DOD Competitive Sourcing

Plan Needed to Mitigate Risks in Army Logistics Modernization Program Gao ID: NSIAD-00-19 October 4, 1999

The Army plans to reengineer its processes and modernize its aging computers used to manage inventories of parts and equipment supplied to combat troops. Under its Wholesale Logistics Modernization Program, the Army plans to contract with the private sector to reengineer its business processes and develop a new system. Until the new system is up and running, the contractor will operate the existing computer system as well. The Army intends to accomplish these objectives with the same level of resources devoted to the existing system. The contractor chosen to do the work will be expected to make the capital investment needed to develop the new system, with the expectation that it would be able to recoup its investment through future operating efficiencies. This report reviews the Army's decision to contract for its wholesale logistics management information system. GAO discusses (1) the Army's plan to comply with the requirements of the law and of Office of Management and Budget's Circular A-76 and (2) the cost uncertainties and other risks that could affect the future success of the modernization effort.

GAO noted that: (1) the Army's plans for implementing its Wholesale Logistics Modernization Program initiative by contracting with the private sector include actions to respond to the congressional notification requirements contained in legislation and the guidance contained in Office of Management and Budget Circular A-76; (2) significant uncertainties about the Army's abilities to execute its modernization program as planned, particularly within preset funding levels, exist; (3) in July 1998, the Army provided advance notification to Congress, under 10 U.S.C. 2461, concerning its plans to consider contracting for the operation of its existing system and development of a modernized system; (4) it subsequently notified Congress in April 1999 concerning approval of a waiver of a detailed cost comparison between the public and private sector under Circular A-76; (5) while the Army has not yet provided Congress with cost information and certifications required under section 2461 and section 8014 of the Department of Defense Appropriations Act for Fiscal Year 1999 (P.L. 105-262), it expects to do so prior to entering into a contract for the modernization effort; (6) to date, the Army has taken actions to comply with legislative and A-76 requirements for the plan to contract for the wholesale logistics modernization; (7) however, affected employees have filed four appeals of the A-76 waiver with the Assistant Secretary of the Army for Installations and Environment which are pending; (8) because it was granted an A-76 waiver, the Army did not conduct a detailed cost comparison, but it did complete a business case analysis to assess prospective costs of various alternatives and as a basis for selecting its planned approach; (9) however, various factors suggest that much uncertainty exists over the Army's ability to achieve its modernization objectives within preset funding levels and whether a new system would be put in place as quickly as initially anticipated to reduce operating costs; (10) thus, the Army could be faced with making future tradeoffs between Wholesale Logistics Modernization Program investment costs and its modernization objectives; (11) additionally, the Army faces uncertainties regarding the number of employees who may be willing to accept employment with the private sector to maintain the existing system while a new system is being developed; and (12) limited system documentation of the existing system increases the importance of existing employees to continue maintenance of the legacy system while a new system is being developed.


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