II. ISSUE AND RECOMMENDATION SUMMARIES A. LOGISTICS OVERVIEW The logistics issues developed by the OSD Task Force pertain to the acquisition of goods for the field, the transportation of goods and people, and base operations and support. In each of these areas there is a service predilection for full control of logistics pertinent to that service. While the desire to have full control over one's own activities is natural, there are a number of reasons why it may not be cost-efficient: O It requires duplication of central staff support and coordination. It may not take advantage of economic order It does not recognize that the needs of the services overlap geographically and functionally. Logistics, being relatively low on the individual service's priority list, cannot receive the attention it deserves. The achievements of the Defense Logistics Agency (DLA) consistently demonstrate that a specialized, consolidated group can deliver needed goods faster and cheaper than can the services operating independently. Statistics on supply availability, inventory processing time, and on-time shipment rate indicate that DLA's performance has generally exceeded that of the services. Many cost saving opportunities exist in the areas of base support, base realignment and contracting out. Service resistance and Congressional intransigence make the realization of savings very difficult. The charge of intransigence is a strong one, but it is difficult to otherwise describe legislation that proscribes even studying cost saving potential or puts so many hurdles to effecting cost savings that such attempts are abandoned. The Department of Defense (DOD) should seek legislation that will permit it to modify the Defense Acquisition Regulations to exempt petroleum procurement from all nonessential requirements and modify standard provisions utilized in petroleum procurement documents to conform them, as nearly as possible, to provisions employed in commercial fuel contracts. These changes should result in increased competition among fuel suppliers and lower prices charged to the Government. Financial Impact $53-$258 million annually Potential Savings: Annual savings are These savings may be offset somewhat by relatively minor costs incurred to revise standard procurement procedures and to retrain, redeploy, and/or terminate Government personnel. Background Petroleum products are purchased for DOD by the Defense Fuel Supply Center (DFSC), which is part of DLA. During FY 1981, DFSC petroleum purchases totaled $12.6 billión approximately 95 percent of the total petroleum purchases by the Federal Government in that year. Although it only accounts for 2 or 3 percent of domestic purchases, it is the single largest petroleum buyer in the United States. Defense expenditures for petroleum products have grown from $2.5 billion per year in FY 1976. Methodology The OSD Task Force interviewed personnel in DOD, the Office of Management and Budget (OMB), and DFSC regarding procedures for DOD petroleum purchases. We also held discussions with Canadian officials regarding their centralized system for the purchase of petroleum products. Historical data on petroleum purchases by DFSC were analyzed to determine average prices paid for petroleum products. Findings Prior to 1973, DFSC procured petroleum products by means of formally advertised invitations for sealed bids IFBS) and was able to acquire all the petroleum products it required at prices which were generally lower than prices in the commercial market. Since the Arab oil embargo in 1973, DFSC has been negotiating its petroleum contracts (as contrasted to using advertised IFBS), and has been paying prices equivalent to those in the commercial market. Only 20 percent of FY 1983 DFSC fuel purchases will be accomplished through formal bidding. In late 1979 and 1980, the Investigations Subcommittee of the House Armed Services Committee held extensive hearings on DOD's petroleum supply and procurement practices. Among other things, the final report of the Subcommittee, dated June 10, 1980, directed the Secretary of Defense to: (a) modify the Defense Acquisition Regulations to exempt petroleum procurement from all nonessential requirements; (b) modify the contract provisions utilized in petroleum procurements to conform them, as nearly as legally possible, to the provisions employed in commercial fuel procurements; (c) submit any legislative proposals believed necessary to expedite DOD fuel procurements; and (d) reorganize and staff the DOD energy office with persons having education and experience in petroleum production, refining, transportation, storage, quality surveillance, and statistical analysis. |