Speed of FAA outsourcing could jeopardize savings

Auditor says six-month timeline for massive conversion of flight service stations risks slippage and cost overruns.

Savings from a massive transition of aviation service stations to contractor operation could fall short during a critical move to consolidate facilities, according to a recent report from Transportation Department auditors.

In an interim report on an audit announced by the Transportation inspector general last year, reviewers warned that an "extremely aggressive consolidation schedule" requires the contractor to convert the Federal Aviation Administration's 58 flight service stations into three hub stations and 16 refurbished locations and complete, test and implement a specialized new operating system to link those locations, all within a six-month time frame.

"We found that FAA has implemented effective controls over the initial transition of flight service stations to contract operations," the auditors wrote. "It is uncertain, however, if the controls put in place by FAA will be sufficient to ensure that anticipated savings are achieved during the next and most critical phase of the transition."

Last year, the IG office cited the enormous scope of the conversion as a basis for the decision to undertake the audit. The move to private sector performance was announced in 2005, following the largest-ever civilian public-private competition. The contest to perform the work of about 2,500 federal employees was completed under Office of Management and Budget's Circular A-76.

In awarding the service station contract to Lockheed Martin Corp., FAA projected it would save $2.2 billion over 10 years.

Auditors said several aspects of the plan could affect projected savings. Calculations were based on sticking to a tight six-month conversion timeline, which began in February and runs through July, but the new operating system for the facilities already has been hurt by a 10-month delay during development and FAA officials warned of another possible six-week delay that could have a "cascading effect" on the overall plan.

On a Lockheed Martin Web site dedicated to the flight service stations, a schedule for facility openings and closings lists the last of the refurbished facilities coming online at the end of July. The schedule was updated Tuesday and is marked "revision 7," with a note that "it is not anticipated" that the dates will change.

Auditors said delays could subject Lockheed or FAA to extra costs for items such as extending building leases or added maintenance on legacy systems, though they did not estimate how much this would reduce savings. While responsibility for those higher costs would depend on the source of the delay, auditors said it was likely that FAA would pay a portion.

Lockheed already has requested $177 million in contract adjustments, auditors said, with $147 million of that linked to what the contractor says were problems with the agency-provided labor rates on which it based its bid. A Lockheed spokesman said the company is working with the FAA to resolve the issues identified by the IG.

FAA spokesman Paul Takemoto said he could not comment on the contract adjustment because it is an ongoing legal matter. Of the current status of the service center transformation, he said, "The consolidation is pretty much on schedule, [though] some facilities are delayed a few weeks to better use their resources and improve familiarity with the new system."

The auditors also found service deterioration related to the conversion. The flight service stations provide information and assistance to general aviation pilots, including helping pilots who are lost.

"Staffing levels at outsourced facilities were lower than what the contractor anticipated, resulting in some users being routed to adjacent facilities that did not have adequate local knowledge needed by those users," the IG found. Lockheed said the lower staffing levels stemmed from faster-than-expected attrition both at service centers slated for closure and at those that would remain open.

Critics of outsourcing, including federal labor unions, warn that the system is subject to manipulation by companies that make overly optimistic promises regarding staffing or service levels in order to win an award, knowing they can request more money later.

The Transportation IG office made several recommendations, including that FAA ensure the contractor has contingency plans in case the transition is delayed and that the agency establish a way to monitor customer service that would be independent of Lockheed.

FAA officials agreed with those suggestions, but did not concur with a recommendation that they ensure the contractor has sufficient, and sufficiently certified, personnel at individual facilities. FAA officials argued that existing performance metrics are sufficient to oversee service levels.

Auditors were unconvinced, however, and noted that most of the metrics are based on timeliness of the centers' responses rather than the availability of relevant specialists. Auditors said they would report later this year on an FAA document comparing expected and actual costs from the first year of contract transition.

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