    Defense Ammunition: DOD Meeting Small and Medium Caliber
    Ammunition Needs, but Additional Actions Are Necessary
    (27-JUL-05, GAO-05-687).

    Following the end of the Cold War, the Department of Defense
    (DOD) significantly reduced its purchases of small and medium
    caliber ammunition and reduced the number of government-owned
    plants that produce small and medium caliber ammunition. Since
    2000, however, DOD's requirements for these types of ammunition
    have increased notably. Because the success of military
    operations depends in part on DOD having a sufficient national
    technology and industrial base to meet its ammunition needs,
    Congress asked GAO to review DOD's ability to assess if its
    supplier base can meet small and medium caliber ammunition needs.
    Specifically, we (1) identified changes over the past several
    years that have increased the requirement for small and medium
    caliber ammunition, (2) assessed the actions DOD has taken to
    address the increased requirement, and (3) determined how DOD
    plans to ensure that it can meet future small and medium caliber
    ammunition needs.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-05-687
        ACCNO:   A31297
      TITLE:     Defense Ammunition: DOD Meeting Small and Medium Caliber
    Ammunition Needs, but Additional Actions Are Necessary
         DATE:   07/27/2005
      SUBJECT:   Ammunition
    	     Defense procurement
    	     Firearms
    	     Industrial statistics
    	     Military operations
    	     Policy evaluation
    	     Procurement planning
    	     Procurement policy
    	     Weapons industry
    	     M16 Rifle

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    GAO-05-687

    United States Government Accountability Office

    GAO	Report to the Honorable David R.Obey, Ranking Minority Member,
    Committee on Appropriations, House of Representatives

    July 2005

    DEFENSE AMMUNITION

     DOD Meeting Small and Medium Caliber Ammunition Needs, but Additional Actions
                                     Are Necessary

    GAO-05-687

    [IMG]

    July 2005

    DEFENSE AMMUNITION

    DOD Meeting Small and Medium Caliber Ammunition Needs, but Additional Actions
    Are Necessary

                                     What GAO Found

    DOD's increased requirements for small and medium caliber ammunition over
    the past several years are largely the result of increased weapons
    training requirements needed to support the Army's transformation to a
    more self-sustaining and lethal force-an effort accelerated after the
    terrorist attacks of September 11, 2001-and the deployment of forces to
    conduct recent U.S. military actions in Afghanistan and Iraq.

    Between fiscal years 2000 and 2005, total requirements for small caliber
    ammunitions more than doubled, from about 730 million to nearly 1.8
    billion rounds, while total requirements for medium caliber ammunitions
    increased from 11.7 million rounds to almost 22 million rounds.

    Total Small and Medium Caliber Requirements, Fiscal Years 2000 to 2005 (in
    millions of

    rounds)

    Small caliber Medium caliber

    1,600 25

    20 1,200

    15

    800 1011.7 400 5

    00 2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005 Fiscal year
    Fiscal year

    Source: PEO for Ammunition data, GAO analysis.

    DOD has initiated several steps to meet the increased demand, including
    funding about $93.3 million for modernization improvements at the three
    government-owned ammunition plants producing small and medium caliber
    ammunition. DOD is currently able to meet its medium caliber requirement
    through modernization efforts at the government-owned ammunition plants
    and through contracts with commercial producers. The government-owned
    plant producing small caliber ammunition cannot meet the increased
    requirements, even with these modernization efforts. Also, commercial
    producers within the national technology and industrial base have not had
    the capacity to meet these requirements. As a result, DOD has had to rely
    at least in part on foreign commercial producers to meet its small caliber
    ammunition needs.

    DOD has taken steps to ensure that the national technology and industrial
    base can meet future small caliber ammunition needs by building
    flexibility into the acquisition system to address fluctuations. In
    addition, a planning process has been put in place to ensure that the base
    can respond to longerterm DOD ammunition needs, including small and medium
    caliber ammunition. While the process is ongoing, information to
    effectively implement the plan and timely performance measures to ensure

    accountability are lacking.

                     United States Government Accountability Office

    Contents

    Letter

    Results in Brief
    Background
    DOD'S Increased Requirements for Small and Medium Caliber

    Ammunition Primarily Driven by Increased Proficiency Requirements PEO Is
    Meeting Increased Requirements through Modernization Efforts Supplemented
    by Commercial Buys PEO Is Taking Steps to Meet Future Small and Medium
    Caliber

    Needs, but Implementation Problems Exist Conclusions Recommendations for
    Executive Action Agency Comments and Our Evaluation

                                           1

                                          2 4

                                           8

    11

    14 17 17 18

    Appendix I Scope and Methodology

    Appendix II	Overview of Strategic Plan for Conventional Ammunition
    Industrial Base, by Goal

    Appendix III Comments from the Department of Defense

    Tables

    Table 1: Examples of Small and Medium Caliber Ammunition and

    Their Uses Table 2: Small Caliber Requirements, Fiscal Years 2000 to 2005
    Table 3: Medium Caliber Requirements, Fiscal Years 2000 to 2005 Table 4:
    Examples of Modifications at Lake City, Milan, and

    Radford Plants Table 5: FY 2001-2005 Budget for Small Caliber Ammunition
    Table 6: FY 2001-2005 Budget for Medium Caliber Ammunition

                                                                           5 9 10

    11 13 13

    Figures

    Figure 1: Major Parts of a Fully Loaded Cartridge 6

    Figure 2: Total Small Caliber Requirements, Fiscal Years 2000 to 2005 9

    Figure 3: Total Medium Caliber Requirements, Fiscal Years 2000 to 2005 10

    Abbreviations

    DOD Department of Defense
    PEO Office of the Program Executive Officer

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
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    separately.

    United States Government Accountability Office Washington, DC 20548

    July 27, 2005

    The Honorable David R.Obey Ranking Minority Member Committee on
    Appropriations, House of Representatives

    Dear Congressman Obey:

    Following the end of the Cold War, the Department of Defense (DOD)
    significantly reduced its purchases of small and medium caliber
    ammunition. Historically, DOD has procured small and medium caliber
    ammunition from government-owned manufacturing plants. As a result of the
    reduced ammunition needs, the number of these plants has been reduced to
    less than half of what existed during the Cold War. DOD has three
    remaining government-owned plants that produce small and medium caliber
    ammunition. Since 2000, however, DOD's small and medium caliber ammunition
    requirements have increased notably.

    The Army is the single manager for conventional ammunition acquisition,
    including small and medium caliber ammunition, for all U.S. forces.1 In
    September 1999, we reported on the need to consolidate the management of
    the Army's conventional ammunition programs.2 In early 2002, the Army
    established the Office of the Program Executive Officer (PEO) for
    Ammunition as part of a larger effort to establish greater accountability
    and responsibility in the life-cycle management of DOD's ammunition
    programs. A year later, the Army designated this office as the executor
    for the single manager for conventional ammunition mission and delegated
    to that office limited authority to make determinations on restricting
    procurements of conventional ammunition as directed by section 806 of the
    Strom Thurmond National Defense Authorization Act for Fiscal Year

    1DOD Directive 5160.65, updated April 14, 2004, designates the Secretary
    of the Army as DOD's single manager for conventional ammunition under the
    authority of the Secretary of Defense. By memorandum dated January 28,
    2003, the Secretary of the Army delegated single manager for conventional
    ammunition authority to the Assistant Secretary of the Army for
    Acquisition, Logistics, and Technology.

    2See GAO, Defense Management: Army Could Achieve Efficiencies by
    Consolidating Ammunition Management, GAO/NSIAD-99-230 (Washington, D.C.:
    Sept. 30, 1999).

                        1999 (Public Law 105-261).3 In addition, the PEO for
                        Ammunition was
                        given responsibility for procuring conventional
                        ammunition to meet
                                     current military requirements.
                            Because the success of military operations depends in
                                                               part on DOD having
                        a sufficient national technology and industrial base4 to
                        meet its
                        ammunition needs, you asked us to review DOD's ability to
                        assess if its
                        supplier base can meet small and medium caliber
                        ammunition needs.
                            Specifically, we (1) identified changes over the past
                                                          several years that have
                        increased the requirements for small and medium caliber
                        ammunition,
                        (2) assessed the actions DOD has taken to address the
                        increased
                        requirement, and (3) determined how DOD plans to ensure
                        that it can
                         meet future small and medium caliber ammunition needs.
                        In conducting our work, we spoke with officials from
                        appropriate DOD
                        and Army offices. We also reviewed DOD and Army
                        ammunition
                        acquisition policies, planning documents, and ammunition
                        budget and
                           requirements data. For the purposes of this review, we
                                                                collected data on
                        5.56mm, 7.62mm, 9mm, and .50-caliber small caliber
                        ammunition, and
                        20mm, 25mm, 30mm, and 40mm medium caliber ammunition. We
                        conducted our review from September 2004 to May 2005 in
                        accordance
                        with generally accepted government auditing standards.
                        For more
                        information on our scope and methodology, see appendix I.
                        DOD's increased requirements for small and medium caliber
    Results in Brief    ammunition over the past several years are largely the
                                                      result of increased weapons
                        training requirements needed to support the Army's
                        transformation to a
                        more self-sustaining and lethal force-an effort
                        accelerated after the
                                  terrorist attacks of September 11, 2001-and the
                                                          deployment of forces to
                        conduct recent U.S. military actions in Afghanistan and
                        Iraq. Between
                        fiscal years 2001 and 2005, total requirements for small
                        caliber

    3Section 806 of the Strom Thurmond National Defense Authorization Act for
    Fiscal Year 1999 (Public Law 105-261, October 1998) authorizes DOD to
    restrict its procurement of conventional ammunition to sources within the
    national technology and industrial base if it determined that such action
    would be needed to preserve the base's capability to meet DOD's
    conventional ammunition requirements in cases of national emergency or to
    achieve industrial mobilization.

    4Defined by 10 U.S. Code section 2500(1) as the persons and organizations
    that are engaged in research, development, production, or maintenance
    activities conducted within the United States and Canada.

    ammunitions more than doubled, from about 730 million to nearly 1.8
    billion rounds, while total requirements for medium caliber ammunitions
    increased from 11.7 million rounds to almost 22 million rounds. Because a
    significant portion of this increased requirement is a result of the need
    to increase training to ensure weapons proficiency in support of
    transformation, it will continue into the foreseeable future.

    The PEO took several steps to meet the increased need for small and medium
    caliber ammunition. The PEO began modernizing the three ammunition plants
    that produce DOD's small and medium caliber ammunition, which were built
    in the World War II era. Between fiscal years 2000 and 2005, DOD funded
    about $93.3 million to replace or refurbish outdated manufacturing
    equipment and make other facility improvements. These modernization
    efforts are planned to continue through fiscal year 2011. DOD is currently
    able to meet its medium caliber requirement through modernization efforts
    at these ammunition plants and through contracts with commercial producers
    within the national technology industrial base. However, the modernization
    efforts at the plant that produces small caliber ammunition will only
    allow the contractor to increase the facility's production capacity to 1.5
    billion rounds by early 2006-falling short of DOD's current small caliber
    ammunition requirements. To make up for these shortfalls, DOD has had to
    rely on additional buys of small caliber ammunition in the commercial
    market, both domestic and foreign, and from another nation's war reserve
    stock. In fiscal year 2004, DOD made additional buys totaling about 313
    million rounds of small caliber ammunition from both domestic and foreign
    sources.

    The PEO is attempting to build flexibility into the acquisition system to
    address fluctuations in near-term needs for small caliber ammunition. For
    example, the PEO plans to select a commercial producer in 2005 that will
    serve as a second source for producing small caliber ammunition. This
    second source producer will begin providing an additional 300 million
    rounds per year of small caliber ammunition in early 2007. In addition,
    the PEO has initiated a planning process to ensure that the conventional
    ammunition industrial base's capacity could effectively and efficiently
    respond to future DOD ammunition needs, including small and medium caliber
    ammunition. While the process is ongoing, we identified two weaknesses
    that may limit its effectiveness, the lack of (1) information to
    effectively implement certain planning initiatives and (2) performance
    metrics to annually measure progress and ensure accountability. For
    example, the PEO has articulated the need to conduct a business case
    analysis to determine the future size and scope of the government-owned

    conventional ammunition base; however, implementing that business case
    analysis will require actions outside the PEO's scope of responsibility.
    In addition, while the PEO has encouraged ammunition program managers to
    submit acquisition plans so that it can determine which items should be
    procured from the national technology and industrial base, as called for
    by section 806, Public Law 105-261, other services' ammunition program
    managers have not always been forthcoming with the plans. Further, while
    certain performance measures are in place, they are not sufficient to
    monitor progress and ensure accountability. For example, the PEO's plan
    does not include key results-oriented principles, such as identifying key
    resources needed to meet the plan's goals and objectives, including costs,
    schedules, and responsible DOD components for individual initiatives. In
    addition, the plan does not include an annual review process to compare
    the actions taken to the desired performance-principles that agencies have
    been encouraged to include in their planning.

    We are making recommendations aimed at strengthening DOD's ability to
    ensure that a sufficient national technology and industrial base exists
    for cost effectively procuring conventional ammunition. In commenting on a
    draft of this report, DOD concurred with GAO's recommendations and
    provided information on its planned steps to implement them.

                                       Background

    A DOD directive assigns the Secretary of the Army the mission of the
    single manager for conventional ammunition within DOD. The Under Secretary
    of Defense for Acquisition, Technology, and Logistics is responsible for
    providing policy and guidance for the single manager for conventional
    ammunition's mission, and ensuring compliance with the single manager's
    responsibilities. Section 806 of the Strom Thurmond National Defense
    Authorization Act for Fiscal Year 1999 (Public Law 105261) vests the
    single manager with the authority to restrict the procurement of
    conventional ammunition to sources within the national technology and
    industrial base. The Secretary of the Army was authorized to delegate,
    within the Army, this authority. A January 28, 2003, memorandum from the
    Secretary of the Army delegated authority to make section 806
    determinations to the Assistant Secretary of the Army for Acquisition,
    Logistics, and Technology. In an April 16, 2003, memorandum that office
    re-delegated limited section 806 authority to the Program Executive
    Officer for Ammunition in his capacity as the single manager's executor.

    High-level planning guidance establishes general guidelines for the
    services to determine how much ammunition is needed to conduct

    military operations. As the single manager for conventional ammunition,
    the Army is responsible for coordinating with all the military services to
    meet conventional ammunition requirements. Through the PEO for Ammunition,
    the Army manages small and medium caliber ammunition, including small
    arms, mortar, automatic cannon, and ship gun ammunition (see table 1).5

     Table 1: Examples of Small and Medium Caliber Ammunition and Their Uses Weapon
                                     Use Ammunition

    Small caliber

         Machine gun   Mounted on the Army's Bradley Fighting Vehicle      7.62mm
    M2 machine gun            Ground or mounted vehicles           .50-caliber
          M16 rifle                        Ground                          5.56mm
          M9 pistol                        Ground                             9mm

                                     Medium caliber

     Cannon Mounted on the Air Force's F-15 Eagle 20mm Bushmaster cannon Mounted on
    the Army's Bradley Fighting Vehicle, the Marine Corps' Light Armored 25mm

    Vehicle, the Air Force's AC-130U special operations aircraft, and numerous
    other Navy and Coast Guard surface ships

          Cannons Mounted on the Air Force's A-10 close support aircraft 30mm

                         M203 grenade launcher Infantrymen 40mm

    Source: DOD data, GAO analysis.

    All ammunition cartridges are composed of several components that must be
    assembled at different stages of production. See figure 1 for an example
    of a 5.56mm cartridge. It takes, on average, 23-months from the time a
    production order is placed until final delivery.

    5Other categories of conventional ammunition managed by the PEO for
    Ammunition include: (1) bombs (including cluster, fuel air explosive,
    general purpose, and incendiary); (2) unguided rockets, projectiles, and
    submunitions; (3) chemical ammunition with various fillers; (4) land
    mines; (5) demolition materiel; (6) grenades; (7) flares and pyrotechnics;
    and (8) other items used in the previously mentioned categories including
    explosives, propellants, chemical agents, cartridges, propelling charges,
    projectiles, warheads, fuzes, boosters, and safe arm devices in bulk,
    combination, or separately packaged items of issue for complete round
    assembly.

                   Figure 1: Major Parts of a Fully Loaded Cartridge

                                   Source: ATK, Inc.

    Since World War II, DOD has relied primarily on a government-owned base to
    meet its conventional ammunition needs. During the Cold War, there were as
    many as 34 government-owned plants producing conventional ammunition. The
    end of the Cold War and subsequent changes to defense missions resulted in
    declining requirements. At its peak in 1985, funding for conventional
    ammunition was $4.3 billion; by 1999, funding had dropped by more than
    half to about $2 billion. Currently, there are 14 government-owned
    ammunition plants, 11 of which are contractor-operated. Three of these 11
    facilities-Lake City (Missouri), Milan (Tennessee), and Radford
    (Virginia)-are the government-owned, contractor-operated producers of
    DOD's small and medium caliber ammunition.

    Lake City is the primary producer of small caliber ammunition. Lake City
    is operated by a commercial ammunition producer under a contract that runs
    from fiscal year 1999 through fiscal year 2008. The contract initially
    called for a minimum production capacity amount of 350 million rounds and
    a maximum of 800 million rounds of 5.56mm, 7.62mm, and .50-caliber
    ammunition. The PEO increased the upper capacity requirement to 1.5
    billion rounds per year to be accomplished by early 2006 through
    modifications made to the original contract.

    The PEO relies on annual contracts with three commercial producers within
    the national technology and industrial base for most of DOD's supply of
    20mm, 25mm, and 30mm medium caliber ammunition. Currently, one of these
    producers is manufacturing medium caliber ammunition at Radford which
    specializes in the production of propellants and explosives; the other two
    commercial producers manufacture medium caliber ammunition at their own
    facilities. Radford's current contract was awarded in fiscal year 2003 and
    has been renewed on an annual basis through fiscal year 2005. Milan is the
    government's primary producer of 40mm ammunition. The contract with the
    commercial operator at Milan runs from fiscal year 1998 through fiscal
    year 2006.

    DOD'S Increased Requirements for Small and Medium Caliber Ammunition
    Primarily Driven by Increased Proficiency Requirements

    DOD's increased requirements for small and medium caliber ammunitions have
    largely been driven by increased weapons training requirements, dictated
    by the Army's transformation to a more self-sustaining and lethal
    force-which was accelerated after the attacks of September 11, 2001- and
    by the deployment of forces to conduct recent U.S. military actions in
    Afghanistan and Iraq. Since 2000, requirements for small caliber
    ammunition have more than doubled, and requirements for medium caliber
    ammunition have almost doubled.

    Over the last decade, the Army began transforming its warfighting
    capabilities to respond more effectively to the growing number of
    peacekeeping operations, small-scale contingencies, and nontraditional
    threats, such as terrorism. According to Army officials, the
    transformation is the most comprehensive change in the Army in over a
    century and will affect all aspects of its organizations, training,
    doctrine, leadership, and strategic plans as well as its acquisitions. As
    part of its transformation, the Army is planning for its forces to be
    self-sustaining and capable of generating combat power and contributing
    decisively to combat operations. Following the September 11, 2001,
    attacks, the Army accelerated its force transformation to mobilize and
    deploy soldiers in support of various missions, most notably war-fighting
    operations in Afghanistan and Iraq.

    To meet its force transformation objectives, the Army began requiring all
    soldiers to gain additional weapons qualifications training after they
    complete initial basic training. The Army also began requiring that
    personnel in all deployed elements, including combat support and combat
    service support units, achieve and maintain greater proficiency in the use
    of specified weapons. For example, beginning in late 2001, the Army
    established a policy requiring each soldier to qualify twice a year on
    small caliber firearms instead of once a year as previously required.
    According to Army officials, in addition to the increased annual training
    requirements, small caliber ammunition needs have increased by an
    additional 66 percent due to a combination of the mobilization of units
    and contingency training, for example, training to react to defend against
    attacks on truck convoys; and, to a lesser extent, due to operations in
    Iraq and Afghanistan. The increased requirements are likely to continue to
    a significant extent beyond current operational deployments due to the
    increased training requirements.

    Between fiscal years 2000 and 2005, total requirements for small caliber
    ammunition increased from about 730 million to nearly 1.8 billion rounds
    (see figure 2).

         Figure 2: Total Small Caliber Requirements, Fiscal Years 2000 to 2005

    Small caliber 2,000

                                         1,790

    1,800

    1,600

    1,400

    1,200

    1,000

    800

    733.4

    600

    400

    200 0

                             2000 2001 2002 2003 2004 2005

    Fiscal year

                     Source: PEO for Ammunition data, GAO analysis.

    Note: In millions of rounds.

    The 5.56mm rounds-used in the M16 rifle, the standard weapon used by
    soldiers-accounted for much of the small caliber increase (see table 2).

    Table 2: Small Caliber Requirements, Fiscal Years 2000 to 2005

                                 In millions of rounds

                       Type FY 2000  FY 2001  FY 2002  FY 2003  FY 2004   FY 2005
                     5.56mm    626.2    575.6      689      929    1,181    1,353
                     7.62mm     47.2     50.7     92.2    136.3      313      282
                .50-caliber     20.4     15.7     22.6     41.8       67       74
                        9mm     39.6    133.7    104.2    146.4       75       81
                      Total    733.4    775.7      908 1,253.5     1,636    1,790

    Source: PEO for Ammunition data, GAO analysis.

    Medium caliber requirements have also increased over the past few years.
    Between fiscal years 2000 and 2005, medium caliber requirements almost

    doubled, from 11.7 million rounds to almost 22 million rounds (see figure
    3).

    Figure 3: Total Medium Caliber Requirements, Fiscal Years 2000 to 2005

    Medium caliber

                                25.9 21.5 21.2 16.6 15.9

    11.7

                             2000 2001 2002 2003 2004 2005

    Fiscal year

                     Source: PEO for Ammunition data, GAO analysis.

    Note: In millions of rounds.

    The 40mm rounds represent the bulk of the increases between fiscal years
    2000 and 2005 (see table 3).

    Table 3: Medium Caliber Requirements, Fiscal Years 2000 to 2005

                                 In millions of rounds

                  Type  FY 2000   FY 2001   FY 2002   FY 2003   FY 2004   FY 2005
                  20mm       2.4       4.1       4.4       6.3         4        4
                  25mm       2.6       2.6         3       4.4       0.8        1
                  30mm       2.5       5.1       3.9       4.1       5.4      5.5
                  40mm       4.2       4.8       4.6      11.1        11       11
                 Total      11.7      16.6      15.9      25.9      21.2     21.5

    Source: PEO for Ammunition data, GAO analysis.

    PEO Is Meeting Increased Requirements through Modernization Efforts
    Supplemented by Commercial Buys

    In an effort to help meet the increased need for small and medium caliber
    ammunition in the near term, the PEO upgraded the equipment at the Lake
    City, Milan, and Radford Army Ammunition plants. While these upgrades
    enabled Milan and Radford-the government-owned, contractor-operated
    producers of medium caliber ammunition-to meet DOD's requirements, Lake
    City-the small caliber ammunition producer-was unable to meet DOD's fiscal
    year 2004 requirement of about 1.6 billion rounds of ammunition. As a
    result, the PEO made additional procurements from the commercial market to
    make up for fiscal year 2004 shortfalls.

    The three government-owned, contractor-operated plants that produce small
    and medium caliber ammunition were built in 1941. Between fiscal years
    2001 and 2005, DOD funded a total of about $93.3 million to upgrade these
    facilities. This included replacement or refurbishment of ammunition
    cartridge production equipment and other facility improvements. According
    to a PEO official, ongoing modernization is needed for the Army ammunition
    plants to continue to operate into the future, and in the case of the Lake
    City Army Ammunition Plant, additional equipment and facility upgrades
    will be needed to increase capacity to address future needs. According to
    a PEO official, the Army plans to replace and refurbish ammunition
    production equipment through fiscal year 2011. See table 4 for examples of
    funded modifications.

    Table 4: Examples of Modifications at Lake City, Milan, and Radford Plants

                          Army Ammunition Plant Modifications

    Lake City  o  Small caliber line upgrades

    o  	Replacement of die sets for manufacturing ammunition components

    Milan  o  	Modernization of temperature humidity control used for
    producing mortars

    o  Production support and equipment replacement

    Radford  o  	Upgrading the acid production facilities for propellant
    production

    Source: Army data, GAO analysis.

    According to PEO officials, the national technology and industrial base
    has been able to meet the increased requirements for medium caliber
    ammunition. In an effort to meet DOD's small ammunition requirements, the
    PEO initiated additional modernization efforts at Lake City to increase

    production from a maximum capacity of 800 million rounds in fiscal year
    2001 to approximately 1.2 billion rounds per year in July 2004.6 Despite
    this increased production capacity, Lake City was unable to meet fiscal
    year 2004 requirements for small caliber ammunition.

    Consequently, the PEO was forced to rely on other ammunition sources.
    While many commercial ammunition producers responded to the PEO's sources
    sought announcements,7 few were able to satisfy DOD's ammunition
    specifications. For example, seven of nine commercial producers responding
    to the PEO's announcement for a specific type of 5.56mm ammunition were
    unable to meet the specifications, such as producing metal cartridge
    cases. For an announcement for different types of .50-caliber ammunition,
    none of the 10 respondents were able to meet all of the specifications.
    Several respondents were foreign ammunition producers. According to
    officials from U.S. commercial ammunition producers, the recent surge in
    DOD's small caliber ammunition requirements could only be met by accessing
    available worldwide capacity.

    The PEO was eventually able to find commercial producers qualified to fill
    DOD's small caliber ammunition shortfall in fiscal year 2004. These
    included Israel Military Industries and Olin-Winchester-a U.S. ammunition
    producer. According to data provided by the PEO, almost 313 million rounds
    of 5.56mm, 7.62mm, and .50-caliber ammunition were purchased from
    commercial ammunition producers in fiscal year 2004.8 According to a PEO
    official, DOD paid about $10 million more than a similar amount of small
    caliber ammunition would cost from Lake City. However, Lake City could not
    meet the 2004 requirement. Although DOD paid a premium as a result of the
    need to procure ammunition outside the government-owned base, we did not
    analyze whether maintaining a more robust base would have been
    cost-effective.

    According to DOD officials, the increased buys for small caliber
    ammunition are being funded through supplemental appropriations.

    6The PEO purchased approximately 120 million rounds of war reserve stocks
    from the United Kingdom in fiscal year 2004.

    7A sources sought announcement is a type of market survey to identify
    companies that can fill the quantities and types of ammunition being
    sought.

    8The PEO purchased almost 2.7 million rounds of armor-piercing 5.56mm and
    7.62mm ammunition from a commercial producer in Sweden in fiscal year
    2004.

    Tables 5 and 6 illustrate how much funding for small and medium caliber
    ammunition acquisitions has been proposed by the President's Budget, and
    the final funding including supplemental funds for fiscal years 2001 to
    2005.

    Table 5: FY 2001-2005 Budget for Small Caliber Ammunition

                                  Dollars in thousands

                                             Proposed     Final funding including
                   Fiscal year   President's budget            supplemental funds
                          2001               $123,205                    $255,956
                          2002                117,728                     140,930
                          2003                169,928                     364,910
                          2004                315,186                     298,671
                          2005                283,500                     282,405

                            Source: Army data, GAO analysis.

               Table 6: FY 2001-2005 Budget for Medium Caliber Ammunition

                                  Dollars in thousands

                                             Proposed     Final funding including
                   Fiscal year   President's budget            supplemental funds
                          2001               $130,089                    $140,589
                          2002                105,522                     101,119
                          2003                114,585                     263,782
                          2004                148,747                     163,062
                          2005                150,984                     150,401

                            Source: Army data, GAO analysis.

    PEO Is Taking Steps to Meet Future Small and Medium Caliber Needs, but
    Implementation Problems Exist

    The PEO has taken certain steps to ensure that the national technology and
    industrial base can meet future small and medium caliber ammunition needs.
    As part of these efforts, the PEO is attempting to build flexibility into
    its acquisition system to address near-term fluctuations in the
    requirement for small caliber ammunition. In addition, the PEO has
    initiated a longer-term planning process to better manage the national
    technology and industrial base for conventional ammunition. However, the
    PEO lacks access to some information needed to effectively implement
    certain planning initiatives, and other initiatives require actions that
    are beyond the purview of the PEO. Furthermore, the PEO has not
    established sufficient performance metrics necessary to ensure
    accountability.

    PEO Is Attempting to Build Flexibility into Procurement Process for Small
    Caliber Ammunition

    The PEO is taking several steps to increase flexibility in the small
    caliber ammunition procurement process. First, the PEO plans to increase
    Lake City's production capacity to 1.5 billion rounds per year by March
    2006 through additional modernization. Moreover, the PEO is in the process
    of selecting a commercial contractor that will provide an additional 300
    million small caliber ammunition rounds per year. This commercial producer
    will serve as a second source in addition to Lake City, to meet small
    caliber ammunition needs. The contract is to be awarded in mid 2005, with
    initial deliveries to start in January 2007. Also, the PEO is requiring
    that this commercial source be able to supply an additional 200 million
    rounds of small caliber ammunition, if requirements continue

    9

    to increase.

    In the event that future small caliber ammunition requirements were to
    decrease, which would likely happen if war fighting operations were scaled
    back, the PEO plans to reduce the amount of ammunition produced at Lake
    City, while maintaining the 300 million rounds of ammunition production
    provided by the commercial producer. According to a PEO official, the
    reduction at Lake City will be accomplished by reducing the number of work
    shifts rather than by storing or mothballing equipment. Therefore, a
    future need for increased production could be met by adding shifts. By
    building this flexibility into the production at Lake City, whose
    production the PEO can expand or contract under a new contract starting

    9In 2005 the PEO issued a request for proposals for a commercial producer
    to produce 300 million rounds per year. The request calls for 300 million
    rounds for the first year, plus four additional 1-year options for 300
    million rounds per year. In addition the request requires that the
    commercial producer have the capability of increasing production by an
    additional 200 million rounds within 12 months of an award, if needed.

    in fiscal year 2008, the PEO hopes to avoid the need for future additional
    buys, while retaining the capacity to expand production at Lake City.

    A Planning Process for Ammunition Has Been Initiated, but Information
    Needed for Effective Implementation and Measuring Performance Is Lacking

    The PEO has initiated a planning process to ensure that the national
    technology and industrial base for conventional ammunition's capacity can
    effectively and efficiently respond to future DOD ammunition needs,
    including small and medium caliber ammunition requirements.10 While the
    process is ongoing, information needed to effectively implement all
    aspects of the process and performance metrics needed to annually measure
    progress and ensure accountability are lacking.

    In November 2003, the PEO issued a plan11 with the following five goals:
    (1) balance industrial base and acquisition management risk; (2) transform
    to meet current and future requirements; (3) incentivize industry to
    reinvest in capital equipment and processes; (4) modernize required
    manufacturing and logistics capacity; and (5) operate effectively and
    efficiently. In addition to these five goals, the plan establishes 30
    initiatives that are intended to help meet the goals. (See appendix II for
    a list of the 30 initiatives by goal.)

    The PEO has begun taking actions to implement several of the 30
    initiatives to achieve the plan's goals. For example, the PEO has begun
    implementing initiatives that address determining whether procurements of
    conventional ammunition should be restricted to sources within the
    national technology and industrial base, as provided by section 806 of
    Public Law 105-261. The PEO, the Joint Munitions Command, and the Defense
    Contract Management Agency have worked together to begin the development
    of a risk assessment tool that will include industrial base data such as
    requirements, suppliers, capacities, deficiencies, production schedules,
    and inventories. The tool also will be capable of developing reports with
    "what-if" scenarios to anticipate production problems. To date, the Joint
    Munitions Command and the Defense Contract Management Agency have
    identified hundreds of conventional ammunitions items that could not be
    produced if only one supplier of the

    10The PEO was tasked with developing a conventional ammunition industrial
    base strategic plan to ensure that the ammunition industrial base could
    effectively and efficiently respond to current and future conventional
    ammunition requirements.

    11Single Manager for Conventional Ammunition (SMCA) Industrial Base
    Strategic Plan: 2015.

    necessary components needed to build the item would suddenly become
    unavailable. As part of its efforts to implement its section 806
    responsibilities, the PEO is encouraging all ammunition program managers
    to provide acquisition plans for their conventional ammunition needs, as
    required by regulation.12 This process is intended to help the PEO ensure
    that other Army and DOD components are developing procurement strategies
    that adhere to section 806.

    Despite these actions, the implementation of the planning process has two
    major weaknesses. First, the PEO lacks the information needed to
    effectively implement several initiatives. For example, conducting a
    business case analysis to determine the future size and scope of the
    government-owned base to preserve critical capabilities and reduce costs
    is key to meeting the PEO goals. However, implementing the business case
    analysis is outside the PEO's scope of responsibility. Further, who will
    need to take action and what needs to be done to develop the business case
    have not yet been specified. Further, in the case of the acquisition
    plans, the PEO has encouraged ammunition program managers to submit
    acquisition plans so that determinations can be made as to what should be
    procured within the national technology and industrial base, as called for
    in section 806. Some services program managers (other than Army) have not
    been forthcoming with all the information needed to make these
    determinations. The authority to require program managers to submit these
    plans rests with the Under Secretary of Defense for Acquisition,
    Technology and Logistics.

    Second, the performance measures in place are not sufficient to monitor
    progress made in meeting the plan's goals and objectives and ensure
    accountability. The Government Performance and Results Act of 1993 (Public
    Law 103-62) provides guiding principles that agencies should use to gauge
    progress towards long-term goals. These principles include identifying
    required resources such as staff, schedules, and costs. Additionally, the
    act requires agencies to report actual performance against performance
    goals, the reasons certain goals were not met, and future planned actions
    to meet stated goals. The 30 initiatives included in the PEO's plan
    establish some accountability for implementation because they identify the
    objectives for each goal and general performance measures. Further, the
    PEO is developing plans for each of the 30 initiatives-14 of which have
    been developed. These plans contain

    12See section 207.103 of the Defense Federal Acquisition Regulation
    Supplement.

    Conclusions

    Recommendations for Executive Action

    information on major activities or actions that must be taken to complete
    an initiative and identify the PEO staff responsible for managing each
    initiative. However, the PEO has not yet completed the development of
    implementation plans. Furthermore, the initiatives in the strategic plan
    do not include key results-oriented principles such as identifying key
    resources needed to meet the plan's goals and objectives including costs,
    schedules, and responsible DOD components for individual initiatives. In
    addition the plan does not include an annual review process to compare the
    actions taken to the desired performance. Such evaluations could be useful
    in achieving the plan's goals.

    Ensuring the industrial base can meet DOD's fluctuating small and medium
    caliber requirements is a significant challenge. Unforeseen events, such
    as the terrorist attacks of September 11, 2001, and subsequent military
    deployments, make predicting future requirements difficult. However, it is
    imperative that the warfighter be provided with sufficient ammunition to
    carry out missions to counter ongoing and emerging threats without
    amassing wasteful unused stockpiles. While DOD has been able to meet its
    near-term ammunition requirements, it has had to rely on foreign suppliers
    to make up for some shortfalls. Implementing a strategy for DOD's
    long-term ammunition needs should include steps to ensure that future
    ammunition acquisitions are both cost-effective and timely. The likelihood
    that the current strategy will achieve its goals and objectives could be
    enhanced by (1) ensuring that the information needed to effectively
    implement initiatives is provided to those responsible for implementation,
    and by (2) ensuring that the plan identifies key resources needed to
    achieve the plan's goals and objectives, and developing an annual review
    process to compare the actions taken to the desired performance.

    To improve DOD's ability to manage the national technology and industrial
    base for small and medium caliber ammunition and to address risks to that
    base, we recommend that the Secretary of Defense direct the

    o  	Under Secretary of Defense for Acquisition, Technology, and Logistics
    to ensure that needed information on planned ammunition procurements is
    provided to the Program Executive Officer for Ammunition; and

    o  	Assistant Secretary of the Army for Acquisition, Logistics, and
    Technology to ensure that the Program Executive Officer for

    Agency Comments
    and Our Evaluation

    Ammunition identifies and provides key resources and develops metrics for
    measuring annual progress in meeting planned goals and objectives.

    In commenting on a draft of this report, DOD concurred with both
    recommendations. In response to our recommendation that DOD ensure that
    needed information on planned ammunition procurements be provided to the
    Program Executive Officer for Ammunition, the Under Secretary of Defense
    for Acquisition, Technology, and Logistics plans to issue direction to the
    services emphasizing the need to submit small and medium caliber
    ammunition plans to the Single Manager for Conventional Ammunition. In
    response to our recommendation that the Program Executive Officer for
    Ammunition identify and provide key resources and develop metrics for
    measuring annual progress in meeting planned goals and objectives, the
    Under Secretary of Defense for Acquisition, Technology, and Logistics
    plans to provide direction to the Assistant Secretary of the Army for
    Acquisition, Logistics, and Technology and the Program Executive Officer
    for Ammunition to identify and provide key resources and develop/refine
    metrics for measuring annual progress in meeting planned goals and
    objectives. (See appendix III for agency comments.) In addition, DOD
    provided technical comments that we have incorporated as appropriate.

    Copies of this report will be sent to interested congressional committees
    and the Secretary of Defense. 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) 512-4841 if you have any questions regarding
    this report. Contact points for our Offices of Congressional Relations and
    Public Affairs may be found on the last page of this report. Major
    contributors to this report were Thomas Denomme, Marie Ahearn, Tony
    Beckham, Michael Gorin, Arturo Holguin, and Karen Sloan.

    Sincerely yours,

    Ann Calvaresi-Barr Director, Acquisition and Sourcing Management

                           Appendix I: Scope and Methodology

    To identify changes over the past several years that have increased the
    requirement for small and medium caliber ammunition and assess the actions
    DOD has taken to address the increased requirement, we reviewed
    documentation and data, and interviewed DOD officials from the Office of
    the Under Secretary of Defense for Acquisition, Technology and Logistics;
    the Office of the Assistant Secretary of the Army for Acquisition,
    Logistics and Technology; the Office of the Army Deputy Chief of Staff for
    Operations and Plans; the Office of the PEO for Ammunition; and the
    Training and Doctrine Command. Specifically, we reviewed policy documents
    governing (1) DOD's Transformational Planning Guidance, (2) Army training
    requirements, (3) small and medium caliber ammunition production
    requirements, and (4) other major operational requirements related to
    small and medium caliber ammunition needs. We also interviewed DOD and
    Army officials and obtained inventory data to determine small and medium
    caliber ammunition trends and to understand how selected policies have
    impacted the industrial base for ammunition. For the purposes of this
    review, we collected data on 5.56mm, 7.62mm, 9mm, and .50-caliber small
    caliber ammunition; as well as 20mm, 25mm, 30mm, and 40mm medium caliber
    ammunition. We also spoke to two commercial ammunition producers to obtain
    a better understanding of the supplier base. Finally, we examined budget
    data provided by officials from the Office of the Assistant Secretary of
    the Army for Financial Management and Comptroller to determine the funding
    for small and medium caliber ammunition between fiscal years 2001 to 2005.

    To determine how DOD plans to ensure that it can meet future small and
    medium caliber ammunition needs, we interviewed officials from previously
    mentioned DOD offices, including the Office of the PEO for Ammunition, to
    determine the status of their planning efforts.

    Appendix II: Overview of Strategic Plan for Conventional Ammunition Industrial
    Base, by Goal

    Ranking Strategic initiatives Objectives Performance measures

    Strategic Goal 1: Balance industrial base & acquisition management risk

    4 	Synchronize ammunition procurements to maintain  o  Ensure critical
    core the required manufacturing capabilities and competencies and
    capabilities capacities. Define structured decision process to are
    available to meet facilitate synchronizing. (Keep lines warm.)
    requirements.

    o  	Balance cost, schedule, and performance with the need to have
    capability.

    o  	Establish right-sized ammunition industrial base.

    12 	Effectively implement section 806 of Public Law 105-261 (Strom
    Thurmond National Defense Authorization Act for Fiscal Year 1999).

    13 	Use science base production and prototyping as principal means for
    attaining surge capabilities and emergency requirements.

    15 	Partner with industry and academia to assist in advancing the state of
    manufacturing readiness.

    20 	Define and require an industrial base readiness assessment into all
    acquisition plans and strategies.

    23 	Pursue feasibility and overall business case for government-owned,
    contractor-operated Army ammunition plants for sell, long-term lease,
    and/or consolidation options focusing on preserving critical capabilities
    and reducing costs. (Pending fiscal year 2005 Base Realignment and Closure
    Process outcome and Army industrial base transformation guidance.)

    1. Munitions Readiness Ratings.

    2. Utilized capacity and footprint.

    3. Government-owned, contractor-operated/ government-owned,
    government-operated operating costs.

    4. Strategic outload capabilities (facilitization, staffing, and skills).

    Appendix II: Overview of Strategic Plan for Conventional Ammunition
    Industrial Base, by Goal

    Ranking Strategic initiatives Objectives Performance measures Strategic Goal 2:
                   Transform to meet current and future requirements

    3 Develop a replenishment definition to increase  o  Determine effective

    planning and industrial base sizing consistencies.	replenishment
    requirements definition and strategy.

    17 	Establish an integrated data environment process  o  Optimize
    acquisition planning and centralized industrial base assessment tool. and
    industrial base Assessment tool will include requirements, preparedness.
    Increase suppliers, capacities, deficiencies, production manufacturing
    capability and schedules, stockpile, metrics, and "what-if" report
    readiness. generation.

    23 	Pursue feasibility and overall business case for  o  Reduce
    government-owned, government-owned, contractor-operated Army
    contractor-operated Army ammunition plants for sell, long-term lease,
    ammunition plant operating and/or consolidation options focusing on
    costs/footprint and dispose of preserving critical capabilities and
    reducing costs. excess Army ammunition plant (Pending fiscal year 2005
    Base Realignment and capacity. Closure Process outcome and Army industrial
    base transformation guidance.)

    30 	Sell non-value added, unutilized production equipment and utilize
    revenue for advancing manufacturing technology capability, environmental
    remediation, and reducing Army ammunition plant operating costs.

    1. 	Existence and clarity of replenishment definition.

    2. 	Percentage of acquisition strategies/plans utilizing industrial base
    assessment tool for planning.

    3. Munitions readiness ratings.

    4. 	Trend of single point failure condition.

    5. 	Logistics Modernization Program deployment schedule.

    6. Meet combatant command operations planning requirements.

    7. 	Correct positioning of ammunition stocks to meet peacetime and wartime
    requirements.

    8. Government-owned, contractoroperated/government-owned,
    government-operated operating costs.

    9. Utilized capacity and footprint.

    10. Unit cost trends for critical ammunition end items.

    Utilize science-based production methodologies and knowledge
    transfer/access to Industry for ramp-up capability and/or capacity.
    Alternative strategy to laying away facilities/equipment.

    o  	Develop and ensure manufacturing/logistics capability and readiness.

    11. Army manufacturing modernization investments.

    12. Munitions readiness ratings.

    Establish robust manufacturing modernization funding lines.

    13. Logistics critical skills and capability sustainment assessments.

    14. Strategic outload capabilities (facilitization, staffing, and skills).

    Appendix II: Overview of Strategic Plan for Conventional Ammunition
    Industrial Base, by Goal

             Ranking Strategic initiatives Objectives Performance measures

    Strategic Goal 3: Incentivize industry to reinvest in capital equipment
    and processes

    1 	Establish multi-year contracting strategies by ammo family (14
    categories).

    19 	Selectively promote initiatives from the Armament Retooling and
    Manufacturing Support Act of 1992 authorizing the Army to permit
    commercial firms to use facilities located at government-owned,
    contractor-operated ammunition plants for commercial purposes, and
    identify projects for production modernization and transformation.

    o  	Maintain a financially viable 1. Number of suppliers in high-risk
    industrial base. financial condition.

    2. 	Financial viability of suppliers of critical core capabilities.

    Explore and implement indemnification on a selected basis.

    5 	Promote long-term relationships/partnerships with Industry.

    27 	Offer government-owned equipment and personnel for supplier use.

    7 	Initiate a manufacturing modernization loan program to provide
    low-interest rates to the ammo supply chain.

    18 	Facilitate use of science based production modeling and process
    controls.

    14 	Award incentive production contracts that match government funds for
    contractor investment in capital equipment and processes.

    o  	Increase industry investment in 3. Industry investment applied to
    equipment and facilities. modernizing manufacturing

    processes, equipment, and

    facilities.

    Appendix II: Overview of Strategic Plan for Conventional Ammunition
    Industrial Base, by Goal

             Ranking Strategic initiatives Objectives Performance measures

    Strategic Goal 4: Modernize required manufacturing and logistics capacity

    6 	Establish robust manufacturing  o  Increase manufacturing and
    modernization funding lines. logistics readiness to meet current

    and future requirements.

    9 	Identify, consolidate, and prioritize production deficiencies in the
    organic and commercial sector, aligning priorities with the program
    managers' needs.

    14 	Integrate into ammunition contracts a percentage required for capital
    improvement initiatives with contractor matching.

    24 	Establish science-based production methodologies at critical single
    point failure locations and transfer prototyping knowledge/capabilities to
    Industry.

    25 	Leverage and coordinate Mantech and research, development, technology,
    and engineering from all services.

    1. Munitions readiness ratings.

    2. 	Manufacturing readiness levels for future munitions.

    3. Army and industry's manufacturing modernization investments.

    4. 	Number of single point failures adopting science based production
    methodologies.

    Appendix II: Overview of Strategic Plan for Conventional Ammunition
    Industrial Base, by Goal

    Ranking Strategic initiatives Objectives Performance measures

    Strategic Goal 5: Operate effectively and efficiently

    2 Ensure that military services and

    o  Maintain open communications with

    1. 	Number of annual meetings with industry and services.

    industry participate in strategic planning activities.

                               all services and industry.

    Actively participate in industry organizations and events; e.g., National
    Defense Industrial Association, Munitions Industrial Base Task Force, etc.

    2. Customer satisfaction survey.

    8 Level and consolidate procurement  o  Reduce ammunition life-cycle
    costs.

    buys to the maximum extent  o  Maximize customer satisfaction.

    practicable.  o  	Reduce response time in providing ammunition to the
    joint warfighter.

    11 	Identify operating inefficiencies and formulate corrective actions.
    (This initiative was deleted in the November 2004 update of the plan.)

    21 	Incentivize the implementation of best business practices in single
    manager for conventional ammunition processes and at key government and
    commercial suppliers.

    23 	Pursue feasibility and overall business case for governmentowned,
    contractor-operated Army ammunition plants for sale, longterm lease,
    and/or consolidation options focusing on preserving critical capabilities
    and reducing costs. (Pending fiscal year 2005 Base Realignment and Closure
    Process outcome and Army industrial base transformation guidance.)

    29 	Promote/incentivize contractors to pursue state-based, self-help
    programs among ammo suppliers.

    16 	Promote commonality of components across/within ammo families.

    3. Percentage of identified inefficiencies that have been corrected.

    4. Utilized capacity and footprint.

    5. 	Customer satisfaction survey ratings.

    6. Munitions readiness ratings.

    7. Number of self-help projects implemented by ammunition suppliers and
    associated valueengineering savings.

    8. 	Meet combatant command operations planning requirements.

    9. 	Correct positioning of ammunition stocks to meet peacetime and wartime
    requirements.

                                               Automate
    17       Develop and implement an o  industrial base 10. Percentage of
                              industrial       planning     production base
          base integrated data              and processes.      plan converted to
          environment                                             integrated data
            using a web-based assessment                        environment.
                                    tool
            and report generating system                    11. Establishment and
          that captures production data,                    completion of a
                    stockpile condition,                    logistics industrial
               requirements and specific                    base plan.
             industrial base metrics.

    Appendix II: Overview of Strategic Plan for Conventional Ammunition
    Industrial Base, by Goal

    Ranking       Strategic initiatives        Objectives Performance measures
         22       Identify and benchmark best
               practices in production and
               facility
                          management.

    o  	Understand condition and posture of the ammunition and logistics base.

    12. Percentage of baseline metrics collected.

    13. Munitions readiness ratings.

    Baseline, characterize, and monitor the state of the industrial base
    supply chain. Utilize Joint Munitions Command production base readiness
    measurement scheme to characterize risk of industrial base to meet
    requirements.

    14. Strategic outload capabilities (facilitization, staffing, and skills).

                            Source: PEO for Ammunition data.

    Appendix III: Comments from the Department of Defense

    Appendix III: Comments from the Department of Defense

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