Army Depot Maintenance

Privatization Without Further Downsizing Increases Costly Excess Capacity Gao ID: NSIAD-96-201 September 18, 1996

This report focuses on the Army's plans to reallocate depot maintenance workloads from depots recommended for closure or realignment by the 1995 Commission on Defense Base Realignment and Closure. GAO reviewed the Army's plans to consolidate workloads at remaining military depots and emerging plans to privatize workloads in place or at other private sector facilities to determine the (1) impact on excess depot capacity and operating costs at the remaining defense depots, (2) cost-effectiveness of planned privatization options, and (3) compliance with statutory requirements.

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.

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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