Review of the Procurement of Ammunition Components To Determine Whether Significant Amounts of Defective Items Were Being Accepted From Suppliers

Published by the Government Accountability Office on 1971-10-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                              UNITED STATS GENERALA~COUN
                                      WASHINGTON,   D.C.   205


          Dear Mr. Secretary:
                We have recently    completed a review of the procurement       '
           of ammunition components to determine whether significant          ,
           am=<- ?j-f.'-dofective
                           _.._   items---were being accepted from suppliers.

                 The Army Ammunition Procurement and Supply Agency, Jo- .; "s -'
          liet,   Illinois,    is the Defense Department's major ammunition
          procurement activity.        This agency purchases ammunition com-
          ponents and parts and furnishes        them to Government-owned,
          contractor-operated       (GOCO) plants for assembly into ammunition
          items.      The parts and components furnished      are generally  in-
          spected and accepted at the manufacturers'          plants prior to
          shipment.       In accordance with provisions     of the Armed Services
          Procurement Regulation,       such inspection    and acceptance is con-
          clusive except for latent defects,         fraud, or such gross mis-
          takes as amount to fraud.

                  Our review was performed at five of the 24 currently    ac-
           tive Government-owned, contractor-operated     Army ammunition
           plants,   the Army Ammunition Procurement and Supply Agency,
           Defense Contract Administration    Services offices,  and selected
           plants furnishing   parts and components.

                  We found that the five plants received $1.8 billion     worth
           of Government-furnished    material during a l-year period.      The
           ammunition plants,    however, could not readily  furnish  statis-
           tics showing the amount of this material     that was found to be
                  We reviewed 15 items having a value of $96.3 million         and
           found that $8.8 million,      or 9.2 percent, was reported as de-
           fective.     These materials   were acquired from contractors      or
           other GOCOplants,     hereinafter   referred  to as vendors.      We
           selected seven of the items for more detailed         examination   and
           found that the Government had incurred       $3 million   in addi-
           tional   costs due to defective    material.   The costs involved
           were as follows:

                                    50TH ANNIVERSARY       1921- 1971



                 Reinspection      and rework                               $1,633,819
                 Value    of items    scrapped                                   888,949
                 Replacement     of defective              items                 568,700
                 Transportation      costs                                        40,000


             Several    examples   of        defects       found      and   costs    incurred      for
    correction       are discussed           below.

    M7 2Al     ROCKET

            The M72Al rocket         consists  of a launcher      and a rocket-
    propelled       warhead.      It is assembled      by one of the GOCO plants,
    using     material,      such as the launcher,       motor,   closure,   and
    fuze,     acquired     by the Government      from   other  vendors.

             In 1969,        204 shipments        containing        1.1 million         launchers
    were received,            of which      33 shipments         contained        launchers
    either     with     critical       defects      (those    likely       to injure        the per-
    son handling          the item)       or with      major    defects        (those     likely     to
    reduce     materially          the usability         of the item).            Since     Govern-
    ment quality          representatives          at the vendor’s            plant     had pre-
    viously     accepted         the launchers,          the only       course      of action
    available       to Government           personnel       at the ammunition             plant     was
    to report       the defective           launchers       to the procuring            agency      and
    reinspect       the shipments.

             In 1968 and 1969 reinspections                of rocket      components         cost
    the Government          $974,184    and resulted         in scrapping       defective
    components       valued     at $694,649.          Moreover,    inspections         after
    final      assembly     had revealed      quality      defects    traceable        to de-
    ficiencies        by the vendor.         For example :

             In 1969 the contractor              operating           the Government        plant
             screened       about    19,000    assembled           rockets    for    excessive
             trigger      pressure.        According       to      an Army representative,
             this    problem      could    have been at            least   partially


    a- B-157535

             attributed   to the vendor's    failure    to place                   the required
             rust preventative   on the trigger       mechanism.                     These screen-
             ing costs amounted to $217,800.          In addition,                    7,757
             launchers,   valued at $96,300,      were scrapped.

              In another    instance,    over one third        (135,600)     of the rock-
              ets assembled      from May through       December 1969 were re-
              jected    due to fuze failures      traceable       to one vendor.      Re-
              inspections     at the GOCO plant       revealed      fuzes partially
              or completely      armed, or electrical        circuits     out of posi-
              tion.     As a result,    46,700 rockets       required     new fuzes at
              an estimated     replacement    cost of $503,800.


               During 1969 over 1.4 million                  lifting      plugs for 155 mm
      projectiles        were received         at one ammunition              plant.      During
      incoming       inspections        at the plant         about one half           of the plugs
      were found to have defective                 threads.           This occurred         even
      though the vendor submitted                 certifications            that the plugs
      were produced          in accordance        with specifications.                 The Govern-
      ment quality        assurance       representatives             at the vendor's         plant
      had identified           deviations      from required           cleaning       and pretreat-
      ment procedures            that were the primary               causes for rejection           at
      the ammunition           plant.     The inspector,             however,      accepted     the
      plugs and did not require                the production            deviations       to be cor-

            The Army has authorized     the GOCO plant    operator to screen
      and rework nearly     all the plugs received    from this vendor dur-
      ing 1969.    We estimate    that additional  costs of about $149,000
      will  be incurred.


              In August      1969 an Army ammunition  plant received  267,000
              defective      M2 bandoleers  that had to be hand packed at an
              additional      cost of $87,000.



           Another      plant     intensified       its incoming       inspection   pro-
           cedures principally              because firing       pins in T336E7 head
           assemblies        contained        a defect   that was attributed        to de-
           ficiencies        in the quality         assurance      program at the ven-
           dor's     plant.       This resulted        in additional       costs of
           $340,600 due to (1) increased                  inspection      effort  by the
           operating        contractor,        $202,700,     (2) removal and replace-
           ment of fuzes having defective                   head assemblies,      $64,900,
           and (3) scrapping            of defective        head assemblies,      $73,000.

           Incoming     inspections       performed   by the operating        contrac-
           tor on projectile          bodies for 4.2-inch       mortars     in the
           first     7 months of 1969 disclosed          52 shipments       of 149,175
           defective      units.      The Government     incurred    additional
           costs of $28,135 to reimburse            the operating       contractor
           for screening         suspect projectile      bodies.     Also the ven-
           dor agreed to rework defective             parts    at its plant      pro-
           vided that the Army paid the transportation                  costs of
           approximately         $40,000.


            The operating      contractors,     in addition  to receiving
    parts     purchased     by the Government,      purchase parts    and compo-
    nents directly        from suppliers.       In those cases, contractors
    operating      the Government plants        accept the materials     at des-
    tination.        On this basis,      they can generally    return   defective
    materials      to the vendors who must absorb the transportation,
    rework,      or replacement      costs involved.

            We found that this policy              of accepting        material    at des-
    tination     was widely        followed      by industry.        For example,       one
    vendor's     purchase      order deferred         final     acceptance      up to 30
    days after      receipt       of material,       even though the order required
    inspection      by both Government and vendor representatives                          at
    the supplier's        plant.         Another   vendor utilized         more stringent
    provisions      in its standard           purchase      order that afforded         it
    the right     to reject        any goods, within           6 months of receipt,
    which did not conform to requirements                      of the purchase       order,
    notwithstanding         prior      inspection,      payment for,       or use of the



          Because of the relatively          high-percentage        rejection       rate
    of previously    accepted    material,       we suggested     that the Depart-
    ment of Defense consider       deferring       acceptance     until      items
    reached their    destination     and were deemed adequate              for use by
    the ammunition    plants.     This, we believe,          would encourage         ven-
    dors to exercise     better   quality      control    over their       products,
    reduce costs,    and possibly      reduce the requirement            for Govern-
    ment inspectors    at vendors'       plants.

            In responding      to our draft      report,   the Assistant      Secre-
    tary of Defense,       Installations       and Logistics,       generally    con-
    curred with our findings            and conclusions      and agreed that the
    problem of rejecting          previously     accepted    material     was of suf-
    ficient    magnitude     to warrant      exploration     of alternatives
    which would reduce Government costs and improve                   the quality
    of vendors'     products      or services.

           The Assistant     Secretary      stated  that the Army was under-
    taking   a study to determine        whether,     and under what circum-
    stances,    inspection     at destination      may be cost effective.        He                  .,
    stated   also that,    as an alternative        to inspection    and accep-
    tance at destination,        the Army had included        a warranty   clause
    in selected     ammunition     component contracts      on a trial    basis.

            The Assistant     Secretary       indicated        that contracts          con-
    taining     a warranty    clause would have several                 advantages        over
    the "inspection        and acceptance         at destination"           concept.       He
    stated    that the use of warranties              might be advantageous               be-
    cause (1) it would provide            a period       after     acceptance        in which
    the Government would have legal                recourse       against      a contractor,
     (2) the Government may elect            to screen the lot of defective
    material     at the GOCO plant,         at the contractor's               expense,     and
    return    the defective      material       for replacement           to avoid a shut-
    down of GOCO production          lines,       and (3) it permitted             existing
    procurement     policies     to remain in effect              while     it provided        the        ,
    Government with recourse           against       a contractor        when defective
    material     was found subsequent           to acceptance.



                     We plan to follow      up our review to determine       the effec-
              tiveness    of the action     taken by the Department    of    Defense.

                    Copies of this report           are being sent to the House and          ._
is-1,        Senate Committees          on Armed Services       and to the House and      ,: ?
                                                                  Because of his ex-         _,
             Senate Committees          on Appropriations.
             pressed     interest     in this area, we are sending         a copy of this
         / / report    to Senator William          Proxmirei     Copies are also being
             sent to the Director,          Office     of Management and Budget;    the
             Secretary      of the Army; the Director,           Defense Supply Agency;
             the Director,        Defense Contract        Audit Agency; and the Commis-
             sion on Government Procurement.

                                                    Sincerely   yours,

                                                    Director,   Defense   Divis-ion

              The Honorable
              The Secretary    of Defense