Contract Management: DOD Pricing of Commercial Items Needs Continued
Emphasis (Letter Report, 06/24/1999, GAO/NSIAD-99-90).

The Defense Department (DOD), with the encouragement of Congress, is
boosting its purchases of commercially available goods and services.
Although commercial purchasing is still relatively small and sole-source
commercial purchasing is even smaller, DOD expects commercial purchases
to increase in the future. It believes that determining fair and
reasonable prices for commercial sole-source items will continue to be
challenging. The Federal Acquisition Regulation (FAR) cautions military
contracting officers not to obtain more information than is necessary to
determine price reasonableness, and it stresses the need to limit
information requests of the contractors. However, contracting officers
may ask contractors to provide sales prices for the same or similar
items, to explain their discount policy, and to supply cost data. The
FAR defines price analysis as the process of examining and evaluating a
proposed price without evaluating its separate cost elements or process.
This report (1) determines the extent of price analysis that DOD
contracting personnel were doing to arrive at fair and reasonable prices
for commercial sole-source items, (2) evaluates how well contract
personnel did price analyses, and (3) determines what guidance and
training was available to help them determine price reasonableness.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-99-90
     TITLE:  Contract Management: DOD Pricing of Commercial Items Needs
	     Continued Emphasis
      DATE:  06/24/1999
   SUBJECT:  Defense procurement
	     Department of Defense contractors
	     Contract administration
	     Prices and pricing
	     Sole source procurement
	     Commercial products
	     Defense cost control

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    United States General Accounting Office GAO                Report
    to Congressional Requesters June 1999          CONTRACT MANAGEMENT
    DOD Pricing of Commercial Items Needs Continued Emphasis
    GAO/NSIAD-99-90 United States General Accounting Office
    National Security and Washington, D.C. 20548
    International Affairs Division B-280125
    Letter June 24, 1999 The Honorable James Inhofe Chairman The
    Honorable Charles Robb Ranking Minority Member Subcommittee on
    Readiness and Management Support Committee on Armed Services
    United States Senate The Department of Defense (DOD), with the
    support of the Congress, is increasing its purchases of
    commercially available products and services. While the current
    level of commercial purchasing is relatively small and sole-source
    commercial purchases even smaller, DOD expects commercial
    purchases to increase in the future and believes determining fair
    and reasonable prices for commercial sole-source items will
    continue to be challenging. The Federal Acquisition Regulation
    (FAR) cautions DOD contracting officers not to obtain more
    information than is necessary for determining price reasonableness
    and it emphasizes the need to limit information requests of the
    contractor. However, when needed, contracting officers may ask
    contractors to provide sales prices for the same or similar items,
    an explanation of the contractor's discount policy, or cost data.
    The FAR defines price analysis as the process of examining and
    evaluating a proposed price without evaluating its separate cost
    elements or profit. Price analysis techniques include (1)
    comparing proposed prices in response to a competitive
    solicitation; (2) comparing a currently offered price to
    previously paid prices if both the validity of the comparison and
    the reasonableness of the previous prices can be established; (3)
    using parametric methods such as dollars per pound or other
    measurement units; (4) comparing offers to competitive published
    price lists, published market prices, and discount or rebate
    arrangements; (5) comparing proposed prices with independent
    government cost estimates; and (6) comparing proposed prices with
    prices obtained through market research for the same or similar
    items. As you requested, we (1) determined the extent of price
    analysis DOD contracting personnel were performing to arrive at
    fair and reasonable prices for commercial sole-source items, (2)
    evaluated how well contract Page 1
    GAO/NSIAD-99-90 Contract Management B-280125 personnel performed
    price analyses, and (3) determined what guidance and training was
    available to assist them in determining price reasonableness. We
    reported our preliminary observations during testimony before the
    Senate Subcommittee on Acquisition and Technology, Armed Services
    Committee, in March 1998.   This report supplements the
    information presented in that testimony. Results in Brief    In 33
    of the 65 commercial sole-source purchases we reviewed, price
    analysis consisted of comparing the offered price to an offeror's
    catalog or price list, and/or to the price(s) the government
    previously paid for the same or similar items. Contracting
    officers accepted the offered price in 30 of the 33 purchases and
    negotiated lower prices in 3 cases (9 percent). In the other 32
    purchases, contracting personnel used one or more additional price
    analysis tools such as obtaining commercial sales cost
    information. Contracting officers accepted the offered price in 19
    of the 32 purchases and negotiated lower prices in 13 cases (41
    percent). The price analysis performed by contracting personnel
    were often too limited to ensure that prices were fair and
    reasonable. For example, some contracting personnel believed that
    when the offered price was the same as the catalog or list price,
    it could be considered a fair and reasonable price. In several
    cases, contracting personnel did not use pertinent historical
    pricing information contained in contract files that should have
    raised questions about the reasonableness of offered prices.
    Further, contracting officers, generally, were not using a
    discretionary solicitation clause that requires offerors to
    provide information other than certified cost and pricing data,
    such as sales data, in support of their offered prices. In
    addition, some contracting officers paid prices that included
    unneeded services. Finally, many contracting officers were not
    documenting in the contract file how they determined that a price
    previously paid for an item was fair and reasonable and,
    therefore, could be relied on in evaluating the currently offered
    price. Reasons given for the limited price analysis included
    workload burdens and urgent requirements for items. DOD officials
    also noted the reduced negotiation leverage that contracting
    officers now have when purchasing commercial items in a sole-
    source environment. Defense Acquisition: Improved Program Outcomes
    Are Possible (GAO/T-NSIAD-98-123, Mar. 18, 1998). Page 2
    GAO/NSIAD-99-90 Contract Management B-280125 DOD continues to
    provide guidance and training to assist contracting personnel in
    contracting for commercial items and in performing sound price
    analysis. However, based on our work, DOD's efforts have yet to be
    fully understood or embraced by all DOD contracting personnel. In
    time, the training should improve their price analysis and
    negotiating skills. Also, recent legislation requires increased
    guidance for contracting personnel on price analysis tools, the
    appropriate use of information other than cost or pricing data,
    and the role of support agencies. The guidance should also help
    government contracting personnel become smarter buyers in the
    commercial marketplace. As of May 1999, regulations to implement
    the act had not been published. We are making recommendations to
    the Secretary of Defense to improve the price analysis performed
    by DOD contracting personnel. Price Analysis
    While the FAR grants DOD contracting officers wide latitude on the
    type Performed by                    and extent of price analysis
    techniques they can use, contracting officers are required to
    perform sufficient price analysis to determine whether Contracting
    Personnel offered prices are fair and reasonable. The more
    knowledgeable contracting personnel are about the basis and makeup
    of commercially offered prices, the better the position they will
    be in to evaluate the reasonableness of offered prices. Our review
    of 65 commercial sole-source purchases showed that for 33
    purchases, price analysis consisted of comparing the price offered
    to a catalog or price list, and/or to the price(s) previously paid
    for the same or similar items by the government. Contracting
    officers accepted the offered price in 30 of these 33 purchases
    and negotiated lower prices in 3 (9 percent). For the other 32
    purchases, contracting personnel used one or more additional price
    analysis tools. For 21 of these purchases, some commercial sales
    information was obtained. Depending on the circumstances, sales
    information can be useful in comparing the reasonableness of
    prices offered by contractors to prices paid by commercial
    customers for the same or similar items sold in comparable
    quantities. However, in many of the 21 cases, the quantities the
    government required were significantly larger than the quantities
    reflected in the commercial sales information. Contracting
    officers accepted the offered price in 13 of these 21 cases and
    negotiated lower prices in 8 cases (38 percent). With regard to
    sales information, contracting personnel have another tool
    available to them. A 1998 Defense Contract Audit Agency (DCAA)
    memorandum emphasized its availability to review sales and other
    Page 3                                       GAO/NSIAD-99-90
    Contract Management B-280125 data provided by contractors in
    support of their offered prices for commercial items. However,
    contracting personnel requested this support for only one of the
    purchases we reviewed. A number of contracting personnel told us
    they were unaware that this DCAA support was available. For the
    remaining 11 purchases, contracting personnel used other pricing
    tools such as obtaining cost information. Contracting officers
    accepted the offered price in 6 of these 11 purchases, and
    negotiated lower prices for 5 purchases. In total, contracting
    officers accepted the offered price in 49 of the 65 purchases (75
    percent) and negotiated a price reduction in 16 cases (25
    percent). Price Analysis Often              We found that price
    analysis being performed by contracting personnel Limited
    were often too limited to ensure fair and reasonable prices. For
    example, some contracting personnel believed that when the offered
    price was the same as the catalog or list price, it could be
    considered a fair and reasonable price. In several instances the
    price analysis performed by contracting personnel did not address
    pertinent historical pricing information. In addition, some
    contracting officers paid prices that included unneeded services.
    Further, contracting personnel, generally, were not using a
    discretionary solicitation clause that requires offerors to
    provide information other than certified cost and pricing data,
    such as sales data, in support of their offered prices. Finally,
    many contracting officers were not documenting in the contract
    file how they determined that a price previously paid for an item
    was fair and reasonable and, therefore, could be relied on in
    evaluating the currently offered price. While we believe some
    price analyses were often too limited, we cannot say whether the
    prices would have been different had better price analysis been
    performed. Comparing Price Offered to FAR and service guidance
    make it clear that contracting personnel cannot Catalog or List
    Price             simply rely on catalog or list prices in making
    a price reasonableness determination. While catalog prices are an
    appropriate source of pricing information, contracting personnel
    must evaluate catalog prices while considering such things as
    quantities to be purchased, delivery times, market conditions, and
    sales to other customers. Contracting personnel must do sufficient
    price analysis to enable them to determine the reasonableness of
    an offered price and to document the results of their price
    analysis. Page 4                                       GAO/NSIAD-
    99-90 Contract Management B-280125 In our review, we found 22
    purchases where the price analysis was based only on catalog
    prices. For eight of these purchases, the price analysis consisted
    of simply comparing the offered price to a current catalog or list
    price less whatever discount was offered. For 14 additional
    purchases, the offered price was also compared to previous prices
    that were the same as the catalog or list price less whatever
    discount was offered. In all 22 cases, the contracting officer
    accepted the offered price. In our discussions with contracting
    personnel, some believed that catalog or list prices could be
    accepted as fair and reasonable because they assumed that these
    are the prices paid by commercial customers. Not Using Pertinent
    In several cases, contracting personnel did not use pertinent
    historical Contract File Information    pricing information
    contained in contract files that should have raised questions
    about the reasonableness of offered prices. For example, in June
    1998, a DOD contracting officer paid $7,320 each for 31 generator
    adapter kits, in part, based on a comparison to prior government
    purchases since April 1995 at the same price and other small
    quantity commercial sales in 1998 at $9,727 each. The price
    analysis for this purchase referred to an August 1997 management
    directive cautioning that historical prices should only be used if
    they were prior to 1993 because more recent purchases from this
    contractor were overpriced by about 300 percent. Nevertheless, the
    1995 price was used to support a price reasonableness
    determination for the 1998 price of $7,320. According to
    information in the files, DOD had purchased eight of these items
    in 1989 for $1,129 per unit. The price analyst told us that
    because of her workload she did not have time to research the
    price reasonableness of the 1989 purchase made by another DOD
    buying office. In a second case, in October 1996, using a
    commercial contract, an Air Force contracting officer paid $1,307
    each for 81 aircraft engine vanes for the KC-135 aircraft. The
    commercial price was based on the catalog price less a 7.5-percent
    discount. This part is also used on the F-16 engine and was bought
    by the Air Force in September 1995 under a separate noncommercial
    contract for $300 each. The contracting officer was aware of lower
    prices for common parts but did not believe that it was
    appropriate to use another contract to purchase the vanes. In
    discussing this situation with Air Force contracting personnel,
    they advised us that the noncommercial contract could have been
    used to purchase the vanes. In a third case, in November 1996, a
    parts distributor offered a price of $453 per unit for 381 wiring
    harnesses used on C-130 aircraft. The Defense Page 5
    GAO/NSIAD-99-90 Contract Management B-280125 Logistics Agency
    (DLA) contracting officer accepted this price based on a
    comparison to commercial sales prices, with the largest purchase
    being for seven units at $495 each. According to information in
    the contract files, DOD purchased 461 wiring harnesses directly
    from the manufacturer in 1993 for $103 each and 194 units in 1994
    at $91 each. Subsequently, the manufacturer declined to sell the
    item directly to the government but instead referred DLA to its
    authorized distributor. The contracting officer did not use the
    historical pricing information to attempt to negotiate a lower
    price with the distributor for the 1996 purchase. A DLA official
    told us it has initiated a review of the price paid for this
    purchase. In another case, an Air Force contracting officer
    determined that an offered unit price of $2,718 for 83 B-1B
    hydraulic-cylinder blocks was fair and reasonable when compared to
    a 1996 unit price of $2,535, a 7-percent increase over 17 months.
    However, the contracting officer told us she did not consider
    other information in the contract file showing that the unit price
    paid for this item had increased from $441 in 1989 to $2,535 in
    1996, a 475-percent increase. She said she was only required to
    compare the currently offered price to the last price paid. Not
    Using Solicitation    We found that contracting officers,
    generally, were not using a Clause for Obtaining
    discretionary solicitation clause requiring offerors to provide
    information Information               other than certified cost
    and pricing data, such as sales data, in support of their offered
    prices. The FAR allows contracting officers to insert this clause
    in solicitations when they determine that such data will likely be
    needed to evaluate price reasonableness.   For a commercial item,
    this clause requires offerors to submit, at a minimum, information
    on the prices at which the same or similar items have been sold in
    the commercial market that is adequate for evaluating the
    reasonableness of prices offered the government. For commercial
    items where the price is listed in a catalog, the clause also
    requires offerors to explain the basis of each offered price, its
    relationship to the established catalog price, and an explanation
    of how the proposed price relates to the price of recent sales in
    quantities similar to those requested by the government. DLA
    guidance recommends this clause in all solicitations and contracts
    for sole-source commercial items. FAR clause 52.215-20 or its
    predecessor FAR clause 52.215-41. Page 6
    GAO/NSIAD-99-90 Contract Management B-280125 We found that some
    contracting personnel were unfamiliar with this clause while
    others did not have a clear understanding about when it should be
    used for commercial purchases. Some contracting supervisors
    believe that because this clause is also applicable to
    noncommercial contracts, there may be some confusion among
    contracting personnel about its applicability to commercial
    contracts. Paying Prices That Included The FAR and military
    service guidance emphasize that in determining price Unneeded
    Services                  reasonableness, contracting personnel
    must understand the basis for an offered price. Accepting offered
    prices without considering such things as quantities to be
    purchased, delivery times, market conditions, or sales to other
    customers can result in prices that are not fair and reasonable.
    For example, the catalog prices of commercial aircraft parts are
    often based on small quantities delivered rapidly; in contrast,
    government requirements may be for larger quantities to be placed
    in inventory and delivered over much longer periods of time. We
    identified two instances where contracting officers paid
    commercial catalog-based prices to restock inventories rather than
    to meet urgent requirements requiring rapid delivery. In the first
    instance, the contracting officer purchased 11 wing components in
    December 1996 for $38,693 each, which was the contractor's
    published catalog price. The catalog prices were based on a 10-day
    delivery period. However, the government's required delivery was
    July 1998--19 months later--for routine restocking of spare parts.
    In the second instance, in March 1997, the Air Force placed an
    order for 404 engine acoustical panels at the commercial catalog-
    based price of $588 each based on a 10-day delivery period.
    However, because of the large quantity ordered, the contractor
    indicated that delivery could not start until the end of August
    1997 and would not be completed until April 1998, over a year
    after the order was placed. Nevertheless, the order was placed at
    a price based on 10-day delivery. In both cases, we found no
    indication that contracting personnel inquired about the
    possibility of lower prices for extended delivery times. In
    contrast to these two situations, we found another buying activity
    that negotiated a large discount for items not requiring rapid
    delivery. The contracting officer negotiated a 61-percent discount
    off the offeror's commercial catalog prices for about 8,000 engine
    spare parts. Delivery would be based on the time required to
    manufacture the items ordered rather than the short delivery times
    provided for in the catalog. The government would, however, be
    required to pay the premium prices paid by Page 7
    GAO/NSIAD-99-90 Contract Management B-280125 commercial customers
    if the shorter catalog delivery times were required to meet urgent
    needs. Not Documenting the          The FAR provides that a
    contracting officer can compare currently offered Reasonableness
    of Prior      prices to prior prices, if both the validity of the
    comparison and the Prices                       reasonableness of
    the previous price(s) can be established. However, we found that
    many contract files did not show how contracting officers
    determined that a price previously paid for an item was fair and
    reasonable and, therefore, could be relied on in evaluating the
    currently offered price. This issue has been previously recognized
    as a potential problem. For example, an Air Force Institute of
    Technology and Federal Acquisition Institute Contract Pricing
    Resource Guide, referenced in the FAR, cautions that, "It is not
    uncommon to review an item purchase history and find that no basis
    other than the last price paid has been used for years to
    determine price reasonableness." Reasons Given for Limited
    Contracting personnel offered a number of reasons why they did not
    Price Analysis               perform more extensive price
    analysis. Some said that given their workload, the most they could
    do was to compare the offered price to the catalog price or to the
    last price paid by the government. They said they did not have
    enough time to obtain commercial sales information or develop
    detailed independent cost or parametric estimates. At two
    activities, managers acknowledged that workforce downsizing had
    increased the workload of contracting personnel. At one activity,
    they said management's priority had been to clear a large backlog
    of purchase orders, which made price a secondary consideration. In
    some cases, contracting personnel said pressures from their
    customers to meet urgent requirements prevented more extensive
    price analysis and negotiations over price. In these instances,
    customers told contracting personnel that they were less concerned
    about price than meeting mission requirements or keeping to
    overhaul and repair schedules. In a few cases, contracting
    personnel said that additional price analysis was not needed
    because the offered prices compared favorably to prices previously
    paid. DOD officials noted that one difficulty facing contracting
    officers is that some contractors take advantage of their position
    as sole-source commercial item providers. Further, one official
    stated that some contractors refuse to negotiate what the
    government would consider fair and reasonable prices. DOD
    officials noted that in these situations Page 8
    GAO/NSIAD-99-90 Contract Management B-280125 contracting officers
    do not have enough leverage. For example, negotiations by DLA with
    one sole-source supplier resulted in a price that DLA did not
    believe was fair and reasonable because it was almost double the
    cost of the item. In this instance, the negotiated price was about
    three times the price previously paid. Nevertheless, DLA decided
    to purchase the item at a price it considered excessive, but
    limited the quantity to the amount needed until an alternative
    source could be developed from among manufacturers who make
    similar items. Efforts to Improve    DOD continues to add to the
    training and guidance it offers contracting Price Analysis
    personnel to assist them in performing price analysis in a
    commercial contracting environment. Between June and August 1997,
    each of the military services and DLA issued additional guidance
    on the pricing of commercial items. The guidance recognizes the
    challenges that contracting officers face in determining whether
    prices for commercial items are fair and reasonable, especially
    when there is no competition. The guidance also stresses the
    importance of negotiating prices when buying commercial items, and
    reemphasized FAR guidance regarding the pricing of commercial
    items and the contracting officer's responsibility to ensure that
    prices paid by the government are fair and reasonable. The
    guidance cautioned contracting officers about the need to fully
    understand the basis of commercial catalog prices and not to
    assume that they are fair and reasonable just because they are in
    a published commercial catalog. Further, the guidance reminded
    contracting personnel that for commercial acquisitions, the FAR
    allows them to request information other than certified cost and
    pricing data to the extent necessary to determine price
    reasonableness. In fiscal year 1998, the Office of the Deputy
    Under Secretary of Defense (Acquisition Reform) sponsored a series
    of satellite broadcasts to provide training on acquisition reform,
    including the pricing of commercial items. Specific subjects
    covered included commercial pricing practices; performing market
    research; and the use of historical, comparative, and parametric
    pricing techniques. A June 1998 session was devoted entirely to
    the pricing of commercial spare parts in a sole-source
    environment. In addition, during calendar year 1998, both DLA and
    the Air Force provided contracting personnel with 1-day training
    courses on commercial acquisition and pricing. The topics covered
    by this training were similar to DOD's satellite broadcasts. Page
    9                                       GAO/NSIAD-99-90 Contract
    Management B-280125 Also, in February 1998, the Deputy Under
    Secretary of Defense (Acquisition Reform) issued a Commercial
    Pricing Information Guide. The guide emphasizes the link between
    good market research and the ability of contracting officers to
    negotiate fair and reasonable prices for commercial items. In June
    1998, the Air Force Materiel Command issued its own supplementary
    Commercial Acquisition Guide. In addition to discussing price
    analysis techniques that can be used for commercial purchases, the
    guide emphasizes the importance of sound market research in
    determining price reasonableness and the need for contracting
    personnel to adequately document the results of their research in
    the contract files. Further, DOD, DLA, and military services have
    established Internet Web sites with additional guidance and tools
    to assist contracting personnel in performing market research and
    in acquiring and pricing commercial items. Other opportunities to
    obtain training on pricing commercial items included presentations
    by DOD and DLA officials during DOD's 1998 Acquisition Reform Week
    Activities, and classes sponsored by DOD's Defense Acquisition
    University. DOD is continuing its efforts to develop additional
    training on commercial pricing, including computer-based training.
    Recent Legislation    The Fiscal Year 1999 Strom Thurmond National
    Defense Authorization Act required clarification of the procedures
    and methods used by government contracting personnel to determine
    the reasonableness of commercial prices. This act requires FAR
    revisions to provide specific guidance on (1) the application and
    precedence of specified price analysis tools; (2) the
    circumstances under which contracting officers should require
    contractors to provide prior sales prices for the same or similar
    items, or other information, other than certified cost and pricing
    data, in support of their commercially offered prices; and (3) the
    roles and responsibilities of DOD support organizations, such as
    the DCAA, in procedures for determining price reasonableness. The
    act also requires DOD to track price trends for commercial items,
    and to take appropriate action to address any unreasonable
    escalation in prices identified by the price trend analysis. The
    same act also directed that the FAR be revised to require
    offerors, as a condition for entering into a contract, to provide
    sales and other information, other than certified cost and pricing
    data, in support of their offered prices when such information is
    requested by the contracting officer. This requirement would be
    subject to any exceptions that the Page 10
    GAO/NSIAD-99-90 Contract Management B-280125 Federal Acquisition
    Regulatory Council determines appropriate. As of May 1999,
    regulations to implement the act had not been published.
    Conclusions        The current contracting environment for sole-
    source commercial items presents negotiating challenges for DOD
    contracting personnel. Based on our work, DOD's efforts to improve
    the quality of price analysis have yet to be fully understood or
    embraced by all DOD contracting personnel. However, it is
    important to recognize that DOD is in the midst of training its
    contracting personnel on commercial pricing. In time, effective
    training should improve their price analysis and negotiating
    skills. Recent legislation requiring increased guidance for
    contracting personnel on price analysis tools, the appropriate use
    of information other than cost or pricing data, and the role of
    support agencies should also help government contracting personnel
    become smarter buyers in the commercial marketplace. Beyond these
    actions, we believe that two areas deserve additional attention.
    One is the lack of awareness or understanding by contracting
    personnel concerning the use of a solicitation clause that
    requires contractors to provide information other than certified
    cost and pricing data in support of their offered prices. The
    second is the failure of contracting personnel to use pertinent
    historical pricing information contained in contract files that
    should have raised questions about the reasonableness of offered
    prices. Recent commercial prices paid by some DOD contracting
    officers may reflect insufficient training or a lack of
    understanding of what constitutes good price analysis in a sole-
    source environment. Recommendations    We recommend that the
    Secretary of Defense direct the Under Secretary of Defense for
    Acquisition and Technology to * include, as part of DOD's efforts
    to implement recent legislation, clarification of the
    circumstances when it is appropriate to use the FAR clause
    (52.215-20) requiring an offeror to provide information on the
    prices at which the same or similar items have been sold in the
    commercial market and * issue a memorandum to contracting
    personnel emphasizing the importance of understanding and using
    historical pricing information for sole-source commercial item
    purchases. Page 11                                      GAO/NSIAD-
    99-90 Contract Management B-280125 Agency Comments    In
    commenting on a draft of this report, DOD concurred with our
    recommendations. DOD said it would issue the guidance recommended
    by the draft report as part of its implementation of the
    requirements of the Strom Thurmond National Defense Authorization
    Act for Fiscal Year 1999. Scope and          To determine and
    evaluate the price analysis DOD contracting personnel Methodology
    were performing to arrive at fair and reasonable prices for
    commercial sole-source items, we focused on the purchase of
    aircraft parts. We did this because aircraft parts and related end
    items represented the largest category of commercial sole-source
    purchases DOD made during fiscal year 1997. Within aircraft spare
    parts, we selected those DOD buying activities that were major
    purchasers of commercial sole-source items. We obtained this
    information by analyzing DOD's DD350 database, which contains all
    contract transactions over $25,000. Based on our analysis, we
    selected the following DOD buying activities for review: * Air
    Force's Air Logistics Center, San Antonio, Texas; * Air Force's
    Air Logistics Center, Oklahoma City, Oklahoma; * U.S. Special
    Operations Command, Fort Eustis, Virginia; * Defense Supply
    Center, Columbus, Ohio; * Defense Industrial Supply Center,
    Philadelphia, Pennsylvania; and * Defense Supply Center, Richmond,
    Virginia. In addition, we selected the Naval Inventory Control
    Point, Philadelphia, Pennsylvania, because it was located at the
    same address as the Defense Industrial Supply Center in
    Philadelphia. For each of these buying activities, we obtained
    additional information from the activity on commercial sole-source
    purchases. From this information, we further narrowed the universe
    down to those sole-source commercial purchases over $100,000 where
    the price was negotiated during fiscal years 1997-98. Finally, we
    judgmentally selected a total of 65 contract actions amounting to
    about $79 million for review. For each contract action, we
    reviewed the information in the contract file, including the price
    analysis and negotiation memorandums, and identified the price
    analysis tools contracting personnel used to determine fair and
    reasonable prices. We also discussed this information with
    selected contracting personnel who conducted the price analyses.
    Based on these reviews and discussions, we evaluated how well
    contract personnel performed their price analyses. Page 12
    GAO/NSIAD-99-90 Contract Management B-280125 To identify the
    guidance and training available to contracting personnel to assist
    them in determining a fair and reasonable price, we asked DOD,
    DLA, and military service representatives to provide us with
    available guidance and training on commercial purchases. We
    reviewed this information and discussed it with selected
    contracting personnel and management at DOD buying offices. Our
    work was performed in accordance with generally accepted auditing
    standards. We are sending copies of this report to the Honorable
    William Cohen, Secretary of Defense; the Honorable Jacob J. Lew,
    Director, Office of Management and Budget; and Lieutenant General
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    Acquisitions Issues Page 13
    GAO/NSIAD-99-90 Contract Management Contents Letter
    1 Appendix I
    16 Comments From the Department of Defense Appendix II
    20 Major Contributors to This Report Abbreviations DCAA
    Defense Contract Audit Agency DLA        Defense Logistics Agency
    DOD        Department of Defense FAR        Federal Acquisition
    Regulation Page 14                                      GAO/NSIAD-
    99-90 Contract Management Page 15    GAO/NSIAD-99-90 Contract
    Management Appendix I Comments From the Department of Defense
    Appendix I Page 16            GAO/NSIAD-90-99 Contract Management
    Appendix I Comments From the Department of Defense Page 17
    GAO/NSIAD-90-99 Contract Management Appendix I Comments From the
    Department of Defense Page 18
    GAO/NSIAD-90-99 Contract Management Appendix I Comments From the
    Department of Defense Page 19
    GAO/NSIAD-90-99 Contract Management Appendix II Major Contributors
    to This Report
    Appendix II National Security and    Paula J. Haurilesko
    International Affairs    Thomas W. Hopp Julia M. Kennon Division,
    Washington,    Leslie E. Schafer D.C.                     Charles
    W. Thompson Boston Field Office      Paul M. Greeley Los Angeles
    Field        Carlos M. Garcia Office                   Noel J.
    Lance % %!          Letter    Page 20                GAO/NSIAD-99-
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