Document Name: Department of Defense: Part 2 of 2
Date: 09/30/93
Owner: National Performance Review

Department of Defense

Accompanying Report of the
National Performance Review

Office of the Vice President

Washington, DC

September 1993

This accompanying report, prepared by the staff of
the National Performance Review (NPR), laid the
groundwork for the recommendations in the NPR report
_From Red Tape to Results: Creating a Government
that Works Better and Costs Less,_ released on
September 7, 1993. This report is based on the best
information available at that time. The specific
recommendations within these reports have been and
will continue to be given priority as part of the
FY95 Budget, legislative proposals, or other
administration initiatives, as appropriate.

Recommendations and Actions

DOD01: Rewrite Policy Directives to Include Better
Guidance and Fewer Procedures


Committed people and sufficient resources within the
Department of Defense have helped make the United
States the sole remaining superpower. Times and
available resources, however, are changing. DOD is
downsizing and must operate with substantially fewer
people. One obstacle to success in this new
environment is the weight of more than 10,000
directives and 470,000 pages of intermingled policy
and highly detailed procedures that have stifled
innovation and efficiency in the past. These
publications contain many unnecessaryor needlessly
restrictive procedures that shackle workers
throughout DOD.

Over time, DOD's policy guidance has grown because
its bureaucratic, over-centralized headquarters
tended to decide what was best for the field. Policy
makers tried to cover all possible situations, and
managers attempted to prevent error by adding new
procedures every time a mistake was made. DOD buried
policy in detailed procedures. This growth of
detailed procedures severely limits inventiveness
and creativity in finding the least costly and most
effective means to accomplish changing missions.
Accountability decreases as errors are blamed on
_procedures_ or time-consuming requests for
waivers. Most important, the blurring of policy has
caused a loss of focus on the end product or goal.

As a result of the NPR process, DOD has the
opportunity to change its operating principles. The
notion of _steer more and row less_ requires
centralized policymaking and decentralized policy
execution. The Office of the Secretary of Defense
(OSD), military services, and defense agencies
should focus on providing policy guidance while
allowing their field organizations the latitude to
determine how to carry out that policy. To achieve a
renewed, empowered environment, DOD should limit
directives to clearly stating desired results. DOD
must purge these directives of unnecessary,
encumbering, and restrictive procedures that stifle
innovation and efficiency.

Two anecdotes--one from the Air Force and one from
the Defense Logistics Agency (DLA)--demonstrate
success in clarifying policy and procedures. The Air
Force recognized that the key to success was to
empower people to be creative, accept
responsibility, and use their initiative to seek out
new, more efficient methods. It also recognized that
creative efforts must focus on doing the right
things. Policy became one of the Air Force's most
effective tools. It provided the focus on the _right
things_ and served as a guide. The Air Force's
Policy Review Initiative served to identify and
clarify the Air Force's most important tasks. It set
clear, concise policy; fixed accountability and
responsibility; and measured the accomplishment of
policy objectives.

The Air Force has identified its most important,
_overarching_ policies in Air Force Policy
Directives (AFPDs). Written by Air Force
Headquarters (HQ USAF), these directives clearly and
concisely state policies, outline responsibilities
and authorities, and provide _CEO-level_ metrics to
measure performance. Senior leaders use management
information based on these metrics to make
_fact-based_ decisions. Policy directives are no
more than three to five pages long.

The Air Force is rescinding all existing regulations
and retaining only those procedures required to
comply with law, address health and safety issues,
or standardize Air Force systems. Field operating
agencies or designated major commands are writing
these procedures, and HQ USAF is issuing them as Air
Force Instructions.

The Air Force is replacing 1,510 regulations with
165 policy directives and 750 instructions
containing essential procedural guidance. Some
55,000 pages of intermingled policy and procedures
will become approximately 18,000 pages that clearly
separate policy from procedures. And, by mid-1994,
CD-ROM disks will replace printed documents.

Commanders of the Air Force's major commands have
strongly approved of the increased latitude this
initiative provides and are quickly employing the
concept within their commands. In short, they also
are confining their headquarters instructions to
policy and leaving the _rowing_ for local

Similarly, the DLA's Defense Contract Management
Command (DCMC) replaced 16 manuals with the DCMC
Manual. Known as the _One Book,_ it is a single
document organized around DCMC services. The One
Book eliminates restrictive procedures because it
focuses only on headquarters policy and leaves
procedures to field activities. It has fundamentally
changed the way DCMC operates. The One Book has
empowered the field commanders to best apply
resources to achieve mission success.

As a related initiative, DLA now uses CD-ROM
technology for many large logistical and policy
databases. The DLA Publishing System (DLAPS)
produces and distributes all policy, procedures, and
administrative-support documents on CD-ROM. DLA has
converted more than 800 DLA regulations, manuals,
and handbooks, containing 140,000 text and image
pages, to CD-ROM. For a one-time capital investment
of $900,000, DLA identified an annual cost savings
of $600,000 by eliminating conventional printing of
publications and reducing distribution and storage
costs. Additionally, DLA avoided $1,370,000 in
annual costs by no longer having to insert changed
pages in DLA publications. Users receive the most
complete, up-to-date inventory of publications every
three months on the DLAPS CD-ROM. The success of
this DLA initiative clearly demonstrates the
feasibility (and desirability) of using electronic
media to distribute the revised policies and
procedures advocated here.


1. DOD should clarify policy and decentralize
procedures to empower people to do their jobs

The goal of the initiative is to provide clear,
concise statements of policy, define desired
results, and set performance measures. Further, DOD
should delegate responsibility and authority for
detailing procedures to the lowest possible level so
the field organizations can work within local
constraints. In pursuit of this goal, DOD should
establish procedures to ensure that existing policy
guidelines are reviewed and revised, future
guidelines meet specific criteria, performance of
the new guidelines is tracked, and all guidelines
_steer more and row less._

2. Components (OSD, military services, and defense
agencies) must streamline their procedural guidance.

Components should write directives that include only
essential procedures, e.g., required by law, safety,
health, or standardization. Writers should link
procedural publications to the overarching policy
directive that requires the essential guidance.
Components should group families of related
procedural documents into single publications.
Detailed procedures should be left to field

3. Components should institutionalize, in writing,
the process to revise policy and procedural

They should annually certify that directive
publications are current and applicable and monitor
policy directive metrics to verify that policy
objectives are met. By evaluating progress and
benefits, components can continuously improve the

4. DOD should follow the DLA model and make policy
directives available on CD-ROM.

DOD should encourage internal and external suppliers
to satisfy customer requirements at the least total
cost to the taxpayer. Suppliers will price goods
based on the level of required support, match price
with commercial vendors, tailor on-site logistics
support, and deliver common supplies directly to
customers' desks. DOD should empower commanders (and
individual military personnel) to obtain essential
support services from their best value source.


Regulatory or legislative changes are not needed to
carry out this initiative, but as each component
works through this process it will identify barriers
to efficient operations. Each component will address
regulatory and legislative changes at that time.

A fundamental change in mindset is needed, however.
A move is needed from the old paradigm of a rigid
bureaucracy, resistant to change, to a new paradigm
of flexibility and adaptability where personnel are
empowered. Headquarters personnel must make policy
(or steer). They must not mix in the daily
operational issues of the field units who are

Clarifying policy directives and limiting procedures
to those that are absolutely necessary empowers
people, reduces regulatory burdens, and frees people
to use their creative energy and talents to improve
performance and increase output. Institutionalizing
the process--separating policy and directing only
the essential procedures--will enable DOD to further
incorporate quality principles into its core
processes and improve continuously.

Fiscal Impact

It is anticipated that once these recommendations
are implemented there will be considerable indirect
savings to DOD. These savings cannot be accurately

DOD02: Establish a Unified Budget for the Department
of Defense


Congress provides funds to the Department of Defense
(DOD) through a series of appropriations covering
specific aspects of defense operations. Congress
allows DOD to obligate these funds over one to five
fiscal years depending on the type of funds.
Congress also allows cumulative transfers of about
$4 billion among appropriations. However, DOD does
not give similar flexibility to its headquarters and
field commanders. Rather, it requires them to manage
their varied and complex installations under
inflexible budgetary controls.

When commanders request approval to shift funds,
portions of those funds often are taken for higher
priority contingencies. As a result, some former and
current commanders stated that they were hesitant to
seek approval to shift funds. Furthermore,
commanders do not have incentives to hold funds in
reserve to ensure that the highest priority needs
are met. To avoid losing the use of the funds,
commanders may use the funds for lower priority

In recognition of this problem, DOD initiated a
three-year unified budget test beginning in fiscal
year 1987. Several installation commanders were
given flexibility to transfer funds among
appropriations and cost categories. The test showed
that more needs were met and funds were used more
efficiently and effectively.1


1. DOD should seek legislative authority to revise
its budget process to fund major unbudgeted
emergencies by a process of assessing each
organization an appropriate share of the shortfall.

To the extent possible and appropriate, commanders
should have flexibility to determine which budget
accounts under their control will be used to fund
the assessment. This could be implemented in fiscal
year 1995.

2. DOD should seek congressional approval to combine
Operations and Maintenance, non-weapons systems
(non-centrally managed), Other Procurement, Family
Housing Operations and Maintenance, and Minor
Construction into a single appropriation, available
for obligation for three years, for each Service
and DOD agency.

If approved by Congress, this would further enhance
the unified budget concept. Three years of funding
availability is necessary for cost-effective
procurement and is consistent with the current
availability of Other Procurement funds. This should
be proposed for the fiscal year 1996 budget. If
Congress does not approve this action, actions 3 and
4 below are alternatives that DOD could implement

3. DOD should allow field commanders flexibility to
transfer funds among appropriations and cost
categories, as needed, to improve mission
capability, cope with unforeseen contingencies, and
take advantage of opportunities that only
flexibility permits.

This could be implemented immediately. Notification
to central budget offices of transfers of funds may
be desirable to assure compliance with reprogramming
thresholds and legislated authority until such time
action 2 is implemented. However, evidence from the
unified budget test indicates that a very low
probability of noncompliance exists even if
notification is not required. If noncompliance
levels are approached, the central budget offices
should notify the field organizations to stop
further transfers.

4. DOD should allow flexibility to transfer
headquarters' administrative and housekeeping funds
among appropriations and categories.

This could be implemented immediately. This will
permit more appropriate allocation among items such
as travel, equipment, contractors, and civilian
personnel. Notification to the central budget
offices of transfers of funds may be desirable to
ensure compliance with reprogramming thresholds and
legislated authority until such time as action 2 is
implemented. However, evidence from the unified
budget test indicates that a very low probability of
noncompliance exists even without notification. If
noncompliance levels are approached, the central
budget offices should notify the headquarters
organizations to stop further transfers.


Based on the results of the unified budget test,
these recommendations will enhance mission readiness
by giving commanders greater flexibility to set
priorities, to solve funding problems sooner, to
resolve unplanned and unprogrammed require-ments,
and to facilitate solutions without higher
headquarters assistance. In addition, DOD will have
a more orderly process for funding major unbudgeted

Fiscal Impact

It is anticipated that once these recommendations
are implemented there will be some savings to DOD.
The specific amounts cannot be estimated.


1. Interview with James E. DeWire, Deputy for
Programs and Installation Assistance, Office of the
Assistant Secretary of the Army, June 11, 1993, and
Department of the Army Information Paper, _Unified
Budget Execution,_ March 26, 1990.

DOD03: Purchase Best Value Common Supplies and


DOD acquires common supplies and services under
guidance provided by the Federal Acquisition
Regulation (FAR) and Defense Federal Acquisition
Regulation Supplement (DFARS). FAR and DFARS
incorporate laws aimed at more than just acquiring
supplies and services. Socioeconomic goals,
protection of American markets, and tailored
economic legislation are often included.
Additionally, each Service applies unique
acquisition and supply regulations to FAR and DFARS
guidance. The Service regulations provide policy and
guidance to ensure proper expenditure of public
funds and require adequate records for review and
audit. As problems have arisen, Services have
revised their regulations to prevent recurrence. As
a result, Service regulations are lengthy to prevent
mistakes. The resulting regulatory environment often
confuses and frustrates customer, supplier, and
procurement personnel alike. Furthermore, the
complexity of excessive regulation adds to the cost
of doing business.

For example, at an East Coast installation an
average 10 percent of vehicles are out of service at
any given time, awaiting parts from the DOD supply
system. Many of these parts are locally available,
often for less than $100. If downtime could be
reduced to 5 percent through local purchase of
repair parts, the requirement for 30 vehicles, worth
over $250,000, could be eliminated. Buyers did not
know that local purchase was authorized for such
requirements. This demonstrates how best intentions
run awry in this complex environment.

As a result of the National Performance Review, the
Service Headquarters has reissued guidance, provided
training, and followed up to ensure vehicle parts
are obtained in a timely manner. One specific
problem has been resolved, but there is little doubt
that the supply system's very complexity leads to
many similar inefficiencies.

In order to provide best value common supplies and
services, DOD must continue to streamline existing
acquisition guidelines and wholeheartedly adopt
commercial business practices like credit cards,
electronic commerce, competition, and electronic
data interchange. Ultimately, employees must be
empowered to procure everything in the most
manner. DOD has initiated many efforts in the past
aimed at procurement reform and streamlining
acquisition practices, but caution and fear of
failure have impeded rapid expansion of these


1. DOD should test enabling actions that allow
commanders and managers access to all sources of
common supplies and services in order to obtain best
value products.

The goal of each prototype is to create a
competitive environment in which commanders and
managers can select private, public, or nonprofit
sources for best value common supplies and services,
and suppliers focus on meeting customer needs.
Enabling actions should be adopted DOD-wide if
proved successful in a pilot test. DOD will test
these actions at specific reinvention labs for 15
months. The tests should commence no later than four
months after approval by the Defense Performance
Review. As the reinvention labs verify the
effectiveness of specific actions, the Defense
Performance Review staff will coordinate exportation
and institutionalization of the action.

2. DOD personnel should use best value sources of
supply, as determined by the local commander or

This will not eliminate the requirement to use
specified items where technical guidance exists. DOD
should empower local commanders and managers to buy
supplies --including personal computers, small
amounts of hazardous material, commercial
off-the-shelf items, and consumable weapon system
items--from any authorized source of supply.
Commanders may purchase items locally when using the
normal supply system is undesirable due to
availability, cost, or quality.

3. DOD should empower any properly delegated
individual to buy common supplies and
non-professional services.

DOD should not limit authorization to make small
purchases to only procurement personnel. Proper
delegation will include sufficient training to make
buyers aware of legal and ethical restrictions
pertinent to their level of buying authority. DOD
should expand the use of credit cards,
establish higher procurement thresholds, publish a
Customer's Bill of
Purchase Rights, and eliminate Service restrictions
beyond basic FAR/DFARS small purchase guidance.

4. DOD should empower internal and external
suppliers to focus on meeting customer needs.

DOD should encourage internal and external suppliers
to satisfy customer requirements at the least total
cost to the taxpayer. Suppliers will price goods
based on the level of required support, match price
with commercial vendors, tailor on-site logistics
and deliver common supplies directly to customers'
desks. DOD should empower commanders (and individual
military personnel) to obtain essential support
services from their best value source.


These recommendations will create a competitive
environment in which commanders and managers can
select private, public, or nonprofit sources for
best value common supplies and services, and
suppliers can focus on customer needs. As in the
private sector, market dynamics, rather than
excessive regulatory direction or socioeconomic
goals, will determine the choice of supplier. These
recommendations will empower employees, foster
excellence, and inject an entrepreneurial approach
into obtaining supplies and services.

Fiscal Impact

Adoption of these actions is expected to lead to
more effective use of DOD resources.

DOD04: Outsource Non-Core Department of Defense


The Department of Defense (DOD) budget is falling so
rapidly (24 percent real decline since 1990) that
DOD can no longer afford to do business as usual. It
cannot devote significant resources to performing
non-core functions when non-DOD providers are
available to do them better, cheaper, and faster.

Competition, which includes outsourcing, is
increasingly important. Outsourcing in DOD means the
possible transfer of organizational functions, in
whole or in part, to non-DOD providers. Key to
deciding whether to outsource functions is how to
provide the best balance of cost and operational

DOD core functions are those functions or
competencies intimately related to the
organization's basic mission and crucial to its
long-term success.1 In general, core functions in
DOD include combat force, command of combat forces,
deployable combat or combat service support, and
provision of the rotational base for these
functions. The distinction between core and non-core
is used only to remove from consideration certain
functions that clearly are not viable outsource
candidates. Non-core does not equal non-critical.

Outsourcing of non-core functions has been proven in
both the private and public sectors to be a sound
business tool. In fact, the trend nationwide is
toward more outsourcing. In the private sector, the
motivation to outsource is reduced costs and
increased profit. In the public sector, the
principal motivation to outsource is the need to
provide essential services at the least cost because
of declining budgets. Simply put, it is purely a
business decision.

The critical consideration for outsourcing is
defining the core business and, thus, core functions
of the company. For example, administrative
functions such as data processing, billing, and
payroll, while important and necessary, are not core
tasks. Outsourcing these functions to specialized
vendors allows management to concentrate on the
company's core functions. Four examples of
successful outsourcing in the private sector are:

~ General Dynamics awarded a$3 billion, 10-year
contract to Computer Services Corporation to
provide all information technology functions,
including applications development and
maintenance, data center operations, and

~ United Technologies awarded a$100 million, 10-year
contract to Integrated Systems Solutions
Corporation (ISSC) for operation of the United
Technologies data center in Newington,
Connecticut, providing data processing services
and managing all existing hardware leases and
system software.

~ Continental Bank awarded a $700 million, 10-year
contract to ISSC for data center and network
management and operations, assuming all leases on
currently installed hardware and system software.2

~ Cummins Diesel outsourced piston design and
manufacturing, concentrating instead on building
leadership in electronics, ceramics, and
alternative fuels.3

The public sector also offers many examples of
successful outsourcing. Across the country,
outsourcing of public services has experienced
significant growth in recent years. In the last 10
years, outsourcing for refuse collection has grown
43 percent, data processing 3,664 percent, and
landfill operations 129 percent. Local governments
routinely outsource vehicle towing, legal services,
street light operation, solid waste disposal, and

Cultural, administrative, legislative, and
regulatory roadblocks are preventing DOD from taking
advantage of the opportunity to outsource various
non-core functions, even though it makes operational
and economic sense.

Cultural roadblocks. Well-entrenched communities
within DOD strongly object to letting go of non-core
competencies. A rigorous review may show DOD does
not need to perform them in-house. Achieving this
needed cultural change will take an institutional
commitment to begin outsourcing.

Administrative roadblocks. Commanders and managers
do not have sufficient latitude to design the mix of
resources needed to accomplish their mission, nor is
there a simple approach to defining non-core
functions and when to outsource them.

Legislative roadblocks. Section 312 of the fiscal
year 1993 DOD Authorization Act is an excellent
example of a roadblock to the outsourcing process.
It constrains DOD's outsourcing ability.

The Acquisition Law Advisory Panel was directed by
Congress in the fiscal year 1992 DOD Authorization
Act to review all laws affecting procurement
actions. During its review, the panel found that the
statutory provisions in Chapter 146 of Title 10
_present a confusing and contradictory set of rules
regarding the DOD's contracting out process._ The
panel proposed to consolidate and streamline the
existing rules into two sections that provide DOD
managerial flexibility while at the same time
preserving meaningful congressional oversight and
effective community input. For example, the panel
identified the following sections for amendment or

~Section 2462, which requires procurement of
supplies necessary for DOD functions from a private
sector source if such a source can provide the
supply or service at a real cost lower than the
comparable, in-house cost. The panel recommended an
amendment to include a new requirement that the
private sector source must be able to provide the
supply or service _adequate to meet defined
performance standards._

~ Section 2465 prohibits contracting of fire
fighting and security guard functions. The panel
recommended repeal of this statute in its
entirety. It noted numerous examples where this
had impeded management flexibility, increased
costs, and in some cases hampered meeting mission

~ Section 2466 prohibits DOD from contracting
out more than 40 percent of its depot-level
maintenance. The 60 percent in-house requirement
was found to be somewhat arbitrary. The panel
believed DOD should have the flexibility to
determine core depot-level requirements.

Agencies are also required by 10 U.S.C. 2851 to
obtain construction and design services from the
Army Corps of Engineers or the Naval Facilities
Engineering Command. This limits the commander's
ability to outsource construction and design

Additionally, interviews with commanders/ managers
disclosed that enabling legislation is needed to
allow installation commanders and municipalities to
achieve cost savings by negotiating agreements to
permit exchange or purchase of services. For
example, municipalities could provide trash removal
services if the installation provided snow removal
and grass cutting services on public roads adjoining
the installation.

Regulatory roadblocks. The study goals and budget
reductions contained in Executive Order 12615
(Performance of Commercial Activities) have served
as disincentives rather than incentives to
outsourcing. The process contained in OMB Circular
A-76 is complex and inflexible.

However, the fundamental policy outlined in the
circular--that government should rely on the private
sector for services when analysis determines it is
more economical--is sound business. Added
flexibility in making this economic comparison would
enhance the government's
ability to meet this policy goal.

While current federal, DOD, militaryservice, and DOD
agency regulations may have served a useful purpose,
many restrictions placed on commanders or managers
at all levels are not warranted. For example, DOD
4100.33 and OMB Circular A-76 require local
authorities to get Assistant Secretary-level waivers
for deviations in severance pay and contract
administration factors. This requirement can add
substantially to the time it takes to complete a
cost comparison, one of the major complaints about
the process.


1. DOD should implement a comprehensive program for
outsourcing non-core functions when it makes
economic and operational sense.

Before the program can be implemented, senior
leadership must overcome roadblocks to outsourcing,
give commanders and managers incentives to outsource
when appropriate, and test the viability of
outsourcing. DOD must emphasize the need for a
cultural change within the department regarding
outsourcing and give commanders or managers the
latitude to design the mix of resources needed to
accomplish their mission.

Six steps should be used to decide when outsourcing
makes economic and operational sense:

~ clearly describe the function in objective
terms of what gets done and how it gets done, but
not who does it;

~ categorize the function as either core or

~ establish detailed, specific performance
requirements for each function based on the
commander/manager's mission and customer

~ analyze legal, supplier, and performance
requirements for each function to determine the
source that best balances economic benefits with
operational risk;

~ produce a detailed performance agreement and
associated documents for function (e.g.,
performance work statement and request for
proposal if function is to be outsourced); and

~ introduce cost competition.

Each performance agreement is a contract between the
customer and the supplier, whether that source is an
in-house workforce supervised by a subordinate
commander/manager, some other DOD or government
source, or a commercial source. Each includes the
identification of required performance levels in
terms of relevant performance metrics.

After the process has been defined, it must be
managed. Metrics should be used to monitor the state
of the process and providecommanders/managers with
appropriate information and accountability to enable
them to reduce costs while providing objective
measures of levels of performance. As a basic
approach, efficiency and effectiveness
characteristics should be used to establish a plan,
assess performance, and determine rewards.

Section 312 of the fiscal 1993 DOD Authorization Act
is the greatest roadblock to overcome. By
prohibiting the funding of contracts in fiscal 1993
as a result of OMB Circular A-76 reviews. Congress
has prevented DOD from conducting business in the
most effective and efficient manner. This provision
should not be extended or codified as a permanent

2. Implement the recommendations made by the
Acquisition Law Advisory Panel's Section 800 Report.

The panel proposed to consolidate and streamline the
existing rules of Chapter 146, Title 10, into two
sections that provide DOD managerial flexibility
while at the same time preserving meaningful
congressional oversight and effective community
input. Sections 2462, 2465, and 2466 were identified
for amendment or repeal. The legislative requirement
to obtain construction and design services
exclusively from the Corps of Engineers or the Naval
Facilities Engineering Command should be eliminated.
And legislation should be enacted to permit
installation commanders to negotiate agreements with
municipalities for the exchange or purchase of

3. Executive Order 12615 (Performance of Commercial
Activities) should be rescinded and a new Executive
Order issued.

The new order should highlight the government's
policy of acquiring goods and services in the most
economical and efficient manner without directing
study goals or identifying projected savings. The
study goals and budget reductions have served as
disincentives rather than incentives to outsourcing.

In the very near term, OMB Circular A-76 should be
reviewed for potential change to simplify the
process and increase its flexibility by allowing
varying levels of detail based on the size and scope
of the study. Added flexibility in how economic
comparisons are made will enhance the government's
ability to meet this policy goal. For the long term,
the federal government needs to evolve beyond the
limited scope of OMB Circular A-76 to ensure that
sourcing decisions for all government functions are
based on a logical, systematic, and accepted

4. DOD should provide tangible incentives for
commanders/managers to seek new and better ways of
doing business.

DOD's incentive clearly comes from reducing overhead
and the ability and flexibility to shift its limited
and ever-decreasing resources from non-core to core
functions. Additionally, commanders and/or managers
who initiate outsourcing must be permitted to retain
a portion of the resulting savings. This is the
only way to provide a positive, real incentive to

Further, DOD must move more toward the practice of
specifying from contractors _what is wanted, rather
than how it is to be done._ DOD should give
contractors flexibility to use standard commercial
business practices and material specifications,
rather than demanding more costly and often
unnecessary military/government specifications.

5. DOD should test outsourcing non-core functions.

DOD has identified 50 broad areacandidates for
outsourcing, such as base operations support,
housing, health services, maintenance and repair,
training, labs, security, and transportation.
Further, the military services and DOD agencies have
identified nine specific functions for immediate
outsourcing consideration. The functions are
Navy-Defense Printing Service, formally Navy
Publishing and Printing Service; Defense Nuclear
Agency (Technical Library Division); Air Force (304
Switch and Associated Command Display System
consoles and maintenance); Defense Finance and
Accounting System (DOD travel reimbursement);
Defense Logistics Agency (Defense Reutilization and
Marketing Service); Defense Mapping Agency (security
guard functions); AETC Training Base (base operating
support functions); Defense Information System
Network (switched services); and Army (morale,
welfare, recreation business programs).


By outsourcing non-core functions when it makes
economic and operational sense, DOD will be better
able to focus on its core functions and to absorb
current and future budget cuts. Many roadblocks both
inside and outside DOD must be overcome before DOD
commanders/managers are routinely allowed to make
sound business decisions on whether to outsource
non-core functions or continue to perform them with
federal employees.

Fiscal Impact

Outsourcing can produce significant savings for DOD.
After selected tests, DOD will be able to estimate
future savings.


1. Venkatesan, Ravi. _Strategic Sourcing: To Make or
Not to Make,_ Harvard Business Review
(November-December 1992), pp. 98-107.

2. Presentation by Howard Anderson, Managing
Director of the Yankee Group, at New York Hilton and
Towers, New York, NY, February 4-5, 1992.

3. Venkatesan, p. 98-107.

4. Garsombke, Diane J., _Privatization: New
Challenges for Strategic Planning,_ Business
(January-March 1990), pp. 3-12.

DOD05: Create Incentives for the Department of
Defense to Generate Revenues


By giving commanders/managers incentives to generate
revenue, the Department of Defense (DOD) can
increase funds available for mission-related
activities, improve the environment, and enhance
customer service.

Appropriate incentives would include allowing DOD to
retain all or a portion of the new revenue for
mission-related use. DOD has opportunities to
generate new revenues by such changes as eliminating
or reducing subsidies and increasing sales of
recyclable materials.

Eliminating or reducing subsidies can generate a
significant amount of revenue. DOD does not
consistently charge customers either the incremental
or full costs of services. In effect, DOD is
providing a subsidy to some customers. When
subsidies are included, neither the provider nor the
recipient of services has an incentive to seek the
most cost-effective way of doing business.

Fees are about $12 million short of costs incurred
by the Army Corps of Engineers (Corps) for
processing applications for discharges of dredged or
fill materials into the waters of the United States.
In 1993, the taxpayers funded permitting activities
at$86 million to evaluate about 15,000 individual
applications, 20,000 activities under the Corps'
regional permit program, and over 60,000 activities
through the Corps_ nationwide permit program.1 For
many years, the Corps of Engineers has been charging
token permit fees of $10 for noncommercial projects
and $100 for commercial projects, which resulted in
revenues of less than $400,000 per year.2 Funds
received for permits historically have been conveyed
to the U.S. Treasury rather than used to offset

Following a study and recommendation from the DOD
Inspector General, a Corps Task Force developed a
more realistic fee schedule based on the costs to
the government for work done in the regulatory
program. In October 1990, the Corps formally
proposed significantly higher permit fees designed
to recover about $17 million annually.3 The proposal
would have increased application fees to $2,000 for
commercial projects and to $500 for noncommercial
projects. The proposed increase in fees was very
controversial, and in the 1992 and 1993 Energy and
Water Development Appropriations Acts, Congress
expressly prohibited the Corps from expending any
funds to finalize its proposed fee regulations. As a
result, no action has been taken on the proposed fee

Revenue can also be generated by increasing sales of
recyclable materials. Proceeds from sales of
recyclables grossed $37 million in fiscal year 1992.
Although income from the sale of recyclables is
increasingly important, Public Law 97-214 restricts
the use of revenue from sales of recyclable
materials as follows: Funds shall cover the costs of
operations, maintenance, and overhead for processing
recyclable materials at the installation (including
the cost of any equipment purchased for recycling
purposes). Up to 50 percent of the remaining funds
can be used for pollution abatement, energy
conservation, and occupational safety and health
activities. All remaining funds may be used for
morale and welfare activities. However, at the end
of each fiscal year, unobligated funds in excess of
$2 million must be conveyed to the U.S. Treasury.

In fiscal year 1992, DOD's proceeds from sales of
recyclable materials grossed $37 million, down from
a high of $50 million in a previous year.4 Proceeds
from sales of recyclables are declining even though
the quantity of materials is increasing. This is due
in part to declining markets for recyclables. More
materials are being recycled and demand for products
containing these materials has not kept pace.
Additional money can be saved by increasing efforts
to purchase products containing recycled materials
and by developing _closed-loop_ recycling ventures
in which DOD-provided recycled materials are
manufactured into products needed by DOD.

More and more communities are prohibiting the
disposal of certain materials (such as yard waste,
newspapers, mattresses, and tires) in their
landfills, which forces DOD to look to recycling or
alternate uses of these materials. These could
increase disposal costs if they are not effectively

DOD is now determining the total costs of its solid
waste disposal. The disposal costs may be as much as
$500 million a year.5 By establishing aggressive
goals, these costs can be reduced, thus saving
operation and maintenance account funds for mission
support. Therefore, in some cases, it may be
advantageous for DOD to pay for the recycling of
materials. Since disposal costs can be as high as
$200 a ton, paying companies to take the recyclable
material will still save DOD funds if the payments
are less than its normal disposal costs.6

DOD estimates that solid waste reduction goals of 50
percent are achievable over the next five years.7
This can equate to significant reductions in solid
waste disposal costs, even if DOD must pay companies
to take the recyclables.


1. The Corps of Engineers should be permitted to
establish commercial regulatory fees to more closely
approximate the costs of evaluating applications and
should be allowed to retain, in a special regulatory
account, all revenues generated through the
collection of fees.

These funds would then be used by Corps districts
solely to increase the efficiency of the regulatory
program by reducing delays associated with permit
evaluations and wetlands delineations. This fund
would be independent from the Corps' normal
regulatory operating budget and should be available
without appropriation. DOD must provide
accountability over the use of the new revenue.

2. Congress should amend PL 97-214 to allow
managers/commanders mission- related use of all net
revenue from sales of recyclable materials.

DOD should continue the same level of funding
available in fiscal year 1992 from sales of
recyclables for pollution abatement, energy
conservation, occupational safety and health
activities, and morale and welfare activities.
However, commanders/ managers should be allowed
unrestricted use of all revenue in excess of fiscal
year 1992 revenue ($37 million) from sales of
recyclables. In addition, commanders/ managers
should be allowed unrestricted mission-related use
of savings from reducing waste disposal costs.


Permit fees would be increased for certain projects
that require extensive, detailed review. In
addition, fees could be charged for jurisdiction
determinations, public hearings, and environmental
impact studies. The costs of evaluating applications
would be defrayed partially by the fees. Since only
a small portion of the taxpayers benefit directly
from permits, it should be more equitable for the
direct users to bear the costs of the permits.
However, it is recognized that many users would be
against the increased fees because they own the land
and all taxpayers benefit from the protection of the
environment through the regulatory process. Most
objections would probably diminish if the increased
fees were for large projects only and if the fees
were used to further reduce regulatory delays, which
would improve customer service.

If commanders/managers had more funding flexibility,
they would have more incentive to expand their
recycling programs as revenue-producing activities
and reduce their disposal costs. By establishing
aggressive goals, commanders/managers can reduce
disposal costs, thus saving operation and
maintenance account funds for mission support.
Important, but lower priority, mission-related
activities would be funded. The most significant
outcomes from increased recycling are that it will
reduce pollution, conserve limited disposal space,
and conserve natural resources by using recycled
materials in the manufacture of products.

Fiscal Impact

Increasing commercial regulatory fees could produce
revenues of about $12 million annually upon
congressional approval. Estimated annual costs of
implementing the recommendation would be minimal.8

DOD estimates that solid waste reduction goals of 50
percent are achievable over the next five years.
This can equate to significant reductions in solid
waste disposal costs, even if DOD must pay companies
to take the recyclables. Preferably, DOD will be
able to sell recyclable waste materials for a
profit. If DOD reduced its average disposal cost to
$100 a ton for one-half of its solid waste, DOD
would annually save about $125 million after the
startup period. However, if DOD did not have to pay
companies to take the recyclable materials, the
annual savings would increase to about $250 million.

Budget Authority (BA), Outlays, and Revenues
(Dollars in Millions)

Fiscal Year

'94 '95 '96 '97 '98 '99 Total

BA -25 -50 -75 -100 -125 -125 -500
Outlays -19 -43 -67 -92 -116 -122 -459
Revenue 0 12 12 12 12 12 60
Change in
FTEs 0 0 0 0 0 0 0


1. Memorandum from Michael L. Davis, Assistant for
Regulatory Affairs, Office of the Assistant
Secretary, Department of the Army, to Gerald
Kauvar, Deputy Director, Defense Performance
Review, July 6, 1993.

2. Ibid.

3. Ibid.

4. Telephone interview with Blake T. Velde, Office
of the Deputy Under Secretary of Defense
(Environmental Security), July 28, 1993.

5. Ibid.

6. Ibid.

7. Ibid.

8. Memorandum from Michael L. Davis.

DOD06: Establish and Promote a Productivity-
Enhancing Capital Investment Fund


Department of Defense (DOD) appropriations include
approximately $12 million annually for capital
investments that will, over a period of increased
productivity, result in savings greater than the
initial investment. The money available, however,
has not been sufficient to fund all the potentially
worthy projects. In order to increase long-term
savings, more of these investments should be made.

Each military department has a central organization
that controls the allocation of funds for investing
in equipment that will increase productivity.
Applicants for these funds are required to submit
proposals demonstrating that enhanced productivity
would result in recovery of the cost in three years.
While they directly benefit from the capital
investments, they are not required to track or
report on the savings that result.

As the DOD budget has declined, the funds available
for such investments have been cut by approximately
70 percent, a cut that was disproportionate to the
total defense budget reduction.1 Market mechanisms
could be used to increase the available resources
for productivity-enhancing equipment as well as to
regulate the allocation of the scarce investment
funds. From the perspective of the operating
organization, funding the purchase of
productivity-enhancing equipment could be similar to
a business decision to borrow funds from a bank and
repay the loan with the resulting savings.


To increase the resources available for
productivity-enhancing capital investments, DOD
should seek congressional approval to establish a
new fund that would lend money to DOD organizations
specifically for such purposes.

The organizations would be required to repay the
loan in equal installments over three years, pay an
annual fee to cover administrative costs, and pay a
fee of 25 percent of the estimated annual savings
during the first three years. If more loans are
requested than can be funded, a biddingsystem should
be established by the Department to provide a
self-regulating method of ensuring that only the
most worthy proposals are funded. The organization
controlling the investment funds will evaluate
project proposals and ensure that loans are repaid
and fees are paid.


Although congressional approval is required, this
fund can be established under the current revolving
fund authorization. The pay-back provision would
make DOD more businesslike and discourage or prevent
requests for loans for investments that are not
likely to generate savings. A borrower would be able
to avoid repayment of the loan only if the Office of
Management and Budget grants a waiver. After several
years, the fund should grow to the point of being
self-sustaining and able to return a profit to the
Treasury. This fund could also enable the Department
of Defense and the military departments to purchase
productivity-enhancing equipment that might not
otherwise be affordable.

Fiscal Impact

An annual congressional appropriation for the fund
will be necessary only for the first four years. The
fiscal year 1994-1997 appropriations would be used
to provide initial capital for the fund, with
administrative costs covered by a separate fee
charged to the borrowers. Initial borrowers should
begin repaying loans in 1995. After fiscal year
1997, the $12 million annual appropriation should be
discontinued. The savings computation is based on
the assumption that funds will be loaned only for
projects that guarantee a 2-for-1 return on
investment, i.e., that will return the $1 invested
and an additional $1 in savings. Total savings
through 1999 are estimated at approximately $110

Budget Authority (BA) and Outlays

(Dollars in Millions)

Fiscal Year

'94 '95 '96 '97 '98 '99 Total
BA 0 4 -9.7 -17.7 -37.1 -41.8 -110.3
Outlays 0 -4 -9.7 -17.7 -37.1 -41.8 -110.3
in FTEs 0 0 0 0 0 0 0


1. Interview with Ronald A. Davidson, Assistant
Deputy Comptroller (Program/Budget), Office of the
Secretary of Defense, June 8, 1993.

DOD07: Create a Healthy and Safe Environment For
Department of Defense Activities


The Department of Defense (DOD) must take steps to
improve its environmental stewardship. DOD has a
clear responsibility to clean up its current
facilities as well as former defense sites. It must
also comply with existing environmental regulations,
conserve natural resources, and prevent pollution.
Senior DOD leadership has already made a strong
commitment to fulfilling its responsibility by
redirecting both budget and personnel resources, but
additional steps should be taken. The DOD
environmental program covers over 5,500 properties
containing approximately 27 million acres and more
than 400,000 buildings. In fiscal year 1992, the
program cost the American taxpayer $4.4 billion in
budget authority. Progress has been made in
clean-up, compliance, conservation, and pollution
prevention. DOD must now speed up the process,
demonstrate significant progress, and lay the
foundation for long-term improvements.

The challenges inherent in the clean-up of DOD
facilities and former facilities often result in
adversarial relationships among stakeholders (i.e.,
groups with an interest in the project such as
installation commanders, government regulators, the
surrounding community, contractors, and public
interest groups). For example, state and federal
officials have been in litigation since 1988 to
determine who will be in charge of clean-up at Rocky
Mountain Arsenal. This lengthy battle has led to
mistrust, increased clean-up expenses, and
unnecessary delay. When stakeholders have worked
together to solve their problems, the results have
been quite different. The Air Force has developed a
highly successful program at McClellan Air Force
Base where, through innovative management,
education, communication, and partnering with the
Environmental Protection Agency (EPA) and the State
of California, it was able to obtain consensus on
clean-up strategy.

DOD's environmental vision is to create a responsive
program that balances the needs of the individual
military departments, is fully integrated into all
DOD businesslike processes, and provides the tools
and authority to installation commanders so that
they can create a healthy and safe environment for
DOD activities.

To achieve this goal, five issues are recommended
for action: partnering, clean-up, environmental
technology, pollution prevention, and environmental
regional offices. These five areas offer the
opportunity to significantly improve the DOD
environmental program.

Partnering, the first issue, involves commitment
between stakeholders to work together to achieve
mutual objectives by maximizing each participant's
resources. Where employed, it has significantly
reduced project time, cost, and litigation. Although
the value of partnering is appreciated in some DOD
locations, it is not widely practiced throughout
DOD, nor is it universally understood and accepted
as a business practice. This can be improved by
educating and training managers in how to commit to
and maintain partnering relationships and by
adapting partnering concepts more closely to DOD
core processes. This practice of partnering should
be expanded throughout DOD to foster cooperative
relationships with stakeholders.

The adversarial nature of relationships between many
personnel at DOD facilities and their regulators
seriously impedes successful compliance and clean-up
programs. Partnering replaces adversarial
relationships with teamwork. Of the approximately
150 Army Corps of Engineers construction projects
that use partnering, none have resulted in
litigation. Clearly, cooperation through partnering
yields many positive results.

The second targeted area, clean-up, has much room
for improvement. In many cases, the excessively
lengthy and costly study process causes _paralysis
by analysis._ With experience, many of DOD's
clean-up activities are becoming almost routine.
Clean-up can be expedited by using successful
remedies developed elsewhere. However, the field
does not often have sufficient access to information
about clean-up technologies and their successful

Project officers need better data on which to base
decisions regarding the use of competing
technologies. For example, on a project concerning
clean-up of old maintenance sites with traces of
tri-chlor-ethylene in the surrounding ground water,
an officer may need sound information to determine
which clean-up method would most efficiently
minimize environmental harm. This could be solved by
maintaining cost and performance data on various
clean-up methods and technologies and making the
data widely available.

A disproportionate amount of money allocated for
clean-up is expended for analysis rather than for
the clean-up itself. Presumptive solutions, based on
experience, will help. Regulators often require
unrealistic future land use projections to determine
health risk and clean-up levels, which increases
restoration costs.

DOD must better involve the community in clean-up
initiatives. Even though the community is a
significant stakeholder in clean-up programs, DOD
frequently excludes community representa-tives from
clean-up planning or activities.

Environmental technology, the third issue, can
assist in both clean-up of existing contaminated
sites and prevention of pollution during future
defense operations. A DOD environmental technology
program is needed to solve the most pressing
environmental problems as rapidly as possible at
minimum cost. This can be achieved through
cooperative actions in program planning, budgeting,
and execution and by leveraging each Service's
funding, expertise, and facilities.

Currently, no systematic method exists by which
user (i.e., the installation commanders') needs are
identified, quantified, validated, prioritized, and
integrated. Also, the time from the identification
of an environmental problem to the fielding of a
solution (an average of six to seven years) is too
long. This delay increases costs for environmental
compliance. Additionally, no process integrates all
DOD environmental technology demonstration programs,
nor is there an effective method to prioritize
technology based on a potential return on

Pollution prevention, the fourth area, can also be
improved. While DOD strives to meet certain
environmental requirements that mandate phasing out
ozone-depleting chemicals, few resources are left to
meet other needs. Another hindrance is that
commanders lack the budgetary resources to make the
business decisions necessary for successful,
cost-effective pollution prevention. Federal and DOD
procurement policies also impede cost-effective
pollution prevention by limiting flexibility and
inhibiting decisionmaking ability. For example,
current procurement regulations require the
assignment of short shelf-lives on many products for
which the actual life is much longer. Environmental
regulations often require this material to be
classified as hazardous waste once the shelf-life
has expired, which greatly increases disposal costs.
In short, current DOD investment strategies do not
encourage pollution prevention.

The final issue, environmental regional offices,
involves the development of a unified program for
dealing with the regulatory community. Currently
each installation, including local reserve
components, deals directly with the various
regulatory agencies. Commanders need support from
DOD for their interests with state and local
regulators, particularly during the rulemaking
process. Installations and reserve centers need
regional offices to help them interpret and
understand the large number of local environmental
laws and regulations; to provide early notice of
emerging legislation; and to assist in environmental
compliance and clean-up. DOD and Service staffs can
accomplish this function at a national level,
working primarily with EPA, but the corresponding
function with the states needs to be improved.

The DOD environmental program is in its infancy.
Though some progress has been made to date, the
Department must expand and accelerate its efforts.
The following five recommendations are designed to
substantially improve DOD's execution of its
environmental mission.


1. DOD should develop _partnering_ relationships
with key environmental stakeholders.

Several steps must be taken to implement this
recommendation. First, DOD should develop a
partnering training program that includes all
stakeholders. As it executes its environmental
mission, it should seek to obtain the consensus of
stakeholders in the technical direction, magnitude,
and process of clean-up projects from _cradle to
grave._ The Department must also seek to create
formal partnerships between the customers and
technology developers, thereby ensuring that the
processes for developing, producing, and ultimately
transferring it to the customer are designed to
address DOD's most pressing environmental problems
in the most timely, cost-effective manner.
Furthermore, DOD should work with EPA and state
governments to partner oversight.

2. DOD should streamline the clean-up process so
that sites may be remediated quickly without
prolonged periods of study.

This involves partnering with regulators,
encouragement of generic clean-up approaches, and
provisions that grant installation commanders
authority to contract for clean-up of contaminated
sites. A _risk management_ approach--which requires
the categorization of sites, puts highest priority
on risk to human health and the environment,
mandates funding allocation based upon these
priorities, and monitors progress in reducing
overall risk--must be developed.

3. DOD should develop an environmental technology
policy that is based on service users' environmental
requirements and embodies the DOD environmental

To do this, it is necessary to ensure active
participation by users in the technology development
process as well as adequate funding. Moreover, DOD
should identify those areas where a joint
development approach is most desirable and encourage
early identification of relevant technologies in
other federal agencies and the private sector. DOD's
goal should be to field new technology that meets
the users' needs in a timely manner.

4. DOD should develop a more effective pollution
prevention program.

This can be accomplished with the creation of
incentives to use pollution prevention as a primary
means to achieve environmental compliance; a review
of military specifications to eliminate the use of
hazardous materials; adequate funding of the
services' pollution prevention program; and
development of a model pollution prevention program
to serve as a prototype.

5. DOD should work with EPA regional offices and
state and local environmental organizations to
develop joint implementation approaches.

These efforts can assist installations and reserve
centers in environmental compliance and clean-up,
and support commanders' interests with state and
local regulators.


The American public has shown great interest in
DOD's management of environmental security issues.
Adequate funding must be appropriated for training,
clean-up of existing sites, and pollution prevention
on DOD property. Coordination with EPA environmental
regional offices should be expedited. This will
significantly help installation commanders in
fulfilling their environmental security mission and
facilitate improved relations with government
regulators. Many of the initiatives are long-range
in nature and will require changes in regulations
and policies.

Fiscal Impact

Once these initiatives are implemented, there may be
cost savings to the
department. Because the amounts saved will vary from
installation to installation, they cannot be
estimated at this time.

DOD08: Establish a Defense Quality Workplace


Substantial budget reductions in the post-Cold War
era compel the Department of Defense (DOD) to change
the way it does business. The Services and several
DOD agencies have already implemented total quality
management (TQM) principles as a means to accomplish
their missions in a constrained fiscal environment.
Many have achieved significant successes, and
several DOD activities have even become nationally
recognized quality award winners. The key factor
underpinning each success is top leadership
commitment and strategicmanagement of the quality
improvement effort. The commitment of the
Department's most senior leadership to establishing
a defense quality workplace is required now if DOD
is to continue to provide and maintain an effective
national defense.

Many corporations that recognized that their
survival was at stake adopted TQM as their framework
for improvement. Likewise, many units and entire DOD
components have injected the principles of TQM into
their daily operations. They have achieved many
breakthroughs, saved millions of dollars, and
prevented potentially life-threatening situations.
Unfortunately, these efforts have not been
institutionalized across the entire Department of

The quality revolution that has profoundly changed
management practice rests on an industrial
engineering foundation, but its leverage comes from
the leadership principles of Dr. W. Edwards Deming.
When the United States was experiencing a severe
recession, a 1980 NBC-TV White Paper titled _If
Japan Can, Why Can't We?_ awakened American industry
to the power of Deming's principles. Individual
industrial and
government leaders reexamined their management
practices and concluded that these practices, not
their employees, were the problem. A managerial
breakthrough was required to reverse the country's
economic fortunes. Those who saw the possibilities
of a total quality approach to management initiated
the changes and ultimately created world-class

The business environment of American industry
dramatically changed in the 1970s, as has the
current operating environment of the Department. The
status quo is no longer tenable and strategic
changes demand an organizational transformation in

The most important characteristic of a total
quality organization is committed leadership. Its
central task is to create an environment in which
the knowledge and expertise of every person can be
expressed and is welcomed. A shared vision based on
core principles must be employed so that all members
will have a compass for their direction. Employees
must be empowered to _surface_ problems and fix
those for which they have the resources.

Responsible initiative is required throughout DOD,
where resources are limited, because success in the
nation's defense is not negotiable. Any impediment
that inhibits the Department's components from
solving problems they confront must be eliminated.
Mutual trust between the organization's leadership
and its employees must be fostered so that everyone
is committed to the organization's mission.

The hierarchical structure of the DOD organization
might be satisfactory when resources are plentiful,
but industry has proven that this type of
architecture and narrow span of control becomes a
millstone when budgets shrink and market demand
changes dramatically. Hierarchical structures foster
centralized decisionmaking, powerful staffs who
tamper, turf battles, and avoidance of risk. These
behaviors prevent any long-term organizational
efficiencies and constrain the ability to alter
direction when required.

The best of U.S. commercial industry has eliminated
many layers of management and flattened its
organizations in order to be competitive and agile.
It is not uncommon for 20 to 50 employees to report
to one person. This structure demands that everyone
contribute and add value to the process. The
supervisor becomes a coach, a mentor, and is not
expected to know instantly every detail in the
organization. The employee is accountable for
specific assignments and responsible for his or her
own contribution to the team. To be successful, this
type of organization demands mutual trust.

The ultimate goal is that TQM will cease to have its
own identity as continuous improvement principles
and practices become the normal way DOD accomplishes
its mission. To achieve this goal, everyone in the
Department must understand and employ TQM


1. DOD should establish a top leadership and
management structure that furthers TQM principles.

This structure would provide DOD with a senior-level
corporate forum to define the future direction of
the Department. The Secretary of Defense should
charter a DOD Executive Steering Board (ESB),
composed of the Department's senior leaders, to
guide implementation of TQM within DOD. A DOD
Quality Advisor should be designated to provide an
independent source of advice to the Secretary and
the ESB on matters of quality management.

2. DOD should implement a strategic planning process
that encompasses TQM principles and establishes

A strategic planning process and implementation plan
are necessary to communicate direction and guide
work efforts across DOD. The plan would provide a
vehicle for alignment and integration of actions,
programs, and process improvement endeavors across
all DOD organizational components. At the outset,
the Department should determine customer needs and
assess the external and internal environment to
identify the critical issues upon which to base the
strategic plan.

3. DOD should ensure that employees throughout the
Department have a comprehensive knowledge of TQM
principles and practices to bring about and sustain
the TQM transformation.

Whereas significant actions are already underway in
the Services, the Secretary of Defense should
establish a TQM education and training plan for
personnel in the Office of the Secretary of Defense.
In addition, the Department should issue policy that
requires incorporation of TQM
principles in the curricula of all DOD professional
and service schools, and establish measures to
determine the impact of TQM education and
training on mission outcomes departmentwide.

4. DOD should create an environment that promotes
TQM principles and practices to foster continuous
process improvement, encourage creativity and
innovation, and nurture the professional and
personal growth of all employees.

The Department's most crucial resource is its
people. Specifically, leadership should set the tone
and create such an environment through the following

~ create career-enhancing incentives for DOD
executives and managers to employ TQM principles
and methods;

~ redesign DOD's reward and recognition programs and
performance appraisal systems so that they are
consistent with TQM principles and value total
quality practitioners;

~ design and implement an unencumbered, responsive
employee suggestion program that encourages people
to volunteer their improvement ideas;

~ reinvent the DOD Office of Inspector General and
minimize its statutory control role so that its
main purpose is to assist DOD components in
achieving their mission rather than controlling
their actions; and

~ enact a DOD policy that accentuates the
involvement of elected union representatives as
active participants and partners in the TQM

5. DOD should rewrite directives, instructions, and
policies to support TQM principles and

In particular, the Department should provide
guidance for the implementation of the Government
Performance and Results Act of 1993, which is
consistent with TQM principles. Furthermore, the
Department should ensure that recommendations
resulting from ongoing reviews of personnel and
acquisition regulations are consistent with TQM

6. DOD should use performance metrics to assess
toward attaining its vision.

A measurement system would ensure that leadership
decisions are based on objective information from
outcomes. A performance measurement capability would
also provide a means of assessing progress toward
the DOD vision.


TQM principles have brought measurable success to
numerous public and private organizations. The
further introduction and institutionalization of TQM
concepts into DOD greatly enhances the ability of
each Service, component, command, and individual to
accomplish its specific mission. For this to happen,
DOD's cultural environment must change so that a
comprehensive knowledge of TQM principles and
practices becomes part of the Department's daily
operations at all levels, in headquarters and in the
field. Many of the initiatives are long-range in
nature and require changes in regulations and
policies. The end result will be a true quality
defense establishment.

Fiscal Impact

If past successes are a reliable indicator, it is
anticipated that once these initiatives are
implemented, there will be sizable cost savings
within DOD. These will result from streamlined
management and core processes, enhanced
productivity, the reduction of errors, and the
elimination of bad management practices. The
specifics, however, cannot be estimated at this

DOD09: Maximize the Efficiency of DOD's Health Care


The Department of Defense (DOD) has an extensive and
complex medical system serving more than 8 million
eligible people. Despite its size and complexity,
the DOD health care system does not use current
technology to the fullest extent possible to
maintain records,communicate throughout the system,
and carry out other essential functions. The
Department has already begun to integrate technolog
y to improve service delivery while simultaneously
reducing costs, and opportunities exist to speed up
these efforts.

Specifically, commercially available systems can
effect immediate improvements in service. Through
innovative uses of technology, the Department could
improve the proportion of health care delivered on
an outpatient or ambulatory basis. Although an
ever-increasing proportion of health care is
delivered in the outpatient or ambulatory setting,
there is no present mechanism available to capture
systematically ambulatory diagnostic coding
information and the associated costs. A prototype
that incorporates these functions has been developed
and will be tested in the medical center at
Elmendorf Air Force Base, Alaska. Within a short
time this system could be operationally deployed
into one of DOD's health care regions.

Incorporating technology into DOD's health care
operations alone will not be sufficient as a
strategy to make the best use of DOD's resources.
DOD must also determine whether all of its
operations are still essential and whether the
private sector can provide certain DOD services.

For example, in order to foster a program to train
physicians committed to a long-term military career,
DOD created a medical school called the Uniformed
Services University of the Health Sciences (USUHS)
in 1972. The USUHS provides a full medical education
to individuals in return for seven years of active
military service. The cost of this program is $90
million a year.1

Based on figures from 1991, it costs the USUHS
approximately $562,000 to train each physician in
its program. This program has only met a small
fraction of DOD's need for new physicians and
accounts for less than 9 percent of the total number
of physicians entering military service. Based on
USUHS's share of physicians provided, closing the
USUHS would reduce the supply of DOD physicians by
less than 10 percent. Currently, the remaining 90
percent of DOD physicians are derived from other
sources, including volunteers.2 Due to anticipated
drawdown of military forces, the loss of USUHS
physicians would be consistent with the requirements
of a smaller military force.


1. DOD should accelerate the deployment of currently
available commercial technology into one of its 12
health care regions, with the eventual goal of
deploying it throughout the system.

Among potential candidates are the Medical
Diagnostic Imaging System (MDIS), Kurzweil
Artificial Intelligence VoiceRAD and Kurzweil Voice
Emergency Room, Apple Newton technology (PROMED),
and Third Party Collection Program systems.

DOD should also investigate the possible use of
televideoconferencing to reach patients and their
families at home to prevent unnecessary trips to
hospitals or clinics. Medical education, health
promotion, and remote patient monitoring are major
areas in which such technology could be applied.

2. DOD should seek to use technology to improve the
increasing proportion of health care delivered on an
outpatient or ambulatory basis.

None of the currently available systems capture
outpatient diagnostic information and the associated
costs. A prototype system that addresses these needs
has been developed for testing at Elmendorf Air
Force Base. Once testing is complete, DOD should
aggressively deploy the system elsewhere.

3. DOD should seek legislative authority to
terminate the Uniformed Services University of the
Health Sciences medical school program.

Reducing the number of physicians by the loss of
USUHS could be offset by an expansion of other
existing programs that are less costly, such as the
Health Professionals Scholarship Program, which
costs annually $111,000 per person.3 Physicians
currently enrolled in the USUHS program should be
allowed to complete their education.


Immediate improvements in DOD's health care delivery
can be realized with the deployment of commercially
available systems. Expanding the use of technology
could eventually result in ambulatory diagnostic
coding, patient level cost accounting, and a
paperless computerized medical record.

Historically, DOD recruited physicians for long-term
military service through the USUHS program. However,
due to the cutbacks in force structure and the
change in military missions for DOD, less costly
medical training programs should replace the USUHS.

Fiscal Impact

Through the continued and expanded use of current
technology, and the development and testing of new
prototypes, DOD anticipates sizable future savings
and cost avoidance. Up-front investments may be
required to accelerate the deployment of relevant
technologies into DOD's health care system. The
specifics, however, cannot be estimated at this
time. By eliminating the USUHS medical school
program, the Department of Defense could save
approximately $350 million over a 5-year period.

Budget Authority (BA) and Outlays

(Dollars in Millions)

Fiscal Year

'94 '95 '96 '97 '98 '99 Total
BA 0 -20 -50 -90 -90 -100 -350
Outlays 0 -20 -40 -80 -90 -100 -330
Change in
FTEs 0 0 0 0 0 0 0


1. U.S. Congress, Congressional Budget Office,
Reducing the Deficit, Spending and Revenue Options:
A report to the Senate and the Senate and House
Committees on the Budget as required by PL 93-344
(Washington, D.C., February 1993), p. 104.

2. Ibid.

3. Ibid.

DOD10: Give Department of Defense Installation
Commanders More Authority and Responsibility over
Installation Management


The Department of Defense's (DOD's) installations
constitute more than
5,500 properties containing approximately 27 million
acres and over 400,000 buildings. The current
replacement value of these properties is more than
$566 billion. Facilities and services are provided
for approximately 1.9 million military personnel,
almost one million civilian employees, 2.5 million
dependents, and 1.7 million military retirees. The
annual funding support provided to military
installations averaged over $16 billion per year
during the early 1990s.

All installations share a common mission to provide
quality facilities and services to tenant
organizations, activities, and individuals.
Installations provide housing, food services,
utilities, waste disposal, health and child care,
schools, hospitals, recreation, facilities repair,
grounds and building maintenance, vehicle
maintenance, and administrative and technical
support. Managing a defense installation is
comparable to managing a city of equal size. And,
like cities, each installation is unique.

Installation commanders often are hampered by an
abundance of rules and regulations. And many
decisions that affect installations are made by
people who do not have detailed knowledge of a
situation nor any responsibility for the
consequences of their actions.

For example, authority to repair leaking roofs in
Albuquerque, New Mexico, could only be given by the
Deputy Assistant Secretary of the Air Force, even
though he was 2,500 miles away and did not know
whether the roofs leaked. The installation engineer,
who could see that the roofs leaked, could only
write a report to Washington, D.C., seeking
permission to fix them, rather than take the
initiative to fix them on his own.

DOD wants to empower installation commanders with
the responsibility, authority, and flexibility to
make such decisions by the year 2000. This chapter
identifies the legislative, regulatory, and policy
barriers to this vision.

Four general functional areas with significant
barriers have been identified: financial management
and funding flexibility, installation engineering
support, installation contracting, and supply and
service support. These represent areas in which
installation commanders are restricted in their
authority to manage in a more businesslike manner.

First, the finance and accounting systems that
support installations are generally designed to
control and track appropriation obligations.
Currently, these systems fail to provide adequate
cost accounting information to the installation
commander and severely limit the capability of
commanders to make cost-based, best value decisions.

Financial management constraints include the
appropriation structure, restrictive fiscal
policies, inflexible program levels, fiscal year
boundaries, and obligation limits. Though some would
argue that these constraints are necessary to
control and monitor spending, unreasonable
restrictions often overwhelm the proactive
installation commander who is attempting to apply
limited resources to an unending list of
operational, support, and quality of life

To improve financial management and funding
flexibility, the installation commander must be
empowered to manage his or her installation. The
commander must have the authority, ability, and
responsibility to develop a comprehensive management
plan that addresses all of the installation's tasks
and functions. This plan must establish the overall
priorities, distribute the full set of resources,
and balance requirements with available resources.
And the installation commander must be held
accountable for his or her decisions. The proposed
actions would enable installation commanders to
tailor their resources to the unique requirements of
their installation, flexibly respond to changing
circumstances, encourage and reward good management
by subordinates, and subsequently improve the
overall value and effectiveness of DOD intallations.

Second, mission effectiveness and productivity are
significantly affected by the quality of
installation engineering services. Engineering
services include the maintenance and disposal of
real property, facilities and physical plant
systems, and the procurement of services, supplies,
and equipment in support of these systems.

Engineering support requirements from higher
headquarters often direct exactly how commanders are
to meet these requirements. Engineering projects
frequently require line-item reviews and approval by
higher authority. These restrictions unnecessarily
delay completion. Inflexible workforce authorization
and personnel hiring and discharge procedures impede
the commander's ability to adequately staff a
particular project as workloads and resources
change. Limitations on specific budget accounts may
prevent commanders from funding pressing engineering

DOD is currently in the process of reducing its
inventory of properties and is retaining only those
installations that are necessary to adequately
support the current or planned missions and
activities of the Department. Where possible, DOD
has relied on the private sector and other public
sector agencies to provide real property and
installation support (e.g., use of local fire
departments). However, coordination between private
and public sectors has not been fully explored. And
the use of private sector financing has not always
been considered as an option. Installation
commanders are also hampered by inflexible
requirements that prevent them from acquiring a
provider who can give the best value for services,
supplies, or equipment.

In the area of inventory management, decisions on
the cost of installation facilities and engineering
services are often based on annual obligations
rather than on total life-cycle costs. Also, DOD
lacks a comprehensive, long-range management program
to manage its capital assets. This has led to DOD's
inability to properly maintain and dispose of real
property facilities and systems.

The ever-increasing number of environmental, safety,
and occupational health laws and regulations imposed
by both state and federal authorities is also of
concern. Installation commanders sometimes do not
have adequate facilities and engineering services to
ensure compliance.

The third area of concern is contracting support.
Contracting support at the installation level is
hampered by excessive controls imposed on
contracting activities. For example, smaller
contracts ranging from $25,000 to $100,000 cannot be
processed in an expeditious manner due to complex
and restrictive acquisition procedures. Current
procurement rules require extensive documentation
and lead time to advertise and prepare bids on
relatively small value contracts. Unnecessary inter-
and intra-agency reviews also impede the efficient
and effective processing of contracts.

Resolution of disputes between contractors and the
installation are also a matter of concern.
Procurement disputes between service providers and
service users delay the prompt delivery of goods and
services, create a confrontational atmosphere, and
raise the costs to both the provider and the
government. Partnering agreements between suppliers
and customers could prevent misunderstandings,
butare rarely used.

Supplies and services support is the last area of
concern. Installation managers lack flexibility to
purchase, procure, obligate, negotiate, source, or
price for best value supplies and services directly
from a provider. Restrictive regulations and
directives drive up costs by inhibiting the
commander from _shopping smart._

For example, to purchase a commercial motor vehicle
or to lease space, the commander must provide an
extensive analysis to the DOD Comptroller and the
General Services Administration. The preparation of
the analysis and the subsequent review and approval
process cause unnecessary delay and expense. It
would be faster and more economical to permit
installations to purchase the vehicle directly from
a private commercial dealer. Commanders should be
permitted to make such purchases, and also be given
authority to buy high-demand items _in bulk_ to
minimize costs.

Current procurement practices create unusable excess
as well as pose significant disposal problems for
hazardous waste at installation sites. For example,
if a project only requires one gallon of paint, a
commander may be forced to purchase a 55-gallon
container because this is the minimum amount that
can be obtained. Obviously, procuring, storing, and
ultimately disposing of the excess paint is an
expense that should be avoided.

Currently, the costs of procuring, warehousing,
packing, crating, and handling are not permitted to
be included as customers' surcharges. These
additional costs should not be absorbed by the

Finally, because DOD instructions concerning
interservice support agreements (ISAs) are
inadequate, the responsibilities and functions of
users and suppliers are often not clearly defined.
Ambiguous and incomplete provisions in an ISA
ultimately lead to confusion and costly delays.


A. Financial Management and Funding Flexibility

1. The Defense Finance and Accounting Service should
develop and institute a Defense-wide cost accounting
system for installation management.

Systems should be developed that provide timely and
accurate status reports to installation commanders.
Budget function and appropriations data must not
take precedence over basic financial decision-making

2. DOD should review all financial constraints and
limitations imposed on installations.

All limitations should be challenged and removed
wherever possible. For example, the Defense
Comptroller should seek legislative authority to
allow, on a limited basis, Operations and
Maintenance appropriations beyond the traditional
single fiscal year. For those limitations required
by law or good business practice, the dollar amounts
should be raised to the maximum achievable levels.

3. DOD should develop and institute procedures that
allow installation commanders to retain a designated
portion of savings generated by specified
cost-saving measures, such as energy conservation.

This would encourage installation commanders to
manage their programs as efficiently and
economically as possible.

4. DOD should institute procedures that require a
financial impact assessment of major policy

The assessments would be factored into resource
initiatives before these policies reach the
installation. Installation commanders would be
assured that the financial impact has been

5. DOD should limit non-specific, broad-based cuts
of installation resources.

Reductions should be tied to a specific deletion of
functions or reduction of a required level of
service. By limiting the imposition of
non-programmatic reductions of resources,
installations would not face maintaining unnecessary
functions or undesired levels of service in the
face of decreasing funding levels.

B. Installation and Engineering Support

6. DOD should review existing installation
engineering policies, procedures, and other
regulatory requirements.

The Office of the Deputy Under Secretary of Defense
for Environmental Security, in conjunction with the
Services, should ensure that clear, measurable,
realistic, and attainable goals and standards have
been established for each primary process and
activity. It should eliminate all unnecessary
prescriptive direction on how the goal or standard
is to be achieved.

7. DOD should develop a comprehensive, long-range
approach to managing DOD capital assets, similar to
capital asset management systems common in the
private sector.

OSD, the Comptroller, and the Office of the Deputy
Under Secretary of Defense for Environmental
Security, in conjunction with the Services and other
DOD agencies, the Office of Management and Budget
(OMB), and Congress, should develop an approach that
requires tracking total life-cycle costs for
acquiring, operating, maintaining, and disposing of
real property facilities and systems. DOD, with the
assistance of OMB, would also annually program and
budget the capital and operating expenses necessary
to minimize total life-cycle costs.

8. DOD should enhance the installation commander's
ability to obtain engineering support services.

The Office of the Deputy Under Secretary of Defense
for Environmental Security, in conjunction with the
OSD Comptroller, the Services, other DOD agencies,
OMB, and Congress, should implement policies and
practices that empower the installation commanders
to obtain engineering support in a timely and
efficient manner. The number and types of projects
requiring line-item review and approval by
authorities above the installation level should be
greatly reduced. Work classification policies and
guidance should be simplified. Commanders should be
allowed to adopt a _unified budget_ with a single
account for all installation engineering

9. DOD should empower installation commanders to
make best value purchases.

The Office of the Under Secretary of Defense for
Acquisition and Technology, in conjunction with the
Services, DOD agencies, and
Congress, should identify and modify those statutes,
policies, and procedures that preclude or otherwise
limit the installation commander from acquiring the
best value for services, supplies, equipment, and
other resources.

10. DOD should act to minimize lifecycle costs.
The OSD Comptroller and the Office of the Deputy
Under Secretary of Defense for Environmental
Security, in conjunction with the Services, DOD
agencies, OMB, and Congress, should encourage
private-sector-financed alternatives to the Military
Construction appropriation for acquiring, operating,
and maintaining required facilities at the lowest
total life-cycle cost.

11. DOD should provide savings incentives to
installation commanders.

The OSD Comptroller and the Office of the Deputy
Under Secretary of Defense for Environmental
Security, in conjunction with the Services, DOD
agencies, OMB, and Congress, should implement cost
savings incentives that would authorize installation
commanders to retain savings (or cost avoidance)
that result from process improvements and
productivity enhancements. Commanders should be
allowed to apply these savings toward discretionary
spending and/or other installation engineering

12. DOD, in conjunction with the Office of Personnel
Management, unions, and Congress, should modify
staffing authorization and personnel hiring and
discharge procedures to permit installation
commanders the flexibility they need to efficiently
adjust their staffs to changing workloads and
resources and to retain the most qualified and
productive personnel.

C. Contracting Support

13. Legislation should be enacted to permit DOD to
use simplified acquisition procedures for contracts
between $25,000 and $100,000.

DOD should also reduce the solicitation lead time
for contracts between $25,000 and $100,000 and seek
legislative authority to increase the threshold
established by the Service Contract Act and the
Davis-Bacon Act.

14. DOD should encourage the use of _partnering_
agreements between suppliers and customers.

Widespread application should be encouraged wherever
possible and appropriate, in contracts as well as in
agreements between government organizations.
Successful partnering can be enhanced by formally
stating values and goals in solicitations, ensuring
top-level commitment to the process, sponsoring
joint team building workshops, reaching consensus on
operating principles, and establishing conflict
management procedures such as the Alternate Disputes
Process. Follow-up meetings and/or workshops will
also maintain open communications and encourage
continued cooperation after the contract is under

15. DOD should increase the use of _best value_
contracts where applicable and encourage
installation commanders to take prudent risks in
procurement activities.

Current requirements do not encourage the use of
best value contracts. This contributes to longer
lead times, customer dissatisfaction, and less than
full value for government expenditures. All
personnel involved in the contracting process should
be better trained in the _best value_ philosophy.
The training should emphasize the benefits of using
best value contracting approaches. DOD needs
toencourage installation commanders to take prudent
risks, and DOD must accept their occasional
failures. Approval of Value Engineeri ng proposals
should be authorized at the installation.

16. DOD should reform contract protest procedures.

The Deputy Under Secretary of Defense for
Acquisition Reform should revise the protest process
to include limiting the time in which a protest is
considered. The rejection of unreasonable protests
submitted by contractors whose primary intent
appears to be to delay the contract awards should be

D. Supply and Service Support

17. DOD should identify impediments to a _shop
smart_ capability.

DOD should revise and/or eliminate restrictive
regulations that prevent installation contracting
officers from buying in the most cost-effective
manner. DOD should also provide information to
installation commanders
comparing commercial options to available federal
sources. DOD also should develop a standard
interservice support agreements (ISAs) accounting
system to facilitate reimbursement.

18. The Federal Acquisition Regulation (FAR) should
be amended to permit purchasing from large
businesses based on cost and quality of items

Amending FAR would, in many cases, save the costs
associated with the small business intermediary.

19. DOD should delete or revise those statutory and
regulatory requirements that unreasonably impede an
installation commander's ability to contract for
supplies and services.

In the area of real estate leasing and purchasing,
Section 2682 of Title 10, U.S.C., should be amended
to eliminate some fixed lease costs and overhead
expenses. Similarly, DOD should be allowed to delete
the requirement to submit Analysis of Requirements
for Commercial Vehicles and other similar
requirements where the procedures are unnecessary,
cumbersome, or difficult to understand. The Joint
Travel Regulations should also be reviewed and
amended. The restriction on use of foreign flag
carriers (Fly American Act) should be eliminated.
This act prohibits the use of several U.S. carriers
(e.g. USAir, Continental) because of their alignment
with non-U.S. carriers, even though they often can
provide the least costly means of transportation.

20. DOD should issue unit cost guidance.

It is critical that the DOD Comptroller establish a
standard financial accounting system and uniform
guidance for computing unit costs. This will promote
uniformity and assist installation commanders in
assessing their procurement programs in a more
efficient and effective manner.

21. DOD should change applicable DOD regulations to
allow stock fund managers to include in their
customers' surcharges the costs for procuring,
warehousing, packing, crating, and handling.

These are allowable costs that should be recovered.

22. DOD should provide guidance on inter-service
support agreements (ISAs).

DOD should revise its guidance to include DOD
interservice support policy; organization,
functions, and specific responsibilities of
suppliers and receivers in the ISA process;
procedures for negotiation and preparation of ISAs;
and categories of support that spell out in detail
the types of support required.

23. OMB and DOD should implement full funding
reimbursement on an accelerated schedule.

In this area, DOD should add improved automated
support and provide more definitive
policy/procedural guidance. This should include
flexible pricing, process/function costs, and total
asset visibility.


Many of these initiatives are long-range in nature
and will require changes in legislation as well as
in DOD internal regulations and policies.
Coordination with the Services will be required.
Reforming engineering support functions will require
assistance from outside resources such as state and
local communities and other federal agencies. Modern
management tools and innovative technological
applications in the areas of energy use, automated
data processing, and the environment will have to
be provided in order to assistthe installation
commander in moving toward entrepreneurial
management. There will be some upfront
administrative costs to develop the various fiscal
management systems.

Fiscal Impact

Once these initiatives are implemented, cost savings
will be realized. The amounts saved will vary from
installation to installation and cannot be

DOD11: Reduce National Guard and Reserve Costs


In 1993, the U.S. military reserves exceeded 1.1
million personnel, compared with approximately 1.8
million on active duty.1 There are seven reserve
components, comprising Army, Navy, Air Force, Marine
Corps, and Coast Guard personnel, along with the
Army and Air National Guards. Two-thirds of the
reserve force are in the Army Reserve and Army and
National Guards.

The post-Cold War drawdown of active and reserve
military forces has, in some cases, created a
surplus of individuals seeking to join or stay in
the reserve program. In a given calendar year, a
_selected reservist_ generally performs duty one
weekend a month plus serves on active duty for a
period of time, usually 12 to 14 days. During the
monthly drill period, the selected reservist trains
in his or her military occupational specialty for a
wartime mission.

The cost of the Guard and Reserve personnel program
amounts to more than $9 billion annually.2 The
National Performance Review has identified two
specific areas where substantial cost savings in the
program can be achieved.

The first of these areas deals with payments to
reservists who are also full-time federal civilian
employees. In fiscal year 1992 alone, there were
136,700 reservists who fell into that category.3
Although the Dual Compensation Act generally
prohibits a federal employee from drawing two
salaries from the federal government for the same
period of time, these selected reservists received
both their full civilian pay and full reserve pay
during their two weeks of annual military training.

The fact that these selected reservists are
authorized by federal statute to receive military
leave for training without loss of pay or annual
leave is an inequity in the system. In contrast, a
1986 Hay-Huggins Benefits Survey of Clients showed
that such dual compensation is not standard in the
private sector.4 In fact, the study found that 81
percent of reservists employed by private employers
with over 500 employees received either the
difference between their civilian and reserve pay,
were allowed to take vacation, or received no
additional pay at all for their two weeks of
military training.5 A similar 1989 study showed that
66 percent of medium-sized private companies and 51
percent of large private companies only paid the
difference in reserve and civilian salary, paid no
salary at all, or required the reservist to take
annual or sick leave.6

Both a 1978 Reserve Compensation System Study (RCSS)
and a 1990 Congressional Budget Office (CBO) report
proposed eliminating this dual compen-sation.7 The
RCSS was not, however, released as an approved study
outside the Department of Defense. The RCSS found
that over half of the reservists who were federal
employees were civilian technicians (i.e., full-time
federal employees of Guard and Reserve units) whose
civilian employment was contingent upon reserve
membership in the unit.8 In fiscal 1992, out of
101,000 selected reservists employed as civilians by
DOD, 58,000 were military technicians.9

The second area where cost savings can be achieved
involves housing benefit payments to reservists with
dependents. Historically, military personnel have
been furnished living quarters or a cash substitute
while serving on active duty. This cash substitute
is known as a basic allowance for quarters (BAQ).
The current BAQ authority, however, creates a
disparity in entitlements for members in essentially
identical situations. Reservists with and without
dependents are treated differently with respect to
BAQ when on short tours of active duty. In effect,
some reservists who are placed on active duty for
short training periods receive housing allowances,
while others do not.

While reservists generally serve two weeks of active
duty each year for annual training, they also may
serve for short periods of additional active duty
for schooling or special training. During these
limited periods of training, living quarters are
provided at government expense to the reservist.
Whereas reservists without dependents do not receive
BAQ, a reservist with dependents receives BAQ, even
though dependents do not usually accompany a

Generally, because of mission requirements,
dependents are not authorized to travel with the
reservist and are not provided quarters during these
short periods of active duty. For example,
reservists assigned to ships or stationed in the
field cannot bring their dependents. For these
reasons, and because of the out-of-pocket costs
involved, fewer than 5 percent of reservists
actually bring their dependents with them on such
short tours.10

This issue of equity was addressed in a 1986 Reserve
Component Survey when service members complained
that reservists without dependents did not receive
BAQ during short tours of active duty while members
with dependents did.11 As a result of their
concerns, the Sixth Quadrennial Review of Military
Compensation recommended that BAQ be extended to all
reservists on active duty with the exception of
members without dependents who are performing
initial active duty for training.12

The disparity in treatment with respect to
compensation emanates from Section 401(d) of
Executive Order No. 11157, _Regulations Relating to
Incentive Pay, Special Pay and Allowances._ This
section defines the permanent duty station of
members of reserve components on active duty for
training as the place where the training is being
performed.13 Thus, a reservist on temporary active
duty is deemed to be at his or her _permanent duty

Since BAQ for personnel without dependents serving
at their permanent duty station and occupying
government quarters is not authorized, reservists
without dependents on active duty are not entitled
to BAQ. On the other hand, reservists with
dependents receive BAQ even though their dependents
do not accompany the reservist. This inequity is
apparent in both the reserve officer and enlisted


1. DOD should seek an amendment to Section 6323 of
Title 5, U.S.C., to authorize a reservist on annual
military training leave who is a federal employee to
be paid only the greater of civilian or reserve
compensation or to allow the reservist to take
annual leave.

Corresponding changes to DOD and Office of Personnel
Management regulations and policies would also have
to be made to implement this statutory amendment.2.
DOD should seek an amendment to Section 403 of Title
37, U.S.C., to eliminate BAQ for all selected
reserve personnel occupying government quarters
during short periods of active duty (15 days or
less) who are not accompanied by their dependents.

To implement this statutory change, relevant
Executive Orders, regulations, and policies would
also have to be amended.


These two issues have been raised in the past by
both the CBO and the OMB. Though many have argued
that this change in policy would have a negative
impact on the recruitment and retention of qualified
individuals in the reserves, this review indicates
that such changes would only minimally affect
overall reserve compensation. It is estimated that
the reduction in annual income of reservists with
dependents would be only about 5 percent.
Implementation of these recommendations, however,
would put an end to perceived inequities in the
system and generate significant cost savings for the

Fiscal Impact

By eliminating dual compensation for reservists who
are civilian federal employees, the Department of
Defense would save approximately $80 million a year.
Ending BAQ for reservists with dependents who do not
accompany the reservist to the active duty location
during short periods of active duty could save as
much as $100 million per year.

Budget Authority (BA) and Outlays

(Dollars in Millions)

Fiscal Year

'94 '95 '96 '97 '98 '99 Total
BA 0 -180 -180 -180 -180 -180 -900
Outlays 0 -180 -180 -180 -180 -180 -900
Change in
FTEs 0 0 0 0 0 0 0


1. U.S. Congress, Congressional Budget Office (CBO),
Reducing the Deficit, Spending and Revenue Options:
A report to the Senate and House Committees on the
Budget as required by PL 93-344 (Washington, D.C.,
February 1993), p. 90.

2. Interview with Office of Management and Budget
staff, Washington, D.C., September 3, 1993.

3. Department of Defense memorandum dated July 20,

4. Ibid.

5. Ibid, attachment 1.

6. Ibid, attachment 2.

7. Interview with Office of Management and Budget
Washington, D.C., May 10, 1993.

8. Ibid.

9. Department of Defense Memorandum dated July 20,

10. Interview with DOD staff on August 23, 1993.

11. Department of Defense, Sixth Quadrennial Review
of Military
Compensation, Volume 1, National Guard and Reserve
Compensation (August 1988), pp. 6-2 to 6-9.

12. Ibid.

13. Ibid.

DOD12: Streamline and Reorganize the U.S. Army Corps
of Engineers


The U.S. Army Corps of Engineers has both a military
and a civil works mission. Its military mission
includes all military construction for the Army and
most construction for the Air Force. The civil works
mission is wide-ranging and includes such functions
as flood control on major U.S. inland waterways. The
1993 fiscal year program of $10.6 billion included
$5.5 billion for military construction and $5.1
billion for civil works.1 The Corps also performs
reimbursable work for other DOD organizations and
other federal agencies. The Corps has provided
project planning, cost estimating, design, and
contract management services to the Environmental
Protection Agency, the Department of Energy, the
Federal Emergency Management Agency, and the
Department of State, to name a few.2

Approximately 20,000 of the Corps' 41,000 civilian
and military employees work in assigned geographic
areas within the continental United States.3 This
paper addresses that portion of the Corps
organization. It excludes the Corps Research and
Laboratories and two specialized division offices.
The Corps has not undergone a major reorganization
since 1942, although its traditional engineering and
construction activities are changing. It appears
there will be fewer large civil works projects
approved by Congress, and traditional military
construction is expected to decline.

Although the Corps' workload and workforce are
generally balanced nationwide, some districts have
workloads that vary as much as 50 percent from year
to year.4 These offices are difficult to staff
efficiently. And the Corps' technical capabilities
are limited by a lack of personnel in specialized
fields at some smaller offices. High overhead costs
are also a problem. Corps-wide overhead and
management costs are about 25 percent; however,
small district offices may have much higher overhead

The Corps' organizational structure is a matter of
congressional concern. Committee reports
accompanying the Energy and Water Development
Appropriations Acts for fiscal years 1990 and 1991
directed the Corps to prepare conceptual
alternatives and criteria for reorganization. As a
result, the Corps furnished its _Bayley_ Phase I
Report to Congress on January 4, 1991. It also
should be noted that the Corps is not part of the
Base Realignment and Closure process.

In early 1992, the Corps renewed its restructuring
effort by focusing on its roles, missions, workload,
workforce, funding, and cost-effectiveness. This
review confirmed the Corps' need to reorganize. The
Corps coordinated its reorganization plans with
Congress. It also testified before both the House
and Senate authorization and appropriation
committees on the need for a comprehensive
reorganization. In November 1992, the Corps
submitted a reorganization plan to Congress. The
fiscal year 1993 appropriations bill included $5
million and transfer authority for another $7
million to reorganize the Corps' divisions and
headquarters. However, the fiscal year 1993 Energy
and Water Development Appropriations Act prohibited
closing any district office or changing any district

In addition to changing its organizational
structure, the Corps' reorganization plan proposes
consolidation of some functions, elimination of
several reviews, and other process streamlining to
achieve management efficiencies and substantial
savings. Moreover, more than 37 actions were
identified to remove redundancy, improve
efficiency, and reduce headquarters costs. Some of
these headquartersactions can be implemented
independent of the Corps-wide reorganization plan.

The current reorganization plan recommended by the
Corps would:

~ reduce the number of division offices from
11 to six;

~ retain all district offices;

~ enhance the Corps' competency and cost-effectiveness by
consolidating technical and support functions;

~ create 15 civil works technical centers within
existing districts to consolidate some technical
functions and provide planning, design, real estate,
and review expertise;

~ create five administrative centers to
consolidate administration;

~ create a national financial and accounting
center to consolidate financial and accounting
functions; and

~ collocate military project construction
management and design with 10 of the 15 civil works
technical centers.

Recently, the Corps has prepared two reorganization
plans. The first plan was rejected by Congress in
1991, and the second plan is pending review by the
new administration. Congress is clearly opposed to
changes in district structure, as evidenced by the
House version of the fiscal year1994 Energy and
Water Development Appropriations Act. Continued
uncertainty regarding reorganization is
understandably having an adverse impact on Corps'
employees. As a result, the Corps is losing valuable
employees, and the reorganization question needs to
be answered quickly.7


1. The administration and the Corps should develop
and implement a reorganization to accomplish
appropriate streamlining and right-sizing.

The administration, Congress, and the Corps should
work cooperatively to ensure the timely approval of
an agreed-uponreorganization plan. The Corps, using
previously appropriated funds for reorganization,
should proceed immediately to implement the
division-level portions of the plan. This includes
establishment of a central review center to
consolidate the headquarters and division policy
review and transfer of technical review functions
from divisions to districts.

2. The Corps should seek authority to close or
relocate district or division offices based on
mission, programs, workload, and resource needs.

The Corps should recommend a plan for its
district-level and division-level structures that
includes public and congressional input on the
Corps' mission, programs, workload, resource needs,
and other planning criteria.3. Maximize the use of
Corps' planning, engineering, and contract
management capabilities in support of other federal
agency programs.

The Assistant Secretary of the Army (Civil Works)
and the Chief of Engineers should work with other
federal agencies and theOffice of Management and
Budget (OMB) to increase the use of Corps resources,
particularly in construction design and management.


Congressional concerns limit the Corps' ability to
close or relocate district offices. However, the
reorganization plan will not only save money but
also improve customer service. The plan would allow
the Corps to apply a managed approach to achieving
necessary reductions.

Fiscal Impact

The cost to implement all of the changes contained
in the Corps' reorganization plan is estimated at
$215 million. After full implementation, annual
savings are estimated to be $92 million from reduced
staffing.8 The savings stated in the November 1992
plan were adjusted to reflect current Corps staffing
and the President's initiatives to reduce the
government workforce and administrative reductions.
Implementation of only selected portions of the plan
could be accomplished at lower cost, but this would
be accompanied by reduced savings.

Budget Authority (BA) and Outlays

(Dollars in Millions)

Fiscal Year

'94 '95 '96 '97 '98 '99 Total

BA 26 11 0 -11 -47 -47 -68
Outlays 33 11 0 -11 -47 -47 -61
Change in
FTEs -250 -500 -750 -1,000 -1,000 -1,000 -1,000


1. Memorandum from Claudia Tornblom, Office of
Assistant Secretary of the Army (Civil Works)
(OASACW), to Kathleen Dillon, OASA (M&RA) at the
Pentagon, June 29, 1993.

2. Interviews with: Kevin Cook, Assistant for
Interagency and International Activities, OASACW;
Mike Davis, Assistant for Regulatory Affairs,
OASACW; Jim Waddell, Chief, Office of Strategic
Initiatives, Corps; Jill Davis, Reorganization
Program Director, Corps; Col. John Brown, Executive
Director, Directorate of Civil Works (DCW), Corps;
Don Kisicki, Chief, Office of Interagency &
International Activities (DCW), Corps; John Studt,
Chief, Regulatory Branch, Operations, Construction,
and Readiness Division, Corps; Bill Klesch, Chief,
Office of Environmental Policy, Policy and Planning
Division, Corps; Al Carton, Deputy Director,
Directorate of Military Programs, Corps; and Bob
Oswald, Director, Directorate of Research and
Development, Corps, Corps Headquarters, Washington,
D.C., May 21, 1993.

3. Memorandum from Claudia Tornblom.

4. The portion of the Corps under consideration for
reorganization consists of one headquarters, 11
divisions, and 38 district offices.

5. U.S. Department of the Army, Corps of Engineers,
Reorganization Plan (Washington, D.C., November
1992), p. A-1.

6. Ibid., p. i.

7. Telephone interview with Major General Arthur E.
Williams, Chief of Engineers, Washington, D.C., June
25, 1993.

8. This follows the same cost and FTE estimating
procedures as used in the Corps' November 1992
Reorganization Plan. Dollar entries are incremental,
not cumulative. The civil works FTE base has been
adjusted downward by 500 FTE since the end of fiscal
year 1991 and an additional adjustment downward by
1,100 FTE to reflect the President's initiatives to
reduce the government workforce. Thus, net
reductions would equal 1,000 FTEs versus 2,600 FTEs,
and annual dollar savings $47 million per year
versus $115 million per year. Implementation costs
of $108 million are assumed unchanged. This also
assumes that the reorganization plan will, at a
minimum, achieve the savings contained in the Corps'
Reorganization Plan of November 1992 as adjusted.

Summary of Fiscal Impact


[chart can't be translated into ASCII format]


[chart can't be translated into ASCII format]


[chart can't be translated into ASCII format]


Accompanying Reportsof the National Performance

Changing Internal Culture

Creating Quality Leadership and Management QUAL

Management Control SMC

Organizational Structures ORG

Improving Customer Service ICS

Reinventing Processes and Systems

Mission-Driven, Results-Oriented Budgeting BGT

Improving Financial Management FM

Reinventing Human
Resource Management HRM

Reinventing Federal Procurement PROC

Reinventing Support Services SUP

Reengineering Through
Information Technology IT

Rethinking Program Design DES

Restructuring the Federal Role

Strengthening the Partnership in Intergovernmental
Service Delivery FSL

Environmental Management ENV

Improving Regulatory Systems REG

Agency for
International Development AID

Department of Agriculture USDA

Department of Commerce DOC

Department of Defense DOD

Department of Education ED

Department of Energy DOE

Environmental Protection Agency EPA

Executive Office of the President EOP

Federal Emergency
Management Agency FEMA

General Services Administration GSA

Department of Health
and Human Services HHS

Department of Housing
and Urban Development HUD

Intelligence Community INTEL

Department of the Interior DOI

Department of Justice DOJ

Department of Labor DOL

National Aeronautics
andSpace Administration NASA

National Science Foundation/Office of Science and
Technology Policy NSF

Office of Personnel Management OPM

Small Business Administration SBA

Department of State/U.S. Information Agency DOS

Department of Transportation DOT

Department of the Treasury/Resolution Trust
Corporation TRE

Department of Veterans Affairs DVA
NPR Home Page Search the NPR Site NPR Initiatives Site Index Calendar Comments Awards Links Tools Frequently Asked Questions Speeches News Releases Library Navigation Bar For NPR site