Defense Logistics: The Army Needs to Implement an Effective	 
Management and Oversight Plan for the Equipment Maintenance	 
Contract in Kuwait (22-JAN-08, GAO-08-316R).			 
                                                                 
The Department of Defense (DOD) relies on contractors to perform 
many of the functions needed to support troops in deployed	 
locations. For example, at Camp Arifjan, Kuwait the Army uses	 
contractors to provide logistics support for operations in Iraq  
and Afghanistan. Contractors at Camp Arifjan refurbish and repair
a variety of military vehicles such as the Bradley Fighting	 
Vehicle, armored personnel carriers, and the High-Mobility,	 
Multi-Purpose Wheeled Vehicle (HMMWV). However, while contractors
provide valuable support to deployed forces, we have frequently  
reported that long-standing DOD contract management and oversight
problems increase the opportunity for waste and make it more	 
difficult for DOD to ensure that contractors are meeting contract
requirements efficiently, effectively, and at a reasonable price.
This report discusses information about Task Order 1 that we	 
developed during our review. Our objectives were to (1) evaluate 
the contractor's performance of maintenance and supply services  
under Task Order 1, (2) determine the extent to which the Army's 
quality assurance and contract management activities implement	 
key principles of quality assurance and contract management	 
regulations and guidance, and (3) determine the extent to which  
the Army is adequately staffed to perform oversight activities.  
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-316R					        
    ACCNO:   A80069						        
  TITLE:     Defense Logistics: The Army Needs to Implement an	      
Effective Management and Oversight Plan for the Equipment	 
Maintenance Contract in Kuwait					 
     DATE:   01/22/2008 
  SUBJECT:   Army procurement					 
	     Contract oversight 				 
	     Contract performance				 
	     Cost plus award fee contracts			 
	     Defense appropriations				 
	     Defense operations 				 
	     Defense procurement				 
	     Department of Defense contractors			 
	     Employment requirements				 
	     Equipment management				 
	     Fixed price contracts				 
	     Quality assurance					 
	     Quality control					 
	     Strategic planning 				 
	     Government agency oversight			 
	     Task orders					 
	     Kuwait						 

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GAO-08-316R

   

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January 22, 2008

Congressional Committees

Subject: Defense Logistics: The Army Needs to Implement an Effective
Management and Oversight Plan for the Equipment Maintenance Contract in
Kuwait

The Department of Defense (DOD) relies on contractors to perform many of
the functions needed to support troops in deployed locations. For example,
at Camp Arifjan, Kuwait the Army uses contractors to provide logistics
support for operations in Iraq and Afghanistan. Contractors at Camp
Arifjan refurbish and repair a variety of military vehicles such as the
Bradley Fighting Vehicle, armored personnel carriers, and the
High-Mobility, Multi-Purpose Wheeled Vehicle (HMMWV). However, while
contractors provide valuable support to deployed forces, we have
frequently reported that long-standing DOD contract management and
oversight problems increase the opportunity for waste and make it more
difficult for DOD to ensure that contractors are meeting contract
requirements efficiently, effectively, and at a reasonable price.

In its fiscal year 2007 report,^1 the House Appropriations Committee
directed GAO to examine the link between the growth in DOD's operation and
maintenance costs and DOD's increased reliance on service contracts. In
May 2007 we issued a report that examined the trends in operation and
maintenance costs at installations within the United States.^2 A second
report examining the cost impact of using contracts to support deployed
forces is expected to be issued in 2008. In the interim, we are issuing
this report to you on the Army's Global Maintenance and Supply Services
(GMASS) contract's multimillion-dollar Kuwait task order--Task Order
1--because of the findings we uncovered during this engagement and the
implications for waste of taxpayer dollars and the potential negative
impact on the warfighter as well as on our redeployment from Iraq once a
decision is made to do so.

This report discusses information about Task Order 1 that we developed
during our review. Our objectives were to (1) evaluate the contractor's
performance of maintenance and supply services under Task Order 1, (2)
determine the extent to which the Army's quality assurance and contract
management activities implement key principles of quality assurance and
contract management regulations and guidance, and (3) determine the extent
to which the Army is adequately staffed to perform oversight activities.

^1H.R. Rep. No. 109-504, at 46-47 (2006).

^2GAO, Defense Budget: Trends in Operations and Maintenance Costs and
Support Services Contracting, GAO-07-631 (Washington, D.C.: May 18, 2007).

To evaluate the contractor's performance under Task Order 1, we
interviewed contractor officials at Camp Arifjan, Kuwait as well as Army
officials at the Army Sustainment Command in Rock Island, Illinois and at
the 401^st Army Field Support Battalion in Camp Arifjan, Kuwait. We also
reviewed various Army and contractor documents related to contractor
execution, analyzed Army provided data to compute pass/fail percentages,
and observed the contractor's maintenance processes. To determine the
extent to which the Army's quality assurance and contract management
activities implement key principles of quality assurance and contract
management regulations, we met with contracting and quality assurance
officials at Camp Arifjan, Kuwait, and Rock Island, Illinois, and reviewed
various oversight and surveillance documents. We also observed physical
inspections of equipment presented to the Army and analyzed Army-provided
data on oversight and surveillance. To determine if the battalion was
adequately staffed to perform oversight activities, we reviewed battalion
staffing documents, spoke with battalion oversight and command officials,
and reviewed DOD and Army guidance and regulations regarding contract
oversight and management. Although data used to compute pass/fail
percentages did not include all failures, we determined that the data were
sufficiently reliable for the purposes of our review. We conducted this
performance audit from March 2007 through October 2007 in accordance with
generally accepted government auditing standards. Those standards require
that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on our
audit objectives. Enclosure I is a detailed discussion of our scope and
methodology.

Results in Brief

Since the inception of Task Order 1, the contractor has had difficulties
meeting maintenance standards, maintaining an accurate database, and
meeting production requirements. According to Task Order 1, the contractor
shall ensure that equipment is repaired to specified Army standards.
However, in many cases, the equipment presented to the Army as ready for
acceptance failed government inspection. Army corrective action reports
attributed these performance shortcomings to problems with the
contractor's quality control processes and other factors. First, our
analysis of Army data found that for five types of vehicles inspected by
quality assurance personnel from July 2006 through May 2007, 18 to 31
percent of the equipment presented to the Army as ready for acceptance
failed government inspection. In addition, some equipment presented to the
Army as ready for acceptance failed government inspection multiple times,
sometimes for the same deficiencies. Army officials believed the
contractor's quality control system used to ensure that equipment met
specified Army standards was poor and the contractor depended on the Army
to identify equipment deficiencies. When the Army inspected equipment that
did not meet standards, it was returned to the contractor for continued
repair. Our analysis of Army data found that since May 2005 an additional
188,000 hours were worked on equipment after the first failed government
inspection, which translates into an additional cost of approximately $4.2
million. Furthermore, the contractor was required to operate wash racks to
clean equipment in preparation for its transport back to the United
States. However, according to DOD inspectors, equipment that was presented
for inspection frequently did not meet cleaning standards referenced in
Task Order 1. Second, although the contractor is required to ensure the
correct equipment condition code and location are entered into a
maintenance management database, on numerous occasions Army officials
found that incorrect status was assigned to equipment within the database.
For example, on one occasion, the contractor coded a HMMWV as "ready for
issue"; however, when the Army went to issue the vehicle it was in a
maintenance shop being repaired by the contractor. Among the reasons the
contractor gave for problems with the database included human error and a
fault in the way the database handles certain data. According to the
contracting office, erroneous equipment status reporting affects the
battalion's ability to make timely and accurate decisions regarding the
availability of equipment to support the warfighter. Third, according to
the Army, the contractor has not met some production requirements and
deadlines for some tasks were extended. For example, according to the
Army, the contractor failed to meet the monthly production requirement for
a HMMWV refurbishment effort. According to a contracting official, a lack
of contractor standard operating procedures and a lack of in-process
quality checks led to a high number of equipment defects, thereby delaying
Army acceptance of the HMMWVs. In addition, the contractor was unable to
independently meet certain production deadlines set by the Army. For
example, the contractor was unable to meet a deadline for repairing
equipment for the Iraq security forces without government assistance. Poor
contractor performance may result in the warfighter not receiving
equipment in a timely manner.

The quality assurance and contract management actions taken by the 401^st
Field Support Battalion make it difficult for the battalion to meet
several key principles detailed in the Army Quality Program regulation and
other DOD quality assurance principles. These principles include, (1)
using demonstrated past performance in risk-based planning, (2)
identifying recurring contractor performance issues, and (3) using past
performance information as an evaluation factor for future contract
awards. For example, we found that the battalion does not always document
deficiencies identified during its quality assurance inspections. Instead,
quality assurance inspectors were allowing the contractor to fix some
deficiencies without documenting them in an attempt to prevent a delay in
getting the equipment up to standard to pass inspection. In addition,
although the battalion's July 2006 draft maintenance management plan
requires that contractor performance data be analyzed to help identify the
cause of recurring quality problems and evaluate the contractor's
performance, the Army did not begin to review the contractor's performance
data until July 2007. We found that although data on contractor
performance were readily available, the battalion was not routinely
tracking or monitoring the percentage of equipment submitted for
government acceptance that failed quality assurance inspection.
Furthermore, we found that in May 2006, the Army awarded the contractor a
major HMMWV refurbishment effort, valued at approximately $33 million,
even though numerous incidents of poor contractor performance had been
documented. According to the contracting officer, the Army believed the
contractor was fully engaged in correcting poor performance issues. Until
the 401^st Army Field Support Battalion implements the quality and
management procedures in its quality and management plans, it will be
unable to determine the extent to which the contractor is meeting the
contract requirements and will be unable to identify problem areas in the
contractor's processes and initiate corrective action to ensure that
deployed forces are receiving equipment in a timely manner.

Our analysis indicates that the Army is inadequately staffed to conduct
oversight of Task Order 1. Authorized oversight personnel positions vacant
at the time of our visit in April 2007 included those of a quality
assurance specialist, a property administrator, and two quality assurance
inspectors. The contracting officer told us that the two civilian
positions (the quality assurance specialist and the property
administrator) had been advertised but the command had not been able to
fill the positions with qualified candidates. The battalion was unsure why
the two military positions (the quality assurance inspectors) had not been
filled. The lack of an adequate contract oversight staff is not unique to
this location. We have previously reported on the inadequate number of
contract oversight personnel throughout DOD, including at deployed
locations. Army officials also told us that in addition to the two quality
assurance inspectors needed to fill the vacant positions, additional
quality assurance inspectors were needed to fully meet the oversight
mission. According to battalion officials, vacant and reduced inspector
and analyst positions mean that surveillance is not being performed
sufficiently in some areas and the Army is less able to perform data
analyses, identify trends in contractor performance, and improve quality
processes. Also, the Army is considering moving major elements of option
year 3 (including maintenance and supply services) to a cost plus
award-fee structure beginning January 1, 2008. Administration for cost
plus award-fee contracts involves substantially more effort over the life
of a contract than for fixed-fee contracts. Without adequate staff to
monitor and accurately document contractor performance, analyze data
gathered, and provide input to the award-fee board, it will be difficult
for the Army to effectively administer a cost plus award-fee contract
beginning in January 2008.

Accordingly, we are making recommendations to the Secretary of Defense to
direct the Army to review and evaluate its procedures for managing and
overseeing the GMASS task order for services in Kuwait and take the
necessary actions to improve contract management and address the issues
raised in this report. The Army should take the steps necessary to
effectively implement its management and oversight plan to ensure quality
maintenance work by the contractor and proper administration of the cost
plus award-fee contract.

In commenting on a draft of this report, DOD concurred with our
recommendations and discussed proposed implementation actions to be taken
by the Army. DOD's comments are reprinted in enclosure II.

Background

In March 2004, Army Field Support Command (now the Army Sustainment
Command) issued a solicitation to provide maintenance and supply services
in support of Army Materiel Command, Army Field Support Command, coalition
forces, and other authorized government agencies. In October 2004, the
Army awarded three indefinite quantity/indefinite delivery-contracts^3 for
GMASS. The Army simultaneously issued Task Order 1^4 for maintenance
services at Camp Arifjan. Task Order 1 contains several different types of
contract line items, including cost plus fixed fee and firm-fixed-price
provisions.^5 For those provisions that are cost plus fixed fee, payment
of a negotiated fee that is fixed at the inception of the task order is
made to the contractor.^6 The fixed fee does not vary with the actual
costs but may be adjusted as a result of changes in the work to be
performed. This permits contracting for efforts that might otherwise
present too great a risk to contractors, but provides the contractor only
a minimum incentive to control costs and, in turn, provides the greatest
risk to the government. In addition, the Army cannot adjust the amount of
fee paid to contractors based on the contractors' performance for the cost
plus fixed fee provisions. For those provisions in the task order that are
firm fixed price, the contractor has full responsibility for the
performance costs and resulting profit or loss.

^3There are three types of indefinite-delivery contracts:
definite-quantity contracts, requirements contracts, and
indefinite-quantity contracts. The appropriate type of indefinite-delivery
contract may be used to acquire supplies, services, or both when the exact
times, exact quantities, or both of future deliveries are not known at the
time of contract award. An indefinite-quantity contract provides for an
indefinite quantity, within stated limits, of supplies or services during
a fixed period. FAR SS 16.501-2, 16.504

Task Order 1 was for 1 year and was originally valued at $20,354,256.
However, by the end of the base year Task Order 1 costs increased to
approximately $102 million. The Army has exercised three options under the
contract and Task Order 1. Costs for option years 1 and 2 were $209.6
million and $269.4 million, respectively. Cumulative obligations for the
base year plus option years 1 and 2 were approximately $581.5 million.^7
There have been at least 86 modifications to the contract and Task Order
1, including some that added requirements, such as Army prepositioned
stock reset, a tire assembly and repair program, and HMMWV refurbishment.
Many of the modifications were administrative, such as providing
additional funding, extending performance work periods, updating contract
line item numbers, and fixing typographical errors.

Administration and oversight of this contract is the responsibility of the
contracting officer located at the Army Sustainment Command in Rock
Island, Illinois. According to the Federal Acquisition Regulation,
contracting officers are responsible for ensuring performance of all
necessary actions for effective contracting, ensuring compliance with the
terms of the contract, and safeguarding the interests of the United States
in its contractual relationships. For Task Order 1, the contracting
officer has delegated some administrative control of the contract and task
order to administrative contracting officers located in Kuwait. The
primary administrative contracting officer has contract administrative
responsibilities for most of the tasks included in Task Order 1 and serves
as the lead person for the battalion's contract oversight team, which
includes a government property administrator, quality assurance
specialist, and contract management officer. The contract oversight team
also includes five contracting officer representatives designated for
specific areas of oversight including transportation, maintenance, supply,
and operations. Within the specific areas, quality assurance inspectors
perform inspections of the contractor's work. Quality assurance personnel
at Camp Arifjan perform oversight of the contractor's work using a quality
assurance surveillance plan. This plan, based on requirements contained in
Task Order 1, is developed by the Army and is used to ensure that
systematic quality assurance methods are used to monitor and evaluate the
performance and services of the contractor. It describes the surveillance
schedule, methods, and performance measures.

^4Under the solicitation, the minimum guaranteed award to the primary
awardee included, among other things, maintenance and supply services
performed at Camp Arifjan, Kuwait. Task Order 1 was issued to the primary
awardee under the solicitation.

^5Some contract line item numbers are cost plus fixed fee and others are
firm fixed price. The contract line item numbers for the maintenance work
were cost plus fixed fee.

^6According to the Federal Acquisition Regulation, cost reimbursement
contracts provide for payment of allowable incurred cost, to the extent
prescribed in the contract. These contracts establish an estimate of total
cost for the purpose of obligating funds and establishing a ceiling that
the contractor may not exceed (except at its own risk) without the
approval of the contracting officer. FAR S 16.301-1.

^7These costs do not include the cost of repair parts as they are provided
by the government.

As stated in the contract quality assurance surveillance plan, the level
of government quality assurance oversight is determined by contractor
performance. Specifically, the number of quality assurance inspections may
be increased, if deemed appropriate, because of repeated failures
discovered during quality assurance inspections. Likewise, the government
may decrease the number of quality assurance inspections if performance
dictates. While the contractor, and not the government, is responsible for
the management and quality control actions to meet the terms of the
contract, the government quality assurance surveillance plan was put in
place to provide government surveillance oversight of the contractor's
quality control efforts to ensure that they are timely and effective and
are delivering the results specified in the contract. As a part of the
battalion's surveillance process, 100 percent of equipment repaired by the
contractor is inspected by quality assurance inspectors prior to being
accepted. When the contractor informs the Army that equipment is ready to
be inspected, the inspectors review the equipment for compliance with
applicable maintenance standards. According to battalion standard
operating procedures, all deficiencies identified through Army quality
assurance inspections that prohibit the equipment from meeting the
established maintenance standards shall be documented. Documented
deficiencies describe the items that must be fixed by the contractor in
order for the equipment to meet the maintenance standards and indicate
that the equipment failed the Army quality assurance inspection.

The Army has developed a problem escalation and resolution process that
provides guidance for dealing with problems with a contractor. According
to the process, an identified problem that is not considered severe should
be documented by the administrative contracting officer in a corrective
action report to the contractor with a deadline for addressing the
problem. The process defines severe as a problem related to safety,
security, environmental, or mission impact or the third occurrence of the
same minor problem. If the problem is determined to be severe, the
administrative contracting officer in coordination with the contracting
officer should take immediate action to address any unsafe practice and
issue a contract deficiency report to the contractor. When identified
problems are not corrected after issuance of a contract deficiency report,
the situation is to be elevated to the contracting officer. If informal
communication with the contractor from the contracting officer cannot
resolve the problem, the contracting officer is to issue a formal notice
to the contractor, allowing 10 days for a response. Records of all
corrective action reports and contract deficiency reports should be
provided to the contracting officer.

The Contractor Has Had Difficulties Meeting Maintenance Standards,
Maintaining an Accurate Database, and Meeting Production Requirements

Our work highlights the difficulties the contractor has had under Task
Order 1 in meeting maintenance standards, maintaining an accurate
database, and meeting production requirements. First, in analyzing Army
data, we found that from July 2006 through May 2007, 18 to 31 percent of
five types of vehicles presented by the contractor to the Army as ready
for acceptance had not been repaired and maintained to the standards
specified in Task Order 1 and consequently failed government inspection.^8
In addition, agricultural inspectors stated that contractor-cleaned
equipment that was to be transported back to the United States frequently
did not meet certain agricultural standards. Second, the database into
which the contractor was required to enter the equipment's condition codes
and location contained inaccurate information about equipment status. On
numerous occasions, equipment was coded as ready to issue when it had not
passed quality assurance inspection. According to a corrective action
report issued to the contractor, a HMMWV was coded as ready to issue;
however, when a unit went to draw the vehicle, it was in a repair
facility. Third, according to the Army, the contractor had missed
production requirements and originally established deadlines for some
tasks. For example, Army officials stated that during the 12 months of a
major HMMWV refurbishment operation, the contractor never met the monthly
production requirement.

Equipment Presented to the Army for Acceptance Frequently Did Not Meet
Maintenance Standards Referenced in Task Order 1

The contractor frequently presented equipment to the Army for acceptance
that did not meet the Army standards referenced in Task Order 1. According
to Task Order 1, the contractor shall ensure that equipment is repaired to
specified Army standards determined by the government. Further, the
contractor was to ensure that quality control inspections and maintenance
repair of materiel deficiencies were completed. However, the contractor
frequently presented equipment to the Army that did not meet Army
standards. When the contractor completes maintenance on a piece of
equipment, it is submitted to the Army as ready for acceptance and Army
quality assurance personnel inspect the equipment to ensure that it meets
specified maintenance standards. Army quality assurance officials told us
that in many cases the contractor presented equipment to the Army as ready
for acceptance that failed Army inspection because the equipment did not
meet the established maintenance standards.

In February 2007 we issued a report on the condition of the Army's
pre-positioned equipment located at various sites around the world. As
part of that engagement, we visited Camp Arifjan in June 2006 to determine
the condition of the equipment maintained by the Task Order 1 contractor.
In our February report, we noted that 28 percent of the equipment at Camp
Arifjan submitted for government acceptance had failed quality assurance
testing from June 2005 through June 2006.^9 In the spring of 2007 we
returned to Camp Arifjan and found similar failure rates. As shown in
table 1, our analysis of Army data found that for five types of vehicles
inspected by quality assurance personnel from July 2006 through May 2007,
the percentage of equipment presented to the Army as ready for acceptance
but that failed government inspection ranged from 18 to 31 percent.^10

^8While Task Order 1's Statement of Work did not contain a first pass yield
rate requirement, it did require that the contractor repair all equipment
to certain Army standards. Therefore, we view pass/fail rates as an
indicator of the quality of the contractor's performance in repairing
equipment to Army standards.

^9GAO, Defense Logistics, Improved Oversight and Increased Coordination
Needed to Ensure Viability of the Army's Prepositioned Strategy,
GAO-07-144 (Washington, D.C.: Feb. 15, 2007).

Table 1: Failure Rate Percentages for Selected Equipment Types Inspected
from July 2006 through May 2007

Equipment type: M113 Armored Personnel Carrier; 
Number of inspections performed: 109; 
Number of failures: 20; 
Percentage failed: 18. 

Equipment type: M2A2 Bradley; 
Number of inspections performed: 404; 
Number of failures: 110; 
Percentage failed: 27. 

Equipment type: M1025 and M1026 HMMWV; 
Number of inspections performed: 934; 
Number of failures: 255; 
Percentage failed: 27. 

Equipment type: M1070 Heavy Equipment Transporter; 
Number of inspections performed: 248; 
Number of failures: 76; 
Percentage failed: 31. 

Equipment type: Heavy Expanded Mobility Tactical Truck; 
Number of inspections performed: 460; 
Number of failures: 122; 
Percentage failed: 27. 

Source: GAO analysis of Army data.

Similarly, in July 2007 the 401^st Army Field Support Battalion began
calculating (by commodity group) the percentage of equipment that failed
government inspection each week basis.^11 The battalion's analysis found
the percentage of vehicles failing quality assurance inspection generally
ranged from 23 and 32 percent in August and September 2007 with a high of
just over 55 percent in 1 week.

Analyzing the Army's maintenance data, we also found that 702 pieces of
equipment failed Army quality assurance inspection three or more times
since May 2005. One example is an ambulance HMMWV that failed Army quality
assurance inspection five times in December 2006. This vehicle repeatedly
failed inspection for a leaking heater hose and a leaking valve cover. In
another example, a Bradley Fighting Vehicle failed quality assurance
inspection three times. During the first inspection, 12 deficiencies,
including 5 that made the vehicle inoperable, were identified and
documented. One of the inoperable deficiencies discovered was a main
electrical system ground that was installed improperly, creating a safety
hazard. In the second and third inspections, multiple deficiencies that
made the vehicle inoperable continued to be found, some of which were the
same deficiencies that had been previously identified.

Moreover, for the HMMWV refurbishment task, the contractor frequently
presented vehicles to the Army with multiple deficiencies. For the 5 month
period from November 2006 through March 2007, multiple deficiencies were
identified through government inspection of refurbished HMMWVs when
presented to the Army for acceptance. During those months, the average
number of deficiencies identified per vehicle through quality assurance
inspection ranged from 2.5 to 7.4 per month.

^10As discussed later in this report, not all deficiencies are documented
to illustrate that equipment failed Army quality assurance inspection. As
a result, these numbers may be understated.

^11The commodities include vehicles, small arms, ground support equipment,
atmospheric test, high dollar part verification, and paint inspection.

The following inspections, which we observed during our visit to Camp
Arifjan in spring 2007, illustrate the difficulties the contractor has had
meeting Army maintenance standards. While at Camp Arifjan we observed four
government equipment inspections, two of which failed. One failed
inspection was of a Bradley Fighting Vehicle. The Bradley was presented to
the Army as ready for acceptance; however, during the quality assurance
inspection the inspector found that a cotter pin was missing. This pin
holds an adjusting rod that controls the brakes on one side of the
Bradley. According to the inspector, using the brakes just two or three
times would have caused the rod to come loose, leaving the Bradley without
brakes. A second failed inspection we observed was of a forklift. Because
of a burned fuse, the forklift did not meet the maintenance standard and
therefore failed the inspection. The burned fuse was clearly visible to us
and should have been easily seen by contractor personnel.^12

In a March 2006 letter to the contractor, the Army expressed concerns
about the contractor's quality control department. Specifically, the Army
stated that there was a lack of attention to detail and inadequate
maintenance inspection processes and that quality control personnel were
not ensuring that maintenance repairs were in compliance with the
appropriate maintenance manuals. Additionally, in some corrective action
reports issued after the March 2006 letter the Army continued to express
concern about the contractor's quality control processes. Specifically,
the battalion noted that the contractor's quality control inspections were
not being performed in accordance with Army maintenance standards and that
the contractor's quality control checks were not adequate. Army quality
assurance officials believed that the contractor depended on the Army to
identify equipment deficiencies. As a result of these issues, government
quality assurance inspectors were consistently rejecting equipment
presented as ready for acceptance.

When equipment is presented to the government and does not pass quality
assurance inspection, it is returned to the contractor for continued
maintenance until it meets the established standard. Under the cost plus
fixed fee maintenance provisions in Task Order 1, the contractor is
reimbursed for all maintenance labor hours incurred, including labor hours
associated with maintenance performed after the Army rejects equipment
that fails to meet Army maintenance standards. This results in additional
cost to the government. For example, in a December 2006 quality assurance
inspection of a HMMWV, 16 deficiencies that made the vehicle inoperable
were found. According to Army data, a total of 213 hours were spent
working on this vehicle after it was initially submitted to the government
as ready for acceptance. A second example is a Heavy Equipment Transporter
(HET) that was submitted to the Army as ready for acceptance in January
2007 and failed Army inspection. After this first failed inspection, an
additional 636 hours were charged for repairing this vehicle before it
passed government quality assurance inspection 3 months later. Although
the equipment was not initially presented to the Army at the required
standard, the Army reimbursed the contractor for the labor costs
associated with the 213 and 636 hours of rework. Our analysis of Army data
found that since May 2005, the contractor worked a total of about 188,000
hours to repair equipment after the first failed government inspection.
This translates into an approximate cost to the government of $4.2
million.^13

^12In commenting on our draft report, the contractor argued that the
quality assurance surveillance plan gave government quality assurance
inspectors no guidance on how to determine whether a particular piece of
equipment passed or failed maintenance standards. Government quality
assurance inspectors use the technical manual for the specific piece of
equipment to determine whether the equipment passes or fails inspection.
These manuals are also what the contractor's chief quality representatives
said they use to repair and inspect the equipment. Also, for the
maintenance area, government quality assurance inspectors are trained
mechanics with technical expertise related to the equipment being
inspected.

As part of the maintenance requirements of Task Order 1, the contractor
was required to conduct wash rack operations in preparing equipment for
shipment to the United States. According to Task Order 1, the contractor
was required to clean equipment to meet the appropriate agricultural
standards^14 as directed by the government. Further, Task Order 1 noted
that the Department of Agriculture's Animal Plant Health and Inspection
Service (APHIS) regulations call for the equipment to be clean of soil,
organic matter, and other contaminants.^15 According to Navy customs
inspectors,^16 equipment presented for inspection frequently did not meet
APHIS standards. The inspectors were unable to provide historical data on
agricultural inspection results because they had just begun to track and
monitor this performance metric. However, the officials told us that they
reject most equipment at least once due to the presence of mud and dirt.
We observed an inspection in which a contractor employee was trying to
remove water from the interior of a piece of equipment with his hands and
the vehicle tracks were clearly filled with mud.

Contractor-Maintained Database Contains Inaccurate Information about
Equipment Status

The contractor-maintained database contains inaccurate information about
equipment status. The database is used for tasks that include, but are not
limited to, equipment maintenance status, scheduling equipment for
maintenance, deficiency reporting, parts management, labor reporting, and
materiel expenses. Among other things, Task Order 1 requires the
contractor to ensure that correct equipment condition codes and correct
locations of equipment be entered into the database in accordance with
Army policy. However, on numerous occasions, Army officials found that
incorrect condition codes were assigned to various pieces of equipment
within the database. In some instances, equipment was coded as ready for
issuance when it had not passed quality assurance inspection. For example,
according to a corrective action report issued to the contractor, in the
maintenance database the contractor reported that a HMMWV was ready for
issuance, but when the Army went to issue this vehicle to a unit, it was
in a maintenance shop being repaired by the contractor. In another
instance, the contractor had coded equipment that had not passed Army
quality assurance inspection as ready for issuance and placed the
equipment in a staging area for Heavy Brigade Combat Team equipment that
was ready for issue. According to the battalion, this inaccurate reporting
portrayed an incorrect readiness posture for the combat team and could
have resulted in a crippling slowdown of the equipment issue process due
to the probability of units rejecting the equipment. The battalion issued
corrective action reports to the contractor stating that (1) the database
was not being updated with proper condition codes and (2) erroneous data
may have been reported to the Department of the Army in the battalion's
operational readiness reports. Additionally, in an assessment of the
contractor's performance in option year 1, the contracting office stated
that erroneous equipment status reporting potentially affects the
battalion's ability to make timely and accurate decisions regarding the
availability of equipment to support the warfighter. Among the reasons the
contractor gave for the incorrect condition codes in the database were
human error and a probable fault in the manner in which the database
handles certain data.

^13As discussed later in this report, not all deficiencies are documented
to illustrate that the equipment failed Army quality assurance inspection.
As a result, these numbers may be understated.

^14Task Order 1 specifies that these cleaning standards are in accordance
with DODD 4500.9, DOD 5030.49-R, and ARCENT Directive 30-3.

^157 C.F.R. Part 330.

^16Navy customs officials serve as U.S. Customs border clearance agents.
They inspect material and personnel returning to U. S. Customs territory.

According to the Army, the Contractor Has Missed Production Requirements
and Deadlines

According to the Army, the contractor has missed some production
requirements and some task deadlines were extended when the contractor was
unable to meet original completion dates.^17 In May 2006 a task was added
to the contract for the refurbishment of HMMWVs. The statement of work
associated with the HMMWV refurbishment effort stated that the contractor
was required to be able to process the HMMWVs through the maintenance
facilities at a minimum rate of 150 HMMWVs per month. According to
documents provided by the contracting officer, upon award of this work,
the contractor was provided 45 days to become fully operational, and for
months one and two of operations the production requirement was 25 and 100
vehicles, respectively. According to Army documents, after the first 2
months of operation, the contractor was expected to be fully operational
and the monthly production requirement was increased to 150 vehicles per
month. However, 18 and 90 HMMWVs were completed in the first and second
months of operations, respectively. Further, according to the Army, the
contractor failed to meet its contractual requirement of a minimum of 150
vehicles per month, and the contracting officer sent written notices to
the contractor documenting this failure. In some months fewer than 75
HMMWVs were ultimately accepted by the Army, as shown in table 2 below.
For example, 38 vehicles were accepted by the Army in February 2007.
According to an e-mail from one of the administrative contracting
officers, the contractor's monthly production output was influenced by
issues such as deficient production processes and supply management,
quality control, and parts availability problems. The official cited a
lack of contractor standard operating procedures and in-process quality
checks as reasons for a high number of equipment defects, thereby delaying
Army acceptance of the HMMWVS. Further, the official cited contractor
supply management challenges, such as determining when to order additional
parts and ordering the right amount of parts in a timely manner, as
affecting the contractor's ability to meet monthly production
requirements. The official acknowledged that the parts availability
problem was driven by a shortage of armor and frame rails in the Army
supply system. Army officials stated that as a result of the contractor's
failure to meet the production requirements of the HMMWV refurbishment
effort, the Army did not renew this task with the contractor at the end of
the performance period. Because this was a fixed fee provision, the Army
was not able to reduce the contractor's fee for this task.

^17The broad scope of Task Order 1 allows the Army to add maintenance
tasks when necessary. Some tasks like the repair of battle-damaged
equipment or the preparation of equipment for return to the United States
are on-going tasks for the contract period of performance; other tasks
have specific deadlines established by contract modification. For example,
preparing equipment to issue to units supporting the surge and repairing
equipment to be used in Iraq, as well as the two mentioned in this
correspondence are tasks with specific deadlines.

Table 2: HMMWV Refurbishment Center Monthly Production

Production month: June 2006; 
Number of vehicles accepted by the Army: 18. 

Production month: July 2006; 
Number of vehicles accepted by the Army: 90. 

Production month: August 2006; 
Number of vehicles accepted by the Army: 80. 

Production month: September 2006; 
Number of vehicles accepted by the Army: 60. 

Production month: October 2006; 
Number of vehicles accepted by the Army: 111. 

Production month: November 2006; 
Number of vehicles accepted by the Army: 105. 

Production month: December 2006; 
Number of vehicles accepted by the Army: 54. 

Production month: January 2007; 
Number of vehicles accepted by the Army: 70. 

Production month: February 2007; 
Number of vehicles accepted by the Army: 38. 

Production month: March 2007; 
Number of vehicles accepted by the Army: 40. 

Production month: April 2007; 
Number of vehicles accepted by the Army: 60. 

Source: GAO analysis of Army data

We also found that the contractor was unable to independently meet the
original deadlines set by the Army for two other tasks. In July 2006 the
contractor began a task to repair 150 HETs. The original completion date
for this task was September 29, 2006; however, as of that date only 96
HETs had been accepted by the Army. While the original completion date was
pushed back at the mutual agreement of the contractor and the government,
Army contracting officials explained that the original completion date for
this task was extended because of the contractor's inability to provide
the required 150 HETs by the date originally specified in Task Order 1.
The contractor also had a task to repair HMMWVs for foreign military sale
to the Iraqi security forces. This task required the contractor provide a
specific number of HMMWVs during four different periods. According to the
contracting officer's assessment of the contractor's performance, the
contractor was unable to meet the requirements independently and
government assistance was necessary. The contractor stated that this
condition was caused by a lack of government-provided critical parts and
inbound vehicles. According to a battalion official, the battalion allowed
the contractor to use HMMWVs that the battalion planned to use to meet
other missions. At the time the contractor was preparing HMMWVs for the
Iraqi security forces, among the battalion's other missions were repairing
and replacing equipment damaged as a result of combat and preparing
equipment for a light brigade combat team. The battalion officials stated
that while using assets designated for other missions allowed the
contractor to meet the requirements of the Iraqi security forces task, the
contractor had to subsequently back fill those sources. Problems meeting
production and quality goals may have resulted in some deployed units not
receiving the equipment they needed in a timely manner.

The Army Has Not Always Followed Established Quality Assurance Principles

The Army has not always followed key quality assurance and contract
management principles when managing Task Order 1 because it did not
implement the processes contained in its quality assurance and contract
management plans. These processes require that contractor performance data
be documented and used to assess contractor performance, identify
recurring problems, and inform contract management decisions. However, the
Army has not always documented deficiencies identified during the
battalion's quality assurance inspections, instead allowing the contractor
to fix some deficiencies without documenting them in an attempt to prevent
a delay in getting the equipment to pass inspection. In addition, the Army
did not analyze available data to evaluate the contractor's performance,
failing to routinely track or monitor the percentage of equipment
submitted for government acceptance that failed quality assurance
inspection until July 2007. Furthermore, the Army awarded the contractor a
major HMMWV refurbishment effort, valued at approximately $33 million,
even though numerous incidents of poor contractor performance had been
documented.

Army and DOD Quality Assurance and Contract Management Principles Should
Guide Battalion Activities

The Army and DOD have developed a variety of quality assurance and
contract management principles that should guide the battalion quality and
contract management activities. The Army Quality Program is a
results-based program that allows Army activities to develop their own
quality programs. However, the program regulation states that quality
programs will address the following key principles:

           o Measurement and verification of conformity to requirements
           o Fact-based decision making
           o Use of performance information to foster continuous improvement
           o Effective root-cause analysis and corrective action
           o Performance of tasks by people who can evaluate quality issues
           and recommend solutions

In addition, according to the Army Quality Program regulation, an
activity's (such as the battalion's) quality assurance program should
utilize risk-based planning. In determining the types and frequency of
quality assurance actions, the activity should consider the impact of
nonconforming equipment or services as well as the contractor's
demonstrated past performance.

DOD guidance also establishes principles for quality assurance and
contract administration. For example, according to the guidebook for
performance-based service acquisitions in DOD, each performance assessment
activity should be documented as it is conducted, whether a contractor's
performance was acceptable or unacceptable in accordance with the
performance assessment plan. In addition, the Federal Acquisition
Regulation requires that contractor performance be documented and that
past performance be considered when selecting contractors for future
contract awards.

The Army Does Not Always Document Poor Performance

The Army has not always documented unacceptable contractor performance
under Task Order 1. The collection of performance data is the foundation
for many of the quality and contract management requirements established
by Army and DOD regulations and guidance. For example, the Army regulation
establishing the Army Quality Program requires that actions be taken to
identify, correct, and prevent the recurrence of quality issues.
Furthermore, the Defense Federal Acquisition Regulation Supplement states
that the contract administration office shall establish a system for the
collection, evaluation, and use of certain quality data, including quality
data developed by the government through contract quality assurance
actions. Moreover, the battalion's quality assurance guidance requires
that deficiencies identified through the battalion's inspections be
documented. However, some deficiencies identified during Army inspection
of equipment were not being documented and entered into the Army
maintenance database. According to battalion quality assurance officials,
while deficiencies that made the equipment inoperable were always
documented, deficiencies that did not make the equipment inoperable but
kept it from meeting the maintenance standards were commonly not
documented. Rather than documenting all the deficiencies identified,
quality assurance inspectors were allowing the contractor to fix some
deficiencies without documenting them, in an attempt to prevent a delay in
getting the equipment up to standard and passing inspection. According to
quality assurance officials, it may take an additional half a day to 1 day
for equipment to be accepted by the Army when deficiencies that do not
make the equipment inoperable are documented, because of the paperwork and
process associated with correcting documented deficiencies.

Although the Army took steps to correct the lack of documentation for all
equipment deficiencies, it reverted back to its original process of not
documenting all deficiencies. Based on our review, the Army took steps in
May 2007 to ensure the documentation of all equipment deficiencies
identified during Army quality assurance inspections. The lead quality
assurance official directed that all equipment deficiencies be documented
so that the Army would have an accurate picture of the contractor's
maintenance quality. We were later told by quality assurance officials
that inspectors followed this direction and documented all equipment
deficiencies that were identified during inspections for approximately 2
weeks. However, the officials stated that after about 2 weeks the
inspectors went back to the practice of allowing the contractor to correct
those deficiencies that did not make the equipment inoperable without
documenting them. They cited the need to get the equipment to the units
quickly as the reason for doing this. When contractor performance is poor,
the need for rigorous government quality assurance oversight becomes even
more important. We believe that the deficiencies can be documented without
a delay in getting the equipment to the units. For example, the inspector
can document the deficiencies identified during the inspection on the
appropriate worksheet, and at the end of the inspection it can be noted
that the deficiencies were corrected. This worksheet would be included in
the equipment packet provided to the personnel responsible for updating
the equipment status codes in the maintenance database. When the equipment
status code is updated in the maintenance database, it should be noted
that deficiencies were identified and were corrected, and that the
equipment subsequently passed quality assurance inspection and is ready
for issuance.

The Army Did Not Analyze Available Data to Evaluate Contractor Performance
until July 2007

The Army did not analyze available data to evaluate the contractor's
performance in meeting the specified maintenance standard requirements
until July 2007. The Army quality program specifies the use of performance
information to perform root-cause analysis and foster continuous
improvement, and the battalion's July 2006 draft maintenance management
plan requires that contractor performance data be analyzed to help
identify the cause of new and/or recurring quality problems and evaluate
the contractor's performance. As previously mentioned, Army quality
assurance personnel inspect equipment submitted for Army acceptance to
ensure that it meets the specified maintenance standards. The results of
these inspections, including data documenting whether the equipment has
been accepted or rejected by the Army, are maintained by quality assurance
officials as well as in the Army maintenance database. However, in
February 2007, we reported that the maintenance battalion had not
routinely tracked or monitored the percentage of equipment submitted for
government acceptance that failed quality assurance inspection.^18 While
we found that the inspection results data were readily available to the
maintenance battalion, it was still not tracking or monitoring this key
performance metric. Because the battalion does not track and monitor the
percentage of equipment submitted for Army acceptance that failed quality
assurance inspection, the Army does not know the extent to which the
contractor is meeting the specified maintenance standard requirements nor
can it identify problem areas in the contractor's processes and initiate
corrective action. According to Army quality assurance officials, this
metric was not tracked and monitored because they did not have sufficient
quality assurance staff to perform such analysis. Recognizing the
usefulness of this performance metric, the lead quality assurance
inspector informed us that in July 2007, he began calculating the
percentage of equipment that is failing quality assurance inspection each
week, and this information is presented to the battalion commander at
command and staff updates. He said that this information is used to
identify maintenance shops that are not improving their performance and to
develop historical data on the contractor's performance. In the past, the
command has initiated improved oversight practices but has later
discontinued them. Maintaining the practice of tracking and monitoring
performance metrics would provide key data for assessing the contractor's
performance.

The Army Awarded Additional Work to the Contractor despite Performance
Concerns

In May 2006, the Army added a major HMMWV refurbishment effort valued at
approximately $33 million to Task Order 1 despite concerns of poor
contractor performance. According to contracting officials, Task Order 1
provided an existing contract that could be used to expeditiously provide
the required HMMWV refurbishment capability. However, prior to the work
being added to Task Order 1, numerous incidents of poor contractor
performance were documented. We found that from October 2005 through April
2006, 8 notices describing poor performance were issued to the contractor.
Some of the poor performance concerns mentioned in the notices follow:

           o Equipment status is not being updated in the reporting system.
           As a result, the maintenance battalion operational readiness
           reports are inaccurate and erroneous data are being reported to
           the Department of the Army.
			  
^18GAO 07-144.
			  
           o Equipment is not being inspected in accordance with Army
           standards specified in Task Order 1 and initial technical
           inspections are not being conducted within the timeframe specified
           in the task order.
           o Contractor quality control inspections performed before
           equipment is presented to the government are inadequate and are
           not identifying critical maintenance faults.
           o Sensitive items are improperly accounted for.

Additionally, in a letter dated March 15, 2006, the Army contracting
officer notified the contractor of numerous areas of concern. The letter
stated that asset management was ineffective to the point that the
battalion's ability to report readiness and determine when assets would be
ready was impaired, maintenance could take significantly less time if
thorough equipment assessments were performed, and equipment was
consistently rejected because of inadequate quality control. The letter
also stated that the Army felt that the contractor's personnel staffing
was insufficient to achieve all missions, as only 89 percent of the
personnel that the contractor proposed to execute the contract
requirements were on-hand for option year 1. More specifically, the letter
stated that only 36 percent of the required personnel were on hand to
perform the priority mission of preparing the Heavy Brigade Combat Team
although funding had been placed on the contract for the mission. In
addition, the Tire Assembly and Repair Program and Add-on Armor missions
had only 41 percent and 45 percent of the required personnel on hand,
respectively, despite being funded.

We asked the Army contracting officer with overall responsibility for the
contract why such a major mission was added to the contract, given the
battalion's concerns with the contractor's performance. The Army official
responded that the battalion did not raise concerns regarding the
contractor's capability to meet the requirements and there was confidence
that the work was being placed with a contractor that had a good history
of performance in theater. The official stated that while a letter citing
concerns with the contractor's ability to ramp up to full personnel
strength and its quality control processes was issued, the Army believed
the contractor was fully engaged in correcting the issues.

Battalion quality assurance officials told us that all information
regarding contractor performance is not always provided to the contracting
officer. According to the Army's problem resolution process, all
corrective action requests should be sent to the contracting officer, but
this was not being done according to battalion quality assurance
officials. In some situations, the quality assurance officials wait until
they have issued two or three requests related to the same area before
they send the information to the contracting officer. Following this
procedure could result in some corrective action requests not reaching the
contracting officer. Additionally, some battalion officials said that they
do not write as many corrective action requests as are needed because they
would spend most of their time writing them because of the repeated poor
performance.

Battalion's Contract Management Oversight Team Is Inadequately Staffed

According to Army officials, the battalion's contract management oversight
team is inadequately staffed to effectively oversee Task Order 1 in Kuwait
and the battalion is concerned about its ability to administer cost plus
award-fee provisions. We have previously reported on the need to have an
adequate number of oversight personnel to ensure the effective and
efficient use of contractors and the continued shortage of contract
oversight personnel in deployed locations. Oversight personnel are
responsible for performing the various tasks needed to monitor contractor
performance, document results of inspections, analyze available inspection
data, assess overall contractor performance, and evaluate the contractor's
performance when considering awarding additional work to the contractor.
The battalion uses both military and civilian personnel to provide
contract oversight. Battalion officials told us that there were not enough
trained oversight personnel to effectively oversee and manage the
maintenance contract in Kuwait. At the time we visited the battalion in
April 2007, four oversight personnel positions were vacant and were still
vacant as of September 2007. The vacancies included those for two military
quality assurance inspectors and two civilian positions-a quality
assurance specialist and a property administrator. Command officials were
unsure why the military quality assurance positions had not been filled
and told us that the vacant civilian positions were advertised but the
command had not been able to fill the positions with qualified candidates.
An administrative contracting officer told us that the quality assurance
specialist position was filled for a short time in December 2006; however,
the person was deemed unqualified and was assigned to another position.
The quality assurance specialist is responsible for such activities as
performing analysis of quality processes and procedures, tracking and
coordinating training for quality assurance personnel, updating quality
assurance surveillance plans, and ensuring productive interaction between
Army and contractor quality personnel.

Additionally, the battalion has been without a property administrator
since the end of 2006, even though both the battalion and the Army
Sustainment Command have identified issues with the contractor's
accountability for government furnished equipment. According to DOD's
Manual for the Performance of Contract Property Administration, property
administrator responsibilities include administering the contract clauses
related to government property in the possession of the contractor,
developing and applying a property systems analysis program to assess the
effectiveness of contractor government property management systems, and
evaluating the contractor's property management system and recommending
disapproval where the system creates an unacceptable risk of loss, damage,
or destruction of property. We found that some property administrator
duties, such as approving contractor acquisition of items, were being
performed by an administrative contracting officer; however, other
important duties were not being performed. In March 2007, a team from the
Army Sustainment Command's Office of Internal Review and Audit Compliance
conducted a review of government-furnished property accountability in
Kuwait and identified areas for improvement in property accountability.
For example, the team found that while required property accountability
reports were prepared by the contractor, they were not being provided to
the Army nor did the Army request the reports. After reviewing one such
report, the evaluation team questioned its accuracy. It found that the
contractor was reporting a total of $2.4 million in government-furnished
property; however, the value of two of the eight property listings
reviewed totaled more than $2 million. Without adequate oversight of
government property, the Army cannot be certain that duplicate supplies
have not been ordered, government property is not misplaced or misused,
and property in the possession of the contractor is being efficiently,
economically, and uniformly managed.

In addition to the two vacant quality assurance inspector positions
mentioned above, Army officials also told us that additional quality
assurance inspectors were also needed. The officials explained that three
quality assurance inspector positions were removed from the Army's
authorized battalion organizational structure; however, the officials were
not sure why the positions were removed because they believe the need
still exists for the inspectors. According to battalion officials, vacant
and reduced inspector and analyst positions mean that surveillance is not
being performed sufficiently in some areas and the Army is less able to
perform data analyses, identify trends in contractor performance, and
improve quality processes.

In some instances when contract administration and management positions
cannot be filled permanently, the Army fills these positions temporarily.
For example, the Army filled a vacant administrative contracting officer's
position in Qatar with an Army reservist called to active duty to fill the
position for a specific period-2 months. In Kuwait, the battalion tried to
fill the vacant positions temporarily but was unsuccessful. According to
the battalion, it solicited for volunteers to fill the critical positions
in Kuwait with deployments up to 179 days and requested volunteers from
the Army Reserve and Guard. In addition, a relocation incentive was
requested and approved for the critical property manager and quality
assurance specialist positions. Also, the battalion said that it offered
off-post housing to some Army civilian applicants and augmented military
requirements with the mobilization of the U.S. Army Reserve
Multi-Functional Support Command.

As an alternative to providing its own contract administrative and
oversight staff, the Army could have delegated the administrative
responsibilities for Task Order 1 to the Defense Contract Management
Agency (DCMA). DCMA is a combat support agency tasked with providing
contract administration support for contingency contracts like the GMASS
contract and task orders at the request of the contracting officer.
Depending on the delegation from the contracting officer, DCMA contract
administrative personnel can provide a number of contract administrative
services. For example, DCMA can assume responsibility for performing
property administration, provide quality assurance specialists and
supervise contracting officers' representatives, monitor and evaluate
technical performance, and review and approve purchase requests. In
addition, DCMA administrative contracting officers may be given authority
to negotiate certain price adjustments.

Battalion officials also expressed concern that the battalion's current
staffing levels will make the potential transition from a cost plus
fixed-fee to a cost plus award-fee structure for maintenance and supply
services difficult. According to the GMASS indefinite
delivery/indefinite-quantity contract, the Army envisioned transitioning
to a cost plus award-fee structure in option year two for maintenance and
supply services, although the government reserved the right to change the
contract line item structure. According to the contracting officer, the
Army initially chose not to move to an award fee because the battalion did
not believe it had the staff to properly administer the contract. We have
previously reported that the development and administration of cost plus
award-fee contracts involve substantially more effort over the life of a
contract than do cost plus fixed-fee contracts.^19 For award-fee
contracts, DOD personnel (usually members of an award-fee evaluation
board^20) conduct periodic--typically semiannual--evaluations of the
contractor's performance against specified criteria in an award-fee plan
and recommend the amount of fee to be paid. The Army contracting office is
considering transitioning the major elements of option year 3 (including
maintenance and supply services) from a cost plus fixed-fee structure to a
cost plus award-fee structure, beginning January 1, 2008. However,
according to battalion officials, they will not be adequately organized
and staffed to properly administer award-fee structured provisions until
about April 2008. Battalion officials stated that a new battalion
commander took command on August 1, 2007, and as a part of his new role,
he is reviewing the battalion's organization and suggesting changes to
better align the battalion to provide adequate contractor oversight and
properly administer an award-fee contract. They stated that it would take
some time before these changes would be in place and personnel are
properly trained to take the actions needed to monitor contractor
performance and assist in making award-fee decisions. Without adequate
staff to monitor and accurately document contractor performance, analyze
data gathered, and provide meaningful input to the award-fee board, it
will be difficult for the Army to effectively administer an award-fee
contract beginning in January 2008.

Conclusions

The Army has not taken sufficient actions to ensure quality contractor
maintenance and efficient contract oversight. Given the poor performance
by the contractor, adequate and well-documented surveillance, along with
necessary corrective actions, are essential to improving the quality of
work by the contractor. Poor performance by the contractor and inadequate
Army oversight have resulted in expenditure of additional funds with
less-than-expected results, additional cost to repair items already
presented to the Army as meeting established standards, and may have
resulted in delays in providing assets to deployed units. Without
sufficient oversight of contractor performance, the Army cannot ensure
that operation and maintenance funds for vehicle maintenance are being
used cost effectively. Moving to a cost plus award-fee structure for
certain elements of option year 3 will provide more risk to the
contractor, potentially resulting in improved performance. However,
without adequate Army oversight personnel and contractor performance data
to make award-fee decisions, the Army cannot accurately determine whether
the contractor should receive an award, and if so, how much. Without
aggressive action on the part of the Army, the problems highlighted in
this report will continue.

^19GAO NASA Procurement: Use of Award Fees for Achieving Program Outcomes
Should Be Improved. GAO-07- 58 (Washington, D.C.: Jan. 17, 2007).

^20Award-fee evaluation board members may include personnel from key
organizations knowledgeable about the award-fee evaluation areas, such as
engineering, logistics, program management, contracting, quality
assurance, legal, and financial management; personnel from user
organizations; and personnel from cognizant contract administration
offices.

Recommendations for Executive Action

We are making five recommendations in this report. We recommend that the
Secretary of Defense direct the Secretary of the Army to review and
evaluate the Army's procedures for managing and overseeing the GMASS task
order in Kuwait and take the necessary actions to improve contract
management. We also recommend that the Army develop a strategy to
implement its current quality assurance and maintenance management
oversight plans to ensure that

           o all deficiencies are documented in the Army's quality assurance
           database without affecting the mission
           o contractor data are analyzed to improve contractor performance,
           and
           o all information on contractor performance is provided to the
           contracting officer.

In addition, we recommend that the Army:

           o take steps to fill vacant oversight positions with personnel who
           have the appropriate knowledge and skills, and
           o develop a plan to allow the proper administration of the cost
           plus award-fee structure for maintenance and supply services.

Furthermore, we recommend that the Army consider delegating some
additional oversight responsibilities to DCMA to meet some of the current
contract management and oversight personnel shortfalls.

Agency Comments and our Evaluation

In commenting on a draft of this report, DOD concurred with our
recommendations and discussed proposed implementation actions to be taken
by the Army. In responding to our recommendations for the Army to improve
contract management and develop a plan to allow for the proper
administration of a cost plus award-fee contract, DOD stated that the Army
is reviewing the contract to determine the best contract type to improve
contract management. Assuming the Army is adequately organized and staffed
to administer the contract type selected, we believe that this action
could allow the Army to identify and determine the best procedures for
managing and overseeing this contract. In response to our recommendation
that the Army develop a strategy to implement its current quality
assurance and maintenance management oversight plans, DOD said the Army
Field Support Battalion-Kuwait has developed a multi-pronged strategy to
implement and/or improve quality assurance and maintenance management
oversight. We believe effective implementation of the strategy should
address our recommendation. In response to our recommendation that steps
be taken to fill vacant oversight positions, DOD said that the Army
continues to exercise several recruiting authorities to entice qualified
candidates to fill critical vacancies. However, the Army stated that
filling the critical quality assurance specialist position continues to be
difficult. According to the Army, in December 2007, both the first and
second choice to fill the position declined the offer. The position is
being announced again and the Army is working to streamline the recruit
and fill process and will continue to pursue filling this critical
position. Given the difficulties of filling deployed positions, we believe
these actions are reasonable and should help to identify someone to fill
this position. In response to our recommendation for the Army to consider
delegating some additional oversight responsibilities to DCMA, DOD stated
that delegating additional oversight responsibilities to DCMA is
predicated on the ability of the DCMA to support the contract. We
understand that DCMA would play a major role in the decision to delegate
additional oversight responsibility to them. DOD's comments are reprinted
in enclosure II.

                                  ____________

We are sending copies of this report to the appropriate congressional
committees, the Secretary of Defense and the Secretary of the Army. We
will also make copies available to others upon request. In addition, this
report will be available at no charge on the GAO Web site at
[8]http://www.gao.gov .

If you or your staff has questions, please contact me at (202) 512-8365 or
[9][email protected] . Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this report.
Key contributors to this report are listed in enclosure III.

William M. Solis
Director, Defense Capabilities and Management

Enclosures - 3

List of Committees: 

The Honorable Carl Levin: 
Chairman: 
The Honorable John McCain: 
Ranking Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Daniel K. Inouye: 
Chairman: 
The Honorable Ted Stevens: 
Ranking Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
United States Senate: 

The Honorable Ike Skelton: 
Chairman: 
The Honorable Duncan L. Hunter: 
Ranking Member: 
Committee on Armed Services: 
House of Representatives: 
The Honorable John P. Murtha: 
Chairman: 

The Honorable C. W. Bill Young: 
Ranking Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives: 

Enclosure I: Scope and Methodology: 

To evaluate the contractor's performance of maintenance and supply 
services under the Army's Global Maintenance and Supply Services task 
order, Task Order 1, we interviewed Army contracting officials at the 
Army Sustainment Command in Rock Island, Illinois; interviewed Army 
officials of the 401ST Army Field Support Battalion at Camp Arifjan, 
Kuwait as well as contractor representatives responsible for the 
management of Task Order 1; reviewed various Army and contractor 
documents related to contractor execution; and observed the 
contractor's maintenance processes. We reviewed all records of quality 
assurance inspections conducted from November 2005 through May 2007 for 
equipment maintained by the contractor. Subsequently, we analyzed the 
inspection result data for selected equipment types inspected from July 
2006 through May 2007 to determine the percentage of items failing 
inspection. We subjectively selected equipment types that were commonly 
repaired by the contractor, were perceived to be critical to the fight 
in Iraq and Afghanistan, and were among the battalion's highest repair 
priorities. Although the Army has not documented all deficiencies that 
would indicate failed inspections and be recorded in the database, we 
determined that the data were sufficiently reliable for the purpose of 
our review. We took several actions to assess the reliability of the 
data. Specifically, we reviewed battalion guidance and procedures for 
how inspections should be conducted and documented, interviewed several 
quality assurance inspectors to determine how they conducted and 
documented inspections, observed the conduct of some quality assurance 
inspections, and observed the documentation of inspection results. We 
also met with representatives of the contractor, reviewed quality data 
provided by the contractor, and discussed our report's findings, 
conclusions, and recommendations with contractor representatives. 

To determine the extent to which the Army's quality assurance and 
contract management activities implement key principles of quality 
assurance and contract management regulations, we met with contracting 
and quality assurance officials at Camp Arifjan, Kuwait, and Rock 
Island, Illinois, and reviewed oversight and surveillance plans and 
inspection records. We reviewed a variety of quality assurance and 
contract management regulations and guidance, including the Army 
Quality Program regulation and the Defense Federal Acquisition 
Regulation Supplement. In addition, we spoke with representatives of 
the contractor and reviewed data provided by the contractor. We also 
observed physical inspections of four pieces of equipment presented to 
the Army while we were at Camp Arifjan and analyzed Army-provided data 
on oversight and surveillance. 

To determine if the battalion was adequately staffed to perform 
oversight activities, we reviewed battalion staffing documents and 
spoke with battalion oversight and command officials as well as 
officials from the Army Sustainment Command. In addition, we reviewed 
Department of Defense and Army guidance and regulations regarding 
contract oversight and management. We conducted this performance audit 
from March 2007 through December 2007 in accordance with generally 
accepted government auditing standards. Those standards require that we 
plan and perform the audit to obtain sufficient, appropriate evidence 
to provide a reasonable basis for our findings and conclusions based on 
our audit objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on our audit 
objectives. 

[End of section] 

Enclosure II: Comments from the Department of Defense: 

Deputy Under Secretary Of Defense For Logistics And Materiel Readiness: 
3500 Defense Pentagon: 
Washington, DC 20301-3500: 

January 10, 2008: 

Mr. William M. Solis: 
Director, Defense Capabilities and Management: 
U.S. Government Accountability Office: 
441 G Street, N.W.: 
Washington, DC 20548: 

Dear Mr. Solis: 

This is the Department of Defense (DoD) response to the GAO draft 
report, GAO- 08-316R, "Defense Logistics: The Army Needs to Implement 
an Effective Management and Oversight Plan for the Equipment 
Maintenance Contract in Kuwait," dated December 10, 2007 (GAO Code 
351106). 

The report recommends that the Secretary of the Army take certain 
actions for improving the management and oversight of the Global 
Maintenance and Supply Services Contract in Kuwait. The Department of 
the Army accepts those recommendations, and the DoD concurs with the 
proposed actions. Detailed comments on the report are enclosed. 

Sincerely,

Signed by: 

Jack Bell: 

Enclosure: 
As stated: 

GAO Draft Report ï¿½ Dated December 10, 2007 GAO Code 351106/GAO-08-
316R:  

"Defense Logistics: The Army Needs to Implement an Effective Management 
and Oversight Plan for the Equipment Maintenance Contract in Kuwait" 

Department Of Defense Comments To The Recommendations:  

Recommendation 1: The GAO recommends that the Secretary of Defense 
direct the Secretary of the Army to review and evaluate the Army's 
procedures for managing and overseeing the Global Maintenance and 
Supply Services under Task Order 1 in Kuwait and take the necessary 
actions to improve contract management. 

Dod Response: Concur. The Army Sustainment Command is reviewing 
contract W52P1J-05-D-0003/Task Order 0001 (Maintenance and Supply 
Operations in Kuwait) to determine the best contract type to improve 
contract management. The objective will be a contract that enhances 
contract management and oversight, incentivizes contractor performance, 
and ties compensation to performance and performance improvement. 
Target date for this review and decision is March 1, 2008. 

Recommendation 2: The GAO recommends that the Army develop a strategy 
to implement its current quality assurance and maintenance management 
oversight plans to ensure that:
ï¿½ All deficiencies are documented in the Army's quality assurance 
database without impacting the mission;
ï¿½ Contractor data is analyzed to improve contractor performance; and ï¿½ 
All information on contractor performance is provided to the 
contracting officer. 

DOD Response: Concur. The Army Field Support Battalion ï¿½ Kuwait (AFSBn-
KU) has developed a multi-pronged strategy to implement and/or improve 
quality assurance and maintenance management oversight to ensure that 
deficiencies are documented, contractor performance data is analyzed, 
and all information on contractor performance is provided to the 
contracting officer. 

* Training: Initiated integrated Directorate of Logistics / Quality 
Assurance training. Result: 40 personnel trained, training plan 
institutionalized. 

* Award Fee Plan Metrics: Developed, defined, and instituted key 
contractor performance evaluation criteria and metrics as a basis for 
the Global Maintenance and Supply Services Task Order 0001 Award Fee 
Plan. Result: Completed October 2007; Battalion gathering and 
documenting key contractor performance data. 

* Assistance Visits/Lessons Learned: 

- The Army Sustainment Command Lean Six Sigma (LSS) Deployment Office ï¿½ 
Assisting and advising the Battalion; i.e.: 

* Developed a Value Stream Map of the entire equipment maintenance 

process flow from reception to ready-for-issue. 

* Developed LSS multi-generational project plan to address primary 
contract concerns. 

* Advising on metrics for better accountability of contractor 
performance. 

* Assessing training initiatives to ensure that issues identified are 
eliminated.

* Assisted in defining and improving the first pass yield (FPY) process 
and reporting metric between government and contractor, resulting in 
steady improvement of FPY in December 2007 to 93% of prime self-
propelled vehicles inspected. 

* AFSBn-KU and ITT Corporation jointly conducted a quality functional 
deployment resulting in improved operational maintenance metrics.
Result: LSS found that GAO findings are being addressed and that 
improvements are well under way; LSS is planning to conduct an 
assistance visit in January and March 2008. 

- Army Prepositioned Stocks (APS) ï¿½ 4 (Northeast Asia) ï¿½ Shared lessons 
learned and advised Battalion on tactics, techniques, and procedures 
successfully used to monitor contractor performance for APS-4. Result: 
Battalion is implementing recommendations for improvement in equipment 
redistribution process, Class IX stock management, maintenance shop 
operations, and quality assurance. 

Recommendation 3: The GAO recommends that the Army take steps to fill 
vacant oversight positions with personnel who have the appropriate 
knowledge and skills. 

DOD Response: Concur. Army Sustainment Command has exercised and 
continues to exercise several recruiting authorities to entice 
qualified candidates to fill critical vacancies; i.e., relocation 
bonus, expansion of the area of consideration to Federal-wide, 
Veteran's Employment Opportunities Act, reinstatement eligibles, and 
30% disability. As of December 9, 2007, a qualified Property Management 
Specialist was selected with a job offer accepted pending pre-
employment requirements. Assuming all pre-employment requirements are 
met, the candidate could be on the job in Kuwait by mid/end January 
2008. Despite attempts to attract qualified applicants, filling the 
critical Quality Assurance Specialist position continues to be 
difficult. In early December 2007, both a first and second choice 
selectee declined the position. The position is being announced again 
with the best case scenario putting a qualified candidate in Kuwait in 
the early February 2008 timeframe. Army Sustainment Command G1 is 
working with the local Civilian Personnel Advisory Center to streamline 
the recruit and fill process and will continue to pursue the fill of 
this critical position with qualified candidates using incentives to 
the maximum extent possible. 

Recommendation 4: The GAO recommends that the Army develop a plan to 
allow the proper administration of the cost plus award-fee structure 
for maintenance and supply services. 

DOD Response: Concur. The appropriate contract type for the Global 
Maintenance and Supply Services Contract is under review with Army 
Sustainment Command contracting and operational personnel working 
closely with Army Field Support Battalion ï¿½ Kuwait staff. The result 
could be a hybrid contract combining incentives where quantitative 
measures are possible with an award fee where only subjective measures 
are available to measure contractor performance. The final decision on 
the appropriate contract type will be approved by the Army Sustainment 
Command Principal Assistant Responsible for Contracting, and the target 
for this review and decision is March 1, 2008. 

Recommendation 5: The GAO recommends that the Army consider delegating 
some additional oversight responsibilities to the Defense Contract 
Management Agency to meet some of the current contract management and 
oversight personnel shortfalls. 

DOD Response: Partially concur. Implementation of this recommendation 
is predicated on the ability of the Defense Contract Management Agency 
ability to support the Global Maintenance and Supply Services Task 
Order 0001 in Kuwait.

[End of section] 

Enclosure III: GAO Contact and Staff Acknowledgments: 

GAO Contact

William M. Solis, (202) 512-8365 or [10][email protected]

Acknowledgments

In addition to the contact named above, Carole Coffey, Assistant Director;
Sarah Baker; Renee Brown; Janine Cantin; Ronald La Due Lake; Katherine
Lenane; and Connie W. Sawyer, Jr. made key contributions to this report.

(351106)

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