Report | Sept. 9, 2014

Military Sealift Command Oversight of Excess Spare-Parts Inventory and Purchases for Sealift Program Roll-On/Roll-Off Ships Needs Improvement

DODIG-2014-106

Objective

We determined whether the Military Sealift Command (MSC) effectively managed the quantities of spare parts in inventory and procured the spare parts at fair and reasonable prices for the large, medium-speed, roll-on/roll-off (LMSR) ships in the Sealift Program. To determine whether MSC procured spare parts at fair and reasonable prices, we focused on price competition, a key control to ensure price reasonableness. We performed this audit in response to a congressional request.

Findings

The MSC property administrator did not effectively manage the excess spare-parts inventory on two Sealift Program LMSR ships, and there were indications in MSC’s records that these conditions existed on two other ships. According to MSC inventory records, on-hand spare parts exceeded authorized allowance levels for 4,677 spare parts, with the excess valued at $3.4 million. Although we did not verify all recorded excess, of the 60 spare parts we inventoried, we verified excess for 49 spare parts, valued at $692,305. The excess occurred because MSC staff did not ensure the contractor complied with contract provisions on excess government property. As a result, MSC did not know the numbers of excess spare parts available for reuse, resale, or disposal, increasing the risk that purchases could be made for spare parts already aboard the ships. In addition, the MSC property administrator and contracting officer did not ensure that Patriot Contract Services (PCS) had acceptable justification for 13 spare-parts purchases not adequately competed and used the Defense Supply System (DSS) for spare-parts purchases. This occurred because the MSC property administrator did not properly review purchase orders during the invoice-review process, and the contracting officer included contradictory language regarding DSS use in the PCS contract. As a result, MSC potentially overpaid for parts procured without adequate competition and paid about $63,674 more than the DSS price for 28 of 76 parts purchased during FY 2011 and FY 2012.

Recommendations

Among other recommendations, we recommend the Commander, MSC perform a 100-percent inventory of spare parts aboard the Sealift Program LMSR ships, update on-hand quantities, reevaluate allowance levels, and process all spare parts deemed excess for reuse, resale, or disposal. In addition, the Commander, MSC, should establish controls to ensure the contractor follows contract requirements for competition and DSS use.

Management Comments and Our Response

Comments from the Military Sealift Command addressed all specifics of the recommendations, and no further comments are required.