Contract Management:

The Air Force Should Improve How It Purchases AWACS Spare Parts

GAO-05-169: Published: Feb 15, 2005. Publicly Released: Feb 15, 2005.

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Over the past several years, the Air Force has negotiated and awarded more than $23 million in contracts to the Boeing Corporation for the purchase of certain spare parts for its Airborne Warning and Control System (AWACS) aircraft. Since they first became operational in March 1977, AWACS aircraft have provided U.S. and allied defense forces with the ability to detect, identify, and track airborne threats. In March 2003, GAO received allegations that the Air Force was overpaying Boeing for AWACS spare parts. This report provides the findings of GAO's review into these allegations. Specifically, GAO identified spare parts price increases and determined whether the Air Force obtained and evaluated sufficient information to ensure the prices were fair and reasonable. GAO also determined the extent to which competition was used to purchase the spare parts.

Since late 2001, the Air Force has spent about $1.4 million to purchase three ailerons (wing components that stabilize the aircraft during flight), $7.9 million for 24 cowlings (metal engine coverings), and about $5.9 million for 3 radomes (protective coverings for the radar antennae). The unit prices for the ailerons and cowlings increased by 442 percent and 354 percent, respectively, since they were last purchased in 1986. The unit price of the radomes, purchased under two contracts, nearly doubled from September 2001 to September 2003. Although some of the price increases can be attributed to inflation, other factors, such as re-establishing production processes and procuring limited quantities of the parts, contributed more significantly to the increases. In addition, the 2001 radome contract included about $8.1 million for Boeing to relocate equipment and establish a manufacturing capability at a new location. The Federal Acquisition Regulation (FAR) requires contracting officers to evaluate certain information when purchasing supplies and services to ensure fair and reasonable prices. However, Air Force contracting officers did not evaluate pricing information that would have provided a sound basis for negotiating fair and reasonable prices for the spare parts. Moreover, the Air Force did not adequately consider Defense Contract Audit Agency (DCAA) and DCMA analyses of these purchases, which would have allowed the Air Force to better assess the contractor's proposals. For example, when purchasing ailerons, the Air Force did not obtain sales information for the aileron or similar items to justify Boeing's proposed price and did not consider DCMA analyses that showed a much lower price was warranted. Instead, the contracting officer relied on a Boeing analysis. None of the spare parts contracts cited in the allegations were competitively awarded--despite a DCMA recommendation that the cowlings be competed to help establish fair and reasonable prices. The Air Force did not develop alternate sources for competing the purchase of the cowlings because it believed it lacked access to technical drawings and data that would allow it to compete the purchase. Yet the Air Force has a contract with Boeing that could allow the Air Force to order technical drawings and data specifically for the purpose of purchasing replenishment spare parts.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To improve purchasing of AWACS spare parts, the Secretary of Defense should direct the Secretary of the Air Force to ensure that contracting officers obtain and evaluate available information, including analyses provided by DCAA and DCMA, and other data needed to negotiate fair and reasonable prices.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In March 2005, the Director, Defense Procurement and Acquisition Policy (Acquisition, Technology, and Logistics), OSD, issued a memorandum to the Deputy Assistant Secretary for Contracting (SAF/AQ) that concurred with the recommendation and directed that contracting officers be reminded of the pricing requirements. In April 2005, the Deputy Assistant Secretary for Contracting issued a memorandum to all Air Force major commands, field operating activities, and direct reporting units to emphasize the requirement to obtain and evaluate information to support determination of fair and reasonable prices for all negotiated acquisitions. The memorandum provided the types of information needed to support proposed prices as well as guidance on specific issues such as acquiring commercial goods and services.

    Recommendation: To improve purchasing of AWACS spare parts, the Secretary of Defense should direct the Secretary of the Air Force to develop a strategy that promotes competition, where practicable, in the purchase of AWACS spare parts.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In March 2005, the Director, Defense Procurement and Acquisition Policy (Acquisition, Technology, and Logistics), OSD, issued a memorandum to the Deputy Assistant Secretary for Contracting (SAF/AQ) that concurred with the recommendation and directed development of a strategy that promotes competition, including the development of alternate sources, in the purchase of AWACS spare parts. In April 2005, the Deputy Assistant Secretary for Contracting developed a strategy to promote competition, where practicable, in the purchase of AWACS spare parts. For example, the Air Force has initiated the acquisition of engineering services to accelerate the availability of complete technical data to support full and open competition. Also, the Air Force will review drawings, and challenge proprietary markings where necessary, to ensure the maximum opportunity for competition. In addition, the Air Force said it is committed to increasing competitive opportunities for follow-on spare parts when a business analysis supports such an approach and competition for future spares will be fully addressed in acquisition planning.

    Recommendation: To improve purchasing of AWACS spare parts, the Secretary of Defense should direct the Secretary of the Air Force to clarify the Air Force's access to AWACS drawings and technical data including the Air Force's and Boeing's rights to the data.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In March 2005, the Director, Defense Procurement and Acquisition Policy (Acquisition, Technology, and Logistics), OSD, issued a memorandum to the Deputy Assistant Secretary for Contracting (SAF/AQ) that concurred with the recommendation and directed a detailed clarification explaining the Air Force's access to AWACS drawings and technical data. In response, in April 2005, the Deputy Assistant Secretary for Contracting provided clarification concerning the Air Force's access rights. In general, the access rights vary depending on whether or not the parts are unique to the AWACS E-3 aircraft. On AWACS-unique parts, government engineers assert that the government is entitled to unlimited data rights, but Boeing claims the data as intellectual property and proprietary. The Deputy Assistant Secretary for Contracting stated that issues regarding data rights will be resolved through the process prescribe in the Defense Federal Acquisition Regulation Supplement (DFARS 227).

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