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Defense Outsourcing: Impact on Navy Sea-Shore Rotations

(Letter Report,
04/27/98, GAO/NSIAD-98-107).

Pursuant to a congressional request, GAO reviewed whether the Department
of Defense's (DOD) outsourcing of commercial activities reduces the
availability of rotational billets for active duty military personnel,
focusing on: (1) how the Navy's current outsourcing efforts have
affected rotational billets; and (2) whether the Navy has policies and
procedures in place to minimize the impact of outsourcing on rotational
billets in the future.

GAO noted that: (1) several Navy Office of Management and Budget
Circular A-76 competitions announced for study in fiscal years (FY) 1997
and 1998 have the potential to eliminate military billets in areas where
rotational shortages exist for personnel returning from sea duty; (2) as
a result, the Navy has decided not to begin some of these A-76 studies
and plans to reinstate funding authorization for the military positions
eliminated when the studies were announced; (3) until recently, the Navy
had not developed specific policies and coordination procedures to
protect rotational billets from outsourcing considerations; (4)
according to Navy officials such policies and procedures were not needed
prior to FY 1997 because the Navy's outsourcing initiatives were limited
and not centrally managed; (5) in May 1997, Navy officials signed a
memorandum of agreement specifying a coordination process between the
Navy's headquarters infrastructure officials and military personnel
representatives to ensure that consideration is given to rotation
requirements when determining potential functions for outsourcing; (6)
this memorandum of agreement was further strengthened in September 1997
by a more detailed Navy-wide memorandum of agreement that applied to all
major commands, which the Navy refers to as major claimants, for all
infrastructure reductions, including outsourcing; (7) this coordination
policy should prove important since the Navy's goal is to have completed
A-76 competitions for 80,500 positions by the year 2002, including about
10,000 military billets; (8) the Navy expects that its outsourcing
efforts will produce savings and accordingly has programmed expected
savings of $2.5 billion into its future years defense plan for FY 2000
through 2003; (9) the Navy has not identified the specific activities
and locations that will be studied to achieve projected savings, but has
tasked its major commands with recommending specific activities and
locations for A-76 competitions to meet this savings goal; (10) the Navy
recently began a series of planning conferences involving appropriate
officials from headquarters and major commands focusing on strategies
for attaining its future years' outsourcing goals; (11) however, given
the Navy's plans for outsourcing competitions, ongoing coordination and
improved planning between headquarters and major commands is needed to
reach agreement on realistic goals and timeframes; and (12) in addition,
improved planning and coordination could minimize the elimination of
required military shore billets, as well as avoid prematurely
programming savings into future years' budgets.

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

 REPORTNUM:  NSIAD-98-107
     TITLE:  Defense Outsourcing: Impact on Navy Sea-Shore Rotations
      DATE:  04/27/98
   SUBJECT:  Naval personnel
             Navy procurement
             Privatization
             Strategic planning
             Military cost control
             Military downsizing
             Reductions in force
IDENTIFIER:  DOD Future Years Defense Program
             FYDP
             
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Cover
================================================================ COVER


Report to Congressional Requesters

April 1998

DEFENSE OUTSOURCING - IMPACT ON
NAVY SEA-SHORE ROTATIONS

GAO/NSIAD-98-107

Defense Outsourcing

(709291)


Abbreviations
=============================================================== ABBREV

  BEQ - bachelor enlisted quarters
  BOQ - bachelor officers quarters
  DOD - Department of Defense
  OMB - Office of Management and Budget

Letter
=============================================================== LETTER


B-279332

April 27, 1998

The Honorable Steve Buyer
The Honorable Owen Pickett
House of Representatives

This report responds to your request that we determine whether the
Department of Defense's (DOD) outsourcing (contracting out) of
commercial activities reduces the availability of rotational billets
for active duty military personnel.  Based on our initial inquiries,
we found that problems regarding the impact of outsourcing on
rotational assignments were principally occurring within the Navy. 
As a result of that information and as agreed with your offices, we
focused our review on the Navy.  This report addresses (1) how the
Navy's current outsourcing efforts have affected rotational billets
and (2) whether the Navy has policies and procedures in place to
minimize the impact of outsourcing on rotational billets in the
future. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Outsourcing for commercial services is a growing practice within the
government in an attempt to achieve cost savings, management
efficiencies, and operating flexibility.  Various studies in recent
years have highlighted the potential for DOD to achieve significant
savings from outsourcing competitions, especially those that involve
commercial activities that are currently being performed by military
personnel.  Most of DOD's outsourcing competitions, like those of
other government agencies, are to be conducted in accordance with
policy guidance and implementation procedures provided in the Office
of Management and Budget's (OMB) Circular A-76 and its supplemental
handbook. 

In August 1995, the Deputy Secretary of Defense directed the services
to make outsourcing of support activities a priority.  The Navy's
initial outsourcing plans for fiscal years 1997 and 1998 indicated
that it would conduct A-76 outsourcing competitions involving about
25,500 positions, including about 3,400 military billets.  As of
February 1998, however, the actual number of military billets
announced for A-76 competitions in fiscal years 1997 and 1998 was
changed to 2,100.  Navy officials told us that when the Navy
announces its intention to begin an A-76 study that includes military
billets, the funding for those billets is eliminated from the
military personnel budget beginning with the year the study is
expected to be completed.  The Navy's rationale for eliminating these
billets from the budget is that it expects the functions to be either
outsourced to the private sector or retained in-house and performed
by government civilians.  Either way, the functions will be funded
through the service's operations and maintenance budget and not the
military personnel budget. 

According to OMB's Circular A-76, certain functions should not be
outsourced to the private sector.  These functions include activities
that are closely related to the exercise of national defense and
DOD's war-fighting capability and must be performed by government
personnel.  DOD guidance designates that one such protected area is
billets that are required to support rotational requirements for
active duty enlisted military personnel returning from overseas
assignments or sea duty.  Rotational billets are generally defined as
those positions that must remain available to military service
members to (1) ensure that those returning from overseas assignments
or sea duty have adequate rotation opportunities and (2) provide
opportunities for the service members to continue to function within
their areas of specialty for purposes of maintaining readiness,
training, and required skills. 

The Navy has identified the minimum number of such rotational billets
required for enlisted personnel for each specific skill specialty and
grade.  Its sea-shore rotation goal is that sufficient shore billets
be available for each skill specialty and grade level to provide an
equal mix of sea duty and shore duty, that is, 3 years at sea for
every 3 years on shore, for its enlisted personnel in grades E-5
through E-9.  Because sea billets exceed shore billets, the Vice
Chief of Naval Operations established a sea-shore rotation policy in
December 1997 directing that the aggregate sea-shore rotation for
enlisted personnel in grades E-5 through E-9 be no more than 4 years
at sea for every 3 years on shore.  Actual sea-shore rotations,
however, depending on the skill specialty and grade level, have
ranged from
3 to 5 years at sea for every 3 years on shore.  As of February 1998,
the total number of sea billets exceeded shore billets by more than
40,000.  Consequently, with fewer shore billets available for
rotation purposes, less time is being spent ashore than at sea. 

For years, the Navy has been unable to attain its sea-shore rotation
goal because of shortages of shore billets for some skills and the
difficulty of duplicating some of the specific skill specialties on
shore.  Moreover, about 66 percent of the total enlisted billets for
specific skill specialties (called ratings) for grades E-5 through
E-9 required at sea aboard ships do not easily lend themselves to
comparable shore duty, according to Navy officials.  These types of
billets, called sea ratings, include ratings such as electronic
technicians, machinist mates, and various aviation-related
specialties. 

To overcome the difficulty of providing comparable shore billets for
all sea ratings, the Navy has had to use general duty shore billets
for enlisted personnel that cannot be assigned to their specific
rating on shore.  General duty billets include such functions as
security positions, recruiters, and other duties.  Navy officials
believe that using personnel in these billets is productive, but such
positions should be limited because they can impact training, skill
retention, and morale.  According to these officials, personnel
assigned to general duty billets are not receiving specific training
and experience related to their sea-duty rating.  Historically, the
Navy has attempted to minimize the number of sailors in general duty
billets.  As of January 1998, the Navy had about 12,500 enlisted
personnel working in general duty shore positions. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

Several Navy A-76 competitions announced for study in fiscal years
1997 and 1998 have the potential to eliminate military billets in
areas where rotational shortages exist for personnel returning from
sea duty.  As a result, the Navy has decided not to begin some of
these A-76 studies and plans to reinstate funding authorization for
the military positions eliminated when the studies were announced. 
Other studies that will exacerbate rotational shortages are still
scheduled to be implemented. 

Until recently, the Navy had not developed specific policies and
coordination procedures to protect rotational billets from
outsourcing considerations.  According to Navy officials, such
policies and procedures were not needed prior to fiscal year 1997
because the Navy's outsourcing initiatives were limited and not
centrally managed.  In May 1997, Navy officials signed a memorandum
of agreement specifying a coordination process between the Navy's
headquarters infrastructure officials and military personnel
representatives to ensure that consideration is given to rotation
requirements when determining potential functions for outsourcing. 
This memorandum of agreement was further strengthened in September
1997 by a more detailed Navy-wide memorandum of agreement that
applied to all major commands, which the Navy refers to as major
claimants, for all infrastructure reductions, including outsourcing. 

This coordination policy should prove important since the Navy's goal
is to have completed A-76 competitions for 80,500 positions by the
year 2002, including about 10,000 military billets.  The Navy expects
that its outsourcing efforts will produce savings and accordingly has
programmed expected savings of $2.5 billion into its future years
defense plan for fiscal years 2000 through 2003.  The Navy has not
identified the specific activities and locations that will be studied
to achieve projected savings, but has tasked its major commands with
recommending specific activities and locations for A-76 competitions
to meet this savings goal.  The Navy recently began a series of
planning conferences involving appropriate officials from
headquarters and major commands focusing on strategies for attaining
its future years' outsourcing goals.  However, given the Navy's plans
for outsourcing competitions, ongoing coordination and improved
planning between headquarters and major commands is needed to reach
agreement on realistic goals and time frames.  Improved planning and
coordination could also identify areas most conducive to outsourcing,
least likely to eliminate needed shore billets, and likely to yield
the greatest savings.  In addition, improved planning and
coordination could minimize the elimination of required military
shore billets, as well as avoid prematurely programming savings into
future years' budgets. 


   SOME NAVY OUTSOURCING STUDIES
   WOULD ELIMINATE MILITARY
   BILLETS WHERE ROTATION
   SHORTAGES EXIST
------------------------------------------------------------ Letter :3

As of August 1997, outsourcing studies announced by the Navy in
fiscal years 1997 and 1998 included some military positions for which
rotational shortages\1

existed based on the sea-shore rotation policy effective at that
time.  Of the total 740 Navy-wide military billets announced for
study in 1998, 306 billets are for tug operations and maintenance
functions that include ratings that have rotational shortages.  These
included 201 military billets in Norfolk, Virginia, 51 military
billets in Pearl Harbor, Hawaii, and 54 military billets in Guam for
tug operations and maintenance functions.  (See table 1.)



                            Table 1
            
            Tug Operations and Maintenance Functions
              Announced for A-76 Competitions That
                   Have Rotational Shortages

                            Number of      Affected ratings
                             military      that have rotational
Function        Location      billets      shortages
----------  --  ---------  ----------  --  --------------------
Tug             Norfolk           201      Boatswain's mate,\a
operations                                 hull maintenance
and                                        technician, and
maintenanc                                 machinery repairman
e

Tug             Pearl              51      Boatswain's mate,
operations      Harbor                     engineman, and
and                                        electrician's mate
maintenanc
e

Tug             Guam               54      Boatswain's mate,
operations                                 damage controlman,
and                                        electrician's mate,
maintenanc                                 engineman, and
e                                          interior
                                           communications
                                           electrician

===============================================================
Total                             306
---------------------------------------------------------------
\a Boatswain's mates are responsible for maintaining machinery and
equipment on ships' decks, handling cargo, operating small boats, and
maintaining the exterior surfaces of ships. 

We also identified other shore functions that have been announced for
potential outsourcing that some Navy officials expect will create or
contribute to existing shortages of rotational billets.  In fiscal
year 1997, the Navy announced plans to study 216 military billets for
base operations support functions in Guam for ratings that have
rotational shortages.  In January 1998, the Navy announced plans to
perform A-76 studies for bachelor officer quarters (BOQ) and bachelor
enlisted quarters (BEQ) functions of military billets that have
rotational shortages.  (See table 2.)



                                Table 2
                
                Other Navy Functions Announced for A-76
                 Studies That Have Rotational Shortages

                        Number of
             Locati      military      Affected ratings that have
Function     on           billets      rotational shortages
-----------  ------  ------------  --  -------------------------------
Base         Guam             216      Aviation ordnance, boatswain's
operations                             mate, builder, damage
support                                controlman, gas turbine system
                                       technician, and mess specialist

BOQ/BEQ      Lemoor            10      Mess specialist
             e

======================================================================
Total                         226
----------------------------------------------------------------------
As of August 1997, data showed that these outsourcing initiatives
would further reduce the rotation base for specific ratings and would
add to existing rotational shortages.  Navy officials told us that
the decisions to study these functions for potential outsourcing were
made before the Navy had developed servicewide and regional data
needed to identify the impact on sea-shore rotations and, as a
result, they were unaware of the potential impact.  In commenting on
a draft of this report, DOD added that, even though the Navy's
decision to study these functions was made before today's stringent
procedures were in place, the Navy concluded after the decision was
made that the impact on sea-shore rotation and career progression
would be acceptable. 

Navy officials at the affected installations stated that the Navy's
decision to study these functions for potential outsourcing will
seriously affect sea-shore rotation, resulting in the elimination of
military billets and fewer opportunities available on shore for
enlisted personnel grades E-5 through E-9.  Other Navy officials
expressed similar concerns and the view that these outsourcing
initiatives could result in less flexibility for the Navy and impair
career progression and morale for its enlisted servicemembers. 


--------------------
\1 The Navy's sea-shore rotation policy approved by the Vice Chief of
Naval Operations in December 1997 designates a specific rating as
having a rotational shortage only when the aggregate sea-shore
rotation is more than 4 years at sea for every 3 years on shore.  Our
use of the term shortages in this report is intended to reflect what
the Navy previously considered as an insufficient number of shore
billets available within a specific rating based on the Navy's
sea-shore rotation analysis prepared in August 1997.  We recognize
that under the Navy's recent policy guidance the shortage is not
viewed negatively by the Navy unless it causes rotations to exceed 5
years at sea for every 3 years on shore. 


      PLANS FOR SOME NAVY STUDIES
      CANCELED DUE TO THE IMPACT
      ON SEA-SHORE ROTATION
---------------------------------------------------------- Letter :3.1

In fiscal year 1997, the Commander in Chief, Atlantic Fleet, canceled
outsourcing study plans for about 240 military billets in the BOQ and
BEQ functions because of Navy-wide rotational shortages for mess
specialists and the related impact on sea-shore rotation.  Similarly,
in fiscal year 1998, the Commander in Chief, Pacific Fleet, canceled
plans to begin A-76 studies involving about 63 military billets in
these functions for the same reason.  Although the funding for these
billets had been deleted from the 1999 budget, both commands are
planning to reinstate funding authorization by reprogramming existing
resources.  The Navy also canceled an A-76 study of the BOQ and BEQ
functions at the Naval Security Station, Washington, because Navy
officials had determined that outsourcing these functions would have
further degraded sea-shore rotation. 

The Navy does not intend to cancel its plans to begin the A-76
studies announced for tug operations and maintenance involving 306
military billets or the base operations support at Guam even though
the shore billets that will be eliminated will further impact the
sea-shore rotation base.  According to Navy officials, the decision
to study for outsourcing the tug operations and maintenance function
was initially based on the fact that the Navy's tug boats were old
and costly to maintain and would eventually have to be replaced if
the tug operations and maintenance were not outsourced.  Navy
officials stated that several options will be considered to
accommodate the impact on sea-shore rotation, such as reclassifying
the shore billets to a related billet, general duty billet, or
increasing the number of shore billets for those ratings in other
locations. 


   NEW OUTSOURCING COORDINATION
   EFFORTS WILL BE INSTRUMENTAL IN
   MAKING DECISIONS ON FUTURE
   STUDIES
------------------------------------------------------------ Letter :4

Until May 1997, the Navy did not have procedures in place to ensure
that rotational requirements were adequately considered when it
determined potential functions for outsourcing study.  At that time,
the Navy adopted policies and procedures to examine Navy-wide and
regional effects of its outsourcing plans on the sea-shore rotation
base.  Specifically, a memorandum of agreement was established
specifying the coordination process between the Navy's headquarters
infrastructure officials and the military personnel officials
regarding the procedures for studying military functions for
potential outsourcing.  This memorandum of agreement was further
strengthened in September 1997 by a more detailed Navy-wide
memorandum of agreement that applied to all major commands for all
infrastructure reductions, including outsourcing.  Also, in August
1997, the Navy's Bureau of Personnel provided major commands and
other officials with Navy-wide and regional manpower data tools
specifying the rotational requirements for each specific rating. 
Outsourcing officials are expected to use this information to assess
rotational requirements of specific ratings for grades E-5 through
E-9 when identifying potential candidates for outsourcing.  If a
rotational shortage is identified, the specific rating is not
recommended for outsourcing to avoid further degradation of the
sea-shore rotation base. 

In December 1997, the Vice Chief of Naval Operations approved a set
of business rules to further strengthen the policies and procedures
for protecting military billets with rotational shortages from
potential outsourcing.  These business rules require that the overall
sea-shore rotation for sea ratings will not exceed 4 years at sea for
every 3 years on shore and that the sea-shore rotation for individual
ratings will not exceed 5 years at sea for every 3 years on shore. 
The Vice Chief of Naval Operations directed that these business rules
be followed for all infrastructure reductions, including outsourcing. 
Moreover, Navy infrastructure officials and military manpower
officials told us that they are continuing to work closely regarding
outsourcing goals and sea-shore rotation requirements as the Navy
moves to identify potential outsourcing candidates and meet its
outsourcing study and savings goals. 


      FUTURE OUTSOURCING GOALS
      REINFORCE NEED FOR STRATEGIC
      PLANNING
---------------------------------------------------------- Letter :4.1

Between fiscal years 1997 and 2002, the Navy plans to study 80,500
civilian and military positions for potential outsourcing at an
estimated savings of $2.5 billion.  The Navy estimates that about
10,000 of these positions will be military billets and the remaining
70,500 will be positions currently occupied by civilians.  (See table
3.)



                                Table 3
                
                 Navy Outsourcing Study Goals by Fiscal
                                  Year

                     ((Numbers reflect positions))

                          1997    1998    1999    2000    2001   Total
----------------------  ------  ------  ------  ------  ------  ======
Military                 1,400   2,000   2,300   2,200   2,100  10,000
Civilian                 9,100  13,000  17,700  17,800  12,900  70,500
======================================================================
Total                   10,500  15,000  20,000  20,000  15,000  80,500
----------------------------------------------------------------------
Because the funding for the Navy's military billets is eliminated
from the personnel budget when the billets are announced for study,
the funding for all military billets approved for competition will be
deleted from the Navy's personnel budget by the year 2003.  To
eliminate the 10,000 military billets from the military personnel
budget by the year 2003, the Navy's objective has been to announce
about 2,000 military billets for study each year for 5 years
beginning in fiscal year 1997.  In fiscal year 1997, the Navy
announced plans to study about 1,400 military billets for potential
outsourcing.  It appears likely, however, that the Navy will fall
short of its goal for fiscal year 1998. 

As of January 1998, the Navy had announced plans to study 740
military billets and 6,678 civilian positions for fiscal year 1998. 
Navy officials told us in February 1998 they will announce additional
A-76 studies in fiscal year 1998, but did not know the specific
activities that would be studied or the number of billets that would
be affected.  As of February 1998, the Navy was attempting to
identify potential functions and billets for outsourcing in
subsequent fiscal years, but it had not determined the specific
number of military billets or civilian positions that will be
announced for study in those years.  Some Navy officials have
expressed concern over whether they will be able to attain the
overall goal of studying 10,000 military billets by the year 2003. 
In addition, some Navy base commanders are concerned that outsourcing
decisions affecting their installations may be made without their
input. 

Despite these concerns, the Navy has programmed estimated savings of
$2.5 billion from outsourcing into its future years defense plan,
increasing the pressure to identify candidates for outsourcing
studies.  The Navy has established an ambitious goal for itself in
terms of number of positions it plans to study for potential
outsourcing under A-76.  At the same time, the Navy is relying on its
major commands to identify the functions to study to meet these
programmed budget savings.  Navy officials stated that they began a
series of planning conferences in September 1997 involving
appropriate officials from Navy headquarters and major commands. 
According to these officials, one of the primary objectives of the
planning conferences is to begin discussing a strategic plan for
accomplishing the outsourcing goals for fiscal years 1999 through
2001.  While we believe that a strategic plan is necessary to achieve
the Navy's outsourcing goals, ongoing coordination and improved
planning between headquarters and the major commands will be required
to reach agreement on realistic goals and time frames and to identify
areas most conducive to outsourcing and likely to yield the greatest
savings.  In addition, improved planning and coordination could
minimize the elimination of required military shore billets, as well
as avoid prematurely programming savings into future years' budgets. 
Navy officials stated that, in addition to the recent planning
conferences, it plans to address the larger issue of how the Navy
conducts its business and possible alternatives for meeting Navy-wide
personnel levels and requirements. 


   CONCLUSIONS
------------------------------------------------------------ Letter :5

The Navy established ambitious goals for studying military and
civilian personnel positions for potential outsourcing under A-76
competitions.  Only as it began initiating the plans for some of
these studies involving military personnel positions did it find that
outsourcing some of these positions could affect positions reserved
for sea-shore rotational requirements--a situation that caused the
Navy to withdraw some of its planned outsourcing initiatives.  The
Navy has recently established policies and procedures to ensure that
sea-shore rotation requirements are reviewed and considered when
identifying potential functions for outsourcing.  While the Navy has
recently begun to focus on strategies for attaining its outsourcing
goals for future years, improved planning and coordination between
headquarters and major commands are needed to reach agreement on
realistic goals and time frames.  Improved planning and coordination
could also identify areas most conducive to outsourcing, least likely
to eliminate needed shore billets, and likely to yield the greatest
savings.  In addition, improved planning and coordination could
minimize the elimination of required military shore billets, as well
as avoid prematurely programming savings into future years' budgets. 


   RECOMMENDATION
------------------------------------------------------------ Letter :6

To enhance the likelihood that plans for outsourcing are reasonable
and achievable, we recommend that the Secretary of Defense take steps
to ensure that the Secretary of the Navy, as it develops its
strategic plan, involves the major commands to reach agreement on
realistic goals and time frames, and identify areas most conducive to
outsourcing.  Likewise, we recommend that the Secretary of Defense
periodically reassess whether outsourcing savings targets that are
used in planning for future years budgets are achievable in the time
frames planned. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

In commenting on a draft of this report, DOD concurred with our
conclusions and recommendation (see app.  II).  DOD provided a number
of comments addressing how the Navy has taken significant steps to
implement policies and coordination procedures to protect rotational
billets from outsourcing considerations and to involve the major
commands in the strategic planning process for attaining its future
years' outsourcing goals.  DOD noted, and we concur, that a number of
studies included in the Navy's initial outsourcing announcement were
canceled because a subsequent review revealed that they were not
appropriate competition candidates.  Since then, DOD notes that the
Navy has made progress to widen the scope of its outsourcing program
and to involve all claimants (major commands) in the planning
process.  DOD indicated that the canceled outsourcing studies cited
in our report were not representative of the Navy's competitive
outsourcing program as it exists today.  The Navy is currently
implementing a number of initiatives to improve strategic planning
that should enable them to identify areas most conducive to
outsourcing, without exacerbating shortages of rotational billets. 

DOD also stated that the Navy's current outsourcing policies and
procedures require that no function employing military personnel will
be announced for potential outsourcing until the Navy's Manpower
Office determines that outsourcing the function will not have an
adverse affect.  DOD stated that these activities demonstrate the
Navy's commitment to work with its major commands, and therefore,
additional direction from the Secretary of Defense is unnecessary. 

We agree that the Navy has begun some important actions toward
developing a strategic plan and including its major commands in that
process.  However, the Navy has not completed its plan as of April
1998.  At the same time, our report points out that it appears likely
the Navy will fall short of its goal for new outsourcing studies in
fiscal year 1998, and some Navy officials expressed concern to us
over whether they will be able to attain the optimistic goal of
studying 10,000 military billets by the year 2003 and save $2.5
billion from outsourcing in its future years defense plan.  This goal
adds pressure on the claimants to emphasize outsourcing, and
accordingly, we believe it will remain critical for the Navy to
continue to work with its major commands to complete the development
of its plans for accomplishing these objectives.  Likewise, we
believe it is important to periodically reassess the extent to which
savings goals and objectives are achievable and whether savings
targets established for out-year budget purposes might need to be
revised.  In view of this, we have revised our recommendation to
recommend that the Secretary of Defense ensure that the Secretary of
the Navy, as it develops its strategic plan involves the major
commands to reach agreement on realistic goals and time frames, and
identify areas most conducive to outsourcing.  We have also added a
recommendation that the Secretary of Defense periodically reassess
whether outsourcing savings targets that are used in planning for
future years budgets are achievable in the time frames planned. 

Our scope and methodology are discussed in appendix I.  DOD's
comments are reprinted in appendix II. 


---------------------------------------------------------- Letter :7.1

We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committees on Armed Services and on
Appropriations and the House Committees on National Security and on
Appropriations; the Director, Office of Management and Budget; and
the Secretaries of the Army, the Navy, and the Air Force.  Copies
will also be made available to others upon request. 

Please contact me on (202) 512-8412 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix III. 

David R.  Warren, Director
Defense Management Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

Neither the Army nor the Air Force have experienced problems similar
to the Navy in making outsourcing decisions, primarily because of
mission differences.  The Army's and Air Force's policies for
protecting rotational billets are designed to ensure a proper balance
between the numbers and types of billets located overseas and in the
continental United States.  The types of rotational billets that the
Army and Air Force need to protect from outsourcing are generally in
highly technical areas that would not normally be appropriate for
outsourcing.  Moreover, both services rely, to varying extent, on
contractor personnel to perform base support type functions.  The
Navy, on the other hand, operates forward-deployed forces from its
ships and requires military personnel to perform virtually all of its
support services that might be done by civilians were the Navy
operating from land bases.  Therefore, the focus of the review was on
the Navy. 

We met with officials from the Office of the Secretary of Defense,
the Army, the Air Force, and the Navy regarding their policies for
considering rotational and career development requirements in
outsourcing decisions.  We obtained policies related to outsourcing
and rotational billets, memorandums of agreements, and procedures for
identifying A-76 study candidates.  We also met with officials from
the Army Training and Doctrine Command at Fort Monroe, Virginia; the
Air Force Air Combat Command at Langley Air Force Base, Virginia; and
the Navy Commander in Chief, Atlantic Fleet in Norfolk, Virginia; to
discuss their policies and procedures for identifying and protecting
rotational billets from outsourcing considerations.  We obtained
documentation regarding current and planned A-76 studies, and A-76
study plans that were eliminated because of the impact on rotational
requirements.  We obtained information pertaining to outsourcing and
rotational billets from the Navy Commander in Chief, Pacific Fleet at
Pearl Harbor, Hawaii, and met with various Navy Base commanders in
the Norfolk, Virginia, area to obtain their perspective on
contracting out of functions historically performed by enlisted
personnel. 

We reviewed the outsourcing initiatives and the impact of these
initiatives on rotational billets in the Army, Air Force, and Navy. 
However, we focused the majority of our work on the Navy's
outsourcing initiatives and the potential impact of those initiatives
on sea-shore rotation. 

We compared the database of Navy-wide and regional data on the
rotational requirements for each specific rating for grades E-5
through E-9 to the Navy's outsourcing initiatives.  We did not
independently validate the mathematical models the services used to
identify rotational requirements or the criteria they used in
building these models. 

We conducted our review from September 1997 to April 1998 in
accordance with generally accepted government auditing standards. 




(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
=========================================================== Appendix I



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Barry W.  Holman, Associate Director
Nomi R.  Taslitt, Assistant Director
Thomas J.  Howard, Assistant Director

NORFOLK FIELD OFFICE

David A.  Schmitt, Evaluator-in-Charge
Sandra D.  Epps, Site Senior
Tracy Whitaker Banks, Evaluator


*** End of document. ***