The Army spends about $1.3 billion annually on depot maintenance work that includes the repair, overhaul, modification, and upgrading of aircraft, tracked and wheeled combat vehicles, and electronic items. It also includes limited manufacture of parts, technical support, testing, and software maintenance. This work generally requires extensive shop facilities, specialized equipment, and skilled technical and engineering personnel. Depot maintenance work is generally performed by government employees in government-owned and operated depots and by private sector employees in government-owned or contractor-owned facilities. During World War II, at a time when the Army was purchasing massive quantities of new, modernized, and more sophisticated weapon systems, an emerging requirement for depot level support was met largely by the creation of government-owned and operated depots. This capability was expanded to meet the demands of Cold War contingency requirements and to provide peacetime depot-level support for an expanded array of Army systems and equipment. By 1976, 10 Army depots performed maintenance work in the continental United States and 2 in Europe. Since the mid-1970s, our agency and others have reported on the redundancies and excess capacity that existed in DOD’s depot maintenance operations and facilities, including those owned by the Army. (A list of related GAO reports and testimonies is attached.) In recent years, major force structure reductions following the end of the Cold War have substantially reduced depot maintenance requirements and increased the amount of costly excess capacity. The problem of excess capacity, for the most part, has been addressed through the BRAC process. Prior to the process, some downsizing of the Army depot system was achieved through the closure of the Sharpe, California, and Pueblo, Colorado, maintenance depots. During the first three BRAC rounds in 1988, 1991, and 1993, the process determined that three of the Army’s eight remaining maintenance depots should be closed. Consequently, maintenance work ceased at depots located in Lexington, Kentucky, Sacramento, California, and Tooele, Utah, with most workloads from the closing depots transferred to other DOD depots. The February 28, 1995, report from the Secretary of Defense to the Chairman of the BRAC Commission recommended realignment of the Red River and Letterkenny depot-level maintenance missions. The report recommended that the Red River and Letterkenny ground combat vehicle maintenance missions be transferred to the Anniston depot. It also recommended changing the 1993 BRAC Commission recommendation to consolidate tactical missile maintenance at Letterkenny by transferring the missile guidance system maintenance workload to the Tobyhanna depot. The BRAC Commission recommended that the Red River depot be downsized rather than closed. Citing concern that complete closure of the Red River depot would adversely affect ground combat vehicle readiness and sustainability, the Commission concluded that capability for the depot-level maintenance of ground combat vehicles should be maintained at more than one Army depot. The Commission recommended that all maintenance work pertaining to the Bradley family of vehicles be retained at the Red River depot and that other workloads be transferred to other depot maintenance activities, including the private sector. The Commission agreed with the Secretary of Defense’s recommendation to realign depot-level maintenance at the Letterkenny depot to other depots or the private sector. It recommended the (1) transfer of towed and self-propelled combat vehicle maintenance workloads to the Anniston depot and missile guidance system maintenance workload to the Tobyhanna depot or the private sector and (2) retention of an enclave for conventional ammunition storage and tactical missile disassembly and storage at Letterkenny. Table 1 identifies the five remaining Army depot-level maintenance activities, provides a general description of each depot’s workload, and highlights the potential affect of the implementation of BRAC decisions. In developing its March 1996 report to Congress entitled Depot-Level Maintenance and Repair Workload, the Army reported that it would privatize workloads assigned to depots being realigned. This included privatizing, either in-place or at existing contractor locations, the maintenance of various trucks, semitrailers, and troop support equipment maintained by government employees assigned to the Red River depot. Most of this work was received from the Tooele depot, which the Commission recommended for closure in 1993. The March 1996 workload report also included consolidating tactical missile maintenance workload and maintenance requirements for the Paladin light artillery combat vehicle to government-owned, contractor-operated (GOCO) facilities to be located on the existing Letterkenny installation. Army officials stated that these plans have not yet been finalized and are dependent on the repeal of the 60/40 provision in 10 U.S.C.2466, which limits the amount of depot maintenance funds that can be used for private-sector performance. The Army Materiel Command is responsible for planning, managing, and implementing the BRAC Commission’s closure and realignment recommendations. The Army Industrial Operations Command, a subordinate activity under the Materiel Command, provides management support and oversight of Army depot operations. In July 1995, the Army developed preliminary implementation plans regarding the distribution of workload from depots affected by the 1995 BRAC. However, as of August 5, 1996, these plans had not been finalized. Our review is based on the Army’s plans as described to us as of that date. The Army continues to have substantial excess capacity within its depot maintenance system. Although still evolving, Army plans for allocating some workloads from realigned depots to remaining depots will likely achieve some excess capacity reduction and savings at two activities. However, in the context of the Army’s overall depot maintenance operations, there are opportunities for achieving greater efficiencies and cost-effectiveness. In particular, tentative plans to privatize-in-place certain workloads would result in an estimated 4-percent increase in excess capacity over the next 3 years. Consequently, these plans do not appear to be cost-effective. By consolidating these workloads with similar work at remaining Army depots, the fixed overhead costs would be spread over a larger number of items, decreasing the per unit costs of depot-maintenance workloads. Additionally, since private-sector contractors also have significant excess capacity in existing manufacturing and repair facilities, privatization-in-place at either the Letterkenny or Red River depot would also aggravate excess capacity conditions in the private sector. Further, it is questionable that major excess capacity reductions will be achieved from public-private sector joint ventures at this time. Tentatively planned workload transfers from implementing BRAC Commission recommendations should result in some increase in capacity utilization and reduction in costs at two of the remaining Army depots—if the planned work materializes and the gains are not offset by future workload reductions in other areas. The Anniston depot is scheduled to receive combat vehicle workloads from the Letterkenny and Red River depots between 1996 and 1999. Additionally, the Tobyhanna depot is expected to receive the common-use ground communication and electronics workload from a closing Air Force depot at McClellan Air Force Base in Sacramento, California. However, based on presidential direction, this transition has been delayed until the year 2001—an action that will increase transition costs and decrease anticipated savings from the planned workload realignment. The Army tentatively plans to transfer about 1.2 million direct labor hours of workload to Anniston from two realigned maintenance depots. A workload transfer of this magnitude—if funded at this level, with no further reductions in the Anniston depot’s remaining workload—would increase Anniston’s overall capacity utilization in fiscal year 1999 from 40 percent to 66 percent. By improving the facility utilization and spreading the fixed overhead over a larger volume of workload, Anniston’s hourly operating costs could be reduced by about $14 (from about $98 to $84). Anniston officials estimated that the one-time cost to transfer these workloads is $23.4 million. The transition costs include expenditures for relocating equipment from the realigned depots, purchasing new equipment, improving facilities, and related personnel actions. The size of the workload being transferred could represent up to about 680 staff years. However, because Anniston’s current workload is declining and the skills required to perform the transferring work are similar to those required for the current work, Army officials told us the receiving depot can absorb the new workload without an increase in personnel. The 1995 BRAC Commission recommended that the Red River depot be downsized by transferring all non-Bradley vehicle workloads to other depot maintenance activities, including the private sector. The Army tentatively plans to transfer all non-Bradley related core workloads to the Anniston depot. This workload includes about 719,000 direct labor hours of fiscal year 1999 programmed work for M113 armored personnel carriers and M9 armored combat earthmovers. Anniston depot officials plan to begin receiving the new workloads during fiscal year 1997 and plan to be in full production by fiscal year 1999. The 1995 BRAC Commission also recommended the transfer of all self-propelled and towed artillery maintenance work from Letterkenny to Anniston. To comply, the Army tentatively plans to transfer about 460,000 direct labor hours of fiscal year 1999 programmed workload. The Anniston depot officials plan to initiate training in August 1996 to facilitate the orderly transition of the Letterkenny workload. According to Anniston depot officials, industrial equipment will be moved and some new equipment will be procured during the first and second quarters of fiscal 1997. In formulating its 1995 recommendation to close McClellan Air Force Base, the BRAC Commission recommended the transfer of the common-use ground communication-electronics workload to the Tobyhanna Army Depot.