Defense Logistics

The Army could save about $52 million over five years if it exercises all contract options for the procurement of 120-mm tank training ammunition. The Army expects to save the money by negotiating a decrease in price per round from the 1995 to 1999 multiyear contracts. However, a decision by one of the contractors to use a propellant producer other than the Radford Army Ammunition Plant?the Army's only government-owned, contractor-run propellant production facility?cut Radford's propellant business by 50 percent for the tank training round program. To absorb the higher overhead costs resulting from the loss of business, the contractor at Radford negotiated price increases for propellant with the Army for two new contracts totaling at least $14 million. Also, the contractor cut its workforce at Radford by 185 people. At the same time, the loss of propellant work does not affect Radford's ability to meet its wartime replenishment mission.

GAO noted that: (1) the Army could achieve about $52 million in savings over a 5-year period from its 1999 contracts for the procurement of 120-mm tank training rounds if all contract options are exercised; (2) the Army expects to achieve the savings based on a negotiated decrease in price per round from the 1995 to the 1999 multiyear contracts; (3) however, a decision by one of the contractors to use a propellant producer other than Radford resulted in a 50-percent reduction in Radford's propellant business for the tank training round program; (4) to absorb increased overhead costs due to the loss of business, the operating contractor at Radford negotiated price increases for propellant with the Army for two new contracts totalling at least $14 million; (5) another result of the Army's decision to no longer direct that propellant be purchased from Radford was that the contractor reduced its workforce at Radford of 1,200 by 185 personnel; (6) these personnel reductions required the contractor to incur certain employee separation costs and affected the contractor's retirement funding liabilities; (7) the Army recognized that the 1999 multiyear contracts could affect Radford's operations but believed the impact would be minimized because Radford was in a competitive position to win other Department of Defense contracts; (8) the loss of propellant work does not affect Radford's ability to meet its wartime replenishment mission; (9) Radford's facilities have the capacity to produce about 100 million pounds of propellant per year but currently are only producing 10 million pounds per year; (10) with additional personnel, this provides more than adequate capacity for Radford to meet its replenishment requirements; and (11) Radford officials stated that as long as the propellant lines are operating, they would be able to replenish propellant in accordance with requirements contained in Defense Planning Guidance.