Contract Management:

Pilot Program Needed to Improve DOD Identification of Warranty Claims

NSIAD-00-3: Published: Oct 29, 1999. Publicly Released: Oct 29, 1999.

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Pursuant to a legislative requirement, GAO provided information on the Department of Defense's (DOD) plans to develop a pilot program to use commercial sources to improve the collection of DOD claims under aircraft engine warranties, focusing on the: (1) benefits obtained by some private sector users of aircraft engine warranty services; and (2) efforts DOD has made the evaluate the feasibility of establishing a pilot program.

GAO noted that: (1) some commercial airlines have benefited from the use of outside firms to identify failed engine parts and recover the cost of correcting such parts from manufacturers; (2) officials from the United Parcel Service, United Airlines, and America West told GAO that their engine warranty recoveries increased over internally identified recoveries when they supplemented internal efforts with an outside firm; (3) in one case, warranty recoveries increased threefold over recoveries identified internally; (4) to date, DOD has performed a limited review of the feasibility of establishing a pilot program, but has not established one; (5) the Army and the Navy made a limited assessment of a potential pilot program and concluded that it would likely not be useful to them; (6) they believe any additional claims that may be identified and amounts recovered would not be worth the anticipated cost to execute a pilot program; (7) the Air Force sought industry's interest in a pilot program by synopsizing the program's requirements in the Commerce Business Daily in November 1998; (8) however, the Air Force did not issue a request for proposals, in large part because of concerns that the program could not be executed in the 10 months remaining before authority to conduct a pilot program was set to expire on September 30, 1999; (9) concerns that contractors would not be paid after that date was also a factor; (10) experience from the private sector suggests that contracting for engine warranty administration can improve warranty recoveries over internal efforts; (11) this includes collecting claims on past engine repairs even though the warranties are no longer active; (12) however, it is unknown whether the results achieved by some commercial airlines can be replicated in DOD since a pilot program has not been implemented; (13) Congress recently extended the authority for a pilot program until September 30, 2000; (14) however, the additional time may still not be sufficient; and (15) this report suggests that Congress consider expanding the pilot program to test whether DOD could benefit from using commercial sources to increase recoveries on aircraft warranties.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: A provision implementing this recommendation was not included in the FY 2000 or 2001 Defense Authorization Act and is not proposed in the 2002 act.

    Matter: In order to fully test the concept of using the private sector to increase warranty recoveries, Congress may want to: (1) require the DOD undertake a pilot program; (2) authorize a 2-year pilot program; (3) authorize contractors to be paid, at least in part, for claims identified but not recovered by the end of the pilot program (once those recoveries are made); and (4) direct that the program be structured to allow the review of both active and expired aircraft engine warranties.


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