Defense Acquisitions:

Prices of Navy Aviation Spare Parts Have Increased

GAO-01-23, Nov 6, 2000

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For some time, there has been concern over the increases in the prices of weapon systems spare parts and the adverse impact higher prices have had on military readiness. Prices for aviation spare parts managed by the Navy increased at an annual rate of 12 percent from 1994 to 1999. Several factors have contributed to price increases. First, the cost of repairing an item has generally gone up over time. Second, the surcharge that is charged to customers has also increased over time. The Navy has tried to alleviate customer concerns about high surcharge rates by moving certain overhead costs from the surcharge to repair costs. But this approach simply moved the overhead costs instead of reducing them. Still, the Navy understands the need to control spare parts prices and plans to further investigate the underlying causes of the increases.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of Defense should ensure that the Navy follows through on the results of its planned studies by identifying and implementing solutions to reduce and stabilize prices and surcharge rates.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: According to a follow-up report (GAO-02-565), the Navy has partially implemented this recommendation. The Navy has undertaken some cost control measures but has not developed an action plan to identify and address the underlying causes of price increases. That report made additional recommendations which, if implemented, would address the recommendation in GAO-01-23. All recommendations from the follow-on report GAO-02-565 have been closed; DOD's actions are sufficient to enable GAO to close the recommendations in GAO-01-23.

    Recommendation: The Secretary of Defense should direct the Navy to allocate condemnation costs to the specific parts or groups of parts incurring the costs. If this allocation cannot be achieved, the condemnation costs should be reflected in the surcharge rate.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: Navy states that, beginning October 1, 2000, condemnation costs were allocated and that the recommendation had been implemented.

    Recommendation: The Secretary of Defense should report to Congress on the Navy's progress in: (1) reducing and stabilizing prices and surcharge rates; and (2) allocating condemnation costs at the item level.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: The Navy has implemented this recommendation, according to GAO-02-565, by adjusting pricing practices such that condemnation costs are being allocated to specific groups of repairable parts. The Navy reported this action in its fiscal year 2003 budget submission.

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