The Department of Defense (DOD) spends more than $700 million each year to move military servicemembers’ and civilian employees’ household goods and personal effects. It pays servicemembers and civilian employees an additional $50 million or more each year in claims for shipment loss and damage. DOD shares liability with carriers for this loss and damage. Both government and carrier costs are significantly affected by the cost of claims. Servicemembers with loss or damage to their household goods and personal effects may file claims against the government for the amount of loss. The military services’ Judge Advocates General have primary responsibility for operating claims offices, adjudicating claims, and for authorizing payment to servicemembers. Payment to members is generally based on the full depreciated value of the damaged or lost items or the cost of repairs, whichever is less. The maximum amount allowed per shipment is $40,000. Claims offices then attempt recovery from the carrier to the extent of the carrier’s liability. From 1967 to 1987, carriers handling military household goods shipments were liable for loss and damage at the rate of $0.60 per pound per article for both domestic and overseas shipments. For example, if a carrier lost or damaged a 70-pound television worth $400, it was liable for the depreciated value or for repairs, whichever was less—up to a maximum of $42 (70 pounds times $0.60). In mid-1987, the Military Traffic Management Command (MTMC)—DOD’s traffic manager—increased carrier liability for DOD domestic household goods shipments. Under the new system, the carrier is liable for the full depreciated value of damaged or lost articles up to a maximum amount (valuation) per shipment based on the shipment weight multiplied by $1.25 per pound. For example, if a shipment weighs 4,000 pounds, the carrier is liable for a maximum of $5,000 (4,000 pounds times $1.25). If only one article in the shipment is lost, and its depreciated value is established at $5,000, the carrier is liable for this amount. In the case of the $400 television, the carrier would be liable for the full depreciated value ($400) or the cost of repairs, whichever is less, and for all other lost or damaged articles in the shipment until the total amount of loss and damage reached $5,000. Carrier liability under this system is generally increased. MTMC increased carrier liability in 1987 based on the results of an Air Force test—Project REVAL. Project REVAL reported that the average amount of household goods claim paid to the servicemember would be reduced by 34 percent on shipments moved at the $1.25 liability rate (purchased for a separate charge of $0.50 per $100 valuation). The Air Force concluded that (1) the increased liability gave the carriers incentive to reduce shipment damage and (2) the combination of reduced average claim amounts and added liability compensation would reduce claims costs for both the government and the carriers. Other major factors in MTMC’s decision to increase carrier liability included (1) the high frequency and cost of damage and loss to military servicemembers’ household goods, (2) the inadequacy of the former liability rate in covering a reasonable share of the liability for losses, (3) the need to provide increased carrier incentive for reducing claims, and (4) increases in government costs associated with military servicemembers’ household goods claims. When DOD increased carrier liability on DOD domestic shipments to the $1.25 rate in 1987, MTMC began paying carriers a separate charge (in addition to transportation charges) for the additional liability. MTMC set this separate charge at $0.64 per $100 of shipment valuation, plus 10 percent of temporary storage charges. The increased liability system adopted by MTMC was similar to that available for commercial shipments in 1987. Carrier transportation rates then automatically provided for carrier liability of $0.60 per pound per article. Increased liability could be purchased for a separate charge. At the time, carrier liability up to $1.25 times the shipment weight was available for $0.50 for every $100 of shipment valuation (shipment weight multiplied by $1.25 divided by $100 multiplied by $0.50). Rates for additional liability on commercial shipments are approved by the Interstate Commerce Commission. However, DOD household goods shipments are governed generally by provisions in DOD rate solicitations, and may differ from commercial practices. The carrier industry objected to moving DOD household goods at the commercial $1.25 rate primarily because military servicemember claims for loss and/or damage are settled by the military services. In commercial practice, the carrier usually settles such claims directly with the owner. The carrier industry generally believed that military claims settlement was too generous and resulted in excessive claims costs to the carrier. At one time, DOD allowed carriers to settle claims directly with the servicemember. This practice was changed, according to DOD, because carrier resolution of claims was found to be unacceptable. MTMC agreed to pay a separate charge of $0.64 per $100 valuation plus 10 percent of temporary storage charges instead of the commercial separate charge of $0.50 per $100 valuation plus 10 percent of temporary storage charges because the military services wanted to retain claims settlement authority for DOD household goods shipments. At the time, carrier industry associations contended that the separate charge for this level of carrier liability should have been $1.13 per $100 valuation, plus 10 percent of temporary storage charges. Shortly before MTMC increased carrier liability on DOD domestic shipments in 1987, the Chairman, House Committee on Armed Services, asked us to review MTMC’s proposed changes and to determine a fair and adequate rate to compensate carriers for the increased liability. We subsequently reported that such a rate could not then be determined because (1) at the time of our review it was too early to determine the impact that increased liability would have on carrier performance and (2) determining a fair and adequate compensation level required a policy judgment about the appropriate performance level to be expected from carriers. We also reported that the $0.64 rate proposed by MTMC would compensate only the better-performing carriers if carriers performed as they did in fiscal year 1985, the most recent year for which adequate claims data was available. We estimated that at the 1985 performance level, approximately $3 million to $4 million in government costs would be transferred to the carriers under the increased liability, and that this should provide increased incentive for carriers to improve their performance. Carriers with liability costs greater than added revenues could (1) improve performance so less damage and loss occurred, (2) increase transportation rates, or (3) absorb the loss. We consequently supported MTMC’s 1987 policies for increasing carrier liability on domestic household goods shipments and concluded that the rate of carrier compensation for the increased liability established by MTMC in 1987 should remain unchanged until carrier performance data or additional cost information indicated that changes were needed. In March 1993, MTMC proposed that carrier liability also be increased from the $0.60 per pound per article rate to the $1.25 rate for international household goods shipments. However, MTMC’s proposal did not include a provision for any separate compensation to carriers for the increased liability. The carrier industry objected to the proposed changes, stating that international shipments were vastly different in nature from domestic shipments, and that no determination had been made of whether MTMC’s 1987 increase in domestic shipment liability had achieved its objectives of reducing the number and amount of damage claims and reducing government costs. During October 1993, MTMC increased carrier liability on international household goods shipments on an interim basis to $1.80 per pound per article, pending the completion of our review. At the request of the former Chairman, Subcommittee on Readiness, House Committee on Armed Services, we evaluated DOD household goods shipment programs to (1) determine the impact of the 1987 increase in carrier liability on domestic shipments and (2) suggest the level and type of carrier liability DOD should adopt for international shipments. During this review, we interviewed officials and reviewed documents associated with programs for the movement of household goods at MTMC, the Department of State, the offices of the Army, Navy, and Air Force Judge Advocates General, and Headquarters, U.S. Marine Corps. We also interviewed and obtained documents from carrier association officials and representatives of selected carriers. To facilitate our analysis, we obtained computerized records on almost 2.5 million DOD household goods shipments moved during fiscal years 1986 through 1991. We obtained computerized shipment and claims data from MTMC on all DOD domestic household goods shipments (MTMC shipment codes 1 and 2) and most international shipments (MTMC shipment codes 4, 7, 8, and J) initiated during fiscal years 1986 through 1991. We analyzed shipment and claims data for each of these codes. However, unless otherwise indicated, the data presented in this report for domestic shipments refers to uncontainerized van shipments (code 1) and to containerized international shipments (code 4). These two major types of shipments comprise the vast majority of DOD household goods shipments by both number and weight. MTMC data was not available for shipments occurring prior to fiscal year 1986. Also, we did not evaluate data for fiscal years after 1991 because considering the 2-year statute of limitations for servicemembers to file household goods claims against the government, inadequate time has passed to obtain sufficient claims data for analysis on these shipments. To verify the accuracy of claims data in the MTMC shipment records, we obtained from the offices of the service Judge Advocates General all computerized claims payment and recovery data available as of August 1993 for fiscal years 1986 through 1991. Only the Air Force could provide complete claims data for all years requested. The Army and the Marine Corps data was complete only for fiscal years 1988 through 1991 because claims data records for these services were not computerized prior to fiscal year 1988.