Report No. DODIG-2012-004 (Project No. D2010-D000CH-0077.002) November 3, 2011i
Changes Are Needed to the Army Contract WithSikorsky to Use Existing DoD Inventory andControl Costs at the Corpus Christi Army Depot
What We Did
We evaluated the Army Aviation and MissileLife Cycle Management Command (AMCOM)material purchases from Sikorsky AircraftCorporation (Sikorsky) supporting the CorpusChristi Army Depot (CCAD) to determinewhether the partnership agreement effectivelyminimized the cost of direct materials to thedepot. AMCOM entered into the partnership toaddress parts availability problems and improvereadiness. This report addresses excess DoDinventory, a metric for reducing material costs,and splitting requirements.
What We Found
AMCOM did not effectively use DoD inventorybefore procuring the same items from Sikorskybecause AMCOM did not develop adequateprocedures addressing inventory use. Weidentified $47.5 million to $58.7 million of excess inventory that AMCOM could use tosatisfy CCAD contract requirements.AMCOM, as directed by the Army MaterielCommand, added a material cost reductionclause into the contract, which was not effectivein reducing CCAD repair costs. The clause wasdesigned for Sikorsky and CCAD to sharesavings associated with reduced material usagefor repair programs. However, AMCOM didnot use reliable data, did not consider depotlabor, and omitted repair programs thatexperienced material cost increases in itscalculation of material cost reduction.Consequently, AMCOM made an unjustifiedincentive payment of $11.8 million to Sikorskyfor reducing material costs. Our calculationsshowed that depot costs increased by$29.3 million.AMCOM officials did not use the most cost-effective source of supply for consumable itemspurchased on the contract because AMCOM hadnot developed an effective material managementstrategy. The Defense Logistics Agency (DLA)had sufficient inventory to satisfy annualcontract requirements for 3,267 items, and theSikorsky contract price for those items was$7.6 million, or 85.1 percent, higher than theDLA price. In addition, from 2008 through2010, Sikorsky was allowed to make excessiveprofit of about $930,760 by procuring itemsfrom DLA that it then sold to CCAD.
Recommendations,Management Comments, andOur Response
Among other recommendations, we recommendthat DoD develop an effective strategy to useexisting inventory before procuring new itemsfrom Sikorsky and to effectively procureconsumable items. The Army ContractingCommand – Redstone Arsenal (ACC-RSA)needs to immediately remove the material costreduction clause from the contract and obtain arefund of $11.8 million. Also, ACC-RSA needsto include a contract clause that requiresSikorsky to obtain consumable items from DLAas the first source of supply when cost-effectiveand practical; pursue a refund of $930,760 forexcessive profits charged on purchases fromDLA; and modify contract clauses to preventSikorsky from making excessive profits.Overall, management comments wereresponsive except for comments on therecommendations to obtain refunds for theunjustified incentive payment and excessiveprofits. Therefore, we request additionalcomments by December 5, 2011. Please see therecommendations table on page iii.