Defense Depot Maintenance

The V-22 aircraft, known as the Osprey, is a new vertical take-off and landing plane being fielded primarily for use by the Marine Corps. The Navy recently designated the V-22 aircraft's T406 engine as a commercial item for purposes of logistics support and contracted with Allison Engine Company, the engine manufacturer, for a support arrangement known as "power by the hour." Members of Congress have raised concerns about the methodology that the Navy used in deciding to have the engine maintained by the contractor. This report discusses (1) the criteria used in determining that the T406 engine is a commercial item for the purposes of an exemption from the establishment of in-house maintenance capabilities for new systems identified by the Secretary of Defense under 10 U.S.C. 2464, (2) the rationale and support for the decision to designate the T406 as a commercial item, and (3) the extent to which the cost-effectiveness of the decision was evaluated.

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

Recommendations

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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