The Department of Defense (DOD) operates a worldwide supply system, with the vast majority of the items being managed by the Defense Logistics Agency (DLA). Media reports in October 2005 raised concerns about the use of the prime vendor concept and the prices that DLA was paying for items acquired through a prime vendor, and the House Armed Services Committee held a hearing on the matter on November 9, 2005. As a result of the hearing, DLA officials recognized the need to improve management oversight and internal controls over the program, and they proposed a series of corrective actions. Under the prime vendor concept, DOD relies on a distributor of a commercial product line, who provides that product line and incidental services to customers in an assigned region or area of responsibility. Products or services are to be delivered within a specified period of time after order placement. The prime vendor provides the product either at the cost paid to obtain it or at a price agreed upon in advance with DLA plus a handling fee. The use of prime vendor contracts is governed by the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement. DLA manages the program and the Director of DLA reports to the Under Secretary of Defense for Acquisition, Technology, and Logistics through the Deputy Under Secretary of Defense for Logistics and Materiel Readiness. The Defense Supply Center Philadelphia (DSCP), a field activity of DLA, is the lead center for managing prime vendor contracts for three major supply chains: medical materiel, subsistence/garrison feeding, and construction and equipment. In June 2006, we summarized the main findings of DLA internal reviews, and an external review conducted by the Defense Contract Management Agency at DLA's request, of DLA's prime vendor programs. The findings highlighted five deficiencies, as follows: (1) management metrics that were too narrowly focused on sales; (2) a prime vendor concept that was not suitable for all commodities; (3) a lack of management oversight; (4) inadequate pricing reviews; (5) a lack of knowledge or skills in the workforce. We also reported that DLA had experienced persistent problems in overseeing prime vendor contracts, despite the existence of oversight policies and procedures and the identification of corrective actions prior to November 2005. Those problems persisted because DLA and DSCP management had not provided the oversight needed to ensure that the policies, procedures, and corrective actions were implemented. We therefore recommended that the Secretary of Defense ensure that the Director of the DLA provide continual management oversight of the corrective actions DLA was taking to address the problems in its prime vendor program. A House Armed Services Committee report accompanying the fiscal year 2007 Defense Authorization bill directed GAO to review DLA's actions and submit a report to the defense committees no later than March 1, 2007. Our objective was to determine the extent to which DLA's corrective actions have addressed the main deficiencies in the prime vendor program.
Recommendations for Executive Action
|Department of Defense
|The Secretary of Defense should direct the Under Secretary of Defense, Acquisition, Technology, and Logistics to require the Director of DLA to determine whether all the corrective actions in DLA's prime vendor program have been completed and are producing the intended results. This determination should identify any remaining or additional actions necessary to remedy the deficiencies in the prime vendor program. This determination should also specify a time frame for the completion of these actions. The results of the determination should be communicated in writing to the Under Secretary of Defense, Acquisition, Technology, and Logistics within 6 months of the issuance of this report.
Closed – Implemented