Problems in the Award and Administration of Contracts for Operation and Maintenance of Government Property in Thailand

Published by the Government Accountability Office on 1971-03-17.

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

                                    ?hkED STATES VENTRAL ACCOWTING OFFICE
                                                WASHINGTON,    D.C.   20348



                Dear Mr o Secretary:

                       On July 1, 1970, we sent you, for your review and com-
                merits, a draft     of a proposed report           to the Congress onEob-
                                                               on   _ilof
                                                               i&LII*i     contracts
                                                                       y*,lG*i,*-        w&&h-%+
c/2,6 o/@/                                                                            . -~I.~...w~
                                                               c. (cl-                          a..5 AM-R&+
                >                            for operation         and maintenance of Gov-
                ernment   property.   in  .Thaila-rrd.;-
                1g70) t;e~.~~r-~~~~~~;i:‘~~~-‘~e~~;tment -‘By lett‘er
                                                              of the Army,  Z’ted s Ootober
                                                                                     position 20,      state-
                ment on the draft          report     (OSD Case 3141).

                     We have given careful    consideration     to the actions      taken
                and to be taken as presented     in the Army’s position       statement
                with reference   to our proposals    concerning    the matters    that
                appeared to need corrective    action,    and we have decided not
                to submit a formal report    on our review to the Congress.            We
                are, however, sending a copy of this letter          to the Chairman,
                Permanent Subcommittee on Investigations,         Senate Committee on
                Government Operations,   because of his expressed interest            in’
                these contracts.

                      The corrective    actions proposed by us as set forth in
                the report  draft,   the Army’s related  comments, and our evalu-
                ation of the Army’s comments are summarized in this letter.

                       Our proposals  for corrective     actions   resulted  from our
                review of the operations     of AMPAC under cost-plus-a-fixed-fee
                contracts   for management, operation,       maintenance,   and repair
                of Government property     in Thailand.      These AMPAC contracts
                were awarded and administered       by the U.S. Army Procurement Of-
                fice,   Bangkok, Thailand.    They aggregated about $35 million        in p
                the 4-year period ended June 30, 1970.

                      The Army concurred    in principle     with our proposals       and
                had taken appropriate    corrective     actions.      The Army stated
                also that personnel    in the field     appreciated     the technical     ad-
                vice, assistance,    and recommendations       provided    during the
                course of our audit in Thailand.

                                             50 Tt4 ANNIVERSARY 1921- 1971
.-    .


           Our proposals    and the Army’s     positions   were as follows:

           GAO proposal --The Army reconsi’der  the need for requiring
           that Government-owned equipment to be furnished      to con-
           tractors  overseas be listed  in a table of distribution
           and allowances and establish    new guidelines  to expedite
           obtaining  essential items of equipment for contractors’

            The Army concurred with our proposal and stated that they
     were reviewing    the requirement    for contractors  to utilize
     tables of distribution      and allowances as a basis for requisi-
     tioning   and possession authority      for Government property  and

             We believe that one of the reasons contractors              are uti;
     lized by the military      agencies to perform essential            services
     is the desire for operational       flexibility         and that the above
     restriction     blocked the contractor’s        ability    to perform in an
     economical manner.

           GAO proposal --Army contracting   officials   intensify    their
           program of surveillance   of AMPAC contracts     in the area of
           personnel administration    to ensure contractor     compliance
           with the terms of the contracts.

            The Army concurred with this proposal  and stated           that   the
     following   actions had been taken or were being taken.

           “(1) The DCAA Auditor    has been requested    to continue
           audits of the contractor    performance   in this area and
           will  provide reports  to the Contracting    Officer.

           “(2) The Army Civilian  Personnel Office  has initiated
           informal reviews and will  continue  to do so.

           “(3) U.S. Army Manpower Survey Office   (USARPAC) re-
           viewed the complete manning for the follow-on  con-
           tract and approved the proposal.


          “(4) The Contracting        Officer’s    Representatives      have
          been directed     to monitor this area closely           to prevent
          future  errors.      The Contractor      has initiated     the con-
          trol procedures      required.       This problem was a factor
          in previous     contracts    as pointed out by GAO and has
          been corrected.     VI

          GAO proposal    - - The Army strengthen    the procedures     for en-
          suring that     contractors’    procurement   systems are reviewed
          and approved      in accordance with military      regulations
          prior  to the     expenditure   of large amounts of money.
I         The Army concurred with         this proposal   and stated that
    (1) a property     administrator      had been assigned,    (2) a supply
    specialist   position    had been     established   and was in the pro-
    cess of being filled,       and (3)    new procurement   procedures   had          ’
    been established.

          GAO proposal --The Army Procurement Office,     Bangkok, con-
          sider procuring   all items of material  required   for use
          by AMPAC, except items needed on an emergency basis,                         1
           Although the Army did not agree with. this proposal          apply-
    ing to all items of material        required     for use by AMPAC, they
    stated that the Army would control           local procurement  by t%e
    contractor.     Specifically,    they advised that the contract       man-
    agement office    would be in.the      same building    with the U.S.
    Army Procurement Office       and that all local purchases would be
    cleared through that Office        to ensure that prices quoted were
    the lowest prices available.

            In regard to procurement    from the United States, the
    Army presented    convincing   reasons why it would be more desir-
    able and economical for such items to continue       to be procured
    directly    by the contractor.

          GAO proposal-- Army officials     review AMPAC’s property             con-
          trol system and transfer      to AMPAC accountability   for           Gov-
          ernment property  under its control.

l   -


              The Army concurred with this proposal and stated that                  6
        AMPAC's property  control     system was reviewed and property   ac-
        countability  was transferred      to the contractor on February 17,

              GAO proposal --The Army require AMPAC to take aggressive
              action to (1) purge unneeded supplies       from its system,
               (2) correct    its stock records and reports,    (3) strengthen
              inventory    procedures,  and (4) ensure that materials
              transferred     to AMPAC are promptly  taken into accountabil-

             The Army concurred with this proposal and stated that
        the following actions had been taken or were being taken.

              "(1) The Contractor has purged excess supplies from
              the system and has reduced the inventory to 1.2 mil-
              lion dollars.

              "(2) The Army has initiated  Operation Clean Sweep, a
              drive to eliminate  not only excess equipment, but
              also to eliminate  unused or marginally  required
              items from the command.

              "(3) The Contractor  initiated   corrective   action
              while the GAO team was still   in-country   to correct
              the stock record cards and to strengthen      inventory
              procedures.   New SOP's have been developed and sup-
              ply actions were mechanized to provide improved con-

              "(4) The Contractor    has initiated  monthly    scheduled,
              progressive,  closed   warehouse, inventories     in all

              "(5) AMPAC has been directed    to refrain  from accept-
              ing or from soliciting  supplies   from sources other
              than those authorized.

              "(6) The Army Commander has emphasized the proper
              channels for turn-in of unneeded supplies and

.-   B-159451

            equipment through commander’s briefings               and such
            programs as Operation Clean Sweep.”

            GAO proposal --The Army investigate      the circumstances    sur-
            rounding the construction-type     projects    discussed   in this
            report which were in excess of the $25,000 limitation           on
            the use of operation    and maintenance funds for such proj-
            ects and ensure that required     corrective    action was

             The Army established     a board of officers,          in February
      1970, to investigate       the circumstances       surrounding     the
      construction-type      projects   we had discussed.          After   investiga-
      tion the board determined       and reported       that no violation        of
      section    3679 Revised Statutes     had occurred,        that incremental
      construction      had not been performed,      and that construction           proj-
     ,ects had not been classified        as maintenance projects,            and
      stated that the circumstances        surrounding       the construction        in
      question     did not merit further     investigation.

            We believe that the Army has taken reasonable                 actions    in
     this   matter and we consider this point closed.

           With regard to our other proposals,       we believe   that the
     Army’s comments concerning     actions   taken or planned,     as sum-
     marized above, were responsive       to our proposals.     To the ex-
     tent that the corrective    actions    had not yet been completed,
     we suggest that you have the Army advise you of the specifics
     upon completion   of the actions.

           The contractor    furnished     us comments on our draft      report
     on August 25, 1970.       In these comments, which were very
     lengthy,   the contractor     disagreed   with much of the detail        of’
     our findings.     In view of the attention        directed   by the Army
     to improving   policies     and procedures    to alleviate     the prob-
     lems we noted, we believe        that no constructive      purpose would
     be served by discussion       of the contractor’s       comments.

    ‘       .          b   -


                                     Copies of this report are also being sent to the SecYe-
                               tary of the Army and to the Director,   Defense Contract Audit

                                                              Sincerely   yours,

                                                              Director,   Defense Divisiofi
                               The Honorable
                               The Secretary   of Defense

,               “l.i