Partners For Life

hen army tank builder General Dynamics Land Systems and auto- maker General Motors won a multibillion-dollar contract last year to jointly manufacture the Army's next generation combat vehicle, the contractors sought out a seasoned business partner to share the workload and help keep down production costs. After surveying the market and considering the costs of doing all the work themselves, the contractors made an unusual pick-the Army's Anniston, Ala., depot.

As a result, the tank of tomorrow will roll off the Anniston depot's production line in February, assembled by contractor and federal employees working side by side at the depot's Korean War-era facility. The partnership marks the first time the Army ever has built its own combat vehicles, and it signals a new era in the once distant relationship between Army depots and Defense contractors. With Defense dollars dwindling and the industrial base shrinking, both contractors and depots realize that forging partnerships is the only way they can stay in business in the 21st century.

Jesse Poor, deputy commander at Anniston, says the decision to build the new combat vehicles jointly with contractors was years in the making. "After the Berlin Wall fell, we realized we needed a strategy for our future," says Poor. "We could either build the fences higher and fight to keep what we had or figure out how to work with them." In the early 1990s depot managers decided to reach out by inviting General Dynamics executives to visit. Poor says neither the contractors nor the Army knew what to expect from the first meeting. "The senior vice presidents from General Dynamics flew in for the day, and they had kind of a strange look on their faces when they got off the plane," he says.

For decades, the Army and its contractors had known exactly what to expect from each other-not much. The two had separate, and well-defined roles in building and maintaining the service's tanks and other tracked vehicles. Contractors, led by General Dynamics, manufactured the tanks and performed major overhauls, while Anniston was responsible for routine maintenance and smaller overhauls of the tanks and other weapon systems. Depot and contractor officials rarely talked, never visited each other's facilities and sometimes competed for the same repair jobs.

Mark Roualet, vice president of wheeled vehicle systems at General Dynamics Land Systems in Sterling Heights, Mich., remembers being surprised by Anniston's invitation to visit. But, he says, the contractor and Army quickly realized they could work together, because they each had unique and different manufacturing and refurbishment capabilities that were complementary By the time General Dynamics executives boarded the plane to return to Michigan, the puzzled looks were gone and the seeds for partnership had been planted. Those early seeds blossomed into several robust partnerships between Anniston and General Dynamics and other contractors over the past decade. During that time, the two jointly overhauled combat vehicles and key weapon subsystems, contractors leased depot space and other equipment, and Anniston worked as a subcontractor for several companies. Ultimately, those partnerships led to the unprecedented $7 billion deal between the depot and contractors to jointly produce at least two-thirds of the Army's next-generation armored vehicles-about 1,400 brigade combat team vehicles valued at about $3 billion-at the Anniston depot over the next decade. "Opportunity begat opportunity," says Poor.

Anniston's deal with General Dynamics and General Motors to jointly produce the brigade combat team vehicles combines both leasing and subcontracting. The contractors will pay the Army to use Anniston's facilities for producing the vehicles while also hiring depot workers or contracting with the Anniston to perform specific production tasks. Depot and contractor employees will work side by side on the production line at the depot. "This is the first time we have ever had new manufacturing done at Anniston. You will not know who works for Anniston and who works for General Dynamics on the production line," says Gilda Knighton, who heads Anniston's business management office.

Two Are Better Than One

The Army's depots-in-house mechanical shops for overhauling, repairing and upgrading the service's warfighting equipment-have had their budgets and workforces cut over the past 12 years. The Army spends about $1.3 billion annually and employs about 9,500 civilians operating five depots in Anniston, Ala.; Red River, Texas; Corpus Christi, Texas; Letterkenny, Pa.; and Tobyhanna, Pa. In 1988, the Army had 10 depots that employed about 18,000 civilian workers.

The Defense Department spends about $15.8 billion to operate 19 Air Force, Army, Navy and Marine Corp depots across the country, employing 64,500 civilians. Unlike most military operations, depots do not have set annual budgets but receive their money in user fees paid by the military units who are having their equipment repaired or overhauled. Depots have often been the targets of budget cuts because of their high operating costs. Since 1987, the number of military depots, their workforces and their budgets have been cut by nearly 50 percent. As a result, depots have increasingly forged alliances with industry to save money and still meet readiness requirements.

Army Gen. John Coburn, who will retire this month as head of the Army Materiel Command, which oversees the depots, said in March testimony before the House Armed Services Committee that partnerships benefit both depots and contractors. "We get the best of both worlds with the [depots] supporting and being supported by industry. In the process we reduce costs for both depots and contractors," Coburn said, adding that government-owned depots are critical to military readiness because they can respond more quickly and offer more flexibility than industry in meeting warfighters' maintenance requirements.

All the military services are embracing partnerships to operate more efficiently and keep costs in check. "Depot maintenance is struggling to survive across all the services. Our survival comes with increased partnership," says Ester Griguhn, Anniston's director of mission plans and operations. Indeed, Anniston has been at the forefront of the partnership movement, forming 32 alliances with industry that have generated $240 million in revenue through leasing, subcontracting and work-share agreements, and an additional year's worth of work for depot employees since the early 1990s.

Anniston's evolutionary path from no partnerships a decade ago to more than 30 today is a model other depots can pursue as they increasingly rely on alliances to survive in an era of downsizing and budget constraints. The Alabama depot's partnerships focus on unique facilities and capabilities at the depot, but any military depot could use the framework and the authorities Anniston used in creating those deals.

Types of Partnerships

Knighton says the depot pursues three types of partnerships-sharing work, acting as a subcontractor, and leasing facilities and space to contractors. She says all partnerships share the common goal of reducing depot and contractor infrastructure without losing the industry or government skill base. "We have added workload through partnerships to keep the depots [in Alabama]," she says. Anniston most commonly crafts direct sales agreements for services or products produced by depot employees. Under a typical agreement, a contractor will employ the depot as a subcontractor to perform specific tasks for an overhaul or production project.

General Dynamics has paid Anniston $56 million as a subcontractor to help overhaul and upgrade the service's Fox nuclear, biological and chemical reconnaissance vehicles. The deal calls for the depot to remove asbestos from the vehicles, overhaul and paint them, while the contractor oversees assembly, disassembly and final testing. The depot has a similar deal with United Defense of Arlington, Va., for overhauling the Army's family of M113 combat vehicles. That arrangement calls for Anniston to disassemble the vehicles and repair the hulls, while United Defense makes other internal upgrades and oversees testing of the armored vehicles on Anniston's test track. Both the Fox and M113 upgrades took advantage of another form of partnership-renting space and equipment at Anniston to contractors. By leasing or sharing excess space, Knighton says, the depot has made up for lost workload, increasing use of its facilities by 16 percent and thus reducing its overhead costs. Additionally, she says, the depot has saved millions of dollars in shipping costs by encouraging key suppliers to locate manufacturing operations in excess facilities at Anniston. Richard Kaelin, General Dynamics' Anniston manager, says the company doesn't mind paying for depot space because it would have paid $30 million to build its own facilities for the Fox. General Dynamics pays $1.2 million a year for Fox upgrade facilities. In some instances, when Anniston is not a subcontractor, the depot allows contractors to use space rent-free (although they still pay for utilities), because having contractors on site allows the depot to operate more efficiently.

In the mid-1990s, Honeywell of Morristown, N.J., purchased Textron operations in Strafford, Conn., which manufactured cooling plates called "recuperators" used in Army tank engines. When Honeywell decided it wanted to close the facility and relocate, Anniston offered the company space in a vacant, dilapidated warehouse at the depot. "We offered them space because we were their customer," says Knighton.

Honeywell accepted the offer and then spent $3 million turning the old warehouse into a modern-day manufacturing facility outfitted with laser cutting equipment and four hulking presses for forming and cutting the cooling plates. Today, 39 Honeywell employees operate the center and manufacture hundreds of recuperator plates, generating about $21 million in annual revenue for the contractor. "You cannot overstate the value that results from co-location," says Scott Selle, Honeywell's director of manufacturing engines and systems at Anniston. "We get clear and open communication [with the Army] about what we are doing right and areas for improvement." Aside from improved communications, the Army saves $1.3 million annually by eliminating shipping costs for recuperators, Knighton says. Honeywell no longer sends the components on costly cross-country shipments by truck. Instead, forklifts carry the recuperators from Honeywell's depot manufacturing facility to a depot-operated building where tank engines are repaired.

Selle says the success of the initial partnership led the Army and Honeywell to form an additional alliance for managing spare parts for Abrams tank engines. In the past, Anniston ordered dozens of different parts from multiple vendors and could never be sure whether they would be available or meet quality standards. Under a partnership agreement, Honeywell now oversees spare parts ordering and stocks tank engine components in a once-empty warehouse at the depot. "Now, we have one vendor who manages all the parts and guarantees their quality," says David Sok, Anniston's turbine engine division chief.

General Dynamics also uses excess space at Anniston for manufacturing a key Abrams tank subsystem, the gunner's primary site, an optical lookout used by gunners inside the tank to track targets. The depot provides an old warehouse to the contractor rent free for manufacturing optics equipment. In return, the contractor paid the Army for renovations and still pays for production support services. General Dynamics' Kaelin says the arrangement has saved the contractor and depot as much as $3 million by enabling them to share tools and testing equipment.

Another form of partnership-work- share agreements-could become the main source of income and work for the depot. Under work-share agreements the depot and contractors independently contribute facilities, equipment, skills or manpower to jointly create a final product. The arrangements are becoming more common as the number of contractors that can do the Army's work dwindles and the service seeks ways to make more efficient use of its facilities and equipment.

So far, most work-share arrangements at Anniston have focused on upgrading Abrams tanks. Under a multi-year deal valued at hundreds of millions of dollars, the Anniston depot and General Dynamics will split the work of upgrading the Army's M1A2 Abrams tank. The agreement calls for Anniston to disassemble the tanks, repair and upgrade the hulls and overhaul key subsystems and other components before they are sent to the General Dynamics-operated, government-owned Lima, Ohio, tank plant. There the new turrets will be installed, systems will be integrated and final assembly will be completed. The Army will pay the depot and General Dynamics separately for their work. "The partnership allows us to take advantage of the existing infrastructure at both locations. The depot's core work is to process [tanks] and make them look like new, and at Lima their forte is completely assembling like new," says Kaelin.

Managing Partners

Poor says Anniston has developed a reputation as a solid partner and has no trouble attracting interested contractors, but the depot has limits on what it will undertake. "We are not going to go into the refrigerator-making business, but we believe we can do some real creative things for the Army," says Poor, adding that the litmus test for any partnership is whether it benefits the Army. Knighton says Anniston initially viewed partnerships as a tool for reducing excess infrastructure among Defense contractors while generating enough work to keep skilled workforces employed at the depot. Partnerships have allowed the depot to avoid layoffs, though 14 percent of the workforce has been cut through attrition and early or normal retirement in the past decade. "If we had just sat here and been complacent, I guarantee people would have been let go," she says.

Charlotte Flowers, president of the American Federation of Government Employees local at Anniston, says depot workers realize that they must form partnerships with contractors if they want to keep their jobs. "If we didn't try to do something with contractors, at least one, maybe both of us, would be out of business," says Flowers, adding that a key to success has been management's inclusion of the union early on in partnership discussions.

Kaelin, General Dynamics' manager at Anniston, oversees about 50 of the company's employees at the depot and expects that number to grow to nearly 200 in the next six months, as production of the brigade combat vehicle begins. He says contractors were wary of Anniston before the alliances. "We were adversarial; we spent time and money developing resources and programs to compete with Anniston," he says. Both contractors and depot managers now realize they have a better chance of getting their programs funded by Congress if they work together, Kaelin adds.

When partnerships began, managers spent time reassuring employees that contractors were not there to take their jobs, says Anniston turbine engine division chief Sok. He says that had the depot not pursued partnerships and become more efficient, it likely would have been a victim of the last round of base closures in 1995. Instead, Anniston actually picked up work from the Army's Letterkenny depot, when work was moved from the downsized Pennsylvania depot.

Uncertain Future

Though Anniston dodged the bullet in 1995, concerns about future base closures are never far from most employees' minds. When Anniston managers talk about partnership, they inevitably tout it as a key to avoiding closure. "Anniston's future is the continuation of these partnerships," says depot plans and operations chief Griguhn.

The Pentagon has asked Congress to approve more base closings in 2003, arguing that the Defense Department has 25 percent more infrastructure than it needs. Lawmakers are far from approving the plan, but that has not stopped employees at military bases across the country from speculating about their fate. Most Defense experts say depots once again will be targets for downsizing because of high operating costs, aging and costly infrastructure, and hefty civilian payrolls.

Army Materiel Command leader Coburn says Army depots have already been cut enough, going from 10 to five over the past decade. "I think [base closings are] needed, but tremendous efficiencies have already been gleaned at the depots," says Coburn, adding that the Army cannot afford to lose another depot. If the Army were to lose depots, Anniston might be near the top of the list. Most observers do not expect the service to eliminate repair centers in Tobyhanna, Corpus Christi or Letterkenny because they already have been downsized, and each offers unique repair capabilities. But the Army's two combat vehicle repair facilities at Anniston and Red River have similar capabilities and could be candidates for consolidation.

In 1995, the Pentagon sought to close the Red River depot, but the base closure commission rejected that recommendation. Today, with former Texas Gov. George W. Bush in the White House, there is angst among Anniston workers that their depot will move to the top of the hit list and Red River will be protected because of its location in the President's home state. Coburn is aware of those concerns and recently told the Army's two depots that they should work together to produce efficiencies rather than competing for the same work. Griguhn says Anniston has become a mentor to other depots seeking partnerships and is more than willing to collaborate with them. "Depots have come to us to find out what we did and how to start. Our success has convinced other depots that need to get on this train and reap the benefits of the partnership world," she says.