Loggies vs. Contractors

Jan. 1, 2001

The Air Force’s inability last year to manage its depot maintenance workload within Congressionally mandated standards has reignited a debate among lawmakers, government logisticians, and private industry over how to share the annual $6 billion repair business between public and private vendors.

Under federal law, private contractors are to receive less than 50 percent of USAF’s annual maintenance workload. At least half is to be reserved for its own Air Logistics Centers.

This so-called “50/50 rule” is sacrosanct for federal depot advocates. It guarantees government access to what law calls a “ready and controlled source of repair,” they say. That ready and controlled source of repair must, at least in part, be organic, or kept in-house, to ensure the ability to surge during wartime, regardless of economic factors that might destabilize industry.

During Fiscal 2000, USAF failed to comply with the 50/50 limit. That failure reopened a fierce debate in Washington over how best to ensure the readiness of service weapon systems. All tend to believe that the actions USAF leaders and lawmakers will take in the coming year to rebalance the workload distribution could redefine maintenance management for the Air Force, which contains more aging aircraft than ever.

Most officials in industry and government agree that the best way to ensure readiness is to maintain a mix of federal and contractor maintenance capabilities. Some observers say USAF, by outsourcing, is modernizing its maintenance and management processes in step with the demands of service obligations.

Air Force statistics demonstrate USAF’s recent reliance on industry. During the past decade:

The private sector’s share of depot maintenance funding jumped from 36 percent to 50 percent.

Core maintenance work handled by the depots has dwindled from 27 million hours to 18 million hours.

Long-term contracts held by industry swelled from a total of $600 million five years ago to $1.1 billion last year. They are expected to hit $1.5 billion by 2004.

Such outsourcing arrangements, supporters say, save the government money and promise to provide better support to combat forces. Many who are opposed to the 50/50 maintenance law regard it as a federal jobs program, designed by legislators to sustain the employment of workers in the military’s massive depots and ensure votes at election time.

Protecting Surge Capacity

Others, however, predict that the Air Force’s recent reliance on private vendors will destroy its ability to surge its forces in a crisis and undermine its maintenance infrastructure of equipment and skilled personnel. The end result, these skeptics say, will be a USAF at the mercy of contractors and their prices for goods and services critical to a ready and deployable force.

Supporters of the 50/50 rule want to preserve this organic repair infrastructure. Key Senators and Congressmen, mainly members of the House Depot Caucus and House and Senate readiness subcommittees, view the depots’ skilled workforce and management as irreplaceable national assets.

This debate has intensified because billions of dollars’ worth of work and thousands of jobs are at stake. The economic factors drive the politics of the debate, but the discussion is-at its root-a clash of philosophies over how best to ensure military preparedness, as noted by one former depot commander.

Said Maj. Gen. Richard N. Goddard, USAF (Ret.), the former commander of Warner Robins ALC, Ga.: “Private industry maintains capacity to meet current contracts while the public depots must be able to meet day-to-day needs [and] instantly surge to meet wartime demands. Clearly, we need private industry to help meet vital wartime needs, but industry is simply not capable of doing it all on its own. In the final analysis, private industry will be responsible to stockholders. Public depots must be responsible to our warfighters.”

Waiver Sparks Debate

These maintenance management problems burst into view one year ago. In January 2000, Air Force Secretary F. Whitten Peters waived the 50/50 requirement for Fiscal 2000. The 50/50 law allows a waiver if breaching the outsourcing limit is critical to national security, which Peters cited as the basis for his decision. Two factors contributed to the waiver: transitioning workload from closing facilities to other areas and the demands of Operation Allied Force, NATO’s 1999 air war in the Balkans, he said.

At the time, USAF was in the midst of closing Air Logistic Centers in California and Texas, eliminating 40 percent of its repair infrastructure. USAF redistributed those workloads, including specialized tooling and machinery, among various private vendors and its remaining depots-Warner Robins ALC, Ogden ALC, Utah, and Oklahoma City ALC, Okla.

The transition produced some gaps in production, while equipment was en route and while new workers were being trained, according to Grover L. Dunn, Air Force associate director of maintenance.

USAF logisticians had compensated for those gaps, but they had not anticipated a second problem: urgent demands caused by Allied Force.

This combination of events generated heavier-than-normal dependence on private sector maintenance and predicated the need for the waiver, Peters said. “In the midst of these workload transfers, the Air Force is simultaneously experiencing abnormally high operational demands and unusually low mission capable rates for key warfighting assets,” he explained. “This has placed added stress on all depot capabilities just as the workloads from the closing depots are being transitioned.”

To compensate, Dunn said, USAF awarded several “bridge contracts” to private vendors to manage surge requirements during Allied Force and fill production gaps during the transfers. These short-term gap-filler agreements, though necessary, gave private firms an unlawfully large share of the business.

Lt. Gen. Michael E. Zettler, deputy chief of staff for installations and logistics, later pegged the amount of contractor work at about $200 million.

Lawmakers were disappointed and were concerned USAF could not lawfully manage the workload. Outspoken lawmakers include Sen. James Inhofe (R­Okla.) and Reps. Saxby Chambliss (R­Ga.), Tillie Fowler (R­Fla.), James Hansen (R­Utah), Solomon Ortiz (D-Tex.), and Ciro Rodriguez (D­Tex.), each representing states with large repair workloads. Despite their disappointment, many in Congress viewed the waiver as a positive step, because service leaders publicly acknowledged the problem and pledged to remedy it, said Bill Johnson, the legislative director for Hansen, a leading depot advocate.

USAF portrayed the problem as temporary. Peters, Zettler, and Gen. John W. Handy, vice chief of staff, personally promised to rebalance the workload distribution and ensure additional waivers would not be needed in the future.

Criticism From Within

In March 2000, only two months later, the issue flared anew. At a hearing of the Senate Armed Services Committee’s readiness subcommittee, Inhofe produced memos by senior Air Force logisticians indicating that they and top service acquisition officials were in fundamental disagreement about how to manage depot workloads.

In a Feb. 16, 2000, memo, Brig. Gen. Stanley A. Sieg, then Air Force Materiel Command’s director of logistics, expressed concern about future compliance with the 50/50 rule. Failure to meet the 50/50 requirement, wrote Sieg, was not a mere quirk but was the logical outcome of DoD and USAF acquisition practices.

“[T]hese ‘bridge’ contracts merely represent a symptom of a much larger problem and should not be the only justification to support the Air Force’s waiver,” he wrote. “The problem is much larger.” In a handwritten note on the memo, Sieg added, “I am concerned that Secretary Peters has an impression that FY ’01 will not be a problem. It will be.”

The lawmakers already were wary of the Air Force’s intense focus on outsourcing practices, Johnson said, and the memo served only to increase their concerns. Under questioning from Inhofe, Peters assured the panel, “The integrated process that General Ryan and I have put in place is specifically intended to stop willy-nilly migration to the private sector. We understand the 50/50 requirement.”

During the March 3 hearing, Peters conceded that service acquisition officials sometimes acted on their own, making critical maintenance decisions without consulting the logisticians.

“I am concerned, as you are, about a tendency in the acquisition community to go to outside maintenance,” he said. “That is fundamentally inconsistent with management to [meet the] 50/50 [requirements].”

Peters assured lawmakers that USAF was working to integrate input from both communities when making decisions that could affect weapon system maintenance plans.

An integrated process is necessary because the actions of one group spill over into what the other views as its mission. Early in the life cycle of a weapon system, acquisition officials choose a strategy for development and procurement. Such decisions, though they do not specifically deal with maintenance, can later dictate maintenance options and cost. Because up to 80 percent of a system’s life-cycle costs are associated with maintenance, service logisticians feel their input is valuable during design and manufacture of a weapon system.

To better fuse the expertise of both communities, USAF employs the newly codified Source of Repair Assignment Process. Ronald D. Baty, head of AFMC’s depot maintenance division, said SORAP weighs contractor and government repair options and, after taking 50/50 rules into account, leads to a decision about workload assignment.

Baty acknowledges that recent SORAP decisions have resulted in several lucrative contract awards to private contractors.

Focus Turns to Outsourcing

Additionally, the Air Force’s acquisition officials have lately embraced a new, and some say innovative, outsourcing concept called Total System Performance Responsibility.

TSPR marks a major break with prior practice. Dunn noted that in the past, when an aircraft was produced, the Air Force would turn from the prime contractor and manage the equipment manufacturers directly. Formation of program offices helped in this task, but managment of individual parts was scattered throughout dozens of Air Force and DoD agencies.

Keeping Team Together

With TSPR, said Dunn, “We keep [together] the team that was created in production. … The government can manage the vendor instead of trying to manage all those pieces.”

Dunn said TSPR has become popular because it promises to reduce depot infrastructure. Under TSPR arrangements, contractor profits are linked to total life-cycle performance of a system. The TSPR arrangements often are struck early in a system’s life, forming a long-term government­contractor partnership, Dunn added.

Similar concepts include Total System Support Responsibility for support of the E-8C Joint STARS radar aircraft, Flexible Sustainment for support of the C-17 aircraft, and Virtual Prime Vendor for management of parts.

Although these arrangements have promise, Dunn said the service must pay special attention to the performance parameters of its contracts to ensure warfighter support. Last March, Dunn said two Virtual Prime Vendor contracts produced disappointing results because performance metrics were not properly identified. These contracts were with Hamilton Standard for C-130 propeller work and Lockheed Martin for C-5 depot support.

“Frankly, we have not been pleased with either,” Dunn said. “The reason is partly because they weren’t set up right. They weren’t long-term partnerships.”

On the other hand, USAF hails its TSPR agreement with Lockheed Martin for F-117 support, calling it highly successful. Under that arrangement, about 90 percent of F-117 support dollars go to Lockheed for management of system technological support, avionics system sustainment, reliability maintenance, aircraft flight manuals, and item management. The Air Force projects a savings of at least $170 million over eight years. Additionally, USAF trimmed its oversight personnel ranks from 226 to 55, and the F-117 maintains a mission capable rate of 83 percent.

TSPR is not without controversy. Goddard, the former Air Logistics Center commander, said logisticians are concerned about long-term effects of TSPR.

“The part of TSPR that makes me uncomfortable is the fact that it is sole-source; there is no competition,” he noted. “There are those who would say the competition is at the subvendor level. I certainly don’t think that [kind of competition] is significant. … I believe TSPR really does walk away, to a degree, from the concept of competition.”

TSPR contracts are long term. Because work won’t often be recompeted, the contractor’s incentive to innovate-as well as a would-be competitor’s drive to challenge a prime-could vanish. Skeptics warn that this concern also applies to a prime’s motivation to contain costs.

More and more, USAF officials are using TSPR in major acquisition programs. Although the Air Force reported a number of major systems, such as the B-2 and C-17, it had placed under TSPR arrangements, the GAO thought that several others, for instance, the Space Based Infrared System, should also be considered TSPR and reported as such.

In the most recent major long-term contractor support development, the Air Force in September awarded to Northrop a Joint STARS support contract valued at $512.5 million over six years.

Old Systems, Old Technology

Georgia lawmaker Chambliss, concerned that Air Force reliance on TSPR and similar programs had become excessive, asked GAO to investigate the program. The watchdog agency’s April report found that the Air Force was using TSPR, or a similar arrangement, in the management of 44 programs and planning to use it for another 31. The GAO outlined deeply held concerns from logisticians about TSPR’s effect on their ability to operate now and in the future.

GAO said AFMC logisticians were worried that the organic depots “are not getting work involving new, advanced technology weapon systems that they would need to have if they are to establish and maintain core capabilities in these areas.”

One such complaint was made public in March during Inhofe’s Senate hearing. Thomas L. Miner, executive director of Ogden ALC in Utah, warned in a February memo to AFMC that depots would not remain viable by performing work only on old systems.

Miner’s memo said, “[I]nfusion of new technology workloads from new weapon systems is essential to maintain core [repair capabilities]. Therefore, the future of the ALC is contingent upon acquiring workloads in each technical repair center that will continue to provide a viable organic source of repair for the using commands.

“The core determination process is weighted heavily towards older, high-surge workloads,” Miner continued. “Depots are provided new workloads often only after the original equipment manufacturer loses interest.”

Air Force depot strategy, called Core Plus, calls for three viable public depots that can perform contract or vanishing-vendor work to fill excess peacetime capacity. That excess capacity can be shifted to handle surge requirements during war. Miner’s memo questions whether the service is acting to meet that strategy. He noted that, while the Air Force has identified C-17 avionics and instruments as core functions, hydraulics and landing gear were not. C-17 landing gear, like landing gear on other aircraft, should be maintained in the public facility, Miner argued.

Additionally, he said, a viable depot depends on introducing new workloads to its workforce.

As a result of these revelations, Inhofe proposed shifting 50/50 waiver authority from the services to the President. The measure would curtail what Inhofe saw as Peters’s abuse of the waiver clause to allow unlawful outsourcing.

Opposing Inhofe’s provision were DoD and the Industry Logistics Coalition. They said shifting waiver authority would complicate and delay the waiver process and subject the system to unwarranted political pressure.

The coalition also argued against the 50/50 law entirely, calling it “an artificial constraint” on service abilities to “effectively and efficiently manage depot-level maintenance and repair workloads.”

Most proponents and critics of the law agree it is an artificial restraint. However, supporters of the rule claim it is the only method to keep a workload balance among private and public facilities, which are both critical to the Pentagon’s industrial base.

Though Congress didn’t adopt Inhofe’s language, it did express concern that “the Secretary of the Air Force has not taken the actions necessary to ensure the Air Force complies with the requirement” and restated a belief that the law “is essential to maintain the core maintenance capability necessary to preserve a ready and controlled source of repair and maintenance.”

Vagabond Workloads

In the months ahead, Air Force attempts to redistribute its workload will face major obstacles.

USAF officials stated that, to rebalance the scales, the Air Force must shift at least $145 million of workload in Fiscal 2001 from private sector to government-owned Air Logistic Centers. Many say the actual amount will be even higher. As a result, the Air Force is considering a shift in J69 and JH85 engine work (the bulk of which is performed by Sabreliner in Missouri) and T-38 aircraft maintenance (performed mainly by Lear Siegler Services in Texas).

However, shifting workloads is a massive task that involves physically moving tools and machinery, retraining workers at new sites, and possibly paying penalties to alter current contracts. Many more workloads are being eyed as possible transfer candidates.

Clearly, any workload shift is certain to be controversial and politically explosive. Private companies and some lawmakers are working to block a shift. They are joined by Sen. Christopher Bond (R-Mo.), who lobbied Peters not to terminate Sabreliner’s engine contracts, and several Texas lawmakers who wrote a letter in defense of Lear Siegler’s longtime support of the T-38.

Air Force officials refined their workload transfer options late last year and devised a plan to remedy the imbalance. Plans called for submitting that plan to Congress this month.

Gen. Lester Lyles, AFMC commander, said the Air Force might also propose changes in the 50/50 law to weaken its requirement. However, Johnson said the Air Force should first stabilize its workload allocation process before seeking legislative relief.

Zettler said that, although Air Force officials are working to regain a balance in the workload distribution, the service is not willing to sacrifice readiness to redistribute workloads.

This month, the Air Force may gain some guidance on this issue as a long-awaited study of DoD’s core requirements is due to be completed. PricewaterhouseCoopers, under a contract, conducted the study to redefine core, which will affect future sustainment decisions.

Amy Butler is an associate editor of Inside the Air Force, a Washington, D.C.-based defense newsletter. This is her first article for Air Force Magazine.