Although still evolving, Army plans for allocating some workloads from realigned depots to remaining depots will likely achieve some excess capacity reduction and savings at two activities. However, in the context of the Army’s overall depot maintenance operations, there are opportunities for achieving greater efficiencies and cost-effectiveness. Consequently, these plans do not appear to be cost-effective. Additionally, since private-sector contractors also have significant excess capacity in existing manufacturing and repair facilities, privatization-in-place at either the Letterkenny or Red River depot would also aggravate excess capacity conditions in the private sector. Army Privatization Plans Without Further Downsizing May Not Be Cost-Effective

The Army maintains that its tentative privatization plans will be more cost-effective than transferring workloads to one of the remaining DOD depots. Excess Depot Capacity Will Remain in Army Depot System

Despite movement of some workloads to remaining Army depots, implementation of the BRAC Commission’s recommendations, as reflected in DOD’s report to Congress, will likely result in excess capacity at the four remaining government-owned and operated depots, increasing from 42 percent to 46 percent. This increase is caused by a number of factors, including (1) a forecasted decrease in future year depot-level maintenance workload; (2) the Army’s tentative decision to establish a GOCO facility at Letterkenny for tactical missile and Paladin combat vehicle work rather than transfer the work to another DOD depot; (3) the BRAC recommendation, for readiness reasons, to downsize, rather than close, the Red River depot; and (4) the Defense Depot Maintenance Council’s decision supporting the Air Force’s plan to delay transfer of the ground communications-electronics workload from the Sacramento Air Logistics Center to the Tobyhanna Army Depot until the year 2001. This table does not reflect the Army’s tentative workload transfer and privatization plans. Major Excess Capacity Reductions Through Joint Public-Private Ventures Are Uncertain

In April 1996, we testified that privatizing DOD depot maintenance activities, if not effectively managed, including the downsizing of remaining depot infrastructure, will exacerbate existing excess capacity problems and the inefficiencies inherent in underuse of depot maintenance capacity. While these initiatives have some potential, it is doubtful whether they will significantly reduce excess capacity in the Army. 2469 provides that DOD-performed maintenance and repair workloads valued at not less than $3 million cannot be changed to performance by another DOD activity without the use of “merit-based selection procedures for competitions” among all DOD depots and that such workloads cannot be changed to contractor performance without the use of “competitive procedures for competitions among private and public sector entities.”
While each statute has some impact on the allocation of DOD’s depot-level workload, 10 U.S.C. Use competitive procedures, where applicable, to assure the cost-effectiveness of privatizing Army depot maintenance workloads. For DOD compliance with statutory requirements, we identified the applicable requirements and determined their impact on DOD’s plans to privatize depot-level maintenance workloads. 8, 1996). 5, 1996). 17, 1995). 12, 1994).
Why GAO Did This Study

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.

What GAO Found

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.