Contract Management: Update on DOD's Purchase of Black Berets	 
(11-DEC-01, GAO-02-165).					 
								 
The Army announced in October 2000 that personnel would begin	 
wearing berets eight months later. In an effort to respond to the
Army's requirement in the limited time provided, the Defense	 
Logistics Agency (DLA) contracted for production of nearly five  
million berets at a cost of about $30 million. In the process,	 
DLA shortcut normal contracting procedures and waived		 
restrictions, contained in the so-called ''Berry Amendment,''	 
that limit Department of Defense (DOD) purchases of certain	 
items, including clothing, to those produced in the United States
or its possessions. Despite these efforts, DLA was unable to meet
the Army's deadline, and it terminated three contracts because	 
the contractors did not meet delivery requirements. To date, DOD 
has received about 2.1 million berets--less than 1 million of	 
which were distributed to Army personnel. DOD still expects	 
another 1.6 million berets to be delivered by September 2002. DOD
has taken steps to ensure that proposed waivers of the Berry	 
Amendment are considered at an appropriate management level. DOD 
no longer allows the Under Secretary of Defense or the service	 
secretaries to delegate their authority to approve Berry	 
Amendment waivers. Requests for waivers mush also be supported by
analyses of why alternatives that would not require a waiver were
unacceptable.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-165 					        
    ACCNO:   A02549						        
  TITLE:     Contract Management: Update on DOD's Purchase of Black   
Berets								 
     DATE:   12/11/2001 
  SUBJECT:   Army procurement					 
	     Delivery terms					 
	     Uniforms						 
	     Waivers						 
	     Contract performance				 
	     Manufacturing contracts				 

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GAO-02-165
     
Report to the Honorable Jeff Sessions, U. S. Senate

United States General Accounting Office

GAO

December 2001 CONTRACT MANAGEMENT

Update on DOD's Purchase of Black Berets

GAO- 02- 165

Page 1 GAO- 02- 165 Black Beret Procurement

December 11, 2001 The Honorable Jeff Sessions United States Senate

Dear Senator Sessions: On May 2, 2001, we testified on Defense Logistics
Agency (DLA) efforts to purchase black berets for Army forces. These
purchases responded to the Army?s announcement, in October 2000, that Army
personnel would begin wearing berets 8 months later. In an effort to respond
to the Army?s requirement in the limited time provided, DLA contracted for
production of nearly 5 million berets at a cost of about $30 million. In the
process, DLA shortcut normal contracting procedures and waived restrictions,
contained in the so- called ?Berry Amendment,? that limit Department of
Defense (DOD) purchases of certain items, including clothing, to those
produced in the United States or its possessions. Despite these efforts, DLA
was unable to meet the Army?s deadline, and it terminated three contracts
because the contractors did not meet delivery requirements.

In response to your request, we followed up on our earlier work in order to
assess the current status of the black beret procurement as well as the
status of DOD?s efforts to ensure proper waivers of the Berry Amendment.

To date, DOD has received about 2.1 million berets- less than 1 million of
which were distributed to Army personnel. DOD still expects another 1.6
million berets to be delivered by September 2002.

DOD has also taken steps to ensure that proposed waivers of the Berry
Amendment are considered at an appropriate management level. DOD no longer
allows the Under Secretary of Defense (Acquisition, Technology and
Logistics) or the service secretaries to delegate their authority to approve
Berry Amendment waivers. Requests for waivers must also be supported by
analyses of why alternatives that would not require a waiver were
unacceptable. Since these requirements were set, the Under Secretary has
approved six waivers, all of which originated at the Defense Logistics
Agency.

Because DOD is taking actions to ensure proper waivers of the Berry
Amendment, we are not making recommendations.

United States General Accounting Office Washington, DC 20548

Results in Brief

Page 2 GAO- 02- 165 Black Beret Procurement

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

This decision placed substantial demands on DOD?s procurement system. In
fact, at the time of the announcement, DLA had only one domestic supplier
under contract to produce a maximum of 138,052 berets. To obtain a large
number of berets by the deadline, DLA contracted with seven suppliers for
4.8 million berets valued at $29.6 million. DLA identified only one domestic
source for black berets and awarded it a $7.6 million contract for 1. 2
million black berets. The remaining berets were to be produced by foreign
sources, including more than 600,000 berets in China. 1

We testified that due to the extremely short time frame for delivery of the
berets to the Army, there was very little time to plan for the purchase and
little room to respond to production problems. In their eagerness to serve
the Army, DLA contracting officials chose to shortcut normal contracting
procedures. For example, DLA awarded the first set of contracts without
competition. 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 [DLA] to support the service
by the introduction date.?

We also testified that, in awarding contracts for foreign- produced berets,
DLA officials had approved waivers of the Berry Amendment. The Berry
Amendment can be waived 2 if the Secretary of the Department concerned or
designee determines that items of satisfactory quality and sufficient
quantity cannot be acquired as and when needed from domestic suppliers at U.
S. market prices. To meet the Army?s time frame, DLA determined that
domestic sources were unavailable to produce all of the berets required and
that contracting with foreign sources was necessary. The

1 Another 750,000 berets were to be made in South Africa with leather from
China. 2 Waivers are known as ?domestic non- availability determinations.?
Background

Page 3 GAO- 02- 165 Black Beret Procurement

Deputy Commander of DLA?s Defense Supply Center- Philadelphia approved the
first two of the three waivers in November and December 2000. As the first
waiver was being processed, questions were raised by DLA Headquarters about
whether waivers could be approved at this level. In November 2000, DLA?s
Senior Procurement Executive requested and later received a delegation of
authority to waive the Berry Amendment from the Under Secretary of Defense
(Acquisition, Technology and Logistics). Using this delegation, DLA?s Senior
Procurement Executive approved the earlier waivers as well as an additional
waiver.

In April 2001, the Under Secretary canceled this delegation of authority.
This action 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.? Before and during the hearing at which we testified, questions
were raised about whether waiving the amendment and awarding a contract for
Chinese production of berets were appropriate.

As of mid- October 2001, about 2.1 million berets had been delivered to DLA.
Less than 1 million of these berets have been distributed to Army, National
Guard, and Reserve personnel. Two actions reduced the availability of
berets.

 First, DLA terminated three contracts because of the contractors? failure
to deliver berets on time.

 Second, on May 1, 2001, the Deputy Secretary of Defense, noting the Army
Chief of Staff?s decision that U. S. troops shall not wear berets made in
China or made with Chinese content, directed that appropriate action be
taken to dispose of those black berets. This action affected about 925,000
of the berets, valued at $6.5 million. DLA has not yet made a decision on
how to dispose of these berets.

As of mid- October, 2001, 1.6 million berets were still due under existing
contracts. DLA expects to have all of these on hand by September 2002. DLA
is in the process of contracting for additional berets so that it can
distribute two berets to all personnel and have an adequate stock of berets.
It expects to complete this distribution effort by October 2003. (The status
of DLA?s contracts for berets is summarized in table 1.) Current Status of

Black Beret Purchase

Page 4 GAO- 02- 165 Black Beret Procurement

Table 1: Status of Black Beret Contracts Location

Supplier Firm Place of Manufacturer

Quantity of berets purchased Quantity

delivered Quantity due

to be delivered Quantity

canceled Current

dollar value (in thousands)

Bancroft Cap Co. U. S. U. S. (with

Pakistani and South African content)

1,200,000 398,398 801,602 $8,002 Dorothea Knitting Canada Canada 1,083,504
530,160 553,344 8, 334 Denmark Military Equipment

U. S. Romania 480,816 90,292 40,256 350,268 751 Bernard Cap Co. U. S. South
Africa

(with Chinese content)

750,000 198,636 108,820 442,544 1, 956 C. W. Headdress United

Kingdom Sri Lanka 240,000 240,000 0 1,186 Kangol LTD. United

Kingdom China 617,936 617,936 0 4,520 Northwest Woolen Mills U. S. India
392,064 56,736 99,920 235,408 993

On May 1, 2001, the Deputy Secretary of Defense issued a memorandum
underscoring the requirements of the Berry Amendment and directing that the
authority for waiving the amendment could not be delegated below the Under
Secretary of Defense (Acquisition, Technology and Logistics) or the
Secretaries of the Army, Navy, and the Air Force. The memorandum rescinded
all existing delegations of authority. And it stated that waivers could not
be granted without an analysis of why alternatives that would not require a
waiver were unacceptable. The Army, Navy, and Air Force, as well as DLA,
followed up on this memo by revising their own acquisition regulations to
incorporate the new requirements.

Since the memorandum was issued, the Under Secretary of Defense has approved
six waivers of the Berry Amendment. 3 All six originated from DLA?s Defense
Supply Center in Philadelphia. None of these purchases

3 In addition, the Secretary of the Army approved a waiver for baled cotton
linters used in the manufacture of nitrocellulose. The waiver applies to the
Modular Artillery Charge System, 120mm Tank Training Ammunition, and the
2.75 Inch Hydra 70 Rocket. Actions Taken to

Ensure Proper Waivers of the Berry Amendment

Page 5 GAO- 02- 165 Black Beret Procurement

were new. In three cases the increased attention to the Berry Amendment led
some suppliers to identify situations where waivers were necessary and in
three other cases existing waivers were due to expire. The six waivers cover
purchases of (1) black berets, from the domestic manufacturer, that included
wool and leather from foreign sources, (2) goat hair canvas used in
producing military coats and headgear, (3) rayon yarn used for military
clothing and textile items such as sleeping bags, insignias, and labels, (4)
medical/ surgical related purchases, (5) cotton yarn of a special grade used
in certain military gloves and helmet liners, and (6) cambrelle- a textile
material used in a variety of military footwear.

 In May 2001, the domestic manufacturer of berets notified DLA that foreign
wool and leather had been used in berets delivered to DLA and those in
production at that time. Based on the Army?s requirement for immediate
delivery of berets, the Under Secretary approved a waiver for these berets.
DOD officials stated that, in the future, berets from this company would be
made entirely of U. S.- produced material.

 In July 2001, the Under Secretary approved a waiver for the use of goat
hair canvas. Military specifications require that goat hair canvas be used
to make certain coats and headgear. A company that produces these items had
been notified by its supplier that the goat hair canvas it provided was not
completely of domestic content. DLA researched the availability of
domestically produced goat hair canvas and found that goat hair canvas had
not been domestically produced since 1996. The waiver, therefore, covered
current and future contracts requiring goat hair canvas. However, the Under
Secretary?s waiver also required DLA to work with the services to assess
whether any other comparable and domestically available material could be
used. If no alternative is acceptable, the waiver requires the service to
provide a written explanation. In addition, if goat hair canvas proves to be
the only acceptable material, DLA is required by the waiver to continue its
search for a domestic producer that can comply with the Berry Amendment.

 Following a May 2001 conference with its suppliers, DLA learned from a
contractor that the specialty cotton yarn (? 90/ 1 cc or higher?) that is
used in military gloves had been obtained from a foreign source between 1994
and March 2001. DLA?s search for suppliers identified a contractor who
expected to begin domestic production of the specialty cotton yarn in
October 2001. In September 2001, the Under Secretary determined that it was
essential to allow procurement of clothing and textile items that contain
the specialty cotton yarn that had been obtained during the 1994 to March
2001 time frame, and approved a waiver covering only that period.

Page 6 GAO- 02- 165 Black Beret Procurement

 Rayon yarn is used in a variety of clothing and other textile items. In
1987, DOD determined that a certain type of rayon yarn (? yarn, 50 denier
rayon?) was not made domestically in sufficient quantity and with
satisfactory quality. Since 1995, DLA had not been able to acquire any items
containing domestically produced rayon yarn of acceptable quality and
several waivers of Berry Amendment requirements were approved. In July 2001,
the Under Secretary approved a waiver for current and future purchases of
clothing and textile items containing rayon yarn. However, the Under
Secretary directed that a review be conducted of any specification requiring
use of rayon yarn for the purpose of determining if a domestically available
material would suffice. If rayon yarn is found to be the only acceptable
material, the Under Secretary directed that DLA continue to search for a
domestic producer of rayon yarn.

 The military healthcare system relies on prime vendors to supply
commercial medical and surgical products for its treatment facilities. These
prime vendors normally distribute medical and surgical supplies to civilian
hospitals and treatment facilities in a given geographical area. DLA has
determined that about 10 percent of the items purchased from prime vendors
contain textile or fibers that are covered by the Berry Amendment. The
industry does not track the origin of items or their content. Because an
existing waiver for medical and surgical items was due to expire, DLA and
the services reviewed the potential impact of eliminating Berry Amendment
covered items from the prime vendor program and concluded that such an
action would disrupt the delivery of healthcare and degrade military
readiness. In response, in June 2001, the Under Secretary approved an
interim waiver for medical- surgical purchases under the prime vendor
program. The Under Secretary directed, however, that DLA conduct a complete
review of the origin of Berry Amendment covered items and report to the
Under Secretary on the results of the review. The Under Secretary also
directed that for any items where a domestic equivalent is identified,
foreign items should be deleted from the database of items available under
the prime vendor program.

 Cambrelle is a textile material that is bonded to other materials to make
a lining component for a wide variety of military footwear. In 1999, DLA
learned that cambrelle was no longer available domestically in satisfactory
quality. DLA efforts to identify a domestic supplier did not result in any
positive responses from the textile industry. The existing waiver was due to
expire in October 2001. In September 2001, the Under Secretary approved a
waiver for cambrelle that covers contracts awarded in fiscal year 1999 and
thereafter. However, the Under Secretary?s waiver also required DLA to
complete its review with the services to assess whether any other comparable
and domestically available material could be used. If no other alternative
is acceptable, the waiver requires the services to

Page 7 GAO- 02- 165 Black Beret Procurement

provide a written explanation. In addition, if cambrelle is the only
acceptable material, DLA is required to continue its search for a domestic
supplier who can comply with the Berry Amendment. Further, the Under
Secretary required DLA to provide a briefing on the results of its work
within the next 12 months.

To support continued attention to Berry Amendment requirements, DLA also
sent additional guidance to its buying activities in September 2001. The
guidance identified actions that contracting personnel could take to
heighten supplier awareness of the requirements of the Berry Amendment and
thus facilitate compliance with the Amendment. Among the actions suggested
were the following:

 highlighting Berry Amendment restrictions in pre- proposal conferences;

 including in solicitations the full text of the regulatory clause stating
the Berry Amendment requirements, rather than simply referencing the clause;

 making domestic source requirements a mandatory discussion item when
conducting negotiated procurements; and

 emphasizing the ability to implement domestic source restrictions when
contractor purchasing systems are reviewed.

In its written response to a draft of this report, DOD questioned whether
the reference to shortcuts in normal contracting procedures was adequately
explained. As a result, we expanded the background section to explain our
use of this phrase in greater detail. DOD also commented on the timing and
source of the request for delegation authority to waive the Berry Amendment.
We added additional detail in the background section to clarify this issue.
(DOD comments appear in app. I.)

To assess the purchase of black berets, we reviewed documentation pertaining
to this procurement obtained from the Defense Supply CenterPhiladelphia, DLA
headquarters, and the Office of the Secretary of Defense. We also discussed
the procurement with officials from the Army, DLA (Philadelphia and
headquarters), and the Office of the Secretary of Defense. To assess DOD
efforts to ensure proper waivers of the Berry Amendment, we reviewed
policies and instructions issued by the Office of Secretary of Defense, DLA,
Army, Navy, and Air Force. We also reviewed waivers that had been approved
by the Under Secretary of Defense. Our work was performed in accordance with
generally accepted government auditing standards. Agency Comments

and Our Evaluation

Page 8 GAO- 02- 165 Black Beret Procurement

We are sending copies of this report to the Secretary of Defense; the
Director of the Defense Logistics Agency; the Secretaries of the Army, the
Navy, and the Air Force; the Chairman and Ranking Minority Member of the
Committee on Small Business, House of Representatives; and the Director,
Office of Management and Budget. We will also make copies available to
others on request.

If you have questions on this report, please contact me at (202) 512- 4841.
Major contributors include Cristina Chaplain, Paul Greeley, and Karen
Zuckerstein.

Sincerely yours, David E. Cooper Director Acquisition and Sourcing
Management

Appendix I: Comments From the Department of Defense

Page 9 GAO- 02- 165 Black Beret Procurement

Appendix I: Comments From the Department of Defense

Appendix I: Comments From the Department of Defense

Page 10 GAO- 02- 165 Black Beret Procurement (120060)

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