Defense Transportation: Reengineering the DOD Personal Property Program
Released: 1996-11-27T00:00:00

Letter

Background

DOD has long been concerned about the quality of its nearly billion and half dollar annual program to transport, store, and manage the household goods and unaccompanied baggage of its servicemembers and employees with permanent change of station and other type orders. Some of the concerns related to poor service from its movers, excessive incidence of loss or damage to service members’ property, and high claims costs to the government. All these problems contributed to a poor quality of service for persons using the system.

Consequently, DOD proposed reengineering the personal property program as a quality-of-life initiative. Its primary goals were to substantially improve and put on par with corporate customer standards, the quality its military personnel and their families received from DOD’s contracted movers; simplify the total process—from arranging the moves to settling the claims; and base the program on business processes characteristic of world-class customers and suppliers.

Generally, DOD must acquire the goods and services it needs through the competitive acquisition system consisting of the statutes in chapter 137 of title 10 of the United States Code and the primary implementing regulations contained in the Federal Acquisition Regulation (FAR). However, pursuant to 49 U.S.C. 13712, the acquisition of transportation services of a common carrier through the use of a government bill of lading is not subject to the acquisition laws. Instead, these services have been acquired based upon published rates in accordance with procedures contained in DOD transportation regulations.

A key feature of MTMC’s proposal to reengineer the personal property program is to simplify the process of acquiring transportation services and to bring it in line with the government’s acquisition of most other services by using multiple award, fixed-price, indefinite delivery/indefinite quantity-type contracts awarded under the competitive acquisition system. MTMC’s proposed contracts would cover statewide services and provide for a base and several option years. The solicitations for the contracts would be open to all responsible offerors, including carriers, forwarders, and relocation companies. Awardees would be selected in accordance with solicitation evaluation factors, which will include such elements as technical or operational requirements, past performance, subcontract plan, and price.

To achieve these goals and to comply with congressional direction, MTMC is proposing to begin a pilot test. The plan is to begin the test in early 1997 and run it for at least a year. Fifty percent of the DOD household goods and unaccompanied baggage moving from the test area—North Carolina, South Carolina, and Florida—to all other states, except Alaska and Hawaii, and to Europe, would be included in the test. The other 50 percent would continue moving in the existing program.

Industry objected to MTMC’s proposal, particularly because of what it perceived as the negative impact that MTMC’s proposal would have on small business moving companies. It offered for consideration an alternative plan having two distinct programs, one for handling domestic shipments and another for handling international shipments. The industry proposal would not be based on the competitive acquisition system but would use a government bill of lading to acquire the services in accordance with procedures contained in DOD and the General Services Administration transportation regulations.

Reengineering Goals and Our Evaluation Approach

As a result of the initial joint DOD/industry working group session, DOD and industry agreed to the following goals for the reengineered personal property program. These were to 1. Provide quality service 2. Improve on-time pickup 3. Improve on-time delivery 4. Achieve high customer satisfaction in relationship to the entire move process 5. Adopt corporate business processes that lead to world-class customer service 6. Lower loss/damage and lower claims frequency and claims averages 7. Simplify the system, including reducing administrative workload 8. Ensure capacity to meet DOD’s needs for quality moves 9. Provide opportunity for small businesses offering quality service to compete for DOD business as a prime contractor and 10. Provide best value moving services to the government.

Our assessment of the extent to which each proposal met the goals was necessarily limited by the lack of precise definitions of each goal and the way to achieve it. Moreover, the proposals were written in such a way that did not specifically address how each would achieve the stated goals. We necessarily had to interpret the goals based on our observations and review of available material and assess each proposal’s ability to meet those goals using our knowledge of the existing personal property program, our understanding of the proposals, associated documents, attendance at all of the working group meetings, a review of the transcripts of the meetings, and our prior studies.

DOD’s Personal Property Program

DOD’s nearly billion and a half dollar annual personal property program—household goods and unaccompanied baggage—is run centrally by the headquarters office of MTMC but administered locally by about 200 military and DOD transportation offices around the world. DOD relies almost exclusively on commercial movers, both directly with more than 1,100 moving van companies (carriers) and forwarders and indirectly with thousands more agents and owner-operator truckers working for the carriers and forwarders.

The program consists of three major processes: carrier/forwarder approval, rate solicitation, and traffic distribution. To participate in the program, a carrier or forwarder must first be approved by MTMC. This requires proof, or certification, that the carrier or forwarder has the requisite state or federal transportation operating authority and agrees to abide by the terms and conditions in MTMC’s tender of service. The carrier or forwarder must also be approved by the local military and DOD transportation office at which the company is planning to serve. This requires proof, or certification, in the form of a letter of intent that the company has local agents ready and able to meet the local installation’s needs.

MTMC solicits rates every 6 months. Each carrier and forwarder must file rates individually for the particular traffic channel it intends to serve. For the domestic part of the household goods program, rates are submitted as a percentage discount, or premium of a baseline schedule of rates by origin installation and destination state channel. For the international part of the program, rates are filed as a fixed dollar and cents per hundredweight basis by state and overseas area, or other subdivision channel. Carriers and forwarders have two chances to file rates before the beginning of each rate cycle—an initial rate filing and a “me-too” rate filing in which a carrier or forwarder can lower its initially filed rate to that of any other carrier or forwarder. Rates cannot be changed during the 6-month rate cycle, except for special cause, but they can be canceled at various times during the rate cycle.

Each local military installation must distribute its traffic using a traffic distribution roster. Carriers and forwarders are placed on the rosters for each channel by order of rate level and quality score. In the domestic program, traffic is distributed on the basis of low-to-high rate, with highest quality scored carriers given the first 20,000 pounds. In the international program, the forwarder or forwarders initially offering the low rate for the particular channel are given a pre-specified percentage of the traffic on that channel.

The Proposals: MTMC and Industry

MTMC’s Proposal

Overall, MTMC’s proposal would result in a program that would operate in much the same way other DOD programs operate for acquiring goods and services. Emphasis is placed on assessing quality of service in the contractor selection process and obtaining military member satisfaction with the services received.

At the first meeting of the DOD/industry working group, MTMC provided a briefing on its proposal. Following that meeting, on June 24, 1996, MTMC provided the working group with a draft request for proposals summary. The summary described a standardized program for handling both domestic and international shipments. It laid out MTMC’s proposed acquisition strategy and the major events that MTMC expected to occur in the proposed acquisition process. The MTMC proposal is the result of the DOD/industry working group process and includes a number of features put forward by industry.

Under its plan, MTMC would make major changes to the existing carrier/forwarder approval, rate solicitation, and traffic distribution processes. The existing approval process would be eliminated and replaced by a contract award process. Prices would be fixed for 1 year, with no provision for increases during the contract period. Rate solicitation would be based on competitive acquisition procedures used by government in procuring other types of goods and services and eliminate the twice yearly re-solicitation of rates under the current system. Traffic distribution would be limited to the number of contractors receiving awards.

Key points in MTMC’s acquisition strategy were that offerors would be required to submit proposals addressing technical factors (i.e., how the offeror proposed to perform specified technical or operational requirements), past performance, subcontracting plan, and price. MTMC said that it anticipated that price would be less important than the other factors combined. Award would be made only to responsible offerors whose offers conformed to the solicitation and represented the best overall value to the government—price and other evaluation criteria considered. There were no restrictions on the type of company that could compete for the contracts. Therefore, companies other than licensed carriers and forwarders—the only type of companies now allowed to compete for DOD traffic—would be allowed to make an offer for the DOD business.

MTMC’s proposal also detailed DOD’s movement and storage requirements, shipment origins (all areas of North Carolina, South Carolina, and Florida) and destinations (13 regions in the contiguous 48 states and 5 regions in Europe), categories of shipments (household goods and unaccompanied baggage) that would and would not be handled under the pilot test, minimum contractor personnel requirements, specific tasks that were to be performed, length of the contract (1 year plus an unspecified number of option years), the way offerors should specify price for each traffic channel (expressed as a discount percentage using the commercial rate tariff for domestic shipments and a fixed dollar and cents per hundredweight rate for international shipments), the accessorial services DOD would be requiring, contractor’s liability and loss and damage claims procedures (full value protection based on certain minimum declared valuations subject to an overall cap), contractor’s required quality assurance procedures (use of a customer survey), certain performance standards for shipment pickup and delivery, and the invoicing and payment process.

MTMC also indicated that it would establish and specify in the solicitation a total contract minimum guaranteed tonnage amount from each origin pilot state to each destination region included in the pilot program. It will request that offerors furnish by traffic channel a maximum daily capacity that they are willing to commit to the contract, stated in pounds, from each installation in the pilot test to any or all destination pilot regions that they may wish to serve.

MTMC’s proposal, as amended, was endorsed and supported by one of the five industry associations attending the meetings—the Military Mobility Coalition, an industry group with members from relocation companies; move management companies; independent and van line-affiliated carriers and forwarders; and industry specialty firms, such as cargo insurance companies.

Industry Proposal

The household goods carrier/forwarder industry associations prepared and submitted for comment an alternative plan (referred to in this report as the industry proposal) on June 24, 1996. Industry restated its proposal on October 25, 1996, in a letter to us. The industry proposal also represents the results of the DOD/industry working group process and includes certain features favored by DOD.

The summary described a plan that consists of two distinct programs, one for handling domestic shipments and another for handling international shipments. Under its plan, industry would build on the existing DOD program. It would not be based on the government competitive acquisition system but would use a government bill of lading to acquire the services in accordance with procedures contained in DOD and the General Services Administration transportation regulations. The industry proposal would limit the type of company that could participate to only those types—licensed carriers and forwarders—currently in the program.

Industry’s proposal for handling both domestic and international shipments is like MTMC’s proposal to the extent that it would be based on the same pricing system for each traffic channel (expressed as a discount percentage using the commercial rate tariff for domestic shipments and a fixed dollar and cents per hundredweight rate for international shipments), provide for the same level of contractor liability (full value protection based on certain minimum declared valuations subject to an overall cap), provide for certain performance standards for shipment pickup and delivery, and provide for the use of a customer survey.

Industry’s proposal differed in (1) who could participate in the DOD program (only licensed carriers and forwarders), (2) lengthened the rate cycle period from a current 6-month cycle to a yearly cycle, (3) indicated that rates could be adjusted at stated times during the rate cycle to account for underlying cost increases, and (4) explained how traffic would be distributed among firms using a combination of price and customer survey feedback data. Its proposal also indicated that carriers and forwarders in the domestic program could submit a “best and final” rate 3 months into the rate cycle to improve their competitive position and that forwarders in the international program could lower their originally filed rates 60 days prior to the start of the rate cycle. Accompanying the proposal was some discussion on how the industry would provide for program simplification and eliminate “paper companies.” That is, paper companies are companies in the domestic program that lack actual operating assets but are affiliates of companies that have assets. These paper companies do not increase DOD’s capacity.

The industry proposal was signed by the presidents of the four carrier associations—American Movers Conference, the Household Goods Forwarders Association of America, the National Moving and Storage Association, and the Independent Movers Conference. The associations’ members represented virtually every facet of the moving industry, including van lines with agent networks, independent carriers, agents, and forwarders. As previously mentioned, the Military Mobility Coalition supported the MTMC proposal.

Our Assessment of the Proposals

The DOD/industry working group did not define the individual elements that made up each of the agreed-to 10 goals for reengineering DOD’s personal property program. The goals are qualitative and not easily measured. Nor were the proposals written in such a way that specifically addressed how DOD and industry would meet each goal. Consequently, our assessment of the extent to which each proposal met the goals was necessarily limited by the lack of precise definitions of each goal and the way to achieve it.

Every goal was debated at length by DOD and industry officials without complete agreement. For example, there were varying interpretations of the goals to improve quality service and to achieve best value. We assessed each proposal’s ability to meet those goals using our knowledge of the existing personal property program, our understanding of the proposals, associated documents, information gathered from our attendance at all of the working group meetings, review of the transcripts of the meetings, and our prior studies.

In table 1, we list the goals and provide a general comment about the extent to which each proposal is likely to meet the goals. Following the table, we then discuss the goals and the basis for our assessment of the extent to which the proposals are likely to meet each goal. In discussing the industry proposal, our comments are directed at both the domestic and international programs, unless otherwise noted.

Assessment of Proposals: Equal Extent

Both proposals are likely to equally achieve 4 of the 10 goals of the program. These include the goals for improving on-time shipment pick-up (goal 2), improving on-time shipment delivery (goal 3), achieving high customer satisfaction (goal 4), and reducing claims and improving claims handling (goal 6).

Both MTMC and industry agreed on the need for performance standards to achieve the above goals. For example, to achieve high customer satisfaction, each proposal provides for more direct communication between servicemember and contractor (matters such as the pre-move survey, movement counseling, phone numbers to check with the contractors, and intransit visibility) and use of a customer survey as a tool for obtaining feedback on contractor performance. Included would be such questions as the timeliness of pickup, timeliness of delivery, loss and damage occurrence, evaluation of origin and destination agent service, and the customer’s decision on whether to use the particular contractor again.

To reduce claims and the problems associated with them, each proposal provides for increased contractor liability (full value protection) and more streamlined claims settlement, including direct settlement (servicemember with contractor).

Assessment of Proposals: Greater and Lesser Extent

MTMC’s proposal meets 5 of the 10 goals for reengineering the personal property program to a greater extent than the industry plan. The goals are providing quality service (goal 1), providing best value (goal 10), simplifying the system (goal 7), adopting corporate business practices (goal 5), and ensuring capacity to meet DOD’s needs (goal 8).

Quality Service (Goal 1) and Best Value (Goal 10)

MTMC has said it wants its reengineering effort to produce a dramatic improvement in the quality of personal property shipment and storage services provided to military servicemembers or civilian employees and their families when they are relocating on U.S. government orders. This means providing a service to DOD personnel on par with corporate customer standards.

MTMC’s proposal would fundamentally change the existing system by using multiple award, fixed-price, indefinite delivery/indefinite quantity-type contracts awarded under the competitive acquisition system. It would require prospective contractors to address before contract award how they would perform MTMC-specified technical or operational requirements. This would provide DOD the opportunity to assess a prospective contractor’s plan to improve the quality of the service DOD receives prior to contract award. It would give MTMC an opportunity to assess “best value,” that is, the ability to assess the trade-offs between price and technical factors. Awards would not have to be made on price alone. Therefore, we believe MTMC’s proposal would achieve the goal of quality service and best value to a greater extent than the industry proposal.

MTMC had indicated that before any company is awarded DOD business, it wants to ensure that company has submitted a proposal indicating its “best value,” that is addressing the technical factors (e.g., how the offeror proposed to perform specified technical or operational requirements), identifying its past performance, subcontracting plan, and price. MTMC said that it anticipated that price would be less important than the other factors combined. Award would be made only to responsible offerors whose offers conformed to the solicitation and represented the best overall value to the government, price and other evaluation criteria considered.

Both MTMC and industry agreed that in order to obtain quality service, there would be a need for longer term binding arrangements. In the current system, rates are re-bid every 6 months, and there are periods within each rate cycle when rates can be canceled. However, there was no agreement on the exact length of the longer term, nor on the type of binding arrangement. MTMC originally proposed establishing fixed prices for 1 year, with option years. Industry proposed 1 year with no options, plus the opportunity to cancel rates or meet other contractors’ rates at the 3-month point of the year-long price cycle. MTMC wanted multiple award, fixed-price, indefinite delivery/indefinite quantity-type contracts with a base and several option years awarded under the FAR, whereas industry wanted continuation of the current non-FAR arrangements with modifications.

Industry’s proposal defines “best value” in terms of ranking carriers and forwarders on the basis of price and performance. It would require MTMC to develop a best value score for each carrier wanting to participate in the program. The contractor’s “best value” score would be based 30 percent on price and 70 percent on customer survey. Traffic would be distributed to the top-rated 30 to 50 carriers and forwarders. The industry proposal would not be based on the competitive acquisition system but would use a government bill of lading to acquire the services in accordance with procedures contained in DOD and the General Services Administration transportation regulations. It would not require prospective contractors to address how they would perform MTMC-specified technical or operational requirements before contract award. Consequently, MTMC would not have opportunity to assess a prospective contractor’s plan to improve the quality prior to contract award and would limit MTMC’s ability to assess the trade-offs between price and technical factors.

Simplification (Goal 7)

MTMC has stated that it is looking for administrative simplification of the program. This relates to simplifying the total process from arranging the movement to settling the claim.

Elements of both proposals offer some simplification. For example, both proposals price services on the basis of most corporate move contracts (percentage discount off industry’s Domestic Commercial Tariff for domestic household goods shipments and single factor rates for international household goods and unaccompanied baggage shipments). They agreed to simplify the pricing of certain accessorial services.

For reasons described below, MTMC’s proposal meets this goal to a greater extent than the industry’s proposal. MTMC’s program is a standardized, domestic and international program. Industry’s proposal is composed of separate domestic and international programs. MTMC proposed to have offerors submit prices and fix them for at least 1 year. Industry proposed offering prices that could be changed or canceled. In industry’s domestic program, prices would be established for 1 year, effective January 1 of each year, with specific escalation provisions to account for significant increases, such as fuel costs, insurance, containers, and labor costs. The proposal also included allowing prices to be re-submitted as “best and final” on April 1 of each year. In industry’s international program, industry proposed to allow for increases 6 months into the contract period to compensate for currency exchange adjustments.

We have previously urged DOD to take the actions it is proposing here, such as eliminating the frequent rate re-solicitations. In a previous report, we recommended that MTMC replace or modify the two-phase (me-too) domestic household goods bidding system so that all carriers have incentive to initially bid the lowest possible rates. We also noted that as a result of the current acquisition process, the domestic segment of the industry had created many paper companies that significantly added to DOD’s workload but did not increase industry operating asset capacity. The MTMC proposal would implement our recommendation and limit the participation of paper companies through the use of the competitive acquisition system and provide for simplification. The carrier industry acknowledges that nearly half of the currently approved interstate carriers may be paper companies. Its proposal states that it will eliminate from the domestic program the many paper companies that do not provide “legitimate capacity,” but would still require MTMC to determine what is “legitimate capacity.”

MTMC anticipates making awards to fewer contractors and basing the system on fewer, more consolidated traffic channels. Currently, in the domestic program, each of the roughly 170 U.S.-located shipping offices has to maintain a traffic distribution roster for every traffic channel, or destination state. Each channel can involve several hundred carriers or forwarders. Industry suggests a distribution system that involves fewer companies on each channel, but the numbers would still involve 30 to 50 companies.

Neither proposal specifically addresses the numbers of staff and other resources needed to implement them. There is no way to tell from the proposal specifically how many people would be involved in reviewing the proposal, how many people or resources are needed to handle the rate solicitation process or any specific traffic distribution roster system. Accordingly, our analysis is necessarily limited. However, we believe that MTMC’s proposal offers the greater opportunity to provide for administrative simplification because it (1) is a consolidated domestic and international proposal; (2) changes the rate solicitation process by eliminating re-solicitation; (3) provides for use of fewer companies to handle the traffic, necessitating less administrative effort for military installation traffic management personnel; and (4) relies on traffic channels that cover entire states. The industry proposal, though it improves on the current program somewhat, retains the rate re-solicitation process in both the domestic and international programs; continues the need to administer a large, complex traffic distribution roster process for every channel; and continues to base traffic channels on each individual military shipping office.

Adopting Corporate Business Practices (Goal 5)

MTMC has said that it is attempting to capitalize on the best applicable commercial business practices. This relates to adopting business practices characteristic of world-class customers and suppliers, such as using contractual arrangements to simplify contractor selection.

For the following reasons, MTMC’s proposal meets this goal to a greater extent than industry. It would eliminate DOD-unique transportation regulations for the acquisition of services. As we noted earlier, the industry proposal, similar to the existing MTMC program, would not be based on the competitive acquisition system but would use a government bill of lading to acquire the services in accordance with procedures contained in DOD and the General Services Administration transportation regulations.

In addition, in the past, we have recommended that DOD adopt commercial practices, such as using a smaller number of carriers to achieve quality and cost benefits. In the personal property program, we note that MTMC has approved more than 1,100 motor van carriers and regulated forwarders to handle its domestic moving needs. It has more than 150 forwarders at its disposal for its international traffic. All military shipping offices have to spend considerable time and effort to allocate a relatively small number of shipments to an enormous number of carriers. Fort Bragg, North Carolina, a typical example of the roughly 170 shipping offices in the contiguous 48 states, is serviced by more than 200 different domestic movers, more than 160 international forwarders, and 50 local carrier/forwarder agents. It has on average about 100 domestic and 40 international household goods shipments a week, moving in roughly 50 domestic and 30 international traffic channels, each requiring a separate shipment distribution roster. Some carriers and forwarders get but one shipment a week, if that. Many of the companies that get a shipment are “paper companies” that provide DOD no new operating asset capacity but were formed by their parent company to increase the parent company’s market share of the DOD business. The administrative effort does little to improve the quality of life for the servicemember and his or her family.

In the same report, we recommended greater use of corporate practices that promote use of contractual arrangements to simplify the carrier selection. This could lead to more stability and provide leverage leading to cost efficiencies for both the carriers and DOD.

Ensure Capacity (Goal 8)

MTMC has long been concerned about having the necessary capacity to meet DOD’s moving needs. There was no consensus, however, as to how to achieve the goal. MTMC is looking for commitment from the contractors to meet their needs, particularly during peak shipping periods. Over the years, there have been many examples of carriers and forwarders not being able to provide services when needed.

MTMC’s proposal, we believe, provides the greater opportunity to meet this goal than does the industry proposal because it (1) would involve the award of contracts that would obligate the contractors to provide specific minimum capacity and (2) would not limit participation in the program to only licensed carriers or forwarders. MTMC’s proposal would allow any company, whether carrier, forwarder, relocation company, or anyone else, to participate. Relocation companies stated that they are prepared to make capacity available to DOD as needed. Industry’s proposal specifically excludes relocation company participation unless such companies are licensed carriers or forwarders.

Carrier/forwarder industry officials state that MTMC’s proposal with regard to noncarrier/forwarder relocation company participation sets bad public policy and raises serious legal questions. Under such a system, a relocation company, with legal status as a broker, could be awarded a prime contract to effect the moves from a given base or locality. It would be the responsibility of that company to secure the services of carriers to perform the actual packing and moving services under the contract. Industry believes that a federal agency purchasing goods or services should contract only with entities actually providing those goods or services. Allowing relocation companies to compete for prime contracts, industry argues, would create logistical problems and raise questions concerning possible violations of the Anti-Kickback Act of 1986, 41 U.S.C. 51-58 and antitrust laws.

As previously discussed, we believe MTMC’s proposal to meet its goals has the potential for eliminating paper companies and opens the way for more competition among companies having or bringing to DOD actual capacity. It does not appear that MTMC wishes to restrict competition. The competitive acquisition system that MTMC proposes to use requires, as a general rule, that DOD obtain full and open competition in its acquisitions (10 U.S.C. 2304). Concerning the potential for legal problems, the propriety of the relationship between firms participating in an acquisition as prime contractor and/or subcontractor is governed by the particular facts and circumstances in the context of the applicable laws.

Assessment of Proposals: Unknown Extent

We are unable to determine the extent that either proposal provides or does not provide opportunity for small business to participate in the personal property program (goal 9). As was pointed out during the DOD/industry working group meetings, opportunities for small business and the impact on small business is difficult to assess or measure. The moving industry is made up of both large and small businesses, with many different types of organizational structures. The majority of moves are handled by the large business, van lines, but the work itself—packing and unpacking of the household goods, the loading and unloading of the trucks, and the actual truck driving—is done by small businesses, some independent and some part of the van line.

In addition, our data indicate that there are about 25 major, nationwide van lines; a thousand independent van lines; several hundred freight forwarder moving companies; about 4,500 agents; and thousands of owner-operator truckers. In some instances, the agents actually own the major van lines. In other instances, the agents are independent companies working for the van lines. More recently, the industry has expanded to include relocation companies that handle the moves as part of a total package relocation service.

On April 17, 1996, as directed by the Fiscal Year 1996 Defense Appropriations Bill Conference Report (House Conference Report Number 104-344), MTMC reported on the impact of the reengineering program on small business. It said that it believed small businesses can reasonably be expected to fare as well or better than they do in the existing program. The reason, it said, was that MTMC’s program would provide small businesses additional protection and opportunities, based on the establishment of subcontracting goals. However, the extent that small business is impacted remains a concern to the Congress and the industry because of the many uncertainties involved in implementing a new program.

The two sides agreed, however, to reduce the size of traffic channels for the test, at least in part, to allow for greater participation of small business as prime contractors. MTMC had originally wanted contractors to submit offers by regions (4 in the contiguous 48 states). For the pilot test, MTMC significantly decreased the size of the contract area, from regions to states. The pilot test includes three states—North Carolina, South Carolina, and Florida—and although contractors will be required to serve all points within a state, they can offer on any or all of the other 13 regions into which MTMC has divided the country. Furthermore, the test includes only 50 percent of the shipments from those states and only certain types of shipments. Intrastate and local shipments, for example, are not in any test plans. Industry preference is for traffic channels much as the current system exists, where traffic channels are based on personal property shipping offices (presently, more than 150 in the contiguous 48 states).

MTMC officials state that if a small business is intimidated by the size of the contracts, it can participate as a subcontractor of a large company or of another small business. MTMC indicated that for purposes of its proposal, small business would be defined as any company with annual receipts less than $18.5 million. The carrier association officials, however, do not believe that subcontracting counts toward this goal. Accordingly, the association officials believe that the MTMC proposal, by relegating small business to a subcontractor role, would reduce the number of small business prime contractors, resulting in the goal not being met. DOD’s position is based on the opportunity to compete, not numbers. We based our assessment on the opportunity to compete.

Under MTMC’s proposal, contracts for transportation services will be awarded under the competitive acquisition system. The requirements of the Small Business Act, 15 U.S.C. 631, et seq.; FAR part 19; and the applicable part of the Defense Federal Acquisition Regulations Supplement will apply to these acquisitions. These provisions include such matters as subcontracting plans for the utilization of small, small disadvantaged, and women-owned small business, and set-asides for small business. Therefore, the protection for small business appear to reside in the proposed MTMC plan as it would in any other contract awarded under the government’s competitive acquisition system.

Matter for Congressional Consideration

We support moving forward with the pilot test of a reengineered personal property program because it will provide the necessary data to ultimately design an improved system. MTMC’s proposal represents a collaborative effort to a large degree between DOD and industry and, as such, provides the better opportunity to achieve the program goals. In addition, it is important that performance standards be developed and data gathered in a way that enables measurable results of the program, particularly as they relate to quality of service and small business participation. We recognize that our assessment of the extent to which the proposals met the program goals required judgments about likely outcomes and that only actual data can determine with greater certainty the impact of the proposals. If the Congress still has concerns about the impact on small business, piloting both proposals is an option. However, doing this would likely place an additional administrative and costly burden on MTMC and could delay implementation of the program.

Agency Comments and Our Evaluation

We asked DOD, the four carrier associations—the American Movers Conference, the Household Goods Forwarders Association of America, the National Moving and Storage Association, and the Independent Movers Conference—and the Military Mobility Coalition to comment on a draft of this report. Our reporting time frames necessitated that we meet with each group and obtain only their informal oral comments prior to the issuance of the report. All expressed concern about the short time frame provided for preparing their comments. We acknowledged that this was the case and agreed to include their informal comments in this report and encouraged them to provide any additional comments as appropriate.

DOD Comments

DOD officials agreed with our analysis of the proposals and the facts in the report. However, they strongly disagreed with our interpretation of what MTMC’s proposal represents and the option we suggested to pilot both proposals. According to DOD officials, the proposal submitted for review to us from the DOD/industry working group represents the collaborative product of the working group as indicated by a consensus list signed by the industry representatives. Thus, they believe that MTMC’s proposal represents a joint DOD/industry proposal. DOD officials stated that testing the independent industry proposal would be a disservice to the collaborative process and would obviate the instructions of the congressional defense committees to reach agreement on a single plan. Moreover, DOD officials stated that if directed to pilot test the industry proposal in addition to the industry/DOD proposal, DOD would want to test it against MTMC’s original proposal. Furthermore, they expressed concern that testing of the industry proposal would further delay their effort to improve the quality of service and reduce the $100 million annual claims for loss and damage now being experienced by military members and their families.

DOD officials also stated that they do not have enough detail on the industry proposal to go forward without significant delay. They said that the industry proposal was not debated during the working group meetings; consequently, a number of areas are unclear, vague, and ambiguous from their point of view. Further, they were concerned that the industry proposal would be technically and operationally difficult to implement, costly to administer, and cumbersome for installation transportation officials to handle simultaneously with the other pilot. Moreover, DOD officials stated the industry proposal would not provide the opportunity to improve quality of service, which is one of the primary goals of the reengineering effort. “The Working Group has agreed to disagree on one major area: our plan to use Part 12 of the Federal Acquisition Regulation (FAR) as the basis for our projected contracts. . . . MTMC respectfully disagrees with industry and proposes to use the FAR to obtain the benefits of free and open competition for the government and our military service members. . . . The House/Senate Conference Committee on National Defense included language in the 1996 Defense Appropriations Bill Conference Report (House Report 104-450) directing MTMC to test its concept for improved service by conducting a Pilot Program. We are incorporating ideas from the industry/DOD consensus, and propose to begin the test in the immediate future.”

Industry Comments

The four carrier associations and the Military Mobility Coalition had differing opinions on our report. The American Movers Conference, the Household Goods Forwarders Association of America, the Independent Movers Conference, and the National Moving and Storage Association disagreed with our analysis of the proposals in each area where we stated that MTMC’s proposal would likely achieve the goals to an unknown extent (goal 9) or to a greater extent (goals 1, 5, 7, 8, and 10) than the industry proposal. The Military Mobility Coalition, however, agreed with our analysis of the proposals.

In addition, the carrier associations strongly supported the option we presented as a matter for congressional consideration to pilot both proposals. They said that an advantage to piloting both proposals would be to obtain with certainty the impact of the proposals on small business participation. They added that to pilot their proposal should not be difficult to implement and stated that they would be willing to work with DOD to help implement a dual pilot. However, the Military Mobility Coalition officials expressed concern about the time it would take to set up and run two pilots, the significant administrative effort that would be required, and the limited value such a test would yield. The Coalition believes that the carrier association’s proposal is so similar to the structure of the current program that it negates the need for a pilot program.

The following are key points provided by the four carrier associations where they disagreed with our analysis of the proposals. Most of the concerns raised by the four carrier associations were regarding MTMC’s proposal, our characterization of the industry proposal, and our assessment of the proposals. We have revised the report to reflect their concerns, provided additional information to support our position, or clarified the position of DOD and industry, as appropriate.

Regarding our analysis of the goal to provide opportunity to small business to participate as prime contractors (goal 9), the carrier associations stated that they believed we had sufficient information to conclude that small business would be negatively impacted under MTMC’s proposal. They took issue with MTMC’s conclusion that the small business goal would be met through small business competing as either subcontractors or prime contractors. The carrier associations point out that the stated goal relates to participation of small business concerns as prime contractors. Accordingly, the associations state that MTMC’s proposal, by relegating small business to a subcontractor role, would substantially reduce the number of small business prime contractors and therefore, would not meet the stated goal. As we stated, there was insufficient data for us to assess this area. However, we revised the report to more fully discuss the carrier associations’ concerns.

Regarding our analysis of the goal to ensure capacity to meet DOD’s needs (goal 8), the carrier associations stated that the industry proposal would not limit new capacity, it would only limit companies not properly licensed as carriers or forwarders from participating in the program. They also argue that MTMC’s proposal would be too complicated to successfully guarantee adequate capacity and would reduce capacity by reducing the number of service providers with assets. The Military Mobility Coalition countered that many in the moving industry do not now participate because of the current cumbersome methods, but would enter the program under the MTMC proposal. Our overall basis for favoring MTMC’s proposal in this area was based on the fact that contractors would be required to commit minimum capacity and participation of contractors would not be limited to licensed carriers and forwarders. The four carrier associations provided us no new information to change our view in this area.

Regarding our analysis of the goal to simplify the system (goal 7), the carrier associations stated that we limited our analysis only to certain aspects of simplification and did not consider, in their opinion, the complicated systems and processes that would be added under MTMC’s proposal. These included the complex method MTMC proposed to allocate traffic, bid on channels, and use the FAR. The associations stated that the MTMC-proposed program would become administratively cumbersome if expanded worldwide. The Military Mobility Coalition, having operated under competitive FAR procedures, believes the FAR is less cumbersome than contracting with thousands of individual carriers, which occurs under MTMC’s current operating system and the carrier associations’ proposal.

Regarding the carrier associations’ concerns, we added information on why we believed MTMC’s proposal better met this goal, particularly as it relates to simplifying the rate solicitation and traffic distribution processes. In addition, we explained that the proposals do not specifically address the numbers of staff and other resources needed to implement them, limiting our analysis. Thus, we focused on the extent that the proposed process changes would simplify traffic management processes. Finally, we pointed out that industry’s proposal represents two separate programs, as opposed to MTMC’s single program, for handling both domestic and international traffic.

Regarding the goal to adopt corporate business processes (goal 5), the carrier associations stated that using the government competitive acquisition system, the FAR, and other practices proposed by MTMC does not represent corporate business practices. We agree that the FAR is not used in the corporate world. However, we believe MTMC’s proposal moves closer toward adopting corporate business practices, such as using contractual arrangements to simplify the carrier selection process.

Regarding the goals to provide quality service and best value (goals 1 and 10), the carrier associations noted that awarding contracts for these services pursuant to the FAR would involve the evaluation of complex proposals that must be prepared by the competing firms. According to the association officials, such proposals are best prepared by large companies, and there is not always a direct relationship between well-written proposals and actual quality service. The Military Mobility Coalition pointed out that small businesses in this carrier field can have annual receipts up to $18.5 million and should be able to handle preparing proposals. Given the conflicting views, we have no basis for judging the extent to which proposal preparation would or would not be a problem. This type of issue illustrates why we strongly support a pilot program.

The carrier associations pointed out that our report in many places referred specifically to the domestic program and was silent about issues surrounding the international program and the impact of the MTMC pilot program on international service providers. We have revised the report to more fully discuss the international aspect of the industry proposal.

Other comments were provided to us that clarified or corrected our characterization of the industry proposal. We incorporated, as appropriate, these comments into the report. For example, we added that the industry proposal actually is composed of two programs—one for handling domestic traffic and another for international traffic. In addition, we clarified that the industry proposal modifies the current system, provides for selecting carriers on quality as well as price, and has features that address the problem of paper companies.

According to the four carrier associations, the specific reasons relied on for their position is contained in the Industry Critique of MTMC’s Proposed Pilot Program for Domestic and International, signed by American Movers Conference and the Household Goods Forwarders Association of America and agreed to by the Independent Movers Conference and the National Moving and Storage Association. At their request, the document provided by the carrier associations giving more detail on their position is included as appendix II.

Overall Evaluation

The diverse nature of the comments illustrates the difficulty of assessing the two proposals and making the judgments when precise data is absent. We believe that our assessment of the extent to which each proposal meets the program’s reengineering goals is appropriate. We have revised the report to better reflect the content of both proposals and specific points made by the commenting officials. Overall, we continue to believe that MTMC’s proposal provides a greater opportunity than the industry proposal to achieve the program goals and that the pilot should not be delayed any further.

Scope and Methodology

The source proposals for our analysis were 1. MTMC’s “Draft Request for Proposal Summary, Reengineering the DOD Personal Property Program,” dated June 24, 1996, as clarified in DOD correspondence, position papers, and white papers distributed to the working group members over the period of the working group meetings held through September 16, 1996. 2. The “Joint Industry Proposed Alternative Plan to MTMC’s Re-Engineering of the Domestic and International Personal Property Programs,” dated June 24, 1996, and signed by the presidents of the four moving industry carrier associations—American Movers Conference, the Household Goods Forwarders Association of America, the National Moving and Storage Association, and the Independent Movers Conference—as revised in an American Movers Conference and Household Goods Forwarders Association of America document entitled “Industry Alternative Pilot Plan for MTMC’s Domestic and International Personal Property Program,” dated October 25, 1996.

Since MTMC and industry could not agree on a single approach to the pilot test, we analyzed the two approaches. As discussed with your office, we agreed to use the source proposals described above as the basis for analyzing the pilot test approach.

The program goals were those developed at the June 10, 1996, working group meeting and agreed to by a September 16, 1996, DOD and association-signed document entitled TRANSCOM/MTMC/Industry Reengineering Personal Property Working Group Consensus List.

Our analysis was based on the review of the proposals; examination of the transcribed record of the working group meetings; review of correspondence of both sides relative to the two proposals, points of clarification, and statements of disagreement; reference to our prior reports and findings on the subject area; research and analysis of the applicable procurement statutes and DOD and the General Services Administration transportation procurement and traffic management regulations; analysis of data related to the moving industry and small business affairs, not necessarily discussed at the working group meetings; and follow-up discussions with officials in DOD and the moving industry who attended the working group sessions.

Our analysis of the reengineering initiative was conducted between June and November 1996. Since agreement could not be reached on a mutually acceptable proposal to pilot test, we began assessing in October 1996, the separate DOD and industry proposals. Our assessment of the specific proposals was conducted during a 30-day period as specified in the House and Senate reports accompanying the National Defense Authorization Act for Fiscal Year 1997. Our review was performed in accordance with generally accepted government auditing standards.

We are sending copies of this report to the Secretary of Defense; the Commander-in-Chief, U.S. Transportation Command; the Commander, MTMC; the American Movers Conference; the Household Goods Forwarders Association of America; the National Moving and Storage Association; the Independent Movers Conference; and the Military Mobility Coalition. We will also make copies available to others upon request.

Please contact me on (202) 512-8412 if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix III.

Background on the Military Traffic Management Command’s Pilot Test Initiative to Reengineer DOD’s Personal Property Program

Department of Defense’s Reengineering Initiative

On June 21, 1994, the Deputy Commander-in-Chief, U.S. Transportation Command, directed the Military Traffic Management Command (MTMC), the Army component of the U.S. Transportation Command and program manager for the Department of Defense (DOD) Personal Property Shipment and Storage Program, to reengineer the personal property program. On March 13, 1995, MTMC formally published a notice in the Federal Register of its plans to consider employment of full-service contracts to improve DOD’s personal property program. The notice highlighted the fact that the evolving defense environment encompasses a smaller uniformed force, less overseas basing, reduced funding, and diminished staffing of support activities. It indicated that these changes will directly affect quality-of-life issues. In light of these changes, the notice said MTMC is engaged in an effort to simplify current processes, control program costs, and ensure quality of service by reengineering the existing personal property program. It further indicated that the reengineering effort will adopt, to the fullest extent possible, commercial business processes characteristic of world-class customers and suppliers and relieve carriers of DOD-unique terms and conditions. It said it will also focus on the customer, reward results, foster competition, and seek excellence of vendor performance. The notice indicated that members of industry would be afforded an opportunity to comment on the draft solicitation and to attend the presolicitation and preproposal conferences.

On June 30, 1995, MTMC released a written proposal to reengineer the personal property program. A notice of proposal was published in the July 13, 1995, Federal Register. A further statement of acquisition strategy was released to industry on July 31, 1995.

Congressional Concern

On June 15, 1995, the House Committee on National Security reported that it, too, was convinced that DOD must pursue a higher level of service that moves toward greater reliance on commercial business practices, including simplified procedures. It directed that DOD undertake a pilot program to implement commercial business practices and standards of service. It asked for a report from DOD on this by March 1, 1996.

On October 11, 1995, MTMC testified on the reengineering effort before the House Committee on Small Business. MTMC discussed the impact on small business and its rationale for planning to award contracts for the new program under the Federal Acquisition Regulation (FAR). Carrier and forwarder industry officials also testified at this hearing.

In September 25, 1995, and November 15, 1995, reports accompanying the conference report on the Fiscal Year 1996 Defense Appropriations Bill, congressional managers directed that prior to implementing any pilot test, DOD report on the program’s impact on small business resulting from the application of the FAR and any requirements that were not standard commercial business practices. DOD responded with reports dated January 1996 and April 1996.

In a May 7, 1996, report accompanying the National Defense Authorization Act for Fiscal Year 1997, the House Committee on National Security stated that after reviewing the reports, it was still concerned that MTMC’s pilot program did not satisfactorily address issues raised by the small moving companies comprising a majority of the industry. The Committee, therefore, directed the Secretary of Defense to establish a working group of military and industry representatives from all facets of the industry to develop an alternative pilot proposal.

The instructions were that the working group would be chaired by the Commander, MTMC; include those DOD representatives the Chairman deemed necessary (not to exceed six in number); and include an industry delegation to be represented by no more than six people, including one each from the American Movers Conference and the Household Goods Forwarders Association of America. The Committee asked that the working group submit the alternative proposal, along with the current pilot proposed by MTMC, to us for review. The Committee further directed that we report to the congressional defense committees the results of our review. The report said that DOD may not proceed with the formal solicitation for, or implementation of, any pilot program prior to August 1, 1996. Similar instructions were contained in the May 13, 1996, Senate report accompanying the National Defense Authorization Act for Fiscal Year 1997.

MTMC/Industry Attempt to Reach Agreement on a Single Plan to Pilot Test

The congressionally directed working group of DOD and industry officials met over a period of 3 months beginning in June 1996 and ending in September 1996. In six sessions—9 days (June 10, July 1-2, July 18-19, August 14, September 5-6, and September 16)—representatives of MTMC, the U.S. Transportation Command, DOD, and various segments of the moving industry, including the American Movers Conference, the Household Goods Forwarders Association of America, the National Moving and Storage Association, the Independent Movers Conference, the Military Mobility Coalition, and a DOD-invited group of auxiliary members from the moving industry met in a formal group setting to forge a plan for a pilot test. We and the Army Audit Agency attended as observers. The meetings were chaired by the Commander, MTMC, and led by a DOD-provided facilitator. All meetings were transcribed and made available to anyone in the industry or the interested public through MTMC’s Internet Web page. All written correspondence and position papers were also made available on the MTMC Internet Web page.

At the first meeting, the Chairman reported that the objectives were to meet the intent of the Congress for developing an alternative program that could be reported to the Congress and to establish a forum for industry and DOD to forge agreement on a single program for the pilot test. MTMC explained its proposed pilot plan; laid out the program goals, which were to dramatically improve the quality of personal property shipment and storage services provided to military servicemembers or civilian employees and their families when they are relocating on U.S. government orders and to simplify the administration of the program, capitalizing on the best applicable commercial business practices characteristic of world-class customers and suppliers; and asked for industry comment.

After the first meeting, goals for the program were announced. These goals and various issues were discussed and refined throughout the meetings. Also, at the initial meeting, MTMC announced that it was not going to release a formal request for proposals but instead have industry submit for discussion any alternative plan they might wish to offer. MTMC also agreed to provide for clarification its previously proposed plan.

Industry and MTMC offered proposals on June 24, 1996. Both, and others, as desired, offered comments on the proposals on June 27. These two proposals served as a framework, or center of discussion, for reaching or attempting to reach, a single, mutually acceptable plan for testing.

In the end, on September 16, 1996, DOD and industry could not reach agreement on any single plan. At the final meeting, representatives of DOD and industry signed a document called a consensus list, on which the goals and points of agreement reached by the working group were stipulated.

On October 1, 1996, the Commander of MTMC and the joint working group chairman wrote us on the status of reengineering effort and work of the group. The Chairman indicated that the group had come to a consensus of many issues but had agreed to disagree on one major area: MTMC’s plan to use part 12 of the FAR as the basis for its projected contracts. The Commander indicated that MTMC planned to move forward with a test by releasing a request for proposals in November 1996 and making contract awards in January 1997.

On October 10, 1996, the American Movers Conference wrote us expressing its concerns about the adequacy of MTMC’s October 1 letter in providing us information to use in evaluating MTMC’s proposed plan. The Conference indicated that there were other areas of disagreement than the FAR and that it believed that MTMC had tried to cover up these areas of disagreement and emphasize instead the minor points of agreement. These other areas included MTMC’s guaranteeing capacity (minimums and maximums), distributing shipments to contractors, impact of MTMC’s decision to permit relocation companies to participate in the program, rules governing payment for storage-in-transit, and the number of contracts that ultimately would be awarded. The Conference indicated that it was planning to submit a more detailed industry plan for our review.

On October 25, 1996, the American Movers Conference and the Household Goods Forwarders Association, in a joint letter, submitted their views of MTMC’s reengineering proposal to date. They provided an industry critique of the MTMC proposal and the industry alternative plan. The proposal provides for small business participation, program simplification, best value, and the elimination of paper companies. The associations said that while they are supportive of any effort to improve the existing program, they believe that there are legitimate concerns that must be adequately addressed before this program can proceed.

Document Provided by the Carrier Associations Giving More Detail on Their Position

Major Contributors to This Report

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