Defense Inventory:

Improvements Needed to Prevent Excess Purchases by the Air Force

NSIAD-00-5: Published: Nov 1, 1999. Publicly Released: Nov 1, 1999.

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Pursuant to a congressional request, GAO reviewed inventory the Air Force had on contract that was excess to current operating requirements.

GAO noted that: (1) the Air Force did not always cancel purchases that exceeded current operating requirements; (2) the Air Force cancelled contracts for $5.5 million of the $162.4 million excess inventory that GAO reviewed, but it could have cancelled more; (3) contracts for unnecessary items are not being cancelled primarily because the Air Force process for cancelling contracts takes a long time, during which costs are incurred for which the government is liable; (4) specifically, it takes 60 to 90 days to provide managers with the requirement information needed to make cancellation decisions; (5) also, the Air Force model provides for over 63 months of supply--more time than needed to order and receive items; (6) in addition, the model uses invalid requirements that reduce quantities to be cancelled; (7) once a purchase is considered for cancellation, Air Force managers use a model to determine if the savings from cancelling the contract would exceed the cost of reordering the items at a later date; (8) in several cases that GAO reviewed, the model indicated that it was not cost beneficial to cancel contracts for unneeded inventory items because of potential reprocurement costs; (9) however, the model is flawed because it does not consider parts recovered from retired weapon systems that are available to be reused; (10) as a result, the model understates the amount of purchases that could be cancelled; and (11) in other cases, inaccurate records increased manager workloads by causing items to be unnecessarily reviewed.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In a December 7, 1999 memo, the Secretary of the Air Force directed the Air Force Materiel Command to take appropriate actions to resolve all the findings and adopt the recommendations noted in the GAO report. In order to provide more timely information to managers for canceling contracts, the Air Force reviewed its process and found that system interface problems prevented providing more timely data. The Air Force also examined its operating and worldwide termination levels and concluded that no changes were needed; however, it subsequently revised its process to eliminate both the operating period and the worldwide termination levels. DOD closed the recommendation regarding war reserve requirements, and currently the Air Force does not cancel orders for pre-stocked war reserves materials that managers are not authorized to purchase.

    Recommendation: To improve the process for cancelling purchases that exceed requirements, the Secretary of Defense should direct the Secretary of the Air Force to: (1) provide managers with the requirements information needed to cancel contracts in a timely manner; (2) examine the necessity for using lengthy operating and termination periods and additional levels of supply (worldwide termination levels) when identifying contracts for termination; and (3) eliminate prestocked war reserve requirements that are not authorized for purchase from all calculations that affect contract cancellation decisions.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: The Air Force is taking action to improve the accuracy of inventory management records by developing a Purchase Request Processing System. The System was scheduled to be operational as of April 2002; however, as of August 18, 2004, an Air Force official said that the System would come on line later this year. DOD did not agree with the recommendation regarding consideration of reclamation assets when canceling orders for materiel that is no longer needed, and closed the recommendation without taking action.

    Recommendation: The Secretary of Defense should: (1) consider all potential reclamation assets when making cancellation decisions; and (2) take measures to improve the accuracy of inventory management records, such as ensuring that requirements and on-contract inventory are properly recorded.

    Agency Affected: Department of Defense


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