oversight

Improvements Needed in the Administration of the Army's Million-Mile Warranty on Trucks in Europe

Published by the Government Accountability Office on 1977-12-08.

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

                         DOCUMENT   ESUME
04402 -   B3474707]

Improvements Needed in the Administration of the Army's
Million-Mile Warranty on Trucks in Europe. PSAD-78-45; B-139743.
December 8, 1977. 9 pp. + appendix (6 pp.).
Report to Secretary, Department of Defense; by lchacd W.
Gutmann, Directt r, Procurement and Systems Acquisitions Div.
Issue Area: Federal Procurement of Goodsnd Services (1900).
Contact: Procurement and Systems Acquisition Div.
Budget Function: National Defense (050); National Defense:
    Department of Defense - Procurement   Contracts (058!.
Organization Concerned: Department of the Army: Army
    Tank-Automotive Materiel Readiness Comrand, Warren, MI;
    International Hervester Co.
          In 1972, the Army purchased from International
 Harvester Company 656 commercial-type truck tractors with a
"ln-year or million-mile" warranty on selected components. %'he
 warranty covers both parts and labor and specifies that te
contractor will provide replacement parts within 15 days after
warranty determination. If such parts re not Frovided, the Army
can procure the parts from other sources and obtain
reimbursement from International Harvester.
Findings/Conclusions: A review of the million-mile warranty by
the Army Audit Agency in April 1975 reported many problems with
the program. Two years later, the Army was still experiencing
many of the same problems, including an average time lapse of
about 228 days to receive replacement parts on approved warranty
claims and the resolution of almost every disputed warranty
claim in favor of the contractor. he U.S. Army Tank-Automotive
Mate ''l  Readiness Command agreed that it has been experiencing
difficulties with the administration of this warranty and that
the major problem has been the length of time International
Harvester takes to replace warranted parts. The Command has
recently taken several actions to improve warranty enforcement,
support timeliness, and assure coordination with Army units in
Euro-e. The replacement time has also been reduced from 228 to
90 days. It is extremely important that the Army develop
procedures to ottain satisfactory eevice under such warrirties
because the Army's future plans may require buying large numbers
of commercial trucks; these trucks wil'a be covered by similar
extended warranties, and it is likely that some of these trucks
will be operated outside the United States.   Recommendations:
The Secretary of the Army should monitor the Ccaiand's progress
in resolving these matters. If these actions do not produce an
acceptable reFlacement time, the Army should consider stocking a
limited number of replacement parts at Army epots in Europe.
(Author/Sc)
0Q     ~'~
       _
       a              UNITED S TA TES
 -d.       ('" :} -
                y     GENERAL                A CCOUNTING ()OFFI(CE



                      Improvements Needed In The
                      Administration Of The Army's
                      Million-Mile Warranty On
                      Trucks In Europe
                      In 1972, the Army urchased 656 commer-
                      cial-type truck tr.ctors with a "10 year or
                      million-mile" warranty on selected compo
                      nents. GAO found the Arinmy was experiencing
                      difficulties in administering this warranty. The
                      Army has taken corrective action, but because
                      these difficulties persisted for several years,
                      the Secretary of the Army shnuld monitor
                      progress in resolving the difficulties.




                      PSAC-78-45                                         DECEMBER 8, 1977
                           UNITED STATES GENERAL ACCOUNTING OFFICE
    i• •foWASHINGTON,                           D.C.   20548

PROCUJEM     AND SIf rMs
  ACQUISITION DIVISION



        B-139743




       The Honorable
       The Secretary of Defense

       Dear Mr. Secretary:
            The enclosed report summarizes the results of our review
       of the Department of the Army's "10-year or million-mile"
       warranty on trucks in Europe.

            This report contains a recommendation to the Secretary
       of the Army on pages 8 and 9. As you know, section 236
                                                                of the
       Legislative Reorganization Act of 1970 requires the head
       a Federal agency to submit a written statement on actions of
       taken on our recommendations to the Senate Committee on
       Governmental Affairs and the House Committee on Government
       Operations not later than 60 days after the date of the
                                                                re-
       port and to the House and Senate committees on Appropriations
       with the agency's first request for appropriations made
                                                                more
       than 60 days after the date of the report.

           We are sending copies of this report to the Secretary
      of the Army; the Administrator, Office of Federal Procurement
      Policy; and the Acting Director, Office of Management and
      Budget.

                                              Sincerely yours,




                                              R. W. Gutmann
                                              Director
      Enclosure
  GENERAL ACCOUNTING OFFICE               IMPROVEMENTS NEEDED IN THE
  REPORT TO THE                           ADMINISTRATION OF THE ARMY'S
  SECRETARY OF DEFENSE                    MILLION-MILE WARRANTY ON
                                          TRUCKS IN EUROPE


              DIGEST


              The Tank-Automotive Materiel Readiness Command
              awarded n $8.1 million contract to Interna-
              tional Harvester Company on March 31, 1972,
              for the purchase of 656 5-ton truck tractors.
              These truck tractors, designated the F-2000D,
              were assigned to the Army's 37th Transporta-
              tion Group based in Kaiserslautern, Germany.
              The Goup is to operate a highway transport
              system and to provide combat support in an
              emergency.


             The contract extended the basic warranty cover-
             age on engines, transmissions, and rear axles
             to include corrective maintenance for a million
             miles or 10 years. The warranty covers !both
             parts and labor and specifies that International
             Harvester will provide replacement parts within
             15 days after warranty determination. If such
             parts are not provided, the Army can procure
             the parts from other sources and obtain reim-
             bursement from International Harvester.

             The Army Audit Agency reviewed the million-mile
             warranty and reported in April 1975 (se p. 5)
             that

             -- the Army paid for many truck repairs and
                was not reimbursed because warranty claims
                were not submitted,

             -- claim rejections were not challenged although
                 the rejections were not considered valid,
                 and
             -- waiting periods for replacement parts have
                been abnormally long (periods of 100 to
                20C days were not uncommon).




Tu
 JeALt.   Upon rmoval, the report
    tF~Shaulbenotedherei                               PSAD-78-45
                                    i                  PSAD-78-45
 Army officials in Europe agreed with the audit
 report and stated corrective action would be
 taken.
Two years later, GAO found that the Army was
still experiencing many of the same problems
that Army auditors had reported. The problems
still needing attention were:

---It was taking about 228 days to receive re-
   placement parts on approved warranty claims.
   "See p. 2)
-- Disputed warranty claims were resolved in
  favor of the contractor in almost every
  instance. (See pp. 2 and 3)
The U.S. Army Tank-Automotive Materiel Readi-
ness Command agreed that it has been experienc-
ing difficulties with the administration of
this warranty and that the major problem has
been the length of time International Harvester
takes to replace warranted parts. The Command
stated that it had recently taken several ac-
tions to improve warranty enforcement, sup-
port timeliness, and assure coordination with
Army units in Europe. The Command also stated
that the length of replacement time has been
reduced from 228 to 90 days. (See app. I.)
The Army initiated several corrective actions.
These problems, nowever, have existed since at
least April 1975 and are not new--timely parts
replacement has been the subject of a great
deal of recent correspondence between the Com-
mand and the Army in Europe .
We believe, therefore, that the Secretary of
the Army should monitor the Command's progress
in resolving these difficulties.
If these actions do not produce an acceptable
replacement tme, we suggest that the Army con-
sider stocking a limited number of replacement
parts at Army depots in Europe.
It is extremely important that the Army develop
procedures to obtain satisfactory service under




                     ii
            sucn wairant!.es becaus;e (1) the Army's future
            plans may require buying larger numbers of
            commercial trucks, (2) these trucks will be
            covered by extended warranties similar to the
            warranty on the F-2000D, and (3) it is likely
            some of these trucks will be operated outside
            the United States.




Tea Sheit
                      Contents
                                                         Page

DIGEST                                                     i
CHAPTER
      1    INTRODUCTION                                   1
      2    DIFFICULTIES WITH THE MILLION-
           MILE WARRANTY                                   2
               Contractor replacement of
                 warranted parts                           2
               TARCOM comments                             2
               Better coordination is needed
                 between TARCOI and USAREUR               2
               TARCOM commer s                            3
      3    OTHER OBSERVATIONS                             5
               IHC warranty review by
                 the Army Audit Aency                     5
               TARCOM comments                            5
               Commercial repair of F-2000D
                 truck engines                            5
               TARCOM comments                            6
               Our response                               6
      4    CONCLUSIONS, AGENCY COMMENTS,
           AND RE£COMMENDAT ION                           8
               Conclusions                                8
               Agency comments                            8
               Recommendation                             8
APPENDIX
      I    Agency comments dated October 17,
             1977                                        10
                       ABBREVIATIONS
GAO        General Accounting Office
IHC        International Harvester Company
TARCOM     Tank-Autr notive Materiel Readiness Command
U,'REUR    United States Army, Europe
                          CHAPTER

                        INTRODUCTION


     While we were performing a followup review of our
earlier report "Savings Expected from Better Use of Truck
Warranties by Government Agencies," (PSAD-75-64, Mar. 20,
1975), we noted that the Army was experiencing difficulties
with the administration and enforcement of its "million-mile
or 10-year" warranty which covers certain commercial-type
trucks used in Europe.

     We requested comments from the Tank-Automotive Materiel
Readiness Command (TARCOM) on August 26, 1977, and TARCOM
provided both oral and written comments n October 17, 1977.
(See app.   .)
     TARCOM awarded an $8.1 million contract to International
Harvester Company (IHC) on March 31, 1972, for the urchase
of 656 5-ton F-2000D truck tractors. These trucks ,lere
assigned to the Army's 37th Transportation Group, located
in Kaiserslautern, Germany. The Group is to operate a high-
way transport system and to provide combat support in
an emergency.

     The contract extended the basic warranty coverage on
engines, transmissions, and rear axles to include corrective
maintenance for 1 million miles or 10 years. The warranty
covers both parts and labor ($8.20 per labor hour) and
specifies that IHC will provide rplacement parts within
15 days after warranty determination, or the Army can procure
the parts from other sources, repair the truck, and seek e-
imbursement from IHC. This arrangement is generally called
a billback agreement.

     The truck or component s accompanied by a description
of the problem when it arrives at its Army maintenance cen-
ter.  A technical inspector examines the vehicle at the
quality control section ant attempts to deterrnine the failure
and the parts needed. The center's maintenance supervisor
is notified if the inspecto.r determines the failure is caused
by mlfunction of a warranted art. The supervisor prepares
a suspected warranty claim and notifies the in-country IHC
representative. The IHC representative examines the truck
or component and approves or disapproves the warranty claim.
IF the claim is approved, it is sent to the IHC home office
for payent. The supervisor can accept the determination
or disagree with the representative if the IHC representative
disapproves the claim. Disputed warranty claims are sent
to TARCOM for resolution.
                           CHAPTER 2
        DIFFICULTIES WITH THE MILLION-MILE WARRANTY
CONTRACTOR REPLACEMENT OF WARRANTED PARTS

     It was taking about 228 days (range of 756 to
to receive replacement parts from IHC on approved 34 daysi
                                                   warranty
claims. Army units in Germany, therefore, were
                                                 ordering
replacement parts through normal supply channels
                                                  because
it was taking so long to get replacement parts
                                               from IHC.
TARCOM COMMENTS

     TARCOM agreed that IHC has taken excessive time
replace warranted parts. TARCOM pointed out that      to
had problems such as parts not available due to   IHC  has
                                                strikes,
lost shipments, and in some cases shipments returned
                                                      to
the United States from Germany. However, IHC performance
has iproved during the past several months and
                                                delivery
time was reduced to under 90 days.

BETTER COORDINATION IS
NEEDED BWEEN TARCOM AND USAREUR

     The Equipment Support Center, Kaiserslautern, sends
its approved and/or disputed warranty claims to
TARCOM does not advise the Center of the claims' TARCOM.
                                                  status.
The Center first learns of warranty claim status
                                                  when it
receives parts from IHC.

     The Cen.er had to send TARCOM followup notification
many claims before all parts were received; up             on
                                               to five no-
tifications were necessary. Center officials pointed
that the time taken to obtain these parts indicates   out
poor support provided by TARCOM in processing the   the
warranty claims.                                  Center's

     The Center sent 13 disapproved claims to TARCOM
                                                     for
resolution. TARCOM closed eight of the claims
                                               for
legal documentation to support ltigation. TARCOM   lack  of
                                                   requested
substantial data and supporting documentation to
                                                 legally
challenge IHC's position.  In response. a logistics assist-
ant at the USAREUR wrote TARCOM,:

    "Certainly, troop units using/supporting the 2000D
    do not want nor can afford to engage in an adminis-
    trative paperchase trying to obtain substantive
    evidence to support litigation; or would the
                                                  JAG



                             2
      office involve itself in a TARCOM/IHC warranty
      dispute; nor wa;J it be wholly practicable to send
      each failed part to TARCOM (or where directed) for
      analysis and evaluation * * *.  What's needed is
      timely, authoritative resolution of warranty actions
      and providing the parts required."
      Center officials stated they did not have the necessary
skilled people, metallu ical facilities, or legal expertise
to develop the requested 'ata.   As a result, after sending
TARCOM two followups on the remaining five claims, the Center
closed the claims because it believed TARCOM would again re-
quest legal data and proof. The estimated value of the 13
disputed claims was about $10,000 for parts and $6,600 for
labor (808 labor hours x $8.20).
     Center officials stated an additional seven claims
disapproved by IHC were n   forwarded to TAaCOM as disputes
though the officials belie ad the disapprovals were question-
able. These officials beli.vr; that previous TARCOM experi-
ence showed that submission of the claims would be fruitless
without irrefutable supporting evidence for litigation. It
was pointed out that TARCOM has taken the position that
      "Statements of general nature regarding alleged
      opinions of various Equipment Support Center
      personnel or USATACOM Field Maintenance techni-
      cians do not provide grounds to challenge
      the IHC warranty denial."
     Center officials, however, maintain that it is generally
a question of subjective expert mechanic opinion in disputed
cases. DSAREUR officials believe they lack an effective
appeal channel because of TARCOM's position and, therefore,
muLt rely solely on the integrity of IC's representative
to benefit from the warranty coverage.
TARCOM COMMENTS
     TARCOM agrees that warranty disputes, except in one
case, have favored IHC and that there has been a lack
of understanding and coordination between the Center and
TARCCM in the past. However, TARCOM does not feel there
are currently problems in this regard.
     According to TARCOM there are no current cooperation
problems between TARCOM and USAREUR or TARCOM and the




                             3
contractor. All personnel involved are cooperating to the
fullest to resolve warranty claims. A recent check estab-
lished that there are three approved warranty claims on hand
at the Center for which parts have not been received. A spe-
cial management procedure has been established for this vehi-
cle that involves a weekly review of warranty status. TARCOM
explained that it must be able to prove that the warranty
terms were breached and if field elements are unable to
provide positive data, i is limited in actions that can be
taken. Statements by experts, while helpful, are not enough
to pursue a warranty denial. If disagreements occur, often
the most viable alternative is to return the parts to the
United States for analysis, to be used for supportive
evidence in litigation with IHC.




                             4
                           CHAPTER 3

                     OTHER OBSERVATIONS


IHC WARRANTY REVIEW
FY THE ARMY AUDIT AGENCY

     In 1974, the Army Audit Agency reviewed the IHC warranty
on F-2000D trucks in Europe. The Audit Agency reported on
April 30, 1975, that:

     -- The Army paid for many repairs on the IHC trucks and
        has not been reimbursed because warranty claims were
        not submitted.

     -- Claim rejections by IC's representative were not
        challenged, though rejections were not considered
        valid.

     -- Waiting periods for replacement parts have been
        abnormally long. Periods of 100 to 200 days are
        not uncommon.

     USAREUR agreed with the Audit Agency's findings and
stated

     -- all disputed claims will be submitted to TARCOM for
        resolution,

     -- warranty-related problems will be documented and
        forwarded to TARCOM, and

     -- a eview of available work orders has caused the
        submission of many warranty claims.

     Our followup indicates the problems cited by the
Army Audit Agency nave continued to exist and the proposed
corrective action was not effective.

TARCOM COMMENTS

     TARCOM has no comments on the extracts from the Army's
audit report. No record exists that a copy of this report
was provided to TARCOM.

COMMERCIAL REPAIR OF F-2000D TRUCK ENGINES

     USAREUR headquarters contracted with the DAF Company (a
Dutch firm) to rebuild 37 F-2000D truck engines.  The first


                             $
contract covered two engines to determine if DAF could
rebuild F-2000D engines. A second contract was awarded for
five engines because repair turnaround time at the Center
was averaging 108 to 190 days. The longer turnaround time
at the Center is caused by the time i takes t order and
receive parts from the United States (i00 to 180 days). A
third contract was awarded to DAF for 30 engineb on March
1, 1977.
     The DnF Corpany is located in Eindhoven, Holland, and 33
percent of its equity is owned by IHC. The latest contract
specifies that engines will be rebuilt in 30 days unless a
12-day turnaround is requested. This contrasts sharply with
IHC's performance in providing replacement parts to Army
units under its warranty provisions. In addition, conditions
of the contract provide that DAF personnel and/or the IHC
representative will determine the cause of engine malfunctions
at the DAF plant. If these officials find that the engine
malfunctioned as a result of IHC-warranted conditions, parts
and labor required to repair the malfunctioning item will
be provided at no cost.
     All parts replaced during rebuild will be returned with
the engine since the cause of engine malfunction will not be
determined before shipment to DAF, and there will be no Army
officials to observe the engine when it is disassembled.
Parts returned with the engine will be visually inspected
and a warranty claim submitted when appropriate. USAREUR
officials agreed that under this arrangement visibility over
warranty claims may be lost since Army personnel will no
longer disassemble and analyze the probable cause of failure.
However, these officials believe that this procedure is as
effective as the previous experience the Center has had
with TARCOM.
TARCOM COMMENTS
     TARCOM was unaware of the contract between DAF and
USAREUR involving the F-2000D truck engines. USAREUR has
stated that a one-time contract was let for repair of 37
backlogged engines. USAREUR further states that a Center
representative was present when the first seven engines
were disassembled.
OUR RESPONSE
     USAREUR states a representative was present for the
disassembly of the first 7 engines; however, no mention was
made of a representative being present at the disassembly of



                             6
the remaining 30 engines. This tends to support USAREUR's
position at the time of our review that visibility over
warranty claims would be reduced.




                             7
                          CHAPTER 4
      CONCLUSIONS, AGENCY COMMENTS, AND RECOMMENDATION
CONCLUSIONS
     The Army has not received full benefit from the warranty
it procured because (1) IHC has not provided replacement parts
within the agreed time and (2) TARCOM has not acted to re--
quire performance by IHC. The Army Audit Agency reported on
these matters in April 1975 and proposed corrective action.
The problem, however, continues to exist. Army units, there-
fore, now order parts from normal supply channels when such
parts should be obtained from IHC.
     In the case of the disputed claims, poor coordination
and a lack of understanding or communications betwee TARCOM
and USAREUR has effectively relieved IHC of liability.
     These conditions have caused a major problem with the
availability of repair parts in Europe. Army readiness,
therefore, could be affected because the 37th Transportation
Group is to provide combat support in an emergency.
A!GENCY COMMENTS

     TARCOM agreed that IHC has taken excessive time to
replace warranted parts and that there has been a lack of
understanding between USAREUR and TARCOM in the past. TARCOM
stated the following actions were being taken:
     -- Frequent contacts are being made with IHC about
        warranty uppor t, especially the time IHC takes to
        supply replacement parts.
     -- A reconciliation of warranty claims was made and there
        are only three claims outstanding.
     -- A procedure has been instituted for a weekly
        review in detail on the status of warranty claim
        actions.
TARCOM pointed out that the length of replacement time has
been reduced from 228 days to 90 days and that IHC has not
been relieved of liability.  (See app. I.)
RECOMMENDATION
     The Army has initiated several corrective actions.
These problems, however, have existed since at least April
1975 and are not new--timely parts replacement has been
the subject of a great deal of recent correspondence between
TARCOM and USAREUR. We believe, therefore, that the Secretary
of the Army should monitor TARCOM's progress i resolving
these difficulties.
     If TARCOM's actions do not result in an acceptable
replacement time, we suggest that the Army should consider
stocking a limited number of replacement parts at Army depots
in Europe. IHC should, of course, still supply the replacement
parts to the Army. Such an agreement may be more cost
effective than the current administrative costs being incurred
by the Army and IHC on this warranty.
     It is extremely important that the Army   rk out pro-
cedures to obtain satisfactory service under such  warranties
because (1) the Army's future plans may require buying
larger numbers of commercial trucks, (2) these trucks will
be covered by extended warranties similar to the warranty
on the F-2000D, and (3) it is likely that some of -hese
trucks will be operated outside the United States.




                              9
APPENDIX I                                                           APPENDIX I




                           DEPARTMEWT OF THE ARMY
              US ARMY TANK-AUtOMOTIVE MATERIEL REIAOINES   COMMANO
                            WARCRN, MICHIGAN 48090




   DRSTA-M (NMP)




   Mr. John A. Rinko
   Assistant Director, Procurement
     and Acquisition Division
   US General Accounting Office
   Washington, DC 2548




   Dear Mr. Rinko:

   Thank you for the opportunity of commentir.g on the proposed GAO letter
   to the Secretary of the Army concerning matters related to the million-
   mile or 10 year warranty covering trucks used in Europe.

   There have been difficulties with administration of this particular
   warranty, but I do not believe conditions are as bleak as indicated in
   your letter. The primary problem has been that contractor replacement
   of warranty parts has taken an excessive time to reach the user.

   We have taken several actions recently to improve warranty enforcement,
   timeliness of support, and to insure coordination with USAREUR elements,
   principally the Equipment Support Center in Kaiserslautern. Frequent
   contacts have been made with IHC concerning warranty support, especially
   repair parts replacemeint time. Significant improvement has been made in
   this area. Secondly, we have had a reconciliation with the Europe repair
   facility which has clarified some previous confusion concerning duplicate
   warranty control numbers a~nd as of 13 October 1977, there ere only three
   F-2000D claims for which repair par.s had not been received by the user.
   Further, we have instituted a procedure to review in detail, on a weekly
   basis, the status of warranty claims actions for this vehicle to include
   the exact status of parts shipments.




                                       10
APPENDIX I                                                           APPENDIX I




                                                                     17 OCT 1977
   DRSTA-M (NMP)
   Mr. ohn A. Rlnko

   We believe that the Government is realizing a significant return from this
   warranty and with the intensified effort now in effect, future problems will
   be few and handled expeditiously.

    Our specific comments on the proposed letter are inclosed.

                                             Sincerely yours,




    1 Incl                                   HAROLD F. HARDIN,
    as                                       Major Genera, USA
                                             Commanding




                                        11
APPENDIX I




  TARCOM comments on GAO Draft Letter Report to Secretary of the Army -

  "MlLton-Mlle Warranty" coverin     S5ton tucks in Europe.




                           [See GAO note p.    151




     TARCOM concurs that it has taken the contractor an excessive time to

  provide replacement parts.   However, much improvement bas been made
  during the past several months and the average time has been reduced to

 under 90 days. As of 13 October 1977, there were only three claims for

 whicih replacement parts had not been provided.




                           [See GAO note p.    15]


    TARCOM agrees that warranty dispute, except in orae case. have been
 resolved in favor c'e-C



                            (See GAO note p.       15]




                                     12
APPENDIX I                                                      APPENDIX




                       [See GAO note p.     15]




   TARCOM concurs that there has been a lack of understanding and

 coordination in the past in some cases; however, there are currently no

 problems in this regard.




                                     13
APPENDIX I                                                          APPENDIX I




                      (See GAO note p.        15]




   Under terms of the contract, warranty determinations are made by the IC

in-theatre technical representative.   TARCOM is certainly willing to pursue

any warranty that the user feels has been improperly denied.     Statements by

experts, while helpful, are nct enough with which to pursue a warranty denial.

If disagreements occur, often thne: most viable alternative is to return the parts tc

CONUS for analysis, which can be used for supportive evider=e in litigation

with IHC.



                          [See GAO note p.          151




   TARCOM has no comments on the extracts from the AAA Report.         No record

 exists that a copy of this report was provided TARCOM.     A check with local

 AAA officials and DARCOM Headquarters was negative.




                                         14
 APPENDIX I                                                              APPENDIX I




                         (See GAO note below]




   TARCOM was unaware of the contact between DAF and USAREUR involvi.ng

the F-2000D Truck engines.
                                       USAREUR has stated that a one tme con-

 act was let for repair of 37 backlogged encines.




                                   USAREUR further statad that   i   representtive

from the ESCK was present when Le first seven engines were disassembled.




                      [See GAO note below]




       GAO note: Comments that do not pertain to thf
                 final draft have been delted.



(950412)


                                        15