THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, April 21, 1996 TAG: 9604200444
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Long : 162 lines
For the 6,850 employees remaining at the Norfolk Naval Shipyard, the prospect of privatization must seem like a rash that won't go away.
The Defense Department told Congress two weeks ago it needs to continue privatizing support activities in all the armed services to save money. The majority of the savings is expected to come from farming out more maintenance and repair activities - including Navy shipyards. The Pentagon says it needs the money to boost spending on new ships, planes and weapons.
The Defense Department's report to Congress doesn't say what that means for the shipyard and other military facilities.
The official Pentagon line is: ``It would not be appropriate at this time to speculate how Department of Defense recommendations for depot-level maintenance and repair policies might effect individual facilities.''
The Norfolk Naval Shipyard has already survived three rounds of base closings. In each round the suggestion surfaced that its operation could be turned over to a private company, while it remained government owned.
What is apparent is that if Congress approves the plan, more job losses in the military's depots are likely.
``It is a real threat, there's no question about it,'' said Rep. Norman Sisisky, the Democratic congressman whose district abuts the Norfolk Naval Shipyard.
``This is basically a broad outline,'' said Defense Department spokesman Glenn Flood. ``It's just a starting point. . . . We're not going to go all out and privatize everything.''
According to the Pentagon's plan, spending for depot-level work in Navy-operated facilities would fall by half between federal fiscal years 1995 and 2001. Meanwhile, spending with private contractors would increase by 50 percent.
The Navy workload, split 74 percent to the public depots and 26 percent to private contractors in 1995, would shift to 50-50. The workload itself is projected to decline to $5.6 billion in 2001, from $7.5 billion in 1995.
These figures include repair and maintenance of Navy jets and other weapons systems as well as ships. This year's closing of Naval Aviation Depots in Norfolk, the Long Beach Naval Shipyard and other planned base closings contribute to the decline in public sector spending.
Shifting the workload to the private sector would require Congress to repeal the ``60-40'' rule, which requires at least 60 percent of the service's depot-level spending to be in the public depots.
Such congressional action could be hard to get. Depots are a large source of high-paying jobs in their communities and are heavily backed by local lawmakers. The shipyard in Portsmouth employs 7,300 people.
``We're going to try to protect that 60-40 split,'' Sisisky said.
``Congress is not enthusiastic about moving additional work out of the public sector into private contractors until more is known about the impact on readiness,'' said Rep. Owen Pickett, the Democratic congressman who represents Virginia Beach and parts of Norfolk.
Sisisky and Pickett reflect the reception the Defense Department got at a hearing Tuesday on the plan. Congress will no doubt temper the privatization plan.
``We're at one end; Congress is apparently at the other,'' Flood said. ``We're going to have to meet somewhere in the middle.''
But if the Defense Department's plan is implemented, workers at the Norfolk Naval Shipyard could face more layoffs, known as reductions in force, in the next few years. Some should be expected as the fleet and workload shrink, both Pickett and Flood said.
The shipyard has already lost 5,000 jobs since the late-1980s due to the fleet cutbacks that followed the Cold War's thaw. The fleet, which currently numbers 362 ships, is expected to shrink to about 340 or fewer by the end of next year.
``I do not see that there will be a major shift in the breakdown of the work split between the public sector and private contractors,'' Pickett said. ``In any event, the work is going to be done in the Hampton Roads area.''
Indeed, the Defense Department's plan to boost spending with private contractors could provide a boost to the region's private shipyards.
The Navy already relies on private contractors for a lot of its ship repair, maintenance and overhaul services. On the Atlantic coast, many of those repairers are the private shipyards in Hampton Roads. And like the public yards, many of those also suffered from cutbacks in the Navy's fleet.
Deputy Defense Secretary John White, who developed the Pentagon's privatization plan, told the House of Representatives panel Tuesday that nearly all overhauls and repairs of non-nuclear surface warships are already done by the nations's private shipyards.
The Navy figures that ``outsourcing'' various activities already saves it about $411 million a year, according to the Defense Department's recent report to Congress, ``Improving the Combat Edge Through Outsourcing.'' That report says the Navy saves about 30 percent on the activities for which it currently contracts through competitive bidding.
The entire Defense Department saves an estimated $1.5 billion a year, a 31 percent savings on the activities.
Those numbers, however, have been questioned by the General Accounting Office in a report released Tuesday.
As part of its proposal, the Defense Department has proposed doing away with or at least minimizing competition between public depots and private contractors. But half the work that the Pentagon cited savings on was won by government entities in competitions between public and private sector service providers.
``Savings were therefore the result of competition rather than privatization,'' the GAO's report said.
The General Accounting Office further questioned the Defense Department's projected savings.
``Privatizing depot-maintenance workloads in the current environment is not likely to achieve the savings DOD expects and may be even more costly,'' the GAO said.
For example, the GAO reported that for a handful of military systems that are repaired by both military depots and private companies, military depot costs were lower 62 percent of the time.
The Defense Department counters that the accounting systems at its depots fail to adequately capture their actual costs.
``We don't even agree that they could save money . . . ,'' said Jimmy Blick, vice president of International Federation of Professional and Technical Engineers' Local 35, which represents about 150 engineers at the yard.
``The accounting measures are just different,'' Blick said. ``The public yards and the private yards don't measure spending the same way.''
It's difficult, if not impossible, to compare costs, said Steve Kosiak, senior analyst with the independent Center for Strategic and Budgetary Issues. ``In public depots it's just hard to figure out what the true cost is,'' he said.
Both Blick and Sisisky say competition not privatization is the key to saving money.
``They say so much about the value of competition, but they want to eliminate the public sector as a competitor,'' Sisisky said. ``That's not how you're going to get savings.''
The Norfolk Naval Shipyard has taken large steps in the past few years to reduce its overhead and increase its competitiveness, Sisisky said.
But the Pentagon's argument for privatization is strong. Without savings from further outsourcing, the military will not be able to sustain readiness, maintain quality of life for service members, and buy the new ships, aircraft and other weapons systems to keep its technological edge.
``Nobody could argue with saving money,'' Sisisky said.
The Defense Department's report to Congress calls for the military's depots to be maintained at a ``core'' level. That means that the Defense Department will keep control of ``facilities, equipment and skilled personnel necessary to ensure a ready and controlled source of technical competence to meet the Joint Chiefs of Staff contingency scenarios,'' according to the report.
But Sisisky suggested that the benefits of privatization are still unproven. There are other Defense Department activities where it could work and save money without prompting the questions about readiness that arise when depots are discussed, he said.
``We still have some work to do,'' Flood said. ``We will be refining our approach.''
The Defense Department's report called for privatization and outsourcing of activities besides depot maintenance, including waste disposal, base operations, housing, warehousing, financial and accounting, data centers and transportation of goods and personnel.
``What I don't want is wholesale privatization,'' Sisisky said. ``If the Navy privatized the shipyard completely, there would be no competition. . . . In the business world, we used to call that gotcha.'' ILLUSTRATION: THE MILITARY GOES INTO BUSINESS
ROBERT D. VOROS
The Virginian-Pilot
GRAPHIC
NAVY SPENDING ON DEPOT-LEVEL MAINTENANCE AND REPAIR
[For a copy of the graphic, see microfilm for this date.]
KEYWORDS: DEFENSE DEPARTMENT MILITARY PRIVATIZATION by CNB