oversight

Navy Regional Maintenance: Substantial Opportunities Exist to Build on Infrastructure Streamlining Progress

Published by the Government Accountability Office on 1997-11-13.

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

                 United States General Accounting Office

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

November 1997
                 NAVY REGIONAL
                 MAINTENANCE
                 Substantial
                 Opportunities Exist to
                 Build on Infrastructure
                 Streamlining Progress




GAO/NSIAD-98-4
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-276587

             November 13, 1997

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

             Dear Mr. Chairman:

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


             The Navy has reported that more than $8.5 billion of Navy resources was
Background   applied in fiscal year 1996 to maintenance programs in support of fleet
             ships and aircraft. Each type of “platform,”—surface ships, submarines,
             aircraft carriers, and aircraft—has a separate maintenance infrastructure.
             Maintenance is done at three different levels—organizational,
             intermediate, and depot—depending on the nature and complexity of the
             work required. Organizational maintenance is done by military personnel
             on board ships or at aircraft squadrons. While at sea, intermediate
             maintenance on large ships such as aircraft carriers and tenders is done by
             military personnel; ashore, intermediate maintenance is done by military

             1
              We have identified the defense infrastructure as a high-risk area. High-risk areas are those critical
             government operations that are highly vulnerable to waste, fraud, abuse, and mismanagement. High
             Risk Series: Defense Infrastructure (GAO/HR-97-7, Feb. 1997) provides further discussion of our
             assessment of the defense infrastructure.
             2
              The Navy’s fiscal year 1995 program review was conducted in 1994, and updated the fiscal
             years 1994-99 Future Years Defense Program.



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                       and civilian personnel at submarine refit facilities and aircraft and shore
                       intermediate maintenance activities. Depot-level maintenance is done
                       mostly by civilian personnel at aviation depots and shipyards. In 1996, the
                       Navy had over 21,000 military and 42,000 civilians participating in
                       maintenance activities at the intermediate and depot levels. In addition,
                       the Navy has reported that up to 40 percent of depot-level maintenance is
                       outsourced to private companies.

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

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


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

                   •   To implement the infrastructure streamlining objective, the Navy
                       established steering committees, initiated a phased execution plan,
                       identified a regional structure, and developed business plans. Through



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    fiscal year 1996, the Navy also identified 102 initiatives, 55 of which had
    been started by the end of fiscal year 1997, and 47 of which are to be
    implemented between fiscal year 1998 and 2001. The 55 initiatives mainly
    represent the less controversial projects that are easier to implement,
    though a few complex consolidations have occurred; for example, three
    shore intermediate-level maintenance activities were combined into one
    organization. Implementation of the program has taken longer than
    expected, however.
•   Regarding savings estimates, the Navy projected that its 102 initiatives
    would save about $944 million, of which $198 million was expected to
    accrue during fiscal years 1994 to 1997 and $746 million was expected to
    accrue during fiscal years 1998 to 2001. Some of the initiatives are not
    progressing as projected, however. For example, one initiative to
    consolidate planning and engineering functions for ship repairs is not
    occurring as planned, delaying planned reductions-in-force actions and
    affecting up to $92 million in savings projected between fiscal year 1998
    and 2001. Also, the Navy cannot identify actual savings achieved because
    its accounting system does not track RM Program costs and related savings
    and the Navy did not establish an independent system to track these costs
    and related savings. The Office of the Secretary of Defense (OSD),
    Comptroller, stated that the program has not progressed enough to reap
    projected savings, Navy budgets recently submitted to Congress did not
    reflect the expected savings, and the Navy recently requested additional
    funding for depot maintenance. Since the Navy decreased its planned
    budgets for operations and maintenance in anticipation of savings from
    the RM Program and savings have not materialized as anticipated, the
    reductions will have to be made up in other ways or fleet readiness may be
    adversely affected in the future.
•   The Navy has opportunities to build on its progress by working to achieve
    the $746 million in expected savings during fiscal years 1998 to 2001,
    moving more quickly to implement initiatives for savings that have been
    identified, and pursuing other opportunities with high potential for
    significant savings not already in its plans. For example, we identified
    three opportunities to achieve potential annual savings of up to $26 million
    and one-time savings of $22 million through selected intermediate- and
    depot-level consolidations of common industrial shops in the Northwest
    and Hawaii regions that were not in current plans.
•   Accomplishing the infrastructure streamlining objective will be difficult.
    The Navy identified many of its initiatives to achieve savings as high risk
    because of barriers to implementation. The Navy faces parochial and
    institutional resistance to the RM Program’s objectives and has other
    complex issues to resolve. The biggest hurdle to overcome may be



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                       resistance to initiatives that eliminate organizations, reduce jobs and
                       promotions, and/or reduce a command’s or organization’s control over
                       resources. Other barriers are (1) the lack of management visibility over all
                       maintenance related costs; (2) multiple, unconnected management
                       information systems that do not provide adequate data for regional
                       maintenance planning and decision-making; and (3) the large number of
                       shore positions desired to support the sea-to-shore rotation program
                       compared to the smaller number needed to perform the intermediate
                       maintenance workload. Many commands involved in the RM Program have
                       chains of command that are independent of each other up to the CNO;
                       therefore, visible commitment by the CNO is critical to overcome
                       resistance, accelerate decision-making, and provide the necessary
                       resources and coordination needed for efficient and effective program
                       implementation.


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


Detailed Management    The Navy has established a management structure for planning and
Structure and Phased   implementing the RM Program. The structure is linked at the CNO level and
Execution Plans Were   includes committees, systems commands, the fleets, and various quality
                       boards and other groups. For example, the management structure within
Developed              the CNO includes an Executive Steering Committee that provides overall
                       program guidance and direction. This committee chartered the Fleet
                       Support Quality Management Board to develop the transition strategy for
                       moving to regional maintenance.3 Through this Board, regional
                       maintenance was planned and developed using focused working groups. A
                       Regional Maintenance Implementation Board (RMIB) was established to
                       coordinate among the Pacific and Atlantic Fleets, the systems commands,
                       and CNO-level units. The Board is co-chaired by the Fleet Maintenance


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



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    Officers,4 who have key leadership responsibilities to implement regional
    maintenance. This Board meets on a regular basis to address regional
    maintenance and other issues. Each of the systems commands, the
    Atlantic Fleet, and the Pacific Fleet report separately to the CNO.

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

•   Phase 1: Minimize intermediate-level redundant capacity through process
    improvements and resource sharing, and develop prototype centers of
    excellence, called Regional Repair Centers. Implement phase during fiscal
    years 1995-99.
•   Phase 2: Integrate intermediate- and depot-level activities and establish
    Regional Maintenance Centers (RMC), consisting of a confederation of
    Regional Repair Centers. Implement phase during fiscal years 1996-99.
•   Phase 3: Conduct fleet maintenance using a single maintenance process
    supported by common business and production practices. Implement
    phase during fiscal years 1997-99.

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




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



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Figure 1: The Eight Navy Regional Maintenance Centers and Regions



                    Northwest RMC
                    Bremerton, Wash.




                                                                                                               Northeast RMC
                                                                                                              New London, Conn.



                                                                                                         Mid-Atlantic RMC
                                                                                                            Norfolk, Va.



    Southwest RMC
    San Diego, Calif.



     Westpac RMC
    Yokosuka, Japan                                                                                Southeast RMC
                            Hawaii RMC                                South Texas RMC               Mayport, Fla.
                           Honolulu, Hawaii                             Ingleside, Tex.




                                              Note: Regions are shaded.




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



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

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

                         Because of problems with the Navy’s financial information system and
                         other coordination issues, in 1996 phase 2 of the execution plan was
                         divided into a three-step process. During the first step, ship intermediate-
                         and depot-level maintenance were to be consolidated; aircraft
                         intermediate- and depot-level maintenance activities were to be
                         collocated; and ship and aircraft maintenance consolidations were to take
                         place where logical. During the second step, ship intermediate- and
                         depot-level maintenance planning and engineering functions were to be
                         consolidated into ship-planning and engineering centers,5 reducing the
                         number of planning and other positions needed. As of July 1997, the third


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



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                                      step had not been approved, and delays in phase 2 have postponed the
                                      approval of phase 3.

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


                                      Through fiscal year 1996, 102 initiatives with projected savings of
Savings Have Not                      $944 million6 had been identified for the program. Of the 102, the Navy
Been Achieved at                      estimated that it would achieve net savings of $198 million through
Projected Levels                      implementation of 55 initiatives during fiscal years 1994-97 and that these
                                      projects would continue to provide savings in fiscal years 1998-2001
                                      amounting to $272 million, or a total of about $470 million (see table 1). It
                                      planned to implement 47 more between 1998 and 2001.7

Table 1: Navy Estimates of Net
Savings to Be Achieved From 55        Dollars in millions
Regional Maintenance Initiatives                                                              Estimated savings
Started During Fiscal Years 1994-97
                                                                                          Fiscal years         Fiscal years
                                      Source of savings                                       1994-97            1998-2001                Total
                                      Atlantic Fleet                                               $28.4               $148.5           $176.9
                                      Pacific Fleet                                                 60.5                   7.6             68.1
                                      Systems commands and other                                   109.1                116.0             225.1
                                      initiatives
                                      Total                                                      $198.0                $272.1           $470.1




                                      6
                                       The $944 million is a combination of savings derived from initiatives identified by the fleets, the naval
                                      system commands, and Navy operations staff. It is actually savings and cost avoidances (about
                                      $1.367 billion) less funds used to implement these initiatives (about $423 million).
                                      7
                                       Other information indicated some fleet initiatives may have started earlier than the Navy reported to
                                      us. Thus, some of the investments and savings would begin to occur earlier as well. Headquarters
                                      program officials who provided the data said they were aware of some problems but that it was
                                      generally accurate and would not be updated for some time.



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Program savings are not being achieved at the levels the Navy originally
estimated. According to fleet maintenance officials, initiatives that have
been implemented are mostly the less controversial projects that are
easier to implement and a few complex consolidations. They said they are
proceeding slowly because they believe Navy managers should be
encouraged, rather than forced, to accept regional maintenance.

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

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

The Navy Audit Service said it is in the process of evaluating RM savings
through baseline studies of initiatives and follow-up studies 1 year after
implementation. Only one of the studies has been completed. It showed
that savings achieved through the consolidation of activities in an electric
motor rewind shop in the Mid-Atlantic region was about $4.4 million a
year, or about 44 percent of the $9.9 million baseline cost each year prior
to consolidation.8 Baseline costs were being evaluated for some other

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



Page 9                                                GAO/NSIAD-98-4 Navy Regional Maintenance
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                                      selected projects so that post consolidation studies could be done. While
                                      the Naval Audit Service is looking at costs before and after consolidation,
                                      it is not tracking RM savings into budget and accounting records to
                                      determine if they have actually been accrued.

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


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

Table 2: Navy Program Reductions in
Operations and Maintenance Budgets    Dollars in millions
Taken in Anticipation of Regional                                             Fiscal year
Maintenance Savings
                                      Command                    1995     1996     1997      1998     1999      Total
                                      Naval Sea Systems           $92     $117     $121      $139     $163      $632
                                      Naval Air Systems            56       71       94       106        87      414
                                      Space and Warfare            22       20       21        21        23      107
                                      Systems
                                      Atlantic Fleet                8       10       10         9        10       47
                                      Pacific Fleet                22       12       14        15        17       80
                                      Total                      $200     $230     $260      $290     $300    $1,280




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                     The OSD Comptroller stated in a November 1996 budget memorandum that
                     the RM Program has not progressed enough to reap projected savings and
                     that further review of regional maintenance might be in order to ensure
                     savings occur and readiness is not degraded as a result of the reductions.
                     In August 1997, OSD Comptroller officials said that savings anticipated
                     from the RM Program have not materialized; in fiscal years 1995 and 1996
                     regional maintenance did not progress much past isolated, small and
                     informal tests; and in fiscal years 1997 and 1998, savings were offset by the
                     need to finance construction of new facilities in Navy SIMAs. The officials
                     noted that the Navy has recently requested additional funding for depot
                     maintenance and that more requests for additional funding were
                     anticipated. They further noted that depot maintenance budgets in a
                     number of areas have had to be increased over the Navy’s proposed
                     budget levels. For example, in fiscal year 1995, rates were increased
                     significantly over the Navy’s proposed budget levels to ensure full costs
                     were recouped; and in fiscal year 1998, Navy air depot budgets were
                     increased each year in the Future Years Defense Program, with over
                     $200 million added in both fiscal years 1998 and 1999.

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


                     The Navy has many opportunities to build on its maintenance
Additional           infrastructure streamlining progress. The Navy anticipates that the largest
Opportunities for    savings will accrue during fiscal years 1998-2001 (see fig. 2); that is, of the
Future Substantial   estimated $944 million its 102 initiatives are projected to save, $746 million
                     would accrue during that period. The Atlantic and Pacific Fleets have
Savings              identified additional opportunities for savings, and in 1997 added 34 more
                     initiatives to their regional maintenance business plans. They have not



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                                     estimated the amounts of savings from many of these initiatives, however.
                                     During our review, we identified additional opportunities for
                                     infrastructure reductions in two regions with potential savings of up to
                                     $48 million. These included potential annual savings of $26 million based
                                     on maintenance infrastructure consolidations in the Hawaii and Northwest
                                     regions, and $22 million in one-time savings by transferring work at the
                                     SIMA, Everett, Washington, to other existing shops and eliminating a
                                     military construction project and two barge overhauls.


Figure 2: Navy Projections of $746
Million in Regional Maintenance
Program Savings to Be Achieved
                                     Dollars in millions
During Fiscal Years 1998-2001        250
                                                  222
                                                                                       214

                                     200

                                                                                                        160
                                                                   150
                                     150



                                     100



                                      50



                                       0
                                                 1998             1999                 2000            2001
                                                                         Fiscal year



                                     The Navy has identified other potential regional maintenance
                                     opportunities that need to be studied. In the regions we reviewed, for
                                     example, the Northwest region in June 1994 identified 41 areas of
                                     redundant capabilities, but still has not studied many of them to determine
                                     whether initiatives could be developed to reduce unnecessary
                                     infrastructure and achieve savings. In a February 1997 Regional
                                     Maintenance Implementation Board meeting, in an effort to spur progress,




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                         the fleets were tasked to identify regional maintenance consolidation
                         initiatives that could be considered. In May 1997, the RM Program manager
                         for the Hawaii region told us his region had followed the lead of the earlier
                         Northwest region project and compiled a comprehensive inventory of
                         regional maintenance capabilities to be used to help identify future
                         initiatives.

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


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

                         Both regions had considerably more maintenance capacity than workload,
                         particularly at the shipyards. For example, we observed first shift
                         operations in a total of 25 backshops at 6 activities in the 2 regions.
                         Although usually the busiest shift, supervisors estimated that on average,
                         this shift was operating at about 30-percent utilization, with a range of
                         between 4 and 70 percent. Of the 25 shops, 16 had a second shift and only
                         7 had a third shift. Estimates of utilization during second shifts were
                         markedly lower, an average of 12 percent and a range of from about 1 to

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



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                                         39 percent. Some shop supervisors noted their shops had supported
                                         several times the number of workers in the 1980s than were currently
                                         employed. Navy data indicated that excess facilities and equipment
                                         capacity were due to reductions in labor hours and numbers of employees
                                         at these shipyards. For example, Navy data on direct labor hours at the
                                         Pearl Harbor Naval Shipyard showed a reduction from about 6.1 million to
                                         3.2 million (48 percent), and the Puget Sound Naval Shipyard showed a
                                         reduction from 12.0 million to 11.3 million (6 percent) between 1989 and
                                         1996. (See fig. 3.) At the same time, employment was reduced from 6,044
                                         to 2,879 ( 52 percent) at the Pearl Harbor Naval Shipyard, and from 12,240
                                         to 9,424 (23 percent) at the Puget Sound Naval Shipyard.


Figure 3: Direct Labor Hour Trends at
the Pearl Harbor and Puget Sound
Naval Shipyards (fiscal years 1989-96)
                                         In millions of hours
                                         18
                                         16                              15.1

                                         14                                        13.3
                                               12     12.3     12.1                          12.3       12
                                         12                                                                       11.3

                                         10
                                          8
                                              6.1
                                          6            5        4.8      5.1
                                                                                   4.6                  4.8
                                                                                              3.8
                                          4                                                                       3.2

                                          2
                                              1989   1990      1991     1992    1993        1994      1995       1996
                                                                         Fiscal year

                                                              Pearl Harbor   Puget Sound
                                                             Naval Shipyard Naval Shipyard



                                         Our specific findings, suggestions for consolidations, and estimated
                                         savings for the Hawaii and Northwest regions are summarized in




                                         Page 14                                GAO/NSIAD-98-4 Navy Regional Maintenance
                           B-276587




                           appendix I, with detailed data on labor, facilities, and costs provided in
                           appendix II.


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

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


Resistance to Downsizing   The RM Program requires managers to forgo the traditional
and Loss of Control Are    platform-oriented structure and substantially reduce or close some
Major Barriers to          maintenance activities as work is eliminated or reassigned. Many
                           commands involved in the RM Program have chains of command that are
Implementing the RM        independent of each other, and visible commitment by the CNO is critical to
Program                    program implementation. For example, reductions will result in fewer
                           commands and promotion opportunities and a need to share resources,



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



                           Page 15                                            GAO/NSIAD-98-4 Navy Regional Maintenance
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prioritize work, and reassign responsibilities. According to fleet officials,
this organizational resistance may be the greatest inhibitor to RM progress.

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

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

Fleet and headquarters officials further noted that many commands
involved in the RM Program have chains of command that are independent



Page 16                                  GAO/NSIAD-98-4 Navy Regional Maintenance
                            B-276587




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


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

                            According to OSD Comptroller officials, a central issue is that Navy
                            depot-level maintenance activities are funded under the Navy Working
                            Capital Fund (formerly the Defense Business Operations Fund),11 and
                            intermediate-level maintenance facilities are funded directly from the
                            appropriations accounts. One of the basic tenets of the Working Capital

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



                            Page 17                                           GAO/NSIAD-98-4 Navy Regional Maintenance
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Fund financial structure is to focus on total cost visibility and full cost
recovery for depot-level maintenance activities. Operating under this tenet,
managers of the fund’s activities are to be held accountable for the costs
of all the resources that they manage, and military customers are to pay
the full costs of the maintenance work performed.

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

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




Page 18                                  GAO/NSIAD-98-4 Navy Regional Maintenance
                            B-276587




Multiple Unconnected        The Navy does not have well-defined and consistent data on its
Information Systems Do      maintenance shops’ capacity, capability, workforce, and current and
Not Provide Adequate Data   projected workloads. Without such data, the Navy cannot systematically
                            identify potential regional consolidations and related savings estimates.
for Regional Maintenance    The Navy has recognized that it lacks compatible and interconnected
Planning and                maintenance information systems that could identify similar maintenance
Decision-making             capabilities across activities. Although the Navy has made some attempts
                            to address this issue, its systems do not yet collect the critical information
                            needed to identify excess capacity.12

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

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

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



                            Page 19                                             GAO/NSIAD-98-4 Navy Regional Maintenance
                            B-276587




Sea-to-Shore Rotation and   The Navy’s need to support requirements other than workload at shore
Other Needs Are Barriers    intermediate-level maintenance facilities can hinder RM regions’ efforts to
to Workload-Based           reduce military positions. For example, these facilities need positions to
                            support maintenance workload, the Battle Force Intermediate
Reductions in               Maintenance Activity (BFIMA) program13 and sea-to-shore rotation
Intermediate-level          requirements. These facilities’ positions are also used for personnel
Maintenance Positions       identified as excess to the requirements or on limited duty. According to
                            the Navy, however, the number of shore intermediate-level positions
                            should not be less than BFIMA program requirements and should not
                            exceed sea-to-shore rotation requirements.

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

                            On the other hand, the number of intermediate-level maintenance
                            positions desired to support the sea-to-shore rotation program14 far
                            exceeds the number needed to support the maintenance workload. In
                            March 1996, the Navy reported to the CNO that 19,819 shore
                            intermediate-level positions were desired to support sea-to-shore rotation.
                            Thus, it had a shortfall of 7,151 positions. This shortfall acts as a
                            disincentive for the Navy to reduce the number of shore intermediate-level
                            positions.

                            The Navy also uses positions at intermediate-level maintenance facilities
                            for personnel awaiting reassignment or on limited duty. This practice
                            further hinders efforts to reduce excess maintenance capacity. For
                            example, the Navy indicated that of the Southwest region’s 753 excess
                            positions, 335 were positions for sailors displaced by the decommissioning
                            of a Navy tender. Sailors affected by this decommissioning are typically
                            waiting for funding for permanent changes of station or reassignment.


                            13
                             In order to promote combat readiness and sustainability, each deployed battle force, battle group,
                            and amphibious readiness group operating independently is to establish its own intermediate
                            maintenance activity capable of providing this level of maintenance.
                            14
                             The CNO’s goal for sea-to-shore rotation is a maximum of 3 years of sea duty, followed by a minimum
                            of 3 years of shore duty for all career (E5-E9) enlisted personnel.



                            Page 20                                             GAO/NSIAD-98-4 Navy Regional Maintenance
              B-276587




              Also, in June 1997, the intermediate-level maintenance facility at Everett,
              Washington, and its detachment at Bremerton, Washington, reported a
              workforce of 521, of which 84 (over 16 percent) were on limited duty. The
              facility had recommended a reduction of its detachment workforce of 91
              positions—from 197 to 106. An efficiency review to determine the
              appropriate number of staff has been done but was not finalized during
              our review.


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

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

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




              Page 21                                GAO/NSIAD-98-4 Navy Regional Maintenance
                     B-276587




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


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

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

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




                     Page 22                                GAO/NSIAD-98-4 Navy Regional Maintenance
B-276587




cover such items as savings achieved and verified and progress made to
overcome barriers to program implementation.

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

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


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

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

Sincerely yours,




David R. Warren, Director
Defense Management Issues

Page 23                                  GAO/NSIAD-98-4 Navy Regional Maintenance
Contents



Letter                                                                                              1


Appendix I                                                                                         26
                         Opportunities for Savings in the Hawaii Region                            26
Estimated Savings        Opportunities for Savings in the Northwest Region                         28
From Potential
Consolidations Not in
Current Business
Plans
Appendix II                                                                                        32

Labor and Facilities
Cost Data on Potential
Hawaii and Northwest
Region Consolidations
Appendix III                                                                                       36

Scope and
Methodology
Appendix IV                                                                                        38

Comments From the
Department of
Defense
Appendix V                                                                                         40

Major Contributors to
This Report
Tables                   Table 1: Navy Estimates of Net Savings to Be Achieved From 55              8
                           Regional Maintenance Initiatives Started During Fiscal Years
                           1994-97




                         Page 24                              GAO/NSIAD-98-4 Navy Regional Maintenance
          Contents




          Table 2: Navy Program Reductions in Operations and                         10
            Maintenance Budgets Taken in Anticipation of Regional
            Maintenance Savings
          Table II.1: Potential Annual Facilities Savings From Consolidating         33
            Activities in the Hawaii Region
          Table II.2: Potential Annual Labor Savings From Consolidating              34
            Activities in the Hawaii Region
          Table II.3: Potential Annual Facilities Savings From Consolidating         34
            Activities in the Northwest Region
          Table II.4: Potential Annual Labor Savings From Consolidating              35
            Activities in the Northwest Region

Figures   Figure 1: The Eight Navy Regional Maintenance Centers and                   6
            Regions
          Figure 2: Navy Projections of $746 Million in Regional                     12
            Maintenance Program Savings to Be Achieved During Fiscal
            Years 1998-2001
          Figure 3: Direct Labor Hour Trends at the Pearl Harbor and Puget           14
            Sound Naval Shipyards
          Figure I.1: Machine Shops in Two Hawaii Region Activities                  27
          Figure I.2: Electric Motor Rewind Shops in Three Northwest                 30
            Region Activities




          Abbreviations

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


          Page 25                               GAO/NSIAD-98-4 Navy Regional Maintenance
Appendix I

Estimated Savings From Potential
Consolidations Not in Current Business
Plans
                        We identified examples of opportunities for consolidation of activities
                        with potential annual savings of up to $26 million based on infrastructure
                        reductions in the Pacific Fleet’s Hawaii and Northwest regions. Depending
                        on the extent to which operations are consolidated in Hawaii, we estimate
                        the range of annual savings to be from about $1 million to about
                        $14 million. In the Northwest region, again depending on the extent of the
                        consolidation, we estimate the range of annual savings to be from about
                        $1 million to about $12 million. In addition, work at the Shore Intermediate
                        Maintenance Activity (SIMA) at Everett, Washington, might be transferable
                        to other existing shops, eliminating the need for a military construction
                        project estimated to cost about $17 million and two barge overhauls
                        planned at an estimated cost of about $5 million.


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




                        Page 26                                 GAO/NSIAD-98-4 Navy Regional Maintenance
                                   Appendix I
                                   Estimated Savings From Potential
                                   Consolidations Not in Current Business
                                   Plans




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




                                   Intermediate Maintenance Facility




                                   Pearl Harbor Naval Shipyard




                                   Page 27                                  GAO/NSIAD-98-4 Navy Regional Maintenance
                    Appendix I
                    Estimated Savings From Potential
                    Consolidations Not in Current Business
                    Plans




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

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


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

                    Chief of Naval Operations (CNO), Regional Maintenance (RM) Program,
                    fleet, and Northwest region officials agreed that there are significant
                    amounts of excess industrial backshop facilities and equipment and that
                    consolidation is possible and necessary. They said that consolidating



                    Page 28                                  GAO/NSIAD-98-4 Navy Regional Maintenance
Appendix I
Estimated Savings From Potential
Consolidations Not in Current Business
Plans




industrial backshop work of all types into one industrial complex is key
and that the goal should be to have one regional backshop for each type of
capability.

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




Page 29                                  GAO/NSIAD-98-4 Navy Regional Maintenance
                                           Appendix I
                                           Estimated Savings From Potential
                                           Consolidations Not in Current Business
                                           Plans




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




  Trident Refit Facility                                         Shore Intermediate Maintenance Activity




                                Puget Sound Naval Shipyard




                                           Page 30                                        GAO/NSIAD-98-4 Navy Regional Maintenance
Appendix I
Estimated Savings From Potential
Consolidations Not in Current Business
Plans




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




Page 31                                  GAO/NSIAD-98-4 Navy Regional Maintenance
Appendix II

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

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

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

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




               Page 32                                 GAO/NSIAD-98-4 Navy Regional Maintenance
                                            Appendix II
                                            Labor and Facilities Cost Data on Potential
                                            Hawaii and Northwest Region
                                            Consolidations




                                            difference between estimated total costs and estimated costs retaining just
                                            the shipyard force.

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


Table II.1: Potential Annual Facilities Savings From Consolidating Activities in the Hawaii Region
Dollars in millions
                   Pearl Harbor    Intermediate                                                       Estimated      Estimated
                          Naval    Maintenance                                                             costsa       savings
                      Shipyard           Facility Public Works               Total    Estimated    retaining just retaining just
Selected                (square          (square Center (square           (square   total square    the shipyard   the shipyard
backshop work          footage)         footage)       footage)          footage) footage costsa square footage square footage
Electric motor          168,574           4,627                  0       173,201            $2.252          $2.191          $0.061
overhaul/repair
Electronic              132,968          44,382                  0       177,350             2.306           1.729           0.577
equipment repair
Machining               134,700          13,392              3,953       152,045             1.977           1.751           0.226
Material testing          18,538                316              0         18,854            0.245           0.241           0.004
Metal forming           189,569          13,040              4,000       206,609             2.686           2.464           0.222
Total                   644,349          75,757              7,953       728,059            $9.466          $8.376          $1.090
                                            a
                                            Based on Navy RM Program estimates of $13 per square foot.




                                            Page 33                                        GAO/NSIAD-98-4 Navy Regional Maintenance
                                             Appendix II
                                             Labor and Facilities Cost Data on Potential
                                             Hawaii and Northwest Region
                                             Consolidations




Table II.2: Potential Annual Labor Savings From Consolidating Activities in the Hawaii Region
Dollars in millions
                                                                                                                       Estimated      Estimated
                                                                                                                            costsa      savings
                                                                                                                        retaining      retaining
                                 Pearl Harbor Intermediate                                                                just the       just the
                                        Naval Maintenance Public Works                              Estimated           shipyard       shipyard
                                     Shipyard Facility (labor Center (labor            Total costs total labor               level          level
Selected backshop work           (labor years)        years)        years)           (labor years) year costsa         workforce      workforce
Electric motor overhaul/repair            39                22                  0                61         $4.255         $2.720         $1.535
Electronic equipment repair               29                58                  0                87          6.068          2.023           4.045
Machining                                 56                51                  3               110          7.673          3.906           3.767
Material testing                          12                  3                 0                15          0.979          0.783           0.196
Metal forming                             20                39                  7                66          4.604          1.395           3.209
Total                                    156               173                 10               339        $23.579        $10.827        $12.752
                                             a
                                              Cost estimates are a total of (1) Navy RM Program estimate of $45,000 in labor cost per year for
                                             military and civilian total compensation; (2) production support costs, which are estimated at
                                             40 percent of direct labor for all shops or 30 percent for material testing laboratories; and
                                             (3) administrative and general costs, which are estimated at 15 percent of direct labor.




Table II.3: Potential Annual Facilities Savings From Consolidating Activities in the Northwest Region
Dollars in millions
                           Puget
                          Sound                           Naval                                          Estimated      Estimated
                           Naval   Trident Refit      Undersea                                                costsa       savings
                       Shipyard         Facility Warfare Center                          Estimated    retaining just retaining just
Selected                 (square        (square         (square        Total (square   total square    the shipyard   the shipyard
backshop work           footage)       footage)        footage)             footage) footage costsa square footage square footage
Electric motor            15,725          6,506                    0           22,231             $0.289              $0.204              $0.085
overhaul/repair
Electronic                30,650          6,344                    0           36,994              0.481               0.398                0.083
equipment repair
Machining                 57,526         24,209              13,740            95,475              1.241               0.748                0.493
Material testing          13,520          1,479               5,600            20,599              0.268               0.176                0.092
Metal forming            107,998         12,827               5,245           126,070              1.639               1.404                0.235
Total                    225,419         51,365              24,585           301,369             $3.918              $2.930              $0.988
                                             a
                                               Based on Navy RM Program estimates of $13 per square foot.




                                             Page 34                                             GAO/NSIAD-98-4 Navy Regional Maintenance
                                          Appendix II
                                          Labor and Facilities Cost Data on Potential
                                          Hawaii and Northwest Region
                                          Consolidations




Table II.4: Potential Annual Labor Savings From Consolidating Activities in the Northwest Region
Dollars in millions
                                                                                                                                  Estimated
                                                           Naval                                             Estimated               savings
                    Puget Sound                        Undersea                                                  costsa        retaining just
                            Naval Trident Refit         Warfare                             Estimated    retaining just         the shipyard
Selected                Shipyard Facility (labor    Center (labor       Total (labor        total labor   the shipyard                  level
backshop work       (labor years)        years)           years)             years)        year costsa level workforce            workforce
Electric motor                20              25                 0                 45           $3.139               $1.395            $1.744
overhaul/repair
Electronic                    48              46                 0                 94             6.557               3.348              3.209
equipment repair
Machining                     79              32                23               134              9.347               5.510              3.837
Material testing              33               6                 6                 45             2.936               2.153              0.783
Metal forming                   8             17                 8                 33             2.302               0.558              1.744
Total                        188             126                37               351           $24.281             $12.964            $11.317
                                          a
                                           Cost estimates are a total of (1) Navy RM Program estimate of $45,000 in labor cost per year for
                                          military and civilian total compensation; (2) production support costs, which are estimated at
                                          40 percent of direct labor for all shops or 30 percent for material testing laboratories; and
                                          (3) administrative and general costs, which are estimated at 15 percent of direct labor.




                                          Page 35                                             GAO/NSIAD-98-4 Navy Regional Maintenance
Appendix III

Scope and Methodology


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

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

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

               To identify opportunities for additional excess maintenance infrastructure
               reductions and cost savings in the Hawaii and the Pacific Northwest
               regions, we reviewed Atlantic and Pacific Fleet business plans, regions’
               lists and studies of redundant capabilities. From the lists, we selected for
               further analysis industrial backshops for electric motor repair, electronics



               Page 36                                GAO/NSIAD-98-4 Navy Regional Maintenance
Appendix III
Scope and Methodology




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

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




Page 37                                GAO/NSIAD-98-4 Navy Regional Maintenance
Appendix IV

Comments From the Department of Defense




              Page 38      GAO/NSIAD-98-4 Navy Regional Maintenance
                Appendix IV
                Comments From the Department of Defense




Now on p. 22.




Now on p. 22.




                Page 39                                   GAO/NSIAD-98-4 Navy Regional Maintenance
Appendix V

Major Contributors to This Report


                        James F. Wiggins
National Security and   George A. Jahnigen
International Affairs
Division, Washington,
D.C.
                        Lionel C. Cooper, Jr.
Los Angeles Field       Dennis A. DeHart
Office                  Samuel S. VanWagner
                        Gary W. Kunkle
                        Jean M. Orland




(709219)                Page 40                 GAO/NSIAD-98-4 Navy Regional Maintenance
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