Objective
We determined whether Defense Logistics Agency (DLA) Land and Maritime personnel adequately processed product quality deficiency reports and obtained appropriate restitution (reimbursement) from contractors that provided defective spare parts. This is the third in a series of audits on product quality deficiency reports processed by the DLA.
We statistically sampled 64 of 354 contracts cited on product quality deficiency reports that DLA Land and Maritime closed between July 2014 and June 2015. In addition, we nonstatistically sampled 4 of 11 contracts for items coded as critical safety items.
Finding
DLA Land and Maritime did not adequately process product quality deficiency reports or pursue appropriate restitution for a projected 267 contracts for which contractors provided defective parts. This occurred because DLA Land and Maritime lacked oversight and controls to ensure that its logistics operations and acquisition personnel:
- coordinated and requested restitution from responsible contractors;
- adequately searched the DoD inventory to identify and remove defective parts;
- returned defective parts to the responsible contractors for replacement; and
- tracked the status of parts returned to the responsible contractors for replacement.
We project that as a result of DLA Land and Maritime’s lack of oversight and controls, it did not obtain $3.4 million in restitution.1 In addition, DLA did not account for defective parts in the DoD supply chain, including all parts on a nonstatistically sampled contract for a critical safety item for which DoD customers submitted product quality deficiency reports. Defective parts in the DoD supply chain create a potential risk for warfighter readiness and safety.
DLA Headquarters and DLA Land and Maritime initiated several corrective actions during the audit to improve product quality deficiency report processing. These actions address obtaining restitution for defective parts and the removal of defective parts from the DoD supply chain. However, additional actions are needed.
Recommendations
We recommend that the Director, DLA, develop a plan of action with milestones to improve the agency’s processes to identify defective spare parts in the DoD inventory and pursue restitution from contractors that provide the defective parts. The plan should address the findings in this report, establish controls and oversight, and provide sufficient training to ensure DLA Land and Maritime logistics operations and acquisition personnel:
- coordinate and request restitution from contractors that provide defective parts;
- adequately search the DoD inventory to identify and remove defective parts;
- return defective parts to responsible contractors for replacement;
- track the status of defective parts shipped back to contractors and ensure that appropriate restitution is provided in the form of replacement parts or other means; and
- until corrective actions are fully implemented, continue to review all contracts with associated product quality deficiency reports where DLA’s investigation concluded that the contractor provided defective parts, take prompt action to pursue and obtain appropriate restitution for these parts, and remove all defective parts from the DoD supply chain.
Management Comments and Our Response
The Deputy Director, DLA Logistics Operations, responding for the Director, DLA, agreed with the finding and addressed all specifics of the recommendations.
The Deputy Director stated that DLA had completed several actions to address concerns with restitution for defective parts. The Deputy Director stated that a Directive Type Memorandum was developed and published in December 2016, which provides high-level enterprise-wide guidance for pursuing restitution. The Deputy Director stated that DLA Land and Maritime developed a control sheet to document key decisions throughout the product quality deficiency report process and conducted training for all Product Specialists and Post Award Acquisition Specialists in January 2017. The Deputy Director provided details on completed updates to the Enterprise product quality deficiency report Deskbook, Job Aids, and the DLA Acquisition Directive. The Deputy Director provided additional details on the comprehensive review of product quality deficiency reports DLA Land and Maritime completed in October 2016.
The Deputy Director stated that DLA Land and Maritime will conduct a monthly review of all completed product quality deficiency reports where the discrepancy was attributed to contractor noncompliance, and will provide monthly data on restitution status to DLA Acquisition. The Deputy Director stated that a product quality deficiency report Continuous Process Improvement Event is underway to identify gaps in the Agency’s restitution process with a target completion date of December 2017. In addition, the Deputy Director stated that DLA will develop and issue a manual that captures both the high level requirements in DLA’s December 2016 Directive Type Memorandum and the detailed execution steps at the DLA Primary Level Field Activities. The target completion date for the manual is June 30, 2017.
We will close these recommendations once we verify that the proposed actions have been implemented.
1 See Appendix B for details on the statistical projections.
This report is a result of Project No. D2016-D000AG-0085.000.