State Department: Provision of Residential Furniture Inconsistent With Best Practices

Published by the Government Accountability Office on 1997-06-10.

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

      United States
GAO   General Accounting Office
      Wastington,   D.C. 20548

      National Sec+ity and
      International Affairs Division


      June 10, 1997

      The Honorable Madeleine K. Albright
      The Secretary of State

      Subject:     State Denartment:   Provision of Residential Furniture     Inconsistent
                   With Best Practices

      Dear Madam Secretary:

      We are reviewing the State Department’s process for relocating employees
      overseas, using the “best practices” of the private sector and of other
      government organizations as a benchmark. During the course of our review we
      observed that State is negotiating a residential furniture -contract for its
      overseas employees that may not be beneficial to the Department or the U.S.
      taxpayer. The purpose of this letter is to bring this matter to your attention and
      obtain your views on the Department’s current approach.


      State purchases residential furniture for the housing it owns or leases under a
      contract between the General Services Administration (GSA) and a U.S.
      company. The furniture is manufactured in the United States, shipped overseas,
      and stored in warehouses until needed. The GSA contract, awarded in fiscal
      year 1992 and initially extended through fiscal year 1996, is an indefinite
      quantity, indefinite delivery, fixed price requirements contract. With minor
      exceptions, all Department of State requirements for residential furniture must
      be purchased through this contract.’ State extended the contract through fiscal

      ‘These exceptions include rattan and tropical furniture requirements, and
      furniture requirements purchased (1) with funds appropriated ,under the Foreign
      Buildings Act of 1926, (2) pursuant to the Balance of Payments Program and the
      Trade Agreements Act of 1979 (18 U.S.C. 2510-2582), and (3) for the Marine
      Security Guard.

                             GAOLNSIAD-9?-173R      State Department:   Residential   Furniture

year 1997, pending the award of a new contract. According to a State official,
GSA and State representatives are now evaluating bids and plan to award a
contract by late June or early July. Purchases under the contract totalled about
$46.5 million from fiscal years 1992 through 1996.

In the past few years, State has undertaken initiatives to reengineer its
processes for procuring goods and services overseas, but not residential
furniture. In 1997, its Logistics Reengineering Project team (LRP)’ designed a
new system that encourages the overseas posts to obtain goods and services
through direct local purchase, where feasible. State is implementing pilot
programs at several overseas posts to test the local purchase option.


Our preliminary work indicates that State may be missing an opportunity to
develop a more cost effective and efficient approach to purchasing furniture for
its overseas employees. The current process is inefficient because of its long
cycle times, several handoffs, and substantial inventories. State’s LRP team
reported similar problems with the procurement of other goods and services for
use overseas. Although the team is conducting a pilot test on the feasibility of
purchasing goods and services locally as part of its efforts to reengineer its
procurement processes, State has no specific plans to include the process for
purchasing furniture in the test. In fact, State plans to enter into another
contract with similar terms restricting the posts from purchasing goods locally.

Adoption of a local purchase option, where feasible, could streamline the
process, substantially decrease the time it to takes to receive an order, increase
customer satisfaction, and reduce costs. During our review, we benchmarked
State’s process for purchasing furniture to practices used by six private sector
companies and the World Bank. None of these organizations purchased
residential furniture in their home country for use overseas and none
maintained warehouses at each location to store furniture; instead they shipped
the employees’ personal household effects or purchased furniture locally or
regionally. In addition, representatives of the LRP team consider residential
furniture to be a good candidate for local purchase at some posts. Also some
post officials expressed interest in having the option of purchasing furniture

21n 1995, State established this team, consisting of Civil and Foreign Service
logistics managers from various functions to reengineer State’s process for
obtaining goods and services.

Page 2               GAO/NSIAD-97-173R       State Department:   Residential   Furniture


 State’s system for obtaining materials and services to carry out its mission
 worldwide is cumbersome, inefficient, and uneconomical. In October 1996,
 State’s LRP team reported that the system is characterized by long cycle times,
 high overhead costs, redundancy, and substantial inventory. The team found
 that the average cycle time for international delivery was 6 to 12 months
 compared to best-in-class cycle times of 4 to 10 days. Moreover, the team
 reported that State’s average cost of doing business dramatically increased the
 cost of the commodity by 50 percent. To illustrate these problems, the LRP
 team cited the example of an item State purchased from a vendor in the United
 States. The item cost $1,100, but the administrative overhead to process,
 transport, and issue payment added $1,625 to the cost of the commodity.

 Our initial observations on the process to obtain residential furniture for use
 overseas parallel the LRP team’s findings on the procurement of other goods
 and services. This process, as described by officials in State’s Office of
 Acquisitions, involves long cycle times, a number of handoffs, and high
 inventories. Orders pass through a consolidator and dispatch agency before
 they are shipped overseas. According to an Office of Acquisitions official, this
 process takes 4 months or longer. However, a post official told us it could take
 from 9 to 12 months for shipments to reach some African posts. When the
 furniture finally arrives at the posts, it may be stored for several months,
 resulting in substantial inventories. State does not have an integrated
 worldwide inventory record system, but an official of its Property Management
 Branch estimated that overseas furniture inventories could exceed $100 million.


To address the inefficiencies in State’s procurement process, the LRP team
designed a new system that offers customers three choices for obtaining goods
and services. Direct local purchase, where feasible, is the preferred option.
State’s newly formed Office of Logistics Management is sponsoring pilot
programs in several Latin American posts to test the local purchase option. The
pilot posts are Belize City, Belize; Bogota, Columbia; Lima, Peru; Managua,
Nicaragua; Panama City, Panama; Quito, Ecuador; San Jose, Costa Rica; and San
Salvador, El Salvador. These posts will be given lists of commodities that may
be purchased locally with no restrictions, commodities that require prior
approval, and commodities the posts are restricted from purchasing. Furniture
purchases are not included in the pilot because the terms of the current

Page 3              GAO/NSIAD-97-173R      State Department:   Residential   Furniture

contract, wmch will also be included in the new contract, require State to
purchase & residential furniture from the U.S. contractor.

Some State officials expressed an interest in having the option of purchasing
furniture from alternative sources. For example, several officials in the Bureau
of East Asian and Pacific Affairs said there are plentiful sources of furniture in
Asia, particularly in Hong Kong, Taiwan, Bangkok, Thailand; and Kuala Lumpur,
Malaysia. Also, according to an official of State’s Regional Procurement Office
in Singapore, regional procurement of furniture in Asia should reduce ordering
and delivery times for posts in Asia, and it may also lower purchase prices and
vendor costs.

Members of the LRP team also believe there are opportunities to purchase
furniture locally. They pointed out that U.S. furniture is not always suitable
because of the small size of some accommodations overseas. The LRP team
does not have definitive plans for addressing the furniture issue, according to
one of the team members. The team may recommend that subsequent contracts
be modified to include the local purchase option.


State’s practice of purchasing furniture in the United States, shipping it
overseas, and storing it in warehouses, runs counter to private sector practices.
During our review we benchmarked with six private sector companies that
transfer employees overseas and the World Bank to identify best practices that
may be applicable to State and other U.S. agencies operating abroad. None of
the six private sector organizations purchase furniture in their home country for
use overseas. Most of these organizations we visited ship their employees’
personal household effects overseas A few of them give their employees an
allowance to purchase furniture at their assigned duty station, particularly in
Asian locations. They also encourage the employees to rent furnished quarters
where available. The World Bank purchases furniture locally or regionally in
 countries where it provides housing. None of the organizations we
benchmarked with operate large systems of warehouses for residential furniture
 at the overseas locations.


In light of the options offered by the LRP team to streamline and reduce the
costs of the procurement process and in light of the fact that State’s approach
runs counter to “best practices”, we are requesting that you answer the
following question by June 20, 1997:

Page 4               GAO/NSIAD-97-173R       State Department:   Residential   Furniture

 -       Why is State planning to enter into a requirements contract that prevents
         overseas posts from exercising the option of purchasing furniture locally
         when it may be more cost effective and efficient to ds so?

 zf you have any questions, please contact me on (202) 512-4268 or Diana Glod,
 Assistant Director, on (202) 647-1588.

 Sincerely yours,

&ss T. Ford, Associate Director
 International Relations and Trade Issues


Page 5                  GAO/NSIAD-97-173R      State Department:   Residential   Furniture
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       United States
GA!0   General Accounting
                     D.C. 20548

       National Security and
       International Affairs Division


       June 13, 1997

       Congressional Committees

       Subject: Air Force Rationale for JDAM Production Decision

       In a March 1997 letter to the Secretary of the Air Force, we expressed concern
       that the Air Force might be making a premature commitment to significant
       production of Joint Direct Attack Munitions @DAM) before demonstrating
       through operational testing that the JDAM could meet key performance
       parameters.’ On April 29, 1997, the Secretary responded that the Air Force had

       sufficient data to make the production decision. Since we had provided copies
       of our original letter to the congressional committees having jurisdiction, the
       purpose of this letter is to convey the Air Force’s response (see enclosure),
       along with our analysis.

       JDAM is a tailkit to be attached to a 2,000 pound bomb that will convert the
       unguided free-frill bomb into a precision guided, or smart munition. The
       services plan to buy about 87,500 kits at an estimated average cost of $32,900,
       for a total cost of about $2.87 billion. In our letter, we advised the Secretary
       that (1) the developmental and operational testing would not be completed
       before the decision to begin low-rate initial production, and (2) the number of
       units that the services planned to buy during this phase of production exceeded
       the amount needed to meet the objectives of low-rate initial production as set
       forth in the applicable Department of Defense regulations.

       The Secretary replied that (1) a significant portion of the developmental testing
       was completed and some operational testing had been conducted prior to the
       low-rate initial production decision, (2) an operational assessment was prepared
       prior to the low-rate production decision, and (3) the low-rate initial production
       decision was not the final production decision. The Secretary did not comment
       on our concern about the number of JDAM units to be bought under low-rate

       ‘Joint Direct Attack Munition: Low-Rate Initial Production Decision
       (GAONXAD-97-116R, Mar. 17, 1997).
                                        GAO/NSIAD-97-176R JDAM Production Decision

Our review indicates that, although the initial production decision was made in
April 1997 and the low-rate production contract signed on April 30, 1997,
dedicated developmental testing with the B-52H and the F/A-18C/D will not end
until August 1997. Moreover, initial operational testing wiU not begin until
September 1997. The Secretary’s response stated that the Air Force conducted
some operational testing with the F-16 in Janus 1997. However, an official of
the Air Force Test and Evaluation Command stated that the January testing was
not the same as operationa testing because the Air Force used the F-16, which
is not one of the threshold aircraft, and it did not have operational flight
software. The sarne official further stated that even the threshold aircraft, the
B-52H and the F/A-180, would have to be certified as using operational
software in order to be judged ready to conduct operational testing.

The January tests evaluated four areas of JDAM development, rating two as
having no problems, while rating the other two as having issues that required
attention. However, this assessment is not the same as an evaluation prepared
after dedicated operational testing. According to Air Force officials, the
purpose of this assessment was to evaluate performance to determine if the
weapon will be ready for dedicated operational testing. Because of JDAM’s
developmental phase and consequent lack of data, some critical operational
issues were not evaluated, in areas that were subsequently assessed as having
no issues. For example, in their assessment of operational effectiveness and
suitability, subsequently rated as having no issues, the testers did not assess
whether the JDAM system (1) could allow a single aircraft to attack a target
with multiple weapons; (2) allowed the attacking aircraft a wide range of
tactically sound delivery options; or (3) allowed for timely and flexible
targeting, retargeting, and employment against the user-validated worldwide
target set.

In response to our question about the potential impact of delaying the initial
JDAM production decision until the Services complete developmental and
operational tests with the F/A-18C/D and B-52H, the Secretary replied that such
a delay would abrogate the production contract with McDonnell Douglas, would
result in substantial contractor claims, and delay delivery of production tailkits.
However, until the contract option for JDAM production was awarded on April
30, 1997, there would have been no basis for contractor claims. A delay in
starting production may have required a renegotiation of the contract terms
which may have affected the government’s costs and would have likely delayed
the initial deliveries.

Over the years, we have found numerous instances where production was
permitted to begin based on factors other than the system’s technical maturity.

2                                GAO/NW@-97-176R JDAM Production Decision

Unfortunately, many of those systems later experienced significant effectiveness
andor suitability problems. Further, in today’s national security environment,
we believe there should be very few cases in which an urgent need dictates that
DOD start low-rate initial production without a demonstrated level of
confidence that the system will work as intended.

Our evaluations of numerous acquisition programs has led us to conclude that
production, once be,%, severely limits DOD’s options if problems arise. We
have recommended that the initial production decision be based on enough
operational testing to ensure that the system will be operationally suitable and
effective. The final production decision referred to by the Secretary is, we
believe, a decision about the rate at which the articles will be produced rather
than an opportunity to reconsider whether the weapon is operationally suitable
and effective.

If you or your staff have any questions on these matters, please call me on (202)
5124341 or Bill Graveline on (202) 512-4056.


                                GAONXAD-97-176R JDAM Production Decision

List of Committees

The Honorable Strom Thurrnond
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Ted Stevens
The Honorable Daniel K. Inouye
Ranldng Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Floyd D. Spence
The Honorable Ronald V. Delhrms
Ranking Minority Member
Committee on National Security
House of Representatives

The Honorable C. W. Bill Young
The Honorable John P. Murtha
Ranking Minority Member
Subcommittee on National Security
Committee on Appropriations
House of Representatives

 4                               GAO/NSLAD-97-176RJDAM Production Decision
    ENCLOSUJXE   I                                                                           ENCLOSURE            I

                                             SECRETARY         OF THE AIR FORCE

                                                                                        APR29 1997
                     Mr. Louis J. Rodrigues
                     Director, Defense Acquisition Issues
                     Nation& Security and International
                        Affairs Division
                     U.S. General Accounting Office
                     Washington, DC. 20548

                     Dear Mr. Rodrigues:

                             This is the Xpartment of the Air Force responseto the General Accounting Office
                     (GAO) Letter of Inquiry GAO/NSJAD-97-116R, “Joint Direct Attack Munition: Low-
                     Rate Initial Production Decision”, dated March 17,1997 (GAO Code 707201), OSD Case

                             The Air Force nonconcurs with the issues included iu the GAO Letter of Inquiry
                     concerning the Job%D         4ttack Munition (JDAM). The Air Force believes the JDAM
                     program completed a ! ‘1 ant portion of the Development Test & Evaluation (DT&E)
                     program and demons&           ,e JDAM weapon system works. Those results, coupled with
                     the Air Force Operational ’ :st and Evaluation Center’s (AFOTEC) Operational
                     Assessment, provided sufficient data for the Air Force Acquisition Executive to make a
                     Low-Rate Initial Production decision. This is not the final production decision. The final
                     production decision will be based on the completion of the B-52H and F/A-l8 Jnitial
                     Operational Test and Evaluation (JOT&E) programs, which will ensure the tail kit works
                     and is successfolIy integrated with the threshold delivery platforms. The detailed Air
                     Force comments in response to the GAO questions are provided in the enclosure.

                            If you have any additional questions,please contact Maj Paul Waugh, SAF/AQPB.
                     697-7715x1 10, or L/C Bob Marina% AFPEOWP, 695-8345.


                                             GAONXAD-97-176R JDAM Production Decision
ENCLOSURE I                                                                          ENCLOSURE I

                               GAO LETTER OF INQUIRY GAO/NSIAD-97-I 16R
                                         DATED MARCH 17, 1997
                                    (GAO CODE 70720 1) OSD CASE 132 1


              OUESTION 1: In the absenceof operational test results, how can the Air Force be sure
              that the Joint Direct Attack Munition (JDAM) is operationally reliable and suitable and
              will not need major design changes after committing to production? What are the cost,
              schedule and performance risks of making the production decision before operational
              testing is done with the aircraft? (pp. 3-4/GAO Letter of Inquiry)

              AIR FORCE RESPONSE: The Air Force is not making a production decision before
              completing operational testing. The April 97 decision point will be to enter Low-Rate
              Initial Production (LRIP) - 937 tail kits or 1.07% of the total JDAM buy. It is not a final
              production decision. The final production decision will take place the third quarter of
              FY98 after the completion of F/A-l8 and B-52 operational testing.

              The CongressionalHeavy Bomber Study stated that the Services needed an adverse
              weather, accurate,air-to-ground capability as soon as possible. Based on this
              Congressionalrecommendation, the Air Force acceleratedthe JDAM program in FY95.
              Nevertheless,the acquisition strategy has not changed. We plan to complete an
              acceptableamount of Development Test & Evaluation (DT&E) and some Initial
              Operational Test & Evaluation (IOT&E) before the LRIP decision, then complete DT&E
              and IOT&E prior to the Milestone III full rate production decision. This strategy ensures
              the Air Force and Office of the Secretary of Defense (OSD) have sufficient testing to
              make a final production decision. By following this strategy, the JDAM program will
              mitigate cost, schedule and performance risks, while ensuring a timely and smooth
              transition to production.

              OUESTION 2; How can the Air Force have confidence in the operational assessment
              without any operational test data and only limited development test data? (pp. 4/GAO
              Letter of Inquiry)

              AIR FORCE RESPONSE: The Air Force has great confidence in the Operational
              Assessment(OA) becausethe operational testers basedthe assessmenton actual testing.
              Early-on in the program, the JDAM acquisition community requestedthe user’s (Air
              Combat Command) assistancein evaluating the operational suitability of the JDAM
              weapon system. The result of the System Program Office (SPO) and User interaction was
              the Integrated System Evaluation (ISE) test program.

                                               i       JDAM Production Decision
ENCLOSURE I                                                                              ENCLOSURE I

                  The ISE program consisted of 22 JDAM guided drops over three weeks. Operational
                  aircrews and maintenance crews from the Air Force weapons school planned, built-up,
                  loaded, and flew these missions.. The Air Force Operational Test and Evaluation Center
                  (AFOTEC) personnel observed all phases of ISE. They also conducted mission planning
                  testing on the B-52. AFOTEC personnel also observed many of the twenty DT&E guided
                  test drops and the B-lB, B-2, B-52H, F-16C/D, and F/A-18X/D safe separationflight
                  tests. AFOTEC personnel used all of this data to develop their OA findings.

                  The bottomline - the IDAM test results speak for themselves; i.e.,

                         - 97% confident actual Circular Error Probable (CEP) is within 10.2 +/-20%
                           meters ( 13 meter requimment)
                         - 100% Storage Reliability
                         - 90% Mission Reliability (90% requirement).

                  AFOTEC has more data to support the IDAM OA than in a typical weapons program.
                  For example, the Sensor Fuzed Weapon (SFW) was the last major weapon system for
                  which the Au Force made a production decision. Prior to the initial SFW LRIP decision,
              -   the Air Force conducted only a total of thirty-four missions, and those tests were
                  conducted without using operational aircrews or munitions loading personnel. However.
                  the initial OT&E testing was completed prior to the full-rate production decision. JDAM
                  has followed a similar approach, but accelerated some operational testing prior to LRlP
                  and conducted an Operational Assessment, with the support of AFOTEC.

                  m                Since none of the primary or test aircraft have a mature operational flight
                  program that includes JDAM, how can the Air Force rely on the development test results?
                  How can the AK Force determine a favorable operational assessmentfor the low-rate
                  initial production decision based on data collected from the F- 160, the F/A- 18C/D. and
                  the B-52H aircraft software test tapes? (pp.4/GAO Letter of Inquiry)

                  AIR FORCE RESPONSE: The key to successful aircraft integration is a systematic,
                  agreed-to, and executable integration program- The key objective is to define the interface
                  early-on, reach agreement, define a process, and execute that process. JDAM did just
                  that. The JDAM program established a signed Interface Control Document for the logical
                  interface prior to Engineering, Manufacturing and Development (EMD) 1 contract award.
                  The contractors knew the aircraft interface requirements up front. As the program
                  progressed through EMD, the JDAM program established an integration process and
                  conflict resolution process with each aircraft program office.

                  The DT&.E program has shown how well the JDAM/aircraft integration process has
                  worked. The F-16, F/A-18 and B-2 captive carry and guided drop flight tests have shown
                  that JDAM can receive data from the aim& can transfer Global Positioning System
                  (GPS) alignment, can navigate to the target and can initiate the fuze and warhead. The

                                          GAO/NSIAD-97-176R JDAM Production Decision
ENCLOSURE   1.                                                                           ENCLOSURE I

                 flight data backs-up the countless hours on weapon simulators in the F-l 6C/D, B-52H, B-
                 2, B-1B and F/A-I80      simulation-in-the-loop labs.

                 The Air Force will have completed a comprehensive OT&E program on the F/A-l 8 and
                 B-52 prior to making a final production decision in W98. In the mean time, the LRIP
                 decision will be based on test data that shows the JDAM weapon system can interface
                 with Air Force and Navy aircraft and destroy targets.

                 QUESTION 4; What impact would delaying the production decision until the Services
                 complete developmental and operational tests with the F/A- 1803 and B-52H, have on
                 the JDAM production program? @p.4/GAO Letter of Inquiry)

                 AIR FORCE RESPONSE; Delaying the Low-Rate Initial Production decision, until the
                 completion of developmental and operational testing will abrogate the production contract
                 with McDonnell Douglas A&raft (MDA) and would result in substantial claims from
                 MDA and their vendors. Such a decision would also delay the delivery of production
                 JDAM tail kits until the third quarter of FY99. This would result in a two-year delay in
                 operational JDAM capability on the B-2, and would eliminate capability on the F/A-
                 18C/D, B-lB, and B-52H until at least FYOOand maybe until FYOl. This action
                 contradicts recent Congressional direction to accelerate JDAM on all Air Force bombers.

                 MDA based their proposal on a JDAM Production Price Commitment Curve (PPCC) that
                 says that the conuactor will produce a given quantity of tail kits given a specific level of
                 funding. The Government accepted this proposal and made the PPCC the cornerstone of
                 the JDAM production contract. In order to meet this PPCC, MDA has secured fixed
                 price contract options from major vendors through the first five production lots. These
                 options give the contractor, and the Government, high confidence in the PPCC. If the
                 Government were to unilaterally extend the LRIP decision, we believe MDA’s loss of
                 supplier options will inflict sufficient harm to enable MDA to seek relief from the PPCC.
                 Since the Government is now in a sole-source environmenL the Air Force believes that
                 any settlement would be less favorable to the Government in terms of price, terms and


                                         GAO/NSIAD-97-176R              JDAM Production            Decision
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list from the past 30 days, please call (202) 512-6000 using a
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how to obtain these lists.

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