Closing Maintenance Depots: Savings, Workload, and Redistribution Issues (Chapter Report, 03/04/96, GAO/NSIAD-96-29)
Pursuant to a congressional request, GAO reviewed maintenance depot
closures and realignments, focusing on: (1) the reliability of the
Department of Defense's (DOD) depot closure cost and savings estimates;
(2) DOD efforts to provide employment and training opportunities at
closing depots; (3) whether the military services can increase savings
by using competitions between DOD depots and the private sector when
redistributing closing depots' workloads; and (4) whether the military
services adequately consider other services' depots when redistributing
the workloads.
GAO found that: (1) although DOD has decreased its initial savings
estimates resulting from 10 depot closures, the estimates still
overstate savings by excluding certain closure-related costs; (2) DOD
may not have reliable information on the costs and savings related to
depot closures even after closures have been implemented; (3) the lack
of reliable data may make workload redistribution more difficult and
cause more costly alternatives to be taken; (4) DOD has been successful
in limiting the number of employees who are involuntarily separated as a
result of depot closures through a comprehensive but costly outplacement
program; (5) DOD could greatly increase savings by reintroducting
competitions between depots and the private sector to determine the most
efficient means of redistributing closed depots' workloads; and (6) the
military services seldom consider other depots in redistributing
workloads, which limits potential savings.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: NSIAD-96-29
TITLE: Closing Maintenance Depots: Savings, Workload, and
Redistribution Issues
DATE: 03/04/96
SUBJECT: Base closures
Base realignments
Maintenance costs
Military downsizing
Cost effectiveness analysis
Privatization
Military cost control
Equipment maintenance
Competition
Military materiel
IDENTIFIER: DOD Cost of Base Realignment Action Model
Defense Business Operations Fund
Bradley Fighting Vehicle
DOD Priority Placement Program
DOD Defense Conversion Assistance Program
DOD Defense Diversification Program
Defense Outplacement Referral System
DOD Voluntary Separation Incentive Program
DOD Homeowners Assistance Program
JTPA
Job Training Partnership Act Program
6V53 Engine
AN/TPQ-37 Radar
H-1 Helicopter
H-60 Helicopter
HH-60D Helicopter Acquisition Program
T-56 Aircraft
501K Engine
H-3 Helicopter
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Cover
================================================================ COVER
Report to Congressional Requesters
March 1996
CLOSING MAINTENANCE DEPOTS -
SAVINGS, WORKLOAD, AND
REDISTRIBUTION ISSUES
GAO/NSIAD-96-29
Closing Maintenance Depots
(709042)
Abbreviations
=============================================================== ABBREV
AGMC - Aerospace Guidance and Metrology Center
BRAC - Base Closure and Realignment Commission
CECOM - Army Communications-Electronics Command
COBRA - cost of base realignment actions
DOD - Department of Defense
GAO - General Accounting Office
VSIP - voluntary separations incentive pay
Letter
=============================================================== LETTER
B-262045
March 4, 1996
The Honorable Herbert Bateman
Chairman
The Honorable Norman Sisisky
Ranking Minority Member
Subcommittee on Military Readiness
Committee on National Security
House of Representatives
At your request, we reviewed selected issues related to the
maintenance depot closures and realignments that resulted from
decisions made by the Base Commission on Closure and Realignment. We
found that (1) the Department of Defense (DOD) substantially reduced
its savings estimates from closing maintenance depots, but is still
overestimating the savings that will probably be achieved; (2) the
number of employees involuntarily separated as a result of past
closure decisions was minimized because of a comprehensive but costly
employee assistance program; and (3) DOD is not using public-public
or public-private competitions as a means of allocating public depot
workloads. The report includes recommendations that, if implemented,
should enable DOD to more cost-effectively redistribute closing
depots' workloads.
We are sending copies of this report to the Chairmen and Ranking
Minority Members, House and Senate Committees on Appropriations,
House Committee on National Security and Senate Armed Services
Committee, and Senate Committee on Governmental Affairs and House
Committee on Government Reform and Oversight; the Director, Office of
Management and Budget; and the Secretaries of Defense, the Army, the
Air Force, and the Navy.
Please contact me at (202) 512-8412 if you have any questions. The
major contributors to this report are listed in appendix II.
David R. Warren
Director, Defense Management Issues
EXECUTIVE SUMMARY
============================================================ Chapter 0
PURPOSE
---------------------------------------------------------- Chapter 0:1
The Department of Defense (DOD) currently spends $15 billion annually
on maintaining aircraft, ships, tracked and wheeled vehicles, and
other equipment. However, it believes it can reduce maintenance
costs by better matching its depots' workload capacity with current
maintenance requirements. Accordingly, as a result of the base
closure and realignment process, DOD is closing 15 of its 36 major
maintenance depots and is transferring their workloads to other
depots or the private sector.
The Chairman and Ranking Minority Member, Subcommittee on Military
Readiness, House Committee on National Security, requested that GAO
(1) assess the reliability of DOD's depot closure cost and savings
estimates; (2) obtain information on the policies and programs used
to provide employment and training opportunities to employees at
closing depots; (3) determine if the military services can increase
savings by using competitions between DOD depots (public-public
competitions) or between DOD depots and the private sector
(public-private competitions) when redistributing closing depots'
workloads; and (4) determine if the military services adequately
consider other services' depots when they use methods other than
competition to redistribute the workloads. The scope of this report
is limited to the 10 depots that were recommended for closure during
the first 3 rounds of the base closure process.
BACKGROUND
---------------------------------------------------------- Chapter 0:2
Since the early 1970s, GAO and others have repeatedly reported on the
redundancies and excess capacity that exist in DOD's depot
maintenance operations and have recommended increased integration and
centralized management to resolve the problem. However, the military
services have historically preferred to retain control of their depot
maintenance operations and allocate the workload for key systems to
their own depots, which frequently duplicate capabilities in other
services' depots.
Two things have exacerbated DOD's excess capacity problem in recent
years. First, changing world conditions and other factors have
significantly reduced DOD's depot maintenance requirements. Second,
the private sector, which has seen its production workload for new
systems and equipment decline as a result of the same conditions, is
seeking more of the depot maintenance workload.
Although some downsizing has been accomplished by mothballing or
disposing of equipment and by vacating buildings or converting them
to other uses, the problem of excess capacity has, for the most part,
been addressed through the base closure and realignment process.
Three Navy shipyards, three naval aviation depots, one Air Force
depot, and three Army depots are being closed as a result of the
first three rounds of the base closure process. In addition, one
Army depot, two Air Force depots, one Navy shipyard, and one naval
aviation facility are being closed as a result of the 1995 round.
RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3
DOD has substantially reduced its initial estimates for the net
savings that depot closures will achieve during the 6-year
implementation period allowed by law and, to a lesser extent, for the
annual savings after the implementation period has been completed.
Although DOD believes its estimates have improved, current estimates
still do not accurately reflect potential savings because (1) some
closure-related costs are not included and (2) some estimates have
not been updated to reflect major changes in such areas as the
expected cost of doing the work after it is transferred to new
sources of repair. As a result, the magnitude of savings is
uncertain.
With the prospects of losing their jobs when depots close, employees
face a number of career and life-altering decisions. However, by
offering a comprehensive and costly outplacement program that
provides assistance, benefits, and separation incentives, DOD has
greatly facilitated this transition and has thus far successfully
limited the number of depot employees who were involuntarily
separated. In addition, although jobs have not always been available
in the same geographical area, they have often been available for
employees willing to relocate.
The military services can substantially increase their savings by
ensuring that closing depots' workloads are transferred to the most
cost-effective source of repair. They can accomplish this goal by
(1) conducting public-public and public-private competitions for the
work or (2) by analyzing the cost-effectiveness of moving the work to
not only their own depots but also those of the other services. In
addition, they can improve the efficiency of their operations and
reengineer workloads that are transferred from closing depots without
competition.
However, neither DOD nor the military services have taken action to
maximize these savings. For example, GAO found that (1) public-
public and public-private competition programs were discontinued in
May 1994; (2) the Air Force is implementing a privatization-in- place
plan that will likely increase maintenance costs; (3) the military
services rarely consider interservicing alternatives (one service
relying on another service for depot maintenance support) when they
redistribute workloads; and (4) neither DOD nor the services require
depots to reengineer workloads they receive from closing depots.
PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4
SAVINGS ESTIMATES HAVE
DECREASED
-------------------------------------------------------- Chapter 0:4.1
DOD and the base closure and realignment commissions used the Cost of
Base Realignment Actions model to develop preliminary cost and
savings estimates for each depot closure. After the President and
Congress accepted the commissions' recommendations, the services
provided updated--and what they considered to be more reliable-- cost
and savings estimates in their annual budget submissions to Congress.
One major difference between the preliminary estimates and the budget
estimates was that the model used to develop the preliminary
estimates excluded environmental cleanup costs, which DOD is liable
for regardless of whether a depot closes or not.
Although not directly comparable, the services' budget estimates of
total net savings that the 10 depot closures will achieve during the
6-year implementation are 85 percent less than the commissions'
estimates ($222.4 million versus $1,437.8 million). The primary
reasons for this difference are (1) a $711.1-million reduction in the
amount of gross savings that are expected during the implementation
period resulting from such factors as fewer than expected reductions
in the number of personnel eliminated; (2) the addition of a one-time
environmental cost of $409.1 million that was excluded from the
commission's estimates; and (3) a $100.5-million increase in
nonenvironmental costs for such things as relocating civilian
employees. The budget estimates for the total annual savings after
the implementation period are 10 percent less than the commissions'
estimates ($656 million versus $729 million).
CURRENT ESTIMATES STILL
OVERSTATE SAVINGS
-------------------------------------------------------- Chapter 0:4.2
Current estimates may be better than those used by base closure and
realignment commissions, but they still do not accurately reflect the
costs and savings that are likely to occur. First, the estimates
exclude some closure-related costs that are being financed through
the Defense Business Operations Fund or with operation and
maintenance funds. Second, the services have not updated their
savings estimates since their initial budget estimates, even though
significant changes have occurred in such items as the expected cost
of accomplishing depot maintenance work after it is moved from a
closing depot to a new source of repair.
In addition, DOD lacks effective tools for estimating the recurring
costs of depot maintenance operations in a post-closure
environment--a condition that could cause the services to select more
costly alternatives when deciding how to redistribute closing depots'
workloads. For example, the decision to privatize-in-place the depot
maintenance workload at the closing Air Force Aerospace Guidance and
Metrology Center may result in an increase rather than decrease in
costs.
Further, DOD does not require the military services to routinely
accumulate and update actual savings information on depot closures
and has not provided guidance on (1) how to compute actual savings
after a depot is closed or (2) what records should be retained for
determining the magnitude of the actual savings. As a result, DOD
may not have reliable information on the costs and savings associated
with depot closures, even after the closures are completed.
EFFORTS TO LIMIT INVOLUNTARY
SEPARATIONS HAVE BEEN
SUCCESSFUL, BUT COSTLY
-------------------------------------------------------- Chapter 0:4.3
DOD has thus far successfully limited the number of employees who
have been involuntarily separated as a result of depots closures. As
of July 31, 1995, 20,692 workers had either found other federal jobs
or left government service as a result of depot closures.
Altogether,
694 employees, or about 3.4 percent of the total, were separated
through the reduction-in-force process; 11,286, or about 54.5
percent, found another job through such programs as DOD's priority
placement program; and 8,712, or about 42.1 percent, separated
voluntarily. To a large extent, this success can be attributed to
legislative actions and to the services' comprehensive outplacement
program that includes job placement assistance, job training
opportunities, separation incentive pay for those who resign or
retire voluntarily, and early retirement options.
Although complete data is not available, DOD's outplacement program
is more costly than programs in most civilian agencies. For example,
under one job placement program, employees at bases that will remain
open are paid as much as $25,000 to retire or resign voluntarily and
are then replaced by employees from closing depots who are relocated
at government expense (at a cost of as much as $65,000 per employee).
According to Office of Personnel Management officials, although
civilian agencies have the legislative authority to provide many of
the benefits offered by DOD, the high cost of such benefits is a
restraining factor--especially for smaller agencies.
PUBLIC DEPOT COMPETITION CAN
BE USED TO INCREASE DEPOT
CLOSURE SAVINGS
-------------------------------------------------------- Chapter 0:4.4
DOD's public-public and public-private competitions of depot
maintenance workloads have resulted in savings and benefits.
Public-public competitions conducted in 1992 and 1993 for the
Sacramento Army Depot's workload and public-private competitions for
Navy aviation maintenance between 1987 and 1994 demonstrated that the
services can increase their savings by using such competitions to
redistribute closing depots' workloads. The primary reasons for this
are (1) the competing depots have an incentive to reengineer a
closing depot's work if they must compete for it, but do not if the
work is simply transferred to them; (2) the competitions introduce
the discipline and incentives of private industry by creating more of
a buyer-seller relationship between the depots and their customers;
and (3) the services can apply lessons learned during the
competitions to similar, noncompeted workloads.
However, the Deputy Secretary of Defense discontinued DOD's
public-public and public-private competition programs in May 1994.
He stated that DOD's databases and financial management systems are
not capable of providing the data needed to determine the actual cost
of specific workloads. GAO agrees that DOD has problems with its
databases and financial management systems and completely correcting
these long-standing and well-documented problems is likely to take a
long time. However, in the interim, DOD has taken actions to develop
more reliable cost estimates and is taking further actions that
should improve the competition process.
INTERSERVICE WORKLOAD
REDISTRIBUTION ALTERNATIVES
ARE RARELY CONSIDERED
-------------------------------------------------------- Chapter 0:4.5
Congress has long been a strong proponent of using interservicing to
streamline and reduce depot maintenance costs. In addition, DOD
believes the greatest potential for savings comes from redistributing
closing depots' workloads. However, the services have not considered
interservicing alternatives for most of the closing depots'
workloads. Instead, most of the work has been or will be transferred
quickly to either the parent services' remaining depots or the
private sector. GAO found that (1) due largely to service
parochialism, DOD has been trying for about 20 years--without
significant success--to interservice depot maintenance workloads; (2)
many workloads, such as Navy ships and large Air Force aircraft, are
not considered susceptible to interservicing; and (3) only about 8
percent of the susceptible workload is accomplished through
interservicing.
PUBLIC-PRIVATE COMPETITIONS NOT
USED IN ALLOCATING CLOSING
DEPOT'S MAINTENANCE WORKLOADS
---------------------------------------------------------- Chapter 0:5
Title 10 U.S.C. 2469 provides that competitive procedures that
include public entities be used when privatizing depot maintenance
workloads valued at $3 million or more. DOD canceled its
public-private competition program in May 1994. The Air Force is
privatizing the Aerospace Guidance and Metrology Center's workload
without using competitive procedures that include public depots. DOD
officials expressed differing views on the statute's application.
RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:6
GAO recommends that the Secretary of Defense (1) implement procedures
to capture relevant cost and savings data on depot closures; (2)
improve the process for estimating recurring costs of maintenance
operations in a post-closure environment; (3) implement a
high-priority program to resolve internal control deficiencies in
depot management systems; (4) maximize the use of competitive
procedures and merit-based selection criteria that include military
depots in determining the most cost-effective source of repair for
workloads that have not yet been transferred from closing depots; and
(5) require the services to reengineer workloads that are
redistributed from closing depots on any basis other than
competition, starting with the largest and most stable workloads.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:7
DOD provided official oral comments. With two exceptions, DOD
officials generally agreed with GAO's findings and recommendations.
First, although they agreed that costs and savings estimates
associated with depot closures are not completely accurate, they
noted it would not be a cost-effective use of scarce resources to
develop more accurate estimates--especially since the last base
closure round has been completed. GAO believes that accumulating
actual cost and savings data or revising estimates should not be
overly cumbersome because depots are already required to compare
their budgeted and actual costs and to determine the cause of any
significant variances. Further, the services could make more
informed and cost-effective workload redistribution decisions if they
had more reliable cost and savings data on past closures.
Second, DOD officials noted that public-private competitions-- which
GAO has recommended be reinstituted--were reinstituted through a
November 1994 memorandum from the Deputy Under Secretary of Defense
to the service secretaries implementing 10 U.S.C. 2470. GAO notes
that no such competitions have been conducted since the program was
terminated in 1994. Further, DOD policy prohibits its depots from
participating in public-private competitions until the Defense
Finance Accounting Service certifies that adequate financial systems
and procedures are in place to identify and track all costs. Given
these and other factors, GAO continues to believe that DOD has not
effectively reinstituted its public-private competition program and
should do so. GAO's recent report on the Navy's implementation of
the program includes this recommendation.\1
GAO continues to believe that to identify the most cost-effective
source of repair for transferring maintenance workloads from closing
depots, DOD should maximize the use of competitive procedures that
include military depots.
--------------------
\1 Navy Maintenance: Assessment of the Public-Private Competition
Program for Aviation Maintenance (GAO/NSIAD-96-30, Jan. 22, 1996).
INTRODUCTION
============================================================ Chapter 1
The Department of Defense (DOD) annually spends $15 billion\1 for
depot maintenance work that involves the repair, overhaul,
modification, and upgrading of aircraft, ships, tracked and wheeled
vehicles, and other equipment. This work, which also includes
limited parts manufacturing, technical support, testing, reclamation,
and software maintenance, is performed by both public depots and the
private sector.
A combination of factors, including declining maintenance
requirements and increasing pressures to outsource more and more work
to the private sector, has caused DOD to downsize its depot
maintenance infrastructure. This downsizing has taken place largely
through the base closure and realignment (BRAC) process.
--------------------
\1 This total includes $2 billion that is spent installing various
weapon systems and equipment modifications and upgrades--depot-level
maintenance functions that are budgeted under procurement
appropriations rather than operation and maintenance appropriations.
DEPOT MAINTENANCE OVERVIEW
---------------------------------------------------------- Chapter 1:1
Prior to downsizing, DOD had 36 major maintenance depots--8 Army
depots, 6 naval aviation depots, 8 shipyards, 2 ship repair
activities, 3 Navy warfare centers, 7 Air Force depots, and 2 Marine
Corps depots--as well as other industrial facilities with a depot
maintenance mission. This total includes 15 depots that are closing,
6 of which have already ceased maintenance operations. It does not
include an Air Force depot maintenance activity in Colorado Springs
that performs software maintenance for space systems or most
specialized government-owned, contractor-operated repair depots.
These depots, which represent a large government investment, have
historically had more extensive technical capability--in terms of the
facilities, equipment, and personnel--than lower maintenance
levels.\2 However, in recent years, various programs within the
military services have resulted in blending some of the maintenance
levels.
In addition to in-house depot maintenance capability, DOD also
contracts with thousands of firms, including both repair houses and
original equipment manufacturers. These firms supply parts and
provide direct maintenance support in both their own facilities and
government facilities.
In our April 1994 testimony,\3 we reported that DOD's estimate of the
workload mix between the public and private sectors--about 35 percent
to the private sector and the remainder to public depots--understated
the portion of private sector funding. We noted that an actual
accounting of the amount going to the private sector, either directly
or through the purchase of repair parts or secondary services, was
not readily available because of limitations in the way DOD collected
data. However, based on our review of available data, we projected
that more than 50 percent of depot maintenance funds goes to the
private sector.
Figure 1.1 depicts DOD's major depots, which collectively employ
about 100,000 civilian employees and 2,000 military personnel. A
brief history of each military service's depot system is provided in
appendix I.
Figure 1.1: DOD's Depot
Maintenance System
(See figure in printed
edition.)
--------------------
\2 The other two levels are (1) organizational maintenance, where
members of operational military units make functional checks and then
adjust, service, or replace faulty parts and (2) intermediate
maintenance, where military personnel perform more extensive
repairs--many of which require a shop environment.
\3 Depot Maintenance: Issues in Allocating Workload Between the
Public and Private Sectors (GAO/T-NSIAD-94-161, Apr. 12, 1994).
DEPOT DOWNSIZING HAS OCCURRED
LARGELY THROUGH BRAC
---------------------------------------------------------- Chapter 1:2
A combination of factors has created too much depot maintenance
capacity in the military services' depots. These factors include (1)
the downsizing of the armed forces due to the end of the Cold War;
(2) efforts by some DOD components to conduct more repairs in
field-level maintenance activities; (3) pressures by the defense
industry to contract out more depot work to the private sector; and
(4) the increased reliability, maintainability, and durability of
most military systems and equipment.
Some initiatives--namely consolidating workloads, implementing
competition between government depots and the private sector,
mothballing depot plant equipment, and tearing down unused buildings
or converting them to other military uses--have been undertaken to
reduce some of the excess capacity. However, depot downsizing has
largely occurred through the BRAC process.
Closing unneeded facilities has never been easy, partly because of
the public's concerns about the effects of closures on communities
and about the impartiality of the decision-making process.
Additionally, 1970s legislation requiring congressional notification
of proposed closures and preparation of economic, environmental, and
strategic consequence reports has greatly impeded base closure
efforts. Legislation enacted in 1988 (P.L. 100-526) facilitated a
successful round of base closure decision- making. It outlined a
special process for considering base closure actions, authorized a
special commission to review proposed closures and realignments, and
provided relief from certain statutory provisions that hindered the
base closure process.
In 1990, the Secretary of Defense found it was difficult to complete
additional base closure actions without special enabling legislation.
Therefore, Congress passed the Defense Base Closure and Realignment
Act of 1990 (title XXIX, P.L. 101-510), which halted any major
closures unless DOD followed the new act's requirements. The act
created independent BRAC commissions and outlined procedures, roles,
and time frames for the President, Congress, DOD, GAO, and the
commissions to follow. It required that all bases be compared
equally against (1) selection criteria to be developed by DOD and (2)
DOD's current force structure plan. The legislation mandated rounds
of BRAC reviews in 1991, 1993, and 1995.
The first 3 rounds of the BRAC process resulted in decisions to close
10 maintenance depots: 1 in BRAC 1988, 2 in BRAC 1991, and 7 in BRAC
1993. Six of these depots are located on bases that are being closed
completely, but four--the Norfolk and Pensacola naval aviation depots
and the Lexington-Bluegrass and Tooele Army depots-- are located on
bases that will continue to perform missions other than depot
maintenance. Eight of the depots have had or will have all or
portions of their land and facilities made available to the local
community for reuse; however, the Navy plans to retain all of the
Norfolk and Pensacola naval aviation depots' land and facilities for
other missions. For purposes of this report, all BRAC actions where
depot maintenance operations will cease at a location are referred to
as "depot closures."
Table 1.1 shows the depots recommended for closure, the dates they
either did or will cease maintenance operations, and their actual or
planned closure dates.
Table 1.1
Maintenance Depots Identified for
Closure by the 1988, 1991, and 1993 BRAC
Rounds
Cease
maintenan Planned/
ce actual
BRAC operation closure
Depot round s date
---------------------------------------- ------ --------- ---------
Lexington-Bluegrass Army Depot 1988 9/94 9/95\a
Sacramento Army Depot 1991 9/94 3/95\b
Philadelphia Naval Shipyard 1991 9/95 9/96
Charleston Naval Shipyard 1993 9/95 4/96
Mare Island Naval Shipyard 1993 4/95 4/96
Alameda Naval Aviation Depot 1993 9/96 3/97
Norfolk Naval Aviation Depot 1993 9/96 3/97\a
Pensacola Naval Aviation Depot 1993 9/95 3/96\a
Tooele Army Depot 1993 5/95 9/96\a
Aerospace Guidance and Metrology Center, 1993 8/96\c 9/96
Newark Air Force Base
----------------------------------------------------------------------
\a These depots are located on bases that are being realigned rather
than closed and that will continue performing nonmaintenance
missions.
\b Although most of the depot's land and facilities were turned over
to the local community, some were retained pending completion of
environmental cleanup work.
\c Since the closure plan involves turning the facility over to
private contractors rather than closing it, maintenance operations
will not actually cease but will be transferred to the private
sector. Additionally, DOD civilians will continue to perform part of
the metrology and calibration mission since the functions they
perform have been determined to be "inherently governmental."
DOD's report to the 1995 BRAC Commission included recommendations to
(1) realign the Letterkenny Army Depot and the Naval Undersea Warfare
Center, Keyport, Washington;\4 (2) close the Red River Army Depot,
Long Beach Naval Shipyard, and Naval Surface Warfare Center, Crane
Division Detachment, Louisville, Kentucky; and (3) reduce the five
air logistics centers' excess capacity by consolidating various
workloads, disposing or mothballing depot plant equipment, and
tearing down buildings. DOD estimated that this approach would
reduce the Air Force's excess capacity by 1.5 depot equivalents.
However, after these recommendations were forwarded to the BRAC
Commission for review, the Commission added all five air logistics
centers, Portsmouth Naval Shipyard, and Tobyhanna Army Depot to the
list for further review.
The Commission ultimately recommended closing the Long Beach Naval
Shipyard; the Naval Surface Warfare Center, Crane Division
Detachment, Louisville, Kentucky; and the Sacramento and San Antonio
Air Logistics Centers. In addition, it recommended that (1) the
depot maintenance mission be discontinued at the Letterkenny Army
Depot (Pennsylvania); (2) the Naval Undersea Warfare Center, Keyport,
Washington, retain its torpedo depot maintenance workload, but
transfer its ship combat systems workload; and (3) the Red River Army
Depot remain open and retain its Bradley Fighting Vehicle Series
workload, but transfer its other maintenance missions to other depots
or the private sector.
President Clinton disagreed with some of the Commission's
recommendations, especially those that affected depots in California
and Texas, but he ultimately approved the Commission's report on July
13, 1995, and forwarded it to Congress. Congress completed its
review and accepted the Commission's recommendations in September
1995.
--------------------
\4 Although the warfare centers had previously been categorized as
technical centers rather than depot maintenance activities, their
missions included performing some depot maintenance workload.
OBJECTIVES, SCOPE, AND
METHODOLOGY
---------------------------------------------------------- Chapter 1:3
The Chairman and Ranking Minority Member of the Subcommittee on
Military Readiness, House Committee on National Security, requested
that we (1) assess the reliability of DOD's depot closure cost and
savings estimates; (2) obtain information on the policies and
programs used to provide employment and training opportunities to
employees at closing depots; (3) determine if the military services
can increase depot closure savings by using competitions between DOD
depots (public-public competitions) and between DOD depots and the
private sector to redistribute closing depots' workloads; and (4)
determine if the military services adequately consider other
services' depots when they use methods other than public-public or
public-private competitions to redistribute their closing depots'
workloads.
To assess the reliability of depot closure cost and savings
estimates, we analyzed the cost of base realignment actions (COBRA)
and BRAC budget estimates. We also discussed the reliability of the
estimates with DOD and service officials and examined financial
documentation.
To obtain information on the policies and programs used to provide
employment and training opportunities to employees at closing depots,
we (1) reviewed relevant legislation and regulations; (2) discussed
the policies and programs with cognizant depot officials; (3)
determined the frequency that various actions, such as
reductions-in-force, have been used to outplace depot employees; and
(4) visited several depots' employment transition centers. To a
limited extent, we also obtained information on the cost of the
various programs.
To determine if public-public competitions have been used effectively
to redistribute closing depots' workloads, we (1) obtained
information on the scope and results of all public-public
competitions that have been conducted, (2) reviewed competition
savings projections, and (3) discussed the pros and cons of using
public-public competitions to redistribute closing depots' workloads
with officials at both the commands that conducted the competitions
and the depots that competed for the workloads. We also evaluated
the Deputy Secretary of Defense's rationale for canceling DOD's
public-public and public-private competition programs in May 1994.
To determine if the military services adequately consider
interservicing alternatives when using methods other than public-
public competitions to redistribute closing depots' workloads, we
documented the services' plans for redistributing the workloads and
then discussed the methodology used to select new sources of repair
with depot maintenance officials.
We performed our work at
the Office of the Secretary of Defense;
the services' headquarters;
Headquarters, U.S. Army Materiel Command;
Headquarters, Naval Air Systems Command;
Headquarters, Naval Sea Systems Command;
Headquarters, Air Force Materiel Command;
Headquarters, U.S. Army Depot Systems Command, Chambersburg,
Pennsylvania;
the Naval Aviation Depot Operations Center, Patuxent River,
Maryland;
the U.S. Army Communications-Electronics Command, Fort Monmouth,
New Jersey; and
the U.S. Army Missile Command, Huntsville, Alabama.
We also performed work at four Army depots (Sacramento Army Depot,
Sacramento, California; Tooele Army Depot, Tooele, Utah;
Lexington-Bluegrass Army Depot, Lexington, Kentucky; and Tobyhanna
Army Depot, Tobyhanna, Pennsylvania); three naval shipyards
(Charleston Naval Shipyard, Charleston, South Carolina; Mare Island
Naval Shipyard, Vallejo, California; and Philadelphia Naval Shipyard,
Philadelphia, Pennsylvania); three naval aviation depots (Pensacola,
Florida; Alameda, California; and Norfolk, Virginia); and the
Aerospace Guidance and Metrology Center at Newark Air Force Base,
Ohio.
We conducted our review in accordance with generally accepted
government auditing standards. In conducting our review, we used the
same accounting systems, reports, and statistics the services use to
monitor their programs. Except where otherwise indicated, we did not
independently determine the reliability of this information.
MAGNITUDE OF SAVINGS IS UNCERTAIN
============================================================ Chapter 2
DOD believes its current budget savings estimates are better than the
Commission's estimates, but the actual savings are still uncertain.
The current budget estimates indicate that closing the 10 depots will
result in a net savings\1 of $222.4 million during the 6-year
implementation period allowed by law and an annual savings of $656
million after that. Although not directly comparable, these
estimates are considerably less than the Commission's estimates--85
percent less for the implementation period and 10 percent less in
annual recurring savings. However, actual savings are still
uncertain because (1) the budget estimates do not include many
closure-related costs, (2) DOD has not updated the annual savings
estimates since it submitted the initial budget estimates to
Congress, and (3) DOD has not developed an effective methodology for
estimating the cost of accomplishing closing depots' workloads at new
sources of repair. Further, DOD has not developed a methodology to
determine actual closure savings, and there are already indications
that the data needed to make this determination will no longer be
available after the closures have been completed.
As a result of these problems, the services lack reliable data for
making their workload redistribution decisions and may be selecting
more costly alternatives. For example, preliminary cost estimates
indicate that the Air Force's decision to privatize-in-place work
currently performed at the Aerospace Guidance and Metrology Center
(AGMC) will increase costs rather than save money. Nevertheless, the
services are either implementing or considering a similar approach at
four of the five depots that the 1995 BRAC Commission recommended for
closure.
--------------------
\1 Net savings equal the savings that will be achieved as a result of
the closure (e.g., savings from eliminating base support costs) minus
the cost of accomplishing the closure (e.g., relocation costs for
employees that are transferred to new jobs at other bases).
NET SAVINGS ESTIMATES HAVE
DECREASED
---------------------------------------------------------- Chapter 2:1
Initially, DOD used the COBRA model to estimate the cost of and
savings from closing each depot. It then provided COBRA estimates to
each closure commission. Generally, commission reports include COBRA
estimates of one-time costs, net savings for the 6-year
implementation period, and annual recurring savings for subsequent
years.
After the President and Congress accept the Commissions'
recommendations, the services prepare cost and savings estimates for
budget submissions to Congress. Requirements for budget submissions
are established in the BRAC acts (P.L. 100-526, sec. 206 and P.L.
101-510, sec. 2907), which require that annual DOD budget requests
(1) include cost and savings estimates for each closure or
realignment and (2) indicate the time for achieving these savings.
The final budget estimate for the Lexington- Bluegrass Army Depot,
which was the only depot closed during the first BRAC process, was
submitted in February 1994. The latest budget estimates for the
other nine depot closures were submitted in February 1995.
Defense and service officials emphasized that the COBRA model was
never intended to provide budget-quality estimates, and they pointed
out that budget and COBRA estimates are not directly
comparable--primarily because the COBRA model excludes environmental
cleanup costs. They said the COBRA estimates (1) were intended to be
used to compare realignment and closure options, (2) are based on
limited data, and (3) exclude environmental cleanup costs because DOD
is liable for these costs regardless of whether a depot is closed or
realigned.
Table 2.1 shows the differences between the BRAC Commissions' 6-year
net savings estimates and the military services' latest budget
estimates. As indicated, the major reasons for the $1,215.4-million
difference are (1) a $711.1-million reduction in the amount of gross
savings that are expected during the implementation period resulting
from such factors as fewer than expected reductions in the number of
personnel eliminated, (2) the addition of $409.1 million in
environmental costs, and (3) a $100.5-million increase in
nonenvironmental costs for such items as the relocation of civilian
employees.
Table 2.1
Differences Between the 6-Year Cost and
Savings Estimates in Commission Reports
and the Latest Budget Estimate
Submission for 10 Depots
(Fiscal year 1996 dollars in millions)
Differen
COBRA Budget ce
---------------------------------------- -------- -------- --------
Total savings $3,141.9 $2,430.8 ($711.1)
Land sales revenue 7.6 29.3 21.7
Less: Costs in BRAC account
Environmental N/A 409.1 409.1
Nonenvironmental 1,711.7 1,812.2 100.5
Total BRAC account 1,711.7 2,221.3 509.6
Costs financed outside the BRAC account 0 16.4 16.4
======================================================================
Total costs $1,711.7 $2,237.7 $526.0
Net savings $1,437.8 $222.4 ($1,215.
4)
----------------------------------------------------------------------
Estimates of annual recurring savings after the 6-year implementation
period have also been reduced. Specifically, the Commissions' COBRA
analyses indicated that closing the 10 depots would save about $729
million annually, when adjusted to fiscal year 1996 dollars, but
DOD's current budget estimates indicate the savings will be only $656
million annually. For example, the net savings estimate for Tooele
Army Depot was reduced from the $112.5-million estimate by COBRA to
$17.6 million in the budget over the 6-year implementation period,
and from $53.5 million (COBRA) to $27.5 million (budget) for each
subsequent year. Our analysis shows the reduction was largely due to
a change in assumptions about the number of civilian positions that
would be eliminated by the closure. The COBRA estimate assumed the
elimination of 1,268 civilian positions, while the budget estimate
assumed the elimination of 671 positions.
BUDGET ESTIMATES DO NOT INCLUDE
SOME COSTS
---------------------------------------------------------- Chapter 2:2
DOD's current budget estimates understate the actual cost of closing
the
10 depots. The primary reason for this is that they do not reflect
closure-related costs that either have been or will be paid from the
operation and maintenance account or by the Defense Business
Operations Fund. For example, the Navy estimates that, through
fiscal year 1995, closing naval aviation depots and shipyards will
have accumulated operating losses of about $882 million that will be
recouped from its operation and maintenance account ($695 million) or
written off within the Fund ($187 million). Only some of this loss
is directly related to depot closures. For example:
Naval aviation depots and shipyards were directed to freeze
overhead rates at the time the closure decision was made and, as
a result, they were unable to recover some of their overhead
costs when their workloads declined.
Two of the three closing shipyards have had losses from higher than
normal leave usage that is not reflected in the Navy's BRAC
budget estimates because this cost is being financed from the
Navy's operation and maintenance account. The operation and
maintenance account is paying for the $7.8-million loss that the
Charleston Naval Shipyard incurred in fiscal year 1994 and for
losses the Philadelphia Naval Shipyard will incur during fiscal
year 1995.
The Navy's most current budget estimates do not reflect the impact
of productivity reductions that naval aviation depots
experienced after their closures were announced. For example,
according to the Naval Depot Operations Center's information,
direct labor efficiency for two aircraft repair programs--
measured by comparing established norms to the actual number of
direct labor hours required to overhaul EA6B aircraft at Alameda
and A6E aircraft at Norfolk--declined about 9 percent and 2
percent, respectively, between fiscal year 1992 (the last full
year before closure was announced) and fiscal year 1994 (the
first full year after closure was announced).
In addition, closing Army depots have incurred closure-related costs
and losses that are being financed by the Defense Business Operations
Fund. For example:
In fiscal year 1993, the Sacramento Army Depot charged about $12
million in closure-related costs to the Defense Business
Operations Fund instead of the BRAC account. For example, the
Navy and other organizations charged depot employees' voluntary
separation incentive pay (VSIP)\2 to their BRAC account, but the
Sacramento Army Depot used the Defense Business Operations Fund
to finance these costs.
The Sacramento Army Depot's maintenance mission ended in fiscal
year 1994, but the Army continued to use Defense Business
Operations Funds to finance base support and other costs during
fiscal year 1995. This, in turn, caused the depot to incur
about a $6-million loss during the first
6 months of the fiscal year.
--------------------
\2 To encourage voluntary retirements and resignations, DOD gave
employees at closing depots up to $25,000 if they voluntarily retired
or resigned. According to its fiscal year 1995 budget submission,
the Army used its operation and maintenance account to reimburse the
Defense Business Operations Fund for VSIP costs in fiscal year 1994,
and it increased customer rates to pay for these costs in fiscal year
1995.
BUDGET SAVINGS ESTIMATES HAVE
NOT BEEN UPDATED
---------------------------------------------------------- Chapter 2:3
According to DOD officials, the services have not updated budget
savings estimates to reflect some major changes that have occurred
since they submitted their initial budgets to Congress. For example:
The savings estimate for closing the Sacramento Army Depot was
first submitted to Congress in January 1991 and remained
unchanged in the February 1995 submission. However, as
discussed in chapter 4, significant changes have occurred in not
only the Army's plans for redistributing the depot's workload,
but also the expected cost of accomplishing the work.
Navy budget estimates indicate that the only savings that will
accrue in fiscal years 1994 and 1995 from closing aviation
depots will be a $17.8-million cost avoidance due to canceled
military construction projects. However, according to an
analysis by the Naval Aviation Depot Operations Center, closing
three aviation depots and consolidating work at the three
remaining depots have enabled the Navy to reduce fiscal year
1995 customer rates by $82.7 million.
In December 1994, we reported\3 that closing AGMC could result in
an annual recurring cost rather than the $3.8-million savings
that was initially projected in the Air Force's February 1994
budget submission. Air Force officials acknowledged that the
closure and privatization of the Center could increase annual
costs-- possibly by as much as $600 million over a 6-year
period. Moreover, although AGMC customers have been told to
budget more in future years for the same maintenance activities,
the Air Force's February 1995 budget submission continued to
show a projected annual savings of $3.8 million.
DOD and service officials stated that savings estimates are not
updated because, once savings are reflected in the budget, there is
no reason to update the estimates unless significant new savings are
identified.
--------------------
\3 Aerospace Guidance and Metrology Center: Cost Growth and Other
Factors Affect Closure and Privatization (GAO/NSIAD-95-60, Dec. 9,
1994).
METHODOLOGY NEEDED FOR
ESTIMATING POST-CLOSURE
COSTS
-------------------------------------------------------- Chapter 2:3.1
DOD has not developed an effective methodology for estimating
maintenance costs in a post-closure environment. Prior to the 1995
BRAC process, DOD officials recognized that they needed better
estimates for projecting the savings from moving closing depots'
workloads to new repair sources. They considered using an Economic
and Personnel Analysis Model that was developed to evaluate the
financial impact of various interservicing alternatives. However,
although the model is compatible with the COBRA model, it requires an
additional data call. Further, all of the services did not agree to
use the model during the 1995 BRAC process. As a result, the model
was not used during the 1995 BRAC round and is not being used to
update budget savings estimates.
DOD HAS NOT PROVIDED ADEQUATE
GUIDANCE ON HOW TO ESTIMATE
SAVINGS
---------------------------------------------------------- Chapter 2:4
DOD does not require the military services to routinely accumulate
and update savings information on depot closures, and it has not
provided guidance on (1) how to compute actual savings once the
closures have been completed or (2) what records should be retained
so that the magnitude of the actual savings can be determined. As a
result, DOD may not have reliable information on the costs and
savings associated with depot closures, even after the closures are
completed.
In the absence of DOD guidance, data needed for tracking costs and
savings are not being retained. For example, according to an Army
Audit Agency manager, preliminary information obtained from an
ongoing review of BRAC I bases, including the Lexington-Bluegrass
Army Depot, indicates that (1) no provision has been made to ensure
the retention of needed records and (2) some of the information
needed to estimate savings for these bases may no longer be
available. Similarly, when we attempted to review cost and savings
data from the Lexington-Bluegrass Depot, Army officials told us that
records needed to develop depot closure cost and savings estimates
had apparently been lost.
At the request of the Subcommittee on National Security,
International Affairs and Criminal Justice, House Committee on
Government Reform and Oversight, we are reviewing estimated and
actual savings from past base closure and realignment actions,
including depots. As a part of that review, we are also addressing
issues related to the development of budget estimates and measurement
of actual savings.
In addition, in response to several congressional requests, including
one from the House Committee on National Security, we are also
reviewing DOD's plans to privatize depot maintenance workloads.
Specifically, we are reviewing the methodology the services plan to
use when they evaluate the cost-effectiveness of implementing a
privatization-in-place concept at AGMC, the Letterkenny and Red River
Army depots, the Sacramento and San Antonio Air Logistics Centers,
and the Naval Surface Warfare Center, Crane Division Detachment,
Louisville, Kentucky.
CONCLUSIONS
---------------------------------------------------------- Chapter 2:5
DOD's budget estimates show that the savings from the
10 BRAC- recommended depot closures will be lower than the BRAC
Commissions original estimate. Further, questions remain about the
overall accuracy of DOD's budget estimates. In some cases, certain
costs have not been included or estimates have not been updated to
reflect significant changes. Such information is needed to
periodically update defense managers and Congress on the amount of
savings. DOD does not currently have a standardized approach for
capturing and presenting costs and savings data, nor does it have a
sound process for estimating recurring costs of conducting
maintenance operations in a post-closure environment. Both of these
elements are essential to evaluate the cost-effectiveness of
alternatives for conducting maintenance operations after depots
close.
RECOMMENDATIONS
---------------------------------------------------------- Chapter 2:6
We recommend that the Secretary of Defense (1) implement procedures
to capture relevant cost and savings data on depot closures and (2)
improve the process for estimating recurring costs of maintenance
operations in a post-closure environment.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 2:7
DOD officials believe that, although budget estimates of the costs
and savings associated with depot closures are not completely
accurate, it would not be a cost-effective use of scarce resources to
develop more accurate estimates, especially since the last base
closure round has been completed. In our opinion, accumulating
actual cost and savings data or revising estimates as significant
changes occur should not require a substantial expenditure of
additional resources because depots are already required to compare
their budgeted and actual costs and to determine the cause of any
significant variances.
Further, we believe developing more accurate cost and savings
estimates serves two purposes. First, if one or more additional
rounds of base closures are required, having more accurate
information on the costs and savings associated with past closures
should allow DOD, the services, and any future closure commissions to
develop more reliable estimates and, in turn, make more informed
decisions.\4 Additionally, we believe the services could make more
informed and cost-effective workload redistribution decisions if they
had more reliable cost and savings data on past closures. For
example, the privatization-in-place concept that is being implemented
at AGMC is also being considered for four of the five depots that the
1995 Commission recommended for closure, even though DOD has not
developed a methodology for determining (1) how much this
privatization will save or cost the government and (2) if this
approach is more cost-effective than closing the depots and
transferring their workloads to either the remaining depots or the
private sector.
--------------------
\4 The Secretary of Defense has already indicated that he believes at
least one more round of closures will probably be required.
EFFORTS TO LIMIT INVOLUNTARY
SEPARATIONS HAVE BEEN SUCCESSFUL,
BUT COSTLY
============================================================ Chapter 3
DOD has thus far been successful in limiting the number of employees
that must be involuntarily separated when depots close. To a large
extent, this success can be attributed to the transition programs
that have been made available. These programs have incurred
significant costs that will grow as more of the depots reach their
actual closure date.
DOD ASSISTANCE EASES EMPLOYEE
TRANSITION
---------------------------------------------------------- Chapter 3:1
With the imminent prospects of job loss resulting from depot closure,
employees face a number of career decisions. Table 3.1 shows that
DOD has been successful in limiting involuntary separations by
providing a combination of separation incentives and job placement
opportunities. As shown in the table, reductions-in-force affected
only 694 workers, or about 3.4 percent of the 20,692 workers who
either left government service or found other government jobs. About
54.5 percent of the workers found other jobs, while 8.5 percent took
either an optional or disability retirement;\1 14.1 percent took
voluntary early retirement;\2 and 13 percent resigned. VSIP of up to
$25,000, depending upon length of service, is one tool DOD used. It
is too early in the closure process to determine DOD's overall
success in limiting involuntary separations. However, for two depots
that have closed or are near final closure, the number of involuntary
separations remains low. For example, at the Sacramento Army Depot,
although 164 employees were separated through the reduction-in-force
process, this represents only 7.3 percent of the total losses and,
according to the depot commander, most of these employees chose to be
separated rather than to relocate to other localities where DOD jobs
for which they qualified were available. Likewise, at the
Lexington-Bluegrass Army Depot, only two employees have been
separated through the reduction-in-force process.
Also as shown in table 3.1, the services also assisted many displaced
workers with their job searches. Of the 20,692 employees who had
left their jobs as of July 31, 1995, 11,806 employees, or 54.5
percent, either found other DOD jobs or obtained jobs with other
federal agencies. Most of the DOD jobs were obtained either by
transferring with the workload to a nonclosing depot or through DOD's
priority placement or VSIP exchange programs.
Table 3.1
Depot Attrition and Job Placement (As of
July 31, 1995)
Philadelph Mare Sacrament Lexingto Total Percent
ia Island Charleston Alameda Norfolk Pensacola o Tooele n Newark losses of total
---------------------- ---------- ---------- ---------- -------- -------- --------- --------- -------- -------- -------- -------- --------
Year of closure 1996 1996 1996 1996 1996 1995 1994 1995 1995 1996
Initial staff level\a 7,404 5,560 4,522 2,846 3,506 2,581 2,257 2,718 1,340 1,603 34,337
Depot employees who separated
------------------------------------------------------------------------------------------------------------------------------------------------------
Voluntary early 517 598 346 186 0 186 504 479 94 2 2,912 14.1
retirement
Optional/disability 658 310 66\b 87 67 217 90 66 164 36 1,761 8.5
retirement
Resignations 1,005 349 175 125 144 50 345 468 267 40 2,968 14.3
Reductions-in-force 71 0 137 175 0 55 164 89 2 1 694 3.4
Other separations 214 77 480\b 37 35 26 32 155 3 12 1,071 5.2
======================================================================================================================================================
Total 2,465 1,334 1,204 610 246 534 1,135 1,257 530 91 9,406 45.5
Depot employees who obtained another federal job (with DOD or another federal agency)
------------------------------------------------------------------------------------------------------------------------------------------------------
Priority placement 520 932 1,093 219 388 651 678 42 79 149 4,751 23.0
program
VSIP exchange program 168 139 180 101 0 94 168 141 0 0 991 4.8
Transfer with workload 0 232 409 562 297 790 123 0 625 0 3,038 14.7
Other 1,080 380 0\b 149 310 188 151 86 72 90 2,506 12.1
======================================================================================================================================================
Total 1,768 1,683 1,682 1,031 995 1,723 1,120 269 776 239 11,286 54.5
======================================================================================================================================================
Grand total 4,233 3,017 2,886 1,641 1,241 2,257 2,255 1,526 1,306 330 20,692 100.0
7/31/95 staff level 3,171 2,622 1,636 1,205 2,332 308 2 1,192 34 1,505 14,007
------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Data as reported by closing depots and shipyards. Reasons for
minor variations in some balance totals not determined.
\a Staff levels in year of closure recommendation. BRAC I
(1988)--Lexington Army Depot; BRAC II (1991)--Philadelphia Naval
Shipyard and Sacramento Army Depot; BRAC III (1993)--Alameda,
Norfolk, and Pensacola naval aviation depots; Mare Island and
Charleston naval shipyards, Air Force AGMC, and Tooele Army Depot.
\b Charleston Naval Shipyard officials could not determine how many
employees (1) received disability retirement or (2) obtained another
federal job by some means other than the three methods listed. They,
therefore, included these employees in the "other separations"
category.
--------------------
\1 Federal employees who meet certain minimum age and years of
service criteria are eligible for an optional retirement. In
addition, employees may be eligible for disability retirement if they
have at least 5 years of creditable service.
\2 Voluntary early retirement and some other transition benefits
available to DOD workers are summarized in table 3.2 and described in
greater detail in the remainder of this chapter.
DEPOTS HAVE EXTENSIVE EMPLOYEE
OUTPLACEMENT PROGRAMS
---------------------------------------------------------- Chapter 3:2
DOD has used a wide range of programs and incentives to limit the
number of employees that must be involuntarily separated when depots
close. As part of this program, depot employees have job placement
assistance, job training opportunities, VSIP, and early retirement
options. The high participation rate of affected workers has
contributed to the positive results of the outplacement.
JOB TRANSITION CENTERS
ESTABLISHED AT CLOSING
DEPOTS
-------------------------------------------------------- Chapter 3:2.1
The services have established transition centers at the closing
depots to provide job search assistance, referral services,
counseling, and training in such areas as resume preparation and
interviewing techniques. The transition centers also provide access
to a wide array of office equipment and supplies, including computer
hardware and software. For example, the equipment available for
employees at the Alameda center includes (1) 11 computers that
contain both private and federal sector job data; (2) 1 computer
programmed with Career Search (a private sector job search tool); (3)
additional computers and a laser printer that can be used to prepare
resumes and cover letters; (4) copy and facsimile machines; and (5)
telephones.
Employees appear to be using the services offered by the transition
centers. For example, at the time of our review, the Pensacola
transition center was averaging 727 employee visits per month; 1,908
employees also attended various center-sponsored transition
workshops. Similarly, at the Philadelphia Naval Shipyard, 3,402
employees had registered with the Career Transition Center, which
provides such services as one-on-one counseling, development of job
search strategies, and training assessments.
JOB PLACEMENT PROGRAMS
-------------------------------------------------------- Chapter 3:2.2
DOD has a variety of job placement programs that give displaced DOD
employees priority in hiring decisions. These programs, when
combined with a policy of giving workers an opportunity to move with
workloads being transferred to other depots, have been effective in
securing employment for many displaced workers. The success of these
programs, however, often hinges on employees' willingness to
relocate, since comparable employment opportunities are often not
available in the same area.
The priority placement program has been particularly effective.
Under this program, DOD employees targeted for possible involuntary
separation are given top placement priority for vacant DOD positions
for which they are qualified. As of July 31, 1995, the program had
accounted for 42.1 percent of job placements at the 10 closing
depots.
In some instances, the military services have been able to satisfy
both their own needs and the needs of depot employees by transferring
employees with transitioning workloads. From the employees'
perspective, this approach is desirable because it allows them to
obtain a comparable job at comparable wages. Similarly, from the
military services' perspectives, retaining the existing workforce
provides continuity in completing work at the closing depot while, at
the same time, providing a base for building a knowledgeable work
team at the gaining depot.
The Navy has modified its normal personnel rules to allow depots to
expand this option. Normally, if employees turn down an opportunity
to transfer with the workload, they would no longer be eligible to
participate in the priority placement program. However, they can now
continue to participate in the priority placement program, even if
they had previously turned down an opportunity to transfer with the
workload. As of July 31, 1995, 3,038 employees, or 14.7 percent of
affected employees, had transferred with a workload.
JOB OPPORTUNITIES LIMITED IN
SOME LOCATIONS
-------------------------------------------------------- Chapter 3:2.3
In some instances, it may be impossible to place employees in
comparable jobs in the same geographical area. Some depots are the
single largest employer in their area. In addition, because they
require highly specialized skills, maintenance depots not only may be
the largest, but also one of the highest paying employers in their
area. As a result, opportunities in the same or similar field at
comparable wages can be limited or nonexistent.
Consequently, employees' ability to find a comparable federal or
private sector job frequently depends on their willingness to
relocate. Throughout DOD, the percentage of priority placements that
required a permanent relocation increased steadily from 37 percent in
1989 to 53 percent in 1993. According to one depot official, during
the initial stages of depot closures, many employees wanted a federal
job if they could get one in the immediate area. However, unless
there was a big demand for their skills or career field, depot
employees soon discovered they had to move.
Employees can increase their chances of getting a job in their
commuting area if they are willing to change career fields, but they
may find it difficult to match their previous income. For example,
depot officials noted that in areas with service-based economies such
as Pensacola, Florida, and Charleston, South Carolina, most jobs pay
only 50 percent to 75 percent of those previously available at the
depot and shipyard.
JOB TRAINING AVAILABLE
-------------------------------------------------------- Chapter 3:2.4
Employees at closing depots are authorized to apply for federal
grants to upgrade or acquire new skills under the Defense Conversion
Adjustment and Defense Diversification programs. These programs,
which were created by amendments to the Job Training Partnership
Act,\3 assist workers dislocated by defense cutbacks and are financed
with funds that DOD transfers to the Department of Labor.
Funds can be provided for formal classroom training, often at local
schools and colleges, as well as on-the-job training and can be made
available for up to 2 years. Some of the depot employees are
currently eligible to be retrained in such areas as computer science,
automobile repair, social work, and teaching. We did not assess the
effectiveness of this training in assisting employees to find new
occupations.
--------------------
\3 The act authorizes the largest system of federal job training and
retraining programs in the United States. The primary purpose of the
act's programs is to provide educational and occupational training to
workers who have lost their jobs.
RETIREMENT AND RESIGNATION
INCENTIVES ALSO PROVIDED
-------------------------------------------------------- Chapter 3:2.5
In addition to job placement assistance and job training, closing
depots offer incentives to encourage voluntary retirements and
resignations. For example, employees at closing depots are given
VSIP of up to $25,000 if they voluntarily retire or resign, and they
can take advantage of an early retirement option if they (1) have at
least 20 years of service and have reached age 50 or (2) have 25
years of service, regardless of age.
Depot employees are also able to participate in the VSIP exchange
program. Under this program, a VSIP payment is made to employees who
resign or retire at installations that are remaining open, and the
government pays employees from closing depots to move to their new
duty assignments and fill the vacated positions. As of July 31,
1995, 991 depot and shipyard employees had participated in the
program.
COST OF DOD OUTPLACEMENT
PROGRAMS
---------------------------------------------------------- Chapter 3:3
Although complete data on the cost of DOD's programs is not yet
available, they are significant. Costs are being incurred to (1) pay
the relocation costs of employees who transfer with the workload to
another depot and who find other DOD jobs through the priority
placement program or VSIP exchange program, (2) provide separation
incentives to downsize the workforce, and (3) pay for the various
kinds of training and transition assistance being provided. A number
of programs and incentives being offered to DOD civilian employees
are currently not available to other federal government employees.
According to Office of Personnel Management officials, although
civilian agencies could also provide many of the same benefits
without additional legislative authority, the high cost of such
benefits is a restraining factor--particularly for smaller agencies.
Table 3.2 lists some of the major transition benefits available to
DOD workers.
Table 3.2
Major Transition Benefits Available to
DOD Workers
Program/benefits Description
--------------------------------------- ---------------------------------------
Placement programs
--------------------------------------------------------------------------------
Priority placement Provides mandatory placement rights for
separated DOD workers to other vacant
positions within DOD. When a vacancy
occurs, employees have a right to
mandatory placement in those positions
matching their skills and grades.
Defense outplacement referral system The automated job referral system
enables employees in the public and
private sector who have job vacancies
to get a list of DOD workers who may
match the skill needed.
VSIP exchange Provides an incentive payment to
employees who resign or retire from
installations that are remaining open,
and the vacant positions are then
filled by employees from closing depots
who are moved to their new duty
assignments at government expense.
Training/transition
--------------------------------------------------------------------------------
Job Training Partnership Act Eligible DOD employees can participate
in career counseling, testing,
retraining, placement assistance,
support services, and financial
counseling.
Transition assistance center Provides a variety of services to
dislocated employees, including
assessment tools to provide guidance in
making career changes; workshops on
stress management, job search, and
interviewing techniques; assistance in
preparing resumes; job fairs; and
administrative support.
Separation incentives
--------------------------------------------------------------------------------
VSIP A lump-sum incentive equivalent to an
employee's severance pay entitlement,
up to a maximum of $25,000, is paid
upon voluntary resignation, early
retirement, or optional retirement.
Voluntary early retirement Employees can retire early if they have
at least 20 years of service and have
reached age 50 or have 25 years of
service, regardless of age. Annuities
are reduced by 2 percent for each year
below 55.
Relocation benefits
--------------------------------------------------------------------------------
Reimbursement of DOD employees transferring to other DOD
relocation costs and federal government jobs are
reimbursed for travel, transportation,
and relocation expenses.
Homeowners' assistance DOD offers to buy a worker's house if
it cannot be sold and provides
compensation for some property value
losses.
--------------------------------------------------------------------------------
RELOCATION BENEFITS
-------------------------------------------------------- Chapter 3:3.1
One of the depots' largest closure costs is the payment of relocation
costs of employees who transfer to new jobs. For example, as of
January 1995, $20.2 million, or about 75 percent, of the Sacramento
Army Depot's total BRAC expenditures had been spent on relocation
costs.\4 Similarly, Navy officials estimated that about $30.8
million, or 20.1 percent, of Alameda's BRAC expenditures and $45.9
million, or 22 percent, of Navy shipyards' BRAC expenditures are for
employee relocation costs.
These expenditures, estimated at one depot to be about $46,000 per
home-owning employee, reimburse the employees for a wide variety of
relocation costs. These include (1) reimbursement for house hunting
and other miscellaneous expenses; (2) real estate expenses; (3)
transportation of household goods; (4) travel; and (5) temporary
living expenses, including costs related to temporary storage.
To further ease the transition, the government also offers to
purchase an employee's house at fair market value if it cannot
otherwise be sold on the open market. This can be an important
benefit, particularly when the local real estate market is depressed.
Employees may also qualify for the Homeowners Assistance program,
which is authorized by 42 U.S.C. 3374 and designed to compensate
employees for property value losses they suffer because a base
closes. Under the program, an employee could be reimbursed for the
difference between the home's sale price and 95 percent of the
previously appraised value. For example, a DOD employee who owned a
house worth $100,000 before the base closure announcement and sold
the house for $80,000 after the announcement would receive $15,000.
--------------------
\4 Totals exclude expenditures that are not managed by the depot,
such as those for environmental cleanup.
SEPARATION INCENTIVE PROGRAM
EXTENDED AND EXPANDED
-------------------------------------------------------- Chapter 3:3.2
The VSIP program, which is similar to the buyout program that was in
effect in some federal agencies until March 1995, was extended by
Congress until September 1999 and expanded by DOD to include a VSIP
exchange program. According to DOD officials, initial budget
estimates were based on the assumption that employees would either be
reimbursed for their relocation costs or given VSIP; however, under
the VSIP exchange program, depots must pay both. That is, an
employee at a closing depot is relocated, at government expense, to
fill a vacancy that was created when another employee accepted a VSIP
payment. For example, as of November 1994, the Tooele Army Depot had
obligated $3 million to pay the relocation costs of 106 Tooele
employees who were participating in the VSIP exchange program and an
additional $2.7 million to make VSIP payments to
128 employees who were being replaced.
RETRAINING EFFORTS
-------------------------------------------------------- Chapter 3:3.3
DOD allocated $225 million to retrain employees at closing bases.
This total includes $150 million that was allocated under the Defense
Conversion Adjustment program and $75 million that was allocated
under the Defense Diversification program and had to be obligated by
September 30, 1994. These funds are provided to employees at closing
bases through Job Training Partnership Act grants.
Although the cost of this assistance varies with the type of training
provided, it averaged more than $5,000 per student at both the depots
for which we analyzed the data. As shown in table 3.3, employees at
all but one of the closing depots have received training assistance
through Job Training Partnership Act grants.
Table 3.3
Job Training Partnership Act Grants for
Closing Depots (As of September 30,
1994)
(Dollars in millions)
Grant
Depot activity amount
------------------------------------------------------------ --------
Philadelphia Naval Shipyard $11.2
Mare Island Naval Shipyard 6.0
Charleston Naval Shipyard 15.0
Alameda Naval Aviation Depot/Naval Air Station 2.3
Norfolk Naval Aviation Depot 7.1\a
Pensacola Naval Aviation Depot 5.3
Sacramento Army Depot 2.3
Tooele Army Depot 1.9
Lexington Army Depot 0
Aerospace Guidance and Metrology Center 2.7
======================================================================
Total $53.8
----------------------------------------------------------------------
\a Statewide grant; no specific amount earmarked for Norfolk Naval
Aviation Depot.
ADDITIONAL DOD PROGRAMS
-------------------------------------------------------- Chapter 3:3.4
The Fiscal Year 1995 National Defense Authorization Act authorized
DOD civilians to participate in several new pilot programs. The
initial authorization for these programs and demonstration projects
was $12.5 million. A pilot program was established whereby, if
certain conditions were met, DOD would pay up to $10,000 of the
relocation and/or training costs of former DOD employees hired by
nonfederal employers. A second program was designed to place
separated military and terminated civilians in teaching positions as
bilingual math and science teachers. Finally, demonstration projects
were authorized to help military and terminated civilians become
business owners and obtain employment by participating in the
establishment and operation of ship recycling facilities.
CONCLUSIONS
---------------------------------------------------------- Chapter 3:4
Although data is limited because actions have not been completed at
most closing maintenance depots, data for those further along
indicate that DOD has successfully used a wide variety of incentives
and programs to ease the transition of civilian workers located at
closing depots. The data also shows there are significant costs
associated with these programs and they are likely to increase as
more of the depots near actual closure.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 3:5
DOD raised no questions or concerns about the information presented
in this chapter.
PUBLIC-PUBLIC AND PUBLIC-PRIVATE
COMPETITIONS CAN BE EFFECTIVE
TOOLS FOR REDISTRIBUTING WORKLOADS
============================================================ Chapter 4
DOD's public-public and public-private competitions of depot
maintenance workloads have resulted in savings and benefits.
However, despite the benefits, the Deputy Secretary of Defense
discontinued these competitions in May 1994.
This chapter discusses the results and benefits of public-public
competitions for the closing Sacramento Army Depot workloads and the
rationale the Secretary of Defense used as the basis for canceling
the public-public and public-private competition program. The
results and benefits of public-private competitions are addressed in
a separate report.\1 Actions being taken to redistribute other
closing depots' workloads are discussed in chapter 5.
--------------------
\1 Navy Maintenance: Assessment of the Public-Private Competition
Program for Aviation Maintenance (GAO/NSIAD-96-30, Jan. 22, 1996).
SACRAMENTO ARMY DEPOT
PUBLIC-PUBLIC COMPETITIONS
---------------------------------------------------------- Chapter 4:1
The only public-public competitions that DOD has conducted has been
for the closing Sacramento Army Depot workloads. The nine Sacramento
competitions were conducted because the 1991 BRAC Commission directed
the Army to conduct them. The Army initially planned to simply
transfer Sacramento's workload to other Army depots. However, data
provided by the Air Force and the Sacramento community indicated that
this might not be the most cost-effective way to redistribute the
work. As a result, the Commission indicated that the redistribution
of the Sacramento Army Depot's workload should be based on the
results of competitions conducted between five Army depots
(Tobyhanna, Anniston, Corpus Christi, Red River, and Letterkenny) and
the Sacramento Air Logistics Center.
Between October 1991 and December 1993, separate competitions were
conducted for nine equipment groups. In each of the competitions,
the Sacramento Air Logistics Center competed against one of the five
Army depots. Headquarters, U.S. Army Missile Command solicited and
evaluated bids for two of the competitions, and Headquarters, U.S.
Army Communications-Electronics Command (CECOM) managed the other
seven.
The source selection criterion for four of the competitions was
"acceptable, lowest price," while the other five were evaluated under
the "best value" concept. The acceptable, lowest price criterion was
used if the workloads were considered to be technically low risk or
the use of innovative techniques was unlikely. Under this criterion,
proposals with unacceptable transition or technical plans were
eliminated during the first phase of the competition, and the lowest
price proposal that remained was then selected. The best value
criterion was used when low price was not the only important factor.
For example, it was used for relatively complex workloads or if there
was concern about a possible degradation of readiness during the
transition from Sacramento to the new source of repair. Under this
criterion, awards were based on an overall assessment of the
competitors' prices, transition plans, technical plans, and proposed
management structures.
As shown in table 4.1, the Sacramento Air Logistics Center won five
of the competitions, and the Tobyhanna Army Depot, which participated
in five of the competitions, won the other four.
Table 4.1
Results of the Sacramento Army Depot
Workload Competitions
(Dollars in thousands)
Source
Dates of selection Basis for
Equipment group competition authority award Award amount
------------------------ ------------ ------------ ------------ ------------
Competitions won by the Sacramento Air Logistics Center
--------------------------------------------------------------------------------
Fighting vehicle 1/92 -7/93 Missile Best value $3,715
electronics Command
Electro-optics/night 2/92 -11/93 Missile Best value 48,102
vision equipment Command
Gyros 8/92 -10/93 CECOM Low cost 1,260
Radar 4/92 -7/93 CECOM Best value 3,474
Test measurement 11/92 -12/ CECOM Low cost 1,235
diagnostic equipment 93
================================================================================
Total $57,786
Competitions won by the Tobyhanna Army Depot
--------------------------------------------------------------------------------
Airborne electronics 10/91 -1/93 CECOM Best value $4,653
Radios 6/92 -10/93 CECOM Low cost 4,976
Intelligence & 9/92 -11/93 CECOM Best value 7,204
electronic warfare
Wire/data communications 2/93 -12/93 CECOM Low cost 1,358
switches
================================================================================
Total $18,191
================================================================================
Total $75,977
--------------------------------------------------------------------------------
Note: Total may not add due to rounding.
SACRAMENTO COMPETITIONS
PRODUCED SUBSTANTIAL PRICE
REDUCTIONS
---------------------------------------------------------- Chapter 4:2
CECOM headquarters initially estimated that the nine public-public
competitions would reduce Sacramento's depot maintenance prices for
fiscal years 1993 to 1998 by $389 million. This estimate was based
on (1) Sacramento's projected workload for the 429 items that were
included in the nine competitions and (2) a comparison of
Sacramento's inflation-adjusted prices and the winning depots' bid
prices.
These price reductions,\2 which were partially offset by the
$16-million cost of conducting the competitions, can be attributed
primarily to the fact that the competitions forced the Sacramento
Army Depot's customers and bidding depots to reengineer the closing
depot's workload. More specifically, competition-related price
reductions were achieved by (1) eliminating unnecessary repairs, (2)
reducing labor standards,\3 and (3) developing more cost-effective
repair procedures.
Table 4.2 shows the initial estimates of price reductions resulting
from the Sacramento Army Depot competitions.
Table 4.2
Initial Estimates of Price Reductions
That Resulted From Sacramento's Workload
Competitions
(Dollars in thousands)
Price Percent
Sacramento Winnin reductio reductio
Equipment group 's costs g bid n n
------------------------------ ---------- ------ -------- --------
Sacramento Air Logistics Center
----------------------------------------------------------------------
Fighting vehicle electronics $11,558 $3,715 $7,843 67.9
Electro-optics/night vision 174,024 48,102 125,922 72.4
equipment
Gyros 18,664 1,260 17,404 93.3
Radar 34,008 3,474 30,534 89.8
Test measurement 22,278 1,235 21,043 94.5
diagnostic equipment
Tobyhanna Army Depot
----------------------------------------------------------------------
Airborne electronics 37,655 4,653 33,002 87.6
Radio 55,425 4,976 50,449 91.0
Intelligence & electronic 85,074 7,204 77,870 91.5
warfare
Wire/data 26,513 1,358 25,155 94.9
communications switches
======================================================================
Total $465,198 $75,97 $389,222 83.7
7
----------------------------------------------------------------------
Note: Total may not add due to rounding.
--------------------
\2 Actual savings cannot be determined until the work is completed,
and even then it may be difficult to quantify. Factors that affect
actual savings include not only the price reductions achieved but
also (1) the ability of depots to do the work for the amount they bid
and (2) the amount of work that materializes. Actual savings may be
difficult to quantify because the competitions are only one of many
factors that affect the cost of depot maintenance work.
\3 A labor standard is the time it should take a trained worker or
group of workers, working at a normal pace and under specific
conditions, to produce a described unit of acceptable work. These
standards can be either engineered (based on an engineering method
such as a time and motion study) or nonengineered (derived by some
other means such as technical judgment).
UNNECESSARY REPAIRS
ELIMINATED
-------------------------------------------------------- Chapter 4:2.1
The substantial price reductions that CECOM achieved in its seven
workload competitions can be attributed, in part, to eliminating
unnecessary repairs. For most of the work Sacramento did before the
competitions, the customers' work requests indicated that the depot
was to return items to a serviceable condition by inspecting them and
then repairing only what was broken. However, in some instances, the
depot did not comply with the requests but rather returned items to a
"like-new" condition by completely overhauling them. CECOM officials
considered this level of repair to be unnecessary and, as a result,
emphasized that the bidding depots were to submit price estimates for
a level of repair that would return items to a serviceable rather
than a like-new condition.
It is important to note that the problem of performing unnecessary
repairs is not unique to Sacramento. For example, in 1992, we
reported\4 that the U.S. Army Tank-Automotive Command could have
saved as much as $1.1 million in fiscal year 1992 by eliminating the
requirement for the Red River Army Depot to overhaul all 6V53 engines
(used in M113 personnel carriers) and allowing the depot to (1)
establish a pre- shop analysis program and (2) perform only those
repairs necessary to return the engines to service. Similarly, in
the same report, we indicated that the Tooele Army Depot was
completely overhauling certain items that required only inspection
and repair and that it was doing so without the knowledge of its
higher headquarters or the approval of its customers.
A comparison of two bids submitted by the Sacramento Air Logistics
Center for the first competition illustrates the impact that
eliminating unnecessary repairs can have. During their review of the
Center's initial bid, CECOM officials discovered that the Sacramento
Air Logistics Center had assumed in its price estimates that items
would be completely overhauled and returned to a like-new condition.
As a result, they asked the Center to submit a revised bid for a
level-of-effort that would return items to a serviceable condition.
Due primarily to an audit of the Center's initial proposal by the
Defense Contract Audit Agency, the direct labor rates\5 used in the
revised bid were about 15 percent higher than those in the initial
bid. However, the impact of this increase was more than offset by
the change in repair philosophy. Overall, the Center's bid was
reduced by nearly 60 percent.
--------------------
\4 Army Maintenance: Savings Possible by Stopping Unnecessary
Repairs (GAO/NSIAD-92-176, May 5, 1992).
\5 Direct labor rates represent the average cost of a direct labor
hour. They include wages and benefits, overhead costs, and
miscellaneous adjustments.
LABOR STANDARDS REDUCED
-------------------------------------------------------- Chapter 4:2.2
Another reason for the substantial price reductions is the fact that
bidding depots reduced Sacramento's labor standards. For example,
the Tobyhanna Army Depot reduced one labor standard from 16 hours to
less than 1 hour when one of its industrial engineering technicians
determined that (1) the item in question was a sealed unit and (2)
the only requirement was to clean and inspect the item. This, in
turn, allowed Tobyhanna to reduce its bid on these tasks by 94
percent.
The two competitions conducted by the Missile Command provided a good
indication of the overall impact of these reductions in labor
standards. Due largely to lower labor standards, the two
competitions reduced prices by 67.9 percent and 72.4 percent,
respectively.\6
The existence of inflated labor standards is a long-standing and
well-documented problem that was not unique to Sacramento. For
example, in January 1991, the DOD Inspector General reported\7 that
the labor standards for 22 maintenance and repair operations,
involving
6 types of Army, Navy, and Air Force aircraft, could be reduced by an
average of 34 percent. Inflated labor standards have persisted, in
part, because depots lacked an incentive to reduce their labor
standards. In fact, there is a disincentive because (1) labor
efficiency, which compares actual labor time with labor standards, is
one of the factors maintenance employees and supervisors are
evaluated on and (2) reducing inflated labor standards will result in
a corresponding reduction in reported labor efficiency. In addition,
since sales prices are based partly on labor standards, a reduction
in labor standards will result in less sales revenue and this, in
turn, will make it more difficult for maintenance activities to earn
a profit.
--------------------
\6 As part of its effort to ensure that these large reductions were
realistic, Missile Command officials asked Sacramento technicians to
scrub their labor standards for 15 items. In most cases, the
standards were reduced by at least 50 percent.
\7 Management of Labor Standards for Airframes at Aeronautical Depots
(Report No. 91-039, Jan. 1991).
MORE COST-EFFECTIVE REPAIR
PROCEDURES DEVELOPED
-------------------------------------------------------- Chapter 4:2.3
In some instances, winning bidders for Sacramento's workload were
able to reduce prices by developing more cost-effective repair
procedures. For example, the Sacramento Air Logistics Center
substantially reduced the cost of repairing the AN/TPQ-37 radar by
developing a repair process for the 359 "subarray modules" that are
located in the radar's antenna and that are considered nonrepairable
by the Army. About 60 of these $4,400-subarray modules must be
either replaced or repaired each time a radar antenna is overhauled.
With a projected workload of three antennas a year and an estimated
repair cost of $500 for each subarray module, the decision to repair
rather than replace the modules is projected to save $3.5 million
over 5 years.
Similarly, the Tobyhanna Army Depot was able to substantially reduce
the reported cost of repairing the AN/GRC-106 and AN/GRC- 106A radios
by developing a method that more efficiently diagnosed faults in
component parts and accomplished related repairs. More specifically,
the depot designed and developed new test equipment, replaced
labor-intensive testing methods, and eliminated redundant tasks.
With a combined authorized and projected workload of 1,077 radios
over 5 years and an estimated average savings of $6,035 per radio,
these actions are expected to save $6.5 million over 5 years.
STRENGTHENED BUYER-SELLER
RELATIONSHIP HAS GENERATED
ADDITIONAL PRICE REDUCTIONS
---------------------------------------------------------- Chapter 4:3
Another important benefit of the Sacramento Army Depot competitions
is that they strengthened the buyer-seller relationship that exists
between maintenance depots and their customers. For example, since
the competitions, the CECOM Depot Maintenance Competition Office has
saved the Command more than $12 million by providing the same type of
independent oversight over the winning depots that is routinely
exercised over private industry. More specifically, the Competition
Office has cut costs by (1) ensuring that prices were reduced when
the scope of work declined; (2) denying price increases when depots
improperly characterized work as being outside the scope of the
memorandum of agreement;\8 (3) using lessons learned during the
competitions to negotiate lower prices for repairing similar,
noncompeted items; and (4) identifying more cost-effective repair
methods, such as using items that were available in property disposal
offices rather than requisitioning new items from the supply system.
Prior to the competitions, CECOM rarely questioned the prices it paid
public depots for maintenance work because it generally lacked an
incentive and basis to do so. It lacked an incentive because DOD's
budget process usually ensured that the Command received additional
funding when the depots increased their prices. It generally had no
basis for questioning them because it usually lacked either the data
or the time and resources required to evaluate the prices.
However, the competitions gave CECOM an incentive to question the
depots' prices. Command officials were concerned about the
possibility that depots would use "business as usual" practices to
negate the competition-generated price reductions that had been
achieved. The competitions also allowed the Command to question the
depots' prices because, as discussed in the next section, the price
reductions provided a benchmark for evaluating the depots' repair
prices for similar, information items\9 as well as noncompeted
workloads.
--------------------
\8 Awards were made under a memorandum of agreement rather than a
contract because the government cannot legally contract with itself.
\9 To reduce the cost of conducting the competitions, depots were
only required to submit bids for about 10 percent of the national
stock numbers that were included in the nine equipment groups.
Prices for the remaining 90 percent of the items, which are referred
to as "information" items, were to be negotiated if and when repair
requirements materialized for them.
PRICE REDUCTIONS ENHANCED
COMPETITIONS' CREDIBILITY
---------------------------------------------------------- Chapter 4:4
The Sacramento Air Logistics Center, Tobyhanna Army Depot, and the
CECOM Depot Maintenance Competition Office are further strengthening
the competition process by applying lessons learned during the
competitions to information items. Although the memorandums of
agreement did not specifically state that winning depots were
expected to use their competition labor rates to establish prices for
information items, this fact was well known to the competitors, and
Sacramento and Tobyhanna have now both agreed to do so. In addition,
the Competition Office has developed a methodology that uses the
price reductions achieved on bid items as a benchmark for evaluating
the depots' proposed prices for information items.
The potential magnitude of these savings was demonstrated during the
negotiations for repairing the communication-electrical maintenance
van, AN/ASM-189A. The initial repair estimate, which is used by Army
direct and general support maintenance units to repair
communications-electronics items in the field, was $149,000.
However, the Depot Maintenance Competition Office's analysis
indicated that this was too much for the work requested and asked
Tobyhanna to provide supporting documentation for the estimate. It
then determined that the initial price estimate was based on (1) a
more extensive level of repair than the Command wanted, (2) inflated
labor standards, and (3) direct labor rates that were much higher
than the depot's competition rates. This, in turn, allowed the
Competition Office to renegotiate a repair price of $47,322, or a
reduction of over $100,000 per van. Since the depot is expected to
have a projected workload of 87 vans over the next 4 years, these
negotiations are expected to reduce the Command's depot maintenance
repair costs for fiscal years 1995 to 1998 by $8.9 million.
DOD'S RATIONALE FOR CANCELING
COMPETITION PROGRAM IS
QUESTIONABLE
---------------------------------------------------------- Chapter 4:5
DOD discontinued its public-public competition program in May 1994
because DOD officials believed that (1) interservicing\10 could
provide similar efficiencies without the cost of conducting
competitions and (2) DOD databases and financial management systems
do not provide reliable information on the actual cost of specific
workloads. At the same time, for similar reasons, DOD discontinued
the public-private competition program. Although these actions are
consistent with the conclusions and recommendations of an April 1994
Defense Science Board study\11 and a July 1994 interim report by the
accounting firm of Coopers and Lybrand,\12 our analysis indicates
that the rationale is questionable. Specifically:
Interservicing is accomplished for 8 percent of the workload that
is considered suitable,\13 and it is unlikely that this
percentage will increase significantly in the future.
Although DOD has long-standing and well-documented problems with
its databases and financial management systems, action can be
taken to circumvent these problems and ensure fair competitions.
--------------------
\10 Interservicing occurs when maintenance is performed by the
organic capability of one military service in support of another
military service.
\11 Report of the Defense Science Board Task Force on Depot
Maintenance Management (Apr. 1994).
\12 Coopers & Lybrand, Public versus Private Competition, Preliminary
Case Studies (July 1994).
\13 Some workloads, such as the Air Force's large cargo and strategic
bomber aircraft and the Navy's ships, are not considered suitable for
interservicing.
INTERSERVICING IS NOT LIKELY
TO SIGNIFICANTLY INCREASE
-------------------------------------------------------- Chapter 4:5.1
GAO and others have reported on redundancies and underutilization in
DOD's depot maintenance operations and have recommended increased
integration of the services' depot maintenance operations. However,
DOD's recent BRAC experience indicates that interservicing is
unlikely to increase significantly. The BRAC Commission's July 1993
report to the President expressed concern about the limited amount of
interservicing arrangements that had been implemented during the
preceding 20 years and about DOD's failure to even consider
interservicing alternatives during the 1993 BRAC process. The report
encouraged DOD to ensure that interservicing alternatives were
adequately considered during the 1995 round of base closures.
Prior to the 1995 BRAC round, the Deputy Secretary of Defense
directed that DOD's input to the 1995 BRAC process be based on a
cross-service analysis. In response, a joint cross-service group did
(1) analyze the capacity of 24 facilities to maintain and repair 57
equipment commodities, such as aircraft engines and landing gear; (2)
recommend consolidating
13 workloads at single sites and other workloads at two or more
locations; and (3) propose several additional depot closures.
However, the military services adopted few of these recommendations
and very little interservicing resulted.
Similarly, on May 4, 1994, the Deputy Secretary of Defense noted that
redundant aviation repair capability existed and directed the
Secretaries of the Navy and the Air Force to develop a coordinated
plan for consolidating depot maintenance workload for fixed-wing
aviation across service boundaries. He also suggested that the
services strongly consider jointly managing and operating a single
depot. However, these initiatives never came about, and each of the
services developed its 1995 BRAC input independent of the other
services.
Although DOD's March 1995 report to Congress outlined a new joint
interservicing methodology, it was not scheduled to be implemented
until after the 1995 BRAC process was completed. Furthermore, there
is little support to suggest that this process will overcome the
traditional impediments to increased interservicing. In fact, the
1993 BRAC Commission concluded that service parochialism will prevent
DOD from developing streamlined and integrated operations until all
maintenance depots are consolidated under a single joint service
organization.
We reported the same findings in our 1993 depot maintenance
testimony.\14 We noted that the services have had many opportunities
to work cooperatively over the past 35 years, but have failed to do
so. Thus, some form of centralized management external to the
military services appears to be needed. We also noted that strong,
effective leadership would be particularly critical as DOD makes
decisions about core requirements and workload transfers related to
the 1993 BRAC closures. This did not occur. As will be discussed in
chapter 5, workloads were generally transferred to other depots owned
by the same service or to the private sector.
--------------------
\14 Depot Maintenance: Issues in Management and Restructuring to
Support a Downsized Military (GAO/T-NSIAD-93-13, May 6, 1993).
ACTIONS TAKEN AND NEEDED TO
IMPROVE COMPETITIONS AND
ENSURE THEIR FAIRNESS
-------------------------------------------------------- Chapter 4:5.2
Although we share DOD officials' concern about the reliability of
depot maintenance data and the adequacy of management information
systems, we do not believe these long-standing and well-documented
problems should preclude DOD from conducting future competitions.
DOD had already taken numerous actions to enhance the credibility and
fairness of the competitions before it canceled its competition
program in May 1994. In addition, other actions can be taken to
further improve the competitions and ensure their fairness.
Many of the actions DOD has taken to improve public-public
competitions were summarized in our September 30, 1993,
correspondence\15 to the Chairman, Subcommittee on Defense, Senate
Committee on Appropriations. These actions include (1) developing a
cost comparability handbook that, among other things, identifies the
adjustments that should be made to public depots' bids as a result of
differences in the services' accounting systems and (2) directing the
Defense Contract Audit Agency to certify that successful bids include
comparable estimates of all direct and indirect costs.
The correspondence also identified additional actions that could be
taken to further improve the competitions. These include (1)
ensuring that Defense Contract Audit Agency auditors receive the
technical support they need to properly evaluate the depots' bids and
(2) requiring the Agency to conduct incurred cost audits to verify
that the depots could perform the work for the bid amount. In
addition to these DOD-wide actions, some depots have independently
improved the quality and accuracy of their maintenance databases,
systems, and processes, including cost accounting. For example, one
of the basic problems that we and others have pointed out with the
Air Force's accounting system is that actual costs are accumulated at
the maintenance shop level rather than at the job level. Because of
this condition, a shop that performs both competed and noncompeted
work could offset losses on its competed workloads with profits from
its noncompeted workloads. However, at several depots, this
deficiency was significantly mitigated by creating shops that worked
only on competed workloads.
The Ogden Air Logistics Center has made a particularly noteworthy
effort to overcome the deficiencies in its management information
systems. At our recommendation, the Center Commander implemented a
broad-based financial management improvement program that included
developing and implementing the Depot Maintenance Business Area
Policies and Procedures Handbook. This handbook addresses financial
management policies, procedures, and responsibilities; internal
controls; and other key areas. Defense Contract Audit Agency
officials reviewed drafts of the handbook and worked with Center
officials to refine the policies and procedures. So far, the new
policies and procedures have been implemented for competition
programs and the entire aircraft directorate.
According to Defense Contract Audit Agency officials who recently
audited the Center's aircraft directorate, the current and planned
controls address previously identified internal control weaknesses.
They noted that although Ogden's accounting systems may be different
than the private sector's, the same types of internal controls
required of defense contractors are being implemented, including
certification of employee time charges and improved tracking of
material costs.
Finally, recognizing the need for improved internal controls
throughout DOD's depot system, the Under Secretary of Defense
(Logistics) established an integrated process team to help improve
DOD's financial management and internal controls systems. In
addition, Coopers and Lybrand will be working with a depot from each
service to implement the required improvements.
--------------------
\15 Depot Maintenance (GAO/NSIAD-93-292BR, Sept. 30, 1993).
COMPETITION NOT APPROPRIATE
FOR ALL WORKLOADS
-------------------------------------------------------- Chapter 4:5.3
Managers at the Sacramento Air Logistics Center and Tobyhanna Army
Depot--the two depots that won all nine of the Sacramento Army Depot
competitions--believe public-public competitions can be used
effectively to redistribute at least part of closing depots'
workloads. However, they cited several reasons why competition
should not be used for all workloads. For example, because the
competition process can be costly, labor-intensive, and time-
consuming, they believe competition is generally not a cost-
effective tool for redistributing either relatively small workloads
or workloads that may not materialize. Sacramento managers also
indicated that problems related to the services' incompatible data
systems limit the benefits of conducting interservice competitions
for relatively small workloads.
Center managers also had a more general concern about the use of
public-public competitions for redistributing closing depots
workloads. Specifically, the lengthy competition process, combined
with the fact that employees from the closing depots were generally
not allowed to transfer with the workload, led to low morale at the
closing depots and, in turn, to several undesirable side effects.
For example, they found technical data in the trash and inoperative
test equipment that appeared to have been sabotaged. However, these
managers acknowledged that problems such as these can be minimized
and the learning curve virtually eliminated if workers from the
closing depot are allowed to transfer to the depot that wins the
competition.
CONCLUSIONS
---------------------------------------------------------- Chapter 4:6
The nine competitions conducted for the Sacramento Army Depot's
workload demonstrated that public-public competitions can be used
effectively to redistribute closing depots' work, primarily because
they give depots and their customers an incentive to reengineer the
work. However, despite the benefits of public-public competitions,
the Deputy Secretary of Defense canceled the public-public
competition program as well as the public-private competition
program. DOD officials (1) believe DOD can use interservicing to
gain similar efficiencies without the cost of conducting competitions
and (2) were concerned about the adequacy of DOD's databases and
financial management systems.
For some DOD workloads, particularly relatively large and stable core
workloads that are moved because of depot closures, public- public
competitions are a cost-effective method of allocating the workload.
The savings often occur because competitions force depots to
reengineer the workloads, thereby improving their processes and
procedures. Because little of the services' total workload is likely
to be competed, increased emphasis and oversight is needed to ensure
reengineering is also applied to noncompeted workloads, starting with
the largest and most stable workloads.
Because DOD has made limited progress over the last 20 years in
interservicing workloads, it appears unlikely that this cost-
reduction tool will be used on a widespread basis. We agree that
DOD's long-standing and well-documented problems with its databases
and financial management systems make it more difficult to conduct
public-public competitions, and we believe that correcting these
problems should be given high priority. However, in the interim,
because of the significant savings that have resulted from
competitions, it appears public-public and public-private competition
should continue to be used to create more efficient and effective
depot operations.
Although some initiatives have been undertaken to improve the depots'
accountability of costs, this effort has not had sufficient priority.
Further, when DOD canceled the competition program, it removed the
incentive for implementing improvement initiatives.
RECOMMENDATION
---------------------------------------------------------- Chapter 4:7
We recommend that the Secretary of Defense implement a high- priority
program to resolve internal control deficiencies in depot management
systems.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 4:8
DOD officials concurred with our recommendation to assign a high
priority to implementing an improvement program to resolve internal
control deficiencies in depot management systems. They have
identified improvement initiatives and established an integrated
product team composed of several representatives from each of the
services to implement the initiatives.
WORKLOAD REDISTRIBUTION DECISIONS
DID NOT ADEQUATELY CONSIDER SOME
ALTERNATIVES
============================================================ Chapter 5
Despite widespread agreement that DOD can and should reduce its depot
maintenance costs by transferring closing depots' workloads to more
cost-effective sources of repair, the military services are not
adequately considering opportunities to transfer work to other
services' depots. Further, the Air Force is privatizing most of
AGMC's depot maintenance workload. The existing statute requires
that before privatizing depot maintenance workload valued at $3
million or more, competitive procedures be used that include public
entities. DOD terminated its public-private competition program in
May 1994. DOD officials differed on the applicability of the statute
to the AGMC privatization.
INTERSERVICING IS ENCOURAGED,
BUT FREQUENTLY NOT CONSIDERED
---------------------------------------------------------- Chapter 5:1
Congress has long been a strong proponent of using interservicing to
streamline and reduce the cost of depot maintenance operations. In
addition, DOD's March 1995 report\1 to the House Committee on
Appropriations indicated that the greatest potential for achieving
interservicing savings comes from reallocating closing depots'
workloads. However, the military services have not generally
considered interservicing alternatives for their closing depots'
workloads unless (1) the BRAC Commission specifically directed them
to do so or (2) another service's depot was already performing the
same work.
--------------------
\1 Report on Depot Maintenance Interservicing, Prepared for the House
Committee on Appropriations (Mar. 1995).
USE OF INTERSERVICING IS
ENCOURAGED BUT NOT REQUIRED
-------------------------------------------------------- Chapter 5:1.1
According to 10 U.S.C. 2469, the Secretary of Defense should use
merit-based selection procedures that consider all of DOD's
depot-level activities when transferring workloads valued at $3
million or more from one depot to another. However, the Conference
Report on this provision indicates that the use of merit-based
selection procedures should not affect the orderly flow of work
resulting from base closure decisions. Consequently, DOD does not
require the use of merit-based procedures unless a BRAC Commission
specifically directs the services to do so. Instead, it allows the
services to determine if using merit-based selection procedures
impedes the orderly flow of work from their closing depots.
MILITARY SERVICES RETAIN
CONTROL OVER MOST OF THEIR
CLOSING DEPOTS' WORK
-------------------------------------------------------- Chapter 5:1.2
Ten maintenance depots were recommended for closure or realignment
during the 1988, 1991, and 1993 BRAC rounds.\2 As discussed in
chapter 4, the commission- mandated competitions that were conducted
for the Sacramento Army Depot's workload demonstrated that
reengineering a closing depot's workload could produce substantial
savings. However, just moving maintenance workloads from one depot
to another has generally not resulted in the work being
"reengineered." Instead, a vast majority of work is merely being
transferred as quickly as possible to the parent services' remaining
depots.
--------------------
\2 In addition, the Army's Pueblo Depot Activity's mission to repair
the Pershing missile ended with the deactivation of the missile in
fiscal year 1992.
IMPLEMENTATION OF 1988
RECOMMENDATIONS
------------------------------------------------------ Chapter 5:1.2.1
After the 1988 BRAC Commission recommended realigning the
Lexington-Bluegrass Army Depot's maintenance workload, the Army
transferred (1) the depot's communications-security and
communications-electronics maintenance missions to the Tobyhanna Army
Depot, (2) its supply stocks and the Quality System Engineering
Center to the Letterkenny Army Depot, and (3) the Central Test
Measurement and Diagnostic Equipment Activity and the Materiel
Readiness Support Activity to its Redstone Arsenal. Additionally,
some depot maintenance workload remained at a contractor facility on
the depot, and the Ionization Radiation Dosimetry Center moved to the
Redstone Arsenal in September 1995.
IMPLEMENTATION OF 1991
RECOMMENDATIONS
------------------------------------------------------ Chapter 5:1.2.2
The Sacramento Army Depot and the Philadelphia Naval Shipyard were
recommended for closure during the 1991 round of base realignments
and closures.
As discussed in chapter 4, based on the BRAC Commission's
recommendation, the Army redistributed the Sacramento Army Depot's
workload based on the results of nine public-public competitions
conducted between the Sacramento Air Logistics Center and various
Army depots. The depot's maintenance mission ended in February 1994.
The Philadelphia Naval Shipyard's primary workload, the Service- Life
Extension program, is being phased out and, as a result, there will
be no major workload realignments associated with closing the
shipyard. Certain elements of the shipyard, such as the drydocks,
were to be preserved\3 and others, such as the propeller facility and
the Naval Inactive Ships Maintenance Facility, were to remain active.
The shipyard's projected operational closure date is September 1996.
--------------------
\3 The Secretary of Defense's February 28, 1995, report to the
Chairman of the BRAC Commission indicated that it was no longer
necessary to preserve these elements.
IMPLEMENTATION OF 1993
RECOMMENDATIONS
------------------------------------------------------ Chapter 5:1.2.3
The 1993 BRAC Commission recommended closing three naval aviation
depots (Pensacola, Norfolk, and Alameda); two naval shipyards
(Charleston and Mare Island); and AGMC. It also recommended
realigning the Tooele Army Depot.
As discussed in more detail in the next section, the Navy plans to
transfer most of its closing naval aviation depots' workloads to the
remaining depots. The major exceptions are (1) work on H-1 and H-60
helicopters is being transferred to the Corpus Christi Army Depot,
which is already performing nearly identical work for the Army; (2)
work on the T-56 and 501K engines is being transferred to the San
Antonio Air Logistics Center, which is already performing nearly
identical work for the Air Force; and (3) work on the H-3 helicopter
was competed in the private sector. Altogether, these five workloads
account for about 10 percent of the closing naval aviation depots'
total workload. In some cases, the Navy awarded bridging contracts
to private contractors while workloads are being transferred from one
military depot to another.
The Charleston Naval Shipyard's major shipboard work has been
redistributed to the remaining shipyards, and its only major\4
nonshipboard operation, the Modular Maintenance Facility, is being
transferred to the Naval Command, Control, and Ocean Surveillance
Center, In-Service Engineering, East. The shipyard's projected
operational closure date is April 1996.
The Mare Island Naval Shipyard's shipboard work has also been
redistributed to the remaining shipyards, and its only major
nonshipboard operation, Ocean Engineering, is being transferred to
the Puget Sound Naval Shipyard. The shipyard's projected operational
closure date is April 1996.
The Air Force awarded two contracts to private contractors who will
perform much of AGMC's current operations. Under this
privatization-in-place concept, the Air Force will retain ownership
over the depot plant equipment. The base and facilities will be
conveyed to a local community entity, such as a port authority, and
it will (1) manage and maintain the property, (2) lease space to the
contractor, and (3) lease space to the government for certain
activities. Based on its determination that the program management
function of AGMC's metrology and calibration function is an
"inherently governmental" function, the Air Force will retain 115
government civilians. About 10 percent of AGMC's workload was
interserviced from the Army and the Navy. These services are
transferring this workload to other depots or the private sector. On
December 15, 1995, the Air Force awarded a cost- reimbursable
contract to Rockwell International (Avionics and Missile Systems
Division) for the remaining navigation/guidance system repair work
covering a transition period plus four 1-year options. The
contractor operation will be fully implemented by the first quarter
of fiscal year 1997.
The Army has not yet determined the ultimate disposition of most of
the Tooele Army Depot's workload. The Army initially planned to
transfer most of this work to the Red River Army Depot. However, the
1995 BRAC Commission recommended that most of Red River's depot
maintenance workload be transferred to either other depots or the
private sector. The Army is now considering whether to privatize-
in-place much of this workload at Red River. Some workloads have
already been contracted out to private firms.
Finally, although most of the work from Tooele and closing naval
aviation depots is first being transferred to one of the parent
services' remaining depots, service managers noted that much of this
workload could ultimately go to the private sector. They
acknowledged that this two-step process is not as efficient as
transferring the work directly to the private sector, but they
believe it is necessary. They said that because contracting out work
to the private sector--developing statements of work, soliciting and
evaluating bids, and awarding the contracts--is time-consuming and
labor-intensive, the closure of the depots could be significantly
delayed if they were not allowed to use this two-step process.
--------------------
\4 The Navy defines a major workload as one that requires at least
200 people.
NAVY DID NOT USE COMPETITION OR
ADEQUATELY CONSIDER
INTERSERVICING ALTERNATIVES
---------------------------------------------------------- Chapter 5:2
The Navy missed an opportunity to save money when it decided to
transfer most of the work from its three closing naval aviation
depots to the three that are remaining open. First, Navy officials
decided not to conduct any public-public competitions that would have
delayed closing the depots. Further, the Navy did not consider
interservicing for most of its closing depots' workloads.
The Navy's reason for not conducting public-public competitions
appears valid for the Pensacola depot, but not for the other two.
Although the BRAC law allows DOD 6 years to completely close bases,
Navy officials believe they could save more money by closing the
Pensacola depot in 2 years and the Alameda and Norfolk depots in 3
years. They believe these accelerated closure schedules would not
provide sufficient time to conduct public-public competitions.
Our analysis indicates that accelerating the closure of the Pensacola
depot was necessary because the depot had to vacate its facilities
before two other BRAC actions--the movement of the Navy's Bureau of
Personnel to the Memphis Training Command's facility and the movement
of the Memphis Training Command to the Pensacola depot's
facilities--could proceed. However, the Navy would have had
sufficient time to compete at least a portion of the Alameda and
Norfolk depots' workload. For example, as shown in table 4.1, most
of the competitions conducted for the Sacramento Army Depot's
workload took less than 2 years to complete. In addition, the Navy
completed a private-private competition for the Pensacola depot's H-3
helicopter workload in less than a year. Although the Navy could not
have feasibly conducted public-public competitions for all of the
closing depots' workloads, it could have conducted at least a few
competitions during the 3-year closure period.
NAVY DID NOT CONSIDER
INTERSERVICING
-------------------------------------------------------- Chapter 5:2.1
The Navy did not consider Air Force depots when planning to
redistribute most of its workloads because its industrial policy
calls for private contractors to perform noncore workloads and for
Navy depots to perform core workloads. This policy reflects all the
services' desire to control the maintenance for their own systems--so
they will have the technical competence and resources to respond to
emergency requirements. The services have generally not been willing
to assume that another military service would provide responsive
support when needed, and they have justified retaining their own
depots by pointing out that title 10 gives the service secretaries
the responsibility for providing logistics support.
This "service core" concept was endorsed by the Defense Science Board
Depot Maintenance Task Force in its April 1994 report to Congress,
but it is inconsistent with the "DOD core" concept that is DOD's
stated policy. In a May 1994 memorandum that implemented many Task
Force recommendations, the Deputy Secretary of Defense indicated that
DOD's policy is to identify core requirements on an agencywide basis
rather than at the service level.
However, it is not clear that DOD actually approaches the core
concept from an agencywide perspective. For example, we recently
reported that even though an Air Force depot won a competition for
repairing F-18 aircraft, the Navy--with Office of the Secretary of
Defense concurrence--was allowed to retain F-18 core capability in a
Navy depot while the Air Force depot received only the minimum number
of aircraft.\5 According to DOD officials, although they plan to
identify core requirements on an agencywide basis, each service will
be allowed to retain core capability in its own depots for
service-unique systems--even if another service's depot has similar
systems and equipment.
The extent to which DOD intends to consolidate commodities across
service lines is also unclear. Although the Defense Depot
Maintenance Council identified some DOD centers of technical
excellence, this has not resulted in significant movement toward
additional consolidations. For example, the Ogden Air Logistics
Center has been designated the DOD center of technical excellence for
aircraft landing gear, but the Navy continues to overhaul its landing
gear in Navy depots.
--------------------
\5 Depot Maintenance: The Navy's Decision to Stop F/A-18 Repairs at
Ogden Air Logistics Center (GAO/NSIAD-96-31, Dec. 15, 1995).
PUBLIC-PRIVATE COMPETITIONS NOT
USED IN ALLOCATING AGMC DEPOT
MAINTENANCE WORKLOADS
---------------------------------------------------------- Chapter 5:3
The Air Force is privatizing-in-place the AGMC workload. Title 10
U.S.C. 2469 requires that the performance of depot-level maintenance
workloads valued at $3 million or more should not be changed to
performance by a contractor unless the change is made using
competitive procedures that include public entities. However, in May
1994, DOD discontinued its public-private competition program, citing
fairness concerns in comparing public and private costs.
Consequently, DOD is not allowing its depots to compete for closing
depot workloads until the Defense Finance and Accounting Service
certifies that adequate procedures and accounting systems are in
place to identify and track all pertinent costs.
Some DOD officials stated that the DOD and BRAC Commission
recommendation recognized privatization as an option for AGMC's
workload; therefore, they did not believe a competition was required.
Other officials stated that only a direct recommendation incorporated
into the BRAC report would permit privatization without competition.
Still other DOD officials said that the statute's application is
unclear and should be clarified.
Our 1994 report on the AGMC privatization noted that privatization-
in-place could increase rather than decrease the costs of
accomplishing the AGMC workload.\6 A later cost estimate projected
that over a 5-year period, the privatization option may cost $600
million more than costs that would have been incurred had the depot
continued operations as a military depot. This projection included
estimates for contract costs and nonrecurring costs as well as
various recurring costs to the government as a result of
privatization-in- place--such as costs for government-furnished
material; government civilian personnel who will continue to function
at AGMC for program management of the metrology and calibration
mission; lease and investment; research, development, test and
evaluation; and contract administration and management. After
awarding the AGMC contract, DOD officials stated that given the
decision to close AGMC, they believe the privatization-in-place will
be cost- effective. However, officials acknowledged that it will be
several years before costs under a cost-reimbursable contract will be
known. Further, in addition to the contract costs, other costs
incurred because of AGMC's closure and privatization would have to be
considered in a cost comparison between privatization and operation
as a military depot.
--------------------
\6 Aerospace Guidance and Metrology Center: Cost Growth and Other
Factors Affect Closure and Privatization (GAO/NSIAD-95-60, Dec. 9,
1994).
CONCLUSIONS
---------------------------------------------------------- Chapter 5:4
The military services can substantially increase the savings from
closing unneeded depots by transferring the work to the most
cost-effective source of repair. However, because the services' want
to retain control over their own depot maintenance operations and DOD
has been unable to force them to rely on one another, the services
are not taking advantage of ways to cut costs and are expeditiously
transferring closing depots' work to one of their remaining depots.
DOD is not using public-public or public-private competitions in
public depots to compete for workloads being transferred from closing
deports.
RECOMMENDATIONS
---------------------------------------------------------- Chapter 5:5
We recommend that the Secretary of Defense
maximize the use of competitive procedures and merit-based
selection criteria by including military depots in determining
the most cost-effective source of repair for workloads that have
not yet been transferred from closing depots and
require the services to reengineer workloads that are redistributed
from closing depots on any basis other than competition,
starting with the largest and most stable workloads.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 5:6
Our draft report included a recommendation that DOD reinstitute
public-public and public-private competitions. However, according to
DOD officials, a November 1994 Office of the Secretary of Defense
memorandum reinstituted public-private competitions under certain
conditions.
Despite this memorandum, we did not find any evidence that the
public-private competition program has been reinstituted. DOD has
not conducted a public-private competition since terminating the
program in 1994, and DOD activities have dismantled their competition
offices. Further, DOD's March 1995 report to Congress on the
public-private competition program stated that it cannot reinstitute
these competitions until adequate cost accounting and data systems
are in place. Yet no criteria has been established for determining
if depots meet the required standards. Finally, the November 1994
memorandum addressed depot maintenance workloads of other federal
agencies, such as Federal Aviation Administration ground control
equipment and Coast Guard boats, rather than DOD maintenance
workloads.
We continue to support the need for the competition program. Our
January 1996 report on the Navy aviation public-private competition
program recommended that the Secretary of Defense (1) reinstitute
public-private competition for depot maintenance workloads as quickly
as possible; (2) develop and issue guidelines regarding the
conditions, framework, policies, procedures, and milestones for
reinstating competitions; and (3) require the Defense Contract Audit
Agency to review internal controls and accounting policies and
procedures of DOD depots to ensure they are adequate for identifying,
allocating, and tracking costs of depot maintenance programs and to
ensure that proper costs are identified and considered as part of the
bids by DOD depots.\7 Although our draft report sent to DOD for
comment also contained a specific recommendation that DOD reinstitute
its public- private competition program, to avoid repetition, we have
deleted the recommendation from our final report. However, we are
continuing to recommend in this report that DOD maximize the use of
competitive procedures that include military depots to determine the
most cost-effective source of repair for handling workloads from
closing depots.
DOD officials generally agreed that reengineering workloads could be
beneficial and noted DOD requires that workload standards be
reviewed. However, recent personnel reductions have eliminated many
of the government workers who would have conducted these analyses.
We continue to believe that reengineering efforts would increase
productivity and cost reductions in the depot maintenance program and
that DOD should prioritize its reengineering efforts where savings
opportunities are the greatest.
--------------------
\7 Navy Maintenance: Assessment of the Public-Private Competition
Program for Aviation Maintenance (GAO/NSIAD-96-30, Jan. 22, 1996).
HISTORY OF THE SERVICES' DEPOT
SYSTEMS
=========================================================== Appendix I
The services' maintenance depots have primary responsibility for
maintaining, overhauling, and repairing most major systems and system
components, including aircraft, helicopters, ships, tanks, artillery,
support vehicles, missiles, and ammunition. The maintenance depots
are a controlled source of technical capability for repairing and
manufacturing mission-essential equipment and components that support
peacetime operations or a surge capability in the event of total
mobilization or some other national defense contingency. The depots
also provide engineering services for the production and development
of hardware design changes. Furthermore, they furnish technical
teams to provide field maintenance of equipment as needed in
emergencies.
ARMY DEPOTS
--------------------------------------------------------- Appendix I:1
From the Revolution until World War II, the Army's equipment
maintenance needs were mostly contracted out. During the 19th
century, in-house maintenance work, consisting mostly of rifle and
other gun repair, as well as carriage repair, was done in the Army's
arsenals, which also manufactured guns. The number of arsenals
tended to rise and fall according to the various wars and other
military actions that occurred in the 19th and early 20th centuries.
About the time of World War I, the Army began to acquire larger
equipment such as trucks and tanks, which typically require more
maintenance than rifles, guns, and carriages. Still, most
maintenance work between World Wars I and II continued to be
contracted out. Finally, during and after World War II, large-
scale, in-house equipment maintenance began in earnest when the Army
acquired massive quantities of new, modern equipment.
By the 1970s, the Army's depot maintenance work was centralized at a
limited number of depots compared to previous years. In 1976, 10
depots performed maintenance work in the continental United States
and 2 in Europe. Between 1983 and 1985, Army depot maintenance
personnel strengths increased to over 20,000, their highest level
ever. At that time, the organic program represented approximately 67
percent of the total Army direct depot maintenance program funding.
During the mid-1980s, the Army lost some of its organic depot
maintenance workload, staffing, and capacity. By 1988, only six
depots were still performing maintenance work in the United States
and only one in Europe. Sierra, Seneca, Sacramento, and New
Cumberland depots had stopped performing maintenance work in the
United States and in Europe, the Mainz Depot was closed. However, as
its in-house maintenance capability declined, the Army increased its
reliance on commercial sources, reversing a long trend.
Although the Department of Defense's (DOD) input to the 1995 Base
Closure and Realignment (BRAC) process recommended closing the Red
River Army Depot and transferring the light combat vehicle
maintenance mission to the Anniston Army Depot, the BRAC Commission
disagreed. The Commission found that although Anniston has the
capacity to accept ground combat vehicle depot maintenance workload
from Red River, this would place too much risk on readiness. It
recommended realigning Red River Army Depot by moving all maintenance
missions, except for that related to the Bradley fighting vehicle
series, to other depot maintenance activities, including the private
sector.
NAVY SHIPYARDS
--------------------------------------------------------- Appendix I:2
In 1799, Congress authorized five naval shipyards to be located at
Portsmouth, New Hampshire; Boston, Massachusetts; New York, New York;
Philadelphia, Pennsylvania; and Norfolk, Virginia. The Mare Island
and Puget Sound shipyards were authorized in 1852 and 1891,
respectively. The last four naval shipyards were authorized in this
century: Charleston, in 1901; Pearl Harbor, in 1908; San Francisco
(Hunters Point), in 1919; and Long Beach, in 1940.
From the earliest years, through World War I, naval shipyards were
the principal logistics support element in the Navy's shore
establishment. In addition to building and repairing ships, naval
shipyards provided many support activities, such as supply support,
medical and dental care, and training facilities. During the period
between the World Wars, additional shore facilities were established
to support the fleet and provide a wide range of support services.
Naval shipyards were thus able to focus on their industrial mission
of building, maintaining, and modernizing Navy ships. Employment
peaked at over 380,000 personnel during World War II.
In 1968, naval shipyards stopped building ships in order to
concentrate on repairing an increasingly complex fleet. This enabled
the private sector to focus more on new construction. From the
mid-1960s to the mid-1970s, the Navy closed three nonnuclear
shipyards--New York, Boston, and Hunters Point--leaving six
nuclear-capable and two nonnuclear naval shipyards. These closure
decisions were made after careful studies indicated that there was
excess capacity for the foreseeable peacetime and mobilization
workloads.
During the post-Vietnam years, naval shipyards' employment peaked at
80,000 in 1983. Since then, naval shipyard employment levels have
declined due to improved ship design techniques, reduced force
levels, changes in maintenance philosophy, and austere budgets. As a
result, the Philadelphia Naval Shipyard was selected for closure
during the BRAC 1991 process and the Mare Island and Charleston naval
shipyards were selected for closure during the BRAC 1993 process.
All three shipyards will close in 1996. The employment level of the
remaining five naval shipyards is projected to be 29,520 by the end
of fiscal year 1996.
DOD recommended closing the Long Beach Naval Shipyard while retaining
(1) the sonar dome in a government-owned, contractor- operated
facility and (2) family housing units needed to fulfill Department of
the Navy requirements. The 1995 BRAC Commission concurred with this
recommendation.
NAVY AVIATION DEPOTS
--------------------------------------------------------- Appendix I:3
The first naval aviation maintenance depot was established in 1917 at
Norfolk, Virginia, and was named the Construction and Repair
Department. In 1923, this unit and two others formed by then--one at
North Island and one at Pensacola--were redesignated as assembly and
repair departments. In 1948, their names were changed to overhaul
and repair departments. Prior to 1967, the aviation depots were
under the cognizance of their respective air stations. The status of
overhaul and repair departments at the six Navy and one Marine Corps
air stations was changed in 1967 to that of separate commands, each
called a naval air rework facility and directed to report to the
Commander of the Naval Air Systems Command instead of the air station
commanding officer. In 1987, the name naval aviation depot replaced
the name naval air rework facility to more accurately reflect the
range of their activities.
In 1973, the Naval Air Rework Facility, Quonset Point, Rhode Island,
was closed under the Navy Shore Establishment Realignment Program.
This was the first naval aviation depot to close in recent history.
The 1993 BRAC Commission called for closing three more naval aviation
depots--those located in Norfolk, Virginia; Pensacola, Florida; and
Alameda, California. The depots remaining open are located at the
Marine Corps Air Station at Cherry Point, North Carolina; the Naval
Air Station at North Island, San Diego, California; and the Naval Air
Station at Jacksonville, Florida.
The naval aviation depots went from a high of 35,690 employees in
1967, to 14,797 employees in 1995. Further planned reductions from
closures and downsizing are projected to reduce the number of
employees to 10,707 by 1999.
DOD did not recommend additional aviation depot closures as a result
of the 1995 BRAC process. However, it did recommend closing the
Naval Surface Warfare Center, Louisville, Kentucky, which provides
mission support for naval gun systems and the Naval Air Warfare
Center, Aircraft Division, Indianapolis, Indiana, which provides
in-service technical engineering support for naval avionics and
electronics. Although these activities had not been previously
categorized as depots, their missions include functions that the Air
Force conducts in its in-house maintenance depots and that are
largely funded by depot maintenance funding.
MARINE CORPS DEPOTS
--------------------------------------------------------- Appendix I:4
The two Marine Corps maintenance depots are now called multicommodity
maintenance centers. The oldest, in Albany, Georgia, was established
as the Repair Branch of the Marine Corps Supply Center in 1954. The
other, located in Barstow, California, was established in 1961 as the
Yermo Complex. The facilities have grown over the years as a result
of additional mission responsibilities and the expansion of their
industrial production capabilities. Today, each facility has just
over 1,000 civilian employees and 10 Marine Corps officers. Each
generally supports the same systems and commodities, except that
Albany also supports the Marine Corps Maritime Prepositioning Forces
program. Both Albany and Barstow perform a combination of
intermediate and depot maintenance activities.
AIR FORCE DEPOTS
--------------------------------------------------------- Appendix I:5
From 1918 to 1939, the Army Air Corps, from which the Air Force was
created after World War II, operated four air depots. With the
threat of global conflict in 1939, two additional depots were
constructed. During World War II, the number of depots increased to
12. After the war, three depots were deactivated. In the early
1950s, during the Korean Conflict, the Air Force invested $1.8
billion to upgrade the remaining nine depots, which became part of
the Air Materiel Command. A 10th depot was activated in 1961 to
house laboratories and management activities for the Air Force's
metrology and calibration program and depot repair of inertial
navigation systems for intercontinental missile systems and aircraft.
The Air Force entered the 1960s with over 145,000 personnel at 10
logistics centers, including 62,000 depot maintenance personnel. In
1963 and 1964, 4 of the 10 depots were closed. The remaining six
became the base of the Air Force Logistics Command in support of the
Vietnam Conflict. Five of the six were located on multifunction
logistics bases called air material areas, which were responsible for
both wholesale supply and depot maintenance activities for Air Force
weapon systems and equipment. By the end of the 1960s, the Air Force
Logistics Command had been reduced to 112,000 employees, including
50,000 depot maintenance personnel.
During the 1970s, the Air Force consolidated individual repair
activities at its 6 depots, reducing the number from 52 to 20. This
realignment eliminated duplicate repair sources for many commodity
items. During the early 1980s, Air Force logistics operations grew
as U.S. military forces were increased during the Reagan years. The
Air Force undertook a major capitalization improvement program to
modernize the depot industrial base with modern plant equipment and
technological advancements. The Air Force Logistics Command employed
90,900 employees in 1986, including 40,800 depot maintenance
personnel. In the 1990s, downsizing, consolidations, and cuts were
made to the Air Force depot system, and the Air Force Logistics
Command merged with the Air Force Systems Command to form the Air
Force Material Command. Depot maintenance manning was reduced by 17
percent between 1990 and 1991. In 1995, the Air Force Material
Command had 28,520 depot maintenance personnel.
The type of depot maintenance work accomplished at each of the Air
Force depots includes the following:
Ogden Air Logistics Center: strategic missiles, aircraft, air
munitions, photo/reconnaissance, and landing gear;
Oklahoma City Air Logistics Center: aircraft, engines, oxygen
equipment;
Sacramento Air Logistics Center: space/ground
communications-electronics, aircraft, hydraulics, and
instruments;
San Antonio Air Logistics Center: aircraft, engines, and nuclear
equipment;
Warner Robins Air Logistics Center: aircraft, avionics,
propellers, and life support systems; and
Aerospace Guidance and Metrology Center: inertial guidance and
navigation systems and components and displacement gyroscopes
for intercontinental ballistic missiles and most Air Force
aircraft.
The 1993 BRAC Commission recommended closing the Aerospace Guidance
and Metrology Center, Newark, Ohio, which is being privatized-in-
place. Although DOD did not recommend any additional depots for
closure in 1995, the BRAC Commission recommended closing the San
Antonio Air Logistics Center and Sacramento Air Logistics Center,
which the Air Force also plans to privatize-in-place. The Air Force
also has one depot-level activity in Colorado Springs, Colorado,
which performs software maintenance on Air Force space systems. This
activity is not funded using depot maintenance funds and is not
officially categorized as a depot. It is staffed with a combination
of government and contractor personnel. Air Force contractors also
maintain several government-owned, contractor- operated facilities
used for repairing specific Air Force systems.
OTHER DEPOT FACILITIES
--------------------------------------------------------- Appendix I:6
NAVAL WEAPONS STATIONS
------------------------------------------------------- Appendix I:6.1
The five existing naval weapons stations are descendants of the naval
ammunition depots of World War II. However, these depots are no
longer the major providers and maintainers of naval ordnance that
they were in the past. In the 1970s, the Army, under the single
manager concept, was assigned responsibility for producing and
maintaining most of the Navy's high-volume conventional munitions and
missiles. The naval weapons stations now maintain only small volume,
miscellaneous items.
NAVAL SURFACE WARFARE CENTER
------------------------------------------------------- Appendix I:6.2
The Naval Surface Warfare Center, Crane Division, supports the
development, production, evaluation, and maintenance of electronic
and mechanical products integral to combat weapon systems. The Crane
Division employs about 5,380 personnel. Commissioned in 1941 as a
naval ammunition depot, Crane was one of four inland activities
constructed to load, store, and issue ammunition to the fleet.
Today, the Crane Naval Surface Weapons Center serves as a modern
sophisticated leader in diverse and highly technical product lines,
such as microwave devices, acoustic sensors, and microelectronic
technology.
The Louisville, Kentucky, site of the Crane Division was commissioned
by the Navy in 1941 to produce ordnance material and munitions for
World War II. Louisville employed 4,480 personnel at its peak during
World
War II. Today, it provides major overhaul and engineering support
for naval gun and missile launching systems. It is the Navy's center
for producing small weapon system parts using flexible computer
integrated manufacturing technologies and methods.
NAVAL UNDERSEA WARFARE
CENTER
------------------------------------------------------- Appendix I:6.3
The Navy's undersea warfare munitions capability was originally
established in 1914. In recent years, depot maintenance for undersea
warfare systems has been consolidated at the Naval Undersea Warfare
Center, Keyport, Washington. The consolidation was done to recognize
the inherent efficiencies of having a single national depot
maintenance center for the Navy's family of torpedoes. Among its
assigned duties, the Naval Undersea Warfare Center is responsible for
maintaining and repairing undersea weapons and systems, underwater
targets, and countermeasure devices.
Since the end of the Cold War, workload at the Undersea Warfare
Center has followed a downward trend like the other warfare centers.
Direct workload has declined from a peak of 821 work years in the
late 1980s to 609 work years in fiscal year 1994, representing a
27-percent decline. The workforce has declined by over 800
personnel.
SPACE AND NAVAL WARFARE
SYSTEMS COMMAND
------------------------------------------------------- Appendix I:6.4
The Space and Naval Warfare Systems Command relies on two maintenance
depots for repairing electronic systems. The Command's western
depot, at San Diego, California, is its major depot facility and
serves as the designated overhaul point and repair facility for
assembly modules and printed circuit boards drawn from electronic
warfare, special communications, teletype, crypto, and communications
equipment. The depot has grown from a small 80-person calibration
and repair shop in 1966 to a complex that in September 1994 employed
100 government personnel and 175 personnel of a government-owned,
contractor-operated facility.
The Command's eastern depot at Norfolk, Virginia, is the former Naval
Electronic Systems Engineering Center, Portsmouth, Virginia. It is a
contractor-owned, contractor-operated facility. As of September
1994, it had 133 personnel assigned.
DEFENSE LOGISTICS AGENCY
------------------------------------------------------- Appendix I:6.5
The Defense Logistics Agency maintains an industrial plant equipment
repair facility in Mechanicsburg, Pennsylvania. The facility was
originally established as a Navy activity during World War II but was
assigned in the early 1960s to Defense Depot, Mechanicsburg. It
performed depot maintenance repair for industrial plant equipment for
all of the services.
Under the Defense Logistics Agency, the facility continues to provide
worldwide support to all of DOD. Its mission is to maintain, repair,
rebuild, retrofit, and install industrial equipment. The facility
specializes in repairing computerized numerical controlled metal
working machinery. It also can provide support for most types of
equipment used in industrial and maintenance support operations and
employs 129 civilian employees.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C.
-------------------------------------------------------- Appendix II:1
Julia Denman, Project Director
Edward Waytel, Evaluator
SAN FRANCISCO REGIONAL OFFICE
-------------------------------------------------------- Appendix II:2
Karl Gustafson, Deputy Project Director
John Schaefer, Senior Evaluator
Bob Tomcho, Evaluator
Eddie Uyekawa, Senior Evaluator
CINCINNATI REGIONAL OFFICE
-------------------------------------------------------- Appendix II:3
Frank Lawson, Senior Evaluator
LOS ANGELES REGIONAL OFFICE
-------------------------------------------------------- Appendix II:4
Dennis DeHart, Senior Evaluator
Jean Orland, Evaluator
*** End of document. ***
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