oversight

Defense Reform Initiative: Organization, Status, and Challenges

Published by the Government Accountability Office on 1999-04-21.

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
                  Armed Services, House of
                  Representatives

April 1999
                  DEFENSE REFORM
                  INITIATIVE

                  Organization, Status,
                  and Challenges




GAO/NSIAD-99-87
GAO   United States
      General Accounting Office
      Washington, D.C. 20548                                      Leter




      National Security and
      International Affairs Division                                                                  Leter




      B-280522                                                                                Letter



      April 21, 1999

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

      Dear Mr. Chairman:

      In November 1997, the Secretary of Defense issued his Defense Reform Initiative (DRI) Report
      outlining a plan for reforming the Department’s business affairs. To implement the report’s
      initiatives, the Secretary established a Defense Management Council and chartered it with
      responsibility for overseeing the effort and serving as his internal board of directors for
      management. As you requested, this report discusses (1) actions taken through the DRI
      management structure to facilitate achieving the program’s objectives and (2) progress made
      in implementing individual reform initiatives.

      We are sending copies of this report to the Honorable William S. Cohen, Secretary of Defense;
      the Honorable F.W. Peters, Acting Secretary of the Air Force; the Honorable Louis Caldera,
      Secretary of the Army; the Honorable Richard Danzig, Secretary of the Navy; Lt. Gen. Henry T.
      Glisson, Director, Defense Logistics Agency; Mr. Gary Amlin, Director of the Defense Finance
      and Accounting Service; the Honorable Jacob J. Lew, Director, Office of Management and
      Budget; and interested congressional committees and members. We will also make copies
      available to others upon request.

      If you or your staff have any questions concerning this report, please contact me on
      (202) 512-8412. Major contributors to this report are listed in appendix IV.

      Sincerely yours,




      David R. Warren, Director
      Defense Management Issues
Executive Summary



Purpose      For the past several years, the Department of Defense (DOD) has been
             working to reduce its infrastructure and support costs. The Defense
             Reform Initiative (DRI), announced in November 1997, is DOD’s latest
             effort to further this goal. DOD is looking to the DRI to make its current
             organization and business practices more agile and responsive. DOD also
             hopes that this initiative will provide a major source of savings that can be
             used to help fund DOD’s planned $20 billion annual increase in weapon
             systems modernization.

             The Chairman, Subcommittee on Military Readiness, Committee on Armed
             Services, House of Representatives, requested that GAO evaluate DOD's
             efforts to implement the DRI by assessing (1) actions taken through the
             DRI management structure to facilitate achieving the program’s objectives
             and (2) progress DOD has made in implementing individual reform
             initiatives.



Background   The genesis of the DRI was the Quadrennial Defense Review (QDR), which
             was completed in May 1997. Among other things, the QDR called for DOD
             to reduce its support infrastructure and streamline its business practices.
             The DRI, as a follow-on effort to the QDR, is built around four major reform
             efforts, or pillars:

             • reengineering defense business and support functions, primarily by
               adopting and applying the private sector’s best practices;
             • reorganizing and reducing the size of DOD headquarters elements and
               Defense agencies, including the Office of the Secretary of Defense;
             • expanding the use of competitive sourcing to open DOD’s commercial
               activities to competition from the private sector; and
             • conducting two additional base realignment and closure (BRAC) rounds
               and eliminating other facilities that are no longer needed and/or drain
               resources.

             While DOD expected each of these efforts to reduce infrastructure costs,
             most savings were to come from two initiatives. The first involved
             subjecting thousands of government positions that provide
             commercial-type functions and activities to public/private competitions to
             find the most cost-effective source for the work. The second involved
             conducting two additional BRAC rounds in fiscal years 2001 and 2005.
             DOD estimated that competitive sourcing would save about $6 billion
             through fiscal year 2003 and over $2 billion each year thereafter. The two



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                   additional BRAC rounds were estimated to produce about $2.8 billion in
                   net annual recurring savings once implementation costs had been offset.
                   DOD did not estimate savings expected from the other initiatives.

                   GAO previously reported that implementing reforms such as the DRI is not
                   an easy task.1 To be successful, DOD must address obstacles that have
                   previously kept it from effectively implementing management reforms
                   across the Department. These include (1) cultural barriers and
                   parochialism among the military services and Defense agencies, (2) lack of
                   incentives among DOD managers to seek and implement change,
                   (3) deficient management data that prevents DOD from costing its business
                   operations, (4) lack of clear results-oriented goals and performance
                   measurements needed to gauge success, and (5) inconsistent management
                   accountability and follow-through.



Results in Brief   By adopting proven management change concepts in implementing the DRI
                   program, DOD has addressed some of the obstacles that have limited the
                   success of past reform efforts. The Secretary and Deputy Secretary of
                   Defense have shown strong support for the program and established an
                   organizational framework to give additional structure and guidance to the
                   effort. This framework consists of a Defense Management Council (DMC),
                   a Coordinating Group to support the Council, and a DRI Office to track
                   implementation and identify issues that need management attention.
                   Further, using special directives, performance contracts, and other
                   planning guidance, DOD has sought to institutionalize and provide a
                   sustained emphasis on the DRI. This framework, taken in total, has helped
                   create a Defense-wide focus on infrastructure reduction and provides a
                   forum where problems caused by cultural barriers and parochial interests
                   can be addressed.

                   Because the DRI framework has been in place for just over a year, it is too
                   soon for GAO to assess how effective it will be in the long term. GAO did,
                   however, identify several areas where DOD could build on its initial efforts
                   and give even greater impetus to its goal of achieving a “revolution in
                   business affairs.” These include (1) incorporating other major ongoing
                   reform efforts in the DRI so it can develop a more comprehensive,
                   integrated strategy for reforming Defense business and support activities;


                   1
                    Defense Management: Challenges Facing DOD in Implementing Defense Reform Initiatives
                   (GAO/T-NSIAD/AIMD-98-122, Mar. 13, 1998).




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                           Executive Summary




                           (2) more clearly delineating the funding requirements needed to achieve
                           major reforms; and (3) enhancing the Department’s ability to measure DRI
                           results, particularly through financial management and related reforms.

                           Each of the four DRI pillars include a variety of reform or reengineering
                           initiatives, many of which were already ongoing before they were brought
                           under the DRI umbrella. To varying degrees, DRI has given each of these
                           initiatives increased visibility and top-level support within the Department
                           and, in many instances, imposed new goals and milestones for
                           accomplishing their objectives. Each initiative varies in its progress
                           toward meeting its objectives and milestones. Many still face a variety of
                           issues that could affect their ultimate success and will likely take longer to
                           complete than the milestones established by the DRI. Consequently, the
                           success of the DRI will depend largely on DOD’s ability to maintain a high
                           degree of emphasis on the initiatives over the long term. Past reform
                           efforts started out well but tended to lose momentum as the Department’s
                           leadership and priorities changed.

                           GAO is recommending that DOD include other major reform efforts in the
                           DRI program, develop an integrated strategy and action plan for managing
                           the DRI effort, and identify funding requirements and targets for the
                           program.



Principal Findings

Implementation Strategy    DOD’s senior leadership has created Department-wide awareness of DRI
May Help DOD Avoid         goals. In addition, DOD has used special directives, known as Defense
                           Reform Initiative Directives (DRID), to provide specific direction, including
Problems of Prior Reform   milestones, to DOD components responsible for implementing individual
Efforts                    initiatives. In general, service and Defense agency officials have viewed
                           these DRIDs as effective tools in communicating expectations and
                           providing some basis for tracking required actions. The DMC is also
                           developing performance contracts for eight Defense agencies/activities to
                           improve the Department’s oversight of them and outline goals for cost
                           reductions and service improvements. Further, the Department has sought
                           to incorporate a DRI emphasis in its implementation of the Government
                           Performance and Results Act and its requirements for strategic goals and
                           performance plans. The Department’s fiscal year 2000 performance plan
                           includes the DRI-related goals of streamlining infrastructure and pursuing



                           Page 4                                   GAO/NSIAD-99-87 Defense Reform Initiative
                            Executive Summary




                            business practice reforms. It specifies a variety of performance indicators
                            that will be used to assess overall progress. The Department has also used
                            its annual budget guidance to components to emphasize the importance of
                            the DRI. At the same time, the services are expected to absorb most costs
                            of implementing the initiatives using their existing operating budgets.


Opportunities to Build on   While the DRI organization has provided important focus and direction to
Current Reform Efforts      its initiatives, there are several areas where it could build on its initial
                            efforts to achieve the dramatic improvements it seeks in its business
                            processes. First, DOD did not include in the DRI all of the major ongoing
                            business process reform efforts in the Department. Both DOD and the
                            Congress have called for significant reform efforts beyond those in the DRI,
                            including improving and streamlining DOD's financial management
                            systems, logistics functions, and acquisition workforce. The DRI included
                            only a few initiatives related to the broader goal of logistics reengineering
                            and did not include the major efforts planned to reform financial
                            management systems. Including more of the major reform initiatives under
                            DRI could lead to the development of a more complete picture of needed
                            and planned major reform efforts and, to the extent that they are
                            interrelated, could provide the basis for developing a more comprehensive,
                            integrated strategy for achieving the reforms.

                            Second, DOD is requiring its components to fund most up-front investment
                            costs out of their existing budgets. This means that DRI initiatives have to
                            compete annually for investment funds with higher departmental priorities
                            such as readiness, sustainability, and modernization. At the same time,
                            investment costs have not been fully identified for some of the major
                            reform initiatives. The process of making tradeoffs among competing
                            priorities would be more effective if DOD had a clearer picture of overall
                            investment requirements and established, as part of the annual budgeting
                            process, Department-wide funding targets for the DRI program. This
                            would more clearly establish funding expectations for the services and
                            Defense agencies and inform the Congress on how much of the Defense
                            budget is needed for key reform efforts.

                            Third, one of the key aspects of a reform effort is the ability to establish
                            baseline costs and measure the impact of change. Because of the poor
                            condition of DOD’s financial management systems, obtaining this type of
                            information is difficult. As a result, DOD tends to rely on performance
                            indicators that track progress or status rather than measure results. With
                            respect to DRI, DOD officials stated that their primary indicators of



                            Page 5                                  GAO/NSIAD-99-87 Defense Reform Initiative
                            Executive Summary




                            success will be reductions in support funding requirements in their
                            operating accounts. This approach will make it difficult to identify the
                            precise impact the DRI is having on budget requirements. However, it is
                            well known that DOD’s financial management systems are currently unable
                            to generate the type of information needed to establish baseline costs or
                            track the impact of changes. Therefore, whenever DOD officials estimate
                            the potential or actual impact of an initiative or reform effort, the estimate
                            is often based on either anecdotal information or data that may have
                            important limitations. DOD has been attempting to improve its financial
                            management systems and processes for many years and recently issued, at
                            the direction of the Congress, a biennial strategic plan for improving
                            financial management. Until the efforts outlined in this plan are either
                            completed or much further along, DOD’s ability to effectively measure
                            program results will remain limited.


Progress Is Varied Across   Each of the four DRI pillars includes a variety of reform or reengineering
DRI Initiatives             initiatives, many of which were already ongoing before they were brought
                            under the DRI umbrella. Each initiative varies in its progress toward
                            meeting its objectives and milestones, and many still face a variety of
                            obstacles that could affect their ultimate success.

                            The first pillar, adopting best business practices, includes the broadest
                            range of initiatives, from paperless contracting and the increased use of
                            electronic commerce to reengineering the movement of household goods.
                            Among them, the greatest progress is occurring in the initiatives related to
                            increasing the use of purchase cards for small purchases and reengineering
                            DOD’s travel system. Progress is being made in other areas such as moving
                            toward paperless contracting and reforming DOD’s system for transporting
                            military members’ household goods, but completion of these and other
                            efforts is likely to take several years and in certain instances will not meet
                            the milestones established under the DRI program.

                            The second pillar, organizational realignments, has progressed well, and,
                            with limited exceptions, DOD has accomplished many of the organizational
                            changes called for by the DRI Report. At the same time, other reductions
                            called for by the Congress, such as headquarters reductions, may be more
                            difficult to implement. Specifically, DOD is still developing plans to meet
                            congressional direction to reduce management headquarters and
                            headquarters support activities by 25 percent.




                            Page 6                                  GAO/NSIAD-99-87 Defense Reform Initiative
Executive Summary




The third pillar, streamlining through competition, builds on efforts
launched prior to publication of the DRI Report to competitively examine
thousands of government positions involved in commercial-type activities
over a 5-year period for potential conversion to the private sector.
Currently, DOD plans to examine about 229,000 positions during that time
frame. This effort is one of two initiatives from which DOD is projecting
specific savings that are being incorporated into future-year budget plans.
GAO’s prior work indicates potential for significant savings from such
competitions, regardless of whether they are won by the public or private
sectors. However, for a variety of reasons, GAO continues to urge caution
when estimating such savings, particularly since DOD has not fully
determined the up-front investment costs required to implement this
initiative and the impact of investment costs on savings in the short term.
Additionally, DOD components have fallen behind in launching and
completing many of the initial studies. Various Defense officials have
raised concerns about the number of government positions related to
commercial activities, the number of positions that can reasonably be
studied during the prescribed time frame, and the likelihood that the
projected savings can be realized.

The fourth pillar focuses on reducing infrastructure through a variety of
methods. One key effort calls for two additional BRAC rounds. This is the
second initiative from which specific savings projections have been made.
However, because of issues related to concerns about costs and savings
from prior rounds as well as about the way some closure decisions were
handled by the executive branch during the 1995 round, the Congress has
not been willing, to date, to authorize additional BRAC rounds. Other
major infrastructure reduction initiatives under this pillar include Defense
agency consolidations, demolition of excess facilities, and privatization of
utilities. Progress is being made toward the goal of demolishing 8,000
excess structures by 2003, and DOD has directed the services to set aside
funding to accomplish this goal.

Less progress has been made toward privatizing utility systems, and DOD
has recently extended the DRI milestone for completing this initiative from
January 2000 to September 2003. The services have expressed concern
about the time-consuming process and significant up-front investment
costs required to implement this initiative. DOD, in a December 1998
program budget decision, required the services to set aside over
$240 million in funding over the next several years to cover the costs of
these privatizations but acknowledged that the true cost could not be
accurately estimated until further analysis is completed. It directed the



Page 7                                 GAO/NSIAD-99-87 Defense Reform Initiative
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                      services to complete further analyses of cost requirements for the
                      upcoming 2001 budget cycle. DOD estimates that once the privatizations
                      are completed, it may save $327 million. GAO has not completed sufficient
                      analyses to determine the reasonableness of projected costs or savings.

                      DOD’s efforts to privatize military family housing are aimed at using private
                      capital to upgrade housing faster than DOD could on its own and improve
                      the quality of life for service personnel. DOD is significantly behind in its
                      efforts in this area. The DRI called for privatizing 3,500 units by fiscal
                      year 1998, 15,000 units by fiscal year 1999, and 30,000 units by fiscal
                      year 2000. The DRI also established a broader goal of privatization to help
                      eliminate all inadequate housing by fiscal year 2010. By early 1999, only a
                      few sites involving about 1,000 housing units had been privatized. Service
                      officials attributed the slow progress to the many legal, financial,
                      contractual, and budgetary issues they have had to tackle. GAO is
                      continuing to monitor this issue.



Recommendations       To strengthen and help sustain the reform effort, GAO recommends
                      (1) bringing all major reform initiatives under the purview of the DRI
                      program and using the Results Act principles as a framework to establish a
                      more comprehensive, integrated strategy and action plan for reforming the
                      Department’s major business and support activities and (2) identifying
                      investment funding requirements for major reform initiatives and
                      Department-wide funding targets for the DRI program and communicating
                      them to the Congress during the annual budget process.



Agency Comments and   In commenting on a draft of this report, DOD limited its response to the
                      report’s recommendations (DOD’s comments are in app. III). Concerning
GAO’s Evaluation      GAO’s recommendation that the Secretary of Defense bring other major
                      Defense reform initiatives, including logistics and financial management,
                      under the DRI program, DOD responded that the Secretary had unified the
                      DRI and acquisition reform activities as a means of coordinating reform
                      efforts within the Department. DOD stated that the recommended
                      application of Results Act principles as a framework for a strategy is fully
                      possible only in some circumstances. However, it also stated that
                      integrated process teams had been organized to coordinate all DOD reform
                      activities, including the Results Act, to foster reform and information
                      sharing.




                      Page 8                                  GAO/NSIAD-99-87 Defense Reform Initiative
Executive Summary




The Department’s March 1999 update of the DRI, provided on CD-ROM and
available on the Defense Reform internet web site, included logistics,
financial management, acquisition reform, homeland defense, and other
reform activities under the scope of the DRI. The Department also
announced on March 23, 1999, that organizational responsibility for the DRI
program had been moved to the office overseeing acquisition reform.
While these changes more closely link the original DRI programs with other
related reform initiatives, such as logistics and financial management
reforms, and could increase information sharing, the Department’s
comments did not address steps it might take to develop a more
comprehensive integrated strategy and action plan for achieving the DRI
goals. GAO continues to believe such a plan is needed to facilitate
management oversight and maximize the program’s potential for meeting
its goals. This plan could also help DOD maintain its focus on the original
DRI goals—reengineering business operations and eliminating unneeded
infrastructure—considering that it has broadened the DRI to include such
efforts as homeland defense, cyberspace security, and quality-of-life
initiatives. GAO’s intent in recommending the use of Results Act principles
was to emphasize the importance of including the elements of
accountability, goals, and performance measures in formulating this
integrated plan. GAO’s review of DOD’s current Results Act Performance
Plan indicates that some of these elements are being addressed; but, GAO
also believes that more can be done to apply these principles to the DRI
initiatives.

Concerning GAO’s recommendation that DOD more fully identify
investment funding requirements for the DRI program and communicate
them to the Congress, DOD responded that it was reviewing funding and
expanding efforts to consult with the Congress. However, DOD did not
specify its planned actions. GAO continues to believe it is important for
DOD to identify its funding requirements for major initiatives as well as its
overall funding targets for the DRI program. Such information could
provide the Congress with improved information regarding funding
requirements and provide DOD with an improved basis for
decision-making, including for making tradeoffs among competing
priorities.




Page 9                                  GAO/NSIAD-99-87 Defense Reform Initiative
Contents



Executive Summary                                                                                    2


Chapter 1                                                                                          12
                        DOD Is Seeking to Reduce Infrastructure Costs                              12
1ntroduction            DRI Addresses Infrastructure Component of the QDR                          13
                        DRI Management Structure                                                   15
                        Prior Reform Efforts Have Produced Mixed Results                           17
                        Factors That Can Affect the Success of Reform Efforts                      19
                        Objectives, Scope, and Methodology                                         21


Chapter 2                                                                                          24
                        Program Approach Represents a Good Start                                   24
Actions to Facilitate   Opportunities to Build on Current Efforts                                  28
Execution of the DRI    Conclusions                                                                36
                        Recommendations                                                            37
                        Agency Comments and Our Evaluation                                         37


Chapter 3                                                                                          39
                        Adopting Best Business Practices: Efforts Are Under Way,
Individual Reform          but Progress Varies Among Initiatives                                    39
Initiatives Vary in     Changing the Organization: Realignments and Reductions Are
                           Being Carried Out, With Some Exceptions                                  48
Progress                Streamling Through Competition: Questions About Goals, Pace,
                           and Amount of Savings                                                    50
                        Eliminating Unneeded Infrastructure: Progress Toward Goals Is
                           Mixed                                                                   52
                        Conclusions                                                                62


Appendixes
                        Appendix I: Management Reform Memoranda                                     63
                        Appendix II: Defense Reform Initiative Directives                           66
                        Appendix III: Comments From the Department of Defense                       73
                        Appendix IV: Major Contributors to This Report                              75




                        Page 10                              GAO/NSIAD-99-87 Defense Reform Initiative
         Contents




Tables   Table 3.1: Best Business Practices Initiatives                                 40
         Table 3.2: Initiatives to Eliminate Infrastructure                            53




         Abbreviations

         BRAC       base realignment and closure
         CIM        Corporate Information Management
         DESC       Defense Energy Support Center
         DFAS       Defense Finance and Accounting Service
         DISA       Defense Information Systems Agency
         DLA        Defense Logistics Agency
         DMC        Defense Management Council
         DMR        Defense Management Report
         DOD        Department of Defense
         DRI        Defense Reform Initiative
         DRID       Defense Reform Initiative Directive
         FYDP       Future Years Defense Program
         MRM        Management Reform Memoranda
         POM        Program Objective Memorandum
         OSD        Office of the Secretary of Defense
         QDR        Quadrennial Defense Review
         TAV        Total Asset Visibility



         Page 11                                 GAO/NSIAD-99-87 Defense Reform Initiative
Chapter 1

Introduction                                                                                                                             Chapter1




                        The Department of Defense (DOD) has been working to reduce its
                        infrastructure and support costs. A number of internal studies have
                        reinforced the need to do this. The Defense Reform Initiative (DRI),
                        announced in November 1997, is DOD’s latest effort to reform its business
                        activities and reduce infrastructure costs. DOD hopes the DRI will make
                        its current organization and business practices (which were developed
                        over the course of many years during the Cold War) more agile and
                        responsive. DOD also hopes that this initiative will provide a major source
                        of savings that can be used to help fund DOD’s planned $20 billion annual
                        increase in weapon systems modernization. The Secretary of Defense has
                        established a special management structure to provide oversight and
                        direction to the DRI effort. However, congressional concerns about prior
                        reform efforts and their mixed results have led to caution about the likely
                        outcomes of current initiatives. Over the years, we and others have
                        identified various factors that can either hinder or promote the success of
                        reform efforts.



DOD Is Seeking to       In the early 1990s, DOD conducted two major defense reviews—the 1991
                        Base Force Review and the 1993 Bottom-Up Review—to assess military
Reduce Infrastructure   force structure requirements in the post-Cold War era. Following these
Costs                   reviews, the Congress mandated the Commission on Roles and Missions of
                        the Armed Forces to determine the appropriateness of current allocations
                        of roles, missions, and functions among the armed forces and make
                        recommendations for changes. 1 Each of these reviews noted that DOD had
                        excessive infrastructure, which was limiting its ability to fund readiness
                        and modernization requirements. The Commission, for example, pointed
                        out that infrastructure accounted for more than half of DOD’s budget. It
                        recommended that DOD reduce infrastructure costs by relying on the
                        private sector for services that do not have to be performed by the
                        government and reengineering DOD’s support organizations and functions.
                        The Commission also called for DOD to conduct a comprehensive strategy
                        and force review at the start of each administration, or every 4 years, to
                        examine and select the best force mix, budget level, missions, and support
                        structures. This review has been referred to as a Quadrennial Defense
                        Review (QDR).

                        The first QDR was completed in May 1997. It reviewed all aspects of the
                        U.S. defense strategy and program, including force structure,

                        1
                            National Defense Authorization Act for Fiscal Year 1994, P.L. 103-160, section 951, 107 stat. 1738 (1993).




                        Page 12                                                    GAO/NSIAD-99-87 Defense Reform Initiative
                       Chapter 1
                       Introduction




                       infrastructure, readiness, intelligence, modernization, and people. With
                       respect to infrastructure, the QDR’s conclusions closely matched those of
                       the Commission on Roles and Missions of the Armed Forces. With the
                       expectation that the Defense budget would stabilize at about $250 billion
                       annually (in constant 1997 dollars), the QDR concluded that DOD could not
                       achieve its modernization and readiness goals without a concerted effort to
                       reduce infrastructure costs. To do this, it proposed:

                       • continued reductions in civilian and military personnel associated with
                         infrastructure, 2
                       • two additional rounds of base realignments and closures (BRAC),
                       • major initiatives to reengineer and reinvent DOD support functions, and
                       • an increased emphasis on using the private sector to perform
                         nonwar-fighting support functions.

                       The savings from these initiatives were expected to help DOD increase
                       procurement funding from about $42 billion in fiscal year 1998 to
                       $60 billion in fiscal year 2001.



DRI Addresses          In response to the QDR infrastructure proposals, the Secretary of Defense
                       established a Defense Reform Task Force to review departmental activities
Infrastructure         and look for ways to consolidate functions, eliminate duplication of effort,
Component of the QDR   and improve efficiency. The DRI Report, which the Task Force issued in
                       November 1997, identified a framework for accomplishing the QDR
                       objectives and for initiating a “revolution in business affairs,” as described
                       by the Secretary of Defense in his preface to the report. This framework is
                       built around the following major reform efforts, or “pillars”:

                       • Adopting best business practices—Reengineering Defense business and
                         support operations primarily by adopting and applying revolutionary
                         new business and management practices learned from the private
                         sector. Key initiatives include making many of DOD’s contracting and
                         financial operations paperless, relying more on the private sector
                         (through prime vendor contracts) to store and distribute inventory to
                         DOD customers, and reengineering DOD’s official business travel
                         system.


                       2
                         Our report on the 1999-2003 Future Years Defense Program noted that the services planned to reduce
                       civilian and military personnel by 175,000 by 2003. See Future Years Defense Program: Substantial
                       Risks Remain in DOD’s 1999-2003 Plan (GAO/NSIAD-98-204, July 31, 1998).




                       Page 13                                              GAO/NSIAD-99-87 Defense Reform Initiative
Chapter 1
Introduction




• Changing the organization—Reorganizing and reducing the size of DOD
  headquarters elements so they focus on corporate-level tasks (e.g.,
  providing policy guidance, developing long-range plans, monitoring and
  evaluating performance, and allocating resources). Key initiatives
  include reducing headquarters staff assigned to the Office of the
  Secretary of Defense (OSD), Defense agencies, Defense field and
  support activities, and the Joint Chiefs of Staff. Headquarters offices
  would also be reorganized and consolidated to eliminate redundancies
  and provide better support to the Secretary of Defense.
• Streamlining through competition —Expanding the use of competition
  between the public and private sector to improve performance and
  reduce the cost of DOD business and support activities. DOD believed
  such competitions could reduce annual operating costs by about
  20-30 percent for each activity studied, regardless of whether the
  competition was won by the public or the private sector. The DRI report
  suggested competing about 200,000 positions using the Office of
  Management and Budget Circular A-76 process.
• Eliminating unneeded infrastructure —Eliminating facilities that are no
  longer needed and/or that drain resources. The key component of this
  effort was to seek congressional approval for two additional BRAC
  rounds in 2001 and 2005. Other initiatives include the consolidation of
  support activities—research and development laboratories, test and
  evaluation facilities, and the Defense Finance and Accounting Service
  (DFAS)—demolition of excess buildings, privatization of military family
  housing construction, and privatization of military-owned utility
  systems.

Quantifiable DRI savings were to come primarily from two initiatives:
public/private competitions and BRACs. The DRI Report projected
$6 billion in cumulative savings from competitive sourcing by 2003 and
over $2 billion each year thereafter. 3 It projected that two future BRAC
rounds together would produce $2.8 billion in annual savings after the
BRAC decisions had been implemented. 4 DOD believed that savings from
these two initiatives were imperative in order to increase weapons
modernization funding to $60 billion. While the other initiatives might also
result in savings, DOD did not attempt to measure their potential impact


3
  More recently, DOD has projected $11 billion in cumulative savings from competitive sourcing by 2005
and over $3 billion in annual recurring savings thereafter.
4
  More recently, DOD has projected $3.4 billion in annual recurring savings after completion of two
additional BRAC rounds.




Page 14                                               GAO/NSIAD-99-87 Defense Reform Initiative
                     Chapter 1
                     Introduction




                     and was not counting on them to help achieve the modernization goal.
                     Nevertheless, DOD believes the other initiatives are important contributors
                     to the “revolution in business affairs” and will help improve the quality of
                     service provided to DOD customers. To encourage the military services
                     and Defense agencies to undertake the DRI initiatives, DOD officials told
                     service officials they could expect to retain savings achieved and apply
                     them to other needs.



DRI Management       DOD has established a management oversight structure with the goal of
                     bringing sustained direction and emphasis to the DRI effort. This structure
Structure            includes the Defense Management Council (DMC) to oversee the DRI
                     efforts and advise the Secretary of Defense on new reform efforts, a
                     subordinate Coordinating Group to support the DMC, and a DRI Office to
                     monitor progress and identify areas where management’s attention is
                     needed. The military services and Defense agencies, which are ultimately
                     responsible for implementing the initiatives, have also established small
                     offices or points of contact to receive and collect information about the
                     DRI.


Defense Management   The DMC, as described by the Secretary of Defense, is expected to serve as
Council              an internal board of directors that will, among other things:

                     • advise the Secretary on matters of Defense reform,
                     • identify ways to improve business practices,
                     • identify opportunities to consolidate management activities,
                     • identify opportunities to improve operations by opening them to
                       competition with the private sector, and
                     • negotiate performance goals and measures for Defense agencies.

                     The DMC is chaired by the Deputy Secretary of Defense and includes the
                     Under Secretary of Defense (Comptroller), the Vice Chairman of the Joint
                     Chiefs of Staff; the three other Under Secretaries of Defense, the three
                     military service Under Secretaries, the four military service Vice Chiefs, the
                     General Counsel, and the Director of the DRI Office. The DMC
                     membership is comparable to two other senior level groups used by the
                     Secretary to provide senior leadership and direction to important
                     DOD-wide issues—the Defense Resources Board, which addresses
                     DOD-wide budget allocation issues, and the Joint Requirements Oversight
                     Council, which reviews all major procurement issues and decisions. The
                     DMC has met about 15 times since its establishment in November 1997.


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                     Introduction




Coordinating Group   A part-time Coordinating Group, subordinate to the DMC but comprised of
                     senior level representatives from the military services and OSD, was
                     established by the DMC at its first meeting. The Executive Director for the
                     group is the Director for Program Analysis and Evaluation in the Office of
                     the Secretary. Besides providing leadership, the Executive Director is the
                     group’s primary interface with the DMC. Among other things, the
                     Executive Director helps decide which issues to bring to the DMC and
                     regularly attends its meetings. Other members of the Coordinating Group
                     include the Deputy Director for Army Program Analysis and Evaluation and
                     the Marine Corps Assistant Deputy Chief of Staff for Requirements and
                     Planning. The Coordinating Group normally meets every week to deal with
                     ongoing DRI activities and resolve problems that arise. It provides advice
                     and assistance to the DMC, drafts policy statements for the DMC’s review
                     and approval, provides a forum for the military services and Defense
                     agencies to discuss concerns with policy statements, and help teams
                     prepare presentations for DMC meetings.


DRI Office           Several months after the DRI was announced, the Secretary established a
                     DRI Office to help track the implementation of the initiatives and advise
                     him when reform efforts were not progressing as expected. According to
                     the Office’s Director, the Office was intentionally kept small—up to eight
                     people—because he believed a large office would not be in keeping with
                     the DRI’s cost-cutting theme. According to the Director, this led to his
                     employing a less formal operating style and method of collecting
                     information. The Director said, for example, that he and his staff receive
                     periodic briefings from those responsible for implementing the initiatives
                     in the services and Defense agencies. The DRI Office also maintains
                     informal contacts with these people to stay abreast of emerging
                     developments. They obtain information on progress, which they
                     accumulate into status reports, and indications of problems that might
                     need management attention. While these problems could be and
                     sometimes are brought to the Coordinating Group or DMC for discussion
                     and resolution, the Director said that most are dealt with informally,
                     primarily by making sure key management officials are aware of them.

                     Another important aspect of the job, according to the Director, is to look
                     beyond the DRI and identify other reform opportunities. He specifically
                     mentioned the need to reform DOD’s Working Capital Fund—which funds
                     internal DOD business operations totaling about $80 billion annually in
                     sales—but said there are many other opportunities for reform. He believes
                     his Office is uniquely positioned to identify these opportunities and


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                              Introduction




                              marshal support for them. Besides being a member of and attending DMC
                              meetings (where decisions on new initiatives are made), he has direct
                              access to the Secretary of Defense.


Military Service and          As the organizations that must implement the DRI, the military services and
Defense Agency Focal Points   Defense agencies have either established small offices or points of contact
                              to receive and collect information about the initiatives. As officials in these
                              offices described them to us, the offices and contacts do not manage any
                              part of the DRI effort yet they have a role in expediting action and seeing
                              that specific initiatives are addressed in their organizations. For example,
                              they are typically the persons or offices that receives policy directives from
                              the DMC and forwards them to the appropriate official for action. In some
                              cases, they also track the status of implementation efforts and summarize
                              them for their chain of command and for the DRI Office. As with the other
                              organizations discussed above, the services and agencies have kept these
                              oversight efforts small. This meets the DRI goal of not creating a large
                              implementing infrastructure and, according to DOD, sends the message
                              that reforms must be made through normal management structures.



Prior Reform Efforts          Over the past 10 years, DOD has undertaken a number of legislative and
                              administrative initiatives to downsize the organization and improve the
Have Produced Mixed           efficiency of its business operations. The most notable results have come
Results                       from four BRAC rounds that the Congress authorized between 1988 and
                              1995. The BRAC rounds resulted in decisions to close nearly 100 of what
                              DOD characterized as major domestic bases and many smaller facilities.
                              The decisions, which are still being implemented, are expected to produce
                              a smaller and less costly infrastructure, but not to the extent DOD leaders
                              would have liked.5 Also, net savings have taken longer to begin to accrue
                              than initially expected. Expected revenues from land sales did not
                              materialize, and BRAC actions required up-front investment costs that had
                              to be offset before net savings could be realized. Special legislation
                              authorizing the most recent BRAC rounds expired at the end of 1995, and
                              because of controversies surrounding BRACs, particularly in the 1995
                              round, the Congress has been reluctant to authorize additional rounds.



                              5
                               See Military Bases: Status of Prior Base Realignments and Closure Rounds (GAO/NSIAD-99-36,
                              Dec. 11, 1998) and Military Bases: Review of DOD’s 1998 Report on Base Realignment and Closure
                              (GAO/NSIAD-99-17, Nov. 13, 1998).




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Other Department-wide efforts to improve operations and reduce
infrastructure costs include the President's Blue Ribbon Commission of
Defense Management (also known as the Packard Commission) and the
Corporate Information Management (CIM) initiative. The Packard
Commission, comprised of a group of business leaders, was established in
1988 to identify ways to streamline and restructure DOD business
operations. The Commission issued the Defense Management Report
(DMR) in July 1989. It contained 250 wide-ranging decisions to consolidate
business functions, improve information systems, enhance management,
and employ better business practices. The decisions consolidated
business functions into several new organizations, including DFAS, the
Defense Contract Management Command, and the Defense Commissary
Agency. Other decisions established the Defense Business Operating Fund
(now called the Defense Working Capital Fund), transferred supply
management operations to the Defense Logistics Agency (DLA),
recommended increased competition and interservicing for depot
maintenance work, and proposed consolidation of Defense research and
test facilities. CIM was an outgrowth of the DMR. It too was a
Department-wide effort to improve administrative operations and reduce
costs by streamlining business processes and consolidating, standardizing,
and integrating information systems. The DMR was expected to provide
savings of up to $70 billion over 5 years. CIM was expected to save about
$36 billion, over half of the projected DMR total.

The DMR effort produced savings but not to the degree initially estimated
by DOD. In addition, our past work found that, because of limited
documentation and the absence of standard accounting and information
systems, it was difficult to determine if the savings resulted from DMR
initiatives or from other factors such as force-level reductions, reduced
workloads, or Defense downsizing. 6 Our recent analysis of DOD’s Future
Years Defense Programs (FYDP) showed that the infrastructure portion of
DOD's budget had not decreased as DOD planned. 7 Consequently, planned
funding increases for modern weapon systems were repeatedly shifted
further into the future with each succeeding FYDP. Moreover, our analysis
showed that this trend is expected to continue through fiscal year 2003.



6
  See our report to the Chairman, Subcommittee on Readiness, House Committee on Armed Services
(GAO/NSIAD-94-17R, Oct. 7, 1993) and Defense Management: Challenges Facing DOD in Implementing
Defense Reform Initiatives (GAO/T-NSIAD/AIMD-98-122, Mar. 13, 1998).
7
    Future Years Defense Program (GAO/NSIAD-98-204, July 31, 1998).




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                          Introduction




Factors That Can          Over the years, we and others have reported on the systemic management
                          problems that have kept DOD from successfully implementing reform
Affect the Success of     efforts. We have also identified various factors that must be present in any
Reform Efforts            organization that attempts to implement major reforms.



Factors That Can Impede   The key factors that have kept DOD from successfully implementing past
Success                   management reform initiatives include: 8

                          • Cultural barriers and parochialism —Each of the military services has its
                            own way of doing business, its own budget and programming authority,
                            and its own parochial interest in maintaining the status quo. As a result,
                            it has been difficult for DOD to implement Department-wide reform,
                            particularly when the corrective actions require the development and
                            use of common systems and processes across military services and
                            organizational boundaries. Even when there is common agreement
                            among the leadership of the Department, management reform initiatives
                            that involve up-front investments, the closure of installations, and the
                            elimination of military and civilian jobs sometimes are not fully
                            implemented unless they have widespread support throughout the
                            military services and Defense agencies.
                          • Lack of incentives to seek and implement change—DOD managers have
                            had few incentives to improve DOD's financial, acquisition, and
                            infrastructure management approaches. In DOD’s culture, the success
                            of a manager’s career depends more often on moving programs and
                            operations through the DOD process rather than on improving the
                            process itself.
                          • Deficient management data—DOD cannot accumulate reliable cost
                            information on its business activities or critical operations. As a result,
                            DOD decisionmakers lack the comprehensive and reliable data they
                            need to establish baseline costs, track program implementation, and
                            make well-informed decisions.
                          • Lack of clear results-oriented goals and performance measures —DOD’s
                            strategic goals and objectives have not been linked to those of the
                            military services and Defense agencies, and DOD's guidance has tended
                            to lack specificity. Without clear, hierarchically-linked goals and


                          8
                           See Defense Management (GAO/T-NSIAD/AIMD-98-122, Mar. 13, 1998) and DOD High Risk Areas:
                          Eliminating Underlying Causes Will Avoid Billions of Dollars in Waste (GAO/T-NSIAD/AIMD-97-143,
                          May 1, 1997).




                          Page 19                                            GAO/NSIAD-99-87 Defense Reform Initiative
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                           Introduction




                             performance measures, DOD managers have not been able to show how
                             their work contributes to the attainment of DOD's strategic goals.
                           • Inconsistent management accountability and follow-through —DOD has
                             not routinely linked organizational goals and performance measures to
                             specific organizational units or individuals that have sufficient
                             flexibility, discretion, and authority to accomplish the desired results.
                             These linkages are important because DOD’s top managers are normally
                             in their positions for only short periods of time. In 1994, for example,
                             the median tenure of top political appointees in OSD was 1.7 years. This
                             turnover has hindered the long-term planning and follow-through
                             needed to carry out significant management reforms. 9


Factors That Can Enhance   While the above problems have inhibited the success of past DOD reform
the Chances of Success     efforts, there are a number of factors that can help eliminate these
                           problems and enhance the potential for success. For example, successful
                           public and private sector organizations have overcome these types of
                           problems by:10

                           • displaying top management commitment and sustained support for the
                             reform effort;
                           • establishing a clear management framework for guiding and supporting
                             change;
                           • communicating to and educating the organization about the need for
                             and expected results of change;
                           • providing the resources needed to implement the reforms;
                           • developing strategic and tactical plans that cascade throughout the
                             organization and provide a roadmap to guide reform and track progress;
                           • delegating the authority to carry out individual initiatives to
                             cross-functional teams made up of those who are affected by the reform
                             and own the process being changed; and




                           9
                            Political Appointees: Turnover Rates in Executive Schedule Positions Requiring Senate Confirmation
                           (GAO/GGD-94-115FS, Apr. 12, 1994).
                           10
                             See Weapons Acquisition: A Rare Opportunity for Lasting Change (GAO/NSIAD-93-15, Dec. 1992),
                           Organizational Culture: Techniques Companies Use to Perpetuate or Change Beliefs and Values
                           (GAO/NSIAD-92-105, Feb. 27, 1992), Best Practices: Elements Critical to Reducing Successfully
                           Unneeded RDT&E Infrastructure (GAO/NSIAD/RCED 98-23, Jan. 8, 1998), and Best Practices:
                           Successful Application to Weapon Acquisitions Requires Changes in DOD’s Environment
                           (GAO/NSIAD-98-56, Feb. 24, 1998).




                           Page 20                                              GAO/NSIAD-99-87 Defense Reform Initiative
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                         Introduction




                         • establishing objective, outcome-oriented performance measures that
                           link to strategic and tactical plans, establish accountability, and provide
                           information for making mid-course corrections.

                         We have highlighted these factors here to provide a backdrop for our
                         review of DOD's management of the DRI effort.



Objectives, Scope, and   Because of problems associated with prior Defense reform, the Chairman,
                         Subcommittee on Military Readiness, House Committee on Armed
Methodology              Services, asked us to review DOD’s progress in implementing the DRI
                         program. To respond to the Chairman’s request, we assessed (1) actions
                         taken through the DRI management structure to facilitate achieving the
                         program’s objectives and (2) progress made in implementing individual
                         reform initiatives.

                         To assess the work of the DRI management structure, we relied primarily
                         on testimonial evidence provided by senior-level managers in various
                         organizations throughout DOD. We used a common set of questions during
                         our discussions with senior managers to ensure that we were consistent in
                         the topics we addressed. Among other things, we asked the managers
                         about DOD’s implementation strategy and whether it addressed the
                         underlying causes of problems that limited the success of past reform
                         efforts. These questions dealt with the leadership provided by the
                         Secretary, Deputy Secretary, and other senior DOD managers; the
                         management framework for guiding and supporting the DRI’s
                         implementation; the techniques used to communicate DRI goals and
                         objectives throughout the organization; and the adequacy of resources to
                         implement the DRI. We followed up on their answers to these questions
                         and, where appropriate, obtained documentation that supported their
                         statements and assertions.

                         Because we were particularly interested in the work of the DMC, we
                         requested minutes of its meetings. This, we believed, would give us
                         indications of the issues the DMC addressed and the decisions it made
                         about the DRI’s implementation. We were told, however, that no minutes
                         were taken. Consequently, we obtained the available agendas of its
                         meetings and interviewed 5 of its 15 members. We provided the members
                         questions in advance of the meetings. Besides describing the types of
                         issues that were addressed at DMC meetings, these members provided
                         their impressions of the DMC’s effectiveness during its first year. We also
                         met with members of the DRI Coordinating Group and discussed the roles



                         Page 21                                 GAO/NSIAD-99-87 Defense Reform Initiative
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and responsibilities of the Group, how issues are deliberated, how
decisions are made, and the likely success of the DRI.

To evaluate service and agency efforts to develop DRI implementation
plans, we met with senior management officials from the military services
and selected Defense agencies to discuss and obtain documentation on
their strategy for implementing the DRI. We reviewed their strategic
business plans to determine the extent they addressed DRI goals and
objectives. If a service or agency had developed strategic or performance
plans required by the Government Performance and Results Act, we also
reviewed them to determine whether they were linked to DOD’s strategic
goals and measures and provided a roadmap to track progress and gauge
the overall success of the DRI. We also reviewed the Defense Planning
Guidance for Fiscal Years 2000-2005 to determine how DRI goals and
objectives are supposed to be addressed and prioritized in future military
service and Defense agency budgets.

To determine DOD’s progress in implementing individual initiatives, we
obtained and reviewed tracking information assimilated by DOD. We also
met with military service and Defense agency representatives responsible
for overseeing and implementing specific initiatives to obtain information
on the progress and problems they were encountering. While we did not
conduct an in-depth review of each initiative, we obtained and reviewed
documentation related to their status and discussed the likelihood that they
will meet implementation schedules called for in the DRI Report. Because
DOD does not have good financial data, we were not able to obtain reliable
information on the savings the initiatives did or are expected to achieve.
Nevertheless, we discussed the status and likelihood of achieving savings
with the responsible officials.

During our work, we interviewed officials in the Office of the Secretary of
Defense, including the Under Secretary of Defense (Acquisition and
Technology), the Under Secretary of Defense (Comptroller), and the
Director of the DRI Office. We also met with two DOD-wide cross
functional teams (the Task Force for Reengineering Initiatives and the
Paperless Contracting Working Level Team) and conducted work at Army
Headquarters, Air Force Headquarters, Navy Headquarters, and Marine
Corps Headquarters in Washington, D.C.; Defense Finance and Accounting
Service Headquarters and Defense Information Systems Agency
Headquarters, Arlington, Virginia; Defense Logistics Agency Headquarters,
Fort Belvoir, Virginia; Air Force Materiel Command Headquarters,
Wright-Patterson Air Force Base, Ohio; Army Materiel Command



Page 22                                GAO/NSIAD-99-87 Defense Reform Initiative
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Introduction




Headquarters, Naval Facilities Engineering Command, and Naval Sea
Systems Command, Arlington, Virginia; Naval Supply Systems Command,
Mechanicsburg, Pennsylvania; and the Army Installation Service Activity,
Rock Island, Illinois. We performed our work from June 1998 through
February 1999 in accordance with generally accepted government auditing
standards.

DOD provided written comments on a draft of this report. We incorporated
its comments where appropriate. The comments are reprinted in
appendix III.




Page 23                              GAO/NSIAD-99-87 Defense Reform Initiative
Chapter 2

Actions to Facilitate Execution of the DRI                                                               Chapter2




                    To give emphasis and direction to the DRI program, DOD’s senior
                    leadership has used the special organizational framework it established.
                    Using special directives, performance contracts and plans, and budget
                    guidance, DOD has sought to institutionalize and provide a sustained
                    emphasis on the DRI. This represents a good start toward providing the
                    type of management attention and oversight typically associated with
                    successful reform efforts in the private sector. However, given the limited
                    time that the framework has been in place, it is too soon for us to assess
                    how effective it is likely to be in facilitating completion of the program (the
                    current status of individual initiatives is summarized in ch. 3). At the same
                    time, there are several areas where DOD could build on its initial efforts to
                    help achieve the “revolution in business affairs” it is seeking. These include
                    (1) bringing under the DRI other major ongoing reform efforts and
                    developing a comprehensive, integrated strategy for reforming Defense
                    business processes and support activities; (2) more clearly delineating the
                    funding requirements needed to achieve the major reforms; and
                    (3) improving Department-wide visibility of DOD’s financial management
                    reform efforts.



Program Approach    To successfully manage a reform effort, top management must effectively
                    communicate the reason for the change and be actively engaged in
Represents a Good   activities such as setting the overall scope and agenda and establishing
Start               policy. In this respect, the Secretary of Defense, Deputy Secretary, and
                    other parts of the DRI organization have given visible, continuous support
                    to the purpose and objectives of the DRI. The Deputy Secretary, as
                    Chairman of the DMC, is recognized within DOD as a leading advocate of
                    Defense reform. He has kept the pressure on the military services and
                    Defense agencies to meet the DRI goals. DOD officials said that the DMC
                    and the DRI Coordinating Group have also increased the Department’s
                    overall awareness of the DRI and have provided an important forum for
                    addressing and resolving DRI-related problems. Additionally, the
                    Secretary, the Deputy Secretary, and other top executives have used a
                    variety of tools to communicate the goals and objectives of the DRI
                    program and provide program emphasis and direction. These include
                    (1) developing DRI directives to communicate specific goals and
                    objectives, milestones, and decisions for selected initiatives; (2) creating
                    performance contracts to hold Defense agencies accountable for cost-
                    cutting and service improvement goals; (3) directing that service and
                    Defense agency plans address DRI objectives; and (4) using budget
                    guidance to ensure services and Defense agencies address the initiatives.




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                           Actions to Facilitate Execution of the DRI




                           These have helped create an institutionwide focus on the initial set of
                           initiatives and provided a forum for addressing implementation problems.


DRI Directives             One of the most direct communication tools DOD has used to implement
Communicate Specific       the DRI program is Defense Reform Initiative Directives (DRID). DRIDs
                           are documents reviewed by the DMC and issued by the Deputy Secretary of
Direction and Milestones   Defense1 for individual initiatives. They describe the initiatives, provide
                           specific direction, and set milestones for the DOD components responsible
                           for carrying them out. They are a continuation of what DOD previously
                           called Management Reform Memoranda (MRM). As of February 1999, DOD
                           had issued 17 MRMs and 49 DRIDs (see apps. I and II for a summary of
                           individual MRMs and DRIDs).

                           In general, service and Defense agency officials we interviewed said that
                           the DRIDs are effective communication tools in that they are concise yet
                           understandable and give targets to shoot for and a basis to measure
                           progress. Many officials also liked having the opportunity to comment on
                           DRIDs before they were issued. 2 They pointed out instances where their
                           comments had affected the scope of the DRIDs. One example was DRID
                           45, “Prime Vendor 3 Contracting Program for Facility Maintenance
                           Supplies.” Both Air Force and Army officials thought the draft language in
                           this DRID would force the services to use prime vendor contracts when an
                           alternative contracting method might be more advantageous. They wanted
                           the DRID to encourage the use of prime vendors when this was the most
                           economical way of purchasing supplies. The final DRID reflected this
                           concern and did not mandate the use of prime vendor contracts.

                           According to officials in the DRI Office, the DMC does not plan to issue
                           DRIDs for every initiative. Instead, it will limit new DRIDs to crosscutting



                           1
                             While the DMC reviews the DRIDs, the DRI Coordinating Group drafts them and coordinates input
                           from the affected military services and Defense agencies. The Group limits the DMC’s involvement to
                           only the unresolved or more important issues and concerns.
                           2
                             All MRMs and about two-thirds of the DRIDs reflected top-down decisions made following the QDR
                           process and prior to release of the DRI Report. As such, OSD did not seek input from the affected
                           Defense organizations. The Executive Director of the Coordinating Group said that the Group had and
                           would seek input on all subsequent DRIDs. Comments from officials we interviewed were based on
                           DRIDs that reflected decisions made after the DRI was announced.
                           3
                             Prime vendors are contractors that buy inventory items from a variety of suppliers, store them in com-
                           mercial warehouses, and ship them to customers as needed.




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                            Actions to Facilitate Execution of the DRI




                            issues that require coordination or action from multiple DOD organizations
                            or that need special attention or direction.


Performance Contracts       The DRI Report called for the development of performance contracts for
Provide Senior Management   Defense agencies. These agencies provide numerous products and
                            services (finance and accounting, telecommunications, computers,
Oversight of Defense        supplies and parts, etc.) to the military services and other Defense
Agencies                    agencies. DOD officials said the performance contracts were intended to
                            improve DOD’s oversight of these agencies. Specifically, the contracts are
                            formal agreements between the Defense agencies, their principal staff
                            assistants in OSD, and the Deputy Secretary. They are to include
                            improvement goals for each of the agencies in terms of cost, productivity,
                            quality, and responsiveness to customers. The contracts are to also include
                            specific performance measures and annual reporting requirements.
                            According to Defense agency officials, the leadership of these agencies will
                            be held accountable, through annual performance appraisals, for meeting
                            assigned goals.

                            To implement this initiative, DOD established a task force to work with the
                            agencies and develop draft performance contracts, which were
                            subsequently reviewed and approved by the DMC. To pilot the project, the
                            task force worked with three agencies and one Defense activity to develop
                            contracts for fiscal year 1999. 4 Four additional agencies are scheduled to
                            complete contracts for fiscal year 2000. 5


DOD Is Beginning to Link    In March 1998, we testified before the Subcommittee on Military Readiness,
QDR and DRI Goals           House Committee on National Security, on the challenges facing DOD as it
                            attempts to implement the DRI. 6 In that testimony, we pointed out that
Throughout the              DOD’s past reform efforts were hampered because its strategic goals and
Organization                objectives were not linked to those of the military services and Defense
                            agencies. Without clear, hierarchically-linked goals and performance
                            measures, DOD managers lack straightforward road maps showing how


                            4
                              These organizations are DFAS, DLA, the Defense Contract Audit Agency, and the Defense Health
                            Program.
                            5
                              These organizations are the Defense Education Agency, Defense Information Systems Agency, Defense
                            Security Cooperation Agency, and Defense Security Service.
                            6
                             Defense Management: Challenges Facing DOD in Implementing Defense Reform Initiatives
                            (GAO/T-NSIAD/AIMD-98-11, Mar. 13, 1998).




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their work contributes to the attainment of DOD’s strategic goals. This also
increases the risk that these managers will operate autonomously rather
than collectively. We believe this issue is important in the DRI environment
because each of the services and Defense agencies must assume part of the
responsibility for meeting DOD’s infrastructure and personnel reduction
targets.

As a first step toward addressing this issue, DOD has developed
Department-wide strategic and performance plans as required by the
Results Act. 7 The strategic plan, the QDR, sets DOD’s general direction
over a 4-year period. The annual performance plan, now appendix J of
DOD’s Annual Report to the President and the Congress, is supposed to
connect the QDR’s long-term goals to the day-to-day activities of DOD’s
managers and staff. 8 A key performance goal included in DOD’s recently
issued performance plan for fiscal year 2000, which we are currently
assessing, is to streamline DOD’s infrastructure by redesigning the
Department’s support structure and pursuing business practice reforms.
The plan cited a variety of performance indicators that it would track,
including the percentage of DOD’s budget spent on infrastructure, the
number of public/private sector competitions, and improvements in
logistics response time.

As a second step, the Secretary in January 1998 directed organizations at all
levels of the Department to review their strategic plans and mission
objectives to ensure that they are linked to the goals and objectives of the
QDR and the DRI. Organizations within DOD are beginning to comply with
the Secretary’s direction, but some are further along than others. DLA, for
example, followed the Results Act framework to develop strategic and
performance plans that included a number of references to DRI initiatives.
The Navy, however, is just beginning the strategic and performance
planning process. Nevertheless, Navy officials said they were aware of the
requirement to develop linkages to DRI goals and objectives and intended
to do so as they developed their plans.




7
  The Results Act requires federal agencies to set strategic goals, measure performance, and report on
the degree to which goals are met. Its intent is to focus agencies more on results, service delivery, and
program outcomes. It is expected to provide the Congress and other decisionmakers with objective
information on the relative effectiveness and efficiency of federal programs.
8
 See DOD’s Draft Strategic Plan (GAO/NSIAD-97-21R, Aug. 5, 1997) and Observations on DOD’s Annual
Performance Plan (GAO/NSIAD-98-188R, June 5, 1998).




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DOD’s Budget Guidance         While incorporating DRI requirements into DOD plans is an important first
Directed the Funding of DRI   step, implementing the requirements is more difficult. Each year, for
                              example, the military services and Defense agencies have more budget
Initiatives                   priorities than they can typically fund. Consequently, they must make
                              choices among competing priorities. In the past, management reforms,
                              particularly those that involved large up-front investments, have not fared
                              well during this selection process. DOD officials told us that they hope to
                              overcome this funding problem by incorporating DRI requirements into the
                              normal budgeting process. They stressed that the planning, programming,
                              and budgeting system, as the budgeting process is called, determines how
                              funding decisions are made in DOD. If the DRI can be linked to it, they
                              said, there is a good chance that the overall program could eventually meet
                              its goals.

                              In this respect, the Defense Budget Planning Guidance 9 issued to prepare
                              the fiscal year 1999 Defense budget directed the services and Defense
                              agencies to construct budgets and programs consistent with the
                              corporate-level goals in the QDR. The guidance included DOD’s mission
                              statement and strategic goals, including the goal to “fundamentally
                              reengineer the Department and achieve a 21 st Century infrastructure.” The
                              planning guidance for the fiscal years 2000-2005 Defense program
                              expressed agreement with the aims and principles of the DRI and directed
                              the services and Defense agencies to support QDR and DRI goals
                              throughout the Future Years Defense Programs (FYDP). It also referenced
                              specific MRMs, DRIDs, and other initiatives and provided guidance in
                              developing program budgets.



Opportunities to Build        DOD’s senior leadership has succeeded in creating Department-wide
                              awareness of DRI goals and objectives. Nevertheless, because the DRI
on Current Efforts            framework has been in place for just over a year, it is too soon for us to
                              assess how effective the program will be in the long term. This will depend
                              largely on DOD’s ability to maintain its emphasis on the DRI program. Past
                              reform efforts, like the DMR, also started out well but lost momentum
                              when the savings did not occur as expected and the Department’s
                              leadership and priorities changed.



                              9
                                Defense Budget Planning Guidance is issued annually by DOD at the beginning of the budget
                              development process. It links the goals in DOD’s strategic plan to the programming and budgeting
                              process and provides funding priorities for DOD components.




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                            During our work, however, we identified three areas where DOD has an
                            opportunity to build on its current efforts to further improve and sustain
                            the DRI program. First, the DRI program does not currently include all
                            major DOD business process reform efforts, and several that were included
                            represented small elements of larger reform efforts not under the DRI. If it
                            used the framework of the Results Act to include major reform efforts,
                            DOD might be in a better position to develop a comprehensive, integrated
                            strategy for reforming the business and support activities of the
                            Department. Second, DOD is requiring its components to fund most
                            up-front investment costs out of their existing budgets. This means that
                            initiatives will have to compete with higher departmental priorities
                            (e.g., readiness and sustainability, modernization, and force structure) for
                            investment funds. The decisionmaking process might be enhanced by
                            considering funding requirements and priorities among all major initiatives
                            collectively. This could lead to a more complete picture of overall reform
                            investment requirements that could be communicated to Defense
                            components and the Congress and could provide a clearer basis for
                            tradeoffs among competing objectives. Third, DOD lacks good financial
                            and cost data to establish baseline costs and determine the effectiveness of
                            its reforms. DOD has been attempting to improve its data for many years
                            and in November 1998 issued, at the direction of the Congress, a Biennial
                            Financial Management Improvement Plan. The plan provided a first-ever
                            vision of DOD’s future financial management environment and identified an
                            array of improvement initiatives. 10 On the other hand, it failed to address
                            several important areas, including the data integrity of DOD’s feeder
                            systems.


DOD Could Benefit From a    In undertaking a comprehensive reform effort like the DRI, it is important,
Comprehensive, Integrated   in our view, that the DRI include all major ongoing initiatives. Doing so
                            would put the Department’s leadership, including the DMC and other
Reform Strategy             organizations DOD established to oversee the DRI, in a better position to
                            develop a comprehensive, integrated strategy for reforming DOD’s major
                            business and support activities. Such a strategy would help DOD oversee
                            and manage key reform efforts, decide between competing priorities, and
                            eliminate potential overlapping or conflicting efforts.




                            10
                              Financial Management: Analysis of DOD’s First Biennial Financial Management Improvement Plan
                            (GAO/AIMD-99-44, Jan. 29, 1999).




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In establishing the DRI, however, DOD did not include all the major reform
efforts that were ongoing in the Department. In explaining why some
ongoing initiatives were included and others were not, a representative of
the Defense Reform Task Force, which was responsible for developing the
DRI Report, said the Task Force judgmentally selected initiatives where
commercial practices might be successfully applied across a range of DOD
organizations, functions, and activities. According to the representative,
the Task Force never intended for the DRI to be all-inclusive, and it
anticipated that other initiatives would come under the DRI umbrella as
time passed.

Some of the reform efforts not included in the DRI, however, are significant
and have impacts on many functional areas. For example, the Under
Secretary of Defense (Acquisition and Technology), a member of the DMC,
has announced plans to (1) totally reengineer DOD’s logistics processes;
(2) dramatically reduce the amount of logistical supplies required in
combat situations by, in part, improving confidence in supply and
transportation systems; (3) reduce the number of logistics personnel,
facilities, and inventories; and (4) implement a modern, secure, and reliable
integrated logistics information system. To achieve these goals, the Under
Secretary said that DOD will use integrated supply chains for specific types
of inventory, expand the use of prime vendor agreements, and implement
two-level maintenance for all new systems.

Only certain components of the comprehensive logistics reform effort were
identified in the initial DRI Report. For example, the DRI includes an effort
to expand the use of prime vendor agreements. As discussed previously,
however, after a DRID mandating this idea was circulated for comment, the
DMC changed the requirement so that military services and others would
have more flexibility to select other cost-effective alternatives. Depending
on how integral the prime vendor program is to the Under Secretary’s
reengineering effort, this may or may not have been the best course of
action to take. If the comprehensive reengineering effort had also been a
DRI initiative, the DMC could have been in a better position to make an
informed decision, based on the importance of the prime vendor program,
on the larger goal of reforming DOD’s entire logistics process.

In addition, it is unclear how the Under Secretary’s overall reengineering
plans will be affected by reform initiatives in the individual services. For
example, the Army has been developing plans to rely on a sole-source
contractor for wholesale logistics support of the Apache and Apache
Longbow weapon systems. The objectives of the program include reducing



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overall support costs, improving parts availability, maintaining aircraft
readiness, and leveraging private-sector resources for modernization.
However, much controversy and uncertainty surrounds this initiative in
terms of its cost-effectiveness and impact on other organizations and
entities such as DLA and the Army Working Capital Fund. 11 Unresolved are
issues such as (1) how parts inventory currently maintained by DLA would
be drawn down, (2) how reduced Army participation would affect
overhead costs of other DLA customers and the Army Working Capital
Fund, and (3) how this proposal fits into an overall plan for logistics
reform. We are currently reviewing this proposal but are not yet in a
position to say whether it would be cost-effective for the Army as well as
for DOD as a whole. 12

Another major reform not currently under the DRI umbrella involves DOD’s
effort to comprehensively improve its financial management systems. This
effort is particularly large in scope in that it touches every organizational
component in DOD and is linked to the success of other reforms in areas
such as logistics and acquisition. For example, a key component in
reengineering DOD’s logistics process is the development of modern,
reliable logistics information systems. These systems will also be
important feeder systems for DOD’s financial management systems.
Moreover, for the financial management reform effort to be successful, it
must be integrated with logistics and acquisition reform efforts. Yet,
financial management reform was not mentioned in the initial DRI Report,
and neither the DMC nor other management structures DOD put into place
to oversee and bring direction to the DRI program are addressing it.

To ensure that DOD places sufficient emphasis on this improvement effort,
the National Defense Authorization Act for Fiscal Year 1998 directed DOD
to create a biennial strategic plan for improving financial management.
The plan, now referred to as the Biennial Financial Management
Improvement Plan, is to be submitted to the Congress no later than
September 30 of each even-numbered year and is to address all aspects of
financial management within DOD, including the finance systems,


11
  The Working Capital Fund (formerly called the Defense Business Operations Fund) was established
in October 1991 by consolidating nine existing industrial and stock funds and five other organizations
operated by DOD. It is essentially a group of internal DOD business operations that sell goods and
services to DOD customers on a break-even basis. The Fund’s estimated fiscal year 1998 revenue of
about $80 billion makes it equivalent to one of the world’s largest corporations.
12
 This review was requested by the Subcommittee on Readiness, Committee on National Security,
House of Representatives (now named the Committee on Armed Services, House of Representatives).




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                             accounting systems, and data feeder systems that support financial
                             operations. DOD submitted its first plan to the Congress on October 26,
                             1998. In our assessment of this plan, we found that it represents a great
                             deal of effort and provides a first-ever vision of DOD’s future financial
                             management environment. 13 In addition, the plan includes an array of
                             initiatives intended to move DOD from its current state to its envisioned
                             financial management environment. However, we also found that the plan,
                             while providing an ambitious statement of DOD’s planned improvement
                             efforts, had two important limitations. First, it did not provide links
                             between the envisioned future operations and the over 200 planned
                             improvement initiatives to determine whether the proposed transition will
                             create the target financial management environment. Second, it did not
                             address actions to ensure feeder systems’ data integrity—an acknowledged
                             major deficiency in the current environment. Without identifying specific
                             actions to ensure such integrity, it is unclear whether the Department will
                             be able to effectively carry out not only its financial reporting but also its
                             other financial management responsibilities.

                             These examples illustrate the types of issues that could benefit from
                             increased visibility and discussions in senior leadership forums such as
                             that provided by the DMC. They also show that DOD’s reform efforts, while
                             significant, have not been brought together to provide a comprehensive,
                             integrated plan for Defense reform. Providing such a plan could provide a
                             more complete picture of major reform efforts that are needed and, to the
                             extent that these efforts are interrelated, provide the basis for developing a
                             more comprehensive, integrated strategy for achieving DOD’s goals.


DOD Could Benefit From a     Research in the private sector has shown that senior leadership
Clearer Picture of Overall   demonstrates its support for reform not only by communicating goals and
                             objectives but also by providing the necessary resources to carry them out.
Funding Requirements         While this does not guarantee success, it lessens the potential that other
                             programs may be negatively affected by having their budgets cut to pay for
                             the reform. For the most part, DOD is requiring the military services and
                             Defense agencies to fund DRI implementation costs out of their existing
                             budgetary resources. With an expectation that the Defense budget would
                             stabilize at about $250 billion over the next several years (in constant 1997
                             dollars), DOD’s Comptroller said that the only other option was to withhold
                             funds from the services and agencies and reapportion the funds back to


                             13
                                  Financial Management (GAO/AIMD-99-44, Jan. 29, 1999).




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them in a different manner. However, the services and agencies objected to
this plan, preferring to make their own priority and funding decisions.

This lack of direct funding is important because many of the initiatives
require significant up-front investments and, as discussed in chapter 3, the
extent of funding requirements for some of the major initiatives has not
been fully developed. Service and agency officials told us that coming up
with existing funding needs has not been easy. For example, DOD will
need a large amount of resources to complete the large number of
public/private competitions annually (using the Office of Management and
Budget A-76 process) as called for in the DRI Report. DOD has
underestimated the cost of performing the A-76 studies and implementing
their results. 14 Also, should the Congress authorize additional BRAC
rounds, they too will require significant up-front investments that will take
some time to offset before DOD begins to realize a return on the
investment. The same is true for a variety of other reform initiatives, both
in and out of the DRI program.

One of these other initiatives is an effort to privatize DOD’s 1,700 utility
systems (water, sewage, electrical, waste water, etc.). Service officials said
that it may cost hundreds of millions of dollars to complete feasibility
studies, environmental assessments, and other required actions for this
initiative. These officials also did not know if private utility companies
would be willing to assume ownership of the systems, considering their
current condition and cost to repair. OSD announced plans in December
1998 to provide funding for selected utility privatization projects but
acknowledged that it would not know the true cost of the initiative until
additional analysis was completed.

DOD is doing several things it believes will encourage the services and
agencies to fund the DRI out of their existing budgets. First, it is allowing
them to keep the estimated savings from the initiatives and reapply them to
their readiness and modernization needs. 15 In this respect, anticipated
savings from competitive sourcing studies are already being reallocated
from the services’ operating budgets to other needs within those services.
This is different from past reform efforts like the DMR, where estimated


14
  DOD Competitive Sourcing: Questions About Goals, Pace, and Risks of Key Reform Initiative
(GAO/NSIAD-99-46, Feb. 22, 1999).
15
  As savings occur or are anticipated, DOD expects the military services and Defense agencies to apply
them to other internal needs during the annual budgeting process and incorporate them into the FYDP.




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                           savings were taken from the services’ and agencies’ budgets up front and
                           reapplied to other organizations within the Department. Second, as
                           discussed previously, DOD issued Defense planning guidance for the fiscal
                           years 2000-2005 Defense program that included specific guidance to fund
                           DRI-related initiatives. At the same time, however, this planning guidance
                           assigned infrastructure funding the lowest priority relative to programs
                           that support readiness and sustainability, modernization, and force
                           structure. While this is an understandable ordering of priorities—DOD
                           must first accomplish its key missions—it reinforces the uncertainty
                           associated with funding infrastructure reduction investments.

                           Finally, if these efforts fail, DMC members said they have the option of
                           directing the funding of initiatives. They pointed out an instance in which
                           one service did not comply with a DRI funding priority in DOD’s fiscal
                           year 2000 budget guidance. This priority related to the demolition of
                           excess buildings, which DOD believes will avoid the future costs of
                           maintaining buildings that are no longer needed for current operations.
                           According to DOD’s Comptroller, a member of the DMC, the service was
                           directed to find money in its budget to fully fund the initiative, or the OSD
                           would make the necessary adjustments to the service’s budget. The
                           Comptroller said that the service’s subsequent budget submission included
                           full funding for the initiative. He did not say which, if any, other service
                           priorities were not funded as a result of this action.

                           With funding for the DRI coming primarily from DOD components’ existing
                           operating funds, tradeoffs will be required. Tradeoffs could become more
                           difficult as the magnitude of investment costs for the DRI initiatives
                           becomes more fully known. The process of making these tradeoffs might
                           be made more effective if DOD and the services had a clearer picture of
                           overall investment requirements and established, as part of the annual
                           budgeting process, Department-wide funding targets for the DRI. This
                           could lead to DOD more clearly establishing funding expectations for the
                           services and Defense agencies and letting the Congress know how much of
                           the Defense budget is needed for key reform efforts.


DOD’s Ability to Measure   One of the key aspects of a reform effort is the ability to establish baseline
DRI Results Is Limited     costs and measure the impact of change. Because of the poor condition of
                           DOD’s financial management systems, obtaining this type of information is
                           difficult and, in some cases, impossible. As a result, DOD tends to rely on
                           performance indicators that track progress or status rather than measure
                           results. While some measures of progress are necessary to understand



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what is left to be done, not having information on results or outcomes—
including the costs associated with such results or outcomes—makes it
difficult for DOD or anyone to determine to what extent overall goals and
objectives are being met and what dollar savings are being achieved. This
condition could also limit DOD’s ability to implement the Results Act.

With respect to the DRI, DOD officials said that their primary measure of
success is the top line of the Defense budget. If the operations and
maintenance budget is reduced sufficiently to allow the weapons
modernization budget to increase to $60 billion by fiscal year 2001, they
will consider the DRI effort a success. Using top-line budget figures are, at
best, gross indicators. This approach does not identify the precise impact
the DRI has had on the overall budget. In addition, information on the
impacts of specific initiatives is not readily available within the planning,
programming, and budgeting system. This lack of information was a major
drawback that limited DOD’s ability to measure the impact of reforms,
particularly the DMR directives undertaken in the early 1990s. 16

To gauge the progress of individual initiatives, the DRI Office periodically
collects information—primarily on initiatives with established
performance targets in an MRM or DRID—and provides feedback to the
Secretary of Defense, the DMC, and the Coordinating Group. The DRI
Office maintains a matrix or log showing the status, plans, and the
accountable office. This matrix, however, contains few details on actual
results, costs incurred, or issues needing resolution and is not kept current
for all initiatives. The DRI Office, according to its Director, relies primarily
on information provided by DRI focal points in the military services and
Defense agencies and, sometimes, the teams responsible for implementing
the initiatives. Because most of the tracking information does not come
directly from DOD systems, it must be compiled off-line, causing the
information to be somewhat dated by the time it is received by the DRI
Office. The Director said that his staff are attempting to improve and
expand on the information collected and hope to develop better
performance measures for reporting DRI progress and results.

It is well known, however, that DOD’s financial management systems are
currently unable to generate the type of information needed to establish the
baseline costs necessary to track savings associated with any changes.


16
  Defense Outsourcing: Challenges Facing DOD as It Attempts to Save Billions in Infrastructure Costs
(GAO/T-NSIAD-97-110, Mar. 12, 1997).




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              Therefore, whenever DOD officials estimate the potential or actual impact
              of an initiative or reform effort, the estimate is often based on either
              anecdotal information or data with limitations. DOD has been attempting
              to improve its financial management systems and processes for many
              years. It has many well-intentioned planned and ongoing financial
              management improvement efforts. However, fixing its serious,
              long-standing financial management problems across its large complex
              organizational structure remains a major challenge. Until this effort is
              successfully completed, DOD’s ability to effectively measure program
              results will continue to be limited.



Conclusions   DOD has made a good start by establishing a management framework for
              the DRI that adopts many proven management change concepts. Special
              directives, performance contracts and plans, and budget guidance are
              additional tools that could help DOD institutionalize and sustain emphasis
              on the DRI. While it is too early to assess program results, we identified
              several areas where DOD could further enhance its management approach.
              First, DOD has other major reforms underway that are not part of the DRI
              program. While all reforms cannot and probably should not be included,
              greater emphasis on including the critical few—particularly those involving
              major business processes and support activities—would provide the
              Department’s leadership with a more comprehensive overview of the
              Defense reform effort. This, along with following the results-oriented
              management framework provided by the Results Act, would also put DOD
              in a position to develop a comprehensive, integrated strategy for reforming
              its major business processes and support activities.

              Second, DOD is requiring its components to fund many up-front investment
              costs for the DRI out of their existing budgets. The initiatives thus have to
              compete with higher departmental priorities for annual investment funds.
              This process could be more effective, in our view, if DOD had a clearer
              picture of projected long-term costs for all major reform initiatives and a
              clearer picture of overall investment requirements for the reform effort. As
              part of the annual budgeting process, this picture would help establish
              funding expectations for the military services and Defense agencies and let
              the Congress know how much of the total Defense budget would be spent
              on Defense reform issues. It would also facilitate prioritizing actions most
              critically needed among competing priorities in an integrated fashion.

              Third, DOD lacks good financial management data from which it can
              baseline costs and determine the effectiveness of its reforms. DOD has



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                      been attempting to improve this condition for many years and has just
                      developed, at the direction of the Congress, a Biennial Financial
                      Management Improvement Plan. Our recent assessment of this plan found
                      that it provides a first-ever vision of DOD’s future financial management
                      environment and includes an array of initiatives intended to move DOD
                      forward. On the other hand, the plan has limitations that make it unclear
                      whether DOD would be able to effectively carry out its financial
                      management responsibilities. Because we have already provided
                      numerous recommendations on this topic in the past, we are not making
                      any additional recommendations in this report.



Recommendations       To strengthen the Defense reform effort, we recommend that the Secretary
                      of Defense take the necessary actions to:

                      • bring all major business process and infrastructure reform initiatives,
                        including logistics and financial management reform, under the DRI
                        program and follow the framework provided by the Results Act to
                        establish a more comprehensive, integrated strategy and action plan for
                        reforming the Department’s major business processes and support
                        activities and
                      • more fully identify investment funding requirements for the major
                        reform initiatives and Department-wide funding targets for the DRI
                        program and communicate them to the Congress during the annual
                        budget process.



Agency Comments and   In commenting on a draft of this report, DOD limited its response to the
                      report’s recommendations. Concerning our recommendation that the
Our Evaluation        Secretary of Defense bring other major reform efforts, such as logistics and
                      financial management, under the DRI program, DOD responded that the
                      Secretary had unified the DRI and acquisition reform activities as a means
                      of coordinating reform efforts within the Department. DOD stated that the
                      recommended application of Results Act principles as a framework for a
                      strategy is fully possible only in some circumstances where they can be
                      quantified. However, it also stated that integrated process teams had been
                      organized as a means of fostering reform and information sharing.

                      We noted separately that the Department’s March 1999 update of the DRI,
                      provided on CD-ROM and available on the Defense reform internet web
                      site, included logistics, financial management, acquisition reform,



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homeland defense, cyberspace security, quality of life, and other reform
activities under the scope of the DRI. The Department also announced on
March 23, 1999, that organizational responsibility for the DRI program had
been moved to the office overseeing acquisition reform, the Deputy Under
Secretary of Defense for Acquisition Reform. That official will also serve
as Director of the DRI Office and, in that capacity, report directly to the
Secretary of Defense.

While the Department has now more closely linked the original DRI
programs with other related reform initiatives, such as logistics and
financial management reforms, and plans to increase information sharing,
the Department’s comments did not address additional steps it might take
to develop a more comprehensive integrated strategy and action plan for
achieving the DRI goals. We believe such a plan is needed to facilitate
management oversight and maximize the potential that the reform program
will meet its goals. Such a plan could also help DOD maintain its focus on
the original DRI goals—reengineering business operations and eliminating
unneeded infrastructure—considering that it has broadened the DRI to
include such efforts as homeland defense, cyberspace security, and
quality-of-life initiatives. Our intent in recommending the use of Results
Act principles in developing a more comprehensive, integrated strategy
was to emphasize the importance of including Results Act elements of
accountability, goals, and performance measures in formulating an
integrated plan. Our review of DOD’s current Results Act Performance
Plan indicates that some of these elements are being addressed; but we
also believe that more can be done to apply these principles to the DRI
initiatives and link the goals of the initiatives to the Department-wide
performance plan.

Concerning our recommendation that DOD more fully identify investment
funding requirements for the DRI program and communicate them to the
Congress, DOD responded that it was reviewing funding and expanding
efforts to consult with the Congress. DOD noted that this was a high
program priority, but it was not specific about which actions it planned to
take in connection with this review. We continue to believe it is important
for DOD to identify its funding requirements for major initiatives as well as
its overall funding targets for the DRI program. Such data could provide
the Congress with improved information regarding funding requirements
and provide DOD with an improved basis for decisionmaking, including for
making tradeoffs among competing priorities.




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Chapter 3

Individual Reform Initiatives Vary in Progress                                                                Chapter3




                         Each of the four DRI pillars includes a variety of reform or reengineering
                         initiatives, many of which were already ongoing before they were brought
                         under the DRI umbrella. However, DRI gave each of these initiatives
                         increased visibility and top-level support within the Department and, in
                         many instances, imposed new goals and milestones for accomplishing their
                         objectives. Each initiative varies in its progress toward meeting its
                         objectives and milestones, and many of the initiatives still face a variety of
                         obstacles that could affect their ultimate success. DOD has identified
                         formal savings goals for only two initiatives: competitive sourcing in pillar
                         three and BRAC rounds in pillar four. What follows is an overview of the
                         progress on key initiatives within each pillar.



Adopting Best            Of the four pillars, adopting best business practices includes the broadest
                         range of initiatives, from the increased use of electronic commerce to
Business Practices:      reengineering the movement of household goods. While DOD has not
Efforts Are Under Way,   established specific savings goals for any of these initiatives, it believes
                         they will not only improve efficiency and save money but also better
but Progress Varies      position DOD to respond to war-fighters’ requirements in today’s and
Among Initiatives        tomorrow’s dynamic defense environment. Progress varies among the
                         individual initiatives, and the outcome of some is uncertain. Table 3.1
                         provides an overview of the primary initiatives included in this pillar, their
                         associated goals and milestones, their status, and related implementation
                         issues.




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                                              Individual Reform Initiatives Vary in
                                              Progress




Table 3.1: Best Business Practices Initiatives
Initiative               Goal/milestone                           Status                                    Issues
Paperless contracting    Make all aspects of the major            Integrated process team established to    Establishing a standard
                         weapon systems contracting process       plan and coordinate work in the           process, interfacing
                         paperless by January 1, 2000,            services and Defense agencies. DOD        automated data processing
                         through increased application of         will not meet deadline of January 1,      systems, and coordinating
                         computer technology.                     2000. DOD estimates meeting the           complementary efforts among
                                                                  goal during 2003.                         many offices involved are
                                                                                                            difficult, time-consuming
                                                                                                            tasks.
Purchase cards           By fiscal year 2000, buy 90 percent  Services and agencies have steadily           Increasing card usage will
                         of goods and services costing $2,500 increased the use of the purchase             require some reengineering
                         or less using the purchase card.     card. In fiscal year 1998, DOD doubled        for certain types of
                                                              the number of potential transactions for      transactions; 90-percent goal
                                                              which card use is directed.                   may not be difficult to meet.
                                                                                                            DOD is exploring benefits and
                                                                                                            risks of increasing dollar limit
                                                                                                            to $10,000 or $25,000.
Electronic malls         Expand use of electronic malls. Allow    DLA and the services have started         DOD is working to integrate
                         for on-line payment with purchase        several electronic malls that allow       existing sites into a single,
                         cards by July 1998. Use purchase         on-line purchase from suppliers.          DOD-wide mall in accordance
                         cards for all purchases by January 1,    Others planned. On-line payment           with congressional direction in
                         2000.                                    capability in place.                      the fiscal year 1999 National
                                                                                                            Defense Authorization Act.
Prime vendors            Increase use of prime vendors for        Limited progress expected in              Services have not embraced
                         DLA-managed items. Have prime            expanding use of prime vendors for all    the concept to extent desired.
                         vendor contracts for facility            classes of consumable items.              DLA has not yet expanded
                         maintenance supplies available for all   Contracts for facility maintenance        contracts to cover many of the
                         installations in the United States by    supplies are in place for potential use   items it manages.
                         January 1, 1999.                         by military services.
Total asset visibility   A key part of achieving “just in time”   DOD continues long-standing efforts to    Initiative is highly complex,
(TAV)                    logistics. DOD committed to              achieve TAV capability but unlikely to    heavily dependent on
                         providing TAV. In-theater TAV to be      meet year 2000 goal for in-theater TAV.   systems in development, and
                         fully operational in year 2000.          DOD’s logistics strategic plan states     has been an objective for
                                                                  that TAV will be totally implemented by   DOD for over 25 years.
                                                                  February 2004.
Travel system            Implement new system for official        Significant progress made. However,       Initial contract serving 1 of 18
reengineering            DOD travel by October 2000.              full implementation throughout DOD is     regions in U.S. awarded in
                                                                  not expected until 2001.                  spring 1998. Results of
                                                                                                            previous pilots promising.
Household goods          Reengineer processes for moving          Limited pilot projects under way or       Optimum approach yet to be
transportation           military personnel and their families.   about to be started that will test        determined. Plans for
                                                                  improved approaches to moving             evaluating success of each
                                                                  household goods of servicemembers.        option still evolving. Impact
                                                                                                            on small businesses remains
                                                                                                            a contentious issue.




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                           As the table shows, paper-free contracting, prime vendors, and total asset
                           visibility are the three initiatives that may have the most trouble meeting
                           DRI objectives. The other initiatives, while making progress, also face
                           various hurdles.


DOD Not Expected to Meet   DOD has established a goal of attaining paperless contracting for major
Its Goal for Paperless     weapon systems by 2000. Currently, each of the services and Defense
                           agencies uses different computer systems, data formats, and operating
Contracting Until 2003
                           procedures, resulting in a contracting process that is largely manual, paper
                           intensive, and characterized by redundant, time-consuming actions.
                           Reengineering through automation, placing contracting documents on-line
                           for review and action, and using electronic commerce technologies are all
                           expected to speed contract management and administrative processes,
                           substantially reduce paperwork, and cut costs.

                           Although the DRI called for achieving a paperless environment by 2000,
                           this initiative received a lot of attention even before the DRI Report was
                           issued, and it continues to receive significant support from the Deputy
                           Secretary of Defense and the DMC. A May 1997 MRM first enunciated the
                           2000 goal. To implement the MRM, DOD established an integrated process
                           team that has been working to baseline current procedures, determine
                           interfaces among participating organizations, identify opportunities for
                           automating tasks, and recommend system solutions. The Deputy Secretary
                           has also received periodic briefings on progress and has taken a personal
                           role in moving this effort forward. In addition, the Deputy Secretary has
                           issued several DRIDs to address discrete parts of the contracting process
                           (contract close-out and material inspection and receiving), establish an
                           overarching team to review status and resolve conflicts among the offices
                           involved, and direct action in related areas of electronic commerce and in
                           the design of the future procurement process.

                           Although progress has been made—for example, the integrated process
                           team has recommended changes to regulations and the development of
                           computer applications to the contract close-out process—it may be several
                           years past the 2000 deadline before this initiative is fully implemented.
                           Officials said that making the contracting process paperless is a
                           complicated undertaking involving numerous organizations, information
                           systems, and business processes. Key technological issues such as
                           developing electronic signatures to prevent unauthorized access and use
                           are yet to be resolved. Also, the project depends on the completion of
                           several automated systems now under development, including systems to



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                       standardize the procurement process and pay bills electronically. Not all of
                       these systems, however, will be completed in time to meet the deadline.
                       According to official estimates, the bill paying system will not be
                       implemented until December 2003.

                       Additionally, even after the initiative is completed, the process will not be
                       entirely paperless because not all aspects of the contracting process are
                       part of this initiative. For example, the steps of defining the initial
                       requirement for the weapon system and formally advertising for bids are
                       not included in this effort. Moreover, actions to date have mainly focused
                       on automating current business processes. According to a representative
                       of the integrated process team and service contracting officials, more
                       substantial savings might be achieved if inefficient and redundant
                       processes were first reengineered and unnecessary tasks were eliminated
                       before system solutions were applied.


Purchase Card Use Is   Purchase cards are similar to commercial credit cards and are issued to
Increasing             authorized DOD military and civilian users to acquire and pay for low-cost
                       supplies and services. Purchase cards have been used throughout the
                       government for several years and, generally, have been used by DOD for
                       purchases within the “micro-purchase” limit, which is $2,500 or less. DOD
                       implemented the card to help streamline the acquisition process by
                       decentralizing purchasing authority for low-cost supplies and services. Use
                       of the cards avoids the traditional paper- and labor-intensive process of
                       centralized buying by a DOD contracting office. By using the card as a
                       reengineering tool, savings accrue from efficiencies in the contracting,
                       logistics, and financial processes. During fiscal year 1998, DOD made
                       approximately 7.5 million purchases for a total value of over $3 billion with
                       the cards.

                       The DRI Report called for DOD to use purchase cards for 90 percent of all
                       micro-purchases by fiscal year 2000. In March 1998, the Deputy Secretary
                       of Defense established a DOD Purchase Card Program Office. This office
                       brought more focus to the individual efforts going on among the military
                       services and Defense agencies. At the end of the second quarter of fiscal
                       year 1998, the Program Office reported that DOD was using the cards for
                       over 85 percent of all micro-purchases and was on track to meet the
                       90-percent goal before fiscal year 2000. Soon after the Program Office was
                       established, however, DOD realized that the cards were not being used to
                       pay for certain types of micro-purchases. For example, the Purchase Card
                       Program Manager told us that DOD has historically paid about 200,000



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                            commercial invoices for training and about 1 million Military
                            Interdepartmental Purchase Requests that were valued at or below the
                            micro-purchase threshold of $2,500. The Program Manager said that
                            recently, purchase cards have been identified as the method of payment for
                            the training invoices but using the cards to pay Military Interdepartmental
                            Purchase Requests was still under review. Adding these additional
                            transactions to the universe of items that can be paid with purchase cards
                            could affect DOD’s ability to meet its 90-percent goal before fiscal
                            year 2000. According to the Director, it will take time to reengineer the
                            payment processes for these two types of transactions so the purchase
                            card can be used.

                            DOD officials view purchase cards as complementary to their efforts to
                            facilitate paperless contracting because more than half of all contracting
                            actions are within the micro-purchase threshold. Thus, DOD officials are
                            pushing the services and Defense agencies to use the cards to the fullest
                            extent possible. Additionally, they are exploring the benefits and risks
                            associated with raising the micro-purchase threshold to $10,000 or $25,000.
                            Officials estimate that raising the limit could eliminate as much as
                            60 percent of all DOD base-level contracting actions, thereby further
                            streamlining DOD procurement processes and bringing additional savings.


DOD Developing Electronic   Electronic shopping malls are virtual one-stop shops in which DOD
Shopping Malls              customers can buy parts and supplies over the Internet. Currently, DOD
                            customers can purchase supplies from electronic malls established by the
                            DLA, the individual services, the Defense Information Systems Agency
                            (DISA), the General Services Administration, and other organizations. The
                            malls provide access to electronic catalogs as well as government
                            contracts. The DRI Report established a general goal of expanding the use
                            of electronic tools like electronic malls to put buying decisions in the hands
                            of people needing the products and enable them to shop for the best buy.
                            More specifically, however, the report called for all DOD malls to permit
                            on-line payment with government purchase cards by July 1, 1998. It further
                            directed that the cards be used for all mall purchases by January 1, 2000.
                            No DRID was issued on this initiative.

                            According to the electronic mall program office, the malls now have the
                            capability to accept purchase cards as called for in the DRI. Further,
                            customers also have the option of using other electronic methods of billing
                            and payment such as electronic data interchange or electronic funds




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                             transfer for large volume purchases where the use of a purchase card
                             would be impractical.

                             DOD is working to meet a requirement recently established by the Fiscal
                             Year 1999 Strom Thurmond National Defense Authorization Act, which
                             directed DOD to integrate all the separate malls into a single, DOD-wide
                             mall to provide a single point of access, format, and ordering capability. A
                             DOD official said this effort is under way. The services and Defense
                             agencies have been asked to provide data on their malls to help DOD
                             determine how many malls now exist and develop a migration plan for
                             bringing these malls together under one integrated site. This plan is to be
                             reported to the Congress by the end of April 1999.


Use and Expansion of Prime   Prime vendors are contractors that buy inventory from a variety of
Vendor Contracts Has Been    suppliers, store it in commercial warehouses, and ship it to customers
                             when ordered. DOD wants to increase the use of prime vendors to manage
Limited                      parts, reduce government inventories, and improve delivery times. DLA
                             began a prime vendor program for medical supplies in 1993 1 and has since
                             expanded it to include many other categories of consumable items such as
                             food and clothing.2 DLA has found that this program reduces delivery
                             times and decreases the need for and costs of maintaining government
                             inventories.

                             DOD recognized that the program could be expanded further, particularly
                             to include hardware items. Hardware items represent 97 percent of the
                             4 million items managed by DLA but accounted for only 1 percent of prime
                             vendor sales in fiscal year 1997. To help expand the program, DOD in June
                             1997 issued an MRM that directed DLA to develop regional contracts that
                             the military services could use to procure a portion of hardware items—
                             maintenance, repair and operations supplies. The DRI Report then
                             reiterated this emphasis by highlighting hardware items as well, although it
                             also called for increasing the use of prime vendors for all categories of
                             items. A subsequent DRID further focused on hardware items by directing
                             the military services to expand their use of regional contracts and



                             1
                              DOD Medical Inventory: Reductions Can Be Made Through the Use of Commercial Practices
                             (GAO/NSIAD-92-58, Dec., 1991).
                             2
                              Inventory Management: Greater Use of Best Practices Could Reduce DOD’s Logistics Costs
                             (GAO/T-NSIAD-97-214, July 24, 1997).




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                               instructing them to work with DLA to identify sites for implementation and
                               opportunities for expansion.

                               According to documents provided by DLA, prime-vendor sales for all
                               categories of items accounted for about 18 percent of all sales in fiscal
                               year 1997 and about 21 percent in fiscal year 1998. Personnel items such as
                               medical supplies, food, and clothing are expected to account for most of
                               the sales. For hardware items, DLA has established regional contracts for
                               maintenance, repair, and operations supplies as called for in the MRM and
                               is working with the military services to identify sites to pilot test the
                               contracts. However, use of the contract is not mandatory, so it is unclear to
                               what extent these contracts will be used. Military service officials raised
                               concerns while the DRID was being drafted about making the use of prime
                               vendors mandatory. They pointed to instances where the use of prime
                               vendors resulted in higher costs and slower service. Because of these
                               concerns, the DRID that was issued gave the military services the flexibility
                               to use contracts when they are the most cost-effective way of purchasing
                               an item.

                               Besides the prime vendor program, DLA is pursuing other best commercial
                               practices. The National Defense Authorization Act for Fiscal Year 1998
                               directed DLA to develop and submit to the Congress a schedule for
                               implementing the best commercial inventory practices for nine categories
                               of supplies. The schedule DLA submitted includes numerous best-practice
                               initiatives such as the use of corporate contracts, direct-vendor-delivery
                               arrangements, and electronic commerce as well as the prime-vendor
                               concept. The act further directed that the schedule “shall provide for the
                               implementation of such practices to be completed not later than three
                               years after the date of the enactment of the Act.” We are currently
                               reviewing the extent to which DLA has implemented these initiatives and
                               will be reporting to the Congress at a later date.


Achieving Total Asset          The DRI Report cited Defense logistics as a functional area where
Visibility Continues to be a   reengineering could reap great benefits and specifically targeted Total
                               Asset Visibility (TAV). Although an issue since at least 1972, TAV has
Difficult, Long-term           received heightened visibility since the Gulf War, when logistics pipelines
Undertaking                    were clogged by thousands of duplicate requisitions and the contents of
                               more than half of the 40,000 large containers of equipment shipped to the
                               war theater could not be readily identified. Since then, DOD has continued
                               efforts to implement a TAV program to better identify and track equipment,




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                              supplies, spare parts, and requisitions. However, full implementation is still
                              several years away.

                              The DRI Report stated that TAV, for forward-deployed in-theater forces,
                              will be fully operational by 2000. The DOD 1998 Logistics Strategic Plan
                              states that full TAV implementation will be achieved by February 2004.
                              Achieving TAV involves the successful implementation of several large and
                              complex information-technology initiatives across organizational lines. In
                              other words, individual TAV and related logistics information systems
                              operated by each of the military services must be able to provide complete,
                              timely, and accurate data about assets and access to those assets. This
                              effort has proved difficult, and the Department continues to face critical
                              challenges, including the absence of a Department-wide management
                              framework for providing information to precisely measure progress in
                              reaching TAV program goals. We have ongoing work in this area and plan
                              to publish an in-depth report in April of this year.


DOD Starting to Implement     DOD began reengineering the travel management system in 1994, after
a Reengineered Travel         recognizing that the process used to request, approve, and pay for official
                              travel by its personnel required substantially more administrative costs and
Management System
                              took much more time than best-management practices in the private
                              sector. To reengineer the travel system, DOD officials benchmarked best
                              practices in the private sector, compared them with DOD’s current
                              processes and requirements, and identified improved administrative
                              procedures and management systems. DOD then conducted 25 pilot
                              projects to test proposed redesigns and reported major improvements in
                              cost, cycle time, and customer satisfaction. In May 1998, it awarded an
                              initial contract for automated travel services in 1 of 18 regions in the United
                              States. DOD expects to phase in contracts in other regions over the next
                              3 years, completing full implementation sometime in 2001.

                              Most of the travel reengineering efforts preceded the DRI. However, DRID
                              39 did address an element of travel reengineering: it directed that functions
                              of the Washington, D.C., area travel office be transitioned to the private
                              sector by October 1, 1998. This action was completed in October 1998.


Pilot Efforts Are Under Way   DOD has long been concerned about the quality of its program to transport,
to Improve Transportation     store, and manage household goods. According to the DRI Report, DOD
                              paid about $2.8 billion in fiscal year 1997 to move almost 800,000 military
of Household Goods            families. The DRI Report noted that DOD moves more households than



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any U.S. corporation, yet its system gives its personnel some of the worst
service in the nation. The report stated that 25 percent of all DOD moves
end with damage claims, compared to 10 percent in the private sector.
Also, best-in-class movers have customer satisfaction rates of 75 percent,
while DOD's have rates of only 23 percent.

Because of these and other problems, DOD proposed several years ago to
reengineer its personal property program, primarily as a quality-of-life
initiative. Its primary goals were to substantially improve the quality that
military personnel and their families received from DOD's contracted
movers; simplify the entire process, from arranging moves to settling
claims; and base the program on business processes characteristic of
world-class customers and suppliers. Prior to the DRI Report, MRM 6
(dated June 4, 1997) called for DOD to streamline and simplify policies and
procedures used by military personnel to arrange their own moves.

The DRI Report gave attention to DOD efforts to adopt simplified
procedures, to increase reimbursements for “do it yourself” moves, and to
offer personnel at selected Navy locations the opportunity to choose the
carrier they want to use from a list of participating carriers. Also, a larger
pilot test began in early 1999 under the sponsorship of the Military Traffic
Management Command. This pilot will test, among other things, the merits
of selecting “best-value” carriers for moving household goods. We reported
in November 1996 on this pilot proposal. 3 As these pilot projects are just
underway, we have not had the opportunity to evaluate the results.

One pilot effort that has been underway for over a year within the Army
involves moves originating at Hunter Army Airfield, Georgia. This pilot is
designed to test whether commercial practices can provide relocation
services for servicemembers moving from Hunter Army Airfield. In March
of this year we testified on the results of this and the status of the other
pilot projects before the Subcommittee on Military Readiness, Committee
on Armed Services, House of Representatives. 4 In that testimony, we
supported the use of pilots as a means to test new concepts. With respect
to the Hunter Army Airfield pilot, however, we were unable to validate the
Army’s evaluation of the pilot primarily because of problems with the


3
  Defense Transportation: Reengineering the DOD Personal Property Program (GAO/NSIAD-97-49,
Nov. 27, 1996).
4
  Defense Transportation: Efforts to Improve DOD’s Personal Property Program (GAO/T-NSIAD-99-106,
Mar. 18, 1999).




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                       Army’s study methodology and the reliability of data. As a result, questions
                       remain about the level of satisfaction among pilot participants and how the
                       pilot costs compare to the baseline costs of the current program.

                       In summary, we noted that improving DOD’s personal property program
                       has been a slow, complex process. Before any type of conclusion about
                       these efforts can be reached, however, DOD must have accurate and
                       credible data to determine the type and extent of changes that should be
                       made. To facilitate a timely completion of the evaluation process, we
                       concluded, among other things, that DOD should develop a comprehensive
                       strategy for testing the pilots and assure that it has a methodologically
                       sound evaluation plan to assess each pilot’s attributes in a comparable
                       manner.



Changing the           Under this pillar, the DRI called for a series of reductions, reorganizations,
                       and other organizational adjustments within OSD, Defense agencies, and
Organization:          other headquarters organizations. With limited exceptions, DOD has acted
Realignments and       to implement the changes called for by the DRI. At the same time, other
                       reductions called for by the Congress may be more difficult to implement.
Reductions Are Being
Carried Out, With      The DRI Report called for flatter, more streamlined headquarters
Some Exceptions        throughout DOD that would (1) ensure that the OSD focuses on core,
                       corporate-level tasks rather than get involved in program management and
                       day-to-day management of subordinate activities; (2) strengthen OSD’s
                       focus on long-term strategic, program, and financial planning; and (3) weed
                       out unnecessary overlap, complexity, and redundancy. The DMC
                       formalized the organizational decisions by issuing 34 DRIDs, the majority
                       of which were developed within 2 months after the DRI Report was
                       released. However, full implementing action was spread out over a longer
                       period of time.

                       According to a Coordinating Group member, many of the initiatives for this
                       pillar reflect decisions that were made during the QDR process and brought
                       under the DRI for oversight purposes. The DRI Report called for specific
                       staff reductions in various organizations throughout DOD, generally over a
                       period of several years. These included reducing OSD personnel by
                       33 percent—about 1,000—and Defense agency personnel by 21 percent—
                       about 27,000. The report also called for a number of organizational
                       transfers, such as the shifting of oversight for the Defense Technical
                       Information Center from the Under Secretary of Defense for Acquisition
                       and Technology to DISA.



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DOD organizations are making progress toward meeting DRI-directed staff
reduction goals. OSD, for example, has already met 80 percent of its goal,
primarily by transferring 506 personnel to other DOD organizations and
eliminating 284 positions—a total reduction of 790 personnel. Many of
these transfers resulted from specific DRIDs. In addition, Defense agencies
are also reducing their staff. Top management officials at DFAS, DISA, and
DLA—three of the largest Defense agencies—showed us plans for reducing
personnel and told us they do not foresee a problem reaching the
21-percent goal by fiscal year 2003. However, instead of transferring
people, they expect to meet the goal by reengineering activities,
outsourcing functions, and using other methods such as consolidations.
Similarly, DOD budget documents show the DRI-mandated cuts are being
programmed for the Joint Staff and the unified commands through fiscal
year 2003, the deadline established by the DRI for these two organizations.

However, not all the changes have been carried out as originally planned.
For example, the DRI called for dissolving the Office of the Assistant
Secretary of Defense for Command, Control, Communications, and
Intelligence; transferring its intelligence functions to the newly created
Office of the Assistant Secretary of Defense for Intelligence; and spinning
off its other functions to other areas. DOD, however, decided not to
disband the office after the Deputy Secretary decided that it made more
sense to keep it in place. In other cases, a number of the changes were
completed or will be completed several months later than originally
planned. These slips in the schedule, however, do not appear significant.

In addition to DRI-directed reductions, DOD has also faced implementing
reductions in headquarters personnel directed by the Congress. For
example, the National Defense Authorization Act for Fiscal Year 1998
required DOD to reduce the number of management headquarters and
headquarters support activities by 25 percent (from fiscal year 1997 levels)
by September 30, 2002. Although DOD intends to meet a portion of these
reductions through the DRI-related cuts, our work on this issue found that
DOD did not develop plans consistent with this legislation because the
Secretary of Defense had sought relief from the requirement. 5 When the
Congress rejected the appeal, however, DOD assembled a task force to
develop alternatives for meeting the 25-percent mandate. The task force is
to complete its work in June 1999.


5
  Defense Headquarters: Status of Efforts to Reduce Headquarters Personnel (GAO/NSIAD-99-45,
Feb. 17, 1999).




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Streamling Through   The DRI Report recommended studying about 200,000 government
                     positions over a 5-year period for potential conversion to the private sector.
Competition:         It projected that this effort would produce $6 billion in savings during that
Questions About      period and more than $2 billion in annual recurring savings each year
                     thereafter. 6 This effort is one of two DRI initiatives from which DOD is
Goals, Pace, and     projecting specific savings that are being incorporated into future year
Amount of Savings    budget programs. Defense officials told us that the issue of competitive
                     sourcing has consumed the greatest amount of attention at DMC meetings.
                     Various Defense officials have raised questions about the number of
                     government positions related to commercial activities, the number of
                     positions that can reasonably be studied during the prescribed time frame,
                     and the likelihood that the amount of savings the DRI has projected will be
                     realized.

                     The DRI Report echoed concerns expressed in the QDR report that tens of
                     thousands of military and civilian positions within DOD were being
                     devoted to work involving functions and services that were readily
                     available in the private sector. Both the QDR and DRI reports projected
                     significant savings from outsourcing these functions to the private sector,
                     and the DRI Report recommended that this effort be based on competitive
                     sourcing studies under the Office of Management and Budget’s
                     Circular A-76 on commercial activities. Although use of A-76 was limited
                     from the early to mid-1990s, DOD in late 1995 reestablished the
                     competition program in the hopes of realizing significant savings that could
                     be used to fund modernization and other priority needs.

                     A DRID pertaining to competitive sourcing was issued on January 16, 1998.
                     It called for the military services and Defense agencies to update their
                     previously developed listings of positions involving commercial activities
                     and to differentiate between activities involving functions deemed
                     inherently governmental in nature that should remain in-house and those
                     that could be subject to A-76 competitions. The DRID estimated a January
                     1999 reporting date to the Congress. The House Committee on Armed
                     Services, in its report on the National Defense Bill for Fiscal Year 1999, also



                     6
                       The number of positions to be subject to competition has varied over time; in October 1998, Defense
                     officials announced that 237,000 positions would be competed between fiscal year 1997 and 2005;
                     however, the President’s fiscal year 2000 budget request stipulates that 229,000 positions are to be
                     studied during that time period and projects $11 billion in cumulative savings and over $3 billion in
                     annual recurring savings.




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requested this type of analysis and that it be provided by January 1999. 7 As
of April 1999, Defense officials were still preparing the report.

The Deputy Secretary of Defense in a December 1998 memo stressed the
importance of achieving the projected savings from competitive sourcing.
He said DOD had $10 billion in funding for readiness and modernization
programs that depended on the successful implementation of the
competitive sourcing program. While we believe that competitive sourcing
competitions are likely to produce savings, we have urged caution
regarding estimates of savings likely to be achieved. We previously noted
that prior savings estimates, which provided a basis for current estimates,
were based on initial savings estimates from outsourcing competitions but
that expected savings can change over time, as the scope of the work or
mandated wages changes.8 More recently, we completed two additional
reviews of competitive sourcing issues. One confirmed the benefits of
competitive sourcing studies and the potential for savings from these
competitions, regardless of whether the government or the private sector
wins them. 9 However, the second identified questions about the magnitude
of savings likely to be realized in the short term and the ability of DOD
components to undertake and complete the number of studies called for
between now and 2005.10 It also pointed out that DOD has not fully
calculated the investment costs associated with undertaking these
competitions or the personnel separation costs likely to be associated with
implementing them. Additionally, delays in launching previously projected
studies and greater times to complete them than previously planned will
add pressure to complete larger numbers of studies in succeeding years
and add to an already heavy resource requirement in this area.




7
    House National Security Committee Report (105-132), dated March 1, 1998, page 296.
8
 Base Operations: Challenges Confronting DOD as It Renews Emphasis on Outsourcing
(GAO/NSIAD-97-86, Mar. 11, 1997).
9
    DOD Competitive Sourcing: Results of Recent Competitions (GAO/NSIAD-99-44, Feb. 23, 1999).
10
     DOD Competitive Sourcing (GAO/NSIAD-99-46, Feb. 22, 1999).




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Eliminating Unneeded    This pillar focuses on reducing infrastructure through a variety of methods,
                        from eliminating unneeded facilities through additional BRAC rounds to
Infrastructure:         privatizing functions that DOD believes could be more appropriately
Progress Toward Goals   handled by the private sector. BRAC is the second DRI initiative for which
                        DOD has projected significant savings, and DOD has begun to include
Is Mixed                savings from additional rounds in its future years’ budget plans. Table 3.2
                        provides an overview of the initiatives in this pillar and their associated
                        goals, milestones, status, and implementation issues.




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Table 3.2: Initiatives to Eliminate Infrastructure
Initiative                       Goal/deadline                       Status                             Issues
Base closures                    Hold additional rounds in 2001      The Congress has not               Congressional concerns about
                                 and 2005.                           authorized additional BRAC         prior rounds have produced
                                                                     rounds.                            reluctance to approve additional
                                                                                                        rounds.
DISA consolidations              Reduce number of data centers       DISA expects to have revised       Effort also involves
                                 from 16 to 6.                       structure in place by fiscal       reengineering activities and
                                                                     year 2000.                         establishing 23 regional centers,
                                                                                                        using existing infrastructure.
DFAS eliminations                Reduce number of operating          DFAS estimates excess capacity     Section 914 of the Fiscal
                                 locations by 8.                     of 34 percent by fiscal            Year 1999 Strom Thurmond
                                                                     year 2003. Study of operating      National Defense Authorization
                                                                     locations was to be completed      Act added new requirements
                                                                     by March 15, 1999, but has not     that DFAS must consider when
                                                                     been issued.                       assessing infrastructure and
                                                                                                        deciding which locations to
                                                                                                        close.
Research and development,        No goals or deadlines given.        DOD developing plan for            Issue currently linked to potential
test and evaluation facilities                                       restructuring in accordance with   for future BRAC rounds.
                                                                     section 912(c) of the fiscal
                                                                     year 1998 National Defense
                                                                     Authorization Act.
Demolitions                      Demolish excess structures.         All services expect to reach       Good progress attributed to
                                 Each service has specific goals     goals by deadlines.                management attention given to
                                 dictating amount of square                                             this issue and especially to the
                                 footage to be demolished, with                                         extent of funding being set aside
                                 completion dates ranging from                                          for demolitions.
                                 2000 to 2003.
Regional energy                  Develop plan for demonstrations Plans submitted. Three         Defense Energy Support Center,
demonstrations                   by June 1, 1998.                demonstrations completed. More which is managing the
                                                                 expected.                      demonstrations, is also working
                                                                                                with services on utility
                                                                                                privatization.
Utilities privatization          Privatize all utilities by          Services will not meet deadline.   Effort is complex,
                                 January 1, 2000.                                                       time-consuming, and expensive.
                                                                                                        Defense Management Council
                                                                                                        subsequently extended deadline
                                                                                                        to September 30, 2003.
Housing privatization            Privatize 3,500 units by fiscal   Services will not meet goals.        Effort is complex and
                                 year 1998, 15,000 units by fiscal                                      time-consuming.
                                 year 1999, and 30,000 by fiscal
                                 year 2000. Eliminate all
                                 inadequate housing by fiscal
                                 year 2010.




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                            Initiatives included in this pillar are the most directly related to the
                            reduction of Defense facilities infrastructure. Of the initiatives, BRAC is
                            the most controversial, although it offers the greatest potential for
                            long-term savings. Several require significant up-front investments that
                            would delay any net savings or cost avoidance.


Potential for Future BRAC   Despite four rounds of domestic BRAC actions between 1988 and 1995,
Rounds Is Uncertain         DOD officials believe there continue to be excess facilities that are a
                            burden on DOD’s budget in a resource-constrained environment. Both the
                            QDR and DRI reports reflected this view. The DRI Report called for
                            additional BRAC rounds in 2001 and 2005.11 DOD officials now project that
                            two additional rounds would generate net savings of $3.4 billion a year
                            once realignment and closure actions were completed and the costs of
                            implementing these actions were offset by savings. DOD has reflected the
                            impact of these savings in future years budget plans. 12 Because of
                            concerns about issues such as cost and savings from prior BRAC rounds,
                            their economic impact, and executive branch handling of two closure and
                            realignment decisions in the 1995 round, the Congress has been reluctant
                            to authorize additional BRAC rounds.

                            Our work has shown that past BRAC recommendations will result in
                            substantial savings once implementation costs have been offset and net
                            savings begin to accrue. 13 However, we have also indicated that because
                            of weaknesses in data and records, DOD’s savings projections lack the
                            degree of precision that some have desired. Our most recent report also
                            found that the majority of communities surrounding closed bases are faring
                            well economically in relation to the national average. Our analysis of
                            lessons learned found that, despite the difficulties of BRAC
                            decision-making, the processes that evolved over the past four rounds are
                            regarded by many as a good starting point for any future BRAC legislation
                            and decision-making processes. We noted that the processes used between
                            1988 and 1995 had several checks and balances to keep political influences

                            11
                              A recent legislative proposal introduced in the Senate calls for additional BRAC rounds in 2001 and
                            2005.
                            12
                              DOD’s Future Years Defense Program incorporated some savings from future BRAC rounds but these
                            savings were offset by implementation costs, resulting in net costs of $832 million for fiscal year 2002
                            and $1.45 billion for fiscal year 2003. See Future Year’s Defense Program: How Savings From Reform
                            Initiatives Affect DOD’s 1999-2003 Program (GAO/NSIAD-99-66, Feb. 25, 1999).
                            13
                             See Military Bases (GAO/NSIAD-99-17, Nov. 13, 1998) and Military Bases (GAO/NSIAD-99-36,
                            Dec. 11, 1998).




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                          to a minimum. At the same time, we also noted that the success of BRAC
                          processes requires the cooperation of all participants.


DISA Megacenter           Efforts to consolidate DOD computer operations date back to 1990. At that
Consolidation Under Way   time, DOD recognized that it needed to better meet its information
                          processing needs while reducing costs. Since then, DISA has been created
                          and many of DOD’s computer operations have been consolidated by
                          moving workload and equipment from 194 computer centers to 16 DISA
                          megacenters. Today, DISA provides various computer and
                          telecommunications services and command and control support
                          throughout DOD. Despite the earlier consolidations, DOD believes its
                          information processing infrastructure needs further reduction. Toward
                          that end, the QDR and the DRI called for reducing the number of computer
                          megacenters from 16 to 6.

                          The DRI did not establish any deadlines for completing the consolidations,
                          and no consolidation-specific DRIDs were issued. Nonetheless, the DRI’s
                          emphasis on this initiative is reflected in a DISA performance contract that
                          was developed in direct response to the DRI and a subsequent DRID. The
                          contract incorporates expected cost reductions and performance
                          improvements resulting from consolidation efforts. DISA officials called
                          this contract a very effective management tool because it sets specific
                          goals and is used to hold DISA accountable for meeting these goals.

                          The consolidation goals that have been incorporated into the contract
                          reflect DISA’s plans to have the revised structure in place by the end of
                          fiscal year 2000. Achieving this revised structure involves not only
                          reducing the number of megacenters but also reengineering activities and
                          establishing 23 regional centers. These regional centers will not represent
                          new infrastructure as such. They will be formed from existing
                          organizations and are part of DISA efforts to realign responsibilities for
                          some organizations, eliminate others, and absorb workload now handled
                          by the military services. According to DISA officials, the effort is on
                          schedule. As of February 1999, DISA had reduced the number of
                          megacenters to 12 and had established the regional centers. Further, the
                          staffing reductions that were to accompany the megacenter reductions
                          were under way. DISA’s plans call for total reductions of 893 personnel
                          between fiscal years 1997 and the end of fiscal year 2000. As of February
                          1999, DISA had eliminated 869 positions, 97 percent of its goal.




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                             DISA officials project that, once completed, the new structure will result in
                             a 50-percent reduction in costs and a 34-percent reduction in personnel in
                             its megacenter operations. DISA officials also project that the effort will
                             achieve $1.5 billion in savings over a 10-year period ending in fiscal
                             year 2007. We have not completed sufficient work, however, to assess the
                             projected savings or timetable.


DFAS Study Shows Excess      Like the DISA consolidations, DFAS consolidations are also aimed at
Capacity: Additional         reducing the number of locations. DFAS was established in 1991 to
                             consolidate under one umbrella the finance and accounting activities that
Consolidations Under Study   had previously been splintered among the military services and Defense
                             agencies. Once responsibility for handling these activities was shifted to
                             DFAS, it reduced the number of sites where its finance and accounting
                             activities were handled from more than 330 to 24. The current DFAS
                             structure includes 5 large centers and 19 smaller facilities, called operating
                             locations. Despite previous reductions, DOD and our studies have showed
                             that the infrastructure could be consolidated further. 14 The DRI Report
                             said the number of remaining DFAS operating locations was to be further
                             reduced by eight. The DRI did not set a specific deadline, nor was any
                             follow-up DRID issued to lay out additional requirements.

                             After the DRI Report was issued, DFAS assessed the excess capacity in its
                             current structure according to its anticipated future workload. The
                             assessment estimated that DFAS would have 34 percent excess capacity by
                             the end of fiscal year 2003. DFAS then identified a set of criteria to evaluate
                             which locations it should close. According to DFAS officials, before the
                             DOD Comptroller had a chance to review these criteria and approve them
                             as the basis for eliminating DFAS facilities, the Congress passed legislation
                             that added some new DFAS requirements. Section 914 of the Fiscal
                             Year 1999 Strom Thurmond National Defense Authorization Act requires
                             the Secretary of Defense to submit to the Senate and House Armed
                             Services Committees a strategic plan for improving the financial
                             management operations at each DFAS operating location. The plan is to
                             include (a) the workload that must be performed at the operating location
                             each fiscal year, (b) the capacity and number of operating locations that are
                             necessary for performing this workload, and (c) a discussion of the costs

                             14
                               See DOD Infrastructure: DOD’s Planned Finance and Accounting Infrastructure Is Not Well Justified
                             (GAO/NSIAD-95-127, Sept. 18, 1995), DOD Infrastructure: DOD Is Opening Unneeded Finance and
                             Accounting Offices (GAO/NSIAD-96-113, Apr. 16, 1996), and Defense Infrastructure: Budget Estimates
                             for 1996-2001 Offer Little Savings for Modernization (GAO/NSIAD-96-131, Apr. 4, 1996).




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                          and benefits that could result from reorganizing the operating locations on
                          the basis of the function they perform. The plan is also to include the
                          Secretary’s assessment of the feasibility of carrying out such a plan.
                          Section 914 called for the Secretary to submit the plan by January 15, 1999.
                          However, this date was subsequently extended to March 15, 1999. As of
                          April 1999, this plan was being reviewed by DOD’s Comptroller and had not
                          been issued.


Future Plans to Address   This initiative aims at reducing the number of research and development
Excess Capacity in        laboratories and test and evaluation centers that are used to develop
                          military technology and test the capabilities of these technologies.
Research, Development,
                          Currently, DOD employs about 100,000 people in 67 federally owned
Test, and Evaluation      facilities across the continental United States. Reducing the number of
Facilities Are Unclear    research and development laboratories and test and evaluation centers has
                          been an ongoing effort in DOD. The Department closed 62 sites as part of
                          previous BRAC rounds. Following these rounds, DOD and the Congress
                          realized that the laboratory infrastructure was still too large, and the
                          Congress directed DOD to develop plans for reducing the number of
                          laboratories even further. Although DOD launched an additional study, it
                          later halted this effort and decided instead to seek further reductions
                          through BRAC rounds because it believed that significant reductions could
                          not be achieved without a BRAC-like authority to direct the efforts. Given
                          this history, the DRI’s call to reduce the laboratories and centers is not new.
                          The DRI did not set specific goals or deadlines, nor were any subsequent
                          DRIDs issued on this matter. Our own work in this area shows that efforts
                          to achieve consolidations or reductions in excess capacity have been
                          ongoing for a number of years but continued efforts are needed. 15 Despite
                          current efforts, however, it is uncertain to what extent DOD will achieve
                          significant reductions without authority for additional BRAC rounds.

                          The issue continues to receive DOD and congressional attention. DOD is
                          now developing new plans for streamlining the laboratories and test
                          centers according to congressional direction in the Fiscal Year 1998
                          National Defense Authorization Act. Section 912(c) directed the Secretary
                          of Defense to report to the Congress DOD’s plans for streamlining the
                          acquisition workforce, as well as the associated organizations and
                          infrastructure. Laboratory personnel are part of the acquisition workforce


                          15
                            Best Practices: Elements Critical to Reducing Successfully Unneeded RDT&E Infrastructure
                          (GAO/NSIAD/RCED-98-23, Jan. 8, 1998).




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                             and the Secretary committed to lead a study on how to streamline them. A
                             follow-up August 1998 memorandum from the Under Secretary of Defense
                             (Acquisition & Technology) got this study under way, directing that it be
                             carried out by a steering group of top-level officials from across DOD.
                             According to the memo, the group is to develop implementation plans with
                             specific time lines and submit its recommendations to the Under Secretary
                             by April 1, 1999. This submission date was subsequently extended to
                             May 1, 1999.


Demolition Goals Likely to   This initiative focuses on demolishing excess structures. DOD believes this
Be Achieved                  will help cut costs and improve safety. While the services had previously
                             given varying degrees of emphasis to demolition, the current emphasis is
                             rooted in a 1997 MRM that directed them to survey their installations and
                             identify excess structures. The results of this survey provided the basis for
                             the DRI’s overall goal, which calls for demolishing more than 8,000 excess
                             structures by 2003. A subsequent DRID further refined this goal, laying out
                             specific square footage targets for each service and specific deadlines for
                             eliminating this square footage. Service officials said the DRI and the DRID
                             clearly made demolitions a priority.

                             Service officials are confident they will meet the DRI’s goals. Officials
                             credited their progress to the attention that management is paying to this
                             initiative and, especially, to the funding that is being set aside. For
                             example, the Navy’s funding for demolitions increased from $6 million in
                             fiscal year 1996 to $27 million in fiscal year 1998, with additional funding
                             programmed in future years. Similarly, funding for the Army’s program,
                             which involves the largest share of square footage to be demolished,
                             jumped from $20 million in fiscal year 1997 to $104 million in fiscal
                             year 1998, with funding to remain at about $100 million a year through 2003.
                             According to latest projections, the Army will demolish 53.2 million square
                             feet of facility space by 2003, the Navy 9.9 million square feet by 2002, the
                             Air Force 14.9 million square feet by 2003, and the Marine Corps 2.1 million
                             square feet by 2000.

                             Because demolishing buildings is costly, service officials questioned the
                             magnitude of savings that will result from this initiative and preferred to
                             characterize the long-term benefit as a cost avoidance. Our prior work on
                             this issue indicates that demolitions can result in savings and cost
                             avoidance because they eliminate the need to maintain unneeded




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                             structures and avoid future outlays for renovations. 16 We also noted,
                             however, that demolition costs can increase depending on the type of
                             construction and environmental considerations. We noted that it is
                             important to continue to examine the cost-effectiveness of individual
                             projects.


The Defense Energy           This initiative is designed to help DOD minimize energy costs. According
Support Center Is Helping    to DOD, the Department spends $2.2 billion annually on energy facilities
                             and believes the magnitude of these expenditures should give it substantial
the Services Manage Energy   leverage in the market. The DRI Report pointed out, however, that the
                             Department is so busy managing the power infrastructure that it gives
                             energy management inadequate attention. The DRI attempted to remedy
                             this problem. It called for renaming DLA’s Defense Fuels Supply Center the
                             Defense Energy Support Center (DESC) and expanding the Center’s
                             responsibilities to include finding ways to maximize energy savings. A
                             subsequent DRID further elaborated on this direction and instructed that
                             DESC conduct a series of demonstration projects. The DRID also
                             instructed DESC to help the military services in their efforts to privatize
                             their utilities, another DRI initiative that DOD thinks will further its goal of
                             shifting its focus to energy management. The DRID directed DESC to
                             develop plans to support these objectives by June 1, 1998. It did not give
                             deadlines for completing the demonstration projects.

                             Although we have not reviewed this effort in depth, we have learned that
                             DESC completed the demonstration projects and that military service
                             managers are working with DESC on various issues. For example, the
                             services asked DESC to expand the scope of the demonstration projects to
                             include more military installations and regions. In addition, Army and Air
                             Force officials have sought DESC’s help with utility privatizations. In one
                             instance, DESC provided Air Force Materiel Command with $5 million to
                             complete studies. Recognizing the role that DESC could play in
                             privatizations, the DMC recently issued a new DRID that directed DESC to
                             develop a joint regional utility privatization plan with the military services.
                             A DESC manager said this effort should help the services write the
                             complex bid solicitations required for privatizations.




                             16
                               Defense Infrastructure: Demolition of Unneeded Buildings Can Help Avoid Operating Costs
                             (GAO/NSIAD-97-125), May 13, 1997).




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Utilities Privatization Will   In recent years, the military services have been examining the potential for
Require More Time Than         privatizing their utilities 17 as a means of using private-sector capital to
                               upgrade deteriorating facilities. At DOD’s urging, the Congress included
Originally Expected            language in the National Defense Authorization Act for Fiscal Year 1998
                               that gave the military services the authority to convey utility systems to
                               municipalities, the private sector, or other entities, avoiding the need for
                               the services to seek legislative authority for individual actions. The DRI
                               Report established the goal of privatizing all utility systems except those
                               needed for security reasons or those that are uneconomical to privatize by
                               January 1, 2000. Soon after, the DMC issued a DRID directing the military
                               services to develop and pursue privatization plans.

                               Various service officials said the DRI and the subsequent DRID created an
                               urgency to move out on privatizations throughout DOD. Nonetheless,
                               service officials said they will not meet the 2000 deadline. Since the DRI
                               Report was issued, the services have identified more than 1,700 utility
                               systems as potential privatization candidates, but only a few had been
                               privatized as of February 1999. 18 Service officials attributed the slow
                               progress to the up-front work required, including researching the myriad of
                               state and local laws governing utilities. Officials also said the most
                               time-consuming and expensive work is still to come. For example, each
                               privatization requires extensive feasibility and environmental studies.
                               Further complicating the situation is the fact that the services have not set
                               aside the up-front investment funds required to complete the studies and
                               execute the privatizations, making progress difficult.

                               Top DOD management, however, has recognized the problems surrounding
                               this initiative. In December 1998, the Deputy Secretary issued a DRID
                               extending the deadline to September 30, 2003. Further, a December 1998
                               DOD program budget decision directed the services to set aside funding
                               over the next several years—fiscal years 1999 through 2004—to cover the
                               estimated $243.6 million in costs to complete the privatizations. The
                               program budget decision estimated that utility privatization might begin to
                               provide about $327 million in annual savings after privatizations are
                               completed in 2003. It also stated, however, that the true cost of
                               implementing the privatizations and the savings that might be realized
                               could not be accurately estimated until further analysis was completed. It

                               17
                                    Utilities systems refer to electric, gas, water and wastewater facilities.
                               18
                                The Army had begun efforts to privatize some utilities prior to the DRI. It privatized about 40 of them,
                               mostly natural gas systems.




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                             directed the services to complete further analysis of cost requirements for
                             the upcoming 2001 budget cycle. In this respect, some service officials
                             expressed caution about the extent of actual budget reductions likely to
                             occur from these privatizations. They told us that any reductions in
                             operating costs could be offset by higher utility rates. In some instances,
                             service officials also expressed concern that private utility companies may
                             not agree to take over some utility systems without the services upgrading
                             them from their deteriorated state.

                             However, top management has continued to emphasize the need for action
                             on this initiative. The December 1998 DRID required the services to
                             determine by September 30, 2000, whether specific utilities should be
                             privatized. It also required the services to issue all solicitations for bids on
                             those utilities by September 30, 2001.


Housing Privatization Will   DOD’s efforts to privatize military family housing are aimed at using private
Not Meet DRI Goals           capital to upgrade housing faster than DOD could on its own. DOD began
                             pursuing this effort following passage of the1996 National Defense
                             Authorization Act, which gave DOD broad authority to pursue housing
                             privatizations. Housing privatizations were subsequently folded into the
                             DRI, which called for privatizing 3,500 units by fiscal year 1998, 15,000 units
                             by fiscal year 1999, and 30,000 units by fiscal year 2000. No DRIDs have
                             been issued on this initiative, but several officials acknowledged that since
                             the DRI was issued, DOD’s emphasis on this effort has increased
                             significantly.

                             DOD, however, will not meet the DRI goals. By the time we finished our
                             fieldwork in early 1999, only a few sites, covering about 1,000 housing
                             units, had been privatized. Service officials attributed the slow progress to
                             the many legal, financial, contractual, and budgetary issues they had to
                             work with. For example, the services have had to determine how much
                             service members’ housing allowances need to be increased to compensate
                             for the prospect that the government will no longer provide housing in
                             certain areas. Those increases needed to be included in the budget. Other
                             issues include how to structure privatization deals and how various federal
                             laws and regulations are to be applied. Our July 1998 report on housing
                             privatizations said DOD officials have acknowledged that the effort is




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              moving more slowly than originally anticipated. 19 It also said DOD expects
              the pace of privatization to accelerate as the Department gains experience
              from the first few projects. We questioned, however, whether that would
              occur, because each project will be unique and will require individualized
              planning and negotiation. We are continuing to monitor this issue.



Conclusions   It is too early to tell to what extent individual initiatives, taken collectively,
              will transform DOD’s business operations into more streamlined, less
              costly processes. Many initiatives were ongoing at the time they were
              brought under the DRI umbrella and have received increased attention,
              focus, and direction. However, progress by individual initiatives under
              each pillar is still mixed. While some progress is being made, many of the
              initiatives will require more time to implement than projected by DRI
              milestones.

              DOD has included in its budget plans specific savings from only two
              initiatives: competitive sourcing studies and BRACs. While we believe
              competitive sourcing has the potential to produce long-term savings, we
              have urged caution when estimating the magnitude of these savings,
              particularly in the short term, because DOD has not fully identified the
              investment costs needed to implement this initiative. While BRAC
              reductions are expected to produce savings in operating costs, the
              magnitude of short-term savings is unclear given uncertainties about the
              costs required to implement any future BRACs. However, DOD has
              included BRAC savings in its future budget plans although the Congress
              has not authorized additional BRAC rounds.

              Information provided in this chapter is intended to provide a high-level
              status and not a detailed assessment of each initiative. To the extent that
              we have previously issued reports on individual initiatives, numerous
              recommendations for program improvements were made in those reports
              as warranted. Accordingly, we are not making additional
              recommendations pertaining to the individual initiatives in this report.



              19
                This figure includes units privatized by the Navy using legislative authority granted specifically to the
              Navy in 1994. This authority predated the 1996 authority DOD is now using as the vehicle for the
              privatizations. Our report, Military Housing: Privatization Off to a Slow Start and Continued
              Management Attention Needed (GAO/NSIAD-98-178, July 17, 1998), examined DOD’s progress under
              the 1996 authority. The legislative authority treated the Navy’s privatizations as a separate issue. DOD,
              however, includes those privatizations in assessing its progress toward meeting the DRI’s goals.




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Appendix I

Management Reform Memoranda                                                                      AppenIdxi




             MRM 1: Implementation and Expansion of Infrastructure Savings Identified
             in the Quadrennial Defense Review (QDR), dated May 15, 1997.
             Established a special task force on Defense reform to streamline the
             Department of Defense’s (DOD) infrastructure as proposed in the QDR.
             Recommendations for additional infrastructure savings were to be fully
             viewed and considered in the fall of 1997 during the program and budget
             review process. The final report of the task force, along with
             recommendations not acted upon during the program review, was to be
             completed by November 1, 1997.

             MRM 2: Moving to a Paper-free Contracting Process by January 1, 2000,
             dated May 21, 1997. The Under Secretary of Defense (Acquisition and
             Technology) was to develop a blueprint of a plan to move to a totally
             paper-free contract writing, administration, finance, and auditing process
             by July 1, 1997.

             MRM 3: Streamlining Management of the Office of the Secretary of Defense
             (OSD)-sponsored Higher Education Organizations and Programs , dated
             May 21, 1997. OSD, Defense agencies, and field activities were to identify
             those educational and professional development programs and
             organizations by June 1, 1997.

             MRM 4: Eliminating Unneeded Publications in OSD and Organizations
             Under the Cognizance of OSD, dated May 21, 1997. The Assistant Secretary
             for Public Affairs was tasked to review publications sponsored by DOD
             organizations. After the DOD organizations justified continuing
             publication in paper format, the Assistant Secretary for Public Affairs was
             to submit a report on publications printed on a recurring or periodical basis
             by August 1, 1997.

             MRM 5: Disposal of Excess Government-owned Property, dated May 21,
             1997. The Commander of the Defense Contract Management Command
             was to develop a plan to eliminate excess government-owned property
             under the stewardship and control of Defense contractors and submit a
             coordinated plan by September 1, 1997, with the goal of disposing of all
             excess property by January 1, 2000.

             MRM 6: Streamlining Member-arranged Movement of Household Goods ,
             dated June 4, 1997. The Commander of the U.S. Transportation Command,
             in coordination with the Assistant Deputy Under Secretary (Transportation
             Policy) was to develop and implement a plan that would streamline and
             simplify policies and procedures for the management of member-arranged



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Management Reform Memoranda




movement of household goods by service personnel. The plan was to be
submitted to the Secretary by July 1, 1997.

MRM 7: Streamlining the Management of Leased Property, dated May 21,
1997. An integrated process team was established to revise existing or
develop new policies and ensure consistent and accurate record keeping
and management of property leases on a Department-wide basis. The team
was to submit an initial report by July 1, with a final blueprint by October 1,
1997.

MRM 8: Disposal of Excess and/or Obsolete Structures , dated May 21, 1997.
The Acting Under Secretary of Defense (Acquisition and Technology) was
to undertake a survey within 90 days of all installations to develop a
disposal list of excess structures. That list was to include all structures
that were or would be excess by January 1, 2000, along with a plan for their
demolition or disposal by that date.

MRM 9: Evaluation of Non-training Audiovisual Materials , dated May 22,
1997. The Assistant Secretary of Defense for Public Affairs was to
undertake a survey within 60 days of policies governing audiovisual
materials in DOD.

MRM 10: Redesigning DOD Source Acceptance Policies and Procedures,
dated May 29, 1997. This MRM tasked the Under Secretary of Defense
(Acquisition & Technology) to conduct a comprehensive reassessment of
DOD’s source acceptance policies and procedures and review existing
stock items designated for source acceptance to ascertain whether or not
they merited that designation.

MRM 11: Adoption of Commercial Identifiers in DOD Business Systems by
January 1, 2000, dated June 16, 1997. This was a proposal to consider
incorporating commercial identification numbers for DOD business
entities and contractors to replace the DOD Activity Address Code and
Commercial and Government Entity codes. It requested the Under
Secretary of Defense (Logistics) to develop by August 1, 1997, a plan to
accomplish these changes.

MRM 12: Expanding Use of Prime Vendor Control Instruments , dated
June 17, 1997. The Director of the Defense Logistics Agency (DLA), in
coordination with each of the military departments, was to develop a
regional implementation blueprint for the DLA prime vendor contracting
program for facilities maintenance supplies and services. The blueprint



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was to identify the critical events and site designations for regional
implementation within 12 months and nationwide availability by the middle
of fiscal year 1999.

MRM 13: Adopting Standard Commercial Products for Registration Files ,
dated June 20, 1997. A task force was formed to develop a DOD-wide plan
to adopt standardized commercial data products for registration and
addressing application in business systems. A blueprint of the plan was to
be delivered by August 1, 1997.

MRM 14: Reengineering Permanent Change of Station (PCS) and Inactive
Reserve Travel, dated June 23, 1997. It extended the temporary duty travel
reengineering effort to cover permanent change of station travel and travel
of inactive reserves. The Director of the Travel Reengineering Office was
to develop a blueprint and deliver it by July 21, 1997.

MRM 15: Reengineering Defense Transportation Documentation and
Financial Processes, dated July 7, 1997. It tasked the transportation and
financial communities to jointly develop a long-term strategy to completely
reengineer the Defense transportation documentation financial process.
The strategies were to be implemented by October 1, 1997.

MRM 16: Identifying Requirements for the Design, Development and
Implementation of a DOD Public Key Infrastructure , dated August 6, 1997.
A position paper identified the baseline for DOD’s transition to a paperless
environment. A DOD public key infrastructure should provide the data
integrity, user identification and authentication, user on-repudiation data
confidentiality, encryption, and digital signature services for programs and
applications that use DOD networks. The Defense Information Systems
Agency (DISA) was to obtain input to be used for a public key
infrastructure and Digital Signature Symposium.

MRM 17: Reducing the Number of Committees, dated May 6, 1997. The
Director for Administration and Management was tasked to review DOD
committees with a view to identify those that may be consolidated or
eliminated and submit a report by October 1, 1997.




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Appendix II

Defense Reform Initiative Directives                                                               ApenIdxi




               DRID 1: Personnel Downsizing Plans, dated November 21, 1997. These
               plans reduce the OSD staff by one-third over the 18-month period beginning
               in November 1997.

               DRID 2: New Defense Security Service, dated November 25, 1997. The
               DOD Polygraph Institute, the Personnel Security Research Center, and the
               DOD Security Institute will be merged into the Defense Investigative
               Service.

               DRID 3: Defense Technical Information Center (DTIC), dated November 25,
               1997. This transfers DTIC from DLA to Defense Information Systems
               Agency. In addition, Defense Information Systems Agency (DISA) will
               study DTIC functions to identify those that could be competed with the
               private sector.

               DRID 4: Defense Privacy Office, dated November 25, 1997. The Defense
               Privacy Office is to be transferred to the Washington Headquarters
               Services.

               DRID 5: Directorate for Freedom of Information and Security Review,
               dated November 25, 1997. This directorate is transferred from the
               Assistant Secretary of Defense (Public Affairs) to the Washington
               Headquarters Services.

               DRID 6: Appointment of the Team to Create the Defense Threat Reduction
               and Treaty Compliance Agency, dated December 3, 1997. This DRID directs
               the merger of seven organizations to create the Defense Threat Reduction
               and Treaty Compliance Agency.

               DRID 7: Overseas Military Banking Program, dated December 5, 1997.
               Responsibility for the day-to-day operations of the DOD Overseas Military
               Banking Program is transferred from the Office of the Under Secretary of
               Defense (Comptroller) to the Defense Finance and Accounting Service
               (DFAS). DFAS will study the feasibility of moving these operations closer
               to self-sufficiency and outsourcing.

               DRID 8: Reducing the Number of Committees, dated December 10, 1997.
               OSD, the Joint Chiefs of Staff, service secretariats, and service staffs will
               make a second effort to identify DOD committees for elimination or
               consolidation.




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DRID 9: Privatizing Utility Systems , dated December 10, 1997. The military
services will develop a plan for privatizing all their utility systems (electric,
water, waste water, and natural gas) by January 1, 2000, except those
needed for unique security reasons or when privatization is uneconomical.

DRID 10: Establishment of a Task Force on Implementing Competition and
Infrastructure Initiatives , dated December 19, 1997. This task force
oversees the implementation of DRI.

DRID 11: Reorganization of DOD Space Management Responsibilities ,
dated December 19, 1997. A coordinated proposal will be prepared to
make recommendations for a new streamlined approach to the
management and oversight of Defense and intelligence for space activities.

DRID 12: Transfer Humanitarian Assistance and Demining Programs to the
Defense Security Assistance Agency, dated December 22, 1997. This DRID
consolidates program management and resources for humanitarian
assistance and demining under a single program manager.

DRID 13: Defense Management Council Charter, dated December 22, 1997.
The Council serves as the primary vehicle for ensuring that the initiatives of
the DRI Report are carried out and for identifying major reforms still
needed.

DRID 14: Establishment of the TRICARE Management Support Activity,
dated January 5, 1998. This activity is a merger of the TRICARE Support
Office, the Defense Medical Programs Activity, and the integration of the
health management program functions located in the Office of the
Assistant Secretary of Defense for Health Affairs.

DRID 15: Establishment of the Office of the Secretary of Defense Human
Resources Transition Program, dated January 5, 1998. This office will help
staff avoid involuntary separations resulting from reductions in the DRI.
The program will include voluntary separation incentive pay and voluntary
early retirement programs as well as a transition assistance center.

DRID 16: Transfer of the Nuclear Command and Control System Function
and Support Staff to the U.S. Strategic Command, dated January 5, 1998.

DRID 17: Appointment of the Team to Develop a Blueprint to Merge
Command, Control, Communications, and Computing Functions and the
Development and Acquisition of Intelligence, Surveillance and



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Defense Reform Initiative Directives




Reconnaissance Systems (C4 and ISR Systems) into the Office of the Under
Secretary of Defense for Acquisition and Technology, dated January 5,
1998.

DRID 18: Feasibility of Competing Functions Involved in National
Stockpile Sales, dated January 5, 1998. DLA will initiate a review of the
functions involved in National Stockpile Sales and report to the Under
Secretary of Defense (Acquisitions and Technology) as to the feasibility of
competing these functions.

DRID 19: Transfer of the Defense Property Accountability System to DLA ,
dated January 14, 1998. Responsibility for the oversight, control, and
management of the day-to-day operations of the Defense Property
Accountability System is transferred from DFAS to DLA.

DRID 20: Review of Inherently Government Functions, dated January 16,
1998. DOD components will identify functions and positions that are
inherently governmental in nature and functions that should be subject to
competition with the private sector. The DRID includes the following
milestones:

• identification of inherently governmental positions and functions,
  commercial activities exempt from the Office of Management Budget
  (OMB) Circular A-76 competition, and commercial activities that should
  be competed by October 31, 1998;
• joint review of the inventories by selected Under Secretaries of Defense
  with DOD components and appropriate OSD offices by November 30,
  1998;
• review by the Defense Management Council by December 1998;
• compilation into the fiscal year 1998 Commercial Activities Inventory by
  December 1998;
• submittal to the Secretary of Defense by December 1998; and
• submittal to the Congress by January 1999.

DRID 21: Formation of the Defense Energy Support Center, dated January
16, 1998. The Defense Fuel Supply Center is redesignated the Defense
Energy Support Center and its duties are expanded to include the
consolidation of the Department's regional energy effort.

DRID 22: Transfer Out of Counter-drug Personnel to the DOD Components ,
dated January 16, 1998. This DRID transfers personnel from the




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Defense Reform Initiative Directives




Counter-drug Central Transfer Account to the appropriate DOD
component’s operational element.

DRID 23: Defense Agency Performance Contracts, dated January 26, 1998.
Annual performance contracts between the Deputy Secretary of Defense
and the directors of selected DOD agencies, field activities, and principal
support activities are to be established. These contracts will include the
quantity of each product or service the agency plans to provide; measures
of customer satisfaction; the planned costs of goods and services;
improvements in agency productivity; planned steps to correct
deficiencies; areas the agency plans to contract; and goals to measure cost,
manpower, and overhead efficiencies.

DRID 24: Planning for Defense Reform Initiative Organizational
Realignments, dated January 26, 1998. Gaining and losing DOD
components are required to coordinate these realignments, and each
receiving organization is to plan and conduct the actions necessary to
receive the incoming functions and personnel.

DRID 25: DOD Plan for Integration of the National Guard and Reserve
Component Into Domestic Weapons of Mass Destruction Terrorism
Response, dated January 26, 1998. The Secretary of the Army will be
responsible for this program.

DRID 26: Establishment of a Defense Management Council Task Force for
Defense Reform Initiative Communications , dated January 26, 1998. The
Council will coordinate DOD efforts to communicate information about the
DRI and other related issues.

DRID 27: DOD Computer Forensics Laboratory and Training Program,
dated February 10, 1998. The lab will be responsible for
counterintelligence and for criminal and fraud computer evidence
processing, analysis, and diagnostics.

DRID 28: Devolvement of the Chemical Weapons Demilitarization
Function, dated February 12, 1998. This function is transferred from the
Under Secretary of Defense for Acquisition and Technology to the
Secretary of the Army.

DRID 29: Joint Activities Study, dated February 25, 1998. A study will be
made to determine whether a number of joint activities can be transferred
to the Commanders in Chiefs.



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Defense Reform Initiative Directives




DRID 30: Initial Organizational Activity Regarding the Establishment of the
Defense Threat Reduction Agency, dated February 25, 1998. This directive
requires the consolidation of the Cooperative Threat Reduction Program
and transfers the Arms Control Technology Program Office to the On-Site
Inspection Agency.

DRID 31: Realignment of DOD Spectrum Management Responsibilities ,
dated March 23, 1998. DISA is directed to establish a spectrum analysis and
management office responsible for joint spectrum matters. The services
are to co-locate their frequency management offices with the DISA office.
OSD is to establish a spectrum management focal point.

DRID 32: Paperless Contract Closeout, dated April 13, 1998. In order to
make the contract closeout process electronic, a Working Integrated
Process Team will review the efforts of an Air Force team related to these
activities. Next, the Process Team will document the current process and
determine what steps can be eliminated. Finally, it will determine how to
perform the remaining activities electronically.

DRID 33: Paperless DD Form 250, Material Inspection and Receiving
Report, dated April 13, 1998. This DRID is to establish a DOD-wide team to
reengineer the DD Form 250 process. The team is to develop
recommendations to streamline this process.

DRID 34: Transfer of Warsaw Initiative (Partnership for Peace) Program
Management Functions to the Department of Defense , dated May 5, 1998.
The program is transferred from the Defense Threat Reduction Agency to
the Defense Security Assistance Agency.

DRID 35: Location of the Defense Threat Reduction Agency Headquarters
and Support Offices, dated May 5, 1998. The physical location of the
agency is to be centralized in one place.

DRID 36: Disposal/Demolition of Excess Structures , dated May 5, 1998.
This DRID provides disposal and demolition targets.

DRID 37: Devolvement of the Day-to-day Oversight of the Defense
Commissary Agency to the Services, dated May 5, 1998. Supervision of the
Defense Commissary Agency is to be devolved from OSD to the secretaries
of the military departments, who will exercise operational oversight as a
corporate body.




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Defense Reform Initiative Directives




DRID 37 Revised: Oversight of the Defense Commissary Agency, dated
December 23, 1998. Day-to-day management of the Defense Commissary
Agency will be devolved to the Commissary Operating Board, composed of
representatives of the Secretaries of the military departments.

DRID 38: Funding Requirements for DOD Spectrum Management
Responsibilities, dated May 6, 1998. This requires each component affected
by DRID 31 to fund its own relocations costs associated with its move to
DISA facilities. Components are also to fund additional costs associated
with the spectrum initiatives being developed.

DRID 39: Travel Reengineering, dated May 12, 1998. The Director,
Administration and Management, will submit a plan that transitions the
functions performed by the Washington Headquarters Services' travel
office to the private sector.

DRID 40: Redesignation of the Defense Security Agency as the Defense
Security Cooperation Agency, dated May 20, 1998.

DRID 41: Development of a Blueprint for the Chancellor for Education and
Professional Development, dated May 18, 1998. A Chancellor for
Education and Professional Development will coordinate a program of
civilian professional education and training throughout the Department.

DRID 42: Transfer of the Space Policy Function From the Under Secretary
of Defense for Acquisition and Technology to the Office of the Assistant
Secretary for Command, Control, Communication, and Intelligence , dated
May 20, 1998. This transfer will align the space policy functions with the
space-related oversight functions and ensure that there will be a single
focal point for all space-related functions.

DRID 43: Defense-wide Electronic Commerce, dated May 20, 1998. This
establishes the Joint Electronic Commerce Program Office. It will be
responsible for the strategic implementation of electronic commerce policy
within DOD.

DRID 44: Paperfree Program Objectives Memorandum Submission , dated
June 2, 1998. The Office of Program Analysis and Evaluation will help the
transition to an essentially paper-free Program Objective Memorandum
(POM) process during the POM fiscal years 2001-2005 cycle. This effort is
to be coordinated with other DOD components.




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Defense Reform Initiative Directives




DRID 45: Prime Vendor Contracting Program for Facility Maintenance
Supplies, dated August 24, 1998. The military services are encouraged to
use the maintenance, repair, and operations prime vendor contracts
established by DLA.

DRID 46: Paperless Contracting, dated December 9, 1998. A Paperless
Contracting Overaching Integrated Product Team is established to review
the status of service/agency paperless contracting initiatives, resolve
conflicts, and make recommendations to DOD.

DRID 47: End-to-end Procurement Process, dated December 9, 1998. This
established a DOD Working Integrated Process Team to develop and
document the future end-to-end procurement process, including
accounting and payment.

DRID 48: Adoption of Commercial EDI Standards for DOD Logistics
Business Transactions, dated December 9, 1998. The Joint Electronic
Commerce Program Office will form an Integrated Product Team to
develop a method for DOD logistics transactions to use commercial
Electronic Data Interface standards.

DRID 49: Privatizing Utility Systems , dated December 23, 1998. DOD’s
plans to award privatization contracts for all utility systems are delayed to
no later than September 30, 2003. A study is also to be made of each DOD
utility by September 30, 2001, to determine if it can be privatized.




Page 72                                 GAO/NSIAD-99-87 Defense Reform Initiative
Appendix III

Comments From the Department of Defense                                AppIenIdxi




               Page 73     GAO/NSIAD-99-87 Defense Reform Initiative
Appendix III
Comments From the Department of Defense




Page 74                                   GAO/NSIAD-99-87 Defense Reform Initiative
Appendix III
Comments From the Department of Defense




Page 75                                   GAO/NSIAD-99-87 Defense Reform Initiative
Appendix IV

Major Contributors to This Report
                                                                                            ApeVnxIdi




National Security and   Barry W. Holman

International Affairs
Division,
Washington, D.C.

Chicago Field Office    James Hatcher
                        Cheryl Andrew
                        Johnetta Gatlin-Brown
                        Bruce Fairbairn
                        James Fuquay
                        Fred Naas
                        Jeanne Willke




(709345)      Lert      Page 75                 GAO/NSIAD-99-87 Defense Reform Initiative
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