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DEPOT ISSUES (PART I)
House of Representatives,
Committee on National Security,
Military Readiness Subcommittee,
Washington, DC, Tuesday, February 24, 1998.
The subcommittee met, pursuant to call, at 2:05 p.m., in room 2212, Rayburn House Office Building, Hon. Herbert Bateman (chairman of the subcommittee) presiding.
OPENING STATEMENT OF HON. HERBERT H. BATEMAN, A REPRESENTATIVE FROM VIRGINIA, CHAIRMAN, MILITARY READINESS SUBCOMMITTEE
Mr. BATEMAN. The subcommittee will come to order. We might as well proceed in the interest of saving people as much time as possible, and hope we have some other members join us.
Today the Subcommittee on Military Readiness is meeting for the first part of a two-part hearing to receive testimony concerning the recent decision by the Department of Defense to certify to Congress that the bundling of depot level maintenance workloads at Kelly Air Force Base, TX and McClellan Air Force Base, CA is necessary because these workloads cannot be logically and economically performed as individual workloads. In addition, we are here to review the notification by the General Accounting Office that they cannot report to Congress on the validity of bundling certification because the Department of Defense has not provided GAO with the documentation necessary to make that determination.
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For those of you who are not familiar with the specifics of these concerns, let me briefly summarize. Last year, after extended debate and negotiation, a compromise was agreed to by the conference committee on the Defense Authorization Act for fiscal year 1998 that, in part, stated ''A solicitation may be issued for a single contract for the performance of multiple depot-level maintenance and repair workloads * * * only if the Secretary of Defense determines in writing that the individual workloads cannot as logically and economically be performed without a combination of those individual workloads.''
On December 19, 1997, the Under Secretary of Defense for Acquisition and Technology transmitted to Congress just such a certification for the workloads at Kelly Air Force Base and McClellan Air Force Base. The provision of law that required this certification also required that GAO submit to Congress within 30 days their views regarding any such certification.
On January 20, 1998, GAO notified Congress that ''DOD's reports and supporting documentation do not provide adequate support for its determinations that the individual workloads of Sacramento and San Antonio depots cannot as logically and economically be performed without combination by sources that are potentially qualified to submit an offer and to be awarded a contract to perform those workloads.'' The GAO report further observed that the Air Force had failed to provide ''adequate or timely'' access to documentation used by DOD in support of the determination to combine workloads.
I believe that the issue here goes beyond the traditional depot debate that we get into every year. I am disturbed with the allegation that the Department of the Air Force has refused to provide all the relevant documents required by GAO, that under the law they are granted access and in fact receive similar documents from the Air Force and other military departments on a routine basis. The actions by the Department of Defense and the Air Force appear to fly in the face of the hard fought compromise agreed to by Congress and the administration last year.
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In a statement by President Clinton on the occasion of signing into law H.R. 1119, the National Defense Act for fiscal year 1998 which contained the provisions in question, the President stated, ''The Act also changes the terms under which public-private competition for work at closing maintenance depots can be conducted. Some of these changes should prove helpful, but other changes will likely make the Department's job more difficult. Nevertheless, the Secretary of Defense has indicated that the Department has flexibility to proceed with the remaining public-private competitions in a way that is fair to both sides. The Secretary has pledged to implement the Act so as to encourage all bidders, public and private, to do everything possible to ensure that the competition occurs on a level playing field.''
With that kind of a commitment from the administration, it makes me wonder why we are still embroiled in this controversy.
As I have stated many times, I believe that it is essential to the national security of the United States that the Department of Defense maintain the capability to perform depot-level maintenance and repair of military equipment so that our fighting forces are able to successfully and safely meet operational, training, mobilization and emergency requirements. All of us here today would agree with that, I believe.
There are many very important issues that this subcommittee must deal with this year to address the readiness needs of our military forces. It is time to put this particular issue behind us.
As I mentioned at the beginning, this is part 1 of a two-part hearing. The witnesses for part 1 are from the General Accounting Office. The witnesses for part 2, which will be held tomorrow morning, will be from the Department of Defense and the Department of the Air Force.
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Our witnesses today from the General Accounting Office will be Mr. Henry L. Hinton, Jr., the Assistant Comptroller General, National Security and International Affairs, accompanied by Mr. Robert Murphy, general counsel, and Ms. Julia Denman, Assistant Director, National Security and International Affairs.
Before we begin today's testimony, I would like to yield to my colleague from Texas, the Honorable Solomon Ortiz, the ranking Democrat on the subcommittee, for any comments he may wish to make.
STATEMENT OF HON. SOLOMON P. ORTIZ, A REPRESENTATIVE FROM TEXAS, RANKING MEMBER, MILITARY READINESS SUBCOMMITTEE
Mr. ORTIZ. Thank you, Mr. Chairman.
I join with Chairman Bateman in welcoming you to this hearing today. This is my first hearing as the ranking member of the Readiness Subcommittee. I assure you that my interest in the issue we are addressing here today is not new.
I want to thank Chairman Bateman for his personal involvement and the extra steps he took to get this hearing scheduled so early in this congressional session. It is most unfortunate that we have been forced to conduct this hearing in two parts and on two separate days. I would have preferred to have all the parties involved in the matter present in the room as we attempt to understand their assessments and the dynamics associated with getting the information this subcommittee needs to execute its oversight, and these are great responsibilities that we have.
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Now, while I look forward to your assessments, I am personally interested in understanding more about the difficulties you encountered in your attempt to get adequate and timely access to documentation from the Department. I am concerned about the long-term implications of such a practice in light of the high level of confidence that Congress places on your analysis.
It has clearly been in the interest of Congress to obtain the best equipment and maintain it in the most efficient and most effective manner to ensure that our military forces would achieve our national strategy. That is including maintaining a public depot capability.
The free access dialog we are entertaining in this hearing should be well behind us. There should be no question regarding the adequate and responsive access to information by the departments through the General Accounting Office as it attempts to provide requested information to the Congress.
If this type of interference persists, this subcommittee will not get the quality assessment it needs to exercise its oversight responsibilities. Furthermore, it would have an insufficient time to devote its attention to other pressing demands that impact on the readiness of our military. Mr. Chairman, it is a luxury that we cannot afford.
Again, I welcome you here today and thank you for making time for us today, and I look forward to your testimony and response to the questions from the members of this subcommittee.
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Thank you very much, Mr. Chairman.
Mr. BATEMAN. Thank you, Mr. Ortiz. And if no other member has any opening statement that they are compelled to make, we will proceed with the testimony of Mr. Hinton.
STATEMENT OF HENRY L. HINTON, JR., ASSISTANT COMPTROLLER GENERAL, NATIONAL SECURITY AND INTERNATIONAL AFFAIRS, ACCOMPANIED BY ROBERT MURPHY, GENERAL COUNSEL, AND JULIA DENMAN, ASSISTANT DIRECTOR, NATIONAL SECURITY AND INTERNATIONAL AFFAIRS
Mr. HINTON. Mr. Chairman, Mr. Ortiz, members of the subcommittee, I am pleased to be here today to discuss issues related to the public-private competitions for workloads at the closed Sacramento and San Antonio maintenance depots.
First, I will address the problems we are having in obtaining access to DOD information that we need regarding these competitions to meet our reporting responsibilities under the 1998 Defense Authorization Act. In relation to those responsibilities, I will also address, first, the recent competition for C–5 aircraft workload and our assessment of it; second, the adequacy of DOD's support for its determination that competing combined rather than individual workloads of each maintenance depot is more logical and economical; and, third, some concerns participants have raised about the upcoming competitions.
Mr. Chairman, I will briefly summarize. First of all, our lack of access to information within DOD is seriously impairing our ability to carry out our reporting requirements. We completed, with difficulty, our required report to Congress concerning DOD's determination to combine individual workloads at two closing logistics centers into a single solicitation at each location. However, the Air Force has not been responsive to some of our continuing requests for information relative to the Sacramento and San Antonio competitions. If the Department continues to delay and restrict our access to information that we need to do our work, we will be unable to provide Congress timely and thorough responses regarding the future competitions for the remaining depot workloads.
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To meet our reporting requirements regarding these competitions, we will need to review DOD documents relating to solicitations, competitors' proposals, DOD's evaluations of the proposals, and the selection of successful offerors as they become available to Air Force procurement officials. We recognize the sensitivity of this material, and are prepared to discuss with the Air Force steps for safeguarding the material and facilitating the selection process while allowing us to fulfill our statutory responsibility.
Let me turn to our recent report on the C–5 competition. In assessing the competition process for the C–5 aircraft workloads, we found that, first, the Air Force provided public and private sources an equal opportunity to compete for the workloads without regard to where the work could be done; second, the Air Force's procedures for competing the workloads did not appear to deviate materially from the applicable laws or the Federal Acquisition Regulation; and, third, the award resulted in the lowest total cost to the Government, based on Air Force assumptions and conditions at the time.
Next, concerning the Department's December 1997 determination which you mentioned, Mr. Chairman, to combine the remaining workloads at Sacramento and San Antonio, it may be that this determination is correct. However, as our recent report states, DOD's reports and supporting data do not provide adequate information supporting the determination.
Last, Mr. Chairman, much remains uncertain about the upcoming competitions for the remaining workloads. Potential participants have raised several concerns that they believe may impact the conduct of the competitions.
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One concern is the impact of the statutory limit on the amount of depot maintenance work that can be done by non-DOD personnel. The Air Force has not yet determined the current and projected public-private sector workloads mix using criteria provided in the 1998 legislation—that is the 50/50 criteria—but is working on it. Nonetheless, preliminary data indicates there is little opportunity to contract out additional depot maintenance workloads to the private sector.
Another concern that we have heard is that the Air Force's proposed change in the overhead savings to the Department may factor into the cost evaluations. Well, for the C–5 workload, competition overhead savings were considered for the duration of the performance period. However, for the upcoming competitions, the Air Force is considering limiting overhead savings to the first year and possibly reducing the savings to the second year. We will follow these and any other issues that may arise as we do our work.
Mr. Chairman, in closing, I want you, Mr. Chairman, Mr. Ortiz, and the members of the committee to know that we are working diligently to meet the congressional mandates and to safeguard sensitive information that is necessary to accomplish this work. As I mentioned earlier, we are prepared to discuss with the Air Force the steps that can be taken to safeguard the material and facilitate the source selection process while allowing us to fulfill our legislative responsibility. However, I need to point out once again that we will not be able to meet our mandated reporting requirements unless we are provided timely access to the information by the Air Force.
Mr. Chairman, that concludes my opening statement. I and my colleagues will be happy to respond to your questions.
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[The prepared statement of Mr. Hinton can be found in the appendix on page 31.]
Mr. BATEMAN. Thank you, Mr. Hinton. Your testimony presents a number of questions that I think we need to pose. I think you made it abundantly clear that General Accounting Office is being frustrated in the inability to obtain data that you would normally expect to have obtained in order to perform the functions that you are charged with performing. In this instance it is beyond just a general authority of the General Accounting Office; you have here specific targeted mandates.
Given the fact that they are very specifically charged responsibilities of GAO, I would think there would be less justification for the Department of Defense to be withholding data than if we were operating in a more general context of something that GAO was empowered to do but not required specifically by Congress to do. Is that a fair observation?
Mr. HINTON. That is a fair observation, sir.
Mr. MURPHY. If I could add something to that, Mr. Chairman, during the time that the 1998 DOD authorization bill was being debated in Congress, an early draft conveying an access to records provision explicitly said that the General Accounting Office should have access to proprietary data that the agency has when it is considering these evaluations. We talked to the staff and said that that language is narrower than our normal access to records provision and it is really unnecessary, and in the final version of the bill that was dropped out.
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And I was just looking this morning at this statement of the managers which reflects what occurred. The managers' statement says that the conferees note that Section 716 of Title 31, United States Code, gives the Comptroller General access to the information necessary to make his determination, requires the agency to provide the Comptroller General all necessary information, and goes on to talk about our historical access to information of this type. So we have a specific mandate to do this job, but we also have clear evidence that Congress intended us to have access to the data.
Mr. BATEMAN. There could be no question that Congress intended that you have that access. Could you explain to the committee what the justification for the withholding of the information has been?
Mr. HINTON. What has been relayed to us by the Air Force, Mr. Chairman, is that it is proprietary, it could be competition-sensitive. This is the same type of information that we have on many of our jobs, and in the course of handling bid protest decisions have dealt with.
And you know, it is that point, that we can go and work and handle and be responsible in that. I mean, it is clearly authorized for us to handle that information. I think our record is very straightforward on that in terms of how well we have done that. We treat that information, as an agency, just pretty much like we do on classified information, and I think GAO's track record speaks well for it.
Mr. BATEMAN. Is there anything in what you are mandated to do in the 1998 authorization bill that is unique or that would in some way make this situation different and their position more justifiable?
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Mr. HINTON. No, sir, I would not say there is anything unique about it. I think what you are asking us to do is doable if we had the access. What worries me and worries all of us at the table and the team that is in the room here, is that in the mandates that are there, there are deadlines that are put on us.
As you know, looking at the part that relates to the solicitation and the part that relates to the award, we are mandated to respond within 45 days. And to do the necessary work that we have to do, that is tight, but we are going to work hard to do it. But if we run in a stumbling block of getting access to the needed information, that is where I begin to worry, and I do not want to miss that mandate that you have asked us to comply with.
Mr. BATEMAN. Are there any comparable situations to what we are dealing with here where you have received the information, including the proprietary information and source selection data?
Mr. HINTON. Yes, sir. We have had jobs in the past that we have been involved in where we have needed access to this type of information. We have gone and obtained that information. We have that information in the GAO building and have worked with it.
And part of that, in getting that, is to meet the standards that we have to comply with, and at the heart of that is the rules of evidence, that we need to have competent and sufficient evidence in order to render the conclusions and recommendations from that work. That means that that type of evidence that we are seeking has to become part of our working papers that we rely on, and it is part of the process for us to be able to render judgments.
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Mr. BATEMAN. It is inherent in discharging your responsibilities that you have the data and you have statutory constraints on to whom you can publish it or make it available. Has anyone cited to you any reason why the Department of Defense could not feel secure providing you the data because they fear that if they provided it to you it would inevitably come into the hands of others?
Mr. HINTON. The issue that you raise there I think could be a concern on the Department's behalf, but our policy is not to release any of that information to anyone asking that during the course of the job. And once the jobs are over with, there are occasions where we are asked by people from the Hill, for example, for access to our working papers. We normally would try to comply with that. But during the course of our work, there are occasions where people ask to have access; and those cases, we refer them to the Department because it is not our policy to make that information available.
Mr. BATEMAN. How do you handle a situation where you obtain data from the Department and I or some other Member of the Congress asks you to provide the data or information for whatever purposes they thought necessary? How would you handle that?
Mr. MURPHY. There are a number of ways to handle it, sir. Sometimes agencies or private entities are very, very concerned that during the course of the audit there will be a request from a Member of Congress or a request of the committee that requested the job, and we seek a letter from the committee that suggests that they are not going to request the information during the course of the job, until it is over with. Other times we talk to them about the sensitivity of the data and the fact that the Department is very concerned about its possible release.
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In most cases, the requester will wait until the job is concluded before we provide the data or until the award is over. We simply have not had a problem along those lines. Although, you are absolutely right, that is an apprehension of the Air Force. In our discussions with them, that is an issue that has come up.
Mr. BATEMAN. Well, obviously you made the request for information. My recollection is you made it early and then you followed up with a written request. I assume there have been various meetings and discussions that took place with the people in the Department of Defense and Department of the Air Force.
Mr. MURPHY. Yes, sir.
Mr. BATEMAN. Could you tell me at what level those discussions took place and who have been the decision-makers over there?
Mr. HINTON. I can walk you through some of the key meetings that we have had and the correspondence that we have sent to the Department, Mr. Chairman.
December 19 is when we first made a request for this information. We were denied that request, citing reasons of proprietary information, competitive-sensitive information that came from the Air Force headquarters. December 29 I sent a letter to Mr. Gansler, the Under Secretary of Defense for Acquisition and Technology, and in response to that letter we were orally advised that arrangements will be made that we will have access. That was subsequently denied to us by the Air Force.
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January 8, 1998, we issued a demand letter to the Secretary of Defense. And on January 14, 1998, the Air Force permitted us to come over and read some of the documents that we were requesting. I need to point out to the committee, though, that in making that request we were not allowed to take anything out of the building. It had to go through an approval process. There was information redacted.
And to give you an idea, this is what we were faced with, Mr. Chairman, going through, and you can see the redactions here. And as I mentioned, the standards around evidence and supervisory review, this does not lend a good, warm, fuzzy feeling in terms of allowing us to comply with all that.
On January 9, 1998, Mr. Murphy and I met with Art Money, who is the acquisition person over at the Air Force, along with one of the attorneys from the Air Force general counsel's office, in trying to resolve it. At that point we made some arrangements where we could try to get our people in to have further access to these documents. And today the Acting Comptroller General sent a letter back to Mr. Gansler in response to a piece of correspondence saying that our demand for the information was not resolved.
Mr. BATEMAN. You received that today?
Mr. HINTON. No, we sent that today back to Dr. Gansler.
Mr. BATEMAN. I see.
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Well, going back to the December 19 determination by the Under Secretary about the work logically and economically had to be brought, the data you needed in order to scrutinize the merits of that decision and evaluation, anything that would have been proprietary?
Mr. HINTON. Not in the determination that he submitted to the Hill. What was considered were some of the offeror studies that were done earlier that were referenced in his determination that he made to the Hill. That is what I just referred to, was some of these documents right here.
Mr. BATEMAN. Well, I read the decision document of the Under Secretary with reference to the, quote, bundling decision. You in your testimony said you do not know whether it was right or wrong. I do not know if it was right or wrong. But having read it, I thought it was woefully deficient as a decision document. Would you agree with that?
Mr. HINTON. Yes, sir. That was our problem when we went through, because we did not see what we would consider to be adequate support for the determinations at both locations. We would expect to see from our vantage point, you know, some type of a comparative analysis of looking at bundling versus keeping them individual workloads and pricing them out so you could see where the advantages and disadvantages are. We did not see that level of analysis in the work that we did on that or the access to the documents.
I need to point out to you, Mr. Chairman, that as I was leaving the office today I got a call from the Air Force saying, ''We are now faxing you 35 pages of further support behind that report,'' and that was coming over the fax line as I was coming up here. So I do not know what is in it, but it could come up tomorrow during the course of that hearing. I just want to make you aware of that.
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Mr. BATEMAN. I hope that some of our phone calls with certain people in the Department of Defense may be helping.
That December 19 decision paper made reference to all the principal parties and interests were in agreement that bundling was economically and logically required, did it not?
Mr. HINTON. The determination letter that came up here, it did. Upon our review of that, one of the offerors did not agree, one of the studies did not agree with that statement, that all-encompassing statement. In fact, it represented in its study that it did not represent the best interest of the Government and proposed other options.
Mr. BATEMAN. Is there any logical reason why this public-private competition could not take place in the context of a dual track where it was bundled and you got an offer, and you also solicited proposals for the stated elements of work which had been bundled, so that you could then compare the overall ultimate best value, lowest cost to the Government?
Mr. HINTON. Yes, sir. You are zeroing in in terms of where we felt the determination came up short in terms of its attitude. And when you look for those type of comparative analyses, it would be that type that you would expect to be seeing when you make those type of determinations.
Mr. BATEMAN. If the committee would be patient with the chairman a little longer, I do have a couple more questions.
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Mr. CHAMBLISS. We are right on target, Mr. Chairman.
Mr. BATEMAN. You made reference to Air Force analysis of the 50/50 allocation of workloads was in process but had not been completed. Can you go through and make decisions and award this work that is in question without knowing where the 50/50 rule stands?
Mr. HINTON. I think that is an important criteria that the Department needs to consider and determine. What we know right now is that they are going through that. And I guess that what remains to be seen is the time line for when these competitions are going to take place and the time line for whether they will have that data and that analysis done. And I do not have that data for you, Mr. Chairman.
Mr. BATEMAN. The last question I have, and then I will call on Mr. Ortiz for any questions he may have: You made reference to the overhead savings and the way they were counted in the C–5 work that went to Warner Robins versus the way they propose to do it here. Did you find anything defective in the manner in which they counted overhead savings in the prior award?
Mr. MURPHY. What we found was that, based on the assumptions in their solicitation, that they followed through and did the evaluation in accordance with those assumptions. There are a number of reasonable ways in which you could allocate overhead, and we did not have any problem with the way they did it in the C–5.
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Mr. BATEMAN. Have you discerned the reason why they have changed their methodology or their criteria for counting overhead in this ongoing process as opposed to the one they recently concluded?
Mr. MURPHY. We suspect they are responding to a number of concerns that were raised from the private sector competitors for the C–5 work. In an ordinary competition between two private firms one does not project overhead savings out more than a year or two because you really do not know what is going to be happening 5 years down the road or 7 years down the road. And if the private sector firms in the C–5 competition say, ''We're not really sure,'' that is likely to project 7 years toward the depot.
And so I think the Air Force is probably being responsive to that concern, saying that maybe we want to try to level the playing field somewhat by letting both the private sector and public sector overhead savings projections be approximately the same distance into the future.
Mr. BATEMAN. After a point where you have received all the data that you think is reasonably required to complete your analysis, will you have any evaluation as to the merits of this overhead decision as it relates to the upcoming report?
Mr. MURPHY. That is clearly one of the issues we will have to consider in evaluating cessation of the work.
Mr. BATEMAN. Thank you for your patience.
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Mr. Ortiz.
Mr. ORTIZ. Thank you, Mr. Chairman.
I know that I do not have an Air Force depot, but several of my colleagues here have Air Force depots. I understand my good friend and colleague, Mr. Hansen, has another commitment. I will yield my time to Mr. Hansen.
Mr. HANSEN. Thank you. I appreciate my friend from Texas yielding his time.
Mr. Chairman, I have some of the same frustrations that have been expressed by the GAO. In January I went up to Wright-Patt and spent a day and a half with General Babbitt, head of the Air Materiel Command, and sent a number of questions to him which he responded immediately to to the Pentagon. The Pentagon elected, however, not to send them to me until just before I came to this meeting, which really amazes me, but I think we have the same problem you do.
Mr. Chairman, if I may just quickly ask a few questions and I will get out of here, I would be curious for some brief answers. I have got to run to the floor if I could.
Despite DOD's failure to provide you full and timely access to information, the report stated, ''The DOD report and supporting data do not provide adequate information supporting DOD determinations.'' For the record, then, would you agree that DOD's justification for a single bundled workload at McClellan is adequate?
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Mr. HINTON. Yes. And Mr. Hansen, you need to be aware that I have got other information coming over the fax line that I am going to take a look at. But based on where we are today, I would agree with that.
Mr. HANSEN. Your answer is a ''yes.'' Your report states ''There is no analysis for the logic and economics associated with having the workloads performed individually.''
Would you agree that DOD performed absolutely no analysis of possible alternatives after the passage of the 1998 Defense Authorization Act to support Dr. Gansler's letter?
Mr. HINTON. I do not know whether that is coming, if that has been submitted to me today. It may be some further information. But based on the report that we looked at and what we had access to, I would answer your question ''yes.''
Mr. HANSEN. You would answer ''yes'' to that question.
I understand that the reports DOD did reference were all conducted as part of a previous contract to study the already bundled workloads. Even so, I understand your analysis of the reports that, quote, one offeror's study states that the present competition format is not in the best interest of the Government and recommended that the workload be separated in two competitive packages, unquote.
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Mr. Hinton, would you agree with that statement?
Mr. HINTON. That is what one of the offerors said.
Mr. HANSEN. Is it true that one of the Air Force inputs recommended competing the KC–135 workload separately, consolidating the A–10 workload internally, and competing the non-Corps commodity workload in a separate competitive package, and that they believe this represented the most logical and economical strategy for the Air Force while maintaining readiness at low risk?
Mr. HINTON. I believe that is what that one offeror proposed.
Mr. HANSEN. Would you characterize the acquisition process and criteria used to compete in the C–5 workload as fair and equitable?
Mr. HINTON. Yes.
Mr. HANSEN. Did this contract award result in the lowest total cost to the Government, and what are the projected savings over the life of the contract?
Mr. HINTON. Yes.
Mr. HANSEN. Would the same acquisition procedures and assumptions be generally applicable to any competitions conducted for other workloads affected by the closure of Kelly and McClellan?
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Mr. MURPHY. It is possible that there are differences among the competitors and among the items that are being competed, that you would want different criteria. We are really anxious to see what kind of criteria is put in that system.
Mr. HANSEN. Dr. Gansler claims a high degree of risk in transitioning these workloads. Was there any evidence that the risk is greater for multiple workloads, let's say two, than for a single big-bang contract?
Mr. HINTON. No.
Mr. HANSEN. No?
Mr. HINTON. No.
Mr. HANSEN. Is it not true that base closure and other workloads leveling processes of the Air Force and all of its services have successfully transitioned individual workloads before at low risk while still maintaining readiness?
Mr. HINTON. I think there has been considerable transition of workloads in the past. I think there have probably been some bumps in how some of those are done and questions of effectiveness. And by and large, when they are planned out well, we can overcome some of those blocks that crop up.
Mr. HANSEN. It seems to me the Navy and the Army have been very successful in doing that; is that correct?
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Mr. HINTON. Yes.
Mr. HANSEN. Can you remind this committee what are your estimates of the savings which can be achieved through consolidation of excess capacity that the Air Logistics Centers [ALC] did? Am I wrong that it was $468 million per year?
Ms. DENMAN. Yes, sir. The figure that we produced in our December 1996 report was $182 million annually for the consolidation savings. And the figure that you cited was when you add together the cost of the savings from closing the base to those overhead savings. That is where the larger number comes from.
Mr. HANSEN. Mr. Chairman, I have two more and then I will run.
It is my understanding that Air Force analysis of the organic contractor workload mix, under the new definition, leaves little if any headroom for privatization of workloads and closing air logistics centers.
Can you tell me what, if any, information you have regarding Air Force headroom under the new definitions and 50/50 over the next few years, say 5 years?
Mr. HINTON. The Air Force right now, Mr. Hansen, is going through that process. I do not know what the bottom line answers are going to be to it. I know that based on some of the earlier information we have looked at, it is bumping up, but I do not know with any degree of specificity.
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Mr. HANSEN. The information I have from the three remaining ALC's is that they are almost on that 50/50 position. Maybe my colleagues from the other bases will be better able to comment on that. I know Hill Air Force Base is at 49.6 right now. That is pretty darn close.
Mr. HINTON. You are aware that we have a reporting responsibility to look at the workload allocation that DOD puts together, and we will do that.
Mr. HANSEN. In your previous work with DOD compliance with 60/40, you have been very critical of the inconsistent manner in which the various services report their organic workload mix. I understand that DOD has issued new data requirements.
Do you believe these requirements address your concerns, or do they actually raise even bigger concerns that this committee needs to be aware of?
Mr. HINTON. I think that it has been in a large extent responsive to what we have been talking about over some of the big differences, the guidance and the categories that have been recorded. I think the legislation that the committees came up with last year went a long way to doing that. I do not know that it has been fully responsive, but I think you will see better reporting if the Department follows the language that is out there.
Mr. HANSEN. Mr. Chairman, in my humble opinion, this committee passed definite legislation in the last session of Congress which was signed by the President, it is the law of the land. And in my humble opinion, I do not know if the Air Force is even coming close to living up to this legislation. I personally feel it is a duty of this committee that we actually put the Air Force to task to, one, give access to the GAO and, two, give us adequate and correct information.
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And I thank you for your time, and I thank the gentleman from Texas for yielding his time.
Mr. BATEMAN. Thank you, Mr. Hansen.
Mr. Sisisky.
Mr. SISISKY. Thank you, Mr. Chairman.
I want to thank GAO for being here. You really have done excellent work on the depot issue, particularly the long-term review of Air Force privatization in Newark, OH, which we could use as a case study for the two depots. As I understand it, one strength of your analysis in Newark, OH is, you have a cooperative relationship there with the Air Force now and that enabled you to develop a baseline and identify factors contributing to increased cost in Newark. However, it is also my understanding that this has not been the case at the Naval Service Warfare Center, which was privatized in place at Louisville, KY.
First, I want to say that your staff, and particularly Ms. Denman, has been very helpful in trying to keep tabs on Louisville. And at the same time I must say my impression is that the Navy has been less than forthcoming about what is going on.
About a year ago we heard the contractor had lodged anywhere from $8 to $10 million in the first 6 months of the contract. Then we started seeing message traffic about cost overruns and the need for additional funding, and NAVSEA's directions to pay up, no questions asked. We have copies of the e-mail that came across.
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Then we became aware of a contractor proposal to provide total life cycle support for all 5-inch guns in the Navy. And we have also heard that even though some in NAVSEA may have liked the proposal, cooler heads have prevailed and fleet maintenance offices have saved money by working on the guns at pier side. I have seen some figures that the contractor charges about $3 million per gun overhaul for a life cycle cost of about $6 million, but the Navy can do the work at pier side for about $200,000 per gun, a life cycle cost of $1 million.
I want to know why NAVSEA would even consider the contractor proposal, unless they simply want to be politically correct by subsidizing the contractor in order to prove that privatization in place works. And that brings me up to last year's appropriation bill which added $15.9 million for gun weapon overhaul and support at Louisville.
Frankly, I have not been able to find anyone with a line item in any appropriation bill who can tell us what it is for. So my question is, how do we get a handle on this? How do we find out if Louisville is losing money? And could the subcommittee, not me but the subcommittee, ask GAO to do a followup in Louisville along the lines of the most recent report that you have done in Newark? I think it is an action of the subcommittee to do it.
I do not know, Mr. Chairman, what they are trying to prove. Well, I do know what they are trying to prove. They are trying to prove that privatization in place is the cheapest way to do it without backing up the numbers.
Now my second thing that I would ask, I also understand GAO has a draft report on the allocation of depot maintenance work on new systems and most of the work on new systems is going to the private sector. How does that correspond to the 50/50 and the Core requirements outlined in the FY 1998 defense authorization bill?
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Mr. HINTON. On that note, Mr. Sisisky, we do have a draft report. We are now getting the Department's comments. I will have to see what comes back in their comments as we look at and evaluate those. But I think that is going to be relevant to what the Department is doing as they go through and rework the numbers and incorporate the elements that the legislation put in there for coming up with an assessment against the 50/50 criteria.
You know, in our draft report we make it clear that we have seen a movement to put the new systems and the upgrades out in the private sector. Some of the larger systems, however, at this point have not made those decisions, and I think that is going to be relevant to where the Department comes up in its allocation, workload allocation.
Mr. BATEMAN. When do you anticipate that study will be available?
Mr. HINTON. I hope, Mr. Chairman, in probably late March we will be completing that, and I will make sure that that gets up to the committee.
Mr. BATEMAN. Is it inappropriate for us to have the draft that does not yet include the Department's comments? Obviously, we will want the Department's comments.
Mr. HINTON. I think that has been made available to the committee, Mr. Chairman. If it has not, it is open to the Department for comment. And I will see if we can get a copy up here to you so you can see it.
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Mr. SISISKY. Am I correct in my statements about Louisville, the difficulty you had about getting information from the Navy?
Mr. HINTON. With respect to Louisville, Mr. Sisisky, we have had some data problems there. You know, we were able to do—I think we have done two reports that have focused on that. I think, you know, if the committee is going to ask us to take another look at Louisville, getting apples and apples like we did with Newark is going to be a challenge for us, but we will just have to see what we can do if that is indeed the request of the committee. And I will be happy to work with you all on that.
Mr. SISISKY. Mr. Chairman, I would suggest that members read this report. It is an ideal, I think, case study of what privatization in place is doing when you get to the right numbers.
Mr. HINTON. The chairman has asked us to, when the actual cost data becomes available on Newark, to do another report, and that is in the works right now, as I understand it.
Mr. BATEMAN. Well, let me ask you if you could do this: After today's hearing, if you could give some thought to the potential merit or advantages of a further study of the Louisville operation, let's you, Mr. Sisisky, and I sit down together and talk about that.
Mr. HINTON. Be happy to do that, sir.
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Mr. BATEMAN. Talk about whether it is worth pursuing further.
Mr. Taylor.
Mr. TAYLOR. No questions, Mr. Chairman.
Mr. BATEMAN. Mr. Rodriguez.
Mr. RODRIGUEZ. Thank you very much.
Let me just, I think on the same line, on requesting the committee to look at it, I know we had dealt with the C–5 contract that went to Warner Robins. And I know that you mentioned three, I think, positive items on that. No. 1, it was the most cost effective and it did go to the public sector and that, in addition to that, that it was not privatization in place. And every time I have had an opportunity to speak, Congressman Hansen is no longer in the audience. I just wanted him to hear that.
But I wanted to also ask you, on that bid that they provide, I gather that you follow up pretty good on the private sector when they submit a bid and it goes through. And this will probably be one of the first bids from the public sector, and let me know how you are going to handle that. Because I know our concerns initially were they do not even have a hangar to put the C–5 in there, and they came up with a way of dealing with it by having a tail cover.
Is there a way of also assessing to make sure that they stay within their own bid? And if they are asking the chairman of this committee to follow up on a couple on the private sector, I would like to also follow up on the public sector participation and ask the chairman to also consider and make sure that Warner Robins does stay within the bid process, and to make sure no additional MILCON monies are utilized to go beyond that, Mr. Chairman. And I do not know if you have any comments.
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Mr. HINTON. Mr. Rodriguez, I believe that as part of the process, there is a control built in where DCAA or one of the defense audit agencies will go in to monitor how the Department complies with those costs that are there, and that is built in, I believe.
Mr. RODRIGUEZ. Thank you. And the other comments I wanted to make, I know there were some discussions regarding at least my concern. Now I am in San Antonio. We did not get that initial bid. We do not have any.
But one of the realities is and one of the questions that was asked by Mr. Hansen here, and I think Mr. Murphy indicated that you did have to kind of look at the workloads; and I am not familiar with the workloads in Sacramento. I do feel I am a little familiar with the one in San Antonio. And they are very different.
And so what approach do you utilize in terms of assessing the differences, in determining, you know, what might be more appropriate in breaking it up or bundling?
Mr. MURPHY. In terms of the breaking up or bundling, you'd have to go through the same process that we described in the report, that Mr. Hinton described earlier, and that would involve estimating what it would cost to break it up and put in different combinations and comparing that to your estimation for bundling.
Mr. RODRIGUEZ. Would you take into consideration that on some of the comments, at least that I have been provided with, that you have basically three workloads that could possibly—which is the TF–39, the F–100, and the T–56 in San Antonio. And again, I am not familiar with Sacramento. I am familiar with the San Antonio one.
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And in all those three, you know, areas, they basically cover nine specific areas, which is the cleaning of the engines, the inspection of the engines, the plating, the heat treatment, the welding, electronics. And each of those areas, in each of the items, all of those particular projects are done.
And so when you look at the bidding process, are you taking that into consideration for a bidder, in that if they have the machinery to accomplish the inspection aspect of it and that machinery can inspect all three of those engines, those three of those workloads, is that correctly taken into consideration?
Ms. DENMAN. If you are referring to the bundling report, Mr. Rodriguez.
Mr. RODRIGUEZ. Yes. In terms of your decision whether—what is more cost effective, is it to bundle or not to bundle, I am trying to get what criteria are you utilizing or are you taking into consideration.
Mr. HINTON. I do not have a good answer for you on that, Mr. Rodriguez, because that is the time of analysis that was not apparent when we looked at the determination that Mr. Gansler sent to the committees. And we would have expected to have seen some comparative analysis, precisely what you are talking about, and how that was evaluated in coming up with those decisions. And I made reference to the fact that as I was leaving the building there today, we got other justifications apparently coming over from the Air Force; and I will look and see if that is addressed in any of that.
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Mr. RODRIGUEZ. So you are saying that, for example, the data that I just provided you, that you have not had access to that?
Mr. HINTON. I have not seen the analysis of that at that level.
Ms. DENMAN. If I could recognize that there are differences in the workloads at San Antonio and at Sacramento, as you noted, the processes are different and the approaches are different. The commonality of functions is much greater for the engine workloads than it is for the workloads, the aircraft and commodity workloads, that are at Sacramento.
What we said in the bundling report, sir, was that the Air Force did not provide support in their determination that their bundling determination was correct. We did not say that either was or was not justifiable, but that they did not provide and had not provided us that justification.
Mr. RODRIGUEZ. And, by the way, that is not right. If you feel you should get any, unless they show some good reason for—you know, if there is some leaks. I gather the only problem would be because of national security or because people are competing, they might get the data. But I would just mention, in terms of what little data you might have now, any similarity in terms of the work that is at least being considered to be put out in the San Antonio workload? On the engines? Do you see the similarity between them?
Ms. DENMAN. The engines are different engines. But as I indicated previously, the process of repairing engines has a number of common work areas that are much more common than the commodities that are in Sacramento.
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Mr. RODRIGUEZ. The same people can work on one and the other, for example, if it is cleaning?
Ms. DENMAN. Yes, that is true. But, at the same time, if you have another facility in another location that is already doing that same engine—for example, the T–56 and the T–39 are commercial derivative engines, so there are contractors who have facilities who are currently doing those engines. So if you move those engines back to a contractor facility that is currently doing that engine, then they would have the same commonality and same common use and cross fertilization.
The Oklahoma City depot, that also has engines, has the same lines. And they could also have those same advantages if you combine the F–100, T–56, or T–39 engines with their workloads. So our point was that they did not indicate why one combination was better than another combination.
Mr. RODRIGUEZ. One of the other things that I got, and I am hoping that you have this information, I was told that at least in the San Antonio one they looked at providing separate, you know, types of approaches, and that there were many that we are looking at, an estimate of a minimum of additional cost for doing separate bids of over $92 million. Have you seen that figure at all?
Ms. DENMAN. No, sir. We know that there is some work that has been done subsequent to our—the DOD's December 19 report and our January report. There were no such figures provided. I believe that the Air Force had developed some numbers that said there were additional costs and there are additional costs of managing one versus two, three, four, five contracts. We have not been provided that data, so I cannot really comment on it.
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Mr. RODRIGUEZ. And I guess you talk about not receiving the data, and I gather that, and you had some examples. What specific data have you requested that you can indicate publicly that you have not received?
Mr. HINTON. As it relates to the bundling report?
Mr. RODRIGUEZ. Yes.
Mr. HINTON. We have not seen the type of analysis one would expect to see, just as you have been describing, comparison of those where you bundle them versus if you break them up or you might mix them. We have not seen that, and the advantages and disadvantages.
And I think, Mr. Rodriguez, if I could go back, I made a comment in my opening statement. It may well be that you can bundle those workloads, but when you look at the report that was submitted December 19, the point that we were making in our report, there is really no support behind it that brings forth that analysis.
So we did not see that level of analysis. It just was not there, had not been done, and I think the Air Force has been responding to that. And just as I mentioned, there is apparently some more support coming to us and we will take a look and see what that report says.
Mr. RODRIGUEZ. Let me say, I agree it is not right for them to send you 30-something pages, as you indicated, on the last day right before you come before us.
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Ms. DENMAN. Sir, I would like to point out that all through the 30 days that we had to do this work, we asked at all levels in the Air Force to provide us with every document they had supporting their bundling determination. So we did not just ask for specific things that we thought were required to support that bundling analysis. But we asked for, from Sacramento and San Antonio program offices up to the air staff headquarters here in Washington and said, if you have some information that we have not been provided, please give us that information, because what we are seeing is no analysis to support this determination. So if you have something else that you feel we should see before making or writing this report, please give it to us.
Mr. RODRIGUEZ. One last question, Mr. Chairman.
Mr. BATEMAN. Yes. If you would.
Mr. RODRIGUEZ. On the 50/50, do you anticipate and have you asked them for additional explanation as to where we are at on that? I am also curious where we are at because I have heard different figures from different members and different individuals.
Mr. HINTON. I do not have a precise number, and the Air Force is going through that exercise right now.
Mr. RODRIGUEZ. Do you have any timetable as to when they are supposed to give you that data?
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Mr. HINTON. I do not know when they will complete their analysis, Mr. Rodriguez. They issued a report earlier this month that was based on the old criteria before the new legislative language asked them to change the criteria for reporting. So they are adjusting the numbers, and I would hope that they would be expedient when they do that.
Mr. RODRIGUEZ. Thank you very much.
Mr. BATEMAN. Mr. Riley.
Mr. RILEY. No questions.
Mr. BATEMAN. Mr. Chambliss.
Mr. CHAMBLISS. Thank you, Mr. Chairman.
You know, it seems that we are going to continue to battle this issue on depots with DOD that we thought we had put to rest last year. And on behalf of the American taxpayer and the 535 Members of the House and Senate, I want to thank you all for trying to do the job. But it appears that the well-defined arrogance of the Internal Revenue Service is paralleled only by those involved in the depot issue at Department of Defense, and this is absolutely ridiculous. Somehow I have a feeling this issue will be discussed tomorrow with the next panel that comes up here.
Mr. Hinton, let me make sure I understood how you responded to Mr. Rodriguez's last question with respect to current mix. We do not know what that is as far as the Air Force is concerned?
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Mr. HINTON. That is correct, I do not have a precise number that I can sit here and say. There is data bouncing over there right now, Mr. Chambliss, and we will have to wait until they are ready to report and see what those numbers are. And I would hope that it will come forth sooner than it is later.
Mr. CHAMBLISS. Can you tell us whether or not the C–17 work is included in that mix?
Mr. HINTON. The C–17 has not been determined.
Ms. DENMAN. There were some numbers included for the C–17 flexible sustainment contract. We do not know at this point whether it covered all the depot maintenance, but there were numbers included for the C–17.
Mr. CHAMBLISS. Thank you. Well, I want to talk a little bit more about the C–17.
Less than a month ago the Air Force issued a contract for the maintenance work for the C–17 which, as you just referred to, is known as the flexible sustainment contract. The reality, though, as I see it is that this contract means inflexible sustainment to the Air Force.
First of all, the contract was awarded a little more than a month after the President signed into law the very depot language that reaffirmed the Congress's commitment to maintenance and before DOD issued an opinion about the impact of the new law. As for the contract itself, it is a sole-source contract to the Boeing Co. for what is, in effect, 5 years.
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During the time of the contract, the Air Force has stated its intent to purchase the technical data or the support equipment in the depots that would allow the depots to compete against Boeing for this workload in 2003. Otherwise, there is no one else out there that can compete against Boeing in the year 2003, the way I see this.
Now, based on what any of you know about the C–17 so-called flexible sustainment contract, let me ask a couple questions. No. 1, what is a sole-source contract in you all's definition?
Mr. MURPHY. It is a contract that is given to one company without getting offers from others.
Mr. CHAMBLISS. Is a 5-year contract duration again one issue they pull a full 3 years after IOC, a system using the traditional approach to efficient management of maintenance workloads?
Ms. DENMAN. We have traditionally said that the longer you maintain contractor support on an interim basis without making a life-cycle decision, the contracting mechanisms may or may not be as efficient as they could be. The further you go after production, the more difficult it is to buy the technical data and the support and test equipment.
However, if the intent is to leave the contract support with the contractor, the Department feels that it may not be prudent to spend the money that it would spend for those items. It does limit the ability to compete the contract if you do not procure them. But there is the question of the fact that, if you pay for them up front and do not use them, then you have expended that money.
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What we have seen on contracts like the KC–10, which is a commercial derivative of the head life-cycle support, because it was a commercial derivative contract, they were able to actually compete it when there was cost growth for the life-cycle contract. But if you do not have the ability to do that because it is a commercial derivative system, then you would lose that capability.
Mr. CHAMBLISS. What, in you all's opinion, is the effect of the fact that technical data and support equipment are not being funded in the public depots in preparation for the 2003 option, along the lines of what you just said?
Ms. DENMAN. Essentially, it would be difficult or impossible for a public depot to participate in a competition if they did not have the technical data or the ability to get it.
Mr. CHAMBLISS. Mr. Chairman, what I have seen and heard about this C–17 maintenance contract bothers me, and it ought to bother every single member of this committee. And you know, we have sat through hearing after hearing with the Air Force sitting on the other side talking about competition and how we have got to create competition, and yet they go out and they sole-source a major new weapon system for a period of 5 years, significantly limiting what any other depot, public or private depot, is going to be able to do, all to the detriment of the American taxpayer. And I hope this committee will ask for a full justification and investigation, and I would like to see GAO go in and do a complete audit on the issuance of that contract and let DOD come up with a justification on why that type of contract would be sole-sourced. And I thank you.
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Mr. BATEMAN. Thank you, Mr. Chambliss.
Mr. Gibbons.
Mr. GIBBONS. Thank you, Mr. Chairman.
Just a couple of brief follow-up questions with regard to the report that you were asked to do by this committee.
Do you feel that the sensitive information that was precluded from your view made your report less than accurate after your review?
Mr. HINTON. No, I do not. I think that we were able to be responsive to the mandate that we had. The issue, Mr. Gibbons, that we were faced with is—and in Dr. Gansler's determination report that he sent, he made reference to some offeror studies. And as we went through the effort, that is what we could not get full and open access to. That is what I referenced earlier, that I have redacted pages that were just not a great utility to us, nor would they be helpful to us as we ready ourselves to deal with the future legislative requirements, that we have got to be responsive to the Congress. We need to get access to those studies, as well as other information that we have not gotten.
Mr. GIBBONS. In your limited personal view of information that they restricted you to, was there anything special about that information that they restricted your view, or was it basically a general limitation in terms of all documentation with regard to your study?
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Mr. MURPHY. It was a limitation. We were told that we would not have access to any documents that contained information that any of the competitors considered to be proprietary. In essence, the companies that participated in the study about the workloads in San Antonio and McClellan had essentially a veto over whether GAO would have access to the information because they considered it proprietary and the Air Force considered it proprietary.
Mr. GIBBONS. Is there any lower standard of handling of proprietary information by GAO than there is for DOD and the Air Force on these same levels?
Mr. MURPHY. No, not at all. In fact, by statute, we have to attribute the same level of security information we obtain from the Air Force that the Air Force has to provide. We are held to the same standard that Air Force officials are held to for protecting the information.
I have for a good many years operated GAO's bid protest operation, in which we receive 2,000 or 3,000 protested contract awards every year. At any given time we may have two or three rooms full of proprietary data in a preaward situation, and which we protect like we protect any other documents and, to my knowledge, have never been accused of having improperly disclosed that information.
There are a number of statutes which apply to us, which apply to the Air Force. The Trade Secrets Act, which is 18 U.S.C. 1905, our only access statute, provides that we have to provide the same level of security as the Air Force.
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Mr. GIBBONS. During your preparation of this report and during the time that they restricted your access to this information, did the Air Force or the Department of Defense in any fashion distinguish prior allowances for having proprietary information in your possession and restricting your access to this information in this specific case?
Mr. MURPHY. To my knowledge, they did not distinguish any information. Air Force officials have questioned the extent to which we have had access to proprietary information during the course of a contract evaluation. We talked around the agency involved. It is certainly infrequent that the Congress has asked us to look at information during the course of the evaluation.
There are plenty of examples where we have taken a look. The joint strike fighters, for example, in which we went into the program offices and talked to the contractors and obtained proprietary data from one company who was involved in this current instance and had no problems at all. In fact, we were looking in the safe this morning, and the data was still in the safe that we obtained from the joint strike fighter office.
Mr. GIBBONS. Thank you, Mr. Chairman. That is all I have.
Mr. BATEMAN. Ms. McKinney.
Ms. MCKINNEY. No questions, Mr. Chairman.
Mr. BATEMAN. Mr. Watts.
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Mr. WATTS. Mr. Chairman, I have no questions. I would just like to say to you, thank you for having these hearings, and to the GAO folks, thank you for scratching and digging and asking these questions. And do not get discouraged, because I have been asking some of the same questions and digging for the last 3 years. So keep plugging away at this. Thank you for being here.
Mr. HINTON. Thank you.
Mr. BATEMAN. Mr. Jones.
Mr. JONES. Mr. Chairman, I do not have any questions, But I would like to associate myself with the comments made by the gentleman from Georgia. I believe the fact that we are unable to get information that would be beneficial to the defense of our Nation, as well as to the American taxpayers that pay the salaries of those that serve in our military, that I very much want to join him in his request to you that we bring these people forward. Thank you.
Mr. BATEMAN. Mr. Pickett.
Mr. PICKETT. Mr. Chairman, I do not have any questions at this time.
Mr. BATEMAN. Ms. Fowler.
Ms. FOWLER. Thank you, Mr. Chairman. I want to thank you for having this hearing today and the one tomorrow, because this is very important and we appreciate your adding to your busy schedule. I read the testimony on my way up in the plane. I thank the witnesses for being here today and for good work that the GAO has done. We always have the utmost respect for your objective work.
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I understand that Mr. Sisisky asked a question about a report that I just saw today, so I want to do a little follow-up question on that because I am very concerned about this 15 or more workloads for new weapons systems to the private sector. As I was reviewing this, and I know it is a draft report so I understand there may be some changes to it, but in reviewing it, you observed a number of disturbing trends.
You write that of the 58 major new defense acquisition programs that have finalized sources of repair decisions or were leaning towards such a decision, only 12, or 21 percent, have performed or plan to perform tour assessments first. That is completely inconsistent with the 1998 Defense authorization bill that we passed and was signed into law.
You also have in this report that, aside from failing to perform the tour assessment, DOD's own guidance requiring rigorous comprehensive business case analyses prior to source repair decisions is frequently being ignored. Of those 58 major new defense acquisition programs that you referenced, fully 23 of them, or 40 percent, indicated no intention of performing a comparison of public versus private cost prior to making source of repair decisions or they did not respond adequately enough for you to make a determination on their intention.
You also have in here that you reviewed program data and learned that the Department of Defense is not planning to buy technical data for a number of major new defense acquisition programs. Again, of the 32 programs that you surveyed for which the plan is to rely on private sector report, at least 14 of these, or 44 percent, do not plan to buy the technical data, preferring instead to rely entirely on commercial support from the OEM.
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You noted, and I will quote from your report, ''Most logistics officials we talked to said it was essential to acquire the data in order to protect the Government's interest and to control future support costs.''
So I would like to ask the witnesses a few questions if I could, Mr. Chairman. GAO has previously performed cost analyses of military unique weapons systems supported exclusively through contractor logistics support, I believe. What are the costs and implications of such an approach?
And then finally, given what I have seen in the past regarding contractor support for systems that are not overwhelmingly classified in nature, it is making me begin to wonder about the cost of supporting some of our most highly classified military unique systems. Has the GAO ever looked at the cost of private-sector support for classified military unique systems, for example, the U–2 or the F–117? What do we know about the cost of supporting those programs?
Mr. Chairman, it appears to me that the DOD is proceeding as though the debate we held over the last 3 years, culminating in last year's depot legislation, never occurred. And I find that really troubling, and it appears that the rest of this committee does also.
I also think that, in light of what we know about the cost implications of entering into what are essentially monopolistic support arrangements with private contractors, one area that needs considerably more scrutiny is this question of black growth. I have to wonder whether significant money is being squandered.
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And I appreciate the chairman working with me to fashion an appropriate inquiry to GAO to follow up on that question. And then if you have any answers on the couple of questions I posed, I would appreciate it.
Mr. HINTON. I think you characterized our draft report pretty good as you went through there. On the subject of the classified programs, we have not done that analysis. And I would be happy to work with you all and see what we can do and undertake an effort to look at that for you.
Ms. FOWLER. Thank you.
Mr. Chairman, one other thing I would hope, and I know you share the same concern we have, is that this committee can ensure that whatever they need, that the GAO provide the comprehensive analysis of DOD's current and future organic contractor workloads mix under the new rules that were defined in the 1998 authorization act, in addition to any analysis of the 1997 numbers. I want to thank again the GAO for the good work they do. And thank you, Mr. Chairman.
Mr. BATEMAN. Thank you, Ms. Fowler.
I have a few more questions, if I may, and I want to try to get to a bottom line some way here.
In the 1998 bill we set out some dates by which certain things can be done. The Department came with its certification on bundling on December 19. That triggered a 30-day response by GAO to whatever the merits of that determination were.
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What is the next deadline, a date by which a request for proposals is supposed to be published?
Ms. DENMAN. Sixty days after the Department issued their workload allocation report based on the workload at the closing depots in July 1995 and their competition procedures report, the Department may issue final requests for proposals. The date that comes to my mind for those reports is February 3, so sometime in early April the Department could conceivably issue their final request for proposals. There were no followons to our determination report evaluation.
Mr. BATEMAN. So at this point the only document that you had in order to react to the statutory mandate was the December 19 certification?
Ms. DENMAN. And the procedures for the C–5 competition. We were not asked to look at the competition procedures or the workloads allocation reports that the Department issued in February.
Mr. MURPHY. To a large extent, our concern is prospective. We have 45 days after that solicitation is issued to report to the Congress about whether it is fair and equitable, and then we have 45 days after the award to simply report to the Congress.
When the Air Force told us, in the course of our discussions about obtaining documents in order to prepare our bundling report, that we would not have access to any proprietary information from the offerors until after the award process, that is when we elected to write and to say that this is presenting a real problem for us.
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With respect to the C–5, the award was made on September 4 of last fall. It really was not until mid-November that the 1998 authorization act passed, giving us 60 more days, But by then we already had documents for months. So we had the documents for at least 3 months before we had to make our report on the C–5, and that was close, but we got it in on time. Our judgment is that it is simply not possible for us to report to the Congress within 45 days of award if we have no access to contractor documents until after award.
Mr. BATEMAN. And you do not presently have a mandate to look at the RFP and the structure——
Mr. MURPHY. We have a mandate to look at the RFP as soon as it is issued, 45 days after it is issued. At this point we are not examining their process. They are going to take 60 days to write the RFP in April.
Mr. BATEMAN. But what I want to make sure is that, given the fact that you cannot now do the comprehensive analysis and report to us on the certification on bundling, you do not yet have anything as to the process and what is going to be the underpinning of an RFP. You will get it and then you have 45 days after that point to make an analysis.
Where are they in terms of making an award, prior to your making an analysis and report to us? I do not want this horse out of the stable before we even have a chance to look at it, is the point of my question.
Mr. MURPHY. It is unlikely we are going to get any more documents with respect to the bundling report at this stage, since we already made our report on that.
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Mr. BATEMAN. I would hope that we will see a supplemental report.
Mr. MURPHY. We will see. We have the 34 pages of faxes from today.
Mr. BATEMAN. Let me say this further to you. I do not know what you got today and I am not quite sure why you got it, but I have some idea why you may have gotten it. If you still do not have what is necessary, I want to know that.
Mr. HINTON. Yes, sir.
Mr. BATEMAN. And I want to see a supplemental report at such point as you have gotten everything that you think is fairly necessary to do the analysis.
It brings me back to my quandary. I do not want to be in a position where something becomes a fait accompli, and where there is no opportunity to make an objective judgment as to whether or not the Department of Defense has clearly followed the policy directives as have been given to it by the Congress.
Mr. MURPHY. We understood that is exactly why the timetable was laid out in the authorization act, that we were to look at each stage in the proceedings and report to the Congress before the Defense Department went on to the next stage.
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Mr. BATEMAN. Well, you people do these things so much better than this poor old Member of Congress. If you have any idea that it would be responsible and appropriate for us to make a request to the Department of Defense to hold up on issuing a request for proposal until all the hoops have been gone through and everything has been given a fair analysis, I am certainly disposed to ask that they do that. But I need guidance from you as to whether that is necessary.
Mr. HINTON. I do not have any reason to say that they should not go forward right now with the RFP. I do think there has been a topic that has been discussed here today about the workload allocation report, that I think you could be more informed as you go through that process if you would push the Department to render that report as soon as possible.
Mr. BATEMAN. Well, that touches on whether or not there should even be a request for a proposal that goes to private sources if they are not in compliance with the new 50/50. So, obviously, that is a matter of extreme importance that we get that.
Do you have any indication or answers as to when they expect to finish that? Since it is in the process, when do you think we will get the work product?
Mr. HINTON. I do not know, Mr. Chairman. I do not have an answer that I could sit here and tell you and give you the date. I do not know what the Department is planning.
Mr. BATEMAN. Now, let's assume we go through all this and they put out a request for proposal, you have 45 days to look at it, you analyze it, they go forward and make an award. Who can protest that award?
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Mr. MURPHY. Historically, private sector firms who protested these sorts of competitions, only once have we had a protest, a depot. Hill Air Force Base protested one competition and withdrew their protest a few weeks later. I understand there was some Air Force headquarters' participation in that decision. Either party can protest. But to some extent there is the opportunity from the 1998 Act, for that matter, for the public depots to protest.
But we have to issue a report to the Congress within 45 days of award on essentially the same issue that would be protested. The protest process takes a little bit longer because the parties have to look at the documents and participate, and typically a protest will run 2 to 3 months. We have to be to the Congress with a report within a month and a half.
Mr. BATEMAN. Well, 45 days after the award seems to us, whether or not it appears to be a full, free, open, level place of competition, but at that point the horse is out of the stable and it has been awarded, and they may not like your report and we may love it, but the contract is going to be awarded.
Mr. MURPHY. If they protest to the General Accounting Office, there is a statutory stay of performance.
Mr. BATEMAN. Even in the public sector? Even if it were a public depot?
Mr. MURPHY. We have to take a look at that. I would argue that the Air Force has the same obligation to stay performance as long as it is a protest to GAO.
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Mr. BATEMAN. Mr. Murphy, you are counsel of the General Accounting Office?
Mr. MURPHY. I am.
Mr. BATEMAN. I would be very interested in having in writing your view as to the staying of a public depot to protest an award.
Mr. MURPHY. I would certainly be happy to do that.
Mr. BATEMAN. Do you have authority to supersede?
Mr. MURPHY. We will provide that, Mr. Chairman.
Mr. BATEMAN. Mr. Ortiz.
Mr. ORTIZ. I do not know, this letter, how much weight it carries. But I do not know whether you received it from the chairman of this committee and the ranking member. Have you received this letter from Chairman Spence and the ranking member, Mr. Skelton? Let me just read the last paragraph.
In keeping with the intent of Section 359 of Public Law 105–85, we request the GAO be provided immediate access to all supporting documentation concerning Under Secretary Gansler's December 19, 1997 letter and report. Furthermore, until such time as the GAO is provided access to all necessary documentation and is able to conduct the mandated comprehensive analysis on the DOD decision, we also request you halt the ongoing request for proposal process for the award of single contracts to perform multiple depot maintenance of workloads at Kelly AFB, TX, and McClellan AFB.
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And this letter, I do not know whether you received it. This is what I am asking you.
Mr. HINTON. I think we have seen that, yes, sir.
Mr. ORTIZ. And you know, I have been here maybe 15 or 16 years, and we become a little paranoid and a little leery as to what is going on, maybe because I was in law enforcement for a long time. But for a long time we had the A–76. They are still around. Do you remember the A–76?
Mr. HINTON. Yes, sir.
Mr. ORTIZ. A lot of money was spent trying to see how much work they could get out of the depots into the private sector, but you never saw any government money go out into the private sector to see what they could bring into the depot system. It was not balanced at all. And, you know, me, I saw a little conspiracy there. And now the lack of information. Now, has this been a problem just recently, or for the past—how many sessions of Congress have you had this problem where you cannot get information?
Mr. HINTON. I think it has become very prominent in this discussion of what we are talking about. Depending on the issues we are being asked to look into, Mr. Ortiz, it varies, quite honestly. But more often than not we can work through those with the Department and using our authorities that we have. This one becomes more prominent in my view because of the statutory deadlines that are imposed. And, you know, in 45 days there is a lot that we do.
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If you look at the C–5 that we did, we spent a considerable amount of time and resources going in to look at the reporting objectives that we set out for ourselves, as the law requires us to do, in order to render the conclusions that we did in that process. And it involves us getting our hands on documentation, having access to people, doing the analysis, and meeting our own standards that we have as the independent author of the document.
Mr. ORTIZ. And I am not against contracting out where it makes sense. Where we know that we can provide the best equipment to our soldiers, where we can save money to the taxpayers, fine.
Let me tell you something about the Apache. And I hope we can get information about the Apache long ago—the first Apache that came out. One of the first problems that we had was that the workers at the depot, they tried to get the specifications so they could compete with private industry. They were very unsuccessful. They could never get this information.
I mean, I am very concerned, Mr. Chairman, as to what we have seen and what we have heard. And let me thank you for the work that you have done. I hope that you will continue. And again, you know, we work with taxpayers and we want to provide the best representation that this committee can give them.
Mr. HINTON. Mr. Ortiz, I certainly understand the concern of the committee, and we will do our darndest to support and comply with what we have been asked to do.
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Mr. Chambliss, do you have further questions?
Mr. CHAMBLISS. Just one quickly, Mr. Chairman.
Mr. Murphy, in response to Mr. Gibbons, you mentioned the Trade Secrets Act as being one of the acts that limits what information you can give out with respect to information that you receive from various, I assume, government agencies that you work with.
Mr. MURPHY. Or from private companies. It is any trade secret or proprietary information that comes into our possession.
Mr. CHAMBLISS. Does that act have criminal sanctions in it if you release that information?
Mr. MURPHY. It does.
Mr. CHAMBLISS. So if anybody on the staff at GAO releases information given to you by the Air Force or any other public or private corporation, for that matter, that is sensitive, they are subject to criminal sanctions for doing so?
Mr. MURPHY. Yes.
Mr. CHAMBLISS. I understood what you said earlier that you have never had a problem with this before?
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Mr. MURPHY. Not to my knowledge.
Mr. SISISKY. Mr. Chairman, just a thought. I am not sure that the chairman's letter and ranking member's letter will be ignored. Also, if we can subpoena tobacco records, it certainly seems to me that we can subpoena our own if they deny us from getting those records. I know that is above this subcommittee, but it is not above the committee.
Mr. BATEMAN. The only reaction I can give to you on that, Mr. Sisisky, is as far as I am concerned, I am determined and I will work with whomever I need to work with and through to see that the GAO gets what it is entitled to get in order to do the analysis that we require them to do. And so I do not know what is in the 35 pages you now have gotten, I do not know how many more pages you will get, but I want to be kept closely informed as to the status of your satisfaction, if you have gotten all that you believe is reasonably necessary for you to discharge the mandates that we gave to you.
Are there any other questions? If not, gentlemen and Ms. Denman, we thank you for being here today. I would also like to ask, if it is possible in your schedule, which I am sure is full of many things, if you could be available at our hearing tomorrow morning when Secretary Gansler and Mrs. Druyun will be here?
Mr. MURPHY. I am testifying before a Senate committee in the morning, Mr. Chairman, But we can certainly have people here prepared to speak.
Mr. BATEMAN. I do not know I want them prepared to speak. I am not turning this into an adversarial proceeding. But when I have heard from the people in the Department of the Air Force and I have gotten responses and their positions, I want someone immediately available that I can consult with as to whether or not I have asked all the questions that I need to ask.
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Mr. HINTON. I think we can have someone here, Mr. Chairman.
Mr. BATEMAN. Thank you.
Anything further? Thank you very much, everybody.
[Whereupon, at 3:35 p.m., the subcommittee was adjourned.]
[The information referred to can be found in the appendix beginning on page 53.]
The official Committee record contains additional material here.
QUESTIONS SUBMITTED BY MR. RODRIGUEZ
Mr. RODRIGUEZ. Has the Department of Defense refused to provide access to documents necessary for the GAO's bundling report regarding the decision to bundle workloads at the San Antonio Air Logistics Center? If so, what are the documents the GAO is still requesting? What is the relevance of the requested documents?
Mr. HINTON. As we stated in our January 26, 1998 letter to the Chairmen of the Senate Armed Services and House National Security Committees, our ability to assess the Air Force's determination supporting the bundling of workloads at both the San Antonio and Sacramento Air Logistics Centers (ALC) was seriously impaired because we were not provided requested information in the possession of DOD. However, the supporting documentation we were seeking pertained to the determination to bundle workloads at the Sacramento ALC. We had previously been informed that there was no additional backup information regarding the determination to bundle workloads at the San Antonio ALC. Our report (GAO/NSIAD–98–76) expressed an overall concern that there is no supporting documentation for the San Antonio determination. At the time of our review, San Antonio officials stated that their determination was based on the professional judgements of senior officials at the ALC. Subsequently, San Antonio officials made reference to a market analysis that supported bundling. We are being provided information on this analysis and other data relating to bundling at San Antonio. We are currently reviewing additional information provided since our report and will provide the results of our review to the Chairmen of Senate Armed Services and House National Security Committees.
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Mr. RODRIGUEZ. Is the DOD providing access to documents and other data necessary for the other GAO mandated reports regarding the solicitation and competition of propulsion workloads at the San Antonio ALC?
Mr. HINTON. As noted in our January 26, 1998 letter, we were initially informed that documents that we were and would be seeking to respond to the mandated reviews, would not be provided or not provided in time for us to meet our mandated reporting requirements. However, on March 3, 1998 following a number of discussions with DOD and Air Force officials and questions at Congressional hearings, an agreement was reached to provide the documents we need for the mandated reviews. Some of the requested documents have since been provided and the Air Force has agreed to provide other documents in a timely manner. We are hopeful that this agreement will resolve all future access issues.
Mr. RODRIGUEZ. Did the GAO examine the Air Force's market analysis for the San Antonio ALC propulsion workload which determined that bundling the three engine workloads would increase the number of competitors and increase the potential for greater savings? What is the GAO analysis of the study? Were the Air Force's finding used in the GAO's bundling report to Congress?
Mr. HINTON. Following the January 20, 1998 issuance of our bundling report, the Air Force on February 24, 1998 provided additional information in support of its December 19, 1997 determination to bundle workloads at the San Antonio and Sacramento ALCs. The information included two documents: (1) a report containing the rationale for combining the San Antonio engine workloads into a single solicitation; and (2) a white paper containing the rationale for combining the Sacramento aircraft workloads. The report on combining the San Antonio workloads referred to the market analysis. The Air Force is currently providing additional information on this analysis. As noted above, we are reviewing this additional information and will be providing the results of our review to the Chairmen of Senate Armed Services and House National Security Committees.
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Mr. RODRIGUEZ. The Air Force has determined that running three separate competitions for the SA–ALC workloads would cost the government an additional $92.4 million to $259.6 million. Can the GAO comment on the determinations? In light of the findings and that the additional cost could partially or wholly eliminate the savings generated from the competition, does the GAO recommend bundling or unbundling the SA–ALC propulsion workloads?
Mr. HINTON. As stated above, we are currently reviewing additional information recently provided by the Air Force. Included in this information is the cost estimates of conducting separate competitions. We will include this cost issue in our review. Our review will focus on adequacy and validity of the Air Force's support for its bundling determinations.
DEPOT ISSUES (PART II)
House of Representatives,
Committee on National Security,
Military Readiness Subcommittee,
Washington, DC, Wednesday, February 25, 1998.
The subcommittee met, pursuant to call, at 8 a.m., in room 2216, Rayburn House Office Building, Hon. Herbert H. Bateman (chairman of the subcommittee) presiding.
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OPENING STATEMENT OF HON. HERBERT H. BATEMAN, A REPRESENTATIVE FROM VIRGINIA, CHAIRMAN, MILITARY READINESS SUBCOMMITTEE
Mr. BATEMAN. If the committee will please come to order.
Today the Subcommittee on Military Readiness will continue with the second part of the hearing that began yesterday to receive testimony concerning the recent decision by the Department of Defense to certify to Congress that the bundling of depot-level maintenance workloads at Kelly Air Force Base, TX, and McClellan Air Force Base, CA, is necessary because these workloads cannot be logically and economically performed as individual workloads.
In addition, we are here to review the notification by the General Accounting Office that they cannot report to Congress on the validity of the bundling certification because the Department of Defense has not provided GAO with the documentation necessary to make that determination.
For those of you who were not at yesterday's hearing on these issues, and are not familiar with the specifics of these concerns, let me again briefly summarize. Last year, after extended debate and negotiation, a compromise was agreed to by the conference committee on the Defense Authorization Act for fiscal year 1998 that, in part, stated,
A solicitation may be issued for a single contract for the performance of multiple depot-level maintenance and repair workloads, only if the Secretary of Defense determines in writing that the individual workloads cannot as logically and economically be performed without a combination of those individual workloads.
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On December 19, 1997, the Under Secretary of Defense for Acquisition and Technology transmitted to Congress just such a certification for the workloads at Kelly Air Force Base and McClellan Air Force Base. The provisions of law that required this certification also required that GAO submit to Congress, within 30 days, their reviews regarding any such certification.
On January 20, 1998, GAO notified Congress that:
DOD's reports and supporting documents do not provide adequate support for its determination that the individual workloads of Sacramento and San Antonio depots cannot as logically and economically be performed without combination by sources that are potentially qualified to submit an offer and to be awarded a contract to perform these workloads.
The GAO report further observed that the Air Force had failed to provide ''adequate and timely'' access to documentation used by DOD in support of the determination to combine workloads.
I believe that the issue here goes beyond the traditional depot debate that we get into every year. I am disturbed with the allegations that the Department of the Air Force has refused to provide all of the relevant documents required by GAO, to which under the law they are granted access. In fact, GAO receives similar documents from the Air Force and other military departments on a routine basis.
The actions by DOD and the Air Force appear to fly in the face of the hard-fought compromise agreed to by Congress and the administration last year.
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In the statement by President Clinton on the occasion of signing into law H.R. 1119, the National Defense Act for fiscal year 1998, which contained the provisions in question, the President stated,
The Act also changes the terms under which public-private competitions for work at closed maintenance depots can be conducted. Some of these changes should prove helpful, but other changes will likely make the Department's job more difficult.
Nevertheless, the Secretary of Defense has indicated that the Department has flexibility to proceed with the remaining public-private competitions in a way that is fair to both sides. The Secretary has pledged to implement the Act so as to encourage all bidders, public and private, to do everything possible to ensure that the competition occurs on a level playing field.
With that kind of commitment from the administration, it makes me wonder why we are still embroiled in this controversy.
As I have stated many times, I believe that it is essential to the national security of the United States that the Department of Defense remain capable to perform depot-level maintenance and repair of military equipment, so that our fighting forces are able to successfully and safely meet operational, training, mobilization, and emergency requirements. All of us here today, I believe, would agree to that.
There are many very important issues that this subcommittee must deal with this year to address the readiness needs of our military forces. It is time to put this particular issue behind us.
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As I mentioned at the beginning, this is part two of a two-part hearing. The witnesses for part one, which testified yesterday, were from the General Accounting Office. And the witnesses for part two today are from the Department of Defense and the Department of the Air Force—the Honorable J.S. Gansler, Under Secretary of Defense for Acquisition and Technology, and Ms. Darleen A. Druyun, Principal Deputy Assistant Secretary of the Air Force for Acquisition and Management.
Before we begin taking testimony, I would like to yield to my colleague from Texas, the Honorable Solomon Ortiz, the ranking Democrat on the subcommittee, for any comments he may have.
STATEMENT OF HON. SOLOMON P. ORTIZ, A REPRESENTATIVE FROM TEXAS, RANKING MEMBER, MILITARY READINESS SUBCOMMITTEE
Mr. ORTIZ. Thank you, Mr. Chairman. I join you in welcoming you all to part two of this Readiness Subcommittee hearing.
In my remarks in part one of this hearing yesterday, I mentioned that while this is my first hearing as the ranking member of the Readiness Subcommittee, I can assure you that my interest in the issues that we are addressing today are not new to me.
Yesterday I expressed my appreciation to Chairman Bateman for his personal involvement and extra steps that he took to get this hearing scheduled early in this congressional session. I am convinced that it is most unfortunate that we have been forced to conduct this hearing in two parts and on 2 separate days. I would have preferred to have all of the parties involved in the matter present in the room as we attempt to understand the dynamics associated with getting information the subcommittee needs to execute its oversight responsibilities.
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I look forward to your testimony regarding the basis for your December 19, 1997, determination regarding the public-private competitions for workload at the two maintenance depots identified for closure during the 1995 base realignment and closure process.
We ought to be focused on the objective of procuring and maintaining our military equipment in the most efficient and cost-effective manner. Our military forces and the taxpayers deserve nothing less. That includes maintaining a suitable public depot capability. At the same time, I am personally interested in understanding more about the concerns raised by the General Accounting Office in their attempt to get adequate and timely access to documentation from the Department.
It has clearly been the intent of the Congress in general, and the Readiness Subcommittee in particular, to use the General Accounting Office as a resource to provide information that would be useful in carrying out its oversight responsibilities.
The free access dialog we are entertaining here today should be well behind it. There should be no question regarding the adequate and responsive access to information by the GAO as they attempt to provide requested information to the Congress in a responsive manner.
If we do not get past this point, this subcommittee will not get the quality assessment it needs to exercise its oversight responsibilities. Furthermore, the subcommittee will have insufficient time to address other more pressing readiness matters. The long-term implications of such a constraint could be devastating in the light of the high level of confidence that Congress places on the Department and the military services and Federal agencies to work together in a cohesive manner.
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Mr. Chairman, it is not a luxury that we can afford.
Again, I welcome you here today, and thank you for coming, and I look forward to your testimony and responses to questions from the members.
Thank you very much.
Thank you, Mr. Chairman.
Mr. BATEMAN. Thank you, Mr. Ortiz.
Let me remind the committee that at 10 o'clock there is a meeting of the full committee, which is important I think to all of us; and so we need to expedite our proceedings. But I do want to call on Mr. Hansen for an opening statement, if he chooses to make one.
Mr. HANSEN. Well, thank you, Mr. Chairman.
You know, I basically hope that this compromise that we worked out so difficult last year would put all of this issue behind us. And I agree with what you gentlemen have said, and this committee has important work to do in fixing an administration defense budget that continues to shortchange our troops while promising to fix everything 2 years after the President leaves office.
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Yesterday we heard a very independent voice of the GAO calling DOD's attempt to comply with the law inadequate. That was their term—inadequate. This view is shared by many members of this committee and was expressed rather clearly in the letter from Chairman Spence and Ranking Member Skelton. DOD did not comply with the law and should not proceed with the request for proposals [RFP] until these issues have been resolved to the satisfaction of Congress.
Mr. Chairman, I respectfully submit that this hearing is about one thing, and that is the administration's attempt to circumvent the BRAC, basically for presidential politics. Now they tell us to trust them, and we should have another two rounds of base closings. Until the last round is fully complied with, and every community can believe that the painful decision to close a base will be based on what is right for the country instead of how many electoral votes they can muster for the President, I think base closure has two chances—slim and none.
And, frankly, I would hope that we could look at this, and possibly we could all put our hands in the square, take the oath of office, and obey the law. And, frankly, I think that is a responsibility that our friends from the Pentagon have.
Thank you, Mr. Chairman.
Mr. BATEMAN. Thank you, Mr. Hansen.
Any further opening statements? Mr. Rodriguez.
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Mr. RODRIGUEZ. Yes, Mr. Chairman.
I wasn't going to say any comments, but I've gotten a little tired about hearing and politicizing the aspect in terms of the BRAC. As you well know, if you read the BRAC—and I'll repeat it one more time—that it allowed for the option to be able to take the option of either privatizing or the private—or the public sector. And as you well know, the first contract that has gone out there, the public sector has won it.
And so that, you know—and again, Mr. Chairman, I wasn't going to make any comments, but, you know, I think we do need to bring into perspective if we're politicizing anything is we're politicizing this process and getting involved in the management of the operations of the Department of Defense. And I think that we also need to allow them the opportunity to be able to lay out the options.
I was just concerned in terms of the handout that we were provided here, and I notice that only part of it deals with Sacramento, which is fine. But there is another section, and I think that we need to treat those areas maybe differently because they are different, and that is the items on Kelly were not part of the packet that was provided to me this morning.
Thank you.
Mr. BATEMAN. Thank you, Mr. Rodriguez.
Mr. RODRIGUEZ. Thank you.
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Mr. BATEMAN. Now, if we may, we will proceed to take testimony and welcome Dr. Gansler, and we appreciate your being available to us. And before you begin your opening testimony, let me say that we are pleased that we could rearrange the schedule for this hearing to accommodate Ms. Druyun, who is recovering from significant surgery. And we hope that you recuperation is advancing very, very well, and are glad to have modified the schedule on that account.
Secretary DRUYUN. I very much appreciate that.
Mr. BATEMAN. Secretary Gansler.
STATEMENT OF HON. J.S. GANSLER, UNDER SECRETARY OF DEFENSE, ACQUISITION AND TECHNOLOGY, DEPARTMENT OF DEFENSE
Dr. GANSLER. Thank you, Mr. Chairman, members of the committee, staff. I want to thank you for this opportunity to appear before the Subcommittee on Readiness this morning and to report to you on a number of issues affecting our oversight of depot maintenance operations.
As you know, I have been in my position a little more than 3 months, and this is my first appearance before your subcommittee. I am honored to be here, and I'm pleased to have with me today Darleen Druyun, who is the Principal Deputy Assistant Secretary of the Air Force for Acquisition and Management. She will report to you in greater detail on specific depot maintenance programs and policies.
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As you know, Mr. Chairman, the Department of Defense has embarked on a massive transformation—a transformation designed to ensure that both the administration and the Congress provide a legacy for the early 21st century. Our legacy must include a coherent defense strategy which meets the needs of the next century, a military superiority which is unchallenged, and a support structure that provides the required readiness and responsiveness but at much lower cost.
In the next few years, our Nation will face new threats from both traditional and radically different and increasingly unpredictable forms of aggression—terrorists, transnational actors, rogue nations, which can unleash firepower in many ways as terrifying as that of a major global power.
To counter this threat, the U.S. military must be prepared to conduct multiple, concurrent contingency operations worldwide. It must be able to do so in any environment, including one in which an adversary uses asymmetric means, such as nuclear, biological, or chemical weapons. Thus, our combat forces must be multimission capable, and to do so they must be organized, trained, equipped, and managed with multiple missions in mind.
They must also be equipped with modern, state-of-the-art weapons and systems, many of them specifically designed to counter the threat of nontraditional forms of aggression. Because this aggression is unpredictable, our forces must rely on a modern logistics team that is fully adapted to the needs of dispersed and highly mobile combat teams—to combine advanced, secure information technologies and modern transportation systems to deliver rapid crisis response, to track shipments en route, to redeploy them if necessary, and to provide sustainment directly to all levels of operations, and all of this, again, at far lower cost.
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Our vision for the 21st century is a warfighter who is fast, lean, mobile, and prepared for battle with total battlespace information awareness and assurance. Our military strategy, as stated in the Joint Chiefs of Staff vision, joint vision 2010, posture statement is to be based on information superiority—real-time intelligence from sensor to shooter. That is the backbone of the revolution in military affairs that will allow us to achieve total battlespace dominance.
We have put off force modernization for the last decade, as you well know, cutting our procurement account by 70 percent. And now we can no longer put that off. However, this costs money. With the prospect of a relatively fixed budget, absent a serious deterioration in the world situation, and the requirement to maintain a high state of readiness and flexibility, which we have, the only answer is to shift significant resources from infrastructure and support to modernization and combat.
Thus, we have to shift billions of dollars annually from infrastructure and support to modernization and combat, while at the same time improving our support performance. This will not be easy, but I believe it can be done, and I believe it must be done. We have no choice. To pay for our revolution in military affairs, we must wage a revolution in business affairs, in all areas and simultaneously.
Mr. Chairman, I know that both the Congress and the Department of Defense consider readiness to be a prime concern as we deliberate the issue of transformation and modernization. All of you have begun to hear reports from the services of readiness problems, such as shortages of spare parts, particularly within tactical units. Our equipment is clearly aging.
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As a result of putting off our required modernization, our maintenance and our sparing requirements are growing. More frequent deployments only aggravate the problem of maintaining our combat forces at the highest level of operational and strategic readiness.
The Chairman of the Joint Chiefs has spoken to this issue and has expressed his determination to improve our ability to track and remedy any problems which in the short run may exist. I might add that we have included an extra billion dollars in the defense budget for this year for spare parts to improve this situation.
Additionally, better tracking of readiness and total visibility of all of our assets are two actions that we're taking to keep ahead of future problems. I want to assure the subcommittee that solving this problem is at the top of my list, and I know I speak for Secretaries Cohen and Hamre as well when I say this.
In the long run, however, we must radically change the way we do business if we are to dramatically improve our logistics support. Why is it that we continue to have logjams when private companies manage to handle millions of deliveries overnight?
For example, the Army stocks numerous parts that are manufactured by Caterpillar. Average delivery time for these parts when a base runs out ranges from 21 to 36 days here in the United States alone, and 50 to 68 days overseas. Caterpillar itself resupplies domestic commercial dealers in one or two days, and overseas dealers in 100 countries in 2 to 4 days at most, and if not within 4 days they pay for it.
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To achieve these results, they use modern information technology and rapid transportation instead of carrying huge inventories. During the height of Operation Desert Storm, military requisitions peaked at 35,000 deliveries per day—far short of the performance of commercial package systems such as Fed Ex and UPS that handle millions of packages overnight.
One of my top priorities as the Under Secretary of Defense for Acquisition and Technology is to bring about a major improvement in our logistics responsiveness—from factory to foxhole as we say. Our likely combat scenario, both now and in the foreseeable future, is not the World War II model of long, drawn-out conflict, but much more likely short, fast, come-as-you-are conflict with a surge requirement focused on spare parts and expendables as opposed to building new weapon systems. Here especially we can look to successful commercial companies for lessons in how to respond to unexpected surges and to overcome unanticipated logistics bottlenecks.
To meet the anticipated threat posed by nontraditional aggression against our Nation, we must engage our energies to seek new strategies for logistics support—strategies which enable us to do the job faster, better, and cheaper. Our transformation strategy is driven by both the need to cut costs and the desire to provide our warfighters with total battlespace dominance strategically, tactically, and particularly logistically.
All this, Mr. Chairman, leads to the issue of defense infrastructure and the question of public depot maintenance workload and capability—an issue which I have inherited and for which I now carry full responsibility. As Under Secretary of Defense, I will pursue these aggressively.
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I would like to assure the subcommittee that I believe there is a role both for maintaining adequate organic depot maintenance capability and for increasing our reliance on competition to support our overall maintenance and repair capability. Depot maintenance and competition are not, in my opinion, mutually exclusive terms.
Our overall objective—and I believe you share this goal with me—is to provide better performance at lower cost. We owe it to the men and women who are out there in peril to know that they have the best equipment on hand and ready at all times. Fair competition and competitive market forces are the keys to assuring maximum combat support at minimum cost.
Furthermore, our policy of requiring that we seek the best value for our limited maintenance resources insures that we continue to maintain core capabilities in our organic facilities and enlarge our competitive base to optimize, through the play of market forces, the performance and the efficiency of all DOD support operations.
Competitive sourcing is the key to getting far more for far less. For example, DOD has used public-private competitions, frequently under the provisions of OMB Circular A–76, in more than 2,000 cases. These have resulted in about a 50/50 split between the winners in the public and the private sector.
On average, there has been a 20-percent savings when the public sector won and a 40-percent net savings when the private sector won. And most important, there were significant enhancements in performance in both cases no matter who won. These results—the 20- to 40-percent savings with enhanced performance—have been found by both private and public sector institutions—in fact, public sector at the Federal, State, and local levels. They have also been found comparable numbers by our allies as well.
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And, significantly, empirical data show that the larger the scope of the competition, the more likely one is able to achieve greater cost and greater performance benefits.
Using competitive sourcing, along with other enhanced acquisition actions, such as encouraging wider acceptance of dual use civil-military products, technologies, and processes, we can shift tens of billions of dollars a year to modernization and combat while actually improving our support to the forces.
In closing, I want to assure the subcommittee of my personal commitment to assuring fairness to both public and private competitors in our maintenance program. My major concern is over the integrity of our contracting system and the need to maintain strict standards over the bidding process.
I am aware of your concerns about recent GAO requests for access to information concerning this process. I intend to remain cooperative and to authorize full access consistent with our need to maintain fair procedures and to protect proprietary information. I believe that we share the same goal: better readiness at lower cost. And we will work closely with the subcommittee toward that common objective.
I'd now like to introduce Ms. Druyun, who will speak on several specific depot maintenance issues, including bundling. And following her presentation, we would both be pleased to answer any questions you might have.
Thank you, Mr. Chairman.
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[The prepared statement of Dr. Gansler can be found in the appendix on page 97.]
Mr. BATEMAN. Thank you, Mr. Secretary.
Secretary Druyun.
STATEMENT OF MS. DARLEEN A. DRUYUN, PRINCIPAL DEPUTY ASSISTANT SECRETARY OF THE AIR FORCE, ACQUISITION AND MANAGEMENT, DEPARTMENT OF THE AIR FORCE
Secretary DRUYUN. I have put together about a dozen charts which I can get through fairly quickly. I wanted to show you the highlights of one. We believe that single competition for both Sacramento and for the propulsion workload at Kelly is the most logical and economical way to pursue these competitions.
I have also passed out copies of white papers which go into much greater detail on both of these issues.
Next chart, please.
Talking first to the workload at Sacramento, these are the basic repair operations that we have carefully examined since July of 1995 when the BRAC closure was announced. We have the KC–135, the A–10, and then the commodities workload of hydraulics, electrical, and instruments. And in support of all of those workloads we also have the backshops.
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This next chart basically lays out the highlights of the discussions in the white papers I have passed out or the logical reasoning as well as the economical reasoning. And now if I could just very quickly talk on the highlights of the logical reasoning.
The first one deals with workload stability. Combining these workloads, we found through multiple uses of requests for information with potential competitors, promotes significant efficiencies—efficiencies in processes, efficiencies in things like multi-skilling, and it also presents a larger base in which to spread fixed costs, which will yield lower unit prices.
I have to emphasize in the area of workload stability that the KC–135 workload is approximately half of that workload, and that is where we are going to provide minimum guarantees in terms of the quantity of workload that would be performed. The commodities workload is a very varied workload. It involves over 3,000 national stock numbered [NSN] items.
If you were to go in and take an individual look at the variety of items that are repaired on an annual basis, last year they did about 2,000 different items. Some of those NSNs—a requirement might come up every 3 months; and others, it might come up every 2 or 3 years. There is no way that we can provide any stability in terms of minimum requirements in laying out that workload area.
Very closely coupled with that is the issue of commonality of workload, and here I must emphasize that this involves things like sharing of personnel skills between workloads. I call it multi-skilling or flexibility in how you do your manloading of those efforts.
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It provides the opportunity for much greater efficiencies in terms of processes—processes like quality control, logistics, management information systems—and all of these items were basically highlighted to us as part of the studies that were done by our three competitors.
In the area of commonality of workload, you would find that we have approximately 500 people today who are involved in the overhead functions associated with those five workloads. And what we have traditionally found when we conduct these types of competitions is that our competitors—and it doesn't make any difference whether it's the public or the private sector—they make significant reductions in the number of overhead personnel because of their ability to move them back and forth amongst the workloads. And they also employ multi-skilling, so that you can move people between and amongst those workloads.
And, of course, closely coupled with that is also the issue of the backshops, where you would find that every airplane that comes in there are components of those airplanes that come off and go through the backshops. Seventy-two percent of the hydraulics workload and 50 percent of the electrical workload, those items go through the backshops for very specialized work that needs to be performed.
I told you earlier that sharing of overhead, when you have a larger production base you're able to do a better job of spreading your fixed costs, and that definitely yields lower prices to our warfighters. And that, in turn, translates to a less amount of money that is required out of the working capital fund.
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These next four points are all interrelated, and they are absolutely critical in looking at this logical determination. First, in the area of multiple redundant transitions, it was pointed out to us from the competitors, and it was pointed out to us through the requests for informations, the many RFIs that we issued, that it did not make sense for the Government to have to get into the middle of trying to decide who would have access to backshops as workload was being phased out of there.
For example, there is shared equipment with some of those workloads, assets as well as skilled workers, and any time you put the Government in the middle trying to decide who has first priority, what you end up with is unhappy parties and you end up with added costs, because any time you interrupt the contractor's workflow they're going to submit a cost claim, which is a very legitimate way to be reimbursed for the problems that they incurred.
Workforce attrition is a very significant factor—loss of skilled workers due to delays in decisions, for example. And what we have clearly found in the area of reductions in force—it is really in the best interest of the Air Force to do a single reduction in force as opposed to doing two, three, four, or even five reductions in force.
Let me tell you what happens traditionally when you go through a reduction in force. Someone is given a pink slip, and by the time they go through the bumping rights, which are clearly established for them, the person that got the pink slip is not the person that walks out of the door. What we have traditionally seen—and this is documented fact—is that for every person who is given a pink slip, there is a bumping of at least four people. That translates, unfortunately, into reduced productivity.
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I can tell you right now from the recent audit that was done in the C–5 work, as we complete that work at San Antonio and move the rest of the work to Warner Robins, the auditors basically found that the work in process has basically doubled in cost. And when I was a source selection authority, I felt that there would be a significant increase in cost. But I can tell you when I did my cost estimating I did not double the cost.
But what we are actually seeing is that the costs have doubled, and a lot of that is directly attributable to the fact that the productivity has fallen off. And beginning next month, the RIFs will be complete, and approximately 432 people are bumping into the propulsion workload and about 225 highly skilled propulsion workers are going to walk out the door, which in turn is going to further affect that workload.
That is why we speak to the fact of mission support. It obviously will have a significant impact on mission support. And then your ability to surge.
If you can put up the next chart, please.
The ability to surge is a requirement that we have today in all of our depots, and it is also a requirement that goes into all of the RFPs that go out on the street. And each of our depots has a contingency plan, and let me tell you basically what happened during Desert Storm and it validates that it is a valid contingency plan.
The first thing you do when you have a contingency is to basically button up those airplanes and get them out of there and get them back to the warfighter, so that they can use them for whatever the contingency would be. And, in fact, that's what happened in Desert Storm, and what you do is you take and you move these people over to the other workloads because they begin to surge.
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In Desert Storm, you know, we surged to about 180 percent. This is all documented fact. All of that data is available to the GAO. But, you know, and that workload was accomplished because of these folks moving out of here and going over to basically supplement that workforce.
If I could have—go back to this chart.
In terms of economics, we basically break that into the three areas—time, delays in schedule, and this translates to the fact that if you have multiple awards, that you would have multiple transition periods. I would want to emphasize to you that we have had three contractors—and I include the public as a contractor—on contract for the last year, doing a detailed study of these workloads.
Now, you probably ask yourself, why would you do something like that? Well, in my 30 years of acquisition experience, I clearly have found that the more your offerors know about the exact workload that needs to be performed, you get a much better proposal out of them, and you run much less risk of any type of cost overrun. And, you know, for that reason, we ran a competition, we put three contractors on contract.
They have done an in-depth study, and what you would find if you took a look across the board at some of their findings is that the labor standards are not very accurate. That has been—DCAA has also reported that in audits to us of all of our logistic centers. We also have poor recordkeeping.
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Some of the contractors actually went out there and looked at what they thought was physically going to be present on the floor. They went out there and audited what was on the floor and it wasn't there, in terms of commodities and materiel that was needed to actually get through and repair an item.
Cost increases is another very significant issue. That involves costs of contract administration incurred by the government, as well as our offerors and whoever the awardees would be. The cost of multiple acquisitions—the fact remains I would need multiple acquisition teams to get through multiple competitions, and that increases the overall cost.
The cost of scheduling delays is also included in here, and basically you would end up pushing the competition savings out, and you really would not realize them to the degree that you could if you do a single competition.
And the cost of multiple transactions—the transition period is stretched, and you have the issue of much more significant increases in terms of costs associated with work in progress, for example.
Also, in the area of risk increase, the complexity of the depot maintenance task increases our risk to support the warfighter, particularly as you go through this process over here. This directly feeds into that item.
Next chart, if I could have that.
The point I'd like to make in this chart is that we have taken a very close look at breaking these workloads out into a variety of fashions, anywhere from breaking it out into five separate competitions down to two separate competitions. And in each case it pushes out the transition and as well as your ability to get to a steady-state operation.
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Next chart.
And looking at the single versus multiple awards, these are the estimates of the cost differential between a single competition. These would be the added costs. They range anywhere from $55 million up to $131 million. I have to emphasize to you that we are not able to quantify work in progress, cost increases due to productivity decrease, but I can tell you that we now have an established fact that it does cost more money, because productivity continues to decline.
That's, I think, the nature of what we're dealing with. It can have a significant impact on readiness, which will run up the cost. As your productivity falls off, it is going to cost us more to get those items repaired, which means we have to dip back into the working capital fund.
And, of course, I can't emphasize to you the significance of the impact of multiple RIFs and how that plays into the production workload.
So this is basically the summary of why we believe combining this workload is the most logical and economical thing to do. It's the issue of workload stability, taking advantage of the workload commonalities in terms of skills and our ability to surge and to share backshops, and get the Government out of the center of being the integrator.
It definitely shares overhead functions across a much larger workload base. You get rid of this impact of multiple transitions, the impact with people, and you do a much better job supporting your warfighter. And the bottom line is that the cost increase is between the range of $55 to $131 million.
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I have to tell you that in the last several weeks we have worked very closely with the Air Force Audit Agency to basically go in and to audit those numbers, and that data is being made available to——
Mr. SISISKY. Excuse me. Is that what you saved, did you say?
Secretary DRUYUN. Pardon me?
Mr. SISISKY. The last figure you gave——
Secretary DRUYUN. The $55 to $131 million?
Mr. SISISKY. What is that number?
Secretary DRUYUN. That number is basically the additional cost that it would cost the Government to do multiple competitions as opposed to a single competition. And I believe I have a chart that basically highlights this.
This is the added cost if I have to go in and do multiple competitions. It runs anywhere from $55 million to a total of $130 million. If I did a single competition, you know, you can add—versus a multiple competition, the additive costs are between $55 and $131 million. And that has been audited by the Air Force Audit Agency, and that is further detailed in the paperwork. And there is lots of documentation at Sacramento, as well as San Antonio, that documents that.
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Looking very quickly at the propulsion workload, what we're looking at is the F100 series. It's the noncore workload. Twenty-five percent of that workload, as we speak today, is beginning the transition to Oklahoma City. We're looking at the TF39 as well as the T56 engines, fuel accessories, and some specific engine electronic components. It also involves two-level maintenance of both the TF39 as well as the T56.
I guess it's very important for me to emphasize to you that when you look at the processes used in a propulsion, it doesn't matter which one of these engines we're dealing with. The processes are common, and these are basically the processes that we deal with on a daily basis with any engine that comes in and needs to have some sort of maintenance done to it, ranging from cleaning all the way down to metal spray to electronics, and finally the test of the engine to make sure that we have actually fixed the problem and that it's ready to go back and be plugged into the aircraft from whence it came.
Next chart.
In terms of schedule and resource impacts, it is the same rationale that we have used. We also had the Air Force Audit Agency work with this. If we were to conduct multiple source selections, it's going to increase the cost. And the increased cost over a single competition range anywhere from $92 million up to $259 million.
Next chart.
I think it's important to emphasize that it's—you saw a similar chart with the workload at Sacramento. But the fact remains, if we had to break these out and keep them separately, first of all, I don't believe I would get competition in this F100 area other than from a single source, along with a public source.
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Since this is all handled as a single commodity, we do not have—it's the same level of—it's the same people that would be working each one of these competitions. And the bodies are just not there to support it. It's a highly technical workload, and you have to have highly qualified people to conduct and do the analysis required in this type of source selection.
There is a clear impact to readiness, and I'd like to speak to two documented cases that we have in the area of BRAC-closed installations.
If I can have the next chart.
This is specifically the TF34 workload that had been done at the Alameda facility when it moved to the Jacksonville facility. You can see the 94. This is the number of required engines needed to repair. This is what came out. They had zero variance.
When that workload was transitioned to Jacksonville—and this is where you basically have a bathtub effect take place—because it's a complex workload you can see that they fell behind in terms of the number of engines that they could produce, and that variance grew to 84 during fiscal year 1996.
Next chart.
A similar type experience with respect to the Navy and the T56. This time the workload moved from Alameda to Kelly. There was a mission impact in the T56 power sections, and you can see how Kelly was not able to basically meet the production requirements for that particular engine. That was an issue that was very significant with the Navy.
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The bottom line is that the propulsion area is a single commodity. That's how we manage it. The propulsion repair processes are common and integrated for efficiency. Multiple source selections and transitions increase cost and risk. And I'd like to emphasize to you that all qualified sources planning to participate in the propulsion competition, that you're not going to see any more competition. As a matter of fact, there is a strong potential that if I did multiple source selections that you would see less competition and not more.
And that's the highlights of basically what is in your white papers. Of course, your white papers go into much greater detail, and we have the documentation that supports that, both at Sacramento as well as at Kelly.
Mr. BATEMAN. Thank you, Ms. Druyun. One of our problems is we don't seem to have the white paper that you made reference to. We have your slides, but we don't have anything I can identify as being a white paper. But I'm sure that can be taken care of.
Well, thank you for your testimony.
Secretary DRUYUN. OK. Let me correct—we do have that here today, and we will be passing them out to all of the members of the subcommittee. We completed those documents yesterday, and we faxed them to the GAO, and we are looking forward to working with the GAO to go through that detail with them and share the data that we have.
Mr. BATEMAN. Thank you for your statements. I think we need to address this matter of the GAO, the lack of access to the documentation and the analysis that they regarded as critical to their discharging their statutory mandate.
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[The information referred to can be found in the appendix beginning on page 105.]
We learned yesterday in the testimony of the people from GAO that they had, just before they left for yesterday's hearing, received 35 pages of data or information of some kind from the Department of Defense. Neither of you in your testimony today have meaningfully addressed this failure to furnish GAO with the information they needed in order to do an analysis of the correctness of the certification about bundling.
I think it's critical and important that we recognize GAO has not said that your decision is wrong. GAO has said, ''You haven't furnished us with that which is necessary for us to make an independent determination.'' And certainly, I don't understand why that wasn't done, and it certainly has created a very, very difficult atmosphere and environment that could have been avoided had the data been made available.
Now, I don't know whether the information furnished yesterday is reasonably adequate or looked upon by GAO as being adequate, but I'm at a loss to understand why as late as yesterday they were getting information that statutorily they were entitled to have received immediately after the December 19 decision.
Secretary DRUYUN. I would like to say that we did make, you know, really thousands of pages of data available to them. I think that the significant issue that was encountered was with respect to the study reports.
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Those were basically marked proprietary by each one of the competitors. We worked with the competitors. I think we had the problem of Christmas break between December 19 and January 19. I, frankly, was absent from the building from December 19 until February 19. Our general counsel worked with the GAO to—beginning—they actually kind of signed an agreement around January 14 to give them access to those documents.
And we were willing to even make special provisions with the GAO to allow them to have copies of those three study reports to take with them, as long as they adequately and totally protected them over at GAO.
I have to tell you that there is great sensitivity amongst the competitors, particularly with respect to those study reports that were done at Sacramento, because in those study reports we basically asked—and could you pull out chart 17 for me. In those study reports, we asked each of our competitors to basically do four things, and this was in the contracts that we awarded to them.
To become familiar with the workloads, the current maintenance processes, and identify areas for improvement. And you will find that each one of the offerors, in fact, did that.
To explore business development approaches for reducing costs or adding value to the acquisition, and there is very specific data included in each one of those reports. And, of course, this is very important data to them when the actual competition begins.
To make recommendations, and there were many, many recommendations. We had over 1,800 meetings and 1,500 data requests from the three study participants. All of that data is available on the World Wide Web's home pages at Sacramento, as well as at Kelly.
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And more importantly, and this is kind of the key of what we asked them to do, to be able—in developing a proposal, to be able to have an innovative, low-cost proposal for transitioning, and more importantly for accomplishing that workload—once it's in a steady-state fashion—to maintain or improve mission readiness.
Each one of the contractors in those study reports specifically spoke to the reasons why and what they would do to ensure low risk with respect to transition of that workload, and also spoke to areas where they felt that they could have significant improvement in processes, as well as multi-skilling and some of the other issues that I have generically spoken to.
Mr. BATEMAN. The problem that I find myself confronted with is I have read the December 19 decision document, and I can't argue with it. I don't argue with it. I can only tell you that it states a conclusion. It does not support internally that conclusion. If it had done a better job of doing that, as you are expressing it today, I think we'd be much further along.
I do not, nonetheless, understand, especially in view of the generality and lack of depth of the decision document, why GAO was not furnished these kinds of studies that statutes specifically allow and, in fact, require that they receive, and statutorily require them to maintain it in keeping with the proper confidentiality, and which they routinely do, they do vis-a-vis the Air Force in dozens of other procurement situations—in protests and all kinds of contexts.
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There simply seems to me to be no justification for GAO not having had that which it needed to either have said, ''Yes, the certification as to bundling was a reasoned and proper decision,'' or that it is not. But to leave them in a position where they say, ''We do not have the adequate information with which to verify or to deny the verity or the accuracy or the logic of the determination'' is just exactly where we should not have been left.
With that, I'll ask Mr. Ortiz if he has questions.
Mr. ORTIZ. Thank you, Mr. Chairman.
Mr. Secretary, I don't have an Air Force base in my district, as you well know, but I would like to take this opportunity to ask you a question about some policy issues while we have you with us today now.
I would be interested to hear your views on the prime vendor support concept which appears to be a revolutionary, unprecedented move toward taking logistics management of front-line weapons systems such as the Apache helicopter out of the hands of the Government and putting it in the hands of the private contractors.
I questioned Secretary Cohen when he made an appearance before our committee, and my question was, ''Now, you talk in your statement about competition''—but he did give it back to the vendors now—''can you tell me of the estimate of money you're going to save, and where are you going to get the competition from if you take it away from the depots?''
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Dr. GANSLER. The prime vendor concept actually came about as a result of work that the Defense Logistics Agency has been doing over the last few years. Increasingly, what they have been finding is the very large dollar savings that result in faster response that results from applying the concept of prime vendor—dollar savings in the range of 20 to 30 percent initially—in some cases more—particularly very large savings in terms of response time, and that ranged I think from something like 20 percent to, in a number of cases, 98 percent in terms of going from 30-day response to 1-day response, that kind of thing.
It's basically managing your supply system is what they were doing, and they found such a big payoff that it seemed appropriate to begin to apply the concept more broadly and to see how that would work out. And so we have been trying it in a couple of examples. You suggest the Apache and the C–17 are two of them.
We anticipate very significant savings as a result of it in both time and dollars and performance. They found that the performance improved as well.
It is basically something we are going ahead with because it has proven to be very successful. We will obviously have to see how it works out. There is competition in this case between the public and private in some cases, because one of the things that it allows in the case of the Apache, as you know, is some of the work to be done in the public sector and some of the work to be done in the private sector with the concept behind it being the selection of the best supplier.
Some of the parts supplied may come from the public sector to the contractor managing it, or some of it may come from the private sector. We're trying to phase that. It may even change over time as a result of the evolution of it.
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And the initial idea is it starts off with the prime contractor who has the background, the test equipment, the capability, and he begins to look for best suppliers throughout the system, including the public sector.
Mr. ORTIZ. We'd go back to the Persian Gulf war, and when you try to draw the line between the public workers and the private workers, and the money that it costs, do you have any estimate? Do you know that the private workers cost three times more——
Dr. GANSLER. Well——
Mr. ORTIZ [continuing]. At the gulf, when they went to the gulf, than the civil service workers?
Dr. GANSLER. The issue in the case of not only prime vendor but in all of the competitions is not the hourly rate associated with an individual worker. It's the total cost to do the job. So that if one worker does the job in half the time, and he costs twice as much, they come out even.
On the other hand, if it turns out that productivity is much higher in one place than another, that may well balance the difference in hourly rate. And what we're really trying to look at here is the total cost associated with doing that job.
Mr. ORTIZ. To be honest with you, I haven't seen any savings. And when witnesses come before our committee and tell us that they have saved so much money, and you mentioned something—I guess a figure of 20 to 30 percent, even though we have no track record as to how we're going to save that money—and if we have been able to save that much money, how come we have millions of dollars of backlog in maintenance equipment.
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If we saved this much money here, how come we have all of that equipment out there that has not been maintained? How come we need $1 billion more in the budget, if we have saved all of this money? This is why I am so confused that I cannot understand what is going on.
Dr. GANSLER. Let me talk and then let Darleen have some comments. These concepts—the prime vendor and other—well, the transformation that I was talking about trying to modernize our logistics system—are just initiatives that have been recently started, just over the last year or two.
The reason we are having the problems today in the readiness area—and as I mentioned, we're putting more dollars into the spare parts—that takes time to flow through the system. We anticipate seeing the benefits of this over time. What we're really trying to do is to generate the additional dollars, so that we can, in fact, pay for the modernization that we need and the additional spare parts if we need them.
In the long run, if we transform the logistics system, we'll need less of the spare parts because we'll have much faster responsiveness. And the point I was making in my speech was the fact that if we can be much faster in our logistics responsiveness, comparable to what world class commercial firms are now doing, we'll need a lot less inventory and a lot less parts in the system.
Similarly, if we can improve the reliability of our equipment, we'll need a lot less parts in the system and a lot less maintenance. That's the direction we have to move in the long term. What you're raising, Congressman, is a short-term problem, which is a very real one in terms of our current readiness, and that's where we have to put some money into it and where we have to step up our responsiveness.
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Mr. ORTIZ. Just one last question. And we want to work with you. I mean, we are in this boat together. We want the best for our troops. We want the best equipment. And when we go back and talk about parts, in my depot there were 60 or 70 engine mechanics sitting idle, because they couldn't get the parts from the vendors.
So as I said yesterday, I've been in law enforcement for many years. I was a sheriff. And sometimes I see a conspiracy out there to send it to the private sector, and to hell with the public employees.
Secretary DRUYUN. Sir, if you were to take a look at the C–5 competition, which we concluded the end of August and we announced the first week of September, we basically saw $190 million savings, and it amounted to a 29 percent savings. I can tell you very clearly that the day I made that announcement we went back into our budget, and we basically reallocated the $190 million to be spent on other high readiness requirements that we have out there.
I've had the experience of working at an Air Force Logistics Center in my career. The one I worked at happened to be Warner Robins—I think a very fine logistics center. But I can give you many examples, and let me just give you one case in point. At Sacramento that's closing, if you look at the F–117—and I had the opportunity one day to actually see the warehouse inventory.
Frankly, how we overbought items—it looks like a wholesale tire warehouse. We probably have enough tires stacked in that warehouse to be used over the next 100 years. Of course, tires do have, you know, a useful life. And, you know, that's why we're trying to go to the concept—we used to call it lean logistics.
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We now refer to it as agile logistics; you know, getting the parts there just in time because no matter, you know, how good we think we might be to project what we need, you know, we have many, many examples of where we have overbought parts and, you know, therefore didn't have the parts there in time in order to satisfy the depot maintenance requirement, for example.
Mr. ORTIZ. Thank you, Mr. Chairman.
Mr. BATEMAN. Thank you, Mr. Ortiz.
Mr. Chambliss.
Mr. CHAMBLISS. Thank you, Mr. Chairman.
Now, I'm a little bit puzzled, Dr. Gansler, by you coming in here and making some statements which you did this morning, which are kind of contrary to some previous statements that you made in public. You use terms that I wrote down here like ''better performance at lower cost,'' ''fair competition,'' ''best value,'' ''competitive sourcing,'' ''fairness in competition.''
At the same time, you've made previous public statements about the fact that if DOD is to maintain a viable defense industry, or have to give its depot maintenance work to the private sector instead of its own depots—directly contradictory statements, in my opinion.
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You know, you also cite two examples, which I can't believe you would pick those two as to how the private sector does a better job of delivering parts, for example, than the public sector. Caterpillar Industries has been on strike for 6 years. It just so happens that their delivery sector is not on strike.
UPS just came off of one of the most disastrous strikes in this country. We are threatened right now with sending our young men and women into battle, into war, and I can't conceive that you would sit there and tell this committee that you're willing to rely on sections of the private sector that have the possibility of going on strike in the middle of a war, not being capable of delivering parts and equipment to our men and women. And I think you just need to rethink your process of that, Dr. Gansler.
I would remind my friend from Texas, too, about a couple of things. First of all, the C–5 contract originally was supposed to be privatized in place. This committee stopped that. Second, the Air Force came up with a plan to competitively bid the C–5 contract. The Air Force—the public depots were not going to be able to bid that. This committee stopped that.
The Air Force was then shamed into opening the competition up, and to Ms. Druyun's credit, you did a masterful job of ensuring fair competition and the public depot system won. There is a place for the public depot system there, and I hope DOD never forgets that.
Now I want to move on to something else that I am even more concerned about than those types of statements. Less than a month ago the Air Force issued a contract for the maintenance of work on the C–17 known as flexible sustainment. The reality, though, as I see it, is this contract means inflexible sustainment for the Air Force.
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First of all, the contract was awarded more than a month after the President signed into law the very depot language that reaffirmed Congress' commitment to the concept of core maintenance, and before DOD issued an opinion about the impact of this new law. As for the contract itself, it is a sole source contract to the Boeing Company—what is in effect 5 years.
Boeing is a wonderful defense contractor. They do a great job, and I have great respect for the work they do. But sole sourcing this contract simply is not in compliance with the language of the 1998 Defense Authorization Act.
During the term of the contract, the Air Force has stated no intent to purchase the technical data or the support equipment in the depots that would allow the depot to compete against Boeing for this workload in 2003. Otherwise, there is no one else out there that can compete against Boeing.
And, Dr. Gansler, I would remind you, fair competition, best value, competitive sourcing, fairness in competition—all terms that you have just used before this committee. None of that was adhered to in the awarding of this flexible sustainment contract.
I read with great interest the GAO's draft report issued yesterday about new weapon systems. It confirms what many of us on this committee have suspected since DOD's first privatization scheme was hatched in 1995. GAO cites the quantum shift in attitude toward depot policy over the last three years.
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It would have been absolutely unheard of for this subcommittee to be taking up depot policy with individuals in your position 5 to 10 years ago. This is because logistics and readiness was left to the experts—namely, logisticians.
Today, I guess there simply isn't enough for our acquisition community to do anymore, and so you've taken over the responsibility of logistics policy and that is, indeed, a sad day. Nonetheless, I have suffered through hearing after hearing, listening to the Air Force's claim of its goal of saving money through privatization to fund modernization.
I have asked detailed questions of the Air Force on this issue and have received written responses, which I would like to address here. When I asked about the business case justification for this type of contract, I was told that a depot support strategy study was conducted, and that its results offered no clear—''no clear advantage of pure government versus pure contract support.''
I realize that the DSSS did recommend a mix as most efficient. But the justification was based on the yet unresolved depot policy debate. Well, the debate is now over, and why wasn't the result of that debate made a central element of the C–17 support strategy?
And, second, why was there no cost analysis improvement group review performed to justify the flexible sustainment contract?
Dr. GANSLER. Well, let me comment on a few of the points. When I was in the Department of Defense 25 years ago, there was an Assistant Secretary for Logistics at that time, has always been, and to my knowledge prior to that even there were Office of the Secretary of Defense responsibilities for logistics policy.
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Second, 5 to 10 years ago, I suspect there was not nearly the conflict that goes on today within the public and private sector, because there is a lot more work to be done. As you know, over the last 10 years, we have actually reduced the amount of procurement by 70 percent. There is just a lot less work, and there is more available capacity in both sectors—public and private—and there is bound to be conflict associated with it.
As to the specific C–17 case, the decision was made on that. In fact, the plans for the flexible sustainment were made well before the law came out. It was around that same point, as you pointed out properly in your statement. And we were going in that path. The final decisions have not been made on the C–17, in terms of whether it will end up all public, partially public, or where it will end up.
The sole source justification for going to Boeing at that time was required by law, of course, and was gone through in great detail by the Air Force to justify why Boeing was the only person who had the test equipment, who had the capability to start off with, having just done the work.
Mr. CHAMBLISS. And they're going to be the only ones in 2003 who have got the equipment, based on your current plan. Isn't that correct?
Dr. GANSLER. No, the current understanding that I have is that that will be assessed as this program moves along.
Mr. CHAMBLISS. But, you know, the Air Force—there is no intention to purchase the technical data for the Air Force right now, is there?
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Dr. GANSLER. I don't believe we have purchased the technical data at this point.
Mr. CHAMBLISS. And you don't have any plans to purchase it.
Dr. GANSLER. Why do we have to purchase it? We pay for the——
Secretary DRUYUN. If I could try to perhaps answer some of your questions with respect to C–17 flexible sustainment. I would be, one, pleased to provide this committee with a copy of the justification and approval document that was signed, as to why this was a sole source procurement. So I will make that an item of the record and will forward it to this subcommittee.
In looking at the issue of core maintenance, you know, whether or not this is a core workload, you know, you basically look at capability. And we already have the capability established at our depots to do this type of aircraft maintenance. We have the capabilities both at Warner Robins, at Ogden, as well as at Oklahoma City.
The good news I can tell you about the C–17 is that we have not only been getting the aircraft delivered earlier than scheduled, but that the airplane is turning out to be more reliable than we had projected, which was also good news because we have basically shifted the focus of development to really focus heavily on the logistics tail, and to try to really build in reliability into whatever we're putting together, and to also make it easier for the maintainers—in this case, the blue-suiters and the flight line—to be able to get in there and change all of the parts.
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We do not yet have 100,000 flying hours on that airplane. We hope to achieve that by the end of this calendar year, I believe. And we just do not have enough data to really know, you know, what parts are going to fail.
As you recognize from the C–17 contract, from the many problems that we had originally in development, and the major restructure that we did to that program, the contractor, as part of that agreement, is putting a lot of upgrades into the system. It did not make sense for us to actually go out and buy the technical data today, and that's one of the lessons learned that we have from many of our other weapon systems.
In the past, we have gone out and bought tons—you know, literally trainloads of data and shipped them into an ALC, and then you threw it all out the door because the configuration changed. You know, once you come up with a stable configuration, then we will proceed with buying the right technical data that is needed to maintain that airplane.
And I can't tell you today whether we need to do depot maintenance every 5 years, every 6 years, or every 7 years. By the year 2000, 2001, we will have a very clear handle on what it takes. Boeing also has, while it's a sole source contract, Boeing is required, as part of its approved systems to have—it has an approved purchasing system, and much of what Boeing is doing, in turn, is subcontracted. And, you know, wherever possible, they are getting out competition.
The engine on the C–17 is a commercial engine. And if you look very carefully—and this is another important point the committee must recognize. We have warranties written into the production contract. We also have warranties written into the engine contract. In the engine contract, we have what I term ''power by the hour.''
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And if it doesn't meet the power by the hour requirements and the reliability requirements, then the contractor is required to give us whatever amount of, you know, parts it takes as the remedy as part of that warranty. And we have a similar warranty with respect to reliability and maintainability—both of those aspects—in the production contracts.
We did a depot support strategy analysis, and that, of course, is available to the committee. What we found is that about 33 percent of the items—things like engines, fuel, hydraulics, oxygen, composites—from our initial analysis, it makes sense for the contractor to do that work.
We found that in areas like the fuselage, the landing gear—you know, clearly Ogden is recognized, and Boeing recognizes this—you know, that Ogden, for example, is, you know, a world class organization, particularly in the landing gear. Its expertise is clearly recognized.
And that's why the fiscal year 1998 Authorization Act was very important to us, because as a part of this flexible sustainment contract, we are going to be working with Boeing to enter into agreements to actually have some of this work physically done at the depots. That is going to take place over the next couple of years, including facilitizing them, if necessary, so that, you know, that work can clearly be shifted to them.
And then about 38 percent of the rest of the airplane—it's just too soon to tell. There is no clear advantage as to who ought to be doing it. And that's why as we continue to gather our data with respect to reliability and maintainability, by the year 2002 we will clearly know what we need, and will clearly lay into place the support equipment, the assets, the tech orders, all of those items necessary to make sure that that aircraft is properly maintained.
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The other item that I would point out to you is last year I had a contractor that came in to see me on the C–130. We had put out an RFP, and the contractor came in to see me and told me that basically we were in the dark ages as to how you ought to be maintaining airplanes and suggested I might enlighten myself by going out and looking at what is happening in the commercial sector.
We commissioned a study team out of Oklahoma City to actually go out and look at how DC–10s and 767's and 757's are basically maintained. And, you know, we are now moving—and it was a superb study, and it is clear that, you know, we need to change the way we do business within the Department.
And instead of putting airplanes in for what we term ''C checks'' or ''D checks,'' what is basically done within the private sector—you know, the airplanes you and I fly on on a daily basis—is about once a year they'll fly them into wherever their depot is—you know, American Airlines or United—and do a quick analytical check to see, you know, if there are any parts that are wearing out, if there is any corrosion problem, and fix the problem there, as opposed to taking an airplane down because that means revenue obviously to an airline.
But it also means revenue to us, particularly when you talk about aircraft that—like C–130's and 141's and C–17's and C–5's. Those are revenue-generating aircraft—very important for any contingencies that we might have. And, you know, so when you look at the flexible sustainment contract, it is very clear. We are going to enter into partnering arrangements.
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The 1998 legislation allows us to do that, and it gave us the language that we needed, that we couldn't use before, because before if I went to—if Boeing went to—for example, to Ogden to make use of—have the landing gears repaired there, Ogden couldn't keep the money. The money had to go back to the Federal Treasury. And the 1998 legislation now allows Ogden to keep that money to go fix what needs to be fixed.
And that's why I assure you, sir, that we will be making, you know, great strides in terms of implementing that partnering legislation. And, you know, we will continue to update that depot strategy analysis and lay the appropriate tech orders and the drawings and all of the other documents that are needed to support that airplane.
Mr. BATEMAN. Mr. Sisisky.
Mr. SISISKY. I'm sure you didn't mean that Utah can get that money. DBOF would probably get that money, you know.
I thank both of you for being here today. As I told Dr. Gansler, this could be a little contentious, mainly because we're frustrated. You can talk about the Air Force audit system. How about the GAO? By law, you're directed to do that. There is no excuse. And God knows, I was operated on a couple of years ago, too. But the Congress of the United States didn't miss a beat. It kept passing bad—[Laughter.]
This is the frustration that we have, and it's not only with the Air Force. Dr. Gansler, let me tell you, it's not only with the Air Force. We have a case study here—Newark, Ohio. Do you know how much money we're losing there?
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Where the Air Force did give the GAO the figures? I have a little thing that the BRAC did in Louisville, the Naval Surface Warfare Center—they fix 5-inch guns—we can't find out whether they're losing money or not. We hear that they lost $10 million in the first 6 months. It was supposed to be privatized or sent to a naval shipyard to do the business.
The one thing about the ''Net'' we found out, we intercepted—well, we didn't intercept; some of our employees did. We started seeing message traffic about cost overruns and the need for additional funding, and NAVSEA directions, ''Pay up.'' And no questions asked. And why do they do that? Because these were political decisions. The gentleman is right. The gentleman is right. I'm not blaming you.
They were political decisions of how to do it. How can you defend—I mean, you have to defend—the Air Force depots when all of a sudden you don't have two overheads, you have four overheads to contend with. I can tell you that I lost, in my area, 7,000 employees at NAVDEP in Norfolk, VA. Sad. It was very sad. But I can tell you, they're not stuck with the overhead. The Navy is not stuck with the overhead, because the overhead shifted and they made money bringing it down to Jacksonville. That's what makes sense.
But to just stonewall to get the figures that by law says you have to do it is very frustrating to me. And, you know, my colleague here almost wrote the same things that I did. Dr. Gansler, it's absolutely amazing. Nobody can argue that we have to have better business practices. You can't argue that. We're not even against privatization, if it makes sense.
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I will tell you the same thing I've told Dr. White: we're not opposed to privatization. We're opposed to wholesale privatization when statements are coming out of the Pentagon that we can privatize the whole system. I'll tell you, I have worked nine different factories in my business career. And I had the on-time delivery. I really did. I had the on-time delivery because it made sense, and it saved money and made me money.
But there is a difference between on-time delivery in a manufacturing plant and on-time delivery to a foxhole. There's people's lives at stake, and that's what we have to measure. I'm not arguing against the principle; I'm arguing against the bottom line. And everything that we do basically should be national security.
Now, I challenged Secretary Cohen in the first meeting with this committee last year—he is a very good friend of mine—and I challenged him because we kept talking about the Readiness Subcommittee on the morale of our military people. And I said, ''Well, how about the morale of our civilian people? It has gone to hell.''
People would get out of college knowing they're not getting to get rich working for the Federal Government. But the satisfaction of doing a job is always there. But when these statements come out and, you know, ''You saw your book around here, and I can give you a lot of statements that you made coming out of here,'' how can somebody plan to stay with the Federal Government, to send a child to college, when all we're talking about is FTEs, full-time equivalents? Because we think we save money by doing that all the time. We do save money sometimes. We do save money sometimes.
But I challenge you that competition through the public sector is the best thing, to, No. 1, keep your national security up and keep your price up. Dr. White admitted that they saved something like 35 percent one year, and I questioned him. I said, ''Well, why did you save it?'' You know why you saved it. Because you had the competition from the private sector.
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In the business world and what he was talking about with Boeing—and I respect Boeing as much as anybody—but I'm telling you, coming after the business world, if you're the only bidder, there is no competition. You're not smart enough at the Pentagon to do a should cost that makes sense. I can tell you—you know why you can't do it? Because you don't have an accounting system. How in the world could you take over, coming out of the business world, and take over something that doesn't have an accounting system? Nobody knows what anything is.
So, with that, all I want to do is ask you one little question. [Laughter.]
Two questions.
Mr. BATEMAN. Would the gentleman make it one?
Mr. SISISKY. These are short questions. I swear to you they're short questions.
Will you, to our satisfaction, say that you will provide the ability in A–76 and the law—and the law—to bid these projects out now in your new job? And you haven't been there long enough. And the other question is, will you provide the GAO all of the information they need? Pretty simple. Yes or no.
Dr. GANSLER. First of all, let me comment on the—my own personal views in some of these areas. In terms of the accounting system, one of the first things that I did—and as I said, I've been here for 3 months now in this job, but I strongly agree with you that we do not have the visibility into the costs associated with the activities in the public sector. And we need to get that, and we're going to go set up some activities specifically to do that.
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The commercial practice is activities-based costing, and ways in which you can gain visibility to improve the management in the depot of the depot itself. And so we are going to try and do that. Each of the services have set out to do that, and I think that's a very important point.
Second, that I do strongly believe in competition, and that has been one of the things that I have learned in my 42 years in industry—that we really do gain enormously, as you point out properly, from the benefits in terms of performance first and cost savings second. So it is very, very important that we try to maximize the competition, public or private. And I really want to stress that.
The actual experiments that have been done—2,000 of them in the case of the A–76 things—clearly show that 50 percent of the time the public wins, and that's good. I mean, you want the best, wherever it's going to be. And, in fact, to address your morale question, people like to be shown that they're the best in their class, and they want to win these competitions, and they really do work on it in the public side as well as the private side. They don't want to see people sitting around doing nothing.
Now, as far as the GAO goes, I personally met with Mr. Hinchman when I first came in. We had an exchange where he brought over some of his people to my office and we sat and talked for a while. We talked about the need to not only satisfy the law, which is obvious, but also to be cooperative and working closely with the GAO. And he and I have been talking during this process.
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I think it was a shame that it happened to occur over the Christmas/New Year's holidays. A lot of the people weren't in; we did lose some time. I apologize for that. That was not the right way to approach it. We should have started much earlier. You know, once the report was released in December, the GAO should have had immediate access. They had access. We tried to work out the arrangements for that in terms of making sure that we had full and open and fair competition.
We are working now closely with the GAO. We have had Air Force people over working with them for the last few days trying to make sure we understood exactly what they wanted, so that for the future reports that they put out they can have the data in a much more timely fashion, which is appropriate. We are going to be fully cooperative, and, of course, meet the law.
Mr. BATEMAN. OK. Mr. Riley.
Mr. RILEY. Thank you, Mr. Chairman.
Mr. BATEMAN. If I might, before you start, Mr. Riley, I've finally gotten this timing device operating. My low levels of skill impeded that for a while, but it is now operating, and I would ask that you all observe it.
Mr. RILEY. Ms. Druyun, Dr. Gansler, we do appreciate you coming.
Secretary Druyun, we had a conversation in my office a few months ago. I just wonder if you can bring me up to date on what the status of the KC–135 work is today.
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Secretary DRUYUN. The status of the—did you say KC–135?
Mr. RILEY. Right.
Secretary DRUYUN. With the particular contractor we were talking about or——
Mr. RILEY. Yes, ma'am.
Secretary DRUYUN [continuing]. In general? I'm not going to mention, obviously, the contractor's name because that's quite inappropriate. I can tell you that—and I would like to defer part of this to DCAA, but the latest DCAA analysis that we saw on this particular company is that they continue to have deterioration in terms of their posture, from an economic point of view, even their ability to get loans and to pay their bills.
They are continuing to turn the airplanes out, and there is significant concern about their ability to continue to perform the work, pay their bills, and have enough cashflow to meet their particular needs.
I can tell you that they were awarded several months ago a contract by the Navy for the P–3. They were unable to accept that work because of the cashflow issues, and that is something that I believe DCAA and DCMC are closely working with that company.
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Mr. RILEY. Specifically, one of the things that we had in our last discussions when you were in my office, what effect does bundling have on the number of smaller contractors across this country? People that have worked for the last 20 or 30 years, have been good suppliers to DOD, when you bundle, don't you, in effect, force these people either to go into business with a Boeing or a subcontractor of Boeing, or relatively I guess you would have to go out of business?
Secretary DRUYUN. Teaming is obviously what occurs anytime you bundle a workload. I can give you two very good examples—Arnel Engineering Development Center. We used to have two separate contractors that did the propulsion workload and another contractor who did the aeronautical and structures workload.
Last year we ran a competition, and as a result of that competition all of the things I talked about here today—multi-skilling, sharing of personnel resources, sharing of backshops—between the contractor and the Government, they saved over 120 people, which obviously translates into very significant savings.
GPS is another good example. We used to have seven contractors that operated the network system, to keep that whole constellation going and get the information fed to whoever needs it. We held a competition. We bundled the workload together. We had excellent competition. I was able to return to the user over a 5-year period about $80 million. The savings was in the range of 30 percent.
We put very definite requirements in both of those contracts for subcontracting opportunities and very specific goals for small business as well as disadvantaged business and women-owned companies. It is something that we look at very carefully as we go through our acquisition strategies to basically strike the right balance.
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Mr. RILEY. I guess my problem is if you combine single sourcing, teaming, and warranties on new systems, that doesn't mold well in the future for any public depot?
Secretary DRUYUN. I guess I would not really agree with you there. I think it depends on the system that we are looking at. We are trying to be smart buyers and to emulate, as much as possible, excellent practices that we have seen in the commercial sector. I think that there are some systems out there where we are getting what I term ''bumper-to-bumper warranties,'' like in some of our missile systems—AMRAM, for example.
We had head-to-head competition in AMRAM. We saw the price of those missiles go from $1 million apiece down to $250,000 apiece. We also saw their warranties increase from a 1-year coverage to a 10-year coverage. If anything in that missile breaks, they fix it and they return it to us. And those are some of the strategies that we are employing.
I think in some of our newer weapon systems, like the C–17 and some day the F–22, you first have to understand the new effects of reliability and maintainability and the whole design criteria that we have used in development, and then figure out, you know, what is the smartest way to acquire the data, get the drawings, and to facilitate our depots to have the right equipment to begin repairing those items at the right time when they actually need to be repaired.
Mr. BATEMAN. OK. Next. Mr. Rodriguez followed by Mr. Hansen. And let me ask that everyone be aware that we can submit questions for the record, if the Secretary is willing.
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Dr. GANSLER. Fine.
Mr. BATEMAN. And so if your 5 minutes expires and you have other questions you want to pose, there is also that avenue.
Mr. Rodriguez.
Mr. RODRIGUEZ. Thank you very much, Mr. Chairman.
Let me just indicate I think that—and one question I guess is more to the committee, and that is the question of why we have BRAC's. I would contend that it's not necessarily to create jobs for the existing depots, but I would comment that it would be for the purposes of not only readiness, but the most cost-effectiveness and those others.
In the teaming, let me ask you—it was my impression, and maybe I'm wrong, that when the public sector got the contract on the C–5 that they even went out and did—on their own and did some teaming with the private sector and subcontracted after it went to Warner Robins. Is that correct?
Secretary DRUYUN. There is some limited teaming there, for example, in building the mobile tail enclosures. They clearly ran a quick competition and went to a company to basically build I think six mobile tail enclosures to facilitate the maintenance on that airplane as opposed to having to go out and build a brandnew structure, which could have cost as much as $100 million.
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That's the beauty of competition. It really gets those creative juices flowing to figure out, you know, what is the smartest way I can repair that weapon system at the most economical cost to the Government?
Mr. RODRIGUEZ. Thank you. The other question I wanted—and I know that there was some concern at least from the private sector in terms of the competition, whether it was fair or not on the C–5. And I want to know, more or less, what procedures have taken place to assure that we have a level playing field in the process of the competition.
And I know that there were some real serious concerns and even some discussion as to why the private sector should even begin to spend their time and their resources and their money to put their proposal together if they were not going to be given a playing field. And some of us feel that we didn't have a playing field in the last contract with the C–5, and I just want to get what you have done to make sure that we try to level the playing field.
Secretary DRUYUN. I went through and did a detailed lessons learned, and I do that in every competition I conduct. One of the complaints by the private sector was in the area of overhead savings. I think some of the committee members will recall from my briefings to them that Warner Robins originally proposed using a model overhead savings in a range of about $300 to $320 million.
I did not have the best tools available to me, but I spent a tremendous amount of time personally going through those numbers, analyzing them, worked with DCAA extensively, and was able to conclude that the proper overhead savings to apply to all of the other work at Warner Robins was about in the range of $153 million, as I recall.
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At the time, I had put some language in the RFP, and I never really thought about it until after the fact. But I literally made it impossible for any contractor to basically propose overhead savings to other work that they might bring in or other work where that work actually might be done. And I basically screwed up, because I required that they have a prenegotiated forward pricing rate agreement. That takes 1 year, to actually negotiate a forward pricing rate agreement, you know.
So those are some of the areas where I have basically corrected the guidance that we had used earlier, to try to make it as level a playing field as possible.
Mr. RODRIGUEZ. Can you just further—just clarify a little bit what overhead savings are. What did that indicate? Is it because—could that be implied as because they were not performing it where they should, and they had excess staff, that that's one of the reasons why they might have gotten the contract?
Secretary DRUYUN. Well, one of the analyses that we did as part of the competition—and I did this during the July timeframe with the Defense Contract Audit Agency and DCMC—was they actually go in and take a look at the number of depot hours that they had done historically and what had been happening to both their direct and indirect employment. And as their workload dropped, we saw a shift from their direct into their indirect.
When I went through and did my analyses of their overhead savings, as best as I could, I discounted, you know, the inefficiencies that occurred there, because what rightfully should have happened—and I think Mr. Sisisky mentioned this earlier—is we probably should have gone through a RIF—a very painful process—to basically keep those rates at that depot at a rock-bottom level.
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And so as part of that competition, I used as many techniques as possible in terms of my cost estimating procedures to basically discount it there as well as to discount it for future work that they thought they would win but had not actually been awarded to them.
But clearly, there is excess capacity at our depots, and it's also very clear that when you bring in additional work—remember what I said earlier? You have a larger base to spread it over. You have a larger base to spread your fixed costs over. That translates into lower cost, and that was the same basic principle in terms of looking at overhead savings.
Mr. RODRIGUEZ. Mr. Chairman, I'm out of time.
Mr. BATEMAN. Yes.
Mr. Hansen.
Mr. HANSEN. Thank you, Mr. Chairman.
I appreciate the comments. It's amazing what you learn when you listen to people. I appreciate all that you've said.
Dr. Gansler, your comment ''better readiness to lower cost,'' who could argue with that? And I think if that's the basic premise that you folks operate on, everyone in Congress would have to embrace that.
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Recently, I took a group of folks from Utah up to the Air Materiel Command, and General Babbitt was gracious to put up with us for a day or so. And one of the questions I asked General Babbitt was this, ''Does Air Force Materiel Command have any employment goals for numbers of positions to be retained at the closing of McClellan and Kelly Air Logistics Centers? If so, what are they?''
Answer: ''The President's stated employment goals for Kelly and McClellan were to maintain employment level at 16,000 for Kelly and 8,700 for McClellan until FY01. These are goals and not legal restrictions. In accordance with BRAC, the Air Force is committed to working with the communities to minimize the adverse impact,'' et cetera, et cetera.
They said the Air Force doesn't have those goals. They said those are the President's goals.
Now, let me ask you something. I know that we have had Cohen and Perry before that, and all of these fine Secretaries over here, and they all talk about—and you folks probably have mentioned—that you want another round of base closings somewhere along the line, and probably you should have one. I agree with that.
But let me say this, would you recommend, Dr. Gansler, that future rounds of base closure mandate delaying closures of 6 years and guaranteeing employment levels for each closing base? Or we just simply waste taxpayer's money.
Now, I can give you the history of this. I helped write the bill. I can give you the history of bases you've closed pow, pow, pow, like that—12 months, 24 months. Why are we keeping these open for 6 months, guaranteeing an employment level at that price, and yet the stated purpose for us being here is to have readiness at the lowest cost?
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Let me add to that while you're thinking about it. Do you believe that delaying the closure of these bases for the full 6 years, and meeting these employment goals, is likely to cost the U.S. taxpayers millions of dollars, more than prompt closure would? Putting a lock on the door, closing these up?
Maybe Secretary Druyun sat there when General Fogleman threw that thing up on the board over at the Hart Building and it said, ''We'll close these bottom two and move this work.''
And if you read the instructions given by the Base Closing Commission, we will move this work together to minimize the cost to the Air Force, more readiness, all of those things that you have very adequately talked about.
Dr. GANSLER. Let me address both your questions. I would personally object to any legislation that guarantees numbers. That's the first point.
The second point—as you have properly stated, I gather that the President made a commitment on a goal, not a piece of legislation. Second, that I strongly agree with your statement about the importance of not lagging in our actions in making awards, and in moving out in terms of decisions to close or not close, and where the work should go.
As Secretary Druyun pointed out, we are already seeing a very significant amount of turnover in these facilities where we're not moving out quickly enough. If we were to have broken up the competitions, it was our opinion that would greatly delay it even more.
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The Ogden report, in fact, had repeatedly stated, as I read it over, repeatedly commented on the importance of getting the awards made quickly and moving out on it, because that—I mean, I definitely agree with your statement. I think we need to do that.
Mr. HANSEN. Dr. Gansler, I hope I'm not in a position that I have to ask for everything I've ever said or written down. Your book is very interesting.
Dr. GANSLER. I'm glad you enjoyed it. Thank you. [Laughter.]
Mr. HANSEN. I think everybody here should read it.
Now, I'm not going to hold you responsible for this, because probably you did this for you in your position. But may I quote from your book, please, sir? I kind of gather you have some disagreements with the Congress and the law over how some of these should be done.
''Perhaps surprisingly, the only major portion of the world's economy that has been moving significantly towards socialism is the industrial base of the Department of Defense, and that the United States seems headed toward a Russian defense industry model.'' I would hope you give that some thought. I have great respect for you, and I have read your biography, and of course Ms. Druyun's. Very respected people.
It kind of flies in the face of some of the statements made by General Krulak, General Fogleman, General Reimer, and Admiral Johnson. They have all testified before the National Security Committee, and I have written what they've said, and they say that none of them would recommend dropping below the 50-percent level, that keeping a strong core maintenance is critical to our national security.
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I don't know if those two things are in conflict. Maybe that would be better for you to answer than me. But I would hope that you would give some really good thinking to the idea of the—not modeling but of the working together of both the private and the public sector.
I see my time is up, Mr. Chairman. Could I submit some questions for the record?
Mr. BATEMAN. You certainly may, as may all other members.
Mr. HANSEN. Thank you, Mr. Chairman.
Thank you, Dr. Gansler and Ms. Druyun.
Dr. GANSLER. First of all, all of the decisions that I will be making in my position are going to be based on, first, national security. Overwhelmingly, I strongly agree. I have spent my life working in the national security arena and intend to continue to make decisions on that basis as primary considerations.
Second, as I said earlier to Congressman Sisisky, that I strongly believe in the value of competition, whether it be between public and private sectors or within the private sector. I also do believe in the value of the depots in the public sector being maintained. I think we cannot afford to maintain both at the levels that we have. We have excess capacity in the private sector; we have excess capacity in the public sector today.
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I would like to see the shrinkage take place on the basis of competition, and the quality of both will improve, frankly. I mean, I think we do too much sole sourcing in the private sector just as well as in the public sector.
As far as specific statements in my book—and editors do like you to have some nice expressions to make, and that was sort of an academic statement about what socialism is and capitalism is.
Mr. HANSEN. Understood.
Mr. BATEMAN. All right. Next, we have Mrs. Fowler, followed by Mr. Jones, and then Mr. Watts, whom I, unfortunately, am putting after them since he is not a member of the subcommittee but is very welcome to participate.
Mr. Jones. Mrs. Fowler.
Mrs. FOWLER. Thank you, Mr. Chairman, and thank you both for being here. I just have a couple of comments and questions, and more I'd like to submit for the record.
Secretary Druyun, I was real interested in your presentation, because from your scenario I guess we never downsize, never give any pink slips, because every time we give one it's going to effect four more people. We'll never need to have any more BRACs.
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I mean, we put off 8,000 in my district, and that's part of what you do with downsizing and saving money. The Navy did it. They stepped up to the plate. We're now saving $120 million a year because they closed their three NADEP's on time in a timely fashion.
When you showed this about the problems with the transition from Alameda to the NADEP, which happens to be in my city—Jacksonville—there were some problems, primarily because there was a lack of contract for spare parts. And that has been well documented. But to date, we are saving now $120 million a year, so I think you need to relook at how you get your savings.
And with regard to the workloads at San Antonio and Sacramento, we still have not seen any information from the Air Force that contradicts either the GAO's assessment that we would save $468 million a year or the Air Force Materiel Command's own internal assessment that we would save $689 million a year by moving this work, in a timely fashion, to the remaining ALC's.
Meanwhile, as I understand it, the Air Force continues to lose money, as pointed out by Mr. Sisisky, as a result of the privatization in place at the former Newark AGMC. And I just want to repeat here to you what I've already said in public to General Ryan a few weeks ago, that I will support and I will encourage other members to support a reduction in the Air Force's modernization budget, if it is the Air Force's intention to continue to squander this amount of money with such ill-considered schemes.
This Congress has spoken in no uncertain terms on the depot issue. You might not like it; the Air Force might not like it. But that's irrelevant. We demand and we expect compliance with the law, and we intend to see that that is done.
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Now, Dr. Gansler, I have read parts of your book, too, and I assume when you put your name on a book you mean what it says and that the editors don't talk you into putting it there. That's your philosophy. Mr. Hansen has already referred to a couple of your comments. You have another one in there—a statement that, ''If the DOD is to maintain a viable defense industry, it will have to give its depot maintenance work to the private sector instead of its own depots.''
Well, now, since 50 percent of that work is already going to be going, you know, to the private sector, and of the remaining 35 percent or more of that goes for purchasing spare parts, I'd like to know what defense companies you plan to save with the $4 billion that's going to be left.
But it really makes me question the statement in your testimony today that you do consider that there is a role for both maintaining adequate organic depot capacity and increasing reliance on competition, because if the book doesn't represent your views, then you shouldn't have published the book.
And this brings me to what has been happening recently that out of 58 major new defense acquisition programs, only 21 percent have performed or plan to perform core assessments first, only 40 percent—40 percent of them have no intention of performing a comparison of public versus private costs prior to making source of repair decisions.
Now, these apply to the GAO report. Forty-four percent do not plan to buy the technical data, preferring instead to rely entirely on commercial support. This is like we've never had this debate over the past 3 years, and there wasn't a law passed last year regarding depot policy.
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You know, this is totally unacceptable. And now I understand there's new OSD guidance on the development of core requirements that is pursuant to your directives, and this guidance, according to a memo published February 12, mandates ''a more restrictive interpretation of the Department's poor capability requirements than has been applied in the past.''
Now, my questions to you are, does this guidance define our core capability requirements as the capabilities, including the specific facilities, support equipment, and skilled personnel to support the weapon systems, platforms, and associated support equipment necessary to fulfill the strategic and contingency plans prepared by the Chairman of the Joint Chiefs of Staff as the law requires? And if not, then how does it define core capability, and for what weapon systems does it apply?
My other question on that is, does this guidance provide direction to the acquisition and logistics communities and DOD, ensuring that core capabilities for new JCS and aerial weapon systems are established at public depots within 4 years of initial operational capability as the law requires? If so, what is this direction? And if not, why not, because it's the law?
Those are my questions.
Dr. GANSLER. Let me address both of those. I was glad to see that so many people read my book, by the way. That was nice. I should point out I don't get any money. The money goes to charity from all of the sales, so it doesn't matter in that respect, but I appreciate your reading it for other reasons.
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Mr. CHAMBLISS. Undoubtedly bought by a bunch of private contractors. [Laughter.]
Dr. GANSLER. Again, it goes to private—it goes to a charity, so it doesn't affect me.
Let me comment on, though, the position that I took in my prepared remarks and that I repeated a couple of times during this question and answer period—namely, that I genuinely believe that the depots will win a number of these competitions, and that it, in fact, may even help the depots to have competition because they will be improved in terms of their efficiency and effectiveness and responsiveness.
So I don't feel that competition between the public and private sector will in any way necessarily result in the elimination of the depots—the point you were making.
Second, in terms of the core definition question that you raised, what I did was I actually called together the service acquisition and logistics people, as well as my own staff, and sat them down and we said, ''Now, let's make sure that we are properly and consistently interpreting what is meant by the law,'' because there's no question in my mind we intend to fulfill the law.
And I just wanted to make sure that we all collectively understood what it meant in terms of having the capability to perform the work in the public sector. And we sat down and we talked about that, and it was in connection with that, that that meeting was held, the one you're referring to in terms of the memo.
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I told them that I felt that it was important that they responded by analyzing the law, and then second look at the 50 percent number. That is, it's important to understand, what are the real military requirements? This goes back to the point that I made earlier in terms of looking at it first from the military perspective.
What are the real requirements that we have in terms of surge, in terms of maintenance in peacetime, and so forth? And then understanding those, try to then address this question of which part of that should be in the core part and which part shouldn't. That was the discussion we had.
Mrs. FOWLER. I would be interested in getting the results of it.
Secretary DRUYUN. If I could add one more comment. I think there is very clearly a difference in RIF'ing when you're closing a depot versus RIF'ing procedures that occur in an active, ongoing depot. I think it is very clear from the actions to date at Kelly that the morale of the people obviously is not real high. Their productivity in the C–5 area I think has fallen down to around the 40 percent level, as opposed to where it used to be when it was an ongoing depot at the 95 percent level.
And I can tell you that General Babbitt has put out a very clear set of goals and objectives for all of his commanders to make our depots much more competitive. And where need be, that includes RIF'ing excess capacity to keep the rates low. I think that's just extremely important.
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The other thing that I have personally done in the last 2 years is to work with our depots to come up with a good set of cost accounting standards, so that they can be there to compete head to head and have very solid cost accounting systems just like the private sector. And that will help us to significantly understand where we need to make improvements—in labor standards, for example—and where we need to make improvements in perhaps what I would call more flexible skilling of our people. And this is going a long way to making the depots, you know, be very, very strong competitors.
Mr. BATEMAN. Mr. Hansen has asked leave to have some materials entered into the record. Without objection, that would certainly be done.
Mr. HANSEN. Thank you, Mr. Chairman.
Mr. BATEMAN. Mr. Jones.
Mr. JONES. Mr. Chairman, thank you very much.
Dr. Gansler, I represent the Third District of North Carolina. We have Cherry Point Marine Air Station and the NADEP at Cherry Point, which I have been in office two terms and I think in 3 years I have been every year to the Pentagon to see the civilian workers there win awards for excellence in work efficiency and quality of work.
I guess my one or two questions to you—I want to refer back to your book, and since you haven't had any questions regarding your book. I say that facetiously.
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This will lead to my question. It's the same statement that Congresswoman Fowler made reference to. ''If the DOD is to maintain a viable defense industry, it will have to give its depot maintenance work to the private sector instead of its own depots.'' Are you saying to us, based on that statement, that you believe that if we totally privatize the work that's being done at these depots, that we would not be threatening the readiness of this nation?
Dr. GANSLER. Let me comment on that in two ways. One is that what I meant to say by ''give'' was compete. I mean, and that's the important point that I have been making over and over.
Second, that I do think that as a result of this competition that we will, in fact, be shifting—as Ms. Druyun pointed out, as the reliability continues to go up, we're going to have less and less work for the depots and/or for the private sector in this maintenance area. I mean, our whole intent here is to try to improve the responsiveness, to improve the efficiency of the system, to cut down on the spare parts, to cut down on the maintenance. So we're going to have downsizing associated with that in both the private and the public sector.
I don't think we will go to zero. I don't think that's the proper thing to do in the public sector. I think there's a very valid role for it, and certainly we intend to follow the law. So whether it's right or wrong isn't the question. As was pointed out, the fact is that the law is the law and we intend to fully follow that.
I think the fact that you are agreeable to going from the 60 percent to 50 percent is an indication of the direction that we probably need to be moving. But I don't, personally or in terms of the law, intend to go down below that.
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Mr. JONES. I'm delighted to hear that, because as Ms. Fowler and I think Congressman Hansen made reference to, my first year we had the service chiefs to speak before the entire Committee on National Security, and I think the chairman of the committee or someone on the committee asked the service chiefs about privatization. And I do remember when General Krulak, who I have tremendous respect for, made this statement to the committee. I don't think all of the service chiefs were as strong as they should have been, but obviously politics does play into this game. And what General Krulak said, ''If you privatize the core maintenance work being done at these depots, you will seriously jeopardize the readiness of the Marine Corps.''
And I think that what I am hearing from these hearings that we've had the last couple of days is that it seems that the Department of Defense—and I hope I'm wrong in making this statement—continues to make its own interpretation of the intent of the language in the bill passed by the Congress of core maintenance work.
And I hope that as you continue this position that you have that you will work with us to be sure, as you have said—and I appreciate those statements—that the Department of Defense will follow the intent of the law that has been passed by the Congress and signed by the President of the United States. Because I will tell you that I am very proud to represent Cherry Point and the civilian workers there, and they do a tremendous job for the people of America. And more importantly than the people of America is the defense of this nation, to protect the people of America.
And I would like to ask you—and then I will yield back my time, Mr. Chairman—how many depots have you visited, actually been on site yourself?
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Dr. GANSLER. Well, over the years, a large number of them. I guess the most recent one was Warner Robins about probably 4 or 5 months ago. I do make a point of it, and I intend to continue to do that. I think it's important for me to do that. There are a variety of reasons, obviously, for me to go, and I intend to continue to do that.
Let me comment on your other points. I certainly fully intend to work with the committee. I think that's absolutely essential. We have to be partners in working this out. I do think there is an important point implied in your question initially that I am concerned about, and that is I also think it's important that we have responsiveness and efficiency from the private sector and which we're counting on for our readiness as well.
In other words, there are many critical weapon systems today which are split, for example, between public and private sector. And it's absolutely essential that we have just as much responsiveness from them in a wartime environment. And so it's not a question of counting on the public sector to be responsive and not the private sector. We, as a nation, are dependent on both, frankly. And so it's very, very important that we get that responsiveness from the private sector, and that they recognize that, too, and that in crisis conditions they have to respond appropriately.
Mr. JONES. Thank you.
Thank you, Mr. Chairman.
Mr. BATEMAN. The very patient Mr. Watts.
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Mr. WATTS. Mr. Chairman, I understand we're going to—we were trying to be out of here at 10 o'clock, so I will just—I will make it very brief.
First, I want to associate myself with the remarks of Mrs. Fowler, because I do find it very difficult for us to talk about streamlining and saving money and trying to find dollars to do modernization when based on the two reports—it's on the record—the two reports that we've seen from the AFMC and GAO that says that we can save somewhere around $490 million to $689 or $690 million. So, you know, that's floating out there somewhere, so I do associate myself with the comments of Mrs. Fowler.
And, second, I will say that I find it personally inexcusable that the GAO cannot get access to the proper records and data to do their congressionally-mandated work. And regardless of who was out or who was in, I find that inexcusable.
And, Mr. Chairman, I will submit a couple of other questions for the record, and you are very gracious for allowing me to be a part of this hearing today.
Mr. BATEMAN. Mr. Watts, we are delighted to have had you participate, and I regret the shortness of time.
Let me, Dr. Gansler, Secretary Gansler, return to this matter of the General Accounting Office and the availability of data to them. I have a letter from Mr. Hatton, the Assistant Comptroller General, of February 13 addressed to me in which he outlines the material which had not, as of that date, been made available.
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I'd like you to address whether or not the information identified in that letter has now been made available, and if not, why not and on what legal or statutory basis it has been withheld.
Dr. GANSLER. I'm not familiar with the February 13 letter, but——
Mr. BATEMAN. We'll see it's——
Dr. GANSLER. I appreciate that. But in terms of the general statement, Mr. Chairman, there is absolutely no question that it is our intent to provide full access to the GAO, now and in the future, for data that they require. And as I said, we're trying to work that out in terms of what the terms and conditions are, and so forth. But there is no question about it.
The only thing that we have to do is to protect the sensitivity to the competitive nature of that data, but they will have full access to it.
Mr. BATEMAN. Well, Mr. Secretary, the Code of the United States sets forth what information shall be made available to the General Accounting Office, and imposes upon them legal requirements as to how they deal with it. I don't believe we can accept some notion that because this is sensitive we can't turn it over to them if the statutes say turn it over to them and charge them with properly dealing with it.
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So we don't want to get into that. But I am delighted to have you say we will, as to information necessary in the past, deliver it, and we will do so in the future because they have other mandates that they must go through—that we have imposed upon them—and we want them to be able to do it in a proper manner and in a timely manner, because we don't want to get to a point where we have found that requests for proposals are made, awards are made, and they are based upon something that has not been determined to be in the best interest of the United States and consistent with the law.
With that, I thank both you and Ms. Druyun very much for being with us. And members, I believe, will have some followup questions for the record.
With that, we are adjourned with thanks to everyone.
[Whereupon, at 10 a.m., the subcommittee was adjourned.]
The official Committee record contains additional material here.
QUESTIONS SUBMITTED BY MR. BATEMAN
Bundling Sacramento Workload
Mr. BATEMAN. Why did you state in the workload bundling report that all of the offerors agreed to the bundling of the Sacramento workload, when the GAO report states that according to one offeror, ''the present competition format is not in the best interest of the government and recommended that the workload be separated?''
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Dr. GANSLER. The potential offerors were issued study contracts to study the Sacramento workload in Feb. 97. In addition to the Statement of Objectives for the study, the offerors were also provided a draft Request for Proposal, which included the proposed acquisition strategy of consolidating multiple workloads under a single solicitation and award. The offerors were not constrained in their studies to consider only a consolidated workload, and all offerors had every opportunity to critique the strategy and to propose alternatives in their study reports. Study reports from all three offerors in Oct 97 took no exception to the proposed acquisition strategy of consolidating multiple workloads under a single solicitation and award. The public offeror's multiple workloads under a single solicitation and award. The public offeror's study report, dated 9 Oct 97, contained no statement that took exception to workload consolidation; specifically, the section of the report on the KC–135 workload made no statement in text or in ''Observations and Recommendations'' that this workload should be broken out separately.
The Reports of Determination to Combine Multiple Depot-Level Maintenance and Repair Workloads, dated 19 Dec 97, were based on the Oct 97 study reports. The GAO's quote is from the public offeror's transition integration plan report, which is a separate document dated 18 Dec 97. The quoted statement from the public offeror's transition report does not provide justification for breaking out separate workloads at Sacramento. On 16 Jan 98, the Air Force requested the public offeror explain and provide cost analysis to support the suggestion that both reports recommended separating workloads. The public offeror's response, dated 9 Feb 98, provided little support for the contention and acknowledged that no cost analysis had been performed to support a recommendation for separated workloads.
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Bundling Different Workloads
Mr. BATEMAN. GAO stated that the purpose of the study reports, cited in your determination report, was not to evaluate the pros and cons of bundling but rather to describe the Sacramento workloads and recommend more efficient approaches to performing that workload. Did the offerors specifically offer comments on the pros and cons of bundling different workloads? If so, please provide, for the record, all the specific references to where the offerors study reports describe the pros and cons of bundling different workloads.
Dr. GANSLER. No. The study contract for the SM–ALC depot workload competition had four primary objectives, which were stated in the Statement of Objectives for the contract as follows:
''1. Become familiar with the workloads available for competition, understand current maintenance processes and systems, and identify areas for improvement.
''2. Explore business development approaches for reducing costs and/or adding value to the maintenance acquisition.
''3. Make recommendations for development of the Maintenance Contract solicitation.
''4. Be able to provide an innovative, low cost, low risk proposal for transitioning and accomplishing the maintenance workload that maintains or improves mission readiness.
The offerors were also provided a draft Request for Proposal, which included the proposed acquisition strategy of consolidating multiple workloads under a single solicitation and award. The offerors were not constrained in their studies to consider only a consolidated workload, and all offerors had every opportunity to critique the strategy and to propose alternatives in their study reports. The resulting study reports did not specifically offer pros and cons of consolidating multiple workloads under a single solicitation and award, but each study report indicated benefits could be derived from consolidating the common areas within the infrastructure and logistics support functions of the workloads. The Oct 97 study reports took no exception to the planned acquisition strategy of consolidating multiple workloads under a single solicitation and award. In fact, the public offeror's Oct 97 report concluded, ''Our findings support consolidation of the SM–ALC workload with existing depot workload at OO–ALC''.
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Benefits of Bundling
Mr. BATEMAN. If the workload reports do not specifically refer to the pros and cons of bundling, please explain why they were used to rationalize your position on the benefits of bundling.
Dr. GANSLER. One of the objectives of the reports cited in the Determinations to Combine Workloads was to ''make recommendations for development of the Maintenance Contract solicitation.'' The offerors were also provided a draft Request for Proposal, which included the proposed acquisition strategy of consolidating multiple workloads under a single solicitation and award. The offerors were not constrained in their studies to consider only a consolidated workload, and all offerors had every opportunity to critique the strategy and to propose alternatives in their study reports. The Oct 97 study reports took no exception to the planned acquisition strategy of consolidating multiple workloads under a single solicitation and award. In fact, the public offeror's Oct 97 report concluded, ''Our findings support consolidation of the SM–ALC workload with existing depot workload at OO–ALC''. The study reports were not used to rationalize the department's position. The study reports are three of many inputs leading to the proposed acquisition strategy and determination.
Combining Aircraft/Commodity Workload
Mr. BATEMAN. ''The DOD report on bundling of the Sacramento workloads specified that all the offerors stated throughout their studies that significant savings could be achieved by combining the workloads. Please give the committee a sense of the significance of these savings and explain the portions that were derived from combining aircraft workload with the commodity workload.''
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Dr. GANSLER. The cited studies indicated that benefits could be derived from consolidating the common areas within the infrastructure and logistics support functions of the workloads, although the study reports did not provide economic analyses. The associated economic rationale to combine workloads is a government analysis, which incorporates inputs from several sources. This analysis shows a single versus multiple award cost differential in the range of $55M to $131M, which reflects the combined effects of increases in acquisition costs, contract administration costs, transition costs, and the cost of schedule delays. The cost differential between a single versus two workload scenario (aircraft and commodities) is estimated to be in the range of $22M to $70M, due to lost opportunity in savings from competition, increased cost of contract administration and acquisition, and increased cost due to two separate transition periods. The analysis is explained in greater detail in the ''White Paper on Single vs. Multiple Workload Competitions.''
Sacramento Workload
Mr. BATEMAN. ''According to the GAO report, the Air Force's repair base analyses indicate that there are substantial numbers of private sector companies that are willing and able to maintain and repair segments of the Sacramento workload. Do you agree with this observation? Wouldn't competing smaller workloads result in additional competition and thus a lower cost of the government?''
Dr. GANSLER. As part of the risk assessment in the core determination made for the Sacramento workload, the Air Force has identified several private sector companies able to support various segments of the Sacramento workload, but these companies would not necessarily become competing offerors if those segments were to be broken out separately. Experience has consistently shown that respondents to Requests for Information typically draw down to a few players in a competition because of the high cost of developing a viable proposal was well as long range business planning considerations.
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The expected drawdown in competing offerors also applies to components within logical product groupings, such that the Air Force would expect a high probability of ''orphaned workloads'', where no offeror bids. These ''orphaned'' components would be transferred individually to other organic depots, without any competitive forces to provide the Air Force a better value as an outcome of the transfer. ''Orphaned workloads'' would reduce the overall viability of the competition, add complexity to the workload transfer, and dilute the expertise expected from organic centers of industrial and technical excellence. A consolidated set of workloads ensures that the maximum benefits from competition are available for every component.
The synergies available by consolidating multiple workloads under a single solicitation and award produce benefits that far outweigh any potential advantage of separate smaller competitions. These benefits include workload stability, workload commonalities (such as shared skills, surge support, and shared backshops), shared overhead functions across a larger workload base, avoidance of impact of multiple and redundant transitions, minimal impact from personnel turbulence, and minimal mission support impact due to schedule delays. The Air Force estimates a single versus multiple award cost differential in the range of $55M to $131M, which reflects the combined effects of increases in acquisition costs, contract administration costs, transition costs, and the cost of schedule delays for multiple competitions. The analysis behind this estimate is explained in greater detail in the ''White Paper on Single vs. Multiple Workload Competitions.''
Mr. BATEMAN. Under certain circumstances, DOD pays for restructuring costs in the defense industry when savings are to be achieved through reduced infrastructure and improved capacity utilization. In these instances, does DOD limit the overhead savings calculations factored into its decision to one or two years? If not, why isn't the same logic appropriate in the overhead savings evaluation in public-private competitions? When the Defense Contract Audit Service does forward pricing reviews are savings limited to one or two years? When DOD considers the potential savings from reengineering or other efficiency initiatives, are savings limited to one or two years?
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Dr. GANSLER. DOD permits contractors to include restructuring costs as part of overhead when the savings for DOD from a business combination will exceed the costs. (For business combination occurring after October 1, 1996, legislation requires that savings for DOD must exceed the costs by a factor of at least two to one, or the costs cannot be allowed.) DOD generally looks at overhead savings from restructuring for up to a five year period, primarily because that is the period over which restructuring costs are allowed to be charged. The Defense Contract Audit Agency also typically looks at restructuring costs and savings for up to a five year period for forward pricing reviews for noncompetitive contracts. In considering potential savings from reengineering and other efficiency initiatives, the period over which sales are projected vary. Also, a review of at least 25 business segment locations indicates that the average stability of a Forward Pricing Rate Agreement was just under one year.
The Request for Proposals (RFPs) allow for overhead savings beyond one or two years, so the two processes are similar. As the GAO testified to the HNSC Readiness Subcommittee on 24 Feb 98, it is customary in private industry to project only one or two years of overhead savings. Specifically the RFPs provide that the proposed first year savings will be allowed if determined to be reasonable, while the proposed second year savings will be allowed if supportable, but will be discounted for risk. Savings proposed for years three and beyond may be allowed if clearly appropriate, and will be discounted for risk, but will be considered as part of the best value analysis. In a recent draft report on this methodology, the General Accounting Office states, ''It seems reasonable for the agency to carefully evaluate an offeror's projected savings in terms of the information and analysis provided to the agency during the evaluation process and to factor into that evaluation the possibility that conditions could change over time * * *.'' The report goes on to say that, ''* * * it is a legitimate exercise of the agency's discretion to require strong support for projected future savings and to consider that such projections may well be less accurate for the later portion of the performance period.'' The GAO concludes that the RFP establishes a reasonable method for estimating the overhead savings and that it complies with the relevant provisions of 10 U.S.C. 2469a.
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AFMC Data Collection
Mr. BATEMAN. GAO stated that the public-private sector mix in the Air Force is approaching 50/50. If your numbers are different than that, did you include all categories of workloads that were reported when AFMC did its data collection, such as special programs, costs for the labor used to apply major modifications, and the consolidated software facility in Colorado Springs? If not, why not.
Secretary DRUYUN. The Air Force reported FY97 distribution of depot maintenance workload at 65.7% public and 34.3% private. The Air Force report for FY97 was based on the definition of depot level maintenance in effect during the reporting period. The Air Force is still reviewing the ratio for FY98 and beyond, using the new definition required by the FY98 National Defense Authorization Act.
Workload Given
Mr. BATEMAN. ''Given that the 1998 authorization act was passed in November 1997, why did the Air Force wait until now to begin looking at the current and projected workload given that it is in the middle of conducting two competitions that involve workloads of about $1 billion?''
Secretary DRUYUN. The Air Force regularly reviews the amount of workload which is contracted out to ensure the threshold limit of contracted work is not breached. Our review of the FY97 data was not completed until 1998, when the data became available. The public/private workload projections developed last year showed ample margin for conducting the competitions, and the Air Force began the two public/private competitions months prior to the enactment of the FY98 National Defense Authorization Act. The steps taken thus far in proceeding with the competitions are prudent to protect the schedule needed to meet the required closure of SM–ALC and SA–ALC by 2001. The Air Force will not award to the private sector any workloads precluded by statute.
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Moving Workload To Private Sector
Mr. BATEMAN. ''Why is the Air Force pouring millions of dollars into a competition between the public and the private sectors when you have almost no headroom to move more workloads to the private sector, even if the private sector won the competitions.''
Secretary DRUYUN. When the Air Force began the public/private competition process, the public/private workload projections showed ample margin for conducting the competitions. Through these competitions we believe we will have the best opportunity of achieving savings through either public or private sector sources. The expected benefits of this competition effort far outweigh the cost of conducting it. Both public and private offerors are motivated to develop the most effective proposals possible, which will provide the government the overall best value. The steps taken thus far in proceeding with the competitions are prudent to protect the schedule needed to meet the required closure of SM–ALC and SA–ALC by 2001. The Air Force will not award to the private sector any workloads precluded by statute.
Fallback Position
Mr. BATEMAN. ''Does the Air Force have a fallback position, such as moving more of the Sacramento and San Antonio workloads to military depots outside the competition. If not, why not?''
Secretary DRUYUN. Workloads precluded by law from being awarded to a private sector source will be moved to other DOD depots.
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Total Evaluated Cost
Mr. BATEMAN. ''GAO says that the Sacramento and San Antonio source selection processes are only going to factor in one or two years of overhead savings in the TOTAL EVALUATED COST assessment, and any additional years savings in the best value determination. What is the basis for excluding quantifiable dollar savings from total evaluated costs?''
Secretary DRUYUN. The RFPs allow all overhead savings to be assessed by the Source Selection Authority. As the GAO testified to the HNSC Readiness Subcommittee on 24 Feb 98, it is customary in private industry to project only one or two years of overhead savings. The RFPs for these competitions permit all offerors to claim projected overhead savings for all years, but we have advised the offerors that the burden is on them to show justification for those savings.
This is because the ability to forecast outyear savings significantly diminishes with time, due to uncertainty in forecasting long term overhead rates. This is true for both public and private offerors, therefore, emphasis will be placed on detailed analysis and supporting documentation of historical data and management activities to ensure that projected savings will take place, particularly those accruing more than 24 months from award of the public/private competition workload. The first year savings, if reasonable, will be allowed. Second year savings, if supportable, will be allowed but discounted for risk. For year three and beyond, the ability to accurately forecast output levels is much less likely. Therefore, the saving for year three and beyond may be allowed if clearly appropriate, but in any event will be considered under the best value analysis.
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In a recent draft report on this methodology, the General Accounting Office that states, ''It seems reasonable for the agency to carefully evaluate an offeror's projected savings in terms of the information and analysis provided to the agency during the evaluation process and to factor into that evaluation the possibility that conditions could change over time.'' The report goes on to say that, ''it is a legitimate exercise of the agency's discretion to require strong support for projected future savings and to consider that such projections may well be less accurate for the later portion of the performance period.'' The GAO concludes that the RFP establishes a reasonable method for estimating the overhead savings and that it complies with the relevant provisions of 10 U.S.C. 2469a.
Overhead Savings
Mr. BATEMAN. Given that the overhead savings was a material factor in the decision to award the C–5 workload to Warner Robins, does this consideration give an unfair advantage to public depots? If so, was your decision to award the workload to Warner Robins unfair? It not, why are you limiting overhead savings in the upcoming Sacramento and San Antonio competitions?
Secretary DRUYUN. The Air Force conducted a fair competition for the C–5 in accordance with the source selection plan and request for proposal, which permitted for overhead savings to other government workloads to be projected over seven years and included in the cost evaluation. Some offerors expressed concern that seven years was too long a time,due to the uncertainties associated with forecasting a business base so far into the future. Also, a review of at least 25 business segment locations indicates that the average stability of a Forward Pricing Rate Agreement was just under one year.
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The Air Force has addressed this concern as a ''lesson learned'' by modifying the consideration of overhead savings for the Sacramento and Propulsion Business Area competitions, which will also be fairly conducted. The ability to forecast outyear savings significantly diminishes with time, due to uncertainty in forecasting long term overhead rates. This is true for both public and private offerors, therefore, emphasis will be placed on detailed analysis and supporting documentation of historical data and management activities to ensure that these savings will take place, particularly those accruing more than 24 months from award of the public/private competition workload. The first year savings, if reasonable, will be allowed. Second year savings, if supportable, will be allowed but discounted for risk. For year three and beyond, the ability to accurately forecast output levels is much less likely. Therefore, the savings for year three and beyond may be allowed if clearly appropriate, but in any event will be considered under the best value analysis.
Bundling Sacramento Workload
Mr. BATEMAN. Mrs. Druyun, we understand that the overall theme of the public offeror's study report was to identify the significant similarities between the Sacramento and Ogden workloads and to point out that the transfer of the Sacramento workloads to Ogden would reduce excess capacity. How could the Air Force construe this message to be supportive of bundling the Sacramento workload?
Secretary DRUYUN. The study contract for the SM–ALC depot workload competition had four primary objectives, which were stated in the Statement of Objectives for the contract as follows:
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1. Become familiar with the workloads available for competition, understand current maintenance processes and systems, and identify areas for improvement.
2. Explore business development approaches for reducing costs and/or adding value to the maintenance acquisition.
3. Make recommendations for development of the Maintenance Contract solicitation.
4. Be able to provide an innovative, low cost, low risk proposal for transitioning and accomplishing the maintenance workload that maintains or improves mission readiness.
The offerors were also provided a draft Request for Proposal, which included the proposed acquisition strategy of consolidating multiple workloads under a single solicitation and award. The offerors were not constrained in their studies to consider only a consolidated set of workloads, and all offerors had every opportunity to critique the strategy and to propose alternatives in their study reports. The public offeror's resulting study report dated 9 Oct 97 took no exception to the planned acquisition strategy of consolidating multiple workloads under a single solicitation and award. In fact, the report concluded, ''Our findings support consolidation of the SM–ALC workload with existing depot workload at OO–ALC''.
The Reports of Determination to Combine Multiple Depot-Level Maintenance and Repair Workloads, dated 19 Dec 97, were based on the Oct 97 study reports. The public offeror's transition integration plan report, a separate document dated 18 Dec 97, did recommend that the workloads be separated. This recommendation from the public offeror's transition report does not provide justification for breaking out separate workloads at Sacramento. The public offeror made no compelling argument, and no cost analysis had been performed to support a recommendation for separated workloads.
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2001 Employment Levels
Mr. BATEMAN. ''In an Air Force internal briefing this past December, there are details of the planned movement of DOD workloads from closing Air Force depots. One assumption of this briefing was that the Air Force would maintain employment levels at Sacramento and San Antonio through 2001. Air Force briefings on the bundling determination stress the negative impact on cost and readiness of delaying workload placement actions. How do you reconcile these two seemingly inconsistent positions?''
Secretary DRUYUN. The positions are not inconsistent. Both the workload disposition plans and the report of determination to combine multiple depot-level maintenance and repair workloads considered the myriad effects related to the timing of various options. The personnel considerations are only a single element in deciding the most appropriate time to relocate particular workloads and programs. Other, significant planning factors include: (a) preparation at gaining locations (e.g., MILCON, minor construction, systems/data transfer, etc.), (b) consideration of most appropriate program phase points based on projected work content and criticality, and (c) linkage with other programs and workloads. The BRAC workload disposition plan allows for an orderly transition of activities to new locations while maintaining adequate support for readiness requirements.
Sole Source Environments
Mr. BATEMAN. ''If the Sacramento and San Antonio workloads are privatized-in-place, how will the Air Force be able to control the costs in the future in an environment that will essentially be sole source?''
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Secretary DRUYUN. The Air Force is not conducting privatization-in-place competitions for the workloads at Sacramento and San Antonio. The Air Force is conducting public-private competitions for these workloads. The solicitations for the depot workloads at Sacramento and the Propulsion Business Area at San Antonio are structured to facilitate success for both the Air Force and the winning offeror, no matter who the winner is or where the work will be performed. The resulting contract will include an award term provision to motivate good performance with special emphasis on those areas most important to the Air Force, including cost control. Metrics built into the management structure will allow the Air Force insight into how the winning offeror is performing and will allow sufficient lead time to take corrective action should cost performance begin to deteriorate.
Both public and private offerors in this competition are motivated to achieve good cost performance. Past cost performance is a key factor to an offeror's ability to remain competitive for future government contracts, and an offeror's business base (for both public and private offerors) is extensively influenced by its performance on its military contracts.
Finally, the winning offeror cannot be assumed to be in a sole source environment after the initial period of performance. The Air Force always has the right to re-compete the work or conduct an organic source of repair analysis if either proves to be the most effective alternative.
Greater Cost Of Comparable Operations
Mr. BATEMAN. ''GAO recently reported that the costs of operations at the privatized-in-place Air Force depot at Newark, Ohio are greater than the cost of comparable operations while the facility was operated as a military depot? Why should the situation be any different at Sacramento and San Antonio?''
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Secretary DRUYUN. A complete cost comparability analysis has not yet been fully accomplished at Newark. However, taking all recurring costs, including appropriations and revolving fund expenditures, into account, Boeing Guidance and Repair Center's (BGRC) costs are estimated to be about 15–20 percent higher than organic costs would have been if Aerospace Guidance and Metrology Center (AGMC) had continued organic repair operations. This estimate is based on the completion of 80 percent of the BGRC workload inducted in FY97. A complete cost comparability update is expected for completion by the end of June 98 and will include 90+ percent of BGRC's FY97 workload.
Because AGMC was on the 1993 BRAC base closure list, the Air Force was required to close the base and divest the property. In FY95, the cost of moving the AGMC workload to another depot was briefed to then Secretary of the Air Force Sheila Widnall and to Senator John Glenn, as a one-time cost of $309 million with a payback period of more than 20 years. The Air Force, therefore, chose the less expensive option of privatizing AGMC operations.
Our experience at Newark shows we can successfully transition critical maintenance workloads at closing depots to other sources without a reduction in readiness. However, from a cost standpoint, Newark is not comparable to the Sacramento and San Antonio competitions for several reasons, including the following:
The Air Force is not conducting privatization in place competitions (as was done at Newark) for the Sacramento and San Antonio Propulsion Business Area (PBA) workloads. The Air Force is conducting public/private competitions for these workloads.
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The contract at Newark is a Cost Plus Award Fee contract, with cost containment incentivized in the award fee criteria. The Sacramento and PBA competitions will use a combination of cost plus and fixed price line items, with most of the dollars allocated to the fixed price line items. This is feasible, because the stability resulting from consolidating workloads allows offerors to agree to fixed prices for most of the work.
QUESTIONS SUBMITTED BY MRS. FOWLER
JCS Scenario Systems
Mrs. FOWLER. The Air Force recently let a contract for ''interim'' maintenance and repair support for the C–17. This action occurred after the passage of the FY98 DOD Authorization, which clarified the requirements for depot-level support of JCS-scenario platforms. The DOD Authorization included a requirement that the Department ensure that organic capabilities to perform depot-level work on mission-essential systems be established within four years of Initial Operational Capability (IOC). For the C–17, I understand IOC is in 1999.
Is the C–17 a JCS-scenario (mission-essential) system? What system in the Air Force inventory is the C–17 due to replace? Is that system a JCS-scenario system?
Secretary DRUYUN. Yes. The C–17 plays an essential role in Defense Planning Guidance (DPG) scenarios. The C–17 replaces the C–141 in these scenarios.
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The C–17 reached Initial Operational Capability (IOC) in January 1995, when the first squadron (12 aircraft) stood up. Forty-four production aircraft (approximately one-third of the total fleet size) will have been delivered four years after IOC (January 1999).
Contractor Support
Mrs. FOWLER. Was an analysis performed prior to the January 1998 award for contractor support to determine whether there were core capability requirements associated with the C–17 aircraft, engine, and major sub-systems? Was a formal assessment of the risks associated with contractor support for the C–17 performed prior to the January 1998 contract award? Please provide copies of any such analysis.
Secretary DRUYUN. No. The Air Force has not yet conducted a core capability requirements analysis or formal risk assessment for all C–17 subsystems. This will be performed prior to long term support decisions for the C–17 in 2003.
The Air Force did perform this analysis and risk assessment for the C–17 engine, which is a derivative of widely used commercial engine, with 97 percent commonality and several commercial sources of repair. This analysis showed that the C–17 engine generates no core capability requirements.
It is premature to perform this type of analysis now for the entire system. Two-thirds of the fleet has yet to be fielded and the aircraft is still maturing, so the type and amount of steady state and wartime surge workloads are still unknown. The small fleet size and high reliability of the C–17 have thus far combined to generate very few depot level maintenance requirements. If requirements that exceed the contractor's ability do arise before the system is ready for a long term support decision, our organic depots possess robust capabilities for supporting transport aircraft and their subsystems (on the C–130, C–141, and C–5); these capabilities are applicable to the C–17.
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The C–17 reached Initial Operational Capability (IOC) in January 1995, when the first squadron (12 aircraft) stood up. Forty-four production aircraft (approximately one-third of the total fleet size) will have been delivered four years after IOC (January 1999).
Organic Support Capabilities
Mrs. FOWLER. Will the Department meet the requirements of 10 U.S.C. 2464 with regard to the establishment of organic support capabilities for the C–17 within four years of IOC? Is there money in the President's FY 1999 budget to accomplish these requirements?
Secretary DRUYUN. Yes; at this time, the Air Force believes that the core logistics capabilities requirements of 10 U.S.C. 2464 are met for the C–17, because the organic depots possess robust capabilities for supporting transport aircraft and their subsystems (on the C–130, C–141, and C–5) and these capabilities are applicable to the C–17. The FY 1999 President's budget funds the retention of these capabilities.
AFMC has not yet conducted a core capability requirements analysis or formal risk assessment for all C–17 subsystems. This will be performed prior to long term support decisions for the C–17 in 2003. AFMC did perform this analysis and risk assessment for the C–17 engine, which is a derivative of a widely used commercial engine, with 97 percent commonality and several commercial sources of repair.
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The C–17 reached Initial Operational Capability (IOC) in January 1995, when the first squadron (12 aircraft) stood up. Forty four production aircraft (approximately one third of the total fleet size) will have been delivered four years after IOC.
Workloads
Mrs. FOWLER. ''With regard to the workloads at San Antonio and Sacramento ALCs, there have been a number of Congressional requests, including one by HNSC Readiness Subcommittee Chairman Bateman, for information from the Air Force that directly disputes the GAO's 1996 assessment that we would have $468 million a year or the Air Force Material Command's own subsequent internal assessment that we would save $689 million a year by simply moving these workloads to the remaining ALCs at Ogden, Warner-Robins, and Oklahoma City. Has the Air Force ever complied with Congressional requests for a document articulating its own cost projections for the consolidation of these workloads at the remaining ALCs? If so, would you please provide a copy of the document?''
Secretary DRUYUN. Ms. Denman, of GAO, testified 24 February 1998 to the House National Security Committee, Subcommittee on Military Readiness, that the $468 million figure was incorrect. The figure that the GAO produced in its December 1996 report was $182 million annually for the consolidation savings. The Air Force has not performed a full cost evaluation for the consolidation of these workloads at the remaining ALCs. As a part of the planned competitions we will evaluate the public and private bids so as to ensure that any potential consolidation savings, and resulting recurring and one-time costs are carefully considered.
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Net Savings
Mrs. FOWLER. ''Taking all costs, including appropriations and revolving fund expenditures, into account, has the privatization-in-place at the former Newark AGMC resulted to date in a net savings to the Air Force?''
Secretary DRUYUN. A complete cost comparability analysis has not yet been fully accomplished at Newark. However, taking all recurring costs, including appropriations and revolving fund expenditures, into account, Boeing Guidance and Repair Center's (BGRC) costs are estimated to be about 15–20 percent higher than organic costs would have been if Aerospace Guidance and Metrology Center (AGMC) had continued organic repair operations. This estimate is based on the completion of 80 percent of the BGRC workload inducted in FY97. A complete cost comparability update is expected for completion by the end of June 98 and will include 90+ percent of BGRC's FY97 workload.
Because AGMC was on the 1993 BRAC base closure list, the Air Force was required to close the base and divest the property. In FY95, the cost of moving the AGMC workload to another depot was briefed to then Secretary of the Air Force Sheila Widnall and to Senator John Glenn as a one-time cost of $309 million with a payback of more than 20 years. The Air Force, therefore, chose the less expensive option of privatizing AGMC operations.
QUESTIONS SUBMITTED BY MR. CHAMBLISS
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Commitment To Core
Mr. CHAMBLISS. ''Just 3 months ago, the Congress and the President agreed on an extensive depot policy directive. Included in that agreement was a renewed commitment to the concept of ''core'' capability for military readiness. Why, then was there no CORE determination made on a weapon system of such importance as the C–17 PRIOR to a 5 year contract award for its maintenance?''
Secretary DRUYUN. The ''core'' determination for the C–17 has not been done, because the C–17 steady state workload is still unknown, since the fleet is still increasing and maturing. Production of the 120 aircraft fleet will continue until 2005. Core determinations for existing workloads at the two closing depots were a higher priority. The Air Force intends to continue its flexible sustainment contract until making long term support decisions in 2003. During the interim (prior to 2003), a core determination will be made on the C–17 system and subsystems.
C–17 Flexible Sustainment provides a vehicle for transitioning the C–17 weapon system from production to long term sustainment support. Flexible Sustainment preserves the option to establish organic depot support, or continue contract support. Flexible Sustainment actually provides more competitive features than traditional interim contractor support (ICS) in that the contract structure consists of a series of one year options and allows for partnering with public depots for certain workloads during what traditionally had been a pure ICS phase. In lieu of long term source of repair decisions prior to system maturity, flexible sustainment allows time for the true maintenance needs of the C–17 to be fully determined and then matches those requirements against potential best value sources.
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Any C–17 work that is ultimately determined necessary to support a core capability will be performed in the public depots.
Inflexible Sustainment
Mr. CHAMBLISS. ''Here is what this Subcommittee learned yesterday from the GAO: We learned that the Flexible Sustainment contract is really INFLEXIBLE.''
We learned that is a sole source contract with absolutely NO COMPETITION.
We learned that to sole source this work to a prime contractor for 8 years is highly irregular.
We learned that the effect of the fact that technical data and support equipment are not being purchased in the public depots in preparation for a 2003 ''option'' will leave the public depots WHOLLY UNABLE TO COMPETE.
Do either of you have any comments about what we have learned?
Secretary DRUYUN. Yes. The C–17 Flexible Sustainment contract provides flexibility to the Air Force by first providing current sustainment capability, and it preserves the option at a later date to either establish organic depot support, or continue contract support. It is important to note that the Flexible Sustainment contract is actually a one year contract with a series of near term, priced, one-year options and future unpriced yearly options. Although our analysis shows the best value will be obtained by continuing with flexible sustainment until a 2003 decision point, the Air Force preserved flexibility with the yearly options.
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To foster competition for future requirements, the C–17 strategy preserves both the organic alternative and the ability to compete the follow-on requirements after a depot assessment and final decision are complete. Specifically, the strategy includes (1) obtaining all data rights suitable for a re-procurement package, and (2) acquiring technical data and most support equipment as government furnished. The strategy also requires Boeing to conduct competitive source selection at the subcontractor level for engine maintenance. Competition will take place as the prime contractor seeks the most cost-effective combination of public and private sources of repair.
With regards to support equipment, the Air Force owns the majority of the airframe maintenance equipment, with the remainder being leased by the contractor. When the 2003 decision point is reached, the Air Force equipment is easily relocatable and anyone (depot or another contractor) can lease the remaining equipment necessary. The Air Force has included a priced option to buy a reprocurement technical data package within the Flexible Sustainment contract. The work statement requires the contractor to maintain/update a complete reprocurement technical data package.
The C–17 support strategy is flexible and will allow for future competition, while providing near term sustainment with the best value to the Air Force.
Cost Justification
Mr. CHAMBLISS. ''Nonetheless, I have suffered through hearing after hearing listening to the Air Force claim its goal of saving money through privatization to fund modernization. I have asked detailed questions of the Air Force on this issue and have received written response, which I would like to address here. When I asked about the business case justification for the type of contract, I was told that a Depot Support Strategy Study [DSSS] was conducted and that its results offered ''no clear advantage of pure government versus pure contractor support.'' I realize that the DSSS did recommend a ''mix'' as most efficient, but the justification was based on the yet-unresolved depot policy debate. Well, the debate is over, and why wasn't the result of that debate made a central element of the C–17's support strategy? And secondly, why was there no Cost Analysis Improvement Group (CAIG) review performed to justify the Flexible Sustainment contract?''
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How old is the data used in the DSSS? [It is 3 years old and outdated.]
Secretary DRUYUN. The Air Force transition to a three depot organic infrastructure has been and remains a central element of the C–17's support strategy. However, second tier decisions concerning workload allocation and other issues will continue to be made between now and the final C–17 buy year of FY03. These decisions could heavily influence the cost effectiveness of the alternatives for long term support posture.
Moreover, the justification for the C–17's support strategy is grounded in much more than policy issues. The C–17 program has a unique opportunity to take maximum advantage of the synergies available from an open production line and a maturing fleet of operational aircraft. Flexible Sustainment will provide cost effective support of operational mission requirements, permit the use and evaluation of best commercial practices, encourage insertion of emerging technologies as they become mature, and ultimately provide the Air Force with system level performance guarantees for those parameters most important to the warfighter. This concept allows the program to support the fleet while transitioning from production to long term sustainment support, and at the same time gather data on a fleet of nearly 100 mature aircraft, to make the right long term decisions at the right time.
A CAIG review was not required prior to award of the Flexible Sustainment contract, because the program was not at a milestone decision point, where formal CAIG involvement is mandatory. Nonetheless, the Air Force did seek the CAIG's input to get an independent look at the DSS analysis methodology, and the Air Force incorporated numerous CAIG inputs provided at several reviews leading up to publication of the DSS report. The CAIG also formally reviewed key aspects of the study methodology and declared them sound. Likewise, the Air Force Cost Analysis Agency performed a sufficiency review to assess the Flexible Sustainment cost estimate. The review determined the price was justified and reasonable.
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The C–17 DSS Study was conducted in FY96 and included all five Air Logistics Centers. The data used was updated in 1996; the analysis was completed in November 1996.
Centers Of Excellence
Mr. CHAMBLISS. ''It is my understanding that the Air Force is pursuing a plan whereby all new program management, which is currently performed at depots, will be moved to Product Centers. What do either of you know of this plan?''
Secretary DRUYUN. The Air Force is considering a Centers of Excellence (COE) concept as an alignment of functions within the Air Force Materiel Command to arrange complementary business units within product sectors. We are continuing to review the COE concept. We have asked for additional study over the course of FY98 in order to understand its projected benefits and costs. A decision to implement this concept is not expected before calendar year 1999, and we would be pleased to discuss it further with the Congress before then.
Mr. CHAMBLISS. ''It is my understanding that the Air Force is pursuing a plan whereby all new program management, which is currently performed at depots will be moved to Product Centers. What cost analysis justifies this move?''
Secretary DRUYUN. The Air Force is considering a Centers of Excellence (COE) concept as alignment of functions within the Air Force Materiel Command to arrange complementary business units within product sectors. We are continuing to review the COE concept. We have asked for additional study over the course of FY98 in order to understand its projected benefits and costs. A decision to implement this concept is not expected before calendar year 1999, and we would be pleased to discuss its further with the Congress before then.
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QUESTIONS SUBMITTED BY MR. HANSEN
Mr. HANSEN. Does Air Force Materiel Command have any employment goals for number of positions to be retained at the closing McClellan and Kelly Air Logistics Centers? If so, what are they?
Mr. BABBITT. The President's stated employment goals for Kelly and McClellan were to maintain employment levels at 16,000 for Kelly and 8,700 for McClellan until FY01. These are goals and not legal restrictions. In accordance with BRAC, the Air Force is committed to working with the communities to minimize the adverse impact of the closure, while ensuring that Air Force readiness needs are met at best value to the government.
Mr. HANSEN. Who directed AFMC to establish or maintain these employment levels and on what authority? Has AFMC ever conducted any economic analysis to determine whether maintaining these employment levels is in the best interest of the Air Force, whether it costs more than consolidation, or its impact on readiness? If so, please provide these studies.
Mr. BABBITT. The President publicly articulated these employment goals for Kelly and McClellan. AFMC has not conducted an economic analysis on the potential effects of employment goals. Economic considerations are not the sole determining factor for deciding optimal timing for workload transitions.
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Mr. HANSEN. If employment goals have been established, what is the justification for such goals? Does AFMC or the Air Force have any employment goals for other closing bases? If so, what are they?
Mr. BABBITT. We are not aware of any justification for the administrations employment goals. AFMC does not have any employment goals for other closing bases.
Mr. HANSEN. Does AFMC have any employment goals for other AFMC bases? If so, what are they and what are they based on?
Mr. BABBITT. AFMC does not have any employment goals for other AFMC bases.
Next Hearing Segment(3)