Department of Defense
A Departmentwide Framework to Identify and Report Gaps in the Defense Supplier Base Is Needed Gao ID: GAO-09-5 October 7, 2008The Department of Defense (DOD) relies on thousands of suppliers to provide weapons, equipment, and raw materials to meet U.S. national security objectives. Yet, increased globalization in the defense industry and consolidation of the defense supplier base into a few prime contractors has reduced competition and single-source suppliers have become more common for components and subsystems. For this report, GAO (1) assessed DOD's efforts to monitor the health of its defense supplier base, and (2) determined how DOD identifies and addresses gaps that might exist in its supplier base. To conduct its work, GAO reviewed supplier-base-related laws, regulations, and guidelines; met with officials from DOD's Office of Industrial Policy, defense contractors, and other DOD officials; and surveyed 20 major DOD weapon acquisition program officials on potential supplier-base gaps.
DOD's efforts to monitor its supplier base lack a departmentwide framework and consistent approach. Its monitoring efforts generally respond to individual program supplier-base concerns or are broader assessments of selected sectors. As part of its supplier-base monitoring efforts, DOD has also previously identified lists of critical items--which according to DOD's Office of Industrial Policy (Industrial Policy) do not reflect the dynamic changes that occur in industry, technology, and DOD requirements. While DOD recently established criteria for identifying supplier-base characteristics that could be problem indicators--such as sole-source suppliers and obsolete or emerging technologies--these criteria have primarily been applied to the missile and space sectors and have not been used to guide the identification and monitoring of supplier-base concerns for all sectors departmentwide. DOD uses an informal approach to identify supplier-base concerns, often relying on the military services, program offices, or prime contractors to identify and report these concerns, including gaps or potential gaps. As no requirement for when to report such gaps to higher-level offices exist, knowledge of defense supplier-base gaps across DOD may be limited. While 16 of the 20 program officials GAO surveyed reported that they identified supplier gaps or potential gaps over the past 5 years, only 4 reported sharing this information with Industrial Policy. These gaps included obsolescence of components and items with only one available supplier. Program offices often relied on the prime contractor to identify and help address supplier-base gaps, and prime contractors and programs generally used their discretion as to when to report gaps to higher levels. As a result, Industrial Policy may not be receiving information to help it activate available tools, such as the authorities under the Defense Production Act, to mitigate supplier-base gaps.
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-09-5, Department of Defense: A Departmentwide Framework to Identify and Report Gaps in the Defense Supplier Base Is Needed
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Report to the Chairman, Subcommittee on National Security and Foreign
Affairs, Committee on Oversight and Government Reform, House of
Representatives:
United States Government Accountability Office:
GAO:
October 2008:
Department Of Defense:
A Departmentwide Framework to Identify and Report Gaps in the Defense
Supplier Base Is Needed:
GAO-09-5:
GAO Highlights:
Highlights of GAO-09-5, a report to the Chairman, Subcommittee on
National Security and Foreign Affairs, Committee on Oversight and
Government Reform, House of Representatives.
Why GAO Did This Study:
The Department of Defense (DOD) relies on thousands of suppliers to
provide weapons, equipment, and raw materials to meet U.S. national
security objectives. Yet, increased globalization in the defense
industry and consolidation of the defense supplier base into a few
prime contractors has reduced competition and single-source suppliers
have become more common for components and subsystems.
For this report, GAO (1) assessed DOD‘s efforts to monitor the health
of its defense supplier base, and (2) determined how DOD identifies and
addresses gaps that might exist in its supplier base. To conduct its
work, GAO reviewed supplier-base-related laws, regulations, and
guidelines; met with officials from DOD‘s Office of Industrial Policy,
defense contractors, and other DOD officials; and surveyed 20 major DOD
weapon acquisition program officials on potential supplier-base gaps.
What GAO Found:
DOD‘s efforts to monitor its supplier base lack a departmentwide
framework and consistent approach. Its monitoring efforts generally
respond to individual program supplier-base concerns or are broader
assessments of selected sectors. As part of its supplier-base
monitoring efforts, DOD has also previously identified lists of
critical items”which according to DOD‘s Office of Industrial Policy
(Industrial Policy) do not reflect the dynamic changes that occur in
industry, technology, and DOD requirements. While DOD recently
established criteria for identifying supplier-base characteristics that
could be problem indicators”such as sole-source suppliers and obsolete
or emerging technologies”these criteria have primarily been applied to
the missile and space sectors and have not been used to guide the
identification and monitoring of supplier-base concerns for all sectors
departmentwide.
DOD uses an informal approach to identify supplier-base concerns, often
relying on the military services, program offices, or prime contractors
to identify and report these concerns, including gaps or potential
gaps. As no requirement for when to report such gaps to higher-level
offices exist, knowledge of defense supplier-base gaps across DOD may
be limited. While 16 of the 20 program officials GAO surveyed reported
that they identified supplier gaps or potential gaps over the past 5
years, only 4 reported sharing this information with Industrial Policy.
These gaps included obsolescence of components and items with only one
available supplier. Program offices often relied on the prime
contractor to identify and help address supplier-base gaps, and prime
contractors and programs generally used their discretion as to when to
report gaps to higher levels. As a result, Industrial Policy may not be
receiving information to help it activate available tools, such as the
authorities under the Defense Production Act, to mitigate supplier-base
gaps.
Table: Programs Surveyed That Identified Obsolescence or Sole Sources
within the Last 5 Years:
Program: AGM-114 Hellfire Air-to-Ground/Air-to-Air Guided Missile;
Obsolescence: [Check];
Sole source: [Check].
Program: B-2 Spirit Multi-Role Bomber;
Obsolescence: [Check];
Sole source: [Check].
Program: CH-53K Super Stallion Heavy-Lift Replacement Helicopter;
Obsolescence: [Check];
Sole source: [Empty].
Program: F/A-18E/F Super Hornet Navy Fighter Attack Aircraft;
Obsolescence: [Empty];
Sole source: [Check].
Program: F/A-22 Raptor Fighter Attack Aircraft;
Obsolescence: [Check];
Sole source: [Check].
Program: Joint Tactical Radio System”Ground Mobile Radio;
Obsolescence: [Check];
Sole source: [Check].
Program: MQ-8B Navy Fire Scout Unmanned Helicopter;
Obsolescence: [Empty];
Sole source: [Check].
Program: MQ-9 Reaper Armed Unmanned Aerial Vehicle;
Obsolescence: [Empty]
Sole source: [Check].
Program: Patriot Advanced Capability Missile-3;
Obsolescence: [Check];
Sole source: [Check].
Program: RIM-162 NATO Evolved SEASPARROW Missile System;
Obsolescence: [Check];
Sole source: [Check].
Program: RQ-4 Global Hawk Unmanned Aerial Vehicle;
Obsolescence: [Empty];
Sole source: [Check].
Program: Space-Based Infrared System High (Satellite);
Obsolescence: [Check];
Sole source: [Check].
Program: Space Tracking Surveillance System (Satellite);
Obsolescence: [Check];
Sole source: [Check].
Program: UH-60 Black Hawk Tactical Transport Helicopter;
Obsolescence: [Empty];
Sole source: [Check].
Program: V-22 Osprey Joint Service Tilt-Rotor Aircraft;
Obsolescence: [Check];
Sole source: [Check].
Program: VH-71 Presidential Helicopter;
Obsolescence: [Check];
Sole source: [Check].
Source: GAO analysis of survey responses from and interviews with 20
selected DOD weapon program officials.
[End of table]
What GAO Recommends:
GAO is recommending that DOD fully apply criteria to identify and
monitor supplier-base concerns and create reporting requirements for
when to elevate concerns about supplier-base gaps. DOD agreed to fully
apply and publish criteria for elevating supplier-base concerns, but
does not agree that formal reporting requirements are needed for prime
contractors. We maintain that DOD needs a mechanism to ensure that
information flows to the program office and higher levels within DOD as
needed.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-5]. For more
information, contact Ann Calvaresi-Barr at (202) 512-4841 or
calvaresibarra@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
DOD Lacks a Framework and Consistent Approach for Monitoring Supplier-
Base Concerns:
DOD Uses an Informal Approach to Identify Supplier-Base Concerns, with
No Departmentwide Reporting Requirement on When to Elevate These
Concerns:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Key Authorities for DOD Supplier Base:
Appendix III: Comments from the Department of Defense:
Appendix IV: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Programs Surveyed That Had Supplier Concerns within the Last 5
Years:
Table 2: List of 20 Programs Reviewed by GAO, Including DOD Component
Represented, Acquisition Phase, and Priority Contract Rating:
Table 3: Selected DOD Supplier-Base Authorities:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
October 7, 2008:
The Honorable John F. Tierney:
Chairman:
Subcommittee on National Security and Foreign Affairs:
Committee on Oversight and Government Reform:
House of Representatives:
Dear Mr. Chairman:
The Department of Defense (DOD) relies on thousands of suppliers to
ensure that it has the weapons, supporting equipment, and raw materials
that it needs to meet U.S. national security objectives and maintain
U.S. military superiority. DOD's Patriot Advanced Capability-3 missile
program alone depends on over 800 suppliers providing items ranging
from screws to radio-frequency seekers. Increasing globalization in the
defense industry has intensified debate over the use of foreign versus
domestic suppliers and presents uncertainty over the ability of the
United States to maintain military superiority in critical technology
areas. Further, as the defense supplier base has consolidated into a
few prime contractors, competition has been reduced and single source
suppliers have become more common for components and subsystems. DOD
relies on its Office of the Deputy Under Secretary of Defense for
Industrial Policy (Industrial Policy) to help ensure that it sustains
an environment for a reliable, cost-effective, and sufficient supplier
base.
In response to your interest in the ability of the defense supplier
base to help DOD meet its national security and strategic objectives
and DOD's visibility into its suppliers, we (1) assessed DOD's efforts
to monitor the health of its defense supplier base, and (2) determined
how DOD identifies and addresses gaps that might exist in its supplier
base.
To conduct our work, we reviewed laws, regulations, and guidelines
relating to the DOD supplier base. We met with officials from
Industrial Policy, the military services, the Missile Defense Agency,
selected DOD weapon program offices, the Defense Contract Management
Agency, the Department of Commerce's Bureau of Industry and Security,
four defense contractors, and an official from the Center for Strategic
and International Studies. We also administered a questionnaire to a
nongeneralizable sample of 20 DOD weapon acquisition program officials
to determine whether these programs experienced any gaps in their
supplier base and identify areas where these gaps exist.[Footnote 1] We
selected these 20 programs based on criteria including representation
of the aerospace or electronics industries, a range of systems in terms
of the sponsoring military service, varying stages in the acquisition
life cycle, and size of their budgets. We conducted this performance
audit from September 2007 through August 2008, in accordance with
generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives. For more on our scope and methodology,
see appendix I.
Results in Brief:
While DOD has made numerous efforts to monitor the defense supplier
base, it lacks a departmentwide framework and consistent approach to
identify and monitor conditions in the supplier base that could be
indicators of problems and could result in reduced or nonavailability
of needed items. DOD's efforts to monitor the supplier base have not
been guided by established criteria that can be used and applied
departmentwide. Rather, they generally respond to a supplier-base
concern for an individual program or are broader assessments of
selected sectors, such as DOD's congressionally mandated report on
defense industrial base capabilities. In addition, DOD has previously
identified lists of critical items as part of its supplier-base
monitoring efforts. For example, in 2003, DOD created a classified list
of the department's top 25 material readiness-shortfall items. However,
according to Industrial Policy--the mission of which is to sustain an
environment for a strong supplier base--static lists such as these do
not reflect the dynamic changes that occur in industry, technology, and
DOD requirements. Industrial Policy further stated that, because it is
not feasible to monitor the entire supplier base, it must effectively
target its monitoring resources. To do so, Industrial Policy has
recently established criteria for identifying supplier-base
characteristics that could be problem indicators, such as suppliers (1)
that are sole source; (2) of certain technologies that are obsolete,
enabling, or emerging; or (3) that have limited surge production
capability. Industrial Policy has begun applying these criteria to the
missile and space sectors, resulting in targeted monitoring and
identification of supplier-base concerns in this sector, as well as
mitigation efforts for specific concerns with two items--traveling-wave
tubes and lithium-ion batteries. However, these criteria have not been
used to guide the identification and monitoring of supplier-base
concerns for all sectors departmentwide.
DOD uses an informal approach to identify supplier-base concerns,
including gaps or potential gaps, often relying on the military
services, program offices, or prime contractors to identify concerns in
the defense supplier base, with no departmentwide requirements for when
to report them to higher-level offices, such as the Office of the
Secretary of Defense. As a result, Industrial Policy's knowledge of
defense supplier-base concerns across DOD may be limited. Sixteen of
the 20 program officials we surveyed reported that they identified
supplier gaps or potential gaps over the past 5 years, including
obsolescence of component parts or technologies, diminishing
manufacturing sources for components, and production challenges. In
addition, 15 of the 20 program officials stated that for certain items
only one supplier is available. Programs often relied on the prime
contractor to identify and help address supplier-base gaps. However,
prime contractors and program officials generally use their discretion
in determining when to report supplier gaps to higher levels. According
to program officials, there are generally no contractual requirements
on when supplier-base concerns should be elevated from the prime
contractor. Further, no DOD requirement exists on when supplier-base
concerns should be elevated from the program office to higher levels
within DOD, such as Industrial Policy. Seventeen of the 20 program
officials we surveyed reported that they share information on general
supplier-base concerns with their cognizant program executive officer,
but only 4 reported sharing information on supplier gaps with
Industrial Policy. As a result, Industrial Policy may not be receiving
information to help it activate available tools to mitigate supplier-
base gaps, such as the authorities under the Defense Production Act of
1950, as amended, which aim to ensure the availability of industrial
resources to meet defense needs.
We are recommending that DOD fully apply criteria departmentwide to
identify and monitor supplier-base concerns and that it also create and
disseminate written requirements departmentwide for reporting potential
concerns about supplier-base gaps to higher levels in DOD. In
commenting on a draft of this report, DOD agreed to apply criteria to
identify and monitor supplier-base concerns on a departmentwide basis
and to disseminate written requirements for program offices to report
supplier-base concerns to higher levels within DOD. DOD did not agree
that similar formal reporting criteria or contractual mechanisms need
to be established for prime contractors to report supplier-base
concerns to the program office. DOD expects the prime contractor to
maintain internal corporate metrics to evaluate the health and
performance of their subcontractors and likewise expects program
offices to maintain frequent and open communication with their prime
contractors on supplier-base issues. However, given the large role that
contractors play in monitoring the supplier base, including the
identification of supplier-base concerns, we maintain that DOD needs a
mechanism to facilitate the flow of information from prime contractors
to program offices so they can raise concerns to higher levels within
DOD when needed. This is particularly important for those concerns
whose characteristics meet the criteria for making judgments regarding
suppliers and components for DOD.
Background:
DOD's primary representative for supplier-base issues is the Office of
the Deputy Under Secretary of Defense for Industrial Policy (Industrial
Policy). Its mission is to sustain an environment that ensures the
industrial base on which DOD depends is reliable, cost-effective, and
sufficient to meet its requirements. Industrial Policy defines
reliability as suppliers providing contracted products and service in a
timely manner; cost-effectiveness as the delivery of products and
services at or below target costs; and sufficiency as suppliers
delivering contracted products and services that meet prescribed
performance requirements. DOD's Program Executive Officers manage a
portfolio of programs related to weapon systems. DOD also relies on a
cadre of military and civilian officials--known as program managers--to
lead the development and delivery of individual weapon systems. Program
managers or their designees interact with prime contractors who manage
subcontractors to provide the final good or service to DOD. Currently,
DOD relies primarily on about six prime contractors who manage
thousands of subcontractors for DOD systems.
DOD has a variety of authorities, including laws, regulations, and an
executive order, that govern its interaction with the defense supplier
base. There are several key authorities available to DOD for
maintaining information on its suppliers as well as ensuring a domestic
capability for certain items, such as radiation-hardened
microprocessors. In addition, the Department of Commerce has authority
to assess the supplier base to support the national defense,[Footnote
2] and has conducted 15 supplier-base assessments in the past 5 years,
including studies on imaging and sensor technology. See appendix II for
a description of selected key defense supplier-base authorities.
DOD Lacks a Framework and Consistent Approach for Monitoring Supplier-
Base Concerns:
Although DOD has undertaken a variety of efforts to monitor the defense
supplier base, it lacks a framework and consistent approach to identify
and monitor concerns in the supplier base. The military services,
Industrial Policy, and other DOD components collect information about
the health and viability of certain defense supplier-base sectors.
However, DOD has not applied departmentwide criteria to determine
supplier-base characteristics that could result in reduced or
nonavailability of needed items. As part of its supplier-base
monitoring efforts, DOD has previously created lists of specific items
that are considered critical at a point in time, but lists such as
these run the risk of becoming obsolete and do not focus on supplier-
base characteristics that could guide identification of problems. To
better target its monitoring resources, Industrial Policy recently
established criteria for supplier-base characteristics that could be
indicators of supply concerns. These criteria have primarily been
applied to the missile and space defense sectors and have not been used
to guide the identification and monitoring of supplier-base concerns
for all sectors departmentwide.
The military services and other DOD components conduct studies on their
respective suppliers, often in response to supplier concerns for
individual programs. For example, the Army's Aviation and Missile
Research, Development, and Engineering Center studies availability
issues for Army missile and space programs, such as the availability of
raw materials for these programs. The Air Force Research Laboratory
conducts assessments that range from annual studies of key supply
sectors to evaluations of the supplier base for individual components
or materials, such as beryllium. Within the Navy, the Fire Scout
vertical takeoff and unmanned aerial vehicle program had an industrial
capability assessment conducted of its supplier base before it
proceeded to the production phase of the program. Officials from the
Missile Defense Agency told us they have dedicated staff to monitor the
supplier base for each of the agency's 12 programs and have contracted
for support to help improve supply-chain management between the
agency's program offices and their prime contractors.
The Secretary of Defense is required by legislation to report annually
to Congress on the supplier base. Industrial Policy prepares these
reports, which provide a broad analysis of supplier trends and
summarize supplier-base studies performed by various DOD components.
For example, Industrial Policy reports on the percentage of prime
contracts with a value of $25,000 or greater awarded to foreign
suppliers.[Footnote 3] In addition, Industrial Policy also
intermittently reports on foreign reliance for selected weapon
programs. For example, in both 2001 and 2004, Industrial Policy
reported to Congress on overall foreign reliance for 8 and 12 selected
weapon programs, respectively. Industrial Policy also reports annually
on industrial capabilities, including a macro-level summary of DOD's
seven supplier sectors[Footnote 4] and a summary of capabilities
assessments conducted within DOD--which totaled 47 in 2007. Industrial
Policy also provides quarterly updates on the financial and economic
metrics of various defense suppliers; convened a roundtable of
companies to identify barriers to conducting business with DOD;
chartered a cross-department work group to collaborate on tasks related
to defense supplier-base challenges, such as sole sources of supply and
barriers to competition; and conducted other activities to foster
knowledge of the defense supplier base. To support supplier-base
analyses by Industrial Policy and the military services, the Defense
Contract Management Agency's Industrial Analysis Center conducts
program-and sector-specific defense supplier-base studies, as well as
conducting analysis to support DOD's studies of foreign reliance. While
these multiple efforts have provided the various DOD components with
information about specific suppliers, they have not provided a DOD-wide
view of supplier-base characteristics that could be indicators of
problems--in large part because the efforts are not guided by
departmentwide criteria for identifying and monitoring supplier-base
concerns.
In addition, DOD has also developed lists of items deemed critical at a
point in time as part of its supplier-base monitoring efforts. For
example, in 2003, after insufficient visibility, planning, and
programming led to shortages of several mission-essential items during
Operations Iraqi Freedom and Enduring Freedom, the Joint Staff directed
the military services, the Defense Logistics Agency, the Defense
Contract Management Agency, and the Combatant Commanders to create a
list of the their respective top 20 "Critical Few" material readiness-
shortfall items. Criteria for selecting items included those with high
variances in wartime versus peacetime demand, military-unique
characteristics without a commercial substitute, and limited industrial-
base capacity. DOD developed a classified list of 25 items in 2003
that, according to officials, has not been updated. Similarly, an Army
regulation[Footnote 5] and Air Force directive[Footnote 6] cite the
development and use of "critical items lists." However, officials from
both services stated that the language in these authorities is outdated
and the lists, if ever developed, are no longer used. According to
Industrial Policy, lists such as these only capture items that are
deemed critical at a point in time and, therefore, do not reflect
changes in industry, technology, and DOD requirements.
The Air Force has initiated efforts to establish criteria to track
supplier-base concerns. Specifically, the Air Force's Space and Missile
Systems Center, under direction from the National Security Space
Office, established a Space Industrial Base Program in order to address
issues affecting the Air Force's ability to develop and deploy space
systems. According to Air Force officials, this action was a result of
DOD Directive 5101.2.[Footnote 7] The center developed a method for
identifying and tracking defense items with supplier-base concerns,
defining such items as those whose loss or impending loss of
manufacturers or suppliers has the potential to severely affect the
program in terms of schedule, performance, or cost if left unresolved.
Specifically, criteria for identifying and monitoring these items is
based on supplier-base characteristics such as uneconomical production
requirements, foreign-source competition, limited availability, or
increasing cost of items and raw materials used in the manufacturing
process. According to the Space and Missile Systems Center, based on
the criteria it developed, it identified approximately 80 critical
items in its space systems and coordinated with the Aerospace
Corporation, a federally funded research and development center, to
track the supplier base for these items.
According to Industrial Policy, the breadth of DOD's programs requires
that it selectively monitor DOD's supplier base. In turn, to better
target supplier-monitoring resources, Industrial Policy recently
established criteria for identifying conditions that could be
indicators of supplier-base concerns for certain defense items, deeming
these items as "important." Its criteria for such important items
include those produced by a sole source; used by three or more
programs; representing obsolete, enabling, or emerging technologies;
requiring long lead times to manufacture; or having limited surge-
production capability. According to Industrial Policy, this internal
effort grew out of DOD's development of its critical asset list,
[Footnote 8] and the organization uses the "important" designation to
help it identify components and their suppliers that have the most
potential to negatively affect production across program and service
lines. However, while Industrial Policy uses these criteria, it is not
aware of similar use by other DOD organizations. Industrial Policy has
used these criteria to identify important components in the missile and
space sectors, and has yet to use these criteria to guide the
identification and monitoring of supplier-base concerns for all sectors
departmentwide. According to Industrial Policy, the missile and space
sectors have the preponderance of important items because they contain
few commercial off-the-shelf components and a greater number of defense-
unique components and, therefore, these sectors contain the most sole-
source suppliers. According to Industrial Policy, these sectors are
most likely to experience rapid production increases during times of
conflict--another contributing factor. Examples of items identified in
these sectors include thermal batteries, tactical missile rocket
motors, lithium-ion batteries, and traveling-wave tubes. While still
early in the process, Industrial Policy reported that it has used these
criteria to help identify and work towards mitigating supplier-base
concerns within the space and missile sectors. Specifically, the
Defense Production Act Title III[Footnote 9] was used to improve
domestic manufacturing performance for two items deemed important--
traveling-wave tubes and long-life lithium-ion batteries. In a separate
effort, Industrial Policy stated it is collaborating with the Defense
Logistics Agency's National Defense Stockpile Center to create
departmentwide criteria for the terms, "critical," "strategic," and
"important" and expects the Defense Logistics Agency to report to
Congress by the end of calendar year 2008 on the results of this
effort.
As required by statute, in 2007 DOD established a Strategic Materials
Protection Board to determine the need to provide long-term domestic
supply of materials critical to national security to ensure that
national defense needs are met, analyze risks associated with potential
nonavailability of these materials from domestic sources, and recommend
a strategy to the President to ensure domestic availability of these
materials.[Footnote 10] The Board has initially defined critical
materials as those that perform a unique function for defense systems
and have no viable alternative; DOD dominates the market for the
material; and has significant and unacceptable risk of supply
disruption if there are insufficient U.S. or reliable non-U.S.
suppliers. However, the Board's focus is to assess only the criticality
of materials, such as specialty metals, not to identify and track
critical defense items or components.
DOD Uses an Informal Approach to Identify Supplier-Base Concerns, with
No Departmentwide Reporting Requirement on When to Elevate These
Concerns:
DOD often relies on the military services, program offices, or prime
contractors to identify supplier-base concerns, including gaps and
potential gaps, with no departmentwide requirement for when to report
these gaps to higher-level offices. Over the past 5 years, most program
officials we surveyed faced gaps in their supplier base or had sole
sources of supply for certain items. To address these supplier
concerns, programs often relied on the prime contractors, which had
more detailed knowledge of the supplier base, and left it to the
contractor's judgment to report gaps and take actions to address
supplier challenges. Further, program officials reported that they
generally use their discretion in determining when to report identified
gaps and planned actions to higher DOD levels. As a result, DOD's
ability to know when a departmentwide approach is needed to mitigate
these concerns may be limited.
DOD Often Relied on Program Offices and Prime Contractors to Identify
Supplier-Base Concerns in the Last 5 Years:
DOD often relies on its individual program offices to ensure that their
respective supplier bases are sufficient. According to officials from
Industrial Policy, individual program offices are to ensure that their
supplier base is sufficient, and Industrial Policy would become
involved only when supplier-base concerns might affect multiple
programs or more than one military service, therefore requiring a
corporate DOD approach. Most of the program officials we surveyed had
supplier-base concerns in the last 5 years (see table 1). Specifically,
16 of the 20 program officials we surveyed reported facing supplier
gaps or potential gaps, including obsolescence of component parts or
technologies, diminishing manufacturing sources for components, and
production challenges. In addition, 15 of the 20 program officials
identified sole sources of supply for components of their weapon
systems. Seventeen of the program officials we surveyed said these
supplier-base concerns were identified by their prime contractors,
which maintain detailed knowledge of the supplier base.
Table 1: Programs Surveyed That Had Supplier Concerns within the Last 5
Years:
Program: AGM-114 Hellfire; Air-to-Ground/Air-to-Air; Guided Missile;
Obsolescence: [Check];
Diminishing source of supply: [Empty];
Production challenges[A]: [Check];
Sole source: [Check].
Program: B-2 Spirit; Multi-Role Bomber;
Obsolescence: [Check];
Diminishing source of supply: [Empty];
Production challenges[A]: [Check];
Sole source: [Check].
Program: CH-53K Super Stallion; Heavy-Lift Replacement Helicopter;
Obsolescence: [Check];
Diminishing source of supply: [Empty];
Production challenges[A]: [Empty];
Sole source: [Empty].
Program: F/A-18E/F Super Hornet; Navy Fighter Attack Aircraft;
Obsolescence: [Empty];
Diminishing source of supply: [Empty];
Production challenges[A]: [Check];
Sole source: [Check].
Program: F/A-22 Raptor; Fighter Attack Aircraft;
Obsolescence: [Check];
Diminishing source of supply: [Check];
Production challenges[A]: [Empty];
Sole source: [Check].
Program: JTRS-GMR; Joint Tactical Radio System; Ground Mobile Radio;
Obsolescence: [Check];
Diminishing source of supply: [Empty];
Production challenges[A]: v;
Sole source: [Check].
Program: LGM-30 Minuteman III; Ground-Launched Intercontinental
Ballistic Missile (ICBM);
Obsolescence: [Empty];
Diminishing source of supply: [Empty];
Production challenges[A]: [Check];
Sole source: [Empty].
Program: MQ-8B Navy Fire Scout; Unmanned Helicopter;
Obsolescence: [Empty];
Diminishing source of supply: [Empty];
Production challenges[A]: [Empty];
Sole source: [Check].
Program: MQ-9 Reaper; Armed Medium-to-High Altitude UAV;
Obsolescence: [Empty];
Diminishing source of supply: [Check];
Production challenges[A]: [Check];
Sole source: [Check].
Program: PAC-3; Patriot Advanced Capability Missile; Ground-Launched
Missile Defense;
Obsolescence: [Check];
Diminishing source of supply: [Empty];
Production challenges[A]: [Check];
Sole source: [Check].
Program: RIM-162 ESSM; NATO Evolved SEASPARROW Missile; Surface Missile
System;
Obsolescence: [Check];
Diminishing source of supply: [Check];
Production challenges[A]: [Empty];
Sole source: [Check].
Program: RQ-4 Global Hawk; High-Altitude Intelligence, Surveillance and
Reconnaissance UAV;
Obsolescence: [Empty];
Diminishing source of supply: [Check];
Production challenges[A]: [Empty];
Sole source: [Check].
Program: SBIRS High; Space-Based Infrared System; High-Altitude
Satellite Missile Defense/Surveillance;
Obsolescence: [Check];
Diminishing source of supply: [Check];
Production challenges[A]: [Check];
Sole source: [Check].
Program: STSS; Space Tracking Surveillance System;
Obsolescence: [Check];
Diminishing source of supply: [Check];
Production challenges[A]: [Empty];
Sole source: [Check].
Program: UH-60 Black Hawk; Tactical Transport Helicopter;
Obsolescence: [Empty];
Diminishing source of supply: [Empty];
Production challenges[A]: [Check];
Sole source: [Check].
Program: V-22 Osprey; Joint Service Tilt-Rotor Aircraft;
Obsolescence: [Check];
Diminishing source of supply: [Check];
Production challenges[A]: [Check];
Sole source: [Check].
Program: VH-71; Presidential Helicopter;
Obsolescence: [Check];
Diminishing source of supply: [Empty];
Production challenges[A]: [Check];
Sole source: [Check].
Program: Total;
Obsolescence: 11;
Diminishing source of supply: 7;
Production challenges[A]: 11;
Sole source: 15.
Source: GAO.
Notes: Data are from GAO's analysis of survey responses from and
interviews with 20 selected DOD weapon program officials.
[A] Production challenges include reported production delays,
production-capacity issues, and production outsourcing.
[End of table]
Many of the program officials we interviewed maintain frequent contact
with their prime contractors and noted that this level of communication
facilitates supplier-base knowledge. Specifically, 19 out of 20 program
officials we surveyed said their prime contractor often identified and
provided supplier-base information to them and that communication was
frequent when a supplier-base concern arose. Program officials had
varying degrees of knowledge of their supplier tiers--18 reported that
they maintain knowledge of their program's supplier base at the prime-
contractor level, while 9 maintained knowledge of the lowest-tier
subcontractor of the supply chain. One program official noted that
knowledge of the lower-tier suppliers is gained as issues arise, and
another stated that knowledge of these lower tiers is based on assessed
"criticality" to the program--which is defined on a program-by-program
basis.
The four prime contractors that we interviewed about their own
corporate insight into the supplier base noted that they had extensive
internal corporate metrics to evaluate the health and performance of
their subcontractors, which offered the companies a degree of
visibility into their supply chains, from second-tier subcontractors to
lower-tier suppliers of raw materials. For example, one of the prime
contractors had software that allowed it to analyze and measure data on
each supplier within its network.[Footnote 11] It captured data on each
supplier's performance based on the quality of its work and the
delivery of its product, which resulted in a combined performance
rating. Examples of other metrics tracked include supplier biography,
report card results, trend analysis of performance ratings over a
period of time such as a calendar year, and the combined performance
rating of a part that a supplier manufactures for a particular system.
To address reported supplier gaps, program offices took a variety of
actions. For example, actions to address supplier gaps in the area of
obsolescence ranged from large-scale purchases, known as life-time
buys, to initiating component redesign. In other instances the gap has
not yet been solved. The Space Tracking Surveillance System program
relies on one company to supply the base materials used to produce
nickel-hydrogen batteries, which are critical to this program. However,
this company plans to cease production of these batteries in 2009 or
shortly thereafter; yet an alternate source of supply has not been
identified. In another instance the Hellfire Missile program is working
with the Army Program Executive Officer for Missiles and Space along
with Industrial Policy to request a waiver to procure a chemical that
is no longer produced in the United States from a company in China. The
program is also exploring whether a Navy facility could produce the
chemical in the quantities needed by this and other military programs
that use this chemical.
Programs Lack Requirements for Elevating Supplier-Base Concerns to
Higher DOD Levels:
Program officials and prime contractors we spoke with stated that they
use their discretion for when to report supplier-base concerns.
Programs are not required to report supplier issues to their program
executive officer or to higher levels within DOD, such as Industrial
Policy, and most programs do not have contractual requirements with
their prime contractor to direct when a supplier issue must be
reported.
While program officials reported working closely with their prime
contractors to address concerns once they were identified, program
officials and prime contractors we spoke with told us that it is a
judgment call as to when to report supplier-base concerns to higher
levels within DOD. For example, for the 20 program officials we
surveyed, 17 reported that they had shared information on supplier
concerns with their cognizant program executive officer. However, only
four programs, all of which faced supplier gaps in the last 5 years,
reported sharing such information with Industrial Policy. Thirteen
program officials we surveyed stated that no requirement exists for
when their program office should report supplier-base concerns to
higher levels within DOD.
Similarly, nine of 20 program officials told us that no requirement
exists for what should trigger a prime contractor to report a supplier-
base concern to them. One of these programs, the B-2 Spirit stealth
bomber, is in the process of creating a requirement for when its prime
contractor should notify it of supplier concerns. According to program
officials, the Hellfire missile and Navy Fire Scout programs have
imposed contractual requirements on their prime contractors to report
any supplier concerns. Other program officials stated that while no
formal requirement existed, there was an understanding between their
prime contractor and the program office that any activity that will
affect schedule, which could include supplier-base concerns, must be
reported to the program office.
While addressing supplier gaps at the program-or program executive
officer-level may be appropriate in many cases, program offices across
the military services rely on the same supplier base in some instances.
In such cases, concerns with these suppliers can become even more
crucial if it is a sole-source supplier. For example, multiple DOD
programs in the space sector rely on one provider for traveling-wave
tube amplifiers needed for satellite navigation purposes.[Footnote 12]
According to officials from the Air Force's Space and Missile Systems
Center, it closely tracks this supplier because any disruption in its
production capability could adversely affect the cost, schedule, and
performance of multiple space programs. In addition, officials from the
Patriot Advanced Capability-3 missile program told us that production
delays with its inertial measurement unit also affected the Army's
Tactical Missile System program, as it uses this same unit from this
company. However, DOD may not be aware of these types of cross-
department concerns in other supplier-base sectors because it does not
have a framework for programs to report information on supplier gaps
and vulnerabilities for critical items.
In addition, Industrial Policy may benefit from receiving information
on supplier gaps and vulnerabilities to help it achieve its mission to
sustain an environment that ensures the industrial base on which DOD
depends is reliable, cost-effective, and sufficient to meet its
requirements. A framework for programs to report supplier-gap
information could assist Industrial Policy's decisions on when to
activate available tools to mitigate supplier-base concerns, such as
the authorities under the Defense Production Act. As we recently
reported in a review of Defense Production Act[Footnote 13] use since
its 2003 reauthorization, 25 DOD projects have received Title III
funding over the past several years, totaling almost $420 million in
assistance. Almost half of the projects received funds in order to
establish a domestic source of supply or to help alleviate dependence
on sole sources of supply. Recent major projects include Radiation
Hardened Microelectronics Capital Expansion and a Beryllium Industrial
Base Production Initiative.
Conclusions:
While DOD has a number of efforts to monitor its supplier base, these
efforts lack a framework and set of characteristics to identify and
track supplier-base concerns and allow for consistent reporting to
higher levels within DOD, such as Industrial Policy. A failure to
systematically identify and address supplier-base concerns could result
in untimely discoveries of supply vulnerabilities, which could
potentially affect DOD's ability to meet national security objectives.
While DOD components, such as the Air Force's Space and Missile Systems
Center, have taken action to identify and monitor supplier-base
concerns, these efforts have been limited in scope or lacked
departmentwide involvement. DOD has an opportunity to leverage the
various efforts taken by its components into a departmentwide framework
for identifying and monitoring supplier-base concerns. Considering the
dynamic nature of the defense supplier base, this model could take into
account recent efforts by Industrial Policy to establish
characteristics that could be indicators of supply concerns. Further,
by relying on individual program offices and their contractors to
determine when it is appropriate to raise concerns, DOD cannot be
assured that it is identifying all gaps that may need to be addressed
at a departmentwide level. Until DOD establishes departmentwide
characteristics for consistent identification and monitoring of
supplier-base concerns and develops requirements for elevating supplier-
base concerns--at both the contractor and program levels--it will
continue to lack the visibility needed to oversee a robust supplier
base.
Recommendations for Executive Action:
We are recommending that the Secretary of Defense direct Industrial
Policy, in coordination with the military services and other relevant
DOD components, to consider the following two actions to identify and
monitor the supplier base:
1. Leverage existing DOD efforts to identify criteria of supplier-base
problems and fully apply these criteria to guide the identification and
monitoring of supplier-base concerns throughout DOD.
2. Create and disseminate DOD-wide written requirements for reporting
potential concerns about supplier-base gaps. These requirements should
delineate when, and to what level, supplier-base concerns should be
elevated and should take into account the two levels of reporting--
prime contractors to program offices and program offices to higher
levels in DOD.
Agency Comments and Our Evaluation:
DOD provided comments on a draft of this report. DOD also provided
technical comments, which we incorporated as appropriate. In commenting
on our first recommendation, DOD concurred with the need to leverage
existing DOD efforts to identify criteria of supplier-base problems and
fully apply these criteria to guide the identification and monitoring
of supplier-base concerns throughout DOD. DOD indicated that its
ongoing Defense Acquisition Guidebook update presents a fitting and
timely opportunity to institutionalize these criteria into departmental
acquisition policy.
DOD partially concurred with our second recommendation, stating that
while there is merit in having formal, published criteria for making
judgments regarding when program offices should report supplier issues
to Industrial Policy, similar formal reporting criteria or contractual
mechanisms are not needed for prime contractors to report supplier-base
concerns to the program office. DOD expects prime contractors to
maintain internal corporate metrics to evaluate the health and
performance of their subcontractors and likewise expects program
offices to maintain frequent and open communication with their prime
contractors on supplier-base issues. Our recommendation is for DOD to
consider how best to facilitate the flow of this information between
program offices and their prime contractors, regardless of whether it
is through a contractual requirement or other means. This is
particularly important given the large role that contractors play in
monitoring the supplier base. While we found that almost all of the 20
program officials we surveyed relied on their prime contractors to
provide supplier-base information, including identification of supplier-
base concerns, there is no guidance to ensure that information is
consistently elevated to the appropriate levels. As such, we maintain
that a mechanism is needed to facilitate the flow of information from
the prime contractor to the program office, and from the program office
to higher levels within DOD--especially for those concerns whose
characteristics meet the criteria for making judgments regarding
suppliers and components for DOD.
We also provided a draft of this report to the Department of Commerce.
The department reviewed the draft and provided no comments.
DOD's written comments are reprinted in appendix III.
We are sending copies of this report to interested congressional
committees; the Secretaries of Defense and Commerce; and the Director,
Office of Management and Budget. In addition, this report will be made
available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
Please contact me at (202) 512-4841 or calvaresibarra@gao.gov if you or
your staff have any questions concerning this report. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. Others making key contributions
to this report are listed in appendix IV.
Sincerely yours,
Signed by:
Ann Calvaresi-Barr:
Director Acquisition and Sourcing Management:
[End of section]
Appendix I: Scope and Methodology:
To assess Department of Defense (DOD) efforts to monitor its defense
supplier base and identify and address gaps that might exist in its
supplier base, we reviewed relevant laws and regulations, such as
sections of Title 10, U.S. Code, the DOD 5000 series, National Security
Space Acquisition Policy 03-01, and the Defense Production Act of 1950,
as amended. We also met with officials and reviewed documents from
multiple DOD components as well as defense companies, to discuss
efforts, policies, and guidance. We met with officials from DOD's
Office of the Deputy Under Secretary of Defense for Industrial Policy
(Industrial Policy) to review its processes and actions for monitoring
the defense supplier base. We also discussed with Industrial Policy its
role in preparing and submitting the Annual Industrial Capabilities
Report to Congress. We met with the Defense Contract Management
Agency's Industrial Analysis Center to discuss its role in studying
DOD's supplier-base sectors. We met with officials from the U.S. Air
Force, Army, Navy, and the Missile Defense Agency to review and discuss
their policies and practices for monitoring the defense supplier base.
We also met with officials from the Department of Commerce, Bureau of
Industry and Security, to discuss their role in monitoring the defense
supplier base through its authorities to conduct surveys and analyses,
and prepare reports on specific sectors of the U.S. defense supplier
base. We also met with a Senior Fellow of the International Security
Program, Defense Industrial Initiatives Group, who at that time was
with the Center for Strategic and International Studies, to discuss his
studies and perspectives on the defense supplier base.
In addition, we selected a nongeneralizable sample of 20 DOD weapon
programs (see table 2) based on criteria including representation of
the aerospace or electronics industry; representation of various stages
of the acquisition life cycle, to include those with mature and
emerging technologies; cross-representation of DOD components--Air
Force, Army, Navy, and the Missile Defense Agency; and selection of at
least one DX-rated program,[Footnote 14] based on our review of the
most current list of approved DX programs, dated November 7, 2007,
posted by Industrial Policy as of the time we selected the programs to
survey. GAO also has ongoing work through its annual "Assessments of
Selected Weapon Programs,"[Footnote 15] for many of these programs,
which allowed the team to build upon our prior work efforts and
existing DOD contacts.
To better understand the general supplier-base knowledge,
identification of supply gaps, and the use of domestic and
international sourcing and tracking of these sources, we designed and
administered a Web-based survey to program officials most knowledgeable
about the supplier base for each of the 20 programs. We pretested a
draft of our survey during January and February 2008, with officials at
five DOD program offices. In the pretests, we were generally interested
in the clarity of the questions as well as the flow and layout of the
survey. After these pretests, we then made appropriate revisions to the
survey instrument. We conducted the survey between April and June 2008,
through a series of e-mails beginning on April 1 with prenotification e-
mails, activated the survey on April 7, and sent follow-up e-mails to
nonrespondents on April 14 and 22, 2008. We closed the survey on June
6, 2008, with a 100 percent response rate.
To further determine how programs maintain knowledge of and monitor
their supplier base, we then tailored follow-up questions to all 20
program officials to solicit information and documentation in areas
such as communication between and among DOD and its prime contractors,
and expansion on areas where programs experienced supplier gaps. We
also met with and obtained information and documentation from the prime
contractor for several of these programs, including officials from
Boeing, Lockheed Martin, Northrop Grumman, and Raytheon.
Table 2: List of 20 Programs Reviewed by GAO, Including DOD Component
Represented, Acquisition Phase, and Priority Contract Rating:
Program: 1; PAGM-114 Hellfire; Air-to-Ground/Air-to-Air; Guided
Missile;
DOD component: U.S. Navy, U.S. Army, U.S. Marine Corps;
Acquisition phase: Production and Deployment;
DX-rated?: No.
Program: 2; B-2 Spirit; Multi-Role Bomber;
DOD component: U.S. Air Force;
Acquisition phase: Operations and Support;
DX-rated?: No.
Program: 3; CH-53K Super Stallion; Heavy-Lift Replacement Helicopter;
DOD component: U.S. Marines;
Acquisition phase: System Development/Demonstration;
DX-rated?: No.
Program: 4; F-16 Fighting Falcon; Fighter Aircraft;
DOD component: U.S. Air Force;
Acquisition phase: Operations and Support;
DX-rated?: No.
Program: 5; F/A-18E/F Super Hornet; Navy Fighter Attack Aircraft;
DOD component: U.S. Navy;
Acquisition phase: Production and Deployment;
DX-rated?: No.
Program: 6; F/A-22 Raptor; Fighter Attack Aircraft;
DOD component: U.S. Air Force;
Acquisition phase: Production and Deployment;
DX-rated?: No.
Program: 7; GBU-31/32/38; Joint Direct Attack Munition;
DOD component: U.S. Navy, U.S. Air Force;
Acquisition phase: Production and Deployment;
DX-rated?: No.
Program: 8; JTRS-GMR; Joint Tactical Radio System; Ground Mobile Radio;
DOD component: Joint;
Acquisition phase: System Development/Demonstration;
DX-rated?: No.
Program: 9; LGM-30 Minuteman III; Ground-Launched Intercontinental
Ballistic Missile (ICBM);
DOD component: U.S. Air Force;
Acquisition phase: Production and Deployment;
DX-rated?: No.
Program: 10; MQ-8B Navy Fire Scout; Unmanned Helicopter;
DOD component: U.S. Navy;
Acquisition phase: System Development/Demonstration;
DX-rated?: No.
Program: 11; MQ-9 Reaper; Armed Medium-to High-Altitude UAV;
DOD component: U.S. Air Force;
Acquisition phase: Production and Deployment;
DX-rated?: No.
Program: 12; PAC-3 Missile System; Patriot Advanced Capability Missile;
Ground-Launched Missile Defense;
DOD component: U.S. Army;
Acquisition phase: Production and Deployment;
DX-rated?: No.
Program: 13; RIM-162 ESSM; NATO Evolved SEASPARROW Missile; Surface
Missile System;
DOD component: NATO;; U.S. Navy;
Acquisition phase: Production and Deployment;
DX-rated?: No.
Program: 14; RQ-4 Global Hawk; High-Altitude Intelligence, Surveillance
and Reconnaissance UAV;
DOD component: U.S. Air Force;
Acquisition phase: Production and Deployment;
DX-rated?: No.
Program: 15; SBIRS High; Space-Based Infrared System; High-Altitude
Satellite Missile Defense/Surveillance;
DOD component: U.S. Air Force;
Acquisition phase: System Development/Demonstration;
DX-rated?: Yes.
Program: 16; STSS; Space Tracking Surveillance System;
DOD component: U.S. Missile Defense Agency;
Acquisition phase: System Development/Demonstration;
DX-rated?: No.
Program: 17; UH-60 Black Hawk; Tactical Transport Helicopter;
DOD component: U.S. Army;
Acquisition phase: Production and Deployment;
DX-rated?: No.
Program: 18; V-22 Osprey; Joint Service Tilt-Rotor Aircraft;
DOD component: Joint;
Acquisition phase: Production and Deployment;
DX-rated?: No.
Program: 19; VH-71; Presidential Helicopter;
DOD component: U.S. Navy;
Acquisition phase: System Development/Demonstration;
DX-rated?: Yes.
Program: 20; XM-157 Army Class IV UAV; Unmanned Helicopter;
DOD component: U.S. Army;
Acquisition phase: System Development/Demonstration;
DX-rated?: No.
Source: GAO.
Note: Data are from the GAO list of 20 selected DOD weapon program
offices and survey responses from these programs.
[End of table]
We conducted this performance audit from September 2007 to August 2008
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Key Authorities for DOD Supplier Base:
Table 3 below describes several key authorities available to the
Department of Defense (DOD) for both maintaining information on its
suppliers as well as ensuring a domestic capability for certain items.
Table 3: Selected DOD Supplier-Base Authorities:
Authority: Authorities:
Authority: Authorities: National Defense Authorization Act for Fiscal
Year 2004[A];
Description and relevance to supplier base: The act directs DOD to
report annually to Congress on the number and value of contracts valued
greater than $25,000 awarded to foreign contractors.
Authority: Laws: Title 10 U.S. Code[B];
Description and relevance to supplier base: Sections 2501 through 2506
relate to the national technology and industrial base (which includes
the DOD supplier base), such as requiring DOD to provide Congress with
an annual summary of DOD technology and industrial capabilities
assessments, and to prepare each fiscal year selected assessments of
the capability of the national technology and industrial base to attain
the national security objectives set forth in the act.
Authority: Laws: Defense Production Act of 1950, as amended, Titles I,
III, and VII[C];
Description and relevance to supplier base: The act aims to ensure the
availability of industrial resources to meet national security and
defense needs; Title I can be used to address gaps through
prioritization of DOD contracts ahead of nondefense contracts; Title
III provides financial incentives to domestic firms to invest in
production capabilities for critical security needs; Title VII provides
for investigative authority to collect information on the U.S.
industrial base, which has been used to assess the supplier base to
support the national defense.
Authority: Laws: Berry Amendment[D];
Description and relevance to supplier base: Requires DOD to purchase
certain items from domestic suppliers with certain exceptions. For
example, the act prohibits DOD from procuring end items or components
thereof containing specialty metals not melted or produced in the
United States for certain applications.
Authority: Laws: Buy American Act[E];
Description and relevance to supplier base: The act requires the
federal government to procure supplies that are domestic end products
for use in the United States, subject to a number of exceptions.
Authority: Regulations: Defense Federal Acquisition Regulation
Supplement Part 225[F];
Description and relevance to supplier base: Provides DOD direction on
foreign acquisitions including implementation of domestic source
restrictions.
Authority: Regulations: DOD Directive 5000.1[G] and DOD Instruction
5000.2h;
Description and relevance to supplier base: The directive and
instruction state that, in the DOD acquisition process, DOD is to
complete Industrial Capability Assessments before weapon systems can
move from the design to development acquisition phase and from the
development to production phase. These authorities are complemented by
the Defense Acquisition Guidebook, which provides that development of
an acquisition strategy should include an analysis of the industrial
capability to design, develop, produce, support and, if appropriate,
restart an acquisition program.
Authority: Regulations: DOD Handbook 5000.60-H[I];
Description and relevance to supplier base: The handbook was developed
to provide DOD the framework and guidelines to evaluate the need for
DOD action to preserve its defense industrial capabilities. It states
that a Defense Industrial Capabilities Analysis should be initiated
only when there is an indication that DOD may lose the ability to
obtain necessary defense products and services.
Authority: Regulations: DOD Directive 5101.2[J];
Description and relevance to supplier base: The directive provides that
the Air Force, as the DOD Executive Agent for Space, is to develop
assessments and, where appropriate, recommend policies and strategies
to maintain the capability of the U.S. space industry to meet DOD
needs.
Authority: Regulations: National Security Space Acquisition Policy 03-
01[K];
Description and relevance to supplier base: The policy provides
acquisition process guidance for DOD entities that are part of the
National Security Space Team. Space system program offices are to
complete industrial capability assessments for key technologies and
components during the development phase.
Authority: Executive Order: Executive Order No. 12,919[L];
Description and relevance to supplier base: The order delegates
authorities and addresses national defense industrial resource policies
and programs under the Defense Product Act of1950, as amended. The act
provides that federal agencies responsible for defense acquisition are
to use the authorities provided in the act, to ensure the domestic
industrial and technological base (the "base") through activities such
as continually assessing the capability and availability of the base in
peacetime and in times of national emergency and improving efficiencies
and responsiveness to defense requirements of the base.
Source: GAO.
[A] National Defense Authorization Act for Fiscal Year 2004, Pub. L.
No. 108-136 Sec §812 (2003), as amended.
[B] 10 U.S.C. §§ 2501-2506.
[C] 50 U.S.C. App. §§ 2061-2171, as amended.
[D] 10 U.S.C. §§ 253, 3a-b.
[E] 41 U.S.C. §§ 10a-10d, as implemented by Federal Acquisition
Regulation Part 25 and Defense Federal Acquisition Regulation
Supplement Part 225.
[F] Defense Federal Acquisition Regulation Supplement Subpart 225.7000.
[G] DOD Directive 5000.1, "The Defense Acquisition System," (2003).
[H] DOD Instruction 5000.2, "Operation of the Defense Acquisition
System" (2003).
[I] DOD Handbook 5000.60-H, "Assessing Defense Industrial
Capabilities," Part II, Chapter 3, (1996).
[J] DOD Directive 5101.2, "DOD Executive Agent for Space," (2003).
[K] DOD, National Security Space Acquisition Policy, "Guidance for DOD
Space System Acquisition Process," Appendix 1, §2.3 (2004).
[L] Exec. Order No. 12,919, National Defense Industrial Resource
Preparedness, 59 Fed. Reg. 29,525 (1994), as amended by Exec. Order No.
13286, 43 Fed. Reg. 10,619 (2003), and revoked in part by Exec. Order
No. 13456, 73 Fed. Reg. 4,667 (2008).
[End of table]
[End of section]
Appendix III: Comments from the Department of Defense:
Note: Page numbers in the draft report may differ from those in this
report.
Office Of The Under Secretary Of Defense:
Acquisition, Technology and Logistics:
3000 Defense Pentagon:
Washington, DC 20301-3000:
Ms. Ann Calvaresi Barr:
Director, Acquisition and Sourcing Management:
Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
September 19, 2008:
Dear Ms. Calvaresi Barr:
This is the Department of Defense (DoD) response to the GAO Draft
Report, GAO-09-05, "DEPARTMENT OF DEFENSE: A Departmentwide Framework
to Identify and Report Gaps in the Defense Supplier Base is Needed,"
dated August 21, 2008 (GAO Code 120693). DoD's detailed comments to the
report are enclosed. Technical comments were provided separately.
My point of contact for this matter is Ms. Dawn Vehmeier, AT&L/IP, at
(703) 602-4322 or dawn.vehmeier@osd.mil.
Signed by:
Gary Powell, for:
William Greenwalt:
Deputy Under Secretary of Defense (Industrial Policy):
Enclosure: As stated:
GAO Draft Report Dated August 21, 2008:
GAO-09-05 (GAO Code 120693):
"Department Of Defense: A Department Wide Framework To Identify And
Report Gaps In The Defense Supplier Base Is Needed"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: The GAO recommends that the Secretary of Defense
direct its Deputy Under Secretary of Defense for Industrial Policy, in
coordination with the Military Services and other relevant DoD
components, to consider the following action to identify and monitor
the supplier base: leverage existing DoD efforts to identify criteria
of supplier base problems and fully apply these criteria to guide the
identification and monitoring of supplier-base concerns throughout DoD.
(p. 15/GAO Draft Report)
DOD Response: Concur.
There is merit in having formal, published criteria for making
judgments regarding suppliers and components that are important to the
Department. In fact, the timing of this draft GAO report coincides with
the ongoing Defense Acquisition Guidebook update. This presents a
fitting and timely opportunity to institutionalize these criteria in
acquisition policy. In fact, the Deputy Under Secretary for Industrial
Policy (DUSD(IP)) has already submitted new language that would meet
this requirement (see discussion under Recommendation 2 that follows).
Recommendation 2: The GAO recommends that the Secretary of Defense
direct its Deputy Under Secretary of Defense for Industrial Policy, in
coordination with the Military Services and other relevant DoD
components, to consider the following action to identify and monitor
the supplier base: create and disseminate DoD-wide written requirements
for reporting potential concerns about supplier-base gaps. These
requirements should delineate when, and to what level, supplier-base
concerns should be elevated and should take into account the two levels
of reporting - prime contractors to program offices and program offices
to higher levels in DoD. (p. 15/GAO Draft Report)
DOD Response: Partially Concur.
There is merit in having formal, published criteria for making
judgments regarding when program offices should report/elevate supplier
issues to the DUSD(IP). As discussed previously, the timing of this
draft GAO report coincides with the ongoing Defense Acquisition
Guidebook update. DUSD(IP) submitted new Defense Acquisition Guidebook
language that would meet the requirement of when, and to what level,
program offices should elevate supplier base concerns. In general, the
guidance will encourage program offices and the Military Services to
continue to resolve identified industrial capability issues at the
lowest level possible. However, in cases when issues may impact more
than a single program or Service, or when an industrial capability
matter meets certain criteria (i.e., represents a single or sole source
supplier; used by three or more programs; represents an obsolete,
enabling, or emerging technology; requires 12 months or more to
manufacture; has limited surge production capability), the proposed
language would instruct the program office to elevate the matter via
their Program Executive Officer to DUSD(IP) (even if the program office
has ensured that its program requirement can and/or will be met).
DUSD(IP) does not agree that similar formal reporting criteria or
contractual mechanisms need to be established for prime contractors to
report supplier base concerns to the program office. Prime contractor
responsibilities include identifying, managing, and solving program
issues and risks. The Department expects primes to maintain internal
corporate metrics to evaluate the health and performance of their
subcontractors. Likewise, it is the program office's responsibility to
maintain frequent and open communications with the prime and key
suppliers to keep appraised of any issues that could potentially affect
the program's cost, schedule, or performance. These are qualities of
responsible and successful program management.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Ann Calvaresi-Barr, (202) 512-4841 or calvaresibarra@gao.gov:
Acknowledgments:
In addition to the contact name above, John Neumann, Assistant
Director; Tara Copp; Lisa Gardner; Michael Hanson; Ian Jefferies; Marie
Ahearn; Jean McSween; and Karen Sloan made key contributions to this
report.
[End of section]
Related GAO Products:
Defense Production Act: Agencies Lack Policies and Guidance for Use of
Key Authorities. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-
854]. Washington, D.C.: June 26, 2008.
Defense Acquisitions: Assessments of Selected Weapon Programs.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-467SP].
Washington, D.C.: March 31, 2008.
Defense Infrastructure: Management Actions Needed to Ensure
Effectiveness of DOD's Risk Management Approach for the Defense
Industrial Base. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-
1077]. Washington, D.C.: August 31, 2007.
High-Risk Series: An Update. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-310]. Washington, D.C.: January 2007.
Highlights of a GAO Forum: Managing the Supplier Base in the 21ST
Century. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-533SP].
Washington, D.C.: March 31, 2006.
Best Practices: Better Support of Weapon System Program Managers Needed
to Improve Outcomes. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-
06-110]. Washington, D.C.: November 30, 2005.
Federal Procurement: International Agreements Result in Waivers of Some
U.S. Domestic Source Restrictions. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-05-188]. Washington, D.C.: January 26, 2005.
Defense Acquisitions: Knowledge of Software Suppliers Needed to Manage
Risk. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-678].
Washington, D.C.: May 25, 2004.
Joint Strike Fighter Acquisition: Observations on the Supplier Base.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-554]. Washington,
D.C.: May 3, 2004.
[End of section]
Footnotes:
[1] In our questionnaire, we asked these 20 program officials, "Since
fiscal year 2003, have any supply gaps or potential supply gaps
(because of obsolescence, lack of suppliers, production delays, etc.)
been identified through supplier-base information maintained by your
program?"
[2] Exec. Order No. 12,656, Assignment of Emergency Preparedness
Responsibilities, 53 Fed. Reg. 47,491 (1988).
[3] The National Defense Authorization Act for Fiscal Year 2004 directs
the Secretary of Defense to establish a program to assess the United
States' dependency on foreign sources of supply and report annually on
its assessment to the congressional Armed Services Committees. Pub. L.
No. 108-136 § 812 (2003), as amended by the John Warner National
Defense Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364 §
841 (2006).
[4] DOD categorizes its supplier base into seven sectors: aircraft;
command, control, communication, computers, and intelligence; ground
vehicles; missiles; services; shipbuilding; and space.
[5] Army Regulation 700-90: Army Industrial Base Process (2004).
[6] Air Force Policy Directive 63-6: Industrial Base Planning (1993).
[7] DOD Directive 5101.2, DOD's Executive Agent for Space (2003),
requires the Air Force to develop assessments and, where appropriate,
recommend strategies to maintain the capability of the U.S. space
industry to meet DOD needs.
[8] As called for in the National Infrastructure Protection Plan, DOD
has developed a risk-management approach to identify critical assets in
the defense supplier base needed to support mission-essential tasks.
This effort is focused on a list, known as the Critical Asset List.
[9] The Defense Production Act of 1950, as amended, aims to ensure the
availability of industrial resources to meet national defense and
national security needs. 50 U.S.C. App. §§ 2061-2171.
[10] 10 U.S.C. § 187.
[11] Generally, due to the proprietary nature of the data maintained by
the prime contractor on their subcontractors, the degree to which these
data are shared with respective program offices varies.
[12] A traveling-wave tube is an electronic device used to amplify
radio-frequency signals to high power, usually in an electronic
assembly known as a traveling-wave tube amplifier.
[13] GAO, Defense Production Act: Agencies Lack Policies and Guidance
for Use of Key Authorities, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-854] (Washington, D.C.: June 26, 2008).
[14] Title I of the Defense Production Act of 1950, as amended,
authorizes the President to prioritize contracts. Contracts in support
of an authorized program are given a priority rating. A DX rating is
assigned to those programs of highest national priority.
[15] GAO, Defense Acquisitions: Assessments of Selected Weapon
Programs, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-467SP]
(Washington, D.C.: Mar. 31, 2008).
[End of section]
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