Page 1 GAO-04-427R Defense Management 

United States General Accounting Office

Washington, DC 20548 

April 2, 2004 

The Honorable Donald H. Rumsfeld 

The Secretary of Defense 

Subject: Defense Management: Continuing Questionable Reliance on Commercial 

Contracts to Demilitarize Excess Ammunition When Unused, Environmentally 

Friendly Capacity Exists at Government Facilities 

Dear Mr. Secretary: 

In April 2001, we reported that the Army Materiel Command’s guidance required that 

50 percent of the excess conventional ammunition demilitarization budget—a figure 

for which we did not find any analytical basis—be set aside for commercial firms that 

use environmentally friendly demilitarization processes. This resulted in the 

retention and underutilization of environmentally friendly demilitarization 

capabilities at government facilities and in additional program costs.1 We thus 

recommended that the Department of Defense (DOD) develop a plan in consultation 

with Congress that included procedures for assessing the appropriate mix of 

government and commercial sector capacity needed to demilitarize excess 

ammunition. Our intent was to have DOD reexamine the cost-effectiveness of using 

commercial versus government facilities to demilitarize excess ammunition. Over the 

past several months we have conducted work to determine the specific actions taken 

to implement our recommendation. We made extensive use of our prior work as a 

baseline to compare the changes in demilitarization capacity and utilization at 

government-owned facilities since our prior report. We conducted our analysis of 

DOD’s demilitarization program in accordance with generally accepted government 

auditing standards. The purpose of this letter is to bring to your attention that (1) the 

Army has taken only limited steps in response to our recommendation and (2) 

additional actions are needed to address our recommendation. 

 

1

 U.S. General Accounting Office, Defense Inventory: Steps the Army Can Take to Improve the 

Management and Oversight of Excess Ammunition, GAO-01-372 (Washington, D.C.: Apr. 12, 2001). As 

described in the report, the Army defines demilitarization as the act of removing the military offensive or 

defensive characteristics from munitions or otherwise rendering munitions innocuous or ineffectual for 

military use. Demilitarization includes, but is not limited to, processes involving resource recovery, 

recycling, reutilization, disassembly, conversion, melt out/steam out/wash out, incineration, open burning, 

and open detonation, to name a few. 
Page 2 GAO-04-427R Defense Management 

Results in Brief

The Army continues to set aside 50 percent of the demilitarization budget to 

commercial firms, resulting in program inefficiencies and additional costs. In 

commenting on our recommendation in the April 2001 report, DOD stated that the 

Army was preparing a study for Congress, due September 30, 2001, that could be used 

to address the mix of government and commercial sector capacity needed to 

demilitarize excess ammunition.2

 The Army study concluded that, based upon its 

analysis of different commercial/government facility mixes, more ammunition could 

be demilitarized through greater reliance on existing environmentally friendly 

processes available at government-owned facilities. Nonetheless, the excess 

ammunition demilitarization program is still operated on Army Materiel Command 

guidance that requires a 50/50 split of funding between government and commercial 

demilitarization projects. This predetermined funding allocation, combined with 

increased government facility capacity to demilitarize excess ammunition and paying 

a commercial firm to have ammunition demilitarized by government employees, 

exacerbates the costs and related inefficiencies to operate the program. 

Based on our follow-up efforts and analysis, this letter includes recommendations for 

executive action to enable the Army to operate a more efficient program and be 

better able to assess the demilitarization capacity needed at its government facilities. 

In commenting on a draft of the letter, DOD concurred with our recommendations 

and identified steps that it is taking to implement them. 

Background 

The Secretary of the Army is the designated single manager of conventional 

ammunition for the Department of Defense. Under that umbrella, the Product 

Manager for Demilitarization is responsible for managing the demilitarization of 

conventional munitions for all of the military services.3 Demilitarization of 

conventional munitions takes place at government ammunition depots, plants, and 

centers—operated by the Joint Munitions Command, a subordinate command of the 

Army Materiel Command—and at contracted commercial firms.4

 With the end of the 

Cold War, the services’ need for conventional ammunition was significantly reduced, 

and by 1993 the Army reported a backlog of excess ammunition awaiting 

demilitarization that amounted to 354,000 tons, an amount that has since increased to 

about 381,000 tons at the end of fiscal year 2003. To address this backlog, the 

Product Manager for Demilitarization’s strategic plan includes a goal to reduce, 

 

2

Joint Ordnance Commanders Group Munitions Demil/Disposal Subgroup Closed Disposal 

Technology Study (McAlester, Okla.: Sept. 2001). The study was in response to H.R. 106-754, directing 

the Army to prepare a report on the feasibility of replacing open burning and detontating processes 

with closed disposal technologies. 

3

 The Product Manager for Demilitarization is a management office of the Army Acquisition Corps and 

chartered by the Army Acquisition Executive (the Assistant Secretary of the Army for Acquisition, 

Logistics & Technology). The Product Manager for Demilitarization is under the Office of the Project 

Manager for Joint Services reporting to the Program Executive Officer for Ammunition. The Secretary 

of the Army is the DOD-designated Single Manager for Conventional Ammunition and the Program 

Executive Officer for Ammunition, as designated by the Secretary of the Army, acts as the single 

manager for conventional ammunition executor. 

4

 Until December 2002, the Commander, U.S. Army Materiel Command, as designated by the Secretary of 

the Army, acted as the single manager for conventional ammunition for DOD. 
Page 3 GAO-04-427R Defense Management 

through reasonable measures, the stockpile of excess conventional ammunition to 

100,000 tons and 30,000 missiles in future years—considered a manageable level 

because higher quantities of excess ammunition are believed to impede access to 

needed ammunition and hinder the Army’s ability to effectively support contingency 

operations. 

In April 2001, we reported that the Army Materiel Command had previously issued 

guidance requiring that at least 50 percent of the excess conventional ammunition 

demilitarization budget be set aside for commercial firms that use resource, recovery, 

and recycling processes.5 While this guidance came about as a result of a request by 

the Chairman of the Senate Appropriations Subcommittee on Defense for DOD to 

look to commercial firms for environmentally friendly processes that could be used 

to help demilitarize excess ammunition, the Army Materiel Command initiated and 

expanded this effort without considering the impact on government facilities that 

have similar environmentally friendly demilitarization processes. Our report showed 

that the increased use of commercial firms to perform demilitarization resulted in the 

retention and underutilization of the more environmentally friendly resource, 

recovery, and recycling capabilities at government facilities. In fiscal year 2001, the 

government facilities were projected to operate at only 20 percent of their overall 

resource, recovery, and recycling demilitarization capacity. We also reported that 

additional costs were being incurred when a commercial firm undertook ammunition 

demilitarization for the Army, then contracted a portion of the work to three 

government facilities. The Army could have demilitarized the ammunition for less 

had it overseen the work itself. 

Our report stressed the need for a greater emphasis on cost-effectiveness and 

efficiency in deciding the appropriate mix of government and commercial 

demilitarization capacities instead of setting aside a predetermined 50 percent of the 

demilitarization budget for commercial firms—a percentage for which we did not find 

any analytical basis. In response to our concern, DOD stated that the Army was 

already preparing a study for Congress that addressed the feasibility of replacing 

open burning and open detonation with closed disposal technologies, and that this 

report, due September 30, 2001, could also be used to address the mix of 

government/commercial sector capacity needed to demilitarize excess ammunition.6

 

The Army’s Closed Disposal Technology Study used a computer-modeling inputoutput tool that integrates operating costs, capacity, and other variables in the 

demilitarization program to produce an optimal long-range demilitarization plan to 

help determine the government/contractor mix for its demilitarization program.7

 The 

 

5

 GAO-01-372. 

6

 Joint Ordnance Commanders Group Munitions Demil/Disposal Subgroup, Closed Disposal 

Technology Study (McAlester, Okla.: Sept. 2001). HouseReport106-754 directed the study. H.R. Conf. 

Rep. No. 106-754, at 99 (2000). On September 27, 2001, the study was sent to the Chairman and 

Ranking Member of the Senate Appropriations Subcommittee on Defense; the Chairman and Ranking 

Member of the Senate Committee on Armed Services; the Chairman and Ranking Member of the House 

Appropriations Subcommittee on Defense; and the Chairman and Ranking Member of the House 

Committee on Armed Services. 

7

 We did not assess the reliability of the model or validate the results; however, we did interview 

agency officials knowledgeable about the model and its data and we did take steps to confirm that the 

model results appeared to be consistent. Additional details are provided in the scope and 

methodology section. 
Page 4 GAO-04-427R Defense Management 

study considered three options. Option 1 represented the current practice of 

allocating a predetermined 50 percent of the demilitarization funding to commercial 

firms; option 2 eliminated commercial firms from consideration; and option 3 had no 

predetermined funding allocation between commercial firms and government 

facilities. All three options required a minimum 65 percent utilization of 

environmentally friendly resource, recovery, and recycling processes. 

According to the Army study, option 1 resulted in the greatest overall cost per ton 

over the 10-year period. Option 2 resulted in the lowest overall cost per ton; 

however, this was not considered a viable option because government facilities do 

not have resource, recovery, and recycling processes to demilitarize some types of 

ammunition. Under option 3, which was not constrained by a predetermined funding 

percentage assigned to commercial firms and government facilities, the study 

analysis identified a more cost-effective option than currently being pursued. The 

Army’s model projected that the Army could more effectively use about $70.8 million 

in planned funding and demilitarize an additional 4,001 tons of ammunition during 

fiscal years 2002 through 2011 compared to the current practice of allocating 50 

percent of the demilitarization funding to commercial firms (see table 1). Under this 

option, over a 10-year period 29 percent of the demilitarization budget would go to 

commercial firms and 71 percent would go to government facilities, including use of 

the government’s own environmentally friendly processes. 

Table 1: Army Study Results Comparing Costs and Tons of Excess 

Ammunition Demilitarized by Devoting 50 Percent and 29 Percent of the 

Demilitarization Budget to Commercial Firms, Aggregate for Fiscal Years 

2002-11

Study results 

50 percent 

commercial 

firms

29 percent 

commercial 

firms

Potential cost savings 

and additional tons 

demilitarized 

Costs $890.7M $819.9M $70.8M

Total tons 

demilitarized 752,993 756,994 4,001 

Average cost per 

ton $1,182.87 $1,083.08 $99.79 

Source: GAO analysis of Closed Disposal Technology Study.

The Army study concluded that, based upon its analysis, the demilitarization program 

should not assign a predetermined funding percentage to commercial firms and 

government facilities. 

Army Practice Remains Unchanged, 

Resulting in Inefficiencies and Additional Costs

Despite the results of the Closed Disposal Technology Study, the Army continues to 

set aside 50 percent of the demilitarization budget to commercial firms, resulting in 

program inefficiencies and additional costs. According to the Product Manager for 
Page 5 GAO-04-427R Defense Management 

Demilitarization, the demilitarization program is still operated on guidance received 

from the Army Materiel Command that requires a 50/50 split of funding between 

government and commercial demilitarization projects. Moreover, since 2001, 

government facilities have increased their capacity to demilitarize excess ammunition 

using resource, recovery, and recycling processes from about 81,100 tons per year to 

about 156,600 tons per year, which has further exacerbated the inefficiencies 

associated with the existence of excess capacities in government facilities. This 

excess is further compounded by the realization that the maximum amount of excess 

ammunition that the Army can demilitarize using the resource, recovery, and 

recycling methods is limited to 170,946 tons out of the 381,000 tons in the stockpile. 

The increased government capacity and continued use of commercial firms to 

demilitarize excess ammunition at the same time the government facilities have 

existing excess capacity continues to raise questions about the appropriate mix of 

government and commercial sector capacity needed to demilitarize excess 

ammunition and the cost efficiency of the demilitarization program. Specifically,

based on the current practice of setting aside 50 percent of the demilitarization 

budget for commercial demilitarization, we estimate that government facilities will 

operate at only 6 percent of their overall environmentally friendly demilitarization 

capacity to recover and reuse 156,600 tons of excess ammunition in fiscal year 2004 

(see table 2). 

Table 2: Government Facility Recovery and Reuse Demilitarization Capacity 

and Planned Use in Fiscal Year 2004

Location 

Recovery and reuse 

capacity (tons)

Recovery and reuse 

demilitarization 

planned (tons)

Percent of capacity 

to be used

Anniston 1,000 0 0

Blue Grass 14,000 0 0

Crane 13,300 1,584 12

Hawthorne 49,000 4,599 9

Iowa 14,000 1,517 11

Letterkenny 1,000 0 0

Lone Star 2,000 0 0

Milan 1,800 0 0

McAlester 25,000 2,010 8

Pine Bluff 3,500 0 0

Red River 1,000 0 0

Sierra 24,000 0 0

Tooele 7,000 0 0

Total 156,600 9,710 6

Source: GAO analysis of data provided by the Defense Ammunition Center and the Product Manager for Demilitarization. 
Page 6 GAO-04-427R Defense Management 

In addition, the Army continues to incur additional and unnecessary costs to the 

demilitarization program through its practice of contracting with a commercial firm 

to undertake ammunition demilitarization, which in turn contracted a portion of the 

work to three government facilities.8

 In essence, the Army paid a commercial firm to 

have the ammunition demilitarized by government employees and incurred higher 

than necessary costs. More specifically, in one instance the commercial firm 

undertook ammunition demilitarization of 1,848 items for the Army for about $563 

per item, and then contracted some of the work to a government facility for about 

$141 per item. If the Army had placed greater emphasis on cost-effectiveness and 

cost-efficiency, the Army could have demilitarized the ammunition for about $780,000 

less had it overseen the work itself. 

Conclusion

As we have previously noted, while it may be appropriate to rely on the private sector 

to enhance demilitarization capabilities, the continued use of the private sector to 

demilitarize excess ammunition at the same time the government facilities have 

excess capacity raises the question of whether the government is sponsoring too 

much capacity. Likewise, such limitations in use of government facilities continues 

to result in less demilitarization than would otherwise be possible even under 

existing funding levels. We do not believe that the Army has taken sufficient action 

to address the recommendation we made in our April 2001 report, which called for 

the department to develop a plan in consultation with Congress that includes 

procedures for assessing the appropriate mix of government and commercial sector 

capacity needed to demilitarize excess ammunition and the cost-effectiveness of 

using contractors versus government facilities to demilitarize excess ammunition, 

with specific actions identified for addressing the capacity issue. We also do not 

believe that the Army has taken sufficient action to address the results of its Closed 

Disposal Technology Study, which concluded that the demilitarization program 

should not assign a predetermined funding percentage to commercial firms and 

government facilities, thus validating our findings and recommendation. Further, by 

paying a commercial firm to have excess ammunition demilitarized by government 

employees, the Army incurs higher than necessary costs. Until the Army 

discontinues its practice of setting aside 50 percent of the demilitarization budget to 

commercial firms and implements a more analytically based approach to workload 

allocations—such as set forth in the Closed Disposal Technology Study—that 

eliminates any predetermined funding allocation and discontinues the practice of 

paying a commercial firm to oversee the work of government employees, the Army 

will continue to underutilize demilitarization capacity at government facilities and 

risk incurring additional program costs. 

 

8

 The commercial firm entered into agreements for demilitarization services with government facilities 

at McAlester, Oklahoma; Crane, Indiana; and Tooele, Utah. 
Page 7 GAO-04-427R Defense Management 

Recommendations for Executive Action

To enable the Army to operate a more efficient program and be better able to assess 

the demilitarization capacity needed at its government facilities, we recommend that 

you direct the Secretary of the Army to take the following three steps: 

• discontinue the practice of setting aside an arbitrary 50 percent of the 

demilitarization budget to commercial firms; 

• implement a more analytically based approach to demilitarization workload 

allocations such as demonstrated in the Closed Disposal Technology Study

analysis in which no arbitrary, predetermined funding allocation is made to 

commercial firms and government facilities; and 

• discontinue the practice of paying a commercial firm to have ammunition 

demilitarized by government employees when the work can be overseen by the 

Army for less cost. 

 

As you know, 31 U.S.C. 720 requires the head of a federal agency to submit a written 

statement of the actions taken on our recommendations to the Senate Committee on 

Governmental Affairs and the House Committee on Government Reform not later 

than 60 calendar days after the date of this letter. A written statement must also be 

sent to the House and Senate Committees on Appropriations with the agency’s first 

request for appropriations made more than 60 calendar days after the date of this 

letter. 

Agency Comments and Our Evaluation

The Director of Defense Systems in the Office of the Under Secretary of Defense for 

Acquisition, Technology, and Logistics provided written comments on a draft of this 

letter. DOD’s comments are reprinted in the enclosure. DOD agreed with our 

recommendations and identified steps that it is taking to implement them. In 

commenting on our recommendation to discontinue the practice of setting aside an 

arbitrary 50 percent of the demilitarization budget to commercial firms, DOD stated 

that the U.S. Army Materiel Command has rescinded this policy and that the fiscal 

year 2005 demilitarization program will not be constrained by a predetermined 

percentage set aside for the private sector. 

In commenting on our recommendation to implement a more analytically based 

approach to demilitarization workload allocations, DOD stated that it will establish a 

team to perform a study to determine an analytical based approach for allocating 

demilitarization workload for the private sector and government and for enhancing 

its computer-modeling program to be more robust as a decision making tool, 

including performing planning and analysis of government and commercial 

demilitarization workload. DOD stated that it plans to complete the study during 

fiscal year 2004 and to implement the results early in fiscal year 2005. 

In commenting on our recommendation to discontinue the practice of paying a 

commercial firm to have ammunition demilitarized by government employees when 

the work can be overseen by the Army for less cost, DOD stated that it will add 

language to the follow-on commercial contract, anticipated for award in early fiscal 
Page 8 GAO-04-427R Defense Management 

year 2005, addressing the involvement between industry and government that 

considers an economic-cost benefit analysis and awards demilitarization workload 

without regard to location of execution when an effort is in the best interests of the 

government. 

Scope and Methodology

To identify any limitations in the actions that the Army has taken in response to a 

recommendation contained in our prior report on the Army’s management and 

oversight of excess ammunition, we reviewed applicable policies, procedures, and 

documents governing the demilitarization program. We made extensive use of our 

prior work as a baseline to compare the changes in demilitarization capacity and 

utilization at government-owned facilities since our prior report.9

 We reviewed the 

Army’s Closed Disposal Technology Study and analyzed the report’s scope and 

methodology, findings, and conclusions related to the appropriate mix of government 

and commercial sector utilization needed to demilitarize excess ammunition. The 

Army’s study used a computer-modeling tool that integrates operating cost, capacity, 

and other variables in the demilitarization program to produce an optimal long-range 

demilitarization plan. Additionally, various forms of constraints can be placed on the 

model, such as requiring the model to execute a certain percentage of 

demilitarization operations using resource, recovery, and recycling processes; 

allocating a certain minimum funding to commercial firms; or providing a specified 

level of workload to selected locations, either commercial firms or government 

facilities. For the study, the model used the following input data: 

• demilitarization capabilities and capacities available at government and 

commercial facilities; 

• existing and forecasted inventory levels of excess ammunition; 

• funding levels for each year’s forecasted demilitarization program; 

• transportation costs between demilitarization locations, to include packing, 

crating, and handling; 

• percentages of resource, recovery, and recycling processes and open burning 

and open detonation/incineration processes, by weight, for various types of 

ammunition; and 

• costs to perform demilitarization at government and commercial facilities. 

While we did not assess the reliability of the model or validate the results, we did 

interview agency officials knowledgeable about the model and its data and we 

reviewed the types of input data and the constraints placed on the model to assure 

ourselves that the results appeared to be consistent. This allowed us to understand 

whether DOD’s current practice is the most cost-effective program, considering 

capability, capacity, and cost data for both government and commercial facilities. 

Based on our analyses, we determined that the data were sufficiently reliable for the 

purposes of this letter. 

To obtain current demilitarization program information and action taken since our 

report was published in April 2001, we met with officials and performed work at the 

 

9

 GAO-01-372. 
Page 9 GAO-04-427R Defense Management 

Office of the Product Manager for Demilitarization, Picatinney Arsenal, New Jersey; 

McAlester Army Ammunition Plant, McAlester, Oklahoma; Army Materiel Command, 

Fort Belvoir, Virginia; and U.S. Army Defense Ammunition Center, McAlester, 

Oklahoma. For example, to assess the extent that the Army used commercial firms 

to demilitarize excess ammunition and its impact on the utilization of 

environmentally friendly demilitarization processes at government facilities, we 

obtained Army data on the government facilities’ capabilities to demilitarize excess 

ammunition and compared the Army’s demilitarization plans to these capabilities. 

This allowed us to identify and calculate excess capacity situations and compare this 

data with our prior work done on excess capacity at government facilities. We also 

obtained and reviewed contractor agreements with government facilities to perform 

the demilitarization work and evaluated contract information provided by the Army 

and by one government facility to determine if the government facility could have 

demilitarized the ammunition for less cost than was incurred by the Army’s contract 

with this firm. We interviewed Army officials about the cost-effectiveness of relying 

on commercial firms to demilitarize excess ammunition at the same time that 

government facilities have similar demilitarization capabilities. 

We conducted our analysis of DOD’s demilitarization program from June 2003 

through January 2004 in accordance with generally accepted government auditing 

standards. 

- - - - - 

We are sending copies of this letter to the appropriate congressional committees and 

interested congressional committees and members. The letter is also available on 

GAO’s homepage at http://www.gao.gov. If you or your staff have any questions on 

the matters discussed in this letter, please contact me at (202) 512-5581. Key 

contributors to this letter were Ron Berteotti, Roger Tomlinson, Chad Factor, and 

Robert Wild. 

Sincerely yours, 

Barry Holman, Director 

Defense Capabilities and Management 

Enclosure 
Enclosure 

Page 10 GAO-04-427R Defense Management 
Enclosure 

Page 11 GAO-04-427R Defense Management 
Enclosure 

Page 12 GAO-04-427R Defense Management 

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