Defense Depot Maintenance

Waste and inefficiency in the Defense Department's (DOD) logistics system, including management of its $13 billion depot maintenance program, prompted GAO to include military infrastructure among its list of high-risk areas within the federal government. (See GAO/HR-97-7, Feb. 1996.) This testimony discusses DOD's (1) plans for eliminating costly depot maintenance excess capacity, (2) progress in finalizing a new depot workload allocation policy, (3) current approach to allocating maintenance workloads for new and existing systems, and (4) estimates that billions can be saved by outsourcing depot maintenance.

GAO noted that: (1) the waste and inefficiency in DOD's logistic system, including the management of its $13 billion depot maintenance program, is one of the key reasons GAO identified DOD's infrastructure activities as 1 of 24 high risk areas within the federal government; (2) there is excess capacity in the industrial repair and overhaul capability of the public and private sectors, which contributes significantly to their inefficiency; (3) costly excess capacity totalling about 40 percent remains in the DOD depot system; (4) as the services seek to privatize a greater share of their depot maintenance, the cost of maintaining excess capacity will increase unless additional capacity reductions are made; (5) the Navy has made the greatest progress in dealing with its excess depot maintenance through the consolidation and expedited closure of those facilities affected by the base realignment and closure process; (6) Congress received and ultimately rejected proposed policy regarding depot-level maintenance and repair; (7) provisions in the policy were predicated on relief from the existing statutes that influence depot workload allocations between the public and private sectors; (8) these provisions include 10 U.S.C. 2464, which prohibits the use of more than 40 percent of the funds made available in a given year for depot-level maintenance private sector performance and 10 U.S.C. 2469, which provides that DOD-performed depot maintenance and repair workloads valued at not less than $3 million cannot be changed to performance by contractors without the use of competitive procedures among public and private sector entities; (9) assessments are being made to determine what portion of DOD's current workload can be outsourced without acceptable risk; (10) DOD is facing large shortfalls in its modernization accounts and plans to reduce costs and generate savings for modernization through the outsourcing of support activities such as depot maintenance; (11) the inefficient operation of depot maintenance activities results in a reduction of the military services' purchasing power through their operations and maintenance; and (12) privatizing depot maintenance activities, including the downsizing of the remaining DOD depot infrastructure, could exacerbate existing capacity problems and the inefficiencies inherent in under utilization of depot maintenance capacity.