Audit Report

07-07-2017
Acquisition Processes and Contract Management
Defense Logistics Agency Compliance With the Berry Amendment and the Buy American Act (Project No. D2016-D000CG-0140.000)
DODIG-2017-098
     

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Objective

We determined whether Defense Logistics Agency (DLA) personnel complied with the Berry Amendment and the Buy American Act when they purchased covered items such as food, clothing, tents, textiles, and hand or measuring tools.

Background

We performed this audit in response to Section 1601 of the National Defense Authorization Act for FY 2014.1  To determine whether DLA personnel complied with the Berry Amendment and the Buy American Act, we reviewed a nonstatistical sample of 88 contracts with an obligated value of $386.9 million, out of 2,382 contracts across DLA with an obligated value of $700.4 million, awarded from October 1, 2014, through March 31, 2016. The Berry Amendment directs DoD personnel to ensure funds appropriated or otherwise available to the DoD are not used to procure covered items if the items were not grown, reprocessed, reused, or produced in the United States. The Buy American Act requires, with certain exceptions, that only articles, materials, and supplies that were mined, produced, or manufactured in the United States are used to fulfill Federal procurement and construction contracts.

Findings

DLA contracting personnel complied with the Berry Amendment for 13 of the 32 contracts reviewed. However, DLA personnel at 3 of the 4 contracting offices visited did not comply with the Berry Amendment for the remaining 19 contracts, valued at $453.2 million.2

Specifically, for 14 of the 19 noncompliant contracts, DLA contracting personnel at DLA Troop Support Philadelphia and DLA Aviation Richmond omitted the Berry Amendment implementing clause because they: were unfamiliar with the Berry Amendment, relied on their contract writing system, relied on another official to prepare and review the contract before award, or committed an administrative error. For four noncompliant contracts, contracting personnel at DLA Troop Support Philadelphia did not prepare award notices containing required language to notify the public of the purchase of nondomestic items because they were unaware of the requirement and mistakenly relied on DLA’s electronic contracting systems to include the information or they misinterpreted the requirement and believed that it did not apply. For one of these contracts, DLA Troop Support Philadelphia contracting personnel also purchased foreign-made items without the required supporting documentation and approval because they misinterpreted the Berry Amendment requirements. Contracting personnel at DLA Maritime Puget Sound purchased items containing nondomestic components on the remaining noncompliant contract without the required supporting documentation and approval because they improperly applied an exception to waive the Berry Amendment requirements.

As a result, contracting personnel at DLA Troop Support Philadelphia and DLA Aviation Richmond had limited assurance that purchased items complied with the Berry Amendment and suppliers may have provided nondomestic items. In addition, DLA Troop Support Philadelphia personnel did not notify the public regarding a lack of domestically-produced items, and contracting personnel at DLA Troop Support Philadelphia and DLA Maritime Puget Sound committed potential violations of the Antideficiency Act.3

DLA personnel at the three contracting offices visited4 complied with the Buy American Act for 44 of the 56 contracts reviewed but did not comply for the 12 remaining contracts, valued at $1.8 million.

DLA contracting personnel at DLA Troop Support Philadelphia and DLA Aviation Richmond omitted the Buy American Act implementing clause because they relied on their contract writing system or because of an administrative error. In addition, DLA Aviation Richmond contracting personnel purchased non-U.S.-manufactured items on one contract because they erroneously awarded a small business set-aside contract to an ineligible foreign manufacturer.

As a result, contracting personnel at DLA Troop Support Philadelphia and DLA Aviation Richmond had limited assurance that items purchased on 12 contracts complied with the Buy American Act and suppliers may have provided nondomestic items.

Corrective Actions Taken

Contracting personnel at DLA Troop Support Philadelphia and DLA Aviation Richmond corrected some of the deficiencies identified during the audit. Specifically, DLA contracting personnel modified all 14 Berry Amendment contracts and modified 1 of the 12 Buy American Act contracts with the required implementing clause. In addition, DLA Aviation Richmond contracting personnel issued a local notice to reinforce compliance with the Berry Amendment and the Buy American Act and officials at both contracting offices conducted training on both domestic-sourcing restrictions.

Recommendations

We recommend that DLA officials determine whether noncompliant items were delivered and, when appropriate, obtain compliant replacement items; amend standard operating procedures and internal processes to improve compliance with the Berry Amendment and Buy American Act; issue special notices to inform the public on the lack of domestically-produced items; require that contracting and technical personnel receive training that incorporates the Buy American Act and Small Business Program requirements when soliciting and awarding an acquisition as a small business set-aside; and review the potential Antideficiency Act violations.

Management Comments and Our Response

The Director, Defense Logistics Agency Acquisition, responding for the Commander, Defense Logistics Agency Troop Support; Commander, Defense Logistics Agency Aviation; and the Commander, Defense Logistics Agency Land and Maritime, generally agreed with our findings and recommendations. The Director agreed to modify contracts we identified as deficient to include the required Berry Amendment and Buy American Act implementing clauses and to determine whether non-compliant items were delivered under the contracts, and where appropriate, obtain replacement items. The Director also agreed to provide training to contracting personnel on procurements subject to the Berry Amendment and the Buy American Act. Therefore, the recommendations are resolved but will remain open until DLA provides documentation to verify that the contracts have been modified, the product reviews are completed, and that the training satisfies the recommendation specifics.

The Director, Defense Logistics Agency Acquisition, commenting for the Director, Defense Logistics Agency Finance, partially agreed with the recommendation to initiate a preliminary review in accordance with the DoD 7000.14-R, “DoD Financial Management Regulation,” volume 14, chapter 3, to determine whether reportable violations of the Antideficiency Act occurred on contracts SPE1C1-15-M-2729 and SPMYM2-15-C-0007 on which DLA contracting personnel procured nondomestically produced footwear that did not comply with the Berry Amendment. The Director stated that a preliminary review was initiated on March 3, 2017, for contract SPMYM2-15-C-0007 and will be completed by June 30, 2017. However, the Director disagreed that a preliminary review was required for contract SPE1C1-15-M-2729 because the Director of Defense Logistics Agency, approved a domestic nonavailability determination for footwear on January 18, 2017, that retroactively applied to contract SPE1C1-15-M-2729.

We disagree that the Director, Defense Logistics Agency’s approval of a domestic nonavailability determination more than a year after contracting personnel procured the noncompliant footwear, and more than a year after the footwear was delivered and the contract closed, eliminated the preliminary review for a potential Antideficiency Act violation. Therefore, the recommendation is unresolved and remains open.

We request that the Director, Defense Logistics Agency Finance, initiate a preliminary review in accordance with DoD 7000.14-R, “DoD Financial Management Regulation,” volume 14, chapter 3, to determine whether reportable violations of the Antideficiency Act occurred on contract SPE1C1-15-M-2729. Additionally, we request that the Director, Defense Logistics Agency Finance, provide DoD policy on “retroactive” nonavailability determinations. We request that the Director, Defense Logistics Agency Finance, provide comments to the final report by August 7, 2017.


1 Public Law 113-66, “National Defense Authorization Act for Fiscal Year 2014,” December 26, 2013, which requires the DoD Inspector General to conduct periodic audits of contracting practices and policies related to procurement under section 2533a, title 10, United States Code (U.S.C.).

2 We identified 20 deficiencies on 19 contracts.

3 The Antideficiency Act (31 U.S.C. § 1341) does not permit Government officials to make or authorize obligations or expenditures that exceed amounts appropriated or funded for that purpose. The Berry Amendment is a statutory prohibition on the use of DoD funds.

4 We did not review contracts at DLA Aviation Philadelphia for compliance with the Buy American Act.  


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