January 28, 2016

At the request of the House Committee on Transportation and Infrastructure chairman Bill Shuster (R-PA), and the chairman (Frank LoBiondo, R-NJ) and ranking minority member (Rick Larsen, D-WA) of the House Aviation Subcommittee, the Office of the Inspector General (IG) of the U.S. Department of Transportation released a report earlier this month on the status of Federal Aviation Administration’s (FAA) multiple attempts at reform in the last 20 years.

Titled FAA Reforms Have Not Achieved Expected Cost, Efficiency, and Modernization Outcomes the report paints a dire picture of the results of the several reform attempts that Congress and the Administration have implemented at the FAA.

The reforms studied included:

• Personnel and procurement reform in 1995-1996.
• Creation of the Air Traffic Organization (ATO) within the FAA, in the 2000-2004 period, to provide air traffic control (ATC).
• Contracting-out of the flight service stations in 2005.

The new personnel rules that were implemented in 1995 and 1996 allowed the agency to have greater flexibility in hiring, training, and compensating personnel, as well as allowing the FAA to negotiate pay with its bargaining units. According to the report, “FAA has not leveraged these personnel reform flexibilities”, with many of its personnel rules still mimicking Federal rules. The IG argues that this is due to the bargaining agreements with the unions, where many of the benefits and other personnel matters are enshrined to mimic those Federal rules, and the only real difference from FAA’s personnel rules and the Federal Government’s is the level of compensation.

Procurement reform was also granted in 1995, and directed the FAA to develop an acquisition management system to meet its unique procurement needs. According to the report, the FAA claims that these reforms, along with other structural reforms like the creation of the ATO, have improved the delivery of the technologies and capabilities on newer acquisitions. However, the IG concludes that the procurement processes at the FAA are still plagued with problems, with unresolved requirements and made with incomplete information, software development problems, ineffective contract management, and unreliable cost and schedule requirements. Still, the situation has improved: from 2004 through 2012, FAA acquisitions were 1 percent under budget and 11 percent behind schedule, while before 2004 acquisition were 38 percent over budget and 25 percent behind schedule. But the IG noted that the way the FAA reports costs and schedules “mask many past cost, schedule, and other performance problems”.

The creation of the ATO followed the attempts in the 1990s to reform ATC provision in the United States. After an attempt to create a government corporation in 1994 and a very critical report of a commission headed by former Congressman Norman Mineta (D-CA) (and former Secretary of Transportation), the ATO was created by Executive Order in 2000 (it took until 2004 for it to be fully working) as a performance-based organization within the FAA to provide ATC in a more business-like manner. The IG reports that the FAA implemented some systems intended to operate more like a business, including a cost accounting system, but it does not regularly analyze the operational and cost data generated by these systems, rendering them irrelevant to reduce costs or improve productivity. The FAA also failed to establish baseline metrics or quantifiable goals for the initiatives it creates to reduce costs or improve productivity.

Other areas where the IG found the FAA was lacking in potential reform were related to facility consolidation. The three large-scale consolidation initiatives that have happened have failed to deliver because costs exceed estimates and operational efficiencies were not achieved. Since then the FAA has abandoned plans to consolidate other facilities.

The IG also found that the FAA has not converted any of the towers that it still operates to contracted-out tower, which on average save $1.5 million per year, mainly due to lower staffing and salary levels. Regarding NextGen, FAA’s multi-year multi-billion modernization program, the IG reports that the FAA has adopted a segmented approached to its implementation, instead of the previous “big bang” approach where most of the new systems would come online simultaneously. However, this segmented approached has led “to unclear and inconsistent reporting on overall program costs, schedules, and benefit”, the IG concludes.

In summary, the IG found that costs continue to rise (41 percent in real terms from 1996 through 2012), while operational productivity has declined (around 25 percent less controller activities from 2008 to 2012, although this is in large part explained by a significant decline in traffic, which has been going on since 2001 while controller staffing has remained stable). The IG concluded that ­“FAA’s disappointing reform outcomes are largely the result of the Agency’s failure to take full advantage of its authorities when implementing new personnel systems, and not using business-like practices to improve its operational efficiency and cost effectiveness.” To solve this issue, the IG recommends that the FAA:

1. Identify and implement cost-saving initiatives and develop appropriate timelines and metrics for these initiatives are successful.
2. When reporting on major acquisitions, identify the current estimated costs for each acquisition system, including all segments, and identify the total baselined/rebaselined costs for each system
3. Review and identify Federal and industry best practices for acquiring major capital investments and IT systems.

Chairman Shuster commented on the IG report, saying “this report shows that the FAA simply isn’t suited to successfully modernize our Nation’s antiquated air traffic control system.” Shuster also stressed the need for reform, noting that “the FAA remains a vast government bureaucracy, not a high-tech service provider.  It’s clear from the DOT IG’s findings that we need transformational FAA reform if we are going to have a safe, efficient, 21^st century aviation system.” As ETW reported a few weeks ago, Shuster intends to present legislation shortly that would take out ATC provision outside of the federal government and put it in an independent non-profit user co-operative run by aviation stakeholders. In a response published by The Hill, the FAA countered the report’s findings, saying that “Since 1996, we have successfully leveraged congressional mandates to implement several cost-savings initiatives”, noting that the agency has seen lower cost growth than other agencies and is also meeting deployment goals on NextGen.

Eno’s NextGen Working Group explored the challenges of ATC governance and its role in the delayed role out of ATC modernization. The group’s final report includes a complete history of ATC provision in the U.S. since the early-early days (think bonfires) to the present, and includes discussions of the reforms that were explored in the IG report. Interested readers can also check our FAA Reform Reference Page, which includes a large number of documents pertaining this topic, including previous IG and GAO reports on FAA performance and NextGen deployment.