Depot Maintenance: Key Financial Issues for Consolidations at Pearl
Harbor and Elsewhere Are Still Unresolved (Chapter Report, 01/22/2001,
GAO/GAO-01-19).
In 1998, the Navy consolidated the Pearl Harbor Naval Shipyard and the
Naval Intermediate Maintenance Facility in Hawaii. Because of concerns
raised about certain aspects of the consolidation, the Navy implemented
a test project, commonly called the Pearl Harbor pilot, to determine if
integrating the management, operations, and funding of the shipyard and
the intermediate maintenance facility can result in greater efficiency
and lower overall ship maintenance costs. In September 1999, GAO
reported that the preliminary results of the ongoing Pearl Harbor pilot
were mixed and recommended that the Department of Defense (DOD) and the
Navy address unresolved issues related to the financial management of
the consolidation as the Navy proceeds with similar consolidations in
other locations. This report updates GAO's prior assessment to determine
whether the (1)Navy has provided adequate cost visibility and
accountability over the consolidation, (2)DOD and the Navy have resolved
other issues related to the financial structure for consolidations at
Pearl Harbor and elsewhere, and (3)whether the consolidation has
generated greater efficiency and lower costs for ship maintenance at
Pearl Harbor. GAO found that the Navy still has not provided adequate
cost visibility and accountability over ship maintenance following the
consolidation. DOD and the Navy have made little progress in resolving
other issues related to the financial structure for the consolidation.
GAO is unable to determine whether the consolidations have produced
greater efficiency and lower costs for ship maintenance.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GAO-01-19
TITLE: Depot Maintenance: Key Financial Issues for Consolidations
at Pearl Harbor and Elsewhere Are Still Unresolved
DATE: 01/22/2001
SUBJECT: Naval facilities
Equipment maintenance
Military cost control
Military downsizing
Base realignments
IDENTIFIER: Navy Pearl Harbor Pilot Project
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GAO-01-19
A
Report to the Chairman, Subcommittee on Readiness and Management Support,
Committee on Armed Services, U. S. Senate
January 2001 DEPOT MAINTENANCE
Key Financial Issues for Consolidations at Pearl Harbor and Elsewhere Are
Still Unresolved
GAO- 01- 19
Letter 5 Executive Summary 8 Chapter 1
22 Introduction
Navy Ship Maintenance Process 22 Pearl Harbor Pilot Is a Part of the Navy's
Regional
Maintenance Program 24 Development of the Pilot Test Plan and Performance
Metrics 26 Congressional Requirements for the Pearl Harbor Pilot 27 Our
Prior Concerns About the Pearl Harbor Pilot 27
Chapter 2 30
Navy Does Not Provide Cost Visibility and Accountability Varied Prior to the
Consolidation 30
Management and Financial Systems Do Not Account for All Ship Adequate Cost
Maintenance Costs at Pearl Harbor 31 Visibility and
Management and Financial Systems Do Not Distinguish Between Accountability
of
Depot and Intermediate Work 34 Inadequate Cost Data Used to Show Compliance
With Applicable
Consolidated Ship Statutes 35
Maintenance Activities at Pearl Harbor
Chapter 3 37
Issues Related to the Buyout Costs for Transferring to Direct Appropriations
Not Yet Agreed Upon 37
Financial Structure for Less Flexibility to Continue Maintenance Operations
During
Consolidations of Ship Potential Funding Gaps and Shortfalls Is a Concern 38
Maintenance Activities
Uncertainties in the Capital Improvement Program 41 at Pearl Harbor and
Elsewhere Are Still Not Resolved
Chapter 4 42
Consolidation Has Benefits Have Been Achieved 42
Data for Two of the Nine Test Metrics Indicate Improvements 43 Provided Some
Results for the Seven Other Metrics Are Inconclusive 45 Important Benefits,
Some Planned Benefits Have Yet to Be Achieved 50 Although Overall Results of
the Test Metrics Are Inconclusive
Chapter 5 52
Conclusions and Conclusions 52
Recommendations for Executive Action 53 Recommendations for
DOD Comments and Our Evaluation 54 Executive Action,
Matters for Congressional Consideration 55 Agency Comments, and Matters for
Congressional Consideration Appendixes Appendix I: Objectives, Scope, and
Methodology 56
Appendix II: Comments From the Department of Defense 61 Appendix III: GAO
Contacts and Staff Acknowledgments 63
Related GAO Products 64 Tabl es Table 1: Results of the Pearl Harbor Pilot
Test Metrics
(as of July 2000) 17 Table 2: The Navy's Nine Test Metrics for Evaluating
the Pearl
Harbor Consolidation's Impact on Productivity, Performance, and Costs 26
Table 3: Source of Funding for the Consolidated Pearl Harbor Naval Shipyard
and Intermediate Maintenance Facility in Fiscal Year 1999 40
Figure Figure 1: Navy's Ship Maintenance Activities (as of Sept. 2000) 23
Abbreviations
DOD Department of Defense OSD Office of the Secretary of Defense
Lett er
January 22, 2001 The Honorable James M. Inhofe Chairman Subcommittee on
Readiness
and Management Support Committee on Armed Services United States Senate
Dear Mr. Chairman: In 1998, the Navy consolidated the Pearl Harbor Naval
Shipyard and the Naval Intermediate Maintenance Facility in Hawaii. Because
of concerns raised about certain aspects of the consolidation, the Navy
implemented a test project, commonly called the Pearl Harbor pilot, to
determine if integrating the management, operations, and funding of the
shipyard and the intermediate maintenance facility can result in greater
efficiency and lower overall ship maintenance costs. In September 1999, we
reported that the preliminary results of the ongoing Pearl Harbor pilot were
mixed and recommended that the Departments of Defense and the Navy address
unresolved issues related to the financial management of the consolidation
as the Navy proceeds with similar consolidations in other locations. 1 As
agreed with your office, we updated our prior assessment to determine
whether (1) the Navy has provided adequate cost visibility and
accountability over
consolidated ship maintenance activities at Pearl Harbor, (2) the
Departments of Defense and the Navy have resolved other issues related to
the financial structure for consolidations at Pearl Harbor and elsewhere,
and (3) the consolidation has generated greater efficiency and lower costs
for ship
maintenance at Pearl Harbor. This report includes recommendations to the
Secretary of Defense to address key factors affecting the consolidation of
ship maintenance activities. In addition, we have added matters for
congressional consideration to have the Navy to report its strategy and time
frame for providing total cost visibility on an ongoing basis and
identifying depot and intermediate work of consolidated ship maintenance
activities, and to have the Office of the Secretary of Defense and the Navy
to report their strategy and time frame for addressing unresolved issues
related to the financial management for consolidations at Pearl Harbor and
elsewhere.
We are sending copies of this report to the Chairmen and Ranking Minority
Members of the Senate Committee on Armed Services; the Subcommittee on
Defense, Senate Committee on Appropriations;
1 Depot Maintenance: Status of the Navy's Pearl Harbor Pilot Project (GAO/
NSIAD- 99- 199, Sept. 10, 1999).
the House Committee on Armed Services; and the Subcommittee on National
Security, House Committee on Appropriations. We are also sending copies of
this report to the Secretaries of Defense and the Navy, the Under Secretary
of Defense (Comptroller/ Chief Financial Officer), and the Director of the
Office of Management and Budget. Copies will also be made available to
others upon request.
GAO contacts and key contributors to this report are listed in appendix III.
Sincerely yours,
Barry W. Holman, Director Defense Capabilities and Management
Executive Summary Purpose In recent years, the Navy has implemented many
changes aimed at making
its fleet support activities more efficient and effective. In 1998, as part
of these changes, the Navy consolidated the management, operations, and
funding of the Pearl Harbor Naval Shipyard and the Naval Intermediate
Maintenance Facility in Hawaii. 1 Because of concerns raised about certain
aspects of the consolidation, the Navy implemented a test project, referred
to as the Pearl Harbor pilot, to evaluate the consolidation. In September
1999, GAO concluded that, while the consolidation of shipyard and
intermediate maintenance activities offered clear benefits, the Pearl Harbor
pilot provided only a general indication that future consolidations would
result in efficiencies largely because of the unique aspects of Pearl
Harbor ship maintenance activities and unresolved financial management
issues. GAO recommended that the Departments of Defense and the Navy resolve
issues related to the appropriate mechanism to finance and manage these
types of activities. 2 As requested by the Chairman, Subcommittee on
Readiness and Management Support, Senate Committee on Armed Services, GAO
updated its prior assessment to determine whether (1) the
Navy has provided adequate cost visibility and accountability over
consolidated ship maintenance activities at Pearl Harbor, (2) the
Departments of Defense and the Navy have resolved other issues related to
the financial structure for consolidations at Pearl Harbor and elsewhere,
and (3) the consolidation has generated greater efficiency and lower costs
for ship maintenance at Pearl Harbor.
1 The Navy maintains its surface ships and submarines at three levels:
organizational, intermediate, and depot. A ship's crew does organizational-
level maintenance. Maintenance beyond the capability or capacity of a ship's
crew is done by Navy intermediate maintenance activities and consists of
short but time- critical projects. Depot- level maintenance, traditionally
done in shipyards, requires skills or facilities beyond the capability or
capacity of crews and intermediate activities. Due to the nature of their
work, intermediate maintenance activities and shipyards have different
capabilities, processes, and command and financial structures. 2 Depot
Maintenance: Status of the Navy's Pearl Harbor Pilot Project (GAO/ NSIAD-
99- 199, Sept. 10, 1999).
Background In March 1994, the Chief of Naval Operations announced a regional
maintenance program to streamline the Navy ship repair and maintenance
processes, reduce infrastructure and costs, and maximize outputs. The
program consisted of three phases: (1) consolidating intermediate ship
maintenance activities, (2) integrating intermediate and depot activities
with management by the fleet commanders, and (3) conducting fleet
maintenance using a single process. 3 The first phase is near completion.
For the second phase, the Navy consolidated the shipyard and intermediate
maintenance facility at Pearl Harbor and may consolidate the operations of
the Puget Sound Naval Shipyard, Washington, and the Intermediate Maintenance
Facility Northwest, Washington. The third phase is scheduled
to be completed in fiscal year 2001. When the Navy consolidated the
operations of the Pearl Harbor Naval Shipyard and the Naval Intermediate
Maintenance Facility on April 30, 1998, the Pacific Fleet assumed ownership
and overall management and financial responsibility for the consolidated
facility, while the Naval Sea Systems Command continued to be the technical
and operating authority. 4 Based on concerns raised about certain aspects of
the consolidation, the
Navy implemented the Pearl Harbor pilot to determine if consolidated ship
maintenance activities can result in greater efficiency and lower overall
ship maintenance costs and selected nine test metrics for evaluating the
productivity and performance of the consolidation. Each metric was designed
to assess important aspects of ship maintenance, such as costs,
productivity, and customer satisfaction.
3 In phase three, the Navy intends that fleet maintenance will be integrated
and supported by common business practices, maintenance procedures, and data
for the Pacific and Atlantic Fleets. 4 Before the consolidation, the Naval
Sea Systems Command owned and managed the shipyard and financed it through
the Navy Working Capital Fund, and the Pacific Fleet owned and managed the
intermediate maintenance facility and it was funded through direct
appropriations.
The Navy tentatively set up a single financial structure for the
consolidated facility using direct appropriations 5 because officials of the
Pacific Fleet believed the new approach was more appropriate and flexible
and could better achieve pilot goals. GAO noted in its 1999 report that
officials of the Office of the Secretary of Defense and the Navy had
different views about the impact that the switch from working capital fund
financing to direct
appropriations would have on the financial management of consolidated
operations at Pearl Harbor and on other Navy activities remaining in the
working capital fund. For example, some Pacific Fleet and Pearl Harbor
officials believed the working capital fund, 6 which the former shipyard
used to finance its operations, included fees and charges that inflated
maintenance costs. These charges include the depreciation of capital assets
and selected support costs, which are not usually included as an expense by
activities funded with direct appropriations, but are included in
working capital fund activities to better reflect the full costs of
operations. On the other hand, senior Office of the Secretary of Defense and
other Navy officials have been concerned about the potential impact of using
direct appropriations to finance the consolidation on (1) the Navy's ability
to provide adequate cost visibility and accountability of the facility's
ship maintenance activities, (2) the financial viability of naval shipyards
and
activities remaining in the working capital fund, (3) the facility's
flexibility to continue ship maintenance operations if potential funding
gaps occur at the beginning of fiscal years 7 or when expected maintenance
costs exceed
annual appropriations, and (4) the Navy's ability to obtain adequate funding
for the facility's capital improvement program. If the Navy decides to
request direct appropriations permanently at Pearl Harbor, it may have to
reimburse the working capital fund for costs to transfer the former Pearl
Harbor shipyard to direct appropriations. GAO concluded that, while the
consolidation of shipyard and intermediate maintenance activities offered
clear benefits for using resources more efficiently, financial management
issues existed that needed to be resolved for future operations at Pearl
Harbor and in considering other
5 A direct appropriation, sometimes referred to as mission funding by
Departments of Defense and Navy officials, is the statutory authority
provided to an agency to incur obligations and make payments from the
Treasury for specified purposes.
6 Using working capital funds, organizations sell goods and services to
customers based on rates designed to recoup the full cost of operations. 7 A
funding gap would occur if neither appropriations nor continuing resolutions
were enacted before the start of a fiscal year.
consolidations. The Office of the Secretary of Defense concurred with the
intent of GAO's recommendations to resolve financial management issues
related to the consolidation at Pearl Harbor and indicated that the
Departments of Defense and the Navy would correct them. This report
discusses the extent to which the Departments have addressed these issues.
Results in Brief The Navy still has not provided adequate cost visibility
and accountability over ship maintenance activities at Pearl Harbor
following the consolidation because it has not implemented a method to
routinely and systematically accumulate and account for the full cost of
operations or distinguish between depot and intermediate work performed by
consolidated ship maintenance facilities. As a result, the management and
financial systems at Pearl Harbor do not readily identify and report the
full cost of ship maintenance operations, as required by federal accounting
standards. 8 Consequently, Office of the Secretary of Defense and Navy
officials have not had complete, reliable data needed for making fully
informed decisions related to the management of ship maintenance activities
and for establishing goals and measuring performance. For example, officials
do not have reliable data on an ongoing basis to determine the total cost of
delivering a direct labor hour of ship maintenance work- a key metric for
evaluating the consolidated facility's productivity and performance. In
addition, the facility's systems do not distinguish between depot and
intermediate work, even though 10 U. S. C. 2466 requires the Defense
Department to report on the allocation of depotlevel
workloads between public and private sectors. Additionally, Defense and Navy
comptroller officials question the reliability of the consolidated
facility's data that are used to show compliance with the Chief Financial
Officers Act (P. L. 101- 576) 9 and the Government Performance and Results
Act (P. L. 103- 62). 10
8 Statement of Federal Financial Accounting Standards No. 4. 9 The Chief
Financial Officers Act requires agencies to establish a leadership
structure, provide for long- range planning, produce audited financial
statements, and strengthen accounting and reporting.
10 The Government Performance and Results Act requires agencies to set
multiyear strategic goals and corresponding annual performance goals,
measure performance toward the achievement of those goals, and publicly
report on their progress.
The Departments of Defense and the Navy have also made little progress since
GAO's 1999 report toward resolving their differences about key issues
related to the financial structure for the consolidated facility at Pearl
Harbor and elsewhere. Several outstanding issues must be resolved. First,
officials of the Office of the Secretary of Defense and the Navy differ over
the amount the Navy should compensate the working capital fund when a
shipyard opts out of the fund. Because the Department of Defense regulations
provide only general guidance governing the transfers of working capital
fund activities to direct appropriations, the Department's processes and
procedures for such transfers are open to interpretation and
some Navy officials are disputing the transfer costs determined by the
Office of the Secretary of Defense. Second, officials differ about whether
consolidated facilities funded with direct appropriations can, similar to
naval shipyards operating under the working capital fund, continue routine
ship maintenance operations if potential funding gaps occur at the beginning
of fiscal years or expected maintenance costs exceed annual appropriations.
Unlike operating under direct appropriations, operating under the working
capital fund allows shipyard operators to incur costs without waiting for
enactment of an appropriation and provides them
freedom from reprogramming limitations and restrictions. Third, officials
differ about whether funding under direct appropriations will be sufficient
to maintain an adequate capital improvement program because the program
would be competing with other Navy programs and priorities during the
budgeting and appropriations processes.
Although more effective use of workers and facilities has occurred at the
consolidated ship maintenance activity at Pearl Harbor, the metrics adopted
by the Navy to assess the consolidation provide an inconclusive picture of
its overall accomplishments in achieving greater efficiencies and lowering
ship maintenance costs. The Pearl Harbor consolidation has increased overall
flexibility of ship maintenance activities by establishing a single
workforce from two work centers and reducing the maintenance infrastructure.
Further, data for two of the nine metrics indicate
improvements since the consolidation: the cost to provide a direct
maintenance hour 11 was less in fiscal year 1999 and the labor hours
expended to deliver a direct maintenance hour were less in fiscal year 1999
and half of fiscal year 2000. However, because the consolidated facility did
not routinely and systematically collect and report the full cost of
11 Employees from various service shops, such as the welding and electrical
shops, charge direct maintenance hours to their projects.
operations, the cost to provide a direct maintenance hour during fiscal year
2000 was not available on an ongoing basis. 12 The results for the seven
other metrics are inconclusive because factors unrelated to the
consolidation influenced the data, the change in the overall performance was
insignificant, or the data indicated both positive and negative results.
However, lessons learned from the metrics used in evaluating the Pearl
Harbor consolidation would be useful in framing evaluation plans for
future consolidations at other naval locations. GAO is recommending that (1)
the Navy implement a method to provide total cost visibility and
accountability on an ongoing basis and to distinguish between depot and
intermediate work of consolidated ship maintenance activities; (2) the
Office of the Secretary of Defense revise the
department's regulations to clarify its processes, procedures, and costing
methodology for transferring working capital fund activities to direct
appropriations; (3) the Office of the Secretary of Defense and the Navy
resolve their financial issues; and (4) the Navy develop metrics to measure
the efficiency and effectiveness of consolidated ship maintenance
activities. While the Department of Defense concurred with the
recommendations, it did not indicate specific plans to resolve the financial
issues first raised in GAO's 1999 report on the Pearl Harbor consolidation.
13 Accordingly, GAO has added matters for congressional consideration to
have the Navy to report its strategy and time frame for providing total cost
visibility and identifying depot and intermediate work and to have the
Office of the Secretary of Defense and the Navy to report their strategy and
time frame for resolving their financial issues.
12 The Chief of Naval Operations and the Naval Sea Systems Command requested
the Naval Audit Service to compile and validate the data and determine the
total cost to deliver a maintenance shop direct labor hour during the fiscal
year 1997 baseline and fiscal years 1998 and 1999. According to Navy
officials, there is no decision on whether the metric will be used to
measure the performance of the pilot in fiscal year 2000. 13 Depot
Maintenance (GAO/ NSIAD- 99- 199, Sept. 10, 1999).
Principal Findings Navy Has Not Provided The consolidated facility's
management and financial systems do not Adequate Cost Visibility
account for the full cost of operations, including the depreciation of and
Accountability of facilities and equipment, centrally managed financial and
technical support Consolidated Ship services, selected base operating
support, maintenance shops' overhead,
Maintenance Activities at military personnel, and borrowed workers. At the
same time, the Statement of Federal Financial Accounting Standards No. 4
requires federal agencies
Pearl Harbor to determine the full cost of operations through appropriate
costing means
and specifies that the full cost is the sum of the resources consumed and
services provided by other entities that directly or indirectly contribute
to the output. In addition, the systems do not distinguish between depot and
intermediate ship maintenance work, as was done before the consolidation,
because Pacific Fleet and Pearl Harbor officials assert that all work in the
consolidated facility is considered the same. However,
under 10 U. S. C. 2466, the Defense Department must limit the funds that may
be used for contractor performance of depot maintenance workload and must
report the percentage of funds expended for depot- level workloads by the
public and private sectors. Department of Defense financial management
regulations, which implement the reporting requirement, require defense
activities to maintain a method to collect
reportable data. While this lack of adequate cost visibility and
accountability may not directly affect those managers and workers performing
ship maintenance and repairs at Pearl Harbor, it has generated significant
concern among officials at higher organizational levels outside the
consolidated facility.
More specifically, since the consolidation, Office of the Secretary of
Defense and Navy officials have not had complete, reliable data needed for
making fully informed decisions related to the management of ship
maintenance activities and for establishing goals and measuring performance.
For example, during GAO's review, officials did not have reliable data to
determine the total cost of delivering a direct labor hour of ship
maintenance work on an ongoing basis. This is a key metric for
evaluating the consolidated facility's productivity and performance. In
addition, Defense Department and Navy comptroller officials question the
reliability of ship maintenance data for Pearl Harbor that are used to show
compliance with the Chief Financial Officers Act and the Government
Performance and Results Act. For example, because Pacific Fleet and Pearl
Harbor officials believed there was no longer a need to determine overhead
costs by maintenance shop, they developed rough estimates of these costs for
the consolidated facility in fiscal year 1999 to show compliance with the
statutes. Defense and Navy comptroller officials said that these estimates
were imprecise at best.
Other Key Financial Issues Office of the Secretary of Defense and Navy
officials still differ about key Are Still Not Resolved
issues related to the financial structure for consolidated ship maintenance
activities at Pearl Harbor and for potential consolidations at other naval
locations. First, Office of the Secretary of Defense and Navy officials
differ
over the amount the Navy should compensate the working capital fund when a
naval shipyard transfers to direct appropriations. For example, Office of
the Secretary of Defense officials believe the Navy should pay the working
capital fund for an estimated $101.4 million in undepreciated capital assets
14 and $9 million in assets under development 15 to formally transfer the
former Pearl Harbor shipyard to direct appropriations; some
Navy officials believe that they should not request or allocate
appropriations to pay them. 16 In addition, the Navy has requested a waiver
for the former shipyard's accrued leave liability, estimated at $14.3
million
by the Office of the Secretary of Defense. Should the Navy decide to
transfer all naval shipyards to direct appropriations, the Navy could be
required to pay $553 million based on Office of the Secretary of Defense and
Navy data for these items: $390 million for undepreciated assets, $76
million for assets under development, and $87 million for accrued leave
liability. 17 Because the Defense Department financial management
regulations include only general procedures governing the transfer of
working capital fund activities to direct appropriations, the Department's
processes and procedures for such transfers are open to interpretation and
some Navy officials are disputing the transfer costs determined by the 14
Undepreciated capital assets are those items financed through the working
capital fund whose value has not yet been recovered through reimbursable
rates paid by customers. 15 Assets under development are those items being
manufactured, constructed, or otherwise developed for use by the activity
but not yet delivered and installed. 16 The Navy has agreed to pay the
working capital fund for the former Pearl Harbor shipyard's accumulated
operating results or net financial position, obligations not yet paid, work
items in inventory, and receivables less payables.
17 The Navy still uses the Navy Working Capital Fund to fund its Norfolk
Naval Shipyard, Virginia; the Puget Sound Naval Shipyard, Washington; and
the Portsmouth Naval Shipyard, New Hampshire.
Office of the Secretary of Defense. The financial management regulations
primarily address accounting procedures for transferring functions and do
not specifically address processes and procedures for identifying all the
categories (types) of costs and amounts that should be paid when a fund
activity transfers to direct appropriations. Several Defense Department and
Navy officials involved in the transfer believe that without more specific
guidance the Navy will continue to dispute the Office of the Secretary of
Defense's determination of buyout costs as the Navy considers transferring
other shipyards to direct appropriations. Second, Office of the Secretary of
Defense and Navy officials differ about the potential impact of using direct
appropriations on consolidated ship maintenance operations if potential
funding gaps occur at the beginning of fiscal years or when expected
maintenance costs exceed annual
appropriations. A funding gap would occur if neither appropriations nor
continuing resolutions were enacted before the start of a fiscal year.
Operating under the working capital fund provides shipyard operators with
significant flexibility because they are not directly subject to the annual
appropriation cycle, are allowed to incur costs without the enactment of an
appropriation, and are freed from reprogramming limitations and
restrictions. Some Navy officials said that the flexibility provided by the
fund for activities to continue maintenance operations during periods
without appropriations would extend only a few weeks. According to these
officials, this limited flexibility was considered a minor factor compared
with the overall benefits of using direct appropriations to fund the
consolidation. However, Office of the Secretary of Defense officials are
still concerned about eliminating this flexibility on ship maintenance
activities,
and they note that shipyards using the working capital fund can continue
ship maintenance projects from one fiscal year to another.
Third, Office of the Secretary of Defense and Navy officials differ about
whether funding levels under direct appropriations will be sufficient to
maintain an adequate capital improvement program for consolidated ship
maintenance activities. Senior Office of the Secretary of Defense officials
noted that the consolidated activities could have to compete for scarce
funds under direct appropriations with other Navy programs and priorities.
They further noted that the Navy has budgeted less than 5 percent of the
identified program requirements for the consolidated facility for fiscal
years 2003- 07.
Consolidation Has Made The Pearl Harbor consolidation has made more
effective use of workers More Effective
and facilities by integrating 4,000 workers from two centers into a single
Use of Workers and workforce and reducing the maintenance infrastructure in
Hawaii. The
Facilities, but Overall integration gave managers more flexibility to assign
workers among
maintenance projects and reduced the number of workers who are not Results
of the Test Metrics
assigned to ship maintenance work. The consolidated facility also turned Are
Inconclusive
over 13 of the 27 buildings previously used by the former Naval Intermediate
Maintenance Facility to the Commander, Navy Region Hawaii, and it plans to
vacate another six buildings. Further, although the Naval
Audit Service spent a significant amount of resources to develop and
validate the data, the results for two of the nine metrics indicated
improvements since the consolidation: the cost to provide a direct
maintenance hour was less in fiscal year 1999 and the labor hours expended
to deliver a direct maintenance hour were less in fiscal year 1999
and half of fiscal year 2000 (see table 1).
Table 1: Results of the Pearl Harbor Pilot Test Metrics (as of July 2000)
Metric Result Results indicate improvement
Total cost of a maintenance shop direct labor hour of Indicates improvements
because the data generated by the Naval Audit Service work delivered to the
customer showed that it has cost less to deliver one direct maintenance hour
in fiscal year
1999. a Because the consolidated facility did not routinely and
systematically collect and report the full cost of operations, the cost to
provide a direct maintenance hour during fiscal year 2000 was not available
on an ongoing basis and the results for fiscal year 2000 were not yet known.
Total labor hours expended to deliver a maintenance Indicates improvements
because the data showed that it took fewer hours to shop direct labor hour
to the customer deliver one direct maintenance hour in fiscal year 1999 and
during half of fiscal year 2000.
Results are inconclusive with respect to the consolidation's accomplishments
Total Current Ship Maintenance Program b work Is inconclusive because the
data were affected by the increased use of borrowed items completed workers
since the consolidation, the decrease in the number of military personnel
since the consolidation, and other influences unrelated to the
consolidation. Total Current Ship Maintenance Program work items Is
inconclusive because the data were affected by the increased use of borrowed
in the backlog workers since the consolidation, the decrease in the number
of military personnel
since the consolidation, and other influences unrelated to the
consolidation. Schedule adherence of Chief of Naval Operations
Is inconclusive because the data were affected by the increased use of
borrowed maintenance projects c workers since the consolidation and other
influences unrelated to the consolidation.
Rework index for Chief of Naval Operations Is inconclusive because the
change in the overall performance was too maintenance projects insignificant
to form conclusions.
Metric Result
Activity work schedule integrity index Is inconclusive because the data
indicated both positive and negative results depending on the type of
maintenance project and were affected by the reliability of the estimated
allowance of work (labor hours scheduled) for work items. Casualty reports
caused by activity work Is inconclusive because the change in the overall
performance was too insignificant to form conclusions and there was no clear
relationship between the reports and the quality of maintenance work. Earned
value Is inconclusive because the change in the overall performance was too
insignificant to form conclusions, and the data indicated both positive and
negative results depending on the work item and type of ship.
a The Naval Audit Service validated the data and developed the metric values
for the fiscal year 1997 baseline and fiscal years 1998 and 1999. According
to Navy officials, there is no decision on whether the metric will be used
to measure the performance of the consolidation in fiscal year 2000. b The
Current Ship Maintenance Program is the central database of items requiring
maintenance work for each ship.
c Chief of Naval Operations projects include depot- level maintenance that
requires skills or facilities of public and private shipyards. Source: GAO's
analysis of data provided by the Navy.
However, as table 1 shows, results for the seven metrics are inconclusive
because decisions and circumstances external to the consolidation have
driven the results, the change in the overall performance was insignificant,
or the data indicated both positive and negative results. However, lessons
learned from the metrics used in evaluating the Pearl Harbor consolidation
should be useful in framing evaluation plans for future consolidations at
other naval locations. The consolidated facility, as did the former Pearl
Harbor shipyard, continues to have difficulties in completing long- term,
complex Chief of Naval Operations ship maintenance projects on schedule. For
example, it experienced a 9- month delay in completing a Chief of Naval
Operations
maintenance project for the U. S. S. Chicago. This delay caused slippages in
the completion of other long- term Chief of Naval Operations projects
because employees originally scheduled to work on succeeding projects were
still committed to the U. S. S. Chicago. In addition, the Navy has not
consolidated all the industrial plant equipment and has not moved the
projected number of overhead workers to direct maintenance positions to
increase productivity.
Recommendations for GAO recommends that before the Navy implements permanent
changes at Executive Action
the Pearl Harbor facility and any other consolidations of naval shipyards
and intermediate maintenance activities, the Secretary of Defense direct
the Secretary of the Navy to implement a method to (1) account for the total
cost of consolidated ship maintenance operations on an ongoing basis and (2)
distinguish between depot and intermediate work of consolidated ship
maintenance activities. The method should include appropriate costing
methodologies or techniques that provide sufficient data to show compliance
with relevant statutes and regulations.
To help prevent disputes in the transfer of working capital fund activities
to direct appropriations, GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller/ Chief Financial Officer)
to clarify the Department's regulations, to include specifying the
processes, procedures, and costing methodology, governing the transfers of
working capital fund activities to direct appropriations.
GAO further recommends that before any naval shipyard is permanently
transferred to direct appropriations, the Secretary of Defense direct the
Under Secretary of Defense (Comptroller/ Chief Financial Officer) and the
Secretary of the Navy to resolve issues related to (1) buyout costs for the
transfer, (2) loss of flexibility to continue routine ship maintenance
operations through potential funding gaps at the beginning of fiscal years
or when expected maintenance costs exceed annual appropriations, and (3)
funding for the facility's capital improvement program.
GAO recommends that before the Navy consolidates additional shipyards and
intermediate maintenance activities, the Secretary of Defense direct the
Secretary of the Navy to develop additional metrics to measure the
efficiency and effectiveness of consolidated ship maintenance activities,
drawing on lessons learned from the consolidation at Pearl Harbor.
Department of Defense In its written comments on a draft of this report, the
Department of Comments and GAO's
Defense agreed with the report's recommendations. However, the Department
did not indicate specific actions or milestones for resolving the Evaluation
financial issues first raised in GAO's 1999 report on the Pearl Harbor
consolidation. 18 As a result, GAO has added matters for congressional
consideration to help ensure timely implementation of GAO's recommendations
for executive action.
18 Depot Maintenance (GAO/ NSIAD- 99- 199, Sept. 10, 1999).
The Department of Defense's comments are presented in appendix II. The
Department also provided technical clarifications, and where appropriate,
GAO incorporated them in the report.
Matters for The Congress may wish to require the Secretary of the Navy to
report the Congressional Navy's strategy and time frame for the
implementation of a method to (1) account for the total cost of consolidated
ship maintenance operations
Consideration on an ongoing basis and (2) distinguish between depot and
intermediate
work of consolidated ship maintenance activities. In addition, the Congress
may wish to require the Under Secretary of Defense (Comptroller/ Chief
Financial Officer) and the Secretary of the Navy to report their strategy
and time frame for the resolution of issues related to (1) buyout costs for
the transfer, (2) loss of flexibility to continue routine ship maintenance
operations through potential funding gaps at the beginning of fiscal years
or when expected maintenance costs exceed annual appropriations, and (3)
funding for the facility''s capital improvement program.
Chapt er 1
Introduction During 1998, the Navy consolidated the Pearl Harbor Naval
Shipyard and the Naval Intermediate Maintenance Facility in Hawaii. Because
of concerns raised about certain aspects of the consolidation, the Navy
implemented a test project, commonly called the Pearl Harbor pilot, to
determine if integrating the management, operations, and funding of the
shipyard and the intermediate maintenance facility can result in greater
efficiency and lower overall ship maintenance costs. In September 1999, we
reported the Pearl Harbor pilot was not yet complete and preliminary results
were mixed, and we recommended that the Navy take steps to address
unresolved issues related to financial management of the consolidated
facility. 1
Navy Ship Maintenance The Navy accomplishes maintenance on its surface ships
and submarines Process
at three levels: organizational, intermediate, and depot.
Organizationallevel maintenance includes all maintenance actions that can be
accomplished by a ship's crew. For example, the ship's crew may replace or
fix a cracked gasket or leaks around a hatch or doorway aboard ship.
Traditionally, intermediate- level maintenance is accomplished by Navy
intermediate maintenance activities for work that is beyond the capability
or capacity of a ship's crew. An intermediate maintenance activity tests,
calibrates, and repairs ship systems and equipment, which the ship's crew
may not have the tools or capability to do. On the other hand, depot work
includes all maintenance actions that require skills or facilities beyond
those of the organizational and intermediate levels. Shipyards with
extensive shop facilities, specialized equipment, and highly skilled
personnel accomplish major repairs, overhauls, and modifications. 2 Figure 1
shows where the Navy's ship maintenance activities are located.
1 Depot Maintenance (GAO/ NSIAD- 99- 199, Sept. 10, 1999). 2 The equipment
and skills of intermediate maintenance activities are generally duplicated
in a naval shipyard, but shipyards have equipment and skills intermediate
activities do not have.
Figure 1: Navy's Ship Maintenance Activities (as of Sept. 2000)
Intermediate Maintenance Puget Sound Naval
Facility- Pacific Shipyard, Washington
Northwest, Washington Portsmouth Naval Shipyard,
New Hampshire Naval Ship Support Facility
New London, Connecticut Shore Intermediate Maintenance Activity
Earle, New Jersey Shore Intermediate Maintenance Activity
Norfolk, Virginia Depot Maintenance Facility
Norfolk Naval Shipyard, Naval Air Station North Island
Virginia San Diego, California
Trident Refit Facility Shore Intermediate
Kings Bay, Georgia Maintenance Activity
Shore Intermediate San Diego, California
Maintenance Activity Pascagoula, Mississippi
Shore Intermediate Maintenance Activity Pearl Harbor
Shore Intermediate Mayport, Florida Naval Shipyard &
Maintenance Activity Intermediate Maintenance
Ingleside, Texas Facility, Hawaii
Naval shipyards Pearl Harbor Naval Shipyard & Intermediate Maintenance
Facility Other ship maintenance activities
Note: The Navy has maintenance ships (tenders) homeported in Guam and Italy
and a ship repair facility in Japan.
Source: Our analysis of data provided by Navy officials.
Pearl Harbor Pilot Is a In March 1994, the Chief of Naval Operations
announced a regional Part of the Navy's
maintenance program to streamline the Navy ship repair and maintenance
processes, reduce infrastructure and costs, and maximize outputs. The
Regional Maintenance plan was to (1) optimize intermediate- level
maintenance through Program
consolidation of intermediate activities, (2) integrate intermediate and
depot activities to be managed by fleet commanders, and (3) conduct fleet
maintenance using an integrated maintenance process supported by common
business and maintenance procedures. The first phase, consolidation of
intermediate- level maintenance, nears completion. For the second phase of
the program, the Navy has implemented the Pearl Harbor pilot and may
consolidate the operations of the Puget Sound Naval
Shipyard and the Intermediate Maintenance Facility, Northwest (formerly the
Trident Refit Center, Bangor, and the Ship Intermediate Maintenance
Facility, Everett). 3 The third phase, using a single maintenance process
for fleet maintenance, is to be completed in fiscal year 2001.
Prior to the consolidation, the Pearl Harbor Naval Shipyard and the Naval
Intermediate Maintenance Facility were individual commands with individual
physical plants, organizational infrastructures, and administrative support
services. The shipyard was managed by the Naval
Sea Systems Command and funded through the Navy Working Capital Fund, while
the intermediate maintenance facility was managed by the Pacific Fleet and
financed through direct appropriations. Navy officials recognized that these
different financial and organizational structures required them to use
cumbersome, work- around procedures to share
workloads and resources between the shipyard and the intermediate
maintenance facility. The private ship repair facilities in Hawaii also
complete a small amount of maintenance work for the Navy. On April 30, 1998,
the Navy consolidated the operations of the Pearl Harbor Naval Shipyard and
the Naval Intermediate Maintenance Facility, including overhead functions
such as engineering, quality assurance, occupational safety, and
administration. Similarly, maintenance shops, crane operations,
and calibration laboratories were also consolidated. Further, the Pacific
Fleet assumed ownership and overall management and financial 3 According to
the Department of Defense's written comments on a draft of this report, the
Navy has not yet decided on the consolidation of the Puget Sound Naval
Shipyard and the
Intermediate Maintenance Facility, Northwest. Further, plans are not yet
developed for consolidating the Norfolk Naval Shipyard, Virginia, and the
Portsmouth Naval Shipyard, New Hampshire, with other naval ship maintenance
activities.
responsibility for the consolidated facility, and the Naval Sea Systems
Command continued to be the technical and operating authority. The Navy
named the consolidated facility the Pearl Harbor Naval Shipyard and
Intermediate Maintenance Facility. This consolidation is the Navy's first
attempt at the full- scale, total merger of two maintenance activities
operating under separate command structures and financial systems.
To achieve a fully integrated organization, the Navy decided the
consolidated facility should use a single financial structure and selected
direct appropriations instead of the working capital fund during the pilot
period. This decision was based on several factors, including the belief
that the pilot goals could more readily be achieved by using direct
appropriations. The Pacific Fleet was the largest customer of ship
maintenance activities in Hawaii, and most Fleet maintenance activities
(ship repair facilities, shore intermediate maintenance activities, trident
refit centers, and aviation intermediate maintenance departments) were
funded with direct appropriations. Thus, they expected fewer financial
issues using direct appropriations because the Fleet could integrate the
consolidated facility into its financial structure and would not need to
establish another system. Several Navy officials also believed that the
working capital fund included fees and charges that overstate ship
maintenance costs compared to direct appropriations, under which some
overhead is not directly assigned to the cost of operations. On the other
hand, the working capital fund accounts for these costs in an attempt to
identify the full cost of ship maintenance operations. While the level of
resources required to carry out ship maintenance activities is likely to be
similar regardless of whether financed using direct appropriations or the
working capital fund, using the working capital fund a customer is more
likely to be directly responsible for a larger portion of those costs. Use
of a working capital fund better enables Department of Defense (DOD)
components to fully account for their share of the program costs. If Navy
officials decide that direct appropriations are the most appropriate
financial structure at Pearl Harbor after the completion of the pilot, the
consolidated facility would then be permanently transferred from the working
capital fund.
Development of the The Deputy Secretary of Defense required the Navy to
develop a test plan
Pilot Test Plan and to determine whether the Pearl Harbor consolidation had
resulted in an
increased use of personnel and lower overall unit costs than separate
Performance Metrics facilities. 4 A panel comprised of officials from the
Office of the Secretary of Defense (OSD) and the Navy selected nine test
metrics that represent a
variety of issues and performance indicators for the consolidated facility
(see table 2).
Table 2: The Navy's Nine Test Metrics for Evaluating the Pearl Harbor
Consolidation's Impact on Productivity, Performance, and Costs
Metric Indicator Calculation
Total cost of a maintenance shop Efficiency in terms of the cost per direct
Total costs of the ship maintenance activity or direct labor hour of work
delivered to maintenance hour activities divided by the total maintenance
shop the customer
direct labor hours delivered Total labor hours expended to deliver
Productivity in terms of personnel utilization Total available labor hours
(sum of the overhead a maintenance shop direct labor hour and maintenance
hours) divided by the total to the customer maintenance shop direct labor
hours delivered
Total Current Ship Maintenance Productivity in terms of the number of work
None required; absolute number of completed Program work items completed
items completed Current Ship Maintenance Program work items used
Total Current Ship Maintenance Material conditions of Pacific Fleet ships in
None required; absolute number of Current Ship Program work items in the
backlog terms of work items not yet completed Maintenance Program work items
in the backlog used
Schedule adherence of Chief of Naval Customer satisfaction in terms of
completing Sum of the differences in the actual and Operations maintenance
projects projects on schedule scheduled completion dates divided by the
total
scheduled duration (number of days) for each Chief of Naval Operations'
scheduled ship maintenance project completed during the fiscal year Rework
index for Chief of Naval Quality of work in terms of hours required to Sum
of the labor hours expended to correct work Operations maintenance projects
correct work deficiencies deficiencies divided by the total number of direct
labor hours delivered for each Chief of Naval Operations' scheduled ship
maintenance project
completed during the fiscal year Activity work schedule integrity index
Customer satisfaction in terms of completing Actual amount of work performed
(labor hours) work (labor hours expended) within the divided by the budgeted
allowance of work budgeted allowance of work (labor hours
scheduled (labor hours) scheduled)
4 Program Budget Decision 404, DOD (Dec. 11, 1997).
Casualty reports caused by activity Quality of work based on ship reports
Analysis of reports provided within 6 months work indicating equipment
failure following the completion of maintenance Earned value Productivity in
terms of labor hours to Statistical analysis of actual quantity of work
complete similar work items performed (labor hours) for selected work items
Note: Approved by the Principal Deputy Under Secretary of Defense
(Comptroller) on Sept. 14, 1998. Source: Pearl Harbor pilot test plan, as
amended, the Department of the Navy.
The Navy used fiscal year 1997 as the baseline for measuring success or
failure of the consolidated facility because this was the last full year the
former Pearl Harbor shipyard and the intermediate maintenance facility
operated as independent activities. The baseline is compared with data for
fiscal year 1999. Fiscal year 1998 was eliminated because of the operational
turbulence expected by the consolidation of activities during the year.
Congressional The Conference Report for the Department of Defense
Appropriations Act for Fiscal Year 1998 5 concluded that it would take at
least 2 years before the Requirements for the
Navy could determine whether the consolidation of maintenance activities
Pearl Harbor Pilot for the pilot was effective and should be made permanent
or expanded to other locations. The report directed the Navy to report its
findings from the
pilot to the Committees on Appropriations on or after April 1, 1999, and not
to expand the pilot until 6 months after it had made its report. The
conferees also directed the Navy not to make any permanent changes to the
workforce in terms of total number of employees or any other permanent
changes until the pilot was completed. Navy officials expect to issue the
report in fiscal year 2001.
Our Prior Concerns At the time of our 1999 report, we noted that while the
consolidation of
About the Pearl Harbor shipyard and intermediate maintenance activities
offered clear benefits, the close proximity of the facilities and the larger
portion of Fleet- funded
Pilot work in Hawaii may favorably affect the pilot's results; this may not
be the
case at other locations. Consequently, we concluded the Pearl Harbor pilot
provided only a general indication that future consolidations would result
in efficiencies largely because of unique aspects of Pearl Harbor ship
maintenance activities and financial management issues. Further, we
5 House Report 105- 265, Sept. 23, 1997.
reported that OSD and Navy officials had different opinions over the
potential impact of using direct appropriations on the following issues.
? Cost visibility and accountability for consolidated ship maintenance
operations. The Congress established working capital funds to, among other
purposes, provide a flexible funding mechanism that would allow defense
industrial and service activities to operate on the same basis as the
private sector, including the use of standard cost accounting
practices and techniques. 6 According to OSD officials, applying these
practices and techniques has made shipyard costs more visible and improved
the efficiency of operations. ? Naval shipyards and activities remaining in
the working capital fund.
OSD officials were concerned that the Navy had not adequately addressed the
impact of removing all naval shipyards from the working capital fund. They
believed that if the Navy removed the shipyards from the fund, the Navy
would have to request direct appropriations to pay
the cost of the shipyards to transfer from the working capital fund or other
activities in the fund would need to absorb a larger share of costs. ? Ship
maintenance activities during periods without appropriations. A working
capital fund is not directly subject to the annual appropriations
cycle and can continue operations without interruption between fiscal years.
Consequently, the former Pearl Harbor shipyard operators were freed from
reprogramming limitations and restrictions applicable to regular
appropriations and were allowed to incur costs without waiting for enactment
of an appropriation. Because this financial flexibility is considered
critical to shipyard operations, OSD officials were concerned that the Navy
had not addressed how eliminating this
flexibility would affect Pearl Harbor operations or future consolidations. ?
Capital improvement program for consolidated ship maintenance
activities. According to OSD officials, an important aspect of a working
capital fund is its capital improvement program. In the case of the former
Pearl Harbor shipyard, it depreciated its capital assets and collected this
expense through the reimbursable rate charged to its customers. Therefore,
the fund had a ready reserve to finance capital improvements for the
shipyard. However, OSD officials were concerned
that future funding levels may be insufficient because of uncertainties in
the appropriation process. 6 See 10 U. S. C. 2208.
We concluded that while the consolidation of shipyard and intermediate
maintenance activities offered clear benefits, financial management issues
existed that needed to be resolved for future operations at Pearl Harbor and
in considering other consolidations. OSD concurred with the intent of our
recommendations to resolve financial management issues related to the
consolidation at Pearl Harbor and indicated that the Departments of Defense
and the Navy would correct them. This report discusses the extent to which
these issues have been addressed by the Departments.
Navy Does Not Provide Adequate Cost Visibility and Accountability of
Consolidated
Chapt er 2
Ship Maintenance Activities at Pearl Harbor The Navy has not provided
adequate cost visibility and accountability over ship maintenance activities
at Pearl Harbor following the consolidation because it has not implemented a
method to routinely and systematically accumulate and account for the full
cost of operations or distinguish between depot and intermediate work
performed by consolidated ship maintenance facilities. The consolidated
facility's management and
financial systems do not readily identify and report the full cost of ship
maintenance operations. Federal accounting standards require that the
systems account for the full cost of operations, including the depreciation
of facilities and equipment, centrally managed financial and technical
support services, selected base operating support, maintenance shops
overhead, military personnel, and borrowed workers. Consequently, OSD and
Navy officials have not had complete, reliable data needed for making fully
informed decisions related to the management of ship maintenance activities
and for establishing goals and measuring performance. Specifically, at the
time of our review, they did not have reliable data on an ongoing basis to
determine the total cost of delivering a direct labor hour of ship
maintenance work- a key metric for evaluating the consolidated
facility's productivity and performance. Furthermore, the facility's systems
do not distinguish between depot and intermediate work, even though 10 U. S.
C. 2466 limits the funds that may be used for contractor performance of
depot maintenance work and requires DOD to report on the allocation of
depot- level workloads between public and private sectors.
Additionally, OSD and Navy comptroller officials question the reliability of
Pearl Harbor's data that are used to show compliance with the Chief
Financial Officers Act (P. L. 101- 576) and the Government Performance and
Results Act (P. L. 103- 62).
Cost Visibility and Prior to the consolidation, the former Pearl Harbor
shipyard and
Accountability Varied intermediate maintenance facility operated their own
management and
financial systems. The former shipyard was funded through the working Prior
to the
capital fund and used the Shipyard Management Information System (an
Consolidation
intricate network of interfacing systems intended to support planning,
timekeeping, payroll, material, and cost accounting) to provide management
information for the shipyard. The former intermediate maintenance facility
was funded through direct appropriations and used the Standard Accounting
and Reporting System and the Maintenance Resource Management System. The
Standard Accounting and Reporting System was relied on to track, monitor,
and report on appropriations, obligations, and expenditures for the
intermediate facility such as materials
and civilian personnel. The Maintenance Resource Management System
was used to schedule work, set priorities, procure materials, and establish
time frames. Neither system was designed to provide information on the full
costs of the intermediate facility's operations.
Management and Even though federal accounting standards require federal
agencies to Financial Systems Do determine the full cost of operations, the
Pearl Harbor's management and
financial systems do not account for the cost of the depreciation of Not
Account for All facilities and equipment, centrally managed financial and
technical support Ship Maintenance services, overhead costs by maintenance
shop, selected base operating Costs at Pearl Harbor support, military
personnel, and borrowed workers. This has inhibited the Navy's ability to
produce reliable cost data that are essential for making informed decisions
related to the management of ship maintenance activities and for the
establishment of strategic goals and the measurement of accomplishments and
performance against established goals. While this lack of adequate cost
visibility and accountability may not directly affect
those managers and workers performing ship maintenance and repairs at Pearl
Harbor, it has generated significant concern among officials at higher
organizational levels outside the consolidated facility. For example, senior
OSD and Navy officials have been concerned about the Navy's ability to
provide adequate cost visibility and accountability for ship maintenance
operations at Pearl Harbor and about the reliability of ship maintenance
data for Pearl Harbor used to show compliance with relevant statutes and
regulations. The Statement of Federal Financial Accounting Standards No. 4
requires federal agencies to accumulate the full cost of outputs through
appropriate costing methodologies or “cost finding” techniques.
The full cost of an output is the sum of the (1) cost of resources consumed
that directly or indirectly contribute to the output and (2) cost of
identifiable supporting
services provided by other entities. As such, the financial structure used
to fund federal activities has no bearing on determining the full cost of an
output. Compliance with these standards is intended to provide managers
relevant and reliable data for making resource allocations, program
modifications, and performance evaluations; comparing costs to outputs;
and generating financial and performance reports. Our review of the
consolidated facility's management and financial systems showed that the
facility did not routinely and systematically identify and accumulate data
on the full cost of its ship maintenance operations in accordance with
Statement of Federal Financial Accounting Standards
No. 4. Contrary to the standards to identify the full cost of operations,
the
consolidated facility's systems did not recognize costs if they are paid by
other Navy activities. Pacific Fleet and Pearl Harbor officials stated that
their focus is to manage the consolidated facility's appropriations and
obligations and to execute the allocated funding within budget authority. In
addition, they stated their belief that their systems and processes are not
required to identify and accumulate data on any costs not paid from the
appropriated funding provided to the consolidated facility. Specifically, at
the time of our review, the categories of costs associated with consolidated
ship maintenance operations that the facility's systems did not routinely
and systematically identify and accumulate include: ? Facilities and
equipment depreciation. Depreciation costs are no longer accumulated because
the former Pearl Harbor shipyard and all of its
facilities and equipment are now Pacific Fleet assets that will be
recapitalized through direct appropriations. 1 Prior to consolidation,
depreciation costs, reported to be $10.6 million in fiscal year 1997, were
considered in developing the former shipyard's reimbursable rate used to
collect the costs of its maintenance operations from its customers. ?
Centrally managed financial and technical support services. Support
services costs were a reported $1.9 million for the former Pearl Harbor
shipyard in fiscal year 1999, but these costs are no longer accumulated at
the consolidated facility because they are not included in its reimbursable
rate. For example, Defense Finance and Accounting Service support costs are
not accumulated; instead, the Pacific Fleet assumed responsibility for the
costs and their payment. In another
example, the Naval Sea Systems Command's centrally managed technical support
costs (automated data processing, depot maintenance report preparation, and
shipyard management support) are no longer accumulated because the Command
assumed responsibility for the
costs and their payment. ? Selected base operating support costs. The costs
for security, utilities,
water, steam, sewage, and recurring maintenance (infrastructure) activities
are no longer accumulated by the consolidated facility. Prior to
consolidation, the costs were accumulated and allocated to jobs as overhead
costs and recovered through the former shipyard's reimbursable rate. Now,
the Navy Regional Commander is responsible for these costs, estimated at
$13. 7 million and $20.6 million in fiscal years 1999 and 2000,
respectively.
1 Depreciation is the allocation of the cost of fixed assets (buildings,
equipment, and other properties) over their period of usefulness.
? Overhead costs by maintenance shop and work item. Pacific Fleet and Pearl
Harbor officials believe there is no longer a need to determine overhead
costs by maintenance shop and work item because there is no longer a need to
accumulate such costs for the purposes of developing cost data to be
factored into the consolidated facility's reimbursable rate. Currently,
overhead costs are funded with direct appropriations, accounted for by cost
category, and monitored to ensure that expenditures do not exceed
allocations. Previously, the former shipyard
accounted for overhead costs by individual maintenance shops and work items.
? Military personnel costs. Pacific Fleet and Pearl Harbor officials believe
there is no longer a need to account for military personnel costs because
they are managed by the Navy's Bureau of Naval Personnel and funded by the
Bureau with direct appropriations. These costs are no longer considered
reimbursable and are not accumulated by the consolidated facility. Prior to
the consolidation, the former shipyard accounted for these costs as overhead
in its reimbursable rate and paid the Bureau of Naval Personnel for its
military personnel with proceeds collected from
its customers. ? Borrowed labor costs. The Navy uses borrowed workers to
balance total resources with workload among its shipyards, but these costs
are no
longer accumulated by maintenance project and work item in Hawaii. They are
funded with direct appropriations, included in the material cost category,
and monitored to ensure that expenditures do not exceed
allocations. Prior to consolidation, the former shipyard accounted for the
costs by maintenance project and work item and paid other naval shipyards
for the borrowed labor with proceeds collected from its customers.
Because the Navy does not routinely and systematically accumulate and
account for the full cost of operations for the consolidated facility, OSD
and Navy officials have not had complete, reliable data needed for making
fully informed decisions related to the management of ship maintenance
activities and for establishing goals and measuring performance. For
example, at the time of our review, officials did not have data to determine
on an ongoing basis whether their ship maintenance operations were costing
less or more to provide a direct maintenance hour- a key metric for
evaluating the consolidated facility's productivity and performance.
Pearl Harbor officials attempted to generate this information during fiscal
year 2000 but were unsuccessful because of difficulties in reconciling cost
data between the consolidated facility's management and financial systems
and in duplicating the Naval Audit Service's method for developing the
metric value. Concerns about the adequacy of data had led the Chief of Naval
Operations and the Commander, Naval Sea Systems Command, to ask the Naval
Audit Service to develop the fiscal year 1997 baseline value, validate the
data, and develop values for the metric for fiscal years 1998 and 1999.
According to Navy officials, there is no decision on whether the metric will
be used to measure the performance of the combined facility in
fiscal year 2000. Management and Pacific Fleet and Pearl Harbor officials
maintain that all work is considered Financial Systems Do the same in the
consolidated facility. Consequently, the Navy cannot readily
identify the cost expended by the consolidated facility for depot- level
work Not Distinguish to show compliance with (1) the 10 U. S. C. 2466 depot
maintenance Between Depot and
allocation limits and associated reporting requirements for DOD Intermediate
Work
departments and agencies and (2) DOD financial regulations that implement
the depot maintenance reporting requirements. Section 2466 of title 10
requires that not more than 50 percent of funds allocated in a fiscal year
for depot work can be used for contractorperformed work and requires the
Secretary of Defense to report to the Congress on depot- level workloads
during the proceeding two fiscal years. Section 2460 of title 10 requires
that depot- level maintenance includes all
workloads, regardless of its funding source and work location. Furthermore,
DOD financial management regulations (vol. 6, ch. 14) require all depot
maintenance activities, regardless of their funding source,
to uniformly record, accumulate, and report costs incurred in their depot
maintenance operations and require these activities to maintain systems to
collect the data. Each activity is required to collect data on direct labor
hours and costs, material costs, and other direct costs; operations overhead
costs; general and administrative costs; total maintenance costs; and cost
per direct labor hour. OSD officials use these data to analyze historical
cost trends, evaluate and oversee resources and budgets, develop
direction and guidance, estimate depot maintenance requirements, examine
cost drivers, and comply with the 10 U. S. C. 2466 depot maintenance
allocation and reporting requirements.
Prior to consolidation, the Navy's determination of depot and intermediate
maintenance work was based on which facility performed it: the former Pearl
Harbor shipyard performed depot work, and the former intermediate
maintenance facility performed intermediate work. However, because Pacific
Fleet and Pearl Harbor officials maintain that all work is considered
and classified the same at the consolidated facility, the management and
financial systems do not differentiate between depot and intermediate
categories of work. Consequently, the Navy cannot readily identify the cost
associated with the depot- level workload completed by the consolidated
facility to show compliance with the 10 U. S. C. 2466 depot maintenance
allocation and reporting requirements and with DOD financial regulations
that implement these requirements.
Inadequate Cost Data Because of inadequate cost visibility and
accountability, DOD and Navy Used to Show
comptroller officials question the reliability of Pearl Harbor's data that
are used to show compliance with the Chief Financial Officers Act (P. L.
101- Compliance With 576) and establish and measure performance against
goals under the Applicable Statutes
Government Performance and Results Act (P. L. 103- 62). In some instances,
officials have used rough estimates to comply with the acts.
The Chief Financial Officers Act requires federal agencies to develop and
report cost information and periodic performance measurements. Cost
information is necessary for establishing strategic goals, measuring service
efforts and accomplishments, and reporting actual performance against
established goals and is essential for assessing governmental
accountability. In addition, the Government Performance and Results Act,
which mandates performance measurements by federal agencies, requires each
agency to establish performance indicators for each program and
measure or assess relevant outputs, service levels, and outcomes of each
program as a basis for comparing results with established goals.
According to OSD and Navy comptroller officials, the reliability of the data
provided by the Pacific Fleet and Pearl Harbor officials to show compliance
with the Chief Financial Officers Act and the Government Performance and
Results Act was questionable. For example, Pacific Fleet and Pearl Harbor
officials developed rough estimates of the overhead cost rates for
maintenance shops for incorporation with other cost data to show compliance
with the acts. As discussed previously, overhead rates were allocated to
maintenance shops prior to consolidation so that the total cost of
operations would be captured through the reimbursable rates the former
shipyard charged to its customers. 2 Pacific Fleet and Pearl Harbor
officials believe there is no longer a need to determine overhead costs by
maintenance shop because such costs are no longer accumulated for the
purposes of developing data to be factored into the consolidated facility's
reimbursable rate. Although Pacific Fleet and Pearl Harbor officials
developed rough estimates of these overhead rates for the facility in fiscal
year 1999, OSD and Navy comptroller officials said that they were imprecise
at best. Pacific Fleet and Pearl Harbor officials acknowledged that they
have had difficulties providing data that are timely and reliable and that
can be used to meet the requirements of applicable statutes.
2 While the intent was to set the reimbursable rate for the former Pearl
Harbor shipyard to capture the total cost of maintenance operations, our
financial statement audits have repeatedly highlighted long- standing
problems accumulating and reporting the full costs associated with working
capital fund operations. Department of Defense: Progress in Financial
Management Reform (GAO/ T- AIMD/ NSIAD- 00- 163, May 9, 2000).
Issues Related to the Financial Structure for Consolidations of Ship
Maintenance Activities at Pearl Harbor and Elsewhere Are Still Not
Chapt er 3
Resolved As we discussed in our prior report, OSD and Navy officials differ
still over three key issues related to the financial structure for the
consolidation of ship maintenance activities at Pearl Harbor and other
locations. First, OSD officials believe the Navy should reimburse the
working capital fund for undepreciated capital assets (assets financed
through the working capital fund whose value has not yet been recovered) and
assets under development (assets purchased but not delivered) when a naval
shipyard is transferred to direct appropriations. However, some Navy
officials believe they do not need to refinance these items because they
have already been financed with funds provided by shipyard customers.
Second, officials differ about whether consolidated facilities funded with
direct appropriations will be able, as are naval shipyards operating under
the working capital fund, to continue routine maintenance operations if
potential funding gaps occur at the beginning of fiscal years or when
expected maintenance costs exceed annual appropriations. A working capital
fund is not directly subject to the annual appropriation cycle, which means
shipyard operators can incur some costs without waiting for enactment of an
appropriation and operators are free of reprogramming limitations and
restrictions applicable to direct appropriations. Third, officials differ
about whether funding levels under direct appropriations will be sufficient
to maintain an adequate capital improvement program for
the consolidated facilities funded with direct appropriations because of
uncertainties in competing with other Navy programs and priorities for
funding during the budgeting and appropriation processes.
Buyout Costs for When the Pearl Harbor pilot was implemented, OSD officials
determined
Transferring to Direct that the Navy would need to make the working capital
fund financially whole if it decided to permanently transfer the former
Pearl Harbor Appropriations Not Yet
shipyard to direct appropriations. According to OSD officials, the costs of
Agreed Upon such transfers, collectively called buyout costs, include
liabilities, accumulated operating results (or net financial position),
accrued employee leave, and undepreciated capital assets. Because DOD
financial management regulations (vol. 11B, ch. 51) include only general
procedures governing the transfer of working capital fund activities to
direct
appropriations, DOD's processes and procedures for such transfers are open
to interpretation and some Navy officials are disputing the transfer costs
determined by OSD. The financial management regulations primarily address
accounting procedures for transferring functions and do not specifically
address processes and procedures for identifying all the categories (types)
of costs and amounts that should be paid when a fund
activity transfers to direct appropriations. Several OSD and Navy officials
involved in the transfer believe that without more specific guidance the
Navy will continue to dispute OSD's determination of buyout costs as the
Navy considers transferring other shipyards to direct appropriations.
OSD and Navy officials differ on whether the Navy should reimburse the
working capital fund for the value of the former shipyard's undepreciated
capital assets and assets under development, and the Navy has requested a
waiver for the accrued leave liability. If the former Pearl Harbor shipyard
is formally transferred from the working capital fund, OSD officials believe
the Navy should pay the fund an estimated $101.4 million for undepreciated
capital assets and $9 million for assets under development. However, some
Navy officials believe that the former shipyard's customers have already
paid for these assets and that they do not need to request or allocate
appropriations to pay them. Additionally in May 1998, the Navy requested a
waiver from the Office of Management and Budget on paying the former
shipyard's accrued leave liability, reported to be $14.3 million by OSD. 1
However, the Office of Management and Budget rejected the Navy's request.
Should the Navy decide to permanently transfer all naval shipyards
from the fund, the Navy could be required to pay more than $553 million
based on OSD and Navy data for these items: $390 million for undepreciated
assets, $76 million for assets under development, and $87 million for
accrued leave liability.
In fiscal year 1999, the Navy paid the working capital fund $18.4 million
for the former Pearl Harbor shipyard's accumulated operating results,
obligations not yet paid, work items in inventory, and receivables less
payables. These selected buyout costs were derived through a series of
lengthy meetings with OSD and Navy officials. Less Flexibility to OSD and
Navy officials differ about whether the consolidated facility will Continue
Maintenance
be able, as are naval shipyards financed under the working capital fund, to
continue routine ship maintenance operations if potential funding gaps
Operations During
occur at the beginning of fiscal years or expected maintenance costs
Potential Funding Gaps exceed annual appropriations. Because a working
capital fund is not and Shortfalls Is a directly subject to the annual
appropriation cycle, the fund allows former
shipyard operators to incur some costs without waiting for enactment of an
Concern
1 Office of Management and Budget Circular A- 34.
appropriation and provides them freedom from reprogramming limitations and
restrictions applicable to regular appropriations.
Continuation of Routine OSD officials are concerned that the consolidated
facility will not be able to
Maintenance Operations continue routine ship maintenance operations at the
beginning of fiscal Through Potential Funding
years if a funding gap occurs. A funding gap would occur if neither Gaps at
the Beginning of appropriations nor continuing resolutions were enacted
before the start of a fiscal year. Operating under the working capital fund,
former shipyard Fiscal Years Is a Concern operators were allowed to incur
some costs without waiting for enactment of an appropriation. However, some
Pacific Fleet and Naval Sea Systems Command officials said that the
flexibility provided by the fund for activities to continue maintenance
operations during periods without appropriations or continuing resolutions
would extend only a few weeks.
According to these officials, this limited flexibility was considered a
minor factor compared with the overall benefits of using direct
appropriations to fund the consolidated facility. However, OSD officials are
still concerned about eliminating this flexibility on ship maintenance
activities, and they note that shipyards using the working capital fund are
able to continue ship maintenance projects from one fiscal year to another.
Continuation of Routine OSD officials have concerns about whether the
consolidated facility will be
Maintenance Operations If able, as are naval shipyards operating under the
working capital fund, to Expected Costs Exceed
continue routine ship maintenance operations when expected maintenance
Appropriations Is a Concern
costs exceed annual appropriations. As discussed previously, activities
operating under the working capital fund are not directly subject to the
annual appropriation cycle and can continue operations through the end of
fiscal years without being concerned about reprogramming limitations and
restrictions applicable to direct appropriations.
In fiscal year 1999, the Pacific Fleet transferred $30.8 million to
alleviate the funding shortfall for the consolidated facility (see table 3).
According to Pearl Harbor officials, a funding shortfall made it difficult
to execute planned work on schedule because of uncertainties about whether
the necessary funds would be obtained from another source in sufficient time
to meet schedules.
Table 3: Source of Funding for the Consolidated Pearl Harbor Naval Shipyard
and Intermediate Maintenance Facility in Fiscal Year 1999
Dollars in millions
Amount in the Navy's Initial Pacific
Net amount transferred Final budget Category of fund budget request Fleet
allocation to alleviate shortfall authority
Ship depot operations support $253.9 $244.9 $0. 3 $245. 2 Ship depot
maintenance 30. 5 30. 5
Total $253.9 $244.9 $30. 8 $275. 8
Note: Figures do not total due to rounding and do not include $4.35 million
appropriated for the consolidated facility's apprentice program in fiscal
year 1999.
Source: Our analysis of data provided by the Navy.
As shown in table 3, the Pacific Fleet moved a reported $30. 8 million in
budget authority, mostly in the last 2 months of fiscal year 1999, to meet
the funding shortfall the consolidated facility experienced in fiscal year
1999. The Pacific Fleet allocated a reported $244.9 million in ship depot
operations support funds to the consolidated facility in fiscal year 1999,
$9 million less than originally requested. The Fleet later allocated the
consolidated facility an additional $300,000 in depot operations support
funds and an additional $30.5 million in ship depot maintenance funds. 2
According to Navy officials, the Fleet obtained most of the $30.8 million
from other fleet- funded commands and activities.
According to Pacific Fleet and Pearl Harbor officials, the funding shortfall
resulted because the budgeting process for the consolidated facility in
fiscal year 1999 did not adequately accommodate changes inherent in the
transfer from working capital fund to direct appropriations. They note that
even after the transfer to direct appropriations, the Navy funded the
2 In fiscal year 1999, the Navy classified appropriations for the Pearl
Harbor pilot as 1B5B ship depot operations support funds. Traditionally,
1B5B funds are intended to finance a variety of depot maintenance programs,
including contract administrative support for ship repairs, the fleet
modernization program, and the berthing and messing program. Funds
appropriated for depot maintenance repairs are identified in the federal
budget as 1B4B ship depot maintenance funds and are intended to support Navy
depot- level ship maintenance work conducted at public and private
shipyards. Funds appropriated for intermediate maintenance activities are
identified as 1B3B ship intermediate maintenance funds and are
intended to support maintenance and support activities performed at the
Navy's intermediate maintenance facilities. Navy officials believed that
providing 1B5B appropriations for the pilot would make the funds easier to
track and provide for increased cost visibility overall.
consolidated facility at less than its projected workload for fiscal year
1999. Consequently, the budgeted amount was insufficient to fund the
overtime and borrowed workers needed to accomplish the workload in fiscal
year 1999 and they had to transfer and reprogram funds originally allocated
to other activities to meet the funding shortfall. Additionally, some
maintenance work was postponed to another time.
Uncertainties in the Because of uncertainties in competing with other Navy
programs and
Capital Improvement priorities for funding during the budgeting and
appropriations processes,
OSD and Navy officials differ about whether funding levels under direct
Program appropriations will be sufficient to maintain an adequate capital
improvement program for the consolidated facility. In the management
agreement for the consolidation of the former Pearl Harbor Naval Shipyard
and Naval Intermediate Maintenance Facility, the Naval Sea System Command is
identified as responsible for requirements determination, planning,
programming, budgeting, and acquisition cost of plant property and
industrial plant equipment. Following the Command's approval and the Pacific
Fleet's concurrence, capital improvement requirements are forwarded to the
Chief of Naval Operations, where the requirements must compete against other
Navy programs and priorities for limited
appropriated funds. The former Pearl Harbor shipyard depreciated its capital
assets and collected this expense through its reimbursable rate charged to
customers and received a reported $56 million for capital improvements
during fiscal years 1993- 98. Senior OSD officials have concerns whether
adequate funding will materialize in the future because the consolidated
facility must compete for scarce funds under direct appropriations with
other Navy programs and priorities. Recently, the Navy allocated $7. 5
million in fiscal year 1999 appropriations and $5.7 million in fiscal year
2000 appropriations for capital improvement items at Pearl Harbor. Fiscal
year 2001 funding totals $18.6 million, which includes a $17- million
congressional add- on for the
consolidated facility. However, according to senior OSD and Navy officials,
the Navy has budgeted less than 5 percent of the identified program
requirements for the consolidated facility for fiscal years 2003- 07.
Consolidation Has Provided Some Important Benefits, Although Overall Results
of the Test
Chapt er 4
Metrics Are Inconclusive The consolidation of the shipyard and intermediate
ship maintenance activities at Pearl Harbor has improved and streamlined
maintenance operations by making more effective use of workers and
facilities, but overall results of the test metrics are inconclusive. The
consolidation has increased overall flexibility of ship maintenance
activities in Hawaii by establishing a single workforce from two work
centers and reducing the maintenance infrastructure. Further, data for two
of the nine metrics indicate improvements since the consolidation: the cost
to provide a direct maintenance hour was less in fiscal year 1999 and the
labor hours expended to deliver a direct maintenance hour were fewer in
fiscal year
1999 and half of fiscal year 2000. However, because the consolidated
facility did not routinely and systematically collect and report the full
cost of operations, the cost to provide a direct maintenance hour during
fiscal year 2000 was not available on an ongoing basis. The results for the
seven
other metrics are less conclusive of the consolidation's accomplishments
because factors unrelated to the consolidation affected the data, the change
in the overall performance was insignificant, or the data indicated both
positive and negative results. However, lessons learned from the metrics
used in evaluating the Pearl Harbor consolidation should be useful in
framing evaluation plans for future consolidations at other naval locations.
Although the Navy is working to improve its performance, the consolidated
facility continues to experience difficulties in completing
long- term, complex ship maintenance projects on schedule, as did the former
Pearl Harbor shipyard. Other potential benefits of the consolidation have
not been fully realized because the planned number of overhead workers has
not been moved to direct maintenance positions and equipment has not been
entirely consolidated to increase productivity.
Benefits Have Been As the Navy envisioned, the consolidation has integrated
workers from two
work centers into a single workforce and reduced the maintenance Achieved
infrastructure in Hawaii. 1 As planned, the Navy has integrated
approximately 4,000 workers from two separate work centers into a common
pool, thereby increasing management flexibility in assigning
workers to maintenance projects. Prior to the consolidation, it was
difficult to shift work or personnel between maintenance activities due to
multiple independent organizational and financial structures. Accordingly,
when 1 Pilot Study Report for an Integration of Pearl Harbor Naval Shipyard
and Naval Intermediate Maintenance Facility, Pearl Harbor, Pearl Harbor
Pilot Executive Steering Committee (Aug. 26, 1997).
administrative and financial requirements restricted the movement of
workers, shipyard maintenance personnel not working on a specific
maintenance project were sent to the excess labor shop to wait for an
assignment and perform non- ship work such as facility maintenance or
grounds- keeping. 2 Between 100 and 200 workers were assigned daily to this
shop. By integrating the two workforces, maintenance shops now have
more flexibility in assigning excess workers to other projects, including
projects historically completed by the former intermediate maintenance
facility. In our 1999 report, we noted that the number of workers assigned
daily to the excess labor shop had dropped to below 10 after the
consolidation. Although Pearl Harbor officials told us during this review
that the number of workers assigned daily to the excess labor shop
continued to drop, we could not verify the statement because the
consolidated facility had revised its process for assigning the workforce
and no longer identifies excess workers.
Because of the consolidation, the Navy has reduced the maintenance
infrastructure at Pearl Harbor. For example, 13 (125, 782 square feet) of
the 27 buildings previously used by the former Naval Intermediate
Maintenance Facility were turned over to the Commander, Navy Region Hawaii.
While the consolidated facility will retain 6 of the remaining 14
intermediate maintenance buildings, Pacific Fleet and Pearl Harbor officials
plan to vacate another six (20, 074 square feet) and is reviewing the
disposition of two (16, 996 square feet) buildings. As of May 2000, the
Commander, Navy Region Hawaii, had demolished or had plans to demolish three
former intermediate maintenance buildings and was able to demolish two of
its buildings after tenants moved into vacated intermediate maintenance
buildings. The demolition cost for all five buildings and a portion of an
additional building is estimated at $1. 8 million, with a projected annual
cost avoidance of $312,000 or a payback period of a little less than 6
years.
Data for Two of the Data for the following two key metrics indicate
improvements in
Nine Test Metrics performance. It is important to note that the Naval Audit
Service expended
significant resources to develop and validate the data for these two
Indicate Improvements
metrics, which are the most reliable metrics for making pre- and
postconsolidation comparisons.
2 Limited- duty personnel with medical injuries or health problems and
personnel whose security clearance levels were under review were also
assigned to the excess labor shop.
Total Cost of a Maintenance Fiscal year 1999 data for this metric indicate
that the cost of delivering one
Shop Direct Labor Hour of direct maintenance hour is less since the
consolidation. The Naval Audit
Work Delivered Is Less Service determined that it cost $138.99 to deliver a
maintenance shop
direct labor hour in fiscal year 1999, compared with the adjusted baseline
cost of $144.51 in fiscal year 1997. 3 Pearl Harbor officials were
unsuccessful in their attempts to determine the total cost to provide a
direct maintenance hour during fiscal year 2000 because of difficulties in
reconciling cost data between the consolidated facility's systems and in
duplicating the Naval Audit Service's methodology for developing the metric.
As discussed in chapter 2, the consolidated facility's management and
financial systems do not routinely and systematically accumulate the cost
data to generate the metric. Because of concerns about the adequacy of data
before the consolidation, the Chief of Naval Operations and the Commander,
Naval Sea Systems Command,
asked the Naval Audit Service to determine the cost of operations for the
former shipyard and the intermediate maintenance facility in fiscal year
1997. The Audit Service was later tasked to determine the fiscal year 1999
post- consolidation cost of operating the consolidated facility, compute the
cost of a maintenance shop direct labor hour, and compare the fiscal year
1999 results with the fiscal year 1997 baseline. To develop the metric, the
Audit Service collected cost and maintenance data from the consolidated
facility and other activities. Navy officials said there is no decision on
whether the metric value will be developed and used to measure the
performance of the consolidated facility in fiscal year 2000. Total Labor
Hours
Data for this metric indicate that delivering one direct maintenance hour in
Expended to Deliver a fiscal years 1999 and 2000 has taken fewer labor hours
since the
Maintenance Shop Direct consolidation. For example, the Navy estimates that
delivering a
Labor Hour Are Less maintenance shop direct labor hour took 3. 15 activity
labor hours
(overhead and direct maintenance hours) in fiscal year 1997, 3.03 hours in
fiscal year 1999, and 3. 06 hours through the middle of fiscal year 2000. 3
Post Consolidation Cost of Operations for the Pearl Harbor Naval Shipyard
and Intermediate Maintenance Facility, Auditor General of the Navy (2000-
0400, Apr. 3, 2000).
Results for the Seven The results of the following metrics are inconclusive
because decisions and
Other Metrics Are circumstances external to the consolidation have driven
the results, the
change in the overall performance was insignificant, or the data indicated
Inconclusive
both positive and negative results. Total Current Ship
Although fewer Current Ship Maintenance Program work items were Maintenance
Program Work completed following the consolidation, the results of this
metric are
Items Completed inconclusive because they were influenced by the decrease in
the number
of military personnel since the consolidation, the increased use of borrowed
workers since the consolidation, and other factors unrelated to the
consolidation. Furthermore, several Navy officials are concerned about using
work items from the Current Ship Maintenance Program to measure the
consolidation's success or failure because the work items vary in terms of
labor hours and skills required repairing them. For example, work ranges
from simple jobs (such as replacing a label or light bulb on a control
panel) to complex jobs (such as overhauling a pump or nuclear valve).
Additionally, the requirements to overhaul one pump differ from other
overhauls depending on the problem and the type of pump. Prior to the
consolidation, 19,777 work items were completed in fiscal year 1997 compared
to 11, 501 work items completed by the consolidated facility in fiscal year
1999. As of August, the completion rate for fiscal year 2000 was lower than
in preceding years. Although the consolidated facility was expected to
maintain the same completion rate, several Navy officials believed this
expectation was unreasonable because the number of military enlisted
personnel decreased from 1,275 in October 1996 to 616 in April 1999. On the
other hand, the
increased use of borrowed workers from other naval shipyards since the
consolidation has had a positive influence on the metric results. For
example, the consolidated facility expended 82, 785 borrowed labor hours
more in fiscal year 1999 (a total of 129,293 borrowed labor hours) than in
the baseline fiscal year 1997 (a total of 46,508 borrowed labor hours)
before
the consolidation. Furthermore, as of the end of May 2000, the consolidated
facility had already expended 188,344 borrowed labor hours, far exceeding
its fiscal years 1997 and 1999 use of borrowed workers. Although the Navy
uses borrowed workers to balance total resources with workload among its
shipyards, their addition to the workforce provided managers more
flexibility in assigning personnel to work on the items and had a positive
influence on the metric results.
According to Navy officials, because the consolidated facility was
overloaded with work during fiscal year 1999, the facility had to ensure
that at least the critical work was completed. Consequently, some Current
Ship Maintenance Program work was designated as low priority and not
accomplished, thereby impacting negatively on the results for this metric.
Total Current Ship Although the Current Ship Maintenance Program backlog was
reduced
Maintenance Program Work following the consolidation, the results of this
metric are inconclusive Items in the Backlog
because of many of the same reasons discussed in the previous section.
Historically, Navy officials have measured the material condition of their
ships based on the number of backlogged Current Ship Maintenance Program
work items: fewer backlogged items imply the ships are in better condition.
Following the consolidation, the fiscal year 1997 backlog of
17, 733 work items was reduced to 15,791 work items in fiscal year 1999 and
to 14,279 work items at the end of July 2000. However, the Current Ship
Maintenance Program backlog has been affected by the decrease in the number
of military personnel and the increased use of borrowed workers since the
consolidation. Furthermore, the following factors outside the direct
influence of the consolidation affected the backlog:
? Decommissions of ships homeported at Pearl Harbor decreased the backlog by
the number of work items recorded for the ships. ? Maintenance inspections
increased the backlog by the number of
unrecorded work items identified by the inspection team. ? Procedural
changes in identifying and recording work items may increase or decrease the
backlog depending on whether the changes weaken or strengthen the process.
Schedule Adherence of Although the data for this metric indicate improvement
following the Chief of Naval Operations consolidation, the results are
inconclusive because the facility's ability to Maintenance Projects
adhere to the work schedules established for Chief of Naval Operations
maintenance projects was improved by the increased use of borrowed workers
since the consolidation. Following the consolidation, the 11. 4 percent late
schedule adherence index achieved during fiscal year 1997 decreased to 8.6
percent late in fiscal year 1999- the lower percentile indicates that Chief
of Naval Operations projects are being completed closer to their scheduled
completion dates. However, because of the increased use of borrowed workers,
it is possible to assign more
workers to Chief of Naval Operations maintenance projects, which should
result in more work completed and quicker completion of maintenance
projects. In essence, this increase in the maintenance workforce had a
positive influence on the results for this metric.
As did the former Pearl Harbor shipyard, the consolidated facility has
difficulties in completing long- term, complex Chief of Naval Operations
ship maintenance projects (Depot Modernization Period) 4 on schedule. For
example, Pearl Harbor experienced a 9- month delay in completing a Chief of
Naval Operations maintenance project (Depot Modernization Period) for the U.
S. S. Chicago. 5 This delay caused slippages in the completion of other
long- term Chief of Naval Operations projects because employees originally
scheduled to work on succeeding projects were still committed to the U. S.
S. Chicago. In addition, since the consolidation, Chief of Naval Operations
projects must compete for workers with other Pacific Fleet
maintenance priorities in Hawaii. Short- term Fleet maintenance projects and
emergent repairs are given a higher priority in staffing decisions than
longer, more complex maintenance projects. Approximately 25 percent of the
consolidated facility's workload involve short- term Fleet maintenance
projects or emergent repairs to operational surface ships and submarines.
Prior to the consolidation, Chief of Naval Operations projects were
completed by the former Pearl Harbor shipyard and did not compete for
workers with short- term Fleet maintenance projects or emergent repairs,
because they were performed by the former intermediate maintenance
facility's workforce. According to Pearl Harbor officials, they are trying
to improve their performance on long- term Chief of Naval Operations
projects through better resource allocation procedures, process
improvements, and
resource sharing with other naval shipyards and, consequently, have reduced
the time frame to complete recent long- term projects for the U. S. S. Key
West and the U. S. S. Pasadena.
Rework Index for Chief of Although the data for this metric show a slight
degradation in rework
Naval Operations quality from 0. 76 percent in fiscal year 1997 to 1. 08
percent in fiscal year Maintenance Projects
1999, these results are inconclusive because the quality of work did not
deteriorate significantly as a result of the consolidation. According to the
Navy, the purpose of this metric was to ensure that depot- level work 4
Depot Modernization Periods are maintenance projects that are notionally
scheduled for 13 months and 140, 000 labor days and are typically longer
than other Chief of Naval
Operations management projects completed at Pearl Harbor. 5 Starting on May
11, 1998, the maintenance project for the U. S. S. Chicago was scheduled for
completion on May 11, 1999, but was actually completed on February 11, 2000.
completed by the consolidated facility did not deteriorate from the former
shipyard's historical level of work quality. In its comments on a draft of
this report, DOD stated that “successful performance” is
indicated when there
is no change in value of the metric between fiscal years. According to the
Navy's contractors, no specific conclusions can be drawn from comparing
fiscal year 1997 and fiscal year 1999 rework indexes because the change in
the overall performance was insignificant. 6 The Navy has not yet generated
the rework figures for fiscal year 2000.
Activity Work Schedule Although data for this metric indicate a slight
improvement in
Integrity Index performance, overall results are inconclusive because the
data
(1) indicated both positive and negative results depending on the type of
maintenance work and (2) depended significantly on the reliability of time
(labor hours) estimated to complete the work. The stated objective of this
metric is to measure the consolidated facility's schedule integrity by
comparing budgeted work scheduled (labor hours) with the actual amount of
work performed (labor hours). The index decreased from 1. 23 in fiscal year
1997 to 1.16 in fiscal year 1999, indicating a slight improvement in overall
performance following the consolidation in fiscal year 1999. 7 Additionally,
the fiscal year 1999 data indicated improvement in two of the
three types of maintenance projects analyzed. The index increased to 1.2
during the first 3 months of fiscal year 2000, indicating a slight
degradation in overall performance since fiscal year 1999 but still a slight
improvement over the fiscal year 1997 baseline. However, senior Navy
officials said the
metric is more of an indicator of efficiencies achieved by changes in
maintenance procedures rather than efficiencies caused by the consolidation.
There is nothing in the consolidation's design or structure that targeted
maintenance procedures for improvement. According to the Navy's contractors,
this metric should not be used to measure schedule integrity of the
consolidated facility because it mixes schedule data with cost data,
resulting in subjective data that are not accurate indicators of the
facility's schedule integrity. The Navy has not generated the index for all
of fiscal year 2000.
6 Pearl Harbor Pilot Test: Analysis of Evaluation Metrics, American
Management Systems, Inc., and PricewaterhouseCoopers LLP (Feb. 15, 2000). 7
Pearl Harbor Pilot, American Management Systems, Inc., and
PricewaterhouseCoopers LLP (Feb. 15, 2000).
Casualty Reports Caused by Although the data for this metric indicate a
slight degradation in
Activity Work performance following the consolidation, the results are
inconclusive
because the change in the overall performance was insignificant with respect
to the consolidation's accomplishments and there was no clear relationship
between the reports and the quality of work performed. According to the
Navy, the purpose of this metric is to ensure that depotlevel work completed
by the consolidated facility did not deteriorate as a result of the
consolidation. It is based on an analysis of casualty reports that are filed
by the ship after any equipment failure and, in some instances, identify
maintenance work improperly performed by the consolidated facility.
In its comments on a draft of this report, DOD stated that the metric
indicates “successful performance” when there is no change in
value of the metric from the former shipyard's historical level of work
quality. Although the number of reports identifying equipment failures
relating to the maintenance work increased from two in the baseline fiscal
year 1997 to four in fiscal year 1999 after the consolidation, these numbers
are relatively insignificant considering that the consolidated facility
repairs several hundreds of pieces of equipment annually. According to the
Navy's contractors, the number of casualty reports related to depot- level
work
was insignificant before and after the consolidation, indicating that there
was no major problems with the end quality of depot maintenance work
completed at Pearl Harbor during both periods. 8 However, the contractors
questioned whether casualty reports are useful measurements because there
was no clear relationship between the reports and the quality of work
performed during a maintenance project. For example, because there are no
standard procedures or methods for writing casualty reports, some reports
did not explicitly identify the cause of the equipment failure. In other
instances, the equipment failure identified in the casualty reports can
be coincidental and unrelated to any work performed by the consolidated
facility. The Navy has not yet reviewed the casualty reports for fiscal year
2000 to identify equipment failures caused by work improperly performed by
the consolidated facility.
8 Pearl Harbor Pilot, American Management Systems, Inc., and
PricewaterhouseCoopers LLP (Feb. 15, 2000).
Earned Value Results for this metric are inconclusive because the change in
the overall performance was insignificant and the data indicated both
positive and negative results depending on the work and ship type. To
determine the earned value metric, labor hours to complete a unit of work in
fiscal year 1997 are compared with hours to complete the same unit of work
in fiscal year 1999 and later to measure the consolidation's effect on
maintenance outputs. However, after the analysis was completed for fiscal
year 1999, Navy and contractor officials concluded that the change in the
overall performance based on this metric was insignificant. In addition, the
supporting data for the metric, while indicating an overall decline in
performance since the consolidation, showed both positive and negative
results depending on the specific work and type of ship sampled. The 1999
data for submarines showed more labor hours were expended for four cost
drivers 9 and less for one cost driver compared to data for fiscal year
1997. The 1999 data for surface ships showed more labor hours were expended
for one cost driver and less for two cost drivers compared to fiscal year
1997. The Navy has not explored the earned value metric for fiscal year
2000.
Some Planned Benefits The Navy has not moved the projected number of
overhead workers to Have Yet to Be
direct maintenance positions to increase productivity and has not
consolidated all the industrial plant equipment as envisioned in the Pilot
Achieved
Study Report. The consolidation did not result in the projected number of
overhead workers moving to direct maintenance work an important element in
increasing the consolidated facility's productivity. To increase
productivity,
one of the stated goals of the Pearl Harbor consolidation was to increase
the number of direct maintenance workers relative to the number of
supervisors and overhead personnel without increasing costs. Logically,
increasing the number of maintenance workers should result in increased
maintenance. To accomplish this goal, the Pilot Study Report proposed that
95 civilian overhead workers be moved to positions in direct maintenance
work; however, only four workers moved. According to Pacific Fleet and Pearl
Harbor officials, moving civilians to such positions
has been impractical because of (1) the time required for overhead workers 9
A cost driver is the quantity of ship maintenance work that represents a
major or controlling portion of work on a particular ship maintenance
project.
to become skilled, usually several years; (2) personnel regulations
implementing the process for downgrades; and (3) potentially negative
reaction by workers and employee representatives. In addition, several
department directors and overhead supervisors said they were unwilling to
release any personnel because of the increased workload due to changes in
administrative and financial systems since the consolidation. Furthermore,
other Navy officials said that efforts to move supervisors to direct
maintenance resulted in too few supervisors, which led to problems in
planning and coordinating work on maintenance projects. Pacific Fleet and
Pearl Harbor officials believe that moving overhead workers to direct
maintenance work is too difficult, and they believe this will not happen.
Industrial plant equipment has not been completely consolidated at
integrated maintenance shops to improve maintenance operations, as suggested
in the Pilot Study Report. Of the 271 items of industrial equipment at the
former intermediate maintenance facility, 114 items were relocated, 132
items were mothballed, and 25 items were kept operational at their original
location. According to Pearl Harbor officials, the removal and installation
of the 114 relocated items cost little or nothing. Although many of the 132
mothballed items are in better condition and newer than the same type of
equipment in the consolidated shops, the funding required to relocate the
intermediate maintenance equipment has not been available. Most mothballed
items are semipermanently attached heavy
equipment that requires funding to remove, transport, and install elsewhere.
Officials do not plan to request funding to move the equipment until after
the pilot period because of budgetary constraints.
Conclusions and Recommendations for Executive Action, Agency Comments, and
Chapt er 5
Matters for Congressional Consideration Conclusions Although OSD concurred
with the intent of the recommendations in our 1999 report to resolve
financial management issues and assure cost visibility, 1 the Navy's
consolidation of ship maintenance activities at Pearl Harbor has not yet
shown that it can adequately identify and account for the total cost of
operations or distinguish between depot and intermediate work performed by
consolidated ship maintenance activities on an ongoing
basis. Such data are needed to comply with the Statement of Federal
Financial Accounting Standards No. 4 requirements for determining full cost
of operations, which are intended to provide managers relevant and
reliable data for making resource allocations, program modifications, and
performance evaluations. Additionally, improved cost and performance data
are needed to show compliance with 10 U. S. C. 2466, the Chief Financial
Officers Act, and the Government Performance and Results Act. Although
managers and workers performing ship maintenance and repairs at Pearl Harbor
may not be directly affected, the lack of reliable cost and performance data
impairs the ability of senior OSD and Navy officials to make timely, well-
informed decisions to facilitate the effective and efficient management of
the Navy's overall ship maintenance activities, the Pearl Harbor
consolidation, and other potential consolidations of ship maintenance
activities. More specifically, to provide senior OSD and Navy officials
reliable cost and performance data to facilitate their decisionmaking
process, the Navy needs to implement a method that includes appropriate
costing methodologies or techniques that provide sufficient data to (1)
adequately identify and account for the total cost of operations, (2)
distinguish between depot and intermediate work performed by consolidated
ship maintenance activities, and (3) show compliance with 10 U. S. C. 2466,
the Chief Financial Officers Act, the Government
Performance and Results Act, DOD regulations, and federal accounting
standards.
Other consolidations of naval shipyards and intermediate maintenance
activities are likely, even though little progress has been made since our
prior report toward resolving OSD's and the Navy's differences over key
issues related to the financial structure for the consolidation of ship
maintenance activities at Pearl Harbor and for potential consolidations at
other naval locations. Consequently, several outstanding financial issues
still need to be resolved to facilitate effective and efficient ship
maintenance operations at Pearl Harbor and other potential 1 Depot
Maintenance (GAO/ NSIAD- 99- 199, Sept. 10, 1999).
consolidations. First, OSD and Navy officials differ over the appropriate
amount the Navy should compensate the working capital fund when a naval
shipyard leaves the fund. Because DOD regulations provide only general
guidance governing the transfer of working capital fund organizations, more
specific guidance is needed on the processes, procedures, and costing
methodology to help resolve the Pearl Harbor dispute and prevent similar
occurrences in other potential transfers of naval shipyards to direct
appropriations. Second, officials differ over the
potential impact of using direct appropriations on the consolidated
facility's flexibility to, as are naval shipyards operating under the
working capital fund, continue routine ship maintenance operations if
potential funding gaps occur at the beginning of fiscal years or expected
maintenance costs exceed annual appropriations. This needs to be addressed
to determine whether steps are considered necessary to mitigate the risk of
ship maintenance activities funded with direct appropriations not being able
to continue routine operations during funding gaps at the beginning of
fiscal years and funding shortfalls at the end of fiscal years. Third,
officials still differ about whether funding levels under direct
appropriations will be sufficient to maintain an adequate capital
improvement program for the consolidated facility, because of uncertainties
in competing with other Navy programs and priorities for
funding during the budgeting and appropriations processes. This needs to be
resolved to help assure that capital improvement programs for consolidated
ship maintenance activities funded with direct appropriations
receive proper funding. Although the Pearl Harbor consolidation has made
more effective use of workers and facilities in Hawaii, the data available
for the test metrics up to now provide an inconclusive assessment of the
consolidated facility's overall accomplishments in achieving greater
efficiencies and lowering costs. Consequently, overall results of the
metrics should not be used as the basis for making future consolidations of
naval shipyards and intermediate maintenance activities. However, lessons
learned from the metrics used in evaluating the Pearl Harbor consolidation
should be useful in framing evaluation plans that would provide more
conclusive data for future consolidations at other naval locations.
Recommendations for We recommend that before the Navy implements permanent
changes at the
Executive Action Pearl Harbor facility and any other consolidations of naval
shipyards and
intermediate maintenance activities, the Secretary of Defense direct the
Secretary of the Navy to implement a method to (1) account for the total
cost of consolidated ship maintenance operations on an ongoing basis and (2)
distinguish between depot and intermediate work of consolidated ship
maintenance activities. The method should include appropriate costing
methodologies or techniques that provide sufficient data to show compliance
with 10 U. S. C. 2466, the Chief Financial Officers Act, the Government
Performance and Results Act, DOD regulations, and federal accounting
standards.
To help prevent disputes in the transfer of working capital fund activities
to direct appropriations, we recommend that the Secretary of Defense direct
the Under Secretary of Defense (Comptroller/ Chief Financial Officer) to
clarify DOD financial management regulations, to include specifying the
processes, procedures, and costing methodology, governing the transfers of
working capital fund activities to direct appropriations. We further
recommend that before permanent changes are made at Pearl Harbor and any
further consolidations are implemented at other naval locations, the
Secretary of Defense direct the Under Secretary of Defense (Comptroller/
Chief Financial Officer) and the Secretary of the Navy to resolve issues
related to (1) buyout costs for the former Pearl Harbor
shipyard if the Navy decides to formally transfer it to direct
appropriations, (2) loss of flexibility to continue routine ship maintenance
operations through potential funding gaps at the beginning of fiscal years
or when expected maintenance costs exceed annual appropriations, and (3)
funding for the capital improvement program for the consolidated facility.
We recommend that before the Navy consolidates additional shipyards and
intermediate maintenance activities, the Secretary of Defense direct the
Secretary of the Navy to develop additional metrics to measure the
efficiency and effectiveness of consolidated ship maintenance activities,
drawing on lessons learned from the consolidation at Pearl Harbor.
DOD Comments and In its written comments on a draft of this report, DOD
agreed with the
Our Evaluation report's recommendations. However, it did not indicate
specific actions or
milestones for resolving the financial issues first raised in our 1999
report on the Pearl Harbor consolidation. 2 As a result, we have added
matters for
2 Depot Maintenance (GAO/ NSIAD- 99- 199, Sept. 10, 1999).
congressional consideration to help assure timely implementation of our
recommendations for executive action.
Matters for The Congress may wish to require the Secretary of the Navy to
report the Congressional Navy's strategy and time frame for the
implementation of a method to (1) account for the total cost of consolidated
ship maintenance operations
Consideration on an ongoing basis and (2) distinguish between depot and
intermediate
work of consolidated ship maintenance activities. In addition, the Congress
may wish to require the Under Secretary of Defense (Comptroller/ Chief
Financial Officer) and the Secretary of the Navy to report their strategy
and time frame for the resolution of issues related to (1) buyout costs for
the transfer, (2) loss of flexibility to continue routine ship maintenance
operations through potential funding gaps at the beginning of fiscal years
or when expected maintenance costs exceed annual appropriations, and (3)
funding for the facility's capital improvement program.
Appendi Appendi xes x I
Objectives, Scope, and Methodology As requested, we updated our prior
assessment 1 to determine whether (1) the Navy has provided adequate cost
visibility and accountability over consolidated ship maintenance activities
at Pearl Harbor, (2) the Departments of Defense and the Navy have resolved
other issues related to the financial structure for consolidations at Pearl
Harbor and elsewhere, and (3) the consolidation has generated greater
efficiency and lower costs for ship maintenance at Pearl Harbor. During our
review, we obtained data and interviewed Office of the Secretary of Defense
(OSD) and Navy officials, including those from the offices of the Under
Secretary of Defense (Comptroller), the Deputy Under Secretary of Defense
for Logistics, the Assistant Secretary of the Navy for Financial Management
and
Comptroller, the Chief of Naval Operations, the Naval Sea Systems Command,
the Pacific Fleet, the Pearl Harbor Naval Shipyard and Intermediate
Maintenance Facility, the Puget Sound Naval Shipyard, and the Naval Audit
Service. In addition, we interviewed officials of the Hawaii Federal
Employees Metal Trades Council, the Ship Repair Association of Hawaii, and
contractors involved in the management and assessment of the Pearl Harbor
consolidation.
To determine whether the Navy has provided adequate cost visibility and
accountability of consolidated ship maintenance activities in Hawaii, we
documented the reasons the Navy selected direct appropriations and the
consolidated facility's experience of operating under direct appropriations.
Furthermore, we reviewed federal accounting standards; the Department of
Defense (DOD) and the Navy financial management and reporting regulations;
audit reports, including ours and those of the DOD Inspector
General and the Naval Audit Service; financial and budget documents; and
related documents and guidance. To discuss their views concerning the
current level of cost visibility and reporting, changes since the
consolidation, reasons for any changes, and what is considered adequate for
ship maintenance activities, we met with comptroller officials from the
offices of the Under Secretary of Defense (Comptroller), the Assistant
Secretary of the Navy for Financial Management and Comptroller, the Naval
Sea Systems Command, the Pacific Fleet, and the Pearl Harbor Naval Shipyard
and Intermediate Maintenance Facility. We also discussed the
consolidated facility's ability to routinely and systematically accumulate
and account for all ship maintenance costs and distinguish between depot and
intermediate work. In addition, we interviewed ship maintenance 1 Depot
Maintenance (GAO/ NSIAD- 99- 199, Sept. 10, 1999).
project superintendents to determine the level of cost visibility and
accountability retained for projects prior to and since the consolidation.
To determine whether OSD and the Navy had resolved other issues related to
the financial structure for consolidated ship maintenance activities at
Pearl Harbor and elsewhere, we obtained and reviewed status reports and
briefings, financial documents, related guidance, and regional maintenance
and business plans. We interviewed OSD and Navy officials to discuss (1)
financial issues that still need to be resolved to obtain the full benefit
of the consolidation in Hawaii and similar consolidations in other Navy
locations and (2) advantages and disadvantages of using direct
appropriations, the Navy Working Capital Fund, or a combination of the two
financial structures. To help assess the potential impact of removing the
former Pearl Harbor shipyard and other naval shipyards from the fund, we
identified and analyzed the percentage of revenues the former shipyard and
the other shipyards contributed to the fund. We also collected data such as
guidance and correspondence from and discussed the potential costs related
to the transfer of naval shipyards to direct appropriations with Office of
Management and Budget, OSD, and Navy officials. In addition, we collected
data from and discussed with OSD and Navy officials the uncertainties
related to using direct appropriations on
consolidated ship maintenance activities throughout each fiscal year and
between fiscal years. To assess the Navy's efforts to maintain the capital
improvement program of the former Pearl Harbor shipyard for the
consolidated facility since the consolidation, we collected Navy documents
and correspondence, budget and financial data, memorandums of agreements
that identify responsibilities, and other pertinent data and discussed the
efforts with OSD and Navy officials.
To determine whether the consolidation has generated greater efficiency and
lower costs for ship maintenance activities at Pearl Harbor, we reviewed
several Navy reports, including the Pearl Harbor Pilot Test: Analysis of
Evaluation Metrics 2 and the Pearl Harbor Regional Maintenance Pilot Lessons
Learned; 3 the Pearl Harbor pilot test plan; financial, budget, and human
resources documents; Naval Audit Service capacity evaluation reports for
fiscal years 1997, 1998, and 1999; and related documents and guidance. In
addition, we reviewed the Pearl Harbor Pilot Study Report 4 and other
planning documents to identify maintenance processes and procedures that
were expected to improve under the consolidation. To determine how well the
consolidated facility was operating, we observed its operations and
interviewed its commander, deputy commander, and officials from various
departments, including the
pilot office; business office; quality assurance office; human relations
office; occupational safety, health, and environmental office; facilities
and equipment maintenance shop; and comptroller shop. In addition, we
interviewed Pacific Fleet officials and ship commanders (customers of the
consolidated facility) to determine whether the facility's maintenance
activities and services were comparable to those provided prior to the
consolidation, to identify overall operational issues and concerns, and to
assess the consolidation's impact on the material condition of their ships.
In addition, we reviewed data on the integration of the workforce from two
maintenance centers into a common pool, the reduction in maintenance
infrastructure, and other planned efficiencies that had not been achieved,
such as moving non- maintenance workers to direct maintenance work and
consolidating the plant equipment. Furthermore, we interviewed Navy
officials and collected data about the consolidated facility's apprentice
and
training programs and the morale of its managers and workers. Where data
were available for the test metrics, we compared the actual operational
results for fiscal years 1999 and 2000 with the fiscal year 1997 baseline
data and the Navy's expectations for the consolidation. When actual results
did not meet expectations, we discussed the differences and the challenges
in obtaining the full benefits of the consolidation with 2 Pearl Harbor
Pilot, prepared for Naval Sea Systems Command by American Management
Systems, Inc., and PricewaterhouseCoopers LLP (Feb. 15, 2000).
3 Pearl Harbor Regional Maintenance Pilot Lessons Learned, prepared for
Naval Sea Systems Command by a private contractor (June 9, 2000). 4 Pilot
Study Report, Pearl Harbor Pilot Executive Steering Committee (Aug. 26,
1997).
officials from the offices of the Chief of Naval Operations, the Naval Sea
Systems Command, the Commander- in- Chief Pacific Fleet, and the
consolidated facility. We also interviewed OSD and Navy officials about the
methodology of the test plan and the reliability of the data for each test
metric. To obtain an understanding of the methodology and the data's
reliability, we reviewed the process and data used to develop the fiscal
year
1997 baseline and the fiscal years 1999 and 2000 test results, and on a
selected basis, we traced the data to their original source documents. To
identify decisions and circumstances outside the control or influence of the
consolidated facility that affect metric results, we reviewed the use of
borrowed workers from other naval shipyards, limitations of the
measurements, and weaknesses in the data and discussed these factors with
OSD and Navy officials involved in the consolidation.
To assess the Navy's response to the recommendations in our prior report, we
reviewed the agency comments on the draft and final versions of our report,
including comments from the offices of the Under Secretary
Defense for Logistics, November 1, 1999; the Assistant Deputy Under
Secretary of Defense for Maintenance Policy, Programs, and Resources, August
9, 2000; and the Deputy Director for Industrial Capability, Maintenance
Policy, and Acquisition Logistics Division, Office of the Chief of Naval
Operations, August 27, 1999. We also reviewed several DOD and Navy documents
and reports including the Navy's Pearl Harbor Regional Maintenance Pilot
Lessons Learned report; financial and budget
documents; regional maintenance and business plans; and other data related
to issues discussed in our prior report. To determine whether OSD and the
Navy have resolved issues about the most appropriate mechanism to finance
consolidated ship maintenance activities, we discussed these issues with
officials from the offices of the Under Secretary of Defense (Comptroller),
the Deputy Under Secretary of Defense for Logistics, the Assistant Secretary
of the Navy for Financial Management and
Comptroller, the Chief of Naval Operations, the Naval Sea Systems Command,
the Pacific Fleet, and the consolidated facility. In addition, we compared
the ship maintenance activities and conditions at Pearl Harbor with those
found at the Puget Sound, Portsmouth, and Norfolk areas and
discussed the potential impact of any differences on other consolidations
with OSD and Navy officials.
In performing this review, we used the same budget and accounting systems,
reports, and statistics OSD and the Navy use to manage and monitor their
ship maintenance program. We did not independently determine the reliability
of the reported financial information. Nonetheless, our recent testimony 5
on the results of our audit of DOD's
fiscal year 1999 financial statements have continued to demonstrate that the
department does not have the systems and processes to reliably accumulate
program costs.
We conducted our review from April through October 2000 in accordance with
generally accepted government auditing standards.
5 Department of Defense: Progress in Financial Management Reform (GAO/ T-
AIMD/ NSIAD- 00- 163, May 9, 2000).
Appendi x II Comments From the Department of Defense
Now on pp. 18 and 53. Now on pp. 19 and 54. Now on pp. 19 and 54. Now on pp.
19 and 54.
Appendi x I II
GAO Contacts and Staff Acknowledgments GAO Contacts Julia Denman (202) 512-
4290 Mark Little (202) 512- 4673
Staff
In addition to those named above, Claudia Dickey,
Acknowledgments
Dennis De Hart, Jean Orland, Bonita Oden, and John Brosnan made key
contributions to this report.
Related GAO Products Depot Maintenance: Future Year Estimates of Public and
Private Workloads Are Likely to Change (GAO/ NSIAD- 00- 69, Mar. 1, 2000).
Depot Maintenance: Status of the Navy's Pearl Harbor Pilot Project (GAO/
NSIAD- 99- 199, Sept. 10, 1999). Navy Ship Maintenance: Allocation of Ship
Maintenance Work in the Norfolk, Virginia, Area (GAO/ NSIAD- 99- 54, Feb.
24, 1999). Defense Depot Maintenance: Public and Private Sector Workload
Distribution Reporting Can Be Further Improved (GAO/ NSIAD- 98- 175, July
23, 1998).
Defense Depot Maintenance: Contracting Approaches Should Address Workload
Characteristics (GAO/ NSIAD- 98- 130, June 15, 1998).
Defense Depot Maintenance: Use of Public- Private Partnering Arrangements
(GAO/ NSIAD- 98- 91, May 7, 1998). Navy Ship Maintenance: Temporary Duty
Assignments of Temporarily Excess Shipyard Personnel Are Reasonable (GAO/
NSIAD- 98- 93, Apr. 21, 1998). Public- Private Competitions: DOD's
Additional Support for Combining Depot Workloads Contains Weaknesses (GAO/
NSIAD- 98- 143, Apr. 17, 1998).
Defense Depot Maintenance: DOD Shifting More Workload for New Weapon Systems
to the Private Sector (GAO/ NSIAD- 98- 8, Mar. 31, 1998).
Public- Private Competitions: DOD's Determination to Combine Depot Workloads
Is Not Adequately Supported (GAO/ NSIAD- 98- 76, Jan. 20, 1998). Defense
Depot Maintenance: Information on Public and Private Sector Workload
Allocations (GAO/ NSIAD- 98- 41, Jan. 20, 1998).
Navy Regional Maintenance: Substantial Opportunities Exist to Build on
Infrastructure Streamlining Progress (GAO/ NSIAD- 98- 4, Nov. 13, 1997).
Navy Depot Maintenance: Privatizing Louisville Operations in Place Is Not
Cost- Effective (GAO/ NSIAD- 97- 52, July 31, 1997).
Defense Depot Maintenance: Challenges Facing DOD in Managing Working Capital
Funds (GAO/ T- NSIAD/ AIMD- 97- 152, May 7, 1997).
Defense Depot Maintenance: Uncertainties and Challenges DOD Faces in
Restructuring Its Depot Maintenance Program (GAO/ T- NSIAD- 97- 112, May 1,
1997) and (GAO/ T- NSIAD- 97- 111, Mar. 18, 1997). Defense Outsourcing:
Challenges Facing DOD as It Attempts to Save Billions in Infrastructure
Costs (GAO/ T- NSIAD- 97- 110, Mar. 12, 1997).
High- Risk Series: Defense Infrastructure (GAO/ HR- 97- 7, Feb. 1997).
(709499) Lett er
GAO United States General Accounting Office
Page 1 GAO- 01- 19 Depot Maintenance
Contents
Contents Page 2 GAO- 01- 19 Depot Maintenance
Contents Page 3 GAO- 01- 19 Depot Maintenance
Page 4 GAO- 01- 19 Depot Maintenance
United States General Accounting Office Washington, D. C. 20548
Page 5 GAO- 01- 19 Depot Maintenance
Page 6 GAO- 01- 19 Depot Maintenance
Page 7 GAO- 01- 19 Depot Maintenance
Page 8 GAO- 01- 19 Depot Maintenance
Executive Summary Page 9 GAO- 01- 19 Depot Maintenance
Executive Summary Page 10 GAO- 01- 19 Depot Maintenance
Executive Summary Page 11 GAO- 01- 19 Depot Maintenance
Executive Summary Page 12 GAO- 01- 19 Depot Maintenance
Executive Summary Page 13 GAO- 01- 19 Depot Maintenance
Executive Summary Page 14 GAO- 01- 19 Depot Maintenance
Executive Summary Page 15 GAO- 01- 19 Depot Maintenance
Executive Summary Page 16 GAO- 01- 19 Depot Maintenance
Executive Summary Page 17 GAO- 01- 19 Depot Maintenance
Executive Summary Page 18 GAO- 01- 19 Depot Maintenance
Executive Summary Page 19 GAO- 01- 19 Depot Maintenance
Executive Summary Page 20 GAO- 01- 19 Depot Maintenance
Page 21 GAO- 01- 19 Depot Maintenance
Page 22 GAO- 01- 19 Depot Maintenance
Chapter 1
Chapter 1 Introduction
Page 23 GAO- 01- 19 Depot Maintenance
Chapter 1 Introduction
Page 24 GAO- 01- 19 Depot Maintenance
Chapter 1 Introduction
Page 25 GAO- 01- 19 Depot Maintenance
Chapter 1 Introduction
Page 26 GAO- 01- 19 Depot Maintenance
Chapter 1 Introduction
Page 27 GAO- 01- 19 Depot Maintenance
Chapter 1 Introduction
Page 28 GAO- 01- 19 Depot Maintenance
Chapter 1 Introduction
Page 29 GAO- 01- 19 Depot Maintenance
Page 30 GAO- 01- 19 Depot Maintenance
Chapter 2
Chapter 2 Navy Does Not Provide Adequate Cost Visibility and Accountability
of Consolidated
Ship Maintenance Activities at Pearl Harbor Page 31 GAO- 01- 19 Depot
Maintenance
Chapter 2 Navy Does Not Provide Adequate Cost Visibility and Accountability
of Consolidated
Ship Maintenance Activities at Pearl Harbor Page 32 GAO- 01- 19 Depot
Maintenance
Chapter 2 Navy Does Not Provide Adequate Cost Visibility and Accountability
of Consolidated
Ship Maintenance Activities at Pearl Harbor Page 33 GAO- 01- 19 Depot
Maintenance
Chapter 2 Navy Does Not Provide Adequate Cost Visibility and Accountability
of Consolidated
Ship Maintenance Activities at Pearl Harbor Page 34 GAO- 01- 19 Depot
Maintenance
Chapter 2 Navy Does Not Provide Adequate Cost Visibility and Accountability
of Consolidated
Ship Maintenance Activities at Pearl Harbor Page 35 GAO- 01- 19 Depot
Maintenance
Chapter 2 Navy Does Not Provide Adequate Cost Visibility and Accountability
of Consolidated
Ship Maintenance Activities at Pearl Harbor Page 36 GAO- 01- 19 Depot
Maintenance
Page 37 GAO- 01- 19 Depot Maintenance
Chapter 3
Chapter 3 Issues Related to the Financial Structure for Consolidations of
Ship Maintenance Activities at Pearl Harbor and Elsewhere Are Still Not
Resolved
Page 38 GAO- 01- 19 Depot Maintenance
Chapter 3 Issues Related to the Financial Structure for Consolidations of
Ship Maintenance Activities at Pearl Harbor and Elsewhere Are Still Not
Resolved
Page 39 GAO- 01- 19 Depot Maintenance
Chapter 3 Issues Related to the Financial Structure for Consolidations of
Ship Maintenance Activities at Pearl Harbor and Elsewhere Are Still Not
Resolved
Page 40 GAO- 01- 19 Depot Maintenance
Chapter 3 Issues Related to the Financial Structure for Consolidations of
Ship Maintenance Activities at Pearl Harbor and Elsewhere Are Still Not
Resolved
Page 41 GAO- 01- 19 Depot Maintenance
Page 42 GAO- 01- 19 Depot Maintenance
Chapter 4
Chapter 4 Consolidation Has Provided Some Important Benefits, Although
Overall Results of the Test Metrics Are Inconclusive
Page 43 GAO- 01- 19 Depot Maintenance
Chapter 4 Consolidation Has Provided Some Important Benefits, Although
Overall Results of the Test Metrics Are Inconclusive
Page 44 GAO- 01- 19 Depot Maintenance
Chapter 4 Consolidation Has Provided Some Important Benefits, Although
Overall Results of the Test Metrics Are Inconclusive
Page 45 GAO- 01- 19 Depot Maintenance
Chapter 4 Consolidation Has Provided Some Important Benefits, Although
Overall Results of the Test Metrics Are Inconclusive
Page 46 GAO- 01- 19 Depot Maintenance
Chapter 4 Consolidation Has Provided Some Important Benefits, Although
Overall Results of the Test Metrics Are Inconclusive
Page 47 GAO- 01- 19 Depot Maintenance
Chapter 4 Consolidation Has Provided Some Important Benefits, Although
Overall Results of the Test Metrics Are Inconclusive
Page 48 GAO- 01- 19 Depot Maintenance
Chapter 4 Consolidation Has Provided Some Important Benefits, Although
Overall Results of the Test Metrics Are Inconclusive
Page 49 GAO- 01- 19 Depot Maintenance
Chapter 4 Consolidation Has Provided Some Important Benefits, Although
Overall Results of the Test Metrics Are Inconclusive
Page 50 GAO- 01- 19 Depot Maintenance
Chapter 4 Consolidation Has Provided Some Important Benefits, Although
Overall Results of the Test Metrics Are Inconclusive
Page 51 GAO- 01- 19 Depot Maintenance
Page 52 GAO- 01- 19 Depot Maintenance
Chapter 5
Chapter 5 Conclusions and Recommendations for Executive Action, Agency
Comments, and Matters for Congressional Consideration
Page 53 GAO- 01- 19 Depot Maintenance
Chapter 5 Conclusions and Recommendations for Executive Action, Agency
Comments, and Matters for Congressional Consideration
Page 54 GAO- 01- 19 Depot Maintenance
Chapter 5 Conclusions and Recommendations for Executive Action, Agency
Comments, and Matters for Congressional Consideration
Page 55 GAO- 01- 19 Depot Maintenance
Page 56 GAO- 01- 19 Depot Maintenance
Appendix I
Appendix I Objectives, Scope, and Methodology
Page 57 GAO- 01- 19 Depot Maintenance
Appendix I Objectives, Scope, and Methodology
Page 58 GAO- 01- 19 Depot Maintenance
Appendix I Objectives, Scope, and Methodology
Page 59 GAO- 01- 19 Depot Maintenance
Appendix I Objectives, Scope, and Methodology
Page 60 GAO- 01- 19 Depot Maintenance
Page 61 GAO- 01- 19 Depot Maintenance
Appendix II
Appendix II Comments From the Department of Defense
Page 62 GAO- 01- 19 Depot Maintenance
Page 63 GAO- 01- 19 Depot Maintenance
Appendix III
Page 64 GAO- 01- 19 Depot Maintenance
Related GAO Products Page 65 GAO- 01- 19 Depot Maintenance
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