Closing Maintenance Depots:

Savings, Workload, and Redistribution Issues

NSIAD-96-29: Published: Mar 4, 1996. Publicly Released: Mar 4, 1996.

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Pursuant to a congressional request, GAO reviewed maintenance depot closures and realignments, focusing on: (1) the reliability of the Department of Defense's (DOD) depot closure cost and savings estimates; (2) DOD efforts to provide employment and training opportunities at closing depots; (3) whether the military services can increase savings by using competitions between DOD depots and the private sector when redistributing closing depots' workloads; and (4) whether the military services adequately consider other services' depots when redistributing the workloads.

GAO found that: (1) DOD has substantially reduced its initial estimates for the net savings that depot closures will achieve during the 6-year implementation period allowed by law and, to a lesser extent, for the annual savings after the implementation period has been completed; (2) although DOD believes its estimates have improved, current estimates still do not accurately reflect potential savings because some closure-related costs are not included, and some estimates have not been updated to reflect major changes in such areas as the expected cost of doing the work after it is transferred to new sources of repair; (3) as a result, the magnitude of savings is uncertain; (4) by offering a comprehensive and costly outplacement program for displaced employees, that provides assistance, benefits, and separation incentives, DOD has greatly facilitated this transition and has thus far successfully limited the number of depot employees who were involuntarily separated; (5) the military services can substantially increase their savings by ensuring that closing depots' workloads are transferred to the most cost-effective source of repair; (6) they can accomplish this goal by conducting public-public and public-private competitions for the work or by analyzing the cost-effectiveness of moving the work to not only their own depots but also those of the other services; (7) in addition, they can improve the efficiency of their operations and reengineer workloads that are transferred from closing depots without competition; and (8) neither DOD nor the military services have taken action to maximize these savings: (a) public-public and public-private competition programs were discontinued in May 1994; (b) the Air Force is implementing a privatization-in-place plan that will likely increase maintenance costs; (c) the military services rarely consider interservicing alternatives when they redistribute workloads; and (d) neither DOD nor the services require depots to reengineer workloads they receive from closing depots.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department stated that its budgeting process is designed to identify costs for completing ongoing base closures. While savings estimates are recorded on budget documents as memo entries, the budget process continues to be primarily focused on costs and to a lesser extent documenting or assessing actions to refine prior savings estimates.

    Recommendation: The Secretary of Defense should implement procedures to capture relevant cost and savings data on depot closures.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: Capturing recurring cost information is an essential element in evaluating total costs and savings that could result from the closure of depot maintenance facilities. The Air Force considered the recurring cost of operations in the post-closure environment in evaluating potential privatization-in-place options for 3 closing depot maintenance facilities. This recommendation was intended to ensure that BRAC models would be modified to consider recurring costs in future rounds should they be authorized by Congress. Rather than changing the model prior to Congress authorizing new BRAC legislation, the Department issued guidance which would allow the services to use alternative methodologies for computing costs and savings estimates that could include the impact of recurring costs of operations following base closures.

    Recommendation: The Secretary of Defense should improve the process for estimating recurring costs of maintenance operations in a post-closure environment.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: In conducting the San Antonio and Sacramento competitions, the Air Force used the Defense Contract Audit Agency (DCAA) to evaluate the adequacy of the depots' financial systems to ensure the reasonableness of cost estimates supported by the government's financial management systems. DCAA was also used to review the public offeror's proposals.

    Recommendation: The Secretary of Defense should implement a high-priority program to resolve internal control deficiencies in depot management systems.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: DOD reinstated the use of public-private competition as a tool for allocating depot maintenance workloads and is conducting competitions to determine the source of repair for workloads at three closing Air Force depots. These competitions will be completed in October 1998.

    Recommendation: The Secretary of Defense should maximize the use of competitive procedures and merit-based selection criteria by including military depots in determining the most cost-effective source of repair for workloads that have not yet been transferred from closing depots.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: The services have initiated various programs to ensure that organic depot maintenance workloads are handled in the most efficient manner. Because workload transfers from closing depots are in the final stages of transition, this recommendation is no longer applicable.

    Recommendation: The Secretary of Defense should require the services to reengineer workloads that are redistributed from closing depots on any basis other than competition, starting with the largest and most stable workloads.

    Agency Affected: Department of Defense


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