Defense Procurement: Air Force Did Not Fully Evaluate Options in 
Waiving Berry Amendment for Selected Aircraft (23-SEP-05,	 
GAO-05-957).							 
                                                                 
In April 2004, the Secretary of the Air Force approved a	 
permanent waiver of the requirements of the Berry Amendment for  
23 commercial derivative aircraft systems, representing more than
1,200 aircraft in the Air Force's inventory. The Berry Amendment 
generally requires the Department of Defense (DOD) to purchase	 
certain domestically grown or produced items, including specialty
metals used in defense systems such as aircraft. Waivers to the  
Berry Amendment can be granted under certain circumstances. GAO  
was asked to evaluate the supporting evidence and analysis that  
the Air Force relied on to waive the Berry Amendment. GAO did not
conduct a legal analysis of the waiver. 			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-957 					        
    ACCNO:   A37957						        
  TITLE:     Defense Procurement: Air Force Did Not Fully Evaluate    
Options in Waiving Berry Amendment for Selected Aircraft	 
     DATE:   09/23/2005 
  SUBJECT:   Air Force procurement				 
	     Buy national policy				 
	     Military aircraft					 
	     Policy evaluation					 
	     Procurement policy 				 
	     Waivers						 

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GAO-05-957

United States Government Accountability Office

GAO

Report to the Committee on Armed

                       Services, House of Representatives

September 2005

DEFENSE PROCUREMENT

Air Force Did Not Fully Evaluate Options in Waiving Berry Amendment for Selected
                                    Aircraft

GAO-05-957

[IMG]

September 2005

DEFENSE PROCUREMENT

Air Force Did Not Fully Evaluate Options in Waiving Berry Amendment for Selected
Aircraft

  What GAO Found

The Air Force did not follow established policy when evaluating the need
for a waiver of the Berry Amendment for 23 commercial derivative aircraft
systems. Specifically, the Air Force did not thoroughly analyze the
opportunities for compliance with the Berry Amendment on a system-bysystem
basis, thereby diminishing the persuasiveness of the waiver's support.

The Air Force's review of its compliance with the Berry Amendment
regarding these systems began in early 2003 when it became aware that some
aircraft manufacturers could not meet the Berry Amendment requirements.
Faced with this problem, a senior Air Force acquisition official visited
an aircraft manufacturer, two of its subcontractors (including a titanium
producer), and an engine manufacturer. The Air Force's conclusion, based
on these visits and knowledge of the aerospace industry, was that other
contractors involved in the Air Force's acquisition and support of
commercial derivative aircraft systems would also have difficulty
complying with the Berry Amendment. In September 2003, the Secretary of
the Air Force signed a temporary waiver that was initiated at the
headquarters level and covered 19 systems. That was followed in April 2004
with a permanent waiver of the Berry Amendment for these 19 systems plus
another 4.

Air Force policy calls for certain actions before issuing a waiver,
including conducting market research and conducting an analysis of what
alternatives are available and why they are not acceptable. In this
instance, the Air Force did not conduct market research for each system,
as it believed no company could produce compliant parts-a position not
explained in the waiver's supporting documents. The Air Force documented
an analysis of alternatives for only 1 aircraft system in the waiver.
Memos representing 18 other aircraft systems state that alternatives to
the waiver had been considered and rejected as not feasible but did not
identify what the alternatives were, while memos for 3 additional aircraft
systems make no reference to whether alternatives had been considered. The
Air Force provided no documentation about its analysis of alternatives for
the 1 remaining aircraft system in the waiver. After discussions with
representatives for all 23 aircraft systems, GAO concluded that the Air
Force did not document alternatives or thoroughly review possible options
to achieve compliance with the Berry Amendment for many of the aircraft
systems.

GAO has identified several instances that highlight the Air Force's lack
of thoroughness in its waiver process for the 23 aircraft systems. For
example, the Air Force did not question contractors' inability to provide
compliant spare parts when they were military unique and therefore not the
same as the parts used in commercial aircraft. Also, the Air Force
included some aircraft systems in the waiver that were already covered
under other regulatory exceptions to the Berry Amendment.

United States Government Accountability Office

Contents

       Letter                                                               1 
                                    Results in Brief                        2 
                                       Background                           3 
                        Air Force Waiver Lacked Thorough Analysis           5 
                                       Conclusions                         11 
                           Recommendation for Executive Action             12 
                           Agency Comments and Our Evaluation              12 
     Appendix I         Commercial Derivative Aircraft Included in the 
                                    Air Force Waiver                   

Appendix II	Comments from the Department of Defense and the Air Force

Appendix III GAO Contact and Staff Acknowledgments

  Table

Table 1: Commercial Derivative Aircraft Included in the Air Force's
Permanent Waiver

Abbreviations

AWACS Airborne Warning and Control System
DFARS Defense Federal Acquisition Regulation Supplement
DOD Department of Defense
FAR Federal Acquisition Regulation

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
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separately.

United States Government Accountability Office Washington, DC 20548

September 23, 2005

The Honorable Duncan L. Hunter
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representatives

Congress enacted the Berry Amendment in 1941 to maintain a healthy
industrial base and encourage domestic production of items deemed
essential to meet defense needs. It generally requires the Department of
Defense (DOD) to purchase certain domestically grown or produced
items, including food, clothing, fabrics, and specialty metals such as
titanium and titanium alloys, but allows a waiver of these requirements
when goods cannot be found in satisfactory quality or sufficient quantity
at
U.S. market prices.1 Citing this provision, in April 2004 the Secretary of
the
Air Force permanently waived the Berry Amendment for the purchase and
support of 23 commercial derivative aircraft systems-representing over
1,200 aircraft in the Air Force inventory.2 These are commercial aircraft,
modified for military use, that provide support for critical mission areas
such as cargo and passenger airlift, medical evacuations, aerial
refueling,
VIP transport, embassy support, surveillance, counterdrug enforcement,
and pilot training.3 Appendix I provides information on the 23 aircraft
systems included in the April 2004 waiver.

Because of the broad and permanent nature of the waiver, you asked us to
evaluate the supporting evidence and analysis that the Air Force relied on
to waive the Berry Amendment for certain commercial derivative aircraft
systems in its inventory. In response, this report evaluates the process
the
Air Force followed as well as its rationale for waiving the Berry

1A waiver refers to a domestic nonavailability determination made under
the Berry Amendment.

2Specifically, the waiver applies to (1) future aircraft deliveries under
contract as of the April 2004 waiver and (2) current and future support
contracts for replenishment spare parts and aircraft modifications.

3For example, the VC-25, or Air Force One, is a commercial Boeing 747 that
has been modified for use by the U.S. government.

Amendment for these aircraft. Our review focused on the Air Force's
adherence to DOD and Air Force policy. We did not conduct a legal analysis
of the waiver.

In evaluating the Air Force's process and rationale for waiving the Berry
Amendment, we reviewed the statute, regulations, and DOD and Air Force
policies that implement the Berry Amendment and provide guidance for the
waiver process. In addition, we analyzed documentation and conducted
interviews with senior Air Force acquisition officials as well as Air
Force officials in the field for each aircraft system on the waiver. We
also interviewed officials from the Office of the Secretary of Defense,
the Defense Logistics Agency, the Defense Contract Management Agency, and
the Department of Commerce to identify any additional guidance for issuing
a Berry Amendment waiver and to understand each organization's role in the
Air Force's waiver, if any. Finally, we conducted interviews and site
visits with representatives from three companies, accounting for 17 out of
the 23 aircraft systems in the waiver, to better understand the
information provided to the Air Force about the companies' difficulty in
complying with the Berry Amendment. We did not address whether the waiver
was legally valid, that is, whether the waiver was a proper exercise of
discretion by the Secretary of the Air Force under the Berry Amendment.

We performed our review from October 2004 to September 2005 in accordance
with generally accepted government auditing standards.

The Air Force did not follow established policy when it evaluated the need
for a broad, permanent waiver of the Berry Amendment for 23 commercial
derivative aircraft systems, in that it did not thoroughly analyze the
opportunities for compliance on a system-by-system basis. The Air Force
initiated the waiver at the headquarters level after it became aware in
mid2003 that many of its contracts lacked the required contract clause to
implement the Berry Amendment specialty metals provision and that
contractors were citing difficulty in complying with this requirement. In
evaluating the need for the waiver, the Air Force did not conduct market
research as called for in its policy, thoroughly review alternatives, or
include an explanation as to why it believed that alternatives did not
exist for each of the systems in the waiver. Instead, Air Force officials
stated that they did not consider it necessary to conduct market research
for each system or believe that compliant alternatives existed based on
their knowledge of the aerospace industry. We identified several instances
that highlight the Air Force's lack of thoroughness, such as not assessing

  Results in Brief

Background

possible compliant options. In addition, the Air Force did not recognize
that some systems were already covered under regulatory exceptions to the
Berry Amendment, further illustrating the Air Force's lack of thorough
analysis.

On the basis of these findings, we recommend that DOD direct the Air Force
to thoroughly analyze opportunities to achieve compliance for each system
in the waiver and periodically assess changes in the supplier base to see
whether new opportunities for compliance with the Berry Amendment have
become available. In comments on the draft report, DOD concurred with our
recommendations and the Air Force agreed to implement them.

The Berry Amendment generally prohibits DOD from using appropriated or
other available funds for the procurement of certain items that have not
been grown, reprocessed, reused, or produced in the United States. Enacted
in a 1941 defense appropriations act, the restriction initially ensured
that American troops wore uniforms and ate food grown or produced in the
United States. For more than 50 years, the Berry Amendment consistently
appeared in annual appropriations acts. The scope of the restriction has
changed over time to include additional items and exceptions. The current
version, codified in 2001, restricts DOD purchases of food, clothing,
certain fabrics, specialty metals, and certain tools.4

The specialty metals requirement was added to the Berry Amendment in 1972.
DOD implemented the specialty metals requirement by applying it to all
contracts where the specialty metal is purchased directly by the
government or the prime contractor and to all subcontract tiers for six
major classes of programs-aircraft, missiles, ships, tank-automotive,
weapons, and ammunition.5 For these programs, the prime contractor

4The complete list of items appears at 10 U.S.C. S: 2533a(b)(1)-(3) and
includes: (1) An article or item of (A) food; (B) clothing; (C) tents,
tarpaulins, or covers; (D) cotton and other natural fiber products, woven
silk or woven silk blends, spun silk yarn for cartridge cloth, synthetic
fabric or coated synthetic fabric (including all textile fibers and yarns
that are for use in such fabrics), canvas products, or wool (whether in
the form of fiber or yarn or contained in fabrics, materials, or
manufactured articles); or (E) any item of individual equipment
manufactured from or containing such fibers, yarns, fabrics, or materials.
(2) Specialty metals, including stainless steel flatware. (3) Hand or
measuring tools.

5DOD chose these six classes of programs because they accounted for the
most specialty metals procured by or for DOD based on 1972 materials
estimates.

must include a clause that requires all subcontractors to comply with the
Berry Amendment's specialty metals requirement. In addition, the Defense
Federal Acquisition Regulation Supplement (DFARS) identifies those metals
considered to be specialty metals, to include titanium, certain types of
steel, and other assorted metals and alloys.6 In 1996, Congress made clear
that the Berry Amendment does apply to all commercial item purchases.7

The Berry Amendment includes a number of exceptions to the requirement to
buy certain domestically produced articles. For example, the requirement
does not apply to the extent that the Secretary of Defense or the
Secretary of the military department concerned determines that
satisfactory quality and sufficient quantity of an item cannot be procured
as and when needed at U.S. market prices. Since May 2001, DOD policy
specifies that the authority to approve a Berry Amendment waiver is not
delegable below the Secretarial level, and the waiver is to include an
analysis of alternatives and a certification as to why such alternatives
are unacceptable.8 Additional exceptions to the Berry Amendment are
allowed for items already determined to be unavailable in the United
States9 and specialty metals purchased from a qualifying country, i.e.,
one that has signed a memorandum of understanding with the United
States.10

The Berry Amendment does not include explicit criteria to be used or
requirements to be met to support and document a waiver.11 The Air

6DFARS 252.225-7014.

7See 10 U.S.C. S: 2533a(i).

8The DFARS has recently been amended to reflect this requirement. See 70
Fed. Reg. 43073-43074 (July 26, 2005). The revision also requires that the
congressional defense committees be notified at least 10 days before the
award of a contract for titanium or titanium products involving a waiver.
This reflects the requirements of an October 22, 2004, memorandum from the
Under Secretary of Defense for Acquisition, Technology, and Logistics that
was issued after the April 2004 Air Force waiver.

9DFARS 225.7002-2(c).

10Specifically, the Berry Amendment includes an exception for the
procurement of specialty metals outside the United States if such a
procurement is necessary in furtherance of agreements with foreign
governments in which both such governments agree to remove barriers to
purchases of supplies produced in the other country or services performed
by sources of the other country. See 10 U.S.C. S: 2533a(e)(1)(B), which is
implemented in DFARS 225.7002-2(n).

11The implementing regulation, DFARS 225.7002, was revised in July 2005 to
provide direction on delegation, analysis of alternatives, and
congressional notification.

Force's internal policy, the Air Force Federal Acquisition Regulation
Supplement, provides instruction as to what information the Air Force
decision makers would generally expect to be provided if asked to approve
a Berry Amendment waiver.12 The Air Force policy calls for the contracting
officer to conduct market research to determine if an article or suitable
substitute is available from a domestic source. If the article or
substitute is not available, the contracting officer contacts Air Force
headquarters, which in turn confers with the Department of Commerce
(Commerce) to request a list of possible domestic sources. If Air Force
headquarters notifies the contracting officer that domestic sources have
not been identified by Commerce, Air Force policy then specifies that the
contracting officer shall submit a determination and finding in a
specified format for the Secretary of the Air Force's approval. This
format is to describe

o  the market research performed,

o  	any alternatives/substitutes considered and why these
alternatives/substitutes are not satisfactory,

o  the total estimated cost of the item(s) being acquired,

o  the circumstances precluding the buying of a domestic end item, and

o  the impact if the waiver is not approved.

  Air Force Waiver Lacked Thorough Analysis

The Air Force did not conduct a thorough analysis of opportunities for
compliance with the Berry Amendment on a system-by-system basis in
approving a broad, permanent waiver covering 23 commercial derivative
aircraft systems. The Air Force initiated the waiver at the headquarters
level after it became aware of problems with implementing the Berry
Amendment. In supporting the waiver, the Air Force did not conduct market
research as called for in its policy, thoroughly review alternatives, or
include an explanation as to why it believed that alternatives did not
exist for each of the systems in the waiver. We identified several
instances that highlight the Air Force's lack of thoroughness in its
analysis to support the waiver.

12Air Force Federal Acquisition Regulation Supplement 5325.7002-2 and its
related Mandatory Procedure 5325.7002-2.

    Air Force Initiated Waiver after Identifying Problems with Berry Amendment
    Implementation

According to a senior Air Force official, the Deputy Assistant Secretary
(Contracting) and several Air Force officials met with titanium industry
representatives in November 2002 to discuss their concerns that some
aircraft manufacturers were not meeting the Berry Amendment requirement
for domestic specialty metals. Subsequently, the Air Force formed an
Integrated Product Team in March 2003 to study the history and
requirements of the Berry Amendment's specialty metals provision and to
review the Air Force's compliance. This team conducted a review of Air
Force Materiel Command contracts and uncovered a number of contracts that
lacked the clause that implements the Berry Amendment. The Air Force
buying commands attempted to negotiate with contractors to add the
required contract clause to those contracts. However, many commercial
derivative aircraft contractors refused to accept the specialty metals
provision that would require all contracts and subcontracts related to
aircraft programs to be compliant with the Berry Amendment. In the summer
of 2003, the Air Force official who led the waiver effort told us he
visited an aircraft manufacturer, two of its subcontractors (including a
titanium producer), and an engine manufacturer to evaluate the difficulty
of complying with the Berry Amendment specialty metals requirement.
Following these visits, the Air Force official concluded that other
contractors involved in the Air Force's acquisition and support of
commercial derivative aircraft systems would also have difficulty
complying with the Berry Amendment.

According to Air Force officials, they initiated the waiver process at the
headquarters level instead of following the established procedure of
receiving individual requests from field contracting officers involved in
acquiring or supporting these systems. Officials stated that this method
was intended to ensure a consistent and comprehensive approach to
supporting the waiver. Air Force headquarters collected supporting
documentation that included letters from contractors and memos from the
military users of commercial derivative aircraft systems. These companies
indicated it would be "commercially impracticable" or otherwise not
possible to comply with the Berry Amendment. In addition, memos from
representatives of the military users of the aircraft indicated that the
alternatives presented to them were not feasible.

In September 2003, the Secretary of the Air Force signed a temporary Berry
Amendment waiver, effective through April 1, 2004, which covered future
aircraft deliveries under current acquisition contracts, as well as
current and future support contracts, for 19 commercial derivative
aircraft systems. In doing so, the Secretary of the Air Force made several
findings, including the following:

o  	Contractors stated they could not comply with the Berry Amendment's
specialty metals restriction "without substantial changes to their
manufacturing and supplier management processes," which would "cause
substantial, largely unquantifiable, cost and schedule impacts."

o  	Pursuing Berry Amendment compliance could make contractors' commercial
products less competitive in the worldwide market.

o  	The systems at issue are produced on the same production lines used to
support the commercial marketplace and generally comprise a minute portion
of the contractors' overall commercial business.

o  	Several contractors informed the Air Force they would no longer accept
contracts if the provisions implementing the Berry Amendment were
included.

On the basis of these findings, the Secretary of the Air Force determined
compliant commodities for certain commercial derivative aircraft systems
could not be acquired as and when needed in satisfactory quality and
sufficient quantity at U.S. market prices, the waiver was needed to
sustain ongoing operations of these systems and avoid major mission
impacts, and the waiver would be of limited duration while Congress
considered changes to the Berry Amendment in the fiscal year 2004
legislative cycle. However, these legislative changes did not occur, and
in April 2004 the Secretary signed a permanent waiver that covered 23
commercial derivative aircraft systems-which included 4 additional
systems- exempting all of them from the Berry Amendment requirements. The
permanent waiver relied on the same findings as the temporary waiver.

    Air Force Analysis Lacked Market Research and a Thorough Review of
    Alternatives

The Air Force policy identifies the need to conduct market research prior
to proceeding with a Berry Amendment waiver. According to the policy, the
Air Force is to request a list of possible domestic sources from the
Department of Commerce and draft a market research report indicating what
companies were contacted. The Air Force acquisition official who drafted
the policy told us that market research also includes advertising in
official government sources for contracting opportunities. Officials from
Commerce's Bureau of Industry and Security and International Trade
Administration informed us that there was no record of the Air Force
requesting Commerce's assistance in identifying domestic sources for the
support of commercial derivative aircraft on the waiver.

While this waiver encompasses 23 different aircraft systems and certain
related acquisition and support contracts, the Air Force did not conduct
market research on each system included in the waiver. A senior Air Force
acquisition official told us that it was unnecessary to conduct market

research for each system because Air Force officials were knowledgeable
about the aerospace industry and did not need to contact the Department of
Commerce for assistance. Another senior official who led the waiver effort
indicated that the original aircraft manufacturer owned the technical data
rights and, in some cases, was the primary supplier of these spare parts.
Therefore, this official believed that in some instances it would be
difficult and costly to purchase technical data rights so suppliers other
than the original aircraft manufacturer and its subcontractors could
produce the parts. Moreover, this same Air Force official became convinced
that no company could provide compliant spare parts after site visits to
an aircraft manufacturer, which accounted for 11 systems in the waiver,
and two of its suppliers (including a titanium producer) as well as an
engine manufacturer. However, these findings were not documented in the
waiver.

DOD and Air Force policies also specify the need to identify alternatives
and explain why such alternatives are unacceptable. In May 2001, the
Deputy Secretary of Defense directed that each military department's
Secretary ensure that alternatives that do not require a waiver under the
Berry Amendment are presented to the relevant military users before
requesting a waiver. The military users must certify in writing why such
alternatives are unacceptable before the Secretary may approve a waiver.
The Air Force policy calls for similar information.

To address DOD and Air Force policy requirements, the Air Force included
13 memos from military user representatives in the waiver's supporting
documentation, representing 22 of the 23 aircraft systems on the waiver.
As specified in Air Force policy, most of these memos address the impact
on the system if the waiver is not approved and state that the compliant
alternatives had been considered. Specifically, memos representing 18
aircraft systems state that they had considered compliant alternatives and
rejected them as not feasible, without stating what those alternatives
were. Memos for 3 aircraft systems make no reference to whether
alternatives had been considered. Only 1 memo representing a single
aircraft system contains an assessment of a potential alternative and the
delay it would cause to the aircraft's mission if selected, although other
Air Force documentation indicated that the alternative would not satisfy
the Berry Amendment requirement. Though most of the memos state that
alternatives had been considered, we found that in several instances
military users and their representatives who prepared the memos were not
presented with alternatives. A senior Air Force official who led the
waiver effort acknowledged that the military users' memos

contain boilerplate language about the consideration and rejection of
alternatives that would be compliant with the Berry Amendment.

Air Force program management officials, contracting officers, military
users, and a senior acquisition official told us that the Air Force did
not identify and pursue compliant alternatives because they did not
believe there were any available. For example, in many instances,
contracting officers and program managers stated that the only realistic
option was to pursue a Berry Amendment waiver. However, the waiver
documentation lacked an explanation as to why the Air Force did not
believe any alternatives were available.

    Air Force Did Not Consider Possible Compliant Options

The Air Force missed opportunities to assess possible compliant options.
For instance, the Air Force and Boeing have entered into a contract,
referred to as the Rights Guard agreement, that could allow the Air Force
to order technical data for military derivatives of the Boeing 707, 727,
737, and 747 commercial aircraft and to use that data to facilitate the
competitive procurement of replenishment spare parts.13 This contract was
in effect at the time the waiver was being considered and covered 8 of the
23 systems on the waiver, representing 636 (or 51 percent) of the
commercial derivative aircraft in the waiver. The senior Air Force
official who led the waiver effort, and a field contracting official who
oversaw support contracts for almost 90 percent of the aircraft on the
Rights Guard agreement, told us they did not consider this contract as a
means to acquire parts that would be compliant with the Berry Amendment.
Further, this senior acquisition official was unaware that the contract
applied to several Boeing models included in the waiver. While this
contract would not have resolved the compliance issues for all of the
aircraft systems listed on the waiver, this official acknowledged it might
have allowed the Air Force to achieve compliance for a limited number of
spare parts procurements for certain systems.

The Air Force also did not question the contractors' inability to be
compliant on military unique spare parts. For example, we previously
reported on the Air Force award of a $7.9 million contract to Boeing in
September 2003 for 24 engine cowlings used on the E-3 Airborne Warning

13There have been versions of this contract in place since the early
1970s. The Air Force and Boeing are negotiating a new version of this
contract, as the current contract will expire on September 30, 2005.

and Control System (AWACS), a Boeing 707 aircraft modified for military
use.14 These engine cowlings were similar to those used on the commercial
707, but were modified to meet military requirements. Boeing proposed to
manufacture these engine cowlings rather than subcontracting the work as
it did in the original E-3 AWACS production contracts. This required the
company to include in its contract proposal the cost of acquiring
production equipment to manufacture these parts. The temporary waiver of
the Berry Amendment that included the E-3 AWACS was issued at the same
time that the Air Force awarded the engine cowlings contract. However, it
did not question Boeing's inability to produce compliant cowlings
in-house. The waiver documentation did not include any discussion or other
indication that the Air Force questioned company assertions that it could
not meet Berry requirements, specifically for military unique items.

In addition, the Air Force did not fully evaluate the cost of bringing
contractors into compliance. Although one company's representatives said
that compliance would be costly, the Air Force did not validate what the
actual costs would be and did not assess whether the cost of complying
would be similar for the other manufacturers of commercial derivative
aircraft. For example, Gulfstream officials said that they performed a
highlevel review-which was provided to Air Force contracting officers-that
showed that about 0.2 percent of the total value of aircraft parts on the
C-37A originates in countries not exempt from the Berry Amendment.
However, the Air Force did not validate this estimate or determine the
cost or effort necessary for Gulfstream or any other similarly situated
contractor to achieve compliance.

Finally, the Air Force did not consider its leverage as the primary
customer of the T-6 aircraft, given that the U.S. government accounts for
364 out of 435 aircraft ordered as of August 2005, with planned purchases
of an additional 782 aircraft through 2015.15 The Air Force will also need
to purchase spare parts for the life of the aircraft system. According to
Raytheon, the company selects and establishes a supplier base during the
design, development, and testing of its commercial aircraft, resulting in

14GAO, Contract Management: The Air Force Should Improve How It Purchases
AWACS Spare Parts, GAO-05-169, (Washington, D.C.: Feb. 15, 2005).

15The T-6 Joint Primary Aircraft Training System is a joint program of the
Air Force and the Navy. The Air Force is responsible for administering the
production contracts for this aircraft.

suppliers being certified by the Federal Aviation Administration. However,
the Air Force did not ask Raytheon what steps it would need to take and
what costs would be involved in complying with the Berry Amendment
requirement.

    Air Force Did Not Recognize Some Systems Were Already Covered under Other
    Regulatory Exceptions

Conclusions

By not conducting a system-by-system review, the Air Force was unaware
that some systems were already covered under other regulatory exceptions
to the Berry Amendment. For example, one of the exceptions allows
specialty metals to be procured from a qualifying country. The TG-15
support contract was already exempt from the Berry Amendment specialty
metal restriction because this training glider was manufactured in
Germany, a qualifying country. In another example, the senior Air Force
officials were not aware that the TG-10 and TG-14 support contracts were
already covered under the regulatory exception for certain foreign
manufactured equipment. This exception allows DOD to purchase spare and
replacement parts for foreign manufactured equipment when domestic parts
are deemed unavailable.16 Air Force contracting officials in the field
previously determined that spare parts for these two training gliders were
unavailable domestically, as these aircraft are manufactured in the Czech
Republic and Brazil. The support contract for these systems was modified
to cite this exception 6 months before they were added to the permanent
waiver.

Air Force officials did not consider any of these other regulatory
exceptions prior to including these training gliders in the waiver. Only
after we identified that these training gliders were already exempted did
the acquisition officials consult with contracting officials at Oklahoma
City Air Logistics Center-those responsible for managing the support
contract-to determine whether these exceptions had ever been considered.
Had the Air Force done so before finalizing the permanent waiver, it may
have discovered that these training gliders were already covered through
other regulatory exceptions. This illustrates the Air Force's lack of
thoroughness by not coordinating the waiver with all of the appropriate
contracting officials in the field.

The Berry Amendment was enacted to strengthen the industrial base to
ensure that it could produce essential items for defense purposes.

16FAR 25.104(a).

  Recommendation for Executive Action

o

o

  Agency Comments and Our Evaluation

Although the Department of Defense relies on commercial products to
satisfy some of its military requirements, it remains responsible for
assessing opportunities to satisfy the requirements of the Berry
Amendment. The Air Force's failure to follow established policies and its
decision to combine 23 aircraft systems in one waiver diminished the
persuasiveness of the waiver's support. By not thoroughly analyzing each
system on the waiver, the Air Force treated all systems as if they had the
same compliance problems, when in fact several of the systems had unique
circumstances that should have been considered and documented before
approving a waiver. Additionally, the Air Force did not fully document its
position on the lack of alternatives and has limited the possibility of
future review concerning these systems through the execution of a
permanent waiver.

Because the Air Force did not thoroughly analyze each system on the waiver
or fully document its position on the lack of alternatives, we are making
two recommendations to DOD so that it can improve the waiver's support or
modify it as necessary. Specifically, we recommend that the Secretary of
Defense direct the Secretary of the Air Force to take the following two
actions:

Conduct an analysis of each commercial derivative aircraft system included
in the waiver to consider opportunities to achieve compliance with the
Berry Amendment requirements or to document why such compliance is not
possible. This should include

o  	conducting market research, including consultation with the Department
of Commerce, and

o  	assessing alternatives such as obtaining technical data rights to
manufacture compliant parts, identifying compliant suppliers for military
unique parts, determining the cost or effort for bringing contractors into
compliance, and considering if systems are already exempted under other
regulatory exceptions.

Assess, on a periodic basis, whether changes have occurred in the supplier
base for each aircraft system included in the waiver that would provide
opportunities to procure domestically produced items as required by the
Berry Amendment.

In written comments on a draft of this report, DOD concurred with both of
our recommendations. In response, DOD will direct the Air Force to conduct
an analysis of each commercial derivative aircraft system

included in the Berry Amendment waiver and to periodically assess whether
changes have occurred in the supplier base that would provide
opportunities to procure domestically produced items. In addition, DOD
provided comments from the Air Force, which indicated the Air Force's
concurrence with our recommendations and its intent to develop a plan to
review the current waiver and rescind or modify it as appropriate. DOD and
Air Force responses are reprinted in appendix II. We incorporated the Air
Force's technical comments in the report as appropriate.

In its general comments, the Air Force stated that the waiver is
reasonable and necessary and that the draft report fails to acknowledge
the circumstances and rationale that compelled it to execute the waiver.
The Air Force also indicated that the report did not clearly articulate
the scope of the current waiver, which covers future spare parts
purchases, but does not include future aircraft purchases.

While the Air Force stated that the waiver is reasonable and necessary,
our report shows that the Air Force did not follow established policy when
it did not thoroughly analyze the opportunities for compliance on a
systemby-system basis. Had it conducted market research and thoroughly
reviewed alternatives for each system on the waiver, the Air Force could
have strengthened the persuasiveness of the waiver's support. We are
encouraged that the Air Force has concurred with our recommendation to
reevaluate the support for each of the systems on the waiver.

The Air Force also stated that our report did not acknowledge the
circumstances and rationale for the waiver. We disagree with this
assertion. Our first finding discusses at length the reasons the Air Force
considered a waiver necessary and outlines the waiver's rationale based on
the Air Force's supporting documentation. While we agree that it was
necessary for the Air Force to promptly address Berry Amendment compliance
issues, this should not have precluded the Air Force from conducting a
thorough analysis on how to achieve compliance on a system-by-system
basis, especially during the 6-month period that the temporary waiver was
in force.

In addition, the Air Force indicated that the report did not clearly
articulate the scope of the current waiver. Although the draft report
correctly described the scope of the waiver, we made changes throughout
the report to specify and emphasize that the scope of the waiver covers
future aircraft deliveries under current acquisition contracts and current
and future support contracts. The waiver does not apply to commercial

derivative aircraft systems not listed on the waiver or future contracts
for systems on the waiver entered into after the waiver's effective date.

We are sending copies of this report to the Honorable Donald H. Rumsfeld,
Secretary of Defense; the Honorable Preston M. Geren, Acting Secretary of
the Air Force; and interested congressional committees. We will also
provide copies to others on request. In addition, the report will be
available at no charge on GAO's Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact
me at (202) 512-4841 or [email protected]. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page of this report. GAO staff who made major contributions to this
report are listed in appendix III.

Ann Calvaresi-Barr, Director Acquisition and Sourcing Management

Appendix I: Commercial Derivative Aircraft Included in the Air Force Waiver

Table 1: Commercial Derivative Aircraft Included in the Air Force's
Permanent Waiver

Original equipment
manufacturer Derived from Mission

Air Force inventory

Aircraft designation

    C-9A/C Nightingale Boeing DC-9 Transportation for Vice President, First
(McDonnell Douglas) Lady, and other senior officials C-12C/D/F/J Huron Raytheon
                       Aircraft Beechcraft Super King Air

Military airlift, embassy support

                                    (Beech)

(C-12C/D/F) Beechcraft King Air (C-12J)

C-20B/H Gulfstream Aerospace Gulfstream III and IV Transportation for President,
 Vice President, and other senior officials C-21A Bombardier Aerospace Learjet
 35A business jet Short-range cargo and passenger (Learjet) airlift, including
     medical evacuations C-38A Gulfstream Aerospace Astra SPX business jet
                        Transportation for distinguished

C-26B Metroliner  M7 Aerospace  Fairchild Metro  Counterdrug enforcement   
                                         23        
                      (Fairchild                   
                       Aircraft)                   
    C-32A Air Force                                 Transportation for Vice   
          Two           Boeing     Boeing 757-200        President and        
                                                     other senior officials   
         C-37A        Gulfstream    Gulfstream V    Transportation for Vice   
                       Aerospace                         President and        
                                                     other senior officials   

(Israel Aircraft Industries-Galaxy Aerospace)

visitors, medical evacuations, counter-drug efforts, and combat and
disaster assistance

C-40B/C Boeing Boeing 737-700 	Transportation for combatant
commanders-in-chief and other senior officials

C-135 all variants Boeing Boeing 367-80 KC-135 provides aerial refueling; other
(707 prototype) variants perform specialized missions CFM-56-2b (F108) CFM
    International CFM-56-2a engine Commercial engine used on KC-135R, 1,853

Engine

RC-135, E-6, and C-40 E-3 Sentry (Airborne Boeing Boeing 707-320C Airborne
                             surveillance, command,

Warning and Control System, AWACS)

                       control, and communications system

E-4B (National

              Boeing Boeing 747-200 Airborne command, control, and

Airborne Operations Center, NAOC)

communications center for President, Secretary of Defense

  E-6 Mercury (Take Boeing Boeing 707-320B Airborne command post for fleet 0a

Charge and Move Out, TACAMO)

                          ballistic missile submarines

E-8C (Joint

    Boeing (airframe) Boeing 707-300 Provides real-time surveillance and 15

Surveillance Target Attack Radar System, JSTARS) Northrop Grumman
(electronics modifications)

                             targeting information

KC-10A Extender 	Boeing Boeing DC-10 Aerial refueling, airlift support 59
(McDonnell Douglas)

Appendix I: Commercial Derivative Aircraft Included in the Air Force
Waiver

                   Original                                         Air Force 
                  equipment                                         
     Aircraft    manufacturer  Derived from          Mission        inventory 
    designation                                                     
                   Raytheon     Beech 400A    Advanced trainer for        179 
T-1A Jayhawk    Aircraft                   Air Force student     
                                               pilots on airlift,   
                   (Beech)                      bomber, or tanker   
                                                    aircraft        
T-6A Texan II   Raytheon     Beech/Pilatus Entry-level trainer        180b 
      (Joint       Aircraft        PC-9 Mk II for Air Force and     
      Primary                                  Navy student pilots  
     Aircraft      (Beech)                                          
     Training                                                       
      System,                                                       
      JPATS)                                                        
                                              Trainer for           
       T-43A                                  navigators of         
                    Boeing    Boeing 737-200  strategic and         
                                                tactical aircraft   

     TG-10B/C/D   Letecke Zavody Aircraft   Super Blanik L-23 (TG-10B) Air    
                                            Force Academy training gliders:   
    Merlin (B),         Corporation          Blanik L-13AC (TG-10C) Basic     
                                               Soaring Trainer (TG-10B),      
    Kestrel (C),                          Blanik L-33 Solo (TG-10D) Aerobatic 
                     (Czech Republic)          & Spin Trainer (TG-10C),       
Peregrine (D)                            Cross-Country & Spin Trainer (TG- 
                                                         10D)                 
                                           AMT-200S Super Ximango Air Force   
TG-14A Ximango Grupo Aeromot Aircraft         Academy cross-country        
                        Corporation                 training glider           
                         (Brazil)         
                                            Duo Discus (TG-15A), Air Force    
      TG-15A/B         Schempp-Hirth            Academy advanced cross-       
                                          Discus 2b (TG-15B) country training 
                         (Germany)                      glider                

VC-25A Air Force One Boeing Boeing 747-200B Transportation for President

Source: GAO analysis.

aThe Air Force was responsible for administering the contracts for this
aircraft through January 2005. Currently it has no E-6 aircraft in its
inventory. However, the Navy has 16.

bThe Air Force and Navy plan future purchases of 454 aircraft and 328
aircraft respectively for a total of 782 aircraft through 2015.

Appendix II: Comments from the Department of Defense and the Air Force

                                 Now on p. 12.

Appendix II: Comments from the Department of Defense and the Air Force

                                 Now on p. 12.

Appendix II: Comments from the Department of Defense and the Air Force

Appendix II: Comments from the Department of Defense and the Air Force

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact Ann Calvaresi-Barr (202) 512-4841 or [email protected]

Acknowledgments 	In addition to the contact named above, John Neumann,
Assistant Director; Noah Bleicher; Greg Campbell; Jeffrey Hartnett; Robert
Lee; Lillian Slodkowski; and Adam Vodraska made key contributions to this
report.

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