Navy Has Been More Successful Than the Other Services in Reducing Costly Excess Capacity

Even after four BRAC rounds, the four services have costly excess capacity within their depot maintenance systems. Depot Workload Allocation Policies Still Evolving

For several years, the Congress has asked DOD to better define core capability requirements and specifically identify the workloads and weapon systems that must be maintained in DOD depots to satisfy core requirements. However, some policy changes have been made in response to concerns about the policy proposal. Key Policy Proposals Are Still in Draft

Additionally, although two draft depot maintenance policy letters were distributed in December 1996 and January 1997, it is uncertain when, or if, these policy statements will be issued. While we are continuing work in this area, we are concerned that, due to a lack of clear policy and direction, some maintenance strategies are being delayed and others are being selected that may not be the most cost-effective. A recent risk assessment subsequently determined that the entire workload could be outsourced and would no longer be classified as core. As indicated, for many programs, including the largest systems in terms of acquisition costs, the final support decisions have not yet been made. DOD’s projected savings level is based on estimates made through studies by the CORM and the DSB. While we believe some savings may be achieved from outsourcing some depot maintenance workloads, our work shows that savings estimates of this magnitude are questionable for several key reasons. It also houses the management of the Air Force’s metrology and calibration program. Abstracts From Related GAO Products

	High-Risk Series: Defense Infrastructure (GAO/HR-97-7, Feb. 1997)

This report addresses the difficult process of reducing DOD’s infrastructure. Army Depot Maintenance: Privatization Without Further Downsizing Increases Costly Excess Capacity (GAO/NSIAD-96-201, Sept. 18, 1996)

If not effectively managed, the privatization of depot maintenance activities, could exacerbate existing capacity problems and the inefficiencies inherent in underuse of depot maintenance capacity. We noted that (1) DOD’s evolving depot maintenance policy includes a public-private mix and shifts work to the private sector where feasible; (2) depot privatization could worsen excess maintenance capacity and inefficiencies if not carefully managed; (3) the DOD policy report provides an overall framework for managing depot maintenance activities and substantial implementation flexibility, but the policy is not consistent with congressional guidance on public-private competition for noncore workloads; (4) privatizing depot maintenance is not likely to achieve the 20-percent savings DOD projects, since most savings have come from competition rather than privatization; (5) about half of depot maintenance private-public competitions have been won by the public sector; and (6) DOD plans to privatize-in-place and delay downsizing and closure of two Air Logistics Centers will probably cost more than closing them and relocating their workloads to underutilized defense or private facilities. Concerns have also been raised about other aspects of the depot closures. Depot Maintenance: Issues in Management and Restructuring to Support a Downsized Military (GAO/T-NSIAD-93-13, May 6, 1993)

We were asked to determine (1) the extent to which the current DOD depot maintenance system has excess capacity, (2) the basis for current DOD allocations of depot work between the public and private sectors, (3) whether the private sector’s role in the performance of depot maintenance activities is changing, (4) the status of the public-private competition initiative, and (5) the action needed to ensure that future defense maintenance requirements can be managed more cost-effectively.
Why GAO Did This Study

GAO discussed the Department of Defense's (DOD): (1) plans for eliminating costly depot maintenance excess capacity; (2) progress in finalizing a new depot workload allocation policy; (3) current approach for allocating maintenance workloads for new and existing systems; and (4) estimates that billions can be saved by outsourcing depot maintenance.

What GAO Found

GAO noted that: (1) it is important to note that the waste and inefficiency in DOD's logistics system, including the management of its $13 billion depot maintenance program, is one of the key reasons GAO identified DOD's infrastructure activities as 1 of 24 high-risk areas within the federal government; (2) costly excess capacity totalling about 50 percent remains in the DOD depot system, which actually comprises four systems; (3) as the services seek to privatize a greater share of their depot maintenance, the cost of maintaining excess capacity will increase unless additional capacity reductions are made; (4) the Navy has made the greatest progress in dealing with this through consolidation and expedited closures of facilities affected by the base realignment and closure process; (5) the Army and, even more so, the Air Force have been less successful; (6) all three military departments to some extent are implementing actions that will privatize-in-place costly excess capacity; (7) GAO's work shows that DOD's plans and policies for outsourcing depot maintenance are still evolving; (8) last year, the Congress received and ultimately rejected DOD's proposed policy regarding depot-level maintenance and repair; (9) provisions in the policy were predicated on relief from the existing statutes that influence depot workload allocations between the public and private sectors; (10) some changes have been made based on congressional concerns about certain aspects of the policy report, but DOD has not finalized its new policy to address all of these concerns; (11) however, core capability requirements have not yet been quantified and no time frame has been established for finalizing key draft depot maintenance policy letters issued in December 1996 and January 1997; (12) GAO's ongoing work shows that for both existing and new systems, assessments are being made to determine what portion of the current workload could be outsourced with acceptable risk; (13) the absence of clear policy on how to proceed in this area has caused some delays in choosing maintenance sources and raised some concerns about whether the most cost-effective strategies are being selected; (14) DOD's projected savings are based on estimates cited by the Commission on Roles and Missions (CORM) and the Defense Science Board (DSB); (15) GAO believes that in some cases outsourcing can reduce maintenance costs, but not to the extent being estimated by the CORM and DSB; and (16) if not effectively managed, privatizing depot maintenance activities could exacerbate existing capacity problems and the inefficiencies inherent in underutilization of depot maintenance capacity.