Depot Maintenance:

Key Financial Issues for Consolidations at Pearl Harbor and Elsewhere Are Still Unresolved

GAO-01-19: Published: Jan 22, 2001. Publicly Released: Jan 22, 2001.

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In 1998, the Navy consolidated the Pearl Harbor Naval Shipyard and the Naval Intermediate Maintenance Facility in Hawaii. Because of concerns about some aspects of the consolidation, the Navy began a test project, commonly called the Pearl Harbor pilot, to determine if integrating the management, operations, and funding of the shipyard and the intermediate maintenance facility can result in greater efficiency and lower overall ship maintenance costs. In September 1999, GAO reported that the preliminary results of the ongoing Pearl Harbor pilot were mixed and recommended that the Department of Defense (DOD) and the Navy address unresolved issues related to the financial management of the consolidation as the Navy proceeds with similar consolidations in other locations. This report updates GAO's earlier report and discusses whether (1) the Navy has provided adequate cost visibility and accountability over the consolidation, (2) DOD and the Navy have resolved other issues related to the financial structure for consolidations at Pearl Harbor and elsewhere, and (3) the consolidation has generated greater efficiency and lower costs for ship maintenance at Pearl Harbor. GAO found that the Navy still has not provided adequate cost visibility and accountability over ship maintenance following the consolidation. DOD and the Navy have made little progress in resolving other issues related to the financial structure for the consolidation. GAO is unable to determine whether the consolidations have produced greater efficiency and lower costs for ship maintenance.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: Before the Navy implements permanent changes at the Pearl Harbor facility and any other consolidations of naval shipyards and intermediate maintenance activities, the Secretary of Defense should direct the Secretary of the Navy to implement a method (1) to account for the total cost of consolidated ship maintenance operations on an ongoing basis; and (2) to distinguish between depot and intermediate work of consolidated ship maintenance activities. The method should include the appropriate costing methodologies or techniques that provide sufficient data to show compliance with 10 U.S.C. 2466, the Chief Financial Officers Act, the Government Performance and Results Act, DOD regulations, and federal accounting standards.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: Although DOD concurred with the recommendation, the Navy has not implemented a method to account for the total cost of consolidated ship maintenance operations on an ongoing basis. Although Navy officials believe that the combined facility's management and financial systems provide adequate visibility of costs for those managers and workers performing ship maintenance at Pearl Harbor, the systems do not account for the full cost of operations. For example, the systems do not account for the depreciation of facilities and equipment, centrally managed financial and technical support services, selected base operating support, maintenance shops' overhead, military personnel, and borrowed workers. However, Navy officials still do not plan to develop/implement a method to account for the total cost of consolidated ship maintenance operations on an ongoing basis. To distinguish between depot and intermediate work of consolidated ship maintenance activities, the Navy now considers Fleet Maintenance Availability project work as intermediate work, and all other work as depot level work. However, because some depot level work are included in Fleet Maintenance Availability projects and vice versa, the facility's systems do not fully distinguish between depot and intermediate work, even though 10 U.S.C. 2466 requires DOD to report on the allocation of depot-level workloads between public and private sectors. Navy officials still do not plan to develop/implement a method to fully distinguish between depot and intermediate work on an ongoing basis.

    Recommendation: To help prevent further disputes in the transfer of working capital fund activities to direct appropriations, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller/Chief Financial Officer) to clarify DOD financial management regulations, to include specifying the processes, procedures, and costing methodology, governing the transfers of working capital fund activities to direct appropriations.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: DOD concurred with the recommendation, and in October 2002, the Office of the Under Secretary of Defense (Comptroller/Chief Financial Officer) updated its financial management regulation governing transfers of working capital fund activities to direct appropriations. DOD Financial Management Regulation, Volume 11B, Chapter 2, paragraph 0204, addressing the transfer of Defense Working Capital Fund functions, was revised to specify the processes, procedures, and costing methodology to be used when converting working capital fund activities to direct appropriations.

    Recommendation: Before permanent changes are made at Pearl Harbor and any further consolidations are implemented at other naval locations, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller/Chief Financial Officer) and the Secretary of the Navy to resolve issues related to (1) buyout costs for the former Pearl Harbor shipyard if the Navy decides to formally transfer it to direct appropriations, (2) loss of flexibility to continue routine ship maintenance operations through potential funding gaps at the beginning of fiscal years or when expected maintenance costs exceed annual appropriations, and (3) funding for the capital improvement program for the consolidated facility.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: DOD concurred with the recommendation. However, on December 14, 2000, the Deputy Secretary of Defense determined that there were no buyout costs required by the Navy to transfer the former Pearl Harbor Shipyard to direct appropriations. In a separate action, it was also determined that in the event of a budget impasse, ship maintenance work required in support of national security would continue. Finally, the Navy established separate funding lines managed by the Naval Sea Systems Command and resourced in the Office of the Naval Operations for Operations for capital improvements at the combined Pearl Harbor Naval Shipyard and Intermediate Maintenance Facility.

    Recommendation: Before the Navy consolidates additional shipyards and intermediate maintenance activities, the Secretary of Defense should direct the Secretary of the Navy to develop additional metrics to measure the efficiency and effectiveness of consolidated ship maintenance activities, drawing on lessons learned from the consolidation at Pearl Harbor.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In commenting on a draft of this report, DOD concurred with the recommendation. After GAO's report was issued, the Navy developed metrics to measure the efficiency and effectiveness of consolidated ship maintenance activities. The metrics dealt with (1) adherence to ship availability schedule--comparing the availabilities planned start and finish dates with the actual dates; (2) adherence to costs--comparing planned costs to actual costs in both mission funded and working capital fund terms (where actual costs are compared to planned costs and any variances are analyzed and explained); (3) post-availability quality--reporting and analyzing the rate of guarantee deficiencies identified after completion of the ship maintenance period; and (4) customer appraisal of quality--reflecting customer satisfaction evaluations. According to Navy officials, these metrics were used to measure the efficiency and effectiveness of consolidated ship maintenance activities at both Pearl Harbor, Hawaii, and Puget Sound, Washington, which were officially consolidated in 1998 and 2003, respectively.

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