United States General Accounting Office

GAO Report to Congressional Requesters

April 1998 DEFENSE LOGISTICS

AGENCY

Process for Selecting

Defense Distribution

Center Site Contained

Weaknesses

GAO/NSIAD-98-96

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-279301 

April 9, 1998

The Honorable Richard W. Pombo

The Honorable Gary A. Condit

House of Representatives

On September 16, 1997, the Defense Logistics Agency (DLA) announced its

decision to consolidate its eastern and western regional distribution

headquarters into a new center to be located in New Cumberland,

Pennsylvania, the site of the eastern regional headquarters. At that time,

DLA officials expected the consolidation to occur over about a 2-year

period beginning October 1, 1997. Through the consolidation, DLA expects

to reduce its regional headquarters and co-located support personnel by

about 673 for a savings of about $28.3 million annually.

This report responds to your request that we review the process used by

DLA to select the site for its new center. Specifically, this report addresses

whether (1) the process was sound and (2) there was any evidence that

the site selection had been predetermined.

Results in Brief DLA officials believed that the consolidation of its eastern and western

regional distribution headquarters would produce savings. DLA’s

establishment of a steering group and decision-making criteria indicate

that DLA recognized the need for a credible process to guide its

decision-making in selecting a site for its consolidated distribution

headquarters. However, the process used by DLA to support the site

selection decision contained a number of weaknesses. Among the

weaknesses in the process were the absence of sufficient information

concerning personnel and facilities requirements for the new center,

unrealistic cost comparisons between the competing sites, and the use of

subjective data for two noncost criteria. Subsequent changes to the

process, made at the request of the selecting official, did not correct these

weaknesses and created concerns about the perception of bias. The

cumulative effect of these weaknesses raised questions about the

soundness of the site selection process and the ultimate decision.

Although various persons from the western location raised concerns about

whether the decision had been predetermined, we found no evidence to

validate these concerns. Likewise, we found no evidence that prior studies

examining the consolidation issue influenced the current site selection

process or outcome.

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Background Since 1993, DLA has operated with two defense distribution regional

headquarters, an eastern headquarters in New Cumberland, Pennsylvania,

and a western headquarters in the vicinity of Stockton, California. These

regional headquarters provided operational oversight to over 20

geographically dispersed distribution depots.1

 See figure 1 for DLA’s

distribution structure prior to the decision to consolidate the regional

headquarters.

Figure 1: DLA’s Defense Distribution Structure Prior to Decision to Consolidate Regional Headquarters

Regional headquarters/Primary Distribution Site (PDS)

Distribution depots

Recommended for closure under the base realignment and closure (BRAC) 

process

(c)

Puget Sound

Letterkenny (c)

Barstow

McClellan (c)

Hill

Columbus (c)

Warner Robins

Tobyhanna

Richmond

San Diego Jacksonville

Red River

Corpus Christi Albany

Memphis (c)

San Antonio (c) Anniston

Oklahoma City

Cherry Point

Norfolk

Defense

Distribution

Region East

(New Cumberland)/

Susquehanna PDS

Ogden (c)

Defense

Distribution

Region West

(Stockton area)/

San Joaquin PDS

Source: DLA and Defense Base Closure and Realignment Commission 1995 Report to the

President.

1

Distribution depots receive, store, and issue wholesale and retail material in support of the armed

forces worldwide.

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Actions Resulting From the

BRAC Process

DLA reduced its number of distribution regions from three to two in 1993

and soon thereafter began exploring the potential of having just one.

Although a study was initiated, it was not finalized and no proposals or

recommendations were approved. During the 1995 base realignment and

closure (BRAC) process, DLA examined the military value of the eastern and

western regional headquarters and found that they rated nearly equal.2

 At

that time, DLA officials concluded that changing the command and control

structure would present significant risks in the efficient management of

day-to-day operations and the ability to effectively support two major

regional conflicts simultaneously. Further, they determined that span of

control of future operations and the requirement to continue to

accommodate contingency, mobilization, and future total force

requirements made two regions essential.

Site Selection Process Subsequent to BRAC 1995, DLA officials revisited the consolidation issue and

began another study. According to DLA headquarters officials, a

preliminary assessment was made and the study was terminated before

any recommendations were made. Meanwhile, DLA continued to

restructure its distribution organization. Then, in February 1997, DLA

reinitiated an effort to consolidate the two regions. This was expected to

result in the creation of a single distribution command, known as the

Defense Distribution Center. Under this plan, the center was to assume the

regional distribution functions and manage the two primary distribution

sites and all remaining distribution depots.

Two steering groups were established to work concurrently on the

consolidation effort. A “missions and functions steering group” was

established to determine the distribution center staffing requirements and

organizational design. A “site selection steering group” (hereafter referred

to as the steering group) was established to develop a decision process to

determine a recommended site. The Principal Deputy Director of DLA was

responsible for selecting the site in consultation with the DLA Director and

other senior officials who made up DLA’s executive leadership team.

The site selection process included the use of a contractor, KPMG Peat

Marwick, LLP to assist the steering group in developing the decision

model and identifying the data needed. The contractor and an experienced

2

DLA assessed the military value of its activities using four distinct measures: mission scope, mission

suitability, operational efficiencies, and expandability. Out of a potential 1,000 points for military

value, the western regional headquarters scored 896, while the eastern regional headquarters scored

882.

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DLA facilities engineer gathered, validated, and evaluated the data used in

the model.

The steering group had 12 members, with 6 voting members from various

offices within DLA headquarters and the Office of the Secretary of Defense;

2 voting members each from the eastern and western regions; and 2

nonvoting members—the steering group chair (a military colonel) and a

Department of Defense (DOD) Inspector General representative, who

participated as an advisor. The group developed cost and other site

selection criteria that were approved by the selecting official and the

executive leadership team. (See table 1.)

Table 1: Site Selection Criteria and

Weights Maximum points

for each criteriona

Maximum points

per category

Cost criteria—800 total points

Investment costs over a 1-year period 300

Facilities and information technology 300

Operations costs over a 5-year period 500

Utilities, service orders, janitorial 160

Real property maintenance 110

Personnel 130

Travel 100

Noncost criteria—200 total points

Work 100

Work environment 70

Commute time 30

Home 100

Cost of living 40

Median house price 30

Crime index 20

Unemployment rate 10

Total point allocation 1,000

aIn this model, the maximum points that could be awarded to either site was 1,000. Each site’s

data inputs were evaluated and the one with the best outcome received 100 percent of the points

allocated to that criterion, while the other site received a fraction of the points depending on the

relative difference between the two scores.

Source: DLA.

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While costs played a major role in the evaluation, the preferred site did not

necessarily have to be the site with the lowest costs. Rather, it was the one

with the highest point total.

Three sites were initially considered for the new center: DLA headquarters

at Fort Belvoir, Virginia, and the existing eastern and western regional

headquarters. The Fort Belvoir site dropped out before completion of the

first data request due to a lack of available space at the headquarters

building.

Requests for Data The steering group sponsored two rounds of data requests from officials at

the competing sites. According to KPMG, the responses to the first data

request were not used because some of the questions were not clear and

the respondents did not fully understand them. Thus, a second data

request was required. For the second data request, the questions were

redefined in an attempt to be clearer and obtain better information. The

steering group expected that responses to the second data request would

be analyzed using the decision model to identify the preferred site.

Analysis of the second data request was completed on August 11, 1997.

Although the steering group was not convened to review the results, the

steering group chair and KPMG jointly presented the results to the

selecting official (DLA’s Principal Deputy Director), who told us that he

was dissatisfied with how some aspects of the approved methodology had

been implemented and saw the need for additional data. He requested

revisions, including having a second facilities engineer, not previously

involved in the process, oversee the collection and validation of some new

data—essentially a third data request. The steering group was not made

aware of the selecting official’s actions, including the third data request,

until the group was given both the results of its work on the second data

request and the revisions, on September 15, 1997. On the basis of the

results of the revised study, the eastern location was selected by the

Principal Deputy Director of DLA as the site for the new center also on

September 15, 1997.

Status of the Consolidation As of October 1, 1997, DLA had officially established its command and

control of all distribution functions at New Cumberland, Pennsylvania. As

of February 25, 1998, personnel performing distribution headquarters

functions at the western location were reporting to management at the

eastern location, and DLA was in the process of implementing other aspects

of the consolidated operation at that location.

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Weaknesses in the

Site Selection Process

The process used by DLA to support the site selection decision for its

consolidated distribution headquarters contained several weaknesses,

including insufficient data on personnel and facilities requirements, a

questionable methodology for evaluating and comparing costs, and

subjective responses used by steering group members for two criteria.

Subsequent changes to the process, made at the request of the selecting

official, did not correct these weaknesses and created concerns about the

perception of bias. Also, these actions significantly altered investment and

operating cost results between the second and third data requests.3

 (See

apps. I and II.)

Insufficient Data on

Personnel and Facilities

Requirements

Because information on staff size and functions was being determined

concurrently with the site selection process, the steering group was not

given complete information on the staffing requirements, organizational

design, and facility requirements for the new headquarters. Because these

requirements have a substantial impact on space utilization and costs,4

 it is

important that they be properly defined in advance of facility space

planning.

The steering group was initially told by senior DLA management that an

estimated 400 persons would be needed to staff the consolidated

distribution headquarters. Therefore, the first data request asked officials

at the competing sites for facility requirements and costs based on the

requirements of 400 staff. Subsequently, the missions and functions

steering group provided an estimated personnel strength of 347 persons,

which was used in the second data request. In both instances, the

competing locations were not given a more detailed breakdown of the

operational functions or the number of persons associated with them.

Respondents from the regional locations stated that they could only

estimate floor plan requirements and then compute associated costs.

According to a KPMG official, the floor plans developed by each site

contained certain unrealistic aspects and did not present a clear picture of

the investment costs that would be required.

Although the structure and functions of the new headquarters were

determined prior to the third data request by the mission and functions

3

The data and results are presented for information purposes only. We cannot validate the results of

either data collection effort because of problems identified with the process.

4

These costs are reflected in the facilities and information technology and personnel categories in the

site selection decision model.

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steering group, DLA officials considered the information too sensitive to

release to the competing locations because it could lead to speculation

about layoffs. For the third data collection effort, requested by the

selecting official, a DLA facilities engineer provided the regional

respondents with the number of functions and the number of staff per

function, but not the identity of the functions. As a result, the third data

request also resulted in hypothetical floor plans and associated costs.

Officials at the eastern location told us that, after becoming aware of the

final plans for staffing, they made some good guesses in identifying some

of the functions and could have implemented their floor plan if required to

do so. However, they did not believe the floor plan presented the optimal

solution. For example, although they knew they needed a law library, they

did not know which function it would be associated with; therefore, their

floor plan resulted in locating their legal staff offices at one end of one

building and the law library at the opposite end of a second building.

Although some changes were to be expected, according to regional

officials, the lack of definitive information meant that neither site’s floor

plan would have been fully implemented if selected.

DLA officials are still in the process of finalizing the floor plan for their

headquarters location in New Cumberland, but the officials said they do

not expect the costs to exceed the estimates provided in the site selection

competition. Nevertheless, questions still exist regarding what differences

might have existed between the plans and costs initially provided by the

two competing locations if they had had a clearer picture of the

performing functions and space requirements.

Both steering group members and regional respondents said the lack of

information on personnel and facilities hampered their ability to perform

their tasks. A KPMG official agreed, noting that although he had been

involved in numerous site selections, this was the first time he had

participated in a selection process in which the functions and related

staffing had not been determined before the site selection process began.

Questionable Cost

Comparison Methodology

Analysts often assign varying weights to evaluation criteria in this type of

analysis to distinguish the relative importance of individual criteria. This

approach is also used to assign different weights between cost and

noncost variables to distinguish their relative importance. However, DLA’s

site selection steering group assigned different weights to individual cost

criteria, which produced a distorted picture of the comparative costs of

the two competing locations. For example, a dollar spent on a service

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order became more significant or of more value than a dollar spent on real

property maintenance. The distortion caused by this weighting was so

significant for the second data request that, even though the eastern

location was $3.8 million more expensive than the western location based

on a straight comparison of costs, the assignment of points made it appear

that the eastern location had come out ahead in the cost categories. (See

app. I for the results of the second data request.)

The DOD Inspector General representative who participated in the steering

group’s proceedings told us that he had questioned the weighting of

individual cost elements and recommended to the group that costs be

evaluated on a straight comparison basis between locations. Further,

KPMG officials told us that they had also told the group repeatedly that

this methodology was not comparing dollars equally. Individual steering

group members we spoke with could not recall their rationale for a

disproportionate ranking of dollars and did not understand the potential

impact of their actions until they saw the results of the second data

request.

Subjective Evaluation of

Two Noncost Criteria

Specific criteria for evaluating work environment and commute time were

not established because the steering group could not determine data

sources for these two noncost criteria. Thus, steering group members

subjectively determined point values for these criteria at each location.

For work environment, members told us they considered everything from

distance between the parking lot and the office to perceived lifestyles to

ongoing working relationships. For commute time, because some

members had been to each location only twice, their experience with

commute time consisted of traveling between their hotel and the site.

Some members argued that commute time was not really a valid criterion,

because it was a matter of personal choice. The subjectivity of these

responses and the inconsistency in what members considered made the

determinations of questionable value. These two criteria represented 100

points, or half the points awarded in the noncost category and 10 percent

of the total points.

Selecting Official

Requested Changes

Affecting the Analysis

DLA’s site selection decision support model was reviewed and approved by

its Principal Deputy Director who served as the selecting official, in

consultation with DLA’s executive leadership team, before data collection

efforts were initiated to ensure the objectivity of the process. However,

after being briefed on the results of the second data request analysis, the

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selecting official requested changes in the analysis and asked for

additional data.5

 He stated that he did this to better ensure the

comparability of data between the sites. This produced the requirement

for a third data request. The selecting official decided that equal points

should be awarded to each site for personnel costs, that real property

maintenance costs be reassessed, and that changes should be made to

requirements for furniture and space. The selecting official’s actions to

negate the impact of one criterion and to have data reassessed after

receiving the results of the analysis and without consulting the steering

group created concerns among various steering group members about the

perception of bias.

Personnel Costs The selecting official disagreed with the steering group’s use of personnel

cost as a criterion. As a result, following a briefing on the second data

request analysis, the selecting official, acting independently of the steering

group, decided to eliminate personnel costs as a consideration. The

selecting official reasoned that the grade structure of the new

headquarters should be independent of the chosen site, making personnel

costs irrelevant, so he gave equal points to both locations. (See app. II for

the results of the third data request.) The steering group, however, had

considered personnel cost to be an important criterion and had based it on

average grade levels of the current structure at each location. The steering

group reasoned that, although the employees of the new site would be

downsized, the grade structure at the new headquarters would be similar

to that of the region where it was located. DLA headquarters officials told

us that in setting up the new distribution headquarters at New

Cumberland, they expect to restructure and downgrade positions at that

location to meet the requirements for the new organization. To what

extent this would lessen the higher personnel costs for the eastern

location is unclear given employee bumping rights and save pay provisions

that would likely be associated with such restructuring.6

 Also, the

importance of personnel costs as a decision factor should not be

minimized since savings in this area can mean the potential for significant

recurring savings in the long term.7

 The results of the second data request

5

The results of the second data request analysis showed that the eastern location had won on points

while the western location was the less costly site. (See app. I.)

6

Employee retention through the exercise of reduction-in-force bumping rights can add significantly to

personnel costs because civil service procedures allow employees moving into lower graded jobs to

retain the pay of their former graded positions. See Defense Force Management: Challenges Facing

DOD as It Continues to Downsize Its Civilian Work Force (GAO/NSIAD-93-123, Feb. 12, 1993).

7

Savings in personnel and base operating costs have provided a major component of total savings from

the BRAC process and have often helped to offset any investment costs required to implement BRAC

decisions.

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showed that the eastern location had higher average grade levels, resulting

in a $3.1 million difference in personnel costs between the two locations

over a 5-year period. (See app. I.)

Real Property Maintenance

Costs

The selecting official had the facilities engineer responsible for the third

data request reassess real property maintenance costs. The selecting

official told us that he did this in the interest of obtaining more realistic

data. For the second data request, the steering group used the Navy Public

Works Center real property maintenance estimates used in the 1995 BRAC

process. These estimates had been reviewed in 1995 by the DOD Inspector

General, who found the procedures used to be reasonable and the cost

estimates to be consistently generated, generally supported, and

reasonably accurate.8

 According to the facilities engineer responsible for

the second data request, the data had also been used in DLA’s real property

maintenance project development, budgeting, and execution processes.

The DLA facilities engineer made minor changes to the Navy Public Works

Center data as part of his data validation efforts before approving their use

for the second data request analysis.

The selecting official told us he believed that the data used in the second

data request were not realistic, based on his personal knowledge of the

conditions of the two sites, past experience in the distribution area, and

knowledge of flaws in repair and maintenance data used for BRAC. He

reasoned that the BRAC data were not comparable because the Navy Public

Works Center had different people with different perceptions and

evaluation criteria assess the individual sites. For example, he said the

eastern location’s database included about $47,000 for the cost of painting

a building with a dryvit exterior, which, according to the facilities

engineer, does not need cyclic painting. However, the facilities engineer

had already removed this item from the eastern location’s database during

his validation of the second data request.

A DLA facilities engineer, not previously involved in the process, reassessed

real property maintenance costs for the third data request, producing a

significant change in costs between the two locations. The results of the

second data request had shown a difference of about $643,000 in the real

property maintenance category in favor of the western location. The

results of the third data request produced a difference of about $182,000 in

favor of the eastern location.

8

Department of Defense Inspector General Report No. 95-241, Summary Report on the Audit of

Defense Logistics Agency 1995 Defense Base Realignment and Closure Data Collection Process

(June 19, 1995).

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For the third data request, the facilities engineer went one step further

than the previous engineer and had the sites submit justification for

removing additional projects from the Navy Public Works Center

database. The projects submitted for removal included some cyclical

projects that the respondents did not believe were needed during the

5-year time frame covered by the analysis. The eastern location submitted

and received approval for removing about $791,000 worth of projects.

According to western location officials, they had one such project, valued

at $95,000, but they did not submit it because their efforts to have it

removed during the second data request were unsuccessful. Both facilities

engineers said that if the western location had resubmitted this project for

the third data request it would have been considered and may have been

removed. The removal of this item alone would not have significantly

impacted the cost or point spread in the final analysis of the third data

request.

However, the facilities engineers later identified an error of about $210,000

in the western location’s database for costs that KPMG agreed should have

been excluded. The correction reducing the western location’s real

property maintenance costs was not made in the final analysis because,

according to KPMG, it was identified after the third data request analysis

was completed. Although these reductions—the possible removal of the

$95,000 project and the $210,000 correction—in the western location’s

costs would have changed the dollar and point spread advantage for real

property maintenance costs from the eastern site to the western site, they

would not have been enough alone to effect the overall outcome of the

study. (See app. II.)

New Facility Requirements The selecting official requested revisions to the requirements for furniture

and space. These changes significantly affected the relative position of the

competing locations within the facilities and information technology cost

category. The eastern location’s cost advantage in the investment cost

category, which includes facilities and information technology costs, went

from only about $19,000 in the second data request analysis to about

$1.7 million in the third data request analysis. The facilities engineer who

developed the third data request told us that the requirements were

instituted to ensure a level playing field. However, some steering group

members disagreed with the changes and told us that the requirements

gave an advantage to the eastern location, which already had modular

systems furniture required by the new data request.

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In developing the second data request, the steering group had voted to

disregard the selecting official’s direction for the new headquarters to

include modular systems furniture. While DLA officials told us that such

furniture was used at two other newly renovated sites, various steering

committee members told us they did not believe that an official standard

requiring such furniture currently existed within DLA. Nonetheless, this

became a requirement under the third data request, consistent with the

selecting official’s earlier guidance. The facilities engineer who developed

the data request required that the competing regions resubmit floor plans

to include the systems furniture and stipulated that its life expectancy not

exceed 10 years within the 5-year time frame covered by the analysis. As a

result of these new requirements, the western location submitted a cost of

about $901,000 for purchasing new systems furniture in the third data

request because it could not verify the age of the systems furniture stored

in its warehouse.

Moreover, in addition to requiring systems furniture, the third data request

included other new requirements such as a minimum of 22 meeting rooms

and floor-to-ceiling walls for conference rooms and offices to meet what

the facilities engineer described as an idealistic view of what DLA offices

should look like. The engineer said that he used these requirements to

ensure that both proposals would be based on comparable work space.

Neither the steering group nor officials from the competing locations

agreed with all of these requirements. For example, they protested the

need for 22 meeting rooms, calling it excessive and wasteful. Officials at

both locations told us that they currently had more people with fewer

meeting rooms and had encountered no difficulties in doing their work.

Impact of Changes The changes made for the third data request analysis had the effect of

improving the position of the eastern location, including shifting the cost

advantage (on an absolute dollar basis) to the eastern location. However,

it should be noted that these costs were largely one-time costs that could

easily be offset over time should there be significant recurring savings in

another cost area, such as personnel. Steering group members told us they

had no role in the third data collection effort. They received the results of

the second and third data requests on the same day, September 15, 1997.

According to the steering group’s minutes, the group accepted the results

of the third data request because the request was at the discretion and

authority of the selecting official. However, they cautioned the selecting

official that the process of the third data request would appear biased to

outside parties, considering they had not been consulted regarding this

phase. The results of the third data request analysis showed that the

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eastern location scored much better in both cost and point totals than the

western location—the eastern location was the least costly by about

$2.1 million. However, the results of the second data request showed the

western location was the least costly by about $3.8 million. Again, because

of problems identified in the process, we could not validate either set of

data.

No Evidence to

Validate Claims of

Predetermination

Allegations had been made that DLA officials had selected the eastern site

for the Defense Distribution Center before the site selection study took

place. We found no evidence to validate concerns that the site selection

decision was predetermined. Previous studies examined the consolidation

issue but left the two regions intact. We found no evidence that the prior

studies influenced the current site selection process or outcome.

DLA officials told us they had considered consolidating their regional

distribution headquarters for a number of years and had eliminated one of

three regional headquarters in 1993. Subsequently, they had studied

options for consolidating the two remaining regional headquarters;

however, the study was not finalized and no proposals or

recommendations were approved. The issue of consolidating the two

regions had also been separately addressed as part of DLA’s BRAC

deliberations in 1995. Even though DLA’s BRAC 1995 assessment emphasized

the importance of retaining two regions, we learned that following BRAC

1995, DLA officials once again began revisiting the issue and began another

study. A DLA official told us that the post-BRAC study was justified because

the 1995 BRAC process had produced decisions to close six depots. (See

fig. 1.) However, a DLA headquarters official told us that, although a

preliminary assessment was made, this study was not completed and no

report was issued.

We were provided documents that various officials from the western

location said raised concerns about whether the decision had been

predetermined. However, we found no evidence to support that the

information provided in these documents reflected the official position of

DLA or influenced the current site selection process. For example, a 1995

briefing document from a previous study indicated a planned future

staffing level of 387 at the eastern location and the phaseout of staff at the

western location. According to DLA headquarters officials, the briefing

document was preliminary and this study was not finalized.

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The selecting official and DLA officials associated with the most recent

consolidation study told us that all the previous studies were outdated,

given changes in DLA’s structure. Thus, the selecting official said that he

did not consider them in the most recent study effort.

Additionally, claims were made by DLA officials at the western location

that actions were taken to better position the eastern location in the

competition for the consolidated distribution center. These actions

included DLA’s moving a general flag officer, its Defense Distribution

Systems Center, and the DLA Operations Support Office to the eastern

location in 1996. While this may have given the appearance that the

eastern site was being preselected, we found no support indicating that

this was considered in the site selection process. Moreover, DLA officials

told us the flag officer would have moved to the western location if it had

been the selected site.

Conclusions DLA’s efforts to establish a steering group and formulate decision-making

criteria indicate that DLA recognized the need for a credible process to

guide its decision-making. However, the process used by DLA to support

the site selection for its consolidated distribution headquarters contained

a number of weaknesses, and raised questions about the soundness of the

decision-making process. The evaluation was completed without adequate

information concerning facility requirements, which forced an assessment

based on hypothetical costs; technical weaknesses further skewed the

results. Subsequent changes to the process, requested by the selecting

official, did not correct these weaknesses and created concerns about the

perception of bias. Additionally, an incomplete assessment of personnel

costs minimized opportunities to fully assess the potential for long-term

recurring savings.

Although various officials from the western location raised concerns about

whether the decision had been predetermined, we found no evidence to

validate that the information they provided to us reflected official DLA

positions. Also, we found no evidence that prior studies examining the

consolidation issue influenced the current site selection process or

outcome.

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Recommendation Because of the weaknesses in the process supporting DLA’s site selection

decision and subsequent questions raised about the soundness of the

decision-making process, we recommend that the Secretary of Defense

independently and expeditiously reassess DLA’s site selection decision,

taking into consideration issues and questions raised in this report.

Agency Comments

and Our Evaluation

DOD provided written comments on a draft of this report, and they are

included in their entirety in appendix III along with our evaluation of them.

DOD nonconcurred with the report’s findings pertaining to (1) insufficient

data on personnel and facilities requirements, (2) questionable cost

comparison methodology, (3) subjective evaluation of two noncost

criteria, and (4) selecting official’s requested changes affecting the

analysis.

DOD noted that DLA could have made the site selection decision unilaterally

but chose to put a process in place that solicited input from the Office of

the Secretary of Defense, the DOD Inspector General, DLA headquarters, and

DLA regional experts. It further stated that DLA structured the evaluation

process based on other successful models (including BRAC) and adjusted it

to accommodate the special considerations felt to be important by

representatives of the sites most impacted. We agree with DOD that sound

and supportable decision-making processes are needed in making

consolidation decisions. Our concern is that the process DLA decided to

use was not well implemented. In particular, it contained weaknesses in

methodology. The cumulative effect of these weaknesses raised questions

about the soundness of the site selection process and the ultimate

decision. We believe that the majority of issues raised in DOD’s response

were already adequately addressed in our report and, accordingly, we

made only minor modifications to the report regarding the requirement for

systems furniture.

DOD partially concurred with our recommendation. While disagreeing with

the report’s findings, DOD nonetheless agreed with our recommendation

that an expeditious review of the site selection decision should be done,

taking into account issues and questions raised in this report. However,

DOD did not set a time frame for doing so. Also, DOD did not specifically

address that portion of our recommendation that stated that the Secretary

of Defense should independently conduct the reassessment. We continue

to believe it is important that an independent and expeditious assessment

be made by the Secretary.

Page 15 GAO/NSIAD-98-96 Defense Logistics Agency
B-279301 

Scope and

Methodology

To assess the soundness of the process DLA used to recommend and select

a site for the Defense Distribution Center, we reviewed supporting

documentation for the criteria, weights, and analysis used in the selection

process. We interviewed all participants in the process. Participants

included the

• Site Selection Steering Group—the steering group chair, an Air Force

colonel in the DLA Logistics area; a DOD Inspector General representative;

four representatives from DLA headquarters offices, four regional

headquarters representatives, including two from each region; and two

officials from the Office of the Secretary of Defense, including one from

the Comptroller and one from the Logistics offices;

• KPMG Peat Marwick, LLP contractor personnel;

• DLA facility and installation officials involved in this process;

• the DLA selecting official, the Principal Deputy Director;

• the DLA Executive Director, Logistics Management;

• the Commander and Deputy Commander at Defense Distribution Region

West and Defense Distribution Region East, respectively; and

• DLA officials from both Defense Distribution Region East and Defense

Distribution Region West that responded to data requests.

We visited both sites evaluated in the analysis and reviewed proposed

floor plans. We traced and verified selected data inputs used to support

DLA’s analysis to verify the reliability of selected DLA and KPMG data

validation. We also reviewed documents from BRAC and other DLA

consolidation studies, as available, to compare methodologies used.

Documentation associated with studies other than the BRAC process was

limited.

To address the question of site selection predetermination, we interviewed

DLA officials who had participated in or had knowledge of BRAC studies and

DLA consolidation studies and reviewed documents relevant to these

studies. We also interviewed participants in the Defense Distribution

Center site selection process to determine whether they had prior

knowledge of these studies. Additionally, to follow up on allegations of

predetermination, we spoke to representatives of the DLA Council of

American Federation of Government Employees union locals from both

the eastern and western regions.

Given the sensitive nature of this assignment, we met with senior DLA

officials on two separate occasions to brief them on the results of our

work and to solicit their comments on preliminary drafts of this report. We

Page 16 GAO/NSIAD-98-96 Defense Logistics Agency
B-279301 

incorporated their comments, as appropriate, to enhance the technical

accuracy and completeness of our report.

We conducted our work from October 1997 to February 1998 in

accordance with generally accepted government auditing standards.

We are providing copies of this report to the Chairmen and Ranking

Minority Members of the Senate Committees on Armed Services and on

Appropriations; the House Committees on National Security and on

Appropriations; Members of Congress of the affected congressional

districts; the Director, Office of Management and Budget; the Secretary of

Defense; and the Director, Defense Logistics Agency. We will also make

copies available to others upon request.

Please contact me at (202) 512-8412 if you or your staff have any questions

concerning this report. Major contributors to this report were Barry W.

Holman, James R. Reifsnyder, Kathleen M. Monahan, Jacqueline E. Snead,

and Gary W. Ulrich.

David R. Warren, Director

Defense Management Issues

Page 17 GAO/NSIAD-98-96 Defense Logistics Agency
Contents

Letter 1

Appendix I 

Site Selection Steering

Group’s Decision

Model Results

20

Appendix II 

Selecting Official’s

Revised Analysis

Results

21

Appendix III 

Comments From the

Department of

Defense

22

Table Table 1: Site Selection Criteria and Weights 4

Figure Figure 1: DLA’s Defense Distribution Structure Prior to Decision

to Consolidate Regional Headquarters

2

Abbreviations

BRAC base realignment and closure

DLA Defense Logistics Agency

DOD Department of Defense

Page 18 GAO/NSIAD-98-96 Defense Logistics Agency
Page 19 GAO/NSIAD-98-96 Defense Logistics Agency
Appendix I 

Site Selection Steering Group’s Decision

Model Results

East West Difference

Points

receiveda Cost

Points

received Cost

Points

received Cost

Cost criteria

Investment costs over a 1-year period

Facilities and information

technology 300 $33,721 193 $52,494 107 $18,773

Operations costs over a 5-year period (discounted)

Utilities, service orders, janitorial 148 971,159 160 897,935 12 73,224

Real property maintenance 34 931,700 110 288,204 76 643,496

Personnel 123 55,111,403 130 51,968,016 7 3,143,387

Travel 100 24,062 95 25,371 5 1,309

Total cost 705 $57,072,045 688 $53,232,020 17 $3,840,025

Noncost criteria

Work environment 54 70 16

Commute time 26 30 4

Cost of livingb 40 40 0

Median house price 30 20 10

Crime index 20 6 14

Unemployment rate 10 4 6

Total points 885 858 27

aIn this model, the maximum points that could be awarded to either site was 1,000. Each site’s

data inputs were evaluated. The site with the best outcome received 100 percent of the points

allocated to that criterion, while the other site received a fraction of the points depending on the

relative difference between the two scores. The lower scoring site’s points equaled n * (a/b)

where n equals total points possible, a equals the lowest data value input for the subject criterion,

and b equals the highest data value input for the same specific criterion. For example, the eastern

location received 100 points for travel costs, the maximum number points allocated for this

criterion, because it had the lower cost. The western location received 95 points, which was

determined by dividing $24,062 by $25,371 and multiplying the result by 100 points.

bBoth sites were given equal points for the cost of living because comparable data were not

available, according to the steering group.

Source: DLA.

Page 20 GAO/NSIAD-98-96 Defense Logistics Agency
Appendix II 

Selecting Official’s Revised Analysis

Results

East West Difference

Points

receiveda Cost

Points

received Cost

Points

received Cost

Cost criteria

Investment costs over a 1-year period

Facilities and information technology 300 $79,923 13 $1,795,622 287 $1,715,699

Operations costs over a 5-year period (discounted)

Utilities, service orders, janitorialb 160 986,610 136 1,159,435 24 172,825

Real property maintenance 110 141,089 48 323,356c 62 182,26

Personneld 130 130 0

Travel 100 24,062 95 25,371 5 1,309

Total cost 800 $1,231,684 422 $3,303,784 378 $2,072,100

Noncost criteria

Work environment 54 70 16

Commute time 26 30 4

Cost of livinge 40 40 0

Median house price 30 20 10

Crime index 20 6 14

Unemployment rate 10 4 6

Total points 980 592 388

aIn this model, the maximum points that could be awarded to either site was 1,000. Each site’s

data inputs were evaluated. The site with the best outcome received 100 percent of the points

allocated to that criterion, while the other site received a fraction of the points depending on the

relative difference between the two scores. The lower scoring site’s points equaled n * (a/b)

where n equals total points possible, a equals the lowest data value input for the subject criterion,

and b equals the highest data value input for the same specific criterion. For example, the eastern

location received 100 points for travel costs, the maximum number points allocated for this

criterion, because it had the lower cost. The western location received 95 points, which was

determined by dividing $24,062 by $25,371 and multiplying the result by 100 points.

bFor the third data request the facilities engineer changed the threshold for service orders to

clarify definition problems. He requested that the data request respondents capture the costs

only for the maintenance and repair projects greater than $2,000.

cThis figure is overstated by about $210,000, due to an error made in a Defense Distribution

Region West database. Defense Distribution Region West officials asked for a correction, which

would have resulted in the maximum points going to the west. According to KPMG, the change

was not made because it was identified after the third data request analysis was completed, and

given the large point spread and dollar difference in the overall results, the correction would not

have had a significant impact on the outcome.

dThe selecting official decided to give both sites equal points for personnel costs, because he

reasoned that the costs would be identical after formation of the Defense Distribution Center,

regardless of the site chosen.

eBoth sites were given equal points for cost of living because comparable data were not

available, according to the steering group.

Source: DLA.

Page 21 GAO/NSIAD-98-96 Defense Logistics Agency
Appendix III 

Comments From the Department of Defense

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 22 GAO/NSIAD-98-96 Defense Logistics Agency
Appendix III 

Comments From the Department of Defense

Now on p. 6.

See comment 1.

Now on p. 7.

See comment 2.

Page 23 GAO/NSIAD-98-96 Defense Logistics Agency
Appendix III 

Comments From the Department of Defense

Now on p. 8.

See comment 3.

Now on p. 8.

See comment 4.

See p. 9.

See comment 5.

Page 24 GAO/NSIAD-98-96 Defense Logistics Agency
Appendix III 

Comments From the Department of Defense

See p. 10.

See comment 6.

See p. 11.

See comment 7.

Now on p. 13.

See p. 15.

Page 25 GAO/NSIAD-98-96 Defense Logistics Agency
Appendix III 

Comments From the Department of Defense

The following are GAO’s comments on the Department of Defense’s (DOD)

letter dated April 6, 1998.

GAO Comments 1. We did not assume that each data request result would be implemented

without any changes. Our point is that, while we would not expect the

selected site to implement the floor plan exactly as submitted, we do

believe the requirements should have been more fully defined and shared

with the data request respondents. This was of particular importance in

this study because investment costs were a major factor in the site

selection criteria. Likewise, better clarity of personnel requirements by

function could have led to better estimates of space requirements and

cost.

2. We agree that the site selection steering group was given the

responsibility to develop the criteria and weights for the decision support

model and followed its established process to do so. Although one can

assign different weights to costs as compared to a straight cost

comparison, it is not a methodology that we have typically seen in such

analyses, and as noted in our report, steering group members we spoke

with could not recall their rationale for using this approach. Furthermore,

both the Defense Logistics Agency’s (DLA) contractor and the DOD

Inspector General advised against such a methodology. Varying weights

can be assigned to evaluation criteria in this type of analysis to distinguish

the relative importance of individual criteria, particularly when

distinguishing between cost and noncost variables. However, assigning

different weights to individual cost criteria, reduced DLA’s ability to

perform the most meaningful comparison of cost. We saw no reason that

costs should not have been evaluated on a straight comparison basis to

provide a more accurate picture of costs.

3. On the basis of our discussions with steering group members and our

review of the site selection backup documentation, we do not believe that

the steering group had and used a valid basis for evaluating work

environment and commute time. Each steering group member ranked

each of the sites between 1 and 10 for quality of work environment and

then commute time, with 10 being the most favorable score. Average

scores were calculated and the highest average scores received the

maximum points in the site selection analysis. The weakness in this

method was that the basis for the ranking was not clearly established.

Work environment and commute time were not clearly defined; had they

been, the steering group might have identified objective measures for

Page 26 GAO/NSIAD-98-96 Defense Logistics Agency
Appendix III 

Comments From the Department of Defense

assessing these criteria. No data were used, and group members’

knowledge of commute times and working environment was limited. As a

result some group members used commutes from nearby hotels and based

working environment on personal working relationships. Alternatively, we

note that another DLA site selection study, pertaining to the issue of

consolidating cataloging functions, used quantitative factors to assess

quality of life at work, including factors such as individual office space per

person; average commute time measured in average number of miles

traveled; availability of public transportation; types and numbers of

amenities such as day care, gym, and credit union; parking fees; and

distance to the airport. Clearly, the method used in the current study

raised questions about the soundness of the method used to evaluate these

two criteria. According to steering group meeting minutes, senior DLA

leadership expressed concern about the subjective evaluation of these

criteria. Additionally, while it is true that these criteria constituted only

10 percent of the total points assigned overall, they constituted 50 percent

of the noncost criteria.

4. To what extent time requirements did not allow for consultation with

the site selection steering group about the changes requested by the

selecting official is unclear. The time constraint—making the site selection

decision by the end of the fiscal year—appeared to have been

self-imposed. Additionally, we agree that comparable data and information

should have been used in the site selection process. However, to avoid

questions about the objectivity of the evaluation, standards need to be

clearly stated and agreed to up front. The selecting official had approved

the site selection decision support model before data collection efforts

were initiated to ensure the objectivity of the process. While it is within his

authority and discretion to make changes, he did not do so until after he

saw the results of the second data request analysis and did so without

consulting the steering group. His actions did not correct the weaknesses

we identified but resulted in negating personnel costs, reassessing real

property, and establishing new facilities standards—the impact of which

dramatically altered the resulting costs and point values in the site

selection analysis. These actions make it difficult for us to be certain that

DLA had the best comparable data it needed for its analysis.

5. We agree that locality pay was not relevant after Fort Belvoir was

removed from the site selection process. As DOD stated, the locality pay

was the same for both of the remaining sites. However, the steering group

was correct in initially identifying personnel costs as an important

criterion. The importance of personnel costs should not be minimized

Page 27 GAO/NSIAD-98-96 Defense Logistics Agency
Appendix III 

Comments From the Department of Defense

since savings in this area can mean the potential for significant recurring

savings in the long term. As our report notes, the results of the second data

request showed that the eastern location had higher average grade levels,

resulting in a $3.1 million difference in personnel costs between the two

locations over a 5-year period. While it may be difficult to project bumping

rights along with voluntary early retirement and separation incentive pay,

it can be done. For example, DLA officials planned to conduct a mock

reduction-in-force to determine the effects on personnel, but had not yet

done so. It should also be noted that, absent definitive data, DLA and other

DOD components previously used standard factors in prior base closure

rounds to project some personnel impacts and costs.

6. While we agree that the real property maintenance data should have

been comparable, DLA’s site selection backup documentation indicated

that the data were reviewed and some modifications were made to it to

ensure comparability between the two competing locations before it was

used in the second data request analysis. Our concern relates to the

decision-making process. The DLA Chief of the Real Property Maintenance

Team was approved by the steering group as the facilities engineer

responsible for validating the data. He told us that he validated the data as

a routine matter of prudent facilities engineering management. During his

data validation of the responses to the second data request, he removed

the requirement for the eastern site to repaint a nonpaintable exterior

surface. Subsequently, the selecting official told us that he based his

decision to reassess real property maintenance on his personal knowledge

and experience. Having the data reassessed after they had already been

validated raised concerns among various steering group members about

the perception of bias.

7. DLA officials suggested that not requiring systems furniture and other

facilities requirements would result in a substandard work environment

and indicated that these requirements were used at two other DLA

locations not part of this site selection process. We have modified our

report to reflect DLA’s point about these other locations. However, as noted

in our report, members of the steering group told us they did not perceive

this as an official DLA standard for furniture and workspace.

(709310) Page 28 GAO/NSIAD-98-96 Defense Logistics Agency
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