work received during the last 45 days of the fiscal year at the following year's prices.

On April 30, 1993, Air Force Issued guidelines that rescinded existing Air Force policy to bill customers for work received during the last 45 days of the fiscal year at the following year's prices.

The Air Force anticipated that, by the beginning of FY 1995: (1) customer funds and depot maintenance operations will be properly aligned; and (2) normal funded carryover levels will be achieved. In December 1992, the House Armed Services Committee requested that we follow up on our Air Force depot maintenance report (GAO/AFMD-93-5). Based on the results of our work, the Authorization Conference Committee reduced the amount of fiscal year 1994 funds earmarked for depot maintenance by $290 million.

On June 22, 1994, we issued a report on DBOF pricing practices and financial reports. One issue discussed in the report was the backlog of funded work to be performed at the Air Force Logistics Centers. Our current work on DBOF pricing is also looking at the excessive amount of funded work on DBOF pricing is also looking at the excessive amount of funded work at the five Centers. This work is being done at the request of the Chairman, Subcommittee on Readiness, House Committee on National Security. (Job Code 511322).

GAO has continually stated that increasing prices to recover prior year losses is inconsistent with a basic intent of the Fund--that prices should reflect the actual cost incurred in providing goods and services. DOD does not agree with this recommendation and currently recoups losses through increasing prices it will charge Fund customers. As a result, in our March 1995 report, Defense Business Operations Fund: Management Issues Challenge Fund Implementation (GAO/AIMD-95-79), March 1, 1995, we recommend that the Congress enact legislations to prohibit DOD from including amounts in the Fund's prices for recovering prior year losses.

DOD disagrees with this recommendation and currently recoups losses through the pricing structure. But as part of GAO's ongoing DBOF work, DOD and GAO are discussing this matter and pursuing resolution of this issue. The House Armed Services Committee agrees with GAO in that increasing prices to recover prior-year losses is inconsistent with a basic tenet of DBOF. Therefore, in its fiscal year 1995 Committee report, it directed the Secretary of Defense to seek an appropriation to recover prior-year losses. The Senate Armed Services Committee also raised concerns, in its fiscal year 1995 Committee report, with DBOF's accumulation of large operating losses. In our March 1995 report, Defense Business Operations Fund: Management Issues Challenge Fund Implementation (GAO/AIMD-95-79, March 1, 1995), we reiterated our position and recommendation on this matter.

The National Performance Review (NPR) resulted in the elimination of all federal personnel manuals. DOD personnel policy is now being developed by DOD members. Two elements are essential for the Fund to respond to workload changes and operate in a businesslike manner: preservation of workforce flexibility and establishment of new federal competitive appointment procedures. DOD managers need the ability to employ or release personnel when workload increases or decreases.