Audit Report

07-07-2014
Acquisition Processes and Contract Management
Procedures to Ensure Sufficient Rare Earth Elements for the Defense Industrial Base Need Improvement (Redacted) (Project No. D2013-D000LA-0152.000)
DODIG-2014-091

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Objective

We determined whether DoD effectively planned for life-cycle sustainment of rare earth elements (REE) for the defense industrial base (DIB). Specifically, we determined whether DoD effectively implemented procedures to maintain a sufficient and available supply of REEs for the DIB.

Finding

DoD lacked a comprehensive and reliable process to assess REE supply and demand. Specifically, Defense Logistics Agency, Strategic Materials Division officials did not ensure that its modeling and simulation contractor used: REE supply forecasts that considered market and environmental risks; complete REE demand survey results; and verified economic consumption data to forecast REE demand.

This occurred because the Defense Logistics Agency, Strategic Materials Division did not have adequate verification and validation procedures in place to ensure realistic supply and demand inputs and did not require that the contractor use an accredited model to forecast REE supply and demand.

As a result, DoD may not have identified all REEs with expected shortfalls, increasing the risk that those shortfalls will adversely affect critical weapons systems production in the DIB, and overall DoD readiness.

Recommendations

We recommend that the Director, Defense Logistics Agency–Strategic Materials Division:

  • develop and implement a verification and validation plan for REE supply and demand forecasting model inputs;
  • develop and implement procedures to ensure that future shortfall analyses compare DoD demand and supply for REEs under the same scenarios;
  • develop and implement procedures for obtaining DoD REE consumption data by leveraging Service acquisition executive participation and other techniques as appropriate;
  • develop and implement an accreditation plan for theforecasting model’s intended use; and
  • ensure that current and future contracts for models, simulations and associated data include verification, validation and accreditation procedures in the contract requirements.

Management Comments and Our Response

The Director, Defense Logistics Agency, Acquisition Directorate generally addressed the recommendations; however, comments on Recommendation 2 partially addressed the recommendation. Therefore, we are requesting additional comments on Recommendation 2 by August 4, 2014.


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