The Air Force decided to privatize-in-place the remaining AGMC workloads. Air Force Interim Study Indicates That Contract Costs Exceed Costs of AGMC Operations

The Air Force’s July 1997 interim study projected that the privatization-in-place of guidance repair and metrology workloads at BGRC will result in fiscal year 1997 costs being from $3 million to $32 million more than the costs of performing the same work when the facility was operated as an Air Force depot. Air Force officials said the Boeing analysis was not comprehensive because it (1) did not include contract administration and oversight costs and (2) overstated AGMC costs prior to privatization-in-place. The later projection indicated that the privatized-in-place repair and metrology operations during the first year of the contract would cost from $3.4 to $32 million more than the historical AGMC cost—a 3.8- to 39-percent increase—with a most likely increase of $14.1 million, or about 16 percent. As a result, they are concerned that AFMC miscalculated the cost of privatization-in-place. The methodology was analytically sound and used the best available data. Reasons for Increased Contractor Cost

AFMC’s interim study does not include a variable-by-variable comparison between historical and current costs of operations. However, the study provides sufficient data to identify three factors that increased costs at the facility: (1) material cost, (2) contract administration and oversight, and (3) contractor award fee. Conclusions

The Air Force’s interim comparison estimates that BGRC’s first year privatization-in-place costs will be higher than AGMC’s historical costs for similar work. The methodology used in the comparison is analytically sound and appears reasonable given the status of the program; however, until actual cost data is available, it is premature to reach a final conclusion on the cost issue. Three factors significantly influenced the increased cost at the facility—estimated increased material cost, contract oversight, and contractor award fee. As with any successful privatization, improved contractor process efficiencies and operating cost reductions are needed to offset such cost factors. The contractor disagrees with the Air Force study and is working with AFMC to resolve their differences. Further, the Air Force will continue to monitor these contracts as actual cost data becomes available. AGMC provided the Air Force with depot-level repair for inertial guidance and inertial navigation systems and displacement gyroscopes for the Minuteman and Peacekeeper intercontinental ballistic missiles and most of the Air Force’s aircraft.
Why GAO Did This Study

GAO reviewed the Air Force's interim cost comparison of operating its former Aerospace Guidance and Metrology Center (AGMC) prior to its closure with the current privatized-in-place cost as the Boeing Guidance Repair Center (BGRC).

What GAO Found

GAO noted that: (1) the Air Force's interim comparison estimates that BGRC's first-year privatization-in-place costs will be higher than AGMC's historical costs for similar work; (2) the methodology used in the comparison is analytically sound and appears reasonable given the status of the program; however, until actual cost data is available, it is premature to reach a final conclusion on the cost issue; (3) three factors significantly influenced the increased cost at the facility--estimated increased material cost, contract oversight, and contractor award fee; (4) as with any successful privatization, improved contractor process efficiencies and operating cost reductions are needed to offset such cost factors; (5) the contractor disagrees with the Air Force study and is working with the Air Force to resolve their differences; (6) the Air Force will continue to monitor these contracts as actual cost data becomes available; (7) the Air Force performed an interim analysis comparing both actual and estimated aircraft and missile inertial navigation system repair and metrology costs at BGRC to actual historic costs for comparable workloads prior to privatization-in-place and estimated that the first full year of operations at the privatized-in-place BGRC will likely cost $14.1 million more than it would have if the facility had continued to operate as a public activity; a 16-percent cost increase; (8) Boeing questioned the assessment, saying that its own estimate indicates that costs are about $6.8 million lower than before privatization-in-place; (9) Boeing also noted that it is exceeding contract quality requirements and minimum delivery schedules; (10) Air Force officials stated that Boeing's cost analysis is not complete and comprehensive; (11) the Air Force cost study methodology is analytically sound and used the best available data; (12) based on the available data, the methodology provides a reasonable interim estimate of costs for similar workloads performed by the Air Force depot and during the first year of privatization-in-place; (13) the Air Force's interim study does not include a variable-by-variable comparison between historical and current costs of operations, but it does identify three cost factors contributing to the increased costs at the facility: (a) estimated increased material cost of $3.4 million; (b) contract administration and oversight costs of $5.5 million; and (c) estimated contractor award fees of $5.2 million.