Contract Management: Guidance Needed to Promote Competition for
Defense Task Orders (30-JUL-04, GAO-04-874).
The Department of Defense (DOD) spends billions of dollars each
year acquiring services through task orders issued under
multiple-award contracts or the General Services Administration's
federal supply schedule program. However, previous GAO and DOD
Inspector General reports found that DOD was not obtaining the
level of competition on these task orders that Congress had
envisioned. Congress responded by enacting section 803 of the
National Defense Authorization Act for Fiscal Year 2002, which
requires procedures to promote competition and provides when
waivers of competition are allowed. In response to a
congressional mandate, GAO identified the extent to which
selected DOD buying organizations waived the competition
requirements of section 803 and determined the level of
competition on orders available for competition. For this review,
GAO randomly selected 74 orders at five DOD buying organizations.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-874
ACCNO: A11186
TITLE: Contract Management: Guidance Needed to Promote
Competition for Defense Task Orders
DATE: 07/30/2004
SUBJECT: Competition
Competitive procurement
Contract administration
Defense procurement
Department of Defense contractors
Federal procurement policy
Federal regulations
Multiple award procurement
Waivers
GSA Federal Supply Schedule
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GAO-04-874
United States Government Accountability Office
GAO Report to Congressional Committees
July 2004
CONTRACT MANAGEMENT
Guidance Needed to Promote Competition for Defense Task Orders
a
GAO-04-874
Highlights of GAO-04-874, a report to congressional committees
The Department of Defense (DOD) spends billions of dollars each year
acquiring services through task orders issued under multiple-award
contracts or the General Services Administration's federal supply schedule
program. However, previous GAO and DOD Inspector General reports found
that DOD was not obtaining the level of competition on these task orders
that Congress had envisioned. Congress responded by enacting section 803
of the National Defense Authorization Act for Fiscal Year 2002, which
requires procedures to promote competition and provides when waivers of
competition are allowed.
In response to a congressional mandate, GAO identified the extent to which
selected DOD buying organizations waived the competition requirements of
section 803 and determined the level of competition on orders available
for competition. For this review, GAO randomly selected 74 orders at five
DOD buying organizations.
GAO is making recommendations to the Secretary of Defense to develop
guidance on the conditions under which a waiver of competition may be
used, require detailed documentation to support waivers, and establish
approval authority above the contracting officer level based on the value
of the order. DOD concurred with these recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-874.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William T. Woods at (202)
512-4841 or [email protected].
July 2004
CONTRACT MANAGEMENT
Guidance Needed to Promote Competition for Defense Task Orders
Competition requirements were waived for nearly half (34 of 74) of the
multiple-award contract and federal supply schedule orders GAO reviewed.
Often, contracting officers waived competition based on requests from the
program offices to retain the services of contractors currently performing
the work. In addressing these requests, safeguards to ensure that waivers
were granted only under appropriate circumstances were lacking.
Specifically, guidance for granting waivers did not sufficiently describe
the circumstances under which a waiver of competition could be used. In
addition, the requirements for documenting the basis for waivers were not
specific, and there was no requirement that waivers be approved above the
level of the contracting officer.
Competition was limited on the 40 orders available for competition. For 16
orders, only one offer was received in response to agency solicitations.
For 15 orders, the buying organizations received two or more offers. For
nine orders, contracting officials did not solicit competitive offers on
individual orders. Instead, the nine orders were awarded based on data
previously submitted to the government. The figure below shows the level
of competition on the orders that we reviewed.
Level of Competition on Randomly Selected DOD Task ORders
Waivers of competition
One offer
Two offers
Three or more offers
No offers solicited
Sources: DOD (data); GAO (analysis).
Striking the right balance between achieving the benefits of competition
and retaining contractors that are satisfying customer needs is a
challenge for DOD. The frequent use of waivers to competition may be
hindering DOD's ability to obtain innovative solutions to problems, and
the best value for the taxpayer. On the other hand, requests by program
offices to waive competition to retain the services of incumbent
contractors are strong indications that contractors are satisfying
customer needs.
Contents
Letter
Results in Brief
Background
Frequent Use of Competition Waivers Reflects Preference to
Retain Incumbent Contractors Few Offers Received on Orders Available for
Competition Conclusions Recommendations for Executive Action Agency
Comments and Our Evaluation 1
3 4
6 12 17 17 17
Appendix I Scope and Methodology
Appendix II Summary Tables on Orders Selected for Review
Appendix III Comments from the Department of Defense
Tables
Table 1: Selected Buying Organizations
Table 2: Waivers of Competition at Five Buying Organizations
Table 3: Basis for Waivers and Frequency Cited
Table 4: Number and Dollar Value of Orders GAO Reviewed at Five DOD Buying
Organizations Table 5: Summary of the Orders Selected for Review at Five
Buying Organizations
Table 6: Extent of Competition for 14 Orders Open to Competition under the
Federal Supply Schedule at Five Buying Organizations
Table 7: Extent of Competition for 26 Orders Open to Competition under
Multiple-Award Contracts at Five Buying Organizations 6 7 8
21
23
244
24
Figure
Figure 1: Offers for 40 Orders Open to Competition 13
Abbreviations
AFB Air Force Base
CECOM Communications-Electronics Command
DCCW Defense Contracting Command-Washington
DFARS Defense Federal Acquisition Regulation Supplement
DISA Defense Information Systems Agency
DOD Department of Defense
FAR Federal Acquisition Regulation
GSA General Services Administration
NICP Naval Inventory Control Point
OC-ALC Oklahoma City Air Logistics Center
This is a work of the U.S. government and is not subject to copyright
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separately.
United States Government Accountability Office Washington, DC 20548
July 30, 2004
The Honorable John W. Warner
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate
The Honorable Duncan L. Hunter
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representatives
The Department of Defense (DOD) spends billions of dollars each year for
services-ranging from the maintenance of military installations to
managing information systems. Much of this spending is through task
orders issued under multiple-award contracts or the General Services
Administration's (GSA) federal supply schedule program.1 These contract
vehicles permit federal agencies to acquire services in a streamlined
manner, but both require ordering agencies to follow procedures designed
to promote competition for individual orders.
Previous reports by us and the DOD Inspector General on DOD's use of
multiple-award and federal supply schedule contracts have led to
congressional concerns that DOD was not obtaining the level of
1 Multiple-award contracts are contracts awarded to multiple contractors
under the same solicitation for the same or similar products or services.
Task orders are awarded under these contracts based on competition between
the multiple contractors. Under the federal supply schedule program, GSA
has negotiated contracts with thousands of companies that supply
commercial products and services.
competition for orders that Congress had envisioned.2 Congress responded
by enacting section 803 of the National Defense Authorization Act for
Fiscal Year 2002.3 Section 803 requires DOD to solicit offers from all
contractors that are offering the required services under a multiple-award
contract for orders exceeding $100,000. For federal supply schedule orders
section 803, as implemented, requires that DOD solicit all contractors
offering the required services under the applicable schedule or enough
contractors to ensure the receipt of three offers. If three offers are not
received, the contracting officer must determine in writing that no
additional contractors could be identified despite reasonable efforts to
do so. Under certain circumstances, section 803 allows waivers of
competition for multiple-award contract orders and federal supply schedule
orders.
In response to a congressional mandate, we (1) identified the extent to
which selected DOD buying organizations waived the competition
requirements of section 803, and (2) determined the level of competition
for orders available for competition. 4 These objectives allowed us to
focus on the outcome that section 803 was intended to achieve. We did not
independently determine the validity of competition waivers, nor did we
assess whether the buying organizations complied with each of the specific
requirements of section 803. To accomplish our objectives, we
2We and the DOD Inspector General have issued a number of reports on the
level of competition for services. See U.S. General Accounting Office,
Acquisition Reform: Multiple-award Contracting at Six Federal
Organizations, GAO/NSIAD-98-215 (Washington, D.C.: Sept. 30, 1998);
Contract Management: Few Competing Proposals for Large DOD Information
Technology Orders, GAO/NSIAD-00-56 (Washington, D.C.: Mar. 20, 2000);
Department of Defense Inspector General, Contracts for Professional,
Administrative, and Management Support Services, D-2000-100 (Washington,
D.C.: Mar. 10, 2000); Contract Management: Not Following Procedures
Undermines Best Pricing under GSA's Schedule, GAO-01-125 (Washington,
D.C., Nov. 28, 2000); and Department of Defense Inspector General,
Multiple Award Contracts for Services, D-2001-189 (Washington, D.C.: Sept.
30, 2001).
3 Pub. L. No. 107-107 (Dec. 28, 2001).
4 Section 804 of the National Defense Authorization Act for Fiscal Year
2000 (Pub. L. No. 106-65, Oct. 5, 1999) required that we review the use of
task and delivery order contracts by executive agencies. Our first report
in response to this mandate, Contract Management: Civilian Agency
Compliance with Revised Task and Delivery Order Regulations, GAO03-983
(Washington, D.C., Aug. 29, 2003), excluded DOD because new requirements
applicable only to DOD under section 803 of the National Defense
Authorization Act for Fiscal Year 2002 had only recently become effective.
As agreed with committee staff, our current review of task orders subject
to the section 803 requirements was needed to satisfy fully the section
804 mandate.
Results in Brief
reviewed 74 randomly selected multiple-award and federal supply schedule
orders subject to the section 803 requirements at five large DOD buying
organizations. Appendix I contains the details of our scope and
methodology. We conducted our review from May 2003 through May 2004 in
accordance with generally accepted government auditing standards.
Contracting officers waived competition requirements on nearly half (34 of
74) of the orders we reviewed. For the most part, competition was waived
based on determinations that only one source could provide the service or
that the work was a follow-on to a previously competed order. Although
these are permitted exceptions to the competition requirements of section
803, the use of these competition waivers generally reflected the desire
of program offices to retain the services of contractors currently
performing the work. When contracting officers addressed requests from
program offices for waivers, safeguards to ensure that waivers were
granted only under appropriate circumstances were lacking. Specifically,
guidance for granting waivers did not sufficiently describe the
circumstances under which a waiver of competition could be used. In
addition, the requirements for documenting the basis for waivers were not
specific, and there was no requirement that waivers be approved above the
level of the contracting officer. As a result of the frequent use of
waivers, there were fewer opportunities to obtain the potential benefits
of competition- improved levels of service, market-tested prices, and the
best overall value.
Competition was limited for most of the 40 orders available for
competition. Of those 40 orders, buying organizations awarded 16 orders
after receiving only one offer in response to agency solicitations. For 15
of the 40 orders, the buying organizations received two or more offers.
For the remaining nine orders, contracting officials did not solicit
competitive offers, but instead, used procedures that based the selection
of a contractor on data previously submitted to the government. These
procedures, which existed prior to the section 803 requirements, were not
designed to maximize competition for individual orders. We question
whether they are consistent with the requirements of section 803. We are
continuing to pursue this issue with appropriate agency officials.
To encourage competition in awarding task orders under multiple-award and
supply schedule contracts, we are making three recommendations to the
Secretary of Defense to develop additional guidance on the circumstances
under which competition may be waived, require detailed documentation to
support competition waivers, and establish approval
Background
levels above the contracting officer for waivers of competition on orders
exceeding specified thresholds.
Multiple-award contracts have provided an expeditious way to fill
government needs. Contractors compete under a single solicitation to be
awarded similar contracts for certain types of products or services, such
as information technology services. These contracts are awarded for
indefinite quantities for delivery at dates to be determined. The purpose
of such contracts is to establish a group of prequalified contractors to
compete for future orders under streamlined administrative procedures once
agencies determine their specific needs.
Under the federal supply schedule program, GSA has negotiated contracts
with thousands of companies that supply commercial products and services.
These contracts can be used by any federal agency to purchase a wide
variety of commercial products and services at prices associated with
volume buying.
Under procedures in effect prior to the enactment of section 803, and
which still apply to non-DOD orders, agencies placing multiple-award
contract orders are required to ensure that each contractor is afforded a
fair opportunity to be considered for the orders. 5 Agencies are not
required to contact each contractor, however, if the agency has
information available to ensure that each contractor is provided a fair
opportunity to be considered for orders. Waivers of the fair opportunity
requirements are permitted in specified circumstances, such as when
services are urgently needed or when only one source is capable of
providing them. Under the federal supply schedule program, GSA has
established special ordering procedures for services that require a
statement of work.6 These procedures require agencies to request
5 The Federal Acquisition and Streamlining Act of 1994 provided statutory
authority for federal agencies to enter into multiple-award, task and
delivery order contracts. The act and the Federal Acquisition Regulation
(FAR), Part 16.505, provide guidance on ordering requirements and the
competitive process. Section 804 of the National Defense Authorization Act
for Fiscal Year 2000 required more specific guidance to agencies on the
appropriate use of task and delivery order contracts, which led to
revisions in the FAR. See GAO-03-983.
6Under the Competition in Contracting Act of 1984, procedures established
by GSA for the federal supply schedule program are competitive if
participation has been open to all responsible sources and orders result
in the lowest overall cost alternative to meet the needs of the
government. Competition requirements are included in the FAR, subpart 8.4.
quotations from at least three federal supply schedule contractors after
an initial evaluation of catalogs and price lists.
Section 803 of the National Defense Authorization Act for Fiscal Year 2002
changed the competition requirements under both types of contracts for DOD
orders for services more than $100,000. Section 803 and the implementing
regulations in the Defense Federal Acquisition Regulation Supplement,7
which became effective in October 2002, were intended to promote
competition under these contracts by prescribing more rigorous
requirements. In general, under the section 803 regulations for
multipleaward contract orders, DOD contracting officers (and agencies
buying on behalf of DOD) are required to solicit offers from all
contractors offering the required services under the multiple-award
contracts. For federal supply schedule orders, DOD contracting officers
are required to solicit all federal supply schedule contractors offering
the required services under the applicable schedule or as many as
practicable to ensure the receipt of three offers. If three offers are not
received, the contracting officer must determine in writing that no
additional contractors could be identified despite reasonable efforts to
do so. Under both types of contracts, officials must provide a fair notice
of the intent to make the purchase, a description of the work the
contractor shall perform, and the basis upon which the contracting officer
will make the selection. Additionally, under both types of contracts, DOD
contracting officers are required to afford all responding contractors a
fair opportunity to make an offer and have that offer fairly considered.
Also, section 803 and the DOD implementing regulations permit waivers for
both multiple-award and federal supply schedule contract orders under
specified circumstances.
We randomly selected 74 orders at five DOD buying organizations to
determine the level of competition for DOD orders more than $100,000
subject to section 803. Table 1 below shows the selected locations. We
selected these locations because we wanted to focus on buying
organizations with large volumes of orders and we wanted a mix of DODwide,
Army, Navy, and Air Force buying organizations. (See appendix I for more
information on our scope and methodology.)
7 The Defense Federal Acquisition Regulation Supplement citations are
DFARS 216.505-70 for orders under multiple-award contracts and DFARS
208.404-70 for orders under the federal supply schedule.
Table 1: Selected Buying Organizations
Buying organization Location
Communications-Electronics Command (CECOM) Fort Monmouth, N.J.
Naval Inventory Control Point (NICP) Mechanicsburg, Pa.
Defense Contracting Command-Washington (DCCW) Washington, D.C.
Defense Information Systems Agency (DISA) Scott Air Force Base (AFB), Ill.
Oklahoma City Air Logistics Center (OC-ALC) Tinker AFB, Okla.
Frequent Use of Competition Waivers Reflects Preference to Retain Incumbent
Contractors
Source: GAO.
Competition requirements were waived for nearly half (34 of 74) of the
multiple-award and federal supply schedule orders we reviewed. In 26 of
these 34 cases, competition was waived based on a determination either
that only one source could provide the service or that the work was a
follow on to a previously competed order. Often, contracting officers
waived competition in these cases based on requests from program office
customers to retain the services of contractors currently performing the
work. When contracting officers addressed requests for waivers from
program offices, the existing process lacked safeguards to ensure that
waivers were granted only under appropriate circumstances. Specifically,
the guidance available to contracting officers in granting waivers was
limited because it did not sufficiently describe the circumstances under
which a waiver of competition could be used; the requirements for
documentation of waivers were not specific; and regardless of the amount
of the order, there was no requirement for review at a level higher than
the contracting officer. As a result of the frequent use of waivers, there
were fewer opportunities to obtain the potential benefits of competition-
improved levels of service, market-tested prices, and the best overall
value for the taxpayer.
Competition Waivers Used Thirty-four of the 74 orders we reviewed were
awarded on the basis of
Frequently waivers to competition requirements. These waivers accounted
for $53.3 million, or 58 percent, of the total dollar value of the orders
we reviewed. Twenty-four of these 34 waivers were for federal supply
schedule orders, and 10 were for multiple-award contract orders. Table 2
shows that waivers were common across all five buying organizations we
visited.
Table 2: Waivers of Competition at Five Buying Organizations
Dollars in millions
Total orders reviewed Waivers of competition
Buying Numbers Numbers
organizations of orders Dollars of orders Dollars
CECOM 14 $14.9 4 $0.9
NICP 13 17.1 8
DCCW 15 20.9 8 16.6
DISA 16 31.2 8 23.2
OC-ALC 16 8.2 6
Total 74 $92.3 34 $53.3
Sources DOD (data); GAO (analysis).
The five buying organizations primarily justified waiving competition
requirements by citing either of two specific exceptions to competition:
(1) that only one contractor was capable of providing services that were
unique or highly specialized or (2) that the order was a logical follow-on
to an order already issued on a competitive basis. Table 3 describes the
rationale for granting waivers as stated in the Federal Acquisition
Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement
(DFARS). The table also shows the frequency with which these waivers were
used.
Table 3: Basis for Waivers and Frequency Cited
Number of Waiver basis times used
Urgent need: The services are urgently needed, and competition would
result in unacceptable delays.
Unique or highly specialized services: Only one contractor is capable of
providing services that are unique or highly specialized.
Logical follow-on: The award is in the interest of economy and efficiency
because it is a logical follow-on to an order already issued on a
competitive basis.
Minimum guarantee: It is necessary to place the order with a contractor to
satisfy a minimum guarantee.
Statutory purchase: A statute expressly authorizes or requires that the
purchase be made from a specified source.
Multiple exceptions and other.
Total
Sources: FAR and DFARS (data); GAO (analysis).
Note: The documentation in the contract files for individual orders
generally cited the legal references pertaining to section 803 or the DOD
regulations (exceptions to fair opportunity). In nine orders, the files
provided references to the Federal Acquisition Regulation, section 6.302,
pertaining to circumstances permitting other than full and open
competition. For summary purposes, we combined similar justifications for
waivers. For example, we combined the orders that cited "one source" as an
exception under the DOD regulations (only one source is capable because of
unique and highly specialized services) with "one source" as a
circumstance under section 6.302-1 permitting other than full and open
competition (only one responsible source and no other suppliers or
services will satisfy agency requirements).
The waivers to competition include one case in which the order was awarded
under the small business contracting program under section 8(a) of the
Small Business Act.
Safeguards Lacking for Addressing Requests to Waive Competition
In requesting contract services, program offices often requested that
contracting officers waive competition and retain contractors already
providing the services. This preference for the incumbent contractor was
particularly evident in the 26 waiver cases that cited the unique services
or logical follow-on exceptions as the basis for the waivers. The
following is an example:
o In March 2003, the Oklahoma City Air Logistics Center awarded a
$667,554 order under the federal supply schedule to provide information
technology engineering and technical computer support services for the B-1
system support management office. In its request for services, the program
manager for the B-1 technical support center said that it has several
projects currently being developed and that the incumbent contractor had
continually delivered quality services on time and within budget. The
program manager added that the center is
a complex system of interrelated software applications and that it would
be in the government's interest to award the order to the same contractor
again. The program office said that it had no desire to change contractors
at this critical time. The waiver was justified on the basis of a logical
follow-on.
Several representatives of buying organizations told us that program
offices often prefer to continue with incumbent contractors. For example,
one buying organization representative told us that program offices
continually place pressure on the buying organization to award orders to
incumbent contractors and that program offices have been very resistant
when the buying organization insisted on seeking competition. Another
buying organization representative stated that it is often difficult for a
contracting officer to balance competition requirements with the desire of
a program office to maintain an existing relationship with its incumbent
contractor.
In addressing requests from program offices to retain incumbent
contractors, the guidance available to contracting officers in the Defense
Federal Acquisition Regulation Supplement on the appropriate use of
waivers is limited. Specifically, DOD's regulations implementing section
803 merely refer to the exceptions (listed above in table 3). The DOD
regulations do not elaborate further on the circumstances under which an
exception to competition may be used. As a result, contracting officers
lack guidance in determining whether program office requests for waivers
to competition should be granted.8
For example, DOD regulations do not specify what constitutes a logical
follow-on to an order already issued on a competitive basis, how recent
the previous competitive order should be, or whether there are any limits
on the number of times the follow-on exception to competition may be
used.9 We found three examples in which contracting officers deemed an
8 We did not attempt to assess whether the specific facts surrounding the
34 waivers justified the exceptions cited for granting the waivers, in
large part because of the absence of support for the waivers in many of
the contract files.
9 In addition to the DOD regulations, FAR section 16.505(b)(4) also
applies to multipleaward contract orders made by or on behalf of DOD and
provides some additional but limited guidance on logical follow-on
waivers. It states that if the agency uses the logical follow-on
exception, the decision documentation for orders shall include the
rationale for placement and price as well as why the relationship between
the initial order and the follow-on is logical (e.g., in terms of scope,
period of performance, or value).
order to be a logical follow-on for two or more consecutive procurements.
The absence of additional guidance makes it more difficult for contracting
officers to question program office requests for follow-on waivers. In one
case, however, we found that the contracting officer requested additional
information to justify a waiver because the order was the fourth
consecutive order without competition. Specifically, the contracting
officer said that the justification should discuss why the specific
requirement was continuing and why it would be a benefit to the government
to continue this work as a logical follow-on.
The following is an example of a follow-on waiver for a continuing
requirement:
o In March 2003, the Naval Inventory Control Point awarded a $1.2
million order under the federal supply schedule to provide information
technology services for the Portsmouth Naval Shipyard. The program office
prepared a sole-source justification, which the contracting officer used
to waive competition on the basis of the logical follow-on exception. The
waiver stated that the requirement was competed on two previous occasions.
Based on further review, we found that the incumbent contractor was the
only offeror in the two previous competitions, the last of which was in
1999, and had provided continuous services since 1992.
In addition, the DOD regulations do not explain what may be considered a
unique and highly specialized service. We found examples in which
contractors had provided their customers with the same services for
multiple years. The documentation supporting the waivers said that the
incumbent contractors had experience and knowledge gained through work on
prior orders and that a change in contractors would result in increased
cost or program delay. Often, documentation supporting the waiver focused
on the qualities of the contractor (experience and knowledge gained over
time), not the uniqueness of the services provided. The following is an
example:
o In February 2003, Naval Inventory Control Point awarded a $263,000
order under the federal supply schedule for the maintenance of hardware
and software for an engineering program. The basis of the waiver of
competition stated that only one contractor was capable of providing
unique or highly specialized services. However, the justification
supporting the waiver focused on the qualities of the contractor, such as
system and software operating knowledge that would ensure the operation at
existing levels. The justification said that
the cost to duplicate the contractor's expertise could not reasonably be
expected to be recovered through competition and that the time necessary
to develop another source would delay the program past published
milestones.
Another factor relevant to addressing program office requests for waivers
is the lack of specific requirements for the documentation needed to
support a waiver. The DOD regulations state that each order for services
exceeding $100,000 must be awarded on a competitive basis unless the
contracting officer waives this requirement on the basis of a "written
determination" that one of the exceptions applies to the order. The
regulations do not specify a particular format or the type of information
that is needed to support a waiver. In particular, there is no requirement
that the written determination describe the specific facts and
circumstances that justify waiving competition.10 The determinations and
supporting documentation we reviewed varied greatly among the 34 waiver
cases. Written support for the waivers was in various types of documents
and at various levels of specificity. Although some contract files
contained detailed justifications to support a waiver, many files
contained merely conclusions. For example, one contract file for an order
exceeding $17.4 million included only a statement in the price negotiation
memorandum that the task monitor in the program office requested, and the
contracting officer approved, the order as a logical follow-on to a
previously competed action. The absence of detailed support for waivers
makes it difficult for any reviewer to assess whether individual waivers
were granted appropriately.
Finally, the DOD regulations do not require that waiver determinations be
approved above the level of the contracting officer, regardless of the
10 FAR section 16.505(b)(4), which applies to multiple-award contract
orders made by or on behalf of DOD, requires the contract file to identify
the basis for using an exception to the fair opportunity process.
Additionally, it generally provides that the contracting officer shall
document in the contract file the rationale for the placement and price of
each order, including the basis for the award and the rationale for any
trade-offs among cost or price and noncost considerations in making the
award decision. For federal supply orders under our review, the DOD
regulation provides that the documentation procedures of FAR section
8.404(b)(7) apply. However, this FAR provision does not specify a
particular format or the type of information that is needed to support a
waiver. In June 2004, FAR subpart 8.4 was revised and FAR section
8.404(b)(7) was deleted. The revised FAR section 8.405-6 now provides that
sole source orders be justified according to FAR section 6.303-2, modified
for services. Additionally, revised FAR section 8.405-7 now provides for
documentation of the circumstances and rationale for restricting
consideration of schedule contractors to fewer than that required.
Few Offers Received on Orders Available for Competition
amount of the order. In contrast to section 803 requirements applicable to
task orders, part 6 of FAR, which governs the use of other than full and
open competition to award the underlying contracts, limits a contracting
officer's approval of a sole-source justification to contracts that do not
exceed $500,000. Part 6.304 specifies a higher approval authority based on
the dollar amount of the contract. These requirements are intended to
ensure that exceptions to competition on higher dollar-value contracts are
reviewed to ensure that exceptions are used only in appropriate cases. In
June 2004, FAR subpart 8.4 was revised to establish approval thresholds
similar to part 6 for waivers of competition on federal supply schedule
orders. The revised regulation did not extend these approval requirements
to orders under multiple-award contracts.
Competition was limited on the 40 orders available for competition.
Contracting officers generally awarded these orders based on solicitations
to contractors and the receipt and evaluation of offers. These 40 orders
represented over $38.9 million, or about 42 percent of the total dollar
value of the 74 orders we reviewed.
The level of competition for the 40 orders is summarized in figure 1
below.11 For 16 of the orders, the buying organization received only one
offer in response to a solicitation. The buying organizations received two
or more offers for 15 of the 40 orders available for competition. For the
remaining nine orders, contracting officials did not solicit competitive
offers. Instead, the nine orders were awarded based on data previously
submitted to the government. We question whether the procedures used for
these nine orders are consistent with the requirements of section 803, and
we are continuing to pursue this issue with appropriate agency officials.
11 Appendix II provides detailed tables that characterize the results of
this analysis.
No offers solicited
Orders Based on One Offer
In 16 cases, the buying organizations awarded orders on the basis of
receiving only one offer, even though multiple contractors were solicited.
The following are examples of orders awarded on the basis of a single
offer:
o In July 2003, the Defense Contracting Command-Washington awarded an
order for about $1.4 million to provide education and training for the Air
Force Management School. The only two contractors on the multiple-award
contract were given an opportunity to submit offers. One contractor, the
incumbent, submitted a $1.4 million offer, but the second contractor
declined. The contract file included information stating that both
companies under the multiple-award contract had been acquired by the same
parent company and that the second contractor rarely submits offers for
work under this contract.
o In February 2003, the Naval Inventory Control Point awarded a $300,000
order to remove and replace existing wiring and cables in a Marine Corps
facility. The only two contractors on a multiple-award contract were given
an opportunity to bid on this urgent requirement. The contractors had only
1 working day to respond to the request for a quote. One contractor was
working at the facility on another project
Figure 1: Offers for 40 Orders Open to Competition
One offer
Two offers Three or more offers
Sources: DOD (data); GAO (analysis).
and was able to respond to the government's 1-day deadline. The other
contractor did not submit a proposal because, according to the contracting
officer, its competitor was already in the building conducting work. The
Naval Inventory Control Point requested that the sole offeror lower its
proposed price of $545,000 and granted an extension. Ultimately, the
contractor agreed, and the award was made about 3 weeks after the
contractor's initial offer. According to the contracting officer, the
other multiple-award contractor was not contacted about the work after it
initially declined to submit an offer.
In a prior report, we discussed insights from contractors about factors
they consider when deciding whether to submit a proposal for an order. 12
Contractor representatives emphasized that such decisions entail a
business judgment about the prospects of winning the award because
preparing a proposal can be costly. Contractor representatives cited
several factors that can contribute to a decision not to submit a
proposal. For example, a company may be reluctant to pursue an opportunity
if an incumbent exists, is perceived as having strong qualifications, and
is performing well. If the company does not excel in that particular type
of work, it may be inclined not to submit a proposal. Other factors that
can discourage a company from submitting a proposal are unreasonably short
time frames for preparing proposals and starting work, and selection
criteria that appear to favor incumbent contractors.
Our current review also demonstrates that obtaining competition for
services can be difficult when there is an incumbent contractor that may
be perceived as having advantages over nonincumbents. For example,
incumbent contractors might have built strong working relationships with
program offices from meeting the needs of program offices. In addition,
incumbent contractors may be more likely to understand the work
requirements, particularly when the order involves continuing services. Of
the 40 orders available for competition, 21 were for continuing services.
The incumbent contractor received the order in 19 of these 21 cases.
12 See GAO/NSIAD-00-56.
Orders Based on Two or More Offers
Fifteen of the 40 orders available for competition were awarded following
the receipt of two or more offers.13 The following examples describe
orders awarded on the basis of multiple offers:
o In April 2003, the Defense Information Systems Agency awarded an order
for about $346,000 for database technical support services. The 1-year
award included options for 4 additional years, which could add an
additional $1.4 million to the value of the award. The new requirement was
competed among all nine contractors on a multipleaward contract. Six of
the nine contractors submitted an offer. The prices (with options) ranged
from about $1.75 million to about $3.4 million. All of the proposals were
technically acceptable. The selection was based on the lowest-priced,
technically acceptable offer.
o In February 2003, the Oklahoma City Air Logistics Center awarded an
order for about $145,000 for information technology support. The 1-year
award included options for 3 additional years of work, which could add an
additional $463,000 to the award. The center requested quotes from eight
contractors, including the incumbent contractor. The incumbent contractor
failed to submit a proposal prior to the due date and requested an
extension, which was denied. The center received three offers-one at about
$145,000 for the first year and two others at about $200,000 and $190,000.
The program office wanted the order to be awarded to the highest offeror
because any other choice would have an adverse impact on various projects.
In response, the contracting officer worked to resolve various matters
(such as security issues) and ultimately awarded an order to the lowest
offeror.
Orders Awarded without Solicitations
Section 803 and the DOD regulations require DOD's buying organizations to
provide all contractors under a multiple-award contract with a notice of
the intent to make a purchase-including a description of the work to be
performed and the basis on which the selection will be made. For nine
orders, however, two buying organizations did not solicit competitive
offers for individual orders. Instead, the nine orders were awarded under
a selection process that based the award on data previously submitted to
the government.
13 Some multiple-award contracts that we reviewed had only two contractors
that were eligible to compete for awards.
Six of these nine orders were awarded at the Oklahoma City Air Logistics
Center under a multiple-award contract called Contractor Field Teams.
Under this multiple-award contract, the four participating contractors
were not solicited for individual orders. Instead, the procedures outlined
in the contract called for the contracting officer to make the selections
on the basis of 10 factors: (1) price; (2) manning; (3) experience; (4)
availability of skills; (5) site location; (6) continuity of program; (7)
security clearance; (8) selected factors such as special requirements; (9)
contractor performance; and (10) diversity. Each of the four contractors
was scored from zero to four points for each factor, and the contractor
with the highest total received the task order. An internal file
memorandum stated that the contracting officer had all the needed
information on all four contractors already in place prior to making the
selections. The memorandum also stated that if the program were to issue
an additional solicitation each time a requirement was submitted, it would
result in lost time in accomplishing the work.
Five of the six orders that we reviewed under the multiple-award contract
at Oklahoma City were awarded to incumbent contactors for the continuation
of existing services. To further assess the impact of this source
selection process, we requested that representatives of the Oklahoma City
Air Logistics Center provide us with data on all awards under this
multiple-award contract for fiscal year 2003. The data showed that 103 of
112 orders were awarded to incumbent contractors for the continuation of
ongoing services.
Similarly, for three orders, contractors were not solicited for individual
orders in the process used at the Naval Inventory Control Point. Instead,
they were notified of intended work at potential sites for the fiscal
year. Contracting officers at the buying organization evaluated the
contractors prior to the issuance of specific orders on the basis of
previously submitted data. The evaluation was based on a cost model, which
was developed in order to expedite the contract process and reduce
administrative costs.
The selection procedures used at the Oklahoma City Air Logistics Center
and by the Naval Inventory Control Point existed prior to the passage of
section 803 requirements. In our opinion, these procedures were not
designed to maximize competition for individual orders, and we question
whether they are consistent with section 803 requirements in terms of
providing fair notice of intent to make a purchase and fair opportunity to
responding contractors to submit an offer and have it fairly considered.
Conclusions
Recommendations for Executive Action
We are reviewing this matter further, and will follow up with appropriate
agency officials.
Striking the right balance between achieving the benefits of competition
and retaining contractors that are satisfying customer needs is a
challenge for DOD. On the one hand, the frequent use of waivers to
competition requirements may be hindering DOD's ability to obtain
innovative solutions to problems and the best value for the taxpayer. On
the other hand, requests by program offices to waive competition to retain
the services of incumbent contractors are strong indications that
contractors are satisfying customer needs. Contracting officers would be
aided in meeting program office needs while adhering to competition
requirements through additional guidance on the proper use of competition
waivers. In addition, requiring more thorough documentation by contracting
officers of the circumstances that warrant the use of waivers and
establishing an approval process for the use of waivers for multiple-award
contracts would enhance oversight and help to ensure that waivers are used
only when appropriate.
In order to promote more competition in the award of orders under
multiple-award and federal supply schedule contracts and to ensure that
waivers of competition are used only in appropriate cases, we recommend
that the Secretary of Defense take the following three actions:
o develop additional guidance on the circumstances under which the
logical follow-on and unique services waivers may be used,
o require that all waiver determinations be supported by documentation
describing in detail the circumstances that warrant the use of a waiver,
and
o establish approval levels for waivers under multiple-award contracts
that are comparable to the approval levels for sole-source federal supply
schedule orders under subpart 8.4 of the Federal Acquisition Regulation.
Agency Comments In commenting on a draft of this report, DOD concurred
with our recommendations. DOD has opened a Defense Federal Acquisition
and Our Evaluation Regulation Supplement case to develop the necessary
changes to the DFARS and any additional supplemental guidance that may be
appropriate for procedures, guidance, and information. DOD anticipates the
issuance of a rule and supplemental guidance within 180 days. Also, DOD
will issue
direction within 30 days to implement approval levels for waivers under
multiple-award contracts comparable to the revised approval levels at FAR
8.4 for federal supply schedule orders. These approval levels will be
effective October 1, 2004.
Specifically, DOD will develop additional guidance on the circumstances
under which the logical follow-on and unique and highly specialized
services waivers may be used. DOD agrees that additional guidance will
facilitate more consistent and appropriate use of waivers.
In addition, DOD will require that all waiver determinations be supported
by documentation describing in detail the circumstances that warrant the
use of a waiver. DOD agrees that it is appropriate that each waiver be
accompanied by documentation that contains sufficient facts and rationale
to demonstrate the propriety of the waiver.
Lastly, DOD said it will establish approval levels for waivers under
multiple-award contracts comparable to the approval levels established in
the FAR for sole-source federal supply schedule orders. DOD agrees that
elevating the approval level above the contracting officer for
higher-dollar orders increases the emphasis on the importance of
competition. Furthermore, it ensures that orders are treated the same,
whether a federal supply schedule or a multiple-award contract is used.
DOD's comments appear in appendix III.
We are sending copies of this report to the Administrator of General
Services, the Administrator of the Office of Federal Procurement Policy,
the Director of the Office of Management and Budget, and interested
congressional committees. We will also make copies available to others
upon request. In addition, this report will be available at no charge on
the GAO Web site at http://www.gao.gov.
Please contact me at (202) 512-4841, or Blake Ainsworth at (202) 512-4609,
if you have any questions regarding this report. Major contributors to
this
report were Ken Graffam, Martin Lobo, Gary Middleton, Jeffrey Rose,
Ralph Roffo, Paul Williams, Robert Ackley, and Marie Ahearn.
William T. Woods
Director
Acquisition and Sourcing Management
Appendix I: Scope and Methodology
The Department of Defense (DOD) acquires billions of dollars worth of
services each year using various multiple-award contracts and the General
Services Administration's federal supply schedule. To enhance competition
under such contracts, section 803 of the National Defense Authorization
Act for Fiscal Year 2002 included new requirements to help increase the
number of competitive offers on DOD orders for services worth more than
$100,000. Our objectives were to (1) identify the extent to which the
buying organizations waived the competition requirements of section 803,
and (2) determine the level of competition for orders available for
competition. These objectives allowed us to focus on the outcome that
section 803 was intended to achieve. We did not independently determine
the validity of the competition waivers, nor did we assess whether the
buying organizations complied with each of the specific requirements of
section 803.
To determine the locations to visit, we obtained a computer file from DOD,
which listed DOD's contracting actions using DOD's Individual Contracting
Action Report (DD-350). The database provided contracting actions from
January 1 to June 30, 2003. From these data, we were able to identify the
largest users during this period of multiple-award orders and federal
supply schedule orders. We selected five buying organizations that were
large users of both multiple-award contracts and the federal supply
schedule. The selected buying organizations represented a mix of Army,
Navy, Air Force, and DOD-wide buying organizations-including the
Communications-Electronics Command, Fort Monmouth, New Jersey; Defense
Contracting Command-Washington, Washington, D.C.; Defense Information
Systems Agency, Scott Air Force Base (AFB), Illinois; Naval Inventory
Control Point, Mechanicsburg, Pennsylvania; and Oklahoma City Air
Logistics Center, Tinker AFB, Oklahoma.
We also used the DD-350 Individual Contracting Action Report's database to
randomly select the orders for review at the five buying organizations.
These data represented contracting actions from January 1 to June 30,
2003, that were subject to the section 803 requirements-multiple-award
contract and federal supply schedule orders for services worth more than
$100,000. We prepared two lists of contracting actions for each of these
five buying organizations: one for orders under multiple-award contracts
and one for orders under the federal supply schedule. Orders were
Appendix I: Scope and Methodology
selected for review using random numbers tables.1 At each location, our
goal was to review 16 randomly selected orders, 8 multiple-award orders,
and 8 federal supply schedule orders. For each contract, we reviewed the
order file, and in many cases, interviewed the contracting officer and
other contracting officials to discuss the file.
Ultimately, we reviewed 74 randomly selected orders at five DOD buying
organizations to determine the level of competition for orders subject to
the section 803 requirements.2 As table 4 shows, the basic awards for
these 74 orders (without options for additional work) represented over
$92.3 million.
Table 4: Number and Dollar Value of Orders GAO Reviewed at Five DOD Buying
Organizations
Dollars in millions
Orders under multipleaward contracts
Orders under federal supply schedule
Total number of orders Total dollars
Number of orders Dollars
Number of orders Dollars
Buying organizations
Communications-Electronics
Command 8 $7.2 6 $7.7 14 $14.9
Naval Inventory Control Point 5 7.8 8 9.3 13
Defense Contracting Command-
Washington 7 7.3 8 13.6 15
Defense Information Systems
Agency 8 28.8 8 2.4 16
Oklahoma City Air Logistics Center 8 5.2 8 3.0 16
Total 36 $56.3 38 $36.0 74 $92.3
Sources: DOD (data); GAO (analysis).
1 We did not assess the reliability of the database used to select the
sample. For several reasons, some of the originally selected orders had to
be replaced with other randomly selected orders. For example, some orders
were incorrectly coded as services rather than products. Also, some
contracting actions were solely to provide additional funding for existing
contracts.
2 At the Naval Inventory Control Point, all multiple-award contract orders
in the DD-350 database were miscoded and discarded. However, Control Point
staff members were able to identify five orders meeting our criteria (not
listed in DD-350), which we reviewed. Also, at the
Communications-Electronics Command, many orders were discarded for several
reasons. We found only six federal supply schedule orders that met our
criteria; we reviewed all six orders.
Appendix I: Scope and Methodology
We conducted our review from May 2003 through May 2004 in accordance with
generally accepted government auditing standards.
Appendix II: Summary Tables on Orders Selected for Review
The three tables below provide a summary of the orders selected for review
at the five buying organizations we visited. Table 5 shows a breakdown of
the orders with waivers to competition and orders open to competition at
the various buying organizations. Tables 6 and 7 show the level of
competition (number of offers) for orders open to competition under the
federal supply schedule and multiple-award contracts.
Table 5: Summary of the Orders Selected for Review at Five Buying Organizations
Number of orders on federal supply schedule Number of orders on multiple-award
contracts
Open to competition Waivers
Open to competition
Total number orders
Buying organizations Waivers
Communications-Electronics
Command (CECOM) 3 3 1 7
Naval Inventory Control Point
(NICP) 8 5
Defense Contracting
Command-Washington (DCCW) 5 3 3 4
Defense Information Systems
Agency (DISA) 4 4 4 4
Oklahoma City Air Logistics
Center (OC-ALC) 4 4 2 6
Total 24 14 10 26
Sources: DOD (data); GAO (analysis).
Appendix II: Summary Tables on Orders Selected for Review
Table 6: Extent of Competition for 14 Orders Open to Competition under the
Federal Supply Schedule at Five Buying Organizations
Number of orders under the federal supply schedule
Buying Open to Three or more organizations competition One offer Two offers
offers
CECOM 321
NICP
DCCW 3 1 1
DISA 4 1 1
OC-ALC 4
Total 14 4 3
Sources: DOD (data); GAO (analysis).
Table 7: Extent of Competition for 26 Orders Open to Competition under
Multiple-Award Contracts at Five Buying Organizations
Number of orders under multiple-award contracts
Buying Open to Three or No offers
organizations competition One offer Two offers more offers solicited
CECOM 7 4 2 1
NICP 5 2
DCCW 4 4
DISA 4 2 2
OC-ALC 6
Total 2612 2 3
Sources: DOD (data); GAO (analysis).
Appendix III: Comments from the Department of Defense
Appendix III: Comments from the Department of Defense
(120245) Page 26 GAO-04-874 Defense Task Orders
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