Defense Inventory: DOD and Prime Contractors Adhered to Requirements in Selected Contracts for Overseeing Spare Parts Quality
Published: 2004-12-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In the 2004 Defense Appropriations Act, Congress mandated that GAO examine and report on the oversight of prime contractors by the Department of Defense (DOD) and the oversight of subcontractors by the prime contractors. Contract quality assurance oversight is intended to assess whether contractors are capable of and are providing supplies or services that meet contract quality and technical requirements. Providing effective oversight is challenging. DCMA recognizes that the risk of nonconforming parts reaching end users exists, given the diversity of contracts, parts, and products used to meet weapon systems requirements and uses a risk management process to guide its efforts. For fiscal year 2003, government quality assurance oversight was required for approximately 273,000 contracts. GAO determined (1) whether DOD provided quality assurance oversight and enforcement over its spare parts prime contractors, (2) if prime contractors provided quality assurance oversight over their subcontractors, and (3) how DOD held prime contractors accountable for overseeing the subcontractors' work. To address these objectives, GAO judgmentally selected and reviewed 15 contracts awarded to 11 prime contractors by the services and the Defense Logistics Agency. In commenting on a draft of this report, DOD provided one technical comment, which GAO incorporated as appropriate.
section_title: What GAO Found
paragraphs: GAO's review of the 15 contracts showed that quality assurance personnel within the Defense Contract Management Agency (DCMA)--DOD's primary organization for providing quality assurance oversight--generally followed established policies, guidance, regulations, and contract requirements in performing oversight and enforcement over spare parts prime contractors. This oversight ranged from conducting physical inspection of parts, such as testing the measurements and functions of a part to evaluating contractor production processes to observing the outer appearance and counting the number of parts for compliance with contract requirements. When one of the prime contractor's processes and another contractor's parts did not meet contract requirements, DCMA used its enforcement system by issuing requests for corrective action by the prime contractors. GAO found that the 11 prime contractors reviewed provided quality assurance oversight over their subcontractors' work in accordance with industry standards and contract requirements. The contractors used at least two and up to four methods in providing quality assurance oversight over their subcontractors. These methods included evaluating potential subcontractors for placement on an Approved Supplier List, requiring certifications of parts and processes, testing parts and processes, and tracking and monitoring subcontractor's performance. The primary methods of oversight were evaluating subcontractors for placement on an Approved Supplier List and requiring certifications that parts and processes conform to contractual specifications. Establishing an Approved Supplier List served to identify subcontractors capable of producing needed parts or processes in accordance with industry standards and contractual specifications. In GAO's review of the 15 contracts, DCMA held prime contractors accountable for their subcontractors' work by requiring that the prime contractors adhere to contract clauses concerning oversight responsibility. Most of the contracts included either clauses stating that the prime contractor shall provide supplies that conform to contract requirements or clauses related to other quality requirements. When nonconformance was reported, DCMA quality assurance personnel and the prime contractor determined if the deficiency was due to contractor nonconformance and assigned responsibility for corrective action. GAO identified one deficiency from the 15 contracts that the prime contractor was responsible for and DCMA held the prime contractor accountable for the part. While GAO did not identify any major deficiencies from the contracts and practices it reviewed, GAO recognizes that the risk of nonconforming spare parts reaching end users exists. Compliance by contractors, DCMA, and other DOD agencies with established internal controls helps mitigate against this risk.

section_title: Letter
paragraphs: Military personnel rely upon weapon systems such as aircraft and tanks to  successfully perform their missions on the battlefield. These systems  contain numerous individual parts and assemblies produced by many  different contractors and subcontractors. For example, an engine for an  F-15 aircraft has approximately 16,000 parts and 1,600 different part  numbers. Although there is one prime contractor responsible for  producing this engine, there are numerous subcontractors supplying the  parts and assemblies required to build the engine under numerous  contracts, and quality assurance is required throughout the production  process. While the military services’ contracting offices oversee a small  percentage of the Department of Defense’s (DOD) contracts for acquiring  the parts, the Defense Contract Management Agency (DCMA), through its  quality assurance specialists, provides quality assurance oversight over the  majority of these contracts. Quality assurance oversight is defined as the  various functions, including inspections, performed to determine whether  a contractor has fulfilled the contractual obligations related to quality  and quantity. This oversight is intended to assess whether contractors are  capable of and are providing supplies or services that meet contract  quality and technical requirements.
Providing effective oversight is challenging, and DCMA recognizes that  the risk of nonconforming parts reaching end users exists, given the  diversity of contracts, parts, and products used to meet weapon  systems requirements. For fiscal year 2003, DCMA was responsible for  performing government quality assurance oversight over approximately  273,000 contract actions. To help mitigate risks inherent with spare parts  acquisitions, DOD developed a risk management guide that discusses risk  and risk management, examines risk management concepts, and provides  a practical reference for dealing with acquisition risk. DCMA used this  guide in developing its Risk Assessment and Management Program that is  used to assess the risk of a contractor providing nonconforming parts.  According to DCMA officials, for the majority of spare parts prime  contractors that had contracts requiring oversight by DCMA and used  subcontractors in providing the parts, DCMA relied upon the prime  contractors to oversee their subcontractors. In accordance with the  Federal Acquisition Regulation, DCMA is only responsible for providing  quality assurance oversight over subcontractors when required to do so in  the government’s interest. When DCMA provides quality assurance  oversight over subcontractors, the prime contractor is not relieved of any  quality assurance oversight responsibilities under the contract.
This report responds to the mandate in section 8143 of the 2004 Defense  Appropriations Act that GAO examine and report on the oversight of  prime contractors by DOD and the oversight of subcontractors by prime  contractors. Our review focused on whether DCMA and spare parts prime  contractors are fulfilling their quality assurance oversight responsibilities  as required by regulations, policies, procedures, and contract provisions.  Specifically, our objectives were to determine whether:  1.  DCMA provided quality assurance oversight and enforcement over its  spare parts prime contractors in accordance with established policies,  procedures, and guidance; and  2.  prime contractors provided quality assurance oversight over their  subcontractors’ work related to producing spare parts in accordance  with industry standards and contract requirements.
We also reviewed how DCMA held prime contractors accountable for  overseeing their subcontractors’ work.
To address our objectives, we reviewed regulations, policies, and  procedures related to the quality assurance oversight over spare parts  contractors provided by DCMA and prime contractors and the  enforcement actions available to assure compliance. In addition, we  reviewed 15 contracts awarded to 11 prime contractors and any reports on  product quality deficiency for these contracts. Specifically:    To assess whether DCMA provided quality assurance oversight over the  prime contractors, we compared the quality assurance provisions included  in the 15 contracts to oversight actions performed by DCMA quality  assurance specialists. In assessing whether DCMA used enforcement  actions, we looked for instances of spare parts nonconformance related to  these contracts and determined if DCMA levied any enforcement actions  against the prime contractors.
To assess prime contractors’ oversight of their subcontractors, we  interviewed representatives from the 11 prime contractors and determined  if the prime contractors used subcontractors. For those that used  subcontractors, we held discussions with prime contractor personnel  related to the level of quality assurance oversight they performed over the  subcontractors and reviewed their processes for managing suppliers and  subcontractors. We also gathered documentation from the prime  contractors on test results of parts produced by subcontractors.
To assess how DCMA held prime contractors accountable for the work of  their subcontractors, we reviewed the 15 contracts to determine if they  included clauses holding the prime contractor responsible for the spare  parts provided to the government. For the instances of nonconforming  parts reported against these contracts, we reviewed how DCMA handled  the reported nonconformance and whether DCMA held the prime  contractor responsible for correcting the nonconformance. More detailed  information about our scope and methodology is contained in appendix I.
We conducted our review from November 2003 through October 2004 in  accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: The Federal Acquisition Regulation is the primary regulation for use by  all federal agencies in acquiring supplies and services. Sections 46 and 52,  which discuss and set forth quality assurance and contract clauses,  respectively, provide guidance in determining quality assurance  responsibilities. According to the Federal Acquisition Regulation,  government contract quality assurance is defined as the various functions,  including inspections, performed by the government to determine whether  a contractor has fulfilled the contract obligations pertaining to quality and  quantity. These inspections can either be conducted at the contractor’s  place of manufacture and production (source) or at the receiving location  for the parts (destination).
subsections: section_title: DOD’s Quality Assurance Oversight for Contracts Is Provided Primarily by DCMA
paragraphs: DCMA is DOD’s primary organization for performing quality assurance  oversight for contracts and this oversight responsibility typically only  covers prime contractors. DCMA’s execution of its quality assurance  responsibility is primarily through its source inspection program. Source  inspections are defined as inspections at the point where goods are  manufactured or assembled. There are three types of source inspections:  physical inspection; contractor process reviews; and kind, count, and  condition. Physical inspection involves inspecting parts by comparing the  parts to a specification, drawing, or other instruction. Contractor process  reviews are inspections of processes and procedures for establishing  confidence that the procured parts will produce a desired outcome.  Inspections involving kind, count, and condition are inspections intended  to visually identify and verify the quantity and exterior appearance of  a part to determine if it visually meets contract specifications.
During fiscal year 2003, DCMA was responsible for government source  inspection for approximately 273,000 contracts. The Federal Acquisition  Regulation requires that contracts include inspection and other quality  requirements that will protect the interest of the government. It also  provides guidance in establishing which clauses to include in the various  types of contracts. The clauses included in each contract dictate the type  and level of quality assurance oversight to be performed. DCMA quality  assurance specialists are expected to follow the inspection and  acceptance provisions in each contract in determining whether they are  required to perform quality assurance oversight. If the contract states that  inspection and acceptance will be at destination, then DCMA does not  perform any quality assurance oversight. End users within military units,  such as Army battalions and Air Force squadrons, perform inspection and  acceptance for these contracts.
Questions have been raised about the efficiency of DCMA’s quality  assurance oversight program. In October 2003, the DOD Inspector General  reported that of the 518 contracts requiring DCMA source inspection that  they reviewed, at least 172 of the inspections provided either nominal or  no value to the DOD quality assurance process. The DOD Inspector  General also pointed out concerns in the DOD quality assurance program,  including (1) ambiguity in the level and extent of requested source  inspections; (2) inconsistent and unclear application of items defined as  critical or having a critical application; (3) inconsistent implementation of  inspection procedures for items considered commercial, off-the-shelf; and  (4) arbitrary and inconsistent inspection procedures for items purchased  from distributors.
section_title: DCMA Provided Quality Assurance Oversight and Enforcement over Contractors
paragraphs: In our review of 15 contracts awarded to 11 contractors, DCMA provided  quality assurance oversight and enforcement over these spare parts prime  contractors. DCMA used three types of inspections to perform quality  assurance oversight over the contractors. DCMA adhered to the Federal  Acquisition Regulation, contract quality requirements, and DCMA  guidance in providing quality assurance oversight over these prime  contractors. Federal Acquisition Regulation clauses included in the  contracts guide whether or not DCMA would perform quality assurance  oversight. DCMA provides oversight for those contracts requiring  inspection at the place of manufacture of the parts. Enforcement of spare  parts quality and safety during the production process was achieved  through the issuance of corrective action requests.
subsections: section_title: DCMA Used Three Types of Inspections to Perform Quality Assurance Oversight over Contractors
paragraphs: DCMA quality assurance specialists followed established policies,  procedures, and guidance in performing their oversight over the spare  parts prime contractors in our review. As shown in table 1, the quality  assurance specialists performed one or a combination of three types of  inspections over prime contractors. The three types of inspections include:  physical inspection to measure the dimensions of parts or to test the parts;  process reviews; or an observation of the kind, count, and condition of the  parts. At 7 of the 11 contractor locations , DCMA quality assurance  specialists performed both process reviews and physical inspections.
For physical inspection of spare parts, the quality assurance specialist  selects a sample of the parts from various production runs and inspects  them by comparing the parts to a specification, drawing, or other  instruction. For example, at one location, the prime contractor had  procured the part from a subcontractor and required the subcontractor to  provide test data related to the part. The quality assurance specialist  reviewed the test data and compared it to the part specifications. Also, the  quality assurance specialist inspected the number imprinted on the parts,  exterior painting, and workmanship of the received parts to ensure they  complied with contract specifications.
The second type of inspection involves evaluating the prime contractors’  processes to determine compliance with established contract  requirements and production procedures. During these inspections the  quality assurance specialist assesses the prime contractor’s processes and  production line procedures in relation to established industry practices  and provides the contractor an early opportunity to make corrections or  improvements, if necessary. For example, at one prime contractor  location, the quality assurance specialist monitored the prime contractor’s  key processes during the production, including the cleaning, painting,  welding, and final quality inspection of the product. To help ensure a  comprehensive quality assurance check, the quality assurance specialist  performed his daily quality checks at different phases of the production  process. Also, the quality assurance specialist reviewed the prime  contractor’s procedures for selecting its subcontractors to determine if the  subcontractors were certified in accordance with the applicable industry  standards.
The third type of inspection consists of observing the kind, count, and  condition of the parts. Observation of the kind of part includes visual  identification of at least one part for each different part being procured  under the contract and verifying the part number against the number  required in the contract. Counting the parts involves visual confirmation of  the contents of one package per line item and counting the number of  packages received. The quality assurance specialists verify the physical  appearance of the parts to assess their condition. For example, at one  location, the quality assurance specialist performed a kind, count, and  condition inspection to confirm that the contractor had the correct part by  verifying the part number, checking to ensure the contractor had the  proper quantity of parts, and inspecting the outward appearance of the  parts.
section_title: DCMA Adhered to the Federal Acquisition Regulation, Contract Quality Requirements, and DCMA Guidance in Providing Quality Assurance Oversight over Prime Contractors
paragraphs: DCMA’s quality assurance oversight over the 11 spare parts prime  contractors in our review was in accordance with the Federal Acquisition  Regulation, contract quality requirements, and DCMA’s One Book  guidance. Each contract we reviewed designated the location of  inspection and acceptance by contract line item. Contracts that were  designated for inspection and acceptance at the contractor’s place of  manufacture and production received DCMA quality assurance oversight.  When contracts are designated for inspection and acceptance at the  receiving location for the parts, the end user is responsible for inspecting  the procured part and the DCMA quality assurance specialist typically  does not get involved with the contract.
Of the 15 contracts we reviewed, DCMA provided quality assurance  oversight for the 13 contracts that were designated for inspection and  acceptance at source. The other two contracts were designated for  inspection and acceptance at destination and did not require DCMA  quality assurance oversight. In accordance with the One Book guidance,  quality assurance specialists performed inspections and acceptance for  its customers to ensure supplies were in compliance with contract  requirements. According to a DCMA official, this guidance allows DCMA  quality assurance specialists flexibility in providing quality assurance  oversight over prime contractors. For example, the guidance does not  include standard requirements for the number of tests, site visits, or  inspections that the DCMA quality assurance specialists should perform  while providing quality assurance oversight. When contracts were  designated for inspection and acceptance at source, quality assurance  specialists typically reviewed contract requirements, assessed the  contractor’s risks of producing nonconforming parts, determined what  needed to be done to mitigate the risks, and applied quality assurance  oversight, including inspections, based on the contractor’s risk level.
section_title: Enforcement of Spare Parts Quality and Safety during the Production Process Was Achieved through Corrective Action Requests
paragraphs: During the production process, when a prime contractor’s processes or  spare parts did not meet contract requirements, DCMA used an  enforcement system that involved issuing requests for corrective action by  the prime contractor. According to the Federal Acquisition Regulation,  contractors must be given an opportunity to correct or replace  nonconforming supplies. Contractors are notified about nonconformance  through corrective action requests issued by DCMA or product quality  deficiency reports issued by the end user. When there is contractual  nonconformance during the production process, DCMA may issue the  prime contractor a corrective action request to formally communicate the  deficiency and request corrective action on the part of the prime  contractor. When the prime contractor does not take corrective actions,  contractual remedies available to procuring contracting officers include  suspension of progress payments, termination for default, and penalties  such as suspension or debarment from holding contracts with the  government.
Only 2 of the 11 prime contractors that we reviewed received corrective  action requests related to the contracts in our review. According to DCMA  officials, the remaining contractors did not warrant corrective action  requests related to the contracts we reviewed. Our review of DCMA files  related to these contractors also did not identify any need for corrective  actions by the prime contractors. Corrective actions identified by the two  contractors involved the prime contractor making corrections or changes  to its production processes and demonstrating how processes would be  improved to prevent further instances of nonconformance. For example,  DCMA issued a corrective action request to a prime contractor identifying  loose insulation, an inactive gear, poor painting quality, and parts that did  not meet surface finish specification requirements as nonconforming  items. The prime contractor corrected the nonconformance and DCMA  accepted the product. To prevent reoccurrence of the deficiencies, the  prime contractor reported that it had taken the following actions:  (1) discontinued the use of material that caused the loose insulation,  (2) instructed operators to ensure that gears were properly adjusted,  (3) arranged a meeting with all contractor paint personnel advising them  on the importance of attention to detail, and (4) agreed to provide their  quality assurance representatives with acceptable and unacceptable finish  samples as visual standards to meet customer expectations.
For the other prime contractor, DCMA issued a corrective action request  because the contractor used the wrong procedure to receive approval for a  major waiver from contract requirements. The request for major waiver  was supposed to go through an array of signatures and DCMA approvals,  whereas a minor waiver could be submitted and approved electronically,  requiring fewer signatures and approvals. However, the prime contractor  downgraded the waiver request from major to minor without the  appropriate concurrence and approval of DCMA and submitted the request  through the electronic system. According to the prime contractor, their  personnel had conflicting procedures describing how to process waivers.  To prevent reoccurrence of incorrect processing of major waivers, the  contractor planned to review its current procedures for processing  waivers. Also, the contractor planned to train its quality assurance staff to  ensure they understand the correct procedures for processing waivers.
section_title: Prime Contractors Adhered to Industry Standards in Providing Quality Assurance Oversight over Subcontractors
paragraphs: The prime contractors in our review adhered to industry standards in  providing quality assurance oversight over their subcontractors’ work.  Based on industry standards, prime contractors performed at least two or  up to four methods to provide quality assurance oversight over their  subcontractors, as shown in table 2. The primary methods of oversight  used were evaluating subcontractors for placement on an Approved  Supplier List and requiring certifications of parts and processes. Industry  standards, such as the International Organization for Standardization 9001  and Aerospace Standards 9100, require that an organization have a quality  management system in place to ensure that it will produce high quality  products that will serve their intended purpose. The standards are broad  and are intended to be applicable to all organizations, regardless of type,  size, and product provided.
All of the prime contractors that we reviewed evaluated potential  subcontractors prior to the contract award for placement on their  Approved Supplier List. The purpose of establishing an Approved Supplier  List is to identify qualified subcontractors capable of producing needed  parts or processes in accordance with industry standards and contractual  specifications. When evaluating a potential subcontractor for inclusion on  their Approved Supplier List, some prime contractors periodically visited  their subcontractors’ production facilities, requested that subcontractors  complete surveys containing questions regarding the subcontractors’  capabilities and qualifications necessary to produce parts and processes,  or examined information about the technical skills and qualifications of  subcontractor personnel, past performance for producing similar  products, and applicable certifications related to the subcontractors’  operations. Six of the 11 prime contractors said they periodically visited  potential subcontractors prior to contract award.
All of the prime contractors that we reviewed required certifications such  as independent, third-party certifications or certificates of conformance  from their subcontractors to certify that their parts and processes are in  accordance with contract requirements and industry standards.  Independent, third-party certifications and certificates of conformance  served as verification that the subcontractors could produce parts and  processes that conformed to contractual specifications. Prime contractors  required certifications from their subcontractors for different phases of  the production process. For example, one contractor used steel to  fabricate parts and required a certification from the steel subcontractor  that the steel had been produced according to specifications. In this  instance, the prime contractor did not use the steel provided by the  subcontractor until they received the certificate of conformance verifying  that the product was in accordance with industry standards and  contractual requirements.
Eight of the 11 prime contractors we reviewed periodically tested parts or  processes produced by their subcontractors. Prime contractors tested the  subcontractors’ parts or processes at either the manufacturing site or the  receiving point to determine whether products or processes met  contractual specifications. For example, one prime contractor performed  mechanical and electrical tests on all materials received from  subcontractors to ensure that the materials met contract specifications. If  the materials did not meet contract specifications, the prime contractor’s  review board, which included the government quality assurance specialist,  made a determination concerning the disposition of the materials.  Disposition options included using the material “as is” or scrapping it.
Seven of the prime contractors that we reviewed tracked and monitored  the performance of their subcontractors by establishing performance  goals, assessing and rating the subcontractors’ performance, or  recommending corrective and preventive actions when subcontractors  produced nonconforming parts. The seven prime contractors established  performance goals and rated their subcontractors on a routine and  periodic basis using various performance metrics, such as product quality  and on-time deliveries. For example, one contractor kept track of the  number of nonconforming parts provided by each subcontractor in  relation to the total number of parts provided. When a subcontractor’s  nonconformance rate exceeded the prime contractor’s acceptable goal,  the prime contractor placed the subcontractor on probation.
section_title: DCMA Held Prime Contractors Accountable by Requiring Adherence to Contract Clauses
paragraphs: In our review of the 15 contracts, DCMA held prime contractors  accountable for overseeing their subcontractors’ work by requiring that  prime contractors adhered to contract clauses concerning oversight  responsibility. When instances of nonconformance were reported through  product quality deficiency reports, the DCMA quality assurance personnel  and the prime contractor determined if the deficiency was due to  contractor nonconformance and assigned responsibility for corrective  action. For the 15 contracts we reviewed, one deficiency was determined  to be the responsibility of the prime contractor and DCMA held the prime  contractor accountable for the part. During our review, service officials  provided us with examples of other contracts in which nonconforming  parts reached end users. DCMA followed its procedures for evaluating the  causes of these nonconforming parts. The reasons for the  nonconformance varied for each part.
Most of the 15 contracts we reviewed included Federal Acquisition  Regulation clause 52.246-2, Inspection of Supplies—Fixed Price, which  states that the prime contractor shall tender to the government for  acceptance only supplies that have been inspected in accordance with the  inspection system and found by the contractor to be in conformity with  contract requirements. This contract clause also states that the contractor  is not relieved of its oversight responsibility when government quality  assurance over subcontractors is required. The remaining contracts  included other quality clauses or did not specify quality requirements  because the contractors had quality systems that had been previously  approved by the procuring contracting officers.
DCMA also performed reviews of subcontractors’ certifications to the  prime contractor that the parts and processes produced by the  subcontractor were manufactured in accordance with the contract  requirements. DCMA quality assurance specialists periodically reviewed  third-party certifications and contractors’ documents related to site visits,  receiving inspections, and other oversight of subcontractors. These  reviews provided a technique for DCMA to determine whether the  contractors’ quality assurance systems were adequate for oversight of  subcontractors. For example, at one contractor location, the quality  assurance specialist obtained copies of certifications that steel was  produced and heat-treated in accordance with standards. The specialist  also reviewed copies of test records maintained by the contractor during  the production process.
After parts are provided to end users within military units, such as Army  battalions and Air Force squadrons, instances of nonconforming parts are  reported through product quality deficiency reports. End users issue  product quality deficiency reports to identify deficiencies in parts that may  indicate nonconformance with contractual or specification requirements.  When the end user identifies a nonconforming product, the user issues a  product quality deficiency report that is sent to the applicable DCMA  contract management office and distributed to the quality assurance  specialist responsible for overseeing the contractor that produced the  item. The quality assurance specialist notifies the contractor of the report.  The contractor may request that the part be returned to its facility for  testing to determine whether the problem that has been identified by the  user can be duplicated. The DCMA quality assurance specialist and the  prime contractor also determine if the deficiency was due to contractor  nonconformance with contract requirements and assign responsibility for  corrective action. DCMA writes the final disposition of the product quality  deficiency report based on the results of the tests completed by the  contractor and the assessment of who was responsible for the deficiency.  In those cases where the deficiency was determined to be the  responsibility of the prime contractor, DCMA held the prime contractor  accountable for the part. If the cause of the deficiency was tied back to a  subcontractor, DCMA held the prime contractor responsible for correcting  the deficiency and ensuring that the subcontractor’s processes were  modified to correct the cause of the nonconformance.
During our review, service officials provided examples of other contracts  in which nonconforming parts reached end users for various reasons.  DCMA and prime contractors followed their procedures in evaluating  causes for the nonconformance. For example, in March 2004 one prime  contractor was notified that five wiring harnesses, manufactured by one of  their approved subcontractors, were defective. Investigations showed that  the prime contractor’s quality oversight system did not detect the problem  because its personnel were unfamiliar with drawings, specifications, or  electrical wiring harness fabrications. After the problem was identified,  the prime contractor provided training related to drawings and proper  manufacturing processes to its quality assurance personnel as well as  subcontractor personnel. However, according to the prime contractor, the  subcontractor still could not produce the wiring harnesses correctly. As a  result, the prime contractor selected another subcontractor to  manufacture the wiring harnesses.
In another case, the contract was for a survival kit that included critical  safety items. The nonconformance related to an O-ring lubricant that was  allowing oxygen pressure to be released prematurely. Based on the  deficiency report, the contractor began using another lubricant for the  O-ring that eliminated the problem. For this contract, DCMA  recommended that government source inspection be added at the  subcontractor level because no prior government source inspection  was required.
Yet in another example, an axle component manufactured by a  subcontractor broke on an aircraft landing gear because the dimensions of  the axle component were incorrect. Incorrect dimensions resulted from  the subcontractor’s improper grinding process; yet, the subcontractor  never reported the discrepancies to the prime contractor. Since the  incident, the prime contractor has placed the subcontractor on probation  within the prime contractor’s quality approval system. The subcontractor  will remain on probation until an audit is performed by the end users of  the axle to verify that all corrective actions are in effect.
section_title: Concluding Observations
paragraphs: DCMA and the prime contractors we reviewed utilized a number of  processes to provide quality assurance oversight over the production of  spare parts for the military. The processes included conducting physical  inspections of parts produced by contractors, reviewing prime  contractor’s processes, evaluating potential subcontractors for placement  on an Approved Supplier List, requiring certifications of parts and  processes, testing parts and processes, and tracking and monitoring  subcontractor’s performance. These processes are founded upon  contractual requirements, DCMA policies, and industry standards for  quality assurance. In addition, there are enforcement procedures that  DCMA uses when nonconforming spare parts reach end users.  However, despite these quality assurance controls, some risk still exists.  For example, while we did not identify any major deficiencies from the  contracts and practices we reviewed, service officials provided examples  of nonconforming parts related to contracts not included in our review  that reached end users for various reasons. Furthermore, given the vast  number of contracts and contractors involved in providing spare parts to  the government, we recognize that the risk of nonconforming spare parts  reaching end users exists. Compliance by contractors, DCMA, and other  DOD agencies with established internal controls helps mitigate against  this risk.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, DOD provided one technical  comment, which we incorporated as appropriate. DOD did not provide any  additional comments. DOD’s written comments are reprinted in their  entirety in appendix III.
We are sending copies of this report to the Secretary of Defense; the  Secretaries of the Army, the Navy, and the Air Force; the Director of the  Defense Contract Management Agency; the Director of the Defense  Logistics Agency; and other interested parties. We will also make copies  available to others upon request. In addition, the report will be available at  no charge on the GAO Web site at http://www.gao.gov.
Please contact me at (202) 512-8365 if you or your staffs have any  questions concerning this report. Major contributors to this report are  included in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To address our objectives, we judgmentally selected for review  11 contracts awarded to 11 prime contractors. During the course of our  review, Defense Contract Management Agency (DCMA) and the prime  contractors provided four additional contracts awarded to some of these  same contractors that had nonconforming parts that reached end users,  bringing the total number of contracts we reviewed to 15. Given the small  number of contracts we reviewed, our results cannot be used to make  inferences about the entire population of contracts requiring government  quality assurance. We included the following kinds of contracts as  candidates for our study: contracts, purchase orders, basic ordering  agreements, delivery orders against existing contracts, and contract  modifications for existing contracts. We included contracts that were large  and small dollar value, from DCMA’s East and West regions, and from the  Army, Navy, Air Force, and the Defense Logistics Agency (DLA). Eleven of  these contracts were judgmentally selected: three from information  provided by the Navy and Air Force on nonconforming parts and 8 from  DCMA. To select the eight contracts, we obtained a query from DCMA’s  Mechanization of Contract Administration Services system of contracts for  October 1, 1999, through September 30, 2003. Because of the large number  of contracts in the database and because we wished to examine recent  contract quality assurance oversight practices, we sorted the query to only  identify contracts for fiscal year 2003. From this query, we sorted the  contracts into four groups according to whether they were associated with  the Army, the Navy, the Air Force, or the Defense Logistics Agency. We  randomly sampled contracts from each of these four groups. Then, we  judgmentally selected a subset of contracts from our random samples in  such a way to obtain a set of eight contracts that spanned the various  military commands and DCMA’s East and West regions. The breakout of  the eight contracts included three Army, two Air Force, two Navy, and one  Defense Logistics Agency.
To assess the reliability of data from DCMA’s Mechanization of Contract  Administration Services system we (1) performed electronic testing of  required data elements, (2) reviewed existing information about the data  and the system, and (3) interviewed agency officials knowledgeable about  the data. We determined DCMA’s Mechanization of Contract  Administration Services system data to be reliable for the purposes of  our review.
To assess whether DCMA provided quality assurance oversight and  enforcement over its spare parts prime contractors in accordance with  established policies, procedures, and guidance, we compared contract  quality assurance provisions and requirements to oversight actions  performed by DCMA for the 15 contracts. Specifically, we reviewed the  Federal Acquisition Regulation, the DCMA One Book, and the contracts to  determine quality assurance oversight responsibilities and enforcement  actions available to assure contractor compliance. We compared these  policies, procedures, and contract requirements to the three types of  inspections performed by DCMA quality assurance specialists to assess if  DCMA provided appropriate oversight. For each of the contracts, we met  with officials at the DCMA contract management offices identified on the  contracts to determine quality assurance oversight actions performed by  DCMA personnel. As part of this assessment, we determined which of the  three types of inspections were performed for each contractor. We sent  letters to officials at the DOD contracting offices to obtain and review  documentation related to the pre-award process, quality assurance  requirements, and the contracting officers’ interaction with DCMA prior to  contract award. In assessing whether DCMA used enforcement actions, we  reviewed the product quality deficiency reports included in our review to  determine if DCMA levied enforcement actions against the prime  contractor when necessary. We also reviewed prior DOD and GAO reports  related to DCMA’s execution of its quality assurance oversight over prime  contractors and DOD’s implementation of its deficiency reporting system.
To assess whether prime contractors provided quality assurance oversight  over their subcontractors’ work related to producing spare parts and  followed industry standards and contract requirements, we identified  prime contractor quality assurance oversight actions performed over  subcontractors. We reviewed Aerospace Standard 9100 and prime  contractor quality manuals to determine requirements for establishing  contractor quality management systems and ensuring that their  subcontractors are providing quality parts. We visited and interviewed  representatives at the prime contractor locations as shown in appendix II,  and determined whether the prime contractors used subcontractors. For  those that used subcontractors, we identified the level of quality assurance  oversight performed by these prime contractors over the subcontractors.  We discussed whether the prime contractors performed supplier ratings of  their subcontractors, tested parts or processes provided by their  subcontractors, or conducted site visits at their subcontractors’ facilities.  At the prime contractor facilities, we observed the prime contractors’  processes for manufacturing or repairing parts to determine the quality  assurance performed by the prime contractor throughout the production  process.
To assess how DCMA held prime contractors accountable for the work of  their subcontractors, we reviewed the 15 contracts to determine if the  contracts included clauses holding the prime contractor responsible for  the spare parts provided to the government and whether instances of  nonconformance had occurred. For the reported instances of  nonconformance, we looked at whether DCMA held the prime contractor  responsible for correcting the nonconformance and what types of actions  were performed by DCMA. We also reviewed the Federal Acquisition  Regulation to determine contract clauses that require the prime contractor  to ensure that parts furnished to the government conform to contract  requirements. We reviewed the contracts to determine if they included  clauses that the prime contractor was responsible for the spare parts being  provided.
We also visited or obtained information from representatives at the  following organizations:    U.S. Air Force, Office of the Assistant Secretary, Contracting Operations  Division, Rosslyn, Va.;    U.S. Air Force Materiel Command, Wright Patterson Air Force Base, Ohio;    U.S. Army Materiel Command Headquarters, Fort Belvoir, Va.;    U.S. Army, Aviation and Missile Command, Redstone Arsenal,    U.S. Army, Communications Electronics Command, Fort Monmouth, NJ;    U.S. Army, Research Development and Engineering Command, Armament  Research, Development and Engineering Center, Rock Island, Ill.;    U.S. Army, Research Development and Engineering Command, Edgewood  Chemical Biological Center, Rock Island, Ill.;    U.S. Army, Secretary of the Army for Acquisition, Logistics, and  Technology, Arlington, Va.;    U.S. Army, Tank Automotive and Armaments Command, Warren, Mich.;    U.S. Navy, Naval Air Systems Command, Patuxent River Naval Air Station,  Patuxent River, Md.;    U.S. Navy, Office of the Assistant Secretary, Research, Development, and  Acquisition, Washington, D.C.;    U.S. Defense Logistics Agency Headquarters, Fort Belvoir, Va.;    U.S. Defense Contract Management Agency Headquarters, Alexandria, Va.;    Office of the Under Secretary of Defense for Acquisition, Technology, and  Logistics, Alexandria, Va.; and    Aerospace Industries Association, Arlington, Va.
We performed our review from November 2003 through October 2004 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: DCMA Offices and Contractors Reviewed
subsections: section_title: DCMA Contract Management Offices
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the individual named above, Connie W. Sawyer, Jr.;  Tracy Whitaker; Leslie West; Renee McElveen; Minette Richardson;  Kenneth Patton; Sidney Schwartz; and Douglas Cole made key  contributions to this report.
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