Air Force Logistics:

Some Progress, But Further Efforts Needed to Terminate Excess Orders

NSIAD-94-3: Published: Oct 13, 1993. Publicly Released: Oct 13, 1993.

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Pursuant to a congressional request, GAO followed up on an earlier report concerning the Air Force's failure to terminate excessive materiel orders, focusing on: (1) the Air Force's progress in terminating excessive materiel orders; and (2) additional opportunities for improvement and savings.

GAO found that: (1) the Air Force has taken a number of actions to place greater management emphasis and oversight on potential terminations including development of management information systems to measure its progress in terminating excessive orders and guidance on economic termination decisionmaking; (2) in fiscal year (FY) 1991, Air Force contract terminations increased to 47 percent; (3) the Air Force has not identified potential terminations because it is using an unjustified 6-month level of stock above item requirements as a buffer in computing termination levels for consumable items; (4) the Air Force's termination practices are not always cost-effective because of weaknesses in termination policies and procedures; (5) the Air Force is not making use of the increased availability of deobligated funds to reduce its annual budget; and (6) from fiscal year 1991 to date, $610 million in deobligated funds has become available from contract terminations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On November 1, 1993, Air Force Headquarters directed the Air Force Materiel Command to reiterate the importance of ensuring that accurate and complete information is used in economic termination analyses. The Air Force stated that it will monitor the effectiveness of this effort. GAO views the Air Force directive and intention to monitor as responsive to the recommendation. GAO has closed this recommendation.

    Recommendation: The Secretary of the Air Force should require the Commander, Air Force Materiel Command, to ensure that accurate and complete information is used in the economic termination analyses.

    Agency Affected: Department of Defense: Department of the Air Force

  2. Status: Closed - Implemented

    Comments: The Air Force has provided additional clarification on termination policy to the Air Logistics Centers. The guidance should help ensure that termination analysis and decisions are appropriately performed. GAO views the actions taken to date as responsive and is closing out this recommendation on this data collection cycle.

    Recommendation: The Secretary of the Air Force should require the Commander, Air Force Materiel Command, to ensure that potential on-order termination analyses are accurately performed and termination decisions are promptly made after receipt of contractor termination penalty costs.

    Agency Affected: Department of Defense: Department of the Air Force

  3. Status: Closed - Implemented

    Comments: This recommendation was based on consumable item examples. Therefore, GAO has withdrawn the recommendation, since nearly all consumables are being transferred to the Defense Logistics Agency for management of the items.

    Recommendation: The Secretary of the Air Force should require the Commander, Air Force Materiel Command, to revise policy to require that all potential contract terminations for excess orders, including those related to aircraft with declining programs, are subjected to economic termination analyses.

    Agency Affected: Department of Defense: Department of the Air Force

  4. Status: Closed - Implemented

    Comments: In its final response, DOD stated that its new Materiel Management Standard System will include a cutback/termination model that will incorporate the specific factoring for capital (interest) costs and obsolescence costs now being used by the Army, Navy, and the Defense Logistics Agency in their termination models. The action being taken conforms with the recommendation and GAO is closing it out as of this date.

    Recommendation: The Secretary of the Air Force should require the Commander, Air Force Materiel Command, to revise the reparable item termination model to fully consider all costs of carrying excess inventories, including capital (interest) and obsolescence costs, as prescribed by Department of Defense policy.

    Agency Affected: Department of Defense: Department of the Air Force

  5. Status: Closed - Not Implemented

    Comments: The management of nearly all consumable items is now in the process of being transferred from the military services to the Defense Logistics Agency. Of the items remaining under Air Force management, most items will not be subject to the underlying controls inherent in the recommendation. GAO, therefore, has closed out this recommendation.

    Recommendation: The Secretary of the Air Force should require the Commander, Air Force Materiel Command, to eliminate the 6-month buffer from the consumable item requirement systems and identify all potentially terminable on-order items.

    Agency Affected: Department of Defense: Department of the Air Force

  6. Status: Closed - Implemented

    Comments: In response to this recommendation, the Air Force reduced its fiscal year 1995 funding requirements by $200 million for repairable and consumable items to reflect the availability of deobligated funds from contract terminations. The Air Force also stated that future adjustments will be made as required to ensure that obligation authority reflects anticipated deobligations. An accomplishment report with a measurable budgetary savings of $200 million was processed, and approved by the Director, NSIAD/MOC on June 8, 1994.

    Recommendation: The Secretary of the Air Force should require the Commander, Air Force Materiel Command, to consider the average annual availability of deobligated funds resulting from contract terminations on an historical basis in determining the upcoming budget year's funding requests for consumable and reparable items.

    Agency Affected: Department of Defense: Department of the Air Force

 

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