Defense Acquisitions

This is the first in a series of reports examining price trends of spare parts managed by the military. This report contains information on reparable spare parts the Marine Corps uses to maintain ground combat and support equipment such as vehicles, radars, and radio receivers. It addresses (1) changes in the prices of reparable parts compared with the prices of similar items in the private sector and the reasons for the price changes and (2) the accuracy of prices set by the Marine Corps. Prices of the 703 parts examined increased by an average of 14 percent over the four-year period from fiscal year 1995 through 1999, while prices for similar items sold in the private sector dropped by 0.2 percent. During the four-year period, prices fluctuated, dropping 10 percent during the first 2 years and increasing by about 27 percent during the last 2 years. The Marine Corps did not follow Defense pricing regulations in setting prices and, as a result, the prices of most parts sold to Marine Corps customers were incorrect. The approach used to adjust prices of repaired parts from year to year was inconsistent with Defense regulations and led to wider price fluctuations. The Marine Corps has taken steps to correct its method for setting prices.

GAO noted that: (1) prices of the 703 parts GAO examined increased by an average of about 14 percent over the 4-year period from fiscal year 1995 through 1999, while prices for similar items sold in the private sector dropped by 0.2 percent over the same period; (2) prices for these 703 parts fluctuated during this 4-year period, dropping by about 10 percent during the first 2 years and increasing by about 27 percent during the last 2 years; (3) prices of the 313 parts sold to customers followed the same pricing pattern; (4) the major cause of the sharp price increase during the latter years was increases in surcharge rates; (5) the cost of procuring the parts from suppliers influenced the price of only 26 parts; (6) the Marine Corps did not follow Department of Defense pricing regulations in setting prices and, as a result, the prices of most parts sold to Marine Corps customers were not correct; (7) in particular, the approach used to adjust prices of repaired parts from year to year was not consistent with Defense regulations; (8) the Marine Corps' approach led to wider price fluctuations than the approach called for in Defense pricing regulations; (9) moreover, prices for many parts were higher than they would have been had repair costs been used to set prices; (10) mathematical and computer program errors were also made; (11) these problems contributed to the Marine Corps having an accumulated gain of about $48 million from the sale of spare parts at the end of fiscal year 1999; and (12) Defense policy requires revolving funds to operate with the long-term objective of breaking even.

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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