GAO cautions Pentagon on outsourcing weapons system maintenance work

The Defense Department should take a more cautious approach to outsourcing maintenance work for weapons systems, according to a new Government Accountability Office report.

The Pentagon has been pushing the services to use more performance-based contracts for the maintenance of weapons systems. Under those deals, the military would hire a contractor to manage and maintain weapon systems for a predetermined, fixed price. Defense has said those contracts would mirror what the private sector already does to support its most complex equipment.

GAO found, however, that most large companies did not use performance-based contracts for large equipment because the systems complexity discourages competition and may even be more expensive. GAO noted companies used performance-based contracts for smaller, less complex systems, which often are awarded without competition because few companies can do that work. "DoD's proposed approach to implementing performance-based logistics could limit opportunities for achieving cost-savings from competition, volume discounts and reduced administrative costs," stated the report, "Opportunities to Enhance the Competition of Performance-Based Logistics" (GAO-04-715).

The report warns against hiring contractors as "integrators" to manage logistics for a weapon system. Industry officials told GAO auditors that their equipment availability was often too critical for someone else to manage, and noted that it narrowed options and incentives for driving down cost.

GAO did not recommend scrapping performance-based logistics entirely, but said Defense should only use it for less complex subsystems or older weapons, where there would be limited competition.

Defense responded that it would emphasize using performance-based deals for subsystems and components, but also said it would consider them for large weapon systems if analyses showed they could save money.