```
Defense Production Act: Foreign Involvement and Materials Qualification
in the Title III Program (Letter Report, 03/14/94, GAO/NSIAD-94-74).

The U.S. reliance on foreign sources for critical defense materials has
been a source of concern for years.  In response to these concerns,
title III of the Defense Production Act was reactivated in 1985.  The
purpose of title III is to establish, expand, or maintain domestic
production capacity for materials considered essential to national
defense.  This report discusses (1) the extent and nature of foreign
involvement in the title III program, Defense Department (DOD) oversight
of such involvement, and its impact of the program's effectiveness and
(2) the adequacy of DOD efforts to qualify materials for defense weapon
systems.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-94-74
     TITLE:  Defense Production Act: Foreign Involvement and Materials 
             Qualification in the Title III Program
      DATE:  03/14/94
   SUBJECT:  Military downsizing
             Military materiel
             Defense contracts
             Department of Defense contractors
             Foreign military sales contracts
             Defense industry
             Military coproduction agreements
             Foreign corporations
             Foreign investments in US
             Weapons industry
IDENTIFIER:  C-141 Aircraft
             F-16 Aircraft
             Airborne Self-Protection Jammer
             DOD Title III Program
             ASPJ
             
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Cover
================================================================ COVER

Report to Congressional Requesters

March 1994

DEFENSE PRODUCTION ACT - FOREIGN
INVOLVEMENT AND MATERIALS
QUALIFICATION IN THE TITLE III
PROGRAM

GAO/NSIAD-94-74

Defense Production Act

Abbreviations
=============================================================== ABBREV

  AC/DQ - accelerated cooled/direct quenched
  ACMC - Advanced Composite Materials Corporation
  DOD - Department of Defense
  DPA - Defense Production Act
  DRA - discontinuous reinforced aluminum
  FMI - Fiber Materials Incorporated
  OSD - Office of the Secretary of Defense

Letter
=============================================================== LETTER

B-255662

March 14, 1994

The Honorable George J.  Mitchell
The Honorable John Glenn
The Honorable William S.  Cohen
The Honorable Howard M.  Metzenbaum
United States Senate

The Honorable Thomas H.  Andrews
The Honorable Deborah Pryce
House of Representatives

The United States' dependence on foreign sources for critical defense
materials has been a source of concern for many years.  Responding to
these concerns, title III of the Defense Production Act (DPA) was
reactivated in 1985.\1 The purpose of title III is to establish,
expand, or maintain domestic production capacity for materials that
are considered essential to national defense. 

In response to your request, we reviewed the title III program to
determine (1) the extent and nature of foreign involvement\2 in the
title III program, Department of Defense (DOD) oversight of such
involvement, and its impact on the effectiveness of the program and
(2) the adequacy of DOD's efforts to qualify materials for defense
weapon systems.  We reviewed the title III projects awarded since
1985, all of which were in place prior to the 1992 DPA amendments. 

--------------------
\1 Title III of DPA (50 U.S.C.  2091 et.  seq.) was originally
enacted in 1950; the act lapsed in the early 1960s.  It was
reactivated in 1985 and amended in 1992 by P.L.  102-558. 

\2 In this report, foreign involvement means the direct or indirect
influence of any foreign-owned company on a title III contract as a
contractor, subcontractor, or as a foreign manufacturer in direct
competition with a title III contractor or subcontractor. 

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The title III program has established and expanded domestic
production capacity for materials that were considered defense
critical.  Since title III was reactivated 8 years ago, seven
projects have been funded,\3 totaling approximately $85 million in
contract awards.  One project was terminated early.  Of the six
remaining projects, two have been completed and four are still active
but at various phases of completion.  (App.  I provides more detail
about the specific projects.)

Four of the six projects have or had some foreign involvement.  The
impact of foreign involvement on the effectiveness of the title III
program is difficult to determine because (1) three of the four
projects are not yet completed and (2) none of the title III
materials produced to date under these four projects is actually
being used in a weapon system.  This lack of use is largely because
of (1) a decrease in DOD demand for the materials, especially a
decrease in the number of new weapon systems entering production
because of the defense drawdown and (2) the high cost of testing and
qualifying them for weapons.  Most of the title III contracts are not
classified, which results in reduced requirements for DOD review,
oversight, and approval of foreign involvement in these projects. 

The title III office has identified and is implementing strategies to
improve the program through more effective planning, management, and
contracting strategies.  Such strategies include (1) more flexible
contract terms, (2) active support of material qualification efforts,
and (3) involvement of more potential customers in evaluating
materials.  Past experience indicates that the title III program
could more effectively implement these strategies so as to provide
more support in qualification of title III materials and to better
respond to changes in demand for such materials. 

--------------------
\3 In March 1993, a Request for Proposal was issued for an eighth
project--high purity float zone silicon.  The source selection
evaluation is ongoing. 

   BACKGROUND
------------------------------------------------------------ Letter :2

Many statutes have contributed to the legislative foundation for
defense industrial preparedness.  One of these is title III of the
Defense Production Act of 1950.  The specific objectives of the title
III program are to (1) help establish, expand, or maintain domestic
production capacity that is needed for military items or systems; (2)
develop industrial capacity to meet future military needs, in peace
and war; and (3) accelerate the use of new materials technology.  The
act provides for these objectives to be achieved through direct
purchases, purchase commitments, loans, loan guarantees, or grants. 
However, in line with a 1985 agreement between the Office of
Management and Budget and DOD, the program has been restricted to
purchases and purchase commitments. 

Prior to 1992, the act required that for each project, the President
determine and notify Congress that (1) the mineral, metal, or
material\4 is essential to the national defense; (2) the defense
demand is equal to or exceeds domestic supply; (3) the U.S. 
industrial base cannot be reasonably expected to respond to this
demand; and (4) the use of title III is the best way to meet the
need. 

In 1992, title III was amended to provide broader and clearer
direction regarding title III and made several changes to the above
required presidential determination.  The new language allows the use
of title III authorities to expand production capacity for critical
technology items, modernize domestic production capabilities, ensure
reliable sources for critical items, and integrate defense and
commercial production.  However, the 1992 amendments were not in
place for the projects we reviewed. 

Besides these statutory requirements, DOD policy requires that for
each title III project purchase or purchase commitment (1) the
product be identified in a specification agreed to by the contractor
and the government and (2) the potential capacity created by the
title III project shows promise of remaining commercially viable when
the purchase commitment ends. 

The 1992 DPA amendments also define what constitutes a domestic
source.  Title III program officials told us that prior to that time,
they did not have a written statutory definition of domestic source
for DPA but used the term to mean a production facility located in
the United States or Canada.  As a result, foreign-owned but
domestically located companies were not excluded from participation
in title III projects.  The 1992 amendments defined domestic source
as a business concern that (1) performs in the United States or
Canada substantially all of the research and development,
engineering, manufacturing, and production activities required to
fulfill a contract with the U.S.  government relating to a critical
component or a critical technology item and (2) procures from
subcontractors that meet these same requirements.  Consequently,
foreign ownership still does not preclude a firm from being
considered a domestic source. 

The title III program operates under the direction of the Principal
Deputy Assistant Secretary of Defense for Dual Use Technology Policy
and International Programs.  In 1986, the Air Force was designated as
the executive agent for the program.  The Air Force established a
central program office (the title III Program Office) at Wright
Patterson Air Force Base in Ohio to administer DOD's title III
projects.  A steering committee, assisted by a working group,
provides the Principal Deputy Assistant Secretary of Defense for Dual
Use Technology Policy and International Programs recommendations
about policy and program direction.  The committee and working group
are each composed of representatives from the Office of the Secretary
of Defense (OSD), Army, Navy, Air Force, and Defense Logistics
Agency. 

Title III projects generally are expected to take 3 to 6 years from
project award to completion and normally have two phases.  Phase I,
the material qualification phase, is intended to verify that the
product is ready for production.  This phase concentrates on
verifying that the material meets the contract specifications and
cost and marketing requirements and optimizes the production process. 
In phase II, the purchase commitment phase, DOD agrees to buy a
specific quantity of material over a given time period at a
prenegotiated price, if the contractor is unable to sell the
material.  Occasionally, three phases are involved; if so, phase II
is used to scale up the production capacity established under phase
I, and phase III becomes the purchase commitment phase. 

In June 1993, the President sent to Congress for approval the
following three new title III projects:  gallium arsenide, Babington
Burners, and machine tool controllers.  The 60-day waiting period
required by DPA elapsed without congressional comment, and the
projects were approved.  No contracts have been awarded yet for these
projects. 

--------------------
\4 Material was defined as raw materials, articles, commodities,
products, supplies, components, technical information, and processes. 

   FOREIGN INVOLVEMENT EXISTS, BUT
   ITS IMPACT IS DIFFICULT TO
   ASSESS
------------------------------------------------------------ Letter :3

Since 1985, approximately $85 million has been obligated for seven
title III projects, one of which has been terminated.  Of the six
other title III projects, four were awarded to develop a domestic
source for a specific material, while two others were for the
expansion of existing domestic production capacity.  Two of the six
projects had direct foreign involvement; two were indirectly
influenced by foreign-owned firms; and the remaining two did not have
any evidence of foreign involvement. 

      DIRECT INVOLVEMENT
---------------------------------------------------------- Letter :3.1

Two title III projects--for discontinuous reinforced aluminum (DRA)
and accelerated cooled/direct quenched (AC/DQ) steel--totaling $34.4
million have resulted in contracts being awarded to foreign-owned,
domestically located contractors or U.S.  contractors with foreign
subcontractors.  In 1989, contracts for DRA were awarded to two
domestically located contractors, one a Japanese-owned company and
the other a British-owned company.  These contracts are valued at
$26.9 million. 

Contracts for AC/DQ steel were awarded in 1990 to three domestically
owned and located companies.  Each of the prime contractors entered
into a subcontract with different Japanese-owned and located firms to
process the steel using AC/DQ technology needed for phase I material
qualification.  Manufacturing facilities did not exist in the United
States or Canada, and before resources were expended to develop a
domestic source, it had to be verified that AC/DQ steel would meet
military service requirements.  According to OSD officials, U.S. 
mills had only performed AC/DQ processing on a laboratory scale.  The
contracts specified that the foreign subcontractors would be used
only during phase I.  According to the title III contracting officer,
$1.98 million of the $7.6 million for these contracts has been
dedicated to the Japanese subcontractors.  This project is an example
of technology, in the form of process knowledge, flowing to the
United States.  Because DOD's demand for the material has decreased,
the decision about whether to proceed into phase II will be deferred
until phase I results are reviewed.  In addition, OSD officials said
DOD is exploring whether there is sufficient commercial demand to
warrant continuation of the project.  According to title III program
officials, completion of phase I is scheduled for April 1994. 

      INDIRECT INVOLVEMENT
---------------------------------------------------------- Letter :3.2

Regarding the two cases where foreign involvement indirectly affected
title III projects, the program office modified one contract to allow
the contractor to be more competitive in the commercial market, but
did not allow such a contract modification in the other contract. 

In one of its earliest projects, the program office decided not to
modify the contract for the production of high purity quartz yarn. 
Prior to contract award, a French-owned and located company supplied
DOD weapons programs with the yarn through a domestic distributor. 
The French company did not bid on the title III contract but, since
contract award, has continued to satisfy DOD demand by building a
manufacturing plant in the United States.  Subsequent to the title
III contract award, the French-owned company reduced the price of its
quartz yarn.  As a result of this and other such factors, such as
reduced demand for the yarn, the title III contractor could not
compete successfully with this French-owned firm and could not sell
its product commercially.  The contractor submitted a proposal for a
contract modification.  However, the title III program office denied
the proposal because it was a request to do research and development
to develop improved yarn sizing and OSD's position is that research
and development is not permitted under title III.  In addition, the
contractor would not agree to commit to a contract specification. 
Because the French-owned plant is located in the United States, DOD
considers both the foreign-owned U.S.  facility and the title III
contractor to be domestic sources.  The title III high purity quartz
yarn is not being used in a weapon system because of reduced demand
and the competition from the foreign-owned source. 

More recently, the title III program office decided to modify the
contract for the graphite fiber project.  In this case, a Japanese
company was indirectly involved because it developed a material that
was considerably stronger and more marketable than the title III
project material.  In order for the title III contractor to remain
competitive, the program office modified the contract at no cost to
the government by allowing the contractor to incorporate technology
gained from a previous DOD project.  According to OSD officials,
unlike the quartz yarn project, research and development had already
been performed and the contractor agreed to a specification change. 
This modification is expected to increase the fiber strength, thereby
making it competitive with the Japanese fiber.  The program office
points to this as its evidence of efforts to reduce risk through
flexible contract modifications. 

      OVERSIGHT OF FOREIGN
      INVOLVEMENT WITH TITLE III
      PROJECTS
---------------------------------------------------------- Letter :3.3

Most of the title III contracts are not classified, which results in
reduced requirements for DOD review, oversight, and approval of
foreign involvement in these projects.  The title III office's
involvement is limited in evaluating the eligibility of foreign
companies interested in bidding on its contracts as a domestic
source.  When such a company wishes to bid, the title III office
submits a decision worksheet with a recommendation concerning
participation to the local Air Force foreign disclosure office to
determine if there are any restrictions on the country represented by
that company.  If the local foreign disclosure office gives its
approval, the title III office sends the solicitation to the foreign
company.  If the contract is awarded to a foreign company, standard
clauses are included in the contract informing the contractor that
the International Traffic in Arms Regulations must be followed.\5

A company must obtain an export license through the Department of
State (Office of Defense Trade Controls) in order to provide
export-controlled data to a foreign parent company or any foreign
national acting in the interest of that company.  The U.S.  Customs
Service is responsible for enforcing the International Traffic in
Arms Regulations. 

--------------------
\5 These regulations provide the control requirements for export and
import of defense articles and services by U.S.  and foreign entities
in the United States. 

      IMPACT OF FOREIGN
      INVOLVEMENT DIFFICULT TO
      DETERMINE
---------------------------------------------------------- Letter :3.4

The impact of direct or indirect foreign involvement in title III
projects is difficult to determine because (1) three of the four
projects are not yet completed and (2) none of the title III
materials produced to date under these four projects is actually
being used on a weapon system.  The question of impact is also
complicated by the definition of domestic source, as previously
discussed.  Although the definition does not exclude foreign-owned,
but domestically located firms from participating in the program,
various officials (a title III contractor, a technical sponsor,\6 and
Office of Foreign Disclosure officials) expressed concerns about
possible technology transfers to foreign-owned title III contractors. 
They questioned the safeguarding of the technology, especially
concerning those contracts with direct foreign involvement, but
acknowledged that they knew of no indication that such transfers took
place on any title III projects.  According to the title III program
office (1) title III contracts are screened prior to award to ensure
that they require the contractors to safeguard the technology and (2)
program officials have a responsibility to report any indications of
suspected technology transfer, above and beyond the contractors'
responsibilities.  No such reports have been made. 

--------------------
\6 The technical sponsor is the individual who has been designated by
the principal military service or other defense component to provide
technical support, advocacy, and oversight of a project from proposal
development through initial structuring to contract closeout. 

   WEAPON SYSTEM QUALIFICATION IS
   DIFFICULT
------------------------------------------------------------ Letter :4

Due to defense downsizing, budget cuts, and the reduced military
threat, DOD is building fewer new weapon systems.  As a result, most
projected demand estimates for title III materials have been reduced. 
Also, it is often difficult to find weapons program offices willing
to invest already scarce funds to qualify title III materials for use
in existing systems.  The title III office is working to find
additional military and commercial uses for materials produced under
title III contracts.  According to program officials, a potential
market is for state-of-the-art replacement materials for existing
weapon systems.  Title III officials are exploring this retrofit
market, but the cost of qualification testing remains a concern for
weapons program managers. 

There are three main methods of testing, or qualifying, materials for
use in weapon systems that may be applied after a title III
contractor has demonstrated material production capacity. 

  Material qualification.  This occurs when a material meets
     requirements set forth in a DOD contract.  This is the least
     expensive level of qualification, and the materials generally
     must meet other standards to be used in a weapon system. 

  Design allowable testing.  This entails significant testing to
     demonstrate that the material exhibits certain chemical,
     physical, and electrical properties.  OSD officials stated that
     not all title III materials are appropriate for this type of
     qualification.  Materials meeting these standards are placed in
     listings, such as MIL Handbook 5, used by defense contractors to
     identify potential materials.  Such listing is not required for,
     and does not guarantee, use in a DOD weapon system, but often
     enhances a material's market viability. 

  System qualification.  This entails testing the material as a
     fabricated part or component to determine if it meets specific
     weapon system requirements.  It is the most costly type of
     qualification.  However, even successful system qualification
     does not guarantee a viable market. 

      EARLY QUALIFICATION PROCESS
      SUCCESSFUL, BUT ULTIMATE
      GOAL NOT ACHIEVED
---------------------------------------------------------- Letter :4.1

Five of the six projects have met the material qualification
standards, as set forth in the title III contracts.  The sixth
project has not met material qualification standards because the
project has not completed phase I, but title III officials are
optimistic that the standards will be met. 

One of the five projects that met the material qualification
standards is currently being considered for weapon system use.  In
this case, Warner Robins Air Force Base officials have decided to use
the DRA project materials in the C-141 #2 emergency escape hatch, if
the material can successfully be processed into an end item.  The
Ogden Air Logistics Center is also qualifying the DRA project
materials in the F-16 vertical fin.  After coordinating with the
title III office, the contractor for the DRA project contacted Warner
Robins officials to find possible uses for its material.  According
to title III officials, their office is attempting to qualify its
other materials in a similar manner.  Materials produced under the
remaining four projects, although being evaluated for various
retrofit/new applications, are not currently being used in weapon
systems.  However, according to a title III program official, the
technology from the title III traveling wave tube project is now
being used in the manufacture of traveling wave tubes for other
systems. 

To date, none of the title III materials have completed
design-allowable testing.  The title III Working Group and Air Force
Headquarters have given approval to the title III office to finance
up to $3 million toward design-allowable testing for the two
contractors in the DRA project.  This is the first time the title III
office has been given the authority to fund such testing. 

The title III traveling wave tube project is the only project that
has achieved system qualification.  In this project, the tubes were
qualified, purchased, and provided to the Navy for use in the
Airborne Self-Protection Jammer.  However, the jammer program has
since been canceled. 

      COST AND DEMAND PROBLEMS
      ENCOUNTERED
---------------------------------------------------------- Letter :4.2

The 1992 DPA amendments provided that the cost of qualifying title
III material is to be borne by the department or agency imposing the
qualification requirement.  OSD interprets this provision to mean
that whichever DOD office or program requires system qualification
testing of a title III material is responsible for the testing
cost.\7 Previously, it was unclear whether the costs of
design-allowable and system qualification tests were the
responsibility of the contractor or the weapon system or title III
program offices. 

For weapon systems that have completed system qualification, the
program offices and contractors have already identified suppliers and
are reluctant to spend additional funds to qualify new materials
unless there is some benefit to the programs.  To facilitate
acceptance of its materials, the title III office provides material
samples from the projects to a variety of industry and DOD users for
testing and evaluation in exchange for the test results. 

As previously mentioned, it takes several years to complete a title
III project.  For the projects already undertaken, it took an average
of
39 months from contract start to material qualification (end of phase
I).  Only one project has completed phase II; the other projects are
in varying stages of completion.  As the projects mature, the demand
for the original material may change.  For example, we found that the
demand decreased for four of six projects. 

  In the traveling wave tube project, the title III office paid $3.3
     million to contractors for all 90 tubes produced to
     specifications.  These tubes were originally developed for use
     in the Airborne Self-Protection Jammer System, but the system
     was canceled.  Tubes that were not provided for system testing
     are now in storage at a Navy facility in Crane, Indiana, for use
     as spares on jammers that were already produced or, according to
     the program office, for new systems if the jammer program is
     reinstated. 

  In the graphite fiber project, the title III office paid about $2.2
     million for 4,581 (65 percent) of the 7,000 pounds of fiber
     produced during the first and second years of the phase II
     purchase commitment.  Of the
     4,581 pounds, almost 2,500 was sent to potential users for test
     and evaluation purposes, and the remainder is stored at the
     contractor's facility.  The title III office modified the
     contract in the third year of the purchase commitment (July
     1992) to incorporate technology advances from another DOD
     project.  The demand for the fiber produced under the original
     contract changed to a higher strength fiber.  According to the
     project director, this new fiber has recently been manufactured
     and shipped to the technical sponsor. 

  For the high purity quartz yarn project, the title III office paid
     $8.9 million to the contractor for 59,862 pounds of yarn, or
     99.8 percent of the
     60,000 pounds total produced.  This material was produced using
     a Teflon finish.  There were indications early in the project
     that the market for Teflon finish was drying up and that other
     finishes were more acceptable, but the contract was never
     modified to meet the existing demand.  According to program
     officials, the contract was not modified because the contractor
     wanted the government to do something that OSD believes is not
     authorized under title III:  fund the research and development
     of a better sizing to improve handling characteristics.  When
     production was completed, neither the contractor nor the title
     III office could find anyone to use the new yarn, which is
     currently stored at a DOD facility.  Recently, the technical
     sponsor and the title III marketing manager have identified
     potential markets for high purity quartz yarn with and without
     the Teflon finish. 

  In the AC/DQ steel project, the title III office is in the process
     of evaluating how to respond to the decrease in product demand. 
     At the time the phase I contract was awarded, DOD's projected
     demand for AC/DQ steels was higher than the current projected
     demand.  The title III office is deferring the decision on phase
     II until completion of phase I and review of its results. 
     Additionally, DOD is exploring whether sufficient commercial
     demand warrants continuation of the project. 

--------------------
\7 According to title III office and OSD officials, the DPA provision
will be implemented through a new Defense Federal Acquisition
Regulation Supplement clause, which is being developed. 

   DOD STRATEGIES TO REDUCE
   PROJECT RISK
------------------------------------------------------------ Letter :5

DOD's fiscal year 1992 report on the DPA title III program identified
several specific strategies the program office planned to implement
to reduce project risk.  These strategies were to improve the program
through more effective planning, management, and contracting actions
and included the following: 

  more flexible contract terms so material specifications,
     quantities, and prices can be adjusted as circumstances change;

  active support of contractor efforts to qualify title III materials
     for the broadest possible number of defense and commercial
     programs; and

  involvement of as many potential customers as possible in
     evaluating materials and providing feedback. 

As previously discussed, the experience of the last several years
indicates that (1) the title III program materials have been
underutilized, (2) DOD did not consistently monitor supply and demand
for program materials so that it could promptly respond to changes in
demand for its materials, (3) DOD did not always use flexible
contract terms, and (4) DOD had difficulty qualifying title III
program materials for use.  According to title III officials, the
title III program office, in coordination with the project sponsors,
has focused mostly on material qualification (phase I), but recently
has also addressed design-allowable testing. 

   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

Although there are indications that the title III program has become
more flexible in adjusting to changing market conditions, we
recommend that the Secretary of Defense take steps to ensure that the
Principal Deputy Assistant Secretary of Defense for Dual Use
Technology Policy and International Programs follow through on the
strategies identified in DOD's fiscal year 1992 report on the
program.  In particular, this should include

  using more flexible contract terms and monitoring supply and demand
     of materials on a continuing basis so that market changes can be
     reacted to in a timely fashion and

  considering funding for design-allowable testing efforts on other
     projects, as was the case for the DRA project, and actively
     supporting contractor efforts to qualify title III materials and
     involving as many potential customers as possible in evaluating
     such materials by continuing its recent efforts to qualify
     materials for projects besides DRA. 

   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

In commenting on a draft of this report, DOD fully concurred with its
findings and recommendations.  DOD agreed that there is a need to
ensure (1) title III contract terms are utilized that permit
flexibility during the life cycle of a project and (2) that funding
for design allowable testing is used where applicable.  DOD has
developed planned actions to address each of these matters.  DOD's
comments are provided in appendix II. 

   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

We obtained information on the project contracts and management of
the title III program by reviewing the contract files and
interviewing officials at the following offices at Wright Patterson
Air Force Base, Ohio: 

  Directorate of Manufacturing Technology (the Title III Program
     Office),

  Wright Aeronautical Laboratory, and

  Air Force Office of Foreign Disclosure. 

We also obtained information from the following contractors: 

  Fiber Materials Incorporated (FMI), Acton, Massachusetts;

  Fiber Materials Incorporated, Columbus, Ohio;

  Quartz Products Company, Louisville, Kentucky;

  Advanced Composite Materials Corporation (ACMC), Greer, South
     Carolina;

  AMOCO Performance Products, Inc., Greenville, South Carolina;

  Lukens Steel Company, Coatesville, Pennsylvania;

  Bethlehem Steel Corporation, Bethlehem, Pennsylvania; and

  Union Carbide Corporation, Washougal, Washington. 

We interviewed officials in the Office of the Principal Deputy
Assistant Secretary of Defense for Dual Use Technology Policy and
International Programs to obtain their views on the implementation of
the act and the 1992 amendments to the act.  We also visited and
interviewed officials at General Electric Aircraft Engines in
Cincinnati, Ohio, and Warner Robins Air Force Base, Georgia, to
obtain their views on the qualification of title III materials. 

We conducted our review between January 1993 and September 1993 in
accordance with generally accepted government auditing standards. 

---------------------------------------------------------- Letter :8.1

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from its issue date.  At
that time, we will send copies to the Secretary of Defense, the
Secretary of the Air Force, and other interested congressional
committees.  Copies of this report will also be made available to
others upon request. 

Please contact me at (202) 512-4587 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix III.

David E.  Cooper
Director, Acquisition Policy, Technology,
 and Competitiveness Issues

STATUS OF PROJECTS
=========================================================== Appendix I

                              (Dollars in millions)

                                                                Material
          Contractors                                           qualified for
          (contract award         Contract                      use in a weapon
Projects  date)                     amount  Status              system
--------  ------------------  ------------  ------------------  ----------------
Accelera  Bethlehem Steel            $3.12  Ending phase I      No
ted       Corporation and
cooled
direct    United States              $4.46
quenched  Steel/Lukens (5/
steels    90)

High-     AMOCO (7/88)               $7.88  Phase II material   No
modulus                                     met specifications
pitch-                                      only
based
graphite
yarns

Disconti  ACMC (high                $17.79  Phase II material   Currently being
nuous     strength) and                     met specifications  considered for
silicon-                             $9.12  and being tested    the C-141 #2
carbide   DWA Composites                    for MIL Handbook 5  emergency escape
reinforc  Specialties, Inc.                                     hatch and the
ed        (moderate                                             F-16 vertical
aluminum  strength) (9/89)                                      fin

High-     FMI (9/88)                $11.48  Completed -2/92     No
purity                                      material met
quartz                                      specifications
yarns                                       only

Silicon-  Union Carbide (9/         $23.39  Material met        No
on-       88)                               specifications
insulato
r/
silicon-
on-
sapphire
wafers

High-     Litton Systems,            $1.55  Completed -5/93     Yes\b
power,    Inc.                              system qualified
wide-                              $0.95\a  for the Airborne    No
band      Raytheon Company                  Self-Protection
travelin                             $1.73  Jammer              Yes\b
g wave    Teledyne MEC
tubes                              $1.79\a                      No
          Varian Associates,
          Inc. (9/87)

Intrinsi  Hemlock                    $1.43  Terminated -7/89    No
cally     (9/87)
pure
polysili
con\c
--------------------------------------------------------------------------------
\a This contract was terminated early. 

\b The Airborne Self-Protection Jammer System for which the tubes
were developed was canceled. 

\c This contract was terminated due to contractor inability to
produce material during phase I; therefore, we did not review the
project. 

(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
=========================================================== Appendix I

(See figure in printed edition.)

(See figure in printed edition.)

Now on pp.  2-4. 

(See figure in printed edition.)

Now on pp.  4-5. 

(See figure in printed edition.)

Now on pp.  5-6. 

Now on p.  6. 

(See figure in printed edition.)

Now on p.  7. 

(See figure in printed edition.)

Now on pp.  7-8. 

(See figure in printed edition.)

Now on pp.  8-9. 

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

Now on pp.  9-10. 

Now on pp.  10-11. 

(See figure in printed edition.)

Now on p.  11. 

(See figure in printed edition.)

Now on p.  11. 

MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Kevin M.  Tansey, Assistant Director
Rosa M.  Johnson, Adviser
Edward D.  Cole, Evaluator
Brian Mullins, Evaluator

CINCINNATI REGIONAL OFFICE

Rae Ann Sapp, Issue Area Manager
Myra A.  Watts, Evaluator-in-Charge
Kimberly A.  Gugino, Evaluator
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