Vice President Al Gore may need to replace the Hammer Awards, his reinvention awards that mock the days when the government spent $400 on one hammer, with the Screw Awards.
A Defense Department inspector general audit has revealed that in 1996, the Defense Logistics Agency paid $76.50 each for screws that normally cost 57 cents. DLA also paid $714.00 for electrical bells that had previously cost $46.68 and $5.41 for screw thread inserts that used to cost 29 cents each.
Defense IG Eleanor Hill, testifying before the Senate Armed Services Subcommittee on Acquisition and Technology on Wednesday, said the exorbitant prices were paid to one contractor after DLA began buying the spare parts out of the contractor's catalog and made repetitive purchases without negotiating a discounted price for bulk orders. In the past, DLA obtained cost data from the contractor to determine a discounted price. In the case of a second contractor, DLA negotiated a contract to order parts on an "as needed" basis, for direct delivery to the locations that needed the parts. Instead, DLA issued orders for large quantities of parts to be shipped to government warehouses.
The switch to catalog pricing and direct delivery orders were parts of the Defense Department's wider acquisition reform efforts, in which DoD buyers adopted commercial-style procurement practices to obtain better service and lower prices. But as the DLA experience showed, the reforms haven't always produced the intended results.
"Some price increases were to be expected in cases where the DoD was shifting certain costs to the contractors in order to obtain such benefits as direct vendor delivery and reduced government inventory management burdens," Hill said. But she added that her audits found "considerable evidence that the DoD had not yet learned how to be an astute buyer in the commercial marketplace . . . the government should not have been procuring many of these parts on a sole-source basis in the first place."
She said the department's buying power was diminished "by a combination of an extremely disjointed procurement approach and a widespread misimpression that aggressively pursuing discounts was either unnecessary or not in consonance with commercial practices."
Jacques Gansler, undersecretary of defense for acquisition and technology, said that while DLA made mistakes in certain cases, on the whole the acquisition reform process is working. Gansler pointed out a number of improvements at DLA since procurement reform efforts began five years ago, noting that logistics response time has improved 50 percent and wholesale inventory has been reduced by $721 million, a 30 percent savings.
"These were isolated and rare cases," Gansler said. "In the overwhelming majority of cases, using commercial practices and buying commercial items has paid huge dividends in savings, responsiveness and quality."
Gansler said the department is now providing better training to the acquisition workforce on obtaining low prices.
Acquisition reform has been touted as one of the major policy success stories of the Vice President's reinventing government movement. But turning better procurement policies into better procurement practices has proven to be a tough process.
Hill pointed out a number of ongoing challenges to acquisition reform, the most notable of which is unstable funding, she said. Money from acquisition programs is often shifted into other accounts to support unbudgeted military operations, forcing programs to stretch out schedules and costs.
"The impression of too many programs chasing too few dollars has been a DoD acquisition issue for many years, and it is difficult to make a convincing case that the tendency to overprogram has been overcome," Hill said.
In addition, Hill said Congress needs to work with the Pentagon to simplify the department's tens of thousands of accounting systems. Contracting officers also become attached to certain contractors, and become unwilling to open up competition on some service contracts, Hill said. In addition, the acquisition workforce and fraud detection programs are being downsized at the same time the department is planning to increase outsourcing, requiring stronger contract administration.
Gansler conceded that many challenges remain.
"We have undertaken some significant efforts and have made measurable gains, but we still have a long way to go, he said. "A cultural change of this magnitude takes time--and sustained effort."
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