Contract Management: Purchase of Army Black Berets (02-MAY-01,	 
GAO-01-695T).							 
								 
The Army's decision to issue black berets to all of its forces in
just eight months placed enormous demands on the military's	 
procurement system. To meet this challenge, the Department of	 
Defense (DOD) increased the domestic supplier's production,	 
awarded contracts to known foreign sources and procured berets	 
from additional sources. This testimony discussed DOD's 	 
contracting strategy, including (1) the contracting procedures	 
DOD used to buy the berets and (2) the circumstances surrounding 
waivers to the Berry Amendment, a statutory requirement to buy	 
clothing from domestic suppliers. The Defense Logistics Agency	 
(DLA) took several steps to expedite award of the contracts. As a
result of these actions, however, DLA failed to (1) provide for  
full and open competition as required by the Competition in	 
Contracting Act of 1984 or (2) obtain a review of these contract 
actions from the Small and Disadvantaged Business Utilization	 
Office for possible small business participation. GAO also found 
that authority to waive the Berry Amendment was delegated to	 
DLA's Director and Senior Procurement Executive by the Principal 
Deputy Under Secretary of Defense (Acquisition, Technology, and  
Logistics), but later canceled to ensure that any request for a  
waiver to the Berry Amendment received attention at an		 
appropriate level within DOD. GAO concluded that the eight-month 
deadline placed DOD in a high-risk contracting situation. In	 
their eagerness to serve the customer, DOD procurement officials 
chose to shortcut normal contracting procedures. The deadline	 
allowed very little time to plan for the purchase of the berets  
and little room to respond to production problems.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-695T					        
    ACCNO:   A00939						        
  TITLE:     Contract Management: Purchase of Army Black Berets       
     DATE:   05/02/2001 
  SUBJECT:   Buy national policy				 
	     Contract oversight 				 
	     Defense procurement				 
	     Limited procurement				 
	     Waivers						 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-01-695T

Testimony Before the Committee on Small Business, House of Representatives

United States General Accounting Office

GAO For Release on Delivery Expected at 10: 00 a. m. Wednesday, May 2, 2001
CONTRACT

MANAGEMENT Purchase of Army Black Berets

Statement of David E. Cooper, Director, Acquisition and Sourcing Management

GAO- 01- 695T

Page 1 GAO- 01- 695T Contract Management

Mr. Chairman and Members of the Committee: Thank you for inviting me to
participate in today?s hearing on the purchase of berets for the U. S. Army.
The Army?s decision to issue black berets to all of its forces in just 8
months placed enormous demands on the Department of Defense?s (DOD?s)
procurement system. In fact, at the time of the announcement, DOD had only
one domestic supplier under contract to produce a maximum of 138,052 berets.
To meet this challenge, DOD awarded contracts to purchase nearly 5 million
berets at a cost of about $30 million. DOD?s contracting strategy consisted
of increasing the domestic supplier?s production, awarding contracts to
known foreign sources, and procuring berets from additional sources,
anywhere they could be found. My testimony will focus on two aspects of this
strategy- specifically, the contracting procedures DOD used in purchasing
the berets and circumstances surrounding waivers to the Berry Amendment, a
statutory requirement to purchase clothing items from domestic suppliers.

As you know, the Army Chief of Staff announced on October 17, 2000, that all
Active, National Guard, and Reserve personnel would be issued black berets
as part of their standard headgear. The Chief also announced that the troops
would begin wearing the new berets on June 14, 2001- the Army?s first
birthday in the new millennium.

In response, the Defense Logistics Agency (DLA) modified the domestic
supplier?s existing contract in early November to increase monthly
production from about 10, 000 to over 100,000 berets per month. The
modification added 1.2 million berets to the domestic supplier?s contract.
DLA then awarded contracts to purchase berets from two known foreign
sources, which would deliver 1. 6 million berets. Because a substantial
shortfall still existed, DLA contracting officials intensified their efforts
to identify other sources that could produce the berets and, in early
December, competitively awarded four contracts to purchase one million
berets from four additional foreign suppliers. In February 2001, when
production problems surfaced and deliveries fell behind schedule, DLA
exercised options on the competitively awarded contracts with the four
foreign sources to purchase another million berets. (Details of the contract
actions are included in app. I.)

Due to the extremely short timeframe for delivery of the berets to the Army,
DLA contracting officials took a number of actions to expedite award of the
contracts. For example, the first three contract actions in November 2000
were taken by DLA without providing for ?full and open? Contractual

Arrangements to Purchase the Berets

Page 2 GAO- 01- 695T Contract Management

competition as required by the Competition In Contracting Act of 1984.
According to contract documents, the contract actions were not competed
because of an ?unusual and compelling urgency,? one of the circumstances
permitting other than full and open competition. The basis for the unusual
and compelling urgency was:

?The Army will be seriously injured if this action is not approved. The Army
Chief of Staff has approved a uniform change for the entire Army and this
action is imperative in order for this Command to support the service by the
introduction date.?

In addition, DLA contracting officials did not obtain a review of these
contract actions from the Small and Disadvantaged Business Utilization
Office for possible small business participation. Officials in the small
business office said they would have conducted an expedited review to
determine if a small business award was appropriate. However, a study
conducted for the Principal Under Secretary of Defense for Acquisition,
Technology, and Logistics concluded that the small business review was
immaterial to the outcome given the time constraints and because only one
domestic source was known to exist.

Also, in awarding a contract to one of the foreign sources, the DLA
contracting officer was confronted with a price that was 14 percent higher
than the price of the domestic supplier. The contracting officer performed a
price analysis and determined the price was fair and reasonable. Contract
documents explained that

? . . . the Contracting Officer must make immediate awards to attempt to
meet initial fielding requirements of the Army, so there is no time to
obtain detailed cost or pricing data, analyze that data, develop a
negotiation position, negotiate with a firm, and then finally make award.?

Nevertheless, when competition was introduced into the process at a later
date, prices declined. Specifically, the price on the single largest
noncompetitive contract was 27 percent higher than the average competitive
price.

Despite all their efforts, DLA officials advised us that quality and
delivery problems will prevent distribution of berets to all Army forces by
June 14. In fact, the officials expect that less than half of the Army?s
forces will receive berets on that date. DLA officials also advised us that
they are terminating three contracts because the contractors did not meet
delivery requirements.

Page 3 GAO- 01- 695T Contract Management

Over the years, Congress has restricted DOD?s expenditure of funds for
purchases of certain articles and items, including clothing, to American
firms. The restrictions are contained in the so- called ?Berry Amendment?
that has been included in various forms in legislation since 1941. The Berry
Amendment can be waived if it is determined that a satisfactory quality and
sufficient quantity of articles and items cannot be acquired as and when
needed at U. S. market prices. The determination to waive the Berry
Amendment must be made by the Secretary of the department concerned, or a
designee.

To meet the desired timeframes for purchasing the berets, DLA determined
that domestic sources were unavailable to produce all of the berets required
and that contracting with foreign sources was necessary. DLA contracting
officials in Philadelphia prepared three waivers to the Berry Amendment. The
Deputy Commander of DLA?s Defense Supply Center- Philadelphia approved two
waivers- on November 1 and December 7, 2000. DLA?s Senior Procurement
Executive approved the third on February 13, 2001.

As the first waiver was being processed, questions were raised by DLA
Headquarters about whether officials in Philadelphia had the authority to
waive the Berry Amendment. On November 8, 2000, DLA?s Senior Procurement
Executive requested that authority to waive the Berry Amendment be delegated
to DLA. On February 1, 2001, the Principal Deputy Under Secretary of Defense
(Acquisition, Technology, and Logistics) delegated authority to waive the
Berry Amendment to DLA?s Director and Senior Procurement Executive, with the
provision that it may not be redelegated.

Upon receipt of the delegation of authority to waive the Berry Amendment,
DLA?s Senior Procurement Executive reviewed the waivers and, on March 23,
ratified the approvals made by the Deputy Commander in Philadelphia. DOD?s
Deputy General Counsel for Acquisition and Logistics reviewed this matter
and expressed the opinion that DLA officials could take these actions to
ratify the initial waivers.

On April 24, 2001, the Principal Deputy Under Secretary of Defense
(Acquisition, Technology, and Logistics) canceled the delegation of
authority previously granted to the DLA Director and Senior Procurement
Executive. The cancellation was taken to ensure that any request for a
waiver to the Berry Amendment ?receives attention at an appropriate level
within the Department of Defense . . .? Waiver of the Berry

Amendment

Page 4 GAO- 01- 695T Contract Management

A chronology of the events surrounding waivers of the Berry Amendment to
purchase the berets from foreign sources is included in appendix II.

Mr. Chairman, clearly, the imposition of June 14 deadline placed DOD in a
high- risk contracting situation. In their eagerness to serve the customer,
DOD procurement officials chose to shortcut normal contracting procedures.
The date allowed very little time to plan for the purchase of the berets and
little room to respond to production problems. Ultimately, DLA will not be
able to meet the Army?s deadline. Had DOD taken more time to plan for this
acquisition and follow well- established contracting procedures, such
problems may well have been avoided.

Mr. Chairman this concludes my testimony. I will be happy to answer any
questions that you or Members of the Committee may have. Conclusion

Page 5 GAO- 01- 695T Contract Management

Appendix I: Contracts for Black Berets

Award date 11/ 2/ 00 11/ 2/ 00 11/ 6/ 00 12/ 7/ 00

2/ 14/ 01 2/ 22/ 01

Contractor Bancroft Cap Co. Dorothea Knitting Mills Denmark Military
Equipment Bernard Cap Co. C. W. Headdress Northwest Woolen Mills Kangol, LTD
Bernard Cap Co. (option)

C. W. Headdress (option)

Northwest Woolen Mills (option)

Kangol, LTD (option)

Totals

Quantity 1,200,000 1,083,504

480,816 375,000 120,000 196,032 308,968 375,000

120,000 196,032 308,968

4,764,320

Unit price $6.30

7.20 5.75 5.95 4.36 5.05 6.24 5.95

4.36 5.05 6.68

Total price $7,560,000

7,801,229 2,764,692 2,231,250

523,200 989,962 1,927,960 2,231,250

523,200 989,962 2,063,906

$29,606,611

Country of origin Domestic Canada Romania South Africa Sri Lanka India China
South Africa

Sri Lanka India China

Page 6 GAO- 01- 695T Contract Management

Appendix II: Berry Amendment Waivers

(120064)

Nov. 1, 2000 DLA approves waiver- Dorothea Knitting Mills and Denmark
Military Equipment contracts

Dec. 7, 2000 DLA approves waiver- Bernard Cap., C. W. Headdress, Northwest
Woolen Mills, and Kangol, LTD contracts

Feb. 1, 2001 Delegation of authority to Director, DLA and DLA Senior
Procurement Executive approved

Feb. 13, 2001 DLA approves waiver- Bernard Cap, C. W. Headdress, Northwest
Woolen Mills, and Kangol, LTD contract options

Mar. 23, 2001 DLA Senior Procurement Executive reviewed and approved
November and December waivers

Apr. 24, 2001 Delegation of authority to DLA Director and Senior Procurement
Executive cancelled
*** End of document ***