$ A n increasingly difficult chal-
lenge for the Army, amid troop withdrawal and declining ammunition requirements,
is
the sustainment of its government-owned, contractor-operated (GOCO)
industrial
base. With World War II-era facilities and expansive acreage, the Army is in a contin- uous struggle to enable these facilities to provide high-quality, cost-effective prod- ucts while preserving strategic, though often “wrong-sized,” production capa- bilities. Lower production requirements have taken their toll on local economies through job losses, with skilled labor seek- ing employment elsewhere.
To help address these issues, Congress
established the Armament Retooling and Manufacturing Support (ARMS) pro- gram in the ARMS Act of 1992. While the official charter includes numerous objectives, the program’s general purpose is simple: Provide a mechanism for com- mercial business to use (rent) the eligible buildings and assets on GOCO facilities. In turn, that would help preserve capabili- ties and boost local economies by creating or retaining skilled jobs.
Since its inception, the ARMS program, which operates at all GOCOs, has suc- ceeded in achieving its mission, which also includes reducing the cost of manufactur- ing government products at each facility. At the same time, however, program per- formance has stalled due to the current economic environment and a continu- ing decline in ammunition requirements. Consider the following figures from FY11- 12, a time when program funding nearly doubled, from roughly $1 million to nearly $2.1 million:
FY12 saw an increase to 58 tenants— just two more than in FY11. Tenant rent revenue dropped about 1.5 per- cent, to approximately $3.7 million.
PUBLIC-PRIVATE PARTNERSHIP Joe Schilling, American Ordnance LLC’s line director at IAAAP, talks with BG John J. McGuiness, Program Executive Officer Ammunition, about a 40 mm round. McGuiness and COL Scott Turner, left, then PEO Ammo’s Project Manager Combat Ammunition Systems, were touring the plant on Jan. 17, 2013. IAAAP is one of two pilots for the ARMS pre-certification initiative, which aims to make GOCO facilities more competitive in the marketplace. (Photo by Darryl Howlett, U.S. Army Materiel Command)
Overall “savings” achieved from items such as rent, in-kind services and over- head absorption dropped dramatically, from approximately $25 million to $10 million.
Te average annual rate of return on assets was an impressive 9 percent from inception to FY11, but performance in FY12 dropped to just 3.13 per- cent—still on par with or better than commercial industry, but a significant drop for the ARMS program.
While a variety of factors contributed to the above figures, there clearly were changing socioeconomic factors that meant that the ARMS program, too, had to change. Accomplishing this was a task for the Project Director Joint Services (PD JS), within Program Executive Office Ammunition (PEO Ammo).
No longer could the Army afford the sta- tus quo. Te ARMS program needed to be reconfigured in a fundamental man- ner that would allow it to move at “the speed of business” and get back on track.
Te result was a two-pronged initiative to transform the ARMS business model:
Restructure the operator compen- sation model to increase benefit to the facilities.
Better position the facilities to compete for commercial tenants in the marketplace.
OPERATOR COMPENSATION MODEL In assessing the existing model, the Army had two concerns. First, there was clearly a disconnect between the tax dollars
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