Contract Management

Some commercial airlines have benefited from the use of outside firms to identify failed engine parts and recover the cost of correcting such parts from manufacturers. Officials from United Parcel Service, United Airlines, and America West told GAO that their engine warranty recoveries increased over internally identified recoveries when they supplemented internal efforts with an outside firm. In one case, warranty recoveries rose threefold over recoveries identified internally. So far, the Defense Department (DOD) has done a limited review of the feasibility of establishing a pilot program to use commercial sources to improve the collection of the military's claims under aircraft engine warranties. However, it has not established one. Experience from the private sector suggests that contracting for engine warranty administration can improve warranty recoveries over internal efforts. This includes collecting claims on past engine repairs even though the warranties are no longer active. However, it is unknown whether the results achieved by some commercial airlines can be replicated by DOD because a pilot program has yet to be implemented.

GAO noted that: (1) some commercial airlines have benefited from the use of outside firms to identify failed engine parts and recover the cost of correcting such parts from manufacturers; (2) officials from the United Parcel Service, United Airlines, and America West told GAO that their engine warranty recoveries increased over internally identified recoveries when they supplemented internal efforts with an outside firm; (3) in one case, warranty recoveries increased threefold over recoveries identified internally; (4) to date, DOD has performed a limited review of the feasibility of establishing a pilot program, but has not established one; (5) the Army and the Navy made a limited assessment of a potential pilot program and concluded that it would likely not be useful to them; (6) they believe any additional claims that may be identified and amounts recovered would not be worth the anticipated cost to execute a pilot program; (7) the Air Force sought industry's interest in a pilot program by synopsizing the program's requirements in the Commerce Business Daily in November 1998; (8) however, the Air Force did not issue a request for proposals, in large part because of concerns that the program could not be executed in the 10 months remaining before authority to conduct a pilot program was set to expire on September 30, 1999; (9) concerns that contractors would not be paid after that date was also a factor; (10) experience from the private sector suggests that contracting for engine warranty administration can improve warranty recoveries over internal efforts; (11) this includes collecting claims on past engine repairs even though the warranties are no longer active; (12) however, it is unknown whether the results achieved by some commercial airlines can be replicated in DOD since a pilot program has not been implemented; (13) Congress recently extended the authority for a pilot program until September 30, 2000; (14) however, the additional time may still not be sufficient; and (15) this report suggests that Congress consider expanding the pilot program to test whether DOD could benefit from using commercial sources to increase recoveries on aircraft warranties.

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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