GAO

United States General Accounting Office

Report to the Chairman, Subcommittee 

on Military Readiness, Committee on 

Armed Services, House of 

Representatives

April 1999 DEFENSE REFORM 

INITIATIVE

Organization, Status, 

and Challenges

GAO/NSIAD-99-87

GAO United States

General Accounting Office

Washington, D.C. 20548 Letr

National Security and

International Affairs Division Letr

B-280522 Letter

April 21, 1999

The Honorable Herbert H. Bateman

Chairman, Subcommittee on Military Readiness

Committee on Armed Services

House of Representatives

Dear Mr. Chairman:

In November 1997, the Secretary of Defense issued his Defense Reform Initiative (DRI) Report

outlining a plan for reforming the Departments business affairs. To implement the reports

initiatives, the Secretary established a Defense Management Council and chartered it with

responsibility for overseeing the effort and serving as his internal board of directors for

management. As you requested, this report discusses (1) actions taken through the DRI

management structure to facilitate achieving the programs objectives and (2) progress made

in implementing individual reform initiatives.

We are sending copies of this report to the Honorable William S. Cohen, Secretary of Defense;

the Honorable F.W. Peters, Acting Secretary of the Air Force; the Honorable Louis Caldera,

Secretary of the Army; the Honorable Richard Danzig, Secretary of the Navy; Lt. Gen. Henry T.

Glisson, Director, Defense Logistics Agency; Mr. Gary Amlin, Director of the Defense Finance

and Accounting Service; the Honorable Jacob J. Lew, Director, Office of Management and

Budget; and interested congressional committees and members. We will also make copies

available to others upon request.

If you or your staff have any questions concerning this report, please contact me on

(202) 512-8412. Major contributors to this report are listed in appendix IV.

Sincerely yours,

David R. Warren, Director

Defense Management Issues
Page 2 GAO/NSIAD-99-87 Defense Reform Initiative

Executive Summary

Purpose For the past several years, the Department of Defense (DOD) has been

working to reduce its infrastructure and support costs. The Defense

Reform Initiative (DRI), announced in November 1997, is DODs latest

effort to further this goal. DOD is looking to the DRI to make its current

organization and business practices more agile and responsive. DOD also

hopes that this initiative will provide a major source of savings that can be

used to help fund DODs planned $20 billion annual increase in weapon

systems modernization.

The Chairman, Subcommittee on Military Readiness, Committee on Armed

Services, House of Representatives, requested that GAO evaluate DOD's

efforts to implement the DRI by assessing (1) actions taken through the

DRI management structure to facilitate achieving the programs objectives

and (2) progress DOD has made in implementing individual reform

initiatives.

Background The genesis of the DRI was the Quadrennial Defense Review (QDR), which

was completed in May 1997. Among other things, the QDR called for DOD

to reduce its support infrastructure and streamline its business practices.

The DRI, as a follow-on effort to the QDR, is built around four major reform

efforts, or pillars:

 reengineering defense business and support functions, primarily by

adopting and applying the private sectors best practices;

 reorganizing and reducing the size of DOD headquarters elements and

Defense agencies, including the Office of the Secretary of Defense;

 expanding the use of competitive sourcing to open DODs commercial

activities to competition from the private sector; and

 conducting two additional base realignment and closure (BRAC) rounds

and eliminating other facilities that are no longer needed and/or drain

resources.

While DOD expected each of these efforts to reduce infrastructure costs,

most savings were to come from two initiatives. The first involved

subjecting thousands of government positions that provide

commercial-type functions and activities to public/private competitions to

find the most cost-effective source for the work. The second involved

conducting two additional BRAC rounds in fiscal years 2001 and 2005.

DOD estimated that competitive sourcing would save about $6 billion

through fiscal year 2003 and over $2 billion each year thereafter. The two
Executive Summary

Page 3 GAO/NSIAD-99-87 Defense Reform Initiative

additional BRAC rounds were estimated to produce about $2.8 billion in

net annual recurring savings once implementation costs had been offset.

DOD did not estimate savings expected from the other initiatives.

GAO previously reported that implementing reforms such as the DRI is not

an easy task.1 To be successful, DOD must address obstacles that have

previously kept it from effectively implementing management reforms

across the Department. These include (1) cultural barriers and

parochialism among the military services and Defense agencies, (2) lack of

incentives among DOD managers to seek and implement change,

(3) deficient management data that prevents DOD from costing its business

operations, (4) lack of clear results-oriented goals and performance

measurements needed to gauge success, and (5) inconsistent management

accountability and follow-through.

Results in Brief By adopting proven management change concepts in implementing the DRI

program, DOD has addressed some of the obstacles that have limited the

success of past reform efforts. The Secretary and Deputy Secretary of

Defense have shown strong support for the program and established an

organizational framework to give additional structure and guidance to the

effort. This framework consists of a Defense Management Council (DMC),

a Coordinating Group to support the Council, and a DRI Office to track

implementation and identify issues that need management attention.

Further, using special directives, performance contracts, and other

planning guidance, DOD has sought to institutionalize and provide a

sustained emphasis on the DRI. This framework, taken in total, has helped

create a Defense-wide focus on infrastructure reduction and provides a

forum where problems caused by cultural barriers and parochial interests

can be addressed.

Because the DRI framework has been in place for just over a year, it is too

soon for GAO to assess how effective it will be in the long term. GAO did,

however, identify several areas where DOD could build on its initial efforts

and give even greater impetus to its goal of achieving a revolution in

business affairs. These include (1) incorporating other major ongoing

reform efforts in the DRI so it can develop a more comprehensive,

integrated strategy for reforming Defense business and support activities;

1Defense Management: Challenges Facing DOD in Implementing Defense Reform Initiatives

(GAO/T-NSIAD/AIMD-98-122, Mar. 13, 1998).
Executive Summary

Page 4 GAO/NSIAD-99-87 Defense Reform Initiative

(2) more clearly delineating the funding requirements needed to achieve

major reforms; and (3) enhancing the Departments ability to measure DRI

results, particularly through financial management and related reforms.

Each of the four DRI pillars include a variety of reform or reengineering

initiatives, many of which were already ongoing before they were brought

under the DRI umbrella. To varying degrees, DRI has given each of these

initiatives increased visibility and top-level support within the Department

and, in many instances, imposed new goals and milestones for

accomplishing their objectives. Each initiative varies in its progress

toward meeting its objectives and milestones. Many still face a variety of

issues that could affect their ultimate success and will likely take longer to

complete than the milestones established by the DRI. Consequently, the

success of the DRI will depend largely on DODs ability to maintain a high

degree of emphasis on the initiatives over the long term. Past reform

efforts started out well but tended to lose momentum as the Departments

leadership and priorities changed.

GAO is recommending that DOD include other major reform efforts in the

DRI program, develop an integrated strategy and action plan for managing

the DRI effort, and identify funding requirements and targets for the

program.

Principal Findings

Implementation Strategy 

May Help DOD Avoid 

Problems of Prior Reform 

Efforts

DODs senior leadership has created Department-wide awareness of DRI

goals. In addition, DOD has used special directives, known as Defense

Reform Initiative Directives (DRID), to provide specific direction, including

milestones, to DOD components responsible for implementing individual

initiatives. In general, service and Defense agency officials have viewed

these DRIDs as effective tools in communicating expectations and

providing some basis for tracking required actions. The DMC is also

developing performance contracts for eight Defense agencies/activities to

improve the Departments oversight of them and outline goals for cost

reductions and service improvements. Further, the Department has sought

to incorporate a DRI emphasis in its implementation of the Government

Performance and Results Act and its requirements for strategic goals and

performance plans. The Departments fiscal year 2000 performance plan

includes the DRI-related goals of streamlining infrastructure and pursuing
Executive Summary

Page 5 GAO/NSIAD-99-87 Defense Reform Initiative

business practice reforms. It specifies a variety of performance indicators

that will be used to assess overall progress. The Department has also used

its annual budget guidance to components to emphasize the importance of

the DRI. At the same time, the services are expected to absorb most costs

of implementing the initiatives using their existing operating budgets.

Opportunities to Build on 

Current Reform Efforts

While the DRI organization has provided important focus and direction to

its initiatives, there are several areas where it could build on its initial

efforts to achieve the dramatic improvements it seeks in its business

processes. First, DOD did not include in the DRI all of the major ongoing

business process reform efforts in the Department. Both DOD and the

Congress have called for significant reform efforts beyond those in the DRI,

including improving and streamlining DOD's financial management

systems, logistics functions, and acquisition workforce. The DRI included

only a few initiatives related to the broader goal of logistics reengineering

and did not include the major efforts planned to reform financial

management systems. Including more of the major reform initiatives under

DRI could lead to the development of a more complete picture of needed

and planned major reform efforts and, to the extent that they are

interrelated, could provide the basis for developing a more comprehensive,

integrated strategy for achieving the reforms.

Second, DOD is requiring its components to fund most up-front investment

costs out of their existing budgets. This means that DRI initiatives have to

compete annually for investment funds with higher departmental priorities

such as readiness, sustainability, and modernization. At the same time,

investment costs have not been fully identified for some of the major

reform initiatives. The process of making tradeoffs among competing

priorities would be more effective if DOD had a clearer picture of overall

investment requirements and established, as part of the annual budgeting

process, Department-wide funding targets for the DRI program. This

would more clearly establish funding expectations for the services and

Defense agencies and inform the Congress on how much of the Defense

budget is needed for key reform efforts.

Third, one of the key aspects of a reform effort is the ability to establish

baseline costs and measure the impact of change. Because of the poor

condition of DODs financial management systems, obtaining this type of

information is difficult. As a result, DOD tends to rely on performance

indicators that track progress or status rather than measure results. With

respect to DRI, DOD officials stated that their primary indicators of
Executive Summary

Page 6 GAO/NSIAD-99-87 Defense Reform Initiative

success will be reductions in support funding requirements in their

operating accounts. This approach will make it difficult to identify the

precise impact the DRI is having on budget requirements. However, it is

well known that DODs financial management systems are currently unable

to generate the type of information needed to establish baseline costs or

track the impact of changes. Therefore, whenever DOD officials estimate

the potential or actual impact of an initiative or reform effort, the estimate

is often based on either anecdotal information or data that may have

important limitations. DOD has been attempting to improve its financial

management systems and processes for many years and recently issued, at

the direction of the Congress, a biennial strategic plan for improving

financial management. Until the efforts outlined in this plan are either

completed or much further along, DODs ability to effectively measure

program results will remain limited.

Progress Is Varied Across 

DRI Initiatives

Each of the four DRI pillars includes a variety of reform or reengineering

initiatives, many of which were already ongoing before they were brought

under the DRI umbrella. Each initiative varies in its progress toward

meeting its objectives and milestones, and many still face a variety of

obstacles that could affect their ultimate success.

The first pillar, adopting best business practices, includes the broadest

range of initiatives, from paperless contracting and the increased use of

electronic commerce to reengineering the movement of household goods.

Among them, the greatest progress is occurring in the initiatives related to

increasing the use of purchase cards for small purchases and reengineering

DODs travel system. Progress is being made in other areas such as moving

toward paperless contracting and reforming DODs system for transporting

military members household goods, but completion of these and other

efforts is likely to take several years and in certain instances will not meet

the milestones established under the DRI program.

The second pillar, organizational realignments, has progressed well, and,

with limited exceptions, DOD has accomplished many of the organizational

changes called for by the DRI Report. At the same time, other reductions

called for by the Congress, such as headquarters reductions, may be more

difficult to implement. Specifically, DOD is still developing plans to meet

congressional direction to reduce management headquarters and

headquarters support activities by 25 percent.
Executive Summary

Page 7 GAO/NSIAD-99-87 Defense Reform Initiative

The third pillar, streamlining through competition, builds on efforts

launched prior to publication of the DRI Report to competitively examine

thousands of government positions involved in commercial-type activities

over a 5-year period for potential conversion to the private sector.

Currently, DOD plans to examine about 229,000 positions during that time

frame. This effort is one of two initiatives from which DOD is projecting

specific savings that are being incorporated into future-year budget plans.

GAOs prior work indicates potential for significant savings from such

competitions, regardless of whether they are won by the public or private

sectors. However, for a variety of reasons, GAO continues to urge caution

when estimating such savings, particularly since DOD has not fully

determined the up-front investment costs required to implement this

initiative and the impact of investment costs on savings in the short term.

Additionally, DOD components have fallen behind in launching and

completing many of the initial studies. Various Defense officials have

raised concerns about the number of government positions related to

commercial activities, the number of positions that can reasonably be

studied during the prescribed time frame, and the likelihood that the

projected savings can be realized.

The fourth pillar focuses on reducing infrastructure through a variety of

methods. One key effort calls for two additional BRAC rounds. This is the

second initiative from which specific savings projections have been made.

However, because of issues related to concerns about costs and savings

from prior rounds as well as about the way some closure decisions were

handled by the executive branch during the 1995 round, the Congress has

not been willing, to date, to authorize additional BRAC rounds. Other

major infrastructure reduction initiatives under this pillar include Defense

agency consolidations, demolition of excess facilities, and privatization of

utilities. Progress is being made toward the goal of demolishing 8,000

excess structures by 2003, and DOD has directed the services to set aside

funding to accomplish this goal.

Less progress has been made toward privatizing utility systems, and DOD

has recently extended the DRI milestone for completing this initiative from

January 2000 to September 2003. The services have expressed concern

about the time-consuming process and significant up-front investment

costs required to implement this initiative. DOD, in a December 1998

program budget decision, required the services to set aside over

$240 million in funding over the next several years to cover the costs of

these privatizations but acknowledged that the true cost could not be

accurately estimated until further analysis is completed. It directed the
Executive Summary

Page 8 GAO/NSIAD-99-87 Defense Reform Initiative

services to complete further analyses of cost requirements for the

upcoming 2001 budget cycle. DOD estimates that once the privatizations

are completed, it may save $327 million. GAO has not completed sufficient

analyses to determine the reasonableness of projected costs or savings.

DODs efforts to privatize military family housing are aimed at using private

capital to upgrade housing faster than DOD could on its own and improve

the quality of life for service personnel. DOD is significantly behind in its

efforts in this area. The DRI called for privatizing 3,500 units by fiscal

year 1998, 15,000 units by fiscal year 1999, and 30,000 units by fiscal

year 2000. The DRI also established a broader goal of privatization to help

eliminate all inadequate housing by fiscal year 2010. By early 1999, only a

few sites involving about 1,000 housing units had been privatized. Service

officials attributed the slow progress to the many legal, financial,

contractual, and budgetary issues they have had to tackle. GAO is

continuing to monitor this issue.

Recommendations To strengthen and help sustain the reform effort, GAO recommends

(1) bringing all major reform initiatives under the purview of the DRI

program and using the Results Act principles as a framework to establish a

more comprehensive, integrated strategy and action plan for reforming the

Departments major business and support activities and (2) identifying

investment funding requirements for major reform initiatives and

Department-wide funding targets for the DRI program and communicating

them to the Congress during the annual budget process.

Agency Comments and 

GAOs Evaluation

In commenting on a draft of this report, DOD limited its response to the

reports recommendations (DODs comments are in app. III). Concerning

GAOs recommendation that the Secretary of Defense bring other major

Defense reform initiatives, including logistics and financial management,

under the DRI program, DOD responded that the Secretary had unified the

DRI and acquisition reform activities as a means of coordinating reform

efforts within the Department. DOD stated that the recommended

application of Results Act principles as a framework for a strategy is fully

possible only in some circumstances. However, it also stated that

integrated process teams had been organized to coordinate all DOD reform

activities, including the Results Act, to foster reform and information

sharing.
Executive Summary

Page 9 GAO/NSIAD-99-87 Defense Reform Initiative

The Departments March 1999 update of the DRI, provided on CD-ROM and

available on the Defense Reform internet web site, included logistics,

financial management, acquisition reform, homeland defense, and other

reform activities under the scope of the DRI. The Department also

announced on March 23, 1999, that organizational responsibility for the DRI

program had been moved to the office overseeing acquisition reform.

While these changes more closely link the original DRI programs with other

related reform initiatives, such as logistics and financial management

reforms, and could increase information sharing, the Departments

comments did not address steps it might take to develop a more

comprehensive integrated strategy and action plan for achieving the DRI

goals. GAO continues to believe such a plan is needed to facilitate

management oversight and maximize the programs potential for meeting

its goals. This plan could also help DOD maintain its focus on the original

DRI goalsreengineering business operations and eliminating unneeded

infrastructureconsidering that it has broadened the DRI to include such

efforts as homeland defense, cyberspace security, and quality-of-life

initiatives. GAOs intent in recommending the use of Results Act principles

was to emphasize the importance of including the elements of

accountability, goals, and performance measures in formulating this

integrated plan. GAOs review of DODs current Results Act Performance

Plan indicates that some of these elements are being addressed; but, GAO

also believes that more can be done to apply these principles to the DRI

initiatives.

Concerning GAOs recommendation that DOD more fully identify

investment funding requirements for the DRI program and communicate

them to the Congress, DOD responded that it was reviewing funding and

expanding efforts to consult with the Congress. However, DOD did not

specify its planned actions. GAO continues to believe it is important for

DOD to identify its funding requirements for major initiatives as well as its

overall funding targets for the DRI program. Such information could

provide the Congress with improved information regarding funding

requirements and provide DOD with an improved basis for

decision-making, including for making tradeoffs among competing

priorities.
Page 10 GAO/NSIAD-99-87 Defense Reform Initiative

Contents

Executive Summary 2

Chapter 1 

1ntroduction 

12

DOD Is Seeking to Reduce Infrastructure Costs 12

DRI Addresses Infrastructure Component of the QDR 13

DRI Management Structure 15

Prior Reform Efforts Have Produced Mixed Results 17

Factors That Can Affect the Success of Reform Efforts 19

Objectives, Scope, and Methodology 21

Chapter 2

Actions to Facilitate 

Execution of the DRI 

24

Program Approach Represents a Good Start 24

Opportunities to Build on Current Efforts 28

Conclusions 36

Recommendations 37

Agency Comments and Our Evaluation 37

Chapter 3

Individual Reform 

Initiatives Vary in 

Progress 

39

Adopting Best Business Practices: Efforts Are Under Way,

but Progress Varies Among Initiatives 39

Changing the Organization: Realignments and Reductions Are

Being Carried Out, With Some Exceptions 48

Streamling Through Competition: Questions About Goals, Pace,

and Amount of Savings 50

Eliminating Unneeded Infrastructure: Progress Toward Goals Is

Mixed 52

Conclusions 62

Appendixes

Appendix I: Management Reform Memoranda 63

Appendix II: Defense Reform Initiative Directives 66

Appendix III: Comments From the Department of Defense 73

Appendix IV: Major Contributors to This Report 75
Contents

Page 11 GAO/NSIAD-99-87 Defense Reform Initiative

Tables Table 3.1: Best Business Practices Initiatives 40

Table 3.2: Initiatives to Eliminate Infrastructure 53 

Abbreviations

BRAC base realignment and closure

CIM Corporate Information Management

DESC Defense Energy Support Center

DFAS Defense Finance and Accounting Service

DISA Defense Information Systems Agency

DLA Defense Logistics Agency

DMC Defense Management Council

DMR Defense Management Report

DOD Department of Defense

DRI Defense Reform Initiative

DRID Defense Reform Initiative Directive

FYDP Future Years Defense Program

MRM Management Reform Memoranda

POM Program Objective Memorandum

OSD Office of the Secretary of Defense

QDR Quadrennial Defense Review

TAV Total Asset Visibility
Page 12 GAO/NSIAD-99-87 Defense Reform Initiative

Chapter 1

Introduction Chapter1

The Department of Defense (DOD) has been working to reduce its

infrastructure and support costs. A number of internal studies have

reinforced the need to do this. The Defense Reform Initiative (DRI),

announced in November 1997, is DODs latest effort to reform its business

activities and reduce infrastructure costs. DOD hopes the DRI will make

its current organization and business practices (which were developed

over the course of many years during the Cold War) more agile and

responsive. DOD also hopes that this initiative will provide a major source

of savings that can be used to help fund DODs planned $20 billion annual

increase in weapon systems modernization. The Secretary of Defense has

established a special management structure to provide oversight and

direction to the DRI effort. However, congressional concerns about prior

reform efforts and their mixed results have led to caution about the likely

outcomes of current initiatives. Over the years, we and others have

identified various factors that can either hinder or promote the success of

reform efforts.

DOD Is Seeking to 

Reduce Infrastructure 

Costs 

In the early 1990s, DOD conducted two major defense reviewsthe 1991

Base Force Review and the 1993 Bottom-Up Reviewto assess military

force structure requirements in the post-Cold War era. Following these

reviews, the Congress mandated the Commission on Roles and Missions of

the Armed Forces to determine the appropriateness of current allocations

of roles, missions, and functions among the armed forces and make

recommendations for changes. 1 Each of these reviews noted that DOD had

excessive infrastructure, which was limiting its ability to fund readiness

and modernization requirements. The Commission, for example, pointed

out that infrastructure accounted for more than half of DODs budget. It

recommended that DOD reduce infrastructure costs by relying on the

private sector for services that do not have to be performed by the

government and reengineering DODs support organizations and functions.

The Commission also called for DOD to conduct a comprehensive strategy

and force review at the start of each administration, or every 4 years, to

examine and select the best force mix, budget level, missions, and support

structures. This review has been referred to as a Quadrennial Defense

Review (QDR).

The first QDR was completed in May 1997. It reviewed all aspects of the

U.S. defense strategy and program, including force structure,

1National Defense Authorization Act for Fiscal Year 1994, P.L. 103-160, section 951, 107 stat. 1738 (1993).
Chapter 1

Introduction

Page 13 GAO/NSIAD-99-87 Defense Reform Initiative

infrastructure, readiness, intelligence, modernization, and people. With

respect to infrastructure, the QDRs conclusions closely matched those of

the Commission on Roles and Missions of the Armed Forces. With the

expectation that the Defense budget would stabilize at about $250 billion

annually (in constant 1997 dollars), the QDR concluded that DOD could not

achieve its modernization and readiness goals without a concerted effort to

reduce infrastructure costs. To do this, it proposed:

 continued reductions in civilian and military personnel associated with

infrastructure,2

 two additional rounds of base realignments and closures (BRAC),

 major initiatives to reengineer and reinvent DOD support functions, and

 an increased emphasis on using the private sector to perform

nonwar-fighting support functions.

The savings from these initiatives were expected to help DOD increase

procurement funding from about $42 billion in fiscal year 1998 to

$60 billion in fiscal year 2001.

DRI Addresses 

Infrastructure 

Component of the QDR

In response to the QDR infrastructure proposals, the Secretary of Defense

established a Defense Reform Task Force to review departmental activities

and look for ways to consolidate functions, eliminate duplication of effort,

and improve efficiency. The DRI Report, which the Task Force issued in

November 1997, identified a framework for accomplishing the QDR

objectives and for initiating a revolution in business affairs, as described

by the Secretary of Defense in his preface to the report. This framework is

built around the following major reform efforts, or pillars:

 Adopting best business practicesReengineering Defense business and

support operations primarily by adopting and applying revolutionary

new business and management practices learned from the private

sector. Key initiatives include making many of DODs contracting and

financial operations paperless, relying more on the private sector

(through prime vendor contracts) to store and distribute inventory to

DOD customers, and reengineering DODs official business travel

system.

2Our report on the 1999-2003 Future Years Defense Program noted that the services planned to reduce

civilian and military personnel by 175,000 by 2003. See Future Years Defense Program: Substantial

Risks Remain in DODs 1999-2003 Plan (GAO/NSIAD-98-204, July 31, 1998).
Chapter 1

Introduction

Page 14 GAO/NSIAD-99-87 Defense Reform Initiative

 Changing the organizationReorganizing and reducing the size of DOD

headquarters elements so they focus on corporate-level tasks (e.g.,

providing policy guidance, developing long-range plans, monitoring and

evaluating performance, and allocating resources). Key initiatives

include reducing headquarters staff assigned to the Office of the

Secretary of Defense (OSD), Defense agencies, Defense field and

support activities, and the Joint Chiefs of Staff. Headquarters offices

would also be reorganized and consolidated to eliminate redundancies

and provide better support to the Secretary of Defense.

 Streamlining through competitionExpanding the use of competition

between the public and private sector to improve performance and

reduce the cost of DOD business and support activities. DOD believed

such competitions could reduce annual operating costs by about

20-30 percent for each activity studied, regardless of whether the

competition was won by the public or the private sector. The DRI report

suggested competing about 200,000 positions using the Office of

Management and Budget Circular A-76 process.

 Eliminating unneeded infrastructureEliminating facilities that are no

longer needed and/or that drain resources. The key component of this

effort was to seek congressional approval for two additional BRAC

rounds in 2001 and 2005. Other initiatives include the consolidation of

support activitiesresearch and development laboratories, test and

evaluation facilities, and the Defense Finance and Accounting Service

(DFAS)demolition of excess buildings, privatization of military family

housing construction, and privatization of military-owned utility

systems.

Quantifiable DRI savings were to come primarily from two initiatives:

public/private competitions and BRACs. The DRI Report projected

$6 billion in cumulative savings from competitive sourcing by 2003 and

over $2 billion each year thereafter. 3 It projected that two future BRAC

rounds together would produce $2.8 billion in annual savings after the

BRAC decisions had been implemented. 4 DOD believed that savings from

these two initiatives were imperative in order to increase weapons

modernization funding to $60 billion. While the other initiatives might also

result in savings, DOD did not attempt to measure their potential impact

3More recently, DOD has projected $11 billion in cumulative savings from competitive sourcing by 2005

and over $3 billion in annual recurring savings thereafter.

4More recently, DOD has projected $3.4 billion in annual recurring savings after completion of two

additional BRAC rounds.
Chapter 1

Introduction

Page 15 GAO/NSIAD-99-87 Defense Reform Initiative

and was not counting on them to help achieve the modernization goal.

Nevertheless, DOD believes the other initiatives are important contributors

to the revolution in business affairs and will help improve the quality of

service provided to DOD customers. To encourage the military services

and Defense agencies to undertake the DRI initiatives, DOD officials told

service officials they could expect to retain savings achieved and apply

them to other needs.

DRI Management 

Structure

DOD has established a management oversight structure with the goal of

bringing sustained direction and emphasis to the DRI effort. This structure

includes the Defense Management Council (DMC) to oversee the DRI

efforts and advise the Secretary of Defense on new reform efforts, a

subordinate Coordinating Group to support the DMC, and a DRI Office to

monitor progress and identify areas where managements attention is

needed. The military services and Defense agencies, which are ultimately

responsible for implementing the initiatives, have also established small

offices or points of contact to receive and collect information about the

DRI.

Defense Management 

Council

The DMC, as described by the Secretary of Defense, is expected to serve as

an internal board of directors that will, among other things:

 advise the Secretary on matters of Defense reform,

 identify ways to improve business practices,

 identify opportunities to consolidate management activities,

 identify opportunities to improve operations by opening them to

competition with the private sector, and

 negotiate performance goals and measures for Defense agencies.

The DMC is chaired by the Deputy Secretary of Defense and includes the

Under Secretary of Defense (Comptroller), the Vice Chairman of the Joint

Chiefs of Staff; the three other Under Secretaries of Defense, the three

military service Under Secretaries, the four military service Vice Chiefs, the

General Counsel, and the Director of the DRI Office. The DMC

membership is comparable to two other senior level groups used by the

Secretary to provide senior leadership and direction to important

DOD-wide issuesthe Defense Resources Board, which addresses

DOD-wide budget allocation issues, and the Joint Requirements Oversight

Council, which reviews all major procurement issues and decisions. The

DMC has met about 15 times since its establishment in November 1997.
Chapter 1

Introduction

Page 16 GAO/NSIAD-99-87 Defense Reform Initiative

Coordinating Group A part-time Coordinating Group, subordinate to the DMC but comprised of

senior level representatives from the military services and OSD, was

established by the DMC at its first meeting. The Executive Director for the

group is the Director for Program Analysis and Evaluation in the Office of

the Secretary. Besides providing leadership, the Executive Director is the

groups primary interface with the DMC. Among other things, the

Executive Director helps decide which issues to bring to the DMC and

regularly attends its meetings. Other members of the Coordinating Group

include the Deputy Director for Army Program Analysis and Evaluation and

the Marine Corps Assistant Deputy Chief of Staff for Requirements and

Planning. The Coordinating Group normally meets every week to deal with

ongoing DRI activities and resolve problems that arise. It provides advice

and assistance to the DMC, drafts policy statements for the DMCs review

and approval, provides a forum for the military services and Defense

agencies to discuss concerns with policy statements, and help teams

prepare presentations for DMC meetings.

DRI Office Several months after the DRI was announced, the Secretary established a

DRI Office to help track the implementation of the initiatives and advise

him when reform efforts were not progressing as expected. According to

the Offices Director, the Office was intentionally kept smallup to eight

peoplebecause he believed a large office would not be in keeping with

the DRIs cost-cutting theme. According to the Director, this led to his

employing a less formal operating style and method of collecting

information. The Director said, for example, that he and his staff receive

periodic briefings from those responsible for implementing the initiatives

in the services and Defense agencies. The DRI Office also maintains

informal contacts with these people to stay abreast of emerging

developments. They obtain information on progress, which they

accumulate into status reports, and indications of problems that might

need management attention. While these problems could be and

sometimes are brought to the Coordinating Group or DMC for discussion

and resolution, the Director said that most are dealt with informally,

primarily by making sure key management officials are aware of them.

Another important aspect of the job, according to the Director, is to look

beyond the DRI and identify other reform opportunities. He specifically

mentioned the need to reform DODs Working Capital Fundwhich funds

internal DOD business operations totaling about $80 billion annually in

salesbut said there are many other opportunities for reform. He believes

his Office is uniquely positioned to identify these opportunities and
Chapter 1

Introduction

Page 17 GAO/NSIAD-99-87 Defense Reform Initiative

marshal support for them. Besides being a member of and attending DMC

meetings (where decisions on new initiatives are made), he has direct

access to the Secretary of Defense.

Military Service and 

Defense Agency Focal Points

As the organizations that must implement the DRI, the military services and

Defense agencies have either established small offices or points of contact

to receive and collect information about the initiatives. As officials in these

offices described them to us, the offices and contacts do not manage any

part of the DRI effort yet they have a role in expediting action and seeing

that specific initiatives are addressed in their organizations. For example,

they are typically the persons or offices that receives policy directives from

the DMC and forwards them to the appropriate official for action. In some

cases, they also track the status of implementation efforts and summarize

them for their chain of command and for the DRI Office. As with the other

organizations discussed above, the services and agencies have kept these

oversight efforts small. This meets the DRI goal of not creating a large

implementing infrastructure and, according to DOD, sends the message

that reforms must be made through normal management structures.

Prior Reform Efforts 

Have Produced Mixed 

Results

Over the past 10 years, DOD has undertaken a number of legislative and

administrative initiatives to downsize the organization and improve the

efficiency of its business operations. The most notable results have come

from four BRAC rounds that the Congress authorized between 1988 and

1995. The BRAC rounds resulted in decisions to close nearly 100 of what

DOD characterized as major domestic bases and many smaller facilities.

The decisions, which are still being implemented, are expected to produce

a smaller and less costly infrastructure, but not to the extent DOD leaders

would have liked.5 Also, net savings have taken longer to begin to accrue

than initially expected. Expected revenues from land sales did not

materialize, and BRAC actions required up-front investment costs that had

to be offset before net savings could be realized. Special legislation

authorizing the most recent BRAC rounds expired at the end of 1995, and

because of controversies surrounding BRACs, particularly in the 1995

round, the Congress has been reluctant to authorize additional rounds.

5See Military Bases: Status of Prior Base Realignments and Closure Rounds (GAO/NSIAD-99-36,

Dec. 11, 1998) and Military Bases: Review of DODs 1998 Report on Base Realignment and Closure

(GAO/NSIAD-99-17, Nov. 13, 1998).
Chapter 1

Introduction

Page 18 GAO/NSIAD-99-87 Defense Reform Initiative

Other Department-wide efforts to improve operations and reduce

infrastructure costs include the President's Blue Ribbon Commission of

Defense Management (also known as the Packard Commission) and the

Corporate Information Management (CIM) initiative. The Packard

Commission, comprised of a group of business leaders, was established in

1988 to identify ways to streamline and restructure DOD business

operations. The Commission issued the Defense Management Report

(DMR) in July 1989. It contained 250 wide-ranging decisions to consolidate

business functions, improve information systems, enhance management,

and employ better business practices. The decisions consolidated

business functions into several new organizations, including DFAS, the

Defense Contract Management Command, and the Defense Commissary

Agency. Other decisions established the Defense Business Operating Fund

(now called the Defense Working Capital Fund), transferred supply

management operations to the Defense Logistics Agency (DLA),

recommended increased competition and interservicing for depot

maintenance work, and proposed consolidation of Defense research and

test facilities. CIM was an outgrowth of the DMR. It too was a

Department-wide effort to improve administrative operations and reduce

costs by streamlining business processes and consolidating, standardizing,

and integrating information systems. The DMR was expected to provide

savings of up to $70 billion over 5 years. CIM was expected to save about

$36 billion, over half of the projected DMR total.

The DMR effort produced savings but not to the degree initially estimated

by DOD. In addition, our past work found that, because of limited

documentation and the absence of standard accounting and information

systems, it was difficult to determine if the savings resulted from DMR

initiatives or from other factors such as force-level reductions, reduced

workloads, or Defense downsizing. 6 Our recent analysis of DODs Future

Years Defense Programs (FYDP) showed that the infrastructure portion of

DOD's budget had not decreased as DOD planned.7 Consequently, planned

funding increases for modern weapon systems were repeatedly shifted

further into the future with each succeeding FYDP. Moreover, our analysis

showed that this trend is expected to continue through fiscal year 2003.

6See our report to the Chairman, Subcommittee on Readiness, House Committee on Armed Services

(GAO/NSIAD-94-17R, Oct. 7, 1993) and Defense Management: Challenges Facing DOD in Implementing

Defense Reform Initiatives (GAO/T-NSIAD/AIMD-98-122, Mar. 13, 1998).

7Future Years Defense Program (GAO/NSIAD-98-204, July 31, 1998).
Chapter 1

Introduction

Page 19 GAO/NSIAD-99-87 Defense Reform Initiative

Factors That Can 

Affect the Success of 

Reform Efforts 

Over the years, we and others have reported on the systemic management

problems that have kept DOD from successfully implementing reform

efforts. We have also identified various factors that must be present in any

organization that attempts to implement major reforms.

Factors That Can Impede 

Success

The key factors that have kept DOD from successfully implementing past

management reform initiatives include: 8

 Cultural barriers and parochialismEach of the military services has its

own way of doing business, its own budget and programming authority,

and its own parochial interest in maintaining the status quo. As a result,

it has been difficult for DOD to implement Department-wide reform,

particularly when the corrective actions require the development and

use of common systems and processes across military services and

organizational boundaries. Even when there is common agreement

among the leadership of the Department, management reform initiatives

that involve up-front investments, the closure of installations, and the

elimination of military and civilian jobs sometimes are not fully

implemented unless they have widespread support throughout the

military services and Defense agencies.

 Lack of incentives to seek and implement changeDOD managers have

had few incentives to improve DOD's financial, acquisition, and

infrastructure management approaches. In DODs culture, the success

of a managers career depends more often on moving programs and

operations through the DOD process rather than on improving the

process itself.

 Deficient management dataDOD cannot accumulate reliable cost

information on its business activities or critical operations. As a result,

DOD decisionmakers lack the comprehensive and reliable data they

need to establish baseline costs, track program implementation, and

make well-informed decisions.

 Lack of clear results-oriented goals and performance measures DODs

strategic goals and objectives have not been linked to those of the

military services and Defense agencies, and DOD's guidance has tended

to lack specificity. Without clear, hierarchically-linked goals and

8See Defense Management (GAO/T-NSIAD/AIMD-98-122, Mar. 13, 1998) and DOD High Risk Areas:

Eliminating Underlying Causes Will Avoid Billions of Dollars in Waste (GAO/T-NSIAD/AIMD-97-143,

May 1, 1997).
Chapter 1

Introduction

Page 20 GAO/NSIAD-99-87 Defense Reform Initiative

performance measures, DOD managers have not been able to show how

their work contributes to the attainment of DOD's strategic goals.

 Inconsistent management accountability and follow-through DOD has

not routinely linked organizational goals and performance measures to

specific organizational units or individuals that have sufficient

flexibility, discretion, and authority to accomplish the desired results.

These linkages are important because DODs top managers are normally

in their positions for only short periods of time. In 1994, for example,

the median tenure of top political appointees in OSD was 1.7 years. This

turnover has hindered the long-term planning and follow-through

needed to carry out significant management reforms. 9

Factors That Can Enhance 

the Chances of Success 

While the above problems have inhibited the success of past DOD reform

efforts, there are a number of factors that can help eliminate these

problems and enhance the potential for success. For example, successful

public and private sector organizations have overcome these types of

problems by:10

 displaying top management commitment and sustained support for the

reform effort;

 establishing a clear management framework for guiding and supporting

change;

 communicating to and educating the organization about the need for

and expected results of change;

 providing the resources needed to implement the reforms;

 developing strategic and tactical plans that cascade throughout the

organization and provide a roadmap to guide reform and track progress;

 delegating the authority to carry out individual initiatives to

cross-functional teams made up of those who are affected by the reform

and own the process being changed; and

9Political Appointees: Turnover Rates in Executive Schedule Positions Requiring Senate Confirmation

(GAO/GGD-94-115FS, Apr. 12, 1994).

10See Weapons Acquisition: A Rare Opportunity for Lasting Change (GAO/NSIAD-93-15, Dec. 1992),

Organizational Culture: Techniques Companies Use to Perpetuate or Change Beliefs and Values

(GAO/NSIAD-92-105, Feb. 27, 1992), Best Practices: Elements Critical to Reducing Successfully

Unneeded RDT&E Infrastructure (GAO/NSIAD/RCED 98-23, Jan. 8, 1998), and Best Practices:

Successful Application to Weapon Acquisitions Requires Changes in DODs Environment

(GAO/NSIAD-98-56, Feb. 24, 1998).
Chapter 1

Introduction

Page 21 GAO/NSIAD-99-87 Defense Reform Initiative

 establishing objective, outcome-oriented performance measures that

link to strategic and tactical plans, establish accountability, and provide

information for making mid-course corrections.

We have highlighted these factors here to provide a backdrop for our

review of DOD's management of the DRI effort.

Objectives, Scope, and 

Methodology

Because of problems associated with prior Defense reform, the Chairman,

Subcommittee on Military Readiness, House Committee on Armed

Services, asked us to review DODs progress in implementing the DRI

program. To respond to the Chairmans request, we assessed (1) actions

taken through the DRI management structure to facilitate achieving the

programs objectives and (2) progress made in implementing individual

reform initiatives.

To assess the work of the DRI management structure, we relied primarily

on testimonial evidence provided by senior-level managers in various

organizations throughout DOD. We used a common set of questions during

our discussions with senior managers to ensure that we were consistent in

the topics we addressed. Among other things, we asked the managers

about DODs implementation strategy and whether it addressed the

underlying causes of problems that limited the success of past reform

efforts. These questions dealt with the leadership provided by the

Secretary, Deputy Secretary, and other senior DOD managers; the

management framework for guiding and supporting the DRIs

implementation; the techniques used to communicate DRI goals and

objectives throughout the organization; and the adequacy of resources to

implement the DRI. We followed up on their answers to these questions

and, where appropriate, obtained documentation that supported their

statements and assertions.

Because we were particularly interested in the work of the DMC, we

requested minutes of its meetings. This, we believed, would give us

indications of the issues the DMC addressed and the decisions it made

about the DRIs implementation. We were told, however, that no minutes

were taken. Consequently, we obtained the available agendas of its

meetings and interviewed 5 of its 15 members. We provided the members

questions in advance of the meetings. Besides describing the types of

issues that were addressed at DMC meetings, these members provided

their impressions of the DMCs effectiveness during its first year. We also

met with members of the DRI Coordinating Group and discussed the roles
Chapter 1

Introduction

Page 22 GAO/NSIAD-99-87 Defense Reform Initiative

and responsibilities of the Group, how issues are deliberated, how

decisions are made, and the likely success of the DRI.

To evaluate service and agency efforts to develop DRI implementation

plans, we met with senior management officials from the military services

and selected Defense agencies to discuss and obtain documentation on

their strategy for implementing the DRI. We reviewed their strategic

business plans to determine the extent they addressed DRI goals and

objectives. If a service or agency had developed strategic or performance

plans required by the Government Performance and Results Act, we also

reviewed them to determine whether they were linked to DODs strategic

goals and measures and provided a roadmap to track progress and gauge

the overall success of the DRI. We also reviewed the Defense Planning

Guidance for Fiscal Years 2000-2005 to determine how DRI goals and

objectives are supposed to be addressed and prioritized in future military

service and Defense agency budgets.

To determine DODs progress in implementing individual initiatives, we

obtained and reviewed tracking information assimilated by DOD. We also

met with military service and Defense agency representatives responsible

for overseeing and implementing specific initiatives to obtain information

on the progress and problems they were encountering. While we did not

conduct an in-depth review of each initiative, we obtained and reviewed

documentation related to their status and discussed the likelihood that they

will meet implementation schedules called for in the DRI Report. Because

DOD does not have good financial data, we were not able to obtain reliable

information on the savings the initiatives did or are expected to achieve.

Nevertheless, we discussed the status and likelihood of achieving savings

with the responsible officials.

During our work, we interviewed officials in the Office of the Secretary of

Defense, including the Under Secretary of Defense (Acquisition and

Technology), the Under Secretary of Defense (Comptroller), and the

Director of the DRI Office. We also met with two DOD-wide cross

functional teams (the Task Force for Reengineering Initiatives and the

Paperless Contracting Working Level Team) and conducted work at Army

Headquarters, Air Force Headquarters, Navy Headquarters, and Marine

Corps Headquarters in Washington, D.C.; Defense Finance and Accounting

Service Headquarters and Defense Information Systems Agency

Headquarters, Arlington, Virginia; Defense Logistics Agency Headquarters,

Fort Belvoir, Virginia; Air Force Materiel Command Headquarters,

Wright-Patterson Air Force Base, Ohio; Army Materiel Command
Chapter 1

Introduction

Page 23 GAO/NSIAD-99-87 Defense Reform Initiative

Headquarters, Naval Facilities Engineering Command, and Naval Sea

Systems Command, Arlington, Virginia; Naval Supply Systems Command,

Mechanicsburg, Pennsylvania; and the Army Installation Service Activity,

Rock Island, Illinois. We performed our work from June 1998 through

February 1999 in accordance with generally accepted government auditing

standards.

DOD provided written comments on a draft of this report. We incorporated

its comments where appropriate. The comments are reprinted in

appendix III.
Page 24 GAO/NSIAD-99-87 Defense Reform Initiative

Chapter 2

Actions to Facilitate Execution of the DRI Chapter2

To give emphasis and direction to the DRI program, DODs senior

leadership has used the special organizational framework it established.

Using special directives, performance contracts and plans, and budget

guidance, DOD has sought to institutionalize and provide a sustained

emphasis on the DRI. This represents a good start toward providing the

type of management attention and oversight typically associated with

successful reform efforts in the private sector. However, given the limited

time that the framework has been in place, it is too soon for us to assess

how effective it is likely to be in facilitating completion of the program (the

current status of individual initiatives is summarized in ch. 3). At the same

time, there are several areas where DOD could build on its initial efforts to

help achieve the revolution in business affairs it is seeking. These include

(1) bringing under the DRI other major ongoing reform efforts and

developing a comprehensive, integrated strategy for reforming Defense

business processes and support activities; (2) more clearly delineating the

funding requirements needed to achieve the major reforms; and

(3) improving Department-wide visibility of DODs financial management

reform efforts.

Program Approach 

Represents a Good 

Start

To successfully manage a reform effort, top management must effectively

communicate the reason for the change and be actively engaged in

activities such as setting the overall scope and agenda and establishing

policy. In this respect, the Secretary of Defense, Deputy Secretary, and

other parts of the DRI organization have given visible, continuous support

to the purpose and objectives of the DRI. The Deputy Secretary, as

Chairman of the DMC, is recognized within DOD as a leading advocate of

Defense reform. He has kept the pressure on the military services and

Defense agencies to meet the DRI goals. DOD officials said that the DMC

and the DRI Coordinating Group have also increased the Departments

overall awareness of the DRI and have provided an important forum for

addressing and resolving DRI-related problems. Additionally, the

Secretary, the Deputy Secretary, and other top executives have used a

variety of tools to communicate the goals and objectives of the DRI

program and provide program emphasis and direction. These include

(1) developing DRI directives to communicate specific goals and

objectives, milestones, and decisions for selected initiatives; (2) creating

performance contracts to hold Defense agencies accountable for costcutting and service improvement goals; (3) directing that service and

Defense agency plans address DRI objectives; and (4) using budget

guidance to ensure services and Defense agencies address the initiatives.
Chapter 2

Actions to Facilitate Execution of the DRI

Page 25 GAO/NSIAD-99-87 Defense Reform Initiative

These have helped create an institutionwide focus on the initial set of

initiatives and provided a forum for addressing implementation problems.

DRI Directives 

Communicate Specific 

Direction and Milestones

One of the most direct communication tools DOD has used to implement

the DRI program is Defense Reform Initiative Directives (DRID). DRIDs

are documents reviewed by the DMC and issued by the Deputy Secretary of

Defense1 for individual initiatives. They describe the initiatives, provide

specific direction, and set milestones for the DOD components responsible

for carrying them out. They are a continuation of what DOD previously

called Management Reform Memoranda (MRM). As of February 1999, DOD

had issued 17 MRMs and 49 DRIDs (see apps. I and II for a summary of

individual MRMs and DRIDs).

In general, service and Defense agency officials we interviewed said that

the DRIDs are effective communication tools in that they are concise yet

understandable and give targets to shoot for and a basis to measure

progress. Many officials also liked having the opportunity to comment on

DRIDs before they were issued. 2 They pointed out instances where their

comments had affected the scope of the DRIDs. One example was DRID

45, Prime Vendor3 Contracting Program for Facility Maintenance

Supplies. Both Air Force and Army officials thought the draft language in

this DRID would force the services to use prime vendor contracts when an

alternative contracting method might be more advantageous. They wanted

the DRID to encourage the use of prime vendors when this was the most

economical way of purchasing supplies. The final DRID reflected this

concern and did not mandate the use of prime vendor contracts.

According to officials in the DRI Office, the DMC does not plan to issue

DRIDs for every initiative. Instead, it will limit new DRIDs to crosscutting

1While the DMC reviews the DRIDs, the DRI Coordinating Group drafts them and coordinates input

from the affected military services and Defense agencies. The Group limits the DMCs involvement to

only the unresolved or more important issues and concerns.

2All MRMs and about two-thirds of the DRIDs reflected top-down decisions made following the QDR

process and prior to release of the DRI Report. As such, OSD did not seek input from the affected

Defense organizations. The Executive Director of the Coordinating Group said that the Group had and

would seek input on all subsequent DRIDs. Comments from officials we interviewed were based on

DRIDs that reflected decisions made after the DRI was announced.

3Prime vendors are contractors that buy inventory items from a variety of suppliers, store them in commercial warehouses, and ship them to customers as needed.
Chapter 2

Actions to Facilitate Execution of the DRI

Page 26 GAO/NSIAD-99-87 Defense Reform Initiative

issues that require coordination or action from multiple DOD organizations

or that need special attention or direction.

Performance Contracts 

Provide Senior Management 

Oversight of Defense 

Agencies

The DRI Report called for the development of performance contracts for

Defense agencies. These agencies provide numerous products and

services (finance and accounting, telecommunications, computers,

supplies and parts, etc.) to the military services and other Defense

agencies. DOD officials said the performance contracts were intended to

improve DODs oversight of these agencies. Specifically, the contracts are

formal agreements between the Defense agencies, their principal staff

assistants in OSD, and the Deputy Secretary. They are to include

improvement goals for each of the agencies in terms of cost, productivity,

quality, and responsiveness to customers. The contracts are to also include

specific performance measures and annual reporting requirements.

According to Defense agency officials, the leadership of these agencies will

be held accountable, through annual performance appraisals, for meeting

assigned goals.

To implement this initiative, DOD established a task force to work with the

agencies and develop draft performance contracts, which were

subsequently reviewed and approved by the DMC. To pilot the project, the

task force worked with three agencies and one Defense activity to develop

contracts for fiscal year 1999. 4 Four additional agencies are scheduled to

complete contracts for fiscal year 2000. 5

DOD Is Beginning to Link 

QDR and DRI Goals 

Throughout the 

Organization

In March 1998, we testified before the Subcommittee on Military Readiness,

House Committee on National Security, on the challenges facing DOD as it

attempts to implement the DRI. 6 In that testimony, we pointed out that

DODs past reform efforts were hampered because its strategic goals and

objectives were not linked to those of the military services and Defense

agencies. Without clear, hierarchically-linked goals and performance

measures, DOD managers lack straightforward road maps showing how

4These organizations are DFAS, DLA, the Defense Contract Audit Agency, and the Defense Health

Program.

5These organizations are the Defense Education Agency, Defense Information Systems Agency, Defense

Security Cooperation Agency, and Defense Security Service.

6Defense Management: Challenges Facing DOD in Implementing Defense Reform Initiatives

(GAO/T-NSIAD/AIMD-98-11, Mar. 13, 1998).
Chapter 2

Actions to Facilitate Execution of the DRI

Page 27 GAO/NSIAD-99-87 Defense Reform Initiative

their work contributes to the attainment of DODs strategic goals. This also

increases the risk that these managers will operate autonomously rather

than collectively. We believe this issue is important in the DRI environment

because each of the services and Defense agencies must assume part of the

responsibility for meeting DODs infrastructure and personnel reduction

targets.

As a first step toward addressing this issue, DOD has developed

Department-wide strategic and performance plans as required by the

Results Act.7 The strategic plan, the QDR, sets DODs general direction

over a 4-year period. The annual performance plan, now appendix J of

DODs Annual Report to the President and the Congress, is supposed to

connect the QDRs long-term goals to the day-to-day activities of DODs

managers and staff.8 A key performance goal included in DODs recently

issued performance plan for fiscal year 2000, which we are currently

assessing, is to streamline DODs infrastructure by redesigning the

Departments support structure and pursuing business practice reforms.

The plan cited a variety of performance indicators that it would track,

including the percentage of DODs budget spent on infrastructure, the

number of public/private sector competitions, and improvements in

logistics response time.

As a second step, the Secretary in January 1998 directed organizations at all

levels of the Department to review their strategic plans and mission

objectives to ensure that they are linked to the goals and objectives of the

QDR and the DRI. Organizations within DOD are beginning to comply with

the Secretarys direction, but some are further along than others. DLA, for

example, followed the Results Act framework to develop strategic and

performance plans that included a number of references to DRI initiatives.

The Navy, however, is just beginning the strategic and performance

planning process. Nevertheless, Navy officials said they were aware of the

requirement to develop linkages to DRI goals and objectives and intended

to do so as they developed their plans.

7The Results Act requires federal agencies to set strategic goals, measure performance, and report on

the degree to which goals are met. Its intent is to focus agencies more on results, service delivery, and

program outcomes. It is expected to provide the Congress and other decisionmakers with objective

information on the relative effectiveness and efficiency of federal programs.

8See DODs Draft Strategic Plan (GAO/NSIAD-97-21R, Aug. 5, 1997) and Observations on DODs Annual

Performance Plan (GAO/NSIAD-98-188R, June 5, 1998).
Chapter 2

Actions to Facilitate Execution of the DRI

Page 28 GAO/NSIAD-99-87 Defense Reform Initiative

DODs Budget Guidance 

Directed the Funding of DRI 

Initiatives

While incorporating DRI requirements into DOD plans is an important first

step, implementing the requirements is more difficult. Each year, for

example, the military services and Defense agencies have more budget

priorities than they can typically fund. Consequently, they must make

choices among competing priorities. In the past, management reforms,

particularly those that involved large up-front investments, have not fared

well during this selection process. DOD officials told us that they hope to

overcome this funding problem by incorporating DRI requirements into the

normal budgeting process. They stressed that the planning, programming,

and budgeting system, as the budgeting process is called, determines how

funding decisions are made in DOD. If the DRI can be linked to it, they

said, there is a good chance that the overall program could eventually meet

its goals.

In this respect, the Defense Budget Planning Guidance 9 issued to prepare

the fiscal year 1999 Defense budget directed the services and Defense

agencies to construct budgets and programs consistent with the

corporate-level goals in the QDR. The guidance included DODs mission

statement and strategic goals, including the goal to fundamentally

reengineer the Department and achieve a 21st Century infrastructure. The

planning guidance for the fiscal years 2000-2005 Defense program

expressed agreement with the aims and principles of the DRI and directed

the services and Defense agencies to support QDR and DRI goals

throughout the Future Years Defense Programs (FYDP). It also referenced

specific MRMs, DRIDs, and other initiatives and provided guidance in

developing program budgets.

Opportunities to Build 

on Current Efforts

DODs senior leadership has succeeded in creating Department-wide

awareness of DRI goals and objectives. Nevertheless, because the DRI

framework has been in place for just over a year, it is too soon for us to

assess how effective the program will be in the long term. This will depend

largely on DODs ability to maintain its emphasis on the DRI program. Past

reform efforts, like the DMR, also started out well but lost momentum

when the savings did not occur as expected and the Departments

leadership and priorities changed.

9Defense Budget Planning Guidance is issued annually by DOD at the beginning of the budget

development process. It links the goals in DODs strategic plan to the programming and budgeting

process and provides funding priorities for DOD components.
Chapter 2

Actions to Facilitate Execution of the DRI

Page 29 GAO/NSIAD-99-87 Defense Reform Initiative

During our work, however, we identified three areas where DOD has an

opportunity to build on its current efforts to further improve and sustain

the DRI program. First, the DRI program does not currently include all

major DOD business process reform efforts, and several that were included

represented small elements of larger reform efforts not under the DRI. If it

used the framework of the Results Act to include major reform efforts,

DOD might be in a better position to develop a comprehensive, integrated

strategy for reforming the business and support activities of the

Department. Second, DOD is requiring its components to fund most

up-front investment costs out of their existing budgets. This means that

initiatives will have to compete with higher departmental priorities

(e.g., readiness and sustainability, modernization, and force structure) for

investment funds. The decisionmaking process might be enhanced by

considering funding requirements and priorities among all major initiatives

collectively. This could lead to a more complete picture of overall reform

investment requirements that could be communicated to Defense

components and the Congress and could provide a clearer basis for

tradeoffs among competing objectives. Third, DOD lacks good financial

and cost data to establish baseline costs and determine the effectiveness of

its reforms. DOD has been attempting to improve its data for many years

and in November 1998 issued, at the direction of the Congress, a Biennial

Financial Management Improvement Plan. The plan provided a first-ever

vision of DODs future financial management environment and identified an

array of improvement initiatives. 10 On the other hand, it failed to address

several important areas, including the data integrity of DODs feeder

systems.

DOD Could Benefit From a 

Comprehensive, Integrated 

Reform Strategy

In undertaking a comprehensive reform effort like the DRI, it is important,

in our view, that the DRI include all major ongoing initiatives. Doing so

would put the Departments leadership, including the DMC and other

organizations DOD established to oversee the DRI, in a better position to

develop a comprehensive, integrated strategy for reforming DODs major

business and support activities. Such a strategy would help DOD oversee

and manage key reform efforts, decide between competing priorities, and

eliminate potential overlapping or conflicting efforts.

10Financial Management: Analysis of DODs First Biennial Financial Management Improvement Plan

(GAO/AIMD-99-44, Jan. 29, 1999).
Chapter 2

Actions to Facilitate Execution of the DRI

Page 30 GAO/NSIAD-99-87 Defense Reform Initiative

In establishing the DRI, however, DOD did not include all the major reform

efforts that were ongoing in the Department. In explaining why some

ongoing initiatives were included and others were not, a representative of

the Defense Reform Task Force, which was responsible for developing the

DRI Report, said the Task Force judgmentally selected initiatives where

commercial practices might be successfully applied across a range of DOD

organizations, functions, and activities. According to the representative,

the Task Force never intended for the DRI to be all-inclusive, and it

anticipated that other initiatives would come under the DRI umbrella as

time passed.

Some of the reform efforts not included in the DRI, however, are significant

and have impacts on many functional areas. For example, the Under

Secretary of Defense (Acquisition and Technology), a member of the DMC,

has announced plans to (1) totally reengineer DODs logistics processes;

(2) dramatically reduce the amount of logistical supplies required in

combat situations by, in part, improving confidence in supply and

transportation systems; (3) reduce the number of logistics personnel,

facilities, and inventories; and (4) implement a modern, secure, and reliable

integrated logistics information system. To achieve these goals, the Under

Secretary said that DOD will use integrated supply chains for specific types

of inventory, expand the use of prime vendor agreements, and implement

two-level maintenance for all new systems.

Only certain components of the comprehensive logistics reform effort were

identified in the initial DRI Report. For example, the DRI includes an effort

to expand the use of prime vendor agreements. As discussed previously,

however, after a DRID mandating this idea was circulated for comment, the

DMC changed the requirement so that military services and others would

have more flexibility to select other cost-effective alternatives. Depending

on how integral the prime vendor program is to the Under Secretarys

reengineering effort, this may or may not have been the best course of

action to take. If the comprehensive reengineering effort had also been a

DRI initiative, the DMC could have been in a better position to make an

informed decision, based on the importance of the prime vendor program,

on the larger goal of reforming DODs entire logistics process.

In addition, it is unclear how the Under Secretarys overall reengineering

plans will be affected by reform initiatives in the individual services. For

example, the Army has been developing plans to rely on a sole-source

contractor for wholesale logistics support of the Apache and Apache

Longbow weapon systems. The objectives of the program include reducing
Chapter 2

Actions to Facilitate Execution of the DRI

Page 31 GAO/NSIAD-99-87 Defense Reform Initiative

overall support costs, improving parts availability, maintaining aircraft

readiness, and leveraging private-sector resources for modernization.

However, much controversy and uncertainty surrounds this initiative in

terms of its cost-effectiveness and impact on other organizations and

entities such as DLA and the Army Working Capital Fund. 11 Unresolved are

issues such as (1) how parts inventory currently maintained by DLA would

be drawn down, (2) how reduced Army participation would affect

overhead costs of other DLA customers and the Army Working Capital

Fund, and (3) how this proposal fits into an overall plan for logistics

reform. We are currently reviewing this proposal but are not yet in a

position to say whether it would be cost-effective for the Army as well as

for DOD as a whole.12

Another major reform not currently under the DRI umbrella involves DODs

effort to comprehensively improve its financial management systems. This

effort is particularly large in scope in that it touches every organizational

component in DOD and is linked to the success of other reforms in areas

such as logistics and acquisition. For example, a key component in

reengineering DODs logistics process is the development of modern,

reliable logistics information systems. These systems will also be

important feeder systems for DODs financial management systems.

Moreover, for the financial management reform effort to be successful, it

must be integrated with logistics and acquisition reform efforts. Yet,

financial management reform was not mentioned in the initial DRI Report,

and neither the DMC nor other management structures DOD put into place

to oversee and bring direction to the DRI program are addressing it.

To ensure that DOD places sufficient emphasis on this improvement effort,

the National Defense Authorization Act for Fiscal Year 1998 directed DOD

to create a biennial strategic plan for improving financial management.

The plan, now referred to as the Biennial Financial Management

Improvement Plan, is to be submitted to the Congress no later than

September 30 of each even-numbered year and is to address all aspects of

financial management within DOD, including the finance systems,

11The Working Capital Fund (formerly called the Defense Business Operations Fund) was established

in October 1991 by consolidating nine existing industrial and stock funds and five other organizations

operated by DOD. It is essentially a group of internal DOD business operations that sell goods and

services to DOD customers on a break-even basis. The Funds estimated fiscal year 1998 revenue of

about $80 billion makes it equivalent to one of the worlds largest corporations.

12This review was requested by the Subcommittee on Readiness, Committee on National Security,

House of Representatives (now named the Committee on Armed Services, House of Representatives).
Chapter 2

Actions to Facilitate Execution of the DRI

Page 32 GAO/NSIAD-99-87 Defense Reform Initiative

accounting systems, and data feeder systems that support financial

operations. DOD submitted its first plan to the Congress on October 26,

1998. In our assessment of this plan, we found that it represents a great

deal of effort and provides a first-ever vision of DODs future financial

management environment.13 In addition, the plan includes an array of

initiatives intended to move DOD from its current state to its envisioned

financial management environment. However, we also found that the plan,

while providing an ambitious statement of DODs planned improvement

efforts, had two important limitations. First, it did not provide links

between the envisioned future operations and the over 200 planned

improvement initiatives to determine whether the proposed transition will

create the target financial management environment. Second, it did not

address actions to ensure feeder systems data integrityan acknowledged

major deficiency in the current environment. Without identifying specific

actions to ensure such integrity, it is unclear whether the Department will

be able to effectively carry out not only its financial reporting but also its

other financial management responsibilities.

These examples illustrate the types of issues that could benefit from

increased visibility and discussions in senior leadership forums such as

that provided by the DMC. They also show that DODs reform efforts, while

significant, have not been brought together to provide a comprehensive,

integrated plan for Defense reform. Providing such a plan could provide a

more complete picture of major reform efforts that are needed and, to the

extent that these efforts are interrelated, provide the basis for developing a

more comprehensive, integrated strategy for achieving DODs goals.

DOD Could Benefit From a 

Clearer Picture of Overall 

Funding Requirements

Research in the private sector has shown that senior leadership

demonstrates its support for reform not only by communicating goals and

objectives but also by providing the necessary resources to carry them out.

While this does not guarantee success, it lessens the potential that other

programs may be negatively affected by having their budgets cut to pay for

the reform. For the most part, DOD is requiring the military services and

Defense agencies to fund DRI implementation costs out of their existing

budgetary resources. With an expectation that the Defense budget would

stabilize at about $250 billion over the next several years (in constant 1997

dollars), DODs Comptroller said that the only other option was to withhold

funds from the services and agencies and reapportion the funds back to

13Financial Management (GAO/AIMD-99-44, Jan. 29, 1999).
Chapter 2

Actions to Facilitate Execution of the DRI

Page 33 GAO/NSIAD-99-87 Defense Reform Initiative

them in a different manner. However, the services and agencies objected to

this plan, preferring to make their own priority and funding decisions.

This lack of direct funding is important because many of the initiatives

require significant up-front investments and, as discussed in chapter 3, the

extent of funding requirements for some of the major initiatives has not

been fully developed. Service and agency officials told us that coming up

with existing funding needs has not been easy. For example, DOD will

need a large amount of resources to complete the large number of

public/private competitions annually (using the Office of Management and

Budget A-76 process) as called for in the DRI Report. DOD has

underestimated the cost of performing the A-76 studies and implementing

their results. 14 Also, should the Congress authorize additional BRAC

rounds, they too will require significant up-front investments that will take

some time to offset before DOD begins to realize a return on the

investment. The same is true for a variety of other reform initiatives, both

in and out of the DRI program.

One of these other initiatives is an effort to privatize DODs 1,700 utility

systems (water, sewage, electrical, waste water, etc.). Service officials said

that it may cost hundreds of millions of dollars to complete feasibility

studies, environmental assessments, and other required actions for this

initiative. These officials also did not know if private utility companies

would be willing to assume ownership of the systems, considering their

current condition and cost to repair. OSD announced plans in December

1998 to provide funding for selected utility privatization projects but

acknowledged that it would not know the true cost of the initiative until

additional analysis was completed.

DOD is doing several things it believes will encourage the services and

agencies to fund the DRI out of their existing budgets. First, it is allowing

them to keep the estimated savings from the initiatives and reapply them to

their readiness and modernization needs. 15 In this respect, anticipated

savings from competitive sourcing studies are already being reallocated

from the services operating budgets to other needs within those services.

This is different from past reform efforts like the DMR, where estimated

14DOD Competitive Sourcing: Questions About Goals, Pace, and Risks of Key Reform Initiative

(GAO/NSIAD-99-46, Feb. 22, 1999).

15As savings occur or are anticipated, DOD expects the military services and Defense agencies to apply

them to other internal needs during the annual budgeting process and incorporate them into the FYDP.
Chapter 2

Actions to Facilitate Execution of the DRI

Page 34 GAO/NSIAD-99-87 Defense Reform Initiative

savings were taken from the services and agencies budgets up front and

reapplied to other organizations within the Department. Second, as

discussed previously, DOD issued Defense planning guidance for the fiscal

years 2000-2005 Defense program that included specific guidance to fund

DRI-related initiatives. At the same time, however, this planning guidance

assigned infrastructure funding the lowest priority relative to programs

that support readiness and sustainability, modernization, and force

structure. While this is an understandable ordering of prioritiesDOD

must first accomplish its key missionsit reinforces the uncertainty

associated with funding infrastructure reduction investments.

Finally, if these efforts fail, DMC members said they have the option of

directing the funding of initiatives. They pointed out an instance in which

one service did not comply with a DRI funding priority in DODs fiscal

year 2000 budget guidance. This priority related to the demolition of

excess buildings, which DOD believes will avoid the future costs of

maintaining buildings that are no longer needed for current operations.

According to DODs Comptroller, a member of the DMC, the service was

directed to find money in its budget to fully fund the initiative, or the OSD

would make the necessary adjustments to the services budget. The

Comptroller said that the services subsequent budget submission included

full funding for the initiative. He did not say which, if any, other service

priorities were not funded as a result of this action.

With funding for the DRI coming primarily from DOD components existing

operating funds, tradeoffs will be required. Tradeoffs could become more

difficult as the magnitude of investment costs for the DRI initiatives

becomes more fully known. The process of making these tradeoffs might

be made more effective if DOD and the services had a clearer picture of

overall investment requirements and established, as part of the annual

budgeting process, Department-wide funding targets for the DRI. This

could lead to DOD more clearly establishing funding expectations for the

services and Defense agencies and letting the Congress know how much of

the Defense budget is needed for key reform efforts.

DODs Ability to Measure 

DRI Results Is Limited 

One of the key aspects of a reform effort is the ability to establish baseline

costs and measure the impact of change. Because of the poor condition of

DODs financial management systems, obtaining this type of information is

difficult and, in some cases, impossible. As a result, DOD tends to rely on

performance indicators that track progress or status rather than measure

results. While some measures of progress are necessary to understand
Chapter 2

Actions to Facilitate Execution of the DRI

Page 35 GAO/NSIAD-99-87 Defense Reform Initiative

what is left to be done, not having information on results or outcomes

including the costs associated with such results or outcomesmakes it

difficult for DOD or anyone to determine to what extent overall goals and

objectives are being met and what dollar savings are being achieved. This

condition could also limit DODs ability to implement the Results Act.

With respect to the DRI, DOD officials said that their primary measure of

success is the top line of the Defense budget. If the operations and

maintenance budget is reduced sufficiently to allow the weapons

modernization budget to increase to $60 billion by fiscal year 2001, they

will consider the DRI effort a success. Using top-line budget figures are, at

best, gross indicators. This approach does not identify the precise impact

the DRI has had on the overall budget. In addition, information on the

impacts of specific initiatives is not readily available within the planning,

programming, and budgeting system. This lack of information was a major

drawback that limited DODs ability to measure the impact of reforms,

particularly the DMR directives undertaken in the early 1990s. 16

To gauge the progress of individual initiatives, the DRI Office periodically

collects informationprimarily on initiatives with established

performance targets in an MRM or DRIDand provides feedback to the

Secretary of Defense, the DMC, and the Coordinating Group. The DRI

Office maintains a matrix or log showing the status, plans, and the

accountable office. This matrix, however, contains few details on actual

results, costs incurred, or issues needing resolution and is not kept current

for all initiatives. The DRI Office, according to its Director, relies primarily

on information provided by DRI focal points in the military services and

Defense agencies and, sometimes, the teams responsible for implementing

the initiatives. Because most of the tracking information does not come

directly from DOD systems, it must be compiled off-line, causing the

information to be somewhat dated by the time it is received by the DRI

Office. The Director said that his staff are attempting to improve and

expand on the information collected and hope to develop better

performance measures for reporting DRI progress and results.

It is well known, however, that DODs financial management systems are

currently unable to generate the type of information needed to establish the

baseline costs necessary to track savings associated with any changes.

16Defense Outsourcing: Challenges Facing DOD as It Attempts to Save Billions in Infrastructure Costs

(GAO/T-NSIAD-97-110, Mar. 12, 1997).
Chapter 2

Actions to Facilitate Execution of the DRI

Page 36 GAO/NSIAD-99-87 Defense Reform Initiative

Therefore, whenever DOD officials estimate the potential or actual impact

of an initiative or reform effort, the estimate is often based on either

anecdotal information or data with limitations. DOD has been attempting

to improve its financial management systems and processes for many

years. It has many well-intentioned planned and ongoing financial

management improvement efforts. However, fixing its serious,

long-standing financial management problems across its large complex

organizational structure remains a major challenge. Until this effort is

successfully completed, DODs ability to effectively measure program

results will continue to be limited.

Conclusions DOD has made a good start by establishing a management framework for

the DRI that adopts many proven management change concepts. Special

directives, performance contracts and plans, and budget guidance are

additional tools that could help DOD institutionalize and sustain emphasis

on the DRI. While it is too early to assess program results, we identified

several areas where DOD could further enhance its management approach.

First, DOD has other major reforms underway that are not part of the DRI

program. While all reforms cannot and probably should not be included,

greater emphasis on including the critical fewparticularly those involving

major business processes and support activitieswould provide the

Departments leadership with a more comprehensive overview of the

Defense reform effort. This, along with following the results-oriented

management framework provided by the Results Act, would also put DOD

in a position to develop a comprehensive, integrated strategy for reforming

its major business processes and support activities.

Second, DOD is requiring its components to fund many up-front investment

costs for the DRI out of their existing budgets. The initiatives thus have to

compete with higher departmental priorities for annual investment funds.

This process could be more effective, in our view, if DOD had a clearer

picture of projected long-term costs for all major reform initiatives and a

clearer picture of overall investment requirements for the reform effort. As

part of the annual budgeting process, this picture would help establish

funding expectations for the military services and Defense agencies and let

the Congress know how much of the total Defense budget would be spent

on Defense reform issues. It would also facilitate prioritizing actions most

critically needed among competing priorities in an integrated fashion.

Third, DOD lacks good financial management data from which it can

baseline costs and determine the effectiveness of its reforms. DOD has
Chapter 2

Actions to Facilitate Execution of the DRI

Page 37 GAO/NSIAD-99-87 Defense Reform Initiative

been attempting to improve this condition for many years and has just

developed, at the direction of the Congress, a Biennial Financial

Management Improvement Plan. Our recent assessment of this plan found

that it provides a first-ever vision of DODs future financial management

environment and includes an array of initiatives intended to move DOD

forward. On the other hand, the plan has limitations that make it unclear

whether DOD would be able to effectively carry out its financial

management responsibilities. Because we have already provided

numerous recommendations on this topic in the past, we are not making

any additional recommendations in this report.

Recommendations To strengthen the Defense reform effort, we recommend that the Secretary

of Defense take the necessary actions to:

 bring all major business process and infrastructure reform initiatives,

including logistics and financial management reform, under the DRI

program and follow the framework provided by the Results Act to

establish a more comprehensive, integrated strategy and action plan for

reforming the Departments major business processes and support

activities and

 more fully identify investment funding requirements for the major

reform initiatives and Department-wide funding targets for the DRI

program and communicate them to the Congress during the annual

budget process.

Agency Comments and 

Our Evaluation

In commenting on a draft of this report, DOD limited its response to the

reports recommendations. Concerning our recommendation that the

Secretary of Defense bring other major reform efforts, such as logistics and

financial management, under the DRI program, DOD responded that the

Secretary had unified the DRI and acquisition reform activities as a means

of coordinating reform efforts within the Department. DOD stated that the

recommended application of Results Act principles as a framework for a

strategy is fully possible only in some circumstances where they can be

quantified. However, it also stated that integrated process teams had been

organized as a means of fostering reform and information sharing.

We noted separately that the Departments March 1999 update of the DRI,

provided on CD-ROM and available on the Defense reform internet web

site, included logistics, financial management, acquisition reform,
Chapter 2

Actions to Facilitate Execution of the DRI

Page 38 GAO/NSIAD-99-87 Defense Reform Initiative

homeland defense, cyberspace security, quality of life, and other reform

activities under the scope of the DRI. The Department also announced on

March 23, 1999, that organizational responsibility for the DRI program had

been moved to the office overseeing acquisition reform, the Deputy Under

Secretary of Defense for Acquisition Reform. That official will also serve

as Director of the DRI Office and, in that capacity, report directly to the

Secretary of Defense.

While the Department has now more closely linked the original DRI

programs with other related reform initiatives, such as logistics and

financial management reforms, and plans to increase information sharing,

the Departments comments did not address additional steps it might take

to develop a more comprehensive integrated strategy and action plan for

achieving the DRI goals. We believe such a plan is needed to facilitate

management oversight and maximize the potential that the reform program

will meet its goals. Such a plan could also help DOD maintain its focus on

the original DRI goalsreengineering business operations and eliminating

unneeded infrastructureconsidering that it has broadened the DRI to

include such efforts as homeland defense, cyberspace security, and

quality-of-life initiatives. Our intent in recommending the use of Results

Act principles in developing a more comprehensive, integrated strategy

was to emphasize the importance of including Results Act elements of

accountability, goals, and performance measures in formulating an

integrated plan. Our review of DODs current Results Act Performance

Plan indicates that some of these elements are being addressed; but we

also believe that more can be done to apply these principles to the DRI

initiatives and link the goals of the initiatives to the Department-wide

performance plan.

Concerning our recommendation that DOD more fully identify investment

funding requirements for the DRI program and communicate them to the

Congress, DOD responded that it was reviewing funding and expanding

efforts to consult with the Congress. DOD noted that this was a high

program priority, but it was not specific about which actions it planned to

take in connection with this review. We continue to believe it is important

for DOD to identify its funding requirements for major initiatives as well as

its overall funding targets for the DRI program. Such data could provide

the Congress with improved information regarding funding requirements

and provide DOD with an improved basis for decisionmaking, including for

making tradeoffs among competing priorities.
Page 39 GAO/NSIAD-99-87 Defense Reform Initiative

Chapter 3

Individual Reform Initiatives Vary in Progress Chapter3

Each of the four DRI pillars includes a variety of reform or reengineering

initiatives, many of which were already ongoing before they were brought

under the DRI umbrella. However, DRI gave each of these initiatives

increased visibility and top-level support within the Department and, in

many instances, imposed new goals and milestones for accomplishing their

objectives. Each initiative varies in its progress toward meeting its

objectives and milestones, and many of the initiatives still face a variety of

obstacles that could affect their ultimate success. DOD has identified

formal savings goals for only two initiatives: competitive sourcing in pillar

three and BRAC rounds in pillar four. What follows is an overview of the

progress on key initiatives within each pillar.

Adopting Best 

Business Practices: 

Efforts Are Under Way, 

but Progress Varies 

Among Initiatives

Of the four pillars, adopting best business practices includes the broadest

range of initiatives, from the increased use of electronic commerce to

reengineering the movement of household goods. While DOD has not

established specific savings goals for any of these initiatives, it believes

they will not only improve efficiency and save money but also better

position DOD to respond to war-fighters requirements in todays and

tomorrows dynamic defense environment. Progress varies among the

individual initiatives, and the outcome of some is uncertain. Table 3.1

provides an overview of the primary initiatives included in this pillar, their

associated goals and milestones, their status, and related implementation

issues.
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 40 GAO/NSIAD-99-87 Defense Reform Initiative

Table 3.1: Best Business Practices Initiatives

Initiative Goal/milestone Status Issues

Paperless contracting Make all aspects of the major 

weapon systems contracting process 

paperless by January 1, 2000, 

through increased application of 

computer technology.

Integrated process team established to 

plan and coordinate work in the 

services and Defense agencies. DOD 

will not meet deadline of January 1, 

2000. DOD estimates meeting the 

goal during 2003.

Establishing a standard 

process, interfacing 

automated data processing 

systems, and coordinating 

complementary efforts among 

many offices involved are 

difficult, time-consuming 

tasks.

Purchase cards By fiscal year 2000, buy 90 percent 

of goods and services costing $2,500 

or less using the purchase card.

Services and agencies have steadily 

increased the use of the purchase 

card. In fiscal year 1998, DOD doubled 

the number of potential transactions for 

which card use is directed.

Increasing card usage will 

require some reengineering 

for certain types of 

transactions; 90-percent goal 

may not be difficult to meet. 

DOD is exploring benefits and 

risks of increasing dollar limit 

to $10,000 or $25,000.

Electronic malls Expand use of electronic malls. Allow 

for on-line payment with purchase 

cards by July 1998. Use purchase 

cards for all purchases by January 1, 

2000. 

DLA and the services have started 

several electronic malls that allow 

on-line purchase from suppliers. 

Others planned. On-line payment 

capability in place. 

DOD is working to integrate 

existing sites into a single, 

DOD-wide mall in accordance 

with congressional direction in 

the fiscal year 1999 National 

Defense Authorization Act.

Prime vendors Increase use of prime vendors for 

DLA-managed items. Have prime 

vendor contracts for facility 

maintenance supplies available for all 

installations in the United States by 

January 1, 1999. 

Limited progress expected in 

expanding use of prime vendors for all 

classes of consumable items. 

Contracts for facility maintenance 

supplies are in place for potential use 

by military services.

Services have not embraced 

the concept to extent desired. 

DLA has not yet expanded 

contracts to cover many of the 

items it manages.

Total asset visibility

(TAV)

A key part of achieving “just in time” 

logistics. DOD committed to 

providing TAV. In-theater TAV to be 

fully operational in year 2000.

DOD continues long-standing efforts to 

achieve TAV capability but unlikely to 

meet year 2000 goal for in-theater TAV. 

DOD’s logistics strategic plan states 

that TAV will be totally implemented by 

February 2004. 

Initiative is highly complex, 

heavily dependent on 

systems in development, and 

has been an objective for 

DOD for over 25 years. 

Travel system 

reengineering

Implement new system for official 

DOD travel by October 2000.

Significant progress made. However, 

full implementation throughout DOD is 

not expected until 2001.

Initial contract serving 1 of 18 

regions in U.S. awarded in 

spring 1998. Results of 

previous pilots promising.

Household goods 

transportation

Reengineer processes for moving 

military personnel and their families.

Limited pilot projects under way or 

about to be started that will test 

improved approaches to moving 

household goods of servicemembers.

Optimum approach yet to be 

determined. Plans for 

evaluating success of each 

option still evolving. Impact 

on small businesses remains 

a contentious issue.
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 41 GAO/NSIAD-99-87 Defense Reform Initiative

As the table shows, paper-free contracting, prime vendors, and total asset

visibility are the three initiatives that may have the most trouble meeting

DRI objectives. The other initiatives, while making progress, also face

various hurdles.

DOD Not Expected to Meet 

Its Goal for Paperless 

Contracting Until 2003

DOD has established a goal of attaining paperless contracting for major

weapon systems by 2000. Currently, each of the services and Defense

agencies uses different computer systems, data formats, and operating

procedures, resulting in a contracting process that is largely manual, paper

intensive, and characterized by redundant, time-consuming actions.

Reengineering through automation, placing contracting documents on-line

for review and action, and using electronic commerce technologies are all

expected to speed contract management and administrative processes,

substantially reduce paperwork, and cut costs.

Although the DRI called for achieving a paperless environment by 2000,

this initiative received a lot of attention even before the DRI Report was

issued, and it continues to receive significant support from the Deputy

Secretary of Defense and the DMC. A May 1997 MRM first enunciated the

2000 goal. To implement the MRM, DOD established an integrated process

team that has been working to baseline current procedures, determine

interfaces among participating organizations, identify opportunities for

automating tasks, and recommend system solutions. The Deputy Secretary

has also received periodic briefings on progress and has taken a personal

role in moving this effort forward. In addition, the Deputy Secretary has

issued several DRIDs to address discrete parts of the contracting process

(contract close-out and material inspection and receiving), establish an

overarching team to review status and resolve conflicts among the offices

involved, and direct action in related areas of electronic commerce and in

the design of the future procurement process.

Although progress has been madefor example, the integrated process

team has recommended changes to regulations and the development of

computer applications to the contract close-out processit may be several

years past the 2000 deadline before this initiative is fully implemented.

Officials said that making the contracting process paperless is a

complicated undertaking involving numerous organizations, information

systems, and business processes. Key technological issues such as

developing electronic signatures to prevent unauthorized access and use

are yet to be resolved. Also, the project depends on the completion of

several automated systems now under development, including systems to
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 42 GAO/NSIAD-99-87 Defense Reform Initiative

standardize the procurement process and pay bills electronically. Not all of

these systems, however, will be completed in time to meet the deadline.

According to official estimates, the bill paying system will not be

implemented until December 2003.

Additionally, even after the initiative is completed, the process will not be

entirely paperless because not all aspects of the contracting process are

part of this initiative. For example, the steps of defining the initial

requirement for the weapon system and formally advertising for bids are

not included in this effort. Moreover, actions to date have mainly focused

on automating current business processes. According to a representative

of the integrated process team and service contracting officials, more

substantial savings might be achieved if inefficient and redundant

processes were first reengineered and unnecessary tasks were eliminated

before system solutions were applied.

Purchase Card Use Is 

Increasing

Purchase cards are similar to commercial credit cards and are issued to

authorized DOD military and civilian users to acquire and pay for low-cost

supplies and services. Purchase cards have been used throughout the

government for several years and, generally, have been used by DOD for

purchases within the micro-purchase limit, which is $2,500 or less. DOD

implemented the card to help streamline the acquisition process by

decentralizing purchasing authority for low-cost supplies and services. Use

of the cards avoids the traditional paper- and labor-intensive process of

centralized buying by a DOD contracting office. By using the card as a

reengineering tool, savings accrue from efficiencies in the contracting,

logistics, and financial processes. During fiscal year 1998, DOD made

approximately 7.5 million purchases for a total value of over $3 billion with

the cards.

The DRI Report called for DOD to use purchase cards for 90 percent of all

micro-purchases by fiscal year 2000. In March 1998, the Deputy Secretary

of Defense established a DOD Purchase Card Program Office. This office

brought more focus to the individual efforts going on among the military

services and Defense agencies. At the end of the second quarter of fiscal

year 1998, the Program Office reported that DOD was using the cards for

over 85 percent of all micro-purchases and was on track to meet the

90-percent goal before fiscal year 2000. Soon after the Program Office was

established, however, DOD realized that the cards were not being used to

pay for certain types of micro-purchases. For example, the Purchase Card

Program Manager told us that DOD has historically paid about 200,000
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 43 GAO/NSIAD-99-87 Defense Reform Initiative

commercial invoices for training and about 1 million Military

Interdepartmental Purchase Requests that were valued at or below the

micro-purchase threshold of $2,500. The Program Manager said that

recently, purchase cards have been identified as the method of payment for

the training invoices but using the cards to pay Military Interdepartmental

Purchase Requests was still under review. Adding these additional

transactions to the universe of items that can be paid with purchase cards

could affect DODs ability to meet its 90-percent goal before fiscal

year 2000. According to the Director, it will take time to reengineer the

payment processes for these two types of transactions so the purchase

card can be used.

DOD officials view purchase cards as complementary to their efforts to

facilitate paperless contracting because more than half of all contracting

actions are within the micro-purchase threshold. Thus, DOD officials are

pushing the services and Defense agencies to use the cards to the fullest

extent possible. Additionally, they are exploring the benefits and risks

associated with raising the micro-purchase threshold to $10,000 or $25,000.

Officials estimate that raising the limit could eliminate as much as

60 percent of all DOD base-level contracting actions, thereby further

streamlining DOD procurement processes and bringing additional savings.

DOD Developing Electronic 

Shopping Malls

Electronic shopping malls are virtual one-stop shops in which DOD

customers can buy parts and supplies over the Internet. Currently, DOD

customers can purchase supplies from electronic malls established by the

DLA, the individual services, the Defense Information Systems Agency

(DISA), the General Services Administration, and other organizations. The

malls provide access to electronic catalogs as well as government

contracts. The DRI Report established a general goal of expanding the use

of electronic tools like electronic malls to put buying decisions in the hands

of people needing the products and enable them to shop for the best buy.

More specifically, however, the report called for all DOD malls to permit

on-line payment with government purchase cards by July 1, 1998. It further

directed that the cards be used for all mall purchases by January 1, 2000.

No DRID was issued on this initiative.

According to the electronic mall program office, the malls now have the

capability to accept purchase cards as called for in the DRI. Further,

customers also have the option of using other electronic methods of billing

and payment such as electronic data interchange or electronic funds
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 44 GAO/NSIAD-99-87 Defense Reform Initiative

transfer for large volume purchases where the use of a purchase card

would be impractical.

DOD is working to meet a requirement recently established by the Fiscal

Year 1999 Strom Thurmond National Defense Authorization Act, which

directed DOD to integrate all the separate malls into a single, DOD-wide

mall to provide a single point of access, format, and ordering capability. A

DOD official said this effort is under way. The services and Defense

agencies have been asked to provide data on their malls to help DOD

determine how many malls now exist and develop a migration plan for

bringing these malls together under one integrated site. This plan is to be

reported to the Congress by the end of April 1999.

Use and Expansion of Prime 

Vendor Contracts Has Been 

Limited

Prime vendors are contractors that buy inventory from a variety of

suppliers, store it in commercial warehouses, and ship it to customers

when ordered. DOD wants to increase the use of prime vendors to manage

parts, reduce government inventories, and improve delivery times. DLA

began a prime vendor program for medical supplies in 1993 1 and has since

expanded it to include many other categories of consumable items such as

food and clothing.2 DLA has found that this program reduces delivery

times and decreases the need for and costs of maintaining government

inventories.

DOD recognized that the program could be expanded further, particularly

to include hardware items. Hardware items represent 97 percent of the

4 million items managed by DLA but accounted for only 1 percent of prime

vendor sales in fiscal year 1997. To help expand the program, DOD in June

1997 issued an MRM that directed DLA to develop regional contracts that

the military services could use to procure a portion of hardware items

maintenance, repair and operations supplies. The DRI Report then

reiterated this emphasis by highlighting hardware items as well, although it

also called for increasing the use of prime vendors for all categories of

items. A subsequent DRID further focused on hardware items by directing

the military services to expand their use of regional contracts and

1DOD Medical Inventory: Reductions Can Be Made Through the Use of Commercial Practices

(GAO/NSIAD-92-58, Dec., 1991).

2Inventory Management: Greater Use of Best Practices Could Reduce DODs Logistics Costs

(GAO/T-NSIAD-97-214, July 24, 1997).
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 45 GAO/NSIAD-99-87 Defense Reform Initiative

instructing them to work with DLA to identify sites for implementation and

opportunities for expansion.

According to documents provided by DLA, prime-vendor sales for all

categories of items accounted for about 18 percent of all sales in fiscal

year 1997 and about 21 percent in fiscal year 1998. Personnel items such as

medical supplies, food, and clothing are expected to account for most of

the sales. For hardware items, DLA has established regional contracts for

maintenance, repair, and operations supplies as called for in the MRM and

is working with the military services to identify sites to pilot test the

contracts. However, use of the contract is not mandatory, so it is unclear to

what extent these contracts will be used. Military service officials raised

concerns while the DRID was being drafted about making the use of prime

vendors mandatory. They pointed to instances where the use of prime

vendors resulted in higher costs and slower service. Because of these

concerns, the DRID that was issued gave the military services the flexibility

to use contracts when they are the most cost-effective way of purchasing

an item.

Besides the prime vendor program, DLA is pursuing other best commercial

practices. The National Defense Authorization Act for Fiscal Year 1998

directed DLA to develop and submit to the Congress a schedule for

implementing the best commercial inventory practices for nine categories

of supplies. The schedule DLA submitted includes numerous best-practice

initiatives such as the use of corporate contracts, direct-vendor-delivery

arrangements, and electronic commerce as well as the prime-vendor

concept. The act further directed that the schedule shall provide for the

implementation of such practices to be completed not later than three

years after the date of the enactment of the Act. We are currently

reviewing the extent to which DLA has implemented these initiatives and

will be reporting to the Congress at a later date.

Achieving Total Asset 

Visibility Continues to be a 

Difficult, Long-term 

Undertaking

The DRI Report cited Defense logistics as a functional area where

reengineering could reap great benefits and specifically targeted Total

Asset Visibility (TAV). Although an issue since at least 1972, TAV has

received heightened visibility since the Gulf War, when logistics pipelines

were clogged by thousands of duplicate requisitions and the contents of

more than half of the 40,000 large containers of equipment shipped to the

war theater could not be readily identified. Since then, DOD has continued

efforts to implement a TAV program to better identify and track equipment,
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 46 GAO/NSIAD-99-87 Defense Reform Initiative

supplies, spare parts, and requisitions. However, full implementation is still

several years away.

The DRI Report stated that TAV, for forward-deployed in-theater forces,

will be fully operational by 2000. The DOD 1998 Logistics Strategic Plan

states that full TAV implementation will be achieved by February 2004.

Achieving TAV involves the successful implementation of several large and

complex information-technology initiatives across organizational lines. In

other words, individual TAV and related logistics information systems

operated by each of the military services must be able to provide complete,

timely, and accurate data about assets and access to those assets. This

effort has proved difficult, and the Department continues to face critical

challenges, including the absence of a Department-wide management

framework for providing information to precisely measure progress in

reaching TAV program goals. We have ongoing work in this area and plan

to publish an in-depth report in April of this year.

DOD Starting to Implement 

a Reengineered Travel 

Management System

DOD began reengineering the travel management system in 1994, after

recognizing that the process used to request, approve, and pay for official

travel by its personnel required substantially more administrative costs and

took much more time than best-management practices in the private

sector. To reengineer the travel system, DOD officials benchmarked best

practices in the private sector, compared them with DODs current

processes and requirements, and identified improved administrative

procedures and management systems. DOD then conducted 25 pilot

projects to test proposed redesigns and reported major improvements in

cost, cycle time, and customer satisfaction. In May 1998, it awarded an

initial contract for automated travel services in 1 of 18 regions in the United

States. DOD expects to phase in contracts in other regions over the next

3 years, completing full implementation sometime in 2001.

Most of the travel reengineering efforts preceded the DRI. However, DRID

39 did address an element of travel reengineering: it directed that functions

of the Washington, D.C., area travel office be transitioned to the private

sector by October 1, 1998. This action was completed in October 1998.

Pilot Efforts Are Under Way 

to Improve Transportation 

of Household Goods

DOD has long been concerned about the quality of its program to transport,

store, and manage household goods. According to the DRI Report, DOD

paid about $2.8 billion in fiscal year 1997 to move almost 800,000 military

families. The DRI Report noted that DOD moves more households than
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 47 GAO/NSIAD-99-87 Defense Reform Initiative

any U.S. corporation, yet its system gives its personnel some of the worst

service in the nation. The report stated that 25 percent of all DOD moves

end with damage claims, compared to 10 percent in the private sector.

Also, best-in-class movers have customer satisfaction rates of 75 percent,

while DOD's have rates of only 23 percent.

Because of these and other problems, DOD proposed several years ago to

reengineer its personal property program, primarily as a quality-of-life

initiative. Its primary goals were to substantially improve the quality that

military personnel and their families received from DOD's contracted

movers; simplify the entire process, from arranging moves to settling

claims; and base the program on business processes characteristic of

world-class customers and suppliers. Prior to the DRI Report, MRM 6

(dated June 4, 1997) called for DOD to streamline and simplify policies and

procedures used by military personnel to arrange their own moves.

The DRI Report gave attention to DOD efforts to adopt simplified

procedures, to increase reimbursements for do it yourself moves, and to

offer personnel at selected Navy locations the opportunity to choose the

carrier they want to use from a list of participating carriers. Also, a larger

pilot test began in early 1999 under the sponsorship of the Military Traffic

Management Command. This pilot will test, among other things, the merits

of selecting best-value carriers for moving household goods. We reported

in November 1996 on this pilot proposal. 3 As these pilot projects are just

underway, we have not had the opportunity to evaluate the results.

One pilot effort that has been underway for over a year within the Army

involves moves originating at Hunter Army Airfield, Georgia. This pilot is

designed to test whether commercial practices can provide relocation

services for servicemembers moving from Hunter Army Airfield. In March

of this year we testified on the results of this and the status of the other

pilot projects before the Subcommittee on Military Readiness, Committee

on Armed Services, House of Representatives. 4 In that testimony, we

supported the use of pilots as a means to test new concepts. With respect

to the Hunter Army Airfield pilot, however, we were unable to validate the

Armys evaluation of the pilot primarily because of problems with the

3Defense Transportation: Reengineering the DOD Personal Property Program (GAO/NSIAD-97-49,

Nov. 27, 1996).

4Defense Transportation: Efforts to Improve DODs Personal Property Program (GAO/T-NSIAD-99-106,

Mar. 18, 1999).
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 48 GAO/NSIAD-99-87 Defense Reform Initiative

Armys study methodology and the reliability of data. As a result, questions

remain about the level of satisfaction among pilot participants and how the

pilot costs compare to the baseline costs of the current program.

In summary, we noted that improving DODs personal property program

has been a slow, complex process. Before any type of conclusion about

these efforts can be reached, however, DOD must have accurate and

credible data to determine the type and extent of changes that should be

made. To facilitate a timely completion of the evaluation process, we

concluded, among other things, that DOD should develop a comprehensive

strategy for testing the pilots and assure that it has a methodologically

sound evaluation plan to assess each pilots attributes in a comparable

manner.

Changing the 

Organization: 

Realignments and 

Reductions Are Being 

Carried Out, With 

Some Exceptions

Under this pillar, the DRI called for a series of reductions, reorganizations,

and other organizational adjustments within OSD, Defense agencies, and

other headquarters organizations. With limited exceptions, DOD has acted

to implement the changes called for by the DRI. At the same time, other

reductions called for by the Congress may be more difficult to implement.

The DRI Report called for flatter, more streamlined headquarters

throughout DOD that would (1) ensure that the OSD focuses on core,

corporate-level tasks rather than get involved in program management and

day-to-day management of subordinate activities; (2) strengthen OSDs

focus on long-term strategic, program, and financial planning; and (3) weed

out unnecessary overlap, complexity, and redundancy. The DMC

formalized the organizational decisions by issuing 34 DRIDs, the majority

of which were developed within 2 months after the DRI Report was

released. However, full implementing action was spread out over a longer

period of time.

According to a Coordinating Group member, many of the initiatives for this

pillar reflect decisions that were made during the QDR process and brought

under the DRI for oversight purposes. The DRI Report called for specific

staff reductions in various organizations throughout DOD, generally over a

period of several years. These included reducing OSD personnel by

33 percentabout 1,000and Defense agency personnel by 21 percent

about 27,000. The report also called for a number of organizational

transfers, such as the shifting of oversight for the Defense Technical

Information Center from the Under Secretary of Defense for Acquisition

and Technology to DISA.
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 49 GAO/NSIAD-99-87 Defense Reform Initiative

DOD organizations are making progress toward meeting DRI-directed staff

reduction goals. OSD, for example, has already met 80 percent of its goal,

primarily by transferring 506 personnel to other DOD organizations and

eliminating 284 positionsa total reduction of 790 personnel. Many of

these transfers resulted from specific DRIDs. In addition, Defense agencies

are also reducing their staff. Top management officials at DFAS, DISA, and

DLAthree of the largest Defense agenciesshowed us plans for reducing

personnel and told us they do not foresee a problem reaching the

21-percent goal by fiscal year 2003. However, instead of transferring

people, they expect to meet the goal by reengineering activities,

outsourcing functions, and using other methods such as consolidations.

Similarly, DOD budget documents show the DRI-mandated cuts are being

programmed for the Joint Staff and the unified commands through fiscal

year 2003, the deadline established by the DRI for these two organizations.

However, not all the changes have been carried out as originally planned.

For example, the DRI called for dissolving the Office of the Assistant

Secretary of Defense for Command, Control, Communications, and

Intelligence; transferring its intelligence functions to the newly created

Office of the Assistant Secretary of Defense for Intelligence; and spinning

off its other functions to other areas. DOD, however, decided not to

disband the office after the Deputy Secretary decided that it made more

sense to keep it in place. In other cases, a number of the changes were

completed or will be completed several months later than originally

planned. These slips in the schedule, however, do not appear significant.

In addition to DRI-directed reductions, DOD has also faced implementing

reductions in headquarters personnel directed by the Congress. For

example, the National Defense Authorization Act for Fiscal Year 1998

required DOD to reduce the number of management headquarters and

headquarters support activities by 25 percent (from fiscal year 1997 levels)

by September 30, 2002. Although DOD intends to meet a portion of these

reductions through the DRI-related cuts, our work on this issue found that

DOD did not develop plans consistent with this legislation because the

Secretary of Defense had sought relief from the requirement. 5 When the

Congress rejected the appeal, however, DOD assembled a task force to

develop alternatives for meeting the 25-percent mandate. The task force is

to complete its work in June 1999.

5Defense Headquarters: Status of Efforts to Reduce Headquarters Personnel (GAO/NSIAD-99-45,

Feb. 17, 1999).
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 50 GAO/NSIAD-99-87 Defense Reform Initiative

Streamling Through 

Competition: 

Questions About 

Goals, Pace, and 

Amount of Savings

The DRI Report recommended studying about 200,000 government

positions over a 5-year period for potential conversion to the private sector.

It projected that this effort would produce $6 billion in savings during that

period and more than $2 billion in annual recurring savings each year

thereafter.6 This effort is one of two DRI initiatives from which DOD is

projecting specific savings that are being incorporated into future year

budget programs. Defense officials told us that the issue of competitive

sourcing has consumed the greatest amount of attention at DMC meetings.

Various Defense officials have raised questions about the number of

government positions related to commercial activities, the number of

positions that can reasonably be studied during the prescribed time frame,

and the likelihood that the amount of savings the DRI has projected will be

realized.

The DRI Report echoed concerns expressed in the QDR report that tens of

thousands of military and civilian positions within DOD were being

devoted to work involving functions and services that were readily

available in the private sector. Both the QDR and DRI reports projected

significant savings from outsourcing these functions to the private sector,

and the DRI Report recommended that this effort be based on competitive

sourcing studies under the Office of Management and Budgets

Circular A-76 on commercial activities. Although use of A-76 was limited

from the early to mid-1990s, DOD in late 1995 reestablished the

competition program in the hopes of realizing significant savings that could

be used to fund modernization and other priority needs.

A DRID pertaining to competitive sourcing was issued on January 16, 1998.

It called for the military services and Defense agencies to update their

previously developed listings of positions involving commercial activities

and to differentiate between activities involving functions deemed

inherently governmental in nature that should remain in-house and those

that could be subject to A-76 competitions. The DRID estimated a January

1999 reporting date to the Congress. The House Committee on Armed

Services, in its report on the National Defense Bill for Fiscal Year 1999, also

6The number of positions to be subject to competition has varied over time; in October 1998, Defense

officials announced that 237,000 positions would be competed between fiscal year 1997 and 2005;

however, the Presidents fiscal year 2000 budget request stipulates that 229,000 positions are to be

studied during that time period and projects $11 billion in cumulative savings and over $3 billion in

annual recurring savings.
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 51 GAO/NSIAD-99-87 Defense Reform Initiative

requested this type of analysis and that it be provided by January 1999. 7 As

of April 1999, Defense officials were still preparing the report.

The Deputy Secretary of Defense in a December 1998 memo stressed the

importance of achieving the projected savings from competitive sourcing.

He said DOD had $10 billion in funding for readiness and modernization

programs that depended on the successful implementation of the

competitive sourcing program. While we believe that competitive sourcing

competitions are likely to produce savings, we have urged caution

regarding estimates of savings likely to be achieved. We previously noted

that prior savings estimates, which provided a basis for current estimates,

were based on initial savings estimates from outsourcing competitions but

that expected savings can change over time, as the scope of the work or

mandated wages changes.8 More recently, we completed two additional

reviews of competitive sourcing issues. One confirmed the benefits of

competitive sourcing studies and the potential for savings from these

competitions, regardless of whether the government or the private sector

wins them.9 However, the second identified questions about the magnitude

of savings likely to be realized in the short term and the ability of DOD

components to undertake and complete the number of studies called for

between now and 2005.10 It also pointed out that DOD has not fully

calculated the investment costs associated with undertaking these

competitions or the personnel separation costs likely to be associated with

implementing them. Additionally, delays in launching previously projected

studies and greater times to complete them than previously planned will

add pressure to complete larger numbers of studies in succeeding years

and add to an already heavy resource requirement in this area.

7House National Security Committee Report (105-132), dated March 1, 1998, page 296.

8Base Operations: Challenges Confronting DOD as It Renews Emphasis on Outsourcing

(GAO/NSIAD-97-86, Mar. 11, 1997).

9DOD Competitive Sourcing: Results of Recent Competitions (GAO/NSIAD-99-44, Feb. 23, 1999).

10DOD Competitive Sourcing (GAO/NSIAD-99-46, Feb. 22, 1999).
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 52 GAO/NSIAD-99-87 Defense Reform Initiative

Eliminating Unneeded 

Infrastructure: 

Progress Toward Goals 

Is Mixed

This pillar focuses on reducing infrastructure through a variety of methods,

from eliminating unneeded facilities through additional BRAC rounds to

privatizing functions that DOD believes could be more appropriately

handled by the private sector. BRAC is the second DRI initiative for which

DOD has projected significant savings, and DOD has begun to include

savings from additional rounds in its future years budget plans. Table 3.2

provides an overview of the initiatives in this pillar and their associated

goals, milestones, status, and implementation issues.
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 53 GAO/NSIAD-99-87 Defense Reform Initiative

Table 3.2: Initiatives to Eliminate Infrastructure

Initiative Goal/deadline Status Issues

Base closures Hold additional rounds in 2001 

and 2005.

The Congress has not 

authorized additional BRAC 

rounds.

Congressional concerns about 

prior rounds have produced 

reluctance to approve additional 

rounds.

DISA consolidations Reduce number of data centers 

from 16 to 6.

DISA expects to have revised 

structure in place by fiscal 

year 2000.

Effort also involves 

reengineering activities and 

establishing 23 regional centers, 

using existing infrastructure.

DFAS eliminations Reduce number of operating 

locations by 8.

DFAS estimates excess capacity 

of 34 percent by fiscal 

year 2003. Study of operating 

locations was to be completed 

by March 15, 1999, but has not 

been issued.

Section 914 of the Fiscal 

Year 1999 Strom Thurmond 

National Defense Authorization 

Act added new requirements 

that DFAS must consider when 

assessing infrastructure and 

deciding which locations to 

close.

Research and development, 

test and evaluation facilities

No goals or deadlines given. DOD developing plan for 

restructuring in accordance with 

section 912(c) of the fiscal 

year 1998 National Defense 

Authorization Act.

Issue currently linked to potential 

for future BRAC rounds.

Demolitions Demolish excess structures. 

Each service has specific goals 

dictating amount of square 

footage to be demolished, with 

completion dates ranging from 

2000 to 2003.

All services expect to reach 

goals by deadlines.

Good progress attributed to 

management attention given to 

this issue and especially to the 

extent of funding being set aside 

for demolitions.

Regional energy 

demonstrations

Develop plan for demonstrations 

by June 1, 1998.

Plans submitted. Three 

demonstrations completed. More 

expected.

Defense Energy Support Center, 

which is managing the 

demonstrations, is also working 

with services on utility 

privatization.

Utilities privatization Privatize all utilities by 

January 1, 2000.

Services will not meet deadline. Effort is complex, 

time-consuming, and expensive. 

Defense Management Council 

subsequently extended deadline 

to September 30, 2003.

Housing privatization Privatize 3,500 units by fiscal 

year 1998, 15,000 units by fiscal 

year 1999, and 30,000 by fiscal 

year 2000. Eliminate all 

inadequate housing by fiscal 

year 2010.

Services will not meet goals. Effort is complex and 

time-consuming.
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 54 GAO/NSIAD-99-87 Defense Reform Initiative

Initiatives included in this pillar are the most directly related to the

reduction of Defense facilities infrastructure. Of the initiatives, BRAC is

the most controversial, although it offers the greatest potential for

long-term savings. Several require significant up-front investments that

would delay any net savings or cost avoidance.

Potential for Future BRAC 

Rounds Is Uncertain

Despite four rounds of domestic BRAC actions between 1988 and 1995,

DOD officials believe there continue to be excess facilities that are a

burden on DODs budget in a resource-constrained environment. Both the

QDR and DRI reports reflected this view. The DRI Report called for

additional BRAC rounds in 2001 and 2005.11 DOD officials now project that

two additional rounds would generate net savings of $3.4 billion a year

once realignment and closure actions were completed and the costs of

implementing these actions were offset by savings. DOD has reflected the

impact of these savings in future years budget plans. 12 Because of

concerns about issues such as cost and savings from prior BRAC rounds,

their economic impact, and executive branch handling of two closure and

realignment decisions in the 1995 round, the Congress has been reluctant

to authorize additional BRAC rounds.

Our work has shown that past BRAC recommendations will result in

substantial savings once implementation costs have been offset and net

savings begin to accrue. 13 However, we have also indicated that because

of weaknesses in data and records, DODs savings projections lack the

degree of precision that some have desired. Our most recent report also

found that the majority of communities surrounding closed bases are faring

well economically in relation to the national average. Our analysis of

lessons learned found that, despite the difficulties of BRAC

decision-making, the processes that evolved over the past four rounds are

regarded by many as a good starting point for any future BRAC legislation

and decision-making processes. We noted that the processes used between

1988 and 1995 had several checks and balances to keep political influences

11A recent legislative proposal introduced in the Senate calls for additional BRAC rounds in 2001 and

2005.

12DODs Future Years Defense Program incorporated some savings from future BRAC rounds but these

savings were offset by implementation costs, resulting in net costs of $832 million for fiscal year 2002

and $1.45 billion for fiscal year 2003. See Future Years Defense Program: How Savings From Reform

Initiatives Affect DODs 1999-2003 Program (GAO/NSIAD-99-66, Feb. 25, 1999).

13See Military Bases (GAO/NSIAD-99-17, Nov. 13, 1998) and Military Bases (GAO/NSIAD-99-36,

Dec. 11, 1998).
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 55 GAO/NSIAD-99-87 Defense Reform Initiative

to a minimum. At the same time, we also noted that the success of BRAC

processes requires the cooperation of all participants.

DISA Megacenter 

Consolidation Under Way

Efforts to consolidate DOD computer operations date back to 1990. At that

time, DOD recognized that it needed to better meet its information

processing needs while reducing costs. Since then, DISA has been created

and many of DODs computer operations have been consolidated by

moving workload and equipment from 194 computer centers to 16 DISA

megacenters. Today, DISA provides various computer and

telecommunications services and command and control support

throughout DOD. Despite the earlier consolidations, DOD believes its

information processing infrastructure needs further reduction. Toward

that end, the QDR and the DRI called for reducing the number of computer

megacenters from 16 to 6.

The DRI did not establish any deadlines for completing the consolidations,

and no consolidation-specific DRIDs were issued. Nonetheless, the DRIs

emphasis on this initiative is reflected in a DISA performance contract that

was developed in direct response to the DRI and a subsequent DRID. The

contract incorporates expected cost reductions and performance

improvements resulting from consolidation efforts. DISA officials called

this contract a very effective management tool because it sets specific

goals and is used to hold DISA accountable for meeting these goals.

The consolidation goals that have been incorporated into the contract

reflect DISAs plans to have the revised structure in place by the end of

fiscal year 2000. Achieving this revised structure involves not only

reducing the number of megacenters but also reengineering activities and

establishing 23 regional centers. These regional centers will not represent

new infrastructure as such. They will be formed from existing

organizations and are part of DISA efforts to realign responsibilities for

some organizations, eliminate others, and absorb workload now handled

by the military services. According to DISA officials, the effort is on

schedule. As of February 1999, DISA had reduced the number of

megacenters to 12 and had established the regional centers. Further, the

staffing reductions that were to accompany the megacenter reductions

were under way. DISAs plans call for total reductions of 893 personnel

between fiscal years 1997 and the end of fiscal year 2000. As of February

1999, DISA had eliminated 869 positions, 97 percent of its goal.
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 56 GAO/NSIAD-99-87 Defense Reform Initiative

DISA officials project that, once completed, the new structure will result in

a 50-percent reduction in costs and a 34-percent reduction in personnel in

its megacenter operations. DISA officials also project that the effort will

achieve $1.5 billion in savings over a 10-year period ending in fiscal

year 2007. We have not completed sufficient work, however, to assess the

projected savings or timetable.

DFAS Study Shows Excess 

Capacity: Additional 

Consolidations Under Study

Like the DISA consolidations, DFAS consolidations are also aimed at

reducing the number of locations. DFAS was established in 1991 to

consolidate under one umbrella the finance and accounting activities that

had previously been splintered among the military services and Defense

agencies. Once responsibility for handling these activities was shifted to

DFAS, it reduced the number of sites where its finance and accounting

activities were handled from more than 330 to 24. The current DFAS

structure includes 5 large centers and 19 smaller facilities, called operating

locations. Despite previous reductions, DOD and our studies have showed

that the infrastructure could be consolidated further. 14 The DRI Report

said the number of remaining DFAS operating locations was to be further

reduced by eight. The DRI did not set a specific deadline, nor was any

follow-up DRID issued to lay out additional requirements.

After the DRI Report was issued, DFAS assessed the excess capacity in its

current structure according to its anticipated future workload. The

assessment estimated that DFAS would have 34 percent excess capacity by

the end of fiscal year 2003. DFAS then identified a set of criteria to evaluate

which locations it should close. According to DFAS officials, before the

DOD Comptroller had a chance to review these criteria and approve them

as the basis for eliminating DFAS facilities, the Congress passed legislation

that added some new DFAS requirements. Section 914 of the Fiscal

Year 1999 Strom Thurmond National Defense Authorization Act requires

the Secretary of Defense to submit to the Senate and House Armed

Services Committees a strategic plan for improving the financial

management operations at each DFAS operating location. The plan is to

include (a) the workload that must be performed at the operating location

each fiscal year, (b) the capacity and number of operating locations that are

necessary for performing this workload, and (c) a discussion of the costs

14See DOD Infrastructure: DODs Planned Finance and Accounting Infrastructure Is Not Well Justified

(GAO/NSIAD-95-127, Sept. 18, 1995), DOD Infrastructure: DOD Is Opening Unneeded Finance and

Accounting Offices (GAO/NSIAD-96-113, Apr. 16, 1996), and Defense Infrastructure: Budget Estimates

for 1996-2001 Offer Little Savings for Modernization (GAO/NSIAD-96-131, Apr. 4, 1996).
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 57 GAO/NSIAD-99-87 Defense Reform Initiative

and benefits that could result from reorganizing the operating locations on

the basis of the function they perform. The plan is also to include the

Secretarys assessment of the feasibility of carrying out such a plan.

Section 914 called for the Secretary to submit the plan by January 15, 1999.

However, this date was subsequently extended to March 15, 1999. As of

April 1999, this plan was being reviewed by DODs Comptroller and had not

been issued.

Future Plans to Address 

Excess Capacity in 

Research, Development, 

Test, and Evaluation 

Facilities Are Unclear

This initiative aims at reducing the number of research and development

laboratories and test and evaluation centers that are used to develop

military technology and test the capabilities of these technologies.

Currently, DOD employs about 100,000 people in 67 federally owned

facilities across the continental United States. Reducing the number of

research and development laboratories and test and evaluation centers has

been an ongoing effort in DOD. The Department closed 62 sites as part of

previous BRAC rounds. Following these rounds, DOD and the Congress

realized that the laboratory infrastructure was still too large, and the

Congress directed DOD to develop plans for reducing the number of

laboratories even further. Although DOD launched an additional study, it

later halted this effort and decided instead to seek further reductions

through BRAC rounds because it believed that significant reductions could

not be achieved without a BRAC-like authority to direct the efforts. Given

this history, the DRIs call to reduce the laboratories and centers is not new.

The DRI did not set specific goals or deadlines, nor were any subsequent

DRIDs issued on this matter. Our own work in this area shows that efforts

to achieve consolidations or reductions in excess capacity have been

ongoing for a number of years but continued efforts are needed. 15 Despite

current efforts, however, it is uncertain to what extent DOD will achieve

significant reductions without authority for additional BRAC rounds.

The issue continues to receive DOD and congressional attention. DOD is

now developing new plans for streamlining the laboratories and test

centers according to congressional direction in the Fiscal Year 1998

National Defense Authorization Act. Section 912(c) directed the Secretary

of Defense to report to the Congress DODs plans for streamlining the

acquisition workforce, as well as the associated organizations and

infrastructure. Laboratory personnel are part of the acquisition workforce

15Best Practices: Elements Critical to Reducing Successfully Unneeded RDT&E Infrastructure

(GAO/NSIAD/RCED-98-23, Jan. 8, 1998).
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 58 GAO/NSIAD-99-87 Defense Reform Initiative

and the Secretary committed to lead a study on how to streamline them. A

follow-up August 1998 memorandum from the Under Secretary of Defense

(Acquisition & Technology) got this study under way, directing that it be

carried out by a steering group of top-level officials from across DOD.

According to the memo, the group is to develop implementation plans with

specific time lines and submit its recommendations to the Under Secretary

by April 1, 1999. This submission date was subsequently extended to

May 1, 1999.

Demolition Goals Likely to 

Be Achieved

This initiative focuses on demolishing excess structures. DOD believes this

will help cut costs and improve safety. While the services had previously

given varying degrees of emphasis to demolition, the current emphasis is

rooted in a 1997 MRM that directed them to survey their installations and

identify excess structures. The results of this survey provided the basis for

the DRIs overall goal, which calls for demolishing more than 8,000 excess

structures by 2003. A subsequent DRID further refined this goal, laying out

specific square footage targets for each service and specific deadlines for

eliminating this square footage. Service officials said the DRI and the DRID

clearly made demolitions a priority.

Service officials are confident they will meet the DRIs goals. Officials

credited their progress to the attention that management is paying to this

initiative and, especially, to the funding that is being set aside. For

example, the Navys funding for demolitions increased from $6 million in

fiscal year 1996 to $27 million in fiscal year 1998, with additional funding

programmed in future years. Similarly, funding for the Armys program,

which involves the largest share of square footage to be demolished,

jumped from $20 million in fiscal year 1997 to $104 million in fiscal

year 1998, with funding to remain at about $100 million a year through 2003.

According to latest projections, the Army will demolish 53.2 million square

feet of facility space by 2003, the Navy 9.9 million square feet by 2002, the

Air Force 14.9 million square feet by 2003, and the Marine Corps 2.1 million

square feet by 2000.

Because demolishing buildings is costly, service officials questioned the

magnitude of savings that will result from this initiative and preferred to

characterize the long-term benefit as a cost avoidance. Our prior work on

this issue indicates that demolitions can result in savings and cost

avoidance because they eliminate the need to maintain unneeded
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 59 GAO/NSIAD-99-87 Defense Reform Initiative

structures and avoid future outlays for renovations. 16 We also noted,

however, that demolition costs can increase depending on the type of

construction and environmental considerations. We noted that it is

important to continue to examine the cost-effectiveness of individual

projects.

The Defense Energy 

Support Center Is Helping 

the Services Manage Energy

This initiative is designed to help DOD minimize energy costs. According

to DOD, the Department spends $2.2 billion annually on energy facilities

and believes the magnitude of these expenditures should give it substantial

leverage in the market. The DRI Report pointed out, however, that the

Department is so busy managing the power infrastructure that it gives

energy management inadequate attention. The DRI attempted to remedy

this problem. It called for renaming DLAs Defense Fuels Supply Center the

Defense Energy Support Center (DESC) and expanding the Centers

responsibilities to include finding ways to maximize energy savings. A

subsequent DRID further elaborated on this direction and instructed that

DESC conduct a series of demonstration projects. The DRID also

instructed DESC to help the military services in their efforts to privatize

their utilities, another DRI initiative that DOD thinks will further its goal of

shifting its focus to energy management. The DRID directed DESC to

develop plans to support these objectives by June 1, 1998. It did not give

deadlines for completing the demonstration projects.

Although we have not reviewed this effort in depth, we have learned that

DESC completed the demonstration projects and that military service

managers are working with DESC on various issues. For example, the

services asked DESC to expand the scope of the demonstration projects to

include more military installations and regions. In addition, Army and Air

Force officials have sought DESCs help with utility privatizations. In one

instance, DESC provided Air Force Materiel Command with $5 million to

complete studies. Recognizing the role that DESC could play in

privatizations, the DMC recently issued a new DRID that directed DESC to

develop a joint regional utility privatization plan with the military services.

A DESC manager said this effort should help the services write the

complex bid solicitations required for privatizations.

16Defense Infrastructure: Demolition of Unneeded Buildings Can Help Avoid Operating Costs

(GAO/NSIAD-97-125), May 13, 1997).
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 60 GAO/NSIAD-99-87 Defense Reform Initiative

Utilities Privatization Will 

Require More Time Than 

Originally Expected

In recent years, the military services have been examining the potential for

privatizing their utilities 17 as a means of using private-sector capital to

upgrade deteriorating facilities. At DODs urging, the Congress included

language in the National Defense Authorization Act for Fiscal Year 1998

that gave the military services the authority to convey utility systems to

municipalities, the private sector, or other entities, avoiding the need for

the services to seek legislative authority for individual actions. The DRI

Report established the goal of privatizing all utility systems except those

needed for security reasons or those that are uneconomical to privatize by

January 1, 2000. Soon after, the DMC issued a DRID directing the military

services to develop and pursue privatization plans.

Various service officials said the DRI and the subsequent DRID created an

urgency to move out on privatizations throughout DOD. Nonetheless,

service officials said they will not meet the 2000 deadline. Since the DRI

Report was issued, the services have identified more than 1,700 utility

systems as potential privatization candidates, but only a few had been

privatized as of February 1999. 18 Service officials attributed the slow

progress to the up-front work required, including researching the myriad of

state and local laws governing utilities. Officials also said the most

time-consuming and expensive work is still to come. For example, each

privatization requires extensive feasibility and environmental studies.

Further complicating the situation is the fact that the services have not set

aside the up-front investment funds required to complete the studies and

execute the privatizations, making progress difficult.

Top DOD management, however, has recognized the problems surrounding

this initiative. In December 1998, the Deputy Secretary issued a DRID

extending the deadline to September 30, 2003. Further, a December 1998

DOD program budget decision directed the services to set aside funding

over the next several yearsfiscal years 1999 through 2004to cover the

estimated $243.6 million in costs to complete the privatizations. The

program budget decision estimated that utility privatization might begin to

provide about $327 million in annual savings after privatizations are

completed in 2003. It also stated, however, that the true cost of

implementing the privatizations and the savings that might be realized

could not be accurately estimated until further analysis was completed. It

17Utilities systems refer to electric, gas, water and wastewater facilities.

18The Army had begun efforts to privatize some utilities prior to the DRI. It privatized about 40 of them,

mostly natural gas systems.
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 61 GAO/NSIAD-99-87 Defense Reform Initiative

directed the services to complete further analysis of cost requirements for

the upcoming 2001 budget cycle. In this respect, some service officials

expressed caution about the extent of actual budget reductions likely to

occur from these privatizations. They told us that any reductions in

operating costs could be offset by higher utility rates. In some instances,

service officials also expressed concern that private utility companies may

not agree to take over some utility systems without the services upgrading

them from their deteriorated state.

However, top management has continued to emphasize the need for action

on this initiative. The December 1998 DRID required the services to

determine by September 30, 2000, whether specific utilities should be

privatized. It also required the services to issue all solicitations for bids on

those utilities by September 30, 2001.

Housing Privatization Will 

Not Meet DRI Goals

DODs efforts to privatize military family housing are aimed at using private

capital to upgrade housing faster than DOD could on its own. DOD began

pursuing this effort following passage of the1996 National Defense

Authorization Act, which gave DOD broad authority to pursue housing

privatizations. Housing privatizations were subsequently folded into the

DRI, which called for privatizing 3,500 units by fiscal year 1998, 15,000 units

by fiscal year 1999, and 30,000 units by fiscal year 2000. No DRIDs have

been issued on this initiative, but several officials acknowledged that since

the DRI was issued, DODs emphasis on this effort has increased

significantly.

DOD, however, will not meet the DRI goals. By the time we finished our

fieldwork in early 1999, only a few sites, covering about 1,000 housing

units, had been privatized. Service officials attributed the slow progress to

the many legal, financial, contractual, and budgetary issues they had to

work with. For example, the services have had to determine how much

service members housing allowances need to be increased to compensate

for the prospect that the government will no longer provide housing in

certain areas. Those increases needed to be included in the budget. Other

issues include how to structure privatization deals and how various federal

laws and regulations are to be applied. Our July 1998 report on housing

privatizations said DOD officials have acknowledged that the effort is
Chapter 3

Individual Reform Initiatives Vary in

Progress

Page 62 GAO/NSIAD-99-87 Defense Reform Initiative

moving more slowly than originally anticipated. 19 It also said DOD expects

the pace of privatization to accelerate as the Department gains experience

from the first few projects. We questioned, however, whether that would

occur, because each project will be unique and will require individualized

planning and negotiation. We are continuing to monitor this issue.

Conclusions It is too early to tell to what extent individual initiatives, taken collectively,

will transform DODs business operations into more streamlined, less

costly processes. Many initiatives were ongoing at the time they were

brought under the DRI umbrella and have received increased attention,

focus, and direction. However, progress by individual initiatives under

each pillar is still mixed. While some progress is being made, many of the

initiatives will require more time to implement than projected by DRI

milestones.

DOD has included in its budget plans specific savings from only two

initiatives: competitive sourcing studies and BRACs. While we believe

competitive sourcing has the potential to produce long-term savings, we

have urged caution when estimating the magnitude of these savings,

particularly in the short term, because DOD has not fully identified the

investment costs needed to implement this initiative. While BRAC

reductions are expected to produce savings in operating costs, the

magnitude of short-term savings is unclear given uncertainties about the

costs required to implement any future BRACs. However, DOD has

included BRAC savings in its future budget plans although the Congress

has not authorized additional BRAC rounds.

Information provided in this chapter is intended to provide a high-level

status and not a detailed assessment of each initiative. To the extent that

we have previously issued reports on individual initiatives, numerous

recommendations for program improvements were made in those reports

as warranted. Accordingly, we are not making additional

recommendations pertaining to the individual initiatives in this report.

19This figure includes units privatized by the Navy using legislative authority granted specifically to the

Navy in 1994. This authority predated the 1996 authority DOD is now using as the vehicle for the

privatizations. Our report, Military Housing: Privatization Off to a Slow Start and Continued

Management Attention Needed (GAO/NSIAD-98-178, July 17, 1998), examined DODs progress under

the 1996 authority. The legislative authority treated the Navys privatizations as a separate issue. DOD,

however, includes those privatizations in assessing its progress toward meeting the DRIs goals.
Page 63 GAO/NSIAD-99-87 Defense Reform Initiative

Appendix I

Management Reform Memoranda ApendIxi

MRM 1: Implementation and Expansion of Infrastructure Savings Identified

in the Quadrennial Defense Review (QDR), dated May 15, 1997.

Established a special task force on Defense reform to streamline the

Department of Defenses (DOD) infrastructure as proposed in the QDR.

Recommendations for additional infrastructure savings were to be fully

viewed and considered in the fall of 1997 during the program and budget

review process. The final report of the task force, along with

recommendations not acted upon during the program review, was to be

completed by November 1, 1997.

MRM 2: Moving to a Paper-free Contracting Process by January 1, 2000 ,

dated May 21, 1997. The Under Secretary of Defense (Acquisition and

Technology) was to develop a blueprint of a plan to move to a totally

paper-free contract writing, administration, finance, and auditing process

by July 1, 1997.

MRM 3: Streamlining Management of the Office of the Secretary of Defense

(OSD)-sponsored Higher Education Organizations and Programs , dated

May 21, 1997. OSD, Defense agencies, and field activities were to identify

those educational and professional development programs and

organizations by June 1, 1997.

MRM 4: Eliminating Unneeded Publications in OSD and Organizations

Under the Cognizance of OSD, dated May 21, 1997. The Assistant Secretary

for Public Affairs was tasked to review publications sponsored by DOD

organizations. After the DOD organizations justified continuing

publication in paper format, the Assistant Secretary for Public Affairs was

to submit a report on publications printed on a recurring or periodical basis

by August 1, 1997.

MRM 5: Disposal of Excess Government-owned Property, dated May 21,

1997. The Commander of the Defense Contract Management Command

was to develop a plan to eliminate excess government-owned property

under the stewardship and control of Defense contractors and submit a

coordinated plan by September 1, 1997, with the goal of disposing of all

excess property by January 1, 2000.

MRM 6: Streamlining Member-arranged Movement of Household Goods ,

dated June 4, 1997. The Commander of the U.S. Transportation Command,

in coordination with the Assistant Deputy Under Secretary (Transportation

Policy) was to develop and implement a plan that would streamline and

simplify policies and procedures for the management of member-arranged
Appendix I

Management Reform Memoranda

Page 64 GAO/NSIAD-99-87 Defense Reform Initiative

movement of household goods by service personnel. The plan was to be

submitted to the Secretary by July 1, 1997.

MRM 7: Streamlining the Management of Leased Property, dated May 21,

1997. An integrated process team was established to revise existing or

develop new policies and ensure consistent and accurate record keeping

and management of property leases on a Department-wide basis. The team

was to submit an initial report by July 1, with a final blueprint by October 1,

1997.

MRM 8: Disposal of Excess and/or Obsolete Structures , dated May 21, 1997.

The Acting Under Secretary of Defense (Acquisition and Technology) was

to undertake a survey within 90 days of all installations to develop a

disposal list of excess structures. That list was to include all structures

that were or would be excess by January 1, 2000, along with a plan for their

demolition or disposal by that date.

MRM 9: Evaluation of Non-training Audiovisual Materials , dated May 22,

1997. The Assistant Secretary of Defense for Public Affairs was to

undertake a survey within 60 days of policies governing audiovisual

materials in DOD.

MRM 10: Redesigning DOD Source Acceptance Policies and Procedures ,

dated May 29, 1997. This MRM tasked the Under Secretary of Defense

(Acquisition & Technology) to conduct a comprehensive reassessment of

DODs source acceptance policies and procedures and review existing

stock items designated for source acceptance to ascertain whether or not

they merited that designation.

MRM 11: Adoption of Commercial Identifiers in DOD Business Systems by

January 1, 2000, dated June 16, 1997. This was a proposal to consider

incorporating commercial identification numbers for DOD business

entities and contractors to replace the DOD Activity Address Code and

Commercial and Government Entity codes. It requested the Under

Secretary of Defense (Logistics) to develop by August 1, 1997, a plan to

accomplish these changes.

MRM 12: Expanding Use of Prime Vendor Control Instruments , dated

June 17, 1997. The Director of the Defense Logistics Agency (DLA), in

coordination with each of the military departments, was to develop a

regional implementation blueprint for the DLA prime vendor contracting

program for facilities maintenance supplies and services. The blueprint
Appendix I

Management Reform Memoranda

Page 65 GAO/NSIAD-99-87 Defense Reform Initiative

was to identify the critical events and site designations for regional

implementation within 12 months and nationwide availability by the middle

of fiscal year 1999.

MRM 13: Adopting Standard Commercial Products for Registration Files ,

dated June 20, 1997. A task force was formed to develop a DOD-wide plan

to adopt standardized commercial data products for registration and

addressing application in business systems. A blueprint of the plan was to

be delivered by August 1, 1997.

MRM 14: Reengineering Permanent Change of Station (PCS) and Inactive

Reserve Travel, dated June 23, 1997. It extended the temporary duty travel

reengineering effort to cover permanent change of station travel and travel

of inactive reserves. The Director of the Travel Reengineering Office was

to develop a blueprint and deliver it by July 21, 1997.

MRM 15: Reengineering Defense Transportation Documentation and

Financial Processes, dated July 7, 1997. It tasked the transportation and

financial communities to jointly develop a long-term strategy to completely

reengineer the Defense transportation documentation financial process.

The strategies were to be implemented by October 1, 1997.

MRM 16: Identifying Requirements for the Design, Development and

Implementation of a DOD Public Key Infrastructure , dated August 6, 1997.

A position paper identified the baseline for DODs transition to a paperless

environment. A DOD public key infrastructure should provide the data

integrity, user identification and authentication, user on-repudiation data

confidentiality, encryption, and digital signature services for programs and

applications that use DOD networks. The Defense Information Systems

Agency (DISA) was to obtain input to be used for a public key

infrastructure and Digital Signature Symposium.

MRM 17: Reducing the Number of Committees , dated May 6, 1997. The

Director for Administration and Management was tasked to review DOD

committees with a view to identify those that may be consolidated or

eliminated and submit a report by October 1, 1997.
Page 66 GAO/NSIAD-99-87 Defense Reform Initiative

Appendix II

Defense Reform Initiative Directives ApenIdxIi

DRID 1: Personnel Downsizing Plans , dated November 21, 1997. These

plans reduce the OSD staff by one-third over the 18-month period beginning

in November 1997.

DRID 2: New Defense Security Service, dated November 25, 1997. The

DOD Polygraph Institute, the Personnel Security Research Center, and the

DOD Security Institute will be merged into the Defense Investigative

Service.

DRID 3: Defense Technical Information Center (DTIC), dated November 25,

1997. This transfers DTIC from DLA to Defense Information Systems

Agency. In addition, Defense Information Systems Agency (DISA) will

study DTIC functions to identify those that could be competed with the

private sector.

DRID 4: Defense Privacy Office, dated November 25, 1997. The Defense

Privacy Office is to be transferred to the Washington Headquarters

Services.

DRID 5: Directorate for Freedom of Information and Security Review ,

dated November 25, 1997. This directorate is transferred from the

Assistant Secretary of Defense (Public Affairs) to the Washington

Headquarters Services.

DRID 6: Appointment of the Team to Create the Defense Threat Reduction

and Treaty Compliance Agency, dated December 3, 1997. This DRID directs

the merger of seven organizations to create the Defense Threat Reduction

and Treaty Compliance Agency.

DRID 7: Overseas Military Banking Program, dated December 5, 1997.

Responsibility for the day-to-day operations of the DOD Overseas Military

Banking Program is transferred from the Office of the Under Secretary of

Defense (Comptroller) to the Defense Finance and Accounting Service

(DFAS). DFAS will study the feasibility of moving these operations closer

to self-sufficiency and outsourcing.

DRID 8: Reducing the Number of Committees , dated December 10, 1997.

OSD, the Joint Chiefs of Staff, service secretariats, and service staffs will

make a second effort to identify DOD committees for elimination or

consolidation.
Appendix II

Defense Reform Initiative Directives

Page 67 GAO/NSIAD-99-87 Defense Reform Initiative

DRID 9: Privatizing Utility Systems , dated December 10, 1997. The military

services will develop a plan for privatizing all their utility systems (electric,

water, waste water, and natural gas) by January 1, 2000, except those

needed for unique security reasons or when privatization is uneconomical.

DRID 10: Establishment of a Task Force on Implementing Competition and

Infrastructure Initiatives , dated December 19, 1997. This task force

oversees the implementation of DRI.

DRID 11: Reorganization of DOD Space Management Responsibilities ,

dated December 19, 1997. A coordinated proposal will be prepared to

make recommendations for a new streamlined approach to the

management and oversight of Defense and intelligence for space activities.

DRID 12: Transfer Humanitarian Assistance and Demining Programs to the

Defense Security Assistance Agency, dated December 22, 1997. This DRID

consolidates program management and resources for humanitarian

assistance and demining under a single program manager.

DRID 13: Defense Management Council Charter, dated December 22, 1997.

The Council serves as the primary vehicle for ensuring that the initiatives of

the DRI Report are carried out and for identifying major reforms still

needed.

DRID 14: Establishment of the TRICARE Management Support Activity ,

dated January 5, 1998. This activity is a merger of the TRICARE Support

Office, the Defense Medical Programs Activity, and the integration of the

health management program functions located in the Office of the

Assistant Secretary of Defense for Health Affairs.

DRID 15: Establishment of the Office of the Secretary of Defense Human

Resources Transition Program, dated January 5, 1998. This office will help

staff avoid involuntary separations resulting from reductions in the DRI.

The program will include voluntary separation incentive pay and voluntary

early retirement programs as well as a transition assistance center.

DRID 16: Transfer of the Nuclear Command and Control System Function

and Support Staff to the U.S. Strategic Command , dated January 5, 1998.

DRID 17: Appointment of the Team to Develop a Blueprint to Merge

Command, Control, Communications, and Computing Functions and the

Development and Acquisition of Intelligence, Surveillance and
Appendix II

Defense Reform Initiative Directives

Page 68 GAO/NSIAD-99-87 Defense Reform Initiative

Reconnaissance Systems (C4 and ISR Systems) into the Office of the Under

Secretary of Defense for Acquisition and Technology, dated January 5,

1998.

DRID 18: Feasibility of Competing Functions Involved in National

Stockpile Sales, dated January 5, 1998. DLA will initiate a review of the

functions involved in National Stockpile Sales and report to the Under

Secretary of Defense (Acquisitions and Technology) as to the feasibility of

competing these functions.

DRID 19: Transfer of the Defense Property Accountability System to DLA ,

dated January 14, 1998. Responsibility for the oversight, control, and

management of the day-to-day operations of the Defense Property

Accountability System is transferred from DFAS to DLA.

DRID 20: Review of Inherently Government Functions , dated January 16,

1998. DOD components will identify functions and positions that are

inherently governmental in nature and functions that should be subject to

competition with the private sector. The DRID includes the following

milestones:

 identification of inherently governmental positions and functions,

commercial activities exempt from the Office of Management Budget

(OMB) Circular A-76 competition, and commercial activities that should

be competed by October 31, 1998;

 joint review of the inventories by selected Under Secretaries of Defense

with DOD components and appropriate OSD offices by November 30,

1998;

 review by the Defense Management Council by December 1998;

 compilation into the fiscal year 1998 Commercial Activities Inventory by

December 1998;

 submittal to the Secretary of Defense by December 1998; and

 submittal to the Congress by January 1999.

DRID 21: Formation of the Defense Energy Support Center, dated January

16, 1998. The Defense Fuel Supply Center is redesignated the Defense

Energy Support Center and its duties are expanded to include the

consolidation of the Department's regional energy effort.

DRID 22: Transfer Out of Counter-drug Personnel to the DOD Components ,

dated January 16, 1998. This DRID transfers personnel from the
Appendix II

Defense Reform Initiative Directives

Page 69 GAO/NSIAD-99-87 Defense Reform Initiative

Counter-drug Central Transfer Account to the appropriate DOD

components operational element.

DRID 23: Defense Agency Performance Contracts , dated January 26, 1998.

Annual performance contracts between the Deputy Secretary of Defense

and the directors of selected DOD agencies, field activities, and principal

support activities are to be established. These contracts will include the

quantity of each product or service the agency plans to provide; measures

of customer satisfaction; the planned costs of goods and services;

improvements in agency productivity; planned steps to correct

deficiencies; areas the agency plans to contract; and goals to measure cost,

manpower, and overhead efficiencies.

DRID 24: Planning for Defense Reform Initiative Organizational

Realignments, dated January 26, 1998. Gaining and losing DOD

components are required to coordinate these realignments, and each

receiving organization is to plan and conduct the actions necessary to

receive the incoming functions and personnel.

DRID 25: DOD Plan for Integration of the National Guard and Reserve

Component Into Domestic Weapons of Mass Destruction Terrorism

Response, dated January 26, 1998. The Secretary of the Army will be

responsible for this program.

DRID 26: Establishment of a Defense Management Council Task Force for

Defense Reform Initiative Communications , dated January 26, 1998. The

Council will coordinate DOD efforts to communicate information about the

DRI and other related issues.

DRID 27: DOD Computer Forensics Laboratory and Training Program ,

dated February 10, 1998. The lab will be responsible for

counterintelligence and for criminal and fraud computer evidence

processing, analysis, and diagnostics.

DRID 28: Devolvement of the Chemical Weapons Demilitarization

Function, dated February 12, 1998. This function is transferred from the

Under Secretary of Defense for Acquisition and Technology to the

Secretary of the Army.

DRID 29: Joint Activities Study, dated February 25, 1998. A study will be

made to determine whether a number of joint activities can be transferred

to the Commanders in Chiefs.
Appendix II

Defense Reform Initiative Directives

Page 70 GAO/NSIAD-99-87 Defense Reform Initiative

DRID 30: Initial Organizational Activity Regarding the Establishment of the

Defense Threat Reduction Agency, dated February 25, 1998. This directive

requires the consolidation of the Cooperative Threat Reduction Program

and transfers the Arms Control Technology Program Office to the On-Site

Inspection Agency.

DRID 31: Realignment of DOD Spectrum Management Responsibilities ,

dated March 23, 1998. DISA is directed to establish a spectrum analysis and

management office responsible for joint spectrum matters. The services

are to co-locate their frequency management offices with the DISA office.

OSD is to establish a spectrum management focal point.

DRID 32: Paperless Contract Closeout, dated April 13, 1998. In order to

make the contract closeout process electronic, a Working Integrated

Process Team will review the efforts of an Air Force team related to these

activities. Next, the Process Team will document the current process and

determine what steps can be eliminated. Finally, it will determine how to

perform the remaining activities electronically.

DRID 33: Paperless DD Form 250, Material Inspection and Receiving

Report, dated April 13, 1998. This DRID is to establish a DOD-wide team to

reengineer the DD Form 250 process. The team is to develop

recommendations to streamline this process.

DRID 34: Transfer of Warsaw Initiative (Partnership for Peace) Program

Management Functions to the Department of Defense , dated May 5, 1998.

The program is transferred from the Defense Threat Reduction Agency to

the Defense Security Assistance Agency.

DRID 35: Location of the Defense Threat Reduction Agency Headquarters

and Support Offices, dated May 5, 1998. The physical location of the

agency is to be centralized in one place.

DRID 36: Disposal/Demolition of Excess Structures , dated May 5, 1998.

This DRID provides disposal and demolition targets.

DRID 37: Devolvement of the Day-to-day Oversight of the Defense

Commissary Agency to the Services , dated May 5, 1998. Supervision of the

Defense Commissary Agency is to be devolved from OSD to the secretaries

of the military departments, who will exercise operational oversight as a

corporate body.
Appendix II

Defense Reform Initiative Directives

Page 71 GAO/NSIAD-99-87 Defense Reform Initiative

DRID 37 Revised: Oversight of the Defense Commissary Agency, dated

December 23, 1998. Day-to-day management of the Defense Commissary

Agency will be devolved to the Commissary Operating Board, composed of

representatives of the Secretaries of the military departments.

DRID 38: Funding Requirements for DOD Spectrum Management

Responsibilities, dated May 6, 1998. This requires each component affected

by DRID 31 to fund its own relocations costs associated with its move to

DISA facilities. Components are also to fund additional costs associated

with the spectrum initiatives being developed.

DRID 39: Travel Reengineering, dated May 12, 1998. The Director,

Administration and Management, will submit a plan that transitions the

functions performed by the Washington Headquarters Services' travel

office to the private sector.

DRID 40: Redesignation of the Defense Security Agency as the Defense

Security Cooperation Agency, dated May 20, 1998.

DRID 41: Development of a Blueprint for the Chancellor for Education and

Professional Development, dated May 18, 1998. A Chancellor for

Education and Professional Development will coordinate a program of

civilian professional education and training throughout the Department.

DRID 42: Transfer of the Space Policy Function From the Under Secretary

of Defense for Acquisition and Technology to the Office of the Assistant

Secretary for Command, Control, Communication, and Intelligence , dated

May 20, 1998. This transfer will align the space policy functions with the

space-related oversight functions and ensure that there will be a single

focal point for all space-related functions.

DRID 43: Defense-wide Electronic Commerce , dated May 20, 1998. This

establishes the Joint Electronic Commerce Program Office. It will be

responsible for the strategic implementation of electronic commerce policy

within DOD.

DRID 44: Paperfree Program Objectives Memorandum Submission , dated

June 2, 1998. The Office of Program Analysis and Evaluation will help the

transition to an essentially paper-free Program Objective Memorandum

(POM) process during the POM fiscal years 2001-2005 cycle. This effort is

to be coordinated with other DOD components.
Appendix II

Defense Reform Initiative Directives

Page 72 GAO/NSIAD-99-87 Defense Reform Initiative

DRID 45: Prime Vendor Contracting Program for Facility Maintenance

Supplies, dated August 24, 1998. The military services are encouraged to

use the maintenance, repair, and operations prime vendor contracts

established by DLA.

DRID 46: Paperless Contracting, dated December 9, 1998. A Paperless

Contracting Overaching Integrated Product Team is established to review

the status of service/agency paperless contracting initiatives, resolve

conflicts, and make recommendations to DOD.

DRID 47: End-to-end Procurement Process , dated December 9, 1998. This

established a DOD Working Integrated Process Team to develop and

document the future end-to-end procurement process, including

accounting and payment.

DRID 48: Adoption of Commercial EDI Standards for DOD Logistics

Business Transactions, dated December 9, 1998. The Joint Electronic

Commerce Program Office will form an Integrated Product Team to

develop a method for DOD logistics transactions to use commercial

Electronic Data Interface standards.

DRID 49: Privatizing Utility Systems , dated December 23, 1998. DODs

plans to award privatization contracts for all utility systems are delayed to

no later than September 30, 2003. A study is also to be made of each DOD

utility by September 30, 2001, to determine if it can be privatized.
Page 73 GAO/NSIAD-99-87 Defense Reform Initiative

Appendix III

Comments From the Department of Defense ApeIndIxi
Appendix III

Comments From the Department of Defense

Page 74 GAO/NSIAD-99-87 Defense Reform Initiative
Appendix III

Comments From the Department of Defense

Page 75 GAO/NSIAD-99-87 Defense Reform Initiative
Page 75 GAO/NSIAD-99-87 Defense Reform Initiative

Appendix IV

Major Contributors to This Report

ApenVdxIi

National Security and

International Affairs 

Division,

Washington, D.C.

Barry W. Holman

Chicago Field Office James Hatcher

Cheryl Andrew

Johnetta Gatlin-Brown

Bruce Fairbairn

James Fuquay

Fred Naas

Jeanne Willke

(709345) Letr
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order made

out to the Superintendent of Documents, when necessary, VISA and

MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address are

discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000

or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any list

from the past 30 days, please call (202) 512-6000 using a touchtone

phone. A recorded menu will provide information on how to obtain

these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with info in the body to:

info@www.gao.gov

or visit GAOs World Wide Web Home Page at:

http://www.gao.gov
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. GI00