oversight

Defense Acquisitions: Army Purchased Truck Trailers That Cannot be Used as Planned

Published by the Government Accountability Office on 1999-10-27.

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

                  United States General Accounting Office

GAO               Report to the Honorable
                  Tom Harkin, U.S. Senate



October 1999
                  DEFENSE
                  ACQUISITIONS

                  Army Purchased Truck
                  Trailers That Cannot
                  Be Used as Planned




GAO/NSIAD-00-15
United States General Accounting Office                                                  National Security and
Washington, D.C. 20548                                                            International Affairs Division



                                    B-283452                                                                         Leter




                                    October 27, 1999

                                    The Honorable Tom Harkin
                                    United States Senate

                                    Dear Senator Harkin:

                                    The Army has purchased 6,700 ¾-ton High Mobility Trailers as companion
                                    trailers for the High Mobility Multipurpose Wheeled Vehicles, 1¼-ton
                                    trucks. The Army is buying two types of trailers. A cargo trailer that will be
                                    used to carry loose cargo, such as ammunition boxes, and a chassis trailer,
                                    which will be used to permanently attach towed equipment, such as power
                                    generators. The trailers’ unit price has significantly increased and generally
                                    they cannot be used as planned until modifications are made to the trailers
                                    and the trucks that tow them. The Army plans to acquire
                                    18,412 more of the trailers. In response to your request, we (1) determined
                                    factors leading to the substantial increase in the contract unit price of the
                                    trailers, (2) identified reasons the trailers cannot be used as planned and
                                    the cost to the Army for required modifications, and (3) assessed the
                                    Army’s acquisition strategy and plans to procure additional trailers.



Results in Brief                    The Army has paid a much higher unit price for the High Mobility Trailers
                                    than it originally expected primarily because it awarded a $50.6-million,
                                    5-year, multiyear contract to produce 7,563 trailers and then decided not to
                                    fund the fourth year of the contract. A program official said that the Army
                                    did not fund the fourth year of the contract because of other higher funding
                                    priorities. The multiyear contract required the cancellation of the fourth
                                    and fifth years of production if the fourth year was not funded. Rather than
                                    cancel the final 2 years of the contract, the Army and the contractor agreed
                                    to a restructured contract. At the time the contract was restructured, the
                                    contractor was more than a year behind the original delivery schedule and
                                    had incurred additional costs in modifying the trailer to meet requirements.
                                    The restructured contract reduced annual production quantities; extended
                                    production a year; and increased the price of each cargo trailer by
                                    57 percent, from $6,710 to $10,521, and each chassis trailer by 50 percent,
                                    from $3,560 to $5,334. The increase in unit price was attributed primarily to
                                    spreading overhead costs over fewer units, allowing for higher labor and
                                    material costs, and an increase in the contractor’s profit percentage.




                                    Page 1                                      GAO/NSIAD-00-15 Defense Acquisitions
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Most of the 6,700 High Mobility Trailers the Army has purchased are (1) not
usable because of a safety problem and (2) not suitable because they
damage the light and heavy trucks towing them.1 In addition to damaging
the truck, the Army found that the trailer drawbar could break, causing a
safety problem. If it breaks, the trailer can disconnect from the truck or
overturn. The Army has placed all 5,696 cargo trailers and 854 of the
chassis trailers into storage until they are modified to correct the problem.
The modifications to correct the trailer drawbar problem caused additional
problems with the trailer brakes and additional damage to the trucks. Since
it had accepted the trailer design, the Army determined that it would pay
for the required modifications. To make the trailers usable and suitable, the
Army needs to make three modifications to the trailers and one
modification to each type of truck. It has identified two of the trailer
modifications that will cost an additional $640 for each trailer and a truck
modification that will cost an additional $250 for each heavy truck.
However, it has not yet identified the other trailer modification or the light
truck modification.

The Army’s acquisition strategy underestimated the risks. The Army, based
on its belief that only minor modifications to an existing trailer design were
required, entered into a multiyear production contract without
demonstrating that the design would meet its requirements. Further, the
contract required the contractor to design, produce, and deliver trailers
within 150 days of contract award. The Army subsequently found that the
contractor could not meet the contract’s original delivery schedule, the
trailers initially did not pass testing, and the initial trailer design required
significant modifications. It plans to award a competitively bid, 5-year
requirements contract sometime after fiscal year 2002 begins to acquire
more High Mobility Trailers. The Army is in the early stages of planning for
this contract and has not worked out many of the details. It is revising the
trailer specifications and as a result, the new contract may include a new
trailer design.

This report contains a recommendation to the Secretary of Defense to
require the Army, before beginning production of the follow-on trailers, to
demonstrate the design will meet requirements and will not damage the

1
 The light trucks are the High Mobility Multipurpose Wheeled Vehicles that were produced
with a frame cross member instead of a rear bumper and can tow up to 3,400 pounds,
including the trailer and its load. The heavy trucks are the High Mobility Multipurpose
Wheeled Vehicles that were produced with a rear bumper and can tow up to 4,200 pounds,
including the trailer and its load.




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             trucks. In its comments to the report, the Department of Defense
             concurred with this recommendation.



Background   In 1987, the Army decided it needed a new companion trailer for the High
             Mobility Multipurpose Wheeled Vehicle to provide improved off-road
             mobility and carry heavier loads compared to the then current M101 series
             ¾-ton military trailer. The Army found that the M101 series trailer lacked
             stability because its wheels did not have the same tire track width as the
             High Mobility Multipurpose Wheeled Vehicle and its suspension was not
             adequate. As a result, the trailer had a tendency to overturn, even at low
             speeds, in soft soil and rough terrain.

             The new trailer (see fig. 1) was designed to be compatible with both the
             light and heavy High Mobility Multipurpose Wheeled Vehicles. Differences
             in the two trucks required that two cargo versions of the trailers be
             produced. The light cargo trailer was to carry at least 1,500 pounds and the
             heavy cargo trailer was to carry at least 2,500 pounds. The new trailers also
             included a chassis version that was to carry at least 2,700 pounds. The
             Army required the trailers to have the same track width and tires as the
             truck and inertia brakes, called surge brakes, which are actuated by forces
             between the tow hitch of the truck and the drawbar of the trailer. The
             trailer was to be capable of being towed at speeds up to 20 miles per hour
             cross-country, 35 miles per hour on secondary roads, and 55 miles per hour
             on primary roads.




             Page 3                                      GAO/NSIAD-00-15 Defense Acquisitions
B-283452




Figure 1: The High Mobility Cargo Trailer




Source: Raytheon E-Systems Richardson.


On October 27, 1993, the Army awarded a $50.6-million, multiyear, firm
fixed-price, 5-year production contract, with options, to Electrospace
Systems, Inc., Richardson, Texas, to produce 7,563 trailers for active,
guard, and reserve Army units. Electrospace subcontracted with Silver
Eagle Manufacturing Co., Portland, Oregon, for the actual production of the
trailers. Silver Eagle based its new trailer design on a High Mobility
Multipurpose Wheeled Vehicle trailer it had designed earlier for an Army
demonstration program. Silver Eagle had previously sold 15 of these
trailers for demonstration programs, both inside and outside the Army.
Electrospace and Silver Eagle had to modify the earlier military trailer to
meet the new requirements. Electrospace became part of Raytheon
E-Systems, Inc., in June 1996.

The contract was restructured, effective on December 27, 1996. The Army
fielded the first 740 trailers to Army Reserve and National Guard units. The
contractor produced 6,700 trailers at a total price of $57 million under the



Page 4                                      GAO/NSIAD-00-15 Defense Acquisitions
                         B-283452




                         restructured contract. The contractor had delivered all the trailers required
                         by the restructured contract by the end of July 1999.



Contract Unit Price of   The Army has paid a much higher unit price for the High Mobility Trailers
                         than it originally expected, primarily because it awarded a multiyear, 5-year
Trailers Increased       production contract that required it to fully fund each year by a specific
Significantly            date or cancel the remaining production years and then decided not to fund
                         the fourth year of the contract. Rather than cancel the remaining
                         production years, the Army and the contractor decided to restructure the
                         contract. The restructuring reduced the number of trailers to be produced
                         and allowed the contractor to reprice the trailers based on then-current
                         costs. This resulted in a 57-percent increase, from $6,710 to $10,521, in the
                         unit price of the cargo trailers and a 50-percent increase, from $3,560 to
                         $5,334, in the unit price of the chassis trailers.

                         In developing its fiscal year 1997 budget request, the Army decided not to
                         fund the High Mobility Trailer program. A program official said that the
                         Army cited higher funding priorities as the reason for not funding the trailer
                         program. The funding was required for the fourth year of the 5-year
                         production contract. Under the terms of the multiyear contract, if the
                         required funds were not available by the required date, the Army would
                         have to cancel the remainder of the contract and pay the contractor for
                         reasonable and necessary costs incurred and a reasonable profit on those
                         costs. The contract limited these costs to no more than $1.1 million for
                         cancellation of the contract’s fourth and fifth production years.

                         Rather than cancel the contract, the Army and the contractor negotiated a
                         restructured contract, effective December 27, 1996. According to program
                         office officials, they believed the benefits of continuing the contract
                         outweighed the costs of cancellation. On December 23, 1996, 4 days before
                         the restructure, the Army informed the contractor that the trailers had
                         successfully completed the testing to show that they met contract
                         performance requirements. At that time, the contractor was more than a
                         year behind the original delivery schedule and had incurred additional
                         costs in modifying the trailers to meet requirements. However, the Army
                         did not allow the contractor to recoup the additional costs on the
                         restructured contract.

                         Under the restructured contract, the original fourth and fifth years of
                         production were terminated and a lower total production quantity was
                         established and spread over 3 years of production. The original contract



                         Page 5                                      GAO/NSIAD-00-15 Defense Acquisitions
                          B-283452




                          called for 4,534 trailers to be produced in the last 2 program years. The
                          restructured contract reduced this number to 2,300 trailers to be produced
                          over 3 years. The restructured contract allowed the contractor to increase
                          its unit prices to $10,521 per trailer for the two cargo trailer versions, an
                          increase of 57 percent over their original unit price of $6,710, and to
                          $5,334 per trailer for the chassis trailer version, an increase of 50 percent
                          over its original unit price of $3,560. The negotiations leading to the
                          restructured contract attributed the increased unit price to spreading
                          overhead costs over fewer units, allowing for higher labor and material
                          costs, and increasing the contractor’s profit percentage.



Trailers Are Not Usable   Most of the 6,700 High Mobility Trailers the Army has purchased are (1) not
                          usable because of a safety problem and (2) not suitable because they
With Trucks Until the     damage the trucks towing them. The Army found that the trailer drawbar
Army Modifies Them        could break causing a safety problem. If it breaks, the trailer could
                          disconnect from the truck or overturn. The Army has stored all 5,696 cargo
                          trailers and 854 of the chassis trailers until they are modified to correct the
                          problem. The modification to correct the trailer drawbar problem caused
                          additional problems with the trailer brakes and additional damage to the
                          trucks. Because it had previously accepted the trailer design, the Army
                          determined that it would pay for the required modifications identified since
                          the acceptance. The Army will pay an additional $640 per trailer for
                          required trailer modifications but has not yet determined the modification
                          needed to correct the trailer’s brakes. The Army also will pay $250 per
                          heavy truck for a modification, but it has not determined the required
                          modification for the light truck. Because the Army has not determined all
                          the required modification, the total program or unit cost to the Army for the
                          trailers is unknown.

                          In July 1995, the Army Operational Evaluation Command performed an
                          operational assessment of the trailers using data generated during
                          production testing. It found that (1) the trailer demonstrated the potential
                          for causing catastrophic failure in the truck due to cracking of the truck’s
                          rear cross member and (2) the heavy truck jack was not compatible with
                          the trailer, which did not have a requirement to have a tire jack of its own.
                          The Command assessed the trailers as effective but not suitable for Army
                          use primarily because of the damage to the truck. It recommended that the
                          cause of the truck damage be investigated and corrected before approving
                          the trailers for full fielding.




                          Page 6                                       GAO/NSIAD-00-15 Defense Acquisitions
B-283452




Although the trailers damaged the trucks towing them during testing, the
Army concluded that the design met contract performance requirements.
The program office did not believe the truck damage was a major problem
because only three of the trucks were damaged during testing. Rather than
correcting the truck damage problem before fielding, the Army, on
December 23, 1996, informed the contractor that the trailers had
successfully completed testing and that it would accept all trailers built to
their designs. The Army fielded the first 740 trailers to Army Reserve and
National Guard units without correcting the problem.

To prevent the trailer from damaging the trucks, the Army developed
bumper and cross member modifications. In testing the truck
modifications, on November 14, 1997, the trailer drawbar broke. In
analyzing the drawbar design, the Army determined that the drawbar had
no margin of safety when the trailer was fully loaded and the drawbar was
bending when going over a bump or rough spot. Since it had accepted the
trailer design, the Army determined that it would pay for the required
modifications.

On March 3, 1998, the U.S. Army Tank-automotive and Armaments
Command issued a safety-of-use message requiring the Army to stop using
all High Mobility Trailers, except about 150 chassis versions with
generators mounted on them. These trailers were excluded because their
operational weight was lower than that of the cargo trailers and would not
break a drawbar. Since the message, the Army has been accepting trailers
from the contractor and immediately placing them in storage at various
locations around the country until the necessary modifications can be
made. It has 5,696 cargo trailers and 854 chassis trailers in storage.

To correct the drawbar problem, the Army developed a new drawbar with a
steel center bar to replace the trailer’s original all aluminum drawbar. It
began testing trailers modified with the new drawbar on May 8, 1998. The
modified drawbar was stiffer that the original drawbar, and the Army found
that it accelerated the wear on the surge brake actuator housing2 and
caused more damage to the trucks than the original drawbar.




2
 The surge brake actuator housing is located on the trailer drawbar and contains the surge
brake actuator, which is basically a piston that the truck slowing down or accelerating
moves to compress or expand hydraulic fluid that, in turn, cause the trailer brakes to engage
or disengage.




Page 7                                               GAO/NSIAD-00-15 Defense Acquisitions
B-283452




On July 8, 1999, the Army completed its latest test of truck and trailer
modifications. Some of the modifications were successful and some were
not. The trailer drawbar modification was successful because it did not fail
during testing, and the heavy truck bumper modification kept the trailers
from damaging the heavy trucks. However, the trailer brake actuator and
light truck modifications were not successful since the surge brake
actuator housing cracked and parts wore out and the trailer continued to
damage the light trucks.

A program official said that the heavy truck trailer will need a heavier surge
brake actuator and the light truck will need additional reinforcement to its
rear cross member. As of September 27, 1999, the Army had not decided on
the surge brake actuator housing modification or the light truck
modification needed to correct the problems. The program official also
said that most of the stored trucks would not be retrofitted with the
drawbar and surge brake modifications until the surge brake problem is
corrected and demonstrated either through modeling and simulation or
actual testing. However, he added that because units had to turn in their
older trailers before being issued the new trailer, the program office is
seeking approval to immediately retrofit the modified drawbar onto the
740 fielded trailers. The retrofit will allow the units to use the trailer up to
10 miles-per-hour cross-country as long as they inspect the trailers and
trucks more often.

The final unit cost of the trailers cannot be determined until the Army
identifies all of the trailer and truck modifications needed to make the
trailers suitable for Army use. Since the Army will pay for these
modifications, these costs should be added to the contract unit price of the
trailers to obtain the total unit cost for the trailers. The Army has
determined that each trailer needs (1) a jack adapter costing $60 that will
allow the heavy truck tire jack to be used on the trailers and (2) the
drawbar modification estimated to cost $580. These will increase the unit
cost to $7,350 for cargo trailers and $4,200 for chassis trailers bought
before the contract was restructured and $11,161 for cargo trailers and
$5,974 for chassis trailers bought after the contract was restructured. The
modification cost to solve the surge brake actuator problem should be
added to these costs once the Army identifies the required modification.

In addition to determining the cost of the trailer modifications, the cost to
modify the trucks needs to be determined to arrive at the Army’s total cost
for the trailer program. The Army estimates the modification on the heavy
trucks will cost $250 per truck. However, the Army has not determined the



Page 8                                       GAO/NSIAD-00-15 Defense Acquisitions
                       B-283452




                       modification for the light trucks. Also, the Army has not determined the
                       number of trucks that need to tow the trailer and therefore would need the
                       modifications. The Army was surveying the units that have the trucks to
                       determine their requirements for towing the trailer.



Army’s Acquisition     The Army, based on its belief that only minor modifications to an existing
                       trailer design were required, entered into a multiyear, 5-year production
Strategy               contract without demonstrating that the design would meet its
Underestimated Risks   requirements. The Army subsequently found that the contractor could not
                       meet the original delivery schedule, the trailers initially did not pass testing,
                       and the initial trailer design required significant modifications. The Army is
                       in the early stages of planning for the follow-on purchase of trailers. The
                       follow-on contract may include a new trailer design.

                       The Army awarded the multiyear production contract because it believed
                       that its High Mobility Trailer requirements could be met by making minor
                       modifications to an existing Silver Eagle trailer. Its market investigation
                       prior to contract award determined that both Silver Eagle and another
                       manufacturer had existing trailers that met 92 percent of the Army
                       requirements. However, this determination was based upon the
                       manufacturers’ statements, not on Army tests. The trailer contract,
                       awarded to Electrospace, required the contractor to design, produce, and
                       deliver the first 12 trailers for testing within 150 days of contract award.
                       The contractor was from 4 to 6 months late in delivering the first 12 trailers,
                       which were initially unable to meet the contract requirements because of
                       excessive wear to the axle and surge brake actuator. The contractor
                       replaced the original axle with a stronger one and modified the trailer’s
                       surge brake actuator. The Army tested the modified trailers and, while it
                       determined that the axle problem had been fixed, it raised continuing
                       concerns about wear to the surge brake actuator. However, rather than
                       requiring further modifications to the brake, the Army accepted a surge
                       brake system warranty from the contractor. On December 23, 1996, the
                       Army informed the contractor that the trailers had successfully completed
                       the testing to show that they met contract performance requirements and
                       that it would accept all trailers built to the same configuration as those that
                       had successfully completed testing.

                       The Army plans to acquire 18,412 more High Mobility Trailers and to
                       continue the trailer program with the award of a 5-year requirements
                       contract. Originally, the Army planned to award this contract in March
                       2000; however, problems with the trailers and an Army decision not to fund



                       Page 9                                        GAO/NSIAD-00-15 Defense Acquisitions
                  B-283452




                  the program in fiscal year 2001 will delay the contract award until October
                  2001 at the earliest.

                  The Army is in the early stages of planning for this contract and has not
                  worked out many of the details of the follow-on production, but it is
                  revising the trailer specifications. For example, the program office has
                  considered allowing the next contractor to produce the new trailers with a
                  brake system other than an inertia brake system. The current surge brake
                  system resulted from the requirement that the original trailers have an
                  inertia brake system. As a result of revising the trailer specifications, the
                  new contract may include a new trailer design.



Conclusions       The Army’s acquisition strategy for High Mobility Trailers underestimated
                  the risks of entering into a multiyear, 5-year production contract before
                  demonstrating that the trailer’s design met its requirements. As a result, the
                  trailers cannot be used as planned, and the Army and the contractor have
                  incurred substantial additional costs to fix problems. The Army’s plan for
                  the follow-on purchase of trailers may include a new design, but it is not
                  clear yet if the Army plans to demonstrate, prior to production, that the
                  new design will meet its requirements.



Recommendation    To ensure that the Army does not again acquire trailers that need
                  substantial modifications before being fielded, we recommend that the
                  Secretary of Defense require the Army, before proceeding with follow-on
                  production of the trailer, to demonstrate the design will meet requirements
                  and will not damage the trucks.



Agency Comments   In commenting on a draft of this report, the Department of Defense
                  concurred with the recommendation, stating that before proceeding with
                  the follow-on procurement of the trailer, the Army will perform testing to
                  demonstrate that the trailer design meets operational requirements and will
                  not damage the truck towing it. The Department added that the Army has
                  reviewed the original trailer strategy and its execution to develop an
                  improved strategy for the follow-on trailer procurement. In addition, the
                  Department stated that the Army is refining the trailer performance
                  specification and developing a more rigorous testing plan that will evaluate
                  trailer and truck performance as an integrated system.




                  Page 10                                     GAO/NSIAD-00-15 Defense Acquisitions
              B-283452




Scope and     To identify the factors leading to a substantial increase in the trailer’s
              contract unit price and the reasons the Army cannot use most of the trailers
Methodology   until modifications are made, we reviewed the original market
              investigation report, the Army’s acquisition strategy, contract files, program
              schedules, test plan and reports, and other program documents. We
              discussed implications of the documentation with program and test
              officials.

              To assess the Army’s acquisition strategy and plans to procure additional
              trailers, we reviewed the High Mobility Trailer acquisition strategy and
              plan, Army budget documents, and other program documents. We
              discussed the evolving plans with Army program officials involved in
              planning the follow-on trailer contract.

              In performing our work, we obtained documents and interviewed officials
              from the Offices of the Secretary of Defense and the Army, Washington,
              D.C.; the U.S. Army Tank-automotive and Armaments Command, Warren,
              Michigan; and the U.S. Army Aberdeen Test Center, Aberdeen Proving
              Ground, Maryland.

              We conducted our review between May and September 1999 in accordance
              with generally accepted government auditing standards.


              Unless you publicly announce its contents earlier, we plan no further
              distribution of this report until 30 days from its issue date. At that time, we
              will send copies of the report to Senator John W. Warner, Chairman, and
              Senator Carl Levin, Ranking Minority Member, Senate Committee on
              Armed Services; Senator Ted Stevens, Chairman, and Senator Daniel K.
              Inouye, Ranking Minority Member, Subcommittee on Defense, Senate
              Committee on Appropriations; Representative Floyd D. Spence, Chairman,
              and Representative Ike Skelton, Ranking Minority Member, House
              Committee on Armed Services; and Representative Jerry Lewis, Chairman,
              and Representative John P. Murtha, Ranking Minority Member,
              Subcommittee on Defense, House Committee on Appropriations. We will
              also send copies of this report to the Honorable William S. Cohen,
              Secretary of Defense; the Honorable Louis Caldera, Secretary of the Army;
              and the Honorable Jacob J. Lew, Director, Office of Management and
              Budget. We will make copies available to others on request.




              Page 11                                      GAO/NSIAD-00-15 Defense Acquisitions
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If you or your staff have any questions concerning this report please call
Robert J. Stolba or me on (202) 512-4841. Major contributors to this report
are Lawrence Gaston, Jr.; Stephanie J. May; and William T. Woods.

Sincerely yours,




James F. Wiggins
Associate Director
Defense Acquisitions Issues




Page 12                                    GAO/NSIAD-00-15 Defense Acquisitions
Page 13   GAO/NSIAD-00-15 Defense Acquisitions
Appendix I

Comments From the Department of Defense                         Appendx
                                                                      Ii




             Page 14         GAO/NSIAD-00-15 Defense Acquisitions
                       Appendix I
                       Comments From the Department of Defense




Now on p. 10


See p. 10




(707416)       Leter   Page 15                                   GAO/NSIAD-00-15 Defense Acquisitions
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