Report to the Honorable Jeff Sessions,

U.S. Senate

United States General Accounting Office

GAO

December 2001 CONTRACT

MANAGEMENT

Update on DOD's

Purchase of Black

Berets

GAO-02-165
Page 1 GAO-02-165 Black Beret Procurement

December 11, 2001

The Honorable Jeff Sessions

United States Senate

Dear Senator Sessions:

On May 2, 2001, we testified on Defense Logistics Agency (DLA) efforts to

purchase black berets for Army forces. These purchases responded to the

Army’s announcement, in October 2000, that Army personnel would begin

wearing berets 8 months later. In an effort to respond to the Army’s

requirement in the limited time provided, DLA contracted for production

of nearly 5 million berets at a cost of about $30 million. In the process,

DLA shortcut normal contracting procedures and waived restrictions,

contained in the so-called “Berry Amendment,” that limit Department of

Defense (DOD) purchases of certain items, including clothing, to those

produced in the United States or its possessions. Despite these efforts,

DLA was unable to meet the Army’s deadline, and it terminated three

contracts because the contractors did not meet delivery requirements.

In response to your request, we followed up on our earlier work in order

to assess the current status of the black beret procurement as well as the

status of DOD’s efforts to ensure proper waivers of the Berry Amendment.

To date, DOD has received about 2.1 million berets—less than 1 million of

which were distributed to Army personnel. DOD still expects another

1.6 million berets to be delivered by September 2002.

DOD has also taken steps to ensure that proposed waivers of the Berry

Amendment are considered at an appropriate management level. DOD no

longer allows the Under Secretary of Defense (Acquisition, Technology

and Logistics) or the service secretaries to delegate their authority to

approve Berry Amendment waivers. Requests for waivers must also be

supported by analyses of why alternatives that would not require a waiver

were unacceptable. Since these requirements were set, the Under

Secretary has approved six waivers, all of which originated at the Defense

Logistics Agency.

Because DOD is taking actions to ensure proper waivers of the Berry

Amendment, we are not making recommendations.

United States General Accounting Office

Washington, DC 20548

Results in Brief
Page 2 GAO-02-165 Black Beret Procurement

On October 17, 2000, the Army Chief of Staff announced that all Active,

National Guard, and Reserve personnel would be issued black berets as

part of their standard headgear. The chief of staff also announced that

Army personnel would begin wearing the new berets on June 14, 2001—

the Army’s first birthday in the new millennium.

This decision placed substantial demands on DOD’s procurement system.

In fact, at the time of the announcement, DLA had only one domestic

supplier under contract to produce a maximum of 138,052 berets. To

obtain a large number of berets by the deadline, DLA contracted with

seven suppliers for 4.8 million berets valued at $29.6 million. DLA

identified only one domestic source for black berets and awarded it a

$7.6 million contract for 1.2 million black berets. The remaining berets

were to be produced by foreign sources, including more than 600,000

berets in China.1

We testified that due to the extremely short time frame for delivery of the

berets to the Army, there was very little time to plan for the purchase and

little room to respond to production problems. In their eagerness to serve

the Army, DLA contracting officials chose to shortcut normal contracting

procedures. For example, DLA awarded the first set of contracts without

competition. According to contract documents, the contract actions were

not competed because of an “unusual and compelling urgency,” one of the

circumstances permitting other than full and open competition. The basis

for the unusual and compelling urgency was:

“The Army will be seriously injured if this action is not approved. The Army Chief of Staff

has approved a uniform change for the entire Army and this action is imperative in order

for this Command [DLA] to support the service by the introduction date.”

We also testified that, in awarding contracts for foreign-produced berets,

DLA officials had approved waivers of the Berry Amendment. The Berry

Amendment can be waived2

 if the Secretary of the Department concerned

or designee determines that items of satisfactory quality and sufficient

quantity cannot be acquired as and when needed from domestic suppliers

at U.S. market prices. To meet the Army’s time frame, DLA determined

that domestic sources were unavailable to produce all of the berets

required and that contracting with foreign sources was necessary. The

 1

 Another 750,000 berets were to be made in South Africa with leather from China.

2

 Waivers are known as “domestic non-availability determinations.”

Background
Page 3 GAO-02-165 Black Beret Procurement

Deputy Commander of DLA’s Defense Supply Center-Philadelphia

approved the first two of the three waivers in November and December

2000. As the first waiver was being processed, questions were raised by

DLA Headquarters about whether waivers could be approved at this level.

In November 2000, DLA’s Senior Procurement Executive requested and

later received a delegation of authority to waive the Berry Amendment

from the Under Secretary of Defense (Acquisition, Technology and

Logistics). Using this delegation, DLA’s Senior Procurement Executive

approved the earlier waivers as well as an additional waiver.

In April 2001, the Under Secretary canceled this delegation of authority.

This action was taken to ensure that any request for a waiver to the Berry

Amendment “receives attention at an appropriate level within the

Department of Defense.” Before and during the hearing at which we

testified, questions were raised about whether waiving the amendment and

awarding a contract for Chinese production of berets were appropriate.

As of mid-October 2001, about 2.1 million berets had been delivered to

DLA. Less than 1 million of these berets have been distributed to Army,

National Guard, and Reserve personnel. Two actions reduced the

availability of berets.

• First, DLA terminated three contracts because of the contractors’ failure

to deliver berets on time.

• Second, on May 1, 2001, the Deputy Secretary of Defense, noting the Army

Chief of Staff’s decision that U.S. troops shall not wear berets made in

China or made with Chinese content, directed that appropriate action be

taken to dispose of those black berets. This action affected about 925,000

of the berets, valued at $6.5 million. DLA has not yet made a decision on

how to dispose of these berets.

As of mid-October, 2001, 1.6 million berets were still due under existing

contracts. DLA expects to have all of these on hand by September 2002.

DLA is in the process of contracting for additional berets so that it can

distribute two berets to all personnel and have an adequate stock of

berets. It expects to complete this distribution effort by October 2003.

(The status of DLA’s contracts for berets is summarized in table 1.)

Current Status of

Black Beret Purchase
Page 4 GAO-02-165 Black Beret Procurement

Table 1: Status of Black Beret Contracts

Location

Supplier Firm

Place of

Manufacturer

Quantity of

berets

purchased

Quantity

delivered

Quantity due

to be

delivered

Quantity

canceled

Current

dollar value

(in

thousands)

Bancroft Cap

Co.

U.S. U.S. (with

Pakistani and

South African

content)

1,200,000 398,398 801,602 $8,002

Dorothea

Knitting

Canada Canada 1,083,504 530,160 553,344 8,334

Denmark

Military

Equipment

U.S. Romania 480,816 90,292 40,256 350,268 751

Bernard Cap

Co.

U.S. South Africa

(with Chinese

content)

750,000 198,636 108,820 442,544 1,956

C.W.

Headdress

United

Kingdom

Sri Lanka 240,000 240,000 0 1,186

Kangol LTD. United

Kingdom

China 617,936 617,936 0 4,520

Northwest

Woolen Mills

U.S. India 392,064 56,736 99,920 235,408 993

On May 1, 2001, the Deputy Secretary of Defense issued a memorandum

underscoring the requirements of the Berry Amendment and directing that

the authority for waiving the amendment could not be delegated below the

Under Secretary of Defense (Acquisition, Technology and Logistics) or the

Secretaries of the Army, Navy, and the Air Force. The memorandum

rescinded all existing delegations of authority. And it stated that waivers

could not be granted without an analysis of why alternatives that would

not require a waiver were unacceptable. The Army, Navy, and Air Force,

as well as DLA, followed up on this memo by revising their own

acquisition regulations to incorporate the new requirements.

Since the memorandum was issued, the Under Secretary of Defense has

approved six waivers of the Berry Amendment.3

 All six originated from

DLA’s Defense Supply Center in Philadelphia. None of these purchases

 3

 In addition, the Secretary of the Army approved a waiver for baled cotton linters used in

the manufacture of nitrocellulose. The waiver applies to the Modular Artillery Charge

System, 120mm Tank Training Ammunition, and the 2.75 Inch Hydra 70 Rocket.

Actions Taken to

Ensure Proper

Waivers of the Berry

Amendment
Page 5 GAO-02-165 Black Beret Procurement

were new. In three cases the increased attention to the Berry Amendment

led some suppliers to identify situations where waivers were necessary

and in three other cases existing waivers were due to expire. The six

waivers cover purchases of (1) black berets, from the domestic

manufacturer, that included wool and leather from foreign sources,

(2) goat hair canvas used in producing military coats and headgear,

(3) rayon yarn used for military clothing and textile items such as sleeping

bags, insignias, and labels, (4) medical/surgical related purchases,

(5) cotton yarn of a special grade used in certain military gloves and

helmet liners, and (6) cambrelle— a textile material used in a variety of

military footwear.

• In May 2001, the domestic manufacturer of berets notified DLA that

foreign wool and leather had been used in berets delivered to DLA and

those in production at that time. Based on the Army’s requirement for

immediate delivery of berets, the Under Secretary approved a waiver for

these berets. DOD officials stated that, in the future, berets from this

company would be made entirely of U.S.-produced material.

• In July 2001, the Under Secretary approved a waiver for the use of goat

hair canvas. Military specifications require that goat hair canvas be used to

make certain coats and headgear. A company that produces these items

had been notified by its supplier that the goat hair canvas it provided was

not completely of domestic content. DLA researched the availability of

domestically produced goat hair canvas and found that goat hair canvas

had not been domestically produced since 1996. The waiver, therefore,

covered current and future contracts requiring goat hair canvas. However,

the Under Secretary’s waiver also required DLA to work with the services

to assess whether any other comparable and domestically available

material could be used. If no alternative is acceptable, the waiver requires

the service to provide a written explanation. In addition, if goat hair

canvas proves to be the only acceptable material, DLA is required by the

waiver to continue its search for a domestic producer that can comply

with the Berry Amendment.

• Following a May 2001 conference with its suppliers, DLA learned from a

contractor that the specialty cotton yarn (“90/1 cc or higher”) that is used

in military gloves had been obtained from a foreign source between 1994

and March 2001. DLA’s search for suppliers identified a contractor who

expected to begin domestic production of the specialty cotton yarn in

October 2001. In September 2001, the Under Secretary determined that it

was essential to allow procurement of clothing and textile items that

contain the specialty cotton yarn that had been obtained during the 1994

to March 2001 time frame, and approved a waiver covering only that

period.
Page 6 GAO-02-165 Black Beret Procurement

• Rayon yarn is used in a variety of clothing and other textile items. In 1987,

DOD determined that a certain type of rayon yarn (“yarn, 50 denier rayon”)

was not made domestically in sufficient quantity and with satisfactory

quality. Since 1995, DLA had not been able to acquire any items containing

domestically produced rayon yarn of acceptable quality and several

waivers of Berry Amendment requirements were approved. In July 2001,

the Under Secretary approved a waiver for current and future purchases of

clothing and textile items containing rayon yarn. However, the Under

Secretary directed that a review be conducted of any specification

requiring use of rayon yarn for the purpose of determining if a

domestically available material would suffice. If rayon yarn is found to be

the only acceptable material, the Under Secretary directed that DLA

continue to search for a domestic producer of rayon yarn.

• The military healthcare system relies on prime vendors to supply

commercial medical and surgical products for its treatment facilities.

These prime vendors normally distribute medical and surgical supplies to

civilian hospitals and treatment facilities in a given geographical area. DLA

has determined that about 10 percent of the items purchased from prime

vendors contain textile or fibers that are covered by the Berry

Amendment. The industry does not track the origin of items or their

content. Because an existing waiver for medical and surgical items was

due to expire, DLA and the services reviewed the potential impact of

eliminating Berry Amendment covered items from the prime vendor

program and concluded that such an action would disrupt the delivery of

healthcare and degrade military readiness. In response, in June 2001, the

Under Secretary approved an interim waiver for medical-surgical

purchases under the prime vendor program. The Under Secretary directed,

however, that DLA conduct a complete review of the origin of Berry

Amendment covered items and report to the Under Secretary on the

results of the review. The Under Secretary also directed that for any items

where a domestic equivalent is identified, foreign items should be deleted

from the database of items available under the prime vendor program.

• Cambrelle is a textile material that is bonded to other materials to make a

lining component for a wide variety of military footwear. In 1999, DLA

learned that cambrelle was no longer available domestically in satisfactory

quality. DLA efforts to identify a domestic supplier did not result in any

positive responses from the textile industry. The existing waiver was due

to expire in October 2001. In September 2001, the Under Secretary

approved a waiver for cambrelle that covers contracts awarded in fiscal

year 1999 and thereafter. However, the Under Secretary’s waiver also

required DLA to complete its review with the services to assess whether

any other comparable and domestically available material could be used. If

no other alternative is acceptable, the waiver requires the services to
Page 7 GAO-02-165 Black Beret Procurement

provide a written explanation. In addition, if cambrelle is the only

acceptable material, DLA is required to continue its search for a domestic

supplier who can comply with the Berry Amendment. Further, the Under

Secretary required DLA to provide a briefing on the results of its work

within the next 12 months.

To support continued attention to Berry Amendment requirements, DLA

also sent additional guidance to its buying activities in September 2001.

The guidance identified actions that contracting personnel could take to

heighten supplier awareness of the requirements of the Berry Amendment

and thus facilitate compliance with the Amendment. Among the actions

suggested were the following:

• highlighting Berry Amendment restrictions in pre-proposal conferences;

• including in solicitations the full text of the regulatory clause stating the

Berry Amendment requirements, rather than simply referencing the clause;

• making domestic source requirements a mandatory discussion item when

conducting negotiated procurements; and

• emphasizing the ability to implement domestic source restrictions when

contractor purchasing systems are reviewed.

In its written response to a draft of this report, DOD questioned whether

the reference to shortcuts in normal contracting procedures was

adequately explained. As a result, we expanded the background section to

explain our use of this phrase in greater detail. DOD also commented on

the timing and source of the request for delegation authority to waive the

Berry Amendment. We added additional detail in the background section

to clarify this issue. (DOD comments appear in app. I.)

To assess the purchase of black berets, we reviewed documentation

pertaining to this procurement obtained from the Defense Supply CenterPhiladelphia, DLA headquarters, and the Office of the Secretary of

Defense. We also discussed the procurement with officials from the Army,

DLA (Philadelphia and headquarters), and the Office of the Secretary of

Defense. To assess DOD efforts to ensure proper waivers of the Berry

Amendment, we reviewed policies and instructions issued by the Office of

Secretary of Defense, DLA, Army, Navy, and Air Force. We also reviewed

waivers that had been approved by the Under Secretary of Defense. Our

work was performed in accordance with generally accepted government

auditing standards.

Agency Comments

and Our Evaluation
Page 8 GAO-02-165 Black Beret Procurement

We are sending copies of this report to the Secretary of Defense; the

Director of the Defense Logistics Agency; the Secretaries of the Army, the

Navy, and the Air Force; the Chairman and Ranking Minority Member of

the Committee on Small Business, House of Representatives; and the

Director, Office of Management and Budget. We will also make copies

available to others on request.

If you have questions on this report, please contact me at (202) 512-4841.

Major contributors include Cristina Chaplain, Paul Greeley, and Karen

Zuckerstein.

Sincerely yours,

David E. Cooper

Director

Acquisition and Sourcing Management
Appendix I: Comments From the Department

of Defense

Page 9 GAO-02-165 Black Beret Procurement

Appendix I: Comments From the Department

of Defense
Appendix I: Comments From the Department

of Defense

Page 10 GAO-02-165 Black Beret Procurement (120060)
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