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Army War Reserves: DOD Could Save Millions By Aligning Resources With Reduced European Mission (Letter Report, 07/11/97, GAO/NSIAD-97-158).

Pursuant to a congressional request, GAO evaluated the Army's progress
in redistributing war reserve equipment that is no longer needed in
central Europe, focusing on whether: (1) the Army's plan for
redistributing central European war reserve equipment provides for the
specific and timely disposition of this equipment; and (2) cost savings
would be realized by aligning the storage and maintenance capacities in
central Europe so that they accurately reflect the reduced mission
there.

GAO noted that: (1) the Department of Defense (DOD) could save about $54
million per year in personnel costs once the Army removes unneeded war
reserve equipment from central Europe and aligns its resources with the
reduced mission; (2) in its plans, the Army has focused on
redistributing major items, such as tanks, trucks, and radios, to other
war reserve programs and has firm plans for a portion of those items;
(3) however, it does not have firm disposition plans for the remaining
items; (4) the Army's plans to redistribute these items are closely
linked with DOD's plan to reduce the facilities now available; (5)
however, because personnel costs comprise about three-quarters of the
central European war reserve budget, most of the Army's savings will
likely come from aligning personnel with the shrinking workload; (6) the
projected reduction in maintenance workload is about 86 percent, which
will require only a small fraction of the personnel currently available;
and (7) thus, the sooner the Army disposes of its unneeded items and
aligns its resources with its reduced mission, the sooner dollar savings
may be realized.

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

 REPORTNUM:  NSIAD-97-158
     TITLE:  Army War Reserves: DOD Could Save Millions By Aligning 
             Resources With Reduced European Mission
      DATE:  07/11/97
   SUBJECT:  Equipment maintenance
             Military materiel
             Human resources utilization
             Strategic planning
             Defense operations
             Mobilization
             Military cost control
             Military withdrawal
             Military downsizing
             Military facilities
IDENTIFIER:  DOD Mobility Requirements Study Bottom-Up Review Update
             South Korea
             Persian Gulf
             Europe
             Army Afloat Prepositioning Program
             
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Cover
================================================================ COVER


Report to Congressional Requesters

July 1997

ARMY WAR RESERVES - DOD COULD SAVE
MILLIONS BY ALIGNING RESOURCES
WITH THE REDUCED EUROPEAN MISSION

GAO/NSIAD-97-158

Army War Reserves

(703160)


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

  AMC - Army Materiel Command
  DOD - Department of Defense

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


B-276992

July 11, 1997

The Honorable James M.  Inhofe
Chairman, Subcommittee on Readiness
Committee on Armed Services
United States Senate

The Honorable C.  W.  (Bill) Young
Chairman, Subcommittee on National Security
Committee on Appropriations
House of Representatives

As requested, we evaluated the Army's progress in redistributing war
reserve equipment that is no longer needed in central Europe. 
Specifically, this report addresses whether (1) the Army's plan for
redistributing central European war reserve equipment provides for
the specific and timely disposition of this equipment and (2) cost
savings would be realized by aligning the storage and maintenance
capacities in central Europe so that they accurately reflect the
reduced mission there. 


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

After the end of the Cold War, the Army changed its focus from Europe
to other parts of the world, specifically South Korea and the Persian
Gulf region.  Due to this change and lessons learned from the Persian
Gulf War, the Army developed a strategy to store, or preposition,
equipment in land-based storage facilities and on ships near these
potential world trouble spots.  Thus, the Army would be able to
respond faster to threats, since equipment such as tanks, trucks, and
consumable supplies would already be in place.  The Army would then
have to transport only the troops and a modest amount of accompanying
materiel.  The Army prepositions equipment in different kinds of
packages.  In central Europe, these packages include (1) items to
support combat brigades of 3,000 to 5,000 soldiers, known as brigade
sets, and (2) items to support specific missions, known as
operational projects (e.g., equipment for setting up bridges or
running fuel pipelines). 

During the Cold War, the Army stored about nine brigade sets of
equipment in central Europe.  The Army now plans to keep two brigade
sets of equipment and an undetermined amount of operational project
equipment in central Europe.  Infrastructure once associated with the
Cold War program has already decreased markedly:  the number of
storage sites has been reduced from 17 to 6.  Equipment no longer
needed in central Europe is being redistributed to other locations,
including South Korea and the Persian Gulf, and prepositioned aboard
ships.  Once this redistribution occurs, the Army can further
decrease the amount of infrastructure and the number of personnel in
central Europe. 

In 1995, the Army began redistributing the war reserve equipment not
needed in central Europe to fill needs in other expanding war reserve
programs throughout the world.  Between 1995 and 1997, the Army
redistributed some equipment to South Korea, Qatar, and the
prepositioned ships.  The rest of the equipment slated for
redistribution is currently being stored in Belgium, Luxembourg, and
the Netherlands at six sites that were built since 1979 with North
Atlantic Treaty Organization funding.  In March 1997, the Army
updated its redistribution plan and identified items still in central
Europe that would be available for redistribution to other Army war
reserve programs worldwide.  These items include many types of
equipment, from heavy combat vehicles to smaller pieces of
communications and electronics gear.  The Army estimates that it will
take through the end of 1999 to repair those items scheduled for
redistribution. 

Several Department of Defense (DOD) organizations are stakeholders in
the Army's prepositioning program.  Army headquarters developed the
prepositioning strategy and spearheaded efforts to identify equipment
for redistribution worldwide.  The Army Materiel Command (AMC) has
management responsibility for the worldwide prepositioning program,
including storing and maintaining this equipment.  AMC, which
inherited this mission from the regional Army commanders, manages the
program through its Army War Reserve Support Command.  The U.S. 
European Command oversees European infrastructure decisions with
input from mission managers, including AMC, and the State Department
to gauge the operational and political implications of decisions. 

The Government Performance and Results Act of 1993 (P.L.  103-62,
Aug.  3, 1993) was designed to create a new results-oriented federal
management and decision-making approach that requires agencies to
clearly define their missions, set goals, and link activities and
resources to those goals.  The act requires federal agencies,
including DOD, to develop strategic plans no later than September 30,
1997, for at least a 5-year period.  It is important that, in
implementing the act, an organization's activities and resources be
aligned to support its mission and help achieve its goals.\1 Because
the war reserve mission in central Europe has been greatly reduced,
DOD should align its war reserve resources accordingly, in light of
the act. 


--------------------
\1 Executive Guide:  Effectively Implementing the Government
Performance and Results Act (GAO/GGD-96-118, June 1996). 


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

DOD could save about $54 million per year in personnel costs once the
Army removes unneeded war reserve equipment from central Europe and
aligns its resources with the reduced mission.  In its plans, the
Army has focused on redistributing major items, such as tanks,
trucks, and radios, to other war reserve programs and has firm plans
for a portion of those items.  However, it does not have firm
disposition plans for the remaining items.  The Army's plans to
redistribute these items are closely linked with DOD's plan to reduce
the facilities now available.  However, because personnel costs
comprise about three-quarters of the central European war reserve
budget, most of the Army's savings will likely come from aligning
personnel with the shrinking workload.  The projected reduction in
maintenance workload is about 86 percent, which will require only a
small fraction of the personnel currently available.  Thus, the
sooner the Army disposes of its unneeded items and aligns its
resources with its reduced mission, the sooner dollar savings may be
realized. 


   REDISTRIBUTION PLAN DOES NOT
   ADEQUATELY CONSIDER UNNEEDED
   EQUIPMENT
------------------------------------------------------------ Letter :3

Army officials told us that, in developing their redistribution plan,
they focused on the major items necessary to fill high-priority needs
in potential world trouble spots.  Army data showed that 128,000
items in central Europe were identified as available for
redistribution to war reserve programs outside of Europe.  The Army
has firm plans for about 54,000 items, or 43 percent (see fig.  1). 
These items will be used to support programs on ships, in South
Korea, and in the Persian Gulf, and the Army expects to redistribute
most of the equipment by the end of 1999. 

   Figure 1:  Status of Army
   Redistribution Plan for War
   Reserve Equipment in Central
   Europe (as of March 1997)

   (See figure in printed
   edition.)

Source:  Our analysis of Army data. 

The Army has proposed plans for about 27,000, or 21 percent, of the
items it identified for redistribution.  These items are being held
for a proposed new brigade set and an increase in support equipment
recommended by the 1995 Mobility Requirements Study Bottom-Up Review
Update.  However, at the time of our review, DOD had not made final
decisions about implementing and funding these programs.  As a
result, the Army's current redistribution plan lacks clear time
frames for delivering those items, and the destinations may not be
definite.  The Joint Staff plans to study both programs and hopes to
reach decisions by early 1998 on the fate and timing of both
initiatives, according to a Joint Staff official.  Army officials
told us that they will likely hold these items in storage until the
Joint Staff completes its studies and DOD makes final decisions about
each program.  Until such decisions are made, the Army will not
redistribute or otherwise dispose of this equipment. 

The Army has no plans for about 46,000, or 36 percent, of the items
it identified for redistribution because it found no known
requirement for them in the war reserve program.  Instead, Army
headquarters instructed AMC to redistribute or dispose of this
equipment.  AMC has not carried out either action.  In September
1996, citing problems with inventory data, among other things, AMC
placed a moratorium on efforts to move assets from the war reserve
storage sites.  Army officials acknowledged that this moratorium had
the unintended consequence of freezing these items in the war reserve
inventory.  AMC lifted the moratorium in April 1997 but has still not
developed a plan for the disposition of the items.  Officials said
that the items will likely remain in storage in central Europe until
AMC finds a destination for or disposes of them. 

Although the Army focused appropriately on major items, such as
tanks, trucks, and radios, when developing its redistribution plan,
many equipment items were excluded from consideration.  As of March
1997, data from AMC's European war reserve managers showed another
200,000 items that were not considered for redistribution.  These
items include such things as tools, construction materials, and
uniforms.  AMC does not intend to repair these items but is not
disposing of them by offering them outside the war reserve system or
to the other services or by selling or scrapping them.  Further, this
inventory is continuing to grow as more equipment is moved to the war
reserve sites from elsewhere in Europe.  According to Army officials,
some of this equipment may ultimately be used for operational
projects in central Europe, although the Army does not have any
current authorizations for those projects.  The equipment items will
remain in storage in central Europe, along with the other items
without firm disposition plans, until an effort is made to
redistribute or dispose of them. 


   DOD COULD SAVE MILLIONS BY
   MATCHING RESOURCES WITH
   REQUIREMENTS
------------------------------------------------------------ Letter :4

DOD could save millions annually by aligning its facilities and
personnel in central Europe with the reduced mission there.  Storage
and maintenance facility requirements for that mission are much less
than the capacities currently available.  More importantly,
maintenance workload requirements, which drive personnel
requirements, drop by 86 percent after 1999.  Despite this dramatic
workload reduction, Army planners have not yet determined how many
personnel will ultimately be required to meet the new mission.  In
addition, DOD's programmed funding does not match this reduced
mission.  DOD has thus far focused on which of the six sites should
be retained.  However, the number and location of sites are less
important in reducing costs than the number of personnel, since
personnel costs comprise most of the budget for the central European
war reserve mission.  By aligning personnel to reflect the reduced
maintenance workload, we estimate that DOD could save about $54
million annually. 

In crafting the Government Performance and Results Act, Congress
recognized that agencies must consider the environment in which they
operate and must identify in their strategic plans the external
factors that could affect the agencies' ability to accomplish their
mission.  This recognition has particular relevance for the Army,
which has not developed a strategic plan to align its budget to
reflect the new, reduced mission in central Europe.  AMC's Army War
Reserve Support Command is beginning to develop a budget plan. 
According to the Commander, previous efforts to develop budget
requirements have been inadequate, and the Command is seeking to
develop more credible budget projections.  Army officials pointed out
that long-term planning has been complicated by the need to use war
reserve equipment from central Europe to support recent operations,
such as those in Bosnia. 


      STORAGE AND MAINTENANCE
      CAPACITIES FAR EXCEED
      REQUIREMENTS
---------------------------------------------------------- Letter :4.1

The storage and maintenance capacities currently available at the six
sites in central Europe far exceed the projected mission
requirements.  According to war reserve managers, storage warehouses
and maintenance facilities are the key elements of their
infrastructure.  Each of the six sites in central Europe has both
controlled-humidity warehouses for indoor storage and maintenance
facilities for periodic maintenance of equipment.  A standard
warehouse contains roughly 40,000 square feet of storage; a standard
maintenance facility measures about 650 square feet.  The number of
standard storage warehouses and maintenance facilities required to
support the reduced mission in central Europe drops by 67 and 75
percent, respectively, from the number currently available (see fig. 
2). 

   Figure 2:  Total Number of
   Available Warehouses and
   Maintenance Facilities and
   Projected Requirements

   (See figure in printed
   edition.)

Note:  AMC's analysis of requirements for the reduced mission
includes a cushion to allow for an undetermined amount of equipment
for operational projects and a potential escalation of maintenance to
support unanticipated operations. 

Source:  Our analysis of AMC data. 

DOD recognizes that it can reduce its infrastructure in central
Europe.  The U.S.  European Command, which has responsibility for
base realignments in Europe, developed a proposed infrastructure
reshaping plan in November 1995 that identifies the sites that should
be retained.  DOD approved the European Command's infrastructure plan
in April 1996.  The plan contained a provision, however, that the
decisions be reviewed and updated in late 1997.  According to a
European Command official, the reexamination will consider changes in
the operational, budgetary, or political situation, and the site
retention recommendations from the 1995 plan are not binding in the
reexamination. 

In developing the initial infrastructure plan, the key
stakeholders--the European Command and AMC--reached different
conclusions about which sites should be retained.  According to a
European Command official, the central European sites offer similar
capabilities.  Thus, in 1995 the European Command chose sites based
heavily on its assessment of the potential political impact of
closures on the host nations.  DOD approved the European Command's
proposal because the Command was attuned to the central European
political situation, according to DOD officials.  Specific
information about DOD's plan will be kept classified until the U.S. 
government makes a decision about which sites will be retained and
then formally notifies affected host nations of its intentions. 


      AVAILABLE MAINTENANCE HOURS
      GREATLY EXCEED PROJECTED
      WORKLOAD
---------------------------------------------------------- Letter :4.2

Once the equipment not needed in central Europe is removed, the
maintenance workload requirement will be based on performing periodic
maintenance of the two remaining brigade sets and some operational
projects.  The Army estimates that it will take through the end of
1999 to repair those items scheduled for redistribution to other war
reserve programs.  The projected 90,000 hours required to maintain
equipment remaining after 1999 is 86 percent less than the 630,000
hours currently available (see fig.  3). 

   Figure 3:  Number of
   Maintenance Hours Currently
   Available and the Projected
   Maintenance Workload
   Requirement

   (See figure in printed
   edition.)

Note:  The estimate of projected workload does not include any
maintenance associated with additional missions or other unforeseen
activities. 

Source:  Our analysis of AMC data. 

Despite this dramatic reduction in the projected maintenance workload
requirement, neither the European Command nor AMC has determined the
associated number of personnel that will be required to perform the
new, reduced mission.  The European Command did not determine this
number in its 1995 infrastructure plan, and a Command official
maintained that AMC is responsible for determining that number. 
However, AMC has delayed making this determination because, according
to AMC officials, the sites to be retained will not be finalized
until the European Command reexamines its infrastructure plan in late
1997. 

The future workload depends more on the maintenance required for the
remaining equipment than on the number of sites that are retained. 
In its 1995 infrastructure plan, the European Command noted that a
fixed personnel strength would be required to perform this
maintenance, regardless of the number of sites.  As a result, AMC
could determine its workload and personnel requirements without the
final decision about which sites will be retained. 


      COST SAVINGS ARE POSSIBLE BY
      REDUCING FACILITIES AND
      PERSONNEL
---------------------------------------------------------- Letter :4.3

Army managers are aware that cost savings are possible after 1999,
but they have not taken the necessary steps to align resources with
the reduced mission in central Europe.  DOD has a proposed plan for
reducing facilities but no plan for reducing personnel to reflect the
reduced maintenance workload.  The core mission of the central
European war reserve program--maintenance of the remaining
equipment--will require only a small fraction of the facilities and
personnel currently available.  Facility costs are a relatively small
portion of the central European war reserve budget; personnel costs
comprise about three-quarters of the budget.  Therefore, our savings
estimate is based on reducing personnel to match the projected
maintenance workload. 

AMC's Army War Reserve Support Command is beginning to develop a
budget plan.  In March 1997, AMC estimated that it would incur $43
million in facility and personnel costs associated with sites that
will have no mission beginning in fiscal year 2000.  However, the
potential to reduce costs has not been reflected in the Army's
funding program, which assumes a constant personnel level through
2003. 

We believe, however, that the amount of savings could be greater than
AMC's estimate if the Army were to focus on aligning personnel with
the reduced mission.  Thus far, the Army has not addressed the full
impact of the projected changes in workload.  Even though AMC knows
approximately how many hours will be required to maintain the
equipment necessary for the remaining mission in central Europe, it
was unable to tell us how many personnel would be needed to perform
the mission.  Focusing on personnel costs is important because they
are projected to be over $62 million in fiscal year 2000, comprising
about three-quarters of the projected central European budget
requirement at that time. 

By reducing personnel to reflect the 86-percent drop in projected
workload, we estimate that DOD can save about $54 million annually in
personnel costs in central Europe.\2 This estimate does not consider
all overhead and facilities costs associated with the mission, nor
does it consider any termination payments for separated personnel. 
Without more detailed information about how many personnel will be
required to meet the mission, we could not make a more precise
estimate. 

As of October 1996, the Army war reserve program employed nearly
1,600 civilians in central Europe.  Most of those employees are local
nationals who work for or are under contract to the Army.  The
employees perform the bulk of the maintenance workload and other
administrative functions.  Separated personnel would be owed
termination payments in accordance with agreements between the United
States and the host nations.  Such payments vary by country.  Our
savings estimate did not include these termination costs because they
cannot be predicted without a specific personnel reduction plan. 


--------------------
\2 Our estimate of savings is based on projected reductions in
maintenance workload in central Europe.  We derived this $54 million
savings estimate by multiplying the projected fiscal year 2000
personnel costs of $62.21 million by the 86-percent reduction in
workload. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :5

Since DOD has closely linked its plan for reducing facilities with
the Army's plan to redistribute equipment no longer needed in central
Europe, the lack of specific and timely disposition actions for some
equipment could jeopardize potential savings.  Therefore, we
recommend that the Secretary of Defense direct the Secretary of the
Army and the Commander, Army Materiel Command to develop a specific
and timely disposition plan for all equipment not needed in central
Europe.  Accordingly, we also recommend that the Secretary of Defense
make timely decisions about the fate of the proposed programs slated
to receive additional equipment--the proposed brigade set and the
increase in support equipment recommended by the 1995 Mobility
Requirements Study Bottom-Up Review Update.  Finally, we recommend
that the Secretary of Defense direct the Commander in Chief, U.S. 
European Command and the Commander, Army Materiel Command to reduce
the costs of facilities and personnel to reflect the new, reduced
mission in central Europe. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

In its comments on a draft of this report, DOD concurred with our
recommendations.  DOD agreed that the central European infrastructure
should be streamlined and stated that the U.S.  European Command is
working closely with the Army War Reserve Support Command to
formulate future prepositioning requirements.  DOD also stated that
it is currently conducting a study, due out by the end of 1998, to
validate the need for both a proposed prepositioned brigade set and
increased afloat support equipment.  DOD indicated that it would
issue guidance for disposing of items not needed in central Europe
once the study has been completed. 

DOD's comments appear in appendix I.  The Department of State also
reviewed a draft of this report and advised us that it had no
comments or suggested changes to the language of the report. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

To determine whether the Army has provided for the specific and
timely disposition of equipment not needed in central Europe, we
reviewed the Army's redistribution plans and guidance for 1995-97. 
We also developed a figure for the amount of equipment in central
Europe identified for redistribution by analyzing data used by the
Army in developing its plans.  In our analyses, we excluded those
items that would be retained in Europe and those that the Army
considered obsolete or did not authorize any expenditure for repair. 
We then reviewed on-hand inventory information to identify whether
any equipment not needed in central Europe was not considered
available for redistribution.  We did not validate computer-generated
data; however, we discussed data quality and the process the Army
used for obtaining and analyzing this data with responsible Army
staff. 

To assess savings that could be realized by aligning storage and
maintenance capacities with the new, reduced central European
mission, we compared the projected workload to the capacities
currently available.  We analyzed data on currently available and
required storage and maintenance facilities, as well as personnel
maintenance work hours.  Also, we reviewed the U.S.  European
Command's 1995 Reshaping Implementation Plan to determine efforts
made thus far to realign facilities.  We determined the projected
drop in workload based on the reduced mission and applied this
reduction to the personnel budget in central Europe.  Since the Army
has already decided to establish programs in other parts of the world
with the equipment redistributed from Europe, we considered the costs
of maintaining that equipment in the new locations to be sunk costs. 
We discussed our analysis with Army officials. 

To obtain background and program history information and projections
for future program requirements, we obtained and reviewed information
on the Army's prepositioning strategy and studies of prepositioning
by us, the Congressional Budget Office, the Congressional Research
Service, and the RAND Corporation.  We met with DOD officials at the
Joint Staff, Washington, D.C., and the U.S.  European Command,
Stuttgart, Germany.  We also interviewed officials and reviewed
documents at the Army Deputy Chief of Staff for Logistics; AMC
Headquarters, Alexandria, Virginia; AMC's Army War Reserve Support
Command, Rock Island, Illinois; AMC's Combat Equipment Group--Europe,
Kerkrade, the Netherlands; and the Army Logistics Integration Agency,
Mechanicsburg, Pennsylvania.  In addition, we interviewed officials
and reviewed documents at the U.S.  embassies in Brussels, Belgium;
The Hague, the Netherlands; and Luxembourg City, Luxembourg.  We also
visited five of the six central European storage sites:  Bettembourg,
Luxembourg; Zutendaal, Belgium; and Coevorden, Vriezenveen, and
Brunssum, the Netherlands. 

We conducted our review from August 1996 to May 1997 in accordance
with generally accepted government auditing standards. 


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

We are sending copies of this report to the Secretaries of Defense
and the Army and other appropriate congressional committees.  Copies
will also be made available to others on request. 

Please contact me at (202) 512-5140 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix II. 

Mark E.  Gebicke
Director, Military Operations
 and Capabilities Issues




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



(See figure in printed edition.)

Now on pp.  3-5. 

Now on pp.  6-8. 

Now on pp.  8-10. 



(See figure in printed edition.)

Now on pp.  10-11. 



(See figure in printed edition.)

Now on p.  11. 

Now on p.  11. 



(See figure in printed edition.)

Now on p.  11. 


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

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

Sharon A.  Cekala
Elliott C.  Smith
Penny A.  Berrier
Karen S.  Blum
Charles W.  Perdue

ATLANTA FIELD OFFICE

Stacey E.  Keisling
John H.  Pendleton
Maria Storts

*** End of document. ***



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