United States Government Accountability Office

GAO Report to the Subcommittee on 

Readiness and Management Support, 

Committee on Armed Services, 

U.S. Senate 

DOD CONTRACTING

Efforts Needed to 

Address Air Force 

Commercial 

Acquisition Risk 

September 2006 

 

GAO-06-995 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2006

DOD CONTRACTING

Efforts Needed to Address Air Force 

Highlights of GAO-06-995, a report to Commercial Acquisition Risk 

Subcommittee on Readiness and

Management Support, Committee on 

Armed Services, U.S. Senate 

The Department of Defense (DOD)

has been urged by commissions, 

legislation, and a panel to make

increased use of commercial

acquisition to achieve certain 

benefits. To help ensure the 

increased use of commercial

acquisition, the Office of the

Secretary of Defense (OSD) 

established and the Air Force 

implemented two commercial

acquisition goals to be achieved by

the end of fiscal year 2005. In

setting these goals, OSD expected

that the increased use of

commercial acquisition would 

provide DOD with greater access to

commercial markets (products and 

service types) with increased 

competition, better prices, and new 

market entrants and/or 

technologies. The committee asked 

GAO to identify (1) the extent to

which the Air Force has increased 

its use of commercial acquisition to

obtain expected benefits and (2) 

the risks that are associated with

this use. 

What GAO Recommends

GAO recommends that the Air 

Force collect information to be

able to measure the benefits

expected from commercial

acquisition and, to reduce the

potential for risk, limit sole-source

acquisition of commercial products 

and services in concert with DOD

guidance. In written comments, 

DOD agreed with the 

recommendations, in principle, and 

identified actions to address them. 

From 2001 to 2005, the Air Force increased spending using commercial 

acquisition from $4.8 billion to over $8 billion in an effort to provide greater

access to commercial markets to increase competition, obtain better prices, 

and attract new market entrants (nontraditional contractors) and/or 

technologies (see fig. below). Even though the Air Force has significantly 

increased this spending, it has not measured the extent to which this 

increased use resulted in the benefits that were expected. For example, our 

analysis shows that for at least one of the expected benefits, attracting new 

market entrants, the expected benefit has not materialized. For the most 

part, traditional defense contractors received these contracts. 

Government contracting officials face risks in using commercial acquisition. 

For example, improperly classifying an acquisition as a commercial 

acquisition can leave the Air Force vulnerable to accepting prices that may 

not be the best value for the department. A high-ranking DOD acquisition 

official testified that he is concerned about items and services being 

identified as commercial that are not sold in an existing marketplace 

because under these circumstances, the government lacks assurances that 

the price is reasonable. At times, Air Force officials have disagreed about the 

classification of some acquisitions as commercial. The Air Force’s use of 

commercial acquisition has also been accompanied by an increased amount 

of dollars being awarded for sole-source contracts. Despite DOD policy to 

avoid sole-source commercial acquisitions because of increased risk, solesource commercial acquisition dollars awarded by the Air Force have more

than doubled from 2000 to 2005. Further, of the 20 larger Air Force 

commercial product awards in 2004, half were awarded as sole-source. 

Air Force Increases in Commercial Acquisition Spending, Fiscal Years 2001-2005 

0

1

2

3

4

5

6

7

8

9

2001 2002 2003 2004 2005

Dollars in billions

Source: Air Force.

Fiscal year

4.8

5.9 6.1 6.5

8.1

www.gao.gov/cgi-bin/getrpt?GAO-06-995.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Katherine 

Schinasi at (202) 512-4841 or 

schinasik@gao.gov. 
Contents 

Letter 1

Results in Brief 2 

Background 3

The Air Force Has Increased Commercial Acquisition Spending 7 

Air Force Use of Commercial Acquisition in Certain Situations 

Increases Risk 13 

Conclusions 19

Recommendations for Executive Action 19 

Agency Comments and Our Evaluation 20 

Appendix I Scope and Methodology 22 

Appendix II Additional Benefits Expected from Using Commercial

Acquisition 25 

Appendix III Traditional and Nontraditional Air Force Contractor 

Analysis, Fiscal Years 1996-2004 27 

Appendix IV Observations from Review of 20 Air Force Contracts 

Using Commercial Acquisition 30 

Appendix V Use of Commercial Acquisition in Air Force Major 

Acquisition Programs 31 

Appendix VI Citations for Commissions, Legislation, and Panel 

Shown in Figure 1 34 

Appendix VII Comments from the Department of Defense 35 

Page i GAO-06-995 DOD Contracting
Tables 

Table 1: Listing of Traditional Air Force Contractors, Fiscal Years 

2003-2004 28

Table 2: Nontraditional Air Force Contractors (New Market 

Entrants), Fiscal Years 2003-2004, and Description of 

Contracted Item or Service 29 

Table 3: Commercial Contract Actions in Air Force Major 

Acquisition Programs, Fiscal Years 2004-2005 32 

Figures 

Figure 1: Overview of Commercial Acquisition Legislative History 5 

Figure 2: Air Force Increases in Commercial Acquisition Spending, 

Fiscal Years 2001-2005 8 

Figure 3: Air Force Progress in Meeting Commercial Acquisition 

Dollar Goal, Fiscal Years 2001-2005 9 

Figure 4: Air Force Progress toward Commercial Acquisition 

Contract Award Goal, Fiscal Years 2001-2005 10 

Figure 5: Nontraditional and Traditional Air Force Commercial 

Acquisition Contractors, Fiscal Years 2003-2004 12 

Abbreviations 

AFMC Air Force Materiel Command 

DFARS Defense Federal Acquisition Regulation Supplement 

DOD Department of Defense 

FAA Federal Aviation Administration 

FAR Federal Acquisition Regulation 

IG Inspector General 

OSD Office of the Secretary of Defense 

RDT&E Research, Development, Test and Evaluation 

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Page ii GAO-06-995 DOD Contracting
United States Government Accountability Office

Washington, DC 20548 

September 29, 2006 

The Honorable John Ensign 

Chairman 

The Honorable Daniel K. Akaka 

Ranking Minority Member 

Subcommittee on Readiness and Management Support 

Committee on Armed Services 

United States Senate 

For decades, the Department of Defense (DOD) has been urged by 

commissions, panels, and legislation to make increased use of commercial 

acquisitions to take advantage of the efficiencies of the commercial 

marketplace. To help ensure the increased use of commercial acquisition,1

the Office of the Secretary of Defense (OSD) established and the Air Force 

implemented two commercial acquisition goals to be achieved by the end

of fiscal year 2005. These were to 

• double the dollar value of commercial acquisition contract actions 

awarded in 1999 (for the Air Force this meant going from about $3 

billion to about $6 billion) and 

• strive to increase the number of commercial contract actions awarded 

to 50 percent of all Air Force contract actions.2

In setting these goals, OSD expected that the increased use of commercial 

acquisition would provide DOD with greater access to commercial 

markets (products and service types) with increased competition, better 

prices, and new market entrants and/or technologies. You asked us to 

examine the Air Force’s efforts to meet these goals and identify any 

associated risks in commercial acquisition practices. Specifically, we 

determined (1) the extent to which the Air Force has increased its use of 

 1

 We will use the term “commercial acquisition” throughout this report to refer to 

commercial item acquisition using Federal Acquisition Regulation Part 12—Acquisition of 

Commercial Items. 

2

 A “contract action” is defined as any new contract award and/or new delivery order

placed against a contract award with a value greater than $25,000. 

Page 1 GAO-06-995 DOD Contracting
commercial acquisition to obtain expected benefits and (2) the risks 

associated with Air Force use of commercial acquisition. 

To conduct our work, we collected and reviewed information on Air Force 

use of commercial acquisition from fiscal year 2001 through fiscal year 

2005. We also reviewed all Air Force contracts awarded in fiscal year 2004 

for products over $5 million using commercial acquisition.3

 We reviewed 

the files associated with these contracts at Air Force Materiel Command 

(AFMC) locations including (1) Wright-Patterson Air Force Base, Ohio; 

(2) Tinker Air Force Base, Oklahoma; (3) Robins Air Force Base, Georgia; 

and (4) Hanscom Air Force Base, Massachusetts. We held discussions with

contracting officers and procurement management officials associated 

with each of the selected contracts. We also met with representatives of 

OSD and the Air Force to discuss various aspects of commercial 

acquisition that included goals, progress toward achieving goals, benefits 

expected, and associated risks. A more detailed discussion of our scope 

and methodology is in appendix I. We conducted our review from July 

2005 to September 2006 in accordance with generally accepted 

government auditing standards. 

The Air Force has increased its spending using commercial acquisition 

from $4.8 billion to over $8 billion from fiscal year 2001 to fiscal year 2005.

This increase responds to OSD’s emphasis to expand commercial 

acquisition to provide the benefits of greater access to commercial 

markets so that DOD can increase competition, obtain better prices, and 

attract new market entrants (nontraditional contractors) and/or 

technologies. While the Air Force more than doubled its spending on 

commercial acquisition, it has not attempted to determine the extent that

the increased use of commercial acquisition has resulted in the benefits 

expected. Our analysis indicates that for at least one of the expected 

benefits, attracting new market entrants, the expected benefit has not 

materialized. For the most part the Air Force’s commercial acquisition was 

with traditional defense contractors. 

Results in Brief 

Our work, that of DOD’s Inspector General, and that of others has shown 

that government contracting officials face challenges in using commercial 

acquisition. For example, improperly classifying an acquisition as a 

 3

 In fiscal year 2004, the Air Force awarded 20 commercial acquisition contracts each with 

a value of $5 million or more.

Page 2 GAO-06-995 DOD Contracting
commercial acquisition leaves the Air Force vulnerable to accepting prices 

that may not be the best value for the department because under 

commercial acquisition regulations the government is prohibited from 

requesting cost or pricing data. A high-ranking DOD acquisition official 

recently testified before the Federal Acquisition Advisory Panel that he is

concerned about items and services being identified as commercial that 

are not sold in an existing marketplace because under these circumstances 

the government lacks assurances that the price paid is reasonable. 4 Our 

review of Air Force contract files showed that Air Force officials disagreed 

about the classification of some acquisitions as commercial. The Air 

Force’s use of commercial acquisition has also been accompanied by an 

increased amount of dollars being awarded sole-source. Similar to 

misclassifying acquisitions as commercial, the lack of market-based 

competition may result in the Air Force’s acceptance of prices that may 

not be the best value for the department. Some Air Force contracting 

officials were concerned with whether they had sufficient data to ensure 

they were negotiating good deals, especially in a sole-source situation. 

OSD cites the general advantages of competition and in its policy urges 

contracting officials to avoid sole-source situations because sometimes 

contractors may attempt to exploit the lack of competitive markets and 

demand unreasonable prices. While OSD acknowledges some sole-source 

situations may be unavoidable, we found increasing sole-source spending 

on Air Force commercial contracts over the last 6 years. Of the 20 new 

commercial acquisition awards for products in fiscal year 2004, half were 

awarded sole-source. 

We are making two recommendations to help ensure that the Air Force is 

able to measure the benefits expected of commercial acquisition and 

improve commercial acquisition by mitigating risks in certain 

circumstances. DOD agreed with the recommendations, in principle, and 

identified actions to address them. 

The definition of commercial acquisition has evolved over the last decade

to mean the purchase of items customarily used by and sold (or offered) to 

the general public, including items with minor modifications of a type not

customarily available in the commercial marketplace made to meet federal

Background 

 4

 This is a panel authorized by Section 1423 of the Services Acquisition Reform Act of 2003 

(Div. A, Title XIV, National Defense Authorization Act for Fiscal Year 2004, Pub. L. No. 108-

136, (2003)) with representation from acquisition experts in government, private industry,

and academia. 

Page 3 GAO-06-995 DOD Contracting
government requirements, or services of a type offered and sold 

competitively in substantial quantities in the commercial marketplace.

5

The idea of increasing the government’s use of commercial acquisition is 

not new. Figure 1 identifies key legislation and federal-level commissions 

that emphasized the use of and expected benefits of commercial 

acquisition over the last several decades. 

 5

 See Federal Acquisition Regulation (FAR) 2.101. In part “Commercial item” means 

(1) Any item, other than real property, that is of a type customarily used by the general 

public or by non-governmental entities for purposes other than governmental purposes, 

and— 

(i) Has been sold, leased, or licensed to the general public; or 

(ii) Has been offered for sale, lease, or license to the general public; 

(2) Any item that evolved from an item described in paragraph (1) of this definition through 

advances in technology or performance and that is not yet available in the commercial 

marketplace, but will be available in the commercial marketplace in time to satisfy the 

delivery requirements under a Government solicitation; 

(3) Any item that would satisfy a criterion expressed in paragraphs (1) or (2) of this

definition, but for— 

(i) Modifications of a type customarily available in the commercial marketplace; or 

(ii) Minor modifications of a type not customarily available in the commercial marketplace 

made to meet Federal Government requirements. Minor modifications means modifications 

that do not significantly alter the nongovernmental function or essential physical 

characteristics of an item or component, or change the purpose of a process. Factors to be

considered in determining whether a modification is minor include the value and size of the

modification and the comparative value and size of the final product. Dollar values and 

percentages may be used as guideposts, but are not conclusive evidence that a 

modification is minor; 

(4) Any combination of items meeting the requirements of (1), (2) , (3) or (5) of this

definition that are of a type customarily combined and sold in combination to the general

public; 

(5) Installation services, maintenance services, repair services, training services, and other 

services in support of an item in (1) through (4) and the source of such services provides

similar services contemporaneously to the general public under terms and conditions

similar to those offered to the federal government; 

(6) Services of a type offered and sold competitively in substantial quantities in the

commercial marketplace based on established catalog or market prices. 

Page 4 GAO-06-995 DOD Contracting
Figure 1: Overview of Commercial Acquisition Legislative History 

1972

Commission

on Government

Procurement

Commision’s recommendation:

Government should take greater

advantage of the efficiencies of

commercial marketplace.

1984 act: Required promotion of

the use of commercial products

whenever practicable.

Commission’s recommendation: DOD should expand the use

of commercial products and 

commercial-style competition.

1986 act: Required DOD to

acquire nondevelopmental items

(commercial items) to the

maximum extent practicable.

Panel’s recommendation: Called

for the facilitation of government

access to commercial technologies.

1994 act: 

• Expanded the commercial item

definition to include nondevelopmental items, those not yet on the

market, and “of a type” items and 

stand-alone services.

• Exempted commercial item

procurements from requirement

to submit certified cost or pricing

data to the government under

certain conditions.

• Provided preference for acquisition of commercial items and

streamlined mechanisms for their

procurement.

1996 act:

• Exempts commercial item 

acquisitions from requirement to 

submit certified cost or pricing 

data and comply with cost 

accounting standards.

2003 act: Allowed different types

of contracts to be treated as

commercial acquisition under 

certain circumstances. 

1984 Competition

in Contracting Act

of 1984

1986 President’s Blue

Ribbon Commission on 

Defense Management 

(Packard Commission)

1986 National Defense

Authorization Act

for Fiscal Year 1987

1993 Advisory Panel

on Streamlining and

Codifying Acquisition

Laws (Sec. 800 Panel)

1994 Federal

Acquisition

Streamlining Act

1996 Clinger-Cohen

Act of 1996

2003 Services Acquisition

Reform Act of 2003

IMPACT ON COMMERCIAL ACQUISITION

1970s 1980s 1990s 2000s

Source: GAO analysis and presentation of data from selected commissions, panels, and legislation affecting commercial acquisition.

Note: Citations for the Commissions, Legislation, and Panel shown in figure 1 are listed in appendix 

VI. 

The National Defense Authorization Act for Fiscal Year 1987 required DOD 

to submit a report to Congress on its progress toward meeting the 

requirement to acquire commercial items to the maximum extent 

Page 5 GAO-06-995 DOD Contracting
practicable.

 6 DOD’s subsequent report to Congress in response to the 

act’s requirement identified several impediments to the use of commercial 

acquisition, including a requirement that contractors provide cost or 

pricing data to the government. Identification of providing the government 

cost or pricing data as an impediment was in contrast to requirements in 

the Truth in Negotiations Act of 1962. 7 This act generally requires 

contractors to submit cost or pricing data to the government before the 

award of a negotiated contract and certify that the data are accurate, 

complete, and current as a way to provide information parity between the 

contractor and the government. 8 Because a primary maxim in contracting 

is that competition drives down prices, one of the purposes of the 

legislation was to provide the government with all the facts on the cost or

pricing data the contractor used to prepare a proposal, including, as 

applicable here, when there is no competition. In that way, the 

government believed it would have the information necessary to protect 

itself from paying excessive prices. 

In the late 1980s and early 1990s, however, concerns about impediments 

that might prevent commercial companies from doing business with the 

government continued. The concern about requiring cost or pricing data in

commercial acquisition was a factor in passing several laws in the 1990s 

designed to streamline acquisition in general, and commercial acquisition 

specifically, by more broadly exempting commercial acquisitions from the

cost or pricing data requirement (see fig. 1).

Although commercial acquisition regulations now preclude the 

government from obtaining cost or pricing data from contractors in 

commercial acquisitions, the government is permitted to obtain pricing 

information from sources other than the offering contractor. If this 

information proves inadequate, the government can require the offering 

contractor to provide additional information, known as information other 

than cost or pricing data, although the government must, to the maximum 

 6

 Defense Acquisition Improvement Act of 1986, contained in the National Defense 

Authorization Act for Fiscal Year 1987, Pub. L. No. 99-661, Div. A, Title IV, Section 907(b), 

(1986). 

7

 Pub. L. No. 87-653, Sept. 10, 1962. 

8

 The Truth in Negotiations Act (TINA) provided a limited exemption for the submission of

cost or pricing data when a negotiated price was based on established catalog or market 

prices of commercial items sold in substantial quantities to the general public, now known 

as commercial-off-the-shelf. 

Page 6 GAO-06-995 DOD Contracting
extent practicable, limit the scope of the request to include only 

information in a form regularly maintained by the offering contractor.9

In early 2001, OSD reemphasized to the military departments and defense 

agencies that commercial acquisition should be used to the maximum 

extent possible to effectively provide the technological advantages needed

to win future conflicts. OSD concluded that the military departments and 

agencies must uniformly look first to the commercial marketplace before 

developing new systems, upgrading legacy systems or procuring spare 

parts and support services. To help ensure the increased use of 

commercial acquisition, OSD established and the Air Force implemented 

two commercial acquisition goals to be achieved by the end of fiscal year 

2005. These were to 

• double the dollar value of commercial acquisition contract actions 

awarded in 1999 (for the Air Force this meant going from about $3 billion

to about $6 billion) and 

• strive to increase the number of commercial contract actions awarded to 

50 percent of all Air Force contract actions.10

In setting these goals, OSD expected that the increased use of commercial 

acquisition would provide DOD with greater access to commercial 

markets (products and service types) with increased competition, better 

prices, and new market entrants and/or technologies. Additional expected 

benefits of commercial acquisition are listed in appendix II. 

As its overall spending has increased, the Air Force has increased 

spending using commercial acquisition, from $4.8 billion in fiscal year 2001 

to over $8 billion in fiscal year 2005 (see fig. 2). The Air Force also has had 

some success in achieving commercial acquisition goals; for example, it 

has doubled the amount spent using commercial acquisition since fiscal 

year 1999 (see fig. 3). However, it has not achieved the goal of making 50 

percent of all contract actions commercial (see fig. 4). Nonetheless, the Air 

Force did not establish measures nor did it collect information to 

determine if the benefits expected from commercial acquisition were 

The Air Force Has 

Increased 

Commercial 

Acquisition Spending 

 9

 FAR 15.402 and 15.403-3. 

10 A contract action being defined as any new contract award and/or new delivery order 

placed against a contract awarded with a value greater than $25,000. 

Page 7 GAO-06-995 DOD Contracting
being achieved. As a result, it is unclear if or how the Air Force has 

benefited from increased use of commercial acquisition. The Air Force has 

used commercial acquisition to buy a broad range of goods and services, 

including major systems. For example, the Air Force used commercial 

acquisition to buy the Joint Primary Aircraft Training System and a range 

of goods and services such as radio and communication equipment, 

aircraft components, and repair services. However, our analysis indicates 

that for at least one of the expected benefits, attracting new market 

entrants, the expected benefit has not materialized. The majority of Air 

Force commercial contracts in fiscal years 2003-2004 were made to 

traditional defense contractors. 

Figure 2: Air Force Increases in Commercial Acquisition Spending, Fiscal Years 

2001-2005 

0

1

2

3

4

5

6

7

8

9

2001 2002 2003 2004 2005

Dollars in billions

Source: Air Force.

Fiscal year

4.8

5.9 6.1

6.5

8.1

Page 8 GAO-06-995 DOD Contracting
The Air Force was able to achieve its goal of doubling spending using 

commercial acquisition by the end of fiscal year 2003 and has exceeded 

that goal through fiscal year 2005 (see fig. 3). 

Figure 3: Air Force Progress in Meeting Commercial Acquisition Dollar Goal, Fiscal 

Years 2001-2005 

However, the Air Force did not increase commercial contract actions 

awarded to 50 percent of all awards (see fig. 4). 

Goals Measure Use of 

Commercial Acquisition 

0

1

2

3

4

5

6

7

8

9

2001 2002 2003 2004 2005

Dollars in billions

Source: Air Force.

Fiscal year

$5.98 billion goal by

end of fiscal year 2005

4.8

5.9 6.1

6.5

8.1

Page 9 GAO-06-995 DOD Contracting
Figure 4: Air Force Progress toward Commercial Acquisition Contract Award Goal, 

Fiscal Years 2001-2005 

These goals expired at the end of fiscal year 2005 and were not extended

or renewed at the time this report was published. An Office of Under 

Secretary of Defense, Defense Procurement and Acquisition Policy, senior

procurement analyst noted that he believed the goals have essentially been

met and that the current law stating that nondevelopmental items 

(commercial items) are to be used to the maximum extent practicable11 is 

sufficient. 

OSD has indicated that the increased use of commercial acquisition should 

bring about the benefits of greater access to commercial markets, 

including increased competition, getting better prices, and access to new 

market entrants (contractors) and/or technologies. Although the Air Force 

has increased the use of commercial acquisition, neither OSD nor the Air 

Force has attempted to measure if the benefits expected from this 

increased use are being achieved. The Air Force has stated that the 

0

10

20

30

40

50

60

2001 2002 2003 2004 2005

Percentage of contract actions

Source: Air Force.

Fiscal year

50% goal by end of

fiscal year 2005

20.5 19.1 19.9 20.7

28.0

Benefits Expected from 

Commercial Acquisition 

Have Not Been Measured 

 11 Defense Acquisition Improvement Act of 1986, contained in the National Defense 

Authorization Act for Fiscal Year 1987, Pub. L. No. 99-661, Div. A, Title IV, Section 907(a), 

(1986). 

Page 10 GAO-06-995 DOD Contracting
appropriateness of the application of the FAR commercial item definition 

determines its use of the authority, not whether any benefits would be 

gained. 

A study sponsored by the Air Force and conducted by the RAND 

Corporation, a nonprofit research organization, in 2005 looked at Air 

Force commercial acquisition and found that the data needed to determine 

if the expected benefits of commercial acquisition were being realized 

were not available. 12 The report concluded that this lack of data has made 

it difficult to measure whether this type of acquisition provides the 

benefits claimed or what challenges exist. With respect to anticipated cost 

and schedule savings, RAND reported that DOD provided no direction for 

tracking these expected benefits, and as a result, such data are not 

collected by either DOD or contractors. RAND also reported that DOD 

does not develop estimates of the benefits expected from using 

commercial acquisition versus other types of acquisitions prior to 

commencing contract award activities. RAND did not comment on the 

cost of quantifying commercial acquisition benefits. 

While the Air Force has used commercial acquisition to buy a broad range 

of goods and services, including major systems, it continues to do business 

mainly with traditional contractors. By increasing the use of commercial 

acquisition, OSD hoped the Air Force would be able to draw 

nontraditional contractors into defense contracting and gain greater 

access to new commercially developed technologies. Nontraditional 

contractors were expected to offer more efficient business practices and 

new technologies to meet government requirements. OSD commercial 

acquisition guidance emphasizes the need to incorporate commercial 

items into defense systems because the commercial sector often drives 

critical technologies. Even with this increased emphasis on commercial 

acquisition, the Air Force has primarily continued to award its commercial 

contracts to traditional defense contractors. 

To determine the extent to which the Air Force attracted nontraditional 

contractors using commercial acquisition, we reviewed acquisition data on

the 98 contractors who received large (over $5 million) commercial 

contracts in fiscal years 2003 and 2004. We found that 87 of the 

Traditional Contractors 

Still Performing Most 

Commercial Air Force 

Contracts

 12RAND, Price-Based Acquisition: Issues and Challenges for Defense Department 

Procurement of Weapon Systems, (Santa Monica, California: 2005).

Page 11 GAO-06-995 DOD Contracting
98 contractors, or 89 percent, were included on DOD’s Top 100 or Air 

Force Top 50 contractor lists13 or had previously received contracts with 

DOD14 since fiscal year 1996.15 Only 11 contractors had not previously 

received a contract or were not on either list (see fig. 5). 

Figure 5: Nontraditional and Traditional Air Force Commercial Acquisition

Contractors, Fiscal Years 2003-2004 

Further, 7 of the 11 contractors that had not previously received large 

dollar contracts from DOD performed more routine services like 

transportation, housekeeping, or architect and engineering services. A list 

of the traditional and nontraditional contractors is included as appendix 

III. 

In a 2005 commercial acquisition study, RAND concluded that there is very 

little evidence that the use of commercial acquisition has encouraged 

11%

89%

Source: GAO analysis of DOD data.

Nontraditional

Traditional

 13 These lists, compiled by DOD’s Statistical Information Analysis Division, present 

summary data on the companies receiving the largest dollar volume of DOD and Air Force 

prime contract awards. We used only those lists describing contractors’ standings for fiscal 

year 2004. 

14 We limited our evaluation to contractors that had done business with the Army, Navy, 

and Air Force.

15 Fiscal year 1996 marks the first year for which DOD’s procurement database (DD 350)

utilized the commercial item designation.

Page 12 GAO-06-995 DOD Contracting
greater numbers of civilian (non-DOD) commercial contractors to 

compete for DOD contracts for major military-unique items.16

In general, we found that commercial acquisition was used to buy a variety 

of goods and services. These include but are not limited to aircraft engines 

and structural components, telecommunication services, maintenance and 

repair of equipment, program management/support services, and 

housekeeping services. 

We also found three major Air Force acquisition programs for which 

commercial actions constituted at least 75 percent of contract dollars 

obligated. The three major acquisition programs are 

• the latest version of the Air Force C-130 cargo aircraft; 

• the Joint Primary Aircraft Training System, including a new trainer 

aircraft, the ground-based training system, and a training management 

system; and 

• the National Airspace System to modernize DOD air traffic control 

facilities in parallel with the Federal Aviation Administration (FAA) to 

ensure safe operation of aircraft in accordance with statutes and 

DOD/FAA agreements, according to an Air Force official. 

Our work, that of DOD’s Inspector General, and that of others has shown 

that government contracting officials face challenges using commercial 

acquisition. For example, improperly classifying an acquisition as a 

commercial acquisition leaves the Air Force vulnerable to accepting prices 

that may not be the best value for the department because under 

commercial acquisition regulations, the government is precluded from 

requesting cost or pricing information. Our review of Air Force contract 

files and DOD Inspector General reports showed that Air Force officials 

disagreed about the designation of some acquisitions as commercial. 

Furthermore, the director of Defense Procurement and Acquisition Policy 

recently testified before the Federal Acquisition Advisory Panel that he is

concerned about some items and services being identified as commercial 

that are not sold in an existing marketplace because there are no 

Air Force Use of 

Commercial 

Acquisition in Certain 

Situations Increases 

Risk 

 16 RAND, Price-Based Acquisition: Issues and Challenges for Defense Department 

Procurement of Weapon Systems, (Santa Monica, CA: 2005).

Page 13 GAO-06-995 DOD Contracting
assurances that the price is reasonable. The Air Force use of commercial 

acquisition has been accompanied by an increased amount of dollars being 

awarded sole-source. Similar to misclassifying acquisitions as commercial, 

the lack of market-based competition may result in the Air Force’s 

acceptance of prices that may not be the best value for the department. 

OSD cites the general advantages of competition and in its policy urges 

contracting officials to avoid sole-source situations because sometimes 

contractors may attempt to exploit the lack of competitive markets and 

demand unreasonable prices. While OSD acknowledges some sole-source 

situations may be unavoidable, we found increasing sole-source spending 

on Air Force commercial contracts over the last 6 years. Also, of the 20

new commercial awards for products over $5 million in fiscal year 2004, 

half were awarded sole-source, with traditional contractors receiving most 

of those sole-source awards. 

Misclassification of items as commercial can leave the Air Force 

vulnerable to accepting prices that are not the best value for the 

department. Our review of Air Force contract files included two cases 

where there were internal Air Force disagreements regarding 

determinations of commerciality. The items in question were a C-130E and 

a C-130H aircraft. During our review, some Air Force officials also 

expressed concern, especially in sole-source situations, about their ability 

to determine whether the prices being charged are reasonable. A major 

difference between a Federal Acquisition Regulation (FAR) Part 15 

“Contracting by Negotiation” and Part 12 “Acquisition of Commercial 

Items” is that under Part 12 the government is prohibited from obtaining 

cost or pricing data. Under FAR Part 15, the government is generally 

required to obtain cost or pricing data (unless certain exceptions apply) 

from contractors to help determine if it is getting a good price. 

DOD’s Inspector General has recently issued reports asserting that three 

Air Force acquisitions were inappropriately designated as commercial.17

The Inspector General concluded that three Air Force acquisitions—the 

C-130J cargo aircraft, the KC-767A tanker aircraft, and F-16 simulator 

services—should not have been planned or purchased as commercial 

Challenges and Risks 

Using Commercial 

Acquisition 

 17 Inspector General, DOD, Acquisition: Contracting for and Performance of the C-130J 

Aircraft, D-2004-102, July 23, 2004; Management Accountability Review of the Boeing 

KC-767A Tanker Program, OIG-2004-171, May 13, 2005; and Acquisition: Procurement

Procedures Used for F-16 Mission Training Center Simulator Services, D-2006-065, 

March 24, 2006, (Washington, D.C.). 

Page 14 GAO-06-995 DOD Contracting
acquisitions because they were unique to the military. For example, the 

Inspector General reported in March 2006 that the Air Force had 

improperly used commercial acquisition to buy F-16 simulator services 

because contracting officials misinterpreted the definition of commercial 

services. As a result, the Air Force placed itself at a disadvantage, 

restricting its ability to determine whether the price charged was 

reasonable. By using commercial acquisition, the Air Force was precluded 

from requesting certified cost or pricing data for a service in which the 

department is the sole customer. On the basis of the Inspector General’s 

report, the Air Force agreed, and has begun, to change its contracting 

approach from a commercial acquisition to a noncommercial acquisition.

Other recent efforts to improve the government’s use of commercial 

acquisition include efforts by a high-level panel to consider changes to 

potentially clarify the definition of commercial acquisition as well as 

efforts by Air Force officials seeking similar regulatory changes. 

The Federal Acquisition Advisory Panel is examining, among other things, 

commercial acquisition practices. The Acquisition Advisory Panel is also

reviewing preliminary recommendations to modify the commercial item 

definition found in federal regulation. The panel noted, in a briefing on its

Web page, that in the private sector, competition in efficient markets is a 

principle relied on to a great extent to assure price reasonableness. The 

panel cites three government commercial acquisition practices related to

the commercial item definition that depart from private-sector practices:

First, commercial acquisition procedures are used for sole-source 

contracts; second, items are acquired commercially even when the 

government is the predominant or only buyer; and third, the “commercial 

item” definition is broad enough to admit items for which an efficient 

market does not exist to ensure price reasonableness. 

DOD’s Defense Procurement and Acquisition Policy Director recently 

addressed the Acquisition Advisory Panel and identified concerns that 

some acquisitions are being designated commercial that are not 

commercial.18 The Director expressed his view that a commercial item is 

one in which a marketplace exists, meaning the item has been sold to 

commercial companies (not just DOD). The Director stated that if 

someone is selling “to us (the government) and only to us, that’s not a 

 18 Transcript of proceedings of a public meeting before the Acquisition Advisory Panel,

June 14, 2006. 

Page 15 GAO-06-995 DOD Contracting
commercial price.” In addition, the Director testified that DOD intends to 

create a tool, a decision matrix, that will enable contracting officials to 

identify the right contracting mechanism after completing their market 

research. The purpose is to have DOD and the military services use 

commercial acquisition effectively and correctly, in a consistent way. 

OSD guidance specifically states that commercial acquisition was not 

intended to allow military-unique items to be purchased commercially. 

Misclassification of items as commercial can leave the Air Force 

vulnerable to accepting prices that are not the best value for the 

department. When an item is designated as commercial, the Air Force 

should be able to determine if the price is reasonable on the basis of prices 

in the commercial market. If the Air Force designates an item as being 

commercial when it is not readily available in the commercial market, this 

limits its ability to assess the reasonableness of the contractor’s price 

because it might, especially in sole-source situations, have less 

information on prices to make its decision. 

Restrictions on the use of commercial acquisition to procure military 

unique major weapons systems were recently established in the Fiscal 

Year 2006 DOD Authorization Act.19 The act requires that to use 

commercial acquisition procedures for major weapon systems, the 

Secretary of Defense must now (1) determine the procurement meets the 

definition of “commercial item,” (2) determine that national security 

objectives necessitate the purchase of the system as a commercial item, 

and (3) give Congress at least 30 days notice before purchasing a major 

acquisition program using commercial acquisition. To implement this 

requirement, an interim Defense Federal Acquisition Regulation 

Supplement (DFARS) rule is pending publication.20 The Air Force intends 

to implement the DFARS rule by requiring requests for Secretary of 

Defense approval of major weapon systems to be purchased as 

commercial items, include a description of the benefits associated with 

increased competition, better prices, and new market entrants and/or 

technologies. 

When we discussed the purchase of major weapon systems using 

commercial acquisition with top DOD officials, they informed us there are 

 19 National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163 section 803

(2006). 

20 DFARS Case 2006-D012, Procurement of Major Weapon Systems as Commercial Items. 

Page 16 GAO-06-995 DOD Contracting
plans to transition both the C-130J and the Joint Primary Aircraft Training 

System (JPATS) contracts, as well as a future contract for F-16 fighter 

aircraft simulator services, from commercial to noncommercial contracts.

Further, a top DOD acquisition official said that in the future DOD will 

more carefully scrutinize the use of commercial acquisition, especially on

major acquisition programs. 

Further, Air Force contracting officials have submitted proposals as cases 

to the Defense Acquisition Regulation Council and the Civilian Agency 

Acquisition Council seeking clarification of the definitions of “commercial 

item” and “cost or pricing data” related to commercial acquisition. While 

one case was closed, it highlights continued efforts to appropriately 

classify items as commercial. For example, the Air Force proposed a 

change to the DFARS,21 which was subsequently referred by Defense 

Acquisition Regulation Council as a case for the Federal Acquisition 

Regulation,22 to tighten the commercial item definition. The definition 

found in federal regulation states in part: “commercial item means any 

item, other than real property, that is of a type customarily used by the 

general public.” In an attachment to the 2001 memo instituting the 

commercial acquisition goals, OSD cautioned that the phrase “of a type” is 

not intended to allow the use of commercial acquisition to acquire solesource, military-unique items that are not closely related to items already 

in the marketplace. 

A second FAR case attempts to address confusion about what qualifies as

cost or pricing data in relation to commercial acquisition. 23 The case, if

made final, will clarify that the government can ask contractors for cost or 

pricing data, just not certified cost or pricing data.

 21 DFARS Case 2004-D019 was closed and proposed as FAR case 2005-043. 

22 FAR Case 2005-043 closed with no further action because the Federal Acquisition 

Regulation Civilian Agency Acquisition Council decided that the proposed change was not 

necessary. The council concluded there was insufficient rationale to adopt the DODproposed definition or otherwise clarify the meaning “of a type” as it relates to commercial 

items. 

23 FAR Case 2005-036. 

Page 17 GAO-06-995 DOD Contracting
OSD emphasis on increasing the use of commercial acquisition includes 

guidance on limiting use of commercial acquisition for sole-source 

procurements. This guidance advises contracting officials to avoid solesource commercial acquisitions, in part because sometimes contractors 

may attempt to exploit the lack of competition and demand unreasonable 

prices. When such situations are unavoidable, OSD advocates use of other

price analysis tools outlined in federal regulation to mitigate risk. 

The FAR provides that adequate price competition on contracts is 

generally sufficient to determine price reasonableness. Adequate price 

competition means (1) the government receiving at least two offers 

submitted by responsible offerors, competing independently, that satisfy 

the government requirement; (2) there was a reasonable expectation of

competition; or (3) a proposed price is clearly reasonable based on price 

analysis.24 In the event price competition is not sufficient, the government 

can seek additional information beginning with government and additional 

sources other than the offeror, and last from the offeror if necessary.25

There are circumstances when an acquisition, including one for 

commercial items, can be awarded without competition. These include 

instances in which (1) there is only one responsible source and there are 

no other supplies or services that will satisfy agency requirements, such as

when a contractor has exclusive data rights and copyrights; (2) the 

government has an unusual and compelling urgent need for a product or 

service; or (3) the acquisition is required by statute or international 

agreement. Such awards, for other than full and open competition must be 

justified and approved in writing.26

Despite guidance directing the Air Force to avoid sole-source situations, 

from fiscal years 2000 through 2005, sole-source spending on Air Force 

commercial acquisition contracts more than doubled. Specifically, solesource dollars as a percentage of total commercial acquisition dollars for 

awards over $5 million have increased from 12 percent in fiscal year 2000 

to 26 percent in fiscal year 2005. This recent trend appears inconsistent 

with OSD guidance to avoid sole-source commercial acquisition situations. 

Commercial Contract 

Awards Made in a SoleSource Environment Can 

Increase Risk 

 24 FAR 15.403-1(c). 

25 FAR 15.402. 

26 FAR 6.303. 

Page 18 GAO-06-995 DOD Contracting
Our review found that of all 20 fiscal year 2004 commercial product 

acquisition awards over $5 million, 10 of the Air Force’s were made on a 

sole-source basis. Altogether, fiscal year 2004 obligations on the 20 

contracts totaled $329 million. Obligations on the 10 sole-source awards 

totaled $172 million, or 52 percent (additional observations from our 

review of the 20 contracts are found in app. IV).27 Furthermore, at least one 

of the expected benefits of commercial acquisition—attracting new 

market entrants—has not materialized through the Air Force’s use of solesource commercial acquisitions for products in fiscal year 2004. 

Specifically, traditional defense contractors were used on 8 of the 10 fiscal 

year 2004 sole-source product awards. 

By establishing goals that only measure use and not the benefits expected,

the Air Force is unable to determine if it has benefited from increased use 

of commercial acquisition. The benefits to the government of commercial 

acquisition have not been demonstrated. Little evidence has been 

collected on the claimed benefits such as cost savings, better pricing, 

increased access to commercial vendors, and greater numbers of 

commercial firms to compete for Air Force contracts. 

Not only is it unclear whether commercial acquisition is bringing benefits 

to the Air Force, the Air Force may be increasing risk without knowing if 

the added risk is balanced by progress toward achieving benefits that may 

have the potential to demonstrate considerable savings. While recognizing 

that the Air Force may need to make some sole-source purchases using 

commercial acquisition, the trend of increasing sole-source spending 

appears contradictory to OSD guidance to limit situations where 

contractors may attempt to exploit the lack of competitive markets and 

demand unreasonable prices. When sole-source situations are necessary, 

contracting officials should be able to identify the benefits of using 

commercial acquisition for individual procurements that would otherwise 

be unattainable. 

To help ensure that the Air Force is able to measure the benefits expected

from commercial acquisition, we recommend collecting information that 

would allow evaluating the extent of cost savings, increased access to 

Conclusions 

Recommendations for 

Executive Action 

 27 Including fiscal year 2005 obligations on those same contracts, sole-source actions

account for 39 percent of total obligated dollars. 

Page 19 GAO-06-995 DOD Contracting
commercial markets, and greater access to nontraditional contractors. For 

example, the Air Force could measure the number of nontraditional 

contractors it reaches using commercial acquisition. 

To help improve commercial acquisition and reduce the potential for risk 

by limiting situations where commercial acquisition contracts are being 

awarded sole-source, we also recommend that the Secretary of the Air 

Force strive to limit the acquisition of commercial products and services 

in sole-source environments in concert with OSD guidance. However, in 

the cases where it is necessary to award sole-source, the Secretary should 

collect the information necessary to evaluate the benefit(s) of awarding 

commercial verses a noncommercial contract. 

DOD provided written comments on a draft of this report. DOD agreed 

with the recommendations, in principle, and described the actions it will 

take to address our recommendations. The comments are discussed 

below and are reprinted in appendix VII. 

DOD partially agreed with our recommendation to measure the benefits 

expected from commercial acquisition by collecting information to 

evaluate the extent of cost savings, increased access to commercial 

markets, and greater access to nontraditional contractors. DOD stated 

that it agrees in principle it would be worthwhile to know whether the 

expected benefits from commercial acquisition are materializing and that 

it will examine ways to collect information on the number of 

nontraditional contractors it is reaching through commercial acquisition. 

However, DOD noted that the collection of information for the expected 

benefits would be expensive. We believe DOD is taking the first step 

necessary to evaluate whether it has benefited from the increased use of 

commercial acquisition. We encourage such efforts, and would expect that 

if DOD collects information on nontraditional contractors it reaches using 

commercial acquisition and it is still unable to evaluate whether significant 

benefits exist from using commercial acquisition, DOD will recognize the 

need to collect additional information. 

DOD’s comments included an attachment reflecting the Air Force views on 

our draft report. We incorporated those views where appropriate. 

We will send copies of this report to the Secretary of Defense, the 

Secretary of the Air Force, appropriate congressional committees, and 

other interested parties. We will also make copies available to others on 

Agency Comments 

and Our Evaluation 

Page 20 GAO-06-995 DOD Contracting
request. In addition, this report will be available at no charge on GAO’s 

Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact me 

at (202) 512-4841 or by e-mail at schinasik@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

last page of the report. Other key contributors to this report were David E.

Cooper, Director, Penny Berrier Augustine, Assistant Director, Lily Chin, 

Keith Hudson, Julia Kennon, Andrew Redd, Don Springman, Marie Ahearn, 

and Robert Swierczek. 

Katherine V. Schinasi, Managing Director 

Acquisition and Sourcing Management 

Page 21 GAO-06-995 DOD Contracting
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To conduct our work, we reviewed federal acquisition and commercial 

acquisition regulations, as well as the Office of Secretary of Defense 

(OSD), Air Force, and Air Force Materiel Command (AFMC) guidance 

pertaining to commercial acquisition. We also reviewed OSD and Air Force 

commercial acquisition goals since 2001 as well as expected benefits and 

risks associated with commercial acquisition. We met or held discussions 

with representatives of OSD and the Air Force to discuss various aspects 

of commercial acquisition including goals, progress toward achieving

goals, benefits expected, and associated risks. In addition we met with 

Department of Defense (DOD) Inspector General officials to discuss audit 

report findings related to commercial acquisition.

To understand the more recent determinations of commercial acquisition, 

we reviewed all 20 large (over $5 million) Air Force commercial contracts

awarded for products in fiscal year 2004. We reviewed the contract files 

associated with these contracts at locations of AFMC including (1) WrightPatterson Air Force Base, Ohio; (2) Tinker Air Force Base, Oklahoma; 

(3) Robins Air Force Base, Georgia; and (4) Hanscom Air Force Base, 

Massachusetts. We also reviewed a commercial contract (including two 

major modifications) for a major acquisition program called the Joint 

Primary Aircraft Training System. We held discussions with contracting 

officers and procurement management officials associated with the 

selected contracts. 

To examine the extent that Air Force commercial contracts were awarded

to new market entrants, we utilized data from DOD’s procurement 

database (DD 350) for contract actions from fiscal year 1996 through fiscal 

year 2004, which was the last full year of data available at the time we 

performed our analysis. Query results were limited to contract actions 

greater than $5 million, as the Federal Acquisition Regulation (FAR) 

allowed actions below that threshold to employ simplified acquisition 

procedures.1

 1

 FAR 13.500.

Page 22 GAO-06-995 DOD Contracting
Appendix I: Scope and Methodology 

To determine the Air Force new market entrant contractors,2 we took the 

contractors with contract actions in fiscal years 2003 and 2004 and 

determined whether they had received any previous DOD military 

department contracts from fiscal year 1996 through fiscal year 2002. 3 We 

considered contractors who had not received contracts during this period

new to DOD. We also examined Federal Supply/Service Class codes to 

determine the nature of work performed by Air Force contractors. 

To determine the extent to which the Air Force competed its commercial 

contracts, we reviewed data the Air Force provided summarizing its solesource commercial acquisitions from fiscal year 2000 through fiscal year 

2005. We defined “sole-source” as those actions either not competed or not 

available for competition, according to DOD classification codes. Again, 

the data were for acquisitions over $5 million. 

For our analysis of the use of commercial acquisition in Air Force major 

acquisition programs, we included the Major Defense Acquisition 

Programs listed on OSD’s Selected Acquisition Report summary tables for 

fiscal years 2001 through 2005, except programs designated RDT&E 

(Research, Development, Test, and Evaluation). We also included joint 

programs from GAO’s 2006 Assessment of Selected Major Weapon 

Programs for which the Air Force was mentioned as the lead buyer. We

queried the DD 350 database to determine commercial and total contract 

obligations on these major acquisition programs over the period 

constituting fiscal year 2004 through fiscal year 2005. 

 2

 Contractors were identified and grouped by parent companies as of fiscal year 2004. 

Parent companies were determined by matching Data Universal Numbering System 

(DUNS) numbers or by matching company names in DOD’s DD 350 procurement database. 

When possible, company names were matched with names on DOD’s Statistical 

Information Analysis Division fiscal year 2004 Top 100 DOD parent companies and 

subsidiaries list. In some cases where subsidiary lists were not available, companies with 

the same DUNS number but different names (and vice versa) were counted as one

company. We considered all companies with distinct names and DUNS numbers as

separate entities. 

3

 We did not consider as new any contractors appearing on DOD’s Statistical Information 

Analysis Division (SIAD) fiscal year 2004 DOD Top 100 and Air Force Top 50 contractor

lists, but we did include them in our total number of contractors receiving awards in fiscal 

years 2003 or 2004 if they received awards in either of those years. The DOD Top 100 and 

Air Force Top 50 lists are compiled by DOD’s Statistical Information Analysis Division. The 

lists represent those contractors receiving the largest dollar volume of DOD prime contract 

awards. We used only those lists describing contractors’ standings for fiscal year 2004. 

Page 23 GAO-06-995 DOD Contracting
Appendix I: Scope and Methodology 

We conducted our review from July 2005 to September 2006 in accordance 

with generally accepted government auditing standards. 

Page 24 GAO-06-995 DOD Contracting
Appendix II: A

from Usi

dditional Benefits Expected 

ng Commercial Acquisition 

Page 25 GAO-06-995

Appendix II: Additional Benefits Expected 

from Using Commercial Acquisition 

Expected Benefits to 

the Government 

The government expected to benefit from the use of commercial 

acquisition instead of noncommercial acquisition. Several of the benefits 

expected include the government being able to 

• rely on the contractor’s quality assurance processes and warranties in lieu

of government inspections,1

• decrease the amount of time it normally takes to award a contract,2

• employ a streamlined contract clause structure,3 and 

• use simplified acquisition procedures on high dollar amount contracts in 

certain circumstances.4

There are also several advantages to contractors of using commercial 

acquisition when doing business with the government. Generally 

contractors are 

Expected Benefits to 

Contractors 

• not required to submit cost or pricing data to the government,

5

• not required to adhere to cost accounting standards on firm fixed-price 

contracts,6

• not required to disclose more technical data to the government than they

would customarily disclose to the public,7

• able to propose more than one product that will meet the government’s 

need,8

 and 

 1

 Federal Acquisition Regulation (FAR) 12.208, 12.402 and 12.404(b). 

2

 FAR 12.204(b), 12.205(c). 

3

 FAR 12.301(d),(e) and (f) and 12.302 

4

 FAR 13.500(e). 

5

 FAR 15.403-1(b)(3).

6

 FAR 12.214. 

7

 FAR 12.211.

8

 FAR 12.205(b). 

 DOD Contracting
Appendix II: Additional Benefits Expected 

from Using Commercial Acquisition 

• able to submit existing product literature in lieu of unique technical 

proposals.9

 9

 FAR 12.205(a). 

Page 26 GAO-06-995 DOD Contracting
Appendix III: Traditional and Nontraditional 

Air Force Contractor Analysis, Fiscal Years Appendix III: Tr

19aditional and Nontraditional 96-2004 

Air Force Contractor Analysis, Fiscal Years 

1996-2004 

To examine the extent that Air Force commercial contracts were awarded

to nontraditional contractors or new market entrants, we used data from 

DOD’s procurement database (DD 350) for contract actions from fiscal 

year 1996 through fiscal year 2004—the last full year of available data at 

the time of analysis. Query results were limited to Air Force contract 

actions greater than $5 million. 

We identified 98 contractors who received commercial Air Force awards 

in either fiscal year 2003 or fiscal year 2004. Forty-six of those 98 

contractors also received large-dollar commercial awards in prior years 

back through fiscal year 2000 or were included on DOD Top 100 or Air 

Force Top 50 contractor lists.1

 We considered them traditional contractors. 

For the remaining 52 contractors who did not receive large-dollar awards 

during that period (and who were not on DOD top 100 or Air Force top 

50 contractor lists), we used DOD’s DD 350 procurement database to 

determine if they had performed any contracts above $25,000 for the 

Army, Navy, or Air Force military departments, from fiscal year 1996 

through fiscal year 2002. Of the 52 contractors, 41 had received military 

department awards during this period and were therefore considered 

traditional contractors. We considered the 11 contractors who did not 

perform military department contracts during this period to be new to 

DOD. Table 1 lists the 87 total traditional contractors and the 11 new 

contractors according to our analysis. 

 1

 These lists, compiled by DOD’s Statistical Information Analysis Division, present 

summary data on companies receiving the largest dollar volume of DOD and Air Force

prime contract awards. We used only those lists describing contractors’ standings for fiscal 

year 2004.

Page 27 GAO-06-995 DOD Contracting
Appendix III: Traditional and Nontraditional 

Air Force Contractor Analysis, Fiscal Years 

1996-2004 

Table 1: Listing of Traditional Air Force Contractors, Fiscal Years 2003-2004 

1 ABB Automation 45 Intergraph 

2 ACS Defense 46 International Business Machine 

3 Adacel Systems 47 ITT Industries ITT Gilfi 

4 Aeroflex Wichita 48 Jacobs Engineering Group 

5 Aerovironment 49 King Aerospace 

6 AIL Systems 50 Kovatch 

7 Akima 51 L3 Communications 

8 Alaska Industrial Resources 52 Lockheed Martin 

9 Alutiiq Security Technology 53 Logtec

10 American Management Systems 54 Lynden Air Cargo LLC 

11 ARINC 55 Madison Research

12 ASAP Software 56 Messier Bugatti

13 ATAP 57 Motorola

14 BAE Systems Enterprise Systems 58 MRA Systems 

15 Balance Industries 59 MTC Technologies 

16 Beta Fluid Systems LLC 60 NMC Wollard 

17 Booz Allen Hamilton 61 Northrop Grumman 

18 California Industrial Facilities 62 Oklahoma Gas and Electric 

19 Cardio Theater Holdings 63 Point Blank Body Armor 

20 CDW Government 64 Raytheon Company 

21 CFM International 65 Redcom Laboratories

22 Channing Bete 66 Rockwell Collins 

23 Chugach Alaska 67 Rohde Schwarz 

24 CPI Aerostructures 68 Rollsroyce

25 Dell Computer 69 Science Applications International 

26 Digicon 70 Siemens Dematic 

27 Digital Support 71 Steelcase 

28 Digitalnet Government Solution 72 Stinar 

29 Dynamics Research 73 Sytex

30 E. F. Johnson 74 T Square Logistics Services 

31 Equipto Electronics 75 Telos 

32 Evergreen Helicopters of Alaska 76 Teradyne 

33 Fluke 77 Texas Commission for the Blind 

34 FMC 78 Boeing

35 General Dynamics 79 The Carlyle Group 

36 General Electric 80 The Rendon Group 

Page 28 GAO-06-995 DOD Contracting
Appendix III: Traditional and Nontraditional 

Air Force Contractor Analysis, Fiscal Years 

1996-2004 

37 Global Ground Support 81 Titan

38 Goodrich 82 TMP Worldwide Advertising 

39 Government Scientific Source 83 Tokyo Electric Power 

40 GTSI 84 United Technologies 

41 Hillstrom, David M 85 Westover Consultants 

42 Honeywell International 86 Work Services 

43 Industries for the Blind 87 XS International 

44 Integrated Information Technology 

Source: GAO analysis of DOD data. 

Table 2: Nontraditional Air Force Contractors (New Market Entrants), Fiscal Years 2003-2004, and Description of Contracted

Item or Service

Description of item or service Contractor

Aircraft and airframe structural comps Flight Refuelling Limited

Merlin Express, Inc. (Also M7 Aerospace) 

Transportation of things Ukranian Avia Transport Co. 

Architect and Engineering–General Geosierra, LLC

Maintenance, repair, and rebuilding of equipment KNI

Midwest Mechanical Contractors 

Housekeeping services AA Food Services, Inc. 

Austin Associates

USProtect Corp.

Wasatch Energy LLC 

Worldwide Security Services 

Source: GAO analysis of DOD data. 

Page 29 GAO-06-995 DOD Contracting
Appendix IV: Observations from Review of 20 

Air Force Contracts Using Commercial Appendix IV Acquisition : Observations from Review of 20 

Air Force Contracts Using Commercial 

Acquisition 

We reviewed 20 larger Air Force commercial contracts awarded in fiscal 

year 2004. We reviewed the contract files associated with these contracts 

at locations of the Air Force Materiel Command including (1) WrightPatterson Air Force Base, Ohio; (2) Tinker Air Force Base, Oklahoma; 

(3) Robins Air Force Base, Georgia; and (4) Hanscom Air Force Base, 

Massachusetts. We held discussions with contracting officers and 

procurement management officials associated with most of the selected

contracts. 

In three instances, parts for the C-5 military transport aircraft were 

procured under a system in which contractors produced a prototype or 

unique first article because these replacement parts did not already exist. 

These first articles were then subject to successful testing before the 

contractor was given approval to produce the remaining articles. As part 

of each contract, the government paid for the manufacturers to construct 

the unique first article and the various machine tooling they needed to

produce the articles. 

In two other cases, there were internal Air Force disagreements regarding 

determinations of commerciality. The items in question were C-130E and 

C-130H aircraft procured by foreign governments from a sole-source 

contractor, with the U.S. government (via the Air Force) acting as an 

intermediary. 

Page 30 GAO-06-995 DOD Contracting
Appendix V: Use of Commercial Acquisition in Appendix V Air Force Major Acquisition Programs : Use of Commercial Acquisition 

in Air Force Major Acquisition Programs 

Overall, 9.5 percent ($2.6 billion) of all Air Force contract dollars to major 

acquisitions were obligated under commercial acquisition from fiscal year

2004 through fiscal year 2005.

1

 We considered programs listed on OSD’s 

Selected Acquisition Report summary tables from fiscal year 2001 through 

fiscal year 2005 (except research and development programs) to be major 

acquisition programs. We also included joint programs from GAO’s 2006 

Defense Acquisitions: Assessments of Selected Major Weapon Programs 

(GAO-06-391) for which the Air Force was listed as the lead buyer.2

 We 

found three major acquisitions with Air Force involvement for which 

commercial actions constituted at least 75 percent of contract dollars 

obligated, and these acquisitions are shaded in table 3.3

 Excluding these 

three acquisitions, commercial expenditures for the remaining 25 major

acquisition programs with Air Force involvement constituted less than 1 

percent of total program dollars spent. 

 1

 We identified 33 major acquisition programs, but DD 350 records or data were available 

on only 28 of those programs. 

2

 Major acquisition programs were coded in the DD 350 database as Major Defense

Acquisition Programs (MDAPs) beginning in fiscal year 2004. Prior to that, the DD 350 

database did not distinguish some specific MDAPs such as the B-2 RMP (Radar 

Modernization Program) from the overall weapon system of which it is a part (i.e., the B-2 

Spirit bomber). For this reason, we limited our data to fiscal years 2004 and 2005. 

3

 Our determination that 75 percent of a program’s contract dollars were obligated under

commercial acquisition is based solely on data for fiscal years 2004 and 2005. In some cases

a program may have dedicated a larger percentage of its contract dollars to commercial 

acquisition in previous years. For example, $685 million of the $690 million obligated in 

fiscal years 2001-2003 for the Wideband Gapfiller was commercial. The DD 350 database 

does not, however, group contract data collected for these years under the program name 

Wideband Gapfiller.

Page 31 GAO-06-995 DOD Contracting
Appendix V: Use of Commercial Acquisition in

Air Force Major Acquisition Programs 

Table 3: Commercial Contract Actions in Air Force Major Acquisition Programs, Fiscal Years 2004-2005 

Major acquisition

program 2004 2005

Total commercial major 

acquisition program

dollars 2004-2005

Commercial dollars as a percentage

of total major acquisition program

dollars 2004-2005

AEHF ○ ○ 0 0.0%

AMRAAM ● ● $1,275,000 0.2%

AWACS RSIP (E-3) ● ● $2,160,000 5.5%

B1-B CMUP ● ● $3,323,000 1.8%

B1-CMUP Computer 

Upgrade 

No record No record 

No record No record

B-2 RMP ○ ○ 0 0.0%

C-130 AMP ○ ● $1,083,000 0.3%

C-130J † † $1,776,055,000 94.7%

C-17A ● ● $31,365,000 0.4%

C-5 RERP ● ● $6,210,000 0.9%

EELV ○ ○ 0 0.0%

F-22 ● ● $179,000 0.0%

GBS ○ ○ 0 0.0%

Global Hawk ● ● $581,000 0.1%

JASSM ● ● $72,000 0.0%

JDAM ● ○ $118,000 0.0%

JPATS † † $613,917,000 79.8%

F-35 (JSF) ○ ○ 0 0.0%

JSTARS ● ● $16,884,000 2.9%

JTRS AMF No record No record No record No record

Minuteman III GRP ○ ○ 0 0.0%

Minuteman III PRP ● ● $91,316,000 13.0%

NAS ○ † $2,370,000 92.0%

NAVSTAR GPS ● ● $32,395,000 2.8%

NPOESS ● ○ $90,000 0.0%

MP RTIP ○ ○ 0 0.0%

MPS No record No record No record No record

MQ-9 Predator B No data No data No data No data

SBIRS (High) ○ ○ 0 0.0%

SDB ● ● $546,000 0.3%

Page 32 GAO-06-995 DOD Contracting
Appendix V: Use of Commercial Acquisition in

Air Force Major Acquisition Programs 

Major acquisition

program 2004 2005

Total commercial major 

acquisition program

dollars 2004-2005

Commercial dollars as a percentage

of total major acquisition program

dollars 2004-2005

TITAN IV ○ ○ 0 0.0%

TSAT No record No record No record No record

Wideband Gapfiller ● ● $4,281,000 6.8%

Source: GAO analysis of DOD and Air Force data.

Legend: 

○ No commercial actions 

● Commercial actions 

† Commercial actions account for at least 75 percent of dollars obligated

Page 33 GAO-06-995 DOD Contracting
Appendix VI: Citations for Commissions,

Appendix VI: Citations for Commissions, Legislation, and Panel Shown in Figure 1 

Legislation, and Panel Shown in Figure 1 

1972–Commission on Government Procurement—See Report of the 

Commission on Government Procurement, Vol. 3, Pt. D, “Acquisition of 

Commercial Products,” (Dec. 1972). 

1984–Competition in Contracting Act of 1984—Pub. L. No. 98-369, Div. B, 

Title VII. 

1986–President’s Blue Ribbon Commission on Defense Management 

(Packard Commission)—A Quest for Excellence: Final Report to the 

President by the President’s Blue Ribbon Commission on Defense 

Management (June 1986), 60-64. 

1986–National Defense Authorization Act for Fiscal Year 1987—Pub. L. No. 

99-661, Div. A, Title IV, Sec. 907(a) (1986). 

1993–Advisory Panel on Streamlining and Codifying Acquisition Laws 

(Sec. 800 Panel)–Established Pursuant to Section 800 of the National 

Defense Authorization Act for Fiscal Year 1991, Pub. L. No. 101-510 (1990); 

Streamlining Defense Acquisition Laws: Report of the Acquisition Law 

Advisory Panel to the U.S. Congress, Intro. I-9 (1993). 

1994–Federal Acquisition Streamlining Act—Pub. L. No. 103-355, Section 

1202 and Title VIII (1994). 

1996–Clinger-Cohen Act of 1996–Pub. L. No. 104-106, Div. D (1996), 

formerly the Federal Acquisition Reform Act of 1996 and renamed in 

Treasury, Postal Service and General Government Appropriations Act, 

1997, contained in Omnibus Consolidated Appropriations Act, 1997, Pub. 

L. No. 104-208, Section 808 (1996). 

2003–Services Acquisition Reform Act of 2003—Pub. L. No. 108-136, Title

XIV, Section 1431, 1432 (2003). 

Page 34 GAO-06-995 DOD Contracting
Appendix VII: Comments from the Appendix VII: Comments from the Department of Defense 

Department of Defense 

Page 35 GAO-06-995 DOD Contracting
Appendix VII: Comments from the 

Department of Defense 

(120461) Page 36 GAO-06-995 DOD Contracting
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