Navy Depot Maintenance

Cost and Savings Issues Related to Privatizing-in-Place at the Louisville, Kentucky, Depot Gao ID: NSIAD-96-202 September 18, 1996

The Defense Department (DOD) is planning to reallocate depot maintenance workloads from depots recommended for closure or realignment by the 1995 Commission on Defense Base Realignment and Closure. DOD is considering privatization-in-place for several of these depots. The Navy notified Congress that it intends to award contracts for the Louisville, Kentucky, workload using other than competitive procedures. As a result, this report focuses on the Navy's plans to privatize in place its depot workload at Louisville, Kentucky.

GAO found that: (1) privatization-in-place is not cost-effective given the excess capacity in the DOD depot maintenance system; (2) the Navy's privatization plan for the Louisville depot will not reduce excess capacity at the remaining depots or in the private sector and may be more costly than transferring the work to other depots; (3) DOD pays for the excess capacity whether it is in the public or private sector; (4) privatizing the facility may not comply with statutory requirements for public-private competitions, since the Navy plans to use noncompetitive procurement procedures; (5) the Navy overstated the cost of transferring the Louisville workload to other depots by at least $66 million and generally assumed that privatization would save 20 percent, which is not likely to be realized; (6) the Navy's projection is based on conditions that are not relevant for most depot maintenance workloads and does not reflect the cost of excess capacity in the public sector; (7) the Navy did not assess the risk associated with contracting the depot's core workload, since the majority of the workload is mission essential; and (8) in July 1996, the Navy awarded contracts to Hughes Missile Systems Company and United Defense Limited Partnership for work in progress, but it did not verify that the privatization plan conformed with statutory requirements for public-private competition.

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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