These  contractors comprise what is referred to as the ship repair industrial  base. In 1982, we reported on  deficiencies with the Navy’s implementation of this contracting  strategy for ship repairs. In addition, we found  that public and private shipyards involved in Navy ship maintenance face  a number of challenges in completing maintenance on time, including  unanticipated work requirements, workforce inexperience, and workload  fluctuations. Market Research and Piloting Helped Inform Roll-out of MAC-MO Strategy, Which Offers Potential Benefits Compared to MSMO

Our analysis of the key attributes of the MAC-MO contracting strategy  versus its MSMO predecessor indicates that the new strategy offers  significant potential benefits, key among them being the ability to control  contract costs through the use of firm-fixed-price contracts. According to federal standards for internal  control, management should design control activities to respond to risks  and evaluate if objectives are being met, which involves leadership-level  reviews of performance and establishment of performance measures. MAC-MO Strategy Will Increase Competition Opportunities, but It Is Too Soon to Assess Other Effects on the Ship Repair Industrial Base

NAVSEA  designed the MAC-MO contracting strategy to increase the  number of competition opportunities for the maintenance and  modernization of surface ships. Noncomplex Availabilities Competed Among Small Businesses

The MAC-MO  strategy broadens the pool of prime contractors qualified to  compete for work in Norfolk, Virginia and San Diego, California by setting  aside noncomplex availabilities  in those locations for small businesses. However, six of the non-MSMO contract  holders we interviewed were small businesses with varying  experience working as a prime contractor for the Navy. Particularly in light of the large and complex  nature of ship repair stakeholders in the Navy, not ensuring that progress  is systematically assessed and that new lessons learned are incorporated  in a timely manner could undermine the Navy’s ability to obtain the  improved cost, schedule, and quality outcomes it seeks under the new  strategy. Recommendation for Executive Action

In order to promote effective implementation of the MAC-MO contracting  strategy, we recommend that the Secretary of Defense direct the  Secretary of the Navy to complete the following action:  Assign responsibility to a single entity comprised of representatives from  the fleet and shore-based maintenance communities, such as Surface  Team 1, to perform systematic assessments of MAC-MO’s  implementation that include the following:
Review of lessons learned and identification of changes to Navy  processes, including staffing, needed to support the MAC-MO  strategy,
Evaluation of performance against anticipated cost, schedule, and  quality objectives, as outlined in the MAC-MO acquisition strategy,  and  Input and recommendations from all Navy parties that participate in  the scheduling, planning, budgeting, oversight, and policy  development for the repair, maintenance, and modernization of non- nuclear surface ships. This report assesses (1) the potential benefits of the MAC- MO contracting strategy, (2) process changes the Navy has taken to  address any challenges and to capitalize on anticipated benefits, and (3)  how the strategy might affect the Navy’s ship repair industrial base. To  determine the key differences between the MAC-MO and the Multi-Ship,  Multi-Option (MSMO) contracting strategies in contract pricing, planning  the work, ordering, and structuring the competition among ship repair  contractors, we analyzed NAVSEA’s  acquisition planning documentation  for the MAC-MO strategy and reviewed contents of selected MSMO  contracts the Navy identified as illustrative, most recent, or were still in a  period of performance and MAC-MO contract documentation for third- party planning contract awards. Navy Process Changes

To assess process changes the Navy has made to address any  challenges and to capitalize on anticipated benefits, we analyzed Navy  documentation containing assessments of lessons learned from pilot  maintenance availabilities used to test key features of the MAC-MO  strategy. We also interviewed  Navy contracting, maintenance, and program management officials  previously mentioned.
Why GAO Did This Study

The Navy has over 150 non-nuclear surface ships that it repairs, maintains, and modernizes using privately owned shipyards. The Navy concluded in 2010 that readiness of the surface ship force was below acceptable levels. This, in addition to the concerns of leadership about cost and schedule growth, led to a revised readiness strategy and, in 2015, introduction of a new contracting strategy for ship repair, referred to as MAC-MO.
House Report 114-102 accompanying the fiscal year 2016 National Defense Authorization Act included a provision for GAO to review the Navy's implementation of the MAC-MO strategy. This report assesses (1) the potential benefits of the MAC-MO contracting strategy, (2) process changes the Navy has made to address any challenges and to capitalize on anticipated benefits, and (3) how the strategy will potentially affect the Navy's ship repair industrial base.
GAO analyzed the Navy's acquisition planning documentation, lessons learned, and contracts. GAO interviewed Navy officials and visited regional maintenance centers in Norfolk, Va.; San Diego, Calif.; and Mayport, Fla. GAO also interviewed previous and prospective Navy ship maintenance contractors.

What GAO Found

The Navy's Multiple Award Contract, Multi Order (MAC-MO) contracting strategy for ship repair offers a number of potential benefits compared to the former Multi Ship, Multi-Option (MSMO) contracting strategy, including increased competition. A key difference is that the MAC-MO strategy intends to control costs through the use of firm-fixed price contracts and the use of third-party planners, which could be cost-effective if the planner produces clearly defined work specifications for the repair contractor to price and execute. Prior to implementation of the new strategy, the Navy conducted market research and pilot-tested attributes of the strategy with pilot maintenance periods for a number of ships.
The Navy recognized several lessons learned from its pilot maintenance periods and has made subsequent process changes to address key lessons and support MAC-MO. These include a longer time frame for the planning process for finalizing work requirements (see figure). According to the Navy, this additional time is needed to promote stable requirements and, therefore, pricing.
The Navy is assessing outcomes of individual maintenance periods; however, it lacks a systematic process involving the fleet- and shore-based maintenance communities to assess overall implementation of MAC-MO. This is inconsistent with federal standards for internal control, which state that management should evaluate its response to risks and evaluate progress made toward program objectives. Not ensuring progress is systematically assessed—particularly in light of the many stakeholders involved—could undermine the Navy's ability to obtain the improved outcomes it seeks with the MAC-MO strategy.
The MAC-MO strategy will increase competition opportunities and set aside work for small businesses, but it is too soon to determine how these changes will impact the ship repair industrial base. Industry viewpoints GAO collected on MAC-MO varied both by shipyard location and contractor size. However, former MSMO contract holders reported that the uncertainty associated with the need to continually compete for work could result in decisions to reduce their workforce and facilities. Small businesses GAO spoke with have in the past mostly performed work as subcontractors to MSMO contract holders, but many expressed interest in competing as prime contractors under MAC-MO.

What GAO Recommends

GAO recommends the Navy assign responsibility to a single entity to systematically assess implementation of the MAC-MO strategy. DOD agreed with GAO's recommended action and plans to report biennially on strategy implementation.