Defense Depot Maintenance

GAO questions the assumption made by the Commission on Roles and Missions that privatizing all Defense Department (DOD) depot maintenance activities would save 20 percent and not harm readiness or sustainability. The Commission's assumptions are based on conditions that do not now exist for many depot workloads. The extent to which DOD's long-term privatization plans and market forces will effectively create more favorable conditions for outsourcing is uncertain. The Commission assumed that a highly competitive and capable market exists or would develop for most depot workloads. However, most of the depot workloads contracted to the private sector are awarded noncompetitively--mostly to the original equipment manufacturer. Moreover, several factors would likely limit private sector competition for many workloads now in the public depots. Without highly competitive and capable private sector markets, the cost and readiness risks of privatizing depot maintenance workloads may prove unacceptable. Furthermore, the Commission's privatization savings do not reflect the cost impact of excess capacity in the public depots. The Commission also assumed that public-private competitions would be used in the absence of private sector competition and would be limited to only a few cases. GAO found that public-private depot maintenance competitions have resulted in savings and benefits and can provide a cost-effective way to make depot workload allocation decisions for some workloads. The beneficial use of such competitions could have significantly more applicability than the Commission assumed.

GAO found that: (1) the CORM's depot privatization savings and readiness assumptions are based on conditions that do not currently exist for many depot workloads; (2) privatizing essentially all depot maintenance under current conditions would not likely achieve expected savings and, according to the military services, would result in unacceptable readiness and sustainability risks; (3) the extent to which DOD's long-term privatization plans and market forces will effectively create more favorable conditions for outsourcing is uncertain; (4) the CORM assumed a highly competitive and capable private market exists or would develop for most depot workloads; (5) however, GAO found that most of the depot workloads contracted to the private sector are awarded noncompetitively, mostly to the original equipment manufacturer; (6) additionally, a number of factors would likely limit private sector competition for many workloads currently in the public depots; (7) the CORM data does not support its depot privatization savings assumption; (8) the CORM's assumption is based primarily on reported savings from public-private competitions for commercial activities under Office of Management and Budget (OMB) Circular A-76, but these commercial activities were generally dissimilar to depot maintenance activities because they involved relatively simple, routine, and repetitive tasks that did not generally require large capital investment or highly skilled and trained personnel; (9) GAO's analysis of depot maintenance workloads currently contracted to the private sector found, for the most part, that the contractors were responsive to contract requirements for delivery and performance; (10) however, DOD officials noted that DOD depots provide greater flexibility than contractors and can more quickly respond to nonprogrammed, quick-turnaround requirements; (11) the military services periodically assess the readiness and sustainability risks of privatizing depot workloads, and if the risks are determined to be too high, the workloads are retained in the public depots; (12) the CORM assumed that public-private competitions would only be used in the absence of private sector competition and would be limited to only a few cases; (13) public-private depot maintenance competitions have resulted in savings and benefits and can provide a cost-effective way of making depot workload allocation decisions for certain workloads; and (14) the beneficial use of such competitions could have significantly more applicability than the Commission assumed.