BASIC LOGISTIC MISSION CAPABILITY BY INAPPROPRIATE OR EXCESSIVE APPLICATION OF THE CA PROGRAM. WE WILL, OF COURSE, NOTIFY THE CONGRESS BEFORE BEGINNING ANY CA COST COMPARISON INVOLVING CORE SUB-FUNCTIONS. OUR CURRENT ROUGH ESTIMATE IS THAT WE WILL STUDY APPROXIMATELY TEN THOUSAND OF THE ONE HUNDRED THOUSAND CORE POSITIONS, AND, BASED ON CURRENT EXPERIENCE, ABOUT SIX THOUSAND OF THOSE POSITIONS STUDIED WILL STAY IN-HOUSE. STUDIES OF TEN THOUSAND POSITIONS WILL SAVE US AN ESTIMATED $80 MILLION IN ANNUAL OPERATING COSTS AND WILL FREE FIVE THOUSAND POSITIONS FOR USE ELSEWHERE IN THE NAVY. BASED ON PAST PERFORMANCE, WE ESTIMATE THAT THESE STUDIES WILL RESULT IN FEWER THAN THREE HUNDRED PERMANENT CIVILIAN EMPLOYEES LOSING THEIR GOVERNMENT JOBS.

AT

THE DEPARTMENT OF DEFENSE REPORT OF FEBRUARY 28, 1986 TO THE CONGRESS PROVIDED SUBSTANTIAL DETAIL RELATIVE TO THE CA MORATORIUM FOR GUARDS AND FIREFIGHTERS. THE NAVY IS IN FULL AGREEMENT WITH THE RECOMMENDATION TO REMOVE THE MORATORIUM. THE VERY LEAST, 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 TO THEM WHEN THEY ARE NEEDED IN OTHER, MORE PERSONALLY REWARDING JOBS. SIMILARLY, THE AUTHORITY TO USE CONTRACTS FOR TEMPORARY, NEW AND EXPANDED REQUIREMENTS WOULD 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. 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, MOST LIKELY, AT HIGHER COST.

of the lessons learned at Hawthorne for incorporation into the subsequent studies. That point has now been reached. We consider the Hawthorne plant to be on a sound and viable footing and you should be assured that our approach to the Army's review of the Crane and McAlester operations will be conducted in a regular and systematic fashion and not on an expedited basis.

The following factors convince us that we will not have a repeat of the Hawthorne experience:

O Should the cost comparison indicate contract performance as the most cost-effective operation we will develop a detailed transition plan to bridge the in-house to contractor gap.

O We have gained more experience in developing statements of

work.

O A $73 million depot improvement program has been completed at Crane, McAlester and Hawthorne to improve the facilities, inventory management and mission operation.

O Both Crane and McAlester inventories and procedures are

already aligned with the Army's system.

We expect that the Crane and McAlester studies will provide us the most efficient organization, and if contracted, will not result in

a repeat of the Hawthorne experience.

Closing

In closing, I would like to say that the listing you have requested has been submitted for the record as an attachment to this statement. In it we have identified the core logistic functions at the activities listed in the law. We will comply with the waiver requirements specified in Public Laws 98-525 and 99-145 for core logistic functions consistent with DoD instructions. We would like

to see the moritorium on cost studies for firefighters and security guards lifted, or at least not extended. Our planned cost reviews of Crane and McAlester are consistent with A-76 policy and core logistic legislation. The situation at these two facilities today is markedly different than in 1980 when the Hawthorne contract was executed. We have considered the lessons learned from the Hawthorne experience, and have in place the procedures and oversight to insure the process is administered fairly.

This completes my statement, I will answer any questions you may have.

Note: Sharpe Army Depot, listed in Section 1231, PL 99-145, does not perform depot level maintenance.

STATEMENT OF REAR ADM. JOHN C. FRASER, JR., DIRECTOR OF SHORE ACTIVITIES, PLANNING AND PROGRAMMING DIVISION, DEPARTMENT OF THE NAVY

Admiral FRASER. Mr. Chairman, I am Admiral Fraser. I appreciate the opportunity also to discuss the Navy's commercial activities program with you today. I will precis my remarks, if that is acceptable, and put the written remarks in the record.

The top management within the Navy views the Commercial Activities Program as a very very effective efficiency tool. Based on current experience, we find that we save $8 million and almost 500 positions for every 1,000 positions studied. These reductions result from the implementation of most efficient organizations when the functions remain in house and the Government employees retain their jobs, and also from conversion to contract.

I must clarify this point. We will not fire 500 employees for every 1,000 studied. Five hundred positions will be freed for other use within the Navy. By careful personnel management of the entire CA process, fewer than 30 permanent employees per 1,000 studied have historically lost Government employment. With the pressures of Gramm-Rudman-Hollings and the requirement to support the 600-ship Navy, CA, efficiencies are important to us. Therefore we continue to emphasize the study of CA functions in the Navy.

The Commercial Activities Program is surrounded by emotion and controversy. Private businessmen who compete for our work in the CA environment feel that the Navy is unfair in its competition. 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, and they are minority, and in saying, "See, I told you so."

The Commercial Activities Program is not simple to administer. However, after weighing the pluses and minuses, top Navy management has clearly concluded that the bottom line results are very worthwhile in supporting our broad Navy goals. Since 1979, we have documented savings of over $300 million and over 9,600 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 in-house operation more efficient so that over 60 percent of all functions studied are retained in house because they are more cost-effective than the competing private bids. I am personally delighted when a CA study results in substantial savings and the function stays in house.

Where a private sector contractor is more efficient and a contract is awarded, our records show that less than 6 percent of the affected employees lose their government employment. If we look at that 6 percent 1 year after severance from their government job, we find that the 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 of