Defense Contracts: Contracting for Military Food Services under  
the Randolph-Sheppard and Javits-Wagner-O'Day Programs		 
(30-OCT-07, GAO-08-3).						 
                                                                 
Randolph-Sheppard and Javits-Wagner-O'Day (JWOD) are two federal 
programs that provide employment for persons with disabilities	 
through federal contracts. In 2006, participants in the two	 
programs had contracts with the Department of Defense (DOD) worth
$465 million annually to provide dining services at military	 
dining facilities. The 2007 National Defense Authorization Act	 
directed GAO to study the two programs. This report examines (1) 
differences in how the Randolph-Sheppard and JWOD programs	 
provide food services for DOD and (2) differences in how	 
contracts are awarded, prices are set, and program beneficiaries 
(i.e. persons with disabilities) are compensated. GAO interviewed
program officials, conducted a survey of states with		 
Randolph-Sheppard programs, and reviewed eight Randolph-Sheppard 
and six JWOD contracts. 					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-3						        
    ACCNO:   A77790						        
  TITLE:     Defense Contracts: Contracting for Military Food Services
under the Randolph-Sheppard and Javits-Wagner-O'Day Programs	 
     DATE:   10/30/2007 
  SUBJECT:   Contract costs					 
	     Defense industry					 
	     Department of Defense contractors			 
	     Employment of the disabled 			 
	     Employment opportunities				 
	     Federal/state relations				 
	     Food services contracts				 
	     Government contracts				 
	     Military facilities				 
	     Prices and pricing 				 
	     Procurement evaluation				 
	     Program evaluation 				 
	     Program management 				 
	     Service contracts					 
	     Javits-Wagner-O'Day Program			 
	     Randolph-Sheppard Vending Facility 		 
	     Program						 
                                                                 

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GAO-08-3

   

     * [1]Results in Brief
     * [2]Background
     * [3]Randolph-Sheppard Places Blind Individuals in Managerial Rol

          * [4]Randolph-Sheppard Relies on State Licensing Agencies to Plac
          * [5]The Committee for Purchase Works with NISH and Local Nonprof

     * [6]Programs Differ Regarding How Contracts Are Awarded and Pric

          * [7]Significant Differences Exist in How Randolph-Sheppard and J
          * [8]Randolph-Sheppard Vendors Generally Receive a Percentage of

     * [9]Concluding Observations
     * [10]Agency Comments and Our Evaluation
     * [11]GAO Contacts
     * [12]Staff Acknowledgments
     * [13]GAO's Mission
     * [14]Obtaining Copies of GAO Reports and Testimony

          * [15]Order by Mail or Phone

     * [16]To Report Fraud, Waste, and Abuse in Federal Programs
     * [17]Congressional Relations
     * [18]Public Affairs
     * [19]PDF6-Ordering Information-Young-10-25-07.pdf

          * [20]GAO's Mission
          * [21]Obtaining Copies of GAO Reports and Testimony

               * [22]Order by Mail or Phone

          * [23]To Report Fraud, Waste, and Abuse in Federal Programs
          * [24]Congressional Relations
          * [25]Public Affairs

Report to Congressional Committees

United States Government Accountability Office

GAO

October 2007

DEFENSE CONTRACTS

Contracting for Military Food Services under the Randolph- Sheppard and
Javits- Wagner-O'Day Programs

GAO-08-3

Contents

Letter 1

Results In Brief 3
Background 4
Randolph-Sheppard Places Blind Individuals in Managerial Roles, while JWOD
Employs Persons with Disabilities in Less Skilled Jobs 8
Programs Differ Regarding How Contracts Are Awarded and Priced, and How
Program Beneficiaries Are Compensated 14
Concluding Observations 20
Agency Comments and Our Evaluation 21
Appendix I Scope and Methodology 23
Appendix II Comments from the Department of Defense 25
Appendix III Comments from the Department of Education 26
Appendix IV GAO Contacts and Staff Acknowledgments 29
Related GAO Products 30

Tables

Table 1: Comparison of Randolph-Sheppard and JWOD Program Procedures 13
Table 2: Randolph-Sheppard Contracts Reviewed with Contract Award
Information 16
Table 3: JWOD Contracts Reviewed with Contract Award Information 17
Table 4: Estimated Average Hourly and Annual Wages Earned at Three JWOD
Sites Visited 20

Figures

Figure 1: Location of Randolph-Sheppard and JWOD Military Dining
Facilities as of October 17, 2006 6
Figure 2: Randolph-Sheppard Program Overview 9
Figure 3: JWOD Program Overview 12
Figure 4: Number and Average of Randolph-Sheppard Blind Vendors'
Compensation within Designated Dollar Ranges (rounded to nearest 100
dollars) 18

Abbreviations

DCAA Defense Contract Audit Agency
DOD Department of Defense
FAR Federal Acquisition Regulation
JWOD Javits-Wagner-O'Day
SCA Service Contract Act

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United States Government Accountability Office
Washington, DC 20548

October 30, 2007

The Honorable Tom Lantos: 
Chairman: 
The Honorable Ileana Ros-Lehtinen: 
Ranking Member: 
Committee on Foreign Affairs: 
House of Representatives:

The Honorable Thelma Drake: 
House of Representatives: 

The Randolph-Sheppard Vending Facility program (Randolph-Sheppard) and
Javits-Wagner-O'Day program (JWOD)^1 are two federal programs that provide
employment for individuals with disabilities using federal contracts. In
2006, participants from both programs had food service contracts with the
Department of Defense (DOD) worth about $465 million annually to manage
and/or support the operation of military dining facilities. Historically,
though both programs provided employment for disabled individuals, they
pursued different types of federal contracts. Randolph-Sheppard, which is
regulated by the Department of Education (Education) and implemented by
the states through state licensing agencies, arranged for blind vendors to
manage snack bars and to service vending machines on federal properties,
while the JWOD program provided a variety of goods and services to the
federal government, including food-related services. However, changes over
time have led to competition between the two programs. In 1974, amendments
to the Randolph-Sheppard Act expanded the scope of the program to include
the operation of cafeterias on federal property.^212 In 2001 and 2003, two
court The Randolph-Sheppard Vending Facility program (Randolph-Sheppard)
and Javits-Wagner-O'Day program (JWOD) are two federal programs that
provide employment for individuals with disabilities using federal
contracts. In 2006, participants from both programs had food service
contracts with the Department of Defense (DOD) worth about $465 million
annually to manage and/or support the operation of military dining
facilities. Historically, though both programs provided employment for
disabled individuals, they pursued different types of federal contracts.
Randolph-Sheppard, which is regulated by the Department of Education
(Education) and implemented by the states through state licensing
agencies, arranged for blind vendors to manage snack bars and to service
vending machines on federal properties, while the JWOD program provided a
variety of goods and services to the federal government, including
food-related services. However, changes over time have led to competition
between the two programs. In 1974, amendments to the Randolph-Sheppard Act
expanded the scope of the program to include the operation of cafeterias
on federal property. In 2001 and 2003, two court cases determined that
cafeterias included military dining facilities, which ultimately led to
competition between the Randolph-Sheppard and JWOD programs for contracts
at DOD dining facilities.

^1 JWOD has changed its name to AbilityOne but will continue to use JWOD
until it is phased out in 2008. For the purposes of this report, we will
refer to the program as JWOD since that was the name of the program at the
time the contracts we reviewed were awarded.

^2 Pub. L. No. 93-516 (1974).

The National Defense Authorization Act for Fiscal Year 2007 addressed this
competition between the two programs by reserving certain contracts for
each.^3 In an effort to obtain additional insight into how the two
programs operate with respect to DOD food service contracts, the act also
required us to examine a sample of Randolph-Sheppard and JWOD food
services contracts that were in effect as of October 17, 2006. More
specifically, we were required to examine (1) differences in operational
procedures for how the Randolph-Sheppard and JWOD programs provide food
services for DOD, and (2) differences in how the contracts are awarded,
how prices are determined, and how program beneficiaries (i.e. persons
with disabilities) are compensated.

To address these objectives, we reviewed pertinent documents and
interviewed officials from DOD, Education, an independent federal agency
called the Committee for Purchase from People Who are Blind or Severely
Disabled (Committee for Purchase); and organizations representing both the
Randolph-Sheppard and JWOD programs. We reviewed a sample of 14
contracts--8 Randolph-Sheppard and 6 JWOD contracts. We determined that
conducting a representative sample was not feasible based on our
preliminary work, which indicated wide variations in how the two programs
are structured and in how the Randolph-Sheppard program is administered
from state to state. For these reasons, we selected a number of contracts
representing both programs and each of the military services, as well as
contracts that vary in terms of dollar value, size of military facilities,
and geographic location. As the sample was not representative, results of
our review cannot be projected to the entire universe of contracts. To
gather information on the responsibilities and compensation of blind
vendors, and their relationships with state licensing agencies, we
conducted a survey of the 24 states that have Randolph-Sheppard dining
facility contracts with DOD. All 24 states responded to our survey and
provided information for 39 military dining facilities contracts. In
addition, we visited military installations for 5 of the 14 contracts in
our sample to conduct file reviews, observe dining facility operations,
and conduct in-depth interviews with pertinent officials and staff. We
selected site visits based on contracts administered under either the
Randolph-Sheppard or JWOD program, contract size, geographic dispersion,
and DOD military service. In terms of beneficiary compensation, we limited
our review to Randolph-Sheppard blind vendors and JWOD workers. Appendix I
contains more details about our scope and methodology. We conducted our
work between November 2006 and August 2007 in accordance with generally
accepted government auditing standards.

^3 Pub. L. No. 109-364 (2007).

Results in Brief

In providing DOD with food services, the Randolph-Sheppard and JWOD
programs use different operational procedures to create employment
opportunities for individuals with disabilities. The Randolph-Sheppard
program uses state licensing agencies to train blind vendors to serve as
managers of DOD dining facilities. The licensing agencies serve as prime
contractors and place the blind vendor with an appropriate dining
facility. In a majority of contracts in our survey, the licensing agencies
utilize commercial food service companies--referred to as "teaming
partners"--who work with blind vendors to provide expertise and financial
resources necessary to operate the military dining facility. Based on our
survey results, about half of the blind vendors are required to employ at
least some blind persons or individuals with other disabilities, and on
average, 18 percent of their employees have a disability. Under the JWOD
program, an independent federal agency--the Committee for Purchase--works
through a central nonprofit agency to match DOD's needs with services
provided by local nonprofit agencies, such as branches of Goodwill
Industries. Most of the disabled individuals working for these local
nonprofit agencies are employed in less skilled jobs such as cleaning
tables, washing pots and pans, or serving food.

There are significant differences between the Randolph-Sheppard and JWOD
programs in terms of how contracts are awarded and priced, and how program
beneficiaries are compensated. Under the Randolph-Sheppard program, the
state licensing agencies are awarded food service contracts either by
direct negotiations with DOD or through competition with other food
service companies. The prices are negotiated between the state licensing
agency and DOD based on various factors, including historical prices,
independent government estimates, the proposal submitted by the state
licensing agency, or the prices offered by other competitors. Under the
JWOD program, competition is not a factor because DOD is required by
regulation to purchase food services from a list maintained by the
Committee for Purchase. Contracts are awarded at fair market prices
established by the Committee for Purchase. The two programs also differ in
terms of how program beneficiaries are compensated. The Randolph-Sheppard
blind vendors generally receive a percentage of the profits from the
dining facility contracts, while JWOD beneficiaries receive hourly wages
and benefits stipulated by federal law. Randolph-Sheppard vendors each
received, on average, pretax compensation of about $276,500 annually,
while JWOD beneficiaries at the three sites we visited earned, on average,
wages of $13.15 per hour including fringe benefits. Any direct comparison
of the Randolph-Sheppard and JWOD beneficiaries' compensation is difficult
because Randolph-Sheppard blind vendors have managerial positions whereas
JWOD disabled workers generally have less skilled positions.

The Committee for Purchase, DOD, and Education reviewed a draft of this
report. The Committee for Purchase had no comments. DOD concurred with the
draft and also provided technical comments for our consideration which
were incorporated as appropriate. Education provided clarifications and
suggestions in a number of areas that were incorporated as appropriate.

Background

The Randolph-Sheppard Act created a vending facility program in 1936 to
provide blind individuals with more job opportunities and to encourage
their self-support.^4 The program trains and employs blind individuals to
operate vending facilities on federal property. While Randolph-Sheppard is
under the authority of the Department of Education, the states
participating in this program are primarily responsible for program
operations. State licensing agencies, under the auspices of the state
vocational rehabilitation programs, operate the programs in each state.
Federal law gives blind vendors under the program a priority to operate
cafeterias on federal property. ^5 Current DOD guidance implementing this
priority directs that a state licensing agency be awarded a contract if
its contract proposal is in the competitive range. In fiscal year 2006,
all of the activities of the Randolph-Sheppard program generated $692.2
million in total gross income and had a total of 2,575 vendors operating
in every state except for Wyoming.

In 1938 the Wagner-O'Day Act established a program designed to increase
employment opportunities for persons who are blind so they could
manufacture and sell certain goods to the federal government. In 1971, the
Javits-Wagner-O'Day Act amended the program to include people with other
severe disabilities and allowed the program to provide services as well as
goods.^6 The JWOD Act established the Committee for Purchase, which
administers the program. The Committee for Purchase is required by law to
designate one or more national nonprofit agencies to facilitate the
distribution of federal contracts among qualified local nonprofit
agencies. The designated national agencies are the National Industries for
the Blind and NISH,^7 which represent local nonprofit agencies employing
individuals who are blind or have severe disabilities. These designated
national agencies charge fees for the services provided to local nonprofit
agencies. Effective on October 1, 2006, the maximum fee is 3.83 percent of
the revenue of the contract for the National Industries for the Blind, and
3.75 percent for NISH. The purpose of these fees is to provide operating
funds for these two agencies. In fiscal year 2006, more than 600 JWOD
nonprofit agencies provided the federal government with goods and services
worth about $2.3 billion. The JWOD program provided employment for about
48,000 people who are blind or have severe disabilities.

^4 Pub. L. No. 74-732 (1936).

^5 20 U.S.C. S 107d-3(e).

Military dining contracts under the Randolph-Sheppard and JWOD programs
provide varying levels of service, ranging from support services to
full-food services. Support services include activities such as food
preparation and food serving. Full-food service contracts provide for the
complete operation of facilities, including day-to-day decision making for
the operation of the facility. As of October 17, 2006, DOD had 39
Randolph-Sheppard contracts in 24 different states. These contracts had an
annual value of approximately $253 million and were all for full-food
services. At the same time, DOD had 53 JWOD contracts valued at $212
million annually.^8 Of these, 39 contracts were for support services and
15 were for full-food service.^9 Figure 1 shows the distribution of
Randolph-Sheppard and JWOD contracts with DOD dining facilities across the
country.

^6 Pub. L. No. 92-28 (1971).

^7 NISH was previously known as the National Industries for the Severely
Handicapped.

^8 Of the 53 contracts, the JWOD nonprofit agencies were generally the
prime contractor. However in a few cases, some nonprofit agencies are the
subcontractors, such as under the two Marine Corps contracts.

^9 One contractor provided full-food services at some dining facilities
and support services at another dining facility.

Figure 1: Location of Randolph-Sheppard and JWOD Military Dining
Facilities as of October 17, 2006

In 1974, amendments to the Randolph-Sheppard Act expanded the scope of the
program to include cafeterias on federal property. According to a DOD
official, when DOD began turning increasingly to private contractors
rather than using its own military staff to fulfill food service functions
in the 1990s, state licensing agencies under the Randolph-Sheppard program
began to compete for the same full-food services contracts for which JWOD
traditionally qualified. This development led to litigation, brought by
NISH, over whether the Randolph-Sheppard Act applied to DOD dining
facilities. Two decisions by federal appeals courts held that the
Randolph-Sheppard Act applied because the term "cafeteria" included DOD
dining facilities.^10 The courts also decided that if both programs
pursued the full-food service contracts for DOD dining facilities,
Randolph-Sheppard had priority.

Congress enacted section 848 of the National Defense Authorization Act for
Fiscal Year 2006 requiring the key players involved in each program to
issue a joint policy statement about how DOD food services contracts were
to be allocated between the two programs. ^11 In August 2006, DOD,
Education, and the Committee for Purchase issued a policy statement that
established certain guidelines, including the following:

           o The Randolph-Sheppard program will not seek contracts for dining
           support services that are on the JWOD procurement list, and
           Randolph-Sheppard will not seek contracts for operation of a
           dining facility if the work is currently being performed under the
           JWOD program; JWOD will not pursue prime contracts for operation
           of dining facilities at locations where an existing contract was
           awarded under the Randolph-Sheppard program (commonly known as the
           "no-poaching" provision).
           o For contracts not covered under the no-poaching provision, the
           Randolph-Sheppard program may compete for contracts from DOD for
           full-food services; and the JWOD program will receive contracts
           for support services.
           o If the needed support services are on the JWOD procurement list,
           the Randolph-Sheppard contractor is obligated to subcontract for
           those services from JWOD.
           o In affording a priority to a state licensing agency when
           contracts are competed and the Randolph-Sheppard Act applies, the
           price of the state licensing agency's offer will be considered to
           be fair and reasonable if it does not exceed the best value offer
           from other competitors by more than 5 percent or $1 million,
           whichever is less.

Congress enacted the no-poaching provision in section 856 of the National
Defense Authorization Act for Fiscal Year 2007.^12 A recent GAO bid
protest decision determined that adherence to the other provisions of the
policy statement was not mandatory until DOD and the Department of
Education change their existing regulations.^13 As of July 2007, neither
agency had completed updating its regulations.

^10 NISH v. Rumsfeld, 348 F.3d 1263 (10th Cir. 2003); NISH v. Cohen, 247
F.3d 197 (4th Cir. 2001).

^11 Pub. L. No. 109-163 (2006).

^12 Pub. L. No. 109-364 (2007).

Randolph-Sheppard Places Blind Individuals in Managerial Roles, while JWOD
Employs Persons with Disabilities in Less Skilled Jobs

The Randolph Sheppard and JWOD programs utilize different operating
procedures to provide dining services to DOD. For the Randolph-Sheppard
program, state licensing agencies act as prime contractors, and train and
license blind vendors to operate dining facilities. For the JWOD program,
the Committee for Purchase utilizes NISH to act as a central nonprofit
agency and match DOD needs for dining services with local nonprofit
agencies able to provide the service. JWOD employees generally fill less
skilled jobs such as cleaning dining facilities or serving food.

Randolph-Sheppard Relies on State Licensing Agencies to Place Blind Vendors as
Managers of Dining Facilities

Education is responsible for overseeing the Randolph-Sheppard program, but
relies on state licensing agencies to place blind vendors as dining
facility managers. The Department of Education certifies state licensing
agencies and is responsible for ensuring that their procedures are
consistent with Randolph-Sheppard regulations.^14 According to our survey,
state licensing agencies act as prime contractors on Randolph-Sheppard
contracts, meaning that they hold the actual contract with DOD. The state
licensing agencies are responsible for training blind vendors to serve as
dining facility managers and placing them in facilities as new contracting
opportunities become available. According to our survey, the state issues
the vendor a license to operate the facility upon the successful
completion of the training program. Furthermore, many states said this
process often includes both classroom training and on-the-job training at
a facility. Figure 2 depicts how the Randolph-Sheppard program is
generally structured.

^13 GAO Decision re: Moore's Cafeteria Services, d/b/a MCS Management:
B-299539, (Washington D.C., June 5, 2007).

^14 Past GAO work, however, found that Education provided little oversight
of this program and performed few on-site reviews of state licensing
agencies in recent years. See GAO, Federal Disability Assistance: Stronger
Federal Oversight Could Help Assure Multiple Programs' Accountability,
[26]GAO-07-236 (Washington, D.C.: Jan. 26, 2007).

Figure 2: Randolph-Sheppard Program Overview

Responding to our survey, state licensing agencies reported that all blind
vendors have some level of managerial responsibility for each of the 39
Randolph-Sheppard contracts. Specific responsibilities may include
managing personnel, coordinating with military officials, budgeting and
accounting, and managing inventory. An official representing state
licensing agencies likened the vendor's role to that of an executive and
said the vendor is responsible for meeting the needs of his or her
military customer. At one facility we visited, the vendor was responsible
for general operations, ensuring the quality of food, and helped develop
new menu selections. Of the 37 contracts where the state licensing
agencies provided information regarding whether the blind vendor visits
his or her facility, all stated that their blind vendors visit their
facilities, and in most cases are on site every day. Additionally, most
state licensing agencies told us that they have an agreement with the
blind vendor that lays out the state licensing agency's expectations of
the blind vendor and defines the vendor's job responsibilities.

Most state licensing agencies rely on private food service companies to
provide the expertise to help operate dining facilities. According to our
survey, 33 of the 39 Randolph-Sheppard contracts relied on a food service
company--known as a teaming partner--to provide assistance in operating
dining facilities. The survey showed that in many cases, the blind vendor
and teaming partner form a joint venture company to operate the facility
with the vendor as the head of the company. The teaming partner can
provide technical expertise, ongoing training, and often extends the
vendor a line of credit and insurance for the operation of the facility.
Officials representing state licensing agencies told us that states are
often unable to provide these resources, and for large contracts these
start-up costs may be beyond the means of the blind vendor and the state
licensing agency. According to our survey, the teaming partner may assist
the state in negotiating and administering the contract with DOD.
Additionally, state licensing agencies told us that they often enter into
a teaming agreement that defines the responsibilities of the teaming
partner.

For 6 of the 39 contracts, the state licensing agencies reported that the
blind vendor operates the dining facility without a teaming partner. We
visited one of these locations and learned that the vendor has his own
business that he uses to operate the facility. This particular vendor had
participated in the Randolph-Sheppard program for almost 20 years and
operated various other dining facilities.

In our survey, state licensing agencies reported that vendors in about
half (20 of 39) of the contracts are required to employ individuals who
are blind or have other disabilities, while others have self-imposed
goals.^15 In other cases there may be no formal hiring requirements, but
the state licensing agency encourages the blind vendor to hire individuals
with disabilities. Based on survey responses we received for 30 contracts,
we calculated that the percentage of persons with disabilities working at
Randolph-Sheppard dining facilities ranged from 3 percent to 72
percent,^16 with an average of 18 percent.^17

^15 The Randolph-Sheppard Act does not require blind vendors to employ
other individuals with disabilities.

The Committee for Purchase Works with NISH and Local Nonprofit Agencies to
Employ Individuals with Disabilities in DOD Dining Facilities

The Committee for Purchase works with NISH to match DOD's need for
services with nonprofit agencies able to provide food services. For
military food service contracts, NISH acts as a central nonprofit agency
and administers the program on behalf of the Committee for Purchase. In
this role, NISH works with DOD to determine if it has any new requirements
for dining services. When it identifies a need, NISH will search for a
nonprofit agency that is able to perform the required service. NISH then
facilitates negotiations between DOD and the nonprofit agency, and submits
a proposal to the Committee for Purchase requesting that the specific
service be added to the JWOD procurement list. If the Committee for
Purchase approves the addition, DOD is required by the Federal Acquisition
Regulation (FAR) to obtain the food service from the entity on the
procurement list. ^18 In some instances, a private food service company is
awarded a military dining facility contract and then subcontracts with a
JWOD nonprofit agency to provide either full or support food services. For
example, the Marine Corps awarded two regional contracts to Sodexho--a
large food service company--to operate its dining facilities on the East
and West Coasts. Sodexho is required by its contracts to utilize JWOD
nonprofit agencies and uses these nonprofit agencies to provide food
services and/or support services at selected Marine Corps bases. Figure 3
depicts the JWOD program structure.

^16 This latter value is for Fort Carson, Colorado, where the state
licensing agency subcontracts with a JWOD agency for support services as
part of a settlement of litigation that arose when the Army decided to
convert contracted work from JWOD to Randolph-Sheppard.

^17 An official representing state licensing agencies, however, cautioned
us that some figures reported by states may be low because the states only
recently began to collect this information.

^18 The FAR establishes uniform policies for acquisition of supplies and
services by executive agencies.

Figure 3: JWOD Program Overview

^aOccasionally, a local nonprofit agency will use a commercial food service
company for baking and cooking services.

Most JWOD employees at military dining facilities perform less skilled
jobs as opposed to having managerial roles. At the facilities we visited,
we observed that employees with disabilities (both mental and physical)
performed tasks such as mopping floors, serving food, and cleaning pots
and pans after meals. Officials from NISH said this is generally true at
JWOD dining facilities, including facilities where the nonprofit agency
provides full-food service. Additionally, we observed--and NISH
confirmed--that most supervisors are persons without disabilities. At one
facility we visited, for example, the nonprofit supervisor oversees
employees with disabilities who are responsible for keeping the facility
clean and serving food. The Committee for Purchase requires that agencies
associated with NISH perform at least 75 percent of their direct labor
hours with people who have severe disabilities. For nonprofit agencies
with multiple JWOD contracts, the 75 percent direct labor requirement is
based on the total for all of these contracts. Therefore one contract may
be less than 75 percent but another contract must be greater than 75
percent in order for the total of these contracts to meet the 75 percent
requirement. NISH is responsible for ensuring that nonprofit agencies
comply with this requirement, and we previously reported that it performs
site visits to all local nonprofit agencies every three years, in order to
ensure compliance with relevant JWOD regulations.^19 At the three JWOD
facilities we visited, officials reported that the actual percentage of
disabled individuals employed was 80 percent or higher. Table 1 provides a
comparison of the Randolph-Sheppard and JWOD programs' operating
procedures.

Table 1: Comparison of Randolph-Sheppard and JWOD Program Procedures

Administration; 
Randolph-Sheppard: Education is responsible for oversight, but Randolph-
Sheppard is operated at the state level by a state licensing agency 
under the auspices of the state vocational rehabilitation agency; 
JWOD: Administered by the Committee for Purchase through NISH, its 
central nonprofit agency. 

Who provides service; 
Randolph-Sheppard: Blind vendor, usually with the assistance of a 
teaming partner; 
JWOD: Local nonprofit agency using blind or severely disabled workers. 

Dining contracts (as of 10/06); 
Randolph-Sheppard: 39 contracts worth about $253 million per year; 
JWOD: 53 contracts worth about $212 million per year. 

Requirements to employ persons with disabilities; 
Randolph-Sheppard: According to responses to our survey, some 
requirement exists for 20 of 39 blind vendors. Other vendors may hire 
disabled individuals even without a requirement. On average, about 18 
percent of workers are disabled; 
JWOD: The Committee for Purchase requires that participating nonprofit 
agencies perform at least 75 percent of direct labor hours with persons 
with disabilities. 

Source: GAO analysis.

^19 [27]GAO-07-236 .

Programs Differ Regarding How Contracts Are Awarded and Priced, and How Program
Beneficiaries Are Compensated

The Randolph-Sheppard and JWOD programs have significant differences in
terms of how contracts are awarded and priced, and in the compensation
provided to beneficiaries who are blind or have other disabilities. Under
the Randolph-Sheppard program, federal law provides for priority for blind
vendors and state licensing agencies in the operation of a cafeteria. This
priority may come into play when contracts are awarded either by direct
noncompetitive negotiations or through competition with other food service
companies. Regardless of how the contract is awarded, the prices are
negotiated between the state licensing agency and DOD. Under the JWOD
program, competition is not a factor because DOD is required to purchase
food services from a list maintained by the Committee for Purchase.
Contracts are awarded at fair market prices established by the Committee
for Purchase. The two programs also differ in terms of how program
beneficiaries are compensated. Under the Randolph-Sheppard program, blind
vendors generally receive a share of the profits, while JWOD beneficiaries
receive hourly wages and fringe benefits under federal law or any
applicable collective bargaining agreement. Randolph-Sheppard blind
vendors received, on the average, pretax compensation of about $276,500
annually, while JWOD workers at the three sites visited earned on average
$13.15 per hour, including fringe benefits.

Significant Differences Exist in How Randolph-Sheppard and JWOD Contracts Are
Awarded and Priced

Although contracts for food services awarded under the Randolph-Sheppard
and JWOD programs use the terms and conditions generally required for
contracts by the FAR,^20 the procedures for awarding and pricing contracts
under the two programs differ considerably. Under the Randolph-Sheppard
program, Education's regulations provide for giving priority to blind
vendors in the operation of cafeterias on federal property, provided that
the costs are reasonable and the quality of the food is comparable to that
currently provided. The regulations provide for two procedures to
implement this priority. First, federal agencies, such as the military
departments, may engage in direct, noncompetitive negotiations^21 with a
state licensing agency. Of the eight Randolph-Sheppard contracts we
reviewed in detail, six had been awarded through direct negotiations with
the state licensing agency. In most of the eight cases, the contract was a
follow-on to an expiring food service contract. The second award procedure
involves the issuance of a competitive solicitation inviting proposals
from all potential food service providers, including the relevant state
licensing agency. The solicitation will specify the criteria for
evaluating proposals, such as management capability, past performance, and
price, and DOD will use these criteria to evaluate the proposals received.
When the competitive process is used, DOD policy provides for selecting
the state licensing agency for award if its proposal is in the
"competitive range."^22 Of the eight Randolph-Sheppard contracts we
reviewed, only two involved a solicitation open to other food service
providers, and there was no case in which more than one acceptable
proposal was received such that DOD was required to determine a
competitive range.^23

^20 The Department of Defense has a supplementary regulation to the FAR
called the Department of Defense FAR Supplement (DFARS). The current DFARS
does not offer any additional guidance on these programs.

^21 Direct negotiations may be undertaken with state licensing agencies
whenever the on-site official with the concurrence of the head of the
agency has determined that the state licensing agency through its blind
licensee can provide the cafeteria services required at a reasonable cost
with food of high quality comparable to that available from other
providers of cafeteria services.

The prices of contracts under the Randolph-Sheppard program are negotiated
between DOD and the state licensing agency, regardless of whether DOD uses
direct negotiations or seeks competitive proposals. Negotiations in either
case typically begin with a pricing proposal submitted by the state
licensing agency, and will then involve a comparison of the proposed price
with the prices in previous contracts, an independent government estimate,
or the prices offered by other competitors, if any. In some cases, DOD
will seek the assistance of the Defense Contract Audit Agency (DCAA) in
assessing various cost aspects of a proposal. All of the Randolph-Sheppard
contracts we reviewed were generally firm, fixed price. Some had
individual line items that provided for reimbursing the food service
provider for certain costs incurred, such as equipment maintenance or
replacing items. In most cases, the contract was for a base year, and
provided for annual options (usually four) that may be exercised at the
discretion of DOD. Of the 39 Randolph-Sheppard contracts within the scope
of our review, the average price for the current year of the contract was
about $6.5 million. Table 2 shows the 8 Randolph-Sheppard contracts in our
sample with selected contract information.

^22 DOD Directive 1125.3, Vending Facility Program for the Blind on
Federal Property (April 7, 1978). The FAR explains that the competitive
range shall be comprised of all the most highly rated proposals.

^23 Our sample of contracts was not representative and findings from these
eight contracts cannot be extrapolated to all Randolph-Sheppard military
dining contracts.

Table 2: Randolph-Sheppard Contracts Reviewed with Contract Award
Information

Table 2: Randolph-Sheppard Contracts Reviewed with Contract Award 
Information: 

Military base: Maxwell Air Force Base, AL; 
Military service: Air Force; 
Acquisition method: Competitive solicitation. Six proposals received 
but only the state licensing agency's was acceptable; 
Base period award amount[A]: $3,793,197; 
Method used to determine fair and reasonable price: Government estimate 
based on historic data. 

Military base: Fort Carson, CO[B]; 
Military service: Army; 
Acquisition method: Direct negotiation; 
Base period award amount[A]: $5,684,038; 
Method used to determine fair and reasonable price: Independent 
government estimate. 

Military base: Aberdeen Proving Ground, MD; 
Military service: Army; 
Acquisition method: Competitive solicitation issued. Only state 
licensing agency competed; 
Base period award amount[A]: $4,889,495; 
Method used to determine fair and reasonable price: Proposal reviewed 
in consultation with DCAA. 

Military base: Meridian Naval Air Station, MS; 
Military service: Navy; 
Acquisition method: Direct negotiation; 
Base period award amount[A]: $592,028; 
Method used to determine fair and reasonable price: Data not provided. 

Military base: Fort Monmouth, NJ; 
Military service: Army; 
Acquisition method: Direct negotiation; 
Base period award amount[A]: $1,310,678[C]; 
Method used to determine fair and reasonable price: Independent 
government estimate. 

Military base: Kirtland Air Force Base, NM; 
Military service: Air Force; 
Acquisition method: Direct negotiation; 
Base period award amount[A]: $1,821,383; 
Method used to determine fair and reasonable price: Independent 
government estimate. 

Military base: Fallon Naval Air Station, NV; 
Military service: Navy; 
Acquisition method: Direct negotiation; 
Base period award amount[A]: $1,178,214; 
Method used to determine fair and reasonable price: Data not provided. 

Military base: Fort Lee, VA[B]; 
Military service: Army; 
Acquisition method: Direct negotiation; 
Base period award amount[A]: $9,530,996; 
Method used to determine fair and reasonable price: Independent 
government estimate. 

Source: GAO analysis of selected Randolph-Sheppard contracts

^aThis amount reflects the contracts' base period award amounts, which in
some cases was less than 1 full year.

^bFor two contracts in our sample, at Fort Lee and Fort Carson, the Army
awarded the full-food service contract to the state licensing agency, but
stipulated in the contract that the state licensing agency had to
subcontract a portion of the work to a JWOD entity that had previously
been performing the work.

cThis number represents the first option year of the contract because the
base award amount reflected only a 2-week transition period.

Under Part 8 of the FAR, the JWOD program is a mandatory source of supply,
requiring DOD to award contracts to the listed nonprofit entity at fair
market prices established by the Committee for Purchase.^24 There is no
further competition. Table 3 shows the 6 JWOD contracts in our sample with
selected contract information.

^24 Under FAR section 8.707(f), ordering offices may suggest price changes
to the Committee for Purchase at any time.

Table 3: JWOD Contracts Reviewed with Contract Award Information

Military base: Vandenberg Air Force Base, CA; 
Military service: Air Force; 
Base period award amount[A]: $ 3,517,014. 

Military base: Naval Training Center Great Lakes, IL; 
Military service: Navy; 
Base period award amount[A]: $45,808,772[B]. 

Military base: Holloman Air Force Base, NM; 
Military service: Air Force; 
Base period award amount[A]: $ 1,218,769. 

Military base: Mid Atlantic Regional Bases (Norfolk, Yorktown, Little 
Creek, Oceana, and Dam Neck); 
Military service: Navy; 
Base period award amount[A]: $ 8,460,812. 

Military base: Marine Corps Western Regional Bases[C]; 
Military service: Marine Corps; 
Base period award amount[A]: $53,825,936[D]. 

Military base: Marine Corps Eastern Regional Bases[C]; 
Military service: Marine Corps; 
Base period award amount[A]: $53,737,662[ D]. 

Source: GAO analysis of selected JWOD contracts.

^aThis amount reflects the contracts' base period award amounts, which in
some cases was less than one full year. These award amounts include a fee
that is used to fund the operations of the central nonprofit agency.

^bThis amount includes non-dining services work.

^cFor the two Marine Corps contracts, the Marine Corps has eastern and
western regional contracts with a prime contract with a commercial food
service company and several JWOD subcontracts for full-food and support
services.

^dThese amounts represent the first year of a 5-year contract.

Randolph-Sheppard Vendors Generally Receive a Percentage of Profits, and JWOD
Beneficiaries Are Paid Hourly Wages According to Federal Law

Compensation for Randolph-Sheppard blind vendors is computed differently
from compensation paid to JWOD disabled workers. For the Randolph-Sheppard
program, blind vendors' compensation is generally based on a percentage of
the profits generated by the dining facilities' operations. Based on the
37 survey responses where we could determine the basis of how blind
vendors' compensation was computed, 34 reported that that the vendor's
compensation was computed either entirely, or in part, based on the
profits generated by the dining facility contract. For compensation based
entirely on the facilities' profits, the blind vendor received from 51 to
65 percent of the profits.^25 For those blind vendors that were
compensated partially based on profits, their compensation was based on
fixed fees, administrative fees or salaries, and a percentage of the
profits. Where compensation was not based on profits, these three blind
vendors received either a percentage of the contract value or a fixed base
fee. Figure 4 shows the annual compensation received by blind vendors for
military food services contracts, within specified ranges, and the average
compensation for each range.

^25 Based on our survey, 6 contracts did not have a teaming partner and
most of the responses indicated that blind vendors receive 100 percent of
the profits of the dining facilities.

Figure 4: Number and Average of Randolph-Sheppard Blind Vendors'
Compensation within Designated Dollar Ranges (rounded to nearest 100
dollars)

As shown in figure 4, 15 of 38 Randolph-Sheppard blind vendors' annual
compensation^26 was between $100,000 and $200,000.^27 Overall, blind
vendors working at DOD dining facilities received average annual
compensation of about $276,500 per vendor. These figures are based on
pretax earnings.^28 We did not collect compensation information for
employees of the blind vendors or employees of the teaming partners.

^26 We were unable to obtain compensation data for two Texas contracts
with annual values of $3,570,000 and $18,406,498. In addition, one other
contract had two blind vendors rather than only one.

^27 This compensation was computed after reducing the amount for set-aside
payments. These payments are used by the state licensing agencies to pay
for items such as health insurance, retirement benefits, equipment,
management services (funds for the operation of the State
Randolph-Sheppard agency), and to ensure a fair return to vendors.

For the JWOD program, for most workers--including those with and without a
disability--the compensation is determined by either federal law or
collective bargaining agreements.^29 The Service Contract Act (SCA) was
enacted to give employees of contractors and subcontractors labor
standards protection when providing services to federal agencies. The SCA
requires that, for contracts exceeding $2,500, contactors pay their
employees, at a minimum, the wage rates and fringe benefits that have been
determined by the Department of Labor to be prevailing in the locality
where the contracted work is performed.^30 However, the SCA hourly rate
would not be used if there is a collective bargaining agreement that sets
a higher hourly wage for selected workers. According to NISH, the
collective bargaining hourly rates are, in general, 5 to 10 percent higher
than the SCA's wage rates. Of the six JWOD contracts in our sample,
Holloman Air Force Base and the Marine Corps' eastern and western regional
contracts had collective bargaining agreements. For the three JWOD sites
visited, we obtained an estimate of the average hourly wages, average
hourly fringe benefits rates, and average number of hours worked and
computed their annual wages. The average hourly wage for the three JWOD
sites was $13.15 including fringe benefits. Table 4 shows the average
annual wages that an employee earned.

^28 The blind vendors may have other expenses that would decrease their
compensation, but the compensation data reviewed did not disclose these
expenses.

^29 Collective bargaining agreements are negotiated between the employer
and representatives of employees and can be used to determine the
employees' hourly wages.

^30 Fringe benefits are health and welfare benefits.

Table 4: Estimated Average Hourly and Annual Wages Earned at Three JWOD
Sites Visited

Average hourly wage; 
Fort Lee[A]: $9.36; 
Naval Station Norfolk: $8.06; 
Great Lakes Naval Training Center: $12.86; 
Average: $10.09. 

Average hourly fringe benefits; 
Fort Lee[A]: $3.29; 
Naval Station Norfolk: $3.01; 
Great Lakes Naval Training Center: $ 2.87; 
Average: $ 3.06. 

Total average hourly amount; 
Fort Lee[A]: $12.65; 
Naval Station Norfolk: $11.07; 
Great Lakes Naval Training Center: $15.73; 
Average: $13.15. 

Estimated annual hours worked; 
Fort Lee[A]: 1,380; 
Naval Station Norfolk: 1,430; 
Great Lakes Naval Training Center: 1,705; 
Average: 1,505. 

Estimated Annual Wages; 
Fort Lee[A]: $17,457; 
Naval Station Norfolk: $15,830; 
Great Lakes Naval Training Center: $26,820; 
Average: $20,036. 

Source: GAO analysis of DOD data.

^aAlthough Fort Lee was selected as one of our Randolph-Sheppard sample
contracts, it also had a subcontract with JWOD for support services.
During our visit to Fort Lee, we observed both the Randolph-Sheppard and
JWOD dining facilities. Also, the Fort Lee JWOD workers' wages were under
a collective bargaining agreement.

Another law that can affect the disabled worker's wages is section 14(c)
of the Fair Labor Standards Act, which allows employers to pay individuals
less than the minimum wage (called special minimum wage rates) if they
have a physical or mental disability that impairs their earning or
productive capacity. For example, if a 14(c) worker's productivity for a
specific job is 50 percent of that of experienced workers who do not have
disabilities that affect their work, and the prevailing wage paid for that
job is $10 dollars per hour, the special minimum wage rate for the 14(c)
worker would be $5 dollars per hour. ^31 None of the three JWOD sites we
visited applied the special minimum wage for any of their disabled
workers.

Concluding Observations

The Randolph-Sheppard and JWOD programs have a common goal of serving
individuals who are blind or have severe disabilities, and who are
generally underrepresented in the workforce. However, these programs
operate differently regarding how contracts are awarded and priced, and
are designed to serve distinct populations through different
means--particularly with respect to compensation for program participants.
This is true for contracts with military dining facilities. The blind
vendors who participate in the Randolph-Sheppard program seek to become
entrepreneurs by gaining experience managing DOD dining facilities. In
this respect, although most of these vendors require the assistance of a
private food service teaming partner, they are compensated for managing
what can be large, complicated food service operations. By contrast,
because the participants of the JWOD program perform work activities that
require less skill and experience, and who might otherwise not be able to
secure competitive employment, they are compensated at a much lower rate
than the Randolph-Sheppard vendors. In this regard, it is apparent that
the two programs are designed to provide very different populations with
different types of assistance, and thus, it is difficult to directly
compare them, particularly with respect to compensation.

^31 Although a disabled worker may be paid the special minimum wage,
his/her health and welfare benefits are not reduced from the SCA minimum
rates.

Agency Comments and Our Evaluation

We provided a draft of this report to the Committee for Purchase, the
Department of Defense, and the Department of Education for review and
comment. The Committee for Purchase had no comments. DOD concurred with
the draft and also provided technical comments for our consideration. We
considered all of DOD's technical comments and revised the draft as
appropriate. The DOD comment letter is attached as appendix II.

The Department of Education provided clarifications and suggestions in a
number of areas. First, Education was concerned about comparing the
earnings of the blind vendors under the Randolph-Sheppard program and the
compensation provided to the food service workers under the JWOD program.
The agency suggested we compare the earnings of the blind vendors with the
earnings of employees of the JWOD nonprofit agencies who perform similar
management functions. We agree that there are significant differences in
their responsibilities, but we were required to report on the compensation
of the "beneficiaries" of the two programs, which are blind managers for
the Randolph-Sheppard program and hourly workers for the JWOD program. Our
report highlights these differences. Our report also highlights in a
number of places the difficulty in comparing the compensation of the two
groups of beneficiaries. We were not required to report on the earnings of
the management personnel of the nonprofit agencies, and we did not collect
this information.

Second, Education urged that we fully describe the permitted uses of the
set-aside fees charged by the state licensing agencies, and that we
recognize that there is a similar assessment under the JWOD program. We
have revised the report to point out that the Randolph-Sheppard set-aside
may be used to fund the operation of the state licensing agencies. We also
added language to a footnote to table 3 to recognize that the JWOD
contract amounts include a fee that is used to fund the operations of the
central nonprofit agency. Third, Education questions our description of
the price negotiations that occur between DOD and the state licensing
agencies. We believe our report is both clear and accurate on this point
as written. In addition, DOD did not have any comments or questions about
how we described price negotiations for the Randolph-Sheppard program.

Fourth, Education questioned our discussion of the numbers of persons with
disabilities employed under the two programs. Specifically, Education
pointed out that the requirement under the JWOD program that at least 75
percent of the direct labor hours be performed by persons with
disabilities applies in the aggregate to all work performed by a nonprofit
entity, not at the contract level. We have revised the report to reflect
this. And finally, Education sought clarification concerning the extent
commercial food service companies are used as teaming partners under the
Randolph-Sheppard program or as subcontractors under the JWOD program. We
have revised figures 2 and 3 of the report to more accurately reflect the
use of these companies. The comment letter from Education is attached as
Appendix III.

We will send copies of this report to interested congressional committees,
the Secretary of Defense, the Secretary of Education, and the Chairperson
of the Committee for Purchase, as well as other interested parties. We
will also make copies available to others upon request. In addition, the
report will be available at no charge on GAO's Web site at
http://www.gao.gov.

If you or your staffs have any questions about this report, please contact
George Scott at (202) 512-7215 or [28][email protected] or William Woods at
(202) 512-8214 or [email protected]. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. Key contributors to this report are listed in appendix IV.

George A. Scott
Director, Education, Workforce, and Income Security Issues

William T. Woods
Director, Acquisition and Sourcing Management

Appendix I: Scope and Methodology

To accomplish our research objectives, we interviewed officials from the
Department of Defense (DOD), the Department of Education, the Committee
for Purchase, and organizations representing both the Randolph-Sheppard
and Javits-Wagner-O'Day (JWOD) programs. We also reviewed pertinent
documents and regulations governing both programs. We reviewed a sample of
14 contracts--8 Randolph-Sheppard contracts and 6 JWOD contracts. For
these contracts, we requested the source selection memorandum, the
acquisition plan, the basic contract, and the statement of work. For two
of these contracts, the Randolph-Sheppard prime contractor for full-food
services subcontracted with a JWOD nonprofit agency for support services.
We determined that it was not feasible to review a representative sample
of contracts based on our preliminary work, which indicated wide
variations in how the two programs are structured and how the
Randolph-Sheppard program is administered from state to state. For these
reasons, we selected a number of contracts to review in order to ensure
representation of both programs, as well as ensure a balance of contracts
based on dollar value, size of military facility, branch of the military,
and geographic location. As the sample was not representative, results of
our review cannot be projected to the entire universe of contracts. In
addition, we visited the military installation for 5 of the 14 contracts
in our sample in order to observe dining facilities and their operations,
as well as interview pertinent officials and staff, including the blind
vendor or JWOD agency management whenever possible. Again, these five
locations were selected to ensure representation of both programs, as well
as variation in geographic location, contract size, and military branch.
In terms of beneficiary compensation, we limited our review to
Randolph-Sheppard blind vendors and JWOD workers. For the JWOD program, we
obtained average hourly wages, average hourly fringe benefits, and average
total hours worked during the year for JWOD employees at selected sites.
We did not obtain compensation amounts for the managerial employees for
any JWOD nonprofit agencies.

To obtain information on the relationships between state licensing
agencies and blind vendors, we conducted a survey of the 24 state
licensing agencies we determined to have Randolph-Sheppard military dining
contracts. We asked questions regarding the roles and responsibilities of
blind vendors, the vendor's relationship with the state licensing
agencies, and the role played by teaming partners. We administered this
survey between April and July 2007. We pretested this survey with program
directors and modified the survey to take their comments into account. All
24 state licensing agencies responded to our survey for a response rate of
100 percent and provided information for 39 military dining facilities
contracts. Additionally, we requested information for the 40 blind vendors
with military dining contracts to determine their annual compensation. For
the 39 contracts, there were 40 blind vendors as one contract utilized two
vendors. We received compensation information for 38 of the 40 blind
vendors.

Appendix II: Comments from the Department of Defense

Office Of The Under Secretary Of Defense: 
3000 Defense Pentagon: 
Washington, DC 203013000: 

Acquisition, Technology And Logistics: 

September 19, 2007: 

Mr. Sigurd Nilsen: 
Director, Education, Workforce and Income Security Issues: 
U.S. Government Accountability Office: 
441 G Street, N.W.: 
Washington, D.C. 20548: 

Dear Mr. Nilsen: 

This is the Department of Defense (DoD) response to the GAO Draft 
Report, GAO-08-3, "Defense Contracts: Contracting for Military Food 
Services under the Randolph-Sheppard and Javits-Wagner-O'Day Programs," 
(GAO Code 130631), dated August 20, 2007. 

The Department concurs with the draft final report which does not offer 
any recommendations for DoD. The attached comments relate to technical 
accuracy and are provided for your consideration. 

Thank you for the opportunity to respond to the report. 

Sincerely,

Signed by: 

Shay D. Assad: 

Director, Defense Procurement and Acquisition Policy: 

Attachment: 
As stated: 

Appendix III: Comments from the Department of Education

United States Department Of Education: 
Office Of Special Education And Rehabilitative Services: 

August 31, 2007: 

Sigurd R. Nilsen: 
Director, Education, Workforce and Income Security Issues: 
United States Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Nilsen: 

Thank you for the opportunity to review the draft Government 
Accountability Office (GAO) report to Congressional Committees: Defense 
Contractsï¿½Contracting for Military Food Services under the Randolph-
Sheppard and Javits-Wagner-O'Day Programs, GAO-08-03. In this letter, 
the Department of Education is providing clarifications and suggestions 
that we believe would add to the understanding of the operations and 
outcomes of these programs and, in some cases, their 
interrelationships. 

The draft report includes several references to Federal regulations 
providing blind vendors a priority to operate cafeterias. The priority 
is, in fact, a statutory provision found at section 107d-3(e) of the 
Randolph-Sheppard Act; the regulatory provisions simply are consistent 
with the statute. 

Earnings. We appreciate the complex nature of military contracting and 
the difficulty of comparing two programs with very different means of 
obtaining contracts in the military market. However, we have concerns 
about the comparisons between earnings associated with the Randolph-
Sheppard program and the Javits-Wagner-O'Day (JWOD) program. We believe 
the draft report's statement on page 14, that Randolph-Sheppard blind 
vendors received, on average, $276,500 annually, while JWOD 
beneficiaries earned, on average, $13.15 per hour, is misleading. GAO's 
comparison is between roughly 40 blind individuals licensed by States 
to operate Department of Defense (DoD) food service facilities at the 
managerial level and a larger number of individuals performing routine 
food service work (e.g., serving and cleaning). While the licensed 
blind operators and the individual JWOD food service workers are, 
strictly speaking, the "beneficiaries" of the two programs, we believe 
the comparison gives an incomplete and selective picture because it 
excludes JWOD operational and managerial compensation at both the 
contract site and JWOD agency levels, as well as compensation for 
individuals employed by the for-profit food service corporations 
generally performing work in these contracts. These limitations and 
omissions are mentioned, but not explained. Cost comparisons should be 
of equivalent functions. Therefore, we believe a more valid comparison 
would be the compensation of Randolph-Sheppard vendors licensed by 
States to operate DoD food service facilities with the compensation of 
managerial employees of the JWOD nonprofit corporations providing 
similar operational services for DoD contracts. We believe providing 
these data, or a more detailed description of cost structures, would 
contribute to the accuracy of the report. Alternatively, a more 
extensive description of the methodological and data limitations, and 
their effects, would be helpful. 

Fees. Randolph-Sheppard set-aside payments are referenced on page 18, 
footnote 21 of the draft report. These funds may be subtracted from the 
net proceeds of the operation of vending facilities (military 
cafeterias, in this instance), as described in regulations at 34 CFR ï¿½ 
395.9. However, the reference, which lists four uses of set-aside 
funds, omits use of set-aside funds for "management services," that is, 
funds for the operation of the State Randolph-Sheppard agency. See 34 
CFR ï¿½ 395.9(b)(3). Furthermore, JWOD nonprofit organizations are 
assessed fees as a condition of their participation in the program. 
Those fees, which contribute to their cost structure, are most 
analogous to Randolph-Sheppard set-aside fees and should be described 
in the report. 

Price Negotiations. There are potentially confusing references to price 
negotiations on pages 13 and 15 of the draft report. It is not made 
clear that price negotiations are a part of the competitive bid process 
to which all offerors are subject when State Randolph- Sheppard 
agencies compete for a DoD food service contract on behalf of a blind 
licensee. We are aware of several Randolph-Sheppard contracts that have 
been extended by direct negotiations beyond the initial term for which 
those contracts were competitively awarded. In those cases it is a fair 
inference that DoD base commanders and their contracting officers 
believed that Randolph-Sheppard contractors were meeting DoD's needs 
for quality, cost, and overall performance in helping to carry out the 
military mission. 

Employment of persons with disabilities. The draft report cites a wide 
range of figures for employment of individuals with disabilities by 
Randolph-Sheppard contractors, notwithstanding the fact that such 
employment is not required by the Act or its implementing regulations. 
Conversely, no data are presented for JWOD, for which the requirement 
is fundamental. Specifically, the draft report refers to a computed 
average of 18 percent of workers with disabilities in DoD contracts 
held by Randolph-Sheppard contractors (with a range of 3 percent to 72 
percent based upon survey responses for 30 contracts). However, GAO 
does not provide data on the percentage of workers with disabilities 
actually employed on JWOD contracts. Table 1, comparing program 
procedures for Randolph-Sheppard and JWOD programs, refers to the 
requirement that participating JWOD nonprofit agencies perform at least 
75 percent of direct labor hours with persons with disabilities. We 
believe, however, that the 75% requirement applies to all work 
performed by an agency with multiple contracts and may not hold true 
for any particular contract. There are also some DoD contracts where 
Randolph-Sheppard and JWOD both participate and employee data may 
overlap. 

Subcontracts. Figure 2 on page 9 of the draft report, providing an 
overview of the Randolph-Sheppard program, does not reflect the 
contracts in which the licensed operator does not use a commercial food 
service company as a partner. The corresponding overview of the JWOD 
program on page 12 does not reflect the use of commercial food service 
contractors by JWOD providers. These firms are often the same as, or 
similar to, the commercial food service companies used by State 
Randolph-Sheppard agencies as "teaming partners." Also, throughout the 
draft report, there are references to a total of 53 JWOD dining 
contracts with DoD. It is unclear whether this number includes prime 
contracts only, or also subcontracts. 

Thank you again for the opportunity to review the draft report. We hope 
these comments are helpful and lead to clarification in the final 
report. 

Sincerely, 

Signed by: 

William W. Knudsen: 

Acting Deputy Assistant Secretary: 

Appendix IV: GAO Contacts and Staff Acknowledgments

GAO Contacts

George A. Scott, (202) 512-7215, [email protected]
William T. Woods (202) 512-8214, [email protected]

Staff Acknowledgments

Jeremy D. Cox (Assistant Director), Richard Harada (Analyst-in-Charge),
Daniel Concepcion, Rosa Johnson, and Sigurd Nilsen made significant
contributions to all aspects of this report. In addition, Susannah Compton
and Lily Chin assisted in writing the report and developing graphics. John
Mingus provided additional assistance with graphics. Walter Vance assisted
in all aspects of our survey of state licensing agencies as well as
providing methodological support. Doreen Feldman, Daniel Schwimer, and
Alyssa Weir provided legal support.

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(130631)

To view the full product, including the scope
and methodology, click on [33]GAO-08-3 .

For more information, contact William Woods, (202) 512-8214,
[email protected].

Highlights of [34]GAO-08-3 , a report to congressional committees

October 2007

DEFENSE CONTRACTS

Contracting for Military Food Services Under the Randolph-Sheppard and
Javits-Wagner-O'Day Programs

Randolph-Sheppard and Javits-Wagner-O'Day (JWOD) are two federal programs
that provide employment for persons with disabilities through federal
contracts. In 2006, participants in the two programs had contracts with
the Department of Defense (DOD) worth $465 million annually to provide
dining services at military dining facilities. The 2007 National Defense
Authorization Act directed GAO to study the two programs. This report
examines (1) differences in how the Randolph-Sheppard and JWOD programs
provide food services for DOD and (2) differences in how contracts are
awarded, prices are set, and program beneficiaries (i.e. persons with
disabilities) are compensated. GAO interviewed program officials,
conducted a survey of states with Randolph-Sheppard programs, and reviewed
eight Randolph-Sheppard and six JWOD contracts.

[35]What GAO Recommends

GAO is not making recommendations in this report. In commenting on a draft
of this report, DOD and the Department of Education provided technical
clarifications, which were incorporated as appropriate.

The Randolph-Sheppard and JWOD programs use different procedures to
provide food services to DOD. In Randolph-Sheppard, states act as prime
contractors, and train and license blind individuals to act as managers of
dining facilities. In most cases, the blind vendor relies on a food
service company--known as a teaming partner--to assist in operations,
provide expertise, and help with start-up costs. About half of the blind
vendors are required to employ other persons with disabilities. JWOD is
administered by an independent federal agency called the Committee for
Purchase from People Who are Blind or Severely Disabled (Committee for
Purchase). The Committee for Purchase engages a central nonprofit agency
to match DOD's needs with services provided by local nonprofit agencies.
Most of the individuals working for these local nonprofit agencies are
employed in less skilled jobs such as serving food or washing dishes.

The Randolph-Sheppard and JWOD programs differ significantly in the way
DOD dining contracts are awarded, how prices are set, and how participants
are compensated. For Randolph-Sheppard, DOD awards contracts to the states
either through direct negotiations or competition with other food service
companies. In either case, DOD and the states negotiate the prices based
on factors such as historical prices and independent government estimates.
Under JWOD, competition is not a factor because DOD is required to
purchase services it needs from a list maintained by the Committee for
Purchase, which establishes fair market prices for these contracts. In
terms of compensation, Randolph-Sheppard blind vendors generally received
a percentage of contract profits, averaging about $276,500 per vendor
annually. JWOD beneficiaries are generally paid hourly wages according to
rules set by the federal government. For the three sites we visited, we
estimate that beneficiaries received an average wage of $13.15 per hour,
including fringe benefits. Given the differences in the roles of the
beneficiaries of these two programs, comparisons of their compensation
have limited value.

Comparison of Randolph-Sheppard and JWOD Program Procedures

Source: GAO analysis.

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References

Visible links
  26. http://www.gao.gov/cgi-bin/getrpt?GAO-07-236
  27. http://www.gao.gov/cgi-bin/getrpt?GAO-07-236
  28. mailto:[email protected]
  29. http://www.gao.gov/cgi-bin/getrpt?GAO-07-236
  30. http://www.gao.gov/cgi-bin/getrpt?GAO-05-865
  31. http://www.gao.gov/cgi-bin/getrpt?GAO-06-27
  32. http://www.gao.gov/cgi-bin/getrpt?GAO-01-866
  33. http://www.gao.gov/cgi-bin/getrpt?GAO-08-3
  34. http://www.gao.gov/cgi-bin/getrpt?GAO-08-3
  36. http://www.gao.gov/
  37. http://www.gao.gov/
  38. http://www.gao.gov/fraudnet/fraudnet.htm
  39. mailto:[email protected]
  40. mailto:[email protected]
  41. mailto:[email protected]
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