OVERSEAS 

MILITARY 

CONSTRUCTION

Observations on U.S. 

Contractor Preference

Report to Congressional Committees

November 2014

GAO-15-45

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-15-45, a report to 

congressional committees

November 2014

OVERSEAS MILITARY CONSTRUCTION

Observations on U.S. Contractor Preference

Why GAO Did This Study

Since the 1980s, Congress has 

mandated a preference for U.S. 

contractors for military construction 

contracts in certain overseas countries. 

In the Joint Explanatory Statement of 

the Consolidated Appropriations Act for 

Fiscal Year 2014, Congress mandated 

that GAO examine the potential 

benefits and problems of expanding 

this preference to the countries that 

make up the CENTCOM area of 

responsibility.

This report (1) examines the extent to 

which DOD has awarded military 

construction projects in accordance 

with the U.S. contractor preference and 

(2) describes DOD and State 

Department officials’ views on the 

potential benefits and problems with 

expanding the U.S. contractor 

preference to include all countries 

within CENTCOM.

To examine the extent to which DOD 

awarded contracts in accordance with 

the U.S. contractor preference, GAO

analyzed information concerning the 

contracts awarded from October 2010 

to May 2014 subject to the preference 

to determine whether DOD applied the 

preference and whether the preference 

affected the contract award. To identify

the potential benefits and problems 

with expanding the preference, GAO

interviewed officials with knowledge of 

this issue. 

What GAO Recommends

GAO is not making recommendations

in this report. DOD and State 

Department reviewed the draft of the 

report but did not provide any 

comments.

What GAO Found

GAO found that the Department of Defense (DOD) did not apply the U.S. 

contractor preference in accordance with the current statute from October 2010 

through May 2014. The fiscal year 2014 Consolidated Appropriations Act directs 

that military construction contracts valued over $1 million and located in countries 

bordering the Arabian Sea, U.S. territories in the Pacific, and the Kwajalein Atoll, 

be awarded to a U.S. contractor unless their price is 20 percent higher than the 

price from a competing non-U.S. contractor with an equally responsive and 

responsible bid. However, DOD incorrectly applied the preference to countries 

bordering the Arabian Gulf, which is geographically distinct from the Arabian Sea 

(see figure). DOD officials were unaware the statute changed the preference 

from “Arabian Gulf” to “Arabian Sea” in 2002 and therefore had not updated 

DOD’s acquisition guidance. DOD’s application, however, included the 

geographic area in which the majority of military construction in the Arabian Sea 

and Arabian Gulf locations took place from October 2010 through May 2014. 

GAO also found that due to other factors that are also considered, such as a 

contractor’s experience, the preference potentially only affected 2 of the 35 

award decisions for military construction contracts since fiscal year 2011. DOD 

updated its guidance during GAO’s review, but it could become outdated, again, 

if a congressional bill becomes effective, as the bill would change the locations 

subject to the preference in fiscal year 2015.

Countries Bordering the Arabian Gulf, Bordering the Arabian Sea, and in the U.S. Central 

Command (CENTCOM) Area of Responsibility 

GAO also found that DOD and State Department officials identified potential 

benefits and problems with expanding the statute to include all of the countries 

within the U.S. Central Command area of responsibility. For example, according 

to the officials, one potential benefit of contracting with U.S. firms would be 

greater familiarity with U.S. contracting and construction procedures. However, 

these officials also told GAO the 20 countries in the CENTCOM area vary widely 

in their local capacities, economies, and strategic concerns. Therefore, an 

expansion may run counter to specific U.S. policy goals in certain locations.

View GAO-15-45. For more information, 

contact Brian Lepore at (202) 512-4523 or 

LeporeB@GAO.gov
Page i GAO-15-45 Overseas Military Construction

Letter 1

Background 4

DOD’s Application of the U.S. Contractor Preference Was Not in 

Accordance with Section 112 and Included Other Locations 

Where Military Construction Took Place 8

DOD and State Officials Identified Potential Benefits and 

Problems with Expanding Section 112 to Include All of the 

Countries in the CENTCOM Area of Responsibility 11

Agency Comments 16

Appendix I Scope and Methodology 19

Appendix II GAO Contact and Staff Acknowledgments 24

Table

Table 1: U.S. Military Construction Spending from October 2010 

through May 2014 and Planned U.S. Military Construction 

for Fiscal Years 2015-2021: Arabian Sea Countries vs. 

Arabian Gulf Countries 9

Figures

Figure 1: Countries Covered by Section 112: in 1996, Bordering 

the Arabian Gulf; in 2002, Bordering the Arabian Sea; 

and U.S. Territories in the Pacific 5

Figure 2: Countries Bordering the Arabian Gulf, Countries 

Bordering the Arabian Sea, and Countries within the U.S. 

Central Command (CENTCOM) Area of Responsibility 6

Figure 3: Defense Federal Acquisition Regulation Supplement 

(DFARS) Clause 252.236-7010 7

Figure 4: Construction Awards from October 2010 to May 2014 in 

Arabian Sea Border Countries or Arabian Gulf Border 

Countries 20

Contents
Page ii GAO-15-45 Overseas Military Construction

Abbreviations 

CENTCOM U.S. Central Command 

DFARS Defense Federal Acquisition Regulation Supplement 

DOD Department of Defense 

FAR Federal Acquisition Regulation 

State Department of State 

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Page 1 GAO-15-45 Overseas Military Construction

441 G St. N.W.

Washington, DC 20548

November 18, 2014

Congressional Committees

Since the 1980s, Congress has mandated that the Department of 

Defense (DOD) provide a preference for U.S. contractors when awarding 

contracts for U.S. military construction projects at certain overseas 

locations, such as U.S territories in the Pacific or countries bordering the 

Arabian Sea. The current U.S. contractor preference provision appears in 

Section 112 of the Department of Defense title within the fiscal year 2014 

Consolidated Appropriations Act (hereafter referred to as Section 112).1

None of the funds made available in this title for military construction 

in the United States territories and possessions in the Pacific and on 

Kwajalein Atoll, or in countries bordering the Arabian Sea, may be 

used to award any contract estimated by the Government to exceed 

$1,000,000 to a foreign contractor: Provided, That this section shall 

not be applicable to contract awards for which the lowest responsive 

and responsible bid of a United States contractor exceeds the lowest 

responsive and responsible bid of a foreign contractor by greater than 

20 percent: Provided further, That this section shall not apply to

contract awards for military construction on Kwajalein Atoll for which 

the lowest responsive and responsible bid is submitted by a 

Marshallese contractor.

Section 112 provides that

2

Congress is considering expanding this preference to apply to all 

countries within the U.S. Central Command (CENTCOM) area of 

responsibility, a region consisting of 20 countries where, according to 

DOD, the department is planning an estimated $699.5 million in military 

construction from fiscal year 2015 through fiscal year 2021.3

 1

This provision mirrors provisions that were in effect since 2011. All subsequent 

references to Section 112 refer to the U.S. contractor preference provision for the 

respective fiscal year military construction appropriations act. 

The Joint 

2

Consolidated Appropriations Act, 2014, Pub. L. No. 113-76, div. J, Military Construction 

and Veterans Affairs, and Related Agencies Appropriations Act, 2014, title 1, § 112 

(2014). 

3

The House of Representatives passed a fiscal year 2015 appropriations bill for Military 

Construction and Veterans Affairs, H.R. 4486, that would expand the preference. 
Page 2 GAO-15-45 Overseas Military Construction

Explanatory Statement accompanying the Consolidated Appropriations 

Act for Fiscal Year 2014 mandated that we examine the potential benefits 

and problems of expanding the geographical area for the U.S. contractor 

preference from the current 5 countries that border the Arabian Sea to the 

20 countries within the CENTCOM area of responsibility.4

To examine the extent to which DOD has awarded military construction 

contracts in accordance with Section 112 since fiscal year 2011, we 

reviewed the statute and DOD’s implementing regulations to identify and 

develop criteria for assessing the department’s actions. Using the Federal 

Procurement Data System–Next Generation and in coordination with 

DOD officials, we then identified the DOD military construction contracts 

that were awarded from October 2010 through May 2014 that met the 

dollar value and geographic location requirements of the preference.

This report (1) 

examines the extent to which DOD has awarded contracts for military 

construction projects in accordance with Section 112 since fiscal year 

2011 and (2) describes DOD and Department of State (State) officials’

observations of the potential benefits and problems with expanding the 

Section 112 preference to include all countries in the CENTCOM area of 

responsibility.

5

We then obtained and analyzed contract documentation for those awards 

to determine (1) whether DOD included the preference language, (2) 

whether the 20 percent preference was applied to the proposed offers of 

competing non-U.S. firms in these contracts, and (3) whether the 

preference affected the award. We interviewed DOD officials who have 

knowledge of these contracts about the extent to which the Section 112 

Of 

those contracts, we then worked with the DOD agencies responsible for 

awarding the contract to determine whether the project was funded with 

appropriations that were subject to the preference.

 4

The GAO mandate appears in an explanatory statement accompanying the 2014 

Consolidated Appropriations Act. Section 4 of the act provides that the statement shall 

have the same effect as if it were a joint explanatory statement of a committee of 

conference. 

5

The Federal Procurement Data System–Next Generation is a web-based collection of all 

unclassified U.S. federal executive-agency government contract awards. Executive 

agencies are required to use the system to maintain publically available information on 

their unclassified contract awards. We determined that data from those fiscal years were 

sufficient to allow us to examine whether DOD had applied the preference in accordance 

with statute for those years. We concluded our data collection with the most recent data 

as of May 2014 in order for us to conduct our review.
Page 3 GAO-15-45 Overseas Military Construction

preference was applied to these contracts and whether the preference 

was a contributing factor in awarding the contracts. We assessed the 

reliability of the Federal Procurement Data System–Next Generation and 

U.S. Army Corps of Engineers data by reviewing related documentation, 

interviewing knowledgeable officials, and testing the data for obvious 

errors and completeness. We concluded the data were sufficiently reliable 

to determine the extent to which DOD awarded military construction 

contracts in accordance with Section 112 since fiscal year 2011.

To describe DOD and State officials’ observations of the potential benefits 

and problems of expanding the Section 112 preference to include all 

countries in the CENTCOM area of responsibility, we identified and 

reviewed guiding principles of the federal acquisition system as stated in 

the Federal Acquisition Regulation (FAR).6

 6

Federal Acquisition Regulation § 1.102.

These principles include (1) 

delivering the best value product or service to the customer in a timely 

manner using contractors with successful track records or superior ability 

to perform; (2) promoting competition; (3) minimizing administrative costs; 

(4) promoting openness, integrity, and fairness; and (5) fulfilling public 

policy objectives. To identify the potential benefits and problems of 

expanding the preference, we interviewed officials in the following offices 

and asked them about the effect of the preference on those guiding 

principles: five U.S. Army Corps of Engineers field offices located in 

countries bordering the Arabian Sea, bordering the Arabian Gulf, or within 

the CENTCOM area of responsibility that had military construction 

projects within the time frame of our review; U.S. Army Corps of 

Engineers headquarters and U.S. Army Corps of Engineers, Middle East 

District; two offices within the Office of the Under Secretary of Defense; 

U.S. State Department headquarters; and six embassies located in an 

Arabian Gulf border country, an Arabian Sea border country, or within 

CENTCOM; and a private-sector association with knowledge about this 

issue. This report focuses on DOD’s views of the U.S. contractor 

preference for military construction contracts. We have included only 

those comments made by State officials that focus on potential diplomatic 

benefits and challenges since (1) officials at four embassies referred us to 

DOD officials for comment, and (2) State headquarters officials deferred 

to DOD since this report focuses on military construction. We also asked 

officials about their general views on the preference as it has been 

applied and the potential expansion of the preference to all countries 
Page 4 GAO-15-45 Overseas Military Construction

within the CENTCOM area of responsibility. While the information from 

these interviews is not generalizable, it provides varying perspectives 

about potential benefits and problems related to the U.S. contractor 

preference. In all cases, the information presented is a summary of 

officials’ viewpoints and is not generalizable.

Further details on our scope and methodology, including a list of DOD 

and State offices we interviewed, can be found in appendix I.

We conducted this performance audit from March 2014 through 

November 2014 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.

Since the 1980s, military construction appropriations have contained 

provisions similar to Section 112 in various forms that have provided a 

preference for U.S. contractors in certain overseas locations. For 

example, in 1984, the preference applied to “United States territories and 

possessions in the Pacific and on Kwajalein Island” for any military 

construction contract exceeding $5 million. For fiscal year 1996, 

Congress decreased the threshold for the preference from $5 million to 

$1 million, the current threshold, and included countries bordering the 

Arabian Gulf as countries covered by the preference.7

 7

The Arabian Gulf is also known as the Persian Gulf.

In fiscal year 2002 

legislation, Congress modified the preference provision to change the 

locations where the preference was to be applied. Instead of the Arabian

Gulf, the preference was to be applied to construction located in countries 

bordering the Arabian Sea, which is a geographically distinct area. The 

Pacific locations and the dollar value at which the preference would apply 

to a contract remained the same. The preference provisions enacted 

since 2002 have continued to refer to countries bordering the Arabian 

Sea. Figure 1 reflects these geographical modifications.

Background

Section 112 and Prior 

Preference Legislation
Page 5 GAO-15-45 Overseas Military Construction

Figure 1: Countries Covered by Section 112: in 1996, Bordering the Arabian Gulf; in 2002, Bordering the Arabian Sea; and 

U.S. Territories in the Pacific

Note: The northernmost tip on the United Arab Emirates peninsula is part of Oman, therefore the 

country borders both the Arabian Gulf and the Arabian Sea.

By its terms, the Section 112 U.S. contractor preference as it appears in 

the fiscal year 2011 through 2014 appropriations acts applies only to 

projects funded by the military construction title of the act. As such, the 

Section 112 U.S. contractor preference provision does not apply to other 

overseas construction or construction-related projects—such as 

construction services funded through Foreign Military Sales programs or 

facilities sustainment projects funded through Operation and Maintenance 

appropriations.8

In the Joint Explanatory Statement accompanying the fiscal year 2014 

Consolidated Appropriations Act, Congress mandated that we examine 

the potential benefits and problems of amending Section 112 to apply the 

preference to all of the countries within the CENTCOM area of 

responsibility, which includes countries bordering the Arabian Sea and 

 8

The Foreign Military Sales program is a part of security assistance authorized by the 

Arms Export Control Act and is conducted through formal contracts for agreements 

between the U.S. government and an authorized foreign purchasing government or 

international organization. Operation and Maintenance appropriations support the training, 

supply, and equipment maintenance of military units as well as the administrative and 

facilities infrastructure of military bases.
Page 6 GAO-15-45 Overseas Military Construction

Arabian Gulf, as shown in figure 2. As previously stated, the version of 

the 2015 Military Construction Appropriations Act passed by the House of 

Representatives would expand the preference to all countries in the 

CENTCOM area of responsibility.

Figure 2: Countries Bordering the Arabian Gulf, Countries Bordering the Arabian 

Sea, and Countries within the U.S. Central Command (CENTCOM) Area of 

Responsibility
Page 7 GAO-15-45 Overseas Military Construction

DOD implements the U.S. contractor preference, including the current 

Section 112 provision, through DFARS section 236.273 and DFARS 

clause 252.236-7010.9 DFARS clause 252.236-7010 is to be included in 

solicitations that are subject to the evaluation preference and defines 

“United States firm” for purposes of this section. The clause allows firms 

submitting offers to self-identify as a U.S. or non-U.S. firm, as shown in 

figure 3.10

Figure 3: Defense Federal Acquisition Regulation Supplement (DFARS) Clause 

252.236-7010

DOD officials told us if both U.S. and non-U.S. firms compete 

for the contract, the contracting official increases the non-U.S. firms’ bids 

by 20 percent for evaluation purposes. However, according to DOD, the 

actual amount paid to a non-U.S. firm, if it wins the contract, is not 

increased by the additional 20 percent.

 9

All federal executive agencies follow the policies outlined in the FAR for the acquisition 

and procurement of services and supplies with appropriated funds. DOD implementation 

and supplementation of the FAR are issued in the DFARS.

10DOD officials told us that in the interest of making the contracting process more efficient, 

the firm’s self-certification as a U.S. or non-U.S. firm is not verified.

DOD’s Defense Federal 

Acquisition Regulation 

Supplement (DFARS)
Page 8 GAO-15-45 Overseas Military Construction

The DOD contracting agencies responsible for implementing the U.S. 

contractor preference include the U.S. Army Corps of Engineers, which 

manages DOD’s construction in the Middle East and the Kwajalein Atoll, 

and the Naval Facilities Engineering Command, which manages DOD’s 

construction on U.S. territories in the Pacific.

We found that DOD did not apply the U.S. contractor preference in 

accordance with the current Section 112 from October 2010 through May 

2014. Since fiscal year 2002, Congress has required the preference to 

apply to contracts in countries bordering the Arabian Sea instead of 

countries bordering the Arabian Gulf.

11

 11The language still required a preference for military construction in U.S. territories in the 

Pacific and on the Kwajalein Atoll.

However, DOD did not modify the 

DFARS clause to reflect this change in the statutory language. Officials 

from the Office of the Under Secretary of Defense for Acquisition, 

Technology and Logistics told us that consequently the department’s 

contracting offices, which follow this implementing guidance, continued to 

apply the U.S. contractor preference to military construction contracts 

performed in countries bordering the Arabian Gulf. As shown in table 1, 

from October 2010 to May 2014 more military construction contracts were 

awarded in Arabian Gulf border countries than Arabian Sea border 

countries. From October 2010 to May 2014, the United States did not 

award military construction contracts in any of the Arabian Sea border 

DOD’s Application of 

the U.S. Contractor 

Preference Was Not 

in Accordance with 

Section 112 and 

Included Other 

Locations Where 

Military Construction 

Took Place

DOD Applied the U.S. 

Contractor Preference 

to Contracts in Countries 

Different from Those 

Required by Section 

112 Due to an Outdated 

Regulation but Took Action 

to Correct DFARS
Page 9 GAO-15-45 Overseas Military Construction

countries, which include Yemen, India, Pakistan, and Somalia—except for 

in Oman, which is both an Arabian Sea border country and an Arabian 

Gulf border country. As a result, DOD’s application of the preference 

included more contracts than it would have if it had been implemented in 

accordance with the current language in Section 112. In addition, DOD 

officials told us the department does not have any planned military 

construction in the CENTCOM area of responsibility for fiscal years 2015 

through 2021 other than for projects located in Arabian Gulf countries.

Table 1: U.S. Military Construction Spending from October 2010 through May 2014 and Planned U.S. Military Construction for 

Fiscal Years 2015-2021: Arabian Sea Countries vs. Arabian Gulf Countries

Dollars in millions

Location

Military construction for October 

2010 through May 2014

Planned military construction for 

fiscal years 2015-2021 a

Arabian Sea (i.e., Section 112–applicable) countries

b

57.9 253.5

Arabian Gulf (i.e., Defense Federal Acquisition 

Regulation Supplement [DFARS]–applicable) 

countries

566.5 699.5

Source: GAO analysis of contract data provided by the U.S. Army Corps of Engineers. | GAO-15-45

Notes: This table includes all military construction contracts awarded to U.S. and non-U.S. firms in 

these locations for the time frames identified.

a

The country of Oman borders both the Arabian Sea and the Arabian Gulf. Therefore, the $57.9 

million of military construction contracts spent in Oman was included in both rows. There was no 

additional U.S. military construction spending in the Arabian Sea border countries during this time 

frame.

b

The country of Oman borders both the Arabian Sea and the Arabian Gulf. Therefore, the $253.5 

million of military construction contracts planned to be spent in Oman was included in both rows.

Officials from the Office of the Under Secretary of Defense for Acquisition, 

Technology and Logistics told us that the DFARS clause was inaccurate 

and identified the incorrect geographic locations because DOD officials 

had not noticed the change when the language in the statute was 

amended in 2002 from “Arabian Gulf” to “Arabian Sea.” As a result of our 

review, on July 31, 2014, DOD issued an interim rule that aligned the 

DFARS locations to match the locations identified in Section 112. 

However, if the version of the 2015 Military Construction Appropriations 

Act passed by the House of Representatives is enacted DFARS will once 

again be out of line with statute.
Page 10 GAO-15-45 Overseas Military Construction

Based on our analysis, there were 35 contracts awarded from October 

2010 and May 2014 that were subject to the U.S. contractor preference in 

accordance with DFARS.12 Of those contracts, the preference potentially 

affected the source-selection process in only two award decisions,13 both 

of which used a best-value selection process in which the selection of 

competing offerors was not based solely on price.14 In these two projects, 

a non-U.S. contractor submitted a lower-priced offer than any U.S. 

contractors. However, after applying the Section 112 evaluation 

preference by increasing the non-U.S. firm’s price by 20 percent for 

evaluation purposes, the U.S. firm’s offer was considered lower-priced. 

Since both of these projects were awarded using a best-value selection 

process, the contracting officer was not obligated to accept the lowestpriced offer and could potentially have still selected the non-U.S. 

contractor based on technical factors.15

 12While DOD did not apply the preference in accordance with Section 112, it did apply it in 

accordance with its DFARS, so we focused our analysis of the extent to which the 

preference affected the award decision on those military construction contracts awarded in 

countries bordering the Arabian Gulf, since those were the locations where DOD applied 

the preference.

However, according to the 

contract-award decision documents, the U.S. contractors’ technical 

proposals were considered stronger than those of the non-U.S. 

contractors in both instances.

13For this report, we used the term “affected” to categorize contracts where the U.S. 

contractor preference had a documented effect on the award decision (i.e., a non-US 

offeror submitted a price that was lower than that of any U.S. offers, however the U.S. 

offeror’s price was considered less than the non-U.S. offeror after the 20 percent 

preference was applied). One of the 35 contracts did not include the DFARS clause in the 

contract solicitation. However, we were unable to determine whether the preference 

affected this contract since the source-solicitation document only identified the offeror 

awarded the contract. 

14In a solicitation using a best value selection process, the contracting official awards a 

contract to the offeror who is judged to provide the “best value” to the government based 

on both price and technical factors, such as past performance. See FAR § 15.101. The 

contracting official may award a contract to other than the lowest-priced offeror if the 

official determines that a higher-priced offer provides a greater benefit to DOD, and this 

greater benefit is worth paying an additional cost, or price differential. 

15For additional information on DOD’s use of best-value source-selection procedures, see 

GAO, Defense Contracting: Factors DOD Considers When Choosing Best Value 

Processes Are Consistent with Guidance for Selected Acquisitions, GAO-14-584

(Washington, D.C.: July 30, 2014).

The U.S. Contractor 

Preference Potentially 

Affected 2 of 35 Military 

Construction Contracts 

Awarded in the Arabian 

Gulf Countries and in 

the Pacific
Page 11 GAO-15-45 Overseas Military Construction

For the remainder of the contracts we examined, there were various 

reasons the preference did not affect the award. For example, for more 

than half of the remaining contracts, only U.S. firms or only non-U.S. firms 

competed, so there was no requirement to apply the preference. In 

others, while the preference was applied to non-U.S. firms’ proposed 

prices, other non-pricing factors, such as technical experience, 

determined award. In no other case did the preference provision alter the 

award decision.

DOD officials identified the benefits they see in providing a preference to 

U.S. contractors based on their observations and experiences with 

working with U.S. and non-U.S. contractors in the officials’ own country of 

operation. In addition, while we asked each office to provide observations 

on the potential benefits of expanding the preference throughout the 

CENTCOM area of responsibility, many of the offices did not provide 

responses about the specific potential benefits of expanding the 

preference. The information presented below is a summary of officials’

viewpoints and is not generalizable.

DOD and State 

Officials Identified 

Potential Benefits and 

Problems with 

Expanding Section 

112 to Include All of 

the Countries in the 

CENTCOM Area of 

Responsibility

Officials Identified Some 

Potential Benefits to 

Expanding the U.S. 

Contractor Preference
Page 12 GAO-15-45 Overseas Military Construction

Officials from three Army Corps of Engineers offices and the U.S. Air 

Force Civil Engineer Center told us that U.S. contractors may be more 

familiar with U.S. contracting processes, regulations, codes, 

requirements, procedures, and quality-assurance standards, as well as 

U.S. business practices and engineering criteria.16

Officials from three Army Corps of Engineers offices told us that the U.S. 

contractor preference benefits military construction by providing U.S. 

leadership and experience in both site and project management. Officials 

from the U.S. Air Force Civil Engineer Center also told us that having a 

U.S. contractor acting as a single point of contact and integrator for 

multiple subcontractors and taking care of local requirements may make 

communication easier for the DOD contracting officials. These officials 

stated that U.S. management can teach local subcontractors how to 

manage complex contracts, U.S construction standards, and quality 

requirements, while also instructing local laborers in construction 

methods.

These officials said 

additionally that U.S. contractors may be better able to build higherquality construction products, and have fewer problems in carrying out 

contracts.

Officials from two Army Corps of Engineers offices told us that U.S. 

contractors can be held more accountable if there is an issue with the 

construction project. U.S. contractors may also be more responsive to 

addressing construction issues. Officials from the U.S. Air Force Civil 

Engineer Center told us that when working with a U.S. prime contractor, 

the U.S. Air Force Civil Engineer Center may have more control over 

payments and warranty calls. The officials stated that if a U.S. contractor 

refuses to honor warranty work after finishing and being paid for a fixedprice contract, the U.S. Air Force Civil Engineer Center would be able to 

take legal action in a U.S. court.

 16The U.S. Air Force Civil Engineer Center mission includes facility investment planning, 

design and construction, operations support, real-property management, energy support, 

environmental compliance and restoration, and audit assertions, acquisition, and program 

management.

Officials: U.S. Contractors 

May Have More Familiarity 

with U.S. Contracting 

Requirements and 

Construction Standards

Officials: U.S. Contractors May 

Have More Leadership and 

Management Experience

Officials: U.S. Contractors May 

Have Better Accountability
Page 13 GAO-15-45 Overseas Military Construction

Officials from five Army Corps of Engineers offices told us that the 

contractor preference may enhance the competitiveness of U.S. firms. 

One Army Corps of Engineers office told us that the 20 percent price 

increase added to offers by non-U.S. contractors allows U.S. companies 

to be more competitive by offsetting some of the overhead costs they 

face, such as transportation costs. Officials stated that the preference 

may have more of an effect in some countries than others. For example, 

the preference may have more of an effect in helping U.S. firms be more 

competitive in Arabian Gulf countries. These officials said it is their 

experience that the difference in price between U.S. and non-U.S. 

vendors is usually about 15 percent, so in their view the preference helps 

U.S. firms be more competitive.

Officials from three Army Corps of Engineers offices told us that the 

United States may see more financial benefits if a U.S. contractor is 

awarded a project. These benefits may include tax revenue going to the 

United States Treasury as well as the purchase of domestically sourced 

equipment or supplies for the construction projects. These officials said 

U.S. contractors would pay taxes in the United States, while non-U.S. 

contractors would not. Additionally, they said that U.S. contractors may be 

more likely to employ U.S. nationals as management staff, who would 

also pay taxes in the United States.

Officials from two Army Corps of Engineers offices told us that the 

preference may contribute to host-nation economies even if a U.S. 

contractor wins the bid, because in some countries U.S. contractors 

routinely share work with local companies. For example, according to 

officials from one Army Corps of Engineers office, foreign contractors 

operating in Kuwait must have a Kuwaiti counterpart or sponsor. Because 

of this requirement, if a U.S. contractor gets the award, the local economy 

will still benefit through a U.S. contractor’s payments for materials, labor, 

and sponsorship services. An official from another Army Corps of 

Engineers office said contractors operating in Bahrain must be licensed in 

that country, and foreign contractors in Bahrain generally partner with 

Bahraini-owned contractors or are sponsored by Bahraini-owned 

contractors. These measures bring revenue to Bahrain even if a non-local 

contractor wins a construction project. According to officials from three 

Army Corps of Engineers offices and one Naval Facilities Engineering 

Command office, both U.S. and non-U.S. contractors hire from the same 

local labor pool, which benefits the local economy regardless of the 

nationality of the prime contractor. They said that workers hired onto a 

project may be from a variety of countries, benefiting those nations as 

well.

Officials: Providing a 

Preference for U.S. 

Contractors May Increase 

the Number of U.S. 

Contractors Competing 

for Overseas Work

Officials: Providing a 

Preference for U.S. 

Contractors May Provide 

Additional Financial Returns 

to the United States

Officials: Providing a 

Preference for U.S. 

Contractors May Also 

Benefit Host-Nation Economies
Page 14 GAO-15-45 Overseas Military Construction

DOD and State officials also identified problems they see in providing a 

preference to U.S. contractors based on their observations of and 

experiences with working with U.S. and non-U.S. contractors in the 

officials’ own countries of operation. In addition, while we asked each 

office to provide observations on the potential problems of expanding the 

preference throughout the CENTCOM area of responsibility, many offices 

did not provide responses about the specific potential problems of 

expanding the preference. In all cases the information presented below is 

a summary of officials’ viewpoints and is not generalizable.

Officials from three Army Corps of Engineers offices, the U.S. Air Force 

Civil Engineer Center, an office within the Office of the Under Secretary of 

Defense for Policy, a CENTCOM office, and a U.S. embassy told us that 

the preference may counteract U.S. policy goals such as building local 

capacity.17

Officials from the Office of the Under Secretary of Defense for Policy and 

one Army Corps of Engineers office said the economic strength of each of 

the countries within the CENTCOM area of responsibility varies 

significantly, and the United States has policies to strengthen local 

economies by encouraging local procurement, such as CENTCOM’s 

For example, they said that both civilian and U.S. military 

agencies have promoted the Afghanistan First Initiative, which seeks to 

award contracts to Afghan-owned firms. One State office told us that the 

Afghanistan First Initiative seeks to encourage Afghan ownership on 

infrastructure projects as part of its program to build local capacity. 

Officials from one State office said while the Afghanistan First Initiative 

may not be favorable to U.S. firms seeking to compete for that business, 

the overall policy goal is to increase Afghanistan’s self-sufficiency.

 17We have included State officials comments only when they were focused on potential 

diplomatic benefits and challenges since (1) officials at four embassies referred us for 

comments to DOD officials, and (2) State headquarters officials deferred to DOD since the 

focus was on military construction. 

Officials Identified Some 

Potential Problems with 

Expanding the U.S. 

Contractor Preference

Officials: Preference May 

Be Inconsistent with Other 

U.S. Public Policy and 

Security Goals
Page 15 GAO-15-45 Overseas Military Construction

Central Asian States and Afghanistan Procurement Initiative.18

The Office of the Under Secretary of Defense for Policy said the 

preference may limit senior diplomatic or senior defense officials’ flexibility 

to make decisions based on the local security situation, economy, or 

infrastructure. CENTCOM officials told us that its component 

commanders require maximum flexibility to execute construction 

requirements and that there should be an emphasis on maximizing the 

use of host-nation companies to support their economic growth, stability, 

and capacity development.

CENTCOM officials stated that these initiatives aim to provide 

opportunities for economic expansion, entrepreneurship, and skills 

training for the people of the Central Asian states and Afghanistan in 

order to maximize positive long-term effects on local economies and 

workforces, support economic development, good governance, stability, 

and enduring trade and commerce in the region. These officials said a 

policy that provides a preference to U.S. contractors could be in conflict 

with these existing U.S. policy goals.

Officials from three Army Corps of Engineers offices told us that the 

preference may discourage local contractors from competing for 

contracts. An official from one of these offices told us that the local 

contractors might be discouraged from bidding on a construction project 

because they know they can work as subcontractors and do not feel they 

need to compete for the contract by reducing their prices.

 18CENTCOM’s Central Asian States Procurement Initiative was established on September 

3, 2011. The policy was updated and renamed the Central Asian States and Afghanistan 

Procurement Initiative on October 18, 2013. The current version, which will expire on 

December 31, 2014, unless rescinded or superseded, promotes procurement of goods 

and services manufactured, mined, or produced in Central Asia and Afghanistan over 

goods and services from manufacturers or distributors outside the region. The policy 

states, “Commanders, procurement agencies, contracting officers, and requirements 

personnel operating in the CENTCOM area of responsibility will make every attempt to 

seek out potential Central Asian States and Afghanistan sources from manufacturers 

before considering sourcing from distributors and non-regional sources and, where 

possible, educate and develop these sources for future procurement.” Central Asian 

States include Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan.

Officials: Preference May 

Limit Flexibility

Officials: Preference May 

Discourage Local Contractors 

from Competing
Page 16 GAO-15-45 Overseas Military Construction

Officials from two Army Corps of Engineers offices and the U.S. Air Force 

Civil Engineer Center told us that construction in countries in the 

CENTCOM area of responsibility can be challenging as a result of the 

need to meet host-country requirements. For example, officials from the 

U.S. Air Force Civil Engineer Center told us that host nations like the 

United Arab Emirates may require a U.S. firm to obtain business licenses 

to operate in the host nation, and an official from one Army Corps of 

Engineers office said Bahrain also requires foreign firms to obtain 

business licenses to operate there. Officials in another Army Corps of 

Engineers office told us that Qatar requires that a non-Qatari contractor 

have one or more local partners that have at least 51 percent share of the 

capital. In addition to local registration, U.S. contractors may lack 

knowledge of the local market.

DOD and State Department reviewed a draft of this report but did not 

provide any comments.

We are sending copies of this report to the appropriate congressional 

committees; the Under Secretary of Defense for Acquisitions, Technology 

and Logistics; the Under Secretary of Defense for Policy; the

Commanding General and Chief of Engineers, U.S. Army Corps of 

Engineers; the Commander, Naval Facilities Engineering Command; the 

Chief of Civil Engineers, Naval Facilities Engineering Command; the 

Director, U.S. Air Force Civil Engineer Center; the Commander, U.S. 

Central Command; the Commander, U.S. Pacific Command; and the 

Secretary of State. 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) 512-4523 or leporeb@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 II.

Brian J. Lepore

Director

Defense Capabilities and Management

Officials: Preference Does 

Not Address the Difficulty of 

Construction in CENTCOM 

Area of Responsibility for 

U.S. Contractors

Agency Comments 
Page 17 GAO-15-45 Overseas Military Construction

List of Committees

The Honorable Carl Levin

Chairman

The Honorable James Inhofe

Ranking Member

Committee on Armed Services

United States Senate

The Honorable Richard J. Durbin

Chairman

The Honorable Thad Cochran

Ranking Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Tim Johnson

Chairman

The Honorable Mark Kirk

Ranking Member

Subcommittee on Military Construction, Veterans Affairs, and Related 

Agencies

Committee on Appropriations

United States Senate

The Honorable Howard P. “Buck” McKeon

Chairman

The Honorable Adam Smith

Ranking Member

Committee on Armed Services

House of Representatives

The Honorable Rodney Frelinghuysen

Chairman

The Honorable Pete Visclosky

Ranking Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives
Page 18 GAO-15-45 Overseas Military Construction

The Honorable John Culberson

Chairman

The Honorable Sanford Bishop, Jr.

Ranking Member

Subcommittee on Military Construction, Veterans Affairs, and Related 

Agencies

Committee on Appropriations

House of Representatives
Appendix I: Scope and Methodology

Page 19 GAO-15-45 Overseas Military Construction

To examine the extent to which the Department of Defense (DOD) has 

awarded military construction contracts in accordance with Section 112 

since fiscal year 2011, we reviewed Section 112 and DOD’s implementing 

guidance, the Defense Federal Acquisition Regulation Supplement

(DFARS), to identify and develop criteria for assessing the department’s 

actions. Using the Federal Procurement Data System–Next Generation 

and in coordination with DOD officials, we identified the DOD military 

construction contracts that were awarded from October 2010 through May 

2014 that were valued over $1 million and either were awarded in 

countries bordering the Arabian Sea, as mandated by Section 112, or 

were awarded in countries bordering the Arabian Gulf, as implemented by 

DOD in DFARS. We focused our analysis on contracts awarded in the 

Arabian Sea border countries or Arabian Gulf border countries because 

those are the locations where the U.S. contractor preference is applicable 

to either Section 112 or DFARS. In addition, we focused on these 

locations because they include 10 of the 20 countries that may be 

included in a potential expansion of the preference throughout the U.S. 

Central Command (CENTCOM) area of responsibility. We provided the 

contract data identified by the Federal Procurement Data System–Next 

Generation to the U.S. Army Corps of Engineers–Middle East District,

which is responsible for managing the contracts located in the Arabian 

Gulf and Arabian Sea. We requested that Army Corps of Engineers–

Middle East District compare its record of contracts to the Federal 

Procurement Data System–Next Generation records of contracts to 

determine the accuracy and completeness of the data from the Federal 

Procurement Data System–Next Generation. Army Corps of Engineers–

Middle East District identified one additional military construction contract 

in its area of responsibility that was not identified by the Federal 

Procurement Data System–Next Generation, resulting in 77 contracts.

Of those 77 contracts, we then worked with the DOD agencies 

responsible for awarding the contracts to determine whether the project 

was funded with appropriations that were subject to the preference. In the 

cases in which Army Corps of Engineers–Middle East District did not 

award the contract, we contacted other DOD offices—including U.S. 

Central Command–Joint Theater Support Contracting Command, Air 

Force Material Command, Air Combat Command, Air Force Central 

Command, Army Contracting Command, and Army Material Command—

to obtain contract documentation to determine whether the contract was 

awarded with appropriations subject to the preference. Through this 

process, Army Corps of Engineers–Middle East District and the other 

DOD agencies responsible for managing these awards found that 29 of 

the 77 contracts were subject to the U.S. contractor preference. For the 

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 20 GAO-15-45 Overseas Military Construction

remaining 48 contracts, we worked with the responsible DOD agencies to 

determine why those awards were not subject to the preference. As 

shown in figure 4, the remaining 48 contracts were not military 

construction contracts and therefore not eligible for the preference.

Figure 4: Construction Awards from October 2010 to May 2014 in Arabian Sea 

Border Countries or Arabian Gulf Border Countries

For the 29 contracts that were subject to the preference in accordance 

with DFARS, we then obtained and analyzed contract documentation for 

those awards to determine (1) whether DOD included the preference 

language, (2) whether the 20 percent preference was applied to the 

proposed offers of competing non-U.S. firms, (3) whether the preference 

affected the award.1

 1

All 29 contracts were located in Arabian Gulf locations. From October 2010 to May 2014, 

DOD did not award military construction contracts in any of the Arabian Sea border 

countries, which include Yemen, India, Pakistan, and Somalia—except for Oman, which is 

both an Arabian Sea border country and an Arabian Gulf border country. 

In addition to these 29 contracts that were subject to 

the preference in accordance with DFARS, we found a military 

construction–operations and maintenance contract that the Army Corps of 

Engineers had incorrectly applied the preference to; however, we did not 

include this contract in our analysis since this type of contract was not 

covered by either Section 112 or the DFARS provision—and was thus 

outside of the scope of our engagement.
Appendix I: Scope and Methodology

Page 21 GAO-15-45 Overseas Military Construction

To determine the extent to which DOD awarded military construction 

contracts on U.S. territories in the Pacific and on the Kwajalein Atoll in 

accordance with Section 112 we requested data from Naval Facilities 

Engineering Command and Army Corps of Engineers–Honolulu District, 

which are responsible for military construction in those respective 

locations. The Naval Facilities Engineering Command identified two 

construction projects awarded in Guam that were subject to the U.S. 

contractor preference provision. The Army Corps of Engineers–Honolulu 

District identified four military construction contracts associated with 

projects on Kwajalein Atoll that were subject to these provisions.

We assessed the reliability of the Federal Procurement Data System–

Next Generation and Army Corps of Engineers data by reviewing related 

documentation, interviewing knowledgeable officials, and testing the data 

for obvious errors and completeness. We concluded the data were 

sufficiently reliable to determine the extent to which DOD awarded military 

construction contracts in accordance with Section 112 since fiscal year 

2011.

We interviewed the following U.S. government offices during this 

engagement:

• Office of the Under Secretary of Defense for Policy;

• Office of the Under Secretary of Defense for Acquisition, Technology 

and Logistics;

• Army Corps of Engineers Headquarters;

• Army Corps of Engineers–Middle East District;

• Army Corps of Engineers–Kuwait Area Office;

• Army Corps of Engineers–Bahrain Area Office;

• Army Corps of Engineers–Qatar Area Office;

• Army Corps of Engineers–United Arab Emirates / Central Asian 

States Area Office;2

• Army Corps of Engineers Transatlantic Division–Afghanistan;

 2

The representative was also provided as the contact for Army Corps of Engineers–Oman

Area Office. Additionally, the Central Asian States area office manages contracts in 

Kyrgyzstan, Uzbekistan, Kazakhstan, Tajikistan, Turkmenistan, and Pakistan.
Appendix I: Scope and Methodology

Page 22 GAO-15-45 Overseas Military Construction

• Army Corps of Engineers–Honolulu District;

• U.S. Air Force Civil Engineer Center;

• U.S. Pacific Command Headquarters;

• U.S. Central Command Headquarters;

• Naval Facilities Engineering Command;

• U.S. Department of State Headquarters;

• U.S. Embassy Oman;

• U.S. Embassy Bahrain;

• U.S. Embassy Afghanistan;

• U.S. Embassy United Arab Emirates;

• U.S. Embassy Kyrgyzstan;

• U.S. Embassy Turkmenistan; and

• U.S. Agency for International Development–Kabul.

To describe DOD and Department of State (State) officials’ observations 

on potential benefits and problems to expanding Section 112 to include all 

countries in the CENTCOM area of responsibility, we reviewed and 

identified guiding principles of the federal acquisition system as stated in 

the Federal Acquisition Regulation.3 These principles include (1) 

delivering the best-value product or service to the customer in a timely 

manner using contractors with successful track records or superior ability 

to perform; (2) promoting competition; (3) minimizing administrative costs; 

(4) promoting openness, integrity, and fairness; and (5) fulfilling public 

policy objectives. To identify the potential benefits and problems of 

expanding the preference, we interviewed officials from DOD, State, and 

a private-sector association with knowledge about this issue,4

 3

Federal Acquisition Regulation § 1.102.

and asked 

them about the effect of the preference on those guiding principles. We 

4

We have included only those comments made by State officials that focus on potential 

diplomatic benefits and challenges since (1) officials at four embassies referred their 

comments to DOD officials and (2) State headquarters officials deferred to DOD since the 

focus was on military construction.
Appendix I: Scope and Methodology

Page 23 GAO-15-45 Overseas Military Construction

also asked officials about their general views on the preference as it has 

been applied and the potential expansion of the preference to all 

countries within the CENTCOM area of responsibility. In all cases, the 

information presented is a summary of officials’ viewpoints, is not 

generalizable, and was not subject to further analysis by GAO.

We conducted this performance audit from March 2014 through 

November 2014 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.
Appendix II: GAO Contact and Staff 

Acknowledgments

Page 24 GAO-15-45 Overseas Military Construction

Brian J. Lepore, (202) 512-4523 or leporeb@gao.gov

In addition to the contact named above, Tommy Baril (Assistant Director); 

Jacob Beier; Richard Burkard; Virginia Chanley; Tara Copp; Ashley Hess; 

Julia Kennon; Joanne Landesman; Amie Lesser; Carol Petersen; Marc 

Schwartz; Kimberly Walton; and Weifei Zheng made key contributions to 

this report.

Appendix II: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(100012)
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