Defense Logistics:

New 120-mm Tank Training Round Procurement Will Result in Savings

NSIAD-00-34: Published: Nov 22, 1999. Publicly Released: Nov 22, 1999.

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Pursuant to a congressional request, GAO provided information on the Army's 1999 multiyear contracts for the procurement of 120-mm tank training rounds, focusing on: (1) whether the Army's actions in 1999 resulted in savings on the purchase of 120-mm tank training rounds; (2) the effect the Army's decision to no longer direct that propellant be purchased from the Radford Army Ammunition Plant had on plant overhead and employment; and (3) the potential effect the decision would have on Radford's wartime replenishment mission.

GAO noted that: (1) the Army could achieve about $52 million in savings over a 5-year period from its 1999 contracts for the procurement of 120-mm tank training rounds if all contract options are exercised; (2) the Army expects to achieve the savings based on a negotiated decrease in price per round from the 1995 to the 1999 multiyear contracts; (3) however, a decision by one of the contractors to use a propellant producer other than Radford resulted in a 50-percent reduction in Radford's propellant business for the tank training round program; (4) to absorb increased overhead costs due to the loss of business, the operating contractor at Radford negotiated price increases for propellant with the Army for two new contracts totalling at least $14 million; (5) another result of the Army's decision to no longer direct that propellant be purchased from Radford was that the contractor reduced its workforce at Radford of 1,200 by 185 personnel; (6) these personnel reductions required the contractor to incur certain employee separation costs and affected the contractor's retirement funding liabilities; (7) the Army recognized that the 1999 multiyear contracts could affect Radford's operations but believed the impact would be minimized because Radford was in a competitive position to win other Department of Defense contracts; (8) the loss of propellant work does not affect Radford's ability to meet its wartime replenishment mission; (9) Radford's facilities have the capacity to produce about 100 million pounds of propellant per year but currently are only producing 10 million pounds per year; (10) with additional personnel, this provides more than adequate capacity for Radford to meet its replenishment requirements; and (11) Radford officials stated that as long as the propellant lines are operating, they would be able to replenish propellant in accordance with requirements contained in Defense Planning Guidance.

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