Logistics Logjam

Wrangling over the waiver already has delayed the program for months. Employees and their union have found some support on Capitol Hill for their claim that they should be allowed to compete for the work before it's outsourced.

The Wholesale Logistics Modernization Program, or Log Mod, contract would result in new processes and new computer systems to procure and manage stores of equipment, spare parts and supplies worldwide. The logistics systems now supporting those functions are a quarter century old and cost the Army $40 million a year to maintain.

For about the same amount, Army Materiel Command (AMC) officials hope to get new systems that are state of the art today and will be continuously improved over the next decade. They've looked at the "supply chain management" systems that are all the rage in big corporations, and they want something similar.

Modern logistics systems are superior to their mainframe counterparts in several ways. They provide managers with a heretofore-unavailable picture of supply inventories and movements at any given moment, allowing users to drill down for details as needed. Updates, readily made by any authorized user, are reflected immediately in the rest of the system.

A modern system is key to the Defense Department's "total asset visibility" campaign and push for better logistics management. Today, Andersen Consulting partner Eric Stange says, "the trust in the system is not there." Because supply lines are slow and unreliable, the smart supply clerk "orders twice as much as he needs, or he orders it again 30 days later, just to make sure it comes in," Stange says. The result: excess inventories that are costing DoD millions of dollars.

However, big bucks simply aren't available for many new Defense Department systems-especially systems that don't go to war. Logistics is a critical element of any battle plan, of course, and the systems the Army is pushing are linchpins of the effort to get the right supplies and equipment to warfighters on time. But these are, in the end, back-office systems that manage ordering of items from suppliers, delivery and acceptance of the items, and inventory and maintenance functions.

AMC officials say the shortage of available funds forced them to come up with an innovative strategy for modernizing their two wholesale logistics systems. (The retail logistics systems, which handle supply requisitions from the field, are being modernized through a separate program.) Their answer is to turn the existing systems over to a prime contractor that will operate them while developing a total replacement. The contractor will run the systems for 10 years, keeping them up to date throughout the contract, according to Paul J. Capelli, the Wholesale Logistics Modernization Program manager at AMC's Communications-Electronics Command (CECOM).

Soft Landings

Under this arrangement, the Army will not own nor operate the new system. The contractor essentially will supply a set of services-receiving and processing data, producing reports, and so on. In doing so, it will displace up to 500 Army employees at software centers in Chambersburg, Pa., and St. Louis.

To make the outsourcing plan more palatable, the Army is requiring contractors to provide what's been labeled a "soft landing" for the centers' employees. They will get federal severance benefits due them upon a reduction in force, and the prime contractor must offer all employees at least one year of employment at the same pay and benefits they've been receiving (unless there's malfeasance or another legitimate reason to fire them) in the same locations.

Contractors who offer to do more for the employees-retrain them, perhaps, or keep them on longer-will score higher in the evaluation of their proposals, Capelli says. "We are looking for the contractors to exceed the minimum requirements," he says. The soft-landing approach also is being used at the National Security Agency, but this is a first for the Defense Department, Army officials believe.

"We're very, very concerned about all the people" affected by the plan, says Lt. Gen. John G. Coburn, the Army's deputy chief of staff for logistics. But, he adds, "if we do nothing, we will delay the transition" to the Global Combat Support System-Army, part of a grand scheme for modernizing logistics across all the military services.

Coburn says he's hoping that once the employees see the proposals from the winning prime contractor, they will feel better. Some of their concerns, he implies, are rooted in uncertainty and normal human fear of change and the unknown. The soft landing plan, he says, "really is a great attempt to take care of the employees."

It's not enough, says John R. Morris, president of Local 1763 of the National Federation of Federal Employees in St. Louis. He believes the Army should keep the employees, who understand the Army's logistics processes and needs better than anyone else, and hire a contractor that can deliver the current, commercial-style technology the Army wants.

Morris says his members are leery of the suggestion that the Army should simply adapt a commercial supply-chain management system. The system maintained in St. Louis, known as the Commodity Command Standard System, is the best in the world, he maintains. The Army describes CCSS as one of the world's largest integrated business systems, with more than 500 subsystems and 5,000 programs. It supports procurement of $23 billion in supplies and equipment annually.

"It's designed for military combat logistics, not for commercial activities," Morris says, arguing that changes in the system could have a noticeable impact on military readiness. "Wal-Mart does not have a system that surges indefinitely when it goes to war," he says, and corporations don't have to worry about storing and moving dangerous stocks of ammunition and nuclear weapons.

Log Mod proponents say any commercial system offered by a contractor will be modified to meet the Army's needs. The competitors for the prime contract, six of the country's biggest defense contractors and systems integrators, have assembled teams to propose, develop and operate the new system. Likely bidders are the Boeing Co., Computer Sciences Corp., IBM Corp., Lockheed Martin Corp., Litton Industries' PRC unit and Raytheon Systems Co., according to industry sources.

Too Risky?

In view of the difficulties encountered by agencies such as the Internal Revenue Service and the Federal Aviation Administration when they have hired contractors to modernize
their systems, Morris argues, the Army's approach is risky. "The taxpayer's getting tired of paying all this money for systems that don't work," he says, and privatizing the systems will raise the stakes even further.

But program manager Capelli says CECOM carefully considered the alternatives. Although critics of outsourcing are raising questions about the effects on military readiness, he says the unresponsiveness of the sluggish old systems and the high cost of maintaining them are serious drags on the Army. "I think we're staring a readiness issue in the face," Capelli says.

Many observers blame the Army for neglecting CCSS and the Standard Depot System (SDS) until they became obsolete, the employees lacked the skills to modernize the systems and there was no money available to acquire up-to-date systems. Now that the Army is in this situation, officials see no alternative to their Log Mod strategy.

The Army is under severe pressure to reduce its head count, and officials argue that developing and maintaining computer systems is not a core competency for the Army Materiel Command, nor an integral part of its mission. The fact that the software centers in Chambersburg and St. Louis have reported to several different parent organizations over the last few years suggests they are bureaucratic orphans by nature.

The attempt to outsource the work has been under way for more than two years. The Army at first tried to proceed without notifying Congress, which the law requires for most such outsourcing efforts, and without obtaining a waiver from Circular A-76, which sets the rules for public-private competitions for federal work.

Big Breakthrough

The Professional Services Council and the Information Technology Association of America, two organizations representing federal systems integration contractors, are lobbying on behalf of the Army's plan. Employee unions and members of Congress representing the affected employees, including House Minority Leader Richard Gephardt, D-Mo., are lobbying against it. Gephardt represents some of the workers in St. Louis who would be affected. Both sides describe Log Mod as a potential breakthrough in the way the government works-whether for good or for ill.

AMC's commander approved the A-76 waiver request in October and sent it along to Army headquarters, where it was awaiting the signature of an assistant secretary in early April. Sources say Gephardt's opposition to the waiver slowed action on it. If the waiver is approved, an appeal to the Secretary of the Army or the Secretary of Defense is widely anticipated.

"As far as we know, this would be the first" A-76 waiver, says Bert Concklin, president of the Professional Services Council. He expressed confidence that it would be granted. Once the waiver is in place, the Army will issue the request for proposals, which has existed in draft form since last year. At one time, the RFP was scheduled to be released June 30, 1998. Capelli now says he hopes to award the contract by early next year.

The prolonged fight has cut into the morale of workers in Chambersburg and St. Louis. Both centers have lost employees to nearby federal data centers, such as the IRS national computing center in Martinsburg, W.Va. That adds to the difficulties facing the remaining employees of the downsized Army centers.

"We are tired and feeling like no one gives a damn that the U.S. taxpayer is about to be screwed once again," says computer specialist J.D. Stone, an 11-year ILSC veteran. "It makes no sense to demoralize and decimate
all of your expertise and still expect to develop a better system. . . . In all good conscience I could not recommend a federal career to anyone when dedicated individuals are treated in such a shabby manner."

Wanted: Competition

Some of the employees insist they can compete with the private sector and they deserve a chance to prove it under the aegis of A-76. Although their technical skills might not be the latest and greatest, they say, their understanding of Army needs and the existing processes more than offset those deficiencies. If that's the case, Log Mod proponents say, they will be in great demand with whatever contractor gets the job.

If AMC is forced to proceed with an A-76 competition, the modernization program will be slowed for more than a year. Should the software centers lose the competition for the work, Coburn says, there will be no soft landing for the employees. "If you look at any of the other alternatives, the people impacts are much more" severe, Capelli says, adding: "I personally believe that many of them will end up better off" with Log Mod as now planned.

In view of the groundbreaking nature of the Log Mod plan, the chosen contractors will be under pressure to take care of the employees, many observers contend. "There will be a tremendous amount of fallout if it's not a good soft landing," says Stange, the Andersen Consulting partner who's participating in Lockheed Martin's bid for the contract.

Stange has high praise for the employees' capabilities. He says any of them who are willing to change and are interested in obtaining new skills have bright futures in private industry. Government pay and benefits are on the low side, Stange says, and "the IT community has virtually zero unemployment." Once retrained, the employees will have lots of job options.

But many of the employees are near retirement age. Some simply are not interested in starting new phases of their careers. Others fear a loss of benefits accrued by seniority. And still others don't want to work in the private sector. They believe they've earned the right to work for the Army and choose their own retirement dates under the federal retirement plans.

Log Mod proponents like Olga Grkavac, executive vice president of the Information Technology Industry Association, call the program a "landmark" and say it's "breaking new ground." But to the employees, granting the first A-76 waiver sounds like a bad precedent.