Defense Management: Army Could Achieve Efficiencies By Consolidating
Ammunition Management (Letter Report, 09/30/1999, GAO/NSIAD-99-230).

Pursuant to a congressional request, GAO reviewed the Army's
implementation of the recommendations made by the Pacific Northwest
National Laboratory's study on ammunition management, focusing on the
Army's: (1) progress toward reorganizing the management of conventional
ammunition to address the fragmentation issues; and (2) efforts to
improve business practices to enhance the operational efficiency of
ammunition production and procurement.

GAO noted that: (1) the Army has made limited progress in addressing the
problem of fragmented management of its conventional ammunition program;
(2) senior Army leadership has been considering alternative
organizational structures identified by a study team as a means of
addressing the fragmentation issue; (3) however, no decisions have been
made because of lack of agreement on where management of conventional
ammunition would fit into the Army's organizational structure, and no
milestones have been set for resolving the issue; (4) in lieu of an
organizational change and recognition of the need to integrate
ammunition management, the Commanders of the three commands that deal
with conventional ammunition formed an informal coordination group; (5)
the Commanders agreed to work together on common activities to pursue
the most comprehensive and cost-effective approach to conventional
ammunition management; (6) however, the coordination group's decisions
are not binding and are dependent on all members agreeing to the
proposed actions; (7) although the Army has not resolved the problem of
fragmented management of conventional ammunition, it has developed
initiatives to improve its business practices to enhance the operational
efficiency of ammunition production and procurement; (8) these
initiatives have not yet been completed and their outcomes have yet to
be determined; and (9) further, the long-term success of these
initiatives will depend upon the ability of the informal coordination
group to ensure cooperation among all participants and resolve issues of
common interest.

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

 REPORTNUM:  NSIAD-99-230
     TITLE:  Defense Management: Army Could Achieve Efficiencies By
	     Consolidating Ammunition Management
      DATE:  09/30/1999
   SUBJECT:  Federal agency reorganization
	     Ammunition
	     Equipment management
	     Internal controls
	     Army procurement
	     Strategic planning
	     Army supplies
	     Logistics

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Report to the Chairman, Subcommittee on Readiness and Management Support,
Committee on Armed Services, U.S. Senate

September 1999

DEFENSE MANAGEMENT

Army Could Achieve Efficiencies by Consolidating Ammunition
Management
*****************

*****************

GAO/NSIAD-99-230

Letter                                                                     3

Appendixes

Appendix I:Examples of Fragmented Management and Decision-Making

                                                                         20

Appendix II:Army Ammunition Plants

                                                                         22

Appendix III:Comments From the Department of Defense

                                                                         24

Appendix IV:GAO Contacts and Staff Acknowledgments

                                                                         26

Figure 1:  Activities With Responsibilities for Conventional 
Ammunition                                       6

Figure 2:  Management of the Conventional Ammunition Life 
Cycle                                            7

Figure 3:  Conventional Ammunition Procurement Program 
Budgets, Fiscal Year 1985 Through Fiscal Year 19999

                                                     National Security and 
                                             International Affairs Division

B-281873

September 30, 1999

The Honorable James M. Inhofe
Chairman, Subcommittee on Readiness
 and Management Support
Committee on Armed Services
United States Senate

Dear Mr. Chairman:

The National Defense Authorization Act for Fiscal Year 1996 directed that
the Army review and report on the management of conventional ammunition
programs within the Department of Defense. In response, the Army
contracted with Pacific Northwest National Laboratory in June 1996 to
conduct a comprehensive study of the management and configuration of the
ammunition industrial base./Footnote1/ The study, completed in June 1997,
recommended several actions to address the fragmentation of management
responsibilities and accountability and the inefficiencies that impact the
ammunition industrial base. In fiscal year 1999, the budget for
conventional ammunition procurement programs was about $2 billion.

As you requested, we reviewed the Army's implementation of the study's
recommendations. Specifically, we assessed the Army's (1) progress toward
reorganizing the management of conventional ammunition to address the
fragmentation issues and (2) efforts to improve business practices to
enhance the operational efficiency of ammunition production and
procurement. This is the first in a series of reports that will also
address issues such as demilitarization, capacity utilization, and storage
of conventional ammunition.

Results in Brief

The Army has made limited progress in addressing the problem of fragmented
management of its conventional ammunition program. Senior Army leadership
has been considering alternative organizational structures identified by a
study team as a means of addressing the fragmentation issue. However, no
decisions have been made because of lack of agreement on where management
of conventional ammunition would fit into the Army's organizational
structure, and no milestones have been set for resolving the issue. In
lieu of an organizational change and recognition of the need to integrate
ammunition management, the Commanders of the three commands that deal with
conventional ammunition formed an informal coordination group. The
Commanders agreed to work together on common activities to pursue the most
comprehensive and cost-effective approach to conventional ammunition
management. However, the coordination group's decisions are not binding
and are dependent on all members agreeing to proposed actions.

Although the Army has not resolved the problem of fragmented management of
conventional ammunition, it has developed initiatives to improve its
business practices to enhance the operational efficiency of ammunition
production and procurement. These initiatives have not yet been completed
and their outcomes are yet to be determined. Further, the long-term
success of these initiatives will depend upon the ability of the informal
coordination group to ensure cooperation among all participants and
resolve issues of common interest.

This report contains recommendations to the Secretary of Defense and the
Secretary of the Army intended to address management fragmentation.

Background

In March 1975, the Department of Defense established the Single Manager
for Conventional Ammunition within the Secretary of the Army. The Single
Manager was expected to be the central procuring and logistics agency for
conventional ammunition common to all military services. Additionally, the
Single Manager was to be responsible for managing the Army's ammunition
production facilities. The Single Manager concept evolved from a July 1970
Logistics Management Institute report and one of our reports./Footnote2/
These reports recommended, among other things, that the Army centrally
manage all ammunition to avoid duplication among production facilities and
manufacturing processes.

Management of Conventional Ammunition
-------------------------------------

While the Secretary of the Army is officially recognized as the Single
Manager, the Army's Industrial Operations Command, a subordinate command
of the Army Materiel Command, is responsible for the day-to-day execution
of the Single Manager role. However, in actual practice, ammunition
management responsibility is fragmented among three major Army commands.
Specifically, in addition to the Industrial Operations Command, the Tank-
automotive and Armaments Command, also a subordinate command of the Army
Materiel Command, and the Program Executive Office for Ground Combat
Support Systems,/Footnote3/ which reports to the Assistant Secretary of
the Army for Acquisition, Logistics, and Technology (Acquisition
Executive), have significant ammunition management responsibilities as
well as other responsibilities. Figure 1 shows the commands that have
Program, Project, or Product Managers who are responsible for procuring
conventional ammunition for their programs.

Figure****Helvetica:x11****1:    Activities With Responsibilities for
                                 Conventional
                                 Ammunition
*****************

*****************

Source: Office of the Executive Director for Conventional Ammunition.

As illustrated in figure 1, the Army's Acquisition Executive is not in the
Single Manager's chain of command. However, as shown by the dotted line in
figure 1, there is a coordinating function within the Deputy Chief of
Staff, Ammunition, (Army Materiel Command), which supports both the
Industrial Operations Command and the Acquisition Executive. The
Acquisition Executive is responsible for making policies that impact the
government-owned industrial base, and the Industrial Operations Command is
responsible for executing that policy. However, the Acquisition Executive
has no direct authority over decisions made by the Single Manager and can
only influence how policies are executed.

The Program Executive Office and the Tank-automotive and Armaments Command
differ from the Single Manager in that they are responsible for research
and development, initial production and fielding, and product improvement,
but they are not responsible for logistics activities such as production
base management and wholesale depot operations. Figure 2 shows the
responsibilities of the Single Manager and the Program, Project, or
Product Managers in the ammunition life cycle.

Figure****Helvetica:x11****2:    Management of the Conventional Ammunition
                                 Life Cycle
*****************

*****************

Source: Industrial Operations Command.

The Department of Defense directive for the Single Manager, signed by the
Deputy Secretary of Defense and revised in 1995, states that once
ammunition items reach stable production, they are to be assigned to the
Single Manager responsible for follow-on production, logistics functions,
and demilitarization. However, the Program, Project, or Product Managers
operate under a separate Department of Defense directive, also signed by
the Deputy Secretary of Defense and issued in 1996, which charges these
managers with full life-cycle responsibility for their programs.
Information from various Army officials indicates that the differences in
responsibility are the genesis of the fragmentation among these commands.
Appendix I illustrates problems caused by fragmented management.

Declining Budgets and Requirements
----------------------------------

The end of the Cold War and subsequent changes to defense missions
resulted in declining budgets and requirements for conventional
ammunition. As shown in figure 3, ammunition procurement funding for all
services has declined significantly, falling from a peak level of about 
$4.3 billion in fiscal year 1985 to about $2 billion in fiscal year 1999,
with about one-half of the total going to the procurement of Army
ammunition.

Figure****Helvetica:x11****3:    Conventional Ammunition Procurement
                                 Program Budgets, Fiscal Year 1985 Through
                                 Fiscal Year
                                 1999
*****************

*****************

Source: Office of the Secretary of Defense, Office of Munitions.

Requirements for conventional ammunition also changed as the services
decreased their dependence on traditional ammunition items and increased
their reliance on highly technical, precision munitions./Footnote4/ In
1997, the Department of Defense issued a new policy on requirements
determination in an attempt to generate consistent conventional ammunition
requirements Department-wide and address changes in mission requirements.
The new policy states that military departments should establish
ammunition requirements and associated acquisition programs to properly
perform their military mission. The Army is conducting a study to
determine whether the increased investment in more modern precision
munitions would have a significant impact on reducing the total life-cycle
cost of ammunition. According to the study director, the study should be
completed in November 1999.

Decreasing requirements for conventional ammunition have resulted in a
reduction in both government-owned and private-sector production plants.
The number of government-owned ammunition plants decreased from 32 in 1978
to 22 in 1999. Of these 22 plants, 8 are currently producing ammunition, 6
are contractor operated, and 2 are government operated. Of the 14
remaining plants, 4 are inactive/Footnote5/ and 10 are no longer required
for current or future production and are in the process of being disposed
of. Additionally, the number of contractor-owned plants declined from 286
in 1978 to 72 in 1999. A list of the 22 plants is included in appendix II.

Congressional Concerns Over Program Management
----------------------------------------------

To comply with Section 1082 of the National Defense Authorization Act for
Fiscal Year 1996, the Army contracted with Pacific Northwest National
Laboratory to conduct a comprehensive review of the ammunition industrial
base. The key objectives of the study were to assess the capability and
capacity of the industrial base for conventional ammunition and recommend
a strategy for configuring and managing the base to effectively meet
Department of Defense planning guidance.

In June 1997, the contractor issued its report: Recommended Strategy for
Configuring and Managing the U.S. Munitions Industrial Base. The study
found that, among other things, the ammunition management system was
fragmented and the business environment needed to be stabilized. The
report stated that different organizations, specifically the Industrial
Operations Command, the Tank-automotive and Armaments Command, and the
Program Executive Office for Ground Combat Support Systems, were
responsible for different stages of the ammunition life cycle.
Consequently, much time was being spent trying to coordinate activities.
Additionally, the study found that the government-owned industrial base
was becoming less efficient as the volume of work continued to shrink. On
the basis of its assessment, Pacific Northwest National Laboratory
recommended the following strategy to improve the management of
conventional ammunition:

o manage ammunition as a major program using Department of Defense life-
  cycle acquisition processes;

o consolidate management responsibilities and financial resources for
  ammunition into a Program Executive Office for Ammunition;/Footnote6/

o convert government-owned production assets to private-sector ownership
  and acquire ammunition from the private sector; and 

o apply acquisition reform initiatives already underway in the Department
  of Defense to the ammunition acquisition process to stabilize the
  business environment and encourage industry to invest in the industrial
  base.

To accomplish this strategy, the study listed the following critical
actions:

o establish ammunition program managers with full life-cycle
  responsibility for developing and producing items they manage;

o establish full and open competition among qualified suppliers as the
  standard acquisition approach;

o establish an integrated requirements process that includes
  representatives from all services and the industrial base; and

o establish and implement an equitable process for transitioning
  government-owned assets to private ownership.

The report further stated that with an acquisitions-based management
approach, the government could move away from direct ownership and
management of production assets and could instead focus its activities on
the acquisition function, buying end items and replenishment capacity
rather than production facilities and equipment.

The Army agreed with most of these recommendations, and they were included
in a June 1998 Industry Base Policy Letter, 98-1-Ammunition, which
established the Army's strategy for achieving efficiency in the ammunition
industrial base. There was no agreement on the recommendation to create a
Program Executive Office for Ammunition. Instead, Army officials chartered
a study team, known as the Organizational Integrated Process Team, to
develop other organizational alternatives to address fragmentation issues.
It also established a Business Case Integrated Process Team to determine
how to implement the Pacific Northwest National Laboratory's
recommendations for improving operational efficiencies. Subsequently, the
Army formed ammunition teams to develop competition and ammunition life-
cycle strategies for all categories of ammunition, including Artillery,
Fuzes, Mines/Countermines, Mortars, Small Arms, and Tank/Medium Caliber.

Fragmentation Issues Remain Unresolved

The Army has made limited progress towards addressing the fragmentation of
ammunition management because of lack of agreement on where management of
conventional ammunition would fit into the Army's organization. Although
the Army is considering recommendations from both an external and an
internal group for improving the management structure of conventional
ammunition, to date the Army has taken no action. In the interim, the
principal Army commands responsible for management of conventional
ammunition have formed an informal coordinating group known as the
Armament Triad to deal with common issues that impact conventional
ammunition. Because the Triad is an informal group, its prospects for long-
term success are uncertain.

Team Recommendations Are Being Considered
-----------------------------------------

The Organizational Integrated Process Team focused on the lack of
integration in ammunition management. Specifically, the team addressed
three problems: (1) fragmented ammunition management, (2) problems with
the industrial base, and (3) outdated physical and organizational
structures and processes, all of which have resulted in inefficiencies in
the production and procurement of conventional ammunition. The team
developed four proposals:

o Creation of an Ammunition Command. This proposal would centralize
  decision-making authority under a Major General with responsibility and
  accountability for integrated life-cycle management of ammunition while
  maintaining the mission of the Single Manager.

o Creation of a Program Manager/Program Executive Office and Merged Major
  Subordinate Command. This proposal would establish a joint Program
  Manager at the Brigadier General level for ammunition within the Ground
  Combat Support Systems Command. This concept would totally integrate
  ammunition under a single command and provide one voice for the Army's
  conventional ammunition. The logistics mission of the Single Manager
  would be retained.

o Creation of a management structure that would integrate industrial base
  management with weapon systems management under the same command. The
  concept is predicated on fully utilizing the private sector for all
  aspects of the ammunition life cycle.

o Creation of a Single Service. This proposal is based on the premise
  that the Department of Defense would merge into one service and that
  the requirement for the Single Manager would be eliminated.

The team recommended that the Army adopt the second proposal, which would
provide a structure similar to that recommended by the Pacific Northwest
National Laboratory study. The team found that the Program Manager/Program
Executive Office concept scored the highest in attributes such as a
clearly defined mission that focuses on total life-cycle management of
ammunition.

The team briefed Army leadership in July 1998, and its recommendations
were taken into consideration by a three-member team representing the Army
Materiel Command, the Army's Office of the Deputy Chief of Staff for
Logistics, and the Secretary of the Army for Acquisition, Logistics, and
Technology. The Army has not made any decision to reorganize the
management of conventional ammunition and has not set milestones to do so.
As a result, the three commands that report to the Secretary of the Army
through different chains of command can still make independent decisions
that impact the industrial base.

Uncertainty Regarding the Triad's Effectiveness
-----------------------------------------------

Recognizing the need to integrate ammunition management, in October 1998
the Commanding Generals of the three commands (Industrial Operations
Command, Tank-automotive and Armaments Command, and Program Executive
Office for Ground Combat Support Systems) that deal with conventional
ammunition formed an informal coordination group referred to as the
Armament Triad. The Commanders signed a memorandum of understanding to
work together to coordinate common activities by pursuing a comprehensive
and cost-effective approach to the life-cycle management of ammunition.

The Triad deals with concerns forwarded by the ammunition teams through an
Executive Council. The Triad meets quarterly to discuss and attempt to
resolve issues that impact the production and procurement of conventional
ammunition. The teams are responsible for developing life-cycle management
plans for their individual categories of conventional ammunition. This is
to be accomplished through three plans: a business plan, an acquisition
plan, and an industrial base plan, which are discussed in detail later in
this report. Additionally, the Triad has assumed responsibility for
ensuring total integration of plans being formulated by the various teams.

Although the Triad provides overall coordination to the ammunition teams,
Triad members have expressed concern about the group's long-term ability
to affect change. For example, members are concerned they will not be able
to resolve Army-wide ammunition issues if decisions to do so adversely
impact any one individual command. This situation is exacerbated by the
fact that the individual Triad members do not report to the Secretary of
the Army through the same chain of command. According to senior Army
officials, in order for the Triad to be successful, huge cultural, if not
organizational, changes would have to take place. They added that Program
Managers are more concerned with cost, schedule, and performance than with
how their decisions impact government-owned ammunition production
facilities. Various officials also suggested that unless the Triad is
given permanent status, its future would become less certain as command
changes affecting the Triad members occur.

Initial Efforts Underway to Improve Management Efficiencies

While the Army has not addressed the fragmentation issues as they relate
to ammunition management, it has made efforts to improve the efficiency of
the industrial base as well as the life-cycle management of ammunition.
The Army initially focused on two initiatives: (1) development of a
competition strategy for ammunition acquisition, and (2) development of
life-cycle management plans for individual ammunition categories. The
first initiative was developed to facilitate the transfer of government-
owned ammunition plants to private-sector ownership. Although two
competitions have been carried out, the Army recently decided to base
future competitions on the life-cycle management plans that are being
developed by ammunition teams.

Competition Strategy
--------------------

The Business Case Integrated Process Team developed competition strategies
for each government-owned plant by assessing the plant's capabilities,
determining the best method of transitioning it to private-sector
ownership, and establishing a timeline for completion. A competition for
explosive materials was completed in June 1998, and another for small
caliber ammunition was completed in July 1999. However, Army officials
have recently voiced concerns about the competitions being carried out
prior to completion of the life-cycle management plans, which they think
should help determine future facility requirements. The Commander,
Industrial Operations Command, and the Deputy Chief of Staff for the
Single Manager, both stated they have recognized the value of the family
team plans in helping to determine which competitions would be needed. As
a result, future competition plans will take into account information
contained in life-cycle management plans.

Integration of Life-Cycle Management Plans
------------------------------------------

Ammunition teams were formed between November 1998 and January 1999 to
integrate the entire ammunition life cycle by including representatives
from each of the three commands, as well as from other services and units
such as requirements planning and budgeting. These teams are responsible
for developing life-cycle management plans for their ammunition items.
They expect to do so by developing the following plans:

o A business plan is to be developed to include all life-cycle
  requirements such as environmental technology, maintenance, and
  demilitarization. This plan must ensure that the necessary industrial
  capacities, including peacetime production, replenishment capacity, and
  storage are obtained and maintained in a cost-effective manner.

o An acquisition plan is to be developed to document all acquisitions for
  the ammunition category and determine the cost at each phase of the
  life cycle. Examples of acquisitions are peacetime production, storage,
  maintenance, and transportation.

o Based on an assessment of the current ammunition production base, an
  industrial base plan is to be developed to determine what capacity is
  needed to meet requirements.

The plans were due to be completed and submitted to an Integration
Planning Team in June 1999. However, according to an Army official, the
plans are taking longer to complete than was anticipated because of
difficulties in achieving agreement among the team members. The business
plans were completed in July 1999, and the remaining plans are to be
completed by October 1999.

An Integration Planning Team was formed at the same time as the ammunition
teams. It is responsible for reviewing teams' plans to assess their
overall impact on the ammunition industrial base. The plans are expected
to be reviewed concurrently to eliminate conflicts or negative impacts on
the industrial base. According to the Integration Planning Team leader,
the team's goal is to optimize the Army's procurement and production of
conventional ammunition. One way to achieve this, according to the Team
leader, is to consolidate ammunition procurement efforts across ammunition
categories whenever possible. For example, the Team and ultimately the
Triad may decide that mortar bodies and artillery shells could be included
in a single contract to save money and stabilize the industrial base, and
the Team could work with the individual teams to achieve that goal. This
strategy differs from the current one, in which each of the three commands
can make decisions considering only its own individual programs.

Additionally, according to various Army officials, the plans would be
included in the competition strategies for government-owned plants as well
as in future budgetary and requirements plans. This initial effort is
scheduled to be presented to the Triad in October 1999. Thereafter,
according to the Integration Planning Team leader, these plans are
expected to be reviewed annually and modified as conditions change.

Conclusions

Management of the Army's conventional ammunition program continues to be
fragmented despite internal recognition of the problem and efforts to
identify alternative solutions. The Army is continuing to review the
recommendations of the group that studied the issue; however, no timeframe
has been established for taking any formal action. In the interim, the
three commands that deal with various aspects of conventional ammunition
have established an informal structure and a set of procedures for
addressing issues of common interest. While this is a constructive step,
it is only an informal process that depends on all parties voluntarily
cooperating to improve business practices for the purpose of enhancing
operational efficiencies for ammunition production and procurement. The
ability to resolve differences caused by competing program goals is
exacerbated by the lack of a single chain of command with the ability to
force reconciliation among competing interests. Likewise, unless the Triad
is given permanent status, its future will become less certain as command
changes affecting the Triad members occur. Until actions are taken to
address the fragmentation of ammunition management, the area remains
vulnerable to inefficiency.

Recommendations

Since management fragmentation can only be resolved through changes in the
current organizational structure and reporting relationships, and because
of the Defense-wide nature of the issue, we recommend that the Secretary
of Defense direct the Secretary of the Army to establish a timeframe for
implementing an Army-wide reorganization to integrate the management of
conventional ammunition. In considering organizational alternatives, we
recommend that the Secretary of the Army consider a permanent Triad
structure as well as other recommended organizational structures. To
facilitate efficient operations, until organizational changes occur, we
further recommend that the Secretary of Defense direct the Secretary of
the Army to put in place a mechanism to address issues the informal Triad
is unable to resolve.

Agency Comments and Our Evaluation

The Director of Strategic and Tactical Systems in the Office of the Under
Secretary of Defense for Acquisition and Technology provided written
comments on a draft of this report. They are included in appendix III.
While concurring with the report's assessment of issues and
recommendations, the Director stated that the recommendation should be
directed to the Secretary of the Army rather than the Secretary of
Defense. Ultimately, the Secretary of Defense is responsible for ensuring
the economy and efficiency of Defense organizations and operations, and
the Secretary of the Army reports to the Secretary of Defense. In this
instance, although significant time has passed, the Army has not resolved
the long-standing issues identified in this report. Consequently, we
continue to believe that action is needed by the Secretary of Defense to
achieve a timely resolution of these issues.

Scope and Methodology

To identify the Army's plans for reorganizing the management of
conventional ammunition and to determine how this should be accomplished,
we reviewed the Pacific Northwest National Laboratory recommendations,
Industrial Base Policy Letter, 98-1-Ammunition, and proposals made by the
Organizational Integrated Process Team. We reviewed how the Industrial
Operations Command, the Tank-automotive and Armaments Command, and the
Program Executive Office for Ground Combat Support Systems were
established and Department of Defense directives that set out their roles
and responsibilities. We interviewed senior officials at the Office of the
Secretary of Defense, Washington, D.C; the Office of the Secretary of the
Army for Acquisition, Logistics and Technology, Washington, D.C; the Army
Materiel Command, Alexandria, Virginia; the Industrial Operations Command,
Rock Island, Illinois; the Program Executive Office for Ground Combat
Support Systems, Picatinny Arsenal, New Jersey; and the Tank-automotive
and Armaments Command, Warren, Michigan. We also discussed ammunition
management with representatives of the Munitions Industrial Base Task
Force, Arlington, Virginia; the Program Manager for Ammunition, U.S.
Marine Corps Systems Command, Arlington, Virginia; the Office of Munitions
Requirements and Allocations, U.S. Air Force, Washington, D.C; and the
Program Executive Office for Theater Surface Support, Naval Sea Systems
Command, Arlington, Virginia. To develop the examples of fragmented
management and decision-making, we interviewed the Program Manager,
Crusader Munitions, at the Program Executive Office, Ground Combat Support
Systems, and the Commanding General and Deputy Product Manager, Mortars,
at the Tank-automotive and Armaments Command. We also interviewed senior
officials at the Industrial Operations Command.

To determine how the Army is addressing its business practices to improve
operational efficiencies related to ammunition production and procurement,
we reviewed the proposals of the Business Case Integrated Process Team and
discussed its recommendations with the above officials.

We conducted our review from December 1998 through June 1999 in accordance
with generally accepted government auditing standards.

We are sending copies of this report to the Honorable William Cohen,
Secretary of Defense; the Honorable Louis Caldera, Secretary of the Army;
the Honorable Jacob Lew, Director, Office of Management and Budget; and
Senator Charles Robb, Ranking Minority Member, Subcommittee on Readiness
and Management Support, Senate Committee on Armed Services, Representative
Floyd D. Spence, Chairman, and Representative Ike Skelton, Ranking
Minority Member, House Committee on Armed Services. Copies will also be
made available to others upon request.

GAO points of contact and other key contributors are listed in appendix IV.

Sincerely yours,
*****************

*****************

David R. Warren, Director
Defense Management Issues

--------------------------------------
/Footnote1/-^The industrial base includes both government-owned and
  private-sector ammunition production plants. 
/Footnote2/-^Effective Central Control Could Improve DOD's Ammunition
  Logistics (B-176139, Dec. 6, 1973).
/Footnote3/-^The Program Executive Office for Ground Combat Support
  Systems provides program oversight and direction to the Program or
  Project Managers under its command.
/Footnote4/-^Precision Munitions cover both guided and smart munitions.
  Guided munitions are one-on-one munitions-one munition for one target-
  that are guided to their target through a target acquisition sensor or
  laser designation system. Smart Munitions are "fire and forget" and have
  an autonomous capability to search, detect, classify, select, and engage
  targets with a lethal mechanism.
/Footnote5/-^Inactive plants no longer have work directed to them, but
  their capacity is retained for replenishment or technological reasons.
/Footnote6/-^The Program Executive Office for Ammunition would be
  responsible for integrating budgets, acquisition strategies, research
  and development, and life-cycle management across all ammunition
  categories that the Army refers to as families.

EXAMPLES OF FRAGMENTED MANAGEMENT AND DECISION-MAKING
=====================================================

Fragmentation in ammunition program management has led to less than
optimum communications, coordination, and decision-making, affecting
requirements determination and production. Two programs where some of
these problems have been encountered involve Crusader munitions and mortar
production.

Crusader Munitions

This example illustrates how lack of communication between two commands
led to an industrial base decision based on incomplete information. In
1993, the Army began a program, known as the Crusader, to upgrade its self-
propelled howitzer. The munitions for this system use a propellant charge
that requires nitroguanidine. According to the Deputy Program Manager for
Crusader Munitions, the program will need 14 million more pounds of
nitroguanidine than is currently available in the stockpile. However, the
Army's ability to acquire the needed nitroguanidine could be adversely
affected by an industrial base decision made by the Industrial Operations
Command.

In 1997, the Industrial Operations Command requested that the Office of
the Secretary of the Army inform Congress that it intended to divest the
Sunflower Army Ammunition Plant, the only plant in North America with the
production equipment and skills to make nitroguanidine. The Industrial
Operations Command based its decision on what it believed were no known
future requirements for nitroguanidine and is in the process of
transferring the plant to Kansas. Industrial Operations Command officials
concede they did not do a very good job of communicating their decision
throughout the Army ammunition community; if they had, they would have
seen a significant increase in nitroguanidine requirements. As a result,
the Army must either locate an alternative supply source for
nitroguanidine outside North America or build another plant.

Mortar Production

This example demonstrates how a split in program responsibilities between
two commands resulted in years of production delays. Management of the
mortar program is divided between the Product Manager, Mortars, at the
Tank-automotive and Armaments Command and the Industrial Operations
Command. The Product Manager, Mortars, has responsibility for items in the
research and development, initial production and fielding, and product
improvement phases, and the Industrial Operations Command is responsible
for items in later phases of the life cycle such as follow-on production,
maintenance, and demilitarization.

In the early 1990s, the Industrial Operations Command, concerned about
lack of production in the government-owned industrial base, developed a
strategy to preserve critical government-owned capability. Using this
strategy, mortar production was assigned to Milan Army Ammunition Plant.
However, according to Industrial Operations Command personnel and the
Deputy Product Manager, Mortars, Milan had a variety of process problems
and was not able to produce to the Product Manager's required high quality
levels. Because of these problems, the Deputy Product Manager, Mortars,
tried for several years to convince the Industrial Operation Command not
to direct their work to Milan but rather allow the Product Manager to
identify, through a competitive process, other production sources.

Unable to resolve production issues, the Industrial Operations Command
agreed in June 1997 to allow the Product Manager to seek out other
production sources. This issue took years to resolve because of the split
in program responsibilities and lack of communication between the two
commands.

ARMY AMMUNITION PLANTS
======================

Government-owned, government-operated plants

o Active Plants
  Crane, Crane, Indiana
  McAlester, McAlester, Oklahoma

Government-owned, contractor-operated plants

o Active Plants
  Holston, Kingsport, Tennessee
  Iowa, Middletown, Iowa
  Lake City, Independence, Missouri
  Lone Star, Texarkana, Texas
  Milan, Milan, Tennessee
  Radford, Radford, Virginia

o Inactive/Footnote1/
  Louisiana, Doyline, Louisiana
  Mississippi, Stennis Space Center, Mississippi
  Riverbank, Riverbank, California
  Scranton, Scranton, Pennsylvania

o Excess/Footnote2/
  Badger, Baraboo, Wisconsin
  Cornhusker, Grand Island, Nebraska
  Indiana, Charlestown, Indiana
  Joliet, Wilmington, Illinois
  Kansas, Parsons, Kansas
  Longhorn, Marshall, Texas
  Ravenna, Ravenna, Ohio
  Sunflower, DeSoto, Kansas
  Twin Cities, Arden Hills, Minnesota
  Volunteer, Chattanooga, Tennessee

--------------------------------------
/Footnote1/-^Inactive plants are no longer assigned production but are
  retained to meet replenishment requirements. The Army is using the
  Armament, Retooling, and Support Initiative, which allows tenants to
  lease space at these plants, to reduce operation and maintenance cost.
  For a full discussion of the Armament, Retooling, and Support Initiative
  see Military Bases: Cost to Maintain Inactive Ammunition Plants and
  Closed Bases Could be Reduced (GAO/NSIAD-97-56, Feb. 1997).
/Footnote2/-^Excess plants are no longer required for assigned mission
  and are in the process of being disposed of. The Army is negotiating the
  transfer of Sunflower to Kansas. The General Services Administration is
  disposing of Badger, Cornhusker, Joliet, and Longhorn. The Army Corps of
  Engineers is disposing of Indiana under an agreement with the General
  Services Administration. Revenna and Twin Cities are being turned over
  to the National Guard. The Kansas plant will not begin the disposal
  process until the operating contractor's commercial production contracts
  expire in 2006.

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COMMENTS FROM THE DEPARTMENT OF DEFENSE
=======================================

*****************

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GAO CONTACTS AND STAFF ACKNOWLEDGMENTS
======================================

GAO Contacts

David R. Warren (202) 512-8412
Ronald L. Berteotti (214) 777-5702

Acknowledgments

In addition to those names above, Patricia J. Nichol, Kimberly C. Seay,
and Frederick T. Lyles, Jr. made key contributions to this report.

(709389)

Figure 1:  Activities With Responsibilities for Conventional 
Ammunition                                       6

Figure 2:  Management of the Conventional Ammunition Life 
Cycle                                            7

Figure 3:  Conventional Ammunition Procurement Program 
Budgets, Fiscal Year 1985 Through Fiscal Year 19999

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