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entitled 'Military Base Realignments and Closures: DOD Needs to Update
Savings Estimates and Continue to Address Challenges in Consolidating
Supply-Related Functions at Depot Maintenance Locations' which was
released on July 9, 2009.
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
July 2009:
Military Base Realignments and Closures:
DOD Needs to Update Savings Estimates and Continue to Address
Challenges in Consolidating Supply-Related Functions at Depot
Maintenance Locations:
GAO-09-703:
GAO Highlights:
Highlights of GAO-09-703, a report to congressional committees.
Why GAO Did This Study:
As a result of a 2005 Defense Base Realignment and Closure (BRAC)
recommendation, the Defense Logistics Agency (DLA) is charged with
consolidating supply, storage, and distribution functions at 13
military service depot maintenance locations to streamline operations
and save money. The BRAC Commission data indicate that these
consolidations would generate net savings of nearly $1 billion through
2011 and about $137 million annually thereafter.
Because these actions could affect depot maintenance operations, the
conference report accompanying the National Defense Authorization Act
for Fiscal Year 2008 directed GAO to assess implementation issues
associated with the consolidations. GAO’s objectives were to assess (1)
DLA’s progress and challenges to implement these consolidation actions
and (2) the extent to which DLA’s most recent cost and savings
estimates related to these consolidations differ from those of the BRAC
Commission. To meet these objectives, GAO visited three depot locations
where consolidation actions had begun, interviewed service and DLA
officials, and analyzed estimated cost and savings data.
What GAO Found:
While DLA has made progress to consolidate supply-related functions at
the 13 depot maintenance locations recommended by BRAC and has taken
steps to minimize the risk to ongoing operations, some of the most
difficult tasks are yet to be undertaken and pose implementation
challenges for DLA. For example, the Army and DLA officials are still
negotiating what specific functions and personnel will transfer to DLA
and the information technology interfaces needed to consolidate DLA’s
and the services’ supply inventories continue to evolve and have
experienced delays. Nevertheless, DLA anticipates that the
consolidation actions will be completed by the mandated September 2011
BRAC deadline for completing recommended actions. For the actions to be
complete, DLA officials told GAO the military services must have
transferred all related personnel positions to DLA and physically
consolidated all applicable inventories with DLA. While personnel
transfers are under way, DLA has not begun physically consolidating
inventories. And, although DLA has taken several steps to mitigate risk
to ongoing depot operations such as involving stakeholders in the
decision-making process, ensuring high-level leadership to drive these
transformational actions, and employing time-phased transfers,
continued collaboration between the services and DLA and periodic
monitoring by DOD are critical to ensure the timely completion of these
BRAC actions.
Compared to the BRAC Commission’s 2005 cost and savings estimates, DOD
expects to spend more and save significantly less by implementing the
supply-related consolidation actions. DLA’s current data indicate that
the cost to implement the recommended consolidation actions has
increased by about $158 million (378 percent) while estimated savings
have decreased by $753 million (73 percent). Consequently, estimated
net savings of about $82 million over the 2006-2011 BRAC implementation
period are considerably less than the BRAC Commission’s estimate of
about $993 million. Further, net annual savings beyond 2011 are
projected to be $52 million per year, rather than the Commission’s $137
million estimate—an annual decrease of about $85 million (62 percent).
Moreover, GAO found that DLA’s most recent savings estimates are
unrealistic because they are based on practices that count some savings
that GAO believes are not attributable to BRAC actions, use 4-year-old
data, assume an inventory reduction scenario that is unlikely to occur,
and employ an overall methodology that has not been approved by senior-
level officials. DOD’s financial management regulation requires BRAC
savings estimates to be based on the best projection of savings that
will actually accrue, but GAO’s analysis indicates that DLA could
actually incur a net cost of $22 million during the implementation
period if non-BRAC-related savings were removed from the estimate,
compared to the $82 million in net savings that DLA currently projects.
Although the potential exists for DLA to eventually realize savings
over time as it assumes control over supply-related operations, updated
savings estimates based on sound estimating practices would provide
better information for congressional oversight and help maintain public
confidence in the BRAC process.
What GAO Recommends:
GAO recommends that the Department of Defense (DOD) improve the
accuracy of its savings estimates by taking a number of steps,
including updating inventory data and removing savings not clearly the
result of 2005 BRAC actions. DOD concurred.
View [hyperlink, http://www.gao.gov/products/GAO-09-703] or key
components. For more information, contact Brian J. Lepore at (202) 512-
4523 or leporeb@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
DLA Has Taken Steps to Minimize Disruptions to Depot Operations and
Made Progress Toward Completing SS&D Consolidation but the Most
Difficult Tasks Lie Ahead, Posing Challenges:
DOD Expects to Spend More and Save Less to Transfer Supply-Related
Functions and Associated Inventories, Although Savings Estimates Are
Unrealistic:
Conclusions:
Recommendations:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Status of Full-time Equivalent Positions (Civilian and
Contractor) Expected to Transfer from the Services to DLA:
Appendix III: Comments from the Department of Defense:
Appendix IV: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Full-time Equivalent Civilian Positions Transferred to DLA
Compared to the Number of Personnel in Those Positions, as of May 2009:
Table 2: Comparison of DLA's Current Cost and Savings Estimates to BRAC
Commission's Estimates for the Consolidated Depot-Level SS&D Actions:
Table 3: Comparison of DLA's Cost Estimates to BRAC Commission's
Estimates for Fiscal Years 2006-2011 for the Consolidated Depot-Level
SS&D Actions:
Table 4: Comparison of DLA's Savings Estimates to the BRAC Commission's
Estimates for the Consolidated Depot-Level SS&D Actions:
Table 5: Number of Full-time Equivalent Positions (Civilian and
Contractor) Expected to Transfer from the Services to DLA at the 13
BRAC-Affected Depot Maintenance Locations over Time:
Figures:
Figure 1: Locations of the 13 BRAC-Affected Military Depot Maintenance
Sites:
Figure 2: Completion Status of Key Milestones, as of May 2009:
Abbreviations:
BRAC: Base Realignment and Closure:
COBRA: Cost of Base Realignment Actions:
DLA: Defense Logistics Agency:
DOD: Department of Defense:
OSD: Office of the Secretary of Defense:
SS&D: supply, storage and distribution:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 9, 2009:
Congressional Committees:
The Defense Logistics Agency (DLA) is the largest combat support agency
for the Department of Defense (DOD), providing worldwide logistics
support in both peacetime and wartime to the military services. Under
existing arrangements with the military services, both DLA and the
services perform supply, storage, and distribution (SS&D)
functions[Footnote 1] and maintain inventories of repair parts at 13
domestic depot maintenance locations.[Footnote 2] As part of a larger
2005 base realignment and closure (BRAC) recommendation concerning
supply-related functions within DOD, DLA was charged with consolidating
SS&D functions, along with associated inventories, at all 13 locations-
-and is required to do so by September 15, 2011, the mandated
completion date for implementing all recommendations from the 2005 BRAC
round. DOD expects that the consolidation actions will eliminate
unnecessary redundancies and duplication, streamline supply-related
processes, and save money. The BRAC Commission projected that nearly $1
billion in savings would accrue through 2011 by implementing the
recommended actions and that additional savings of over $137 million
would occur annually thereafter.
Although such consolidation actions are historically atypical of BRAC
recommendations, the Secretary of Defense made it clear at the outset
that his primary goal for the 2005 BRAC round was military
transformation. As such, many of the BRAC 2005 recommendations involve
complex realignments such as reconfiguring the defense supply, storage,
and distribution network. The BRAC actions related to SS&D are
transformational in that they focus on complex business process
reengineering[Footnote 3] efforts involving the transfer of personnel
and management functions, and the consolidation of inventories in
addition to synchronizing several existing and evolving information
technology systems. While these transformational actions are intended
to provide benefits to DOD over time, their implementation could have
an adverse impact on depot maintenance operations during a time of high
wartime demands, if not carefully managed.
Further, unlike prior BRAC rounds, BRAC 2005 included a number of joint
recommendations involving more than one military component, thus
creating challenges in achieving unity of effort among the services and
defense agencies. We have previously reported that BRAC recommendations
such as the consolidation of SS&D functions, which involve a
significant amount of joint cooperation and complex organizational
transformation, place DOD at risk of not implementing recommendations
on time and in some cases risk mission disruption. In our most recent
report focusing specifically on the SS&D-recommended actions at the
depot level in October 2007, we reported[Footnote 4] that the military
services had expressed concerns about disruptions that could result
from the SS&D consolidation process, and we concluded that periodic
monitoring by the Office of the Secretary of Defense was critical to
ensure that DLA implementation actions were on track.
In addition to furthering transformation and fostering jointness,
anticipated savings resulting from BRAC implementation remained an
important consideration and was a factor in justifying the need for the
2005 BRAC round. To realize savings[Footnote 5] from BRAC 2005, DOD
typically must first invest billions of dollars in facility
construction, renovation, and other up-front expenses, and we have
previously reported that DOD planned to spend more and save less than
the BRAC Commission originally estimated. In October 2007, for example,
we reported that implementation cost estimates for the transfer of SS&D
functions at the depot level had increased and that savings estimates
had decreased, and we reported that it is critical for DOD to continue
to monitor and adjust projected savings attributable to BRAC as
necessary. In a March 2008 report,[Footnote 6] we noted higher costs
and lower savings projected for two DLA-managed BRAC recommendations,
including the consolidation actions discussed in this report. In
addition, in January 2009, we reported[Footnote 7] that the services
and other DOD components were not consistently updating BRAC savings
estimates, and we recommended that the Office of the Secretary of
Defense take steps to ensure that BRAC savings estimates are based on
the best projection of savings that will actually accrue from approved
realignments and closures. DOD subsequently concurred with that
recommendation and stated that regularly updating savings is essential.
Due to continued concerns about the implementation of the recommended
supply-related consolidation actions at the depot level and their
potential impact on depot maintenance operations, the conference report
[Footnote 8] accompanying the National Defense Authorization Act for
Fiscal Year 2008[Footnote 9] directed us to assess issues associated
with the implementation of the consolidation actions at the depot level
as required by BRAC. Accordingly, our objectives were to assess (1)
DLA's progress and challenges in implementing these BRAC supply-related
consolidation actions with minimum disruption to depot operations and
(2) the extent to which DLA's most recent cost and savings estimates
for implementing these consolidations differ from those of the 2005
BRAC Commission.
To address our objectives, we initially reviewed a June 2008 DOD
report[Footnote 10] on matters associated with implementing the
recommended supply-related consolidations as well as our prior work
germane to our objectives. To determine DLA's progress and challenges,
we analyzed DLA implementation planning documentation, including its
business plans and supporting data, and interviewed officials at
various levels within DOD, DLA, selected services' maintenance depots,
and military customers aligned with these depots. We visited three of
the seven depot maintenance locations where some portions of the
consolidation actions have taken place. To evaluate the extent to which
DLA's most recent cost and savings estimates varied from those of the
BRAC Commission, we compared DLA's estimates as presented in supporting
documentation to its February 2009 business plan with those of the BRAC
Commission and discussed the rationale for variances with DLA
officials. We further analyzed the overall methodology and associated
assumptions used by DLA in deriving its estimates. We conducted this
performance audit from June 2008 through July 2009 in accordance with
generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives. More detailed information on our scope
and methodology appears in appendix I.
Results in Brief:
While DLA has taken steps to minimize potential disruptions to depot
operations as a result of its planned consolidation efforts and has
made progress in implementing the SS&D consolidation actions, the most
difficult tasks still lie ahead, posing challenges for DLA in
completing those actions. DLA has taken steps in its plans to mitigate
risks to the depots' mission by implementing a number of key actions--
several of which are considered best practices for organizational
transformation--such as ensuring that leadership drives the
transformation and involving military stakeholders in decision making.
Senior DLA officials we spoke to told us that they will consider
consolidation actions complete when the agreed-upon SS&D functions,
personnel positions, and associated personnel have been transferred
from the military service to DLA and when related applicable military
and DLA inventories have been physically consolidated. As of May 2009,
the Air Force had completed the transfer of all positions and
associated personnel at all 3 of its affected depots; the Navy had
completed transfers at 4 of its 5 locations, and the Marine Corps and
the Army had not yet begun to transfer positions. In addition, as of
May 2009, DLA had not physically consolidated any inventories and the
first is not scheduled to occur until August 2009, which represents a 3-
month slippage from the milestones set forth at the beginning of our
review. DLA does not currently plan to consolidate any inventories at 5
of the 13 locations--3 Army and 2 Marine Corps locations--because,
according to DLA and military service officials, neither of these
services have any applicable inventories to consolidate. Although DLA
expects to complete the recommended actions by the statutory BRAC
deadline of September 15, 2011, we identified several challenges,
including finalizing strategic agreements--for which the schedule for
completion has slipped several times--and addressing information
technology issues, which may impede DOD's efforts to achieve
efficiencies envisioned by the BRAC Commission. As we have previously
reported, continued collaboration between the services and DLA and
periodic monitoring by DOD are critical to ensure that implementation
actions are on track and that any issues that could adversely affect
depot operations are resolved as implementation proceeds.
In comparison to the BRAC Commission's estimates, DOD expects to spend
more and save less to implement the recommended SS&D consolidation
actions, and our analysis indicates that DLA's current savings
estimates are unrealistic.[Footnote 11] According to DLA's latest
estimates, the net savings to transfer the supply-related functions and
associated inventories will be reduced by $911 million over the 6-year
BRAC implementation period compared to the BRAC Commission's estimated
net savings. DLA now projects about $82 million in net savings over
this time period, which is a decrease of $911 million (92 percent) from
the BRAC Commission's net savings estimate of about $993 million. The
$911 million reduction consists of a combination of an increase of
about $158 million (378 percent) in expected one-time implementation
costs and a $753 million (73 percent) decrease in expected savings.
Additionally, the estimated net annual recurring savings that DLA
expects to achieve after the SS&D actions have been completed have
decreased from the BRAC Commission's estimate of nearly $137 million
per year to $52 million per year. This represents an annual decrease of
about $85 million (62 percent). Our analysis indicates that these
decreases in estimated net savings are attributable primarily to
increased costs for information technology integration efforts and a
large reduction in estimated savings to be achieved by reducing
inventory levels. Furthermore, DLA's most recent savings estimates are
unrealistic because they count some savings that we believe are not
attributable to BRAC actions, use 4-year-old inventory data that are
not likely to reflect current inventory levels, assume an inventory
reduction scenario that is unlikely to occur as planned, and employ a
methodology that is still in draft form and has not been approved by
senior-level DLA officials. DOD's Financial Management
Regulation[Footnote 12] requires BRAC savings estimates to be based on
the best projection of what savings will actually accrue. Our analysis
indicates that, as a result of updating just one of these factors--
excluding savings resulting from service inventory reduction efforts
not attributable to BRAC--DLA could actually incur net costs of $22
million during the implementation period, compared to the $82 million
in net savings DLA currently projects.[Footnote 13] Once the services'
and DLA's SS&D consolidations are completed and DLA assumes control
over supply-related operations, DLA could achieve some efficiencies,
but the magnitude of those savings is unknown. As we have previously
reported, imprecise savings estimates could diminish public trust in
the BRAC process by producing an unrealistic sense of the savings that
this BRAC round may actually produce. Updated savings estimates, based
on sound estimating practices and more recent data, would provide sound
information to congressional decision makers while maintaining public
confidence in the BRAC process. Therefore, we are making four
recommendations intended to improve the accuracy of DLA's current
savings estimates.
In written comments on a draft of this report, DOD concurred with all
of our recommendations and described actions it intends to take to
implement them. DOD's comments are printed in their entirety in
appendix III. DOD also provided us with technical comments which we
incorporated as appropriate.
Background:
DOD has undergone four BRAC rounds since 1988 and is currently
implementing its fifth round. In May 2005, the Secretary of Defense
made public more than 200 realignment and closure proposals. In making
these proposals, DOD applied legally mandated selection criteria that
included not only expected costs and savings but also military value,
which considers criteria such as an installation's current and future
mission capabilities. Additionally, in establishing the goals of the
2005 BRAC round, the Secretary of Defense expressed interest in
transforming DOD to attain greater efficiencies by aligning the
infrastructure with the defense strategy and by implementing
opportunities for greater jointness across DOD. The BRAC Commission,
which was established by law as an independent entity to review DOD's
proposals, ultimately forwarded 182 recommendations to the President
for approval. The President approved the recommendations and forwarded
the list to Congress. The BRAC 2005 recommendations became effective on
November 9, 2005, with completion required by September 15, 2011.
For the 2005 BRAC round, DOD's Basing Directorate, under the Office of
the Under Secretary of Defense (Acquisition, Technology and Logistics),
monitors the services' and defense agencies' implementation progress,
analyzes budget justifications for significant differences in cost and
savings estimates, and facilitates the resolution of any challenges
that may impair the successful implementation of the BRAC
recommendations within the 6-year implementation period. To facilitate
its oversight role, the Office of the Secretary of Defense (OSD)
requires the military service or agency in charge of implementing a
specific BRAC recommendation to prepare and submit a detailed business
plan and update it every 6 months, usually in February and August, to
support annual budget preparation and documentation. These plans are to
include such information as a list of all actions needed to implement
the recommendation, schedules for personnel movements, and updated
costs and savings estimates based on better and updated information.
One of the most complicated BRAC recommendations in the 2005 round with
potentially one of the largest amount of savings is commonly referred
to as the supply, storage, and distribution (SS&D) recommendation,
which has two primary components. One is to reconfigure DLA's wholesale
SS&D network into a streamlined hub and spoke network across the United
States while the other is to consolidate the SS&D functions and related
inventories at 13 specified military depot maintenance locations where
the military services have SS&D functions and associated inventories co-
located with a DLA distribution center. DLA, as the business manager
for the recommendation, is responsible for implementing the overall
recommendation. This review focuses only on the consolidation portion
of the SS&D BRAC recommendation at the depot maintenance level. Figure
1 provides a map of the 13 BRAC-affected military locations where depot
maintenance is performed.
Figure 1: Locations of the 13 BRAC-Affected Military Depot Maintenance
Sites:
[Refer to PDF for image: map of the United States]
The thirteen sites depicted on the map are:
Anniston Army Depot, Alabama;
Corpus Christi Army Depot, Texas;
Fleet Readiness Center East Cherry Point, North Carolina;
Fleet Readiness Center Southeast Jacksonville, Florida;
Fleet Readiness Center Southwest, San Diego, California;
Marine Corps Logistics Base Albany, Georgia;
Marine Corps Logistics Base Barstow, California;
Norfolk Naval Shipyard, Virginia;
Ogden Air Logistics Center, Utah;
Oklahoma City Air Logistics Center, Oklahoma;
Puget Sound Naval Shipyard, Washington;
Tobyhanna Army Depot, Pennsylvania;
Warner Robins Air Logistics Center, Georgia.
Source: DLA and Map Resources (map).
[End of figure]
DLA Has Taken Steps to Minimize Disruptions to Depot Operations and
Made Progress Toward Completing SS&D Consolidation but the Most
Difficult Tasks Lie Ahead, Posing Challenges:
While DLA has taken steps to minimize potential disruptions to depot
operations as a result of its planned consolidation efforts and has
made progress in implementing the SS&D consolidation actions, the most
difficult tasks still lie ahead, posing challenges for DLA in
completing those actions. According to DLA officials, the SS&D
consolidation action will be certified as complete when two key actions
are completed: personnel are transferred to DLA and applicable service
inventories are consolidated with DLA. As of May 2009, personnel
transfers had occurred at 7 of the 13 depot locations, but the physical
consolidation of inventories has yet to begin. While DLA expects to
complete recommended consolidation actions by the statutory BRAC
deadline of September 15, 2011, we have identified several challenges
that, if not properly addressed and monitored, could impede progress
towards completing the recommended actions and achieving the
efficiencies envisioned by the BRAC Commission. Although DLA has
incorporated in its approaches to implementation a number of best
business practices that have helped to facilitate the implementation
process, continued monitoring of ongoing actions is critical to ensure
that challenges are properly addressed and any actions that may pose a
risk to depot operations are resolved.
DLA Has Taken Steps to Minimize Disruptions to Depot Operations:
In planning for BRAC consolidation actions, DOD has taken steps to
minimize potential disruptions to depot operations that could occur
during or as a result of its planned consolidation efforts. DLA's
evolving plans incorporate several features that we believe, if
implemented as intended, conform to best practices that we have
identified for successful organizational transformations. These
mitigating actions include providing for an organizational structure
involving top leadership and key stakeholders to drive the
implementation process, establishing integrated process teams to
facilitate planning and communication among stakeholders, using a time-
phased approach to transferring SS&D functions from the services to
DLA, and transferring service personnel to DLA in a minimally
disruptive way. These features, some of which are designed to address
challenges faced by DLA and the services, include the following:
* Leadership--DLA has provided for high-level leadership, supported by
an organizational structure that includes stakeholders from the
military services and DLA, to help ensure that issues arising during
the implementation process are addressed and the intent of the
recommended actions are achieved. This organizational structure
fulfills the best practice of ensuring that top levels of leadership
drive the transformation process. In addition, both DLA and service
personnel affected by the transfer have noted that the commanders in
charge of the transformation visited affected sites and conducted town
hall meetings prior to the actual transfer to answer questions and were
very helpful in allaying the fears of affected personnel.
* Integrated process teams--At each transfer site, DLA and the services
have established integrated process teams[Footnote 14] that include
representatives from DLA and the services. These teams incorporate the
best practices of involving stakeholders and establishing a
communication strategy that helps share expectations and report on
progress and challenges as implementation continues. Each team is
responsible for developing a topic-and site-specific comprehensive plan
that includes detailed tasks and identifies each task's duration, start
and completion dates, percentage completed, organization and personnel
assigned, criticality of task, and milestones. The teams meet regularly
to discuss implementation issues, work through problems and concerns,
and identify potential solutions and mitigating actions where possible.
In addition, each team has the ability to sit in and observe, and share
lessons-learned, with other teams.
* Time-phased transfer of SS&D functions from the services to DLA--To
proceed cautiously and build upon lessons learned, the transfer of SS&D
functions from the military services to DLA is being phased in by
service, beginning with personnel transfers in each service. According
to DLA officials, timed phasing of transfers is intended to allow for
the focused dedication of resources to one site at a time. For example,
at some Air Force locations, DLA encountered problems issuing a large
volume of common access cards--which are a necessary form of personnel
identification--at one time. Due to the time-phased approach, each Air
Force location had the opportunity to apply lessons learned from the
experiences of the previous one and the Navy, as they began their
transfers, were applying lessons learned from the Air Force. Thus, DLA
has been able to more readily address issues as implementation
progresses.
* "As-is-where-is" transfer of personnel from the services to DLA--In
addition, the transfer of all affected SS&D personnel positions is
occurring on an "as-is-where-is" basis. This means that employees
filling the transferred positions perform the same general duties at
the same location as they did prior to the transfer, albeit for DLA
instead of for one of the services. To the extent that this construct
is implemented, there is likely to be less risk for disrupting
maintenance production schedules due to personnel transfers since the
employees are already experienced in performing these jobs.
DLA Has Made Progress Transferring Personnel, but Physical Inventory
Consolidation Has Not Yet Begun:
As shown in figure 2 below, DLA had established integrated process
teams as of May 2009 at all 13 BRAC-affected locations. In addition,
DLA and the Air Force had finalized strategic agreements guiding agreed-
upon details for transferring functions and personnel and consolidating
inventory at the three Air Force locations. Further, 7 of the 13
affected locations--all three Air Force locations and four Navy
locations--have completed the transfer of personnel through the "as-is-
where-is" approach. DLA's current plans call for transferring over
2,100 positions at the 13 specified military service depot maintenance
locations from the services to DLA by July 2011. (See app. II for more
detailed information on these positions broken out by depot location.)
As of May 2009, 1,391 civilian positions had been transferred to DLA.
Also, DLA and the Air Force have stated that they have the ability to
integrate their existing information technology systems--a critical
prerequisite for being able to consolidate inventories as recommended
by the BRAC Commission. Finally, DLA has established preliminary
completion dates for physically consolidating inventories, which is
currently scheduled to begin in August 2009. Figure 2 provides an
overall picture of the status of key steps that must be implemented in
order to complete the recommended BRAC actions.
Figure 2: Completion Status of Key Milestones, as of May 2009:
[Refer to PDF for image: illustration]
13 co-located sites:
Air Force: Warner Robins Air Logistics Center, Georgia;
Key step: Integrated process teams formed: Completed, January 2007;
Key step: Strategic agreements finalized: Completed,
Key step: As-is-where-is personnel transfer completed: Completed,
Key step: Information technology solution available[A]: Completed,
Key step: Inventory consolidation completed: Scheduled,
Air Force: Oklahoma City Air Logistics Center, Oklahoma;
Key step: Integrated process teams formed: Completed, January 2007;
Key step: Strategic agreements finalized: Completed, August, 2007;
Key step: As-is-where-is personnel transfer completed: Completed,
October, 2007;
Key step: Information technology solution available[A]: Completed,
April, 2009;
Key step: Inventory consolidation completed: Scheduled, August, 2009.
Air Force: Ogden Air Logistics Center, Utah;
Key step: Integrated process teams formed: Completed, January 2007;
Key step: Strategic agreements finalized: Completed, August, 2007;
Key step: As-is-where-is personnel transfer completed: Completed,
February, 2008;
Key step: Information technology solution available[A]: Completed,
April, 2009;
Key step: Inventory consolidation completed: Scheduled, November, 2009.
Navy: Fleet Readiness Center East Cherry Point, North Carolina;
Key step: Integrated process teams formed: Completed, January 2007;
Key step: Strategic agreements finalized: Completed, August, 2007;
Key step: As-is-where-is personnel transfer completed: Completed, July,
2008;
Key step: Information technology solution available[A]: Scheduled,
April, 2009;
Key step: Inventory consolidation completed: Scheduled, January, 2010.
Navy: Fleet Readiness Center Southeast Jacksonville, Florida;
Key step: Integrated process teams formed: Completed, July, 2007;
Key step: Strategic agreements finalized: Completed, April, 2009;
Key step: As-is-where-is personnel transfer completed: Completed,
August, 2008;
Key step: Information technology solution available[A]: Scheduled,
July, 2010;
Key step: Inventory consolidation completed: Scheduled, February, 2011.
Navy: Fleet Readiness Center Southwest San Diego, California;
Key step: Integrated process teams formed: Completed, July, 2007;
Key step: Strategic agreements finalized: Completed, April, 2009;
Key step: As-is-where-is personnel transfer completed: Completed,
February, 2009;
Key step: Information technology solution available[A]: Scheduled,
July, 2010;
Key step: Inventory consolidation completed: Scheduled, April, 2011.
Navy: Norfolk Naval Shipyard, Virginia;
Key step: Integrated process teams formed: Completed, October, 2007;
Key step: Strategic agreements finalized: Completed, April, 2009;
Key step: As-is-where-is personnel transfer completed: Completed, May,
2009;
Key step: Information technology solution available[A]: Scheduled,
July, 2010;
Key step: Inventory consolidation completed: Scheduled, July, 2011.
Navy: Puget Sound Naval Shipyard, Washington;
Key step: Integrated process teams formed: Completed, October, 2007;
Key step: Strategic agreements finalized: Completed, April, 2009;
Key step: As-is-where-is personnel transfer completed: Scheduled, July,
2009;
Key step: Information technology solution available[A]: Scheduled,
July, 2010;
Key step: Inventory consolidation completed: Scheduled, July, 2011.
Marine Corps: Marine Corps Logistics Base Albany, Georgia;
Key step: Integrated process teams formed: Completed, November, 2007;
Key step: Strategic agreements finalized: Scheduled, June, 2009;
Key step: As-is-where-is personnel transfer completed: Scheduled,
September, 2009;
Key step: Information technology solution available[A]: Scheduled,
August, 2010;
Key step: Inventory consolidation completed: Not applicable.
Marine Corps: Marine Corps Logistics Base Barstow, California;
Key step: Integrated process teams formed: Completed, November, 2007;
Key step: Strategic agreements finalized: Scheduled, June, 2009;
Key step: As-is-where-is personnel transfer completed: Scheduled,
September, 2010;
Key step: Information technology solution available[A]: Scheduled,
August, 2010;
Key step: Inventory consolidation completed: Not applicable.
Army: Tobyhanna Army Depot, Pennsylvania;
Key step: Integrated process teams formed: Completed, January, 2009;
Key step: Strategic agreements finalized: Scheduled, July, 2009;
Key step: As-is-where-is personnel transfer completed: Scheduled,
February, 2011;
Key step: Information technology solution available[A]: Not applicable;
Key step: Inventory consolidation completed: Not applicable.
Army: Corpus Christi Army Depot, Texas;
Key step: Integrated process teams formed: Completed, January, 2009;
Key step: Strategic agreements finalized: Scheduled, July, 2009;
Key step: As-is-where-is personnel transfer completed: Scheduled,
February, 2010;
Key step: Information technology solution available[A]: Not applicable;
Key step: Inventory consolidation completed: Not applicable.
Army: Anniston Army Depot, Alabama;
Key step: Integrated process teams formed: Completed, January, 2009;
Key step: Strategic agreements finalized: Scheduled, July, 2009;
Key step: As-is-where-is personnel transfer completed: Scheduled, July,
2011;
Key step: Information technology solution available[A]: Not applicable;
Key step: Inventory consolidation completed: Not applicable.
Source: GAO analysis of DLA data.
Note: All dates associated with scheduled actions are subject to change
as implementation proceeds, if DLA or the services deem it necessary.
[A] This refers to when the necessary information technology
modifications have been made to DLA's business systems to provide
functionality needed in order to integrate with the services' business
systems.
[End of figure]
Some of the Most Complex Tasks Are Yet to Be Undertaken, Posing
Implementation Challenges:
While DLA expects to complete the recommended consolidation actions by
the statutory BRAC deadline of September 15, 2011, some of the most
complex tasks required to fully implement the SS&D BRAC actions are yet
to be undertaken and pose implementation challenges. These tasks
include finalizing strategic agreements between DLA and some of the
services on issues such as costs for DLA-provided services as well as
the number of service personnel to be transferred in the future to DLA,
and integrating new and legacy information technology systems necessary
for inventory consolidation efforts. In addition, issues related to
human capital could ultimately degrade productivity if not properly
addressed.
DLA and the Military Services Continue to Resolve Issues:
According to military officials, while strategic agreements do not need
to be finalized in their entirety in order for transfer activities to
commence, negotiations are continuing to resolve issues as
implementation progresses. At the time of our review, agreements had
been finalized between DLA and the Air Force and the Navy. Although the
Navy agreements had been signed, there are unresolved issues regarding
how the Navy will reimburse DLA for DLA's SS&D service, according to
DLA officials. The Army and the Marine Corps have not finalized their
agreements with DLA because, according to DLA officials, the personnel
functions to be transferred to DLA have not yet been agreed upon. DLA
officials have stated that as implementation of the consolidation
actions approaches, they will work with the applicable service to come
to agreement on any remaining outstanding issues. However, any delays
in reaching agreement could affect the dates set forth for remaining
tasks in the implementation schedule presented in figure 2.
Since the beginning of our review, the scheduled milestones for having
approved strategic agreements between DLA and the services have slipped
several times. For example, while the Navy and DLA were initially
scheduled to sign their strategic agreement (referred to as a concept
of operations in the Navy) in July 2008, DLA signed the agreement in
August 2008 but the Navy did not sign until April of 2009. Likewise,
although the Army and DLA were previously scheduled to sign their
agreement in August 2008, the current schedule now calls for July 2009.
The Marine Corps has also slipped from its previously scheduled date of
August 2008 to June 2009 to sign its strategic agreement with DLA.
As we have previously reported,[Footnote 15] the services have also
been concerned about the consolidation actions' impact on their
inventory levels and how this could potentially affect readiness and
depot functions to serve the warfighter. Tied into this concern for the
services is what pricing structure DLA will use once the recommended
actions are implemented. As previously reported, service officials have
expressed concern about the price DLA will charge them for providing
the SS&D functions that the services previously provided in-house.
Service officials have expressed concern that DLA will charge them a
higher cost than what they could provide the same service for, thereby
resulting in increased costs for depot maintenance operations, which in
turn would be passed on to the customers of the maintenance depots.
However, DLA officials have stated that upon assumption of
responsibility for the transferred SS&D functions, the cost for DLA-
provided services will be no greater than the costs currently incurred
by the services. Costs will differ depending on what costs are included
in the price DLA charges for its services and there is currently a lack
of agreement on how these costs should be calculated.
Information Technology Integration Issues:
Another challenge to the completion of SS&D consolidation actions
involves delays and issues associated with the integration of DLA's
information system with those of each military service. As we have
reported in our High-Risk Series,[Footnote 16] information technology
planning and development within DOD has been a long-standing area of
concern, including difficulties associated with creating interfaces
among different automated systems. DLA's supply information technology
system needs to interface with each of the services' systems before any
inventory consolidations can take place. This integration requires
ongoing coordination between DLA and service information technology
experts to make the necessary modifications to their systems in order
to provide for the proper connectivity among those systems. However,
this coordination process has experienced difficulties and has resulted
in an adverse effect on the systems integration process. For example,
DLA's progress in integrating its system with that of the Air Force has
been slowed due to the limited availability of Air Force technical
experts to work with their DLA counterparts. Air Force officials told
us that the limited availability is caused primarily by a general
shortage of technology technicians and they are often assigned to
higher priority service projects. As a result, the integration schedule
has slipped, which in turn has delayed the timing of inventory
consolidation with DLA. Another major complicating factor for the
integration process is that all military services, excluding the Marine
Corps, are in the process of upgrading and integrating their depot-
level automated systems with servicewide business system upgrades. The
timelines for these improvements were in flux at the time of our
review, thus creating the possibility that DLA may have to integrate
with service legacy systems at some sites and later integrate with new
service information technology systems as they become available. As
shown in figure 2, as of May 2009, DLA had made only the necessary
modifications to its system in order to integrate with the Air Force's
legacy system at all three of the Air Force's locations. At the time of
our review, the need for testing the connectivity remained before
consolidations of applicable inventories could occur.
Human Capital Issues:
The transfer of personnel from the services to DLA has raised some
challenges for the personnel involved. During our site visits, we spoke
with some personnel who had recently been transferred from the Air
Force or Navy to DLA, and many of those personnel expressed concerns
about several human capital issues, such as employee turnover, a lack
of administrative support, and low morale following the transfer. For
example, service officials and employees told us that a number of
employees at the affected depot locations decided to retire or pursue
positions elsewhere in anticipation of or in response to their transfer
to DLA. In addition, some former service personnel we spoke with
expressed concerns about fewer promotion opportunities and career
options with DLA compared to their former position with one of the
services. On the other hand, some personnel we spoke with were
generally satisfied with their transfer to DLA.
DLA officials stated that they are working with the services to address
human capital issues, pointing to the agreement they reached with the
Air Force, which allows employees to transfer and maintain eligibility
for service positions for the first year after being transferred.
However, DLA has not reached similar agreements with the other services
that have yet to fully transfer their positions. Table 1 shows the
number of civilian personnel that the Air Force and Navy have
transferred to DLA, compared with the number of associated positions.
Table 1: Full-time Equivalent Civilian Positions Transferred to DLA
Compared to the Number of Personnel in Those Positions, as of May 2009:
Service: Air Force;
Depot location: Warner Robins Air Logistics Center, Ga.;
Number of full-time equivalent positions transferred: 267;
Number of personnel filling those positions: 245;
Vacancies: 22.
Service: Air Force;
Depot location: Oklahoma City Air Logistics Center, Okla.;
Number of full-time equivalent positions transferred: 366;
Number of personnel filling those positions: 335;
Vacancies: 31.
Service: Air Force;
Depot location: Ogden Air Logistics Center, Utah;
Number of full-time equivalent positions transferred: 232;
Number of personnel filling those positions: 181;
Vacancies: 51.
Service: Navy;
Depot location: Fleet Readiness Center East Cherry Point, N.C.;
Number of full-time equivalent positions transferred: 158;
Number of personnel filling those positions: 145;
Vacancies: 13.
Service: Navy;
Depot location: Fleet Readiness Center Southeast Jacksonville, Fla.;
Number of full-time equivalent positions transferred: 112;
Number of personnel filling those positions: 91;
Vacancies: 21.
Service: Navy;
Depot location: Fleet Readiness Center Southwest San Diego, Calif.;
Number of full-time equivalent positions transferred: 101;
Number of personnel filling those positions: 86;
Vacancies: 15.
Service: Navy;
Depot location: Norfolk Naval Shipyard, Va.;
Number of full-time equivalent positions transferred: 155;
Number of personnel filling those positions: 146;
Vacancies: 9.
Service: Total;
Number of full-time equivalent positions transferred: 1,391;
Number of personnel filling those positions: 1,229;
Vacancies: 162.
Source: GAO analysis of DLA data.
Note: Some positions were vacant before the transfers occurred.
Therefore, the number of current vacancies does not necessarily reflect
the total number of personnel who opted to retire or pursue other
opportunities.
[End of table]
As shown in table 1, while personnel transfers have occurred at 7 of
the 13 locations affected by the BRAC actions, some locations are
experiencing more unfilled or vacant positions than others. It is
unclear at this point to what degree these vacancies may affect depot
operations, particularly in the administrative areas.[Footnote 17] On
our visits to the Ogden Air Logistics Center and Cherry Point Fleet
Readiness Center, DLA and service officials told us that, due to
consolidation actions, the administrative workload has increased, while
support for certain administrative tasks has decreased. At the time of
our review, DLA did not have the dedicated human capital staff at Ogden
to advertise and hire personnel to fill the vacant positions. However,
DLA officials we spoke to were aware of the situation and were in the
process of taking steps to rectify the issue. In addition, some other
administrative details, such as organizing van pools and disseminating
information about on-base activities, which the services customarily
provided to depot employees, are no longer available to transferred
staff. As a result, we observed and spoke with some employees who told
us that they felt overlooked and overworked and their morale was low.
DOD Expects to Spend More and Save Less to Transfer Supply-Related
Functions and Associated Inventories, Although Savings Estimates Are
Unrealistic:
In comparison to the BRAC Commission's estimates, DOD expects to spend
more and save less to transfer the SS&D functions and associated
inventories from the services to DLA, although our analysis indicates
that those savings estimates are unrealistic.[Footnote 18] The
combination of projected increased costs and decreased savings results
in an overall reduction in the expected net savings resulting from
implementing the recommended actions. DLA's latest estimates indicate
that increased information technology costs and decreased inventory
reduction savings have resulted in significantly lower estimated net
savings over the 6-year BRAC implementation period ending in 2011, as
well as lower estimated net annual recurring savings thereafter.
However, we believe that these estimates are unrealistic for a variety
of reasons. Nonetheless, the potential exists for DLA to realize
savings from expected efficiencies over time as DLA assumes broader
responsibility of supply-related operations at the depot level.
Current Estimated Net Savings during the BRAC Implementation Period and
Recurring Savings Thereafter Are Less Than Those Projected by the BRAC
Commission:
According to DLA's latest estimates, the net savings to transfer the
supply-related functions and associated inventories will be reduced by
$911 million over the 6-year BRAC implementation period compared to the
BRAC Commission's estimated net savings. As shown in table 2, DLA now
projects about $82 million in net savings over this time period, which
is a decrease of $911 million (92 percent) from the BRAC Commission's
net savings estimate of about $993 million. The $911 million reduction
consists of a combination of about a $158 million (378 percent)
increase in expected one-time implementation costs and a $753 million
(73 percent) decrease in expected savings. In addition, the net annual
recurring savings that DLA expects to achieve after the implementation
period have decreased by about $85 million per year, dropping from the
BRAC Commission's estimate of nearly $137 million annually to $52
million annually.
Table 2: Comparison of DLA's Current Cost and Savings Estimates to BRAC
Commission's Estimates for the Consolidated Depot-Level SS&D Actions
(Dollars in millions):
Category: Fiscal years 2006-2011: One-time costs;
BRAC Commission estimate[A]: $41.8;
DLA estimate[B]: $199.7;
Difference: Amount[C]: $157.9;
Difference: Percentage change: 378.
Category: Fiscal years 2006-2011: One-time savings;
BRAC Commission estimate[A]: $703.8;
DLA estimate[B]: $121.1;
Difference: Amount[C]: ($582.7);
Difference: Percentage change: (83).
Category: Fiscal years 2006-2011: Recurring savings;
BRAC Commission estimate[A]: $330.9;
DLA estimate[B]: $160.4;
Difference: Amount[C]: ($170.5);
Difference: Percentage change: (52).
Category: Fiscal years 2006-2011: Total net savings;
BRAC Commission estimate[A]: $992.9;
DLA estimate[B]: $81.9;
Difference: Amount[C]: ($911.0);
Difference: Percentage change: (92).
Category: Fiscal year 2012 and beyond: Net annual recurring savings;
BRAC Commission estimate[A]: $136.8;
DLA estimate[B]: $52.1;
Difference: Amount[C]: ($84.7);
Difference: Percentage change: (62).
Source: GAO analysis of documents supporting DLA's approved February
2009 business plan and the BRAC Commission's 2005 report.
Note: Totals may not sum because of rounding.
[A] These figures are presented in then-year dollars. While the BRAC
Commission reported its estimates in fiscal year 2005 constant dollars
(i.e., excludes projected inflation), DLA subsequently converted them
to then-year dollars (i.e., includes projected inflation) in its
business plans.
[B] These figures are derived from documents supporting DLA's February
2009 business plan.
[C] Represents the variance between the DLA estimate and the BRAC
Commission estimate.
[End of table]
Higher Estimated Costs Are Largely Due to Increased Spending on
Information Technology Integration Efforts:
According to DLA's latest estimates, the total estimated costs for
transferring the SS&D functions and associated inventories have
increased about $158 million over the 6-year BRAC implementation period
compared to the BRAC Commission's estimates. As shown in table 3, DLA's
estimated costs are nearly $200 million over this period, which is an
increase of about $158 million (378 percent) over the BRAC Commission's
estimate of almost $42 million. Our analysis of DLA data indicates that
the main driver for projected cost increases is greater spending on
information technology integration efforts with about $130 million (82
percent) of the overall cost increase due to this cause. DLA currently
reports information technology costs of nearly $166 million, which is
about $130 million (351 percent) more than the BRAC Commission's
estimate of about $37 million. However, the BRAC Commission's estimate
was a placeholder amount that was expected to change as information
technology requirements became known. According to DLA officials, the
majority of the necessary information technology requirements involve
modifying DLA's business systems to provide functionality needed in
order to integrate with the services' business systems at the depot
level. DLA reports that it expects to spend $123 million (74 percent)
of information technology costs on modifying its systems to perform
inventory and financial transactions previously provided by the
services, and another $26 million to incorporate newly transferred
employees' computers at the 13 depot maintenance sites into DLA's
network, to include hardware installation, software licensing, and
computer desktop support. The remaining $16 million in information-
technology-related costs is slated for the military services in
interfacing their business systems with DLA's systems:
Table 3: Comparison of DLA's Cost Estimates to BRAC Commission's
Estimates for Fiscal Years 2006-2011 for the Consolidated Depot-Level
SS&D Actions (Dollars in millions):
Category: Information technology;
BRAC Commission estimate[A]: $36.8;
DLA estimate[B]: $165.9;
Difference: Amount[C]: $129.2;
Difference: Percentage change: 351.
Category: Other[D];
BRAC Commission estimate[A]: $1.0;
DLA estimate[B]: $17.2;
Difference: Amount[C]: $16.2;
Difference: Percentage change: 1636.
Category: Personnel[E];
BRAC Commission estimate[A]: $4.0;
DLA estimate[B]: $16.6;
Difference: Amount[C]: $12.6;
Difference: Percentage change: 313.
Category: Total costs;
BRAC Commission estimate[A]: $41.8;
DLA estimate[B]: $199.7;
Difference: Amount[C]: $157.9;
Difference: Percentage change: 378.
Source: GAO analysis of documents supporting DLA's approved February
2009 business plan and the BRAC Commission's 2005 report.
Note: Totals may not sum because of rounding.
[A] These figures are presented in then-year dollars. While the BRAC
Commission reported its estimates in fiscal year 2005 constant dollars
(i.e., excludes projected inflation), DLA subsequently converted them
to then-year dollars (i.e., includes projected inflation) in its
business plans.
[B] These figures are derived from documents supporting DLA's business
plan.
[C] Represents the variance between the DLA estimate and the BRAC
Commission estimate.
[D] Includes BRAC Transition Office, supplies and other administrative
costs.
[E] Includes personnel separation costs.
[End of table]
Lower Estimated Savings Are Primarily Due to Reductions in Inventory-
Related Savings:
According to DLA's latest estimates, expected savings from transferring
the SS&D functions and associated inventories from the services' depots
to DLA have decreased by about $753 million over the 6-year BRAC
implementation period and by about $85 million annually after the
implementation period, compared to the BRAC Commission's estimates. As
shown in section A of table 4, DLA projects combined one-time and
recurring savings of nearly $282 million during the implementation
period, which is about $753 million (73 percent) less than the BRAC
Commission's estimate of more than $1 billion in savings. As shown in
section B of table 4, DLA also projects $52 million in annual recurring
savings beginning in fiscal year 2012, which is a decrease of almost
$85 million (62 percent) over the BRAC Commission's estimate of nearly
$137 million annually. These decreases in expected savings are
primarily due to a dramatic fall in projected inventory-related
savings, which account for $739 million (98 percent) of the decrease in
estimated savings during the implementation period and nearly $83
million (98 percent) of the decrease in estimated annual recurring
savings thereafter.
Table 4: Comparison of DLA's Savings Estimates to the BRAC Commission's
Estimates for the Consolidated Depot-Level SS&D Actions (Dollars in
millions):
Category: Section A: One-time savings over fiscal years 2006-2011:
Inventory;
BRAC Commission estimate[A]: $703.8;
DLA estimate[B]: $119.1;
Difference: Amount[C]: ($584.7);
Difference: Percentage change: (83).
Category: Section A: One-time savings over fiscal years 2006-2011:
Other[D];
BRAC Commission estimate[A]: 0.0;
DLA estimate[B]: $2.0;
Difference: Amount[C]: $2.0;
Difference: Percentage change: 100.
Category: Section A: One-time savings over fiscal years 2006-2011:
Total one-time savings;
BRAC Commission estimate[A]: $703.8;
DLA estimate[B]: $121.1;
Difference: Amount[C]: ($582.7);
Difference: Percentage change: (83).
Category: Section A: Recurring savings over fiscal years 2006-2011:
Inventory;
BRAC Commission estimate[A]: $304.8;
DLA estimate[B]: $150.3;
Difference: Amount[C]: ($154.6);
Difference: Percentage change: (51).
Category: Section A: Recurring savings over fiscal years 2006-2011:
Other[E];
BRAC Commission estimate[A]: $1.6;
DLA estimate[B]: 0.0;
Difference: Amount[C]: ($1.6);
Difference: Percentage change: (100).
Category: Section A: Recurring savings over fiscal years 2006-2011:
Personnel[F];
BRAC Commission estimate[A]: $24.4;
DLA estimate[B]: $10.2;
Difference: Amount[C]: ($14.3);
Difference: Percentage change: (58).
Category: Section A: Recurring savings over fiscal years 2006-2011:
Total recurring savings;
BRAC Commission estimate[A]: $330.9;
DLA estimate[B]: $160.4;
Difference: Amount[C]: ($170.5); Difference: Percentage change: (52).
Category: Section A: One-time and recurring savings over fiscal years
2006-2011: Total savings;
BRAC Commission estimate[A]: $1,034.7;
DLA estimate[B]: $281.6;
Difference: Amount[C]: ($753.1);
Difference: Percentage change: (73).
Category: Section B: Annual recurring savings beginning in fiscal year
2012: Inventory;
BRAC Commission estimate[A]: $127.1;
DLA estimate[B]: $44.2;
Difference: Amount[C]: ($82.8);
Difference: Percentage change: (65).
Category: Section B: Annual recurring savings beginning in fiscal year
2012: Other[E];
BRAC Commission estimate[A]: $0.5;
DLA estimate[B]: 0.0;
Difference: Amount[C]: ($0.5);
Difference: Percentage change: (100).
Category: Section B: Annual recurring savings beginning in fiscal year
2012: Personnel[F];
BRAC Commission estimate[A]: $9.2;
DLA estimate[B]: $7.9;
Difference: Amount[C]: ($1.3);
Difference: Percentage change: (14).
Category: Section B: Annual recurring savings beginning in fiscal year
2012: Total annual recurring savings;
BRAC Commission estimate[A]: $136.8;
DLA estimate[B]: $52.1;
Difference: Amount[C]: ($84.7);
Difference: Percentage change: (62).
Source: GAO analysis of documents supporting DLA's approved February
2009 business plan and the BRAC Commission's 2005 report.
Note: Totals may not sum because of rounding.
[A] These figures are presented in then-year dollars. While the BRAC
Commission reported its estimates in fiscal year 2005 constant dollars
(i.e., excludes projected inflation), DLA subsequently converted them
to then-year dollars (i.e., includes projected inflation) in its
business plans.
[B] These figures are derived from documents supporting DLA's February
2009 business plan.
[C] Represents the variance between the DLA estimate and the BRAC
Commission estimate.
[D] Represents procurement savings from Naval shipyard and aviation
depots.
[E] Includes information technology and facilities savings.
[F] Represents civilian salary savings.
[End of table]
The decrease in savings due to less than expected inventory reductions
is attributed primarily to a misinterpretation in defining unneeded or
duplicate inventory that occurred during the BRAC decision-making
process for formulating recommendations. The BRAC Commission based its
savings estimate on the belief that the elimination of duplicate
inventory--inventory stored by both the services and the DLA depots--
would produce one-time and recurring savings.[Footnote 19] However, as
we previously reported, after further review of the potentially
duplicative items, DLA and the services found that data generated by
DOD during the BRAC decision-making process were flawed.[Footnote 20]
For example, war reserve materiel, materiel held for other customers,
and materiel stored at the Red River Army Depot were incorrectly
included in the BRAC estimation model. However, these items were not
actually duplicative and thus could not be eliminated. As a result, the
expected savings associated with these items will not occur. In order
to offset this loss of savings, DLA recalculated inventory reduction
savings to include only items supporting depot maintenance and also
expanded the scope of what could be identified as duplicative to
include all DLA-owned inventory stored at any of its warehouses in the
continental United States, as opposed to the BRAC Commission's approach
of comparing DLA and service-owned inventories stored at co-located
depot maintenance sites. In addition, while the BRAC Commission based
its savings estimate on the assumption that 100 percent of the
duplicative inventory would be reduced over a period of 2 fiscal years,
DLA applied a lower inventory reduction factor of 25 percent over the
same period.[Footnote 21] After these recalculations, DLA projected
inventory reduction savings totaling over $269 million during the 6-
year implementation period and $44 million in annual recurring savings
after the implementation period.
Although DLA Projects Savings, Current Estimates Are Unrealistic:
Although DLA projects almost $282 million in savings over the 6-year
implementation period and $52 million in annual recurring savings
thereafter resulting from the consolidation actions, our analysis shows
that some aspects of these estimates are unrealistic. DOD's Financial
Management Regulation instructs the services and defense agencies to
update BRAC savings estimates as part of their annual budget process
[Footnote 22] based on the best projection of what savings will
actually accrue.[Footnote 23] However, DLA's estimates do not represent
the best projections that could be made for a number of reasons.
* First, our analysis shows that DLA's expected net savings of nearly
$82 million during the implementation period could be a net cost of $22
million because DLA includes about $104 million in expected savings
that we believe should not be counted as BRAC savings. In previous
reports, we identified three inventory reduction initiatives that DLA
included in its savings estimates which we believed were not the direct
result of BRAC actions and therefore should not be counted as BRAC
savings.[Footnote 24] The savings from these three initiatives resulted
from pre-BRAC actions and initiatives already planned by the services
and would have occurred regardless of BRAC. In commenting on our March
2008 report, DOD did not concur, stating that while the potential
savings from these initiatives were not directly the result of BRAC
actions, they were "enabled" by BRAC actions and therefore should be
attributable to the recommendation.[Footnote 25] Since that time, DLA
revised its estimate and removed the expected savings from one of those
initiatives. However, the two that remain include $104 million in
savings attributed to service initiatives that identify and eliminate
dormant or obsolete inventory, even though such actions respond to a
supply regulation and are part of DOD's routine materiel management
practices[Footnote 26] and this inventory would have been eliminated
regardless of BRAC. We continue to believe that the expected savings
resulting from the services' initiatives not connected to BRAC should
not be counted as BRAC savings. In fact, BRAC implementation officials
from the Army and DLA acknowledged that the projected savings from the
services' obsolete and terminal inventory reductions were not related
to this BRAC recommendation and would have been eliminated regardless
of BRAC. We believe that including savings unrelated to BRAC actions
distorts and effectively overstates projected savings from implementing
the SS&D recommendation.
* Second, DLA's current savings estimates are based on 4-year-old
inventory data that were collected on March 14, 2005. Given the passage
of time, it is unlikely that these data represent more recent inventory
levels--either higher or lower--from which duplicate items can be
identified given the nature of ongoing operations in Iraq and
Afghanistan.
* Third, the inventory reduction scenario currently considered in DLA's
savings estimates is unlikely to occur as planned. DLA currently
projects a 25 percent reduction of duplicative inventory from all the
services that will occur over a 2-year period, with the first half
achieved in fiscal year 2009 and the second half in fiscal year 2010.
However, in our discussions with DLA officials implementing the
inventory transfer, we learned that expected savings from inventory
reductions are not expected to appear until the beginning of fiscal
year 2010 due to delays in integrating DLA's and the services'
information technology systems. Our analysis shows that postponing
inventory reduction by 1 year eliminates over $19 million in recurring
savings during the implementation period. Moreover, in prior related
work we demonstrated that while achieving savings from reducing
inventory levels at service maintenance depots may be possible, it is a
gradual process that occurs over many years.[Footnote 27] Therefore, we
believe that it is unlikely that DLA will achieve its entire inventory
reduction within 2 years as projected, which would further postpone the
accrual of inventory-related recurring savings.[Footnote 28] Also,
while DLA includes duplicative inventory from all the services in its
current estimates, Army and Marine Corps officials maintain that they
do not have any inventory for DLA to consolidate. Our analysis shows
that excluding these services' inventories would eliminate an
additional $21 million in expected one-time and recurring savings
during the implementation period.
Moreover, in our March 2008 report,[Footnote 29] we recommended that
the Secretary of Defense direct the Director of DLA to implement a
methodology with clear metrics for measuring the magnitude of actual
savings. Although DOD concurred with our recommendation, DLA has yet to
implement an approved methodology for estimating inventory savings from
the SS&D recommendation. DLA produced a draft version of its savings
methodology in September 2008, but could not provide us an estimate of
when it might be approved. While the savings methodology is in draft,
DLA could not give us an account of how actual savings from inventory
reduction will be captured. Until the methodology, data, and
assumptions supporting DLA's savings estimates are updated and
implemented, the extent of the savings from the implementation of the
recommended consolidations remains uncertain, which may deny DOD
decision makers and Congress the information needed to assess the
overall financial performance of this BRAC effort. Further, without
more precise savings estimates, Congress and DOD will lack an important
perspective about BRAC results that could inform decisions in any
future BRAC round.
Potential for Savings Still Exists Beyond the Implementation Period:
While DLA's current savings estimates are not based on the best
projections of what savings will actually accrue, the potential still
exists beyond the BRAC implementation period for DLA to realize some
savings and achieve efficiencies as it assumes control over
consolidated supply-related operations. The transfer of SS&D functions
and associated inventories is a complex organizational transformation,
yet it is possible that over time, DLA could achieve savings through
reductions in inventory levels, which provide for both one-time and
recurring savings on an annual basis. However, the magnitude of any
future savings is unknown at this time. As DLA assumes consolidated
management responsibility for supply-related inventories at the depot
maintenance level, DLA expects that it will have the ability to take
advantage of improved oversight of inventories and the opportunity to
further reduce excess inventory through a process of balancing
inventory levels against customer supply requirements to save money
while also providing quality service to its military service customers.
Conclusions:
While DLA's planning process incorporates several key elements that are
intended to provide a smooth transition and mitigate the risk of
disrupting depot operations, DLA still has a long way to go before it
completes the recommended BRAC actions, and some of the most difficult
steps are yet to be taken. Therefore, as we have previously reported,
continued collaboration between the services and DLA and periodic
monitoring by OSD are critical to ensure that implementation actions
are on track and that any issues that could adversely affect depot
operations are resolved as implementation proceeds. Furthermore, it is
important that DLA present the most accurate information on the costs
and savings associated with the implementation of this BRAC
recommendation in order to provide congressional decision makers with
credible information to perform their oversight duties and maintain
public trust in the BRAC process--now and in the future.
Recommendations:
In order to provide more accurate and up-to-date information to
congressional decision makers and to enhance OSD's oversight role, we
recommend that the Secretary of Defense instruct the Director of the
Defense Logistics Agency to improve the accuracy of its cost and
savings estimates associated with the consolidation of the SS&D
functions and inventories at the 13 specified depot locations by:
* removing savings estimates that are not clearly the direct result of
2005 BRAC actions (including savings sometimes referred to as "BRAC
enabled"),
* updating its 4-year-old data to reflect the most recent estimate of
inventory levels available for consolidation (especially given the
wartime demands currently being placed on maintenance depots),
* applying current information on the timing of inventory
consolidations (specifically, when they will begin and how long they
will take) and excluding projected savings for consolidating Army and
Marine Corps inventories with DLA, and:
* revising and finalizing an approved methodology which implements
these steps and can be consistently followed by all the services and
DLA over time.
Agency Comments:
In written comments on a draft of this report, DOD concurred with all
four recommendations and described actions it intends to take to
implement them. DOD's comments are included in their entirety in
appendix III. In response to our first recommendation for DOD to remove
savings from its estimates that are not the direct result of the BRAC
2005 actions (sometimes referred to as "BRAC enabled"), DOD concurred,
stating that they will be removed from the savings estimates reported
in the August 2009 business plan submission. In response to our second
recommendation for DOD to update the data used in its savings estimates
to more accurately reflect current inventory levels, DOD concurred,
stating that it will use the most recent estimate of inventory levels
available and update the savings calculations for inventory reductions
in its August 2009 business plan. In response to our third
recommendation for DOD to improve the accuracy of its savings estimates
by applying the most current information on the timing of inventory
consolidations and excluding Army and Marine Corps inventories from the
projected savings estimates, DOD concurred, stating that savings
calculations for projected inventory reductions will reflect the
current schedule of consolidating materiel and will be updated in the
August 2009 business plan. Moreover, DOD stated that the update will
show that no Army or Marine Corps inventory is available for
consolidation. Finally, in response to our fourth recommendation for
DOD to finalize an approved methodology that implements these steps,
DOD concurred, stating that the new calculations will be documented in
the August 2009 business plan and updates and revisions will be
incorporated and staffed by the end of calendar year 2009. In addition
to these written comments, DOD separately provided technical comments
that we have incorporated into the report where appropriate.
We are sending copies of this report to other congressional committees
and members; the Secretary of Defense; the Director of the Defense
Logistics Agency; Secretaries of the Army, Navy, and Air Force;
Commandant of the Marine Corps; and the Director, Office of Management
and Budget. In addition, the report will be available at no charge on
GAO's Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions regarding this report, please
contact me at (202) 512-4523 or by e-mail at leporeb@gao.gov. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff who made key
contributions to this report are listed in appendix IV.
Signed by:
Brian J. Lepore:
Director, Defense Capabilities and Management:
List of Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Tim Johnson:
Chairman:
The Honorable Kay Bailey Hutchison:
Ranking Member:
Subcommittee on Military Construction, Veterans Affairs, and Related
Agencies:
Committee on Appropriations:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Howard P. "Buck" McKeon:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable John P. Murtha, Jr.
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
The Honorable Chet Edwards:
Chairman:
The Honorable Zach Wamp:
Ranking Member:
Subcommittee on Military Construction, Veterans Affairs and Related
Agencies:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
We performed our work at and obtained information from DOD's Basing
Directorate under the Office of the Under Secretary of Defense
(Acquisition, Technology and Logistics); Defense Logistics Agency (DLA)
headquarters, Fort Belvoir, Virginia; DLA's Defense Supply Center,
Richmond, Virginia; Warner Robins Air Logistics Center, Warner Robins,
Georgia; Ogden Air Logistics Center, Ogden, Utah; and Fleet Readiness
Center East, Cherry Point, North Carolina. We relied on our related
BRAC work and resulting reports issued in October 2007 and March 2008
on key specific actions associated with the implementation of the
recommended supply-related consolidations of the BRAC SS&D
recommendation.
To determine the progress made in implementing the depot-level supply-
related consolidation actions as recommended by the 2005 Base Closure
and Realignment Commission and the challenges DLA faces, we initially
reviewed a June 2008 DOD report[Footnote 30] on implementation matters
associated with the recommended actions. This report was submitted to
the congressional defense committees in response to direction included
in the conference report accompanying the National Defense
Authorization Act for Fiscal Year 2008. We further analyzed DLA
planning documentation and interviewed officials at various levels
within DOD, DLA, selected services' maintenance depots, and military
customers aligned with these depots. Our document analyses included DLA
business plans and supporting data, integrated process team charters,
memoranda of agreement with the services, and action plans which
included scheduled implementation milestones and timelines. We
discussed the progress of key implementation actions, implementation
challenges, and plans to address those challenges with BRAC officials
located at DLA headquarters and each of the services. We also visited
three of the seven maintenance depot locations where "as-is-where-is"
personnel transfers had taken place: Warner Robins Air Logistics
Center, Warner Robins, Georgia; Fleet Readiness Center East, Cherry
Point, North Carolina; and Ogden Air Logistics Center, Ogden, Utah. In
making these site selection visits, we chose one site from each of the
services where personnel transfers had occurred (Air Force and Navy)
and a second Air Force site to see if "lessons learned" were being
applied. At those locations, we met with officials from DLA
headquarters as well as with some personnel newly transferred to DLA at
each depot maintenance location we visited and their military
customers. Although the number of people we spoke with did not
represent a statistically projectable sample, we reported concerns that
consistently emerged as an issue.
To evaluate the extent to which DLA's cost and savings estimates for
transferring the SS&D functions and consolidating the associated
inventories varied from those of the BRAC Commission, we reviewed and
compared DLA's estimates supporting the approved February 2009 business
plan with those of the 2005 BRAC Commission's report to the President.
Because the expected cost and savings data presented in DLA's business
plan represent estimates for the larger BRAC recommendation, of which
the consolidated SS&D actions addressed in this report are a subset, we
analyzed relevant supporting documentation to that business plan that
contained data specific to the depot-level supply-related consolidation
efforts. We discussed the rationale for variances in the estimates with
DLA, service, and contractor officials. To better understand the
underlying assumptions used to generate estimates of costs and savings,
we reviewed pertinent DOD financial management and supply chain
management regulations, as well as DOD guidance for reporting data. We
interviewed BRAC implementation officials from DLA headquarters and
representatives from each of the military services knowledgeable about
the data and the assumptions underlying estimated costs and savings. We
also compared DLA's savings estimates that were based on the inventory
reduction scenario that supports its business plan with those based on
DLA's most current timeline for reducing the services' applicable
inventories. While we determined that the data presented in DLA's
planning documents were sufficiently reliable for the purposes of this
report, it should be noted that the business plans are considered
"living" documents and the data represent a point in time and are
subject to change as implementation proceeds.
We conducted this review from June 2008 through July 2009 in accordance
with generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
[End of section]
Appendix II: Status of Full-time Equivalent Positions (Civilian and
Contractor) Expected to Transfer from the Services to DLA:
The number of civilian and contractor positions expected to transfer
from the services to DLA has changed over time as shown in table 5. The
latest plans as of May 2009 call for a transfer of over 2,100 personnel
positions from the services to DLA by July 2011. As of May 2009, DLA
had actually transferred 1,391 positions at 7 of the 13 affected sites
(as shown in table 5) with transfers at the remaining sites to occur
later.
Table 5: Number of Full-time Equivalent Positions (Civilian and
Contractor) Expected to Transfer from the Services to DLA at the 13
BRAC-Affected Depot Maintenance Locations over Time:
Service: Air Force;
Depot Location: Warner Robins Air Logistics Center, Ga.;
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 131;
September 2007 estimated number of full-time equivalent position
transfers[C]: 265;
May 2009 estimated number of full-time equivalent position
transfers[C]: 267.
Service: Air Force;
Depot Location: Oklahoma City Air Logistics Center, Okla.;
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 393;
September 2007 estimated number of full-time equivalent position
transfers[C]: 365;
May 2009 estimated number of full-time equivalent position
transfers[C]: 366.
Service: Air Force;
Depot Location: Ogden Air Logistics Center, Utah;
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 140;
September 2007 estimated number of full-time equivalent position
transfers[C]: 231;
May 2009 estimated number of full-time equivalent position
transfers[C]: 232.
Service: Navy;
Depot Location: Fleet Readiness Center East Cherry Point, N.C.;
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 114;
September 2007 estimated number of full-time equivalent position
transfers[C]: 88;
May 2009 estimated number of full-time equivalent position
transfers[C]: 158.
Service: Navy;
Depot Location: Fleet Readiness Center Southeast Jacksonville, Fla.;
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 129;
September 2007 estimated number of full-time equivalent position
transfers[C]: 71;
May 2009 estimated number of full-time equivalent position
transfers[C]: 188.
Service: Navy;
Depot Location: Fleet Readiness Center Southwest San Diego, Calif.;
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 89;
September 2007 estimated number of full-time equivalent position
transfers[C]: 85;
May 2009 estimated number of full-time equivalent position
transfers[C]: 221.
Service: Navy;
Depot Location: Norfolk Naval Shipyard, Va.;
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 132;
September 2007 estimated number of full-time equivalent position
transfers[C]: 157;
May 2009 estimated number of full-time equivalent position
transfers[C]: 223.
Service: Navy;
Depot Location: Puget Sound Naval Shipyard, Wash.[A];
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 62;
September 2007 estimated number of full-time equivalent position
transfers[C]: 89;
May 2009 actual number of full-time equivalent position transfers[C]:
154.
Service: Marine Corps;
Depot Location: Marine Corps Logistics Base, Albany, Ga.[A];
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 53;
September 2007 estimated number of full-time equivalent position
transfers[C]: 59;
May 2009 actual number of full-time equivalent position transfers[C]:
59.
Service: Marine Corps;
Depot Location: Marine Corps Logistics Base, Barstow, Calif.[A];
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 63;
September 2007 estimated number of full-time equivalent position
transfers[C]: 64;
May 2009 actual number of full-time equivalent position transfers[C]:
64.
Service: Army;
Depot Location: Tobyhanna Army Depot, Pa.[A];
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 113;
September 2007 estimated number of full-time equivalent position
transfers[C]: 68;
May 2009 actual number of full-time equivalent position transfers[C]:
68.
Service: Army;
Depot Location: Corpus Christi Army Depot, Tex.[A];
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 424;
September 2007 estimated number of full-time equivalent position
transfers[C]: 56;
May 2009 actual number of full-time equivalent position transfers[C]:
56.
Service: Army;
Depot Location: Anniston Army Depot, Ala.[A];
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 521;
September 2007 estimated number of full-time equivalent position
transfers[C]: 68;
May 2009 actual number of full-time equivalent position transfers[C]:
68.
Service: Total;
June 2005 estimated number of full-time equivalent position transfers
[B, C]: 2,364;
September 2007 estimated number of full-time equivalent position
transfers[C]: 1,665;
May 2009 estimated and actual number of full-time equivalent position
transfers[C]: 2,124.
Source: DLA's approved February 2009 Business Plan.
Note: The totals may not sum due to rounding.
[A] Numbers subject to change as implementation continues.
[B] Numbers derived from June 22, 2005, Office of the Secretary of
Defense memorandum ("Wynne Memo Baseline Numbers").
[C] Includes civilian and contractor employees.
[End of table]
[End of section]
Appendix III: Comments from the Department of Defense:
Deputy Under Secretary Of Defense For Logistics And Materiel Readiness:
3500 Defense Pentagon:
Washington, DC 20301-3500:
June 23, 2009:
Mr. Brian Lepore:
Director, Defense Capabilities and Management:
U.S. Government and Accountability Office:
441 G Street N.W.
Washington, DC 20548:
Dear Mr. Lepore:
This is the Department of Defense (DOD) response to the GAO draft
report, "Military Realignments And Closures: DOD Needs to Update
Savings Estimates and Continue to Address Challenges in Consolidating
Supply-Related Functions at Depot Maintenance Locations," dated May 21,
2009 (GAO Code 351233/GAO-09-703).
The DoD concurs with the draft report's recommendations. Comments are
enclosed.
The Department appreciates the opportunity to comment on the draft
report. Technical comments were provided separately.
Sincerely,
Signed by:
Alan F. Estevez:
Acting:
Enclosure: As stated:
[End of letter]
GAO Draft Report - Dated May 21, 2009:
GAO Code 351233/GAO-09-703:
"Military Base Realignments And Closures: DoD Needs to Update Savings
Estimates and Continue to Address Challenges in Consolidating Supply-
Related Functions at Depot Maintenance Locations"
Department Of Defense Comments To The Recommendations:
Recommendation 1: The GAO recommends that the Secretary of Defense
instruct the Director of the Defense Logistics Agency to improve the
accuracy of its cost and savings estimates associated with the
consolidation of the supply, storage, and distribution functions and
inventories at the 13 specified depot locations by removing savings
estimates that are not clearly the direct result of 2005 Base
Realignment and Closure (BRAG) actions (to include savings sometimes
referred to as "BRAC enabled"). (Page 25/GAO Draft Report)
DOD Response: Concur. While the enabled savings are from initiatives
that were enhanced in some way by the BRAC implementation actions (e.g.
increased scope, more aggressively pursued or moved in a new
direction), they are not directly the result of BRAC actions. The
removal of these enabling savings will be reflected in the August 2009
business plan submission.
Recommendation 2: The GAO recommends that the Secretary of Defense
instruct the Director of the Defense Logistics Agency to improve the
accuracy of its cost and savings estimates associated with the
consolidation of the supply, storage, and distribution functions and
inventories at the 13 specified depot locations by updating its four-
year-old data to reflect the most recent estimate of inventory levels
available for consolidations (especially given the wartime demands
currently being placed on maintenance depots). (Page 25/GAO Draft
Report)
DOD Response: Concur. In accordance with our established method of
operation, we will use the most recent estimate of inventory levels
available and update the savings calculations for inventory reductions
in the August 2009 business plan submission.
Recommendation 3: The GAO recommends that the Secretary of Defense
instruct the Director of the Defense Logistics Agency to improve the
accuracy of its cost and savings estimates associated with the
consolidation of the supply, storage, and distribution functions and
inventories at the 13 specified depot locations by applying current
information regarding the timing of inventory consolidations
(specifically, when it will begin and how long it will take) and
excluding projected savings for the consolidation of Army and Marine
Corps inventories with DLA. (Page 25/GAO Draft Report)
DOD Response: Concur. Savings calculations for projected inventory
reductions will be updated in the August 2009 business plan submission
to reflect the current schedule for consolidating materiel. The update
will show that there is no Marine Corps or Army inventory available for
consolidation.
Recommendation 4: The GAO recommends that the Secretary of Defense
instruct the Director of the Defense Logistics Agency to improve the
accuracy of its cost and savings estimates associated with the
consolidation of the supply, storage, and distribution functions and
inventories at the 13 specified depot locations by revising and
finalizing an approved methodology which implements these steps and can
be consistently followed by all the Services and DLA over time. (Page
25/GAO Draft Report)
DOD Response: Concur. Updated methodologies for projecting and/or
tracking BRAC savings reflected in the business plan will be documented
in the Cost and Savings Tracking Plan. Updates/revisions will be
incorporated and staffed by the end of calendar year 2009.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Brian J. Lepore (202) 512-4523 or leporeb@gao.gov:
Acknowledgments:
In addition to the individual named above, James R. Reifsnyder,
Assistant Director; Karen L. Kemper, Analyst-in-Charge; Betsey Ward;
Robert Heilman; Susan Ditto; Steve Rabinowitz; and Elizabeth Weisman
made key contributions to this report.
[End of section]
Related GAO Products:
High-Level Leadership Needed to Help Guam Address Challenges Caused by
DOD-Related Growth. [hyperlink,
http://www.gao.gov/products/GAO-09-500R], Washington, D.C.: April 9,
2009.
Military Base Realignments and Closures: DOD Faces Challenges in
Implementing Recommendations on Time and Is Not Consistently Updating
Savings Estimates. [hyperlink, http://www.gao.gov/products/GAO-09-217].
Washington, D.C.: Jan. 30, 2009.
Military Base Realignments and Closures: Army Is Developing Plans to
Transfer Functions from Fort Monmouth, New Jersey, to Aberdeen Proving
Ground, Maryland, but Challenges Remain. [hyperlink,
http://www.gao.gov/products/GAO-08-1010R]. Washington, D.C.: August 13,
2008.
Defense Infrastructure: High-Level Leadership Needed to Help
Communities Address Challenges Caused by DOD-Related Growth.
[hyperlink, http://www.gao.gov/products/GAO-08-665]. Washington D.C.:
June 17, 2008.
Defense Infrastructure: DOD Funding for Infrastructure and Road
Improvements Surrounding Growth Installations. [hyperlink,
http://www.gao.gov/products/GAO-08-602R]. Washington, D.C.: April 1,
2008.
Defense Infrastructure: Army and Marine Corps Grow the Force
Construction Projects Generally Support the Initiative. [hyperlink,
http://www.gao.gov/products/GAO-08-375]. Washington, D.C.: March 6,
2008.
Military Base Realignments and Closures: Higher Costs and Lower Savings
Projected for Implementing Two Key Supply-Related BRAC Recommendations.
[hyperlink, http://www.gao.gov/products/GAO-08-315]. Washington, D.C.:
March 5, 2008.
Defense Infrastructure: Realignment of Air Force Special Operations
Command Units to Cannon Air Force Base, New Mexico. [hyperlink,
http://www.gao.gov/products/GAO-08-244R]. Washington, D.C.: January 18,
2008.
Military Base Realignments and Closures: Estimated Costs Have Increased
and Estimated Savings Have Decreased. [hyperlink,
http://www.gao.gov/products/GAO-08-341T]. Washington, D.C.: December
12, 2007.
Military Base Realignments and Closures: Cost Estimates Have Increased
and Are Likely to Continue to Evolve. [hyperlink,
http://www.gao.gov/products/GAO-08-159]. Washington, D.C.: December 11,
2007.
Military Base Realignments and Closures: Impact of Terminating,
Relocating, or Outsourcing the Services of the Armed Forces Institute
of Pathology. [hyperlink, http://www.gao.gov/products/GAO-08-20].
Washington, D.C.: November 9, 2007.
Military Base Realignments and Closures: Transfer of Supply, Storage,
and Distribution Functions from Military Services to Defense Logistics
Agency. [hyperlink, http://www.gao.gov/products/GAO-08-121R].
Washington, D.C.: October 26, 2007.
Defense Infrastructure: Challenges Increase Risks for Providing Timely
Infrastructure Support for Army Installations Expecting Substantial
Personnel Growth. [hyperlink, http://www.gao.gov/products/GAO-07-1007].
Washington, D.C.: September 13, 2007.
Military Base Realignments and Closures: Plan Needed to Monitor
Challenges for Completing More Than 100 Armed Forces Reserve Centers.
[hyperlink, http://www.gao.gov/products/GAO-07-1040]. Washington, D.C.:
September 13, 2007.
Military Base Realignments and Closures: Observations Related to the
2005 Round. [hyperlink, http://www.gao.gov/products/GAO-07-1203R].
Washington, D.C.: September 6, 2007.
Military Base Closures: Projected Savings from Fleet Readiness Centers
Are Likely Overstated and Actions Needed to Track Actual Savings and
Overcome Certain Challenges. [hyperlink,
http://www.gao.gov/products/GAO-07-304]. Washington, D.C.: June 29,
2007.
Military Base Closures: Management Strategy Needed to Mitigate
Challenges and Improve Communication to Help Ensure Timely
Implementation of Air National Guard Recommendations. [hyperlink,
http://www.gao.gov/products/GAO-07-641]. Washington, D.C.: May 16,
2007.
Military Base Closures: Opportunities Exist to Improve Environmental
Cleanup Cost Reporting and to Expedite Transfer of Unneeded Property.
[hyperlink, http://www.gao.gov/products/GAO-07-166]. Washington, D.C.:
January 30, 2007.
Military Bases: Observations on DOD's 2005 Base Realignment and Closure
Selection Process and Recommendations. [hyperlink,
http://www.gao.gov/products/GAO-05-905]. Washington, D.C.: July 18,
2005.
Military Bases: Analysis of DOD's 2005 Selection Process and
Recommendations for Base Closures and Realignments. [hyperlink,
http://www.gao.gov/products/GAO-05-785]. Washington, D.C.: July 1,
2005.
[End of section]
Footnotes:
[1] In this context, supply, storage, and distribution functions refer
to various actions to provide repair parts to depot maintenance
personnel who perform repairs and upgrades on equipment that are needed
to maintain readiness and support ongoing military operations.
[2] Affected locations include three Air Logistics Centers located in
Warner Robins, Georgia; Oklahoma City, Oklahoma; and Ogden, Utah; three
Fleet Readiness Centers located in Cherry Point, North Carolina;
Jacksonville, Florida; and San Diego, California; two Naval Shipyards
located in Norfolk, Virginia; and Puget Sound, Washington; two Marine
Corps Logistics Bases located in Albany, Georgia; and Barstow,
California; and three Army depots located in Tobyhanna, Pennsylvania;
Corpus Christi, Texas; and Anniston, Alabama. Figure 1 shows a map of
these locations.
[3] Business process reengineering can be generally defined as an
approach for redesigning the way work is done to better support an
organization's mission and reduce costs.
[4] GAO, Military Base Realignments and Closures: Transfer of Supply,
Storage and Distribution Functions from Military Services to Defense
Logistics Agency, [hyperlink, http://www.gao.gov/products/GAO-08-121R]
(Washington, D.C.: Oct. 26, 2007).
[5] Savings are typically in the form of cost avoidances--avoiding
costs that DOD would have incurred if BRAC actions had not taken place.
While savings may begin to accrue over the implementation period,
additional savings typically occur annually on a longer term basis
beyond the implementation period. One-time savings may include reduced
costs associated with inventory reduction, for example; whereas
recurring savings may include reduced annual sustainment costs
associated with maintaining less warehouse space.
[6] GAO, Military Base Realignments and Closures: Higher Costs and
Lower Savings Projected for Implementing Two Key Supply-Related BRAC
Recommendations, [hyperlink, http://www.gao.gov/products/GAO-08-315]
(Washington, D.C.: Mar. 5, 2008).
[7] GAO, Military Base Realignments and Closures: DOD Faces Challenges
in Implementing Recommendations on Time and Is Not Consistently
Updating Savings Estimates, [hyperlink,
http://www.gao.gov/products/GAO-09-217] (Washington, D.C.: Jan. 30,
2009).
[8] H.R. Conf. Rep. No. 110-477, at 893-894 (2007).
[9] Pub. L. No. 110-181 (2008).
[10] Office of the Under Secretary of Defense (Acquisition, Technology
& Logistics), Department of Defense Report to Congress on the
Implementation of the Consolidation of Depot Supply, Storage, and
Distribution Functions with the DLA as Required by the 2005 BRAC (June
2008).
[11] The figures presented in this report are in then-year dollars.
While the BRAC Commission reported its figures in fiscal year 2005
constant dollars (i.e., excludes projected inflation), DLA subsequently
converted the Commission's estimates to then-year dollars in its
business plans and also expressed its estimates in then-year dollars
(i.e., includes projected inflation).
[12] DOD Financial Management Regulation, 7000.14-R, Base Realignment
and Closure Appropriations, vol. 2B, ch. 7, para. 070303E (Sept. 2008).
[13] We have previously reported and recommended that DLA not include
savings from initiatives that are not directly the result of BRAC
actions and would have occurred regardless of BRAC. While DLA disagreed
with this recommendation in stating that these particular savings are
"enabled" by the BRAC process, we continue to believe that including
savings unrelated to specific BRAC actions distorts and effectively
overstates projected savings, as will be discussed in more detail later
in the report.
[14] The seven teams formed are Inventory Management and Stock
Positioning, Financial Management, Facilities and Equipment,
Information Technology, Metrics, Human Performance, and Change
Management.
[15] [hyperlink, http://www.gao.gov/products/GAO-08-121R] and
[hyperlink, http://www.gao.gov/products/GAO-08-315].
[16] GAO, High-Risk Series: An Update, [hyperlink,
http://www.gao.gov/products/GAO-09-271] (Washington, D.C.: Jan. 22,
2009).
[17] In commenting on a draft copy of this report, DLA officials noted
that administrative support was not included as part of the SS&D
functional transfer.
[18] It should also be noted that the BRAC Commission's estimates are
based on DOD's use of the Cost of Base Realignment Actions (COBRA)
model, which is not intended to and does not present budget quality
estimates. Consequently, the costs and savings estimates calculated by
the model are likely to be different from the costs and savings that
will actually materialize.
[19] One-time savings result from procurement avoidance--consolidating
service and DLA inventories to create lower overall inventory levels--
which allows DLA to sell off inventory without need for replenishment.
Recurring savings result from the cost avoidance associated with
storing less amounts of inventory.
[20] [hyperlink, http://www.gao.gov/products/GAO-08-121R] and
[hyperlink, http://www.gao.gov/products/GAO-08-315].
[21] DLA justifies the use of a 25 percent inventory reduction factor
based on commercial program assessments as well as the results of a
December 2001 study conducted for the Army by Dynamics Research
Corporation. The study examined the potential for savings from
transferring inventory management of clothing and equipment from the
Army to DLA.
[22] DLA's savings estimates included in DLA's business plans are used
for the annual BRAC budget justification process.
[23] DOD Financial Management Regulation, 7000.14-R, Base Realignment
and Closure Appropriations, vol. 2B, ch. 7, para. 070303E (Sept. 2008).
[24] The three initiatives were provided by the Army, Air Force, and
Marine Corps. They were designed to create efficiencies through
reducing and phasing out obsolete inventory and improving procurement
practices.
[25] According to DOD, "enabled" savings are those generated from non-
BRAC initiatives that were enhanced (e.g., increased in scope, more
aggressively pursued, or moved in new directions) in some way by the
implementation of the BRAC recommendations.
[26] DOD 4140.1-R, DOD Supply Chain Materiel Management Regulation,
para. C.2.9 (May 23, 2003).
[27] GAO, Military Base Closures: Projected Savings from Fleet
Readiness Centers Likely Overstated and Actions Needed to Track Actual
Savings and Overcome Certain Challenges, [hyperlink,
http://www.gao.gov/products/GAO-07-304] (Washington, D.C.: June 29,
2007).
[28] Because we believe there is uncertainty as to how long it will
actually take DLA to reduce the entire duplicative inventory, we did
not attempt to quantify the loss during the implementation period from
the delay in the accrual of recurring savings.
[29] [hyperlink, http://www.gao.gov/products/GAO-08-315].
[30] Office of the Under Secretary of Defense (Acquisition, Logistics
and Technology), Department of Defense Report to Congress on the
Implementation of the Consolidation of Depot Supply, Storage, and
Distribution Functions with the DLA as Required by the 2005 BRAC (June
2008).
[End of section]
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