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GAO-10-317R: 

United States Government Accountability Office: 
Washington, DC 20548: 

January 27, 2010: 

The Honorable Sherrod Brown:
Chairman:
Subcommittee on Economic Policy:
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Evan Bayh:
Chairman:
Subcommittee on Security and International Trade and Finance: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

Subject: DOD Assessments of Supplier-Base Availability for Future 
Defense Needs: 

The Department of Defense (DOD) relies on thousands of suppliers to 
ensure it has the weapons and supporting equipment needed to meet U.S. 
national security objectives. Congress has provided DOD with a variety 
of authorities to allow it to maintain information on its suppliers 
and to take actions to ensure that its suppliers can deliver needed 
items. In October 2008, we reported on our assessment of DOD's efforts 
to monitor the health of its supplier base and identify and address 
gaps and recommended that DOD develop a departmentwide framework and 
consistent approach, which DOD has begun to implement.[Footnote 1] In 
light of increased globalization in the defense industry and 
consolidation of the defense supplier base into a few prime 
contractors, you requested that we review DOD's efforts to assess 
supplier-base availability for future defense needs. On October 27, 
2009, we briefed your staff on the results of our work. This report 
transmits that briefing (see enclosure). 

To evaluate DOD's efforts, we reviewed documents related to supplier- 
base issues and interviewed a variety of U.S. government officials, 
including representatives of the Air Force, Army, Navy, Missile 
Defense Agency, Office of the Secretary of Defense, and Department of 
Commerce's Bureau of Industry and Security, Office of Technology 
Evaluation. We also spoke with representatives of the Aerospace 
Industries Association and the National Research Council, which 
recently released reports on defense supplier-base concerns. We 
conducted this performance audit from January 2009 through October 
2009 in accordance with generally accepted government auditing 
standards. These 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. 

Summary: 

Both DOD and Commerce conduct assessments of supplier-base 
availability for defense needs that generally focus on the next 5 
years. Several offices within DOD and Commerce's Office of Technology 
Evaluation have a role in assessing supplier-base availability, 
primarily conducting short-term assessments of selected sectors 
[Footnote 2] or existing weapon programs. In 2004, DOD's Office of 
Industrial Policy conducted a one-time series of comprehensive DOD-
wide assessments of supplier-base availability that forecasted 10-20 
years into the future. According to DOD and Commerce officials, 
assessments of future supplier-base availability for defense needs 
beyond a 5-year time frame can have limitations, in part, because it 
can be difficult to predict technologies and whether investment in the 
supplier base will be needed to support these technologies. Recently, 
the National Research Council and an industry association recommended 
that DOD continually assess the supplier base from a more strategic 
perspective to include its availability for long-term defense needs. 
DOD has not acted on these recommendations; however, DOD plans to 
incorporate industrial-base considerations into its 2010 Quadrennial 
Defense Review to raise awareness of long-term, future, supplier-base 
availability for defense needs. 

Agency Comments: 

We provided a draft of this report to DOD and Commerce. DOD reviewed 
the draft report and had no comments. Commerce concurred with our 
findings and provided technical comments, which we have incorporated. 

As arranged with your offices, unless you publicly announce the 
contents of this report earlier, we plan no further distribution of it 
until 30 days from the date of this letter. At that time, we will send 
copies of this report to appropriate congressional committees; the 
Secretaries of Defense and Commerce, as well as other interested 
parties. In addition, the report will be available at no charge on the 
GAO Web site at [hyperlink, http://www.gao.gov]. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. 

If you have questions or need additional information, please contact 
me at (202) 512-4841 or martinb@gao.gov. Key contributors to this 
report were John Neumann, Assistant Director; Lisa Gardner; Josie 
Sigl; Sylvia Schatz; and Art James. 

Signed by: 

Belva M. Martin:
Acting Director:
Acquisition and Sourcing Management: 

Enclosure: 

[End of section] 

Enclosure: 

Briefing to the Senate Committee on Banking, Housing, and Urban 
Affairs, Subcommittee on Security and International Trade and Finance: 

October 27, 2009: 

DOD Assessments of Supplier-Base Availability for Future Defense Needs: 

Introduction: 

The Department of Defense (DOD) relies on thousands of suppliers to 
provide weapons, equipment, and raw materials to meet U.S. national 
security objectives. Yet, increased globalization in the defense 
industry and consolidation of the defense supplier base into a few 
prime contractors has reduced competition and single-source suppliers 
have become more common for components and subsystems. 

In response to your interest in DOD’s ability to maintain U.S. defense 
manufacturing capabilities, we determined how DOD assesses supplier-
base availability for future defense needs. 

Scope of Work: 

Obtained documentation and interviewed officials to determine how DOD 
assesses supplier-base availability. We did not evaluate any of the 
prior assessments. Offices contacted included: 

* Air Force: 
- Secretary of the Air Force, Acquisitions, Arlington, Virginia; 
- Air Force Research Lab, Dayton, Ohio; 

* Army Acquisitions, Logistics, and Technology Office, Washington,D.C. 

* Office of Naval Research, Technology Warning Division, Washington, 
D.C. 

* Missile Defense Agency, Arlington, Virginia; 

* Deputy Under Secretary of Defense for Industrial Policy, Washington, 
D.C. 

* Director, Defense Research and Engineering, Washington, D.C. 

* Department of Commerce: 
- Bureau of Industry and Security’s Office of Technology Evaluation, 
Washington, D.C. 

We also interviewed officials from the National Research Council, 
Washington, D.C., and the Aerospace Industries Association, Arlington, 
VA, to discuss their recent reports highlighting the need for DOD to 
assess future technology and supplier-base availability. 

We found, during our review of DOD assessments and discussions with 
DOD officials, that DOD generally defines short-term forecasts as up 
to 5 years in the future and long-term forecasts as 10-20 years into 
the future. For the purposes of this briefing we used these 
definitions. 

We conducted this performance audit from January 2009 through October 
2009 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. 

Summary: 

In general, DOD and Commerce assess supplier-base availability for 
defense needs with a focus on the next 5 years. 

In 2004 and 2005, DOD conducted a one-time series of DOD-wide 
assessments of supplier-base availability for long-term defense needs. 

According to DOD and Commerce officials, assessments beyond 5 years 
are not sufficiently reliable to accurately project supplier-base 
availability. 

The National Research Council and an industry association recently 
recommended that DOD continually assess the supplier base from a more 
strategic perspective to include its availability for long-term 
defense needs. 

DOD plans to include the Office of Industrial Policy in its 
Quadrennial Defense Review process for fiscal year 2010 to raise 
awareness of long-term, future, supplier-base availability for defense 
needs. 

Background: 

DOD has a variety of authorities available to maintain information on 
its suppliers within the U.S. industrial base as well as to ensure a 
domestic capability for certain items. 

* Defense Production Act of 1950, as amended: Title VII provides for 
investigative authority to collect information on the U.S. industrial 
base. 

* Title 10, U.S. Code: Sections 2501 through 2506 relate to the 
national technology and industrial base and include a requirement that 
DOD provide the House and Senate Armed Services Committees with annual 
industrial capability assessments. 

Several DOD Directives and a National Security Space Acquisition 
Policy direct program officials to complete Industrial Capability 
Assessments before weapon systems can move from the design to 
development acquisition phase and from the development to production 
phase. 

GAO Highlighted the Need for Improved Visibility to Oversee the 
Defense Supplier Base: 

In Oct. 2008, GAO assessed DOD’s efforts to monitor the health of its 
supplier base and identify and address gaps and found that DOD’s 
efforts lacked a departmentwide framework and consistent approach. 
[Footnote 3] DOD’s efforts generally responded to individual program 
supplier-base concerns or were broader assessments of selected 
sectors. GAO recommended that DOD: 

* leverage existing DOD efforts to identify criteria for supplier-base 
problems and use them to guide the identification and monitoring of 
supplier-base concerns throughout DOD, and; 

* create and disseminate DOD-wide written requirements for reporting 
potential concerns about supplier-base gaps. 

In June 2009, DOD updated its “Defense Acquisition Guidebook” to 
include criteria to identify critical supplier-base issues and 
establish a reporting structure for program managers to elevate 
supplier-base concerns. 

DOD and Commerce Generally Conduct Short-Term Supplier-Base 
Assessments: 

In general, DOD and Commerce assess supplier-base availability for 
defense needs with a focus on the next 5 years. 

Several offices within DOD have a role in assessing either defense 
capabilities or supplier base needs: 

* Industrial Policy; 

* Defense Research and Engineering; 

* Military services industrial base planners; 

* Other DOD components, such as Missile Defense Agency industrial base 
planners. 

In addition, the Commerce Department conducts defense supplier-base 
assessments at DOD’s request. 

Table: DOD and Commerce Assessments: 

Agency or DOD component: DOD–Industrial Policy; 
Type of assessment: Addresses supplier-base gaps when an issue spans 
more than one military service or DOD component; 
Scope of assessment: DOD-wide short-term, supplier-base program and 
sector assessments with some long-term, sector-specific assessments. 

Agency or DOD component: DOD–DDR&E and ManTech; 
Type of assessment: Focuses on identifying and advancing future 
technologies to support warfighter mission; 
Scope of assessment: Primarily long-term defense technology needs. In 
general these needs are not matched with supplier-base availability. 

Agency or DOD component: DOD–Military Services and Missile Defense 
Agency; 
Type of assessment: Assesses supplier-base issues for existing weapon 
programs or sectors; 
Scope of assessment: Primarily short-term with some long-term 
assessments of military service program or sector needs. 

Agency or DOD component: Commerce–Office of Technology Evaluation; 
Type of assessment: Conducts supplier-base assessments for selected 
sectors or technology areas at DOD’s request; 
Scope of assessment: Primarily short-term, but can perform long-term 
assessments if requested by DOD. 

Source: GAO. 

[End of table] 

Assessments: Industrial Policy: 

Industrial Policy is DOD’s primary representative for supplier-base 
issues. Its mission is to sustain an environment that ensures DOD’s 
supplier-base is reliable, cost-effective, and sufficient. 

* Routinely identifies and works to mitigate short-term supplier-base 
gaps when these gaps span multiple DOD components. 
- Industrial Policy’s Annual Industrial Capabilities report provides a 
broad analysis of supplier trends, and summarizes DOD components’ 
studies of short-term supplier-base concerns. 

* Periodically performs long-term supplier-base assessments, for 
example: 
- Updated Vertical Lift Study (June 2009); 
- Solid Rocket Motors Industrial Capabilities (June 2009); 
- Infrastructure Rationalization in the U.S. Naval Ship Industrial 
Base (January 2009); 
- Steel and Specialty Metals Trend Analysis (December 2008). 

Assessments: Director, Defense Research and Engineering (DDR&E): 

DDR&E is DOD’s primary representative for identifying and advancing 
future technologies to support the warfighter mission. 

DDR&E focuses on identifying long-term defense needs and associated 
technology to determine investment areas for its technology portfolio. 
Its efforts include: 

* “horizon scanning” assessments to determine the direction of future 
technology, as well as identifying capabilities acquired by 
adversaries and determining mitigation strategies, 

* a forecasting experiment with academia and industry called the X2 
project that seeks to identify future “disruptive” technologies, such 
as radar, satellites, and antisatellite technologies, and, 

* targeting companies that typically do not work with the government 
through its Open Business Cell project to foster future collaboration. 

According to DDR&E officials, its efforts to identify long-term 
defense needs and associated technology generally do not include 
forecasting long-term supplier-base availability to meet these needs. 

Assessments: Air Force: 

The Air Force generally assesses supplier-base issues for existing 
weapon programs as needed to address supplier gaps. For example: 

* Infrared Focal Plane Array Substrate Industrial Base Assessment 
(Aug. 2008): Validated current DOD efforts to develop a domestic 
source and to continue funding research for next-generation materials 
and technologies to address two concerns: (1) domestic manufacturers 
of certain infrared focal plane arrays depend on a foreign supplier 
with increased delivery lead times, and (2) next-generation materials 
and technologies are not anticipated to be available for military 
applications for decades. 

* Solid Rocket Motor Industrial Base Assessment (Aug. 2008): Evaluated 
potential risks to domestic manufacturing capabilities associated with 
consolidation and declining demand that could jeopardize the industry’
s ability to maintain the necessary skill set for casting motors. The 
report called for further monitoring and for adopting alternative 
technologies, materials, and qualification methods. 

Air Force officials—responsible for planning and executing the science 
and technology program—stated that their supplier-base assessments 
generally focus on improving the manufacturing process for current 
programs and platforms for the short term. 

Assessments: Army: 

The Army generally assesses supplier-base issues for existing weapon 
programs as needed to address supplier gaps. Recent examples include: 

* Army Communications Sector Assessment (Nov. 2008): The Army examined 
the capability of the Transmission and Communications Sector 
industrial base to develop, manufacture, and support legacy and future 
weapon systems. The study concluded that the supplier-base is fiscally 
healthy. 

* Power Sources and Products Sector Assessment (Nov. 2008): The Army 
found the supplier-base supporting this sector to be fiscally healthy, 
but suggested further monitoring of power source and products supplier-
base issues. 

The Army Acquisition, Logistics, and Technology Office—whose mission 
is to acquire and develop technology to meet the Army’s current and 
future service requirements—primarily focuses on improving current and 
short-term manufacturing processes for existing technologies. 

Assessments: Navy: 

The Navy generally assesses supplier-base issues for existing weapon 
programs and as needed to address supplier gaps. For example: 

* Advanced Anti-Radiation Guided Missile Assessment (Aug. 2008): 
Provided a baseline of industrial capabilities, financial stability, 
and risks, as well as identified potential alternate suppliers for the 
critical contractors for the program. Concluded that all 10of the 
program’s contractors were considered to be a ‘moderate’ industrial 
risk and six were a ‘moderate’ financial risk. Recommended that 
companies rated as moderate financial risk be monitored every 6 to 12 
months. 

Assessments: Missile Defense Agency (MDA): 

According to MDA officials, priority is given to supplier-base 
assessments for items that are in danger of diminishing or vanishing 
rather than hypothetical future industrial base needs. Examples 
include: 

* Infrared Sensor Assessment (Feb. 2008): Identified sole/single 
sources, foreign sources/dependencies, business, and financial risks 
at infrared sensor developers and component manufacturers. Recommended 
assessing an alternative source for certain materials that are 
critical to the production of infrared sensors—including consideration 
of developing a domestic supplier. 

* Divert and Attitude Control System (DACS) Industrial Capability 
Assessment (Sept. 2008): Recommended monitoring the financial 
viability of the prime contractor-—the only suitable source-—and 
monitoring the production of high-temperature DACS nozzle material as 
it requires an expensive, difficult-to-process material only available 
from Kazakhstan. 

Assessments: Commerce’s Office of Technology Evaluation: 

Commerce’s Office of Technology Evaluation regularly conducts supplier-
base assessments, typically when requested by an agency, to address 
concerns about meeting short-term technology or production needs. For 
example, it has conducted numerous supplier-base studies for DOD of 
defense-related industries and technologies. 

Recent assessments include: 

* Defense Industrial Base Assessment—Counterfeit Electronics (Jan. 
2010); 

* Technology Assessment of 5-Axis Machine Tools (July 2009); 

* Domestic Industrial Base Capabilities for Defense Mission-Critical 
Microchips (May 2009); 

* Defense Industrial Base Assessment of the U.S. Space Industry (Aug. 
2007); 

* Technology Assessment of Certain Aromatic Polyimides (July 2007). 

Although Commerce officials stated they have not conducted long-term 
assessments on the supplier base, they can do so at DOD’s request. 

DOD Conducted a Series of Special Assessments of Future Supplier-Base 
Availability: 

In 2004 and 2005, Industrial Policy issued five comprehensive DOD-wide 
assessments of critical technologies and industrial capabilities 
needed in the 21st century in five concept areas: (1) Battlespace 
Awareness, (2) Command and Control, (3) Focused Logistics, (4) Force 
Applications, and (5) Protection. 

* The reports noted technology areas where DOD needed to obtain or 
sustain an industrial capability and made recommendations to DOD 
components. According to Industrial Policy officials, they did not 
monitor the implementation of the recommendations and, therefore, do 
not know whether they were implemented. 

* According to Industrial Policy officials, these reports were the 
first and only comprehensive DOD-wide assessments conducted to assess 
supplier-base availability for long-term defense needs across all 
major sectors. 

Capability Assessments That Look Past 5 Years May Not Be Reliable: 

According to DOD and Commerce officials, supplier-base assessments 
that look beyond 5 years may not be reliable predictors of future 
needs. According to these officials, it is difficult to predict the 
technologies that will be available to DOD and if it will need to 
invest in the supplier base to support the technology. 

DOD officials cited two examples of efforts to assess future supplier 
base needs that were unsuccessful: 

* DOD was unsuccessful in establishing a domestic supplier base for 
liquid crystal displays after investing millions of dollars, in part 
because this technology was developed more rapidly by other sources. 

* A 1992 Army study that looked 30 years into the future for Army 
technology failed to predict certain infrastructure advances. However, 
a 2008 DOD assessment of the study concluded that this was too far 
into the future to have reliable predictions especially for some 
rapidly moving technologies. The 2008 assessment suggested that the 
period between studies not exceed 10 years. 

Two Groups Highlight Need for DOD to Assess Future Technology and 
Supplier-Base Availability: 

The Aerospace Industries Association and a committee formed by the 
National Research Council have raised concerns on future availability 
of the supplier base for defense needs. 

* In July 2009, the Aerospace Industries Association (AIA) released a 
study discussing the current gap between DOD’s defense strategies and 
the supplier-base capability. The study recommendations included: 
- DOD continually assess the supplier base from a more strategic 
perspective instead of relying on prime contractors to identify and 
address potential loss of critical capabilities on a program-by-
program basis, and; 
- Congress reinvigorate its oversight/review of defense supplier-base 
issues to see how well DOD is meeting the goals set out in Section 
2501 of Title 10, U.S. Code. 

* According to AIA officials, they have spoken with the Under 
Secretary of Defense for AT&L, the Director of Industrial Policy, and 
the Deputy Under Secretary for Policy to seek ways to address the 
recommendations. According to Industrial Policy officials, they are 
reviewing the report and assessing what actions, if any, they would 
take in response to these recommendations. 

In 2006, the National Research Council’s Critical Technology 
Accessibility Committee report made recommendations to DOD, including 
that the: 

* Under Secretary of Defense for AT&L in collaboration with the 
Defense Intelligence Agency, develop a system for monitoring the risks 
of component unavailability and regularly assess their vulnerabilities 
and recommend mitigation action, and; 

* Under Secretary of Defense for AT&L, in collaboration with the 
Defense Intelligence Agency, develop a system for monitoring U.S. 
industrial health in strategically important global commercial market 
sectors that are critical to the availability of components for DOD. 

According to the Committee Chair, DOD has not acted on the report 
recommendations. Industrial Policy officials noted that actions on 
these recommendations would require higher-level DOD consideration as 
multiple offices of DOD would be involved. 

Recent DOD Initiative to Incorporate Long-Term View of Supplier Base 
into Its Annual Review Process: 

According to an official from the Office of Industrial Policy, the 
Deputy Secretary of Defense requested that the Under Secretary of 
Defense for Acquisition, Technology, and Logistics incorporate 
industrial-base considerations into DOD's fiscal year 2010 Quadrennial 
Defense Review. As a result, the Office of Industrial Policy has been 
fully participating in this review. 

* Industrial Policy is also working closely with the Office of the 
Under Secretary of Defense for Policy to ensure that the final report 
of the Quadrennial Defense Review includes a section on industrial-
base issues. 

The House Armed Services Committee report, H.R. 111-166—for the 
National Defense Authorization Act for Fiscal Year 2010—directed that 
a National Defense Panel be formed to review the Quadrennial Defense 
Review's effectiveness, which according to the Committee Chairman 
would include an elevation of the industrial-base issues in this 
process. 

[End of Briefing slides] 

Footnotes: 

[1] GAO, Department of Defense: A Departmentwide Framework to Identify 
and Report Gaps in the Defense Supplier Base Is Needed, [hyperlink, 
http://www.gao.gov/products/GAO-09-5] (Washington, D.C.: Oct. 7, 2008). 

[2] DOD categorizes its supplier base into seven sectors: aircraft; 
command, control, communication, computers, and intelligence; ground 
vehicles; missiles; services; shipbuilding; and space. 

[3] GAO, A Department wide Framework to Identify and Report Gaps in 
the Defense Supplier Base is Needed, [hyperlink, 
http://www.gao.gov/products/GAO-09-5] (Washington, D.C.: Oct. 7, 2008). 

[End of section] 

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