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Transcript : DoD News Briefing : Deputy Secretary of DefenseJohn P. White

Presenter: Deputy Secretary of Defense John P. White
April 04, 1996 10:00 AM EDT
[This is a special DOD News Briefing on the DOD Outsourcing InitiativeReports. Also participating in this activity is Captain Mike Doubleday, USN,DASD (PA)]

 

Captain Doubleday: Deputy Secretary of Defense John White is here today toprovide information to you on a program that the department is undertakingregarding outsourcing. This initiative is being accompanied by three reportsthat are being sent to the Hill. Those reports are going up today. Dr. Whitehas a presentation that he will give first and then he will be happy to answeryour questions. And with that, Dr. White, I'll turn it over to you, sir.

Dr. White: Thank you, Mike. Good morning. Let me say first -- that on thebehalf of the department of how profoundly saddened we are the loss of ourfriend, Ron Brown and members of his delegation and the Air Force staff andothers that were on the aircraft. Our deepest sympathies go to Mrs. Brown andother members of his family and the families of all the other people who wereinvolved in this tragic accident.

Secretary Brown was on a vital task as we tried to assist the parties inrebuilding Bosnia. As you know, this has been a -- continues to be a very,very difficult challenge. This is the second time we've experienced loss oflife of people from here who are there trying to help, so, it's very difficultand painful for everybody.

Secretary Perry has cut short his overseas visit. He will be back thisafternoon -- he gets in about one o'clock. So again, our condolences to thefamilies and appreciation for the people who have dedicated themselves to thisreally very important effort.

I, as Mike said, will give a short presentation. I will then answerquestions. I have to leave here, I'm afraid, at about 10:35 to go to amemorial service for Secretary Brown, so, I'll try to get in as much as I can.There are people who have come with me who can certainly answer your questionsafter I leave. We have Lieutenant General Coburn from the Army Staff,Lieutenant General Babbitt, Air Force, Vice Admiral Ed Straw from DLA, MajorGeneral Cannon J-4, Brigadier General Lee from the Marine Corps and RearAdmiral Taylor from the Navy. So, they will be assistants, and, then ofcourse, there are a number of people from OSD staff and from the services aswell.

What I want to talk to you about for the next few minutes is a majorinitiative that we are undertaking with respect to outsourcing, that is lookingto the private sector to provide us with a whole array of goods and servicesthat are now done inside the Department of Defense. It's a very important andvery ambitious enterprise from our point of view, and I want to describe to youboth the logic of it and the policy outcomes that we would like to get as aresult of it.

First, let me just set the scene by reminding you that as we have done ouroverall view, we've done it in the context of our strategic objectives, as wasdiscussed by the Secretary when he did the budget reviews on the Hill, and thethree priorities that we have and continue to have with respect to readiness,quality of life, and modernization. And we've done this review in thatcontext, particularly as it relates to readiness and modernization.

 

One of the issues here, of course, is sources of funding, particularly againfor modernization, for the modernization program. We, as you know, have beenworking hard to find ways to expand our capability to modernize. We areoperating on the assumption that we can get the top line of the President'sbudget, but that's about what we're going to be able to get over the programyears, and therefore, obviously, self-help is in order. We have done a lot ofself-help in terms of BRAC. In fact, this year, we will have the firstcrossover year when, in fact, we will begin to save money from BRAC, not spendmoney on BRAC, and every year thereafter, then we will save increasing amountsof money in BRAC.

Acquisition reform, which you're familiar with, again, we've implemented it,we've gotten the laws passed, we've signed the regulations, we're well on ourway in terms of implementation. The Secretary used some illustration in histestimony. We have others that we can give you, if we have time.

What we're going to focus on today, of course, is outsourcing; again, in thesame context: How can we use better business practices in the Department ofDefense in order to improve our capabilities? And there we have basicallythree objectives. First of all, as I said, is to generate savings formodernization, to make sure that we are using the appropriated funds in thebest way we can to maximize our goals.

Secondly, to continue to sustain readiness. And thirdly, to improve qualityand efficiency. This is not just an issue of money saving; we see this as amajor effort in terms of increasing our effectiveness, and I'll go through thata bit more in a minute.

So, in the context of those three goals, we have had a major effort underway,a review of all of our support functions to see what we could do to enhanceoutsourcing. Why do we want to outsource? There are a whole set of reasonsdrawn from the experiences in the Department of Defense, in other governmentagencies, federal, local, and otherwise, and, of course, very importantly, fromthe private sector.

There's overwhelming evidence that it saves money, that it allows you to focuson your core competencies. As you will recall in the CORM (Commission on Rolesand Missions) Report, we emphasized the need for the department to focus on itscore competencies just as you would if you were business or any otherenterprise. And it will help us respond to the rapid rates of innovation andcapture those rates that are being driven in the private sector. So, it's veryimportant for a whole set of objectives, not just saving money, although thatis important.

We have a lot of business experience over the last 15 years. As the economybecame more global, as the Japanese and others became much strongercompetitors, US business re-examined itself in terms of how it was going tomeet this competition. One of the major outcomes of that has been a big effortwith respect to outsourcing; that is, focusing on what your particular core ofcompetency is and asking other people who specialize in terms of othercapabilities to perform those capabilities.

And the list of those capabilities is long. I put some illustrations up herebecause they are relevant to what it is we do as well as to what the privatesector does. And as you know, a whole industry has drawn up about $100 billiondollars in business activity from Sprint and EDS and equipment suppliers andmaintenance suppliers and so on in order to improve service, provideflexibility and reduce cost and focus on core competencies. So we now have amajor market out there with respect to these kinds of capabilities, and ofcourse we can't do this efficiently unless there's competition in thatmarketplace.

We, of course, have been doing outsourcing over the years. If you go back along way in the department and look at the performance over the last 20 years,you'll see a good deal of outsourcing, and it has been successful. So, notonly are we building on what the private experience is, but on our ownexperience.

This chart shows the results of an analysis done by the Center for NavalAnalysis. They looked over a series of years at a set of competitive outcomes-- that is, competitions that were run. Not all of these competitions were runby the private sector; some were run -- were won internally by public entitiesin the department.

Then they looked at the average annual savings in these activities and thepercentage of savings, which again is consistent with the literature in termsof what has been done in cities and what has been done in the private sector.That is, 20 to 30 percent savings. You should note that this was done eventhough about half of these were won by government entities.

So, we have a substantial amount of data that indicates that this makes senseand a substantial amount of savings, about a $1.5 billion, in this particularstudy that shows where we can really get some gains from outsourcing.

Now in addition to that, I want to just mention a list of illustrations orexamples. This is far from an exhaustive list. The point of the list is toshow you not only that we're doing it, but we're doing it not only for thingsthat are not directly related to war-fighting but things that are directlyrelated to war-fighting. So, the Air Force, for example, made thedetermination that the best way to do the software maintenance on the B-1, andthe B-2, which is enormously complicated, is to do it under contract. A majorfront-line system, the F-117 maintenance is done under contract. Our shipoverhauls, non-nuclear ship overhauls are done under contract in private yards.So, we have a whole set of these experiences.

If you look at our transportation requirements and how we meet thoserequirements, most of them are done in peacetime, using private sectorcapabilities.

And let me give a few other illustrations. DLA has been a leader in terms ofthe efficiency that can be gained from outsourcing. Admiral Straw is here, asI mentioned, and can talk about some of this later. They have a major directdelivery system for medical services and other capabilities -- very largesavings and, equally importantly, enormous increases in response time to thecustomer, in terms of what you can get out of this. The same is true withrespect to their spare parts commercial sourcing initiative.

We also do a lot of outsourcing in terms of general base operating supportcapabilities all across the department. So, we have a lot of experience where,in fact, we have done this and done it successfully.

We also look at this in the context of acquisition reform. You can thinkabout this basically as acquisition reform for services in contrast foracquisition reform for product, which is what the -- we have been emphasizingto date. Effectively, the principles that we use in acquisition reform are thesame. We want to shorten the lead time, leverage quantity, use commercialpractices, and of course, reduce cycle times, in terms of inventory,warehousing, and delivery, which also obviously saves money and improves oureffectiveness and our efficiency.

Now, as I mentioned earlier, we've gone through a -- a full panoply offunctions inside the department. Out of that, we have identified a very largenumber of those for which we will now conduct major reviews in terms of theseoutsourcing opportunities, everything from base operating support to disposalof equipment to housing to depot maintenance.

In each case there is a particular process there in place that will -- thatallows us to conduct these reviews. Sometimes it is under the OMB at once --A-76 circular sometimes it is under special authority as the case of housing,sometimes it is under some other procedures in the case of the distribution andtransportation, and I'll talk some more later about depot maintenance.

But, there are processes there by which we are doing that. At the same time,we are going to introduce legislation this week seeking relief in the Congressfrom many constraints that are on us in terms of conducting these outsourcinginitiatives. The law has a number of those in it and we're going to ask forrelief so that we have some latitude here to use the processes that are inplace in order to make sure that we maximize the output and effectiveness thatwe can get from this process.

We have, in general, a number of criteria that we will use which obviouslybecomes specific for each particular function. First of all, we will not dothings, outsource things which we consider core; that is, activities that themilitary considers to be central to the mission and there would be too muchrisk if we were to ask the private sector to do it.

Secondly, we have to have in each and every case competitive markets. One ofthe objections that's often raised to these initiatives is well, you take itout of the private sector, you give it to an individual supplier, he's the onlysupplier and then you're dealing with a captive market and your cost will goup. We are not going to do this unless there is a real competitive market,just as been -- has been the experience in the private sector.

We are going to do a set of best value analysis in each case. That is, ineach case, does this in particular make sense and can we demonstrate in termsof the past performance of these providers that they, in fact, have been ableto provide best value in terms of reliability, timeliness, and quality. Andobviously, we're going to look at costs. If it doesn't make sense in terms ofcost, then we won't do it.

Now, let me talk now some about the core assessment that we have done withrespect to depots. There's been a lot of interest around depots. Depots are amajor part of our initiative. Very, very important and, of course,complicated. So we have done an effort across the department run by themilitary services to look at the organic capability that is required in orderto preserve our readiness in the context of our strategy. We've done thatusing the joint service methodology that's been developed by the joint staff.The services have used professional conservative estimates of threat and riskin terms of what they have evaluated, and they've looked at the various skillsand the facilities and tools that are available in each case in order to dooutsourcing. And then they've done a series of calculations in order to makesure that the capability mix is appropriate in terms of what is done in thepublic sector and what is done in the private sector across a vast array ofvarious systems and functions.

Now let me show you that schematically. Basically, what the services havedone is, in the context of the strategy and therefore, a methodology --provided, as I said, by the Joints Staff -- looked at the capabilities we hadin order to meet the strategy, and we've bifurcated that in terms of saying isthis a task that we need in the context of a specific task for a major regionalcontingency or not. If it's not, it goes in one box; if it is, it goes in theother. If it is a task related to a MRC, then we look at what is the risk, asI indicated on the prior chart, what is the risk using the risk assessmentagainst war-fighting to say whether or not that ought to be in the core; ifit's high risk, to take it out of the core, then we put it in the core.

Now you will not be able to do this simply by weapons platforms. As Iindicated earlier, something like the F-117 while it is clearly central to anMRC task, is in fact -- has been determined to be capable of outsourcingbecause the risk is acceptable. So, you end up with three separate categoriesfor repair sources -- those that are high risks, those that are MRC relatedwere acceptable risks and then, of course, those that are non-MRC related.

And that's the split we make between what we need in core and what in fact wecan outsource.

Now let me show you, then, the specific outcome of that analysis. This chartshows the percentage of the activity in the depots that is now done in thepublic depots, in the DOD depots and the evaluation from each of the servicesin terms of where they think they get the most efficient and effective mix,public and private, over the program years. And as you can see, in each case,there is a decline from the current mix to a lower mix in the public depots anda larger portion of the total going to the private sector.

At the same time, you should note that none of these curves is a major change.That is, to say we are talking here in terms of the current constraint at 60percent under the 60-40 rule of nothing more than effectively at the most 10 or11 percent. The Air Forces goes down to 49 percent toward the end. The otherservices do not get that low from what it is we have under the currentconstraint.

But, the legal constraint which we are asking relief from does inhibit us fromdoing what we think in terms of the risk analysis that has been done by theservices against war-fighting is the best mix to provide us with the bestoutcome in terms of efficiency, effectiveness and responsiveness to ourstrategy. So, we need to get this relief in order to be successful in terms ofthis capability, and I mentioned earlier that's one of the points that we'reasking for relief on in terms of the legislation.

Let me stop now by just giving you a very brief summary. This is a majorinitiative on our part. We've already started on it. We have a lot of theanalysis underway. We are talking with OMB and have talked with OMB about wayswe can improve the A-76 procedures. We're creating handbooks that will allowpeople to do these kinds of evaluations, we've going through long lists anddeveloping specific programs by which we can evaluate the various functions Ishowed you earlier and I mentioned. And I mentioned the legislative initiativeas well.

Put it in the context of what we have been trying to do to make the departmentmore efficient and to be more responsive to our strategic requirements as withBRAC and with acquisition reform. Emphasize that are preserving corecapabilities in terms of the needs of the war-fighters and in terms ofreadiness. And finally, that this is clearly both a source of funding for uswhich we intend to devote to improved modernization, and it is also a source, adevice, by which we can provide increases in our overall capability.

With that, I will stop and take any questions. Yes?

Q: A notion of core to a layman, sounds very much like what you said is at theheart of the policy right now, of depot maintenance. Can you give us some moreconcrete feel of the types of workload allocation decisions likely to go in adifferent direction under the new --

A: Well, you know, as I indicated earlier, there are a whole set of systems oractivities out there, generators, electronic devices and so on, that we needthat in fact are not core in terms of what it would need -- we would need to dowar-fighting but in fact in terms of our war -- and therefore can be donesomeplace else. There are other capabilities that we don't think we can livewith without having -- making sure that we are responsive and have thecapabilities we have. Nuclear ship overhaul; those are public capabilities, wethink they ought to remain public capabilities, they're central to ourstrategy, and therefore, they will stay there.

You cannot do it -- as I said, by very broad categories. You have to look ateach specific scenario and each particular situation. Yes, sir?

Q: You indicated a savings in DOD in outsourcing we've done so far $1.5billion dollars a year. Could you project for us what savings you seehappening within the services?

A: If you look at -- as you said, if we look at that one study which is notobviously complete in terms of everything that's going on -- we had about $1.5billion a year. I cannot give you today a specific number except that it willbe large. Obviously, on the basis of a limited study versus what we're talkingabout here, we get $1.5 billion dollars, so it will be in the billions. Ican't give you a number because we haven't done all the analysis. But, we areconvinced that there are major opportunities for savings. Yes, sir?

Q: So your five-year plan currently does not include the anticipated savingshere, but what you're saying is that the savings that do occur will be foldingback into the program?

A: That is correct. That's exactly right. We have not put into the budgetany anticipated savings. What anticipated savings we get we expect to put inthe modernization, and I have sent a letter to the services saying that whatthey get in terms of economies with respect to outsourcing, they get to keep.We're not going to take it back from them, they can keep it.

Q: How is the privatization efforts going? You've already started inSacramento and Kelly. And then a quick question. Why don't Air Force planeslike the T-43 have black boxes? From your experience in this business, can youanswer that?

A: I can't speak for the Air Force, except to say...it really depends in thecase in which you're talking about, about the age of the airplane. And that's-- but, I'm not going to get into it, I'm not the expert on that. Let me dealwith the first question. Kelly, Sacramento, Louisville, Newark -- there's anumber of cases in which we are doing very specific efforts as a subset of thismuch larger effort, and so far they're going very well. Newark is on the frontedge of that. It's obviously displayed that it saves money for us to go theway we've gone in terms of the private sector. We're convinced, based on wherewe are, we're going to find the same results when we go to these otherdepots.

Q: An additional question on this incident. Has a decision been made toreturn the bodies from Dubrovnik to --

A: Let me deal -- I've only got five minutes. Let me deal with this.

Yes?

Q: You said you were going to seek legislation to get relief from the 60/40and the other restrictions on outsources and privatization. Do you have anauthor for that legislation? Who's going to introduce that legislation foryou, and what's your prospect for success? They've already -- you know, thisadministration has been pushing for relief in 60/40 since it came into office,and Congress hasn't blinked. And your attempt to privatize Kelly andSacramento have been met with you, know cries and protest and claims thatyou're violating the law. I mean, what makes you think that you're going toget any relief out of Congress?

A: Well, we spent -- first of all, we spent a lot of time on this, not only onthe legislation but on talking to leaders on the Hill, and we're getting veryhigh reception rate on the Hill in terms of this initiative. I think we're atime where people have recognized now what has gone on, not only in the privatesector, but across this country in city after city where these kind ofefficiencies are made.

We recognize we don't have enough budget, top line over time; we're not goingto be able to grow that in terms of increases in top line and in long term, so,we have to meet other economies. So, we're optimistic and we have been upthere talking with a lot of people.

Yes, sir?

Q: How do you assure this money goes to modernization and doesn't go to OMBaccounts to get to a balanced budget.

A: This is money that is in the Department of Defense. It is in the -- mostlyin the services or in the agencies. We track what these initiatives are and wewill keep score inside the budget process with respect to the departments, andthey will raise their modernization accounts accordingly.

Yes, sir?

Q: Would those percentages continue to drop after 2000 or 2001 in theprivatization?

A: The core -- the core?

Q: Yeah. Or would they start to even out?

A: I don't know. I think we simply don't know at this stage. That's as farout as we can look. I mean, we don't have any visibility beyond that. At somepoint in the future after this initiative, we'd obviously have to do --services would have to do more studies in terms of what they want.

Yes, sir?

Q: But specifically on the depot maintenance, though, even -- from your chart,and want to make sure I'm interpreting it right -- if 60/40 is removed you'restill not anticipating suddenly the private sector doing like 70 or 80 percentmore of it?

A: Not at all. Not at all. We turned the JCS, the military services andasked them to do a professional risk assessment based on the warfightingrequirements. Those are the results that came back from the services.

Q: You're satisfied they're just not protecting depot turf?

A: Yes, I'm very satisfied. I've been through with them the methodology.It's a very thorough methodology. I have the same incentive they are (sic).We want to -- if we're going to make a judgment, we want to make sure thatjudgment is on the side of war-fighting capability. And I think this doesthat.

Yes, sir?

Q: On -- on that, the services' differing assessment of that core capability,the Stealth aircraft is, you know, one of the first aircraft that would go inany regional contingency. It's a silver bullet. There are very few --

A: Which aircraft, I'm sorry?

Q: The Stealth, the--

A: Oh, yes. Yes

Q: If the Air Force thinks it's acceptable to outsource the maintenance ofthat, it's terribly hard to see why the Army needs to keep 59 percent of itsdepot maintenance capability in-house. The Army isn't getting it anywhere.

A: I -- I will let the Army speak to the details thay you --

Q: You -- but are you -- are you certain that the figures you gave now, whichis 49 percent Air Force, 69 percent Army and 55 percent Navy simply doesn'treflect the services different capacities as something radical.

A: I'm totally comfortable in these -- with this methodology and the resultsof this methodology and it will get us our -- what we want in terms of theseinitiatives.

Last question, Barry.

Q: Just a follow-up. Did OSD do its own analysis?

A: No, we did not. We relied on the services to do this analysis and sat withthem and did a review.

Last question. I've got to run.

Q: This proposal is a lot more conservative than what the roles and missionscommission that you headed last year recommended. Can you reconcile the two?

A: I can reconcile the two in the context that this -- the roles and missionswas a direction; that is, you ought to go this way. And if you read itcarefully, you will see that there's some caveats in there as well. This is ananalysis, a thorough analysis based on what we think is desirable in terms ofthe department. So, while that's more aggressive, it obviously did not havethe benefit of detailed review of the way this has had.

Q: How much --

A: I'm afraid I've got -- I've got to run in order to go to this memorial.Thank you very much. Others will stay.

Capt. Doubleday: Just to close this out, I want to make sure everybodyrealizes that if you have further questions, we have a number of experts whoare here in the room and seated to your right and they would be happy to answerany further questions you have on this subject.

[Off mike.]

Capt. Doubleday: Well, as a matter of fact, if you have questions right now,I'd be glad to ask them to step up.

Q: About the black box. Does anybody over here know about why don't Air Forceplanes have black boxes?

Capt. Doubleday: Let's do -- let's do -- yes.

Q: I have a question on the privatization in place proposal for the two AirForce depots, Sacramento and San Antonio. The question is there's a bigpolitical debate going on now about that. Why does it make sense to privatizein place that work rather than distribute it to the three remaining depots thatwill be open as a way to reduce excess capacity?

A: My name is George Babbitt . I'm the deputy chief of staff for logisticsfor the Air Force. In July, when the BRAC commission recommended a closure ofthose two installations that came as a change to what the Air Force hadplanned. And we tried to understand the impact that would have on us in thefuture. And the impacts -- too that we thought were very significant werefirst of all, it required a considerable amount of upfront money torefacilitate that workload at other installations. Not every workload requiredrefacilitation, but many did.

The second issue was that because those two depots were the only places wheresome of that workload was performed, in order to refacilitize and move it toanother location, there would be a break in production. We considered that arisk. It was 35 percent of our total depot maintenance workload that wouldmove over those period of three or four years. We considered that a risk toour readiness and an upfront cost that was unnecessary given that there was analternative to privatize in place.

Q: You (saved?) the cost of your estimates of what it would cost torefacilitate or refacilitize, as you say?

A: Our estimates of the total cost difference between doing what the BRACcommission recommended and what we did was $600 million dollars.

Q: Can you give us an idea of what remains within the 49 percent which the AirForce reckons is core that you can't allow to be privatized?

A: Sure. I can give you some notional ideas. Let's talk about aircraftengines. Aircraft engines that are used on commercial-like airplanes, there'sa great capacity in private industry to maintain, and so we would move--wherewe haven't already, moved more towards private sector maintenance.

But fighter engines have always been a unique problem for us because eventhough some of the technologies are the same, the performance that we get outof fighter engines is considerably higher than you get out of a commercialengine. They have different failure modes, they have different kinds ofproblems and, in some cases, different technology. We feel it's important tokeep some of that maintenance and some of that engineering capability in-housebecause we're the primary operators of many of those high-technology engines.

So, that would be a case where some of that workload would be considered core.It doesn't mean that every single engine has to be maintained in-house, butcertainly some portion of it. So that we understand the engine that we'redealing with, we would intend to keep in-house. Does that answer thequestion?

Q: In terms of broad categories, the 49 percent breaks down into what? Well,engine maintenance is half of it, and can you give any sort ofcategorization?

A: Well, I don't honestly -- I haven't looked at any data that would help meanswer that question. I guess the only answer I could give you is just anacross-the-board estimate of the kind of things we do. There would be some airframe maintenance that we would continue to want to do in house for the veryreason that I described. We have invested in some cases in specializedfacilities for avionics that are not commercial like avionics and there reallywouldn't be any available private market out there. Those kinds of things wewould keep in house. Avionics maintenance, some peculiar air framemaintenance, engines, in some cases, primarily fighter engines.

Q: Have you decided how much money you can get out of this and then to whatyou will put that in terms of modernization?

A: We have not. We are taking this on as a challenge. We too and I think Ispeak for the Air Force secretary and the chief of staff on this. I believethere's an opportunity here to save money. We, first of all, need to get aprogram started, make sure we understand where it's going, do the analysis, andthen we think there is money to save and it will be rolled againstmodernization.

Q: Depot maintenance is only one of eight functions that the deputy talkedabout. That's the one we -- there's the most heat about. I know you don'thave a budget wedged in here for anticipated savings, but can anybody give us aballpark of how large a fraction of the anticipated bonus as you get from thisinitiative is going to come out of depot maintenance and how much is going tocome out of the less contingent stuff A? And B, can anybody tell us whatlegislative relief you need for the functions other than depot maintenance?

A: I'm John Phillips, the Deputy on the Undersecretary of Defense forLogistics. As stated by Dr. White, we don't have succinct figures, but we knowthat it's going to be a large number in the billions denomination. But, youwill see a fairly sizeable estimate by the Defense Science Board that ranges ashigh as $15 billion dollars. But we would estimate certainly our number issomewhere in the billions. A succinct number will certainly be refined as wegather more data.

Q: That's over how many years?

A: That's an annual -- annual -- (inaudible).

Q: What fraction of that -- after this is all in place, how much of that areyou relying -- would you expect to get out of reforming depot maintenance asopposed to the other outsourcing functions that don't have the kind ofpolitical problems that depots might?

A: Let me give you a parametric estimate. Currently, the depot maintenancefigure is about 75 percent of our total operations in support and costs and wewould expect just on simple ratio that's the kind of savings we'll realized.

Q: How much did this initiative recognize the Kelly, McClellan issues? Wouldthis have come about without that issue motivating it?

A: Kelly, McCLellan is really a subset of the whole notion of outsourcing.Recognized that as Dr. White mentioned, outsourcing is perhaps the third of thethree initiatives that the department is implementing, and we fully expect thatwe will continue outsourcing even without Kelly McClellan and recognize thatKelly McCullen are really interim steps as we proceed down the outsourcing.

Q: Mr. Phillips, do you have the answer to the question I asked Dr. White onwhose going to carry your legislation? Do you have authors for this -- therelief you need?

A: We do. I will refer to the under secretary. [Laughter]

A: My name is Rudy de Leon. I'm the Under Secretary of the Air Force. Weexpect that in the Senate, Senator Hutchison of Texas will offer thelegislation. In the House we believe that Congressman Frank Tejeda will offerthe legislation. We have hearings scheduled the 15th and 16th of April, weexpect this to be a major issue. To further elaborate on your question to Dr.White, why do we believe that this will be a more dynamic debate this year: Asyou recall, the language that came out of the conference agreement mandated thestudies that are now going forward to the Hill. This is the data. This is theinformation that was requested. And if you read the Senate language last year,this is what they were asking for as a prelude to 60/40 reform and otherregulatory reform. So.

Q: One more try. What legislative relief other than the 60/40 depot relief doyou need?

A: To answer your question, there are a handful of provisions that make itdifficult to outsource. Primarily, it is the 60/40; additionally, there arelimitations on dollars that can be contracted for without particular waivers.But it is items of that nature. The two principle (ones) though, are the 60/40law and the the limitations on OMB-type contracts that can be issued.

Q: The report mentioned two specific protections of Crane and Anniston, Ibelieve, Army depots, you know, that -- somebody put a protection of those twoparticular depots or ammo plants. Are you going to seek relief of thatrestriction?

A: I'm John Coburn, the deputy chief of staff for logistics for the Army. AndCrane and Anniston, as you know, are GOGO government- owned,government-operated facilities. And there is specific legislation that saysyou cannot contract out any part of those operations. And for some time now wehave been seeking to change that legislation to give us the flexibility that weneed to make those operations GOGO operations, if you will. So, the answer toyour question, I think, sir, is yes.

Q: Another Air Force question and that is --

Q: Oh, I had another question. Can I have one here? Could you tell us howcome the Army ends up saying that it needs to keep so much more in its own corecompetency, core capability than any other service? You're up right about 59percent, of the Air Force has only 49 percent. Can you explain?

A: Well, let's take a look at it. If you look at 1998, the prediction isabout 45 percent, 55/45. In the year 2001, that increases to 47. So really,we would be keeping about 53 percent. But beyond that, you need to askyourself the question, 53 percent of what? How much do we have left? We havefive maintenance depots left in the Army. Now really, that's five on the booksbecause when you really analyze that, Letterkenny is going to be realigned andtherefore, Letterkenny basically goes away and now you're down to four. AndRed River is going to be realigned at least partially; now, you're down tothree and a half.

So, you have to ask yourself 53 percent of what. And really that 53 percentrepresents the core, the skills and capabilities that we need to maintain ourcore requirements and hope with a [inaudible] scenario.

Q: Can you give us an example?

A: Our main battle tank, our Bradley fighting vehicle system, our electronicscomponents, our helicopters. When we looked at the whole process, ourstationing strategy was such that we said we need at least one ground depot andthat's Anniston; does our main battle tanks, track vehicles. We need at leastone electronics depot and that's Tobyhanna . We need at least one depot forhelicopters and that's Corpus Christi. And that was the basis of our decision.That's our station strategy.

Q: Air Force question. When is -- there's a lawsuit that's been filed to --against President Clinton to stop the privatization in place of McClellan andSan Antonio, Kelly. What is the affect of that? Is that going to stop anywork at this point towards the privatization in place effort until the lawsuitis dealt with in some way or resolved? The second question is the decision toprivatize and place those two depots, will that mean then that the remainingthree that will be open can look forward to some further downsizing as aresult, since they will not be getting a lot of the work from those othertwo?

A: The first part of the question deals with the litigation at Columbus, Ohiodealing with the Newark Ohio which is the -- essentially the ICBM calibrationand maintenance of ICBM equipment. That litigation is pending. The Air Forceawarded a contract to Rockwell International and to Wylie (sp) Industries on acost competitive basis, so there was a cost competition in awarding thosecontracts. Air Force believes that they will save dollars. Certainly, webelieve that the GAO estimates of the cost of the Newark work is wrong. But,that is the specific issue on the table. That is the issue in litigation. TheAir Force believes it has a strong case that it can legally defend the actionthat it took to privatize the functions at Newark and will obviously be doingthat before the appropriated authorities.

Now, the second question you asked dealt with privatization in place and theimpact on the other three depots. Depots in Georgia, Oklahoma, and Utah, asthe Air Force has worked through the numbers dealing with core, dealing withother issues we believe that the work force at the other three depots will growduring the next few years and that they are not likely to have additional RIFsrecalling that we have been consistently downsizing and adjusting the workforce at each of the five depots as we have been going through the budgetdrills.

Q: Are there any personnel figures attached with these -- (inaudible) --(retention?) initiative? How much the overall depot work force would bereduced by the initiative?

A: There are. I probably want to respond for the record simply because Idon't-- can't quote from off the top of my head. But specifically, for aspecific location or in general?

Q: For both?

A: Yeah. I'd be happy to respond on that -- later on. I need to do somework.

Q: Yes. I was just wondering did this contemplate any combination ofcontracts between branches, maintenance of engines, or something?

A: I believe your question refers to inter-servicing, is that correct?Recognize that we are doing some inter-servicing. General Coburn mentioned, wehave a center for helicopter maintenance. That's at Corpus Christi Army depot.It was mentioned the Stealth fighter. The engine for the Stealth fighter whichis the Air Force is a prime weapon system is being done by Navy Jacksonville.So, the notion of inter-servicing is not dead and where it makes sense, we willcertainly continue to do that.

Q: As part of this?

A: Yes, it is inherent in the notion of depot maintenance.

Press: Thank you, sir.