Report to Congressional Committees

United States General Accounting Office

GAO

October 2001 DEFENSE LOGISTICS

Actions Needed to

Overcome Capability

Gaps in the Public

Depot System

GAO-02-105
Page i GAO-02-105 Defense Logistics Capabilities

Letter 1

Results in Brief 2

Background 5

Weaknesses in Core Policy and Implementation Leave Little

Assurance That Capabilities Will Be Developed to Support

Wartime Requirements 12

Investments In Facilities, Equipment, and Personnel Have Been

Insufficient 26

Policy Gaps Could Lead to Shortfalls in Non-Depot Maintenance

Logistics Capabilities 34

Conclusions 35

Recommendations for Executive Action 36

Matter for Congressional Consideration 37

Agency Comments and Our Evaluation 37

Appendix I DOD Initiatives That Could Affect Core and CoreRelated Processes 39

Appendix II Scope and Methodology 42

Appendix III GAO Contacts and Staff Acknowledgments 44

GAO Contacts 44

Acknowledgments 44

Appendix IV Comments by the Department of Defense 45

Related GAO Reports 49

Table

Table 1: Retirement Eligibility Status and Average Age of the Total

Civilian Depot Maintenance Work Force 29

Contents
Page ii GAO-02-105 Defense Logistics Capabilities

Figures

Figure 1: Workload and Workforce Trends in Military Maintenance

Depots 6

Figure 2: Computed Core Work Requirements for Depot

Maintenance 11

Figure 3: Service Use of “Like” Workloads to Assume a Repair

Capability 17

Figure 4: Capital Investments in Maintenance Depots 27

Abbreviations

DOD Department of Defense

OMB Office of Management and Budget
Page 1 GAO-02-105 Defense Logistics Capabilities

October 12, 2001

The Honorable Carl Levin

Chairman

The Honorable John Warner

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Bob Stump

Chairman

The Honorable Ike Skelton

Ranking Minority Member

Committee on Armed Services

House of Representatives

In recent years the Department of Defense (DOD) has implemented a

policy change placing increased reliance on defense contractors for

overhaul and maintenance and related logistics activities. This policy

initiative has generated questions from the Congress about the capability

and future viability of existing in-house logistics activities, particularly that

of the military depots that have traditionally performed the largest share of

the Department’s depot maintenance work. DOD is required under 10

U.S.C. 2464 to identify and maintain within government-owned and

-operated facilities a core logistics capability, including the equipment,

personnel, and technical competence required to maintain weapon

systems identified as necessary for national defense emergencies and

contingencies. Specifically, the Secretary of Defense is to identify the

workloads required to maintain the core logistics capabilities and assign to

government facilities sufficient peacetime workload to ensure cost

efficiency and technical competence, while preserving capabilities

necessary to fully respond to national defense emergencies and

contingencies.

Your committees have expressed concerns about the need to continue the

performance of mission-essential, or core, maintenance activities in

military depots and the long-term viability of military industrial facilities in

light of DOD’s increased reliance on the private sector to accomplish

logistics support activities such as the maintenance of weapon systems.

United States General Accounting Office

Washington, DC 20548
Page 2 GAO-02-105 Defense Logistics Capabilities

The Report of the House Committee on Armed Services, Floyd D. Spence

National Defense Authorization Act for Fiscal Year 2001 (2001 Defense

Authorization Act),1

 directed that we review various issues related to the

Department’s logistics support planning and capabilities. As agreed with

your offices, in this report we are addressing the extent to which (1) core

depot maintenance policy and practices will result in military depots being

able to perform core work in support of national defense emergencies and

contingencies; (2) investments in facilities, equipment, and human capital

are adequate to support the long-term viability of military maintenance

depots; and (3) non-maintenance core logistics capabilities have been

identified.

In November 1993, the Department approved a standard methodology for

the military services’ use in computing core depot maintenance

requirements2

 in terms of the number of direct labor hours required to

accomplish the identified work and relating the core requirements to its

war planning scenarios.3

 Direct labor hours represent a measurement of

output core capabilities generated by using such input factors as facilities,

equipment, and trained personnel. The direct labor hours are associated

with capabilities for specific weapons identified by the various war plans.

The standard methodology was designed to identify the weapon systems

tied to the various war plans and determine peacetime depot maintenance

workloads that would provide the capability for maintaining those systems

in wartime. The Department recently completed the Quadrennial Defense

Review (QDR), a strategic review of its defense goals, objectives, and

capabilities. Implementation of the QDR could influence the way DOD

approaches its future management of its core logistics capabilities.

The Department’s core depot maintenance policy is not comprehensive

and the policy and implementing procedures and practices provide little

assurance that core maintenance capabilities are being developed as

needed to support future national defense emergencies and contingencies.

Several factors preclude this assurance. First, the existing policy is not

comprehensive. It does not provide for a forward look at new weapon

 1

 Report 106-616, May 12, 2000, pp. 338-9.

2

 Depot maintenance as defined in 10 USC 2460 is the material maintenance and repair

requiring the overhaul, upgrading, or rebuilding of parts, assemblies, or subassemblies, and

the testing and reclamation of equipment as necessary, regardless of the source of funds or

the location at which the maintenance or repair is performed.

3

 This methodology was revised in November 1996.

Results in Brief
Page 3 GAO-02-105 Defense Logistics Capabilities

systems and associated future maintenance capability requirements. Nor

does it link to source-of-repair policies and procedures for new and

upgraded systems. As a result, the Department has not undertaken the

development of a strategy to add the capabilities that will be needed in the

public depot system to repair the weapon systems that will replace the

ones that are being retired and now dominate the current core workload.

The lack of such a strategy limits the timely identification and acquisition

of equipment, facilities, and technical skills needed in the workforce to

meet future needs. The advance planning needed to meet future needs is

critical because past experience has shown that it can take up to 5 years to

establish a new in-house capability.

Second, the various procedures and practices being used by the services

to implement the existing policy are also affecting the establishment of

core capability. For example, the services’ use of “like” workloads to

satisfy the core requirements and risk assessments to reduce core

capability have the impact of further reducing the amount of core work

performed in DOD facilities on such major systems as the C-17 and F-117

that support contingency plans. To illustrate, the Air Force reduced its

core capability for airframes by 66 percent through the risk assessment

process. Additionally, actual direct labor hours on workloads assigned to

public depots are less than called for in core capability work requirements

and because the core process is not linked to DOD’s planning,

programming and budgeting system or to DOD’s strategic planning

process, funding shortfalls continue to affect the Department’s ability to

establish and retain required core capability. The net effect of these policy

and practice deficiencies is twofold. It limits the extent to which new

technologies are introduced into the depot system and reduces training

opportunities on core workload, resulting in diminished depot capabilities,

including facilities, equipment, and trained personnel. The Office of the

Secretary of Defense and each service, to varying extents, have recently

begun efforts to improve core and core-related processes, but the results

of these initiatives are uncertain.

Investments in facilities, equipment, and human capital have not been

sufficient in recent years to ensure the long-term viability of the services’

depots. DOD’s downsizing of its depot infrastructure and workforce since

the end of the Cold War was done without sound strategic planning.

Because of the shortcoming in core policy, the manner in which the

services have implemented the existing policy and the lack of investment

in capital equipment and sound human capital succession planning, the

capabilities remaining in the depot system are not setting the foundation

to meet future repair needs. Today’s military depot capability is primarily
Page 4 GAO-02-105 Defense Logistics Capabilities

in the repair of older systems and equipment, not new systems. At the

same time, the average age of the depot worker is 46, with about one-third

of the depot workforce eligible to retire within the next five years. Only

recently has the Department begun to consider changes that could address

these deficiencies, but it is unclear to what extent changes will be

implemented, since the Department continues to express a preference for

outsourcing maintenance and other logistics activities. Further, the

Department continues to lack a sound policy and plan to provide for the

development of facilities, equipment, and human capital to meet future

depot core requirements. Before DOD can know the magnitude of the

challenge of revitalizing its depot facilities and equipment and its depot

workforce, it must first know what its future workloads will be; what

facility, equipment, and technical capability improvements will be required

to perform that work; and what personnel changes will be needed to

respond to retirements and workload changes. Since the services have not

yet conducted an assessment to enable the identification of future

requirements in sufficient detail to provide a baseline for acquiring needed

resources, they are behind in identifying solutions and required resources

to implement them.

The Department has not established policies or processes for identifying

non-maintenance core logistics capabilities for activities such as supply

support, engineering, and transportation. Whether this is required by

statute has been the subject of debate. Resolving this policy issue is

becoming more important as the Department increases its outsourcing and

develops new strategies to rely on the private sector to perform many

logistical support activities. Without well-defined policy and procedures

for identifying core requirements for other critical logistic areas, the

Department will not be in a position to ensure that it will have the needed

capabilities for the logistics system to support our essential military

weapons and equipment in an emergency.

This report contains a number of recommendations for executive action

designed to improve the Department’s criteria and tools for managing and

overseeing the development of core capabilities in its depots and other

logistics activities. In commenting on a draft of this report, the Department

concurred with our recommendations to improve core depot maintenance

policies and procedures and to develop strategic and implementation

plans for maintenance depots. The Department did not concur with our

recommendation to develop policies to identify core capabilities for nonmaintenance logistics activities, stating that it has not identified any core

logistics capabilities beyond those associated with depot maintenance and

repair and sees no need to do so. As a result, we added a matter for
Page 5 GAO-02-105 Defense Logistics Capabilities

congressional consideration in the final report, suggesting that the

Congress may want to review the coverage of 10 U.S.C. 2464 and, if

deemed appropriate, clarify the law.

In recent years, Congress and DOD have had an ongoing debate

concerning core depot maintenance capabilities and the work needed to

support these capabilities; the role of military depots; and the size,

composition, and allocation of depot maintenance work between the

public and private sectors. Since the mid-1990s, DOD policy and advisory

groups have called for contracting with the private sector for a greater

share of the Department’s logistics support work, including depot

maintenance, and related activities such as supply support, engineering,

and transportation. An integral part of the policy shift is the debate over

how DOD identifies its core logistics capabilities that are to be performed

by federal employees in federal facilities. The Deputy Under Secretary of

Defense for Acquisition, Technology, and Logistics is responsible for

maintenance issues, including core. We recently testified on core

capabilities, DOD management of the depot system, and related issues.4

DOD estimates that it will spend about one-third of its $297 billion budget

for fiscal year 2001 on logistics support activities at military maintenance,

supply management, engineering, distribution, and transportation

activities and at thousands of contractor locations. As a result of force

structure reductions, depot closures under the base realignment and

closure process in fiscal years 1988 to 2001, and DOD’s desire to place

greater reliance on the private sector for the performance of depot

maintenance, the number of “major” depots (those employing more than

400 persons) was halved from 38 to 19. During this same period, the total

amount of work (measured in direct labor hours) accomplished at the

military depots was cut in half and the depot maintenance workforce was

reduced by about three-fifths (from 156,000 in fiscal year 1987 to about

64,500 in fiscal year 2001) as shown in figure 1. At the same time, annual

funding for contracted depot maintenance work has increased by 90

percent.

 4 Defense Maintenance: Sustaining Readiness Support Capabilities Requires a

Comprehensive Plan (GAO/01-533T, Mar. 23, 2001).

Background
Page 6 GAO-02-105 Defense Logistics Capabilities

Figure 1: Workload and Workforce Trends in Military Maintenance Depots

Source: DOD.

The provisions of 10 U.S.C. 2464 concerning the identification and

maintenance of a core logistics capability and DOD implementing

guidance are aimed at ensuring that repair capabilities will be available to

meet the military needs should a national defense emergency or

contingency occur. The concept of core work is not unique to DOD.

However, the term gained increased importance in its relationship to

military depots in the 1980s and 1990s. The concept of core and the

identification of core capabilities for depot maintenance began in the

1980s; and until the early 1990s, each of the services used its own

processes for determining core workloads needed to support the identified

depot maintenance capabilities.

The concept of core is one that has usage in the private sector and in the

government with respect to decisions over whether support functions

might best be provided in-house or outsourced to contractors. In recent

years, as private sector firms have approached decisions on whether or

not to outsource various activities or functions, they first evaluate the

business to identify those activities that are critical to the performance of

the mission of the business and which the owners or managers believe

they should perform in-house with workers in their employment. These

“core” activities are not evaluated for contracting out. Remaining activities

are studied to determine if in-house performance can be improved and/or

costs can be reduced. The results of this assessment are compared with

offers from external businesses. The criteria for outsourcing would

Overview of Core and the

Depot Maintenance Core

Methodology

The Core Concept as Used in

the Private Sector and DOD
Page 7 GAO-02-105 Defense Logistics Capabilities

generally be that the external business would provide these non-core

activities for less cost and/or would provide improved capability or better

service than can be provided using internal resources. Essential to an

understanding of how private businesses use this concept is the fact that

decisions over what is core is a somewhat subjective determination, one

that is not absolute. What one business considers core and not subject to

contracting out, another business might identify as a candidate for

outsourcing. For example, Disney World retains as company employees

the maintenance workers who keep their rides functioning at a high

readiness condition while another recreation facility might decide to

contract out the responsibility for equipment maintenance.

Within the government, the concept of “core” and a related concept of

“inherently governmental” are a key part of the government’s policy

regarding what activities it should perform with federal employees and

what activities the private sector should perform. Office of Management

and Budget (OMB) Circular A-76, which was first adopted in 1966, sets

forth the general government policy that federal agencies are to obtain

commercially available goods and services from the private sector when it

is cost-effective to do so.5

 A commercial activity is one that is performed

by a federal agency and that provides a product or service, such as base

operating support or payroll, that could be obtained from a commercial

source. The handbook implementing A-76 provides the procedures for

competitively determining whether commercial activities government

agencies are currently performing should continue to be done in-house (or

by another federal agency) or whether they should be contracted to the

private sector.

At the outset, inherently governmental activities—those that are so

intimately related to the exercise of the public interest as to mandate

performance by federal employees6

—are reserved for government

 5

 DOD has annually compiled an inventory of commercial functions and activities

performed in-house, in compliance with OMB Circular A-76. These inventories are

important as DOD has sought in recent years to identify commercial activities involving

thousands of positions that could be subject to competition to determine whether it would

be more cost effective to maintain the activities in-house or contract with the private sector

for their performance. Since 2000 these inventories have been maintained under the

Federal Activities Inventory Reform Act of 1998 (31 U.S.C. 501 note), which directs

agencies to develop annual inventories of their positions that are not inherently

governmental.

6

 Federal Activities Inventory Reform Act, section 3 (31 U.S.C. 501 note).
Page 8 GAO-02-105 Defense Logistics Capabilities

performance. These activities are thus in a sense “core” and outside the

coverage of A-76. The core concept appears again within the universe of

commercial services covered by A-76. The circular exempts from its cost

comparison provisions activities that make up an agency’s “core

capability.” Thus, under the circular, the government will retain a

minimum core capability of specialized scientific or technical in-house

employees necessary to fulfill an agency’s mission responsibilities or to

meet emergency requirements.7

 Again, these activities are reserved for

government performance. While the term “inherently governmental” is

defined in statute and in the circular and the term “core” is defined in the

circular, agency officials exercise broad discretion in applying them to

agency functions. Depot maintenance workloads valued at $3 million or

more are exempt from the A-76 process by 10 U.S.C. 2469.8

The use of the A-76 process in DOD has proven to be controversial with

concerns often expressed about the fairness of the process and of the cost

comparisons between the public and private sectors. Section 852 of the

2001 Defense Authorization Act provided for a panel of experts to be

convened by the Comptroller General to review process and procedures

governing the transfer of commercial activities from government

personnel to the private sector. The panel is required to report its findings

and recommendations to the Congress by May 1, 2002.

Legislation was enacted in 1984 that sought to add clarity to the meaning

of “core” as it applies to logistics activities involving military facilities.9

The provision, codified at 10 U.S.C. 2464, provides for a concept of core to

be applied to DOD logistics activities. Under the current provision the

Secretary of Defense is required to identify and maintain a “core logistics

capability” that is government-owned and operated to ensure the existence

of a ready and controlled source of technical competence and resources

so that the military can effectively and timely respond to mobilizations,

national defense emergencies and contingencies. The capabilities are to

include those necessary to maintain and repair the weapon systems and

equipment that are identified by the Secretary in consultation with the

Joint Chiefs of Staff as necessary to meet the nation’s military needs.

 7

 To achieve a given in-house level of performance, a government activity may use contract

labor to support its in-house capability.

8

 Under the statute, the Department is required to use public private competitions if it

wishes to convert such workloads to private sector performance.

9

 Department of Defense Authorization Act, 1985, P.L. 98-525 (1984).
Page 9 GAO-02-105 Defense Logistics Capabilities

Further, the Secretary is to identify the workloads required to maintain the

core capabilities and to require their performance in government facilities.

Finally, the Secretary is to assign these facilities sufficient workloads to

ensure peacetime cost efficiency and technical competencies and surge

capacity and reconstitution capabilities to support our military strategic

and contingency plans.

In addition to the 10 U.S.C. 2464 requirements described above, 10 U.S.C.

2466 specifies that no more than 50 percent of the funds made available

for depot maintenance may be spent for private sector performance. This

sets aside 50 percent of the funding for public-sector performance of these

workloads in essence establishing a minimum public-sector core for

depot maintenance. Before the 1997 amendment, private-sector

performance was limited to no more than 40 percent.10 The trend in DOD

in recent years has been toward increasing reliance on the private sector

for depot maintenance work and increasing reliance on original equipment

manufacturers for long-term logistics support.

In November 1993, the Office of the Deputy Under Secretary of Defense

for Logistics outlined a standard multi-step method for determining core

requirements and directed the services to use this method in computing

biennial core requirements. In 1996, the core methodology was revised to

include (1) an assessment of the risk involved in reducing the core

capability requirement as a result of having maintenance capability in the

private sector and (2) the use of a best-value comparison approach for

assigning non-core work to the public and private sectors.

The current core methodology provides a computational framework for

quantifying core depot maintenance capabilities and the workload needed

to sustain these capabilities. It includes three general processes:

• The identification of the numbers and types of weapon systems

required to support the Joint Chiefs of Staff’s wartime planning

scenarios;

• The computation of depot maintenance core work requirements

measured in direct labor hours to support the weapon systems’

expected wartime operations as identified in the war planning

scenarios; and

 10 National Defense Authorization Act for Fiscal Year 1998, P.L.105-85 (1997), section 337.

Depot Maintenance Core

Methodology
Page 10 GAO-02-105 Defense Logistics Capabilities

• The determination of industrial capabilities (including the associated

personnel, technical skills, facilities, and equipment) that would be

needed to accomplish the direct labor hours identified above that is

generated from the planning scenarios. That determination is adjusted

to translate those capabilities into peacetime workloads needed to

support them. These peacetime workloads represent the projected core

work requirements for the next program year in terms of direct labor

hours. For example, the estimate made in fiscal year 2000 projected the

core requirements for fiscal year 2001.

To conclude the process, the services then identify specific repair

workloads and allocate the core work hours needed to accomplish the

maintenance work at the public depots that will be used to support the

core capabilities.

During the latter part of the 1990s, DOD made significant changes in

specific maintenance workloads it identified as supporting core

capabilities. For example, in 1996 the Air Force privatized in place work

on aircraft and missile inertial guidance and navigation systems performed

at the Aerospace Guidance and Metrology Center in Newark, Ohio. Prior

to closure of this depot, the workload—about 900,000 hours annually—

had been identified as necessary to support core capabilities. Workload at

the Sacramento Air Logistics Center, which next to the Newark Depot had

the Air Force’s highest percentage of core workload relative to total

workload, was reclassified as non-core work when the center was to be

closed. Similarly, maintenance of the Army’s tactical wheeled vehicles had

always been considered core work, with over 1 million hours of work

performed in an Army depot. But after the closure of the Army’s truck

depot at Tooele, Utah, this work was contracted out; and in 1996 it was

categorized as non-core work. More recently the Army has again

categorized about 26,000 direct labor hours of truck maintenance work as

core support work—less than 1 percent of the workload that the Army

identified as necessary to support its core capabilities.

Figure 2 shows the services’ biennial computations of depot maintenance

core work requirements in direct labor hours for fiscal years 1995-2001.

The reported combined core work requirements for all the military

services declined by about 30 percent over that period. The Navy aviation

and the Marine Corps support work stayed relatively constant while the

Army’s declined by 33 percent, the Air Force’s declined by 33 percent, and

the Navy ship requirement declined by 37 percent.
Page 11 GAO-02-105 Defense Logistics Capabilities

Figure 2: Computed Core Work Requirements for Depot Maintenance

Note: Navy Ship includes the Naval Warfare Centers and the Space and Naval Warfare Systems

Command.

Source: DOD.

Figure 2 shows the computed core work requirements for each of the

services in labor hours. As discussed later in this report, the existing

policy does not provide information about future core capability

requirements. Further, the work actually performed in military depots may

be different than the work identified by the core process since a separate

process is used for assigning maintenance workloads to the depots or to

private sector facilities.
Page 12 GAO-02-105 Defense Logistics Capabilities

A key factor influencing what workloads are actually assigned to military

depots and to the private sector is the military services’ source-of-repair

process. Departmental policy11 prescribes a process for determining how

new and modified weapon systems are to be supported. The acquisition

program guidance provides that within statutory limitations, support

concepts for new and modified systems shall maximize the use of

contractor provided, long-term, total life-cycle logistics support that

combines depot-level maintenance for non-core-related workload along

with materiel management functions. The maintenance guidance

prescribes a source-of-repair decision process designed to determine

whether new and upgraded weapon systems and subsystems should be

repaired in military depots or contractor facilities. This guidance provides

that repair decisions should be justified through rigorous, comprehensive

business case analyses that consider the relative costs of public and

private support options, mission essentiality, existing public and private

industrial capabilities, and required core capabilities. The source-of-repair

process is also supposed to consider workload allocation requirements

specified by 10 U.S.C. 2466 that not more than 50 percent of annual depot

maintenance funding made available to each military department be used

for private sector performance.

The Department’s core depot maintenance capabilities policy and related

implementation procedures and practices provide little assurance that

core maintenance capabilities are being developed to support future

national defense emergencies and contingencies. Much of the current core

workload supports systems that are soon to retire; however, the core

policy is not comprehensive in that it does not provide for a forward look

at new weapon systems that will replace the ones that are being retired

and at associated future maintenance capabilities that will likely be

identified as needed to repair those systems. Further, the core policy is not

linked to the department’s source-of-repair policy and processes. These

policy shortfalls limit the timely identification of equipment, facilities, and

workforce technical skills needed to establish and retain future core

capabilities. Advance planning for replacement of retiring systems and

 11 DOD 5000.2-R, “Mandatory Procedures for Major Defense Acquisition Programs and

Major Automated Information System Acquisition Programs,” provides that the program

manager develop a support strategy for weapon systems, including supply and

maintenance. This regulation recognizes that 10 U.S.C. 2464 requires DOD to retain core

capabilities in the public depots. DOD Directive 4151.18, “Maintenance of Military Materiel”

prescribes the source-of-repair requirement. The services have developed implementing

instructions.

Source-of-Repair Process

Weaknesses in Core

Policy and

Implementation Leave

Little Assurance That

Capabilities Will Be

Developed to Support

Wartime

Requirements
Page 13 GAO-02-105 Defense Logistics Capabilities

introduction of new systems and technologies into the depots is critical

because it can take up to 5 years or more to establish a new in-house

capability.

Further compounding the future core capabilities concerns are various

core policy implementation procedures and practices that also affect the

establishment of core capability. For example, services are using, to

varying degrees, concepts such as like workloads and risk assessments

that have the impact of further reducing the amount of core workloads

that are actually performed on systems such as the C-17 that support

contingency plans. These varying practices affect both the quantification

of core requirements and the identification of workloads used to support

core capabilities. They may also preclude defense managers or the

Congress from assessing the extent to which overall core policy objectives

are being met. The net effect of these practices is to reduce the amount of

new repair technology being introduced into the military depots. Also,

actual direct labor hours on workloads assigned to public depots are less

than called for in identified core support work requirements and the need

to support core capabilities is not adequately considered in service sourceof-repair decisions on new and upgraded systems. Both of these situations

further negatively impact the development of future core capabilities by

reducing the amount of workforce training and again decreasing the

extent to which new repair technologies are introduced to the depot. It is

unclear to what extent recent initiatives to improve core and core-related

policy, procedures, and practices will be successful.

The Department’s core depot maintenance policy is not comprehensive in

that it does not provide for a forward look at new weapon systems and

associated future maintenance requirements and is not linked to the

source-of-repair process. Thus, the policy for identifying core capabilities

and support workloads does not plan for the development of future core

capabilities because it excludes consideration of systems that are being

developed or are in the early stages of being introduced into the forces.

The process computes core work requirements biennially based on fielded

weapon systems identified in defense warplanning scenarios.

The core policy does not require the consideration of depot maintenance

capabilities for developmental systems and systems in early production

since these systems are not yet identified in defense war plans or are

identified in small numbers. As a result, the determination process does

not consider workloads that will be needed to support future core

capabilities that would result from new systems being fielded and the

associated repair technologies, methods, and equipment. Also, expected

Policy Is Not

Comprehensive and Does

Not Adequately Consider

Future Capability and

Technology Needs

Core Policy Does Not Require

Forward Look
Page 14 GAO-02-105 Defense Logistics Capabilities

decreases in the core workload supporting systems that are soon to retire

and changes from in-house to contractor support on replacement or

upgraded systems are not being adequately considered. If the services do

not plan for the retiring systems’ replacements in the military depot

system, support for future core capabilities and the economic viability of

the depots will be affected.

The Navy’s consideration of core support work related to its helicopter

fleet illustrates how future capability needs are not being taken into

account. Maintenance and repair on the H-46 utility helicopter currently

provides much of the core support workload at the Navy’s Cherry Point

depot. The H-46 is to be phased out of the inventory and replaced by the V22 tilt rotor aircraft. The Cherry Point aviation depot accomplishes about

600,000 hours of work annually on the H-46, which represented about 15

percent of that depot’s entire workload in fiscal year 2000. However, as the

H-46s are retired, depot officials expect that workload to dwindle to zero

by fiscal year 2012. Navy officials have decided that the V-22 engine will be

supported commercially and are evaluating plans for all other V-22

support. Officials told us that they were considering outsourcing some

component workloads, originally identified as requiring a core capability,

in concert with current DOD policy preferences for outsourcing depot

maintenance activities. While Cherry Point’s core capability position looks

favorable today, the process does not take into consideration the expected

loss of H-46 work. Similarly, as the Air Force’s C-141 cargo aircraft is being

phased out of the inventory, the core methodology has provided for

accomplishing little support work for the new generation C-17 cargo

aircraft in military depots.12

Consideration of new and replacement workloads is important because of

the advance planning time needed to establish an in-house capability. In

some cases, it may take 5 years or more to establish this capability. For

example, a depot business planner estimated that about 5 years would be

needed from the time the core capability work requirement was first

identified to fund, design, and build a C-5 painting facility, assuming that

all went according to plan. Funding availability, priorities of this project

relative to others, external events, and other factors could slow the

 12 The Air Force adopted a support strategy for the C-17 called flexible sustainment that

relies on the contractor for logistics support activities for an extended period of time. As

with the V-22, this strategy supports the DOD goal of relying more on the private sector.

The Air Force support plan provides for making final source of repair decisions on the C-17

in 2003.
Page 15 GAO-02-105 Defense Logistics Capabilities

acquisition of support resources. Timeframes for acquiring capabilities

that are identified as core would typically be longer than this if the depot

was not already formally assigned the workload.

Existing core policy is not directly linked to the source-of-repair decision

process for new systems and major system upgrades, which negatively

impacts the development of core capabilities. According to departmental

and service policies, consideration of the need to support core capabilities

is supposed to be a major factor in planning for life-cycle sustainment and

making decisions on the source for the repair of new and upgraded

weapon systems. Our review of recent and ongoing source-of-repair

decisions, however, found that core capabilities are considered

inconsistently, if at all, in many of the decisions on new systems and

upgrades. The lack of linkage between these two processes contributes to

the decline of future repair capability for critical mission-essential

systems.

In both 1998 and 1996, we reported that DOD’s new policy for determining

source of repair for weapon systems had weaknesses that could impact

the retention of core logistics capabilities that the military is supposed to

identify and maintain to ensure the support of mission-essential weapon

systems.13 We determined that (1) acquisition program officials had not

followed the services’ approved processes for making source-of-repair

decisions, (2) information concerning core capabilities and other input

from logistics officials were not major factors in these decisions, and (3)

weaknesses in guidance contributed to these conditions.

Also, the Army Audit Agency and the Naval Audit Service issued reports in

2000 that identified similar deficiencies still occurring in those services.14

Army auditors concluded that system managers for 13 of 14 weapon

systems identified as required for the Joint Chiefs of Staff warfighting

scenarios had not performed complete and adequate source-of-repair

analyses and specifically had not accomplished core assessments to

identify workloads that were needed to support core capabilities. Navy

 13 Defense Depot Maintenance: DOD Shifting More Workload for New Weapon Systems to

the Private Sector (GAO/NSIAD-98-8, Mar. 31, 1998) and Defense Depot Maintenance:

DOD’s Policy Report Leaves Future Role of Depot System Uncertain (GAO/NSIAD-96-165,

May 21, 1996).

14 “Process for Determining Source of Depot Level Maintenance,” Army Audit Agency, AA

00-107, Jan. 3, 2000, and “Independent Logistics Assessment Process,” Naval Audit Service,

N2000-027, June 27, 2000.

Core Policy Not Linked to

Source-of-Repair Process
Page 16 GAO-02-105 Defense Logistics Capabilities

auditors found that acquisition offices had not accomplished 80 of 179 (45

percent) required independent logistics assessments (the process used to

identify and provide for logistics support requirements during weapon

systems acquisition) and did not always disclose results of logistics

assessments to program decisionmakers. Both cited inadequate,

inconsistent, and conflicting acquisition and logistics guidance and

uncertainty or lack of information on core support needs and repair

analyses as contributing factors.

During our current review of DOD’s core process, we found that this

overall condition has not changed. Acquisition policy and acquisition

officials’ preferences for using contractor support were reflected in

source-of-repair decisions for new and upgraded systems going to

contractors, with the result that the depots have not been receiving much

new workload in recent years and may not in the future. In the Air Force,

for example, 48 of the 66 systems and components being reviewed for

source-of-repair decisions in March 2001 were at that time recommended

for private sector support. We also reviewed some new systems and

upgrades representing all the services and found that they had decided or

were leaning toward the private sector in 10 of the 13 cases for the bulk of

their depot maintenance work. In those cases where the public sector is

expected to get some portion of the work, it was typically on the older

technology and legacy systems while contractors were expected to

perform most of the repairs on the newer technology items. In most of the

cases, core capability issues had either not been considered or were not

major factors in the decisions. In some instances, the final decision on

systems had been delayed or stretched out for years, which may make it

difficult, more costly, and less likely that the eventual decision would be

that the military depots perform this maintenance work.

The services’ core procedures and practices further raise concerns about

the extent to which core capabilities are being established and preclude

defense managers or the Congress from assessing the extent to which

overall core policy objectives are being met. To put the methodology for

determining standardized core requirements into effect, each service

developed its own approach, criteria, and assumptions to adapt the

methodology to individual circumstances. Each service has different

procedures and practices to implementing the core methodology and

identifying and establishing core capabilities that reduce the development

of core capabilities. These procedures and practices include the concepts

of capability for like workloads; the use of risk assessments for reducing

the amount of core; the use of peacetime workload factors; and having

Implementing Procedures

and Practices Further

Compound Future Core

Capability Concerns
Page 17 GAO-02-105 Defense Logistics Capabilities

insufficient peacetime workloads to retain core capability because the

core process is not linked to defense planning and budgeting.

The Air Force and the Naval Sea Systems Command, and to a lesser extent

the Army, rely on the questionable concept of “like” workloads to identify

core support workloads used to satisfy core requirements. The critical

assumption is that peacetime work on like (similar) types of systems and

repair processes provides sufficient skills and repair capabilities that

government facilities, equipment, and maintenance personnel could,

within the short timeframes required by national defense emergencies and

contingencies, quickly and effectively transfer to new workloads on

systems and equipment currently repaired in the private sector. The theory

is that capabilities on a wide range of commodities would be transferable

during a defense emergency to repair systems not currently maintained in

the defense depots. The like-workload concept as it is applied to specific

weapon systems is portrayed in figure 3, and specific examples of

concerns about the use of the concept in the various services are

discussed below.

Figure 3: Service Use of “Like” Workloads to Assume a Repair Capability

The Air Force, the most extensive user of the concept of like work,

focuses its efforts on providing its depots with the capabilities to

accomplish broad categories of repairs. Officials compute core work

requirements based on categories of equipment repair such as avionics,

instruments, engines, and airframes rather than on specific weapon

systems, which is the approach generally used by the Army, Navy, and

Marines. Using professional judgement and knowledge of existing in-house

work, officials then designate which maintenance workloads will be

accomplished to satisfy the required level of repair capability in each

Establishing Capability By

Using Like Workloads is

Questionable
Page 18 GAO-02-105 Defense Logistics Capabilities

category. To illustrate, maintenance workloads on the KC-135, C-141, and

C-130 are designated as core workloads for Air Force depots to satisfy

computed core capabilities for repairs in the large-airframe cargo aircraft

category. As a result, repair workloads on some Air Force weapon systems

that are heavily relied on in wartime planning scenarios are not identified

as core support work. For example, only a very small amount of avionics

workload for the C-17 aircraft—which is expected to be heavily used in all

scenarios—is identified as core support work in the latest computation.

Also, there are no in-house workloads on some mission-essential systems

identified in war plans, notably the F-117, the E-8 (Joint Stars), and the

U-2. While the Air Force policy is to provide core capabilities for their

systems through like workloads, the Air Forcer core capability

calculations do not include these contractor-supported systems.

The assumption that depots could quickly and easily transition to repair

new and different weapon systems is questionable. It is unlikely that all

needed core capabilities could be established in a timely manner because

in relying on the private sector, the services have not procured the support

resources that would be required to establish in-house capability and it

would take time and funding to establish the required capability. For

example, Air Force Materiel Command officials stated that it could take 2

years or more to build up a sufficient capability to handle major C-17

repairs if required. Even though one depot maintains other large cargo

aircraft, it would not have specialized and unique support equipment,

technical data, and mechanics trained and certified on the unique and

advanced C-17 features. For comparison purposes, the Warner Robins

depot took about 2 years to effectively assume the C-5 workload after the

San Antonio depot was closed. Warner Robins had been doing similar

work for many years on other airlifters, the C-141 and C-130, and had

access to C-5 technical data, depot plant equipment, and mechanics.

Similarly, the Air Force relies on B-1 and B-52 workloads to support core

capabilities for the B-2 airframe, which is repaired by a contractor. The

assumption is that a military depot repairing the B-1 or B-52 could take

care of emergency depot requirements for the B-2. However, the

technology, repair processes, and equipment needed for the B-2 are much

different than those used on the B-1 and B-52 fleets. Further, workers are

not trained on unique characteristics or modern repair techniques and do

not have the proper clearance to accomplish repairs on low observable

characteristics of stealth systems.

The Naval Sea Systems Command employs a variant of the like-work

concept, which identifies core capabilities based on the number and types

of ships. Although Navy officials said all 316 ships in the Navy are mission-
Page 19 GAO-02-105 Defense Logistics Capabilities

essential, the public shipyards primarily overhaul nuclear-powered ships

and large-deck surface ships, and private shipyards repair most surface

combatants, amphibious, and auxiliary support ships. Ship repair

managers assume that, in an emergency, the public shipyards have the

necessary facilities, equipment, and skilled personnel to repair any Navy

ship and components. This assumption includes those classes of ships and

components currently maintained solely by contractors. It is unclear

whether, in an emergency, the nuclear facilities, specialized support and

test equipment, and dry dock space could be cleared and reconfigured and

that government workers could take over repairs on classes of ships

currently maintained in the private sector.

In contrast with the process used by the Air Force and for Navy ships, the

Army, Marines, and the Naval Air Systems Command focus more attention

on performing repair workloads on specific weapon systems. Officials

initially compute core capabilities by weapon system, making more

explicit the linkage between weapon systems that are tied to war planning

scenarios and core capabilities and supporting workloads. Officials

identify core capabilities based on the number of each specific weapon

system identified in the war plan and generally assign at least a portion of

the workload on each system and its subsystems to a military depot. As a

result, these commands have some degree of active in-house workloads on

almost every weapon system identified in the war plans.

Another area of concern in how services compute core is the use of risk

assessments to determine if work initially determined to be core support

work could instead be provided by the private sector at an acceptable

level of risk. The standard DOD core methodology was revised in 1996 to

incorporate risk assessments as a way of evaluating repair capability in the

private sector to determine whether capability could be provided by

contractors rather than by a military depot. The Air Force makes extensive

use of risk assessments to significantly reduce its computed in-house core

capability; the Marines Corps and Naval Sea Systems Command apply the

concept in more limited fashion; and the Army and Naval Air Systems

Command did not use risk assessments at all.

Air Force officials developed an extensive risk assessment process and

criteria, which identifies private sector capability and reduces its

identified core capability because of the availability of this private sector

capability. For example, for airframe repairs, the Air Force reduced its

core capability by 66 percent through the risk assessment process. As a

practical consequence, the Air Force’s application of risk has resulted in at

least some portion of the core support workloads needed to maintain

Use of Risk Assessments

Approach Can Hinder the

Development of Capability
Page 20 GAO-02-105 Defense Logistics Capabilities

every weapon system and commodity being identified as available for

contracting out.

Officials of the Naval Sea Systems Command and the Marine Corps said

that they do risk assessments. However, these appear to be perfunctory

and do not change how maintenance work is allocated. As discussed

earlier, the Naval Sea Systems Command initially identifies all ships to be

strategically necessary, but allocates maintenance work to the public and

private shipyards based on type of ship and historical basing

considerations. Marine Corps officials said that their last risk assessment

was done as an undocumented roundtable discussion in 1998. For the 2001

core capability assessment, the Corps’ computed core of 3.1 million hours

was offset by 1.1 million hours because of the perceived availability of risk

acceptable contracted workload. The Marines reported a final core figure

of 2 million hours to be accomplished in the public sector. Officials said

the core process would be more meaningful if it influenced the assignment

of repair work for new systems and was tied to the budget process.

Conversely, the Army and Naval Air Systems Command revised their

processes to eliminate the private sector risk assessments and did not use

them in their most recent core determinations. Army and Navy aviation

officials said that they think risk assessments are not appropriate. They

believe that to have a real capability means that the depots need to have at

least some workload on every mission-essential system. In the opinion of

these officials, military items are generally best supported in the public

sector and commercial items best supported in the private sector.

The differing interpretations and applications of risk assessments can

result in significant differences in the ultimate core capability requirement

computed by each service and in the core support work assigned to the

depots. If the result of the risk assessment process is to include private

sector capability as a portion of the identified core logistics capability

under 10 U.S.C. 2464, that in our view would be inconsistent with the

statute.

As we understand it, the risk assessment process was intended to assess

whether existing private sector sources could provide logistics capability

on mission essential systems at an acceptable level of risk, reliability, and

efficiency. While one could argue that under 10 U.S.C. 2464 as it was

worded prior to 1998, that commercial capability could be considered as a

portion of the identified core depot maintenance capabilities, we do not

think such is the case under the current version of the statute. The

provision was amended by the National Defense Authorization Act for
Page 21 GAO-02-105 Defense Logistics Capabilities

Fiscal Year 199815 to state that; “it is essential for the national defense that

the Department of Defense maintain a core logistics capability that is

government-owned and government operated (including government

personnel and government-owned and operated equipment and facilities).”

Similarly, section 2464 further provides that “the Secretary of Defense

shall require the performance of core logistics workloads necessary to

maintain the core logistics capabilities identified...at government-owned,

government-operated facilities of the Department of Defense.”

16

Consequently, we do not view a risk assessment process implementing 10

U.S.C. 2464 that results in the inclusion of private-sector capabilities as a

portion of the identified core logistics capabilities as consistent with the

statute.

The difference in services’ use of the methodology factor used to reduce

computed wartime requirements to peacetime workloads also raises

concerns about the extent to which core capabilities are being developed.

The factor reflects the ability of depots to surge (increase) work during an

emergency. The Air Force, Naval Air Systems Command, and the Marine

Corps use the same factor; the Naval Sea Systems Command uses a

smaller factor; and the Army does not use an adjusting factor. The factors

used result in higher peacetime core workload requirements for the Army

and Sea Systems Command relative to their wartime needs compared to

the other services. For example, in using a factor of 1.6, the Air Force

assumes that in emergency situations, existing in-house facilities could

increase their production by 60 percent by working increased time. If the

Army had used the same factor used by the Air Force, its computed 2001-

core capability support requirement would have been reduced from 9.8

million direct labor hours to 6.1 million hours. Conversely, if the Air Force

had not used an adjustment factor, its computed 2001 core support

requirement would have been increased from 18.2 million direct labor

hours to 29.1 million hours.

Our review identified concerns that, after computing the core capabilities,

actual workloads assigned to the depots during peacetime are not always

sufficient to fully support core capability requirements. Not meeting

workload goals can mean that the workforce is getting less than optimal

work experience on core workload. According to 10 U.S.C. 2464, DOD

policy, and the core requirements determination process, the services are

 15 P.L. 105-85, section 356.

16 10 U.S.C. 2464 (a)(4).

Peacetime Workload Factors

Affect Computed Capability

Requirements

Current Workloads Do Not

Optimize the Development of

Core Capabilities
Page 22 GAO-02-105 Defense Logistics Capabilities

to assign sufficient peacetime workloads to the depots to maintain the

expertise and competence in core capabilities. However, as discussed

below, this is not happening in all cases.

The volume of assigned peacetime workloads in the Army fell short of the

9.2-million-hour total core workload needed to support its core

capabilities by about 1.4 million direct labor hours in fiscal year 2000 and

about 1 million hours in fiscal year 2001. For example, the Army’s most

recent update of the core support work requirement for the Apache

helicopter totals 420,000 direct labor hours for fiscal year 2001. However,

its funded workloads assigned to military depots totaled only 126,000

direct labor hours in fiscal year 1999 and about 264,000 hours in fiscal year

2000. Depot officials told us the principal Apache aircraft work in the

depot involves disassembly and overhaul of selected components that the

contractor will later use in the remanufacturing process. Logistics officials

pointed out that one reason peacetime work has lagged behind calculated

core support workload requirements is the continuing trend for

outsourcing maintenance services involving weapon system upgrades and

conversions. The depot officials pointed out that to alleviate the financial

impact from the shortfall in actual workload, the Army established direct

appropriation funding to reimburse its depots for fixed overhead costs

associated with underutilized plant capacity. In fiscal years 2000 and 2001,

the Army provided its depots a total of about $20 million in direct funding

for underutilized capacity.

Shortfalls also exist in the Air Force. For example, in fiscal year 2001, the

Air Force anticipates about an 800,000-hour shortfall in depot-level

software maintenance workload compared to its core capability support

work requirement. Air Force officials originally computed a core work

requirement of 3.7 million hours for software maintenance. Air Force

management reduced the computed requirement by 600,000 hours because

the depots were not considered capable of accomplishing that much

workload. As a result, the Air Force only included 3.1 million hours for

software maintenance in the total 18.2 million-hour core work requirement

reported to the Office of the Secretary of Defense. Even at this lower

number, the Air Force expects to accomplish only about 2.9 million hours

in 2001, increasing the real core shortfall by another 200,000 hours to a

total shortfall of more than 800,000 hours. We also determined that the Air

Force understated core support work for airframe repairs by 528,000

hours because tasked contractor logistics support systems were

inadvertently omitted in the roll-up of core requirements. Additionally, the

Air Force potentially understated hours for component workloads because
Page 23 GAO-02-105 Defense Logistics Capabilities

officials could not support how wartime flying hours were converted into

commodity repair hours.

Air Force officials repeatedly identified capability shortfalls in qualified

software technicians and engineers as one of their most severe concerns

at the depots. The Air Force Materiel Command initiated a study of

software maintenance to assess the ability of the depots to support future

depot level software workloads and to identify steps needed to perform

greater amounts of workload. The study noted that the three Air Force

depots were experiencing difficulty in accomplishing about 2.6 million

hours per year. The study recommended changes aimed at improving

recruiting, hiring, paying, and retaining software maintenance personnel.

In fiscal year 2000, the Marines anticipated a required depot core support

workload of 2 million hours but executed only about 1 million hours.

Officials told us that not all items could be worked on due to financial

constraints, readiness requirements, and operational force priorities. They

noted that tying the core process to the budget process would help resolve

this problem.

Because the biennial core computation process operates largely as a

stand-alone exercise and is not explicitly linked to the planning,

programming, and budgeting system or to DOD’s strategic planning

processes, it has little direct impact on resource allocation decisions and

management priority setting. The identification of shortfalls in core

capability, for example, does not generate budget requirements for making

capital investments in facilities, equipment, and other resources needed to

establish the capability. The 1993 core policy statement directed that

implementation plans and decisions be reflected in future annual planning

and budget submissions, as well as be input to the depot maintenance

strategic plan, but this has not been done. If the core process were tied

more explicitly to the budget and strategic planning process, the

assignment of actual work to the depots should better support the

establishment and continuation of required core capability.

While the Office of the Secretary of Defense and each service, to varying

extents, have taken steps to improve core and core-related processes, the

results of these initiatives are uncertain. They may or may not result in

improvements to these processes. For example, a recently completed

review of DOD’s core process identified various alternatives for improving

the core process. The Deputy Under Secretary of Defense for Logistics and

Materiel Readiness contracted for the review of core guidance and

procedures used by the services to compute core capability requirements.

Results of DOD Initiatives

to Improve Core and CoreRelated Processes Are

Uncertain
Page 24 GAO-02-105 Defense Logistics Capabilities

The May 15, 2001 DOD core report provided information about each of the

services’ core processes.17 According to officials, DOD continues to review

the report and will not likely complete this process until the new

administration announces how it intends to approach the management of

logistics.

The report concluded that (1) DOD’s depot maintenance core policy was

incomplete and unclear, (2) service implementation was inconsistent, (3)

the core methodology is not routinely used in DOD decision-making and is

not linked to the defense budget system, and (4) capability requirements

are not effectively addressed in the context of strategic planning. The

study produced four sets of alternatives designed to improve and

transform core policy and methodology into a management tool and

explicitly integrate it into DOD’s strategic planning processes. Those

alternatives, discussed in appendix I, ranged from making a few minor

administrative adjustments to the core process, to making substantive

changes to the process such as eliminating the risk assessment as a tool

for reducing the core requirement, and to undertaking an extensive

revamping of the process which would include the elimination of the

requirement for maintaining a core capability in military depots.18

In October 2001, Office of the Secretary of Defense management selected

the alternative that would streamline the existing core process and

establish explicit linkage with the DOD planning, programming, and

budgeting system. The Deputy Under Secretary for Logistics and Materiel

Readiness issued new guidance regarding the implementation of core

depot maintenance policy and methodology. Also, a joint working group is

to be established to review the details of implementation procedures with

final policy guidance to be issued by March 1, 2002.

Similarly, the military services also have ongoing initiatives that will affect

logistics processes, including core and the source-of-repair determination.

Some of these initiatives are discussed in the next section of the report

and in appendix I. In our June 2000 report19 we questioned the

Department’s management of logistics improvement efforts. Our ongoing

 17 “DOD Core Depot Maintenance Policy/Methodology Report”, May 15, 2001.

18 To implement such an extensive revamping would require legislative changes.

19 Defense Logistics: Actions Needed to Enhance Success of Reengineering Initiatives

(GAO/NSIAD-00-89, June 23, 2000).
Page 25 GAO-02-105 Defense Logistics Capabilities

review of the Department’s logistics strategic planning process has

identified additional areas where the Department can improve its logistics

support planning.20

In addition, the recently completed Quadrennial Defense Review (QDR)

may lead to changes in how DOD manages depot maintenance and other

logistics activities as well as how the Department approaches core and

core-related processes. The QDR involved a comprehensive strategic

assessment of defense strategy, goals, requirements, and capabilities. DOD

issued its report on the QDR on September 30, 2001 with the intent that it

serve as the overall strategic plan required by the Government

Performance and Results Act of 1993.21 The report’s section on

modernizing DOD business processes and infrastructure discusses core

functions and, as a general rule, states that any function that can be

provided by the private sector is not a core government function.

The report states that DOD will assess all its functions to separate core

and non-core functions with the test being whether a function is directly

necessary for warfighting. It expects to divide functions into three broad

categories:

(1) Functions directly linked to warfighting and best performed by the

federal government. In these areas, DOD plans to invest in process and

technology to improve performance.

(2) Functions indirectly linked to warfighting capability that must be

shared by the public and private sectors. In these areas, DOD will seek

to define new models of public-private partnerships to improve

performance.

(3) Functions not linked to warfighting and best performed by the private

sector. In these areas, DOD will seek to privatize or outsource entire

functions or define new mechanisms for partnerships with private

firms and other public agencies.

It is not clear where depot maintenance and other logistics functions

contributing to weapon systems sustainment and performance will be

 20 Defense Logistics: Strategic Planning Weaknesses Leave Economy, Efficiency, and

Effectiveness of Future Support Systems at Risk (GAO-02-106, Oct. 11, 2001).

21 P.L. 103-62.
Page 26 GAO-02-105 Defense Logistics Capabilities

placed in this framework. If it were placed in the second category, the

implication is that it would not be core. The impact of 10 U.S.C. 2464 from

such determinations is uncertain.

Investments in facilities, equipment, and human capital have not been

sufficient in recent years to ensure the long-term viability of the military

services’ depots. This situation is in part due to the weaknesses we

identified in the core policy and related implementation practices. Also

contributing is DOD’s downsizing of depot infrastructure and workforce.

As a result, the investment in capital equipment and human capital

resources for DOD’s depot facilities declined significantly. Today’s military

depot capability is primarily in the repair of older systems and equipment.

At the same time, the average age of the depot worker is 46 with about

one-third eligible to retire within the next five years. The Department has

only recently begun to consider changes to core capability policies that

will generate the workloads, the facilities, and the personnel required to

support future core capabilities in government facilities. Consequently, the

Department lacks strategic and related service implementation plans that

address the development of future capabilities for both the maintenance

facilities and the workforce.

Capital investments in depot facilities and plant equipment declined

sharply in the mid-1990s as a consequence of defense downsizing, depot

closures and consolidations, and DOD plans to increase reliance on the

private sector for logistics support of new weapon systems. As a result of

DOD’s lack of investment in its internal depot system—particularly, by not

assigning new and upgraded systems to the depots for repair—the military

depot system is aging and is not keeping up with the latest technologies. In

recent years, funding has started to increase slightly as the services have

recognized the need to modernize the depots. As with any business,

modernizing and refurbishing plant and equipment for optimal operating

efficiency, as well as acquiring new capabilities and cutting-edge

technologies linked to new workloads, are important to future viability of

the military depots. Figure 4 depicts depot investments from fiscal years

1990 through 2000 from the three primary funding sources—the capital

purchases program,22 military construction, and new weapon systems

 22 The capital purchases program is funded through equipment depreciation expenses that

are built into the maintenance rates charged customers by the military services’ working

capital funds.

Investments In

Facilities, Equipment,

and Personnel Have

Been Insufficient

Future Viability of

Maintenance Depots

Affected by Lack of

Investment in New

Capability
Page 27 GAO-02-105 Defense Logistics Capabilities

procurement and upgrade programs. The depiction has been adjusted for

inflation.

Figure 4: Capital Investments in Maintenance Depots

Source: DOD. Expressed in base year 2000 dollars.

Of the estimated $3 billion in capital investment funding the military

depots received between fiscal years 1990 and 2000, about 60 percent was

for the capital purchases program that buys equipment to replace old

depreciated equipment. Funding for this program was much lower during

the 1990s than under its predecessor programs in the 1980s. More recently,

funding levels have increased; but almost one-half of the funds went to

meet environmental requirements, to purchase general use computers, and

to do minor construction—requirements that may be needed for business

purposes but typically do not increase maintenance production

capabilities or add new technological capabilities to accomplish new

workloads.
Page 28 GAO-02-105 Defense Logistics Capabilities

The military construction appropriation funds new and replacement depot

facilities. Military construction represents about 26 percent of the total

depot capital investments between 1990 and 2000. For example, a 1998

project at Corpus Christi Army Depot provided a power train cleaning

facility to add capability to clean new, specialized metals on Apache and

Blackhawk helicopters. The bulk of military construction funding has gone

to replace or modernize existing facilities or to increase capacity.

Since the military depots have not been assigned much new work, they

have received relatively little funding from the third source of

funds procurement funds provided by weapon system program offices.

Available data shows that the depots received about $403 million through

capital investments from program offices between 1990 and 2000—

representing about 14 percent of the total capital investment in the depots

during that period. This source is the most important in terms of adding

new capabilities such as modern repair technologies. System program

managers are responsible for providing these funds to support new

weapon systems being acquired. A complete and accurate accounting of

the historical and planned amounts contributed to capitalizing the depots

by weapon system program offices does not exist since the services do not

centrally track and account for these funds. With the repair of newer

technology items remaining with the private sector for most new systems,

the military depots have not been getting the peculiar support equipment,

technical data, and other resources needed to build a depot capability for

supporting the new systems. For example, the Air Force recently

attempted to identify contract workloads that could be brought in-house

to help it meet the 50-percent limit on private sector performance of depot

maintenance set forth in 10 U.S.C. 2466 but found that the depots were

unable to take on these workloads without investment in new capability.

DOD faces significant management challenges in succession planning to

maintain a skilled workforce at its depot maintenance facilities. Like many

other government organizations, relatively high numbers of civilian

workers at maintenance depots are nearing retirement age. These

demographics, coupled with the highly skilled nature of depot

maintenance work and the length of time required to train new hires and

support their progression to a journeyman level and beyond, create hiring,

training, and retention challenges. Competition with the private sector for

skilled workers and pay issues add to the current challenging situation.

Reductions in the civilian workforce by more than half since the end of the

Cold War have left an aging depot workforce. As a result of depot closures

and other downsizing initiatives, the civilian depot workforce has been

The Aging Workforce

Presents Significant

Human Capital Challenges

for Succession Planning
Page 29 GAO-02-105 Defense Logistics Capabilities

reduced by about 60 percent since 1987. Many of the youngest industrial

workers were eliminated from the workforce while at the same time there

were few hiring actions. An aging depot workforce has advantages in

terms of the skill levels of the employees, but it also has disadvantages

such as lack of familiarity with the newest technologies because the latest

weapons have not generally been repaired in the military depots. With

large numbers of retirement-eligible personnel, depot managers are

concerned about the need to manage the losses of critical skills and

regrow the talents that are needed to maintain a high quality workforce.

The skills and institutional experience are necessary to maintain an

effective and flexible workforce that is capable of performing the required

work efficiently and effectively. If production capability similar to current

levels is to be maintained, many new workers will be needed. With an

average age of 46 and about one-third eligible to retire within the next 5

years, these data are comparable to other studies of DOD’s total civilian

workforce. Table 1 provides average age and retirement eligibility data for

each of DOD’s major depot activities.

Table 1: Retirement Eligibility Status and Average Age of the Total Civilian Depot

Maintenance Work Force

Defense maintenance depots

FY 2001

staffing levels

Percent eligible

for retirement

by FY 2005

Average

age

Army depots

Anniston Army Depot 1,792 38 51

Corpus Christi Army Depot 2,852 27 50

Letterkenny Army Depot 728 26 49

Red River Army Depot 767 53 49

Tobyhanna Army Depot 2,243 48 49

Total Army 8,382 37 50

Navy depots

Cherry Point Aviation Depot 3,635 50 47

Jacksonville Aviation Depot 3,664 38 48

North Island Aviation Depot 3,248 45 48

Norfolk Naval Shipyard 6,582 22 45

Pearl Harbor Naval Shipyard 3,416 31 46

Portsmouth Naval Shipyard 3,280 24 45

Puget Sound Naval Shipyard 7,380 24 45

Keyport Undersea Warfare Centera600 35 47

Crane Naval Surface Warfare Centera 368 35 44

Total Navy 32,173 31 46
Page 30 GAO-02-105 Defense Logistics Capabilities

Defense maintenance depots

FY 2001

staffing levels

Percent eligible

for retirement

by FY 2005

Average

age

Marine Corps depots

Albany Logistics Base 858 31 48

Barstow Logistics Base 828 25 48

Total Marine Corps 1,686 28 48

Air Force depots

Aerospace Maintenance and

Regeneration Centerb

493 54 51

Ogden Air Logistics Center 4,929 25 47

Oklahoma Air Logistics Center 8,621 24 44

Warner Robins Air Logistics Center 6,075 30 45

Total Air Force 20,118 27 45

Total defense maintenance depots 62,359 30 46

a

The Navy Warfare Centers are primarily involved in research and development activities, but do

accomplish some depot maintenance.

b

The Aerospace Maintenance and Regeneration Center responsibilities include storing aircraft

removed from inventory and providing parts, in addition to some depot work.

Source: Department of Defense data.

As indicated in table 1, by fiscal year 2005, about 30 percent of the current

employees will be retirement-eligible. The percentage is highest in the

Army at 37 percent and lowest in the Air Force at 27 percent. With an

average age of 50, the Army depots have the oldest workers and the Air

Force the youngest, with an average age of 45. Two facilities—one Air

Force and one Army— share the position of having the oldest workers.

The extent of the aging depot workforce problem is influenced by the

extent to which the depots retain work requirements in the future. If

current levels are retained, large numbers of new workers will be needed;

but if the workload levels continue to decline, the problem will be less

severe. Marine Corps officials told us that while the Marine Corps has an

aging workforce problem, the primary challenge is lack of work. They

noted that over the next 2 years, the Marine Corps is projecting a 26-

percent reduction in its depot maintenance workforce as older systems are

phased out and maintenance and repair work for new systems go to the

private sector. Thus, the aging workforce issue is less problematic if this

workload reduction occurs.

In most cases, depot managers report they have been relatively successful

in meeting their recruitment goals in the past; but they said they have had

difficulty hiring younger workers and sufficient numbers of workers with
Page 31 GAO-02-105 Defense Logistics Capabilities

specialized skills such as software maintenance. A Department of Labor

standard sets a 4-year apprenticeship for acquiring trade skills, and some

depot managers said workers in some of the industrial skill areas require 3

or more years of training before they reach the journeyman level. Depot

managers indicate that they are behind where they should be in hiring new

workers to revitalize human capital resources. Surveys of young adults

entering the general workforce indicate that fewer are considering careers

in government, and this is particularly true for the depots since workers

are uncertain what future there is for these activities. A national shortage

of software engineers, skilled mechanics, metal workers, machinists, and

some other skill areas exacerbates the military depots’ human capital

challenges since the military facilities are competing with the private

sector for workers.

Current personnel policies, procedures, and other factors may not support

timely replacement of depot personnel. As previously noted, many highly

skilled workers require 3 or more years to develop technical expertise

under the on-the-job tutelage of experienced workers. Inflexible hiring

practices inhibit timely hiring, and the historical recruiting pool of skilled

workers has been reduced as the number of military maintenance

personnel has declined.

The services have lately recognized the need to address depot

maintenance infrastructure and workforce issues, but improvement plans

are still being developed and actions are in the early stages. No overall

plan exists that ties investments in depot maintenance facilities and plant

equipment with future workloads and, in turn, with human capital needs.

Officials have identified significant funding requirements associated with

hiring, training, and retaining depot workers. To replace retiring workers,

the services will have to greatly increase the rate of new hires.

None of the services has a comprehensive depot infrastructure plan that

integrates expected future core capabilities with necessary capital

investments required to establish that capability and which identifies

budget requirements to implement that plan. In response to Congressional

concerns in this area (that evolved from the Air Force statements that it

cannot address its 50-50 workload imbalance by shifting some private

sector work to military depots because of not having the required depot

support resources), the Air Force is working on such a plan. Air Force

officials expect the depot infrastructure plan to be completed in December

2001. Since this plan is not yet available, we do not know whether it will

provide the roadmap needed to effectively manage this critical resource.

While Army, Navy, and Marine officials have undertaken some initiatives

Strategic Plan to Shape

Future Maintenance

Infrastructure and Human

Capital Investment

Requirements Is Needed

Some Recognition That Action

Is Needed
Page 32 GAO-02-105 Defense Logistics Capabilities

intended to improve their depot management, these efforts do not provide

a comprehensive plan to shape future maintenance infrastructure. Given

the preliminary status of these efforts, it is unclear to what extent they will

mitigate or resolve identified deficiencies in this area.

Further, we noted that generally each service is studying and pursuing

workforce-shaping efforts independently. Current initiatives to revitalize

the depot personnel workforce may not completely resolve the potential

personnel shortfall. For example, efforts to expand the apprenticeship,

cooperative training, and vocational-technical programs are just starting

and involve relatively small numbers to date. Increased funding to support

expanded training needs has not been completely identified and

programmed, and the priority of this initiative relative to other military

requirements is questionable. Personnel officials of the Air Force Materiel

Command, for example, identified a need for $326 million over the next 5

years to implement its human capital initiatives, including payment

incentives and training costs. Only $15 million has been approved. Related

efforts to develop a multi-skilled workforce essential to more efficient

operations of depots have been limited. Very importantly, future

requirements for hiring and training a workforce capable on new systems

and high technology repair processes are not fully known. As discussed

earlier, gaps and deficiencies in core policies and implementation limit

forward-looking actions to identify and acquire future required

capabilities.

DOD officials are also looking to better utilize and expand existing

authorities under the Office of Personnel Management. For example, the

1990 Federal Employees Pay Comparability Act23 provides for use and

funding of recruitment activities, relocation bonuses, and retention

allowances; but the provisions have been used only for white-collar

workers. DOD is seeking to expand the act’s coverage to wage grade

employees at the depots and arsenals, and it is considering a legislative

package of additional authorities that may also be needed. These

proposals are designed to make it easier to hire workers, including exmilitary personnel, and raise monetary incentives to attract and retain

needed talent in areas of shortages and direct competition with the private

sector. These areas include software maintenance, engineering, aircraft

mechanics, and other skill categories. Another issue receiving attention

recently is development of an alternative hiring system to replace the

 23 P.L. 101-509 (Nov. 5, 1990).
Page 33 GAO-02-105 Defense Logistics Capabilities

existing system, which defense personnel specialists say is cumbersome

and untimely.

Logistics activities represent a key management challenge. In our January

2001 high-risk series report, we designated strategic human capital

management as a new government-wide high-risk area because of the

pervasive challenge it represents across the federal government.24 In our

recent performance accountability report on defense we reported that

DOD faces significant challenges in managing its civilian workforce.25 The

sizeable reduction in personnel since the end of the Cold War has led to an

imbalance in age, skills, and experience that is jeopardizing certain

acquisition and logistics capabilities. Its approach to the reductions was

not oriented toward reshaping the makeup of the workforce. DOD officials

voiced concerns about what was perceived to be a lack of attention to

identifying and maintaining a basic level of skills needed to maintain inhouse industrial capabilities as part of the defense industrial base. We

concluded that these concerns remain today and are heightened by DOD’s

increased emphasis on contracting for many of its functions. Maintenance

is an important element of those activities; and DOD is at a critical point

with respect to the future of its maintenance programs, that are linked to

its overall logistics strategic plan. However, it is unclear what future role is

planned for the military depots in supporting the Department’s future

maintenance program.

There is no DOD-wide integrated study effort for depot workers and

related logistics activities similar to the extensive review of the civilian

acquisition workforce undertaken by the Acquisition 2005 Task Force. The

Under Secretary of Defense for Acquisition, Technology and Logistics

established the task force to take a comprehensive look across the

services to identify human capital challenges and solutions as well as the

resources needed to implement them. The October 2000 final report of the

acquisition task force noted that to meet the demands caused by an

acquisition workforce retirement exodus in 3 to 5 years, implementation of

recommended initiatives had to begin by the next quarter.

Before DOD can know the magnitude of the challenge of revitalizing its

depot facilities and equipment and its depot workforce, it must first know

 24 High-Risk Series: An Update (GAO-01-263, Jan. 2001).

25 Major Management Challenges and Program Risks: Department of Defense

(GAO-01-244, Jan. 2001).

No Overall Strategic Plan
Page 34 GAO-02-105 Defense Logistics Capabilities

what its future workloads will be; what facility, equipment, and technical

capability improvements will be required to perform that work; and what

personnel changes will be needed to respond to retirements and workload

changes. Since the services have not yet conducted an assessment to

enable the identification of future requirements in sufficient detail to

provide a baseline for acquiring needed resources, they are behind in

identifying solutions and required resources to implement them.

Regarding non-depot maintenance logistics activities, the Department has

not established policies or processes for identifying core capabilities for

activities such as supply support, engineering, and transportation. Without

identifying those core logistics activities that need to be retained in-house,

the services may not retain critical capabilities as they proceed with

contracting initiatives. The resulting shortfalls in non-depot maintenance

logistics capability could impact the Department’s ability to effectively

support required military operations.

Officials of the Office of the Secretary of Defense have stated that DOD

has not identified any core capabilities nor implemented a core

determination process for any logistics activities other than depot

maintenance. As we understand it, DOD does not believe that 10 U.S.C.

2464 necessarily includes logistics functions other than depot

maintenance. We believe that notwithstanding any lack of clarity in the

coverage of 10 U.S.C. 2464, a well-thought-out and well-defined policy and

process for identifying core requirements in other areas of logistics is

necessary to maintain the government’s capability to support its essential

military systems in time of war or national emergency. Resolving this

policy issue is becoming more important as DOD increases outsourcing

and develops new strategies to rely on the private sector to perform many

logistical support activities. We note that the September 2001 QDR report

discusses DOD’s plans to assess support functions to identify core from

non-core functions.

The current version of 10 U.S.C. 2464 is not specifically limited to depot

maintenance—it refers generally to “core logistics capabilities.” On the

other hand, the operative provisions of 10 U.S.C 2464 are set forth in terms

of capabilities needed to maintain and repair weapon systems and other

military equipment and the workloads needed to accomplish those

activities; these are functions encompassed within depot maintenance as

defined by 10 U.S.C. 2460. While the coverage of 10 U.S.C. 2464 is not

clear, we nevertheless think that from an operational standpoint, the core

identification process ought to include those logistics functions that are

necessary to support the depot maintenance on mission essential weapons

Policy Gaps Could

Lead to Shortfalls in

Non-Depot

Maintenance Logistics

Capabilities
Page 35 GAO-02-105 Defense Logistics Capabilities

and equipment. Section 2464 of title 10 is aimed at maintaining the

government’s capability to support its essential military systems in time of

war or national emergency. We think that it is reasonable to expect that

DOD will include in the core process those logistics functions that are

determined to be necessary to achieve such a result.

Providing military readiness through the logistics support of military

forces in an operational environment requires a complex set of functions

and activities that includes maintenance, supply support, transportation,

engineering, and others. In recent years, DOD has contracted for more of

these activities. However, the Department has not laid out a strategic

framework describing what combination of public and private sector

support is expected as an end state and why certain activities or positions

should be retained as government-performed activities. In a recent report26

we noted that operating command officials have raised concerns about the

impact on their operations that may result from expanding the use of

contractors. Among their concerns was that increased contracting could

reduce the ability of program offices to perform essential management

functions. During this review, officials told us that they have experienced

increasing problems in fulfilling oversight responsibilities because they

cannot obtain adequate insight into contractor-supported programs.

Additionally, logistics officials at depots and service headquarters have

also raised concerns about the need to retain in-house technical and

management capabilities in functional areas such as engineering and

supply management. Because of the criticality of these and other logistics

activities, a core assessment would improve the Department’s ability to

manage these activities and to better determine capabilities that should be

retained in-house and those that should be available for competitive

sourcing.

Serious weaknesses exist in the Department’s policy and practices for

developing core depot maintenance capabilities that are creating gaps

between actual capabilities and those that will be needed to support future

national defense emergencies and contingencies. If the existing policy is

not clarified and current practices continue, the military depots will not

have the equipment, facilities, and trained personnel to work on and

provide related logistics support on many of the weapon systems and

related equipment that will be used by the military in the next 5 to 15

 26 Defense Logistics: Air Force Lacks Data to Assess Contractor Logistics Support

Approaches (GAO-01-618, Sept. 7, 2001).

Conclusions
Page 36 GAO-02-105 Defense Logistics Capabilities

years. While the Department states that it intends for its depots to have

these capabilities, actual practices are much different. Core policy does

not adequately take into consideration future systems repair needs and the

impact of retiring systems on developing future capabilities. The core

policy is not linked to the source of repair process. Also, other individual

service practices negatively impact the establishment of future core

capabilities and hinder management oversight. Additionally, investments

in new facilities, equipment, and workforce training and revitalization have

been limited for an extended period of time. Lastly, there is no strategic

plan and associated service implementation plans to create and sustain a

viable depot maintenance capability.

Regarding non-depot maintenance logistics activities, core policies and

implementing processes do not exist. Without such policies and in the

absence of a strategic approach to determining what kinds and how much

logistics should be retained in-house, the Department may inadvertently

contract for logistics capabilities that are needed to be performed in-house

to meet readiness and contingency needs.

To enhance the management of core logistics capabilities, particularly for

depot maintenance, we recommend that the Secretary of Defense direct

the Under Secretary of Defense for Acquisition, Technology and Logistics,

in conjunction with the appropriate military services activities, take the

following actions:

• Revise depot maintenance core policy to include a forward look to

incorporate future systems and equipment repair needs when

developing core capability requirements and a direct link to the source

of repair process. Revise depot maintenance core implementation

procedures and practices to (1) establish criteria for determining what

it means to have a capability in military depots to perform maintenance

on mission essential systems in support of national defense

emergencies and contingencies; (2) prohibit the use of the risk

assessment to the extent it results in the inclusion of private-sector

capability within identified core capabilities; (3) clarify the use of the

adjustment factor and other elements of the computation methodology;

and (4) link core requirements to the budget process to ensure

adequate funding of core support workload requirements.

• Establish expedited milestones for developing strategic and related

implementation plans for the use of military depots that would identify

desired short- and long-term core capabilities and associated capital

investments and human capital needs. These plans at a minimum

Recommendations for

Executive Action
Page 37 GAO-02-105 Defense Logistics Capabilities

should (1) delineate workloads to be accomplished in each service’s

depots, other services’ depots, by contractors at their own sites, and at

government sites; (2) discuss the role of in-house maintenance

capability as an element of each service’s ability to respond to national

defense emergencies and contingencies; (3) identify infrastructure

improvements designed to operate more efficiently; and (4) address

human capital needs and the specific actions that will be taken to meet

them.

• Establish milestones and accountability for developing policies to

identify core logistics capabilities for non-maintenance activities to

ensure in-house retention of needed capabilities for an emergency.

Congress may wish to review the coverage of 10 U.S.C. 2464 as it relates to

non-maintenance logistics activities such as supply support,

transportation, and engineering, and if it deems it appropriate, clarify the

law.

In commenting on a draft of this report, the Department concurred with

our recommendations to improve core depot maintenance policies and

procedures and to develop strategic and implementation plans for

maintenance depots. Appendix IV of this report is the full response by the

Department.

The Department did not concur with our recommendation to establish

milestones and accountability for developing policies to identify core

logistics capabilities for non-maintenance activities. The Department

stated that it has not identified any core logistics capabilities beyond those

associated with depot maintenance and repair as that term is defined in 10

U.S.C. 2460. Therefore, the Department saw no need to establish

milestones and accountability for developing core policies for nonmaintenance activities. In further discussions of this matter, officials

reiterated their earlier comments that the coverage of 10 U.S.C. 2464 for

non-maintenance activities was not clear.

We recognize that there is some question about the applicability of 10

U.S.C. 2464 to non-maintenance logistics activities. Thus, we included a

matter for congressional consideration in this report, noting that the

Congress may wish to consider reviewing and clarifying the intent of 10

U.S.C. 2464 as it relates to non-maintenance logistics activities.

Matter for

Congressional

Consideration

Agency Comments

and Our Evaluation
Page 38 GAO-02-105 Defense Logistics Capabilities

We continue to believe the identification of core capabilities for other

logistics activities to improve the Department’s ability to manage these

activities and to better support business decisions regarding whether

functions and capabilities should be retained in-house. Providing military

readiness through the logistics support of military forces in an operational

environment requires a complex set of functions and activities such as

maintenance, supply support, transportation, and engineering. The

interrelatedness of the entire spectrum of logistics activities would argue

that attention to core capabilities is important to non-maintenance as well

as depot maintenance activities. For example, program managers and

depot officials have raised management concerns including oversight of

weapon systems support and retention of in-house technical skills and

expertise given increased outsourcing of logistics activities. Further, the

best practices of private sector companies, business reengineering

principles, and OMB A-76 guidance all support the importance of an

enterprise determining which vital and cost-effective functions and

business processes should be retained in-house and which are appropriate

for outsourcing. Our recommendation that the department extend its core

analysis beyond wrench-turning maintenance activities to include those

other logistics activities that are linked to the depot maintenance function

is intended to assure that the Department appropriately consider what

specific activities should be retained inhouse to assure the continued

support of essential warfighting capability. We continue to believe it

should be adopted.

We are sending copies of this report to the Secretary of Defense, the

Secretary of the Army, the Secretary of the Navy, the Secretary of the Air

Force, the Commandant of the Marine Corps, and the Director of the

Office of Management and Budget. The scope and methodology for this

review are described in appendix II. If you have questions about this

report, please call me at (202) 512-8412 or Julia Denman at 202 512-4290.

Additional contacts and staff acknowledgements are provided in appendix

III.

David R. Warren, Director

Defense Capabilities and Management
Appendix I: DOD Initiatives That Could

Affect Core and Core-Related Processes

Page 39 GAO-02-105 Defense Logistics Capabilities

Alternative 1 proposes updating and consolidating existing DOD corerelated policy and guidance, explicitly addressing core-related laws. It

would not involve any significant changes to the core methodology. This

alternative would realign somewhat and standardize the categories in

which the services report core maintenance workloads. Core depot

maintenance capability requirements would continue to be computed

biennially, addressing only existing systems; and the overall core

determination process would continue to be relatively independent of the

DOD planning, programming, and budgeting system.

Alternative 2 proposes building on the first alternative by streamlining the

existing core methodology and establishing an explicit linkage with the

DOD planning, programming, and budgeting system. It also would divide

the core methodology into two distinct parts to more clearly distinguish

between core capability requirements and the depot maintenance

workloads needed to satisfy those requirements. Detailed core

computations would be performed on a biennial basis in conjunction with

the planning, programming, and budgeting system in order to address both

requirements for new systems and changes to existing systems. Also, core

computations would be reviewed annually to assess the impact of

unanticipated budgetary adjustments.

Alternative 3 proposes building on the second alternative by incorporating

a value-driven source-of-repair evaluation process for workloads that are

not required to support core depot maintenance capabilities. This appears

to be a more prescriptive expansion of the current version of the core

methodology concerning the types of analysis that should be done as a

part of the value-driven decision. Depending on the amount and ultimate

source-of-repair decisions reached through the value-driven process,

implementation of alternative 3 could necessitate issuance of waivers from

the 10 U.S.C. 2466 (50-50) requirements.

Alternative 4 proposes doing away with the core process as it is known

today and using a value-driven source of repair evaluation process for all

depot maintenance workloads. In this context, it would be used to allocate

depot maintenance workloads among public, private, and integrated

maintenance activities. It could not be implemented without the revision

or repeal of 10 U.S.C. 2464, 10 U.S.C. 2466, and 10 U.S.C. 2469.

In October 2001, DOD managers selected alternative 2 and issued new

implementation guidance. Improvement efforts were ongoing at the time

this report was issued.

Appendix I: DOD Initiatives That Could

Affect Core and Core-Related Processes

Proposed Office of the

Secretary of Defense

Alternatives for Revising

the DOD Core Process
Appendix I: DOD Initiatives That Could

Affect Core and Core-Related Processes

Page 40 GAO-02-105 Defense Logistics Capabilities

In fiscal year 2000, the Air Force exceeded the 50-percent limit set forth in

10 U.S.C. 2466 on the amount of depot maintenance work that can be

performed in the private sector. Largely because of this, we found a

heightened awareness of the need to put more emphasis on incorporating

core capability analysis with the source-of-repair process to drive some

future workloads into the military depots. Air Force officials have taken

some steps designed to better integrate the source-of-repair process and

logistics considerations with acquisition program decisions. For example,

senior Air Force officials issued a series of policy memos in 1999 and 2000

that were aimed at integrating the source-of-repair process with

acquisition program decisions. The intent was to ensure that sustainment

plans for new and modified weapon systems consider the future impacts

on depot workloads allocated to the public and private sectors. These

changes are designed to ensure that core capability, life-cycle costs, and

other logistics considerations such as the 50-50 rule are considered at all

stages of the acquisition process and figure prominently in decisions on

lifetime support. Officials also revised guidance to incorporate

recommended improvements and to specify both the acquisition and

sustainment communities’ roles and responsibilities.

While these are steps in the right direction, we have not yet seen

substantive change reflected in the source-of-repair decisions. Materiel

Command officials acknowledged that although the Air Force has made an

effort to identify systems to redirect for repair by a military depot,

program office officials have been reluctant to make changes. Officials

said that since program funds to cover the acquisition of technical data,

depot plant equipment, and other resources needed to establish capability

in military depots have not been programmed, there is little flexibility in

the short term. In a March 2001 hearing held by the House Committee on

Armed Services, Air Force officials said they are working on a longer-term

plan to consider options for reassigning some new systems maintenance

work to Air Force depots. This plan is expected to be completed in

December 2001, but it is uncertain whether any workloads will be

identified for reassignment to an Air Force depot for repair.

The Navy is in the very early stages of implementing a process to improve

its management of aviation maintenance issues; and, while in an early

phase, Navy officials have identified core support repair work in the

Navy’s North Island depot for the F/A-18 E/F, its newest fighter upgrade. In

August 2000, the Naval Air Systems Command instituted a Depot Program

Management Board to improve its source-of-repair process. The board is

supposed to corporately manage the naval aviation industrial enterprise,

which encompasses the combined capabilities and resources of organic

Air Force Initiatives

Navy Initiatives
Appendix I: DOD Initiatives That Could

Affect Core and Core-Related Processes

Page 41 GAO-02-105 Defense Logistics Capabilities

Navy, interservice, and commercial aviation depots. The board includes

key logistics and acquisition officials from within the Command whose

responsibilities and authority have a major impact on the size, shape, and

cost of the naval aviation industrial base. Its responsibilities include

determining and sustaining core naval aviation industrial capability and

capacity and guiding best-value, industrial source-of-repair decisions. At

its inaugural meeting in August 2000, the board concluded that the

industrial enterprise needed a more unified corporate source-of-repair

decision process to ensure that the technology for core capability is

maintained. The process is still on the drawing board and implementing

instructions have not yet been developed. However, Navy officials say that

the new process influenced the 2001 Navy decisions requiring repair work

to support core capability for the F/A-18 E/F at the North Island depot.

The Army is attempting to improve the cost-effectiveness of its depot

maintenance program by better utilizing the industrial capability that it

currently maintains by increasing the amount of work assigned to the

Army’s depots and arsenals, but the long-term impact is uncertain. In July

1999, the Assistant Secretary of the Army for Acquisition, Logistics and

Technology issued guidance that gave the Army Materiel Command the

responsibility for achieving optimal efficiency within the organic depot

system. Prior to 1999, the acquisition community operated under policy

guidance advocating contractor performance and the development of longterm support relationships with private sector contractors. Some officials

believe that Army policy and practice is trying to better use the Army

depots and achieve improved efficiencies. The Army also revised its

acquisition guidance to require a source-of-repair decision by acquisition

milestone two, the beginning of engineering and manufacturing

development. Logistics officials believe this initiative is important to

ensuring that core and other logistics considerations are made an earlier

part of acquisition program decisions.

Army Initiatives
Appendix II: Scope and Methodology

Page 42 GAO-02-105 Defense Logistics Capabilities

During this review, we visited and obtained information from the Office of

the Secretary of Defense and the Army, Navy, and Air Force headquarters,

all in the Washington D.C. area; Army Materiel Command headquarters in

Alexandria, Virginia; and two subordinate Army commands—the TankAutomotive and Armaments Command, Warren, Michigan, and the

Aviation and Missile Command, Huntsville, Alabama; the Naval Sea

Systems Command, Arlington, Virginia, and the Norfolk Navy Shipyard,

Norfolk, Virginia; the Naval Air Systems Command in Patuxent, Maryland,

and Naval Air Depots at North Island, California, and Cherry Point, North

Carolina; the Marines Corps Materiel Command and Logistics Base in

Albany, Georgia; the Air Force Materiel Command at Wright-Patterson Air

Force Base, Ohio, and the Ogden Air Logistics Center in Ogden, Utah; and

the Joint Depot Maintenance Analysis Group, Wright-Patterson Air Force

Base, Ohio.

To determine whether DOD has implemented an effective core depot

maintenance policy, we reviewed defense core policy and applications

from a historical perspective to trace their development and use in

decision-making. We reviewed the standard core methodology developed

by DOD, changes in the methodology, and the specific procedures and

techniques used by the military services to compute core requirements.

We also obtained and reviewed logistics and acquisition policies and

procedures for sustaining weapon systems, including source-of-repair and

other decision tools. We obtained historical core computation data to

identify trends in core workloads. We compared and contrasted the

services’ methodologies for computing core and for making source-ofrepair decisions. We evaluated recent maintenance decisions and pending

decisions to determine the basis and support for decisions and current

status of systems being reviewed. We reviewed a recent departmental

report that evaluated the services’ procedures for computing core

requirements and set out alternatives for consideration of improvements.

To determine the extent to which DOD’s investments in facilities,

equipment, and human capital are adequate to support the long-term

viability of military depots, we reviewed current service efforts to address

depot issues and concerns and emerging business strategies and concerns,

including plans to modernize and recapitalize the depots. We also issued a

data call and received information from all 19 major defense depots. The

purpose of the data call was to gain the local perspective of depot officials

on recent events affecting business operations and to obtain data on their

plans, business strategies, and capital investments. We gathered and

summarized information on the size and scope of depot activities, new

repair workloads received and/or planned for the depots, as well as

Appendix II: Scope and Methodology
Appendix II: Scope and Methodology

Page 43 GAO-02-105 Defense Logistics Capabilities

workloads lost (or expected to be lost) for fiscal years 1995-2005. We

summarized recent and planned investments in depot plants and

equipment to determine the amount, nature, and trend in capital

investments. We reviewed plans to address human capital issues, in

particular the hiring and training plans to replace an aging maintenance

work force, cost estimates, and legislative proposals being considered to

address these issues. We also relied on our extensive and continuing work

on human capital issues, both in the defense environment and the federal

government as a whole.

To determine the extent to which DOD has identified core capability for

logistics activities other than depot maintenance, we discussed with

officials their perspectives on core legislation and their historical

responses to congressional requirements. We relied also on our previous

work on the A-76 process and prior reviews of logistics activities and

plans.

We conducted our review from September 2000 through June 2001 in

accordance with generally accepted government auditing standards.
Appendix III: GAO Contacts and Staff

Acknowledgments

Page 44 GAO-02-105 Defense Logistics Capabilities

David R. Warren(202) 512-8412

Julia C. Denman(202) 512-4290

In addition, John Brosnan, Raymond Cooksey, Bruce Fairbairn, Johnetta

Gatlin-Brown, Jane Hunt, Steve Hunter, Glenn Knoepfle, Ron Leporati,

Andrew Marek, Fred Naas, and Bobby Worrell contributed to this report.

Appendix III: GAO Contacts and Staff

Acknowledgments

GAO Contacts

Acknowledgments
Appendix IV: Comments by the Department of

Defense

Page 45 GAO-02-105 Defense Logistics Capabilities

Appendix IV: Comments by the Department

of Defense

Note: Draft report was

submitted as GAO-01-

612.
Appendix IV: Comments by the Department of

Defense

Page 46 GAO-02-105 Defense Logistics Capabilities
Appendix IV: Comments by the Department of

Defense

Page 47 GAO-02-105 Defense Logistics Capabilities
Appendix IV: Comments by the Department of

Defense

Page 48 GAO-02-105 Defense Logistics Capabilities
Related GAO Reports

Page 49 GAO-02-105 Defense Logistics Capabilities

Defense Logistics: Strategic Planning Weaknesses Leave Economy,

Efficiency, and Effectiveness of Future Support Systems at Risk (GAO02-106, Oct. 11, 2001).

Defense Logistics: Air Force Lacks Data to Assess Contractor Logistics

Support Approaches (GAO-01-618, Sept. 7, 2001).

Human Capital: Major Human Capital Challenges at the Departments of

Defense and State (GAO-01-565T, Mar. 29, 2001).

Defense Maintenance: Sustaining Readiness Support Capabilities

Requires a Comprehensive Plan (GAO-01-533T, Mar. 23, 2001)

Major Management Challenges and Program Risks: Department of

Defense (GAO-01-244, Jan. 2001).

High Risk Series: An Update (GAO-01-263, Jan. 2001).

Depot Maintenance: Key Financial Issues for Consolidations at Pearl

Harbor and Elsewhere Are Still Unresolved (GAO-01-19, Jan. 22, 2001).

Depot Maintenance: Action Needed to Avoid Exceeding Ceiling on

Contract Workloads (GAO/NSIAD-00-193, Aug. 24, 2000).

Defense Logistics: Integrated Plans and Improved Implementation

Needed to Enhance Engineering Efforts (GAO/T-NSIAD-00-206, June 27,

2000).

Defense Logistics: Actions Needed to Enhance Success of Reengineering

Initiatives (GAO/NSIAD-00-89, June 23, 2000).

Defense Logistics: Air Force Report on Contractor Support Is Narrowly

Focused (GAO/NSIAD-00-115, Apr. 20, 2000).

Human Capital: Strategic Approach Should Guide DOD Civilian

Workforce Management (GAO/T-NSIAD-00-120, Mar. 9, 2000).

Depot Maintenance: Air Force Faces Challenges in Managing to 50-50

Ceiling (GAO/T-NSIAD-00-112, Mar. 3, 2000).

Military Base Closures: Lack of Data Inhibits Cost-Effectiveness

Analyses of Privatization-in-Place Initiatives (GAO/NSIAD-00-23, Dec.

20, 1999).

Related GAO Reports
Related GAO Reports

Page 50 GAO-02-105 Defense Logistics Capabilities

Depot Maintenance: Army Report Provides Incomplete Assessment of

Depot-type Capabilities (GAO/NSIAD-00-20, Oct. 15, 1999).

Depot Maintenance: Workload Allocation Reporting Improved, but

Lingering Problems Remain (GAO/NSIAD-99-154, July 13, 1999).

Air Force Logistics: C-17 Support Plan Does Not Adequately Address Key

Issues (GAO/NSIAD-99-147, July 8, 1999).

Army Logistics: Status of Proposed Support Plan for Apache Helicopter

(GAO/NSIAD-99-140, July 1, 1999).

Air Force Depot Maintenance: Management Changes Would Improve

Implementation of Reform Initiatives (GAO/NSIAD-99-63, June 25, 1999).

Navy Ship Maintenance: Allocation of Ship Maintenance Work in the

Norfolk, Virginia, Area (GAO/NSIAD-99-54, Feb. 24, 1999).

Army Industrial Facilities: Workforce Requirements and Related Issues

Affecting Depots and Arsenals (GAO/NSIAD-99-31, Nov. 30, 1998).

Navy Depot Maintenance: Weaknesses in the T406 Engine Logistics

Support Decision (GAO/NSIAD-98-221, Sep. 14, 1998).

Defense Depot Maintenance: Contracting Approaches Should Address

Workload Characteristics (GAO/NSIAD-98-130, June 15, 1998).

Defense Depot Maintenance: Use of Public-Private Partnering

Arrangements (GAO/NSIAD-98-91, May 7, 1998).

Defense Depot Maintenance: DOD Shifting More Workload for New

Weapon Systems to the Private Sector (GAO/NSIAD-98-8, Mar. 31, 1998).

Defense Depot Maintenance: Information on Public and Private Sector

Workload Allocations (GAO/NSIAD-98-41, Jan. 20, 1998).

Outsourcing DOD Logistics: Savings Achievable But Defense Science

Board’s Projections Are Overstated (GAO/NSIAD-98-48, Dec. 8, 1997).

Navy Regional Maintenance: Substantial Opportunities Exist to Build

on Infrastructure Streamlining Progress (GAO/NSIAD-98-4, Nov. 13,

1997).
Related GAO Reports

Page 51 GAO-02-105 Defense Logistics Capabilities

Air Force Depot Maintenance: Information on the Cost-Effectiveness of

B-1 and B-52 Support Options (GAO/NSIAD-97-210BR, Sept. 12, 1997).

Defense Depot Maintenance: Uncertainties and Challenges DOD Faces in

Restructuring Its Depot Maintenance Program (GAO/T-NSIAD-97-112,

May 1, 1997) and (GAO/T-NSIAD-97-111, Mar. 18, 1997).

Defense Outsourcing: Challenges Facing DOD as It Attempts to Save

Billions In Infrastructure Costs (GAO/T-NSIAD-97-110, Mar. 12, 1997).

High-Risk Series: Defense Infrastructure (GAO/HR-97-7, Feb. 1997).

Air Force Depot Maintenance: Privatization-in-Place Plans Are Costly

While Excess Capacity Exists (GAO/NSIAD-97-13, Dec. 31, 1996).

Army Depot Maintenance: Privatization Without Further Downsizing

Increases Costly Excess Capacity (GAO/NSIAD-96-201, Sept. 18, 1996).

Navy Depot Maintenance: Cost and Savings Issues Related to

Privatizing-in-Place at the Louisville, Kentucky Depot (GAO/NSIAD-96-

202, Sept. 18, 1996).

Defense Depot Maintenance: Commission on Roles and Mission’s

Privatization Assumptions Are Questionable (GAO/NSIAD-96-161, July

15, 1996).

Defense Depot Maintenance: DOD’s Policy Report Leaves Future Role of

Depot System Uncertain (GAO/NSIAD-96-165, May 21, 1996).

Defense Depot Maintenance: More Comprehensive and Consistent

Workload Data Needed for Decisionmakers (GAO/NSIAD-96-166, May 21,

1996).

Defense Depot Maintenance: Privatization and the Debate Over the

Public-Private Mix (GAO/T-NSIAD-96-148, Apr. 17, 1996) and (GAO/TNSIAD-96-146, Apr. 16, 1996).

Depot Maintenance: Opportunities to Privatize Repair of Military

Engines (GAO/NSIAD-96-33, Mar. 5, 1996).

Closing Maintenance Depots: Savings, Workload, and Redistribution

Issues (GAO/NSIAD-96-29, Mar. 4, 1996)
Related GAO Reports

Page 52 GAO-02-105 Defense Logistics Capabilities

Military Base Closures: Analysis of DOD’s Process and

Recommendations for 1995 (GAO/NSIAD-95-132, Apr. 17, 1995).

Military Bases: Analysis of DOD’s 1995 Process and Recommendations

for Closure and Realignment (GAO/NSIAD-95-133, Apr. 14, 1995).

Aerospace Guidance and Metrology Center: Cost Growth and Other

Factors Affect Closure and Privatization (GAO/NSIAD-95-60, Dec. 9,

1994).

Depot Maintenance: Issues in Allocating Workload Between the Public

and Private Sectors (GAO/T-NSIAD-94-161, Apr. 12, 1994).

Depot Maintenance (GAO/NSIAD-93-292R, Sept. 30, 1993).

Depot Maintenance: Issues in Management and Restructuring to

Support a Downsized Military (GAO/NSIAD-93-13, May 6, 1993).

Defense Force Management: Challenges Facing DOD as it Continues to

Downsize Its Civilian Work Force (GAO/NSIAD-93-123, Feb. 12, 1993).

(709518)
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