Army Depot Maintenance:

Privatization Without Further Downsizing Increases Costly Excess Capacity

NSIAD-96-201: Published: Sep 18, 1996. Publicly Released: Sep 18, 1996.

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Pursuant to a congressional request, GAO reviewed the Army's plans to reallocate depot maintenance workloads from depots recommended for closure or realignment by the Defense Base Realignment and Closure (BRAC) Commission, focusing on the: (1) impact on excess depot capacity and operating costs at the remaining defense depots; (2) cost-effectiveness of planned privatization options; and (3) Army's compliance with statutory requirements.

GAO found that: (1) deciding the future of the Department of Defense (DOD) depot system is difficult; (2) depot maintenance privatization should be approached carefully, allowing for evaluation of economic, readiness, and statutory requirements that surround individual workloads; (3) privatizing depot maintenance activities, if not effectively managed, including the downsizing of remaining DOD depot infrastructure, could exacerbate existing capacity problems and the inefficiencies inherent in underuse of depot maintenance capacity; (4) privatization-in-place does not appear to be cost-effective given the excess capacity in DOD's depot maintenance system and the private sector; (5) tentative plans to transfer some workloads from realigned depots to remaining depots should improve capacity use and lower operating costs to some extent, but they will not resolve the Army's extensive excess depot capacity problems; (6) since the Army is not effectively downsizing its remaining depot maintenance infrastructure, privatization initiatives outlined in DOD's March 1996 workload analysis report to Congress will increase excess capacity in Army depots from 42 percent to 46 percent and increase Army depot maintenance costs; (7) privatizing-in-place will also aggravate excess capacity conditions in the private sector; (8) it is not clear how the Army intends to comply with statutory requirements such as 10 U.S.C. 2469, which requires the use of competitive procedures before privatizing depot maintenance workloads valued at not less than $3 million; (9) the Army's plans for reallocating depot workloads are still evolving; (10) the Army has not demonstrated that depot privatization initiatives relating to the 1995 depot closure and realignment decisions are cost-effective; (11) the Army's use of a privatization savings assumption of 20 percent is not supported; (12) in the absence of further downsizing, opportunities exist to significantly reduce Army depot maintenance costs by transferring, rather than privatizing-in-place, workloads from closing and downsizing depots; and (13) workload transfers will improve utilization and decrease costs of operations at remaining facilities.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: An Army official stated that its interpretation of BRAC 95 language would allow transfer of the consolidated missile workload package if the ongoing cost-benefit analysis shows the workload transfer would be the most cost-effective option. OSD has stated that it will implement the most cost-effective course of action. Therefore, this recommendation is no longer applicable.

    Recommendation: The Secretary of Defense should review the results of the Army's cost estimate for tactical missile maintenance to determine the most cost-effective course of action. If the consolidation option is determined to be the most cost-effective, the Secretary should reassess the Army's interpretation of the BRAC recommendation and, if it determines that such a transfer is not consistent with the BRAC recommendation, it should seek redirection from Congress to accomplish this action.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: In August 1998, the Office of the Secretary of Defense (OSD) reviewed the results of the Army's cost-benefit analysis for tactical missile maintenance workloads and recommend that the Defense Depot Maintenance Council (DDMC) approve the transfer of only missile guidance system workload (about 17 percent of the total missile maintenance work) to Tobyhanna. Although the Army's cost-benefit analysis shows that consolidation of the entire missile maintenance workload at Tobyhanna would have been the most cost-effective approach, OSD and Army legal analysis determined that the BRAC recommendation applies to only the portion of work categorized as guidance system components. The DDMC endorsed OSD's recommendation and a decision was made to approve the transfer of guidance system work to Tobyhanna and retain the remaining work at Letterkenny.

    Recommendation: The Secretary of Defense should review the results of the Army's cost analysis for tactical missile maintenance to determine the most cost-effective course of action. If the consolidation option is determined to be the most cost-effective, the Secretary should reassess the Army's interpretation of the BRAC recommendation and, if it determines that the consolidation is consistent with the BRAC recommendation to consolidate the entire missile workload, except for disassembly and storage at Tobyhanna, it should do so.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: In June 1999, the Army transferred its depot maintenance work for the Paladin self-propelled artillery vehicle from the Letterkenny depot to the Anniston depot without issuing a completed cost-benefit analysis.

    Recommendation: The Secretary of Defense should direct the Secretary of the Army to complete cost analyses of the Army's proposed privatization initiatives, including the Paladin self propelled artillery vehicle, and wheeled vehicle and troop support equipment maintenance workloads from Red River. In comparing the cost and benefit of consolidating these workloads at other DOD depots with privatizing, the analyses should include the impact on recurring cost of existing workloads at the depots that would receive the workloads.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: Red River is transitioning all non-Bradley and non-MLRS workloads to other facilities. These transfers are scheduled to be completed in late 1998. As a result of BRAC 1995, the Army will surplus 765 acres and 130 excess buildings. In addition, about 750 personnel spaces have been eliminated. Despite these efforts, the Army has determined that the depot will continue to retain costly excess capacity and that operating costs will continue to escalate, due to a decrease in funded workloads for remaining maintenance missions, and because the BRAC Commission directed the realignment, rather than closure, of Red River. The Industrial Operations Command, through its annual rate-setting process, will workload all of the Army's depots at the most optimal levels to stabilize future operating costs and rates. While the Army has taken action to reduce the cost of depot operations within the current legal framework, with the absence of future BRAC legislation there is little more that the Army can do.

    Recommendation: The Secretary of Defense should direct the Secretary of the Army to assess alternatives for reducing the costs of operating the Red River depot, given the implementation of 1995 BRAC recommendations.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: The Army Materiel Command asked the Army's Cost and Economic Analysis Center to study the cost-effectiveness of consolidating all tactical missile maintenance work at Tobyhanna, along with four other options, one of which would transfer only guidance system work to Tobyhanna and retain related maintenance at Letterkenny. In August 1998, the Army announced that its cost analysis showed that consolidation of the tactical missile maintenance at Tobyhanna was the most cost-effective option, but the one-time costs were considered unaffordable. However, the Army stated that its legal interpretation of the 1993 and 1995 BRAC Commission recommendations would preclude it from moving all of the tactical missile maintenance workload to Tobyhanna. The Defense Depot Maintenance Council approved the Army's recommendation to transfer the guidance system workload (about 17 percent of the total missile workload) to Tobyhanna and to retain the remaining missile maintenance work at Letterkenny.

    Recommendation: The Secretary of Defense should direct the Secretary of the Army to evaluate the cost-effectiveness of consolidating all the Letterkenny tactical missile workload at the Tobyhanna depot, including an assessment of the fixed cost savings impact on the workload currently maintained at Tobyhanna.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: In December 1996 DOD reinstituted public/private competitions. The Army has stated that it plans to comply with DOD's revised policy and use competitive procedures when appropriate. However, no announcements of public-private competitions have been made.

    Recommendation: The Secretary of Defense should direct the Secretary of the Army to use competitive procedures, where applicable, to ensure the cost-effectiveness of privatizing Army depot maintenance workloads.

    Agency Affected: Department of Defense

  7. Status: Closed - Implemented

    Comments: The Army has stated that it will develop and maintain capability within the military depots for all core systems. However, the Army has no plan to redo and document formal risk assessments. It states that its initial informal (undocumented) assessments are adequate.

    Recommendation: The Secretary of Defense should direct the Secretary of the Army to develop required capability in military depots to sustain core depot repair and maintenance capability for Army systems and conduct and adequately document a risk assessment for mission essential workloads being considered for privatization.

    Agency Affected: Department of Defense

 

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