DOD Contracting: Efforts Needed to Address Air Force Commercial
Acquisition Risk (29-SEP-06, GAO-06-995).
The Department of Defense (DOD) has been urged by commissions,
legislation, and a panel to make increased use of commercial
acquisition to achieve certain benefits. To help ensure the
increased use of commercial acquisition, the Office of the
Secretary of Defense (OSD) established and the Air Force
implemented two commercial acquisition goals to be achieved by
the end of fiscal year 2005. In setting these goals, OSD expected
that the increased use of commercial acquisition would provide
DOD with greater access to commercial markets (products and
service types) with increased competition, better prices, and new
market entrants and/or technologies. The committee asked GAO to
identify (1) the extent to which the Air Force has increased its
use of commercial acquisition to obtain expected benefits and (2)
the risks that are associated with this use.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-995
ACCNO: A61615
TITLE: DOD Contracting: Efforts Needed to Address Air Force
Commercial Acquisition Risk
DATE: 09/29/2006
SUBJECT: Air Force procurement
Competition
Contracts
Policy evaluation
Procurement policy
Procurement practices
Risk assessment
Source selection
C-130 Aircraft
C-130J Aircraft
F-16 Aircraft
Fighting Falcon Aircraft
Hercules Aircraft
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-06-995
* Results in Brief
* Background
* The Air Force Has Increased Commercial Acquisition Spending
* Goals Measure Use of Commercial Acquisition
* Benefits Expected from Commercial Acquisition Have Not Been
* Traditional Contractors Still Performing Most Commercial Air
* Air Force Use of Commercial Acquisition in Certain Situation
* Challenges and Risks Using Commercial Acquisition
* Commercial Contract Awards Made in a Sole- Source Environmen
* Conclusions
* Recommendations for Executive Action
* Agency Comments and Our Evaluation
* Expected Benefits to the Government
* Expected Benefits to Contractors
* GAO's Mission
* Obtaining Copies of GAO Reports and Testimony
* Order by Mail or Phone
* To Report Fraud, Waste, and Abuse in Federal Programs
* Congressional Relations
* Public Affairs
Report to the Subcommittee on Readiness and Management Support, Committee
on Armed Services, U.S. Senate
United States Government Accountability Office
GAO
September 2006
DOD CONTRACTING
Efforts Needed to Address Air Force Commercial Acquisition Risk
GAO-06-995
Contents
Letter 1
Results in Brief 2
Background 3
The Air Force Has Increased Commercial Acquisition Spending 7
Air Force Use of Commercial Acquisition in Certain Situations Increases
Risk 13
Conclusions 19
Recommendations for Executive Action 19
Agency Comments and Our Evaluation 20
Appendix I Scope and Methodology 22
Appendix II Additional Benefits Expected from Using Commercial Acquisition
25
Appendix III Traditional and Nontraditional Air Force Contractor Analysis,
Fiscal Years 1996-2004 27
Appendix IV Observations from Review of 20 Air Force Contracts Using
Commercial Acquisition 30
Appendix V Use of Commercial Acquisition in Air Force Major Acquisition
Programs 31
Appendix VI Citations for Commissions, Legislation, and Panel Shown in
Figure 1 34
Appendix VII Comments from the Department of Defense 35
Tables
Table 1: Listing of Traditional Air Force Contractors, Fiscal Years
2003-2004 28
Table 2: Nontraditional Air Force Contractors (New Market Entrants),
Fiscal Years 2003-2004, and Description of Contracted Item or Service 29
Table 3: Commercial Contract Actions in Air Force Major Acquisition
Programs, Fiscal Years 2004-2005 32
Figures
Figure 1: Overview of Commercial Acquisition Legislative History 5
Figure 2: Air Force Increases in Commercial Acquisition Spending, Fiscal
Years 2001-2005 8
Figure 3: Air Force Progress in Meeting Commercial Acquisition Dollar
Goal, Fiscal Years 2001-2005 9
Figure 4: Air Force Progress toward Commercial Acquisition Contract Award
Goal, Fiscal Years 2001-2005 10
Figure 5: Nontraditional and Traditional Air Force Commercial Acquisition
Contractors, Fiscal Years 2003-2004 12
Abbreviations
AFMC Air Force Materiel Command
DFARS Defense Federal Acquisition Regulation Supplement
DOD Department of Defense
FAA Federal Aviation Administration
FAR Federal Acquisition Regulation
IG Inspector General
OSD Office of the Secretary of Defense
RDT&E Research, Development, Test and Evaluation
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.
United States Government Accountability Office
Washington, DC 20548
September 29, 2006
The Honorable John Ensign Chairman The Honorable Daniel K. Akaka Ranking
Minority Member Subcommittee on Readiness and Management Support Committee
on Armed Services United States Senate
For decades, the Department of Defense (DOD) has been urged by
commissions, panels, and legislation to make increased use of commercial
acquisitions to take advantage of the efficiencies of the commercial
marketplace. To help ensure the increased use of commercial acquisition,1
the Office of the Secretary of Defense (OSD) established and the Air Force
implemented two commercial acquisition goals to be achieved by the end of
fiscal year 2005. These were to
o double the dollar value of commercial acquisition contract
actions awarded in 1999 (for the Air Force this meant going from
about $3 billion to about $6 billion) and
o strive to increase the number of commercial contract actions
awarded to 50 percent of all Air Force contract actions.2
In setting these goals, OSD expected that the increased use of commercial
acquisition would provide DOD with greater access to commercial markets
(products and service types) with increased competition, better prices,
and new market entrants and/or technologies. You asked us to examine the
Air Force's efforts to meet these goals and identify any associated risks
in commercial acquisition practices. Specifically, we determined (1) the
extent to which the Air Force has increased its use of commercial
acquisition to obtain expected benefits and (2) the risks associated with
Air Force use of commercial acquisition.
1 We will use the term "commercial acquisition" throughout this report to
refer to commercial item acquisition using Federal Acquisition Regulation
Part 12-Acquisition of Commercial Items.
2 A "contract action" is defined as any new contract award and/or new
delivery order placed against a contract award with a value greater than
$25,000.
To conduct our work, we collected and reviewed information on Air Force
use of commercial acquisition from fiscal year 2001 through fiscal year
2005. We also reviewed all Air Force contracts awarded in fiscal year 2004
for products over $5 million using commercial acquisition.3 We reviewed
the files associated with these contracts at Air Force Materiel Command
(AFMC) locations including (1) Wright-Patterson Air Force Base, Ohio; (2)
Tinker Air Force Base, Oklahoma; (3) Robins Air Force Base, Georgia; and
(4) Hanscom Air Force Base, Massachusetts. We held discussions with
contracting officers and procurement management officials associated with
each of the selected contracts. We also met with representatives of OSD
and the Air Force to discuss various aspects of commercial acquisition
that included goals, progress toward achieving goals, benefits expected,
and associated risks. A more detailed discussion of our scope and
methodology is in appendix I. We conducted our review from July 2005 to
September 2006 in accordance with generally accepted government auditing
standards.
Results in Brief
The Air Force has increased its spending using commercial acquisition from
$4.8 billion to over $8 billion from fiscal year 2001 to fiscal year 2005.
This increase responds to OSD's emphasis to expand commercial acquisition
to provide the benefits of greater access to commercial markets so that
DOD can increase competition, obtain better prices, and attract new market
entrants (nontraditional contractors) and/or technologies. While the Air
Force more than doubled its spending on commercial acquisition, it has not
attempted to determine the extent that the increased use of commercial
acquisition has resulted in the benefits expected. Our analysis indicates
that for at least one of the expected benefits, attracting new market
entrants, the expected benefit has not materialized. For the most part the
Air Force's commercial acquisition was with traditional defense
contractors.
Our work, that of DOD's Inspector General, and that of others has shown
that government contracting officials face challenges in using commercial
acquisition. For example, improperly classifying an acquisition as a
commercial acquisition leaves the Air Force vulnerable to accepting prices
that may not be the best value for the department because under commercial
acquisition regulations the government is prohibited from requesting cost
or pricing data. A high-ranking DOD acquisition official recently
testified before the Federal Acquisition Advisory Panel that he is
concerned about items and services being identified as commercial that are
not sold in an existing marketplace because under these circumstances the
government lacks assurances that the price paid is reasonable. 4 Our
review of Air Force contract files showed that Air Force officials
disagreed about the classification of some acquisitions as commercial. The
Air Force's use of commercial acquisition has also been accompanied by an
increased amount of dollars being awarded sole-source. Similar to
misclassifying acquisitions as commercial, the lack of market-based
competition may result in the Air Force's acceptance of prices that may
not be the best value for the department. Some Air Force contracting
officials were concerned with whether they had sufficient data to ensure
they were negotiating good deals, especially in a sole-source situation.
OSD cites the general advantages of competition and in its policy urges
contracting officials to avoid sole-source situations because sometimes
contractors may attempt to exploit the lack of competitive markets and
demand unreasonable prices. While OSD acknowledges some sole-source
situations may be unavoidable, we found increasing sole-source spending on
Air Force commercial contracts over the last 6 years. Of the 20 new
commercial acquisition awards for products in fiscal year 2004, half were
awarded sole-source.
3 In fiscal year 2004, the Air Force awarded 20 commercial acquisition
contracts each with a value of $5 million or more.
We are making two recommendations to help ensure that the Air Force is
able to measure the benefits expected of commercial acquisition and
improve commercial acquisition by mitigating risks in certain
circumstances. DOD agreed with the recommendations, in principle, and
identified actions to address them.
Background
The definition of commercial acquisition has evolved over the last decade
to mean the purchase of items customarily used by and sold (or offered) to
the general public, including items with minor modifications of a type not
customarily available in the commercial marketplace made to meet federal
government requirements, or services of a type offered and sold
competitively in substantial quantities in the commercial marketplace.5
4 This is a panel authorized by Section 1423 of the Services Acquisition
Reform Act of 2003 (Div. A, Title XIV, National Defense Authorization Act
for Fiscal Year 2004, Pub. L. No. 108-136, (2003)) with representation
from acquisition experts in government, private industry, and academia.
The idea of increasing the government's use of commercial acquisition is
not new. Figure 1 identifies key legislation and federal-level commissions
that emphasized the use of and expected benefits of commercial acquisition
over the last several decades.
5 See Federal Acquisition Regulation (FAR) 2.101. In part "Commercial
item" means
(1) Any item, other than real property, that is of a type customarily used
by the general public or by non-governmental entities for purposes other
than governmental purposes, and-
(i) Has been sold, leased, or licensed to the general public; or
(ii) Has been offered for sale, lease, or license to the general public;
(2) Any item that evolved from an item described in paragraph (1) of this
definition through advances in technology or performance and that is not
yet available in the commercial marketplace, but will be available in the
commercial marketplace in time to satisfy the delivery requirements under
a Government solicitation;
(3) Any item that would satisfy a criterion expressed in paragraphs (1) or
(2) of this definition, but for-
(i) Modifications of a type customarily available in the commercial
marketplace; or
(ii) Minor modifications of a type not customarily available in the
commercial marketplace made to meet Federal Government requirements. Minor
modifications means modifications that do not significantly alter the
nongovernmental function or essential physical characteristics of an item
or component, or change the purpose of a process. Factors to be considered
in determining whether a modification is minor include the value and size
of the modification and the comparative value and size of the final
product. Dollar values and percentages may be used as guideposts, but are
not conclusive evidence that a modification is minor;
(4) Any combination of items meeting the requirements of (1), (2) , (3) or
(5) of this definition that are of a type customarily combined and sold in
combination to the general public;
(5) Installation services, maintenance services, repair services, training
services, and other services in support of an item in (1) through (4) and
the source of such services provides similar services contemporaneously to
the general public under terms and conditions similar to those offered to
the federal government;
(6) Services of a type offered and sold competitively in substantial
quantities in the commercial marketplace based on established catalog or
market prices.
Figure 1: Overview of Commercial Acquisition Legislative History
Note: Citations for the Commissions, Legislation, and Panel shown in
figure 1 are listed in appendix VI.
The National Defense Authorization Act for Fiscal Year 1987 required DOD
to submit a report to Congress on its progress toward meeting the
requirement to acquire commercial items to the maximum extent practicable.
6 DOD's subsequent report to Congress in response to the act's requirement
identified several impediments to the use of commercial acquisition,
including a requirement that contractors provide cost or pricing data to
the government. Identification of providing the government cost or pricing
data as an impediment was in contrast to requirements in the Truth in
Negotiations Act of 1962. 7 This act generally requires contractors to
submit cost or pricing data to the government before the award of a
negotiated contract and certify that the data are accurate, complete, and
current as a way to provide information parity between the contractor and
the government. 8 Because a primary maxim in contracting is that
competition drives down prices, one of the purposes of the legislation was
to provide the government with all the facts on the cost or pricing data
the contractor used to prepare a proposal, including, as applicable here,
when there is no competition. In that way, the government believed it
would have the information necessary to protect itself from paying
excessive prices.
In the late 1980s and early 1990s, however, concerns about impediments
that might prevent commercial companies from doing business with the
government continued. The concern about requiring cost or pricing data in
commercial acquisition was a factor in passing several laws in the 1990s
designed to streamline acquisition in general, and commercial acquisition
specifically, by more broadly exempting commercial acquisitions from the
cost or pricing data requirement (see fig. 1).
Although commercial acquisition regulations now preclude the government
from obtaining cost or pricing data from contractors in commercial
acquisitions, the government is permitted to obtain pricing information
from sources other than the offering contractor. If this information
proves inadequate, the government can require the offering contractor to
provide additional information, known as information other than cost or
pricing data, although the government must, to the maximum extent
practicable, limit the scope of the request to include only information in
a form regularly maintained by the offering contractor.9
6 Defense Acquisition Improvement Act of 1986, contained in the National
Defense Authorization Act for Fiscal Year 1987, Pub. L. No. 99-661, Div.
A, Title IV, Section 907(b), (1986).
7 Pub. L. No. 87-653, Sept. 10, 1962.
8 The Truth in Negotiations Act (TINA) provided a limited exemption for
the submission of cost or pricing data when a negotiated price was based
on established catalog or market prices of commercial items sold in
substantial quantities to the general public, now known as
commercial-off-the-shelf.
In early 2001, OSD reemphasized to the military departments and defense
agencies that commercial acquisition should be used to the maximum extent
possible to effectively provide the technological advantages needed to win
future conflicts. OSD concluded that the military departments and agencies
must uniformly look first to the commercial marketplace before developing
new systems, upgrading legacy systems or procuring spare parts and support
services. To help ensure the increased use of commercial acquisition, OSD
established and the Air Force implemented two commercial acquisition goals
to be achieved by the end of fiscal year 2005. These were to
o double the dollar value of commercial acquisition contract
actions awarded in 1999 (for the Air Force this meant going from
about $3 billion to about $6 billion) and
o strive to increase the number of commercial contract actions
awarded to 50 percent of all Air Force contract actions.10
In setting these goals, OSD expected that the increased use of
commercial acquisition would provide DOD with greater access to
commercial markets (products and service types) with increased
competition, better prices, and new market entrants and/or
technologies. Additional expected benefits of commercial
acquisition are listed in appendix II.
The Air Force Has Increased Commercial Acquisition Spending
As its overall spending has increased, the Air Force has increased
spending using commercial acquisition, from $4.8 billion in fiscal
year 2001 to over $8 billion in fiscal year 2005 (see fig. 2). The
Air Force also has had some success in achieving commercial
acquisition goals; for example, it has doubled the amount spent
using commercial acquisition since fiscal year 1999 (see fig. 3).
However, it has not achieved the goal of making 50 percent of all
contract actions commercial (see fig. 4). Nonetheless, the Air
Force did not establish measures nor did it collect information to
determine if the benefits expected from commercial acquisition
were being achieved. As a result, it is unclear if or how the Air
Force has benefited from increased use of commercial acquisition.
The Air Force has used commercial acquisition to buy a broad range
of goods and services, including major systems. For example, the
Air Force used commercial acquisition to buy the Joint Primary
Aircraft Training System and a range of goods and services such as
radio and communication equipment, aircraft components, and repair
services. However, our analysis indicates that for at least one of
the expected benefits, attracting new market entrants, the
expected benefit has not materialized. The majority of Air Force
commercial contracts in fiscal years 2003-2004 were made to
traditional defense contractors.
Figure 2: Air Force Increases in Commercial Acquisition Spending,
Fiscal Years 2001-2005
Goals Measure Use of Commercial Acquisition
The Air Force was able to achieve its goal of doubling spending
using commercial acquisition by the end of fiscal year 2003 and
has exceeded that goal through fiscal year 2005 (see fig. 3).
Figure 3: Air Force Progress in Meeting Commercial Acquisition
Dollar Goal, Fiscal Years 2001-2005
However, the Air Force did not increase commercial contract
actions awarded to 50 percent of all awards (see fig. 4).
Figure 4: Air Force Progress toward Commercial Acquisition
Contract Award Goal, Fiscal Years 2001-2005
These goals expired at the end of fiscal year 2005 and were not
extended or renewed at the time this report was published. An
Office of Under Secretary of Defense, Defense Procurement and
Acquisition Policy, senior procurement analyst noted that he
believed the goals have essentially been met and that the current
law stating that nondevelopmental items (commercial items) are to
be used to the maximum extent practicable11 is sufficient.
Benefits Expected from Commercial Acquisition Have Not Been Measured
OSD has indicated that the increased use of commercial acquisition
should bring about the benefits of greater access to commercial
markets, including increased competition, getting better prices,
and access to new market entrants (contractors) and/or
technologies. Although the Air Force has increased the use of
commercial acquisition, neither OSD nor the Air Force has
attempted to measure if the benefits expected from this increased
use are being achieved. The Air Force has stated that the
appropriateness of the application of the FAR commercial item
definition determines its use of the authority, not whether any
benefits would be gained.
A study sponsored by the Air Force and conducted by the RAND
Corporation, a nonprofit research organization, in 2005 looked at
Air Force commercial acquisition and found that the data needed to
determine if the expected benefits of commercial acquisition were
being realized were not available. 12 The report concluded that
this lack of data has made it difficult to measure whether this
type of acquisition provides the benefits claimed or what
challenges exist. With respect to anticipated cost and schedule
savings, RAND reported that DOD provided no direction for tracking
these expected benefits, and as a result, such data are not
collected by either DOD or contractors. RAND also reported that
DOD does not develop estimates of the benefits expected from using
commercial acquisition versus other types of acquisitions prior to
commencing contract award activities. RAND did not comment on the
cost of quantifying commercial acquisition benefits.
Traditional Contractors Still Performing Most Commercial Air Force
Contracts
While the Air Force has used commercial acquisition to buy a broad
range of goods and services, including major systems, it continues
to do business mainly with traditional contractors. By increasing
the use of commercial acquisition, OSD hoped the Air Force would
be able to draw nontraditional contractors into defense
contracting and gain greater access to new commercially developed
technologies. Nontraditional contractors were expected to offer
more efficient business practices and new technologies to meet
government requirements. OSD commercial acquisition guidance
emphasizes the need to incorporate commercial items into defense
systems because the commercial sector often drives critical
technologies. Even with this increased emphasis on commercial
acquisition, the Air Force has primarily continued to award its
commercial contracts to traditional defense contractors.
To determine the extent to which the Air Force attracted
nontraditional contractors using commercial acquisition, we
reviewed acquisition data on the 98 contractors who received large
(over $5 million) commercial contracts in fiscal years 2003 and
2004. We found that 87 of the 98 contractors, or 89 percent, were
included on DOD's Top 100 or Air Force Top 50 contractor lists13
or had previously received contracts with DOD14 since fiscal year
1996.15 Only 11 contractors had not previously received a contract
or were not on either list (see fig. 5).
Figure 5: Nontraditional and Traditional Air Force Commercial
Acquisition Contractors, Fiscal Years 2003-2004
Further, 7 of the 11 contractors that had not previously received
large dollar contracts from DOD performed more routine services
like transportation, housekeeping, or architect and engineering
services. A list of the traditional and nontraditional contractors
is included as appendix III.
In a 2005 commercial acquisition study, RAND concluded that there
is very little evidence that the use of commercial acquisition has
encouraged greater numbers of civilian (non-DOD) commercial
contractors to compete for DOD contracts for major military-unique
items.16
In general, we found that commercial acquisition was used to buy a
variety of goods and services. These include but are not limited
to aircraft engines and structural components, telecommunication
services, maintenance and repair of equipment, program
management/support services, and housekeeping services.
We also found three major Air Force acquisition programs for which
commercial actions constituted at least 75 percent of contract
dollars obligated. The three major acquisition programs are
o the latest version of the Air Force C-130 cargo aircraft;
o the Joint Primary Aircraft Training System, including a new
trainer aircraft, the ground-based training system, and a training
management system; and
o the National Airspace System to modernize DOD air traffic
control facilities in parallel with the Federal Aviation
Administration (FAA) to ensure safe operation of aircraft in
accordance with statutes and DOD/FAA agreements, according to an
Air Force official.
Air Force Use of Commercial Acquisition in Certain Situations
Increases Risk
Our work, that of DOD's Inspector General, and that of others has
shown that government contracting officials face challenges using
commercial acquisition. For example, improperly classifying an
acquisition as a commercial acquisition leaves the Air Force
vulnerable to accepting prices that may not be the best value for
the department because under commercial acquisition regulations,
the government is precluded from requesting cost or pricing
information. Our review of Air Force contract files and DOD
Inspector General reports showed that Air Force officials
disagreed about the designation of some acquisitions as
commercial. Furthermore, the director of Defense Procurement and
Acquisition Policy recently testified before the Federal
Acquisition Advisory Panel that he is concerned about some items
and services being identified as commercial that are not sold in
an existing marketplace because there are no assurances that the
price is reasonable. The Air Force use of commercial acquisition
has been accompanied by an increased amount of dollars being
awarded sole-source. Similar to misclassifying acquisitions as
commercial, the lack of market-based competition may result in the
Air Force's acceptance of prices that may not be the best value
for the department. OSD cites the general advantages of
competition and in its policy urges contracting officials to avoid
sole-source situations because sometimes contractors may attempt
to exploit the lack of competitive markets and demand unreasonable
prices. While OSD acknowledges some sole-source situations may be
unavoidable, we found increasing sole-source spending on Air Force
commercial contracts over the last 6 years. Also, of the 20 new
commercial awards for products over $5 million in fiscal year
2004, half were awarded sole-source, with traditional contractors
receiving most of those sole-source awards.
Challenges and Risks Using Commercial Acquisition
Misclassification of items as commercial can leave the Air Force
vulnerable to accepting prices that are not the best value for the
department. Our review of Air Force contract files included two
cases where there were internal Air Force disagreements regarding
determinations of commerciality. The items in question were a
C-130E and a C-130H aircraft. During our review, some Air Force
officials also expressed concern, especially in sole-source
situations, about their ability to determine whether the prices
being charged are reasonable. A major difference between a Federal
Acquisition Regulation (FAR) Part 15 "Contracting by Negotiation"
and Part 12 "Acquisition of Commercial Items" is that under Part
12 the government is prohibited from obtaining cost or pricing
data. Under FAR Part 15, the government is generally required to
obtain cost or pricing data (unless certain exceptions apply) from
contractors to help determine if it is getting a good price.
DOD's Inspector General has recently issued reports asserting that
three Air Force acquisitions were inappropriately designated as
commercial.17 The Inspector General concluded that three Air Force
acquisitions-the C-130J cargo aircraft, the KC-767A tanker
aircraft, and F-16 simulator services-should not have been planned
or purchased as commercial acquisitions because they were unique
to the military. For example, the Inspector General reported in
March 2006 that the Air Force had improperly used commercial
acquisition to buy F-16 simulator services because contracting
officials misinterpreted the definition of commercial services. As
a result, the Air Force placed itself at a disadvantage,
restricting its ability to determine whether the price charged was
reasonable. By using commercial acquisition, the Air Force was
precluded from requesting certified cost or pricing data for a
service in which the department is the sole customer. On the basis
of the Inspector General's report, the Air Force agreed, and has
begun, to change its contracting approach from a commercial
acquisition to a noncommercial acquisition.
Other recent efforts to improve the government's use of commercial
acquisition include efforts by a high-level panel to consider
changes to potentially clarify the definition of commercial
acquisition as well as efforts by Air Force officials seeking
similar regulatory changes.
The Federal Acquisition Advisory Panel is examining, among other
things, commercial acquisition practices. The Acquisition Advisory
Panel is also reviewing preliminary recommendations to modify the
commercial item definition found in federal regulation. The panel
noted, in a briefing on its Web page, that in the private sector,
competition in efficient markets is a principle relied on to a
great extent to assure price reasonableness. The panel cites three
government commercial acquisition practices related to the
commercial item definition that depart from private-sector
practices: First, commercial acquisition procedures are used for
sole-source contracts; second, items are acquired commercially
even when the government is the predominant or only buyer; and
third, the "commercial item" definition is broad enough to admit
items for which an efficient market does not exist to ensure price
reasonableness.
DOD's Defense Procurement and Acquisition Policy Director recently
addressed the Acquisition Advisory Panel and identified concerns
that some acquisitions are being designated commercial that are
not commercial.18 The Director expressed his view that a
commercial item is one in which a marketplace exists, meaning the
item has been sold to commercial companies (not just DOD). The
Director stated that if someone is selling "to us (the government)
and only to us, that's not a commercial price." In addition, the
Director testified that DOD intends to create a tool, a decision
matrix, that will enable contracting officials to identify the
right contracting mechanism after completing their market
research. The purpose is to have DOD and the military services use
commercial acquisition effectively and correctly, in a consistent
way.
OSD guidance specifically states that commercial acquisition was
not intended to allow military-unique items to be purchased
commercially. Misclassification of items as commercial can leave
the Air Force vulnerable to accepting prices that are not the best
value for the department. When an item is designated as
commercial, the Air Force should be able to determine if the price
is reasonable on the basis of prices in the commercial market. If
the Air Force designates an item as being commercial when it is
not readily available in the commercial market, this limits its
ability to assess the reasonableness of the contractor's price
because it might, especially in sole-source situations, have less
information on prices to make its decision.
Restrictions on the use of commercial acquisition to procure
military unique major weapons systems were recently established in
the Fiscal Year 2006 DOD Authorization Act.19 The act requires
that to use commercial acquisition procedures for major weapon
systems, the Secretary of Defense must now (1) determine the
procurement meets the definition of "commercial item," (2)
determine that national security objectives necessitate the
purchase of the system as a commercial item, and (3) give Congress
at least 30 days notice before purchasing a major acquisition
program using commercial acquisition. To implement this
requirement, an interim Defense Federal Acquisition Regulation
Supplement (DFARS) rule is pending publication.20 The Air Force
intends to implement the DFARS rule by requiring requests for
Secretary of Defense approval of major weapon systems to be
purchased as commercial items, include a description of the
benefits associated with increased competition, better prices, and
new market entrants and/or technologies.
When we discussed the purchase of major weapon systems using
commercial acquisition with top DOD officials, they informed us
there are plans to transition both the C-130J and the Joint
Primary Aircraft Training System (JPATS) contracts, as well as a
future contract for F-16 fighter aircraft simulator services, from
commercial to noncommercial contracts. Further, a top DOD
acquisition official said that in the future DOD will more
carefully scrutinize the use of commercial acquisition, especially
on major acquisition programs.
Further, Air Force contracting officials have submitted proposals
as cases to the Defense Acquisition Regulation Council and the
Civilian Agency Acquisition Council seeking clarification of the
definitions of "commercial item" and "cost or pricing data"
related to commercial acquisition. While one case was closed, it
highlights continued efforts to appropriately classify items as
commercial. For example, the Air Force proposed a change to the
DFARS,21 which was subsequently referred by Defense Acquisition
Regulation Council as a case for the Federal Acquisition
Regulation,22 to tighten the commercial item definition. The
definition found in federal regulation states in part: "commercial
item means any item, other than real property, that is of a type
customarily used by the general public." In an attachment to the
2001 memo instituting the commercial acquisition goals, OSD
cautioned that the phrase "of a type" is not intended to allow the
use of commercial acquisition to acquire sole-source,
military-unique items that are not closely related to items
already in the marketplace.
A second FAR case attempts to address confusion about what
qualifies as cost or pricing data in relation to commercial
acquisition. 23 The case, if made final, will clarify that the
government can ask contractors for cost or pricing data, just not
certified cost or pricing data.
Commercial Contract Awards Made in a Sole- Source Environment Can
Increase Risk
OSD emphasis on increasing the use of commercial acquisition
includes guidance on limiting use of commercial acquisition for
sole-source procurements. This guidance advises contracting
officials to avoid sole-source commercial acquisitions, in part
because sometimes contractors may attempt to exploit the lack of
competition and demand unreasonable prices. When such situations
are unavoidable, OSD advocates use of other price analysis tools
outlined in federal regulation to mitigate risk.
The FAR provides that adequate price competition on contracts is
generally sufficient to determine price reasonableness. Adequate
price competition means (1) the government receiving at least two
offers submitted by responsible offerors, competing independently,
that satisfy the government requirement; (2) there was a
reasonable expectation of competition; or (3) a proposed price is
clearly reasonable based on price analysis.24 In the event price
competition is not sufficient, the government can seek additional
information beginning with government and additional sources other
than the offeror, and last from the offeror if necessary.25
There are circumstances when an acquisition, including one for
commercial items, can be awarded without competition. These
include instances in which (1) there is only one responsible
source and there are no other supplies or services that will
satisfy agency requirements, such as when a contractor has
exclusive data rights and copyrights; (2) the government has an
unusual and compelling urgent need for a product or service; or
(3) the acquisition is required by statute or international
agreement. Such awards, for other than full and open competition
must be justified and approved in writing.26
Despite guidance directing the Air Force to avoid sole-source
situations, from fiscal years 2000 through 2005, sole-source
spending on Air Force commercial acquisition contracts more than
doubled. Specifically, sole-source dollars as a percentage of
total commercial acquisition dollars for awards over $5 million
have increased from 12 percent in fiscal year 2000 to 26 percent
in fiscal year 2005. This recent trend appears inconsistent with
OSD guidance to avoid sole-source commercial acquisition
situations.
Our review found that of all 20 fiscal year 2004 commercial
product acquisition awards over $5 million, 10 of the Air Force's
were made on a sole-source basis. Altogether, fiscal year 2004
obligations on the 20 contracts totaled $329 million. Obligations
on the 10 sole-source awards totaled $172 million, or 52 percent
(additional observations from our review of the 20 contracts are
found in app. IV).27 Furthermore, at least one of the expected
benefits of commercial acquisition-attracting new market
entrants-has not materialized through the Air Force's use of
sole-source commercial acquisitions for products in fiscal year
2004. Specifically, traditional defense contractors were used on 8
of the 10 fiscal year 2004 sole-source product awards.
Conclusions
By establishing goals that only measure use and not the benefits
expected, the Air Force is unable to determine if it has benefited
from increased use of commercial acquisition. The benefits to the
government of commercial acquisition have not been demonstrated.
Little evidence has been collected on the claimed benefits such as
cost savings, better pricing, increased access to commercial
vendors, and greater numbers of commercial firms to compete for
Air Force contracts.
Not only is it unclear whether commercial acquisition is bringing
benefits to the Air Force, the Air Force may be increasing risk
without knowing if the added risk is balanced by progress toward
achieving benefits that may have the potential to demonstrate
considerable savings. While recognizing that the Air Force may
need to make some sole-source purchases using commercial
acquisition, the trend of increasing sole-source spending appears
contradictory to OSD guidance to limit situations where
contractors may attempt to exploit the lack of competitive markets
and demand unreasonable prices. When sole-source situations are
necessary, contracting officials should be able to identify the
benefits of using commercial acquisition for individual
procurements that would otherwise be unattainable.
Recommendations for Executive Action
To help ensure that the Air Force is able to measure the benefits
expected from commercial acquisition, we recommend collecting
information that would allow evaluating the extent of cost
savings, increased access to commercial markets, and greater
access to nontraditional contractors. For example, the Air Force
could measure the number of nontraditional contractors it reaches
using commercial acquisition.
To help improve commercial acquisition and reduce the potential
for risk by limiting situations where commercial acquisition
contracts are being awarded sole-source, we also recommend that
the Secretary of the Air Force strive to limit the acquisition of
commercial products and services in sole-source environments in
concert with OSD guidance. However, in the cases where it is
necessary to award sole-source, the Secretary should collect the
information necessary to evaluate the benefit(s) of awarding
commercial verses a noncommercial contract.
Agency Comments and Our Evaluation
DOD provided written comments on a draft of this report. DOD
agreed with the recommendations, in principle, and described the
actions it will take to address our recommendations. The comments
are discussed below and are reprinted in appendix VII.
DOD partially agreed with our recommendation to measure the
benefits expected from commercial acquisition by collecting
information to evaluate the extent of cost savings, increased
access to commercial markets, and greater access to nontraditional
contractors. DOD stated that it agrees in principle it would be
worthwhile to know whether the expected benefits from commercial
acquisition are materializing and that it will examine ways to
collect information on the number of nontraditional contractors it
is reaching through commercial acquisition. However, DOD noted
that the collection of information for the expected benefits would
be expensive. We believe DOD is taking the first step necessary to
evaluate whether it has benefited from the increased use of
commercial acquisition. We encourage such efforts, and would
expect that if DOD collects information on nontraditional
contractors it reaches using commercial acquisition and it is
still unable to evaluate whether significant benefits exist from
using commercial acquisition, DOD will recognize the need to
collect additional information.
DOD's comments included an attachment reflecting the Air Force
views on our draft report. We incorporated those views where
appropriate.
We will send copies of this report to the Secretary of Defense,
the Secretary of the Air Force, appropriate congressional
committees, and other interested parties. We will also make copies
available to others on request. In addition, this report will be
available at no charge on GAO's Web site at http://www.gao.gov .
If you or your staff have any questions about this report, please
contact me at (202) 512-4841 or by e-mail at [email protected] .
Contact points for our Offices of Congressional Relations and
Public Affairs may be found on the last page of the report. Other
key contributors to this report were David E. Cooper, Director,
Penny Berrier Augustine, Assistant Director, Lily Chin, Keith
Hudson, Julia Kennon, Andrew Redd, Don Springman, Marie Ahearn,
and Robert Swierczek.
Katherine V. Schinasi, Managing Director
Acquisition and Sourcing Management
Appendix I: Scope and Methodology
To conduct our work, we reviewed federal acquisition and
commercial acquisition regulations, as well as the Office of
Secretary of Defense (OSD), Air Force, and Air Force Materiel
Command (AFMC) guidance pertaining to commercial acquisition. We
also reviewed OSD and Air Force commercial acquisition goals since
2001 as well as expected benefits and risks associated with
commercial acquisition. We met or held discussions with
representatives of OSD and the Air Force to discuss various
aspects of commercial acquisition including goals, progress toward
achieving goals, benefits expected, and associated risks. In
addition we met with Department of Defense (DOD) Inspector General
officials to discuss audit report findings related to commercial
acquisition.
To understand the more recent determinations of commercial
acquisition, we reviewed all 20 large (over $5 million) Air Force
commercial contracts awarded for products in fiscal year 2004. We
reviewed the contract files associated with these contracts at
locations of AFMC including (1) Wright-Patterson Air Force Base,
Ohio; (2) Tinker Air Force Base, Oklahoma; (3) Robins Air Force
Base, Georgia; and (4) Hanscom Air Force Base, Massachusetts. We
also reviewed a commercial contract (including two major
modifications) for a major acquisition program called the Joint
Primary Aircraft Training System. We held discussions with
contracting officers and procurement management officials
associated with the selected contracts.
To examine the extent that Air Force commercial contracts were
awarded to new market entrants, we utilized data from DOD's
procurement database (DD 350) for contract actions from fiscal
year 1996 through fiscal year 2004, which was the last full year
of data available at the time we performed our analysis. Query
results were limited to contract actions greater than $5 million,
as the Federal Acquisition Regulation (FAR) allowed actions below
that threshold to employ simplified acquisition procedures.1
To determine the Air Force new market entrant contractors,2 we
took the contractors with contract actions in fiscal years 2003
and 2004 and determined whether they had received any previous DOD
military department contracts from fiscal year 1996 through fiscal
year 2002. 3 We considered contractors who had not received
contracts during this period new to DOD. We also examined Federal
Supply/Service Class codes to determine the nature of work
performed by Air Force contractors.
To determine the extent to which the Air Force competed its
commercial contracts, we reviewed data the Air Force provided
summarizing its sole-source commercial acquisitions from fiscal
year 2000 through fiscal year 2005. We defined "sole-source" as
those actions either not competed or not available for
competition, according to DOD classification codes. Again, the
data were for acquisitions over $5 million.
For our analysis of the use of commercial acquisition in Air Force
major acquisition programs, we included the Major Defense
Acquisition Programs listed on OSD's Selected Acquisition Report
summary tables for fiscal years 2001 through 2005, except programs
designated RDT&E (Research, Development, Test, and Evaluation). We
also included joint programs from GAO's 2006 Assessment of
Selected Major Weapon Programs for which the Air Force was
mentioned as the lead buyer. We queried the DD 350 database to
determine commercial and total contract obligations on these major
acquisition programs over the period constituting fiscal year 2004
through fiscal year 2005.
We conducted our review from July 2005 to September 2006 in
accordance with generally accepted government auditing standards.
Appendix II: Additional Benefits Expected from Using Commercial
Acquisition
Expected Benefits to the Government
The government expected to benefit from the use of commercial
acquisition instead of noncommercial acquisition. Several of the
benefits expected include the government being able to
o rely on the contractor's quality assurance processes and
warranties in lieu of government inspections,1
o decrease the amount of time it normally takes to award a
contract,2
o employ a streamlined contract clause structure,3 and
o use simplified acquisition procedures on high dollar amount
contracts in certain circumstances.4
Expected Benefits to Contractors
There are also several advantages to contractors of using
commercial acquisition when doing business with the government.
Generally contractors are
o not required to submit cost or pricing data to the government,5
o not required to adhere to cost accounting standards on firm
fixed-price contracts,6
o not required to disclose more technical data to the government
than they would customarily disclose to the public,7
o able to propose more than one product that will meet the
government's need,8 and
o able to submit existing product literature in lieu of unique
technical proposals.9
Appendix III: Traditional and Nontraditional Air Force Contractor
Analysis, Fiscal Years 1996-2004
To examine the extent that Air Force commercial contracts were
awarded to nontraditional contractors or new market entrants, we
used data from DOD's procurement database (DD 350) for contract
actions from fiscal year 1996 through fiscal year 2004-the last
full year of available data at the time of analysis. Query results
were limited to Air Force contract actions greater than $5
million.
We identified 98 contractors who received commercial Air Force
awards in either fiscal year 2003 or fiscal year 2004. Forty-six
of those 98 contractors also received large-dollar commercial
awards in prior years back through fiscal year 2000 or were
included on DOD Top 100 or Air Force Top 50 contractor lists.1 We
considered them traditional contractors. For the remaining 52
contractors who did not receive large-dollar awards during that
period (and who were not on DOD top 100 or Air Force top 50
contractor lists), we used DOD's DD 350 procurement database to
determine if they had performed any contracts above $25,000 for
the Army, Navy, or Air Force military departments, from fiscal
year 1996 through fiscal year 2002. Of the 52 contractors, 41 had
received military department awards during this period and were
therefore considered traditional contractors. We considered the 11
contractors who did not perform military department contracts
during this period to be new to DOD. Table 1 lists the 87 total
traditional contractors and the 11 new contractors according to
our analysis.
9 FAR 15.402 and 15.403-3.
10 A contract action being defined as any new contract award and/or new
delivery order placed against a contract awarded with a value greater than
$25,000.
11 Defense Acquisition Improvement Act of 1986, contained in the National
Defense Authorization Act for Fiscal Year 1987, Pub. L. No. 99-661, Div.
A, Title IV, Section 907(a), (1986).
12RAND, Price-Based Acquisition: Issues and Challenges for Defense
Department Procurement of Weapon Systems, (Santa Monica, California:
2005).
13 These lists, compiled by DOD's Statistical Information Analysis
Division, present summary data on the companies receiving the largest
dollar volume of DOD and Air Force prime contract awards. We used only
those lists describing contractors' standings for fiscal year 2004.
14 We limited our evaluation to contractors that had done business with
the Army, Navy, and Air Force.
15 Fiscal year 1996 marks the first year for which DOD's procurement
database (DD 350) utilized the commercial item designation.
16 RAND, Price-Based Acquisition: Issues and Challenges for Defense
Department Procurement of Weapon Systems, (Santa Monica, CA: 2005).
17 Inspector General, DOD, Acquisition: Contracting for and Performance of
the C-130J Aircraft, D-2004-102, July 23, 2004; Management Accountability
Review of the Boeing KC-767A Tanker Program, OIG-2004-171, May 13, 2005;
and Acquisition: Procurement Procedures Used for F-16 Mission Training
Center Simulator Services, D-2006-065, March 24, 2006, (Washington, D.C.).
18 Transcript of proceedings of a public meeting before the Acquisition
Advisory Panel, June 14, 2006.
19 National Defense Authorization Act for Fiscal Year 2006, Pub. L. No.
109-163 section 803 (2006).
20 DFARS Case 2006-D012, Procurement of Major Weapon Systems as Commercial
Items.
21 DFARS Case 2004-D019 was closed and proposed as FAR case 2005-043.
22 FAR Case 2005-043 closed with no further action because the Federal
Acquisition Regulation Civilian Agency Acquisition Council decided that
the proposed change was not necessary. The council concluded there was
insufficient rationale to adopt the DOD-proposed definition or otherwise
clarify the meaning "of a type" as it relates to commercial items.
23 FAR Case 2005-036.
24 FAR 15.403-1(c).
25 FAR 15.402.
26 FAR 6.303.
27 Including fiscal year 2005 obligations on those same contracts,
sole-source actions account for 39 percent of total obligated dollars.
1 FAR 13.500.
2 Contractors were identified and grouped by parent companies as of fiscal
year 2004. Parent companies were determined by matching Data Universal
Numbering System (DUNS) numbers or by matching company names in DOD's DD
350 procurement database. When possible, company names were matched with
names on DOD's Statistical Information Analysis Division fiscal year 2004
Top 100 DOD parent companies and subsidiaries list. In some cases where
subsidiary lists were not available, companies with the same DUNS number
but different names (and vice versa) were counted as one company. We
considered all companies with distinct names and DUNS numbers as separate
entities.
3 We did not consider as new any contractors appearing on DOD's
Statistical Information Analysis Division (SIAD) fiscal year 2004 DOD Top
100 and Air Force Top 50 contractor lists, but we did include them in our
total number of contractors receiving awards in fiscal years 2003 or 2004
if they received awards in either of those years. The DOD Top 100 and Air
Force Top 50 lists are compiled by DOD's Statistical Information Analysis
Division. The lists represent those contractors receiving the largest
dollar volume of DOD prime contract awards. We used only those lists
describing contractors' standings for fiscal year 2004.
1 Federal Acquisition Regulation (FAR) 12.208, 12.402 and 12.404(b).
2 FAR 12.204(b), 12.205(c).
3 FAR 12.301(d),(e) and (f) and 12.302
4 FAR 13.500(e).
5 FAR 15.403-1(b)(3).
6 FAR 12.214.
7 FAR 12.211.
8 FAR 12.205(b).
9 FAR 12.205(a).
1 These lists, compiled by DOD's Statistical Information Analysis
Division, present summary data on companies receiving the largest dollar
volume of DOD and Air Force prime contract awards. We used only those
lists describing contractors' standings for fiscal year 2004.
Table 1: Listing of Traditional Air Force Contractors, Fiscal Years
2003-2004
1 ABB Automation 45 Intergraph
2 ACS Defense 46 International Business Machine
3 Adacel Systems 47 ITT Industries ITT Gilfi
4 Aeroflex Wichita 48 Jacobs Engineering Group
5 Aerovironment 49 King Aerospace
6 AIL Systems 50 Kovatch
7 Akima 51 L3 Communications
8 Alaska Industrial Resources 52 Lockheed Martin
9 Alutiiq Security Technology 53 Logtec
10 American Management Systems 54 Lynden Air Cargo LLC
11 ARINC 55 Madison Research
12 ASAP Software 56 Messier Bugatti
13 ATAP 57 Motorola
14 BAE Systems Enterprise Systems 58 MRA Systems
15 Balance Industries 59 MTC Technologies
16 Beta Fluid Systems LLC 60 NMC Wollard
17 Booz Allen Hamilton 61 Northrop Grumman
18 California Industrial Facilities 62 Oklahoma Gas and Electric
19 Cardio Theater Holdings 63 Point Blank Body Armor
20 CDW Government 64 Raytheon Company
21 CFM International 65 Redcom Laboratories
22 Channing Bete 66 Rockwell Collins
23 Chugach Alaska 67 Rohde Schwarz
24 CPI Aerostructures 68 Rollsroyce
25 Dell Computer 69 Science Applications International
26 Digicon 70 Siemens Dematic
27 Digital Support 71 Steelcase
28 Digitalnet Government Solution 72 Stinar
29 Dynamics Research 73 Sytex
30 E. F. Johnson 74 T Square Logistics Services
31 Equipto Electronics 75 Telos
32 Evergreen Helicopters of Alaska 76 Teradyne
33 Fluke 77 Texas Commission for the Blind
34 FMC 78 Boeing
35 General Dynamics 79 The Carlyle Group
36 General Electric 80 The Rendon Group
37 Global Ground Support 81 Titan
38 Goodrich 82 TMP Worldwide Advertising
39 Government Scientific Source 83 Tokyo Electric Power
40 GTSI 84 United Technologies
41 Hillstrom, David M 85 Westover Consultants
42 Honeywell International 86 Work Services
43 Industries for the Blind 87 XS International
44 Integrated Information Technology
Source: GAO analysis of DOD data.
Table 2: Nontraditional Air Force Contractors (New Market Entrants),
Fiscal Years 2003-2004, and Description of Contracted Item or Service
Description of item or service Contractor
Aircraft and airframe structural comps Flight Refuelling Limited
Merlin Express, Inc. (Also M7
Aerospace)
Transportation of things Ukranian Avia Transport Co.
Architect and Engineering-General Geosierra, LLC
Maintenance, repair, and rebuilding of KNI
equipment
Midwest Mechanical Contractors
Housekeeping services AA Food Services, Inc.
Austin Associates
USProtect Corp.
Wasatch Energy LLC
Worldwide Security Services
Source: GAO analysis of DOD data.
Appendix IV: Observations from Review of 20 Air Force Contracts Using
Commercial Acquisition
We reviewed 20 larger Air Force commercial contracts awarded in fiscal
year 2004. We reviewed the contract files associated with these contracts
at locations of the Air Force Materiel Command including (1)
Wright-Patterson Air Force Base, Ohio; (2) Tinker Air Force Base,
Oklahoma; (3) Robins Air Force Base, Georgia; and (4) Hanscom Air Force
Base, Massachusetts. We held discussions with contracting officers and
procurement management officials associated with most of the selected
contracts.
In three instances, parts for the C-5 military transport aircraft were
procured under a system in which contractors produced a prototype or
unique first article because these replacement parts did not already
exist. These first articles were then subject to successful testing before
the contractor was given approval to produce the remaining articles. As
part of each contract, the government paid for the manufacturers to
construct the unique first article and the various machine tooling they
needed to produce the articles.
In two other cases, there were internal Air Force disagreements regarding
determinations of commerciality. The items in question were C-130E and
C-130H aircraft procured by foreign governments from a sole-source
contractor, with the U.S. government (via the Air Force) acting as an
intermediary.
Appendix V: Use of Commercial Acquisition in Air Force Major Acquisition
Programs
Overall, 9.5 percent ($2.6 billion) of all Air Force contract dollars to
major acquisitions were obligated under commercial acquisition from fiscal
year 2004 through fiscal year 2005.1 We considered programs listed on
OSD's Selected Acquisition Report summary tables from fiscal year 2001
through fiscal year 2005 (except research and development programs) to be
major acquisition programs. We also included joint programs from GAO's
2006 Defense Acquisitions: Assessments of Selected Major Weapon Programs (
GAO-06-391 ) for which the Air Force was listed as the lead buyer.2 We
found three major acquisitions with Air Force involvement for which
commercial actions constituted at least 75 percent of contract dollars
obligated, and these acquisitions are shaded in table 3.3 Excluding these
three acquisitions, commercial expenditures for the remaining 25 major
acquisition programs with Air Force involvement constituted less than 1
percent of total program dollars spent.
1 We identified 33 major acquisition programs, but DD 350 records or data
were available on only 28 of those programs.
2 Major acquisition programs were coded in the DD 350 database as Major
Defense Acquisition Programs (MDAPs) beginning in fiscal year 2004. Prior
to that, the DD 350 database did not distinguish some specific MDAPs such
as the B-2 RMP (Radar Modernization Program) from the overall weapon
system of which it is a part (i.e., the B-2 Spirit bomber). For this
reason, we limited our data to fiscal years 2004 and 2005.
3 Our determination that 75 percent of a program's contract dollars were
obligated under commercial acquisition is based solely on data for fiscal
years 2004 and 2005. In some cases a program may have dedicated a larger
percentage of its contract dollars to commercial acquisition in previous
years. For example, $685 million of the $690 million obligated in fiscal
years 2001-2003 for the Wideband Gapfiller was commercial. The DD 350
database does not, however, group contract data collected for these years
under the program name Wideband Gapfiller.
Table 3: Commercial Contract Actions in Air Force Major Acquisition
Programs, Fiscal Years 2004-2005
Commercial dollars
Total commercial as a percentage of
Major major acquisition total major
acquisition program dollars acquisition program
program 2004 2005 2004-2005 dollars 2004-2005
AEHF 0m 0m 0 0.0%
AMRAAM 0M 0M $1,275,000 0.2%
AWACS RSIP 0M 0M
(E-3) $2,160,000 5.5%
B1-B CMUP 0M 0M $3,323,000 1.8%
B1-CMUP No record No record
Computer
Upgrade No record No record
B-2 RMP 0m 0m 0 0.0%
C-130 AMP 0m 0M $1,083,000 0.3%
C-130J /- /- $1,776,055,000 94.7%
C-17A 0M 0M $31,365,000 0.4%
C-5 RERP 0M 0M $6,210,000 0.9%
EELV 0m 0m 0 0.0%
F-22 0M 0M $179,000 0.0%
GBS 0m 0m 0 0.0%
Global Hawk 0M 0M $581,000 0.1%
JASSM 0M 0M $72,000 0.0%
JDAM 0M 0m $118,000 0.0%
JPATS /- /- $613,917,000 79.8%
F-35 (JSF) 0m 0m 0 0.0%
JSTARS 0M 0M $16,884,000 2.9%
JTRS AMF No record No record No record No record
Minuteman III 0m 0m
GRP 0 0.0%
Minuteman III 0M 0M
PRP $91,316,000 13.0%
NAS 0m /- $2,370,000 92.0%
NAVSTAR GPS 0M 0M $32,395,000 2.8%
NPOESS 0M 0m $90,000 0.0%
MP RTIP 0m 0m 0 0.0%
MPS No record No record No record No record
MQ-9 Predator B No data No data No data No data
SBIRS (High) 0m 0m 0 0.0%
SDB 0M 0M $546,000 0.3%
TITAN IV 0m 0m 0 0.0%
TSAT No record No record No record No record
Wideband 0M 0M
Gapfiller $4,281,000 6.8%
Source: GAO analysis of DOD and Air Force data.
Legend:
0m No commercial actions
0M Commercial actions
/- Commercial actions account for at least 75 percent of dollars obligated
Appendix VI: Citations for Commissions, Legislation, and Panel Shown in
Figure 1
1972-Commission on Government Procurement-See Report of the Commission on
Government Procurement, Vol. 3, Pt. D, "Acquisition of Commercial
Products," (Dec. 1972).
1984-Competition in Contracting Act of 1984-Pub. L. No. 98-369, Div. B,
Title VII.
1986-President's Blue Ribbon Commission on Defense Management (Packard
Commission)-A Quest for Excellence: Final Report to the President by the
President's Blue Ribbon Commission on Defense Management (June 1986),
60-64.
1986-National Defense Authorization Act for Fiscal Year 1987-Pub. L. No.
99-661, Div. A, Title IV, Sec. 907(a) (1986).
1993-Advisory Panel on Streamlining and Codifying Acquisition Laws (Sec.
800 Panel)-Established Pursuant to Section 800 of the National Defense
Authorization Act for Fiscal Year 1991, Pub. L. No. 101-510 (1990);
Streamlining Defense Acquisition Laws: Report of the Acquisition Law
Advisory Panel to the U.S. Congress, Intro. I-9 (1993).
1994-Federal Acquisition Streamlining Act-Pub. L. No. 103-355, Section
1202 and Title VIII (1994).
1996-Clinger-Cohen Act of 1996-Pub. L. No. 104-106, Div. D (1996),
formerly the Federal Acquisition Reform Act of 1996 and renamed in
Treasury, Postal Service and General Government Appropriations Act, 1997,
contained in Omnibus Consolidated Appropriations Act, 1997, Pub. L. No.
104-208, Section 808 (1996).
2003-Services Acquisition Reform Act of 2003-Pub. L. No. 108-136, Title
XIV, Section 1431, 1432 (2003).
Appendix VII: Comments from the Department of Defense
(120461)
GAO's Mission
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony
The fastest and easiest way to obtain copies of GAO documents at no cost
is through GAO's Web site ( www.gao.gov ). Each weekday, GAO posts newly
released reports, testimony, and correspondence on its Web site. To have
GAO e-mail you a list of newly posted products every afternoon, go to
www.gao.gov and select "Subscribe to Updates."
Order by Mail or Phone
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent. Orders should
be sent to:
U.S. Government Accountability Office 441 G Street NW, Room LM Washington,
D.C. 20548
To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061
To Report Fraud, Waste, and Abuse in Federal Programs
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: [email protected]
Automated answering system: (800) 424-5454 or (202) 512-7470
Congressional Relations
Gloria Jarmon, Managing Director, [email protected] (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125 Washington,
D.C. 20548
Public Affairs
Paul Anderson, Managing Director, [email protected] (202) 512-4800 U.S.
Government Accountability Office, 441 G Street NW, Room 7149 Washington,
D.C. 20548
www.gao.gov/cgi-bin/getrpt? GAO-06-995 .
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Katherine Schinasi at (202) 512-4841 or
[email protected].
Highlights of GAO-06-995 , a report to Subcommittee on Readiness and
Management Support, Committee on Armed Services, U.S. Senate
September 2006
DOD CONTRACTING
Efforts Needed to Address Air Force Commercial Acquisition Risk
The Department of Defense (DOD) has been urged by commissions,
legislation, and a panel to make increased use of commercial acquisition
to achieve certain benefits. To help ensure the increased use of
commercial acquisition, the Office of the Secretary of Defense (OSD)
established and the Air Force implemented two commercial acquisition goals
to be achieved by the end of fiscal year 2005. In setting these goals, OSD
expected that the increased use of commercial acquisition would provide
DOD with greater access to commercial markets (products and service types)
with increased competition, better prices, and new market entrants and/or
technologies. The committee asked GAO to identify (1) the extent to which
the Air Force has increased its use of commercial acquisition to obtain
expected benefits and (2) the risks that are associated with this use.
What GAO Recommends
GAO recommends that the Air Force collect information to be able to
measure the benefits expected from commercial acquisition and, to reduce
the potential for risk, limit sole-source acquisition of commercial
products and services in concert with DOD guidance. In written comments,
DOD agreed with the recommendations, in principle, and identified actions
to address them.
From 2001 to 2005, the Air Force increased spending using commercial
acquisition from $4.8 billion to over $8 billion in an effort to provide
greater access to commercial markets to increase competition, obtain
better prices, and attract new market entrants (nontraditional
contractors) and/or technologies (see fig. below). Even though the Air
Force has significantly increased this spending, it has not measured the
extent to which this increased use resulted in the benefits that were
expected. For example, our analysis shows that for at least one of the
expected benefits, attracting new market entrants, the expected benefit
has not materialized. For the most part, traditional defense contractors
received these contracts.
Government contracting officials face risks in using commercial
acquisition. For example, improperly classifying an acquisition as a
commercial acquisition can leave the Air Force vulnerable to accepting
prices that may not be the best value for the department. A high-ranking
DOD acquisition official testified that he is concerned about items and
services being identified as commercial that are not sold in an existing
marketplace because under these circumstances, the government lacks
assurances that the price is reasonable. At times, Air Force officials
have disagreed about the classification of some acquisitions as
commercial. The Air Force's use of commercial acquisition has also been
accompanied by an increased amount of dollars being awarded for
sole-source contracts. Despite DOD policy to avoid sole-source commercial
acquisitions because of increased risk, sole-source commercial acquisition
dollars awarded by the Air Force have more than doubled from 2000 to 2005.
Further, of the 20 larger Air Force commercial product awards in 2004,
half were awarded as sole-source.
Air Force Increases in Commercial Acquisition Spending, Fiscal Years
2001-2005
*** End of document. ***