Report to Congressional Committees

United States General Accounting Office

GAO

June 2001 QUALITY

ASSURANCE

The Fastener Quality

Act’s Small-Lot

Exemption

GAO-01-719
Page 1 GAO-01-719 The Fastener Quality Act

June 8, 2001

The Honorable Ernest F. Hollings

Chairman

The Honorable John McCain

Ranking Minority Member

Committee on Commerce, Science, and Transportation

United States Senate

The Honorable W. J. “Billy” Tauzin Jr.

Chairman

The Honorable John D. Dingell

Ranking Minority Member

Committee on Energy and Commerce

House of Representatives

The Honorable Sherwood L. Boehlert

Chairman

The Honorable Ralph M. Hall

Ranking Minority Member

Committee on Science

House of Representatives

To prevent substandard fasteners (threaded metallic screws, nuts, and

bolts) from being used in products where safety is critical, Congress

enacted the Fastener Quality Act (FQA) in 1990.1

 The law required persons

who manufacture and sell high-strength fasteners to ensure that the

fasteners meet applicable standards and specifications through laboratory

testing and recordkeeping.

 1

 P.L. 101-592.

United States General Accounting Office

Washington, DC 20548
Page 2 GAO-01-719 The Fastener Quality Act

Companies that use fasteners, particularly those of foreign automobiles,

subsequently became concerned that under the act, fastener

manufacturers’ costs for laboratory testing and recordkeeping could make

fasteners purchased in small packages for service repairs and assembly

kits prohibitively expensive. In turn, they were concerned that these

higher costs could lead fastener manufacturers to either stop selling

fasteners in small packages or continue to offer them for sale but at a price

so high that users might stop buying them and instead substitute lower

quality, lower cost, “hardware store” fasteners. They believed that such

substitution could result in fastener failures in end-users’ products and a

decrease in public safety, rather than the improved public safety that the

law intended.

As a result of these concerns, Congress amended FQA in 19992 to exempt

from testing and recordkeeping those fasteners that are (1) ordered for

use as a spare, substitute, service, or replacement part in packages

containing 75 or fewer items or (2) contained in an assembly kit. We refer

to both exemptions as the small-lot exemption, and it applies to fasteners

manufactured on or after December 6, 1999.

However, Congress was also concerned that this exemption could allow

manufacturers to sell substandard, untested fasteners in packages of 75 or

fewer or as parts in assembly kits. This concern led Congress to include a

provision in the 1999 FQA amendments requiring us to prepare a report

not later than 2 years after its enactment, describing any changes in

fastener industry practice “resulting from or apparently resulting from” the

small-lot exemption. This report satisfies that requirement.

To perform our study, we (1) monitored U.S. Customs Service mechanical

and chemical tests of fasteners imported in early 2001 and compared the

results with similar tests performed by Customs in 1998; (2) had the

Defense Supply Center Philadelphia (DSCP) send samples of fasteners

purchased in small packages before and after December 1999 to Customs

for testing and compared the results; (3) published a notice in the Federal

Register on August 9, 2000 (see app. II), and on our Web site asking the

public to provide any evidence of changes in industry practices; and (4)

asked officials from federal agencies that use fasteners whether they had

any evidence of industry changes. We conducted our review from January

2000 to May 2001, in accordance with generally accepted government

 2

 P.L. 106-34.
Page 3 GAO-01-719 The Fastener Quality Act

auditing standards. A more detailed discussion of our objective, scope, and

methodology is included as appendix I.

We found no evidence that the fastener industry changed any practices

resulting from, or apparently resulting from, the small-lot exemption.

Customs’ limited tests of imported fasteners in 2001 found no evidence of

substandard fasteners and no evidence of any decline in the quality of

fasteners from the results of tests Customs conducted in 1998. Likewise,

Customs’ 2001 tests of fasteners that DSCP purchased before and after

December 1999 found that none were defective.

Similarly, responses to our Federal Register notice uncovered no evidence

of changed practices resulting from the small-lot exemption. Further,

officials from federal agencies that use fasteners stated that they had no

evidence of industry changes.

Commerce officials stated that they had no substantive written comments

to make on the report, but did provide technical comments, which we

have incorporated as appropriate. Treasury officials similarly stated that

they had no substantive written comments, but also provided technical

comments, which we likewise incorporated as appropriate. Finally,

Defense officials provided comments concurring in the report findings and

providing technical comments, which we have incorporated as

appropriate.

Billions of fasteners are used in safety-critical applications such as

buildings, nuclear power plants, bridges, motor vehicles, airplanes, and

other products or equipment each year. For example, an automobile may

have as many as 3,000 fasteners.

In 1988, the House Committee on Energy and Commerce’s Subcommittee

on Oversight and Investigations issued a report on counterfeit and

substandard fasteners that, along with hearings held by the House Science

Committee, led to the enactment of FQA on November 16, 1990. The

subcommittee reported that failures of substandard and often counterfeit

fasteners may have been responsible for deaths and injuries, reduced

defense readiness, and that they potentially threatened the safety of every

American. According to the subcommittee report, the Defense Industrial

Results in Brief

Background
Page 4 GAO-01-719 The Fastener Quality Act

Supply Center,3 which supplies fasteners to the armed services, found that

its inventory contained over 30 million counterfeit fasteners and that Army

depots contained another 2.6 million. Similarly, the National Aeronautics

and Space Administration (NASA) reported that it found substandard

fasteners in space shuttle equipment, and six of its fastener vendors were

found to have inadequate quality-control systems. The Air Force likewise

discovered substandard flight safety-critical aerospace fasteners in its

inventory.

FQA covers certain threaded, metallic, heat-treated fasteners of onequarter inch diameter or greater for use in safety-critical applications. As

originally enacted in 1990, FQA

• required manufacturers and importers to submit all lots of fasteners with

significant safety applications to accredited laboratories for testing;

• established a laboratory accreditation program at the Commerce

Department’s National Institute of Standards and Technology (NIST);

• required original test certificates to accompany the fasteners throughout

the sale process;

• established requirements for manufacturers’ insignias to ensure

traceability of fasteners to manufacturers and distributors; and

• provided for civil and criminal penalties for violations of the act.

Since its passage, FQA has been amended several times. Concerns over

the regulatory burden of FQA on aviation manufacturers led Congress, in

August 1998, to amend the act to exempt certain fasteners approved by the

Federal Aviation Administration for use in aircraft.4

 The 1998 amendments

also delayed implementation of NIST’s regulations for accrediting testing

laboratories.

FQA was amended again on June 8, 1999,5

to make it less burdensome:

• Fasteners that are part of an assembly or that are ordered for use as a

spare, substitute, service, or replacement part in a package containing 75

or fewer parts at the time of sale or are contained in an assembly kit (i.e.,

the small-lot exemption) were exempted from coverage.

 3

 Now the General and Industrial Directorate of the Defense Supply Center Philadelphia.

4

 P.L. 105-234.

5

 P.L. 106-34.
Page 5 GAO-01-719 The Fastener Quality Act

• Fasteners manufactured in a facility using quality-assurance systems were

exempted from coverage.

• The amendment required accredited laboratory testing only of fasteners

manufactured to consensus standards requiring testing, and postponed

that requirement until June 2001.

• Companies were allowed to transmit and store electronically all records

on fastener quality provided that reasonable means of authentication of

the source of the document existed.

• The Commerce Department was required to establish and maintain a

hotline for reporting alleged violations of the law. All credible allegations

would then be forwarded to the Attorney General.

The amendment also made it unlawful to knowingly misrepresent or falsify

the fastener’s record of conformance or identification, characteristics,

properties, mechanical or performance marks, chemistry, or strength.

Although FQA does not mention Customs, Customs is authorized by 15

U.S.C. § 1125(b) to identify and detain imported goods marked or labeled

with a false description or representation.6

 Under this authority, Customs

has conducted spot checks of imported fasteners since 1987 to determine

if fasteners’ descriptions or representations are accurate. It has seven

laboratories located around the country that provide scientific support to

all Customs officers, other government agencies, and foreign governments

as part of international assistance programs. Customs laboratories tested

samples from randomly selected shipments of graded bolts7 imported from

January through April 1998 in various sized lots and again in March and

April 2001. These included one or more of the following tests: carbon,

sulfur, phosphorous, alloying elements (chemical tests); or tensile strength

and hardness (mechanical tests).

 6

Customs regulations for this section are found in 19 C.F.R. § 11.13(a) and Part 134.

7

Grade markings identify a bolt’s material, strength, performance characteristics, and the

standard to which it was manufactured. For example, grade 5 and grade 8 bolts are highstrength heat-treated fasteners manufactured to standards of the Society of Automotive

Engineers.
Page 6 GAO-01-719 The Fastener Quality Act

Customs’ Chicago laboratory tested 66 randomly selected shipments of

graded bolts (12 in small lots) imported during March and April 2001 and

found that none were substandard.8 As discussed below, this is a decrease

from results of tests that Customs did before December 1999.

Customs’ laboratories also tested a random sample of 77 shipments of

graded bolts imported in various sized lots from January 12 to April 12,

1998, and found three (not in small lots) to be substandard. The bolts

failed either the tensile or hardness test and were imported through

Chicago from Korea or Taiwan. On the basis of these sample results, the

Customs study estimated that 5 percent of the 3,097 shipments of the same

type of bolts that entered U.S. ports during the 3-month test period were

substandard.

In addition to testing graded fasteners imported in March and April 2001,

Customs’ Chicago laboratory tested, at our request, samples of graded

bolts from 15 small lots9 that DSCP had purchased between January 1998

and February 2001, and found that none were defective. Three lots were

from contracts for purchases after December 199910 and the remainder

were before this time. According to a DSCP official, there is no way to

determine if the contractors used foreign or domestic materials. Because

of the small number of lots tested, the results, by themselves, cannot be

used to make any conclusions about industry changes in manufacturing

small lots. These results are, however, the best data available on fasteners

that DSCP purchased in small lots.

 8

 As of May 25, 2001, Customs had not yet completed laboratory tests on 74 samples.

9

 We asked DSCP to test more than 15 samples so that the results would be representative

of their inventory of bolts. However, for reasons explained in appendix I, this was not

possible.

10 The date of manufacture was not known, so we used the date of purchase as a proxy for

determining whether the bolts were subject to the small-lot exemption that applies to

fasteners manufactured after December 1999.

Customs’ Limited

Tests of Imported

Fasteners Found No

Evidence of

Substandard

Fasteners Imported

After December 1999

Customs’ 2001 Test of

Defense Fasteners

Found None Were

Defective
Page 7 GAO-01-719 The Fastener Quality Act

None of the 14 responses to our Federal Register notice stated that the

fastener industry had changed any practices as a result of the small-lot

exemption, as shown in the examples below.

The Industrial Fasteners Institute and the National Fastener Distributors

Association said they believe that there will be no evidence of significant

changes in industry practice because most fasteners sold under the smalllot exemption are produced under quality-assurance systems and are

therefore not subject to the act. They further stated that since fastener

manufacturers can comply with the test requirements in the amended act

in a cost-efficient manner, it is doubtful that industry members would

attempt to avoid these costs by marketing fasteners in small-lot packages.

The Canadian Fasteners Institute said that in the last decade, the fastener

industry has made great advances and investments in product quality

control and assurance. It said that the concern with the small-lot

exemption stems from its potential for creating a public safety hazard and

that the opportunity for the emergence of substandard products in

commerce is too great a risk with the small-lot exemption in place. It

suggested that, in lieu of any exemptions, FQA be amended to say that the

manufacturer, distributor, or importer that sells fasteners as having certain

mechanical and physical properties must be capable of substantiating

those properties. That is, promises a seller makes to a buyer must be

verifiable with objective evidence.

The Alliance of Automobile Manufacturers and the Association of

International Automobile Manufacturers (AIAM) said that their members

produce virtually all the passenger cars and light trucks sold in the United

States and use 300 billion fasteners annually. They reported that Congress

exempted most automotive fasteners from FQA because strong incentives

exist to enhance fastener quality, given the potential impact of faulty

fasteners on customer satisfaction, product liability, and regulatory

liability. They said that manufacturers have developed various measures,

as follows, to assure the quality of the fasteners that they purchase:

Proprietary standards—Vehicle manufacturers have developed their

own fastener standards to assure that their fasteners are appropriate for

specific applications.

Quality-assurance systems—Vehicle manufacturers generally require

that their fastener suppliers be certified under fastener quality-assurance

systems to minimize the occurrence of nonconforming fasteners.

Responses to Federal

Register Notice

Uncovered No

Evidence of Changes

in Industry Practices
Page 8 GAO-01-719 The Fastener Quality Act

Closed-loop acquisition—Vehicle manufacturers generally purchase

their fasteners from approved suppliers to assure quality and

accountability, and rarely purchase generic fasteners on the open market.

The Alliance and AIAM said that they surveyed their members to obtain

responses to the questions contained in our Federal Register notice. They

said that the responses they received represented over 90 percent of U.S.

light vehicle sales in calendar year 1999. None of the respondents reported

any significant changes in procurement and packaging practices that

involved a reduction in units per package to below 75 units, or an increase

in the use of assembly kits as a means of complying with the FQA

requirements through the small-lot exemption.

The Alliance and AIAM said that on the basis of these survey results,

virtually all of the fasteners produced to assemble or service members’

products are either manufactured to internal company proprietary

standards or are produced under a qualifying fastener quality-assurance

system, or both. As a result, they said much less than 1 percent of

fasteners purchased are exempt from FQA solely through the small-lot

exemption.

These groups reported that the small-lot exemption still serves a very

important purpose: to allow the continued availability, at an affordable

price, of many spare-part fasteners required to service their members’

products in a safe manner. The majority of these small package/assembly

kit fasteners are used to service older models that typically have very low

annual sales of spare parts. Without this vital exemption, they report, the

costs of such parts would become prohibitive, forcing their members to

remove many of these products from the market. In such a case, they

believe, the customer desiring to service his or her car would typically be

forced to substitute the correct-specification fastener with a generic

hardware store look-alike fastener, one that in all likelihood was

manufactured to different specifications and uncertain quality standards.

The Equipment Manufacturers Institute, an association of companies that

manufacture agricultural, construction, forestry, materials-handling, and

utility equipment, reported that its members want the small-lot exemption

to remain in law. They are concerned that altering or removing it could

result in burdensome paperwork and wasteful and unnecessary quality

tests for fasteners that are commonly used for the off-road equipment

industry. They said this would result in large nonvalue-added costs that

would ultimately be borne by the consumer and reduce America’s global
Page 9 GAO-01-719 The Fastener Quality Act

competitiveness and cost jobs. Additionally, they stated, fastener quality

has not been a problem for its industry, and remains that way today.

Other comments received included the following:

• The director of quality assurance at Huck Fasteners, Inc., said that he had

surveyed his eight manufacturing facilities and found no changes in how

fasteners are packaged as a result of FQA.

• A fastener manufacturer’s representative said that he had not seen any

changes in industry practices as a result of the small-lot exemption, and

that all the manufacturers and distributors he knows are in compliance.

• The president of Edward W. Daniel Co., a manufacturer of industrial lifting

hardware and a member of the National Fastener Distributors Association,

said that most manufacturers/importers of fasteners have developed

quality programs and maintain the appropriate records for tracing the

manufacturing materials used.

None of the officials that we spoke with in DSCP or NASA reported any

evidence of changes in fastener industry practices resulting from, or

apparently resulting from, the small-lot exemption. DSCP officials

reported that their agency requires prospective suppliers of fasteners to

have a quality-assurance system. Likewise, officials from the Departments

of Commerce and Justice, agencies that have specific responsibilities

under FQA, stated that they did not have any evidence of changes in

fastener industry practices.

DSCP did not report any changes in industry practices. It operates a

program that requires both manufacturers and distributors who want to

sell to it to be prequalified. According to the agency Web site, applicants

for the program must demonstrate their controls and established criteria

to provide maximum assurance that the products procured conform to

specifications. In addition, DSCP tests certain product lines, such as

aerospace products, and randomly selects products for testing on a regular

basis from its inventory. DSCP officials said that they manage

approximately 1.2 million items, of which about 300,000 are fastener

products and about 10 percent are covered under FQA.

Federal Agencies

Reported No

Evidence of Changes

in Industry Practices
Page 10 GAO-01-719 The Fastener Quality Act

None of NASA’s nine centers11 reported any changes in industry practices

as a result of the small-lot exemption.

NIST officials responsible for FQA said that, as of March 31, 2001, they

have not received any reports that the fastener industry has changed any

practices as a result of the small-lot exemption. Similarly, officials from

the Bureau of Export Administration reported that, as of March 30, 2001,

their fraud hotline, which became operational on June 27, 2000, had not

received any allegations that relate to the small-lot exemption.

Officials at the Department of Justice said that the 1999 amendments to

FQA were so new that neither its criminal nor civil divisions had any

activity involving fasteners. Additionally, they said, they were not aware of

any prosecutions or convictions involving fasteners sold in packages of 75

or fewer or in assembly kits since December 1999.

We found no evidence that the fastener industry has changed any practices

resulting from, or apparently resulting from, the small-lot exemption.

We provided a draft of this report to the Secretary of Commerce, the

Secretary of Treasury, and the Secretary of Defense for review and

comment.

In a June 4, 2001, letter, the Secretary of Commerce stated that the

relevant bureaus of the Department of Commerce had reviewed the report

and had no substantive comments (see app. III). Other Commerce staff

provided technical comments on the draft report, which we incorporated

as appropriate. In a May 23, 2001, memorandum, the Director, Office of

Planning, U.S. Customs Service stated that he had no substantive

comments to make (see app. IV). Other U.S. Customs staff provided

technical comments on the draft report, which we also incorporated as

appropriate. The Department of Defense provided comments, concurring

in the report’s findings and providing technical comments on the draft

report, which we incorporated as appropriate.

 11 Ames Research Center, Glenn Research Center, Goddard Space Flight Center, Jet

Propulsion Laboratory, Lyndon B. Johnson Space Center, John F. Kennedy Space Center,

Langley Research Center, George C. Marshall Space Flight Center, and John C. Stennis

Space Center.

Conclusion

Agency Comments

and Our Evaluation
Page 11 GAO-01-719 The Fastener Quality Act

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

Secretary of the Treasury; the Secretary of Defense; and the Administrator,

National Aeronautics and Space Administration. Copies will also be

available at our Web site at www.gao.gov.

Should you have any questions on matters contained in this report, please

contact me at (202) 512-6240 or Alan Stapleton, Assistant Director, at (202)

512-3418. We can also be reached by e-mail at koontzl@gao.gov or

stapletona@gao.gov, respectively. Other key contributors to this report

included David Plocher and Theresa Roberson.

Linda Koontz

Director, Information Management Issues
Appendix I: Objective, Scope, and

Methodology

Page 12 GAO-01-719 The Fastener Quality Act

As stated in FQA, our objective was to determine if there had been any

changes in fastener industry practice “resulting from or apparently

resulting from” the small-lot exemption in FQA. To achieve this objective,

we compared the results of Customs’ mechanical and chemical tests of

bolts imported during March and April 2001 with the results of similar

testing performed by Customs for bolts imported from January through

April 1998.

These tests had several limitations. According to Customs officials, the

document that an importer provides for each shipment of fasteners does

not have to identify that the shipment contains packages of 75 or fewer

fasteners (i.e., small lots) or that the fasteners are of a particular grade.

Therefore, for both the 1998 and 2001 tests, Customs could not randomly

select just those shipments containing small lots of grade 5 and grade 8

fasteners. Rather, the selection also included ungraded fasteners that were

not sent to the laboratory for testing because, without the grade marking,

Customs could not identify the test standards. For the 2001 test, Customs

recorded when the package selected contained 75 or fewer graded bolts so

we could compare their test results with those for packages containing

more than 75 bolts. We observed Customs’ inspection of imported

fasteners at Chicago’s O’Hare International Airport; we also visited

Customs’ Chicago laboratory and observed its testing of some of the

selected fasteners.

Another limitation was that Customs designed both its 1998 and 2001

studies to only randomly select shipments valued at $2,500 or more so that

resources were not spent on small, inconsequential shipments. However,

problems during the 1998 study caused over 28 percent of the shipments

selected to be valued at less than $2,500. These included 80 shipments

valued at less than $500 and at least one valued at $1. Based on the price of

grade 5 and grade 8 bolts, it is likely that some of the 80 shipments valued

at less than $500 included in the 1998 test were in small lots.

To address our objective, we also compared the results of Customs’

mechanical and chemical tests of fasteners DSCP purchased in small lots

from January 1998 to December 1999 with the results of Customs’

mechanical and chemical tests of fasteners DSCP purchased from January

2000 to January 2001. We selected DSCP because of its problems in the

1980s with counterfeit fasteners. We asked DSCP to send the samples

directly to Customs for testing.

There were limitations in DSCP’s selection of the samples. DSCP officials

initially identified 56 different contracts for small-lot purchases for

Appendix I: Objective, Scope, and

Methodology
Appendix I: Objective, Scope, and

Methodology

Page 13 GAO-01-719 The Fastener Quality Act

potential testing, yet only 15 lots were ultimately tested. DSCP officials

decided that 15 of the 56 contracts were ineligible for testing because the

lot size was fewer than 25 bolts; thus, taking several bolts for testing could

result in DSCP’s not being able to fill a customer’s order. Officials further

said that 25 small-lot purchases were not tested because no inventory

remained at the time the depots were asked to ship the bolts to Customs’

laboratory. Finally, one sample sent to Customs for testing was not

traceable to a contract number, and so it was eliminated from the test

results.

To give the public an opportunity to report any changes in industry

practices, we published a notice in the Federal Register on August 9, 2000

(F.R. 48714), and on our Web site, asking for comments no later than

November 30, 2000. We also notified nearly 60 journals, newsletters,

associations, and manufacturers of our Federal Register notice. As a

result, several journals (e.g., Fastener Industry News and Wire Journal

International) wrote articles about our study that often referred readers

who wanted more information to our Federal Register notice or Web site.

We also asked associations representing the fastener industry and the

automobile industry to notify their memberships about our Federal

Register notice and Web site notice.

We asked officials at agencies that had experienced problems with

fasteners in the past (DSCP and NASA) and NIST (with responsibilities

under FQA) if they were aware of any changes in industry practices

resulting from, or apparently resulting from, the FQA small-lot exemption.

In addition, we asked officials at Commerce’s Bureau of Export

Administration whether they had received any FQA allegations involving

small lots of fasteners and officials in the Department of Justice about any

allegations, investigations, prosecutions, or convictions involving fasteners

sold in small lots or in assembly kits.

We also attempted to compare the results of NASA’s tests of grade 8

fasteners purchased by its Langley Research Center before and after

December 1999. However, there were too few mechanical and chemical

tests completed to make this comparison possible.

We conducted our review from January 2000 to May 2001, in accordance

with generally accepted government auditing standards. We performed our

work in Washington D.C., and Chicago, Illinois.
Appendix II: Federal Register Notice

Page 14 GAO-01-719 The Fastener Quality Act

Appendix II: Federal Register Notice
Appendix II: Federal Register Notice

Page 15 GAO-01-719 The Fastener Quality Act
Appendix II: Federal Register Notice

Page 16 GAO-01-719 The Fastener Quality Act
Appendix III: Comments From the

Department of Commerce

Page 17 GAO-01-719 The Fastener Quality Act

Appendix III: Comments From the

Department of Commerce
Appendix IV: Comments From the U.S.

Customs Service

Page 18 GAO-01-719 The Fastener Quality Act

Appendix IV: Comments From the U.S.

Customs Service

(410501)
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