Information Technology
Issues Affecting Cost Impact of Navy Marine Corps Intranet Need to Be Resolved Gao ID: GAO-03-33 October 31, 2002Under the Navy Marine Corps Intranet (NMCI) contract, the Department of the Navy is obtaining information technology (IT) services that are to allow it to replace thousands of independent networks, applications, hardware, and software with one secure network. The National Defense Authorization Act of 2002 directed GAO to review the impact on IT costs of NMCI at Navy shipyards and air depots, which are predominantly working capital funded activities. Because this funding model requires these activities to recover all costs through charges to customers, GAO also reviewed NMCI's impact on shipyard and depot rates.
To date, NMCI has not measurably affected either IT costs at shipyards and air depots or the rates they charge customers. This is because the network, while originally planned to be in place at these activities in fiscal year 2002, is now not to be implemented at them until the latter part of fiscal year 2003. For fiscal year 2003, budget estimates show that NMCI will represent about 2 percent of total costs at shipyards and air depots. As a percentage of IT costs, NMCI costs will be more significant: about 38 percent at shipyards and 31 percent at air depots. According to shipyard and depot officials, estimated NMCI costs (which are a component of overhead costs) will not affect the rates charged to customers in fiscal year 2003 because they will be offset by cost reductions in other overhead areas, such as travel, training, and real property maintenance. Beyond fiscal year 2003, the impact of NMCI on IT costs and rates is unclear, because several issues peculiar to shipyards and air depots are unresolved, such as how the costs of some transition items will be funded and whether these costs will be included in the rates. Also uncertain is when these issues will be resolved, because no specific plans for doing so exist, and no explicit issue management process has been established. As a result, the shipyards' and depots' ability to effectively plan and budget is being impaired.
RecommendationsOur 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.
Director: Team: Phone:GAO-03-33, Information Technology: Issues Affecting Cost Impact of Navy Marine Corps Intranet Need to Be Resolved
This is the accessible text file for GAO report number GAO-03-33
entitled 'Information Technology: Issues Affecting Cost Impact of Navy
Marine Corps Intranet Need to Be Resolved' which was released on
October 31, 2002.
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Report to Congressional Committees:
October 2002:
INFORMATION TECHNOLOGY:
Issues Affecting Cost Impact of Navy Marine Corps Intranet Need to Be
Resolved:
GAO-03-33:
Letter:
Appendixes:
Appendix I: Briefing Presented to Subcommittees:
Letter October 31, 2002:
The Honorable Carl Levin
Chairman
The Honorable John Warner
Ranking Minority Member
Committee on Armed Services
United States Senate:
The Honorable Bob Stump
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representatives:
The National Defense Authorization Act for fiscal year 2002 (Public Law
107-107) directed us to review the impact of the Navy Marine Corps
Intranet (NMCI) program on the information technology (IT) costs of
Navy working capital funded industrial facilities. As agreed with your
offices, our work focused on naval shipyards and air depots that
operate under the Navy‘s working capital fund. Because working capital
funded facilities are required to set rates to recover all costs
through charges to customers, our work also included NMCI‘s impact on
rates.
NMCI is a multiyear program to outsource the vast majority of Navy and
Marine Corps desktop, server, infrastructure, and communications asset
and service needs. Through the NMCI services contract, the Navy plans
to replace thousands of independent networks, applications, and other
hardware and software with one secure network for all Navy and Marine
Corps civilian and military personnel, including deployed forces. The
Navy expects that significant benefits will accrue from NMCI over the
life of the contract, including (1) an uninterrupted flow of
information; (2) improvements to interoperability, security,
information assurance, knowledge sharing, productivity, and
operational performance; and (3) reduced costs. The Navy awarded the
NMCI contract in October 2000 to Electronic Data Systems Corporation,
for an estimated 412,000 to 416,000:
workstations/seats[Footnote 1] and an estimated minimum value of $6.9
billion over 8 years.
On August 30 and September 6, 2002, we provided your offices a briefing
on the results of this review, including our scope and methodology.
This report transmits the briefing, which is reprinted as appendix I.
In summary, NMCI has not to date measurably affected either IT costs at
shipyards and air depots or the rates they charge customers, because
NMCI implementation at these facilities has slipped from fiscal year
2002 to the latter part of fiscal year 2003. However, shipyard and
depot officials stated that NMCI transition activities during fiscal
year 2002, such as site readiness and preparation, have had a minor
effect on costs. We could not quantify their impact on IT costs because
these costs were not separately identified.
For fiscal year 2003, budget estimates show that NMCI will make up
about 2 percent of total shipyard and depot costs and about 38 and 31
percent of shipyard and depot IT costs, respectively. Shipyard and
depot officials told us that these NMCI cost estimates, which are a
component of overhead costs, will not affect the rates charged to
customers in fiscal year 2003 because they plan to reduce budgeted
costs in other overhead accounts, such as travel, training, and real
property maintenance, to offset budgeted NMCI costs. However, if
activities are not successful in implementing plans or in offsetting
unexpected costs that may arise during the year, they could operate at
a loss and thus be required to increase rates in subsequent fiscal
years.
The impact of NMCI on IT costs and rates beyond fiscal year 2003 is
unclear because, as we reported in our briefing, several issues
peculiar to shipyards and depots were unresolved, such as how the costs
of some transition items would be funded and whether these costs would
be included in the rates. Moreover, NMCI implementation plans did not
provide for resolving them because responsibility for doing so had not
been clearly assigned and the Navy did not have an explicit issue
identification and resolution process. This exacerbates the uncertainty
surrounding NMCI‘s future impact on shipyard and depot costs and rates,
and limits these activities‘ ability to plan and budget. DOD
subsequently told us these issues have been resolved, but did not
provide supporting evidence and did not specify its process for issue
identification and resolution and who is responsible for the process.
To ensure that existing and future issues are effectively and
efficiently resolved, and thereby allow the shipyards and depots to
make more informed planning and budgeting decisions, we recommend that
the Secretary of Defense have the Secretary of the Navy direct the NMCI
program manager, in collaboration with the Commanders of the Naval Sea
Systems Command and the Naval Air Systems Command, to develop and
execute an issue management process that resolves existing and future
issues and includes:
* participation by Navy shipyard and air depot officials,
* continuous identification of relevant and material NMCI
implementation issues,
* shipyard and air depot implementation plans that include strategies
for resolving these issues, and:
* tracking of and reporting on issue resolution.
In response to a draft of this report, DOD provided what it termed
’official oral comments“ from the Acting Deputy Assistant Secretary of
Defense for Command, Control, Communications, and Intelligence. In its
comments DOD stated that it agreed with the report. DOD also provided
updated information on the unresolved issues discussed in the briefing
(app. I). We have incorporated the information as appropriate.
We are sending copies of this report to the Chairmen and Ranking
Minority Members of other Senate and House committees and subcommittees
that have jurisdiction and oversight responsibilities for the
Departments of Defense and the Navy. We are also sending copies to the
Secretary of Defense; the Secretary of the Navy; the Commandant of the
Marine Corps; the Assistant Secretary of Defense for Command, Control,
Communications, and Intelligence; and the Director of the Office of
Management and Budget. Copies will also be available at no charge on
our Web site at www.gao.gov.
Should you or your staff have any questions on matters discussed in
this report, please contact Randolph Hite at (202) 512-3439 or Gregory
Kutz at (202) 512-9095. They can also be reached by E-mail at
hiter@gao.gov and kutzg@gao.gov. Key contributors to this report were
Barbara Collier, William Hill, Greg Pugnetti, Ronnie Tobias, Carl Urie,
and Robert
Williams, Jr.
Randolph C. Hite
Director, Information Technology Architecture
and Systems Issues:
Signed by Randolph C. Hite:
Gregory D. Kutz
Director, Financial Management and Assurance:
Signed by Gregory D. Kutz:
[End of section]
Appendixes:
Appendix I: Briefing Presented to Subcommittees:
[See PDF for image]
[End of figure]
[End of Section]
FOOTNOTES
[1] Seat management generally refers to service provision arrangements
in which contractor-owned desktop and other computing hardware,
software, and related services are bundled and provided to a client
(e.g., government agency) at a fixed price per unit (or seat).
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