Downsizing Detour

Crane, one of the military's largest ordnance storage sites, was never in real danger of being closed despite the military downsizing of the 1990s. Its civilian workforce has remained relatively steady at between 3,000 and 4,000 employees for much of the decade.

Crane faced the same dilemma as many other bases-how to downsize without eliminating the critical jobs and skills that make the base valuable to the Navy and keep it off base closure lists. Crane's response, however, set it apart from other military bases. While other bases began A-76 competitions or sought help from lawmakers to prevent them, Crane drew up plans to allow the base to save money by operating more efficiently. "We knew we had to downsize. The issue became if we have to do it, then we wanted to be in control of it. We wanted to be proactive and guide our future," says Bill Kaiser, Crane's deputy director.

So, Crane's managers made a counterproposal, seeking permission to waive the outsourcing order. In exchange, Crane would conduct a comprehensive review of its entire workforce over the next five years and decide what tasks should be streamlined, eliminated or outsourced. Crane still would have to meet a savings goal set by the Navy but, unlike other bases, would not be told how many jobs to outsource.

Crane officials said the proposal, known as business and process reengineering (B&PR), would meet the base's cost-cutting target. The Navy went for the deal.

Crane's story is more than a David versus Goliath victory for the Indiana naval base. In accepting the deal, the Navy took the first steps toward convincing Defense officials to overhaul the widely unpopular outsourcing program, known as competitive sourcing. The program has been criticized as costly, time-consuming and biased by both contractors and federal workers. Eventually, DoD adopted Crane's B&PR effort as a departmentwide model and scaled back plans to outsource as many as 230,000 jobs nationwide.

Today, the Navy, Army, Air Force and Marine Corps are embracing the new model and implementing it as "strategic sourcing." Like Crane's B&PR, the new effort calls for some outsourcing but shifts responsibility for cutting infrastructure costs away from remote budgeteers to front-line managers and workers. As the initiative evolves, bases will decide whether the best way to cut costs is through outsourcing or other means.

A-76 'a Big Stick'

The Pentagon's competitive sourcing program was part of Defense Secretary William Cohen's Defense Reform Initiative, a series of reforms he announced shortly after taking his post in 1997. His goal was to streamline the Pentagon bureaucracy, bring more commercial technology and business practices to DoD, and free up $11 billion in infrastructure costs to pay for new weapon systems. Most of the savings would come from the competitive sourcing of 230,000 civilian jobs that the Pentagon says are commercial in nature and could be performed by a contractor.

Any agency seeking to outsource work must follow rules outlined in Office of Management and Budget Circular A-76. Those rules require A-76 competitions between federal workers and contractors before jobs are outsourced, with the work going to the lowest bidder. Typically, contractors win half of all competitions. Regardless of who wins, competition achieves a 30 percent savings on average, the Pentagon says, because it forces organizations to eliminate out-of-date business practices and uneeded jobs.

But the Pentagon has struggled to get the services to carry out A-76 competitions, which can take as long as two years and cost as much as $2,500 per job studied. All the services have been wary of competitive sourcing. These comments are typical:

• "Everybody viewed A-76 as a big stick to beat out savings," says Frank Sowa, the Navy's branch head for strategic initiatives at the Pentagon.
  

• "The main result of A-76 is painful and difficult because it involves losing jobs," says Jim Wakefield, the Army's program manager for competitive sourcing.
  

• "A-76 can be a long and difficult process that's painful to the command and disruptive to the workforce. It's not an easy sale," says Jerry Stark, the Marine Corps' deputy director for installation reform. By the spring of 1999, the services realized they would fall short of the Pentagon's $11 billion savings goal unless they considered options other than A-76 competitions.
  

"It became clear that competitive sourcing alone would not achieve the necessary savings, nor would it result in the most cost-efficient Navy infrastructure," says Capt. William Rogers, who heads the Navy's Strategic Sourcing Support Office in Millington, Tenn. "The business units that are commercial in nature and appropriate for competition are often integrated with inherently governmental functions and cannot be easily competed. The Navy determined that a broader system engineering approach should be pursued."

Using Crane's B&PR plan as a blueprint, the Navy drafted the first servicewide strategic sourcing program. Specifically, the Navy scaled back plans to conduct A-76 competitions for 80,500 jobs by 2005. Instead, the service proposed A-76 competitions for only 41,000 jobs and studies on how to perform 48,000 other jobs more efficiently by 2005. All told, the Navy proposed the review of 89,000 jobs under strategic sourcing by 2005 to meet its share of the savings.

The other services will begin strategic sourcing in 2001. The Army had slated 73,000 jobs for A-76 competition by 2005, but the number of jobs up for review has been cut to 61,000 and the deadline for competing them was pushed back to 2007. The Army will open 18,000 jobs, mainly at Army Materiel Command, to strategic sourcing review. The Marine Corps, meanwhile, will cut the number of A-76 reviews by about 1,000 to 5,000 jobs but will open most of its remaining 7,000 civilian jobs to strategic sourcing review. The Air Force has yet to finalize the details of its strategic sourcing plan.

The Navy's plan won Pentagon support in the fall of 1999. And by spring, the Pentagon had issued a new policy permitting the services and Defense agencies to pursue strategic sourcing but still insisting on some A-76 competitions.

"Strategic sourcing is another means to achieve even greater savings in all areas across the department. This is not and should not be interpreted as an avoidance of, alternative to or retreat from A-76 cost comparisons . . . competition must remain an integral part of this overall strategy," said Jacques Gansler, undersecretary of Defense for acquisition and technology, in announcing the new policy in April.

Gansler called strategic sourcing a "broadening" of the Pentagon's competitive sourcing program. The services could use strategic sourcing to meet or exceed their required savings otherwise sought through outsourcing, he said. Among the options cited in DoD's guidelines are:

• 
  
• Eliminating obsolete business practices.
  
• Consolidating functions or activities.
  
• Reengineering and restructuring organizations.
  
• Adopting best commercial business practices.
  
• Applying activity-based cost management.
  
• Privatizatizing and conducting A-76 competitions.

"This approach cuts across all functions and organizations, permitting components to take a complete look at how they do business and to achieve proactively savings in all their functions rather than to focus only on commercial activities," DoD's guidelines say.

Joseph Sikes, DoD's director for competitive sourcing and privatization, says it's too soon to say how many of the initially targeted 230,000 jobs still will be contracted out under strategic sourcing. However, Sikes says, the approach forces the services to review thousands of jobs not covered under competitive sourcing to find savings without contracting out.

The Model for Reforms

Crane, meanwhile, has shifted from being a testing ground for infrastructure reform to a model for implementing strategic sourcing. While the sizes and missions of military installations vary, Crane's step-by-step review process, common-sense reforms, strong labor-management partnership and two-tiered tracking systems provide a template for other bases.

Deputy Defense Secretary Rudy de Leon touted Crane's role in his speech at the American Federation of Government Employees' national convention in August. "Together, the employees and managers at Crane are looking across their support functions and product lines for ways to streamline operations to save money. . . . Today Crane stands as a model for partnership. But what we need for the future is for Crane not to be the exception, but the norm."

Capt. Scott Wetter, Crane's commanding officer, calls B&PR a "good, hard, dry-eyed look into the mirror" for the base and says commercial companies continually undergo similar reviews to make themselves more efficient and profitable. "Now that we have started B&PR, we should never stop," Wetter adds.

B&PR is a structured process that follows several basic steps to determine how work can best be performed. Those steps are:

• 
  
• Plan for a review.
  
• Conduct an "as is" assessment.
  
• Target areas from that assessment for reform.
  
• Develop a "to be" plan for reforming the organization or operations.
  
• Decide whether to make the changes.
  
• Develop a plan for making the reforms.
  
• Implement the plan.
  
• Continue ongoing monitoring of the reforms.

At Crane, Wetter says, managers and workers are not only looking at ways to improve efficiency, but asking whether the task should be performed by government employees in the first place. "If we have no value to add, we should go away. It's as simple as that," says Wetter.

Over the past 20 months, Crane has focused on the base's 1,330 support jobs, which range from plumbers to accountants. But B&PR efforts will expand to cover 1,700 core scientific, engineering and technical positions by 2002. Crane has conducted 207 A-76 competitions.

Crane has reviewed 918 support jobs and cut full-time equivalent (FTE) positions in those areas by about 30 percent (283 positions) to 635 FTEs, saving $12.4 million. By 2005, Crane expects B&PR to save $44 million annually-more than double the savings required by the Navy.

"The Pentagon says you should be able get 25 to 30 percent savings [from an A-76 competition]. We've done that good in most cases [with B&PR] and in some cases we have done a lot better," says Crane's Bill Kaiser. Crane has "achieved numerous process efficiencies that provide faster delivery and improve quality of service" but cannot be measured in dollars saved, he adds.

Accountability

Crane's managers say having a system to track savings is key for a successful B&PR effort. "You don't want people who are managing the program telling you whether it's successful or not," says Wetter. Therefore, B&PR managers must submit detailed schedule, costs and savings information every month to Naval Sea Systems Command and send detailed progress reports every six months to the base's five-member board of directors. The board of senior civilian, military and labor officials guides the overall base strategy and sets overarching policy. "We have offered to have an outside audit by the Navy, as well," says Kaiser. Sikes says bases should use the same IT system for tracking savings from strategic sourcing as they do for measuring A-76 savings. "Strategic sourcing is a little grayer than A-76, so we may need to do some work [on the tracking system]," he adds.

Congress, meanwhile, has told the Pentagon its A-76/strategic sourcing tracking system must monitor not only the cost, but also the performance of jobs that are outsourced or re-engineered. Moreover, there must be annual reports to lawmakers as provided for in the proposed 2001 Defense authorization bill.

The General Accounting Office also has stressed the need to scrutinize costs and savings. GAO recommended "close monitoring to provide a basis for more realistically projecting the time and resources required to complete those studies and to identify the magnitude and timing of savings likely to be achieved," GAO said in August (NSIAD-00-106).

Gary Engebretson, president of the Contract Services Association of America, which represents service contractors who compete against federal workers in A-76 competitions, says the Defense Department will not save any money through strategic sourcing because jobs are not competed. "How do you save money unless you go through a competitive process and prove it?"

Engebretson says the Defense Department is not committed to real reforms through strategic sourcing but is simply "playing games" and "hiding jobs" so work will not be outsourced. "[DoD] is not giving us the true identification as to where the jobs are going," says Engebretson, while noting that strategic sourcing may be an attempt by Defense to slow down outsourcing until the new administration starts work in January. But according to Randall Yim, deputy undersecretary of Defense for installations, strategic sourcing and A-76 are here to stay because of tight Defense budgets and a continuing shift of personnel away from support jobs to warfighting and similar missions.

"I believe firmly that competitive sourcing and strategic sourcing are fundamentally good government . . . management programs," Yim said at an October contracting symposium in Arlington, Va. "They are not just purely cost savings mechanisms, or personnel end-strength management tools."

A Strong Partnership

Crane's managers say the key to B&PR success has been communication and a strong partnership with the base's 2,500-member labor union, AFGE. "If you have tension between workforce and management then [reforms are] doomed to fail big time," says Crane's Executive Director Embree.

Since 1990, Crane has had a labor-management partnership agreement that gives the union a seat on the base's board of directors. The partnership also spawned the Center Resolution Committee comprising three labor and three management representatives who handle grievances, interpret agreements and seek to solve any other labor-management problems without outside arbitration. As Crane's managers drew up plans for B&PR, they included the union in the initial planning and spelled out labor-management goals in a memorandum of agreement.

"With the potential of a 'work year versus personnel' imbalance as a result of B&PR, we are committed to pursuing all efforts such as retraining, reassignments, increasing work years with new business, re-evaluating our use of service contracts and separation incentives," the agreement says. "We are committed to ensuring fairness to the employees when impacted by the B&PR, with reduction in force being the last resort." The agreement established the Personnel Transition Office, a central clearinghouse of information and assistance for any employees displaced by B&PR and A-76 competitions. The office maintains a database of all displaced employees (including detailed retirement, demographic and job skill information) and tries to match them with vacancies (including special assignments) or training opportunities on base. In the past year, 151 displaced workers have been on the transition office list-with 121 either finding other jobs at Crane or becoming eligible for early retirement or buyouts. Thirty workers are still on the list awaiting new jobs or early-out offers. So far, B&PR has not led to a RIF at Crane. Bob Mason, president of AFGE Local 1415 at Crane, says the established labor-management relationship made it easier to sell B&PR to his members. "Still, I told them we may have to be prepared to make some painful decisions," Mason adds.

Sikes says any successful strategic sourcing, like Crane's B&PR effort, must have buy-in from workers. Allowing workers to have input in the process makes downsizing or reorganizations easier to implement than top-down approaches like A-76 competitions, Sikes adds.

Bobby Harnage, AFGE's national president, says Crane's reforms resulted from partnership, not from top management orders. But he's doubtful that DoD's strategic sourcing program will have the same success at other bases. "DoD does not have the discipline to make a Crane everywhere. DoD is gradually moving toward more partnerships. The problem is it has not emphasized partnerships as much as it has emphasized strategic sourcing," Harnage says.

Better Service

Crane's materiel management department achieved both savings and efficiency goals. The base cut materiel management jobs by 36 percent (from 123 to 78 FTEs), saved $2 million and improved efficiency. "It's really nothing different than what is being done by private industry," says Tim Strapp, a Crane warehouse manager.

Instead of maintaining its own stock of commercial supplies, the base now will buy directly from local office supply stores. The resulting extra warehouse space will let Crane stock more military-specific supplies so the base will be able to fill orders for the fleet more rapidly. The base also scrapped its practice of having all commercial shippers, like UPS and FedEx, deliver to a central base warehouse. There, Crane employees would open, inspect, repackage and then deliver the shipments to the intended recipients. Now, commercial shippers will make direct deliveries and eliminate time-consuming warehouse drop-offs.

Ron Crew, a lead worker on the Crane warehouse docks, says only time will tell whether the reorganization will work, but he says it's better than the alternative. "If we hadn't reformed ourselves, we may have been looking at contractors doing our jobs," Crew says.

Like the materiel management review, the B&PR for financial management found many duplicative and unnecessary processes.

"There were lots of times when we had people ready to start work but we couldn't start for three or five days because we were moving [funding] papers," says Debbie Hupp, an administrator in Crane's comptroller's office. The review eliminated 543 steps in the base's funds administration process. Managers now are notified immediately when funds are available for repairs. Notification used to take five days.

In addition, the base consolidated financial workers into core teams serving specific man-agers. As a result, the base cut its annual financial costs from $22 million to $11.5 million and reduced finance jobs from 333 to 201-a 39 percent decrease. Crane's spending on financial management is now in line with that of the most efficient companies, which spend an average of 1.5 percent of their revenues in that area, according to Kaiser.

Most of Crane's proposed A-76 competitions were slated for the public works department, as is the case at many military bases. But Crane scrapped plans for competitions covering nearly 200 jobs in favor of the following goals:

• Eliminating dozens of jobs.
  
• Reorganizing the department into geographic work zones.
  
• Building a new information technology system to track all repair work.
  
• Planning for long-term projects.
  
• Developing a single guide for all infrastructure management practices and policies.

"You really aren't in control of your own destiny [with A-76]. You are at risk of losing to someone who comes in with a low-ball bid. We can be as good as industry and should not waste time proving it, we should just go out and do it," says Cmdr. Frank Aucremanne, public works officer for Crane. He notes that public works still has some A-76 competitions under way and will privatize utility operations over the next several years. So far, the B&PR for infrastructure has cut annual costs from $45 million to $40 million and reduced public works jobs by 22 percent, from 250 to 196. Crane expects more savings from A-76 competitions and privatization of utilities. But, Aucremanne says, base employees will see the real benefits when they call for maintenance or repair work and find a more responsive, customer-focused organization.