Industry Asks Congress to Reconsider Changes in Depot Maintenance Legislation (UPDATED)
Weapons manufacturers worry that Congress might have tilted the playing field when it changed the language in U.S. military depot maintenance legislation.
Under the rule commonly known as the 50-50 split, at least half of the military’s depot maintenance funds must be spent in public depots.
Section 2464 of Title 10 of the U.S. Code says it is “essential for the national defense that the Department of Defense maintain a core logistics capability that is government-owned and government-operated to ensure a ready and controlled source of technical competence and resources necessary to ensure effective and timely response to a mobilization, national defense contingency situations, and other emergency requirements.”
Over the past two decades, the work-share arrangement has been questioned by industry and some Pentagon officials who contend that if the work were competitively awarded, the military would save money.
The 50/50 rule was adopted by Congress in the mid-1980s — the split started out as 70/30 and later changed to 60/40 before it became 50/50 in the 1990s. "Congress wanted to keep a consistent level of work in the depots to maintain employee and facilities' viability," says Peter Steffes, vice president of government policy at the National Defense Industrial Association, and a former congressional staffer who helped write the original depot legislation.
Congress has resisted calls for changes in the law, but last year it did revise the language in Section 2464 and appears to have expanded the definition of core weapons maintenance work that is subject to the 50-50 split. That change has stirred industry fears that a larger share of the workload will be out of reach for contractors.
The revisions were included in the National Defense Authorization Act for Fiscal Year 2012, Section 321 under Title III. The new language defines depot maintenance as “any action performed on material or software in the conduct of inspection, repair, overhaul, or the modification or rebuild of end items, assemblies, sub-assemblies, and parts.” The previous language defined depot maintenance as “material maintenance or repair requiring the overhaul, upgrading, or rebuilding of parts, assemblies, or sub-assemblies.”
Weapon upgrades and modifications typically have been competitively awarded and not counted toward the 50 percent share that must be assigned to public depots, says a March 27 letter sent to the leaders of the House and Senate Armed Services Committees by the president of the Aerospace Industries Association on behalf of its 350 member companies.
In the letter, AIA President Marion C. Blakey cites aircraft carrier refueling — estimated at $1 billion per year — as an example of the work that would fall into a grey area and potentially be shifted to public depots. Aircraft carrier refuelings currently are done by private-sector shipyards. (SEE UPDATE)
Sen. Saxby Chambliss, R-Ga., co-chair of the Aerospace Caucus, raised the issue this month at an industry gathering on Capitol Hill. Chambliss, although a defense industry supporter, has sought to protect public-depot dollars that are spent in his home state, including thousands of jobs at the Robins Air Force Base logistics center. He says he expects the depot-maintenance debate to gather steam as the Pentagon cuts back on procurement of new weapons and increases spending on repair and upgrades of existing hardware.
“The sustainment issue will grow in importance,” Chambliss says. Depot maintenance is an “issue that has been near and dear to my heart,” he adds. “Many companies have a stake. I don’t discourage competition. … But it is in the interest of national security and taxpayers that the government retain capacity to perform key workload,” Chambliss says. “If the government does not, there is a chance we may not have the capacity when we need it, or the taxpayer will pay more for that capability.”
In her letter to lawmakers, Blakey notes that the latest revisions to the code could result in a significant loss of business for industry. "There are varying interpretations of the new legislation and its impact on the amount of work that must be set aside for public sector depots versus the private sector under the requirements of 10 U.S.C. 2466," Blakey says. One interpretation could add several billion dollars to what is defined as depot maintenance, such as refueling of nuclear aircraft carriers. Blakey also points out that the word “modification” is included in more than $3 billion of military procurement budget items. This could broaden the depot maintenance workload substantially.
“The use of the words ‘any action performed on’ in the new law, as well as the elimination of the exceptions for aircraft carrier refueling and major modifications and upgrades, will likely lead to an expanded definition under the new law,” she says. “While the committees have assured us this was not the intent of Congress, there is a serious risk that it will be the result. … This could mean that a massive amount of workload will be shifted from the private sector to the public sector at the same time the Department is canceling or delaying modernization programs.”
AIA is asking Congress to repeal sections 321 and 327 of the National Defense Authorization Act for Fiscal Year 2012 and return to the language of sections 2460 and 2464 that existed prior to its passage.
Defense industry consultant Tom Captain, vice chairman of aerospace and defense at Deloitte LLP, says the sacrosanct 50-50 rule should be debated in the context of who can deliver the best product and the lowest cost. “The data supports our conclusion that more inorganic maintenance, repair and overhaul (MRO) work could save the government quite a bit of money.” He cites the Pentagon’s frequent use of “performance-based logistics” contracts and the U.K. Ministry of Defence increasingly outsourcing MRO work. “We have found the military could increase capability at lower cost,” Captain says.
Steffes says many in Congress believe that the 50/50 rule is their only insurance policy to keep the depots fully operational. He notes that all efforts by previous administrations to repeal the 50/50 rule have been unsuccessful.
UPDATE: The refueling of a nuclear aircraft carrier, regardless of where the work is performed, is funded with procurement dollars, so the 50/50 rule does not currently apply, and would not apply under the new legislation, according to a presentation delivered by Steffes last week at NDIA's Annual National Logistics Conference.