Report | Feb. 8, 2016

DoD Could Save Millions in Profit Paid to Contractors in DoD Depot Labor (Redacted) DODIG-2016-045


Objective:

Our objective was to determine if depot labor profit was being effectively negotiated on contracts using public-private partnerships at the Warner Robins Air Logistics Complex (depot). We nonstatistically selected 3 of the 33 partnerships and associated contracts at the depot to review.

Finding:

The Air Force did not effectively negotiate depot labor profit. Specifically, contracting officials did not adequately reduce or eliminate profit and fees paid for work performed by the depot. This occurred because program officials either did not prepare or update the business case analysis supporting the partnership type selected. In addition, once the partnership type was selected, DoD guidance did not require contracting officials to:

  • assess the depot at lower risk and reduce profit and fees when it was treated differently from other subcontractors, and
  • eliminate profit and fees the contractor is paid on the depot non‑repair costs since those expenses do not directly support the maintenance performed. The non‑repair costs accounted for 69.3 to 78.4 percent of the total profit for the three contracts.

As a result, the three contractors will earn millions in profit and fees on low-risk DoD labor. If an alternative partnership type was selected, the Air Force could have eliminated all profit and fees on work performed by the depot. Alternatively, if the current partnership type was assessed and determined appropriate, contracting officials could have reduced profit and fees by $9.6 million by lowering depot profit risk or eliminated $24.9 million in profit and fees on non-repair costs. Without a proper assessment of the partnership type and specific guidance on calculating depot labor profit, contracting officials may not consider reducing these costs in their analysis, profit values will likely remain questionable, and an opportunity to save funds will be missed.

Recommendations:

The Senior Center Contracting Official at Robins Air Force Base, Georgia, should require contracting personnel to document their contractor profit or fees considerations when depot employees perform the work including their reason if the depot is considered anything higher than low risk. Contracting personnel should also determine whether the contractor should be paid profit and fees on the non-repair costs included in the depot hourly rate.

The Commander, Air Force Sustainment Center, and the Commander, Air Force Life Cycle Management Center, should direct the responsible program offices to prepare or update a business case analysis evaluating the costs and benefits of the partnership type to include the impact on profit and fees.

The Director, Defense Pricing, Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, should issue guidance on the profit and fees earned on non-repair costs when the depot functions as a subcontractor.

Management Comments and Our Response:

The Director, Defense Pricing, Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics and the Acting Assistant Secretary of the Air Force (Acquisition), fully addressed all specifics of the recommendations, and no further comments are required.