Madam chairman, distinguished members of the committee: Thank you for this opportunity to appear before you today to discuss the importance of the DoD personal property movement and storage program and its impact on our service members and their families.
The Department of Defense Personal Property Program is a billion dollar plus program managed for the military services by the Military Traffic Management Command. We are the industry's single largest customer, with over 650,000 shipments a year -- approximately 15 percent of the moving industry business. We impact the quality of life of our service members over 650,000 times a year by the policies we implement that govern the movement and storage of their possessions. Over a military career, a service member typically is called upon to move more than 20 times. We are re-engineering the program to improve the quality of these moves and not adversely impact the small- business person. Our proposed program incorporates maximum opportunities for small business as the prime contractor as well as significant emphasis on subcontracting opportunities. We will be reporting to the House Appropriations Committee in January of next year on small business participation.
The commander in chief, U.S. Transportation Command, tasked MTMC in June of 1994 to re-engineer the personal property program. In response to GAO [Government Accounting Office] direction to instill more competition in the program, we initially embarked on changing the domestic personal property program in 1993. That effort gained momentum with the TRANSCOM tasking and an unsuccessful summer moving season, which highlighted the inefficiencies of the current program. Many shipments were delayed, lost, stranded, burned, damaged, and ultimately many members were forced to attempt to seek their own moving services at considerable personal expense. The stress of this situation caused hardships throughout the military for service members and their families. We continue to experience substandard service for shipments. These problems are often caused by contractors who simply cannot meet their service obligations.
The central tenet of our readiness philosophy is people are our most important assets. We invest a lot in developing our soldiers, sailors, airmen, Marines and civilians. It takes many years to develop first-rate leaders. With moving being one of the most stressful events in a persons' life, it is imperative we improve the quality of this process. The DoD's Quality of Life Task Force, established by Secretary of Defense [William J.] Perry and under the leadership of Mr. John O. Marsh, a former secretary of the Army, mandated that systems be simplified, the quality of service for the member be improved and, most of all, that members be satisfied customers of DoD's services. The overarching philosophy is that a satisfied member is a retained member.
Policy changes within and outside the department also drove us to take a completely different approach to the procurement of moving services. both the National Performance Review and Acquisition Reform directed reliance on the marketplace to manage commercial processes. Noncore functions should be contracted out.
I would like to now enumerate some of the problems with the current program and provide some information about the processes associated with that program.
We spend over $1 billion in line haul costs alone to move our members' belongings. We also spend approximately $100 million more in claims for damages inflicted by the moving industry. Of this $100 million, we recover from the industry approximately 60 percent, or $60 million. The remaining $40 million is paid by the taxpayer. Our loss and damage rate is about 23 percent -- one in four shipments is either lost or damaged. We are convinced that this is unacceptable and that we can do better. We need and deserve the same level of service that the commercial corporate customer receives. Our research has shown us that we are not receiving that level of service today.
The process for a carrier to do business with the DoD today is based on minimum qualification standards. Carriers may enter the system continuously and at will. Our program is rate-driven. Until relatively recently, lowest cost has been the driving force behind government acquisition. The personal property program agreements are short-term. We solicit rates every six months, resulting in the processing of millions of rates a year. Furthermore, we do what is unheard of in any other acquisition process -- that is, we solicit initial rates, determine the low-rate setter, then we allow all the other bidders to see what has been bid and match the lowest rate. We call this a "me too" process, and it often results in each carrier filing extremely low rates to obtain the business and then not being able to perform or going bankrupt and leaving the DoD and local agents and other transportation entities with outstanding receivables. As a result, our shipments ... become frustrated and we must assume the reprocurement costs to complete the movements. In evaluating the performance of the carriers that we do business with, we have in place a very manpower-intensive, paper-driven system, both for the industry and for the DoD. We attempt to score every one of those 650,000 shipments individually. We do not, however, ask the member if the move was satisfactory. With the cutbacks in the DoD, we no longer have the resources to continue to invest in and bear the cost of the current inefficient program. We believe that the commercial moving industry has both the expertise and the experience necessary to move our members in a professional and courteous way, with minimal damage. Large corporate shippers do business this way -- DoD should do the same.
We started our re-engineering process with a clean sheet of paper and a commitment to making full-scale top to bottom reform. Past experience and as is business process modeling showed us that the multitude of policies, procedures and regulations that made up our 50-year-old program were so intertwined and interdependent that it would not be possible to fix the current program by making simple changes. We also knew that past attempts to improve the current program by making simple, piecemeal changes were met with resistance from the moving industry. The moving industry is a complex system of numerous and different relationships among suppliers of services, the large mega-companies, their agents, the independent van owners and operators, the international forwarders, domestic forwarders, small- and medium-sized carriers that are also agents of other carriers, port handlers and overocean and air carriers. In other words, the household goods moving industry is so segmented that it is difficult to satisfy each segment's needs fully. In the past, attempts to make changes to the current program impacted one element of the industry more than another. As a result, we were not able to reach a satisfactory end product. Consequently, reengineering the DoD Personal Property Program made sense. As [Michael] Hammer and [James] Champy wrote in their book Re-engineering the Corporation, "Business re-engineering isn't about fixing anything. Business re-engineering means starting all over, starting from scratch." Our efforts take the best of the old and incorporate the objectives of acquisition reform and quality management.
Our re-engineering effort is focused on reaching the following objectives:
- Improving the quality of service for service members and their families;
- Forming a sincere, professional partnership with the moving industry based on trust and respect;
- Retaining the current industry infrastructure through full and open competition;
- Devising a simple program that relies on the industry's experience and expertise; rather than government procedures, rules and documentation;
- Adopting the best commercial business practices available.
We approached these objectives in a very orderly fashion.
- We notified the industry of our re-engineering effort through the Federal Register early on. We held meetings with leaders of the industry and their associations and are, still today, providing electronic updates continuously on the status of the program.
- We initiated a business process modeling effort to look at the "as-is" and develop a "to-be" program and the associated costs of each. This effort is not completely finalized, but is well on its way.
- We hired the Logistics Management Institute to assist us in developing an acquisition strategy for the new program.
- We conducted visits to over 50 of our own field installations to determine the problem areas and also questioned service members on their views.
- We have made numerous visits to carriers and forwarders, both large and small, and we have, at their invitation, made presentations at their professional conferences -- never turning down an opportunity to dialogue with the industry. And
- We visited, surveyed and consulted with corporate shippers to determine the commercial business practices they follow.
Over the past year, we have listened to the industry. Today, we are on our third proposal concerning personal property re-engineering and have made a commitment to meet again with the industry's leaders and associations in the very near future to review comments thus far, discuss a proposed pilot program and small business participation.
Based on input we have received from industry, we have moved from a regional approach (awarding regional contracts to a single or multiple carriers) to an approach that would have awarded multiple contracts for worldwide service from a single origin to the current proposal that we believe provides to the maximum extent possible full and open competition with optimum business opportunities for all sizes and segments of the moving industry. This proposal provides that we would award traffic to a carrier and alternates on channels or traffic lanes from an origin to a destination. These channels are so divided as to provide ultimately more than 17,000 opportunities for movers to be successful contractors throughout the world. Our proposal also incorporates those customer service provisions now adopted by corporate shippers and suggests the use of the federal acquisition regulation as the method of procuring these services.
Because of this structure, we will issue one solicitation and separately award contracts for local moves, intrastate moves, interstate moves and international moves. This strategy certainly divides our business into enough segments to encourage small and small disadvantaged businesses to compete and win as prime contractors. It would also contain a requirement for large contractors to subcontract. The subcontracting plan would be a significant factor in our source-selection evaluation plan. We would also require the specifics of that plan, i.e., those companies and value of traffic proposed to be subcontracted, and we would follow the policy for small and small disadvantaged business participation in government contracts as expressed in the Small Business Act.
We propose to test this concept in a pilot program beginning in the fall of 1996. While our pilot program is not solidified, we believe conceptually that by awarding contracts for selected channels of traffic throughout the world, we would be conducting a fair, side-by-side test of the new with the current program.
Madam Chairman, I would like to respond specifically to several questions you raised in your letter of September 27th. On the question of bundling, we have not combined any requirements in our proposal without first considering the impact on small business. Rather, the concerns of small business and, particularly, the household goods forwarders are precisely why we moved away from our first and second proposals to the current award by channel proposal. The only requirement we have included in this proposal that historically was solicited separately is the movement of unaccompanied baggage.
In making this decision, we noted that all forwarders we do business with, even those who specialize in baggage, file both household goods and baggage rates. Therefore, these are not diverse requirements. We believe that we should include the movement of unaccompanied baggage in our requirement to provide one-stop shopping for our service members to improve their quality of life. The member, and most often his or her spouse, is left to deal with a handful of different carriers under the current program. For example, on international moves, the members will likely have different carriers for their household goods going into storage, their overseas household goods shipments and their unaccompanied baggage shipments.
We also believe that an unaccompanied baggage shipment is really nothing more than a smaller, expedited shipment of certain goods needed to establish a household. Therefore, it stands to reason that a mover should be able to handle both international shipment entitlements of the member -- the larger, slower household goods shipment and the smaller expedited baggage shipment. Our current proposal goes to extraordinary lengths to avoid bundling our business in order to allow small businesses ... [to] compete. As stated previously, we want to retain those good, professional carriers we do business with today and help them flourish under our program.
In selecting the use of the Federal Acquisition Regulation in our proposed acquisition vehicle, we chose the method that prevails throughout government today for the procurement of all services. The exemption from the FAR for transportation services is a product of a regulated transportation industry. Since deregulation in the early 1980s, the government and DoD have moved toward use of contracted rates versus tariff rates through use of the FAR.
Using the FAR and a structured acquisition process brings us several things we desire; full and open competition, long-term relationships, commercial business practices, protection for both parties and, most of all, the concept of best value. Under the FAR, we can evaluate an offerer's management structure, operational approach, capacity, past performance, quality control plan, financial stability, subcontracting plan and, lastly, their rate.
I need to point out that the use of the FAR is not completely foreign to this industry. Currently, our long-term storage services are procured under the FAR. This includes over 1,300 contracts with small warehouse owners. Additionally, we also procure local moves under the FAR. However, it should be noted all these FAR contracts are based on low-cost bids. Because we know that use of the FAR may not be a familiar method to some of the industry, we are considering training in the FAR before issuing a final solicitation. We take our training obligation seriously. By educating our suppliers, we can increase competition.
We are committed to structuring an approach that offers, to the maximum extent possible, small forwarders the opportunity to fairly compete for our business. In fact, our approach is very similar to the current process used to move unaccompanied baggage. It is not our intention to force the small businessperson out of our program. On the contrary, it is the small business that provides the resources and capacity needed for this industry. We understand the important role they play. Consequently, we have structured an approach that provides business opportunities for all segments of this industry, especially small business, to compete fairly. Certainly, we will be in a better position to assess the impact of this approach on all segments of the industry, not only forwarders, and the cost to the government after the pilot program. In that regard, we plan to hire an independent company to evaluate the success of the pilot program. They will evaluate such items as on-time pickup and delivery, the value of claims, the business process, cost and customer satisfaction.
We remain committed to a productive partnership with the entire industry. At each step of the process, we have solicited and considered industry input and will continue to do so. We will be meeting with the industry in the near future as I mentioned earlier to discuss the comments they have submitted so far. These comments, received in response to our requirements document and acquisition strategy, both released in the June-July time period, have pointed out two significant issues.
One, there is an across-the-board fear of the Federal Acquisition Regulation. We are still discussing that issue, but also believe that much of that fear is a result of misinformation and unfamiliarity. We believe we can, through instruction and training, reduce that concern significantly. The second major area of industry comments is that we should merely fix the current program. I covered our reasoning earlier in my statement and would reiterate that we see this re-engineering effort as a package approach to the procurement of commercial moving services. Clearly, dramatic change is necessary to improve the quality of service.
The movement of our service members directly impacts their quality of life. A service member's life is difficult enough with deployments, family separations and the accompanying stress and frustration. We must do all that we can to improve their living standard. That is why we are striving towards a system which will provide our service members with state-of-the art moving services provided by high quality, professional movers.
Thank you for this opportunity to present our views.
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