United States General Accounting Office

GAO Report to Congressional Committees

March 1999 QUADRENNIAL

DEFENSE REVIEW

Status of Efforts to

Implement Personnel

Reductions in the Army

Materiel Command

GAO/NSIAD-99-123

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-281817 

March 31, 1999

Congressional Committees

In May 1997, the Secretary of Defense issued the Report of the

Quadrennial Defense Review (QDR), which directed the Army to reduce

personnel to help free up funds to be used to modernize the force. The

Army expected that the Army Materiel Command (AMC) could significantly

reduce the number of its civilian personnel by increasing reliance on the

private sector. Congress has been concerned about the extent of

reductions in AMC over the years. Accordingly, the Strom Thurmond

National Defense Authorization Act for Fiscal Year 1999 required us to

review the personnel reductions in AMC that were directed as a result of

the QDR. Specifically, this report addresses (1) AMC’s plans and time frame

for achieving the reductions, (2) the projected cost savings from such

reductions, and (3) the cited impacts the reductions will have on workload

and readiness.

Results in Brief The Army Materiel Command has identified various initiatives to eliminate

8,530 civilian positions by fiscal year 2004 as called for in the Quadrennial

Defense Review. The majority of the reductions are now based on planned

organizational changes, operating efficiencies, and anticipated future

workload decreases, with lesser emphasis on competitive sourcing studies

than originally anticipated by the defense review. About 20 percent of the

reductions are expected to occur over the next 2 years, and actions are

underway to achieve the majority of these reductions. Most, or about

80 percent, of the reductions are expected to occur in fiscal years 2001

through 2004. However, plans for some of these reductions are still being

finalized and uncertainties exist about some of these plans.

The Army estimated that the personnel reductions in the Command would

result in $1.4 billion in cumulative savings from fiscal year 1999 through

2004 and $589 million in annual recurring savings thereafter. Our analysis

indicates that estimated savings will be less than anticipated both in the

short and long term. The Army did not account for all of the investment

costs that would be required to achieve the savings. For example, the

Tank-automotive and Armament Command estimated that about

$35 million in investment costs were not included in the Army’s analysis of

projected savings. Also, the Army did not estimate all the personnel

separation costs likely to be associated with implementing the reductions.

Additionally, about $21 million in savings estimated for fiscal year 2000

Page 1 GAO/NSIAD-99-123 Quadrennial Defense Review
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could be delayed because competitive sourcing studies are taking longer

to complete and implement than planned. Furthermore, the savings are

overstated by an estimated $52 million at least through fiscal year 2005

because the Army used higher than average civilian salary costs to

compute its savings. Further, long-term annual recurring savings to the

Army are likely to be as much as 17 percent lower than expected since

some planned personnel reductions reflect positions funded by non-Army

organizations for work done on a reimbursable basis.

Because most of the Quadrennial Defense Review reductions will occur

between 2001 to 2004, much of the impact on workload and readiness is

yet to be determined. Army Materiel Command officials, while expressing

concerns about challenges they face in meeting the reductions, could not

point to any significant adverse effects to date other than on employee

morale. Command officials stated that the ongoing reductions continue to

have only marginal impacts on operations, which they have dealt with so

far through various reorganizations and reengineering actions. The

Command also faces additional personnel reductions beyond those

mandated by the Quadrennial Defense Review.

We are not making any recommendations in this report because it appears

that the Command has enough options to help achieve its reduction goals

by fiscal year 2004. However, as we noted, the savings estimates

associated with these reduction goals are overstated.

Background AMC is responsible for weapon systems development, advanced research,

and the maintenance and distribution of spare parts. With its headquarters

in Alexandria, Virginia, AMC accomplishes its mission through nine major

subordinate commands that direct the operation of numerous

activities—depots, arsenals, ammunition plants, laboratories, test

activities, and procurement operations. AMC is funded through direct

appropriations and reimbursements from the Army’s Working Capital

Fund,1

 other Army activities, and non-Army sources. Approximately

63 percent of AMC’s civilian positions are funded through reimbursements.

In May 1997, the Department of Defense (DOD) completed the QDR, a

comprehensive review of national security threats, risks, and

opportunities facing the United States to 2015. According to DOD, this

1

Under this funding arrangement, applicable to a variety of business activities, an Army activity, such

as AMC, sells goods and services on an inter and intraservice basis on predetermined rates designed to

recoup operating costs. Working capital fund customers pay for the goods and services, primarily with

operation and maintenance funds appropriated by Congress.

Page 2 GAO/NSIAD-99-123 Quadrennial Defense Review
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review intended to provide a blueprint for a strategy-based, balanced, and

affordable program. The review directed the Army to reduce 17,366

civilian positions. The Army allocated 8,530 of these reductions to AMC.

The Army assumed that AMC could eliminate 6,980 positions by conducting

public/private competitive sourcing studies2

 and another 1,550 positions

through implementing other organizational efficiencies. Appendix II shows

the planned reductions among AMC subordinate organizations.

The QDR reductions continue the downsizing of AMC that started in 1989.

Between fiscal year 1989 and 1997, AMC reported reducing the number of

its civilian positions from about 102,000 to 62,000, or 38 percent, as part of

DOD’s overall downsizing. Prior to the QDR, the Army had planned to reduce

AMC to about 56,000 civilians by fiscal year 2003. The QDR will reduce AMC

to about 48,000 positions by fiscal year 2004. In addition to reductions

called for in the QDR, the Army plans to reduce AMC civilian authorizations

by another 2,000 positions between fiscal year 2000 and 2005.

Plan for Achieving the

Personnel Reductions

Is Evolving

The Army’s plan for achieving its AMC personnel reduction goals are still

evolving. However, given the large number of initiatives, there should be

sufficient opportunities to achieve the reductions. The Army originally

planned to achieve most of AMC’s QDR reductions (about 7,000) through

competitive sourcing studies. However, the number of positions initially

considered suitable for such studies is now considerably smaller and the

Army is still uncertain about how many positions will actually be studied.

Consequently, AMC now expects to achieve most of its personnel

reductions through other initiatives to streamline its organization and

achieve operational efficiencies. AMC is making its initial QDR reductions

during fiscal year 1999 and 2000; however, some of the reductions are

expected to take longer to implement than initially anticipated.3

 Most,

about 80 percent, of the total reductions are expected to occur between

fiscal year 2001 and 2004.

Basis for the Reductions

Has Changed

To achieve the QDR reductions, the Army assumed that about 35,000 of

AMC’s civilian positions could be subjected to competitive sourcing studies.

However, in October 1998, after completing action on a DOD directive that

2

These competitive sourcing studies were to be done employing the Office of Management and Budget

Circular A-76 process. See appendix I for a detailed description of the A-76 process.

3

We have reported that while we believe that competitive sourcing studies are likely to produce

savings, we have indicated some uncertainties exist about the magnitude of long-term savings. See

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

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

Page 3 GAO/NSIAD-99-123 Quadrennial Defense Review
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all components uniformly reassess the number of positions that were

commercial in nature and that could be subject to competitive sourcing

studies,4

 the Army concluded that only about 19,000 AMC positions were

clearly suitable for study. It found that nearly 11,000 additional positions

might be candidates for study but first required additional assessment.

This further assessment is expected to be completed by November 1999.

In the short term, AMC was left with a still substantial study universe of

about 19,000 positions. Of that universe, nearly 2,400 positions were

already under study. Since then, studies of about 6,800 additional positions

have begun. AMC officials have expressed some uncertainty about the

extent to which studies of the remaining positions will be made because

they include significant numbers of secretarial and administrative

positions as well as some positions in functions that AMC plans to seek

waivers to Circular A-76 requirements.

While competitive sourcing studies remains a key tool to help achieve the

planned reductions, AMC has turned its attention to other ways of achieving

the personnel reductions. These initiatives can result in significant

reductions and include such actions as position elimination, organizational

realignments, and reengineering of functions. The range of initiatives AMC

expects to use to achieve its reductions and the year the reductions are

expected to occur are shown in table 1.

4

Defense Reform Initiative Directive 20 required DOD organizations to review all of their positions

involved in performing commercial activities and identify those that could be subject to a competitive

sourcing study.

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Table 1: AMC Initiatives to Achieve the QDR Reductions by Fiscal Year

Initiative 1999 2000 2001 2002 2003 2004 Total

Redesign the commodity commands 18 344 761 849 1,972

Restructure the research, development, and

engineering centers 13 885 669 1,567

Compete functions at Watervilet, Pine Bluff, and

Rock Island arsenals 630 630

Compete functions in the Test and Evaluation

Command 545 545

Reengineer selected functions 46 72 196 117 14 79 524

Compete base operations in the Industrial

Operations Command 469 17 486

Merge the Chemical and Biological Defense

Command and the Soldier Systems Command 2 131 20 91 178 422

Redesign the Army Research Laboratory 3 120 100 194 417

Decentralize and transfer depot management from

the Industrial Operations Command to individual

commodity commands 1 378 21 400

Reengineer the Logistics Support Activity 111 140 59 310

Privatize software activities in the

Communications-Electronics Command 257 257

Reengineer three analytical activities 148 84 232

Reduce test requirements in the Test and

Evaluation Command 185 185

Compete the Test, Measurement, Diagnostics,

and Equipment Activity 178 178

Consolidate war reserve sites in Europe 153 22 175

Compete base operations in the Aviation and

Missile Command, the Tank-automotive and

Armaments Command and the

Communications-Electronics Command 24 83 25 132

Compete positions involved in ammunition

demilitarization 66 66

Reduce positions at various ammunition plants 4 9 19 32

Total 70 1,732 1,621 1,989 1,998 1,120 8,530

Percenta 1 20 19 23 23 13 100

aPercent figures do not add exactly due to rounding.

Source: Army data.

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AMC plans to restructure its commodity commands through competitive

sourcing studies, privatization of selected functions, and reengineering

business processes. The commodity commands include the Aviation and

Missile Command, the Communications-Electronics Command, and the

Tank-automotive and Armaments Command. Likewise, the research,

development, and engineering restructure initiative involves reorganizing

and restructuring the research centers to focus on critical core

competencies as well as conducting competitive sourcing studies on

selected functions. The initiative involves the same commands as well as

the Soldier and Biological Chemical Command.

In addition to these initiatives, the Army is considering a much broader

reorganization of AMC. However, details of this proposed reorganization

were not made available to us; therefore, we were unable to assess any

potential impact such a reorganization may have upon existing personnel

requirements.

Reductions in Fiscal Year

1999 and 2000

AMC expects to eliminate about 1,800 positions during fiscal years 1999 and

2000. In fiscal year 1999, it plans to eliminate 70 positions of which, about

half will be obtained by eliminating vacant positions in headquarters. The

remaining 1,732 positions are to be eliminated in fiscal year 2000 through a

combination of factors, including competitive sourcing studies and

ongoing initiatives to decentralize and transfer responsibility for managing

the depots from the Industrial Operations Command to individual

commodity commands, consolidate war reserve sites in Europe, and

merge two commands.5

 However, some of the initiatives may not be

implemented during fiscal year 2000 as planned. Table 2 shows that 713, or

41 percent, of the 1,732 reductions planned for fiscal year 2000 could be

delayed and a final decision has not been made regarding another 257

positions.

5

The Chemical and Biological Defense Command and the Soldier Systems Command were merged into

the Soldier and Biological Chemical Command.

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Table 2: Status of Initiatives to Achieve

QDR Reductions in Fiscal Year 2000 Number of positions

Initiative On time Delayed

Decision

pending

Competitive sourcing:

Base operations 

Test, measurement, diagnostics, and evaluation

Ammunition demilitarization

469

178

66

Privatize software activities 257

Transfer responsibility for depot management 378

Consolidate war reserve sites 153

Merge two commands 131

Other 100

Total 762 713 257

Percent 44 41 15

Source: Our analysis of Army data.

The primary reason some initiatives are being delayed is that competitive

sourcing studies are taking longer to complete and implement than

planned. AMC officials stated that they are assessing options to deal with

the impact of these delayed studies. AMC also planned to eliminate 24

positions in fiscal year 2000 through competitive sourcing studies of some

base operations functions in the Aviation and Missile and the

Tank-automotive and Armaments Commands. However, officials at these

commands stated that they now plan to eliminate vacant positions rather

than conduct the studies.

As shown in table 2, AMC plans to privatize some software design activities

in the Communication-Electronics Command that would eliminate 257

positions. Under this initiative, the Army wants to modernize its wholesale

logistics functions by awarding a long-term contract to a single vendor that

will (1) operate the Army’s existing wholesale logistics software system,

(2) reengineer the wholesale logistics business processes, and

(3) customize a commercial off-the-shelf software system, which it will

operate. However, to implement this initiative, AMC sought a waiver to

Circular A-76 requirements. At the time we completed our work, the Army

had not approved or disallowed the waiver.

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Reductions in Fiscal Years

2001 to 2004

AMC has identified initiatives to eliminate the remaining 6,728 positions

between fiscal year 2001 and 2004. Most of these reductions depend

primarily on AMC’s ability to restructure the commodity commands,

redesign the research, development and evaluation centers, and complete

competitive sourcing studies on its arsenals. These three initiatives

account for 4,174, or 62 percent, of the planned reductions.

AMC plans to eliminate 1,972 positions under the initiative to redesign its

commodity commands. Our work at two of the three commodity

commands indicates that plans to achieve the reductions are still being

developed. For example, the Tank-automotive and Armaments Command

plans to reengineer its business processes and implement an integrated

data environment to absorb the reductions. According to Tank-automotive

and Armaments officials, the Command plans to implement its new

organizational structure in fiscal year 1999, and then start to identify and

prioritize the various business practices to be reengineered. The Aviation

and Missile Command plans to achieve its reductions primarily through

implementing the prime vendor support concept6

 on selected systems. The

Apache was selected as the first system; however, the implementation plan

is still under review within the Army.7

 An Aviation and Missile Command

official stated that the Command’s ability to achieve the reductions relies

primarily on replicating the Apache concept to other weapon systems.

Another major initiative involves plans to redesign the research,

development, and engineering centers and eliminate 1,567 positions. To

achieve its reductions, the Aviation and Missile Command plans to

combine the aviation and missile research centers and eliminate positions

at some satellite locations and some performing lower priority work.

Aviation and Missile Command officials stated efforts are underway to

prioritize their workload. Likewise, the Tank-automotive and Armaments

Command plans to achieve efficiencies by consolidating similar functions

between its two research centers, as well as through projected decreases

in workload.

AMC expects to eliminate 630 positions in fiscal year 2002 by conducting

competitive sourcing studies at its three arsenals. However, Army

6

Prime vendors typically are contractors that buy inventory from a variety of suppliers, store it in

commercial warehouses, and ship it to customers when ordered. In the case of the Apache helicopter,

the prime vendor concept is much different in that a contractor provides all logistics support along

with continuous product improvement and modernization.

7

Much controversy and uncertainty surround this initiative in terms of its cost-effectiveness and

impact on other organizations and entities such as the Defense Logistics Agency and the Army

Working Capital Fund. It is also the subject of one of our reviews.

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decisions since the QDR could affect the positions to be studied. For

example, AMC planned to study about 2,600 positions at the Rock Island

and Watervilet Arsenals, which AMC assumed, would achieve about 490 of

the 630 planned reductions. However, in fiscal year 2000, the Army plans

to reduce the personnel levels at the two arsenals by about 680 positions,

which would reduce the study universe to about 1,900 positions. Using the

revised universe and AMC’s assumption of a 20-percent saving, only 380

positions would be eliminated, or 110 fewer positions than anticipated.

AMC officials stated that the Army is considering an option to convert the

Watervilet Arsenal to a government-owned contractor-operated facility,

which could impact the ongoing competitive sourcing study.

Savings Are Likely to

Be Less Than

Anticipated and Take

Longer to Be Realized

The Army expected to achieve cumulative savings of an estimated

$1.4 billion between fiscal year 1999 and 2004 and an estimated

$589 million in annual recurring savings thereafter from QDR civilian

reductions in AMC. While these reductions are expected to achieve savings,

our work indicates that savings in both the short and long term are likely

to be less than expected and take longer to be realized. The savings totals

will be lower in the short term because not all of the investment costs

required to achieve the reductions were considered. Also, some of the

savings programmed for fiscal year 2000 will be delayed because

competitive sourcing studies that are underway are taking longer to

complete and implement than planned. The Army used higher than

average civilian salary costs to compute the estimated savings. Further,

not all of the savings will accrue to the Army because some positions to be

eliminated are funded by non-Army activities.

The estimated savings did not include all the investment costs required to

implement some initiatives. This will delay savings being achieved within

the estimated time frames. For example, the Tank-automotive and

Armaments Command requires $35 million to implement an integrated

data environment as part of its plan to perform its mission with less

personnel. Command officials stated that these costs are required for

contractor support of network and database management. Likewise, the

Soldier and Biological Chemical Command plans to install new security

equipment at various sites, which would enable it to reduce the number of

security guards. According to the Command’s Director for Resource

Management, the current estimate for the technology improvements is

$10 million. Finally, the Army War Reserve Support Command estimates

that it will cost $2.5 million to move equipment to consolidate war reserve

storage sites in Europe.

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The Army also did not fully calculate the personnel separation costs

associated with the QDR reductions in AMC. On the basis of its average

separation cost8

 of $21,000 per employee, the Army’s Office of Program

Analysis and Evaluation programmed separation costs of about

$150 million for 6,980 employees, or 20 percent of the study universe.

Should AMC increase its competitive study candidates, these costs could

increase significantly. Assuming that the private sector continues to win

competitions at the historic rate of 50 percent, AMC could transfer work

involving between 9,500 and 15,000 positions to the private sector.

The Army expected to save about $21 million in fiscal year 2000 by

implementing the results of various competitive sourcing studies. As

previously discussed, these studies may not be completed during fiscal

year 2000, which will delay the savings. AMC officials stated that they are

reviewing options to fund the affected positions until the studies are

implemented.

The Army used average salary costs for each fiscal year to estimate the

savings. The Army assumed that after accounting for reductions, AMC’s

average civilian salary costs would still increase 2 percent per year

between fiscal year 1999 and 2005, except in fiscal year 2001, when the

average salary would increase by 14 percent. When we brought this to the

attention of Army officials, they could not explain the reason for this

increase but stated that they are reviewing the methodology used to

compute average civilian salary. Had the Army applied a 2-percent

increase consistently through fiscal year 2005, we estimate that the total

savings would be reduced by about $52 million.

Approximately $303.6 million, or 52 percent, of the estimated recurring

savings is based on eliminating positions that are directly funded by AMC.

An additional $182.6 million, or 31 percent, of the estimated recurring

savings is based on eliminating positions funded by other Army

organizations; these savings will accrue to the Army but not specifically to

AMC. The remaining $103 million, or 17 percent, of the estimated recurring

savings is based on eliminating AMC positions that are essentially funded by

non-Army organizations through reimbursements for services provided.

While this will reduce personnel levels in AMC, the dollar savings will

accrue to other organizations. For example, the Army is reimbursed for

missile tests that it conducts for the Air Force or the Navy. According to

AMC officials, the personnel reductions should not affect the reimbursable

8

This average covers the costs of voluntary early retirement, voluntary separation incentives, and

involuntary separations through reduction-in-force procedures.

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work because they expect to continue to do the work with fewer

personnel.

Impact of Reductions

Has Been Limited

Since most of the QDR reductions will occur between fiscal year 2001 and

2004, the impact on workload and readiness of these future reductions is

yet to be determined. AMC officials, while expressing concerns about

challenges they face in meeting the QDR and ongoing reductions, could not

point to any significant effects to date other than employee morale. AMC

officials stated that the ongoing reductions continue to have only marginal

impacts on operations, which they have dealt with so far through various

reorganizations and reengineering actions.

The majority of the reductions in fiscal year 2000 should not impact

workload because they are based on competitive sourcing studies and

efforts to streamline commands. Our prior work has shown that initiatives

such as competitive sourcing studies and others that emphasize identifying

more efficient organizations often provide opportunities to complete

existing workload with fewer employees. In addition, some of the out-year

reductions should inherently have no impact on workload because they

are based on projected workload decreases. For example, the Soldier and

Biological Chemical Command’s plan to eliminate 178 positions in the

chemical agent destruction activity is based on projected decreases in

workload in fiscal year 2004. Similarly, the Tank-automotive and

Armaments Command’s plan to eliminate about 300 positions is based on

projected workload decreases in fiscal years 2003 and 2004.

The QDR reductions do not represent the latest reductions to AMC’s

personnel. After the QDR, the Army reduced AMC’s civilian staffing by

another 2,000 positions between fiscal year 2000 and 2005. Furthermore,

the Army Vice Chief of Staff established a team to identify options to make

AMC more efficient. As indicated earlier, we were not able to obtain any

information on the options being considered.

Conclusions AMC has identified various initiatives to achieve the QDR reductions;

however, plans for some of the initiatives are yet to be finalized. Even so,

it appears that AMC has enough options to help achieve its reduction goals

by fiscal year 2004. However, the reductions will save less than estimated.

Delays in initiating some of the planned initiatives and not fully accounting

for the investment costs required to implement these actions will likely

delay the onset of planned savings. Additionally, other factors are likely to

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mean less overall savings than initially estimated. Lastly, AMC officials state

that the reductions to date have had only marginal impact on performance,

which they have been able to deal with. However, it is too early to assess

the impact for about 80 percent of the reductions that are scheduled to

occur from fiscal year 2001 through 2004.

Agency Comments We requested comments on a draft of this report from the Secretary of

Defense. On March 30, 1999, Office of the Secretary of Defense officials

told us that the Department concurred with the report without additional

comments.

Scope and

Methodology

To obtain information on AMC’s plans to achieve the QDR reductions, we

interviewed officials and reviewed documents at AMC Headquarters, the

Aviation and Missile Command, Huntsville, Alabama; the Tank-automotive

and Armaments Command, Warren, Michigan; the Industrial Operations

Command, Rock Island, Illinois; the Soldiers Biological and Chemical

Command, Aberdeen, Maryland; and the Test and Evaluation Command,

Aberdeen, Maryland. To obtain information on the estimated savings, we

interviewed officials and reviewed documents from the Army’s Office of

Program, Analysis and Evaluation and AMC’s Office of Resource

Management. We obtained information on additional investment costs

from officials in the Tank-automotive and Armaments Command, the

Soldiers Biological and Chemical Command, and the Army War Reserve

Support Command. To obtain information on the impact of the reductions

on workload and readiness, we interviewed AMC’s Chief of Staff and

officials at the various commands visited who were responsible for

implementing the initiatives. In addition, we reviewed the impact

statements that AMC headquarters prepared for the QDR initiatives.

We conducted our review from December 1998 to February 1999 in

accordance with generally accepted government auditing standards.

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

Secretary of Defense; the Honorable Louis Caldera, Secretary of the Army;

the Honorable William J. Lynn, Under Secretary of Defense (Comptroller);

and the Honorable Jacob Lew, Director, Office of Management and

Budget. Copies will also be available to others upon request.

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

contact me at (202) 512-8412 or my Associate Director, Barry Holman, at

(202) 512-5581. Major contributors to this report were William Crocker,

Michael Kennedy, and Richard Irving.

David R. Warren, Director

Defense Management Issues

Page 13 GAO/NSIAD-99-123 Quadrennial Defense Review
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List of Congressional Committees

The Honorable John Warner

Chairman

The Honorable Carl Levin

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Ted Stevens

Chairman

The Honorable Daniel Inouye

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Floyd Spence

Chairman

The Honorable Ike Skelton

Ranking Minority Member

Committee on Armed Services

House of Representatives

The Honorable Jerry Lewis

Chairman

The Honorable John Murtha

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives

Page 14 GAO/NSIAD-99-123 Quadrennial Defense Review
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Contents

Letter 1

Appendix I 

The A-76 Process

18

Appendix II 

Army Materiel

Command

Quadrennial Defense

Review Reduction

Goals by Organization

22

Tables Table 1: AMC Initiatives to Achieve the QDR Reductions by Fiscal

Year

5

Table 2: Status of Initiatives to Achieve QDR Reductions in Fiscal

Year 2000

7

Figure Figure I.1: Overview of the A-76 Process 19

Abbreviations

AMC Army Materiel Command

DOD Department of Defense

QDR Quadrennial Defense Review

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Appendix I 

The A-76 Process

In general, the A-76 process consists of five key activities: (1) developing a

performance work statement and quality assurance surveillance plan;

(2) conducting a management study to determine the government’s most

efficient organization; (3) developing an in-house government cost

estimate for the most efficient organization; (4) issuing a Request for

Proposals or Invitation for Bids; and (5) evaluating the proposals or bids

and comparing the in-house estimate with a private-sector offer or an

interservice support agreement and selecting the winner of the cost

comparison. Additionally, appeals may be submitted.

Figure I.1 shows an overview of the process. The solid lines indicate the

process used when the government issues an Invitation for Bids requesting

firm bids on the cost of performing a commercial activity. This type of

process is normally used for more routine commercial activities such as

grass-cutting or cafeteria operations, where the work process and

requirements are well defined. The dotted lines indicate the additional

steps that take place when the government wants to pursue a negotiated,

“best value” procurement. While it may not be appropriate for use in all

cases, this type of process is often used when a commercial activity

involves high levels of complexity, expertise, and risk.

Page 18 GAO/NSIAD-99-123 Quadrennial Defense Review
Appendix I 

The A-76 Process

Figure I.1: Overview of the A-76 Process

Issue performance 

work statement 

and RFP or IFB

Compare selected 

Best Value and MEO

technical proposals

Prepare in-house 

cost estimate

Revise

MEO 

Revise 

in-house 

cost estimate 

Compare 

costs/select 

contractor

Most Efficient Organization (MEO) activities

 Government technical evaluation activities

MEO

management study

Select lowest

cost alternative

Additional steps required for request for 

proposals (RFP)

Process for invitation for bid (IFB)

Prepare technical

proposal

Conduct technical 

evaluation of MEO

Conduct technical

evaluation of 

bids/proposals

Accept 

contractor

bids/proposals

Source: Air Force Air Education and Training Command documents.

Page 19 GAO/NSIAD-99-123 Quadrennial Defense Review
Appendix I 

The A-76 Process

The circular requires the government to develop a performance work

statement. This statement, which is incorporated into either the Invitation

for Bids or the Request for Proposals, serves as the basis for both

government estimates and private sector offers. If the Invitation for Bid

process is used, each private sector company develops and submits a bid,

giving its firm price for performing the commercial activity. While this

process is taking place, the government activity performs a management

study to determine the most efficient and effective way of performing the

activity with in-house staff. On the basis of this “most efficient

organization,” the government develops a cost estimate and submits it to

the selecting authority. The selecting authority concurrently opens the

government’s estimate and the bids of all private sector firms.

According to Office of Management and Budget’s A-76 guidance, the

government’s in-house estimate wins the competition unless the private

sector’s offer meets a threshold of savings that is at least 10 percent of

direct personnel costs or $10 million over the performance period. The

Office of Management and Budget established this minimum cost

differential to ensure that the government would not contract out for

marginal estimated savings.

If the Request for Proposals—best value process—is used, the Federal

Procurement Regulation and the A-76 supplemental handbook require

several additional steps. The private sector offerors submit proposals that

often include a technical performance proposal and a price. The

government prepares an in-house management plan and a cost estimate

that are based strictly on the performance work statement. On the other

hand, private sector proposals can offer a higher level of performance or

service.

The government’s selection authority reviews the private sector proposals

to determine which one represents the best overall value to the

government based on such considerations as (1) performance levels,

(2) proposal risk, (3) past performance, and (4) cost to do the work. After

this review is completed, the selection authority prepares a written

justification supporting its decision. This justification includes the basis

for selecting a contractor other than the one that offered the lowest price

to the government. Next, the authority evaluates the government’s offer

and determines whether it can achieve the same level of performance and

quality as the selected private sector proposal. If not, the authority asks

the government to change its estimate to meet the performance standards

accepted by the authority. This ensures that the in-house cost estimate is

based upon the same scope of work and performance levels as the best

Page 20 GAO/NSIAD-99-123 Quadrennial Defense Review
Appendix I 

The A-76 Process

value private sector offer. After determining that the offers are based on

the same level of performance, the cost estimates are compared. As with

the Invitation for Bids process, the work will remain in-house unless the

private offer is (1) 10 percent less in direct personnel costs or

(2) $10 million less over the performance period.

Following an A-76 cost comparison decision, participants in the cost

comparison may appeal the selection authority’s decision if they believe

the government has not complied with the requirements and procedures of

A-76 or question the costs entered by the government on the applicable

cost comparison form.

Page 21 GAO/NSIAD-99-123 Quadrennial Defense Review
Appendix II 

Army Materiel Command Quadrennial

Defense Review Reduction Goals by

Organization

Organization

QDR

reduction

Pre-QDR

fiscal year

2003

baseline

Percent

reduction

Industrial Operations Commanda 1,819 19,510 9

Tank-automotive and Armaments Command 1,391 7,480 19

Communications-Electronics Command 1,322 7,149 19

Aviation and Missile Command 1,317 7,107 19

Test and Evaluation Command 730 4,860 15

Chemical and Biological Defense Commandb 448 2,701 17

Army Research Laboratory 417 2,370 18

Logistics Support Activity 310 739 42

Army Materiel Command Headquarters 200 784 26

Army Materiel Systems Analysis Activity 143 297 48

Soldier System Commandb 131 954 14

Simulation and Training Command 96 510 19

Separate Reporting Activities 74 348 21

Logistics Integrated Activity 57 92 62

Management Engineering Activityc 32 66 48

U.S. Army Security Assistance Command 31 541 6

Test Directorate 12 62 19

Army Research Officed 0 115 0

Total 8,530 55,685 15

aThis command includes personnel at the five depots that were later transferred to other major

subordinate commands in the Army Materiel Command.

bThese commands were later merged into the Soldier and Biological Chemical Command.

cThis activity was later combined with the U.S. Army Material Systems Analysis Activity.

dThis office was later merged with the Army Research Laboratory.

Source: Army data.

(709385) Page 22 GAO/NSIAD-99-123 Quadrennial Defense Review
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