Defense Outsourcing

The Defense Department (DOD) estimates that almost two-thirds of its budget for fiscal year 1997--about $146 billion--will go towards operations and support activities, which include facility maintenance, training, military health care, and spare parts inventories. DOD is trying to save billions of dollars by outsourcing work to the private sector and through other initiatives. This testimony discusses DOD's past experience in realizing infrastructure saving, key infrastructure areas that offer the greatest potential for savings, and challenges that DOD faces in reducing infrastructure in the future.

GAO noted that: (1) GAO agrees with DOD and others that significant opportunities exist to reduce DOD's infrastructure and support costs; (2) however, GAO questions whether the magnitude of savings anticipated by DOD and others is attainable within the current strategy and force structure; (3) GAO's past and ongoing work shows that while DOD's past savings initiatives yielded significant savings, they often fell short of the initial goal; (4) while DOD has substantially reduced its infrastructure through the base realignment and closure process and significant savings will ultimately be achieved, savings will not be as great as initially estimated or achieved as quickly as initially hoped; (5) today's future years defense plan shows that, despite these initiatives, future infrastructure costs will only slightly decline as a relative percentage of DOD's budget; (6) because of GAO's concern about the waste and inefficiencies in DOD's support structure and operations, GAO has designated DOD's infrastructure as one of 24 high-risk areas that are vulnerable to waste and mismanagement within the federal government; (7) GAO believes that DOD could reap significant savings by: (a) reducing excess capacity in its testing and evaluation areas and its laboratories and centers; (b) reducing excess capacity within DOD's depot maintenance system; (c) reducing the costs of managing its $67-billion inventory, of which almost half is beyond war reserve and operating requirements; (d) reducing installation support costs; and (e) reducing training costs; (8) new ideas about reducing infrastructure costs have recently been proposed to DOD that focus largely on outsourcing and privatization to achieve savings; (9) GAO's analysis of such proposals shows that there is reason for caution about whether the magnitude of hoped for savings can be achieved; (10) there are also various legislative requirements that will restrict and otherwise affect DOD's ability to implement some proposed initiatives; (11) GAO thinks that DOD's effort to reduce costs and achieve savings is extremely important and encourages DOD to move forward as quickly as possible; (12) breaking down cultural resistance to change, overcoming service parochialism, and setting forth a clear framework for a reduced defense initiative are key to effectively implementing savings; and (13) DOD and the services need to give greater structure to their efforts by developing an overall strategic plan, which would provide a basis for the Congress to oversee DOD's plan and allow affected parties to see what is going to happen and when.