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entitled 'Defense Logistics: The Army Needs to Implement an Effective 
Management and Oversight Plan for the Equipment Maintenance Contract in 
Kuwait' which was released on January 23, 2008. 

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January 23, 2008: 

Congressional Committees: 

Subject: Defense Logistics: The Army Needs to Implement an Effective 
Management and Oversight Plan for the Equipment Maintenance Contract in 
Kuwait: 

The Department of Defense (DOD) relies on contractors to perform many 
of the functions needed to support troops in deployed locations. For 
example, at Camp Arifjan, Kuwait the Army uses contractors to provide 
logistics support for operations in Iraq and Afghanistan. Contractors 
at Camp Arifjan refurbish and repair a variety of military vehicles 
such as the Bradley Fighting Vehicle, armored personnel carriers, and 
the High-Mobility, Multi-Purpose Wheeled Vehicle (HMMWV). However, 
while contractors provide valuable support to deployed forces, we have 
frequently reported that long-standing DOD contract management and 
oversight problems increase the opportunity for waste and make it more 
difficult for DOD to ensure that contractors are meeting contract 
requirements efficiently, effectively, and at a reasonable price. 

In its fiscal year 2007 report,[Footnote 1] the House Appropriations 
Committee directed GAO to examine the link between the growth in DOD's 
operation and maintenance costs and DOD's increased reliance on service 
contracts. In May 2007 we issued a report that examined the trends in 
operation and maintenance costs at installations within the United 
States.[Footnote 2] A second report examining the cost impact of using 
contracts to support deployed forces is expected to be issued in 2008. 
In the interim, we are issuing this report to you on the Army's Global 
Maintenance and Supply Services (GMASS) contract's multimillion-dollar 
Kuwait task order--Task Order 1--because of the findings we uncovered 
during this engagement and the implications for waste of taxpayer 
dollars and the potential negative impact on the warfighter as well as 
on our redeployment from Iraq once a decision is made to do so. 

This report discusses information about Task Order 1 that we developed 
during our review. Our objectives were to (1) evaluate the contractor's 
performance of maintenance and supply services under Task Order 1, (2) 
determine the extent to which the Army's quality assurance and contract 
management activities implement key principles of quality assurance and 
contract management regulations and guidance, and (3) determine the 
extent to which the Army is adequately staffed to perform oversight 
activities. 

To evaluate the contractor's performance under Task Order 1, we 
interviewed contractor officials at Camp Arifjan, Kuwait as well as 
Army officials at the Army Sustainment Command in Rock Island, Illinois 
and at the 401ST Army Field Support Battalion in Camp Arifjan, Kuwait. 
We also reviewed various Army and contractor documents related to 
contractor execution, analyzed Army provided data to compute pass/fail 
percentages, and observed the contractor's maintenance processes. To 
determine the extent to which the Army's quality assurance and contract 
management activities implement key principles of quality assurance and 
contract management regulations, we met with contracting and quality 
assurance officials at Camp Arifjan, Kuwait, and Rock Island, Illinois, 
and reviewed various oversight and surveillance documents. We also 
observed physical inspections of equipment presented to the Army and 
analyzed Army-provided data on oversight and surveillance. To determine 
if the battalion was adequately staffed to perform oversight 
activities, we reviewed battalion staffing documents, spoke with 
battalion oversight and command officials, and reviewed DOD and Army 
guidance and regulations regarding contract oversight and management. 
Although data used to compute pass/fail percentages did not include all 
failures, we determined that the data were sufficiently reliable for 
the purposes of our review. We conducted this performance audit from 
March 2007 through December 2007 in accordance with generally accepted 
government auditing standards. Those standards require that we plan and 
perform the audit to obtain sufficient, appropriate evidence to provide 
a reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives. 
Enclosure I is a detailed discussion of our scope and methodology. 

Results in Brief: 

Since the inception of Task Order 1, the contractor has had 
difficulties meeting maintenance standards, maintaining an accurate 
database, and meeting production requirements. According to Task Order 
1, the contractor shall ensure that equipment is repaired to specified 
Army standards. However, in many cases, the equipment presented to the 
Army as ready for acceptance failed government inspection. Army 
corrective action reports attributed these performance shortcomings to 
problems with the contractor's quality control processes and other 
factors. First, our analysis of Army data found that for five types of 
vehicles inspected by quality assurance personnel from July 2006 
through May 2007, 18 to 31 percent of the equipment presented to the 
Army as ready for acceptance failed government inspection. In addition, 
some equipment presented to the Army as ready for acceptance failed 
government inspection multiple times, sometimes for the same 
deficiencies. Army officials believed the contractor's quality control 
system used to ensure that equipment met specified Army standards was 
poor and the contractor depended on the Army to identify equipment 
deficiencies. When the Army inspected equipment that did not meet 
standards, it was returned to the contractor for continued repair. Our 
analysis of Army data found that since May 2005 an additional 188,000 
hours were worked on equipment after the first failed government 
inspection, which translates into an additional cost of approximately 
$4.2 million. Furthermore, the contractor was required to operate wash 
racks to clean equipment in preparation for its transport back to the 
United States. However, according to DOD inspectors, equipment that was 
presented for inspection frequently did not meet cleaning standards 
referenced in Task Order 1. Second, although the contractor is required 
to ensure the correct equipment condition code and location are entered 
into a maintenance management database, on numerous occasions Army 
officials found that incorrect status was assigned to equipment within 
the database. For example, on one occasion, the contractor coded a 
HMMWV as "ready for issue"; however, when the Army went to issue the 
vehicle it was in a maintenance shop being repaired by the contractor. 
Among the reasons the contractor gave for problems with the database 
included human error and a fault in the way the database handles 
certain data. According to the contracting office, erroneous equipment 
status reporting affects the battalion's ability to make timely and 
accurate decisions regarding the availability of equipment to support 
the warfighter. Third, according to the Army, the contractor has not 
met some production requirements and deadlines for some tasks were 
extended. For example, according to the Army, the contractor failed to 
meet the monthly production requirement for a HMMWV refurbishment 
effort. According to a contracting official, a lack of contractor 
standard operating procedures and a lack of in-process quality checks 
led to a high number of equipment defects, thereby delaying Army 
acceptance of the HMMWVs. In addition, the contractor was unable to 
independently meet certain production deadlines set by the Army. For 
example, the contractor was unable to meet a deadline for repairing 
equipment for the Iraq security forces without government assistance. 
Poor contractor performance may result in the warfighter not receiving 
equipment in a timely manner. 

The quality assurance and contract management actions taken by the 
401ST Field Support Battalion make it difficult for the battalion to 
meet several key principles detailed in the Army Quality Program 
regulation and other DOD quality assurance principles. These principles 
include, (1) using demonstrated past performance in risk-based 
planning, (2) identifying recurring contractor performance issues, and 
(3) using past performance information as an evaluation factor for 
future contract awards. For example, we found that the battalion does 
not always document deficiencies identified during its quality 
assurance inspections. Instead, quality assurance inspectors were 
allowing the contractor to fix some deficiencies without documenting 
them in an attempt to prevent a delay in getting the equipment up to 
standard to pass inspection. In addition, although the battalion's July 
2006 draft maintenance management plan requires that contractor 
performance data be analyzed to help identify the cause of recurring 
quality problems and evaluate the contractor's performance, the Army 
did not begin to review the contractor's performance data until July 
2007. We found that although data on contractor performance were 
readily available, the battalion was not routinely tracking or 
monitoring the percentage of equipment submitted for government 
acceptance that failed quality assurance inspection. Furthermore, we 
found that in May 2006, the Army awarded the contractor a major HMMWV 
refurbishment effort, valued at approximately $33 million, even though 
numerous incidents of poor contractor performance had been documented. 
According to the contracting officer, the Army believed the contractor 
was fully engaged in correcting poor performance issues. Until the 
401ST Army Field Support Battalion implements the quality and 
management procedures in its quality and management plans, it will be 
unable to determine the extent to which the contractor is meeting the 
contract requirements and will be unable to identify problem areas in 
the contractor's processes and initiate corrective action to ensure 
that deployed forces are receiving equipment in a timely manner. 

Our analysis indicates that the Army is inadequately staffed to conduct 
oversight of Task Order 1. Authorized oversight personnel positions 
vacant at the time of our visit in April 2007 included those of a 
quality assurance specialist, a property administrator, and two quality 
assurance inspectors. The contracting officer told us that the two 
civilian positions (the quality assurance specialist and the property 
administrator) had been advertised but the command had not been able to 
fill the positions with qualified candidates. The battalion was unsure 
why the two military positions (the quality assurance inspectors) had 
not been filled. The lack of an adequate contract oversight staff is 
not unique to this location. We have previously reported on the 
inadequate number of contract oversight personnel throughout DOD, 
including at deployed locations. Army officials also told us that in 
addition to the two quality assurance inspectors needed to fill the 
vacant positions, additional quality assurance inspectors were needed 
to fully meet the oversight mission. According to battalion officials, 
vacant and reduced inspector and analyst positions mean that 
surveillance is not being performed sufficiently in some areas and the 
Army is less able to perform data analyses, identify trends in 
contractor performance, and improve quality processes. Also, the Army 
is considering moving major elements of option year 3 (including 
maintenance and supply services) to a cost plus award-fee structure 
beginning January 1, 2008. Administration for cost plus award-fee 
contracts involves substantially more effort over the life of a 
contract than for fixed-fee contracts. Without adequate staff to 
monitor and accurately document contractor performance, analyze data 
gathered, and provide input to the award-fee board, it will be 
difficult for the Army to effectively administer a cost plus award-fee 
contract beginning in January 2008. 

Accordingly, we are making recommendations to the Secretary of Defense 
to direct the Army to review and evaluate its procedures for managing 
and overseeing the GMASS task order for services in Kuwait and take the 
necessary actions to improve contract management and address the issues 
raised in this report. The Army should take the steps necessary to 
effectively implement its management and oversight plan to ensure 
quality maintenance work by the contractor and proper administration of 
the cost plus award-fee contract. 

In commenting on a draft of this report, DOD concurred with our 
recommendations and discussed proposed implementation actions to be 
taken by the Army. DOD's comments are reprinted in enclosure II. 

Background: 

In March 2004, Army Field Support Command (now the Army Sustainment 
Command) issued a solicitation to provide maintenance and supply 
services in support of Army Materiel Command, Army Field Support 
Command, coalition forces, and other authorized government agencies. In 
October 2004, the Army awarded three indefinite quantity/indefinite 
delivery-contracts[Footnote 3] for GMASS. The Army simultaneously 
issued Task Order 1[Footnote 4] for maintenance services at Camp 
Arifjan. Task Order 1 contains several different types of contract line 
items, including cost plus fixed fee and firm-fixed-price 
provisions.[Footnote 5] For those provisions that are cost plus fixed 
fee, payment of a negotiated fee that is fixed at the inception of the 
task order is made to the contractor.[Footnote 6] The fixed fee does 
not vary with the actual costs but may be adjusted as a result of 
changes in the work to be performed. This permits contracting for 
efforts that might otherwise present too great a risk to contractors, 
but provides the contractor only a minimum incentive to control costs 
and, in turn, provides the greatest risk to the government. In 
addition, the Army cannot adjust the amount of fee paid to contractors 
based on the contractors' performance for the cost plus fixed fee 
provisions. For those provisions in the task order that are firm fixed 
price, the contractor has full responsibility for the performance costs 
and resulting profit or loss. 

Task Order 1 was for one year and was originally valued at $20,354,256. 
However, by the end of the base year Task Order 1 costs increased to 
approximately $102 million. The Army has exercised three options under 
the contract and Task Order 1. Costs for option years 1 and 2 were 
$209.6 million and $269.4 million, respectively. Cumulative obligations 
for the base year plus option years 1 and 2 were approximately $581.5 
million.[Footnote 7] There have been at least 86 modifications to the 
contract and Task Order 1, including some that added requirements, such 
as Army prepositioned stock reset, a tire assembly and repair program, 
and HMMWV refurbishment. Many of the modifications were administrative, 
such as providing additional funding, extending performance work 
periods, updating contract line item numbers, and fixing typographical 
errors. 

Administration and oversight of this contract is the responsibility of 
the contracting officer located at the Army Sustainment Command in Rock 
Island, Illinois. According to the Federal Acquisition Regulation, 
contracting officers are responsible for ensuring performance of all 
necessary actions for effective contracting, ensuring compliance with 
the terms of the contract, and safeguarding the interests of the United 
States in its contractual relationships. For Task Order 1, the 
contracting officer has delegated some administrative control of the 
contract and task order to administrative contracting officers located 
in Kuwait. The primary administrative contracting officer has contract 
administrative responsibilities for most of the tasks included in Task 
Order 1 and serves as the lead person for the battalion's contract 
oversight team, which includes a government property administrator, 
quality assurance specialist, and contract management officer. The 
contract oversight team also includes five contracting officer 
representatives designated for specific areas of oversight including 
transportation, maintenance, supply, and operations. Within the 
specific areas, quality assurance inspectors perform inspections of the 
contractor's work. Quality assurance personnel at Camp Arifjan perform 
oversight of the contractor's work using a quality assurance 
surveillance plan. This plan, based on requirements contained in Task 
Order 1, is developed by the Army and is used to ensure that systematic 
quality assurance methods are used to monitor and evaluate the 
performance and services of the contractor. It describes the 
surveillance schedule, methods, and performance measures. 

As stated in the contract quality assurance surveillance plan, the 
level of government quality assurance oversight is determined by 
contractor performance. Specifically, the number of quality assurance 
inspections may be increased, if deemed appropriate, because of 
repeated failures discovered during quality assurance inspections. 
Likewise, the government may decrease the number of quality assurance 
inspections if performance dictates. While the contractor, and not the 
government, is responsible for the management and quality control 
actions to meet the terms of the contract, the government quality 
assurance surveillance plan was put in place to provide government 
surveillance oversight of the contractor's quality control efforts to 
ensure that they are timely and effective and are delivering the 
results specified in the contract. As a part of the battalion's 
surveillance process, 100 percent of equipment repaired by the 
contractor is inspected by quality assurance inspectors prior to being 
accepted. When the contractor informs the Army that equipment is ready 
to be inspected, the inspectors review the equipment for compliance 
with applicable maintenance standards. According to battalion standard 
operating procedures, all deficiencies identified through Army quality 
assurance inspections that prohibit the equipment from meeting the 
established maintenance standards shall be documented. Documented 
deficiencies describe the items that must be fixed by the contractor in 
order for the equipment to meet the maintenance standards and indicate 
that the equipment failed the Army quality assurance inspection. 

The Army has developed a problem escalation and resolution process that 
provides guidance for dealing with problems with a contractor. 
According to the process, an identified problem that is not considered 
severe should be documented by the administrative contracting officer 
in a corrective action report to the contractor with a deadline for 
addressing the problem. The process defines severe as a problem related 
to safety, security, environmental, or mission impact or the third 
occurrence of the same minor problem. If the problem is determined to 
be severe, the administrative contracting officer in coordination with 
the contracting officer should take immediate action to address any 
unsafe practice and issue a contract deficiency report to the 
contractor. When identified problems are not corrected after issuance 
of a contract deficiency report, the situation is to be elevated to the 
contracting officer. If informal communication with the contractor from 
the contracting officer cannot resolve the problem, the contracting 
officer is to issue a formal notice to the contractor, allowing 10 days 
for a response. Records of all corrective action reports and contract 
deficiency reports should be provided to the contracting officer. 

The Contractor Has Had Difficulties Meeting Maintenance Standards, 
Maintaining an Accurate Database, and Meeting Production Requirements: 

Our work highlights the difficulties the contractor has had under Task 
Order 1 in meeting maintenance standards, maintaining an accurate 
database, and meeting production requirements. First, in analyzing Army 
data, we found that from July 2006 through May 2007, 18 to 31 percent 
of five types of vehicles presented by the contractor to the Army as 
ready for acceptance had not been repaired and maintained to the 
standards specified in Task Order 1 and consequently failed government 
inspection.[Footnote 8] In addition, agricultural inspectors stated 
that contractor-cleaned equipment that was to be transported back to 
the United States frequently did not meet certain agricultural 
standards. Second, the database into which the contractor was required 
to enter the equipment's condition codes and location contained 
inaccurate information about equipment status. On numerous occasions, 
equipment was coded as ready to issue when it had not passed quality 
assurance inspection. According to a corrective action report issued to 
the contractor, a HMMWV was coded as ready to issue; however, when a 
unit went to draw the vehicle, it was in a repair facility. Third, 
according to the Army, the contractor had missed production 
requirements and originally established deadlines for some tasks. For 
example, Army officials stated that during the 12 months of a major 
HMMWV refurbishment operation, the contractor never met the monthly 
production requirement. 

Equipment Presented to the Army for Acceptance Frequently Did Not Meet 
Maintenance Standards Referenced in Task Order 1: 

The contractor frequently presented equipment to the Army for 
acceptance that did not meet the Army standards referenced in Task 
Order 1. According to Task Order 1, the contractor shall ensure that 
equipment is repaired to specified Army standards determined by the 
government. Further, the contractor was to ensure that quality control 
inspections and maintenance repair of materiel deficiencies were 
completed. However, the contractor frequently presented equipment to 
the Army that did not meet Army standards. When the contractor 
completes maintenance on a piece of equipment, it is submitted to the 
Army as ready for acceptance and Army quality assurance personnel 
inspect the equipment to ensure that it meets specified maintenance 
standards. Army quality assurance officials told us that in many cases 
the contractor presented equipment to the Army as ready for acceptance 
that failed Army inspection because the equipment did not meet the 
established maintenance standards. 

In February 2007 we issued a report on the condition of the Army's pre- 
positioned equipment located at various sites around the world. As part 
of that engagement, we visited Camp Arifjan in June 2006 to determine 
the condition of the equipment maintained by the Task Order 1 
contractor. In our February report, we noted that 28 percent of the 
equipment at Camp Arifjan submitted for government acceptance had 
failed quality assurance testing from June 2005 through June 
2006.[Footnote 9] In the spring of 2007 we returned to Camp Arifjan and 
found similar failure rates. As shown in table 1, our analysis of Army 
data found that for five types of vehicles inspected by quality 
assurance personnel from July 2006 through May 2007, the percentage of 
equipment presented to the Army as ready for acceptance but that failed 
government inspection ranged from 18 to 31 percent[Footnote 10].: 

Table 1: Failure Rate Percentages for Selected Equipment Types 
Inspected from July 2006 through May 2007: 

Equipment type: M113 Armored Personnel Carrier; 
Number of inspections performed: 109; 
Number of failures: 20; 
Percentage failed: 18. 

Equipment type: M2A2 Bradley; 
Number of inspections performed: 404; 
Number of failures: 110; 
Percentage failed: 27. 

Equipment type: M1025 and M1026 HMMWV; 
Number of inspections performed: 934; 
Number of failures: 255; 
Percentage failed: 27. 

Equipment type: M1070 Heavy Equipment Transporter; 
Number of inspections performed: 248; 
Number of failures: 76; 
Percentage failed: 31. 

Equipment type: Heavy Expanded Mobility Tactical Truck; 
Number of inspections performed: 460; 
Number of failures: 122; 
Percentage failed: 27. 

Source: GAO analysis of Army data. 

[End of table] 

Similarly, in July 2007 the 401ST Army Field Support Battalion began 
calculating (by commodity group) the percentage of equipment that 
failed government inspection each week basis.[Footnote 11] The 
battalion's analysis found the percentage of vehicles failing quality 
assurance inspection generally ranged from 23 and 32 percent in August 
and September 2007 with a high of just over 55 percent in one week. 

Analyzing the Army's maintenance data, we also found that 702 pieces of 
equipment failed Army quality assurance inspection three or more times 
since May 2005. One example is an ambulance HMMWV that failed Army 
quality assurance inspection five times in December 2006. This vehicle 
repeatedly failed inspection for a leaking heater hose and a leaking 
valve cover. In another example, a Bradley Fighting Vehicle failed 
quality assurance inspection three times. During the first inspection, 
12 deficiencies, including five that made the vehicle inoperable, were 
identified and documented. One of the inoperable deficiencies 
discovered was a main electrical system ground that was installed 
improperly, creating a safety hazard. In the second and third 
inspections, multiple deficiencies that made the vehicle inoperable 
continued to be found, some of which were the same deficiencies that 
had been previously identified. 

Moreover, for the HMMWV refurbishment task, the contractor frequently 
presented vehicles to the Army with multiple deficiencies. For the 5 
month period from November 2006 through March 2007, multiple 
deficiencies were identified through government inspection of 
refurbished HMMWVs when presented to the Army for acceptance. During 
those months, the average number of deficiencies identified per vehicle 
through quality assurance inspection ranged from 2.5 to 7.4 per month. 

The following inspections, which we observed during our visit to Camp 
Arifjan in spring 2007, illustrate the difficulties the contractor has 
had meeting Army maintenance standards. While at Camp Arifjan we 
observed four government equipment inspections, two of which failed. 
One failed inspection was of a Bradley Fighting Vehicle. The Bradley 
was presented to the Army as ready for acceptance; however, during the 
quality assurance inspection the inspector found that a cotter pin was 
missing. This pin holds an adjusting rod that controls the brakes on 
one side of the Bradley. According to the inspector, using the brakes 
just two or three times would have caused the rod to come loose, 
leaving the Bradley without brakes. A second failed inspection we 
observed was of a forklift. Because of a burned fuse, the forklift did 
not meet the maintenance standard and therefore failed the inspection. 
The burned fuse was clearly visible to us and should have been easily 
seen by contractor personnel.[Footnote 12] 

In a March 2006 letter to the contractor, the Army expressed concerns 
about the contractor's quality control department. Specifically, the 
Army stated that there was a lack of attention to detail and inadequate 
maintenance inspection processes and that quality control personnel 
were not ensuring that maintenance repairs were in compliance with the 
appropriate maintenance manuals. Additionally, in some corrective 
action reports issued after the March 2006 letter the Army continued to 
express concern about the contractor's quality control processes. 
Specifically, the battalion noted that the contractor's quality control 
inspections were not being performed in accordance with Army 
maintenance standards and that the contractor's quality control checks 
were not adequate. Army quality assurance officials believed that the 
contractor depended on the Army to identify equipment deficiencies. As 
a result of these issues, government quality assurance inspectors were 
consistently rejecting equipment presented as ready for acceptance. 

When equipment is presented to the government and does not pass quality 
assurance inspection, it is returned to the contractor for continued 
maintenance until it meets the established standard. Under the cost 
plus fixed fee maintenance provisions in Task Order 1, the contractor 
is reimbursed for all maintenance labor hours incurred, including labor 
hours associated with maintenance performed after the Army rejects 
equipment that fails to meet Army maintenance standards. This results 
in additional cost to the government. For example, in a December 2006 
quality assurance inspection of a HMMWV, 16 deficiencies that made the 
vehicle inoperable were found. According to Army data, a total of 213 
hours were spent working on this vehicle after it was initially 
submitted to the government as ready for acceptance. A second example 
is a Heavy Equipment Transporter (HET) that was submitted to the Army 
as ready for acceptance in January 2007 and failed Army inspection. 
After this first failed inspection, an additional 636 hours were 
charged for repairing this vehicle before it passed government quality 
assurance inspection three months later. Although the equipment was not 
initially presented to the Army at the required standard, the Army 
reimbursed the contractor for the labor costs associated with the 213 
and 636 hours of rework. Our analysis of Army data found that since May 
2005, the contractor worked a total of about 188,000 hours to repair 
equipment after the first failed government inspection. This translates 
into an approximate cost to the government of $4.2 million.[Footnote 
13] 

As part of the maintenance requirements of Task Order 1, the contractor 
was required to conduct wash rack operations in preparing equipment for 
shipment to the United States. According to Task Order 1, the 
contractor was required to clean equipment to meet the appropriate 
agricultural standards[Footnote 14] as directed by the government. 
Further, Task Order 1 noted that the Department of Agriculture's Animal 
Plant Health and Inspection Service (APHIS) regulations call for the 
equipment to be clean of soil, organic matter, and other 
contaminants.[Footnote 15] According to Navy customs 
inspectors,[Footnote 16] equipment presented for inspection frequently 
did not meet APHIS standards. The inspectors were unable to provide 
historical data on agricultural inspection results because they had 
just begun to track and monitor this performance metric. However, the 
officials told us that they reject most equipment at least once due to 
the presence of mud and dirt. We observed an inspection in which a 
contractor employee was trying to remove water from the interior of a 
piece of equipment with his hands and the vehicle tracks were clearly 
filled with mud. 

Contractor-Maintained Database Contains Inaccurate Information about 
Equipment Status: 

The contractor-maintained database contains inaccurate information 
about equipment status. The database is used for tasks that include, 
but are not limited to, equipment maintenance status, scheduling 
equipment for maintenance, deficiency reporting, parts management, 
labor reporting, and materiel expenses. Among other things, Task Order 
1 requires the contractor to ensure that correct equipment condition 
codes and correct locations of equipment be entered into the database 
in accordance with Army policy. However, on numerous occasions, Army 
officials found that incorrect condition codes were assigned to various 
pieces of equipment within the database. In some instances, equipment 
was coded as ready for issuance when it had not passed quality 
assurance inspection. For example, according to a corrective action 
report issued to the contractor, in the maintenance database the 
contractor reported that a HMMWV was ready for issuance, but when the 
Army went to issue this vehicle to a unit, it was in a maintenance shop 
being repaired by the contractor. In another instance, the contractor 
had coded equipment that had not passed Army quality assurance 
inspection as ready for issuance and placed the equipment in a staging 
area for Heavy Brigade Combat Team equipment that was ready for issue. 
According to the battalion, this inaccurate reporting portrayed an 
incorrect readiness posture for the combat team and could have resulted 
in a crippling slowdown of the equipment issue process due to the 
probability of units rejecting the equipment. The battalion issued 
corrective action reports to the contractor stating that (1) the 
database was not being updated with proper condition codes and (2) 
erroneous data may have been reported to the Department of the Army in 
the battalion's operational readiness reports. Additionally, in an 
assessment of the contractor's performance in option year 1, the 
contracting office stated that erroneous equipment status reporting 
potentially affects the battalion's ability to make timely and accurate 
decisions regarding the availability of equipment to support the 
warfighter. Among the reasons the contractor gave for the incorrect 
condition codes in the database were human error and a probable fault 
in the manner in which the database handles certain data. 

According to the Army, the Contractor Has Missed Production 
Requirements and Deadlines: 

According to the Army, the contractor has missed some production 
requirements and some task deadlines were extended when the contractor 
was unable to meet original completion dates.[Footnote 17] In May 2006 
a task was added to the contract for the refurbishment of HMMWVs. The 
statement of work associated with the HMMWV refurbishment effort stated 
that the contractor was required to be able to process the HMMWVs 
through the maintenance facilities at a minimum rate of 150 HMMWVs per 
month. According to documents provided by the contracting officer, upon 
award of this work, the contractor was provided 45 days to become fully 
operational, and for months one and two of operations the production 
requirement was 25 and 100 vehicles, respectively. According to Army 
documents, after the first two months of operation, the contractor was 
expected to be fully operational and the monthly production requirement 
was increased to 150 vehicles per month. However, 18 and 90 HMMWVs were 
completed in the first and second months of operations, respectively. 
Further, according to the Army, the contractor failed to meet its 
contractual requirement of a minimum of 150 vehicles per month, and the 
contracting officer sent written notices to the contractor documenting 
this failure. In some months fewer than 75 HMMWVs were ultimately 
accepted by the Army, as shown in table 2 below. For example, 38 
vehicles were accepted by the Army in February 2007. According to an e- 
mail from one of the administrative contracting officers, the 
contractor's monthly production output was influenced by issues such as 
deficient production processes and supply management, quality control, 
and parts availability problems. The official cited a lack of 
contractor standard operating procedures and in-process quality checks 
as reasons for a high number of equipment defects, thereby delaying 
Army acceptance of the HMMWVS. Further, the official cited contractor 
supply management challenges, such as determining when to order 
additional parts and ordering the right amount of parts in a timely 
manner, as affecting the contractor's ability to meet monthly 
production requirements. The official acknowledged that the parts 
availability problem was driven by a shortage of armor and frame rails 
in the Army supply system. Army officials stated that as a result of 
the contractor's failure to meet the production requirements of the 
HMMWV refurbishment effort, the Army did not renew this task with the 
contractor at the end of the performance period. Because this was a 
fixed fee provision, the Army was not able to reduce the contractor's 
fee for this task. 

Table 2: HMMWV Refurbishment Center Monthly Production: 

Production month: June 2006; 
Number of vehicles accepted by the Army: 18. 

Production month: July 2006; 
Number of vehicles accepted by the Army: 90. 

Production month: August 2006; 
Number of vehicles accepted by the Army: 80. 

Production month: September 2006; 
Number of vehicles accepted by the Army: 60. 

Production month: October 2006; 
Number of vehicles accepted by the Army: 111. 

Production month: November 2006; 
Number of vehicles accepted by the Army: 105. 

Production month: December 2006; 
Number of vehicles accepted by the Army: 54. 

Production month: January 2007; 
Number of vehicles accepted by the Army: 70. 

Production month: February 2007; 
Number of vehicles accepted by the Army: 38. 

Production month: March 2007; 
Number of vehicles accepted by the Army: 40. 

Production month: April 2007; 
Number of vehicles accepted by the Army: 60. 

Source: GAO analysis of Army data: 

[End of table] 

We also found that the contractor was unable to independently meet the 
original deadlines set by the Army for two other tasks. In July 2006 
the contractor began a task to repair 150 HETs. The original completion 
date for this task was September 29, 2006; however, as of that date 
only 96 HETs had been accepted by the Army. While the original 
completion date was pushed back at the mutual agreement of the 
contractor and the government, Army contracting officials explained 
that the original completion date for this task was extended because of 
the contractor's inability to provide the required 150 HETs by the date 
originally specified in Task Order 1. The contractor also had a task to 
repair HMMWVs for foreign military sale to the Iraqi security forces. 
This task required the contractor provide a specific number of HMMWVs 
during four different periods. According to the contracting officer's 
assessment of the contractor's performance, the contractor was unable 
to meet the requirements independently and government assistance was 
necessary. The contractor stated that this condition was caused by a 
lack of government-provided critical parts and inbound vehicles. 
According to a battalion official, the battalion allowed the contractor 
to use HMMWVs that the battalion planned to use to meet other missions. 
At the time the contractor was preparing HMMWVs for the Iraqi security 
forces, among the battalion's other missions were repairing and 
replacing equipment damaged as a result of combat and preparing 
equipment for a light brigade combat team. The battalion officials 
stated that while using assets designated for other missions allowed 
the contractor to meet the requirements of the Iraqi security forces 
task, the contractor had to subsequently back fill those sources. 
Problems meeting production and quality goals may have resulted in some 
deployed units not receiving the equipment they needed in a timely 
manner. 

The Army Has Not Always Followed Established Quality Assurance 
Principles: 

The Army has not always followed key quality assurance and contract 
management principles when managing Task Order 1 because it did not 
implement the processes contained in its quality assurance and contract 
management plans. These processes require that contractor performance 
data be documented and used to assess contractor performance, identify 
recurring problems, and inform contract management decisions. However, 
the Army has not always documented deficiencies identified during the 
battalion's quality assurance inspections, instead allowing the 
contractor to fix some deficiencies without documenting them in an 
attempt to prevent a delay in getting the equipment to pass inspection. 
In addition, the Army did not analyze available data to evaluate the 
contractor's performance, failing to routinely track or monitor the 
percentage of equipment submitted for government acceptance that failed 
quality assurance inspection until July 2007. Furthermore, the Army 
awarded the contractor a major HMMWV refurbishment effort, valued at 
approximately $33 million, even though numerous incidents of poor 
contractor performance had been documented. 

Army and DOD Quality Assurance and Contract Management Principles 
Should Guide Battalion Activities: 

The Army and DOD have developed a variety of quality assurance and 
contract management principles that should guide the battalion quality 
and contract management activities. The Army Quality Program is a 
results-based program that allows Army activities to develop their own 
quality programs. However, the program regulation states that quality 
programs will address the following key principles: 

* Measurement and verification of conformity to requirements: 

* Fact-based decision making: 

* Use of performance information to foster continuous improvement: 

* Effective root-cause analysis and corrective action: 

* Performance of tasks by people who can evaluate quality issues and 
recommend solutions: 

In addition, according to the Army Quality Program regulation, an 
activity's (such as the battalion's) quality assurance program should 
utilize risk-based planning. In determining the types and frequency of 
quality assurance actions, the activity should consider the impact of 
nonconforming equipment or services as well as the contractor's 
demonstrated past performance. 

DOD guidance also establishes principles for quality assurance and 
contract administration. For example, according to the guidebook for 
performance-based service acquisitions in DOD, each performance 
assessment activity should be documented as it is conducted, whether a 
contractor's performance was acceptable or unacceptable in accordance 
with the performance assessment plan. In addition, the Federal 
Acquisition Regulation requires that contractor performance be 
documented and that past performance be considered when selecting 
contractors for future contract awards. 

The Army Does Not Always Document Poor Performance: 

The Army has not always documented unacceptable contractor performance 
under Task Order 1. The collection of performance data is the 
foundation for many of the quality and contract management requirements 
established by Army and DOD regulations and guidance. For example, the 
Army regulation establishing the Army Quality Program requires that 
actions be taken to identify, correct, and prevent the recurrence of 
quality issues. Furthermore, the Defense Federal Acquisition Regulation 
Supplement states that the contract administration office shall 
establish a system for the collection, evaluation, and use of certain 
quality data, including quality data developed by the government 
through contract quality assurance actions. Moreover, the battalion's 
quality assurance guidance requires that deficiencies identified 
through the battalion's inspections be documented. However, some 
deficiencies identified during Army inspection of equipment were not 
being documented and entered into the Army maintenance database. 
According to battalion quality assurance officials, while deficiencies 
that made the equipment inoperable were always documented, deficiencies 
that did not make the equipment inoperable but kept it from meeting the 
maintenance standards were commonly not documented. Rather than 
documenting all the deficiencies identified, quality assurance 
inspectors were allowing the contractor to fix some deficiencies 
without documenting them, in an attempt to prevent a delay in getting 
the equipment up to standard and passing inspection. According to 
quality assurance officials, it may take an additional half a day to 
one day for equipment to be accepted by the Army when deficiencies that 
do not make the equipment inoperable are documented, because of the 
paperwork and process associated with correcting documented 
deficiencies. 

Although the Army took steps to correct the lack of documentation for 
all equipment deficiencies, it reverted back to its original process of 
not documenting all deficiencies. Based on our review, the Army took 
steps in May 2007 to ensure the documentation of all equipment 
deficiencies identified during Army quality assurance inspections. The 
lead quality assurance official directed that all equipment 
deficiencies be documented so that the Army would have an accurate 
picture of the contractor's maintenance quality. We were later told by 
quality assurance officials that inspectors followed this direction and 
documented all equipment deficiencies that were identified during 
inspections for approximately two weeks. However, the officials stated 
that after about two weeks the inspectors went back to the practice of 
allowing the contractor to correct those deficiencies that did not make 
the equipment inoperable without documenting them. They cited the need 
to get the equipment to the units quickly as the reason for doing this. 
When contractor performance is poor, the need for rigorous government 
quality assurance oversight becomes even more important. We believe 
that the deficiencies can be documented without a delay in getting the 
equipment to the units. For example, the inspector can document the 
deficiencies identified during the inspection on the appropriate 
worksheet, and at the end of the inspection it can be noted that the 
deficiencies were corrected. This worksheet would be included in the 
equipment packet provided to the personnel responsible for updating the 
equipment status codes in the maintenance database. When the equipment 
status code is updated in the maintenance database, it should be noted 
that deficiencies were identified and were corrected, and that the 
equipment subsequently passed quality assurance inspection and is ready 
for issuance. 

The Army Did Not Analyze Available Data to Evaluate Contractor 
Performance until July 2007: 

The Army did not analyze available data to evaluate the contractor's 
performance in meeting the specified maintenance standard requirements 
until July 2007. The Army quality program specifies the use of 
performance information to perform root-cause analysis and foster 
continuous improvement, and the battalion's July 2006 draft maintenance 
management plan requires that contractor performance data be analyzed 
to help identify the cause of new and/or recurring quality problems and 
evaluate the contractor's performance. As previously mentioned, Army 
quality assurance personnel inspect equipment submitted for Army 
acceptance to ensure that it meets the specified maintenance standards. 
The results of these inspections, including data documenting whether 
the equipment has been accepted or rejected by the Army, are maintained 
by quality assurance officials as well as in the Army maintenance 
database. However, in February 2007, we reported that the maintenance 
battalion had not routinely tracked or monitored the percentage of 
equipment submitted for government acceptance that failed quality 
assurance inspection.[Footnote 18] While we found that the inspection 
results data were readily available to the maintenance battalion, it 
was still not tracking or monitoring this key performance metric. 
Because the battalion does not track and monitor the percentage of 
equipment submitted for Army acceptance that failed quality assurance 
inspection, the Army does not know the extent to which the contractor 
is meeting the specified maintenance standard requirements nor can it 
identify problem areas in the contractor's processes and initiate 
corrective action. According to Army quality assurance officials, this 
metric was not tracked and monitored because they did not have 
sufficient quality assurance staff to perform such analysis. 
Recognizing the usefulness of this performance metric, the lead quality 
assurance inspector informed us that in July 2007, he began calculating 
the percentage of equipment that is failing quality assurance 
inspection each week, and this information is presented to the 
battalion commander at command and staff updates. He said that this 
information is used to identify maintenance shops that are not 
improving their performance and to develop historical data on the 
contractor's performance. In the past, the command has initiated 
improved oversight practices but has later discontinued them. 
Maintaining the practice of tracking and monitoring performance metrics 
would provide key data for assessing the contractor's performance. 

The Army Awarded Additional Work to the Contractor despite Performance 
Concerns: 

In May 2006, the Army added a major HMMWV refurbishment effort valued 
at approximately $33 million to Task Order 1 despite concerns of poor 
contractor performance. According to contracting officials, Task Order 
1 provided an existing contract that could be used to expeditiously 
provide the required HMMWV refurbishment capability. However, prior to 
the work being added to Task Order 1, numerous incidents of poor 
contractor performance were documented. We found that from October 2005 
through April 2006, eight notices describing poor performance were 
issued to the contractor. Some of the poor performance concerns 
mentioned in the notices follow: 

* Equipment status is not being updated in the reporting system. As a 
result, the maintenance battalion operational readiness reports are 
inaccurate and erroneous data are being reported to the Department of 
the Army. 

* Equipment is not being inspected in accordance with Army standards 
specified in Task Order 1 and initial technical inspections are not 
being conducted within the timeframe specified in the task order. 

* Contractor quality control inspections performed before equipment is 
presented to the government are inadequate and are not identifying 
critical maintenance faults. 

* Sensitive items are improperly accounted for. 

Additionally, in a letter dated March 15, 2006, the Army contracting 
officer notified the contractor of numerous areas of concern. The 
letter stated that asset management was ineffective to the point that 
the battalion's ability to report readiness and determine when assets 
would be ready was impaired, maintenance could take significantly less 
time if thorough equipment assessments were performed, and equipment 
was consistently rejected because of inadequate quality control. The 
letter also stated that the Army felt that the contractor's personnel 
staffing was insufficient to achieve all missions, as only 89 percent 
of the personnel that the contractor proposed to execute the contract 
requirements were on-hand for option year 1. More specifically, the 
letter stated that only 36 percent of the required personnel were on 
hand to perform the priority mission of preparing the Heavy Brigade 
Combat Team although funding had been placed on the contract for the 
mission. In addition, the Tire Assembly and Repair Program and Add-on 
Armor missions had only 41 percent and 45 percent of the required 
personnel on hand, respectively, despite being funded. 

We asked the Army contracting officer with overall responsibility for 
the contract why such a major mission was added to the contract, given 
the battalion's concerns with the contractor's performance. The Army 
official responded that the battalion did not raise concerns regarding 
the contractor's capability to meet the requirements and there was 
confidence that the work was being placed with a contractor that had a 
good history of performance in theater. The official stated that while 
a letter citing concerns with the contractor's ability to ramp up to 
full personnel strength and its quality control processes was issued, 
the Army believed the contractor was fully engaged in correcting the 
issues. 

Battalion quality assurance officials told us that all information 
regarding contractor performance is not always provided to the 
contracting officer. According to the Army's problem resolution 
process, all corrective action requests should be sent to the 
contracting officer, but this was not being done according to battalion 
quality assurance officials. In some situations, the quality assurance 
officials wait until they have issued two or three requests related to 
the same area before they send the information to the contracting 
officer. Following this procedure could result in some corrective 
action requests not reaching the contracting officer. Additionally, 
some battalion officials said that they do not write as many corrective 
action requests as are needed because they would spend most of their 
time writing them because of the repeated poor performance. 

Battalion's Contract Management Oversight Team Is Inadequately Staffed: 

According to Army officials, the battalion's contract management 
oversight team is inadequately staffed to effectively oversee Task 
Order 1 in Kuwait and the battalion is concerned about its ability to 
administer cost plus award-fee provisions. We have previously reported 
on the need to have an adequate number of oversight personnel to ensure 
the effective and efficient use of contractors and the continued 
shortage of contract oversight personnel in deployed locations. 
Oversight personnel are responsible for performing the various tasks 
needed to monitor contractor performance, document results of 
inspections, analyze available inspection data, assess overall 
contractor performance, and evaluate the contractor's performance when 
considering awarding additional work to the contractor. The battalion 
uses both military and civilian personnel to provide contract 
oversight. Battalion officials told us that there were not enough 
trained oversight personnel to effectively oversee and manage the 
maintenance contract in Kuwait. At the time we visited the battalion in 
April 2007, four oversight personnel positions were vacant and were 
still vacant as of September 2007. The vacancies included those for two 
military quality assurance inspectors and two civilian positions-a 
quality assurance specialist and a property administrator. Command 
officials were unsure why the military quality assurance positions had 
not been filled and told us that the vacant civilian positions were 
advertised but the command had not been able to fill the positions with 
qualified candidates. An administrative contracting officer told us 
that the quality assurance specialist position was filled for a short 
time in December 2006; however, the person was deemed unqualified and 
was assigned to another position. The quality assurance specialist is 
responsible for such activities as performing analysis of quality 
processes and procedures, tracking and coordinating training for 
quality assurance personnel, updating quality assurance surveillance 
plans, and ensuring productive interaction between Army and contractor 
quality personnel. 

Additionally, the battalion has been without a property administrator 
since the end of 2006, even though both the battalion and the Army 
Sustainment Command have identified issues with the contractor's 
accountability for government furnished equipment. According to DOD's 
Manual for the Performance of Contract Property Administration, 
property administrator responsibilities include administering the 
contract clauses related to government property in the possession of 
the contractor, developing and applying a property systems analysis 
program to assess the effectiveness of contractor government property 
management systems, and evaluating the contractor's property management 
system and recommending disapproval where the system creates an 
unacceptable risk of loss, damage, or destruction of property. We found 
that some property administrator duties, such as approving contractor 
acquisition of items, were being performed by an administrative 
contracting officer; however, other important duties were not being 
performed. In March 2007, a team from the Army Sustainment Command's 
Office of Internal Review and Audit Compliance conducted a review of 
government-furnished property accountability in Kuwait and identified 
areas for improvement in property accountability. For example, the team 
found that while required property accountability reports were prepared 
by the contractor, they were not being provided to the Army nor did the 
Army request the reports. After reviewing one such report, the 
evaluation team questioned its accuracy. It found that the contractor 
was reporting a total of $2.4 million in government-furnished property; 
however, the value of two of the eight property listings reviewed 
totaled more than $2 million. Without adequate oversight of government 
property, the Army cannot be certain that duplicate supplies have not 
been ordered, government property is not misplaced or misused, and 
property in the possession of the contractor is being efficiently, 
economically, and uniformly managed. 

In addition to the two vacant quality assurance inspector positions 
mentioned above, Army officials also told us that additional quality 
assurance inspectors were also needed. The officials explained that 
three quality assurance inspector positions were removed from the 
Army's authorized battalion organizational structure; however, the 
officials were not sure why the positions were removed because they 
believe the need still exists for the inspectors. According to 
battalion officials, vacant and reduced inspector and analyst positions 
mean that surveillance is not being performed sufficiently in some 
areas and the Army is less able to perform data analyses, identify 
trends in contractor performance, and improve quality processes. 

In some instances when contract administration and management positions 
cannot be filled permanently, the Army fills these positions 
temporarily. For example, the Army filled a vacant administrative 
contracting officer's position in Qatar with an Army reservist called 
to active duty to fill the position for a specific period-two months. 
In Kuwait, the battalion tried to fill the vacant positions temporarily 
but was unsuccessful. According to the battalion, it solicited for 
volunteers to fill the critical positions in Kuwait with deployments up 
to 179 days and requested volunteers from the Army Reserve and Guard. 
In addition, a relocation incentive was requested and approved for the 
critical property manager and quality assurance specialist positions. 
Also, the battalion said that it offered off-post housing to some Army 
civilian applicants and augmented military requirements with the 
mobilization of the U.S. Army Reserve Multi-Functional Support Command. 

As an alternative to providing its own contract administrative and 
oversight staff, the Army could have delegated the administrative 
responsibilities for Task Order 1 to the Defense Contract Management 
Agency (DCMA). DCMA is a combat support agency tasked with providing 
contract administration support for contingency contracts like the 
GMASS contract and task orders at the request of the contracting 
officer. Depending on the delegation from the contracting officer, DCMA 
contract administrative personnel can provide a number of contract 
administrative services. For example, DCMA can assume responsibility 
for performing property administration, provide quality assurance 
specialists and supervise contracting officers' representatives, 
monitor and evaluate technical performance, and review and approve 
purchase requests. In addition, DCMA administrative contracting 
officers may be given authority to negotiate certain price adjustments. 

Battalion officials also expressed concern that the battalion's current 
staffing levels will make the potential transition from a cost plus 
fixed-fee to a cost plus award-fee structure for maintenance and supply 
services difficult. According to the GMASS indefinite delivery/ 
indefinite-quantity contract, the Army envisioned transitioning to a 
cost plus award-fee structure in option year 2 for maintenance and 
supply services, although the government reserved the right to change 
the contract line item structure. According to the contracting officer, 
the Army initially chose not to move to an award-fee because the 
battalion did not believe it had the staff to properly administer the 
contract. We have previously reported that the development and 
administration of cost plus award-fee contracts involve substantially 
more effort over the life of a contract than do cost plus fixed-fee 
contracts.[Footnote 19] For award-fee contracts, DOD personnel (usually 
members of an award-fee evaluation board[Footnote 20]) conduct 
periodic--typically semiannual--evaluations of the contractor's 
performance against specified criteria in an award-fee plan and 
recommend the amount of fee to be paid. The Army contracting office is 
considering transitioning the major elements of option year 3 
(including maintenance and supply services) from a cost plus fixed-fee 
structure to a cost plus award-fee structure, beginning January 1, 
2008. However, according to battalion officials, they will not be 
adequately organized and staffed to properly administer award-fee 
structured provisions until about April 2008. Battalion officials 
stated that a new battalion commander took command on August 1, 2007, 
and as a part of his new role, he is reviewing the battalion's 
organization and suggesting changes to better align the battalion to 
provide adequate contractor oversight and properly administer an award- 
fee contract. They stated that it would take some time before these 
changes would be in place and personnel are properly trained to take 
the actions needed to monitor contractor performance and assist in 
making award-fee decisions. Without adequate staff to monitor and 
accurately document contractor performance, analyze data gathered, and 
provide meaningful input to the award-fee board, it will be difficult 
for the Army to effectively administer an award-fee contract beginning 
in January 2008. 

Conclusions: 

The Army has not taken sufficient actions to ensure quality contractor 
maintenance and efficient contract oversight. Given the poor 
performance by the contractor, adequate and well-documented 
surveillance, along with necessary corrective actions, are essential to 
improving the quality of work by the contractor. Poor performance by 
the contractor and inadequate Army oversight have resulted in 
expenditure of additional funds with less-than-expected results, 
additional cost to repair items already presented to the Army as 
meeting established standards, and may have resulted in delays in 
providing assets to deployed units. Without sufficient oversight of 
contractor performance, the Army cannot ensure that operation and 
maintenance funds for vehicle maintenance are being used cost 
effectively. Moving to a cost plus award-fee structure for certain 
elements of option year 3 will provide more risk to the contractor, 
potentially resulting in improved performance. However, without 
adequate Army oversight personnel and contractor performance data to 
make award-fee decisions, the Army cannot accurately determine whether 
the contractor should receive an award, and if so, how much. Without 
aggressive action on the part of the Army, the problems highlighted in 
this report will continue. 

Recommendations for Executive Action: 

We are making five recommendations in this report. We recommend that 
the Secretary of Defense direct the Secretary of the Army to review and 
evaluate the Army's procedures for managing and overseeing the GMASS 
task order in Kuwait and take the necessary actions to improve contract 
management. We also recommend that the Army develop a strategy to 
implement its current quality assurance and maintenance management 
oversight plans to ensure that: 

* all deficiencies are documented in the Army's quality assurance 
database without affecting the mission: 

* contractor data are analyzed to improve contractor performance, and: 

* all information on contractor performance is provided to the 
contracting officer. 

In addition, we recommend that the Army: 

* take steps to fill vacant oversight positions with personnel who have 
the appropriate knowledge and skills, and: 

* develop a plan to allow the proper administration of the cost plus 
award-fee structure for maintenance and supply services. 

Furthermore, we recommend that the Army consider delegating some 
additional oversight responsibilities to DCMA to meet some of the 
current contract management and oversight personnel shortfalls. 

Agency Comments and our Evaluation: 

In commenting on a draft of this report, DOD concurred with our 
recommendations and discussed proposed implementation actions to be 
taken by the Army. In responding to our recommendations for the Army to 
improve contract management and develop a plan to allow for the proper 
administration of a cost plus award-fee contract, DOD stated that the 
Army is reviewing the contract to determine the best contract type to 
improve contract management. Assuming the Army is adequately organized 
and staffed to administer the contract type selected, we believe that 
this action could allow the Army to identify and determine the best 
procedures for managing and overseeing this contract. In response to 
our recommendation that the Army develop a strategy to implement its 
current quality assurance and maintenance management oversight plans, 
DOD said the Army Field Support Battalion-Kuwait has developed a multi- 
pronged strategy to implement and/or improve quality assurance and 
maintenance management oversight. We believe effective implementation 
of the strategy should address our recommendation. In response to our 
recommendation that steps be taken to fill vacant oversight positions, 
DOD said that the Army continues to exercise several recruiting 
authorities to entice qualified candidates to fill critical vacancies. 
However, the Army stated that filling the critical quality assurance 
specialist position continues to be difficult. According to the Army, 
in December 2007, both the first and second choice to fill the position 
declined the offer. The position is being announced again and the Army 
is working to streamline the recruit and fill process and will continue 
to pursue filling this critical position. Given the difficulties of 
filling deployed positions, we believe these actions are reasonable and 
should help to identify someone to fill this position. In response to 
our recommendation for the Army to consider delegating some additional 
oversight responsibilities to DCMA, DOD stated that delegating 
additional oversight responsibilities to DCMA is predicated on the 
ability of the DCMA to support the contract. We understand that DCMA 
would play a major role in the decision to delegate additional 
oversight responsibility to them. DOD's comments are reprinted in 
enclosure II. 

We are sending copies of this report to the appropriate congressional 
committees, the Secretary of Defense and the Secretary of the Army. We 
will also make copies available to others upon request. In addition, 
this report will be available at no charge on the GAO Web site at 
[hyperlink, http://www.gao.gov]. 

If you or your staff has questions, please contact me at (202) 512-8365 
or solisw@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. Key contributors to this report are listed in enclosure III. 

William M. Solis: 

Director, Defense Capabilities and Management: 

Enclosures - 3: 

List of Committees: 

The Honorable Carl Levin: 
Chairman: 
The Honorable John McCain: 
Ranking Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Daniel K. Inouye: 
Chairman: 
The Honorable Ted Stevens: 
Ranking Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
United States Senate: 

The Honorable Ike Skelton: 
Chairman: 
The Honorable Duncan L. Hunter: 
Ranking Member: 
Committee on Armed Services: 
House of Representatives: 
The Honorable John P. Murtha: 
Chairman: 

The Honorable C. W. Bill Young: 
Ranking Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives: 

Enclosure I: Scope and Methodology: 

To evaluate the contractor's performance of maintenance and supply 
services under the Army's Global Maintenance and Supply Services task 
order, Task Order 1, we interviewed Army contracting officials at the 
Army Sustainment Command in Rock Island, Illinois; interviewed Army 
officials of the 401ST Army Field Support Battalion at Camp Arifjan, 
Kuwait as well as contractor representatives responsible for the 
management of Task Order 1; reviewed various Army and contractor 
documents related to contractor execution; and observed the 
contractor's maintenance processes. We reviewed all records of quality 
assurance inspections conducted from November 2005 through May 2007 for 
equipment maintained by the contractor. Subsequently, we analyzed the 
inspection result data for selected equipment types inspected from July 
2006 through May 2007 to determine the percentage of items failing 
inspection. We subjectively selected equipment types that were commonly 
repaired by the contractor, were perceived to be critical to the fight 
in Iraq and Afghanistan, and were among the battalion's highest repair 
priorities. Although the Army has not documented all deficiencies that 
would indicate failed inspections and be recorded in the database, we 
determined that the data were sufficiently reliable for the purpose of 
our review. We took several actions to assess the reliability of the 
data. Specifically, we reviewed battalion guidance and procedures for 
how inspections should be conducted and documented, interviewed several 
quality assurance inspectors to determine how they conducted and 
documented inspections, observed the conduct of some quality assurance 
inspections, and observed the documentation of inspection results. We 
also met with representatives of the contractor, reviewed quality data 
provided by the contractor, and discussed our report's findings, 
conclusions, and recommendations with contractor representatives. 

To determine the extent to which the Army's quality assurance and 
contract management activities implement key principles of quality 
assurance and contract management regulations, we met with contracting 
and quality assurance officials at Camp Arifjan, Kuwait, and Rock 
Island, Illinois, and reviewed oversight and surveillance plans and 
inspection records. We reviewed a variety of quality assurance and 
contract management regulations and guidance, including the Army 
Quality Program regulation and the Defense Federal Acquisition 
Regulation Supplement. In addition, we spoke with representatives of 
the contractor and reviewed data provided by the contractor. We also 
observed physical inspections of four pieces of equipment presented to 
the Army while we were at Camp Arifjan and analyzed Army-provided data 
on oversight and surveillance. 

To determine if the battalion was adequately staffed to perform 
oversight activities, we reviewed battalion staffing documents and 
spoke with battalion oversight and command officials as well as 
officials from the Army Sustainment Command. In addition, we reviewed 
Department of Defense and Army guidance and regulations regarding 
contract oversight and management. We conducted this performance audit 
from March 2007 through December 2007 in accordance with generally 
accepted government auditing standards. Those standards require that we 
plan and perform the audit to obtain sufficient, appropriate evidence 
to provide a reasonable basis for our findings and conclusions based on 
our audit objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on our audit 
objectives. 

[End of section] 

Enclosure II: Comments from the Department of Defense: 

Deputy Under Secretary Of Defense For Logistics And Materiel Readiness: 
3500 Defense Pentagon: 
Washington, DC 20301-3500: 

January 10, 2008: 

Mr. William M. Solis: 
Director, Defense Capabilities and Management: 
U.S. Government Accountability Office: 
441 G Street, N.W.: 
Washington, DC 20548: 

Dear Mr. Solis: 

This is the Department of Defense (DoD) response to the GAO draft 
report, GAO- 08-316R, "Defense Logistics: The Army Needs to Implement 
an Effective Management and Oversight Plan for the Equipment 
Maintenance Contract in Kuwait," dated December 10, 2007 (GAO Code 
351106). 

The report recommends that the Secretary of the Army take certain 
actions for improving the management and oversight of the Global 
Maintenance and Supply Services Contract in Kuwait. The Department of 
the Army accepts those recommendations, and the DoD concurs with the 
proposed actions. Detailed comments on the report are enclosed. 

Sincerely,

Signed by: 

Jack Bell: 

Enclosure: 
As stated: 

GAO Draft Report  Dated December 10, 2007 GAO Code 351106/GAO-08-
316R:  

"Defense Logistics: The Army Needs to Implement an Effective Management 
and Oversight Plan for the Equipment Maintenance Contract in Kuwait" 

Department Of Defense Comments To The Recommendations:  

Recommendation 1: The GAO recommends that the Secretary of Defense 
direct the Secretary of the Army to review and evaluate the Army's 
procedures for managing and overseeing the Global Maintenance and 
Supply Services under Task Order 1 in Kuwait and take the necessary 
actions to improve contract management. 

Dod Response: Concur. The Army Sustainment Command is reviewing 
contract W52P1J-05-D-0003/Task Order 0001 (Maintenance and Supply 
Operations in Kuwait) to determine the best contract type to improve 
contract management. The objective will be a contract that enhances 
contract management and oversight, incentivizes contractor performance, 
and ties compensation to performance and performance improvement. 
Target date for this review and decision is March 1, 2008. 

Recommendation 2: The GAO recommends that the Army develop a strategy 
to implement its current quality assurance and maintenance management 
oversight plans to ensure that:
 All deficiencies are documented in the Army's quality assurance 
database without impacting the mission;
 Contractor data is analyzed to improve contractor performance; and  
All information on contractor performance is provided to the 
contracting officer. 

DOD Response: Concur. The Army Field Support Battalion  Kuwait (AFSBn-
KU) has developed a multi-pronged strategy to implement and/or improve 
quality assurance and maintenance management oversight to ensure that 
deficiencies are documented, contractor performance data is analyzed, 
and all information on contractor performance is provided to the 
contracting officer. 

* Training: Initiated integrated Directorate of Logistics / Quality 
Assurance training. Result: 40 personnel trained, training plan 
institutionalized. 

* Award Fee Plan Metrics: Developed, defined, and instituted key 
contractor performance evaluation criteria and metrics as a basis for 
the Global Maintenance and Supply Services Task Order 0001 Award Fee 
Plan. Result: Completed October 2007; Battalion gathering and 
documenting key contractor performance data. 

* Assistance Visits/Lessons Learned: 

- The Army Sustainment Command Lean Six Sigma (LSS) Deployment Office  
Assisting and advising the Battalion; i.e.: 

* Developed a Value Stream Map of the entire equipment maintenance 
process flow from reception to ready-for-issue. 

* Developed LSS multi-generational project plan to address primary 
contract concerns. 

* Advising on metrics for better accountability of contractor 
performance. 

* Assessing training initiatives to ensure that issues identified are 
eliminated.

* Assisted in defining and improving the first pass yield (FPY) process 
and reporting metric between government and contractor, resulting in 
steady improvement of FPY in December 2007 to 93% of prime self-
propelled vehicles inspected. 

* AFSBn-KU and ITT Corporation jointly conducted a quality functional 
deployment resulting in improved operational maintenance metrics.
Result: LSS found that GAO findings are being addressed and that 
improvements are well under way; LSS is planning to conduct an 
assistance visit in January and March 2008. 

- Army Prepositioned Stocks (APS)  4 (Northeast Asia)  Shared lessons 
learned and advised Battalion on tactics, techniques, and procedures 
successfully used to monitor contractor performance for APS-4. Result: 
Battalion is implementing recommendations for improvement in equipment 
redistribution process, Class IX stock management, maintenance shop 
operations, and quality assurance. 

Recommendation 3: The GAO recommends that the Army take steps to fill 
vacant oversight positions with personnel who have the appropriate 
knowledge and skills. 

DOD Response: Concur. Army Sustainment Command has exercised and 
continues to exercise several recruiting authorities to entice 
qualified candidates to fill critical vacancies; i.e., relocation 
bonus, expansion of the area of consideration to Federal-wide, 
Veteran's Employment Opportunities Act, reinstatement eligibles, and 
30% disability. As of December 9, 2007, a qualified Property Management 
Specialist was selected with a job offer accepted pending pre-
employment requirements. Assuming all pre-employment requirements are 
met, the candidate could be on the job in Kuwait by mid/end January 
2008. Despite attempts to attract qualified applicants, filling the 
critical Quality Assurance Specialist position continues to be 
difficult. In early December 2007, both a first and second choice 
selectee declined the position. The position is being announced again 
with the best case scenario putting a qualified candidate in Kuwait in 
the early February 2008 timeframe. Army Sustainment Command G1 is 
working with the local Civilian Personnel Advisory Center to streamline 
the recruit and fill process and will continue to pursue the fill of 
this critical position with qualified candidates using incentives to 
the maximum extent possible. 

Recommendation 4: The GAO recommends that the Army develop a plan to 
allow the proper administration of the cost plus award-fee structure 
for maintenance and supply services. 

DOD Response: Concur. The appropriate contract type for the Global 
Maintenance and Supply Services Contract is under review with Army 
Sustainment Command contracting and operational personnel working 
closely with Army Field Support Battalion  Kuwait staff. The result 
could be a hybrid contract combining incentives where quantitative 
measures are possible with an award fee where only subjective measures 
are available to measure contractor performance. The final decision on 
the appropriate contract type will be approved by the Army Sustainment 
Command Principal Assistant Responsible for Contracting, and the target 
for this review and decision is March 1, 2008. 

Recommendation 5: The GAO recommends that the Army consider delegating 
some additional oversight responsibilities to the Defense Contract 
Management Agency to meet some of the current contract management and 
oversight personnel shortfalls. 

DOD Response: Partially concur. Implementation of this recommendation 
is predicated on the ability of the Defense Contract Management Agency 
ability to support the Global Maintenance and Supply Services Task 
Order 0001 in Kuwait.

[End of section] 

Enclosure III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

William M. Solis, (202) 512-8365 or solisw@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Carole Coffey, Assistant 
Director; Sarah Baker; Renee Brown; Janine Cantin; Ronald La Due Lake; 
Katherine Lenane; and Connie W. Sawyer, Jr. made key contributions to 
this report. 

[End of section] 

Footnotes: 

[1] H.R. Rep. No. 109-504, at 46-47 (2006). 

[2] GAO, Defense Budget: Trends in Operations and Maintenance Costs and 
Support Services Contracting, GAO-07-631 (Washington, D.C.: May 18, 
2007). 

[3] There are three types of indefinite-delivery contracts: definite- 
quantity contracts, requirements contracts, and indefinite-quantity 
contracts. The appropriate type of indefinite-delivery contract may be 
used to acquire supplies, services, or both when the exact times, exact 
quantities, or both of future deliveries are not known at the time of 
contract award. An indefinite-quantity contract provides for an 
indefinite quantity, within stated limits, of supplies or services 
during a fixed period. FAR  16.501-2, 16.504 

[4] Under the solicitation, the minimum guaranteed award to the primary 
awardee included, among other things, maintenance and supply services 
performed at Camp Arifjan, Kuwait. Task Order 1 was issued to the 
primary awardee under the solicitation. 

[5] Some contract line item numbers are cost plus fixed fee and others 
are firm fixed price. The contract line item numbers for the 
maintenance work were cost plus fixed fee. 

[6] According to the Federal Acquisition Regulation, cost reimbursement 
contracts provide for payment of allowable incurred cost, to the extent 
prescribed in the contract. These contracts establish an estimate of 
total cost for the purpose of obligating funds and establishing a 
ceiling that the contractor may not exceed (except at its own risk) 
without the approval of the contracting officer. FAR  16.301-1. 

[7] These costs do not include the cost of repair parts as they are 
provided by the government. 

[8] While Task Order 1's Statement of Work did not contain a first pass 
yield rate requirement, it did require that the contractor repair all 
equipment to certain Army standards. Therefore, we view pass/fail rates 
as an indicator of the quality of the contractor's performance in 
repairing equipment to Army standards. 

[9] GAO, Defense Logistics, Improved Oversight and Increased 
Coordination Needed to Ensure Viability of the Army's Prepositioned 
Strategy, GAO-07-144 (Washington, D.C.: Feb. 15, 2007). 

[10] As discussed later in this report, not all deficiencies are 
documented to illustrate that equipment failed Army quality assurance 
inspection. As a result, these numbers may be understated. 

[11] The commodities include vehicles, small arms, ground support 
equipment, atmospheric test, high dollar part verification, and paint 
inspection. 

[12] In commenting on our draft report, the contractor argued that the 
quality assurance surveillance plan gave government quality assurance 
inspectors no guidance on how to determine whether a particular piece 
of equipment passed or failed maintenance standards. Government quality 
assurance inspectors use the technical manual for the specific piece of 
equipment to determine whether the equipment passes or fails 
inspection. These manuals are also what the contractor's chief quality 
representatives said they use to repair and inspect the equipment. 
Also, for the maintenance area, government quality assurance inspectors 
are trained mechanics with technical expertise related to the equipment 
being inspected. 

[13] As discussed later in this report, not all deficiencies are 
documented to illustrate that the equipment failed Army quality 
assurance inspection. As a result, these numbers may be understated. 

[14] Task Order 1 specifies that these cleaning standards are in 
accordance with DODD 4500.9, DOD 5030.49-R, and ARCENT Directive 30-3. 

[15] 7 C.F.R. Part 330. 

[16] Navy customs officials serve as U.S. Customs border clearance 
agents. They inspect material and personnel returning to U. S. Customs 
territory. 

[17] The broad scope of Task Order 1 allows the Army to add maintenance 
tasks when necessary. Some tasks like the repair of battle-damaged 
equipment or the preparation of equipment for return to the United 
States are on-going tasks for the contract period of performance; other 
tasks have specific deadlines established by contract modification. For 
example, preparing equipment to issue to units supporting the surge and 
repairing equipment to be used in Iraq, as well as the two mentioned in 
this correspondence are tasks with specific deadlines. 

[18] GAO 07-144. 

[19] GAO NASA Procurement: Use of Award Fees for Achieving Program 
Outcomes Should Be Improved. GAO-07-58 (Washington, D.C.: Jan. 17, 
2007). 

[20] Award-fee evaluation board members may include personnel from key 
organizations knowledgeable about the award-fee evaluation areas, such 
as engineering, logistics, program management, contracting, quality 
assurance, legal, and financial management; personnel from user 
organizations; and personnel from cognizant contract administration 
offices. 

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