Off Base

t quitting time, end-of-the-day conversations are swallowed in the vast expanse of the giant aircraft hangar at the Sacramento Air Logistics Center at McClellan Air Force Base, Calif. Suddenly it's as quiet as a morgue. Even in mid-shift, this mammoth maintenance and repair facility for Air Force planes operates at less than 50 percent of its Cold War capacity. Members of the rapidly shrinking workforce-the center is on a path to decline from 13,500 employees in 1995 to 8,700 in just a few years-wander the echoing chambers like caretakers. By law, the Air Force must vacate the premises altogether by 2001.

If the experts are right that a community's reaction to the closing of a military base mirrors a person's response to a death in the family, the workers at McClellan are stuck in a purgatory somewhere amid denial, disbelief and anger. Acceptance and healing cannot come, they say, until Washington policy-makers stop using the Sacramento Air Logistics Center as a political pingpong ball.

"I would say this has been a very difficult process from our employees' perspective, because with a typical base closure, the most important thing is to tell them what is going to happen to their jobs and when it is going to happen. Because our strategy for closing this base keeps evolving, we haven't been able to do that," says Jim Barone, executive director of the Sacramento ALC.

The evolution Barone refers to stems from a unique base closure strategy called "privatization-in-place" that the Clinton administration applied in 1995 to Sacramento and a sister depot at Kelly Air Force Base in San Antonio.

Earlier that year, the independent Base Realignment and Closure (BRAC) Commission had ordered that the Sacramento and San Antonio ALCs be closed and the billions of dollars of maintenance and repair work performed there transferred to other Air Force depots.

According to the BRAC Commission, the Air Force could save $468 million annually by consolidating the depot workloads at the three remaining ALCs in Utah, Oklahoma and Georgia.

While Clinton administration officials reluctantly agreed to close the McClellan center and realign the Kelly base, they balked at the prospect of abolishing 22,000 high-paying jobs and alienating voters in two states viewed as key battlegrounds in the 1996 elections. Instead, the White House proposed transferring the facilities and much of the depot work to private industry.

That plan has prompted an acrimonious tug of war in Washington between the Clinton administration and the powerful Depot Caucus on Capitol Hill, whose 50-plus members, all with depots in their districts, stood to gain from the transfer of jobs to other DoD facilities.

"What was originally perceived by the workforce as a plan looking out after their best interest has now been turned into a war of attrition between Congress and the administration, and the workers at McClellan feel caught in the middle of the battlefield with no weapons," says Maj. Gen. Eugene Tattini, the base's commander. Already the Air Force has had to amend its plans for the McClellan workforce three times, he says, losing credibility and causing added frustration for workers each time.

Ironically, even the local community that was the intended beneficiary of privatization- in-place is now feeling more than a little bent out of shape as a result of the political brawl thousands of miles away in Washington.

"It's ironic that community concerns drove this policy, which was originally seen as offering a no-risk transition from a public to a private depot," says Rob Leonard, executive director of military base conversion for the city of Sacramento. "Three years later, however, the uncertainties associated with this constantly evolving plan have greatly added to the complexity of our job in terms of base reuse, and they are causing high anxiety in our local workforce."

Broader Implications

The controversy surrounding the Sacramento and San Antonio centers has effectively tied Washington's policy-making community in knots, dominating the debate over the future size and shape of America's defense complex for the last two years. Until the matter of the two depots is resolved satisfactorily, Congress has flatly refused numerous requests by Defense Department officials for further base closures, derailing Pentagon plans to shed excess infrastructure.

With scarce modernization funds continually diverted to operate unneeded bases, Defense Secretary William Cohen publicly warned in March that he may unilaterally allow some bases to fall into disrepair.

The debate over McClellan and Kelly touches on complex and combustible matters of congressional vs. executive branch authority, pork-barrel politics, and the post-Cold War reallocation of spoils in a downsized defense establishment. Pentagon leaders and many defense experts, for instance, view savings from future transfers of military support functions to the private sector as critical in fashioning a leaner defense establishment able to live within tightly constrained defense budgets. In that sense, the scorched-earth battle over the depots may prove to be only the initial skirmish in a far larger war over reshaping America's defense industrial complex.

"It's unfortunate that the decision to try to privatize McClellan and Kelly in place so muddied the waters in the much broader and more important debate about outsourcing more defense work to private industry and closing unneeded bases," says retired Air Force Lt. Gen. Thomas McInerney, president of Business Executives for National Security, a nonprofit group that was instrumental in initiating base closures. "If we don't aggressively pursue both those steps, and apply the savings to modernizing a rapidly aging military arsenal, we risk ruining our military."

According to Defense Department figures, the infrastructure of domestic military bases has shrunk by only 21 percent since 1989, significantly less than cuts in personnel (32 percent), overall defense spending (35 percent), and procurement spending (56 percent).

"Regretfully, the controversy surrounding McClellan and Kelly has destroyed all trust between the administration and Congress in terms of base closures and privatization," says McInerney. If nothing else, the depot controversy has underscored the age-old notion that all politics is local. The internecine warfare for depot business has pitted congressional Republican against Republican, depot against depot, and major defense companies against their prime customer.

In just the past few months, the controversy has prompted the General Accounting Office to accuse the Air Force of obstruction; led staunch defense hawks on Capital Hill to threaten to penalize the Air Force more than $450 million a year for not closing Kelly and McClellan sooner; provoked a senior Air Force leader to threaten publicly to close other bases without congressional authority; and prompted the nation's largest defense contractor to warn the Pentagon that it might opt out of the public-private competitions the Air Force has proposed as a compromise alternative to privatization-in-place.

"In my more than 20 years in Washington, this controversy over the depots is without question the most divisive defense issue I've ever witnessed. There is absolutely no sense of humor on the subject," says a senior executive at Lockheed Martin, which complained bitterly to Pentagon officials last year after losing three major competitions to public depots due to what Lockheed felt were unfair accounting practices.

"Many members of the Depot Caucus on Capitol Hill are friends of the military and the defense industry, but when you interject the depot issue into discussion, they totally lose all perspective of the bigger picture. It's 'my depot, all or nothing,' " the Lockheed executive says, "I truly believe depots are the defense equivalent of the abortion issue."

To underscore that point, time and again recent hearings on broader defense issues have been sidetracked as members of the Depot Caucus harangued senior DoD and Air Force leaders over McClellan and Kelly and the issue of public-private competitions for the depot work. Last year, an acrimonious debate over the depots delayed the 1998 Defense authorization bill for months. Republican Senators Phil Gramm and Kay Bailey Hutchison of Texas threatened to filibuster the legislation because of wording promoted by the Depot Caucus that they felt threatened the San Antonio ALC. Eventually the Clinton administration backed off a veto threat and a compromise was reached that members of the Depot Caucus now believe the Pentagon failed to honor.

"You can say we're parochial, but us depot guys are pro-military, and I've been embarrassed enough to actually apologize to people like [Defense Secretary William] Cohen and [Deputy Defense Secretary John] Hamre after they've testified because I had to beat them up so bad. I've never seen anyone put in a tougher position, trying to serve two masters and being hit upside the head with a 2-by-4 by each one," says Rep. James Hansen, R-Utah, a member of the National Security Committee and co-chairman of the House Depot Caucus.

"However, the fact of the matter is Congress did not create this problem. The White House did," Hansen adds. "By interjecting politics into the BRAC process [with privatization-in-place], the administration acted like a cow that comes and craps in your living room and then walks away. The rest of us are left to clean up the mess, and no one is happy about it."

Troubled History

When the Base Realignment and Closure Commission was created in 1988, it was specifically designed to insulate the process from the kinds of pork-barrel politics that have come to dominate the debate over Kelly and McClellan. Under the BRAC guidelines, an independent commission appointed by Congress and the President examined DoD base closure recommendations and after extensive review submitted its own list to the administration. At that point, the President had 15 days to reject or accept the BRAC recommendations as an entire package. Once approved, Congress had 45 days to reject the package by majority vote or the base closures automatically became law. For the initial three BRAC rounds in 1988, 1991 and 1993, the process worked as advertised.

In the largest reversal of Defense Department recommendations since the process was established, however, the 1995 BRAC Commission plucked two of the biggest political plums in the entire defense complex: the Sacramento and San Antonio depots. As difficult as closing bases had proved, closing two of the Air Force's five major repair depots was a far greater challenge. Not only were the depots much larger than other military facilities, but they employed a far greater percentage of civilians. At the Sacramento and San Antonio depots, 83 percent of the workforce was civilian.

Clinton delivered a fist-pounding, finger-pointing attack on the BRAC decision in a 1995 Rose Garden ceremony, calling it an "outrage." Then the Defense Department and the Air Force revealed their Solomonic solution: They would privatize-in-place work at McClellan and Kelly over the next six years, leasing or selling the facilities and equipment and retaining 8,700 jobs at McClellan and 16,000 at Kelly through 2001. Then the Air Force would relinquish control of the depots, though it would continue to offer enough work to the privately operated facilities to ensure that many of the jobs would remain.

Privatization-in-place was a hybrid of two strong currents driving Pentagon cost-cutting efforts since the end of the Cold War: closing bases and contracting out support functions. As the Pentagon abandoned the old model of a protracted global war, its need for a vast complex of depots, arsenals and shipyards (many of them left over from the World War II mobilization) disappeared. According to a recent GAO report, the Defense Department spent $7.1 billion in fiscal 1996 on its complex of 22 major government-owned and -operated maintenance depots.

Meanwhile, in 1995 a study by the Pentagon's Roles and Missions Commission and a report by the Congressional Budget Office indicated that DoD typically saved between 20 percent and 40 percent by contracting out public-sector work to private firms. The commission recommended privatizing virtually all logistics support not essential to wartime missions.

"That may not be an especially sexy idea, but like Willy Sutton said, that's where the money is," says Jeffrey Smith, a former member of the Roles and Missions Commission and chairman of a depot subcommittee of the U.S. Chamber of Commerce's task force on privatization. As a former general counsel for the Senate Armed Services Committee, however, Smith also understood that privatization on a scale envisioned by the Roles and Missions Commission ran directly counter to the interests of the powerful Depot Caucus.

"In terms of Washington effectiveness, I have to commend the Depot Caucus for being extraordinary," says Smith. "There's not another caucus on Capital Hill that can more quickly generate a letter with as many lawmaker signatures. The main reason it's been so hard to advance the idea of privatization is because they are so good at pursuing their objectives. But that's the challenge we have to confront if the Pentagon is to take advantage of this strategic pause to rid itself of unneeded infrastructure and support functions."

In fact, the depot controversy and the ascendance of a number of proponents of large-scale privatization to top Pentagon jobs-including former Deputy Defense Secretary John White, current Deputy Defense Secretary John Hamre and Pentagon acquisition chief Jacques Gansler-has galvanized the bipartisan Depot Caucus.

"Unfortunately, some people in high positions in the Pentagon, like Jacques Gansler, have equated the public depots with socialism," says Rep. Tillie Fowler, R-Fla., a member of the Depot Caucus. "So we see this effort as part of a bigger battle with those in the Defense Department who want to do away with the depot system by making it more ineffective, which will happen if you privatize the work at Kelly and McClellan rather than transfer it to the remaining Air Force depots to eliminate excess capacity. Until that happens as dictated by the 1995 BRAC, the Pentagon is not going to get another round of base closures."

Public-Private Compromise

According to Air Force officials, the privatization-in-place plan hardly survived the firing of the first volley in the skirmish with members of the Depot Caucus. Shortly after the plan was announced, congressional staff pointed out that by law, any work exceeding $3 million in value that is being transferred from a public depot to the private sector must first be subject to a public-private competition to give other depots an opportunity to bid for the work.

"When it became clear that the law mandated a public-private competition, that immediately took the focus off of privatization-in-place and led to a fundamental change in strategy," says Barone, the Sacramento ALC chief. "The BRAC law also dictates that the Air Force cannot operate these facilities after 2001. Taken together, that meant we had to hold an open competition that should validate whether it is most cost-effective from the perspective of the American taxpayer to privatize this workload or transfer it to another public depot. So the Air Force embraced public-private competitions as the way to make these very difficult decisions. No matter what happens, some people are going to be very upset."

Before it could hold free and open competitions for the work at the two Air Force depots, the Pentagon faced other hurdles. According to a long-standing statute known as the "60/40" rule, no more than 40 percent of depot-level maintenance and repair funds can go to the private sector. In the 1998 Defense Authorization Act, Congress increased the ratio to 50 percent, but specified that the Pentagon must begin figuring work subcontracted to private companies by public depots into the equation.

According to GAO, 68 percent of DoD's depot maintenance workload in 1996 was performed by public depots, and 32 percent was done by private firms. If private companies win most of the work at Kelly and McClellan, however, GAO has warned that the Air Force could be in violation of the 50/50 rule.

By far the most controversial aspect of the public-private competition idea concerns the Air Force's decision to "bundle" the entire workload at McClellan and compete it as a single package. Bundling is much preferred by major defense companies, because it allows them to spread fixed overhead costs at the facilities over a larger workload.

Community representatives also endorsed bundling as the best engine to drive local reuse of the base. "We've come to feel that offering the workload in a comprehensive package would provide us with the best seed from which to grow a diversified operation at that facility," says Leonard of Sacramento's Military Base Conversion office. "Ultimately, the health of the local economy will depend on our ability to broaden beyond Air Force depot work into commercial enterprises at the facility."

Publicly, Air Force officials say bundling the McClellan workload will save between $55 million and $131 million by reducing the number of competitions that must be held and requiring only a single personnel reduction in force. Privately, Air Force officials also view the tactic as less risky than breaking the work into multiple competitions that might be won by "Mom and Pop" shops of questionable pedigree.

"We have taken a very close look at breaking these workloads out in a variety of fashions, anywhere from five separate competitions down to two, and in each case it delays the transition and our ability to reach a steady state of operation," said Darlene Druyun, Air Force deputy assistant secretary for acquisition and management, at a February hearing on depots.

Perhaps not surprisingly, the Depot Caucus immediately smelled a rat in the bundling tactic. None of the public depots was in a good position to compete for the entire workload at McClellan. Caucus members' suspicions became acute after GAO was asked to verify whether the Air Force had complied with congressional requirements that bundling be allowed only if it was determined to be the "most economical" and "only logical" acquisition strategy.

"The Air Force denied us access to information on the competition for two months, despite the fact that our legislative authority granted us access," says David Warren, GAO's director of defense management issues. "What we eventually told Congress was that the Air Force did not have adequate data or analysis to support bundling."

At the core of Depot Caucus suspicions is the paradox of the Air Force's promising to hold a fair and open competition for the McClellan workload, yet not backing off the President's commitment to retain 8,700 jobs in the local community. The only way to achieve that goal is if one of the two private companies competing for the contract-scheduled for award later this year-wins the competition and moves into the Sacramento facilities.

"Nothing in the RFP [request for proposals] for the workload requires that it be done here on the premises, but the models we use to predict that 8,700 local jobs will remain do assume that private industry wins," says Jerry Potter, deputy chief of the Competition Division at the Sacramento ALC.

Underscoring that point is an Air Force document marked "For Official Use Only" obtained by Government Executive. Dated Nov. 21, 1997, the document outlines the parameters for the McClellan competition. Under the heading "General Assumptions" the first two listings are: "1) Presidential promise will be kept. 2) A private firm will win the competition."

That point was underscored again in late April, when members of the Depot Caucus released a letter from acting Air Force Secretary F. Whitten Peters outlining an apparent plan by White House deputy chief of staff John Podesta to pressure Lockheed Martin to bid to keep the depot work in Sacramento.

"This collusion . . . to favor one contractor and one location is outrageous, unethical and potentially illegal," the members wrote to House National Security Committee Chairman Floyd Spence, R-S.C., asking for a hearing on the matter.

"Bundling is a scheme specifically designed to keep contracts out of public depots and to allow private contractors to perform the work at the closing bases," said Rep. Saxby Chambliss, R-Ga., a member of the National Security Committee and the Depot Caucus, at a recent hearing.

Unfair Competition

Little heard in the acrimonious din of the depot debate is the voice of the defense industry. Industry leaders have argued to little effect that public-private competitions are inherently unfair.

"You can never level the playing field adequately, because the government keeps its books and operates in a fundamentally different way than private industry," says Don Fuqua, president of the Aerospace Industries Association. "Government depots do not have to pay taxes, absorb cost overruns, answer to stockholders, or show a profit. Their accounting systems do not adequately track health care costs that are paid out of a separate budget, or the cost of a general who supervises operations of the depots from [Air Force Materiel Command headquarters at] Wright Patterson Air Force Base. And because the business community doesn't need a BRAC to close underutilized facilities, industry has less excess capacity than the depots against which to spread overhead costs."

Defense and Air Force officials say the government has made competitions more fair through constant adjustments to its official rule book for public-private competitions. "Whether you believe that the playing field can ever truly be level depends on who you are talking to, but I think the Pentagon is clearly getting better at holding fair public-private competitions," says Warren of GAO, which in a report issued in January validated as "reasonable" the first such competition for the workloads at Kelly and McClellan. The competition for maintenance of C-5 aircraft was won by the Air Force depot in Warner Robins, Ga.

However, defense industry officials say the competition for the C-5 work, previously performed at San Antonio, validated their worst fears. Even GAO confirmed that the private contractors would likely have won the competition had Warner Robins not been allowed to lower its bid by $153 million due to the fact that it had significant excess capacity and thus could absorb the C-5 workload with little increase in overhead costs.

"Losing the C-5 competition was very painful for us, because Warner Robins essentially said it was already paying people who were doing next to nothing, and thus they would be able to absorb the C-5 workload with practically no extra costs. We'd go to jail for that kind of bid," says a Lockheed Martin official, which lost its third public-private competition in a row at a cost to the company of millions of dollars. "Having been trounced for the third time, we basically sent a message to DoD that we were tired of being used as a stalking horse to lower the bid of the public depots, only to get slam-dunked each time. The message is, it's very difficult as a defense company to compete successfully against our prime customer, which is the Air Force."

Air Force officials concede they made mistakes in calculating the C-5 bids, but attempts to reduce the excess capacity in the public depot system have been fought tooth-and-nail by the Depot Caucus.

Meanwhile, the Pentagon continues to hemorrhage funds on unneeded bases, the armed services starve modernization accounts to pay for ongoing operations, employees at McClellan and Kelly twist in a state of limbo, and tempers on Capitol Hill continue to flare in a controversy with few obvious winners. Until the struggle is resolved, the long and arduous task of reshaping America's defense industrial complex for the post-Cold War era will remain stymied.

James Kitfield is a staff correspondent at National Journal.