DOD’s Quality Assurance Oversight for Contracts Is Provided Primarily by DCMA

DCMA is DOD’s primary organization for performing quality assurance  oversight for contracts and this oversight responsibility typically only  covers prime contractors. During fiscal year 2003, DCMA was responsible for government source  inspection for approximately 273,000 contracts. DCMA Provided Quality Assurance Oversight and Enforcement over Contractors

In our review of 15 contracts awarded to 11 contractors, DCMA provided  quality assurance oversight and enforcement over these spare parts prime  contractors. DCMA Adhered to the Federal Acquisition Regulation, Contract Quality Requirements, and DCMA Guidance in Providing Quality Assurance Oversight over Prime Contractors

DCMA’s quality assurance oversight over the 11 spare parts prime  contractors in our review was in accordance with the Federal Acquisition  Regulation, contract quality requirements, and DCMA’s One Book  guidance. Enforcement of Spare Parts Quality and Safety during the Production Process Was Achieved through Corrective Action Requests

During the production process, when a prime contractor’s processes or  spare parts did not meet contract requirements, DCMA used an  enforcement system that involved issuing requests for corrective action by  the prime contractor. Based on industry standards, prime contractors performed at least two or  up to four methods to provide quality assurance oversight over their  subcontractors, as shown in table 2. The primary methods of oversight  used were evaluating subcontractors for placement on an Approved  Supplier List and requiring certifications of parts and processes. The purpose of establishing an Approved Supplier  List is to identify qualified subcontractors capable of producing needed  parts or processes in accordance with industry standards and contractual  specifications. DCMA Held Prime Contractors Accountable by Requiring Adherence to Contract Clauses

In our review of the 15 contracts, DCMA held prime contractors  accountable for overseeing their subcontractors’ work by requiring that  prime contractors adhered to contract clauses concerning oversight  responsibility. When instances of nonconformance were reported through  product quality deficiency reports, the DCMA quality assurance personnel  and the prime contractor determined if the deficiency was due to  contractor nonconformance and assigned responsibility for corrective  action. The processes included conducting physical  inspections of parts produced by contractors, reviewing prime  contractor’s processes, evaluating potential subcontractors for placement  on an Approved Supplier List, requiring certifications of parts and  processes, testing parts and processes, and tracking and monitoring  subcontractor’s performance. For example, while we did not identify any major deficiencies from the  contracts and practices we reviewed, service officials provided examples  of nonconforming parts related to contracts not included in our review  that reached end users for various reasons. Furthermore, given the vast  number of contracts and contractors involved in providing spare parts to  the government, we recognize that the risk of nonconforming spare parts  reaching end users exists. Compliance by contractors, DCMA, and other  DOD agencies with established internal controls helps mitigate against  this risk. Agency Comments and Our Evaluation

In written comments on a draft of this report, DOD provided one technical  comment, which we incorporated as appropriate. We are sending copies of this report to the Secretary of Defense; the  Secretaries of the Army, the Navy, and the Air Force; the Director of the  Defense Contract Management Agency; the Director of the Defense  Logistics Agency; and other interested parties. To assess whether prime contractors provided quality assurance oversight  over their subcontractors’ work related to producing spare parts and  followed industry standards and contract requirements, we identified  prime contractor quality assurance oversight actions performed over  subcontractors. To assess how DCMA held prime contractors accountable for the work of  their subcontractors, we reviewed the 15 contracts to determine if the  contracts included clauses holding the prime contractor responsible for  the spare parts provided to the government and whether instances of  nonconformance had occurred.
Why GAO Did This Study

In the 2004 Defense Appropriations Act, Congress mandated that GAO examine and report on the oversight of prime contractors by the Department of Defense (DOD) and the oversight of subcontractors by the prime contractors. Contract quality assurance oversight is intended to assess whether contractors are capable of and are providing supplies or services that meet contract quality and technical requirements. Providing effective oversight is challenging. DCMA recognizes that the risk of nonconforming parts reaching end users exists, given the diversity of contracts, parts, and products used to meet weapon systems requirements and uses a risk management process to guide its efforts. For fiscal year 2003, government quality assurance oversight was required for approximately 273,000 contracts. GAO determined (1) whether DOD provided quality assurance oversight and enforcement over its spare parts prime contractors, (2) if prime contractors provided quality assurance oversight over their subcontractors, and (3) how DOD held prime contractors accountable for overseeing the subcontractors' work. To address these objectives, GAO judgmentally selected and reviewed 15 contracts awarded to 11 prime contractors by the services and the Defense Logistics Agency. In commenting on a draft of this report, DOD provided one technical comment, which GAO incorporated as appropriate.

What GAO Found

GAO's review of the 15 contracts showed that quality assurance personnel within the Defense Contract Management Agency (DCMA)--DOD's primary organization for providing quality assurance oversight--generally followed established policies, guidance, regulations, and contract requirements in performing oversight and enforcement over spare parts prime contractors. This oversight ranged from conducting physical inspection of parts, such as testing the measurements and functions of a part to evaluating contractor production processes to observing the outer appearance and counting the number of parts for compliance with contract requirements. When one of the prime contractor's processes and another contractor's parts did not meet contract requirements, DCMA used its enforcement system by issuing requests for corrective action by the prime contractors. GAO found that the 11 prime contractors reviewed provided quality assurance oversight over their subcontractors' work in accordance with industry standards and contract requirements. The contractors used at least two and up to four methods in providing quality assurance oversight over their subcontractors. These methods included evaluating potential subcontractors for placement on an Approved Supplier List, requiring certifications of parts and processes, testing parts and processes, and tracking and monitoring subcontractor's performance. The primary methods of oversight were evaluating subcontractors for placement on an Approved Supplier List and requiring certifications that parts and processes conform to contractual specifications. Establishing an Approved Supplier List served to identify subcontractors capable of producing needed parts or processes in accordance with industry standards and contractual specifications. In GAO's review of the 15 contracts, DCMA held prime contractors accountable for their subcontractors' work by requiring that the prime contractors adhere to contract clauses concerning oversight responsibility. Most of the contracts included either clauses stating that the prime contractor shall provide supplies that conform to contract requirements or clauses related to other quality requirements. When nonconformance was reported, DCMA quality assurance personnel and the prime contractor determined if the deficiency was due to contractor nonconformance and assigned responsibility for corrective action. GAO identified one deficiency from the 15 contracts that the prime contractor was responsible for and DCMA held the prime contractor accountable for the part. While GAO did not identify any major deficiencies from the contracts and practices it reviewed, GAO recognizes that the risk of nonconforming spare parts reaching end users exists. Compliance by contractors, DCMA, and other DOD agencies with established internal controls helps mitigate against this risk.