United States General Accounting Office

GAO Testimony

Before the Subcommittee on Military Readiness,

Committee on National Security, House of Representatives

For Release on Delivery

Expected at

10:00 a.m., EST

Friday,

March 13, 1998

DEFENSE MANAGEMENT

Challenges Facing DOD in

Implementing Defense

Reform Initiatives

Statement of David R. Warren, Director, Defense

Management Issues, National Security and International

Affairs Division

GAO/T-NSIAD/AIMD-98-122

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to present our observations, based on past

and ongoing work, on the Department of Defense’s (DOD) latest reform

initiatives. These initiatives are described in the Defense Reform Initiative

(DRI) Report, which was issued by DOD in November 1997. DOD is

attempting to bring about a revolution in its business and support

operations by identifying and adopting the best business practices from

the private sector. Specifically, it is proposing to:

• reengineer many of its business processes;

• consolidate and reorganize DOD’s headquarters elements and defense

agencies, including the Office of the Secretary of Defense;

• increase the use of the Office of Management and Budget (OMB) A-76

process to compete DOD’s commercial activities; and

• conduct two additional rounds of base realignment and closures (BRAC).

These actions are intended to reduce the cost of DOD’s business and

support activities so that operations and maintenance funds can be freed

up to support weapons modernization and readiness needs.

In announcing this hearing, you expressed concern about DOD’s record of

executing programs designed to achieve infrastructure savings and the

potential impact on readiness accounts if current reform initiatives falter

in execution. In that context, my comments today will focus on the

(1) risks associated with reducing budgets before savings are achieved,

(2) challenges associated with implementing DOD’s various business

process reengineering initiatives, (3) opportunities to capitalize on

consolidation and regionalization opportunities, and (4) underlying

management problems that need to be addressed in implementing the

reform initiatives. Before discussing my specific observations, I would like

to briefly summarize my key points.

Results in Brief The task facing DOD as it tries to implement reform initiatives is not easy.

However, it is one we strongly support. Our work continues to show that

significant opportunities remain to further streamline operations,

consolidate functions, eliminate duplication of effort, and improve

efficiency in DOD’s business activities. These opportunities must be fully

embraced if DOD is to achieve the level of savings it needs to meet other

priorities such as weapon system modernization and readiness within

expected budgets. The following are some key points we believe the

Page 1 GAO/T-NSIAD/AIMD-98-122 Defense Management
Congress and DOD should take into consideration as DOD assesses DRI

implementation and expected results.

First, DOD’s plans to reduce out-year budgets before the magnitude of

savings are clearly known is not without risk. This risk is that operating

units and field commanders will not have sufficient funds to meet their

readiness needs. Past reform initiatives, like the Defense Management

Review (DMR) of the early 1990s, started with much the same hope and

promise as the DRI. However, for a number of reasons, which I describe

below, they were not able to sustain themselves and fully achieve hoped

for results. In many cases, DOD reduced its operations and maintenance

budgets up-front, in anticipation that the savings would be realized. When

these savings did not materialize as quickly or to the extent expected, one

of two things happened. Either money was moved from other parts of the

defense budget to pay for shortfalls in operations and maintenance

accounts or support functions went underfunded. We see the same type of

risk with the DRI. For example, most savings from the DRI are expected to

come from future competitions using OMB’s A-76 process and from two

additional BRAC rounds. In addition, DOD is once again proposing to reduce

operations and maintenance funds in out-years budgets to capture the

expected savings. Yet, our past work shows that A-76 competitions and

BRAC rounds have produced savings, but they have not been as great or

materialized as quickly at DOD initially estimated.

Second, many of the DRI business process reengineering initiatives must

overcome significant challenges if they are to be implemented in a timely,

efficient, and effective manner. While DOD expects these initiatives to save

an unspecified amount of money, it is also counting on them to bring

world-class business processes to DOD and improve the quality of service

provided to defense customers. Our overall impression is that the

initiatives have the potential to save significant amounts of money and

improve the quality of service they provide. However, in some cases, DOD

either faces significant implementation challenges or is not thinking

broadly enough in implementing the reform. For example, DOD has made

significant progress in implementing the prime vendor program for

medical and food supplies, but these account for only two percent of the

4 million consumable items managed by the Defense Logistics Agency

(DLA). Implementing this program for hardware items, which make up

97 percent of DLA’s consumable items, has not been as easy. Resistance to

change, particularly from the military services who must use the prime

vendor program, has kept the program from expanding as quickly as DOD

planned.

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Third, significant opportunities exist to achieve savings from , DRI

consolidation, restructuring, and regionalization initiatives. However, our

past work shows that DOD has not been able to fully capitalize on the

potential offered by these initiatives . For example, we recently reported

on the Navy’s efforts to streamline and consolidate its maintenance

programs for fleet ships and aircraft. While we found that the Navy had

made substantial progress, the consolidations and related savings had not

materialized as expected. Because the Navy had already made reductions

to spending plans in anticipation of these savings, we reported that the

overall material readiness of ships and aircraft could be negatively

affected. For example, while the Navy had been able to absorb the

reductions in the short term by fixing specific problems rather than

performing scheduled depot-level overhauls, Navy officials were

concerned about the long-term impacts of this approach.

Lastly, achieving success in the DRIs requires DOD to address the underlying

causes of its systemic management problems, which we have previously

reported. These causes include (1) cultural barriers and service

parochialism that limit opportunities for change; (2) the lack of incentives

for seeking and implementing change; (3) the lack of comprehensive and

reliable management data for making decisions and measuring program

costs and performance; (4) the lack of clear, results-oriented goals and

performance measures, in some cases; and (5) inconsistent management

accountability and follow through. To address these problems, DOD needs

to ensure that implementation plans for each level of the organization

include goals, performance measures, and time frames for completing

corrective actions; identify organizations and individuals accountable for

accomplishing specific goals; and fully comply with legislative

requirements of the Chief Financial Officers Act, the Government

Performance and Results Act, the Paperwork Reduction Act, and the

Clinger-Cohen Act.

Background DOD’s latest efforts to reform operations and processes were spelled out in

the Secretary’s DRI Report, which was released on November 10, 1997. The

report was the result of recommendations made in the Report of the

Quadrennial Defense Review (QDR)1 The QDR report noted that while DOD

had reduced active duty personnel by 32 percent between 1989 and 1997, it

had only reduced the number of people performing infrastructure

functions by 28 percent. The report called for significant additional

1

The QDR was required by the National Defense Authorization Act for Fiscal Year 1997; it was

intended to provide an examination of America’s defense needs from 1997 to 2015, including a

blueprint for a strategy-based, balanced, and affordable defense program.

Page 3 GAO/T-NSIAD/AIMD-98-122 Defense Management
reductions in military and civilian personnel. Reductions called for by the

QDR and other DOD planning efforts would have the effect of reducing

military and DOD civilian personnel end strength levels by an additional

59,000 and 130,000 positions, respectively, below their fiscal year 1998

levels.

The Secretary noted in his DRI report that the military forces and the

defense industry have made great strides in adjusting to a dynamic new

world but much of the rest of the defense establishment remains “frozen in

Cold War structures and practices.” For this reason, he pointed out that

there is a real danger that the planned revolution in military affairs will

quickly “outrun” the ability of logistics, personnel, medical, and other

systems to support it. Accordingly, the Secretary called for what has been

characterized as a revolution in business affairs and included in the DRI

report, a number of reengineering initiatives aimed at adopting modern

business practices and attempting to achieve world-class standards of

performance. These initiatives include DOD’s efforts to

• reduce the administrative cost and burden of approving temporary duty

travel, filing for reimbursement, and receiving payment;

• expand its use of prime vendors to buy, store, and distribute DOD’s

consumable inventories;

• develop a total asset visibility capability so that it can better manage its

inventory;

• change its household goods transportation process to provide better,

cheaper service for the hundreds of thousands of military and civilian

personnel that are required to move each year; and

• make its contracting and contractor payment processes paper-free.

The DRI report also lays out plans to reduce excess support costs by

consolidating support agencies to achieve economies of scale. In addition,

it calls for large numbers of A-76 outsourcing competitions and two

additional rounds of BRAC.

An important element of this reform initiative is that the Secretary has

established the Defense Management Council to, in effect, serve as DOD’s

internal board of directors. The primary mission of this Council, which is

chaired by the Deputy Secretary of Defense and includes many of DOD’s

senior managers, is to monitor progress of the management reforms, seek

new solutions and reengineering opportunities, and assist the Secretary in

overseeing the activities of the military departments and defense agencies.

Page 4 GAO/T-NSIAD/AIMD-98-122 Defense Management
This Council, if it operates as described, should bring a heightened

awareness and sense of importance to DOD’s management reforms.

Risk in Reducing

Budget Before

Savings Are Achieved

DOD is planning to reduce out-year operations and maintenance budgets in

anticipation of the savings that will accrue from the DRIs. Just about all the

anticipated savings identified in the DRI report, however, are linked to

future competitions under OMB Circular A-76 and two additional rounds of

base closures. Our past work has shown that A-76 competitions and base

closures produced savings, but they may not have been as great or

materialized as quickly as DOD initially estimated. Consequently, reducing

out-year budgets before savings are more clearly known increases the risk

that operating units and field commanders will not have sufficient funds to

meet their readiness needs. Although DOD is currently not targeting savings

from business process reengineering initiatives for similar out-year budget

reductions, DOD will still need efficiencies from these initiatives to meet its

planned personnel reductions targets.

Magnitude of BRAC and

OMB-76 Savings Estimates

in Out-Year Budgets Is

Questionable

Most savings from DRIs are expected from additional rounds of BRAC and

public-private competitions under OMB A-76. The Secretary of Defense

recently submitted a legislative proposal to the Congress requesting

authority for two additional BRAC rounds, one in 2001 and another in 2005.

While DOD estimates that these two rounds will require an estimated

up-front investment of $12 billion, it believes they will save about

$14.5 billion during the base closure implementation period. In addition,

DOD estimates that each round will save $1.4 billion a year after the

closures are completed. Our work has shown that savings from prior BRAC

rounds are expected to be substantial. However, because DOD’s up-front

costs were higher than initially estimated, net savings have not been

realized as quickly as expected. In addition, DOD does not have adequate

cost accounting systems to track the cost of its operations, either before

or after the base closures. Additionally, accounting systems track

expenditures, not savings. Consequently, DOD has not had an effective

means of tracking changes that occur over time affecting initial savings

estimates. As a result, questions remain about the preciseness of DOD’s

BRAC savings estimates. On a number of occasions, we have cited the need

for DOD to improve its financial management systems and the process it

uses to track and update BRAC savings estimates.

The DRI report also indicated that DOD planned to use the A-76 process to

compete approximately 150,000 full-time equivalents over the next 5 years

Page 5 GAO/T-NSIAD/AIMD-98-122 Defense Management
and projects that it can save about $6 billion over those 5 years and

$2.5 billion each year thereafter.2

 The DRI report notes, however, that only

a portion of DOD’s total personnel are in positions currently classified as

commercial activities subject to A-76 competition. Consequently, DOD

plans to complete a review of all its commercial activities by November 30,

1998, to determine which are inherently governmental3

 and must be

performed by government employees and which are commercial in nature

and can be competed. It expects that this review will identify more

positions that can be competed under the A-76 process.

Overall, we believe that A-76 competitions can be cost-effective. Data

indicate that savings can occur, regardless of whether the competitions

are won by the government or the private sector. We have raised

questions, however, about whether savings will be as great or if they will

materialize as quickly as DOD projects.4

 If they do not, one of two things

could happen. Either money will have to be moved from other parts of the

defense budget to pay for shortfalls in operations and maintenance

accounts or support functions will be underfunded. If the latter occurs,

operating units and field commanders will have less money to pay for their

readiness needs (e.g., aircraft and weapon system maintenance, training,

flying hours), potentially resulting in a military force that is less prepared

or ready to meet its mission requirements.

As already noted, DOD does not have an adequate cost accounting system

to track the costs of its operations. This affects its ability to fully identify

savings from A-76 competitions. DOD is working toward developing

accounting systems that meet the federal cost accounting concepts and

standards issued by the Federal Accounting Standards Advisory Board.

The concepts and standards became effective on October 1, 1997. As we

recently reported, however, it will likely be many years before these

systems are in place and can provide the type of information DOD needs to

estimate costs for A-76 purposes.5

 In addition, DOD is working to improve

the commercial activities management information system (CAMIS), which

it uses to track the status and results of ongoing and completed A-76

2

DOD has subsequently revised upward the number of positions to be studied to 220,000.

3

An inherently governmental activity is one that is so intimately related to the public interest that it

must be done by federal employees. These functions include those activities that require either the

exercise of discretion in applying government authority or the making of value judgements in making

decisions for the government.

4

Base Operations: Challenges Confronting DOD as It Renews Emphasis on Outsourcing

(GAO/NSIAD-97-86, Mar. 11, 1997).

5

Defense Outsourcing: Better Data Needed to Support Overhead Rates for A-76 Studies

(GAO/NSIAD-98-62, February 27, 1998).

Page 6 GAO/T-NSIAD/AIMD-98-122 Defense Management
studies. Each military service currently has a different version of this

system and the data each collects vary in content and are often incomplete

and inaccurate. Specifically, DOD has formed a CAMIS working group to

develop a minimum set of standard data elements that would be common

to each service’s system. Until this initiative is completed and greater

efforts are made to enter complete and accurate information into the

system, DOD’s information on A-76 results will be limited in its reliability.

Out-Year Budgets Do Not

Target Savings From Most

Reengineering Initiatives

The DRI report does not identify specific saving goals associated with the

business process reengineering initiatives and DOD has not targeted any

related savings for out-year budget reductions. According to DOD’s senior

managers, these initiatives will certainly result in savings but that is not

their primary benefit to DOD. Rather, they are being counted on to improve

the quality of service provided to the warfighters and other defense

business customers and to meet personnel reduction targets that have

already been planned. While we do not support making budget reductions

in anticipation of savings, we do believe establishing savings goals could

be a useful tool for tracking progress.

In past reform initiatives, DOD took the savings from future year budgets.

However, this approach caused funding shortfalls when the estimated

out-year savings were not achieved. For example, in the Corporate

Information Management (CIM) initiative,6 DOD had started a number of

reengineering initiatives that showed a great deal of promise. However, it

redirected CIM to focus on system standardization efforts in each of its

business areas. It did this primarily to achieve savings more quickly so it

could offset the reductions that had already been taken from the budget.

As we have reported,7

 this change not only postponed the dramatic gains

that could have been achieved through reengineering but also contributed

to the failure of the CIM program.

Another good reason for avoiding budget reductions before savings are

more clearly known is that DOD has probably already reduced its budget in

anticipation of savings from the reengineering initiatives. While they are

hard to track in DOD over time, many of the reengineering projects

identified in the DRI report are likely outgrowths of previous reform efforts

6

CIM was a DOD-wide effort that began in 1989 to dramatically improve the way DOD conducted

business, primarily by adopting the best practices from the public and private sectors and developing

standard information systems to support improved business practices.

7

Defense IRM: Poor Implementation of Management Controls Has Put Migration Strategy at Risk

(GAO/AIMD-98-5, Oct. 20, 1997) and Defense Management: Stronger Support Needed for Corporate

Information Management to Succeed (GAO/AIMD/NSIAD-94-101, Apr. 12, 1994).

Page 7 GAO/T-NSIAD/AIMD-98-122 Defense Management
like DMR. DMR, for example, included 250 separate decisions to implement

consolidations, improve information systems, enhance management, and

employ better business practices. These decisions were expected to yield

anywhere from $62 billion to $71 billion in savings over a 5-year period and

DOD’s budget was reduced up-front to capture these savings. In reviewing

these savings estimates, we found they were not always based on cost

analyses supported by historical facts or empirical cost data.8

 During a

1993 review of the DMR, we also found it difficult to validate and track

savings to specific initiatives.9

In addition, many reengineering or process improvement projects were

done under the CIM umbrella. As an outgrowth of DMR, CIM was initially

expected to yield $36 billion of the DMR savings. Reducing the budget once

again for expected savings from these type of initiatives could, in effect,

result in double counting.

Reengineering

Initiatives Show

Promise, but

Implementation

Challenges Remain

We have either completed or have ongoing work associated with several of

the reengineering initiatives in the DRI report. Overall, we are encouraged

that DOD has embraced the concept of reengineering to streamline its

business practices and processes and believe many of the initiatives have

promise. However, these initiatives, most of which have been ongoing for

some time, still face implementation challenges. DOD’s travel reengineering

and prime vendor programs are both good examples of areas where

significant progress has been made but opportunities still exist if

organizational and cultural barriers can be overcome.

Travel

Reengineering—Strong

Potential for Significant

Process Improvement

DOD’s travel reengineering project is comprehensive in scope. First, it

involves a complete analysis and redesign of the temporary duty travel

process, from the time a traveler decides to travel until he/she is

reimbursed by DOD. Second, it transcends all organizational boundaries in

that it involves a single process and system that will be implemented

DOD-wide. As we understand it, there will be no Navy, Army, or Air Force

derivative. Third, the project received high visibility and support from top

DOD management, which helped deflect institutional roadblocks and

barriers. Finally, the travel reengineering task force that DOD established

took several actions to improve the likelihood of success. These included

surveying the private sector to determine the best industry travel

practices, considering the views of DOD travelers and other stakeholders in

8

Acquisition Reform: Defense Management Report Savings Initiatives (GAO/NSIAD-91-11, Dec. 4,

1990).

9

Defense Management Review (NSIAD-94-17R, Oct. 7, 1993).

Page 8 GAO/T-NSIAD/AIMD-98-122 Defense Management
designing the new process, establishing base line cost and performance

information from which it could measure process and cost improvements,

relying on commercial off-the-shelf software to support the new process,

conducting 27 pilots to test the new approach, and requiring potential

contractors to demonstrate their proposed travel system as part of the

contracting process.

As shown in table 1, DOD expects the travel reengineering initiative to

result in significant processing improvements and cost savings. The table

compares baseline performance (the old process) with preliminary pilot

test results.

Table 1: Comparison of Baseline and

Reengineered Travel Processing

Performance Performance

indicator

Average for

baseline processes

Average for

reengineered

processes Percent reduction

Number of steps in the

process

40 21 48

Processing time 4.5 hours 1.7 hours 63

Processing cost $131 $49 63

Cycle time 11 days 6 days 48

The pilot tests also demonstrated a 56-percent decrease in average

administrative labor costs and almost a 100-percent increase in customer

satisfaction in many of the critical indicators.

This has not been an easy process. DOD has had to overcome many internal

and external barriers, including legislative changes to simplify or eliminate

certain record keeping and travel certification procedures. The difficulty

of the task is illustrated by the fact that the reengineering initiative is in its

fourth year and the new, simplified process has still not been

implemented. DOD had intended to award a contract in December 1997 for

a single travel management system for all of DOD. This has been delayed

until May 1998 to give DOD time to negotiate with each of the companies

that have bid on the contract. This will be followed by 18 additional

contracts—one for each of 18 travel regions established by DOD—to

provide specific travel services to DOD travelers. Full implementation

throughout DOD is not expected until 2001.

While the results of these pilot tests appear promising, DOD still has

challenges ahead. Besides completing its contracting process, DOD must

implement the new system across a diverse set of organizations and

Page 9 GAO/T-NSIAD/AIMD-98-122 Defense Management
cultures, some of which may not be supportive. It must also establish

controls and monitor implementation using a wide variety of accounting

systems and processes. Such monitoring is important so it can gauge

success and look for opportunities for further process improvements.

Additional Opportunities

Exist to Expand the Prime

Vendor Program

A prime vendor is a contractor that buys inventory from a variety of

suppliers, stores it in commercial warehouses, and ships it to customers

when ordered, usually within geographical areas. This reduces delivery

times and eliminates the need for customers to maintain costly

warehousing and distribution systems. Since 1993, DLA, which manages

most of DOD’s consumable inventory,10 has made progress in implementing

the prime vendor program for medical and food supplies. For example, we

estimate that the program, along with DLA’s other inventory reduction

efforts in the medical area, allowed DLA to save over $700 million between

fiscal year 1991 and 1996. In addition, DLA believes that the program will

save it as much as $1 billion in the food supply area over the next 5 years.

The DRI goal is to use prime vendor contracts for 40 percent of all DLA sales

by fiscal year 2000. Based on our most recent analysis, however, this goal

may be difficult to obtain because DLA has not aggressively pursued the

program for hardware supplies,11 which account for about 97 percent of

the 4 million consumable items managed by DLA. In addition, the services

have been slow to adopt the program into their operations.

Moreover, we found that the current prime vendor program for hardware

items does not streamline logistics operations to the extent we have seen

in private sector programs. For example, DLA prime vendors merely deliver

hardware items to a base or installation warehouse, where DOD personnel

still order, receive, store, and distribute material to the retail customer. In

the private sector, these activities also shifted to the prime vendor. In our

January 1998 report, we recommended that the Secretary of Defense take

a greater leadership role in seeing that this program is expanded

throughout DOD and fully incorporates the type of services offered in the

private sector.12

10Consumable inventory includes items that are generally used once and either consumed or discarded.

11Hardware supplies include six supply categories: commercially available electronics, construction,

industrial, automotive, fuel, and facilities maintenance.

12Defense Inventory Management: Expanding Use of Best Practices for Hardware Items Can Reduce

Logistics Costs (GAO/NSIAD-98-47, Jan. 20, 1998).

Page 10 GAO/T-NSIAD/AIMD-98-122 Defense Management
The National Defense Authorization Act for Fiscal Year 1998 also directed

DLA to develop and submit to the Congress a schedule for implementing

the best commercial inventory practices, including the use of prime

vendors, for all consumable items. The act further directed that the

schedule “shall provide for the implementation of such practices to be

completed not later than three years after the date of the enactment of this

Act.” We plan to monitor and report on DLA’s efforts to comply with this

requirement.

We have recently released a report required by the act in which we

reported that DOD could also expand the application of best practices,

similar to the prime vendor concept, to the management of reparable

parts13 currently reported to be valued at more than $49 billion.14 This

would have to be done, however, within the existing legislative framework

and regulatory requirements relating to defense logistics activities, such as

OMB Circular A-76.

Total Asset Visibility

Continues to Experience

Delays

Since the 1970s, DOD has recognized that it needs better visibility over its

inventory. This problem became more visible when DOD was unable to

identify the contents of roughly half of the 40,000 containers it shipped to

support Operations Desert Shield and Desert Storm. However, questions

about achieving total asset visibility (TAV) still remain.

The DRI initiative relating to TAV is intended to provide the capability

necessary to support just-in-time logistics and improve inventory

management. Like many of the initiatives included in the DRI report, TAV is

not new. Rather, DOD’s latest effort had its roots in an April 1992 TAV plan.

This plan was subsequently updated and reissued by DOD’s Under

Secretary of Defense for Acquisition and Technology in May 1996. The

objective of TAV is to provide users with timely and accurate information

on the location, movement, status, and identity of units, personnel,

equipment, and supplies worldwide. It will depend on several large,

complex information technology initiatives (such as Joint TAV, Army TAV,

Navy TAV, the Global Transportation Network, and automated

identification technology) and component logistics information systems.

13Reparable parts are generally expensive items that can be fixed and used again, such as hydraulic

pumps, navigational computers, wing sections, and landing gears.

14Inventory Management: DOD Can Build on Progress by Using Best Practices for Reparable Parts

(GAO/NSIAD-98-97, Feb. 27, 1998).

Page 11 GAO/T-NSIAD/AIMD-98-122 Defense Management
The TAV initiative can be an important enabler for reducing DOD inventory

requirements. However, full implementation of TAV has been a moving

target for DOD since the early 1970s, and it continues to face critical

challenges. Our ongoing work focuses on whether DOD is structuring TAV to

improve known inventory problems, such as reducing excess inventory,

enhancing inventory management practices, and improving data quality

and timeliness. We are also assessing how well the military services are

supporting TAV implementation and whether DOD has adequate

performance measures to determine if it will improve inventory

management.

Although total costs have not been finalized, we have been able to identify

funding needs exceeding $600 million for TAV and its supporting initiatives.

However, this amount does not include all necessary programs or

support/equipment. We have also noted that the TAV implementation date

has slipped considerably, from 1995 to, according to an official in the

office of the Deputy Under Secretary of Defense (Logistics), 2004. We plan

to report on this initiative later this year.

In related work, we recently issued two reports that identified

inaccuracies in key systems the Army and the Air Force use to maintain

visibility over their major equipment assets, including their most critical

war fighting equipment. We made a number of recommendations in these

reports aimed at addressing the causes of the inaccuracies and improving

DOD’s ability to manage and oversee its assets from both a financial

management and readiness perspective.15

Challenges Remain for

Reengineering the

Movement of Household

Goods

DOD has long been concerned about the quality of its program to transport,

store, and manage household goods. According to the DRI report, DOD paid

about $2.8 billion in fiscal year 1997 to move almost 800,000 military

families. Yet, its system gives its personnel some of the worst service in

the nation. The report stated, for example, that of all DOD moves,

25 percent end up with damage claims, compared to 10 percent in the

private sector. Also, best-in-class movers have customer satisfaction rates

of 75 percent, while DOD’s is 23 percent.

Because of these and other problems, DOD proposed several years ago to

reengineer its personal property program, primarily as a quality-of-life

initiative. Its primary goals were to substantially improve the quality its

15Financial Management: Accuracy of Air Force Aircraft and Missile Data Could Be Improved

(GAO/AIMD-97-141R, Aug. 15, 1997) and Army Logistics Systems: Opportunities to Improve the

Accuracy of the Army’s Major Equipment Item System (GAO/AIMD-98-17, Jan. 23, 1998).

Page 12 GAO/T-NSIAD/AIMD-98-122 Defense Management
military personnel and their families received from DOD’s contracted

movers; simplify the total process—from arranging the moves to settling

the claims; and base the program on business processes characteristic of

world-class customers and suppliers.

In a November 1996 report, we assessed two competing reengineering

proposals, one developed by DOD and the other by a transportation

industry working group. Because the Congress was concerned that the

reengineering initiative would have a negative impact on the moving

industry, particularly small businesses, it directed DOD to work with an

industry working group to develop a mutually agreeable program to pilot

test the reengineering proposal. Because these two groups could not agree

on an approach to the pilot project, each presented a separate proposal.

During our work, we found that both proposals would likely accomplish

the reengineering goals but that DOD’s would likely achieve those goals to a

greater extent.

Currently, the pilot project, which is being planned by the Military Traffic

Management Command, is on hold pending completion of a bid protest.

Another related pilot project is also being conducted by the Army at

Hunter Army Airfield, Georgia. We are monitoring DOD’s progress on both

of these pilot efforts.

Electronic Commerce and

Paperless

Communications—Much

Work Remains to Be Done

According to the DRI report, DOD is looking to electronic commerce to

drastically reduce the amount of paper it produces, receives, processes,

and stores and to bring much needed efficiencies to its business practices.

Electronic commerce embraces many technologies, including electronic

data interchange, electronic mail, computer bulletin boards, and electronic

funds transfer. The DRI report states that, by January 1, 2000, all aspects of

the contracting process for major weapon systems will be paper-free.

To achieve this goal and maximize its potential, much work must be done.

As the DRI report points out, few aspects of current business practices and

systems used by DOD are integrated. Overall, DOD has 150 accounting

systems, 76 procurement writing systems, numerous logistics systems, and

one major contract administration and payment system, all of which

process contract data. Generally, these systems pass data to one another

through paper processes rather than electronically. To address this

condition, business practices, supporting processes and systems, and

electronic linkages need to be examined. These include practices and

processes for such functions as determining requirements, preparing

Page 13 GAO/T-NSIAD/AIMD-98-122 Defense Management
requisitions and solicitations, writing contracts, accepting delivery of

goods and services, tracking inventory, processing invoices, disbursing

funds, and posting transactions to accounting records as well as

determining how and what data will be electronically shared. This will not

be an easy task.

The DRI electronic commerce and paperless communication initiatives

involve a number of ongoing projects. Some of these projects began as

acquisition reform measures, others were initiated to improve financial

management operations and problem disbursements, and others were

initiated to simply take advantage of existing and emerging technologies to

improve operational efficiencies and save money. (See app. I for a brief

description of the electronic and paperless programs included in this

initiative.) The DRI report does not explain the relationships among these

initiatives nor does it attempt to quantify the costs and benefits of the

initiatives.

Meeting the DRI goal of paper-free processing by the year 2000 will be a

challenge, given DOD’s inability to bring radical change to its processes in

the past and the fact that many of the paperless communication efforts are

not scheduled to be completed until after 2000. Efforts could be further

complicated because each military service and defense agency typically

changed only the processes and systems it controlled. Often, this approach

eliminated the potential to significantly improve a process that cuts across

several agencies. To address these types of issues and to centralize the

management of DOD’s electronic commerce initiatives, DOD recently

created the Joint Electronic Commerce Program Office. This Office will be

managed and staffed with DLA and Defense Information Systems Agency

(DISA) personnel.

Military Services and

Defense Agencies

Need to Capitalize on

Consolidation and

Regionalization

Opportunities

The DRI report includes several military service and support agency

consolidation, restructuring, and regionalization initiatives that are

intended to make DOD activities more efficient and support DOD’s planned

personnel reductions. Overall, we support these initiatives but, based on

our past and ongoing work, believe their potential has not yet been

realized. As with the reengineering initiatives, most of these initiatives

have been going on for several years but still face implementation

challenges.

Page 14 GAO/T-NSIAD/AIMD-98-122 Defense Management
Future Plans to Address

Excess Capacity in

Research, Development,

Test, and Evaluation

(RDT&E) Laboratories Are

Unclear

Each of the military services operate (1) research and development

laboratories to develop new or enhance existing military technology and

(2) test and evaluation centers to demonstrate and validate the capabilities

of these technologies. DOD’s RDT&E facilities employ about 100,000 people

in 67 federally owned facilities located primarily in the continental United

States. For fiscal year 1997, the DOD budget for these laboratories totaled

just over $37 billion.

Our most recent work, completed in January 1998,16 pointed out that DOD’s

RDT&E infrastructure continues to have excess capacity—an estimated

35 percent in its laboratories and an estimated 52 percent in its test and

evaluation centers in the air vehicles, electronic combat, and

armaments/weapons areas. This condition exists even though DOD will

have reduced funding, personnel, and force structure and closed 62 RDT&E

sites and activities at host sites as part of the previous BRAC process.

The focus of our recent work was primarily on how best practices might

be used to reduce excess RDT&E capacity in DOD, the Department of Energy

(DOE), and the National Aeronautics and Space Administration (NASA).

These agencies represent about 72 percent of all federal investment in

research and development and own most of the RDT&E infrastructure.

During this work, we identified five critical elements that led to the

successful downsizing of unneeded laboratory infrastructure at the Boeing

Company’s Information, Space, & Defense Systems Group and the Defence

Research Agency within the British Ministry of Defence. These elements

were: (1) a “crisis” that served as a catalyst to spark action; (2) an

independent authority to overcome parochialism and political pressures

that, if left unchallenged, would have impeded decision-making; (3) core

RDT&E missions focused to support the organization’s overall goals and

strategies; (4) the infrastructure needed to support the overall goals and

strategies clearly defined; and (5) accurate, reliable, and comparable data

that captured total infrastructure cost and utilization rates for each RDT&E

activity. According to officials managing these restructurings, their

success depended on using all five of the elements together.

Our report also discusses the actions that DOD has taken to address its

excess RDT&E infrastructure. For example, after full implementation of

previous BRAC recommendations, DOD and the Congress realized that the

RDT&E infrastructure was still too large. Consequently, the National

Defense Authorization Act for Fiscal Year 1996 (sec. 277), directed the

16Best Practices: Elements Critical to Successfully Reducing Unneeded RDT&E Infrastructure

(NSIAD/RCED-98-23, Jan. 8, 1998).

Page 15 GAO/T-NSIAD/AIMD-98-122 Defense Management
Secretary of Defense to develop a 5-year plan to consolidate and

restructure DOD’s RDT&E facilities for the 21st century. The Secretary was to

identify the administrative and legislative actions needed to consolidate

RDT&E facilities into as few as practical and possible by October 1, 2005.

The Secretary responded with a plan and developed a legislative package

entitled Defense Research, Development, Test, and Evaluation, Vision 21,

Reduction, Restructuring, and Revitalization Act of 1997 (commonly

referred to as Vision 21). However, while the legislative package was being

reviewed for interagency coordination, officials from the Office of

Management and Budget told DOD to include a provision for an

independent commission, since DOD has historically been unable to reduce

significantly its RDT&E infrastructure. This commission—similar to

previous BRAC commissions—would make the final realignment and

closure recommendations to the Congress.

After the QDR was completed in May 1997, DOD decided not to submit the

Vision 21 legislative package to the Congress, opting instead to include

RDT&E infrastructure consolidations and reductions in any future BRAC

rounds. DOD also emphasized that significant reductions could only be

achieved under a BRAC-like authority.

With Vision 21 on hold and future BRAC legislation uncertain, it is unclear

at this time to what extent DOD will attempt to consolidate and restructure

its RDT&E infrastructure and how it might proceed. The DRI report briefly

discusses the RDT&E issue but provides no further information on how DOD

will deal with infrastructure reduction. It states that each military

department will review its RDT&E facilities to identify restructuring

opportunities. As we stated in our report, we believe the extent to which

DOD’s Vision 21 effort proceeds may be largely dependent on continuing

congressional support for reductions. Moreover, DOD agreed with our

conclusion that an independent BRAC-like authority, such as that provided

by the Vision 21 legislative package, is needed to reduce DOD’s RDT&E

infrastructure.

Navy Regional

Maintenance Program May

Not Meet Its Goals

For fiscal year 1996, the Navy applied more than $8.5 billion of its

resources to maintenance programs in support of fleet ships and aircraft.

In response to force structure reductions since the 1980s and subsequent

defense planning guidance to reduce excess maintenance infrastructure,

the Chief of Naval Operations, early in 1993, tasked the commanders of the

Atlantic and Pacific Fleets to develop a strategy for streamlining and

consolidating their ship and aircraft maintenance functions. This led to the

Page 16 GAO/T-NSIAD/AIMD-98-122 Defense Management
Navy establishing the Regional Maintenance (RM) program in March 1994.

In addition to reducing infrastructure and saving money, the RM program is

designed to improve maintenance processes, integrate supply support and

maintenance functions, and provide compatible data systems for the

different maintenance functions. The program was to be implemented in

three overlapping phases during fiscal years 1995-99 and was expected to

save substantial amounts of money. In its 1995 program review, for

example, the Navy decreased its planned operations and maintenance

budgets for fiscal years 1995-99 by about $1.28 billion in anticipation of

such savings.

As of November 1997, the Navy had focused its efforts on establishing a

management structure and process for realigning and reducing its

maintenance infrastructure at eight Navy regions. It has also developed RM

business plans, including initiatives and estimates of savings to be

achieved. These estimates predict that the Navy will save about

$944 million for 102 projects to be implemented between fiscal years

1994-2001.

In a recent report on the RM program,17 we reported that the Navy had

made substantial progress in establishing a structured RM Program but

savings had not materialized as anticipated. Further, the accuracy of

savings that had been claimed by the Navy were questionable because they

are not tracked and verified. Consequently, the Navy’s actual savings may

be far less than $944 million and may not be achieved as soon as expected.

Because reductions had already been made to spending plans in

anticipation of these savings, we reported that maintenance programs, the

overall material readiness of ships and aircraft, or future fleet readiness

could be negatively affected. For example, Navy officials told us they have

thus far been able to absorb the reductions with no impact on readiness by

fixing specific problems rather than performing scheduled depot-level

overhauls. They were concerned, however, that this approach might

adversely affect the condition of ships over the long term.

Nevertheless, we reported that the Navy could still achieve significant

savings by moving more quickly to implement the savings initiatives that

had been identified and, where appropriate, implement other initiatives

that could yield savings without affecting readiness. To do this, however,

the Navy had to overcome parochial and institutional resistance to the RM

program’s objectives. These include resistance to efforts that might

17Navy Regional Maintenance: Substantial Opportunities Exist to Build on Infrastructure Streamlining

Progress (GAO/NSIAD-98-4, Nov. 13, 1997).

Page 17 GAO/T-NSIAD/AIMD-98-122 Defense Management
eliminate organizations, reduce jobs, and/or reduce a command’s or an

organization’s control over resources. Other barriers that also had to be

addressed were (1) the lack of management visibility over all

maintenance-related costs; (2) multiple, unconnected management

information systems that do not provide adequate data for regional

maintenance planning and decision-making; and (3) significant differences

in the number of shore duty intermediate-level maintenance positions

needed to support the Navy’s sea-to-shore rotation program and the

number of personnel needed to perform the work. Although the Navy has

established RM Program working groups and committees to address these

issues, continued high-level commitment, cooperation, and coordination

from the Chief of Naval Operations, the fleet, and type and systems

commanders will be required to ensure that regional initiatives reach

fruition and achieve the savings projected.

The Finance and

Accounting

Infrastructure—Potential

for Further Reductions

The Defense Finance and Accounting Service (DFAS) was established in

1991 to consolidate and streamline DOD’s finance and accounting

operations. In May 1994, after several false starts, DOD announced that DFAS

would begin consolidating the finance and accounting infrastructure in

fiscal year 1995. At that time, the plan was to reduce the number of sites

where finance and accounting activities were conducted from over 330 to

26. The 26 sites included the five existing large finance centers (Columbus,

Cleveland, Denver, Indianapolis, and Kansas City) and 21 new sites called

operating locations. As part of this consolidation, DFAS expected to reduce

its staffing levels from about 27,000 to 23,000 people. As of September 30,

1997, DFAS told us it had reduced staffing to about 21,900 people and

opened 18 of the planned 21 operating locations.18

We have issued several reports that questioned the need for 21 operating

locations.19 Our primary concern was that DOD used a flawed process to

identify the size and location of its consolidated operations. Among other

things, we reported that the planned infrastructure was larger than

necessary, primarily because DOD had not considered the impact that

future business improvements would have on the finance and accounting

workload. As these business improvements are adopted, we argued that

DFAS will have to consolidate its activities once again. We also pointed out

18One of the 18 operating locations (Memphis, Tennessee) is under the control of the US Army Corps

of Engineers and supports the Corps’ accounting and finance operations.

19DOD Infrastructure: DOD’s Planned Finance and Accounting Structure Is Not Well Justified

(NSIAD-95-127, Sept. 18, 1995); DOD Infrastructure: DOD Is Opening Unneeded Finance and Accounting

Offices (NSIAD-96-113, April 16, 1996); Defense Infrastructure: Budget Estimates for 1996-2001 Offer

Little Savings for Modernization (NSIAD-96-131, Apr. 4, 1996).

Page 18 GAO/T-NSIAD/AIMD-98-122 Defense Management
that an earlier DFAS analysis had concluded that the existing five finance

centers and six operating locations was the optimum structure for

conducting finance and accounting operations.

A recent DFAS analysis has concluded that the finance and accounting

infrastructure does, in fact, need to be further consolidated. This analysis,

which assessed each finance and accounting function carried out at

operating locations (such as vendor pay, civilian pay, travel pay, and

accounting), showed that DFAS will be able to reduce the number of

personnel from about 21,400 in fiscal year 1998 to about 15,350 by the end

of fiscal year 2003. These reductions would be realized, in part, by

technology initiatives underway at DFAS and, if they occur, would leave

DFAS with about 38 percent excess facility capacity.

The analysis did not translate this excess capacity into a specific number

of locations that should be eliminated. Nevertheless, the DRI report stated

that DFAS would continue its consolidation initiatives by eliminating 8 of its

26 finance and accounting facilities. DFAS is currently developing criteria to

help it determine which locations should be eliminated. Once these

criteria are approved, which is expected by May 1998, DFAS plans to take

from 3 to 6 months to further study its infrastructure needs and select the

sites that will be closed. At this point, DFAS does not expect to close more

than eight facilities.

Defense Information

Systems Agency—Status of

Consolidating Its

Megacenters

The DRI report calls for the Defense Information Systems Agency (DISA) to

reduce its infrastructure from 16 to 6 large processing facilities. This

initiative is a continuation of DOD efforts that began in 1990. Since that

time, DISA was created and eventually consolidated many of DOD’s

computer operations by moving workload and equipment from 194

computer centers to 16 DISA megacenters. These actions were taken to

better meet DOD’s information processing needs at lower costs. The DISA

megacenters operate as part of the defense working capital fund and bill

their customers for the processing support they provide. We should note,

Mr. Chairman, that the military services and defense agencies also operate

many processing centers and, like DISA, have also consolidated some of

their information processing facilities.

Our previous work on information processing center consolidations

pointed out that although DOD had recognized the need to continue to

reduce the cost of its computer center operations, it had not established

Page 19 GAO/T-NSIAD/AIMD-98-122 Defense Management
an effective framework for making these decisions.20 Such a framework

would help DOD determine the number of processing centers needed, the

way to consolidate the various computer operations, and the numbers and

skill mix of staff needed to operate the consolidated centers. We believed

this framework or plan was needed because our work documented that,

although additional efficiencies could be realized, it was not clear whether

these would be best achieved by further consolidations or outsourcing.

DOD partially agreed with our point, stating that it would comply with the

Clinger-Cohen Act21 and develop a framework to determine whether

processing centers should remain in-house or be considered for

outsourcing studies.

The Defense Megacenter Business Strategy, dated October 1997, states

that DISA’s plan to reduce the 16 megacenters to 6 could result in annual

savings of $202 million starting in fiscal year 2003. Moreover, the strategy

estimates that total savings over a 10-year period (fiscal year 1998 through

2007) will be approximately $1.5 billion. We have not done any work to

examine this strategy or substantiate these savings. If these savings occur,

however, they should help DISA reduce its infrastructure costs and,

thereby, result in lower prices to its customers. At your request Mr.

Chairman, we are reviewing how DISA establishes the prices it charges its

customers. In the future, we intend to review the cost of the consolidation

effort and the impact it is having on customer service.

Implementing DRI

Requires DOD to

Address the

Underlying Causes of

Its Management

Problems

As we have reviewed DOD programs and management initiatives over the

years, we have made hundreds of recommendations to help DOD correct its

problems. To its credit, DOD has taken actions to address many of these

recommendations and has made some progress in implementing change

throughout all areas of the Department. For example, in response to our

recommendations, DOD implemented certain commercial practices in its

inventory management area, such as relying on prime vendors to provide

defense customers with medical and food items. However, even though

this and other actions are very important, DOD has not yet addressed many

of the underlying causes that have previously kept it from effectively

implementing management reforms across the department. We identified

these causes in our 1997 High-Risk Series Reports Involving DOD, and I

would like to discuss them here because I think they are applicable to the

20Defense IRM: Investments at Risk for DOD Computer Centers (AIMD-97-39, Apr.4, 1997).

21The Clinger-Cohen Act of 1996 (P.L. 104-106) requires that federal agencies establish performance

measures that measure how well their information technology supports their missions and programs

and that evaluations be made of the results achieved from its information technology investments.

Page 20 GAO/T-NSIAD/AIMD-98-122 Defense Management
long-term success of the DRIs. These underlying causes include the

following:

• Cultural barriers and parochialism limit opportunities for change. Cultural

resistance to change and service parochialism have contributed to the

difficulty of implementing corrective actions to improve DOD’s financial,

infrastructure, inventory, and acquisition systems. Particularly

problematic are corrective actions that require the development and use of

common systems and processes across military service and organizational

boundaries. Each of the services, for example, has its own way of doing

business, its own budget and programmatic authority, and its own

parochial interests in maintaining the status quo. Even if there is common

agreement among the leadership of the department, management reform

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

and the elimination of military and civilian jobs sometimes are not fully

implemented unless they have wide-spread support throughout the

services and defense agencies.

• Incentives for seeking and implementing change are lacking. DOD

managers have few incentives to improve DOD’s financial, acquisition, and

infrastructure management approaches. For example, in DOD’s culture, the

success of a manager’s career depends more often on moving programs

and operations through the DOD process rather than on improving the

process. We found this particularly evident in large weapon acquisition

and information system development programs where overselling resulted

in programs being started, funded, and eventually fielded. The fact that a

given program costs more than estimated, takes longer to complete, and

does not generate results or perform as promised is secondary to

implementing the program.

• Management data are deficient. DOD decisionmakers are severely affected

by the lack of comprehensive and reliable data for measuring program

costs and results and making well-informed decisions. DOD, for example,

has acknowledged fundamental problems with its ability to accumulate

reliable cost data. DOD does not have accurate cost data for almost all its

assets, such as inventories, equipment, aircraft, and missiles. In addition,

DOD cannot accumulate reliable information on its business activities’

costs or its critical operations, such as the cost associated with

maintaining its weapons systems in a high state of readiness, or costs

related to its contingency operations. This will to be a serious problem in

implementing any of the DRI reform initiatives because DOD will lack the

data it needs to estimate baseline costs and track project implementation.

• Clear, results-oriented goals and performance measures are lacking in

some cases. DOD’s strategic goals and objectives are not linked to those of

Page 21 GAO/T-NSIAD/AIMD-98-122 Defense Management
the military services and defense agencies, and DOD’s guidance tends to

lack specificity. Without this type of clear, hierarchically linked goals and

performance measures, DOD managers lack straightforward road maps

showing how their work contributes to attaining DOD’s strategic goals. This

increases the risk that these managers will operate autonomously rather

than collectively. This is important in the DRI environment because each of

the military services and defense agencies must assume part of the

responsibility for meeting DOD’s infrastructure and personnel reduction

targets. They must also be responsible for monitoring the impacts of the

reductions in terms of readiness and the ability to meet their fundamental

mission requirements. Without these type of performance measures and

goals, it is possible that personnel reductions and reduced operations and

maintenance budgets will have either positive or negative impacts that are

never fully understood.

• Management accountability and follow through have been inconsistent.

Even when DOD develops organization goals and performance measures, it

does not routinely link them to specific organizational units or individuals

that have sufficient flexibility, discretion, and authority to accomplish the

desired results. These linkages are important to fix accountability at both

the organizational and managerial levels. Such accountability is

particularly important at DOD because our past work and experience have

shown that the DOD’s top managers do not have a proactive, consistent,

and continuing role in building capacity, creating incentives, and

integrating daily operations. In 1994, for example, we reported that the

median tenure of top political appointees in the Office of the Secretary of

Defense was 1.7 years.22 We also found that mean vacancy periods for top

positions in the Departments of the Air Force and the Navy were 9 and 11

months, respectively. As a result, turnover among DOD political appointees

has hindered long-term planning and follow-through activities.

Implementation Plans Are

Needed

To attack these underlying causes, DOD needs to ensure that its

implementation plans at all organizational levels establish results-oriented

goals, performance measures, and time frames for completing corrective

actions; identify organizations and individuals that are responsible for

accomplishing specific goals; and provide sufficient information for the

Defense Management Council to monitor progress. In developing these

implementation plans, DOD should comply with the legislative

requirements of the Chief Financial Officers Act, the Government

Performance and Results Act, the Paperwork Reduction Act, and the

22Political Appointees: Turnover Rates in Executive Schedule Positions Requiring Senate Confirmation

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

Page 22 GAO/T-NSIAD/AIMD-98-122 Defense Management
Clinger-Cohen Act. These acts provide important criteria for ensuring that

DOD and other agencies focus their resources on the highest priority

programs and develop sufficient management and financial information to

know whether the programs are meeting their objectives.

Mr. Chairman, in closing let me reiterate GAO’s strong support for the

Secretary’s reform initiatives. Concerns that I have raised are based on our

experience in examining some of the areas undergoing reform. Our intent

is to indicate that too much should not be expected too soon. This is

particularly the case as it relates to the historical pattern of claiming

savings or reducing personnel levels prematurely, before the magnitude of

savings are more fully known. Consequently, it will be important for DOD to

carefully track implementation of these initiatives and make resource and

other management decisions as necessary to avoid unintended adverse

impacts on support and readiness activities.

This concludes my prepared comments. I will be glad to answer any

questions that you or members of the subcommittee might have.

Page 23 GAO/T-NSIAD/AIMD-98-122 Defense Management
Appendix I 

Electronic Commerce and Paperless

Communications Initiatives

The Defense Reform Initiatives (DRI) report states that, by January 1, 2000,

all aspects of the contracting process for major weapon systems will be

paper-free. Electronic commerce, however, is not new. In October 1993, a

presidential memorandum established a government-wide goal of

streamlining acquisition through the use of electronic commerce.

Ninety-five percent of all government purchases under $100,000 are

expected to be made through electronic commerce by the year 2000.

The following initiatives, which are described in our recent report,1

 can

help DOD reduce the amount of paper used in procurement and contract

payment processes. It is not clear from the DRI report, however, how these

initiatives will collectively eliminate the paper that is passed among the

many DOD systems and it is not clear if, and to what extent, savings and

productivity will be realized.

Electronic Document

Management (EDM)

EDM is a technology initiative intended to convert paper copies of DOD

contract payment documents to electronic images at the Defense Finance

and Accounting Service (DFAS) Columbus Center. All paper documents

received by the Center, such as contracts, invoices and receiving reports,

will be scanned and converted to electronic images—similar to

photographs—and stored in an EDM database at the Center. Once stored,

these images can be retrieved and viewed by Center personnel. While the

EDM program will help eliminate the need to handle paper documents after

they are received and scanned, it will not reduce the amount of paper

being sent to Columbus. Moreover, they cannot be electronically input into

other systems. Center personnel must still manually enter the contract

data into other systems such as contract payment and accounting systems.

EDM is being developed under a 5-year contract awarded in

September 1994. The program is expected to be completed by the end of

fiscal year 1999. While the contract covers EDM applications for other DOD

functions, the contract pay portion is expected to cost $33 million.

Electronic Document

Access (EDA)

EDA provides DOD users with electronic images of contracts, contract

modifications, and related documents. Electronic document files created

by the DOD acquisition community are stored in an EDA data base. Once

stored, these documents can be accessed and viewed on DOD’s computer

network, the Non-Classified Interactive Processor Router Network

(NIPRNET). The expanded use of EDA is expected to significantly reduce the

1

Financial Management: Seven DOD Initiatives That Affect the Contract Payment Process (AIMD-98-40,

Jan. 30, 1998).

Page 24 GAO/T-NSIAD/AIMD-98-122 Defense Management
Appendix I 

Electronic Commerce and Paperless

Communications Initiatives

amount of time DOD spends mailing and distributing paper documents and

eliminate document loss and mailing delays. The initiative began in

April 1996, and it is scheduled for completion in December 1998. EDA,

which is being funded by the EDM initiative, is expected to cost about

$2.7 million. As of December 1997, over 100,000 contracts were available

in the EDA database. EDA will not eliminate all paper documents needed in

the contract payment process. Documents such as receiving reports and

invoices are not included in the EDA database and will have to be made

available electronically by other initiatives. In addition, as with EDM,

Center personnel must still manually enter contract data from the

electronic images into contract payment and accounting systems.

Electronic Data

Interchange (Edi)

EDI allows the computer-to-computer exchange of routine business

information by requiring standardized data formats. The military services

and the Defense Logistics Agency (DLA) are using EDI to support their

procurement processes. They have about 76 nonstandard procurement

systems generating contractual documents and have begun working with

nine of the largest systems to provide the capability to convert and

transmit their data in EDI formats. Likewise, DFAS is using EDI to support

its procurement and payment processes. For EDI to work effectively,

however, all of these systems must be able to electronically exchange data

and ensure that the data conform to standard data formats for documents

such as contracts, contract modifications, and invoices. As of

September 30, 1997, about 80 DOD contractors were approved to use EDI to

transmit invoices to DOD’s primary contract payment system. However,

only about 50 contractors were actually transmitting invoices using EDI.

We do not have complete costs for the EDI initiative. However, we have

documented that DFAS alone plans to spend $47.1 million to develop and

implement EDI for its operations between fiscal year 1995 and 1999.

Standard

Procurement System

(SPS)

SPS will be an automated procurement information system for preparing

procurement contracts and supporting contract administration. As

planned, it will replace DOD’s manual procurement systems and the 76

unique automated procurement systems that are used to prepare

contracts. SPS is also expected to standardize procurement business

practices and data elements throughout DOD and provide users timely,

accurate and integrated contract information. SPS will use EDI capability to

share data with other systems. As part of the SPS design, contract and

contract payment data will be entered once—at the source of the

information—and will be stored in a “shared data warehouse.” The SPS

Page 25 GAO/T-NSIAD/AIMD-98-122 Defense Management
Appendix I 

Electronic Commerce and Paperless

Communications Initiatives

initiative began in January 1994. It is being managed by DLA. Initial SPS

implementation began in May 1997. SPS development and implementation

are expected to be completed by September 30, 2001, at a cost of about

$295 million.

Defense Procurement

Payment System

(DPPS)

DPPS is intended to be a single standard DOD system for calculating contract

payments and posting the payment information to accounting records.

This system, along with SPS, is to replace the current contract payment

system—Mechanization of Contract Administration Services (MOCAS). DPPS

is expected to (1) provide a single system which DFAS can use to validate

funds availability, (2) reduce DFAS’ reliance on hard copy documents, and

(3) eliminate cumbersome manual processes for reconciling contract,

payment, and accounting records. Like SPS, DPPS will use EDI capability to

share data with other systems. The DPPS initiative began in September

1995. It is being managed by DFAS and is estimated to cost $114 million.

DPPS implementation is scheduled to be completed by April 15, 2002.

Electronic Malls Simply stated, electronic malls are electronic versions of suppliers’

catalogs that are available through the internet. These malls will eventually

allow DOD customers to access a variety of electronic ordering systems or

“stores”. The stores usually specialize in commodity groups such as

industrial products, office supply products, food, or textiles. DLA and each

military service are developing an electronic mall for the inventory items

they manage. DOD plans for users to eventually be able to move among the

various electronic malls with relative ease. This capability does not yet

exist. By April 1998, DLA’s electronic mall is expected to offer more than

4 million items DLA manages as well as several hundred thousand

commercial items in vendor catalogs to DOD customers. DLA’s electronic

mall is expected to provide the following information: descriptions of the

products, weapon systems supported, types of payments accepted,

ordering procedures, contractors’ names, and contract numbers.

According to DLA, electronic malls blend the benefits offered by the

internet, government purchase cards, and the prime vendor program. This

includes easy access, easy purchasing procedures, and readily available

items at competitive prices.

Government Purchase

Card

A government purchase card is essentially a credit card for small

procurements (generally micropurchases under $2,500) that allows the

government to cut the red tape normally associated with the procurement

Page 26 GAO/T-NSIAD/AIMD-98-122 Defense Management
Appendix I 

Electronic Commerce and Paperless

Communications Initiatives

process. Using the card, for example, generally eliminates the need for

procurement requests, receiving reports, and invoices. It also reduces the

number of disbursements because a single payment is made to the card

company rather than to each vendor. In fiscal year 1997, DOD’s purchases

using the card totaled $321 million. This total involved about 567,000

transactions by about 115,000 card holders. The Army is leading other DOD

components in use of the card. During fiscal year 1997, it made about

257,000 transactions totaling $147 million, which was about 45 percent and

46 percent of DOD totals, respectively. Increased use of the purchase card

by the military services and defense agencies has the potential to reduce

both workloads and staffing levels. The Army estimated that use of the

card would reduce the cost of a typical procurement action from about

$130 to about $30. Likewise, use of the card will reduce DFAS’ vendor pay

workload and staffing.

Until recently, only one type of purchase card was available to DOD

components—the International Merchants Purchase Authorization Card

(IMPAC)—a visa credit card. In February, however, the General Services

Administration awarded contracts to six credit card companies to provide

credit cards to government agencies. DOD, like other federal agencies, will

be able to negotiate with the contractors for the types of cards and

services they want. In addition, under the contracts, DOD can negotiate

special incentives, such as rebates.

Page 27 GAO/T-NSIAD/AIMD-98-122 Defense Management
Related GAO Products

Base Operations: DOD’s Use of Single Contracts for Multiple Support

Services (GAO/NSIAD-98-82, Feb. 27, 1998).

Defense Outsourcing: Better Data Needed to Support Overhead Rates for

A-76 Studies (GAO/NSIAD-98-62, Feb. 27, 1998).

Best Practices: Elements Critical to Successfully Reducing Unneeded

RDT&E Infrastructure (GAO/NSIAD/RCED-98-23, Jan. 8, 1998).

Future Years Defense Program: DOD’s 1998 Plan Has Substantial Risk in

Execution (GAO/NSIAD-98-26 Oct. 23, 1997).

1997 Defense Reform Bill: Observations on H.R. 1778 (GAO/T-NSIAD-97-187,

June 17, 1997).

Defense Infrastructure: Demolition of Unneeded Buildings Can Help Avoid

Operating Costs (GAO/NSIAD-97-125, May 13, 1997).

DOD High-Risk Areas: Eliminating Underlying Causes will Avoid Billions of

Dollars in Waste (GAO/T-NSIAD/AIMD-97-143, May 1, 1997).

Defense Acquisition Organizations: Linking Workforce Reductions With

Better Program Outcomes (GAO/T-NSIAD-97-140, Apr. 8, 1997).

Defense Budget: Observations on Infrastructure Activities

(GAO/NSIAD-97-127BR, Apr. 4, 1997).

Defense Outsourcing: Challenges Facing DOD as It Attempts to Save

Billions in Infrastructure Costs (GAO/T-NSIAD-97-110, Mar. 12, 1997).

Base Operations: Challenges Confronting DOD as It Renews Emphasis on

Outsourcing (GAO/NSIAD-97-86, Mar. 11, 1997).

Defense Logistics: Much of the Inventory Exceeds Current Needs

(GAO/NSIAD-97-71, Feb. 28, 1997).

Military Bases: Cost to Maintain Inactive Ammunition Plants and Closed

Bases Could Be Reduced (GAO/NSIAD-97-56, Feb. 20, 1997).

High-Risk Series: Defense Financial Management (GAO/HR-97-3, Feb. 1997).

High-Risk Series: Contract Management (GAO/HR-97-4, Feb. 1997).

Page 28 GAO/T-NSIAD/AIMD-98-122 Defense Management
Related GAO Products

High-Risk Series: Defense Inventory Management (GAO/HR-97-5, Feb. 1997).

High-Risk Series: Defense Infrastructure (GAO/HR-97-7, Feb. 1997).

Managing Technology: Best Practices Can Improve Performance and

Produce Results (GAO/T-AIMD-97-38, Jan. 31, 1997).

Air Force Depot Maintenance: Privatization-In-Place Plans Are Costly

While Excess Capacity Exists (GAO/NSIAD-97-13, Dec. 31, 1996).

Defense IRM: Strategy Needed for Logistics Information Technology

Improvement Efforts (GAO/AIMD-97-6, Nov. 14, 1996).

Acquisition Reform: Implementation of Title V of the Federal Acquisition

Streamlining Act of 1994 (GAO/NSIAD-97-22BR, Oct. 31, 1996).

Army Depot Maintenance: Privatization Without Further Downsizing

Increases Costly Excess Capacity (GAO/NSIAD-96-201, Sept. 18, 1996).

1997 DOD Budget: Potential Reductions to Operation and Maintenance

Program (GAO/NSIAD-96-220, Sept. 18, 1996).

Defense Acquisition Infrastructure: Changes in RDT&E Laboratories and

Centers (GAO/NSIAD-96-221BR, Sept. 13, 1996).

Best Practices: Commercial Quality Assurance Practices Offer

Improvements for DOD (GAO/NSIAD-96-162, Aug. 26, 1996).

Navy Financial Management: Improved Management of Operating

Materials and Supplies Could Yield Significant Savings (GAO/AIMD-96-94,

Aug. 16, 1996).

Inventory Management: Adopting Best Practices Could Enhance Navy

Efforts to Achieve Efficiencies and Savings (GAO/NSIAD-96-156, July 12, 1996).

Defense Infrastructure: Costs Projected to Increase Between 1997 and

2001 (GAO/NSIAD-96-174, May 31, 1996).

Military Bases: Opportunities for Savings in Installation Support Costs Are

Being Missed (GAO/NSIAD-96-108, Apr. 23, 1996).

Page 29 GAO/T-NSIAD/AIMD-98-122 Defense Management
Related GAO Products

Acquisition Reform: Efforts to Reduce the Cost to Manage and Oversee

DOD Contracts (GAO/NSIAD-96-106, Apr. 18, 1996).

Defense Depot Maintenance: Privatization and the Debate Over the

Public-Private Mix (GAO/T-NSIAD-96-146, Apr. 16, 1996).

Military Bases: Closure and Realignment Savings Are Significant, But Not

Easily Quantified (GAO/NSIAD-96-67, Apr. 8, 1996).

Defense Infrastructure: Budget Estimates for 1996-2001 Offer Little

Savings for Modernization (GAO/NSIAD-96-131, Apr. 4, 1996).

Managing for Results: Achieving GPRA’s Objectives Require Strong

Congressional Role (GAO/T-GGD-96-79, Mar. 6, 1996).

Defense Transportation: Streamlining of the U.S. Transportation

Command Is Needed (GAO/NSIAD-96-60, Feb. 22, 1996).

Best Management Practices: Reengineering the Air Force’s Logistics

System Can Yield Substantial Savings (GAO/NSIAD-96-5, Feb. 21, 1996).

Managing for Results: Critical Actions for Measuring Performance

(GAO/T-GGD/AIMD-95-187, June 20, 1995).

Financial Management: Challenges Confronting DOD’s Reform Initiatives

(GAO/T-AIMD-95-146, May 23, 1995).

Military Bases: Analysis of DOD’s 1995 Process and Recommendations for

Closure and Realignment (GAO/NSIAD-95-133, Apr. 14, 1995).

(709331) Page 30 GAO/T-NSIAD/AIMD-98-122 Defense Management
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