Legislating Competition

Aug. 1, 1985
In the dismal days of 1979, eighty-eight of the Air Force’s first-line fighter aircraft stood idle on the ramp, their engines awaiting repair. No serviceable spare engines were available. From that low point, the situation began to improve gradually as priorities in the 1980s shifted to readiness and supportability of weapon systems. F-15 and F-16 fighters last year posted their highest mission-capable rates ever.

There are, however, several disturbing footnotes to this success story. The main on is that the spare-parts problem with the F100 engine, which powers both the supply of serviceable F-15 and the F-16, is not over yet. As recently as April, the supply of serviceable F-15 engines spares was, still at only twenty-three percent of readiness goals. Maintenance shops did not have enough parts to keep the prescribed number of reserve engines in working order. Thanks to the continuing intensive effort of program managers, the level of F-15 spare engines had risen by July to forty-two percent of readiness objectives, and the F-16 was fully supportable on engine spares. The Air Force does not foresee full recovery before the fall of 1986.

That recovery is not made any easier by another phenomenon of the 1980s: public outrage about spare-parts overpricing on defense systems. Unfortunately, the demand for reform has been so strong that commonsense is sometimes forgotten. Thus it is that an avalanche of new legislation on spare parts and procurement has added to the difficulties of those trying to correct the F100 engine shortage.

The legislation emphasizes two of the best tools in the cost-cutter’s kit: competition and breakout. An item generally costs less when there are two or more vendors competing to sell it. And competition is increased when purchase of spare parts is separated — or “broken out” — from the prime system contract. On a program like the F100 engine, which has more than 6,000 basic parts (9,000 if you’re counting accessories), the breakout possibilities become staggering. They can also lead — in fact, have led — to troublesome complications.

It takes longer to get a part than it once did. Under the new rules, every spare-parts procurement is screened for breakout and competitive award. The flow chart in the Defense Acquisition Regulation consists of sixty-five possible actions, intertwined with various routes for combining them. Step twenty-one, for example, asks, “Can the government buy rights in the data?” Such questions take a while to resolve. Meanwhile, the administrative lead-time for putting a part on order has more than doubled in the past two years.

And the problems do not necessarily end when the part is finally delivered. After decades of relying on prime contractors to make its parts or to police their subcontractors who made them, the Air Force is suddenly doing business with a host of new vendors. Less than twenty percent of the F100 engine parts are now bought sole source from the prime engine contractor.

Under open competition, the Air Force must award a spare-parts contract to the lowest bidder unless that bidder is demonstrably unqualified. The burden of proof is on the government. Some of the new vendors do a fine job. Others don’t. Overall, the problem rate on openly competed F100 parts is more than three times the rate for parts bought sole source.

Whether the parts are hung up in procurement or unusable for quality reasons, it doesn’t take too many of them missing at the flight-line level to make a real difference. The F100 engine shortages in the first half of this year centered around only a few dozen unavailable parts.

Amid all the furor about the $916 stool caps and the $7,622 coffee makers, it’s easy to forget that the original spares problem was a failure to project, fund, and procure a sufficient number of parts. Spare-parts overpricing is intolerable, and it is being addressed with a vengeance. Nothing gets the attention of the Air Force or industry quicker than a potential case of overpricing. But the scope of that problem — which by worst-case estimate is something less than six percent of the spare parts budget — must be dept in mind and balanced against other problems that can be brought on by radical solutions.

It is axiomatic in defense procurement that there are three main variables — cost, schedule, and performance — and that if you overemphasize one of these, you will probably pay for it in the other two. Today, cost is the ascendant variable, often eclipsing schedule and performance in the public eye.

Still more legislation, creating even greater pressures for competition, is taking shape in Congress. If any significant consideration is being given to possible side effects, it is not much in evidence. USAF was an early and an enthusiastic advocate of competition and breakout ad supports these techniques when they can be used out and supports these techniques when they can be used wisely. In fact, breakout of selected F100 engine spares for competitive procurement began in 1978 — long before spare parts became a household controversy.

Competition and breakout should be used in every instance when it makes good sense to do so. But it is important to remember that they are only tools to use or not use as the circumstances warrant. The objective is sound defense acquisition.