The Army Should Increase Its Efforts To Provide Government-Furnished Material to Contractors

LCD-80-94: Published: Aug 11, 1980. Publicly Released: Aug 11, 1980.

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Henry W. Connor
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GAO reviewed operations at the five Army commands which function as inventory control points. Four of the five Army inventory control points are not doing enough to use the material in their long supply inventories as government-furnished material on major end-item contracts. Often, onhand quantities of secondary items, including parts, components, and assemblies, exceed the estimated amount of material needed to support U.S. and allied forces during peacetime and from the beginning of a war until industry can produce the material at a rate equal to expected wartime usage. This material is classified as being in long supply and, to the extent it does not exceed authorized retention levels, is retained for possible future use. Department of Defense (DOD) regulations require that this material be screened and furnished, when practicable, as government-furnished material to contractors for use on major systems and equipment production contracts, thereby reducing the amounts paid to contractors. This should be done whenever substantial net savings are attainable with acceptable risks. Each of the five Army control points are required to implement these procedures and have substantial amounts of long supply material on hand which have potential use as government-furnished material. Only one control point had instituted a required screening procedure to ensure that material was provided to contractors when practicable. They had devised a computer program for use with each impending end-item procurement, which produces a list of long supply items which are part of the end items to be procured. Contractor representatives inspect and approve the material to avoid the problem of the contractor not being satisfied with the quality or condition of the government-furnished material.

Officials, interviewed at the four commands which do not implement a screening procedure for long supply material as required, felt that the current potential for using long supply material as government-furnished material was limited and the results of such procedures, if implemented, would not justify their efforts. They did not have a computer software program to identify items in long supply which might be used in end-item contracts. They felt that the manual performance of this identification process would be too time consuming to be practical and advanced other reasons for not attempting to institute the screening procedure, all of which GAO found to be unacceptable reasons for not implementing the required procedures. By not screening long supply inventories for possible use as government-furnished material on production contracts, these control points may be losing the opportunity to achieve significant savings or may lose such opportunities in the future. Such screening has been used by one Army control point with beneficial results. DARCOM officials have not adequately exercised their oversight responsibility to ensure compliance with this policy.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: RAILS is now a working program in use by all Army inventory control points. Action is being taken to consider a redesign of the system to accumulate statistical data on screened assets.

    Recommendation: The Secretary of the Army should: (1) establish reasonable timeframes for DARCOM to develop and implement the procedures; and (2) monitor the progress of DARCOM to avoid further delay.

    Agency Affected: Department of Defense: Department of the Army

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Army should direct the Commanding General, DARCOM, to take prompt action to develop procedures to ensure that all Army inventory control points make maximum and economical use of long supply inventories as government-furnished material on production contracts.

    Agency Affected: Department of Defense: Department of the Army


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