oversight

Defense Transportation: Army's Personal Property Pilot Project

Published by the Government Accountability Office on 1997-08-04.

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

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       o   ~United States
           ynited StatGeneral
                   Accounting Office
            Washington, D.C. 20548                                  ll9

            National Security and
            International Affairs Division


            B-277007

            August 4, 1997

            The Honorable Strom Thurmond
            Chairman
            The Honorable Carl Levin
            Ranking Minority Member
            Committee on Armed Services
            United States Senate

            Subject: Defense Transportation: Army's Personal Property Pilot Project

            As requested, we reviewed the correspondence dated February 20, 1997, from
            an official of the American Movers Conference, an association of commercial
            moving companies. The correspondence was directed to the Commander of the
            Military Traffic Management Command and stated that the cost of the Army's
            pilot project to outsource personal property transportation services at Hunter
            Army Airfield, Savannah, Georgia, would greatly exceed the current cost for
            commercial moving services.

            Specifically, the correspondence stated that the Army's cost per shipment under
            the pilot project scheduled to begin in early 1997 would be $7,000, whereas the
            cost per shipment under the current program is substantially less, $1,672, based
            on Military Traffic Management Command data for fiscal year 1995 domestic
            and international shipments from the Hunter area, or $1,779, based on American
            Movers Conference statistics for average line-haul of all domestic military
            shipments. The correspondence stated that the data do not compare equal
            programs. However, the industry believes the data are sufficient to raise
            questions about whether the Army would obtain improved service that is
            commensurate with its increased cost. We discussed the data presented in the
            correspondence with officials of the Army and a representative of the American
            Movers Conference. This letter addresses (1) the estimated costs of an average
            shipment under the pilot project and current program and (2) our analysis of
            the basis for the American Movers Conference's estimates.                     \\6




                                             GAO/NSLAD-97-145R Army Personal Property Pilot Project
B-277007

BACKGROUND

The contract for the pilot project was awarded to PHH Relocation, Bethesda,
Maryland, on January 31, 1997, at an evaluated price of $22.5 million for 3 years-
-a base year and two 1-year option periods.' According to the Army, the
objective of the pilot project is to improve the quality of life for Army personnel
and families during the relocation process. The Army's solicitation informed
potential offerors that the contract would be awarded to the responsible firm
whose offer was determined to be the most advantageous to the government,
based upon price, technical factors (including operations, quality and service,
staffing and organization, use of small business), experience, and past
performance. The solicitation also provided that in the evaluation, the
combination of technical factors and past performance would be considered
significantly more important than price. The contract provides for a single
transportation and relocation management point of contact to furnish all
services necessary to accomplish the management and movement of household
goods (including unaccompanied baggage), mobile homes, and boats of Army
personnel and their families from Hunter Army Airfield to other places in the
United States and overseas. In early February 1997, two unsuccessful offerors
protested the award to PHH. Our office issued a decision denying the protests
on May 19, 1997.2

RESULTS IN BRIEF

Until the Army accumulates sufficient data on actual Hunter Army Airfield
shipments, we cannot determine an average shipment cost for the pilot project.
However, absent actual data, the model the Army used to estimate costs during
its evaluation of proposals provides a means of making preliminary cost
estimates. Therefore, using the model and available data, we estimate that the
cost of an average shipment under the planned pilot project is about $6,900 and
that the cost of an average shipment under the current program is about $6,400,
or roughly 8 percent less than our preliminary estimate for the pilot project.

While we recognize our estimate is subject to change based on the actual data
generated from the pilot project, our estimate for the pilot project is about the
same as the American Movers Conference's estimate of $7,000. However, our


'The price was based on an evaluation model developed by the Army to
compare offerors' prices and is only an estimate of the contract's value.
2Suddath   Van Lines, Inc.: The Pasha Group, B-274285.2; B-274285.3, May 19,
1997.

2                                GAO/NSIAD-97-145R Army Personal Property Pilot Project
B-277007

$6,400 estimate for the current program is substantially different from the
American Movers Conference's estimates because they are based on different
models, prices, cost factors, and time frames. We believe our approach
represents the most appropriate method for making a preliminary cost
comparison of the pilot project and current program until actual data are
available. Further, our estimates are based on the more current price data and
include more comprehensive cost data.

AVERAGE COSTS OF THE PILOT PROJECT AND CURRENT PROGRAM

At present, data to determine the actual average cost of Hunter Army Airfield
shipments under the pilot project do not exist. There is no universe from which
a statistically valid average can be determined. The Army and the Department
of Defense (DOD) have specific plans to collect cost data and to analyze it as
part of their overall evaluation plan.

The Army used a model in its evaluation of proposals to compare offerors'
prices for the pilot project. We believe that the model is a valid basis for
estimating the average shipment costs of both the pilot project and current
program. The model establishes average shipment characteristics for each of
three parts of the project-interstate, intrastate, international-and provides
numbers of shipments in each part. The data reflect historical shipment
characteristics for Hunter moves in calendar year 1995. For example, the model
indicates that the Army would have 646 shipments, weighing 8,000 pounds each,
moving 1,400 miles in its interstate part; 104 shipments, weighing 8,000 pounds
each, moving 250 miles in its intrastate part; and 323 shipments, each weighing
8,000 pounds, moving to Germany, Korea, and Hawaii in its international part.
The model also details how many shipments would require storage, how long
the shipments would be stored, and how many servicemembers would be
relocating.

Using this model and prices from the PHH contract, we estimate that the cost
of an average shipment under the planned pilot project is about $6,900. Using
the same model and prices from the currently applicable military rate schedules,
we estimate the cost of an average shipment under the current program is
about $6,400, or roughly 8 percent less than our estimate for the pilot program.
The estimated costs, broken down by type of shipment and overall average, are
shown in table 1.




3                               GAO/NSIAD-97-145R Army Personal Property Pilot Project
B-277007

Table 1: Estimated Average Cost Per Shipment under the Pilot Project and
Current Program


    Part of the pilot project or
         current program                     Pilot project               Current program
    Interstatea                                            $3,400                         $3,000
    Intrastatea                                            $1,600                         $1,200
    Internationala                                        $15,200                        $12,800
    Overallb                                               $6,900                         $6,400

aDoes not include management fees and Army administrative costs.
bThis is the sum of the total cost of each part, management fees, and Army administrative costs,
divided by the total number of shipments (1,073).

COMPARABILITY OF OUR ESTIMATES WITH THOSE OF
THE AMERICAN MOVERS CONFERENCE

Our estimate of the $6,900 pilot project's average shipment cost is close to the
American Movers Conference's estimate of $7,000. Our estimate is based on a
specific model (weighted by the number of shipments in each part of the overall
project), for a specific time frame (the base year, at a baseline date of contract
award), and at known prices (PHH contract). The American Movers
Conference's estimate, in contrast, was based on the overall price of the
contract as evaluated ($22.5 million) divided by 3 years (the contract period)
and 1,073 shipments (the total number of shipments included in the price
evaluation model). It was not weighted by individual parts of the project, nor
was it based on any specific year of the contract or on specific PHH contract
prices because such prices were not available to the American Movers
Conference at the time due to the bid protest.

Our current program average shipment cost estimate of $6,400 is different than
the American Movers Conference's per shipment cost estimates because the
estimates are based on different models, prices, cost factors, and time frames.
We use the Army model and prices from the currently applicable military rate
schedules and include cost factors such as the Army's administrative expense.
The American Movers Conference used a broad based model that showed two
different estimates: (1) one showing the average cost as $1,672 based on 2-year
old (fiscal year 1995) Military Traffic Management Command data that included
all domestic and international shipments moving not only from Hunter Army


4                                      GAO/NSIAD-97-145R Army Personal Property Pilot Project
B-277007
Airfield but also from Fort Stewart 3 and (2) the other showing the average cost
per shipment as $1,779. Both models did not include the Army's administrative
expenses. In commenting on this correspondence, the American Movers
Conference stated that its more current data now show the estimate is closer to
$2,000 per shipment.

Our estimates for both the pilot project and current program use the best
available information at this time. The actual average costs will likely vary
from our estimates, depending on actual shipping patterns. The Army and DOD
have made specific plans to collect cost data and to analyze it as part of their
overall pilot project evaluation plan.

COMMENTS AND OUR EVALUATION

We asked the Department of the Army and the American Movers Conference to
comment on a draft of this letter.

The Army concurred with the conclusions in our draft letter. Its response is
included as enclosure I.

The American Movers Conference provided comments to us in a letter dated
July 3, 1997. Subsequently, it provided more detailed comments in a letter
dated July 23, 1997, which we have included as enclosure II. The American
Movers Conference stated that it could not accept the comparisons and
conclusions in our letter as accurate because it did not have the opportunity to
review Army data and believes the data contain miscalculations and errors, such
as for international storage and accessorials. In addition, the American Movers
Conference stated that it believes (1) the management fee in the PHH contract
is too small to cover the contractor's operating costs, (2) the PHH offer was
higher than another firm's offer, and (3) more current American Movers
Conference data show that the $1,779 line-haul average per shipment cost for all
domestic military shipments is now closer to $2,000.

As stated in our letter, we estimated the costs of the pilot project and current
program based on the use of an Army model and the best available information
at the time. We recognize that our estimate is subject to change based on
actual data generated from the pilot project. The Army and DOD have specific
plans to collect cost data and analyze it as part of their evaluation plan. While


3FortStewart is the servicing DOD personal property shipping office for Hunter
Army Airfield for moves that are not part of the pilot program.

5                               GAO/NSIAD-97-145R Army Personal Property Pilot Project
B-277007

we independently verified the Army's methodology in calculating estimates for
both the current program and pilot project, we did not independently verify the
source data provided by the Army or the American Movers Conference. For
example, we accepted the data provided by the Army regarding certain
international program accessorials and overall program administrative expenses.
In considering the American Movers Conference comments, we determined that
the Army data we used to calculate storage charges for international shipments
should be adjusted to reflect a single, 30-day storage charge, rather than a daily
charge, resulting in a $400-reduction in the current program's estimate.
However, there continues to be a significant difference between the American
Movers Conference's and our estimates for the current program costs. We did
not find a basis to change our estimates for the interstate or intrastate
programs.

In our analysis of the pilot project costs, we used the contract award prices as a
basis for calculating our estimates. However, we did not attempt to determine
the basis of the contract prices for making our assessments. Thus, we did not
assess PHH's management fee and did not compare the PHH prices with other
offerors' prices.

In addition, we changed the American Movers Conference's estimate of the
current program to reflect an increase in the per shipment cost to $2,000. The
complete response of the American Movers Conference and our specific
comments to the points raised are included as enclosure II.



As you know, we are currently monitoring the Army's management of the pilot
project. We will continue to periodically inform you of the progress in
implementing the project, and as directed, we will report to you the results of
the pilot project, including its cost.

We are providing copies of this letter to the Secretary of the Army, the
American Movers Conference, and other congressional defense committees. We
will make copies available to other interested parties upon request. If you have




6                                GAO/NSIAD-97-145R Army Personal Property Pilot Project
B-277007

any questions, please contact me on (202) 512-8412, or Nomi Taslitt, Assistant
Director, on (202) 512-8474. Major contributors were J. Kenneth Brubaker and
Leo G. Clarke III.




David R. Warren, Director
Defense Management Issues




7                              GAO/NSIAD-97-145R Army Personal Property Pilot Project
ENCLOSURE I                                                                      ENCLOSURE I

               COMMENTS FROM THE DEPARTMENT OF THE ARMY

     DRLO-SP              Fax:703-614-                  Jul   8 '97    14:04   P.02/02


                                DEPARTMENT OF THE ARMY
                        OFFIRCE WO1HI LVPUY COl OFPSTAP POR LOGIGTmC
                                        00 ARMY PEMAGON
                                    WASfNTON DC 203100500




        Transportation Policy Division




        14r.David R. Warren
        Director, Defense Management Issues
        National Security and International Af                irs Division
        U.S. General Accounting Ottice
        WashinQton, D. C. 20548

        Dear Mr. Warren:

            This is the Army response to the G~neral Accounting
        Office (GAO) draft report 'Preliminary ICost Estimate ou
        the Army's Personal Property Pilot Program,' dated June
        20, 1997 (GAO Code 709261/OSD Case 139j).'

               Concur with conclusions in your dr ft report.




                                              igadieg
                                                    r      aera,U.S. Army
                                             irector foi Transportation,
                                              Energy anI Troop Support
        Copies Furnished:
        The _nspector GenQral. D.eprtmRnt of D fense
        Vice Chief of Staff, Army                  I
        The Adjutant Cenoral, U.S. Anry
        The inspector General, U.S. Army
        Cou1LLaltler, U.S. Arxmy Materiel Commanri




                                         GAO/NSIAD-97-145R Army Personal Property Pilot Project
ENCLOSURE II                                                                                                     ENCLOSURE II
                 COMMENTS FROM THE AMERICAN MOVERS CONFERENCE


                                                     AMERICAN MOVERS CONFERENCE
                   JOSEPH M. HARRISON
                   President


                                                                    July 23, 1997

                   David R. Warren, Director
                   Defense Management Issues
                   UNITED STATES GENERAL ACCOUNTING OFFICE
                   Washington, DC 20548

                   Dear Mr. Warren:

                          Thank you for the opportunity to comment on GAO's draft letter (B-277007) to be
                   sent to Senator Thurmond.

See comment 1.              It is clear from the draft response that GAO has chosen to use both the Army's
                   methodology (comparing hypothetical shipments) and the Army's self-serving data, rather
                   than review AMC's statistics or MTMC's statistics, both of which are based on actual
                   shipments. Since GAO is unable to provide us with the Army's data, and the Army has
                   refused our July 1 fax request and oral requests to release this data (see enclosed letter),
                   AMC is obviously unable to timely comment on the validity of the Army's computations,
                   which GAO has adopted for its review, apparently without attempting to independently
                   verify its accuracy.

                           In one area that AMC was able to validate the Army's data, international storage
See comment 2.   -costs, we found that the Army overstated these costs by a factor of 16. The Army
                  multiplied the storage charge in the current International program by 16 to account for 16
                  days of storage. However, this charge applies once for every 30-day period, not daily.
                  It is noted that GAO has now fixed this discrepancy. We assume that the Army's other
                  calculations may be similarly flawed, but we are unable to test the veracity of the Army's
                  data since the Army is treating its information as confidential.

See comment 3.            GAO recently reported that the PHH bid for the Army Pilot Program was 31%
                  higher than another bidder's offer (from a participant in the current program), so it is
                  surprising that GAO is now accepting 'on faith" the Army's assertions that the cost of its
                  pilot program is not any higher than the current program. This should have been
                  sufficient to prompt GAO to review the Army's numbers more closely, especially for
                  international accessorials, which MTMC agrees are rare and unlikely to amount to $5,000
                  per shipment.

See comment 4.           The second sentence in the last paragraph on page 4 should be amended to read:
                  'We use the Army model and prices from the currently applicable military rate schedules
                  and include cost factors such as the Army's administrative expenses and the Army's
                  unsubstantiated estimates of international accessorials of over $5.000 Der shipment."
                  This use by GAO of the Army's estimate for international accessorials is the primary




                 HOUSEHOLD GOODS CARRIERS' BUREAU COMMITTEE A Standing Autonomous Committee of the American Movers Conference
                            1611DUKE STREET ALEXANDRIA. VIRGINIA 22314-3482 1703)683-7410 FAX (703) 683-7527
                                                Affiliated with American Trucking Associations


9                                                           GAO/NSIAD-97-145R Army Personal Property Pilot Project
ENCLOSURE I                                                                                      ENCLOSURE II
                                                             -2-


                 reason for the high cost of the current program. MTMC sources confirm that few
                 accessorials are ever charged on international shipments in the current program, since the
                 single factor rate includes most accessorials. No reputable source has been able to verify
                 this $5,000 per shipment figure which was provided by the Army personnel at Hunter
                 and is clearly self-serving.

                         Similarly, the second sentence in the last paragraph on page 3 should be amended
                 as follows: 'Using the same model and prices from the currently applicable military rate
                 schedules. alone with the Armv's unsubstantiated estimate of over $5.000 Der shioment
                 in international accessorials. we estimate the cost of an average shipment under the
                 current program is about...'

                         Clearly, the first sentence on page 5 needs to be updated, as the best information
                 available at this time is that the Army's figure for international shipments in the current
                 program is vastly inflated, yet GAO is still using it.

See comment 3.           We also note that the management fee charged by PHH (approximately $100 per
                 shipment) is clearly too small to generate enough revenue to cover the cost of
                 maintaining an office at Hunter with several people and the other administrative costs
                 associated with this program. PHH must be intending to collect additional revenues from
                 its subcontracting carriers by assessing a commission in the form of the revenue
                 difference between the rate PHH is charging the government and the rate it is paying its
                 subcontractors, which may violate the Anti-Kickback Act and inflate the alleged
                 administrative savings.

                        In summary, AMC, without the opportunity to review the Army's data, cannot
                 accept the comparisons and conclusions in the GAO draft letter as accurate. In addition,
                 we are somewhat dismayed that GAO appears to have accepted the Army's data without
                 independent verification, especially when you consider the Army's flawed storage cost
                 data.

                        AMC will advise Senator Thurmond of our inability to accept the Army's data
                 absent an opportunity to verify its accuracy.

                         Minor corrections: in paragraph 2, the $1,672 figure is based not on 'industry
See comment 5.   estimates' but on MTMC data. AMC's February 20 letter indicated that our data showed
                 an average of $1,779 per shipment in linehaul costs. Our more current data now
                 available is closer to $2,000 per shipment. The last paragraph on page 2 also refers to
                 the $1,672 as AMC's estimate without noting that this is MTMC data.

                        Thank you for the opportunity to comment.

                                                           Sincerely,

                                                                   /RICA Mv RN       FERENCE



                                                           J6eM. Harriso
                                                           President

                 Enclosure




10                                                   GAO/NSIAD-97-145R Army Personal Property Pilot Project
ENCLOSURE II                                                                  ENCLOSURE II
The following are GAO's comments on the American Movers Conference's letter dated
July 23, 1997.

GAO Comments

1. We estimated the costs of the pilot project and current program based on the use of an
Army model and the best available information at the time. We independently verified the
Army's methodology. We did not independently verify the data from the Army or the
American Movers Conference sources.

2. We estimated the costs of the pilot project and current program based on the use of an
Army model and the best available information at the time. As stated previously, we
recognize that our estimate is subject to change based on actual data generated from the
pilot project. In this regard, the Army and DOD have specific plans to collect cost data
and analyze it as part of their evaluation plan. While we independently verified the
Army's methodology in calculating estimates for both the current program and pilot
project, we did not independently verify the source data provided by the Army or the
American Movers Conference. We did make an adjustment, however, to our estimate for
the current program regarding the calculation of storage charges. In considering
American Movers Conference comments, we determined that the Army data we used to
calculate storage charges for international shipments should be adjusted to reflect a
single, 30-day storage charge, rather than a daily charge, resulting in a $400-reduction in
the current program's estimate. However, there continues to be a significant difference
between the estimates for the current program costs. We did not find a basis to change
our estimates for the interstate or intrastate programs.

3. In our analysis of the pilot project costs, we used the contract award prices as a basis
for calculating our estimates. We did not attempt to determine the basis of the contract
prices for making our assessments. Thus, we did not compare the PHH prices with other
offerors' prices. The information the American Movers Conference cited was contained in
a losing firm's protest to the Comptroller General and in our decision denying that
protest. We did not assess PHH's management fees. The basis for the PHH offer was not
part of our analysis.

4. We did not independently verify the source data provided by the Army or the American
Movers Conference in calculating the estimates for the current program or the pilot
project. For example, we accepted the data provided by the Army regarding certain
international program accessorials and overall program administrative expenses.
Therefore, we did not independently determine the factors or amounts comprising the
estimates, which would involve, for example, taking a sample of bills of lading to see how
much was paid in the past for these accessorials and conducting a study to identify all


11                                        GAO/NSIAD-97-145R Army Personal Property Pilot Project
ENCLOSURE II                                                                 ENCLOSURE II
the administrative costs of the current program. Such expenses should be reviewed,
however, as part of DOD's evaluation of the pilot project.

5. We clarified the letter regarding sources of data used and changed the American
Movers Conference's estimate of the current program to reflect an increase in the per
shipment cost to $2,000.




(709261)


12                                       GAO/NSLAD-97-145R Army Personal Property Pilot Project