Defense Depot Maintenance:

Weaknesses in the T406 Engine Logistics Support Decision Methodology

NSIAD-98-221: Published: Sep 14, 1998. Publicly Released: Sep 14, 1998.

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Pursuant to a congressional request, GAO provided information on the logistics support of the V-22 aircraft's T406 engine, focusing on: (1) the criteria used in determining that the T406 engine is a commercial item for purposes of exemption from establishing in-house maintenance capabilities for new systems identified by the Secretary of Defense under 10 U.S.C. 2464; (2) the rationale and support for the decision to designate the T406 a commercial item; and (3) the extent to which the cost-effectiveness of the decision was evaluated.

GAO noted that: (1) as provided by 10 U.S.C. 2464, the Navy has determined that the T406 engine is a commercial item and that it is not required to establish maintenance capability for the engine in a military depot; (2) the determination as to whether an item is a commercial one for purposes of meeting this exception to 10 U.S.C. 2464 is a matter of agency judgment; (3) given the discretion the agency has for making this determination, GAO cannot conclude that the Navy's judgment was unreasonable in determining that the T406 engine is a commercial item; (4) however, GAO found that the Navy's methodology for its commercial item determination was inconsistent and poorly documented; (5) specifically, the Navy stated that it was relying on the contractor's assurance of 90-percent common parts between the T406 engine and others in the Allison Engine (AE) Company engine family and also cited the technical judgment of program officials; (6) however, neither the Navy nor the contractor had recently evaluated the extent of common parts in advance of the Navy's determination that the T406 was a commercial item; (7) a subsequent analysis was made by Allison to support the claim of 90 percent common parts, but GAO's evaluation showed about 79 percent common to at least one of the other engines in the AE family; (8) the Navy also stipulated that the limited number of engine modifications required to produce the T406 engine was a factor in its commercial item determination; (9) however, data were not available to enable GAO to assess the value of those engine modifications; (10) the Navy calculated that using contractor support rather than the military support system would save $487 million over the 55-year life of the program; (11) GAO's limited review of that analysis identified significant errors and inconsistencies that could both overstate and understate the differences in cost between the two alternatives; (12) for example, the Navy did not consider the impact of a reduction in the T406 engine price on the cost of other elements such as the estimated cost of spares, which resulted in a net overstatement of the military alternative of $476.6 million; (13) additionally, the Navy used a higher reliability factor for the commercial alternative, which resulted in a $96.7-million understatement of the cost of the commercial alternative; and (14) GAO discussed the findings with the Navy, and Navy officials are continuing to update their analysis.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Navy disagreed with the recommendation. It stated that such a requirement would impose a stricter definition and criteria for commercial items subject to depot repair than required by the legislative exemption for commercial items with minor modifications. However, on March 24, 1999, the Department of Defense directed the services to document analysis in the contract file supporting its commercial item determinations under 10 U.S.C. 2464.

    Recommendation: The Secretary of Defense should issue guidance requiring the services to document in the contract file support for their commercial item determinations under 10 U.S.C. 2464 and subsequent logistics support decisions. On the basis of GAO's review of the T406 case, example of items that might be considered for documentation include: (1) percentage of common parts; (2) a comparative value of the average sales price of the baseline commercial item with the estimated price of the item that is the subject of the determination; (3) the value of unique support and test equipment and tools required to support the military requirement; and (4) a cost evaluation documenting that the life-cycle logistics support in the private sector is expected to result in a lower cost to the government.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: The Department agreed with the recommendation and directed the Navy to update the cost analysis as recommended. On December 11, 1998, the Navy provided its updated cost analysis to OSD.

    Recommendation: The Secretary of Defense should require the Secretary of the Navy to complete a new and updated cost analysis, correcting previous errors and inconsistencies, before executing future option years under the current T406 contract.

    Agency Affected: Department of Defense


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