Defense Depot Maintenance

The Defense Department (DOD) expects to realize large savings by contracting out many of its support functions to the private sector. As part of this effort, the military plans to contract out more of its $13 billion annual requirement for depot-level repair and maintenance of weapon systems and equipment. DOD also plans to streamline its contract management and oversight activities and rely more on competitive market forces to ensure product quality and reasonable prices. This report examines how DOD manages contracting for depot maintenance to determine the characteristics of that contracting and the implications of those characteristics for future depot maintenance contract management processes and procedures.

GAO noted that: (1) DOD is attempting to rely more on competitive market forces to assure quality products at fair prices; (2) consistent with recent declines in the defense budget, resources for administering and auditing contracts have been cut significantly, with DOD reducing its total acquisition workforce at all levels; (3) from fiscal year (FY) 1993 to July 1997, the Defense Contract Audit Agency (DCAA) and the Defense Contract Management Command (DCMC) reduced their personnel levels by more than 18 and 24 percent, respectively, and further reductions are planned; (4) in making these reductions, both organizations are reengineering their processes; (5) they are attempting to rely more on competitive market forces and contractor internal processes and controls to assure quality products at fair prices, but it is uncertain whether these processes and conditions will function as expected; (6) at present, depot maintenance contracting represents a challenge to relying on commercial market forces; (7) about 91 percent of the depot maintenance contracts GAO reviewed were awarded noncompetitively, mostly to original equipment manufacturers that own the data rights; (8) other factors, including difficulties in precisely defining requirements, also impact efforts to rely on competitive market forces; (9) as DOD continues transitioning from its traditional contract management and oversight structure, it will need to increase the use of competitively awarded depot maintenance contracts; (10) to the extent that competition for some maintenance workloads is not possible or practicable, DOD will need to address how best to assure product quality and reasonable prices when competitive market forces are not present; (11) DOD has developed a logistics strategic plan that lays out specific objectives and strategies for improving DOD's logistics activities; (12) however, the plan does not address the depot maintenance issues raised in this report; (13) GAO has previously recommended that the Secretary of Defense require the development of a detailed implementation plan for improving the efficiency and effectiveness of DOD's logistics activities to include depot maintenance; and (14) the challenges that DOD faces in successfully relying on competitive market forces for depot maintenance require management attention and actions to address the unique characteristics of DOD's depot maintenance activities and assure that expected savings can be achieved.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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