Military Base Realignments and Closures:

Higher Costs and Lower Savings Projected for Implementing Two Key Supply-Related BRAC Recommendations

GAO-08-315: Published: Mar 5, 2008. Publicly Released: Mar 5, 2008.

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The 2005 Base Closure and Realignment Commission estimated that two supply-related recommendations now being implemented by the Defense Logistics Agency (DLA) would save the Department of Defense (DOD) about $4.8 billion over 20 years--about 13 percent of the 2005 base realignment and closure (BRAC) round's estimated long-term savings. These recommendations focus on business process reengineering by reconfiguring DLA's wholesale supply, storage, and distribution network and transferring procurement responsibility for depot-level reparables from the military services to DLA. This report is one in a series of reports on BRAC conducted under the Comptroller General's authority. It examines (1) the extent to which DLA's cost and savings estimates to implement these recommendations differ from those of the BRAC Commission and (2) DLA's progress and challenges in implementing the recommendations. GAO analyzed estimated cost and savings data and visited several of the military services' depots in its review.

Since the BRAC Commission issued its cost and savings estimates in 2005, DOD will spend more, save less, and take longer than expected to recoup up-front costs to implement two recommendations intended to improve DOD's logistics systems. Over the 2006-2011 BRAC time frame to implement these recommendations, GAO's analysis of DLA's data indicates that estimated net savings will be reduced by more than $1.8 billion compared to the BRAC Commission's estimate, with a net cost of about $222 million to DOD, because of increased estimated costs, decreased savings, and DLA's inclusion in the business plans of almost $243 million in expected savings that GAO believes should not be counted as BRAC savings. The $243 million in savings were to be achieved from inventory reduction initiatives that were not directly the result of BRAC actions and would have occurred regardless of BRAC. GAO's analysis further shows that the projected net annual recurring savings after 2011 have been reduced from nearly $360 million to almost $167 million, and that the savings over 20 years are expected to be $1.4 billion rather than $4.8 billion as estimated by the Commission. While some variances are to be expected, the magnitude of these variances is large and resulted from several factors, such as the use of inaccurate or outdated data, misinterpretation of terms, and changes in operational requirements that occurred during the decision-making process for formulating the recommendations. Because expected savings for the longer term are still large but subject to considerable variability, until net savings are tracked over time, decision makers will lack complete information to assess the financial performance of these recommendations. Although DLA has partially completed methodologies to accomplish this, they have yet to be implemented. While DLA has focused primarily on planning to date, it has identified several challenges as implementation proceeds that, if not properly addressed, may adversely impact the services' depot-level operations and impair readiness. One challenge raised by the services involves DLA's ability to continue the timely provision of supplies to industrial customers as it assumes management of supply operations. If repair parts are not available when needed, the services are concerned that mission readiness would be degraded. Another challenge concerns the identification of differences among the services' information technology systems and development and funding of solutions to bridge DLA's system with the services' systems. Resolving human capital issues is an additional challenge. Further, maintaining continuity of funding to match planned implementation milestones is a challenge that, if not addressed, could further delay implementation of planned BRAC actions. DLA has taken several actions to address these challenges, such as working closely with the services to resolve issues, but it is too soon to determine how effective these actions will be. Because of potential disruptions to the services' industrial operations, collaboration and monitoring of the execution of BRAC actions as implementation proceeds are essential to mitigate potential adverse effects to the services and readiness.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOD Non-concurred with this recommendation.

    Recommendation: To provide a more accurate projection of savings associated with implementing the DLA-managed BRAC recommendations, the Secretary of Defense should direct the Director of the Defense Logistics Agency to revise its business plans to exclude all expected savings that are not the direct result of BRAC actions. Such revisions should exclude, for example, the $172 million in potential savings for implementing the supply, storage, and distribution (SS&D) recommendation and the $71 million in potential savings for implementing the depot-level reparable (DLR) recommendation that resulted from pre-BRAC actions associated with inventory reduction initiatives already planned by the services that would have occurred regardless of BRAC.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: The DOD Inspector General's office indicated that DLA updates costs and savings for BRAC recommendations on a semi-annual basis synchronized with the programming and budget cycles. When there was a variance in a funding category, DLA included an explanation for the change in costs and savings.

    Recommendation: To provide greater accountability and visibility over the financial performance of the DLA BRAC recommendations and to provide a basis for preventing potential premature budget reductions, the Secretary of Defense should direct the Director of the Defense Logistics Agency to implement methodologies for periodically monitoring and updating net savings for the SS&D and DLR recommendations throughout the implementation period. Such methodologies, at a minimum, should include: (1) clear metrics for measuring the magnitude of actual costs and savings, (2) a comparison of the actual costs and savings to the prior estimates to coincide with the required semiannual business plan updates, and (3) explanations for actual cost and savings variances from estimates presented in the business plans.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: The Undersecretary of Defense (Acquisition, Technology, and Logistics)issued a memorandum on June 22, 2007 directing DOD components to fully fund BRAC implementation and to properly inform the planning, programming, budgeting and execution process during the BRAC implementation period, including updating BRAC business plans semi-annually until completion of the BRAC implementation process.

    Recommendation: To ensure adequate funding for successful implementation of the recommendations within the BRAC implementation time frame, the Secretary of Defense should direct the Secretaries of the Army, Navy, and Air Force, the Commandant of the Marine Corps, and the Director of DLA to ensure that necessary funding to meet implementation milestones is reflected in all respective service and DLA budget submissions for the remainder of the implementation period ending in fiscal year 2011.

    Agency Affected: Department of Defense


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