DEFENSE DEPARTMENT

Clean-Up Contractors Courted by Pentagon

5/1/1999
By Joshua A. Kutner

Industry experts and Pentagon officials believe the Defense Department should seek private sector expertise to expedite environmental clean-up efforts.

One proposed solution would be to turn over more of the operations to contractors. There are enough technologies and innovative products in industry to satisfy most military clean-up needs, according to officials gathered at the National Defense Industrial Association's 25th Environmental Symposium and Exhibition in Denver.

Using commercial environmental services for tasks such as military base clean-up makes sense because it allows the armed services to focus on their primary missions, says Sherri W. Goodman deputy undersecretary of defense for environmental security.

"We want to take somebody else's good housekeeping seal and use it," says Goodman, stressing that the department wants goods that are certified and preferred by the Environmental Protection Agency.

Goodman says one of the problems in adopting the suggested methods-outsourcing and privatization-is fear of making a cultural change.

"There is a natural resistance" to using contractors because it affects government careers.

James McInerney, president and chief executive officer of Business Executives for National Security, Washington, D.C., says a fear of job transition is causing the move to go slow.

Another obstacle for privatization, say officials, is the A76 process, a process designed to open up jobs for competition between the government and industry.

"A76 is an absolute travesty," says McInerney, who believes it is time-consuming and expensive.

Goodman agrees that A76 stands in the way of privatization and outsourcing.

One major obstacle is the lack of understanding, says McInerney. "We need to educate people on this ... The Defense Department system does not allow people to do what the private sector is capable of [doing]."

Outsourcing is a method of contracting independent organizations or members of the private sector to provide services to the Defense Department.

"Outsourcing doesn't shift the responsibility for performance or change the nature of the services," says Mahlon Apgar IV, assistant Army secretary for installations, logistics and environment. "It changes the organization and methods of supplying the service."

Apgar recognizes the government must ensure the quality and integrity of the work.

"Privatization goes much deeper than outsourcing," he says. "It means shifting some or all of the responsibility for planning, organizing, financing, and managing a program or activity from the services to private contractors or partners. It may also mean transferring ownership of the assets such as land, buildings and equipment. In my view, any military activity that is mirrored by a large diverse competitive market in the private sector is a candidate for privatization."

Privatization has two components, says Apgar, that are not well-understood in the Defense Department's daily routine.

"One is to attract private capital to help fund our programs and operations, but the other-in some ways more important-is enlisting private enterprise in managing and executing programs. Capital, alone, is not enough."

Army Perspective
"We want to benefit ... from the four E's of private enterprise: the entrepreneurship, the energy, the efficiency, and the expertise that industry can bring to a partnership with government," says Apgar.

He would like to see industry and government pool resources.

"We simply can't afford to carry the huge inventory of land and building that we've inherited because they divert scarce resources from capital needs to modernize the force and improve quality of life," Apgar says. "Privatization can help to create value and release cash from these assets, and environmental operations are an integral part of that process."

The Army currently spends approximately $1.6 billion per year on environmental operations, Apgar says. These accounts, he adds, have grown faster than weapon budgets.

"While we are careful stewards of the land and environments entrusted to us, environmental operations are not our core mission," he says. "So we have to find innovative ways to cut the cost, contain the cost, and control the cost. We have no other choice."

The solution, he says, lies in privatization.

"Privatization means partnership," says Apgar.

Apgar suggests four incentives that the Defense Department should use to attract business partners: potential profit, giving industry flexibility to assess risks, the steady work that the Defense Department offers, and innovative procurement methods such as performance-based contracting.

"The most obvious [incentive] is profit," says Apgar. "There must be opportunities for real measurable profit in every venture we seek to privatize. Otherwise it will not be a sustainable business proposition in the long term."

Profit often involves risk, Apgar adds. Enabling partners to balance their profit and risk will enhance the partnership.

"The availability of relatively low-cost environmental insurance to supplement the contractor's equity and reduce risk makes the investment more attractive," he says. "Some of the capital and operating risks can be shifted to the private sector in return for potential profits."

Apgar says the magnitude of the Defense Department's clean-up needs should motivate industry to seek contracts.

"Our environmental backlog of sites to be cleaned up and disposed is enormous," he says. "From a business perspective, the size and diversity of this portfolio enables companies to plan and invest in entry strategies in new markets for the long haul. Moreover, few organizations can aggregate and structure programs in multi-million or even billion dollar-plus packages as we can. If we do our job well, we will provide the scale and scope to attract many prospective partners and broaden the base of the competition."

The Army, for example, plans to devote $18 billion to clean-up during the next 20 to 30 years, even though it is not considered one the service's core competencies. Nevertheless, he says, this represents a major potential market for an industry with the sufficient technological and managerial competence needed to take on such a program.

"Privatization is the only means of accelerating clean-up consistent with plan investment levels to meet the defense planning goals for closing our sites," says Apgar.

Innovative procurement methods such as performance-based contracting "stretch industry to use its ingenuity to find better, cheaper ways to meet our objectives," he says.

Small businesses, however, are expressing concerns regarding their opportunities in the clean-up arena. Apgar believes "opportunities for small business are enormous in this field."

He says that the military needs to incorporate more small businesses into the contractor base.

A Success Story
A major environmental initiative by the Army is taking place at the Army's Rocky Mountain Arsenal (ARMA), 10 miles outside of Denver. In 1996, the Army, the U.S. Fish and Wildlife Service and Shell Oil Company formed the Remediation Venture Office (RVO) to perform this task.

"The RVO coordinates and provides oversight for remediation management at ARMA based on best value concepts such as quality assurance, health and safety and community involvement," says Apgar. There are more than 36 separate projects going on at the arsenal.

"Contracting a single firm to manage the entire clean-up has increased efficiency by ensuring the personnel with the appropriate job skills are matched to the task, by compressing the clean-up timetable considerably, and by reducing the cost of clean-up," he said.

This contract exemplifies an effective industry-government partnership, says Apgar. The contractor is responsible for ensuring that the Army meets the clean-up schedules and stays within cost guidelines.

"We believe we've achieved remarkable success in the first year of the contract. Success translates into dollars to be applied elsewhere in the Army budget," he says. "And we attribute this success to the fact that the remediation venture office and the contractor staffs complement each other. Each organization leverages its strengths to achieve success. And they have a shared vision of the future of ARMA as the nation's largest urban wildlife refuge."

Defense Secretary William S. Cohen visited ARMA last year, says Apgar, and named it the national model for clean-up. The Air Force has experienced success at Vance Air Force Base in Oklahoma. Vance was the first base under the Air Education and Training Command (AETC) to be privatized-an initiative that began in 1960. AETC is composed of 13 bases throughout the United States.

Northrop Grumman Corporation has been the prime contractor at Vance since 1972. It has provided not only aircraft maintenance and supply, but also some civil engineering, says Col. Patrick T. Fink, USAF, AETC headquarters, Randolph Air Force Base, Texas.

Clean-up efforts at Vance include a groundwater treatment facility, recycling, hazardous waste storage, and compliance. There are 25 ongoing clean-up efforts at the site.

Fink attributes the success to Northrop Grumman's ability to provide technically-competent personnel. The company is "largely self-sufficient," he says.

The Air Force's primary function at Vance is to train pilots, says Fink. "Vance is the pipeline to bring new pilots into the system," he said.

That means airmen and women cannot afford to be distracted by cleanup projects.

AETC plans to clean up five additional bases in the near future. Fink says that "contractors have an awful lot of opportunity." The Air Force receives about $400 million for cleanup, says Maj. Gen. Eugene A. Lupia, USAF, civil engineer, Air Force headquarters. He adds that the Air Force plans to shift money from compliance to pollution prevention.

Lupia also says the Air Force is enthusiastic about privatizing military housing. "Housing privatization, on the surface, looks like it is going to be a good thing," he said.

Inter-service rivalries aside, a senior Navy official thinks there is an easy explanation to the Air Force's success.

Rear Adm. Andrew A. Granuzzo, USN, director of environmental protection, safety and occupational health division, says the real reason the Air Force has such clean facilities is because it is the youngest service at 52.

The Navy is in the process of trying to make "an environmentally-friendly ship for the 21st century," says Granuzzo. The DDG-51 Arleigh Burke destroyer is "leading the way on that," he says.

The Navy has installed plastic waste processors on 200 ships. The Naval Surface Warfare Center in Crane, Indiana, has begun a lithium battery recycling effort, and the Indian Head laboratory, in Maryland, is a partner in developing cleanup technology. "We're working smarter and better, and we're going to get cheaper," Granuzzo says.

The Navy, however, has yet to fund its ship-scrapping program, which seeks to incorporate environmental and safety standards into ship dismantling operations (National Defense, March 1999, p30).

Topics: Environment and Energy Security, Safety and Environmental Engineering, Budget

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