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the Navy's Decision-making Process for Weapons Systems Support' which 
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United States General Accounting Office: 
GAO: 

Report to Congressional Committees: 

February 2002: 

Defense Logistics: 

Opportunities to Improve the Army's and the Navy's Decision-making 
Process for Weapons Systems Support: 

GAO-02-306: 

Contents: 

Letter: 

Results in Brief: 

Background: 

Data Needed to Assess Contractor Logistics Support Approaches Are 
Insufficient: 

Comparisons of Private and Government Depot Maintenance Performance 
Are Either Not Possible or Are Inconclusive: 

Major Commands' Concerns Have Not Been Fully Addressed: 

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: Staff Acknowledgments: 

Tables: 

Table 1: Service Data Reviewed to Compare Contractors' Performance 
with Initial Expectations: 

Table 2: Army Contractors' Overall Performance Ratings, 1998 through 
2001: 

Table 3: Navy Contractors' Overall Performance Ratings, 1998 through 
2001: 

Table 4: Comparison of Average Overhaul Prices for the P-3, H-60, F-
14, and EA-6B Aircraft Performed by Private Contractors and Navy 
Depots: 

Abbreviations: 

DOD: Department of Defense: 

GAO: General Accounting Office: 

[End of section] 

United States General Accounting Office: 
Washington, DC 20548: 

February 28, 2002: 

The Honorable Carl Levin: 
Chairman: 
The Honorable John W. Warner: 
Ranking Minority Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Bob Stump: 
Chairman: 
The Honorable Ike Skelton: 
Ranking Minority Member: 
Committee on Armed Services: 
House of Representatives: 

Since the end of the Cold War, the Department of Defense (DOD) has 
dramatically reduced its forces and associated logistics support. 
[Footnote 1] The armed services have also significantly reduced their 
procurement of new weapons systems and are keeping their existing 
systems longer than originally anticipated. DOD has estimated that it 
is spending about $59 billion a year on logistics support to operate 
and sustain weapons systems,[Footnote 2] but the Department has 
estimated that these costs could be reduced as much as 20 percent by 
adopting improved logistics support practices. In fiscal year 1998, 
the Department directed the armed services to pursue logistics support 
"reengineering"[Footnote 3] efforts to achieve significant savings and 
to improve efficiencies. To this end, the services have begun 
implementing logistics support strategies that rely on the private 
sector to provide most of the support that was traditionally provided 
by the government. This approach is generally referred to as 
"contractor logistics support."[Footnote 4] 

The services are responsible for developing a logistics support 
"concept" before a weapon system is produced. Department of Defense 
Regulation 5000.2-R[Footnote 5] expresses a preference for using long-
term contractor logistics support, but also provides that an analysis 
must first be performed to determine how logistics support work is to 
be allocated to public or private entities. To decide which option to 
use, the services identify cost and performance expectations for a 
specific system. When the services choose the contractor-logistics-
support approach, they are to develop and implement a contracting 
strategy, including an analysis of the performance and costs expected 
from the contractor. After a contract award, the service is to measure 
the contractor's performance against the performance and cost 
requirements defined in the contract. 

Your committees expressed concerns about the cost-effectiveness of 
expanding the use of the contractor-logistics-support approach and 
about the management challenges it may create for major commands. As 
agreed with your offices, we first reviewed and reported on the Air 
Force's experience with this approach because the Air Force has had 
more experience with it over a longer time period. We issued our 
report on that work in September 2001.[Footnote 6] A summary of the 
issues covered in that report is in the background section of this 
report. 

This report covers the Army's and Navy's use of contractor logistics 
support and (1) addresses to what extent these services have 
sufficient data to assess whether the initial cost-effectiveness 
estimates used to justify a contractor-logistics-support approach are 
being achieved; (2) compares the performance of contractors, with that 
of Army and Navy depots in terms of cost and responsiveness for the 
same or similar depot maintenance work; and (3) addresses to what 
extent the services are addressing their major commands' concerns 
about the increased use of long-term contractor logistics support. 
This report completes our work in response to your request for an 
analysis of contractor-logistics-support issues. 

Results in Brief: 

In general, it is impossible to determine whether initial cost-
effectiveness estimates for proposed contractor-logistics-support 
approaches are being achieved because the Army and the Navy do not 
have the data required to make these assessments. Consequently, the 
services may be adopting support approaches without knowing whether 
expected readiness improvements and cost-reduction goals are being 
met, where adjustments are needed, or the conditions under which the 
various support approaches are likely to achieve the most cost-
effective results. The Defense Department's policy requires that 
initial cost and performance analyses be performed before selecting a 
logistics support approach for weapons systems, but it does not 
require a detailed quantification of the alternatives or require that 
this information be retained throughout the system's life cycle. We 
found that the services created and retained documentation justifying 
their selected approaches for only 11 of the 75 weapons systems 
reviewed. Furthermore, data for 6 of the 11 systems do not allow a 
comparison of initial expectations with contractor performance. The 
data for the remaining five systems do not provide a sufficient basis 
for drawing any conclusions about the cost-effectiveness of contractor 
logistics support. Data comparing contractor performance with contract 
requirements indicate that requirements are being met. However, the 
lack of information precludes the services from determining whether 
the original support approach expectations are being met and whether 
the Department will achieve its goal of a 20-percent reduction in 
logistics support costs using by contractor logistics support. 
 
Comparisons of the same or similar work performed by military and 
private facilities are not possible or were inconclusive in 
determining which option is more cost-effective. No comparisons were 
possible for the Army because, as a matter of policy, it does not 
divide its depot-level maintenance work for the same items between 
Army and contractor facilities. Only four comparisons of aircraft 
systems were possible in the Navy, and these showed mixed results: 
Navy depots were more cost-effective in two cases, the contractor was 
more cost-effective in the third case, and both were equally cost-
effective in the fourth. Furthermore, comparisons of available cost 
data for 53 aircraft and ship components also showed mixed results; 
Navy depots and contractors each were more cost-effective in about 
half the comparisons. 

While contractors have provided certain logistics support needs, major 
Army and Navy commands have several concerns about the widespread use 
of contractor logistics support. However, either the Department's and 
the services' actions so far do not fully address these concerns, or 
the issues have not been fully resolved. Major command officials 
expressed concern about (1) their ability to develop and maintain 
critical technical skills and knowledge, (2) contractors deployed on 
the battlefield and how protecting and supporting these contractors 
may affect their troops' ability to accomplish their missions, (3) 
their ability to shift funds in response to changing conditions, and 
(4) not having affordable technical data on hand to develop additional 
or new sources of repair and maintenance to ensure a competitive 
market. 

We are making recommendations to improve the Army's and the Navy's 
decision-making process for weapons systems support and, thus, the 
Department's ability to assess the cost-effectiveness of logistics 
support strategies and reduce its logistics support costs. We are also 
recommending that the Department assess the validity of major command 
concerns related to expanding the use of contractor logistics support. 
In commenting on a draft of this report, DOD generally concurred with 
our recommendations and identified specific actions it plans to take. 

Background: 

DOD is moving to greater reliance on the private sector for logistics 
support for new weapons systems and major upgrades of existing systems.
 DOD Regulation 5000.2-R states that within statutory limitations, 
support concepts for weapons systems shall use contractor-provided 
long-term logistics support based on best value[Footnote 7] over the 
system's life cycle.[Footnote 8] Our review of 71 new and upgraded 
weapons systems showed that these programs are using the private 
sector for most depot maintenance.[Footnote 9] 
 
DOD is using 30 pilot programs to test logistics support reengineering 
concepts that place greater reliance on the private sector. Many 
involve contractor logistics support, direct vendor delivery, or 
performance-based logistics.[Footnote 10] We recently reported, 
however, that the pilot programs have problems in evaluating the cost-
effectiveness of logistics reengineering concepts and are unlikely to 
provide the data needed to compare initial expectations with results. 
[Footnote 11] 

Various DOD studies—-including the 1995 Commission on Roles and
Missions and Defense Science Board reports and the 1997 Defense Reform
Initiative and Quadrennial Defense Review reports-—discussed the 
adoption of long-term contractor logistics support to improve 
logistics processes and achieve savings.[Footnote 12] Generally, each 
study focused on increasing reliance on the private sector to meet the 
military's logistical support needs, as well as on making greater use 
of improved technologies, new business processes, and commercial 
transportation. However, as we have previously reported, the studies 
contained little substantive data to support their savings projections 
or made inaccurate assumptions about how work done by the private 
sector might relate to depot maintenance activities. For example, DOD 
officials used projected savings from the outsourcing of relatively 
simple commercial-type activities to estimate savings of 20 percent or 
more for outsourcing logistics support activities. However, their 
projected savings were based on conditions that do not currently exist 
for most military depot maintenance work.[Footnote 13] The commercial-
type activities were unlike military depot maintenance in that they 
involved relatively simple, routine, and repetitive tasks that do not 
generally require large capital investment or highly skilled and 
trained personnel. 

As with this report, our September 2001 report on the Air Force
(1) analyzed the differences between the cost-effectiveness estimates 
for proposed contractor-logistics-support approaches and actual 
implementation experience, (2) compared the performance of contractors 
and Air Force depots in terms of cost and responsiveness for the same 
or similar depot maintenance work, and (3) determined to what extent the
Air Force had addressed concerns raised by major commands regarding 
the increased use of long-term contractor logistics support. Both 
reports contain similar findings and conclusions. 

For our report on the Air Force, we reported that it is impossible to 
determine whether the cost-effectiveness estimates for proposed 
contractor-logistics-support approaches are being attained during 
implementation because the Air Force does not have the data required 
to do so. Similarly, a comparison of the same or similar depot 
maintenance work performed by Air Force depots and contractors did not 
provide a sufficient basis for determining the more cost-effective 
option. We also reported that the Air Force has not fully addressed 
major commands' concerns about the possible effects of the increased 
use of contractor logistics support. These concerns included potential 
impacts on funding flexibility, reductions in the ability to perform 
essential logistics management functions, reductions in the commands' 
authority over contractors, and the unavailability of technical data. 
We made recommendations aimed at improving the Air Force's ability to 
assess the cost-effectiveness of contractor-logistics-support 
approaches and to address management concerns raised by major Air 
Force commands associated with these approaches. DOD generally 
concurred with our recommendations. 

Data Needed to Assess Contractor Logistics Support Approaches Are 
Insufficient: 

The Army and the Navy do not routinely capture the data needed to 
allow them to compare the cost and performance of weapons systems 
sustainment with the services' initial expectations.[Footnote 14] 
DOD's policy requires initial cost and performance analyses, but does 
not require a detailed quantification of the alternative support 
approaches or require that this information be retained throughout the 
system's life cycle. The available data are not sufficiently detailed 
or reliable to allow for an evaluation of the support approach chosen 
for most of the weapons systems and subsystems we reviewed. DOD does 
assess contractor performance against contract requirements, and 
available indicators show that contractors generally met or exceeded 
contract criteria. However, without specific information on initial 
expectations, program offices may not be able to assess existing or 
newly emerging support strategies to determine where adjustments are 
needed. Furthermore, the services will not be able to assess whether 
greater reliance on the private sector will help them achieve DOD's 
goal of a 20-percent reduction in logistics support costs. 

The Army and the Navy Do Not Have Sufficient Data to Assess the Cost-
Effectiveness of Proposed Contractor-Logistics-Support Approaches: 

The Army and the Navy generally did not perform a cost-benefit 
analysis or did not retain information on the analysis used to support 
the decision to use the private sector to support weapons systems. 
[Footnote 15] Consequently, they cannot determine whether contractor 
support approaches have performed better or worse than initially 
expected and may not have sufficient data to assess whether greater 
reliance on the private sector will help them achieve DOD's goal of a 
20-percent reduction in logistics support costs. 

Weapons systems program offices are responsible for analyzing the cost-
effectiveness of contractor support approaches in developing life-
cycle support plans. Although DOD Regulation 5000.2-R expresses a 
preference for using long-term contractor logistics support, it also 
requires that support approaches be analyzed to provide a basis for a 
final decision. We found that the required analyses had not always 
been performed, and even if they had, their documentation had not 
always been retained. The regulation does not require the services to 
retain their initial analyses and does not specify whether the 
analyses should include detailed estimates quantifying the cost or 
performance of various alternatives. As a result, even those analyses 
that had been retained did not always contain a detailed 
quantification of anticipated life-cycle cost and performance 
expectations. 

We were able to compare the original estimated expectations and actual 
results for only 5 of the 75 contractor-supported systems or 
subsystems we reviewed. Forty-nine had no documentation of the 
original cost and performance expectations, 15 either had not 
developed any detailed expectations or had incomplete documentation, 
and 6 showed that contract performance was not comparable to 
expectations for various reasons such as differences between the 
initial decision criteria and the approach used by the contractors. 
Service-specific data from this analysis are shown in table 1. 

Table 1: Service Data Reviewed to Compare Contractors' Performance 
with Initial Expectations: 

Number of systems reviewed: 
Army: 47; 
Navy: 28; 
Total: 75. 

Systems with no basis for comparison: 
Army: 39; 
Navy: 25; 
Total: 64. 

Systems with no basis for comparison: No documentation available; 
Army: 29; 
Navy: 20; 
Total: 49. 

Systems with no basis for comparison: No expectations expressed in 
documentation; 
Army: 10; 
Navy: 5; 
Total: 15. 

Expectations expressed in documentation: 
Army: 8; 
Navy: 3; 
Total: 11. 

Expectations expressed in documentation: Contract performance not 
comparable to expectations; 
Army: 5; 
Navy: 1; 
Total: 6. 

Expectations expressed in documentation: Contract performance 
comparable to expectations; 
Army: 3; 
Navy: 2; 
Total: 5. 

Source: GAO's analysis of service logistics support decision 
documentation. 

[End of table] 

Contractors' performance met initial performance and cost expectations 
in four of the five cases in which a comparison was possible. However, 
because these five cases account for less than 10 percent of all the 
systems we examined, they do not provide a sufficient basis for 
drawing any conclusions about the cost-effectiveness of contractor 
logistics support. 

Officials at service headquarters and at the Office of the Secretary 
of Defense acknowledged that program offices did not always perform 
the required analyses and that some analyses were not sufficiently 
rigorous to ensure a thorough and complete comparison of all support 
alternatives. For example, we found that in supporting its decision to 
use contractor logistics support for the Trojan II SPIRIT radio 
transmission equipment, the Army stated that (1) the complexity of the 
equipment and the lack of technical documentation made it uneconomical 
to develop in-house capability and that (2) a more cost-effective 
commercial facility already existed. However, the program office did 
not calculate or compare the costs of alternatives. 

Services Satisfied with Contractor Logistics Support:  

While data are not generally available to compare results with 
expectations, contractors are measured against performance criteria in 
contracts, and on the basis of these measurements, the Army and Navy 
are generally satisfied with contractors' performance. According to 
DOD's contractor performance database, Army and Navy program mangers 
evaluated most contractor performance as having met and, in some 
cases, exceeded all contractual requirements from 1998 through 2001. 
Program offices conduct assessments periodically and complete 
performance assessment reports once a year.[Footnote 16] Performance 
is assessed using measures such as on-time delivery, schedule rates, 
and product quality standards. (See table 2 for data on Army contracts 
and table 3 for data on Navy contracts.) 

Table 2: Army Contractors' Overall Performance Ratings, 1998 through 
2001: 

Rating: Exceptional; 
1998[A]: 2; 
1999: 15; 
2000: 22; 
2001[B]: 5; 
Total: 44. 

Rating: Very good; 
1998[A]: 1; 
1999: 14; 
2000: 10; 
2001[B]: 13; 
Total: 38. 

Rating: Satisfactory; 
1998[A]: 2; 
1999: 4; 
2000: 6; 
2001[B]: 4; 
Total: 16. 

Rating: Marginal; 
1998[A]: 0; 
1999: 0; 
2000: 1; 
2001[B]: 1; 
Total: 2. 

Rating: Unsatisfactory;
1998[A]: 0; 
1999: 0; 
2000: 0; 
2001[B]: 0; 
Total: 0. 

Rating: Total; 
1998[A]: 5; 
1999: 33; 
2000: 39; 
2001[B]: 23; 
Total: 100. 

[A] Data for 1998 are less than those for other years because the Army 
did not begin to complete and submit performance reports until late in 
the year. 

[B] All data for 2001 are not complete, pending completion of 2001 
contracts. 

Source: DOD's contractor performance database. 

[End of table] 

Table 3: Navy Contractors' Overall Performance Ratings, 1998 through 
2001: 

Rating: Exceptional; 
1998: 54; 
1999: 61; 
2000: 56; 
2001[A]: 23; 
Total: 194. 

Rating: Very good; 
1998: 56; 
1999: 83; 
2000: 85; 
2001[A]: 38; 
Total: 262. 

Rating: Satisfactory; 
1998: 63; 
1999: 102; 
2000: 89; 
2001[A]: 39; 
Total: 293. 

Rating: Marginal; 
1998: 17; 
1999: 12; 
2000: 15; 
2001[A]: 5; 
Total: 49. 

Rating: Unsatisfactory; 
1998: 1; 
1999: 1; 
2000: 1; 
2001[A]: 1; 
Total: 4. 

Rating: Total; 
1998: 191; 
1999: 259; 
2000: 256; 
2001[A]: 106; 
Total: 802. 

[A] All data for 2001 are not complete, pending completion of 2001 
contracts. 

Source: DOD's contractor performance database. 

[End of table] 

The comments we received from program management officials were 
consistent with DOD's summary data. Program managers for 66 of the 75 
systems we reviewed were satisfied with contractor performance in 
relation to the requirements of Army and Navy contracts. 

Comparisons of Private and Government Depot Maintenance Performance 
Are Either Not Possible or Are Inconclusive: 

Comparisons of the same or similar work performed by military and 
private facilities are not possible or were inconclusive in 
determining which option is more cost-effective. As a matter of 
policy, the Army does not use contractors along with its own depots to 
perform the same work on the same weapons systems or components. As 
for the Navy, we identified no ships[Footnote 17] and only four 
aircraft that have comparable work performed by both the public and 
private sector, and the available data for these showed mixed results. 
Furthermore, a comparison of 53 aircraft and ship components that have 
comparable work performed by both the public and private sector also 
showed mixed results. 

Data for Navy Aircraft Overhauls Show Mixed Results: 

Navy data indicated that the private contractor was more cost-
effective in overhauls of the P-3 aircraft, Navy depots were more cost-
effective in overhauls of the F-14 and EA-6B aircraft, and neither was 
clearly more cost-effective in overhauls of the H-60 aircraft. 
However, the quality of the financial data generated by the Navy's 
accounting systems is questionable, which may limit the usefulness of 
these comparisons.[Footnote 18] Table 4 shows the details of our 
analysis of depot overhauls of Navy aircraft.
 
Table 4: Comparison of Average Overhaul Prices for the P-3, H-60, F-
14, and EA-6B Aircraft Performed by Private Contractors and Navy 
Depots: 

Aircraft workload[A]: P-3; 
Average price per depot repair: 
Contractor: $587,450; 
Navy depot: $966,829; 
Price difference (percentage): 
Contractor lower than Navy depot: 39%. 

Aircraft workload[A]: H-60[B]; 
Average price per depot repair: 
Contractor: $441,789; 
Navy depot: $558,000; 
Price difference (percentage): 
Contractor lower than Navy depot: 26%. 

Aircraft workload[A]: H-60[B]; 
Average price per depot repair: 
Contractor: $441,789; 
Navy depot: $411,428; 
Price difference (percentage): 
Navy depot lower than contractor: 7%. 

Aircraft workload[A]: F-14A; 
Average price per depot repair: 
Contractor: $4,533,436; 
Navy depot: $3,656,535; 
Price difference (percentage): 
Navy depot lower than contractor: 19%. 

Aircraft workload[A]: F-14B; 
Average price per depot repair: 
Contractor: $3,498,665; 
Navy depot: $3,019,703; 
Price difference (percentage): 
Navy depot lower than contractor: 14%. 

Aircraft workload[A]: EA-6B; 
Average price per depot repair: 
Contractor: $2,224,143; 
Navy depot: $2,173,818; 
Price difference (percentage): 
Navy depot lower than contractor: 2%. 

[A] Cost data available varied by time period for different aircraft: 
P-3 data cover the past 3 years; F-14A/B data cover the past 5 years; 
EA-6B data cover the past 4 years; and H-60 data cover the past 4 
years. 

[B] The H-60 work is performed by two Navy depots and one contractor. 
The table shows comparisons between the contractor and both Navy 
depots. 

Source: GAO's analysis of the Navy's data. 

[End of table] 

There are only two clear examples of significant cost savings for work 
performed by a contractor (the P-3 aircraft) or by a Navy depot (the F-
14). For the H-60, the contractor was less costly than one Navy depot, 
but more costly than a second Navy depot. Given these limited findings 
and the lack of reliable data, it is impossible to draw conclusions 
about which source is more cost-effective. Thus, data are not 
available to support the premise that the expanded use of contractors 
is likely to reduce the cost of weapons systems support.
Component Repair Data Provide Inconclusive Results Similarly, data on 
the price of component repairs for similar Navy workloads by private 
facilities and government depots are limited and inconclusive for 
determining which option is more cost-effective. Again, we were unable 
to make any comparisons in the Army, and we reviewed 53 Navy 
components that allowed for an objective comparison of price and 
performance.[Footnote 19] The contractors' prices were lower in 27 
cases, and the Navy's were lower in the remaining 26. For example, 

* a Navy depot repaired ship's master compass units for $6,763 each, 
while the contractor repaired them for $3,222 (52 percent less); 

* a Navy depot repaired flight control torquemeters for $4,064 each, 
while the contractor repaired them for $1,920 (53 percent less); 

* a contractor repaired video system converter assemblies for $22,294 
each, while the Navy depot did so for $8,450 (62 percent less); and; 

* a contractor repaired circuit card assemblies for $1,627 each, while 
the Navy depot repaired them for $758 (53 percent less). 

According to Navy officials, the cost of repair is not the main 
criterion for deciding who performs component repairs. In most cases, 
Navy depots were chosen because of their ability to meet the service's 
need to have a certain amount of public-sector depot maintenance 
capability requirements—technically referred to as "core logistics 
capability."[Footnote 20] Private contractors were chosen in some 
cases, even though they were the more expensive option, because the 
Navy needs to maintain commercial sources of repair to meet potential 
surge[Footnote 21] and contingency requirements, and to offset 
capacity shortfalls. 

 Overall, Navy officials said that Navy depots and contractors both 
performed their work at acceptable levels for the component repairs we 
reviewed. Navy officials stated they had no problems with the quality 
of the contractors' or Navy depots' recent performance. 
 
Major Commands' Concerns Have Not Been Fully Addressed: 

Although DOD and the services have taken some steps to address the 
concerns raised by major Army and Navy commands about the potential 
impact of expanding the use of contractor logistics support, efforts 
made so far are not yet complete or have not fully addressed these 
concerns. While contractors have stepped in to fill shortfalls in 
needed capability, command officials are still concerned that greatly 
expanding this approach  may (1) create a shortage of adequately 
trained soldiers and sailors needed to maintain weapons systems during 
a conflict, (2) require additional planning for contractors on the 
battlefield, (3) reduce funding flexibility, and (4) make the 
technical data required to maintain a competitive market unaffordable 
or unavailable. If DOD and the services do not address these issues, 
they risk having insufficient numbers of trained personnel when and 
where they are needed and not having a competitive environment to 
promote affordable repair and maintenance capabilities. 

Availability of Required Maintenance Skills: 

Army and Navy command officials were concerned that greater use of 
contractors to provide logistics support for weapons systems could 
reduce their operational capabilities by decreasing their ability to 
develop and maintain the critical technical skills and knowledge that 
soldiers and sailors need to sustain weapons systems during conflicts. 
According to these officials, maintaining a minimum essential level of 
maintenance capability at the operational level is essential to 
providing required warfighting capability. However, they added that 
the services have had to replace some military logistics personnel 
with contractor personnel to manage force structure reductions and 
that this increased use of contractors has reduced on-the-job training 
opportunities for military personnel who need to maintain and develop 
their required logistics skills. Combat officers stated that the Army 
is having difficulty with retaining highly skilled, better-trained 
soldiers in those logistics functions that are now being augmented or 
performed by contractors because contractors have been attracting the 
best and brightest soldiers with prospects of higher pay and benefits. 
In addition, these combat officers stated that the number of 
experienced soldiers available to train newcomers has been reduced and 
that the skill level of soldiers is not what it needs to be. This 
could generate a capability gap in maintenance at the operational 
level that could affect the Army's ability to generate required 
warfighting capability. Officials said they would probably have to 
compensate for such a gap by relying even more on contractors on the 
battlefield. 

Combat command officials are also concerned that increasing the number 
of contractors who perform maintenance and other logistics functions 
at home bases and home ports could affect morale, and therefore 
retention. Having more contractors perform these functions reduces the 
number of available stateside assignments for military personnel 
assigned overseas or at sea.[Footnote 22] This could increase the 
length of overseas or at-sea tours for military personnel wishing to 
be assigned closer to home. 

According to a Navy logistics headquarters official, the issue needs 
to be addressed at the service headquarters level because it involves 
program managers who are primarily concerned about their individual 
system's performance. However, these managers are not necessarily 
aware of, nor is anyone assessing, the effects that their decisions to 
hire contractors may have servicewide. For example, a program office 
may allow a contractor to modify the design of an item that originally 
shared common parts and maintenance procedures with other items. This 
action would increase the number of spare parts stocked aboard ships 
and add new maintenance requirements. To address this issue, the 
Navy's office of Logistics Policy and Programs is developing policy 
that would increase the oversight role of logistics in the acquisition 
process.[Footnote 23] The proposed policy would apply more focus on 
overarching support issues such as maintaining critical military 
logistics skills and capabilities. 

For their part, senior Office of the Secretary of Defense logistics 
officials said they recognize the potential gap in critical 
maintenance capability at the combat-unit level. They also noted that 
DOD has not quantified essential logistics capabilities that need to 
be performed by military personnel. According to Army headquarters 
logistics officials, the Army has an effort under way to identify 
essential unit-level positions, including those that should be 
performed by military personnel, civilians, or contractors. The Army 
expects this effort to be completed in fiscal year 2002. 

Management of Contractors on the Battlefield: 

Officials from the Office of the Secretary of Defense noted that the 
use and management of contractors on the battlefield is a 
controversial issue for the Army but not a significant issue for the 
Navy.[Footnote 24] Although Army policy addresses the issue, 
implementation challenges remain. Army officials stated that 
contractors are becoming increasingly essential for deployed combat 
units, even though Army policy states that, generally, contractors are 
not to be used forward of the rear boundary of a division (i.e., on 
the battlefield).[Footnote 25] Army officials also told us they are 
concerned about the extent to which DOD has incorporated the growing 
numbers of contractors into deployment schedules and operational plans 
and has assessed the impact that contractors have on military 
personnel issues and battlefield management. 

 Command officials indicated that a relatively small number of 
contractors on the battlefield might be manageable but that large 
numbers would accentuate problems. They could not specify this 
threshold in terms of numbers. Army officials said there are limits on 
how much contractors can be used on the battlefield for the following 
reasons: 
 
* Combat units' ability to conduct wartime missions could be weakened 
if contractors are withdrawn or are unwilling to stay on or near the 
battlefield during hostilities. 

* Providing the required support for and protection of contractors on 
or near a battlefield may require extra personnel and may divert 
resources from the wartime mission at a time when the services are 
trying to reduce their logistical presence in areas close to the 
battlefield. 

* Contractors that are included in battlefield plans would also have 
to be included in the deployment-planning process; otherwise, combat 
forces may be required to take extraordinary actions at the time of 
deployment to send needed contractors to the battlefield. 

The Army now requires that every unit operation and contingency plan 
contain provisions for managing, deploying, sustaining, and protecting 
contractors on the battlefield. However, the Army has recently learned 
that because some plans may not be complete or fully developed, some 
units may not be in compliance with the Army's planning requirements.  
One division has had problems with developing the plans for its units 
and has asked Army headquarters for assistance. Army headquarters 
logistics officials stated that they have not reviewed other 
divisions' plans and do not have in place a mechanism for verifying 
compliance with these requirements. 

Funding Flexibility: 

Army and Navy operating command officials generally believe that 
logistics support contracts, to a degree, represent fixed obligations 
and could limit their ability to transfer funds in and out of various 
weapons systems' budget accounts to adjust for changing requirements 
or budget cuts. Although the Army and the Navy do not yet use 
contractor logistics support as much as the Air Force does, they are 
moving to greater reliance on contractors, and as they do, funding 
flexibility is likely to become more of a problem. Army and Navy 
officials noted that funding flexibility is already an issue that is 
likely to grow as the use of contractor logistics support increases. 

Although funding for contractors is not necessarily fixed, officials 
said it is often treated as if it were. Army Forces Command officials 
cited a case in which they were recently directed to spread a 
reduction in the operation and maintenance budget evenly across all 
operation and maintenance accounts. However, because of the costs of 
reducing contract quantities, and because they did not want to risk 
losing contractor support over the long term, they applied most of the 
budget cuts to fuel and spare parts. Operating command officials 
stated that they have been able to accomplish their missions in spite 
of funding constraints, but they warned that such constraints could 
increase as their ability to transfer funds decreases. These officials 
could not specify at what point expanding the use of contractor 
logistics support might reduce their funding flexibility to the point 
that it might affect their ability to accomplish their missions. 

Different military components are dealing with the issue in different 
ways. Navy logistics officials stated that upcoming policy revisions 
would create a headquarters oversight process for reviewing logistics 
support decisions for individual weapons systems.[Footnote 26] They 
believe that this should address concerns about funding flexibility 
from a Navy-wide perspective. But there are tensions in the Army. 
According to Army headquarters logistics officials, the Army weapons 
systems program managers are trying to achieve greater control over 
logistics funding by expanding contractor logistics support. However, 
Army headquarters logistics, and financial and resource management 
officials are concerned that this may reduce the flexibility needed to 
deal with higher or changing priorities. Office of the Secretary of 
Defense officials said that stable funding commitments are needed to 
optimize new logistics support strategies, but they also noted that 
these would potentially limit a command's funding flexibility. The 
officials said that DOD is trying to develop innovative ways to 
implement its new logistics support strategies while allowing unit 
commanders the continued funding flexibility they need. 

Access to Technical Data: 

While DOD's acquisition regulations require that program managers have 
enough technical data[Footnote 27] to be able to support competition 
for logistics sustainment throughout the life of the weapons systems, 
[Footnote 28] command and headquarters logistics officials stated that 
program offices often do not put adequate emphasis on obtaining 
required access to the needed technical data during the acquisition 
process. These officials are concerned that the expanded use of 
contractor logistics support will result in reducing the availability 
of affordable technical data needed to competitively support weapons 
systems and that without such a competitive base, future contractor 
support costs may increase disproportionately compared with what would 
be expected in a competitive environment. Officials stated that even 
though contractor logistics support is theoretically supposed to 
sustain a weapons system for its entire life cycle, a contractor may 
not want to do so, especially if the system remains in service longer 
than initially planned. Consequently, when the data are needed later 
in the life cycle, they may be prohibitively expensive. 

Currently, some program offices do not have sufficient access to 
technical data because they believe that the prices being requested by 
the contractors that own the data are unaffordable. For example, the 
Army tried to buy technical data to develop in-house capability to 
repair its SPITFIRE radio terminals. The manufacturer was willing to 
sell the data for $100 million--almost as much as what the entire 
program cost ($120 million)[Footnote 29] from 1996 through 2001. 
Program officials decided they could not afford the data, and the Army 
will continue to buy repair services noncompetitively from the 
manufacturer. Another example shows how access to adequate and 
affordable technical data can reduce costs and improve repair times 
significantly. According to a program management official, a private 
manufacturer was not repairing a commercial satellite communications 
radio quickly enough to meet the Army's needs. By using data in the 
user's technical manual (which comes with the radio), the Army was 
able to have a government-owned, contractor-operated facility repair 
the units for an average of $5,000 less per repair than the original 
contractor's price, with an average turnaround time of 1 week (instead 
of 6 months). 

A high-level official in the Office of the Under Secretary of Defense 
for Acquisition, Technology, and Logistics stated that while DOD 
Regulation 5000.2-R requires that program offices ensure access to 
needed technical data, frequently, this has not occurred. If this does 
not occur as part of the initial acquisition process, the government 
will have less bargaining power in future negotiations for the data. 
He noted that more emphasis on oversight is needed in the acquisition 
process. This, he said, would ensure that the program offices maintain 
adequate access to technical data throughout the life of the weapons 
systems to foster a competitive environment for making logistics 
support arrangements for weapons systems. Army and Navy headquarters 
logistics officials also warned that the lack of access to sufficient 
technical data could jeopardize the services' ability to maintain 
weapons systems in the long term. In our previous report on the Air 
Force's use of contractor logistics support,[Footnote 30] Air Force 
officials recognized the difficulty resulting from not having 
affordable technical data and noted that one way to deal with this 
issue is for program offices to include a priced option for the 
purchase of technical data when proposals for new weapons systems or 
modifications to existing systems are being considered. Army and Navy 
logistics officials agreed with this approach. 

Conclusions: 

The Army and Navy are working to find ways to significantly improve 
the effectiveness of logistics support strategies and to reduce 
weapons systems' life-cycle costs. However, they do not have key 
management data necessary to measure whether anticipated cost and 
performance projections for new logistics strategies are being 
achieved. New logistics support strategies are being introduced and 
tested, but often, baseline data are not being developed or retained 
to assess actual cost and effectiveness results against the initial 
business-case analysis that was used to select a specific support 
strategy. Without such information, management assessments of the 
strategies' strengths and weaknesses cannot be made; impacts on budget 
estimates are difficult to assess; and, most importantly, substantial 
resources may be wasted in implementing logistics support strategies 
that may be more costly or less efficient than initial estimates had 
projected. Also, sufficient data for early assessments of new 
logistics support strategies are not available to assess whether life-
cycle support costs and effectiveness goals are being met and to help 
identify where program strategy adjustments might be needed to meet 
goals. 

While many new logistics support strategies include the performance of 
logistics activities by contractors, major commands are concerned that 
the impact of these strategies has not been fully evaluated. The 
impact of using contractors in increasing numbers in military units 
has not been adequately assessed, particularly with respect to the 
effect on the services' ability to develop and retain sufficient 
military maintenance personnel to accomplish the required repair work 
during a military conflict. Given that some contractors will continue 
to be required for logistics support during conflicts, more may need 
to be done to ensure that operational plans effectively provide for 
the deployment, sustainment, protection, and management of 
contractors. Furthermore, as DOD continues with its plans to increase 
the use of contractor logistics support, and particularly as it 
considers transferring the control of maintenance funding to program 
managers, an assessment of the effects of such strategies on the 
flexibility of operational commanders would provide meaningful 
insights into the full impact of the implementation of these 
initiatives. Lastly, although DOD's regulation 5000.2-R requires that 
program managers have enough data to be able to support competition 
throughout the life of the weapons systems, little is being done to 
achieve this goal in a consistent and cost-effective manner. The Air 
Force has suggested including priced options for technical data when 
systems are being purchased as a potential solution. If the 
availability of technical data is not more fully addressed in the 
acquisition process, DOD runs the risk that weapons systems and their 
key components will likely not be available to meet mission needs or 
that they will be obtainable only at unnecessarily high costs. 

Recommendations for Executive Action:  

To enhance accountability over life-cycle cost and effectiveness 
decisions regarding logistics support, we recommend that the secretary 
of defense take action to strengthen Department of Defense Regulation 
5000.2-R to require that a detailed quantification of the expected 
life-cycle costs of alternative support approaches be made before 
making logistics support decisions for a weapon system. We also 
recommend that the secretary of defense develop a requirement to 
ensure that weapons systems acquisition program offices retain the 
documentation of analyses used to support the initial life-cycle 
logistics support decisions and, using the data from these analyses, 
conduct periodic reviews to (1) assess the cost-effectiveness of 
logistics support, (2) develop budgetary implications of life-cycle 
cost changes, (3) assess existing and newly emerging support 
strategies to determine where adjustments may be needed, and (4) 
identify the conditions under which the various support approaches are 
likely to achieve the most cost-effective results. 

To enhance the services' ability to make sound logistics management 
and policy decisions, we recommend that the secretary of defense 
require the Departments of the Army and Navy to assess and report to 
him on any actions needed to address the concerns raised by operating 
commands regarding the (1) requirements for logistics military 
personnel in each logistics specialty required to support operational 
plans, (2) planning for the use of contractors to support operational 
and contingency plans, and (3) impact of increasing contractor-
logistics-support arrangements on command spending flexibility. 

To help reduce the risk of increased life-cycle support costs and 
foster a competitive logistics support environment, we recommend that 
the secretary of defense take actions to enforce the requirement in 
Department of Defense Regulation 5000.2-R, related to the acquisition 
of technical data rights to foster source of support competition 
throughout the life of the system, by (1) placing greater emphasis on 
the importance of addressing the availability of technical data during 
the acquisition oversight process and (2) requiring program offices to 
assess the merits of including a priced option for the purchase of 
technical data when proposals for new weapons systems or modifications 
to existing systems are being considered. 

Agency Comments: 

DOD provided written comments on a draft of this report, generally 
agreeing with our recommendations. DOD's response identified steps that
and Our Evaluation the Department is taking to address our 
recommendations, noting that the Department is attempting to improve 
DOD's logistics support through its new Future Logistics Enterprise 
initiative. According to the response, this initiative, which includes 
a life-cycle weapon system management approach, should address the 
deficiencies identified in our report. DOD's comments are included in 
this report as appendix II. 

While fully concurring with three recommendations, DOD partially 
concurred with our recommendation to direct the secretaries of the 
Army and of the Navy to retain logistics support decision 
documentation and conduct periodic follow-up reviews for assessing and 
improving selected support approaches. DOD stated that, rather than 
directing a specific service to develop requirements for retaining 
logistics support decision-making criteria, the Department will 
include requirements in the next update of DOD Regulation 5000.2-R 
that are applicable to all the services. Furthermore, DOD plans to 
periodically assess selected systems to measure supportability factors 
such as the readiness, availability, reliability, and costs of new 
programs. DOD stated that these reviews will assess the degree to 
which logistics support decisions achieve their stated purpose and 
identify the actions needed to alter support strategies. We agree that 
modifications to DOD Regulation 5000.2R could provide needed direction 
to the military departments regarding assessing the cost and 
performance effectiveness of logistics support decisions. Once 
implemented, these actions would satisfy the intent of our 
recommendation. Therefore, we have modified this recommendation to 
make it consistent with DOD's promised action plan. 

We met with officials at headquarters, U.S. Army; Army Aviation and
Missile Command; Army Communication and Electronics Command; Army
Tank and Automotive Command; Army Forces Command; Army 111 Corps;
Army Materiel Systems Analysis Activity; Army Test and Evaluation
Command; headquarters, U.S. Navy; Naval Sea Systems Command; Naval
Air Systems Command; U.S. Atlantic Fleet; Naval Inventory Control Point,
Mechanicsburg; and Naval Inventory Control Point, Philadelphia. We 
also met with officials from the Office of the Under Secretary of 
Defense for Acquisition, Technology, and Logistics. We conducted our 
review from May through December 2001 in accordance with generally 
accepted government auditing standards. For more details on our scope 
and methodology, see appendix I. 

We are sending copies of this report to the appropriate congressional 
committees; the secretary of defense; the secretary of the Army; the 
secretary of the Navy; the secretary of the Air Force; and the director,
Office of Management and Budget. We will also make copies available to 
others upon request. Please contact me on (202) 512-8412 if you or 
your staff have any questions concerning this report. Key contributors 
to this report are listed in appendix III. 

Signed by: 

David R. Warren, Director: 
Defense Capabilities and Management: 

[End of section] 

Appendix I: Scope and Methodology: 

To determine whether the Department of Defense (DOD) has sufficient 
data to assess whether initial cost-effectiveness estimates for 
proposed contractor-logistics-support approaches are being achieved 
during program implementation, we identified weapons systems that 
relied on contractor logistics support and systems that used a lesser 
degree of contractor-provided support through discussions with 
officials at Army and Navy headquarters, system program offices, and 
weapons systems commands. We looked at 75 systems (47 Army and 28 
Navy) that were in use at the time of our review. Because neither the 
Army nor the Navy had listings of systems that are supported by 
contractor logistics support,[Footnote 31] we asked service officials 
to identify those operational systems that have the highest amount of 
contractor support. Using the Air Force's definition of contractor 
logistics support, we then separated the systems into two categories-—
"contractor logistics support" and "other." We made this assessment 
after discussing the scope of logistics support for each system with 
program managers. For the systems we reviewed that used contractor 
logistics support, we determined whether the systems were either 
commercially available items or derivatives of commercially available 
items through discussions with program managers. For the systems in 
both categories, we collected and reviewed cost and performance data 
and, to the extent that sufficient information was available, compared 
initial estimates with actual results of contractors' performance. To 
provide information on the overall performance of contractor-provided 
logistics support against contract requirements, we obtained summary 
data from DOD's contractor performance assessment database to 
determine how contractors performed against those contract 
requirements. We did not independently verify the quality of 
contractors' performance in providing logistics support or the 
reliability of contractor-reported cost data. However, we did discuss 
the quality of contractors' performance with weapons systems program 
managers. 

To determine the extent to which the services have data to compare the 
performance of contractors and military depots in terms of cost and 
responsiveness for the same or similar overhaul and repair work, we 
reviewed the policies and procedures for the performance and 
allocation of depot maintenance workload, interviewed Army and Navy 
logistics officials, and collected and analyzed cost and performance 
data for similar depot maintenance workloads. As a matter of policy, 
the Army does not use contractors and military depots to perform the 
same or similar work. Therefore, no Army system and component 
overhauls were included in our analyses. Navy aviation and ship 
logistics officials provided lists of aircraft systems, and aircraft 
and ship components for which such data and experience were 
available.[Footnote 32] For the five Navy aircraft systems identified, 
we interviewed program management and logistics officials to determine 
whether (1) the scope of work performed by the military depot and 
contractor were the same or sufficiently similar to allow a meaningful 
comparison and (2) variations in the conditions of individual aircraft 
were not so extensive that they did not negate the meaningfulness of 
the comparison. We then collected and analyzed available cost and 
performance data for the five aircraft repaired by both Navy depots 
and contractors, and compared the costs of each repair source with the 
other repair source to determine whether one source was more or less 
costly than the other. We determined that one of the five aircraft, 
the S-3, did not provide sufficient comparable data for our analysis. 
For components, we obtained a Navy listing of the components repaired 
at both military depots and contractor facilities. The listing was 
developed by the supply systems commands in response to our request 
for this information. We reviewed 71 components for an analysis of 
repair costs and performance. We selected 31 ship components by 
identifying those items that had at least five repairs by both 
contractors and Navy depots for fiscal year 2000. We selected 40 
aviation components by identifying those items that had at least 15 
repairs by both contractors and Navy depots for fiscal year 2000. For 
the identified components, we met with the responsible item managers, 
contracting officers, and equipment specialists to ensure that the 
same repairs were being performed at both military and contractor 
facilities. As a result, we determined that the repairs being 
performed by the military and contractors were comparable for 53 
components. We excluded 18 of the 71 components because we determined 
that the circumstances surrounding the repairs of these items did not 
permit an objective comparison of contractors' and the military's 
repair costs. In these cases, either the contractor or the Navy depot 
(but not both) was performing more extensive repairs or upgrading 
components in conjunction with those repairs or we determined that the 
pricing data available were insufficient. Thus, the work was not 
comparable. We relied on, but did not independently verify, the 
military's and contractors' repair cost data provided by Navy item 
managers, contracting officers, equipment specialists, and production 
specialist. During our work to address this objective, we also 
collected, analyzed, and discussed data regarding the relative 
performance of contractors' and the Navy's depots for the workloads 
with systems command and program office officials. 

To determine to what extent the Army and Navy have addressed concerns 
raised by their major commands regarding the increased use of 
contractor logistics support, we held discussions with U.S. Atlantic 
Fleet, Naval Surface Force U.S. Atlantic Fleet, Naval Submarine Force 
U.S. Atlantic Fleet, and Naval Air Force U.S. Atlantic Fleet logistics 
officials; and Army Forces Command and Army BI Corps operations, 
finance, and logistics officials. We discussed the challenges 
identified with a high-ranking official from the Office of the Deputy 
Under Secretary of Defense for Acquisition, Technology and Logistics 
to determine whether the Department views the issues as relevant and 
valid. 
[End of section] 

Appendix II: Comments from the Department of Defense: 

Deputy Under Secretary Of Defense For Logistics And Materiel Readiness: 
3500 Defense Pentagon: 
Washington, DC 20301-3500: 

February 15, 2002: 

Mr. David R. Warren: 
Director, Defense Capabilities and Management: 
U.S. General Accounting Office: 
Washington, D.C. 20548: 

Dear Mr. Warren, 

This is the Department of Defense (DoD) response to the GAO draft 
report, "Defense Logistics: Opportunities to Improve the Army and Navy 
Decision-Making Process for Weapons System Support", dated January 15, 
2002 (GAO Code 709514/350072). The Department generally concurs with 
the report. 

The report's findings parallel results of a similar audit performed on 
Air Force systems last year, to which the Department also generally 
concurred. This effort focuses more attention on strengthening 
existing policies found in the DOD 5000 series Acquisition Policy 
documentation. The Department agrees and is addressing those policies 
through its Total Life Cycle Systems Management (TLCSM) effort under 
its Future Logistics Enterprise (FLE) effort. FLE is a comprehensive 
effort to improve DoD logistics support through enterprise integration 
and end-to-end customer service. FLE consists of six specific 
initiatives including TLCSM. The TLCSM Working Group consists of 
representatives from the Office of the Secretary of Defense, the 
Services, and Defense Agencies, joined in a collaborative effort to 
improve the Department's weapon system support processes. Efforts 
aimed at addressing deficiencies identified in the draft report, 
including changes to the DoD 5000 series documentation, will be 
pursued by this group. 

The detailed DoD comments on the draft GAO recommendations are 
provided in the enclosure. The DoD appreciates the opportunity to 
comment on the draft report. 

Sincerely, 

Signed by: 

[Illegible], for: 
Diane K. Morales: 

Attachment As stated: 

cc: Director, ARA. 

[End of letter] 

GAO Draft Report Dated January 15, 2002: 
(GAO Code 709514/350072): 

"Defense Logistics: Opportunities To Improve The Army And Navy 
Decision-Making Process For Weapons Systems Support" 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation 1: To enhance accountability over logistics support
life-cycle cost and effectiveness decisions, the GAO recommended that 
the Secretary of Defense take action to strengthen Department of 
Defense Regulation 5000.2-R, to require that a detailed quantification 
of the expected life-cycle costs of alternative support approaches be 
made before making logistics support decisions for a weapons system. 

DOD Response: Concur. The 5000 series of Acquisition Policy documents
are being revised to include emphasis on Total Life Cycle Systems 
Management (TLCSM) and Performance Based Logistics (PBL). TLCSM is the 
framework to enable program managers to exercise full responsibility 
of the weapon system throughout its life cycle, to include 
supportability. PBL is a strategy to accomplish this by allowing 
program managers to provide sustainment as an integrated package 
designed to optimize system readiness. Support providers under this 
arrangement can be industry, an organic provider, or a mix of both. In 
implementing PBL, and thereby selecting the ultimate logistics support 
provider, program managers will perform business case analyses that 
consider total life cycle costs, negotiated performance level 
agreements with the warfighter, and best value. Although the 
department has updated the DoD 5000.2-R to include PBL and TLCSM in 
Draft Change 1, an expansion of this policy to include supportability 
sourcing decisions based on TLCSM will occur with the next update, now 
planned for June 2002. 

Recommendation 2: The GAO recommended that the Secretary of
Defense direct the Secretaries of the Army and the Navy to develop a 
requirement to ensure that weapons systems acquisition program offices 
retain the documentation of analyses used to support the initial life-
cycle logistics support decisions and, using the data from these 
analyses, conduct periodic reviews to (1) assess logistics support 
cost-effectiveness, (2) develop budget impact implications
of life-cycle cost changes, (3) assess existing and newly emerging 
support strategies to determine where adjustments may be needed, and 
(4) identify the conditions under which the various support approaches 
are likely to achieve the most cost-effective results. 

DOD Response: Partially concur. Inherent in implementing TLCSM is the
creation of performance agreements between program offices and the 
warfighter and between program offices and the support provider. 
Selection of the support provider is based on statutory constraints 
and a business case analysis. In order to assess the performance of 
the business arrangements and the performance agreements, the 
Department plans to conduct periodic assessments on a selected system 
basis to measure such supportability factors as readiness, 
availability, reliability and cost for new programs. These reviews 
will assess the degree to which support decisions achieve their stated 
purpose and identify actions needed, if any, to alter support 
strategies, alter support arrangements, or reconfigure support 
provider relationships. Rather than direct requirements to a specific
Service, the Department will include requirements to retain logistics 
support decision-making criteria into the next update to the DoD 
5000.2-R. As stated in response to recommendation #1, this is 
scheduled for publication in June 2002. 

Recommendation 3: To enhance the Services' ability to make sound
logistics management and policy decisions, the GAO recommended that the
Secretary of Defense require the Departments of the Army and Navy to 
assess and report to him on any actions needed to address the concerns 
raised by operating commands regarding the (1) logistics military 
personnel requirements in each logistics specialty required to support 
operational plans, (2) planning for the use of contractors to support 
operational and contingency plans, and (3) impact of increasing 
contractor-logistics-support arrangements on command spending 
flexibility. 

DOD Response: Concur. The Department recognizes the risks involved in
implementing alternative support strategies that deviate from 
established processes. The Department agrees that operational support 
commanders should be consulted during the evaluation and selection of 
support providers when implementing Performance Based Logistics, to 
both instill confidence in the selected provider method and to 
minimize future readiness detractions. The Joint Logistics Board has 
agreed to the broad application of Total Life Cycle Systems
Management as a framework for future product support. The TLCSM 
workgroup, which consists of OSD, Joint Staff J-4, Army, Navy, Air 
Force, Marine Corps, and Defense Logistics Agency representatives, 
will include the issues of personnel requirements, contractors on the 
battlefield, and command spending flexibility as items to be addressed 
in formulating evolving DoD sustainment policy guidance. Strategies, 
actions, and critical elements needed to address these concerns, 
including appropriate consultation with operational commanders, will 
be performed on a Department-wide basis. 

Recommendation 4: To help reduce the risk of increased life-cycle
support costs and foster a competitive logistics support environment, 
the GAO recommended that the Secretary of Defense take actions to 
enforce the requirement in Department of Defense regulation 5000.2-R, 
related to the acquisition of technical data rights to foster source 
of support competition throughout the life of the system, by (1) 
placing greater emphasis on the importance of addressing technical 
data availability during the acquisition oversight process, and (2) 
requiring program offices to assess the merits of including a priced 
option for the purchase of technical data when proposals for new 
weapons systems or modifications to existing systems are being 
considered. 

DOD Response: Concur. As noted in the draft audit report, there is a 
current requirement in the DoD 5000.2-R for program offices to provide 
for long-term access to data required for the competitive sourcing of 
systems support throughout the life cycle, (C2.8.4.1, DoD 5000.2-R, 
June 2001). The current policy also states a preference for providing 
on-line access to programmatic and technical data through a contractor 
information service or information technology infrastructure. (DoD 
5000.2-R, paragraphs C2.6.3.1 and C.2.6.3.1.2, June 2001).
The Department's intent is to allow program offices the flexibility to 
provide for access to technical data in a manner that provides maximum 
cost-effective support over the life cycle for weapons systems. In 
implementing Total Life Cycle Systems Management, the Department will 
strengthen this requirement for access to long-term technical data as 
a specific need to be addressed when negotiating support agreements 
with logistics providers. Although there is nothing in current DoD 
policy that would preclude program offices from assessing the merits 
of including a priced option for purchasing technical data, the
Department will also include this as an option for program managers to 
consider in the next edition of the Department's Product Support Guide 
(Product Support: A Program Manager's Guide for Buying Performance, 
November 2001), scheduled to be updated in April, 2002. 

[End of section] 

Appendix III: Staff Acknowledgments: 

Julia Denman, Larry Junek, Robert Malpass, Bobby Worrell, John Brosnan,
Stefano Petrucci, and John Strong made key contributions to this 
report. 

[End of section] 

Footnotes: 

[1] The services, materiel, and transportation required to support 
deployed forces. 

[2] DOD does not routinely capture these costs in its accounting and 
estimating systems. However, beginning in fiscal year 1999, the Office 
of the Under Secretary of Defense for Acquisition, Technology, and 
Logistics started estimating the amounts spent annually on logistics 
support. 

[3] This is the term DOD uses to describe its efforts to make the 
sustainment of weapons systems more cost-effective throughout their 
life cycle by ensuring that support infrastructures are competitive, 
efficient, timely, and unobtrusive. 

[4] Contractor logistics support is expected to be a long-term support 
arrangement and is generally associated with multiple functions such 
as maintenance, supply, and engineering. This approach was first used 
with commercial derivative systems to allow the military to benefit 
from a support system already established in the commercial market 
place. More recently the concept is being used for military-unique 
systems. 

[5] Mandatory Procedures for Major Defense Acquisition Programs and 
Major Automated Information System Acquisition Programs, Department of 
Defense Regulation 5000.2-R (June 2001). 

[6] See U.S. General Accounting Office, Defense Logistics: Air Force 
Lacks Data to Assess Contractor Logistics Support Approaches, 
[hyperlink, http://www.gao.gov/products/GAO-01-618] (Washington, D.C.: 
2001). 

[7] DOD Regulation 5000.2-R does not define "best value," which is 
generally considered to be a process that uses other factors in 
addition to cost or price to achieve the greatest overall benefit in 
selecting support approaches. 

[8] A system's life cycle spans from the time it is initially 
developed to the time it is removed from the inventory. 

[9] See U.S. General Accounting Office, Defense Depot Maintenance: DOD 
Shifting More Workload for New Weapon Systems to the Private Sector, 
[hyperlink, http://www.gao.gov/products/GAO/NSIAD-98-8] (Washington, 
D.C.:1998). Repair and maintenance are usually performed at three 
levels, depending on magnitude or complexity. Individual squadrons 
or units do most routine smaller repairs, while progressively more 
difficult jobs are done at the "intermediate" or "depot" levels. 

[10] Under direct vendor delivery, a contractor manages inventory and 
delivers parts (or items) directly to the user. Under performance-
based logistics, the contractor agrees to provide a given level of 
performance and is responsible for all the required elements of 
logistics. The contractor may enter into an agreement with a 
government activity in which the government provides the contractor 
with some maintenance or other support. 

[11] See U.S. General Accounting Office, Defense Logistics: Actions 
Needed to Enhance Success of Reengineering Initiatives, [hyperlink, 
http://www.gao.gov/products/GAO/NSIAD-00-89] (Washington, D.C.: 2000). 

[12] For details of these studies, see appendix I of [hyperlink, 
http://www.gao.gov/products/GAO-01-618]. 

[13] See U.S. General Accounting Office, Defense Depot Maintenance: 
Commission on Roles and Mission's Privatization Assumptions Are 
Questionable, [hyperlink, http://www.gao.gov/products/GAO/NSIAD-96-161] 
(Washington D.C.: 1996) and Outsourcing DOD Logistics: Savings 
Achievable but Defense Science Board's Projections Are Overstated, 
[hyperlink, http://www.gao.gov/products/GAO/NSIAD-98-48] (Washington, 
D.C.: 1997). 

[14] DOD has acknowledged that the lack of a cost-accounting system is 
the single largest impediment to controlling and managing weapons 
systems costs, including the cost of acquiring, managing, and 
disposing of weapons systems (See U.S. General Accounting Office, DOD 
Financial Management: Integrated Approach, Accountability, and 
Incentives Are Keys to Effective Reform, [hyperlink, 
http://www.gao.gov/products/GAO-01-681T] [Washington, D.C.: 2001]). 
 
[15] The issue of not performing cost-benefit analysis or retaining 
support-decision documentation may also apply to weapons systems 
supported by the public sector; however, we did not review these 
systems as part of our review. 

[16] The services are required to complete annual performance 
assessment reports for contracts with performance periods exceeding 1 
year. The data are used to evaluate contractor performance when making 
future contract award decisions. 

[17] While the Navy overhauls ships of the same class in both public 
and private shipyards, the scope of work for each individual ship is 
significantly different and therefore did not support a comparison. 

[18] As we reported in May 2001 (see GAO-01-681T), DOD does not yet 
have the systems and processes in place to capture the required cost 
information. 

[19] Because of limitations in the financial data, the price data are 
of questionable reliability. 

[20] 10 U.S.C. 2464 provides for a core logistics capability that is 
to be identified by the secretary of defense and is government owned 
and operated. These provisions can limit the amount of depot-level 
maintenance that can be performed by contractors. 

[21] Surge refers to the sudden and temporary increase in requirements 
during the early phases of a military operation or conflict. 

[22] See [hyperlink, http://www.gao.gov/products/GAO/NSIAD-00-89]. 

[23] Secretary of Navy Instruction 5000.2-C, a revision of 5000.2-B. 

[24] Navy officials stated that the incorporation of plans for the 
deployment, sustainment, protection, and management of contractors is 
dealt with regularly, since some Navy ships routinely deploy with 
contractors. 

[25] See Contractors on the Battlefield, FM 100-21 (Mar. 2000). 

[26] See Secretary of the Navy Instruction 5000.2-C. 

[27] Technical data consist of descriptions and drawings that provide 
the necessary level of detail for repair and maintain items or 
equipment purchased and, in some cases, to produce needed component 
repair parts. 

[28] See Mandatory Procedures for Major Defense Acquisition Programs 
(MDAP) and Major Automated Information System Acquisition Programs, 
DOD 5000.2-R (June 2001). 

[29] This figure includes the radios, spare parts, depot repair, and 
training for the system. 

[30] See [hyperlink, http://www.gao.gov/products/GAO-01-618]. 

[31] The Navy has not defined a category of support called "contractor 
logistics support," and the Army considers any logistics activity 
performed by a contractor as contractor logistics support. 

[32] The Navy did not identify any ships that use contractor and 
military depots to perform the same or similar work. 

[End of section] 

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