Quality Assurance: The Fastener Quality Act's Small-Lot Exemption
(08-JUN-01, GAO-01-719).
This report reviews changes in fastener industry practice
"resulting from or apparently resulting from" the small-lot
exemption of the Fastener Quality Act. GAO found no evidence that
the fastener industry changed any practices resulting from, or
apparently resulting from, the small-lot exemption. The Customs
Service's limited tests of imported fasteners in 2001 found no
evidence of substandard fasteners and no evidence of any decline
in the quality of fasteners from the results of tests Customs
conducted in 1998.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-01-719
ACCNO: A01167
TITLE: Quality Assurance: The Fastener Quality Act's Small-Lot
Exemption
DATE: 06/08/2001
SUBJECT: Quality control
Product safety
Safety standards
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GAO-01-719
Report to Congressional Committees
United States General Accounting Office
GAO
June 2001 QUALITY ASSURANCE
The Fastener Quality Act?s Small- Lot Exemption
GAO- 01- 719
Page 1 GAO- 01- 719 The Fastener Quality Act
June 8, 2001 The Honorable Ernest F. Hollings Chairman The Honorable John
McCain Ranking Minority Member Committee on Commerce, Science, and
Transportation United States Senate
The Honorable W. J. ?Billy? Tauzin Jr. Chairman The Honorable John D.
Dingell Ranking Minority Member Committee on Energy and Commerce House of
Representatives
The Honorable Sherwood L. Boehlert Chairman The Honorable Ralph M. Hall
Ranking Minority Member Committee on Science House of Representatives
To prevent substandard fasteners (threaded metallic screws, nuts, and bolts)
from being used in products where safety is critical, Congress enacted the
Fastener Quality Act (FQA) in 1990. 1 The law required persons who
manufacture and sell high- strength fasteners to ensure that the fasteners
meet applicable standards and specifications through laboratory testing and
recordkeeping.
1 P. L. 101- 592.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 01- 719 The Fastener Quality Act
Companies that use fasteners, particularly those of foreign automobiles,
subsequently became concerned that under the act, fastener manufacturers?
costs for laboratory testing and recordkeeping could make fasteners
purchased in small packages for service repairs and assembly kits
prohibitively expensive. In turn, they were concerned that these higher
costs could lead fastener manufacturers to either stop selling fasteners in
small packages or continue to offer them for sale but at a price so high
that users might stop buying them and instead substitute lower quality,
lower cost, ?hardware store? fasteners. They believed that such substitution
could result in fastener failures in end- users? products and a decrease in
public safety, rather than the improved public safety that the law intended.
As a result of these concerns, Congress amended FQA in 1999 2 to exempt from
testing and recordkeeping those fasteners that are (1) ordered for use as a
spare, substitute, service, or replacement part in packages containing 75 or
fewer items or (2) contained in an assembly kit. We refer to both exemptions
as the small- lot exemption, and it applies to fasteners manufactured on or
after December 6, 1999.
However, Congress was also concerned that this exemption could allow
manufacturers to sell substandard, untested fasteners in packages of 75 or
fewer or as parts in assembly kits. This concern led Congress to include a
provision in the 1999 FQA amendments requiring us to prepare a report not
later than 2 years after its enactment, describing any changes in fastener
industry practice ?resulting from or apparently resulting from? the small-
lot exemption. This report satisfies that requirement.
To perform our study, we (1) monitored U. S. Customs Service mechanical and
chemical tests of fasteners imported in early 2001 and compared the results
with similar tests performed by Customs in 1998; (2) had the Defense Supply
Center Philadelphia (DSCP) send samples of fasteners purchased in small
packages before and after December 1999 to Customs for testing and compared
the results; (3) published a notice in the Federal Register on August 9,
2000 (see app. II), and on our Web site asking the public to provide any
evidence of changes in industry practices; and (4) asked officials from
federal agencies that use fasteners whether they had any evidence of
industry changes. We conducted our review from January 2000 to May 2001, in
accordance with generally accepted government
2 P. L. 106- 34.
Page 3 GAO- 01- 719 The Fastener Quality Act
auditing standards. A more detailed discussion of our objective, scope, and
methodology is included as appendix I.
We found no evidence that the fastener industry changed any practices
resulting from, or apparently resulting from, the small- lot exemption.
Customs? limited tests of imported fasteners in 2001 found no evidence of
substandard fasteners and no evidence of any decline in the quality of
fasteners from the results of tests Customs conducted in 1998. Likewise,
Customs? 2001 tests of fasteners that DSCP purchased before and after
December 1999 found that none were defective.
Similarly, responses to our Federal Register notice uncovered no evidence of
changed practices resulting from the small- lot exemption. Further,
officials from federal agencies that use fasteners stated that they had no
evidence of industry changes.
Commerce officials stated that they had no substantive written comments to
make on the report, but did provide technical comments, which we have
incorporated as appropriate. Treasury officials similarly stated that they
had no substantive written comments, but also provided technical comments,
which we likewise incorporated as appropriate. Finally, Defense officials
provided comments concurring in the report findings and providing technical
comments, which we have incorporated as appropriate.
Billions of fasteners are used in safety- critical applications such as
buildings, nuclear power plants, bridges, motor vehicles, airplanes, and
other products or equipment each year. For example, an automobile may have
as many as 3,000 fasteners.
In 1988, the House Committee on Energy and Commerce?s Subcommittee on
Oversight and Investigations issued a report on counterfeit and substandard
fasteners that, along with hearings held by the House Science Committee, led
to the enactment of FQA on November 16, 1990. The subcommittee reported that
failures of substandard and often counterfeit fasteners may have been
responsible for deaths and injuries, reduced defense readiness, and that
they potentially threatened the safety of every American. According to the
subcommittee report, the Defense Industrial Results in Brief
Background
Page 4 GAO- 01- 719 The Fastener Quality Act
Supply Center, 3 which supplies fasteners to the armed services, found that
its inventory contained over 30 million counterfeit fasteners and that Army
depots contained another 2.6 million. Similarly, the National Aeronautics
and Space Administration (NASA) reported that it found substandard fasteners
in space shuttle equipment, and six of its fastener vendors were found to
have inadequate quality- control systems. The Air Force likewise discovered
substandard flight safety- critical aerospace fasteners in its inventory.
FQA covers certain threaded, metallic, heat- treated fasteners of onequarter
inch diameter or greater for use in safety- critical applications. As
originally enacted in 1990, FQA
required manufacturers and importers to submit all lots of fasteners with
significant safety applications to accredited laboratories for testing;
established a laboratory accreditation program at the Commerce
Department?s National Institute of Standards and Technology (NIST);
required original test certificates to accompany the fasteners throughout
the sale process;
established requirements for manufacturers? insignias to ensure
traceability of fasteners to manufacturers and distributors; and
provided for civil and criminal penalties for violations of the act. Since
its passage, FQA has been amended several times. Concerns over the
regulatory burden of FQA on aviation manufacturers led Congress, in August
1998, to amend the act to exempt certain fasteners approved by the Federal
Aviation Administration for use in aircraft. 4 The 1998 amendments also
delayed implementation of NIST?s regulations for accrediting testing
laboratories.
FQA was amended again on June 8, 1999, 5 to make it less burdensome:
Fasteners that are part of an assembly or that are ordered for use as a
spare, substitute, service, or replacement part in a package containing 75
or fewer parts at the time of sale or are contained in an assembly kit (i.
e., the small- lot exemption) were exempted from coverage.
3 Now the General and Industrial Directorate of the Defense Supply Center
Philadelphia. 4 P. L. 105- 234. 5 P. L. 106- 34.
Page 5 GAO- 01- 719 The Fastener Quality Act
Fasteners manufactured in a facility using quality- assurance systems were
exempted from coverage.
The amendment required accredited laboratory testing only of fasteners
manufactured to consensus standards requiring testing, and postponed that
requirement until June 2001.
Companies were allowed to transmit and store electronically all records on
fastener quality provided that reasonable means of authentication of the
source of the document existed.
The Commerce Department was required to establish and maintain a hotline
for reporting alleged violations of the law. All credible allegations would
then be forwarded to the Attorney General.
The amendment also made it unlawful to knowingly misrepresent or falsify the
fastener?s record of conformance or identification, characteristics,
properties, mechanical or performance marks, chemistry, or strength.
Although FQA does not mention Customs, Customs is authorized by 15 U. S. C.
sect. 1125( b) to identify and detain imported goods marked or labeled with a
false description or representation. 6 Under this authority, Customs has
conducted spot checks of imported fasteners since 1987 to determine if
fasteners? descriptions or representations are accurate. It has seven
laboratories located around the country that provide scientific support to
all Customs officers, other government agencies, and foreign governments as
part of international assistance programs. Customs laboratories tested
samples from randomly selected shipments of graded bolts 7 imported from
January through April 1998 in various sized lots and again in March and
April 2001. These included one or more of the following tests: carbon,
sulfur, phosphorous, alloying elements (chemical tests); or tensile strength
and hardness (mechanical tests).
6 Customs regulations for this section are found in 19 C. F. R. sect. 11. 13( a)
and Part 134. 7 Grade markings identify a bolt?s material, strength,
performance characteristics, and the standard to which it was manufactured.
For example, grade 5 and grade 8 bolts are highstrength heat- treated
fasteners manufactured to standards of the Society of Automotive Engineers.
Page 6 GAO- 01- 719 The Fastener Quality Act
Customs? Chicago laboratory tested 66 randomly selected shipments of graded
bolts (12 in small lots) imported during March and April 2001 and found that
none were substandard. 8 As discussed below, this is a decrease from results
of tests that Customs did before December 1999.
Customs? laboratories also tested a random sample of 77 shipments of graded
bolts imported in various sized lots from January 12 to April 12, 1998, and
found three (not in small lots) to be substandard. The bolts failed either
the tensile or hardness test and were imported through Chicago from Korea or
Taiwan. On the basis of these sample results, the Customs study estimated
that 5 percent of the 3,097 shipments of the same type of bolts that entered
U. S. ports during the 3- month test period were substandard.
In addition to testing graded fasteners imported in March and April 2001,
Customs? Chicago laboratory tested, at our request, samples of graded bolts
from 15 small lots 9 that DSCP had purchased between January 1998 and
February 2001, and found that none were defective. Three lots were from
contracts for purchases after December 1999 10 and the remainder were before
this time. According to a DSCP official, there is no way to determine if the
contractors used foreign or domestic materials. Because of the small number
of lots tested, the results, by themselves, cannot be used to make any
conclusions about industry changes in manufacturing small lots. These
results are, however, the best data available on fasteners that DSCP
purchased in small lots.
8 As of May 25, 2001, Customs had not yet completed laboratory tests on 74
samples. 9 We asked DSCP to test more than 15 samples so that the results
would be representative of their inventory of bolts. However, for reasons
explained in appendix I, this was not possible.
10 The date of manufacture was not known, so we used the date of purchase as
a proxy for determining whether the bolts were subject to the small- lot
exemption that applies to fasteners manufactured after December 1999.
Customs? Limited
Tests of Imported Fasteners Found No Evidence of Substandard Fasteners
Imported After December 1999
Customs? 2001 Test of Defense Fasteners Found None Were Defective
Page 7 GAO- 01- 719 The Fastener Quality Act
None of the 14 responses to our Federal Register notice stated that the
fastener industry had changed any practices as a result of the small- lot
exemption, as shown in the examples below.
The Industrial Fasteners Institute and the National Fastener Distributors
Association said they believe that there will be no evidence of significant
changes in industry practice because most fasteners sold under the smalllot
exemption are produced under quality- assurance systems and are therefore
not subject to the act. They further stated that since fastener
manufacturers can comply with the test requirements in the amended act in a
cost- efficient manner, it is doubtful that industry members would attempt
to avoid these costs by marketing fasteners in small- lot packages.
The Canadian Fasteners Institute said that in the last decade, the fastener
industry has made great advances and investments in product quality control
and assurance. It said that the concern with the small- lot exemption stems
from its potential for creating a public safety hazard and that the
opportunity for the emergence of substandard products in commerce is too
great a risk with the small- lot exemption in place. It suggested that, in
lieu of any exemptions, FQA be amended to say that the manufacturer,
distributor, or importer that sells fasteners as having certain mechanical
and physical properties must be capable of substantiating those properties.
That is, promises a seller makes to a buyer must be verifiable with
objective evidence.
The Alliance of Automobile Manufacturers and the Association of
International Automobile Manufacturers (AIAM) said that their members
produce virtually all the passenger cars and light trucks sold in the United
States and use 300 billion fasteners annually. They reported that Congress
exempted most automotive fasteners from FQA because strong incentives exist
to enhance fastener quality, given the potential impact of faulty fasteners
on customer satisfaction, product liability, and regulatory liability. They
said that manufacturers have developed various measures, as follows, to
assure the quality of the fasteners that they purchase:
Proprietary standards- Vehicle manufacturers have developed their own
fastener standards to assure that their fasteners are appropriate for
specific applications.
Quality- assurance systems- Vehicle manufacturers generally require that
their fastener suppliers be certified under fastener quality- assurance
systems to minimize the occurrence of nonconforming fasteners. Responses to
Federal
Register Notice Uncovered No Evidence of Changes in Industry Practices
Page 8 GAO- 01- 719 The Fastener Quality Act Closed- loop acquisition-
Vehicle manufacturers generally purchase
their fasteners from approved suppliers to assure quality and
accountability, and rarely purchase generic fasteners on the open market.
The Alliance and AIAM said that they surveyed their members to obtain
responses to the questions contained in our Federal Register notice. They
said that the responses they received represented over 90 percent of U. S.
light vehicle sales in calendar year 1999. None of the respondents reported
any significant changes in procurement and packaging practices that involved
a reduction in units per package to below 75 units, or an increase in the
use of assembly kits as a means of complying with the FQA requirements
through the small- lot exemption.
The Alliance and AIAM said that on the basis of these survey results,
virtually all of the fasteners produced to assemble or service members?
products are either manufactured to internal company proprietary standards
or are produced under a qualifying fastener quality- assurance system, or
both. As a result, they said much less than 1 percent of fasteners purchased
are exempt from FQA solely through the small- lot exemption.
These groups reported that the small- lot exemption still serves a very
important purpose: to allow the continued availability, at an affordable
price, of many spare- part fasteners required to service their members?
products in a safe manner. The majority of these small package/ assembly kit
fasteners are used to service older models that typically have very low
annual sales of spare parts. Without this vital exemption, they report, the
costs of such parts would become prohibitive, forcing their members to
remove many of these products from the market. In such a case, they believe,
the customer desiring to service his or her car would typically be forced to
substitute the correct- specification fastener with a generic hardware store
look- alike fastener, one that in all likelihood was manufactured to
different specifications and uncertain quality standards.
The Equipment Manufacturers Institute, an association of companies that
manufacture agricultural, construction, forestry, materials- handling, and
utility equipment, reported that its members want the small- lot exemption
to remain in law. They are concerned that altering or removing it could
result in burdensome paperwork and wasteful and unnecessary quality tests
for fasteners that are commonly used for the off- road equipment industry.
They said this would result in large nonvalue- added costs that would
ultimately be borne by the consumer and reduce America?s global
Page 9 GAO- 01- 719 The Fastener Quality Act
competitiveness and cost jobs. Additionally, they stated, fastener quality
has not been a problem for its industry, and remains that way today.
Other comments received included the following:
The director of quality assurance at Huck Fasteners, Inc., said that he
had surveyed his eight manufacturing facilities and found no changes in how
fasteners are packaged as a result of FQA.
A fastener manufacturer?s representative said that he had not seen any
changes in industry practices as a result of the small- lot exemption, and
that all the manufacturers and distributors he knows are in compliance.
The president of Edward W. Daniel Co., a manufacturer of industrial
lifting hardware and a member of the National Fastener Distributors
Association, said that most manufacturers/ importers of fasteners have
developed quality programs and maintain the appropriate records for tracing
the manufacturing materials used.
None of the officials that we spoke with in DSCP or NASA reported any
evidence of changes in fastener industry practices resulting from, or
apparently resulting from, the small- lot exemption. DSCP officials reported
that their agency requires prospective suppliers of fasteners to have a
quality- assurance system. Likewise, officials from the Departments of
Commerce and Justice, agencies that have specific responsibilities under
FQA, stated that they did not have any evidence of changes in fastener
industry practices.
DSCP did not report any changes in industry practices. It operates a program
that requires both manufacturers and distributors who want to sell to it to
be prequalified. According to the agency Web site, applicants for the
program must demonstrate their controls and established criteria to provide
maximum assurance that the products procured conform to specifications. In
addition, DSCP tests certain product lines, such as aerospace products, and
randomly selects products for testing on a regular basis from its inventory.
DSCP officials said that they manage approximately 1. 2 million items, of
which about 300,000 are fastener products and about 10 percent are covered
under FQA. Federal Agencies
Reported No Evidence of Changes in Industry Practices
Page 10 GAO- 01- 719 The Fastener Quality Act
None of NASA?s nine centers 11 reported any changes in industry practices as
a result of the small- lot exemption.
NIST officials responsible for FQA said that, as of March 31, 2001, they
have not received any reports that the fastener industry has changed any
practices as a result of the small- lot exemption. Similarly, officials from
the Bureau of Export Administration reported that, as of March 30, 2001,
their fraud hotline, which became operational on June 27, 2000, had not
received any allegations that relate to the small- lot exemption.
Officials at the Department of Justice said that the 1999 amendments to FQA
were so new that neither its criminal nor civil divisions had any activity
involving fasteners. Additionally, they said, they were not aware of any
prosecutions or convictions involving fasteners sold in packages of 75 or
fewer or in assembly kits since December 1999.
We found no evidence that the fastener industry has changed any practices
resulting from, or apparently resulting from, the small- lot exemption.
We provided a draft of this report to the Secretary of Commerce, the
Secretary of Treasury, and the Secretary of Defense for review and comment.
In a June 4, 2001, letter, the Secretary of Commerce stated that the
relevant bureaus of the Department of Commerce had reviewed the report and
had no substantive comments (see app. III). Other Commerce staff provided
technical comments on the draft report, which we incorporated as
appropriate. In a May 23, 2001, memorandum, the Director, Office of
Planning, U. S. Customs Service stated that he had no substantive comments
to make (see app. IV). Other U. S. Customs staff provided technical comments
on the draft report, which we also incorporated as appropriate. The
Department of Defense provided comments, concurring in the report?s findings
and providing technical comments on the draft report, which we incorporated
as appropriate.
11 Ames Research Center, Glenn Research Center, Goddard Space Flight Center,
Jet Propulsion Laboratory, Lyndon B. Johnson Space Center, John F. Kennedy
Space Center, Langley Research Center, George C. Marshall Space Flight
Center, and John C. Stennis Space Center. Conclusion
Agency Comments and Our Evaluation
Page 11 GAO- 01- 719 The Fastener Quality Act
We are sending copies of this report to the Secretary of Commerce; the
Secretary of the Treasury; the Secretary of Defense; and the Administrator,
National Aeronautics and Space Administration. Copies will also be available
at our Web site at www. gao. gov.
Should you have any questions on matters contained in this report, please
contact me at (202) 512- 6240 or Alan Stapleton, Assistant Director, at
(202) 512- 3418. We can also be reached by e- mail at koontzl@ gao. gov or
stapletona@ gao. gov, respectively. Other key contributors to this report
included David Plocher and Theresa Roberson.
Linda Koontz Director, Information Management Issues
Appendix I: Objective, Scope, and Methodology
Page 12 GAO- 01- 719 The Fastener Quality Act
As stated in FQA, our objective was to determine if there had been any
changes in fastener industry practice ?resulting from or apparently
resulting from? the small- lot exemption in FQA. To achieve this objective,
we compared the results of Customs? mechanical and chemical tests of bolts
imported during March and April 2001 with the results of similar testing
performed by Customs for bolts imported from January through April 1998.
These tests had several limitations. According to Customs officials, the
document that an importer provides for each shipment of fasteners does not
have to identify that the shipment contains packages of 75 or fewer
fasteners (i. e., small lots) or that the fasteners are of a particular
grade. Therefore, for both the 1998 and 2001 tests, Customs could not
randomly select just those shipments containing small lots of grade 5 and
grade 8 fasteners. Rather, the selection also included ungraded fasteners
that were not sent to the laboratory for testing because, without the grade
marking, Customs could not identify the test standards. For the 2001 test,
Customs recorded when the package selected contained 75 or fewer graded
bolts so we could compare their test results with those for packages
containing more than 75 bolts. We observed Customs? inspection of imported
fasteners at Chicago?s O?Hare International Airport; we also visited
Customs? Chicago laboratory and observed its testing of some of the selected
fasteners.
Another limitation was that Customs designed both its 1998 and 2001 studies
to only randomly select shipments valued at $2,500 or more so that resources
were not spent on small, inconsequential shipments. However, problems during
the 1998 study caused over 28 percent of the shipments selected to be valued
at less than $2,500. These included 80 shipments valued at less than $500
and at least one valued at $1. Based on the price of grade 5 and grade 8
bolts, it is likely that some of the 80 shipments valued at less than $500
included in the 1998 test were in small lots.
To address our objective, we also compared the results of Customs?
mechanical and chemical tests of fasteners DSCP purchased in small lots from
January 1998 to December 1999 with the results of Customs? mechanical and
chemical tests of fasteners DSCP purchased from January 2000 to January
2001. We selected DSCP because of its problems in the 1980s with counterfeit
fasteners. We asked DSCP to send the samples directly to Customs for
testing.
There were limitations in DSCP?s selection of the samples. DSCP officials
initially identified 56 different contracts for small- lot purchases for
Appendix I: Objective, Scope, and
Methodology
Appendix I: Objective, Scope, and Methodology
Page 13 GAO- 01- 719 The Fastener Quality Act
potential testing, yet only 15 lots were ultimately tested. DSCP officials
decided that 15 of the 56 contracts were ineligible for testing because the
lot size was fewer than 25 bolts; thus, taking several bolts for testing
could result in DSCP?s not being able to fill a customer?s order. Officials
further said that 25 small- lot purchases were not tested because no
inventory remained at the time the depots were asked to ship the bolts to
Customs? laboratory. Finally, one sample sent to Customs for testing was not
traceable to a contract number, and so it was eliminated from the test
results.
To give the public an opportunity to report any changes in industry
practices, we published a notice in the Federal Register on August 9, 2000
(F. R. 48714), and on our Web site, asking for comments no later than
November 30, 2000. We also notified nearly 60 journals, newsletters,
associations, and manufacturers of our Federal Register notice. As a result,
several journals (e. g., Fastener Industry News and Wire Journal
International) wrote articles about our study that often referred readers
who wanted more information to our Federal Register notice or Web site. We
also asked associations representing the fastener industry and the
automobile industry to notify their memberships about our Federal Register
notice and Web site notice.
We asked officials at agencies that had experienced problems with fasteners
in the past (DSCP and NASA) and NIST (with responsibilities under FQA) if
they were aware of any changes in industry practices resulting from, or
apparently resulting from, the FQA small- lot exemption.
In addition, we asked officials at Commerce?s Bureau of Export
Administration whether they had received any FQA allegations involving small
lots of fasteners and officials in the Department of Justice about any
allegations, investigations, prosecutions, or convictions involving
fasteners sold in small lots or in assembly kits.
We also attempted to compare the results of NASA?s tests of grade 8
fasteners purchased by its Langley Research Center before and after December
1999. However, there were too few mechanical and chemical tests completed to
make this comparison possible.
We conducted our review from January 2000 to May 2001, in accordance with
generally accepted government auditing standards. We performed our work in
Washington D. C., and Chicago, Illinois.
Appendix II: Federal Register Notice Page 14 GAO- 01- 719 The Fastener
Quality Act
Appendix II: Federal Register Notice
Appendix II: Federal Register Notice Page 15 GAO- 01- 719 The Fastener
Quality Act
Appendix II: Federal Register Notice Page 16 GAO- 01- 719 The Fastener
Quality Act
Appendix III: Comments From the Department of Commerce
Page 17 GAO- 01- 719 The Fastener Quality Act
Appendix III: Comments From the Department of Commerce
Appendix IV: Comments From the U. S. Customs Service
Page 18 GAO- 01- 719 The Fastener Quality Act
Appendix IV: Comments From the U. S. Customs Service
(410501)
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