This is the accessible text file for GAO report number GAO-12-558 
entitled 'Defense Acquisitions: Further Action Needed to Improve DOD's 
Insight and Management of Long-term Maintenance Contracts' which was 
released on June 1, 2012. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as 
part of a longer term project to improve GAO products' accessibility. 
Every attempt has been made to maintain the structural and data 
integrity of the original printed product. Accessibility features, 
such as text descriptions of tables, consecutively numbered footnotes 
placed at the end of the file, and the text of agency comment letters, 
are provided but may not exactly duplicate the presentation or format 
of the printed version. The portable document format (PDF) file is an 
exact electronic replica of the printed version. We welcome your 
feedback. Please E-mail your comments regarding the contents or 
accessibility features of this document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

United States Government Accountability Office:
GAO: 

Report to the Subcommittee on Readiness, Committee on Armed Services, 
House of Representatives: 

May 2012: 

Defense Acquisitions: 

Further Action Needed to Improve DOD's Insight and Management of Long-
term Maintenance Contracts: 

GAO-12-558: 

GAO Highlights: 

Highlights of GAO-12-558, a report to Subcommittee on Readiness, 
Committee on Armed Services, House of Representatives. 

Why GAO Did This Study: 

DOD spends billions annually to maintain its weapon systems and, at 
times, uses long-term maintenance contracts with a potential period of 
performance of 5 years or more. These contracts can encourage 
contractors to invest in new facilities, equipment, and processes, but 
may hinder DOD’s ability to incentivize contractors’ performance and 
control costs, especially in the absence of a competitive environment 
or if DOD does not acquire access to technical data that can enable 
DOD to select an alternative maintenance provider. 

GAO was asked to evaluate (1) the extent to which DOD uses long-term 
maintenance contracts, (2) DOD’s ability to select alternative 
maintenance providers, and (3) how these contracts have been 
structured to incentivize performance and manage cost. GAO reviewed a 
nongeneralizable sample of 10 long-term contracts to illustrate 
different maintenance approaches. GAO interviewed program officials 
and reviewed contract documentation. GAO also reviewed information on 
eight programs recently reviewed by DOD to determine how these 
programs addressed technical data needs. 

What GAO Found: 

At the departmental level, neither the Department of Defense (DOD) nor 
the individual military departments know the extent to which weapon 
system programs rely on long-term maintenance contracts. DOD policy 
requires DOD and the military departments to approve acquisition 
strategies and lifecycle sustainment plans, which include information 
on contractor support, but DOD officials reported that they do not 
collect information on the use of long-term contracts. DOD’s limited 
visibility over long-term maintenance contracts reflects broader DOD 
challenges with managing services acquisition. GAO’s past work has 
identified the need for DOD to obtain better data on its contracted 
services to enable it to make more strategic decisions. DOD is 
considering a number of policy- and data-related initiatives that 
could improve its knowledge of these contracts, but these efforts are 
in the early stages of development. 

Decisions made early in the acquisition process can limit DOD’s 
ability to select alternative maintenance providers over the life 
cycle of a weapon system program. Program officials believed that DOD 
had the ability to select alternative service providers for half of 
the contracts GAO reviewed, as DOD either had sufficient technical 
data or there was an existing competitive environment. DOD officials 
believed the lack of technical data, funding, or expertise would 
hinder them from selecting alternative service providers on the other 
contracts GAO reviewed. Recent legislation and DOD’s 2010 efficiency 
initiatives emphasize the importance of technical data considerations. 
GAO found that eight weapon systems that underwent DOD acquisition-
related reviews between October 2010 and October 2011 considered 
technical data issues, but not all have determined the extent to which 
they will acquire these data or the cost to do so. 

Once the decision is made to use long-term contracts, DOD faces 
choices on how to best incentivize contractor performance and manage 
costs. GAO found that the 10 long-term maintenance contracts reviewed 
varied in terms of the incentives employed and tools used to gain 
insight into contractor costs. For example, GAO found that all 5 
contracts with the longest durations, potentially ranging from 9 to 22 
years, used monetary incentives such as award or incentive fees, or 
contract term incentives that can extend the life of the contract by 
several years. However, DOD and program officials expressed some 
concerns about the lack of insight on contractors’ costs. In two 
cases, program offices established fixed prices for the entire 
potential length of the 9- and 15-year contracts without the ability 
to renegotiate prices or obtain incurred cost data. In comparison to 
the contracts with the longest durations, the five contracts GAO 
reviewed with maximum lengths of 5 years made less use of incentives 
or cost-control tools and generally did not have the ability to 
renegotiate contract prices, but program officials believed that the 
shorter-term nature of the contracts mitigated some of their risks. 
DOD does not collect information concerning the effectiveness of the 
various incentives or cost control tools used on long-term maintenance 
contracts, but it has identified efforts made by individual programs 
to improve acquisition of maintenance services. Developing lessons 
learned on what incentives and cost-control tools work best would help 
inform future acquisition strategies and reduce risk. 

What GAO Recommends: 

GAO recommends that DOD collect information on the extent to which DOD 
uses long-term maintenance contracts and develop lessons learned 
regarding the use of incentives and cost-control tools. DOD concurred 
with each of the recommendations and indicated that it would develop 
methodologies to implement them. 

View [hyperlink, http://www.gao.gov/products/GAO-12-558]. For more 
information, contact Belva M. Martin at (202) 512-4841 or 
martinb@gao.gov or Cary Russell at (202) 512-5431 or russellc@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

DOD Does Not Know the Extent to Which It Relies on Long-term 
Maintenance Contracts: 

Early Acquisition Decisions Limit DOD's Ability to Select Alternative 
Maintenance Providers: 

Programs Use Different Approaches to Incentivize Performance and 
Obtain Insights into Contractor Costs: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Selected Characteristics of Long-term Maintenance Contracts 
Reviewed by GAO: 

Table 2: Impact of Technical Data Access on Ability to Change 
Maintenance Service Providers for the Contracts GAO Reviewed: 

Table 3: Weapon System Programs' Plans to Acquire Technical Data 
during Development and Production: 

Table 4: Longer-term Contracts' Use of Incentives and Tools to Control 
Costs: 

Table 5: Program Offices' Use of Incentives and Tools to Control Costs 
on Shorter Duration Maintenance Contracts GAO Reviewed: 

Abbreviations: 

USD(AT&L): Office of the Under Secretary of Defense for Acquisition, 
Technology, and Logistics: 

JSTARS: Joint Surveillance Target Attack Radar System: 

DOD: Department of Defense: 

FPDS-NG: Federal Procurement Data System-Next Generation: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

May 31, 2012: 

The Honorable J. Randy Forbes:
Chairman:
The Honorable Madeleine Z. Bordallo:
Ranking Member:
Subcommittee on Readiness:
Committee on Armed Services:
House of Representatives: 

The Department of Defense (DOD) spends billions of dollars each year 
on operating and support costs for weapon systems, including for 
maintenance, engineering support, and personnel. Such costs 
historically account for approximately 70 percent of a weapon system's 
total life-cycle cost.[Footnote 1] Among such expenses are those 
associated with depot-level repair of weapon systems, which includes 
overhaul, upgrades, and rebuilding of parts and assemblies. According 
to a recent DOD report, the department spent approximately $33 billion 
in fiscal year 2010 to maintain its weapon systems through both 
government and commercial providers. In some instances, DOD may 
determine that depot-level maintenance will be performed through a 
contractor using long-term contracts for maintenance services that can 
span more than a decade. DOD officials note that a long-term contract 
can encourage contractors to invest in new facilities, equipment, and 
processes, but may also hinder the government's ability to 
appropriately incentivize the contractor's performance and control 
costs, especially in the absence of a competitive environment or if 
the government does not acquire access to the technical data needed to 
maintain the weapon system.[Footnote 2] 

In May 2011, GAO reported that DOD continues to face challenges that 
could undermine competition of maintenance contracts, including 
shortcomings in how programs' technical data rights requirements 
necessary for competition are determined.[Footnote 3] Additionally, 
GAO has previously reported on DOD's increased reliance on contractors 
for maintenance and other logistics support for its weapon systems, 
management challenges associated with the acquisition of major weapon 
systems, and the department's lack of insight into costs associated 
with depot maintenance and other weapon support contracts.[Footnote 4] 
Consequently, given these issues and the long-term nature of certain 
maintenance contracts, you requested that we review various aspects of 
DOD's use of long-term contracts for maintaining its weapon systems. 
To address this request, we evaluated (1) the extent to which DOD uses 
long-term maintenance contracts to support major weapon system 
programs, (2) DOD's ability to select alternative maintenance services 
providers for its major weapon system programs, and (3) how long-term 
maintenance contracts have been structured to incentivize contractors' 
performance and manage contractor costs. 

For the purposes of this report, we defined long-term maintenance 
contracts as those with a potential period of performance of five 
years or more that provide depot-level maintenance services or support 
performance of maintenance functions. Further, this report focuses on 
the policies and practices that pertain to major defense acquisition 
programs.[Footnote 5] To determine the extent to which DOD uses long-
term maintenance contracts, GAO discussed with DOD and military 
department officials the data DOD collects on maintenance approaches 
and related contract information and reviewed various reports, 
including Distribution of DOD Depot Maintenance Workload, as well as 
DOD's analysis of Federal Procurement Data System-Next Generation 
(FPDS-NG) data related to maintenance services.[Footnote 6] After 
determining department-wide data concerning the use of such contracts 
was unavailable, we worked with military department officials to 
identify long-term maintenance contracts used by major weapon system 
programs. Based on these discussions, we reviewed 10 long-term 
contracts supporting seven major defense acquisition programs. We 
selected these contracts to represent each of the three military 
departments and to illustrate different maintenance approaches. 

To determine the extent to which major weapon system programs could 
select alternate maintenance services providers, we reviewed 
acquisition plans and interviewed program officials to obtain their 
insight on the factors that would hinder or facilitate the 
department's ability to do so. We also interviewed program officials 
and reviewed documents on eight major defense acquisition programs 
identified by the Office of the Under Secretary of Defense for 
Acquisition, Technology, and Logistics (USD(AT&L)) as having a major 
acquisition review between October 2010 and October 2011 to determine 
whether program officials had considered technical data rights in 
their acquisition strategies or life-cycle sustainment plans submitted 
as part of these reviews. 

To determine how long-term maintenance contracts were structured to 
incentivize performance and provide insight into costs, we reviewed 
available acquisition plans, contractual information such as pricing 
data and price negotiation memoranda, incentive plans, and performance 
data and interviewed cognizant program officials for the long-term 
contracts we reviewed. As part of this effort, we reviewed the program 
offices' use of monetary incentives such as award and incentive fees, 
performance bonuses, and downward price adjustments, as well as their 
use of contract term incentives, including award terms and incentive 
options, which can extend the contract's period of performance. 
Further, to determine the extent to which programs gained insight into 
contractor costs, we identified whether they had the ability to 
renegotiate contract prices, obtained incurred cost data, or used cost-
based incentive metrics. Appendix I provides more detailed information 
on our scope and methodology. 

We conducted this performance audit from February 2011 through May 
2012 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. 

Background: 

DOD spends billions of dollars annually to maintain complex weapon 
systems including aircraft, ships, ground-based systems, missiles, 
communications equipment, and other types of electronic equipment that 
require regular and emergency maintenance to support national security 
goals. Maintenance of this equipment is divided into three levels 
corresponding to the extent and complexity of these repairs--depot-
level, intermediate, and organizational. DOD defines depot maintenance 
as the highest level of maintenance and it generally refers to major 
maintenance and repairs, such as overhauling, upgrading, or rebuilding 
parts, assemblies, or subassemblies. This level of maintenance can 
consist of repair to entire weapon systems, major assemblies that 
comprise a system, or the components that make up those assemblies. 
Depot maintenance also includes installation of system modifications 
that extend the operational life of weapon systems. Such repairs and 
overhauls have long been provided by DOD maintenance personnel, 
private contractors, or a mixture of the two through public-private 
partnerships performed at government-owned and private facilities. 
Intermediate maintenance consists of repair capabilities possessed by 
operating units and in-theater sustainment organizations that include 
remove-and-replace operations for subcomponents, local manufacture, 
and other repair capabilities. Organizational maintenance consists of 
the tasks necessary for day-to-day operation including inspection and 
servicing. 

Several Policies Guide Decisions on Maintenance Approaches: 

The department's overarching acquisition guidance, DOD Directive 
5000.01, states that the program manager shall be the single point of 
accountability for accomplishing program objectives for total life-
cycle systems management, including sustainment. DOD Instruction 
5000.02, which provides additional DOD guidance for managing and 
overseeing defense acquisition programs, requires that program 
managers perform a core logistics analysis to support major 
acquisition milestone reviews after the technology or system 
development phase.[Footnote 7] Such logistics considerations, to 
include those related to maintenance, are contained within the life-
cycle sustainment plan that was, until recently, reviewed as part of 
the acquisition strategy for major weapon system programs. In April 
2011, DOD directed that the life-cycle sustainment plan be reviewed 
separately from the acquisition strategy and, in September 2011, 
directed that those sustainment plans associated with certain major 
weapon systems be approved by the Assistant Secretary of Defense for 
Logistics and Materiel Readiness at all milestone decision points 
during weapon system development and at the full-rate production 
decision.[Footnote 8] Further, DOD has established a new template for 
the plans' content to include the extent to which contractor services 
will support maintenance. 

DOD has issued instructions that provide guidance to the military 
departments and program offices on defining maintenance requirements 
and approaches. For example, DOD Directive 4151.18 requires that the 
source of depot-level repair for major weapon systems be determined 
during the weapon system's development.[Footnote 9] It also provides 
instruction on determining if depot-level maintenance for a weapon 
system will be performed at a government-owned and government-operated 
(hereinafter referred to as "organic") depot, by a private-sector 
contractor, or some combination of the two. Section 2466 of Title 10 
of the U.S. Code places limitations, however, on contracted depot-
level maintenance of materiel. The statute provides that not more than 
50 percent of funds made available in a fiscal year for depot-level 
maintenance and repair may be used for contracted services. This is 
known as the 50/50 requirement. DOD is also required to report 
annually on past and projected workload allocations. DOD Directive 
4151.18 requires that USD(AT&L) monitor compliance with the directive 
and review the adequacy of DOD maintenance programs and resources. 
Additionally, it requires DOD components develop tools and management 
procedures to implement the content of the directive.[Footnote 10] 

Additionally, DOD Instruction 4151.20 provides instruction for 
determining "core" maintenance requirements as defined in Section 2464 
of Title 10 of the U.S. Code.[Footnote 11] These core requirements are 
considered essential for the national defense and require that DOD 
maintain a logistics capability that is government-owned and 
government-operated to ensure DOD can effectively respond to a 
mobilization, national defense contingency situations, and other 
emergency requirements in a timely manner. To ensure that life-cycle 
sustainment planning is done early in a weapon system's development 
phase, the National Defense Authorization Act for fiscal year 2012 
revised the assessment of core maintenance requirements and directed 
DOD to identify such requirements at acquisition milestones.[Footnote 
12] 

Recent Legislative and DOD Efforts To Enhance Competition: 

In recent years, Congress and DOD have emphasized the need to maintain 
competition throughout the life cycle of weapon system programs and 
improve how the department acquires services. For example, Congress 
passed the Weapon System Acquisition Reform Act of 2009, requiring DOD 
to ensure competition or the option of competition throughout a weapon 
system program's life cycle, in part, by requiring DOD to consider 
purchase of complete technical data packages when cost-effective. 
[Footnote 13] In May 2011, however, we reported that DOD continues to 
face challenges that could undermine competition of maintenance 
contracts, including shortcomings in how programs' technical data 
rights requirements that are necessary for competition are 
determined.[Footnote 14] We recommended, and DOD agreed, that the 
department should update its acquisition and procurement policies to 
clarify requirements for documenting technical data requirements and 
to issue instructions for program managers to use when conducting 
analyses used to determine technical data rights needs for a weapon 
program.[Footnote 15] 

More recently, in September 2010, as part of DOD's efficiencies 
initiative, USD(AT&L) issued guidance intended to improve 
affordability and cost control, competition, and management of 
services acquisitions, among other areas.[Footnote 16] Among the 
specific actions called for are taking steps to improve insight into 
contract costs, increasing competition in services contracting, and 
setting rules for the acquisition of technical data rights. For 
example, DOD's September 2010 guidance noted that military departments 
and DOD components will be required to review the length of time that 
services contracts remain in effect before recompetition, noting that 
single-award services contracts should be limited to 3 years unless 
justified by the senior manager for services. It also notes that 
certain other types of services contracts, such as those for 
logistics, may not be appropriate for such limits. Subsequently, DOD 
issued guidance in November 2010 requiring program managers for all 
acquisition programs to (1) conduct a business-case analysis that 
outlines the technical data rights the government will pursue to 
ensure competition and (2) include the results of this analysis in 
acquisition strategies at a program's entrance into the engineering 
and manufacturing development phase of the acquisition.[Footnote 17] 

DOD Does Not Know the Extent to Which It Relies on Long-term 
Maintenance Contracts: 

At the departmental level, neither DOD nor the individual military 
departments know the extent to which weapon system programs rely on 
long-term maintenance contracts. This includes the most basic 
information--how many of such contracts are currently in use. DOD does 
not collect or maintain such information during its reviews of 
acquisition strategies or life-cycle sustainment plans, nor do 
existing data collection systems provide the type of information 
needed to do so. Consequently, we worked with the military departments 
to identify a number of long-term maintenance contracts and selected 
10 contracts supporting seven major weapon systems for detailed 
review. We found that these contracts varied widely in terms of 
breadth of requirements, potential period of performance, and value. 
For example, our work found that these contracts could extend up to 22 
years if the contractor meets performance criteria and earns award 
terms. These contracts also constituted a significant investment for 
the government. Program offices reported obligations of over $18.4 
billion on these 10 contracts through the end of fiscal year 2011. In 
that fiscal year alone, programs obligated nearly $1.7 billion on the 
10 contracts we reviewed. 

Lack Of Data on Long-Term Maintenance Contracts Reflect Broader DOD 
Challenges with Managing Services Acquisition: 

DOD was unable to provide us a list of ongoing long-term maintenance 
contracts. Further, DOD officials noted that existing reports and data 
collection systems do not provide the department information on the 
use of long-term maintenance contracts. For example, USD(AT&L) reports 
to Congress annually on the percentage of funds expended during the 
preceding fiscal year for public and private maintenance and repair 
activities, and project funding requirements for the current and 
ensuing fiscal year.[Footnote 18] However, USD(AT&L) is not required 
to include information on the distribution of these contracts among 
the department's weapon system programs, the total number of contracts 
used, or the length of performance of these contracts in these 
reports. Similarly, USD(AT&L) officials noted that while they have 
used FPDS-NG to perform contract spend analysis for various categories 
of services, including maintenance services, FPDS-NG does not record 
the potential period of performance for all contracts, including those 
that use incentives that may extend the life of the contract. 
Additionally, while some contract actions associated with maintenance 
are coded as such in FPDS-NG, our analysis found that other 
maintenance-related activities may be reported as management support, 
logistics support, and system engineering services. Further, we found 
that the Defense Acquisition Management Information Retrieval System, 
DOD's web-based data system that tracks programmatic information on 
major defense acquisition programs, did not contain accurate 
information on what major weapon systems were currently fielded and 
are being maintained. 

DOD's limited visibility over long-term maintenance contracts reflects 
broader DOD challenges with managing services acquisition. Over the 
past decade, our work has identified the need for DOD to obtain better 
data on its contracted services to enable it to make more strategic 
decisions. For example, in 2006, we reported that DOD's approach to 
managing services acquisition tended to be reactive and had not fully 
addressed the key factors for success at either a strategic or 
transactional level.[Footnote 19] The strategic level is where the 
enterprise sets a direction for what it needs, captures knowledge to 
make informed management decisions, ensures departmentwide goals and 
objectives are achieved, and assesses the resources it has to achieve 
desired outcomes. The strategic level sets the context for the 
transactional level, where the focus is on making sound decisions on 
individual service acquisition using valid and well-defined 
requirements, appropriate business arrangements, and adequate 
management of contractor performance. 

Our prior work has shown, however, that while DOD obtains insight into 
individual programs through various program reviews, DOD does not 
collect or maintain that information to inform strategic decisions. 
For example: 

* In response to congressional direction, DOD and the military 
departments have established procedures for reviewing, approving and 
monitoring services acquisitions, including those for maintenance. 
Further, since 2006, all proposed services acquisitions with a value 
estimated at more than $1 billion or designated as "special interest" 
are reviewed by USD(AT&L), while military department or other defense 
component officials review acquisition strategies for those below this 
threshold. Contract requirements, risks, and business arrangements are 
among the items included in reviewed acquisition strategies. Though 
these reviews take place, DOD does not collect or aggregate the 
information they produce to provide department-wide insight into the 
use of long-term maintenance contracts. 

* Additionally, to improve DOD's services acquisition process, 
USD(AT&L) implemented an independent management review, or peer 
review, process for its service contracts in 2008.[Footnote 20] 
Occurring after approval of the acquisition strategy, these peer 
reviews are conducted prior to and after award of services contracts, 
and are published to facilitate cross-sharing of best practices and 
lessons learned on various contracting issues, including the use of 
competition, contract structure and type, definition of contract 
requirements, and cost or pricing methods. Each of these reviews 
provides for the discussion of issues related to contracting strategy, 
but DOD officials noted that they do not collect or maintain 
information on what type of contracting approach was used to acquire 
all services that support DOD weapon systems. Further, while DOD 
collects and makes available lessons learned from these reviews in 
areas such as source selection and use of incentives, DOD officials 
stated that the process has not resulted in lessons learned or best 
practices specific to the use of long-term maintenance contracts. 

* Similarly, DOD policy and guidance require USD(AT&L) and military 
department senior acquisition executives approve acquisition 
strategies and life-cycle sustainment plans during program milestone 
reviews. Each of these documents is to include information on the 
proposed acquisition approach, including the use of contractor 
support. Our discussions with USD(AT&L) and representatives from the 
military department offices responsible for reviewing these plans 
found these offices do not maintain information on the extent to which 
long-term maintenance contracts are used by weapon system programs. 

Long-Term Maintenance Contracts GAO Reviewed Had Widely Varied 
Characteristics: 

In the absence of department-wide data on the use of long-term 
maintenance contracts, we selected 10 long-term maintenance contracts 
that supported seven major weapon systems. We found that these 
contracts varied widely in terms of breadth of requirements, potential 
period of performance, and value.[Footnote 21] For example, the 
contracts we reviewed included those that supported maintenance of an 
entire weapon system platform such the Air Force's Joint Surveillance 
Target Attack Radar System (JSTARS) to more specific depot-level 
maintenance support activities for system components, such as the 
Navy's T-45 engine contract. Table 1 shows selected characteristics of 
the 10 contracts we reviewed. 

Table 1: Selected Characteristics of Long-term Maintenance Contracts 
Reviewed by GAO: 

Military department/system: Air Force; C-130 transport aircraft; 
Component/platform supported by long-term contract: C-130J airframe; 
Contract type and incentives[A]: Firm-fixed price contract/award fee; 
Potential contract term: 10 years: 2-year base + 3-year option + 3-
year option + 2-year option; 
Award year: 2006; 
Obligations through September 30, 2011: $0.3 billion. 

Military department/system: Air Force; C-130 transport aircraft; 
Component/platform supported by long-term contract: C-130J engine; 
Contract type and incentives[A]: Firm-fixed price requirements 
contract/incentive fee; 
Potential contract term: 9 years:1-year base + eight 1-year options; 
Award year: 2007; 
Obligations through September 30, 2011: $0.5 billion. 

Military department/system: Air Force; C-130 transport aircraft; 
Component/platform supported by long-term contract: T56 engine; 
Contract type and incentives[A]: Fixed-price-award-term requirements 
contract with economic price adjustment/award term; 
Potential contract term: 15 years: 7-year base + 8 possible award term 
years; 
Award year: 1999; 
Obligations through September 30, 2011: $13.9 billion. 

Military department/system: Air Force; JSTARS surveillance aircraft; 
Component/platform supported by long-term contract: Platform; 
Contract type and incentives[A]: Cost-plus award fee contract/award 
term; 
Potential contract term: 22 years: 6-year base + 16 possible award 
term years; 
Award year: 2000; 
Obligations through September 30, 2011: $1.9 billion. 

Military department/system: Air Force; KC-10 tanker aircraft; 
Component/platform supported by long-term contract: Platform; 
Contract type and incentives[A]: Firm-fixed price indefinite 
delivery/indefinite quantity contract/incentive option years; 
Potential contract term: 9 years: 2-year base + 2-year option + 2 year 
option + 3 possible incentive option years; 
Award year: 2009; 
Obligations through September 30, 2011: $0.8 billion. 

Military department/system: Army; AH-64 helicopter; 
Component/platform supported by long-term contract: Airframe[B]; 
Contract type and incentives[A]: Firm-fixed price contract; 
Potential contract term: 5 years: 1-year base + four 1-year options; 
Award year: 2010; 
Obligations through September 30, 2011: $0.2 billion. 

Military department/system: Army; CH-47 helicopter; 
Component/platform supported by long-term contract: Engine; 
Contract type and incentives[A]: Firm-fixed price contract/incentive 
fee; 
Potential contract term: 5 years: 1-year base + four 1-year options; 
Award year: 2011; 
Obligations through September 30, 2011: less than $0.1 billion. 

Military department/system: Navy; MH-60 helicopter; 
Component/platform supported by long-term contract: Airframe and 
avionics; 
Contract type and incentives[A]: Firm-fixed price requirements 
contract; 
Potential contract term: 4-year base with no options[C]; 
Award year: 2011; 
Obligations through September 30, 2011: $0.2 billion. 

Military department/system: Navy; T-45 trainer aircraft; 
Component/platform supported by long-term contract: Airframe; 
Contract type and incentives[A]: Firm-fixed price contract; 
Potential contract term: 5 years: 1-year base + four 1-year options; 
Award year: 2008; 
Obligations through September 30, 2011: $0.3 billion. 

Military department/system: Navy; T-45 trainer aircraft; 
Component/platform supported by long-term contract: Engine; 
Contract type and incentives[A]: Firm-fixed price requirements 
contract; 
Potential contract term: 5 years: 1-year base + four 1-year options; 
Award year: 2008; 
Obligations through September 30, 2011: $0.2 billion. 

Source: GAO analysis of DOD data. 

[A] Contract type and incentives represent the predominant type of 
contract vehicle and incentives used. A requirements contract provides 
for filling all purchase requirements of a government activity for 
supplies or services during the contract period from a single 
contractor. Indefinite delivery, indefinite quantity contracts provide 
for an indefinite quantity of supplies or services for a fixed time. A 
firm-fixed price contract provides for a price that is not subject to 
any adjustment on the basis of the contractor's cost experience in 
performing the contract. A fixed-price contract with economic price 
adjustment provides for upward and downward revision of the stated 
contract price upon the occurrence of specified contingencies. Cost-
plus-award-fee contract is a cost-reimbursement contract that provides 
for a fee consisting of a base amount fixed at inception of the 
contract and an award amount based upon a judgmental evaluation by the 
government. Federal Acquisition Regulation Part 16. 

[B] Contract also provides for maintenance of the CH-47 airframe. 

[C] According to program documentation, initial acquisition strategy 
called for a 5-year contract. Pricing for the current contract was 
negotiated together with the preceding 1-year bridge contract for a 
total 5-year pricing negotiation. 

[End of table] 

In addition to maintenance activities, the contracts we reviewed also 
provide supply chain management, technical data management, training, 
equipment configuration management, and engineering support, among 
other requirements. Further, we found that long-term maintenance 
contracts could extend up to 22 years if the contractor meets 
performance criteria and earns award terms. Lastly, we found that 
these contracts constituted a significant investment for the 
government, as program offices reported obligations of over $18.4 
billion on these contracts through the end of fiscal year 2011. In 
that fiscal year alone, programs obligated nearly $1.7 billion on the 
10 contracts we reviewed. 

DOD officials noted that although long-term contracts can encourage 
contractors to invest in new facilities, equipment, and processes to 
support depot-level maintenance, such contracts may hinder the 
government's ability to appropriately incentivize the contractor's 
performance and control costs. DOD officials noted that the department 
is pursuing a number of initiatives that could potentially improve 
DOD's insight into long-term maintenance contracts and their 
management. For example, USD(AT&L) officials pointed out that the 
department is creating a standalone instruction for service 
acquisitions, based on DOD Instruction 5000.02. Although the 
instruction is in the early stages of development, USD(AT&L) officials 
said that it will provide more detailed guidance for the acquisition 
of specific services and reflect issues such as duration that have 
been raised in recent DOD guidance. USD(AT&L) officials said that the 
department is currently considering expanding or updating the Defense 
Acquisition Management Information Retrieval system to retain contract 
information for major service contracts, such as contractors' 
performance histories, contract lengths, contract types, and 
incentives used for these services. 

Early Acquisition Decisions Limit DOD's Ability to Select Alternative 
Maintenance Providers: 

Decisions made early in the acquisition process can limit DOD's 
ability to select alternative maintenance providers over the life 
cycle of a weapon system program. Program officials believed they 
could select an alternative service provider in the future for 5 of 
the 10 contracts we reviewed, but the degree to which the government 
obtained access to technical data would be an obstacle in doing so for 
the other half. DOD has updated its policies to emphasize determining 
technical data needs earlier in the acquisition life cycle. 
Information we collected on eight weapon system programs in 
development or early stages of production that were reviewed by 
USD(AT&L) between October 2010 and October 2011 indicated that at 
least half have acquired or plan to acquire sufficient technical data 
to compete maintenance services or to perform maintenance with organic 
depot personnel should the need arise. The programs, however, had yet 
to determine the extent to which they will acquire these data or the 
cost to do so. 

Some Major Weapon System Programs Could Select an Alternative 
Maintenance Service Provider but Others Faced Obstacles: 

DOD program officials said that decisions made early in the 
acquisition cycle, especially with regard to acquiring technical data, 
may hinder the department's ability to change maintenance service 
providers for depot-level activities. As we reported in May 2011, 
technical data can enable the government to complete maintenance work 
in-house, as well as to competitively award contracts for the 
acquisition and sustainment of a weapon system.[Footnote 22] More 
recently, we reported that for contracts pertaining to DOD weapon 
programs, which can involve products as well as support services, the 
lack of access to proprietary technical data and a heavy reliance on 
specific contractors for expertise limits or even precludes the 
possibility of competition. Even when access to technical data is not 
an issue, the government may have little choice other than to rely on 
the contractors that were the original equipment manufacturers, and 
that, in some cases, designed and developed the weapon 
system.[Footnote 23] Of the ten contracts we reviewed only three were 
competitively awarded. Table 2 summarizes the impact of technical data 
access on DOD programs' ability to select alternate services providers 
for maintenance on the contracts we reviewed. 

Table 2: Impact of Technical Data Access on Ability to Change 
Maintenance Service Providers for the Contracts GAO Reviewed: 

Military department/system: Air Force; C-130; 
Component/platform supported by long-term contract: C-130J airframe; 
Competed contract? Yes/No: No; 
Ability to transition contracted maintenance work to an organic depot? 
Yes/No: No; 
Reason: Insufficient access to technical data; 
Ability to recompete maintenance contracts? 
Yes/No: No; 
Reason: Insufficient access to technical data. 

Military department/system: Air Force; C-130; 
Component/platform supported by long-term contract: C-130J engine; 
Competed contract? Yes/No: No; 
Ability to transition contracted maintenance work to an organic depot? 
Yes/No: No; 
Reason: Insufficient access to technical data; 
Ability to recompete maintenance contracts? 
Yes/No: No; 
Reason: Insufficient access to technical data. 

Military department/system: Air Force; C-130; 
Component/platform supported by long-term contract: T56 engine; 
Competed contract? Yes/No: Yes; 
Ability to transition contracted maintenance work to an organic depot? 
Yes/No: Yes; 
Reason: Sufficient access to technical data; engine maintenance was 
once done organically; 
Ability to recompete maintenance contracts? 
Yes/No: Yes; 
Reason: Access to technical data allows the program to recompete the 
current contract. 

Military department/system: Air Force; JSTARS; 
Component/platform supported by long-term contract: Platform; 
Competed contract? Yes/No: No; 
Ability to transition contracted maintenance work to an organic depot? 
Yes/No: No; 
Reason: Insufficient access to technical data; 
Ability to recompete maintenance contracts? 
Yes/No: No; 
Reason: Insufficient access to technical data. 

Military department/system: Air Force; KC-10; 
Component/platform supported by long-term contract: Platform; 
Competed contract? Yes/No: Yes; 
Ability to transition contracted maintenance work to an organic depot? 
Yes/No: No; 
Reason: Insufficient access to technical data; 
Ability to recompete maintenance contracts? 
Yes/No: Yes; 
Reason: The aircraft is commercially derived and there is a 
competitive environment. 

Military department/system: Army; AH-64; 
Component/platform supported by long-term contract: Airframe[A]; 
Competed contract? Yes/No: No; 
Ability to transition contracted maintenance work to an organic depot? 
Yes/No: Yes; 
Reason: Sufficient access to technical data; 
the airframe maintenance is done organically with contractor support; 
Ability to recompete maintenance contracts? 
Yes/No: No; 
Reason: Insufficient access to technical data for recompetition. 

Military department/system: Army; CH-47; 
Component/platform supported by long-term contract: Engine; 
Competed contract? Yes/No: No; 
Ability to transition contracted maintenance work to an organic depot? 
Yes/No: Yes; 
Reason: Sufficient access to technical data; engine maintenance is 
done organically with contractor support; 
Ability to recompete maintenance contracts? 
Yes/No: No; 
Reason: Insufficient access to technical data for recompetition. 

Military department/system: Navy; MH-60; 
Component/platform supported by long-term contract: Airframe and 
avionics; 
Competed contract? Yes/No: No; 
Ability to transition contracted maintenance work to an organic depot? 
Yes/No: No; 
Reason: Insufficient access to technical data; 
Ability to recompete maintenance contracts? 
Yes/No: No; 
Reason: Insufficient access to technical data. 

Military department/system: Navy; T-45; 
Component/platform supported by long-term contract: Airframe; 
Competed contract? Yes/No: Yes; 
Ability to transition contracted maintenance work to an organic depot? 
Yes/No: No; 
Reason: Insufficient access to technical data; 
Ability to recompete maintenance contracts? 
Yes/No: Yes; 
Reason: Sufficient amount of technical data procured to recompete 
contract for this commercially derived aircraft. 

Military department/system: Navy; T-45; 
Component/platform supported by long-term contract: Engine; 
Competed contract? Yes/No: No; 
Ability to transition contracted maintenance work to an organic depot? 
Yes/No: No; 
Reason: Insufficient access to technical data; 
Ability to recompete maintenance contracts? 
Yes/No: No; 
Reason: Insufficient access to technical data. 

Source: GAO analysis of DOD data. 

[A] Contract also provides for maintenance of the CH-47 airframe. 

[End of table] 

DOD acquired technical data sufficient to potentially select an 
alternative service provider--either by transitioning contracted 
maintenance work to an organic depot or recompeting maintenance 
contracts--for 5 of the 10 maintenance contracts we reviewed. Three of 
these programs had sufficient access to technical data to perform 
maintenance services organically. For example, 

* Depot maintenance for the AH-64 and CH-47 helicopter airframe 
components was already performed organically at the Corpus Christi 
Army Depot prior to the use of contractor support. However, the 
program determined that contractor support could improve its 
maintenance practices and the availability of components. While 
government personnel continue to do all maintenance work on airframe 
components, since 2004 the Army has used a contractor to provide parts 
integration, technical engineering and logistics support which has 
significantly increased system availability. 

* As a result of a 1995 Base Realignment and Closure decision, the 
military depot that maintained the T56 engines for the C-130 program 
was closed. To mitigate the impact of the closing on the local 
community and employees, the maintenance workload was performed by the 
private sector at the same location. The Air Force used a public-
private competition--an opportunity for the public and private 
offerors to compete for the work--to determine the most cost-effective 
source of repair, and the T56 engine maintenance is now provided by a 
contractor.[Footnote 24] 

Two other programs reported they are able to recompete maintenance 
services contracts even though neither program purchased complete 
technical data associated with the weapon system. According to program 
officials, they could compete contracts for maintenance services 
either because they acquired sufficient technical data for specific 
portions of the aircraft or because there was a competitive 
environment for maintenance services for commercially-derived systems. 
The latter are weapon systems that were adapted for military use from 
a commercial item as opposed to weapon systems developed for the 
military. For example, 

* The Navy's T-45 trainer aircraft program was designated to be 
maintained by contractors for the life of the program, as it is not a 
core asset and there was a competitive environment with multiple 
vendors to provide maintenance support for this commercially available 
aircraft. During development, the Navy purchased technical data for 
DOD-specific aspects of the plane's airframe design, allowing the 
program office to recompete maintenance contracts throughout the life 
cycle of the system. Specifically, after the program split its system-
level maintenance contract into separate engine and airframe 
contracts, it was able to leverage its access to technical data to 
competitively award the airframe contract. When the airframe contract 
was recompeted in 2007, five vendors submitted capability statements. 
Program officials told us that they expect a similar industry response 
when the contract is recompeted again this year. 

* Similarly, for the KC-10 aircraft, the aircraft is based on a 
commercial design and uses contractor logistics support for 
maintenance services. The Air Force has competitively awarded five 
maintenance contracts since the KC-10 was acquired in 1978. The last 
competition occurred in 2010 and there were two proposals which 
resulted in the selection of a new contractor. 

For 5 of the 10 contracts, however, programs reported they could 
neither transition contracted maintenance services to an organic depot 
nor recompete the contract due to insufficient access to technical 
data as well as factors such as insufficient funding, staffing, and 
expertise in some cases. For example, 

* According to JSTARS program officials, the Air Force currently 
cannot convert contracted maintenance work to an organic depot or 
recompete the work because it has insufficient access to technical 
data for the aircraft's unique systems and equipment. Prior to 
awarding the current contract, the JSTARS program utilized 17 
sustainment contracts with the government managing these contracts and 
performing some portions of maintenance organically. However, in 
September 2000, the Air Force noncompetitively awarded a contract so 
that a single contractor would be responsible for sustainment 
activities that were previously performed under contracts or by 
government personnel. Program officials said that when the Air Force 
took on the more limited role of oversight of the prime contractor, 
program staffing and expertise were reduced significantly. They added 
that, as a result, the program office currently lacks the engineers, 
equipment specialists, inventory managers, and other staff and skills 
needed to manage all sustainment activities if the requirements 
included in the current contract were to be performed by multiple 
service providers. 

* Though previous models of the Air Force's C-130 fleet are maintained 
organically, contractors developed the C-130J model (both the airframe 
and engine) as a commercial item and it was acquired by the Air Force 
without related technical data. As a result, the program office must 
acquire maintenance services for all components unique to this model 
of the aircraft from the original equipment manufacturers through 
contracts. Program officials noted that there is a requirement to 
eventually bring the aircraft maintenance to organic depots, but noted 
that even if it were able to acquire the necessary technical data, the 
program office would need substantial funding to develop capabilities 
at the organic depots. 

Technical Data Rights Need to Be Considered Early in the Acquisition 
Process: 

Recent acquisition reforms such as the Weapon System Acquisition 
Reform Act of 2009 and DOD's recent initiatives seeking greater 
efficiency and cost savings in acquisitions have put greater emphasis 
on obtaining technical data rights and on maintaining competition 
throughout the life cycle of weapon systems. For example, Congress has 
required that DOD issue comprehensive guidance on life-cycle 
management, develop and implement product support strategies, and 
appoint product support managers for major weapon systems, while DOD's 
September 2010 efficiency initiatives memorandum includes a 
requirement that each military department set rules for acquisition of 
technical data rights as part of a plan to improve competition. DOD 
has taken a number of actions, including revising its acquisition 
policy to ensure that technical data requirements are considered 
during the acquisition process at key milestones. More recently, DOD 
has drafted guidance for developing open systems architecture 
contracts. This guidance will provide additional information to 
program managers regarding purchase of technical data and planning for 
an open systems architecture that may allow for increased flexibility 
in maintenance and purchase of such data. 

Data we collected on eight DOD weapon systems currently in development 
or early stages of production that were reviewed by USD(AT&L) between 
October 2010 and October 2011 as part of an acquisition review 
indicates that the programs have considered maintenance and other 
sustainment issues when making decisions regarding technical data 
needs. Table 3 summarizes these eight programs' plans to acquire 
access to technical data rights. 

Table 3: Weapon System Programs' Plans to Acquire Technical Data 
during Development and Production: 

Military department: Air Force; 
Program: MQ-9 Reaper unmanned aircraft system; 
Technical data decision[A]: Program officials said the Air Force is 
assessing the technical data required to maintain the weapon system at 
the component level. 

Military department: Army; 
Program: AH-64 Apache Block III helicopter; 
Technical data decision[A]: Army officials stated that the program 
will leverage the existing maintenance arrangement for previous 
variants of the aircraft and assess what technical data are necessary 
to maintain the Block III-unique components. 

Military department: Army; 
Program: XM982 Excalibur guided artillery projectile; 
Technical data decision[A]: The program reports that it is working 
with the contractor to ensure negotiated technical data are received, 
including those for certain proprietary technologies. 

Military department: Army; 
Program: MQ-1C Gray Eagle unmanned aircraft system; 
Technical data decision[A]: According to Army officials, the Army will 
assess the technical data required for specific system components. 

Military department: Navy; 
Program: AIM 9X Sidewinder air-to-air missile; 
Technical data decision[A]: Navy officials stated that the Navy is 
pursuing unlimited data rights for this new missile variant. 

Military department: Navy; 
Program: E2D AHE Advanced Hawkeye aircraft; 
Technical data decision[A]: Navy officials stated that the Navy plans 
to obtain access to technical data as it is being developed for 
components unique to this variant, and will take possession of this 
data at the time the last aircraft is delivered. 

Military department: Navy; 
Program: Littoral Combat Ship surface combatant; 
Technical data decision[A]: The Navy's acquisition strategy states 
that technical data will be acquired to support organic and private 
support to the system. According to officials, the department 
purchased government purpose rights and unlimited technical data 
rights for over 95 percent of the sea frame and the interface of the 
mission package components. 

Military department: Navy; 
Program: SSBN(X) Ohio-class replacement ballistic missile submarine; 
Technical data decision[A]: Program officials said the Navy plans to 
acquire unlimited technical data rights to support depot maintenance 
at government facilities. 

Source: GAO analysis of DOD data. 

[A] DOD may obtain different levels of rights to technical data 
including unlimited rights, government-purpose rights, and limited 
rights. If DOD obtains unlimited rights, it may provide the data to 
anyone for any reason. However, if DOD obtains government-purpose 
rights, it may provide the data to third-party contractors only for 
activities in which DOD is involved, including competitive 
reprocurement but not including commercial purposes. If DOD obtains 
limited rights, it may only use the data internally and may provide 
the data to third parties in a limited number of circumstances. 

[End of table] 

For the eight programs we reviewed, at least four have acquired or 
plan to acquire sufficient data to compete maintenance services or to 
perform maintenance with organic depot personnel while others had yet 
to determine the extent to which they will acquire these data or the 
cost to do so. For example: 

* The Navy acquired government purpose rights and unlimited technical 
data rights for over 95 percent of major components for the Littoral 
Combat Ship, according to program officials.[Footnote 25] They said 
that most of the depot-level maintenance on the Littoral Combat Ship 
is expected to be performed by the private sector, and the Navy 
reports that competitive environment should enhance the ability of the 
Navy to control life-cycle sustainment costs. 

* The Air Force has begun to analyze components on the MQ-9 aircraft 
and to determine what technical data is required to maintain the 
aircraft, according to program officials. They told us they are 
performing a business case analysis that will determine if technical 
data should be acquired for approximately 600 aircraft parts and major 
air frame components, but only a small percentage of these components 
have been assessed through this process to date. 

* The Army will assess the technical data needs to maintain specific 
system components for components of the MQ-1C Gray Eagle as a means of 
retaining flexibility of maintenance options during sustainment. 
According to Army officials, the sustainment plan calls for the 
current contracting arrangement to transition to a public-private 
partnership in the future. 

We previously reported that DOD program managers often opt to spend 
limited acquisition dollars on increased weapon system capability 
rather than on acquiring the rights to technical data, thus limiting 
their flexibility to perform maintenance work in house or to support 
the development of an alternative source should contractual 
arrangements fail.[Footnote 26] Unless DOD assesses and secures its 
rights for the use of technical data early in the weapon system 
acquisition process when it has the greatest leverage to negotiate, 
DOD may face later challenges in developing sustainment plans or 
changing these plans as necessary over the life cycle of its weapon 
systems. Delaying action in acquiring technical data rights can make 
these data cost-prohibitive or difficult to obtain later in a weapon 
system's life cycle. 

Programs Use Different Approaches to Incentivize Performance and 
Obtain Insights into Contractor Costs: 

Once the decision is made to use long-term contracts, DOD faces 
choices on how to best incentivize contractor performance and manage 
costs. Of the 10 contacts we reviewed, we found that DOD programs that 
used contracts extending longer than 5 years made frequent use of 
incentives to motivate performance and tools that provide insight into 
and control of costs. Program officials acknowledged, however, that in 
some instances incentive structures needed to be periodically revised 
to better incentivize contractor performance and they may not have 
sufficient insight on contractor costs. Program offices using 
contracts lasting 5 years, on the other hand, made less use of 
incentives and generally did not have the ability to renegotiate 
contract prices, but believed that the shorter-term nature of the 
contracts mitigated some of their risks. Further, program offices now 
obtain incurred cost data for two contracts, which they expect will 
help in the negotiation of better contract prices. The various 
contract lengths, incentives and cost-control tools across the 
programs we reviewed reflects the differences of each acquisition and 
the mission-specific maintenance approaches taken to support each 
weapon system, but the department has not collected information on 
their effectiveness on long-term maintenance contracts. 

Programs with Longer-Term Contracts Used Different Incentives and 
Tools to Provide Visibility on Costs: 

Of the programs we reviewed, we found that the Air Force awarded five 
relatively longer-term contracts--between 9 and 22 years--that 
incentivized contractor performance and attempted to gain insight into 
and control costs in various ways. All five of these contracts used 
some combination of monetary or contract term incentives to encourage 
contractor performance. These programs varied, however, in terms of 
the approaches used to gain insights into the contractors' costs. For 
example, the JSTARS program used cost-based incentive metrics, 
scheduled specific opportunities to renegotiate the contract's price, 
and received incurred cost data. In contrast, the contract to maintain 
the C-130's T56 engine did not use any of these approaches to gain 
cost insight. Table 4 summarizes the incentives and tools used to gain 
cost insight and cost control. 

Table 4: Longer-term Contracts' Use of Incentives and Tools to Control 
Costs: 

Military department/contract: Air Force: 
Military department/contract: JSTARS; 
Potential contract length: 22 years; 
Monetary incentive: [Check]; 
Contract-term incentive: [Check]; 
Cost-based incentive metric: [Check]; 
Scheduled price renegotiation: [Check]; 
Incurred cost data: [Check]. 

Military department/contract: C-130 T56 engine; 
Potential contract length: 15 years; 
Monetary incentive: [Empty]; 
Contract-term incentive: [Check]; 
Cost-based incentive metric: [Empty]; 
Scheduled price renegotiation: [Empty]; 
Incurred cost data: [Empty]. 

Military department/contract: C-130J airframe; 
Potential contract length: 10 years; 
Monetary incentive: [Check]; 
Contract-term incentive: [Empty]; 
Cost-based incentive metric: [Empty]; 
Scheduled price renegotiation: [Check]; 
Incurred cost data: [Check]. 

Military department/contract: C-130J engine; 
Potential contract length: 9 years; 
Monetary incentive: [Check]; 
Contract-term incentive: [Empty]; 
Cost-based incentive metric: [Empty]; 
Scheduled price renegotiation: [Check]; 
Incurred cost data: [Empty]. 

Military department/contract: KC-10; 
Potential contract length: 9 years; 
Monetary incentive: [Empty]; 
Contract-term incentive: [Check]; 
Cost-based incentive metric: [Check]; 
Scheduled price renegotiation: [Empty]; 
Incurred cost data: [Empty]. 

Source: GAO analysis of DOD data. 

[End of table] 

Program offices can use incentives to motivate contractors to provide 
exceptional levels of contract performance. Three longer-term 
contracts we reviewed include monetary incentives in the form of an 
award fee or an incentive fee, while three contracts use contract term 
incentives where a point system is used to award additional contract 
years. Program officials acknowledged that the incentives needed to be 
adjusted at times. For example, the JSTARS program uses an award fee 
incentive to motivate short-term contractor performance and an award 
term incentive to motivate the contractor's long-term performance. 
Over the course of the JSTARS contract, the contractor has earned 
nearly all the available award fee and award term years despite some 
serious performance issues in 2009. In this case, the Air Force 
identified several serious maintenance failures, including the 
presence of foreign objects in engine filters and aircraft structural 
damage resulting from maintenance errors, that were caused by the 
JSTARS contractor and which could have resulted in serious personal 
injury and loss of aircraft. Because the incentive structure 
encompasses the broad range of responsibilities assigned to the 
contractor, the contractor still earned most of that evaluation 
period's available fee and enough award term points to earn another 
year of contractor performance. The fee-determining official noted 
that if it were possible, he would have given the contractor a much 
lower award fee and rating. While the failures were reflected in the 
award fee evaluation under three performance metrics, the contractor's 
aggregate performance against the remaining metrics allowed it to earn 
90 percent of the eligible fee for this 2009 evaluation period. The 
JSTARS program subsequently amended its award fee plan to make the 
contractor ineligible for 40 percent of the award fee if its 
performance caused or contributed to a major accident. The contractor 
has earned at least 95 percent of the available award fee for every 
other evaluation period since the contract was awarded in 2000. 

Program offices structured contract term incentives differently, which 
provided DOD different degrees of flexibility to award additional 
years of performance. For example, the award term plans for the JSTARS 
and C-130 T56 engine contracts we reviewed guarantee additional years 
of work if contractors meet or exceed incentive metrics. Both the 
JSTARS and C-130 T56 engine contractors have earned the maximum number 
of possible award term years. Conversely, the current incentive option 
offered by the KC-10 program differs from the award terms used by the 
JSTARS or C-130 T56 contracts in key respects. The KC-10 program's 
incentive includes "must-meet" metrics and a high degree of government 
discretion in awarding the additional incentive year. For example, 
even if the contractor meets all incentive metrics and earns the 
maximum available number of points needed to be considered for an 
additional incentive year, the program office can still decline to 
award the additional year. Additionally, if the contractor does not 
meet the standard set for any "must-meet" metric, it will not receive 
an incentive year. By structuring the incentive in this way, the 
program office mitigates the risk of the contractor earning incentives 
despite unsatisfactory performance, as in the previous JSTARS example. 
According to KC-10 officials, the contactor would not earn its first 
available incentive year with an approximate contract value of $450 
million because it failed to provide continuous support for the 
initiation of global tanker support activities, a "must-meet" metric, 
among other performance shortcomings. 

Some of the programs that use longer-term contracts adjusted incentive 
metrics to influence contractor performance in areas needing 
improvement. For example, C-130J program officials said that since 
awarding the airframe maintenance contract in 2006, they gradually 
added more incentive metrics to the airframe contract's award fee plan 
to incentivize contractor performance in other areas. After the 
contractor improved performance in providing engineering services, the 
program office added an incentive metric to improve the contractor's 
performance for supply chain management. 

The programs using the five longer-term contracts we reviewed also use 
to varying degrees different tools to gain insight into and control 
costs over the term of the contracts, as illustrated by the following 
examples. 

* The JSTARS cost-type contract was awarded on a non-competitive basis 
to the system's original equipment manufacturer and the contractor 
bears little risk under this long-term arrangement, but the program 
office has taken measures to obtain insights into and control the 
contractor's costs. The program office used the incurred cost data it 
receives under the cost-type contract to help renegotiate contract 
prices during triennial reviews.[Footnote 27] Additionally, the 
program uses cost-based incentive metrics to evaluate performance for 
award fee and award term determinations. For example, under the terms 
of the program's January 2012 award fee plan, 10 percent of the 
contractor's award fee is determined by tracking cost performance 
against contract estimates. This same metric is used to represent 10 
percent of award term determinations. In addition, cost containment is 
also evaluated as part of a weapon system improvement metric that 
accounts for 37 percent of award term determinations. 

* The C-130J program structured its potentially 10-year airframe and 9-
year engine maintenance firm-fixed price contracts so that prices 
would be renegotiated at certain points during the contracts' 
durations. For example, the program office receives incurred cost data 
for the airframe contract, and has renegotiated prices three times 
since the contract was awarded in 2006, with another renegotiation 
scheduled for January 2014. Program officials said that receiving 
incurred cost data helped them negotiate a 13 percent reduction in 
total contract costs during the last scheduled price renegotiation in 
January 2012. Program officials told us they can also gain insight 
into cost baselines through regular contractor performance monitoring 
and evaluation. For example, according to officials, the contractor 
supporting airframe maintenance used a new system to track parts that 
allowed for better utilization of spare parts and led to a decrease in 
hours needed to perform the contract requirement. Program officials 
were able to negotiate a lower price for that contract requirement 
during the next scheduled price negotiation. 

* In contrast, neither the C-130 T56 engine contract nor the KC-10 
program scheduled price renegotiations despite establishing firm-fixed 
prices for the entire potential length of the 15-and 9-year life of 
the respective contracts. For example, the C-130 T56 engine contract 
has prices fixed for the entire 15-year potential term of the contract 
with adjustments made for changes in best estimated quantities and for 
economic adjustments. Program officials expressed concern over their 
lack of insight into the contractor's incurred costs and added that 
having such information, along with scheduled price renegotiations at 
the 5-year and 10-year points in the contract, would likely have been 
helpful in controlling maintenance costs. While KC-10 program 
officials cited the benefit of competition to drive down prices for 
maintenance services, USD(AT&L) officials indicated that proposed 
contracts reflecting a similar approach, where prices for the entire 
duration of a long-term contract are priced at award, would be 
reviewed carefully to ensure that the government's interests were 
adequately protected. 

Programs with Shorter-Term Contracts Tended Not to Use Incentives or 
Price Renegotiation Techniques: 

The Army and Navy programs we reviewed used contracts with a maximum 
length of five years and generally did not make as frequent use of 
incentives or cost-control tools as programs using longer contracts. 
Army and Navy program officials indicated that they would prefer to 
use longer contracts in the future to enable contractors to invest in 
support infrastructure and improvements. Table summarizes the 
incentives and tools used for cost insight and cost control. 

Table 5: Program Offices' Use of Incentives and Tools to Control Costs 
on Shorter Duration Maintenance Contracts GAO Reviewed: 

Military department/contract: Army; AH-64 and CH-47 airframes; 
Potential contract length: 5 years; 
Monetary incentive: [Empty]; 
Contract-term incentive: [Empty]; 
Cost-based incentive metric: [Empty]; 
Scheduled price renegotiation: [Check]; 
Incurred cost data: [Check]. 

Military department/contract: Army; CH-47 engine; 
Potential contract length: 5 years; 
Monetary incentive: [Check]; 
Contract-term incentive: [Empty]; 
Cost-based incentive metric: [Empty]; 
Scheduled price renegotiation: [Empty]; 
Incurred cost data: [Empty]. 

Military department/contract: Navy; T-45 airframe; 
Potential contract length: 5 years; 
Monetary incentive: [Check]; 
Contract-term incentive: [Empty]; 
Cost-based incentive metric: [Empty]; 
Scheduled price renegotiation: [Empty]; 
Incurred cost data: [Empty]. 

Military department/contract: Navy; T-45 engine; 
Potential contract length: 5 years; 
Monetary incentive: [Empty]; 
Contract-term incentive: [Empty]; 
Cost-based incentive metric: [Empty]; 
Scheduled price renegotiation: [Empty]; 
Incurred cost data: [Empty]. 

Military department/contract: Navy; MH-60; 
Potential contract length: 4 years[A]; 
Monetary incentive: [Check]; 
Contract-term incentive: [Empty]; 
Cost-based incentive metric: [Empty]; 
Scheduled price renegotiation: [Empty]; 
Incurred cost data: [Check]. 

Source: GAO analysis of DOD data. 

[A] According to program documentation, the initial acquisition 
strategy called for a 5-year contract. Due to delays in contract award 
the current contract is for only 4 years. 

[End of table] 

Across the five contracts with a maximum length of five years, three 
used monetary incentives and none used incentives that lengthen the 
contract's term. The T-45 program office uses a performance bonus 
incentive, which allows the program to withhold monthly performance 
bonuses for contractor performance that did not meet or exceed 
thresholds on both incentive metrics. The program measures ready-for-
training availability and the maintenance cancellation rate. The 
contractor must meet or exceed performance thresholds for these 
metrics at all three locations where the aircraft are based to receive 
an overall bonus. As a result, the contractor could lose as much as 65 
percent of the available bonus by not meeting requirements at a single 
location. According to program officials, this incentivizes the 
contractor to perform optimally at all three locations. Performance 
records show that the contractor has earned most of the available 
bonus since the contract was awarded in 2008. Similarly, the contract 
for CH-47 engine maintenance support includes a clause which allows 
the contractor to earn an incentive fee for reducing engine repair 
turn-around time. Since the contract began in 2011, there has been one 
evaluation period; the contractor did not meet the incentive metric 
and did not earn any incentive fee. On the other hand, MH-60 program 
officials told us that incentives in the form of additional payments 
are not necessary for their program's maintenance support contract. 
They added that the contractor is self-incentivized to maximize its 
profit in this firm-fixed price contracting arrangement, which can be 
achieved through realizing efficiencies. Furthermore, they questioned 
the value of paying a contractor to provide services above and beyond 
what the program requires.[Footnote 28] Instead, contract provisions 
allow the government to reduce the contractor's payment if the 
contractor's work does not meet minimum thresholds. MH-60 program 
officials reported that they have not had to make any downward price 
adjustments because the contractor is exceeding contract requirements. 

Programs are now receiving incurred cost data to control maintenance 
costs for two five-year, firm-fixed price contracts, though this 
approach was not used in previous contracts for the same services. 
Since 2009, the MH-60 program office has required the contractor to 
submit incurred cost data semiannually. Program officials said that 
they were directed by the Office of the Assistant Secretary of the 
Navy to request the contractor's incurred cost data and were supported 
by USD(AT&L) in negotiating for it. By comparing incurred costs and 
contract prices, program officials said that they were able to 
negotiate more favorable prices for the 2011 follow-on maintenance 
support contract. During the previous contract, the contractor was 
able to realize efficiencies that drove down its incurred costs. With 
access to this information, the MH-60 program was able to re-baseline 
contract costs and negotiate lower prices to reflect these 
efficiencies. The AH-64 and CH-47 programs also receive incurred cost 
data. A May 2011 DOD Inspector General audit found that the AH-64 and 
CH-47 programs were paying above fair and reasonable prices for parts 
supplied through their 5-year maintenance support contract.[Footnote 
29] The Inspector General reviewed costs for 24 high-dollar parts and 
calculated that the contractor charged the Army about $13 million more 
than the fair and reasonable prices for 18 of the parts. Based on this 
finding, these programs began reviewing incurred costs for the highest-
value parts supplied through this contract. The incurred cost review 
is being performed in parallel with a major update of total parts 
pricing on the contract, and program officials expect that there will 
be many downward price changes as a result. The program office plans 
to perform this review annually over the term of the contract. 

DOD has not collected information concerning the effectiveness of the 
various incentives or cost-control tools used on long-term maintenance 
contracts, but it has recognized efforts made by individual programs 
to improve acquisitions of such services. For example, during a 
December 2010 peer review of the MH-60 airframe contract, USD(AT&L) 
officials noted that the use of incurred cost data allowed the program 
to negotiate lower prices for certain services. Program officials told 
us that it was difficult to negotiate for incurred cost data for fixed-
priced contracts as contractors are generally reluctant to share their 
actual costs and seek to protect business-sensitive information. 
USD(AT&L) and military department officials told us that they are 
encouraging program officials to be more aggressive when asking for 
incurred costs, especially in situations where the government does not 
have the benefit of leveraging competition. 

Conclusions: 

DOD does not collect data on the extent to which long-term contracts 
are currently used and managed, but our assessment of 10 contracts 
shows the value of having such information. Decisions made early in 
the acquisition cycle, and in particular, whether DOD will buy the 
rights to technical data are critical to availing itself of choices 
later in a program's life cycle. However, in the early stages, 
programs are often confronted with the choice between allocating 
scarce resources to enhance capability or maintaining future 
flexibility in terms of maintaining the system. Once the decision to 
forgo buying technical data is made, DOD's leverage in terms of being 
able to compete maintenance support or to provide it in house is 
largely lost. Programs must then rely on other, less powerful tools to 
assure good performance and good prices. The data we collected on 
eight programs that are in the process of making decisions related to 
securing access to technical data indicate that DOD is considering its 
future needs, but final decisions have yet to be made in several 
cases. The department also does not have information on the approaches 
used by various programs with long-term maintenance contracts to 
incentivize contractor performance and gain insight into contractor 
costs to help ensure that the government is getting the best value for 
its investment. DOD is considering several policy and data-related 
initiatives that could improve its insight on these contracts, but 
these efforts are in the early stages of development. Gaining insight 
into the department's use of long-term maintenance contracts as well 
as identifying lessons learned on what approaches work best to 
incentivize performance and control costs would help inform future 
acquisition strategies and reduce risk. 

Recommendations for Executive Action: 

To help inform DOD's use of long-term maintenance contracts, we 
recommend that the Secretary of Defense direct the Under Secretary of 
Defense for Acquisition, Technology, and Logistics, in coordination 
with cognizant offices within each of the military departments, to 
take the following two actions: 

* Collect and analyze information on the use of long-term maintenance 
contracts by major weapon system programs; and: 

* Collect and disseminate lessons learned or best practices regarding 
the use of incentives and cost-control tools that can maximize the 
government's leverage when considering the future use of such 
contracts. 

Agency Comments and Our Evaluation: 

DOD provided written comments on a draft of this report, stating that 
it concurred with both recommendations. DOD stated that it planned to 
develop methodologies to collect the needed information and 
disseminate best practices and lessons learned, but did not provide 
timeframes for doing so. We recognize that weighing options will take 
some time, but encourage the department to do so in a timely fashion. 
DOD's written response is reprinted in appendix II. DOD also provided 
technical comments that were incorporated as appropriate. 

We are sending copies of this report to the Secretary of Defense and 
other interested parties. In addition, the report is available at no 
charge on the GAO website at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact Belva M. Martin at (202) 512-4841 or martinb@gao.gov or Cary 
Russell at (202) 512-5431 or russellc@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made key contributions to 
this report are listed in appendix III. 

Signed by: 

Belva M. Martin: 
Director, Acquisition and Sourcing Management: 

Signed by: 

Cary B. Russell: 
Acting Director, Defense Capabilities and Management: 

[End of section] 

Appendix I: Scope and Methodology: 

To gain insight into the how long-term maintenance contracts are 
managed by the Department of Defense (DOD), we assessed (1) the extent 
to which DOD uses long-term maintenance contracts to support major 
weapon system programs, (2) DOD's ability to select alternative 
maintenance services providers for its major weapon system programs, 
and (3) how long-term maintenance contracts have been structured to 
incentivize contractors' performance and manage contractor costs. 
After consulting with DOD acquisition and logistics officials, for the 
purposes of this report we defined long-term maintenance contracts as 
those with a total potential period of performance of at least 5 years 
that provide depot-level maintenance services or support performance 
of maintenance functions. Additionally, we limited the scope of our 
review to include those long-term contracts that support major defense 
acquisition programs.[Footnote 30] 

To assess the extent to which DOD uses long-term maintenance 
contracts, we reviewed pertinent DOD acquisition and maintenance 
policies and DOD's four most recent reports to Congress on the 
distribution of funds for public and private depot maintenance work 
compiled by the Office of the Assistant Secretary of Defense for 
Logistics and Materiel Readiness. Additionally, we examined a recent 
services portfolio analysis of Federal Procurement of Data System-Next 
Generation (FPDS-NG) data performed by the Office of Defense 
Procurement and Acquisition Policy to determine department spending 
for maintenance services.[Footnote 31] We interviewed senior 
acquisition and logistics officials from the Office of the Under 
Secretary of Defense for Acquisition, Technology, and Logistics and 
the military departments to determine what department-wide data was 
collected, reported, and analyzed regarding long-term maintenance 
contracts. We also performed independent analysis of FPDS-NG data to 
determine the extent to which this system provides insight into DOD's 
use of long-term maintenance contracts. After determining that DOD 
lacked department-wide data on the use of long-term maintenance 
contracts, GAO attempted to gather this information from program 
offices and program executive offices in each of the military 
departments. However, due to data reliability issues and incomplete 
responses, GAO determined that it could not use the information 
collected with reasonable assurance of accuracy for department-wide 
analysis of long-term maintenance contracting use and management. 

Based on further discussions with military department officials, we 
reviewed 10 long-term contracts supporting seven major defense 
acquisition programs. We selected these contracts to represent each of 
the military departments and to illustrate different maintenance 
approaches. The programs we selected included the following: 

Air Force:
* Joint Surveillance Target Attack Radar System (JSTARS):
* C-130 Hercules transport aircraft:
* KC-10 Extender refueling tanker aircraft: 

Army:
* AH-64 Apache helicopter:
* CH-47 Chinook helicopter: 

Navy:
* MH-60 Seahawk helicopter:
* T-45 Goshawk training aircraft: 

To determine the extent to which DOD has the ability to select 
alternative maintenance services providers for its major weapon system 
programs, we reviewed DOD and military department policy and 
interviewed senior officials in the Office of the Under Secretary of 
Defense for Acquisition, Technology, and Logistics and military 
department officials to determine how maintenance options are 
considered and what factors contribute to retaining program 
flexibility for sourcing depot-level maintenance. For the programs we 
reviewed, we examined acquisition plans to determine how the 
government decided upon a contract-based approach to maintenance. We 
interviewed cognizant program officials to determine the factors that 
impact the government's ability to change maintenance providers, 
focusing on the ability to transition contracted maintenance work to a 
government-owned and government-operated depot and the ability to 
recompete maintenance contracts. We also requested a list of major 
defense acquisition programs that recently went through an acquisition 
review and preliminary information on provisions for acquiring 
technical data rights. For the eight programs DOD identified as having 
such a review between October 2010 and October 2011, we interviewed 
program officials and reviewed acquisition documents, such as 
acquisition strategies and life-cycle sustainment plans, which 
described the rationale for the program's plans to acquire technical 
data rights. 

To assess how long-term maintenance contracts were structured to 
incentivize contractors' performance and manage contractor costs, we 
reviewed acquisition plans, contractual information, including pricing 
data and price negotiation memorandums, and interviewed cognizant 
acquisition and logistics officials to understand the incentives and 
tools used by program offices to motivate contractor performance and 
provide visibility into contractor costs. For the 10 contracts we 
selected, we reviewed programs' use of monetary incentives such as 
award and incentive fees, performance bonuses, and downward price 
adjustments. Additionally, we reviewed programs' use of contract term 
incentives, specifically award terms and incentive options, which can 
extend a contract's period of performance. We analyzed incentive plans 
and contractor performance data to determine how performance was 
assessed, recorded, and resulted in the award of fee or additional 
years of contracted work. We also interviewed program officials on the 
use of incentives and compared prior versions of incentive plans to 
determine how incentive metrics changed over time. For the 10 
contracts we reviewed, we identified the extent to which programs used 
incurred cost data, price renegotiations, and cost-based incentive 
metrics as a means to gain insight into contractor costs. We also 
interviewed officials from the Office of the Under Secretary of 
Defense for Acquisition, Technology, and Logistics, the military 
departments, and program offices on the benefits and risks associated 
with long-term contracts. 

We conducted this performance audit from February 2011 through May 
2012 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. 

[End of section] 

Appendix II: Comments from the Department of Defense: 

Office of The Under Secretary Of Defense: 
Acquisition, Technology, and Logistics: 
3000 Defense Pentagon: 
Washington, DC 20301-3000: 

May 25, 2012: 

Ms. Belva M, Martin: 
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548:  

Dear Ms. Martin:  

This is the Department of Defense (DoD) response to the GAO Draft 
Report GA0-12-558, "Defense Acquisitions: Further Action Needed to 
Improve DOD's Insight and Management of Long-term Maintenance 
Contracts," dated April 24, 2012 (GAO Code 120968). Detailed comments 
on the report recommendations are enclosed.  

Sincerely, 

Signed by: 

Richard Ginman: 
Director, Defense Procurement and Acquisition Policy:  

Enclosure: As stated.  

[End of letter] 

GAO Draft Report Dated April 24, 2012: 
GAO-12-558 (GAO Code 120968): 

"Defense Acquisitions: Further Action Needed To Improve Dod's Insight 
And Management Of Long-Term Maintenance Contracts" 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation 1: To help inform DoD's use of long-term maintenance 
contracts, GAO recommends the Secretary of Defense direct the Under 
Secretary of Defense (Acquisition, Technology and Logistics), in 
coordination with each of the military departments, to collect and 
analyze information on the use on long term maintenance contracts by 
major weapon system programs. 

DoD Response: Concur. The Department will develop a methodology to 
collect and analyze information on the use of long term maintenance 
contracts by major weapon system programs. 

Recommendation 2: To help inform DoD's use of long-term maintenance 
contracts, GAO recommends the Secretary of Defense direct the Under 
Secretary of Defense (Acquisition, Technology and Logistics), in 
coordination with each of the military departments, to collect and 
disseminate lessons learned or best practices regarding the use of 
incentives and cost control tools that can maximize the government's 
leverage when considering the future use of such contracts. 

DoD Response: Concur. The Department will develop a methodology to 
collect and disseminate lessons learned or best practices regarding 
the use of incentives and cost control tools to maximize the 
government's leverage when considering future use of long-term 
maintenance contracts. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contacts: 

Belva M. Martin, (202) 512-4841 or martinb@gao.gov: 

Cary B. Russell, (202) 512-5431 or russellc@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Carleen Bennett, Assistant 
Director; Timothy DiNapoli, Assistant Director; Steven Banovac; Lee 
Cooper; Julia Kennon; John Krump; Wiktor Niewiadomski; Bob Swierczek; 
and Tom Twambly made key contributions to this report. 

[End of section] 

Footnotes: 

[1] According to DOD officials, operating and support costs generally 
range from 60 to 80 percent of a weapon system's total costs, 
depending on the weapon system type. According to DOD, product support 
encompasses materiel management, distribution, technical data 
management, maintenance, training, cataloging, configuration 
management, engineering support, repair parts management, failure 
reporting and analysis, and reliability growth. 

[2] Defense Federal Acquisition Regulation Supplement contract clause 
252.227-7013 defines technical data as "recorded information, 
regardless of the form or method of the recording of a scientific or 
technical nature (including computer software documentation)... [but 
not including] computer software or data incidental to contract 
administration, such as financial and/or management information." 
Technical data for weapon systems includes drawings, specifications, 
standards, and other details necessary to ensure the adequacy of item 
performance, as well as manuals that contain instructions for 
installation, operation, maintenance, and other actions needed to 
support weapon systems. GAO, Defense Acquisition: DOD Should Clarify 
Requirements for Assessing and Documenting Technical-Data Needs, 
[hyperlink, http://www.gao.gov/products/GAO-11-469] (Washington, D.C.: 
May 11, 2011). 

[3] [hyperlink, http://www.gao.gov/products/GAO-11-469]. 

[4] GAO, Defense Management: DOD Needs to Reexamine its Extensive 
Reliance on Contractors and Continue to Improve Management and 
Oversight, [hyperlink, http://www.gao.gov/products/GAO-08-572T] 
(Washington, D.C.: Mar. 11, 2008); Defense Acquisitions: Assessments 
of Selected Weapon Programs, [hyperlink, 
http://www.gao.gov/products/GAO-10-388SP] (Washington, D.C.: Mar. 30, 
2010); and Defense Logistics: Improvements Needed to Enhance Oversight 
of Estimated Long-term Costs for Operating and Supporting Major Weapon 
Systems, [hyperlink, http://www.gao.gov/products/GAO-12-340] 
(Washington, D.C.: Feb. 2, 2012). 

[5] Major defense acquisition programs are those estimated by the 
Under Secretary of Defense for Acquisition, Technology, and Logistics 
to require an eventual total expenditure of more than $365 million for 
research, development, test, and evaluation, based on fiscal year 2000 
constant dollars; $2.190 billion for procurement in fiscal year 2000 
constant dollars; or are designated as a major defense acquisition 
program by the milestone decision authority. 

[6] The Federal Procurement Data System-Next Generation is the federal 
government's current system for tracking information on contracting 
actions. 

[7] Office of the Under Secretary of Defense for Acquisition, 
Technology, and Logistics, Department of Defense Instruction 5000.02, 
Operation of the Defense Acquisition System, December 8, 2008. 

[8] Office of the Under Secretary of Defense for Acquisition, 
Technology, and Logistics, Document Streamlining--Program Strategies 
and Systems Engineering Plan, April 20, 2011; and Document 
Streamlining--Life-Cycle Sustainment Plan, September 14, 2011. 
Specifically, the Assistant Secretary of Defense for Logistics and 
Materiel Readiness is to review and approve sustainment plans for 
major defense acquisition programs designated as Acquisition Category 
ID or those that are designated as being of special interest. 

[9] Office of the Under Secretary of Defense for Acquisition, 
Technology, and Logistics, Department of Defense Directive 4151.18, 
Maintenance of Military Materiel, March 31, 2004. 

[10] DOD components include the Office of the Secretary of Defense, 
the military departments, the Chairman of the Joint Chiefs of Staff, 
the combatant commands, the Office of the Inspector General, the 
defense agencies, DOD field activities, and all other organizational 
entities in DOD. 

[11] Department of Defense Instruction 4151.20, Depot Maintenance Core 
Capabilities Determination Process, January 5, 2007. 

[12] Pub. L. No. 112-81 § 801 (2011). 

[13] Pub. L. No. 111-23 § 202(b)(7) (2009). 

[14] [hyperlink, http://www.gao.gov/products/GAO-11-469]. 

[15] DOD may obtain different levels of rights to technical data, 
including unlimited rights, government-purpose rights, and limited 
rights. If DOD obtains unlimited rights, it may provide the data to 
anyone for any reason. However, if DOD obtains government-purpose 
rights, it may provide the data to third-party contractors only for 
activities in which DOD is involved, including competitive 
reprocurement but not including commercial purposes. If DOD obtains 
limited rights, it may only use the data internally and may provide 
the data to third parties in a limited number of circumstances. 

[16] Office of the Under Secretary of Defense for Acquisition, 
Technology, and Logistics, Better Buying Power: Guidance for Obtaining 
Greater Efficiency and Productivity in Defense Spending, September 14, 
2010. 

[17] Under Secretary of Defense for Acquisition, Technology, and 
Logistics, Implementation Directive for Better Buying Power - 
Obtaining Greater Efficiency and Productivity in Defense Spending, 
November 3, 2010. 

[18] Prior GAO work found systemic weaknesses in DOD's data gathering 
and reporting processes to support these efforts, which prevents the 
precise calculation of DOD's funding for public and private-sector 
depot maintenance and repair workloads, even at the aggregate level. 
See GAO, Depot Maintenance: Issues and Options for Reporting on 
Military Depots, [hyperlink, http://www.gao.gov/products/GAO-08-761R] 
(Washington, D.C.: May 15, 2008). 

[19] GAO, Defense Acquisitions: Tailored Approach Needed to Improve 
Service Acquisition Outcomes, [hyperlink, 
http://www.gao.gov/products/GAO-07-20] (Washington, D.C.: Nov. 9, 
2006). 

[20] For more information see GAO, Defense Acquisitions: Status of 
DOD's Implementation of Independent Management Reviews for Services 
Acquisitions, [hyperlink, http://www.gao.gov/products/GAO-10-284] 
(Washington, D.C.: Jan. 28, 2010). 

[21] We were unable to determine, even after working with military 
department and program officials, the number of long-term maintenance 
contracts used to maintain major defense acquisition programs. For 
example, we requested information from offices responsible for major 
defense acquisition programs as identified by the military 
departments, but found that in many instances program offices either 
did not provide the requested information or the information provided 
was incomplete, precluding a department-wide assessment. Consequently, 
we worked with officials from the military departments to identify 
potential programs that might be using long-term contracts. Air Force 
acquisition officials identified at least nine programs that used long-
term maintenance contracts, including the F-22 and C-17. Navy and Army 
officials indicated that we needed to contact program executive 
offices or program offices to obtain more precise information on the 
extent to which such contracts are used. 

[22] [hyperlink, http://www.gao.gov/products/GAO-11-469]. 

[232] GAO, Defense Contracting: Competition for Services and Recent 
Initiatives to Increase Competitive Procurements, [hyperlink, 
http://www.gao.gov/products/GAO-12-384] (Washington, D.C.: Mar. 15, 
2012). 

[24] GAO, Depot Maintenance: Air Force Is Assessing Engine Maintenance 
Options for Work Currently Performed at Kelly Aviation Center, 
[hyperlink, http://www.gao.gov/products/GAO-11-274R] (Washington, 
D.C.: Feb. 11, 2011). 

[25] Specifically, Navy officials said that under this acquisition, 
the government purchased technical data for the sea frame and mission 
package component interface. 

[26] GAO, Defense Management: Opportunities to Enhance the 
Implementation of Performance-Based Logistics, [hyperlink, 
http://www.gao.gov/products/GAO-04-715] (Washington, D.C.: Aug. 16, 
2004). 

[27] We reported in 2008 that the United Kingdom used an "open book 
accounting" arrangement to gain visibility into contractors' costs. 
Additionally, the four long-term contracts used as examples by the 
United Kingdom's Ministry of Defence each scheduled price negotiations 
during their 10-to 25-year terms. See GAO, Defense Logistics: Improved 
Analysis and Cost Data Needed to Evaluate the Cost-effectiveness of 
Performance Based Logistics, [hyperlink, 
http://www.gao.gov/products/GAO-09-41] (Washington, D.C.: Dec. 19, 
2008). 

[28] In 2008, GAO reported on the department's awarding of incentives 
for performance exceeding contract requirements in performance based 
logistics arrangements, noting that paying for excess performance may 
not provide the best value to the government. See [hyperlink, 
http://www.gao.gov/products/GAO-09-41]. 

[29] Department of Defense Inspector General, Excess Inventory and 
Contract Pricing Problems Jeopardize the Army Contract with Boeing to 
Support the Corpus Christi Army Depot, D-2011-061 (Arlington, Va.: May 
3, 2011). 

[30] Major defense acquisition programs are those estimated by the 
Under Secretary of Defense for Acquisition, Technology, and Logistics 
to require an eventual total expenditure of more than $365 million for 
research, development, test, and evaluation, based on fiscal year 2000 
constant dollars; $2.190 billion for procurement in fiscal year 2000 
constant dollars; or are designated as a major defense acquisition 
program by the milestone decision authority. 

[31] The Federal Procurement Data System-Next Generation is the 
federal government's current system for tracking information on 
contracting actions. 

[End of section] 

GAO’s Mission: 

The Government Accountability Office, the audit, evaluation, and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the 
performance and accountability of the federal government for the 
American people. GAO examines the use of public funds; evaluates 
federal programs and policies; and provides analyses, recommendations, 
and other assistance to help Congress make informed oversight, policy, 
and funding decisions. GAO’s commitment to good government is 
reflected in its core values of accountability, integrity, and 
reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO’s website [hyperlink, http://www.gao.gov]. Each 
weekday afternoon, GAO posts on its website newly released reports, 
testimony, and correspondence. To have GAO e-mail you a list of newly 
posted products, go to [hyperlink, http://www.gao.gov] and select “E-
mail Updates.” 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of 
production and distribution and depends on the number of pages in the 
publication and whether the publication is printed in color or black 
and white. Pricing and ordering information is posted on GAO’s 
website, [hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 
MasterCard, Visa, check, or money order. Call for additional 
information. 

Connect with GAO: 

Connect with GAO on facebook, flickr, twitter, and YouTube.
Subscribe to our RSS Feeds or E mail Updates. Listen to our Podcasts.
Visit GAO on the web at [hyperlink, http://www.gao.gov]. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]; 
E-mail: fraudnet@gao.gov; 
Automated answering system: (800) 424-5454 or (202) 512-7470. 

Congressional Relations: 

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-4400
U.S. Government Accountability Office, 441 G Street NW, Room 7125
Washington, DC 20548. 

Public Affairs: 
Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149 
Washington, DC 20548.