United States General Accounting Office

GAO Report to Congressional Committees

October 1996 ACQUISITION

REFORM

The Government’s

Market Research

Efforts

G O A

years

1921 - 1996

GAO/NSIAD-97-3

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-272645 

October 11, 1996

Congressional Committees

In accordance with section 8305 of the Federal Acquisition Streamlining

Act of 1994 (FASA, P.L. 103-355), we reviewed the government’s use of

market research. Market research is the process used to collect and

analyze data about capabilities in the market that could satisfy an agency’s

procurement needs. Specifically, we were required to (1) review existing

federal government market research efforts regarding commercial items

and nondevelopmental items (NDI) and (2) review the feasibility of creating

a governmentwide database for storing, retrieving, and analyzing market

data.1

For purposes of our review, the term “existing market research efforts”

includes (1) efforts/practices used for selected contracts awarded during

our review and for associated acquisition requirements, which often

occurred a year or more earlier and (2) efforts/practices used to

implement FASA requirements. As such, the term includes market research

done both prior to and after the regulations implementing FASA’s market

research requirements became mandatory for use, December 1, 1995

(referred to as pre-FASA and post-FASA practices, respectively). To

determine market research efforts, we reviewed 21 contracts that were

awarded by some of the major federal buying agencies identified in the

Federal Procurement Data System.2

 These contracts are not intended to

represent a scientific sample. For each contract, we also reviewed

available market research information on the acquisition requirements.

We also obtained from government procurement officials and industry

procurement officials their views on the feasibility of creating a

governmentwide database for storing, retrieving, and analyzing market

data.

1

FASA, section 8001 (a), and the Federal Acquisition Regulation (FAR) define commercial items more

broadly than this term had been defined. Also, the FAR defines NDI to include any previously

developed item of supply used exclusively for governmental purposes by a federal agency, a state or

local government, or a foreign government with which the United States has a mutual defense

cooperation agreement. Unlike FASA, the FAR does not specifically include all commercial items as a

subset of NDI. (See app. I for the FAR definitions of commercial items and NDI.)

2

The Federal Procurement Data System contains governmentwide data on agencies’ contract awards.

Each executive agency is required to collect and report to this system selected data on contract

awards exceeding $25,000.

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Background Market research has been a statutory requirement for over 10 years, since

the passage of the Competition in Contracting Act of 1984, which required

the use of market research and procurement planning to promote the use

of competitive procedures in federal contracting. The FAR implemented

those market research provisions and essentially established market

research as a tool for identifying (1) sources to ensure competition and

(2) commercial products to meet an agency’s needs. Emphasis on the use

of market research to identify commercial items has evolved, however,

since the 1984 act was enacted. For example, in November 1990, Congress

reemphasized market research for the Department of Defense (DOD) in the

National Defense Authorization Act for Fiscal Year 1991 (P.L. 101-510).

This act sought to encourage DOD to save money and reduce acquisition

cycle time by buying products that were commercially available or had

already been developed.

FASA, which was enacted on October 13, 1994, reiterated some existing

requirements and stipulated additional ones for market research for all

federal executive agencies. It requires federal executive agencies to

conduct market research before developing new specifications for a

procurement and before soliciting bids or proposals for a contract

exceeding $100,000. FASA also requires agencies to use market research

results to determine whether commercial items/NDI could meet their needs

if either the item or the requirement were modified to some extent. These

provisions seek to ensure that agencies’ requirements definition and

contracting communities are involved in market research and that

cost/performance tradeoffs are evaluated up front to encourage the use of

commercial items or NDI.

All FASA provisions were to apply no later than October 1, 1995. The

officials responsible for incorporating FASA’s market research provisions

into the FAR, however, made such revisions optional for solicitations

issued from October 1 through November 30, 1995, and mandatory for

solicitations issued on or after December 1, 1995. The officials explained

that the 2-month delay allowed more time for agency officials to be trained

and familiarize themselves with the changes in the regulations. Such

regulatory changes included (1) the use of note 26 in Commerce Business

Daily (CBD) preaward notices as a final check on the government’s market

research effort3

 and (2) the requirement to identify, via market research,

3

Note 26 provides that, based on market research results, the government does not plan to solicit the

described supplies or services using the FAR’s commercial item procedures. As a contracting officer’s

final check on the ability of the commercial marketplace to respond, the note asks interested parties to

identify, within 15 days, their capability to fulfill the government’s requirement with a commercial

item.

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customary commercial practices regarding customizing, modifying, or

tailoring of items to meet customer needs and associated costs.

The FAR lists some market research techniques, including (1) contacting

knowledgeable individuals in the government and industry regarding

market capabilities to meet the acquisition requirements, (2) publishing

formal requests for information in appropriate technical journals or

business publications, and (3) involving potential offerors in interchange

meetings or holding presolicitation conferences early in the acquisition

process.

Results in Brief Our review of 21 selected contracts and discussions with DOD and civilian

agency officials showed that the government’s market research efforts

varied widely, but the variances appeared to be appropriate. For example,

for pre-FASA efforts, DOD emphasized the use of market research for

commercial items and NDI more than the civilian agencies did, primarily

because of statutory requirements that applied to DOD. However, post-FASA,

the civilian agencies we visited have increased their emphasis on market

research. In addition, the type and extent of market research varied for the

21 contracts we reviewed. Overall, the agencies (1) obtained commercial

items or NDI in 16 of the 21 contracts, although for 3 of the 16, market

research was, for legitimate reasons, not performed and (2) used market

research to obtain government unique items or services in 5 of the 21

contracts.

At the time of our review, implementation of FASA’s market research

requirements was underway, but government and industry officials said it

would take well over a year after the December 1, 1995, implementation

date before the impact of the changes could be realized. For example, in

our review of CBD notices published from October 1995 to May 1996, we

found that the final check on the government’s market research, which the

FAR required, generally was not being used. Although officials at most of

the activities we contacted said they were not aware of the requirement

and would send out policy letters to increase compliance, the Director of

Defense Procurement and the General Services Administration’s (GSA)

Associate Administrator for Acquisition Policy took issue with an

across-the-board application of the requirement. They stated that they

would take actions to amend the FAR to exempt certain contracts from this

requirement.

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There is strong opposition to creating a governmentwide,

government-maintained database for storing, analyzing, and retrieving

market data. Most government and industry officials said that such a

database would be too costly to maintain, be hard to keep current, and

provide few benefits. They said using the tools available on the Internet

appears to be a more practical alternative. For example, some officials

stated that powerful search engines are becoming available on the Internet

that will likely facilitate market research of private sector and government

electronic catalogs. In addition, interactive forums have been placed on

the Internet, such as DOD’s newly developed Commercial Advocates

Forum, that provide useful market research tools and information. Based

on our discussions with government and industry officials, and in light of

new developments on the Internet, we do not believe that federal agencies

should be required, at this time, to create a government-maintained

database to store, retrieve, and analyze market data.

Existing Market

Research Varied:

Benefits From FASA

Changes Expected

Later

In general, existing market research efforts and practices relating to

commercial items and NDI varied greatly. For example, we found variances

in the emphasis DOD and civilian agencies placed on pre-FASA market

research. Additionally, our review of selected acquisition requirements

and contract awards showed variances in the type and extent of existing

market research practices, primarily due to the circumstances surrounding

the buy. Such circumstances included the dollar value; nature of the buy

(whether it was a new or recurring requirement); and the industry sector

or pace of technology changes for the item involved. Variances were also

apparent in the use of the results of such research.

Efforts to implement FASA’s market research changes are underway.

Government and industry officials stated, however, that it will probably

take well over a year after the December 1, 1995, implementation of FASA

in governmentwide regulations for significant effects of these changes to

be apparent. For example, our review of the use of CBD note 26—the

government’s final check on their market research—showed that it is early

in the implementation phase. Specifically, due to a lack of awareness of

the FAR requirement, federal agencies and procuring activities were

generally not using note 26.

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DOD and Civilian

Agencies’ Market Research

Requirements and

Guidance Varied in

Emphasis

DOD emphasized market research for commercial items and NDI more than

the civilian agency locations we visited. Such emphasis is partly due to

additional statutory requirements related to commercial items/NDI and

associated market research that have applied to DOD for several

years—before FASA made them applicable governmentwide. These

included the National Defense Authorization Act for Fiscal Year 1991 

(P.L. 101-510). Section 810 of this act required DOD to conduct market

research to determine whether an NDI, including a commercial item, was

available or could be modified to meet the agency’s need before

developing a new specification for a developmental item.

As a result of such statutory requirements, DOD, before FASA, had

(1) written guidance for its market research process; (2) conducted

market research training for specification writers and program managers

and their staffs (but not necessarily including contracting officials);

(3) established NDI advocates to promote the acquisition of more

commercial items and NDI through, among other things, the use of market

research; and (4) collected data to measure trends in the procurement of

such items.

We did not find as much pre-FASA emphasis on market research within the

civilian agencies we visited as in DOD. For example, most did not have

separate guidance for commercial/NDI market research, or provide training

to their acquisition officials that focused on market research.4

 However,

post-FASA, some of the civilian agencies have written market research

guidance, developed market research training, and adopted many of DOD’s

procedures.

The Type, Extent, and Use

of Market Research Varied

Market research was performed for 18 of the 21 contracts we reviewed.

The three contracts for which such research was not performed were

awarded under exceptions to full and open competition.5

 The market

research performed in the 18 remaining contracts varied, primarily based

on the complexity of the buy; its nature (whether the buy was to fulfill a

4

The exception was the Federal Aviation Administration. Pre-FASA, it had provided DOD’s NDI

guidance, which includes a chapter on market research, as part of its policy order on the use of NDI

and, according to agency officials, had provided some training to selected managers and product

teams. They did not, however, collect data to measure trends in the procurement of commercial items

and NDI.

5

Full and open competition was not required for one contract because of unusual and compelling

urgency and for the remaining two contracts because directed sources had been specified in

international agreements. The FAR does not require publication of CBD notices in such circumstances.

Page 5 GAO/NSIAD-97-3 Acquisition Reform
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new or recurring requirement); the dollar value of the buy; and the

industry sector involved.

For example, the Air Force Electronic Systems Center used a number of

market research techniques before finalizing the specification and

soliciting offers for one contract totaling $7.6 million. This contract is for a

handheld thermal imager to assist security personnel in assessing the

cause of alarms emanating from intrusion detection sensors deployed

under the Tactical Automated Security System. Specifically, the Air Force

tasked the Sandia National Laboratory to conduct a market survey, which

was completed in January 1992. Also, the system program office

performed an acquisition requirements tradeoff study in 1993 before

establishing the requirement. In addition, program officials regularly used

industry trade shows, DOD association meetings, and joint service briefings

to assess improvements in handheld thermal imagers. They said that the

concentration of industry equipment demonstrations and technical

personnel at these meetings afforded ideal conditions to determine the

state of the art of thermal imagers and identify industry research and

development efforts to address this new operational requirement. Notices

seeking sources for the thermal imagers were published in the CBD in April

and August 1995, and face-to-face meetings were held with several of the

vendors who responded to these notices. A solicitation was issued in

September 1995 and a contract was awarded in March 1996 for a modified

commercial item.

On the other hand, less complex market research was performed for a new

requirement that involved a simpler, lower dollar value procurement.

Specifically, this Army Communications and Electronic Command

contract was for a commercially available off-the-shelf Asynchronous

Transfer Mode Network Analyzer that would be used to test computer

network operations. According to program officials, the users were aware

of what was available commercially and contacted a number of companies

to determine prices and capabilities. The list of companies was provided

to the contracting officer, who published a CBD notice for additional

sources. The requirement was identified in November 1994 and a

$118,900-contract was awarded for a commercial item in March 1996.

Table II.1 in appendix II presents the results of our review of the 

21 contracts by agency or military service command, including a

description of the item bought, the dollar value of the contract, the type of

requirement (or the nature of the buy), and the types of market research

conducted before requirements development and solicitation of offers.

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DOD and industry officials have repeatedly stated that DOD’s acquisition

system must evolve not only to meet national security needs, but also to

take advantage of rapid technological changes in industry. Critical items

such as computers and electronic components are examples of such

rapidly changing technology. Officials from the Army’s Communications

and Electronic Command and the Air Force’s Electronic Systems Center

stated that they keep abreast of such changes by holding frequent briefings

with industry representatives to exchange information on new

developments. At such meetings, industry participants inform participants

from the military activities what they are developing and the military

services tell industry what they may need. The Electronic Systems Center

officials told us that their market research efforts for specific buys do not

have to be—and are not—that extensive now because they have kept up

with changes in industry and are relying primarily on industry to supply

electronic solutions to their needs since most of what they buy are

integrated commercial items. They also stated that their solicitations and

awards for new items require contractors to use commercial items and

components to the maximum extent practical.

Regarding the use of the results of market research in the contracts

reviewed, we found evidence that such research was used in 13 of the 

21 contracts to obtain commercial items and NDI6

 and in 5 of the 

21 contracts to obtain government-unique items or services. In 6 of the 

13 contracts, market research identified commercial items/NDI, which

ultimately were bought as is. In the other seven contracts, the agencies

bought a modified commercial item/NDI. In addition, cost and/or

performance tradeoffs were made and acquisition requirements were

modified in 6 of the 13 contracts. Table II.2 in appendix II presents the

results of the use of market research in these contracts and information

regarding tradeoffs on acquisition requirements for the 21 contract

actions.

Post-FASA Implementation

Underway, but Results Not

Expected Immediately

FASA’s enactment has spurred DOD and civilian agencies to make a number

of changes relative to market research. For example, post-FASA efforts to

implement the new market research requirements have included (1) the

Defense Acquisition University’s development of a governmentwide

satellite training program, for the acquisition workforce, that included

modules on market research; (2) the Office of Federal Procurement

Policy’s (OFPP) efforts to compile a list of available commercial training

6

There were three other contracts where commercial items were obtained; however, market research

was not conducted because the contracts were awarded under an exception to full and open

competition, as previously discussed.

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courses for market research; (3) the Federal Acquisition Institute’s

revisions and development of online training materials relating to market

research; (4) GSA’s compilation of commercial terms and conditions used

by 100 of the top Fortune 500 companies; and (5) DOD’s issuance of its 1996

5000.1 and 5000.2 acquisition guidance, incorporating FASA’s market

research changes.

Regarding the development of specifications for a procurement, officials

in DOD and the civilian agencies we visited pointed out two significant

post-FASA changes (1) a much stronger preference for commercial items

and (2) a requirement to determine whether the agency’s acquisition

requirements should be modified, to a reasonable extent. Aside from this,

the only other significant market research-related changes noted by these

officials that resulted from the implementation of FASA related to

customary commercial practices and use of CBD note 26. These officials

stated that market research for developing specifications, as envisioned by

FASA, has been performed for years by the technical community, which

includes program management officials and specification writers. They

further stated that they do not expect a lot of changes to the current

market research process or practices they perform as a result of FASA and

FAR market research requirements.

Focusing specifically on contracting, as opposed to acquisition

requirements and specifications, the contracting officials within DOD and

civilian agencies noted that the market research they normally perform

will not be just a product/sources search as in the past. Instead, FAR now

states that the contracting officer should identify the customary

• commercial terms and conditions for the item being bought;

• practices regarding customizing, modifying, or tailoring of items to meet

customer needs;

• practices regarding buyer financing and warranty terms; and

• practices of the commercial sector, in general, so that the contracting

officer can tailor the FAR clauses to be consistent with commercial

practices.

Most of the procurement officials we spoke with did not believe there

were any standard terms, conditions, or practices industrywide. Although

early efforts were being made to identify customary commercial practices,

and terms and conditions associated with particular items, officials we

spoke with stated, for the most part, vendors’ proposals and subsequent

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negotiations with offerors will probably continue to be used to determine

such information.

Most of the acquisition and procurement officials we contacted in DOD, the

civilian agencies, and the industry were unable to provide us with

examples of any significant effects of the FASA market research changes.

These officials stated that the significant effects of such changes will not

be apparent for at least a year after governmentwide regulatory

implementation. They also noted that, during the first year of

implementation, training will be needed and, once that training is

conducted, the benefits of such training will not show up for quite

sometime thereafter.

CBD Note 26 Is Generally

Not Being Used

Numbered note 26 states that:

“Based upon market research, the Government is not using the policies contained in Part

12,7

 Acquisition of Commercial Items, in its solicitation for the described supplies or

services. However, interested persons may identify to the contracting officer their interest

and capability to satisfy the Government’s requirement with a commercial item within 

15 days of this notice.”

From October 1, 1995, through May 7, 1996, only 58 of over 2,500 DOD and

civilian contracting activities used numbered note 26 in a total of 151 CBD

notices of solicitations. The 151 notices represented only a small fraction

of the total number of solicitation notices that were published during that

7-month period. Appendix III lists the DOD and civilian contracting

activities that used the note and the number of CBD announcements with

note 26.

We contacted four activities—the Army’s Communications and

Electronics Command, the Navy’s Naval Sea Systems Command, and the

Air Force’s Electronic Systems Center and Wright-Patterson Air Force

Base—to find out why they were not using the note. They told us,

essentially, that (1) this requirement had been overlooked and (2) they

would emphasize it to their contracting staff in future policy letters. We

brought this to the attention of officials in OFPP, GSA, and DOD. Although

these officials acknowledged that the regulation writers may have

intended for note 26 to be used as a final check on the government’s

7

FAR part 12 contains policies and procedures unique to the acquisition of commercial items. It

includes (1) standard provisions and clauses for use in such buys, (2) a list of laws inapplicable to

executive agency prime contracts for commercial item buys, and (3) streamlined procedures for

soliciting offers and awarding contracts for commercial items.

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market research, some DOD and GSA officials objected to an

across-the-board use of the note as such a check.

DOD officials stated that because a number of their items are

military-unique, the note would have to go into hundreds of thousands of

their notices of solicitation and that this may not be practical. GSA officials

stated that certain services, such as construction and architecture and

engineering are already covered under a different part of the FAR that

reflects current commercial practices in these areas. These officials said

that use of the note in all acquisitions, including construction and

architecture and engineering services, would place an unnecessary burden

on contracting officials, who would have to evaluate all responses to the

note. Both the DOD and GSA officials stated that they would take actions to

exempt these types of contracts from the note 26 requirement.8

Although some DOD officials have expressed concern over the use of

numbered note 26, DOD, when commenting on a draft of this report, stated

that it does not currently plan to change its market research process or

practices that have been implemented under FASA, unless its process

measurements in this area indicate a need to do so. GSA, in its comments

on our draft report, stated that the issue of an across-the-board application

of number note 26 is being reviewed by the FAR Commercial Contracting

Drafting Team as part of its efforts to address related questions that have

arisen. The Environmental Protection Agency (EPA), in its comments on

our draft report, stated it had reminded its contracting staff of the

requirement to use numbered note 26.

Broad Consensus

Against a Governmentmaintained Database,

but Other Ideas Might

Be Helpful

Government and industry officials have provided varied opinions on the

possibility of creating a governmentwide database for storing, retrieving,

and analyzing market data. However, most of them opposed the creation

of a comprehensive, governmentwide, and government-maintained

database. They said it would (1) be too costly for such a database to

contain information comprehensive enough to cover the spectrum of

potential federal government procurements, (2) take enormous amounts

of funding and staffing resources to maintain, (3) not likely be kept

current, and (4) provide few benefits.

8

A regulatory drafting team is currently considering additional commercial item issues not addressed

in the implementation of FASA. Among other things, the team is looking at the relationship between

FAR Part 12, Acquisition of Commercial Items and FAR Part 36, Construction and Architect-Engineer

Contracts.

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In addition, there were varied opinions on what such a database should

contain that would truly facilitate market research. Some officials

indicated that information on the following would be helpful (1) products

available in industry and previously developed for other agencies; (2) past

acquisitions made by the government, such as the data that is currently

included in the Federal Procurement Data System; and/or (3) commercial

terms and conditions associated with a particular item.

We found that the Army’s Communication and Electronics Command had

used a self-developed commercial and NDI product database for

approximately 6 years. However, the Command eventually terminated the

system because it was never current, due to rapid advances in electronic

technology and cost too much to maintain—about $500,000 annually.

According to Command officials, the activity decided to use

DATAPRO—an industry firm that provides some of the same information

they were trying to maintain, but in a more up-to-date manner.

We also talked with officials from selected private sector firms about their

market research efforts, companywide databases that would facilitate

market research, and their views on the feasibility of a governmentwide,

government-maintained database to facilitate market research. They said

such a database is feasible but would be difficult to maintain and would be

costly. They noted that their companies have or are generating

companywide databases to provide prior procurement information, which

is similar to the data in the Federal Procurement Data System and in

individual government buying activities.

In contrast to the reaction against a government-maintained database,

many of the government and industry officials we spoke with favored

other technology-related ideas to facilitate market research. In fact, some

officials stated that private industry through the Internet—a global

“network of networks,” which in 1995 linked over 59,000 networks,

2.2 million computer systems, and 15 million users in 92 countries—should

be the vehicle used to provide market research information. They also

stated that any of the previously suggested types of information (product

data, terms and conditions, or data on past acquisitions) could be accessed

from the Internet. These officials noted that the Internet is becoming a

popular forum for providing federal acquisition information, and that

private industry has started to use the Internet to list their products and

services and, in some cases, to provide extensive commercial catalogs.

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For example, OFPP officials and others pointed out that powerful “search

engines” are becoming available on the Internet that will facilitate market

research of private sector and government electronic catalogs. In

commenting on a draft of this report, OFPP officials noted that they had

provided guidance for the major procuring agencies to promote the use of

the Internet for market research. In addition, DOD officials said the Internet

could facilitate greater use of common databases across military service

lines as agencies place such information on their Internet home pages.

Currently, there are a number of federal initiatives related to the Internet

and its use to facilitate market research. These include

• DOD’s Commercial Advocates Forum, which was created as an interactive

forum to provide tools for searching government and private sector

catalogs, assist DOD officials in identifying commercial terms and

conditions, and provide other market research information—such as

lessons learned and best practices;

• the Interagency Acquisition Internet Council, which seeks, among other

things, to promote federal agencies’ use of the Internet as a virtual

marketplace and its use as a market research tool;9

 and

• various agencies’ use of the Internet to publicize their future acquisition

plans.

The DOD Commercial Advocates Forum, for example, contains a market

research “icon” where DOD officials can access DOD regulations related to

market research, best practices in this area, and a “toolbox” of aids to

assist in market research. Specifically, the toolbox contains a number of

items such as (1) the Thomas Register of American Manufacturers, which

provides sourcing information on nearly 52,000 industrial products and

services as well as specifications and availability information from

thousands of manufacturers; (2) the Dunn and Bradstreet Catalog, which

identifies and assists in evaluating potential suppliers based on purchasing

needs; and (3) the Frost and Sullivan Report, a large market research

consulting firm that provides market research information and reports on

over 20 key industries. According to the developers of the commercial

advocates’ forum, the listings in the toolbox are of organizations that

provide information on suppliers and linkages to those suppliers’ catalogs.

These tools can all be utilized by the contracting and requirement officials

in performing market research.

9

The Interagency Acquisition Internet Council has just begun its efforts. Although not a priority item,

Council officials told us they plan to review market research at a later date.

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In light of these Internet initiatives and the strong consensus against the

database, we do not believe that federal agencies should be required, at

this time, to create a comprehensive, governmentwide, and

government-maintained database to store, retrieve, and analyze market

data.

Scope and

Methodology

We performed our work in agencies that were listed in the Federal

Procurement Data System as large buyers of goods and services. These

included DOD, GSA, the National Aeronautics and Space Administration

(NASA), EPA, and the Department of Transportation (the Federal Aviation

Administration and the Coast Guard). More specifically, we interviewed

officials from (1) the Naval Sea Systems Command and the Space and

Naval Warfare Systems Command; (2) the Office of the Assistant Secretary

of the Army for Acquisition, Research, and Development, the Army

Contract Support Office, and Communications and Electronics Command;

(3) the Air Force’s headquarters Office of the Deputy Assistant Secretary

for Contracting—the FAR Systems, Wright-Patterson Air Force Base, and

Hanscom’s Electronic Systems Center; (4) the Defense Logistics Agency’s

Defense Fuel Supply Center, Defense Electronics Supply Center, Defense

General Supply Center, Defense Personnel Support Center, Defense

Construction Supply Center, and Defense Industrial Supply Center; and

(5) NASA’s Goddard Space Center. We interviewed officials from these

organizations regarding (1) pre-FASA market research practices;

(2) planned changes under FASA and the new FAR; and (3) the feasibility of

creating a governmentwide database to store, retrieve, and analyze market

data.

We also reviewed a judgmental sample of contracts awarded during our

audit work (October 1995 through July 1996) by some of the major buying

activities listed above. We selected, from these activities, contracts that

varied in dollar amount, complexity, and industry sector to provide

descriptive market research information for a variety of procurements.

This sample was not intended to be a scientific sample.

In addition, we interviewed officials from OFPP, as well as industry officials

about (1) the changes related to market research and the procurement of

commercial items and (2) the feasibility of creating a governmentwide

database for market data. Industry officials were from Lockheed Martin;

McDonnell Douglas Corporation; International Business Machines

Corporation; INPUT—a market research organization; the Computer and

Communications Industry Association; the Computer Business and

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Equipment Manufacturers’ Association; the Aerospace Industries

Association; and the Electronics Industry Association. In addition, we

reviewed prior reports, hearings, studies, and selected market

surveys/investigations relating to the government’s efforts to identify

commercial items and NDI.

We also reviewed (1) the draft and final versions of the new market

research provisions in the FAR, along with comments provided by the

various federal agencies and industry organizations and (2) agency

guidance related to market research, such as the new DOD series 5000.1,

entitled “Defense Acquisition” and 5000.2-R, entitled “Mandatory

Procedures for Major Defense Acquisition Programs and Major Automated

Information System Acquisition Programs,” both dated March 15, 1996. We

also observed several demonstrations by agency officials of market

research tools on the Internet and obtained various market research

documentation from the Internet.

Section 8305 of FASA also required us to make “. . . any recommendations

for changes in law or regulations that the Comptroller General considers

appropriate.” Since it is early in the implementation of the FAR market

research changes and the results from such changes are not expected until

a year after implementation, we have no changes to recommend at this

time. We conducted our review between October 1995 and July 1996 in

accordance with generally accepted government auditing standards.

Agency Comments In commenting on a draft of this report, DOD, EPA, GSA, NASA, and OFPP

generally agreed with the information in the report. Each made some

suggestions to improve the clarity and technical accuracy of the report and

we have incorporated them in the text where appropriate. DOD and NASA

submitted written comments, and the other agencies submitted theirs

orally. DOD’s and NASA’s comments are reprinted in appendixes IV and V,

respectively.

We are sending copies of this report to the Director, Office of Management

and Budget; the Secretary of Defense; the Administrator of OFPP; the

Administrator of NASA; the Administrator of GSA; the Administrator of EPA;

and other interested congressional committees. We will also make copies

available to others upon request.

Page 14 GAO/NSIAD-97-3 Acquisition Reform
B-272645 

Please contact me or my Associate Director, David E. Cooper, at

(202) 512-4841 if you or your staff have any questions concerning this

report. Major contributors to this report are listed in appendix VI.

Louis J. Rodrigues

Director, Defense Acquisitions Issues

Page 15 GAO/NSIAD-97-3 Acquisition Reform
B-272645 

List of Congressional Committees

The Honorable Ted Stevens

Chairman

The Honorable John Glenn

Ranking Minority Member

Committee on Governmental Affairs

United States Senate

The Honorable Strom Thurmond

Chairman

The Honorable Sam Nunn

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Christopher S. Bond

Chairman

The Honorable Dale L. Bumpers

Ranking Minority Member

Committee on Small Business

United States Senate

The Honorable William F. Clinger, Jr.

Chairman

The Honorable Cardiss Collins

Ranking Minority Member

Committee on Government Reform and Oversight

House of Representatives

The Honorable Floyd D. Spence

Chairman

The Honorable Ronald Dellums

Ranking Minority Member

Committee on National Security

House of Representatives

The Honorable Jan Meyers

Chairwoman

The Honorable John J. LaFalce

Ranking Minority Member

Committee on Small Business

House of Representatives

Page 16 GAO/NSIAD-97-3 Acquisition Reform
Page 17 GAO/NSIAD-97-3 Acquisition Reform
Contents

Letter 1

Appendix I 

Federal Acquisition

Regulation’s

Definition for

Commercial Items

and

Nondevelopmental

Items

20

Appendix II 

Market Research

Efforts and Results

for the 21 Contracts

Reviewed

22

Appendix III 

DOD and Civilian

Agencies That Used

Numbered Note 26

27

Appendix IV 

Comments From the

Department of

Defense

29

Page 18 GAO/NSIAD-97-3 Acquisition Reform
Contents

Appendix V 

Comments From the

National Aeronautics

and Space

Administration

30

Appendix VI 

Major Contributors to

This Report

31

Tables Table II.1: Market Research Efforts in Developing Requirements

and Increasing Competition

22

Table II.2: Results of Market Research Efforts 25

Table III.1: DOD Contracting Activities That Used Note 26 27

Table III.2: Civilian Contracting Activities That Used CBD Note 26 28

Abbreviations

CBD Commerce Business Daily

DOD Department of Defense

EPA Environmental Protection Agency

FAR Federal Acquisition Regulation

FASA Federal Acquisition Steamlining Act of 1994

GSA General Services Administration

NASA National Aeronautics and Space Administration

NDI nondevelopmental item

OFPP Office of Federal Procurement Policy

Page 19 GAO/NSIAD-97-3 Acquisition Reform
Appendix I 

Federal Acquisition Regulation’s Definition

for Commercial Items and

Nondevelopmental Items

In accordance with the Federal Acquisition Regulation (FAR) part 2.101,

“Commercial item” means:

(a) “Any item, other than real property, that is of a type customarily used for

nongovernmental purposes and that— (1) Has been sold, leased, or licensed to the general

public; or, (2) Has been offered for sale, lease, or license to the general public;

(b) “Any item that evolved from an item described in paragraph (a) 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;

(c) “Any item that would satisfy a criterion expressed in paragraphs (a) or (b) of this

definition, but for— (1) Modifications of a type customarily available in the commercial

marketplace; or (2) 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;

(d) “Any combination of items meeting the requirements of paragraphs (a), (b), (c), or (e)

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

general public;

(e) “Installation services, maintenance services, repair services, training services, and other

services if such services are procured for support of an item referred to in paragraphs (a),

(b), (c), or (d) of this definition, and if the source of such services— (1) Offers such

services to the general public and the Federal Government contemporaneously and under

similar terms and conditions; and (2) Offers to use the same work force for providing the

Federal Government with such services as the source uses for providing such services to

the general public;

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

commercial marketplace based on established catalog or market prices for specific tasks

performed under standard commercial terms and conditions. This does not include

services that are sold based on hourly rates without an established catalog or market price

for a specific service performed;

Page 20 GAO/NSIAD-97-3 Acquisition Reform
Appendix I 

Federal Acquisition Regulation’s Definition

for Commercial Items and

Nondevelopmental Items

(g) “Any item, combination of items, or service referred to in paragraphs (a) through (f),

notwithstanding the fact that the item, combination of items, or service is transferred

between or among separate divisions, subsidiaries, or affiliates of a contractor; or

(h) “A nondevelopmental item, if the procuring agency determines the item was developed

exclusively at private expense and sold in substantial quantities, on a competitive basis, to

multiple State and local governments.”

FAR 2.101 defines “nondevelopmental items” to mean:

(a) “Any previously developed item of supply used exclusively for governmental purposes

by a Federal agency, a State or local government, or a foreign government with which the

United States has a mutual defense cooperation agreement;

(b) “Any item described in paragraph (a) of this definition that requires only minor

modification or modifications of a type customarily available in the commercial market

place in order to meet the requirements of the procuring department or agency; or

(c) “Any item of supply being produced that does not meet the requirements of paragraph

(a) or (b) solely because the item is not yet in use.”

Page 21 GAO/NSIAD-97-3 Acquisition Reform
Appendix II 

Market Research Efforts and Results for the

21 Contracts Reviewed

Table II.1 shows the market research efforts in developing requirements

and increasing competition. Table II.2 shows the results of the market

research efforts for the 21 contracts we reviewed.

Table II.1: Market Research Efforts in Developing Requirements and Increasing Competition

Dollars in thousands

Contract description

Contract

amount Type of requirement

Market research

conducted prior to

finalizing the specification

for the current contract

Market research

conducted to identify

sources for competitiona

U.S. Army Communication and Electronic Command

Near-term digital radio $10,700.0 Enhancementb Draft RFP, face-to-face

meetings with vendors,

broad agency

announcement, technical

demonstration, and

presolicitation conferences

CBD notice

Family of loudspeakers 1,787.1 Enhancement Market investigation reports,

draft RFP, informal

discussions with industry,

and presolicitation

conferences

CBD notice

Asynchronous transfer mode

test system

118.9 New Product literature CBD notice

Radiosonde set 240.0 Recurring None CBD notice

SINCGARS handheld remote

control

5,165.8 Enhancement Draft RFP, sample testing,

market survey, and informal

discussions

CBD notice

Night vision goggles 26,013.6 Enhancement Trade journals, sources

sought CBD notice, draft

RFP, face-to-face meetings

with vendors, and

prototypes testing

CBD notice, preproposal

conference, and sample

hardware

U.S. Army Aviation and Troop Command

Diesel engine 8,010.2 Recurring None Procurement history, CBD

notice, and competition

advocates shopping list

Modular base petroleum

laboratory

4,467.8 Enhancement Literature search, contacting

industry officials, and market

investigation

Procurement history and

CBD notice

Hydraulic impact wrench 397.0 Recurring None Procurement history and

CBD notice

Naval Sea Systems Command

Trident battery 1,879.5 Recurring None CBD notice

AN/SRQ-4 radio 5,519.5 Recurring Sources sought and

presolicitation conferences

CBD notice and

procurement history

(continued)

Page 22 GAO/NSIAD-97-3 Acquisition Reform
Appendix II 

Market Research Efforts and Results for the

21 Contracts Reviewed

Dollars in thousands

Contract description

Contract

amount Type of requirement

Market research

conducted prior to

finalizing the specification

for the current contract

Market research

conducted to identify

sources for competitiona

U.S. Air Force Electronic Systems Center

Research and development

services for information

warfare

$900.0 New Broad agency

announcement

Nonec

Mission planning workstations 7,556.1 New Noned Noned

Transmission and receive

stations

163.0 Recurring None Nonee

Handheld thermal imager 7,629.7 New Market surveys, symposiums

and trade shows, sources

sought notices, and

face-to-face meetings with

industry

CBD and EBB notices

Research and development

on computer network high

speed potential

1,611.9 New Broad agency

announcement

None

Landsat upgrade 1,700.0 Enhancement Nonef Nonef

NASA Goddard Space Center

Medium-light expendable

launch vehicle services

167,568.7 New Industry symposium,

one-on-one meetings with

vendors, draft RFP

CBD notice

Digital matrix switches 10,000.0 New Trade journals, keeping

abreast of technology

Procurement history and

past performance historyg

Optical detector 220.0 New Face-to-face meetings,

reviewing catalogs, and

contacting industry for

informal proposals

CBD notice

Environmental Protection Agency

Technical support services 1,905.5 Recurring None CBD notice

(Table notes on next page)

Page 23 GAO/NSIAD-97-3 Acquisition Reform
Appendix II 

Market Research Efforts and Results for the

21 Contracts Reviewed

Note: CBD is the Commerce Business Daily.

RFP is request for proposals.

EBB is electronic bulletin board.

SINCGARS is Single Channel Ground Airborne Radio System.

NASA is National Aeronautics and Space Administration.

aThe CBD notices identified in this column publicized solicitations of bids and proposals for

property or services over $25,000 and are required by 41 U.S.C. 416.

bEnhancement means an upgrade to an already existing requirement.

cThis contract is a research effort by the Defense Advanced Research Project Agency to advance

computer simulation technologies. A broad agency announcement was published in

February 1995, and a contract was awarded based on information submitted in response to that

announcement.

dMarket research was not conducted at the requirements stage of the acquisition, and no

solicitation was published because this was an international agreement and such actions are not

required by 10 U.S.C. 2304(c)(4). Sources were directed in a letter of offer and acceptance.

eThis contract was for commercial communications equipment for use in support of Operation

Joint Endeavor in Bosnia. The buy was made under other than full and open competition due to

unusual and compelling urgency by 10 U.S.C. 2304(c)(2).

f

A market survey was done on the prior system to determine the availability of ground station for

receiving multispectral satellite imagery from the French satellite. An international agreement was

subsequently written, and no market research was done for the enhancement.

gThis contract was awarded under section 8(a) of the Small Business Act.

Page 24 GAO/NSIAD-97-3 Acquisition Reform
Appendix II 

Market Research Efforts and Results for the

21 Contracts Reviewed

Table II.2: Results of Market Research Efforts

Categories of items acquired

Dollars in thousands

Contract

description

Contract

amount

Type of

requirement Tradeoffs made

Commercial

item/service

obtained NDI

Governmentunique

item/service

U.S. Army Communications-Electronics Command

Near-term digital

radio

$10,700.0 Enhancement Yes Xa(modified)

Family of

loudspeakers

1,787.1 Enhancement Yes Xb (modified)

Asynchronous

transfer mode test

system

118.9 New No X

Radiosonde set 240.0 Recurring No X

SINCGARS

handheld remote

control

5,165.8 Enhancement No Xc(modified)

Night vision goggles 26,013.6 Enhancement Yes Xd(modified)

U.S. Army Aviation and Troop Command

Diesel engine 8,010.2 Recurring Yes X (modified)

Modular base

petroleum laboratory

4,467.8 Enhancement No X(modified)

Hydraulic impact

wrench

397.0 Recurring No X

Naval Sea Systems Command

Trident battery 1,879.5 Recurring No X

AN/SRQ-4 radio 5,519.5 Recurring No Xe

U.S. Air Force Electronic Systems Center

Research and

development

services for

information warfare

900.0 New No Researchf

Mission planning

workstations

7,556.1 New No Xg(modified)

Transmission and

receive stations

163.0 Recurring No X (modified)

Handheld thermal

imager

7,629.7 New Yes X (modified)

Research and

development on

computer network

high speed potential

1,611.9 New No Researchh

Landsat upgrade 1,700.0 Enhancement No X (modified)

(continued)

Page 25 GAO/NSIAD-97-3 Acquisition Reform
Appendix II 

Market Research Efforts and Results for the

21 Contracts Reviewed

Categories of items acquired

Dollars in thousands

Contract

description

Contract

amount

Type of

requirement Tradeoffs made

Commercial

item/service

obtained NDI

Governmentunique

item/service

NASA Goddard Space Center

Medium-light

expendable launch

vehicle services

$167,568.7 New No X (governmentunique service

and development

required)

Digital matrix

switches

10,000.0 New Yes X

Optical detector 220.0 New No X (new

development)

Environmental Protection Agency

Technical support

services

1,905.5 Recurring No X

aAccording to program officials, the near-term digital radio was derived from the Enhanced

Position Location Reporting System and upgraded to include the current communication

technology and open architecture. It is considered a modified nondevelopmental item (NDI) by

program officials. Also, according to program officials, it is 95 percent commercial software and

60 percent commercial hardware. It has embedded communication security, however, which no

other product in the industry has.

bMost of the components in the family of loudspeakers, per program officials, are commercially

available products but are packaged and integrated to meet military requirements.

cProgram officials stated that 90 percent of the electronics in the handset are commercial and that

the effort to integrate commercial components into the existing system is considered to be part of

the development phase.

dProgram officials stated that this buy includes (1) night vision goggles and imaging systems that

have been bought for 10 years with a new/enhanced “image intensifier” from industry and (2) a

commercial off-the-shelf monocular device that had minor modifications.

eThe AN/SRQ was originally bought in 1975 for the Light Airborne Multi-Purpose System III

helicopter. It was required in this procurement for the DDG-51 and was classified as an NDI by

program officials.

f

This contract is for research only into computer simulation technology.

gThe software was modified in this contract to talk with the Egyptian F16.

hThis is for a research and development action, not a supply contract. The only physical

deliverables are prototypes of advance computer network devices.

Page 26 GAO/NSIAD-97-3 Acquisition Reform
Appendix III 

DOD and Civilian Agencies That Used

Numbered Note 26

Table III.1 shows the Department of Defense (DOD) contracting activities

that used numbered note 26 and the number of CBD announcements with

note 26. Table III.2 provides the same information for the civilian

activities.

Table III.1: DOD Contracting Activities

That Used Note 26 (Oct. 1, 1995,

through May 7, 1996) Contracting activity

Number of CBD

announcements

Randolph Air Force Base, Texas 1

Air Logistics Command, Kelly Air Force Base, Texas 1

C-17 Aircraft Contracting Division, Kelly Air Force Base, Texas 1

Eglin Air Force Base, Florida 1

U.S. Army Engineering District, Sacramento, California 1

Army Training and Doctrine Command, Fort Eustis, Virginia 1

Army Aviation and Troop Command, St. Louis, Missouri 32

Army Missile Command, Redstone Arsenal, Alabama 1

Army Engineering & Support Center, Huntsville, Alabama 1

Army White Sands Missile Range, New Mexico 5

Fort Campbell, Kentucky 1

U.S. Army Intelligence and Security Command, Fort Belvoir, Virginia 1

Letterkenny Army Depot, Chambersburg, Pennsylvania 1

Defense Information Systems Agency, Arlington, Virginia 1

Defense Advance Research Project Agency, Arlington, Virginia 1

Fleet and Industrial Supply Center Norfolk, Washington, D.C. 4

Fleet and Industrial Supply Center Norfolk, Philadelphia,

Pennsylvania 3

Fleet and Industrial Supply Center, San Diego, California 8

Naval Air Warfare Center Training Systems Division, Orlando, Florida 1

Naval Medical Logistics Command, Fort Detrick, Frederick, Maryland 1

Naval Research Laboratory, Washington, D.C. 8

Naval Surface Warfare Center, Crane, Indiana 1

Coastal Systems Station, Dahlgren Division, Panama, Florida 1

Naval Command, Control and Ocean Surveillance Command,

Research, Development, Test and Evaluation Division, San Diego,

California 1

Total 78

Page 27 GAO/NSIAD-97-3 Acquisition Reform
Appendix III 

DOD and Civilian Agencies That Used

Numbered Note 26

Table III.2: Civilian Contracting

Activities That Used CBD Note 26

(Oct. 1, 1995, through May 7, 1996) Civilian contracting activity

Number of CBD

announcements

American Embassies (nine different locations)a 9

Bureau of Land Management, Denver, Colorado 2

Bureau of Reclamation, Boise, Idaho 4

Federal Aviation Administration, Washington, D.C. 1

GSA, Ft. Worth, Texas 2

NASA Langley Research Center, Hampton, Virginia. 1

NASA Stennis Space Center, Mississippi 1

National Institute of Health, Bethesda, Maryland 9

National Institute of Standards and Technology, Gaithersburg,

Maryland 3

National Library of Medicine, Bethesda, Maryland 1

Social Security Administration, Philadelphia, Pennsylvania 1

U.S. Coast Guard Academy, New London, Connecticut 2

U.S. Coast Guard Aircraft Repair & Supply Center, Elizabeth City,

North Carolina 2

U.S. Coast Guard Maintenance and Logistics Command Pacific,

Alameda, California 5

U.S. Coast Guard Supply Center Curtis Bay, Baltimore, Maryland 8

U.S. Coast Guard Supply Center Baltimore, Baltimore, Maryland 4

U.S. Department of Agriculture, Forest Service, Umpqua National

Forest, Roseburg, Oregon 3

U.S. Department of Agriculture, Forest Service, Kootenai National

Forest, Libby, Montana 5

U.S. Department of Commerce, Boulder, Colorado 1

U.S. Department of Interior, Office of Aircraft Services, Boise, Idaho 1

U.S. Department of Labor, Washington, D.C. 1

U.S. Geological Survey, Denver, Colorado 1

U.S. Geological Survey, Reston, Virginia 2

U.S. Secret Service, Washington, D.C. 2

U.S. Department of Veterans’ Affairs, Medical Center, Dublin,

Georgia 1

U.S. Department of Veterans’ Affairs, Medical Center, Poplar Bluff,

Missouri 1

Total 73

aOne CBD announcement was published from each of the following American embassy locations:

Lagos, Nigeria; Panama City, Panama; Buenos Aires, Argentina; Santo Domingo, Dominican

Republic; Manila, Philippines; Papua New Guinea; Kinshasa, Zaire; Copenhagen, Denmark; and

The Hague, The Netherlands.

Page 28 GAO/NSIAD-97-3 Acquisition Reform
Appendix IV 

Comments From the Department of Defense

Page 29 GAO/NSIAD-97-3 Acquisition Reform
Appendix V 

Comments From the National Aeronautics

and Space Administration

Now on pp. 11 to 13.

Page 30 GAO/NSIAD-97-3 Acquisition Reform
Appendix VI 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Kevin Tansey

David Childress

Marion Gatling

Russell Reiter

Shirley Johnson

Office of the General

Counsel

John Brosnan

William T. Woods

Maureen A. Murphy

Boston Regional

Office

Thorton Harvey

(705114) Page 31 GAO/NSIAD-97-3 Acquisition Reform
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