Metropolitan Washington Airports Authority: Contracting Practices
Do Not Always Comply with Airport Lease Requirements (01-MAR-02, 
GAO-02-36).							 
                                                                 
The Metropolitan Washington Airports Act of 1986 transferred	 
operating responsibility for Dulles and Reagan National Airports 
from the federal government to the Metropolitan Washington	 
Airports Authority (MWAA), an independent, nonfederal, public	 
entity. MWAA, which has a 50-year lease to run the two airports, 
has entered into a wide range of contracts for supplies,	 
construction, and other services. Although MWAA issued guidance  
in 1993 for the awarding of contracts and concession franchises, 
GAO found that the guidance does not adequately reflect 	 
competitive contracting principles and is out of date in many	 
respects. Moreover, MWAA does not use its guidance to award	 
contracts for non-concession goods and services. MWAA did not	 
obtain full and open competition for 15 of the 35 contracts GAO  
reviewed, raising concerns about whether MWAA obtained the best  
value for the goods and services provided. The failure to obtain 
full and open competition also raises concerns about whether MWAA
has (1) deprived prospective contractors of the chance to compete
for contracts and (2) fairly evaluated all of the contractors	 
that have competed for procurements. Finally, by not following	 
recognized competitive principles, MWAA could be giving the	 
appearance of favoritism in its contracting decisions.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-36						        
    ACCNO:   A02792						        
  TITLE:     Metropolitan Washington Airports Authority: Contracting  
Practices Do Not Always Comply with Airport Lease Requirements	 
     DATE:   03/01/2002 
  SUBJECT:   Airports						 
	     Competitive procurement				 
	     Contract performance				 
	     Contract oversight 				 
	     Leases						 
	     Contract terms					 
	     Construction contracts				 
	     Procurement practices				 
	     Service contracts					 
	     Source selection					 
	     Dulles International Airport (VA)			 
	     Ronald Reagan Washington National			 
	     Airport (DC)					 
                                                                 

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GAO-02-36
     
United States General Accounting Office

GAO

Report to Congressional Committees

March 2002

METROPOLITAN WASHINGTON AIRPORTS AUTHORITY

Contracting Practices Do Not Always Comply with Airport Lease Requirements

GAO-02-36

Contents

Letter

Results in Brief
Background
MWAA Has Not Satisfied Its Obligation to Publish the Procedures

It Uses to Award Contracts Competitively
MWAA Has Not Always Satisfied Its Obligation to Obtain, to the
Maximum Extent Practicable, Full and Open Competition

       MWAA Believes That the Principles of Full and Open Competition
        Need to Be Defined within the Context of Airport Contracting
      The Department of Transportation Represents the Interests of the

United States in Its Dealings with MWAA
Conclusions
Recommendations for Executive Action
Matter for Congressional Consideration
Authority Comments and Our Evaluation

                                     1

                                    4 8

10

13

34

36 36 37 38 39

Appendix I Principles of Full and Open Competition 47

Background 47
Fundamental    Principles   for    Competitive   Public    Procurements   49
Applicability of Principles to Existing Contracts 52

Appendix II Scope and Methodology

Appendix III Contract Selection Methodology

Appendix IV Comments from the Metropolitan Washington
Airports Authority 60

GAO's Comments 71

Table

Table 1: Contract Findings: Compliance with Selected Principles of
Full and Open Competition 15

Abbreviations

ABA American Bar Association
MWAA Metropolitan Washington Airports Authority

United States General Accounting Office Washington, DC 20548

March 1, 2002

The Honorable Ernest F. Hollings
Chairman
The Honorable John McCain
Ranking Minority Member
Committee on Commerce, Science,

and Transportation
United States Senate

The Honorable Don Young
Chairman
The Honorable James L. Oberstar
Ranking Democratic Member
Committee on Transportation

and Infrastructure House of Representatives

The Metropolitan Washington Airports Act of 1986 provided for the lease of
Washington Dulles International Airport (Dulles) and Ronald Reagan
Washington National Airport (Reagan National) and the transfer of operating
responsibility from the federal government to the Metropolitan Washington
Airports Authority. The Authority is an independent, nonfederal, public
entity that has operated the government-owned airports since June 7, 1987,
under a 50-year lease with the U.S. Department of Transportation.1 The
transfer of operating responsibility was intended to facilitate timely
improvements at the airports to meet the growing demand for air
transportation.

Under the statutory terms of its lease, the Authority must protect, promote,
operate, and maintain Dulles and Reagan National airports in Virginia. To
carry out this mandate, the Authority enters into a wide range of
contractual relationships to acquire supplies and construction and other
services. Acquisitions range from office supplies to heavy mobile equipment,
from fuel oil and gasoline to replacement parts for air-conditioning
systems, and from minor repairs to major construction. The Authority also
contracts for a variety of revenue-generating concessions to

1 The Authority was created by the Commonwealth of Virginia and the District
of Columbia as a public authority to operate the airports.

provide, among other things, rental cars, food and beverages, customer
service, parking, taxi services, advertising, and general aviation services
needed by the airports' users.

The Authority's lease with the federal government was intended to protect
the federal government's interest in the two airports. Thus, the 1986 act
required that the Authority's lease with the federal government incorporate
several terms. One such term involves contracting at the airports.
Specifically, the Authority's lease with the federal government (the
statutory lease provision) states the following:

". . . in acquiring by contract supplies or services for an amount estimated
to be in excess of $200,000, or awarding concession contracts, the Authority
shall obtain, to the maximum extent practicable, full and open competition
through the use of published competitive procedures. By a vote of seven
members [of its board of directors], the Authority may grant exceptions to
the requirements of this paragraph."

In authorizing the airports' lease, Congress generally intended the airports
to be operated as a business and in a manner similar to other airports.
Congress provided the Authority with considerable discretion in structuring
its procurement process. Although the Authority is not required to follow
federal procurement statutes and regulations, Congress obligated the
Authority to implement, through the use of published competitive procedures,
procurement and concession franchising systems designed to achieve full and
open competition. Furthermore, the congressional mandate required the
Authority to conduct its procurements, to the maximum extent practicable, in
a manner consistent with the well-established principles underlying full and
open competition. These principles are intended to ensure that all firms
that wish to furnish supplies or services have an equal opportunity to
compete for the award. Appendix I provides additional information about the
fundamental principles underlying full and open competition.

The 1986 act, as amended, requires us to periodically review the Authority's
contracting practices. Our first review was conducted in 1992 and concluded
that the Authority's contracting practices generally promoted a competitive
environment. However, we identified some practices that, if not corrected,
could adversely affect the Authority's

competitive process.2 This report provides our current assessment of whether
the Authority has satisfied its contracting obligations under the statutory
lease provision. Specifically, this report addresses whether the Authority
(1) has published the competitive procedures that it uses to award contracts
and (2) for the contracts that we reviewed, has obtained, to the maximum
extent practicable, full and open competition in contracting for goods and
services whose estimated cost exceeded $200,000 or, if not, whether the
Authority's board of directors approved the exceptions. This report also
addresses the Authority's views about the meaning of full and open
competition within the context of airport contracting. Finally, because the
secretary of transportation represents the interests of the executive
branch, this report addresses the Department of Transportation's role in
ensuring that the Authority fulfills its obligations under the lease.

We focused primarily on two distinct groups of contracts that either
exceeded $200,000 on the date of award or had exceeded $200,000 as of
December 31, 1999. In total, 646 contracts met these criteria. The first
group of contracts that we chose from this universe consisted of 13
contracts that, according to the Authority's contracting database, generally
(1) were awarded between 1992 and 1999 using full and open competition and
(2) exhibited the highest cost growth.3 We selected these 13 contracts to
represent a full range of the Authority's contracting activities, including
the type and value of the Authority's contracts. We reviewed the initial
contract awards and all 240 subsequent modifications to the 13 contracts.
The modifications changed the terms of the original contracts by, among
other things, adding work to the contracts. The second group of contracts
consisted of all 22 contracts that, according to the Authority's database,
were awarded without full and open competition in 1998 and 1999. In total,

2 Identified practices included awarding contracts under procedures that
were not publicly disclosed and extending one sole-source contract on
several occasions without proper authorization. See Contract Award
Practices: Metropolitan Washington Airports Authority Generally Observes
Competitive Principles (GAO/RCED-93-63, Feb. 8, 1993). More recently, we
provided information on the extent of contracting by the Authority. See

Metropolitan Washington Airports Authority: Information on Contracting at
Washington Dulles International Airport and Ronald Reagan Washington
National Airport between 1992 and 1999 (GAO-01-185R, Nov. 17, 2000).

3 Two of the 13 contracts that we reviewed were awarded before 1992 but were
still open as of December 31, 1999. These contracts exhibited the highest
cost growth among all of the contracts that exceeded $1 million during the
period. As discussed in further detail in appendix III, we focused on
contracts with high cost escalation to determine whether the work associated
with the cost increase had been subjected to full and open competition.

the 35 contracts that we examined were valued at about $408 million and
accounted for 5 percent of the 646 contract awards and 19 percent of the
value of the 646 contracts as of December 31, 1999. Because the Authority
does not have a centralized database of its concession contracts or
documented procedures for awarding these contracts, we did not review
concession contracts. Instead, we focused our review on the Authority's
contracts for supplies and services, including construction.

We used the Authority's written policies and procedures as well as the
fundamental principles underlying full and open competition to evaluate the
Authority's contracting actions. Because the Authority is not required to
follow federal procurement statutes and regulations, as detailed in appendix
I, we applied generally recognized principles underlying the concept of full
and open competition. The results of our contract analyses are not
projectable to the universe of the Authority's contracts for supplies and
services.4 Appendixes II and III provide additional information about our
scope and methodology, including our methodology for selecting contracts.

We discussed our preliminary findings with officials from the Authority,
and, by letters dated June 29, 2001, and July 9, 2001, the Authority
provided additional information for us to consider in drafting our report.
We incorporated this information as appropriate and, thereafter, provided a
draft of this report for review and comment to the Authority and to the
Department of Transportation. The parties' responses, including the
Authority's letter dated January 4, 2002, are summarized in the following
section and discussed in more detail at the end of this letter.

Although the Authority issued guidance for awarding its contracts and
concession franchises in 1993, the guidance does not adequately reflect
competitive contracting principles and is out of date in numerous respects.
Furthermore, the Authority does not use the 1993 guidance to award its
contracts for non-concession-related goods and services. As a result, the
Authority has not satisfied its obligation under the lease. In our view, the
clear intent of the statutory lease provision is to ensure that the
Authority develops, publishes, and follows an orderly set of contracting
procedures for awarding its contracts and concession franchises. Such
procedures are

4 To project our results to the universe of the Authority's contracts, we
would have had to randomly select a large number of contracts for detailed
analysis. Time did not permit such an exhaustive review.

Results in Brief

intended to enhance competition and, when published, provide the means for
contractors to understand the Authority's contracting processes. Likewise,
the requirement to publish the Authority's contracting procedures is
intended to assure prospective contractors that the procedures will actually
be followed. The Authority's 1993 guidance does not satisfy the intent of
the statutory lease provision. For example, the contracting processes
specified in the manual are written in such general terms that they provide
little useful guidance to prospective contractors in understanding the
Authority's contracting procedures. Moreover, the 1993 manual is outdated
and is not written so as to be binding on the Authority's contracting
activities. In fact, the 1993 manual is not the guidance actually used to
award the Authority's contracts. Instead, for contracts involving
non-concession-related goods and services, the Authority uses an internal
manual it developed in 1998. The 1998 guidance is far more detailed,
substantive, and prescriptive than the 1993 guidance but has not been
published for use by prospective contractors.

The Authority also did not satisfy its obligation to obtain, to the maximum
extent practicable, full and open competition for 15 of the 35 contracts
that we reviewed, as follows:

* Twelve of the 13 contracts that the Authority identified as awarded using
full and open competition and that generally had the highest cost growth did
not comply with one or more of the fundamental principles underlying full
and open competition. Four of the 13 contracts had problems pertaining to
the Authority's evaluation of proposals, including errors in the Authority's
scoring of contractor proposals, and 2 others involved the use of a
potentially problematic evaluation methodology. Moreover, in 8 of the 13
contracts, the Authority did not solicit competition for all of its
procurement needs, including $11.4 million in contract term extensions,
which could have been subject to competition. Finally, the Authority
modified 3 of the 13 contracts to obtain goods and services that were beyond
the scope of work contained in the original solicitations. For example, the
Authority modified 1 contract on at least 10 occasions to add about $2.1
million in work that it had originally planned to compete separately.
According to the Authority, it changed its plan because of the contractor's
success on another airport project and the Authority's desire to perform the
work more quickly than could be accomplished otherwise. Since the Authority
specifically excluded the additional work from the scope of the original
contract, this work was not subject to competition. Thus, obtaining the work
through contract modifications was tantamount to a series of sole-source
procurements. The Authority disagrees that these and other actions represent
sole-source procurements and, as a result, did

not prepare sole-source justifications-as required by its internal
contracting procedures-or obtain exceptions to the use of full and open
competition from its board of directors, as required by its lease with the
federal government.

* The use of less than full and open competition for 19 of the remaining 22
additional contracts that we reviewed appeared acceptable given the
contracts' circumstances. However, we believe that the Authority missed
opportunities to fully compete 3 of the 22 contracts. The 3 contracts were
awarded to United Airlines on a sole-source basis for the design and
construction of office space for federal agencies that process international
travelers, 12 passenger-screening checkpoints, and an outbound
baggage-handling system. The improvements totaled about $10.6 million. The
Authority did not prepare sole-source justifications or seek exceptions to
the use of full and open competition from its board of directors because it
concluded-erroneously, in our view-that the work was authorized under the
parties' agreement for the airline's use and lease of airport facilities and
therefore, in the Authority's view, was not subject to the requirement for
full and open competition. In addition to the 3 airline sole-source awards,
2 of the 22 contracts that we reviewed were not approved by the Authority's
board, as required for sole-source awards. The Authority agreed that the
necessary board approvals were not obtained for these 2 procurements and
indicated that the requirement had been overlooked.

As previously noted, the results of our contract analyses are not
projectable to the universe of the Authority's contracts for supplies and
services. However, because the Authority permits several of the contracting
practices that we questioned as a matter of policy or practice, we believe
that similar problems are likely to exist in the Authority's other
contracts.

While not conceding that the examples cited in this report represent a
violation of "any law or its federal lease," the Authority acknowledged, in
its June 29, 2001, letter to us, that it needed to better embrace and
articulate "certain hallmarks of `full and open' competition." The Authority
stated, however, that our assessment of its contracting practices using
recognized principles of full and open competition was inappropriate in part
because, in its view, these principles do not adequately reflect the unique
environment applicable to contracting at commercial airports. We disagree
with the Authority's view. The Authority is not a private entity with
authority to operate freely in the commercial world. Rather, the Authority
is a public entity subject to contracting requirements that call

for the use of full and open competition, to the maximum extent practicable,
that were set forth in its lease with the federal government.

As signatory to the lease, the secretary of transportation is the primary
executive branch official responsible for representing the interests of the
United States in its dealings with the Authority. The 1986 act that
transferred responsibility for operating the airports, however, does not
define the specific role of the Department of Transportation in overseeing
the Authority's compliance with the contracting requirements imposed in its
lease with the federal government.

The Authority's failure to obtain, to the maximum extent practicable, full
and open competition for 15 of the 35 contracts that we reviewed, has
numerous potential negative consequences. For example, it raises concern
about whether the Authority obtained the best value available in the
marketplace for the goods and services that the Authority acquired through
contracts. Furthermore, it raises concern about whether the Authority has
(1) deprived prospective contractors of the chance to compete for
contracting opportunities and (2) fairly evaluated all contractors that have
competed for its procurements. Finally, by not following recognized
competitive principles, the Authority could convey an appearance of
favoritism in its contracting decisions.

We provided a draft of this report for review and comment to the Department
of Transportation and to the Authority. The department did not comment on
the specific steps that it plans to take to address our recommendation that
it follow up on the Authority's actions to address our findings and
recommendations. However, the department indicated that it would take
"appropriate actions" to fulfill its obligations under the lease. The
department also provided technical and clarifying comments, which we
incorporated as appropriate.

In a January 4, 2002, letter to us, the Authority disagreed with the
report's major conclusions; raised concern about our scope and methodology,
including the principles that we used to assess the Authority's contracting;
and reiterated comments that it made to us in earlier letters. The Authority
concurred with one of our recommendations, agreeing to publish an updated
and more detailed version of its contracting manual for review and comment
by the public and, thereafter, to make the procedures readily available. The
Authority also said that it would "consider its approach" to pricing
contract options when it revises its contracting procedures. However, the
Authority did not comment on our other recommendations for correcting the
problems that we identified. The

Authority's comments, as well as our evaluation of them, are discussed in
detail at the end of this letter. The Authority's January 4, 2002, letter
and our supplementary comments on it appear in appendix IV.

Given the Authority's silence on most of our recommendations and its
fundamental disagreement with our view about the meaning and applicability
of the requirement for full and open competition, it appears doubtful that
the Authority will, on its own initiative, take all of the actions that we
believe are needed to meet the statutory and lease requirement pertaining to
the Authority's contracting practices. This is particularly troublesome
given that the Authority recently embarked upon a multibillion-dollar
construction program at Dulles. Furthermore, because the 1986 act does not
specify the Department of Transportation's role in overseeing the
Authority's contracting, it is unclear what the department will do to ensure
that the Authority satisfies its obligations under the lease. Accordingly,
we added a suggestion that Congress consider clarifying the 1986 act to
specify that, as lessor, the department is responsible for ensuring that the
Authority (1) fully complies with the contracting requirements imposed in
the lease and (2) takes all steps needed to correct the problems that we
identified.

                                 Background

Before the airports' transfer to the Metropolitan Washington Airports
Authority (MWAA), Dulles and Reagan National were operated by the Federal
Aviation Administration and financed with federally appropriated funds.
MWAA's funding now comes from operational revenues (rents, payments from
concessionaires, landing fees, utility sales, and passenger fees). MWAA also
receives federal grant funds from the Airport Improvement Program5 as well
as proceeds from bonds issued to finance its capital development program,
which began in 1988.

MWAA is governed by a board of directors which, by law, consists of 13
members, including 5 members appointed by the governor of Virginia, 3
members appointed by the mayor of the District of Columbia, 2 members
appointed by the governor of Maryland, and 3 members appointed by the
president of the United States with the advice and consent of the Senate.6
The board establishes policies pertaining to the airports' operation. The
board and its five committees generally meet on a monthly basis. The

5  The  Airport  Improvement Program  provides  federal  grants for  various
airport development projects.

6  As  of  January 31,  2002,  there  were two  vacancies  on  the board  of
directors.

committees, comprising 4 to 5 board members, execute delegated
responsibilities in areas such as business administration, finance, and
planning. A chief executive officer appointed by the board performs
day-to-day management.

Program offices, such as MWAA's Office of Engineering, identify procurement
needs and forward them to MWAA's Procurement and Contracts Department (its
contracting office) for action. Procurement requests contain an estimate of
the cost of obtaining the required goods or services. Thereafter, the
contracting office develops a solicitation to seek contractors' interest in
supplying the goods and services and subsequently awards a contract to fill
the procurement need. The contracting office is also responsible for making
any changes to the contract after it is awarded.

According to its contracting database, MWAA awarded 2,843 contracts for
supplies and services, including construction, at an initial award amount
(in constant 1999 dollars) of about $1.43 billion from January 1, 1992,
through December 31, 1999. On average, MWAA awarded about 355 contracts
annually over the 8-year period. The average value of the contracts when
awarded was approximately $504,000. Contract modifications increased the
cost of MWAA's initial contract awards, however. Specifically, the amount
authorized for the 2,843 contracts that MWAA awarded between 1992 and 1999
grew by about 38 percent-from about $1.43 billion at award to about $1.98
billion through December 31, 1999 (in constant 1999 dollars). This cost
growth most likely resulted from MWAA's modification of contracts to extend
the period of their performance and to purchase additional supplies and
services.

MWAA Has Not Satisfied Its Obligation to Publish the Procedures It Uses to
Award Contracts Competitively

MWAA's lease with the federal government requires it to award contracts for
supplies and services exceeding $200,000 and all concession contracts
"through the use of published competitive procedures." MWAA is aware of this
obligation and, in 1993, issued a contracting manual that it believes
satisfied the requirement.7 While the 1993 guidance was announced publicly
and is available to prospective contractors upon request, the guidance is
inadequate in numerous respects. Thus, in our view, it does not satisfy
MWAA's obligation to contract using published competitive procedures.

The clear intent of the statutory lease provision is to ensure that MWAA
develops, publishes, and follows an orderly set of procedures for awarding
contracts and concession franchises. Such procedures are meant to enhance
competition and, when published, provide the means for contractors to
understand MWAA's contracting processes. Likewise, the requirement to
publish MWAA's contracting procedures is intended to provide assurance to
prospective contractors that MWAA will actually follow its published
procedures. Thus, in our opinion, to satisfy its obligation under the
statutory lease provision, MWAA must ensure that its published procedures

* adequately explain its contracting practices to prospective contractors,

* are current, and

* are those that it actually uses to award contracts and concession
franchises.

None of these requirements has been met. First, the manual that MWAA
published in 1993 offers prospective contractors only limited information
about its contracting processes. Instead of issuing a clear and well-defined
set of procurement procedures governing its contracting processes, the 1993
guidance simply summarizes MWAA's contracting policies. The detail that one
would expect in a manual intended to familiarize potential contractors with
MWAA's contracting processes and to foster full and open competition is
lacking. For example, the entire discussion of how MWAA solicits bids and
proposals and makes awards-the heart of the contracting process insofar as
prospective contractors are concerned-

7 Contracting Policies and Procedures Manual, December 1, 1993.

consists of only a brief description of the various procurement methods that
MWAA could elect to use.8

Moreover, the information supplied in the 1993 manual is inadequate for
informing prospective firms about MWAA's contracting processes because the
guidance provides MWAA with virtually unlimited latitude to decide- on a
case-by-case basis-how to award its contracts and concession franchises. For
example, regarding its negotiations with prospective contractors, the 1993
guidance merely indicates the following:

"The Authority will select the proposal which offers the greatest overall
benefit to the Authority in terms of the evaluation criteria listed in the
Request for Proposals. If the negotiations generally will be open to all offerors [prospective
contractors] with a realistic chance of being awarded the contract (those in
the competitive range) as determined by preliminary technical and economic
evaluation. Best and final offers may be solicited from one or more offerors
as appropriate." [Underlining added.]

The 1993 guidance states that, in certain circumstances, contractors with
competitive proposals will be included in negotiations. The guidance does
not, however, explain when such circumstances will arise. Furthermore, the
1993 guidance does not specify who will be invited to submit best and final
offers, only that offers may be solicited when MWAA deems such an action
"appropriate."

Second, MWAA has not updated its 1993 guidance to ensure that it is current.
For example, the guidance states that MWAA's board of review must review all
contract awards. This board, however, was abolished in 1996. Moreover, MWAA
has not updated the guidance to reflect, among other things, long-standing
changes in (1) how its board of directors has delegated contracting
authority, (2) the names and addresses of personnel currently responsible
for MWAA's contracting activities, or (3) revisions to MWAA's ethics
requirements.9

8 According to MWAA, it frequently provides procurement-specific guidance in
its solicitation documents. While it is appropriate to include unique,
procurement-specific information in its solicitations, this does not satisfy
MWAA's statutory obligation to obtain full and open competition through the
use of published competitive procedures.

9 MWAA revised its contracting delegations in 1995 and 1998 and, in 1999,
moved its office to Reagan National. The ethics requirements were revised in
1998.

Finally, MWAA does not use the 1993 guidance to award contracts involving
non-concession-related goods and services. Instead, MWAA uses an unpublished
manual that it developed in September 1998.10 The 1998 manual is far more
detailed, substantive, and prescriptive than MWAA's 1993 manual. For
example, in contrast to the guidance in the 1993 manual, MWAA's unpublished
1998 manual specifies that prospective contractors must be included in the
competitive range for purposes of negotiations if their proposals have a
reasonable chance of being selected for award. Furthermore, unlike the 1993
guidance, the unpublished 1998 manual provides specific rules governing
MWAA's decision to dispense with negotiations. MWAA views the 1998 manual as
internal guidance and, as a result, has not published it, posted it to its
contracting Web site, or otherwise made it routinely available to
prospective contractors.11

In January 2002, when we concluded our review, MWAA was in the process of
updating its 1993 contracting guidance. When the update is approved, MWAA
anticipates (1) posting the guidance on its contracting Web site and (2)
placing a notice in The Washington Post to announce its availability. MWAA
was also updating its detailed 1998 internal contracting guidance for
awarding contracts for non-concession-related goods and services. According
to MWAA, the revision will include information about its procedures for
awarding concession franchises. Acknowledging that its detailed internal
contracting procedures should be made widely available to interested
parties, MWAA indicated that it would take steps to disseminate the updated
guidance, including establishing a link to the guidance through its
contracting Web site.

10 Contracting Procedures Manual, September 1, 1998. The 1998 guidance is
not applicable to the solicitation and award of MWAA's concession contracts.
MWAA has not developed detailed procedures for awarding its concession
franchises because, in its view, each concession has unique characteristics
that necessitate using different procedures.

11 According to MWAA officials, the 1998 guidance has been given to some
prospective contractors upon request. However, the guidance has not been,
among other things, advertised in trade publications; posted on MWAA's
contracting Web site; or distributed to local libraries and, as a result,
cannot be construed as satisfying the requirement for published competitive
procedures.

MWAA Has Not Always Satisfied Its Obligation to Obtain, to the Maximum
Extent Practicable, Full and Open Competition

Despite its obligation under the statutory lease provision, MWAA did not
obtain, to the maximum extent practicable, full and open competition for 15
of the 35 contracts that we reviewed. MWAA's actions on 12 of the 13
contracts that MWAA identified as awarded using full and open competition
did not comply with one or more of the recognized principles underlying full
and open competition. Furthermore, while the use of less than full and open
competition for 19 of the remaining 22 contracts appeared acceptable given
the contracts' circumstances, we believe that MWAA missed opportunities to
obtain, to the maximum extent practicable, full and open competition on 3 of
the 22 contracts. The 3 awards as well as 2 others that we did not otherwise
question were not approved by MWAA's board, as required for sole-source
awards. We discussed these findings with officials from MWAA, and, by
letters dated June 29, 2001, and July 9, 2001, MWAA disagreed with many of
the problems that we identified. As a result, we incorporated additional
information about MWAA's views and about our rationale for the concerns that
we identified in our draft report. MWAA also disagreed with our analyses of
its contracting actions in its January 4, 2002, comments on our draft
report. (Our discussion of these comments appears at the end of this letter
and in app. IV.)

The Benefits of Full and Open Competition Are Well Established

The use of full and open competition has long been recognized as promoting
several important objectives. It saves money by obtaining lower prices and
encouraging prospective contractors to focus on ways to provide more value
to their customers. It also promotes fairness and equity through the use of
open, impartial, and objective selection processes. Finally, full and open
competition promotes innovative solutions and approaches and technical
improvements by encouraging individual incentive. Such competition is
achieved when all prospective contractors are provided an equal opportunity
to compete successfully for a contract. MWAA's guidance recognizes the
importance of full and open competition. Its 1993 contracting manual, for
example, states that full and open competition is the "cornerstone" of
MWAA's contracting process and indicates that it is to be used "whenever
practicable." Similarly, MWAA's unpublished 1998 contracting guidance
emphasizes the use of full and open competition "to the maximum extent
practicable."

Twelve of the 13 Contracts Identified as Awarded Using Full and Open
Competition Were Deficient in One or More Respects

As discussed in appendix I, the concept of full and open competition
embodies a number of fundamental principles. To achieve full and open
competition, a contracting organization must, among other things,

* adhere to the evaluation factors and processes that it specified in its
contract solicitation,

* solicit competition for all of the needs that it could reasonably
anticipate acquiring under the contract, and

* ensure that any modification to a contract is within the scope of work
that it initially solicited.

As shown in table 1, 12 of the 13 contracts that MWAA identified as awarded
using full and open competition were deficient in one or more of these
areas.

Table 1: Contract Findings: Compliance with Selected Principles of Full and
Open Competition

                      Competition not solicited for all requirements 
        Weaknesses found in MWAA's evaluation processes Value as of 12/31/99
                                   (dollars rounded to the nearest thousand)

Contractor

Award date

Added out-of-scope work

Dynamic Technology Systems, Inc.

                               12/97 X X $298

             Motorola, Inc.                 1/97       a      X                   9,322
           Sedgwick James of                5/94       a      X                  29,578
             Virginia, Inc.
           Skidmore, Owings &               7/89        X                        41,537
                Merrill
                CACI-IMS                    5/93        X                        11,379
             Hensel Phelps                  2/98       X           X             18,755
            Construction Co.
               ATC/Vancom                   6/95             X     X              6,999
          Management Services
          Limited Partnership
              Quimex, Inc.                  2/93             X
            Merchant's Tire                 12/93            X
          Centennial One, Inc.              2/96              X                  12,240
              Motor Coach                   6/97              X                   3,122
            Industries, Inc.
           Parsons Management               3/88                  X             229,608
              Consultants
          Burns and McDonnellb               8/93                                 4,017
                 Total                                 4a    8    3            $368,089

MWAA Did Not Adhere to the Evaluation Factors and Processes It Specified in
4 of 13 Contract Solicitations

aMWAA's process for evaluating contractor proposals was potentially
problematic for 2 of the 13 procurements involving Motorola, Inc., and
Sedgwick James of Virginia, Inc.

bContracting actions for 1 contract-Burns and McDonnell-complied with the
selected principles of full and open competition.

Source: GAO analysis of MWAA's contracting data.

Documentation pertaining to 4 of the 13 contracts that we reviewed revealed
deficiencies in MWAA's evaluation of contractor proposals that limited the
ability of prospective contractors to compete fully for MWAA's contracts.
Like others with procurement needs, MWAA seeks proposals from contractors by
distributing a solicitation that (1) describes the goods and services it
needs; (2) identifies various factors-such as cost, technical excellence,
management capability, and past performance-that will be used to evaluate
the proposals; and (3) explains how the selection process will be conducted.
To facilitate competition, solicitations must be clear and complete so that
all interested firms have a common understanding of what is being sought and
so that they can prepare proposals responsive to the organization's need.
While a contracting

organization need not identify all the specific numeric values that it
intends to apply to each evaluation factor, the concept of full and open
competition necessitates that an organization's solicitations specify the
relative importance of the evaluation factors that it will use in the
selection process and, thereafter, that the organization follow the factors
and processes that it specified. While MWAA's 1993 contracting guidance is
silent on this matter, its unpublished 1998 contracting guidance requires
MWAA to inform prospective contractors about the relative importance of its
evaluation factors. The 1998 guidance, however, does not discuss the
importance of adhering to the evaluation factors and processes that it
specifies in its solicitations.

Two of the four contracts that we questioned were scored in a different
manner from that specified in MWAA's solicitation. MWAA's November 1997
solicitation for design and construction services for a regional airline
terminal at Dulles, for example, identified six evaluation factors,
including "experience providing design/build services on projects of similar
dollar value and complexity." Although this evaluation factor was listed
fourth in relative importance, MWAA weighed it the same as the first-ranked
factor and higher than two other criteria that MWAA's solicitation had
indicated would be of greater importance in securing the award. A similar
problem occurred in MWAA's evaluation of contractors' proposals for design
work related to the expansion of the main terminal at Dulles. According to
MWAA's contracting officials, the scoring irregularities on the first
solicitation occurred because of time constraints that had precluded members
of its technical review team from establishing specific scoring weights for
the evaluation factors before issuing the solicitation. Regarding the other
solicitation, MWAA contracting officials explained that for evaluation
purposes, MWAA's technical review team changed the relative weight of the
factors that had been specified in the solicitation to reflect the team's
conflicting view about the relative importance of the evaluation factors
that had been specified in the solicitation. In neither instance were
prospective contractors notified of the change or afforded an opportunity to
amend their proposals.

MWAA also did not follow the evaluation processes that it specified in two
other solicitations. The solicitations described an evaluation process in
which cost and technical factors would be evaluated concurrently in
selecting a successful contractor. MWAA assessed the contractors' proposals
against the technical factors identified in the solicitations. However,
instead of considering all of the contractors' cost proposals, MWAA
considered cost for only those firms that it deemed to be the "most
technically qualified." As a result, MWAA prematurely eliminated 13 firms

without determining whether the contractors' proposed cost would have offset
their lower technical scores.

Finally, while MWAA followed the process it specified in two other
solicitations, the process used was, in our view, potentially problematic.
The two solicitations informed prospective contractors that MWAA would
identify the "most qualified" proposals and, from these, choose the proposal
with the lowest cost for award. MWAA assigned predetermined numerical
scores-an 80-percent "threshold" in one instance and an 85-percent
"threshold" in the other-and used the scores to reject, on the basis of
technical factors alone, all of the proposals that did not meet or exceed
these scores. Although this process might not have disadvantaged contractors
who competed for these procurements,12 evaluating contractors against
predetermined technical scores can nevertheless be problematic.
Specifically, because technical merit and price are generally directly
correlated,13 establishing thresholds to evaluate proposals favors those
firms that score just above the technical threshold, since their price
should be lower, all other considerations being equal. Conversely, such a
process could harm firms with technical scores just below the threshold
since, technically, their proposals would have been roughly equivalent and
might have been available at a lower cost.

In its June 29, 2001, letter to us, MWAA agreed that to have a level playing
field for competition, it must (1) evaluate contract proposals in accordance
with its solicitations and (2) notify all offerors of any changes it makes
to its evaluation processes. According to MWAA, it follows these practices
and the "isolated" examples we identified leaves the reader with the
mistaken impression that these are not MWAA's accepted practices. Moreover,
MWAA noted that "using a minimal technical acceptance basis for eliminating
unqualified offerors is acceptable if adequately communicated in the
solicitation [underlining added]." Likewise, MWAA

12 In one of the two procurements, both of the competing contractors
exceeded the technical threshold established by MWAA. As a result, because
MWAA evaluated the two cost proposals, neither firm was harmed by MWAA's
selection process. The impact on prospective contractors is more difficult
to determine on the other procurement. Specifically, because only two of the
four firms competing for the contract exceeded MWAA's technical threshold of
85 percent (both scored 86 percent), the cost proposals of the other two
firms were not opened and evaluated. Thus, it is not possible to know what,
if any, impact the firms' cost proposals could have had in the final
selection process. These two firms scored 75 percent and 67 percent,
respectively, on technical factors.

13The higher a proposal's technical merit, the more it is likely to cost.

said that its use of thresholds to evaluate contractor proposals is
acceptable if appropriately documented. Thus, in MWAA's view, it can resolve
our concerns by ensuring that its solicitations clearly specify the
evaluation processes that it intends to use. In a subsequent letter to us
MWAA further explained that "in the future we will ensure that when
that criteria" [underlining added]. According to MWAA, "cost, of course, will be
[underlining added]. Finally, MWAA's June 29, 2001, and July 9, 2001,
letters to us indicated that we have not demonstrated any adverse impact on
contractors who were involved in the procurements that we questioned.

Because the contracts we examined were not selected on the basis of a
statistically valid sampling approach, we cannot determine the frequency of
problems in MWAA's universe of contracts. However, MWAA's unpublished 1998
manual permits the use of thresholds for evaluating contractor proposals and
considers it an acceptable contracting practice. We disagree that using a
predetermined score, or threshold, to evaluate contractor proposals is a
prudent or appropriate contracting practice. As recognized in MWAA's
unpublished 1998 guidance, to promote full and open competition, agencies
are expected to consider all proposals that have a reasonable chance of
being selected for award. Such a process is intended to reflect all of the
qualitative differences between the proposals and to identify a natural
cutoff point between proposals that have a realistic chance of receiving the
contract award and those that do not. As discussed, establishing a cutoff
point, or threshold, before all of the benefits and disadvantages of the
proposals have been fully considered could disadvantage firms that have
scores just below the threshold score and might offer a roughly comparable
technical proposal at a lower cost.

Furthermore, MWAA's practice of not considering cost for all
contractors-when it has committed to do so-and its comments regarding this
practice reflect a fundamental misunderstanding about the purpose and use of
determinations pertaining to a proposal's "technical acceptability" and a
proposal's subsequent inclusion in the "competitive range." A determination
that a proposal cannot satisfy an organization's needs and is therefore not
technically acceptable (i.e., a technical acceptability determination)
differs markedly from a determination that the firm's proposal is outside of
the competitive range (i.e., a determination that the proposal has no
realistic chance of being selected for award). A determination about whether
a contractor's proposal is

MWAA Did Not Solicit Competition for All of Its Procurement Needs on 8 of
the 13 Contracts Examined

within the competitive range is based on the evaluation of all of the
factors specified in the solicitation, not just the technical factors.

Moreover, we do not agree that MWAA can overcome our concerns solely through
the use of clearer solicitation language. To the extent that MWAA expresses
its intent to consider cost in awarding its contracts, as indicated in its
policy,14 MWAA must do so. On the other hand, if MWAA finds that it needs to
evaluate proposals only for technical acceptability (i.e., to establish
whether a proposal meets MWAA's minimum requirements), it can request
technical proposals from firms and, on the basis of its evaluation of these
proposals, seek cost proposals from only those firms that it finds
acceptable. MWAA could also choose to award a contract based solely on
technical considerations (i.e., select the most qualified firm). However,
given the importance of cost in awarding contracts, public contracting
entities generally would avoid such an approach.

Finally, concerning MWAA's view that we have not demonstrated any adverse
impact on contractors involved in these procurements, we note that it is not
always possible to quantify the extent to which offerors might have been
harmed by MWAA's failure to follow its specified evaluation processes. For
example, it is impossible to discern how contractors might have revised
their proposals if they had been advised of changes in the relative
importance of MWAA's evaluation factors. Likewise, because MWAA did not open
all of the contractors' cost proposals, we do not know how individual
procurements might have been affected had cost been considered in making the
awards. Most important, in evaluating whether such practices are
appropriate, it is not necessary to demonstrate that someone was injured by
a noncompetitive practice.

To obtain full and open competition, an organization must solicit
competition on all of the needs that it knows it will procure under the
contract as well as those it can reasonably anticipate procuring under the
contract. Potential needs are generally communicated to contractors in the
form of "options," which, if exercised, allow the organization to order
additional work by extending the duration of contracts or by purchasing
additional goods and services. To meet the requirement for full and open
competition, contract options must be priced and evaluated in making the
initial or underlying contract award. If a contract was awarded on a fully

14 According to  MWAA's unpublished  1998 contracting guidance,  cost should
normally account  for at least 40 percent of  the total evaluation score for
its procurements.

competitive basis, the acquisition of additional goods and services through
the exercise of a previously priced and evaluated option would be a
competitive acquisition. In contrast, exercising a contract option that was
not priced and evaluated (an unpriced option) is tantamount to procuring the
additional work on a sole-source basis because, even if the initial contract
work was subject to competition, the additional work specified in the option
was not. Neither MWAA's 1993 nor its unpublished 1998 contracting guidance
specifically addresses options or the necessity of obtaining and evaluating
prices for the entirety of its procurement need to avoid the subsequent
acquisition of work on a sole-source basis.

MWAA did not seek competition for all the goods and services that it
expected to acquire under 8 of the 13 contracts that we reviewed.
Furthermore, while MWAA's modification of these contracts to acquire the
additional goods and services should have been treated as sole-source
procurements, MWAA did not prepare written justifications for any of the
contract modifications-as required by its contracting procedures-or seek its
board of directors' approval for exceptions to the use of full and open
competition, as required by both its contracting procedures and its lease
with the federal government.15 The most common problem involved MWAA's
practice of exercising unpriced options to extend the duration of its
contracts. Specifically, while MWAA generally awarded 3-year
contracts-contracts with a base year and 2 option years-it did not evaluate
pricing for the expected duration of six of the eight contracts and,
instead, considered the price for only the base period of the contract-
typically the first year. After making the award, MWAA consistently
exercised the unpriced options to extend the contracts' duration- typically
in 1-year increments for a period of 2 years-and entered into sole-source
negotiations to establish price. Work associated with the

15 According to MWAA, its board of directors approved the options associated
with two of the eight contracts. We disagree. The evidence cited by MWAA
demonstrates that a standing committee of the board-not the full
board-approved the two procurements prior to their initial award. No
evidence was provided of the committee's approval of the sole-source
follow-on contracts for the options. Furthermore, the committee has no
authority to approve sole-source procurements. According to MWAA's
delegations of contracting authority, sole-source awards can be approved
only by the full board. Similarly, the statutory lease provision specifies
that exceptions to the requirement for full and open competition must be
approved by a vote of seven members of the board-not five members, which was
the case for this standing committee. Finally, even if the committee had
authority to approve sole-source awards, it was not authorized to approve
contracts exceeding $3 million. The value of both contracts (base award and
options) exceeded $3 million.

contract extensions was not subject to any price competition and was
expected to cost MWAA at least $11.4 million.

For three contracts, MWAA did not solicit competition for its acquisition of
additional goods and services that had not been priced and evaluated as part
of MWAA's initial contract awards. For example, while MWAA's May 1997
solicitation for six buses included an option to purchase up to three more
buses, MWAA did not evaluate the price for the additional buses in awarding
the contract-even though it had requested pricing for all nine buses.
Nevertheless, in August 1998, MWAA exercised the option to purchase three
buses at a cost of about $1 million.16

In another example, although MWAA's solicitation for a mobile radio system
included an option to purchase and install a supplemental communication
system to eliminate "dead spots" in airport facilities, MWAA did not obtain
competitive pricing for the option. According to MWAA's contracting
officials, pricing was not obtained because construction had not progressed
sufficiently to allow the system to be designed and installed in the airport
facilities. MWAA subsequently stated that before the initial award it had
not yet confirmed whether the new terminal arrangement at Reagan National
would require supplemental communication coverage. Although this may have
been the case for some of the facilities, at least two facilities-the Thomas
Avenue tunnel and the existing terminal at Reagan National-were in existence
years before MWAA finalized and issued the solicitation. Moreover, two other
facilities-the boiler plant at Reagan National and the extensions to the
main terminal at Dulles-were completed before MWAA awarded the contract in
January 1997.17 Although MWAA was aware of this, it did not amend the
solicitation to obtain competitive pricing for the option or, alternatively,
to conduct a separate competitive procurement for the additional work.
Furthermore, MWAA never confirmed whether any of the airports' facilities
would need supplemental communication coverage. Instead, in March 1997-only
2 months after awarding the contract- MWAA provided the successful
contractor with a list of facilities to survey for dead spots and in May
1997 modified the contract to purchase the

16 The price submitted for the three additional buses was about $16,500 more
per bus than the contract price for the six buses acquired under the base
contract. However, MWAA subsequently negotiated the same price for all nine
buses.

17 The renovation and expansion of the main terminal at Dulles, for example,
was completed by early September 1996-about 4 months before the contract was
awarded.

supplemental communication system for some of the airports' facilities. The
additional work cost nearly $2.4 million and was not subject to any price
competition.

Finally, even though MWAA anticipated adding about 257,000 square feet of
space to a forthcoming contract for cleaning services related to the
expansion of the main terminal at Dulles airport, MWAA's contract
solicitation did not seek competitive prices for this eventuality. Instead,
about 4 months after it awarded the initial contract, MWAA entered into
negotiations-on a sole-source basis-with the successful contractor and
modified the contract to satisfy its need for additional cleaning services.
MWAA agreed to pay the contractor about $656,000 more annually for the
additional work. This agreement represented an annual increase of almost 23
percent over the contract's initial award amount and was not subject to any
price competition. According to MWAA's July 9, 2001, letter to us, MWAA did
not request and evaluate pricing for cleaning the additional space as part
of its initial award because its cleaning requirements "were different and
changing." Specifically, MWAA noted that "there were new types of service
related variables such as types of floors, surfaces, and passenger flow
arrangements. In addition, construction carryover considerations affected
the frequency of cleaning needs. Most importantly, a new ticket counter
arrangement with the airlines was anticipated."

MWAA's failure to consider the entirety of its procurement need also
resulted in another undesirable consequence. Because MWAA generally
considered contract costs for only the first year of its contracts, MWAA
treated three of the eight contracts as small purchases (contracts valued at
$200,000 or less) and, thus, did not advertise them-as required by MWAA's
contracting policy-to ensure that all interested contractors had an equal
opportunity to compete for the awards.18 The three contracts each exceeded
$200,000 and had a total value of about $1.5 million. MWAA acknowledged that
it did not advertise the three procurements. Nevertheless, it felt that each
of the procurements had been subject to full and open competition. MWAA
noted that a newspaper advertisement is

18 According to the 1993 contracting guidance, MWAA's objective is to
provide prospective contractors with well-publicized, advance notification
of its solicitation requirements. The unpublished 1998 contracting guidance
indicates that MWAA's policy is to achieve, to the maximum extent
practicable, full and open competition. Toward that end, MWAA requires all
procurements over $200,000 to be advertised. According to the 1998 guidance,
maximum competition is achieved by, among other things, advertising in
newspapers and trade publications, posting solicitations to MWAA's
contracting Web site, and other outreach efforts.

not the only way to achieve full and open competition and indicated that it
takes other steps to advertise its contracting opportunities. Such steps
include posting contracting opportunities to MWAA's contracting Web site,
which is publicly accessible, and to its bulletin board of solicitations in
its office at Reagan National. While the competition on one of the three
procurements did not fully satisfy MWAA's requirement for advertising, we
agree that it appears to have been adequate.19 However, MWAA limited
competition on the other two procurements to a group of "known suppliers."
Limiting competition to only those suppliers that are known to MWAA does not
constitute full and open competition, since other firms may also be
interested in and capable of accomplishing the work.

Finally, we found little documentation of MWAA's efforts to determine that
the prices for additional goods and services resulting from changes in the
scope and terms of MWAA's contracts were fair and reasonable. As MWAA's 1998
contracting procedures recognize, sound contracting principles necessitate
that an organization award contracts for goods and services at fair and
reasonable prices. Such prices are expected to result from full and open
competition. Thus, when contract changes are involved, an organization must
use other methods to assure itself that the cost of the changes is fair and
reasonable. Except for the construction-related contracts that we examined,
we found little evidence of MWAA's efforts to do so. The contract files, for
example, rarely demonstrated that MWAA (1) prepared an independent cost
estimate for the proposed contract changes, (2) obtained market prices from
the contractor's competitors, or (3) considered prices previously paid for
similar goods and services before entering into sole-source negotiations
with a contractor for additional goods and services. Moreover, the contract
files rarely documented the result of MWAA's contract negotiations.20
Without documentation to the contrary, these findings raise questions about

19 Fifty-three firms received MWAA's solicitation for this procurement.
Twenty-eight of the 53 firms were initially sent the solicitation by MWAA.
The remaining 25 firms received the solicitation after learning of it
through other sources. According to MWAA, one source might have been its
"Opportunity Alert" announcement that it sent to 275 firms.

20 MWAA's 1993 contracting guidance is silent about the necessity of
determining whether a price is fair and reasonable in situations in which
there is no competition. In contrast, MWAA's unpublished 1998 guidance
requires its contracting officers to prepare a memorandum of negotiations
that describes, among other things, (1) MWAA's objectives for each
negotiation, (2) the outcome of the negotiations, and (3) the reasons why
MWAA considers the negotiated price to be fair and reasonable.

whether MWAA obtained fair and reasonable prices for its contract
modifications.

MWAA contracting officials agreed that, in many instances, they should have
done a better job of documenting their efforts to ascertain whether prices
were fair and reasonable. Nevertheless, in their view, the negotiated prices
were fair and reasonable. MWAA disagreed with the remainder of our findings
in this area. For example, MWAA disagreed that it should have obtained and
evaluated pricing on its contracts for a supplemental communication system
and airport cleaning services because, in MWAA's view, there were too many
unknown variables involved in the procurements. According to MWAA's July 9,
2001, letter to us,

". . . if there is risk of a change in the requirements or conditions for
performance...adherence to fundamental principles of evaluating proponents
would dictate that due to technological risk and changing circumstances the
options [should] not be evaluated[;] otherwise the award is likely to be
premised on performance that is not in accordance with what will be the
actual requirements."

Thus, as a matter of policy, MWAA does not currently require contractors to
price additional option years contemplated in its solicitations. Instead,
according to MWAA officials, MWAA prefers to negotiate the price for
additional work when it exercises the option. According to the contracting
officials, MWAA's approach is more cost-effective because it avoids being
locked into prices that may be influenced by unstable market conditions,
inflation, or other factors. Finally, while not providing any information
supporting its view, MWAA's June 29, 2001, letter to us indicated that MWAA
believes that the "commercial world" and other airports commonly use
unpriced options. Thus, MWAA indicated that it plans to revise its
procedures in an "attempt to provide a foundation for [the] use of this
commercial mechanism." 21

We continue to believe that MWAA, using its best judgment, could have (1)
made a relatively accurate assessment of its future requirements under the
communications and cleaning contracts, (2) sought pricing on the basis of
its assessments, and (3) evaluated the contractors' prices in making its
initial contract awards. For example, using the terminal's detailed

21 According to MWAA's June 29, 2001, letter to us, "the use of established
business relationships, the need to make strategic decisions that affect the
operational needs at the airports and customer service, and the benefits of
known and dependable revenue streams argues for authorization to use
unpriced options under certain circumstances."

construction plans and specifications, MWAA could have estimated the amount
of carpeted area in the terminal and the number of times per week that it
would need to be vacuumed as well as the amount and frequency of tile or
other flooring to be mopped and, thereafter, requested contractors to
provide unit pricing for each of these tasks. After award, if changes in the
amount or frequency of the cleaning occurred, MWAA could have used the
contractor's unit pricing to adjust pricing under the contract. According to
the deputy commissioner of the Public Buildings Service of the U.S. General
Services Administration, the General Services Administration-the landlord
for the federal government-typically uses this approach to award cleaning
contracts for buildings under construction. Furthermore, MWAA could have
used appropriate contract language to protect itself from uncertainties that
might have resulted in changes to MWAA's original assessment of its needs.
Alternatively, if MWAA considered the two procurements too uncertain to
estimate its future needs, MWAA could have conducted new procurements. For
example, for the period in which MWAA was defining its future cleaning needs
at Dulles, MWAA could have awarded a short-term contract for the existing
facilities and, thereafter, conducted a new procurement for cleaning the
entire airport.

We also disagree with MWAA's other views regarding the appropriateness of
using unpriced options. From the broadest perspective, MWAA's use of
unpriced options represents an "option" in name only. Specifically, for the
contracts we discussed, because MWAA generally did not ask the contractors
to provide pricing for its anticipated options, MWAA did not establish a
unilateral, contractual right to require the contractors to perform the
future work at an agreed-upon price.22 Thus, when MWAA subsequently elected
to obtain the additional goods and services, it had to enter into price
negotiations. Such a contracting approach results in the award of
preplanned, noncompetitive (sole-source), follow-on contracts. If these
sole-source awards had been adequately justified, MWAA's board of directors
could have approved them. However, MWAA did not treat the procurements as
sole-source awards and did not seek the board's approval.

22 It follows from the fundamental principles of full and open competition
that absent pricing, a valid, exercisable contract option does not exist.
Furthermore, unless pricing is evaluated in making the contract award, a
priced option cannot be said to have been competed. Appendix I provides
additional information on this topic.

MWAA Added Out-of-Scope Work to 3 of the 13 Contracts

Additionally, MWAA's view that its use of unpriced options is more
cost-effective than a full and open competitive approach conflicts with both
the guidance in MWAA's unpublished 1998 contracting manual and the
experience of other public entities, including the federal government.
MWAA's contracting guidance recognizes, for example, that "negotiation(s)
without the element of competition [i.e., a sole-source procurement] is
difficult" in arriving at a fair and reasonable contract price.23
Furthermore, because MWAA is not obligated to exercise a priced option if
its interests are not well served in doing so, MWAA cannot be locked into
paying unfavorable prices. Instead, MWAA can always choose to resolicit its
requirement.24

Finally, in our view, the question of whether the use of unpriced options is
common in the commercial world is not relevant to MWAA's position. MWAA is
not a private entity with authority to operate freely in the commercial
world. Rather, MWAA is a public entity subject to contracting requirements,
including the use of full and open competition, that were set forth in its
lease with the federal government. As a result, we do not agree that MWAA's
plan to revise its contracting procedures to "attempt to provide a
foundation" for using unpriced and unevaluated options will resolve our
concerns.

When an organization needs to acquire goods and services, it can either
conduct a separate procurement or use an existing contract. However, using
an existing contract is appropriate only if the acquisition is within the
scope of the original contract. Modifying a contract to obtain goods and
services that are outside the general scope of the contract (i.e.,
out-of-scope work) is tantamount to awarding the work on a sole-source basis

23 For example, recognizing the difficulties inherent in sole-source
negotiations, the federal government generally requires certified cost and
pricing data whenever pricing is not competitively determined to provide a
verifiable basis for its price negotiations.

24 The federal government, for example, requires its contracting officers to
determine that exercising an option is the most advantageous method of
fulfilling the government's needs. If exercising an option is not deemed to
be in the government's best interest, competition for the procurement is
expected to be reopened. MWAA's procedures do not specify a similar
requirement.

because the additional work was not subject to competition.25 MWAA's 1993
contracting guidance does not address this matter. However, its unpublished
1998 internal guidance specifically precludes contracting officers from
adding new work to an existing contract when the work is beyond the general
scope of the contract. Instead the work is to be treated as a new
procurement. According to the 1998 guidance, "although it may be
administratively easier to add new work to an existing contract, this is a
sole-source, noncompetitive approach which may not be as cost effective as
treating the work as a new competitive procurement."

Although initially subject to full and open competition, 3 of the 13
contracts that we reviewed were subsequently modified to obtain goods and
services that were beyond the contracts' original scope of work. In each
case, the value of the goods and services included in the modification
exceeded $200,000 and the modification was subject to the statutory lease
requirement for full and open competition. The first out-of-scope
modification occurred on MWAA's 1995 contract for bus services. The
solicitation and subsequent contract required the contractor to provide
drivers and administrative support for the daily operation of a bus system
between the airports and other area locations. The buses were to be supplied
by MWAA. In April 1996, MWAA modified the contract to lease four used buses
for a period of up to 3 years with an option to purchase the buses. The
lease and purchase of the buses were not subject to competition as part of
the contract solicitation and clearly constituted an out-of-scope contract
modification, since neither the lease nor purchase of the buses had anything
to do with obtaining drivers and administrative support for the bus service.
According to contracting officials, the contract modification was needed to
meet operational needs until MWAA could acquire new buses. Even though MWAA
did not prepare a sole-source justification for the modification or seek the
board's approval for an exception to the use of full and open competition,
MWAA's July 9, 2001, letter to us agreed that the contract modification was
outside the scope of the contract. The out-of-scope modification totaled
about $360,000.

25 As discussed in appendix I, the fundamental principles of full and open
competition require that all work performed under every contract be
competed. This means that work that may be ordered under a contract is
limited to work that reasonably falls within the contract's terms, including
any changes clause that the contract may have. As a result, goods and
services that differ materially from those that might reasonably have been
provided under a contract are considered outside the scope of the contract.
Amending a contract to purchase out-of-scope goods or services is a
noncompetitive acquisition.

Another example of contract modifications for out-of-scope work stemmed from
MWAA's February 1998 contract for a portion of the design and construction
of a regional airline terminal at Dulles. The contract was awarded for $9.7
million using full and open competition and was part of a much larger
construction effort that included, among other things, the acquisition of
terminal furnishings, such as communications and flight information display
systems, interior furnishings, and public telephone systems. According to
MWAA, it specifically excluded the terminal furnishings from the contract's
solicitation because it intended to obtain the furnishings under separate,
competitive procurements. MWAA did not follow through with this plan and,
despite guidance in its unpublished 1998 manual, modified the contract on at
least 10 occasions in 1998 and 1999 to acquire the out-of-scope furnishings.
According to MWAA personnel, MWAA modified the contract instead of
soliciting competition for the furnishings because of its successful
experience with the contractor on another airport project. Also, MWAA
officials stated that prudent management dictated that MWAA trade the
benefits of obtaining full and open competition with the necessity of
accomplishing the work quickly to satisfy its operational needs for the new
terminal. MWAA did not justify the modifications as sole-source procurements
or seek exceptions to the use of full and open competition from its board of
directors. Contract modifications for the out-of-scope work totaled about
$2.1 million.

MWAA does not agree that its acquisition of terminal furnishings involved a
series of sole-source procurements. According to MWAA, its decision to
obtain the additional work under the existing contract rather than to
procure the work through a series of procurements, as had been originally
planned, was justified by the urgency of the project. According to MWAA's
July 9, 2001, letter to us, "the only deficiency with this procurement
action may be a lack of adequate documentation of the urgency." MWAA further
stated that there "was no perceived detrimental effect" but considerable
efficiency in using one contractor to handle the various procurements. We
disagree with MWAA's assessment that the contract modifications did not
constitute sole-source procurements. Moreover, MWAA's subsequent finding of
"urgency" is not supported by documentation in the contract file. Instead,
MWAA consciously excluded the work for the terminal's furnishing from the
contract's solicitation because, at that time, it intended to award the work
under separate, competitive procurements. Work specifically excluded from a
solicitation cannot, after the contract's award, be viewed as being within
the contract's scope. Furthermore, even if there were efficiencies
associated with using one contractor to handle the procurement, we do not
agree that there was no detrimental effect to

other contractors who, if afforded the opportunity, might have been
interested in competing for this work.

The final example of modifications to obtain out-of-scope work involved
MWAA's contract for architecture and engineering support services for MWAA's
capital development program at Reagan National and Dulles. According to the
solicitation, the program was expected to take 5 years and cost from $700
million to $1 billion. MWAA awarded a 3-year contract in 1988 and extended
it for another 3 years in 1991. While this 6-year period roughly
approximates the scope of work specified in MWAA's solicitation, MWAA
extended the contract in 3-year increments in 1994, 1997, and 2000-for a
total of 9 additional years. According to an internal memorandum discussing
MWAA's rationale for the most recent contract extension in December 2000,
the extension was needed so that the contractor could, among other things,
assist in overseeing (1) the completion of work related to the airports'
original development plan and (2) a new 6-year, $3.4 billion development
plan that MWAA initiated at Dulles in August 2000.

MWAA does not agree that the latter three contract extensions should have
been treated as sole-source procurements and did not prepare sole-source
justifications for the extensions or obtain exceptions to the use of full
and open competition from MWAA's board of directors. According to MWAA
officials, while the initial 5-year estimate was overly optimistic, MWAA
envisioned that the contract would span the entirety of its original
development program.26 In support of this view, the officials noted that the
contract does not specify a maximum time frame for completing the contract.
Thus, according to MWAA, it can legitimately extend the contract until at
least 2008 when the last of the projects identified in the airports'
original development plan are scheduled for completion. We disagree. In our
view, all of the contract extensions beyond 1994-the contract's 6th
year-represent work beyond the scope of what MWAA offered for competition in
1988. The solicitation clearly anticipated a contract for professional
services for a period approximating 5 years. Finally, although the
contractor was asked to prepare MWAA's original capital development

26 As part of the solicitation, MWAA provided contractors with a report
prepared by the Department of Transportation that described the nature and
magnitude of the improvements needed. The report identified a 5-year capital
development program for Reagan National and Dulles totaling $280 million and
$420 million, respectively. Through December 31, 2000, over $2.4 billion had
been expended on MWAA's capital development program at the airports. The
development program is expected to continue for many years.

plan, the solicitation did not (1) specify that the contractor was to
oversee the plan's implementation until completion or (2) anticipate the
contractor's involvement in the new development plan that MWAA initiated in
August 2000. The contract, which is currently scheduled to expire in
December 2003, is now in its 13th year and had cost about $230 million
through December 31, 2000.

MWAA noted that although its board of directors was aware and supportive of
the contract extensions, it now regrets not having sought the board's
approvals. According to MWAA, the approvals would have eliminated even the
shadow of a doubt about the propriety of MWAA's contract extensions. MWAA
explained that it would have been detrimental to initiate a change in its
program management services during the high growth and highly dynamic period
between 1995 and 2000 because of the need to address, among other things,
protracted and ongoing issues involving an unfinished project in MWAA's
original capital development project. Thus, in MWAA's view, we did not
adequately consider the importance of maintaining continuity in its program
support during this period. We disagree. Under the terms of MWAA's lease
with the federal government, it is the responsibility of MWAA's board of
directors to decide whether MWAA's desire for continuity necessitated a
series of sole-source contract extensions. The extensions in question were
not competed, and MWAA staff did not present the sole-source contract
extensions, along with a justification supporting each extension, to the
board. Accordingly, the board did not approve them.

Finally, for the three procurements involving out-of-scope work, we found
little evidence of MWAA's efforts to establish that the negotiated prices
for contract changes were fair and reasonable. MWAA acknowledged that the
three contract files do not adequately document actions taken by its
contracting officers to determine that pricing was fair and reasonable.
Nevertheless, MWAA indicated that the prices were fair and reasonable.

MWAA Missed Opportunities to Compete 3 Contracts It Awarded Using Less Than
Full and Open Competition in 1998 and 1999

While the use of less than full and open competition for 19 of the 22
contracts in the second group of contracts that we reviewed appeared
acceptable given the circumstances,27 we believe that MWAA missed
opportunities to obtain competition for 3 of the 22 contracts. The contracts
were awarded to United Airlines for $10.6 million for improvements at Dulles
and included the design and construction of (1) office space for federal
agencies that process international travelers, (2) 12 passenger-screening
checkpoints, and (3) an outbound baggage-handling system. While each of the
contracts exceeded $200,000, MWAA did not consider the statutory requirement
for full and open competition applicable to the awards because, according to
MWAA, the work was accomplished under amendments to its sublease with United
and involved improvements to United's facilities or areas directly
associated with the airline's facilities.28

MWAA's lease with the federal government allows MWAA to enter into subleases
with airlines for the use of the airports.29 Also, MWAA can allow airlines
and other tenants to make improvements in areas that they sublease from
MWAA.30 Improvements that are made by and for the exclusive benefit of an
airline in space that it sublets from MWAA are not subject to the
requirement for full and open competition. However, as specified in MWAA's
lease with the federal government, airline subleases cannot be used to avoid
any of MWAA's obligations under the lease.31

In our view, each of the three projects undertaken by United Airlines was
MWAA's-not the airline's-acquisition and, therefore, subject to the

27 According to MWAA's database, the 22 contracts were all awarded for more
than $200,000 in 1998 and 1999 using less than full and open competition.

28 MWAA further indicated that it had assigned contract numbers to the
projects simply as an administrative convenience to reimburse United for the
improvements.

29 The agreements are called Use and Lease Agreements.

30 According to MWAA, it sometimes amends its sublease agreements to allow
an airline to contract for improvements when the work to be performed is (1)
within the airline's premises or immediately adjacent to its premises and
(2) when it is more efficient and expedient to have an airline control the
construction. In such cases, MWAA reimburses the airline for the cost of the
construction, usually up to a defined dollar threshold, and recovers the
cost over time through rent on airline premises and other charges.

31 MWAA's lease with the federal government allows MWAA to "sublease
portions of the Leased Premises for use by subtenants, for purposes
consistent with, and subject to the provisions of, this lease." However, as
specified in the lease, "no such sublease shall relieve the Authority from
any of its obligations pursuant to this lease."

requirement for full and open competition. We reached this conclusion
because

* the work included in each of the projects was an integral part of MWAA's
capital development program at Dulles and was performed on MWAA's behalf,

* the work was performed on MWAA's premises-not in areas subleased by
United,

* MWAA-not United-received immediate title to all of the improvements, and

* each of the projects served interests beyond those of United.

In the first case, MWAA and United agreed that United would, among other
things, construct new offices and other facilities for federal agency staff
who process travelers in the international arrivals building and upgrade the
fire alarm and telecommunications systems in the affected space. According
to MWAA, United arranged to perform the work because it, as the largest
international carrier at Dulles, was the primary beneficiary of the federal
processing services. Representatives of MWAA told us that United sometimes
uses the international arrivals building for international flights that
terminate at Dulles. However, according to the officials, flights connecting
to other United locations generally use a separate United facility located
in the midfield of the airport-an area well away from the international
arrivals building. Thus, although the international arrivals building is
shared by all airlines, it is used predominately by airlines other than
United. Moreover, the international arrivals building is not subleased by
United. Instead, the building is controlled by MWAA and the federal agencies
(the Immigration and Naturalization Service, the Customs Service, and the
Department of Agriculture) that occupy the building.

MWAA and United also agreed that United would (1) acquire, among other
things, 12 passenger-screening checkpoints at Dulles and offices, storage,
and other rooms used by security personnel that operate the checkpoints and
(2) relocate flight information monitors, pay lockers, and several
advertisement displays in the vicinity of the new screening checkpoints. The
checkpoints are located throughout the main terminal at Dulles and are used
to screen all enplaning passengers, regardless of the airline they are
using. During a tour of the airport, representatives of MWAA indicated that
it was more convenient to allow United to contract for the work because the
airline-as the principal party on the airlines' security committee-was more
familiar with what needed to be done.

Finally, MWAA and United agreed that United would acquire an outbound
baggage system for the east side of Dulles's main terminal. The
baggage-handling system routes bags through the airport for passengers
embarking from the east side of Dulles's main terminal. United and its
affiliated airlines are located in this area and, as a result, primarily
benefit from the improvement. However, like the other projects, the
baggage-handling system is a fixed improvement that is located within space
controlled by MWAA and, should there be any change in airline tenants, the
new tenants would benefit from the improvement. During a tour of the
airport, MWAA representatives indicated that MWAA had intended to install
the baggage-handling system. However, United wanted a higher-capacity system
than MWAA had planned to install so, according to the officials, it was more
convenient to allow United to contract for the work. In addition to
convenience, the amendment to the airline's use and lease agreement
indicated that using United to perform the work would allow the expansion of
the east side of the main terminal to "be completed earlier than it
otherwise would be."

According to MWAA's June 29, 2001, letter to us, using airlines to make
airport improvements is a common practice among airport operators. MWAA
explained that the practice derives from the highly competitive environment
of the aviation industry that necessitates that airport operators be
responsive to, among other things, the needs of their tenant airlines. Thus,
according to MWAA, airport operators need flexibility to be able to
authorize their tenant airlines to make airport improvements that affect the
airlines' operational needs. MWAA noted that it often considers it
expeditious and prudent to allow airlines to make such improvements.
Moreover, according to MWAA, this flexibility better ensures timeliness,
compatibility, and cost-effective decision-making. Finally, MWAA indicated
that Congress intended MWAA to have flexibility in developing the airports
when it authorized the airports' lease to an independent entity. As
discussed in the next section of this report, we largely disagree with
MWAA's view.

In addition to the 3 airline sole-source awards, 2 of the 22 contracts that
we reviewed were not approved by MWAA's board of directors as required under
the statutory lease provision and MWAA's internal procedures. The
sole-source awards were for telephone services and parking system upgrades
that appeared appropriate under the contracts' circumstances. MWAA agreed
that the necessary board approvals were not obtained and indicated that the
requirement had been overlooked.

MWAA Believes That the Principles of Full and Open Competition Need to Be
Defined within the Context of Airport Contracting

While not conceding that the examples cited in this report represent a
violation of "any law or its federal lease," MWAA indicated in its June 29,
2001, letter to us, that it needed to better embrace and articulate "certain
hallmarks of `full and open' competition." MWAA stated, however, that our
assessment of its contracting practices using recognized principles of full
and open competition was inappropriate because, in its view, these
principles do not adequately reflect the unique environment applicable to
contracting at commercial airports. MWAA noted that its charter, as
reflected in statutes of the District of Columbia and the Commonwealth of
Virginia, recognized the need for flexibility in MWAA's contracting and,
consequently, granted it expanded commercial discretion in making and
entering into contracts.32 In MWAA's view, it has the power to use
contracting practices and procedures that are based upon business needs and
"not inherently linked to federal concepts" for maximizing competition.
MWAA's June 29, 2001, letter further explained that, as a self-supporting
enterprise, MWAA is obligated to ensure its financial continuity rather than
simply looking at "short[-]term least cost alternatives." MWAA stressed that
it would be wrong and inconsistent with Congress's intent in transferring
the operation of the airports to eliminate the flexible framework for
contracting at the airports. According to MWAA, the revised contracting
procedures that it intends to publish will eliminate the concerns we
identified in this report. Finally, MWAA indicated that its revised policies
and procedures should put an end to any lingering misconception about what
"full and open competition" is in an airport setting.

We understand that Congress, in transferring control of the airports,
intended that the airports be operated in a more businesslike manner than
had been possible when the federal government operated the airports.33 We
also understand that MWAA's charter provided MWAA with flexibility and
discretion to make and enter into contracts. Nevertheless, such flexibility
and discretion are subordinate to the obligations MWAA assumed under the
statutory lease provision. MWAA accepted the conditions imposed on its
contracting when it signed its lease with the

32 MWAA's charter authorizes it to make and enter into contracts that are
"exclusive or limited when it is necessary to further the public safety,
improve the quality of service, avoid duplication of services, or conserve
airport property and the airport environment."

33 By empowering MWAA to fund projects through the issuance of bonds, for
example, Congress enabled MWAA to proceed with beneficial and long overdue
renovations at the airports.

federal government. As a result, MWAA-unlike other airport operators- is
subject to the statutory lease provision for full and open competition, to
the maximum extent practicable. While Congress provided MWAA with the
flexibility to permit exceptions to the use of full and open competition
when authorized by a vote of seven members of MWAA's board of directors, the
board did not approve exceptions for any of the contracting actions that we
questioned.

We also do not agree with other views expressed in MWAA's June 29, 2001,
letter to us. Regarding the meaning of full and open competition as used in
the statutory lease provision, we note that the imposition of the
requirement for MWAA to use full and open competition followed a long
history of development of the fundamental principles applicable to
competitive contracting for public entities in this country. Many of the
authorities on which we relied on to identify the principles applicable to
MWAA predate current federal procurement statutes and regulations. Thus, as
discussed in appendix I, we applied those generally recognized principles
that underlie any requirement for full and open competition by public
entities such as MWAA.34

Finally, we do not agree that the fundamental principles are inapplicable to
contracting in an airport environment. Federal, state, and local governments
as well as other public entities conduct thousands of competitive
procurements annually, expending billions of dollars. Collectively, these
procurements have been used to build and maintain the public infrastructure
in this country. On the basis of our knowledge of Reagan National and Dulles
airports, MWAA's procurements appear to be no more complex or challenging
than many of these procurements. As a result, MWAA's intention to reflect
its view of the meaning of full and open competition in an airport setting
through a revision of its contracting policies and procedures will not
resolve the contracting concerns that we identified.

34 As discussed in its charter, MWAA is a public entity with public
responsibilities. MWAA was formed for one specific purpose-that is, to
operate two government-owned airports.

The Department of Transportation Represents the Interests of the United
States in Its Dealings with MWAA

Conclusions

The secretary of transportation's responsibilities with respect to the lease
are to (1) ensure that the airports are used for their intended purposes,
(2) periodically renegotiate the amount of MWAA's annual payments to the
federal government that is attributable to inflation, and (3) negotiate any
extensions beyond the 50-year period specified in the lease. The 1986 act
that transferred operating responsibility to MWAA does not define the
specific role of the department with respect to overseeing MWAA's compliance
with the contracting requirements in its lease with the federal government.
Nevertheless, as signatory to MWAA's lease with the federal government,
department officials agreed that the secretary of transportation is the
primary executive branch official responsible for representing the interests
of the United States in its dealings with its tenant, MWAA. Accordingly, we
discussed our findings with Department of Transportation officials. The
officials suggested that MWAA publish a draft of its revised contracting
procedures for the review and comment of all interested parties and
indicated that, on the basis of the information in our draft report,
corrective actions by MWAA are likely to be needed. According to the
officials, the department will take "appropriate actions," as necessary, to
fulfill its obligations under the lease. However, noting that the 1986 act
does not define the specific role of the department with respect to
overseeing MWAA's contracting, the officials did not identify the actions
that the department would take to ensure that MWAA complies with its
contracting obligations under the lease.

In a number of important respects, MWAA's procurement practices are not in
compliance with its obligations under its lease with the federal government.
As a result, for many of the contracts that we reviewed, MWAA may not have
realized the important benefits that full and open competition is intended
to achieve. Moreover, because MWAA permits several of the contracting
practices that we questioned as a matter of policy or practice, we believe
that similar problems are likely to exist in MWAA's other contracts.

MWAA's failure to publish the competitive procedures it actually uses to
award its contracts and concession franchises is inconsistent with the
objective of fostering, to the maximum extent practicable, full and open
competition. Moreover, its continued reliance on incomplete and outdated
guidance to satisfy its requirement for "published procedures" disregards
the requirements imposed in MWAA's lease with the federal government.
Weaknesses in MWAA's evaluations of contractor proposals also raise concern
about whether contractors have been treated fairly in competing for MWAA's
contract awards. Likewise, MWAA's (1) practice of

improperly exercising contract options that MWAA did not compete as part of
its initial solicitation, (2) use of existing contracts to obtain goods and
services that are beyond the scope of work contained in its contract
solicitations, and (3) improper use of sole-source awards fail to ensure
that MWAA obtains the best value available in the marketplace for the goods
and services it purchases and could result in MWAA's paying higher prices
than necessary. MWAA's contracting practices also deprive prospective
contractors of the opportunity to compete fully and openly for all available
contracting opportunities and, related to this, could create the perception
of favoritism in MWAA's contracting process. Finally, although the lease
provides MWAA's board of directors with the flexibility to authorize
exceptions to the use of less than full and open competition, MWAA often did
not seek the board's approval for the contracting actions that we
questioned.

Given MWAA's silence on most of our recommendations and its fundamental
disagreement with our view about the meaning and applicability of the
requirement for full and open competition, it appears doubtful that MWAA
will, on its own initiative, take all of the actions that we believe are
needed to meet the statutory and lease requirement pertaining to MWAA's
contracting practices. This is particularly troublesome given that MWAA
recently embarked upon a multibillion-dollar construction program at Dulles.
Furthermore, because the 1986 act does not specify the Department of
Transportation's role in overseeing MWAA's contracting, it is unclear what
the department will do to ensure that MWAA satisfies its obligations under
the lease. Accordingly, we added a suggestion that Congress consider
clarifying the 1986 act to specify that, as lessor, the department is
responsible for ensuring that MWAA (1) fully complies with the contracting
requirements imposed in the lease and (2) takes all steps needed to correct
the problems that we identified.

To help ensure that MWAA's future contracting activities comply with the
requirements imposed in MWAA's lease with the federal government, we
recommend that the board of directors take steps to ensure that

1. MWAA publishes, for review and comment by the public, procedures for
competitively awarding contracts in excess of $200,000 and all of its
contracts for concession franchises and thereafter that MWAA publishes-and
makes readily available to the public-a complete, adequate, and current set
of its contracting procedures;

Recommendations for Executive Action

2. MWAA's published procedures provide for, among other things,

* evaluating all future contractor proposals in accordance with the

factors and processes specified in its solicitations; * obtaining and
evaluating prices for the entirety of its known or anticipated need for each
procurement before selecting a successful contractor;

* ensuring that contract modifications for additional goods and services are
within the scope of work that MWAA solicited and competed;

* ensuring that all work (i.e., work where the total contract value is
estimated to exceed $200,000) is subject to full and open competition, to
the maximum extent practicable, including all work ordered through the
exercise of options or through other contract modifications;

* ensuring that any work (i.e., work whose total contract value is estimated
to exceed $200,000) that is awarded using less than full and open
competition is adequately justified and approved by MWAA's board of
directors, as appropriate; and

3. MWAA updates its published contracting procedures regularly and that MWAA
consistently follows the published procedures.

In addition, we recommend that the board reevaluate MWAA's use of
preestablished thresholds to exclude contractor proposals from award
consideration. Finally, to help ensure that the board is well-informed, we
recommend that the board require periodic reports on (1) MWAA's actions to
address our audit findings and (2) the extent of MWAA's use of less than
full and open competition.

As signatory to MWAA's lease with the federal government, we recommend that
the secretary of transportation take appropriate actions to follow up on
MWAA's actions to address our findings and recommendations.

To help ensure that MWAA satisfies its obligations under the lease, we
suggest that Congress consider clarifying the 1986 act to specify that, as
lessor, the Department of Transportation is responsible for ensuring that
MWAA (1) fully complies with the contracting requirements imposed in the
lease and (2) takes all steps needed to correct the problems that we
identified.

Matter for Congressional Consideration

Authority Comments and Our Evaluation

We discussed our preliminary findings with MWAA officials, including the
vice president and general counsel and the vice president for business
administration on June 22, 2001. By letters dated June 29, 2001, and July 9,
2001, these officials provided additional information for us to consider in
drafting our report. After a thorough analysis of the letters and extensive
follow-up, we incorporated MWAA's comments as appropriate. On October 9,
2001, we provided a draft of this report for review and comment to the
Department of Transportation and MWAA. The department did not comment on the
specific steps that it plans to take to address our recommendation that it
follow up on MWAA's actions to address our findings and recommendations.
However, the department indicated that it would take "appropriate actions"
to fulfill its obligations under the lease. The department also provided
technical and clarifying comments, which we incorporated as appropriate.

In their January 4, 2002, letter to us, MWAA's board of directors disagreed
with the report's major conclusions, raised concerns about our scope and
methodology, and reiterated comments made in MWAA's previous letters.
Furthermore, MWAA commented on some, but not all, of our recommendations.
MWAA's comments on our conclusions, scope and methodology, and
recommendations and our evaluation of these comments are discussed below.
MWAA's January 4, 2002, letter and our supplementary comments on it appear
in appendix IV.

First, referring to its 1993 contracting manual, MWAA disagreed with our
conclusion that it is not in compliance with its obligation to publish
competitive procurement procedures. MWAA noted that the manual was adopted
and published and that the 1993 manual is available to the public. MWAA also
noted that all of its solicitation documents contain procurement-specific
procedures. Thus, according to MWAA, the manual-considered either
individually or in conjunction with the procedures it specifies in its
solicitations-satisfies its obligation under the lease. We disagree with
MWAA's view. The requirement to publish "procedures" specifically conveys
Congress's intent that MWAA develop, publish, and follow routinized,
orderly, and established processes for conducting all of its procurements.
MWAA's 1993 contracting manual (1) does not adequately explain MWAA's
contracting practices, (2) is outdated, and (3) is not actually used to
award MWAA's contracts and concession franchises. Thus, in our opinion, the
manual cannot be construed as meeting the intent of the statutory lease
provision. Likewise, we do not believe that the procedures MWAA specifies in
its solicitations can be viewed in conjunction with MWAA's manual as
satisfying MWAA's obligation under the lease because the procedures are
applicable only to

individual procurements. Furthermore, on the basis of our findings on the
contracts that we examined, MWAA's procurement-specific procedures appear to
promote ad hoc and arbitrary contracting actions.35 Notwithstanding our
differences in views, MWAA agreed with our recommendation to publish its
contracting procedures for review and comment by the public and, thereafter,
to make the procedures readily available. According to MWAA, it is currently
revising the 1993 contracting manual to, among other things, incorporate the
more detailed, internal guidance it developed in 1998. MWAA further
indicated that, after consideration of any comments received, it would make
the revised manual available on request and through its Web site.

Second, MWAA disagreed with our conclusion that it did not always satisfy
its obligation to obtain, to the maximum extent practicable, full and open
competition, on 15 of the 35 contracts that we reviewed. MWAA further
disagreed with our belief that a similar conclusion could probably be
reached about MWAA's other contracts for goods and services. MWAA commented
that it "is committed to maximizing competition in its procurement process
consistent with reasonable business practices" applicable to airports and,
related to this, that its data on contracting demonstrate that MWAA obtains
full and open competition "where required." We disagree with MWAA's views.
MWAA's data on contracting for supplies and services, including
construction, are derived from a database maintained by MWAA's Procurement
and Contracts Department. This database cannot be used to quantify the
extent of MWAA's use of full and open competition on its contracts between
1992 and 1999-the time frame that we reviewed. In part, this is because MWAA
did not begin identifying the form of award-full and open competition,
limited competition, or sole-source award-on its contracts for supplies and
services until mid-1997. Furthermore, our limited tests to evaluate the
integrity and reliability of the database disclosed numerous errors.36 Most
important, to the extent that the database is accurate about the form of
award for MWAA's initial awards for these types of contracts, MWAA does

35 For example, we identified significant differences in MWAA's evaluation
of proposals that were received in response to two solicitations. The
differences occurred even though the solicitations contained nearly
identical language describing the process MWAA intended to use to evaluate
contractor proposals. In our view, such differences are at least in part
attributable to MWAA's failure to develop, publish, and follow an adequate
set of established procedures.

36 Our November 17, 2000, report provides additional information about
limitations in MWAA's contracting database. See GAO-01-185R.

not update the database to reflect any modifications it makes or options it
exercises on a sole-source basis to its initial awards. Finally, as
discussed elsewhere, the database does not include information about MWAA's
concession contracts.

Furthermore, regarding our conclusion that MWAA did not always obtain, to
the maximum extent practicable, full and open competition, MWAA commented
that, in its view, we employed a faulty methodology for selecting contracts
for review. Specifically, MWAA indicated that we did not employ a
statistically valid sampling approach, failed to consider the full range of
MWAA's contracts, "preselected" only the most complex of its procurements,
and "purposefully skewed" our contract selections "to include only those
contracts with [the] highest growth." As a result, MWAA indicated that our
methodological approach did not comply with generally accepted government
auditing standards. We disagree. As the office responsible for developing
these standards, we make every effort to ensure that each of our reviews is,
among other things, designed, implemented, and reported in conformance with
applicable standards. Consistent with these standards, we also routinely
disclose any limitations applicable to our findings. Thus, because we did
not conduct a statistical sample of MWAA's contracts, this report clearly
indicates that our results cannot be projected to the universe of MWAA's
contracts. Nevertheless, because MWAA permits-as a matter of policy-several
of the contracting practices that we found objectionable, we continue to
believe that similar problems are likely among MWAA's other contracts.

We also disagree that our methodology for selecting contracts was deficient.
Contrary to MWAA's assertion, generally accepted government auditing
standards do not require the use of any particular methodological approach,
including random sampling. A fundamental consideration in designing any
audit is to ensure that the time and resources needed to carry out the
review are commensurate with achieving the assignment's specific objectives.
Thus, while we considered a random sample of all of MWAA's contracts, we did
not adopt that approach for two reasons. First, only contracts exceeding
$200,000 are subject to MWAA's requirement for full and open competition.
Second, randomly sampling the 646 contracts that exceeded $200,000 would
have taken substantially more time and resources than we had available to
accomplish the detailed contract reviews that we intended to perform.
Instead, as discussed in appendix III, we designed a systematic and
replicable method for selecting contracts. MWAA's inference that this
approach resulted in the arbitrary selection of its most complex and
problematic contracts, including contracts with multiyear options and
modifications, is not true. First, as

discussed in appendix III and elsewhere, we examined the entire universe of
contracts identified in MWAA's database as awarded in 1998 and 1999 using
less than full and open competition. Thus, 22 of the 35 contracts that we
reviewed were in no way "preselected." Furthermore, far from being
arbitrary, our approach for selecting the 13 remaining contracts that we
reviewed was specifically designed to be free from any selection bias and,
thus, our approach is completely replicable by any outside auditor. Our
approach for selecting the 13 contracts also resulted in a good
cross-section of both the value (above and below $1 million) and type of
contracts (construction-related contracts, non-construction-related services
contracts, and contracts for supplies) that MWAA identified as initially
awarded using full and open competition. Moreover, even though most of the
13 contracts that we selected involved multiyear option periods and all of
the contracts were modified, the 13 contracts were no more complex than
others in MWAA's contracting database. In this regard, for example, it
should be noted that about 79 percent of the 646 contracts exceeding
$200,000 between 1992 and 1999 were modified at least once.

Likewise, MWAA's suggestion that we purposely "skewed" our 13 contract
selections toward those with high cost growth because we suspected that they
would be particularly problematic is also incorrect. As discussed in this
report, we focused our contract selections on contracts with a high
percentage of cost growth solely to determine if the work associated with
the contracts' cost growth had also been subject to full and open
competition. Moreover, in contrast to MWAA's view, given the average amount
of the contracts' cost growth-about 617 percent-one could easily argue that
the contracts should have been subject to continuous management scrutiny
and, thus, expect that the contracts would be relatively free of problems.
Finally, we discussed all aspects of our planned methodology with MWAA
officials, including the manager of MWAA's Procurement and Contracts
Department, before selecting contracts for review. At that time, MWAA
officials did not voice any concerns about our planned approach and, in
fact, considered it more complex than necessary because, according to the
manager, each of MWAA's contracts would likely be found beyond reproach.

Third, MWAA reiterated its view that our assessment of its contracting
practices using recognized principles of full and open competition was
inappropriate because it is not a federal agency and, consequently, is not
obligated to follow federal procurement statutes and regulations. MWAA also
reiterated that the criteria we applied do not adequately reflect the
"unique environment" applicable to contracting at commercial airports.

Related to this, MWAA commented that the requirement to obtain, to the
maximum extent practicable, full and open competition is broadly stated by
design and that Congress intended to provide MWAA with flexibility to
operate the airports in a manner consistent with the operation of other
commercial airports. We disagree with MWAA's view. Our report clearly notes
that MWAA is not obligated to follow federal procurement statutes and
regulations. Thus, while the precepts of "full and open competition" owe
much to the federal government's experience, we did not use federal
procurement statutes or requirements to assess MWAA's compliance with the
statutory lease provision. Instead, as detailed in appendix I, we applied
generally recognized principles underlying the concept of full and open
competition. In addition, we clearly acknowledge that Congress, in
transferring control of the airports, intended the airports to be run in a
more businesslike manner than was possible when the federal government
operated the airports. Congress also intended to leverage the ability of an
independent, nonfederal, public entity to obtain funding in private money
markets for use in financing the airports' renovation and operation. The
fact that Congress sought such a benefit, however, does not provide MWAA
with a basis for not adhering to the conditions imposed upon MWAA's
contracting. Finally, although the board of directors' letter to us
emphasized the need for "flexibility" in MWAA's contracting, the letter did
not discuss the specific mechanism that Congress provided for achieving
flexibility in MWAA's contracting. As explicitly discussed in this report,
the statutory lease provision permits exceptions to the use of full and open
competition when approved by a vote of seven members of MWAA's board of
directors. None of the contracting actions that we found objectionable were
approved by MWAA's board.

Finally, implying that our 1993 report endorsed its contracting procedures
and practices, MWAA questioned what it described as "the foundation for such
a fundamental change" in our views. According to MWAA, our 1993 report
"concluded that the Authority's approach and understandings [regarding the
meaning and applicability of the requirement for full and open competition]
were acceptable to develop policies, implement recommendations and execute a
successful procurement system." Thus, absent additional audits, guidance, or
monitoring in the interim, MWAA indicated that it had relied on our earlier
report to conduct its procurements. We disagree with MWAA's characterization
of the conclusions in our earlier report and, related to this, note that
MWAA has

misrepresented our 1993 report in various court proceedings.37 Our 1993
report concluded that, even though MWAA had not yet published detailed
procedures for awarding its contracts and concession franchises, the
contracting practices that we reviewed in the early years of MWAA's
contracting program-1989 to 1991-generally promoted a competitive
environment. However, we also concluded that, if not corrected, certain
practices we identified could adversely affect MWAA's competitive process in
the future. The problems that we identified in our 1993 report are similar
to those identified in this report and included awarding contracts under
procedures that were not publicly disclosed and extending one sole-source
contract on several occasions without proper authorization. Thus, in
contrast to MWAA's view, these and other problems appear to have been simply
exacerbated in the years between our audits.

Furthermore, regarding MWAA's claim that it had no previous knowledge of the
problems that we identified, we must note that, in 1998, MWAA's Office of
Audit identified problems similar to the ones that we found. The audit
focused on 34 professional services contracts and found that MWAA's use of
options and other contract modifications deprived contractors of
opportunities that could otherwise have been competed. The audit also
identified, as we have reported, the use of modifications to add
out-of-scope work to contracts. Furthermore, the audit found that required
board approvals had not always been obtained. The office recommended that
MWAA increase its oversight of its contracts to, among other things,
identify work that should be offered as separate procurements.

We also disagree that we changed the rules applicable to MWAA's contracting
for the purpose of this audit. Both our 1993 report and this report clearly
state that MWAA is not obligated to follow federal procurement statutes and
regulations related to full and open competition. However, as discussed
throughout this report, this does not mean that MWAA is free to define the
requirement for full and open competition as it sees fit. MWAA is not a
private entity with authority to operate freely in

37 For example, see the Brief of Appellees, Metropolitan Washington Airports
Authority in Washington-Dulles Transportation, Ltd., v. MWAA (C.A. 4th Cir.,
Rec. Nos. 00-2153 (L), 01-1095, Sept. 7, 2000), pp. 11, 16-17 where MWAA
represented to the court that we endorsed MWAA's procurement process,
stating:

"Thus, the Authority has adopted and implemented competitive bid procedures
as required by the Lease, and the GAO has determined that in doing so the
`federal interest' under the [provisions of MWAA's lease] has been
satisfied." [Emphasis added.]

the commercial world. Rather, MWAA is a public entity subject to the
contracting requirement for full and open competition, to the maximum extent
practicable, that was set forth in its lease with the federal government.
Thus, while MWAA need not follow federal procurement statutes and
regulations, it must comply with the fundamental principles underlying full
and open competition. To help avoid future confusion on this point, appendix
I provides additional guidance about these principles.

As previously discussed, MWAA agreed to publish its contracting procedures
for review and comment by the public and, thereafter, to make the procedures
readily available. MWAA also indicated that it would "consider its approach"
to pricing contract options when it revises its contracting procedures.
However, MWAA did not specifically comment on our other recommendations,
which were aimed at correcting the other contracting problems that we
identified. Likewise, MWAA did not commit to regularly update and
consistently follow the revised procedures that it intends to publish.
Finally, MWAA did not comment on our recommendation that the board (1)
reevaluate MWAA's use of preestablished thresholds to exclude contractor
proposals from award consideration and (2) require periodic reports on,
among other things, MWAA's actions to address our audit findings.

Given MWAA's silence on most of our recommendations and its fundamental
disagreement with our view about the meaning and applicability of the
requirement for full and open competition, it appears doubtful that MWAA
will, on its own initiative, take all of the actions that we believe are
needed to meet the statutory and lease requirement pertaining to MWAA's
contracting practices. This is particularly troublesome given that MWAA
recently embarked upon a multibillion-dollar construction program at Dulles.
Furthermore, because the 1986 act does not specify the Department of
Transportation's role in overseeing MWAA's contracting, it is unclear what
the department will do to ensure that MWAA satisfies its obligations under
the lease. Accordingly, we added a suggestion that Congress consider
clarifying the 1986 act to specify that, as lessor, the department is
responsible for ensuring that MWAA (1) fully complies with the contracting
requirements imposed in the lease and (2) takes all steps needed to correct
the problems that we identified.

We performed our work from November 2000 through January 2002 in accordance
with generally accepted government auditing standards. A detailed
description of our scope and methodology, including our methodology for
selecting contracts, appears in appendixes II and III.

We are sending copies of this report to the secretary of transportation, the
chief executive officer of MWAA, and each member of MWAA's board of
directors. Copies will also be made available to others upon request.

Major contributors to this report were Alan Belkin; David Bryant, Jr.;
Arthur James, Jr.; Bert Japikse; Larry Turman; and Kathleen Turner. If you
or your staff have any questions about this report, please contact me on
(202) 512-8387 or at [email protected].

Bernard L. Ungar
Director, Physical Infrastructure Issues

Appendix I: Principles of Full and Open Competition

As discussed in this report, Congress required that the Metropolitan
Washington Airports Authority (MWAA) award certain contracts by obtaining,
to the maximum extent practicable, full and open competition.1 This
requirement embodies a number of fundamental principles that we discuss
below. We have also provided information on the principles that apply to
ordering goods and services under contracts that were awarded using full and
open competition.

Background Decisions of the comptroller general dating back to the 1920s and
1930s employed the term "full and open competition" and used it
interchangeably with the phrase "full and free competition."2 More recently,
legislative reference to "full and open competition" appears in the Office
of Federal Procurement Policy Act Amendments of 1979.3 That act declared it
to be the policy of Congress to promote economy, efficiency, and
effectiveness in the procurement of property and services by promoting the
use of full and open competition by the government. Congress reiterated the
policy in 1983, again using the phrase "full and open competition."4 The
following year, Congress revamped the federal procurement statutes by
enacting the Competition in Contracting Act of 1984, which also promoted
full and open competition.5 At the same time,

1 The complete requirement as defined in the Metropolitan Washington
Airports Act of 1986, P.L. 99-500, title VI, sect. 6005(c)(4), 100 Stat.
1783-376 (1986), creates an obligation to "obtain, to the maximum extent
practicable, full and open competition through the use of published
competitive procedures." As required by the act, this language was
incorporated in and agreed to by MWAA as Article 11.D of its lease with the
federal government. Section 6005(c)(4) is codified at 49 U.S.C. sect.
49104(a)(4). The codified language uses the phrase "complete and open
competition" and otherwise differs slightly from the wording in the original
legislation. Throughout, we refer to the requirement as it appears in the
original act because (1) that is the language that appears in MWAA's lease
and (2) by the terms of the codification, the codified language is not to be
construed as making any substantive change in the law. P.L. 105-102, sect.sect.
4(a), (b), 111 Stat. 2204, 2216 (1997).

2 The first published use of the term "full and free competition" by the
comptroller general appears in 1 Comp. Gen. 688, 689 (1922); the first use
of "full and open competition" is found at 16 Comp. Gen. 404, 409 (1936).
Also, see 20 Comp. Gen. 903, 907 (1941). The phrases "full and fair
competition," "fair and open competition," "open and free competition," and
"fair and free competition" have also been used to express similar thoughts,
although less often.

3 P.L. 96-83, sect. 2, 93 Stat. 648 (1979).

4 Office of Federal Procurement Policy Act Amendments of 1983. P.L. 98-191,
sect. 3, 97 Stat. 1325 (1983).

5 P.L. 98-369, div. B, title VII, 98 Stat. 494, 1175 (1984).

Appendix I: Principles of Full and Open Competition

Congress amended the Office of Federal Procurement Policy Act to declare
that "full and open competition, when used with respect to a procurement,
means that all responsible sources are permitted to submit sealed bids or
competitive proposals on the procurement."6 Two years later, upon
consideration of the 1986 Metropolitan Washington Airports Act (which
provided for the lease of Dulles and Reagan National), a senator from
Virginia introduced the requirement for full and open competition at the
airports. He explained that the "amendment represents both good government
and good management.... It...is fully consistent with the efforts [of
Congress] to guarantee the proper and prudent procurement of goods and
services."7

Although the precepts of competitive public contracting owe much to the
federal government's experience, the fundamental principles outlined here
are not unique to federal contracting practice. The principles find
expression, for example, in the American Bar Association's (ABA) Principles
of Competition in Public Procurements8 as well as in the ABA's Model
Procurement Code for State and Local Governments,

6 41 U.S.C. sect. 403(6). Furthermore, Congress adopted the Small Business and
Federal Procurement Competition Enhancement Act of 1984, to further
eliminate "procurement procedures and practices that unnecessarily inhibit
full and open competition for contracts." P.L. 98-577, sect. 101, 98 Stat. 3066
(1984).

7 132 Cong. Rec. S 3931-01 (1986).

8 Principles of Competition in Public Procurements (Approved by ABA's House
of Delegates, 1998). Also, see the ABA Section of Public Contract Law,
Report to Accompany Principles of Competition in Public Procurements (1998).
(Hereafter, ABA Report.)

Appendix I: Principles of Full and Open Competition

Fundamental Principles for Competitive Public Procurements

adopted in 1979 and updated in 2000.9 Sixteen states, including Virginia,
have adopted the model code.10

To achieve full and open competition, prospective contractors must be able
to prepare and submit appropriate bids or proposals in response to an
identified contract requirement. Moreover, bids or proposals must be judged
solely on their merits. To help ensure that contract awards are not
arbitrary or preferential and to protect the integrity of the competitive
process, specific procedures must be written and followed.11 The following
text explains the fundamental principles underlying full and open
competition.

* Contracting organizations must conduct procurements using a solicitation
that clearly identifies the requirements to be met as well as the process
that the organization intends to follow to select a contractor.

The solicitation plays an essential role in defining an organization's
requirements and in establishing the framework for a competitive
procurement. To accomplish its purpose, a solicitation must be sufficiently

9 The fundamental principles of full and open competition are embedded in
the rules stated in both the 1979 and the 2000 versions of the model code.
Indeed, the 1979 version was founded upon the principle enunciated in the
concept of "fair and open competition," words intended to convey much the
same meaning as the phrase "full and open competition." The authors of the
2000 version observed the following:

"The 1979 Code offered states and local jurisdictions...a basic formulation
of the fundamental principles upon which durable procurement systems
rest.... The Revision Project did not result in any major changes to these
basic principles. Indeed, these principles have become bedrock notions in
American law associated with public procurement." (Emphasis added, 2000
Model Code, p. iv).

For materials related to the development of the model code, see Model
Procurement Code for State and Local Governments, An Orientation and Forward
Look, The Model Code Colloquia Program, Commonwealth of Pennsylvania
(American Bar Association, 1976).

10 Annotations to the Model Procurement Code for State and Local Governments
With

Analytical Summary of State Enactments, American Bar Association Section of
State

and Local Governmental Law, p. vii (3d Ed., 1996). (Model Code Annotations.)
Also, see 3

Va. Code sect. 11-35, et seq., revised and relocated to sect. 2.2-4300, et seq., by
Virginia Acts 2001,

c. 844, eff. Oct. 1, 2001. According to the National Association of State
Purchasing Official's 1992 Survey of American Bar Association Model
Procurement Code States, Model Code Annotations, supra, 273, Virginia
adopted approximately 75 percent to 80 percent of the content of the model
code.

11 ABA Report, sect.sect. B.8, 10.

Appendix I: Principles of Full and Open Competition

clear to permit the preparation and evaluation of bids or proposals on a
common basis.12

* Contracting organizations must publish their solicitations in a manner
that reasonably ensures that those who might be qualified to compete for a
contract can learn of the solicitation and respond to it.

To obtain full and open competition, a contracting organization must provide
all responsible sources with the opportunity to compete for the award. This
stipulation is achieved if the contracting organization makes a diligent,
good faith effort to inform prospective contractors about a solicitation and
allows the firms to obtain any supplementary information needed to submit a
responsive bid or proposal in time for it to be considered.13 At a minimum,
this requirement mandates some kind of public announcement of the contract's
availability. Additionally, the notice must adequately inform prospective
contractors about (1) the nature of the procurement and (2) how to proceed
with their offers if they want to compete for the contract.14

* Contracting organizations cannot impose restrictions that do not
reasonably pertain to their needs.

Contracting organizations need not accept products or services that do not
meet their needs. On the other hand, they cannot impose unnecessary
limitations that restrict the field of prospective contractors or the
products or terms that contractors might offer to meet an organization's
needs. Thus, a specification requiring the use of a specific material, for
example, unduly restricts competition if another, potentially cheaper,
material would also meet the organization's needs.15

* Contracting organizations must specify in their solicitations the factors
that they intend to use to evaluate proposals.

12 Harris Corp., B-194151, April 22, 1980, 80-1 CPD para. 282; M. J. Rudolph
Corp., B-196159, Jan. 31, 1980, 80-1 CPD 84. Also, see ABA Report, sect. B.4.

13 All Cape Corp., B-275736, Mar. 20, 1997, 97-1 CPD para. 119. Also, see ABA
Report, sect. B.5.

14 Cf. Trans World Maintenance, Inc., 65 Comp. Gen. 401 (1986), 86-1 CPD para.
239.

15 See BBR Prestressed Tanks, 56 Comp. Gen. 575 (1977), 77-1 CPD para. 302;
Carolina Concrete Pipe Co., B-192361, Mar. 4, 1981, 81-1 CPD para. 162,
recognizing that the rule against undue restrictions on competition is
fundamental to a requirement for full and open competition. ABA Report, sect.
B.3.

Appendix I: Principles of Full and Open Competition

Prior to World War II, public contracts were generally awarded to the firm
that submitted the lowest-priced responsive bid. The rules were simple. A
firm had to meet the requirements of the solicitation at a fixed or
determinable price and, thereafter, was awarded the contract if its price
was the lowest. In the post-World War II period, however, public contracting
has increasingly relied on negotiated procurements and "best value"
selection techniques that emphasize both price and technical merit in
selecting a successful firm. Competition cannot be considered full and open
if prospective contractors, lacking sufficient information, base their
proposals on different assumptions about how they will be evaluated and,
consequently, tailor their proposals differently.16 Thus, if a contracting
organization intends to use multiple evaluation criteria, it must provide
prospective contractors with enough information to permit the firms to
compete on an equal basis.17 We have long recognized, therefore, that the
basic criteria to be followed in selecting contractors (and some
characterization of their relative importance) must be disclosed in the
solicitation.18 Moreover, the criteria listed in a solicitation cannot
include irrelevant factors that could mislead potential offerors.

* Contracting organizations must treat all firms equally.

Full and open competition is achieved, in part, through fairness and equal
treatment. Thus, a contracting organization must establish and follow common
closing dates and processing procedures. Similarly, if a contracting
organization provides information to one firm that could affect the
preparation of its proposal, it must provide other prospective contractors
with the same information. Likewise, if a contracting organization provides
any firm with an opportunity to participate in negotiations or to modify its
proposal, it must provide all firms in a similar circumstance-that is, those
in the competitive range-with the same opportunity.

* Contracting organizations must evaluate bids and proposals and award
contracts using the criteria and process they specified in their
solicitation.

16 Harris Corp., supra.

17 ABA Report, sect. B.6.

18 Analytical Services, Inc., B-202473, Mar. 9, 1982, 82-1 CPD para. 214; aff'd.
on recon., Dec. 6, 1982, 82-CPD para. 502.

Appendix I: Principles of Full and Open Competition

To maintain the integrity of the competitive process, contractors must be
selected using the evaluation criteria and process specified in the
solicitation.19 Moreover, if the contracting activity changes its evaluation
criteria and/or process, it must inform prospective contractors and provide
them with an opportunity to amend their proposals.20

* Contracting organizations must limit the scope of a competitively awarded

contract to the work that they originally procured.

To achieve full and open competition, an organization cannot add work to
a contract that was not originally subject to competition. For example, if
an organization solicits offers to furnish 1,000 items at a fixed unit
price, it
cannot later add another 1,000 items at the time of award-even if the
contractor consents to the change. Instead, since the organization knew at
the time of award that its requirement was for 2,000 items, it must cancel
the solicitation and reopen competition for the full 2,000 items using full
and open competition. Likewise, an organization cannot award a contract
with the intention of materially modifying it later. Thus, in the example
given, the organization cannot award a contract for 1,000 items knowing
that it will increase the quantity to 2,000 items after the award is made.21

A requirement for full and open competition establishes a mandate that a
contracting organization's practices will comply with fundamental
competitive principles for awarding contracts. A requirement to "obtain, to
the maximum extent practicable, full and open competition" recognizes
that there may be circumstances when it is not practicable to obtain full
and open competition, because it would be futile or infeasible, but
otherwise requires that full and open competition be obtained.22 This
mandate applies to the award of all work performed under every
contract.23 The following text explains the fundamental principles
applicable to competitive public procurements.

Applicability of Principles to Existing Contracts

19 ABA Report, sect. B.7.

20 Grey Advertising,  Inc., 55 Comp. Gen. 1111, 1122 (1976), 76-1 CPD para. 325;
A. T. Kearney, Inc., B-205898, Feb. 28, 1983, 83-1 CPD para. 190.

21  A & J Manufacturing  Co., 53 Comp. Gen. 838,  839-840 (1974), 74-1 CPD para.
240.

22 ABA Report, sect. B.2.

23  Accord, AT&T  Communications, Inc. v.  Wiltel, Inc.,  1 F.3d  1201, 1205
(Fed. Cir., 1993).

Appendix I: Principles of Full and Open Competition

* The scope of a contract is determined by examining the binding promises
that are made as well as the obligations assumed by the parties.

From a contracting organization's perspective, the scope of a contract is
measured by its right to unilaterally obtain or order supplies and services
under the contract. A unilateral right exists if all of the contract terms
pertaining to the contract, including price, are determinable and agreed to
by both parties.24 Contract language that does not create a determinable
obligation creates little more than an agreement to negotiate additional
items in the future.25 The need for binding obligations does not preclude
the use of contract options or change order processes. Such practices are
commonplace in the federal government's procurements. Moreover, ABA's model
code recognizes the value of multiyear contracting in obtaining better terms
on larger quantities that may be needed in the future.26 The model code also
establishes a change process for contracts that, like the process used by
the federal government, provides a method for determining price adjustments
when changes occur.27

* The scope of permitted changes is limited to those changes that reasonably
fall within the terms of the contract.

The scope of a public contract, including the scope of modifications
permitted under a changes clause, is limited to the acquisition of those
goods and services that reasonably fall within the contract. The changes
clause used in public contracts provides the contracting organization with
(1) the ability to order changes during the administration of a contract and
(2) a process for paying for changes ordered. However, to achieve full and
open competition, the changes ordered may not exceed the scope of the
original contract. Changes beyond the purview of those that would have been
reasonably anticipated in carrying out the objectives of the original

24 For example, the changes clause used by the federal government empowers
contracting officers to unilaterally determine the price of contract changes
subject to accepted procedures for resolving disputes. 48 C.F.R. sect.sect.
6.001(c), 43.201(a), 43.301(a)(1)(ii).

25 We have not, for example, treated unpriced and unevaluated options in the
form of promises to negotiate preplanned, noncompetitive, follow-on
contracts as appropriate because such promises do not create a unilateral
right to place future orders for supplies or services at a determinable
price. Report to the Secretary of Defense, B-217655, Apr. 23, 1986.

26 Model Code sect.sect. 3-503.

27 Model Code sect.sect. 5-401(1)(a)(i), 5-401(2)(a)(v), 6-101(1)(a)(i), and
6-101(2)(a)(v).

Appendix I: Principles of Full and Open Competition

contract are outside the scope of the contract. Such changes cannot be
ordered under the contract because the effect of doing so would be to add
work that had not been subject to competition.28

* A requirement to obtain full and open competition does not permit the use
of preplanned, noncompetitive, follow-on contracts or any extension or
expansion of the scope of a contract that was not subject to competition.

We have used the phrase "preplanned, noncompetitive, follow-on contract" to
describe contracts that result from the purported exercise of unpriced and
unevaluated options to obtain additional work.29 Such "options" are merely
agreements to negotiate future follow-on contracts that, if exercised,
constitute noncompetitive awards.30

28 AT&T Communications, Inc. v. Wiltel, Inc., supra, following American Air
Filter Co.-DLA request for reconsideration , 57 Comp. Gen. 567, 572-573
(1978), 78-1 CPD para. 443.

29 Report to the Secretary of Defense, supra.

30 Department of Health and Human Services - Reconsideration, B-198911.3,
Oct. 6, 1981, 81-2 CPD para. 279; Varian Associates, Inc., B-208281, Feb.16,
1983, 83-1 CPD para. 160.

                     Appendix II: Scope and Methodology

To determine if MWAA has complied with its obligations under its lease with
the federal government, we reviewed the requirements of the 1987 lease and
researched the legislative history of the Metropolitan Washington Airports
Authority Act of 1986, as amended. As discussed in this report, the statute
mandated that specific contracting requirements be included in MWAA's lease
with the federal government. To understand the intent of Congress in
imposing these requirements, we researched the meaning of the terms used in
the statutory lease provision within the context of the fundamental
principles of competition in contracting.1 These principles are reflected in
federal laws, such as the Competition in Contracting Act of 1984; federal
regulations; and past decisions by the comptroller general; the American Bar
Association's (ABA) Principles of Competition in Public Procurements; as
well as ABA's Model Procurement Code for State and Local Governments, all of
which we examined.

Having determined the intent of Congress, we examined MWAA's contracting
actions to determine if the actions were consistent with obtaining full and
open competition. Regarding MWAA's obligation to award contracts for
supplies and services exceeding $200,000 and all concession contracts
through the use of published competitive procedures, for example, we
examined MWAA's notice announcing the publication of its 1993 contracting
manual as well as the manual itself. We also searched MWAA's contracting Web
site, examined its contract solicitations, and held discussions with MWAA
officials to determine how the 1993 manual has been made available to
prospective contractors and other interested parties. In addition, we
analyzed MWAA's 1998 contracting manual to determine how the internal
procedures that MWAA actually uses to award its contracts for goods and
services, including construction, compare with the procedures that MWAA
published in 1993. With MWAA officials, we also discussed plans to update
the 1993 and 1998 manuals and the status of MWAA's actions to develop and
publish detailed procedures for awarding its concession contracts.

To determine if MWAA has obtained full and open competition, to the maximum
extent practicable, for contracts estimated to exceed $200,000, we examined
two distinct groups of contracts that either exceeded

1 Terms such as "full and open competition," "maximum extent practicable,"
and "through the use of published competitive procedures" have specific
meanings within the context of contracting by public entities.

Appendix II: Scope and Methodology

$200,000 on the date of award or that had exceeded $200,000 as of December
31, 1999. As discussed in more detail in appendix III, the first group
consisted of 13 contracts. We reviewed each of these contracts in detail to
determine how MWAA solicited, awarded, and modified the contracts and
compared these actions with MWAA's contracting policies and procedures and
to long-standing principles for obtaining full and open competition. In
addition to the initial awards, we examined all 240 subsequent modifications
to the 13 contracts. The modifications changed the terms of the original
contracts by, among other things, adding work to the contracts.

The second group of contracts consisted of all 22 contracts that, according
to MWAA's database, exceeded $200,000 and that MWAA awarded in 1998 and 1999
without full and open competition. We reviewed these contracts to determine
the purpose of each acquisition and to review documentation supporting the
justification and approval of each of the contracts. We compared this
information with MWAA's requirements for awarding and approving contracts
using less than full and open competition-that is, awards that were based on
limited competition and sole-source awards- to determine if the procurements
were appropriately approved and reasonably justified, given the particular
circumstances of each procurement.

We visited Ronald Reagan Washington National Airport and Washington Dulles
International Airport to familiarize ourselves with work conducted under
various contracts that we reviewed, including MWAA's contract for installing
supplemental communications systems at the airports and various contracts
with the airlines for airport improvements. For projects undertaken by the
airlines, we also examined MWAA's use and lease agreements, which govern the
airlines' use and lease of airport premises.

We coordinated our work with MWAA's Office of Audit and reviewed 26 audits
issued between 1994 and 1999. Finally, because the secretary of
transportation represents the interests of the executive branch in ensuring
that MWAA complies with the requirements of the lease, we also discussed our
findings with Department of Transportation officials.

Appendix III: Contract Selection Methodology

MWAA awarded 2,843 contracts for supplies and services, including
construction, between January 1, 1992, and December 31, 1999, according to
its contracting database.1 Another 17 contracts were awarded before January
1, 1992, but were still active as of December 31, 1999, for a total of 2,860
contracts. We performed a limited analysis of the integrity and reliability
of MWAA's contracting database, including checks to (1) identify and
eliminate duplicate contract entries and (2) identify and obtain missing
information related to the estimated value, award amount, and the actual
value of the contracts as of December 31, 1999. After duplicate contract
entries were deleted and missing data were added, we considered the database
suitable for use in selecting contracts for our detailed review.

To determine whether MWAA's contracts were awarded, to the maximum extent
practicable, using full and open competition, we focused on contracts that
either exceeded $200,000 when awarded or had exceeded $200,000 as of
December 31, 1999. Of the 2,860 contracts, 646 met these criteria. We used
the database to select two distinct groups of contracts from this universe.
The first group consisted of 13 contracts that generally (1) were awarded
between 1992 and 1999 using full and open competition and (2) exhibited the
highest cost growth.2 The second group included 22 contracts that, according
to MWAA's database, had been awarded either using limited competition or on
a sole-source basis. In total, the 35 contracts that we examined were valued
at about $408 million and represented 5 percent of the 646 contracts awarded
and 19 percent of the value of the 646 contracts as of December 31, 1999.

To select the first group of contracts, we sorted the 646 contracts
according to their value at award. After identifying and listing those
contracts valued at $1 million or more and those valued at less than $1
million, we (1) calculated the percentage of increase between each
contract's initial award value and its value as of December 31, 1999, and
(2) sorted the two groups of contracts from highest to lowest in terms of
cost growth. For each of the two monetary stratifications-contracts

1 We selected this period to account for MWAA's contracting activities since
the issuance of our 1993 report, which examined contract awards between 1989
and 1991. See Contract Award Practices: Metropolitan Washington Airports
Authority Generally Observes Competitive Principles (GAO/RCED-93-63, Feb. 8,
1993).

2 Two of the 13 contracts that we selected for review were awarded before
1992 but were still open as of December 31, 1999.

                Appendix III: Contract Selection Methodology

awarded for $1 million or more and contracts awarded for less than $1
million-we chose (1) 2 construction-related contracts, (2) 2 contracts for
non-construction-related services, and (3) 2 contracts for supplies. These
12 contracts generally represented the largest percentage of increase in
value as of December 31, 1999, compared with their initial amount.3 Finally,
we added 1 contract for insurance services, which had been awarded for less
than $1 million, because we had already substantially examined it during our
audit design work.4 In total, the 13 contracts had an initial award value of
about $51 million and a value of about $368 million as of December 31, 1999.

To examine the appropriateness of MWAA's justifications for using less than
full and open competition and to determine if these contracts had received
appropriate approvals, we used MWAA's database to select a second group of
contracts. Specifically, we chose all 22 contracts over $200,000 that the
database identified as having been awarded using either limited competition
or on a sole-source basis in 1998 and 1999.5 We performed limited work to
evaluate the integrity and reliability of these data, including checks to
confirm that the 22 contracts had, in fact, been awarded using less than
full and open competition. These contracts, had an award value of about $35
million and a value of about $40 million as of December 31, 1999.

Because MWAA does not have a centralized database of its concession
contracts or documented procedures for awarding these contracts, we did not
review concession contracts. Instead, we focused our review on MWAA's
contracts for supplies and services, including construction. The

3 We generally selected the 2 contracts with the highest cost increase
within each category-services, supplies, and construction contracts awarded
for (1) $1 million or more or (2) less than $1 million. In two
categories-contracts for supplies awarded for under $1 million and contracts
for services awarded for $1 million or more-we skipped contracts with higher
cost increases to avoid selecting contracts that were for similar supplies
and services-for example, two contracts for cleaning services. The
alternative contracts we selected had the third highest and fifth highest
cost increases within their respective selection categories. We focused on
contracts experiencing a high percentage of cost increase, as reflected in
MWAA's database, to determine if the work associated with the cost increase
had been subject to full and open competition.

4 This contract experienced the sixth highest cost increase among service
contracts awarded for less than $1 million.

5 Our contract selections were limited to 1998 and 1999 because, prior to
1998, MWAA's database did not routinely include information on the form of
contract award-that is, full and open competition, limited competition, or
sole-source award.

                Appendix III: Contract Selection Methodology

results of our contract analyses are not projectable to the universe of
MWAA's contracts for supplies and services.6 However, because MWAA permits
several of the contracting practices that we questioned as a matter of
policy or practice, similar problems are likely to exist in MWAA's other
contracts.

6 To project our results to the universe of MWAA's contracts, we would have
had to randomly select a large number of contracts for detailed analysis.
Time did not permit such an exhaustive review.

Appendix IV: Comments from the Metropolitan Washington Airports Authority

Note: GAO comments supplementing those in the report text appear at the end
of this appendix.

See comment 1.

Appendix IV: Comments from the Metropolitan Washington Airports Authority

                               See comment 2.

                        Now on p. 57. Now on p. 18.

Appendix IV: Comments from the Metropolitan Washington Airports Authority

Now on pp. 4, including footnote 4; 6; and 59.

Now on pp. 6 and 59.

See comment 3.

Now on pp. 6, 13, and 31.

Appendix IV: Comments from the Metropolitan Washington Airports Authority

See comment 4.

See comment 5.

See comment 6. Now on pp. 4 and 58.

See comment 7.

Appendix IV: Comments from the Metropolitan Washington Airports Authority

                               See comment 8.

Appendix IV: Comments from the Metropolitan Washington Airports Authority

                  Now on p. 11, footnote 8. See comment 9.

Appendix IV: Comments from the Metropolitan Washington Airports Authority

See comment 1.

See comment 3.

Now on pp. 14 to 19, 23, and 26.

See comment 10.

See comment 11.

Appendix IV: Comments from the Metropolitan Washington Airports Authority

See comment 12. See comment 13. See comment 14.

See comment 15.

See comment 16.

Appendix IV: Comments from the Metropolitan Washington Airports Authority

                              See comment 17.

                              See comment 18.

                              See comment 19.

Appendix IV: Comments from the Metropolitan Washington Airports Authority

                              See comment 20.

                      See comment 21. See comment 22.

Appendix IV: Comments from the Metropolitan Washington Airports Authority
Appendix IV: Comments from the Metropolitan Washington Airports Authority

GAO's Comments

The following are GAO's additional comments on the Metropolitan Washington
Airports Authority's letter dated January 4, 2002.

1. While MWAA's database on contracting indicates that MWAA awarded 2,843
contracts between January 1, 1992, and December 31, 1999, as discussed in
this report, the database cannot be used to quantify the extent of MWAA's
use of full and open competition. Thus, any inference that MWAA has awarded
thousands of contracts using competition to the extent required is, in our
view, misleading.

2. MWAA's discussion of the universe of its contract awards (2,843) between
1992 and 1999 is not relevant to this review. This is because only those
contracts exceeding $200,000 are subject to the requirement for full and
open competition. Thus, as discussed in this report, we focused on two
distinct groups of contracts that either exceeded $200,000 on the date of
award or had exceeded $200,000 as of December 31, 1999. In total, 646
contracts met these criteria. The 35 contracts that we examined were valued
at about $408 million and accounted for 5 percent of the 646 contract awards
and 19 percent of the value of the 646 contracts as of December 31, 1999.

3. Our use of the term "agency" in our draft report was in no way meant to
infer that MWAA is a federal agency. Thus, instead of "agency," we generally
substituted the term "organization."

4. We disagree that we largely ignored or quoted out-of-context the detailed
comments MWAA provided in two letters dated June 29, 2001, and July 9, 2001.
As reflected in our report, we conducted extensive follow-up on the comments
and, thereafter, incorporated the comments and revised the report, as
appropriate.

5. We have not attached MWAA's earlier letters to us because, as discussed,
we previously incorporated these comments extensively throughout the report.
Furthermore, one of the letters contains information that, for business
reasons, MWAA asked us not to disclose.

6. We revised this report to further emphasize that we did not examine
MWAA's concession contracts.

7. We disagree that the tone of this report is "unduly harsh" and that our
subtitles and headings mislead the reading audience. We also disagree that
the report overstates and extrapolates our findings. In our

Appendix IV: Comments from the Metropolitan Washington Airports Authority

opinion, both the captions and tone of the report appropriately reflect the
problems that we identified. Furthermore, the report repeatedly acknowledges
that the results of our contract reviews cannot be projected to the universe
of MWAA's contracts. Nevertheless, because MWAA permits several of the
contracting practices that we found objectionable, we continue to believe
that similar problems are likely among MWAA's other contracts. Our findings
and conclusions are based on a combination of factors, including (1) our
review of MWAA's contract files, (2) our assessment of MWAA's contracting
policies and procedures, and (3) MWAA's interpretation and application of
the requirement for full and open competition. As previously discussed,
MWAA's interpretation of the requirement is inconsistent with generally
recognized principles underlying the concept of full and open competition.

8. MWAA's inference that we reviewed its December 1993 Contracting Policies
and Procedures Manual is incorrect. The manual did not exist at the time of
our last audit and, even if we received the manual in 1994, we had no reason
to review it in the period between our audits.

9. We did not specifically recommend that MWAA seek comments from the
Department of Transportation prior to publishing its competitive procedures.
Nevertheless, we agree with MWAA's plan to do so.

10. We agree that MWAA "can have procedures for `full and open' competition
that differ from those applicable to a federal agency." Nevertheless, as
discussed extensively in this report, the procedures must be in conformance
with the fundamental principles underlying full and open competition.

11. We agree that the statutes of the District of Columbia and the
Commonwealth of Virginia, which chartered MWAA, exempt MWAA from procurement
statutes applicable to those jurisdictions. However, the powers conferred in
the charter are subordinate to the conditions imposed in MWAA's lease with
the federal government.

12. As discussed in this report, if MWAA's solicitations express its intent
to consider cost in awarding its contracts, as indicated in its policy, MWAA
must do so. On the other hand, if the solicitation indicates that MWAA will
evaluate proposals only for technical acceptability (i.e., to establish
whether a proposal meets MWAA's minimum requirements), it can request
technical proposals from firms and, on the basis of its

Appendix IV: Comments from the Metropolitan Washington Airports Authority

evaluation of these proposals, seek cost proposals from only those firms
that it finds acceptable. MWAA can also choose to award a contract solely on
the basis of technical considerations (i.e., select the most qualified
firm). However, given the importance of cost in awarding contracts, public
contracting entities generally would avoid such an approach.

13. As discussed in this report, exercising unpriced and unevaluated options
is equivalent to the use of preplanned, noncompetitive, follow-on
contracts-regardless of whether the initial contract was competitively
awarded. Thus, exercising such options is tantamount to making a sole-source
award, since the work was not subject to any competition. If sole-source
awards are adequately justified, MWAA's board of directors can approve them.
However, none of the contracts that we questioned were justified in writing
or subsequently approved by the board.

14. As discussed in this report, we do not object if MWAA uses airlines to
accomplish work as long as the work is within the scope of MWAA's sublease
with the airlines. However, the three projects that we questioned were
clearly outside the scope of the airline's sublease and should, in our view,
be properly viewed as subject to the requirement for full and open
competition.

15. As discussed in this report, there is nothing improper about modifying a
contract to obtain additional goods or services as long as the goods and
services are within the scope of the contract, including any changes clause.
However, modifying a contract to obtain goods and services that are outside
the scope of the contract represents a noncompetitive (sole-source) award.

16. We disagree with MWAA's view that the contracting practices that we
questioned are appropriate and necessary to operate "well run airports." As
discussed in this report, federal, state, and local governments as well as
other public entities conduct thousands of competitive procurements
annually, expending billions of dollars. Collectively, these procurements
have been used to build and maintain the public infrastructure in this
country. On the basis of our knowledge of the Ronald Reagan Washington
National and Washington Dulles International airports, MWAA's procurements
appear to be no more complex or challenging than many of these procurements.
Nevertheless, MWAA and other contracting entities are free to use less

Appendix IV: Comments from the Metropolitan Washington Airports Authority

than full and open competition when warranted by the situation and properly
approved.

17. We continue to believe that 12 of the 13 contracts were deficient with
respect to one or more of the principles of full and open competition.

18. MWAA's comment regarding its adherence to evaluation factors and
processes appears inconsistent. On the one hand, MWAA stressed that its
evaluation teams may not alter published evaluation criteria and that it is
not MWAA's practice to do so. Nevertheless, MWAA acknowledged that for the
contracts we reviewed, the evaluation team collectively decided to adjust
the criteria to more adequately complete the evaluation. According to MWAA,
the adjusted criteria were applied to all proposals and did not limit the
ability of any vendor to compete. We disagree with MWAA's view. As discussed
in this report, MWAA did not (1) notify prospective contractors about its
intent to deviate from the evaluation processes specified in its
solicitations and (2) provide the contractors with an opportunity to amend
their proposals. Thus, it is impossible to discern how contractors might
have revised their proposals if they had been advised of changes in the
relative importance of the evaluation factors.

19. We disagree with MWAA's assertion that it solicited competition for all
of its needs on the contracts that we questioned. While MWAA believes that
it does not need to obtain and evaluate the prices for contracts involving
options, as discussed in this report, this view is at odds with the
principles underlying full and open competition. Moreover, MWAA's point that
the contractors involved in the procurements did not object to MWAA's
approach is not the correct standard for judging whether any practice is
appropriate. In fact, one could expect few if any complaints, since
contractors are driven by self-interest and, thus, would likely prefer
dealing directly with MWAA to establish the price of their options rather
than competing against other contractors in establishing their prices.
Finally, as discussed in this report, we continue to believe that obtaining
and evaluating pricing for options in awarding contract options does not
limit an organization's flexibility.

20. While MWAA contends that the out-of-scope modifications "served the
Authority's interest," this does not make MWAA's actions "appropriate." We
continue to believe that MWAA's "decisions to expand the scope of work"
represented sole-source awards. Furthermore, while we agree with the
necessity to document the

Appendix IV: Comments from the Metropolitan Washington Airports Authority

reasons for adding out-of-scope work to a contract, such documentation does
not change the fact that the actions must be justified and approved on a
sole-source basis. None of the out-of-scope modifications that we questioned
were justified in writing or subsequently approved by MWAA's board of
directors.

21. We disagree with MWAA's view that it "has complied with the lease
provision regarding obtaining full and open competition to the maximum
extent practicable through the use of published competitive procedures." As
discussed throughout this report, MWAA did not obtain, to the maximum extent
practicable, full and open competition on 15 of the 35 contracts that we
reviewed. Furthermore, it has not yet published the procedures it uses to
award contracts competitively.

22. Our report clearly notes that MWAA is not obligated to follow federal
procurement statutes and regulations. Thus, as discussed throughout this
report, we did not use federal procurement statutes or requirements to
assess MWAA's compliance with the statutory lease provision. Instead, as
detailed in appendix I, we applied generally recognized principles
underlying the concept of full and open competition.

(392001)

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