Defense Procurement
Air Force Did Not Fully Evaluate Options in Waiving Berry Amendment for Selected Aircraft Gao ID: GAO-05-957 September 23, 2005In April 2004, the Secretary of the Air Force approved a permanent waiver of the requirements of the Berry Amendment for 23 commercial derivative aircraft systems, representing more than 1,200 aircraft in the Air Force's inventory. The Berry Amendment generally requires the Department of Defense (DOD) to purchase certain domestically grown or produced items, including specialty metals used in defense systems such as aircraft. Waivers to the Berry Amendment can be granted under certain circumstances. GAO was asked to evaluate the supporting evidence and analysis that the Air Force relied on to waive the Berry Amendment. GAO did not conduct a legal analysis of the waiver.
The Air Force did not follow established policy when evaluating the need for a waiver of the Berry Amendment for 23 commercial derivative aircraft systems. Specifically, the Air Force did not thoroughly analyze the opportunities for compliance with the Berry Amendment on a system-by-system basis, thereby diminishing the persuasiveness of the waiver's support. The Air Force's review of its compliance with the Berry Amendment regarding these systems began in early 2003 when it became aware that some aircraft manufacturers could not meet the Berry Amendment requirements. Faced with this problem, a senior Air Force acquisition official visited an aircraft manufacturer, two of its subcontractors (including a titanium producer), and an engine manufacturer. The Air Force's conclusion, based on these visits and knowledge of the aerospace industry, was that other contractors involved in the Air Force's acquisition and support of commercial derivative aircraft systems would also have difficulty complying with the Berry Amendment. In September 2003, the Secretary of the Air Force signed a temporary waiver that was initiated at the headquarters level and covered 19 systems. That was followed in April 2004 with a permanent waiver of the Berry Amendment for these 19 systems plus another 4. Air Force policy calls for certain actions before issuing a waiver, including conducting market research and conducting an analysis of what alternatives are available and why they are not acceptable. In this instance, the Air Force did not conduct market research for each system, as it believed no company could produce compliant parts--a position not explained in the waiver's supporting documents. The Air Force documented an analysis of alternatives for only 1 aircraft system in the waiver. Memos representing 18 other aircraft systems state that alternatives to the waiver had been considered and rejected as not feasible but did not identify what the alternatives were, while memos for 3 additional aircraft systems make no reference to whether alternatives had been considered. The Air Force provided no documentation about its analysis of alternatives for the 1 remaining aircraft system in the waiver. After discussions with representatives for all 23 aircraft systems, GAO concluded that the Air Force did not document alternatives or thoroughly review possible options to achieve compliance with the Berry Amendment for many of the aircraft systems. GAO has identified several instances that highlight the Air Force's lack of thoroughness in its waiver process for the 23 aircraft systems. For example, the Air Force did not question contractors' inability to provide compliant spare parts when they were military unique and therefore not the same as the parts used in commercial aircraft. Also, the Air Force included some aircraft systems in the waiver that were already covered under other regulatory exceptions to the Berry Amendment.
RecommendationsOur 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.
Director: Team: Phone:GAO-05-957, Defense Procurement: Air Force Did Not Fully Evaluate Options in Waiving Berry Amendment for Selected Aircraft
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United States Government Accountability Office:
GAO:
September 2005:
Defense Procurement:
Air Force Did Not Fully Evaluate Options in Waiving Berry Amendment for
Selected Aircraft:
GAO-05-957:
GAO Highlights:
Highlights of GAO-05-957, a report to the Committee on Armed Services,
House of Representatives:
Why GAO Did This Study:
In April 2004, the Secretary of the Air Force approved a permanent
waiver of the requirements of the Berry Amendment for 23 commercial
derivative aircraft systems, representing more than 1,200 aircraft in
the Air Force‘s inventory. The Berry Amendment generally requires the
Department of Defense (DOD) to purchase certain domestically grown or
produced items, including specialty metals used in defense systems such
as aircraft. Waivers to the Berry Amendment can be granted under
certain circumstances. GAO was asked to evaluate the supporting
evidence and analysis that the Air Force relied on to waive the Berry
Amendment. GAO did not conduct a legal analysis of the waiver.
What GAO Found:
The Air Force did not follow established policy when evaluating the
need for a waiver of the Berry Amendment for 23 commercial derivative
aircraft systems. Specifically, the Air Force did not thoroughly
analyze the opportunities for compliance with the Berry Amendment on a
system-by-system basis, thereby diminishing the persuasiveness of the
waiver‘s support.
The Air Force‘s review of its compliance with the Berry Amendment
regarding these systems began in early 2003 when it became aware that
some aircraft manufacturers could not meet the Berry Amendment
requirements. Faced with this problem, a senior Air Force acquisition
official visited an aircraft manufacturer, two of its subcontractors
(including a titanium producer), and an engine manufacturer. The Air
Force‘s conclusion, based on these visits and knowledge of the
aerospace industry, was that other contractors involved in the Air
Force‘s acquisition and support of commercial derivative aircraft
systems would also have difficulty complying with the Berry Amendment.
In September 2003, the Secretary of the Air Force signed a temporary
waiver that was initiated at the headquarters level and covered 19
systems. That was followed in April 2004 with a permanent waiver of the
Berry Amendment for these 19 systems plus another 4.
Air Force policy calls for certain actions before issuing a waiver,
including conducting market research and conducting an analysis of what
alternatives are available and why they are not acceptable. In this
instance, the Air Force did not conduct market research for each
system, as it believed no company could produce compliant parts”a
position not explained in the waiver‘s supporting documents. The Air
Force documented an analysis of alternatives for only 1 aircraft system
in the waiver. Memos representing 18 other aircraft systems state that
alternatives to the waiver had been considered and rejected as not
feasible but did not identify what the alternatives were, while memos
for 3 additional aircraft systems make no reference to whether
alternatives had been considered. The Air Force provided no
documentation about its analysis of alternatives for the 1 remaining
aircraft system in the waiver. After discussions with representatives
for all 23 aircraft systems, GAO concluded that the Air Force did not
document alternatives or thoroughly review possible options to achieve
compliance with the Berry Amendment for many of the aircraft systems.
GAO has identified several instances that highlight the Air Force‘s
lack of thoroughness in its waiver process for the 23 aircraft systems.
For example, the Air Force did not question contractors‘ inability to
provide compliant spare parts when they were military unique and
therefore not the same as the parts used in commercial aircraft. Also,
the Air Force included some aircraft systems in the waiver that were
already covered under other regulatory exceptions to the Berry
Amendment.
What GAO Recommends:
GAO recommends that the Department of Defense direct the Air Force to
(1) conduct an analysis of each commercial derivative aircraft system
in the waiver to consider opportunities to achieve compliance with the
Berry Amendment requirements or document why such compliance is not
possible and (2) assess, on a periodic basis, whether changes have
occurred in the supplier base for each aircraft system in the waiver
that would provide opportunities to procure domestically produced items
as required by the Berry Amendment. DOD and the Air Force agreed with
both of GAO‘s recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-05-957.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Ann Calvaresi-Barr at
(202) 512-4841 or calvaresibarra@gao.gov.
[End of section]
Report to the Committee on Armed Services, House of Representatives:
Contents:
Letter:
Results in Brief:
Background:
Air Force Waiver Lacked Thorough Analysis:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Commercial Derivative Aircraft Included in the Air Force
Waiver:
Appendix II: Comments from the Department of Defense and the Air Force:
Appendix III: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Commercial Derivative Aircraft Included in the Air Force's
Permanent Waiver:
Abbreviations:
AWACS: Airborne Warning and Control System:
DFARS: Defense Federal Acquisition Regulation Supplement:
DOD: Department of Defense:
FAR: Federal Acquisition Regulation:
United States Government Accountability Office:
Washington, DC 20548:
September 23, 2005:
The Honorable Duncan L. Hunter:
Chairman:
The Honorable Ike Skelton:
Ranking Minority Member:
Committee on Armed Services:
House of Representatives:
Congress enacted the Berry Amendment in 1941 to maintain a healthy
industrial base and encourage domestic production of items deemed
essential to meet defense needs. It generally requires the Department
of Defense (DOD) to purchase certain domestically grown or produced
items, including food, clothing, fabrics, and specialty metals such as
titanium and titanium alloys, but allows a waiver of these requirements
when goods cannot be found in satisfactory quality or sufficient
quantity at U.S. market prices.[Footnote 1] Citing this provision, in
April 2004 the Secretary of the Air Force permanently waived the Berry
Amendment for the purchase and support of 23 commercial derivative
aircraft systems--representing over 1,200 aircraft in the Air Force
inventory.[Footnote 2] These are commercial aircraft, modified for
military use, that provide support for critical mission areas such as
cargo and passenger airlift, medical evacuations, aerial refueling, VIP
transport, embassy support, surveillance, counterdrug enforcement, and
pilot training.[Footnote 3] Appendix I provides information on the 23
aircraft systems included in the April 2004 waiver.
Because of the broad and permanent nature of the waiver, you asked us
to evaluate the supporting evidence and analysis that the Air Force
relied on to waive the Berry Amendment for certain commercial
derivative aircraft systems in its inventory. In response, this report
evaluates the process the Air Force followed as well as its rationale
for waiving the Berry Amendment for these aircraft. Our review focused
on the Air Force's adherence to DOD and Air Force policy. We did not
conduct a legal analysis of the waiver.
In evaluating the Air Force's process and rationale for waiving the
Berry Amendment, we reviewed the statute, regulations, and DOD and Air
Force policies that implement the Berry Amendment and provide guidance
for the waiver process. In addition, we analyzed documentation and
conducted interviews with senior Air Force acquisition officials as
well as Air Force officials in the field for each aircraft system on
the waiver. We also interviewed officials from the Office of the
Secretary of Defense, the Defense Logistics Agency, the Defense
Contract Management Agency, and the Department of Commerce to identify
any additional guidance for issuing a Berry Amendment waiver and to
understand each organization's role in the Air Force's waiver, if any.
Finally, we conducted interviews and site visits with representatives
from three companies, accounting for 17 out of the 23 aircraft systems
in the waiver, to better understand the information provided to the Air
Force about the companies' difficulty in complying with the Berry
Amendment. We did not address whether the waiver was legally valid,
that is, whether the waiver was a proper exercise of discretion by the
Secretary of the Air Force under the Berry Amendment.
We performed our review from October 2004 to September 2005 in
accordance with generally accepted government auditing standards.
Results in Brief:
The Air Force did not follow established policy when it evaluated the
need for a broad, permanent waiver of the Berry Amendment for 23
commercial derivative aircraft systems, in that it did not thoroughly
analyze the opportunities for compliance on a system-by-system basis.
The Air Force initiated the waiver at the headquarters level after it
became aware in mid-2003 that many of its contracts lacked the required
contract clause to implement the Berry Amendment specialty metals
provision and that contractors were citing difficulty in complying with
this requirement. In evaluating the need for the waiver, the Air Force
did not conduct market research as called for in its policy, thoroughly
review alternatives, or include an explanation as to why it believed
that alternatives did not exist for each of the systems in the waiver.
Instead, Air Force officials stated that they did not consider it
necessary to conduct market research for each system or believe that
compliant alternatives existed based on their knowledge of the
aerospace industry. We identified several instances that highlight the
Air Force's lack of thoroughness, such as not assessing possible
compliant options. In addition, the Air Force did not recognize that
some systems were already covered under regulatory exceptions to the
Berry Amendment, further illustrating the Air Force's lack of thorough
analysis.
On the basis of these findings, we recommend that DOD direct the Air
Force to thoroughly analyze opportunities to achieve compliance for
each system in the waiver and periodically assess changes in the
supplier base to see whether new opportunities for compliance with the
Berry Amendment have become available. In comments on the draft report,
DOD concurred with our recommendations and the Air Force agreed to
implement them.
Background:
The Berry Amendment generally prohibits DOD from using appropriated or
other available funds for the procurement of certain items that have
not been grown, reprocessed, reused, or produced in the United States.
Enacted in a 1941 defense appropriations act, the restriction initially
ensured that American troops wore uniforms and ate food grown or
produced in the United States. For more than 50 years, the Berry
Amendment consistently appeared in annual appropriations acts. The
scope of the restriction has changed over time to include additional
items and exceptions. The current version, codified in 2001, restricts
DOD purchases of food, clothing, certain fabrics, specialty metals, and
certain tools.[Footnote 4]
The specialty metals requirement was added to the Berry Amendment in
1972. DOD implemented the specialty metals requirement by applying it
to all contracts where the specialty metal is purchased directly by the
government or the prime contractor and to all subcontract tiers for six
major classes of programs--aircraft, missiles, ships, tank-automotive,
weapons, and ammunition.[Footnote 5] For these programs, the prime
contractor must include a clause that requires all subcontractors to
comply with the Berry Amendment's specialty metals requirement. In
addition, the Defense Federal Acquisition Regulation Supplement (DFARS)
identifies those metals considered to be specialty metals, to include
titanium, certain types of steel, and other assorted metals and
alloys.[Footnote 6] In 1996, Congress made clear that the Berry
Amendment does apply to all commercial item purchases.[Footnote 7]
The Berry Amendment includes a number of exceptions to the requirement
to buy certain domestically produced articles. For example, the
requirement does not apply to the extent that the Secretary of Defense
or the Secretary of the military department concerned determines that
satisfactory quality and sufficient quantity of an item cannot be
procured as and when needed at U.S. market prices. Since May 2001, DOD
policy specifies that the authority to approve a Berry Amendment waiver
is not delegable below the Secretarial level, and the waiver is to
include an analysis of alternatives and a certification as to why such
alternatives are unacceptable.[Footnote 8] Additional exceptions to the
Berry Amendment are allowed for items already determined to be
unavailable in the United States[Footnote 9] and specialty metals
purchased from a qualifying country, i.e., one that has signed a
memorandum of understanding with the United States.[Footnote 10]
The Berry Amendment does not include explicit criteria to be used or
requirements to be met to support and document a waiver.[Footnote 11]
The Air Force's internal policy, the Air Force Federal Acquisition
Regulation Supplement, provides instruction as to what information the
Air Force decision makers would generally expect to be provided if
asked to approve a Berry Amendment waiver.[Footnote 12] The Air Force
policy calls for the contracting officer to conduct market research to
determine if an article or suitable substitute is available from a
domestic source. If the article or substitute is not available, the
contracting officer contacts Air Force headquarters, which in turn
confers with the Department of Commerce (Commerce) to request a list of
possible domestic sources. If Air Force headquarters notifies the
contracting officer that domestic sources have not been identified by
Commerce, Air Force policy then specifies that the contracting officer
shall submit a determination and finding in a specified format for the
Secretary of the Air Force's approval. This format is to describe:
* the market research performed,
* any alternatives/substitutes considered and why these alternatives/
substitutes are not satisfactory,
* the total estimated cost of the item(s) being acquired,
* the circumstances precluding the buying of a domestic end item, and:
* the impact if the waiver is not approved.
Air Force Waiver Lacked Thorough Analysis:
The Air Force did not conduct a thorough analysis of opportunities for
compliance with the Berry Amendment on a system-by-system basis in
approving a broad, permanent waiver covering 23 commercial derivative
aircraft systems. The Air Force initiated the waiver at the
headquarters level after it became aware of problems with implementing
the Berry Amendment. In supporting the waiver, the Air Force did not
conduct market research as called for in its policy, thoroughly review
alternatives, or include an explanation as to why it believed that
alternatives did not exist for each of the systems in the waiver. We
identified several instances that highlight the Air Force's lack of
thoroughness in its analysis to support the waiver.
Air Force Initiated Waiver after Identifying Problems with Berry
Amendment Implementation:
According to a senior Air Force official, the Deputy Assistant
Secretary (Contracting) and several Air Force officials met with
titanium industry representatives in November 2002 to discuss their
concerns that some aircraft manufacturers were not meeting the Berry
Amendment requirement for domestic specialty metals. Subsequently, the
Air Force formed an Integrated Product Team in March 2003 to study the
history and requirements of the Berry Amendment's specialty metals
provision and to review the Air Force's compliance. This team conducted
a review of Air Force Materiel Command contracts and uncovered a number
of contracts that lacked the clause that implements the Berry
Amendment. The Air Force buying commands attempted to negotiate with
contractors to add the required contract clause to those contracts.
However, many commercial derivative aircraft contractors refused to
accept the specialty metals provision that would require all contracts
and subcontracts related to aircraft programs to be compliant with the
Berry Amendment. In the summer of 2003, the Air Force official who led
the waiver effort told us he visited an aircraft manufacturer, two of
its subcontractors (including a titanium producer), and an engine
manufacturer to evaluate the difficulty of complying with the Berry
Amendment specialty metals requirement. Following these visits, the Air
Force official concluded that other contractors involved in the Air
Force's acquisition and support of commercial derivative aircraft
systems would also have difficulty complying with the Berry Amendment.
According to Air Force officials, they initiated the waiver process at
the headquarters level instead of following the established procedure
of receiving individual requests from field contracting officers
involved in acquiring or supporting these systems. Officials stated
that this method was intended to ensure a consistent and comprehensive
approach to supporting the waiver. Air Force headquarters collected
supporting documentation that included letters from contractors and
memos from the military users of commercial derivative aircraft
systems. These companies indicated it would be "commercially
impracticable" or otherwise not possible to comply with the Berry
Amendment. In addition, memos from representatives of the military
users of the aircraft indicated that the alternatives presented to them
were not feasible.
In September 2003, the Secretary of the Air Force signed a temporary
Berry Amendment waiver, effective through April 1, 2004, which covered
future aircraft deliveries under current acquisition contracts, as well
as current and future support contracts, for 19 commercial derivative
aircraft systems. In doing so, the Secretary of the Air Force made
several findings, including the following:
* Contractors stated they could not comply with the Berry Amendment's
specialty metals restriction "without substantial changes to their
manufacturing and supplier management processes," which would "cause
substantial, largely unquantifiable, cost and schedule impacts."
* Pursuing Berry Amendment compliance could make contractors'
commercial products less competitive in the worldwide market.
* The systems at issue are produced on the same production lines used
to support the commercial marketplace and generally comprise a minute
portion of the contractors' overall commercial business.
* Several contractors informed the Air Force they would no longer
accept contracts if the provisions implementing the Berry Amendment
were included.
On the basis of these findings, the Secretary of the Air Force
determined compliant commodities for certain commercial derivative
aircraft systems could not be acquired as and when needed in
satisfactory quality and sufficient quantity at U.S. market prices, the
waiver was needed to sustain ongoing operations of these systems and
avoid major mission impacts, and the waiver would be of limited
duration while Congress considered changes to the Berry Amendment in
the fiscal year 2004 legislative cycle. However, these legislative
changes did not occur, and in April 2004 the Secretary signed a
permanent waiver that covered 23 commercial derivative aircraft
systems--which included 4 additional systems--exempting all of them
from the Berry Amendment requirements. The permanent waiver relied on
the same findings as the temporary waiver.
Air Force Analysis Lacked Market Research and a Thorough Review of
Alternatives:
The Air Force policy identifies the need to conduct market research
prior to proceeding with a Berry Amendment waiver. According to the
policy, the Air Force is to request a list of possible domestic sources
from the Department of Commerce and draft a market research report
indicating what companies were contacted. The Air Force acquisition
official who drafted the policy told us that market research also
includes advertising in official government sources for contracting
opportunities. Officials from Commerce's Bureau of Industry and
Security and International Trade Administration informed us that there
was no record of the Air Force requesting Commerce's assistance in
identifying domestic sources for the support of commercial derivative
aircraft on the waiver.
While this waiver encompasses 23 different aircraft systems and certain
related acquisition and support contracts, the Air Force did not
conduct market research on each system included in the waiver. A senior
Air Force acquisition official told us that it was unnecessary to
conduct market research for each system because Air Force officials
were knowledgeable about the aerospace industry and did not need to
contact the Department of Commerce for assistance. Another senior
official who led the waiver effort indicated that the original aircraft
manufacturer owned the technical data rights and, in some cases, was
the primary supplier of these spare parts. Therefore, this official
believed that in some instances it would be difficult and costly to
purchase technical data rights so suppliers other than the original
aircraft manufacturer and its subcontractors could produce the parts.
Moreover, this same Air Force official became convinced that no company
could provide compliant spare parts after site visits to an aircraft
manufacturer, which accounted for 11 systems in the waiver, and two of
its suppliers (including a titanium producer) as well as an engine
manufacturer. However, these findings were not documented in the
waiver.
DOD and Air Force policies also specify the need to identify
alternatives and explain why such alternatives are unacceptable. In May
2001, the Deputy Secretary of Defense directed that each military
department's Secretary ensure that alternatives that do not require a
waiver under the Berry Amendment are presented to the relevant military
users before requesting a waiver. The military users must certify in
writing why such alternatives are unacceptable before the Secretary may
approve a waiver. The Air Force policy calls for similar information.
To address DOD and Air Force policy requirements, the Air Force
included 13 memos from military user representatives in the waiver's
supporting documentation, representing 22 of the 23 aircraft systems on
the waiver. As specified in Air Force policy, most of these memos
address the impact on the system if the waiver is not approved and
state that the compliant alternatives had been considered.
Specifically, memos representing 18 aircraft systems state that they
had considered compliant alternatives and rejected them as not
feasible, without stating what those alternatives were. Memos for 3
aircraft systems make no reference to whether alternatives had been
considered. Only 1 memo representing a single aircraft system contains
an assessment of a potential alternative and the delay it would cause
to the aircraft's mission if selected, although other Air Force
documentation indicated that the alternative would not satisfy the
Berry Amendment requirement. Though most of the memos state that
alternatives had been considered, we found that in several instances
military users and their representatives who prepared the memos were
not presented with alternatives. A senior Air Force official who led
the waiver effort acknowledged that the military users' memos contain
boilerplate language about the consideration and rejection of
alternatives that would be compliant with the Berry Amendment.
Air Force program management officials, contracting officers, military
users, and a senior acquisition official told us that the Air Force did
not identify and pursue compliant alternatives because they did not
believe there were any available. For example, in many instances,
contracting officers and program managers stated that the only
realistic option was to pursue a Berry Amendment waiver. However, the
waiver documentation lacked an explanation as to why the Air Force did
not believe any alternatives were available.
Air Force Did Not Consider Possible Compliant Options:
The Air Force missed opportunities to assess possible compliant
options. For instance, the Air Force and Boeing have entered into a
contract, referred to as the Rights Guard agreement, that could allow
the Air Force to order technical data for military derivatives of the
Boeing 707, 727, 737, and 747 commercial aircraft and to use that data
to facilitate the competitive procurement of replenishment spare
parts.[Footnote 13] This contract was in effect at the time the waiver
was being considered and covered 8 of the 23 systems on the waiver,
representing 636 (or 51 percent) of the commercial derivative aircraft
in the waiver. The senior Air Force official who led the waiver effort,
and a field contracting official who oversaw support contracts for
almost 90 percent of the aircraft on the Rights Guard agreement, told
us they did not consider this contract as a means to acquire parts that
would be compliant with the Berry Amendment. Further, this senior
acquisition official was unaware that the contract applied to several
Boeing models included in the waiver. While this contract would not
have resolved the compliance issues for all of the aircraft systems
listed on the waiver, this official acknowledged it might have allowed
the Air Force to achieve compliance for a limited number of spare parts
procurements for certain systems.
The Air Force also did not question the contractors' inability to be
compliant on military unique spare parts. For example, we previously
reported on the Air Force award of a $7.9 million contract to Boeing in
September 2003 for 24 engine cowlings used on the E-3 Airborne Warning
and Control System (AWACS), a Boeing 707 aircraft modified for military
use.[Footnote 14] These engine cowlings were similar to those used on
the commercial 707, but were modified to meet military requirements.
Boeing proposed to manufacture these engine cowlings rather than
subcontracting the work as it did in the original E-3 AWACS production
contracts. This required the company to include in its contract
proposal the cost of acquiring production equipment to manufacture
these parts. The temporary waiver of the Berry Amendment that included
the E-3 AWACS was issued at the same time that the Air Force awarded
the engine cowlings contract. However, it did not question Boeing's
inability to produce compliant cowlings in-house. The waiver
documentation did not include any discussion or other indication that
the Air Force questioned company assertions that it could not meet
Berry requirements, specifically for military unique items.
In addition, the Air Force did not fully evaluate the cost of bringing
contractors into compliance. Although one company's representatives
said that compliance would be costly, the Air Force did not validate
what the actual costs would be and did not assess whether the cost of
complying would be similar for the other manufacturers of commercial
derivative aircraft. For example, Gulfstream officials said that they
performed a high-level review--which was provided to Air Force
contracting officers--that showed that about 0.2 percent of the total
value of aircraft parts on the:
C-37A originates in countries not exempt from the Berry Amendment.
However, the Air Force did not validate this estimate or determine the
cost or effort necessary for Gulfstream or any other similarly situated
contractor to achieve compliance.
Finally, the Air Force did not consider its leverage as the primary
customer of the T-6 aircraft, given that the U.S. government accounts
for 364 out of 435 aircraft ordered as of August 2005, with planned
purchases of an additional 782 aircraft through 2015.[Footnote 15] The
Air Force will also need to purchase spare parts for the life of the
aircraft system. According to Raytheon, the company selects and
establishes a supplier base during the design, development, and testing
of its commercial aircraft, resulting in suppliers being certified by
the Federal Aviation Administration. However, the Air Force did not ask
Raytheon what steps it would need to take and what costs would be
involved in complying with the Berry Amendment requirement.
Air Force Did Not Recognize Some Systems Were Already Covered under
Other Regulatory Exceptions:
By not conducting a system-by-system review, the Air Force was unaware
that some systems were already covered under other regulatory
exceptions to the Berry Amendment. For example, one of the exceptions
allows specialty metals to be procured from a qualifying country. The
TG-15 support contract was already exempt from the Berry Amendment
specialty metal restriction because this training glider was
manufactured in Germany, a qualifying country. In another example, the
senior Air Force officials were not aware that the TG-10 and TG-14
support contracts were already covered under the regulatory exception
for certain foreign manufactured equipment. This exception allows DOD
to purchase spare and replacement parts for foreign manufactured
equipment when domestic parts are deemed unavailable.[Footnote 16] Air
Force contracting officials in the field previously determined that
spare parts for these two training gliders were unavailable
domestically, as these aircraft are manufactured in the Czech Republic
and Brazil. The support contract for these systems was modified to cite
this exception 6 months before they were added to the permanent waiver.
Air Force officials did not consider any of these other regulatory
exceptions prior to including these training gliders in the waiver.
Only after we identified that these training gliders were already
exempted did the acquisition officials consult with contracting
officials at Oklahoma City Air Logistics Center--those responsible for
managing the support contract--to determine whether these exceptions
had ever been considered. Had the Air Force done so before finalizing
the permanent waiver, it may have discovered that these training
gliders were already covered through other regulatory exceptions. This
illustrates the Air Force's lack of thoroughness by not coordinating
the waiver with all of the appropriate contracting officials in the
field.
Conclusions:
The Berry Amendment was enacted to strengthen the industrial base to
ensure that it could produce essential items for defense purposes.
Although the Department of Defense relies on commercial products to
satisfy some of its military requirements, it remains responsible for
assessing opportunities to satisfy the requirements of the Berry
Amendment. The Air Force's failure to follow established policies and
its decision to combine 23 aircraft systems in one waiver diminished
the persuasiveness of the waiver's support. By not thoroughly analyzing
each system on the waiver, the Air Force treated all systems as if they
had the same compliance problems, when in fact several of the systems
had unique circumstances that should have been considered and
documented before approving a waiver. Additionally, the Air Force did
not fully document its position on the lack of alternatives and has
limited the possibility of future review concerning these systems
through the execution of a permanent waiver.
Recommendation for Executive Action:
Because the Air Force did not thoroughly analyze each system on the
waiver or fully document its position on the lack of alternatives, we
are making two recommendations to DOD so that it can improve the
waiver's support or modify it as necessary. Specifically, we recommend
that the Secretary of Defense direct the Secretary of the Air Force to
take the following two actions:
* Conduct an analysis of each commercial derivative aircraft system
included in the waiver to consider opportunities to achieve compliance
with the Berry Amendment requirements or to document why such
compliance is not possible. This should include:
* conducting market research, including consultation with the
Department of Commerce, and:
* assessing alternatives such as obtaining technical data rights to
manufacture compliant parts, identifying compliant suppliers for
military unique parts, determining the cost or effort for bringing
contractors into compliance, and considering if systems are already
exempted under other regulatory exceptions.
* Assess, on a periodic basis, whether changes have occurred in the
supplier base for each aircraft system included in the waiver that
would provide opportunities to procure domestically produced items as
required by the Berry Amendment.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, DOD concurred with both
of our recommendations. In response, DOD will direct the Air Force to
conduct an analysis of each commercial derivative aircraft system
included in the Berry Amendment waiver and to periodically assess
whether changes have occurred in the supplier base that would provide
opportunities to procure domestically produced items. In addition, DOD
provided comments from the Air Force, which indicated the Air Force's
concurrence with our recommendations and its intent to develop a plan
to review the current waiver and rescind or modify it as appropriate.
DOD and Air Force responses are reprinted in appendix II. We
incorporated the Air Force's technical comments in the report as
appropriate.
In its general comments, the Air Force stated that the waiver is
reasonable and necessary and that the draft report fails to acknowledge
the circumstances and rationale that compelled it to execute the
waiver. The Air Force also indicated that the report did not clearly
articulate the scope of the current waiver, which covers future spare
parts purchases, but does not include future aircraft purchases.
While the Air Force stated that the waiver is reasonable and necessary,
our report shows that the Air Force did not follow established policy
when it did not thoroughly analyze the opportunities for compliance on
a system-by-system basis. Had it conducted market research and
thoroughly reviewed alternatives for each system on the waiver, the Air
Force could have strengthened the persuasiveness of the waiver's
support. We are encouraged that the Air Force has concurred with our
recommendation to reevaluate the support for each of the systems on the
waiver.
The Air Force also stated that our report did not acknowledge the
circumstances and rationale for the waiver. We disagree with this
assertion. Our first finding discusses at length the reasons the Air
Force considered a waiver necessary and outlines the waiver's rationale
based on the Air Force's supporting documentation. While we agree that
it was necessary for the Air Force to promptly address Berry Amendment
compliance issues, this should not have precluded the Air Force from
conducting a thorough analysis on how to achieve compliance on a system-
by-system basis, especially during the 6-month period that the
temporary waiver was in force.
In addition, the Air Force indicated that the report did not clearly
articulate the scope of the current waiver. Although the draft report
correctly described the scope of the waiver, we made changes throughout
the report to specify and emphasize that the scope of the waiver covers
future aircraft deliveries under current acquisition contracts and
current and future support contracts. The waiver does not apply to
commercial derivative aircraft systems not listed on the waiver or
future contracts for systems on the waiver entered into after the
waiver's effective date.
We are sending copies of this report to the Honorable Donald H.
Rumsfeld, Secretary of Defense; the Honorable Preston M. Geren, Acting
Secretary of the Air Force; and interested congressional committees. We
will also provide copies to others on request. In addition, the report
will be available at no charge on GAO's Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-4841 or calvaresibarra@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix III.
Signed by:
Ann Calvaresi-Barr, Director:
Acquisition and Sourcing Management:
[End of section]
Appendix I: Commercial Derivative Aircraft Included in the Air Force
Waiver:
Table 1: Commercial Derivative Aircraft Included in the Air Force's
Permanent Waiver:
Aircraft designation: C-9A/C Nightingale;
Original equipment manufacturer: Boeing; (McDonnell Douglas);
Derived from: DC-9;
Mission: Transportation for Vice President, First Lady, and other
senior officials;
Air Force inventory: 7.
Aircraft designation: C-12C/D/F/J Huron;
Original equipment manufacturer: Raytheon Aircraft; (Beech);
Derived from: Beechcraft Super King Air (C-12C/D/F); Beechcraft King
Air (C-12J);
Mission: Military airlift, embassy support;
Air Force inventory: 28.
Aircraft designation: C-20B/H;
Original equipment manufacturer: Gulfstream Aerospace;
Derived from: Gulfstream III and IV;
Mission: Transportation for President, Vice President, and other senior
officials;
Air Force inventory: 10.
Aircraft designation: C-21A;
Original equipment manufacturer: Bombardier Aerospace (Learjet);
Derived from: Learjet 35A business jet;
Mission: Short-range cargo and passenger airlift, including medical
evacuations;
Air Force inventory: 76.
Aircraft designation: C-26B Metroliner;
Original equipment manufacturer: M7 Aerospace; (Fairchild Aircraft);
Derived from: Fairchild Metro 23;
Mission: Counterdrug enforcement;
Air Force inventory: 11.
Aircraft designation: C-32A Air Force Two;
Original equipment manufacturer: Boeing;
Derived from: Boeing 757-200;
Mission: Transportation for Vice President and other senior officials;
Air Force inventory: 4.
Aircraft designation: C-37A;
Original equipment manufacturer: Gulfstream Aerospace;
Derived from: Gulfstream V;
Mission: Transportation for Vice President and other senior officials;
Air Force inventory: 9.
Aircraft designation: C-38A;
Original equipment manufacturer: Gulfstream Aerospace (Israel Aircraft
Industries-Galaxy Aerospace);
Derived from: Astra SPX business jet;
Mission: Transportation for distinguished visitors, medical
evacuations,; counter-drug efforts, and combat and disaster assistance;
Air Force inventory: 2.
Aircraft designation: C-40B/C;
Original equipment manufacturer: Boeing;
Derived from: Boeing 737-700;
Mission: Transportation for combatant commanders-in-chief and other
senior officials;
Air Force inventory: 7.
Aircraft designation: C-135 all variants;
Original equipment manufacturer: Boeing;
Derived from: Boeing 367-80 (707 prototype);
Mission: KC-135 provides aerial refueling; other variants perform
specialized missions;
Air Force inventory: 567.
Aircraft designation: CFM-56-2b (F108) Engine;
Original equipment manufacturer: CFM International;
Derived from: CFM-56-2a engine;
Mission: Commercial engine used on KC-135R, RC-135, E-6, and C-40;
Air Force inventory: 1,853.
Aircraft designation: E-3 Sentry (Airborne Warning and Control System,
AWACS);
Original equipment manufacturer: Boeing;
Derived from: Boeing 707-320C;
Mission: Airborne surveillance, command, control, and communications
system;
Air Force inventory: 33.
Aircraft designation: E-4B (National Airborne Operations Center, NAOC);
Original equipment manufacturer: Boeing;
Derived from: Boeing 747-200;
Mission: Airborne command, control, and communications center for
President, Secretary of Defense;
Air Force inventory: 4.
Aircraft designation: E-6 Mercury (Take Charge and Move Out, TACAMO);
Original equipment manufacturer: Boeing;
Derived from: Boeing 707-320B;
Mission: Airborne command post for fleet ballistic missile submarines;
Air Force inventory: 0[A].
Aircraft designation: E-8C (Joint Surveillance Target Attack Radar
System, JSTARS);
Original equipment manufacturer: Boeing (airframe) Northrop Grumman
(electronics modifications);
Derived from: Boeing 707- 300;
Mission: Provides real-time surveillance and targeting information;
Air Force inventory: 15.
Aircraft designation: KC-10A Extender;
Original equipment manufacturer: Boeing; (McDonnell Douglas);
Derived from: Boeing DC-10;
Mission: Aerial refueling, airlift support;
Air Force inventory: 59.
Aircraft designation: T-1A Jayhawk;
Original equipment manufacturer: Raytheon Aircraft; (Beech);
Derived from: Beech 400A;
Mission: Advanced trainer for Air Force student pilots on airlift,
bomber, or tanker aircraft;
Air Force inventory: 179.
Aircraft designation: T-6A Texan II (Joint Primary Aircraft Training
System, JPATS);
Original equipment manufacturer: Raytheon Aircraft; (Beech);
Derived from: Beech/Pilatus PC-9 Mk II;
Mission: Entry-level trainer for Air Force and Navy student pilots;
Air Force inventory: 180[B].
Aircraft designation: T-43A;
Original equipment manufacturer: Boeing;
Derived from: Boeing 737-200;
Mission: Trainer for navigators of strategic and tactical aircraft;
Air Force inventory: 8.
Aircraft designation: TG-10B/C/D Merlin (B), Kestrel (C), Peregrine
(D);
Original equipment manufacturer: Letecke Zavody Aircraft Corporation;
(Czech Republic);
Derived from: Super Blanik L-23 (TG- 10B); Blanik L-13AC (TG-10C)
Blanik L-33 Solo (TG-10D);
Mission: Air Force Academy training gliders: Basic Soaring Trainer (TG-
10B), Aerobatic & Spin Trainer (TG-10C), Cross-Country & Spin Trainer
(TG- 10D);
Air Force inventory: 21.
Aircraft designation: TG-14A Ximango;
Original equipment manufacturer: Grupo Aeromot Aircraft Corporation;
(Brazil);
Derived from: AMT-200S Super Ximango;
Mission: Air Force Academy cross-country training glider;
Air Force inventory: 14.
Aircraft designation: TG-15A/B;
Original equipment manufacturer: Schempp-Hirth; (Germany);
Derived from: Duo Discus (TG-15A), Discus 2b (TG-15B);
Mission: Air Force Academy advanced cross-country training glider;
Air Force inventory: 5.
Aircraft designation: VC-25A Air Force One;
Original equipment manufacturer: Boeing;
Derived from: Boeing 747-200B;
Mission: Transportation for President;
Air Force inventory: 2.
Source: GAO analysis.
[A] The Air Force was responsible for administering the contracts for
this aircraft through January 2005. Currently it has no E-6 aircraft in
its inventory. However, the Navy has 16.
[B] The Air Force and Navy plan future purchases of 454 aircraft and
328 aircraft respectively for a total of 782 aircraft through 2015.
[End of table]
[End of section]
Appendix II: Comments from the Department of Defense and the Air Force:
OFFICE OF THE UNDER SECRETARY OF DEFENSE:
ACQUISITION TECHNOLOGY AND LOGISTICS:
3000 DEFENSE PENTAGON:
WASHINGTON DC 20301-3000:
SEP 14 2005:
Ms. Ann Calvaresi-Barr:
Director, Acquisition and Sourcing Management:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, DC 20548:
Dear Ms. Calvaresi-Barr:
This is the Department of Defense (DoD) response to the GAO draft
report, "DEFENSE PROCUREMENT: Air Force Did Not Fully Evaluate Options
in Waiving Berry Amendment for Selected Aircraft," dated August 15,
2005 (GAO Code 120390/GAO-05-957). Enclosed is my response to your
recommendations which are listed on pages 11 and 12 of your report.
Additionally, I have attached the Air Force's comments. My point of
contact for this effort is Ms. Nancy Dowling, (703) 679-9352 or
nancy.dowlin@nosd.mil.
Sincerely,
Signed for:
Dominec C. Cipicchio:
Acting Director, Defense Procurement and Acquisition Policy:
Enclosure: As stated:
GAO Draft Report - Dated August 15, 2005 GAO Code 120390/GAO-05-957:
"DEFENSE PROCUREMENT: Air Force Did Not Fully Evaluate Options in
Waiving Berry Amendment for Selected Aircraft"
Department Of Defense Comments to the Recommendations:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
direct the Secretary of the Air Force to conduct an analysis of each
commercial derivative aircraft system included in the Berry Amendment
waiver in order to consider opportunities to achieve compliance with
the Berry Amendment requirements or to document why such compliance is
not possible. The analysis should include conducting market research
and assessing alternatives such as: (1) obtaining technical data rights
to manufacture compliant parts; (2) identifying compliant suppliers for
military unique parts; (3) considering if systems are already exempted
under other regulatory exceptions; and (4) determining the cost or
effort for bringing contractors into compliance (pages 11 & 12/GAO
Draft Report).
DOD RESPONSE: Concur. The Director, Defense Procurement & Acquisition
Policy will direct the Air Force to conduct an analysis of each
commercial derivative aircraft system included in the Berry Amendment
waiver in order to consider opportunities to obtain specialty metals
melted in the United States or to document why such an approach is not
possible. This direction will be provided to the Air Force by October
31, 2005, and will request the Air Force to develop a plan to implement
this recommendation.
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
direct the Secretary of the Air Force to assess, on a periodic basis,
whether changes have occurred in the supplier base for each aircraft
system included in the Berry Amendment waiver that would provide
opportunities to procure domestically produced items as required by the
Berry Amendment. (page 12/GAO Draft Report).
DOD RESPONSE: Concur. The Director, Defense Procurement & Acquisition
Policy will direct the Air Force to assess, on a periodic basis,
whether changes have occurred in the supplier base for each aircraft
system included in the Berry Amendment waiver that would provide
opportunities to procure domestically produced items as required by the
Berry Amendment. This direction will be provided to the Air Force by
October 31, 2005 and will rely upon the Secretary of the Air Force to
develop a plan to conduct periodic assessments.
[End of letter]
SECRETARY OF THE AIR FORCE:
WASHINGTON:
08 SEP 2005:
MEMORANDUM FOR UNDER SECRETARY OF DEFENSE FOR ACQUISITION, TECHNOLOGY
AND LOGISTICS:
SUBJECT: Air Force Response to Draft GAO Report GAO 05-907 (Berry
Amendment Waiver for Commercial Derivative Aircraft):
Your office asked the Air Force to review and comment on the subject
draft audit report. The Air Force concurs with the GAO's
recommendations. The Air Force will develop a plan to implement GAO's
recommendations. That plan will include a review:
of the current waiver. If this review establishes that the waiver is
inappropriate, in whole or in part, the Air Force will rescind or
modify the waiver as appropriate. Further, the Air Force will
periodically review all Berry Amendment waivers to ensure the
appropriateness of the waivers.
We also take this opportunity to provide comments on the GAO report to
clarify the record and to ensure an accurate understanding of the
relevant facts. Those comments are attached.
Signed by:
Pete Geren:
Acting Secretary of the Air Force:
Attachment:
Air Force Response:
Air Force Comments on Draft GAO Report GAO-05-957:
General Comments:
The Air Force appreciates the time and resources committed by GAO to
review the April 6, 2004, Berry Amendment waiver for commercial
derivative aircraft. The draft report, however, fails to acknowledge
the critical circumstances and rationale that compelled the Air Force
to execute a Berry Amendment waiver for commercial derivative aircraft.
In the fall of 2002, senior Air Force leaders discovered that the Air
Force had awarded several contracts that did not comply with the Berry
Amendment, and that aircraft were scheduled for future delivery under
those contracts. The Air Force was advised that taking delivery of
these aircraft, absent compliance with or a waiver of the Berry
Amendment, could be a violation of the Anti-Deficiency Act. The Air
Force had to address this situation. Given the commercial nature of the
aircraft, and the stated inability of contractors to comply with the
Berry Amendment, a waiver was deemed necessary.
As the Air Force began to address Berry Amendment compliance for
aircraft purchases, it became clear that the compliance issue also
extended to related spare parts purchases. Contractors supplying spare
parts for commercial derivative aircraft had advised the Air Force that
they could not accept contracts with the Air Force to supply those
parts, absent a Berry Amendment waiver. The Air Force had a critical
need to ensure the availability of spare parts manufactured using
specialty metals. Simply put, without spare parts, the Air Force could
not perform its missions. Thus, the Air Force executed a waiver for
both commercial derivative aircraft and related spare parts for those
aircraft. The Air Force continues to believe that the Berry Amendment
waiver is critical to ensuring the ability of the Air Force to perform
its missions.
There seems to be some confusion as to the scope of the current waiver.
The existing Berry Amendment waiver for commercial derivative aircraft
does not extend to future purchases of commercial derivative aircraft,
although it does cover future spares purchases. As it relates to
aircraft purchases, the waiver applies only to aircraft purchases
authorized by Congress and on contract as of the date of the waiver.
The Air Force will analyze all future aircraft purchases to determine
how to satisfy Berry Amendment requirements.
As noted above, the Air Force believes that the Berry Amendment waiver
for commercial derivative aircraft is reasonable and necessary.
Nevertheless, the Air Force agrees that periodic reexamination of the
justification for continuing the waiver is also warranted. Accordingly,
the Air Force concurs with the GAO recommendations.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Ann Calvaresi-Barr (202) 512-4841 or calvaresibarra@gao.gov:
Acknowledgments:
In addition to the contact named above, John Neumann, Assistant
Director; Noah Bleicher; Greg Campbell; Jeffrey Hartnett; Robert Lee;
Lillian Slodkowski; and Adam Vodraska made key contributions to this
report.
FOOTNOTES
[1] A waiver refers to a domestic nonavailability determination made
under the Berry Amendment.
[2] Specifically, the waiver applies to (1) future aircraft deliveries
under contract as of the April 2004 waiver and (2) current and future
support contracts for replenishment spare parts and aircraft
modifications.
[3] For example, the VC-25, or Air Force One, is a commercial Boeing
747 that has been modified for use by the U.S. government.
[4] The complete list of items appears at 10 U.S.C. § 2533a(b)(1)-(3)
and includes: (1) An article or item of (A) food; (B) clothing; (C)
tents, tarpaulins, or covers; (D) cotton and other natural fiber
products, woven silk or woven silk blends, spun silk yarn for cartridge
cloth, synthetic fabric or coated synthetic fabric (including all
textile fibers and yarns that are for use in such fabrics), canvas
products, or wool (whether in the form of fiber or yarn or contained in
fabrics, materials, or manufactured articles); or (E) any item of
individual equipment manufactured from or containing such fibers,
yarns, fabrics, or materials. (2) Specialty metals, including stainless
steel flatware. (3) Hand or measuring tools.
[5] DOD chose these six classes of programs because they accounted for
the most specialty metals procured by or for DOD based on 1972
materials estimates.
[6] DFARS 252.225-7014.
[7] See 10 U.S.C. § 2533a(i).
[8] The DFARS has recently been amended to reflect this requirement.
See 70 Fed. Reg. 43073-43074 (July 26, 2005). The revision also
requires that the congressional defense committees be notified at least
10 days before the award of a contract for titanium or titanium
products involving a waiver. This reflects the requirements of an
October 22, 2004, memorandum from the Under Secretary of Defense for
Acquisition, Technology, and Logistics that was issued after the April
2004 Air Force waiver.
[9] DFARS 225.7002-2(c).
[10] Specifically, the Berry Amendment includes an exception for the
procurement of specialty metals outside the United States if such a
procurement is necessary in furtherance of agreements with foreign
governments in which both such governments agree to remove barriers to
purchases of supplies produced in the other country or services
performed by sources of the other country. See 10 U.S.C. §
2533a(e)(1)(B), which is implemented in DFARS 225.7002-2(n).
[11] The implementing regulation, DFARS 225.7002, was revised in July
2005 to provide direction on delegation, analysis of alternatives, and
congressional notification.
[12] Air Force Federal Acquisition Regulation Supplement 5325.7002-2
and its related Mandatory Procedure 5325.7002-2.
[13] There have been versions of this contract in place since the early
1970s. The Air Force and Boeing are negotiating a new version of this
contract, as the current contract will expire on September 30, 2005.
[14] GAO, Contract Management: The Air Force Should Improve How It
Purchases AWACS Spare Parts, GAO-05-169, (Washington, D.C.: Feb. 15,
2005).
[15] The T-6 Joint Primary Aircraft Training System is a joint program
of the Air Force and the Navy. The Air Force is responsible for
administering the production contracts for this aircraft.
[16] FAR 25.104(a).
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