Closing Maintenance Depots: Savings, Workload, and Redistribution Issues
Published: 1996-03-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Pursuant to a congressional request, GAO reviewed maintenance depot closures and realignments, focusing on: (1) the reliability of the Department of Defense's (DOD) depot closure cost and savings estimates; (2) DOD efforts to provide employment and training opportunities at closing depots; (3) whether the military services can increase savings by using competitions between DOD depots and the private sector when redistributing closing depots' workloads; and (4) whether the military services adequately consider other services' depots when redistributing the workloads.
section_title: What GAO Found
paragraphs: GAO found that: (1) DOD has substantially reduced its initial estimates for the net savings that depot closures will achieve during the 6-year implementation period allowed by law and, to a lesser extent, for the annual savings after the implementation period has been completed; (2) although DOD believes its estimates have improved, current estimates still do not accurately reflect potential savings because some closure-related costs are not included, and some estimates have not been updated to reflect major changes in such areas as the expected cost of doing the work after it is transferred to new sources of repair; (3) as a result, the magnitude of savings is uncertain; (4) by offering a comprehensive and costly outplacement program for displaced employees, that provides assistance, benefits, and separation incentives, DOD has greatly facilitated this transition and has thus far successfully limited the number of depot employees who were involuntarily separated; (5) the military services can substantially increase their savings by ensuring that closing depots' workloads are transferred to the most cost-effective source of repair; (6) they can accomplish this goal by conducting public-public and public-private competitions for the work or by analyzing the cost-effectiveness of moving the work to not only their own depots but also those of the other services; (7) in addition, they can improve the efficiency of their operations and reengineer workloads that are transferred from closing depots without competition; and (8) neither DOD nor the military services have taken action to maximize these savings: (a) public-public and public-private competition programs were discontinued in May 1994; (b) the Air Force is implementing a privatization-in-place plan that will likely increase maintenance costs; (c) the military services rarely consider interservicing alternatives when they redistribute workloads; and (d) neither DOD nor the services require depots to reengineer workloads they receive from closing depots.

section_title: Letter
paragraphs: At your request, we reviewed selected issues related to the maintenance depot closures and realignments that resulted from decisions made by the Base Commission on Closure and Realignment. We found that (1) the Department of Defense (DOD) substantially reduced its savings estimates from closing maintenance depots, but is still overestimating the savings that will probably be achieved; (2) the number of employees involuntarily separated as a result of past closure decisions was minimized because of a comprehensive but costly employee assistance program; and (3) DOD is not using public-public or public-private competitions as a means of allocating public depot workloads. The report includes recommendations that, if implemented, should enable DOD to more cost-effectively redistribute closing depots’ workloads.
We are sending copies of this report to the Chairmen and Ranking Minority Members, House and Senate Committees on Appropriations, House Committee on National Security and Senate Armed Services Committee, and Senate Committee on Governmental Affairs and House Committee on Government Reform and Oversight; the Director, Office of Management and Budget; and the Secretaries of Defense, the Army, the Air Force, and the Navy.
Please contact me at (202) 512-8412 if you have any questions. The major contributors to this report are listed in appendix II.
subsections: section_title: Introduction
paragraphs: The Department of Defense (DOD) annually spends $15 billion for depot maintenance work that involves the repair, overhaul, modification, and upgrading of aircraft, ships, tracked and wheeled vehicles, and other equipment. This work, which also includes limited parts manufacturing, technical support, testing, reclamation, and software maintenance, is performed by both public depots and the private sector.
A combination of factors, including declining maintenance requirements and increasing pressures to outsource more and more work to the private sector, has caused DOD to downsize its depot maintenance infrastructure. This downsizing has taken place largely through the base closure and realignment (BRAC) process.
subsections: section_title: Depot Maintenance Overview
paragraphs: Prior to downsizing, DOD had 36 major maintenance depots—8 Army depots, 6 naval aviation depots, 8 shipyards, 2 ship repair activities, 3 Navy warfare centers, 7 Air Force depots, and 2 Marine Corps depots—as well as other industrial facilities with a depot maintenance mission. This total includes 15 depots that are closing, 6 of which have already ceased maintenance operations. It does not include an Air Force depot maintenance activity in Colorado Springs that performs software maintenance for space systems or most specialized government-owned, contractor-operated repair depots.
These depots, which represent a large government investment, have historically had more extensive technical capability—in terms of the facilities, equipment, and personnel—than lower maintenance levels.However, in recent years, various programs within the military services have resulted in blending some of the maintenance levels.
In addition to in-house depot maintenance capability, DOD also contracts with thousands of firms, including both repair houses and original equipment manufacturers. These firms supply parts and provide direct maintenance support in both their own facilities and government facilities.
In our April 1994 testimony, we reported that DOD’s estimate of the workload mix between the public and private sectors—about 35 percent to the private sector and the remainder to public depots—understated the portion of private sector funding. We noted that an actual accounting of the amount going to the private sector, either directly or through the purchase of repair parts or secondary services, was not readily available because of limitations in the way DOD collected data. However, based on our review of available data, we projected that more than 50 percent of depot maintenance funds goes to the private sector.
Figure 1.1 depicts DOD’s major depots, which collectively employ about 100,000 civilian employees and 2,000 military personnel. A brief history of each military service’s depot system is provided in appendix I.
section_title: Depot Downsizing Has Occurred Largely Through BRAC
paragraphs: A combination of factors has created too much depot maintenance capacity in the military services’ depots. These factors include (1) the downsizing of the armed forces due to the end of the Cold War; (2) efforts by some DOD components to conduct more repairs in field-level maintenance activities; (3) pressures by the defense industry to contract out more depot work to the private sector; and (4) the increased reliability, maintainability, and durability of most military systems and equipment.
Some initiatives—namely consolidating workloads, implementing competition between government depots and the private sector, mothballing depot plant equipment, and tearing down unused buildings or converting them to other military uses—have been undertaken to reduce some of the excess capacity. However, depot downsizing has largely occurred through the BRAC process.
Closing unneeded facilities has never been easy, partly because of the public’s concerns about the effects of closures on communities and about the impartiality of the decision-making process. Additionally, 1970s legislation requiring congressional notification of proposed closures and preparation of economic, environmental, and strategic consequence reports has greatly impeded base closure efforts. Legislation enacted in 1988 (P.L. 100-526) facilitated a successful round of base closure decision-making. It outlined a special process for considering base closure actions, authorized a special commission to review proposed closures and realignments, and provided relief from certain statutory provisions that hindered the base closure process.
In 1990, the Secretary of Defense found it was difficult to complete additional base closure actions without special enabling legislation. Therefore, Congress passed the Defense Base Closure and Realignment Act of 1990 (title XXIX, P.L. 101-510), which halted any major closures unless DOD followed the new act’s requirements. The act created independent BRAC commissions and outlined procedures, roles, and time frames for the President, Congress, DOD, GAO, and the commissions to follow. It required that all bases be compared equally against (1) selection criteria to be developed by DOD and (2) DOD’s current force structure plan. The legislation mandated rounds of BRAC reviews in 1991, 1993, and 1995.
The first 3 rounds of the BRAC process resulted in decisions to close  10 maintenance depots: 1 in BRAC 1988, 2 in BRAC 1991, and 7 in BRAC 1993. Six of these depots are located on bases that are being closed completely, but four—the Norfolk and Pensacola naval aviation depots and the Lexington-Bluegrass and Tooele Army depots—are located on bases that will continue to perform missions other than depot maintenance. Eight of the depots have had or will have all or portions of their land and facilities made available to the local community for reuse; however, the Navy plans to retain all of the Norfolk and Pensacola naval aviation depots’ land and facilities for other missions. For purposes of this report, all BRAC actions where depot maintenance operations will cease at a location are referred to as “depot closures.”
Table 1.1 shows the depots recommended for closure, the dates they either did or will cease maintenance operations, and their actual or planned closure dates.
DOD’s report to the 1995 BRAC Commission included recommendations to (1) realign the Letterkenny Army Depot and the Naval Undersea Warfare Center, Keyport, Washington; (2) close the Red River Army Depot, Long Beach Naval Shipyard, and Naval Surface Warfare Center, Crane Division Detachment, Louisville, Kentucky; and (3) reduce the five air logistics centers’ excess capacity by consolidating various workloads, disposing or mothballing depot plant equipment, and tearing down buildings. DOD estimated that this approach would reduce the Air Force’s excess capacity by 1.5 depot equivalents. However, after these recommendations were forwarded to the BRAC Commission for review, the Commission added all five air logistics centers, Portsmouth Naval Shipyard, and Tobyhanna Army Depot to the list for further review.
The Commission ultimately recommended closing the Long Beach Naval Shipyard; the Naval Surface Warfare Center, Crane Division Detachment, Louisville, Kentucky; and the Sacramento and San Antonio Air Logistics Centers. In addition, it recommended that (1) the depot maintenance mission be discontinued at the Letterkenny Army Depot (Pennsylvania); (2) the Naval Undersea Warfare Center, Keyport, Washington, retain its torpedo depot maintenance workload, but transfer its ship combat systems workload; and (3) the Red River Army Depot remain open and retain its Bradley Fighting Vehicle Series workload, but transfer its other maintenance missions to other depots or the private sector.
President Clinton disagreed with some of the Commission’s recommendations, especially those that affected depots in California and Texas, but he ultimately approved the Commission’s report on July 13, 1995, and forwarded it to Congress. Congress completed its review and accepted the Commission’s recommendations in September 1995.
section_title: Objectives, Scope, and Methodology
paragraphs: The Chairman and Ranking Minority Member of the Subcommittee on Military Readiness, House Committee on National Security, requested that we (1) assess the reliability of DOD’s depot closure cost and savings estimates; (2) obtain information on the policies and programs used to provide employment and training opportunities to employees at closing depots; (3) determine if the military services can increase depot closure savings by using competitions between DOD depots (public-public competitions) and between DOD depots and the private sector to redistribute closing depots’ workloads; and (4) determine if the military services adequately consider other services’ depots when they use methods other than public-public or public-private competitions to redistribute their closing depots’ workloads.
To assess the reliability of depot closure cost and savings estimates, we analyzed the cost of base realignment actions (COBRA) and BRAC budget estimates. We also discussed the reliability of the estimates with DOD and service officials and examined financial documentation.
To obtain information on the policies and programs used to provide employment and training opportunities to employees at closing depots, we (1) reviewed relevant legislation and regulations; (2) discussed the policies and programs with cognizant depot officials; (3) determined the frequency that various actions, such as reductions-in-force, have been used to outplace depot employees; and (4) visited several depots’ employment transition centers. To a limited extent, we also obtained information on the cost of the various programs.
To determine if public-public competitions have been used effectively to redistribute closing depots’ workloads, we (1) obtained information on the scope and results of all public-public competitions that have been conducted, (2) reviewed competition savings projections, and (3) discussed the pros and cons of using public-public competitions to redistribute closing depots’ workloads with officials at both the commands that conducted the competitions and the depots that competed for the workloads. We also evaluated the Deputy Secretary of Defense’s rationale for canceling DOD’s public-public and public-private competition programs in May 1994.
To determine if the military services adequately consider interservicing alternatives when using methods other than public-public competitions to redistribute closing depots’ workloads, we documented the services’ plans for redistributing the workloads and then discussed the methodology used to select new sources of repair with depot maintenance officials.
We performed our work at the Office of the Secretary of Defense; the services’ headquarters;
Headquarters, U.S. Army Materiel Command;
Headquarters, Naval Air Systems Command;
Headquarters, Naval Sea Systems Command;
Headquarters, Air Force Materiel Command;
Headquarters, U.S. Army Depot Systems Command, Chambersburg, Pennsylvania; the Naval Aviation Depot Operations Center, Patuxent River, Maryland; the U.S. Army Communications-Electronics Command, Fort Monmouth, New Jersey; and the U.S. Army Missile Command, Huntsville, Alabama.
We also performed work at four Army depots (Sacramento Army Depot, Sacramento, California; Tooele Army Depot, Tooele, Utah; Lexington-Bluegrass Army Depot, Lexington, Kentucky; and Tobyhanna Army Depot, Tobyhanna, Pennsylvania); three naval shipyards (Charleston Naval Shipyard, Charleston, South Carolina; Mare Island Naval Shipyard, Vallejo, California; and Philadelphia Naval Shipyard, Philadelphia, Pennsylvania); three naval aviation depots (Pensacola, Florida; Alameda, California; and Norfolk, Virginia); and the Aerospace Guidance and Metrology Center at Newark Air Force Base, Ohio.
We conducted our review in accordance with generally accepted government auditing standards. In conducting our review, we used the same accounting systems, reports, and statistics the services use to monitor their programs. Except where otherwise indicated, we did not independently determine the reliability of this information.
section_title: Magnitude of Savings Is Uncertain
paragraphs: DOD believes its current budget savings estimates are better than the Commission’s estimates, but the actual savings are still uncertain. The current budget estimates indicate that closing the 10 depots will result in a net savings of $222.4 million during the 6-year implementation period allowed by law and an annual savings of $656 million after that. Although not directly comparable, these estimates are considerably less than the Commission’s estimates—85 percent less for the implementation period and 10 percent less in annual recurring savings. However, actual savings are still uncertain because (1) the budget estimates do not include many closure-related costs, (2) DOD has not updated the annual savings estimates since it submitted the initial budget estimates to Congress, and (3) DOD has not developed an effective methodology for estimating the cost of accomplishing closing depots’ workloads at new sources of repair. Further, DOD has not developed a methodology to determine actual closure savings, and there are already indications that the data needed to make this determination will no longer be available after the closures have been completed.
As a result of these problems, the services lack reliable data for making their workload redistribution decisions and may be selecting more costly alternatives. For example, preliminary cost estimates indicate that the Air Force’s decision to privatize-in-place work currently performed at the Aerospace Guidance and Metrology Center (AGMC) will increase costs rather than save money. Nevertheless, the services are either implementing or considering a similar approach at four of the five depots that the 1995 BRAC Commission recommended for closure.
subsections: section_title: Net Savings Estimates Have Decreased
paragraphs: Initially, DOD used the COBRA model to estimate the cost of and savings from closing each depot. It then provided COBRA estimates to each closure commission. Generally, commission reports include COBRA estimates of one-time costs, net savings for the 6-year implementation period, and annual recurring savings for subsequent years.
After the President and Congress accept the Commissions’ recommendations, the services prepare cost and savings estimates for budget submissions to Congress. Requirements for budget submissions are established in the BRAC acts (P.L. 100-526, sec. 206 and P.L. 101-510, sec. 2907), which require that annual DOD budget requests (1) include cost and savings estimates for each closure or realignment and (2) indicate the time for achieving these savings. The final budget estimate for the Lexington-Bluegrass Army Depot, which was the only depot closed during the first BRAC process, was submitted in February 1994. The latest budget estimates for the other nine depot closures were submitted in February 1995.
Defense and service officials emphasized that the COBRA model was never intended to provide budget-quality estimates, and they pointed out that budget and COBRA estimates are not directly comparable—primarily because the COBRA model excludes environmental cleanup costs. They said the COBRA estimates (1) were intended to be used to compare realignment and closure options, (2) are based on limited data, and (3) exclude environmental cleanup costs because DOD is liable for these costs regardless of whether a depot is closed or realigned.
Table 2.1 shows the differences between the BRAC Commissions’ 6-year net savings estimates and the military services’ latest budget estimates. As indicated, the major reasons for the $1,215.4-million difference are (1) a $711.1-million reduction in the amount of gross savings that are expected during the implementation period resulting from such factors as fewer than expected reductions in the number of personnel eliminated, (2) the addition of $409.1 million in environmental costs, and (3) a $100.5-million increase in nonenvironmental costs for such items as the relocation of civilian employees.
Estimates of annual recurring savings after the 6-year implementation period have also been reduced. Specifically, the Commissions’ COBRA analyses indicated that closing the 10 depots would save about $729 million annually, when adjusted to fiscal year 1996 dollars, but DOD’s current budget estimates indicate the savings will be only $656 million annually. For example, the net savings estimate for Tooele Army Depot was reduced from the $112.5-million estimate by COBRA to $17.6 million in the budget over the 6-year implementation period, and from $53.5 million (COBRA) to $27.5 million (budget) for each subsequent year. Our analysis shows the reduction was largely due to a change in assumptions about the number of civilian positions that would be eliminated by the closure. The COBRA estimate assumed the elimination of 1,268 civilian positions, while the budget estimate assumed the elimination of 671 positions.
section_title: Budget Estimates Do Not Include Some Costs
paragraphs: DOD’s current budget estimates understate the actual cost of closing the  10 depots. The primary reason for this is that they do not reflect closure-related costs that either have been or will be paid from the operation and maintenance account or by the Defense Business Operations Fund. For example, the Navy estimates that, through fiscal year 1995, closing naval aviation depots and shipyards will have accumulated operating losses of about $882 million that will be recouped from its operation and maintenance account ($695 million) or written off within the Fund ($187 million). Only some of this loss is directly related to depot closures. For example:
Naval aviation depots and shipyards were directed to freeze overhead rates at the time the closure decision was made and, as a result, they were unable to recover some of their overhead costs when their workloads declined.
Two of the three closing shipyards have had losses from higher than normal leave usage that is not reflected in the Navy’s BRAC budget estimates because this cost is being financed from the Navy’s operation and maintenance account. The operation and maintenance account is paying for the $7.8-million loss that the Charleston Naval Shipyard incurred in fiscal year 1994 and for losses the Philadelphia Naval Shipyard will incur during fiscal year 1995.
The Navy’s most current budget estimates do not reflect the impact of productivity reductions that naval aviation depots experienced after their closures were announced. For example, according to the Naval Depot Operations Center’s information, direct labor efficiency for two aircraft repair programs—measured by comparing established norms to the actual number of direct labor hours required to overhaul EA6B aircraft at Alameda and A6E aircraft at Norfolk—declined about 9 percent and 2 percent, respectively, between fiscal year 1992 (the last full year before closure was announced) and fiscal year 1994 (the first full year after closure was announced).
In addition, closing Army depots have incurred closure-related costs and losses that are being financed by the Defense Business Operations Fund. For example: In fiscal year 1993, the Sacramento Army Depot charged about $12 million in closure-related costs to the Defense Business Operations Fund instead of the BRAC account. For example, the Navy and other organizations charged depot employees’ voluntary separation incentive pay (VSIP) to their BRAC account, but the Sacramento Army Depot used the Defense Business Operations Fund to finance these costs.
The Sacramento Army Depot’s maintenance mission ended in fiscal year 1994, but the Army continued to use Defense Business Operations Funds to finance base support and other costs during fiscal year 1995. This, in turn, caused the depot to incur about a $6-million loss during the first  6 months of the fiscal year.
section_title: Budget Savings Estimates Have Not Been Updated
paragraphs: According to DOD officials, the services have not updated budget savings estimates to reflect some major changes that have occurred since they submitted their initial budgets to Congress. For example:
The savings estimate for closing the Sacramento Army Depot was first submitted to Congress in January 1991 and remained unchanged in the February 1995 submission. However, as discussed in chapter 4, significant changes have occurred in not only the Army’s plans for redistributing the depot’s workload, but also the expected cost of accomplishing the work.
Navy budget estimates indicate that the only savings that will accrue in fiscal years 1994 and 1995 from closing aviation depots will be a $17.8-million cost avoidance due to canceled military construction projects. However, according to an analysis by the Naval Aviation Depot Operations Center, closing three aviation depots and consolidating work at the three remaining depots have enabled the Navy to reduce fiscal year 1995 customer rates by $82.7 million.
In December 1994, we reported that closing AGMC could result in an annual recurring cost rather than the $3.8-million savings that was initially projected in the Air Force’s February 1994 budget submission. Air Force officials acknowledged that the closure and privatization of the Center could increase annual costs—possibly by as much as $600 million over a 6-year period. Moreover, although AGMC customers have been told to budget more in future years for the same maintenance activities, the Air Force’s February 1995 budget submission continued to show a projected annual savings of $3.8 million.
DOD and service officials stated that savings estimates are not updated because, once savings are reflected in the budget, there is no reason to update the estimates unless significant new savings are identified.
subsections: section_title: Methodology Needed for Estimating Post-Closure Costs
paragraphs: DOD has not developed an effective methodology for estimating maintenance costs in a post-closure environment. Prior to the 1995 BRAC process, DOD officials recognized that they needed better estimates for projecting the savings from moving closing depots’ workloads to new repair sources. They considered using an Economic and Personnel Analysis Model that was developed to evaluate the financial impact of various interservicing alternatives. However, although the model is compatible with the COBRA model, it requires an additional data call. Further, all of the services did not agree to use the model during the 1995 BRAC process. As a result, the model was not used during the 1995 BRAC round and is not being used to update budget savings estimates.
section_title: DOD Has Not Provided Adequate Guidance on How to Estimate Savings
paragraphs: DOD does not require the military services to routinely accumulate and update savings information on depot closures, and it has not provided guidance on (1) how to compute actual savings once the closures have been completed or (2) what records should be retained so that the magnitude of the actual savings can be determined. As a result, DOD may not have reliable information on the costs and savings associated with depot closures, even after the closures are completed.
In the absence of DOD guidance, data needed for tracking costs and savings are not being retained. For example, according to an Army Audit Agency manager, preliminary information obtained from an ongoing review of BRAC I bases, including the Lexington-Bluegrass Army Depot, indicates that (1) no provision has been made to ensure the retention of needed records and (2) some of the information needed to estimate savings for these bases may no longer be available. Similarly, when we attempted to review cost and savings data from the Lexington-Bluegrass Depot, Army officials told us that records needed to develop depot closure cost and savings estimates had apparently been lost.
At the request of the Subcommittee on National Security, International Affairs and Criminal Justice, House Committee on Government Reform and Oversight, we are reviewing estimated and actual savings from past base closure and realignment actions, including depots. As a part of that review, we are also addressing issues related to the development of budget estimates and measurement of actual savings.
In addition, in response to several congressional requests, including one from the House Committee on National Security, we are also reviewing DOD’s plans to privatize depot maintenance workloads. Specifically, we are reviewing the methodology the services plan to use when they evaluate the cost-effectiveness of implementing a privatization-in-place concept at AGMC, the Letterkenny and Red River Army depots, the Sacramento and San Antonio Air Logistics Centers, and the Naval Surface Warfare Center, Crane Division Detachment, Louisville, Kentucky.
section_title: Conclusions
paragraphs: DOD’s budget estimates show that the savings from the  10 BRAC-recommended depot closures will be lower than the BRAC Commissions original estimate. Further, questions remain about the overall accuracy of DOD’s budget estimates. In some cases, certain costs have not been included or estimates have not been updated to reflect significant changes. Such information is needed to periodically update defense managers and Congress on the amount of savings. DOD does not currently have a standardized approach for capturing and presenting costs and savings data, nor does it have a sound process for estimating recurring costs of conducting maintenance operations in a post-closure environment. Both of these elements are essential to evaluate the cost-effectiveness of alternatives for conducting maintenance operations after depots close.
section_title: Recommendations
paragraphs: We recommend that the Secretary of Defense (1) implement procedures to capture relevant cost and savings data on depot closures and (2) improve the process for estimating recurring costs of maintenance operations in a post-closure environment.
section_title: Agency Comments
paragraphs: DOD officials believe that, although budget estimates of the costs and savings associated with depot closures are not completely accurate, it would not be a cost-effective use of scarce resources to develop more accurate estimates, especially since the last base closure round has been completed. In our opinion, accumulating actual cost and savings data or revising estimates as significant changes occur should not require a substantial expenditure of additional resources because depots are already required to compare their budgeted and actual costs and to determine the cause of any significant variances.
Further, we believe developing more accurate cost and savings estimates serves two purposes. First, if one or more additional rounds of base closures are required, having more accurate information on the costs and savings associated with past closures should allow DOD, the services, and any future closure commissions to develop more reliable estimates and, in turn, make more informed decisions. Additionally, we believe the services could make more informed and cost-effective workload redistribution decisions if they had more reliable cost and savings data on past closures. For example, the privatization-in-place concept that is being implemented at AGMC is also being considered for four of the five depots that the 1995 Commission recommended for closure, even though DOD has not developed a methodology for determining (1) how much this privatization will save or cost the government and (2) if this approach is more cost-effective than closing the depots and transferring their workloads to either the remaining depots or the private sector.
section_title: Efforts to Limit Involuntary Separations Have Been Successful, but Costly
paragraphs: DOD has thus far been successful in limiting the number of employees that must be involuntarily separated when depots close. To a large extent, this success can be attributed to the transition programs that have been made available. These programs have incurred significant costs that will grow as more of the depots reach their actual closure date.
subsections: section_title: DOD Assistance Eases Employee Transition
paragraphs: With the imminent prospects of job loss resulting from depot closure, employees face a number of career decisions. Table 3.1 shows that DOD has been successful in limiting involuntary separations by providing a combination of separation incentives and job placement opportunities. As shown in the table, reductions-in-force affected only 694 workers, or about 3.4 percent of the 20,692 workers who either left government service or found other government jobs. About 54.5 percent of the workers found other jobs, while 8.5 percent took either an optional or disability retirement; 14.1 percent took voluntary early retirement; and 13 percent resigned. VSIP of up to $25,000, depending upon length of service, is one tool DOD used. It is too early in the closure process to determine DOD’s overall success in limiting involuntary separations. However, for two depots that have closed or are near final closure, the number of involuntary separations remains low. For example, at the Sacramento Army Depot, although 164 employees were separated through the reduction-in-force process, this represents only 7.3 percent of the total losses and, according to the depot commander, most of these employees chose to be separated rather than to relocate to other localities where DOD jobs for which they qualified were available. Likewise, at the Lexington-Bluegrass Army Depot, only two employees have been separated through the reduction-in-force process.
Also as shown in table 3.1, the services also assisted many displaced workers with their job searches. Of the 20,692 employees who had left their jobs as of July 31, 1995, 11,806 employees, or 54.5 percent, either found other DOD jobs or obtained jobs with other federal agencies. Most of the DOD jobs were obtained either by transferring with the workload to a nonclosing depot or through DOD’s priority placement or VSIP exchange programs.
section_title: Depots Have Extensive Employee Outplacement Programs
paragraphs: DOD has used a wide range of programs and incentives to limit the number of employees that must be involuntarily separated when depots close. As part of this program, depot employees have job placement assistance, job training opportunities, VSIP, and early retirement options. The high participation rate of affected workers has contributed to the positive results of the outplacement.
subsections: section_title: Job Transition Centers Established at Closing Depots
paragraphs: The services have established transition centers at the closing depots to provide job search assistance, referral services, counseling, and training in such areas as resume preparation and interviewing techniques. The transition centers also provide access to a wide array of office equipment and supplies, including computer hardware and software. For example, the equipment available for employees at the Alameda center includes (1) 11 computers that contain both private and federal sector job data; (2) 1 computer programmed with Career Search (a private sector job search tool); (3) additional computers and a laser printer that can be used to prepare resumes and cover letters; (4) copy and facsimile machines; and (5) telephones.
Employees appear to be using the services offered by the transition centers. For example, at the time of our review, the Pensacola transition center was averaging 727 employee visits per month; 1,908 employees also attended various center-sponsored transition workshops. Similarly, at the Philadelphia Naval Shipyard, 3,402 employees had registered with the Career Transition Center, which provides such services as one-on-one counseling, development of job search strategies, and training assessments.
section_title: Job Placement Programs
paragraphs: DOD has a variety of job placement programs that give displaced DOD employees priority in hiring decisions. These programs, when combined with a policy of giving workers an opportunity to move with workloads being transferred to other depots, have been effective in securing employment for many displaced workers. The success of these programs, however, often hinges on employees’ willingness to relocate, since comparable employment opportunities are often not available in the same area.
The priority placement program has been particularly effective. Under this program, DOD employees targeted for possible involuntary separation are given top placement priority for vacant DOD positions for which they are qualified. As of July 31, 1995, the program had accounted for 42.1 percent of job placements at the 10 closing depots.
In some instances, the military services have been able to satisfy both their own needs and the needs of depot employees by transferring employees with transitioning workloads. From the employees’ perspective, this approach is desirable because it allows them to obtain a comparable job at comparable wages. Similarly, from the military services’ perspectives, retaining the existing workforce provides continuity in completing work at the closing depot while, at the same time, providing a base for building a knowledgeable work team at the gaining depot.
The Navy has modified its normal personnel rules to allow depots to expand this option. Normally, if employees turn down an opportunity to transfer with the workload, they would no longer be eligible to participate in the priority placement program. However, they can now continue to participate in the priority placement program, even if they had previously turned down an opportunity to transfer with the workload. As of July 31, 1995, 3,038 employees, or 14.7 percent of affected employees, had transferred with a workload.
section_title: Job Opportunities Limited in Some Locations
paragraphs: In some instances, it may be impossible to place employees in comparable jobs in the same geographical area. Some depots are the single largest employer in their area. In addition, because they require highly specialized skills, maintenance depots not only may be the largest, but also one of the highest paying employers in their area. As a result, opportunities in the same or similar field at comparable wages can be limited or nonexistent.
Consequently, employees’ ability to find a comparable federal or private sector job frequently depends on their willingness to relocate. Throughout DOD, the percentage of priority placements that required a permanent relocation increased steadily from 37 percent in 1989 to 53 percent in 1993. According to one depot official, during the initial stages of depot closures, many employees wanted a federal job if they could get one in the immediate area. However, unless there was a big demand for their skills or career field, depot employees soon discovered they had to move.
Employees can increase their chances of getting a job in their commuting area if they are willing to change career fields, but they may find it difficult to match their previous income. For example, depot officials noted that in areas with service-based economies such as Pensacola, Florida, and Charleston, South Carolina, most jobs pay only 50 percent to 75 percent of those previously available at the depot and shipyard.
section_title: Job Training Available
paragraphs: Employees at closing depots are authorized to apply for federal grants to upgrade or acquire new skills under the Defense Conversion Adjustment and Defense Diversification programs. These programs, which were created by amendments to the Job Training Partnership Act, assist workers dislocated by defense cutbacks and are financed with funds that DOD transfers to the Department of Labor.
Funds can be provided for formal classroom training, often at local schools and colleges, as well as on-the-job training and can be made available for up to 2 years. Some of the depot employees are currently eligible to be retrained in such areas as computer science, automobile repair, social work, and teaching. We did not assess the effectiveness of this training in assisting employees to find new occupations.
section_title: Retirement and Resignation Incentives Also Provided
paragraphs: In addition to job placement assistance and job training, closing depots offer incentives to encourage voluntary retirements and resignations. For example, employees at closing depots are given VSIP of up to $25,000 if they voluntarily retire or resign, and they can take advantage of an early retirement option if they (1) have at least 20 years of service and have reached age 50 or (2) have 25 years of service, regardless of age.
Depot employees are also able to participate in the VSIP exchange program. Under this program, a VSIP payment is made to employees who resign or retire at installations that are remaining open, and the government pays employees from closing depots to move to their new duty assignments and fill the vacated positions. As of July 31, 1995, 991 depot and shipyard employees had participated in the program.
section_title: Cost of DOD Outplacement Programs
paragraphs: Although complete data on the cost of DOD’s programs is not yet available, they are significant. Costs are being incurred to (1) pay the relocation costs of employees who transfer with the workload to another depot and who find other DOD jobs through the priority placement program or VSIP exchange program, (2) provide separation incentives to downsize the workforce, and (3) pay for the various kinds of training and transition assistance being provided. A number of programs and incentives being offered to DOD civilian employees are currently not available to other federal government employees. According to Office of Personnel Management officials, although civilian agencies could also provide many of the same benefits without additional legislative authority, the high cost of such benefits is a restraining factor—particularly for smaller agencies.
Table 3.2 lists some of the major transition benefits available to DOD workers.
subsections: section_title: Relocation Benefits
paragraphs: One of the depots’ largest closure costs is the payment of relocation costs of employees who transfer to new jobs. For example, as of January 1995, $20.2 million, or about 75 percent, of the Sacramento Army Depot’s total BRAC expenditures had been spent on relocation costs. Similarly, Navy officials estimated that about $30.8 million, or 20.1 percent, of Alameda’s BRAC expenditures and $45.9 million, or 22 percent, of Navy shipyards’ BRAC expenditures are for employee relocation costs.
These expenditures, estimated at one depot to be about $46,000 per home-owning employee, reimburse the employees for a wide variety of relocation costs. These include (1) reimbursement for house hunting and other miscellaneous expenses; (2) real estate expenses; (3) transportation of household goods; (4) travel; and (5) temporary living expenses, including costs related to temporary storage.
To further ease the transition, the government also offers to purchase an employee’s house at fair market value if it cannot otherwise be sold on the open market. This can be an important benefit, particularly when the local real estate market is depressed.
Employees may also qualify for the Homeowners Assistance program, which is authorized by 42 U.S.C. 3374 and designed to compensate employees for property value losses they suffer because a base closes. Under the program, an employee could be reimbursed for the difference between the home’s sale price and 95 percent of the previously appraised value. For example, a DOD employee who owned a house worth $100,000 before the base closure announcement and sold the house for $80,000 after the announcement would receive $15,000.
section_title: Separation Incentive Program Extended and Expanded
paragraphs: The VSIP program, which is similar to the buyout program that was in effect in some federal agencies until March 1995, was extended by Congress until September 1999 and expanded by DOD to include a VSIP exchange program. According to DOD officials, initial budget estimates were based on the assumption that employees would either be reimbursed for their relocation costs or given VSIP; however, under the VSIP exchange program, depots must pay both. That is, an employee at a closing depot is relocated, at government expense, to fill a vacancy that was created when another employee accepted a VSIP payment. For example, as of November 1994, the Tooele Army Depot had obligated $3 million to pay the relocation costs of 106 Tooele employees who were participating in the VSIP exchange program and an additional $2.7 million to make VSIP payments to  128 employees who were being replaced.
section_title: Retraining Efforts
paragraphs: DOD allocated $225 million to retrain employees at closing bases. This total includes $150 million that was allocated under the Defense Conversion Adjustment program and $75 million that was allocated under the Defense Diversification program and had to be obligated by September 30, 1994. These funds are provided to employees at closing bases through Job Training Partnership Act grants.
Although the cost of this assistance varies with the type of training provided, it averaged more than $5,000 per student at both the depots for which we analyzed the data. As shown in table 3.3, employees at all but one of the closing depots have received training assistance through Job Training Partnership Act grants.
section_title: Additional DOD Programs
paragraphs: The Fiscal Year 1995 National Defense Authorization Act authorized DOD civilians to participate in several new pilot programs. The initial authorization for these programs and demonstration projects was $12.5 million. A pilot program was established whereby, if certain conditions were met, DOD would pay up to $10,000 of the relocation and/or training costs of former DOD employees hired by nonfederal employers. A second program was designed to place separated military and terminated civilians in teaching positions as bilingual math and science teachers. Finally, demonstration projects were authorized to help military and terminated civilians become business owners and obtain employment by participating in the establishment and operation of ship recycling facilities.
section_title: Conclusions
paragraphs: Although data is limited because actions have not been completed at most closing maintenance depots, data for those further along indicate that DOD has successfully used a wide variety of incentives and programs to ease the transition of civilian workers located at closing depots. The data also shows there are significant costs associated with these programs and they are likely to increase as more of the depots near actual closure.
section_title: Agency Comments
paragraphs: DOD raised no questions or concerns about the information presented in this chapter.
section_title: Public-Public and Public-Private Competitions Can Be Effective Tools for Redistributing Workloads
paragraphs: DOD’s public-public and public-private competitions of depot maintenance workloads have resulted in savings and benefits. However, despite the benefits, the Deputy Secretary of Defense discontinued these competitions in May 1994.
This chapter discusses the results and benefits of public-public competitions for the closing Sacramento Army Depot workloads and the rationale the Secretary of Defense used as the basis for canceling the public-public and public-private competition program. The results and benefits of public-private competitions are addressed in a separate report. Actions being taken to redistribute other closing depots’ workloads are discussed in chapter 5.
subsections: section_title: Sacramento Army Depot Public-Public Competitions
paragraphs: The only public-public competitions that DOD has conducted has been for the closing Sacramento Army Depot workloads. The nine Sacramento competitions were conducted because the 1991 BRAC Commission directed the Army to conduct them. The Army initially planned to simply transfer Sacramento’s workload to other Army depots. However, data provided by the Air Force and the Sacramento community indicated that this might not be the most cost-effective way to redistribute the work. As a result, the Commission indicated that the redistribution of the Sacramento Army Depot’s workload should be based on the results of competitions conducted between five Army depots (Tobyhanna, Anniston, Corpus Christi, Red River, and Letterkenny) and the Sacramento Air Logistics Center.
Between October 1991 and December 1993, separate competitions were conducted for nine equipment groups. In each of the competitions, the Sacramento Air Logistics Center competed against one of the five Army depots. Headquarters, U.S. Army Missile Command solicited and evaluated bids for two of the competitions, and Headquarters, U.S. Army Communications-Electronics Command (CECOM) managed the other seven.
The source selection criterion for four of the competitions was “acceptable, lowest price,” while the other five were evaluated under the “best value” concept. The acceptable, lowest price criterion was used if the workloads were considered to be technically low risk or the use of innovative techniques was unlikely. Under this criterion, proposals with unacceptable transition or technical plans were eliminated during the first phase of the competition, and the lowest price proposal that remained was then selected. The best value criterion was used when low price was not the only important factor. For example, it was used for relatively complex workloads or if there was concern about a possible degradation of readiness during the transition from Sacramento to the new source of repair. Under this criterion, awards were based on an overall assessment of the competitors’ prices, transition plans, technical plans, and proposed management structures.
As shown in table 4.1, the Sacramento Air Logistics Center won five of the competitions, and the Tobyhanna Army Depot, which participated in five of the competitions, won the other four.
section_title: Sacramento Competitions Produced Substantial Price Reductions
paragraphs: CECOM headquarters initially estimated that the nine public-public competitions would reduce Sacramento’s depot maintenance prices for fiscal years 1993 to 1998 by $389 million. This estimate was based on (1) Sacramento’s projected workload for the 429 items that were included in the nine competitions and (2) a comparison of Sacramento’s inflation-adjusted prices and the winning depots’ bid prices.
These price reductions, which were partially offset by the $16-million cost of conducting the competitions, can be attributed primarily to the fact that the competitions forced the Sacramento Army Depot’s customers and bidding depots to reengineer the closing depot’s workload. More specifically, competition-related price reductions were achieved by (1) eliminating unnecessary repairs, (2) reducing labor standards, and (3) developing more cost-effective repair procedures.
Table 4.2 shows the initial estimates of price reductions resulting from the Sacramento Army Depot competitions.
subsections: section_title: Unnecessary Repairs Eliminated
paragraphs: The substantial price reductions that CECOM achieved in its seven workload competitions can be attributed, in part, to eliminating unnecessary repairs. For most of the work Sacramento did before the competitions, the customers’ work requests indicated that the depot was to return items to a serviceable condition by inspecting them and then repairing only what was broken. However, in some instances, the depot did not comply with the requests but rather returned items to a “like-new” condition by completely overhauling them. CECOM officials considered this level of repair to be unnecessary and, as a result, emphasized that the bidding depots were to submit price estimates for a level of repair that would return items to a serviceable rather than a like-new condition.
It is important to note that the problem of performing unnecessary repairs is not unique to Sacramento. For example, in 1992, we reported that the U.S. Army Tank-Automotive Command could have saved as much as $1.1 million in fiscal year 1992 by eliminating the requirement for the Red River Army Depot to overhaul all 6V53 engines (used in M113 personnel carriers) and allowing the depot to (1) establish a pre-shop analysis program and (2) perform only those repairs necessary to return the engines to service. Similarly, in the same report, we indicated that the Tooele Army Depot was completely overhauling certain items that required only inspection and repair and that it was doing so without the knowledge of its higher headquarters or the approval of its customers.
A comparison of two bids submitted by the Sacramento Air Logistics Center for the first competition illustrates the impact that eliminating unnecessary repairs can have. During their review of the Center’s initial bid, CECOM officials discovered that the Sacramento Air Logistics Center had assumed in its price estimates that items would be completely overhauled and returned to a like-new condition. As a result, they asked the Center to submit a revised bid for a level-of-effort that would return items to a serviceable condition. Due primarily to an audit of the Center’s initial proposal by the Defense Contract Audit Agency, the direct labor rates used in the revised bid were about 15 percent higher than those in the initial bid. However, the impact of this increase was more than offset by the change in repair philosophy. Overall, the Center’s bid was reduced by nearly 60 percent.
section_title: Labor Standards Reduced
paragraphs: Another reason for the substantial price reductions is the fact that bidding depots reduced Sacramento’s labor standards. For example, the Tobyhanna Army Depot reduced one labor standard from 16 hours to less than 1 hour when one of its industrial engineering technicians determined that (1) the item in question was a sealed unit and (2) the only requirement was to clean and inspect the item. This, in turn, allowed Tobyhanna to reduce its bid on these tasks by 94 percent.
The two competitions conducted by the Missile Command provided a good indication of the overall impact of these reductions in labor standards. Due largely to lower labor standards, the two competitions reduced prices by 67.9 percent and 72.4 percent, respectively.
The existence of inflated labor standards is a long-standing and well-documented problem that was not unique to Sacramento. For example, in January 1991, the DOD Inspector General reported that the labor standards for 22 maintenance and repair operations, involving  6 types of Army, Navy, and Air Force aircraft, could be reduced by an average of 34 percent. Inflated labor standards have persisted, in part, because depots lacked an incentive to reduce their labor standards. In fact, there is a disincentive because (1) labor efficiency, which compares actual labor time with labor standards, is one of the factors maintenance employees and supervisors are evaluated on and (2) reducing inflated labor standards will result in a corresponding reduction in reported labor efficiency. In addition, since sales prices are based partly on labor standards, a reduction in labor standards will result in less sales revenue and this, in turn, will make it more difficult for maintenance activities to earn a profit.
section_title: More Cost-Effective Repair Procedures Developed
paragraphs: In some instances, winning bidders for Sacramento’s workload were able to reduce prices by developing more cost-effective repair procedures. For example, the Sacramento Air Logistics Center substantially reduced the cost of repairing the AN/TPQ-37 radar by developing a repair process for the 359 “subarray modules” that are located in the radar’s antenna and that are considered nonrepairable by the Army. About 60 of these $4,400-subarray modules must be either replaced or repaired each time a radar antenna is overhauled. With a projected workload of three antennas a year and an estimated repair cost of $500 for each subarray module, the decision to repair rather than replace the modules is projected to save $3.5 million over 5 years.
Similarly, the Tobyhanna Army Depot was able to substantially reduce the reported cost of repairing the AN/GRC-106 and AN/GRC-106A radios by developing a method that more efficiently diagnosed faults in component parts and accomplished related repairs. More specifically, the depot designed and developed new test equipment, replaced labor-intensive testing methods, and eliminated redundant tasks. With a combined authorized and projected workload of 1,077 radios over 5 years and an estimated average savings of $6,035 per radio, these actions are expected to save $6.5 million over 5 years.
section_title: Strengthened Buyer-Seller Relationship Has Generated Additional Price Reductions
paragraphs: Another important benefit of the Sacramento Army Depot competitions is that they strengthened the buyer-seller relationship that exists between maintenance depots and their customers. For example, since the competitions, the CECOM Depot Maintenance Competition Office has saved the Command more than $12 million by providing the same type of independent oversight over the winning depots that is routinely exercised over private industry. More specifically, the Competition Office has cut costs by (1) ensuring that prices were reduced when the scope of work declined; (2) denying price increases when depots improperly characterized work as being outside the scope of the memorandum of agreement; (3) using lessons learned during the competitions to negotiate lower prices for repairing similar, noncompeted items; and (4) identifying more cost-effective repair methods, such as using items that were available in property disposal offices rather than requisitioning new items from the supply system.
Prior to the competitions, CECOM rarely questioned the prices it paid public depots for maintenance work because it generally lacked an incentive and basis to do so. It lacked an incentive because DOD’s budget process usually ensured that the Command received additional funding when the depots increased their prices. It generally had no basis for questioning them because it usually lacked either the data or the time and resources required to evaluate the prices.
However, the competitions gave CECOM an incentive to question the depots’ prices. Command officials were concerned about the possibility that depots would use “business as usual” practices to negate the competition-generated price reductions that had been achieved. The competitions also allowed the Command to question the depots’ prices because, as discussed in the next section, the price reductions provided a benchmark for evaluating the depots’ repair prices for similar, information items as well as noncompeted workloads.
section_title: Price Reductions Enhanced Competitions’ Credibility
paragraphs: The Sacramento Air Logistics Center, Tobyhanna Army Depot, and the CECOM Depot Maintenance Competition Office are further strengthening the competition process by applying lessons learned during the competitions to information items. Although the memorandums of agreement did not specifically state that winning depots were expected to use their competition labor rates to establish prices for information items, this fact was well known to the competitors, and Sacramento and Tobyhanna have now both agreed to do so. In addition, the Competition Office has developed a methodology that uses the price reductions achieved on bid items as a benchmark for evaluating the depots’ proposed prices for information items.
The potential magnitude of these savings was demonstrated during the negotiations for repairing the communication-electrical maintenance van, AN/ASM-189A. The initial repair estimate, which is used by Army direct and general support maintenance units to repair communications-electronics items in the field, was $149,000. However, the Depot Maintenance Competition Office’s analysis indicated that this was too much for the work requested and asked Tobyhanna to provide supporting documentation for the estimate. It then determined that the initial price estimate was based on (1) a more extensive level of repair than the Command wanted, (2) inflated labor standards, and (3) direct labor rates that were much higher than the depot’s competition rates. This, in turn, allowed the Competition Office to renegotiate a repair price of $47,322, or a reduction of over $100,000 per van. Since the depot is expected to have a projected workload of 87 vans over the next 4 years, these negotiations are expected to reduce the Command’s depot maintenance repair costs for fiscal years 1995 to 1998 by $8.9 million.
section_title: DOD’s Rationale for Canceling Competition Program Is Questionable
paragraphs: DOD discontinued its public-public competition program in May 1994 because DOD officials believed that (1) interservicing could provide similar efficiencies without the cost of conducting competitions and (2) DOD databases and financial management systems do not provide reliable information on the actual cost of specific workloads. At the same time, for similar reasons, DOD discontinued the public-private competition program. Although these actions are consistent with the conclusions and recommendations of an April 1994 Defense Science Board study and a July 1994 interim report by the accounting firm of Coopers and Lybrand,our analysis indicates that the rationale is questionable. Specifically: Interservicing is accomplished for 8 percent of the workload that is considered suitable, and it is unlikely that this percentage will increase significantly in the future.
Although DOD has long-standing and well-documented problems with its databases and financial management systems, action can be taken to circumvent these problems and ensure fair competitions.
subsections: section_title: Interservicing Is Not Likely to Significantly Increase
paragraphs: GAO and others have reported on redundancies and underutilization in DOD’s depot maintenance operations and have recommended increased integration of the services’ depot maintenance operations. However, DOD’s recent BRAC experience indicates that interservicing is unlikely to increase significantly. The BRAC Commission’s July 1993 report to the President expressed concern about the limited amount of interservicing arrangements that had been implemented during the preceding 20 years and about DOD’s failure to even consider interservicing alternatives during the 1993 BRAC process. The report encouraged DOD to ensure that interservicing alternatives were adequately considered during the 1995 round of base closures.
Prior to the 1995 BRAC round, the Deputy Secretary of Defense directed that DOD’s input to the 1995 BRAC process be based on a cross-service analysis. In response, a joint cross-service group did (1) analyze the capacity of 24 facilities to maintain and repair 57 equipment commodities, such as aircraft engines and landing gear; (2) recommend consolidating  13 workloads at single sites and other workloads at two or more locations; and (3) propose several additional depot closures. However, the military services adopted few of these recommendations and very little interservicing resulted.
Similarly, on May 4, 1994, the Deputy Secretary of Defense noted that redundant aviation repair capability existed and directed the Secretaries of the Navy and the Air Force to develop a coordinated plan for consolidating depot maintenance workload for fixed-wing aviation across service boundaries. He also suggested that the services strongly consider jointly managing and operating a single depot. However, these initiatives never came about, and each of the services developed its 1995 BRAC input independent of the other services.
Although DOD’s March 1995 report to Congress outlined a new joint interservicing methodology, it was not scheduled to be implemented until after the 1995 BRAC process was completed. Furthermore, there is little support to suggest that this process will overcome the traditional impediments to increased interservicing. In fact, the 1993 BRAC Commission concluded that service parochialism will prevent DOD from developing streamlined and integrated operations until all maintenance depots are consolidated under a single joint service organization.
We reported the same findings in our 1993 depot maintenance testimony. We noted that the services have had many opportunities to work cooperatively over the past 35 years, but have failed to do so. Thus, some form of centralized management external to the military services appears to be needed. We also noted that strong, effective leadership would be particularly critical as DOD makes decisions about core requirements and workload transfers related to the 1993 BRAC closures. This did not occur. As will be discussed in chapter 5, workloads were generally transferred to other depots owned by the same service or to the private sector.
section_title: Actions Taken and Needed to Improve Competitions and Ensure Their Fairness
paragraphs: Although we share DOD officials’ concern about the reliability of depot maintenance data and the adequacy of management information systems, we do not believe these long-standing and well-documented problems should preclude DOD from conducting future competitions. DOD had already taken numerous actions to enhance the credibility and fairness of the competitions before it canceled its competition program in May 1994. In addition, other actions can be taken to further improve the competitions and ensure their fairness.
Many of the actions DOD has taken to improve public-public competitions were summarized in our September 30, 1993, correspondence to the Chairman, Subcommittee on Defense, Senate Committee on Appropriations. These actions include (1) developing a cost comparability handbook that, among other things, identifies the adjustments that should be made to public depots’ bids as a result of differences in the services’ accounting systems and (2) directing the Defense Contract Audit Agency to certify that successful bids include comparable estimates of all direct and indirect costs.
The correspondence also identified additional actions that could be taken to further improve the competitions. These include (1) ensuring that Defense Contract Audit Agency auditors receive the technical support they need to properly evaluate the depots’ bids and (2) requiring the Agency to conduct incurred cost audits to verify that the depots could perform the work for the bid amount. In addition to these DOD-wide actions, some depots have independently improved the quality and accuracy of their maintenance databases, systems, and processes, including cost accounting. For example, one of the basic problems that we and others have pointed out with the Air Force’s accounting system is that actual costs are accumulated at the maintenance shop level rather than at the job level. Because of this condition, a shop that performs both competed and noncompeted work could offset losses on its competed workloads with profits from its noncompeted workloads. However, at several depots, this deficiency was significantly mitigated by creating shops that worked only on competed workloads.
The Ogden Air Logistics Center has made a particularly noteworthy effort to overcome the deficiencies in its management information systems. At our recommendation, the Center Commander implemented a broad-based financial management improvement program that included developing and implementing the Depot Maintenance Business Area Policies and Procedures Handbook. This handbook addresses financial management policies, procedures, and responsibilities; internal controls; and other key areas. Defense Contract Audit Agency officials reviewed drafts of the handbook and worked with Center officials to refine the policies and procedures. So far, the new policies and procedures have been implemented for competition programs and the entire aircraft directorate.
According to Defense Contract Audit Agency officials who recently audited the Center’s aircraft directorate, the current and planned controls address previously identified internal control weaknesses. They noted that although Ogden’s accounting systems may be different than the private sector’s, the same types of internal controls required of defense contractors are being implemented, including certification of employee time charges and improved tracking of material costs.
Finally, recognizing the need for improved internal controls throughout DOD’s depot system, the Under Secretary of Defense (Logistics) established an integrated process team to help improve DOD’s financial management and internal controls systems. In addition, Coopers and Lybrand will be working with a depot from each service to implement the required improvements.
section_title: Competition Not Appropriate for All Workloads
paragraphs: Managers at the Sacramento Air Logistics Center and Tobyhanna Army Depot—the two depots that won all nine of the Sacramento Army Depot competitions—believe public-public competitions can be used effectively to redistribute at least part of closing depots’ workloads. However, they cited several reasons why competition should not be used for all workloads. For example, because the competition process can be costly, labor-intensive, and time-consuming, they believe competition is generally not a cost-effective tool for redistributing either relatively small workloads or workloads that may not materialize. Sacramento managers also indicated that problems related to the services’ incompatible data systems limit the benefits of conducting interservice competitions for relatively small workloads.
Center managers also had a more general concern about the use of public-public competitions for redistributing closing depots workloads. Specifically, the lengthy competition process, combined with the fact that employees from the closing depots were generally not allowed to transfer with the workload, led to low morale at the closing depots and, in turn, to several undesirable side effects. For example, they found technical data in the trash and inoperative test equipment that appeared to have been sabotaged. However, these managers acknowledged that problems such as these can be minimized and the learning curve virtually eliminated if workers from the closing depot are allowed to transfer to the depot that wins the competition.
section_title: Conclusions
paragraphs: The nine competitions conducted for the Sacramento Army Depot’s workload demonstrated that public-public competitions can be used effectively to redistribute closing depots’ work, primarily because they give depots and their customers an incentive to reengineer the work. However, despite the benefits of public-public competitions, the Deputy Secretary of Defense canceled the public-public competition program as well as the public-private competition program. DOD officials (1) believe DOD can use interservicing to gain similar efficiencies without the cost of conducting competitions and (2) were concerned about the adequacy of DOD’s databases and financial management systems.
For some DOD workloads, particularly relatively large and stable core workloads that are moved because of depot closures, public-public competitions are a cost-effective method of allocating the workload. The savings often occur because competitions force depots to reengineer the workloads, thereby improving their processes and procedures. Because little of the services’ total workload is likely to be competed, increased emphasis and oversight is needed to ensure reengineering is also applied to noncompeted workloads, starting with the largest and most stable workloads.
Because DOD has made limited progress over the last 20 years in interservicing workloads, it appears unlikely that this cost-reduction tool will be used on a widespread basis. We agree that DOD’s long-standing and well-documented problems with its databases and financial management systems make it more difficult to conduct public-public competitions, and we believe that correcting these problems should be given high priority. However, in the interim, because of the significant savings that have resulted from competitions, it appears public-public and public-private competition should continue to be used to create more efficient and effective depot operations.
Although some initiatives have been undertaken to improve the depots’ accountability of costs, this effort has not had sufficient priority. Further, when DOD canceled the competition program, it removed the incentive for implementing improvement initiatives.
section_title: Recommendation
paragraphs: We recommend that the Secretary of Defense implement a high-priority program to resolve internal control deficiencies in depot management systems.
section_title: Agency Comments
paragraphs: DOD officials concurred with our recommendation to assign a high priority to implementing an improvement program to resolve internal control deficiencies in depot management systems. They have identified improvement initiatives and established an integrated product team composed of several representatives from each of the services to implement the initiatives.
section_title: Workload Redistribution Decisions Did Not Adequately Consider Some Alternatives
paragraphs: Despite widespread agreement that DOD can and should reduce its depot maintenance costs by transferring closing depots’ workloads to more cost-effective sources of repair, the military services are not adequately considering opportunities to transfer work to other services’ depots. Further, the Air Force is privatizing most of AGMC’s depot maintenance workload. The existing statute requires that before privatizing depot maintenance workload valued at $3 million or more, competitive procedures be used that include public entities. DOD terminated its public-private competition program in May 1994. DOD officials differed on the applicability of the statute to the AGMC privatization.
subsections: section_title: Interservicing Is Encouraged, but Frequently Not Considered
paragraphs: Congress has long been a strong proponent of using interservicing to streamline and reduce the cost of depot maintenance operations. In addition, DOD’s March 1995 report to the House Committee on Appropriations indicated that the greatest potential for achieving interservicing savings comes from reallocating closing depots’ workloads. However, the military services have not generally considered interservicing alternatives for their closing depots’ workloads unless (1) the BRAC Commission specifically directed them to do so or (2) another service’s depot was already performing the same work.
subsections: section_title: Use of Interservicing Is Encouraged but Not Required
paragraphs: According to 10 U.S.C. 2469, the Secretary of Defense should use merit-based selection procedures that consider all of DOD’s depot-level activities when transferring workloads valued at $3 million or more from one depot to another. However, the Conference Report on this provision indicates that the use of merit-based selection procedures should not affect the orderly flow of work resulting from base closure decisions. Consequently, DOD does not require the use of merit-based procedures unless a BRAC Commission specifically directs the services to do so. Instead, it allows the services to determine if using merit-based selection procedures impedes the orderly flow of work from their closing depots.
section_title: Military Services Retain Control Over Most of Their Closing Depots’ Work
paragraphs: Ten maintenance depots were recommended for closure or realignment during the 1988, 1991, and 1993 BRAC rounds. As discussed in chapter 4, the commission-mandated competitions that were conducted for the Sacramento Army Depot’s workload demonstrated that reengineering a closing depot’s workload could produce substantial savings. However, just moving maintenance workloads from one depot to another has generally not resulted in the work being “reengineered.” Instead, a vast majority of work is merely being transferred as quickly as possible to the parent services’ remaining depots.
subsections: section_title: Implementation of 1988 Recommendations
paragraphs: After the 1988 BRAC Commission recommended realigning the Lexington-Bluegrass Army Depot’s maintenance workload, the Army transferred (1) the depot’s communications-security and communications-electronics maintenance missions to the Tobyhanna Army Depot, (2) its supply stocks and the Quality System Engineering Center to the Letterkenny Army Depot, and (3) the Central Test Measurement and Diagnostic Equipment Activity and the Materiel Readiness Support Activity to its Redstone Arsenal. Additionally, some depot maintenance workload remained at a contractor facility on the depot, and the Ionization Radiation Dosimetry Center moved to the Redstone Arsenal in September 1995.
section_title: Implementation of 1991 Recommendations
paragraphs: The Sacramento Army Depot and the Philadelphia Naval Shipyard were recommended for closure during the 1991 round of base realignments and closures.
As discussed in chapter 4, based on the BRAC Commission’s recommendation, the Army redistributed the Sacramento Army Depot’s workload based on the results of nine public-public competitions conducted between the Sacramento Air Logistics Center and various Army depots. The depot’s maintenance mission ended in February 1994.
The Philadelphia Naval Shipyard’s primary workload, the Service-Life Extension program, is being phased out and, as a result, there will be no major workload realignments associated with closing the shipyard. Certain elements of the shipyard, such as the drydocks, were to be preserved and others, such as the propeller facility and the Naval Inactive Ships Maintenance Facility, were to remain active. The shipyard’s projected operational closure date is September 1996.
section_title: Implementation of 1993 Recommendations
paragraphs: The 1993 BRAC Commission recommended closing three naval aviation depots (Pensacola, Norfolk, and Alameda); two naval shipyards (Charleston and Mare Island); and AGMC. It also recommended realigning the Tooele Army Depot.
As discussed in more detail in the next section, the Navy plans to transfer most of its closing naval aviation depots’ workloads to the remaining depots. The major exceptions are (1) work on H-1 and H-60 helicopters is being transferred to the Corpus Christi Army Depot, which is already performing nearly identical work for the Army; (2) work on the T-56 and 501K engines is being transferred to the San Antonio Air Logistics Center, which is already performing nearly identical work for the Air Force; and (3) work on the H-3 helicopter was competed in the private sector. Altogether, these five workloads account for about 10 percent of the closing naval aviation depots’ total workload. In some cases, the Navy awarded bridging contracts to private contractors while workloads are being transferred from one military depot to another.
The Charleston Naval Shipyard’s major shipboard work has been redistributed to the remaining shipyards, and its only major nonshipboard operation, the Modular Maintenance Facility, is being transferred to the Naval Command, Control, and Ocean Surveillance Center, In-Service Engineering, East. The shipyard’s projected operational closure date is April 1996.
The Mare Island Naval Shipyard’s shipboard work has also been redistributed to the remaining shipyards, and its only major nonshipboard operation, Ocean Engineering, is being transferred to the Puget Sound Naval Shipyard. The shipyard’s projected operational closure date is April 1996.
The Air Force awarded two contracts to private contractors who will perform much of AGMC’s current operations. Under this privatization-in-place concept, the Air Force will retain ownership over the depot plant equipment. The base and facilities will be conveyed to a local community entity, such as a port authority, and it will (1) manage and maintain the property, (2) lease space to the contractor, and (3) lease space to the government for certain activities. Based on its determination that the program management function of AGMC’s metrology and calibration function is an “inherently governmental” function, the Air Force will retain 115 government civilians. About 10 percent of AGMC’s workload was interserviced from the Army and the Navy. These services are transferring this workload to other depots or the private sector. On December 15, 1995, the Air Force awarded a cost-reimbursable contract to Rockwell International (Avionics and Missile Systems Division) for the remaining navigation/guidance system repair work covering a transition period plus four 1-year options. The contractor operation will be fully implemented by the first quarter of fiscal year 1997.
The Army has not yet determined the ultimate disposition of most of the Tooele Army Depot’s workload. The Army initially planned to transfer most of this work to the Red River Army Depot. However, the 1995 BRAC Commission recommended that most of Red River’s depot maintenance workload be transferred to either other depots or the private sector. The Army is now considering whether to privatize-in-place much of this workload at Red River. Some workloads have already been contracted out to private firms.
Finally, although most of the work from Tooele and closing naval aviation depots is first being transferred to one of the parent services’ remaining depots, service managers noted that much of this workload could ultimately go to the private sector. They acknowledged that this two-step process is not as efficient as transferring the work directly to the private sector, but they believe it is necessary. They said that because contracting out work to the private sector—developing statements of work, soliciting and evaluating bids, and awarding the contracts—is time-consuming and labor-intensive, the closure of the depots could be significantly delayed if they were not allowed to use this two-step process.
section_title: Navy Did Not Use Competition or Adequately Consider Interservicing Alternatives
paragraphs: The Navy missed an opportunity to save money when it decided to transfer most of the work from its three closing naval aviation depots to the three that are remaining open. First, Navy officials decided not to conduct any public-public competitions that would have delayed closing the depots. Further, the Navy did not consider interservicing for most of its closing depots’ workloads.
The Navy’s reason for not conducting public-public competitions appears valid for the Pensacola depot, but not for the other two. Although the BRAC law allows DOD 6 years to completely close bases, Navy officials believe they could save more money by closing the Pensacola depot in 2 years and the Alameda and Norfolk depots in 3 years. They believe these accelerated closure schedules would not provide sufficient time to conduct public-public competitions.
Our analysis indicates that accelerating the closure of the Pensacola depot was necessary because the depot had to vacate its facilities before two other BRAC actions—the movement of the Navy’s Bureau of Personnel to the Memphis Training Command’s facility and the movement of the Memphis Training Command to the Pensacola depot’s facilities—could proceed. However, the Navy would have had sufficient time to compete at least a portion of the Alameda and Norfolk depots’ workload. For example, as shown in table 4.1, most of the competitions conducted for the Sacramento Army Depot’s workload took less than 2 years to complete. In addition, the Navy completed a private-private competition for the Pensacola depot’s H-3 helicopter workload in less than a year. Although the Navy could not have feasibly conducted public-public competitions for all of the closing depots’ workloads, it could have conducted at least a few competitions during the 3-year closure period.
subsections: section_title: Navy Did Not Consider Interservicing
paragraphs: The Navy did not consider Air Force depots when planning to redistribute most of its workloads because its industrial policy calls for private contractors to perform noncore workloads and for Navy depots to perform core workloads. This policy reflects all the services’ desire to control the maintenance for their own systems—so they will have the technical competence and resources to respond to emergency requirements. The services have generally not been willing to assume that another military service would provide responsive support when needed, and they have justified retaining their own depots by pointing out that title 10 gives the service secretaries the responsibility for providing logistics support.
This “service core” concept was endorsed by the Defense Science Board Depot Maintenance Task Force in its April 1994 report to Congress, but it is inconsistent with the “DOD core” concept that is DOD’s stated policy. In a May 1994 memorandum that implemented many Task Force recommendations, the Deputy Secretary of Defense indicated that DOD’s policy is to identify core requirements on an agencywide basis rather than at the service level.
However, it is not clear that DOD actually approaches the core concept from an agencywide perspective. For example, we recently reported that even though an Air Force depot won a competition for repairing F-18 aircraft, the Navy—with Office of the Secretary of Defense concurrence—was allowed to retain F-18 core capability in a Navy depot while the Air Force depot received only the minimum number of aircraft.According to DOD officials, although they plan to identify core requirements on an agencywide basis, each service will be allowed to retain core capability in its own depots for service-unique systems—even if another service’s depot has similar systems and equipment.
The extent to which DOD intends to consolidate commodities across service lines is also unclear. Although the Defense Depot Maintenance Council identified some DOD centers of technical excellence, this has not resulted in significant movement toward additional consolidations. For example, the Ogden Air Logistics Center has been designated the DOD center of technical excellence for aircraft landing gear, but the Navy continues to overhaul its landing gear in Navy depots.
section_title: Public-Private Competitions Not Used in Allocating AGMC Depot Maintenance Workloads
paragraphs: The Air Force is privatizing-in-place the AGMC workload. Title 10 U.S.C. 2469 requires that the performance of depot-level maintenance workloads valued at $3 million or more should not be changed to performance by a contractor unless the change is made using competitive procedures that include public entities. However, in May 1994, DOD discontinued its public-private competition program, citing fairness concerns in comparing public and private costs. Consequently, DOD is not allowing its depots to compete for closing depot workloads until the Defense Finance and Accounting Service certifies that adequate procedures and accounting systems are in place to identify and track all pertinent costs.
Some DOD officials stated that the DOD and BRAC Commission recommendation recognized privatization as an option for AGMC’s workload; therefore, they did not believe a competition was required. Other officials stated that only a direct recommendation incorporated into the BRAC report would permit privatization without competition. Still other DOD officials said that the statute’s application is unclear and should be clarified.
Our 1994 report on the AGMC privatization noted that privatization-in-place could increase rather than decrease the costs of accomplishing the AGMC workload. A later cost estimate projected that over a 5-year period, the privatization option may cost $600 million more than costs that would have been incurred had the depot continued operations as a military depot. This projection included estimates for contract costs and nonrecurring costs as well as various recurring costs to the government as a result of privatization-in-place—such as costs for government-furnished material; government civilian personnel who will continue to function at AGMC for program management of the metrology and calibration mission; lease and investment; research, development, test and evaluation; and contract administration and management. After awarding the AGMC contract, DOD officials stated that given the decision to close AGMC, they believe the privatization-in-place will be cost-effective. However, officials acknowledged that it will be several years before costs under a cost-reimbursable contract will be known. Further, in addition to the contract costs, other costs incurred because of AGMC’s closure and privatization would have to be considered in a cost comparison between privatization and operation as a military depot.
section_title: Conclusions
paragraphs: The military services can substantially increase the savings from closing unneeded depots by transferring the work to the most cost-effective source of repair. However, because the services’ want to retain control over their own depot maintenance operations and DOD has been unable to force them to rely on one another, the services are not taking advantage of ways to cut costs and are expeditiously transferring closing depots’ work to one of their remaining depots.
DOD is not using public-public or public-private competitions in public depots to compete for workloads being transferred from closing deports.
section_title: Recommendations
paragraphs: We recommend that the Secretary of Defense maximize the use of competitive procedures and merit-based selection criteria by including military depots in determining the most cost-effective source of repair for workloads that have not yet been transferred from closing depots and require the services to reengineer workloads that are redistributed from closing depots on any basis other than competition, starting with the largest and most stable workloads.
section_title: Agency Comments
paragraphs: Our draft report included a recommendation that DOD reinstitute public-public and public-private competitions. However, according to DOD officials, a November 1994 Office of the Secretary of Defense memorandum reinstituted public-private competitions under certain conditions.
Despite this memorandum, we did not find any evidence that the public-private competition program has been reinstituted. DOD has not conducted a public-private competition since terminating the program in 1994, and DOD activities have dismantled their competition offices. Further, DOD’s March 1995 report to Congress on the public-private competition program stated that it cannot reinstitute these competitions until adequate cost accounting and data systems are in place. Yet no criteria has been established for determining if depots meet the required standards. Finally, the November 1994 memorandum addressed depot maintenance workloads of other federal agencies, such as Federal Aviation Administration ground control equipment and Coast Guard boats, rather than DOD maintenance workloads.
We continue to support the need for the competition program. Our January 1996 report on the Navy aviation public-private competition program recommended that the Secretary of Defense (1) reinstitute public-private competition for depot maintenance workloads as quickly as possible; (2) develop and issue guidelines regarding the conditions, framework, policies, procedures, and milestones for reinstating competitions; and (3) require the Defense Contract Audit Agency to review internal controls and accounting policies and procedures of DOD depots to ensure they are adequate for identifying, allocating, and tracking costs of depot maintenance programs and to ensure that proper costs are identified and considered as part of the bids by DOD depots. Although our draft report sent to DOD for comment also contained a specific recommendation that DOD reinstitute its public-private competition program, to avoid repetition, we have deleted the recommendation from our final report. However, we are continuing to recommend in this report that DOD maximize the use of competitive procedures that include military depots to determine the most cost-effective source of repair for handling workloads from closing depots.
DOD officials generally agreed that reengineering workloads could be beneficial and noted DOD requires that workload standards be reviewed.
However, recent personnel reductions have eliminated many of the government workers who would have conducted these analyses. We continue to believe that reengineering efforts would increase productivity and cost reductions in the depot maintenance program and that DOD should prioritize its reengineering efforts where savings opportunities are the greatest.