DoD Headquarters Cuts Planned

Coming reductions within the Office of the Secretary of Defense reflect a change in philosophy, Defense Secretary William S. Cohen said Nov. 10 at a Pentagon press briefing.

"We are getting out of the management business," he said. "We are going to focus on core functions -- policy decisions and recommendations. We are going to slim down in size. We are going to become as agile and as fast-responding as we expect our military to be in the future."

Deputy Defense Secretary John Hamre, head of the Defense Reform Task Force, said the group examined the business side of the Defense Department, just as the Quadrennial Defense Review released in May did the military. The group's recommendations were the basis for Cohen's reform decisions.

DoD is seeking congressional approval for base closure rounds in 2001 and 2005. "We expect to save $2.8 billion on an annual basis from these," Hamre said.

DoD headquarters will downsize by about 30,000 positions through restructuring, transferring organizations or functions, and eliminating positions. Another 120,000 jobs will be opened to bids by private industry.

The following specific cuts were announced: Office of the Secretary of Defense -- 33 percent over the next 18 months, from 3,000 to 2,000; field agencies will be cut by 36 percent, from about 8,000 to 5,000 over the next two years; the Joint Staff and activities controlled by the chairman of the Joint Chiefs of Staff will be cut by 29 percent, from about 2,600 to 1,800; unified command headquarters/combatant command headquarters will be cut by about 10 percent, from about 18,000 to 16,200 and the 15 defense agencies will be cut by 21 percent, from about 120,000 to 95,000, over the next five years.

DoD is directing the Defense Information Systems Agency to downsize, for example. "About five years ago, there were 250 or so big computer centers," Hamre said. "They shrunk the number to 16. We're now telling them to shrink it to six."

The Defense Finance and Accounting Service had 330 locations five years ago. They were consolidated into five disbursing centers and 20 operating locations. "We know we have twice as much capacity as we need, so we will be directing them to cut their operating locations in half."

Defense officials are consolidating three defense agencies into one. The On-Site Inspection Agency, the Defense Special Weapons Agency and the Defense Technology and Security Administration will become the Threat Reduction and Treaty Compliance Agency.

By January 2000, DoD will privatize all utility systems -- electric, water, waste water and natural gas. The Defense Fuels Supply Center will become the Defense Energy Management Center and manage energy, not a power infrastructure.

Reform plans also include opening up more government work to competition from private industry. DoD will compete such areas as payroll, retiree pay, personnel services, leased property management and defense reutilization centers.

"We honestly believe government employees have lots of good ideas, which is why we are not going to simply privatize at all costs," Hamre said. "That's not our goal. Our goal here is competition; competition is going to bring out the best value."

There's a very specific and detailed process for evaluating and comparing what's more cost-effective, Hamre said. "On the average, over the last 20 years, when we do an evaluation, government employees win roughly half the time. On the average, when the government wins, we save 20 percent." Competitive bidding forces government workers to cut costs and become more efficient, he said.

Between 1979 and 1994, DoD conducted more than 2,000 competitions for support functions. Annual operating costs were cut by 31 percent, resulting in a savings of more than $1.5 billion a year, Hamre said. Over the next four years, DoD will open 120,000 functions throughout the department to competition. "We think we'll be able to save $6 billion over the next five years from this," he said.

Under the reform plan, a new Defense Management Council will become DoD's "board of directors." The council, chaired by Hamre, will negotiate performance contracts with the defense and field agencies and serve as the nerve center for managing DoD reform efforts.