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 122 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. were decided in favor of the in-house work force retaining the -280 civilian positions eliminated (15% of those studied) We have found that competition forces the in-house workforce to become more efficient. Where contractor employees replace government employees, the government employees usually find jobs either with the government or with the contractor. The Secretary of the Ar my has recently articulated the Army policy with regard to employees whose jobs have been converted to contract. Maximum efforts will be made to help these employees, on an individual basis, find continuing employment. Additionally efforts will be made to ease the transition period for these employees. The General Accounting Office reported in April 1985, that only five percent of the effected employees were separated. Our data substantiates that few employees are without jobs following a commercial activities study. Firefighting and Security Guards You asked that we comment on the moratorium on contracting out firefighting and security guards. We consider it essential that, in the interests of good management, the Army have the authority to compete with the private sector for the performance of routine firefighting and security functions where sensible. If contracting is determined to be more cost advantageous, we do our best to ensure that employees can find other employment, either through our placement programs or with the contractor under the right of first refusal clause in the contract. The latest report on fire fighting and security guard functions was submitted on 28 Feb 86. It reported the following for Army in-house vs contract performance: Fire Prevention and Protection 96.2% (In-house) 3.8% (Contract) The report included a DoD recommendation, which the Army supports, to repeal the legislation under Section 1221 as amended by Section 1232 of P.L. 95-145, so that we may continue to make decisions based on cost effectiveness. McAlester and Crane In The Army has announced its intent to conduct commercial activity studies of McAlester Army Ammunition Plant and Crane Army Ammunition Activity. These studies, conducted under the provisions of OMB Circular A-76, will compare the cost of operation by government employees with the cost of operation by a competitively selected contractor. A major benefit to be derived from these studies will be an ammunition facility organization structured in the most economical, efficient manner. These cost studies are consistent with current law. The purpose of the DOD single manager for conventional ammunition was to gain efficiencies through consolidation of responsibility in a single manager and organization. 1977, OSD directed the single manager to develop a plan to convert the government owned-government operated facilities to government owned-contractor operated facilities under the commercial activities program. This was in keeping with the goal of using the private sector wherever feasible. As the single manager for conventional ammunition, the Army moved quickly to implement the OSD guidance. The ammunition facilities at Hawthorne, McAlester, and Crane were scheduled for study under A-76. In February 1979, we announced the study of Hawthorne, which resulted in a contract decision in October 1980. The study of McAlester was announced two months later, in December 1980. The McAlester study was cancelled, however, in June 1981 following the problems encountered with the contract at Hawthorne. At that time, the Army advised the Congress that the studies of McAlester and Crane would be deferred. It was decided to delay those studies to some future point when it could be determined that the contract at Hawthorne was cost-effective and beneficial to the Army. Our intention at that time was to take advantage 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. |