Excess Inventory Acquired on Performance-Based Logistics Contracts to Sustain the Air Force's C ...

72 Pages·2016·3.61 MB·English

Report No. DODIG-2014-119
FOR OFFICIAL USE ONLY
U.S. Department of Defense
I n s p e c to r G e n e r a l
SEPTEMBER 22, 2014
Excess Inventory Acquired on
Performance-Based Logistics
Contracts to Sustain the
Air Force’s C-130J Aircraft
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Excess Inventory Acquired on Performance-Based Logistics
RCoentsrauctlst tso Siunst aBinr thiee Afir Force’s C-130J Aircraft
September 22, 2014 Finding (cont’d)
Objective
Additionally, the Assistant Secretary of Defense Logistics and
Materiel Readiness and Director, Defense Procurement and
Hercules
We evaluated the cost effectiveness of material
Acquisition  Policy  did  not  establish  specific  guidance
purchases made for the C-130J
regarding controls for the proper retention, reuse, and
aircraft through performance-based logistics
disposal of DoD inventory managed by contractors under PBL
(PBL) contracts with the Lockheed Martin
service arrangements.
Corporation and the Rolls-Royce Corporation.
Finding
(FOUO) We statistically sampled Lockheed Martin parts and
calculated excess inventory worth $ . Additionally, we
nonstatistically sampled Rolls-Royce parts and calculated excess
(FOUO) The Chief, Tactical Airlift Division
inventory, totaling $17.1 million.
and the contracting officer did not efficiently Recommendations
manage spare parts inventory, valued at
$ , under the Lockheed Martin
and Rolls-Royce PBL contracts for the
Among other recommendations, the Program Executive Officer
long-term sustainment of the C-130J aircraft.
for Air Force Mobility Programs should direct the Chief, Tactical
The management and purchase of spare parts
Airlift Division to establish and monitor an appropriate PBL
were inefficient because the chief and the
inventory control metric; reduce future contract costs by the
contracting officer established inadequate
value of excess inventory; track and report Air Force C-130J fleet
performance-based contract requirements
reliability data to Rolls-Royce for use in determining future spare
that did not focus on controlling the amount
parts needs; and initiate disposal actions or reuse options for
of Air Force–owned inventory; did not
excess and obsolete inventory.
track Air Force–specific reliability data for
Rolls-Royce spare parts to estimate future Additionally, the Assistant Secretary of the Air Force (Financial
inventory needs; and used operations and Management and Comptroller) should perform a preliminary
maintenance appropriations to satisfy review of operations and maintenance expenditures to
requirements that were potentially not a determine if a bona fide need existed and whether any potential
bona fide need. Antideficiency Act violations occurred.
Further, the Assistant Secretary of Defense Logistics and
Materiel Readiness should revise DoD Manual 4140.01, Volume 6
to require contractors managing Government inventory under
PBL contracts to report inventory requirements, existing
Government inventory, and excess inventory.
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DODIG-2014-119 (Project No. D2013-D000CH-0157.000 )│
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Excess Inventory Acquired on Performance-Based Logistics
RCoentsrauctlst tso Siunst aBinr thiee Afir Force’s C-130J Aircraft
Management Comments and
Our Response
Comments from the Acting Assistant Secretary of Defense specifics of Recommendation 2. The Program Executive
Logistics and Materiel Readiness addressed all specifics Officer for Air Force Mobility Programs addressed all
of Recommendation 3. Additionally, comments from the specifics of Recommendations 1.a.4. and 1.b. However,
Acting Assistant Secretary of Defense responding for the the Program Executive Officer did not address all specifics
Director, Defense Procurement and Acquisition Policy, of Recommendations 1.a.1., 1.a.2., 1.a.3., and 1.a.5.  We
addressed all specifics of Recommendation 4. Furthermore, request additional comments to the final report by
comments from the Assistant Secretary of the Air Force October 22, 2014. Please see the Recommendations Table
(Financial Management and Comptroller) addressed all on the next page.
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Recommendations Table
Recommendations No Additional
Management
Requiring Comment Comments Required
Assistant Secretary of Defense Logistics and Materiel Readiness 3.a., 3.b.
Director, Defense Procurement and Acquisition Policy 4
Assistant Secretary of the Air Force (Financial Management
2
and Comptroller)
1.a.1., 1.a.2., 1.a.3.,
Program Executive Officer for Air Force Mobility Programs 1.a.4., 1.b.
1.a.5.
Please provide comments by October 22, 2014.
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FOR OFFIGIAiJ OU�SJELY
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Contents
Introduction
Objectives ________________________________________________________________________________________1
Background ______________________________________________________________________________________1
RFeivniedwi nof gIn.t e rInnael Cffionctrioelsn __t__ _A__i_r__ _F__o__r__c__e__ _M____a__n__a__g__e___m___e__n___t_ _ _____________________5
of C-130J Inventory Acquired From Lockheed Martin
and Rolls-Royce
_______________________________________________________________________6
C-130J Inventory Was Inefficiently Managed Under the Performance-Based
Logistics Contract __________________________________________________________________________7
Better Performance-Based Metrics Are Needed ______________________________________________8
Rolls-Royce Reliability Data Used to Establish C-130J Inventory Levels
Were Inadequate ________________________________________________________________________16
Inventory Acquired Without a Bona Fide Need Risked Potential Antideficiency
Act Violations Violations _________________________________________________________________18
Specific Guidance Needed for Materiel Retention Under Performance-Based
Logistics Arrangements _________________________________________________________________19
Weak Controls Over Inventory Were Costly _________________________________________________25
Other Matters of Interest on Lack of Defined Terms for Government Acceptance _______26
Management Comments on the Finding and Our Response _______________________________27
Recommendations, Management Comments, and Our Response _________________________30
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Contents (cont’d)
Appendixes
Appendix A. Scope and Methodology _______________________________________________________38
Interviews and Documentation _________________________________________________________38
Excess Inventory Analysis _______________________________________________________________38
Use of Computer-Processed Data ______________________________________________________40
Use of Technical Assistance ______________________________________________________________41
Prior Coverage ____________________________________________________________________________41
Appendix B. Sampling Methodology ________________________________________________________44
Appendix C. DoD Supporting Components of the C-130J Aircraft
Sustainment Program ____________________________________________________________________46
Appendix D. C-130J Inventory Distribution ________________________________________________47
AMppaenndaixg Ee. m20 eLonckth eCeod Mmarmtine Pnarttss With Excess Inventory __________________________48
Assistant Secretary of Defense Logistics and Materiel Readiness _________________________49
DAecprarotmneynmt ofs t hae nAidr F Aorcbeb __r_e___v__i_a__ti___o__n__s_______________________________________________51
_____________________________________________62
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Introduction
Introduction
Objectives
Hercules
The audit objective was to evaluate the cost effectiveness of material purchases made
for the C-130J aircraft through performance-based logistics contracts with
the Lockheed Martin Corporation (Lockheed Martin) and the Rolls-Royce Corporation
(Rolls-Royce). See Appendix A for a discussion of the scope and methodology and
prior audit coverage related to the objective.
National Defense Authorization Act for Fiscal Year 2009,” Section 852, “Comprehensive
Audit of Spare Parts Purchases and Depot Overhaul Maintenance of Equipment for
Operations in Iraq and Afghanistan,” October 14, 2008, requires:
thorough audits to identify potential waste, fraud, abuse in the
performance of the following: (1) Department of Defense contracts,
subcontracts, and task and delivery orders for—(A) depot overhaul and
maintenance of equipment for the military in Iraq and Afghanistan; and
(B) spare parts for military equipment used in Iraq and Afghanistan.
Background
Hercules
The C-130 aircraft was designed to transport a variety of oversized cargo
in and out of rough terrain and hostile environments through air landing, extraction,
and logistical support airdrops. The wide variety of cargo transported includes utility
Hercules
helicopters, six-wheeled armored vehicles, palletized equipment, container delivery
systems, and personnel. The family of C-130 aircraft consists of the following
six models: C-130A, C-130B, C-130E, C-130H, C-130J, and C-130J-30. The C-130J
(Figure 1), first delivered to the Air Force in 1999, is the latest of the six C-130
aircraft models in the fleet of medium-sized tactical airlift. The latest C-130J model
offers upgraded avionics technology and six-bladed, all-composite propeller system
enhancements that allow for increased speed and higher altitudes for takeoff.
The WC-130J, EC-130J, HC-130J, and MC-130J are four other variants derived from
the base C-130J that were designed to meet distinct mission objectives.
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Introduction
Figure 1. C-130J Super Hercules Aircraft
Source: www.defenseimagery.mil
Air Force Life Cycle Management Center
The Air Force Life Cycle Management Center (AFLCMC), headquartered at
Wright-Patterson Air Force Base, Ohio, reports to the Air Force Materiel Command.
AFLCMC is the single focal point responsible for total life cycle management of all
Air Force weapon system programs including aircraft, engines, munitions, and electronic
systems. AFLCMC coverage includes: information technology systems and networks;
command, control, communication, intelligence, surveillance, and reconnaissance
systems; armaments; strategic systems; aerial platforms; and various specialized
or supporting systems. Additionally, AFLCMC executes foreign aircraft sales and
security assistance partnerships with foreign national air forces. AFLCMC consists of
10 program executive officers that are responsible for their respective programs.
Program Executive Officer for the Air Force Mobility Programs
The Program Executive Officer (PEO) for the Air Force Mobility Programs (AFLCMC-WL)
is 1 of 10 program executive offices under AFLCMC but reports directly to the Assistant
Secretary of the Air Force for Acquisition who is also the service acquisition executive.
Hercules Hercules
The PEO manages and supervises all acquisition category I, II, and III programs within
the mobility aircraft area, including the C-130J and C-130 legacy
aircrafts. The Chief, Tactical Airlift Division, located at Robins Air Force Base, Georgia,
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