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Changes Are Needed to the Army Contract with Sikorsky to Use Existing DoD Inventory and Control Costs at the Corpus Christi Army Depot

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We evaluated the Army Aviation and Missile Life Cycle Management Command AMCOM material purchases from Sikorsky Aircraft Corporation Sikorsky supporting the Corpus Christi Army Depot CCAD to determine whether the partnership agreement effectively minimized the cost of direct materials to the depot. AMCOM entered into the partnership to address parts availability problems and improve readiness. This report addresses excess DoD inventory, a metric for reducing material costs, and splitting requirements. AMCOM did not effectively use DoD inventory before procuring the same items from Sikorsky because AMCOM did not have adequate procedures for inventory use. We identified 47.5 million to 58.7 million of excess inventory that AMCOM could use to satisfy CCAD contract requirements. AMCOM, as directed by AMC, added a material cost reduction clause into the contract, which was not effective in reducing CCAD repair costs. The clause was designed for Sikorsky and CCAD to share savings associated with reduced material usage for repair programs. However, AMCOM did not use reliable data, did not consider depot labor, and omitted repair programs that experienced material cost increases in its calculation of material cost reduction. Consequently, AMCOM made an unjustified incentive payment of 11.8 million to Sikorsky for reducing material costs. Our calculations showed that depot costs increased by 29.3 million. AMCOM officials did not use the most cost-effective source of supply for consumable items purchased on the contract because AMCOM had not developed an effective material management strategy. Defense Logistics Agency DLA had sufficient inventory to satisfy annual contract requirements for 3,267 items, and the Sikorsky contract price for those items was 7.6 million, or 85.1 percent higher than the DLA price. In addition, from 2008 through 2010, Sikorsky was allowed to make excessive profit of about 930,760 by procuring items from DLA that it then sold to CCAD.

Subject Categories:

  • Administration and Management
  • Economics and Cost Analysis
  • Logistics, Military Facilities and Supplies

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