Testimony

Before the Committee on Small Business, House of

Representatives

United States General Accounting Office

GAO

For Release on Delivery

Expected at 10:00 a.m.

Wednesday, May 2, 2001 CONTRACT

MANAGEMENT

Purchase of Army Black

Berets

Statement of David E. Cooper, Director, Acquisition and

Sourcing Management

GAO-01-695T
Page 1 GAO-01-695T Contract Management

Mr. Chairman and Members of the Committee:

Thank you for inviting me to participate in today’s hearing on the purchase

of berets for the U.S. Army. The Army’s decision to issue black berets to

all of its forces in just 8 months placed enormous demands on the

Department of Defense’s (DOD’s) procurement system. In fact, at the time

of the announcement, DOD had only one domestic supplier under contract

to produce a maximum of 138,052 berets. To meet this challenge, DOD

awarded contracts to purchase nearly 5 million berets at a cost of about

$30 million. DOD’s contracting strategy consisted of increasing the

domestic supplier’s production, awarding contracts to known foreign

sources, and procuring berets from additional sources, anywhere they

could be found. My testimony will focus on two aspects of this strategy—

specifically, the contracting procedures DOD used in purchasing the

berets and circumstances surrounding waivers to the Berry Amendment, a

statutory requirement to purchase clothing items from domestic suppliers.

As you know, the Army Chief of Staff announced on October 17, 2000, that

all Active, National Guard, and Reserve personnel would be issued black

berets as part of their standard headgear. The Chief also announced that

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

Army’s first birthday in the new millennium.

In response, the Defense Logistics Agency (DLA) modified the domestic

supplier’s existing contract in early November to increase monthly

production from about 10,000 to over 100,000 berets per month. The

modification added 1.2 million berets to the domestic supplier’s contract.

DLA then awarded contracts to purchase berets from two known foreign

sources, which would deliver 1.6 million berets. Because a substantial

shortfall still existed, DLA contracting officials intensified their efforts to

identify other sources that could produce the berets and, in early

December, competitively awarded four contracts to purchase one million

berets from four additional foreign suppliers. In February 2001, when

production problems surfaced and deliveries fell behind schedule, DLA

exercised options on the competitively awarded contracts with the four

foreign sources to purchase another million berets. (Details of the

contract actions are included in app. I.)

Due to the extremely short timeframe for delivery of the berets to the

Army, DLA contracting officials took a number of actions to expedite

award of the contracts. For example, the first three contract actions in

November 2000 were taken by DLA without providing for “full and open”

Contractual

Arrangements to

Purchase the Berets
Page 2 GAO-01-695T Contract Management

competition as required by the Competition In Contracting Act of 1984.

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 to support the service by the introduction date.”

In addition, DLA contracting officials did not obtain a review of these

contract actions from the Small and Disadvantaged Business Utilization

Office for possible small business participation. Officials in the small

business office said they would have conducted an expedited review to

determine if a small business award was appropriate. However, a study

conducted for the Principal Under Secretary of Defense for Acquisition,

Technology, and Logistics concluded that the small business review was

immaterial to the outcome given the time constraints and because only

one domestic source was known to exist.

Also, in awarding a contract to one of the foreign sources, the DLA

contracting officer was confronted with a price that was 14 percent higher

than the price of the domestic supplier. The contracting officer performed

a price analysis and determined the price was fair and reasonable.

Contract documents explained that

“ . . . the Contracting Officer must make immediate awards to attempt to meet initial

fielding requirements of the Army, so there is no time to obtain detailed cost or pricing

data, analyze that data, develop a negotiation position, negotiate with a firm, and then

finally make award.”

Nevertheless, when competition was introduced into the process at a later

date, prices declined. Specifically, the price on the single largest

noncompetitive contract was 27 percent higher than the average

competitive price.

Despite all their efforts, DLA officials advised us that quality and delivery

problems will prevent distribution of berets to all Army forces by June 14.

In fact, the officials expect that less than half of the Army’s forces will

receive berets on that date. DLA officials also advised us that they are

terminating three contracts because the contractors did not meet delivery

requirements.
Page 3 GAO-01-695T Contract Management

Over the years, Congress has restricted DOD’s expenditure of funds for

purchases of certain articles and items, including clothing, to American

firms. The restrictions are contained in the so-called “Berry Amendment”

that has been included in various forms in legislation since 1941. The Berry

Amendment can be waived if it is determined that a satisfactory quality

and sufficient quantity of articles and items cannot be acquired as and

when needed at U.S. market prices. The determination to waive the Berry

Amendment must be made by the Secretary of the department concerned,

or a designee.

To meet the desired timeframes for purchasing the berets, DLA

determined that domestic sources were unavailable to produce all of the

berets required and that contracting with foreign sources was necessary.

DLA contracting officials in Philadelphia prepared three waivers to the

Berry Amendment. The Deputy Commander of DLA’s Defense Supply

Center-Philadelphia approved two waivers—on November 1 and

December 7, 2000. DLA’s Senior Procurement Executive approved the

third on February 13, 2001.

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

Headquarters about whether officials in Philadelphia had the authority to

waive the Berry Amendment. On November 8, 2000, DLA’s Senior

Procurement Executive requested that authority to waive the Berry

Amendment be delegated to DLA. On February 1, 2001, the Principal

Deputy Under Secretary of Defense (Acquisition, Technology, and

Logistics) delegated authority to waive the Berry Amendment to DLA’s

Director and Senior Procurement Executive, with the provision that it may

not be redelegated.

Upon receipt of the delegation of authority to waive the Berry

Amendment, DLA’s Senior Procurement Executive reviewed the waivers

and, on March 23, ratified the approvals made by the Deputy Commander

in Philadelphia. DOD’s Deputy General Counsel for Acquisition and

Logistics reviewed this matter and expressed the opinion that DLA

officials could take these actions to ratify the initial waivers.

On April 24, 2001, the Principal Deputy Under Secretary of Defense

(Acquisition, Technology, and Logistics) canceled the delegation of

authority previously granted to the DLA Director and Senior Procurement

Executive. The cancellation 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 . . .”

Waiver of the Berry

Amendment
Page 4 GAO-01-695T Contract Management

A chronology of the events surrounding waivers of the Berry Amendment

to purchase the berets from foreign sources is included in appendix II.

Mr. Chairman, clearly, the imposition of June 14 deadline placed DOD in a

high-risk contracting situation. In their eagerness to serve the customer,

DOD procurement officials chose to shortcut normal contracting

procedures. The date allowed very little time to plan for the purchase of

the berets and little room to respond to production problems. Ultimately,

DLA will not be able to meet the Army’s deadline. Had DOD taken more

time to plan for this acquisition and follow well-established contracting

procedures, such problems may well have been avoided.

Mr. Chairman this concludes my testimony. I will be happy to answer any

questions that you or Members of the Committee may have.

Conclusion
Page 5 GAO-01-695T Contract Management

Appendix I: Contracts for Black Berets

Award date

11/2/00

11/2/00

11/6/00

12/7/00

2/14/01

2/22/01

 Contractor

Bancroft Cap Co.

Dorothea Knitting Mills

Denmark Military Equipment

Bernard Cap Co.

C. W. Headdress

Northwest Woolen Mills

Kangol, LTD

Bernard Cap Co.

(option)

C.W. Headdress

(option)

Northwest Woolen Mills

(option)

Kangol, LTD

(option)

Totals

Quantity

1,200,000

1,083,504

480,816

375,000

120,000

196,032

308,968

375,000

120,000

196,032

308,968

4,764,320

Unit price

$6.30

7.20

5.75

5.95

4.36

5.05

6.24

5.95

4.36

5.05

6.68

Total price

$7,560,000

7,801,229

2,764,692

2,231,250

523,200

989,962

1,927,960

2,231,250

523,200

989,962

2,063,906

$29,606,611

Country of origin

Domestic

Canada

Romania

South Africa

Sri Lanka

India

China

South Africa

Sri Lanka

India

China
Page 6 GAO-01-695T Contract Management

Appendix II: Berry Amendment Waivers

(120064)

Nov. 1, 2000 DLA approves waiver-Dorothea Knitting Mills

and Denmark Military Equipment contracts

Dec. 7, 2000 DLA approves waiver-Bernard Cap., C.W.

Headdress, Northwest Woolen Mills, and Kangol,

LTD contracts

Feb. 1, 2001 Delegation of authority to Director, DLA and DLA

Senior Procurement Executive approved

Feb. 13, 2001 DLA approves waiver-Bernard Cap, C. W.

Headdress, Northwest Woolen Mills, and Kangol,

LTD contract options

Mar. 23, 2001 DLA Senior Procurement Executive reviewed and

approved November and December waivers

Apr. 24, 2001 Delegation of authority to DLA Director and Senior

Procurement Executive cancelled