Government Equipment:

Defense Should Further Reduce the Amount It Furnishes to Contractors

NSIAD-86-109: Published: Jun 19, 1986. Publicly Released: Jun 19, 1986.

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GAO studied the progress the Department of Defense (DOD) has made in implementing its policy of minimizing the amount of government-furnished equipment (GFE) it provides to contractors.

GAO found that at the end of fiscal year 1984, contractors had over $8.4 billion of GFE in their possession, but noted that its estimate might not be accurate because DOD and the services did not know how much GFE contractors had acquired, discarded, or transferred. GAO also found that DOD has not minimized the amount of GFE it provides because: (1) applicable portions of the Federal Acquisition Regulation (FAR) and the DOD FAR Supplement are too broad; (2) contractors generally lack incentives to furnish their own equipment; and (3) DOD and the services have provided insufficient guidance to program managers and procurement officials on the appropriate uses of GFE. In addition, GAO found that: (1) a substantial portion of GFE is located at government-owned, contractor-operated (GOCO) plants which DOD and the services have not attempted to sell; (2) DOD has not sold some GFE because it is uncertain about its legal authority to sell excess equipment directly to contractors; (3) DOD does not adequately oversee contractors' acquisition, retention, and disposal of GFE; (4) some contractors ignore established controls over GFE, with DOD concurrence; (5) contractors frequently acquire GFE from commercial sources, without checking government inventories; (6) contractors frequently fail to dispose of excess equipment or properly document GFE transfers; and (7) DOD is developing a database for property managers to monitor GFE.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The new OSD property policy memo requires service actions to prevent unnecessary property rollovers and ensure review of excess GFE to ensure its timely disposition.

    Recommendation: In order to effectively implement the government's policy for minimizing the amount of GFE in the hands of contractors and realize the benefits of placing increased reliance on contractor-owned equipment, the Secretary of Defense should develop a strategy for reducing GFE. As a part of this strategy, the Secretary of Defense should direct the three services and the Defense Logistics Agency to assign a high priority to overseeing property management systems at contractor locations, with special emphasis on: (1) ensuring that equipment acquisitions are authorized by the contract and made through normal government procurement channels whenever possible; (2) making periodic, detailed assessments of what GFE is needed to accomplish defense work; and (3) ensuring that action is taken to declare unneeded equipment excess to agency needs and dispose of it in a timely manner.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: All of the services initiated actions to identify and dispose of GOCO excess to government ownership needs.

    Recommendation: In order to effectively implement the government's policy for minimizing the amount of GFE in the hands of contractors and realize the benefits of placing increased reliance on contractor-owned equipment, the Secretary of Defense should develop a strategy for reducing GFE. As a part of this strategy, the Secretary of Defense should direct the Army and the Navy to undertake comprehensive reviews of their GOCO plants to determine which ones could be sold, and then to consummate such sales.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: The services have long-range plans to implement this recommendation. Final action is expected to be completed between March 1988 for the Air Force, and October 1992 for the Army.

    Recommendation: In order to effectively implement the government's policy for minimizing the amount of GFE in the hands of contractors and realize the benefits of placing increased reliance on contractor-owned equipment, the Secretary of Defense should develop a strategy for reducing GFE. As a part of this strategy, the Secretary of Defense should direct the three services to: (1) identify general-purpose plant equipment acquired by contractors under other than facilities contracts; and (2) determine and recoup any improper profits or fees that were added as a result of such acquisitions.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: The November 25, 1986, DOD property policy memorandum provides interim guidance and directs the services to provide for more specific guidelines in the future.

    Recommendation: In order to effectively implement the government's policy for minimizing the amount of GFE in the hands of contractors and realize the benefits of placing increased reliance on contractor-owned equipment, the Secretary of Defense should develop a strategy for reducing GFE. As a part of this strategy, the Secretary of Defense should direct the Army, Navy, and Air Force to develop specific guidelines for program managers and local contracting officials to use in determining when, and under what conditions, the government can provide general purpose equipment to service contractors.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: DOD issued a new policy on government property in the possession of defense contractors on November 25, 1986. The services initiated actions to implement this new policy document.

    Recommendation: In order to effectively implement the government's policy for minimizing the amount of GFE in the hands of contractors and realize the benefits of placing increased reliance on contractor-owned equipment, the Secretary of Defense should develop a strategy for reducing GFE. As a part of this strategy, the Secretary of Defense should direct the Defense Acquisition Regulatory Council to take steps to amend the DOD FAR Supplement to allow the military services and defense agencies to provide general purpose equipment to contractors only under highly unusual circumstances which are clearly defined, adequately controlled, and properly justified.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: OSD initiated action to obtain and include the recommended information in its report of DOD property in the custody of contractors. The new DOD property policy requires the services to identify focal points and current and projected property administration staffing levels.

    Recommendation: In order to effectively implement the government's policy for minimizing the amount of GFE in the hands of contractors and realize the benefits of placing increased reliance on contractor-owned equipment, the Secretary of Defense should develop a strategy for reducing GFE. As a part of this strategy, the Secretary of Defense should direct OSD to establish an adequately staffed central office for government-furnished property, including GFE. This central office should have, at a minimum, information on the quantity and value of GFE acquired annually by each service, how it is being used, and how much is being discarded. In support of OSD, each service secretary should designate a focal point responsible for the overall management of government-furnished property within the service.

    Agency Affected: Department of Defense

 

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