oversight

Spare Parts Procurement: Contractor Qualification Requirements

Published by the Government Accountability Office on 1990-04-27.

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

      I;ni t cvf Statwi   (;cbnraral Awount.ilg   Offiw

GAO   Report t,o the Cornrnander, U.S. Air
      Force, Ogden Air Logistics Center




      SPARE PARTS
      PROCUREMENT
      Contractor
      Qualification
      Requirements


                                                          141236
                   United States
GAO                General Accounting Office


                   Denver Regional Office                               Suite 800
                                                                        1244 Speer Boulevard
                                                                        Denver, CO 80204

                   B-220528

                   April 27, 1990

                   Major General James W. Hopp
                   Commander, US, Air Force
                   Ogden Air Logistics Center
                   Hill Air Force Base, Utah 84506

                   Dear General Hopp:

                   Senator Richard Shelby requested that we investigate the use of precon-
                   tract award qualification requirements at the Ogden Air Logistics Center
                   (ALC) to determine whether the Ogden ALC complies with certain federal
                   laws and regulations intended to foster competition. Senator Shelby’s
                   request was based on allegations by a constituent, a small contractor in
                   Alabama, that engineers in the acquisition divisions at the Ogden ALC
                   were restricting competition by subjecting contractors to unnecessary
                   qualification requirements.

                   Specifically, this report addresses precontract award qualification
                   requirements used in the acquisition of aircraft and missile spare parts.
                   Applicable federal laws and regulations describe precontract award
                   qualification requirements as product examinations, tests or other qual-
                   ity assurance demonstrations that must be completed before a contract
                   is awarded. The government uses these requirements to make certain
                   that all potential sources can meet the strict manufacturing tolerances
                   or other operating characteristics needed for critical spare parts that
                   will be installed in airplanes and missiles. While these requirements do
                   restrict the list of bidders to those whose products have passed the
                   tests, they do not preclude competition because all sources have the
                   opportunity to submit their products for testing to become eligible bid-
                   ders. Our objective, scope, and methodology are described in appendix
                   II.


                   Responsible acquisition and competition advocacy personnel at the
Results in Brief   Ogden ALC are often not complying with federal acquisition laws and
                   regulations, nor are they regularly performing important duties that
                   affect whether contractors will engage in unrestricted competition or
                   will have to meet precontract award qualification requirements when
                   bidding for contracts. There were three areas of non-compliance in
                   Ogden ALC'S use of precontract award qualification requirements:
                   (1) acquisition divisions’ engineers have not included the required item-


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             specific information in the written justifications for the use of qualifica-
             tion requirements, (2) acquisition division personnel have not provided
             the Competition Advocacy Office (CAO) with the required information
             needed to make informed acquisition method decisions, and (3) CAOper-
             sonnel have not adequately documented the basis for their decisions to
             change the acquisition method assignments, as required. In addition, the
             record is not always clear whether CAOand Small Business Administra-
             tion (%A) personnel resolved disagreements with the acquisition divi-
             sions’ engineers over acquisition method decisions.


             The Ogden ALC is responsible for managing a number of weapon systems
Background   and components, including those used in the F-16 and F-4 aircraft. Engi-
             neers in five divisions under the Directorate of Materiel Management
             determine whether precontract award qualification requirements apply
             to the spare parts needed to support these weapon systems and
             components.

             The acquisition division personnel prepare the required documentation,
             which includes any information that may have a bearing on the acquisi-
             tion method decision. The CAOconducts a technical review of documen-
             tation received from the acquisition divisions and all other data in the
             Ogden ALC technical data file. Based on this technical review, the CAO
             personnel determine and assign the appropriate method of acquisition.
             The acquisition divisions’ engineers then assess the documentation and
             technical data, and make their own judgments about whether qualifica-
             tion requirements apply to specific spare parts. Should the engineers’
             findings differ from those of the CAOpersonnel concerning the applica-
             bility of qualification requirements, the engineers’ decision may prevail.
             The CAOreviews the engineers’ decisions and if there are disagreements,
             according to an informal policy within CAO, the disagreements are to be
             elevated as necessary to higher supervisory, branch, division, or direc-
             torate levels.

             The engineers’ decisions concerning acquisition methods and qualifica-
             tion requirements are also sent to the local SBA representatives for their
             review. SBA is included in the review process because of its interest in
             promoting contracts with small business operators through full and
             open competition. Although the SBA representatives are not officially
             part of the acquisition method assignment process, they continually
             interact with acquisition divisions’ engineers and CAO personnel concern-
             ing the acquisition method assignments. Under Public Law 100-590, if



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                             B-220528




                             the ALC rejects SBA'S recommendations on an acquisition method assign-
                             ment, the SBA representatives can file an appeal with the head of the
                             contracting activity and ultimately with the head of the agency. Even
                             though they have these appeal avenues, SBA officials stated that they
                             rarely use the appeal process, but do threaten its use to leverage infor-
                             mal agreements. Similar to CAO,SBA'S practice is to resolve disagreements
                             with the engineers informally, if possible.

                             A final method of resolution, unique to the Ogden ALC, is the Acquisition
                             Method Code (AMC) Review Board, which was established to resolve dis-
                             agreements over acquisition method assignments or the imposition of
                             qualification requirements. CAO,SBA, or acquisition division personnel
                             can bring disagreements before the Board.



Principal Findings

Engineers Are Not            Acquisition divisions’ engineers at Ogden ALC have not included required
Preparing Adequate           item-specific information in their written justifications of qualification
                             requirements. Instead, they prepared standard justifications that
Written Justifications for   include general information applicable to many items.
Qualification
Requirements                 The Competition in Contracting Act of 1984 (P.L. 98-369) states that a
                             contract may not be awarded using other than full and open competition
                             procedures unless it is justified in writing. According to an Air Force
                             Logistics Command regulation, written justifications must specify the
                             necessity for the requirements and why the qualification must be
                             demonstrated before contract award. Further, according to a local oper-
                             ating instruction, the justifications must link the assignment of qualifi-
                             cation requirements to the spare part being acquired and must
                             specifically and clearly define the reasons used to justify the
                             assignment.

                             We reviewed 24 aircraft and missile spare parts that had been changed
                             from an acquisition method using unrestricted competition to one using
                             precontract award qualification requirements between March 1985 and
                             April 1989. (See app. I.) Our analysis showed that for 21 of the 24 items,
                             the written justifications did not contain the required item-specific
                             information, did not link the qualification requirements to the items
                             being acquired, and did not specifically and clearly define the reasons
                             why qualification was necessary for those items. In fact, the language in


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    B-220528




    these 21 written justifications prepared by the engineers in the acquisi-
    tion divisions was stated in general terms that could apply to many
    items.

    The following is an example of what the engineer originally included in
    the written justification compared to what was available, but was not
    included.

    Information originally included in the written justification:

    Item: Spacer Adapter

    Application: C-5 A aircraft, nose landing gear

    Justification for establishing a qualification requirement:

    “1. Special skills associated with machining and processing of this item
    can result in product structural or durability degradations if not prop-
    erly applied.”

    “2. Execution of the qualification requirements specified herein is neces-
    sary to verify the structural and/or functional integrity and/or fit and
    form of the item being procured.”

    “3. Failure to procure these items from a fully qualified source can
    result in structural or functional deficiencies that will compromise the
    mission capability of the respective aircraft.”

     Information that was available, but not included in the written
    justification:

. This spacer adapter is a large diameter, thin-walled tube that interfaces
  between the axle and the wheel assembly for the C-5 A/B aircraft.
l This part is critical as it prevents the wheels from shifting and the tires
  from blowing when the aircraft lands.
. The dimensional tolerances of the item must be held to thousandths of
  an inch. Inability to maintain these tight tolerances introduces unstable
  movement and shifting of loads to the wheel assembly of the nose land-
  ing gear.
l Hard anodizing of the aluminum is a difficult process, especially given
  the tight dimensional tolerances. The process of hard anodizing changes




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                                                                      Spare Parta
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                                B-220528

                                                                                                     I




                              the dimensions of the item. If not compensated for or correctly accom-
                              plished, these dimensional changes can result in the condemnation of the
                              part.
                            l Thin-walled aluminum parts can be torn easily during machining
                              operations.
                            . This item requires a forging. The forging sources are identified by the
                              CAO, but the vendor must have prior arrangements with the forging
                              sources to get the contract, and must be able to prove that he or she can
                              get the forgings from an approved source.

                                Our review showed that the same standard written justification used for
                                the spacer adapter was also used for six other items that were distinctly
                                different. These items included a pivot pin on the brake torque link of
                                the main landing gear of the C-141 aircraft and a ball socket on the nose
                                landing gear of the C-5 A/B aircraft.

                                 We were told that engineers in the acquisition divisions use standard
                                justifications rather than item-specific justifications to save engineering
                                 resources, both human and financial. According to an acquisition divi-
                                 sion official, the engineers use to write justifications specific to individ-
                                 ual items; however, CAO personnel continually questioned the
                                justifications, causing engineers to fall behind in their work. Conse-
                                quently, the acquisition divisions standardized most of the justifications.

                                However, not all acquisition divisions’ officials agreed that standard jus-
                                tifications should be used. The officials in one acquisition division
                                believe that the standard justifications are inadequate, and their use is
                                discouraged. According to these officials, item-specific justifications
                                may take more time, but the engineers need to take the time to carefully
                                think through the justification of the qualification requirements for
                                every item. Further, these officials stated that they have found it easier
                                to get the more specific justifications through CAO’Sreview process.


Item-Specific Information       Acquisition division personnel are not routinely providing the CAOwith
Not Always Provided to          available item-specific information that is needed to determine the
                                appropriate acquisition method. Without complete information, CAOper-
GAO Personnel                   sonnel cannot adequately fulfill their responsibilities. According to
                                Ogden ALC regulation 57-6, acquisition division personnel are to provide
                                all information that may affect the acquisition method assignment. This
               v                information should include specifics concerning (1) known and potential
                                sources, (2) technical actions currently applicable to the item, (3) spe-
                                cific restrictive circumstances, facilities, or processes applicable to the


                                Page 5                                              GAO/NSIAD-90-138Spare Parts
                                                                           4

B-220628




item, (4) criticality and complexity of the item, and (6) definitions of
government logistics, and technical and economic risks involved with
the item.

Acquisition division personnel told us that the required information is
included in the Ogden ALC technical data file reviewed by c&o. However,
CAOpersonnel disagreed and stated that their experience has shown that
information in the technical data file (e.g., drawings and specifications)
is often outdated and incomplete. Further, the file does not include and
CAO personnel are not provided information on such things as engineer-
ing judgments, problems with certain sources, or problems with parts in
use. According to CAOpersonnel, in some instances, they requested
updated, complete information, but certain acquisition division person-
nel refused to provide it.

Our analysis of 24 aircraft and missile spare parts showed that impor-
tant item-specific information was often not provided by acquisition
division personnel to CAO. Based on information originally provided by
the acquisition divisions, the CAOpersonnel had not agreed with the
engineers’ decisions to use qualification requirements for 12 of the 24
items. Two of these disagreements were resolved by the AMC Review
Board, which changed the acquisition method back to unrestricted com-
petition. For the remaining 10 items, we obtained additional item-
specific information from the engineers and provided it to the CAO per-
sonnel. They said this information would have supported the engineers’
decisions that qualification requirements were justified for six of the
items. For the other four items, they said the information would not
have resulted in their agreement with the engineers’ decisions to use
qualification requirements.

In the example of the spacer adapter, the item-specific information pro-
vided by the engineers shows the type of information the acquisition
division personnel could provide to CJOpersonnel. When the CAO person-
nel originally reviewed the technical package for the spacer adapter,
based on the limited information provided to them by the acquisition
division at the time, they determined that the acquisition method should
be full and open competition without precontract award qualification
requirements. However, CAOpersonnel believe that had they been pro-
vided the information on the item’s special manufacturing requirements
(e.g., the hard anodizing and tight dimensional tolerances), they proba-
bly would have agreed that qualification requirements were justified.
Further, CAOpersonnel said the item-specific information provided is the



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                                                                Spare Parts
     1

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                         B220528




                         kind of information they need, but do not receive early in the process to
                         help them make informed acquisition method decisions.

                         Similarly, when we provided the SBA personnel the additional item-
                         specific information, they changed their opinion on several of the 15
                         cases that they initially believed could have been acquired without pre-
                         contract award qualification requirements. As explained above, two of
                         these cases were resolved by the AMC Review Board. SBA personnel said
                         that the additional information persuaded them to agree with the engi-
                         neer’s decision to require precontract award qualification for 5 of the
                         remaining 13 items, but not for the other 8 items. According to SBA offi-
                         cials, their criteria for advocating competition on items are broader than
                         those of CAO,because SBA is concerned with the additional factor of how
                         precontract award qualification requirements affect small businesses.


CA0 Is Not Adequately    Our review indicated that CAOpersonnel had not been complying with
Documenting Changes in   requirements that they document their technical review results. Accord-
                         ing to Ogden ALC regulation 67-6, CAOis to
Acquisition Methods
                         “
                             .  summarize the result of the technical screening performed by
                                 .   .


                         describing in sufficient detail the specific restrictive circumstances,
                         facilities, or processes . . .” that warrant qualification requirements.

                         For the 12 items we reviewed for which CAOpersonnel had assigned an
                         acquisition method requiring precontract award qualification require-
                         ments, the personnel did not adequately document the circumstances
                         requiring qualification. Instead, they included only the information con-
                         tained in the generally stated written justifications provided to them by
                         the engineers. Accordingly, the documentation disclosed little informa-
                         tion on how or why CAOpersonnel decided on the acquisition method
                         assignment.

                         CAOofficials agreed that the acquisition method decisions are inade-
                         quately documented. They are now developing a system to document
                         decisions made concerning the assignment of acquisition methods and
                         the rationale for these decisions. According to the CAODirector, they
                         plan to begin using the new system in July 1990,




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                                                                                                   i
                            B-220528




Record Not Always Clear     Although CAOand SBApersonnel disagreed with many of the engineers’
Whether Disagreements       decisions to require qualification requirements, they did not adequately
                            document the resolution of these disagreements. In addition, CA0 person-
Resolved                    nel did not regularly use the AMCReview Board to resolve disagreements
                            with engineers. Consequently, we were unable to determine which dis-
                            agreements were resolved or how. Without adequate documentation, the
                            Commander of the Ogden ALC is unable to assess whether disagreements
                            were satisfactorily resolved. Similarly, SBAis unable to assess this per-
                            formance element for its representatives at the Ogden AU;.

                            The CAOpersonnel and acquisition divisions’ engineers disagreed on the
                            use of qualification requirements for 12 of our sample items. For the two
                            disagreements resolved by the AMCReview Board, we found that the
                            basis for resolution was not documented in the case files. For the other
                            10 disagreements, documentation was generally insufficient to allow a
                            clear understanding of the basis for resolution. In 6 of the 10 cases, no
                            information about resolution was included, so it was unclear not only
                            how, but also whether the disagreements had been resolved. CAOoffi-
                            cials said that they are not required to resolve disagreements or to bring
                            them before the AMCReview Board. If they resolve disagreements, the
                            CAOpersonnel prefer to do so informally.

                            SBArepresentatives disagreed with the engineers’ assignment of an
                            acquisition method requiring qualification on 15 sample items. However,
                            the SRArepresentatives said that since they also have no requirement to
                            resolve disagreements, they did not press the engineers to resolve the
                            disagreements concerning these items. As stated above, two of these dis-
                            agreements were resolved by the AMCReview Board, but the basis for
                            resolution was not adequately documented.


                            To ensure that applicable laws and regulations are followed, and that
Recommendations             precontract award qualification requirements are used properly, we rec-
                            ommend that you direct the

                          . acquisition divisions’ engineers to properly prepare written justifica-
                            tions that document the necessity for the qualification requirements by
                            stating the reasons why qualifications must be demonstrated before con-
                            tract award, linking the assignment of qualification requirements to the
                            spare part being acquired, and stating specific and clearly defined rea-
                            sons to justify the assignment;




                            Page 8                                           GAO/NSIAD-90-138Spare Parta
    8220528




. acquisition divisions to provide CAOpersonnel with the most up-to-date
  and complete item-specific technical information before the personnel
  make acquisition method assignments;
l acquisition divisions to respond in a complete and timely manner to
  requests for information from CAOand SBA;
l   GAOto diligently seek, from the acquisition divisions’ engineers, the
  information needed to make informed acquisition method decisions, and
  regularly use the AMCReview Board to resolve disagreements with engi-
  neers; and
l CAOto adequately document changes in acquisition method assignments
  and resolutions of disagreements over those assignments.

    We also recommend that you request the assistance of the SBARegional
    Administrator to ensure that SBArepresentatives at the Ogden ALC
    resolve disagreements with ALC personnel over acquisition methods.


    Responsible officials at the Ogden ALC provided comments on the facts
    presented in this report and these comments were incorporated, as
    appropriate. Copies of this report are being sent to Senator Shelby; the
    Secretary of Defense; and the Administrator, SBA.Copies will also be
    made available to others on request.

    Please contact me at (303) 844-0017 if you or your staff have any ques-
    tions concerning this report. Major contributors to this report are listed
    in appendix III.

    Sincerely yours,




    David A. Hanna
    Regional Manager




    Page 9                                           GAO/NSLAD-90-138
                                                                    Spare Parts
Contents


Letter                                                                                     1

Appendix I                                                                               12
Sample of Spare Parts
Requiring Precontract
Award Qualification
Requirements
Appendix II                                                                              13
Objective, Scope,and
Methodology
Appendix III                                                                             14
Major Contributors to
This Report




                        Abbreviations

         Y
                        Au:      Air Logistics Center
                        AMC      Acquisition Method Code
                        CA0      Competition Advocacy Office
                        SBA      Small Business Administration


                        Page10                                   GAO/NSL4D-90-138Spare Parta
Y




    Page 11   GAO/NSIAIHO-138 Spare Parts
Appendix I
Sample of Spare Parts Requiring Precontract *
Award Qualification Requirements

                                                                                                           Additional
                                                                   Acquisition       Adequacy of           information
                        Item -                                     division0         justificationb        availableC
                   1.   Gyro end cover                             MMG               Inadequate            Yes               -
                  2.    Hinge (wing)                               MMS               Inadequate            Yes
                  3.    Hinge pin (wing)                           MMS               Inadequate            Yes
                  4.    Parts kit (wina)                           MMS               lnadeauate            Yes
                  5.    Duct (env.control)                         MMA               Inadequate            Yes
                  6.    Fairing assembly                           MMA               Inadequate            Yes
                  7.    Static discharger                          MMA               Adequate              N/A
                  8     Support assembly                           MMA               Inadequate            Yes
                  9.    Pivot pin (brake)                          MMI               Inadequate            Yes
                 10.    Shoe assembly                              MMI               Adequate              WA
                 11.    Piston carrier                             MMI               Inadequate            Yes
                 12.    Socket half                                MMI               Inadequate            Yes
                 13.    Metering tube                              MMI               Inadequate            Yes
                 14.    Spacer adapter                             MMI               Inadequate            Yes
                 15.    Cover assembly                             MMI               Inadequate            Yes
                 16.    Link assemblv                              MMI               lnadeauate            Yes
                 17.    Tnqcrer arm assy.                          MMI               Inadequate            Yes
                 18.    Yoke collar                                MMI               Inadequate            Yes
                 19.    Stop snubber                               MMI               Inadequate            Yes
                 20.    Rod assemblv                               MMI               lnadeauate            Yes
                 21.    Swivel assembly                            MMA               Inadequate            Yes
                 22.    Bolt                                       MMA               Inadequate            Yes
                 23.    Wheel bolt                                 MMI               Inadequate            Yes
                 24.    Gvro mount                                 MMG               Adeauate              N/A
               aDrvrsrons under the Drrectorate of Matenel Management: MMA-F-16         System Program Management
               Drvrsion.
               MMG-ICBM System Program Management Drvisron.
               MMI-Item Management Drvrsion
               MMS-F-4 Aircraft System Program Management Divrsion

               bAdequate written tustrfrcatrons meet requrrements of regulatrons by contarnrng pertrnent Item-specrfrc
               rnformatron and lrnkrng the assignment of the qualificatron requrrements to the Item. Inadequate wrrtten
               justrficatrons contarn only standardized language and Irttle, If any item-specrfrc rnformatron. They do not
               IInk the assignment of the qualrfrcatron requirements to the Item

               CYes-Addrtional rnformatron concernrng the use of qualifrcatron requirements was available from the
               engineers N/A-Justrficatron  in source qualrfrcatron statement was Item specific; no addrtronal rnforma-
               tron needed




               Page 12                                                                 GAO/NSIAD-90-138Spare Parts
App@hix II

Objective, Scope,and Methodology


               Our objective was to determine if the Ogden ALC use of precontract
               award qualification requirements complied with applicable federal laws
               and regulations.

               We reviewed the Competition in Contracting Act of 1984, the Defense
               Procurement Reform Act of 1984, section 9.2 of the Federal Acquisition
               Regulation, and applicable Air Force regulations pertinent to precon-
               tract award qualification requirements and interviewed (1) Air Force
               officials responsible for determining when qualification requirements
               apply to the acquisition of a spare part and (2) SBArepresentatives
               responsible for reviewing these acquisition method decisions.

               We analyzed 24 items that had been changed from an acquisition
               method using unrestricted competition to one using precontract award
               qualification requirements between March 1985 and April 1989. To
               determine what information was available and used throughout the
               acquisition method decision process, we obtained and reviewed the sup-
               porting documentation and interviewed CAO,SBA,and acquisition divi-
               sions’ engineers involved in this process. We also interviewed
               responsible acquisition divisions’ engineers and obtained additional
               item-specific information not included in the written justifications. We
               then asked CAOand SBApersonnel if the item-specific information had
               been provided previously and if, in their opinions, this information is
               necessary to complete the process. Our results are reported only as they
               pertain to the 24 sample items, not the overall population of approxi-
               mately 150 items.

               Our review was performed at the Ogden ALC in accordance with gener-
               ally accepted government auditing standards from June 1989 to Decem-
               ber 1989.




              Page 13                                          GAO/NSlAD-90-138Spare Parta
Appendix Ill

Major Contributors to This Report


                               Director, Research, Development,      Acquisition, and Pro-
National Security and   pa~?$!m~$~~
                                -__ (202‘,276-4687
                               ales
International Affairs   John A. Rinko: Assis&ii’D%ctor
Division, Washington,
DC.

                        Ted B. Baird, Regional Management Representative
Denver Regional         Pamela J. Timmerman, Evaluator-in-Charge
Office                  Pamela K. Tumler, Reports Analyst




(:#!MH24)               Page 14                                       GAO/NSLAD-90-138 Spare Parts
‘I’lwrt* is it 25”0 tliscow~t, ou orders for 100 or tnow copiths tnailtd   to a
sitrglth wddrt*ss.