Navy Depot Maintenance: Cost and Savings Issues Related to
Privatizing-in-Place at the Louisville Kentucky Depot (Letter Report,
09/18/96, GAO/NSIAD-96-202).

Pursuant to a congressional request, GAO reviewed the Department of
Defense's (DOD) plans to privatize-in-place the Navy's Louisville,
Kentucky, depot maintenance workload, focusing on the: (1) impact on
excess depot capacity and operating costs at remaining industrial
facilities; (2) cost-effectiveness of this planned
privatization-in-place option; and (3) statutory requirements affecting
transfers of depot maintenance workloads to the private sector.

GAO found that: (1) privatization-in-place is not cost-effective given
the excess capacity in the DOD depot maintenance system; (2) the Navy's
privatization plan for the Louisville depot will not reduce excess
capacity at the remaining depots or in the private sector and may be
more costly than transferring the work to other depots; (3) DOD pays for
the excess capacity whether it is in the public or private sector; (4)
privatizing the facility may not comply with statutory requirements for
public-private competitions, since the Navy plans to use noncompetitive
procurement procedures; (5) the Navy overstated the cost of transfering
the Louisville workload to other depots by at least $66 million and
generally assumed that privatization would save 20 percent, which is not
likely to be realized; (6) the Navy's projection is based on conditions
that are not relevant for most depot maintenance workloads and does not
reflect the cost of excess capacity in the public sector; (7) the Navy
did not assess the risk associated with contracting the depot's core
workload, since the majority of the workload is mission essential; and
(8) in July 1996, the Navy awarded contracts to Hughes Missile Systems
Company and United Defense Limited Partnership for work in progress, but
it did not verify that the privatization plan conformed with statutory
requirements for public-private competition.

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

 REPORTNUM:  NSIAD-96-202
     TITLE:  Navy Depot Maintenance: Cost and Savings Issues Related to 
             Privatizing-in-Place at the Louisville Kentucky
             Depot
      DATE:  09/18/96
   SUBJECT:  Privatization
             Base closures
             Base realignments
             Naval facilities
             Equipment maintenance
             Military downsizing
             Military cost control
             Cost effectiveness analysis
             Maintenance services contracts
             Navy procurement
IDENTIFIER:  Louisville (KY)
             MK-15 Phalanx Close-in Weapons System
             DOD Relocation Income Tax Allowance Program