oversight

Increasing "In-House" Laundry Capabilities in Vietnam Instead of Relying on Foreign Contractors

Published by the Government Accountability Office on 1971-05-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

INTERNATIONAL          DIVISION




                E-165629



                The     Honorable
                The     Secretary        of Defense

                          Attention:           Assistant         Secretary     of Defense
                                               (Installations           and   Logistics)

                Dear      Mr.     Secretary:

                         We have made a limited            review     to see whether       the United        States
                   uld benefit        from a cost and balance-of-payments                  standpoint        by
                   creasing-            "in-house"      laundry     capabilities      in Vietnam       instead       of
                                         .
                    lying    w                on foreign      contractors2        who use mostly       foreign-made
                laundry      equipment.         We also considered           whether  increased       U.S.     laundry
                capabilities        might      be needed to meet acceptable             standards      of cleanliness.

                       Our review    showed that very                    substantial          savings   could    be realized
                by increasing     the Army's    "in-house"                   capability          and that,    in the past,
                U.S. Army standards      of cleanliness                    have not         been achieved       by contractors.

                           The details        of our cost calculations,                    the Army's    observations     on
                hygienic          conditions,      our conclusions,     and               agency actions     are presented
                in the        following       subsections.

                Economic    advantages                of increasing        the
                Army's   "in-house"                laundry    capabilities

                        Throughout           Vietnam,     roughdry      laundry     service     is provided       by Army
                mobile       laundry       units    which support         tactical     missions     and base groups.
                The Army does not have the fixed                      "in-house"       laundry     capability       to provide
                its    forces      with finished           (pressed)      laundry    in Vietnam.         The Air Force has
                one fixed        installation          in Vietnam       which was not operating               at capacity    and,
                therefore,         was the subject            of a previous        GAO report      which suggested        an
                interservice           support      agreement       to make better        use of its capacity
                 (B-165629       dated       March 15, 1971).

                        Since the Army lacks          fixed              laundry    facilities,        which are needed
                to do finished       work, it relies                   on foreign      contractors        to provide these
                services.      Contracts,     indefinite                   as to quantities,          are based on fixed
                prices     for each item    laundered                  and finished.




                                               ~      5QTH      ANNIVERSARY        1921-      1971
        Although        troop   strength          in Vietnam   is decreasing,                     the    cost of the
Army's      contractual       laundry          services    has been increasing.                         Army officials
estimate       the cost in recent               years as follows:

                                  FY   68                         $4,9       million
                                  FY   69                          8.0              "
                                  FY   70                          8.9              "
                                  FY   71                          9,8              "

        Army laundry         branch      specialists       in Washington       informed         us that
these contractual            costs     far exceeded        the costs that        would be experienced
if such services            were provided          by Army-owned     laundry       facilities,          The
following        statement,       taken     from a June 1968 report            prepared         by the Aq?v
Laundry      and Services        Branch,       Washington,     D,C.,    highlights           the exressl.   s
costs     involved.

                                         *           *       *           *              *

                 "**On     the basis         of the workload            processed          by commercial
                 contract     during       the period         1 January         through       30 April,
                 1968 and the actual              cost for these            services,         the U.S.
                 Government       is paying         $0,0913       for each piece            of laundry
                 processed*         Taking     into       consideration           the wage rates
                 paid to local         nationals          in Vietnam         ($0.90      to $1.15 per
                 lo-hour     day) and the other               expendable          supplies       and
                 utilities      required        in laundry          operations,         the workload
                 for the above period               could have been processed                    by Army-
                 owned and operated            facilities           at a cost of approximately
                 $0.01 per piece."



        The     report    concludes          that:

                 "**"rhe     construction         and operation     of *** facilities                          by
                 the Army      **     would realize      a savings    of approximately                           800
                 percent     per year by the U-S. Government.               Savings      of                    this
                 magnitude       will   permit     the amortization      of the facilities
                 in less     than three        years,"

          The   report   recommended construction                   of fixed                "in-house"      laundry
facilities         by the Army and a consequent                   reduction                 in contract       services.

         We analyzed    Army expenditures          for laundry      services      provided      by
foreign     contractors      in Vietnam     during     fiscal    year 1970,         This analysis
showed that,        for three   major    areas of troop        concentration         in Vietnam,
the Army paid approximately             $7.5 million        to process      about     100 million
units--an      average    of .075 cents per unit            of laundry.        Calculations        we



                                                                                                                          -20
made with the assistance        of Army specialists     showed that                        an equivalent
workload     could   have been handled     at U.S. Government-owned                         facilities,
if available       in 1970, at an operating      cost of approximately                          $2,5 million,
or .025 per piece        (See appendix   I>.

        In order      to achieve          operational       cost reductions             of about      $5.0 million
in fiscal        year 1970, as indicated                by our study,         it would have been necessary
for the Army to invest                in buildings         and equipment.             If new buildings          and
equipment       were used, we estimate                that    total    investment          cost would have been
about     $8.3 million--which               means that      the U.S. could           have recouped          its total
capital      outlay     in about        l-1/2     years if it had performed                  laundry     services
"in-house"o          Actually,        the investment          and period        of recovery          would be
 less if existing           buildings         were utilized         as troop      strength       decreased,       since
the cost of renovating                and modifying         these buildings             would be less than
the cost to construct                new ones*

       After   the recoupment       of initial         investment       costs,  the U.S, would
begin   to realize      substantial      cost and balance-of-payments               advantages
because     of reduced     payments    to foreign          sources     and because   of the use
of American      rather    than foreign        laundry      equipment.

         We cannot     project     with     certainty        at this      point     how much might       be
saved in the future            by establishing            an Army "in-house"           capability      in
Vietnam.       The potential         savings       will    depend on the best information
available      to the military          on its troop           strength      and concentration         in
the future.         If it appears         that     there     will    be a significant           number of
troops     concentrated        at specific         locations,        then the Army would need to
consider      whether     the potential          for recoupment           of initial      investment      costs
in a relatively          short   time would warrant                an "in-house"       capability.

       As one indication         of the savings          which might        be possible,            even at
a substantially        reduced     troop   strength        in Vietnam,       we calculated               that     if
50,000   troops     were to remain       at three        of four major         locations          the Army
would save $2.4 million            per year by performing              laundry         services        in a fixed
Army installation,           This would require           an estimated         initial         investment
outlay   of $3.7 million         for new buildings             and equipment.             Thus,     the initial
outlay   could     be recouped       in about     l-1/2      years   (or less if existing                    build-
ings could       be renovated      and modified)         and, after       that      period,       recurring
savings     of $2.4 million        a year could         be realized       (See appendix             II).

Potential          hygienic     advantages       of
increasing           "in-house"     laundry      capabilities

        Military        officials,         in the past,     have expressed      concern           over    the
poor    quality        of work       performed    by foreign     laundry   contractors.



                                                                                                                -3-
        As tangible        evidence     of this   concern,   the Air Force constructed
(and began operating             in July   1970) a fixed      laundry      facility        to provide
service    to 5,000 men at Cam Ranh, Vietnam,                because       Air Force officials
were troubled          over the prevailing        unsanitary     conditions         existing       in
contractor      facilities         they were utilizing,      which adversely              affected
the health      and morale         of Air Force personnel,

       An Army      study     made during         1968      commented:

                                   *         *        A-          *           *



               "There        are currently           22 commercial        laundry     contracts     in
               existence         throughout          Vietnam.,      A considerable         number of
               these facilities               were visited        **Jr.     Qf the contract
               facilities          visited,       it is considered           that    only one of
               the contractors              is providing        laundry      service     which will
               meet Army standards               , particularly         from a hygiene          and
               sterilization             standpoint.***"

It was also reported             that   most of the             contractors       were   not   using      the
correct  supplies   for          proper   cleaning,

       The report          pointed     out that      complete    sterilization               of clothing
was not being          accomplished        at contractor-operated                facilities         due to
inadequate     utilities,          i.e.,     hot water and steam,                The temperature            of
hot water being            used was approximately             90 degrees         Fahrenheit         and the
steam pressure           ranged    from 15 to 35 pounds per square                        inch.     For proper
soil   removal      and sterilization             the report      stated       that       it was essential
that water     temperatures             be maintained       at 160 degrees              Fahrenheit       and that
steam pressures            range from 100 to 125 pounds per square inch.

       Representatives         of the Office               of  thb$ Surgeon      General      in Vietnam
also found that        at one contractor's                  facility    finished       clothing     with
mites   was being      returned     to units.               We were informed         that     this  contract
subsequently        was terminated.

         We were unable           to determine         from information         available        in Washington
whether      the sanitation             conditions       at contractor       plants      in Vietnam        have
improved       enough since           the 1968 study to meet military                  standards       for
cleanliness.            Army officials             in Washington,       with whom we spoke during
our review,          believed       there      was enough doubt         to make it worth their              effort
to investigate.              Therefore,          they agreed      with our suggestion            that    repre-
 sentatives        of the Office           of the Surgeon         General    perform       tests     to see
whether      foreign        contractors         are comp?ying        with Army hygienic            standards
at this      time.



                                                                                                         -h-
Conclusions        and    agency     actions

        Economic       advantages       would be realized           by the U.S. if the Army could
increase     its     "in-house"       capabilities         for performing     laundry    services       in
Vietnam,     provided        that    sufficient      troop     strengths   and concentrations           in
the future       would permit         the amortization           of costs  for constructing         or
renovating       and equipping          facilities       for use as laundries         so that    future
recurring       savings      then    would be realized.

           We understand             that    the Army considered             constructing          fixed      laundry
facilities           in its        1969,     1970, and 1971 military                construction          program
proposals          for Vietnam            but that     these projects           were deleted           because
higher       priority           projects       took precedence.            We recognize          that     constructi-.
of laundry           facilities           must compete       with other         priority       needs for funds,
and that         there        are many uncertainties             about       the U.S. presence              in Vietnam
which make it difficult                      to predict      whether       it would be in the best interest
of the U.S. to construct                       fixed   laundry    facilities,

           We discussed      this   matter     with Army officials      in Washington        who
believed         it would not be feasible           to construct   laundry   facilities        in
Vietnam        at this    time,   in view of the long lead time required                to establish
facilities          there   and because       of the uncertainty     of U.S. troops        remaining
there       over a significant         length     of time to allow     costs to be recovered.

        As shown in this      report,    however,     there   is a very wide variance             in
the estimated        cost to provide     laundry     services    "in-house"        as compared
with the cost to obtain           the services     from foreign       contractors.        Wh?' le
we have not attempted         to evaluate      the reasonableness         of the contract
costs,    there     may be possibilities       for achieving       savings     through    lower
contract     rates,

        Army officials        in Washington,          with whom we discussed                 laundry       costs,
told    us that    they were aware of the large                 disparity          between       "in-house"
and contractual        costs,      and the need to monitor               the contractors'               operations.
During     our review,      these officials           in Washington          asked the Pacific               Command
to look into       the possibility          of negotiating          lower       laundry      prices      on fiscal
year 1972 contracts.            Later,       they told      us that      allotted         funds would be
reduced     for such services,           thus forcing        more stringent             negotiations           to
take place      so that     lower rates         might     be achieved.            They also agreed             to
inspect     the contractors'          operations        from a hygienic             standpoint.

         GAO believes        the actions    proposed            should     bc a significant             step
toward     achieving        economies    on contracted             operations.

        A previous      report   entitled      "Cost and Balance-Of-Payments          Advantages
Of Replacing       Foreign-made        Buses With American-made        Buses Abroad"
(B-163869      dated    February     5, 1970) commented     on a parallel     situation
involving      the use of contract          services,    In that    case, we found that


                                                                                                               -5-
increasing       the "i*house"      capability        of the military       would result      in
significant        savings.    We were advised          recently    that  the number of leased
buses in      Vietnam     will be reduced      drastically       by supplying     U.S.-manufactured
buses.

         The two cost studies       of contract      operations       we have made to date
in Vietnam        demonstrate  a need for military           forces     to make analyses     to
assist      them in evaluating      the cost of contract            operations    compared   with
the cost of "in-house"         operations.        These analyses          would be useful    in
negotiating        reasonable  contract     rates    and in considering         alternatives
to having       the services   performed      by contract.

        We therefore      suggest    that    the Department      of Defense    direct    that
all   major    support    services     being    performed    under offshore      procurement
contracts      in Vietnam      be analyzed      to determine     whether   costs can be
reduced     and balance-of-payments            advantages    can be realized.

        Copies     of this   report     are being    sent to the Director,         Office    of
Management       and Budget;     the House and Senate         Committees       on Government
Operations;        the Foreign      Operations    and Government       Information      Sub-
committee,       House Committee        on Government     Operations;       the House and
Senate      Appropriations      Committees;      and the House and Senate Armed
Services       Committees.

        We would like    to acknowledge          the outstanding       cooperatfon    and
assistance     provided    by military        representatives       during    the course  of
our review.       We would appreciate           being    advised   of the success of t??
actions    taken,

                                                  Sincerely     yours,




                                              /   Director
                                              J
Enclosure




                                                                                                  -6.
                                                                                                                  APPENDIX   I


                                  Cost   and Balance-of-Payments         Comparison
                                      of Laundry     Services    - Contractual
                                    Versus "In-House"       Operations     in Vietnam
                                                     for FY 1970


                                                                                             In   Million         Dollars
Contract         Costs
     (100       million          units)                                                               $7,48

Estimated           "In-House"           operations
     (for        equivalent           units)

        Labor                                    $2005
        Supplies            and Parts               .21
        Utilities                                   022
             Total                               $2.48            (for     101.7   million
                                                                    units)
                or .025 cost per              unit
                100 million  units             @ .025                                                   2.50

Estimated           Annual   Cost          and   Balance-of-
   Payments          Savings                                                                          $4.98
                                                                                                      _--__


                                            Estimated        Investment       Costs
                                    To Process         100 Million      Units   of Laundry
                                                           In Vietnam
                                  (Assuming     facilities         are used for 2 shifts)

Building           Costs                                                                      In Million           Dollars

           Material       - steelframe                structure                                        $2.05
           Labor - costs                                                                                1.82
           Transportation          Sr port        handling                                                -32
           Overhead                                                                                        ,42
                                                                                                                   $4.61

Equipment               Costs

           Production             and support                                                          $2.49
           Installation             and overhead                                                          .25
           Transportation              and port  handling                                                 D15
                                                                                                                     2.89
Cost       of    Funds          (7% x l-1/2      yrs.)                                                                 .79

                Total       Investment                                                                              $8.29

NOTE:           Qur calculations              are basccl on the b<,st available                             information
                obtained     from         Departmcbnt   of Army sources.
. *




                                                                                                                         APPENDIX          II


                                         Cost and Balance-of-Payments                     Comparison
                                            of Laundry  Services      Based              on 50,000
                                         Troops   for 3 Major    Locations                in Vietnam


                                                                                                        In     Million           Dollars
      Contract    Costs
        (48 million     units                 at        .075)                                                        $3.62

      Estimated     "In-House"      operations
          (for equivalent      units)

              Labor                                         $1.04
              Supplies               and Parts                  009
              Utilities                                         e 10
                   Total                                      1.23                                                       1.23

      Estimated           Cost         and   Balance-of-Payments
          Savings                                                                                                    $2.39
                                                                                                                     __--
                                                                                                                     _--_


                                                         Estimated     Investment          Costs
                                                          To Support        50,000      Troops
                                                                   (2 Shift      Basis)

                                                                                                        In     Million           Dollars
      Building           Cost

                 Material-steelframe                       structure                   $092
                 Labor - costs                                                           .82
                 Transportation                   and    port           handling         014
                 Overhead                                                                .20                         $2008

      Equipment               Cost

                 Production              and Support                                   $1.14
                 Installation               and overhead                                   .11
                 Transportation                and port  handling                          006                            1.31

      Cost       of    funds          (7% x l-1/2               yrs.)                                                      .35

                      Total          Investment                                                                      $3.74
                                                                                                                     _----.



      NOTE:           Our calculations                   are based on th<, best             available        information             obtained
                      from Department                   of Army sources,