Defense Management: Continuing Questionable Reliance on Commercial Contracts to Demilitarize Excess Ammunition When Unused, Environmentally Friendly Capacity Exists at Government Facilities.

GAO-04-427R April 2, 2004

In April 2001, we reported that the Army Materiel Command's guidance required that 50 percent of the excess conventional ammunition demilitarization budget--a figure for which we did not find any analytical basis--be set aside for commercial firms that use environmentally friendly demilitarization processes. This resulted in the retention and underutilization of environmentally friendly demilitarization capabilities at government facilities and in additional program costs. We thus recommended that the Department of Defense (DOD) develop a plan in consultation with Congress that included procedures for assessing the appropriate mix of government and commercial sector capacity needed to demilitarize excess ammunition. Our intent was to have DOD reexamine the cost-effectiveness of using commercial versus government facilities to demilitarize excess ammunition. Over the past several months we have conducted work to determine the specific actions taken to implement our recommendation. We made extensive use of our prior work as a baseline to compare the changes in demilitarization capacity and utilization at government-owned facilities since our prior report. We conducted our analysis of DOD's demilitarization program in accordance with generally accepted government auditing standards. The purpose of this letter is to note that (1) the Army has taken only limited steps in response to our recommendation and (2) additional actions are needed to address our recommendation.

The Army continues to set aside 50 percent of the demilitarization budget to commercial firms, resulting in program inefficiencies and additional costs. In commenting on our recommendation in the April 2001 report, DOD stated that the Army was preparing a study for Congress, due September 30, 2001, that could be used to address the mix of government and commercial sector capacity needed to demilitarize excess ammunition. The Army study concluded that, based upon its analysis of different commercial/government facility mixes, more ammunition could be demilitarized through greater reliance on existing environmentally friendly processes available at government-owned facilities. Nonetheless, the excess ammunition demilitarization program is still operated on Army Materiel Command guidance that requires a 50/50 split of funding between government and commercial demilitarization projects. This predetermined funding allocation, combined with increased government facility capacity to demilitarize excess ammunition and paying a commercial firm to have ammunition demilitarized by government employees, exacerbates the costs and related inefficiencies to operate the program.