Defense Logistics: Actions Needed to Overcome Capability Gaps in 
the Public Depot System (12-OCT-01, GAO-02-105).		 
								 
The Department of Defense's (DOD) policy and practices for	 
developing core depot maintenance capabilities are creating gaps 
between actual capabilities and those that will be needed to	 
support future national defense emergencies and contingencies. If
the existing policy is not clarified and current practices	 
continue, the military depots will not have the equipment,	 
facilities, and trained personnel to provide logistics support on
many of the weapon systems and related equipment for military use
in the next five to 15 years. Although DOD states that it intends
for its depots to have these capabilities, actual practices are  
much different. Core policy does not adequately take into	 
consideration future systems repair needs and the impact of	 
retiring systems on developing capabilities. Further, individual 
service practices negatively impact the establishment of future  
core capabilities and hinder management oversight. Additional	 
investments in new facilities, equipment, and workforce training 
and revitalization have been limited for some time. Finally,	 
there is no strategic plan and associated service implementation 
plans to create and sustain a viable depot maintenance		 
capability.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-105 					        
    ACCNO:   A02294						        
  TITLE:     Defense Logistics: Actions Needed to Overcome Capability 
Gaps in the Public Depot System 				 
     DATE:   10/12/2001 
  SUBJECT:   Investments					 
	     Logistics						 
	     Maintenance (upkeep)				 
	     Military policies					 
	     Strategic planning 				 
	     Weapons systems					 
	     Apache Helicopter					 
	     B-1 Aircraft					 
	     B-2 Aircraft					 
	     B-52 Aircraft					 
	     C-130 Aircraft					 
	     C-141 Aircraft					 
	     C-17 Aircraft					 
	     C-5 Aircraft					 
	     DOD Acquisition 2005 Task Force			 
	     DOD Quadrennial Defense Review			 
	     E-8 Aircraft					 
	     F-117 Aircraft					 
	     Galaxy Aircraft					 
	     Globemaster Aircraft				 
	     H-46 Helicopter					 
	     Hercules Aircraft					 
	     KC-135 Aircraft					 
	     Osprey Aircraft					 
	     Starlifter Aircraft				 
	     Stealth Aircraft					 
	     U-2 Aircraft					 
	     V-22 Aircraft					 

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GAO-02-105
     
Report to Congressional Committees

United States General Accounting Office

GAO

October 2001 DEFENSE LOGISTICS Actions Needed to Overcome Capability Gaps in
the Public Depot System

GAO- 02- 105

Page i GAO- 02- 105 Defense Logistics Capabilities Letter 1

Results in Brief 2 Background 5 Weaknesses in Core Policy and Implementation
Leave Little

Assurance That Capabilities Will Be Developed to Support Wartime
Requirements 12 Investments In Facilities, Equipment, and Personnel Have
Been

Insufficient 26 Policy Gaps Could Lead to Shortfalls in Non- Depot
Maintenance

Logistics Capabilities 34 Conclusions 35 Recommendations for Executive
Action 36 Matter for Congressional Consideration 37 Agency Comments and Our
Evaluation 37

Appendix I DOD Initiatives That Could Affect Core and CoreRelated Processes
39

Appendix II Scope and Methodology 42

Appendix III GAO Contacts and Staff Acknowledgments 44 GAO Contacts 44
Acknowledgments 44

Appendix IV Comments by the Department of Defense 45

Related GAO Reports 49

Table

Table 1: Retirement Eligibility Status and Average Age of the Total Civilian
Depot Maintenance Work Force 29 Contents

Page ii GAO- 02- 105 Defense Logistics Capabilities Figures

Figure 1: Workload and Workforce Trends in Military Maintenance Depots 6
Figure 2: Computed Core Work Requirements for Depot

Maintenance 11 Figure 3: Service Use of ?Like? Workloads to Assume a Repair

Capability 17 Figure 4: Capital Investments in Maintenance Depots 27

Abbreviations

DOD Department of Defense OMB Office of Management and Budget

Page 1 GAO- 02- 105 Defense Logistics Capabilities

October 12, 2001 The Honorable Carl Levin Chairman The Honorable John Warner
Ranking Minority Member Committee on Armed Services United States Senate

The Honorable Bob Stump Chairman The Honorable Ike Skelton Ranking Minority
Member Committee on Armed Services House of Representatives

In recent years the Department of Defense (DOD) has implemented a policy
change placing increased reliance on defense contractors for overhaul and
maintenance and related logistics activities. This policy initiative has
generated questions from the Congress about the capability and future
viability of existing in- house logistics activities, particularly that of
the military depots that have traditionally performed the largest share of
the Department?s depot maintenance work. DOD is required under 10 U. S. C.
2464 to identify and maintain within government- owned and -operated
facilities a core logistics capability, including the equipment, personnel,
and technical competence required to maintain weapon systems identified as
necessary for national defense emergencies and contingencies. Specifically,
the Secretary of Defense is to identify the workloads required to maintain
the core logistics capabilities and assign to government facilities
sufficient peacetime workload to ensure cost efficiency and technical
competence, while preserving capabilities necessary to fully respond to
national defense emergencies and contingencies.

Your committees have expressed concerns about the need to continue the
performance of mission- essential, or core, maintenance activities in
military depots and the long- term viability of military industrial
facilities in light of DOD?s increased reliance on the private sector to
accomplish logistics support activities such as the maintenance of weapon
systems.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 105 Defense Logistics Capabilities

The Report of the House Committee on Armed Services, Floyd D. Spence
National Defense Authorization Act for Fiscal Year 2001 (2001 Defense
Authorization Act), 1 directed that we review various issues related to the
Department?s logistics support planning and capabilities. As agreed with
your offices, in this report we are addressing the extent to which (1) core
depot maintenance policy and practices will result in military depots being
able to perform core work in support of national defense emergencies and
contingencies; (2) investments in facilities, equipment, and human capital
are adequate to support the long- term viability of military maintenance
depots; and (3) non- maintenance core logistics capabilities have been
identified.

In November 1993, the Department approved a standard methodology for the
military services? use in computing core depot maintenance requirements 2 in
terms of the number of direct labor hours required to accomplish the
identified work and relating the core requirements to its war planning
scenarios. 3 Direct labor hours represent a measurement of output core
capabilities generated by using such input factors as facilities, equipment,
and trained personnel. The direct labor hours are associated with
capabilities for specific weapons identified by the various war plans. The
standard methodology was designed to identify the weapon systems tied to the
various war plans and determine peacetime depot maintenance workloads that
would provide the capability for maintaining those systems in wartime. The
Department recently completed the Quadrennial Defense Review (QDR), a
strategic review of its defense goals, objectives, and capabilities.
Implementation of the QDR could influence the way DOD approaches its future
management of its core logistics capabilities.

The Department?s core depot maintenance policy is not comprehensive and the
policy and implementing procedures and practices provide little assurance
that core maintenance capabilities are being developed as needed to support
future national defense emergencies and contingencies. Several factors
preclude this assurance. First, the existing policy is not comprehensive. It
does not provide for a forward look at new weapon

1 Report 106- 616, May 12, 2000, pp. 338- 9. 2 Depot maintenance as defined
in 10 USC 2460 is the material maintenance and repair requiring the
overhaul, upgrading, or rebuilding of parts, assemblies, or subassemblies,
and the testing and reclamation of equipment as necessary, regardless of the
source of funds or the location at which the maintenance or repair is
performed. 3 This methodology was revised in November 1996. Results in Brief

Page 3 GAO- 02- 105 Defense Logistics Capabilities

systems and associated future maintenance capability requirements. Nor does
it link to source- of- repair policies and procedures for new and upgraded
systems. As a result, the Department has not undertaken the development of a
strategy to add the capabilities that will be needed in the public depot
system to repair the weapon systems that will replace the ones that are
being retired and now dominate the current core workload. The lack of such a
strategy limits the timely identification and acquisition of equipment,
facilities, and technical skills needed in the workforce to meet future
needs. The advance planning needed to meet future needs is critical because
past experience has shown that it can take up to 5 years to establish a new
in- house capability.

Second, the various procedures and practices being used by the services to
implement the existing policy are also affecting the establishment of core
capability. For example, the services? use of ?like? workloads to satisfy
the core requirements and risk assessments to reduce core capability have
the impact of further reducing the amount of core work performed in DOD
facilities on such major systems as the C- 17 and F- 117 that support
contingency plans. To illustrate, the Air Force reduced its core capability
for airframes by 66 percent through the risk assessment process.
Additionally, actual direct labor hours on workloads assigned to public
depots are less than called for in core capability work requirements and
because the core process is not linked to DOD?s planning, programming and
budgeting system or to DOD?s strategic planning process, funding shortfalls
continue to affect the Department?s ability to establish and retain required
core capability. The net effect of these policy and practice deficiencies is
twofold. It limits the extent to which new technologies are introduced into
the depot system and reduces training opportunities on core workload,
resulting in diminished depot capabilities, including facilities, equipment,
and trained personnel. The Office of the Secretary of Defense and each
service, to varying extents, have recently begun efforts to improve core and
core- related processes, but the results of these initiatives are uncertain.

Investments in facilities, equipment, and human capital have not been
sufficient in recent years to ensure the long- term viability of the
services? depots. DOD?s downsizing of its depot infrastructure and workforce
since the end of the Cold War was done without sound strategic planning.
Because of the shortcoming in core policy, the manner in which the services
have implemented the existing policy and the lack of investment in capital
equipment and sound human capital succession planning, the capabilities
remaining in the depot system are not setting the foundation to meet future
repair needs. Today?s military depot capability is primarily

Page 4 GAO- 02- 105 Defense Logistics Capabilities

in the repair of older systems and equipment, not new systems. At the same
time, the average age of the depot worker is 46, with about one- third of
the depot workforce eligible to retire within the next five years. Only
recently has the Department begun to consider changes that could address
these deficiencies, but it is unclear to what extent changes will be
implemented, since the Department continues to express a preference for
outsourcing maintenance and other logistics activities. Further, the
Department continues to lack a sound policy and plan to provide for the
development of facilities, equipment, and human capital to meet future depot
core requirements. Before DOD can know the magnitude of the challenge of
revitalizing its depot facilities and equipment and its depot workforce, it
must first know what its future workloads will be; what facility, equipment,
and technical capability improvements will be required to perform that work;
and what personnel changes will be needed to respond to retirements and
workload changes. Since the services have not yet conducted an assessment to
enable the identification of future requirements in sufficient detail to
provide a baseline for acquiring needed resources, they are behind in
identifying solutions and required resources to implement them.

The Department has not established policies or processes for identifying
non- maintenance core logistics capabilities for activities such as supply
support, engineering, and transportation. Whether this is required by
statute has been the subject of debate. Resolving this policy issue is
becoming more important as the Department increases its outsourcing and
develops new strategies to rely on the private sector to perform many
logistical support activities. Without well- defined policy and procedures
for identifying core requirements for other critical logistic areas, the
Department will not be in a position to ensure that it will have the needed
capabilities for the logistics system to support our essential military
weapons and equipment in an emergency.

This report contains a number of recommendations for executive action
designed to improve the Department?s criteria and tools for managing and
overseeing the development of core capabilities in its depots and other
logistics activities. In commenting on a draft of this report, the
Department concurred with our recommendations to improve core depot
maintenance policies and procedures and to develop strategic and
implementation plans for maintenance depots. The Department did not concur
with our recommendation to develop policies to identify core capabilities
for nonmaintenance logistics activities, stating that it has not identified
any core logistics capabilities beyond those associated with depot
maintenance and repair and sees no need to do so. As a result, we added a
matter for

Page 5 GAO- 02- 105 Defense Logistics Capabilities

congressional consideration in the final report, suggesting that the
Congress may want to review the coverage of 10 U. S. C. 2464 and, if deemed
appropriate, clarify the law.

In recent years, Congress and DOD have had an ongoing debate concerning core
depot maintenance capabilities and the work needed to support these
capabilities; the role of military depots; and the size, composition, and
allocation of depot maintenance work between the public and private sectors.
Since the mid- 1990s, DOD policy and advisory groups have called for
contracting with the private sector for a greater share of the Department?s
logistics support work, including depot maintenance, and related activities
such as supply support, engineering, and transportation. An integral part of
the policy shift is the debate over how DOD identifies its core logistics
capabilities that are to be performed by federal employees in federal
facilities. The Deputy Under Secretary of Defense for Acquisition,
Technology, and Logistics is responsible for maintenance issues, including
core. We recently testified on core capabilities, DOD management of the
depot system, and related issues. 4

DOD estimates that it will spend about one- third of its $297 billion budget
for fiscal year 2001 on logistics support activities at military
maintenance, supply management, engineering, distribution, and
transportation activities and at thousands of contractor locations. As a
result of force structure reductions, depot closures under the base
realignment and closure process in fiscal years 1988 to 2001, and DOD?s
desire to place greater reliance on the private sector for the performance
of depot maintenance, the number of ?major? depots (those employing more
than 400 persons) was halved from 38 to 19. During this same period, the
total amount of work (measured in direct labor hours) accomplished at the
military depots was cut in half and the depot maintenance workforce was
reduced by about three- fifths (from 156,000 in fiscal year 1987 to about
64,500 in fiscal year 2001) as shown in figure 1. At the same time, annual
funding for contracted depot maintenance work has increased by 90 percent.

4 Defense Maintenance: Sustaining Readiness Support Capabilities Requires a
Comprehensive Plan (GAO/ 01- 533T, Mar. 23, 2001). Background

Page 6 GAO- 02- 105 Defense Logistics Capabilities

Figure 1: Workload and Workforce Trends in Military Maintenance Depots

Source: DOD.

The provisions of 10 U. S. C. 2464 concerning the identification and
maintenance of a core logistics capability and DOD implementing guidance are
aimed at ensuring that repair capabilities will be available to meet the
military needs should a national defense emergency or contingency occur. The
concept of core work is not unique to DOD. However, the term gained
increased importance in its relationship to military depots in the 1980s and
1990s. The concept of core and the identification of core capabilities for
depot maintenance began in the 1980s; and until the early 1990s, each of the
services used its own processes for determining core workloads needed to
support the identified depot maintenance capabilities.

The concept of core is one that has usage in the private sector and in the
government with respect to decisions over whether support functions might
best be provided in- house or outsourced to contractors. In recent years, as
private sector firms have approached decisions on whether or not to
outsource various activities or functions, they first evaluate the business
to identify those activities that are critical to the performance of the
mission of the business and which the owners or managers believe they should
perform in- house with workers in their employment. These

?core? activities are not evaluated for contracting out. Remaining
activities are studied to determine if in- house performance can be improved
and/ or costs can be reduced. The results of this assessment are compared
with offers from external businesses. The criteria for outsourcing would
Overview of Core and the

Depot Maintenance Core Methodology

The Core Concept as Used in the Private Sector and DOD

Page 7 GAO- 02- 105 Defense Logistics Capabilities

generally be that the external business would provide these non- core
activities for less cost and/ or would provide improved capability or better
service than can be provided using internal resources. Essential to an
understanding of how private businesses use this concept is the fact that
decisions over what is core is a somewhat subjective determination, one that
is not absolute. What one business considers core and not subject to
contracting out, another business might identify as a candidate for
outsourcing. For example, Disney World retains as company employees the
maintenance workers who keep their rides functioning at a high readiness
condition while another recreation facility might decide to contract out the
responsibility for equipment maintenance.

Within the government, the concept of ?core? and a related concept of

?inherently governmental? are a key part of the government?s policy
regarding what activities it should perform with federal employees and what
activities the private sector should perform. Office of Management and
Budget (OMB) Circular A- 76, which was first adopted in 1966, sets forth the
general government policy that federal agencies are to obtain commercially
available goods and services from the private sector when it is cost-
effective to do so. 5 A commercial activity is one that is performed by a
federal agency and that provides a product or service, such as base
operating support or payroll, that could be obtained from a commercial
source. The handbook implementing A- 76 provides the procedures for
competitively determining whether commercial activities government agencies
are currently performing should continue to be done in- house (or by another
federal agency) or whether they should be contracted to the private sector.

At the outset, inherently governmental activities- those that are so
intimately related to the exercise of the public interest as to mandate
performance by federal employees 6 -are reserved for government

5 DOD has annually compiled an inventory of commercial functions and
activities performed in- house, in compliance with OMB Circular A- 76. These
inventories are important as DOD has sought in recent years to identify
commercial activities involving thousands of positions that could be subject
to competition to determine whether it would be more cost effective to
maintain the activities in- house or contract with the private sector for
their performance. Since 2000 these inventories have been maintained under
the Federal Activities Inventory Reform Act of 1998 (31 U. S. C. 501 note),
which directs agencies to develop annual inventories of their positions that
are not inherently governmental. 6 Federal Activities Inventory Reform Act,
section 3 (31 U. S. C. 501 note).

Page 8 GAO- 02- 105 Defense Logistics Capabilities

performance. These activities are thus in a sense ?core? and outside the
coverage of A- 76. The core concept appears again within the universe of
commercial services covered by A- 76. The circular exempts from its cost
comparison provisions activities that make up an agency?s ?core

capability.? Thus, under the circular, the government will retain a minimum
core capability of specialized scientific or technical in- house employees
necessary to fulfill an agency?s mission responsibilities or to meet
emergency requirements. 7 Again, these activities are reserved for
government performance. While the term ?inherently governmental? is defined
in statute and in the circular and the term ?core? is defined in the
circular, agency officials exercise broad discretion in applying them to
agency functions. Depot maintenance workloads valued at $3 million or more
are exempt from the A- 76 process by 10 U. S. C. 2469. 8

The use of the A- 76 process in DOD has proven to be controversial with
concerns often expressed about the fairness of the process and of the cost
comparisons between the public and private sectors. Section 852 of the 2001
Defense Authorization Act provided for a panel of experts to be convened by
the Comptroller General to review process and procedures governing the
transfer of commercial activities from government personnel to the private
sector. The panel is required to report its findings and recommendations to
the Congress by May 1, 2002.

Legislation was enacted in 1984 that sought to add clarity to the meaning of
?core? as it applies to logistics activities involving military facilities.
9 The provision, codified at 10 U. S. C. 2464, provides for a concept of
core to be applied to DOD logistics activities. Under the current provision
the Secretary of Defense is required to identify and maintain a ?core
logistics capability? that is government- owned and operated to ensure the
existence of a ready and controlled source of technical competence and
resources so that the military can effectively and timely respond to
mobilizations, national defense emergencies and contingencies. The
capabilities are to include those necessary to maintain and repair the
weapon systems and equipment that are identified by the Secretary in
consultation with the Joint Chiefs of Staff as necessary to meet the
nation?s military needs.

7 To achieve a given in- house level of performance, a government activity
may use contract labor to support its in- house capability. 8 Under the
statute, the Department is required to use public private competitions if it

wishes to convert such workloads to private sector performance. 9 Department
of Defense Authorization Act, 1985, P. L. 98- 525 (1984).

Page 9 GAO- 02- 105 Defense Logistics Capabilities

Further, the Secretary is to identify the workloads required to maintain the
core capabilities and to require their performance in government facilities.
Finally, the Secretary is to assign these facilities sufficient workloads to
ensure peacetime cost efficiency and technical competencies and surge
capacity and reconstitution capabilities to support our military strategic
and contingency plans.

In addition to the 10 U. S. C. 2464 requirements described above, 10 U. S.
C. 2466 specifies that no more than 50 percent of the funds made available
for depot maintenance may be spent for private sector performance. This sets
aside 50 percent of the funding for public- sector performance of these
workloads in essence establishing a minimum public- sector core for depot
maintenance. Before the 1997 amendment, private- sector performance was
limited to no more than 40 percent. 10 The trend in DOD in recent years has
been toward increasing reliance on the private sector for depot maintenance
work and increasing reliance on original equipment manufacturers for long-
term logistics support.

In November 1993, the Office of the Deputy Under Secretary of Defense for
Logistics outlined a standard multi- step method for determining core
requirements and directed the services to use this method in computing
biennial core requirements. In 1996, the core methodology was revised to
include (1) an assessment of the risk involved in reducing the core
capability requirement as a result of having maintenance capability in the
private sector and (2) the use of a best- value comparison approach for
assigning non- core work to the public and private sectors.

The current core methodology provides a computational framework for
quantifying core depot maintenance capabilities and the workload needed to
sustain these capabilities. It includes three general processes:

 The identification of the numbers and types of weapon systems required to
support the Joint Chiefs of Staff?s wartime planning scenarios;

 The computation of depot maintenance core work requirements measured in
direct labor hours to support the weapon systems? expected wartime
operations as identified in the war planning scenarios; and

10 National Defense Authorization Act for Fiscal Year 1998, P. L. 105- 85
(1997), section 337. Depot Maintenance Core

Methodology

Page 10 GAO- 02- 105 Defense Logistics Capabilities

 The determination of industrial capabilities (including the associated
personnel, technical skills, facilities, and equipment) that would be needed
to accomplish the direct labor hours identified above that is generated from
the planning scenarios. That determination is adjusted to translate those
capabilities into peacetime workloads needed to support them. These
peacetime workloads represent the projected core work requirements for the
next program year in terms of direct labor hours. For example, the estimate
made in fiscal year 2000 projected the core requirements for fiscal year
2001.

To conclude the process, the services then identify specific repair
workloads and allocate the core work hours needed to accomplish the
maintenance work at the public depots that will be used to support the core
capabilities.

During the latter part of the 1990s, DOD made significant changes in
specific maintenance workloads it identified as supporting core
capabilities. For example, in 1996 the Air Force privatized in place work on
aircraft and missile inertial guidance and navigation systems performed at
the Aerospace Guidance and Metrology Center in Newark, Ohio. Prior to
closure of this depot, the workload- about 900,000 hours annually- had been
identified as necessary to support core capabilities. Workload at the
Sacramento Air Logistics Center, which next to the Newark Depot had the Air
Force?s highest percentage of core workload relative to total workload, was
reclassified as non- core work when the center was to be closed. Similarly,
maintenance of the Army?s tactical wheeled vehicles had always been
considered core work, with over 1 million hours of work performed in an Army
depot. But after the closure of the Army?s truck depot at Tooele, Utah, this
work was contracted out; and in 1996 it was categorized as non- core work.
More recently the Army has again categorized about 26, 000 direct labor
hours of truck maintenance work as core support work- less than 1 percent of
the workload that the Army identified as necessary to support its core
capabilities.

Figure 2 shows the services? biennial computations of depot maintenance core
work requirements in direct labor hours for fiscal years 1995- 2001. The
reported combined core work requirements for all the military services
declined by about 30 percent over that period. The Navy aviation and the
Marine Corps support work stayed relatively constant while the Army?s
declined by 33 percent, the Air Force?s declined by 33 percent, and the Navy
ship requirement declined by 37 percent.

Page 11 GAO- 02- 105 Defense Logistics Capabilities

Figure 2: Computed Core Work Requirements for Depot Maintenance

Note: Navy Ship includes the Naval Warfare Centers and the Space and Naval
Warfare Systems Command.

Source: DOD.

Figure 2 shows the computed core work requirements for each of the services
in labor hours. As discussed later in this report, the existing policy does
not provide information about future core capability requirements. Further,
the work actually performed in military depots may be different than the
work identified by the core process since a separate process is used for
assigning maintenance workloads to the depots or to private sector
facilities.

Page 12 GAO- 02- 105 Defense Logistics Capabilities

A key factor influencing what workloads are actually assigned to military
depots and to the private sector is the military services? source- of-
repair process. Departmental policy 11 prescribes a process for determining
how new and modified weapon systems are to be supported. The acquisition
program guidance provides that within statutory limitations, support
concepts for new and modified systems shall maximize the use of contractor
provided, long- term, total life- cycle logistics support that combines
depot- level maintenance for non- core- related workload along with materiel
management functions. The maintenance guidance prescribes a source- of-
repair decision process designed to determine whether new and upgraded
weapon systems and subsystems should be repaired in military depots or
contractor facilities. This guidance provides that repair decisions should
be justified through rigorous, comprehensive business case analyses that
consider the relative costs of public and private support options, mission
essentiality, existing public and private industrial capabilities, and
required core capabilities. The source- of- repair process is also supposed
to consider workload allocation requirements specified by 10 U. S. C. 2466
that not more than 50 percent of annual depot maintenance funding made
available to each military department be used for private sector
performance.

The Department?s core depot maintenance capabilities policy and related
implementation procedures and practices provide little assurance that core
maintenance capabilities are being developed to support future national
defense emergencies and contingencies. Much of the current core workload
supports systems that are soon to retire; however, the core policy is not
comprehensive in that it does not provide for a forward look at new weapon
systems that will replace the ones that are being retired and at associated
future maintenance capabilities that will likely be identified as needed to
repair those systems. Further, the core policy is not linked to the
department?s source- of- repair policy and processes. These policy
shortfalls limit the timely identification of equipment, facilities, and
workforce technical skills needed to establish and retain future core
capabilities. Advance planning for replacement of retiring systems and

11 DOD 5000. 2- R, ?Mandatory Procedures for Major Defense Acquisition
Programs and Major Automated Information System Acquisition Programs,?
provides that the program manager develop a support strategy for weapon
systems, including supply and maintenance. This regulation recognizes that
10 U. S. C. 2464 requires DOD to retain core capabilities in the public
depots. DOD Directive 4151. 18, ?Maintenance of Military Materiel?
prescribes the source- of- repair requirement. The services have developed
implementing instructions. Source- of- Repair Process

Weaknesses in Core Policy and Implementation Leave Little Assurance That
Capabilities Will Be Developed to Support Warti me Requirements

Page 13 GAO- 02- 105 Defense Logistics Capabilities

introduction of new systems and technologies into the depots is critical
because it can take up to 5 years or more to establish a new in- house
capability.

Further compounding the future core capabilities concerns are various core
policy implementation procedures and practices that also affect the
establishment of core capability. For example, services are using, to
varying degrees, concepts such as like workloads and risk assessments that
have the impact of further reducing the amount of core workloads that are
actually performed on systems such as the C- 17 that support contingency
plans. These varying practices affect both the quantification of core
requirements and the identification of workloads used to support core
capabilities. They may also preclude defense managers or the Congress from
assessing the extent to which overall core policy objectives are being met.
The net effect of these practices is to reduce the amount of new repair
technology being introduced into the military depots. Also, actual direct
labor hours on workloads assigned to public depots are less than called for
in identified core support work requirements and the need to support core
capabilities is not adequately considered in service sourceof- repair
decisions on new and upgraded systems. Both of these situations further
negatively impact the development of future core capabilities by reducing
the amount of workforce training and again decreasing the extent to which
new repair technologies are introduced to the depot. It is unclear to what
extent recent initiatives to improve core and core- related policy,
procedures, and practices will be successful.

The Department?s core depot maintenance policy is not comprehensive in that
it does not provide for a forward look at new weapon systems and associated
future maintenance requirements and is not linked to the source- of- repair
process. Thus, the policy for identifying core capabilities and support
workloads does not plan for the development of future core capabilities
because it excludes consideration of systems that are being developed or are
in the early stages of being introduced into the forces. The process
computes core work requirements biennially based on fielded weapon systems
identified in defense warplanning scenarios.

The core policy does not require the consideration of depot maintenance
capabilities for developmental systems and systems in early production since
these systems are not yet identified in defense war plans or are identified
in small numbers. As a result, the determination process does not consider
workloads that will be needed to support future core capabilities that would
result from new systems being fielded and the associated repair
technologies, methods, and equipment. Also, expected Policy Is Not

Comprehensive and Does Not Adequately Consider Future Capability and
Technology Needs

Core Policy Does Not Require Forward Look

Page 14 GAO- 02- 105 Defense Logistics Capabilities

decreases in the core workload supporting systems that are soon to retire
and changes from in- house to contractor support on replacement or upgraded
systems are not being adequately considered. If the services do not plan for
the retiring systems? replacements in the military depot system, support for
future core capabilities and the economic viability of the depots will be
affected.

The Navy?s consideration of core support work related to its helicopter
fleet illustrates how future capability needs are not being taken into
account. Maintenance and repair on the H- 46 utility helicopter currently
provides much of the core support workload at the Navy?s Cherry Point depot.
The H- 46 is to be phased out of the inventory and replaced by the V22 tilt
rotor aircraft. The Cherry Point aviation depot accomplishes about 600,000
hours of work annually on the H- 46, which represented about 15 percent of
that depot?s entire workload in fiscal year 2000. However, as the H- 46s are
retired, depot officials expect that workload to dwindle to zero by fiscal
year 2012. Navy officials have decided that the V- 22 engine will be
supported commercially and are evaluating plans for all other V- 22 support.
Officials told us that they were considering outsourcing some component
workloads, originally identified as requiring a core capability, in concert
with current DOD policy preferences for outsourcing depot maintenance
activities. While Cherry Point?s core capability position looks favorable
today, the process does not take into consideration the expected loss of H-
46 work. Similarly, as the Air Force?s C- 141 cargo aircraft is being phased
out of the inventory, the core methodology has provided for accomplishing
little support work for the new generation C- 17 cargo aircraft in military
depots. 12

Consideration of new and replacement workloads is important because of the
advance planning time needed to establish an in- house capability. In some
cases, it may take 5 years or more to establish this capability. For
example, a depot business planner estimated that about 5 years would be
needed from the time the core capability work requirement was first
identified to fund, design, and build a C- 5 painting facility, assuming
that all went according to plan. Funding availability, priorities of this
project relative to others, external events, and other factors could slow
the

12 The Air Force adopted a support strategy for the C- 17 called flexible
sustainment that relies on the contractor for logistics support activities
for an extended period of time. As with the V- 22, this strategy supports
the DOD goal of relying more on the private sector. The Air Force support
plan provides for making final source of repair decisions on the C- 17 in
2003.

Page 15 GAO- 02- 105 Defense Logistics Capabilities

acquisition of support resources. Timeframes for acquiring capabilities that
are identified as core would typically be longer than this if the depot was
not already formally assigned the workload.

Existing core policy is not directly linked to the source- of- repair
decision process for new systems and major system upgrades, which negatively
impacts the development of core capabilities. According to departmental and
service policies, consideration of the need to support core capabilities is
supposed to be a major factor in planning for life- cycle sustainment and
making decisions on the source for the repair of new and upgraded weapon
systems. Our review of recent and ongoing source- of- repair decisions,
however, found that core capabilities are considered inconsistently, if at
all, in many of the decisions on new systems and upgrades. The lack of
linkage between these two processes contributes to the decline of future
repair capability for critical mission- essential systems.

In both 1998 and 1996, we reported that DOD?s new policy for determining
source of repair for weapon systems had weaknesses that could impact the
retention of core logistics capabilities that the military is supposed to
identify and maintain to ensure the support of mission- essential weapon
systems. 13 We determined that (1) acquisition program officials had not
followed the services? approved processes for making source- of- repair
decisions, (2) information concerning core capabilities and other input from
logistics officials were not major factors in these decisions, and (3)
weaknesses in guidance contributed to these conditions.

Also, the Army Audit Agency and the Naval Audit Service issued reports in
2000 that identified similar deficiencies still occurring in those services.
14 Army auditors concluded that system managers for 13 of 14 weapon systems
identified as required for the Joint Chiefs of Staff warfighting scenarios
had not performed complete and adequate source- of- repair analyses and
specifically had not accomplished core assessments to identify workloads
that were needed to support core capabilities. Navy

13 Defense Depot Maintenance: DOD Shifting More Workload for New Weapon
Systems to the Private Sector (GAO/ NSIAD- 98- 8, Mar. 31, 1998) and Defense
Depot Maintenance: DOD?s Policy Report Leaves Future Role of Depot System
Uncertain (GAO/ NSIAD- 96- 165, May 21, 1996). 14 ?Process for Determining
Source of Depot Level Maintenance,? Army Audit Agency, AA

00- 107, Jan. 3, 2000, and ?Independent Logistics Assessment Process,? Naval
Audit Service, N2000- 027, June 27, 2000. Core Policy Not Linked to

Source- of- Repair Process

Page 16 GAO- 02- 105 Defense Logistics Capabilities

auditors found that acquisition offices had not accomplished 80 of 179 (45
percent) required independent logistics assessments (the process used to
identify and provide for logistics support requirements during weapon
systems acquisition) and did not always disclose results of logistics
assessments to program decisionmakers. Both cited inadequate, inconsistent,
and conflicting acquisition and logistics guidance and uncertainty or lack
of information on core support needs and repair analyses as contributing
factors.

During our current review of DOD?s core process, we found that this overall
condition has not changed. Acquisition policy and acquisition officials?
preferences for using contractor support were reflected in source- of-
repair decisions for new and upgraded systems going to contractors, with the
result that the depots have not been receiving much new workload in recent
years and may not in the future. In the Air Force, for example, 48 of the 66
systems and components being reviewed for source- of- repair decisions in
March 2001 were at that time recommended for private sector support. We also
reviewed some new systems and upgrades representing all the services and
found that they had decided or were leaning toward the private sector in 10
of the 13 cases for the bulk of their depot maintenance work. In those cases
where the public sector is expected to get some portion of the work, it was
typically on the older technology and legacy systems while contractors were
expected to perform most of the repairs on the newer technology items. In
most of the cases, core capability issues had either not been considered or
were not major factors in the decisions. In some instances, the final
decision on systems had been delayed or stretched out for years, which may
make it difficult, more costly, and less likely that the eventual decision
would be that the military depots perform this maintenance work.

The services? core procedures and practices further raise concerns about the
extent to which core capabilities are being established and preclude defense
managers or the Congress from assessing the extent to which overall core
policy objectives are being met. To put the methodology for determining
standardized core requirements into effect, each service developed its own
approach, criteria, and assumptions to adapt the methodology to individual
circumstances. Each service has different procedures and practices to
implementing the core methodology and identifying and establishing core
capabilities that reduce the development of core capabilities. These
procedures and practices include the concepts of capability for like
workloads; the use of risk assessments for reducing the amount of core; the
use of peacetime workload factors; and having Implementing Procedures

and Practices Further Compound Future Core Capability Concerns

Page 17 GAO- 02- 105 Defense Logistics Capabilities

insufficient peacetime workloads to retain core capability because the core
process is not linked to defense planning and budgeting.

The Air Force and the Naval Sea Systems Command, and to a lesser extent the
Army, rely on the questionable concept of ?like? workloads to identify core
support workloads used to satisfy core requirements. The critical assumption
is that peacetime work on like (similar) types of systems and repair
processes provides sufficient skills and repair capabilities that government
facilities, equipment, and maintenance personnel could, within the short
timeframes required by national defense emergencies and contingencies,
quickly and effectively transfer to new workloads on systems and equipment
currently repaired in the private sector. The theory is that capabilities on
a wide range of commodities would be transferable during a defense emergency
to repair systems not currently maintained in the defense depots. The like-
workload concept as it is applied to specific weapon systems is portrayed in
figure 3, and specific examples of concerns about the use of the concept in
the various services are discussed below.

Figure 3: Service Use of ?Like? Workloads to Assume a Repair Capability

The Air Force, the most extensive user of the concept of like work, focuses
its efforts on providing its depots with the capabilities to accomplish
broad categories of repairs. Officials compute core work requirements based
on categories of equipment repair such as avionics, instruments, engines,
and airframes rather than on specific weapon systems, which is the approach
generally used by the Army, Navy, and Marines. Using professional judgement
and knowledge of existing in- house work, officials then designate which
maintenance workloads will be accomplished to satisfy the required level of
repair capability in each Establishing Capability By

Using Like Workloads is Questionable

Page 18 GAO- 02- 105 Defense Logistics Capabilities

category. To illustrate, maintenance workloads on the KC- 135, C- 141, and
C- 130 are designated as core workloads for Air Force depots to satisfy
computed core capabilities for repairs in the large- airframe cargo aircraft
category. As a result, repair workloads on some Air Force weapon systems
that are heavily relied on in wartime planning scenarios are not identified
as core support work. For example, only a very small amount of avionics
workload for the C- 17 aircraft- which is expected to be heavily used in all
scenarios- is identified as core support work in the latest computation.
Also, there are no in- house workloads on some mission- essential systems
identified in war plans, notably the F- 117, the E- 8 (Joint Stars), and the
U- 2. While the Air Force policy is to provide core capabilities for their
systems through like workloads, the Air Forcer core capability calculations
do not include these contractor- supported systems.

The assumption that depots could quickly and easily transition to repair new
and different weapon systems is questionable. It is unlikely that all needed
core capabilities could be established in a timely manner because in relying
on the private sector, the services have not procured the support resources
that would be required to establish in- house capability and it would take
time and funding to establish the required capability. For example, Air
Force Materiel Command officials stated that it could take 2 years or more
to build up a sufficient capability to handle major C- 17 repairs if
required. Even though one depot maintains other large cargo aircraft, it
would not have specialized and unique support equipment, technical data, and
mechanics trained and certified on the unique and advanced C- 17 features.
For comparison purposes, the Warner Robins depot took about 2 years to
effectively assume the C- 5 workload after the San Antonio depot was closed.
Warner Robins had been doing similar work for many years on other
airlifters, the C- 141 and C- 130, and had access to C- 5 technical data,
depot plant equipment, and mechanics. Similarly, the Air Force relies on B-
1 and B- 52 workloads to support core capabilities for the B- 2 airframe,
which is repaired by a contractor. The assumption is that a military depot
repairing the B- 1 or B- 52 could take care of emergency depot requirements
for the B- 2. However, the technology, repair processes, and equipment
needed for the B- 2 are much different than those used on the B- 1 and B- 52
fleets. Further, workers are not trained on unique characteristics or modern
repair techniques and do not have the proper clearance to accomplish repairs
on low observable characteristics of stealth systems.

The Naval Sea Systems Command employs a variant of the like- work concept,
which identifies core capabilities based on the number and types of ships.
Although Navy officials said all 316 ships in the Navy are mission-

Page 19 GAO- 02- 105 Defense Logistics Capabilities

essential, the public shipyards primarily overhaul nuclear- powered ships
and large- deck surface ships, and private shipyards repair most surface
combatants, amphibious, and auxiliary support ships. Ship repair managers
assume that, in an emergency, the public shipyards have the necessary
facilities, equipment, and skilled personnel to repair any Navy ship and
components. This assumption includes those classes of ships and components
currently maintained solely by contractors. It is unclear whether, in an
emergency, the nuclear facilities, specialized support and test equipment,
and dry dock space could be cleared and reconfigured and that government
workers could take over repairs on classes of ships currently maintained in
the private sector.

In contrast with the process used by the Air Force and for Navy ships, the
Army, Marines, and the Naval Air Systems Command focus more attention on
performing repair workloads on specific weapon systems. Officials initially
compute core capabilities by weapon system, making more explicit the linkage
between weapon systems that are tied to war planning scenarios and core
capabilities and supporting workloads. Officials identify core capabilities
based on the number of each specific weapon system identified in the war
plan and generally assign at least a portion of the workload on each system
and its subsystems to a military depot. As a result, these commands have
some degree of active in- house workloads on almost every weapon system
identified in the war plans.

Another area of concern in how services compute core is the use of risk
assessments to determine if work initially determined to be core support
work could instead be provided by the private sector at an acceptable level
of risk. The standard DOD core methodology was revised in 1996 to
incorporate risk assessments as a way of evaluating repair capability in the
private sector to determine whether capability could be provided by
contractors rather than by a military depot. The Air Force makes extensive
use of risk assessments to significantly reduce its computed in- house core
capability; the Marines Corps and Naval Sea Systems Command apply the
concept in more limited fashion; and the Army and Naval Air Systems Command
did not use risk assessments at all.

Air Force officials developed an extensive risk assessment process and
criteria, which identifies private sector capability and reduces its
identified core capability because of the availability of this private
sector capability. For example, for airframe repairs, the Air Force reduced
its core capability by 66 percent through the risk assessment process. As a
practical consequence, the Air Force?s application of risk has resulted in
at least some portion of the core support workloads needed to maintain Use
of Risk Assessments

Approach Can Hinder the Development of Capability

Page 20 GAO- 02- 105 Defense Logistics Capabilities

every weapon system and commodity being identified as available for
contracting out.

Officials of the Naval Sea Systems Command and the Marine Corps said that
they do risk assessments. However, these appear to be perfunctory and do not
change how maintenance work is allocated. As discussed earlier, the Naval
Sea Systems Command initially identifies all ships to be strategically
necessary, but allocates maintenance work to the public and private
shipyards based on type of ship and historical basing considerations. Marine
Corps officials said that their last risk assessment was done as an
undocumented roundtable discussion in 1998. For the 2001 core capability
assessment, the Corps? computed core of 3. 1 million hours was offset by 1.1
million hours because of the perceived availability of risk acceptable
contracted workload. The Marines reported a final core figure of 2 million
hours to be accomplished in the public sector. Officials said the core
process would be more meaningful if it influenced the assignment of repair
work for new systems and was tied to the budget process.

Conversely, the Army and Naval Air Systems Command revised their processes
to eliminate the private sector risk assessments and did not use them in
their most recent core determinations. Army and Navy aviation officials said
that they think risk assessments are not appropriate. They believe that to
have a real capability means that the depots need to have at least some
workload on every mission- essential system. In the opinion of these
officials, military items are generally best supported in the public sector
and commercial items best supported in the private sector.

The differing interpretations and applications of risk assessments can
result in significant differences in the ultimate core capability
requirement computed by each service and in the core support work assigned
to the depots. If the result of the risk assessment process is to include
private sector capability as a portion of the identified core logistics
capability under 10 U. S. C. 2464, that in our view would be inconsistent
with the statute.

As we understand it, the risk assessment process was intended to assess
whether existing private sector sources could provide logistics capability
on mission essential systems at an acceptable level of risk, reliability,
and efficiency. While one could argue that under 10 U. S. C. 2464 as it was
worded prior to 1998, that commercial capability could be considered as a
portion of the identified core depot maintenance capabilities, we do not
think such is the case under the current version of the statute. The
provision was amended by the National Defense Authorization Act for

Page 21 GAO- 02- 105 Defense Logistics Capabilities

Fiscal Year 1998 15 to state that; ?it is essential for the national defense
that the Department of Defense maintain a core logistics capability that is
government- owned and government operated (including government personnel
and government- owned and operated equipment and facilities).? Similarly,
section 2464 further provides that ?the Secretary of Defense shall require
the performance of core logistics workloads necessary to maintain the core
logistics capabilities identified? at government- owned, government-
operated facilities of the Department of Defense.? 16 Consequently, we do
not view a risk assessment process implementing 10 U. S. C. 2464 that
results in the inclusion of private- sector capabilities as a portion of the
identified core logistics capabilities as consistent with the statute.

The difference in services? use of the methodology factor used to reduce
computed wartime requirements to peacetime workloads also raises concerns
about the extent to which core capabilities are being developed. The factor
reflects the ability of depots to surge (increase) work during an emergency.
The Air Force, Naval Air Systems Command, and the Marine Corps use the same
factor; the Naval Sea Systems Command uses a smaller factor; and the Army
does not use an adjusting factor. The factors used result in higher
peacetime core workload requirements for the Army and Sea Systems Command
relative to their wartime needs compared to the other services. For example,
in using a factor of 1.6, the Air Force assumes that in emergency
situations, existing in- house facilities could increase their production by
60 percent by working increased time. If the Army had used the same factor
used by the Air Force, its computed 2001- core capability support
requirement would have been reduced from 9. 8 million direct labor hours to
6.1 million hours. Conversely, if the Air Force had not used an adjustment
factor, its computed 2001 core support requirement would have been increased
from 18.2 million direct labor hours to 29. 1 million hours.

Our review identified concerns that, after computing the core capabilities,
actual workloads assigned to the depots during peacetime are not always
sufficient to fully support core capability requirements. Not meeting
workload goals can mean that the workforce is getting less than optimal work
experience on core workload. According to 10 U. S. C. 2464, DOD policy, and
the core requirements determination process, the services are

15 P. L. 105- 85, section 356. 16 10 U. S. C. 2464 (a)( 4). Peacetime
Workload Factors

Affect Computed Capability Requirements

Current Workloads Do Not Optimize the Development of Core Capabilities

Page 22 GAO- 02- 105 Defense Logistics Capabilities

to assign sufficient peacetime workloads to the depots to maintain the
expertise and competence in core capabilities. However, as discussed below,
this is not happening in all cases.

The volume of assigned peacetime workloads in the Army fell short of the 9.
2- million- hour total core workload needed to support its core capabilities
by about 1.4 million direct labor hours in fiscal year 2000 and about 1
million hours in fiscal year 2001. For example, the Army?s most recent
update of the core support work requirement for the Apache helicopter totals
420,000 direct labor hours for fiscal year 2001. However, its funded
workloads assigned to military depots totaled only 126, 000 direct labor
hours in fiscal year 1999 and about 264,000 hours in fiscal year 2000. Depot
officials told us the principal Apache aircraft work in the depot involves
disassembly and overhaul of selected components that the contractor will
later use in the remanufacturing process. Logistics officials pointed out
that one reason peacetime work has lagged behind calculated core support
workload requirements is the continuing trend for outsourcing maintenance
services involving weapon system upgrades and conversions. The depot
officials pointed out that to alleviate the financial impact from the
shortfall in actual workload, the Army established direct appropriation
funding to reimburse its depots for fixed overhead costs associated with
underutilized plant capacity. In fiscal years 2000 and 2001, the Army
provided its depots a total of about $20 million in direct funding for
underutilized capacity.

Shortfalls also exist in the Air Force. For example, in fiscal year 2001,
the Air Force anticipates about an 800,000- hour shortfall in depot- level
software maintenance workload compared to its core capability support work
requirement. Air Force officials originally computed a core work requirement
of 3. 7 million hours for software maintenance. Air Force management reduced
the computed requirement by 600,000 hours because the depots were not
considered capable of accomplishing that much workload. As a result, the Air
Force only included 3.1 million hours for software maintenance in the total
18. 2 million- hour core work requirement reported to the Office of the
Secretary of Defense. Even at this lower number, the Air Force expects to
accomplish only about 2.9 million hours in 2001, increasing the real core
shortfall by another 200,000 hours to a total shortfall of more than 800,
000 hours. We also determined that the Air Force understated core support
work for airframe repairs by 528, 000 hours because tasked contractor
logistics support systems were inadvertently omitted in the roll- up of core
requirements. Additionally, the Air Force potentially understated hours for
component workloads because

Page 23 GAO- 02- 105 Defense Logistics Capabilities

officials could not support how wartime flying hours were converted into
commodity repair hours.

Air Force officials repeatedly identified capability shortfalls in qualified
software technicians and engineers as one of their most severe concerns at
the depots. The Air Force Materiel Command initiated a study of software
maintenance to assess the ability of the depots to support future depot
level software workloads and to identify steps needed to perform greater
amounts of workload. The study noted that the three Air Force depots were
experiencing difficulty in accomplishing about 2.6 million hours per year.
The study recommended changes aimed at improving recruiting, hiring, paying,
and retaining software maintenance personnel.

In fiscal year 2000, the Marines anticipated a required depot core support
workload of 2 million hours but executed only about 1 million hours.
Officials told us that not all items could be worked on due to financial
constraints, readiness requirements, and operational force priorities. They
noted that tying the core process to the budget process would help resolve
this problem.

Because the biennial core computation process operates largely as a stand-
alone exercise and is not explicitly linked to the planning, programming,
and budgeting system or to DOD?s strategic planning processes, it has little
direct impact on resource allocation decisions and management priority
setting. The identification of shortfalls in core capability, for example,
does not generate budget requirements for making capital investments in
facilities, equipment, and other resources needed to establish the
capability. The 1993 core policy statement directed that implementation
plans and decisions be reflected in future annual planning and budget
submissions, as well as be input to the depot maintenance strategic plan,
but this has not been done. If the core process were tied more explicitly to
the budget and strategic planning process, the assignment of actual work to
the depots should better support the establishment and continuation of
required core capability.

While the Office of the Secretary of Defense and each service, to varying
extents, have taken steps to improve core and core- related processes, the
results of these initiatives are uncertain. They may or may not result in
improvements to these processes. For example, a recently completed review of
DOD?s core process identified various alternatives for improving the core
process. The Deputy Under Secretary of Defense for Logistics and Materiel
Readiness contracted for the review of core guidance and procedures used by
the services to compute core capability requirements. Results of DOD
Initiatives

to Improve Core and CoreRelated Processes Are Uncertain

Page 24 GAO- 02- 105 Defense Logistics Capabilities

The May 15, 2001 DOD core report provided information about each of the
services? core processes. 17 According to officials, DOD continues to review
the report and will not likely complete this process until the new
administration announces how it intends to approach the management of
logistics.

The report concluded that (1) DOD?s depot maintenance core policy was
incomplete and unclear, (2) service implementation was inconsistent, (3) the
core methodology is not routinely used in DOD decision- making and is not
linked to the defense budget system, and (4) capability requirements are not
effectively addressed in the context of strategic planning. The study
produced four sets of alternatives designed to improve and transform core
policy and methodology into a management tool and explicitly integrate it
into DOD?s strategic planning processes. Those alternatives, discussed in
appendix I, ranged from making a few minor administrative adjustments to the
core process, to making substantive changes to the process such as
eliminating the risk assessment as a tool for reducing the core requirement,
and to undertaking an extensive revamping of the process which would include
the elimination of the requirement for maintaining a core capability in
military depots. 18

In October 2001, Office of the Secretary of Defense management selected the
alternative that would streamline the existing core process and establish
explicit linkage with the DOD planning, programming, and budgeting system.
The Deputy Under Secretary for Logistics and Materiel Readiness issued new
guidance regarding the implementation of core depot maintenance policy and
methodology. Also, a joint working group is to be established to review the
details of implementation procedures with final policy guidance to be issued
by March 1, 2002.

Similarly, the military services also have ongoing initiatives that will
affect logistics processes, including core and the source- of- repair
determination. Some of these initiatives are discussed in the next section
of the report and in appendix I. In our June 2000 report 19 we questioned
the Department?s management of logistics improvement efforts. Our ongoing

17 ?DOD Core Depot Maintenance Policy/ Methodology Report?, May 15, 2001. 18
To implement such an extensive revamping would require legislative changes.
19 Defense Logistics: Actions Needed to Enhance Success of Reengineering
Initiatives (GAO/ NSIAD- 00- 89, June 23, 2000).

Page 25 GAO- 02- 105 Defense Logistics Capabilities

review of the Department?s logistics strategic planning process has
identified additional areas where the Department can improve its logistics
support planning. 20

In addition, the recently completed Quadrennial Defense Review (QDR) may
lead to changes in how DOD manages depot maintenance and other logistics
activities as well as how the Department approaches core and core- related
processes. The QDR involved a comprehensive strategic assessment of defense
strategy, goals, requirements, and capabilities. DOD issued its report on
the QDR on September 30, 2001 with the intent that it serve as the overall
strategic plan required by the Government Performance and Results Act of
1993. 21 The report?s section on modernizing DOD business processes and
infrastructure discusses core functions and, as a general rule, states that
any function that can be provided by the private sector is not a core
government function.

The report states that DOD will assess all its functions to separate core
and non- core functions with the test being whether a function is directly
necessary for warfighting. It expects to divide functions into three broad
categories:

(1) Functions directly linked to warfighting and best performed by the
federal government. In these areas, DOD plans to invest in process and
technology to improve performance.

(2) Functions indirectly linked to warfighting capability that must be
shared by the public and private sectors. In these areas, DOD will seek to
define new models of public- private partnerships to improve performance.

(3) Functions not linked to warfighting and best performed by the private
sector. In these areas, DOD will seek to privatize or outsource entire
functions or define new mechanisms for partnerships with private firms and
other public agencies.

It is not clear where depot maintenance and other logistics functions
contributing to weapon systems sustainment and performance will be

20 Defense Logistics: Strategic Planning Weaknesses Leave Economy,
Efficiency, and Effectiveness of Future Support Systems at Risk (GAO- 02-
106, Oct. 11, 2001). 21 P. L. 103- 62.

Page 26 GAO- 02- 105 Defense Logistics Capabilities

placed in this framework. If it were placed in the second category, the
implication is that it would not be core. The impact of 10 U. S. C. 2464
from such determinations is uncertain.

Investments in facilities, equipment, and human capital have not been
sufficient in recent years to ensure the long- term viability of the
military services? depots. This situation is in part due to the weaknesses
we identified in the core policy and related implementation practices. Also
contributing is DOD?s downsizing of depot infrastructure and workforce. As a
result, the investment in capital equipment and human capital resources for
DOD?s depot facilities declined significantly. Today?s military depot
capability is primarily in the repair of older systems and equipment. At the
same time, the average age of the depot worker is 46 with about one- third
eligible to retire within the next five years. The Department has only
recently begun to consider changes to core capability policies that will
generate the workloads, the facilities, and the personnel required to
support future core capabilities in government facilities. Consequently, the
Department lacks strategic and related service implementation plans that
address the development of future capabilities for both the maintenance
facilities and the workforce.

Capital investments in depot facilities and plant equipment declined sharply
in the mid- 1990s as a consequence of defense downsizing, depot closures and
consolidations, and DOD plans to increase reliance on the private sector for
logistics support of new weapon systems. As a result of DOD?s lack of
investment in its internal depot system- particularly, by not assigning new
and upgraded systems to the depots for repair- the military depot system is
aging and is not keeping up with the latest technologies. In recent years,
funding has started to increase slightly as the services have recognized the
need to modernize the depots. As with any business, modernizing and
refurbishing plant and equipment for optimal operating efficiency, as well
as acquiring new capabilities and cutting- edge technologies linked to new
workloads, are important to future viability of the military depots. Figure
4 depicts depot investments from fiscal years 1990 through 2000 from the
three primary funding sources- the capital purchases program, 22 military
construction, and new weapon systems

22 The capital purchases program is funded through equipment depreciation
expenses that are built into the maintenance rates charged customers by the
military services? working capital funds. Investments In

Facilities, Equipment, and Personnel Have Been Insufficient

Future Viability of Maintenance Depots Affected by Lack of Investment in New
Capability

Page 27 GAO- 02- 105 Defense Logistics Capabilities

procurement and upgrade programs. The depiction has been adjusted for
inflation.

Figure 4: Capital Investments in Maintenance Depots

Source: DOD. Expressed in base year 2000 dollars.

Of the estimated $3 billion in capital investment funding the military
depots received between fiscal years 1990 and 2000, about 60 percent was for
the capital purchases program that buys equipment to replace old depreciated
equipment. Funding for this program was much lower during the 1990s than
under its predecessor programs in the 1980s. More recently, funding levels
have increased; but almost one- half of the funds went to meet environmental
requirements, to purchase general use computers, and to do minor
construction- requirements that may be needed for business purposes but
typically do not increase maintenance production capabilities or add new
technological capabilities to accomplish new workloads.

Page 28 GAO- 02- 105 Defense Logistics Capabilities

The military construction appropriation funds new and replacement depot
facilities. Military construction represents about 26 percent of the total
depot capital investments between 1990 and 2000. For example, a 1998 project
at Corpus Christi Army Depot provided a power train cleaning facility to add
capability to clean new, specialized metals on Apache and Blackhawk
helicopters. The bulk of military construction funding has gone to replace
or modernize existing facilities or to increase capacity.

Since the military depots have not been assigned much new work, they have
received relatively little funding from the third source of funds
procurement funds provided by weapon system program offices. Available data
shows that the depots received about $403 million through capital
investments from program offices between 1990 and 2000- representing about
14 percent of the total capital investment in the depots during that period.
This source is the most important in terms of adding new capabilities such
as modern repair technologies. System program managers are responsible for
providing these funds to support new weapon systems being acquired. A
complete and accurate accounting of the historical and planned amounts
contributed to capitalizing the depots by weapon system program offices does
not exist since the services do not centrally track and account for these
funds. With the repair of newer technology items remaining with the private
sector for most new systems, the military depots have not been getting the
peculiar support equipment, technical data, and other resources needed to
build a depot capability for supporting the new systems. For example, the
Air Force recently attempted to identify contract workloads that could be
brought in- house to help it meet the 50- percent limit on private sector
performance of depot maintenance set forth in 10 U. S. C. 2466 but found
that the depots were unable to take on these workloads without investment in
new capability.

DOD faces significant management challenges in succession planning to
maintain a skilled workforce at its depot maintenance facilities. Like many
other government organizations, relatively high numbers of civilian workers
at maintenance depots are nearing retirement age. These demographics,
coupled with the highly skilled nature of depot maintenance work and the
length of time required to train new hires and support their progression to
a journeyman level and beyond, create hiring, training, and retention
challenges. Competition with the private sector for skilled workers and pay
issues add to the current challenging situation.

Reductions in the civilian workforce by more than half since the end of the
Cold War have left an aging depot workforce. As a result of depot closures
and other downsizing initiatives, the civilian depot workforce has been The
Aging Workforce

Presents Significant Human Capital Challenges for Succession Planning

Page 29 GAO- 02- 105 Defense Logistics Capabilities

reduced by about 60 percent since 1987. Many of the youngest industrial
workers were eliminated from the workforce while at the same time there were
few hiring actions. An aging depot workforce has advantages in terms of the
skill levels of the employees, but it also has disadvantages such as lack of
familiarity with the newest technologies because the latest weapons have not
generally been repaired in the military depots. With large numbers of
retirement- eligible personnel, depot managers are concerned about the need
to manage the losses of critical skills and regrow the talents that are
needed to maintain a high quality workforce. The skills and institutional
experience are necessary to maintain an effective and flexible workforce
that is capable of performing the required work efficiently and effectively.
If production capability similar to current levels is to be maintained, many
new workers will be needed. With an average age of 46 and about one- third
eligible to retire within the next 5 years, these data are comparable to
other studies of DOD?s total civilian workforce. Table 1 provides average
age and retirement eligibility data for each of DOD?s major depot
activities.

Table 1: Retirement Eligibility Status and Average Age of the Total Civilian
Depot Maintenance Work Force

Defense maintenance depots FY 2001 staffing levels

Percent eligible for retirement

by FY 2005 Average age

Army depots

Anniston Army Depot 1, 792 38 51 Corpus Christi Army Depot 2, 852 27 50
Letterkenny Army Depot 728 26 49 Red River Army Depot 767 53 49 Tobyhanna
Army Depot 2, 243 48 49

Total Army 8,382 37 50

Navy depots

Cherry Point Aviation Depot 3,635 50 47 Jacksonville Aviation Depot 3, 664
38 48 North Island Aviation Depot 3, 248 45 48 Norfolk Naval Shipyard 6,582
22 45 Pearl Harbor Naval Shipyard 3,416 31 46 Portsmouth Naval Shipyard
3,280 24 45 Puget Sound Naval Shipyard 7,380 24 45 Keyport Undersea Warfare
Center a 600 35 47 Crane Naval Surface Warfare Center a 368 35 44

Total Navy 32,173 31 46

Page 30 GAO- 02- 105 Defense Logistics Capabilities

Defense maintenance depots FY 2001 staffing levels

Percent eligible for retirement

by FY 2005 Average age

Marine Corps depots

Albany Logistics Base 858 31 48 Barstow Logistics Base 828 25 48

Total Marine Corps 1,686 28 48

Air Force depots

Aerospace Maintenance and Regeneration Center b 493 54 51 Ogden Air
Logistics Center 4,929 25 47 Oklahoma Air Logistics Center 8,621 24 44
Warner Robins Air Logistics Center 6,075 30 45

Total Air Force 20,118 27 45

Total defense maintenance depots 62,359 30 46 a The Navy Warfare Centers are
primarily involved in research and development activities, but do accomplish
some depot maintenance. b The Aerospace Maintenance and Regeneration Center
responsibilities include storing aircraft removed from inventory and
providing parts, in addition to some depot work. Source: Department of
Defense data.

As indicated in table 1, by fiscal year 2005, about 30 percent of the
current employees will be retirement- eligible. The percentage is highest in
the Army at 37 percent and lowest in the Air Force at 27 percent. With an
average age of 50, the Army depots have the oldest workers and the Air Force
the youngest, with an average age of 45. Two facilities- one Air Force and
one Army- share the position of having the oldest workers. The extent of the
aging depot workforce problem is influenced by the extent to which the
depots retain work requirements in the future. If current levels are
retained, large numbers of new workers will be needed; but if the workload
levels continue to decline, the problem will be less severe. Marine Corps
officials told us that while the Marine Corps has an aging workforce
problem, the primary challenge is lack of work. They noted that over the
next 2 years, the Marine Corps is projecting a 26percent reduction in its
depot maintenance workforce as older systems are phased out and maintenance
and repair work for new systems go to the private sector. Thus, the aging
workforce issue is less problematic if this workload reduction occurs.

In most cases, depot managers report they have been relatively successful in
meeting their recruitment goals in the past; but they said they have had
difficulty hiring younger workers and sufficient numbers of workers with

Page 31 GAO- 02- 105 Defense Logistics Capabilities

specialized skills such as software maintenance. A Department of Labor
standard sets a 4- year apprenticeship for acquiring trade skills, and some
depot managers said workers in some of the industrial skill areas require 3
or more years of training before they reach the journeyman level. Depot
managers indicate that they are behind where they should be in hiring new
workers to revitalize human capital resources. Surveys of young adults
entering the general workforce indicate that fewer are considering careers
in government, and this is particularly true for the depots since workers
are uncertain what future there is for these activities. A national shortage
of software engineers, skilled mechanics, metal workers, machinists, and
some other skill areas exacerbates the military depots? human capital
challenges since the military facilities are competing with the private
sector for workers.

Current personnel policies, procedures, and other factors may not support
timely replacement of depot personnel. As previously noted, many highly
skilled workers require 3 or more years to develop technical expertise under
the on- the- job tutelage of experienced workers. Inflexible hiring
practices inhibit timely hiring, and the historical recruiting pool of
skilled workers has been reduced as the number of military maintenance
personnel has declined.

The services have lately recognized the need to address depot maintenance
infrastructure and workforce issues, but improvement plans are still being
developed and actions are in the early stages. No overall plan exists that
ties investments in depot maintenance facilities and plant equipment with
future workloads and, in turn, with human capital needs. Officials have
identified significant funding requirements associated with hiring,
training, and retaining depot workers. To replace retiring workers, the
services will have to greatly increase the rate of new hires.

None of the services has a comprehensive depot infrastructure plan that
integrates expected future core capabilities with necessary capital
investments required to establish that capability and which identifies
budget requirements to implement that plan. In response to Congressional
concerns in this area (that evolved from the Air Force statements that it
cannot address its 50- 50 workload imbalance by shifting some private sector
work to military depots because of not having the required depot support
resources), the Air Force is working on such a plan. Air Force officials
expect the depot infrastructure plan to be completed in December 2001. Since
this plan is not yet available, we do not know whether it will provide the
roadmap needed to effectively manage this critical resource. While Army,
Navy, and Marine officials have undertaken some initiatives Strategic Plan
to Shape

Future Maintenance Infrastructure and Human Capital Investment Requirements
Is Needed

Some Recognition That Action Is Needed

Page 32 GAO- 02- 105 Defense Logistics Capabilities

intended to improve their depot management, these efforts do not provide a
comprehensive plan to shape future maintenance infrastructure. Given the
preliminary status of these efforts, it is unclear to what extent they will
mitigate or resolve identified deficiencies in this area.

Further, we noted that generally each service is studying and pursuing
workforce- shaping efforts independently. Current initiatives to revitalize
the depot personnel workforce may not completely resolve the potential
personnel shortfall. For example, efforts to expand the apprenticeship,
cooperative training, and vocational- technical programs are just starting
and involve relatively small numbers to date. Increased funding to support
expanded training needs has not been completely identified and programmed,
and the priority of this initiative relative to other military requirements
is questionable. Personnel officials of the Air Force Materiel Command, for
example, identified a need for $326 million over the next 5 years to
implement its human capital initiatives, including payment incentives and
training costs. Only $15 million has been approved. Related efforts to
develop a multi- skilled workforce essential to more efficient operations of
depots have been limited. Very importantly, future requirements for hiring
and training a workforce capable on new systems and high technology repair
processes are not fully known. As discussed earlier, gaps and deficiencies
in core policies and implementation limit forward- looking actions to
identify and acquire future required capabilities.

DOD officials are also looking to better utilize and expand existing
authorities under the Office of Personnel Management. For example, the 1990
Federal Employees Pay Comparability Act 23 provides for use and funding of
recruitment activities, relocation bonuses, and retention allowances; but
the provisions have been used only for white- collar workers. DOD is seeking
to expand the act?s coverage to wage grade employees at the depots and
arsenals, and it is considering a legislative package of additional
authorities that may also be needed. These proposals are designed to make it
easier to hire workers, including exmilitary personnel, and raise monetary
incentives to attract and retain needed talent in areas of shortages and
direct competition with the private sector. These areas include software
maintenance, engineering, aircraft mechanics, and other skill categories.
Another issue receiving attention recently is development of an alternative
hiring system to replace the

23 P. L. 101- 509 (Nov. 5, 1990).

Page 33 GAO- 02- 105 Defense Logistics Capabilities

existing system, which defense personnel specialists say is cumbersome and
untimely.

Logistics activities represent a key management challenge. In our January
2001 high- risk series report, we designated strategic human capital
management as a new government- wide high- risk area because of the
pervasive challenge it represents across the federal government. 24 In our
recent performance accountability report on defense we reported that DOD
faces significant challenges in managing its civilian workforce. 25 The
sizeable reduction in personnel since the end of the Cold War has led to an
imbalance in age, skills, and experience that is jeopardizing certain
acquisition and logistics capabilities. Its approach to the reductions was
not oriented toward reshaping the makeup of the workforce. DOD officials
voiced concerns about what was perceived to be a lack of attention to
identifying and maintaining a basic level of skills needed to maintain
inhouse industrial capabilities as part of the defense industrial base. We
concluded that these concerns remain today and are heightened by DOD?s
increased emphasis on contracting for many of its functions. Maintenance is
an important element of those activities; and DOD is at a critical point
with respect to the future of its maintenance programs, that are linked to
its overall logistics strategic plan. However, it is unclear what future
role is planned for the military depots in supporting the Department?s
future maintenance program.

There is no DOD- wide integrated study effort for depot workers and related
logistics activities similar to the extensive review of the civilian
acquisition workforce undertaken by the Acquisition 2005 Task Force. The
Under Secretary of Defense for Acquisition, Technology and Logistics
established the task force to take a comprehensive look across the services
to identify human capital challenges and solutions as well as the resources
needed to implement them. The October 2000 final report of the acquisition
task force noted that to meet the demands caused by an acquisition workforce
retirement exodus in 3 to 5 years, implementation of recommended initiatives
had to begin by the next quarter.

Before DOD can know the magnitude of the challenge of revitalizing its depot
facilities and equipment and its depot workforce, it must first know

24 High- Risk Series: An Update (GAO- 01- 263, Jan. 2001). 25 Major
Management Challenges and Program Risks: Department of Defense

(GAO- 01- 244, Jan. 2001). No Overall Strategic Plan

Page 34 GAO- 02- 105 Defense Logistics Capabilities

what its future workloads will be; what facility, equipment, and technical
capability improvements will be required to perform that work; and what
personnel changes will be needed to respond to retirements and workload
changes. Since the services have not yet conducted an assessment to enable
the identification of future requirements in sufficient detail to provide a
baseline for acquiring needed resources, they are behind in identifying
solutions and required resources to implement them.

Regarding non- depot maintenance logistics activities, the Department has
not established policies or processes for identifying core capabilities for
activities such as supply support, engineering, and transportation. Without
identifying those core logistics activities that need to be retained in-
house, the services may not retain critical capabilities as they proceed
with contracting initiatives. The resulting shortfalls in non- depot
maintenance logistics capability could impact the Department?s ability to
effectively support required military operations.

Officials of the Office of the Secretary of Defense have stated that DOD has
not identified any core capabilities nor implemented a core determination
process for any logistics activities other than depot maintenance. As we
understand it, DOD does not believe that 10 U. S. C. 2464 necessarily
includes logistics functions other than depot maintenance. We believe that
notwithstanding any lack of clarity in the coverage of 10 U. S. C. 2464, a
well- thought- out and well- defined policy and process for identifying core
requirements in other areas of logistics is necessary to maintain the
government?s capability to support its essential military systems in time of
war or national emergency. Resolving this policy issue is becoming more
important as DOD increases outsourcing and develops new strategies to rely
on the private sector to perform many logistical support activities. We note
that the September 2001 QDR report discusses DOD?s plans to assess support
functions to identify core from non- core functions.

The current version of 10 U. S. C. 2464 is not specifically limited to depot
maintenance- it refers generally to ?core logistics capabilities.? On the
other hand, the operative provisions of 10 U. S. C 2464 are set forth in
terms of capabilities needed to maintain and repair weapon systems and other
military equipment and the workloads needed to accomplish those activities;
these are functions encompassed within depot maintenance as defined by 10 U.
S. C. 2460. While the coverage of 10 U. S. C. 2464 is not clear, we
nevertheless think that from an operational standpoint, the core
identification process ought to include those logistics functions that are
necessary to support the depot maintenance on mission essential weapons
Policy Gaps Could

Lead to Shortfalls in Non- Depot Maintenance Logistics Capabilities

Page 35 GAO- 02- 105 Defense Logistics Capabilities

and equipment. Section 2464 of title 10 is aimed at maintaining the
government?s capability to support its essential military systems in time of
war or national emergency. We think that it is reasonable to expect that DOD
will include in the core process those logistics functions that are
determined to be necessary to achieve such a result.

Providing military readiness through the logistics support of military
forces in an operational environment requires a complex set of functions and
activities that includes maintenance, supply support, transportation,
engineering, and others. In recent years, DOD has contracted for more of
these activities. However, the Department has not laid out a strategic
framework describing what combination of public and private sector support
is expected as an end state and why certain activities or positions should
be retained as government- performed activities. In a recent report 26 we
noted that operating command officials have raised concerns about the impact
on their operations that may result from expanding the use of contractors.
Among their concerns was that increased contracting could reduce the ability
of program offices to perform essential management functions. During this
review, officials told us that they have experienced increasing problems in
fulfilling oversight responsibilities because they cannot obtain adequate
insight into contractor- supported programs. Additionally, logistics
officials at depots and service headquarters have also raised concerns about
the need to retain in- house technical and management capabilities in
functional areas such as engineering and supply management. Because of the
criticality of these and other logistics activities, a core assessment would
improve the Department?s ability to manage these activities and to better
determine capabilities that should be retained in- house and those that
should be available for competitive sourcing.

Serious weaknesses exist in the Department?s policy and practices for
developing core depot maintenance capabilities that are creating gaps
between actual capabilities and those that will be needed to support future
national defense emergencies and contingencies. If the existing policy is
not clarified and current practices continue, the military depots will not
have the equipment, facilities, and trained personnel to work on and provide
related logistics support on many of the weapon systems and related
equipment that will be used by the military in the next 5 to 15

26 Defense Logistics: Air Force Lacks Data to Assess Contractor Logistics
Support Approaches (GAO- 01- 618, Sept. 7, 2001). Conclusions

Page 36 GAO- 02- 105 Defense Logistics Capabilities

years. While the Department states that it intends for its depots to have
these capabilities, actual practices are much different. Core policy does
not adequately take into consideration future systems repair needs and the
impact of retiring systems on developing future capabilities. The core
policy is not linked to the source of repair process. Also, other individual
service practices negatively impact the establishment of future core
capabilities and hinder management oversight. Additionally, investments in
new facilities, equipment, and workforce training and revitalization have
been limited for an extended period of time. Lastly, there is no strategic
plan and associated service implementation plans to create and sustain a
viable depot maintenance capability.

Regarding non- depot maintenance logistics activities, core policies and
implementing processes do not exist. Without such policies and in the
absence of a strategic approach to determining what kinds and how much
logistics should be retained in- house, the Department may inadvertently
contract for logistics capabilities that are needed to be performed in-
house to meet readiness and contingency needs.

To enhance the management of core logistics capabilities, particularly for
depot maintenance, we recommend that the Secretary of Defense direct the
Under Secretary of Defense for Acquisition, Technology and Logistics, in
conjunction with the appropriate military services activities, take the
following actions:

 Revise depot maintenance core policy to include a forward look to
incorporate future systems and equipment repair needs when developing core
capability requirements and a direct link to the source of repair process.
Revise depot maintenance core implementation procedures and practices to (1)
establish criteria for determining what it means to have a capability in
military depots to perform maintenance on mission essential systems in
support of national defense emergencies and contingencies; (2) prohibit the
use of the risk assessment to the extent it results in the inclusion of
private- sector capability within identified core capabilities; (3) clarify
the use of the adjustment factor and other elements of the computation
methodology; and (4) link core requirements to the budget process to ensure
adequate funding of core support workload requirements.

 Establish expedited milestones for developing strategic and related
implementation plans for the use of military depots that would identify
desired short- and long- term core capabilities and associated capital
investments and human capital needs. These plans at a minimum
Recommendations for

Executive Action

Page 37 GAO- 02- 105 Defense Logistics Capabilities

should (1) delineate workloads to be accomplished in each service?s depots,
other services? depots, by contractors at their own sites, and at government
sites; (2) discuss the role of in- house maintenance capability as an
element of each service?s ability to respond to national defense emergencies
and contingencies; (3) identify infrastructure improvements designed to
operate more efficiently; and (4) address human capital needs and the
specific actions that will be taken to meet them.

 Establish milestones and accountability for developing policies to
identify core logistics capabilities for non- maintenance activities to
ensure in- house retention of needed capabilities for an emergency.

Congress may wish to review the coverage of 10 U. S. C. 2464 as it relates
to non- maintenance logistics activities such as supply support,
transportation, and engineering, and if it deems it appropriate, clarify the
law.

In commenting on a draft of this report, the Department concurred with our
recommendations to improve core depot maintenance policies and procedures
and to develop strategic and implementation plans for maintenance depots.
Appendix IV of this report is the full response by the Department.

The Department did not concur with our recommendation to establish
milestones and accountability for developing policies to identify core
logistics capabilities for non- maintenance activities. The Department
stated that it has not identified any core logistics capabilities beyond
those associated with depot maintenance and repair as that term is defined
in 10 U. S. C. 2460. Therefore, the Department saw no need to establish
milestones and accountability for developing core policies for
nonmaintenance activities. In further discussions of this matter, officials
reiterated their earlier comments that the coverage of 10 U. S. C. 2464 for
non- maintenance activities was not clear.

We recognize that there is some question about the applicability of 10 U. S.
C. 2464 to non- maintenance logistics activities. Thus, we included a matter
for congressional consideration in this report, noting that the Congress may
wish to consider reviewing and clarifying the intent of 10 U. S. C. 2464 as
it relates to non- maintenance logistics activities. Matter for

Congressional Consideration

Agency Comments and Our Evaluation

Page 38 GAO- 02- 105 Defense Logistics Capabilities

We continue to believe the identification of core capabilities for other
logistics activities to improve the Department?s ability to manage these
activities and to better support business decisions regarding whether
functions and capabilities should be retained in- house. Providing military
readiness through the logistics support of military forces in an operational
environment requires a complex set of functions and activities such as
maintenance, supply support, transportation, and engineering. The
interrelatedness of the entire spectrum of logistics activities would argue
that attention to core capabilities is important to non- maintenance as well
as depot maintenance activities. For example, program managers and depot
officials have raised management concerns including oversight of weapon
systems support and retention of in- house technical skills and expertise
given increased outsourcing of logistics activities. Further, the best
practices of private sector companies, business reengineering principles,
and OMB A- 76 guidance all support the importance of an enterprise
determining which vital and cost- effective functions and business processes
should be retained in- house and which are appropriate for outsourcing. Our
recommendation that the department extend its core analysis beyond wrench-
turning maintenance activities to include those other logistics activities
that are linked to the depot maintenance function is intended to assure that
the Department appropriately consider what specific activities should be
retained inhouse to assure the continued support of essential warfighting
capability. We continue to believe it should be adopted.

We are sending copies of this report to the Secretary of Defense, the
Secretary of the Army, the Secretary of the Navy, the Secretary of the Air
Force, the Commandant of the Marine Corps, and the Director of the Office of
Management and Budget. The scope and methodology for this review are
described in appendix II. If you have questions about this report, please
call me at (202) 512- 8412 or Julia Denman at 202 512- 4290. Additional
contacts and staff acknowledgements are provided in appendix III.

David R. Warren, Director Defense Capabilities and Management

Appendix I: DOD Initiatives That Could Affect Core and Core- Related
Processes

Page 39 GAO- 02- 105 Defense Logistics Capabilities

Alternative 1 proposes updating and consolidating existing DOD corerelated
policy and guidance, explicitly addressing core- related laws. It would not
involve any significant changes to the core methodology. This alternative
would realign somewhat and standardize the categories in which the services
report core maintenance workloads. Core depot maintenance capability
requirements would continue to be computed biennially, addressing only
existing systems; and the overall core determination process would continue
to be relatively independent of the DOD planning, programming, and budgeting
system.

Alternative 2 proposes building on the first alternative by streamlining the
existing core methodology and establishing an explicit linkage with the DOD
planning, programming, and budgeting system. It also would divide the core
methodology into two distinct parts to more clearly distinguish between core
capability requirements and the depot maintenance workloads needed to
satisfy those requirements. Detailed core computations would be performed on
a biennial basis in conjunction with the planning, programming, and
budgeting system in order to address both requirements for new systems and
changes to existing systems. Also, core computations would be reviewed
annually to assess the impact of unanticipated budgetary adjustments.

Alternative 3 proposes building on the second alternative by incorporating a
value- driven source- of- repair evaluation process for workloads that are
not required to support core depot maintenance capabilities. This appears to
be a more prescriptive expansion of the current version of the core
methodology concerning the types of analysis that should be done as a part
of the value- driven decision. Depending on the amount and ultimate source-
of- repair decisions reached through the value- driven process,
implementation of alternative 3 could necessitate issuance of waivers from
the 10 U. S. C. 2466 (50- 50) requirements.

Alternative 4 proposes doing away with the core process as it is known today
and using a value- driven source of repair evaluation process for all depot
maintenance workloads. In this context, it would be used to allocate depot
maintenance workloads among public, private, and integrated maintenance
activities. It could not be implemented without the revision or repeal of 10
U. S. C. 2464, 10 U. S. C. 2466, and 10 U. S. C. 2469.

In October 2001, DOD managers selected alternative 2 and issued new
implementation guidance. Improvement efforts were ongoing at the time this
report was issued. Appendix I: DOD Initiatives That Could

Affect Core and Core- Related Processes Proposed Office of the Secretary of
Defense Alternatives for Revising the DOD Core Process

Appendix I: DOD Initiatives That Could Affect Core and Core- Related
Processes

Page 40 GAO- 02- 105 Defense Logistics Capabilities

In fiscal year 2000, the Air Force exceeded the 50- percent limit set forth
in 10 U. S. C. 2466 on the amount of depot maintenance work that can be
performed in the private sector. Largely because of this, we found a
heightened awareness of the need to put more emphasis on incorporating core
capability analysis with the source- of- repair process to drive some future
workloads into the military depots. Air Force officials have taken some
steps designed to better integrate the source- of- repair process and
logistics considerations with acquisition program decisions. For example,
senior Air Force officials issued a series of policy memos in 1999 and 2000
that were aimed at integrating the source- of- repair process with
acquisition program decisions. The intent was to ensure that sustainment
plans for new and modified weapon systems consider the future impacts on
depot workloads allocated to the public and private sectors. These changes
are designed to ensure that core capability, life- cycle costs, and other
logistics considerations such as the 50- 50 rule are considered at all
stages of the acquisition process and figure prominently in decisions on
lifetime support. Officials also revised guidance to incorporate recommended
improvements and to specify both the acquisition and sustainment
communities? roles and responsibilities.

While these are steps in the right direction, we have not yet seen
substantive change reflected in the source- of- repair decisions. Materiel
Command officials acknowledged that although the Air Force has made an
effort to identify systems to redirect for repair by a military depot,
program office officials have been reluctant to make changes. Officials said
that since program funds to cover the acquisition of technical data, depot
plant equipment, and other resources needed to establish capability in
military depots have not been programmed, there is little flexibility in the
short term. In a March 2001 hearing held by the House Committee on Armed
Services, Air Force officials said they are working on a longer- term plan
to consider options for reassigning some new systems maintenance work to Air
Force depots. This plan is expected to be completed in December 2001, but it
is uncertain whether any workloads will be identified for reassignment to an
Air Force depot for repair.

The Navy is in the very early stages of implementing a process to improve
its management of aviation maintenance issues; and, while in an early phase,
Navy officials have identified core support repair work in the Navy?s North
Island depot for the F/ A- 18 E/ F, its newest fighter upgrade. In August
2000, the Naval Air Systems Command instituted a Depot Program Management
Board to improve its source- of- repair process. The board is supposed to
corporately manage the naval aviation industrial enterprise, which
encompasses the combined capabilities and resources of organic Air Force
Initiatives

Navy Initiatives

Appendix I: DOD Initiatives That Could Affect Core and Core- Related
Processes

Page 41 GAO- 02- 105 Defense Logistics Capabilities

Navy, interservice, and commercial aviation depots. The board includes key
logistics and acquisition officials from within the Command whose
responsibilities and authority have a major impact on the size, shape, and
cost of the naval aviation industrial base. Its responsibilities include
determining and sustaining core naval aviation industrial capability and
capacity and guiding best- value, industrial source- of- repair decisions.
At its inaugural meeting in August 2000, the board concluded that the
industrial enterprise needed a more unified corporate source- of- repair
decision process to ensure that the technology for core capability is
maintained. The process is still on the drawing board and implementing
instructions have not yet been developed. However, Navy officials say that
the new process influenced the 2001 Navy decisions requiring repair work to
support core capability for the F/ A- 18 E/ F at the North Island depot.

The Army is attempting to improve the cost- effectiveness of its depot
maintenance program by better utilizing the industrial capability that it
currently maintains by increasing the amount of work assigned to the Army?s
depots and arsenals, but the long- term impact is uncertain. In July 1999,
the Assistant Secretary of the Army for Acquisition, Logistics and
Technology issued guidance that gave the Army Materiel Command the
responsibility for achieving optimal efficiency within the organic depot
system. Prior to 1999, the acquisition community operated under policy
guidance advocating contractor performance and the development of longterm
support relationships with private sector contractors. Some officials
believe that Army policy and practice is trying to better use the Army
depots and achieve improved efficiencies. The Army also revised its
acquisition guidance to require a source- of- repair decision by acquisition
milestone two, the beginning of engineering and manufacturing development.
Logistics officials believe this initiative is important to ensuring that
core and other logistics considerations are made an earlier part of
acquisition program decisions. Army Initiatives

Appendix II: Scope and Methodology Page 42 GAO- 02- 105 Defense Logistics
Capabilities

During this review, we visited and obtained information from the Office of
the Secretary of Defense and the Army, Navy, and Air Force headquarters, all
in the Washington D. C. area; Army Materiel Command headquarters in
Alexandria, Virginia; and two subordinate Army commands- the TankAutomotive
and Armaments Command, Warren, Michigan, and the Aviation and Missile
Command, Huntsville, Alabama; the Naval Sea Systems Command, Arlington,
Virginia, and the Norfolk Navy Shipyard, Norfolk, Virginia; the Naval Air
Systems Command in Patuxent, Maryland, and Naval Air Depots at North Island,
California, and Cherry Point, North Carolina; the Marines Corps Materiel
Command and Logistics Base in Albany, Georgia; the Air Force Materiel
Command at Wright- Patterson Air Force Base, Ohio, and the Ogden Air
Logistics Center in Ogden, Utah; and the Joint Depot Maintenance Analysis
Group, Wright- Patterson Air Force Base, Ohio.

To determine whether DOD has implemented an effective core depot maintenance
policy, we reviewed defense core policy and applications from a historical
perspective to trace their development and use in decision- making. We
reviewed the standard core methodology developed by DOD, changes in the
methodology, and the specific procedures and techniques used by the military
services to compute core requirements. We also obtained and reviewed
logistics and acquisition policies and procedures for sustaining weapon
systems, including source- of- repair and other decision tools. We obtained
historical core computation data to identify trends in core workloads. We
compared and contrasted the services? methodologies for computing core and
for making source- ofrepair decisions. We evaluated recent maintenance
decisions and pending decisions to determine the basis and support for
decisions and current status of systems being reviewed. We reviewed a recent
departmental report that evaluated the services? procedures for computing
core requirements and set out alternatives for consideration of
improvements.

To determine the extent to which DOD?s investments in facilities, equipment,
and human capital are adequate to support the long- term viability of
military depots, we reviewed current service efforts to address depot issues
and concerns and emerging business strategies and concerns, including plans
to modernize and recapitalize the depots. We also issued a data call and
received information from all 19 major defense depots. The purpose of the
data call was to gain the local perspective of depot officials on recent
events affecting business operations and to obtain data on their plans,
business strategies, and capital investments. We gathered and summarized
information on the size and scope of depot activities, new repair workloads
received and/ or planned for the depots, as well as Appendix II: Scope and
Methodology

Appendix II: Scope and Methodology Page 43 GAO- 02- 105 Defense Logistics
Capabilities

workloads lost (or expected to be lost) for fiscal years 1995- 2005. We
summarized recent and planned investments in depot plants and equipment to
determine the amount, nature, and trend in capital investments. We reviewed
plans to address human capital issues, in particular the hiring and training
plans to replace an aging maintenance work force, cost estimates, and
legislative proposals being considered to address these issues. We also
relied on our extensive and continuing work on human capital issues, both in
the defense environment and the federal government as a whole.

To determine the extent to which DOD has identified core capability for
logistics activities other than depot maintenance, we discussed with
officials their perspectives on core legislation and their historical
responses to congressional requirements. We relied also on our previous work
on the A- 76 process and prior reviews of logistics activities and plans.

We conducted our review from September 2000 through June 2001 in accordance
with generally accepted government auditing standards.

Appendix III: GAO Contacts and Staff Acknowledgments

Page 44 GAO- 02- 105 Defense Logistics Capabilities

David R. Warren( 202) 512- 8412 Julia C. Denman( 202) 512- 4290

In addition, John Brosnan, Raymond Cooksey, Bruce Fairbairn, Johnetta
Gatlin- Brown, Jane Hunt, Steve Hunter, Glenn Knoepfle, Ron Leporati, Andrew
Marek, Fred Naas, and Bobby Worrell contributed to this report. Appendix
III: GAO Contacts and Staff

Acknowledgments GAO Contacts Acknowledgments

Appendix IV: Comments by the Department of Defense

Page 45 GAO- 02- 105 Defense Logistics Capabilities

Appendix IV: Comments by the Department of Defense

Note: Draft report was submitted as GAO- 01- 612.

Appendix IV: Comments by the Department of Defense

Page 46 GAO- 02- 105 Defense Logistics Capabilities

Appendix IV: Comments by the Department of Defense

Page 47 GAO- 02- 105 Defense Logistics Capabilities

Appendix IV: Comments by the Department of Defense

Page 48 GAO- 02- 105 Defense Logistics Capabilities

Related GAO Reports Page 49 GAO- 02- 105 Defense Logistics Capabilities

Defense Logistics: Strategic Planning Weaknesses Leave Economy, Efficiency,
and Effectiveness of Future Support Systems at Risk (GAO02- 106, Oct. 11,
2001).

Defense Logistics: Air Force Lacks Data to Assess Contractor Logistics
Support Approaches (GAO- 01- 618, Sept. 7, 2001).

Human Capital: Major Human Capital Challenges at the Departments of Defense
and State (GAO- 01- 565T, Mar. 29, 2001).

Defense Maintenance: Sustaining Readiness Support Capabilities Requires a
Comprehensive Plan (GAO- 01- 533T, Mar. 23, 2001)

Major Management Challenges and Program Risks: Department of Defense (GAO-
01- 244, Jan. 2001).

High Risk Series: An Update (GAO- 01- 263, Jan. 2001).

Depot Maintenance: Key Financial Issues for Consolidations at Pearl Harbor
and Elsewhere Are Still Unresolved (GAO- 01- 19, Jan. 22, 2001).

Depot Maintenance: Action Needed to Avoid Exceeding Ceiling on Contract
Workloads (GAO/ NSIAD- 00- 193, Aug. 24, 2000).

Defense Logistics: Integrated Plans and Improved Implementation Needed to
Enhance Engineering Efforts (GAO/ T- NSIAD- 00- 206, June 27, 2000).

Defense Logistics: Actions Needed to Enhance Success of Reengineering
Initiatives (GAO/ NSIAD- 00- 89, June 23, 2000).

Defense Logistics: Air Force Report on Contractor Support Is Narrowly
Focused (GAO/ NSIAD- 00- 115, Apr. 20, 2000).

Human Capital: Strategic Approach Should Guide DOD Civilian Workforce
Management (GAO/ T- NSIAD- 00- 120, Mar. 9, 2000).

Depot Maintenance: Air Force Faces Challenges in Managing to 50- 50 Ceiling
(GAO/ T- NSIAD- 00- 112, Mar. 3, 2000).

Military Base Closures: Lack of Data Inhibits Cost- Effectiveness Analyses
of Privatization- in- Place Initiatives (GAO/ NSIAD- 00- 23, Dec. 20, 1999).
Related GAO Reports

Related GAO Reports Page 50 GAO- 02- 105 Defense Logistics Capabilities

Depot Maintenance: Army Report Provides Incomplete Assessment of Depot- type
Capabilities (GAO/ NSIAD- 00- 20, Oct. 15, 1999).

Depot Maintenance: Workload Allocation Reporting Improved, but Lingering
Problems Remain (GAO/ NSIAD- 99- 154, July 13, 1999).

Air Force Logistics: C- 17 Support Plan Does Not Adequately Address Key
Issues (GAO/ NSIAD- 99- 147, July 8, 1999).

Army Logistics: Status of Proposed Support Plan for Apache Helicopter

(GAO/ NSIAD- 99- 140, July 1, 1999).

Air Force Depot Maintenance: Management Changes Would Improve Implementation
of Reform Initiatives (GAO/ NSIAD- 99- 63, June 25, 1999).

Navy Ship Maintenance: Allocation of Ship Maintenance Work in the Norfolk,
Virginia, Area (GAO/ NSIAD- 99- 54, Feb. 24, 1999).

Army Industrial Facilities: Workforce Requirements and Related Issues
Affecting Depots and Arsenals (GAO/ NSIAD- 99- 31, Nov. 30, 1998).

Navy Depot Maintenance: Weaknesses in the T406 Engine Logistics Support
Decision (GAO/ NSIAD- 98- 221, Sep. 14, 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).

Defense Depot Maintenance: DOD Shifting More Workload for New Weapon Systems
to the Private Sector (GAO/ NSIAD- 98- 8, Mar. 31, 1998).

Defense Depot Maintenance: Information on Public and Private Sector Workload
Allocations (GAO/ NSIAD- 98- 41, Jan. 20, 1998).

Outsourcing DOD Logistics: Savings Achievable But Defense Science Board?s
Projections Are Overstated (GAO/ NSIAD- 98- 48, Dec. 8, 1997).

Navy Regional Maintenance: Substantial Opportunities Exist to Build on
Infrastructure Streamlining Progress (GAO/ NSIAD- 98- 4, Nov. 13, 1997).

Related GAO Reports Page 51 GAO- 02- 105 Defense Logistics Capabilities

Air Force Depot Maintenance: Information on the Cost- Effectiveness of B- 1
and B- 52 Support Options (GAO/ NSIAD- 97- 210BR, Sept. 12, 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).

Air Force Depot Maintenance: Privatization- in- Place Plans Are Costly While
Excess Capacity Exists (GAO/ NSIAD- 97- 13, Dec. 31, 1996).

Army Depot Maintenance: Privatization Without Further Downsizing Increases
Costly Excess Capacity (GAO/ NSIAD- 96- 201, Sept. 18, 1996).

Navy Depot Maintenance: Cost and Savings Issues Related to Privatizing- in-
Place at the Louisville, Kentucky Depot (GAO/ NSIAD- 96- 202, Sept. 18,
1996).

Defense Depot Maintenance: Commission on Roles and Mission?s Privatization
Assumptions Are Questionable (GAO/ NSIAD- 96- 161, July 15, 1996).

Defense Depot Maintenance: DOD?s Policy Report Leaves Future Role of Depot
System Uncertain (GAO/ NSIAD- 96- 165, May 21, 1996).

Defense Depot Maintenance: More Comprehensive and Consistent Workload Data
Needed for Decisionmakers (GAO/ NSIAD- 96- 166, May 21, 1996).

Defense Depot Maintenance: Privatization and the Debate Over the Public-
Private Mix (GAO/ T- NSIAD- 96- 148, Apr. 17, 1996) and (GAO/ TNSIAD- 96-
146, Apr. 16, 1996).

Depot Maintenance: Opportunities to Privatize Repair of Military Engines
(GAO/ NSIAD- 96- 33, Mar. 5, 1996).

Closing Maintenance Depots: Savings, Workload, and Redistribution Issues
(GAO/ NSIAD- 96- 29, Mar. 4, 1996)

Related GAO Reports Page 52 GAO- 02- 105 Defense Logistics Capabilities

Military Base Closures: Analysis of DOD?s Process and Recommendations for
1995 (GAO/ NSIAD- 95- 132, Apr. 17, 1995).

Military Bases: Analysis of DOD?s 1995 Process and Recommendations for
Closure and Realignment (GAO/ NSIAD- 95- 133, Apr. 14, 1995).

Aerospace Guidance and Metrology Center: Cost Growth and Other Factors
Affect Closure and Privatization (GAO/ NSIAD- 95- 60, Dec. 9, 1994).

Depot Maintenance: Issues in Allocating Workload Between the Public and
Private Sectors (GAO/ T- NSIAD- 94- 161, Apr. 12, 1994).

Depot Maintenance (GAO/ NSIAD- 93- 292R, Sept. 30, 1993).

Depot Maintenance: Issues in Management and Restructuring to Support a
Downsized Military (GAO/ NSIAD- 93- 13, May 6, 1993).

Defense Force Management: Challenges Facing DOD as it Continues to Downsize
Its Civilian Work Force (GAO/ NSIAD- 93- 123, Feb. 12, 1993).

(709518)

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