Army Considers Privatizing Its Depots, Ammo Facilities

By Kennedy, Harold | National Defense, July 2003 | Go to article overview

Army Considers Privatizing Its Depots, Ammo Facilities


Kennedy, Harold, National Defense


The U.S. Army--under pressure from Defense Secretary Donald H. Rumsfeld to trim infrastructure--is mulling over proposals to privatize its arsenals, ammunition plants and repair depots.

Rand, a federally funded nonprofit research institute based in Santa Monica, Calif., has made a series of recommendations for privatizing the Army's industrial base, which includes seven arsenals, five repair depots and 14 ammunition plants across the nation. In a 2002 report, Rand proposed:

* Forming public-private partnerships to encourage corporations to invest in Army facilities.

* Using Army venture capital to persuade private industry to help develop innovative military technologies.

* Spinning off Army activities, such as arsenals and depots, into Federal Government Corporations, similar to Fannie Mae, the U.S. Postal Service and the Tennessee Valley Authority.

Another Rand study, which has not been published, recommended selling the Army's arsenals in Rock Island, Ill., and Watervliet, N.Y, and some of its ammunition plants to private industry.

The recommendations caught the attention of then-Army Secretary Thomas E. White Jr., who last fall directed the Army Materiel Command to draw up plans to implement them. The plans were to be part of the Army's larger "Third Wave" initiative to privatize up to 200,000 civilian and military jobs.

This initiative is called the Third Wave because it will be the Army's third effort in the past two decades to streamline itself by encouraging more interaction between public and private sectors.

Public-Private Partnerships

The Rand study argued, for example, that the Army's industrial facilities--its arsenals, ammunition plants and depots--are "obvious candidates for public-private partnerships."

One Army partnering program "already producing tangible results is the Armament Retooling and Manufacturing Support program," the report said. ARMS allows contractors to lease dormant facilities at Army ammunition plants to commercial enterprises.

According to one recent evaluation of the program, the Army had recovered $125 million of the $170 million it had invested in ARMS. Overall, the evaluation said, ARMS had resulted in an economic impact of more than $2.1 billion.

Other partnerships in the works include plans for leasing and developing buildings at Picatinny Arsenal, NJ.; construction of a contractor-support facility at Fort Leonard Wood, Mo.; development of a hot-weather test track at Yuma Proving Ground, Ariz., and leasing factory equipment and facilities at Rack Island Arsenal, Ill.

The Rand report also proposed the Army establish a venture capital fund similar to the Central Intelligence Agency's In-Q-Tel enterprise. The CIA set up In-Q-Tel to solve some of its most difficult information-technology problems. In-Q-Tel is only 18 months old, the report said, "but it appears to have made a very promising start in terms of technology development."

Typically, the study said, venture capital funds invest in businesses that have a high risk of failure, but also a potential of high returns, if successful. In addition, venture capital investors usually become deeply involved with the business. They prefer to fund relatively new companies, with much less overhead and a core staff more directly affected by the success of the company, the study said.

The Army could use a venture capital organization to circumvent much of the bureaucratic red tape that hinders collaboration between the Army and the commercial technology sector, the study suggested. The Army venture capitalist would act as a middleman, who understands the needs of the Army and the commercial technology sector. And since the venture capital organization would be outside the Army, it should be better able to gain the trust of commercial clients and act more quickly and flexibly than the Army's current contracting organizations. …

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