Report | Nov. 30, 2012

Accountability Was Missing for Government Property Procured on the Army's Services Contract for Logistics Support of Stryker Vehicles

DODIG-2013-025

What We Did

We evaluated the effectiveness of the contractor logistics support strategy for the Stryker Family of Vehicles. The Project Management Office for Stryker Brigade Combat Team (PMO Stryker) entered into the contract with General Dynamics Land Systems with a singular focus to achieve an operational readiness rate goal of 90 percent and actually achieved a readiness rate in excess of 96 percent. This report is the second in a series of three reports and addresses controls over Government property (Army-owned Stryker inventory). The first report addressed contract type and performance metrics. The third report will address contractor billings.

What We Found

PMO Stryker officials did not properly account for Government property procured on the cost-reimbursable services contract for logistics support of Stryker vehicles. We identified 19,365 different items of Stryker inventory (spare and repair parts) being managed by General Dynamics at a Government-owned, contractor-operated (GOCO) warehouse that had not been assigned a value and recorded in appropriate Army property accountability and financial accounting systems. At our request, General Dynamics assigned a value to the Stryker inventory of about $892.3 million.

Stryker inventory was not properly accounted for because PMO Stryker inappropriately treated the inventory as contractor-acquired property (CAP), while General Dynamics considered the inventory as Government property, not CAP, once delivered to the GOCO warehouse. Consequently, neither PMO Stryker nor General Dynamics accounted for the Stryker inventory in appropriate property management systems. CAP business rules for cost-reimbursable contracts were generally designed to address "property acquired, fabricated, or otherwise provided by the contractor" that would eventually be delivered to the Government as part of a higher level end item, not as used by the Army on its logistics services contract with no end item deliverable. While Stryker inventory consumed during the contract periods of performance for the logistics services contract could possibly be considered CAP, most of the inventory identified in this report was from prior contract periods and needed to be delivered and accepted by the Army as Government property.

As a result of incorrectly classifying Stryker inventory as CAP, PMO Stryker did not:

  • comply with multiple DoD and Army property regulations designed to provide good stewardship and fiduciary responsibility over Government property, support the Army goal of creating auditable financial statements, and correctly use the Army's system designed to integrate logistics and financial operations; and
  • implement a comprehensive inventory management improvement plan that addressed overforecasting, total asset visibility, excess inventory, economic retention requirements, and aggressive potential reutilization and disposal reviews to meet the intent of Public Law 111-84, "National Defense Authorization Act for FY 2010," Section 328, "Improvement of Inventory Management Practices," October 28, 2009.

Our review of 21 high-dollar parts, valued at $85.1 million, showed that 16 parts had excess Stryker inventory of $72.7 million that could be either disposed of ($58.0 million) or potentially used on other contracts ($14.7 million). General Dynamics initiated action to dispose of different obsolete parts identified during our review.

During our visit to the GOCO warehouse in Auburn, Washington, we identified 170 empty engine containers (part 10650112), valued at $1.1 million, purchased to store an engine that was no longer being procured. General Dynamics determined that the empty containers could be used to store a newer engine, thereby reducing future requirements.

What We Recommend

Among other recommendations, the Director, Defense Procurement and Acquisition Policy (DPAP) working with the Assistant Secretary of Defense for Logistics and Materiel Readiness, needs to issue additional guidance that clarifies the proper use of CAP business rules specifically for logistics services contracts with no end item deliverables and how to properly account for inventory on these contracts that is not consumed during the contract period of performance.

Additionally, the Program Executive Officer, Ground Combat Systems, should require that the Stryker inventory be delivered and accepted on a contract line item, properly valued, recorded in an Army property accountability system, and stratified and classified in the proper logistics and financial accounts. Also, the Program Executive Officer, Ground Combat Systems, should require the PMO Stryker to implement a comprehensive inventory management improvement plan that addresses overforecasting, total asset visibility, excess inventory and economic retention requirements, and aggressive potential reutilization and disposal reviews.

Further, the Assistant Secretary of the Army (Acquisition, Logistics, and Technology) [ASA(ALT)], with support from the Assistant Secretary of the Army (Financial Management and Comptroller) [ASA(FM&C)], needs to establish a multifunctional support team to work with PMO Stryker to ensure that Stryker inventory has been assigned a value and recorded in appropriate Army property accountability and financial accounting systems.

Management Comments and Our Response

Management comments were responsive to the recommendations, and management was taking action to address Stryker inventory acceptance, accountability, and financial reporting issues. The Director, DPAP, planned to issue guidance during the second quarter of FY 2013 that clarifies the property accountability and financial valuation requirements for inventory that was not consumed during the period of performance on logistics services contracts. Additionally, ASA(ALT), with support from ASA(FM&C), established a multifunctional support team to assist PMO Stryker in properly valuing and recording Stryker inventory.