Depot Maintenance
Air Force Is Assessing Engine Maintenance Options for Work Currently Performed at Kelly Aviation Center Gao ID: GAO-11-274R February 11, 2011This report responds to questions that Congress raised about Air Force engine maintenance and repair work currently performed at Kelly Aviation Center (KAC) and the potential transfer of that work to another location. In 1999, Oklahoma City Air Logistics Center (OC-ALC) awarded a contract to KAC to perform work, including depot-level maintenance, repair, and overhaul on TF39 engines, which are typically used for C-5 Galaxy aircraft; T56 engines, which are typically used for C-130 aircraft; and fuel accessories on these engines. The Air Force estimates the total expenditure under the contract for this work to be $3.7 billion from February 16, 1999, through December 1, 2010. The contract is not to exceed 15 years (the contract had an initial 7-year ordering period that could be extended to 15 years or reduced to 5 years based on performance), and will expire not later than February 15, 2014. The Air Force will need to determine how to conduct the engine maintenance work after the term of the contract ends. Congress requested that we review the potential transfer of the engine maintenance and repair workload from KAC. Our objectives were to determine (1) the extent to which the Air Force has identified the costs and benefits of possibly moving engine maintenance for selected aircraft from KAC and (2) the steps the Air Force has taken and plans to take to mitigate any potential aircraft readiness risks that might occur if the work is moved.
We found that the Air Force is assessing various options (DOD depot only, contractor only, or a combination of the two) for performing the engine repair after the term of the existing contract ends, and is conducting separate cost-benefit analyses for the TF39 and T56 engine maintenance work. Under Air Force guidance for depot-level source-of-repair selection, cost is to be considered, although a formal costing effort is not always necessary. The Air Force has decided to conduct a business case analysis to determine how to best accomplish the long-term, depot-level maintenance for these engines. Air Force officials estimate that the source-of-repair decision will be made by January 2012, but if this decision designates some or all of the work to be competitively sourced, the final decision on the source of repair could be later because of steps in the competitive bidding process. These steps typically include soliciting proposals for the work, receiving and evaluating proposals from potential providers of the work, and awarding the contract. Regarding any potential readiness risks that may result from transferring the engine work, we found that the Air Force recognizes the importance of risk mitigation planning. However, the Air Force has not developed specific risk mitigation plans for the TF39 or T56 engines because it is still assessing how the work will be performed after the term of the contract ends. DOD guidance identifies risk assessment as a factor to be considered when assigning maintenance work, and Air Force guidance requires that a business case analysis include sensitivity and risk analyses. If a decision were made to transfer the work, Air Force officials said that the service could apply risk mitigation strategies similar to those it has successfully used in the past. These strategies have included increasing its shelf stock of component parts and identifying in advance other depot and commercial facilities capable of performing specific workloads. We are not making any recommendations in this report.
GAO-11-274R, Depot Maintenance: Air Force Is Assessing Engine Maintenance Options for Work Currently Performed at Kelly Aviation Center
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GAO-11-274R:
United States Government Accountability Office:
Washington, DC 20548:
February 11, 2011:
The Honorable Kay Bailey Hutchison:
United States Senate:
Subject: Depot Maintenance: Air Force Is Assessing Engine Maintenance
Options for Work Currently Performed at Kelly Aviation Center:
Dear Senator Hutchison:
This report responds to questions that you raised about Air Force
engine maintenance and repair work currently performed at Kelly
Aviation Center (KAC) and the potential transfer of that work to
another location. In 1999, Oklahoma City Air Logistics Center (OC-ALC)
awarded a contract to KAC to perform work, including depot-level
maintenance, repair, and overhaul on TF39 engines, which are typically
used for C-5 Galaxy aircraft; T56 engines, which are typically used
for C-130 aircraft; and fuel accessories on these engines. The Air
Force estimates the total expenditure under the contract for this work
to be $3.7 billion from February 16, 1999, through December 1, 2010.
The contract is not to exceed 15 years (the contract had an initial 7-
year ordering period that could be extended to 15 years or reduced to
5 years based on performance), and will expire not later than February
15, 2014. The Air Force will need to determine how to conduct the
engine maintenance work after the term of the contract ends.
You requested that we review the potential transfer of the engine
maintenance and repair workload from KAC. Our objectives were to
determine (1) the extent to which the Air Force has identified the
costs and benefits of possibly moving engine maintenance for selected
aircraft from KAC and (2) the steps the Air Force has taken and plans
to take to mitigate any potential aircraft readiness risks that might
occur if the work is moved.
To conduct this work, we reviewed related laws, policies, and other
guidance for selecting maintenance depot sources of repair, conducting
cost-benefit analyses, and mitigating risk. We also reviewed documents
(including the current KAC contract, workload-related information, and
other memorandums) and identified the factors (including depot
workload, maintenance facility capacity, costs, and benefits) to be
considered and the processes to be used in determining best value to
the government in selecting the depot-level source of repair. We
compared depot-level source-of-repair and cost-benefit analysis
criteria to the Air Force's procedures and plans for determining the
source of repair. In addition, we reviewed the documents and
information on four examples where the Air Force has experience
mitigating risk when depot-level maintenance work has been transferred
from or performed at a single site. We compared risk mitigation
analysis criteria to the Air Force's efforts to assess risk associated
with the possible options resulting from the business case analyses.
For both objectives, we discussed issues with officials from the
Department of Defense (DOD), Air Force Headquarters, the Air Force
Materiel Command, OC-ALC, the Defense Contract Management Agency, and
KAC.
We conducted this performance audit from May 2010 through February
2011 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
In summary, we found that the Air Force is assessing various options
(DOD depot only, contractor only, or a combination of the two) for
performing the engine repair after the term of the existing contract
ends, and is conducting separate cost-benefit analyses for the TF39
and T56 engine maintenance work. Under Air Force guidance for depot-
level source-of-repair selection, cost is to be considered, although a
formal costing effort is not always necessary. The Air Force has
decided to conduct a business case analysis to determine how to best
accomplish the long-term, depot-level maintenance for these engines.
Air Force officials estimate that the source-of-repair decision will
be made by January 2012, but if this decision designates some or all
of the work to be competitively sourced, the final decision on the
source of repair could be later because of steps in the competitive
bidding process. These steps typically include soliciting proposals
for the work, receiving and evaluating proposals from potential
providers of the work, and awarding the contract.
Regarding any potential readiness risks that may result from
transferring the engine work, we found that the Air Force recognizes
the importance of risk mitigation planning. However, the Air Force has
not developed specific risk mitigation plans for the TF39 or T56
engines because it is still assessing how the work will be performed
after the term of the contract ends. DOD guidance identifies risk
assessment as a factor to be considered when assigning maintenance
work, and Air Force guidance requires that a business case analysis
include sensitivity and risk analyses. If a decision were made to
transfer the work, Air Force officials said that the service could
apply risk mitigation strategies similar to those it has successfully
used in the past. These strategies have included increasing its shelf
stock of component parts and identifying in advance other depot and
commercial facilities capable of performing specific workloads.
We are not making any recommendations in this report.
Enclosure I contains briefing slides that provide additional details
regarding our findings. After reviewing a draft of this report, DOD
officials said that the department had not comments.
We are sending copies of this report to the appropriate congressional
committees; the Secretary of Defense; the Deputy Secretary of Defense;
the Under Secretary of Defense (Acquisition, Technology and
Logistics); and the Secretary of the Air Force. The report also is
available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
Should you or your staff have questions concerning this report, please
contact me at (202) 512-8246 or edwardsj@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributors to this report were
Carleen Bennett, Assistant Director; Lee Cooper; Jennifer Madison;
Charles Perdue; and Michael Willems.
Sincerely yours,
Signed by:
Jack E. Edwards:
Director, Defense Capabilities and Management:
Enclosure - 1:
[End of section]
Enclosure I:
Depot Maintenance: Air Force Is Assessing Engine Maintenance Options
for Work Currently Performed at Kelly Aviation Center:
Briefing for the Honorable Kay Bailey Hutchison:
United States Senate:
February 11, 2011:
Contents:
Introduction;
Objectives;
Scope and Methodology;
Summary of Findings;
Objective 1: Cost-Benefit Analyses;
Objective 2: Analyses on Risks to Readiness;
Agency Comments.
Introduction:
As a result of a 1995 Base Realignment and Closure decision, the San
Antonio Air Logistics Center on Kelly Air Force Base, Texas, including
the maintenance depot, was closed in 2001.
* To mitigate the impact of the closing of an Air Force depot on the
local communities and employees, the administration announced its
intention to maintain employment levels by privatizing the maintenance
depot's workload in place.
* Much of the work that had been performed by the San Antonio Air
Logistics Center was to be performed by a private contractor at the
same location.
The Oklahoma City Air Logistics Center (OC-ALC) entered into a public-
private partnership[Footnote 1] with Lockheed Martin at Kelly Aviation
Center (KAC), formerly San Antonio Air Logistics Center, to conduct
work previously performed by a Department of Defense (DOD) maintenance
depot.
In 1999, OC-ALC awarded a contract under a previously established
public-private partnership with KAC to perform work, including depot
maintenance, repair, and overhaul on:
* TF39 engines, which are typically used in the C-5 Galaxy (models A
to C) aircraft;
* T56 engines, which are typically used in the C-130 (models E and H)
aircraft; and;
* fuel accessories on these engines.
The Air Force estimates the total expenditure under the contract for
this work to be $3.7 billion from February 16, 1999, through December
1, 2010.
The contract is not to exceed 15 years (the contract had an initial 7-
year ordering period that could be extended to 15 years or reduced to
5 years based on performance), and will expire not later than February
15, 2014.
The Air Force will need to determine how to conduct the engine
maintenance work after the term of the contract ends.
The former Ranking Member of the Subcommittee on Military
Construction, Veterans Affairs, and Related Agencies, Senate Committee
on Appropriations, requested that we analyze the potential transfer of
engine maintenance and repair workload from KAC.
Our objectives were to determine the following:
(1) The extent to which the Air Force has identified the costs and
benefits of possibly moving engine maintenance for selected aircraft
from KAC.
(2) The steps the Air Force has taken and plans to take to mitigate
any potential aircraft readiness risks that might occur if the work is
moved.
Scope and Methodology:
For both objectives, we:
* Reviewed related laws, policies, and other guidance available for
selecting maintenance depot sources of repair, conducting cost-benefit
analyses, and mitigating risk.
* Discussed issues with officials from DOD, Air Force Headquarters,
the Air Force Materiel Command, OC-ALC, the Defense Contract
Management Agency, and KAC.
For objective 1, we:
* Reviewed documents (including the current KAC contract, workload-
related information, and other memorandums).
* Identified the factors (including depot workload, maintenance
facility capacity, costs, and benefits) to be considered and the
processes to be used in determining best value to the government in
selecting depot-level source of repair.
* Compared depot-level source-of-repair and cost-benefit analysis
criteria to the Air Force's procedures and plans for determining the
source of repair.
For objective 2, we:
* Reviewed the previously cited documents and information on four
examples where the Air Force has experience mitigating risk when depot-
level maintenance work has been transferred from or performed at a
single site.
* Compared risk mitigation analysis criteria to the Air Force's
efforts to assess risk associated with the possible options resulting
from the business case analyses.
We conducted this performance audit from May 2010 through February
2011 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Summary of Findings:
Objective 1: The Air Force is assessing various options (DOD depot
only, contractor only, or a combination of the two) for performing the
engine repair after the term of the existing contract ends, and is
conducting separate cost-benefit analyses for the TF39 and T56 engine
maintenance work. Under Air Force guidance for depot-level source-of-
repair selection, cost is to be considered, although a formal costing
effort is not always necessary. The Air Force has decided to conduct a
business case analysis to determine how to best accomplish the long-
term, depot-level maintenance for these engines. Air Force officials
estimate that the source-of-repair decision will be made by January
2012, but if this decision designates some or all of the work to be
competitively sourced, the final decision on the source of repair
could be later because of steps in the competitive bidding process.
These steps typically include soliciting proposals for the work,
receiving and evaluating proposals from potential providers of the
work, and awarding the contract.
Objective 2: The Air Force recognizes the importance of risk
mitigation planning, but has not developed specific risk mitigation
plans for the TF39 or T56 engines because it is still assessing how
the work will be performed after the term of the contract ends. DOD
guidance identifies risk assessment as a factor to be considered when
assigning maintenance work, and Air Force guidance requires that a
business case analysis include sensitivity and risk analyses. Air
Force officials said that if a decision were made to transfer the
work, the Air Force could apply risk mitigation strategies similar to
those it has successfully used in the past. These strategies have
included-increasing shelf stock of component parts and identifying in
advance other depot and commercial facilities capable of performing
specific workloads.
Objective 1: Cost-Benefit Analyses:
The Air Force Is Assessing Depot-Level Source-of-Repair Options for
the TF39 and T56 Engines:
With up to 4 years left in the current contract, the Air Force began
the current process to select the depot-level source of repair. The
process includes steps to identify and assess options for conducting
depot maintenance on the TF39 and T56 engines once the current
contract has been completed.
DOD Instruction 4151.20 prescribes procedures to identify required
core capabilities for depot maintenance and the associated workloads
needed to sustain those capabilities.
* Core refers to a depot maintenance capability that is government
owned and operated (including government personnel and government-
owned and government-operated equipment and facilities maintained by
DOD) to ensure a ready and controlled source of technical competence
and resources necessary for effective and timely response to a
mobilization, national defense contingencies, or other emergency
requirements.[Footnote 2]
* Non-core workload is workload that is not needed to support core
capability requirements and therefore can be performed by either the
public or private sector.
The Air Force took the following actions during the 2009-2010 time
frame:
* Designated TF39 and T56 engine maintenance as non-core work and
tasked OC-ALC to complete a cost-benefit analysis to determine the
best source to perform the maintenance when the term of the existing
contract ends not later than February 2014.
* Determined that the repair work could be done at a DOD depot, by a
contractor, or by a combination of the two.
* Began gathering data on costs, workloads, benefits, and other source-
of-repair information for TF39 and T56 engine maintenance.
Air Force's Guidance for Depot-Level Source-of-Repair Selection Requires
Analyses for Determining Best Value to the Government:
Air Force criteria allow commands flexibility in conducting analyses
for determining the best value for the government.
* Under Air Force guidance[Footnote 3] for depot-level source-of-
repair selection, cost is to be considered, although a formal costing
effort is not always necessary. The program manager is to determine
the scope and methodology.
* Other Air Force guidance[Footnote 4] describes the procedures for
conducting a business case analysis, including that the analysis:
- is a decision support document that identifies alternatives and
presents business, economic, risk, and technical arguments for
selection and implementation of a given alternative to achieve stated
objectives;
- includes a problem statement, cost-benefit analysis, and sensitivity
and risk analyses, among other items, to make a recommendation for
maintenance to be performed by a DOD depot, a contractor, or some
combination of the two (the cost-benefit analysis assigns quantitative
values to each alternative); and;
- has an ultimate objective of providing an analysis that effectively
supports a timely decision-making process.
In a December 2009 memo, OC-ALC informed the Air Force Materiel
Command that because of the sensitivities of these maintenance
efforts, it would conduct a business case analysis to determine how to
best accomplish the long-term, depot-level maintenance for these
engines.
Accountability * Integrity t Reliability
The Air Force Estimate for a Source-of-Repair Decision for the TF39
and T56 Engines Is January 2012 or Later:
Once the Air Force's analyses are complete, the results will be
forwarded to an interservice board for a final decision on the source
of work (depot, contractor, or a combination).
* The Air Force estimates that it will provide a recommendation to the
board by mid-2011.
* The Air Force said the board could announce its source-of-repair
decision for the TF39 and T56 engines by January 2012.
If the board determines that the maintenance efforts are to be
satisfied using competitive sourcing, a decision on the specific
provider of work for each engine could be later because of steps in
the competitive bidding process. These steps typically include
soliciting proposals for the work, receiving and evaluating proposals
from potential providers of the work, and awarding the contract.
Objective 2: Analyses on Risks to Readiness:
Air Force Has Not Assessed Readiness Risks Because Its Cost-Benefit
Analyses Are Ongoing:
The Air Force recognizes the importance of risk mitigation planning,
but it has not developed specific risk mitigation plans for the TF39
or T56 engines because it has not determined how the workload will be
performed after the term of the contract ends. The Air Force may
follow risk analysis practices that it has successfully used in the
past.
* An Air Force Headquarters official told us that the 1995 Base
Realignment and Closure decisions resulted in accepting the risk of
conducting depot maintenance at single locations for engine and
aircraft workloads at KAC, OC-ALC, and other contractor and government
locations.
* DOD guidance[Footnote 5] requires that source-of-repair assignments
for depot-level maintenance workloads shall consider requirements for
maintenance of identical or similar DOD materiel and combine or
consolidate similar requirements for maintenance work whenever
feasible, which Air Force officials said supports single-site engine
maintenance work. This guidance also requires that the services apply
a risk mitigation analysis when choosing a source of repair for non-
core depot-level maintenance workloads.
* The Air Force has requirements to apply risk analysis. Air Force
Manual 65-510[Footnote 6] requires that a business case analysis
include sensitivity and risk analyses and notes that it is important
to:
- identify and analyze risks to determine which risks present the
greatest threat to the initiative's successful outcome and:
-- assess, for each risk,
-- the likelihood of that risk occurring,
-- the potential impact on the project, and,
-- an approach to overcome or lessen the negative consequences should
the risk occur.
The Air Force Has Experience Managing Risk:
The Air Force has experience managing risk when a weapon system's
maintenance is conducted at a single site. For example, the Air Force
has the current work for the TF39 and T56 engines at a single
location--KAC.
The Air Force also has used other options to mitigate depot-level
maintenance risk when transitioning work from one source of repair to
another. For example, Air Force officials:
* provided information on an interim maintenance contract to prevent a
gap in mission support until a final source-of-repair decision is made
for the provider of work and until the new provider builds operational
capability and;
* said that in the past the service has increased production of
certain component parts to ensure that sufficient quantities are
available on inventory shelves, which can help the Air Force to
maintain its aircraft readiness rate goals.
An Air Force Headquarters official said the service also maintains
knowledge of depot and commercial sites capable of performing
workloads in case a maintenance facility were to be rendered
inoperable.
Agency Comments:
We provided a draft of this report to DOD for its review and comment.
Department officials indicated that they had no comments.
[End of section]
Footnotes:
[1] DOD Instruction 4151.21, Public-Private Partnerships for Depot-
Level Maintenance (Apr. 25, 2007), defines public-private partnerships
tor depot-level maintenance as cooperative arrangements between the
Department of Defense (DOD) and one or more private-sector entities to
perform DOD or defense-related work, utilize DOD depot facilities and
equipment, or both.
[2] DOD Instruction 4151.20, Depot Maintenance Core Capabilities
Determination Process (Jan. 5, 2007).
[3] Air Force Instruction 63-101, Acquisition: Acquisition and
Sustainment Life Cycle Management (Apr. 17, 2009, Incorporating
Through Change 3, Oct. 26, 2010).
[4] Air Force Manual 65-510, Financial Management: Business Case
Analysis Procedures, September 22, 2008, identifies a business case
analysis as considerably broader in scope than a cost-benefit analysis.
[5] DOD Directive 4151.18, Maintenance of Military Materiel (Mar. 31,
2004).
[6] Air Force Manual 65-510, Financial Management: Business Case
Analysis Procedures.
[End of section]
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