Index

Defense Management: Actions Needed to Sustain Reform Initiatives and
Achieve Greater Results (Letter Report, 07/25/2000, GAO/NSIAD-00-72).

Pursuant to a congressional request, GAO reviewed information on the
actions needed to sustain reform initiatives and achieve greater results
in the Department of Defense (DOD), focusing on the: (1) effectiveness
of the Department's management emphasis and oversight structure in
providing sustained direction and emphasis to the program; (2) status of
individual reform initiatives and the barriers that could limit their
success; and (3) extent to which the Reform Initiative resulted in
savings enabling DOD to shift operation and maintenance funds to support
weapons modernization.

GAO noted that: (1) the support of the Secretary and Deputy Secretary of
Defense and the management oversight structure they created to help
implement the Reform Initiative have provided the impetus to get the
initiative off to a good start; (2) however, opportunities exist to make
the Reform Initiative more effective; (3) for example, an important
element of DOD's management oversight structure has been the Defense
Management Council; (4) this council, which was created by the Secretary
to be his Reform Initiative board of directors, could be more effective
in advising the Secretary and helping sustain the emphasis on reform;
(5) the Department initially agreed with but subsequently did not take
action to implement GAO's recommendations to develop an integrated
strategy, investment plan, and funding targets for reforming its major
business processes; (6) consequently, it does not have a clear road map
to ensure that the interrelationships between its major reform
initiatives are understood and addressed and that it is investing in its
highest priority requirements; (7) a number of barriers have kept the
Department from meeting its specific timeframes and goals; (8) the most
notable barrier is the difficulty in overcoming institutional resistance
to change in an organization as large and complex as DOD, particularly
in such areas as acquisition, financial management, and logistic, which
transcend most of the Department's functional organizations and have
been long-standing management concerns; (9) initially, Defense officials
expected that savings from the Reform Initiative would help DOD increase
funding for weapons modernization from $42 billion in fiscal year 1998
to $60 billion in fiscal year 2001; (10) however, widespread savings
have not been achieved, primarily because most individual initiatives
are long-term efforts that require significant up-front investments to
implement; (11) it could take a number of years before these investments
are offset and net savings begin to accrue; (12) however, various
initiatives are likely to produce signigicant savings once up-front
costs are recovered; and (13) the Department expects that the
initiatives will eventually result in enough savings to sustain an
increased modernization budget in the future.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-00-72
     TITLE:  Defense Management: Actions Needed to Sustain Reform
	     Initiatives and Achieve Greater Results
      DATE:  07/25/2000
   SUBJECT:  Productivity in government
	     Defense cost control
	     Defense economic analysis
	     Reengineering (management)
	     Strategic planning
	     Defense budgets
	     Defense procurement
	     Logistics
	     Financial management
IDENTIFIER:  DOD Defense Reform Initiative
	     DOD Corporate Information Management Initiative
	     OMB Circular A-76 Program
	     DOD Financial Management Improvement Plan

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GAO/NSIAD-00-72

A

Report to the Chairman, Subcommittee on Military Readiness, Committee on
Armed Services, House of Representatives

July 2000 DEFENSE MANAGEMENT

Actions Needed to Sustain Reform Initiatives and Achieve Greater Results

GAO/ NSIAD- 00- 72

Letter 3 Appendixes Appendix I: Objectives, Scope, and Methodology 32

Appendix II: Assessment of DRI Elements 35 Appendix III: Comments From the
Department of Defense 78 Appendix IV: GAO Contacts and Staff Acknowledgments
82

Related GAO Products 83 Tables Table 1: Status of Some Major Defense Reform
Initiatives 5

Table 2: Adopting Best Business Practices Initiatives 36 Table 3: Quality of
Life Initiatives 50 Table 4: DOD Reported Staff Reductions 55 Table 5:
Infrastructure Reduction Initiatives 59 Table 6: Acquisition System and
Workforce Initiatives 66 Table 7: Homeland Defense Initiatives 74

Figures Figure 1: Overview of the Defense Reform Initiative 9 Figure 2:
Defense Management Council Membership 14

Abbreviations

DOD Department of Defense DRI Defense Reform Initiative

National Security and International Affairs Division

Lett er

B- 283282 July 25, 2000 The Honorable Herbert H. Bateman Chairman,
Subcommittee on Military Readiness Committee on Armed Services House of
Representatives

Dear Mr. Chairman: The Defense Reform Initiative, announced by the Secretary
of Defense in November 1997, represents an important set of actions aimed at
improving the effectiveness and efficiency of Department of Defense (DOD)
business operations, particularly in areas that have had long- standing
problems- weapon system acquisition, financial management, and logistics
management. The ultimate goals of the Reform Initiative are to improve
service to the war fighters, who depend on these operations for support, and
help reduce infrastructure 1 costs so that savings in operations and
maintenance funding can be shifted to support weapons modernization. 2 Last
year we reported that the Secretary and Deputy Secretary of Defense had
given the Reform Initiative their strong personal support and established a
management oversight structure to bring sustained direction and emphasis to
the effort. However, it was too early for us to assess how effective this
management emphasis and oversight structure would be in the long term.
Nevertheless, we noted that the initiative's potential for success could be
enhanced if the Department developed a more comprehensive, integrated
strategy and action plan for reforming its major business processes and
support activities, and an investment plan for implementing them. 3

1 DOD defines infrastructure as those activities that provide support
services to mission programs (such as combat forces) and primarily operate
from fixed locations. 2 The Department's goal is to increase weapons
modernization from $42 billion in fiscal year 1998 to $60 billion in fiscal
year 2001. 3 Defense Reform Initiative: Organization, Status, and
Challenges( GAO/ NSIAD- 99- 87, Apr. 21, 1999) and Defense Infrastructure:
Improved Performance Measures Would Enhance Defense Reform Initiative( GAO/
NSIAD- 99- 169, Aug. 4, 1999).

As you requested, this report provides updated information on the status of
the Defense Reform Initiative. Specifically, it addresses the following
questions:

Has the Department's management emphasis and oversight structure been
effective in providing sustained direction and emphasis to the program? What
is the status of individual reform initiatives and what barriers

could limit their success? To what extent has the Reform Initiative resulted
in savings, enabling

DOD to shift operation and maintenance funds to support weapons
modernization?

The scope and methodology of our work is included in appendix I. Results in
Brief The support of the Secretary and Deputy Secretary of Defense and the

management oversight structure they created to help implement the Reform
Initiative have provided the impetus to get the initiative off to a good
start. Opportunities exist, however, to make the initiative more effective.
For example, an important element of DOD's management oversight structure
has been the Defense Management Council. This Council, which was created by
the Secretary to be his Reform Initiative board of directors, could be more
effective in advising the Secretary and helping sustain the emphasis on
reform. The Council, for example, has not always (1) worked collaboratively
to foster Department- wide solutions to major problems, (2) established
reform priorities to focus attention and resources on the Department's most
important problems, or (3) exerted authority to make decisions on key
reforms. In addition, the Council received limited information on the status
of individual reform initiatives that affected its ability to identify,
discuss, and take corrective action on reforms that are not progressing as
expected. Moreover, the Department initially agreed with but subsequently
did not take action to implement our recommendations to develop an
integrated strategy, investment plan, and funding targets for reforming its
major business processes. Consequently, it does not have a clear road map to
ensure that the interrelationships between its major reform initiatives are
understood and addressed and that it is investing in its highest priority
requirements. Such a road map would be a valuable tool in helping the
Department manage the Reform Initiative and maintain programmatic continuity
and momentum during the upcoming transition to a new administration and
department leadership.

DOD has made some progress in implementing the numerous initiatives included
in the Defense Reform Initiative. Table 1 identifies the status of some of
the major initiatives by degree of progress.

Table 1: Status of Some Major Defense Reform Initiatives Initiatives
Completed or

Initiatives Making Some Initiatives That Will Require Likely to Be Completed
on

Progress, but Behind Many Years to Fully Schedule

Schedule Implement

Organizational Competitive sourcing

Acquisition reform streamlining

Paperless contracting Financial management

Military pay increases Travel reengineering

reform Purchase cards

Electronic malls Logistics transformation

Performance contracts Household goods

Defense Information transportation

System Agency center consolidations Demolition and disposal of

excess facilities

A number of barriers have kept the Department from meeting its specific time
frames and goals. The most notable barrier is the difficulty in overcoming
institutional resistance to change in an organization as large and complex
as DOD, particularly in such areas as acquisition, financial management, and
logistics, which transcend most of the Department's functional organizations
and have been long- standing management concerns. Other barriers include (1)
programming, including interfaces to older existing (legacy) and new
systems, or other technical problems associated with new computer systems
that are being developed to support areas like paperless contracting and
travel reengineering and (2) employee concerns about the potential loss of
jobs associated with competitive sourcing and the use of prime vendors to
store, distribute, and manage DOD's inventory. Additionally, the Department
will need to reach agreement with the Congress for future authority to hold
additional base realignment and closure rounds and for additional
authorities for housing privatization and property leasing.

Initially, Defense officials expected that savings from the Reform
Initiative would help DOD increase funding for weapons modernization from
$42 billion in fiscal year 1998 to $60 billion in fiscal year 2001. However,
widespread savings have not been achieved, primarily because most individual
initiatives are long- term efforts that require significant up- front

investments to implement. It could take a number of years before these
investments are offset and net savings begin to accrue. Accordingly, the
initiatives will not play as great a role initially in providing savings as
originally envisioned. However, various initiatives are likely to produce
significant savings once up- front costs are recovered. In the short term,
the Department still plans to increase its modernization budget to $60
billion in fiscal year 2001. Department officials expect that the additional
funds will initially come from budget increases provided by the Congress and
by delaying other activities, such as real property maintenance at military
bases and installations. It expects that the initiatives will eventually
result in enough savings to sustain an increased modernization budget in the
future.

This report suggests that the Congress may want to consider requiring the
Department to implement our previous recommendations to develop integrated
reform and investment plans. It also recommends that the Secretary of
Defense build on the Department's actions to implement the Defense Reform
Initiative by improving the effectiveness of the Defense Management Council.
In written comments on a draft of this report, DOD generally concurred with
our conclusions and recommendations, as well as our matters for
congressional consideration. It also provided additional observations about
actions it has underway or planned to put long- term change mechanisms in
place.

Background Over the past decade, the Department of Defense conducted several
major defense reviews to assess military force structure requirements in the

post- Cold War era. 4 Each of these reviews noted that excessive
infrastructure limited DOD's ability to fund readiness and modernization
requirements. During this time, the Department undertook a number of
legislative and administrative initiatives to downsize the organization and
improve the efficiency of its business operations. The most notable of these
were the four base realignment and closure rounds that the Congress
authorized between 1988 and 1995. Others include the

President's Blue Ribbon Commission on Defense Management (also known as the
Packard Commission), which resulted in 250 wide- ranging decisions in 1989
to consolidate business functions, improve

4 The 1991 Base Force Review, the 1993 Bottom- Up Review, and the 1997
Quadrennial Defense Review.

information systems, enhance management, and employ better business
practices and Corporate Information Management initiative, which was a

Department- wide effort in the early- to mid- 1990s to improve
administrative operations and reduce costs by streamlining business
processes and consolidating, standardizing, and integrating information
systems.

While each of these efforts produced savings, we found that the lack of
reliable cost information made it difficult to precisely determine the
amount of savings. 5 In addition, our recent review of DOD's Future Years
Defense Program showed that the infrastructure portion of the budget has not
decreased as planned. 6 In fiscal year 1999, for example, DOD estimated that
infrastructure expenditures accounted for about 57 percent of the budget;
about the same percentage as fiscal year 1994.

The Defense Reform Initiative (DRI) represents another major effort to
modernize the Department's business processes and reduce its infrastructure
costs. When he announced the program in November 1997, the Secretary of
Defense said that his goal was to ignite a revolution in business affairs,
similar to the revolution that had taken place in the private sector over
the past several years. He also pointed out that the Department's fighting
forces are more agile and responsive, but that its business and support
functions were mired in old, inefficient processes and systems, many of
which were based on 1950s and 1960s technology. By adopting the best
business practices of the private sector, reducing and reorganizing
headquarters elements, expanding the use of public- private competitions
(using the Office of Management and Budget's A- 76 process), 7 and
eliminating unneeded infrastructure, the Secretary anticipated that the
Department could save significant amounts of money, which would then be used
to fund readiness and modernization priorities.

5 Letter to the Chairman, Subcommittee on Readiness, Committee on Armed
Services, House of Representatives (GAO/ NSIAD- 94- 17R, Oct. 7, 1993);
Defense IRM: Poor Implementation of Management Controls Has Put Migration
Strategy at Risk (GAO/ AIMD- 98- 5, Oct. 20, 1997); and Military Bases:
Status of Prior Base Realignment and Closure Rounds( GAO/ NSIAD- 99- 36,
Dec. 11, 1998).

6 Future Years Defense Program: Substantial Risks Remain in DOD's 1999- 2003
Plan (GAO/ NSIAD- 98- 204, July 31, 1998). 7 Under A- 76, agencies conduct
public/ private competitions to determine whether the public or private
sector will perform selected commercial activities and functions.

For the most part, the reform initiatives that were first included in the
DRI were not new. A few were outgrowths of the Packard Commission and
Corporate Information Management programs and had been ongoing for several
years. Nor do they represent all of the Department's ongoing reform
initiatives. 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. In March 1999, the Secretary expanded the DRI to include most of
the Department's major reform initiatives, including acquisition, financial
management, and logistics reform. Figure 1 shows the current makeup of the
DRI and selected initiatives.

Figure 1: Overview of the Defense Reform Initiative DRI Elements

Element Element 1 1

Element Element 2 2

Element Element 3 3

Element Element 4 4

Element Element 5 5 Adopting Adopting best

best Quality Quality of of life

life Organizational

Organizational Competitive

Competitive Infrastructure

Infrastructure business business practices

practices streamlining

streamlining sourcing

sourcing Reengineer

Reengineer Increase Increase job

job Reorganize Reorganize and

and Expand Expand the the use

use Eliminate Eliminate facilities facilities that

that business business and

and support support and

and reduce reduce the the size

size of of competition

competition are are no no longer longer needed

needed support support operations

operations assistance assistance for

for of of DOD

DOD between between the the public

public and/ and/ or or that that drain

drain by adopting

DOD DOD personnel personnel

headquarters and and private private sector

sector resources

resources private by adopting

sector elements headquarters

to focus to improve

business private practices sector

on elements corporate- to level focus

performance to improve and business practices

on corporate- tasks level

performance reduce DOD and tasks

reduce costs DOD costs

Selected Initiatives

- Electronic - Electronic commerce commerce

- Household - Household goods goods

- Reduce headquarters - Compete 203,000

- Base - Base realignments realignments - Paperless - Paperless contracting

contracting transportation

transportation - and Reduce other headquarters

staff - positions Compete by 203,000

2005 and and closures

closures -Purchase -Purchase cards

cards - Military - Military pay pay and

and department- and other staff

wide - Compete positions and by contract

2005 - Defense - Defense Information

Information - Electronic - Electronic malls

malls retirement retirement benefits

benefits - Reshape department- support

wide - out Compete depot workload

and contract System System Agency

Agency - Prime - Prime vendors

vendors -Project -Project Outlook

Outlook - activities

Reshape support to out full depot extent workload

of the consolidations

consolidations - Travel - Travel reengineering

reengineering Career Career Assistance

Assistance - Realign activities

offices within law

to full extent of the - Demolition - Demolition and

and - Performance - Performance contracts

contracts Center

Center - the Realign Office offices of the

within law

disposal disposal of of excess excess - Working - Working Capital Capital
Funds

Funds - Strengthening - Strengthening civilian

civilian Secretary the Office of of Defense

the facilities

facilities - Financial - Financial management

management workforce

workforce Secretary of Defense

- Energy - Energy management management reform

reform - Housing - Housing privatization

privatization - Transportation

- Transportation - Leasing

- Leasing documentation documentation and

and financial financial processes

processes

DRI Elements

Element Element 6 6

Element Element 7 7

Element Element 8 8

Element Element 9 9 Acquisition Acquisition system

system Transforming

Transforming Cyberspace Cyberspace

Homeland Homeland and workforce

logistics defense a and workforce

logistics defense a Reengineer Reengineer the

the Reduce Reduce overall

overall Adopt Adopt an

an Protect Protect American

American acquisition

acquisition logistics logistics costs

costs electronic electronic working

working interests interests at

at process process and

and and and improve

improve environment environment and

and home home and

and enhance enhance education

education customer customer service

service protect protect the

the abroad

abroad and and training

training information

information

Selected Initiatives

- Streamline research, -Reduce wholesale

- Department-wide - Department-wide

- National Missile development, - Streamline research,

test, and supply -Reduce order-receipt

wholesale electronic electronic environment

environment - Defense National Missile

Program evaluation

development, test, and time

supply order-receipt - Defense-wide

- Defense-wide - Improve Defense domestic

Program infrastructure

evaluation - Achieve time

total asset information information assurance

assurance - response Improve domestic

to terrorist - Improve infrastructure

the visibility

- Achieve total asset program

program attacks

response to terrorist acquisition - Improve the

process - Reengineer visibility

and - Public - Public key

key - Defense attacks

Threat - Enhance acquisition the

process streamline - Reengineer logistics

and infrastructure

infrastructure - Reduction Defense Threat

Agency acquisition - Enhance the

workforce, processes

streamline logistics Reduction Agency

education acquisition and workforce, training

processes education and training

a In a February 11, 2000, memo, the Deputy Secretary of Defense removed
oversight of Homeland Defense issues from the Defense Reform Initiative and
placed it under the purview of other DOD organizations.

Source: Defense Reform Initiative Update, March 1999.

As we reported last year, DOD has established a management oversight
structure to help sustain the direction and emphasis of the DRI effort. This
structure includes a (1) Defense Management Council (chaired by the Deputy
Secretary and consisting of key civilian and military leaders) to oversee
the DRI efforts and advise the Secretary on new reform efforts,

(2) Coordinating Group to support the Management Council, and (3) Defense
Reform 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, also established
small offices or points of contact to receive and collect information about
the DRI.

Opportunities Exist to The high- level management attention and oversight
structure established

Improve the by the Department, particularly during the early stages of the
program,

have had a positive effect on the implementation of the DRI. Strong support
Management Emphasis

and leadership from the Secretary and Deputy Secretary of Defense, for and
Oversight of the

example, has given the initiative a high priority within the Department. In
Reform Initiative

addition, periodic meetings of the Defense Management Council have
reinforced the importance of the initiative and increased its visibility
within the military services and Defense agencies. At the same time,
however, opportunities exist to build on this management oversight structure
to enhance the potential success of the program. The Defense Management
Council, for example, could become more effective in advising the Secretary
and helping sustain the emphasis on reform by working more collaboratively
on Defense- wide problems, establishing review priorities, and asserting its
authority in key reform strategies and decisions. In addition, the
Department has not implemented our recommendations to develop an integrated
reform strategy and action plan and identify investment requirements and
funding targets for the DRI program. Consequently it lacks a clear road map
to ensure that the interrelationships between its major reform initiatives
are understood and addressed and that it is investing in its highest
priority requirements.

Sustained Support From the Both the Secretary and Deputy Secretary of
Defense have strongly

Secretary and Deputy advocated the need to dramatically reengineer business
and support

Secretary of Defense Is Key activities, and they have provided continuous,
visible support for DRI goals

and objectives. As we have previously reported, most recently with respect
to the Department's Y2K efforts, 8 this type of senior leadership is
essential

8 Department of Defense: Progress in Financial Management Reform (GAO/ T-
AIMD/ NSIAD- 00- 163, May 9, 2000).

to the success of any major reform effort. 9 The Secretary and Deputy
Secretary have also adopted several proven management concepts to help
overcome some of the obstacles that we found had limited the success of past
DOD reform efforts. 10 These include (1) establishing a Defense Management
Council of senior defense leaders to help oversee the DRI and advise the
Secretary of Defense on new reform efforts, (2) developing directives to
communicate specific goals and objectives, milestones, and decisions for
selected initiatives, (3) creating performance contracts to hold selected
Defense agencies and activities accountable for cost- cutting and service
improvement goals, (4) directing that services and Defense agency strategic
and implementation plans, as required by the Government Performance and
Results Act, 11 address DRI objectives, and (5) using budget guidance to
ensure services and Defense agencies adequately fund individual initiatives.
As we reported last year, these actions have helped create a Defense- wide
focus on infrastructure reduction and provide a forum where problems caused
by cultural barriers and parochial interests can be addressed. 12

Historically, when administrations come to an end, many of the Department's
top civilian leaders leave their positions. For example, the Deputy
Secretary, who many recognize as the leading advocate of defense reform,
left the Department on March 31, 2000. The degree to which the emphasis on
reform may diminish due to the departure of this senior official or any
others will depend largely on the commitment of new

9 Organizational Culture: Techniques Companies Use to Perpetuate or Change
Beliefs and Values( GAO/ NSIAD- 92- 105, Feb. 27, 1992); Reengineering
Organizations: Results of a GAO Symposium( GAO/ NSIAD- 95- 34, Dec. 13,
1994); and Executive Guide: Improving Mission Performance Through Strategic
Information Management and Technology (GAO/ AIMD- 94- 115, May 1994). 10
Defense Management: Challenges Facing DOD in Implementing Defense Reform
Initiatives( GAO/ NSIAD/ AIMD- 98- 122, Mar. 13, 1998). 11 The Results Act
requires agencies to develop periodic strategic and annual performance
plans. DOD's most recent strategic plan is the May 1997 Report of the
Quadrennial Defense Review, and its most recent performance plan is included
as appendix I in the February 2000

edition of the Secretary's annual report to the Congress. Among other
things, the performance plans provide agencies with a vehicle to identify
their long- term goals and objectives for all major functions and
operations, the measures they will use to gauge performance, and the
strategies and resources they will use to achieve their performance goals.

12 Defense Reform Initiative( GAO/ NSIAD- 99- 87, Apr. 21, 1999).

leadership to reform and the extent to which processes for achieving reform
have been institutionalized.

The Defense Management While the Defense Management Council played an
effective role in getting

Council's Effectiveness the DRI started, opportunities exist to build on its
success if Council

Could Be Improved members are able to (1) work in a more collaborative
fashion on major

Department- wide issues, (2) establish priorities among the numerous reform
initiatives, (3) enhance the Council's decision- making role and authority,
and (4) obtain better information on the initiatives' status. Such steps can
provide greater assurances that the DRI will continue to be emphasized
during any transition in DOD leadership.

The Defense Management Council is an important element of the Department's
overall management strategy for implementing the DRI program. Established by
the Secretary of Defense to be his “board of directors” for
defense reform, the Council is chaired by the Deputy Secretary of Defense
and includes other senior executives in the Office of the Secretary of
Defense and the military services. According to the Deputy Secretary, these
executives are at a high enough level to speak for their organizations and
impact how the DRI is implemented either within their home organizations or
across the Department (see fig. 2).

Figure 2: Defense Management Council Membership

Deputy Secretary of Defense Vice Chairman of Joint Chiefs of Staff

(Chairman) Under Secretary of Defense (Acquisition, Technology & Logistics)
Air Force Vice Chief of Staff

Under Secretary of Defense Army Vice Chief of Staff

(Policy) Under Secretary of Defense Vice Chief of Naval Operations

(Personnel & Readiness) Defense Management

Council Under Secretary of Defense

Assistant Commandant of Marine Corps (Comptroller)

General Counsel Under Secretary of Air Force

Director Administration and Management Assistant Secretary of Defense Under
Secretary of Army

(Command, Control, Communications & Intelligence) Under Secretary of Navy
Director of Defense Reform Office

Military service representatives Office of the Secretary of Defense
representative

Source: DRI Report.

In creating the Council in 1997, the Secretary said that he expected it to
(1) ensure the initiatives are faithfully and expeditiously carried out, (2)
maintain the momentum for change by identifying additional ways to improve
business practices and consolidate activities, and (3) provide stronger
departmental oversight of Defense agencies that would encourage them to
adopt more efficient ways of accomplishing their missions. If properly
constituted and managed, we believe that the Council could also help the
Department break down organizational stovepipes and overcome the strong
cultural resistance to change that has limited the success of past reform
programs.

Last year we reported that the Council helped get the Reform Initiative off
to a good start. 13 During the first 18 months of implementation, for
example, it met frequently; helped establish goals, objectives, and time
frames for completing many of the reform initiatives; and supported the need
for reform throughout the Department. The Council also seemed to have a
positive impact in terms of ensuring that staff at all levels of the
Department understood the significance and purpose of the DRI and were
supporting the Secretary's goals. In particular, we found that Defense
organizations had begun to include goals and objectives in their annual
budgets and strategic plans and to establish offices to track implementation
status and problems.

Over the last year of implementation, however, the Defense Management
Council was not as active or fully engaged in the reform process. Among
other things, there were considerably fewer meetings as higher priority
national security events took place. For example, no meetings were held for
4 months in mid- 1999, at the height of the Kosovo conflict. To gain a
better understanding of how the Council is currently functioning, we met
with 9 of its 17 members, including the Deputy Secretary who chairs the
Council. 14 While their opinions on the Council's role and effectiveness
varied, most agreed in concept with the need for such an oversight body. It
was also pointed out that if the Council did not exist, its current members
would still have to be brought together from time to time to address reform
or infrastructure- related issues. Others thought it was valuable because it
brought both civilian and military leaders together to discuss business-
related issues of common interest to the Department. Most, however, thought
the Council's greatest contribution was that it increased overall awareness
of the need for reform and helped communicate DRI goals and objectives
throughout the Department. They thought this was valuable in getting the
initiatives started in the right direction and maintaining their momentum.

13 Defense Reform Initiative( GAO/ NSIAD- 99- 87, Apr. 21, 1999). 14 We also
met with 11 members of the DRI Coordinating Group to obtain their views on
Council operations. This Group, which was created by the Defense Management
Council at its first meeting, provides advice and assistance to the Council,
drafts policy statements for the Council's review, and provides a forum for
the military services and Defense agencies to discuss concerns with DRI
policy statements. It is headed by the Director for Program Analysis and
Evaluation in the Office of the Secretary and is comprised of senior level
representatives from the military services and Office of the Secretary.

Nevertheless, most of the members believe the Council could be more
effective in serving as the Secretary's “board of directors.”
Among other things, we were told that:

Council members have not been able to completely put aside their individual
service and agency interests and focus on Department- wide approaches to
long- standing infrastructure and administrative problems. Most Council
members also participate in other high- level management groups such as the
Defense Resources Board, where they meet regularly to discuss budget issues
and compete for resources. Consequently, it has been more difficult than
expected to work in a unified, collaborative fashion. The Council has not
prioritized the importance of the various initiatives

based on the potential for savings and improved business processes. The DRI
initially included over 70 initiatives, which were treated equally even
though some were clearly more important. For example, efforts to determine
the number of personnel positions that could be competed with the private
sector (using the Office of Management and Budget's A- 76 process) were
treated the same as reducing the number of committees that meet within the
Department. This approach tended to dilute or marginalize the Council's
effectiveness. The situation was exacerbated when the Secretary expanded the
DRI to include major Department- wide efforts such as acquisition, financial
management, and logistics reform. These initiatives had not been discussed
at Council meetings, even though the Department considers their successful
implementation a high priority. The Council has largely not been a decision-
making body, which

affected members' approach to and participation in meetings. For example,
meetings generally evolved into little more than informational updates on
selected initiatives and the information was often not sufficiently
organized or detailed to reach conclusions or make suggestions for change.
Over time, this lack of authority and focus reduced the “intellectual
energy” members brought to the meetings and raised questions, among
members and others, about the contribution the Council was making to the
reform effort.

We also found that the Council did not have good information to monitor the
status of the initiatives. The Defense Reform Office periodically collected
status information, but it contained few details on actual results, costs
incurred, or issues needing resolution. In addition, this information was
not current for many initiatives. Consequently, the Council lacked
sufficient information to identify initiatives that were not progressing as
expected and to make needed midcourse corrections. Based on a recommendation
we made last year, 15 the Defense Reform Office has recently developed
additional output- and outcome- oriented performance measures 16 for many of
its major DRI initiatives such as purchase cards, travel reengineering,
prime vendors, and financial management reform. Defense Reform Office
officials believe the measures will provide Council members with adequate
information to gauge the success of these initiatives. Although we have not
reviewed these measures to determine their validity or accuracy, the
Department's actions seem to be a step in the right direction.

Because of problems noted above, the Council is not playing as strong a role
as needed to break down organizational stovepipes and ensure that DOD is
arriving at common, Department- wide solutions to its major problems.
Rather, major reforms in areas such as acquisition, financial management,
and logistics are being managed as they have always been- in functional or
organizational “stovepipes”- increasing the risk that solutions
will serve the functional area but not the Department as a whole. In
discussing our work with the Deputy Secretary and Director of the Defense
Reform Office, they pointed out, however, that in recent months Council
meetings had begun to focus on some of the larger Department- wide
initiatives. The Director said, for example, that the Council had recently
received briefings on both financial management and logistics reform
efforts. Because of concerns about the focus and directions of logistics
reforms, the Council was instrumental in preparing a new Defense Reform
Initiative Directive that requires the military services, Defense Logistics
Agency, and Transportation Command to rethink their approaches and report
back to the Council with a new logistics reform plan by July 1, 2000 (see
app. II for more details).

15 Defense Infrastructure( GAO/ NSIAD- 99- 169, Aug. 4, 1999). 16 Output
measures focus largely on implementation progress or status. Outcome
measures show results or outcomes related to an initiative or program in
terms of its effectiveness, efficiency, and/ or impact.

An Integrated Strategy and Our April 1999 report recommended that the
Secretary of Defense use the

Action Plan Would Provide a framework provided by the Government Performance
and Results Act to

Road Map for Reform and establish a comprehensive, integrated strategy and
action plan for

Help Sustain Momentum reforming the Department's major business operations
and support

activities. While DOD initially said it would review its ongoing reform
efforts and include them in its performance plans as appropriate, officials
subsequently said that they believed the Department's current DRI and
Results Act plans were sufficient to guide the reform program and ensure
that the major reform initiatives were adequately integrated.

In updating our past work, it is clear that DOD's current reform strategy is
still missing some key elements to facilitate management oversight and
maximize the potential that its key reform efforts (e. g., acquisition,
financial management, and logistics reform) will be fully integrated. These
include (1) identifying where interdependencies exist between the key reform
efforts and functional areas, (2) specifying the specific strategies that
will be used to address the interdependencies as reforms are implemented,
(3) assigning management responsibility and accountability for carrying out
reforms in a coordinated or matrixed manner, (4) establishing appropriate
performance measures and tracking progress toward developing integrated
systems and processes, and (5) providing periodic management oversight by
the Defense Management Council or other appropriate body to gauge the level
of progress being made and ensure that individual managers are not
attempting to unilaterally redesign or reform their functional areas. 17

An integrated strategy and action plan could also help DOD maintain program
momentum and continuity during any transition in Department leadership.
Without a well- documented strategy and plan, future leaders could lose
valuable time as they attempt to understand the rationale for past decisions
and the importance of dealing with the Department's major reforms in an
integrated fashion.

17 According to the Department of Defense, very high level interdependencies
of information are now being denoted in DOD's End- to- End Procurement
Process Model which include basic finance, contracting, logistics, and
industry interrelationships in the procurement/ acquisition process.

Identifying Investment Last year we also recommended that DOD identify
investment

Costs Would Help Establish requirements for the major reform initiatives,
establish Department- wide

Funding Priorities and funding targets for the entire program, and
communicate the results to the

Overall DRI Affordability Congress during the annual budget process. In
response, Defense officials

initially stated that they were reviewing DRI funding and considered it a
high priority. However, in discussions this year, officials stated that the
Department's current budgetary process was sufficient to establish funding
priorities for the military services and Defense agencies and to communicate
DRI funding requirements to the Congress. Therefore, they did not see a
strong need to adopt our recommendations.

In establishing the DRI program, DOD did not select potential projects in a
systematic manner. Rather, it attempted to increase attention to the need
for reform by selecting a sample of ongoing or planned initiatives across
the Department. It later expanded the program to include most major ongoing
initiatives in the Department. While this approach has been useful in
mobilizing the Department toward reform, it has put senior leadership in a
position of supporting every reform initiative without regard to its
potential cost or return on investment. In addition, we found that DOD's
leadership was requiring the military services and Defense agencies to fund
the DRI initiatives out of their existing budgets without a clear
understanding of overall investment requirements.

In contrast, the private sector commonly uses a technique known as portfolio
management to select, control, and evaluate major reform projects or other
types of investment options. 18 Generally, portfolio management involves (1)
creating a complete portfolio of potential investment projects, (2)
analyzing each project to determine the cost of maintaining the current
process versus investing in new ones, (3) comparatively ranking the projects
based on expected net returns, and (4) selecting projects for investment
based on their expected contribution to the most pressing organizational
needs. When coupled with other management controls and evaluation
techniques, portfolio management often helps organizations ensure that they
are undertaking the most important, cost- effective projects. It also gives
them information to make budgetary tradeoffs and determine where they can
best invest their resources and management attention to meet organizational
priorities.

18 Portfolio management is also a technique the Department plans to use to
enhance agency management of information technology projects as required by
the Clinger- Cohen Act of 1996 (P. L. 104- 106, Division E).

During our work this year, we did not find any substantial change in DOD's
approach to analyzing investment requirements. For example, the military
services and Defense agencies are still required to fund DRI investment
costs out of their existing budgets, and senior leadership still lacked
adequate information on the investment costs of individual initiatives and
the overall DRI program. Consequently, senior leadership was not fully aware
of either the affordability of the DRI program or the impact the program was
having on the ability of the military services and Defense agencies to fund
other priority programs. Moreover, the ability of the Congress to understand
the total investment costs or relative funding priorities for specific
initiatives is impeded as well.

Implementation The Department of Defense has made some progress in
implementing the

Progress Is Mixed and various reform initiatives. A few of the reform
initiatives, such as

organizational changes in the Office of the Secretary of Defense, have been
Barriers Remain

completed. While most of the remaining initiatives are progressing at
various rates, a number of barriers could keep them from meeting specific
time frames and/ or goals. The most notable barrier, which we have reported
on several times in the past, is the difficulty in overcoming institutional
resistance to any type of major reform in an organization as large and
complex as the Department of Defense. Other barriers include (1)
programming, including interfaces to legacy and new systems, or other
technical problems associated with new computer systems that are being
developed to support areas such as paperless contracting and travel
reengineering and (2) employee concerns about the potential loss of jobs
associated with competitive sourcing and the use vendors to store,
distribute, and manage the Department's inventory. Additionally, the
Department will require new congressional authority to hold additional base
realignment and closure rounds and expand other initiatives such as housing
privatization and property leasing.

The following information, based on our analysis, summarizes the status of
some of the major initiatives by degree of progress. See appendix II for
more complete summaries of these and other initiatives.

Initiatives Completed or Likely to Be Completed on

Organizational streamlining

Schedule

Military pay increases Purchase cards Performance contracts Defense
Information System Agency center consolidations Demolition and disposal of
excess facilities

Organizational streamlining includes over 50 initiatives to reorganize and
reduce staff within the Office of the Secretary of Defense, Defense agencies
and field activities, and military service headquarters. 19 They are aimed
primarily at creating flatter, more streamlined headquarters offices by
eliminating overlap, complexity, and redundancy. Some examples of
initiatives reported as complete include (1) transferring overseas military
banking operations from the Office of the Secretary of Defense to the
Defense Finance and Accounting Service, (2) reducing the number of boards
and committees in the Office of the Secretary of Defense, and (3) reducing
Office of the Secretary of Defense staff by 33 percent (about 1,000 people).
These streamlining initiatives received a great deal of senior management
attention and priority during the first months following the Secretary's
announcement of the DRI.

The Department proposed and the Congress enacted annual pay increases for
military personnel. As a result, a 4. 8- percent pay raise for military
personnel began January 1, 2000. DOD also reports that it is using
government purchase cards 20 to pay for almost 92 percent of purchases
costing $2,500 or less- exceeding its goal by almost 2 percent. Performance
contracts have also been developed for eight Defense agencies/ activities to
improve the Department's oversight of them and outline goals for cost
reductions and service improvements.

Although the DRI did not establish specific completion time frames, the
Defense Information System Agency expects to reduce the number of

19 We have a separate review underway addressing DOD's progress in making
headquarters personnel reductions in line with congressional direction; that
report will be completed later this year.

20 A purchase card is essentially a credit card issued to authorized
individuals throughout DOD. Its use reduces the need for purchase orders and
receiving reports, significantly reducing the time and cost required to
purchase relatively low- cost items.

computer megacenters from 16 to 6 by the end of fiscal year 2000. In
addition, the initiative to demolish 80 million square feet of excess or
unused buildings at defense installations around the world has resulted in
the demolition of a reported 30 million square feet through fiscal year
1999, a pace that was ahead of the demolition schedule.

Initiatives Making Some Progress, but Behind

Competitive sourcing Electronic malls

Schedule

Paperless contracting Household goods transportation Travel reengineering

Under the competitive sourcing element, DOD plans to use the Office of
Management and Budget A- 76 process to compete over 200,000 positions with
the private sector between fiscal years 1997 and 2005. The Department
expects to realize $9. 2 billion in savings during this period and $2.8
billion in annual savings thereafter. 21 In anticipation of savings from
this effort, the services are already shifting these funds from their future
year operations and maintenance accounts to meet other needs. However,
undertaking such a massive competitive sourcing effort has proved to be more
difficult and costly than expected. For example, the Navy was unable to meet
its fiscal year 1998 competitive sourcing goals because it lacked the
personnel and resources needed to effectively conduct the competitive
sourcing studies. For these and other reasons, the Navy proposed, and was
given approval, to use alternative approaches (e. g., reengineering,
reorganizations, and privatizations) along with the A- 76 process to meet
its savings targets. 22 Other services are also considering these other
approaches.

The paperless contracting initiative was expected to make all aspects of the
major weapons systems contracting process paperless by January 1, 2000,
primarily through increased use of computer technology. While substantial

21 An additional 42, 000 positions are expected to be reviewed under a
business process reengineering emphasis referred to as strategic sourcing.
This is expected to help the Department achieve a total of $11.7 billion in
savings by 2005 and increase the annual recurring savings to $3.5 billion
annually thereafter.

22 We currently have a separate review underway examining the Department's
progress in implementing its competitive sourcing program and how the
services also expect to make use of the alternative approaches; that report
will be completed this summer.

progress has been made in this area, a new standard procurement system that
is needed to fully implement this initiative will not be fielded to all
contracting offices until 2003. In addition, key technical issues (such as
developing electronic signature capability) have yet to be resolved. Efforts
to develop electronic signature interoperability and signature archiving
criteria continue between the Department of Defense, federal agencies, and
industry. Technical problems have also affected progress on the initiative
to reengineer the travel management system. This initiative, which is to
significantly improve the process for requesting, approving, and paying for
employee travel, may not be fully deployed in 2001 as expected. One of the
problems the Department must correct is that the travel system will pay a
traveler without first having funds obligated to cover the cost of the
travel.

DOD personnel are beginning to use electronic malls- virtual one- stop shops
where customers have access to electronic vendor catalogs as well as
government contracts- to buy parts and supplies over the Internet. However,
mall sales are lower than expected due in part to the small number of
commercial catalogs currently on the system. 23 Progress is also being made
toward implementing a new system to move the personal property of military
personnel and their families. However, delays in getting one of the
Department- wide pilot programs underway have caused officials to now
estimate that a new system will not be in place until the summer of 2002,
about 2 years later than originally expected.

Initiatives That Will Require Many Years to Fully

Acquisition reform

Implement

Financial management reform Logistics transformation

Over the past several years, acquisition, financial management, and
logistics reforms have received significant attention within DOD. 24 Yet the

23 See Defense Management: Electronic Commerce Implementation Strategy Can
Be Improved( GAO/ NSIAD- 00- 108, July 18, 2000) for the status of the
Department's electronic mall efforts, as well as the implementation status
of other electronic commerce initiatives. 24 We have previously identified
the areas of Defense acquisition, inventory, and financial management as
high risk because of their vulnerabilities to waste, fraud, abuse, and
mismanagement. See Major Management Challenges and Risks: An Executive
Summary (GAO/ OCG- 99- ES, Feb. 1999).

Department is still many years away from resolving its major problems in
these areas. For example, DOD has undertaken numerous initiatives to improve
its acquisition process. The DRI program highlights some of these
acquisition initiatives, including (1) reducing research, development, test,
and evaluation infrastructure; (2) reducing total ownership costs of weapon
systems; 25 and (3) better training and management of its acquisition
workforce. While some progress is being made in these areas, each is many
years away from being completed. DOD, for example, is planning to use a
variety of methods, including competitive sourcing, to reduce its research,
development, test, and evaluation infrastructure. Even though our work has
shown that large- scale consolidations of this infrastructure are possible,
they are not likely to take place outside of base closure rounds. Likewise,
efforts to improve the acquisition process by reducing total ownership costs
for weapon systems are progressing, but will not be fully realized until
systems and processes are established to develop reliable data on actual
costs incurred and factors are changed that drive program managers to
underestimate costs, rely on immature technologies, and underestimate the
risk of cost, schedule, and performance problems. 26

Weaknesses in the financial management area continue to undermine the
Department's ability to manage its $260 billion budget and an estimated $1
trillion in assets. The DRI program highlights DOD's intent to reduce the
number of finance and accounting systems from 324 in 1991 to 32 or fewer by
2005 and produce auditable financial reports. While progress has been made
in reducing the number of finance and accounting systems, no major part of
the Department has been able to pass the test of an independent audit. While
DOD has made genuine progress in such areas as increased accountability over
property, plant, and equipment and recognition of cleanup and disposal
costs, major problems remain. These problems hamper financial reporting;
impair DOD's ability to safeguard assets from physical deterioration, theft,
or loss; and result in the purchase of assets already on hand in sufficient
quantities. Also, inaccuracies in DOD's logistical, acquisition, budgetary,
and other program feeder systems prevent its managers from receiving the key
financial information they need to make informed decisions. Although the
Department has recently

25 Costs associated with the development, production, operations, support,
and disposal of weapon systems. 26 Best Practices: DOD Training Can Do More
to Help Weapon System Programs Implement Best Practices( GAO/ NSIAD- 99-
206, Aug. 16, 1999).

issued its second Financial Management Improvement Plan, we have reported
that DOD still faces major challenges and that a sustained commitment from
the highest levels of DOD leadership will be necessary for DOD to achieve
its financial management improvement goals. 27

Finally, there are hundreds of individual efforts underway to reform
logistics practices, and the Department in recent years has developed a
logistics strategic plan to guide programmatic improvements in this area.
While some progress has been made in reducing wholesale supply stocks and
adopting best management practices for certain types of inventory items, the
Department still faces major challenges in providing adequate control and
visibility over its inventory assets. Consequently, it is still many years
away from successfully completing its major reforms.

The Program Will Generally, DRI- related savings will likely be limited in
the short term.

Provide Few However, future savings for a number of the initiatives, while
not easily

quantified, could be substantial if the initiatives are successfully
completed Short- term Cost

and result in the reduction of personnel. In the meantime, the Department
Savings, but Future

plans to achieve its $60 billion modernization goal primarily through
Savings Could Be

increased congressional funding and by delaying other budget priorities.
Substantial

Initially, Defense officials expected that the DRI program would reduce
operating costs and help it increase funding for weapons modernization from
$42 billion in fiscal year 1998 to $60 billion in fiscal year 2001. For
several reasons, however, the program will not make a major contribution
toward achieving this goal.

First, many of the initiatives require substantial up- front investments.
However, as discussed in a previous section, the full extent of these
investment costs is not known nor have priorities been established to ensure
that the Department funds projects that offer the greatest potential net
return. As a result, for several years the program will likely consume more
funds than it saves as the initiatives are implemented. Second, the
Department has been overly optimistic in estimating the

savings to be realized from its A- 76 competitions. Because of delays in
initiating and completing these competitions and the need to offset
associated investment costs, it is uncertain to what extent the

27 Department o f Defense: Progress in Financial Management Reform (GAO/ T-
AIMD/ NSIAD- 00- 163, May 9, 2000).

Department will realize the $9. 2 billion in savings it expected between
fiscal years 1997 and 2005. 28 Because Defense components have already
adjusted their current and future years' budgets to reflect these expected
savings, they will likely experience funding shortfalls in their operations
and maintenance or modernization accounts, unless other adjustments are made
or additional funds are provided. Third, because of concerns associated with
the administration's

handling of closure decisions for two maintenance depots in the 1995 base
closure round, the Congress did not approve the Department's request to
conduct two additional base realignment and closure rounds in 2001 and 2005.
Defense officials expected that these additional rounds would generate net
savings of $3.4 billion annually, once the cost of implementing the closures
had been recovered. While the timing of the additional base closures would
not contribute directly to the fiscal year 2001 goal, DOD was relying on the
savings to help sustain a $60 billion modernization budget in future years.
As part of its fiscal year 2001 budget request, the Department is asking for
base realignment and closure authority in fiscal years 2003 and 2005.

Notwithstanding the uncertainty of actual cost savings, DOD budget documents
show it will reach its $60 billion modernization goal in fiscal year 2001.
Our analysis of these documents shows that the majority of the increase is
expected to come from additional congressional funding for specific weapon
systems. 29 In addition, the Department is reducing or delaying funding for
specific programs that could eventually have a negative impact on readiness.
For example, we recently reported 30 that the Air Force identified $355
million it needed for real property maintenance projects in fiscal year 1998
that had been rated critical. 31 In addition, its budget plans do not
provide any funding for these types of critical- rated projects between
fiscal years 1998 and 2003. According to the Air Force Installations and
Logistics office, repair projects were zeroed out of the

28 DOD Competitive Sourcing: Questions About Goals, Pace, and Risks of Key
Reform Initiative( GAO/ NSIAD- 99- 46, Feb. 22, 1999). 29 Future Years
Defense Program: Funding Increase and Planned Savings in Fiscal Year 2000
Program Are at Risk( GAO/ NSIAD- 00- 11, Nov. 22, 1999). 30 Military
Infrastructure: Real Property Management Needs Improvement (GAO/ NSIAD- 99-
100, Sept. 7, 1999). 31 A critical rating indicates a significant loss of
installation mission capability and frequent mission interruptions;
continuous work- arounds are needed.

budget until fiscal year 2003 to fund weapon modernization programs. As a
result, Air Force officials have noted that its total funding backlog for
critical or degraded repair projects is growing. 32

If the DRI can be sustained, however, there are a number of initiatives that
have the potential to not only improve the Department's business and support
operations but also to save significant amounts of money in the long term.
DOD, for example, is showing a commitment to adopting more efficient
commercial standards and best practices in its acquisition, financial
management, and logistics programs, which are some of its most inefficient
and long- standing problem areas. It is also aggressively pursuing several
electronic commerce initiatives that have the potential to make its buying
and bill paying operations much more efficient and effective.

Conclusions The DRI program has provided a much- needed emphasis on
improving the Department's business processes and reducing infrastructure
costs. While

some progress is being made, the program is at risk of not achieving the
quantum change in process efficiency envisioned by the Secretary. To keep
the program on track, we believe DOD needs an overall integrated plan to
guide its implementation and an approach for assessing and making key
investment decisions. The Department has considered our prior
recommendations on these matters but plans no action. Without such action,
DOD cannot ensure, nor can the Congress evaluate, that initiatives that have
the potential for yielding the greatest results are emphasized and that
limited resources are directed to initiatives that promise the greatest
benefits.

Additionally, opportunities exist to strengthen the role of the Defense
Management Council and ensure that it takes a more active role in providing
direction and oversight to key reform initiatives, particularly for
Department- wide initiatives which hold promise of achieving the greatest
benefits if addressed in an integrated fashion, such as in the areas of
acquisition, financial management, and logistics reform. Ensuring that the
Council has timely information on the status of key initiatives is also
important to sustaining and maintaining momentum to the initiatives during
the upcoming change in administrations. The absence of these actions also
places initiative progress and success at risk.

32 A degraded rating indicates a significant loss of installation mission
capability; work arounds to prevent mission disruption and degradation are
often required.

Matters for Because the Department decided not to implement our prior

Congressional recommendations to (1) undertake a comprehensive approach in
reforming

its major business and support activities and (2) develop an investment
Consideration

plan to better ensure that it is undertaking the most cost- effective and
important reform, and because of the importance of sustaining the
initiatives into future administrations, the Congress may want to consider
requiring the Department to

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, particularly
in the areas of acquisition, financial management, and logistics reform and
more fully identify investment funding requirements for the major

reform initiatives and Department- wide funding requirements for the DRI and
communicate them to the Congress during the annual budget process.

Recommendations To build on the effectiveness of the current DRI management
framework and to help achieve desired results, we recommend that the
Secretary of

Defense strengthen the role and effectiveness of the Defense Management
Council. These actions should include efforts to

focus the Council's attention on the key reform initiatives that, if
addressed in an integrated fashion could produce the greatest results;
strengthen the Council's decision- making role, authority, and

accountability, particularly with respect to the key Department- wide
acquisition, financial management, and logistics reforms; and provide the
Council with current and accurate information on the status

of key reform initiatives so it can better gauge progress and identify and
address implementation problems.

Agency Comments and In commenting on a draft of this report, DOD generally
concurred with our

Our Evaluation conclusions and recommendations, as well as our matters for

congressional consideration, and provided additional information about
actions underway or planned. However, it also expressed concern that the
report had not adequately acknowledged the Department's extensive efforts to
put in place long- term change mechanisms and disagreed with our conclusion
that the DRI program was at risk of not achieving the

quantum change in business process efficiency originally envisioned. In
addition, the Department provided more detailed technical comments,
including information about several electronic commerce initiatives and
performance measures it has created to assess its reform initiatives. We
incorporated the additional information and technical comments into the
report where appropriate. The Department's comments concerning our
recommendations and matters for consideration are reprinted in appendix III.

Concerning our recommendation to strengthen the role of the Defense
Management Council, DOD concurred without specifying the actions that it
would take. It noted, however, that recent Council meetings have, even when
no specific decisions were required, been increasingly lively, open, and
robust. At the time we were concluding our review, we also noted that the
Council appeared to be taking on a more active role than it had during the
preceding year. As we state in our recommendations, however, we believe the
Department can build on this increased activity by strengthening the
Council's role and effectiveness. This would involve actions to focus the
Council's attention on the Department's most important reform initiatives
while ensuring the Council has accurate and current information on the
status of key reforms, and give the Council greater decision- making
responsibility and authority, while holding it accountable for results.

Concerning our matters for congressional consideration, DOD concurred with
the need for a more integrated strategy and action plan and to more fully
identify investment funding requirements for the major reform initiatives;
however it did not specify what actions it would take. It disagreed,
however, that the Department has not fully identified funding requirements
for the major reform initiatives. DOD noted that while the funding
requirements are not centralized, the services and Defense agencies have
appropriate lines in the Planning, Programming, and Budgeting System to
cover the cost of individual reform initiatives. The fact that the services
and Defense agencies have included some funding for the initiatives in their
budgets does not mean that the Department has a full grasp of the total cost
of the DRI program. As stated in our report, DOD's leadership has required
the military services and Defense agencies to fund the reform initiatives
out of their existing budgets without a clear understanding of the overall
investment requirements or the impact on other service and agency programs.
By developing an integrated strategy and action plan for selecting,
controlling, and evaluating major reform projects or investment options, we
believe DOD would have a better

understanding of the program's full costs and gain additional assurance that
it is undertaking the most important, cost- effective projects.

Finally, DOD expressed concern that the report had not adequately
acknowledged its extensive efforts to put in place long- term change
mechanisms and disagreed with our conclusion that the DRI program is at risk
of not achieving the quantum change originally envisioned. It noted that
significant reform initiatives have already been completed and that numerous
performance measures have recently been developed in keeping with tenets of
the Results Act to gauge the program's effectiveness. Last year, we reported
that most of the performance measures used to gauge the progress of
individual initiatives were output- oriented. 33 In April 2000, the
Department provided us about 40 performance measures, which included both
output- and outcome- oriented measures it is currently using to gauge
progress. We are encouraged by the Department's increased emphasis on
performance measures and believe the measures could provide the Defense
Management Council with valuable information when determining progress or
making decisions on individual initiatives. To be useful, however, the
Department must ensure its status information is accurate and kept current.
We have previously noted limitations in this area. At the same time, we
believe that DOD's ability to sustain the program is at risk because it
lacks a comprehensive, integrated strategy and action plan for managing the
program and addressing the most significant issues, and an investment
strategy for ensuring that it is making best use of its limited resources.

We are sending copies of this report to the Honorable William S. Cohen,
Secretary of Defense; the Honorable F. W. Peters, 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; 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.

33 Defense Infrastructure: Improved Performance Measures Would Enhance
Defense Reform Initiative( GAO/ NSIAD- 99- 169, Aug. 4, 1999).

GAO points of contact concerning this report and other key contributors are
listed in appendix IV.

Sincerely yours, Henry L. Hinton, Jr. Assistant Comptroller General

Appendi Appendi xes xI

Objectives, Scope, and Methodology The Chairman, Subcommittee on Military
Readiness, House Committee on Armed Services, asked us to continue our
oversight of the Defense Reform Initiative (DRI) and provide an update on
the status of Department of Defense's (DOD) efforts to implement the various
initiatives. Specifically, we addressed the following questions:

Has the Department's management emphasis and oversight structure been
effective in providing sustained direction and emphasis to the DRI? What is
the status of individual reform initiatives and what barriers

could limit their success? To what extent has the DRI resulted in savings,
enabling DOD to shift

operations and maintenance funds to support weapons modernization? To assess
the effectiveness of the Department's oversight structure, we relied
primarily on testimonial evidence provided by the following 9 of 17 Defense
Management Council members:

Deputy Secretary of Defense; Under Secretary of Defense (Acquisition,
Technology & Logistics); Assistant Secretary of Defense (Command, Control,
Communications &

Intelligence); Under Secretary of Defense (Personnel & Readiness); Vice
Chairman of Joint Chiefs of Staff; Air Force Vice Chief of Staff; Army Vice
Chief of Staff; Under Secretary of Navy; and Director of Defense Reform
Office.

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 Council members to discuss the Department's position
on previous recommendations we made related to the DRI, the adequacy of
current performance measures to gauge success, the frequency of Council
meetings, whether a Council is needed to guide reform, and the impact of
bringing additional initiatives such as financial management reform under
the DRI. In addition to answering questions related to the topics listed
above, the members also gave their impressions of the success of the Council
and areas where it could be improved.

We also addressed similar questions to 11 members of DOD's Coordinating
Group and to representatives of the Defense Reform Office. The Coordinating
Group was established at the first Defense Management

Council meeting to help it consider DRI- related issues and provide
additional support to the Council as needed. It consists of senior- level
defense managers and has met regularly since the DRI program was
established. The Defense Reform Office is a small office established by the
Secretary of Defense to help track the implementation of the initiatives and
advises him when reform efforts were not progressing as expected.
Discussions with Coordinating Groups members and Defense Reform Office staff
gave us a better understanding of the type of information presented and
discussed at Council meetings, initiatives that have received the most
attention, and problems that have to be overcome to make the Council and
Coordinating Group structure more effective.

To assess the status of individual reform initiatives and barriers that
could limit their success, we held general discussions with officials
responsible for overseeing overall military service efforts at the following
organizations at the Pentagon in Arlington, Virginia:

Air Force Management Reform Office; Army Program Analysis and Evaluation
Directorate; Assistant Secretary for the Navy, Research, Development and

Acquisition; and Marine Corps Deputy Director for Programs and Resource
Division.

We discussed the implementation of specific initiatives, including barriers
encountered, with appropriate officials within the following offices and
organizations:

Under Secretary of Defense (Acquisition, Technology, and Logistics),
Arlington, Virginia; Deputy Under Secretary of Defense (Acquisition Reform),
Acquisition

Process and Policies, Arlington, Virginia; Deputy Under Secretary of Defense
(Installations), Arlington, Virginia; Deputy Under Secretary of Defense
(Logistics), Logistics Reinvention

Office, Arlington, Virginia; Under Secretary of Defense (Personnel and
Readiness), Arlington,

Virginia; Under Secretary of Defense (Comptroller), Arlington, Virginia;
Directorate for Administration and Management (Organizational and

Management Planning), Arlington, Virginia; Joint Chiefs of Staff ,
Arlington, Virginia; Defense Contract Audit Agency, Fort Belvoir, Virginia;
Defense Finance and Accounting Service, Arlington, Virginia;

Defense Information Systems Agency, Arlington, Virginia; Defense Logistics
Agency, Fort Belvoir, Virginia; Air Force Material Command, Wright Patterson
Air Force Base, Ohio;

and 88th Squadron, Wright Patterson Air Force Base, Ohio.

We also relied on past and current work performed by our office to obtain
information on the status of initiatives and on potential implementation
barriers for specific initiatives.

While we did not conduct an in- depth review on every major DRI initiative,
we discussed and obtained supporting documentation related to the status of
implementation, barriers encountered, and efforts to overcome these
barriers.

To determine the extent to which savings have and are likely to be achieved,
we focused our attention on the status of DOD's two primary cost savings
initiatives- base realignment and closures and A- 76 competitions. We relied
on other GAO reports and ongoing work for information on the status of A- 76
efforts and the extent to which DOD believes it will achieve savings. We
also attempted to obtain information on implementation costs and expected
benefits for other DRI initiatives. However, because DOD does not have good
financial data, officials were not able to provide us with precise
information on the savings the initiatives have or will achieve.
Nevertheless, we discussed the status and likelihood of achieving savings
with the responsible officials. We also consulted with another GAO team that
reviewed DOD's Future Years Defense Plan to determine if it reflects an $18
billion increase in modernization spending as called for by the Quadrennial
Defense Review and, if so, how DOD achieved this increase. Because many DRI
initiatives require significant up- front investment to implement, we also
discussed costs and potential savings with responsible officials.

We performed our work from July 1999 through May 2000 in accordance with
generally accepted government auditing standards.

Appendi xII

Assessment of DRI Elements Each of the nine DRI elements includes a variety
of initiatives, many of which were underway before they were brought under
the DRI umbrella. DOD has identified formal savings goals for only two
initiatives: competitive sourcing (included in element four) and base
realignment and closure rounds (included in element five). Each reform
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. Last year we reported that most of
the initiatives have output performance measures, which largely focus on
implementation progress or status, rather than results or outcome measures.
1 The following is an overview of the reported progress on major initiatives
within each element.

Element 1: Adopting The goal for this DRI element is to reengineer Defense
business and

Best Business support operations primarily by adopting and applying new,
world- class

business and management practices used by the private sector. DOD Practices

believes these initiatives, which range from increased use of electronic
commerce to streamlining and redesigning Department- wide financial
processes, will not only improve efficiency and save money, but also better
position Defense activities to respond to war- fighters' requirements in
today's and tomorrow's dynamic defense environment. Based on DOD reports and
our own analysis, we found that progress varies among the 10 individual
initiatives. Table 2 provides an overview of the goals, status, and issues
related to each initiative.

1 Defense Infrastructure: Improved Performance Measures Would Enhance
Defense Reform Initiative( GAO/ NSIAD- 99- 169, Aug. 4, 1999).

Table 2: Adopting Best Business Practices Initiatives Initiative Goal/
milestone Status Issues

Electronic commerce Revolutionize the way the Vendors can now register to do

The Department has not Department does business. business with DOD over the
Internet

developed a detailed plan to and the Department established a

implement its strategic vision World Wide Web home page to serve

or electronic commerce as a single entry point for industry to

architecture. It also has not shop for business opportunities.

determined how to best manage the electronic commerce program or fully
implemented key security measures that are needed for electronic commerce.

Paperless contracting Make all aspects of the major The Department is making
progress,

Partially implemented new weapon systems contracting process

but did not meet the DRI goal. As of systems and technology

paperless by January 1, 2000. January 2000, the Department met the

problems have kept the goal for three of six components of the

Department from meeting its contracting process.

goals. Purchase cards By fiscal year 2000, use the

Goal has been exceeded. The Emphasis is now on using the

purchase card for 90 percent of Department reports that it used the

card to pay for purchases over purchases costing $2,500 or less

credit card for almost 92 percent of $2, 500 where a contract has

(micropurchases). these purchases in fiscal year 1999.

already been established. Electronic mall Expand the use of the electronic

Some progress is being made. The Computer software is not

shopping mall by (1) allowing for electronic mall is now capable of

user- friendly, services have on- line payment with purchase cards

receiving on- line payments via the different philosophies on

by July 1998, (2) using purchase purchase card. However, sales for

when the mall should be cards for all mall purchases by

fiscal year 1999 amounted to used, and most of the items

January 1, 2000, and (3) reaching $2 million.

offered through the mall can $25.5 million in sales in 1999.

be purchased through other mechanisms.

Prime vendors Increase the use of prime vendors for Overall prime vendor
sales have

Several obstacles repeatedly Defense Logistics Agency- managed

increased from 18 to 27 percent of surface in DOD's attempt to

items. For one category of hardware Defense Logistics Agency sales

implement or expand prime items- facility maintenance

between fiscal years 1997 and 1999. vendor programs. These

supplies- make prime vendor Contracts for facility maintenance

obstacles include employee contracts available for all installations

supplies are in place and the services fears of job loss and

in the United States by January 1, are now pilot testing the initiative. The

customers' lack of confidence 1999, with sales of $56 million and

Department exceeded its sales goal by in a new process.

$112 million in fiscal years 2000 and purchasing $59. 2 million of these
items

2001, respectively. from prime vendors in fiscal year 1999.

Travel system Privatize Washington, D. C., travel

DOD privatized Washington, D. C., The travel system

reengineering office functions by October 1, 1998, travel office functions,
but will not fully

encountered significant and implement a new system for

deploy a new travel system before testing problems that have not

official Department- wide travel by 2003.

been resolved. October 2000.

(Continued From Previous Page)

Initiative Goal/ milestone Status Issues

Performance contracts Develop eight performance contracts All eight
contracts are in place for fiscal

Military services play a key for fiscal year 2000 to allow for

year 2000. Contracts will be reviewed role in organizations meeting

stronger departmental oversight and annually to modify goals and

some of their contract goals. increased accountability of selected

performance measures. Defense agencies and activities.

Working capital funds Establish a task force to make The task force
developed 11 issue

The changes will require the recommendations on improving the

papers that addressed issues such as Department to educate

buyer- seller relationship and on the prices charged to customers and

managers on new concept of emphasizing incentives that will

the need for a more flexible workforce. operations and address

reduce logistics costs, improve The Deputy Secretary approved the

employee concerns related to customer satisfaction, and ultimately,

proposed changes. benefits and job protection.

enhance weapon systems supportability.

Financial management Redesign financial processes and

Some progress is being made, but Data accuracy problems have

reform streamline organizations for optimum there are major obstacles to
overcome.

not been resolved, which limit effectiveness. Specific goals are to

While the number of finance and the Department's ability to

(1) reduce the number of finance and accounting systems are being reduced,

support day- to- day accounting systems from 109 in

the Department cannot account for decisionmaking, including

1998 to 32 or fewer by 2005 and billions of dollars of inventory and

reliable program cost (2) produce auditable financial

equipment. information.

statements. Transportation

Replace government unique The Department is using a

Questions remain about documentation and

transportation documents with commercial- off- the- shelf software

PowerTrack's capabilities. financial processes

commercial documents that are package called PowerTrack to replace

Interfaces with accounting electronically generated and test the

government- unique documents and to systems also need to be

use of a third- party logistics provider. process transportation bills and

developed. payments at about 150 sites. Also, plans are in place to select a
third- party logistics provider in May 2000.

Note: The original DRI Report included two additional initiatives under the
adopting best business practices element- total asset visibility and
household goods transportation. Total asset visibility now falls under the
transforming logistics element and the household goods transportation
initiative is now included in the quality of life element.

Source: Our analysis based on information in the DRI reports, Department
officials, and program documents.

Electronic Commerce In May 1998, the Department of Defense established its
Joint Electronic Commerce Program to increase the use of electronic business
practices that are common in private sector companies, practices such as
using the

Internet and commercially available computer software to conduct business. 2
Through this program, the Department expects that all of its business
functions- from acquisitions to health care- will be able to reduce
operating costs and streamline business processes. It established the Joint
Electronic Commerce Program Office to facilitate the implementation and
acceleration of electronic commerce. During 1999, the Department unveiled
its first electronic business/ electronic commerce strategic plan. At its
core, the plan expresses a vision in which technologies are used not to
simply automate existing processes but to also help fundamentally change the
way the Department does business. While DOD's electronic commerce program
will encompass all of the Department's business operations, this element of
the DRI focuses on the following two electronic commerce initiatives

streamlining the process vendors use to do business with DOD through a one-
time registration process and providing industry one- stop shopping for
procurement opportunities

within the Department over the Internet. DOD is making progress in
implementing these two electronic commerce initiatives. For example, as of
March 2000, the Department reports that 163,000 vendors have been registered
through its Internet- based central registry known as the Central Contractor
Registration. In addition, it developed a World Wide Web site, referred to
as “DODBusOpps. com,” to provide vendors with information about
the goods and services that DOD organizations want to buy. According to the
project office, as of January 2000, the site was posting 15,000 to 30, 000
solicitations a month from 267 buying locations worldwide, reflecting 85
percent of DOD's total solicitation volume. It was also experiencing an
average of 860,000 inquiries or “hits” a month from prospective
vendors or contractors, with the average user inquiry lasting about 8
minutes.

Although the benefits have not been quantified, both the central registry
and business opportunities web page are expected to help reduce the
administrative and clerical burdens that have always accompanied the paper-
bound solicitation and bidding processes. In addition to process

2 This section on electronic commerce was added in response to DOD's
comments on a draft of this report. We had not initially included this
information because we recently issued a report that addressed the
Department's electronic commerce initiatives in more depth. (See Defense
Management: Electronic Commerce Implementation Strategy Can Be Improved
(GAO/ NSIAD- 00- 108, July 18, 2000).

improvements, the Department believes the business opportunities web site
can help stimulate competition by making solicitations more accessible to
the general public. However, our recent report on the Department's
electronic commerce program pointed out that the Department faces several
implementation issues that, if not resolved, could adversely effect the
success of the program. Specifically, the Department has not yet (1)
completed a detailed plan to implement its strategic vision, (2) developed
an electronic commerce architecture, 3 (3) determined how to best manage the
electronic commerce program, and (4) fully implemented key security measures
that are needed for electronic commerce.

Paperless Contracting The DRI established a goal of making all aspects of
the contracting process paperless for major weapon systems by January 1,
2000. For many years,

each military service and Defense agency has used a different process (e.
g., computer systems, data formats, and operating procedures) to administer
its respective contracts. This condition resulted in numerous nonstandard
processes that were largely manual, paper intensive, and characterized by
redundant, time- consuming actions. Moreover, this condition resulted in
pervasive inefficiencies in contract administration, not the least of which
were inaccurate payments and accounting records.

The Department is making progress, but did not meet the goal for this
initiative. According to statistics provided by the paperless contracting
program office, about 78 percent of the Department's contracting
transactions were being accomplished electronically by the end of 1999. DOD
efforts to date have been focused on the following six components of the
contracting process. The three components that met the 90 percent goal are
asterisked:

contract requirements* solicitations* awards/ modifications* receipts/
acceptance

3 Architecture development is a primary means of integrating business areas
or processes across an organization in a cost- effective manner.
Architectures align information system requirements with the business areas
and processes that they support and promote systems that readily exchange
and share information. A system architecture defines the critical attributes
of an agency's collection of information systems in both business/
functional and technical/ physical terms.

invoice/ payments contract closeout

Partially implemented new systems and technology problems have kept DOD from
meeting its paperless contracting goals. For example, the Standard
Procurement System has been partially implemented, but it is not expected to
be available to support major weapon system procurement actions until
sometime in 2002. Likewise, according to DOD, the Wide Area Work Flow
system, which processes receipts and invoices, had positive results during
the pilot phase, but has had minimal implementation to date. The Defense
Procurement Payment System, the bill- paying system, will not be implemented
until August 2003. In addition, key technological issues (such as developing
electronic signatures to prevent unauthorized access and use) are yet to be
resolved. Until these systems and processes are fully deployed, DOD will
continue to rely on numerous existing systems to support paperless
contracting processes.

Additionally, even after DOD meets its goal for these six components, the
contracting process will not be entirely paperless. While some initiatives
not included in these six components are also being transformed to an
electronic process (such as initial requirements definitions), other efforts
(such as maintenance of the official contract file) must still be
accomplished in paper until the technical aspects of long- term records
keeping and electronic signature archiving are resolved.

Purchase Cards The DRI set a goal for Defense components to use purchase
cards to pay for 90 percent of purchases that cost $2, 500 or less (referred
to as micro- purchases) by fiscal year 2000. Purchase cards are commercial
credit cards that are issued to authorized DOD military and civilian users
to acquire and pay for low- cost supplies and services. The Department
implemented the card program to help streamline the acquisition process.

The Department has exceeded its purchase card goals. As of the end of fiscal
year 1999, almost 92 percent of all micro- purchases- about 9 million- were
made using the purchase card, representing $4.6 billion in sales. Although
DOD officials do not know how much this program will save the Department,
they believe savings will accrue because the purchase card eliminates much
of the administrative and documentation requirements of traditional
procurement methods. The purchase card also reduces the number of
contracting documents and associated invoices that the Defense Finance and
Accounting Service must process for payment.

Together, these improvements reduce process time and personnel requirements,
thereby producing savings.

At one time, the Department sought congressional support for legislation
that would increase the micro- purchase threshold to $10, 000. That increase
would further reduce the volume of purchase transactions using traditional
procurement methods. The Congress, however, did not take action on this
proposal. According to the program manager, the current emphasis is on
expanding use of the card as a payment vehicle for larger procurements where
an underlying contract is in place. Also, deployed forces overseas have the
authority to use the card for purchases up to $25,000.

DOD Electronic Mall The DRI supported expanded use of electronic tools such
as Internet- based catalogs and shopping malls to enable DOD customers to
shop for the best

buy from the convenience of their desktop computers. In addition, to make
the buying process as paperless as possible, the DRI required that, by
January 1, 2000, all such purchases would be made with the government
purchase card. Shortly after the DRI report was issued, however, the
Congress directed that the Department construct a central gateway to the
individual catalogs that Defense organizations had established. This gateway
was to provide a single view, access, and ordering capability. DOD's
strategy has been to integrate the various catalogs into its Department-
wide mall, which features items from internal stocks as well as from a
number of commercial catalogs.

The Department has not made as much progress as it expected on this
initiative. While the mall can accept purchase cards for on- line payment,
customers often do not use them because they dislike the cards' monthly
reconciliation process. Department statistics show that only 53 percent of
the mall's transactions were made using the purchase card during February
2000. In addition, it has not yet been able to integrate all of the various
electronic catalogs into the mall. Several service- established catalogs
still remain separate. Finally, mall sales continue to be low. For fiscal
year 1999, sales totaled only $2 million. 4

4 The Department has at times listed electronic mall sales for fiscal year
1999 at $51 million. This figure is somewhat misleading, however, because it
includes sales of clothing and textiles through the Defense Logistics
Agency's Automated System for Cataloging and Ordering Textiles. Although
personnel can access this system through the mall, the vast majority of
purchases are made outside of it; the mall portion of this system's sales
are included in the mall's $2 million sales figure.

Officials offered a variety of reasons for the low sales volume. First, most
of the 2. 3 million items featured through the mall are Defense Logistics
Agency items; Defense organizations, however, generally have other
mechanisms for ordering these items, so personnel generally do not need to
go to the mall for them. Although the Department is working to increase the
number of commercial offerings to alleviate this problem, progress has been
slow. Second, some military service policies have effectively discouraged
mall use. For example, one organization said the mall could be used only for
purchasing commercial items, while another instructed personnel not to use
the purchase card over the Internet. Finally, some believe the mall simply
is not user friendly enough and turns off would- be users.

Prime Vendor The DRI highlighted the need to increase the use of prime
vendors 5 to manage parts, reduce government inventories, and improve
delivery times for all types of commodities managed by the Defense Logistics
Agency. Specifically, the DRI tasks the Defense Logistics Agency with
establishing regional prime vendor contracts for one category of hardware
items- facilities maintenance supplies- and the military services have been
directed to work with the Agency to identify sites for implementation and
opportunities for expansion. Examples of these types of supplies include
electrical, plumbing, heating and air conditioning supplies, lumber, paint,
small tools, assorted hardware, and building materials.

The Department is making progress in implementing various prime vendor
programs, but has a long way to go. The Defense Logistics Agency reports
that prime vendor sales for all categories of secondary items 6 have
increased from about 18 percent to an estimated 27 percent between fiscal
years 1997 and 1999. In terms of facilities maintenance supplies, the
Defense Logistics Agency met the DRI goal of establishing regional
contracts. As of October 1999, DOD reports that 110 of 278 potential
customers were participating in this prime vendor program, and fiscal year
1999 sales reached over $59.2 million. While the military services exceeded
the prime vendor sales goal for 1999, substantial opportunities

5 Prime vendors are contractors that buy inventory from a variety of
suppliers, store it in commercial warehouses, and ship it to customers when
ordered. 6 Secondary inventory includes reparable components, subsystems,
and assemblies; consumable repair parts; bulk items and material; food; and
expendable end items, including clothing and other personal gear.

exist to expand the program. According to Defense Logistics Agency
estimates, fiscal year 1999 prime vendor sales represent less than 10
percent of the $670 million the military services spend for facility
maintenance supplies.

We recently reported that in its efforts to adopt best practices, including
prime vendor programs, the Agency and the military departments have faced a
variety of implementation issues. 7 Many issues are related to concerns over
whether the new practices can adequately meet military supply needs and how
the new practices will affect employees' jobs. Though these obstacles were
overcome in some cases, they are significant because they can slow or stop
implementation efforts, or they can deter the military department's full
participation in the initiatives.

We have ongoing work focused on the facilities maintenance supplies prime
vendor program, and we expect to issue a report later this year that will
discuss DOD's efforts to implement this program as well as opportunities to
improve the effectiveness of program implementation.

Travel System The DRI highlighted DOD's efforts to institute a new travel
system and set a

Reengineering goal to privatize travel office functions in the Washington,
D. C., office by

October 1, 1998, and to implement a reengineered travel process throughout
DOD by October 2000. The Department began reengineering its travel
management system for temporary duty travel in 1994 after recognizing that
the process used to request, approve, and pay for official travel by its
personnel required substantially more administrative costs and took much
more time than best management practices in the private sector. Once
implemented, the Department expects that the new paperless system will allow
travel requests and vouchers to be submitted and approved electronically
through digital signatures. The Department also expects that the new system
will be able to interface with departmental accounting and disbursing
systems. The Department estimates the new system will save $4. 4 billion
between fiscal years 1999 and 2011 largely by reducing the time and amount
of paperwork needed to process transactions.

Although the Department privatized its Washington, D. C., office travel
functions, it is having significant problems implementing the newly

7 Defense Inventory: Opportunities Exist to Expand the Use of Defense
Logistics Agency Best Practices( GAO/ NSIAD- 00- 30, Jan. 26, 2000).

redesigned travel system and is still pretesting the program. DOD awarded a
contract for automated travel services in 1 of 19 regions of the United
States in May 1998. The Department plans to implement the new system in this
region first and then fully implement the new system in all remaining
regions over the course of 3 years.

Due to problems encountered during the testing phase, the Department has not
yet been able to fully implement the new system in the first region. For
example, the travel system will pay a traveler without first having funds
obligated to cover the cost of the travel. Another problem is that, in some
instances, the system does not correctly process a travel order amendment
and, as a result, the system will not pay the traveler. It is unknown at
this time how long it will take for contractors to resolve these problems.
However, it is unlikely that full implementation will occur before 2003.

Performance Contracts The DRI Report called for the establishment of
performance contracts for selected Defense agencies and activities that
provide numerous products

and services (finance and accounting, telecommunications, computers,
supplies and parts, etc.) to the military services and other Defense
agencies. The contracts are a formal agreement between the principal staff
assistant in the Office of the Secretary of Defense, the Deputy Secretary,
and the Defense agency or activity, and they are intended to improve DOD's
oversight of these agencies. Contracts are to include improvement goals for
organizations 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.

Four organizations began using performance contracts in fiscal year 1999 and
four additional organizations began using the contracts in fiscal year 2000.
The Defense agencies and activities that have contracts include the

Defense Finance and Accounting Service* Defense Logistics Agency* Defense
Contract Audit Agency* Defense Health Program* Defense Education Agency
Defense Information Systems Agency Defense Security Cooperation Agency
Defense Security Service

Defense officials generally stated their belief that performance contracts
are useful. After 2 years of experience, officials from the four Defense
organizations who were first to implement the contracts (identified with an
asterisk) said the contracts are the first formal agreements between the
agencies and the Office of the Secretary of Defense that measure performance
against defined objectives and cost targets. While officials within the
Office of the Secretary of Defense and Defense agencies are also encouraged
by the increased emphasis on performance brought about by the contracts,
some agency officials told us that many of the contract goals cannot be
achieved without a concerted effort by the military services to help the
organization reach the goals. For example, to reduce the number of in-
transit disbursements 8 and problem disbursements, 9 the Defense Finance and
Accounting Service is relying on the Defense components to provide accurate
and complete commitments, obligations, payment demands, travel settlements,
and accounting adjustments electronically and in a mutually agreed upon
standard format.

Working Capital Funds This initiative was added to the DRI as part of the
March 1999 update and is intended to address problems associated with
working capital fund 10 operations. Working capital funds provide essential
goods and services needed for maintaining military readiness, including the
(1) overhaul of ships, tanks, and aircraft and (2) sale of over 5 million
types of vital inventory items such as landing gears for aircraft. 11 The
primary goal of this program is to focus the attention of all levels of
management on the total costs of carrying out certain critical DOD business
operations to encourage support organizations, such as maintenance
facilities, to provide quality

8 An in- transit disbursement occurs when a payment is made by a Defense
Accounting Office or operating location or other disbursing office that does
not have control of, or the ability to input payment data into, the
accounting system that holds the original obligation information.

9 Problem disbursements are specific disbursements that have not been
matched with corresponding obligations. 10 Working capital funds, a type of
revolving fund, rely on sales revenue, rather than direct appropriations, to
fund their operations. Working capital funds are expected to (1) generate
sufficient revenue to cover the full costs of their operations and (2)
operate on a break- even basis over time- that is, not make a profit nor
incur a loss.

11 In December 1996, DOD established four working capital funds by
reorganizing activities included in the Defense Business Operations Fund,
which had already consolidated nine industrial and stock funds operated by
the military services and other DOD entities in 1991.

goods and services at the lowest cost. While the Department seeks to furnish
customers and providers with incentives that will lead to the required level
of readiness at the least cost to the military, it acknowledges that the
current system is out of balance. For example, customers often perceive the
price charged by a Defense Working Capital Fund provider as too high, due in
part to the inclusion of the total costs, including overhead costs, in its
prices. We previously found that some activities seek to have maintenance
work performed at non- depot maintenance facilities to avoid perceived
higher costs and surcharges associated with depot activities operating
through the working capital fund. 12 Thus, while these customers are making
the most cost- effective decision for themselves, these decisions may not be
the most cost- effective from DOD's overall standpoint.

To address the problems with the Working Capital Fund operations, a task
force drafted a series of 11 papers detailing various problems and making
recommendations for improvement. The Deputy Secretary of Defense
subsequently reviewed and approved the recommendations in early 2000.
Examples of approved changes include

making quarterly adjustments to the rates charged by the information
services business activity if the activity experiences significant
unbudgeted losses that would result in year end net operating results
varying from the budget by more than $10 million; creating a more flexible
workforce to respond to workload fluctuations

and ultimately to decrease labor costs; and improving training to managers
on operational effectiveness to ensure

they understand the costs associated with providing products and services.

Implementing the changes may be difficult. The Department will have to
educate its managers on the new way of doing business and address concerns
of the Office of Personnel Management and several employee organizations
regarding employee benefits and protection.

Financial Management Financial management reform was added to the DRI in
March 1999. In adding financial management to the DRI, the Department set
out its intention that comprehensive financial management reforms are
intended

12 Depot Maintenance: Army Report Provides Incomplete Assessment of Depot-
type Capabilities( GAO/ NSIAD- 00- 20, Oct. 15, 1999).

to streamline and redesign financial processes for optimum effectiveness-
reduce costs and improve service quality. Specifically, the DRI goals are to
reduce the number of finance and accounting systems used from 324 in 1991 to
32 or fewer by 2005 and produce auditable financial statements.

To date, no major part of the Department has been able to pass the test of
an independent financial audit. Auditors have consistently issued
disclaimers of opinion because of pervasive weaknesses in the Department's
financial management systems, operations, and controls. Such problems led us
in 1995 to put Defense financial management on our list of high- risk areas
vulnerable to waste, fraud, abuse, and mismanagement, a designation that
continued in last year's update. 13 While DOD has made genuine progress in
the financial management arena in areas such as increased accountability
over property, plant, and equipment and recognition of cleanup and disposal
costs, as discussed in our recent testimony, 14 major problems remain-
problems that are pervasive, deeply rooted, and complex in nature. The
Department's most difficult financial management challenges include an
inability to account for billions of dollars of inventory and property,
plant, and equipment, and accurately report the net cost of its operations
and produce accurate budget data.

The Department has acknowledged that it is impossible to reverse decades-
old problems overnight, and some reforms will require several more years to
implement. For example, DOD reported as of March 2000, that it had reduced
the number of finance and accounting systems it uses to 96 and expects to
reduce that number to 32 or fewer by 2005. The Department has hundreds of
initiatives underway intended to address its financial management
shortcomings. Many of these initiatives are included in DOD's second
Financial Management Improvement Plan that was issued in 1999, and are
designed to help achieve a “clean” financial audit opinion. 15
While such opinions represent an important milestone, the final goal of the

13 High- Risk Series: An Overview( GAO/ HR- 95- 1, Feb. 1995); High- Risk
Series: Defense Financial Management( GAO/ HR- 97- 3, Feb. 1997); and Major
Management Challenges and Program Risks: A Governmentwide Perspective( GAO/
OCG- 99- 1, Jan. 1999). 14 Department of Defense: Progress in Financial
Management Reform (GAO/ T- AIMD/ NSIAD- 00- 163, May 9, 2000). 15 DOD was
directed to submit this plan by the National Defense Authorization Act for
Fiscal Year 1998. The plan is to address all aspects of financial management
within DOD, including the finance systems, accounting systems, and data
feeder systems that support financial operations.

Department's financial management improvement efforts must be correcting
serious systems and control weaknesses that impair both asset accountability
and the production of timely and reliable financial and performance
information DOD needs to manage its operations on a day- to- day basis.
Lessons learned from DOD's Year 2000 experience, including a business
process focus and top leadership involvement, and adopting a strategic
approach to improving the Department's financial management human capital
will be invaluable to achieving this final goal.

Transportation The DRI also calls for changing the Department's
transportation

Documentation and documentation and financial (i. e., billing, collection,
and payment)

Financial Processes processes to reduce infrastructure costs, eliminate
government- unique

documentation and processes, and employ commercial practices. In March 1998,
the Deputy Secretary of Defense approved four prototype tests in different
modes of transportation- airlift, sealift, surface, and express deliveries-
to test the use of commercial documentation and credit cards to pay
transportation bills. As a result of the prototype tests, in February 1999,
the Deputy Secretary directed DOD to (1) eliminate government- unique
documentation, (2) use PowerTrack software- a commercial product- to track
transportation transactions and pay transportation bills, and (3) develop a
1- year regional prototype to test the use of a third- party logistics
provider for domestic freight transportation and its associated financial
management functions. These initiatives were then included as part of the
March 1999 update of the DRI.

The Department is making progress in implementing these initiatives. We
recently reported that the military services and Defense agencies have begun
to use commercial documentation instead of government- unique documents,
which officials estimate will result in the elimination of 1.6 million
government- unique documents. 16 In addition, as of April 2000, PowerTrack
has been implemented at 153 of 204 sites and officials expect to have it
fully implemented by December 2000. Finally, the Department plans to award a
contract sometime after July 2000 to test the use of a thirdparty logistics
provider for domestic freight transportation and associated financial
management functions. Total investment costs for implementing these
initiatives are estimated at $41. 4 million for fiscal years 1997 through
2000. DOD officials believe eliminating government unique documentation

16 Defense Transportation: Process Reengineering Could Be Enhanced by
Performance Measures( GAO/ NSIAD- 00- 7, Dec. 20, 1999).

and using PowerTrack software will save about $11. 2 million annually, once
fully implemented.

Before these savings can be realized, we reported that the Department must
overcome several implementation problems related to the PowerTrack
initiative. For example, DOD must modify its electronic payment system to
accommodate the existing unique interagency billing process, which is
plagued with data accuracy and reliability problems. In addition, some bases
and installations are unable to access PowerTrack through the Internet
because they do not have the technical infrastructure or equipment necessary
to access the Internet. In addition, the Department does not have sufficient
system security to protect it against hackers.

Element 2: Quality of DOD added this element to the DRI in March 1999 to
highlight the

Life Department's goal of increasing the level of job support and assistance
it

provides to both military and civilian employees. As table 3 shows, DOD has
made significant progress in implementing its quality of life initiatives.
All the initiatives were added to the DRI when it was updated in March 1999
with the exception of household goods transportation, which was included in
the adopting best business practices element of the original DRI.

Table 3: Quality of Life Initiatives Initiative Goal/ milestone Status
Issues

Household goods transportation Reengineer processes for The services plan to
pilot test

The Department is still moving Defense personnel and

improved approaches to moving determining how it will measure

their families. household goods, but they are

performance in terms of both experiencing difficulties getting

customer satisfaction and cost. the projects started. As a result, DOD does
not expect to have a new process in place until the summer of 2002.

Military pay and retirement Improve pay and benefits by

Congress approved several pay Legislation is pending that would

benefits (1) increasing pay 4. 4 percent changes, including a 4. 8 percent

authorize implementation of beginning January 1, 2000, and

pay increase for calendar year service members' participation

3. 9 percent annually in fiscal 2000 and additional pay

in the Thrift Savings Plan. years 2001- 2005 and

increases through calendar year (2) reforming the retirement

2005. Changes were also made package for members.

in retirement benefits for members that entered service after July 31, 1986.

Project Outlook Career Provide counseling and job

The Center provided assistance None.

Assistance Center assistance to personnel affected to almost 670 DOD
personnel

by downsizing efforts in the and dependents. The Center

Office of the Secretary of was closed in January 2000,

Defense. following the completion of Office

of the Secretary of Defense downsizing efforts.

Strengthen civilian workforce Establish a Chancellor for Progress is being
made, but

Performance measures and Education and Professional

some delays have occurred. A standards for a wide range of

Development to raise the quality Chancellor for Education has

academic programs are being of civilian training and

been appointed, an office is developed.

professional development to staffed and running, and a task

world- class standards by force was formed to develop

January 1, 2000. DOD education standards.

Source: Our analysis based on information in the DRI reports, Department
officials, and program documents.

Household Goods The movement of servicemembers' household goods is viewed as
an

Transportation important quality of life issue. According to the March 1999
DRI Report, the

Department moves approximately 650, 000 military and civilian families every
year- more than any U. S. corporation- at a cost of nearly $1. 2 billion.
Yet, its system provides personnel some of the worst service in the nation,
with damage claims resulting from 25 percent of all moves, compared to 10
percent in the private sector. While no implementation time frames were
established, the DRI Report highlighted several initiatives to reengineer
the personal property shipping process, including

selecting vendors based on “best value” rather than lowest cost;
contracting for the management of the entire household goods shipment

process to a commercial relocation company; increasing the monetary
allowance for personnel who move their own

belongings from 80 to 90 percent of what the government would have paid; and
using purchase cards to ensure prompt and easy payment.

DOD has one Department- wide pilot program underway and another planned that
incorporate some, but not all, of the initiatives listed above. The Navy is
also pilot testing a new approach on its own. DOD plans to complete its
evaluation of all pilots by April 30, 2002, and could pick one pilot or
elements of each pilot and the current process to revise the household goods
transportation program. Officials expect a new process to be in place by
summer 2002- 2 years later than officials originally expected.

Last year we testified before the Subcommittee on Military Readiness,
Committee on Armed Services, House of Representatives, that improving DOD's
personal property program has been a slow, complex process and that before
any type of conclusion about these efforts can be reached, DOD must have
accurate and credible data to determine the type and extent of changes that
should be made. 17 To its credit, DOD is developing an evaluation plan with
the assistance of a private company to measure the performance of the pilots
in relation to each other and against the current program. However, there
have been some delays in developing an evaluation plan. Officials are still
trying to resolve issues related to the questions to be included in customer
satisfaction surveys and how best to capture cost information. In addition,
potential bid protests involving the second pilot mentioned above could
further delay the start of the testing period.

We are continuing to monitor the Department's efforts in this area and plan
to issue a report later this year related to DOD's evaluation plan and on-
going pilot test results.

17 Defense Transportation: Efforts to Improve DOD's Personal Property
Program (GAO/ T- NSIAD- 99- 106, Mar. 18, 1999).

Military Pay and Retirement The DRI report calls for improving pay and
retirement benefits to

Benefits adequately compensate its military personnel. DOD also hopes this

initiative will help it meet recruitment goals and compete with the effects
of a strong civilian economy. In 1999, top DOD and service officials
testified that dissatisfaction with pay and retirement played a significant
role in the decision of many servicemembers to leave the military. In order
to address retirement and compensation concerns, the DRI called for (1) pay
increases of 4. 4 percent for all military personnel beginning January 1,
2000, and of 3. 9 percent annually in fiscal years 2001-2005 and (2) changes
in the retirement package offered to personnel joining the service after
1986.

The Congress approved pay raises even higher than DOD's request. The January
1, 2000, pay raise was set at 4. 8 percent, representing a four- tenths
percentage point increase over what was requested in the Fiscal Year 2000
President's Budget. The Congress also approved pay raises of one- half
percentage point above the employment cost index for fiscal years 2001-2006.
Pay changes for this past year also included a variable pay raise resulting
from a restructuring of the military pay table, which the Department
believes will provide a greater reward for personnel getting promoted rather
than years of service. In addition, the Fiscal Year 2000 National Defense
Authorization Act now gives members that entered the service after July 31,
1986, and retire with less than 30 years of creditable service, the option
to either retire under the pre- 1986 military retirement plan, or to accept
a one- time $30, 000 lump sum bonus and remain under the current retirement
plan at its reduced rate of retired pay. As a result, the Department
believes these enhancements will give servicemembers a retirement plan that
is just as attractive as the plan given to servicemembers who entered
service in the early 1980s.

The Fiscal Year 2000 National Defense Authorization Act also authorized
servicemembers to participate in the Federal Thrift Savings Plan to build
tax- deferred retirement savings. Under that legislation, DOD participation
is contingent upon the President proposing, and the Congress enacting,
additional legislation that would offset (under the budget rules) the loss
of tax revenue resulting from members' participation in the plan. Although
no such offsetting legislation has been proposed, both the House and Senate
versions of the fiscal year 2001 defense authorization bill being considered
by the Congress would authorize the implementation of the military's
participation in the Thrift Savings Plan. The proposed legislation would
eliminate the requirement for the President to identify mandatory spending
offsets that are currently provided in the fiscal year 2001 budget
resolution.

Project Outlook Career Another DRI initiative called for the establishment
of the Project Outlook

Assistance Center Career Assistance Center, which would provide transition
assistance to

DOD personnel in the Office of the Secretary of Defense and their dependents
affected by downsizing, A- 76 competitions, and other DRI changes. The
Department's intention was to bring in the human resources community early
to reduce employee fears that they would be involuntarily separated from
their jobs.

Since 1998, the Career Assistance Center has helped 666 DOD personnel and
their dependents with counseling and employment assistance. Specifically, it
helped 93 persons find employment within DOD, other government agencies, or
the private sector. Besides giving employment support, the Center helped to
educate and counsel affected personnel by offering seminars and workshops on
topics such as preparing electronic resumes, improving communication skills,
and determining career options and strategies. Individual counseling was
also offered to assist personnel in assessing their skills, networking,
preparing resumes and cover letters, interviewing, and negotiating
techniques.

The Center was closed in January 2000, following the completion of the
Office of the Secretary of Defense downsizing efforts. A Center official
said advanced planning and early placement services were most likely the
primary reasons why DOD was able to achieve the DRI reductions without
having to involuntarily separate people.

Strengthening Civilian In 1997 the DRI established a goal of providing a
world- class education

Workforce system for all DOD civilians by January 1, 2000. The DRI report
cited the

education of DOD civilians as an area that needs improvement and that DOD
has been rendering second- rate education, training, and professional
development to its civilian employees. To achieve its goal, the DRI calls
for (1) the appointment of a Chancellor for Education and Professional
Development, (2) every DOD educational institution to be accredited, and (3)
all courses to be certified by a recognized accreditation authority.

Although some progress has been made within the last year, it may be a year
or more past the original 2000 deadline before this initiative is fully
implemented. On October 2, 1998, DOD's first Chancellor for Education and
Professional Development was sworn in to head this effort. The Chancellor's
mandate is to improve the quality of DOD's professional education, eliminate
duplicative or unnecessary programs and curriculum development efforts, and
ensure that DOD education and training responds

to valid needs, competency requirements, and career development patterns.

The Chancellor's Office is now focused on the two remaining DRI initiatives
related to accreditation. To assist in these efforts, DOD established a
special task force led by the Chancellor to develop accreditation- like
standards that can be applied to and adopted by the diverse range of DOD
civilian education institutions and programs. For example, DOD provides
classes for all types of positions, including administrative staff, computer
programmers, and engineers. The Department expects the development of
prototype standards to be completed by the end of fiscal year 2000 and DOD-
wide implementation of approved standards to be completed by the end of
fiscal year 2001.

Element 3: Under this element, the DRI called for a series of reductions,

Organizational reorganizations, and other organizational adjustments within
the Office of

the Secretary of Defense, Defense agencies and activities, and the military
Streamlining

services. The goal is to have a flatter, more streamlined headquarters
throughout DOD to (1) ensure that the headquarters focuses on core,
corporate- level tasks rather than program management and day- to- day
management of subordinate activities; (2) strengthen headquarters' focus on
long- term strategic, program, and financial planning; and (3) weed out
unnecessary overlap, complexity, and redundancy in tasks. To accomplish
these ends, DOD initiated over 50 separate efforts. These efforts include

consolidating existing offices, moving responsibilities from the Office of
the Secretary of Defense to

other DOD components, reducing the total number of committees and boards
that exist in DOD

by 25 percent, and reducing personnel throughout the Department.

Although the DRI stated that these changes could result in savings, the
expected savings were not quantified and were secondary to the primary goal
of fashioning a more responsive, less bureaucratic organization.

The Department reports that significant progress is being made in meeting
the various organizational streamlining goals. For example, it has completed
action on over two- thirds of the reorganizations and consolidations. It has
also reduced the number of boards and commissions by 40 percent- from 550 to
338. Finally, personnel reductions are starting

to occur. Table 4 shows the progress DOD reports it has made as of January
1, 2000. While the Office of the Secretary of Defense and field activities
reductions were to be completed by fiscal year 2000, the remaining
reductions are not expected to be complete until 2003.

Table 4: DOD Reported Staff Reductions Reduction goals

Total personnel to Actual personnel

Reductions achieved Organization (percent) be reduced reduced (as of 1/ 00)
as of 1/ 00 (percent)

Office of the Secretary of 33 986 989 100 Defense DOD field activities 36
3,221 2, 817 87

Defense agencies 21 27,095 19, 249 71 All other headquarter

10 3, 490 2, 871 81 elements, including the headquarters of the military
departments and their major commands a

Total 34,792 25, 926 75

a Information provided by the Navy and Marine Corps represent Headquarters
personnel reduced as of January 1999. Therefore, military headquarters
personnel reductions are likely to be higher than stated in the chart.

Source: Under Secretary of Defense (Comptroller) and Director,
Administration and Management.

As shown, the Office of the Secretary of Defense, field activities, Defense
agencies, and military headquarters organizations have reduced almost 26,
000 positions, and these organizations appear to be on track for meeting
their DRI goals. Currently, the Office of the Secretary of Defense is the
only organization that has achieved its DRI goal.

Downsizing efforts take time and can be difficult to achieve. For example,
reductions at the Office of the Secretary of Defense level are a combination
of one- third transfers to other DOD organizations and two- thirds
elimination of job positions. According to DOD officials, these reductions
were difficult to implement, and DOD probably would not have met its
downsizing goal without the direct involvement of the Deputy Secretary of
Defense. For 2 years, the Deputy Secretary was provided quarterly reports on
downsizing efforts. While organizations provided compelling arguments not to
complete some of the specific organizational downsizing goals (i. e.,
changes in organizational responsibilities require more, not fewer staff,
and the same workload would be spread to fewer staff), the Deputy Secretary
continued to push for the reductions.

Element 4: Competitive Under this DRI element, DOD plans to subject
commercial- type activities

Sourcing now conducted by the government to the competitive forces of the

marketplace. DOD believes this will sharpen performance and lead to better
value. It also believes competition, regardless of whether the public or
private sector wins, can achieve significant savings. DOD is making progress
in meeting its goals for both initiatives under this element- A- 76
competitions and outsourcing depot maintenance workloads- but it will have
to address a variety of problems to fully implement them.

The A- 76 Program DOD is using Office of Management and Budget Circular A-
76 to conduct competitions between the public and private sector. These
competitions,

known as competitive sourcing, determine whether the public or private
sector could best perform selected commercial activities and functions. DOD
is in its fourth year of a program to evaluate activities that involve
approximately 203,000 positions for potential competitive sourcing, which is
expected to result in estimated savings of $9.2 billion by 2005, and $2. 8
billion in annual recurring savings thereafter.

Between fiscal years 1997 and 1999, DOD announced 97,211 positions for study
(about 48 percent of its current A- 76 study goal), completing full
competitions on about 8,500 of these positions. The services have made
varying degrees of progress in initiating planned studies but are finding
they are taking longer than expected to complete. We previously reported on
delays in completing these studies as well as how the Department's savings
will likely be smaller than expected in the short term because it had not
fully calculated either the investment costs associated with undertaking
these competitions or the personnel separation costs likely to be associated
with implementing them.

The services have expressed concern about the reductions in their future
operating budgets that have already been planned in anticipation of A- 76
savings. For example, the Navy was having difficulty identifying positions
for A- 76 competitions. In response, the Navy proposed a broader, systems
engineering approach to be used in concert with competitive sourcing. This
strategy, referred to as strategic sourcing, relies on a broad range of
manpower management techniques- such as reengineering, reorganization, and
privatization- to achieve savings rather than relying solely on A- 76
competitions. According to DOD officials, strategic sourcing provides DOD
with an opportunity to achieve efficiencies in areas that may not be subject
the A- 76 competitive processes.

While the Navy is the furthest along in its strategic sourcing plan (it
plans to review functions that would involve almost 42, 000 positions), 18
the Air Force and the Army say they too are considering strategic sourcing
initiatives. The services insist they are not abandoning their A- 76 goals;
rather, they are adjusting those goals to include this form of sourcing. The
Office of the Secretary of Defense has issued interim guidance on the
strategic sourcing program, which emphasizes that commercial activities
included in strategic sourcing remain available for competition in the
future.

We have several ongoing jobs in this area and plan to issue reports on the
status of DOD's A- 76 program studies and savings later this year.

Depot Maintenance Another DRI goal is to pursue public- private competitions
for depot

Workload maintenance work to the full extent of the law to lower maintenance
costs

and improve services. Currently, several statutes in title 10 of the U. S.
Code govern depot maintenance competitions and allocations of workload
between the public and private sectors. One key provision is in section
2466, which places a 50- percent ceiling on the amount of depot maintenance
funds that can be used for contracted work.

We recently reported 19 that each department is moving closer to the 50-
percent ceiling, continuing the trend of recent years and consistent with
DOD policies and plans to increase reliance on the private sector for depot
work. The Air Force held three major competitions for workload performed at
two Air Force depots slated for closure as a result of base realignment and
closure decisions. A DOD depot won the first competition (for C- 5 aircraft
workload), with projected savings of $190 million over 7 years. Defense
depots, each in partnership with a contractor, won the other two
competitions. The Air Force projects savings of $1. 8 billion over 15 years
from the competition for engine workloads and $638 million over 9 years for
the other competed workloads. In total, the three competitions

18 Strategic sourcing studies involving these 42, 000 positions are expected
to produce additional savings of $2.4 billion by 2005 and $. 7 billion in
annual recurring savings thereafter. Collectively, A- 76 and Navy strategic
sourcing are expected to yield about $11. 7 billion in savings by 2005 and
$3.5 billion annually thereafter.

19 Depot Maintenance: Future Year Estimates of Public and Private Workloads
Are Likely to Change( GAO/ NSIAD- 00- 69, Mar. 1, 2000).

are expected to save about 16 percent compared to the estimated baseline
costs.

The Air Force, however, is having difficulties in managing the workload
within the 50- percent limitation. Our March 2000 testimony 20 discussed the
reasons behind the Air Force's difficulties and the Secretary's decision to
waive the section 2466 requirement for fiscal year 2000 and, potentially,
for 2001. We cited Air Force decisions to contract for more depot work and
the results of the three public- private competitions as the primary reasons
why the Air Force has little flexibility in the near term to stay within the
ceiling and will continue to face significant challenges in the coming
years. Air Force officials, however, have indicated plans to identify
workloads that might be brought back in- house to permit them to stay within
the 50 percent limitation.

Element 5: Infrastructure The DRI Report supports shrinking the size of
DOD's physical infrastructure by eliminating excess infrastructure,
consolidating or

restructuring operations and support activities, and demolishing unneeded
buildings. Collectively about the size of the state of Virginia (40,000
square miles), DOD has the world's largest infrastructure. The Secretary of
Defense and other officials have expressed concern that the Department
continues to retain more infrastructure than needed despite four base
closure rounds between 1988 and 1995. At the same time, DOD continues to
report a significant backlog in funding requirements for maintenance and
repair of its facilities. Maintenance of unneeded facilities drains
resources that might otherwise be used on facilities and installations
needed for the future or to support modernization and readiness priorities.
Table 5 shows the progress DOD has made on its six infrastructure
initiatives. With the exception of building demolitions and Defense
Information Systems Agency consolidations, the other reform initiatives have
proven to be very difficult to implement.

20 Depot Maintenance: Air Force Faces Challenges in Managing to 50- 50
Ceiling (GAO/ NSIAD- 00- 112, Mar. 3, 2000).

Table 5: Infrastructure Reduction Initiatives Initiative Goal/ milestone
Status Issues

Base realignment and closure Hold additional rounds in 2001 The Congress did
not approve

Congressional approval is and 2005. the request for more rounds. needed for
future base closure

rounds. Defense Information Systems

Reduce the number of centers As of February 2000, the

The agency is having problems Agency consolidations a from 16 to 6. number
of centers has been

hiring qualified staff at the reduced to seven. Officials

centers gaining new workload. expect to meet the goal by the end of fiscal
year 2000.

Demolition and disposal of Demolish over 80 million square

30. 6 million square feet were None. excess facilities feet of buildings by
fiscal year

demolished through fiscal year 2003.

1999. Energy management Reduce energy consumption

New ways to reduce energy This effort is complex,

and privatize all utility systems costs have been tested, but

time- consuming, and expensive. by September 30, 2003.

significant problems are being It requires analyzing state and

encountered in privatizing utility local laws governing utilities and

systems and the Department is evaluating offers received from

unlikely to meet its goals. As of interested utility companies.

December 31, 1999, DOD has privatized only 13 of the approximately 1, 700
systems it is considering for privatization.

Military housing privatization Privatize: 1, 000 units in fiscal The goals
have not been met. As

In general, structuring year 1998; 13,000 units in fiscal

of January 1, 2000, DOD had privatization deals is complex

year 1999; and 30, 000 by fiscal issued contracts to privatize

and time consuming. The year 2000.

3, 083 units in two housing Congress and we have also

projects. expressed concern over

privatization deals. Leasing Market unused and underutilized

DOD proposed new legislation in Congressional approval is property to the
private sector

January 2000. needed. and seek legislation to expand the types of in- kind
consideration, such as the construction of new facilities, the Department
can receive.

a The Defense Information Systems Agency consolidation initiative was in the
original DRI Report but was not mentioned in the March 1999 update.
According to a Defense Reform Office official, this initiative is still
considered to be part of the DRI.

Note: The original DRI Report included an initiative to consolidate research
and development, test and evaluation facilities. This initiative is now
included in the 21st century acquisition system and workforce element.

Source: Our analysis based on information in the DRI reports, Department
officials, and program documents.

Base Realignment and The DRI Report called for additional base realignment
and closure rounds

Closure in 2001 and 2005. More recently, the President's fiscal year 2001
budget

request calls for rounds in 2003 and 2005. Despite four rounds between 1988
and 1995, Defense officials believe excess facilities remain and are a
burden on the budget in a resource- constrained environment. Both the
Quadrennial Defense Review and DRI reports support this view. Defense
officials now project that two additional rounds would generate new 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. The
Department's future years budget plans reflect the impact of these savings.
Because of concerns about issues such as cost and savings from prior 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 rounds.

Our work has shown that, despite limitations in precision, past base
realignment and closure recommendations will result in substantial savings
once implementation costs have been offset and net savings begin to accrue.
21 Further, our December 1998 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 base realignment and closure decision-
making, the processes that evolved over the past four rounds are regarded by
many as a good starting point for future legislation and decision- making
processes. We noted that the processes used between 1988 and 1995 had
several checks and balances to keep political influences to a minimum. At
the same time, we also noted that the success of the processes requires the
cooperation of all participants.

Defense Information System The original DRI called for reducing the number
of computer megacenters

Agency Consolidations from 16 to 6. Operated by the Defense Information
Systems Agency, these

megacenters were established by consolidating the workload and equipment of
194 computer centers. Today, the Agency provides various computer and
telecommunications services and command and control support throughout the
Department. Despite the earlier consolidations, the Department believes its
information- processing infrastructure needs

21 See Military Bases( GAO/ NSIAD- 99- 17, Nov. 13, 1998) and Military Bases
(GAO/ NSIAD- 99- 36, Dec. 11, 1998).

further reduction. Agency officials project that, once completed, the new
structure will result in operating and personnel cost reductions that will
help the Agency achieve $1. 5 billion in savings over a 10- year period
ending in fiscal year 2007. The DRI did not establish any deadlines for
completing the consolidations, but the emphasis on this initiative is
reflected in a performance contract that was developed in direct response to
the DRI. The consolidation goals that have been incorporated into the
contract reflect the Defense Information Systems Agency's plans to have the
revised structure in place by the end of fiscal year 2000.

Consolidation efforts are nearly complete. As of February 2000, the Defense
Information Systems Agency had reduced the number of megacenters to seven-
an achievement considered noteworthy by Agency officials considering DOD and
the entire information technology industry were focused on preparations for
the Y2K millennium change. Officials expect the final mainframe workload
migration to be completed by the end of this fiscal year, once Y2K testing
has been completed. Further, the staffing reductions that were to accompany
the megacenter reductions were ahead of schedule. Agency plans call for
total reductions of 893 personnel between fiscal year 1997 and the end of
fiscal year 2000. As of March 2000, 1,104 civilian positions had been
eliminated, over 200 more than planned. As a result of its efforts, the
Agency estimates that it has realized savings of $71 million for fiscal
years 1998 and 1999 and will realize another $120 million of savings in
fiscal year 2000.

According to Agency officials, the continuing nationwide shortage of skilled
information technology professionals has made it difficult to hire qualified
civilian personnel at megacenter sites gaining new workload. This hiring
shortfall has been covered on a temporary basis by using contractor support.

Demolition and Disposal of The DRI calls for the military services to
demolish and dispose of 80 million

Excess Facilities square feet of obsolete and excess facilities by fiscal
year 2003. This

initiative is intended to save operations and maintenance dollars and
improve safety through the removal of excess facilities. According to
program officials at Wright Patterson Air Force Base, the DRI has made the
funding of demolitions a priority. Prior to the DRI, these officials were
required to develop and maintain a list of buildings they wanted to
demolish, but funding intended for demolitions went to higher priorities,
such as critical repairs and maintenance of occupied buildings and

facilities. Now, a portion of these funds is dedicated for the sole purpose
of demolitions.

Through the end of fiscal year 1999, DOD had already reached about 40
percent of its building demolition goal by demolishing 30. 6 million square
feet of space. Officials estimate the Department has avoided spending $32
million in fiscal year 1999 due to fiscal year 1998 demolitions and will
avoid approximately $61 million in fiscal year 2000 and each year thereafter
due to demolitions in both fiscal years 1998 and 1999. These figures do not
represent savings per se. Rather they are costs DOD will avoid spending on
these buildings that can be used for other priorities.

Energy Management The energy management initiative is designed to help the
Department better manage its energy costs, primarily by privatizing utility
systems and

identifying new ways to procure energy. 22 As part of this initiative, the
Department plans to use private sector capital and expertise to maintain and
upgrade about 1, 700 electric, water, wastewater and gas systems supporting
DOD's installations by September 30, 2003. 23 The DRI also expanded the
Defense Logistics Agency's Defense Energy Support Center's responsibilities
to include finding ways to maximize energy savings through a series of
demonstration projects.

DOD has experienced mixed success with its energy management initiatives.
While the Defense Energy Support Center has been successful in its attempts
to conduct several demonstration projects that identified money saving
techniques for purchasing energy, the military services are unlikely to meet
the 2003 time frame for privatizing its utility systems. Since the DRI was
announced, the military services have privatized only 13 utility systems
since the DRI, of which the Army privatized 11 and the Navy 2.

22 In the March 1999 update to the DRI, DOD consolidated two initiatives
from the original DRI Report- utility system privatization and regional
energy demonstrations- and now refers to these as the energy management
initiative.

23 As of December 31, 1999, DOD estimated that it was using a total of 2,
742 electric, water, waste water, and gas utility systems. However, in
determining the number of systems it could consider for privatization, it
found 122 of these were privatized prior to the DRI and another 886 are not
owned by DOD.

According to DOD officials, privatization efforts are very complex, time
consuming, and costly. For example, privatization includes describing the
current condition of about 1, 700 utility systems, analyzing myriad state
and local laws governing utilities, and determining the best value offer
received from interested utility companies. In December 1998, DOD issued a
program budget decision directing the services to set aside $243.6 million
to complete privatizations between fiscal years 1999 and 2004. The program
budget decision estimated that utility system privatization might begin to
provide about $327 million in annual savings after privatizations are
completed in 2003. However, these early budget estimates of the costs and
savings are now viewed as unrealistic. In addition to paying for
privatization studies, military service officials are also concerned that
utility bills will increase without a corresponding increase in operations
and maintenance funds. 24 Compounding the complexity of this effort is the
fact that utility system privatization is occurring simultaneously with
other, closely- related energy management initiatives. Despite the
interrelationship of these initiatives, however, the services have not as
yet developed an overall energy management strategy, which would integrate
the efforts.

Military Housing According to the 2000 Annual Defense Report to the
President and the

Privatization Congress, two- thirds of the Department's 282, 000 existing
housing units are

in need of extensive repair. The Deputy Under Secretary of Defense for
Installation Support said the average age of on- base housing units is more
than 35 years, and these units are approaching the end of their useful life.
Efforts to privatize military family housing are aimed at using private
capital to upgrade housing faster than DOD could on its own. At the
Department's request, the Congress enacted legislation in fiscal year 1996
containing a series of authorities, termed the Military Housing
Privatization Initiative, that was to test over a 5- year period the use of
various incentives and arrangements to encourage private sector investment
in military housing. Housing privatization was subsequently made part of the
DRI, with a current goal to privatize 1, 000 units by fiscal year 1998;
13,000 units by fiscal year 1999; and 30,000 units by fiscal year 2000.

The Department has not met the DRI goals. As of January 1, 2000, it has
awarded only two contracts to build or renovate 3, 083 military family

24 We have a separate review underway examining the service's privatization
efforts that should be completed later this year.

housing units. 25 Two other Navy projects, involving 589 units, were
approved under a prior legislative authority. 26

Defense officials attributed the slow progress to the many legal, financial,
contractual, and budgetary issues involved. We recently reported, for
example, the services had to decide how to structure privatization deals and
how the various federal laws and regulations applied to the proposed deals.
27 Also, congressional concerns about the execution of the program resulted
in the Department curtailing its housing privatization plans. A July 1998
Conference Report on Appropriations for Military Construction cites that
privatization was not intended to become a substitute for the traditional
housing construction program. In 1999, the services scaled back their
privatization plans from 87,000 units at 49 installations to 22 projects to
build or renovate 30,994 units.

Until experience is gained in the actual operation of several projects, key
questions about the cost effectiveness of privatization will remain
unanswered. These questions include whether developers will operate and
maintain privatized housing in accordance with the contracts and whether the
military will need the housing over the long terms of most projects
(typically 50 years). For example, the Department's January 2000
announcement of a new $3 billion initiative to significantly increase
housing allowances over the next 5 years raises questions about housing
privatization and how DOD balances its housing options. The intent of the
new initiative is to eliminate the out- of- pocket expenses military members
normally pay to live off base. Higher housing allowances could mean that
more military members would be able to live off base, decreasing the need
for on- base housing, including privatized housing.

Leasing The DRI calls for the Department to propose legislation allowing the
military services to enter into lengthier leasing deals that would make
leasing of real property to the private sector more attractive, and clarify
the types of in- kind consideration the services could receive in exchange
for

25 Housing privatization has occurred at Lackland Air Force Base, Texas; and
Fort Carson, Colorado. 26 Section 2803 of the National Defense Authorization
Act for Fiscal Year 1995 (P. L. 103- 337).

27 Military Housing: Continued Concerns in Implementing the Privatization
Initiative (GAO/ NSIAD- 00- 71, Mar. 30, 2000).

the use of space at military bases. For the past 5 years, DOD has used
authority granted by the Congress to lease some of its non- excess, but not
fully utilized property. In return for permitting nonfederal entities to
temporarily put Defense property to productive use, the Department has
received in- kind services such as maintenance, repair, and environmental
restoration of facilities. However, Defense officials believe current
leasing laws limit the kind of compensation the Department can receive from
leasing and how it can spend the money. For example, the Department would
like in- kind consideration to be applied at any military installation for
things such as the construction of new facilities and base operating support
services.

DOD submitted its proposed new legislation to the Congress with its fiscal
year 2001 budget submission. However, there are many uncertainties that make
its successful implementation questionable. For example, a program official
is uncertain if the Congress will enact the proposed legislation giving the
Department more latitude in conveying land at military installations to
private developers for up to 35 years. In addition, DOD does not have a lot
of experience with this type of leasing and may have to hire consultants to
help structure these deals.

Although the Department is still awaiting congressional passage of its
leasing proposal, the Congress has approved separate legislation that would
enable the Navy and the Air Force to pursue enhanced leasing initiatives in
partnership with the private sector and local communities. The legislation
would allow the Navy to manage the development of a planned community
consisting of housing, operational facilities, and recreational
opportunities on Ford Island, a part of the Pearl Harbor Naval Complex on
the island of Oahu, Hawaii. The Air Force legislation provides a number of
specific leasing authorities that allow the Air Force to test and
demonstrate new ways to manage installations at Brooks Air Force Base,
Texas.

Element 6: A Vision for To build a military capable of meeting 21st century
missions, DOD has

the 21st Century acknowledged it must equip its forces with the latest
technologies and

tools. This, in turn, requires an acquisition system that provides the
highest Acquisition System and

quality goods in the most affordable and efficient fashion possible. Over
the Workforce

last several years, DOD has undertaken numerous initiatives to improve its
acquisition processes. This DRI element, which was added in March 1999,
highlights some of the many on- going efforts, including (1) streamlining
DOD's research, development, test, and evaluation infrastructure;

(2) improving the acquisition process through reducing total ownership costs
and barriers to accessing commercial technology and products; and (3)
training and managing its acquisition workforce better. As shown in table 6,
progress varies among the three initiatives.

Table 6: Acquisition System and Workforce Initiatives Initiative Goal/
milestone Status Issues

Streamlining research, No goals or deadlines given. DOD completed a plan to

No large- scale infrastructure development, test and evaluation

restructure its laboratories and reductions are likely to take

infrastructure test centers in accordance with

place outside of base- closure congressional direction.

rounds. Competitive sourcing is one of the tools DOD plans to use to reduce
infrastructure costs.

Improving the acquisition Maximize use of commercial

Progress is being made, but The Department believes

process items, replace DOD is years away from full

acquisition costs are still too government- unique processes

implementation. Business and high. Opportunities exist for

with commercial equivalents, manufacturing operations at over

DOD to adopt techniques used and reduce total costs of

325 facilities have been by private industry to reduce

acquiring, operating, converted to commercial

costs such as keeping maintaining, and disposing of

standards. Pilot programs have technology development

weapon systems. been started to test costreduction

separate from product techniques.

development. Enhancing the acquisition

(1) Deliver 25 percent of DOD is making progress, but is

We previously reported on workforce, education and

acquisition courses through still years away from meeting its

several problems with DOD's training

technologies, such as the goals. (1) About 10 percent of its

acquisition workforce training, Internet, by the end of fiscal year

acquisition courses (8 of 81 including that training either did

1999 and for all courses by courses) are now available on

not reach the right people when 2003; (2) provide 40 hours of

the Internet. (2) The DOD it was needed or did not reach

continuing education classes to components are developing

them at all. 80, 000 personnel in 1999 and all

programs for employees to acquisition professionals by the

obtain 40 hours of continuing year 2000; and (3) implement a

education, but do not have demonstration project to allow

systems in place to track greater managerial control over

progress towards achieving the personnel processes- such as

goal. (3) Finally, DOD started a the implementation of a new

5- year demonstration project in payment and reward system.

1999 to change certain personnel processes.

Source: Our analysis based on information in the DRI reports and Department
officials.

Streamlining Research, Over the last 10 years, the Department has spent an
average of $36 billion a

Development, Test, and year on Research, Development, Test and Evaluation
programs covering a

Evaluation Infrastructure wide range of activities, from basic research in
science and engineering to

the full- scale development of specific weapon systems, such as the F- 22
fighter aircraft and the Comanche helicopter. Reducing the number of
laboratories and centers has been an on- going effort, and despite closing
62 sites as part of previous base realignment and closure rounds, the
Department and the Congress believe DOD continues to have excess capacity.
Although the DRI did not set specific goals or deadlines for this
initiative, the Department has developed a new plan for streamlining the
laboratories and test centers in accordance with the Strom Thurmond National
Defense Authorization Act for Fiscal Year 1999.

Most of the streamlining for laboratories and test centers occurred prior to
the DRI through the base realignment and closure process. For example, the
Defense Manpower Data Center reports that staffing levels in the
laboratories and centers have declined about 29 percent (from 131,000 in
fiscal year 1990 to 93,000 in fiscal year 1997) after four closure rounds.
The Department estimates these reductions have resulted in annual manpower
savings of about $2. 4 billion and a $3. 9 billion reduction in operating
costs since 1990. Since the Congress has approved no additional closure
rounds, the Department plans to use other methods, including competitive
sourcing, to maintain its technical superiority while further reducing its
infrastructure costs. No large- scale consolidations, however, are likely to
take place outside of the base closure process.

Improving the Acquisition In March 1999, DOD highlighted three initiatives
that will help the

Process Department access commercial technology and adopt business practices

characteristic of world class suppliers, while also reducing the total cost
of acquiring and operating weapon systems purchased. The three initiatives
are

maximizing the use of commercial items, operations, and practices (referred
to as civil military integration); assisting contractors in replacing
government- unique business and

manufacturing processes with commercial equivalents, modifying existing
contracts to comply with reform initiative goals, and reducing or
eliminating many of the barriers that inhibit government and industry
collaborative business efforts (referred to as the single process
initiative); and reducing total ownership costs of weapon systems (i. e.,
development,

production, operations, support, and disposal), to help ensure DOD is making
the most cost- effective procurement decisions now and in the

future. A key component of this is to make performance and schedule a
function of available resources.

DOD is making progress in each of these areas but is years away from full
implementation. For example, as of February 10, 2000, the Department
reported that it had achieved some success by converting the business and
manufacturing operations of over 325 facilities from military to commercial
standards in areas of quality control, calibration, soldering, and parts
management practices. The Department has targeted 11 activities for review
during fiscal year 2000, including product support, delivery, pricing, and
payment and financial management. In addition, the Department reports it has
saved $30.6 million in negotiated changes to existing contracts and
estimates cost avoidance savings of $523.8 million on future contracts as a
result of replacing government unique processes with commercial equivalents.
Finally, the services are in the process of implementing a series of pilot
programs that focus on reducing total ownership costs for major acquisition
programs. For example, the Navy has set a goal of using commercial computers
and application software on the Aegis Cruiser thereby eliminating the need
for military specifications and standards. The Navy is reporting a savings
of about $4. 0 million per ship. Because many of the pilot programs are
still being implemented, we did not attempt to determine the overall status.

Despite these attempts to streamline acquisition processes and reduce costs,
in January 1999, the Defense Systems Affordability Council acknowledged that
total ownership costs of weapon systems are too high and can be reduced
significantly if DOD would better emulate and apply best practices of the
public and private sectors. The Council set targets for reducing logistics
costs for fielded weapons systems by 7 percent in fiscal year 2000, 10
percent by fiscal year 2001, and 20 percent by fiscal year 2005. In March
1999, we testified that the best practices of leading commercial firms could
be used to improve the development of technology and weapon systems in the
Department. 28 In particular, knowledge standards 29 that are

28 Defense Acquisition: Best Commercial Practices Can Improve Program
Outcome (GAO/ T- NSIAD- 99- 116, Mar. 17, 1999). 29 This means that
decisionmakers must have virtual certainty about critical facets of the
product under development when needed. This knowledge can be broken down
into three junctures: when a match is made between the customer's
requirements and the available technology, when the product's design is
determined to be capable of meeting performance requirements, and when the
product is determined to be producible within cost, schedule, and quality
targets.

rigorously applied, coupled with the practice of keeping technology
development separate from product development, could put managers in the
best position to succeed in developing better products in less time and
producing them within estimated costs. We also believe that lasting
improvements in program outcomes will not be realized until the Department
changes the incentives that drive program managers to underestimate costs;
rely on immature technologies; and underestimate the risk of cost, schedule,
and performance problems.

Enhancing the Acquisition For the last decade, the importance of an educated
professional acquisition

Workforce, Education and workforce has been a major focus of the Department.
For example, the

Training Congress passed the Defense Acquisition Workforce Improvement Act
in

1990 directing DOD to establish education, training, and experience
requirements for its acquisition workforce to enhance the defense
acquisition process. In 1992, the Department established the Defense
Acquisition University, a consortium of 13 schools, to develop and provide
training for the acquisition workforce. Since its inception, the University
has trained about 35, 000 acquisition personnel per year using an extensive
curriculum of 81 courses, including courses on the Department's acquisition
reform initiatives. The March 1999 DRI update included the following five
broad training and education initiatives;

enhancing basic skills training; institutionalizing continuous learning;
teaching the concepts of the commercial business environment; recruiting,
developing, and retaining technology leaders; and managing the acquisition
workforce.

Specific goals are to (1) deliver 25 percent of acquisition courses through
distributed learning technologies, like the Internet, by the end of fiscal
year 1999 and for all courses by 2003; (2) provide 40 hours of continuing
education classes to 80, 000 personnel in 1999 and all acquisition
professionals (about 163,000) by the year 2000; and (3) implement a
demonstration project to evaluate, among other things, new systems of
payment and reward.

DOD is making progress toward achieving its goals, but it is several years
away from full implementation. At the time of our review, the University
offered 8 of its 81 courses, about 10 percent, on the Internet. According to
the program manager, all University classes are being evaluated to determine
which classes or portions of classes can be offered on- line.

Some courses, particularly those involving senior- level managers, will
continue to require in- class training. DOD also believes it is progressing
in its efforts to provide 40 hours of continuing education hours to its
employees, but officials said they will not know the exact number of
employees completing training until tracking systems are put in place by the
military services and Defense agencies. According to DOD officials, about
26,500 personnel participated in University courses and an estimated 78, 000
personnel participated in distance learning classes such as videoconferences
in fiscal year 1999. Finally, DOD launched a 5- year Civilian Acquisition
Workforce Demonstration Project in 1999 to determine if DOD's acquisition
effectiveness can be enhanced by allowing greater managerial control over
personnel processes and functions such as hiring and equitably compensating
personnel. In addition, the Project expands the opportunities available to
employees through a more responsive and flexible personnel system. As
envisioned, the project will cover approximately 8,000 to 18, 000 civilian
acquisition employees and related support personnel at some 60- 200 sites
throughout DOD.

Despite the Department's efforts, enhancements can still be made to its
approach for acquisition training. For example, a June 1999 Department study
recommended that training organizations become change agents and be modeled
after their corporate counterparts. In addition, in August 1999 we found
that standard training offered by the Defense Acquisition University did not
make a major contribution to the leading program offices' ability to
implement best practices. 30 Training either did not reach the right people
when it was needed or did not reach them at all. Further, best practice
training did not contain the depth or practical insights program officials
need to implement these practices.

Element 7: This element of the DRI, which was added as part of the March
1999

Transforming Logistics update, focuses on the steps DOD is taking to improve
the efficiency and

effectiveness of its logistics business practices and processes. DOD's for
the 21st Century

overall vision is to achieve a highly efficient and integrated logistics
system for buying, storing, and distributing supplies as well as maintaining
and repairing weapon systems by 2006. To achieve this vision, the DRI lays
out the following broad initiatives:

30 Best Practices: DOD Training Can Do More to Help Weapon System Programs
Implement Best Practices( GAO/ NSIAD- 99- 206, Aug. 16, 1999).

educe wholesale supply order- receipt time; achieve total asset visibility
and accessibility for 90 percent of DOD

inventory by fiscal year 2000; and reengineer and streamline logistics
processes.

DOD is making some progress in implementing its logistics initiatives. The
Department reports that is has met the goals for reducing the time it takes
for wholesalers to deliver supplies and achieving total asset visibility.
However, it is just starting other initiatives to reengineer and streamline
logistics processes. For example, the services plan to conduct 30 pilot
projects to reengineer product support activities by 2002 and implement new
techniques by 2005. In addition, as stated earlier in our prime vendor
discussion in element 1, the Department is attempting to expand its use of
prime vendor contracts to hardware items.

Transforming DOD's logistics processes is a very complex undertaking. For
example, although the Department reports that it has met its total asset
visibility goal, we and the DOD Inspector General found significant problems
with the timeliness and accuracy of data used in the total asset visibility
system. We recently reported that user groups had concerns about the quality
of data in the system, and these problems do not appear to be resolved. 31
In addition, the military services and the Defense Logistics Agency have
over 400 major actions underway to streamline logistics processes. While
these major actions may support DOD's overall vision, Defense officials
acknowledged that the Department has had an incomplete roadmap or investment
strategy to manage and coordinate its wide range of initiatives in achieving
the desired logistics transformation. DOD has recognized the need to develop
transition plans and a defense reform initiative directive was recently
signed by the Deputy Secretary of Defense directing the military services,
Defense Logistics Agency, and Transportation Command to submit transition
plans for review by the Defense Management Council by July 1, 2000.
Specifically, the plans are to include four intermediate objectives:

developing performance measures for customer wait time in fiscal year 2001;
adopting a simplified delivery priority system driven by war- fighter

requirements by fiscal year 2002; 31 Defense Inventory: DOD Could Improve
Total Asset Visibility Initiative With Results Act Framework( GAO/ NSIAD-
99- 40, April 12, 1999).

achieving accurate total asset visibility and accessibility by fiscal year
2004; and fielding a web- based logistics information system that provides
early

deploying forces real- time information by fiscal year 2004 and to the
remainder of the force by fiscal year 2006.

To assist in establishing and reviewing the plans, the Under Secretary of
Defense (Acquisition, Technology, and Logistics) is to conduct an annual
review of the plans. However, the directive does not stipulate how these
individual plans will be used to formulate an integrated strategy. Beginning
in calendar year 2001, annual plans and the related strategic plan
performance measurement data will be submitted with the Program Objective
Memorandum to facilitate DOD's program and budget reviews.

Element 8: Cyberspace This element of the DRI, which was added as part of
the DRI's March 1999 update, focuses primarily on the security issues
surrounding DOD's

business and warfighting operations. DOD believes such a shift toward
electronically based operations will help reduce costs and improve
performance, but it also recognizes that such a shift carries significant
security risks. DOD already relies heavily on computers, and its systems and
networks are becoming increasingly interconnected. As a result, it is at
increased risk of having data stolen or of being hobbled by attack or
natural disaster.

The Department has undertaken dozens of initiatives and activities to
improve security over its systems and networks. These initiatives and
activities, which are grouped under the general heading of
“Information Assurance,” range from large, centrally managed
programs to more narrowly focused technical changes to specific systems.
These efforts include

establishing a program to improve DOD- wide planning, coordination, and
oversight of information assurance activities; ensuring through training and
other vehicles that DOD personnel

understand the possible threats to DOD systems and how to mitigate those
threats; building up the Department's technological tools for safeguarding
its

systems (e. g., intrusion detection devices and user authentication tools);
improving DOD's ability to identify and correct vulnerabilities (e. g.,

using procedures for disseminating information on weaknesses and ensuring
that those weaknesses are addressed);

establishing a new organization for detecting attacks and intrusions and
marshalling the forces to repel them; and developing tactics for reacting to
and defending against attacks.

DOD information assurance officials readily acknowledge that DOD systems and
networks continue to be more vulnerable than the Department would like,
despite progress in improving security. One official noted that there is a
“huge population” of unclassified networks in need of additional
safeguards. Moreover, DOD officials did not dispute the findings of an
August 1999 GAO report, which said serious weaknesses in DOD information
security continue to provide hackers as well as hundreds of thousands of
authorized users the opportunity to modify, steal, inappropriately disclose,
and destroy sensitive DOD data. 32

The DRI points out that no single approach will take care of security
concerns, as evidenced by the variety of initiatives now underway.
Information assurance officials also said, however, that the public key
infrastructure now being developed will go a long way toward providing
important safeguards. This infrastructure revolves around the use of
algorithms, or mathematical “keys,” that DOD personnel can use
to digitally sign and encrypt documents and data. These capabilities are
expected to help DOD ensure that (1) the data in its systems has not been
tampered with; (2) system users can confirm who is on the other end of an
electronic transaction; (3) the parties involved in a transaction cannot
later deny they participated in the transaction; and (4) data cannot be
accessed without proper authorization. These safeguards are considered so
important that the Deputy Secretary of Defense said in a May 1999 memo that
DOD “must take an aggressive approach” in developing its ability
to achieve them. Given all that is involved in the effort, however, DOD
timetables indicate it may take 2 years or more for the Department to fully
achieve its goals.

Element 9: Homeland This element of the DRI focuses on the challenges facing
DOD to counter

Defense in the Next the proliferation of weapons of mass destruction
(nuclear, biological, and

chemical and their means of delivery) and the increased threat of domestic
Century

terrorism. DOD believes countering these threats will become DOD's most
important and complex challenge over the next 10 to 20 years. Table 7
provides an overview of the three initiatives included in this element.

32 DOD Information Security: Serious Weaknesses Continue to Place Defense
Operations at Risk( GAO/ AIMD- 99- 107, Aug. 26, 1999).

Table 7: Homeland Defense Initiatives Initiative Goal/ milestone Status
Issues

National Missile Defense Build and deploy a system to DOD has designated
this to be a

Deployment will require protect the U. S. from long range,

high- risk development program. modification of the 1972

ballistic missile attacks by 2005. System deployment is now

Anti- Ballistic Missile Treaty. expected to be completed in 2007.

Improving domestic response Improve domestic response to Ten teams are
expected to be

The Congress has raised weapons of mass destruction

fully operational during the first concerns about the need for

incidents by (1) fielding 10 half of this year. DOD plans to

these teams in light of numerous regional- based teams comprised

establish 17 additional teams local, state, and federal

of National Guard personnel and between March and July 2000.

organizations that provide similar (2) responding to incidents within

functions. In addition, local, 4- hours of being notified.

state, and federal officials believe a shorter response time of 1 to 2 hours
is critical for the teams to perform their mission effectively.

Defense Threat Reduction Create a single DOD

The new agency became The Congress must approve

Agency organization to carry out operational in October 1998.

military construction funding for programs designed to address

During fiscal year 2000, the new building.

proliferation of and counter headquarters staff will be

threats posed by weapons of housed primarily at Ft. Belvoir,

mass destruction by Virginia instead of Herndon,

(1) establishing a headquarters Virginia. Most of the other

office at Herndon, Virginia, by activities will be housed at Ft.

October 1, 1998, and Belvoir during fiscal year 2004,

(2) housing all activities at or upon the completion of a new

near Herndon, Virginia, by building.

December 31, 2000. Source: Our analysis based on information in the DRI
reports and Department officials.

National Missile Defense The National Missile Defense program is a major
defense acquisition program being managed by the Ballistic Missile Defense
Organization at an estimated life- cycle cost of $36.2 billion. Its primary
mission is to defend the United States against limited ballistic missile
attacks. DOD believes, once the national missile defense system is
operational, it will provide a reliable defense against ballistic missile
attacks targeted at America's homeland.

In October 1996, the Department began system development with the intent to
support a deployment readiness review in fiscal year 2000. Since then, the
program has encountered numerous developmental problems, cost overruns, and
schedule delays. In December 1997, GAO reported that

DOD faces significant challenges in the program because of high schedule and
technical risks. 33 To minimize program risks, the Department has
subsequently restructured the program and is now following a phased
development approach. While it still plans to hold a deployment readiness
review in July 2000, it does not expect to begin system deployment until
2005, nearly 2 years later than originally planned. Deployment is to be
completed in 2007.

The Department reports that deploying the system will require the United
States to modify the 1972 Anti- Ballistic Missile Treaty, which many
consider the bedrock of arms control. The current administration is working
on this issue and does not expect to make a decision until later this year.

Improving Domestic This DRI effort calls for using specially trained
National Guard civil support

Response teams that can quickly deploy and help civilian authorities to
respond to

terrorist attacks involving weapons of mass destruction. Specifically, the
plan was for teams to be fully staffed, trained, certified, and validated
fully mission capable by January 5, 2000, and to deploy to an accident site
within 4 hours of notice.

As of February 2000, only three teams were fully staffed. The Department's
original plan suggested that there eventually should be a team in each
state, territory, and the District of Columbia for a total of 54 teams. DOD
subsequently funded only 10 regionally based teams, 34 which officials
expected to be fully mission- capable by April 1, 2000. According to the DRI
Office, the teams are state assets controlled by their respective governors,
but they are trained and equipped by DOD. Each team is to be staffed with 22
full- time Army or Air National Guard members organized into six functions:
command, operations, administration and logistics, communication, medical,
and survey.

The Congress has questioned the need for civil support teams given local,
state, and other federal initiatives. To clarify how the Department plans to

33 National Missile Defense: Schedule and Technical Risks Represent
Significant Development Challenges( GAO/ NSIAD- 98- 28, Dec. 12, 1997). 34
The teams are located in California, Colorado, Georgia, Illinois,
Massachusetts, Missouri, New York, Pennsylvania, Texas, and Washington. They
were selected based on state demographics, proximity to Air National Guard
units that could provide airlift, presence of other federal/ military
assets, transportation networks, and other criteria.

use these teams, the Congress directed the Secretary of Defense (per section
1036, National Defense Authorization Act for Fiscal Year 2000) to provide a
status report on Civil Support teams by January 2000. This report was to
include, among other things, information on how the teams' capabilities
compared with other first responders, their plans for conducting realistic
exercises, how the teams will be used across state borders, and measures for
recruiting and retaining proficient team members. The report was issued on
February 24, 2000. Meanwhile, on January 13, 2000, the Secretary of Defense
announced plans to add 17 additional teams at an estimated cost of $107
million in fiscal year 2000, bringing the total nationwide to 27. The
Department expected these teams would be established between March and July
2000. According to the DRI Office, DOD has no plans to add any more teams
beyond the current 27.

The DRI goal for teams to deploy to an incident site within 4 hours of
notice has and continues to be an item of controversy. In May 1999, for
example, we reported that local, state, and federal officials we spoke with
expressed concerns that this response time is too long. 35 They believe the
teams need to be at the scene within 1 to 2 hours if those who are first to
respond are to benefit from the services they provide. The concerns about
arrival times surfaced because the Department had no plans to dedicate
ground crews, flight crews, or aircraft for on- call, immediate response to
support a Civil Support team deployment. In addition, our discussions with
local, state, and federal officials surfaced a number of additional concerns
that could impact the teams' capabilities to meet their mission and
responsibilities. These concerns centered on recruiting and retention,
training, and operational issues.

Defense Threat Reduction In the original DRI Report, the Secretary of
Defense identified the

Agency challenges posed by weapons of mass destruction as the greatest and
most

complex threats facing DOD in the future. To address these challenges, the
DRI called for the Department to establish by October 1, 1998, the Defense
Threat Reduction Agency by consolidating activities from several
organizations, including the On- site Inspection Agency, the Defense Special
Weapons Agency, the Defense Technical Security Administration, and the
Office of the Assistant to the Secretary of Defense for Nuclear and Chemical
and Biological Defense Programs. In addition, all agency

35 Combating Terrorism: Use of National Guard Response Teams Is Unclear
(GAO/ NSIAD- 99- 110, May 21, 1999).

activities were to be housed at or near Herndon, Virginia, by December 31,
2000. The new agency has been established and it is responsible for a
diverse range of activities including on- site inspections, technology
security, special weapons technology, nuclear support, chemical- biological
defense, cooperative threat reduction, counterforce, and force protection.

The Defense Threat Reduction Agency is making progress in consolidating some
of its operations, but it has determined that the existing Herndon,
Virginia, facility is too small and the physical layout is inadequate to
protect its people from potential terrorist attacks. In May 1999, DOD
informed the Congress (as directed by the conference report accompanying the
Strom Thurmond National Defense Authorization Act for Fiscal Year 1999) that
it no longer plans to continue its consolidation efforts. After considering
a range of options to remedy its physical plant and security concerns, DOD
has decided to build a new facility at Fort Belvoir, Virginia, and it plans
to include this project proposal in its fiscal year 2002 military
construction budget submission. DOD believes this project will provide the
earliest and most cost- effective option for consolidation.

If approved and properly funded, DOD expects to occupy the new facility in
fiscal year 2004. In the meantime, according to a December 1999 Program
Budget Decision Memorandum, the revised plan is to house approximately 1,000
employees at Fort Belvoir, Virginia, and the remaining personnel, about 700,
at two other locations in Alexandria, Virginia.

Appendi xI II Comments From the Department of Defense

Appendi xI V

GAO Contacts and Staff Acknowledgments GAO Contacts David R. Warren (202)
512- 8412 Barry W. Holman (202) 512- 8412 James E. Hatcher (937) 258- 7959

Acknowledgments In addition to those named above, Cheryl Andrew, Leticia
Bates, James Fuquay, Johnetta Gatlin- Brown, Steve Hunter, Bob Preston,
Jennifer

Thomas, and Jeanne Willke made key contributions to this report.

Related GAO Products Element 1: Adopting

Defense Management: Electronic Commerce Implementation Strategy Can Best
Business

Be Improved( GAO/ NSIAD- 00- 108, July 18, 2000). Practices

Department of Defense: Progress in Financial Management Reform (GAO/ T-
AIMD/ NSIAD- 00- 163, May 9, 2000).

Defense Transportation: Process Reengineering Could Be Enhanced by
Performance Measures( GAO/ NSIAD- 00- 7, Dec. 20, 1999).

Air Force Depot Maintenance: Analysis of Its Financial Operations (GAO/
AIMD/ NSIAD- 00- 38, Dec. 10, 1999).

Department of Defense: Status of Financial Management Weaknesses and Actions
Needed to Correct Continuing Challenges (GAO/ T- AIMD/ NSIAD- 99- 171, May
4, 1999).

Air Force Supply: Management Actions Create Spare Parts Shortages and
Operational Problems( GAO/ NSIAD/ AIMD- 99- 77, Apr. 29, 1999).

DOD Financial Management: More Reliable Information Key to Assuring
Accountability and Managing Defense Operations More Efficiently (GAO/ T-
AIMD/ NSIAD- 99- 145, Apr. 14, 1999).

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

DOD Information Services: Improved Pricing and Financial Management
Practices Needed for Business Area( GAO/ AIMD- 98- 182, Sept. 15, 1998).

Inventory Management: More Information Needed to Assess DLA's Best Practice
Initiatives( GAO/ NSIAD- 98- 218, Sept. 2, 1998).

Air Force Supply Management: Analysis of Activity Group's Financial Reports,
Prices, and Cash Management( GAO/ AIMD/ NSIAD- 98- 118, June 8, 1998).

Inventory Management: DOD Can Build on Progress by Using Best Practices for
Reparable Parts( GAO/ NSIAD- 98- 97, Feb. 27, 1998).

Financial Management: Seven DOD Initiatives That Affect the Contract Payment
Process( GAO/ AIMD- 98- 40, Jan. 30, 1998).

Defense Inventory Management: Expanding Use of Best Practices for Hardware
Items Can Reduce Logistics Costs( GAO/ NSIAD- 98- 47, Jan. 20, 1998).

Element 2: Quality of Defense Transportation: The Army's Hunter Pilot
Project Is Inconclusive

Life but Provides Lessons Learned( GAO/ NSIAD- 99- 129, June 23, 1999).

Defense Transportation: Plan Needed for Evaluating the Navy Personal
Property Pilot( GAO/ NSIAD- 99- 138, June 23, 1999).

Defense Transportation: Progress of MTMC Pilot( GAO/ NSIAD- 99- 130R, Apr.
15, 1999).

Defense Transportation: DOD and GSA Personal Property Programs (GAO/ NSIAD-
99- 139R, Apr. 15, 1999).

Defense Transportation: Efforts to Improve DOD's Personal Property Program(
GAO/ T- NSIAD- 99- 106, Mar. 18, 1999).

Military Retirement: Proposed Changes Warrant Careful Analysis (GAO/ T-
NSIAD- 99- 94, Feb. 25, 1999).

Financial Management: Training of DOD Financial Managers Could Be Enhanced(
GAO/ AIMD- 98- 126, June 24, 1998).

Defense Transportation: The Army's Hunter Pilot Project to Outsource
Relocation Services( GAO/ NSIAD- 98- 149, June 10, 1998).

Element 3: Defense Headquarters: Status of Efforts to Reduce Headquarters
Personnel

Organizational (GAO/ NSIAD- 99- 45, Feb. 17, 1999).

Streamlining Defense IRM: Alternatives Should Be Considered in Developing
New

Civilian Personnel System( GAO/ AIMD- 99- 20, Jan. 27, 1999). Defense
Headquarters: Total Personnel and Costs Are Significantly Higher Than
Reported to Congress( GAO/ NSIAD- 98- 25, Oct. 30, 1997).

Defense Acquisition Organizations: Reductions in Civilian and Military
Workforce( GAO/ NSIAD- 98- 36R, Oct. 23, 1997).

Element 4: Competitive Military Base Closures: Lack of Data Inhibits Cost-
Effectiveness Analysis of

Sourcing Privatization- in- Place Initiatives( GAO/ NSIAD- 00- 23, Dec. 20,
1999).

Defense Logistics: Army Should Assess Cost and Benefits of the Workload
Performance System Expansion( GAO/ NSIAD- 00- 16, Nov. 12, 1999).

Depot Maintenance: Army Report Provides Incomplete Assessment of Depot- type
Capabilities( GAO/ NSIAD- 00- 20, Oct. 15, 1999).

Depot Maintenance: Status of the Navy's Pearl Harbor Pilot Project (GAO/
NSIAD- 99- 199, Sept. 10, 1999).

DOD Competitive Sourcing: Lessons Learned System Could Enhance A- 76 Study
Process( GAO/ NSIAD- 99- 152, July 21, 1999).

Air Force Logistics: C- 17 Support Plan Does Not Adequately Address Key
Issues( GAO/ NSIAD- 99- 147, July 8, 1999).

Air Force Depot Maintenance: Management Changes Would Improve Implementation
of Reform Initiatives( GAO/ NSIAD- 99- 63, June 25, 1999).

Air Force Supply: Management Actions Create Spare Parts Shortages and
Operations Problems( GAO/ NSIAD/ AIMD- 99- 77, Apr. 29, 1999).

Force Structure: A- 76 Not Applicable to Air Force 38th Engineering
Installation Wing Plan( GAO/ NSIAD- 99- 73, Feb. 26, 1999).

DOD Competitive Sourcing: Results of Recent Competitions (GAO/ NSIAD- 99-
44, Feb. 23, 1999).

DOD Competitive Sourcing: Questions About Goals, Pace, and Risks of Key
Reform Initiative( GAO/ NSIAD- 99- 46, Feb. 22, 1999).

Army Industrial Facilities: Workforce Requirements and Related Issues
Affecting Depots and Arsenals( GAO/ NSIAD 99- 31, Nov. 30, 1998).

Defense Depot Maintenance: Contracting Approaches Should Address Workload
Characteristics( GAO/ NSIAD- 98- 130, June 15, 1998).

Defense Depot Maintenance: DOD Shifting More Workload for New Weapon Systems
to the Private Sector( GAO/ NSIAD- 98- 8, Mar. 31, 1998).

Base Operations: DOD's Use of Single Contracts for Multiple Support
Services( GAO/ NSIAD- 98- 82, Feb. 27, 1998).

Defense Outsourcing: Better Data Needed to Support Overhead Rates for A- 76
Studies (GAO/ NSIAD- 98- 62, Feb. 27, 1998).

Element 5: Military Housing: Continued Concerns in Implementing the
Privatization

Infrastructure Initiative( GAO/ NSIAD- 00- 71, Mar. 20, 2000).

Military Infrastructure: Real Property Management Needs Improvement (GAO/
NSIAD- 99- 100, Sept. 7, 1999).

Military Base Closures: Potential to Offset Fiscal Year 2000 Budget Request
(GAO/ NSIAD- 99- 149, July 23, 1999).

Military Bases: Status of Prior Base Realignment and Closure Rounds (GAO/
NSIAD- 99- 36, Dec. 11, 1998).

Military Bases: Review of DOD's 1998 Report on Base Realignment and Closure(
GAO/ NSIAD- 99- 17, Nov. 13, 1998).

DOD Information Services: Improved Pricing and Financial Management
Practices Needed for Business Area( GAO/ AIMD- 98- 182, Sept. 15, 1998).

Financial Management: Accounting Implications of DOD's Facilities Demolition
Programs( GAO/ AIMD- 98- 194R, Aug. 28, 1998).

Military Housing: Privatization Off to a Slow Start and Continued Management
Attention Needed( GAO/ NSIAD- 98- 178, July 17, 1998).

Federal Electricity: Retail Competition Could Create Savings for Department
of Defense( GAO/ RCED- 98- 73R, Feb. 25, 1998).

Federal Electricity: Retail Competition Could Create Government Savings
(GAO/ RCED- 97- 244, Sept. 30, 1997).

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

DOD Infrastructure: DOD Is Opening Unneeded Finance and Accounting Offices(
GAO/ NSIAD- 96- 113, Apr. 14, 1996).

DOD Infrastructure: DOD's Planned Finance and Accounting Structure Is Not
Well Justified( GAO/ NSIAD- 95- 127, Sept. 18, 1995).

Element 6: 21st Best Practices: DOD Training Can Do More to Help Weapon
System

Century Acquisition Programs Implement Best Practices( GAO/ NSIAD- 99- 206,
Aug. 16, 1999).

System and Workforce Best Practices: Better Management of Technology
Development Can

Improve Weapon System Outcomes( GAO/ NSIAD- 99- 162, July 30, 1999).
Financial Management: Better Controls Essential to Improved Reliability of
DOD's Depot Inventory Records( GAO/ AIMD- 99- 132, June 28, 1999).

Department of Defense: Improving the DOD Payment Process, Using Recovery
Auditing and Changing the Prompt Payment Act (GAO/ T- NSIAD- 99- 193, June
16, 1999).

Acquisition Reform: Review of Selected Best- Value Contracts (GAO/ NSIAD-
99- 93R, Apr. 14, 1999).

Acquisition Reform: NASA's Internet Service Improves Access to Contracting
Information( GAO/ NSIAD- 99- 37, Feb. 9, 1999).

Acquisition Reform: Multiple- award Contracting at Six Federal Organizations
(GAO/ NSIAD- 98- 215, Sept. 30, 1998).

Financial Management: Improvements Needed in Air Force Vendor Payment
Systems and Controls( GAO/ AIMD- 98- 274, Sept. 28, 1998).

Defense Acquisition Organizations: Status of Workforce Reductions (GAO/
NSIAD- 98- 161, June 29, 1998).

Defense Acquisition Organizations: Linking Workforce Reductions With Better
Program Outcomes( GAO/ T- NSIAD- 97- 140, Apr. 8, 1997).

Best Practices: DOD Can Help Suppliers Contribute More to Weapon System
Programs( GAO/ NSIAD- 98- 87, Mar. 17, 1998).

Acquisition Reform: Implementation of Key Aspects of the Federal Acquisition
Streamlining Act of 1994( GAO/ NSIAD- 98- 81, Mar. 9, 1998).

Best Practices: Successful Application to Weapon Acquisitions Requires
Changes in DOD's Environment( GAO/ NSIAD- 98- 56, Feb. 24, 1998).

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

Element 7: Defense Inventory: Improved Management Framework Needed to Guide

Transforming Logistics Air Force Best Practice Initiatives( GAO/ NSIAD- 00-
2, Nov. 18, 1999).

for the 21st Century Defense Logistics: Army Should Assess Cost and Benefits
of the Workload

Performance System Expansion( GAO/ NSIAD- 00- 16, Nov. 12, 1999). Defense
Inventory: Improved Management Framework Needed to Guide Navy Best Practice
Initiatives( GAO/ NSIAD- 00- 1, Oct. 21, 1999).

Defense Inventory: Improved Management Framework Needed to Guide Army Best
Practice Initiatives( GAO/ NSIAD- 99- 217, Sept. 14, 1999).

Army Logistics: Status of Proposed Support Plan for Apache Helicopter (GAO/
NSIAD- 99- 140, July 1, 1999).

Air Force Depot Maintenance: Management Changes Would Improve Implementation
of Reform Initiatives( GAO/ NSIAD- 99- 63, June 25, 1999).

Air Force Supply: Management Actions Create Spare Parts Shortages and
Operations Problems( GAO/ NSIAD/ AIMD- 99- 77, Apr. 29, 1999).

Defense Inventory: DOD Could Improve Total Asset Visibility Initiative With
Results Act Framework( GAO/ NSIAD- 99- 40, Apr. 12, 1999).

Defense Inventory: Continuing Challenges in Managing Inventories and
Avoiding Adverse Operational Effects( GAO/ T- NSIAD- 99- 83, Feb. 25, 1999).

Major Management Challenges and Program Risks: Department of Defense (GAO/
OCG- 99- 4, Jan. 1, 1999).

Defense Depot Maintenance: DOD Shifting More Workload for New Weapon Systems
to the Private Sector( GAO/ NSIAD- 98- 8, Mar. 31, 1998).

Best Practices: DOD Can Help Suppliers Contribute More to Weapon System
Programs( GAO/ NSIAD- 98- 87, Mar. 17, 1998).

Element 8: Cyberspace DOD Information Security: Serious Weaknesses Continue
to Place Defense

Security Operations at Risk( GAO/ AIMD- 99- 107, Aug. 26, 1999).

Information Security: Serious Weaknesses Place Critical Federal Operations
and Assets at Risk( GAO/ AIMD- 98- 92, Sept. 23, 1998).

Executive Guide: Information Security Management- Learning From Leading
Organizations( GAO/ AIMD- 98- 68, May 1, 1998).

Element 9: Homeland Combating Terrorism: Chemical and Biological Medical
Supplies Are

Defense Poorly Managed( GAO/ HEHS/ AIMD- 00- 36, Oct. 29, 1999).

Chemical and Biological Defense: Chemical Stockpile Emergency Preparedness
Program for Oregon and Washington( GAO/ NSIAD- 00- 13, Oct. 26, 1999).

Foreign Military Sales: Review Process for Controlled Missile Technology
Needs Improvement( GAO/ NSIAD- 99- 231, Sept. 29, 1999).

Chemical and Biological Defense: Program Planning and Evaluation Should
Follow Results Act Framework( GAO/ NSIAD- 99- 159, Aug. 16, 1999).

Combating Terrorism: Analysis of Federal Counterterrorist Exercises (GAO/
NSIAD- 99- 157BR, June 25, 1999).

Combating Terrorism: Use of National Guard Response Teams Is Unclear (GAO/
T- NSIAD- 99- 184, June 23, 1999).

Combating Terrorism: Observations on Growth in Federal Programs (GAO/ T-
NSIAD- 99- 181, June 9, 1999).

Combating Terrorism: Analysis of Potential Emergency Response Equipment and
Sustainment Costs( GAO/ NSIAD- 99- 151, June 9, 1999).

Combating Terrorism: Use of National Guard Response Teams IsUnclear (GAO/
NSIAD- 99- 110, May 21, 1999).

Ballistic Missile Defense: More Common Systems and Components Could Result
in Cost Savings( GAO/ NSIAD- 99- 101, May 21, 1999).

Combating Terrorism: Issues to Be Resolved to Improve Counterterrorism
Operations( GAO/ NSIAD- 99- 135, May 13, 1999).

Combating Terrorism: Observations on Biological Terrorism and Public Health
Initiatives( GAO/ T- NSIAD- 99- 112, Mar. 16, 1999).

Combating Terrorism: Observations on Federal Spending to Combat Terrorism(
GAO/ T- NSIAD/ GGD- 99- 107, Mar. 11, 1999).

Combating Terrorism: FBI's Use of Federal Funds for CountertorrorismRelated
Activities (Fiscal Years 1995- 1998)( GAO/ GGD- 99- 7, Nov. 20, 1998).

Combating Terrorism: Opportunities to Improve Domestic Preparedness Program
Focus and Efficiency( GAO/ NSIAD- 99- 3, Nov. 12, 1998).

Combating Terrorism: Observations on the Nunn- Lugar- Domenici Domestic
Preparedness Program( GAO/ T- NSIAD- 99- 16, Oct. 2, 1998).

National Missile Defense: Even With Increased Funding Technical and Schedule
Risks Are High( GAO/ NSIAD- 98- 153, June 23, 1998).

Combating Terrorism: Threat and Risk Assessments Can Help Prioritize and
Target Program Investments( GAO/ NSIAD- 98- 74, Apr. 9, 1998).

Cruise Missile Defense: Progress Made but Significant Challenges Remain
(GAO/ NSIAD- 99- 68, Mar. 31, 1999).

(709435) Lett er

GAO United States General Accounting Office

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Contents

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Appendix I

Appendix I Objectives, Scope, and Methodology

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Appendix I Objectives, Scope, and Methodology

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Appendix II

Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix II Assessment of DRI Elements

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Appendix III

Appendix III Comments From the Department of Defense

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Appendix III Comments From the Department of Defense

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Appendix III Comments From the Department of Defense

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Appendix IV

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Related GAO Products Page 85 GAO/ NSIAD- 00- 72 Defense Management

Related GAO Products Page 86 GAO/ NSIAD- 00- 72 Defense Management

Related GAO Products Page 87 GAO/ NSIAD- 00- 72 Defense Management

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Related GAO Products Page 89 GAO/ NSIAD- 00- 72 Defense Management

Related GAO Products Page 90 GAO/ NSIAD- 00- 72 Defense Management

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