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Improvement Needed for Inventory Management Practices on theT700 Technical, Engineering, and Logistical Services and Supplies Contract DODIG-2015-050

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Objective

We determined whether the Department of Defense effectively managed the T700 Technical, Engineering, and Logistical Services and Supplies contract. Specifically, we reviewed inventory management practices on the Department of the Army’s T700 Technical, Engineering, and Logistical Services and Supplies contract. This is the second report in a series of two reports and addresses whether T700 inventory was effectively managed.

Finding

The Army improved its overall inventory management for the T700 by decreasing on-hand inventory by $11.5 million and reducing inventory from the prior GE contracts. However, opportunities for improvement still exist. Specifically, U.S. Army Contracting Command and Corpus Christi Army Depot officials did not meet goals to reduce and use existing Government-owned inventory for the T700 Technical, Engineering, and Logistical Services and Supplies contract. This occurred because U.S. Army Contracting Command and Corpus Christi Army Depot officials did not:

  • effectively monitor the reduction of inventory, and
  • did not require General Electric to use existing Corpus Christi Army Depot T700 spare parts inventory located at the Defense Logistics Agency.

As a result, excess inventory levels still exist, and Army officials had at least 309,498 spare parts in excess of the contract requirements, valued at $25.4 million, which may be used to reduce future contract requirements.

In addition, U.S. Army Contracting Command can use at least 48,018 Corpus Christi Army Depot T700 spare parts, valued at $200,308, from Defense Logistics Agency inventory to meet Corpus Christi Army Depot future requirements rather than procuring these items from General Electric. U.S. Army Contracting Command officials could potentially use an additional 267,835 T700 spare parts, valued at $4.5 million, located at Defense Logistics Agency to meet future Corpus Christi Army Depot requirements.

Recommendations

The Commanding General, U.S. Army Contracting Command, should require contracting officials to modify the contract to clarify the 60-day inventory cap; and identify what actions will be taken if the contractor fails to meet the 60-day inventory cap and 20-percent inventory reduction requirements.

The Commanding General, U. S. Army Aviation and Missile Life Cycle Management Command should direct Corpus Christi Army Depot officials to determine which spare parts are excess or unusable and develop a formal process that considers on-hand inventory when making buy versus repair decisions. The Commanding General should also direct Corpus Christi Army Depot officials to coordinate with Defense Logistics Agency officials to drawdown the Corpus Christi Army Depot T700 inventory to review T700 spare parts where the demand is unknown.

The Commanding General, U.S. Army Contracting Command, in conjunction with the Commanding General, U. S. Army Aviation and Missile Life Cycle Management Command, should direct contracting and Corpus Christi Army Depot officials to document the approval of any purchases of additional inventory for spare parts with inventory levels in excess of the 60-day requirement.

Management Comments and Our Response

We received comments from the Army in response to a draft report. The Commanding General, U .S. Army Contracting Command will require contracting officials to modify the contract to clarify the 60-day inventory cap clause and will use the Contractor Performance Assessment Reports System to monitor the contractor’s compliance with contract requirements. The Commanding General, U.S. Army Aviation and Missile Life Cycle Management Command will direct Corpus Christi Army Depot officials to determine which spare parts are excess or unusable, develop a formal process that considers on-hand inventory when making buy versus repair decisions, and to coordinate with Defense Logistics Agency officials to draw down Corpus Christi Army Depot T700 inventory. In addition, the Commanding General, U.S. Army Aviation and Missile Life Cycle Management Command and the Commanding General, U.S. Army Contracting Command will direct Corpus Christ Army Depot and contracting officials to document approval of any purchases of spare parts with inventory levels in excess of the 60-day requirement. The comments addressed the specifics of the recommendations, and no further comments are required.

This report is a result of Project No. D2014-D000AT-0187.000.