DOD Manufacturing Arsenals: Actions Needed to Identify and Sustain Critical Capabilities
Published: 2015-11-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOD's three manufacturing arsenals provide manufacturing, supply, and technical support services for the military services and allies during national emergencies and contingency operations. The Fiscal Year 2014 NDAA required DOD to report to Congress on its arsenals and included a provision for GAO to review DOD's report. This report assesses (1) actions DOD has taken to assign work to the manufacturing arsenals to generate sufficient revenue to recover their operating expenses, (2) the extent to which DOD is strategically positioned to sustain the manufacturing arsenals' critical capabilities, and (3) the extent to which DOD's September 2014 report addresses statutory reporting elements and is consistent with relevant research presentation standards for a defense research study. To conduct this review, GAO analyzed documentation, visited the arsenals, and interviewed relevant DOD officials. GAO assessed DOD's September 2014 report against the statutory elements and generally accepted research standards.
section_title: What GAO Found
paragraphs: Since 2012, the Department of Defense (DOD) has taken various actions to assign work to its three manufacturing arsenals—Pine Bluff Arsenal, Rock Island Arsenal Joint Manufacturing and Technology Center, and Watervliet Arsenal Joint Manufacturing and Technology Center—in an attempt to generate sufficient revenue to recover operating expenses following a significant decline in demand for materiel, as well as to maintain manufacturing skills to sustain readiness. For example, the Army directed acquisition programs to assign work to the arsenals consistent with the arsenals' capabilities. While these actions have increased revenue, the increases have been small relative to operating expenses. Further, DOD may not always appropriately consider the arsenals as a source of manufacture, because it has not developed clear, step-by-step implementing guidance on conducting make-or-buy analyses to determine whether to purchase items from an arsenal or the private sector, which potentially limits the arsenals' ability to generate revenue. Because DOD's actions as of September 2014 did not generate sufficient revenue, Congress provided $375 million collectively in fiscal years 2014 and 2015 to help recover the arsenals' operating expenses.
DOD is not strategically positioned to sustain the manufacturing arsenals' critical capabilities, as it has not identified fundamental elements for implementing its strategic plan or identified these capabilities. Such capabilities help ensure that DOD can respond to emergencies and obtain products and services it could not otherwise acquire from private industry in an economical manner. DOD has a strategic plan that includes goals and objectives related to sustaining the arsenals' critical capabilities; however, it has not identified fundamental elements, such as milestones and resources, needed to implement the plan. As a result, DOD lacks information that would be useful in determining progress in achieving the plan's stated goals and objectives for the arsenals. Moreover, DOD's past efforts to identify the arsenals' critical capabilities had shortcomings, such as each arsenal using a unique method to do so. DOD has an effort under way to develop a process for identifying these critical capabilities and determining a minimum level of workload needed to sustain them, but this effort has been delayed to allow for coordination with stakeholders. Until such a process is developed and implemented, for example through an instruction, DOD is not positioned to determine the minimum workload levels needed or to appropriately adjust the arsenals' equipment and personnel level to sustain these capabilities.
DOD's September 2014 Report on Army Manufacturing Arsenal Study met the statutory requirements to address seven reporting elements within the National Defense Authorization Act (NDAA) for Fiscal Year 2014. However, GAO found that additional information would have made the report more consistent with relevant generally accepted research presentation standards for a defense research study and helped decision makers to identify and evaluate information presented in the report. For example, DOD did not disclose that it has not developed a process for identifying the arsenals' critical capabilities. Also, had stakeholders seen the report before it was issued, as called for by the standards, they would have been informed of its results and could have provided comments, as needed, to allow DOD to present a more sound, complete, and clear report.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD issue implementing guidance for make-or-buy analyses; identify fundamental elements for implementing its strategic plan; and develop and implement its process for identifying critical capabilities and the minimum workload level needed to sustain them. DOD concurred with the recommendations but disagreed with some statements in the report. GAO believes the statements are accurate, as discussed in the report.

section_title: Letter
paragraphs: The Department of Defense (DOD) has three manufacturing arsenals that  provide manufacturing, supply, and technical support services for the  military services, other DOD agencies, allies, and commercial industry.  The three manufacturing arsenals provide products or services that are  unavailable from private industry or ensure a ready and controlled source  of technical competence and resources in case of national defense  contingencies or other emergencies. Each of the manufacturing arsenals,  which are operated by the Army, has a specialized mission:
Pine Bluff Arsenal in Arkansas produces conventional ammunition  and other types of munitions;
Rock Island Arsenal Joint Manufacturing and Technology Center in  Illinois manufactures weapons and houses the Army’s only remaining  foundry; and
Watervliet Arsenal Joint Manufacturing and Technology Center in  New York, the Army’s only cannon maker, also produces other  armaments and mortars.
DOD designates certain processes at the manufacturing arsenals as  critical capabilities. According to a 2013 report by the Under Secretary of  Defense for Acquisition, Technology and Logistics, critical capabilities are  processes deemed crucial to the nation’s ability to respond to urgent  requirements in the event of national emergencies or processes that  cannot be performed by private industry in an economical or timely  manner. According to this report, the manufacturing arsenals need  sufficient work to sustain their critical capabilities, which require  specialized skills and equipment. Historically, the manufacturing arsenals  have had less work during peacetime than they do when they are  supporting combat operations. We found in November 2009 that during  the wars in Iraq and Afghanistan, for example, the manufacturing  arsenals experienced a surge in workload to provide vital manufacturing  capabilities. However, as DOD’s combat operations have drawn down,  there has been a decline in demand for materiel, and the department has  faced challenges in assigning enough work for the manufacturing  arsenals to generate sufficient revenue to recover their operating  expenses and sustain their critical capabilities.
Declines in workload at the manufacturing arsenals are not new, as our  body of work on these issues has shown. We found in November 1998  that, following the end of the Cold War, the manufacturing arsenals and  maintenance depots faced increasing uncertainty regarding workload,  funding, and personnel levels, and that DOD had not reached consensus  on a long-term strategy for improving the efficiency and effectiveness of  its arsenals and depots. We also found that DOD did not have a  comprehensive plan—addressing excess capacity, workload planning,  personnel requirements, and productivity—for managing its  manufacturing arsenals and maintenance depots. We recommended,  among other things, that DOD assess the potential for reducing excess  capacity at the manufacturing arsenals and that the Secretary of the Army  issue a clear and concise statement describing a long-range plan for  maximizing the efficient use of the arsenals and maintenance depots.  DOD concurred with our recommendations and issued 20 individual  action plans with long- and short-term milestones and the Army’s Depot  Maintenance Enterprise Strategic Plan in 2000, among other actions.
More recently, in November 2009, we reported on the Arsenal Support  Program Initiative, a demonstration program designed to help maintain  the viability of the manufacturing arsenals in part by enabling commercial  firms to lease vacant space at the arsenals. We found that the Army had  not determined its highest priorities for the Arsenal Support Program  Initiative or developed a strategy that included performance goals. We  recommended, among other actions, that DOD establish outcome- focused performance measures to assess the progress the Army had  made toward achieving the initiative’s purposes. DOD did not comment  on our recommendation at the time and the initiative expired in fiscal year  2012. Information on related prior work can be found on the Related GAO  Products page at the end of this report.
Section 322 of the National Defense Authorization Act for Fiscal Year  2014 required the Secretary of Defense to conduct a review of the  manufacturing arsenals and to submit to Congress a report on the results  of this review, covering seven reporting elements specified in the  statute. Among the seven reporting elements, the Secretary of Defense  was to report on the extent to which operations at each manufacturing  arsenal could be streamlined, improved, or enhanced, as well as the  effectiveness of DOD’s strategy to assign work to each of the arsenals.  DOD responded to this mandate with its Report on Manufacturing Arsenal  Study (the report), which it submitted to the congressional defense  committees in September 2014. Section 322 also included a provision  that we assess DOD’s report. Separately, congressional requesters  asked us to review DOD’s strategy to assign work to the manufacturing  arsenals, among other matters. This report provides our response to both  the mandate and the request. This report assesses (1) actions, if any, that  DOD has taken to assign work to the manufacturing arsenals to generate  sufficient revenue to recover their operating expenses; (2) the extent to  which DOD is strategically positioned to sustain the manufacturing  arsenals’ critical capabilities; and (3) the extent to which DOD’s  September 2014 report meets the requirements to address the statutory  reporting elements and is consistent with relevant generally accepted  research presentation standards for a defense research study.
To address our first two objectives, we obtained pertinent documents,  including DOD directives, instructions, and reports; Army regulations and  instructions, memorandums, strategic plans, and other guidance; and  information on the organic defense industrial base and each of the three  manufacturing arsenals (Pine Bluff, Rock Island, and Watervliet), such as  the arsenal’s current levels of workload and operating expenses. We also  interviewed officials from several DOD entities with responsibilities related  to arsenal operations, including the Office of the Deputy Assistant  Secretary of Defense for Maintenance Policy and Programs [ODASD  (MPP)]; Headquarters Department of the Army G-4 Maintenance  Directorate; the Office of the Assistant Secretary of the Army for  Acquisition, Logistics and Technology ; and Army Materiel  Command (AMC), as well as the three manufacturing arsenals. For our  first objective, to assess the actions, if any, that DOD has taken to assign  work to the manufacturing arsenals to generate sufficient revenue to  recover their operating expenses, we also interviewed DOD officials who  were involved in assessing and implementing efforts to improve or  enhance operations at the arsenals. We compared existing guidance on  the process used to consider manufacturing arsenals as a source of  manufacture to federal internal control standards for control activities.
For our second objective, to assess the extent to which DOD is  strategically positioned to sustain the manufacturing arsenals’ critical  capabilities, we interviewed DOD officials who contributed significantly to  the department’s current strategy to assign work to the arsenals. We then  compared DOD’s existing strategy for the manufacturing arsenals to  standard practices for project management and identified discrepancies.  We also reviewed two Army assessments related to the levels of  equipment and personnel and determined that one of the assessments  described an approach and findings that were reasonable, but we did not  assess the accuracy or reliability of the underlying data, because doing so  was beyond the scope of this review. The other assessment, however,  did not contain sufficient information for us to determine if the approach  used to calculate its results was reasonable. In the absence of other  reliable sources, we limited our use of these two assessments in this  report to noting that the arsenals had conducted assessments containing  recommendations intended to guide subsequent decision making.
For our third objective, to determine the extent to which DOD’s  September 2014 report meets the requirement to address the statutory  reporting elements and is consistent with relevant generally accepted  research presentation standards for a defense research study, we  conducted a two-part assessment of DOD’s September 2014 report. First,  to assess the extent to which DOD’s report meets the requirement to  address the seven statutory reporting elements, we compared DOD’s  September 2014 Report on Manufacturing Arsenal Study to the elements  listed in section 322 of the National Defense Authorization Act for Fiscal  Year 2014. For each statutory reporting element, we determined whether  DOD’s report met the statutory requirement by including the reporting  element and providing related content. Second, we assessed the extent  to which DOD’s report is consistent with relevant generally accepted  research presentation standards for a defense research study. To do so,  we determined which generally accepted research presentation standards  for a sound, complete, and clear defense research study were relevant,  given our review’s objectives and based on the contents of DOD’s report.  We used standards that we had described in our 2006 report on DOD  transportation capabilities. In this 2006 report, we reviewed research  literature and DOD guidance and identified frequently occurring, generally  accepted research standards that are relevant for defense studies,  including those related to the presentation of results. These GAO- developed generally accepted research presentation standards are  consistent with Office of Management and Budget guidelines and DOD  guidance on ensuring and maximizing the quality of information  disseminated by federal agencies to the public. We determined that these  GAO-developed standards are still current and relevant for the purposes  of this report. Specifically, from the seven research standards related to  the presentation of results, we determined that the following four were  relevant to this review, based on the content of DOD’s report:  1.  Does the report present an assessment that is well documented and  conclusions that are supported by the analyses?  2.  Are the report’s conclusions sound and complete?  3.  Are the study results presented in a clear manner?  4.  Are study participants/stakeholders informed of the study results and  recommendations?
We determined that the remaining three research presentation standards  were not relevant, given our review’s objectives and based on the content  of DOD’s report. For example, because the report did not include  recommendations, we did not apply the generally accepted presentation  standard on whether recommendations were supported by analyses.
To determine the extent to which DOD’s September 2014 report is  consistent with the four relevant presentation standards, we then applied  those standards to the contents of the report and available supporting  documentation—such as DOD policy, guidance, assessments, and  briefings. The extent to which the report’s presentation of results is  consistent with these relevant standards is an indication of the ease with  which the evidence can be evaluated and of the soundness and  completeness of the report and, thus, its usefulness in enabling decision  makers to make fully informed decisions. We considered DOD’s response  to a statutory reporting element to be consistent with relevant generally  accepted defense research presentation standards when the report  explicitly addressed (e.g., included meaningful facts, figures, or clearly  discussed) all aspects of the element and included sufficient specificity  and detailed support. We considered DOD’s response to a reporting  element to be inconsistent with these standards when the report neither  explicitly addressed all aspects of the element nor included sufficient  specificity and detailed support. In such cases, we provided examples of  additional information that, although not statutorily required, we believe  would have made the report more consistent with the four relevant  generally accepted research presentation standards. In addition, we  discussed the results of our assessment of the September 2014 report  with ODASD (MPP) officials—who had the lead for developing the  report—and obtained their perspectives regarding the approach they  used to develop it. Further details about our scope and methodology can  be found in appendix I.
We conducted this performance audit from June 2014 to November 2015  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Role and Organizational Structure of Manufacturing Arsenals
paragraphs: The “defense industrial base” includes all commercial and government- owned facilities that are responsible for the design, production, delivery,  and maintenance of military weapon systems, subsystems, and  components or parts that fulfill U.S. military requirements. The portion of  the defense industrial base that is assigned to and forms an essential part  of DOD’s organization is referred to as the “organic defense industrial  base.” The organic defense industrial base consists of resource  providers, acquisition and sustainment planners, and manufacturing and  maintenance performers, such as DOD’s government-owned  manufacturing arsenals and maintenance depots. These government- owned and -operated installations, including the three manufacturing  arsenals, provide services for a variety of customers, including the Army,  the Navy, the Air Force, and some non-DOD agencies and foreign  countries. The Army’s Industrial Operations activity group, a subset of the  organic defense industrial base, includes the Army’s manufacturing  arsenals, maintenance depots, ammunition plants, and storage sites.  According to the Army’s Organic Industrial Base Strategic Plan 2012- 2022, workforces and infrastructures of the Army Industrial Operations  activity group are to be sized and adjusted accordingly over time to  sustain critical manufacturing and core depot capabilities to support war- fighting equipment during current and future contingency operations.  Within the Army, the Office of the ASA (ALT) serves in an oversight  capacity and is responsible for establishing the policy and goals for the  Army’s industrial base program.
The three manufacturing arsenals are operated by the Army, managed by  AMC, and under the direct command and control of the Army’s Life Cycle  Management Commands. Each manufacturing arsenal is aligned with a  command that oversees the kind of work done at that arsenal.  Specifically, Rock Island and Watervliet Arsenals are aligned with the  TACOM Life Cycle Management Command and its mission of  developing, acquiring, fielding, and sustaining ground systems. The work  performed at Pine Bluff Arsenal is aligned with the Joint Munitions  Command Life Cycle Management Command, the logistics integrator for  life-cycle management of ammunition.
While the manufacturing arsenals are under the Army’s operational  control, organizations within the Office of the Secretary of Defense (OSD)  perform policy, planning, program, and resource management functions  for the industrial base, which includes the arsenals. Within OSD, the  Office of the Assistant Secretary of Defense for Logistics and Materiel  Readiness serves as the principal logistics official within senior DOD  management. This office prescribes policies and procedures for the  conduct of logistics, maintenance, materiel readiness, strategic mobility,  and sustainment support within DOD. For example, the Office of the  Deputy Assistant Secretary of Defense for Maintenance Policy and  Programs, under the authority of the Office of the Assistant Secretary of  Defense for Logistics and Materiel Readiness, held primary responsibility  for consolidating and submitting DOD’s September 2014 report to  Congress. Additionally, the Defense Logistics Agency (DLA) is DOD’s  logistics combat support agency, whose primary role is to provide  supplies and services to America’s military forces and sometimes  procures items from the manufacturing arsenals. Figure 1 shows the  structure of DOD’s manufacturing arsenal organization, including relevant  DOD entities.
Each manufacturing arsenal has been designated by the Secretary of the  Army as a Center of Industrial and Technical Excellence. This designation  provides authority under section 2474 of Title 10 U.S. Code to partner  with and lease facilities to industry on programs relating to core  maintenance and technical expertise.
Pine Bluff Arsenal is designated as a Center of Industrial and  Technical Excellence for chemical and biological defense equipment.
Rock Island Arsenal Joint Manufacturing and Technology Center is  designated as a Center of Industrial and Technical Excellence for  mobile maintenance systems; foundry operations; and add-on armor  design, development, and prototype fabrication.
Watervliet Arsenal Joint Manufacturing and Technology Center is  designated as a Center of Industrial and Technical Excellence for  manufacturing cannon and mortar systems.
Figure 2 shows the manufacturing arsenals’ geographic locations within  the United States and their missions.
section_title: Legislative Authorities That Affect the Workload Process
paragraphs: The manufacturing arsenals are subject to various legislative provisions  that affect the work they do and how this work is allocated. These  include section 4532 of Title 10 U.S. Code, commonly referred to as the  Army Arsenal Act, and other statutes that authorize the establishment of  public-private partnerships, including direct sales, research and  development, and facilities use agreements, any of which may affect how  much work arsenals undertake. The Army Arsenal Act specifically  requires the Army to have its supplies made in U.S. government factories  or manufacturing arsenals, provided that they can produce the supplies  on an economical basis. The economical basis determination, according  to the Army Arsenal Act’s implementing guidance, is based on a  comparison of the government’s manufacturing costs with the cost of  purchasing the supplies commercially—a process commonly referred to  as the “make-or-buy” analysis. More broadly, section 2535 of Title 10 U.S.  Code, which applies to all the armed forces, declares that it is Congress’s  intended policy that “to the maximum extent practicable, reliance will be  placed on private industry for support of defense production.” There are  also a number of authorities that the Army’s manufacturing arsenals may  use to establish commercial-like relationships with other entities. For  example, section 2474 of Title 10 U.S. Code authorizes the establishment  of public-private partnerships between Army manufacturing arsenals and  private entities. Additionally, section 4544 of Title 10 U.S. Code is an  example of a direct sales statute, which gives the manufacturing arsenals  the authority to enter into cooperative agreements—such as sales and  leasing contracts—with non-Army entities, both public and private.
section_title: Funding Sources for the Manufacturing Arsenals and How Customers’ Rates Are Set
paragraphs: Funding for the manufacturing arsenals is managed through the Army  Working Capital Fund. Section 2208 of Title 10 U.S. Code authorizes the  Secretary of Defense to establish Working Capital Funds to finance  inventories of supplies and industrial activities that provide common  services such as repair, manufacturing, or remanufacturing. When a  private entity, such as the prime integrator of a major weapon system, or  a government component or agency places an order with a manufacturing  arsenal for equipment or services, payments are made to the Working  Capital Fund on a reimbursable basis. Charges for goods and services  provided through the fund include the full costs of the goods and services  provided and amounts set for the depreciation of capital assets.  According to DOD financial reports, in fiscal year 2014, the combined  total operating expenses incurred at the three manufacturing arsenals— which were applied to the Army Working Capital Fund—were  approximately $400 million.
The Army’s Industrial Operations activity group sets the rates customers  will pay the manufacturing arsenals for equipment or services they order,  on a direct labor-hour basis. The process for setting rates begins 18  months before the start of the fiscal year in which the manufacturing will  be performed. Based on the anticipated level of future work, the  managers of the manufacturing arsenals propose hourly rates that will  allow them to recover all of their operating costs. Then, the proposed  business plan and rates and the manufacturing arsenal budget are  approved through the Army chain of command. Ultimately, the rates are  set by the Department of the Army and DOD. Although the goal of the  Army Working Capital Fund—unlike the goal of a profit-oriented  commercial business—is to be self-supporting by recovering only the cost  of supplies, services performed, and applicable administrative expenses,  a manufacturing arsenal may end the year with more or less resources  than it had originally anticipated—depending on whether or not its actual  costs and workload over the fiscal year were as forecasted. In such  cases, there may be a rate increase in a subsequent year in an effort to  offset the losses of a prior year or a rate reduction to offset gains.
Additionally, every year the Army is required to include, in annual budget  documents submitted to Congress to support the President’s fiscal year  budget request, an estimate of funds required in that fiscal year to cover  the costs of unutilized or underutilized plant capacity at Army arsenals.  This funding is referred to as Industrial Mobilization Capacity funding.  However, Congress may or may not appropriate funds specifically for this  purpose from one year to the next. According to data provided by DOD,  two of the manufacturing arsenals—Pine Bluff and Watervliet—received  funding through the Industrial Mobilization Capacity account, a  subaccount of the Army’s Working Capital Fund, every fiscal year from  2000 through 2006—and Rock Island Arsenal received funds from fiscal  year 2001 through 2007—to cover the costs of unutilized or underutilized  plant capacity. In fiscal years 2008 through 2013, the manufacturing  arsenals did not receive funding for Industrial Mobilization Capacity,  although appropriations specifically for this purpose were again made in  fiscal year 2014 in the amount of $150 million. Additionally, in fiscal year  2015, Congress appropriated $225 million to the Working Capital Fund for  maintaining competitive rates at arsenals, a purpose which is distinct from  covering costs of underutilized or unutilized plant capacity.
The levels of work at the manufacturing arsenals have changed over  time. Specifically, according to the Secretary of the Army, there has been  a precipitous drop in demand for Army materiel that has resulted in a  decline in workload and an increase in overhead rates at the  manufacturing arsenals. Army personnel data for these arsenals  indicates that, during fiscal years 2000 through 2002 (prior to the start of  operations in Iraq), combined total workload at the three manufacturing  arsenals ranged from approximately 1.5 million to 1.7 million direct labor  hours each year. During fiscal years 2003 through 2012 (during  operations in Iraq and Afghanistan), the combined total workload at the  three manufacturing arsenals each year ranged from approximately  1.6 million to 3.0 million direct labor hours. In fiscal years 2013 and 2014  (after operations in Iraq had ended), the combined total workload each  year ranged from approximately 1.2 million to 1.7 million direct labor  hours.
Because the manufacturing arsenals operate under the Army Working  Capital Fund, they must include all costs of running the installation—such  as costs for security and facility maintenance—in the rates they charge  customers. As a result, when the volume of work decreases, as it did in  fiscal years 2013 and 2014, those fixed costs of operation must be  spread over a shrinking base of work; the result is an increased cost per  unit and higher rates. For example, according to a briefing developed by  AMC and presented to Congress in July 2014, during fiscal years 2013  and 2014, the stabilized rate at Pine Bluff increased from approximately  $126 per hour to approximately $135 per hour, which represented  approximately a 7 percent increase. In the same time frame, the  stabilized rate at Rock Island increased from approximately $112 per hour  to approximately $137 per hour—approximately a 23 percent increase.  Also during this time frame, the stabilized rate at Watervliet increased  from approximately $195 per hour to approximately $202 per hour— approximately a 4 percent increase. According to AMC’s briefing, in July  2014 the Army projected that stabilized rates for fiscal year 2015 would  have been significantly higher without the infusion of Arsenal Sustainment  Initiative funds to attempt to make arsenal rates more competitive. For  example, the Army projected that the stabilized rate for Rock Island would  increase to approximately $285 per hour, while the stabilized rate at  Watervliet was projected to increase to approximately $400 per hour— approximately double Watervliet’s rate for fiscal year 2014. Officials at the  manufacturing arsenals told us that even though they actively market the  arsenals’ capabilities to DOD program officials, as their rates increase,  the arsenals lose even more customers and workload. These officials  explained that this results in a continuing cycle of decreasing  requirements and increasing rates, a pattern which several DOD officials  we interviewed referred to as a “death spiral.”
section_title: DOD Has Taken Actions over the Last 3 Years to Assign Work to the Manufacturing Arsenals, but These Actions Have Not Generated Sufficient Revenue to Recover Operating Expenses
paragraphs: Over the past 3 years, DOD has taken various actions to assign work to  the manufacturing arsenals, but these actions have not generated  sufficient revenue to recover their operating expenses. Moreover, we  found that DOD may not always appropriately consider the manufacturing  arsenals as a source of manufacture in a given situation, because it does  not have clear, step-by-step implementing guidance on how to conduct  make-or-buy analyses to determine whether to procure an item from the  arsenals or the private sector. In response to the manufacturing arsenals’  inability to generate sufficient revenue to recover their operating  expenses, Congress appropriated funds in fiscal years 2014 and 2015 to  help recover the arsenals’ operating expenses and allow them to maintain  competitive rates.
subsections: section_title: DOD Has Taken Actions to Assign Work to the Arsenals
paragraphs: Since 2012, DOD has taken various actions to assign work to the  manufacturing arsenals. For example, in December 2012 ASA (ALT)  issued a memorandum directing Program Executive Officers, Program  Managers, and Product Support Managers in the Army’s acquisition  community to use a market research tool called the Materiel Enterprise  Capabilities Database when conducting research to determine whether  an item should be made at a manufacturing arsenal or bought from the  private sector. The tool, available to all DOD components, provides  access to information on the capabilities that are available at each of the  manufacturing arsenals. According to Army officials, the intent of this  effort is to make the Army and other DOD components more aware of the  manufacturing arsenals’ capabilities, in the hope that such increased  awareness will lead these organizations to send the arsenals more work.
Additionally, in an effort to encourage Program Executive Officers and  Program Managers to take advantage of the manufacturing arsenals’  capabilities, ASA (ALT) issued a memorandum in May 2013 directing  Program Executive Officers to report annually on the work they have  provided to the arsenals. The memo also stated that, when possible,  decisions to use the manufacturing arsenals, contractor support, or some  combination of arsenals and contractor support should occur early in the  acquisition process, for example, during market research or when  conducting make-or-buy analyses. Subsequently, in April 2014, the  Secretary of the Army directed AMC to work directly with DLA to develop  a plan and schedule to “make the manufacturing arsenals a DLA source  of supply” for Army-related manufacturing requirements. The secretary’s  memorandum noted that it was the Army’s position that all Army-related  parts in the DLA inventory that the manufacturing arsenals were capable  of manufacturing should first be obtained from the arsenals. In June 2014,  DLA determined that it had statutory authority to order from the Army’s  manufacturing arsenals when procuring supplies for the Army, but noted  that the Army would still need to conduct make-or-buy analyses and  provide DLA with a list of items that must be manufactured at the  arsenals. In July 2014, AMC requested that DLA “make the  manufacturing arsenals a primary source of supply” for a list of 133 items,  such as mounting plates and brackets, that the arsenals identified as  items they had manufactured previously.
In fiscal year 2014—as part of its implementation of section 8141 of the  Fiscal Year 2014 Consolidated Appropriations Act directing the  Secretary of the Army to assign sufficient work to the manufacturing  arsenals to maintain their critical capabilities—ASA (ALT) reviewed  Program Executive Officers’ portfolios to identify work that could be  directed to the arsenals in order to reduce the likelihood of a rate increase  and help to maintain critical capabilities. ASA (ALT) directed that a  program management review be conducted every 6 months on the status  of the originally identified workload, which included 26 projects—such as  the M320 grenade launcher—to be directed to the manufacturing  arsenals during fiscal years 2015 and 2016.
Finally, as part of its September 2014 Report on Manufacturing Arsenal  Study, DOD stated that it would continue to encourage the arsenals to  use public-private partnerships. These public-private partnerships include,  for example, commercial tenants who either rent space or provide  services in kind to the manufacturing arsenals. The intent of the  partnerships is to reduce the arsenals’ overhead, maintenance, and  product costs. As of October 2014, AMC had also developed a draft  implementation guide for a business development and partnership  program to coordinate partnering management, with the objective of  helping to positively affect the net operating result of AMC activities.
section_title: Actions to Assign Work Have Not Generated Sufficient Revenue, and DOD May Not Always Appropriately Consider the Manufacturing Arsenals as a Source of Manufacture
paragraphs: The various actions that DOD has taken to assign work to the  manufacturing arsenals, as described above, have not generated  sufficient revenue to recover the arsenals’ operating expenses and do not  ensure that DOD is appropriately considering the arsenals as a source of  manufacture. While DOD’s efforts to assign work have increased  revenue, the increases have been small relative to the manufacturing  arsenals’ operating expenses. For example,
DLA officials told us that as of August 2014, DLA had provided  approximately $10 million of work to the manufacturing arsenals in  fiscal year 2014. This work generated enough revenue to recover  approximately 2 percent of the arsenals’ total expenses in that time  frame.
AMC’s Assistant Deputy Chief of Staff for Logistics Integration  explained that, as of August 2014, the manufacturing arsenals were  engaged in 22 public-private partnerships that yielded a total of  approximately $11 million in revenue for the arsenals. This income  would recover approximately 3 percent of the manufacturing arsenals’  total expenses in fiscal year 2014. Further, multiple officials from  OSD, the Army, and the manufacturing arsenals told us that while  public-private partnerships are a good source of a small amount of  revenue, they are not the long-term solution to the arsenals’ ongoing  shortage of work.
In addition, DOD’s actions to assign work to the manufacturing arsenals  have not ensured that they are consistently considered as a source of  manufacture. Specifically, the Army’s effort to obtain work from DLA  involves make-or-buy analyses that are to be conducted to determine  whether to purchase an item from DOD’s industrial facilities, such as the  manufacturing arsenals, or from the private sector. However, based on  our review of relevant documents and interviews with DOD and Army  officials, we found that the Army does not have clear, step-by-step  implementing guidance—such as an instruction or guidebook—on how to  conduct make-or-buy analyses. Army Regulation 700-90 states that ASA  (ALT) is responsible for determining where an item should be procured  from and directs Program Managers or Program Executive Officers to  conduct the analyses that inform these determinations. The Army’s  regulation contains broad descriptions on how to conduct make-or-buy  analyses. It notes that the cost estimate for making the item at a  manufacturing arsenal should include the direct costs and only those  indirect costs that would change as a result of changes in the number of  items manufactured. Additionally, while the Army has issued a Cost  Benefit Analysis Guide that provides guidance on conducting cost benefit  analyses, this guide does not include specific, step-by-step information on  the policies, responsibilities, or procedures for conducting make-or-buy  analyses. According to AMC officials, no prescriptive guidance on how  to conduct these analyses has been issued so there is flexibility in how  they are conducted.
While the existing regulation may provide flexibility, some manufacturing  arsenal officials responsible for conducting these analyses at two of the  three arsenals stated that the guidance is not clear and that, as a result,  they have requested more detailed, step-by-step guidance to ensure that  they conduct these analyses consistently. For example, officials at one  manufacturing arsenal told us that in conducting make-or-buy analyses,  they are supposed to remove sunk costs when developing their  estimates. However, these officials, who are responsible for conducting  cost estimates, told us they did not know how to calculate their rates  without including the sunk costs. Officials at another manufacturing  arsenal told us that the process for conducting make-or-buy analyses is  unclear and expressed their opinion that a joint DOD instruction is needed  to better implement the process. Federal internal control standards  emphasize the importance of establishing detailed policies, procedures,  and practices to ensure that such guidance is an integral part of  operations. According to Army officials, having clear implementing  guidance to help ensure that make-or-buy analyses are consistently  conducted would not guarantee that the manufacturing arsenals receive  sufficient workload to recover their operating expenses, but it would  ensure that they are appropriately considered. In the absence of clear,  step-by-step implementing guidance, such as an instruction or guidebook,  that outlines how to conduct make-or-buy analyses, DOD cannot provide  reasonable assurance that it is appropriately considering the  manufacturing arsenals as a potential source of manufacture, thereby  potentially limiting the arsenals’ ability to generate revenues.
section_title: Congress Appropriated Funds to Help the Manufacturing Arsenals Recover Operating Expenses and Maintain Competitive Rates
paragraphs: Because DOD’s efforts to assign work to the manufacturing arsenals  have not generated sufficient revenue, Congress appropriated  $150 million to the arsenals in fiscal year 2014 to recover their operating  expenses and maintain competitive rates. These amounts were to be  made available in the Industrial Mobilization Capacity subaccount on the  condition that the Secretary of the Army assign sufficient workload to the  arsenals to sustain their critical manufacturing capabilities and ensure  cost efficiency, among other goals. DOD analyzed the financial  positions, projected rates, and future workloads of the three  manufacturing arsenals and allocated the funding based on the relative  need of each. AMC determined that, without this funding, the projected  losses at Rock Island and Watervliet Arsenals would have placed those  installations in a negative financial position by the end of fiscal year 2014  and that these manufacturing arsenals would need to raise their rates  substantially to recover their operating losses. Then, in fiscal year 2015,  Congress provided $225 million to the Army’s Working Capital Fund to  help maintain competitive rates at the manufacturing arsenals. Of the  funds Congress appropriated in fiscal years 2014 and 2015, AMC  allocated the funds to the arsenals as follows:
Rock Island Arsenal: $110 million in fiscal year 2014 and $135 million  in 2015.
Watervliet Arsenal: $30 million in fiscal year 2014 and $80 million in  fiscal year 2015.
Pine Bluff Arsenal: $10 million in fiscal year 2014 and $10 million in  fiscal year 2015.
According to DOD accounting reports and Army officials, the appropriated  funds were directly applied to the manufacturing arsenals’ revenues to  offset losses and reduce rates. However, these funds were not  accompanied by any work. Officials at each of the three manufacturing  arsenals told us that while the funds from Congress were helpful, they  would prefer to receive additional work instead, to recover operating  expenses, lower rates, and sustain the arsenals’ manufacturing  capabilities.
section_title: DOD Is Not Strategically Positioned to Sustain the Manufacturing Arsenals’ Critical Capabilities
paragraphs: DOD is not strategically positioned to sustain the manufacturing arsenals’  critical capabilities because, although it has a strategic plan that covers  the manufacturing arsenals, it has not identified fundamental elements,  such as time frames, necessary to implement this plan and achieve its  goals and objectives. Furthermore, because DOD has not established a  process for identifying the manufacturing arsenals’ critical capabilities,  developed a method for determining a minimum level of workload to  sustain these capabilities at each of the arsenals, and identified and  implemented this process and method via guidance—such as a DOD  instruction—the department is not positioned to determine the minimum  workloads or levels of manufacturing equipment and personnel needed to  sustain these capabilities.
subsections: section_title: DOD Has a Strategic Plan for the Manufacturing Arsenals but Has Not Identified Fundamental Elements for Implementation
paragraphs: In 2012, the Army issued its Organic Industrial Base Strategic Plan 2012- 2022 (strategic plan), which identifies several goals and objectives  related to the three manufacturing arsenals:  Institutionalize Army sustainment functions so that the Army’s  priorities inform the manufacturing arsenals’ production schedules.
Assess which competencies and capabilities are essential to the  organic industrial base.
Fund 100 percent of the minimum level of work the manufacturing  arsenals must have in order to exercise their critical capabilities  sufficiently to sustain them.
The strategic plan also outlines the following objectives related to the  arsenals:  Identify and document critical manufacturing capabilities that the  manufacturing arsenals should have.
Adjust equipment and personnel at the manufacturing arsenals to  sustain these critical manufacturing capabilities.
Establish an integrated Human Capital Investment Plan that supports  current and future capability requirements.
Continue to promote public-private partnerships.
However, the Army has not identified other fundamental elements  associated with the achievement of the strategic plan’s goals and  objectives. Standard practices for project management call for agencies  to conceptualize, define, and document specific goals and objectives in  their planning processes and to identify the appropriate steps, milestones,  time frames, and resources they need to achieve those goals and  objectives. The Army’s strategic plan does not contain any of these  fundamental elements. Furthermore, Army officials informed us that there  are no other documents, such as an implementation plan, that contain  these fundamental elements and that they have no plan to document  them. They explained that such documentation is not needed, because  they fully understand the efforts being taken to implement this strategy,  including hosting summits to share ideas on how to increase workload  levels at the manufacturing arsenals, working directly with DLA to make  the arsenals a DLA source of manufacture, and collaborating with other  countries to potentially increase foreign military sales of arsenal goods  and services. However, unless it identifies and documents these  fundamental elements by including information that would be useful in  determining DOD’s progress toward achieving its stated goals and  objectives, the department is not strategically positioned to sustain the  manufacturing arsenals’ critical capabilities.
section_title: DOD Has Not Identified the Manufacturing Arsenals’ Critical Capabilities
paragraphs: Achievement of the strategic plan’s goals and objectives is predicated on  the identification of the manufacturing arsenals’ critical capabilities.  However, these critical capabilities have not been identified and  documented, as called for in the 2012 strategic plan. Further, DOD has  not developed and implemented an agreed-upon process for determining  these capabilities, although such efforts are under way. DOD has  previously undertaken efforts to identify the manufacturing arsenals’  critical capabilities, but those earlier efforts had shortcomings. For  example, in April and May 2013, each of the three manufacturing  arsenals submitted studies to AMC that they had conducted to identify  their critical capabilities and the minimum workload they would need in  order to sustain those capabilities. These studies were completed in  response to the Senate Armed Services Committee’s report  accompanying a bill for the National Defense Authorization Act for Fiscal  Year 2013, which directed the Secretary of Defense to identify critical  manufacturing capabilities and capacities that should be government- owned and -operated, as well as the level of work needed to sustain  those capabilities. However, AMC officials responsible for overseeing  these studies, as well as officials from OSD and the manufacturing  arsenals, told us that the arsenals were not given a standardized,  consistent method to follow in identifying their critical capabilities and  minimum workloads. Rather, AMC officials told us, they relied on the  manufacturing arsenals to each develop their own unique method. A  senior OSD official described the resulting process as unsound. Each  manufacturing arsenal declared what it believed to be its own critical  capabilities in an unstructured way and based its analysis on then-current  personnel levels. A senior official at ASA (ALT) expressed a similar  opinion, saying that the manufacturing arsenals had labeled everything  they were doing at that time, including assembly work, as critical.  Nonetheless, the results of each of the three manufacturing arsenals’  studies were consolidated into a single report that listed critical  capabilities for each of the three arsenals and the estimated workloads  necessary to sustain them; this report was submitted to Congress in  August 2013.
Recognizing the shortcomings of earlier efforts to identify critical  capabilities, ODASD (MPP) commissioned a study in March 2013 to  (1) establish a process for identifying critical manufacturing capabilities  and (2) develop a method to identify the minimum workloads needed to  sustain these capabilities. In mid-August 2015, an ODASD (MPP) official  told us that OSD hoped to have this process for identifying critical  capabilities completed by December 2015, more than 2 years after the  effort had begun. This official explained that the working group focused  on this effort did not initially include representation from all of the relevant  stakeholders, including representatives from the manufacturing arsenals.  The official told us that, as a result, the effort had been temporarily  paused so that the working group conducting the study could incorporate  the new stakeholders.
According to ODASD (MPP) officials, the process being developed to  identify critical capabilities and the method for determining the minimum  workload needed to sustain them will form the basis of a DOD instruction  applicable to all of the military services. ODASD (MPP) officials explained  that they have not begun drafting the instruction, and they could not  provide an estimated time frame for when the instruction would be issued.  They noted that even once the related study is completed, it could take  several years to finalize and issue the instruction. ODASD (MPP) officials  stated that they expect the development of the instruction to be  challenging, given the divergent views within Army leadership, for  example on what critical capabilities are needed at the manufacturing  arsenals. Until the department completes the study it commissioned in  March 2013 and issues its implementing instruction, DOD will continue to  lack an agreed-upon process for identifying the manufacturing arsenals’  critical capabilities and a method for determining a minimally-sustaining  workload to sustain those capabilities.
Because DOD has not identified the manufacturing arsenals’ critical  capabilities or determined the minimum levels of workload needed to  sustain these capabilities, as called for in the strategic plan, DOD is not  positioned to achieve the strategic plan’s other goals and objectives. For  example, it cannot determine the amount of resources that would be  needed to assign 100 percent of the minimum level of work required to  sustain the critical capabilities. Further, it is not able to adjust the  equipment and personnel levels at the manufacturing arsenals to levels  that would sustain these capabilities. Regarding equipment and personnel  levels, there have been some efforts to make adjustments to reduce  operating expenses. For example, in mid-2014, Watervliet Arsenal  assessed its manufacturing equipment and identified several dozen  machines that it could potentially lay away or excess to avoid some  operating expenses. Watervliet projected that it could save over  $250,000 within the first year as a result of these actions. Officials at  Watervliet stated that they were moving forward with these actions.  Additionally, in December 2013, AMC conducted an analysis of personnel  levels at Rock Island Arsenal and recommended that Rock Island reduce  its workforce from its approximately 1,200 personnel to between 500 and  600 personnel. According to AMC officials, this reduction has not been  made. However, unless DOD first identifies the manufacturing arsenals’  critical capabilities, it will be unable to determine whether such  adjustments of equipment and personnel levels will enable the arsenals to  sustain those capabilities.
section_title: DOD’s Report Addresses Statutory Reporting Elements, but Additional Information Would Have Made It More Consistent with Relevant Research Presentation Standards
paragraphs: DOD’s September 2014 Report on Manufacturing Arsenal Study met the  statutory requirements to address seven different reporting elements.  However, we found that additional information and coordination would  have made the report more consistent with relevant generally accepted  research presentation standards for a defense research study, and  therefore would have helped decision makers to identify and evaluate the  information presented.
DOD submitted its report to Congress in response to the mandate in  section 322 of the National Defense Authorization Act for Fiscal Year  2014, which required the Secretary of Defense to conduct a one-time  review of the manufacturing arsenals, covering the seven elements  specified in the statute. The report was to include the results of reviews of   1.  current and expected manufacturing requirements across the military  services and Defense Agencies, to identify critical manufacturing  competencies and supplies, components, end items, parts,  assemblies, and sub-assemblies for which there is no or limited  domestic commercial source and which are appropriate for  manufacturing within an arsenal owned by the United States in order  to support critical manufacturing capabilities;  2.  how DOD can more effectively use and manage public-private  partnerships to preserve critical industrial capabilities at the  manufacturing arsenals for future national security requirements,  while providing the Department of the Army with a return on its  investment;  3.  the effectiveness of the strategy of DOD to assign work to be  performed at each of the arsenals and the potential for alternative  strategies that could better identify work to be performed at each  arsenal;  4.  the impact of the rate structure driven by the Department of the  Army’s working capital funds on public-private partnerships at each  arsenal;  5.  the extent to which operations at each arsenal can be streamlined,  improved, or enhanced;  6.  the effectiveness of the implementation by the Department of the  Army of cooperative agreements, authorized at manufacturing  arsenals under section 4544 of title 10, United States Code; and  7.  mechanisms within DOD for ensuring that appropriate consideration is  given to the unique manufacturing capabilities of arsenals for  manufacturing requirements of DOD for which there is no or limited  domestic commercial capability.
Based on our review of the report, we determined that DOD met the  statutory requirements, because the report includes each of the seven  elements and related content. The 5-page report contains subsections  specific to each element, primarily within the context of the cost recovery  requirements of the Working Capital Fund and the declining workload  experienced by the arsenals. For example, in response to the second  element regarding how DOD can more effectively use and manage  public-private partnerships, DOD reported that, while it will continue to  rely on existing legal authorities for public-private partnerships, more  effective use of such partnerships requires the stabilization of arsenal  rates and the use of alternate rate structures. The report states the  arsenals have limited flexibility to adjust their rates and that the need for  the arsenals to charge a fully burdened rate that recovers past operating  losses causes them to lose potential opportunities for public-private  partnerships. DOD also stated that it can more effectively utilize public- private partnerships by increasing the military departments’ and defense  agencies’ knowledge of the arsenals’ capabilities through various forums,  such as industry days and DOD maintenance symposiums. Additionally,  for the fourth element, regarding the impact of the rate structure driven by  the Department of the Army’s Working Capital Funds on the public-private  partnerships at each arsenal, DOD reported that the arsenals must  recover their full costs from customer charges, since they are working  capital-funded activities. DOD explained that some of the costs borne by  the arsenals are attributed to capacity required for surge operations and  some are for workforce in excess of workload. The report states that,  when the full costs are apportioned over a small workload base, the  impact is higher rates, which discourages partners and customers from  using the arsenals. DOD’s report reiterated that the need for arsenals to  charge a fully burdened rate that recovers past operating losses causes  them to lose potential opportunities for public-private partnerships.
While DOD’s report met the statutory requirements, we determined that  DOD could have taken actions that we believe would have made the  report more consistent with relevant generally accepted research  presentation standards for a defense research study and, therefore,  would have made the presented results more useful to decision makers.  Specifically, we found that DOD’s presentation of most of the reporting  elements could have been more sound, complete, and clear, which would  have facilitated decision makers’ evaluation of the information presented.  Furthermore, DOD could have coordinated the results of its study with  participants and stakeholders—and obtained and considered their  comments—before finalizing its report, to better ensure its soundness,  completeness, and clarity.
Generally accepted research standards for a defense research study  define a sound and complete defense research study as one that  provides, among other things, timely, complete, and relevant information  for the client and stakeholders. Of these, there is a subset of standards  for presenting the results from such a study. The extent to which a  report’s presentation of results is consistent with these relevant standards  is an indication of the ease with which the evidence can be evaluated and  of the soundness and completeness of the report and, thus, its usefulness  in enabling decision makers to make fully informed decisions. These  GAO-developed standards are consistent with current Office of  Management and Budget and DOD guidelines on ensuring and  maximizing the quality of information disseminated to the public. We  determined that the following presentation standards are relevant, given  our objectives and the content of DOD’s report:  1.  Does the report present an assessment that is well documented and  conclusions that are supported by the analyses?  2.  Are the report’s conclusions sound and complete?  3.  Are the study results presented in a clear manner?  4.  Are study participants/stakeholders informed of the study results and  recommendations?
In applying the first three standards on the presentation of results, which  describe the soundness, completeness, and clarity of the information  presented, we found that DOD’s report was consistent with those  standards for two of the seven reporting elements. First, the report details  how rate structures that are driven by the Army Working Capital Fund  impact DOD’s ability to maintain public-private partnerships at the  manufacturing arsenals. In doing so, it clearly describes how the  manufacturing arsenals must charge a rate to their public partners and  customers that is determined by the Army Working Capital Fund, and how  that rate can increase when work to be performed at the arsenals  decreases. According to DOD’s report, higher rates can lead to the loss of  current and potential opportunities for public-private partnerships at the  manufacturing arsenals. Second, the report discusses the extent to which  operations at each manufacturing arsenal could be streamlined,  improved, or enhanced. In doing so, the report describes in detail the  limited flexibility the manufacturing arsenals have to streamline, improve,  or enhance their operations. For example, the report notes that, given that  the manufacturing arsenals are restricted in their ability to conduct  reductions in force to adjust their personnel levels, they are limited to  using hiring freezes and voluntary early retirements or separations to  decrease personnel levels in times of decreased workloads.
For the remaining five reporting elements, we found that DOD’s  September 2014 report is not consistent with the relevant presentation  standards for soundness, completeness, and clarity. For example, to  address the seventh reporting element—that DOD identify mechanisms  for ensuring that the manufacturing arsenals are considered as a source  of manufacture—DOD’s report notes that the Secretary of the Army  directed AMC to work with DLA to make the Army manufacturing arsenals  a source of manufacture for the Army parts within the DLA inventory.  DOD’s report, however, does not disclose to what extent this has resulted  in the manufacturing arsenals actually being considered as a source and  does not discuss any challenges in doing so, such as issues associated  with guidance for conducting make-or-buy analyses, discussed earlier in  this report. Furthermore, to address the first reporting element—to review  the manufacturing arsenals’ current and expected requirements to  support their critical capabilities—DOD’s report identified a list of current  and expected manufacturing requirements for items that it designated as  appropriate for production in one of the manufacturing arsenals, but the  report does not provide a clear explanation of how DOD identified these  items and does not identify which military services or defense agencies  these requirements apply to. Additionally, the report does not disclose  that, as previously discussed, DOD has not developed and implemented  a process for identifying the manufacturing arsenals’ critical capabilities.  Moreover, to address the second reporting element—that DOD discuss  how it can more effectively use and manage public-private partnerships— DOD’s report explains how the department is currently using these  partnerships but does not clearly explain how any suggested  improvements would provide an additional return on investment to the  Army or how the use of public-private partnerships would aid in  preserving the manufacturing arsenals’ critical capabilities.
Table 1 summarizes our assessment of what DOD included in its report  that is consistent with relevant defense research presentation standards.  For the five reporting elements for which we found that DOD was not  consistent with these standards, the table provides examples of additional  information that we determined could have been included to make the  report more consistent with the relevant presentation standards for  soundness, completeness, and clarity.
In addition, we determined that DOD’s report was not consistent with the  generally accepted research standard that participants or stakeholders be  informed of the defense study’s results and recommendations. Officials  from a DOD office mentioned in the September 2014 report told us that  no one from their office either participated in the study or reviewed the  report prior to its publication. They explained, after we provided them a  copy of the report, that one of the analyses that was reportedly conducted  by their office—and mentioned in DOD’s report—was not conducted in  the manner described or for the purposes indicated in the report. They  further explained that had they reviewed the information in the report  about the analysis their office conducts, such a misstatement would not  have occurred. Additionally, officials from relevant DOD components— including the three manufacturing arsenals and their higher  headquarters—told us that they had not been given the opportunity to  review or comment on the final version of the report before it was issued.  For example, when we spoke with officials at the manufacturing arsenals  and at some of the headquarters organizations, they told us that they had  not seen the issued report until we showed it to them. Moreover, AMC  officials told us that the manufacturing arsenals had not been given an  opportunity to review the information used to support the report to confirm  that the details in the final report were complete.
When we discussed the results of our assessment of the September 2014  report with ODASD (MPP) officials who had the lead for developing the  report, they disagreed with our assessment related to relevant generally  accepted research presentation standards. In our June 2015 meeting,  they explained that they had addressed the statutory requirements and  that was sufficient, questioning the need to follow the generally accepted  defense research presentation standards we determined to be relevant in  assessing DOD’s report. We agree that DOD’s report met the statutory  requirements by including a discussion of each of the seven reporting  elements. However, we also believe that it is appropriate to apply the  relevant generally accepted defense research standards for the  presentation of results, because consistency with these standards helps  to indicate the extent to which the results presented in the report are  useful to decision makers. Moreover, as previously mentioned, the  relevant generally accepted research presentation standards we used to  assess DOD’s report are consistent with Office of Management and  Budget guidelines and DOD guidance. ODASD (MPP) officials did not  provide any examples where we had overlooked information in the report  that our assessment determined could have been included to make it  more sound, complete, and clear for use by decision makers. Further,  these officials did not disagree with our assessment that the report had  not been shared or coordinated with participants and stakeholders.
section_title: Conclusions
paragraphs: As a result of the decline in demand for materiel, DOD is facing  challenges in assigning work to its three manufacturing arsenals. DOD  has taken various actions in an effort to assign work to the manufacturing  arsenals, but these actions collectively have not resulted in the arsenals  generating sufficient revenue to recover their operating expenses. The  effectiveness of these actions has been limited in part by the fact that  DOD has not developed clear, step-by-step implementing guidance on  how to conduct make-or-buy analyses, which would help to ensure that  the arsenals are appropriately considered as a source of manufacture.  Because the arsenals are generating insufficient revenue, Congress has  provided $375 million collectively in the prior and current fiscal years to  help recover operating losses and maintain competitive rates. Unless the  manufacturing arsenals are able to generate sufficient revenue to recover  their operating expenses, it is likely that they will need continued funding  or will need to make adjustments to personnel and equipment levels to  reduce their operating expenses and maintain competitive rates.
DOD is not strategically positioned to sustain the manufacturing arsenals’  critical capabilities. These critical capabilities help ensure that DOD is  able to respond to national emergencies and obtain products and  services that it could not otherwise acquire from private industry in an  economical manner. While there is a strategic plan that covers the  manufacturing arsenals and has established related goals and objectives,  DOD has not identified or documented fundamental elements, such as  time frames and resources, for implementing the plan. In not identifying  and documenting these fundamental elements, DOD is inconsistent in  applying standard practices for project management and, therefore, lacks  information that would be useful in determining whether progress is being  made in achieving the plan’s goals and objectives. More importantly,  DOD cannot achieve the strategic plan’s goals and objectives until it has  identified the manufacturing arsenals’ critical capabilities. After falling  short in prior efforts, DOD has an effort under way to develop a process  to identify critical capabilities and a method for determining the minimum  workload needed to sustain them, but that effort has been delayed. As a  result, it is not clear when DOD will be able to act on its intention to  develop and issue guidance—such as a DOD instruction—to implement  the process and method being developed. Until such an instruction is  issued, DOD will continue to lack a process for identifying the  manufacturing arsenals’ critical capabilities and will not be positioned to  determine the minimum amount of work or the levels of equipment and  personnel needed to sustain the arsenals’ capabilities.
With the issuance of its September 2014 report on the manufacturing  arsenals, DOD met statutory requirements. However, we determined that  additional information would have made the report more consistent with  relevant generally accepted research presentation standards for a  defense study. Additionally, had DOD coordinated its results with  participants and stakeholders, they could have provided comments or  corrections to misstatements, as needed. Doing so would have enabled  DOD to present a more sound, complete, and clear report that not only  would have met statutory requirements, but would have been more useful  to Congress in its oversight of DOD’s manufacturing arsenals. Because  DOD’s report was prepared in response to a one-time, nonrecurring  mandate, we are not making any recommendations to amend the report  or provide additional detail.
section_title: Recommendations for Executive Action
paragraphs: To help DOD ensure that it appropriately considers the manufacturing  arsenals as a source of manufacture and is strategically positioned to  sustain the manufacturing arsenals’ critical capabilities, we recommend  that the Secretary of Defense direct
The Secretary of the Army to  issue clear, step-by-step implementing guidance, such as an  instruction or guidebook, on the process for conducting make-or- buy analyses in a consistent manner and  identify and document fundamental elements—such as steps,  interim milestones, time frames, and resources—for implementing  the Army’s Organic Industrial Base Strategic Plan 2012-2022 and
The Office of the Deputy Assistant Secretary of Defense for  Maintenance Policy and Programs—in coordination with the military  services, as appropriate, to  complete DOD’s ongoing effort to establish a process for  identifying the manufacturing arsenals’ critical capabilities and a  method for determining the minimum workload needed to sustain  these capabilities and develop and issue guidance, such as a DOD instruction, to  implement the process for identifying the manufacturing arsenals’  critical capabilities and the method for determining the minimum  workload needed to sustain these capabilities.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOD for review and comment. In  written comments, DOD concurred with all of our recommendations.  DOD’s comments are summarized below and reprinted in appendix II.  DOD also provided technical comments which we have incorporated into  our report as appropriate.
In addition to its overall concurrence with our recommendations, DOD  stated that it does not agree with the implication that these steps will lead  to the provision of sufficient revenue to cover all of the manufacturing  arsenals’ expenses. However, we did not state or imply that  implementation of these recommendations will increase revenue. Rather,  the recommendations’ stated intent is to ensure that DOD appropriately  considers the manufacturing arsenals as a source of manufacture and is  strategically positioned to sustain their critical capabilities. As explained in  our report, until DOD determines the manufacturing arsenals’ critical  capabilities, it will not be positioned to determine the minimum amount of  work or the levels of equipment and personnel needed to sustain those  capabilities.
DOD concurred with our recommendation related to issuing implementing  guidance on make-or-buy analyses but provided no details on how or  when it would issue such guidance. Further, DOD explained that it did not  agree with the implication that make-or-buy analyses would necessarily  increase revenue provided to arsenals and noted that the process may  result in reduced revenue. We did not state or imply that the issuance of  implementing guidance on the process for conducting make-or-buy  analyses would increase revenue. Rather, we believe that in the absence  of clear, step-by-step implementing guidance on how to conduct make-or- buy analyses, DOD cannot provide reasonable assurance that it is  appropriately considering the manufacturing arsenals as a potential  source of manufacture. As stated in our report, although implementing  such guidance would not guarantee that the manufacturing arsenals  receive sufficient workload, it would ensure that they are appropriately  considered.
DOD concurred with our recommendation related to implementing its  2012 strategic plan but provided no details on how or when it would  implement the recommendation. DOD also stated that, given the overall  constraints placed on the department’s budget under the Budget Control  Act of 2011, as amended, it cannot guarantee the availability of any  resources that it would identify by implementing this recommendation.  Our report discusses how standard practices for project management call  for agencies to conceptualize, define, and document specific goals and  objectives in their planning processes and to identify the appropriate  steps, milestones, time frames, and resources they need to achieve those  goals and objectives. However, DOD’s strategic plan does not contain  any of these fundamental elements. Unless DOD identifies and  documents fundamental elements by including information that would be  useful in determining its progress toward achieving its stated goals and  objectives, the department will not be strategically positioned to sustain  the manufacturing arsenals’ critical capabilities in any budget  environment.
DOD concurred with our recommendation related to developing a process  to identify the arsenals’ critical capabilities and a method to determine the  minimum workload needed to sustain those capabilities. DOD stated that  its effort to address this recommendation is ongoing, but added it does  not agree that developing such a process will result in sufficient revenue  to cover arsenal expenses. We did not state or imply that establishing a  process for identifying the manufacturing arsenals’ critical capabilities and  a method for determining the minimum workload needed to sustain these  capabilities would result in sufficient revenue to cover arsenal expenses.  Rather, we believe such a process is needed to help ensure that DOD is  strategically positioned to sustain the manufacturing arsenals’ critical  capabilities and achieve its 2012 strategic plan’s goals and objectives.  Although DOD did not specifically comment on our recommendation  related to issuing guidance to implement a process for identifying the  arsenals’ critical capabilities and a method for determining the minimum  workload needed to sustain these capabilities, it commented that it  expects to issue an instruction incorporating such a process by the end of  fiscal year 2016. We believe that, if fully implemented, these actions  should address our recommendations and strategically position the  department to sustain the manufacturing arsenals’ critical capabilities.
In its comments, DOD also took issue with how we characterized  Congress “‘providing’ additional funds” to cover the excess of arsenal  expenses over revenue. DOD stated that no additional funds were added  to the DOD budget for this shortfall; rather, Congress “redirected funding”  from other essential defense missions. We did not state or imply that  amounts appropriated for arsenal expenses were additional to DOD’s  overall budget authority for fiscal years 2014 and 2015. Our discussion of  funding for Industrial Mobilization Capacity and the Arsenal Sustainment  Initiative highlighted specific appropriations made by Congress to the  Working Capital Fund for the express purposes of covering the costs of  unutilized or underutilized plant capacity through the Working Capital  Fund’s Industrial Mobilization Capacity subaccount in fiscal year 2014  and maintaining competitive rates at arsenals through the Arsenal  Sustainment Initiative in fiscal year 2015. We did not discuss these  appropriations in the context of DOD’s overall budget authority, or state or  suggest that they were derived from a concurrent increase in budget  authority.
Finally, DOD did not agree with our assessment of DOD’s September  2014 report on the manufacturing arsenals against four generally  accepted research presentation standards, questioning why the  presentation standards are more relevant for this particular DOD report to  Congress than they are for the many reports submitted each year. We do  not believe that the presentation standards we applied are more relevant  for the September 2014 report than for any other report DOD submits to  Congress. We believe that all reports submitted by federal agencies to  Congress should not only comply with applicable statutory reporting  requirements, as was the case with the September 2014 report but  should also follow applicable generally accepted research standards. As  discussed in our methodology, we determined that the following four  standards, which focused on the presentation of results, were applicable  as DOD did not have a documented method for its study and given the  contents of the September 2014 report:   the report presents an assessment that is well documented and  conclusions that are supported by the analyses;  the report’s conclusions are sound and complete;  the study results are presented in a clear manner; and   study participants/stakeholders are informed of the study results and  recommendations.
In its comments, DOD did not provide any explanation as to why it  believes these standards should not have been applied in our  assessment of the September 2014 report.
DOD further noted in its comments that the application of the generally  accepted research presentation standards would not have altered the  September 2014 report or its contents. We disagree. As discussed in the  report, we identified multiple examples of additional information that we  determined could have been included to make the report more consistent  with the relevant presentation standards for soundness, completeness,  and clarity. DOD also stated that we are not correct in our assertion that  the report was not shared or coordinated with participants and  stakeholders, explaining that the September 2014 report was fully staffed  with the Army’s Assistant Secretary for Acquisition, Logistics and  Technology; the Deputy Chief of Staff for Logistics; and the Army Materiel  Command. We do not disagree that the report was coordinated with the  organizations identified in DOD’s comments. However, we identified other  key stakeholders with whom the report was not coordinated. Most  notably, we found that the manufacturing arsenals had not been given an  opportunity to review the information used to support the report or to  review the final version of the report. Had DOD adhered to relevant  generally accepted research presentation standards for a defense study  in preparing the September 2014 report, it could have better ensured the  report’s soundness, completeness, and clarity and therefore, its  usefulness to decision makers.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, and the Secretaries of the Army,  Air Force, and Navy. The report also is available at no charge on GAO’s  website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-5741 or ayersj@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. Key contributors to this report are listed in appendix  III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report assesses (1) actions, if any, that the Department of Defense  (DOD) has taken to assign work to the manufacturing arsenals to  generate sufficient revenue to recover their operating expenses; (2) the  extent to which DOD is strategically positioned to sustain the  manufacturing arsenals’ critical capabilities; and (3) the extent to which  DOD’s September 2014 report meets the requirements to address the  statutory reporting elements and is consistent with relevant generally  accepted research presentation standards for a defense research study.  To address these reporting objectives, we visited or contacted  knowledgeable officials with responsibilities related to arsenal operations  from the following organizations:  Office of the Under Secretary of Defense for Acquisition, Technology and  Logistics
Office of the Deputy Assistant Secretary of Defense for Manufacturing
Defense Procurement and Acquisition Policy
Office of the Assistant Secretary of Defense for Logistics and Materiel  Readiness
Office of the Principal Deputy Assistant Secretary of Defense for  Maintenance Policy and Programs
Office of the Deputy Assistant Secretary of Defense for  Defense Finance and Accounting Service  Defense Manpower Data Center  Deputy Assistant Secretary of the Army for Acquisition Policy and  Logistics
Office of the Assistant Secretary of the Army for Acquisition, Logistics
Department of the Army, Headquarters / G4, G8
Army Materiel Command / G1, G3, G4, G8  Joint Munitions Command Life Cycle Management Command
Pine Bluff Arsenal
TACOM Life Cycle Management Command
Rock Island Arsenal Joint Manufacturing and Technology
Watervliet Arsenal Joint Manufacturing and Technology
Army Program Executive Office Ground Combat Systems
Abrams Tank Program Office  We also obtained pertinent documents, including DOD directives,  instructions, and reports; Army regulations and instructions,  memorandums, strategic plans, and other guidance; and information on  the organic defense industrial base and each of the three manufacturing  arsenals (Pine Bluff, Rock Island, and Watervliet), such as the arsenals’  critical capabilities and current levels of workload. Additionally, we  discussed personnel and workload data with subject matter experts at the  Defense Manpower Data Center and the Defense Finance and  Accounting Service. To provide background information on recent trends  in workload at the three manufacturing arsenals, we summarized direct  labor hour data compiled by Army Materiel Command officials for civilian  and contract personnel from fiscal years 2000 through 2014. We  assessed the reliability of the direct labor hour data we obtained from  Army Materiel Command through interviews with knowledgeable officials  and determined that these data were sufficiently reliable to use in this  report for this limited purpose.
For our first objective, to assess the actions, if any, that DOD has taken to  assign work to the manufacturing arsenals to generate sufficient revenue  to recover their operating expenses, we also interviewed DOD officials  who were involved in assessing and implementing efforts to improve or  enhance operations at the arsenals. We compared existing guidance on  the process used to consider manufacturing arsenals as a source of  manufacture to federal internal control standards for control activities  contained in GAO’s Standards for Internal Control in the Federal  Government.
For our second objective, to assess the extent to which DOD is  strategically positioned to sustain the manufacturing arsenals’ critical  capabilities, we interviewed DOD officials who contributed significantly to  the department’s current strategy to assign work to be performed at the  arsenals. We then compared DOD’s existing strategy for the  manufacturing arsenals to standard practices for project management  and identified discrepancies. We also reviewed two Army assessments  related to the levels of equipment and personnel and determined that one  of the assessments described an approach and findings that were  reasonable, but we did not assess the accuracy or reliability of the  underlying data because doing so was beyond the scope of this review.  The other assessment, however, did not contain sufficient information for  us to determine if the approach used to calculate its results was  reasonable. In the absence of other reliable sources, we limited the use of  these three assessments in the report to noting that the arsenals had  conducted assessments containing recommendations intended to guide  subsequent decision making.
For our third objective, to determine the extent to which DOD’s  September 2014 report meets the requirements to address the statutory  reporting elements and is consistent with relevant generally accepted  research presentation standards for a defense research study, we  conducted a two-part assessment of DOD’s September 2014 report. First,  to assess the extent to which DOD’s September 2014 report meets the  statutory requirement to address the seven reporting elements, we  compared the report to the elements listed in section 322 of the National  Defense Authorization Act for Fiscal Year 2014. For each reporting  element, we determined whether DOD’s report met the statutory  requirement by including the element and providing related content.  Second, we assessed the extent to which DOD’s September 2014 report  is consistent with relevant generally accepted research presentation  standards for a defense research study. To do so, we determined which  generally accepted research presentation standards for a sound,  complete, and clear defense research study were relevant to the contents  of the report, given our objective. In 2006, we described these standards  in a report on DOD transportation capabilities. In this 2006 report, we  reviewed research literature and DOD guidance and identified frequently  occurring, generally accepted research standards that are relevant for  defense studies, including those related to the presentation of results.  These GAO-developed generally accepted research presentation  standards are consistent with Office of Management and Budget  guidelines and DOD guidance on ensuring and maximizing the quality of  information disseminated by federal agencies to the public. We identified  36 generally accepted research standards for a defense research study in  the areas of design, execution, and presentation of results. We  determined that these standards are still current and relevant for the  purposes of this report. Because DOD did not have a documented  method for its study, we did not assess DOD’s September 2014 report  against the generally accepted research standards for design  (14 standards) and execution of the design (15 standards). Consequently,  we confined our objective and assessment to the subset of 7 standards  for presenting the results of a defense study. Of these 7 standards related  to the presentation of results, we determined, based on the content of  DOD’s report, that the following 4 were relevant:  1.  Does the report present an assessment that is well documented and  conclusions that are supported by the analyses?  2.  Are the report’s conclusions sound and complete?  3.  Are the study results presented in a clear manner?  4.  Are study participants/stakeholders informed of the study results and  recommendations?
We determined that the remaining three research presentation standards  were not relevant, given our review’s objectives and based on the content  of DOD’s report. For example, since we separately assessed the extent to  which DOD’s report met the statutory requirements to address the  statutory reporting elements, we did not assess whether DOD’s report  addressed its objectives in the context of the generally accepted defense  research presentation standards, as this would have been duplicative.  Also, because the report did not include recommendations or provide  options, we did not apply the generally accepted defense research  presentation standards on whether recommendations were supported by  analyses or whether a realistic range of options was provided.
After determining the relevant presentation standards, we then compared  the contents of DOD’s September 2014 report and available supporting  documentation—such as DOD policy, guidance, assessments, and  briefings—to the 4 relevant research presentation standards. The extent  to which the report’s presentation of results is consistent with these  relevant standards is an indication of the ease with which the evidence  can be evaluated and of the soundness and completeness of the report  and, thus, its usefulness in enabling decision makers to make fully  informed decisions. We considered DOD’s response to a statutory  reporting element to be consistent with relevant generally accepted  defense research presentation standards when the report explicitly  addressed (e.g., included meaningful facts, figures, or clearly discussed)  all aspects of the element and included sufficient specificity and detailed  support. We considered DOD’s response to a reporting element to be  inconsistent with these standards when the report neither explicitly  addressed all aspects of the element nor included sufficient specificity  and detailed support. In such cases, we provided examples of additional  information that, although not statutorily required, we believe would have  made the report more consistent with the 4 relevant generally accepted  research presentation standards. In addition, we discussed the results of  our assessment of the September 2014 report with ODASD (MPP)  officials—who had the lead for developing the report—and obtained their  perspectives regarding the approach they used to develop it, including  their rationale for (1) choosing the level of detail they provided for  particular reporting elements in the report and (2) not sharing the report  with participants and stakeholders before it was issued.
We conducted this performance audit from June 2014 to November 2015  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, the following staff members  made key contributions to this report: Larry J. Junek, Assistant Director;  Yecenia C. Camarillo, Timothy J. Carr, Patricia Farrell Donahue, Cynthia  L. Grant, Joanne Landesman, Amie Lesser, Felicia M. Lopez, Oscar W.  Mardis, Sabrina C. Streagle, and Matthew R. Young.
section_title: Related GAO Products
paragraphs: Regional Missile Defense: DOD’s 2014 Report Generally Addressed  Required Reporting Elements, but Excluded Additional Key Details.  GAO-15-32. Washington, D.C.: December 1, 2014.
Army Industrial Operations: Budgeting and Management of Carryover  Could Be Improved. GAO-13-499. Washington, D.C.: June 27, 2013.
Defense Logistics: Oversight and a Coordinated Strategy Needed to  Implement the Army Workload and Performance System. GAO-11-566R.  Washington, D.C.: July 14, 2011.
Defense Infrastructure: The Army Needs to Establish Priorities, Goals,  and Performance Measures for Its Arsenal Support Program Initiative.  GAO-10-167R. Washington, D.C.: November 5, 2009.
Depot Maintenance: Improved Strategic Planning Needed to Ensure That  Army and Marine Corps Depots Can Meet Future Maintenance  Requirements. GAO-09-865. Washington, D.C.: September 17, 2009.
Depot Maintenance: DOD’s Report to Congress on Its Public-Private  Partnerships at Its Centers of Industrial and Technical Excellence (CITEs)  Is Not Complete and Additional Information Would Be Useful.  GAO-08-902R. Washington, D.C.: July 1, 2008.
Defense Transportation: Study Limitations Raise Questions about the  Adequacy and Completeness of the Mobility Capabilities Study and  Report. GAO-06-938. Washington, D.C.: September 20, 2006  Depot Maintenance: Public-Private Partnerships Have Increased, but  Long-Term Growth and Results Are Uncertain. GAO-03-423. Washington,  D.C.: April 10, 2003.
Army Industrial Facilities: Workforce Requirements and Related Issues  Affecting Depots and Arsenals. GAO/NSIAD-99-31. Washington, D.C.:  November 30, 1998.