Pvt. Contractor reporting, sir!

THE BALTIMORE SUN

WASHINGTON -- The Army eats 42 tons of potatoes a day, and we all know who used to peel them. No longer. Today's GIs are doing less KP, peeling fewer spuds. Why? Because private caterers are taking over.

Already 83 percent of the Army's mess halls are under private management. Beyond the kitchen, all the military services are planning to turn their entire food warehousing and delivery operations over to commercial companies by March 1997.

The savings: as much as 20 cents on every dollar spent on supplying and feeding the troops. And the forces will be freer to train for war and other contingencies instead of doing the dishes and uncrating the cereals.

What the Army has done in the heat of the kitchen, the Pentagon is considering doing in the cold light of day: getting out of the military support business almost entirely.

"We do a lot of privatization," said Deputy Defense Secretary John White. "We believe we can do a lot more. It will save money. It will encourage innovation."

Studies of Army contracts since 1984 show that savings from using civilian instead of Pentagon workers, for a range of operations from motor pools to data processing, average 29 percent.

Be it catering, provision of base housing, medical care of military dependents, major nonbattlefield maintenance of weapons, or balancing its books -- something it has never been able to do accurately -- the Defense Department is now asking a simple question: Should someone else be doing this?

UNC Inc. of Annapolis thinks so.

The company is bidding to take over an Air Force electronic repair station at Newark, Ohio. The Pentagon decided in 1993 the base should be closed. But instead of simply walking out and locking the gate behind it, the Air Force, prodded by the local community, is trying to find a private firm to take over the base and keep most of its civilian employees on the job on Air Force contracts.

UNC, a global company that maintains electronic systems, is competing with Boeing and a Rockwell-led consortium for control of the Newark facility, which specializes in repair of inertial guidance and calibration equipment used in planes, missiles and other sophisticated weaponry.

'Much more economical'

"This has got to be a much more economical operation for the Air Force than it would have been had they kept the base open," said John H. Moellering, UNC's executive vice president for aviation services, which would run the Newark facility.

The work force there, he asserted, would be smaller and the overhead lower under private management.

From the company's point of view, he said, the base provides a pool of skilled labor and a world-class technical facility.

"There is no place else you could do this work as efficiently," he said. "We wouldn't use 100 percent of the people, but we would use a percentage of them. It's the best trained work force to do that work."

This sort of transfer from public to private control has been dubbed privatization-in-place because it simply transfers military work to commercial control.

Defense Department officials this month will tell Mr. White, the deputy defense secretary, what military functions should be earmarked for privatization in the fiscal 1997 budget. Mr. White is leading advocate of introducing free enterprise to military management. It was one of the central recommendations he made earlier this year as chairman of the independent Commission on Roles and Missions.

Mr. White predicts savings of between 15 percent and 20 percent from switching operations from the Pentagon to private industry. In an interview, he said he had received "positive feedback" on the proposal from members of Congress.

Almost everything except operations directly related to the military's war-fighting mission is on the table as the days of confronting a major threat -- the Soviet Union -- give way to reduced danger and restricted budgets.

The guiding principles driving the Pentagon's interest in turning to private industry, as laid down by Mr. White, are: Nothing should impede the basic military mission or combat-readiness; money must be saved and efficiency increased. About $120 billion, or almost half the defense budget, is spent on support functions, ranging from administration to maintenance, from health care to transport.

"This is the main focus of waste in the Pentagon," said Loren B. Thompson, a defense analyst who specializes in privatization.

"The problem you have, at least in the in-house portion of the defense budget, is there is no competition for the provision of services. Consequently there is little incentive to hold down prices or improve performance."

Why, asks Mr. Thompson, of the Alexis de Tocqueville Institution, a moderate-conservative Virginia think tank, should private industry not routinely service and maintain the weapons it develops and produces for the Pentagon?

And why, he also asks, should the Defense Department's 43,000 accountants not be replaced by more efficient private financial managers?

Reforming the Pentagon's finances, involving 450 conflicting accounting systems and records that frequently defy audit, is a top priority of Defense Secretary William J. Perry, who confessed to being appalled at how "the biggest business in the world" was run when he took charge last year. He told members of Congress: "Our financial management system is inefficient, obsolete and archaic."

"The Defense Department is making progress in re-inventing its finance and accounting system, but it might make more sense to de-invent it through privatization," said Mr. Thompson, noting that the payrolls of many commercial companies are handled by outside contractors.

"If you look across the broad spectrum of support functions, you find that the Pentagon's in-house performance is not competitive with similar activities that are found in the private sector."

Example from Texas

Take the example of Brown and Root Services Corp., a Houston engineering, construction and maintenance firm that is under contract to provide support services for the Army in overseas military contingencies. Its first operation was to support U.S. troops in Somalia in 1992.

When the U.S. force withdrew, Brown and Root stayed in Somalia to fulfill the U.S. pledge to support the United Nations force there. It replaced 2,850 U.S. transport troops with 250 Western technicians and 2,000 locally hired Somalis. The technicians were paid more than the troops, but the Somalis were paid much less and were not housed or fed.

"So we think we are more efficient," said Charles J. Fiala, the company's director of operations.

Under the Army contract, Brown and Root has provided a variety of services to U.S. forces, including shelter, food, fuel, sanitation, even drinking water in Somalia, Rwanda, Kuwait, Saudi Arabia and Haiti. It is building temporary billets for the U.S. Air Force at Aviano, Italy, base of air operations over Bosnia.

Brown and Root has been paid a total of $250 million for its services. No estimate of how much it would have cost the military to provide the same services is available.

"It appears to be cheaper to maintain a contractor to provide this capability when it is needed than to keep a large support structure in our military that has to be paid all the time," said Joan Kibler, spokeswoman for the Army Corps of Engineers, which oversees the Army's contract with Brown and Root.

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