oversight

Army Procurement: FMC's Quality Controls and Pricing Practices on the Bradley Fighting Vehicle

Published by the Government Accountability Office on 1990-03-07.

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

                   United   States   General   Accounting   Office   l




GAO                Report to the Honorable
                   Barbara Boxer, House of
                   Representatives


March   1990
                   ARMY
                   PROCUREMENT
                   FMC’s Quality
                   Controls and Pricing
               .
                   Practices on the
                   Bradley Fighting
                   Vehicle
National      Security     and
International        Affairs   Division

11-222372

March 7,199O

The Honorable Barbara Boxer
House of Represcntativcs

Dear Ms. I3oxcr:

This report responds to your request that we examine the validity of the allegations raised
by former FMC employees concerning FMC’s quality controls and pricing practices on the
IWdley Fighting Vehicle.

FVe are sending copies of the report to the Chairmen of the House and Senate Committees on
Armed Services and on Appropriat,ions; t,hc Director, Office of Management and Budget; and
the Secretaries of Defense and the Army. We will also make copies available to others upon
rcqucst

Please contact me on (202) 2754141 if you or your staff have any questions. Other major
contributors to this report are listed in appendix I.

Sincerely yours,




Richard Davis
Director. Army Issues
                             While Ikadlcys with problem parts have been delivered to the govern-
                             ment, G,\O found no clvitlcnce that FMC had delivered snch vehicles
                             dclibt%ltely.

                             I%~~government and F[lIC have control systems in place to identify
                             problems with quahI> [lowever. after reviewing FMC’s system for com
                             trolling non~onforiii~ng material (material that does not meet contract
                             specifications) in Allgust 1989, the Defense Contract .4dministration
                             S(~rvict~s found it to ix> madequate. As a result, the Defense Contract
                             .Idminist rat ion SW\ kc’s requested that FMC review its entire system for
                             c,ontrolling nollc,onf’c)rriling material. As of lkembcr  1989. FMC had
                             (3~niplt~tcri this rcviclw and the results were being studied by the
                             I kft~iisr~ (:orit ix? :I( Inlmist ration Services.



Principal Findings
                                                       ~~~~-__~
Spare Parts Prices Based     Sinc,c 19)80. tllcl Army    has bought, about $107 million of spare parts from
                             1’!IlC‘ ~mdtr 205 sc~~~uxtt~c,ontracts. (;ho reviewed documentation for 28
on Negotiations-Not   FM(r
                             or t11c cxmtrxts, wit11 :I v;11ue of $20 million, and determined that the
Estimates                    ~I%TS ~hargcd 1110;Irniy were based on negotiations between the gov-
                             c~rnmcW and FW. FIlC’s proposed prkcs had been evaluated by the
                             I~~~~‘cwsc~(‘ontraci .\dllrinistratic,n Services or the Defense Contract Audit,
                             .Gq$YlW.


                             c;.\o also rt~vic~\vr~clI INSrcc,ords of negotiations brtwcen the government
                             ;rt~tl I%( for 20 of 11~528 contracts. Records of negotiation were not
                             ;~\~ailablc for thcx (11Irc,~eight contracts. In taach cxx. it was apparent, that
                             I IN, govc~rnmt’nt 11;1tiI 101merely accept,ed the proposed prices but had
                             tl~~~~lopctl its nc~go~LII ion position based on t~v;rhlatc~d c*ost or pricing
                             (h(&

                             :\cc.otding to FM(‘ ol’li~ials. in the early stages of the Bradley program,
                             111an~.of tlrc price-, (~ntertkd into the Army Master Data File were based
                             ()n tsstimatcxs. pa~‘t ~c~rlarly    t’or parts that had not been previously pro-
                             tluc~c~i.Once the 1r;1r1pric,es arc negotiated between the government and
                             I~‘RIC‘.thtx ncgotiilt <)(I I)ricxl is ent,ered into the Army Master Dat,a File and
                             rt~lki~cs the est iirl;ll~~d I~ric~c.




                             I’ag‘. :i                            GAO/NSLAI)-SO-XII   Army   Procurement   of the Bradley
                          these instances, FMC issued instructions that employees were not to
                          remove parts from vehicles that had been logged in for government
                          inspection and acceptance and that exceptions would be allowed only if
                          the government granted prior approval.

                          Representatives of the Defense Contract Administration      Services told
                          GAOthat they were unaware of any other instances of unauthorized
                          parts removal. They said that their inspection process before shipment
                          and at the receiving point, should identify further incidents of unautho-
                          rized parts removal. C.W found that the vehicle shipping documents did
                          list the parts that were missing and contained notations that supplemen-
                          tal payment documents would be processed when the missing parts were
                          received.


Internal Controls to      As part of its Bradley rontract, FMC is required to establish and main-
                          t ain quality assurance systems. To ensure that FMC complies with these
Monitor Product Quality
                          systems and to evalunte its performance, the government performs vari-
                          ous independent tests. inspections, and monitoring functions.

                          G.W reviewed the govc~rnmcnt’s oversight of the contractor’s quality
                          assurance systems and conc.luded that the in-place systems provided
                          rcxasonablc assurance that problems with product quality were identi-
                          fied and that the systems enabled the government and the contractor to
                          work toward the resolution of identified problems.


                          This report providc,s specific information on the allegations made by the
Recommendations           t’ormcr FMC cmploytlcs; it does not attempt to assess the overall man-
                          agement of tht> lira(II(~~ contract. For that, reason, GUI is not making
                          I‘c~ommendations.


                          As requested. G.&Odid not ask the Department of Defense to comment
Agency Comments           officially on a draft 01‘ this report,. However. G,W did discuss the issues
                          in the report with rcbsl)onsible officials of the Army and the Office of t,he
                          S(lc,ret ary of Dt~t’ensc~and 1~1sincorporated their comments where
                          apl~ropriatc




                          Page   J                           GAO,‘NSIAD-90-86   Army   Procurement   of the Bradley
Contents




 Abbreviations

 AMDF      Army Master Data File
 HFV       Bradley Fighting Vehicle
 DC4A      Defense Contract Audit Agency
 DCAS      Defense Contract Administration          Services
 GAO       General Accounting Office
 MMBF      mean miles between failure
 TACOM     Tank-Automotive   Command


 page 7                           GAO/NSIAD-SO-86      Army    Procurement   of the Bradley
                        6. FMC employees were instructed to charge hours to t,he HFVprogram
                        even though they were working on other programs. Also, FMC charged a
                        computer to the IN program that was used on &her programs.

                        7. FMC hired an cxcc,ssive number of personnel for the Bradley pro-
                        gram, as evidenced by the, fact that about 1,000 personnel were laid off
                        in 19% when the, HI’\’ cant rnct was converted from a cost to a fixed-price
                        c,ontract.


                        As agreed with the requester, our objective was to address allegations 1
Objective, Scope, and   through 4, concerning spare parts pricing. and FMC’s use of defective
Methodology             parts in the WV production process. In addition, the requester asked us
                        to identify the in-plact‘ internal control systems to ensure that if quality
                        problems occurred. thcb problems would be brought to the contractor’s
                        and the government’s attention. The requester also asked us to detcr-
                        mine whetht‘r the Army. in obligat,ing funds, had overestimated the
                        amount it would ntcd to fund spare parts contracts with FMC and, if so,
                        what use had bftc,n made of the funds when the contracts were
                        dcfinit ized.

                        As part of our review, we met with the former FMC employees and one
                        of their attorneys to discuss the allegations and to obtain any documen-
                        tation they had to support their allegations.

                        To address the spare parts pricing issue, we reviewed FMC’s pricing
                        practices and discussed the pricing process with FMC and government
                        contracting officials. U’c also selected a sample of spare parts contracts
                        and reviewed the cant ract files at the Defense Contract Administration
                        Serviccas (IKXS). FM(‘ I)ric,c’ proposals, DCAS and Defense Contract Audit
                        Agency    (LKXA) reports on t hc, proposals, govcrnmcnt obligation docu-
                        ments, and pricrt nrlgotiution memorandums. WC did not perform a
                        rcvittw of thr rCasoIi;lt)IC’rI~,ss of the prices charged the government on
                        t lrc spare parts ~mt r;lcts.

                        To assrss the use madcs of de-obligated funds, we selected a sample of
                        unpriced spare parts (~rtlcrs issued by t,hc Tank-Automotive       Command
                        (PLYN) in 1982. 1984. ;mti 1986. We determined the amount of funds
                        that had btlcn initially c~bligatcd, the amount of t hc definitized contracts,
                        and ho\v th<, dc-obli~:;lt c*d f’lmds had been used.

                        LVe discussed I’MC”s qllality assurance systems with contractor officials
                        and obtiiincd tlc~~ril it i\ (’ (io~um~~ntwtion on these systcrns from FMC and


                        Page   !I                          GAO/h’SIAD90-86   Army   Procurement   of the Bradley
Chapter 2

Spare Parts Pricing Issues


                       Nany of the spare parts prices that were entered into the AMDF were
                       based on estimates developed by FMC. However, the Army did not pay
                       these prices when it ordered the spare parts. Instead, the Army and
                       E’MC negotiated contract prices on the basis of evaluated cost and pric-
                       ing data submitted by FMC as part of its contract proposal.

                       Wc also found that. in some cases, the Army had over-obligated funds
                       for spare parts contracts. However, the Department of Defense took
                       actions in 1986 to limit the amount of obligated funds that could be
                       expended before unpriced orders are definitized. As a result, the number
                       and dollar value of unpriced orders at FMC have been reduced.


                       The former FMC employees alleged that FMC had inflated the prices it
Allegation That FMC    charged the Army for IIE?;spare parts by arbitrarily establishing the
Inflated Spare Parts   parts prices that were entered into the AMDF. According to the former
Prices                 FRIC cmployces. thcsc prices then became the prices the Army paid
                       n-hen it contracted for the parts.

                       According to one of I~MC’s former employees, the price entered into the
                       .WrW Ihad no relationship to what the part cost to make or buy. For
                       ~uample. when a IWV part number was to be entered into the AMDF.
                       mployew      were allcgrdly instructed to go to certain individuals to get
                       cstimatcd prices. If t Irosc individuals were not available, the employees
                       \vcrc instructed to tn;rk~~ up a price and enter it into the system.

                       For tipdating the UIIW, the former employee alleged that instructions
                       had been given to increase the price by 32. 47, or 60 percent or some
                       other arbit,rary figure. The percentage of increase varied from time to
                       t imc based on who \I as giving instructions. The former employee also
                       allcgcd that t hesc arbitrary and inflated prices became the prices that
                       F’hlC’ charged t hc government.

                       The .UI~Y is a listing of the individual parts and prices that make up the
                       total system and is a part of the Logistics Support Analysis Review sys-
                       tcm, which forms t hc basis for an analysis of each item that enters the
                       Army inventory. The purpose of the analysis is to support Army deci-
                       sions on where the items will be stocked. the level of stockage that will
                       bc authorizrd. and \vhcre and by whom the item will be maintained.

                       According to ‘1’~ OY and FMC officials, a price must be shown for each
                       part in the .-UWW.or that automated portion of the Logistics Support
                       Analysis Kcvic\t System will not operate. FMC officials also told us that,


                       Pa@. I1                           GAO/NSIADYO-86   Army   Procurrment   of the Bradley
                     (:haptcr 2
                     Spare Parts   Pricing   Issues




                     options. The production contracts included some of the same parts as
                     those in the spare parts contracts and, like the spare parts contracts.
                     had been evaluated by IK;\S or DCAA.

                     In the early years of thtb IIFV program, most of the contracts for spare
                     parts were unpriced orders. In other words, the firm contract price was
                     not determined, or dc,finitized, until after the contractor was authorized
                     to begin work and incaur c,osts. In some cases, the contracts were not
                     dcfinit,ized for several years after award.


                     At the time of contract award. the Army obligates funds for the contract
Over-Obligation of   based on its ostirnatcl of what the contract amount will bc. When the
Funds for Unpriced   contract price is negotiated, if it is less than the obligated amount. the
Orders               difference is dc-obligattld and potentially available for Ic-obligation bq
                     t IIC~govcrnmt,nt.

                     WC reviewed 14 unprictbd spare parts contracts issued by TACOM to FMC
                     dluing fiscal years 1980. 1982, and 1984. The amount of funds obligated
                     by thtt Army for the 14 contracts totaled about 57 million. WC eliminated
                     five, contracts, amounting to about $2.4 million, from our review bccausc
                     the amounts of the dcfinitizcd contracts equaled or exceeded the
                     amounts obligated. For thr remaining nine contracts. $3.6 million had
                     bcacn dcl-obligated. ‘l’hc~disposition of the dc-obligated funds was as
                     follows:

                      For scvcn cont.rac’t,s. b:I:32.~54:3was dc-obligated. The funds were
                      rcxtluncxd to the trac.kcsd and wheeled vehicles account. WC could not
                      determine what spc,c,il’ic, IISC’had been made of these funds.
                      For one contract. $2.%i.X3 was dc-obligat,ed. The appropriation      for
                      thc,sr‘ funds cxpirtd. and i he funds were rcturncd to the Treasury.
                      One contract for $S,O:K.922 was terminated, and the dc-obligated funds
                      wcr~ rc~programmt~rl 1o the‘ next IIIY product ion contract.

                      In l!X?Xi. we issued ;I report on Impriced orders.’ The report pointed out
                      that the scrviccts hat1 gc~nt~rally over-obligated funds at the time
                      unprictsd orders LVCY’C  issued. and as a result, funds had been tied up
                      unncccssarily for tsxt c>ndtltl ptbriods of time, sometimes for sctvcral years.




                      Pa@.   13                          GAO/NSIAD90-86   Army   Procurement   of the Bradley
Cl1apJer   3


BF’V Quality Assurance Issues


                                                                                                                -
                       FMC experienced problems with certain Bradley parts, particularly         in
                       the early phases of the Bradley program. For the most part. the prob-
                       lems have been or arc being resolved. To compensate for the early parts
                       shortages, FMC might have, used nonconforming parts (parts that do not
                       conform to manufacturing     specifications) to keep t,he production line
                       moving. FMC told us that, in such cases, it would have notified the gov-
                       ernment of the use of nonconforming       parts. IIowever, due to the lack 01
                       documentation, we could not determine the extent, to which nonconform-
                       ing parts had btben nstad in t,he production process.

                       The government acctbpts Bradleys with missing parts. However. in such
                       cases, the missing parts are to be identified on the shipping documents.
                       and payments to the contractor are to be adjusted

                       In a few instances, FMC had removed good parts. without government
                       aut,horization, from Hradlcys that had been submitted to the govern-
                       ment for final inspc>ction and acceptance and had not notified the gov-
                       ernment. Ilowcvcr. after government inspectors identified these cases
                       and brought them to PMC’s attention, FM<: instructed its employees to
                       discontinue swh practices.


                       Former FMC employtbcs alleged that FMC had not rejected or disposed of
Allegation That FMC    nonc*onforming parts in accordance with nonconforming material procc-
Used Nonconforming     dures and that FMC’ had routinely used problem parts on the production
and Problem Parts in   line to increase sparc~ parts orders from the government. They alleged
                       that t,hc high failure rates of the lower fuel cell. the personnel heater,
BFV Production         Ore halon fire supprtXssion system, the vehicle distribution box, and the
                       bilge pumps were c1vidcnc.e of FMC’s use of defective parts.

                       I)fi\s officials said that contractors sometimes temporarily install non-
                       conforming parts or parts from previously inspected vehicles in order to
                       avoid product,ion lint, stoppages. In such cases, the contractor is
                       required to documthnt the parts involved so that they can be replaced
                       when good parts btlcomc available.

                       FMC officials said that. because of parts shortages early in the BFV pro-
                       gram, they might have used nonconforming parts or parts from com-
                       pleted wvs on tht, production line in order to keep the line moving. They
                       went on to say that in such cases, the government representatives    would
                       have, been notifird atld that the parts would have been exchanged when




                       Page   LB                         GAO/NSIAD-90-M   Army   Procurement   of the Bradley
                       Chapter  3
                       BFV Quality   Assurance   Issues




                       strong but susceptible to water absorption and warping. FMC’s suppliers
                       have had difficulty in fabricating the cells to specifications because they
                       warp, have a peculiar shape, and are difficult to measure.

                       Problems with the cell’s peculiar dimensions and with warping caused
                       several fuel cells to interfere with the turret or with surrounding hard-
                       ware such as the electrical cables. FMC changed the dimensions, relo-
                       cated hardware. and developed a fixture that allows more accurate
                       measurement of the fuel cell’s clearances and tolerances. The fixture
                       was expected to be provided to suppliers late in 1989.

                       Information       we obtained from various Army data sources showed the
                       following:

                   l Between 19% and 1988, eight fuel cell failures were reported. In six of
                     these cases, warping was identified as the cause, and in the remaining
                     two cases, hot exhaust air from the heater had damaged the cells.
                   l As a result of problem fuel cells. 13 were replaced from 1984 through
                      1988.
                   . ‘I’wo engineering changes were issued between 1983 and 1989. The net
                     cost, to the govcrnmc,nt for these changes was $51,901.

-.-__
Personnel Heater       In December 1987. w(’ testified before the Subcommittee on Procurement
                       and Military Kuclcar Systems, House Committee on Armed Services,
                       that Army units were experiencing problems with the 13Fv’S personnel
                       heaters.2 In response to the hearing, a joint Army-contractor investiga-
                       tion team conducted further investigations in early 1988 and concluded
                       the following:

                   l Improper training of maintenance personnel and operators had resulted
                     in improper operation, repair, and installation of the heater. For exam-
                     ple, heater ducts had not always been properly reconnected after repair
                     or replacement, and as a result, heater components had been damaged.
                     Also, fuel filters were clogged or missing, causing damage to the heaters.
                   . Some heaters wc’rc inoperable because of defective igniters and the poor
                     quality of repair [>ilrtS.

                       Corrective actions were recommended to enlarge the fuel filter and rede-
                       sign the intake/exhaust system. According to FMC officials. the most




                       Pag.r   17                          GAO/NSIADOO-86   Army   Pmcurcment   of the Bradley
                             Chapter   3
                             IlFV Quality      Assurance   Issws




Halon Fire Suppression       The former FMC employees alleged that the halon fire suppression sys-
                             tern was so unreliable that Army personnel would shut off the automatit
System/Release Valves
                             triggering feature of the system for fear that it would inadvertently dis-
                             charge. However, FX and Army officials said that the halon system
                             works as intended and that there have been only a few instances of acci-
                             dental discharge.

                             Army officials said that, in some cases, the system had accidentally dis-
                             charged when the manual release cable was accident,ally pulled by deb-
                             ris that caught on the rotating turret and snagged the manual release
                             cxblo. In another instance, the system discharged when the automatic
                             schnsing system remained on while repairmen performed vehicle mainte-
                             nance, such as spot welding. In other cases, repairmen broke the sensing
                             (.ircGts by disconnrxcting electrical connectors, causing the system to
                             tlischrgc.


                             FMC and the Army said that the poor location of the manual release
                             cable might have caused the inadvertent discharges. The manual release
                             cable was repositioned in the WV A2 configuration.

                             Army data for the halon system showed the following:

                         - From 1983 through 1987. 11 failures occurred. Six of the failures were
                           tlur~ to the system’s not being properly pressurized. and accidental dis-
                           chargc~ was suspectcsd or verified in three cases.
                         - l‘\vo engineering changes were made in 1984 at a net cost to the govern-
                           mt>nt of $30,731,


Bilge Pumps                  The former FMC employees alleged that the bilge pumps were frr-
                             qucntly malfunctioning      as a result of a defective design. Each WV has
                             f’o~w pumps installed    in the floor, and each pump is designed to pump
                             60 gallons of water a minute. According to Army officials, the vehicle
                             can   continue t,o operate with two pumps at either end and still float. The
                             officials said that the pumps were malfunctioning       because troops had
                             not been properly removing debris that accumulated around pump open-
                             ings. causing them to c,log.

                             Army data showed the following:

                         - From 1983 through                   1989, 100 of the 113 maintenance         actions reported
                           wore for cleaning.



                             Page         1Y                               GAO/NSIAE-YO-86   Army   Procurement   of the Bradley
                        Chapter  3
                        RFV Quality   Assuranrr   Issues




                        acceptance testing and inspection.      Any exception to t.his policy was to be
                        approved in advance by DCAS.

                        As an added measure against unauthorized parts removal or the substi-
                        tution of defective parts for good parts, the vehicles are inspected and
                        tested at the receiving point. The inspections and testing should identify
                        any missing or nonfunctioning    parts.

                        According to the DCY.S Quality Assurance Chief, DC&S identification  of
                        the 1983 incidents ilhlstrates that the government was effectively over-
                        seeing FMC’s operation The DC~Sofficial also said that there have been
                        no other instances of unallt horized parts removal.


                        A former FMC employee alleged that wvs had been delivered to the
Allegation That FMC     Army with parts missing because of shortages of and unexpectedly high
Delivered BFVs to the   f ‘1
                         al ure rates of the parts. Also, he alleged that, because FMC did not
Army With Parts         adequately account for parts, it did not always know which parts were
                        missing and were to bo supplied at a later date.
Missing
                        The government ac’cc1)t.sIWVSwith parts missing as long as the missing
                        parts are ident,ificd. In such cases, payment to the contractor is
                        adjusted. We reviewed I)G\S Material Inspection and Receiving Reports
                        for .June 1988 throw@ August 1989 and identified 13 instances in which
                        the government had accepted HF~Sfrom FMC with missing parts. The
                         13 instances account4 for 253 parts valued at, $322,770. Not included
                        in this total \vas 1%; missing parts, which were government-furnished
                        material. In each of ttrr> 13 instances, the report. contained a notation
                        that payment to thca c,ontractor would be adjust,ed.

                        In addition to being inspected at the contractor’s plant before shipment,
                        IWVSare inspected at the receiving point before being turned over to the
                        units. This additional inspection provides added assurance that any
                        missing parts are itk~ntifit~d.


                        Certain WV part,s have experienced problems with quality. However, we
Conclusions             found no evidence to substantiate allegations that FMC had knowingly
                        used problem parts in the production process to increase the Army’s
                        spare parts orders. Furthermore. the Army and the contractor have
                        taken actions to rc‘solvc the problems or are working on solutions.




                        Page   21                            GAO/NSlAD-SO-86   Army   Procurement   of th? Bradley
Chapter 4

Internal Control Processesto Monitor Quality


                             Government specification MIL-Q-9858A requires the contractor to
                             develop and maintain a quality assurance system that specifies respon-
                             sibilities, functions, and control methods to ensure adherence to quality
                             standards and practices. A separate specification covers the disposition
                             of nonconforming material (MIL-STD-152OC). This specification is incor-
                             porated into the contract between the government and FMC.

                             The government also has the responsibility for ensuring product quality.
                             In carrying out its responsibility, the government performs and monitors
                             various vehicle tests, inspections, and actions to correct identified defi-
                             ciencies The government’s monitoring mechanisms include

                         l initial and comparison production tests,
                         . physical inspections,
                         l a deficiency reporting program,
                         . a sample data collection program,
                         l quarterly review meet,ings. and
                         9 quality system reviews.


                             Initial production tests are conducted to establish performance limits
Initial and Comparison       under actual mission conditions and to make needed production modifi-
Production Tests             cations or design changes. Four of the first 10 vehicles produced under
                             any new Bradley configuration are driven 6,000 miles over a G- to
                             g-month period.

                             Then, each quarter, one vehicle is randomly selected for a 1,500.mile
                             comparison production test to evaluate reliability and production qual-
                             ity over the production period, and the data is provided to the contrac-
                             tor for trend analyses.

                             The introduction of new Bradley models (the AO, the A 1, and the A2)
                             initially resulted in higher-than-normal   deficiencies due to new systems,
                             new components, or new production processes. Overall, however, test
                             results and trend data have shown that mean miles between failure
                             (MMBF)    for the HFVS have exceeded the target of 225 MMBF for production
                             vehicles. Table 4.1 shows the MMBF trends for the three Bradley models.




                             Page   23                         GAO/NSIAD-90-86   Army   Procurement   of the Bradley
                                           -.                                                           ___~
                                                Chaptrr           4
                                                Internal          Control   PnKwsrs      to
                                                Monitor           Quality




Figure 4.1: Historical BFV De-Processing
Trend Data Comparing Vehicle                    20      Average        Number   of Defects
Configurations




                                                15




                                                10




                                                 5




                                                           -            A0 Vehw3es
                                                           111          Al(-) Vehicles
                                                           -            Al Vehicles
                                                           ---          A2 Vehicles

                                                Source TACOM


                                                           -_____-                           -   ~
                                                During the oversight ~IWC’SS,noncritical problems with quality are
Deficiency Reporting                            recorded in the vehicle logbook maintained for each I3FV. Critical quality
Program                                         defects are recorded on a quality deficiency report, which requires the
                                                contractor to take corrective act ion within 30 days. From 1986 through
                                                Deccmbcr 1989. IXXS inspectors issued I,265 quality deficiency reports
                                                to FMC for a variety of quality dcficicncies.

                                                Army personnel who operato and maintain the IIFVS in the field also
                                                issue quality deficiency reports to TAC’OM documenting defects found
                                                during field operation:, or maintenance. Ttzc’okl, in turn. screens the
                                                reports lo identify rrlpct it ivc%problems before referring them to FMC or
                                                to any of the other primc~ contrac’tors for the IN’. The number of defi-
                                                ciency reports issrrcd to F’XK from 1984 to 1989 arc shown in table 4.2.




                                                 Page       2.5                                      GAO,‘NSIAD90-X6   Army   Prwuremcnt   of the Bradley
                                             Chapter         4
                                             Internal        Control   Processes   to
                                             Monitor         Quality




                                             ,4 recent quality system review was conducted at FMC by DCAS person-
                                             nel in August 1989. The review identified 35 quality deficiencies and
                                             3 Method C violations. A Slethod C violation denotes a serious quality
                                             problem and requires high-level review and immediate contractor
                                             action. Including the three from the most recent review, six Method Cs
                                             have been issued to FMC over the past 2 years. The dates they were
                                             issued and the problems that were identified with the BFV are shown in
                                             table 4.3.

Table 4.3: Method C Violations   Issued to
FMC                                          Date of violation                          Description of problem
                                             Sept 14 1989                               Failure to submit a Quality Program Plan for englneerlng and
                                                                                        technlcal support
                                             Sept I,1989                                Lack of quality controls and corrective actlons for
                                                                                        nonconformlng materials received from subcontractors
                                             Aug 18. 1989                               Calibrated gauges that were out of tolerance and computer
                                                                                        software that was not in compliance with software
                                                                                        engineenng standards
                                             Nov 9, 1987                                Inadequate quality controls over subcontract purchases
                                             act 19,1987                                No follow-up on a supplier-p&!ded     part to ensure that
                                                                                        effective corrective actlons had been taken
                                             June 15, 1987                              lnsufflclent control over automated test equipment software




                                             The Army has established internal control mechanisms to oversee FMC’s
Conclusions                                  quality assurance program for the HFV. While these mechanisms will not,
                                             in and of themselves, prevent quality control problems from arising, the
                                             systems enable the cant ra(‘tor and the government to work toward the
                                             resolution of idcntific,d Iwbkms.




                                              Page      27                                       GAO/NSIAD90-86     Army   Procurement   of the Bradley
Appendix   1

Major Contributors to This Report


                        Robert J. Lane, Assistant   Director
National Security and
International Affairs
Division, Washington,
D.C.

                        John N. Zugar, Evaluator-in-Charge
San Francisco           Donald Y. Yamada, Site Senior
Regional Office




                        Page   28                          GAO/NSIAD-SO-R6   Army   Procurement   of the Bradley
                                              Chapter         4
                                              Internal        Control   Processes   to
                                              Monitor         Quality




Table 4.2: Deficiency   Reports   Issued by
TACOM to FMC                                                                                                                          Deficiency
                                                                                                                                          reports
                                              Year                                                                                         issued
                                              1984                                                                                             110
                                              1985                                                                                             187
                                              1986                                                                                             120
                                              1987                                                                                               56
                                              1988                                                                                               47
                                              1989                                                                                               15’
                                              ‘Through December 1989



                                              Another measure of quality control is the Army’s sample data collection
Sample Data                                   program. Under this program. the Army uses unscheduled maintenance
Collection Program                            actions per vehicle per month as a measure of the WV’S quality. Opera
                                              tional, maintenance, and repair information is collected and analyzed for
                                              about 250 BFVS each month. From 1984 through 1988, the number of
                                              unscheduled maintenance actions for the A0 WV decreased from five to
                                              three a month, and the Al BFV averaged about four such actions during
                                               1988, the first year data was available for that configrtration, Data is
                                              not. yet available for the .42 configuration.


                                              Government and contractor officials meet on a quarterly basis to assess
Quarterly Review                              the reliability and quality of the IWVS,using data collected and analyzed
Meetings                                      through quality control proccsscs. ilt t,hcsc meetings. corrcct,ive action
                                              plans are developed. and previously initiated cotrt~ctivc actions arc
                                              reviewed.


                                              Army officials may request that 1x4s perform a quality system review,
Quality System                                which is an indepcndcnt rcvicw and evaluation of the contractor’s qual-
Reviews                                       ity assurance program. Quality assurance personnel from a n0.s regional
                                              office assess the adequacy of the cornractor’s documentation, its compli-
                                              ance with contract specification rcquiremcnts, and the effectiveness of
                                              its systems or controls in ensuring product quality.

                                              These reviews afford added assurance that the contractor is complying
                                              with contract quality and technical rcquiremcnts, that the product being
                                              delivered is of acceptable qualit,y. and that the contractor’s quality
                                              assurance program is adcquat,c.




                                              Paye       26                              GAO,   NSIAI)-90-86   Ann>   Prorurrmnlt   of the Bradley
                                       Chapter         4
                                       Internal        Control   Processrs   to
                                       Monitor         Quality




Table 4.1: MMBF Trend Data for Three
Bradley Models                                                                     Mean miles between   failures
                                       Bradlev          model                     Initial               Most current                   Time oeriod
                                       A0                                             225                         580             1979through 1985
                                       Al                                             474                         841             1985through 1987
                                       A2"                                            857                         780                         1987
                                       A2'                                            650                         580                         1989
                                       'BFVwllh500horsepowereng,"e

                                       "BFV with 600.horsepowerenqire



                                       DC&S  representatives perform various inspections and functional tests at
Physical Inspection                    the FMC plant throughout the production cycle. The inspectors identify
                                       and report missing hardware or components, workmanship defects, and
                                       any nonworking or inoperative systems. A final inspection is done at the
                                       time the government accepts the vehicles and again before the vehicles
                                       are shipped to the Army’s receiving units at Viiseck, West Germany, and
                                       Ft. IIood, Texas.

                                       Before the government accepts the vehicles and after FMC conducts a
                                       40.mile road test, D('-\S representatives conduct a lo-mile road test for
                                       each HFv.

                                        Before the BF~S are turned over to Army field units, Army receiving
                                        teams at Vilseck and Ft. Hood subject each vehicle to a “de-processing”
                                        inspection. The purpose of this inspection is to ensure that, an accepted
                                        vehicle has not been adversely affected during shipment. The de-
                                        processing team follows a detailed checklist for visual inspection and
                                        functional testing. I )c-l jrocessing data and summaries are reported to
                                        thcl IIF~ project manager and to FMC. Figure 4.1 shows de-processing
                                        trend data by vehic,lo model since 1984.




                                        Page      24                                          GAO,‘NSIAD-SO-%   Army    Procurement   of the Bradley
Chapter   3
BFV Quality   Assurance   Issues




Bradleys are accepted by the government with parts missing. However,
the missing parts are to be identified on the shipping documents, and
payments to the contractor are to be adjusted accordingly.

However, in 1983, FMC employees removed good parts, without govern-
ment authorization, from Bradleys that had been submitted to the gov-
ernment for final inspection and acceptance. Ko additional instances
have been identified by DPASsince FMC issued instructions to its person-
nel that were intended to prevent such actions.




Page   22                          GAO/NSIAD-90-86   Army   Procurement   of the Bradley
                        * Over the history of thr, program, mean miles between maintenance
                          action have averaged 1,258 miles.
                        - A value engineering change was issued for the bilge pump in 1986. The
                          change resulted in a nc? cost reduction to the government of $588,933.


                          A former FMC cmployc~e alleged that FMC had routinely removed good
Allegation That FMC       parts from IWVSthat had been accepted by the government and used the
Removed Good Parts        removed parts on tllci production line.
From BFVs Submitted       On the basis of doc,um<Wation provided by DCM, we found four
to the Government for     instances, in 1983. in which FMC employees had removed parts from
Final Acceptance          vehicles that had bc,cbnsubmitted to the government for final testing and
                          acwpt ancc.

                          In one case. the government, had inspected and accepted a Bradley on
                          February 13, 1983. On February 24, 1983, government personnel
                          noticed that the commander’s intercom box had been removed. The
                          vehicle was turned back to the contractor to have the box replaced.
                          When t,he vehicle was ret urned to the government for reinspection on
                          February 26, 1983. government personnel noticed that the gunner’s
                          intercom floor switch was inoperative, that the right rear squad com-
                          partment intercom box had been disconnected, and that an extra inter-
                          com box was lying on 1he floor.

                          In another case, as a result of a DCAS vehicle inspection on March 24,
                           1983, FMC installed two fire sensors. On March 25, 1983, the inspectors
                          notict~tl that the two sclnsors were missing.

                          In the third case, on March 28, 1983, a government inspector observed
                          an FMC employer removing the squad seat footrest on a vehicle that
                          was being inspcctcd

                          In the fourth case. a vehicle was returned to the government on
                          April 14. 1983. for a reinspection of previous deficiencies found during
                          the initial inspection on April 7, 1983. During reinspection, the inspector
                          noticr~d that tht, left side ctxt.erior ammunition rack, the rear squad seat,
                          and thr, front squad scsat footrest had been removed.

                          As a result of these, four cases of unauthorized parts removal, FMC
                          issued a policy stat emcnt to all production personnel saying that no
                          parts \vcrc to b<l rcmovcd f’rom any vehicle that had been logged in for



                          Page   20                          GAO/NSIAD-SO-86   Army   Procurement   of the Bradley
                                  Chapter  3
                                  RFV Quality   Assurance   Issues




                                   significant finding of the heater study was that the Bradley’s heater and
                                   heater system appear to function well when they are properly main-
                                   tained and serviced. Army officials agreed that the problems with the
                                   heater stemmed not from the design of the heater but from poor integra-
                                   tion of the heater into the Bradley vehicle.

                                   Army data for the personnel heater showed the following:

                             - Five instances of heater problems were reported from 1983 through
                               1986.
                             - The mean miles bet\vclen maintenance actions averaged 3.554 from 1983
                               through 1989.
                             l Four engineering changes were issued from 1985 through 1989 at a net
                               cost to the government of $.532,670.



Vehicle Distribution   Box         In our December 1987 testimony before the Subcommittee on
                                   Procurement and Military Nuclear Systems, House Committee on Armed
                                   Services, we also discussed the operational testing of the Bradley’s vehi-
                                   cle distribution box. As a result of test failures, FMC changed the speci-
                                   fication and modified the hardware design.

                                   FYIC also began to subject all boxes to a 1Wpercent Environmental
                                   Stress Screening to idcnt ify defective boxes before they were installed
                                   on the vehicles. According to Army officials, the new screening includes
                                   ( 1) a visual inspection of the internal circuit boards to disclose improper
                                   or weak solder conncc? ions, discolorations, and other indicators of poor
                                   lvorkmanship: (~2) a tllcrmaljheat    test that sub,jects the box to extremely
                                   high and cxtremcly low temperatures and humidity; and (3) a vibration
                                   test that sub,jccts t hc>boxes to the kinds of vibrations that it will
                                   undergo. According to Army officials at the project manager’s office,
                                   there have not bet,n as many problems wit,h t,he distribution boxes since
                                   the tests were impkmt~nted.

                                   Army data for th(, distribution   boxes showed the following:

                                 - From 1983 through 1989. three boxes failed because of loose electrical
                                   cables: and two boxes \ver‘r damaged during shipment.
                                 - During post-production testing from 1983 through 1989, the mean miles
                                   between maintenanc,t> actions averaged 20,308.
                                 - Three engineering changtas were made from 1984 through 1987 at a net
                                   total cost to the go\.~~rnment of $86,999.



                                   Page   18                          GAO/NSIAD-90-M   Amy   Procurement   of the Rradlry
Chapter   3
RFV Quality   Assurance   Issurs




FMC received additional parts. Due to the lack of documentation, how-
ever, we could not identify the specific items involved or the extent to
which FMC had used nonconforming parts.

As part of its contractural requirement, FMC instituted an automated
system in 1985 to track the disposit,ion of nonconforming parts. At vari-
ous locations on the production and inspection lines, FMC has identified
“lay down points.” Whtbn a nonconforming part is identified. it is taken
to one of these arcas. where information on the part, is entered int,o the
automat4 system. I’criodically,    members of the material review board’
inspect the parts at t htb lay down points and determine whether t,hr part
should be ( 1) reworked. ( 2) used as is, or (3) discarded. These det,ermi-
nations arc entered into the automat.cd system and sc’rvc) as checks on
t hc disposition of parts.

IKLW reviewed FMC’s tracking system in August 1989, as part of an
overall quality systctm review, and found deficiencies in the controls
OVCYand the follow-up of actions taken to reduce the incidence of non-
conforming matt,rials’ being rrccivcd from subcontractors. In its review.
IK‘:IS txamincd two parts critical to the WV’S operations and identified
problems with FM(“s c,ontrol over nonconforming material. The, WAS
(‘hief OPQuality ~~SSIIIXIIW  reques&d that FMC review its nonconform-
ing material tracking system to identify systemic problems. As of
Dcctimber 1989. FMC 11adsubmitted t hcl results of its review to IKXS for
rcvivw- and approval.

Government rcprcsent at ivcks also inspect the vehicles at various stages
in tht> production pro(~s. prior t,o final acceptance. and at field rccciv-
ing locations. These inspections serve to identify any nonconforming
parts that havr bcc>n missc,d during previous inspcc*tions.

Wt, determined that the‘ parts identified by the former FMC employees
as problems wc~rc. in I’ac,t, problems-particularly       in the early stages of
the IW program. (;t~mLrally. these problems have been resolved as a
rcslllt ot’ (~ontractol :LII~ lItmy efforts, as disc,ussed below.




Pagr   16                           GAO/NSIADYO-86   Army   Procurement   of the Bradley
              (:haptrr 2
              Spare Parts   Prickg   lasurs




              Since 1986, the number of unpriced orders issued by the services has
              declined significantly  as a result of emphasis by the Depart,ment of
              Defense on (1) issuing priced contracts and (2) limiting the amount of
              obligated funds that (‘iln br expcndcd before the unpriced orders arc
              drfinitized. As a result of these actions? t,hc number and dollar value of
              unpriced orders have been reduced significantly.

                               .~.            ~~~~
              The prices charged t trc govcrnmcnt for spare parts wcw not the prices
Conclusions   in the I~~~~~~. The govt,rnmcnt and FMC negotiated spare parts prices.
              ~)(xi and I)(‘,.LYevaluattd t hc prices proposed by FMC and challenged
              them when supporting tloc~ilmcnt,ation was inadequate.

              Regardless of the rclvit>w process that is in place, we are not offering an
              opinion on the reasonabkness of the spare parts prices charged the gov-
              crnment. Our prior rc~\~icw of FMC Bradley production contracts, which
              included some of t 111%samr‘ parts as those in spare parts c.ontracts,
              showed that FMC had overpriced the cant rack bccxusc it had not dis-
              clos~l actual subcon I.iici awards, lower prkr quotations. or lowc~
              option prices.

              The occurrence of t bra over-obligation of funds by the Army and of its
              failure to definitizc Impriccd orders for long periods has been reduced as
              a result of actions t akcn by the Department of Defense to curb the
              numbc~r of unpric~c~clordc>rs, limit the amount of funds that can be
              c~xpcndcd. imd rctl~~c~~tlrcs time a1lowt.d for dc,finit izing these types of
              c~l~d(~rs.




              Page   14                              GAO/NSIADOO-OR   Amy   Procurrmrnt   of the BradIe)
                        Chapter        2
                        SpareParts         Pricing   Issues




                        because they did not have a price history on many of the BFV parts at
                        the time the Logistics Support Analysis Review System was being pre-
                        pared, the prices entered into the AMDF were often estimates. According
                        to TACOM officials, after the government and FMC negotiate the parts
                        prices, the negotiated prices are entered into the AMDF and replace the
                        estimated prices.


                        When the Army orders spare parts from the contractor, the contractor
Spare Parts Prices      responds with a price proposal. At this point, government representa-
Based on Negotiations   tives (from DCAS or ~(:\.4) evaluate the reasonableness of the proposed
                        prices by tracing them to supporting documentation such as purchase
                        orders, vendor quotes, or contractor estimates.

                        Since l%O, the Army has procured about $107 million of BFV spare
                        parts on 205 spare parts contracts. We selected 29 of the contracts, val-
                        ued at $26 million, and reviewed the IKXS/~K~A audit report,s for 28 con-
                        tracts, with a value of about $20 mil1ion.l In all cases, DC% or NXA had
                        traced the large-doll~rr-valllc parts, which accounted for a vast majority
                        of the material prices. to supporting documentation.

                        We also reviewed the contracting officers’ price negotiation memoran-
                        dums for 20 of the 28 contracts reviewed. Price negotiation memoran-
                        dums were not available for the other eight contracts. The
                        memorandums provide t,hr essence of the negotiations between the
                        Army and FMC. In all cases, the memorandums indicated that the gov-
                        ernment had not accepted the prices proposed by FMC but had based its
                        negotiations on cost or pricing dat,a submitted by FMC and evaluated by
                         DCAS Ol- DCAA.


                        Although we did not perform a review of the reasonableness of the
                        prices charged the government on the spare parts contracts, we have
                        made such reviews of FMC Bradley production contracts. In March
                        1987, we reported that FMC had overstated, by $10.3 million, the pro-
                        posed prices provided to the Army’s contracting officer for 8 of 24 sub-
                        contracted items rflviowed as part, of the 1982 and 1984 production
                        contracts.’ The ovc%rpricing occurred because FMC had not disclosed
                        actual subcontract alyards, lower price quotations, or lower price




                         Page     12                          (;AO/NSIAD-90-W   Army   Procurrment   of the Rradlry
(‘haptrr   1
Introduction




rus to determine wh~1 her the systrms could identify the types of prob-
lems identified by the former FMC employees. We also selected five IN
parts identified by t hc former employees as problem parts and devel-
oped a chronology OFactions t akcn by t,ho contractor and the Army to
correct the problems. As II part of this c+fort. we analyzed frequency of
failure data dcvc~lop4 by FM(: and IK.\S at San .Jose, California, and the
Bradley program ol’t’ic~c~am1 ‘l:‘r(‘(~ at Warren, Michigan, to determine the
t’rctqnency of the ~)r~~bIc~l!~s.

\Ve did not assess J%(“s ovrrall performance on the Bradley program 01
determine whcth(lr I hr~rc~overdoissucls, other than those alleged, that call
FMC’s performancx~ into qllcstion.

WV performed our r(~ic~\v from .lam~ary to October 1989 in accordame
with generally ;ICU~~I(~1 govt,rnmcnt allditing standards.




Page 10
Introduction


               The Army awarded FMC a full-scale development contract for the
               Bradley Fighting Vehicle (WV) in 1972, and FMC began producing the
               vehicle in 1980. The current production contract for fiscal year 1989
               calls for FMC to produce 641 HFVS.Through the fiscal year 1989 pro-
               curement, the Army has bought a total of 5,524 HF~Sand plans to buy
               8.524 by 1994.

               There are two models of the WV: the infantry fighting vehicle and the
               cavalry fighting vehicle. The infantry vehicle’s mission is to support
               tanks by suppressing enemy infantry and lightly armored vehicles,
               while the cavalry lehiclc’s mission is to serve as a reconnaissance scout
               vehicle for armored cavalry units. Each vehicle has a 25millimeter
               automatic cannon and a KW-2 missile system.

               On October 20 and December 1, 1988, a major news network aired pro-
               grams in which former FiLK employees alleged that FMC had partici-
               pated in fraudulent pra(‘t ices concerning (1) the prices charged to the
               go\,ernment for I3radlcy spare parts and (2) the use of defective parts in
               the production of HE‘L’S.In response to these programs. Representative
               f1arbara Uoscr reqiic~stc~dthat we meet with the former FMC employees
               to determine the validity of their allegations. Before meeting with them,
               we received a letter from one of their attorneys, outlining allegations
               that FMC had cngagc~l in fraudulent practices during the design, manu-
                facture. and deliver\ of thtl WV. More specifically, the allegations were
               as follo\vs:

               1. PMC’ defrauded the government by arbitrarily       inflating spare parts
               prices. FMC entered fraudulent parts prices into the Army Master Data
               File (A~ILW). and thescl llrices becxmc the pric,es the government paid
               when ordering the I)arts.

               2. I’MC used defecti\ v parts on the production        line.

               3. FMC knowingly d(%\-cred WC’Swith rejected, defective, and nonfunc-
               tioning parts in order to justify engineering change proposals and
               increase the spalc parts biisiness.

               4. FMC removed good parts from IW~Sthat had been accepted or pur-
               chased by the govcrnm~nt and replaced them with defective parts.

               5. FMC’s inventory   controls on IWV parts were inadequate                  and, at times,
               nonexistent.




               Pagr   R                          GAO/   NSIAD-90-86   Army    Prwurrment       of the Bradley
Contents


Executive Summary                                                                                                   2
Chapter 1                                                                                                           8
Introduction             Objective, Scope, and Methodology                                                          9
                                               -.                                                               -
Chapter 2                                                                                                      11
Spare Parts Pricing      Allegation That FMC Inflated Spare Parts Prices
                         Spare Parts Prices Based on Negotiations
                                                                                                               11
                                                                                                               12
Issues                   Over-Obligation of Funds for Unpriced Orders                                          13
                         Conclusions                                                                           14

Chapter 3                                                                                                      16
BFV Quality              Allegation That FMC I!sed Nonconforming and Problem
                              Parts in BFV Production
                                                                                                               16

Assurance Issues         Allegation That FMC Removed Good Parts From BFVs                                      20
                              Submitted to the Government for Final Acceptance
                         Allegation That FMC Delivered RFVs to the Army With                                   21
                              Parts Missing
                         Conclusions                                                                           21

Chapter 4                                                                                                      23
Internal Control         Initial and Comparison Production      Tests                                          23
                                                                                                               24
                         Physical Inspection
Processes to Monitor     Deficiency Reporting Program                                                          2,5
Quality                  Sample Data Collection Program                                                        26
                         Quarterly Review Meetings                                                             26
                         Quality System Revielvs                                                               26
                         Conclusions                                                                           27

Appendix                 Appendix   I: Major Contributors   to This Report                                      28
                       - -___
Tables                   Table 4.1: MMBF Trend Data for Three Bradley Models                                    24
                         Table 4.2: Deficiency Reports Issued by TACOM to FMC                                   26
                         Table 4.3: Method C Violations Issued to FMC                                           27
                                                  .~-
Figure                   Figure 4.1: Historical HFV De-Processing Trend Data                                    25
                              Comparing Vehicle Configurations




                         Page   6                            GAO/NSIAB90-86   Army   Procurement   of the Bradley
                             made such reviews of FMC Bradley production contracts. For example,
                             in a March 1987 report, GAO determined that FMC had overstated, by
                             $10.3 million, the proposed prices provided to the Army’s contracting
                             officer for 8 of 24 subcontracted items reviewed as part of the 1982 and
                             1984 production contracts. The production contracts included some of
                             the same parts as those in the spare parts contracts and, like the spare
                             parts contract,s, had been evaluated by the Defense Contract
                             Administration    Services or the Defense Contract Audit Agency,


Use of Nonconformj .ng and   To avoid production line stoppages, contractors sometimes install non-
Problem Parts in             conforming parts on vehicles as they proceed through production. In
                             such instances, the c,ontractor is required to keep track of the noncon-
Production                   forming parts and replace them when good parts become available.

                             FMC officials said ihal in the early stages of the Bradley program, they
                             might have used some nonconforming part,s on the production line
                             b~ause of parts short ages. Due to the lack of available documentation,
                             howc~vcrz GAOwas not able to determine t,he extent to which FMC had
                             used nonconforming material in the production process.

                             In 1985. FMC implcmc>ntcd an automated system to track the disposition
                             of nonconforming material. IIowever, after reviewing the system in
                             Allgust 1989. the Dcf(lnsc, Contract Administration    Services concluded
                             that it did not providct adequate controls or follow-up to reduce the inci-
                             dcn~ of nonconforming materials’ being received from subcontractors.
                             At the request of the Defense Contract Administration      Services, FMC
                             initiated a review of the system to identify and resolve the systemic
                             problems. The rc,srllt s of the review are being studied by the Defense
                             Contract Administ rat ion Services.

                             GAOvc,rificd that t h<i problem parts identified by the former FMC
                             employees as cxpc~rlc~ncing high failure rates were, in fact, problem
                             parts. Ilowtvc>r, G xo I’olmd no evidence that FMC had knowingly used
                             probltm parts in t hc production process.

                                                   ~   -..-___
Unauthorized Removal of      Ihadleys   may b(x ac,c.c,ptcdby the government with missing parts. Such
Parts From Bradleys          xctqkmcc     is permissible as long as the missing parts are identified and
                             payment is adjus(c>tl accordingly. However, in 1983, government inspec-
                             tors found that in I’OIN instances FMC employees had removed parts,
                             without govt~rnmt~nt authorization, from vehicles that had been submit-
                             ted to t hc govt~~runc~n~for final inspection and acceptance. As a result of


                             Page   4                            GAO/NSIAD90-86   Army   Procurement   of the Bradley
Executive Summary


                   Former employees of FMC Corporation, the builder of the Bradley
Purpose            Fighting Vehicle, have alleged that FMC inflated the prices of spare
                   parts and knowingly designed and produced a faulty vehicle. After
                   these allegations were aired by a major news network in October and
                   December 1988, Representative Barbara Boxer requested GAO to deter-
                   mine whether (1) FMC had inflat,ed spare parts prices that were entered
                   into the Army Master Data File, which lists the individual parts that
                   make up the Bradley; (2) the Army had paid the spare parts prices in
                   the Army Master Data File; and (3) FMC had knowingly delivered
                   Bradleys to the Army with defective parts. Representative Boxer also
                   asked GAOto determine whet her there were government and contractor
                   internal controls t,o identify problems with t,he quality of the vehicles.

                                                                                            -
                   In 1Q7& the Army awarded a frill-scale development contract to FMC for
Background         t,he lsradlcy Fighting \Tchiclc. FMC began to produce the vehicle in 1980.
                   and through fiscal year 1RRQ.the Army has procured 6.624 Hradleys.
                   By 1934, the Army, l~l;ms to buy 8524 vehicles.

                   There are two models of the Hradley: the infantry fighting vehicle and
                   the cavalry fighting \zchicle. The infantry vehicle’s mission is to support
                   tanks by suppressing enemy infamry and lightly armored vehicles, and
                   the cavalry vehicle‘s mission is to serve as a reconnaissance scout vehi-
                   cle for armored (‘a\ airy ritrits.


                   The spare parts prices dcvelopcd by FMC and entered into the Army’s
Results in Brief   Master Data File vvet‘(’ often estimates that, had little relationship to the
                   actual cost of t,hr sl)ai’(’ parts. However, the Army did not use the prices
                   in the Master Data Fik, as a basis for negotiating the spare parts prices
                   with FMC. Rather, t Ire ;Zrmy negotiated the prices wit,h FMC based on
                   I~iVC’s cost or pricing (Iota. ‘I’hc proposed prices were evaluated by the
                   I~cfense Contract Admini\trat ion Services or the Defense Contrac*t Atidit
                   -4gcncy.

                   (XO did not perform 1,ricinp reviews of t,he spare parts contracts. 1101~.
                   ever. KW has performed such reviews on Hradley production contracts
                   and has identified sigiiificant overpricing. t\s with the spare parts con-
                   tracts. the DefcnscS C’ontracl Administration   Services or the Defense
                   Contract Atidit A#w,y       had evaluated the proposed prices in the produc-
                   tion contracts, w1nc.h Inc~liitled some of the same parts as those incliidrd
                   in the spare parts (YII~IIX~IS,



                   Page 2                             GAO, NSIAD-SO-86 Army Pnwuremrnt   of the Bradley