	Background

The AWACS aircraft first became operational in March 1977, and as of  November 2004, the U.S. AWACS fleet was comprised of 33 aircraft. Recent AWACS Parts Prices Are Significantly Higher Than Prior Purchase Prices

Since late 2001, the Air Force has negotiated and awarded contracts to  Boeing for the purchase of outboard ailerons, cowlings, and radomes  totaling over $23 million. Specifically, the Air Force purchased three  ailerons for about $1.4 million, 12 right-hand cowlings and 12 left-hand  cowlings for about $7.9 million, and three radomes for about $5.9 million. The overall unit cost of the ailerons  and cowlings increased by 442 percent and 354 percent, respectively,  since they were last purchased in 1986. The unit price for the one radome  purchased under the September 2001 contract increased by 38 percent  since it was last purchased in 1998, and the unit price nearly doubled  two years later under the September 2003 contract. Overall, only a small  portion of the price increases could be attributed to inflation. Air Force Did Not Obtain and Evaluate Information Needed to Negotiate Fair and Reasonable Prices

In negotiating contracts for the outboard ailerons, cowlings, and radomes,  the Air Force did not obtain and evaluate information needed to  knowledgeably assess Boeing’s proposals and ensure that the spare parts  prices were fair and reasonable. In general, the Air Force did not obtain  sufficient pricing information for a part designated a commercial item,  adequately consider DCAA and DCMA analyses of aspects of contractor  proposals, or seek other pricing information that would allow it to not only  determine the fairness and reasonableness of the prices but improve its  position for negotiating the price. However,  when purchasing the ailerons, the Air Force did not seek commercial sales  information to justify the proposed price. Included in the $7.9 million  contract for cowlings, Boeing proposed and the Air Force awarded about  $1.1 million for the purchase of new tools, such as large production jigs,  associated with the manufacture of the cowlings. Second, and most importantly, the Air Force did not consider Boeing’s  costs under the September 2001 contract, which would have provided  important information to help the Air Force determine if it was obtaining a  fair and reasonable price for the radomes. However, the Air Force has a contract with Boeing that could allow  the Air Force to order drawings and technical data for the AWACS and  other programs for the purpose of competitively purchasing replenishment  spare parts. They also said that, without the  ability to compete spare parts purchases, the Air Force is in a vulnerable  position in pricing such contracts. Recommendations for Executive Action

To improve purchasing of AWACS spare parts, we recommend that the  Secretary of Defense direct the Secretary of the Air Force to    ensure that contracting officers obtain and evaluate available  information, including analyses provided by DCAA and DCMA, and  other data needed to negotiate fair and reasonable prices;    develop a strategy that promotes competition, where practicable, in the  purchase of AWACS spare parts; and    clarify the Air Force’s access to AWACS drawings and technical data  including the Air Force’s and Boeing’s rights to the data. These officials were  located at Tinker Air Force Base, Oklahoma, the location of the Airborne  Warning and Control System (AWACS) spare parts program office—the E3  Systems Support Management Office.
Why GAO Did This Study

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

What GAO Found

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