Federal Contracting: Use of Contractor Performance Information	 
(18-JUL-07, GAO-07-1111T).					 
                                                                 
The federal government is the largest single buyer in the world, 
obligating over $400 billion in fiscal year 2006 for a wide	 
variety of goods and services. Because contracting is so	 
important to how many agencies accomplish their missions, it is  
critical that agencies focus on buying the right things the right
way. This includes ensuring that contracts are awarded only to	 
responsible contractors, and that contractors are held		 
accountable for their performance. Use of contractor performance 
information is a key factor in doing so. This testimony covers	 
three main areas concerning the use of contractor performance	 
information: (1) the various ways in which a contractor's	 
performance may be considered in the contracting process; (2) how
information on past performance is to be used in selecting	 
contractors, as well as the various mechanisms for how that	 
occurs; and (3) some of the key issues that have arisen in	 
considering past performance in source selection, as seen through
the prism of GAO's bid protest decisions. GAO has previously made
recommendations for improving the use of contractor performance  
information, but is not making any new recommendations in this	 
testimony.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-1111T					        
    ACCNO:   A72874						        
  TITLE:     Federal Contracting: Use of Contractor Performance       
Information							 
     DATE:   07/18/2007 
  SUBJECT:   Accountability					 
	     Contract oversight 				 
	     Contract performance				 
	     Contractor debarment				 
	     Federal procurement				 
	     Performance appraisal				 
	     Source selection					 
	     Evaluation criteria				 
	     Federal regulations				 
	     Policy evaluation					 

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GAO-07-1111T

   

     * [1]Contractor Performance Is to Be Considered at Multiple Point
     * [2]Past Performance Should Play a Key Role in Source Selection
     * [3]Issues in Using Past Performance in Source Selection
     * [4]GAO's Mission
     * [5]Obtaining Copies of GAO Reports and Testimony

          * [6]Order by Mail or Phone

     * [7]To Report Fraud, Waste, and Abuse in Federal Programs
     * [8]Congressional Relations
     * [9]Public Affairs

Testimony before the Subcommittee on Government Management, Organization,
and Procurement, Committee on Oversight and Government Reform, House of
Representatives

United States Government Accountability Office

GAO

For Release on Delivery
Expected at 2:00 p.m. EDT
Wednesday, July 18, 2007

FEDERAL CONTRACTING

Use of Contractor Performance Information

Statement of William T. Woods, Director
Acquisition and Sourcing Management

GAO-07-1111T

Mr. Chairman and Members of the Subcommittee:

Thank you for inviting me here today to discuss the use of contractor
performance information. The federal government is the largest single
buyer in the world, obligating over $400 billion in fiscal year 2006 for a
wide variety of goods and services. Spending on contracts across the
government has increased significantly in recent years and currently
represents about a quarter of discretionary spending governmentwide.
Because contracting is so important to how many agencies accomplish their
missions, it is critical that agencies focus on buying the right things
the right way. This includes ensuring that contracts are awarded only to
responsible contractors, and that contractors are held accountable for
their performance.

Today I would like to cover three main areas concerning the use of
contractor performance information. First, I will discuss the various ways
in which a contractor's performance may be considered in the contracting
process. Second, I will discuss in more detail how information on past
performance is to be used in selecting contractors, as well as the various
mechanisms for how that occurs. And third, I will highlight some of the
key issues that have arisen in considering past performance in source
selection, as seen through the prism of GAO's bid protest decisions.

In preparing this statement, we analyzed federal statutes, regulations,
and government-wide guidance, as well as more specific guidance from the
Departments of Defense (DOD), Energy (DOE), and Homeland Security (DHS)
concerning the use of contractor past performance information in awarding
contracts. We selected these agencies because they were the three largest
agencies in terms of federal contracting dollars obligated during fiscal
year 2006. We also reviewed prior GAO reports on related topics, as well
as relevant bid protest decisions. This statement is based primarily on
prior GAO work that was conducted in accordance with generally accepted
government auditing standards.

Contractor Performance Is to Be Considered at Multiple Points in the Contracting
Process

The government contracting process provides for consideration of various
aspects of contractor performance at multiple points:

           o Past performance as source selection factor: Only relatively
           recently have federal agencies been required to consider past
           performance in selecting their contractors. In 1997, the Federal
           Acquisition Regulation (FAR) was modified to require that agencies
           consider past performance information as an evaluation factor in
           source selection. Past performance is now required to be an
           evaluation factor in selecting contractors, along with factors
           such as price, management capability, and technical approach to
           the work.

           o Responsibility determinations: Once a contractor is selected for
           award, the contracting officer must make an affirmative
           determination that the prospective awardee is capable and ethical.
           This is known as a responsibility determination, and includes, for
           example, whether a prospective awardee has adequate financial
           resources and technical capabilities to perform the work, has a
           satisfactory record of integrity and business ethics, and is
           eligible to receive a contract under applicable laws and
           regulations.1 As part of the responsibility determination, the
           contracting officer also must determine that the prospective
           awardee has a "satisfactory performance record" on prior
           contracts. This determination of the prospective awardee's
           responsibility is separate from the comparison of the past
           performance of the competing offerors conducted for purposes of
           source selection.2

           o Surveillance of performance under the current contract: Once a
           contract is awarded, the government should monitor a contractor's
           performance throughout the performance period. Surveillance
           includes oversight of a contractor's work to provide assurance
           that the contractor is providing timely and quality goods or
           services and to help mitigate any contractor performance problems.
           An agency's monitoring of a contractor's performance may serve as
           a basis for past performance evaluations in future source
           selections. GAO reported in March, 2005 on shortfalls at DOD in
           assigning and training contract surveillance personnel, and
           recommended improvements in this area.

           o Suspension and debarment: Contractor performance also comes into
           play in suspensions and debarments. A suspension is a temporary
           exclusion of a contractor pending the completion of an
           investigation or legal proceedings, while a debarment is a
           fixed-term exclusion lasting no longer than 3 years. To protect
           the government's interests, agencies can debar contractors from
           future contracts for various reasons, including serious failure to
           perform to the terms of a contract. Suspensions and debarments
           raise a whole set of procedural and policy issues beyond past
           performance, not the least of which is the question of whether
           these are useful tools in an environment in which recent
           consolidations have resulted in dependence on fewer and larger
           government contractors. Questions have also been raised about
           whether delinquent taxes or an unresolved tax lien should result
           in suspension or debarment. A proposed revision to the FAR would
           list these tax issues as grounds for suspension or debarment.3 In
           July 2005, GAO reported on the suspension and debarment process at
           several federal agencies and recommended ways to improve the
           process.

1FAR S 9.104-1.

2FAR S 15.305(a)(2)(i).

Past Performance Should Play a Key Role in Source Selection

In the Federal Acquisition Streamlining Act (FASA) of 1994, Congress
stated that in the award of contracts, agencies should consider the past
performance of contractors to assess the likelihood of successful
performance of the contract. FASA required the adoption of regulations to
reflect this principle, and the FAR now requires the consideration of past
performance in award determinations. The Office of Federal Procurement
Policy (OFPP) has issued guidance on best practices for using past
performance information in source selection, and individual agencies have
issued their own guidance on implementing the FAR requirements.

For agencies under the FAR, a solicitation for a contract must disclose to
potential offerors all evaluation factors that will be used in selecting a
contractor. Agencies are required to consider past performance in all
negotiated procurements above the simplified acquisition threshold of
$100,000 and in all procurements for commercial goods or services.
Although past performance must be a significant evaluation factor in the
award process, agencies have broad discretion to set the precise weight to
be afforded past performance relative to other factors in the evaluation
scheme. Whatever they decide about weights, agencies must evaluate
proposals in accordance with the evaluation factors set forth in the
solicitation, and in a manner consistent with applicable statutes and
regulations. Agencies must allow offerors to identify past performance
references in their proposals, but also may consider information obtained
from any other source. In evaluating an offeror's past performance, the
agency must consider the recency and relevance of the information to the
current solicitation, the source and context of the information, and the
general trends in the offeror's past performance. Offerors who do not have
any past performance may not be evaluated favorably or unfavorably. That
is, they must receive a neutral rating.

3For more information on contractor tax compliance, see Tax Compliance:
Thousands of Federal Contractors Abuse the Federal Tax System,
[10]GAO-07-742T (Washington, D.C.: April 19, 2007).

In addition, the OFPP has issued guidance on best practices for
considering past performance data.4 Consistent with the FAR, OFPP guidance
states that agencies are required to assess contractor performance after a
contract is completed and must maintain and share performance records with
other agencies. The guidance encourages agencies to make contractor
performance records an essential consideration in the award of negotiated
acquisitions, and gives guidelines for evaluation. It also encourages
agencies to establish automated mechanisms to record and disseminate
performance information. If agencies use manual systems, the data should
be readily available to source selection teams. Performance records should
specifically address performance in the areas of: (1) cost, (2) schedule,
(3) technical performance (quality of product or service), and (4)
business relations, including customer satisfaction, using a five-point
rating scale.5

Agencies may also issue their own supplemental regulations or guidance
related to past performance information. All of the three largest
departments in federal procurement spending - the Department of Defense,
the Department of Energy, and the Department of Homeland Security -
provide at least some additional guidance in the use of past performance
data, addressing aspects such as the process to be followed for
considering past performance during contract award and what systems will
be used to store and retrieve past performance data. Below are some
examples that illustrate the types of guidance available.

           o DOD offers instruction on using past performance in source
           selection and contractor responsibility determinations through the
           Defense Federal Acquisition Regulation Supplement and related
           Procedures, Guidance, and Information. DOD's Office of Defense
           Procurement and Acquisition Policy also has made available a guide
           that provides more detailed standards for the collection and use
           of past performance information, including criteria applicable to
           various types of contracts.

           o DOE also provides additional guidance to contracting officers in
           the form of an acquisition guide that discusses current and past
           performance as a tool to predict future performance, including
           guidelines for assessing a contractor's past performance for the
           purpose of making contract award decisions as well as for making
           decisions regarding the exercise of contract options on existing
           contracts.

           o At DHS, the department's supplemental regulations outline which
           systems contracting officers must use to input and retrieve past
           performance data. Specifically, contracting officers and
           contracting officer representatives are required to input
           contractor performance data into the Contractor Performance
           System, managed by the National Institutes of Health, and use the
           Past Performance Information Retrieval System (PPIRS) - which
           contains contractor performance ratings from multiple government
           systems - to obtain information on contractor past performance to
           assist with source selection.

4Federal law gives the Office for Federal Procurement Policy the authority
to prescribe guidance for executive agencies regarding standards for (1)
evaluating past performance of contractors, and (2) collecting and
maintaining information on past contract performance. In May of 2000, OFPP
published discretionary guidance entitled "Best Practices for Collecting
and Using Current and Past Performance Information."

5The guidance also addresses the evaluation of affiliates, the contractor
comment process, and the retention of performance evaluation records.

Issues in Using Past Performance in Source Selection

Although a seemingly simple concept, using past performance information in
source selection can be complicated in practice. GAO has not evaluated the
practices that agencies use regarding contractor past performance
information in source selection or whether those practices promote better
contract outcomes. Our bid protest decisions, however, illustrate some of
the complexities of using past performance information as a predictor of
future contractor success. Some of these issues are listed below. In all
of these cases, the key consideration is whether the performance evaluated
can reasonably be considered predictive of the offeror's performance under
the contract being considered for award.

           o Who: One issue is whose performance agencies should consider.
           Source selection officials are permitted to rate the past
           performance of the prime contractor that submits the offer, the
           key personnel the prime contractor plans to employ, the major
           teaming partners or subcontractors, or a combination of any or all
           of these. For example, in one case, GAO found that the agency
           could consider the past performance of a predecessor company
           because the offeror had assumed all of the predecessor's accounts
           and key personnel, technical staff, and other employees.6 In
           another case, GAO held that an agency could provide in a
           solicitation for the evaluation of the past performance of a
           corporation rather than its key personnel.7

           o What: Also at issue is what information agencies are required or
           permitted to consider in conducting evaluations of past
           performance. The issue is one of relevancy. Agencies must
           determine which of the contractor's past contracts are similar to
           the current contract in terms of size, scope, complexity, or
           contract type. For example, is past performance building single
           family homes relevant to a proposal to build a hospital? Agencies
           do not have to consider all available past performance
           information. However, they should consider all information that is
           so relevant that it cannot be overlooked, such as an incumbent
           contractor's past performance. In one case, GAO found that an
           agency reasonably determined that the protester's past performance
           on small projects was not relevant to a contract to build a
           berthing wharf for an aircraft carrier.8

           o When: Agencies also have to determine the period of time for
           which they will evaluate the past performance of contractors.
           Agencies are required to maintain performance data for 3 years
           after the conclusion of a contract9 although agencies have
           discretion as to the actual length of time they consider in their
           evaluation of past performance and could, for example, choose a
           period longer than 3 years. In one case, GAO held that although
           the solicitation required the company to list contracts within a
           3-year time frame, the agency could consider contract performance
           beyond this timeframe because the solicitation provided that the
           government may "consider information concerning the offeror's past
           performance that was not contained in the proposal."10

           o Where: Once agencies determine who they will evaluate, what
           information they will consider, and the relevant time frame, they
           still may have difficulties obtaining past performance
           information. Agencies can obtain past performance information from
           multiple sources, including databases such as PPIRS - a
           centralized, online database that contains federal contractor past
           performance information. However, in 2006, the General Services
           Administration noted that PPIRS contains incomplete information
           for some contractors. Agencies may also obtain information from
           references submitted with proposals and reference surveys. One
           case illustrates how an agency evaluated a company based on
           limited past performance information. The agency assigned the
           company a neutral rating because the agency did not receive
           completed questionnaires from the company's references listing
           relevant work and the solicitation provided that it was the
           company's obligation to ensure that the past performance
           questionnaires were completed and returned.11

6Al Hamra Kuwait Co., B-288970, December 26, 2001.

7Olympus Bldg. Svcs., B-282887, August 31, 1999.

8Marathon Constr. Co., B-284816, May 22, 2000.

9FAR S42.1503(e).

10BST Systems, Inc., B-298761, B-298761.2, December 1, 2006.

These are just some of the many issues that have been the subject of
protests involving the use of past performance. Our cases are not
necessarily representative of what may be occurring throughout the
procurement system, but they do provide a window that allows us to get a
glimpse of how the issue is handled across a number of agencies. At a
minimum, however, our cases suggest that the relatively straightforward
concept of considering past performance in awarding new contracts has
given rise to a number of questions that continue to surface as that
concept is implemented.

Mr. Chairman, this concludes my statement. I would be happy to respond to
any questions you or other Members of the Subcommittee may have at this
time.

For further information regarding this testimony, please contact William
T. Woods at (202) 512-4841 or [11][email protected] . Individuals making key
contributions to this testimony included Carol Dawn Petersen, E. Brandon
Booth, James Kim, Ann Marie Udale, Anne McDonough-Hughes, Kelly A.
Richburg, Marcus Lloyd Oliver, Michael Golden, Jonathan L. Kang, Kenneth
Patton, and Robert Swierczek.

11American Floor Consultants, Inc., B-294530.7, June 15, 2006.

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To view the full product, including the scope and methodology, click on
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Highlights of [20]GAO-07-1111T , a testimony before the Subcommittee on
Government Management, Organization, and Procurement, Committee on
Oversight and Government Reform, House of Representatives

July 18, 2007

FEDERAL CONTRACTING

Use of Contractor Performance Information

The federal government is the largest single buyer in the world,
obligating over $400 billion in fiscal year 2006 for a wide variety of
goods and services. Because contracting is so important to how many
agencies accomplish their missions, it is critical that agencies focus on
buying the right things the right way. This includes ensuring that
contracts are awarded only to responsible contractors, and that
contractors are held accountable for their performance. Use of contractor
performance information is a key factor in doing so.

This testimony covers three main areas concerning the use of contractor
performance information: (1) the various ways in which a contractor's
performance may be considered in the contracting process; (2) how
information on past performance is to be used in selecting contractors, as
well as the various mechanisms for how that occurs; and (3) some of the
key issues that have arisen in considering past performance in source
selection, as seen through the prism of GAO's bid protest decisions.

GAO has previously made recommendations for improving the use of
contractor performance information, but is not making any new
recommendations in this testimony.

The government contracting process provides for consideration of various
aspects of contractor performance at multiple points:

           o Source selection: Past performance is required to be an
           evaluation factor in selecting contractors, along with factors
           such as price, management capability, and technical approach to
           the work.
           o Responsibility determinations: Once a contractor is selected for
           award, the contracting officer must make a responsibility
           determination that the prospective awardee is capable and ethical.
           This includes, for example, whether the prospective awardee has a
           satisfactory performance record on prior contracts.
           o Surveillance under the current contract: Once a contract is
           awarded, the government monitors a contractor's performance
           throughout the performance period, which may serve as a basis for
           performance evaluations in future source selections.
           o Debarment: To protect the government's interests, agencies can
           debar, that is preclude, contractors from receiving future
           contracts for various reasons, including serious failure to
           perform to the terms of a contract.

Agencies are required to consider past performance in all negotiated
procurements above the simplified acquisition threshold of $100,000 and in
all procurements for commercial goods or services. Although past
performance must be a significant evaluation factor in the award process,
agencies have broad discretion to set the precise weight to be afforded to
past performance relative to other factors in the evaluation scheme.
Whatever they decide about weights, agencies must evaluate proposals in
accordance with the evaluation factors set forth in the solicitation, and
in a manner consistent with applicable statutes and regulations. In
evaluating an offeror's past performance, the agency must consider the
recency and relevance of the information to the current solicitation, the
source and context of the information, and general trends in the offeror's
past performance. The key consideration is whether the performance
evaluated can reasonably be considered predictive of the offeror's
performance under the contract being considered for award.

Although a seemingly simple concept, using past performance information in
source selections can be complicated in practice. GAO bid protest
decisions illustrate some of the complexities of using past performance
information as a predictor of future contractor success. Some of the
questions raised in these cases are:

           o Who: Whose performance should the agencies consider?
           o What: What information are agencies required or permitted to
           consider in conducting evaluations of past performance?
           o When: What is the period of time for which agencies will
           evaluate the past performance of contractors?
           o Where: Where do agencies obtain contractor performance
           information?

References

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  15. mailto:[email protected]
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  18. fhttp://www.gao.gov/cgi-bin/getrpt?GAO-07-1111T
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  20. fhttp://www.gao.gov/cgi-bin/getrpt?GAO-07-1111T
*** End of document. ***