Navy Ordnance: Analysis of Business Area Price Increases and Financial Losses

DOD concurred on the need to develop a plan to streamline the Navy's ordnance operations and reduce its infrastructure costs. While the Navy did not develop a comprehensive plan, it did take many of the steps that GAO recommended. The FY 1999 budget request for the Navy ordnance business area reflects a major restructuring and downsizing, while ensuring that required capabilities and commitments are supported. The budget addressed specific actions required to streamline Navy ordnance operations and eliminate unnecessary infrastructure, including overhead costs. The Navy is also planning to transfer the weapons stations' ordnance operations from the Navy Ordnance Center to the Atlantic and Pacific Fleets on October 1, 1998. This realignment of ordnance operations enables the Fleet commanders to seek further efficiencies in the ordnance operations, including the function related to ammunition loading and unloading of naval ships and commercial vessels.

The Navy has discontinued the uniform pricing structure. These two facilities are: (1) Seal Beach and its detachments on the West Coast; and (2) Norfolk and its detachments on the East Coast. Starting in fiscal year 2000, each lead weapons support facility will have its own prices. While the Navy does not plan to develop prices for each individual activity, it has developed prices for the two lead weapons support facilities.

DOD concurred with this recommendation on the need to validate estimates with customers and consider workload trends when developing future workload estimates and setting prices for the Navy ordnance business area. The Navy ordnance business area will continue to refine and formalize the annual workload validation process it performs to support workload projections and customer prices used to develop its budget estimate.

DOD concurred with this recommendation on the need to validate estimates with customers and consider workload trends when developing future workload estimates and setting prices for the Navy ordnance business area. The Navy ordnance business area will continue to refine and formalize the annual workload validation process it performs to support workload projections and customer prices used to develop its budget estimate.

DOD concurred with this recommendation. DOD agrees on the need to validate workload estimates with customers and consider workload trends when developing future workload estimates and setting prices for the Navy ordnance business area. In developing the fiscal year 2000 prices, the Navy ordnance business area has: (1) refined its analytical approach; (2) increased customers' involvement in developing workload estimates; and (3) increased Navy ordnance leadership and management involvement in developing workload estimates. The business area is also comparing forecasted to actual workload to develop trends and is considering these trends in developing the workload estimates.

DOD concurred with this recommendation on the need to accurately allocate the total costs of the ammunition storage and distribution mission to the customers benefiting from the services. The Navy has taken two actions to implement this recommendation. First, the Navy ordnance business area developed a new method for charging for ammunition storage and distribution work at the Concord weapons station. Specifically, effective in fiscal year 1999, it will charge customers based on the cost per ton shipped or received. Second, the Navy ordnance activity group did a better job in allocating base maintenance overhead costs to the ammunition storage and distribution function. As a result, the ammunition storage and distribution function costs will increase $15 million in fiscal year 1999, which in turn, will increase the prices it charges customers.