Defense Acquisitions

Pursuant to a congressional request, GAO reviewed issues related to the Army Tank-Automotive and Armaments Command's decision to exercise, and then terminate, a contract option for a prelubrication system manufactured under the trademark Pre-Luber, focusing on whether the: (1) Pre-Luber offers significant savings in maintenance and repair costs in comparison to the awarded engine without the Pre-Luber; (2) contract was administered fairly, lawfully, and economically; and (3) lubrication system on the subcontractor's engine may infringe on the patent held by Engine Lubrication Systems.

GAO noted that: (1) automotive industry literature indicates that pre/post-start engine lubrication systems can reduce wear and tear of engine parts and thus operating costs; (2) however, an Army break-even analysis of the Pre-Luber system concluded that while there would be savings, the up-front investment cost outweighed the savings benefit; (3) after the Command awarded the contract, the program office started a review of all contract options; (4) the May 17, 1999, analysis compared the total investment cost of adding the Pre-Luber to total expected annual replacement cost; (5) the analysis showed that the Pre-Luber would reduce maintenance and repair costs, but it would take 62.5 years to recover the investment; (6) since the trucks would have an expected useful life of 22 years, the Command concluded that the cost of adding the Pre-Luber outweighed the benefit; (7) the Army's decision to exercise the option for the prelubrication system and subsequently delete the requirement and cancel the option is within the Army's contracting authority; (8) because Oshkosh Truck Corporation had already begun work related to the option, the Command agreed to pay $6,142 for the company's costs incurred prior to cancellation of the option; (9) Oshkosh had selected Caterpillar, Incorporated, as a subcontractor, to provide the engine and it chose the Pre-Luber manufactured by Engine Lubrication Systems as the source for the option; (10) the Command's engineers determined that the Caterpillar engine had already had a prestart lubrication system that would meet program requirements; (11) in addition, Caterpillar's tests of the engine demonstrated that it would perform well beyond the program requirement for service life between truck overhauls; (12) on June 21, 1999, the Command issued a stop work order to Oshkosh for work related to the prelubrication system; (13) on March 14, 2000, the Command modified the contract to formally delete the requirement and the option; (14) Engine Lubrication Systems does not own the patent for the lubrication system manufactured under the Pre-Luber trademark--it is patented by Lubrication Research and licensed to Engine Lubrication Systems; and (15) since only Oshkosh Truck Corporation has a contractual relationship with Engine Lubrication Systems and Caterpillar, the Command would not be a relevant party in the resolution of a patent infringement dispute.