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entitled 'Contract Management: Guidance Needed to Promote Competition 
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Report to Congressional Committees:

United States Government Accountability Office:

GAO:

July 2004:

CONTRACT MANAGEMENT:

Guidance Needed to Promote Competition for Defense Task Orders:

GAO-04-874:

GAO Highlights:

Highlights of GAO-04-874, a report to congressional committees

Why GAO Did This Study:

The Department of Defense (DOD) spends billions of dollars each year 
acquiring services through task orders issued under multiple-award 
contracts or the General Services Administrations federal supply 
schedule program. However, previous GAO and DOD Inspector General 
reports found that DOD was not obtaining the level of competition on 
these task orders that Congress had envisioned. Congress responded by 
enacting section 803 of the National Defense Authorization Act for 
Fiscal Year 2002, which requires procedures to promote competition and 
provides when waivers of competition are allowed.

In response to a congressional mandate, GAO identified the extent to 
which selected DOD buying organizations waived the competition 
requirements of section 803 and determined the level of competition on 
orders available for competition. For this review, GAO randomly 
selected 74 orders at five DOD buying organizations.

What GAO Found:

Competition requirements were waived for nearly half (34 of 74) of the 
multiple-award contract and federal supply schedule orders GAO 
reviewed. Often, contracting officers waived competition based on 
requests from the program offices to retain the services of contractors
currently performing the work. In addressing these requests, safeguards 
to ensure that waivers were granted only under appropriate 
circumstances were lacking. Specifically, guidance for granting waivers 
did not sufficiently describe the circumstances under which a waiver of 
competition could be used. In addition, the requirements for 
documenting the basis for waivers were not specific, and there was no 
requirement that waivers be approved above the level of the contracting 
officer. 

Competition was limited on the 40 orders available for competition. For 
16 orders, only one offer was received in response to agency 
solicitations. For 15 orders, the buying organizations received two or 
more offers. For nine orders, contracting officials did not solicit 
competitive offers on individual orders. Instead, the nine orders were 
awarded based on data previously submitted to the government. The 
figure below shows the level of competition on the orders that we 
reviewed.

Level of Competition on Randomly Selected DOD Task Orders: 

[See PDF for image]

[End of figure] 

Striking the right balance between achieving the benefits of 
competition and retaining contractors that are satisfying customer 
needs is a challenge for DOD. The frequent use of waivers to 
competition may be hindering DODs ability to obtain innovative 
solutions to problems, and the best value for the taxpayer. On the 
other hand, requests by program offices to waive competition to retain 
the services of incumbent contractors are strong indications that 
contractors are satisfying customer needs.

What GAO Recommends:

GAO is making recommendations to the Secretary of Defense to develop 
guidance on the conditions under which a waiver of competition may be 
used, require detailed documentation to support waivers, and establish 
approval authority above the contracting officer level based on the 
value of the order. DOD concurred with these recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-04-874.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact William T. Woods at 
(202) 512-4841 or woodsw@gao.gov.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Frequent Use of Competition Waivers Reflects Preference to Retain 
Incumbent Contractors:

Few Offers Received on Orders Available for Competition:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Scope and Methodology:

Appendix II: Summary Tables on Orders Selected for Review:

Appendix III: Comments from the Department of Defense:

Tables:

Table 1: Selected Buying Organizations:

Table 2: Waivers of Competition at Five Buying Organizations:

Table 3: Basis for Waivers and Frequency Cited:

Table 4: Number and Dollar Value of Orders GAO Reviewed at Five DOD 
Buying Organizations:

Table 5: Summary of the Orders Selected for Review at Five Buying 
Organizations:

Table 6: Extent of Competition for 14 Orders Open to Competition under 
the Federal Supply Schedule at Five Buying Organizations:

Table 7: Extent of Competition for 26 Orders Open to Competition under 
Multiple-Award Contracts at Five Buying Organizations:

Figure:

Figure 1: Offers for 40 Orders Open to Competition:

Abbreviations:

AFB: Air Force Base:

CECOM: Communications-Electronics Command:

DCCW: Defense Contracting Command-Washington:

DFARS: Defense Federal Acquisition Regulation Supplement:

DISA: Defense Information Systems Agency:

DOD: Department of Defense:

FAR: Federal Acquisition Regulation:

GSA: General Services Administration:

NICP: Naval Inventory Control Point:

OC-ALC: Oklahoma City Air Logistics Center:

[End of section]

United States Government Accountability Office:

Washington, DC 20548:

July 30, 2004:

The Honorable John W. Warner: 
Chairman: 
The Honorable Carl Levin: 
Ranking Minority Member: 
Committee on Armed Services: 
United States Senate:

The Honorable Duncan L. Hunter: 
Chairman: 
The Honorable Ike Skelton: 
Ranking Minority Member: 
Committee on Armed Services:
House of Representatives:

The Department of Defense (DOD) spends billions of dollars each year 
for services--ranging from the maintenance of military installations to 
managing information systems. Much of this spending is through task 
orders issued under multiple-award contracts or the General Services 
Administration's (GSA) federal supply schedule program.[Footnote 1] 
These contract vehicles permit federal agencies to acquire services in 
a streamlined manner, but both require ordering agencies to follow 
procedures designed to promote competition for individual orders.

Previous reports by us and the DOD Inspector General on DOD's use of 
multiple-award and federal supply schedule contracts have led to 
congressional concerns that DOD was not obtaining the level of 
competition for orders that Congress had envisioned.[Footnote 2] 
Congress responded by enacting section 803 of the National Defense 
Authorization Act for Fiscal Year 2002.[Footnote 3] Section 803 
requires DOD to solicit offers from all contractors that are offering 
the required services under a multiple-award contract for orders 
exceeding $100,000. For federal supply schedule orders section 803, as 
implemented, requires that DOD solicit all contractors offering the 
required services under the applicable schedule or enough contractors 
to ensure the receipt of three offers. If three offers are not 
received, the contracting officer must determine in writing that no 
additional contractors could be identified despite reasonable efforts 
to do so. Under certain circumstances, section 803 allows waivers of 
competition for multiple-award contract orders and federal supply 
schedule orders.

In response to a congressional mandate, we (1) identified the extent to 
which selected DOD buying organizations waived the competition 
requirements of section 803, and (2) determined the level of 
competition for orders available for competition.[Footnote 4] These 
objectives allowed us to focus on the outcome that section 803 was 
intended to achieve. We did not independently determine the validity of 
competition waivers, nor did we assess whether the buying organizations 
complied with each of the specific requirements of section 803. To 
accomplish our objectives, we reviewed 74 randomly selected multiple-
award and federal supply schedule orders subject to the section 803 
requirements at five large DOD buying organizations. Appendix I 
contains the details of our scope and methodology. We conducted our 
review from May 2003 through May 2004 in accordance with generally 
accepted government auditing standards.

Results in Brief:

Contracting officers waived competition requirements on nearly half (34 
of 74) of the orders we reviewed. For the most part, competition was 
waived based on determinations that only one source could provide the 
service or that the work was a follow-on to a previously competed 
order. Although these are permitted exceptions to the competition 
requirements of section 803, the use of these competition waivers 
generally reflected the desire of program offices to retain the 
services of contractors currently performing the work. When contracting 
officers addressed requests from program offices for waivers, 
safeguards to ensure that waivers were granted only under appropriate 
circumstances were lacking. Specifically, guidance for granting waivers 
did not sufficiently describe the circumstances under which a waiver of 
competition could be used. In addition, the requirements for 
documenting the basis for waivers were not specific, and there was no 
requirement that waivers be approved above the level of the contracting 
officer. As a result of the frequent use of waivers, there were fewer 
opportunities to obtain the potential benefits of competition--improved 
levels of service, market-tested prices, and the best overall value.

Competition was limited for most of the 40 orders available for 
competition. Of those 40 orders, buying organizations awarded 16 orders 
after receiving only one offer in response to agency solicitations. For 
15 of the 40 orders, the buying organizations received two or more 
offers. For the remaining nine orders, contracting officials did not 
solicit competitive offers, but instead, used procedures that based the 
selection of a contractor on data previously submitted to the 
government. These procedures, which existed prior to the section 803 
requirements, were not designed to maximize competition for individual 
orders. We question whether they are consistent with the requirements 
of section 803. We are continuing to pursue this issue with appropriate 
agency officials.

To encourage competition in awarding task orders under multiple-award 
and supply schedule contracts, we are making three recommendations to 
the Secretary of Defense to develop additional guidance on the 
circumstances under which competition may be waived, require detailed 
documentation to support competition waivers, and establish approval 
levels above the contracting officer for waivers of competition on 
orders exceeding specified thresholds.

Background:

Multiple-award contracts have provided an expeditious way to fill 
government needs. Contractors compete under a single solicitation to be 
awarded similar contracts for certain types of products or services, 
such as information technology services. These contracts are awarded 
for indefinite quantities for delivery at dates to be determined. The 
purpose of such contracts is to establish a group of prequalified 
contractors to compete for future orders under streamlined 
administrative procedures once agencies determine their specific needs.

Under the federal supply schedule program, GSA has negotiated contracts 
with thousands of companies that supply commercial products and 
services. These contracts can be used by any federal agency to purchase 
a wide variety of commercial products and services at prices associated 
with volume buying.

Under procedures in effect prior to the enactment of section 803, and 
which still apply to non-DOD orders, agencies placing multiple-award 
contract orders are required to ensure that each contractor is afforded 
a fair opportunity to be considered for the orders.[Footnote 5] 
Agencies are not required to contact each contractor, however, if the 
agency has information available to ensure that each contractor is 
provided a fair opportunity to be considered for orders. Waivers of the 
fair opportunity requirements are permitted in specified circumstances, 
such as when services are urgently needed or when only one source is 
capable of providing them. Under the federal supply schedule program, 
GSA has established special ordering procedures for services that 
require a statement of work.[Footnote 6] These procedures require 
agencies to request quotations from at least three federal supply 
schedule contractors after an initial evaluation of catalogs and price 
lists.

Section 803 of the National Defense Authorization Act for Fiscal Year 
2002 changed the competition requirements under both types of contracts 
for DOD orders for services more than $100,000. Section 803 and the 
implementing regulations in the Defense Federal Acquisition Regulation 
Supplement,[Footnote 7] which became effective in October 2002, were 
intended to promote competition under these contracts by prescribing 
more rigorous requirements. In general, under the section 803 
regulations for multiple-award contract orders, DOD contracting 
officers (and agencies buying on behalf of DOD) are required to solicit 
offers from all contractors offering the required services under the 
multiple-award contracts. For federal supply schedule orders, DOD 
contracting officers are required to solicit all federal supply 
schedule contractors offering the required services under the 
applicable schedule or as many as practicable to ensure the receipt of 
three offers. If three offers are not received, the contracting officer 
must determine in writing that no additional contractors could be 
identified despite reasonable efforts to do so. Under both types of 
contracts, officials must provide a fair notice of the intent to make 
the purchase, a description of the work the contractor shall perform, 
and the basis upon which the contracting officer will make the 
selection. Additionally, under both types of contracts, DOD contracting 
officers are required to afford all responding contractors a fair 
opportunity to make an offer and have that offer fairly considered. 
Also, section 803 and the DOD implementing regulations permit waivers 
for both multiple-award and federal supply schedule contract orders 
under specified circumstances.

We randomly selected 74 orders at five DOD buying organizations to 
determine the level of competition for DOD orders more than $100,000 
subject to section 803. Table 1 below shows the selected locations. We 
selected these locations because we wanted to focus on buying 
organizations with large volumes of orders and we wanted a mix of DOD-
wide, Army, Navy, and Air Force buying organizations. (See appendix I 
for more information on our scope and methodology.)

Table 1: Selected Buying Organizations:

Buying organization: Communications-Electronics Command (CECOM); 
Location: Fort Monmouth, N.J.

Buying organization: Naval Inventory Control Point (NICP); 
Location: Mechanicsburg, Pa.

Buying organization: Defense Contracting Command-Washington (DCCW); 
Location: Washington, D.C.

Buying organization: Defense Information Systems Agency (DISA); 
Location: Scott Air Force Base (AFB), Ill.

Buying organization: Oklahoma City Air Logistics Center (OC-ALC); 
Location: Tinker AFB, Okla.

Source: GAO.

[End of table]

Frequent Use of Competition Waivers Reflects Preference to Retain 
Incumbent Contractors:

Competition requirements were waived for nearly half (34 of 74) of the 
multiple-award and federal supply schedule orders we reviewed. In 26 of 
these 34 cases, competition was waived based on a determination either 
that only one source could provide the service or that the work was a 
follow on to a previously competed order. Often, contracting officers 
waived competition in these cases based on requests from program office 
customers to retain the services of contractors currently performing 
the work. When contracting officers addressed requests for waivers from 
program offices, the existing process lacked safeguards to ensure that 
waivers were granted only under appropriate circumstances. 
Specifically, the guidance available to contracting officers in 
granting waivers was limited because it did not sufficiently describe 
the circumstances under which a waiver of competition could be used; 
the requirements for documentation of waivers were not specific; and 
regardless of the amount of the order, there was no requirement for 
review at a level higher than the contracting officer. As a result of 
the frequent use of waivers, there were fewer opportunities to obtain 
the potential benefits of competition--improved levels of service, 
market-tested prices, and the best overall value for the taxpayer.

Competition Waivers Used Frequently:

Thirty-four of the 74 orders we reviewed were awarded on the basis of 
waivers to competition requirements. These waivers accounted for $53.3 
million, or 58 percent, of the total dollar value of the orders we 
reviewed. Twenty-four of these 34 waivers were for federal supply 
schedule orders, and 10 were for multiple-award contract orders. Table 
2 shows that waivers were common across all five buying organizations 
we visited.

Table 2: Waivers of Competition at Five Buying Organizations:

Dollars in millions.

Buying organizations: CECOM; 
Total orders reviewed: Numbers of orders: 14; 
Total orders reviewed: Dollars: $14.9; 
Waivers of competition: 4; 
Waivers of competition: Dollars: $0.9.

Buying organizations: NICP; 
Total orders reviewed: Numbers of orders: 13; 
Total orders reviewed: Dollars: $17.1; 
Waivers of competition: 8; 
Waivers of competition: Dollars: $9.3.

Buying organizations: DCCW; 
Total orders reviewed: Numbers of orders: 15; 
Total orders reviewed: Dollars: $20.9; 
Waivers of competition: 8; 
Waivers of competition: Dollars: $16.6.

Buying organizations: DISA; 
Total orders reviewed: Numbers of orders: 16; 
Total orders reviewed: Dollars: $31.2; 
Waivers of competition: 8; 
Waivers of competition: Dollars: $23.2.

Buying organizations: OC-ALC; 
Total orders reviewed: Numbers of orders: 16; 
Total orders reviewed: Dollars: $8.2; 
Waivers of competition: 6; 
Waivers of competition: Dollars: $3.3.

Total; 
Total orders reviewed: Numbers of orders: 74; 
Total orders reviewed: Dollars: $92.3; 
Waivers of competition: 34; 
Waivers of competition: Dollars: $53.3.

Sources DOD (data); 
GAO (analysis).

[End of table]
 

The five buying organizations primarily justified waiving competition 
requirements by citing either of two specific exceptions to 
competition: (1) that only one contractor was capable of providing 
services that were unique or highly specialized or (2) that the order 
was a logical follow-on to an order already issued on a competitive 
basis. Table 3 describes the rationale for granting waivers as stated 
in the Federal Acquisition Regulation (FAR) and the Defense Federal 
Acquisition Regulation Supplement (DFARS). The table also shows the 
frequency with which these waivers were used.

Table 3: Basis for Waivers and Frequency Cited:

Waiver basis: Urgent need: The services are urgently needed, and 
competition would result in unacceptable delays; 
Number of times used: 4.

Waiver basis: Unique or highly specialized services: Only one 
contractor is capable of providing services that are unique or highly 
specialized; 
Number of times used: 14.

Waiver basis: Logical follow-on: The award is in the interest of 
economy and efficiency because it is a logical follow-on to an order 
already issued on a competitive basis; 
Number of times used: 12.

Waiver basis: Minimum guarantee: It is necessary to place the order 
with a contractor to satisfy a minimum guarantee; 
Number of times used: 0.

Waiver basis: Statutory purchase: A statute expressly authorizes or 
requires that the purchase be made from a specified source; 
Number of times used: 0.

Waiver basis: Multiple exceptions and other; 
Number of times used: 4.

Total; 
Number of times used: 34. 

Sources: FAR and DFARS (data); GAO (analysis).

Note: The documentation in the contract files for individual orders 
generally cited the legal references pertaining to section 803 or the 
DOD regulations (exceptions to fair opportunity). In nine orders, the 
files provided references to the Federal Acquisition Regulation, 
section 6.302, pertaining to circumstances permitting other than full 
and open competition. For summary purposes, we combined similar 
justifications for waivers. For example, we combined the orders that 
cited "one source" as an exception under the DOD regulations (only one 
source is capable because of unique and highly specialized services) 
with "one source" as a circumstance under section 6.302-1 permitting 
other than full and open competition (only one responsible source and 
no other suppliers or services will satisfy agency requirements).

[End of table]

The waivers to competition include one case in which the order was 
awarded under the small business contracting program under section 8(a) 
of the Small Business Act.

Safeguards Lacking for Addressing Requests to Waive Competition:

In requesting contract services, program offices often requested that 
contracting officers waive competition and retain contractors already 
providing the services. This preference for the incumbent contractor 
was particularly evident in the 26 waiver cases that cited the unique 
services or logical follow-on exceptions as the basis for the waivers. 
The following is an example:

* In March 2003, the Oklahoma City Air Logistics Center awarded a 
$667,554 order under the federal supply schedule to provide information 
technology engineering and technical computer support services for the 
B-1 system support management office. In its request for services, the 
program manager for the B-1 technical support center said that it has 
several projects currently being developed and that the incumbent 
contractor had continually delivered quality services on time and 
within budget. The program manager added that the center is a complex 
system of interrelated software applications and that it would be in 
the government's interest to award the order to the same contractor 
again. The program office said that it had no desire to change 
contractors at this critical time. The waiver was justified on the 
basis of a logical follow-on.

Several representatives of buying organizations told us that program 
offices often prefer to continue with incumbent contractors. For 
example, one buying organization representative told us that program 
offices continually place pressure on the buying organization to award 
orders to incumbent contractors and that program offices have been very 
resistant when the buying organization insisted on seeking competition. 
Another buying organization representative stated that it is often 
difficult for a contracting officer to balance competition requirements 
with the desire of a program office to maintain an existing 
relationship with its incumbent contractor.

In addressing requests from program offices to retain incumbent 
contractors, the guidance available to contracting officers in the 
Defense Federal Acquisition Regulation Supplement on the appropriate 
use of waivers is limited. Specifically, DOD's regulations implementing 
section 803 merely refer to the exceptions (listed above in table 3). 
The DOD regulations do not elaborate further on the circumstances under 
which an exception to competition may be used. As a result, contracting 
officers lack guidance in determining whether program office requests 
for waivers to competition should be granted.[Footnote 8]

For example, DOD regulations do not specify what constitutes a logical 
follow-on to an order already issued on a competitive basis, how recent 
the previous competitive order should be, or whether there are any 
limits on the number of times the follow-on exception to competition 
may be used.[Footnote 9] We found three examples in which contracting 
officers deemed an order to be a logical follow-on for two or more 
consecutive procurements. The absence of additional guidance makes it 
more difficult for contracting officers to question program office 
requests for follow-on waivers. In one case, however, we found that the 
contracting officer requested additional information to justify a 
waiver because the order was the fourth consecutive order without 
competition. Specifically, the contracting officer said that the 
justification should discuss why the specific requirement was 
continuing and why it would be a benefit to the government to continue 
this work as a logical follow-on.

The following is an example of a follow-on waiver for a continuing 
requirement:

* In March 2003, the Naval Inventory Control Point awarded a $1.2 
million order under the federal supply schedule to provide information 
technology services for the Portsmouth Naval Shipyard. The program 
office prepared a sole-source justification, which the contracting 
officer used to waive competition on the basis of the logical follow-on 
exception. The waiver stated that the requirement was competed on two 
previous occasions. Based on further review, we found that the 
incumbent contractor was the only offeror in the two previous 
competitions, the last of which was in 1999, and had provided 
continuous services since 1992.

In addition, the DOD regulations do not explain what may be considered 
a unique and highly specialized service. We found examples in which 
contractors had provided their customers with the same services for 
multiple years. The documentation supporting the waivers said that the 
incumbent contractors had experience and knowledge gained through work 
on prior orders and that a change in contractors would result in 
increased cost or program delay. Often, documentation supporting the 
waiver focused on the qualities of the contractor (experience and 
knowledge gained over time), not the uniqueness of the services 
provided. The following is an example:

* In February 2003, Naval Inventory Control Point awarded a $263,000 
order under the federal supply schedule for the maintenance of hardware 
and software for an engineering program. The basis of the waiver of 
competition stated that only one contractor was capable of providing 
unique or highly specialized services. However, the justification 
supporting the waiver focused on the qualities of the contractor, such 
as system and software operating knowledge that would ensure the 
operation at existing levels. The justification said that the cost to 
duplicate the contractor's expertise could not reasonably be expected 
to be recovered through competition and that the time necessary to 
develop another source would delay the program past published 
milestones.

Another factor relevant to addressing program office requests for 
waivers is the lack of specific requirements for the documentation 
needed to support a waiver. The DOD regulations state that each order 
for services exceeding $100,000 must be awarded on a competitive basis 
unless the contracting officer waives this requirement on the basis of 
a "written determination" that one of the exceptions applies to the 
order. The regulations do not specify a particular format or the type 
of information that is needed to support a waiver. In particular, there 
is no requirement that the written determination describe the specific 
facts and circumstances that justify waiving competition.[Footnote 10] 
The determinations and supporting documentation we reviewed varied 
greatly among the 34 waiver cases. Written support for the waivers was 
in various types of documents and at various levels of specificity. 
Although some contract files contained detailed justifications to 
support a waiver, many files contained merely conclusions. For example, 
one contract file for an order exceeding $17.4 million included only a 
statement in the price negotiation memorandum that the task monitor in 
the program office requested, and the contracting officer approved, the 
order as a logical follow-on to a previously competed action. The 
absence of detailed support for waivers makes it difficult for any 
reviewer to assess whether individual waivers were granted 
appropriately.

Finally, the DOD regulations do not require that waiver determinations 
be approved above the level of the contracting officer, regardless of 
the amount of the order. In contrast to section 803 requirements 
applicable to task orders, part 6 of FAR, which governs the use of 
other than full and open competition to award the underlying contracts, 
limits a contracting officer's approval of a sole-source justification 
to contracts that do not exceed $500,000. Part 6.304 specifies a higher 
approval authority based on the dollar amount of the contract. These 
requirements are intended to ensure that exceptions to competition on 
higher dollar-value contracts are reviewed to ensure that exceptions 
are used only in appropriate cases. In June 2004, FAR subpart 8.4 was 
revised to establish approval thresholds similar to part 6 for waivers 
of competition on federal supply schedule orders. The revised 
regulation did not extend these approval requirements to orders under 
multiple-award contracts.

Few Offers Received on Orders Available for Competition:

Competition was limited on the 40 orders available for competition. 
Contracting officers generally awarded these orders based on 
solicitations to contractors and the receipt and evaluation of offers. 
These 40 orders represented over $38.9 million, or about 42 percent of 
the total dollar value of the 74 orders we reviewed.

The level of competition for the 40 orders is summarized in figure 1 
below.[Footnote 11] For 16 of the orders, the buying organization 
received only one offer in response to a solicitation. The buying 
organizations received two or more offers for 15 of the 40 orders 
available for competition. For the remaining nine orders, contracting 
officials did not solicit competitive offers. Instead, the nine orders 
were awarded based on data previously submitted to the government. We 
question whether the procedures used for these nine orders are 
consistent with the requirements of section 803, and we are continuing 
to pursue this issue with appropriate agency officials.

Figure 1: Offers for 40 Orders Open to Competition:

[See PDF for image]

[End of figure]

Orders Based on One Offer:

In 16 cases, the buying organizations awarded orders on the basis of 
receiving only one offer, even though multiple contractors were 
solicited. The following are examples of orders awarded on the basis of 
a single offer:

* In July 2003, the Defense Contracting Command-Washington awarded an 
order for about $1.4 million to provide education and training for the 
Air Force Management School. The only two contractors on the multiple-
award contract were given an opportunity to submit offers. One 
contractor, the incumbent, submitted a $1.4 million offer, but the 
second contractor declined. The contract file included information 
stating that both companies under the multiple-award contract had been 
acquired by the same parent company and that the second contractor 
rarely submits offers for work under this contract.

* In February 2003, the Naval Inventory Control Point awarded a 
$300,000 order to remove and replace existing wiring and cables in a 
Marine Corps facility. The only two contractors on a multiple-award 
contract were given an opportunity to bid on this urgent requirement. 
The contractors had only 1 working day to respond to the request for a 
quote. One contractor was working at the facility on another project 
and was able to respond to the government's 1-day deadline. The other 
contractor did not submit a proposal because, according to the 
contracting officer, its competitor was already in the building 
conducting work. The Naval Inventory Control Point requested that the 
sole offeror lower its proposed price of $545,000 and granted an 
extension. Ultimately, the contractor agreed, and the award was made 
about 3 weeks after the contractor's initial offer. According to the 
contracting officer, the other multiple-award contractor was not 
contacted about the work after it initially declined to submit an 
offer.

In a prior report, we discussed insights from contractors about factors 
they consider when deciding whether to submit a proposal for an 
order.[Footnote 12] Contractor representatives emphasized that such 
decisions entail a business judgment about the prospects of winning the 
award because preparing a proposal can be costly. Contractor 
representatives cited several factors that can contribute to a decision 
not to submit a proposal. For example, a company may be reluctant to 
pursue an opportunity if an incumbent exists, is perceived as having 
strong qualifications, and is performing well. If the company does not 
excel in that particular type of work, it may be inclined not to submit 
a proposal. Other factors that can discourage a company from submitting 
a proposal are unreasonably short time frames for preparing proposals 
and starting work, and selection criteria that appear to favor 
incumbent contractors.

Our current review also demonstrates that obtaining competition for 
services can be difficult when there is an incumbent contractor that 
may be perceived as having advantages over nonincumbents. For example, 
incumbent contractors might have built strong working relationships 
with program offices from meeting the needs of program offices. In 
addition, incumbent contractors may be more likely to understand the 
work requirements, particularly when the order involves continuing 
services. Of the 40 orders available for competition, 21 were for 
continuing services. The incumbent contractor received the order in 19 
of these 21 cases.

Orders Based on Two or More Offers:

Fifteen of the 40 orders available for competition were awarded 
following the receipt of two or more offers.[Footnote 13] The following 
examples describe orders awarded on the basis of multiple offers:

* In April 2003, the Defense Information Systems Agency awarded an 
order for about $346,000 for database technical support services. The 
1-year award included options for 4 additional years, which could add 
an additional $1.4 million to the value of the award. The new 
requirement was competed among all nine contractors on a multiple-award 
contract. Six of the nine contractors submitted an offer. The prices 
(with options) ranged from about $1.75 million to about $3.4 million. 
All of the proposals were technically acceptable. The selection was 
based on the lowest-priced, technically acceptable offer.

* In February 2003, the Oklahoma City Air Logistics Center awarded an 
order for about $145,000 for information technology support. The 1-year 
award included options for 3 additional years of work, which could add 
an additional $463,000 to the award. The center requested quotes from 
eight contractors, including the incumbent contractor. The incumbent 
contractor failed to submit a proposal prior to the due date and 
requested an extension, which was denied. The center received three 
offers--one at about $145,000 for the first year and two others at 
about $200,000 and $190,000. The program office wanted the order to be 
awarded to the highest offeror because any other choice would have an 
adverse impact on various projects. In response, the contracting 
officer worked to resolve various matters (such as security issues) and 
ultimately awarded an order to the lowest offeror.

Orders Awarded without Solicitations:

Section 803 and the DOD regulations require DOD's buying organizations 
to provide all contractors under a multiple-award contract with a 
notice of the intent to make a purchase--including a description of the 
work to be performed and the basis on which the selection will be made. 
For nine orders, however, two buying organizations did not solicit 
competitive offers for individual orders. Instead, the nine orders were 
awarded under a selection process that based the award on data 
previously submitted to the government.

Six of these nine orders were awarded at the Oklahoma City Air 
Logistics Center under a multiple-award contract called Contractor 
Field Teams. Under this multiple-award contract, the four participating 
contractors were not solicited for individual orders. Instead, the 
procedures outlined in the contract called for the contracting officer 
to make the selections on the basis of 10 factors: (1) price; (2) 
manning; (3) experience; (4) availability of skills; (5) site location; 
(6) continuity of program; (7) security clearance; (8) selected factors 
such as special requirements; (9) contractor performance; and (10) 
diversity. Each of the four contractors was scored from zero to four 
points for each factor, and the contractor with the highest total 
received the task order. An internal file memorandum stated that the 
contracting officer had all the needed information on all four 
contractors already in place prior to making the selections. The 
memorandum also stated that if the program were to issue an additional 
solicitation each time a requirement was submitted, it would result in 
lost time in accomplishing the work.

Five of the six orders that we reviewed under the multiple-award 
contract at Oklahoma City were awarded to incumbent contactors for the 
continuation of existing services. To further assess the impact of this 
source selection process, we requested that representatives of the 
Oklahoma City Air Logistics Center provide us with data on all awards 
under this multiple-award contract for fiscal year 2003. The data 
showed that 103 of 112 orders were awarded to incumbent contractors for 
the continuation of ongoing services.

Similarly, for three orders, contractors were not solicited for 
individual orders in the process used at the Naval Inventory Control 
Point. Instead, they were notified of intended work at potential sites 
for the fiscal year. Contracting officers at the buying organization 
evaluated the contractors prior to the issuance of specific orders on 
the basis of previously submitted data. The evaluation was based on a 
cost model, which was developed in order to expedite the contract 
process and reduce administrative costs.

The selection procedures used at the Oklahoma City Air Logistics Center 
and by the Naval Inventory Control Point existed prior to the passage 
of section 803 requirements. In our opinion, these procedures were not 
designed to maximize competition for individual orders, and we question 
whether they are consistent with section 803 requirements in terms of 
providing fair notice of intent to make a purchase and fair opportunity 
to responding contractors to submit an offer and have it fairly 
considered. We are reviewing this matter further, and will follow up 
with appropriate agency officials.

Conclusions:

Striking the right balance between achieving the benefits of 
competition and retaining contractors that are satisfying customer 
needs is a challenge for DOD. On the one hand, the frequent use of 
waivers to competition requirements may be hindering DOD's ability to 
obtain innovative solutions to problems and the best value for the 
taxpayer. On the other hand, requests by program offices to waive 
competition to retain the services of incumbent contractors are strong 
indications that contractors are satisfying customer needs. Contracting 
officers would be aided in meeting program office needs while adhering 
to competition requirements through additional guidance on the proper 
use of competition waivers. In addition, requiring more thorough 
documentation by contracting officers of the circumstances that warrant 
the use of waivers and establishing an approval process for the use of 
waivers for multiple-award contracts would enhance oversight and help 
to ensure that waivers are used only when appropriate.

Recommendations for Executive Action:

In order to promote more competition in the award of orders under 
multiple-award and federal supply schedule contracts and to ensure that 
waivers of competition are used only in appropriate cases, we recommend 
that the Secretary of Defense take the following three actions:

* develop additional guidance on the circumstances under which the 
logical follow-on and unique services waivers may be used,

* require that all waiver determinations be supported by documentation 
describing in detail the circumstances that warrant the use of a 
waiver, and:

* establish approval levels for waivers under multiple-award contracts 
that are comparable to the approval levels for sole-source federal 
supply schedule orders under subpart 8.4 of the Federal Acquisition 
Regulation.

Agency Comments and Our Evaluation:

In commenting on a draft of this report, DOD concurred with our 
recommendations. DOD has opened a Defense Federal Acquisition 
Regulation Supplement case to develop the necessary changes to the 
DFARS and any additional supplemental guidance that may be appropriate 
for procedures, guidance, and information. DOD anticipates the issuance 
of a rule and supplemental guidance within 180 days. Also, DOD will 
issue direction within 30 days to implement approval levels for waivers 
under multiple-award contracts comparable to the revised approval 
levels at FAR 8.4 for federal supply schedule orders. These approval 
levels will be effective October 1, 2004.

Specifically, DOD will develop additional guidance on the circumstances 
under which the logical follow-on and unique and highly specialized 
services waivers may be used. DOD agrees that additional guidance will 
facilitate more consistent and appropriate use of waivers.

In addition, DOD will require that all waiver determinations be 
supported by documentation describing in detail the circumstances that 
warrant the use of a waiver. DOD agrees that it is appropriate that 
each waiver be accompanied by documentation that contains sufficient 
facts and rationale to demonstrate the propriety of the waiver.

Lastly, DOD said it will establish approval levels for waivers under 
multiple-award contracts comparable to the approval levels established 
in the FAR for sole-source federal supply schedule orders. DOD agrees 
that elevating the approval level above the contracting officer for 
higher-dollar orders increases the emphasis on the importance of 
competition. Furthermore, it ensures that orders are treated the same, 
whether a federal supply schedule or a multiple-award contract is used.

DOD's comments appear in appendix III.

We are sending copies of this report to the Administrator of General 
Services, the Administrator of the Office of Federal Procurement 
Policy, the Director of the Office of Management and Budget, and 
interested congressional committees. We will also make copies available 
to others upon request. In addition, this report will be available at 
no charge on the GAO Web site at http://www.gao.gov.

Please contact me at (202) 512-4841, or Blake Ainsworth at (202) 512-
4609, if you have any questions regarding this report. Major 
contributors to this report were Ken Graffam, Martin Lobo, Gary 
Middleton, Jeffrey Rose, Ralph Roffo, Paul Williams, Robert Ackley, and 
Marie Ahearn.

William T. Woods: 
Director: 
Acquisition and Sourcing Management:

[End of section]

Appendix I: Scope and Methodology:

The Department of Defense (DOD) acquires billions of dollars worth of 
services each year using various multiple-award contracts and the 
General Services Administration's federal supply schedule. To enhance 
competition under such contracts, section 803 of the National Defense 
Authorization Act for Fiscal Year 2002 included new requirements to 
help increase the number of competitive offers on DOD orders for 
services worth more than $100,000. Our objectives were to (1) identify 
the extent to which the buying organizations waived the competition 
requirements of section 803, and (2) determine the level of competition 
for orders available for competition. These objectives allowed us to 
focus on the outcome that section 803 was intended to achieve. We did 
not independently determine the validity of the competition waivers, 
nor did we assess whether the buying organizations complied with each 
of the specific requirements of section 803.

To determine the locations to visit, we obtained a computer file from 
DOD, which listed DOD's contracting actions using DOD's Individual 
Contracting Action Report (DD-350). The database provided contracting 
actions from January 1 to June 30, 2003. From these data, we were able 
to identify the largest users during this period of multiple-award 
orders and federal supply schedule orders. We selected five buying 
organizations that were large users of both multiple-award contracts 
and the federal supply schedule. The selected buying organizations 
represented a mix of Army, Navy, Air Force, and DOD-wide buying 
organizations--including the Communications-Electronics Command, Fort 
Monmouth, New Jersey; Defense Contracting Command-Washington, 
Washington, D.C; Defense Information Systems Agency, Scott Air Force 
Base (AFB), Illinois; Naval Inventory Control Point, Mechanicsburg, 
Pennsylvania; and Oklahoma City Air Logistics Center, Tinker AFB, 
Oklahoma.

We also used the DD-350 Individual Contracting Action Report's database 
to randomly select the orders for review at the five buying 
organizations. These data represented contracting actions from January 
1 to June 30, 2003, that were subject to the section 803 requirements-
-multiple-award contract and federal supply schedule orders for 
services worth more than $100,000. We prepared two lists of contracting 
actions for each of these five buying organizations: one for orders 
under multiple-award contracts and one for orders under the federal 
supply schedule. Orders were selected for review using random numbers 
tables.[Footnote 14] At each location, our goal was to review 16 
randomly selected orders, 8 multiple-award orders, and 8 federal supply 
schedule orders. For each contract, we reviewed the order file, and in 
many cases, interviewed the contracting officer and other contracting 
officials to discuss the file.

Ultimately, we reviewed 74 randomly selected orders at five DOD buying 
organizations to determine the level of competition for orders subject 
to the section 803 requirements.[Footnote 15] As table 4 shows, the 
basic awards for these 74 orders (without options for additional work) 
represented over $92.3 million.

Table 4: Number and Dollar Value of Orders GAO Reviewed at Five DOD 
Buying Organizations:

Dollars in millions.

Buying organizations: Communications-Electronics Command; 
Orders under multiple-award contracts: Number of orders: 8; 
Orders under multiple-award contracts: Dollars: $7.2; 
Orders under federal supply schedule: 6; 
Orders under federal supply schedule: Dollars: $7.7; 
Total number of orders: 14; 
Total dollars: $14.9.

Buying organizations: Naval Inventory Control Point; 
Orders under multiple-award contracts: Number of orders: 5; 
Orders under multiple-award contracts: Dollars: $7.8; 
Orders under federal supply schedule: 8; 
Orders under federal supply schedule: Dollars: $9.3; 
Total number of orders: 13; 
Total dollars: $17.1.

Buying organizations: Defense Contracting Command-Washington; 
Orders under multiple-award contracts: Number of orders: 7; 
Orders under multiple-award contracts: Dollars: $7.3; 
Orders under federal supply schedule: 8; 
Orders under federal supply schedule: Dollars: $13.6; 
Total number of orders: 15; 
Total dollars: $20.9.

Buying organizations: Defense Information Systems Agency; 
Orders under multiple-award contracts: Number of orders: 8; 
Orders under multiple-award contracts: Dollars: $28.8; 
Orders under federal supply schedule: 8; 
Orders under federal supply schedule: Dollars: $2.4; 
Total number of orders: 16; 
Total dollars: $31.2.

Buying organizations: Oklahoma City Air Logistics Center; 
Orders under multiple-award contracts: Number of orders: 8; 
Orders under multiple-award contracts: Dollars: $5.2; 
Orders under federal supply schedule: 8; 
Orders under federal supply schedule: Dollars: $3.0; 
Total number of orders: 16; 
Total dollars: $8.2.

Total; 
Orders under multiple-award contracts: Number of orders: 36; 
Orders under multiple-award contracts: Dollars: $56.3; 
Orders under federal supply schedule: 38; 
Orders under federal supply schedule: Dollars: $36.0; 
Total number of orders: 74; 
Total dollars: $92.3.

Sources: DOD (data); GAO (analysis).

[End of table]

We conducted our review from May 2003 through May 2004 in accordance 
with generally accepted government auditing standards.

[End of section]

Appendix II: Summary Tables on Orders Selected for Review:

The three tables below provide a summary of the orders selected for 
review at the five buying organizations we visited. Table 5 shows a 
breakdown of the orders with waivers to competition and orders open to 
competition at the various buying organizations. Tables 6 and 7 show 
the level of competition (number of offers) for orders open to 
competition under the federal supply schedule and multiple-award 
contracts.

Table 5: Summary of the Orders Selected for Review at Five Buying 
Organizations:

Buying organizations: Communications-Electronics Command (CECOM); 
Number of orders on federal supply schedule: Waivers: 3; 
Number of orders on federal supply schedule: Open to competition: 3; 
Number of orders on multiple-award contracts: 1; 
Number of orders on multiple- award contracts: Open to competition: 7; 
Total number orders: 14.

Buying organizations: Naval Inventory Control Point (NICP); 
Number of orders on federal supply schedule: Waivers: 8; 
Number of orders on federal supply schedule: Open to competition: N/A; 
Number of orders on multiple-award contracts: N/A; 
Number of orders on multiple- award contracts: Open to competition: 5; 
Total number orders: 13.

Buying organizations: Defense Contracting Command-Washington (DCCW); 
Number of orders on federal supply schedule: Waivers: 5; 
Number of orders on federal supply schedule: Open to competition: 3; 
Number of orders on multiple-award contracts: 3; 
Number of orders on multiple- award contracts: Open to competition: 4; 
Total number orders: 15.

Buying organizations: Defense Information Systems Agency (DISA); 
Number of orders on federal supply schedule: Waivers: 4; 
Number of orders on federal supply schedule: Open to competition: 4; 
Number of orders on multiple-award contracts: 4; 
Number of orders on multiple-award contracts: Open to competition: 4; 
Total number orders: 16.

Buying organizations: Oklahoma City Air Logistics Center (OC-ALC); 
Number of orders on federal supply schedule: Waivers: 4; 
Number of orders on federal supply schedule: Open to competition: 4; 
Number of orders on multiple-award contracts: 2; 
Number of orders on multiple- award contracts: Open to competition: 6; 
Total number orders: 16.

Total; 
Number of orders on federal supply schedule: Waivers: 24; 
Number of orders on federal supply schedule: Open to competition: 14; 
Number of orders on multiple-award contracts: 10; 
Number of orders on multiple-award contracts: Open to competition: 26; 
Total number orders: 74.

Sources: DOD (data); GAO (analysis).

[End of table]

Table 6: Extent of Competition for 14 Orders Open to Competition under 
the Federal Supply Schedule at Five Buying Organizations:

Buying organizations: CECOM; 
Number of orders under the federal supply schedule: Open to 
competition: 3; 
Number of orders under the federal supply schedule: One offer: 2; 
Number of orders under the federal supply schedule: Two offers: 1; 
Number of orders under the federal supply schedule: Three or more 
offers: N/A.

Buying organizations: NICP; 
Number of orders under the federal supply schedule: Open to 
competition: N/A; 
Number of orders under the federal supply schedule: One offer: N/A; 
Number of orders under the federal supply schedule: Two offers: N/A; 
Number of orders under the federal supply schedule: Three or more offers: N/A.

Buying organizations: DCCW; 
Number of orders under the federal supply schedule: Open to 
competition: 3; 
Number of orders under the federal supply schedule: One offer: 1; 
Number of orders under the federal supply schedule: Two offers: 1; 
Number of orders under the federal supply schedule: Three or more 
offers: 1.

Buying organizations: DISA; 
Number of orders under the federal supply schedule: Open to 
competition: 4; 
Number of orders under the federal supply schedule: One offer: 1; 
Number of orders under the federal supply schedule: Two offers: 1; 
Number of orders under the federal supply schedule: Three or more 
offers: 2.

Buying organizations: OC-ALC; 
Number of orders under the federal supply schedule: Open to 
competition: 4; 
Number of orders under the federal supply schedule: One offer: N/A; 
Number of orders under the federal supply schedule: Two offers: N/A; 
Number of orders under the federal supply schedule: Three or more 
offers: 4.

Total; 
Number of orders under the federal supply schedule: Open to 
competition: 14; 
Number of orders under the federal supply schedule: One offer: 4; 
Number of orders under the federal supply schedule: Two offers: 3; 
Number of orders under the federal supply schedule: Three or more 
offers: 7.

Sources: DOD (data); GAO (analysis).

[End of table]

Table 7: Extent of Competition for 26 Orders Open to Competition under 
Multiple-Award Contracts at Five Buying Organizations:

Buying organizations: CECOM; 
Number of orders under multiple-award contracts: Open to competition: 
7; 
Number of orders under multiple- award contracts: One offer: 4; 
Number of orders under multiple-award contracts: Two offers: 2; 
Number of orders under multiple-award contracts: Three or more offers: 
1; 
Number of orders under multiple- award contracts: No offers solicited: 
N/A.

Buying organizations: NICP; 
Number of orders under multiple-award contracts: Open to competition: 
5; 
Number of orders under multiple- award contracts: One offer: 2; 
Number of orders under multiple-award contracts: Two offers: N/A; 
Number of orders under multiple-award contracts: Three or more offers: 
N/A; 
Number of orders under multiple-award contracts: No offers solicited: 
3.

Buying organizations: DCCW; 
Number of orders under multiple-award contracts: Open to competition: 
4; 
Number of orders under multiple- award contracts: One offer: 4; 
Number of orders under multiple-award contracts: Two offers: N/A; 
Number of orders under multiple-award contracts: Three or more offers: 
N/A; 
Number of orders under multiple-award contracts: No offers solicited: 
N/A.

Buying organizations: DISA; 
Number of orders under multiple-award contracts: Open to competition: 
4; 
Number of orders under multiple- award contracts: One offer: 2; 
Number of orders under multiple-award contracts: Two offers: N/A; 
Number of orders under multiple-award contracts: Three or more offers: 
2; 
Number of orders under multiple- award contracts: No offers solicited: 
N/A.

Buying organizations: OC-ALC; 
Number of orders under multiple-award contracts: Open to competition: 
6; 
Number of orders under multiple- award contracts: One offer: N/A; 
Number of orders under multiple- award contracts: Two offers: N/A; 
Number of orders under multiple- award contracts: Three or more offers: 
N/A; 
Number of orders under multiple-award contracts: No offers solicited: 
6.

Total; 
Number of orders under multiple-award contracts: Open to competition: 
26; 
Number of orders under multiple- award contracts: One offer: 12; 
Number of orders under multiple-award contracts: Two offers: 2; 
Number of orders under multiple-award contracts: Three or more offers: 
3; 
Number of orders under multiple- award contracts: No offers solicited: 
9. 

Sources: DOD (data); GAO (analysis).

[End of table]

[End of section]

Appendix III: Comments from the Department of Defense:

OFFICE OF THE UNDER SECRETARY OF DEFENSE:
3000 DEFENSE PENTAGON:
WASHINGTON, DC 20301-3000:

ACQUISITION, TECHNOLOGY AND LOGISTICS:

DPAP/DARS:

JUL 19 2004: 

Mr. William T. Woods:
Director, Acquisition and Sourcing Management: 
U.S. General Accounting Office:
441 G Street, NW: 
Washington, DC 20548:

Dear Mr. Woods:

This is the Department of Defense response to the GAO draft report, 
"CONTRACT MANAGEMENT: Guidance Needed to Promote Competition for 
Defense Task Orders," dated June 22, 2004 (GAO Code 120245/GAO-04-874).

I appreciate the opportunity to comment on the draft report. I concur 
with the GAO recommendations as discussed in the enclosure. I have 
opened a Defense Federal Acquisition Regulation Supplement (DFARS) case 
to develop necessary changes to the DFARS and any additional 
supplemental guidance that may be appropriate for procedures, guidance 
and information. I anticipate issuance of a rule and supplemental 
guidance within 180 days.

Additionally, I will issue direction within the next 30 days to 
implement approval levels for waivers comparable to the revised 
approval levels at FAR 8.4 for Federal Supply Schedules. I will extend 
these same approval levels for waivers on orders against multiple award 
contracts to be effective October 1, 2004.

Please contact Ms. Teresa Brooks, 703-602-0326, teresa.brooks@osd.mil, 
should you have any questions.

Sincerely,

Signed by: 

Deidre A. Lee:

Director, Defense Procurement and Acquisition Policy:

Enclosure: As stated:

GAO DRAFT REPORT - DATED JUNE 22, 2004 GAO CODE 120245/GAO-04-874:

"CONTRACT MANAGEMENT: GUIDANCE NEEDED TO PROMOTE COMPETITION FOR 
DEFENSE TASK ORDERS":

DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:

RECOMMENDATION 1: The GAO recommended that the Secretary of Defense 
develop additional guidance on the circumstances under which the 
logical follow-on and unique services waivers may be used. (p. 16/GAO 
Draft Report):

DOD RESPONSE: Concur. The Department will develop additional guidance 
on the circumstances under which the logical follow-on and unique or 
highly specialized services waivers may be used. The Department agrees 
that additional guidance will facilitate more consistent and 
appropriate use of waivers.

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
require that all waiver determinations be supported by documentation 
describing in detail the circumstances that warrant use of a waiver. 
(p. 16/GAO Draft Report):

DOD RESPONSE: Concur. The Department will require that all waiver 
determinations be supported by documentation describing in detail the 
circumstances that warrant the use of a waiver. The Department agrees 
it is appropriate that each waiver be accompanied by documentation that 
contains sufficient facts and rationale to demonstrate the propriety of 
the waiver.

RECOMMENDATION 3: The GAO recommended that the Secretary of Defense 
establish approval levels for waivers under multiple-award contracts 
that are comparable to the approval levels for sole-source federal 
supply schedule orders under subpart 8.4 of the Federal Acquisition 
Regulation (p. 16/GAO Draft Report):

DOD RESPONSE: Concur. The Department will establish approval levels for 
waivers under multiple award contracts, comparable to the approval 
levels established in the Federal Acquisition Regulation (effective 
July 19, 2004) for sole source federal supply schedule orders. The 
Department agrees that elevating the approval level above the 
contracting officer for higher dollar orders increases the emphasis on 
the importance of competition. Further, it ensures that orders are 
treated the same, whether a federal supply schedule or a multiple award 
contract is used. 

[End of section]

FOOTNOTES

[1] Multiple-award contracts are contracts awarded to multiple 
contractors under the same solicitation for the same or similar 
products or services. Task orders are awarded under these contracts 
based on competition between the multiple contractors. Under the 
federal supply schedule program, GSA has negotiated contracts with 
thousands of companies that supply commercial products and services. 

[2] We and the DOD Inspector General have issued a number of reports on 
the level of competition for services. See U.S. General Accounting 
Office, Acquisition Reform: Multiple-award Contracting at Six Federal 
Organizations, GAO/NSIAD-98-215 (Washington, D.C.: Sept. 30, 1998); 
Contract Management: Few Competing Proposals for Large DOD Information 
Technology Orders, GAO/NSIAD-00-56 (Washington, D.C.: Mar. 20, 2000); 
Department of Defense Inspector General, Contracts for Professional, 
Administrative, and Management Support Services, D-2000-100 
(Washington, D.C.: Mar. 10, 2000); Contract Management: Not Following 
Procedures Undermines Best Pricing under GSA's Schedule, GAO-01-125 
(Washington, D.C., Nov. 28, 2000); and Department of Defense Inspector 
General, Multiple Award Contracts for Services, D-2001-189 (Washington, 
D.C.: Sept. 30, 2001).

[3] Pub. L. No. 107-107 (Dec. 28, 2001).

[4] Section 804 of the National Defense Authorization Act for Fiscal 
Year 2000 (Pub. L. No. 106-65, Oct. 5, 1999) required that we review 
the use of task and delivery order contracts by executive agencies. Our 
first report in response to this mandate, Contract Management: Civilian 
Agency Compliance with Revised Task and Delivery Order Regulations, 
GAO-03-983 (Washington, D.C., Aug. 29, 2003), excluded DOD because new 
requirements applicable only to DOD under section 803 of the National 
Defense Authorization Act for Fiscal Year 2002 had only recently become 
effective. As agreed with committee staff, our current review of task 
orders subject to the section 803 requirements was needed to satisfy 
fully the section 804 mandate.

[5] The Federal Acquisition and Streamlining Act of 1994 provided 
statutory authority for federal agencies to enter into multiple-award, 
task and delivery order contracts. The act and the Federal Acquisition 
Regulation (FAR), Part 16.505, provide guidance on ordering 
requirements and the competitive process. Section 804 of the National 
Defense Authorization Act for Fiscal Year 2000 required more specific 
guidance to agencies on the appropriate use of task and delivery order 
contracts, which led to revisions in the FAR. See GAO-03-983.

[6] Under the Competition in Contracting Act of 1984, procedures 
established by GSA for the federal supply schedule program are 
competitive if participation has been open to all responsible sources 
and orders result in the lowest overall cost alternative to meet the 
needs of the government. Competition requirements are included in the 
FAR, subpart 8.4. 

[7] The Defense Federal Acquisition Regulation Supplement citations are 
DFARS 216.505-70 for orders under multiple-award contracts and DFARS 
208.404-70 for orders under the federal supply schedule. 

[8] We did not attempt to assess whether the specific facts surrounding 
the 34 waivers justified the exceptions cited for granting the waivers, 
in large part because of the absence of support for the waivers in many 
of the contract files. 

[9] In addition to the DOD regulations, FAR section 16.505(b)(4) also 
applies to multiple-award contract orders made by or on behalf of DOD 
and provides some additional but limited guidance on logical follow-on 
waivers. It states that if the agency uses the logical follow-on 
exception, the decision documentation for orders shall include the 
rationale for placement and price as well as why the relationship 
between the initial order and the follow-on is logical (e.g., in terms 
of scope, period of performance, or value). 

[10] FAR section 16.505(b)(4), which applies to multiple-award contract 
orders made by or on behalf of DOD, requires the contract file to 
identify the basis for using an exception to the fair opportunity 
process. Additionally, it generally provides that the contracting 
officer shall document in the contract file the rationale for the 
placement and price of each order, including the basis for the award 
and the rationale for any trade-offs among cost or price and noncost 
considerations in making the award decision. For federal supply orders 
under our review, the DOD regulation provides that the documentation 
procedures of FAR section 8.404(b)(7) apply. However, this FAR 
provision does not specify a particular format or the type of 
information that is needed to support a waiver. In June 2004, FAR 
subpart 8.4 was revised and FAR section 8.404(b)(7) was deleted. The 
revised FAR section 8.405-6 now provides that sole source orders be 
justified according to FAR section 6.303-2, modified for services. 
Additionally, revised FAR section 8.405-7 now provides for 
documentation of the circumstances and rationale for restricting 
consideration of schedule contractors to fewer than that required.

[11] Appendix II provides detailed tables that characterize the results 
of this analysis.

[12] See GAO/NSIAD-00-56.

[13] Some multiple-award contracts that we reviewed had only two 
contractors that were eligible to compete for awards.

[14] We did not assess the reliability of the database used to select 
the sample. For several reasons, some of the originally selected orders 
had to be replaced with other randomly selected orders. For example, 
some orders were incorrectly coded as services rather than products. 
Also, some contracting actions were solely to provide additional 
funding for existing contracts. 

[15] At the Naval Inventory Control Point, all multiple-award contract 
orders in the DD-350 database were miscoded and discarded. However, 
Control Point staff members were able to identify five orders meeting 
our criteria (not listed in DD-350), which we reviewed. Also, at the 
Communications-Electronics Command, many orders were discarded for 
several reasons. We found only six federal supply schedule orders that 
met our criteria; we reviewed all six orders. 

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Fax: (202) 512-6061:

To Report Fraud, Waste, and Abuse in Federal Programs:

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470:

Public Affairs:

Jeff Nelligan, managing director,

NelliganJ@gao.gov

(202) 512-4800

U.S. Government Accountability Office,

441 G Street NW, Room 7149

Washington, D.C. 20548: