oversight

Transfer of Toolmaking, Toolcutting, and Grinding Functions at the Portsmouth Naval Shipyard

Published by the Government Accountability Office on 1977-07-11.

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

                         DOCUMENT   ESUME
02958 - [A1953029]

[Trarsfer of Toolmaking, Toolcutting, and Grinding Functions at
the Portsmouth Naval Shipyard). LCD-77-435; B-168700. Jujy 11,
1977. 3 Dp.
Report to Sen. John A. Durkin; by Robert G Rothwell (for Fred
J. Shafer, Director, Logistics and Communications Div.).

Issue Area: Facilities and Material anagement: Operation and
    Maintenance of Facilities (708).
Contact: Logistics and Communications Div.
Budget Function: National Defense: Department of Defense -
    Military (eycept procurement & contracts) (051).
Organization Co.fi-rned: Department of the Navy: Portsmouth Naval
    Shipyard, Nh.
Congressional Relevance: Sen. John A. Durkin.

          A review wa. conducted of the transfer of certain
machine functions at the Portsmouth Naval Shipyard in response
to charges that the transfer increased costs, necessitated
outside procurement, and resulted in an organizational structure
contrary to a Navy instruction. The organizational control of
these functions uas transferred from the Central Tool Room (Shop
06) to the Inside Machine Shop (Shop 31).   Findings/Conclusions:
Since the workers were located in Shop 31 even before the
transfer, and the transfer was merely organizational, the
cofective cost of the work was not changed. The allegation that
the cost of work more than doubled due to increased overhead
cost was based on an incorrect comparison of the average hourly
direct labor cost of Shop 06 with the average hourly total costs
including overhead of Shop 31. The overhead was more than 100%
of direct labor, and this accounted for most of the difference,
It was ascertained through an interview that purchases from
outside contractors were made because of delivery time and cost
considerations and not because of the transfer. Although the
organizational structure did not comply with a Navy instruction
which states that Shop 06 will be charged with toolcutting and
grinding functions, and the transfer was made without requesting
approval from the Commander, Naval Ship Systems Command, as
required, it appeared that the Commander ratified the transfer.
(Author/H T)
                              UNITED STATES GENERAL ACCOUNTING OFFICE
                                      WASHINGTON, D.C.   20548


 LOIFICS AND COMMUNICATlONS
          DIVISION



)D   B-168700                                                    JUL 11977


     The honorable John A. Durkin
     United States Senator
     Norris Cotton Federal Building
     Manchester, New Hampshire 03103

     Dear Senator Durkin:

          In accordance with your request dated February 16, 1977,
     we reviewed the transfer of the toolmaking, toolcuttinj, and
     grinding functions at the Portsmouth Naval Shipyard, Portsrouth,
     New Hampshire. The organizational control of these functions
     was transferred from the Central. Tool Room (Shop 06) to the
     Inside Machine Shop (Shop 31) in January 1973. Your request
     was based on a letter from one of your constitutents. Enclo-
     sures to the letter indicate that the transfer (1) caused the
     cost of work to more than double, (2) caused tools and equip-
     ment previously manufactured at the shipyard to be procured
     from outside contractors, and (3) resulted in an organizational
     structure contrary to a Navy instruction. Our review effort
     did not substantiate these charges. Our findings regarding
     each charge are discussed below.

     COST OF WORK-HAS NOT DOUBLED

          The allegation that the cost of work has more than doubled
     due to increased overhead cost was based on an incorrect com-
     parison of the average hourly direct labor cost of Shop 06 with
     the average hourly total costs including overhead of Shop 31.
     The overhead was more than 100 percent of direct labor and
     this alone accounted for most of the difference. We discussed
     this with the shipyard employee who made the comparison and
     he acknowledged that his comparison was not valid due to a
     misunderstanding of the contents of the figures he used.

           The toolmakers, toolcutters, and grinders have been
     phys.-ally located in Shop 31 for some time, even before the
     transJ.er.  Since the work is performed by the same people in
     the same location and the transfer was merely an organizational
     realignment, the effective cost of the work would not change

                                                                         LCD-77-435
B-168700


because of the transfer. The amounts cf overhead allocated to
the two shops would change because of the cost accounting system.
Shop 31 is a production cost center and is charged with three
overhead rates; production, general manufacturing, and general
administrative. Shop 06, however, is a support/service cost
renter and is charged with only the general manufacturing over-
head rate.  Since the total shipyard costs would remain the
same, shipyard customers vsuld neither benefit nor be penalized
from the realignment.

PURCHASE OF EQUIPMENT FROM OUTSIDE
CONTRACTORS NOT DUE TO TRANSFER

     As discussed above, the cost of work performed has not
increased due to the transfer and, accordingly, the transfer is
not the reason that tools and equipment previously m...ufactured
at the shipyard are now being procured from outside contractors.

     We interviewed the person who recently purchased a $4,950
machine for use in the shipyard that had been previously made
by shipyard toolmakers. He stated that delivery time and cost
were the two important considerations in the decision. He said
that his experience with the shipyard toolmakers was that they
often delivered items late and overran their cost estimates.
As a result, he now procures certain items from outside vendors.
He believes that the reason for the late deliveries is heavy
workload and higher priority placed on items other than the ones
he has ordered.

DEVIATION FROM NAVY INSTRUCTION

      The current organizational structure at the shipyard does
not comply with a Navy instruction which states that Shop 06
will be charged with the toolcutting and grinding functions.
The instruction further states that it is mandatory and shall
not be deviated from without specific approval from the
Coammander, Naval Ship Systems Command, now the Naval Sea
Systems Command (NAVSEA).

     Shipyard officials advised us that the transfer of these
functions from Shop 06 to Shop 31 was made without requesting
approval from NAVSEA. However, it appears that the Commander,
NAVSEA, has ratified the transfer. In his letter to you dated
April 7, 1977, he concluded that the organizational placement
of these functions at the shipyard is appropriate for that
particular organization. Such placement, according to his
response, does not increase overhead costs charged to shipyard
customers and cannot be construed as an undue expenditure of
pullic funds.

                               2
B-168700



      In conclusion, we found that
did not increase shipya:d costs. the organizational realignment
request approval for the changer Although the shipyard did not
indicates that it would be willing NAVSEA's response to your letter
                                     to specifically approve it.
     As arranged with your office,
its contents earlier, we plan        unless you publicly announce
                               no further distribution of :his
report until 30 days from the
                               date
we will send copies to interested of the report. At that. time,
available to others upon request. parties and make copies

                             Sincerely yours,




                           -* F. J. Shafer
                              Dir -ctor




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