Aerospace Guidance and Metrology Center: Cost Growth and Other Factors
Affect Closure and Privatization (Letter Report, 12/09/94,
GAO/NSIAD-95-60).

The justification for closing the Aerospace Guidance and Metrology
Center at Newark Air Force Base is unclear.  To date, this is the only
depot closure where almost all of the work may be privatized-in-place.
GAO believes that it merits careful consideration before implementation
proceeds.  Several issues associated with this privatization are
barriers to its implementation.  Also, some projected costs are rising,
while others are yet to be determined.  One-time closure costs have
doubled during the past year and may still be underestimated.  As a
result, the payback period may increase to more than 100
years--depending on the assumptions used.  Moreover, projected costs of
post-privatization operations could exceed the cost of current Air Force
operations and reduce or eliminate projected savings. This report also
discusses other closure and privatization matters that call into
question the viability of the Air Force's planned action.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-95-60
     TITLE:  Aerospace Guidance and Metrology Center: Cost Growth and 
             Other Factors Affect Closure and Privatization
      DATE:  12/09/94
   SUBJECT:  Mechanical engineering
             Navigation aids
             Radar equipment
             Equipment maintenance
             Intercontinental ballistic missiles
             Cost effectiveness analysis
             Air Force facilities
             Federal agency reorganization
             Agency missions
             Federal property management
IDENTIFIER:  Minuteman Missile
             Peacekeeper Missile
             Air Force Metrology and Calibration Program
             
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Cover
================================================================ COVER


Report to Congressional Requesters

December 1994

AEROSPACE GUIDANCE
AND METROLOGY CENTER - COST GROWTH
AND OTHER FACTORS AFFECT CLOSURE
AND PRIVATIZATION

GAO/NSIAD-95-60

Aerospace Guidance/Metrology Center


Abbreviations
=============================================================== ABBREV

  AFB - Air Force Base
  AFMC - Air Force Materiel Command
  AGMC - Aerospace Guidance and Metrology Center
  ALC - Air Logistics Centers
  BRAC - Base Closure and Realignment Commission
  COBRA - Cost of Base Realignment Actions
  DOD - Department of Defense

Letter
=============================================================== LETTER


B-259135

December 9, 1994

The Honorable Earl Hutto
Chairman
The Honorable John R.  Kasich
Ranking Minority Member
Subcommittee on Readiness
Committee on Armed Services
House of Representatives

At your request, we reviewed selected issues related to the
implementation of maintenance depot closures and realignments
resulting from prior Defense Base Closure and Realignment Commission
(BRAC) decisions (see app.  I for issues being reviewed).  The
Aerospace Guidance and Metrology Center (AGMC) at Newark Air Force
Base (AFB), Ohio, is one of the activities being covered by this
review.\1 Unlike other depot closures, the Newark AFB/AGMC
implementation plan provides for continuing to perform the same
missions at this facility after closure--largely as a privatized
operation, although the Air Force would retain ownership of mission-
related equipment valued at about $326 million. 

Recently, we briefed your office on (1) the cost and savings issue
related to the Newark AFB/AGMC facility closure and privatization and
(2) other closure and privatization issues.  As you asked, we are
providing this report on the areas discussed at that briefing and
will report later on findings related to the closure of all
maintenance depots. 


--------------------
\1 The following maintenance depots have been identified for closure: 
Lexington/Bluegrass Army Depot, Sacramento Army Depot, Tooele Army
Depot, Pensacola Naval Aviation Depot, Alameda Naval Aviation Depot,
Norfolk Naval Aviation Depot, Philadelphia Naval Shipyard, Mare
Island Naval Shipyard, and Aerospace Guidance and Metrology Center. 


   BACKGROUND
------------------------------------------------------------ Letter :1

The sole purpose of Newark AFB is to house and support the large
industrial complex comprising the AGMC.  Supporting two Air Force
missions--depot maintenance\2 and metrology and calibration--AGMC
provides depot level maintenance of inertial guidance and navigation
systems and components and displacement gyroscopes for the Minuteman
and Peacekeeper intercontinental ballistic missiles and most of the
Air Force's aircraft.\3 In fiscal year 1994, AGMC's depot maintenance
workload consisted of about 900,000 hours; almost 10,500 items were
produced to support repair requirements for 66 Air Force, Navy, and
Army systems and components.  This work was accomplished by about 500
maintenance and engineering personnel and 325 management and support
personnel. 

AGMC is different from the Air Force air logistics centers (ALC) in
that it does not have weapon system and item management
responsibility collocated at the same base.\4 For Air Force systems
repaired at AGMC, weapon system and item management functions are
performed primarily at the Ogden or Oklahoma City ALCs.\5 However,
some of the engineering support normally provided by the system
program management offices at ALCs is performed at AGMC for systems
it repairs. 

In its second Air Force mission, metrology and calibration, AGMC
performs overall technical direction and management of the Air Force
Metrology and Calibration Program and operates the Air Force
Measurement Standards Laboratory.  About 200 personnel are involved
in the metrology and calibration mission--109 in generating technical
orders, certification of calibration equipment, and management
operations and 89 in the standards laboratory.  As the single manager
for the Air Force Metrology and Calibration Program, AGMC provides
all metrology engineering services for the Air Force.  The standards
laboratory complex, consisting of
47 laboratories, serves as the primary laboratory for calibrating and
certifying measurement standards used worldwide in all Air Force
precision measurement equipment laboratories.  In fiscal year 1994,
the standards laboratory produced about 11,500 calibrated items. 

The Department of Defense (DOD) considered AGMC's work conducive to
conversion to the private sector and recommended closing Newark
AFB/AGMC through privatization and/or transferring the workload to
other depots.  DOD justified the closure by (1) identifying at least
8.7 million hours of excess Air Force depot maintenance capacity,
with the closure of AGMC expected to reduce this excess by 1.7
million hours,\6 and (2) applying the eight base closure criteria to
Air Force bases having depots and ranking Newark AFB low relative to
the others (see app.  II for base closure criteria).  DOD assigned a
low military value to Newark AFB primarily because it was a single
mission base with no airfield. 

DOD estimated that implementing its recommendation on Newark AFB/AGMC
would cost $31.3 million, result in an annual savings of $3.8
million, and have an 8-year payback period for closure and relocation
expenses.  In our report on the base closure and realignment
recommendations and selection process, we estimated that the Newark
AFB/AGMC closure costs would be $38.29 million, with a 13-year
payback period.\7 BRAC determined that the AGMC workload could either
be contracted out or privatized- in-place at the same location,
although the BRAC noted that industry interest in
privatization-in-place was limited.  The BRAC recommended closing
Newark AFB/AGMC--noting that some workload will move to other depot
maintenance activities, including the private sector.  The President
agreed with the overall BRAC recommendations dealing with maintenance
depots, including the closure of AGMC.  The Congress did not
challenge the overall BRAC recommendations.  The Air Force has begun
the implementation of the closure and privatization of Newark AFB/
AGMC. 


--------------------
\2 Depot maintenance requires extensive shop facilities, specialized
equipment, and highly skilled technical and engineering personnel to
perform major overhaul of parts; completely rebuilt parts, and end
items; modify systems and equipment by applying new or improved
components; manufacture parts unavailable from the private sector
that are needed for performing depot maintenance activities; and
provide technical assistance by field teams at operational units. 

\3 Other AGMC workloads include control display units; periscopic
sextants; cesium beam clocks; fuel savings advisory systems; fiber
optic borescopes; and a variety of test, measurement, and diagnostic
equipment. 

\4 Neither the Army nor the Navy collocates its weapon system and
item management functions at locations having depot maintenance
activities.  AGMC is substantially smaller than the other five Air
Force depot activities in number of items supported, production
hours, workforce size, and number and size of maintenance facility
buildings. 

\5 The other ALCs are Sacramento ALC, McClellan AFB, California; San
Antonio ALC, Kelly AFB, Texas; and Warner Robins ALC, Robins AFB,
Georgia. 

\6 The 1.7 million hours come from historical figures for direct
product actual hours for the depot maintenance industrial fund
activity at AGMC.  AGMC downsized in fiscal years 1991 and 1993 to a
1.0 million hour capacity based on changes in the force structure. 

\7 Military Bases:  Analysis of DOD's Recommendations and Selection
Process for Closure and Realignments (GAO/NSIAD-93-173, Apr.  15,
1993). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

The justification of closing Newark AFB/AGMC is not clear.  To date,
the closure of Newark AFB/AGMC is the only depot closure where almost
all of the work may be privatized-in-place.  As such, we believe it
merits careful consideration before implementation proceeds.  There
are a number of issues associated with this privatization that are
barriers to its implementation.  Also, some projected costs are
rising, while others are yet to be determined.  One-time closure
costs have doubled in the past year and may still be underestimated. 
As a result, the payback period has increased to at least 17 years
and as much as over 100 years--depending on the assumptions used. 
Moreover, projected costs of conducting post-privatization operations
could exceed the cost of current Air Force operations and reduce or
eliminate projected savings. 

Other closure and privatization matters create uncertainty about the
viability of the Air Force's planned action:  (1) the disposition of
equipment manufacturers' proprietary data claims, which are a
potential barrier to privatization and could significantly increase
closure costs and/or post-closure operation costs; (2) the failure of
the closure/privatization to reduce excess depot maintenance capacity
by the 1.7 million hours previously estimated; (3) the incongruity of
privatizing workload that the Air Force has defined as "core"
capability that generally should be retained in the DOD depot system;
(4) the practicability or cost-effectiveness of privatizing parts of
the metrology and calibration mission while retaining the management
function as a government activity; and (5) the delay in reaching
agreement regarding the transfer of property and facilities to the
local reuse commission. 


   AIR FORCE IMPLEMENTATION OF
   NEWARK AFB/AGMC CLOSURE
------------------------------------------------------------ Letter :3

Implementation of the Newark AFB/AGMC closure through privatization
is still in the early phases, with many details yet to be worked out. 
In general, the Air Force has developed a three-pronged approach to
implementing BRAC's decision.  First, four systems, representing
about 3 percent of AGMC's existing depot maintenance workload, will
be transferred to other Air Force depots.\8 Second, ownership of the
Newark AFB/AGMC property and facilities will be transferred to a
local reuse commission.  The commission is to lease space to one
prime guidance system repair contractor that will provide depot
maintenance work, one prime metrology contractor that will perform
calibrations and author calibration manuals, and the remaining
organic metrology program management contingent.  While
privatization-in-place is the goal, based on a strategy option
announced in the Commerce Business Daily, contractors may elect to
move workload to other facilities.  Hypothetically, this option could
result in all workload moving to other contractor locations--should
the winning contractor(s) demonstrate that moving workload to other
locations would provide the best value to the government.  Third, the
metrology and calibration mission will be continued at AGMC, with
some functions privatized and another continued as an Air Force
activity reporting to AFMC Headquarters or one of the ALCs. 

The Air Force originally planned to privatize all activities related
to the metrology and calibration mission, but it later determined
that the Air Force Metrology and Calibration Program's materiel group
manager function could not be privatized because it is a function
considered to be "inherently governmental."\9 In performing this
function, AGMC civilian and military employees provide policy and
direction for all precision measurement equipment laboratories Air
Force wide, inspect these laboratories for compliance with required
policies and procedures, and procure calibration standards\10 used in
calibration laboratories. 

Current plans for the metrology and calibration program provide for
(1) retaining about 130 government employees to provide the metrology
and calibration management function--with the Air Force leasing space
at AGMC from the local reuse commission and (2) contracting out the
primary standards laboratory and technical order preparation, which
will also remain at AGMC, with the contractor leasing space from the
reuse commission. 

The Air Force plans to retain ownership of mission-related
maintenance and metrology and calibration equipment, which will be
provided to the winning contractor(s) as government-furnished
equipment.  AGMC accountable records indicate the value of the depot
maintenance equipment is $297.5 million and the value of the
metrology and calibration equipment $28.5 million.  Details such as
the cost of the lease arrangement, allocation of utility and support
costs between the Air Force and contractor(s), and the determination
of whether the government or the contractor will be responsible for
maintaining the equipment are not yet known. 

To manage the AGMC privatization, the Air Force established a program
management office at Hill AFB.  This office is responsible for
developing the statement of work, request for proposal, acquisition
plan, source selection plan, and related documents.  The award is
scheduled for September 29, 1995.  Several key milestones leading up
to contract award have slipped, compressing the schedule for the
remaining tasks in the pre-contract-award period.  Air Force
officials describe this schedule as optimistic.  After contract
award, the Air Force plans to initiate a phased process for
transitioning individual maintenance workloads to the contractor. 
Air Force officials stated that this 12-month transition period
reduces the risk of interrupting ongoing operations and allows the
contractor(s) an opportunity to build up an infrastructure and
trained workforce.  However, according to the program management
office, a "turn-key" transition where the contractor becomes fully
responsible for the AGMC workload at one point in time is the
preferred strategy of the ALC system managers and may be adopted. 


--------------------
\8 The Air Force determined that relocation was practicable and
cost-effective for sextants, ARC-200 radios, clocks, and some test
measurement and diagnostic equipment. 

\9 Office of Management and Budget Policy Letter 92-1, Sept.  23,
1992, provides that an inherently governmental function is ".  .  . 
so intimately related to the public interest as to mandate
performance by Government employees.  These functions include those
activities which require either the exercise of discretion in
applying Government authority or the making of value judgements in
making decisions for the Government."

\10 The acquisition cost of this equipment is about $10 million per
year. 


   ANALYSIS OF COST AND SAVINGS
   RAISES CONCERNS
------------------------------------------------------------ Letter :4

Our work has identified several concerns regarding the cost, savings,
and payback period for the Air Force's implementation of the AGMC
BRAC decision.  These include concerns that (1) the projected cost of
closing AGMC has doubled and may increase further; (2) the $3.8
million annual savings projected to result from AGMC's closure is not
likely to be realized because of potentially higher costs for
contract administration, contractor profit, possible recurring
proprietary data costs, and other factors that have not been
considered in the cost computation; and (3) the payback period could
be extended to over 100 years or never, depending upon the Air
Force's ability to contain one-time closure costs and recurring costs
of performing the AGMC mission after privatization. 

Recognizing that projected closure costs have increased, in August
1994, the Air Force base closure group validated a Newark AFB/AGMC
closure budget of $62.2 million.\11 This amount is $30.9 million more
than the original projection of $31.3 million.  Almost all of the
increase is attributable to the estimated $30.5 million transition
cost to convert from Air Force to contractor operation.  According to
Air Force officials, the original cost estimate only included costs
associated with transferring and separating personnel under the base
closure process and for transferring a limited amount of workload to
other Air Force depots.  They noted that DOD has no prior experience
with privatizing a large, complex depot maintenance facility. 
Additionally, since the development of the closure and privatization
option for AGMC was done quickly, the time available to identify all
the factors and costs associated with this option at the time of the
1993 BRAC was limited. 

We recomputed the payback period using DOD's 1993 Cost of Base
Realignment Actions (COBRA) model.\12 We used the estimated
nonrecurring costs validated by the Air Force in August 1994
(adjusted for inflation) and assumed that post-closure operations
would result in $3.8 million annual savings as DOD originally
projected in 1993.  The model indicated that, with these costs and
assumptions, the payback period would be over 100 years rather than 8
years as originally projected by DOD.  However, DOD approved discount
rate used in the COBRA model has been reduced from 7 percent in the
1993 BRAC process to 2.75 percent in 1995.\13 Consequently, we
adjusted the COBRA model to the revised discount factor--holding all
other variables constant--and found the revised payback period to be
17 years.  Achieving a 17-year payback is dependent on no further
increase in one-time closure costs and achieving the $3.8 million
annual post-closure operational cost savings originally projected by
DOD.  Our work has determined that neither of these assumptions is
likely because of significant cost uncertainties. 

While the Air Force has recognized that an estimated $62.2 million
will be required as BRAC funded costs of closure, it also recognizes
there will be additional one-time closure costs not funded by BRAC. 
For example, an estimated $4.86 million will be needed to cover costs
such as interim health benefits for personnel separating from
government employment.  Also, there will be environmental cleanup
costs of some undetermined amount.  Thus far, $3.62 million has been
identified for environmental cleanup. 

As already indicated, we have also identified other potential closure
costs that the Air Force has not included.  One is the cost to
acquire the right to provide data some equipment manufacturers
consider proprietary to contractors expecting to bid on the AGMC
maintenance workload.  Proprietary rights involve the claim of
ownership by equipment manufacturers of some unique information, such
as technical data, drawings, and repair processes, to protect the
manufacturer's market position by prohibiting disclosure outside the
government.  An Air Force official said cost estimates were submitted
by four equipment manufacturers claiming proprietary rights, and
these estimates were "absurdly high." While we cannot identify what
these additional one-time costs will be, any unidentified costs push
the payback period even further. 

At the time AGMC was identified for closure and privatization, DOD
estimated $68.09 million annual cost for contractor operations and
$71.84 million in net annual savings in personnel and overhead
costs--resulting in an estimated annual savings of $3.8 million. 
Recurring costs after AGMC closure and privatization probably cannot
be determined with any degree of assurance until after contract
negotiation and award.  However, some Air Force officials have
estimated that rather than achieving savings, annual recurring costs
could actually exceed current costs of operations.  For example, an
Air Force Materiel Command (AFMC) memorandum noted that prevailing
labor rates and private sector charges for similar items\14 suggest
that it will be difficult to keep the annual contract value the same
as the current annual civilian salary--a key assumption in achieving
the originally projected $3.8 million annual savings. 

An AFMC analysis determined that, assuming these costs are
comparable, additional costs for profit and contract administration
could result in post-closure operation costs exceeding the current
operation costs by at least $1.8 million.  Additional costs for
proprietary data and taxes could increase the post-closure operation
costs by $3.8 million annually. 

A November 1994 AFMC memorandum informed system managers of increased
funding requirements for AGMC workloads to cover anticipated
increases in costs of operation under privatization-in-place.  A
December 1994 meeting of the Acquisition Strategy Panel confirmed the
projected increases.  For example, the projected fiscal year 1997
costs after privatization-in-place were about 107 percent higher than
projected costs under government operation.  Additionally, the
projected costs of contractor operations for the 5-year period
between fiscal years 1996 and 2000 were estimated to be over $456
million more than previously estimated costs of government operations
over that period. 


--------------------
\11 The Air Force considered a range of closure costs from $47
million to $76 million before validating the $62.2 million estimate. 

\12 DOD uses the COBRA model to estimate the return on investment of
its closure and realignment decisions.  The cost model consists of a
set of formulas or algorithms that use standard factors and
base-specific data in its calculations.  Each DOD component had its
own set of standard cost factors derived from readily available
information.  Some factors are identical for each component because
they are mandated by regulation or law or prescribed by policy. 

\13 COBRA algorithms incorporate a discount rate to calculate both
the number of years required to obtain a return on investment and a
20-year net present value analysis.  The source of identifying the
appropriate discount rate is Office of Management and Budget Circular
A-94, "Guidelines and Discount Rates for Benefit-Cost Analysis of
Federal Programs." In the 1993 BRAC, a discount rate of 7 percent was
used, under the assumption that COBRA analyses were "base-case"
benefit-cost analyses as defined by the circular.  DOD determined
that the approved discount rate associated with "cost-effectiveness"
analyses should be used for the 1995 BRAC. 

\14 Analysis by the transition program management office determined
that for 230 Air Force items currently repaired at AGMC that also
have repair history in the private sector, the contractor costs were
generally 1.5 to 3 times higher than the AGMC cost. 


   OTHER CLOSURE AND PRIVATIZATION
   ISSUES
------------------------------------------------------------ Letter :5

Other privatization issues relate to (1) proprietary data claims, (2)
the effect of the closure on excess depot maintenance capacity, (3)
the impact of privatizing core workload, (4) the segmentation of the
metrology and calibration mission, and (5) the transfer of AGMC
property and facilities to the local reuse commission. 


      PROPRIETARY DATA CLAIMS
---------------------------------------------------------- Letter :5.1

The proprietary rights to technical data is unresolved for some
workloads to be contracted out and could greatly increase the costs
of privatization.  In this case, when contractors have a legitimate
claim of ownership, the government cannot make this information
available to other private sector firms that compete for the AGMC
maintenance workload.  The amount of depot maintenance workload at
AGMC that involves proprietary data, the extent to which owners of
proprietary rights are willing to sell these rights to the
government, or the potential cost of this acquisition have not been
determined.  Air Force officials noted they are investigating
possible methods for the prospective bidders to gain the necessary
data rights as part of their proposal.  However, proprietary data
problems have already contributed to the delay of several key program
milestones, including preparation of the statement of work and
acquisition and source selection plans, and are a potential barrier
to the AGMC privatization. 


      EFFECT ON EXCESS CAPACITY
---------------------------------------------------------- Letter :5.2

The privatization of AGMC will not reduce excess capacity by the 1.7
million hours previously estimated if privatization-in-place is
completed as currently planned.  Since many of the systems and
components currently repaired at AGMC are not repaired elsewhere, the
AGMC depot maintenance capability does not generally duplicate repair
capability found elsewhere.  Where duplicate capability exists,
consolidating like repair workloads and eliminating redundancies
would be expected to generate economies and efficiencies.  Currently,
it is planned that almost all the AGMC capability will be retained in
place for use by private contractors.  The Air Force will retain
ownership of depot plant equipment and the standards laboratory
equipment, which AGMC accountable records indicate are valued at
about $326 million.  With this arrangement, it is difficult to
understand how DOD projects the elimination of 1.7 million hours of
excess capacity. 


      PRIVATIZATION OF CORE
      WORKLOAD
---------------------------------------------------------- Letter :5.3

All of AGMC's maintenance workload has been identified as core work
to be retained in government facilities.  Since 1993, when the Air
Force recommended that AGMC be closed and privatized, each of the
services identified depot maintenance capability for which it was
considered essential that this capability be retained as organic DOD
capability--referred to as core capability.\15 According to Office of
the Secretary of Defense guidance, core exists to minimize
operational risks and to guarantee required readiness for critical
weapon systems.  The Air Force determined that 100 percent of the
AGMC depot maintenance workload is core.  AGMC is the only Air Force
depot activity having all its repair workload defined as core--with
other depots' core capability ranging from 59 percent at Sacramento
ALC to 84 percent at Warner Robins ALC.  An AFMC memorandum noted
some inconsistency in planning to contract out workload defined as
100 percent core, while continuing to support the need for retaining
core capability in DOD facilities.  However, the memorandum noted
that the inherent risk of contracting out can be minimized if the
workload is retained at AGMC as a result of privatization-in-place. 
Air Force officials stated that retaining government ownership of the
mission-related equipment at AGMC is essential to controlling the
risk of privatizing this critical core workload. 


--------------------
\15 Core is defined by DOD as the capability maintained within
organic Defense depots to meet readiness and sustainability
requirements of the weapon systems that support the Joint Chiefs of
Staff contingency scenario.  Core depot maintenance capabilities are
intended to comprise only the minimum facilities, equipment and
skilled personnel necessary to ensure a ready and controlled source
of required technical competence. 


      SEGMENTATION OF THE
      METROLOGY AND CALIBRATION
      MISSION
---------------------------------------------------------- Letter :5.4

The current plan to retain part of the metrology and calibration
mission to be performed by Air Force personnel while privatizing the
standards laboratory function may be neither practicable nor
cost-effective.  We found that the standards laboratory function is
generally the training ground where Air Force civilian personnel
develop the skills they need to perform the other metrology and
calibration functions that will be continued at AGMC as a government
operation.  We discussed this issue with personnel from both the Army
and the Navy who maintain similar organic capabilities to support
service metrology and calibration management functions.  They noted
that from their perspective, contracting part of this work while
maintaining most of it as a government activity would not be
desirable.  Navy officials noted that 100 percent of their metrology
and calibration program management personnel were formerly employed
in the primary standards laboratory.  Army and Navy officials stated
that the experience and training gained from their prior work in
laboratories was essential to performance of program management
responsibilities. 

We questioned the viability of having the Air Force interservice its
metrology and calibration activities to the Army and/or the Navy,
which have similar activities.  Army and Navy officials said they
believe it would be possible to combine the Air Force metrology and
calibration function with that of one or both of the other services. 
Air Force officials said they considered interservicing but
determined that neither the Army nor the Navy facilities meet the
tolerances required for calibrating some Air Force equipment or have
the capacity to assume the Air Force workload.  Army and Navy
officials stated that an existing memorandum of agreement among the
three military departments provides that if one of the primary
standards laboratories loses its capability, the remaining
laboratories would assist in meeting calibration requirements.  These
officials said they believe that interservicing or joint operations
should be further considered by the Air Force. 


      TRANSFER OF PROPERTY AND
      FACILITIES TO LOCAL REUSE
      COMMISSION
---------------------------------------------------------- Letter :5.5

The AGMC privatization-in-place approach is based on transferring
ownership of the Newark AFB/AGMC property and facilities, which the
Air Force estimates to be worth about $331 million,\16 to the local
reuse commission.  To make this approach work, the Air Force must
transfer ownership of the property and facilities at no cost or less
than fair market value.  Whether this transfer will take place is
unclear since (1) the fair market value has not been determined and
(2) agreements as to the cost of the property or means of payment and
as to whether the reuse commission is willing to assume
responsibility for operating the property and facilities have not
been reached.  To effect property transfer at below estimated fair
market value, the Secretary of the Air Force must explain the cost
and approve the transfer.  Air Force officials noted that, pending
results of the environmental impact analysis, they expect to convey
the property through an economic development conveyance with very
favorable terms to the local reuse commission. 

A local reuse commission official told us that until recently the
commission believed the Newark AFB/AGMC property would be transferred
to the commission at no cost.  The official noted that it is
questionable whether the commission will be interested in acquiring
the property under other conditions. 


--------------------
\16 This amount does not include the value of the mission-related
depot plant equipment and the standards laboratory equipment, which
will be retained as government-owned equipment. 


   RECOMMENDATION
------------------------------------------------------------ Letter :6

DOD historically has encountered difficulties in trying to close
military bases.  This makes us reluctant--absent very compelling
reasons--to recommend that DOD revisit prior BRAC decisions. 
However, we believe that the problems being faced in implementing
this decision are of such an unusual nature to warrant revisiting the
planned closure and privatization of AGMC.  Therefore, we recommend
that the Secretaries of the Air Force and Defense reevaluate, as a
part of the ongoing BRAC 1995 process, both DOD's 1993 recommendation
to close Newark AFB/AGMC and the Air Force's approach to implementing
the closure decision through privatization-in-place. 


---------------------------------------------------------- Letter :6.1


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

Part of the work on this assignment resulted from our ongoing effort
to review various depot maintenance issues, including an analysis of
the status of DOD's efforts to implement depot closures resulting
from prior BRAC decisions.  We completed work for this report in
December 1994.  Our work was performed in accordance with generally
accepted government auditing standards.  We discussed a draft of this
report with agency officials and have included their comments where
appropriate.  Our scope and methodology are discussed in greater
detail in appendix I. 


---------------------------------------------------------- Letter :7.1

We are sending copies of this report to the Director, Office of
Management and Budget; the Secretaries of Defense and the Air Force;
and other interested parties.  We will make copies available to
others upon request. 

Please contact me at (202) 512-8412 if you or your staff have any
questions concerning this report.  Major contributors to this report
were Julia Denman, Assistant Director and Project Director, and Frank
Lawson, Deputy Project Director. 

Donna M.  Heivilin
Director, Defense Management
 and NASA Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

You asked us to review how the Department of Defense (DOD) is
managing various issues related to the closure of depot maintenance
activities, including (1) the allocation of workload that is
currently being performed at these activities, either to DOD
activities or to the commercial sector; (2) policies and procedures
for the disposition of equipment at these activities; (3) policies
and procedures to provide the existing workforce opportunities for
employment; (4) the potential for conversion of these activities into
commercial repair activities; and (5) an update of DOD's estimates
for closure costs and savings as a result of implementing prior
Defense Base Closure and Realignment Commission (BRAC) decisions for
depot closures. 

We discussed the Newark Air Force Base closure and privatization of
the Aerospace Guidance and Metrology Center (AGMC) with Air Force
officials responsible for implementing the BRAC decision at AGMC, Air
Force Materiel Command (AFMC), and Air Force headquarters.  We also
(1) discussed estimated closure costs and savings with Air Force
officials at various locations and (2) toured the AGMC facility,
conducting interviews with center personnel and reviewing historical
and evolving documentation.  In addition, we contacted Defense
Contract Management Command, Defense Contract Audit Agency, and AFMC
contracting personnel for contract-related information and Army and
Navy metrology officials responsible for the primary standards
laboratories to obtain information on their capability to maintain
the AGMC metrology workload and their views on privatizing part of
the metrology functions while continuing to keep the management
function as a government operation. 

We analyzed laws, policies, and regulations governing core capability
and Office of Management and Budget Circular A-76 and Policy Letter
92-1 for information on inherently governmental functions.  To assess
the impact of the increase in the estimated cost of closing Newark
AFB/AGMC, we used the 1993 Cost of Base Realignment Actions model to
calculate the closure and relocation cost payback period. 

In conducting this review, we used the same reports and statistics
the Air Force uses to monitor the cost of closure and estimate the
recurring costs associated with AGMC privatization.  We did not
independently determine their reliability. 


DOD CRITERIA FOR SELECTING BASES
FOR CLOSURE OR REALIGNMENT
========================================================== Appendix II

Category            Criteria
------------------  ----------------------------------------
Military value      The current and future mission
                    requirements and the impact of
                    operational readiness of DOD's total
                    force.

                    The availability and condition of land,
                    facilities, and associated airspace at
                    both the existing and potential
                    receiving locations.

                    The ability to accommodate contingency,
                    mobilization, and future total force
                    requirements at both the existing and
                    potential receiving locations.

                    The cost and manpower implications.

Return on           The extent and timing of potential costs
investment          and savings, including the number of
                    years, beginning with the date of
                    completion of the closure or
                    realignment.

Impacts             The economic impact on communities.

                    The ability of both the existing and
                    potential receiving communities'
                    infrastructure to support forces,
                    missions and personnel.

                    The environmental impact.
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