Most depot maintenance still off limits to industry

WASHINGTON - The Defense Department will spend $62 billion for depot-level maintenance over the next five years, but only $24.8 billion of that will be available for contracting out to industry under a congressionally imposed restriction known as the "60/40 rule."

May 1st, 1997

By John Rhea

WASHINGTON - The Defense Department will spend $62 billion for depot-level maintenance over the next five years, but only $24.8 billion of that will be available for contracting out to industry under a congressionally imposed restriction known as the "60/40 rule."

Industry observers see no chance of overturning that restriction despite evidence that doing so would reduce defense costs.

Depot-level maintenance involves substantial repair or upgrades for large military systems such as aircraft and combat vehicles. It happens in cases where technicians from squadrons or battalions are not capable of doing the job, and often involves major electronics work.

The stumbling block is a group of House and Senate members informally organized into the "Depot Caucus," and consists of members with major military depots in their states. These members have been able to block any attempts at shifting more depot-level maintenance work to industry contractors, and even threaten to hold up promotions of officers if their depots are jeopardized.

The top-level figures, expressed in then-year dollars, are contained in a report known as the Defense Depot Maintenance Council Business Plan released Jan. 14 by John Phillips, deputy undersecretary of defense for logistics.

The report projects steady growth in the depot maintenance budget from $11.5 billion this year to $11.6 billion in 1998, $12.6 billion in 1999, and $13.3 billion in 2000 before dropping to $13 billion in 2001.

This business has been a contentious issue for decades, and a 1995 DOD report estimated that shifting just $3 billion of that to industry would save $900 million. Subsequent reports by the Defense Science Board agreed. Yet nobody has been able to break the stranglehold of Congress, whose members essentially ignored the recommendations.

"We probably had our best chance in 1996," says Warren Balish, director of product support and quality assurance at the Aerospace Industries Association in Washington. Based on the acquisition reform momentum of former Defense Secretary William Perry, Balish calls that year "the high water mark."

Army and Navy logicians are already bumping up against the 40 percent ceiling, Balish adds. Air Force leaders are running about 35 to 37 percent, but the plan to turn over Air Force Logistics Centers at San Antonio, Texas, and Sacramento, Calif., would push the service above 40 percent unless work shifts elsewhere.

Balish, an ex-Army logistics officer, says he believes that 10 to 20 percent in-house maintenance is sufficient, and that service officials should concentrate on combat operations and shift other maintenance tasks to private business.

Paul Kaminski, undersecretary of defense for acquisition and technology, says "some 65 to 70 percent of the lifecycle cost of our major weapon systems is incurred after those systems are fielded ... I would also point out that as the composition of our weapon systems ages, the operation and support cost will only be growing."

The new weapon systems being developed since the Perry acquisition reforms generally have open-system architectures employing commercial off-the-shelf hardware and software, and therefore are good candidates for contractor maintenance. The so-called legacy systems, built under the earlier ground rules, were intended for in-house maintenance. Yet it is the new systems that will face the biggest money squeeze as DOD officials attempt to maintain acceptable operational readiness levels.

The Sacramento and San Antonio centers are illustrative of the problem. Under the Base Realignment and Closure mandate, they must be closed by 2001, but any company seeking that business must compete not only against other companies, but also against other government facilities. The work must also be done at the same location, but members of the congressional caucus fear that once this business is in private hands, there`s no guarantee the company can`t move it elsewhere at a later date.

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