DoD Sets First Privatization

SAIC, Battelle and Hughes have made the final cut

P> When Mayor Stephen Goldsmith used to walk into a room filled with Indianapolis city employees, he often got booed. Unions didn't trust him because he turned to privatization to make the city more efficient. And that meant fewer jobs.


He has privatized 65 of 120 government functions and now faces his biggest challenge -- privatizing the Naval Air Warfare Center. But this time, the entire city is applauding.

Hughes Technical Services, a subsidiary of Hughes Electronics Corp., Los Angeles, beat out two other finalists for a five-year contract potentially worth $1.5 billion. Battelle Institute, Columbus, Ohio, and Science Applications International Corp., San Diego, were the two competitors. Lockheed Martin Corp. also was a finalist but recently dropped out.

The competitors declined to comment on the specifics of the NAWC privatization. However, Mike Daniels, a senior SAIC vice president, said the company is looking at privatization opportunities nationwide. "It's a $40 billion to $50 billion-a-year market," Daniels said.

Four other military facilities are being privatized. They are Newark Air Force Base in Newark, Ohio; Naval Ordnance Station in Louisville, Ky.; Kelly Air Force Base in San Antonio; and McClellan Air Force Base in Sacramento, Calif. Hughes, in conjunction with United Defense LP's Armament Division, has won the Louisville contract.

Last summer, the Department of Defense targeted NAWC for closure -- a move that would have meant losing $1 billion annually to the city's economy. It also would have left 2,700 civilians unemployed, as well as 2,000 others in off-site support industries.

The center employs 2,450 people, some of whom have left because of job uncertainty, said Steve Beckley, public affairs officer for NAWC's Aircraft Division. But the mayor's involvement has inspired many people to stay and actually has helped keep up morale, he said.

Hughes has committed to employing at least 2,000 NAWC employees in 1997, with another 350 to be hired in 1998. The Navy will continue to employ the remaining employees. By the year 2002, employment at the site will increase to at least 3,000, in part because of the transfer of Hughes workers from other locations.

The 163-acre site is "a self-contained, cradle-to-grave R&D house" -- ideas come in one door, and a finished product goes out another, Beckley said. Center staff also act as troubleshooters once equipment is installed. NAWC is the only DoD facility that provides technical and maintenance support for avionics, electronic systems and other selected equipment.

It also is the only landlocked Naval base and has no airstrip. Built in 1941 amid fear of a foreign attack, the location and design of the base made it ideal for the 1940s, but grossly inefficient in the 1990s.

In 1993, NAWC barely survived closure. Goldsmith developed a plan to privatize NAWC. "We believed there was a case to be made to privatize now, instead of waiting to be boarded up with other facilities," said Larry Gigerich, executive assistant for economic development for the mayor's office.

The Navy and Defense Department didn't agree. They suggested the city wait for the center to be closed. In 1995, the Navy put NAWC on the military's closure list. The city presented its plan to the Base Closure and Realignment Commission, which overturned the Navy's decision to shut down NAWC and disperse operations across three different locations. The commission, instead, strongly supported the city's privatization proposal.

NAWC will be the first fully privatized defense facility. It will take six years to privatize the other four military sites. Because of its 1993 head start, NAWC should be privatized by 1997.

One of the biggest privatization challenges is that there is no blueprint, said Gigerich. NAWC will serve as the blueprint for the other sites.

The NAWC privatization plan consists of three parts. The first is a lease agreement between the Navy and the city. After a two-year environmental cleanup performed by the Defense Department, the city will hold the title to the land and facility.

The second part consists of several agreements between the city and Hughes. It includes a minimum 10-year lease, as well as requirements to create jobs and reduce costs. Furthermore, Hughes will set aside one percent of its gross revenues at NAWC, or at least $3 million annually, for job training that will keep NAWC employees on the cutting edge of technology. The company also will invest a minimum of $7.5 million in each of two areas, capital improvements and science research and development projects.

The third agreement will be an exclusive, five-year, indefinite-delivery, indefinite-quantity contract between the Navy and Hughes.

The city expects that the winning company will build a 10 percent to 15 percent base of commercial work within the next five years, Gigerich said. Regulations currently prohibit NAWC from performing non-government work.


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