The authors assess the financial viability and current structure of the Transportation Working Capital Fund, which funds most U.S. Transportation Command operations, including providing peacetime transport for U.S. Department of Defense customers and maintaining surge capacity required during wartime. The authors also make recommendations, tailored to USTRANSCOM lines of business, to improve the fund's effectiveness and efficiency.

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Independent Evaluation of the Transportation Working Capital Fund

Assessment and Recommendations to Improve Effectiveness and Efficiency

by Michael Vasseur, Ellen M. Pint, Laura H. Baldwin, Maria McCollester, Max Steiner, Liam Regan, Liam McLane

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Research Questions

  1. Does the current structure of the TWCF support USTRANSCOM's readiness to meet its missions and cost-recovery requirements?
  2. How could the TWCF be restructured to be more effective and efficient?
  3. What are potential alternative funding mechanisms for components of the TWCF?
  4. Are there any instances in which excess TWCF funds were used for procurement or modernization efforts that would not otherwise have been funded using appropriations intended for operation and maintenance?

U.S. Transportation Command (USTRANSCOM) manages the Defense Transportation System, which provides peacetime transport for U.S. Department of Defense customers and maintains surge capacity required for wartime needs to project and sustain military power. Most of USTRANSCOM's operations are funded by the Transportation Working Capital Fund (TWCF). The National Defense Authorization Act for Fiscal Year 2020 created a requirement for an independent review of the TWCF, with the purpose of assessing the TWCF's current structure and offering recommendations to improve the fund's effectiveness and efficiency through changes to its cost-recovery structure. This report describes that review.

The authors found that improvements to the TWCF are possible. Specific recommendations vary by USTRANSCOM line of business, but, overall, the authors recommend adopting a Variable Cost Pricing model. This model, preferred in the business and economics literature as the best way to guide customer decisionmaking to support enterprise objectives, suggests that customers should pay for the costs that they impose on the system (variable costs) and that other costs should be recovered separately from rates for movements. For most business lines, this model preserves the workload that USTRANSCOM relies on to generate readiness while improving cost-control incentives for both USTRANSCOM and its customers. However, a more detailed analysis of USTRANSCOM business processes, information systems, and personnel requirements is needed to inform implementation decisions.

Key Findings

Existing customer concerns focus on the efficiency of the system

  • The TWCF is perceived to lack cost-control incentives for USTRANSCOM and, to a lesser degree, customers; lack stability and predictability of charges to customers; and lack simplicity and transparency in its cost-recovery approach.
  • The TWCF is also perceived to introduce a need to frequently reprogram funds relating to the Airlift Readiness Account, a funding mechanism through which the U.S. Air Force pays for TWCF expenses that are not covered by customer rates.
  • Discussions with stakeholders and an analysis of USTRANSCOM budget data did not raise concerns about the ability of the TWCF to effectively conduct steady-state transportation operations or recover costs.

There was no indication of TWCF funds being used for procurement or modernization efforts that would not otherwise have been funded

  • USTRANSCOM has requested that its largest planned procurement effort, the Transportation Management System, be funded outside the TWCF.

Recommendations

  • The assessment indicates a general endorsement of most workload remaining within the TWCF.
  • Ten of the 14 business lines should be structured to follow Variable Cost Pricing. Under this model, customers would pay for the costs that they impose on the system. Other costs would be recovered separately.
  • Those other costs should be recovered either through an appropriation to the services that is passed to USTRANSCOM through a service-level bill–like mechanism or through direct appropriation to USTRANSCOM, whichever allows for greater transparency and scrutiny of costs before they are incurred.
  • When commercial benchmark prices are lower than variable costs and a business line's workload contributes to readiness, customers should be charged commercial benchmark prices to keep the readiness-generating workload within the Defense Transportation System. Costs above those covered in rates should be recovered through direct appropriation.
  • For Military Sealift Command's Reduced Operating Status line, a Commercial Benchmark model should be used. Customers should pay the commercial costs of their movements, and any remaining costs should be covered through an appropriation to USTRANSCOM.
  • Three business lines could be removed from the TWCF: Air Mobility Command's Training, Military Surface Deployment and Distribution Command's (SDDC's) Traffic Management, and SDDC's Global Privately Owned Vehicle/Defense Personal Property Program.
  • These recommendations can be interpreted as partial justification of the working capital fund (WCF) model for the majority of USTRANSCOM business lines, and scoping of viable WCF alternatives. A more detailed analysis of USTRANSCOM's business processes, information systems, and personnel requirements is needed to inform implementation.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Background

  • Chapter Three

    Analytic Approach

  • Chapter Four

    Assessment of the Current Structure of the Transportation Working Capital Fund

  • Chapter Five

    Recommendations to Address Shortfalls

  • Chapter Six

    Summary of Findings and Recommendations

  • Appendix A

    Course of Action Analysis, by Line of Business

Research conducted by

This research was sponsored by the Office of the Under Secretary of Defense (Comptroller) and conducted within the Acquisition and Technology Policy Center of the RAND National Security Research Division (NSRD).

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