Department of Defense: A Departmentwide Framework to Identify and Report Gaps in the Defense Supplier Base Is Needed
Published: 2008-10-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) relies on thousands of suppliers to provide weapons, equipment, and raw materials to meet U.S. national security objectives. Yet, increased globalization in the defense industry and consolidation of the defense supplier base into a few prime contractors has reduced competition and single-source suppliers have become more common for components and subsystems. For this report, GAO (1) assessed DOD's efforts to monitor the health of its defense supplier base, and (2) determined how DOD identifies and addresses gaps that might exist in its supplier base. To conduct its work, GAO reviewed supplier-base-related laws, regulations, and guidelines; met with officials from DOD's Office of Industrial Policy, defense contractors, and other DOD officials; and surveyed 20 major DOD weapon acquisition program officials on potential supplier-base gaps.
section_title: What GAO Found
paragraphs: DOD's efforts to monitor its supplier base lack a departmentwide framework and consistent approach. Its monitoring efforts generally respond to individual program supplier-base concerns or are broader assessments of selected sectors. As part of its supplier-base monitoring efforts, DOD has also previously identified lists of critical items--which according to DOD's Office of Industrial Policy (Industrial Policy) do not reflect the dynamic changes that occur in industry, technology, and DOD requirements. While DOD recently established criteria for identifying supplier-base characteristics that could be problem indicators--such as sole-source suppliers and obsolete or emerging technologies--these criteria have primarily been applied to the missile and space sectors and have not been used to guide the identification and monitoring of supplier-base concerns for all sectors departmentwide. DOD uses an informal approach to identify supplier-base concerns, often relying on the military services, program offices, or prime contractors to identify and report these concerns, including gaps or potential gaps. As no requirement for when to report such gaps to higher-level offices exist, knowledge of defense supplier-base gaps across DOD may be limited. While 16 of the 20 program officials GAO surveyed reported that they identified supplier gaps or potential gaps over the past 5 years, only 4 reported sharing this information with Industrial Policy. These gaps included obsolescence of components and items with only one available supplier. Program offices often relied on the prime contractor to identify and help address supplier-base gaps, and prime contractors and programs generally used their discretion as to when to report gaps to higher levels. As a result, Industrial Policy may not be receiving information to help it activate available tools, such as the authorities under the Defense Production Act, to mitigate supplier-base gaps.

section_title: Letter
paragraphs: The Department of Defense (DOD) relies on thousands of suppliers to  The Department of Defense (DOD) relies on thousands of suppliers to  ensure that it has the weapons, supporting equipment, and raw materials  ensure that it has the weapons, supporting equipment, and raw materials  that it needs to meet U.S. national security objectives and maintain U.S.  that it needs to meet U.S. national security objectives and maintain U.S.  military superiority. DOD’s Patriot Advanced Capability-3 missile program  military superiority. DOD’s Patriot Advanced Capability-3 missile program  alone depends on over 800 suppliers providing items ranging from screws  alone depends on over 800 suppliers providing items ranging from screws  to radio-frequency seekers. Increasing globalization in the defense  to radio-frequency seekers. Increasing globalization in the defense  industry has intensified debate over the use of foreign versus domestic  industry has intensified debate over the use of foreign versus domestic  suppliers and presents uncertainty over the ability of the United States to  suppliers and presents uncertainty over the ability of the United States to  maintain military superiority in critical technology areas. Further, as the  maintain military superiority in critical technology areas. Further, as the  defense supplier base has consolidated into a few prime contractors,  defense supplier base has consolidated into a few prime contractors,  competition has been reduced and single source suppliers have become  competition has been reduced and single source suppliers have become  more common for components and subsystems. DOD relies on its Office of  more common for components and subsystems. DOD relies on its Office of  the Deputy Under Secretary of Defense for Industrial Policy (Industrial  the Deputy Under Secretary of Defense for Industrial Policy (Industrial  Policy) to help ensure that it sustains an environment for a reliable, cost- Policy) to help ensure that it sustains an environment for a reliable, cost- effective, and sufficient supplier base.  effective, and sufficient supplier base.
In response to your interest in the ability of the defense supplier base to  In response to your interest in the ability of the defense supplier base to  help DOD meet its national security and strategic objectives and DOD’s  help DOD meet its national security and strategic objectives and DOD’s  visibility into its suppliers, we (1) assessed DOD’s efforts to monitor the  visibility into its suppliers, we (1) assessed DOD’s efforts to monitor the  health of its defense supplier base, and (2) determined how DOD identifies  health of its defense supplier base, and (2) determined how DOD identifies  and addresses gaps that might exist in its supplier base.  and addresses gaps that might exist in its supplier base.
To conduct our work, we reviewed laws, regulations, and guidelines  To conduct our work, we reviewed laws, regulations, and guidelines  relating to the DOD supplier base. We met with officials from Industrial  relating to the DOD supplier base. We met with officials from Industrial  Policy, the military services, the Missile Defense Agency, selected DOD  Policy, the military services, the Missile Defense Agency, selected DOD  weapon program offices, the Defense Contract Management Agency, the  weapon program offices, the Defense Contract Management Agency, the  Department of Commerce’s Bureau of Industry and Security, four defense  Department of Commerce’s Bureau of Industry and Security, four defense  contractors, and an official from the Center for Strategic and International  contractors, and an official from the Center for Strategic and International  Studies. We also administered a questionnaire to a nongeneralizable  Studies. We also administered a questionnaire to a nongeneralizable  sample of 20 DOD weapon acquisition program officials to determine  sample of 20 DOD weapon acquisition program officials to determine  whether these programs experienced any gaps in their supplier base and  whether these programs experienced any gaps in their supplier base and  identify areas where these gaps exist. We selected these 20 programs  based on criteria including representation of the aerospace or electronics  industries, a range of systems in terms of the sponsoring military service,  varying stages in the acquisition life cycle, and size of their budgets. We  conducted this performance audit from September 2007 through August  2008, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. For more on our scope and  methodology, see appendix I.
subsections: section_title: Background
paragraphs: DOD’s primary representative for supplier-base issues is the Office of the  Deputy Under Secretary of Defense for Industrial Policy (Industrial  Policy). Its mission is to sustain an environment that ensures the industrial  base on which DOD depends is reliable, cost-effective, and sufficient to  meet its requirements. Industrial Policy defines reliability as suppliers  providing contracted products and service in a timely manner; cost- effectiveness as the delivery of products and services at or below target  costs; and sufficiency as suppliers delivering contracted products and  services that meet prescribed performance requirements. DOD’s Program  Executive Officers manage a portfolio of programs related to weapon  systems. DOD also relies on a cadre of military and civilian officials— known as program managers—to lead the development and delivery of  individual weapon systems. Program managers or their designees interact  with prime contractors who manage subcontractors to provide the final  good or service to DOD. Currently, DOD relies primarily on about six  prime contractors who manage thousands of subcontractors for DOD  systems.
DOD has a variety of authorities, including laws, regulations, and an  executive order, that govern its interaction with the defense supplier base.  There are several key authorities available to DOD for maintaining  information on its suppliers as well as ensuring a domestic capability for  certain items, such as radiation-hardened microprocessors. In addition,  the Department of Commerce has authority to assess the supplier base to  support the national defense, and has conducted 15 supplier-base  assessments in the past 5 years, including studies on imaging and sensor  technology. See appendix II for a description of selected key defense  supplier-base authorities.
section_title: DOD Lacks a Framework and Consistent Approach for Monitoring Supplier-Base Concerns
paragraphs: Although DOD has undertaken a variety of efforts to monitor the defense  supplier base, it lacks a framework and consistent approach to identify  and monitor concerns in the supplier base. The military services,  Industrial Policy, and other DOD components collect information about  the health and viability of certain defense supplier-base sectors. However,  DOD has not applied departmentwide criteria to determine supplier-base  characteristics that could result in reduced or nonavailability of needed  items. As part of its supplier-base monitoring efforts, DOD has previously  created lists of specific items that are considered critical at a point in time,  but lists such as these run the risk of becoming obsolete and do not focus  on supplier-base characteristics that could guide identification of  problems. To better target its monitoring resources, Industrial Policy  recently established criteria for supplier-base characteristics that could be  indicators of supply concerns.  These criteria have primarily been applied  to the missile and space defense sectors and have not been used to guide  the identification and monitoring of supplier-base concerns for all sectors  departmentwide.
The military services and other DOD components conduct studies on their  respective suppliers, often in response to supplier concerns for individual  programs. For example, the Army’s Aviation and Missile Research,  Development, and Engineering Center studies availability issues for Army  missile and space programs, such as the availability of raw materials for  these programs. The Air Force Research Laboratory conducts assessments  that range from annual studies of key supply sectors to evaluations of the  supplier base for individual components or materials, such as beryllium.  Within the Navy, the Fire Scout vertical takeoff and unmanned aerial  vehicle program had an industrial capability assessment conducted of its  supplier base before it proceeded to the production phase of the program.  Officials from the Missile Defense Agency told us they have dedicated staff  to monitor the supplier base for each of the agency’s 12 programs and  have contracted for support to help improve supply-chain management  between the agency’s program offices and their prime contractors.
The Secretary of Defense is required by legislation to report annually to  Congress on the supplier base. Industrial Policy prepares these reports,  which provide a broad analysis of supplier trends and summarize supplier- base studies performed by various DOD components. For example,  Industrial Policy reports on the percentage of prime contracts with a value  of $25,000 or greater awarded to foreign suppliers. In addition, Industrial  Policy also intermittently reports on foreign reliance for selected weapon  programs. For example, in both 2001 and 2004, Industrial Policy reported  to Congress on overall foreign reliance for 8 and 12 selected weapon  programs, respectively. Industrial Policy also reports annually on  industrial capabilities, including a macro-level summary of DOD’s seven  supplier sectors and a summary of capabilities assessments conducted  within DOD—which totaled 47 in 2007. Industrial Policy also provides  quarterly updates on the financial and economic metrics of various  defense suppliers; convened a roundtable of companies to identify barriers  to conducting business with DOD; chartered a cross-department work  group to collaborate on tasks related to defense supplier-base challenges,  such as sole sources of supply and barriers to competition; and conducted  other activities to foster knowledge of the defense supplier base. To  support supplier-base analyses by Industrial Policy and the military  services, the Defense Contract Management Agency’s Industrial Analysis  Center conducts program- and sector-specific defense supplier-base  studies, as well as conducting analysis to support DOD’s studies of foreign  reliance. While these multiple efforts have provided the various DOD  components with information about specific suppliers, they have not  provided a DOD-wide view of supplier-base characteristics that could be  indicators of problems—in large part because the efforts are not guided by  departmentwide criteria for identifying and monitoring supplier-base  concerns.
In addition, DOD has also developed lists of items deemed critical at a  point in time as part of its supplier-base monitoring efforts. For example,  in 2003, after insufficient visibility, planning, and programming led to  shortages of several mission-essential items during Operations Iraqi  Freedom and Enduring Freedom, the Joint Staff directed the military  services, the Defense Logistics Agency, the Defense Contract Management  Agency, and the Combatant Commanders to create a list of the their  respective top 20 “Critical Few” material readiness-shortfall items. Criteria  for selecting items included those with high variances in wartime versus  peacetime demand, military-unique characteristics without a commercial  substitute, and limited industrial-base capacity. DOD developed a  classified list of 25 items in 2003 that, according to officials, has not been  updated. Similarly, an Army regulation and Air Force directive cite the  development and use of “critical items lists.” However, officials from both  services stated that the language in these authorities is outdated and the  lists, if ever developed, are no longer used. According to Industrial Policy,  lists such as these only capture items that are deemed critical at a point in  time and, therefore, do not reflect changes in industry, technology, and  DOD requirements.
The Air Force has initiated efforts to establish criteria to track supplier- base concerns. Specifically, the Air Force’s Space and Missile Systems  Center, under direction from the National Security Space Office,  established a Space Industrial Base Program in order to address issues  affecting the Air Force’s ability to develop and deploy space systems.  According to Air Force officials, this action was a result of DOD Directive  5101.2. The center developed a method for identifying and tracking  defense items with supplier-base concerns, defining such items as those  whose loss or impending loss of manufacturers or suppliers has the  potential to severely affect the program in terms of schedule, performance,  or cost if left unresolved. Specifically, criteria for identifying and  monitoring these items is based on supplier-base characteristics such as  uneconomical production requirements, foreign-source competition,  limited availability, or increasing cost of items and raw materials used in  the manufacturing process. According to the Space and Missile Systems  Center, based on the criteria it developed, it identified approximately 80  critical items in its space systems and coordinated with the Aerospace  Corporation, a federally funded research and development center, to track  the supplier base for these items.
According to Industrial Policy, the breadth of DOD’s programs requires  that it selectively monitor DOD’s supplier base. In turn, to better target  supplier-monitoring resources, Industrial Policy recently established  criteria for identifying conditions that could be indicators of supplier-base  concerns for certain defense items, deeming these items as “important.” Its  criteria for such important items include those produced by a sole source;  used by three or more programs; representing obsolete, enabling, or  emerging technologies; requiring long lead times to manufacture; or having  limited surge-production capability. According to Industrial Policy, this  internal effort grew out of DOD’s development of its critical asset list, and  the organization uses the “important” designation to help it identify  components and their suppliers that have the most potential to negatively  affect production across program and service lines. However, while  Industrial Policy uses these criteria, it is not aware of similar use by other  DOD organizations. Industrial Policy has used these criteria to identify  important components in the missile and space sectors, and has yet to use  these criteria to guide the identification and monitoring of supplier-base  concerns for all sectors departmentwide. According to Industrial Policy,  the missile and space sectors have the preponderance of important items  because they contain few commercial off-the-shelf components and a  greater number of defense-unique components and, therefore, these  sectors contain the most sole-source suppliers. According to Industrial  Policy, these sectors are most likely to experience rapid production  increases during times of conflict—another contributing factor. Examples  of items identified in these sectors include thermal batteries, tactical  missile rocket motors, lithium-ion batteries, and traveling-wave tubes.  While still early in the process, Industrial Policy reported that it has used  these criteria to help identify and work towards mitigating supplier-base  concerns within the space and missile sectors. Specifically, the Defense  Production Act Title III was used to improve domestic manufacturing  performance for two items deemed important—traveling-wave tubes and  long-life lithium-ion batteries. In a separate effort, Industrial Policy stated  it is collaborating with the Defense Logistics Agency’s National Defense  Stockpile Center to create departmentwide criteria for the terms,  “critical,” “strategic,” and “important” and expects the Defense Logistics  Agency to report to Congress by the end of calendar year 2008 on the  results of this effort.
As required by statute, in 2007 DOD established a Strategic Materials  Protection Board to determine the need to provide long-term domestic  supply of materials critical to national security to ensure that national  defense needs are met, analyze risks associated with potential  nonavailability of these materials from domestic sources, and recommend  a strategy to the President to ensure domestic availability of these  materials. The Board has initially defined critical materials as those that  perform a unique function for defense systems and have no viable  alternative; DOD dominates the market for the material; and has  significant and unacceptable risk of supply disruption if there are  insufficient U.S. or reliable non-U.S. suppliers. However, the Board’s focus  is to assess only the criticality of materials, such as specialty metals, not to  identify and track critical defense items or components.
section_title: DOD Uses an Informal Approach to Identify Supplier-Base Concerns, with No Departmentwide Reporting Requirement on When to Elevate These Concerns
paragraphs: DOD often relies on the military services, program offices, or prime  contractors to identify supplier-base concerns, including gaps and  potential gaps, with no departmentwide requirement for when to report  these gaps to higher-level offices. Over the past 5 years, most program  officials we surveyed faced gaps in their supplier base or had sole sources  of supply for certain items. To address these supplier concerns, programs  often relied on the prime contractors, which had more detailed knowledge  of the supplier base, and left it to the contractor’s judgment to report gaps  and take actions to address supplier challenges. Further, program officials  reported that they generally use their discretion in determining when to  report identified gaps and planned actions to higher DOD levels. As a  result, DOD’s ability to know when a departmentwide approach is needed  to mitigate these concerns may be limited.
subsections: section_title: DOD Often Relied on Program Offices and Prime Contractors to Identify Supplier-Base Concerns in the Last 5 Years
paragraphs: DOD often relies on its individual program offices to ensure that their  respective supplier bases are sufficient. According to officials from  Industrial Policy, individual program offices are to ensure that their  supplier base is sufficient, and Industrial Policy would become involved  only when supplier-base concerns might affect multiple programs or more  than one military service, therefore requiring a corporate DOD approach.  Most of the program officials we surveyed had supplier-base concerns in  the last 5 years (see table 1). Specifically, 16 of the 20 program officials we  surveyed reported facing supplier gaps or potential gaps, including  obsolescence of component parts or technologies, diminishing  manufacturing sources for components, and production challenges. In  addition, 15 of the 20 program officials identified sole sources of supply  for components of their weapon systems. Seventeen of the program  officials we surveyed said these supplier-base concerns were identified by  their prime contractors, which maintain detailed knowledge of the  supplier base.
Many of the program officials we interviewed maintain frequent contact  with their prime contractors and noted that this level of communication  facilitates supplier-base knowledge. Specifically, 19 out of 20 program  officials we surveyed said their prime contractor often identified and  provided supplier-base information to them and that communication was  frequent when a supplier-base concern arose. Program officials had  varying degrees of knowledge of their supplier tiers—18 reported that they  maintain knowledge of their program’s supplier base at the prime- contractor level, while 9 maintained knowledge of the lowest-tier  subcontractor of the supply chain. One program official noted that  knowledge of the lower-tier suppliers is gained as issues arise, and another  stated that knowledge of these lower tiers is based on assessed  “criticality” to the program—which is defined on a program-by-program  basis.
The four prime contractors that we interviewed about their own corporate  insight into the supplier base noted that they had extensive internal  corporate metrics to evaluate the health and performance of their  subcontractors, which offered the companies a degree of visibility into  their supply chains, from second-tier subcontractors to lower-tier  suppliers of raw materials. For example, one of the prime contractors had  software that allowed it to analyze and measure data on each supplier  within its network. It captured data on each supplier’s performance  based on the quality of its work and the delivery of its product, which  resulted in a combined performance rating. Examples of other metrics  tracked include supplier biography, report card results, trend analysis of  performance ratings over a period of time such as a calendar year, and the  combined performance rating of a part that a supplier manufactures for a  particular system.
To address reported supplier gaps, program offices took a variety of  actions. For example, actions to address supplier gaps in the area of  obsolescence ranged from large-scale purchases, known as life-time buys,  to initiating component redesign. In other instances the gap has not yet  been solved. The Space Tracking Surveillance System program relies on  one company to supply the base materials used to produce nickel- hydrogen batteries, which are critical to this program. However, this  company plans to cease production of these batteries in 2009 or shortly  thereafter; yet an alternate source of supply has not been identified. In  another instance the Hellfire Missile program is working with the Army  Program Executive Officer for Missiles and Space along with Industrial  Policy to request a waiver to procure a chemical that is no longer  produced in the United States from a company in China. The program is  also exploring whether a Navy facility could produce the chemical in the  quantities needed by this and other military programs that use this  chemical.
section_title: Programs Lack Requirements for Elevating Supplier-Base Concerns to Higher DOD Levels
paragraphs: Program officials and prime contractors we spoke with stated that they  use their discretion for when to report supplier-base concerns. Programs  are not required to report supplier issues to their program executive  officer or to higher levels within DOD, such as Industrial Policy, and most  programs do not have contractual requirements with their prime  contractor to direct when a supplier issue must be reported.
While program officials reported working closely with their prime  contractors to address concerns once they were identified, program  officials and prime contractors we spoke with told us that it is a judgment  call as to when to report supplier-base concerns to higher levels within  DOD. For example, for the 20 program officials we surveyed, 17 reported  that they had shared information on supplier concerns with their  cognizant program executive officer. However, only four programs, all of  which faced supplier gaps in the last 5 years, reported sharing such  information with Industrial Policy. Thirteen program officials we surveyed  stated that no requirement exists for when their program office should  report supplier-base concerns to higher levels within DOD.
Similarly, nine of 20 program officials told us that no requirement exists  for what should trigger a prime contractor to report a supplier-base  concern to them. One of these programs, the B-2 Spirit stealth bomber, is  in the process of creating a requirement for when its prime contractor  should notify it of supplier concerns. According to program officials, the  Hellfire missile and Navy Fire Scout programs have imposed contractual  requirements on their prime contractors to report any supplier concerns.  Other program officials stated that while no formal requirement existed,  there was an understanding between their prime contractor and the  program office that any activity that will affect schedule, which could  include supplier-base concerns, must be reported to the program office.
While addressing supplier gaps at the program- or program executive  officer–level may be appropriate in many cases, program offices across the  military services rely on the same supplier base in some instances. In such  cases, concerns with these suppliers can become even more crucial if it is  a sole-source supplier. For example, multiple DOD programs in the space  sector rely on one provider for traveling-wave tube amplifiers needed for  satellite navigation purposes. According to officials from the Air Force’s  Space and Missile Systems Center, it closely tracks this supplier because  any disruption in its production capability could adversely affect the cost,  schedule, and performance of multiple space programs. In addition,  officials from the Patriot Advanced Capability-3 missile program told us  that production delays with its inertial measurement unit also affected the  Army’s Tactical Missile System program, as it uses this same unit from this  company. However, DOD may not be aware of these types of cross- department concerns in other supplier-base sectors because it does not  have a framework for programs to report information on supplier gaps and  vulnerabilities for critical items.
In addition, Industrial Policy may benefit from receiving information on  supplier gaps and vulnerabilities to help it achieve its mission to sustain an  environment that ensures the industrial base on which DOD depends is  reliable, cost-effective, and sufficient to meet its requirements. A  framework for programs to report supplier-gap information could assist  Industrial Policy’s decisions on when to activate available tools to mitigate  supplier-base concerns, such as the authorities under the Defense  Production Act. As we recently reported in a review of Defense  Production Act use since its 2003 reauthorization, 25 DOD projects have  received Title III funding over the past several years, totaling almost $420  million in assistance. Almost half of the projects received funds in order to  establish a domestic source of supply or to help alleviate dependence on  sole sources of supply. Recent major projects include Radiation Hardened  Microelectronics Capital Expansion and a Beryllium Industrial Base  Production Initiative.
section_title: Conclusions
paragraphs: While DOD has a number of efforts to monitor its supplier base, these  efforts lack a framework and set of characteristics to identify and track  supplier-base concerns and allow for consistent reporting to higher levels  within DOD, such as Industrial Policy. A failure to systematically identify  and address supplier-base concerns could result in untimely discoveries of  supply vulnerabilities, which could potentially affect DOD’s ability to meet  national security objectives. While DOD components, such as the Air  Force’s Space and Missile Systems Center, have taken action to identify  and monitor supplier-base concerns, these efforts have been limited in  scope or lacked departmentwide involvement. DOD has an opportunity to  leverage the various efforts taken by its components into a  departmentwide framework for identifying and monitoring supplier-base  concerns. Considering the dynamic nature of the defense supplier base,  this model could take into account recent efforts by Industrial Policy to  establish characteristics that could be indicators of supply concerns.  Further, by relying on individual program offices and their contractors to  determine when it is appropriate to raise concerns, DOD cannot be  assured that it is identifying all gaps that may need to be addressed at a  departmentwide level. Until DOD establishes departmentwide  characteristics for consistent identification and monitoring of supplier- base concerns and develops requirements for elevating supplier-base  concerns—at both the contractor and program levels—it will continue to  lack the visibility needed to oversee a robust supplier base.
section_title: Recommendations for Executive Action
paragraphs: We are recommending that the Secretary of Defense direct Industrial  Policy, in coordination with the military services and other relevant DOD  components, to consider the following two actions to identify and monitor  the supplier base:  1.  Leverage existing DOD efforts to identify criteria of supplier-base  problems and fully apply these criteria to guide the identification and  monitoring of supplier-base concerns throughout DOD.  2.  Create and disseminate DOD-wide written requirements for reporting  potential concerns about supplier-base gaps. These requirements  should delineate when, and to what level, supplier-base concerns  should be elevated and should take into account the two levels of  reporting—prime contractors to program offices and program offices  to higher levels in DOD.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD provided comments on a draft of this report. DOD also provided  technical comments, which we incorporated as appropriate. In  commenting on our first recommendation, DOD concurred with the need  to leverage existing DOD efforts to identify criteria of supplier-base  problems and fully apply these criteria to guide the identification and  monitoring of supplier-base concerns throughout DOD. DOD indicated  that its ongoing Defense Acquisition Guidebook update presents a fitting  and timely opportunity to institutionalize these criteria into departmental  acquisition policy.
DOD partially concurred with our second recommendation, stating that  while there is merit in having formal, published criteria for making  judgments regarding when program offices should report supplier issues  to Industrial Policy, similar formal reporting criteria or contractual  mechanisms are not needed for prime contractors to report supplier-base  concerns to the program office. DOD expects prime contractors to  maintain internal corporate metrics to evaluate the health and  performance of their subcontractors and likewise expects program offices  to maintain frequent and open communication with their prime  contractors on supplier-base issues. Our recommendation is for DOD to  consider how best to facilitate the flow of this information between  program offices and their prime contractors, regardless of whether it is  through a contractual requirement or other means. This is particularly  important given the large role that contractors play in monitoring the  supplier base.  While we found that almost all of the 20 program officials  we surveyed relied on their prime contractors to provide supplier-base  information, including identification of supplier-base concerns, there is no  guidance to ensure that information is consistently elevated to the  appropriate levels. As such, we maintain that a mechanism is needed to  facilitate the flow of information from the prime contractor to the program  office, and from the program office to higher levels within DOD— especially for those concerns whose characteristics meet the criteria for  making judgments regarding suppliers and components for DOD.
We also provided a draft of this report to the Department of Commerce.  The department reviewed the draft and provided no comments.
DOD’s written comments are reprinted in appendix III.
We are sending copies of this report to interested congressional  committees; the Secretaries of Defense and Commerce; and the Director,  Office of Management and Budget. In addition, this report will be made  available at no charge on the GAO Web site at http://www.gao.gov.
Please contact me at (202) 512-4841 or calvaresibarra@gao.gov if you or  your staff have any questions concerning this report. Contact points for  our Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. Others making key contributions to this report  are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To assess Department of Defense (DOD) efforts to monitor its defense  supplier base and identify and address gaps that might exist in its supplier  base, we reviewed relevant laws and regulations, such as sections of Title  10, U.S. Code, the DOD 5000 series, National Security Space Acquisition  Policy 03-01, and the Defense Production Act of 1950, as amended. We also  met with officials and reviewed documents from multiple DOD  components as well as defense companies, to discuss efforts, policies, and  guidance. We met with officials from DOD’s Office of the Deputy Under  Secretary of Defense for Industrial Policy (Industrial Policy) to review its  processes and actions for monitoring the defense supplier base. We also  discussed with Industrial Policy its role in preparing and submitting the  Annual Industrial Capabilities Report to Congress. We met with the  Defense Contract Management Agency’s Industrial Analysis Center to  discuss its role in studying DOD’s supplier-base sectors. We met with  officials from the U.S. Air Force, Army, Navy, and the Missile Defense  Agency to review and discuss their policies and practices for monitoring  the defense supplier base. We also met with officials from the Department  of Commerce, Bureau of Industry and Security, to discuss their role in  monitoring the defense supplier base through its authorities to conduct  surveys and analyses, and prepare reports on specific sectors of the U.S.  defense supplier base. We also met with a Senior Fellow of the  International Security Program, Defense Industrial Initiatives Group, who  at that time was with the Center for Strategic and International Studies, to  discuss his studies and perspectives on the defense supplier base.
In addition, we selected a nongeneralizable sample of 20 DOD weapon  programs (see table 2) based on criteria including representation of the  aerospace or electronics industry; representation of various stages of the  acquisition life cycle, to include those with mature and emerging  technologies; cross-representation of DOD components—Air Force, Army,  Navy, and the Missile Defense Agency; and selection of at least one DX- rated program, based on our review of the most current list of approved  DX programs, dated November 7, 2007, posted by Industrial Policy as of  the time we selected the programs to survey. GAO also has ongoing work  through its annual “Assessments of Selected Weapon Programs,” for many  of these programs, which allowed the team to build upon our prior work  efforts and existing DOD contacts.
To better understand the general supplier-base knowledge, identification  of supply gaps, and the use of domestic and international sourcing and  tracking of these sources, we designed and administered a Web-based  survey to program officials most knowledgeable about the supplier base  for each of the 20 programs. We pretested a draft of our survey during  January and February 2008, with officials at five DOD program offices. In  the pretests, we were generally interested in the clarity of the questions as  well as the flow and layout of the survey. After these pretests, we then  made appropriate revisions to the survey instrument. We conducted the  survey between April and June 2008, through a series of e-mails beginning  on April 1 with prenotification e-mails, activated the survey on April 7, and  sent follow-up e-mails to nonrespondents on April 14 and 22, 2008. We  closed the survey on June 6, 2008, with a 100 percent response rate.
To further determine how programs maintain knowledge of and monitor  their supplier base, we then tailored follow-up questions to all 20 program  officials to solicit information and documentation in areas such as  communication between and among DOD and its prime contractors, and  expansion on areas where programs experienced supplier gaps. We also  met with and obtained information and documentation from the prime  contractor for several of these programs, including officials from Boeing,  Lockheed Martin, Northrop Grumman, and Raytheon.
We conducted this performance audit from September 2007 to August 2008  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Key Authorities for DOD Supplier Base
paragraphs: Table 3 below describes several key authorities available to the  Department of Defense (DOD) for both maintaining information on its  suppliers as well as ensuring a domestic capability for certain items.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact name above, John Neumann, Assistant Director;  Tara Copp; Lisa Gardner; Michael Hanson; Ian Jefferies; Marie Ahearn;  Jean McSween; and Karen Sloan made key contributions to this report.
section_title: Related GAO Products
paragraphs: Defense Production Act: Agencies Lack Policies and Guidance for Use of  Key Authorities. GAO-08-854. Washington, D.C.: June 26, 2008.
Defense Acquisitions: Assessments of Selected Weapon Programs. GAO- 08-467SP. Washington, D.C.: March 31, 2008.
Defense Infrastructure: Management Actions Needed to Ensure  Effectiveness of DOD’s Risk Management Approach for the Defense  Industrial Base. GAO-07-1077. Washington, D.C.: August 31, 2007.
High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January  2007.
Highlights of a GAO Forum: Managing the Supplier Base in the 21st  Century. GAO-06-533SP. Washington, D.C.: March 31, 2006.
Best Practices: Better Support of Weapon System Program Managers  Needed to Improve Outcomes. GAO-06-110. Washington, D.C.: November  30, 2005.
Federal Procurement: International Agreements Result in Waivers of  Some U.S. Domestic Source Restrictions. GAO-05-188. Washington, D.C.:  January 26, 2005.
Defense Acquisitions: Knowledge of Software Suppliers Needed to  Manage Risk. GAO-04-678. Washington, D.C.: May 25, 2004.
Joint Strike Fighter Acquisition: Observations on the Supplier Base.  GAO-04-554. Washington, D.C.: May 3, 2004.