Navy Regional Maintenance: Substantial Opportunities Exist To Build on
Infrastructure Streamlining Progress (Letter Report, 11/13/97,
GAO/NSIAD-98-4).

Pursuant to a congressional request, GAO reviewed the Navy Regional
Maintenance (RM) Program, focusing on the: (1) progress made in
implementing the program; (2savings that have been achieved; (3)
opportunities for additional savings; and (4) barriers that inhibit full
implementation of the program and achievement of projected savings.

GAO noted that: (1) the Navy has made progress in achieving its
infrastructure streamlining objective, but it has not been as great as
anticipated and challenges remain for accomplishing future plans; (2) to
implement the infrastructure streamlining objective, the Navy
established steering committees, initiated a phased execution plan,
identified a regional structure, and developed business plans; (3)
through fiscal year (FY) 1996, the Navy identified 102 initiatives, 55
of which had been started by the end of FY 1997, and 47 of which are to
be implemented between FY 1998 and 2001; (4) the Navy projected that its
102 initiatives would save about $944 million, of which $198 million was
expected to accrue during FY 1994 to 1997 and $746 million was expected
to accrue during FY 1998 to 2001; however, some of the initiatives are
not progressing as projected; (5) the Navy cannot identify actual
savings achieved because its accounting system does not track RM Program
costs and related savings, and the Navy did not establish an independent
system to track these costs and related savings; (6) the Navy has
opportunities to build on its progress by working to achieve the $746
million in expected savings during FY 1998 to 2001, moving more quickly
to implement savings initiatives, and pursuing other opportunities with
high potential for significant savings; (7) the Navy identified many of
its savings initiatives as high risk because of barriers to
implementation; (8) the Navy faces parochial and institutional
resistance to the RM Program's objectives and has other complex issues
to resolve; (9) the biggest hurdle to overcome may be resistance to
initiatives that eliminate organizations, reduce jobs and promotions, or
reduce a command's or organization's control over resources; (10) other
barriers are: (a) the lack of management visibility over all maintenance
related costs; (b) multiple, unconnected management information systems
that do not provide adequate data for regional maintenance planning and
decisionmaking; and (c) the large number of shore positions desired to
support the sea-to-shore rotation program compared to the smaller number
needed to perform the intermediate maintenance workload; and (11)
visible commitment by the Chief of Naval Operations (CNO) is critical to
overcome resistance, accelerate decisionmaking, and provide the
necessary resources and coordination needed for efficient and effective
program implementation.

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

 REPORTNUM:  NSIAD-98-4
     TITLE:  Navy Regional Maintenance: Substantial Opportunities Exist 
             To Build on Infrastructure Streamlining Progress
      DATE:  11/13/97
   SUBJECT:  Naval supplies
             Military cost control
             Military downsizing
             Maintenance (upkeep)
             Maintenance costs
             Military vessels
             Naval aircraft
IDENTIFIER:  Navy Regional Maintenance Program
             Navy Working Capital Fund
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Military Readiness, Committee
on National Security, House of Representatives

November 1997

NAVY REGIONAL MAINTENANCE -
SUBSTANTIAL OPPORTUNITIES EXIST TO
BUILD ON INFRASTRUCTURE
STREAMLINING PROGRESS

GAO/NSIAD-98-4

Navy Regional Maintenance

(709219)


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

  BFIMA - Battle Force Intermediate Maintenance Activity
  CNO - Chief of Naval Operations
  DOD - Department of Defense
  OSD - Office of the Secretary of Defense
  RM - regional maintenance
  RMC - Regional Maintenance Center
  RMIB - Regional Maintenance Implementation Board
  SIMA - shore intermediate maintenance activity

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


B-276587

November 13, 1997

The Honorable Herbert H.  Bateman
Chairman, Subcommittee on Military Readiness
Committee on National Security
House of Representatives

Dear Mr.  Chairman: 

Navy force structure reductions since the end of the Cold War have
substantially reduced ship, aircraft, and other weapon systems
maintenance requirements.  In line with those reductions, the Navy
closed several maintenance facilities during four rounds of base
closures, which concluded in 1995.  The Navy recognized the need to
improve efficiency in maintenance operations and further reduce
maintenance costs,\1 and in 1994, established the Regional
Maintenance (RM) Program.  In its 1995 program review,\2 the Navy
reduced its planned operations and maintenance budgets for fiscal
years 1995-99 by $1.28 billion in anticipation of RM Program savings. 
At your request, we reviewed the RM Program to identify (1) the
progress made in implementing the program, (2) savings that have been
achieved, (3) opportunities for additional savings, and (4) barriers
that inhibit full implementation of the program and achievement of
projected savings.  Since the program's principal efforts thus far
have been on reducing infrastructure, we focused our work on that
objective. 


--------------------
\1 We have identified the defense infrastructure as a high-risk area. 
High-risk areas are those critical government operations that are
highly vulnerable to waste, fraud, abuse, and mismanagement.  High
Risk Series:  Defense Infrastructure (GAO/HR-97-7, Feb.  1997)
provides further discussion of our assessment of the defense
infrastructure. 

\2 The Navy's fiscal year 1995 program review was conducted in 1994,
and updated the fiscal
years 1994-99 Future Years Defense Program. 


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

The Navy has reported that more than $8.5 billion of Navy resources
was applied in fiscal year 1996 to maintenance programs in support of
fleet ships and aircraft.  Each type of "platform,"--surface ships,
submarines, aircraft carriers, and aircraft--has a separate
maintenance infrastructure.  Maintenance is done at three different
levels--organizational, intermediate, and depot--depending on the
nature and complexity of the work required.  Organizational
maintenance is done by military personnel on board ships or at
aircraft squadrons.  While at sea, intermediate maintenance on large
ships such as aircraft carriers and tenders is done by military
personnel; ashore, intermediate maintenance is done by military and
civilian personnel at submarine refit facilities and aircraft and
shore intermediate maintenance activities.  Depot-level maintenance
is done mostly by civilian personnel at aviation depots and
shipyards.  In 1996, the Navy had over 21,000 military and 42,000
civilians participating in maintenance activities at the intermediate
and depot levels.  In addition, the Navy has reported that up to 40
percent of depot-level maintenance is outsourced to private
companies. 

In response to force structure reductions since the mid-1980s and
subsequent defense planning guidance to reduce excess maintenance
infrastructure, the Chief of Naval Operations (CNO), early in 1993,
tasked the commanders of the Atlantic and Pacific Fleets to develop a
strategy for streamlining and consolidating maintenance functions. 
This led to the Navy establishing the RM Program in March 1994.  The
Navy's RM Program efforts have been focused on reducing excess
maintenance infrastructure.  However, the program has other
objectives such as improving maintenance processes, integrating
supply support and maintenance functions, and providing compatible
data systems across the three maintenance levels.  The program was to
be implemented in three overlapping phases during fiscal years
1995-99. 

Since the RM Program began, the number of Navy ships and aircraft has
continued to decline.  For example, the Navy projects that by the end
of fiscal year 1999, it will have 186 fewer aircraft and 22 fewer
ships to maintain than in 1996.  During the same period, the
maintenance budget for ships and aircraft is also expected to be
reduced to about $7.5 billion (in fiscal year 1996 dollars), a
decrease of about $1 billion. 


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

While the Navy has made progress in achieving its infrastructure
streamlining objective, thus far this progress has not been as great
as anticipated and challenges remain for accomplishing future plans. 
For example, the Navy has made substantial progress establishing a
management structure and process for realigning and reducing its
maintenance infrastructure and has identified and started some
specific initiatives.  However, many initiatives identified have not
been completed and savings are not being achieved as projected.  More
specifically, our work shows that: 

  -- To implement the infrastructure streamlining objective, the Navy
     established steering committees, initiated a phased execution
     plan, identified a regional structure, and developed business
     plans.  Through fiscal year 1996, the Navy also identified 102
     initiatives, 55 of which had been started by the end of fiscal
     year 1997, and 47 of which are to be implemented between fiscal
     year 1998 and 2001.  The 55 initiatives mainly represent the
     less controversial projects that are easier to implement, though
     a few complex consolidations have occurred; for example, three
     shore intermediate-level maintenance activities were combined
     into one organization.  Implementation of the program has taken
     longer than expected, however. 

  -- Regarding savings estimates, the Navy projected that its 102
     initiatives would save about $944 million, of which $198 million
     was expected to accrue during fiscal years 1994 to 1997 and $746
     million was expected to accrue during fiscal years 1998 to 2001. 
     Some of the initiatives are not progressing as projected,
     however.  For example, one initiative to consolidate planning
     and engineering functions for ship repairs is not occurring as
     planned, delaying planned reductions-in-force actions and
     affecting up to $92 million in savings projected between fiscal
     year 1998 and 2001.  Also, the Navy cannot identify actual
     savings achieved because its accounting system does not track RM
     Program costs and related savings and the Navy did not establish
     an independent system to track these costs and related savings. 
     The Office of the Secretary of Defense (OSD), Comptroller,
     stated that the program has not progressed enough to reap
     projected savings, Navy budgets recently submitted to Congress
     did not reflect the expected savings, and the Navy recently
     requested additional funding for depot maintenance.  Since the
     Navy decreased its planned budgets for operations and
     maintenance in anticipation of savings from the RM Program and
     savings have not materialized as anticipated, the reductions
     will have to be made up in other ways or fleet readiness may be
     adversely affected in the future. 

  -- The Navy has opportunities to build on its progress by working
     to achieve the $746 million in expected savings during fiscal
     years 1998 to 2001, moving more quickly to implement initiatives
     for savings that have been identified, and pursuing other
     opportunities with high potential for significant savings not
     already in its plans.  For example, we identified three
     opportunities to achieve potential annual savings of up to $26
     million and one-time savings of $22 million through selected
     intermediate- and depot-level consolidations of common
     industrial shops in the Northwest and Hawaii regions that were
     not in current plans. 

  -- Accomplishing the infrastructure streamlining objective will be
     difficult.  The Navy identified many of its initiatives to
     achieve savings as high risk because of barriers to
     implementation.  The Navy faces parochial and institutional
     resistance to the RM Program's objectives and has other complex
     issues to resolve.  The biggest hurdle to overcome may be
     resistance to initiatives that eliminate organizations, reduce
     jobs and promotions, and/or reduce a command's or organization's
     control over resources.  Other barriers are (1) the lack of
     management visibility over all maintenance related costs; (2)
     multiple, unconnected management information systems that do not
     provide adequate data for regional maintenance planning and
     decision-making; and (3) the large number of shore positions
     desired to support the sea-to-shore rotation program compared to
     the smaller number needed to perform the intermediate
     maintenance workload.  Many commands involved in the RM Program
     have chains of command that are independent of each other up to
     the CNO; therefore, visible commitment by the CNO is critical to
     overcome resistance, accelerate decision-making, and provide the
     necessary resources and coordination needed for efficient and
     effective program implementation. 


   RM PROGRAM'S IMPLEMENTATION
   PROGRESS
------------------------------------------------------------ Letter :3

The Navy has made substantial progress in implementing the
infrastructure streamlining objective of the RM Program through such
efforts as establishing a management structure, a phased execution
plan, and a process for realigning and reducing its maintenance
infrastructure.  It also identified 102 initiatives aimed at
regionalizing, consolidating, and streamlining the maintenance
infrastructure and achieving savings.  Implementation of the program
has not been as rapid as predicted, however, and milestones may not
be met. 


      DETAILED MANAGEMENT
      STRUCTURE AND PHASED
      EXECUTION PLANS WERE
      DEVELOPED
---------------------------------------------------------- Letter :3.1

The Navy has established a management structure for planning and
implementing the RM Program.  The structure is linked at the CNO
level and includes committees, systems commands, the fleets, and
various quality boards and other groups.  For example, the management
structure within the CNO includes an Executive Steering Committee
that provides overall program guidance and direction.  This committee
chartered the Fleet Support Quality Management Board to develop the
transition strategy for moving to regional maintenance.\3 Through
this Board, regional maintenance was planned and developed using
focused working groups.  A Regional Maintenance Implementation Board
(RMIB) was established to coordinate among the Pacific and Atlantic
Fleets, the systems commands, and CNO-level units.  The Board is
co-chaired by the Fleet Maintenance Officers,\4 who have key
leadership responsibilities to implement regional maintenance.  This
Board meets on a regular basis to address regional maintenance and
other issues.  Each of the systems commands, the Atlantic Fleet, and
the Pacific Fleet report separately to the CNO. 

Through this management structure, the Navy has developed concepts,
guidance, fleet business plans, and milestones for the RM Program
infrastructure streamlining objective.  For example, the fleets
developed program guidelines for establishing regional repair
centers, adopted a business-case analysis approach for evaluating
candidate activities for consolidation, and formulated cost templates
for measuring the monetary impacts of consolidations.  In March 1994,
the CNO approved a three-phased execution plan that assigned the
following primary tasks in each phase: 

  -- Phase 1:  Minimize intermediate-level redundant capacity through
     process improvements and resource sharing, and develop prototype
     centers of excellence, called Regional Repair Centers. 
     Implement phase during fiscal years 1995-99. 

  -- Phase 2:  Integrate intermediate- and depot-level activities and
     establish Regional Maintenance Centers (RMC), consisting of a
     confederation of Regional Repair Centers.  Implement phase
     during fiscal years 1996-99. 

  -- Phase 3:  Conduct fleet maintenance using a single maintenance
     process supported by common business and production practices. 
     Implement phase during fiscal years 1997-99. 

As part of phase 2, the Mid-Atlantic and Northwest RMCs, and later
six others, were established--a total of four in each fleet.  The
Navy has included one or more of the states around where the centers
are located and where there are Navy maintenance activities into
areas it refers to as RM regions (see fig.  1). 

   Figure 1:  The Eight Navy
   Regional Maintenance Centers
   and Regions

   (See figure in printed
   edition.)

   Note:  Regions are shaded.

   (See figure in printed
   edition.)

Each RM region established an executive steering committee for
maintenance, comprised of the commanders and maintenance managers of
activities in the region and chaired by the region's RMC commander. 
These committees have chartered process action teams to identify
which activities in the region should be evaluated for consolidation. 
The two fleets have developed regional maintenance business plans,
including initiatives and estimates of savings to be achieved in each
of their respective regions, and the systems commands have added
their own initiatives with estimates of savings. 


--------------------
\3 The Fleet Support Quality Management Board is comprised of
representatives of both fleets, the Naval Sea Systems, Naval Air
Systems, Naval Supply Systems, Space and Naval Warfare Systems, Naval
Facilities Engineering Command, the Military Sealift Command, the
CNO, and other Navy organizations. 

\4 The Navy has two Fleet Maintenance Officers, one for the Atlantic
Fleet and one for the Pacific Fleet. 


      NAVY HAS EXPERIENCED DELAYS
      IN IMPLEMENTING REGIONAL
      MAINTENANCE
---------------------------------------------------------- Letter :3.2

Although the Navy began implementation as planned, phase 2 has been
redefined, and phase 3 has been delayed.  As a result, implementation
is taking longer than anticipated.  Full implementation, initially
projected for fiscal year 1999, is currently projected for fiscal
year 2000 and could take longer. 

According to Navy officials, there have been delays in implementing
the program because many of the issues involved are complex and
require extensive studies and approvals.  For example, the possible
consolidation of calibration laboratories in the Northwest region was
identified as an initiative in 1994, but it has taken 3 years and
multiple studies to determine which activity would do the calibration
work and whether it would be done using government or contract
employees.  Also, implementation among the regions has been uneven. 
While all regions have made some progress, the Mid-Atlantic region
has led the way in establishing the program and piloting regional
maintenance initiatives to achieve savings.  For example, the
Mid-Atlantic region has 18 (33 percent) of the 55 initiatives being
implemented from 1994 to 1997, including consolidating three shore
intermediate maintenance activities (SIMA) into one organization,
consolidating calibration and material testing laboratories, and
establishing other regional repair centers.  It also initiated the
fleet business plans and guidance for regional repair centers later
used by other regions.  By contrast, the Hawaii and Northwest regions
had implemented eight initiatives each.  The Northwest region
established regional repair centers for pumps, periscopes, gas
turbine engines, and eliminated a military construction project; and
both the Northwest and Hawaii regions have consolidated nuclear
regional maintenance work. 

Because of problems with the Navy's financial information system and
other coordination issues, in 1996 phase 2 of the execution plan was
divided into a three-step process.  During the first step, ship
intermediate- and depot-level maintenance were to be consolidated;
aircraft intermediate- and depot-level maintenance activities were to
be collocated; and ship and aircraft maintenance consolidations were
to take place where logical.  During the second step, ship
intermediate- and depot-level maintenance planning and engineering
functions were to be consolidated into ship-planning and engineering
centers,\5 reducing the number of planning and other positions
needed.  As of July 1997, the third step had not been approved, and
delays in phase 2 have postponed the approval of phase 3. 

In a regional maintenance briefing in May 1997, the Deputy Chief of
Naval Operations (Logistics) briefed the CNO that execution of the RM
Program would be completed in fiscal year 2000.  Since then, in July
1997, the CNO noted that although phase 2 was on track, challenges
remained, much still had to be done, and efforts must be accelerated. 
According to Navy officials, the tendency is to be optimistic in
establishing milestones for such programs and organizational
realignments are particularly difficult to accomplish.  They also
said that developing regional maintenance will not be completed in
1999 as planned, but will be a continuous process long after fiscal
year 2000 as new initiatives and refinements to existing maintenance
processes are identified. 


--------------------
\5 All scheduled ship repair engineering, planning, and material
support activities were to be consolidated and done by personnel
located mainly at the naval shipyards.  However, in November 1997,
OSD officials told us the Navy is significantly revising plans for
this initiative in ways that could negatively affect the amount of
estimated savings. 


   SAVINGS HAVE NOT BEEN ACHIEVED
   AT PROJECTED LEVELS
------------------------------------------------------------ Letter :4

Through fiscal year 1996, 102 initiatives with projected savings of
$944 million\6 had been identified for the program.  Of the 102, the
Navy estimated that it would achieve net savings of $198 million
through implementation of 55 initiatives during fiscal years 1994-97
and that these projects would continue to provide savings in fiscal
years 1998-2001 amounting to $272 million, or a total of about $470
million (see table 1).  It planned to implement 47 more between 1998
and 2001.\7



                                Table 1
                
                  Navy Estimates of Net Savings to Be
                 Achieved From 55 Regional Maintenance
                Initiatives Started During Fiscal Years
                                1994-97

                         (Dollars in millions)

                                        Estimated savings
                                      ----------------------
                                          Fiscal      Fiscal
                                           years       years
Source of savings                        1994-97   1998-2001     Total
------------------------------------  ----------  ----------  ========
Atlantic Fleet                             $28.4      $148.5    $176.9
Pacific Fleet                               60.5         7.6      68.1
Systems commands and other                 109.1       116.0     225.1
 initiatives
======================================================================
Total                                     $198.0      $272.1    $470.1
----------------------------------------------------------------------
Program savings are not being achieved at the levels the Navy
originally estimated.  According to fleet maintenance officials,
initiatives that have been implemented are mostly the less
controversial projects that are easier to implement and a few complex
consolidations.  They said they are proceeding slowly because they
believe Navy managers should be encouraged, rather than forced, to
accept regional maintenance. 

The Navy has also reduced its estimates of savings for a number of
initiatives.  For example, the savings estimate for an initiative to
reduce the overhaul for certain diesel engines was reduced from $5.4
million annually to $1.2 million in fiscal year 1996 and $900,000 in
fiscal years 1997-99.  According to officials at the maintenance
facility responsible for the repair of these engines, overhauls have
not occurred at the anticipated rate per year because a maintenance
process change reduced the requirements.  In the Northwest region, a
delay in a project to consolidate calibration functions has delayed
the realization of potential savings.  Also, an initiative to
consolidate ship repair planning and engineering functions at the
Naval Sea Systems Command is not occurring as expected, delaying
planned reductions-in-force actions and affecting up to $92 million
in RM Program savings projected to accrue between fiscal year 1998
and 2001. 

Although the Navy has incorporated its $944 million in estimated
savings from the RM Program into its projected maintenance budget,
actual RM costs and related savings are not systematically tracked to
determine whether they have actually been accrued.  The Navy's
accounting system, like all Department of Defense (DOD) accounting
systems, tracks expenses and disbursements but not savings, and the
Navy did not establish an independent system to track RM costs and
related savings.  CNO officials told us they recognized the need for
such RM Program data but that efforts to collect it can involve many
Navy activities and would be so labor intensive that there are no
current plans to do so. 

The Navy Audit Service said it is in the process of evaluating RM
savings through baseline studies of initiatives and follow-up studies
1 year after implementation.  Only one of the studies has been
completed.  It showed that savings achieved through the consolidation
of activities in an electric motor rewind shop in the Mid-Atlantic
region was about $4.4 million a year, or about 44 percent of the $9.9
million baseline cost each year prior to consolidation.\8 Baseline
costs were being evaluated for some other selected projects so that
post consolidation studies could be done.  While the Naval Audit
Service is looking at costs before and after consolidation, it is not
tracking RM savings into budget and accounting records to determine
if they have actually been accrued. 

Actual savings achieved through the RM Program have been questioned
within OSD.  An OSD Maintenance Policy, Programs, and Resources
office study of the RM Program concluded that savings had been
achieved from the restructuring of maintenance activities, but that
some of the savings might have been the result of the four base
realignment and closure rounds and other actions.  The OSD
Comptroller has gone further and concluded in 1996 that savings
projected from the RM Program for fiscal years 1994 through 1997 have
not materialized as anticipated and are not evident in actual Navy
budgets submitted to Congress each year. 


--------------------
\6 The $944 million is a combination of savings derived from
initiatives identified by the fleets, the naval system commands, and
Navy operations staff.  It is actually savings and cost avoidances
(about
$1.367 billion) less funds used to implement these initiatives (about
$423 million). 

\7 Other information indicated some fleet initiatives may have
started earlier than the Navy reported to us.  Thus, some of the
investments and savings would begin to occur earlier as well. 
Headquarters program officials who provided the data said they were
aware of some problems but that it was generally accurate and would
not be updated for some time. 

\8 Subsequent to the completion of our audit work, the Naval Audit
Service informed us that it had completed two other studies dealing
with the consolidation of nuclear propulsion and nuclear maintenance
activities in the Hawaii region.  These studies identified first year
savings attributable to RM consolidation of $4.8 million and $2.0
million, respectively. 


      POTENTIAL MAINTENANCE AND
      BUDGET IMPACTS IF RM SAVINGS
      ARE NOT ACHIEVED
---------------------------------------------------------- Letter :4.1

In a program review for fiscal year 1995, the Navy decreased its
planned fiscal year 1995-99 budgets for operations and maintenance by
$1.28 billion, anticipating that savings from regionalizing
maintenance would offset the impact of the reductions (see table 2). 
According to Navy officials in each fleet and in the CNO's
Supportability, Maintenance, and Modernization Division, RM savings
did not materialize to cover the amounts taken from the programs, and
the reductions had to be made up in other ways.  While program
budgets were reduced by $1.28 billion, the commands and fleets did
not have records available showing how the reductions were finally
absorbed.  According to the OSD Comptroller, evidence indicates that
other factors such as base closures, force structure reductions,
directed civilian drawdowns and the general reduction in depot
workloads resulting from force structure cuts during fiscal years
1992-97, have accounted for the actual reductions in costs. 



                                Table 2
                
                 Navy Program Reductions in Operations
                    and Maintenance Budgets Taken in
                  Anticipation of Regional Maintenance
                                Savings

                         (Dollars in millions)

                                         Fiscal year
                              ---------------------------------
Command                        1995   1996   1997   1998   1999  Total
----------------------------  -----  -----  -----  -----  -----  =====
Naval Sea Systems               $92   $117   $121   $139   $163   $632
Naval Air Systems                56     71     94    106     87    414
Space and Warfare Systems        22     20     21     21     23    107
Atlantic Fleet                    8     10     10      9     10     47
Pacific Fleet                    22     12     14     15     17     80
======================================================================
Total                          $200   $230   $260   $290   $300  $1,28
                                                                     0
----------------------------------------------------------------------
The OSD Comptroller stated in a November 1996 budget memorandum that
the RM Program has not progressed enough to reap projected savings
and that further review of regional maintenance might be in order to
ensure savings occur and readiness is not degraded as a result of the
reductions.  In August 1997, OSD Comptroller officials said that
savings anticipated from the RM Program have not materialized; in
fiscal years 1995 and 1996 regional maintenance did not progress much
past isolated, small and informal tests; and in fiscal years 1997 and
1998, savings were offset by the need to finance construction of new
facilities in Navy SIMAs.  The officials noted that the Navy has
recently requested additional funding for depot maintenance and that
more requests for additional funding were anticipated.  They further
noted that depot maintenance budgets in a number of areas have had to
be increased over the Navy's proposed budget levels.  For example, in
fiscal year 1995, rates were increased significantly over the Navy's
proposed budget levels to ensure full costs were recouped; and in
fiscal year 1998, Navy air depot budgets were increased each year in
the Future Years Defense Program, with over $200 million added in
both fiscal years 1998 and 1999. 

According to Atlantic Fleet officials, they have thus far been able
to absorb the reductions in planned budgets for ships with no impact
on readiness.  They said this is because they are focusing on fixing
specific problems, which reduces the total amount of maintenance to
be done, rather than performing entire scheduled depot-level
maintenance overhauls.  They also said that an initiative started in
fiscal year 1995, to better balance expected naval shipyard workloads
with the available workforce, has resulted in improved operating
results for naval shipyards.  CNO officials acknowledged that fixing
specific maintenance problems rather than overhauling entire
components would likely result in maintenance cost reductions. 
However, they were concerned that by using this approach the overall
material condition of ships might be adversely affected over the long
term, but noted that the Navy currently does not have adequate
measures of material condition and its relationship to readiness. 


   ADDITIONAL OPPORTUNITIES FOR
   FUTURE SUBSTANTIAL SAVINGS
------------------------------------------------------------ Letter :5

The Navy has many opportunities to build on its maintenance
infrastructure streamlining progress.  The Navy anticipates that the
largest savings will accrue during fiscal years 1998-2001 (see fig. 
2); that is, of the estimated $944 million its 102 initiatives are
projected to save, $746 million would accrue during that period.  The
Atlantic and Pacific Fleets have identified additional opportunities
for savings, and in 1997 added 34 more initiatives to their regional
maintenance business plans.  They have not estimated the amounts of
savings from many of these initiatives, however.  During our review,
we identified additional opportunities for infrastructure reductions
in two regions with potential savings of up to $48 million.  These
included potential annual savings of $26 million based on maintenance
infrastructure consolidations in the Hawaii and Northwest regions,
and $22 million in one-time savings by transferring work at the SIMA,
Everett, Washington, to other existing shops and eliminating a
military construction project and two barge overhauls. 

   Figure 2:  Navy Projections of
   $746 Million in Regional
   Maintenance Program Savings to
   Be Achieved During Fiscal Years
   1998-2001

   (See figure in printed
   edition.)

The Navy has identified other potential regional maintenance
opportunities that need to be studied.  In the regions we reviewed,
for example, the Northwest region in June 1994 identified 41 areas of
redundant capabilities, but still has not studied many of them to
determine whether initiatives could be developed to reduce
unnecessary infrastructure and achieve savings.  In a February 1997
Regional Maintenance Implementation Board meeting, in an effort to
spur progress, the fleets were tasked to identify regional
maintenance consolidation initiatives that could be considered.  In
May 1997, the RM Program manager for the Hawaii region told us his
region had followed the lead of the earlier Northwest region project
and compiled a comprehensive inventory of regional maintenance
capabilities to be used to help identify future initiatives. 

In addition, the Mid-Atlantic region, in its 1997 update to the fleet
business plans, identified 29 new savings initiatives.  The update
did not determine when about half of them would be implemented or
estimate the savings that could be achieved.  These initiatives
include establishing two regional repair centers--one for special
tool design and manufacture and another for sheet metal component
fabrication--and a regional training support center.  Other regions
identified a total of five additional initiatives. 


      OPPORTUNITIES FOR THE HAWAII
      AND NORTHWEST REGIONS TO
      REDUCE AND CONSOLIDATE
      ADDITIONAL MAINTENANCE
      ACTIVITIES
---------------------------------------------------------- Letter :5.1

In the Hawaii and Northwest regions, we identified three examples of
opportunities to consolidate intermediate- and depot-level
maintenance activities that were not in current business plans.  We
observed common industrial facilities, called backshops, at six
activities.\9 The backshops consisted of electrical and electronic,
machining and metal-forming shops and material testing laboratories. 
At most of these backshops, we were provided estimates showing unused
infrastructure--facilities and equipment.  We estimated that
consolidating and reducing excess capacity in these shops could save
up to $48 million--from about $2 million to $26 million annually and
about $22 million in one-time savings.  (See apps.  I and II for
details of our analysis.) These are not budget quality estimates,
however, because complete and compatible data on the facilities were
not available, alternative consolidation arrangements are possible,
and there was no consensus on what workforce savings could be
achieved. 

Both regions had considerably more maintenance capacity than
workload, particularly at the shipyards.  For example, we observed
first shift operations in a total of 25 backshops at 6 activities in
the 2 regions.  Although usually the busiest shift, supervisors
estimated that on average, this shift was operating at about
30-percent utilization, with a range of between 4 and 70 percent.  Of
the 25 shops, 16 had a second shift and only 7 had a third shift. 
Estimates of utilization during second shifts were markedly lower, an
average of 12 percent and a range of from about 1 to 39 percent. 
Some shop supervisors noted their shops had supported several times
the number of workers in the 1980s than were currently employed. 
Navy data indicated that excess facilities and equipment capacity
were due to reductions in labor hours and numbers of employees at
these shipyards.  For example, Navy data on direct labor hours at the
Pearl Harbor Naval Shipyard showed a reduction from about 6.1 million
to 3.2 million (48 percent), and the Puget Sound Naval Shipyard
showed a reduction from 12.0 million to 11.3 million (6 percent)
between 1989 and 1996.  (See fig.  3.) At the same time, employment
was reduced from 6,044 to 2,879 ( 52 percent) at the Pearl Harbor
Naval Shipyard, and from 12,240 to 9,424 (23 percent) at the Puget
Sound Naval Shipyard. 

   Figure 3:  Direct Labor Hour
   Trends at the Pearl Harbor and
   Puget Sound Naval Shipyards
   (fiscal years 1989-96)

   (See figure in printed
   edition.)

Our specific findings, suggestions for consolidations, and estimated
savings for the Hawaii and Northwest regions are summarized in
appendix I, with detailed data on labor, facilities, and costs
provided in appendix II. 


--------------------
\9 Work takes place on the ships, and in supporting shops and
laboratories called "backshops" where removed parts and components
are sent for test and repair, overhaul or replacement.  For purposes
of these examples, we limited our analysis to the backshop work
because RM Program and fleet maintenance officials identified
backshop consolidations as less controversial. 


   BARRIERS TO ACHIEVING
   INFRASTRUCTURE REDUCTIONS AND
   SAVINGS
------------------------------------------------------------ Letter :6

The Navy has barriers to overcome before it can fully achieve
expected infrastructure reduction savings and other RM Program
objectives.  According to the Navy, in May 1996, 54 percent of the
$944 million in projected savings would come from projects considered
high risk.  Initiatives were considered high risk to achieving
expected savings when a large number of organizations and funding
accounts were involved and/or they required significant manpower
reductions.  For example, 1 high-risk initiative, to save $4 million
a year by consolidating the calibration functions in the Mid-Atlantic
region, involved 22 activities and 3 funding sources. 

The Navy recognizes that parochial and institutional resistance to
the RM Program's objectives and other issues will be difficult to
resolve.  The biggest barrier to overcome may be resistance to
initiatives that eliminate organizations, reduce jobs and promotions,
or reduce control over resources.  Other barriers to integrating
intermediate- with depot-level capabilities are (1) the lack of
management visibility over all maintenance-related costs; (2)
multiple, unconnected management information systems that do not
provide adequate data for regional maintenance planning and
decision-making; and (3) the large number of shore duty
intermediate-level maintenance positions needed to support the Navy's
sea-to-shore rotation program compared to a lesser number needed to
perform the work.\10 The Navy has RM Program working groups and
committees in place to address some of these issues.  According to
Navy officials, these issues are intertwined and some planned
resolutions would be subject to legal and congressional review. 


--------------------
\10 In another assignment, we are reviewing opportunities for Navy
personnel returning from sea duty to work in comparable positions
during their stateside tours. 


      RESISTANCE TO DOWNSIZING AND
      LOSS OF CONTROL ARE MAJOR
      BARRIERS TO IMPLEMENTING THE
      RM PROGRAM
---------------------------------------------------------- Letter :6.1

The RM Program requires managers to forgo the traditional
platform-oriented structure and substantially reduce or close some
maintenance activities as work is eliminated or reassigned.  Many
commands involved in the RM Program have chains of command that are
independent of each other, and visible commitment by the CNO is
critical to program implementation.  For example, reductions will
result in fewer commands and promotion opportunities and a need to
share resources, prioritize work, and reassign responsibilities. 
According to fleet officials, this organizational resistance may be
the greatest inhibitor to RM progress. 

According to fleet maintenance officials, overcoming resistance to
organizational changes is difficult.  The fleets' type
commanders--shore-based commanders responsible for supporting the
fleet, including providing maintenance for aircraft, surface ships,
and submarines--did not fully support the proposed changes.  These
fleet officials told us that since the type commanders are
responsible for the intermediate maintenance facilities for their
respective platforms, they may view the regionalization of
maintenance as a loss of control or responsibility, including a
potential loss of their ability to assure readiness of their assigned
units.  These officials also noted that the Fleet Maintenance
Officers' influence over the type commanders is limited.  More
progress has been made in the Mid-Atlantic region, where (1) the
fleet command, type commanders, and regional maintenance officials
are collocated; (2) the program has had strong support from the fleet
commander; and (3) the Fleet Maintenance Officer initially started
regional maintenance. 

Also, according to CNO and fleet officials, RM initiatives that cut
across major commands may prove difficult to achieve, particularly if
they involve loss of control or responsibility.  Initiatives to
integrate and consolidate depot-level maintenance activities with
intermediate-level maintenance activities require the cooperation and
support of most of the Navy's major commands and the CNO.  Naval Air
Systems commanders, Naval Sea Systems commanders, and fleet and their
subordinate type commanders all have a stake in how RM initiatives
are implemented and how the initiatives will affect their particular
activities and staffing.  Various representatives of the activities,
regions, fleets, and headquarters offices expressed concern that
CNO-level managers had not decisively endorsed regional maintenance
and this had caused problems in participation, particularly outside
the surface ship community.  Fleet and headquarters officials also
noted that the Naval Air Systems command activities have had limited
involvement in the program primarily because they consider their
maintenance systems different and airworthiness a critical criterion
that surface ship maintenance activities are not used to.  Similarly,
submarine platform officials voiced their concerns to us about their
strict maintenance requirements and safety standards. 

Fleet and headquarters officials further noted that many commands
involved in the RM Program have chains of command that are
independent of each other up to the CNO.  Therefore, visible
commitment by the CNO is critical to implementing the RM Program, as
this involvement accelerates the provision of resources and the
coordination needed for efficient and effective program
implementation.  For example, there was a significant increase in
activity after the CNO directed the Hawaii region to implement a
pilot project to study the consolidation of the Pearl Harbor shipyard
with the naval intermediate maintenance facility and to complete the
integration by September 30, 1998.  In another streamlining effort,
regionalizing base operations, the CNO has provided crucial support. 
For example, in September 1995, the CNO approved a major Navy-wide
infrastructure reduction initiative to (1) reduce the number of
activities that own and manage shore installations, (2) regionalize
installation management functions where it makes sense, and (3) find
excesses, duplications and redundancies among the numerous tenants on
bases, using San Diego and Jacksonville as pilot locations.  The San
Diego project is to be completed as soon as possible, but no later
than fiscal year 1999.  According to these officials and the
information provided, this effort has affected many activities,
commands and the way business is conducted; therefore, the support of
the CNO was crucial for accomplishing the components of the
initiative. 


      EXISTING NAVY FINANCIAL
      SYSTEMS DO NOT PROVIDE
      ADEQUATE DATA ON COSTS OF
      DEPOT- AND
      INTERMEDIATE-LEVEL
      MAINTENANCE
---------------------------------------------------------- Letter :6.2

The Navy has identified the need to provide visibility over all
maintenance-related costs as an issue in implementing the RM Program. 
The Navy has also identified a need for a flexible and responsive
managerial accounting system because the Navy's current financial
system does not provide the data needed for informed decision-making. 
For example, the Navy has in some cases increased capacity in its
shore intermediate activities' backshops without regard to the fact
that a nearby shipyard had excess capacity in similar backshops. 
Fleet maintenance officials said efforts to develop full cost
visibility and the necessary financial system are underway. 

According to OSD Comptroller officials, a central issue is that Navy
depot-level maintenance activities are funded under the Navy Working
Capital Fund (formerly the Defense Business Operations Fund),\11 and
intermediate-level maintenance facilities are funded directly from
the appropriations accounts.  One of the basic tenets of the Working
Capital Fund financial structure is to focus on total cost visibility
and full cost recovery for depot-level maintenance activities. 
Operating under this tenet, managers of the fund's activities are to
be held accountable for the costs of all the resources that they
manage, and military customers are to pay the full costs of the
maintenance work performed. 

In contrast to the full costing visibility of the Navy's depot-level
maintenance, intermediate-level maintenance activities are not
operated using the Working Capital Fund concept.  Military customers
at the intermediate activities are usually only charged the
incremental costs of the work performed, such as the costs of
materials.  Most of their other costs are subsumed in the mission
funded operating budget and have little to no visibility.  The
mission funded operating budget includes the costs of civilian
personnel and all overhead type costs to include real property
maintenance and utilities.  In addition, these intermediate
maintenance activities are manned with military personnel, and their
personnel costs are directly borne by the Military Personnel
Appropriation and are not costed as part of the repair work they
perform.  By excluding these costs, the full costs of products and
services are concealed, and customers see the work done at the
intermediate activities as significantly less expensive than the work
done at the shipyards.  As a result, there is an incentive for
customers to use intermediate facilities to the maximum extent
possible.  For example, according to officials in the Northwest
region, sailors from the aircraft intermediate-level maintenance
activity at Whidbey Island Naval Air Station fabricated components at
Whidbey Island and traveled to the shipyard, a distance of 35 miles,
to install the components on a ship when the fabrication work could
have been done at the underutilized shipyard sheet metal shop. 

According to OSD Comptroller officials, until the Navy can accumulate
complete, comparable, and reliable data on the costs of its
intermediate and depot-level maintenance facilities, decisions on how
best to use and integrate these facilities will continue to be
impaired.  Fleet officials told us the Navy has recognized this
problem and has pilot projects underway to obtain total cost
visibility data at the job-order level in regional repair centers. 
They said that experience with regional repair centers that have been
established under the RM Program has shown that such efforts are
complicated, particularly by the problems associated with obtaining
the required data from multiple systems.  As a result, accumulating
reliable cost data will be difficult, and require dual systems for
some time, thereby reducing potential savings. 


--------------------
\11 The 1997 Defense Authorization Act required DOD to conduct a
comprehensive study of the Defense Business Operations Fund.  Pending
the results of this study, the Defense Comptroller dissolved the Fund
in December 1996 and created four working capital funds:  Army, Navy,
Air Force, and Defense-wide.  The four funds continue to operate
under the revolving fund concept and charge customers the full costs
of providing goods and services to them. 


      MULTIPLE UNCONNECTED
      INFORMATION SYSTEMS DO NOT
      PROVIDE ADEQUATE DATA FOR
      REGIONAL MAINTENANCE
      PLANNING AND DECISION-MAKING
---------------------------------------------------------- Letter :6.3

The Navy does not have well-defined and consistent data on its
maintenance shops' capacity, capability, workforce, and current and
projected workloads.  Without such data, the Navy cannot
systematically identify potential regional consolidations and related
savings estimates.  The Navy has recognized that it lacks compatible
and interconnected maintenance information systems that could
identify similar maintenance capabilities across activities. 
Although the Navy has made some attempts to address this issue, its
systems do not yet collect the critical information needed to
identify excess capacity.\12

In the Northwest and Hawaii regions, incomplete and unreliable data
has hindered the Navy's ability to identify excess maintenance
capacity.  For example, data is not available or compatible within
and among activities in such areas as shops' capacity, productivity,
labor efficiency, workloads, and equipment utilization rates. 
According to the fleet business plans, having separate maintenance
infrastructures for ships, submarines, aircraft carriers, and
aircraft has fostered the development of unique maintenance
management information systems for the different platforms and levels
of maintenance.  A Northwest region process action team has studied
the issue and found a wide disparity in the information available
among its regional activities.  It developed a strategic
implementation plan to establish, first, an interconnection among
information systems; second, an ability for these systems to exchange
data; and third, the ability to manage, control, and use the data. 
Although phases 1 and 2 were to have been implemented by fiscal years
1995 and 1996, respectively, as of August 1997, the team was still in
phase 1. 

According to CNO and fleet officials involved in the establishment of
an automated information system, it is critical to have a system that
allows for the exchange of technical and management data among
various maintenance activities.  In one instance where several
databases were evaluated, none provided sufficient common data to
determine capabilities across activities.  Although the Navy
contracted for the development of a concept model that would
recognize capabilities among activities in two regions, it concluded
that the model developed required intensive data collection and was
not cost-effective to implement.  Navy fleet officials said that some
progress has been made in providing access and linkages of data among
platforms and RM regions, but efforts have been delayed because
activities have not made it a priority or do not have the computer
equipment needed. 


--------------------
\12 Our report, Defense IRM:  Poor Implementation of Management
Controls Has Put Migration Strategy at Risk (GAO/AIMD-98-5, Oct.  20,
1997), addresses the status and progress of DOD's efforts to deploy
standard information systems to support common business practices. 


      SEA-TO-SHORE ROTATION AND
      OTHER NEEDS ARE BARRIERS TO
      WORKLOAD-BASED REDUCTIONS IN
      INTERMEDIATE-LEVEL
      MAINTENANCE POSITIONS
---------------------------------------------------------- Letter :6.4

The Navy's need to support requirements other than workload at shore
intermediate-level maintenance facilities can hinder RM regions'
efforts to reduce military positions.  For example, these facilities
need positions to support maintenance workload, the Battle Force
Intermediate Maintenance Activity (BFIMA) program\13 and sea-to-shore
rotation requirements.  These facilities' positions are also used for
personnel identified as excess to the requirements or on limited
duty.  According to the Navy, however, the number of shore
intermediate-level positions should not be less than BFIMA program
requirements and should not exceed sea-to-shore rotation
requirements. 

As of March 1996, the Navy had 12,668 shore intermediate-level
positions.  The Navy needed only 11,704 of these positions to support
the maintenance workload.  Thus, it had an excess of 964 positions. 
Also, the workforce is unevenly distributed across the regions.  For
example, three regions had 1,409 positions that exceeded their
maintenance workload requirements, while four regions had 445
positions less than their projected maintenance workload
requirements.  The Navy identified a need for 4,649 positions to
support the BFIMA program; thus, the 12,668 existing positions far
exceed BFIMA requirements. 

On the other hand, the number of intermediate-level maintenance
positions desired to support the sea-to-shore rotation program\14 far
exceeds the number needed to support the maintenance workload.  In
March 1996, the Navy reported to the CNO that 19,819 shore
intermediate-level positions were desired to support sea-to-shore
rotation.  Thus, it had a shortfall of 7,151 positions.  This
shortfall acts as a disincentive for the Navy to reduce the number of
shore intermediate-level positions. 

The Navy also uses positions at intermediate-level maintenance
facilities for personnel awaiting reassignment or on limited duty. 
This practice further hinders efforts to reduce excess maintenance
capacity.  For example, the Navy indicated that of the Southwest
region's 753 excess positions, 335 were positions for sailors
displaced by the decommissioning of a Navy tender.  Sailors affected
by this decommissioning are typically waiting for funding for
permanent changes of station or reassignment.  Also, in June 1997,
the intermediate-level maintenance facility at Everett, Washington,
and its detachment at Bremerton, Washington, reported a workforce of
521, of which 84 (over 16 percent) were on limited duty.  The
facility had recommended a reduction of its detachment workforce of
91 positions--from 197 to 106.  An efficiency review to determine the
appropriate number of staff has been done but was not finalized
during our review. 


--------------------
\13 In order to promote combat readiness and sustainability, each
deployed battle force, battle group, and amphibious readiness group
operating independently is to establish its own intermediate
maintenance activity capable of providing this level of maintenance. 

\14 The CNO's goal for sea-to-shore rotation is a maximum of 3 years
of sea duty, followed by a minimum of 3 years of shore duty for all
career (E5-E9) enlisted personnel. 


   CONCLUSIONS
------------------------------------------------------------ Letter :7

Although the Navy has made substantial progress in establishing a
structured RM Program to achieve its infrastructure streamlining
objective, it has reported only limited progress in accruing savings
from the program.  Thus far, the reported savings have not
materialized as anticipated because projects have been changed and
delayed.  Further, the accuracy of claimed savings is questionable
because they are not tracked and verified.  Consequently, the Navy's
actual savings may be far less than the $944 million it originally
projected.  They also may be achieved much later than expected. 
These conditions could negatively affect maintenance programs, the
overall material readiness of ships and aircraft, or future fleet
readiness, since reductions have already been made to spending plans
in anticipation of savings. 

Nonetheless, the Navy can still achieve significant savings by
studying and, where appropriate, implementing other initiatives that
can yield savings without impacting readiness.  To implement such
initiatives, it must also resolve difficult organizational,
financial, management information system, and sea-to-shore rotation
issues that have slowed the RM Program's progress.  Further,
overcoming resistance to change, perhaps the greatest inhibitor to RM
Program implementation, will require continued high-level commitment,
cooperation, and coordination from the CNO, the fleet, and type and
systems commanders, to ensure that regional initiatives reach
fruition and achieve the savings projected. 

The Navy's RM Program is extremely important to improving the
effectiveness and efficiency of its maintenance activities and we
encourage DOD to move forward as quickly as possible.  If successful,
the program can result in a more streamlined, regionalized
maintenance program.  As we stated in our high-risk report on the
defense infrastructure, breaking down cultural resistance to change,
overcoming parochialism, and setting forth a clear framework for a
reduced infrastructure are key to effectively achieving savings. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :8

We recommend that the Secretary of Defense direct the Secretary of
the Navy to annually report on the RM Program initiatives identified,
savings achieved that have been verified in Navy budget and
accounting records, and the progress made to overcome the barriers to
achieving infrastructure reductions and savings.  We also recommend
that program implementation plans be established and tied to
milestones, with regular reporting to the CNO. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

DOD's written comments on the draft of this report are presented in
appendix IV.  DOD stated that the Navy has many actions underway to
address the issues contained in this report.  Specifically, DOD noted
that the RM Program was started to help the Navy perform maintenance
more efficiently, not to offset specific budget reductions.  We agree
that the program was designed to generate greater efficiencies;
however, as noted in our report, it was also expected to generate
significant cost savings.  We revised our report to clarify that our
work focused on the infrastructure streamlining objective, which has
been the program's principal focus thus far and to which savings
projections are linked. 

DOD also stated that the Navy varied from the original plans for
achieving efficiencies, because it wanted to ensure that its
operational commitments would continue to be met while efforts to
reduce its infrastructure were being implemented.  We agree that
achieving savings through regional maintenance should not be done at
the expense of meeting operational commitments.  However, our work
indicates the greatest impediments to progress are nonoperational
issues, such as resistance to initiatives that eliminate
organizations, reduce jobs and promotions, and reduce control over
resources. 

DOD concurred in principle with our recommendation that the Secretary
of Defense direct the Secretary of the Navy to annually report on the
RM Program initiatives identified, savings achieved that have been
verified in Navy budget and accounting records, and the progress made
to overcome the barriers to achieving infrastructure reductions and
savings.  DOD stated that the Navy, through the staffs of the CNO,
Naval Sea Systems Command, and the Atlantic and Pacific Fleet
Maintenance Officers are already in regular communication with the
OSD staff on all matters relating to the Navy's RM Program.  We agree
that there is communication between the OSD staff and the Navy on
various program matters.  However, we believe that the communication
needs to be more formal and comprehensive and cover such items as
savings achieved and verified and progress made to overcome barriers
to program implementation. 

DOD also agreed with our recommendation that program implementation
plans be established and tied to milestones, with regular reporting
to the CNO.  DOD commented that the Navy has a management structure
in place that provides unfettered information to the CNO on relative
merits of potential initiatives as well as the success or failure of
ongoing initiatives.  While we agree that the CNO does get program
information, the program lacks a strategic plan that identifies the
Navy's ultimate goal for the program and provides a baseline and a
roadmap, with milestones, for achieving the goal.  Such a plan is
needed to show the Navy has made a high-level commitment to the
program and to increase the likelihood of successful program
implementation. 

DOD had several suggested technical and editorial changes; we
considered them and made changes as appropriate. 


---------------------------------------------------------- Letter :9.1

We are sending copies of this report to the Ranking Minority Member,
Subcommittee on Military Readiness, House Committee on National
Security; the Chairmen and Ranking Minority Members of the
Subcommittee on Defense, Senate Committee on Appropriations; the
Senate Committee on Armed Services; and the Subcommitee on National
Security, House Committee on Appropriations.  We are also sending
copies of the report to the Secretaries of Defense and the Navy; the
CNO; and to the Director, Office of Management and Budget.  We will
make copies available to others upon request. 

If you or your staff have any questions concerning the report, please
contact me on (202) 512-8412 or my Assistant Director, George A. 
Jahnigen, on (202) 512-8434.  Major contributors to this report are
listed in appendix V. 

Sincerely yours,

David R.  Warren, Director
Defense Management Issues


ESTIMATED SAVINGS FROM POTENTIAL
CONSOLIDATIONS NOT IN CURRENT
BUSINESS PLANS
=========================================================== Appendix I

We identified examples of opportunities for consolidation of
activities with potential annual savings of up to $26 million based
on infrastructure reductions in the Pacific Fleet's Hawaii and
Northwest regions.  Depending on the extent to which operations are
consolidated in Hawaii, we estimate the range of annual savings to be
from about $1 million to about $14 million.  In the Northwest region,
again depending on the extent of the consolidation, we estimate the
range of annual savings to be from about $1 million to about $12
million.  In addition, work at the Shore Intermediate Maintenance
Activity (SIMA) at Everett, Washington, might be transferable to
other existing shops, eliminating the need for a military
construction project estimated to cost about $17 million and two
barge overhauls planned at an estimated cost of about $5 million. 


   OPPORTUNITIES FOR SAVINGS IN
   THE HAWAII REGION
--------------------------------------------------------- Appendix I:1

In the Hawaii region, the Pearl Harbor Naval Shipyard and the Naval
Intermediate Maintenance Facility are adjacent to each other, and the
Public Works Center is about 1 mile away.  At all three locations,
the backshops have excess facilities and equipment.  At the shipyard,
for example, one electrical shop was not in use during the first
shift at the time we observed operations.  Also, a separate machine
shop for tool-making supported the machine shop that did the repair
work.  Maintenance managers said this separate tool-making shop was
unnecessary.  (See fig.  I.1 for pictures of machine shop
capabilities in this region.)

   Figure I.1:  Machine Shops in
   Two Hawaii Region Activities

   (See figure in printed
   edition.)

   Intermediate Maintenance
   Facility

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)

   Pearl Harbor Naval Shipyard

   (See figure in printed
   edition.)

For purposes of this review, we estimated a range of potential
savings.  If selected backshop industrial work was combined and done
by the shipyard, (1) facility savings alone might be about $1 million
annually and (2) facility and personnel savings could be about $14
million annually if the work could be done just at the shipyard by a
workforce the size of the current shipyard workforce. 

When we first reviewed operations in the Hawaii region in December
1996, we observed that a consolidation of intermediate-level
maintenance activities with the shipyard appeared practicable; the
Pacific Fleet Maintenance Officer agreed.  On our return, in May
1997, fleet maintenance officials said that the Navy had begun to
study issues surrounding the consolidation of the Intermediate
Maintenance Facility and the Pearl Harbor Naval Shipyard, with a
target date for complete integration by September 30, 1998. 


   OPPORTUNITIES FOR SAVINGS IN
   THE NORTHWEST REGION
--------------------------------------------------------- Appendix I:2

In the Northwest region, the Trident Refit Facility and the Naval
Undersea Warfare Center, Keyport, are located within 4 miles of each
other and about 14 miles from the Puget Sound Naval Shipyard.  As in
the Hawaii region, there were indications of excess facilities and
equipment.  The shipyard has a greatly reduced workload in 1996
compared to 1992, and the Keyport facility was subject to downsizing
based on base realignment and closure action.  Also, officials at
these facilities told us that the shipyard had the facilities and
equipment to do all of the region's backshop industrial work.  As
other indicators, the shipyard had four machine shops scattered
throughout the facility, and the sheet-metal shop was noticeably
underused, employing about 65 workers on three shifts versus about
100 when it operated at full capacity, according to the shop
supervisor.  Similar to the Hawaii region, we estimated a range of
savings.  For example, if the industrial backshops at the Trident
Refit Facility and the Warfare Center were declared excess and if all
the workers needed to do that work were moved to the shipyard and
used just the shipyard's facilities and equipment, then there might
be annual savings of about $1 million.  If this industrial backshop
work could be done just at the shipyard by a workforce the size of
the current shipyard workforce, then facility and personnel savings
could be about $12 million annually. 

Chief of Naval Operations (CNO), Regional Maintenance (RM) Program,
fleet, and Northwest region officials agreed that there are
significant amounts of excess industrial backshop facilities and
equipment and that consolidation is possible and necessary.  They
said that consolidating industrial backshop work of all types into
one industrial complex is key and that the goal should be to have one
regional backshop for each type of capability. 

Figure I.2 shows electric motor industrial backshops at the Puget
Sound Naval Shipyard and Trident Refit Facility in the Northwest
region that have similar facilities and equipment for rewinding
electric motors.  A SIMA, Everett, Washington, detachment located at
the shipyard also had its own facilities to rewind smaller electric
motors.  The Naval Undersea Warfare Center does not repair electric
motors. 

   Figure I.2:  Electric Motor
   Rewind Shops in Three Northwest
   Region Activities

   (See figure in printed
   edition.)


In addition to the consolidation suggested above, the work of the
SIMA at Everett, Washington, might be transferable to existing shops
at Whidbey Island Naval Air Station, the Puget Sound Naval Shipyard,
and the Trident Refit Facility.  This transfer might eliminate the
need for a military construction project at the SIMA.  This military
construction project is estimated to cost about $17 million,
according to information provided by Everett SIMA officials. 
Northwest regional maintenance officials told us this military
construction project is currently in the budget for fiscal year 2000. 
Also, other facilities at the SIMA could be converted to support
waterfront maintenance activity requirements and eliminate the need
for two barges and planned docking and repairs that Everett SIMA
officials estimated could cost about $5 million. 


LABOR AND FACILITIES COST DATA ON
POTENTIAL HAWAII AND NORTHWEST
REGION CONSOLIDATIONS
========================================================== Appendix II

Tables II.1 and II.2 show the potential range of annual savings for
the Hawaii region from consolidating at the Pearl Harbor Naval
Shipyard selected industrial backshop work of the shipyard, the
Intermediate Maintenance Facility, and the Public Works Center. 
Savings of about $1 million annually (table II.1) would be realized
from lower facility operations (maintenance, utilities, and
janitorial) costs if the entire workforce from all three activities
is retained, but located at the shipyard.  However, additional
savings of about $13 million annually
(table II.2) could be realized if the work were to be consolidated
into the shipyard and could be absorbed by a smaller workforce the
size of the one at the shipyard. 

Tables II.3 and II.4 show a similar range of annual savings for the
Northwest region from consolidating at the Puget Sound Naval Shipyard
selected industrial backshop work from the shipyard, the Trident
Refit Facility, and the Naval Undersea Warfare Center, Keyport.  The
savings would be about $1 million annually (table II.3) from lower
facility operations costs if the entire labor force is retained after
consolidation.  It shows additional savings of about $11 million
annually (table II.4) if the work is absorbed by a smaller workforce
the size of the one at the shipyard.  Total annual savings from
consolidations in both regions would be about $2 million if just
facilities were consolidated and current staffing levels relocated to
the shipyards, or about $26 million if the facilities were
consolidated and all the work was done at the shipyards using a
reduced labor force the size of the two shipyards. 

Data in the tables on labor-years and square footage of facilities
were obtained from the six activities identified.  Estimated total
square footage costs and estimated costs of retaining only shipyard
square footage were developed by multiplying the number of square
feet identified by a cost factor used for RM studies.  (See tables
II.1 and II.3, footnote a.) Estimated savings is the difference
between total square footage costs and the costs of retaining just
the shipyard square footage.  The lower range of projected total
annual savings is derived by adding estimated facilities savings for
both the Hawaii and Northwest regions, about $1 million each, or a
total of about $2 million. 

Estimated total workforce costs and estimated costs of retaining just
the shipyard level workforce were developed by multiplying the number
of labor years identified by a cost factor also used the Navy uses
for its RM studies.  (See tables II.2 and II.4, footnote a.)
Estimated labor savings is the difference between estimated total
costs and estimated costs retaining just the shipyard force. 

The upper range of projected total annual savings is derived by
adding the facilities and labor labor savings for both regions, about
$1 million and $13 million, respectively, for the Hawaii region and
about $1 million and $11 million, respectively, for the Northwest
region, for a total of about $26 million. 



                                    Table II.1
                     
                     Potential Annual Facilities Savings From
                      Consolidating Activities in the Hawaii
                                      Region

                              (Dollars in millions)

Se
le
ct
ed             Intermedi                                    Estimated   Estimated
ba      Pearl        ate                                      costs\a     savings
ck     Harbor  Maintenan      Public            Estimated   retaining   retaining
sh      Naval         ce       Works                total    just the    just the
op   Shipyard   Facility      Center     Total     square    shipyard    shipyard
wo    (square    (square     (square   (square    footage      square      square
rk   footage)   footage)    footage)  footage)    costs\a     footage     footage
--  ---------  ---------  ----------  --------  ---------  ----------  ----------
El    168,574      4,627           0   173,201     $2.252      $2.191      $0.061
 e
 c
 t
 r
 i
 c
 m
 o
 t
 o
 r
 o
 v
 e
 r
 h
 a
 u
 l
 /
 r
 e
 p
 a
 i
 r
El    132,968     44,382           0   177,350      2.306       1.729       0.577
 e
 c
 t
 r
 o
 n
 i
 c
 e
 q
 u
 i
 p
 m
 e
 n
 t
 r
 e
 p
 a
 i
 r
Ma    134,700     13,392       3,953   152,045      1.977       1.751       0.226
 c
 h
 i
 n
 i
 n
 g
Ma     18,538        316           0    18,854      0.245       0.241       0.004
 t
 e
 r
 i
 a
 l
 t
 e
 s
 t
 i
 n
 g
Me    189,569     13,040       4,000   206,609      2.686       2.464       0.222
 t
 a
 l
 f
 o
 r
 m
 i
 n
 g
=================================================================================
To    644,349     75,757       7,953   728,059     $9.466      $8.376      $1.090
 t
 a
 l
---------------------------------------------------------------------------------
\a Based on Navy RM Program estimates of $13 per square foot. 



                                    Table II.2
                     
                       Potential Annual Labor Savings From
                      Consolidating Activities in the Hawaii
                                      Region

                              (Dollars in millions)

                                                              Estimat
                                                                ed
                                                              costs\a
                    Intermedi                                 retaini  Estimated
             Pearl        ate                        Estimat  ng just   savings
            Harbor  Maintenan     Public               ed       the    retaining
Selecte      Naval         ce      Works      Total   total   shipyar  just the
d         Shipyard   Facility     Center      costs   labor   d level  shipyard
backsho     (labor     (labor     (labor     (labor   year    workfor    level
p work      years)     years)     years)     years)  costs\a    ce     workforce
-------  ---------  ---------  ---------  ---------  -------  -------  ---------
Electri         39         22          0         61  $4.255   $2.720    $1.535
 c
 motor
 overha
 ul/
 repair
Electro         29         58          0         87   6.068    2.023     4.045
 nic
 equipm
 ent
 repair
Machini         56         51          3        110   7.673    3.906     3.767
 ng
Materia         12          3          0         15   0.979    0.783     0.196
 l
 testin
 g
Metal           20         39          7         66   4.604    1.395     3.209
 forming
================================================================================
Total          156        173         10        339  $23.579  $10.827   $12.752
--------------------------------------------------------------------------------
\a Cost estimates are a total of (1) Navy RM Program estimate of
$45,000 in labor cost per year for military and civilian total
compensation; (2) production support costs, which are estimated at 40
percent of direct labor for all shops or 30 percent for material
testing laboratories; and (3) administrative and general costs, which
are estimated at 15 percent of direct labor. 



                                    Table II.3
                     
                     Potential Annual Facilities Savings From
                         Consolidating Activities in the
                                 Northwest Region

                              (Dollars in millions)

Se
le
ct
ed                                                          Estimated   Estimated
ba     Puget                  Naval                           costs\a     savings
ck     Sound    Trident    Undersea             Estimated   retaining   retaining
sh     Naval      Refit     Warfare                 total    just the    just the
op  Shipyard   Facility      Center      Total     square    shipyard    shipyard
wo   (square    (square     (square    (square    footage      square      square
rk  footage)   footage)    footage)   footage)    costs\a     footage     footage
--  --------  ---------  ----------  ---------  ---------  ----------  ----------
El    15,725      6,506           0     22,231     $0.289      $0.204      $0.085
 e
 c
 t
 r
 i
 c
 m
 o
 t
 o
 r
 o
 v
 e
 r
 h
 a
 u
 l
 /
 r
 e
 p
 a
 i
 r
El    30,650      6,344           0     36,994      0.481       0.398       0.083
 e
 c
 t
 r
 o
 n
 i
 c
 e
 q
 u
 i
 p
 m
 e
 n
 t
 r
 e
 p
 a
 i
 r
Ma    57,526     24,209      13,740     95,475      1.241       0.748       0.493
 c
 h
 i
 n
 i
 n
 g
Ma    13,520      1,479       5,600     20,599      0.268       0.176       0.092
 t
 e
 r
 i
 a
 l
 t
 e
 s
 t
 i
 n
 g
Me   107,998     12,827       5,245    126,070      1.639       1.404       0.235
 t
 a
 l
 f
 o
 r
 m
 i
 n
 g
=================================================================================
To   225,419     51,365      24,585    301,369     $3.918      $2.930      $0.988
 t
 a
 l
---------------------------------------------------------------------------------
\a Based on Navy RM Program estimates of $13 per square foot. 



                                    Table II.4
                     
                       Potential Annual Labor Savings From
                         Consolidating Activities in the
                                 Northwest Region

                              (Dollars in millions)

Se
le
ct
ed                                                          Estimated  Estimated
ba      Puget                 Naval                           costs\a    savings
ck      Sound    Trident   Undersea             Estimated   retaining  retaining
sh      Naval      Refit    Warfare                 total    just the   just the
op   Shipyard   Facility     Center      Total      labor    shipyard   shipyard
wo     (labor     (labor     (labor     (labor       year       level      level
rk     years)     years)     years)     years)    costs\a   workforce  workforce
--  ---------  ---------  ---------  ---------  ---------  ----------  ---------
El         20         25          0         45     $3.139      $1.395     $1.744
 e
 c
 t
 r
 i
 c
 m
 o
 t
 o
 r
 o
 v
 e
 r
 h
 a
 u
 l
 /
 r
 e
 p
 a
 i
 r
El         48         46          0         94      6.557       3.348      3.209
 e
 c
 t
 r
 o
 n
 i
 c
 e
 q
 u
 i
 p
 m
 e
 n
 t
 r
 e
 p
 a
 i
 r
Ma         79         32         23        134      9.347       5.510      3.837
 c
 h
 i
 n
 i
 n
 g
Ma         33          6          6         45      2.936       2.153      0.783
 t
 e
 r
 i
 a
 l
 t
 e
 s
 t
 i
 n
 g
Me          8         17          8         33      2.302       0.558      1.744
 t
 a
 l
 f
 o
 r
 m
 i
 n
 g
================================================================================
To        188        126         37        351    $24.281     $12.964    $11.317
 t
 a
 l
--------------------------------------------------------------------------------
\a Cost estimates are a total of (1) Navy RM Program estimate of
$45,000 in labor cost per year for military and civilian total
compensation; (2) production support costs, which are estimated at 40
percent of direct labor for all shops or 30 percent for material
testing laboratories; and (3) administrative and general costs, which
are estimated at 15 percent of direct labor. 


SCOPE AND METHODOLOGY
========================================================= Appendix III

To identify the Navy's progress made in implementing the RM Program,
we interviewed officials from the Office of the Secretary of Defense
(OSD), Office of the Comptroller, the Deputy Under Secretary of
Defense (Logistics), the Deputy Chiefs of Naval Operations for
Manpower and Personnel and for Logistics, the Naval Sea and Air
Systems Commands, and the Assistant Secretary of the Navy for
Financial Management and the Comptroller and reviewed studies,
briefings, and other documents on the RM Program.  At the Atlantic
Fleet headquarters, we interviewed the Fleet Maintenance Officer,
reviewed documents, and obtained briefings from the Mid-Atlantic
region--one of the four regions under the Atlantic Fleet.  For the
Pacific Fleet, we met with the Fleet Maintenance Officer and his
staff, reviewed documents, and obtained briefings and other
information from the Hawaii and the Northwest region--two of the four
regions under the Pacific Fleet.  Further, we talked to the officials
of the Naval Audit Service about regional maintenance progress and
its management consulting work for the RM Program. 

The Navy has identified seven objectives for the RM Program:  (1)
process improvement to maintain customer responsiveness and fleet
readiness, (2) elimination of excess maintenance infrastructure, (3)
integrated supply support, (4) maintenance cost visibility, (5)
compatible maintenance management automated data processing, (6)
positive control of technical elements, and (7) support the
Department of Defense's (DOD) industrial core policy.  However, the
program's principal efforts thus far have been on the elimination of
excess maintenance infrastructure; therefore, we focused our work on
that program objective. 

To obtain cost and related-savings information for the RM Program, we
interviewed officials with the Navy Financial Management and
Comptroller offices, the CNO's Naval Operations Supportability,
Maintenance, and Modernization Division, and financial managers with
the Naval Sea Systems Command, Naval Air Systems Command, and the
Atlantic and Pacific Fleets.  We also reviewed documents generated
during the budget program review, the fiscal year 1998 program
objective memorandum review, the net savings summary, and various
memoranda discussing the budget reductions and projected savings. 

To identify opportunities for additional excess maintenance
infrastructure reductions and cost savings in the Hawaii and the
Pacific Northwest regions, we reviewed Atlantic and Pacific Fleet
business plans, regions' lists and studies of redundant capabilities. 
From the lists, we selected for further analysis industrial backshops
for electric motor repair, electronics equipment repair, machining,
and metal-forming shops and material testing laboratories.  We
obtained data, observed work, and discussed issues with maintenance
officials and shop supervisors at six activities in two regions--the
Pearl Harbor Naval Shipyard, the Intermediate Maintenance Facility,
and the Public Works Center in the Hawaii region; and the Puget Sound
Naval Shipyard, the Trident Refit Facility, and the Naval Undersea
Warfare Center, Keyport, in the Northwest region.  To calculate costs
for these shops, we obtained information on square footage of
facilities, and direct labor years and RM Program cost estimate
factors ($13 per square foot for costs to operate and maintain
facilities; $45,000 per year for each staff; 40 percent of direct
labor for production support costs for all shops and 30 percent for
material testing laboratories; and 15 percent of direct labor for
administrative and general expense costs).  We used this data to
calculate estimated total costs, estimated total costs to retain the
total workforce in just the shipyard facility, and estimated total
costs of doing the work just at the shipyard with just a
shipyard-level workforce.  We compared the difference in these
estimated total costs to identify estimated savings from retaining
the total workforce at the shipyard, and estimated total savings with
just a shipyard-level workforce at the shipyard. 

We conducted our work between December 1996 and September 1997 in
accordance with generally accepted government auditing standards. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================= Appendix III



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

James F.  Wiggins
George A.  Jahnigen

LOS ANGELES FIELD OFFICE

Lionel C.  Cooper, Jr.
Dennis A.  DeHart
Samuel S.  VanWagner
Gary W.  Kunkle
Jean M.  Orland


*** End of document. ***