these employees trying to get jobs with the contractor, which is their right of first refusal. Our records show that only 1 percent choose employment with the successful contractor. While on the subject of our civil service employees, I think it is important to note that we have studied only 15,000 civilian positions out of a total Navy population of 318,000. We estimate that after all CA functions have been studied, we will have studied only 40,000 of the 318,000 jobs, or less than 121⁄2 percent of all Navy's employees. The concept of logistics core was first espoused by the Joint Logistics Commanders. When the CA Program was getting off the ground in the late 1970's, they got together and said, "What happens when all the janitors, food service messmen, and other lowskilled positions are studied?" The concern for the essentiality and mission responsibilities for emergencies and mobilization in shipyards, aircraft rework facilities and other key logistic activities, everyone felt must be protected from being gutted by any CA process. Your legislation has, of course, supported that in spades. Top Navy management, again, has strongly supported the logistics core concept from its inception. We currently have approximately 100,000 positions covered in the core activities which were listed. When we submitted the Navy logistics core to OSD last year, we said this is our core, but within these 100,000 positions there are some sub-functions or support functions or low-skilled functions which don't need to be performed solely by civil service employees or military personnel to safeguard our ability to respond to mobilization and other emergency situations. For example, in shipyards there are workers who tear up tile decks and lay new tile. There are workers who pump bilges and clean ventilation ducts and many other lower-skilled jobs where the local business community might be able to provide required support if, and I stress if, the functions studied were to go contract as a result of having significantly lower cost. Per your request we have submitted a listing of the depot maintenance functions performed at the Department of the Navy core logistics activities listed in section 1231 of the 1986 DOD Authorization Act. Core identification is an ongoing, iterative process dependent on a variety of factors such as evolving weapon systems, varying mission requirements and changing mobilization scenarios. We are almost identical to the Air Force in the techniques that we use to go to a decision as to whether or not a function is fundamentally a core function and needs to be protected. Since we support the core concept, we will not harm basic logistics mission capability by inappropriate or excessive application of the CA process. We will, of course, notify the Congress before beginning any CA cost comparison involving sub-functions, and if there is a difference of opinion, obviously we will work with your staffs to make sure that we don't do anything inappropriate. Our current rough estimate is that we would like to study approximately 10,000 of the lower-skilled support functions of the 100,000 in core positions. Based on current experience, about 6,000 of those positions will stay in house with in-house government employees. Studies of 10,000 positions we feel will save us $80 million a year in annual operating costs and will free up to 5,000 positions for use elsewhere in the Navy. Based on past experience, we estimate that these studies will result in fewer than 300 permanent civilian employees losing their government jobs. The Department of Defense report provides substantial detail relative to the CA moratorium for guards and firefighters. We agree with the other services and OSD on the recommendation to remove the moratorium. It is our request that legislation should be made more flexible so that options are available to handle exceptional situations such as instances of military personnel being assigned guard duty which is unappealing and certainly not fitted for the skills for which they are highly trained. Similarly, the authority to use contracts for temporary, new and expanded requirements will provide us with needed flexibility. Recently we converted the aircraft maintenance function at the naval air stations in our air training command to contract performance. The contractor is performing successfully at an annual savings approximating $11 million a year. The 800 military personnel involved, unfortunately, also performed security guard services as a collateral duty. We could have easily and economically included this requirement in the contract. Unfortunately, the rigid criteria in the prohibition prevented us from so doing. We are now looking at alternatives to provide this service with government personnel with considerably more difficulty and more than likely higher cost. This example is just one instance of the kinds of difficulties we are continuing to encounter with the prohibition. We have spent a considerable amount of time and effort reviewing the practicality of applying the CA Program to Navy activities on Guam. The increase in the long-term strategic importance of our Guam base support capacity with consideration of the relatively fragile Guam economy result in our exempting Navy Guam activities from the CA Program for the foreseeable future for reasons of national defense. Mr. Chairman, we recognize that we must work smarter as well as harder if we are going to give this country the defense required by the times. We in the Navy believe that the commercial activities program directed with a measure of good common sense helps us to work smarter. It helps us to find the most efficient way to do busi ness. Thank you for the opportunity to share my thoughts with you today. PREPARED STATEMENT OF JOHN C. FRASER, JR. MR. CHAIRMAN, I APPRECIATE THIS OPPORTUNITY TO DISCUSS THE NAVY'S COMMERCIAL ACTIVITIES OR CA PROGRAM. BEFORE I GET INTO THE SPECIFIC SUBJECTS OF CORE LOGISTICS AND GUARDS AND FIREFIGHTERS AND THE SITUATION ON GUAM I WOULD LIKE TO GIVE YOU A BRIEF OVERVIEW OF OUR NAVY PROGRAM. TOP MANAGEMENT WITHIN THE NAVY VIEWS CA AS A VERY EFFECTIVE EFFICIENCY TOOL. BASED ON CURRENT EXPERIENCE, WE FIND THAT WE SAVE $8 MILLION AND ALMOST FIVE HUNDRED POSITIONS FOR EVERY ONE THOUSAND POSITIONS STUDIED. THESE REDUCTIONS RESULT FROM IMPLEMENTATION OF MOST EFFICIENT ORGANIZATIONS WHEN THE FUNCTIONS STUDIED REMAIN IN-HOUSE AND FROM CONVERSION TO CONTRACT. AND I MUST CLARIFY THIS POINT. WE WILL NOT FIRE FIVE HUNDRED EMPLOYEES FOR EVERY THOUSAND STUDIED. FIVE HUNDRED POSITIONS WILL BE FREED FOR OTHER USE WITHIN THE NAVY BUT BY CAREFUL PERSONNEL MANAGEMENT OF THE ENTIRE CA PROCESS FEWER THAN THIRTY PERMANENT EMPLOYEES HAVE HISTORICALLY LOST GOVERNMENT EMPLOYMENT. WITH THE PRESSURES OF GRAMM-RUDMAN-HOLLINGS AND OUR REQUIREMENT TO SUPPORT THE SIX HUNDRED SHIP NAVY, CA EFFICIENCIES ARE IMPORTANT TO US. THEREFORE, WE WILL CONTINUE TO EMPHASIZE CA ACCOMPLISHMENT. PRIVATE CA IS SURROUNDED BY EMOTION AND CONTROVERSY. BUSINESSMEN WHO COMPETE FOR OUR WORK IN A CA ENVIRONMENT FEEL THAT THE NAVY IS UNFAIR IN ITS COMPETITIONS. CIVIL SERVICE EMPLOYEES IN FUNCTIONS BEING COMPARED FEEL THAT THEY HAVE BEEN UNFAIRLY SINGLED OUT AND THAT PRIVATE BUSINESS COULD NEVER DO THEIR JOB AS WELL AS THEY. THERE ARE THOSE WHO DELIGHT IN POINTING OUT INSTANCES OF INADEQUATE CONTRACTOR PERFORMANCE, WHICH ARE A MINORITY, AND IN SAYING, "SEE I TOLD YOU SO." CA IS NOT SIMPLE TO ADMINISTER, AND THE RESULTS FAR FROM PERFECT; HOWEVER, AFTER WEIGHING THE PLUSES AND MINUSES THE NAVY MANAGEMENT HAS CLEARLY CONCLUDED THAT THE BOTTOM LINE RESULTS ARE VERY WORTHWHILE IN SUPPORT OF BROAD NAVY GOALS. SINCE 1979 WE HAVE SAVED OVER $300 MILLION AND OVER 9600 MILITARY AND CIVILIAN POSITIONS WHICH WERE APPLIED TO OTHER NAVY NEEDS. THE NAVY IS NOT INDIFFERENT TO LOYAL AND FAITHFUL WORK OF OUR CIVIL SERVICE EMPLOYEES, SOME OF WHOM FIND THAT THEIR JOBS MIGHT BE IN JEOPARDY DUE TO A CA COST COMPARISON. WE ARE GETTING SMARTER EVERY YEAR IN THE COMPETITION PROCESS IN MAKING OUR INHOUSE OPERATION MORE EFFICIENT SO THAT OVER 60% OF ALL FUNCTIONS STUDIED ARE RETAINED IN-HOUSE BECAUSE THEY ARE MORE COST EFFECTIVE THAN COMPETING PRIVATE BIDS. I HAVE ATTACHED TO THIS STATEMENT AN EXCERPT FROM A SPEECH VICE ADMIRAL HUGHES, THE DEPUTY CHIEF OF NAVAL OPERATIONS (LOGISTICS), MADE LAST DECEMBER IN WHICH HE WENT INTO DETAIL ABOUT HOW PUBLIC WORKS CENTERS MADE THEIR VEHICLE OPERATION AND MAINTENANCE FUNCTIONS 30% MORE EFFICIENT SO THAT THEIR COST COMPETITIONS WERE WON IN-HOUSE. I AM PERSONALLY DELIGHTED WHEN A CA STUDY RESULTS IN A SUBSTANTIAL SAVINGS AND THE FUNCTION STAYS IN-HOUSE. WHERE THE PRIVATE BUSINESS IS MORE EFFICIENT AND A CONTRACT IS AWARDED, OUR RECORDS SHOW THAT LESS THAN SIX PERCENT OF AFFECTED PERMANENT EMPLOYEES LOSE THEIR GOVERNMENT EMPLOYMENT. A YEAR AFTER SEVERENCE FROM THEIR GOVERNMENT JOB, WE FIND THAT A MAJORITY OF THESE ARE BACK ON THE GOVERNMENT PAYROLL. A COMPLAINT THAT HAS BEEN VOICED BY WINNING CONTRACTORS IS THAT THE EFFECTIVENESS OF OUR PLACEMENT PROGRAM RESULTS IN VERY FEW GOVERNMENT EMPLOYEES EXERCISING THEIR RIGHT OF FIRST REFUSAL FOR JOBS WITH THE CONTRACTOR; OUR RECORDS SHOW ABOUT ONE PERCENT CHOOSE EMPLOYMENT WITH THE CONTRACTORS. WHILE ON THE SUBJECT OF OUR CIVIL SERVICE EMPLOYEES, I THINK IT IS IMPORTANT TO NOTE THAT WE HAVE STUDIED ONLY 15,000 CIVILIAN POSITIONS OUT OF A TOTAL NAVY CIVILIAN POPULATION OF 318,000. WE ESTIMATE, AFTER ALL CA FUNCTIONS HAVE BEEN STUDIED, WE WILL HAVE STUDIED LESS THAN FORTY THOUSAND CIVILIAN POSITIONS, 12.5 PERCENT OF ALL NAVY CIVILIANS. IF WE LOOK AT THAT SIX PERCENT THE CONCEPT OF LOGISTICS CORE WAS FIRST ESPOUSED BY THE JOINT LOGISTICS COMMANDERS. WHEN THE CA PROGRAM WAS GETTING OFF THE GROUND IN THE LATE NINETEEN SEVENTIES, THEY GOT TOGETHER AND |