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

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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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