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
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)