Incentive Programs To Improve Productivity Through Capital Investments Can Work

The primary source of improved national productivity has traditionally been new and technologically advanced capital equipment. Recognizing this, the Department of Defense (DOD) established a number of programs in the 1970's to simplify the procurement of productivity enhancing capital equipment. One such program entailed the establishment by Congress of special funds for buying equipment that would pay for itself in 2 years through cost savings. Now called the Productivity Enhancing Incentive Fund (PEIF), the program was reviewed by GAO in 1978. Concurrently, Congress temporarily stopped funding the program because of its concern over circumvention of the normal budget process. In the 1978 report, GAO supported the PEIF concept and recommended its reestablishment, while simultaneously pointing out program deficiencies. As a result, Congress reinstituted the program in 1979.

Except for the Navy, the services' program management has improved since the 1978 review. The Air Force and Army efforts have demonstrated that, under the program, good ideas can be quickly evaluated and funded and savings made promptly. However, the full potential of this fast payback program has not been realized because of inadequate management attention. The Air Force and the Army need to improve their postinvestment analysis and reporting to clearly demonstrate PEIF program benefits and meet congressional requirements. The Navy particularily has not devoted the management resources and emphasis needed to ensure a successful and credible PEIF program. GAO found that: (1) the Navy's program was not being adequately promoted; (2) Navy guidance did not fully comply with DOD and congressional guidance; (3) extensive delays occurred between investment identification and installation; (4) the justification for many approved projects was invalid or insupportable; and (5) postinstallation analyses were inadequate.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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