prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.

Report 1: The Buy American Act of 1933 was enacted during the Great Depression when there was a need to create and preserve jobs for American workers, and it established a preference for the federal government to buy domestic end products  Many of the products the federal government buys—including aircraft engines and medical supplies—are end products that may be subject to the requirements of the Buy American Act  Further, the Buy American Act does not apply to products that are purchased for use outside the United States or obtained through contracts under the micro-purchase threshold, which was generally $3,500 in fiscal year 2017  end products manufactured in the United States provided that (a) the product is a commercially available off-the-shelf item; or (b) the cost of the components mined, produced, or manufactured in the United States exceeds 50 percent of the total cost of all components  End products that are not considered domestic under the Buy American Act are treated as foreign  This characterization is based on the origin of the end product—that is, where the product is manufactured or produced—and not the vendor’s location  For example, a vendor located in Finland may supply end products manufactured in the United States, in which case these products would be treated as domestic products  Conversely, a vendor located in the United States may supply end products manufactured in Finland  In this case, the end products would be considered foreign  Although the Buy American Act establishes a preference for domestic end products, there are situations in which agencies can procure foreign end products through established exceptions to the Buy American requirements  In addition, under the Trade Agreements Act of 1979, the United States has waived domestic purchasing requirements—including the Buy American Act—for certain acquisitions of foreign end products from countries that are party to international trade agreements or are considered designated countries by the U S  Trade Representative  In implementing the Buy American Act, the FAR sets forth several exceptions that permit federal agencies to buy foreign end products  These include situations when a domestic end product is not produced in sufficient quantities or cases where the cost would be unreasonable to buy a domestic end product  The steps that contracting officers must take to determine or document an exception will vary depending on the circumstances of the acquisition  For example, a written determination from the Head of Contracting Activity (HCA) or a delegate may be necessary to determine non-availability in some cases  However, a written determination may not be required when an acquisition is conducted through full and open competition, is synopsized, and no domestic offer is received  Other exceptions to the Buy American Act restrictions on the purchase of foreign products, such as the exception for commercial information technology, are blanket exceptions that do not require a written determination  In addition, some agencies have specified additional considerations that must precede a determination and what level of authority is appropriate for certain determinations  The five Buy American Act exceptions that apply government-wide and the corresponding determination standards in the FAR are listed in Table 1  Individual federal agencies may make blanket determinations of situations in which the Act’s restrictions should not apply to that agency’s procurements, when it is not in the public interest to restrict the purchase of foreign end products  For example, over the years, DOD has entered into reciprocal procurement agreements with 27 foreign counterparts  DOD determined that it would be inconsistent with the public interest to apply the Buy American Act restrictions on products from these 27 qualifying countries  Thus, if an offer includes end products from a qualifying country, those products are not restricted by the Buy American Act and the acquisition of qualifying country end products does not require higher approval  This public interest exception for qualifying countries applies only to contracts awarded by DOD  Federal agencies can purchase eligible foreign end products from designated countries when the Buy American Act’s requirements are waived because of the terms of an international trade agreement or other criteria, such as a designation by the U S  Trade Representative as a least developed country  In accordance with the Trade Agreements Act of 1979, the president has the authority to waive the Buy American Act  For eligible products that come from countries covered by the World Trade Organization’s Government Procurement Agreement, Free Trade Agreements, and the Israeli Trade Act, the Buy American Act has been waived so that these items receive nondiscriminatory consideration and are on equal footing with domestic end products  In total, these agreements cover approximately 60 countries—overlapping with all but two of the DOD qualifying countries  Appendix II highlights the overlap  Unlike DOD’s blanket public interest exception for qualifying countries, the Buy American Act requirements are only waived under a trade agreement if the acquisition is of a certain value set by the U S  Trade Representative  Current trade agreement thresholds, at or above which the requirements are waived, range from $25,000 for contracts for eligible products from Canada to $180,000 for the 45 other parties to the World Trade Organization’s Government Procurement Agreement  Table 2 lists the parties eligible for trade agreements and the associated threshold for supply contracts  The FAR specifies certain conditions in which trade agreements do not apply, even if the acquisition is above the requisite threshold value set by the U S  Trade Representative  In these cases, the Buy American Act would apply  These conditions include, but are not limited to: acquisitions that do not use full and open competition, when the limitation of competition would preclude the procedures applicable to acquisitions covered by trade agreements; certain sole-source acquisitions for commercial items using simplified acquisition procedures; acquisitions set aside for small businesses; acquisition of ammunition, arms, or war materials, or for purchases indispensable for national security or national defense purposes; and acquisitions from federal prison industries or nonprofit agencies employing people who are blind or severely disabled  If the contracting officer determines that a trade agreement applies to a particular acquisition, which waives the Buy American restrictions, that determination does not require additional review at a higher level  This is similar to other circumstances where Buy American Act restrictions do not apply, such as for the acquisition of products for use outside the United States or contracts valued below the micro-purchase threshold  The Buy American Act’s applicability is based on the country of origin of the product being supplied, rather than the country of the vendor offering the product to the government  Vendors who propose to do business with the U S  government are required to certify as to where their products are manufactured or produced—whether in the United States or in a designated country covered by the Trade Agreements Act  Vendors can provide an annual certification applicable to all of their contracts through the federal government’s contractor registry, known as the System for Award Management (SAM)  Through SAM, a vendor identifies the country of origin for foreign products associated with a broad category of products  For example, a vendor could state that it provides aircraft components that originate in France and Mexico  Vendors also have the option not to certify the origin of their products in SAM, but instead provide information about foreign end products in their individual offers for contracts  Contracting officials include the relevant clauses in solicitations and contracts in accordance with regulation to require vendor certification  For example, the clause at FAR 52 225-2, Buy American Certificate, requires the offeror to certify that each end product is a domestic end product, or list any foreign end products and their country of origin  Once a contract is awarded, the awarding agency must enter certain information into FPDS-NG, a government-wide database for contract awards and obligations  The Office of Federal Procurement Policy (OFPP) within the Office of Management and Budget provides the overall direction for FPDS-NG, which is managed by the General Services Administration  FPDS-NG data can be populated through the individual systems agencies use to develop contracts  Agencies are responsible for the quality of the information transmitted to FPDS-NG, including data captured on the contract value and whether the foreign product acquisition is authorized by one of the Buy American Act exceptions or a trade agreement  This information is recorded at the contract level, or at the delivery order level for orders from indefinite delivery contracts  For certain product categories—essentially those that represent end products—FPDS-NG requires that contracting staff enter information in the “Place of Manufacture” drop-down data field, as shown in Figure 1  This field must be populated for all reported manufactured end products, including those valued under the micro-purchase threshold, which at the time of our review was generally $3,500  Options in this field include indicating that the product is made in the United States, or that it is made outside the United States and qualifies under one of the Buy American Act exceptions, or that it is subject to the requirements of a trade agreement instead of the Buy American Act requirements  In 2018, FPDS-NG data on agencies’ historical reporting of the use of Buy American exceptions were added to the website on which agencies post contracting opportunities (www fbo gov)  According to OFPP, this allows vendors selling domestic products to more easily see how agencies acquire foreign goods pursuant to Buy American Act exceptions  In fiscal year 2017, the federal government obligated approximately $7 8 billion for the acquisition of foreign end products, which accounts for less than 5 percent of total federal contract obligations for end products in that year  We observed differences in how civilian agencies and DOD apply Buy American Act exceptions and waivers  In our review of 38 contracts and orders from four agencies—DOD, HHS, DHS, and VA—we found 6 instances where the place of manufacture information was misreported in FPDS-NG  We further identified system limitations in how FPDS-NG captures information  Based on our analysis of FPDS-NG data, almost 40 percent of federal contract obligations in fiscal year 2017—totaling approximately $196 billion—were for domestic and foreign end products, such as aircraft parts, that may be subject to the Buy American Act  Less than 5 percent of these obligations—approximately $7 8 billion—were reported as foreign end products  This is consistent with the information agencies reported in FPDS-NG in the previous 4 years, with foreign end products accounting for approximately 3 to 8 percent of goods subject to Buy American Act restrictions between fiscal years 2013 through 2016  The foreign end products in fiscal year 2017 primarily came from South Korea, the United Kingdom, Afghanistan, Canada, Mexico, and the United Arab Emirates, which together accounted for almost half of the total foreign end products reported  Appendix III shows the federal government’s obligations for foreign end products from various countries for fiscal year 2017  The procurement of foreign end products is permitted by the flexibilities available under the Buy American Act’s exceptions and waivers  Agencies also procured foreign end products through means separate from the exceptions allowed under the Buy American Act, primarily in cases where the Act would not apply  Agencies reported obligating more than $700 million to procure foreign end products by applying one of the five government-wide Buy American Act exceptions—such as domestic non-availability or unreasonable cost—in FPDS-NG for fiscal year 2017  Agencies reported obligating approximately $550 million to procure foreign end products as permitted by the Trade Agreements Act, which waives the Buy American Act’s domestic preference requirements for US trading partners when eligible products are covered by trade agreements and are above certain dollar thresholds  DOD also obligated nearly $2 9 billion to procure foreign products from countries with which it has reciprocal procurement agreements, using what is referred to as the DOD qualifying country exception  This is an exercise of the authority available to agencies under the Buy American Act’s public interest exception  DOD determined that it is not in the public interest to restrict the purchase of foreign end products from 27 countries  All but two of these qualifying countries are also US trading partners, so some of these awards for eligible products may be authorized by a trade agreement  However, the qualifying country exception allows DOD to procure foreign end products without regard to dollar thresholds or other trade agreement eligibility limitations  Agencies also procured foreign end products, such as fuel, to be used outside the United States, in which circumstance the Buy American Act’s requirements do not apply  For fiscal year 2017, these obligations accounted for almost $3 7 billion—about 47 percent of all dollars obligated for foreign end products, as reported in FPDS-NG  Figure 2 highlights fiscal year 2017 obligations, including agencies’ reported spending on foreign end products under the Buy American Act exceptions and other means  DOD accounted for more than 80 percent—roughly $6 4 billion—of the total obligations for foreign end products in fiscal year 2017  Almost all of DOD purchases were either for use outside of the United States, so were not subject to Buy American Act restrictions, or were reported under the public interest exception for DOD qualifying countries  In contrast, civilian agencies report a more varied mix of the exceptions and waivers of the Buy American Act  The civilian agencies—which are unable to apply DOD’s qualifying country exception—were more likely to report buying foreign end products based on trade agreements or another exception to the Buy American Act requirements  Figure 3 shows how DOD and the civilian agencies acquired foreign end products authorized by the various exceptions and waivers of the Buy American Act  From our review of FPDS-NG data, the civilian agencies are more likely to cite one of the five Buy American Act exceptions or a trade agreement waiver when buying foreign end products, and thus take corresponding actions to document or approve the authority cited  For example, in our review of contracts from four agencies, VA obligated $71,000 for medical imaging equipment from Canada, and had to consider whether a trade agreement waiver applied  The manufacturer was determined to be the only source available and the contracting officer determined the acquisition was authorized by a Buy American exception based on domestic non-availability, which can require additional review  In contrast, DOD may make a similar contract award for equipment from Canada based on the qualifying countries exception  DOD acquisitions, then, may be authorized by exceptions such as domestic non-availability when a required item does not come from a qualifying country  For example, we reviewed a $744,000 DOD award for vehicle equipment that was only available from South Africa—which is not one of the DOD qualifying countries and not covered by any of the trade agreements—so the acquisition was authorized by the domestic non-availability exception  In addition, the civilian agencies also reported buying foreign end products for use outside the United States but to a lesser extent than DOD  For example, this included one of the contracts we reviewed, an HHS award for Ebola vaccines manufactured in the Netherlands, with $44 7 million obligated in fiscal year 2017  This contract was reported as used outside the United States because it is primarily stored overseas  FPDS-NG is the primary means for capturing procurement data regarding the Buy American Act, but we found that agencies may not always input reliable information on the extent to which exceptions or waivers authorized the acquisition of foreign end products  In addition, some aspects of how FPDS-NG is structured could lead to additional data reporting errors  In the non-generalizable sample of 38 contracts and orders we examined from DOD, HHS, DHS, and VA, we found 6 awards where information related to the Buy American Act was incorrectly reported in FPDS-NG  In three of the six contracts, agencies recorded the wrong exception or waiver, most often because of an error when reporting the place of manufacture in FPDS-NG  For example, DOD reported a $22,000 contract for vehicle equipment from South Africa as a Buy American Act exception due to unreasonable cost  But the contract file indicated that the exception that applied was domestic non-availability  DOD officials acknowledged the error and corrected it in FPDS-NG during the course of our review  In the three remaining contracts, agencies misreported whether an end product came from the United States or another country  For example, DHS incorrectly recorded that an $18 million contract was for aircraft accessories and other parts manufactured in the United States, even though file documentation showed the contract was for Italian-produced spare parts from the original equipment manufacturer  The Italian- produced spare parts were available from existing inventory maintained by the manufacturer and were needed immediately to meet a mandatory operational requirement  Officials from DHS acknowledged the recording oversight, attributed it to a mistake when entering information in FPDS- NG, and have since corrected the error in response to our observation  Additionally, FPDS-NG has system limitations that could hinder complete and accurate reporting of Buy American Act information: DOD Qualifying Country Exceptions and Trade Agreement Waivers  FPDS-NG requires that information on the type of Buy American Act exception or waiver applied be provided when end products are reported as foreign  But FPDS-NG does not identify errors associated with this process  For example, we reviewed an $8 3 million DHS contract for engines manufactured in Germany that was recorded as a DOD qualifying country exception in FPDS-NG, although this exception is not available to civilian agencies  Contracting officials corrected the data in FPDS-NG during the course of our review  Further, FPDS-NG does not prevent agencies from reporting trade agreement waivers when the contracts are valued below applicable thresholds or waivers do not apply, such as for small business set asides  For example, in the fiscal year 2017 data we reviewed, more than 5 percent of contract obligations reported for trade agreement waivers were for awards set-aside for small businesses, which would not be eligible under the Trade Agreements Act  OFPP officials noted that because of the various dollar thresholds applicable to different trade agreements, adding automatic thresholds in FPDS-NG to guide contracting staff in reporting an applicable trade agreement could lead to additional data errors in the procurement database  Awards under the Micro-purchase Threshold  Although the Buy American Act requirements do not apply to contract awards valued below the micro-purchase threshold—generally $3,500 in fiscal year 2017—the FPDS-NG ‘Place of Manufacture’ field does not have an option to indicate whether a contract is under the threshold  Instead, contracting officers entering information for awards under the micro- purchase amount must still state whether the product is domestic or foreign  If the product is foreign, the officials must select a Buy American Act exception authorizing the purchase, even though no exception is needed at these dollar levels  As a result, when agencies report in FPDS-NG that a Buy American Act exception or waiver applied for a procurement valued at less than $3,500, that information would not be accurate  Based on our review, this may have involved about $16 million in fiscal year 2017 obligations  Awards for both Foreign and Domestic Products  When reporting data for contracts that include multiple end products from both the United States and a foreign country, FPDS-NG only allows for one country of origin to be identified  Contracting officers told us that they typically will report a foreign end product in FPDS-NG when the foreign products account for the preponderance of the contract value  Thus, in cases where a contract includes foreign end products that do not account for the preponderance of the contract’s value, the value of these foreign end products would not be reported in FPDS-NG  We have previously reported that FPDS-NG has similar limitations in other fields, such the type of product or service provided, which prevent contracting officers from identifying more than one condition  According to OFPP, a recent change in the FAR requiring contract reporting at the line item level should provide greater transparency of all products included in a contract  Buy American Act Exceptions and Waivers under Indefinite Delivery Contracts  The way FPDS-NG captures data for Buy American Act exceptions and waivers for some indefinite-delivery contracts results in inaccurate data reporting  When an indefinite- delivery contract is initially awarded, FPDS-NG functionality does not give contracting staff the option to enter information for the ‘Place of Manufacture’ field  Instead, this information is typically captured once an order is placed on the contract  In our review of FPDS-NG data across the four agencies, however, we found that in some cases obligations are reported on the initial indefinite delivery contract so the Buy American Act exceptions or waivers are not recorded  This occurred with multiple agencies, but particularly at HHS, where information for almost 28 percent of HHS obligations for end products in fiscal year 2017 was not captured in FPDS-NG because the obligations were reported in the system through the initial contracts rather than orders  As a result, the applicability of the Buy American Act for HHS contracts totaling almost $1 9 billion in fiscal year 2017 was unreported in FPDS-NG  DOD, DHS, and VA officials told us they identified FPDS-NG reporting as an area of concern  GAO Standards for Internal Controls in the Federal Government state that management should use quality information to support objectives, and that such data should be complete and accurate  In response to the 2017 Executive Order calling for federal agencies to assess their implementation of the Buy American Act requirement, OFPP officials told us they are identifying potential strategies for improving the information agencies submit to FPDS-NG  As OFPP weighs potential options for FPDS-NG reporting, implementing enhancements to reduce data entry errors and ensure that the data collected are complete and accurate would help enable the system to provide the most useful information possible  Ensuring information is correctly reported in FPDS- NG is critical because the data are used to inform procurement policy decisions and facilitate congressional oversight  The four agencies we reviewed—DOD, HHS, DHS, and VA—took different approaches to provide training and guidance for the Buy American Act requirements  Contracting officers faced challenges when procuring products subject to the Buy American Act  For example, we found instances in which contracting officers applied a waiver or exception to contracts where the waiver did not apply and did not have complete guidance for required determinations or reviews  There also were challenges in confirming product origin information when vendors did not provide consistent information  The four agencies we reviewed varied in the mix of training and guidance provided to aid contracting officers in implementing the requirements of the Buy American Act  Three of the four agencies—DOD, DHS and VA— supplemented the federal acquisition regulation, which implements the requirements of the Buy American Act and Trade Agreements Act, with their own acquisition regulations  In addition, DHS and DOD have recently updated existing training or added new training and guidance  VA issued policy memoranda in 2017, emphasizing the importance of meeting Buy American Act requirements, but has not added training or provided specific guidance  HHS does not provide department-level training or guidance related to the Buy American Act  Most of the DHS and DOD contracting officers we spoke to reported that they had attended training and several found the guidance provided by the training to be helpful  HHS and VA contracting officials described confusion due to the lack of resources available at their respective agencies  In 2017, in response to a series of recommendations from the DOD Inspector General to re-emphasize Buy American Act training and guidance, the Defense Acquisition University introduced an updated training course that specifically focuses on the requirements and implementation of the Buy American Act  While not mandatory, a June 2017 memo notified all DOD services and the defense agencies that members of their contracting workforce should complete this training as part of their professional development  At the current pace of enrollment, DOD officials anticipate approximately 18,000 people will have taken this course by the end of September 2018, which is a seven-fold increase over previous graduation rates  Incorporated into these trainings were supplemental on-the-job tools to assist contracting officers when awarding contracts for end products subject to the Buy American Act requirements  One such tool is a flowchart outlining applicable solicitation provisions or contract clauses based upon the awarded contract’s total dollar value  DOD contracting officials we interviewed from Defense Logistics Agency’s (DLA) Land and Maritime division had completed the agency-level Buy American Act training and said it served as a good refresher, with some noting that most of the training they had received on the subject came when they were first hired  DOD provides regulations and guidance on Buy American Act requirements through both the Defense Federal Acquisition Regulation Supplement (DFARS) and the accompanying Procedures, Guidance and Information  DOD contracting officers use the provisions and clauses in DFARS to address the public interest exception for DOD qualifying countries  In addition, as a part of the updated training, the Defense Pricing and Contracting Office developed two documents to provide additional Buy American Act guidance  One outlines a step-by-step approach contracting officers can follow to determine whether the Buy American Act applies to their particular procurement and, if so, whether the use of an exception or waiver is appropriate  The second assists contracting officers with evaluating all offers—foreign and domestic— when price is the determining factor  In addition, we found that DLA supplements the available Defense Acquisition University training and guidance with a robust level of support, including annual training and subject matter expertise  DLA contracting officers told us that while they found the updated training helpful, they also appreciated the training course internal to their agency, as it addresses the types of procurements they typically handle in their day-to- day work, such as buying spare parts  Further, DLA contracting officers noted that they use the job aid provided through the local training  DHS introduced training courses in 2017 that specifically focus on the requirements and implementation of the Buy American Act, including a mandatory training course for DHS contracting officers  DHS reported that 94 percent of contracting staff had taken the required course as of April 2018  DHS developed these courses in response to the 2017 Executive Order to ensure its staff was familiar with the Buy American Act requirements  Incorporated into these training courses are supplemental on-the-job tools to assist contracting officers when awarding contracts for end products subject to the Buy American Act requirements, such as a flowchart outlining applicable solicitation provisions or contract clauses based upon contract dollar value  Contracting officials generally view the training and tools they received as beneficial  For example, several DHS contracting officials we interviewed said that the agency’s new course provided a helpful review on the topic, while one contracting officer specifically noted that the course materials are useful to new staff, to help them understand the Act’s waivers and exceptions  DHS also revised its acquisition manual in December 2017 to add further detail regarding the Buy American Act requirements  Specifically, DHS updated its acquisition manual to provide contracting officers more explicit FPDS-NG reporting instructions for procurements subject to the Buy American Act, as well as discretion to purchase domestic end products at or below the micro-purchase threshold  Additional changes include increasing the documentation and level of managerial review required to use several of the exceptions to the Buy American Act  For example, prior to 2018—which includes the time period in which the DHS contracts and orders we reviewed were awarded—the head of individual contracting offices had the authority to approve domestic non-availability and unreasonable cost exceptions, with a notification made to the DHS Chief Procurement Officer  But under the new policy, the use of these exceptions must have the concurrence of the HCA—who is responsible for contracting activities within individual DHS components—and be approved by the department’s Chief Procurement Officer  Table 3 outlines these changes  In September 2017, VA issued guidance to reinforce existing Buy American Act requirements  The policy memorandum encourages the HCAs within VA to institute reviews of awarded contracts subject to the Buy American Act to ensure compliance  As of September 2018, policy officials did not know how many HCAs had taken this step  Further, the guidance emphasizes the importance of Buy American Act training for its acquisition workforce  VA policy officials explained that the Buy American Act is introduced in several VA training courses, but the agency does not have a specific course on implementing the Buy American Act requirements or provide additional instruction or tools  During the course of our review, VA officials said that some of the HCAs had added internal training on the Buy American Act  In addition, VA contracting staff has the option of taking training offered outside the agency, such as the updated Defense Acquisition University course on the Buy American Act  This training is not required  Contracting officials we spoke to at VA said they struggled with the details of awarding contracts subject to Buy American Act requirements because they are not provided sufficient agency-specific training and guidance on the topic  Moreover, several contracting staff noted an increased need for training due to recent changes in VA contracting practices  Specifically, in response to a 2016 Supreme Court decision, VA has increased contracting efforts with veteran-owned small businesses through the Veterans First Contracting Program  As a result, contracting officials explained they have reduced their use of schedule contracts, in which the determinations related to the Buy American Act requirements were made with the initial awards  As one contracting officer explained, prior to this change, more than 90 percent of her division’s procurements were through VA schedule contracts in which Buy American Act applicability had already been established  However, this shift in contracting practices means contracting officers will more frequently need to consider the applicability of the Buy American Act, but contracting officers have not received specific guidance or training to do so  Noting the significance of this change, one contracting officer stated she approached VA management to obtain Buy American Act training for her division, but such training was not available  Federal internal controls state that agencies should ensure that training is aimed at developing and retaining employee knowledge, skills, and abilities to meet changing organizational needs  In September 2018, we reported that VA was experiencing difficulties implementing multiple aspects of the Veterans First policy, and we recommended that VA provide more targeted implementation training  As VA moves forward to implement this training, incorporating the Buy American Act requirements will be important to provide greater assurance that staff has the knowledge and skills needed to navigate the changing procurement environment  HHS does not have agency-level Buy American training or guidance  The HHS Acquisition Regulation Supplement does not address foreign acquisitions  HHS officials told us that efforts to develop guidance that would address Buy American Act requirements are underway, but they do not know when they will be finalized and made available to contracting officers, and could not describe the extent to which they will address Buy American Act implementation  The HHS contracting officers we interviewed discussed informal Buy American Act training their divisions had developed because department-level training was not available  For example, at HHS’ National Institutes of Health, a contracting official told us about a training course she recently developed because her office was taking on the administration of additional contracts for which the Buy American Act requirements would apply  Contracting officers at HHS’ Office of Biomedical Advanced Research and Development Authority described informal training on the agency’s contract writing system— included as part of their weekly internal staff meetings—that provides additional guidance on how to appropriately complete certain data fields relevant to the Buy American Act  In our analysis of 38 contracts from across the four agencies, we found that agencies faced various levels of challenge in applying the Trade Agreements Act waivers and Buy American Act exceptions to acquire foreign end products  This was particularly apparent in cases where contracting officers had to determine if a trade agreement applied or cases which required a determination that a domestic end product was not sufficiently available, in accordance with the domestic non-availability exception to the Buy American Act requirements  Contracting staff also had difficulty determining the origin of products in light of incomplete or conflicting information  Of the six contracts we reviewed reporting that a trade agreement applied to the foreign end products purchased, we found two cases in which this waiver did not apply to the contracts in question  The value of the contract is one determining factor for whether a trade agreement waives the Buy American Act requirements, although the FAR also states additional factors that would affect applicability under a trade agreement  The two contracts we found, both from VA, had total dollar values at award— $8,435 and $11,950, respectively—that were less than any of the thresholds at which trade agreement waivers of the Buy American Act are applicable  Both contracts were for products from countries that are party to the World Trade Organization Government Procurement Agreement, so the value of the acquisition would have to be equal to or exceed $191,000—the threshold that was in effect at the time of award—for waivers from Buy American requirements to apply  Contracting officials in both cases were generally unaware that the applicable threshold was not met, making the trade agreement waiver inapplicable  Although VA has added Buy American Act guidance since these contracts were awarded early in fiscal year 2017, the information currently available does not provide sufficient detail to assist contracting officers when awarding contracts in these situations  For example, the guidance VA provided contracting officers in September 2017 does not emphasize consideration of the applicable trade agreement thresholds or include information on how contracting officers should determine the applicable waiver or exception  When contracting officers procure foreign end products, the type of waiver or exception used to support the purchase matters—particularly when required additional steps and review are not completed because the wrong waiver or exception was applied  We found that the two VA contracts with foreign end products were incorrectly reported as the Trade Agreements Act waiver having applied  If one of the other Buy American Act exceptions permitting purchases of foreign end products had applied, contracting officers may have been required to obtain higher-level review or complete a written determination  In addition, we reviewed contracts that show some of the complexities contracting officers face beyond applying the dollar thresholds when determining if an award for foreign end products is eligible under the Trade Agreements Act waiver of the Buy American Act  Specifically, we found instances where DHS contracting officials took different approaches for non-competed awards for similar foreign-manufactured products  For example, we reviewed a non-competed $58 million DHS award for acquiring spare aircraft parts from an original equipment manufacturer located in a foreign country that is party to the World Trade Organization Government Procurement Agreement  DHS reported in FPDS-NG that the procurement was waived by the Trade Agreements Act  However, we also reviewed two other sole-source awards from DHS for similar products—spare aircraft parts from two separate manufacturers in foreign countries that are also party to the World Trade Organization Government Procurement Agreement—that were instead reported as subject to the Buy American Act, but excepted due to the non-availability of domestic products  Contracting officers may come to different conclusions for similar products, in part, because of the multiple factors that have to be considered when determining whether an acquisition is subject to the Buy American Act and whether any waivers or exceptions apply  However, available guidance does not always address these complexities  For example, agencies need to decide if other conditions, such as the procurement of products deemed indispensable for national security or national defense purposes apply to an acquisition that would make a trade agreement inapplicable  Further, if the product’s country of origin is considered a designated country under the World Trade Organization Government Procurement Agreement, officials need to determine that the product is eligible under that agreement  DHS updated its training and guidance for the Buy American Act, which includes a job aid outlining at what dollar values solicitation provisions and contract clauses under a trade agreement waiver are applicable  However, it does not address other situations in which contracts may not be eligible under the Trade Agreements Act, such as non-eligible products or products for national defense purposes  For the other agencies in our review, we found that DOD’s updated Buy American Act training and its acquisition supplement both address trade agreement eligibility, but HHS does not yet have Buy American guidance to address this topic  Federal internal control standards state that agencies should communicate quality information internally to achieve their objectives and that they should select the appropriate methods of communication  When written guidance is not available, agencies may miss opportunities to ensure appropriate steps are taken to meet Buy American Act requirements  Our review of 38 contracts also included 8 contracts for foreign end products pursuant to the domestic non-availability exception  In certain situations, such as when contracts are awarded without full and open competition, this exception requires an approved written determination  The FAR establishes requirements for domestic non-availability determinations, but agencies can delegate the level of review required or specify information to be included in the determination  Three of the agencies we reviewed—DOD, DHS, and VA—provide supplemental guidance on the process for making determinations, including who must make the determination when applying a domestic non-availability exception  However, DHS policy officials told us that when the agency uses the domestic non-availability exception for a sole-source acquisition, the written justification that the FAR requires for non- competed awards should suffice as the documentation to support the non-availability determination as well  The practice of using sole-source justifications to support Buy American determinations is not addressed in DHS guidance  According to DHS policy updated in 2018, determinations of domestic non-availability must be concurred with by the HCA and approved by the Chief Procurement Officer  Federal and DHS acquisition regulations, however, state that some justifications can be approved at a lower level  In the absence of further guidance, this difference in approval levels could result in inconsistent application within the department  In addition, as previously noted HHS does not yet have Buy American Act guidance so the department does not provide information on how to make determinations  According to federal internal control standards, agencies should communicate quality information internally to achieve their objectives and that they should select appropriate communication methods  When written guidance is not available, agencies may miss opportunities to ensure that contracting officers take the steps needed to meet requirements when applying a domestic non-availability exception  Knowing the country of origin of the products the federal government buys is necessary to implement the Buy American Act, but contracting officers do not always have access to accurate information on originating countries  The FAR and the DFARS provide various clauses which, when incorporated into contracts, require vendors to certify that the end products they provide to the government are domestic and, if necessary, declare the foreign countries from which they provide products  Vendors frequently certify this information through the System for Award Management (SAM), the government-wide system used to collect vendors’ annual representations and certifications  Contracting officers may rely on the information vendors provide about their product origins, but they are generally expected to take actions to verify incomplete or conflicting information when they have reason to believe that a vendor will be providing a non-compliant product  We found that SAM certifications and offers did not always include accurate information on end products from foreign countries  In 6 of the 38 contracts that we reviewed—from DHS, HHS, and VA—the vendors certified that they only provided domestic end products although the end products provided were foreign  In all of these cases, the contracting officers knew that the acquisitions included foreign end products  For example, we reviewed two DHS awards for spare aircraft parts from an Italian-based company, one of which was reported in FPDS-NG under the domestic non-availability exception to the Buy American Act, and the other which was incorrectly reported as being manufactured in the United States but has since been corrected  Contracting officials said they knew the parts were made in Italy based on extensive experience contracting with the company and, in part, because they had visited the production location  Contracting officials—including some at HHS and VA—said they use SAM as their primary source to determine whether the vendor is offering domestic end products  Others reported some awareness of the limitations of SAM certifications  At all four agencies, contracting officials emphasized that it is important to ask questions when end product origin information is not readily available—or if there is conflicting information—but agency guidance that we reviewed does not address this need or provide information on how to do so  Only the local training offered by DOD’s DLA addresses other sources of information, which officials said was helpful because it is specific to the industries with which they work  Instead, some officials described how they rely on their experience to know how to verify products’ origins but this can be problematic, particularly with newer staff  For example, in one contract we reviewed VA contracting officials acknowledged that a new contracting specialist at VA did not follow-up when the product origin certification was not provided and assumed all of the items procured were domestic  During the course of our review, the contracting specialist’s supervisor said that she contacted the vendor and learned that some of the items provided were in fact foreign end products  The foreign products were not considered to account for the preponderance of the contract so were not reported in FPDS-NG, but the contracting officer was acting with incomplete information at the time of award  Further, in 4 of the 38 contracts that we reviewed, it is not clear how contracting staff took steps to obtain product origin information in situations where it was not provided in SAM  In these cases—which include contracts for both domestic and foreign end products—the vendors had opted not to certify their product origins in SAM, but instead said that they would provide the information with their individual proposals  However, based on the information in the contract files, the proposals did not include this information  For example: Three of the contracts we reviewed from HHS—all reported as purchasing end items manufactured in the United States—did not certify product origin in SAM  The supervising contracting officer for two of the awards explained that his contracting staff regularly check the vendor’s written representations and certifications provided in the offer, because the SAM certifications are general and do not always apply to the specific equipment they buy  However, the three contract files we reviewed did not include manufacturing or origin information  The vendor for a DHS contract that was reported as manufactured in the United States did not certify this information in SAM  The contracting officer said that he checks SAM for product origin information, but in the documents we reviewed there is no evidence of the information in the contract file  Federal internal control standards state that agencies should communicate the necessary quality information needed to achieve the agency’s objectives, thereby enabling personnel to address risks  Providing guidance regarding the situations in which contracting officers should verify product origin information with vendors may help agencies better meet the requirements of the Buy American Act  Although purchases for foreign end products account for less than 5 percent of federal procurement spending in fiscal year 2017, it is important that these purchases be consistent with the domestic- purchasing restrictions in the Buy American Act  This requires that Buy American Act exceptions and trade agreement waivers be used only when applicable, and that agencies report accurate data on the extent to which they are used  However, data reporting errors by contracting staff and FPDS-NG limitations mean that data on the use of exceptions and waivers are not fully captured  The federal agencies all have responsibilities to ensure Buy American Act data are accurate and complete  The lack of good data can hinder congressional oversight of the extent to which foreign end products are procured as authorized by one of the exceptions or waivers of the Buy American Act  Agencies have taken varied approaches for providing information to contracting officers that navigate the complexities and nuances associated with applying the different Buy American Act exceptions or trade agreement waivers  DOD has added such detailed information through its revised training course and policy guidance  Adding these types of targeted information to address challenging areas would help contracting officers at other agencies implement the Buy American Act’s domestic preferences, as well as related exceptions and waivers  Further, to accurately determine how exceptions and waivers apply requires complete product origin information  Although the responsibility to certify the origins of products supplied to the federal government rests with the contractors, contracting officers would benefit from resources that help them identify information that may be inconsistent, to ensure that accurate information is available  We are making four recommendations, one each to the Office of Management and Budget, DHS, VA, and HHS  The Director of the Office of Management and Budget should instruct the Office of Federal Procurement Policy: To facilitate additional training to improve the understanding of the contracting workforce regarding the Buy American Act requirements; and To facilitate clarifying revisions to FPDS-NG, where needed, and provide training and guidance for recording Buy American Act information in FPDS-NG to improve the accuracy of the Buy American data  (Recommendation 1) The Secretary of Homeland Security should clarify existing guidance in the Homeland Security Acquisition Manual or update training to help contracting officials: Identify the factors that should be considered in order to determine the applicability of the Trade Agreements Act and waiver of the Buy American Act; Document determinations of the use of Buy American exception for domestic non-availability and ensure the required approvals are obtained, particularly when such determinations are evidenced through justifications for other than full and open competition; and Identify sources of information available for determining product origin and the steps they should take to verify information that is inconsistent  (Recommendation 2) The Secretary of Veterans Affairs should clarify existing guidance, or provide training or other instruction, to help contracting officials: Address the applicability of the Buy American Act requirements and provide instruction on how to implement the requirements, including in any training developed to implement the Veterans First policy; Identify the factors that should be considered in order to determine the applicability of the Trade Agreements Act and waiver of the Buy American Act; and Identify sources of information available for determining products’ origins and the steps they should take to verify information that is inconsistent  (Recommendation 3) The Secretary of Health and Human Services should provide guidance, training, or other instruction to help contracting officials: Identify the factors that should be considered in order to determine the applicability of the Trade Agreements Act and waiver of the Buy American Act; Document determinations of the use of Buy American exceptions for domestic non-availability and ensure the required approvals are obtained; and Identify sources of information available for determining products’ origins and the steps they should take to verify information that is inconsistent  (Recommendation 4) We provided a draft of this report to DOD, HHS, DHS, VA, and the Office of Management and Budget for review and comment  DOD reviewed the report, but did not offer comments  HHS, DHS, and VA provided written responses, which are reproduced in Appendices IV, V, and VI of this report, respectively  A senior official within the Office of Federal Procurement Policy (OFPP) at the Office of Management and Budget provided a response via email  In addition, HHS, DHS, and OFPP provided technical comments, which we incorporated into the report where appropriate  In their responses, HHS, DHS, VA agreed, and OFPP generally agreed, with our findings and recommendations  The written response from HHS and DHS included information on the steps each agency plans to take to address the recommendations  Specifically, HHS stated that the agency will evaluate ways to provide additional training and guidance to contracting officials  DHS stated that it will provide guidance on the applicability of the Buy American Act and the Trade Agreements Act in certain situations and the documentation and approvals required when awarding non-competed contracts that require an exception  Additionally, DHS plans to update training regarding actions contracting officers should take when there are discrepancies in product origin information  VA concurred with our three-part recommendation and described some of the actions the agency plans to take in response  However, VA’s comments do not fully address our recommendation  Specifically, we recommended that VA clarify guidance or provide training to identify factors that could help contracting officers determine the applicability of Trade Agreements Act waivers of the Buy American Act  The comments from VA, however, only restate the existing Buy American Act exceptions and make no mention of Trade Agreements Act waivers  Further, we recommended that VA identify sources of information regarding product origin and the steps to be taken to verify inconsistent product origin information  VA’s response only noted that contracting officers are responsible for conducting market research and ensuring that all product origin requirements are met  VA did not outline any additional steps the agency would take to help contracting officers navigate the complexities inherent in this area  Going forward, VA will need to develop a more robust and responsive approach in order to fully implement our recommendation  We are sending copies of this report to the appropriate congressional committees; the Secretaries of the Departments of Defense, Health and Human Services, Homeland Security, and Veterans Affairs; the Director of the Office of Management and Budget; and other interested parties  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-4841 or woodsw@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix VII  The objectives of this report are to assess the extent to which (1) the federal government procures foreign products through Buy American Act exceptions and waivers; and (2) selected agencies provide training and guidance to implement the Buy American Act requirements  To address both of these objectives, we reviewed relevant laws and policies, such as sections of the Federal Acquisition Regulation (FAR); the Buy American Act as amended; the Trade Agreements Act of 1979 as amended; federal acquisition regulation supplements from audited agencies such as the Department of Defense Federal Acquisition Regulation Supplement (DFARS); the Executive Order “Buy American, Hire American” of 2017; the World Trade Organization’s Agreement on Government Procurement; and memorandums, policy, guidance, and instructions related to the Buy American Act  To assess the federal government procurement of foreign products, including those procured through citing exceptions and waivers of the Buy American Act, we analyzed data from the Federal Procurement Data System-Next Generation (FPDS-NG) for fiscal year 2017, which was the most recent and complete data available at the time of our review  We analyzed procurement data in FPDS-NG across the federal government in fields relevant to the Buy American Act’s domestic preference requirements, including the product service code, country of product origin, and place of manufacture, in addition to fields such as the contract value and dollars obligated  We reviewed the place of manufacture field in particular as it contains information on how the Buy American Act applies to the contract, including whether the preponderance of the obligations is for manufactured end products and, if so, whether they are manufactured in or outside of the United States  When manufactured outside of the United States, this field also captures the reason the purchase was permissible, which we analyzed to assess the dollar obligations associated with the various Buy American exceptions or trade agreement waiver reported, as well as when products were used outside of the United States  We also analyzed data from FPDS-NG to identify the countries where foreign end products were reported to be manufactured and the associated dollars obligated in fiscal year 2017  In addition, we met with officials from the Office of Management and Budget, Office of Federal Procurement Policy to better understand ongoing reviews of the data in FPDS-NG that pertains to the Buy American Act  In our analysis of FPDS-NG data, we took steps to minimize issues that might affect data reliability  Specifically, we analyzed FPDS-NG data to identify potential errors and inconsistencies, such as non-eligible agencies reporting the use of exceptions for DOD qualifying countries, or reporting trade agreement waivers for contracts valued less than minimum thresholds for trade agreements  We made minor adjustments to minimize potential data reporting issues, including aggregating the exceptions reported, and where appropriate, limiting our analysis to one year of data, fiscal year 2017  Based on these steps, we determined that FPDS-NG data were sufficiently reliable to allow us to calculate the approximate extent of obligations for foreign end products and the use of the Buy American Act exceptions and the Trade Agreements Act waiver  However, we are unable to precisely determine the amount spent on foreign end products through the use of exceptions and waivers because of the reporting errors and data system limitations we identified in this report  Using FPDS-ND data, we identified four agencies—the Departments of Defense (DOD), Health and Human Services (HHS), Homeland Security (DHS), and Veterans Affairs (VA)—that had the highest fiscal year 2017 obligations in the product codes for manufactured products, which are potentially subject to the Buy American Act restrictions  In addition, to identify trends and determine if there were variations in reported obligations for foreign end products in the past, we reviewed FPDS-NG data on the Buy American exceptions and trade agreement waivers in fiscal years 2013 through 2017  To assess the extent to which selected agencies are providing training and guidance to implement the requirements of the Buy American Act, we reviewed training course materials and regulations, policies, and other guidance available at the four agencies in our review—DOD, HHS, DHS, and VA—to determine the extent to which they address the Buy American Act requirements  In addition, we reviewed training materials available to government employees through sources such as the Federal Acquisition Institute  We interviewed policy officials from the four agencies to understand how training and guidance had been implemented  We further reviewed relevant inspector general reports from the DOD Inspector General issued between 2015 and 2018, which made several recommendations to improve compliance with the Buy American Act, among other requirements  Within the four agencies, we selected contracting offices that reported obligating fiscal year 2017 dollars for awards with foreign end products and awards with US-manufactured end products  We specifically focused on offices that reported a sufficient amount of foreign end product obligations and a sufficient number of contract awards to allow us to select multiple contracts  We also considered offices with a variety of Buy American exceptions and waiver types reported, in order to select a mix of contracts  The contracting offices selected were as follows: DOD: Defense Logistics Agency, Land and Maritime HHS: National Institutes of Health and the HHS Office of the Assistant Secretary for Preparedness and Response DHS: United States Coast Guard VA: Veterans Health Administration From these offices, we selected a non-generalizable sample of 38 contracts and delivery orders awarded in fiscal year 2017  At each agency, we selected awards to include a mix of end items produced by domestic and foreign manufacturers and, when products were reported as foreign manufactured, a mix of the various exceptions and waivers cited  We also include awards across a range of value for dollars obligated above the micro purchase threshold—ranging from approximately $5,000 to more than $100 million—to ensure we reviewed awards both above and below the various thresholds at which the Trade Agreements Act waiver might apply  Additionally, our sample included awards for similar types of end products across agencies, including aircraft parts at DOD and DHS and medical supplies at HHS and VA, to compare practices in different agencies  We originally selected 40 awards for review—10 from each agency—but removed two awards from our sample  One was an HHS award that we determined was awarded using Other Transaction Authority and was not subject to the Buy American Act  The second excluded contract was from DHS, which was modified after award to reflect that it was an information technology service rather than a product  As a service, it would not be subject to the Buy American Act  We reviewed the contract files for each of the 38 awards in our sample, including documentation such as the contract and task order award, solicitations, vendors’ offers or response to proposals, determination and finding memos, and FPDS-NG output documents  In addition, we reviewed the certifications each vendor provided in the System for Award Management (SAM) at the time of contract award  We interviewed contracting officials responsible for each of the 38 contracts and task orders to understand how they addressed the Buy American Act requirements, including how they determined exception or waiver applicability and product origin  We also reviewed any agency-specific or local training and guidance, tools, or job aids available to assist contracting officers in implementing the Act’s requirements We conducted this performance audit from October 2017 to December 2018 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on audit objectives  The United States maintains trade relationships with other countries whose specific negotiated terms results in different levels and types of applicability for waivers and exceptions to the Buy American Act  Figure 4 depicts the range of relationships that the United States maintains with other nations that allow for less restrictive purchasing of foreign end products by the federal government  The federal government purchases foreign end products from various countries  Figure 5 highlights the different amounts of contract obligations for foreign end products from these countries for fiscal year 2017  The highest category, over $500 million, includes 4 countries that account for almost 40 percent of all federal procurement of foreign end products  Countries where the federal government obligated less than $5 million for the procurement of foreign end products are not included  In addition to the contact named above, Candice Wright, Assistant Director; and Jennifer Dougherty, Analyst-in-Charge, managed this review  Skip McClinton; Erin Stockdale; Adam Cowles; Stephanie Gustafson; Julia Kennon; Anne Louise Taylor; and Robin Wilson made key contributions to this report 


Report 2:  1119 / P L  105-85 of November 18, 1997), which granted the Navy the authority to use a single contract for the procurement of the first four Virginia (SSN-774) class attack submarines  The 4 boats were scheduled to be procured during the 5-year period FY1998-FY2002 in annual quantities of 1-1-0-1-1  Congress provided the authority granted in Section 121(b) at least in part to reduce the combined procurement cost of the four submarines  Using MYP was not an option for the Virginia-class program at that time because the Navy had not even begun, let alone finished, construction of the first Virginia-class submarine, and consequently could not demonstrate that it had a stable design for the program  When Section 121(b) was enacted, there was no name for the contracting authority it provided  The term block buy contracting came into use later, when observers needed a term to refer to the kind of contracting authority that Congress authorized in Section 121(b)  As discussed in the next section, this can cause confusion, because the term block buy was already being used in discussions of DOD acquisition to refer to something else  What's the difference between block buy cont r acting and block buys? In discussions of defense procurement, the term "block buy" by itself (without "contracting" at the end) is sometimes used to refer to something quite different from block buy contracting—namely, the simple act of funding the procurement of more than one copy of an item in a single year, particularly when no more than one item of that kind might normally be funded in a single year  For example, when Congress funded the procurement of two aircraft carriers in FY1983, and another two in FY1988, these acts were each referred to as block buys, because aircraft carriers are normally procured one at a time, several years apart from one another  This alternate meaning of the term block buy predates by many years the emergence of the term block buy contracting  The term block buy is still used in this alternate manner, which can lead to confusion in discussions of defense procurement  For example, for FY2017, the Air Force requested funding for procuring five Evolved Expendable Launch Vehicles (EELVs) for its EELV Launch Services (ELS) program  At the same time, Navy officials sometimes refer to the use of block buy contracts for the first four Virginia-class submarines, and in the LCS program, as block buys, when they might be more specifically referred to as instances of block buy contract ing   How much can BBC save, compared with MYP? BBC can reduce the unit procurement costs of ships by amounts less than or perhaps comparable to those of MYP, if the authority granted for using BBC explicitly includes authority for making economic order quantity (EOQ) purchases of components  If the authority granted for using BBC does not explicitly include authority for making EOQ purchases, then the savings from BBC will be less  Potential savings under BBC might also be less than those under MYP if the BBC contract does not include a cancellation penalty, or includes one that is more limited than typically found in an MYP contract, because this might give the contractor less confidence than would be the case under an MYP contract that the future stream of business will materialize as planned, which in turn might reduce the amount of money the contractor invests to optimize its workforce and production facilities for producing the items to be procured under the contract  How frequently has BBC been used? Since its use at the start of the Virginia-class program, BBC has been used very rarely  The Navy did not use it again in a shipbuilding program until December 2010, when it awarded two block buy contracts, each covering 10 LCSs to be procured over the six-year period FY2010-FY2015, to the two LCS builders  (Each contract was later amended to include an 11 th ship in FY2016, making for a total of 22 ships under the two contracts ) A third example is the John Lewis (TAO-205) class oiler program, in which the Navy is using a block buy contract to procure the first six ships in the program  A fourth example, arguably, is the Air Force's KC-46 aerial refueling tanker program, which is employing a fixed price incentive fee (FPIF) development contract that includes a "back end" commitment to procure certain minimum numbers of KC-46s in certain fiscal years  When might BBC be suitable as an alternative to MYP? BBC might be particularly suitable as an alternative to MYP in cases where using a multiyear contract can reduce costs, but the program in question cannot meet all the statutory criteria needed to qualify for MYP  As shown in the case of the first four Virginia-class boats, this can occur at or near the start of a procurement program, when design stability has not been demonstrated through the production of at least a few of the items to be procured (or, for a shipbuilding program, at least one ship)  What i s the difference between an MYP or block buy contract and a contract with options? The military services sometimes use contracts with options to procure multiple copies of an item that are procured over a period of several years  The Navy, for example, used a contract with options to procure Lewis and Clark (TAKE-1) class dry cargo ships that were procured over a period of several years  A contract with options can be viewed as somewhat similar to an MYP or block buy contract in that a single contract is used to procure several years' worth of procurement of a given kind of item  There is, however, a key difference between an MYP or block buy contract and a contract with options: In a contract with options, the service is under no obligation to exercise any of the options, and a service can choose to not exercise an option without having to make a penalty payment to the contractor  In contrast, in an MYP or block buy contract, the service is under an obligation to continue implementing the contract beyond the first year, provided that Congress appropriates the necessary funds  If the service chooses to terminate an MYP or block buy contract, and does so as a termination for government convenience rather than as a termination for contractor default, then the contractor can, under the contract's termination for convenience clause, seek a payment from the government for cost incurred for work that is complete or in process at the time of termination, and may include the cost of some of the investments made in anticipation of the MYP or block buy contract being fully implemented  The contractor can do this even if the MYP or block buy contract does not elsewhere include a provision for a cancellation penalty  As a result of this key difference, although a contract with options looks like a multiyear contract, it operates more like a series of annual contracts, and it cannot achieve the kinds of savings that are possible under MYP and BBC  Potential issues for Congress concerning MYP and BBC include whether to use MYP and BBC in the future more frequently, less frequently, or about as frequently as they are currently used; and whether to create a permanent statute to govern the use of BBC, analogous to the permanent statute that governs the use of MYP  Should MYP and BBC in the future be used more frequently, less frequently, or about as frequently as they are currently used? Supporters of using MYP and BBC more frequently in the future might argue the following: Since MYP and BBC can reduce procurement costs, making greater use of MYP and BBC can help DOD get more value out of its available procurement funding  This can be particularly important if DOD's budget in real (i e , inflation-adjusted) terms remains flat or declines in coming years, as many observers anticipate  The risks of using MYP have been reduced by Section 811 of the FY2008 National Defense Authorization Act ( H R  4986 / P L  110-181 of January 28, 2008), which amended 10 U S C  2306b to strengthen the process for ensuring that programs proposed for MYP meet certain criteria (see " Permanent Statute Governing MYP ")  Since the value of MYP contracts equated to less than 8% of DOD's procurement budget in FY2012, compared to about 17% of DOD's procurement budget in FY2000, MYP likely could be used more frequently without exceeding past experience regarding the share of DOD's procurement budget accounted for by MYP contracts  Supporters of using MYP and BBC less frequently in the future, or at least no more frequently than now, might argue the following: Using MYP and BBC more frequently would further reduce Congress's and DOD's flexibility for making changes in DOD procurement programs in future years in response to changing strategic or budgetary circumstances  The risks of reducing flexibility in this regard are increased now because of uncertainties in the current strategic environment and because efforts to reduce federal budget deficits could include reducing DOD spending, which could lead to a reassessment of U S  defense strategy and associated DOD acquisition programs  Since actual savings from using MYP and BBC rather than annual contracting can be difficult to observe or verify, it is not clear that the financial benefits of using MYP or BBC more frequently in the future would be worth the resulting further reduction in Congress's and DOD's flexibility for making changes in procurement programs in future years in response to changing strategic or budgetary circumstances  Should Congress create a permanent statute to govern the use of BBC, analogous to the permanent statute (10 U S C  2306b) that governs the use of MYP? Supporters of creating a permanent statute to govern the use of BBC might argue the following: Such a statute could encourage greater use of BBC, and thereby increase savings in DOD procurement programs by giving BBC contracting a formal legal standing and by establishing a clear process for DOD program managers to use in assessing whether their programs might be considered suitable for BBC  Such a statute could make BBC more advantageous by including a provision that automatically grants EOQ authority to programs using BBC, as well as provisions establishing qualifying criteria and other conditions intended to reduce the risks of using BBC  Opponents of creating a permanent statute to govern the use of BBC might argue the following: A key advantage of BBC is that it is not governed by a permanent statute  The lack of such a statute gives DOD and Congress full flexibility in determining when and how to use BBC for programs that may not qualify for MYP, but for which a multiyear contract of some kind might produce substantial savings  Such a statute could encourage DOD program managers to pursue their programs using BBC rather than MYP  This could reduce discipline in DOD multiyear contracting if the qualifying criteria in the BBC statute are less demanding than the qualifying criteria in 10 U S C  2306b  Should the Coast Guard should begin making use of MYP and BBC? Although the Coast Guard is part of the Department of Homeland Security (DHS), the Coast Guard is a military service and a branch of the U S  Armed Forces at all times (14 U S C  1), and 10 U S C  2306b provides authority for using MYP not only to DOD, but also to the Coast Guard (and the National Aeronautics and Space Administration as well)  In addition, Section 311 of the Frank LoBiondo Coast Guard Authorization Act of 2018 ( S  140 / P L  115-282 of December 4, 2018) provides permanent authority for the Coast Guard to use block buy contracting with EOQ purchases of components in its major acquisition programs  The authority is now codified at 14 U S C  1137  As discussed earlier in this report, the Navy in recent years has made extensive use of MYP and BBC in its ship and aircraft acquisition programs, reducing the collective costs of those programs, the Navy estimates, by billions of dollars  The Coast Guard, like the Navy, procures ships and aircraft  In contrast to the Navy, however, the Coast Guard has never used MYP or BBC in its ship or aircraft acquisition programs  Instead, the Coast has tended to use contracts with options  As discussed earlier, although a contract with options looks like a multiyear contract, it operates more like a series of annual contracts, and it cannot achieve the kinds of savings that are possible under MYP and BBC  CRS in recent years has testified and reported on the possibility of using BBC or MYP in Coast Guard ship acquisition programs, particularly the Coast Guard's 25-ship Offshore Patrol Cutter (OPC) program and the Coast Guard's three-ship polar icebreaker program  CRS estimates that using multiyear contracting rather than contracts with options for the entire 25-ship OPC program could reduce the cost of the OPC program by about $1 billion  The OPC program is the Coast Guard's top-priority acquisition program, and it represents a once-in-a-generation opportunity to reduce the acquisition cost of a Coast Guard acquisition program by an estimated $1 billion  CRS also estimates that using BBC for a three-ship polar icebreaker program could reduce the cost of that program by upwards of $150 million  The Coast Guard has expressed some interest in using BBC in the polar icebreaker program, but its baseline acquisition strategy for that program, like its current acquisition strategy for the OPC program, is to use a contract with options  As part of its FY2020 budget submission, the Department of Defense is proposing continued funding for implementing several MYP contracts initiated in fiscal years prior to FY2020, but it has not highlighted any requests for authority for new MYP or block buy contracts for major acquisition programs that would begin in FY2020  Appendix A  Text of 10 U S C  2306b The text of 10 U S C  2306b as of April 29, 2019, is as follows: §2306b  Multiyear contracts: acquisition of property (a) In General -To the extent that funds are otherwise available for obligation, the head of an agency may enter into multiyear contracts for the purchase of property whenever the head of that agency finds each of the following: (1) That the use of such a contract will result in significant savings of the total anticipated costs of carrying out the program through annual contracts  (2) That the minimum need for the property to be purchased is expected to remain substantially unchanged during the contemplated contract period in terms of production rate, procurement rate, and total quantities  (3) That there is a reasonable expectation that throughout the contemplated contract period the head of the agency will request funding for the contract at the level required to avoid contract cancellation  (4) That there is a stable design for the property to be acquired and that the technical risks associated with such property are not excessive  (5) That the estimates of both the cost of the contract and the anticipated cost avoidance through the use of a multiyear contract are realistic  (6) In the case of a purchase by the Department of Defense, that the use of such a contract will promote the national security of the United States  (7) In the case of a contract in an amount equal to or greater than $500,000,000, that the conditions required by subparagraphs (C) through (F) of subsection (i)(3) will be met, in accordance with the Secretary's certification and determination under such subsection, by such contract  (b) Regulations -(1) Each official named in paragraph (2) shall prescribe acquisition regulations for the agency or agencies under the jurisdiction of such official to promote the use of multiyear contracting as authorized by subsection (a) in a manner that will allow the most efficient use of multiyear contracting  (2)(A) The Secretary of Defense shall prescribe the regulations applicable to the Department of Defense  (B) The Secretary of Homeland Security shall prescribe the regulations applicable to the Coast Guard, except that the regulations prescribed by the Secretary of Defense shall apply to the Coast Guard when it is operating as a service in the Navy  (C) The Administrator of the National Aeronautics and Space Administration shall prescribe the regulations applicable to the National Aeronautics and Space Administration  (c) Contract Cancellations -The regulations may provide for cancellation provisions in multiyear contracts to the extent that such provisions are necessary and in the best interests of the United States  The cancellation provisions may include consideration of both recurring and nonrecurring costs of the contractor associated with the production of the items to be delivered under the contract  (d) Participation by Subcontractors, Vendors, and Suppliers -In order to broaden the defense industrial base, the regulations shall provide that, to the extent practicable- (1) multiyear contracting under subsection (a) shall be used in such a manner as to seek, retain, and promote the use under such contracts of companies that are subcontractors, vendors, or suppliers; and (2) upon accrual of any payment or other benefit under such a multiyear contract to any subcontractor, vendor, or supplier company participating in such contract, such payment or benefit shall be delivered to such company in the most expeditious manner practicable  (e) Protection of Existing Authority -The regulations shall provide that, to the extent practicable, the administration of this section, and of the regulations prescribed under this section, shall not be carried out in a manner to preclude or curtail the existing ability of an agency- (1) to provide for competition in the production of items to be delivered under such a contract; or (2) to provide for termination of a prime contract the performance of which is deficient with respect to cost, quality, or schedule  (f) Cancellation or Termination for Insufficient Funding -In the event funds are not made available for the continuation of a contract made under this section into a subsequent fiscal year, the contract shall be canceled or terminated  The costs of cancellation or termination may be paid from- (1) appropriations originally available for the performance of the contract concerned; (2) appropriations currently available for procurement of the type of property concerned, and not otherwise obligated; or (3) funds appropriated for those payments  (g) Contract Cancellation Ceilings Exceeding $100,000,000 -(1) Before any contract described in subsection (a) that contains a clause setting forth a cancellation ceiling in excess of $100,000,000 may be awarded, the head of the agency concerned shall give written notification of the proposed contract and of the proposed cancellation ceiling for that contract to the congressional defense committees, and such contract may not then be awarded until the end of a period of 30 days beginning on the date of such notification  (2) In the case of a contract described in subsection (a) with a cancellation ceiling described in paragraph (1), if the budget for the contract does not include proposed funding for the costs of contract cancellation up to the cancellation ceiling established in the contract, the head of the agency concerned shall, as part of the certification required by subsection (i)(1)(A),1 give written notification to the congressional defense committees of- (A) the cancellation ceiling amounts planned for each program year in the proposed multiyear procurement contract, together with the reasons for the amounts planned; (B) the extent to which costs of contract cancellation are not included in the budget for the contract; and (C) a financial risk assessment of not including budgeting for costs of contract cancellation  (h) Defense Acquisitions of Weapon Systems -In the case of the Department of Defense, the authority under subsection (a) includes authority to enter into the following multiyear contracts in accordance with this section: (1) A multiyear contract for the purchase of a weapon system, items and services associated with a weapon system, and logistics support for a weapon system  (2) A multiyear contract for advance procurement of components, parts, and materials necessary to the manufacture of a weapon system, including a multiyear contract for such advance procurement that is entered into in order to achieve economic-lot purchases and more efficient production rates  (i) Defense Acquisitions Specifically Authorized by Law -(1) In the case of the Department of Defense, a multiyear contract in an amount equal to or greater than $500,000,000 may not be entered into under this section unless the contract is specifically authorized by law in an Act other than an appropriations Act  (2) In submitting a request for a specific authorization by law to carry out a defense acquisition program using multiyear contract authority under this section, the Secretary of Defense shall include in the request the following: (A) A report containing preliminary findings of the agency head required in paragraphs (1) through (6) of subsection (a), together with the basis for such findings  (B) Confirmation that the preliminary findings of the agency head under subparagraph (A) were supported by a preliminary cost analysis performed by the Director of Cost Assessment and Program Evaluation  (3) A multiyear contract may not be entered into under this section for a defense acquisition program that has been specifically authorized by law to be carried out using multiyear contract authority unless the Secretary of Defense certifies in writing, not later than 30 days before entry into the contract, that each of the following conditions is satisfied: (A) The Secretary has determined that each of the requirements in paragraphs (1) through (6) of subsection (a) will be met by such contract and has provided the basis for such determination to the congressional defense committees  (B) The Secretary's determination under subparagraph (A) was made after completion of a cost analysis conducted on the basis of section 2334(e)(2) 1 of this title, and the analysis supports the determination  (C) The system being acquired pursuant to such contract has not been determined to have experienced cost growth in excess of the critical cost growth threshold pursuant to section 2433(d) of this title within 5 years prior to the date the Secretary anticipates such contract (or a contract for advance procurement entered into consistent with the authorization for such contract) will be awarded  (D) A sufficient number of end items of the system being acquired under such contract have been delivered at or within the most current estimates of the program acquisition unit cost or procurement unit cost for such system to determine that current estimates of such unit costs are realistic  (E) During the fiscal year in which such contract is to be awarded, sufficient funds will be available to perform the contract in such fiscal year, and the future-years defense program for such fiscal year will include the funding required to execute the program without cancellation  (F) The contract is a fixed price type contract  (G) The proposed multiyear contract provides for production at not less than minimum economic rates given the existing tooling and facilities  (4) If for any fiscal year a multiyear contract to be entered into under this section is authorized by law for a particular procurement program and that authorization is subject to certain conditions established by law (including a condition as to cost savings to be achieved under the multiyear contract in comparison to specified other contracts) and if it appears (after negotiations with contractors) that such savings cannot be achieved, but that significant savings could nevertheless be achieved through the use of a multiyear contract rather than specified other contracts, the President may submit to Congress a request for relief from the specified cost savings that must be achieved through multiyear contracting for that program  Any such request by the President shall include details about the request for a multiyear contract, including details about the negotiated contract terms and conditions  (5)(A) The Secretary may obligate funds for procurement of an end item under a multiyear contract for the purchase of property only for procurement of a complete and usable end item  (B) The Secretary may obligate funds appropriated for any fiscal year for advance procurement under a contract for the purchase of property only for the procurement of those long-lead items necessary in order to meet a planned delivery schedule for complete major end items that are programmed under the contract to be acquired with funds appropriated for a subsequent fiscal year (including an economic order quantity of such long-lead items when authorized by law)  (6) The Secretary may make the certification under paragraph (3) notwithstanding the fact that one or more of the conditions of such certification are not met, if the Secretary determines that, due to exceptional circumstances, proceeding with a multiyear contract under this section is in the best interest of the Department of Defense and the Secretary provides the basis for such determination with the certification  (7) The Secretary may not delegate the authority to make the certification under paragraph (3) or the determination under paragraph (6) to an official below the level of Under Secretary of Defense for Acquisition, Technology, and Logistics  (j) Defense Contract Options for Varying Quantities -The Secretary of Defense may instruct the Secretary of the military department concerned to incorporate into a proposed multiyear contract negotiated priced options for varying the quantities of end items to be procured over the period of the contract  (k) Multiyear Contract Defined -For the purposes of this section, a multiyear contract is a contract for the purchase of property for more than one, but not more than five, program years  Such a contract may provide that performance under the contract during the second and subsequent years of the contract is contingent upon the appropriation of funds and (if it does so provide) may provide for a cancellation payment to be made to the contractor if such appropriations are not made  (l) Various Additional Requirements With Respect to Multiyear Defense Contracts -(1)(A) The head of an agency may not initiate a contract described in subparagraph (B) unless the congressional defense committees are notified of the proposed contract at least 30 days in advance of the award of the proposed contract  (B) Subparagraph (A) applies to the following contracts: (i) A multiyear contract- (I) that employs economic order quantity procurement in excess of $20,000,000 in any one year of the contract; or (II) that includes an unfunded contingent liability in excess of $20,000,000  (ii) Any contract for advance procurement leading to a multiyear contract that employs economic order quantity procurement in excess of $20,000,000 in any one year  (2) The head of an agency may not initiate a multiyear contract for which the economic order quantity advance procurement is not funded at least to the limits of the Government's liability  (3) The head of an agency may not initiate a multiyear procurement contract for any system (or component thereof) if the value of the multiyear contract would exceed $500,000,000 unless authority for the contract is specifically provided in an appropriations Act  (4) Each report required by paragraph (5) with respect to a contract (or contract extension) shall contain the following: (A) The amount of total obligational authority under the contract (or contract extension) and the percentage that such amount represents of- (i) the applicable procurement account; and (ii) the agency procurement total  (B) The amount of total obligational authority under all multiyear procurements of the agency concerned (determined without regard to the amount of the multiyear contract (or contract extension)) under multiyear contracts in effect at the time the report is submitted and the percentage that such amount represents of- (i) the applicable procurement account; and (ii) the agency procurement total  (C) The amount equal to the sum of the amounts under subparagraphs (A) and (B), and the percentage that such amount represents of- (i) the applicable procurement account; and (ii) the agency procurement total  (D) The amount of total obligational authority under all Department of Defense multiyear procurements (determined without regard to the amount of the multiyear contract (or contract extension)), including any multiyear contract (or contract extension) that has been authorized by the Congress but not yet entered into, and the percentage that such amount represents of the procurement accounts of the Department of Defense treated in the aggregate  (5) The head of an agency may not enter into a multiyear contract (or extend an existing multiyear contract), the value of which would exceed $500,000,000 (when entered into or when extended, as the case may be), until the Secretary of Defense submits to the congressional defense committees a report containing the information described in paragraph (4) with respect to the contract (or contract extension)  (6) The head of an agency may not terminate a multiyear procurement contract until 10 days after the date on which notice of the proposed termination is provided to the congressional defense committees  (7) The execution of multiyear contracting authority shall require the use of a present value analysis to determine lowest cost compared to an annual procurement  (8) This subsection does not apply to the National Aeronautics and Space Administration or to the Coast Guard  (9) In this subsection: (A) The term "applicable procurement account" means, with respect to a multiyear procurement contract (or contract extension), the appropriation account from which payments to execute the contract will be made  (B) The term "agency procurement total" means the procurement accounts of the agency entering into a multiyear procurement contract (or contract extension) treated in the aggregate  (m) Increased Funding and Reprogramming Requests -Any request for increased funding for the procurement of a major system under a multiyear contract authorized under this section shall be accompanied by an explanation of how the request for increased funding affects the determinations made by the Secretary under subsection (i)  Appendix B  Programs Approved for MYP in Annual DOD Appropriations Acts Since FY1990 This appendix presents, in two tables, programs approved for MYP in annual DOD appropriations acts since FY1990  Table B-1 covers FY2011 to the present, and Table B-2 covers FY1990 through FY2010 

ground_truth: The Buy American Act of 1933, as amended, is the main U.S. law promoting domestic purchasing. The Act permits agencies to buy foreign end products only under certain exceptions, such as when domestic items are not available at a reasonable cost. Further, U.S. trade agreements waive the Buy American restrictions for certain products. GAO was asked to review implementation of the Buy American Act. This report assesses the extent to which (1) the federal government procures foreign products through Buy American Act exceptions and waivers; and (2) selected agencies provide training and guidance to implement the Act. GAO reviewed laws, regulations, and policies related to the Buy American Act and analyzed data for fiscal year 2017 from FPDS-NG. GAO also analyzed a non-generalizable sample of 38 contracts from DOD, HHS, DHS, and VA—the agencies with the most obligations for products in fiscal year 2017. The 38 awards selected include a mix of foreign and domestic products, as well as dollars obligated. Finally, GAO interviewed cognizant contracting and policy officials from the selected agencies. According to data reported in the Federal Procurement Data System-Next Generation (FPDS-NG) in fiscal year 2017, foreign end products accounted for less than 5 percent—about $7.8 billion—of federal obligations for products potentially subject to the Buy American Act. Federal agencies procured foreign products using exceptions to Buy American Act requirements, as well as through waivers or when the Buy American Act did not apply, as shown in the figure. The amount of foreign end products purchased could be greater than reported in FPDS-NG, however, due to reporting errors and system limitations. GAO found that 6 of the 38 contracts reviewed from the Departments of Defense (DOD), Health and Human Services (HHS), Homeland Security (DHS), and Veterans Affairs (VA) inaccurately recorded waiver or exception information. FPDS-NG system limitations compound these errors because it does not fully capture Buy American Act data. Among other things, the database does not always enable agencies to report the use of exceptions or waivers on contracts for both foreign and domestic products, reducing data accuracy. The Office of Management and Budget (OMB) is considering strategies to improve Buy American Act data. The four agencies GAO reviewed varied in their approaches to Buy American Act training and guidance. DOD reports that it will have trained more than 18,000 personnel by the end of 2018. DHS reports training almost 1,400 people—approximately 94 percent of its contracting staff—as of April 2018. Some VA courses mention the Act, but none is focused specifically on implementing its requirements. HHS does not have agency-level training or guidance on the Act. GAO found that contracting officers for the contracts it reviewed face challenges implementing Buy American Act requirements. Having specific and targeted Buy American Act guidance and training can better ensure that agencies meet the Act's requirements. GAO is recommending that OMB take steps to improve Buy American Act data and that HHS, DHS, and VA improve agency guidance and training on implementing the Act. All of the agencies either concurred or generally concurred with GAO's recommendations.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.



Report 2: Puerto Rico, which has approximately 3 3 million residents according to U S  Census Bureau (Census) estimates, is the largest and most populous territory of the United States  As a territory, Puerto Rico is subject to congressional authority, though Congress has granted it broad authority over matters of internal governance—notably, by approving Puerto Rico’s constitution in 1952  Individuals born in Puerto Rico are U S  citizens and can migrate freely to the states  Puerto Rico and its residents are generally subject to the same federal laws as the states and their residents, except in cases where specific exemptions have been made, such as with certain federal programs  For example, Puerto Rico residents generally have full access to Social Security and unemployment insurance; however, for some programs, such as Medicaid, federal funding in Puerto Rico is restricted as compared to funding in the states  Residents of Puerto Rico are exempt from paying federal income tax on income from sources in Puerto Rico  Residents are required to pay federal income tax on income from sources outside of Puerto Rico  They are also required to pay federal employment taxes, such as Social Security and Medicare taxes, on their income regardless of where it was earned  Puerto Rico residents are also ineligible for certain federal tax credits  Corporations located in Puerto Rico are generally subject to the same federal tax laws as corporations located in a foreign country  Corporations in Puerto Rico are generally exempt from federal taxes on profits except as such profits are effectively connected to a trade or business in the states, and so long as those profits remain held outside of the states  Additionally, these corporations were subject to a withholding tax on certain investment income from the United States not connected to a trade or business  Under the 2017 Public Law 115-97, starting in 2018 U S  corporations that are shareholders in foreign corporations, such as those organized under Puerto Rico law, generally do not owe tax on dividends received from those foreign corporations  Prior to this law, dividend payments to U S  corporate shareholders were considered taxable interest for the U S  parent corporation  Prior to 1996, a federal corporate income tax credit—the possessions tax credit—was available to certain U S  corporations that located in Puerto Rico  In general, the credit equaled the full amount of federal tax liability related to an eligible corporation’s income from its operations in a possession—including Puerto Rico—effectively making such income tax- free  In 1996, the tax credit was repealed, although corporations that were existing credit claimants were eligible to claim credits through 2005  Puerto Rico’s economy is in a prolonged period of economic contraction  According to data from Puerto Rico’s government, Puerto Rico’s economy grew in the 1990s and early 2000s  However, between 2005 and 2016— the latest year for which data were available as of March 1, 2018—Puerto Rico’s economy experienced year-over-year declines in real output in all but two years, as measured by real gross domestic product (GDP)  From 2005 to 2016, Puerto Rico’s real GDP fell by more than 9 percent (from $82 8 billion to $75 0 billion in 2005 dollars)  Puerto Rico’s gross national product (GNP) followed a similar pattern over the same period, declining by more than 11 percent from 2005 to 2016 (from $53 8 billion to $47 7 billion in 2005 dollars)  Figure 1 shows Puerto Rico’s real GDP and GNP growth rates from 1991 through 2016  The decline in Puerto Rico’s output has, in more recent years, occurred in conjunction with a decline in Puerto Rico’s population  According to Census estimates, Puerto Rico’s population declined from a high of approximately 3 8 million people in 2004 to 3 3 million people in 2017, a decline of 12 8 percent  This population loss closely matched the decline in real output  From 2004 to 2016, Puerto Rico’s real GNP fell by 9 5 percent, while its real GNP per capita increased by 1 6 percent over the same time period  In addition to Puerto Rico’s declining population, the territory also has a lower share of employed persons compared to the United States as a whole  As of 2017, approximately 37 percent of Puerto Rico residents were employed compared to approximately 60 percent for the United States as a whole  Puerto Rico’s employment-to-population ratio reached highs in 2005 and 2006 when it was approximately 43 percent, according to data from the Federal Reserve Bank of St  Louis  According to data from the Bureau of Labor Statistics (BLS), between 2005 and 2017, Puerto Rico’s unemployment rate fluctuated between 10 2 percent and 17 0 percent, with an average of 13 1 percent  During the same period, the nationwide unemployment rate fluctuated between 4 1 percent and 10 0 percent, with an average of 6 5 percent  These factors have combined to leave Puerto Rico with a small and declining labor force  From January 2006 to December 2017—the latest month for which data were available as of March 1, 2018—Puerto Rico’s labor force decreased from approximately 1 4 million persons to 1 1 million persons, according to data from BLS  Puerto Rico’s government has operated with a deficit—where expenses exceed revenues—in each fiscal year since 2002, and its deficits grew over time (see figure 2)  Puerto Rico’s governmental activities can be divided among the primary government and component units  Puerto Rico’s primary government provides and funds services such as public safety, education, health care, and economic development  Puerto Rico’s component units are legally separate entities for which its government is nonetheless financially accountable, and provide services such as public transportation, highways, electricity, and water  In fiscal year 2014, the latest for which audited financial data are available, the Puerto Rico government collected $32 5 billion in revenue, of which $19 3 billion was collected by the primary government, and $13 2 billion was collected by the component units  That year Puerto Rico’s government spent $38 7 billion, of which $22 0 billion was spent directly by the primary government, while $16 7 billion was spent by the government’s various component units  The Puerto Rico Electric Power Authority (PREPA), which operates the territory’s electricity generation and distribution infrastructure, represented the largest component unit expenditure in fiscal year 2014  Figures 3 and 4 show a breakdown of expenses for Puerto Rico’s primary government and its component units, respectively  Puerto Rico’s government spending accounts for more than a third of the territory’s GDP  In fiscal year 2014—the latest year for which audited spending data were available as of March 1, 2018—primary government expenditures of $22 0 billion represented 21 percent of the territory’s GDP  Including component spending, total public expenditures were $38 7 billion, which represented 38 percent of the territory’s GDP  By comparison, our prior work has shown that in 2014, total state and local government expenditures represented about 14 percent of GDP for the United States as a whole, excluding territories  Federal government expenditures were 20 percent of GDP for the United States as a whole in 2014  Puerto Rico’s total public debt as a share of its economy has grown over time  In 2002, the value of its debt was 42 percent of the territory’s GDP, and 67 percent of its GNP  Both of these ratios grew over time such that by 2014, Puerto Rico’s total public debt was 66 percent of the territory’s GDP and 99 percent of its GNP  Figure 5 compares Puerto Rico’s total public debt to its GDP and GNP, in both aggregate and per capita  As of the end of fiscal year 2014, the last year for which Puerto Rico issued audited financial statements, Puerto Rico had $67 8 billion in net public debt outstanding, or $68 1 billion excluding accounting adjustments that are not attributed in the financial statements to specific agencies  Of the $68 1 billion, $40 6 billion was owed by Puerto Rico’s primary government, and $27 6 billion was owed by its component units, as shown in figure 6 (these amounts do not sum to $68 1 billion because of rounding)  The growth of Puerto Rico’s total debt resulted in greater annual debt servicing obligations  In fiscal year 2002, it cost Puerto Rico $2 7 billion to service its debt, representing about 12 percent of Puerto Rico’s $21 6 billion in total public revenue for that year  By fiscal year 2014, Puerto Rico’s annual debt service cost rose to $5 0 billion, representing just over 15 percent of Puerto Rico’s $32 5 billion in total public revenue for that year  Following years of expenditures that exceeded revenue, and a growing debt burden, in August 2015, Puerto Rico failed to make a scheduled bond payment  Since then, Puerto Rico has defaulted on over $1 5 billion in debt  In June 2016, Congress enacted and the President signed PROMESA in response to Puerto Rico’s fiscal crisis  PROMESA established a Financial Oversight and Management Board for Puerto Rico (Oversight Board), and granted it broad powers of fiscal and budgetary control over Puerto Rico  PROMESA also established a mechanism through which the Oversight Board could petition U S  courts on Puerto Rico’s behalf to restructure debt  Under federal bankruptcy laws, Puerto Rico is otherwise prohibited from authorizing its municipalities and instrumentalities from petitioning U S  courts to restructure debt  The Oversight Board petitioned the U S  courts to restructure debt on behalf of Puerto Rico’s Highways and Transportation Authority and the Government Employees Retirement System on May 21, 2017 and on behalf of PREPA on July 2, 2017  In addition to its debt obligations, Puerto Rico also faces a large financial burden from its pension obligations for public employees  Puerto Rico’s public pension systems had unfunded liabilities of approximately $49 billion as of the end of fiscal year 2015, the most recent year for which data are available  Unfunded pension liabilities are similar to other kinds of debt because they constitute a promise to make a future payment or provide a benefit  Based on interviews with current and former Puerto Rico officials, federal officials, and other relevant experts, as well as a review of relevant literature, the factors that contributed to Puerto Rico’s financial condition and levels of debt related to: (1) Puerto Rico’s government running persistent deficits and (2) its use of debt to cope with deficits  As previously mentioned, Puerto Rico’s government has operated with a deficit in all years since 2002, and deficits grew over time  To cope with its deficits, Puerto Rico’s government issued debt to finance operations, rather than reduce its fiscal gap by cutting spending, raising taxes, or both  Through interviews with current and former Puerto Rico officials; federal officials; experts in Puerto Rico’s economy, the municipal securities markets, and state and local budgeting and debt management; as well as a review of relevant literature, we identified three groups of factors that contributed to Puerto Rico’s persistent deficits: (1) inadequate financial management and oversight practices, (2) policy decisions, and (3) prolonged economic contraction  Some of the factors in these groups may be interrelated  To cope with its persistent deficits, Puerto Rico issued debt to finance operations  In reviewing 20 of Puerto Rico’s largest bond issuances from 2000 to 2017, totaling around $31 billion, we found that 16 were issued exclusively to repay or refinance existing debt and to fund operations  According to ratings agency officials and experts in state and local government, states rarely issue debt to fund operations, and many states prohibit this practice  According to former Puerto Rico officials and experts on Puerto Rico’s economy, high demand for Puerto Rico debt and the Government Development Bank for Puerto Rico (GDB) facilitating rising debt levels enabled Puerto Rico to continue to use debt to finance operations  Puerto Rico issued a relatively large amount of debt, given the size of its population  Based on an analysis of fiscal year 2014 comprehensive annual financial reports of the 50 states and Puerto Rico, Puerto Rico had the second highest amount of outstanding debt among states and territories, while its population falls between the 29th and 30th most populous states  By comparison, California, the state with the largest amount of outstanding debt, is the most populated state  Various factors drove demand for Puerto Rico municipal bonds, even as the government’s financial condition deteriorated  Triple tax exemption: According to a former Puerto Rico official, Federal Reserve Bank of New York officials, and an expert on Puerto Rico’s economy, Puerto Rico’s municipal bonds were attractive to investors because interest on the bonds was not subjected to federal, state, or local taxes, regardless of where the investors resided  In contrast, investors may be required to pay state or local taxes on interest income earned from municipal securities issued by a state or municipality in which they do not reside  Investment grade bond ratings: Puerto Rico maintained investment grade bond ratings until February 2014, even as its financial condition was deteriorating  Credit ratings inform investment decisions by both institutional investors and broker dealers  According to a current Puerto Rico official and an expert on Puerto Rico’s economy, investment grade ratings for Puerto Rico municipal bonds may have driven demand for these securities in the states  Based on interviews with ratings agency officials and a review of rating agency criteria, we found that Puerto Rico may have maintained its investment grade rating for two reasons  First, Puerto Rico could not seek debt restructuring under federal bankruptcy laws, prior to the passage of PROMESA in 2016  According to rating agency officials, bonds with assumed bankruptcy protection tend to rate higher than those without such protection  Second, legal frameworks that prioritize debt service are often viewed as positive for credit ratings, according to rating agency criteria  In the event that the Puerto Rico government does not have sufficient resources to meet appropriations for a given fiscal year, Puerto Rico’s constitution requires that the government pay interest and amortization on the public debt before disbursing funds for other purposes in accordance with the order of priorities established by law  The prior Puerto Rico Governor cited this constitutional provision as providing the authority to redirect revenue streams from certain entities to the payment of general obligation debt  This redirection of revenue streams is commonly known as a clawback  Lack of transparency on its financial condition: Municipal market analysts told us that untimely financial information made it difficult for institutional and individual investors to assess Puerto Rico’s financial condition, which may have resulted in investors not being able to fully take the investment risks into account when purchasing Puerto Rico debt  According to one report, between 2010 and 2016 municipal issuers issued their audited financial statements an average of 200 days after the end of their fiscal years  However, between fiscal years 2002 and 2014, Puerto Rico issued its statements an average of 386 days after the end of its fiscal year, according to our analysis of Puerto Rico’s audited financial statements  Moreover, Puerto Rico had not issued its fiscal years 2015 and 2016 audited financial statements as of March 1, 2018, or 975 and 609 days after the end of those fiscal years, respectively  Estate tax structures: Puerto Rico residents had incentive to invest in municipal bonds issued in Puerto Rico over those issued in the United States because of federal and Puerto Rico estate tax structures  Current and former Puerto Rico officials told us that this incentive drove demand among Puerto Rico residents for bonds issued in Puerto Rico  For federal estate tax purposes, Puerto Rico residents are generally considered non-U S  residents and non-citizens for all of their U S -based property, including investments  Estates of Puerto Rico residents are required to pay the prevailing federal estate tax— which ranges from 18 percent to 40 percent depending on the size of an estate—for any U S -based property valued over $60,000  In contrast, prior to 2017, all Puerto Rico-based property was only subject to the Puerto Rico estate tax of 10 percent  Puerto Rico’s estate tax was repealed in 2017  In addition to financing from the municipal bond markets, GDB also provided an intragovernmental source of financing  Prior to April 2016, GDB acted as a fiscal agent, trustee of funds, and intergovernmental lender for the Government of Puerto Rico  GDB issued loans to Puerto Rico’s government agencies and public corporations to support their operations  GDB provided loans to government entities valued at up to 60 percent of GDB’s total assets, as shown in Figure 11  In general, these entities did not fulfill the terms of their borrowing agreements with GDB, while they independently accessed the municipal bond market  Additionally, according to GDB’s audited financial statements, GDB did not reflect loan losses in its audited financial statements until 2014 because it presumed that Puerto Rico’s legislature would repay loans through the general fund or appropriations, as generally required by the acts that approved such loans  Facing non-repayment of public sector loans, GDB took on debt to maintain liquidity  According to GDB documents, repayment of amounts owed to GDB was a main reason for the creation of the Puerto Rico Sales Tax Financing Corporation (COFINA), an entity backed by a new sales tax, through which Puerto Rico issued some of its debt  Though initially intended as a means to repay GDB and other debt, COFINA bonds were also used to finance operations  Through our interviews and an assessment of relevant literature, we identified three potential federal actions that could help address some of the factors that contributed to unsustainable indebtedness in Puerto Rico  Consistent with the provision in PROMESA that was the statutory requirement for this work, we focused on actions that were non-fiscal in nature—that is, actions that would not increase the federal deficit  There are tradeoffs for policymakers to consider when deciding whether or how to implement any policy  For each action, we describe a specific challenge as it relates to debt accumulation in Puerto Rico, identify a possible federal response to the challenge, and describe other considerations for policymakers  To help address the factors that contributed to the high demand for Puerto Rico debt relative to other municipal debt, legislative and executive branch policymakers could further ensure that municipal securities issuers provide timely, ongoing, and complete disclosure materials to bondholders and the public  Specifically, Congress could authorize SEC to establish requirements for municipal issuers on the timing, frequency, and content of initial and continuing disclosure materials  In general, the municipal securities market is less regulated and transparent than other capital markets, such as equity markets  For example, SEC’s authority to directly establish or enforce initial and continuing disclosure requirements for issuers—including those in Puerto Rico—is limited  SEC requires that underwriters (sellers of municipal securities) reasonably determine that issuers have undertaken continuing disclosure agreements (CDA) to publicly disclose ongoing annual financial information, operating data, and notices of material events  However, federal securities laws do not provide SEC with the authority to impose penalties on municipal issuers for noncompliance with CDAs, which may limit any incentive for issuers to comply with SEC disclosure and reporting guidance  As a result, SEC has limited ability to compel issuers to provide continuing disclosure information  As previously discussed, the Puerto Rico government often issued its audited financial statements in an untimely manner, thus failing to meet its contractual obligations to provide continuing disclosures for securities it issued  SEC could not directly impose any consequences on Puerto Rico’s government for failing to adhere to the terms of, or enforce compliance with, the CDAs  Additionally, as previously discussed, municipal market analysts told us that untimely financial information made it difficult for institutional and individual investors to assess Puerto Rico’s financial condition  Timely disclosure of information would help investors make informed decisions about investing in municipal securities and help protect them against fraud involving the securities  These disclosures would be made to investors at the time of purchasing securities and throughout the term of the security, including when material changes to an issuer’s financial condition occur  According to SEC staff, enhanced authority could prompt more municipal issuers to disclose financial information, including audited financial statements, in a timelier manner  For example, SEC staff said that if the agency had required that issuers provide timely financial statements at the time of issuing a municipal security, this may have precluded Puerto Rico from issuing its $3 5 billion general obligation bond in 2014  However, any rulemaking SEC would or could take as a result of enhanced authority would depend on a number of factors, such as compliance with other SEC guidance and related laws  Since this action would apply to all U S  municipal securities issuers, it has policy and implementation implications that extend well beyond Puerto Rico  For example, establishing and enforcing initial and continuing disclosure requirements for municipal securities issuers could place additional burdens on state and local issuers, and not all municipal issuers use standardized accounting and financial reporting methods  As a result, state and local governments may need to spend resources to adjust financial reporting systems to meet standardized reporting requirements  However, in a 2012 report proposing this action, SEC said it could mitigate this burden by considering content and frequency requirements that take into account, and possibly vary by, the size and nature of the municipal issuer, the frequency of issuance of securities, the type of municipal securities offered, and the amount of outstanding securities  To help address the factors that contributed to the high demand for Puerto Rico debt relative to other municipal debt, Congress could ensure that investors residing in Puerto Rico receive the same federal investor protections as investors residing in states  Specifically, Congress could subject all investment companies in Puerto Rico to the Investment Company Act of 1940, as amended (1940 Act)  In recent years, the House and Senate separately have passed legislation that would achieve this action  Certain investment companies in Puerto Rico and other territories— specifically, those whose securities are sold solely to the residents of the territory in which they are located—are exempt from the 1940 Act’s requirements  The 1940 Act regulates investment companies, such as mutual funds that invest in securities of other issuers and issue their own securities to the investing public  It imposes several requirements on investment companies intended to protect investors  For example, it requires that investment companies register with SEC and disclose information to investors about the businesses and risks of the companies in which they invest, and the characteristics of the securities that they issue  It also restricts investment companies from engaging in certain types of transactions, such as purchasing municipal securities underwritten by affiliated companies  According to a former Puerto Rico official, some broker-dealers in Puerto Rico underwrote Puerto Rico municipal securities issuances and investment companies managed by affiliated companies of these underwriters purchased the securities, packaged them into funds, and marketed the funds to investors residing in Puerto Rico  This practice would be prohibited or restricted for investment companies subject to the 1940 Act, as it might result in investment companies not acting in the best interests of their investors  If all Puerto Rico investment companies had been subject to the 1940 Act, they would have been prohibited or restricted from investing in Puerto Rico municipal bonds underwritten by affiliated companies  Also, these investment companies may have further disclosed the risks involved in Puerto Rico municipal bonds to Puerto Rico investors  As a result, demand for Puerto Rico municipal bonds from Puerto Rico investment companies and residents may have been lower had the 1940 Act requirements applied to all Puerto Rico investment companies, and it may have been more difficult for the Puerto Rico government to issue debt to finance deficits  SEC staff told us that industry groups had raised objections to extending the 1940 Act provisions to all investment companies in Puerto Rico  These industry groups noted that, among other things, certain investment companies would have difficulty meeting the 1940 Act’s leverage and asset coverage requirements and adhering to some restrictions on affiliated transactions  However, SEC staff noted that under certain legislation that passed the House or Senate separately, as described above, Puerto Rico investment companies would have three years to come into compliance if they were newly subject to the 1940 Act  Further, under that legislation, after three years, investment companies in Puerto Rico could also request an additional three years to come into compliance  Regarding affiliated company restrictions, SEC has previously waived some requirements for investment companies if they are unable to obtain financing by selling securities to unaffiliated parties with an agreement to repurchase those securities at a higher price in the future, known as repurchase agreements  According to SEC staff, SEC would consider allowing companies in Puerto Rico to enter into reverse repurchase agreements with their affiliates if the 1940 Act applied to them  To help address the factors that contributed to the high demand for Puerto Rico debt relative to other municipal debt, Congress could remove the triple tax exemption for Puerto Rico’s municipal securities  This action would mean that interest income from Puerto Rico municipal securities earned by investors residing outside of Puerto Rico could be taxed by states and local governments, while still being exempt from federal income taxes, similar to the current tax treatment of municipal bond income in the states  As mentioned previously, former Puerto Rico officials and experts in municipal securities told us that the triple tax exemption fueled investor demand and enabled Puerto Rico to continue issuing bonds despite deteriorating financial conditions  Some of the demand for Puerto Rico municipal securities came from certain U S  municipal bond funds  These funds concentrated their investments in one state to sell to investors within that state, but also included Puerto Rico bonds in their portfolios  Puerto Rico bond yields generally were higher than state bonds yields, according to industry experts  When added to a fund, the higher yields from Puerto Rico bonds would increase the overall return on investment yield of a fund  Modifying the triple tax exemption for Puerto Rico’s municipal securities might result in reduced demand for Puerto Rico’s debt  In response to reduced demand for its debt, Puerto Rico’s government may need to address any projected operating deficits by decreasing spending, raising revenues, or both  According to U S  Treasury officials, this action could increase the proportionate share of investors in Puerto Rico debt that reside in Puerto Rico, because of reduced demand from investors in the states  In the event of a future debt crisis, this could result in a concentration of financial losses within Puerto Rico  Also, debt financing allows governments to make needed capital investments and provides liquidity to governments, and can be a more stable funding source to manage fiscal stress  Reduced market demand for Puerto Rico’s bonds could make access to debt financing difficult, as the Puerto Rico bond market may not support the Puerto Rico government’s future borrowing at reasonable interest rates, according to Treasury officials  Alternately, a variant of this action would be to retain the triple tax exemption for Puerto Rico debt only for bonds related to capital investments rather than for deficit financing, according to Treasury officials  Various provisions in PROMESA were intended to help Puerto Rico improve its fiscal condition  PROMESA requires that the Oversight Board certify fiscal plans for achieving fiscal responsibility and access to capital markets  The intent of the fiscal plans is to eliminate Puerto Rico’s structural deficits; create independent revenue estimates for the budget process; and improve Puerto Rico’s fiscal governance, accountability, and controls, among other things  From March 2017 to April 2017, the Oversight Board certified the fiscal plans the Government of Puerto Rico developed for the primary government and certain component units, such as PREPA  As a result of the effects of Hurricanes Irma and Maria, the Oversight Board requested that the Government develop updated fiscal plans  Although the Government of Puerto Rico developed and submitted updated fiscal plans, the Oversight Board did not certify them, with the exception of the plan for GDB  Instead, in April 2018, the Oversight Board certified fiscal plans it developed itself, as PROMESA allows  PROMESA also requires the Oversight Board to determine whether or not Puerto Rico’s annual budgets, developed by the Governor, comply with the fiscal plans prior to being submitted to Puerto Rico’s legislature for approval  Technical assistance is another area where the federal government has taken action to help Puerto Rico address its fiscal condition  In 2015, Congress first authorized Treasury to provide technical assistance to Puerto Rico, and has continued to reauthorize the technical assistance, most recently through September 30, 2018  For example, Treasury officials told us that they helped Puerto Rico’s Planning Board develop a more accurate macroeconomic forecast, which should enable Hacienda to develop more accurate revenue estimates and receipt forecasts  Treasury officials also told us that the agency began helping Puerto Rico improve its collection of delinquent taxes—for example, by helping Hacienda develop an office dealing with Puerto Rico’s largest and most sophisticated taxpayers, which are often multinational corporations  With Puerto Rico focused on hurricane recovery efforts, Treasury and the Puerto Rico government are reassessing the types of assistance that Treasury might provide in the future, according to Treasury officials  Current and former Puerto Rico government officials and experts on Puerto Rico’s economy also told us that the federal government could further help Puerto Rico address its persistent deficits through federal policy changes that are fiscal in nature  For example, it could change select federal program funding rules—at a cost to the federal government—such as eliminating the cap on Medicaid funding and calculating the federal matching rate similar to how the rate is calculated in the states  Likewise, the Congressional Task Force on Economic Growth in Puerto Rico (Congressional Task Force), as established by PROMESA, issued a report in December 2016 that recommended changes to federal laws and programs that would spur sustainable long- term economic growth in Puerto Rico, among other recommendations  In addition to federal actions that could address the factors that contributed to Puerto Rico’s fiscal condition and debt levels, the Puerto Rico government plans to take various actions  For example, according to current Puerto Rico officials and the Puerto Rico government’s April 2018 fiscal plan, the government is: Planning to implement an integrated new information technology system for financial management, to include modernized revenue management and accounting and payroll systems  Hacienda officials stated that they are in the process of developing a project schedule for this long-term effort  Developing a new public healthcare model in which Puerto Rico’s government pays for basic services and patients pay for premium services  The government will begin implementing the new healthcare model in fiscal year 2019 and expects to achieve annual savings of $841 million by fiscal year 2023  Collaborating with the private sector for future infrastructure and service projects, including for reconstruction efforts related to Hurricanes Irma and Maria, which it expects will stimulate Puerto Rico’s weakened economy  We also asked Puerto Rico officials about progress made toward addressing many of the factors we identified  However, they did not provide us this information  We provided a draft of this report for review to Treasury, SEC, the Federal Reserve Bank of New York, the Government of Puerto Rico, and the Oversight Board  Treasury and SEC provided technical comments, which we incorporated as appropriate  The Federal Reserve Bank of New York and the Oversight Board had no comments  We received written comments from the Government of Puerto Rico, which are reprinted in appendix II  In its comments, the Government of Puerto Rico generally agreed with the factors we identified that contributed to Puerto Rico’s financial condition and levels of debt  It also provided additional context on Puerto Rico’s accumulation of debt, such as Puerto Rico’s territorial status and its effect on federal programs in Puerto Rico and outmigration  The Government of Puerto Rico also noted that the federal actions we identified to address factors contributing to Puerto Rico’s unsustainable debt levels did not include potential actions that were fiscal in nature or that addressed Puerto Rico’s long-term economic viability  As we note in the report, we excluded fiscal actions from our scope, consistent with the provision in PROMESA that was the statutory requirement for this work  We excluded potential actions that could promote economic growth in Puerto Rico because these actions would address debt levels in Puerto Rico only indirectly and because the Congressional Task Force on Economic Growth in Puerto Rico already recommended actions for fostering economic growth in Puerto Rico in its December 2016 report  We are sending copies of the report to the appropriate congressional committees, the Government of Puerto Rico, the Secretary of the Treasury, the Chairman of the Securities and Exchange Commission, and other interested parties  In addition, this report is available at no charge on the GAO website at http://gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-6806 or krauseh@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix III  Our objectives were to describe (1) the factors that contributed to Puerto Rico’s financial condition and levels of debt; and (2) federal actions that could address the factors that contributed to Puerto Rico’s financial condition and levels of debt  Consistent with the provision in the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) that was the statutory requirement for this work, we focused on actions that would not increase the federal deficit  For both objectives we interviewed current Puerto Rico officials from several agencies—the Puerto Rico Department of Treasury (Hacienda in Spanish), Government Development Bank for Puerto Rico (GDB), the Puerto Rico Office of Management and Budget (Spanish acronym OGP), Fiscal Agency and Financial Advisory Authority (FAFAA), and the Puerto Rico Electric Power Authority  We also interviewed 13 former Puerto Rico officials that held leadership positions at Hacienda, GDB, or OGP, or a combination thereof  These former officials served between 1997 and 2016 for various gubernatorial administrations associated with the two political parties in Puerto Rico that held the governorship during that period  We also interviewed officials from the U S  Department of the Treasury (Treasury), the Securities and Exchange Commission (SEC), the Federal Reserve Bank of New York, and the Financial Oversight and Management Board for Puerto Rico (created by PROMESA)  Additionally, we conducted another 13 interviews with experts on Puerto Rico’s economy, the municipal securities markets, state and territorial budgeting and debt management—including credit rating agencies—and with select industry groups in Puerto Rico  We selected the experts we interviewed based on their professional knowledge closely aligning with our engagement objectives, as demonstrated through published articles, congressional testimonies, and referrals from agency officials or other experts  To describe the factors that contributed to Puerto Rico’s financial condition and levels of debt, we reviewed our prior work related to Puerto Rico’s financial condition and levels of public debt  We also collected and analyzed additional financial data from Puerto Rico’s audited financial statements for the fiscal years 2002 to 2014, the last year for which audited financial statements were available  To determine how the Puerto Rico government used bond proceeds, we reviewed a nongeneralizable sample of Puerto Rico bonds prospectuses issued between 2000 and 2017 from the Electronic Municipal Market Access database of the Municipal Securities Rulemaking Board  We reviewed literature—including academic reports, congressional hearing transcripts, and credit rating agency reports—that described Puerto Rico’s economy and factors that contributed to Puerto Rico’s levels of debt  We also reviewed credit rating agency reports that described Puerto Rico’s municipal debt and the agencies’ methodologies for rating municipal debt  We also collected and reviewed Puerto Rico government documents related to budget formulation and execution, debt issuance, and financial management  We considered factors to include, but not be limited to, macroeconomic trends, federal policies, and actions taken by Puerto Rico government officials  Our review focused largely, though not exclusively, on conditions that contributed to the debt crisis during those years for which we collected financial data on Puerto Rico, fiscal years 2002 to 2014  Finally, we also conducted a thematic analysis of the summaries of our interviews to identify common patterns and ideas  Although these results are not generalizable to all current and former officials and experts with this subject-matter expertise, and do not necessarily represent the views of all the individuals we interviewed, the thematic analysis provided greater insight and considerations for the factors we identified  To describe federal actions that could address the factors that contributed to Puerto Rico’s financial condition and levels of debt, we reviewed our prior reports and documents from Treasury and SEC, conducted a literature review, and conducted various interviews  Specifically, we met with federal agencies with subject-matter expertise or whose scope of responsibilities related to these actions, as well as with current and former Puerto Rico officials and municipal securities experts  Consistent with PROMESA, we omitted from our scope: (1) actions that could increase the federal deficit (i e , fiscal options), (2) actions that could be taken by the Puerto Rico government, (3) actions that could infringe upon Puerto Rico’s sovereignty and constitutional parameters, and (4) actions that would imperil America’s homeland and national security  We considered actions that could promote economic growth in Puerto Rico as outside of scope, as they could address debt levels in Puerto Rico indirectly, rather than directly, and because a study issued by the Congressional Task Force on Economic Growth in Puerto Rico already identified actions that Congress and executive agencies could take to foster economic growth in Puerto Rico  We also considered actions that could address Puerto Rico’s unfunded pension liability as outside of our scope  The actions we identified may also help avert future unsustainable debt levels in other territories; however, we did not assess whether and how each action would apply to other territories  We conducted this performance audit from January 2017 to May 2018 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  In addition to the contact named above, Jeff Arkin (Assistant Director), Amy Radovich (Analyst in Charge), Pedro Almoguera, Karen Cassidy, Daniel Mahoney, A J  Stephens, and Justin Snover made significant contributions to this report 
Report 2:  1119 / P L  105-85 of November 18, 1997), which granted the Navy the authority to use a single contract for the procurement of the first four Virginia (SSN-774) class attack submarines  The 4 boats were scheduled to be procured during the 5-year period FY1998-FY2002 in annual quantities of 1-1-0-1-1  Congress provided the authority granted in Section 121(b) at least in part to reduce the combined procurement cost of the four submarines  Using MYP was not an option for the Virginia-class program at that time because the Navy had not even begun, let alone finished, construction of the first Virginia-class submarine, and consequently could not demonstrate that it had a stable design for the program  When Section 121(b) was enacted, there was no name for the contracting authority it provided  The term block buy contracting came into use later, when observers needed a term to refer to the kind of contracting authority that Congress authorized in Section 121(b)  As discussed in the next section, this can cause confusion, because the term block buy was already being used in discussions of DOD acquisition to refer to something else  What's the difference between block buy cont r acting and block buys? In discussions of defense procurement, the term "block buy" by itself (without "contracting" at the end) is sometimes used to refer to something quite different from block buy contracting—namely, the simple act of funding the procurement of more than one copy of an item in a single year, particularly when no more than one item of that kind might normally be funded in a single year  For example, when Congress funded the procurement of two aircraft carriers in FY1983, and another two in FY1988, these acts were each referred to as block buys, because aircraft carriers are normally procured one at a time, several years apart from one another  This alternate meaning of the term block buy predates by many years the emergence of the term block buy contracting  The term block buy is still used in this alternate manner, which can lead to confusion in discussions of defense procurement  For example, for FY2017, the Air Force requested funding for procuring five Evolved Expendable Launch Vehicles (EELVs) for its EELV Launch Services (ELS) program  At the same time, Navy officials sometimes refer to the use of block buy contracts for the first four Virginia-class submarines, and in the LCS program, as block buys, when they might be more specifically referred to as instances of block buy contract ing   How much can BBC save, compared with MYP? BBC can reduce the unit procurement costs of ships by amounts less than or perhaps comparable to those of MYP, if the authority granted for using BBC explicitly includes authority for making economic order quantity (EOQ) purchases of components  If the authority granted for using BBC does not explicitly include authority for making EOQ purchases, then the savings from BBC will be less  Potential savings under BBC might also be less than those under MYP if the BBC contract does not include a cancellation penalty, or includes one that is more limited than typically found in an MYP contract, because this might give the contractor less confidence than would be the case under an MYP contract that the future stream of business will materialize as planned, which in turn might reduce the amount of money the contractor invests to optimize its workforce and production facilities for producing the items to be procured under the contract  How frequently has BBC been used? Since its use at the start of the Virginia-class program, BBC has been used very rarely  The Navy did not use it again in a shipbuilding program until December 2010, when it awarded two block buy contracts, each covering 10 LCSs to be procured over the six-year period FY2010-FY2015, to the two LCS builders  (Each contract was later amended to include an 11 th ship in FY2016, making for a total of 22 ships under the two contracts ) A third example is the John Lewis (TAO-205) class oiler program, in which the Navy is using a block buy contract to procure the first six ships in the program  A fourth example, arguably, is the Air Force's KC-46 aerial refueling tanker program, which is employing a fixed price incentive fee (FPIF) development contract that includes a "back end" commitment to procure certain minimum numbers of KC-46s in certain fiscal years  When might BBC be suitable as an alternative to MYP? BBC might be particularly suitable as an alternative to MYP in cases where using a multiyear contract can reduce costs, but the program in question cannot meet all the statutory criteria needed to qualify for MYP  As shown in the case of the first four Virginia-class boats, this can occur at or near the start of a procurement program, when design stability has not been demonstrated through the production of at least a few of the items to be procured (or, for a shipbuilding program, at least one ship)  What i s the difference between an MYP or block buy contract and a contract with options? The military services sometimes use contracts with options to procure multiple copies of an item that are procured over a period of several years  The Navy, for example, used a contract with options to procure Lewis and Clark (TAKE-1) class dry cargo ships that were procured over a period of several years  A contract with options can be viewed as somewhat similar to an MYP or block buy contract in that a single contract is used to procure several years' worth of procurement of a given kind of item  There is, however, a key difference between an MYP or block buy contract and a contract with options: In a contract with options, the service is under no obligation to exercise any of the options, and a service can choose to not exercise an option without having to make a penalty payment to the contractor  In contrast, in an MYP or block buy contract, the service is under an obligation to continue implementing the contract beyond the first year, provided that Congress appropriates the necessary funds  If the service chooses to terminate an MYP or block buy contract, and does so as a termination for government convenience rather than as a termination for contractor default, then the contractor can, under the contract's termination for convenience clause, seek a payment from the government for cost incurred for work that is complete or in process at the time of termination, and may include the cost of some of the investments made in anticipation of the MYP or block buy contract being fully implemented  The contractor can do this even if the MYP or block buy contract does not elsewhere include a provision for a cancellation penalty  As a result of this key difference, although a contract with options looks like a multiyear contract, it operates more like a series of annual contracts, and it cannot achieve the kinds of savings that are possible under MYP and BBC  Potential issues for Congress concerning MYP and BBC include whether to use MYP and BBC in the future more frequently, less frequently, or about as frequently as they are currently used; and whether to create a permanent statute to govern the use of BBC, analogous to the permanent statute that governs the use of MYP  Should MYP and BBC in the future be used more frequently, less frequently, or about as frequently as they are currently used? Supporters of using MYP and BBC more frequently in the future might argue the following: Since MYP and BBC can reduce procurement costs, making greater use of MYP and BBC can help DOD get more value out of its available procurement funding  This can be particularly important if DOD's budget in real (i e , inflation-adjusted) terms remains flat or declines in coming years, as many observers anticipate  The risks of using MYP have been reduced by Section 811 of the FY2008 National Defense Authorization Act ( H R  4986 / P L  110-181 of January 28, 2008), which amended 10 U S C  2306b to strengthen the process for ensuring that programs proposed for MYP meet certain criteria (see " Permanent Statute Governing MYP ")  Since the value of MYP contracts equated to less than 8% of DOD's procurement budget in FY2012, compared to about 17% of DOD's procurement budget in FY2000, MYP likely could be used more frequently without exceeding past experience regarding the share of DOD's procurement budget accounted for by MYP contracts  Supporters of using MYP and BBC less frequently in the future, or at least no more frequently than now, might argue the following: Using MYP and BBC more frequently would further reduce Congress's and DOD's flexibility for making changes in DOD procurement programs in future years in response to changing strategic or budgetary circumstances  The risks of reducing flexibility in this regard are increased now because of uncertainties in the current strategic environment and because efforts to reduce federal budget deficits could include reducing DOD spending, which could lead to a reassessment of U S  defense strategy and associated DOD acquisition programs  Since actual savings from using MYP and BBC rather than annual contracting can be difficult to observe or verify, it is not clear that the financial benefits of using MYP or BBC more frequently in the future would be worth the resulting further reduction in Congress's and DOD's flexibility for making changes in procurement programs in future years in response to changing strategic or budgetary circumstances  Should Congress create a permanent statute to govern the use of BBC, analogous to the permanent statute (10 U S C  2306b) that governs the use of MYP? Supporters of creating a permanent statute to govern the use of BBC might argue the following: Such a statute could encourage greater use of BBC, and thereby increase savings in DOD procurement programs by giving BBC contracting a formal legal standing and by establishing a clear process for DOD program managers to use in assessing whether their programs might be considered suitable for BBC  Such a statute could make BBC more advantageous by including a provision that automatically grants EOQ authority to programs using BBC, as well as provisions establishing qualifying criteria and other conditions intended to reduce the risks of using BBC  Opponents of creating a permanent statute to govern the use of BBC might argue the following: A key advantage of BBC is that it is not governed by a permanent statute  The lack of such a statute gives DOD and Congress full flexibility in determining when and how to use BBC for programs that may not qualify for MYP, but for which a multiyear contract of some kind might produce substantial savings  Such a statute could encourage DOD program managers to pursue their programs using BBC rather than MYP  This could reduce discipline in DOD multiyear contracting if the qualifying criteria in the BBC statute are less demanding than the qualifying criteria in 10 U S C  2306b  Should the Coast Guard should begin making use of MYP and BBC? Although the Coast Guard is part of the Department of Homeland Security (DHS), the Coast Guard is a military service and a branch of the U S  Armed Forces at all times (14 U S C  1), and 10 U S C  2306b provides authority for using MYP not only to DOD, but also to the Coast Guard (and the National Aeronautics and Space Administration as well)  In addition, Section 311 of the Frank LoBiondo Coast Guard Authorization Act of 2018 ( S  140 / P L  115-282 of December 4, 2018) provides permanent authority for the Coast Guard to use block buy contracting with EOQ purchases of components in its major acquisition programs  The authority is now codified at 14 U S C  1137  As discussed earlier in this report, the Navy in recent years has made extensive use of MYP and BBC in its ship and aircraft acquisition programs, reducing the collective costs of those programs, the Navy estimates, by billions of dollars  The Coast Guard, like the Navy, procures ships and aircraft  In contrast to the Navy, however, the Coast Guard has never used MYP or BBC in its ship or aircraft acquisition programs  Instead, the Coast has tended to use contracts with options  As discussed earlier, although a contract with options looks like a multiyear contract, it operates more like a series of annual contracts, and it cannot achieve the kinds of savings that are possible under MYP and BBC  CRS in recent years has testified and reported on the possibility of using BBC or MYP in Coast Guard ship acquisition programs, particularly the Coast Guard's 25-ship Offshore Patrol Cutter (OPC) program and the Coast Guard's three-ship polar icebreaker program  CRS estimates that using multiyear contracting rather than contracts with options for the entire 25-ship OPC program could reduce the cost of the OPC program by about $1 billion  The OPC program is the Coast Guard's top-priority acquisition program, and it represents a once-in-a-generation opportunity to reduce the acquisition cost of a Coast Guard acquisition program by an estimated $1 billion  CRS also estimates that using BBC for a three-ship polar icebreaker program could reduce the cost of that program by upwards of $150 million  The Coast Guard has expressed some interest in using BBC in the polar icebreaker program, but its baseline acquisition strategy for that program, like its current acquisition strategy for the OPC program, is to use a contract with options  As part of its FY2020 budget submission, the Department of Defense is proposing continued funding for implementing several MYP contracts initiated in fiscal years prior to FY2020, but it has not highlighted any requests for authority for new MYP or block buy contracts for major acquisition programs that would begin in FY2020  Appendix A  Text of 10 U S C  2306b The text of 10 U S C  2306b as of April 29, 2019, is as follows: §2306b  Multiyear contracts: acquisition of property (a) In General -To the extent that funds are otherwise available for obligation, the head of an agency may enter into multiyear contracts for the purchase of property whenever the head of that agency finds each of the following: (1) That the use of such a contract will result in significant savings of the total anticipated costs of carrying out the program through annual contracts  (2) That the minimum need for the property to be purchased is expected to remain substantially unchanged during the contemplated contract period in terms of production rate, procurement rate, and total quantities  (3) That there is a reasonable expectation that throughout the contemplated contract period the head of the agency will request funding for the contract at the level required to avoid contract cancellation  (4) That there is a stable design for the property to be acquired and that the technical risks associated with such property are not excessive  (5) That the estimates of both the cost of the contract and the anticipated cost avoidance through the use of a multiyear contract are realistic  (6) In the case of a purchase by the Department of Defense, that the use of such a contract will promote the national security of the United States  (7) In the case of a contract in an amount equal to or greater than $500,000,000, that the conditions required by subparagraphs (C) through (F) of subsection (i)(3) will be met, in accordance with the Secretary's certification and determination under such subsection, by such contract  (b) Regulations -(1) Each official named in paragraph (2) shall prescribe acquisition regulations for the agency or agencies under the jurisdiction of such official to promote the use of multiyear contracting as authorized by subsection (a) in a manner that will allow the most efficient use of multiyear contracting  (2)(A) The Secretary of Defense shall prescribe the regulations applicable to the Department of Defense  (B) The Secretary of Homeland Security shall prescribe the regulations applicable to the Coast Guard, except that the regulations prescribed by the Secretary of Defense shall apply to the Coast Guard when it is operating as a service in the Navy  (C) The Administrator of the National Aeronautics and Space Administration shall prescribe the regulations applicable to the National Aeronautics and Space Administration  (c) Contract Cancellations -The regulations may provide for cancellation provisions in multiyear contracts to the extent that such provisions are necessary and in the best interests of the United States  The cancellation provisions may include consideration of both recurring and nonrecurring costs of the contractor associated with the production of the items to be delivered under the contract  (d) Participation by Subcontractors, Vendors, and Suppliers -In order to broaden the defense industrial base, the regulations shall provide that, to the extent practicable- (1) multiyear contracting under subsection (a) shall be used in such a manner as to seek, retain, and promote the use under such contracts of companies that are subcontractors, vendors, or suppliers; and (2) upon accrual of any payment or other benefit under such a multiyear contract to any subcontractor, vendor, or supplier company participating in such contract, such payment or benefit shall be delivered to such company in the most expeditious manner practicable  (e) Protection of Existing Authority -The regulations shall provide that, to the extent practicable, the administration of this section, and of the regulations prescribed under this section, shall not be carried out in a manner to preclude or curtail the existing ability of an agency- (1) to provide for competition in the production of items to be delivered under such a contract; or (2) to provide for termination of a prime contract the performance of which is deficient with respect to cost, quality, or schedule  (f) Cancellation or Termination for Insufficient Funding -In the event funds are not made available for the continuation of a contract made under this section into a subsequent fiscal year, the contract shall be canceled or terminated  The costs of cancellation or termination may be paid from- (1) appropriations originally available for the performance of the contract concerned; (2) appropriations currently available for procurement of the type of property concerned, and not otherwise obligated; or (3) funds appropriated for those payments  (g) Contract Cancellation Ceilings Exceeding $100,000,000 -(1) Before any contract described in subsection (a) that contains a clause setting forth a cancellation ceiling in excess of $100,000,000 may be awarded, the head of the agency concerned shall give written notification of the proposed contract and of the proposed cancellation ceiling for that contract to the congressional defense committees, and such contract may not then be awarded until the end of a period of 30 days beginning on the date of such notification  (2) In the case of a contract described in subsection (a) with a cancellation ceiling described in paragraph (1), if the budget for the contract does not include proposed funding for the costs of contract cancellation up to the cancellation ceiling established in the contract, the head of the agency concerned shall, as part of the certification required by subsection (i)(1)(A),1 give written notification to the congressional defense committees of- (A) the cancellation ceiling amounts planned for each program year in the proposed multiyear procurement contract, together with the reasons for the amounts planned; (B) the extent to which costs of contract cancellation are not included in the budget for the contract; and (C) a financial risk assessment of not including budgeting for costs of contract cancellation  (h) Defense Acquisitions of Weapon Systems -In the case of the Department of Defense, the authority under subsection (a) includes authority to enter into the following multiyear contracts in accordance with this section: (1) A multiyear contract for the purchase of a weapon system, items and services associated with a weapon system, and logistics support for a weapon system  (2) A multiyear contract for advance procurement of components, parts, and materials necessary to the manufacture of a weapon system, including a multiyear contract for such advance procurement that is entered into in order to achieve economic-lot purchases and more efficient production rates  (i) Defense Acquisitions Specifically Authorized by Law -(1) In the case of the Department of Defense, a multiyear contract in an amount equal to or greater than $500,000,000 may not be entered into under this section unless the contract is specifically authorized by law in an Act other than an appropriations Act  (2) In submitting a request for a specific authorization by law to carry out a defense acquisition program using multiyear contract authority under this section, the Secretary of Defense shall include in the request the following: (A) A report containing preliminary findings of the agency head required in paragraphs (1) through (6) of subsection (a), together with the basis for such findings  (B) Confirmation that the preliminary findings of the agency head under subparagraph (A) were supported by a preliminary cost analysis performed by the Director of Cost Assessment and Program Evaluation  (3) A multiyear contract may not be entered into under this section for a defense acquisition program that has been specifically authorized by law to be carried out using multiyear contract authority unless the Secretary of Defense certifies in writing, not later than 30 days before entry into the contract, that each of the following conditions is satisfied: (A) The Secretary has determined that each of the requirements in paragraphs (1) through (6) of subsection (a) will be met by such contract and has provided the basis for such determination to the congressional defense committees  (B) The Secretary's determination under subparagraph (A) was made after completion of a cost analysis conducted on the basis of section 2334(e)(2) 1 of this title, and the analysis supports the determination  (C) The system being acquired pursuant to such contract has not been determined to have experienced cost growth in excess of the critical cost growth threshold pursuant to section 2433(d) of this title within 5 years prior to the date the Secretary anticipates such contract (or a contract for advance procurement entered into consistent with the authorization for such contract) will be awarded  (D) A sufficient number of end items of the system being acquired under such contract have been delivered at or within the most current estimates of the program acquisition unit cost or procurement unit cost for such system to determine that current estimates of such unit costs are realistic  (E) During the fiscal year in which such contract is to be awarded, sufficient funds will be available to perform the contract in such fiscal year, and the future-years defense program for such fiscal year will include the funding required to execute the program without cancellation  (F) The contract is a fixed price type contract  (G) The proposed multiyear contract provides for production at not less than minimum economic rates given the existing tooling and facilities  (4) If for any fiscal year a multiyear contract to be entered into under this section is authorized by law for a particular procurement program and that authorization is subject to certain conditions established by law (including a condition as to cost savings to be achieved under the multiyear contract in comparison to specified other contracts) and if it appears (after negotiations with contractors) that such savings cannot be achieved, but that significant savings could nevertheless be achieved through the use of a multiyear contract rather than specified other contracts, the President may submit to Congress a request for relief from the specified cost savings that must be achieved through multiyear contracting for that program  Any such request by the President shall include details about the request for a multiyear contract, including details about the negotiated contract terms and conditions  (5)(A) The Secretary may obligate funds for procurement of an end item under a multiyear contract for the purchase of property only for procurement of a complete and usable end item  (B) The Secretary may obligate funds appropriated for any fiscal year for advance procurement under a contract for the purchase of property only for the procurement of those long-lead items necessary in order to meet a planned delivery schedule for complete major end items that are programmed under the contract to be acquired with funds appropriated for a subsequent fiscal year (including an economic order quantity of such long-lead items when authorized by law)  (6) The Secretary may make the certification under paragraph (3) notwithstanding the fact that one or more of the conditions of such certification are not met, if the Secretary determines that, due to exceptional circumstances, proceeding with a multiyear contract under this section is in the best interest of the Department of Defense and the Secretary provides the basis for such determination with the certification  (7) The Secretary may not delegate the authority to make the certification under paragraph (3) or the determination under paragraph (6) to an official below the level of Under Secretary of Defense for Acquisition, Technology, and Logistics  (j) Defense Contract Options for Varying Quantities -The Secretary of Defense may instruct the Secretary of the military department concerned to incorporate into a proposed multiyear contract negotiated priced options for varying the quantities of end items to be procured over the period of the contract  (k) Multiyear Contract Defined -For the purposes of this section, a multiyear contract is a contract for the purchase of property for more than one, but not more than five, program years  Such a contract may provide that performance under the contract during the second and subsequent years of the contract is contingent upon the appropriation of funds and (if it does so provide) may provide for a cancellation payment to be made to the contractor if such appropriations are not made  (l) Various Additional Requirements With Respect to Multiyear Defense Contracts -(1)(A) The head of an agency may not initiate a contract described in subparagraph (B) unless the congressional defense committees are notified of the proposed contract at least 30 days in advance of the award of the proposed contract  (B) Subparagraph (A) applies to the following contracts: (i) A multiyear contract- (I) that employs economic order quantity procurement in excess of $20,000,000 in any one year of the contract; or (II) that includes an unfunded contingent liability in excess of $20,000,000  (ii) Any contract for advance procurement leading to a multiyear contract that employs economic order quantity procurement in excess of $20,000,000 in any one year  (2) The head of an agency may not initiate a multiyear contract for which the economic order quantity advance procurement is not funded at least to the limits of the Government's liability  (3) The head of an agency may not initiate a multiyear procurement contract for any system (or component thereof) if the value of the multiyear contract would exceed $500,000,000 unless authority for the contract is specifically provided in an appropriations Act  (4) Each report required by paragraph (5) with respect to a contract (or contract extension) shall contain the following: (A) The amount of total obligational authority under the contract (or contract extension) and the percentage that such amount represents of- (i) the applicable procurement account; and (ii) the agency procurement total  (B) The amount of total obligational authority under all multiyear procurements of the agency concerned (determined without regard to the amount of the multiyear contract (or contract extension)) under multiyear contracts in effect at the time the report is submitted and the percentage that such amount represents of- (i) the applicable procurement account; and (ii) the agency procurement total  (C) The amount equal to the sum of the amounts under subparagraphs (A) and (B), and the percentage that such amount represents of- (i) the applicable procurement account; and (ii) the agency procurement total  (D) The amount of total obligational authority under all Department of Defense multiyear procurements (determined without regard to the amount of the multiyear contract (or contract extension)), including any multiyear contract (or contract extension) that has been authorized by the Congress but not yet entered into, and the percentage that such amount represents of the procurement accounts of the Department of Defense treated in the aggregate  (5) The head of an agency may not enter into a multiyear contract (or extend an existing multiyear contract), the value of which would exceed $500,000,000 (when entered into or when extended, as the case may be), until the Secretary of Defense submits to the congressional defense committees a report containing the information described in paragraph (4) with respect to the contract (or contract extension)  (6) The head of an agency may not terminate a multiyear procurement contract until 10 days after the date on which notice of the proposed termination is provided to the congressional defense committees  (7) The execution of multiyear contracting authority shall require the use of a present value analysis to determine lowest cost compared to an annual procurement  (8) This subsection does not apply to the National Aeronautics and Space Administration or to the Coast Guard  (9) In this subsection: (A) The term "applicable procurement account" means, with respect to a multiyear procurement contract (or contract extension), the appropriation account from which payments to execute the contract will be made  (B) The term "agency procurement total" means the procurement accounts of the agency entering into a multiyear procurement contract (or contract extension) treated in the aggregate  (m) Increased Funding and Reprogramming Requests -Any request for increased funding for the procurement of a major system under a multiyear contract authorized under this section shall be accompanied by an explanation of how the request for increased funding affects the determinations made by the Secretary under subsection (i)  Appendix B  Programs Approved for MYP in Annual DOD Appropriations Acts Since FY1990 This appendix presents, in two tables, programs approved for MYP in annual DOD appropriations acts since FY1990  Table B-1 covers FY2011 to the present, and Table B-2 covers FY1990 through FY2010 

ground_truth: Puerto Rico has roughly $70 billion in outstanding debt and $50 billion in unfunded pension liabilities and since August 2015 has defaulted on over $1.5 billion in debt. The effects of Hurricanes Irma and Maria will further affect Puerto Rico's ability to repay its debt, as well as its economic condition. In response to Puerto Rico's fiscal crisis, Congress passed the Puerto Rico Oversight, Management, and Economic Security Act (PROMESA) in 2016, which included a provision for GAO to review Puerto Rico's debt. This report describes the factors that contributed to Puerto Rico's financial condition and levels of debt and federal actions that could address these factors. Consistent with PROMESA, GAO focused on actions that would not increase the federal deficit. To address these objectives, GAO reviewed documents and interviewed officials from the Puerto Rico and federal governments and conducted a review of relevant literature. GAO also interviewed former Puerto Rico officials and experts in Puerto Rico's economy, the municipal securities markets, and state and territorial budgeting, financial management, and debt practices, as well as officials from the Financial Oversight and Management Board for Puerto Rico (created by PROMESA). GAO is not making recommendations based on the federal actions identified because policymakers would need to consider challenges and tradeoffs related to implementation. The Puerto Rico government generally agreed with the factors we identified and provided additional information. GAO incorporated technical comments from SEC as appropriate. The factors that contributed to Puerto Rico's financial condition and levels of debt relate to (1) the Puerto Rico government running persistent annual deficits—where expenses exceed revenues—and (2) its use of debt to cope with deficits. Based on a literature review and interviews with current and former Puerto Rico officials, federal officials, and other relevant experts, GAO identified factors that contributed to Puerto Rico's persistent deficits: The Puerto Rico government's inadequate financial management and oversight practices. For example, the Puerto Rico government frequently overestimated the amount of revenue it would collect and Puerto Rico's agencies regularly spent more than the amounts Puerto Rico's legislature appropriated for a given fiscal year. Policy decisions by Puerto Rico's government. For example, Puerto Rico borrowed funds to balance budgets and insufficiently addressed public pension funding shortfalls. Puerto Rico's prolonged economic contraction. Examples of factors contributing to the contraction include outmigration and the resulting diminished labor force, and the high cost of importing goods and energy. Additional factors enabled Puerto Rico to use debt to finance its deficits, such as high demand for Puerto Rico debt. One cause of high demand was that under federal law, income from Puerto Rico bonds generally receives more favorable tax treatment than income from bonds issued by states and their localities. Based on an assessment of relevant literature and input from current and former Puerto Rico officials, federal officials, and other relevant experts, GAO identified three potential federal actions that may help address some of these factors. GAO also identified considerations for policymakers related to these actions. Modify the tax exempt status for Puerto Rico municipal debt. Making interest income from Puerto Rico bonds earned by investors residing outside of Puerto Rico subject to applicable state and local taxes could lower demand for Puerto Rico debt. However, reduced demand could hinder Puerto Rico's ability to borrow funds for capital investments or liquidity. Apply federal investor protection laws to Puerto Rico. Requiring Puerto Rico investment companies to disclose risks with Puerto Rico bonds and adhere to other requirements could lower demand for the bonds. However, this action could also limit Puerto Rico's ability to borrow funds. Modify the Securities and Exchange Commission's (SEC) authority over municipal bond disclosure requirements. SEC could be allowed to require timely disclosure of materials—such as audited financial statements—associated with municipal bonds. Over the past decade, Puerto Rico often failed to provide timely audited financial statements related to its municipal bonds. Timely disclosure could help investors make informed decisions about investing in municipal bonds. However, a broad requirement could place additional burdens on all U.S. municipal issuers, such as the costs of standardizing reporting.