National Defense Stockpile

In the wake of the diminishing threat from Eastern Europe and the former Soviet Union, a February 1992 Defense Department (DOD) report urged slashing the government's $9 billion stockpile of strategic and critical materials by $5.7 billion. The Pentagon's overall process for estimating stockpile requirements is of little use, however, in determining specific estimates. Material consumption ratios, used to convert estimates of economic activity into requirements for strategic and critical material, were as much as 10 years out of date, casting doubt on the validity of the 1992 report. DOD sensitivity tests showing the consequences of alternative assumptions on requirements examined only a narrow set of alternatives. Notwithstanding these shortcomings, GAO supports judicious disposal of outdated and clearly excess materials and a temporary curtailment of uncommitted purchases. DOD could dispose of obsolete materials such as vegetable tannins without endangering national security or disrupting the material markets. Caution is advised, however, in disposing of other materials because of the problems in DOD's methodology for determining material requirements. DOD has in its stockpile excess ferromanganese and ferrochromium, alloys that are readily available on the world market. Although continued procurement of these alloys is uneconomical, each of the alloys has only one U.S. producer, and a sudden end to government purchases could harm these producers' ability to compete on the commercial market. Legislation allows the purchase of alloys to continue through fiscal year 1993.

GAO found that: (1) DOD used a reasonable methodology to determine its material requirements, but its determination process was limited; (2) DOD did not do sensitivity analyses to characterize the uncertainty associated with material consumption ratios (MCR); (3) the levels of disposals in the DOD annual material plans appear reasonable, but DOD should take a cautious approach to some of the proposed disposals; (4) DOD should dispose of such materials as cobalt, ferroalloys, chromium, and manganese ores only after consulting with experts in other federal agencies and producers and users; (5) the continued procurement of the alloys under the upgrade program is not necessary or economical, since stockpile inventories significantly exceed DOD requirements and DOD could obtain the alloys from foreign sources at lower prices; and (6) the Fiscal Year 1993 Defense Authorization Act authorizes the disposal of excess chromite and manganese ores and ferroalloys under certain conditions.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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