Defense Contracting: Actions Needed to Increase Competition
Published: 2013-03-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Competition is the cornerstone of a sound acquisition process and a critical tool for achieving the best return on investment for taxpayers. In fiscal year 2012, DOD obligated $359 billion through contracts and task orders, of which 57 percent was competed. DOD also obligates billions of dollars annually on contracts that are awarded competitively, but for which the government received only one offer. DOD implemented the Better Buying Power initiative in 2010, in an effort to increase competition.
The conference report for the National Defense Authorization Act for Fiscal Year 2012 directed GAO to report on DODs non-competitive and one-offer contracts. GAO examined (1) trends in DODs use of noncompetitive awards; (2) factors influencing DODs competition rate; (3) the extent to which justifications provided insight into the reasons for noncompetitive awards; and (4) the impact of DODs new requirement for competitive solicitations that only elicit one offer. GAO analyzed federal procurement data for fiscal years 2008 through 2012, reviewed DOD policy and competition reports, examined nongeneralizable samples of awards, and interviewed DOD officials.
section_title: What GAO Found
paragraphs: The Department of Defenses (DOD) competition rate for all contract obligations declined over the past five fiscal years, from 62.6 percent in fiscal year 2008 to 57.1 percent in fiscal year 2012. GAO also found that the competition rate in fiscal year 2012 varied by specific DOD component with the Air Force having the lowest at 37.1 percent and the Defense Logistics Agency the highest at 83.3 percent. The majority of the noncompetitive awards cited the availability of only one responsible source to meet the governments needs as the reason for using noncompetitive procedures.
A number of factors affect DODs competition rate, but these factors are not always considered when setting DODs annual competition goals. For example, reliance on an original equipment manufacturer throughout the life cycle of a program has been a long-standing challenge for DOD competition, and budget uncertainty can also hinder DODs ability to compete. Noncompetitive purchases that DOD makes on behalf of foreign governments can also affect DODs competition rate. DOD does not systematically consider these and other factors when setting its annual competition goals. For example, it sets competition goals for individual DOD components by simply adding two percentage points to the rate achieved in the previous year. Without identifying and tracking the specific factors affecting competition DOD cannot set meaningful goals for improving competition or accurately gauge its progress toward achieving them.
Many of the noncompetitive justifications GAO reviewed included the required elements as defined by the Federal Acquisition Regulation; however, the level of insight into the reasons for noncompetitive awards varied. For example, some justifications included clear descriptions of market environments where only one source was available to meet the governments needs or described planned actions that could help improve competition in the future. However, other justifications provided limited insight into the reasons for the noncompetitive award or did not fully describe actions that the agency could take to increase future competition. Without this information, DOD may be missing opportunities to gain a fuller understanding of why past acquisitions were not competitive and may be unable to apply those lessons to effectively facilitate competition for future acquisitions.
In 2010, DOD introduced a new requirement that applies to competitive awards that elicit only one offer (one-offer awards); however, the impact of the requirement is unknown because of unreliable data. To address the risk associated with one-offer awards, the requirement established rules that were intended to help ensure adequate solicitation time, ensure that contract requirements are not unnecessarily restrictive, and verify that offers received are fair and reasonable. However, GAOs analysis of 35 one-offer awards determined that contracting officers had incorrectly coded 10 of these awards in the procurement database that DOD relies on to measure the impact of its new requirement. Six of the 10 awards were noncompetitive awards and the remaining 4 had received multiple offers. As a result, GAO determined that DODs data cannot be used to accurately calculate the amount obligated on one-offer awards during fiscal year 2012. Without reliable data, DOD cannot accurately measure the impact of its new requirement.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD identify, track, and consider the specific factors that affect competition when setting competition goals; develop guidance to apply lessons learned from past procurements to help achieve competition in the future; and collect reliable data on one-offer awards. DOD concurred with these recommendations.

section_title: Letter
paragraphs: Competition is the cornerstone of a sound acquisition process and a  critical tool for achieving the best return on investment for taxpayers. The  benefits of competition in acquiring goods and services from the private  sector are well established. Competitive contracts can help save taxpayer  money, conserve scarce resources, improve contractor performance,  curb fraud, and promote accountability for results. In fiscal year 2012, the  Department of Defense (DOD) obligated $359 billion through contracts  and task orders, of which 57 percent was competed. Recognizing the  need to make more efficient use of resources, DOD’s 2010 “Better Buying  Power” initiative placed an emphasis on maximizing opportunities for  competition in the acquisition of products and services.
While federal statute and acquisition regulations generally require that  contracts be awarded on the basis of full and open competition, they also  permit federal agencies to award noncompetitive contracts in certain  circumstances, for example, when only one vendor can supply the  requirements or when a sole-source award is made under specified small  business programs. Generally, noncompetitive contracts must be  supported by written justifications and approvals (justifications) that  address the specific exception to full and open competition that is being  applied to the procurement. Also, the government obligates billions of  dollars annually under contracts and task orders that are awarded using  competitive procedures but for which the government receives only one  offer—situations the Office of Management and Budget (OMB) has  recently cited as high risk. DOD has termed this “ineffective competition”  and has issued a new policy requiring that additional steps be taken  before a contract may be awarded when only one offer is received.
Since 2009, OMB and DOD have implemented initiatives to increase  competition—including actions to address some opportunities we  previously identified. The conference report for the National Defense  Authorization Act for Fiscal Year 2012 directed us to report annually for  the next three years on DOD’s noncompetitive awards and competitive  awards based on receipt of only one offer. Accordingly, we examined (1)  the trends in DOD’s use of noncompetitive awards; (2) the factors  affecting DOD’s competition rate; (3) the extent to which justifications for  exceptions to competitive procedures provided insight into the reasons for  noncompetitive awards; and (4) the impact of DOD’s new requirement on  contracts awarded using competitive procedures but for which only one- offer was received.
To identify trends in DOD’s use of noncompetitive awards, we used the  Federal Procurement Data System-Next Generation (FPDS-NG) to  identify DOD obligations under competitive and noncompetitive contracts  in fiscal years 2008 through 2012. For the purposes of this report, we  defined noncompetitive obligations to include obligations through  contracts that were awarded using the exceptions to full and open  competition listed in Federal Acquisition Regulation (FAR) Subpart 6.3,  orders issued under multiple award indefinite delivery/indefinite quantity  (IDIQ) contracts under the exceptions to the fair opportunity process in  section 16.505(b) of the FAR, or under limited sources provisions for  orders issued under the General Service Administration’s (GSA)  schedules program in section 8.405-6 of the FAR. We also used FPDS- NG data to identify the specific exceptions to full and open competition  that were cited for noncompetitive awards in fiscal year 2012. We  calculated the competition rate as the dollars obligated annually on  competitive contracts and orders as a percentage of dollars obligated on  all contracts and orders. For the purposes of this report, we divided DOD  into five components: Air Force, Army, the Defense Logistics Agency  (DLA), Navy, and other defense agencies.
To understand the factors affecting DOD’s competition rate, we used  FPDS-NG data to examine obligations for new awards and foreign  military sale awards to understand the impact on the competition rate  across DOD and within each component included in our review. We also  spoke with component competition advocates and other DOD officials to  understand how DOD calculates its competition rate and how various  factors may impact it.
To assess the extent to which justifications for exceptions to competitive  procedures provided insight into the reasons for noncompetitive awards,  we randomly selected a nongeneralizable sample of 56 contracts and  orders coded as noncompetitive in FPDS-NG. Our sample included the  largest noncompetitive contracts and task orders, measured by  obligations, as well as a random selection of awards across DOD. For  awards in our sample, we reviewed documentation in the contract files  such as the signed justification and approval memorandum, the  acquisition plan, documentation of market research, the price negotiation  memorandum, and other key information. We reviewed the justifications  for these awards to determine whether they met criteria in the FAR for the  contents, timing, approval, and whether they were made publicly  available. In particular, we assessed whether the justifications contained  sufficient information to justify the use of the specific authority cited as  required by the FAR. In addition, we conducted e-mail and telephone  follow-up with contracting and program officials involved in these awards  to obtain additional information as needed.
To examine the impact of DOD’s new requirement on contracts awarded  using competitive procedures but for which only one-offer was received,  we reviewed a nongeneralizable sample of 25 contracts and task orders.  The sample included the 25 largest awards, measured by obligations,  made between April 1, 2011, and March 31, 2012. Only awards for which  one offer was received in response to a solicitation issued using  competitive procedures, as coded in FPDS-NG, were included in the  sample. For each selected award, we obtained evidence of the solicitation  issuance and response due date, price negotiation memorandum, and  other key information. If necessary, we contacted contracting and  program officials to obtain additional information. We also reviewed  FPDS-NG data to determine if there had been a decline in the number of  contract awards for which only one offer had been received in response  to the competitive solicitation. In addition, we spoke with DOD officials  about the implementation and impact of the new requirement.
A more detailed description of our scope and methodology is presented in  appendix I. We conducted this performance audit from May 2012 to  March 2013, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Federal agencies are generally required to use full and open competition  to award contracts, with certain exceptions. The Competition in  Contracting Act (CICA) of 1984 requires agencies to obtain full and open  competition through the use of competitive procedures in their  procurement activities unless otherwise authorized by law. Using  competitive procedures to award contracts means that all prospective  contractors that meet certain criteria are permitted to submit proposals.  Agencies generally are required to perform acquisition planning and  conduct market research to promote full and open competition.
While CICA generally requires federal agencies to award contracts using  full and open competition, agencies are allowed to award contracts  noncompetitively under certain circumstances. Generally, these awards  must be supported by written justifications that address the specific  exception to full and open competition that is being used in the  procurement. In addition, federal agencies can establish IDIQ contracts  with one or more contractors and may issue orders under these contracts.  For multiple award IDIQ contracts, agencies are generally required to  provide all contractors on the IDIQ contract a fair opportunity to be  considered for each order above certain dollar thresholds; however,  agencies can award noncompetitive orders under a process called an  exception to the fair opportunity process—which must be supported with  a documented justification. Also, GSA administers IDIQ contracts with  vendors for commercially available goods and services, and federal  agencies place orders under the contracts. When doing so  noncompetitively, procuring agencies must justify the need to restrict the  number of vendors considered, known as a limited sources justification  and approval. Finally, agencies can also competitively award contracts  after limiting the pool of available contractors—a process called full and  open competition after exclusion of sources. For example, agencies are  required to set aside procurements for small businesses if there is a  reasonable expectation that two or more responsible small businesses  will compete for the work and will offer fair market prices.
The justifications are to provide sufficient facts and rationale to justify the  use of the specific exception to competition. For example, under FAR part  6, justifications must include, at a minimum, 12 elements.these required elements include: a description of the supplies or services required to meet the agency’s  needs and their estimated value;  identification of the statutory authority permitting other than full and  open competition; a determination by the contracting officer that the anticipated cost to  the government will be fair and reasonable; a description of market research conducted, if any; and a statement of the actions, if any, the agency may take to remove or  overcome any barriers to competition before any subsequent  acquisitions for the supplies or services required.
Examples of allowable exceptions to full and open competition include  circumstances when the contractor is the only source capable of  performing the requirement or when an agency’s need is of such unusual  and compelling urgency that the government would be seriously injured  unless the agency is permitted to limit the number of sources. The FAR  generally requires that justifications be published on the Federal Business  Opportunities (FedBizOpps.gov) website and be approved at various  levels within the contracting organization. These levels vary according to  the dollar value of the procurement (see table 1).
Justifications can be made on an individual or class basis; a class  justification generally covers programs or sets of programs and has a  dollar limit and time period for all actions taken under the authority. Each  justification, individual or class, must be approved through the same  process. Once a class justification has been approved, award of an  individual contract can generally be approved for sole-source award by  the local procuring activity, as long as the amount is within the scope of  the class justification.
Contracts that are awarded using competitive procedures but for which  only one offer is received (one-offer awards) recently have gained  attention as an area of concern. OMB’s Office of Federal Procurement  Policy noted that competitions that yield only one offer in response to a  solicitation deprive agencies of the ability to consider alternative solutions  in a reasoned and structured manner. In DOD’s September 2010 Better  Buying Power initiative memorandum, competitive procurements for  which only one offer to a solicitation was received even when publicized  under full and open competition are termed “ineffective competition.” In  November 2010, DOD introduced a new policy containing two new  requirements concerning competitive one-offer awards. In June 2012,  DOD codified the policy in the Defense Federal Acquisition Regulation  Supplement (DFARS) adding a third requirement as follows: If a solicitation allowed for fewer than 30 days and only one offer is  received, then the contracting officer shall: 1.  consult with the requiring activity as to whether the requirements  document should be revised in order to promote more  competition, and  2.  resolicit for an additional period of at least 30 days.
If a solicitation allowed for at least 30 days and only one offer is  received, the contracting officer shall determine through cost or price  analysis whether the offered price is fair and reasonable and that  adequate price competition exists or if cost and price data have not  been waived obtain necessary cost and pricing data and enter into  negotiations with the offeror to establish a fair and reasonable price.
DOD’s Better Buying Power initiative also outlines a series of actions and  directives to achieve greater efficiencies in part through the promotion of  competition, such as: presenting a competitive strategy at each program milestone for  removing obstacles to competition; and establishing rules for the acquisition of technical data rights.
The Better Buying Power initiative increased the role of the DOD  competition advocates by directing them to develop a plan to improve the  overall rate of competition for each component by at least 2 percent per  year, and the rate of effective competition—when more than one offer is  received under a competitive solicitation—by at least 10 percent per year.
section_title: DOD’s Competition Rate Continues to Decline
paragraphs: DOD’s overall competition rate has declined over the past five years, and  the competition rate differs among the specific DOD components. Among  the components, in fiscal year 2012, DLA had the highest competition  rate for all awards, while the Air Force had the lowest. Based on FPDS- NG data we found that noncompetitive awards cited several exceptions  from competitive procedures.
subsections: section_title: Competition Rate Has Declined and Varies by Component
paragraphs: DOD’s competition rate for all contract obligations generally has declined  over the last five fiscal years. Since fiscal year 2008 the competition rate  has declined 5.5 percentage points, from 62.6 percent in fiscal year 2008  to 57.1 percent in fiscal year 2012 (see figure 1). In fiscal year 2012, DOD  obligated $205.3 billion on competitive awards from a total of $359.7  billion for all contract obligations.
In fiscal year 2012, the majority of DOD’s new noncompetitive award  obligations were on contracts or task orders issued under single award  contracts (see table 2).
We found that a majority of all DOD’s obligations in fiscal year 2012 were  to purchase services ($185.7 billion, or 51.6 percent). As we have  previously reported, DOD’s competition rate for non-research and  development (R&D) services was higher than the competition rate for  products. Specifically, the competition rate was 75.5 percent for non- R&D services compared to 40.8 percent for products. The competition  rate for R&D services was 59.3 percent (see figure 2).
We also found that the competition rate for all contract obligations varied  by DOD component in fiscal year 2012. Of the five major components we  reviewed—Air Force, Army, Navy, DLA and other defense agencies—in  fiscal year 2012, the Air Force had the lowest rate of competition, 37.1  percent, whereas DLA had the highest, 83.3 percent. A 2011 Air Force  report on competition highlights a number of challenges to competition,  noting that reliance on original equipment manufacturers of existing major  weapon systems for large sole-source awards was a particular concern.  Figure 3 outlines the competition rate by component for fiscal years 2008  through 2012.
Based on our analysis of FPDS-NG data in fiscal year 2012 the majority  of DOD’s noncompetitive contracts and task orders on single award  contracts were coded under the “only one responsible source”  exception. The next two most frequently cited exceptions were  “authorized by statute” or “international agreement” (see figure 4).
Based on our analysis, the majority of noncompetitive task orders issued  under multiple award contracts and subject to the fair opportunity process  reported two exceptions to the fair opportunity process. Specifically,  “follow-on actions,” orders for the same good or service with the original  vendor, was cited for 41 percent of the obligations and “only one source”  was cited for 40 percent.
section_title: Multiple Factors Affect DOD’s Competition Rate, but They Are Not Always Considered When Setting Competition Goals
paragraphs: There are a number of factors that affect DOD’s competition rate. For  example, reliance on an original equipment manufacturer throughout the  life cycle of a program and budget uncertainty are long-standing  challenges impacting DOD’s ability to compete. Noncompetitive  purchases that DOD makes on behalf of foreign governments affect  DOD’s competition rate as well. DOD does not systematically identify,  track, and consider the specific factors that are affecting competition  when setting its annual competition goals.
A long-standing factor impacting DOD’s competition rate is its reliance on  an original equipment manufacturer throughout the life cycle of a program  because of a previous decision not to purchase proprietary technical data.  Technical data is recorded information used to define a design and to   Prior GAO work has  produce, support, maintain or operate an item.noted that technical data can help control costs and maintain flexibility.Without the technical data rights, it can be difficult to compete a new  award, because another vendor would need the technical data in order to  meet the government’s needs. DOD has recognized the ownership of  technical data as a challenge and is addressing this through its Better  Buying Power initiative. DOD now requires program officials to present a  business case analysis prior to the official start of the program that  outlines an approach for purchasing technical data. For example, this  business case analysis is intended to ensure consideration of competition  throughout a weapon system’s life cycle. The Better Buying Power  initiative also added a new requirement that a competitive strategy be  presented at each milestone for defense acquisition programs. These  strategies may include identifying work currently performed by  subcontractors and competing it separately. At the component level, a  DOD official told us that they have begun to examine sole-source  acquisitions to determine what pieces can be “broken out” from a  noncompetitive requirement and competed separately. For example, a  Navy surveillance system program identified an opportunity to break out  commercial components. They noted that this resulted in lower pricing  and a larger, more stable supplier base. While these initiatives are  intended to reduce the use of noncompetitive procurements, the effect of  this Better Buying Power initiative may not be felt for several years.
A more recent factor affecting DOD is budget uncertainty. GAO has  previously reported on the impact of uncertain budget environments on  agencies’ ability to plan.often delay new awards until later in the fiscal year because program  offices do not know if they will receive funding for a new award. Also, with  uncertain budgets, program offices may struggle to adequately plan for  future procurements. For example, one official told us his program  planned to compete a new award to replace aging equipment. However,  due to budget issues, the program office may have to abandon  competition plans for new equipment and continue with a noncompetitive  award to maintain the existing equipment.
DOD officials told us that continuing resolutions  Another factor that impacts DOD’s competition rate is the amount of  noncompetitive foreign military sales (FMS). FMS awards are government  to government sales of defense articles or defense services, from DOD  stocks or through new procurements under DOD-managed contracts,  regardless of the source of financing. FMS awards may provide a  benefit to DOD. For example, when an FMS award is in addition to  products or services that DOD is already purchasing, it may help DOD to  obtain a lower price with a vendor which can result in a better value for  the government.
FMS awards are generally noncompetitive and are included in DOD’s  competition rate calculation. In fiscal year 2012, one-fifth of DOD’s  obligations on new, noncompetitive awards were for FMS. A DOD  component competition advocate explained that to the extent a  component has noncompetitive FMS obligations in a fiscal year it will  lower the competition rates. We analyzed FPDS-NG data for fiscal year  2012 to determine the impact of FMS on component competition rates  and noted a negative impact across DOD, with the Air Force being  affected the most. Using DOD’s method for calculating the competition  rate by measuring all contract obligations, we noted an 8 percentage  point increase in the Air Force competition rate by removing FMS awards  from the calculation. An even greater improvement is indicated when  calculating competition for new awards only. For example, we found that  the Air Force’s competition rate for new awards improves from 34.8  percent to 49.8 percent when FMS are removed from the calculation,  almost a 15 percentage point increase (see figure 5).
DOD does not currently consider the impact of these or other factors that  affect the competition rate when establishing competition goals for each  fiscal year. For example, DOD officials explained that a major  noncompetitive weapon system contract award, such as the Joint Strike  Fighter or an aircraft carrier, would have a significant impact on the  component’s competition rate. Currently, DOD sets component  competition goals by increasing the prior fiscal year’s achieved  competition rate, as measured by all contract obligations, by 2 percentage  points. However, a component competition advocate told us that this  results in goals that are not as meaningful as they could be because they  do not address nor account for the specific factors a particular component  is facing. For example, in its fiscal year 2011 competition report, the Air  Force noted that it expected a significant impact to its fiscal year 2012  competition rate as the result of an anticipated $10 billion FMS award.  DOD officials told us that individual components have an opportunity to  discuss and raise concerns about the competition goals with the Defense  Procurement and Acquisition Policy officials who set the annual  competition goals. For example, DOD officials noted that the Army raised  concerns about the proposed monetary competition goal for fiscal year  2013 and noted that declining budgets would impact its ability to meet the  goal. However, DOD does not systematically identify, track, and consider  the key factors that may impact a component’s competition rate when  setting the annual competition goals.
section_title: Justifications Provided Varied Levels of Insight
paragraphs: Generally, noncompetitive awards must be supported by written  justifications and approvals that contain the facts and rationale to justify  the use of the specific exception to full and open competition. While  justifications for the noncompetitive awards in our sample generally met  FAR requirements, they varied in providing insight into the reasons for  noncompetitive awards. Some justifications in our sample provided clear  descriptions of sole-source environments where only one source was  available to meet the government’s needs, and others included detailed  descriptions of planned actions that could help improve competition in the  future. However, other justifications provided limited insight into the  reasons for the noncompetitive award or did not fully describe actions that  the agency could take to increase future competition.
subsections: section_title: Justifications Generally Met FAR Requirements
paragraphs: DOD contracting officials prepared a written justification for 55 of the 56  noncompetitive contract awards in our sample, as required by the FAR.  However, in 1 instance a justification was not prepared due to an  administrative oversight. Of the 55 awards with justifications, we reviewed  59 justification documents—2 awards had multiple justifications.
Many—but not all—justifications typically met FAR requirements. Of the  59 justifications that we reviewed, we found a number of instances where  justifications did not fully conform to FAR requirements. For example,  nearly a third of the justifications in our sample were not made publicly  available as required by the FAR. Generally, justifications are required to  be made publicly available within 14 days of contract award except for   This is a relatively recent  information exempt from public disclosure.requirement that generally applies to contract actions awarded on or after  February 17, 2009, the effective date of the rule. In some instances  contracting officials told us that justifications were not made publicly  available due to lack of familiarity with posting requirements or an  administrative oversight. The public availability of justifications increases  transparency into the contracting process and provides the opportunity for  the review of justifications for contracts awarded noncompetitively.
In addition, one justification that we reviewed was not approved within  required time frames. before the justification was approved by the authorized authority within  the agency. This error was discovered by contracting officials during an  annual contract file review, and at that point corrective action was taken  to obtain the authorized approver’s signature.
section_title: Some Justifications Provided Detailed Information
paragraphs: The FAR states that a contracting officer shall not commence negotiations for a sole- source contract, commence negotiations for a contract resulting from an unsolicited  proposal, or award any other contract without providing for full and open competition  unless the contracting officer justifies, if required in section 6.302, the use of such actions  in writing; certifies the accuracy and completeness of the justification; and obtains the  required approval. FAR § 6.303-1. sole-source environments where only one source could meet agency  requirements because the government did not own the proprietary  technical data.
Detailed descriptions of proactive, future steps to move the  procurement, or parts of it, to a competitive scenario for the follow-on  contract, including efforts to develop new suppliers or acquire  technical data. For example, we reviewed a justification for two Missile  Defense Agency awards for radar hardware production for $582.5  million and $359.9 million. The justification for these awards stated  that the government intended to compete future acquisitions and  described a six-step process for determining the viability of  competition including time frames.
Thorough explanations of the cost-benefit analysis conducted to  determine that the time and money required for purchasing technical  data rights and developing a new supplier could not be recouped  through savings from competition, and in some instances would result  in unacceptable delays. For example, the Air Force awarded a  noncompetitive contract for $647.8 million for missile production. The  class justification clearly described the cost-benefit analysis  conducted to determine that the cost to purchase data rights and  establish a second source—$750 million—did not justify the  investment.
section_title: Other Justifications Provided Limited Insight
paragraphs: Some justifications in our sample provided limited insight into the reasons  for noncompetitive awards. In addition, justifications did not always fully  describe actions that the agency can take to increase competition in the  future. In our sample we observed the following:  Justifications for lower-dollar awards—which only required certification  by the contracting officer—typically contained less specificity and  detail than higher-dollar awards, which are required to be approved by  component competition advocates or senior procurement  executives. Further, some lower-dollar awards in our sample had  template justifications that allowed contracting officials to check  applicable boxes for boilerplate language and fill in blanks with  information. While the template provided space for additional  information, contracting officials did not consistently provide such  information; thus, these justifications provided limited insight into the  specific reasons why the particular award could not be competed or  planned efforts to remove barriers to competition in the future. We  have previously identified the importance of fully documenting  acquisition decisions to provide insight for any subsequent awards  given the frequent staff turnover in the acquisition workforce.
One justification was not clearly written and cited an exception to  competition that was not fully supported by the circumstances of the  procurement. Specifically, a justification for a $312,000 sole-source  Army award for information technology equipment cited the exception  “authorized or required by statute.” However, the information provided  in the justification did not support the authority cited and a contracting  official confirmed that the exception that appears to apply was “logical  follow-on to an order already issued under the contract.” Further, the  justification indicates that there were other manufacturers for this  requirement; however, the requiring activity requested to stay with the  existing equipment manufacturer. Therefore, it is unclear what  circumstances warranted a noncompetitive order.
Other justifications documented limited information about market  research findings. For example, the Army awarded a $200,000 sole- source contract for a specific dental gold alloy. The justification stated  that market research was conducted via the internet but there was no  additional information regarding market research findings. Further, the  justification indicated that six different alloys could potentially meet the  requirement, but it was unclear in the justification why these and other  commercially available dental alloys were not considered. During a  follow-up discussion, Army contracting and program officials  explained that only one source was determined to meet the  requirement because every gold alloy has a unique composition.  Therefore, using an alloy from another source would require the  development of new dental fabrication processes which officials  determined would not be cost effective. As a result of our review,  Army officials indicated that they would include additional information   in future justifications to better document reasons for why only one  source could provide a product that is commercially available.
Awards contained varying documentation to support why the award  was within the scope of a class justification. Whenever a contract  award is made pursuant to the authority of a class justification, the  contracting officer must ensure that the action is within the scope of  the class justification and shall document the contract file  accordingly. We previously reported that concerns about the level of  review of individual noncompetitive contracts under class justifications  have led to efforts to revise the review process for activity under class  justifications at the Air Force. Our sample included 12 class  justifications for awards ranging from $266,000 to $2.6 billion. The  period of actions covered by these justifications ranged from 8 months  to 9 years, and 3 contracts in our sample had justifications that were  prepared 5 or 6 years prior to award. We identified that contracting  officials have different methods for documenting that contract actions  are within the scope of the class justifications. In some instances,  officials told us that although there was no explicit documentation of a  scope determination, this determination was documented by multiple  references to the class justification in other contract file documents,  such as the pre-business clearance memorandum.
DOD’s Better Buying Power initiative guidance emphasizes the  importance of removing obstacles from competition. Most noncompetitive  awards are required to be supported by written justifications that among  other things document the actions an agency may take to overcome such  barriers to competition. Some of the justifications that we reviewed  provided limited insight into the reasons for the noncompetitive award or  did not fully describe actions that the agency could take to bring about  competitive awards in future acquisitions of the same goods or services.  Without this information, DOD may be missing opportunities to learn why  past acquisitions were not competitive and to employ that knowledge to  help remove obstacles to competition in future acquisitions.
section_title: Impact of DOD’S One- Offer Requirement Is Unknown
paragraphs: DOD’s one-offer requirement is intended to reduce the number of  contracts awarded using competitive procedures but for which only one  offer is received. Although the one-offer requirement has the potential to  promote multiple offers, some awards are not subject to all of the rules  established by the requirement. In addition, DOD’s ability to accurately  measure the impact and effectiveness of the requirement is limited by  unreliable data.
subsections: section_title: DOD Introduced New Rules, but Some Awards Are Not Subject to All of Them
paragraphs: DOD’s new one-offer requirement seeks to reduce the number of, and  amount obligated on, one-offer awards by establishing three rules. The  new rules attempt to ensure adequate solicitation time (i.e., resolicitation  rule), ensure that contract requirements are not unnecessarily restrictive  (i.e., program office consultation rule), and verify that offers received are  fair and reasonable (i.e., cost/price analysis rule). Based on our review of  one-offer awards, we determined that the awards generally complied with  the new requirement; however, some awards did not comply with the  resolicitation rule. We also found that the one-offer requirement will likely  have a limited impact on unnecessarily restrictive solicitation  requirements because many awards are not subject to the program office  consultation rule. Figure 6 illustrates the three rules included in DOD’s  one-offer requirement.
Our analysis of 25 one-offer awards from April 1, 2011, to March 31,  2012, shows that all 25 contract awards were conducted in accordance  with the new cost/price analysis rule; however, 5 contracts were awarded  despite failing to comply with the resolicitation rule. Specifically, in the  case of two contract awards, contracting officials simply did not resolicit  after receiving just one offer during the initial solicitation period; in the  case of three contract awards, agency officials resolicited for a period  shorter than the required 30 days. Our analysis did not consider whether  the awards complied with the program office consultation rule because  the rule was not implemented until June 2012 and did not apply to the  awards in our sample. In addition to our review, the DOD Inspector  General performed a similar compliance review on 78 one-offer awards  from fiscal year 2011. The review found that 15 awards did not comply  with the cost/price analysis rule and 23 did not comply with the  resolicitation rule.
The new one-offer requirement may result in lower prices and more  accurate cost information when only one offer is received. For example,  during our review of one-offer awards, we identified a proposal that  initially requested a 10 percent profit rate. Cost and price analyses  determined that the rate was unreasonable, and subsequent negotiations  resulted in a 1.4 percentage point reduction in the profit rate. In addition,  as a result of the analyses, the government identified a discrepancy in the  offeror’s cost data that further reduced the price.
Officials at multiple DOD components told us that, since the  implementation of the new requirement, more contracting officers allow at  least 30 days for responses in order to avoid the resolicitation and  program office consultation rules. Specifically, as illustrated in figure 6, if  a solicitation allows 30 or more days for responses, the contracting officer  is required to follow only one of the three rules established in the new  requirement. Senior DOD officials said that allowing for 30 days is a  positive outcome of the requirement. In the past, some solicitations  allowed less than a week for responses, potentially discouraging  contractors from submitting offers. According to the officials, the new  requirement incentivizes contracting officers to keep solicitations open for  at least 30 days, while still allowing the flexibility for fewer than 30 days  when multiple offers are likely—for example, routine procurements that  consistently elicit multiple offers.
FAR § 5.203(c). standing practice to advertise for 30 or more days. Thus, even when a  shorter period is permitted, these branches may advertise for 30 days  in any case, thereby avoiding the program office consultation rule.
Since the implementation of the one-offer requirement, DOD officials  told us that more contracting officers allow 30 or more days to  respond to solicitations in order to avoid the program office  consultation rule.
section_title: Unreliable Data Make It Difficult to Measure New Requirement’s Impact
paragraphs: Unreliable data within FPDS-NG hinder DOD’s ability to accurately  measure the impact of its one-offer requirement. According to FPDS-NG,  DOD awarded 115,242 one-offer contracts and task orders in fiscal year  2012. The agency obligated $14.7 billion on new one-offer awards in  fiscal year 2012, representing 13.8 percent of all new contract obligations  during the period. Our analysis of 35 one-offer awards determined that 10  of these awards were incorrectly coded in FDPS-NG by contracting  officers. As a result, we determined that DOD’s data were unreliable for  certain analyses. Furthermore, we believe DOD cannot use the data to  accurately calculate the amount obligated on one-offer awards during  fiscal year 2012. Thus, the agency is not in a position to accurately  measure the quantitative impact of the one-offer requirement since it was  implemented.
Based on our analysis of 35 one-offer awards, 10 awards totaling $271.8  million were incorrectly coded in FPDS-NG. Six of the 10 awards were  incorrectly coded as subject to competition in FPDS-NG, when they were  actually noncompetitive awards. The remaining 4 awards received  multiple offers, but the contracting officer incorrectly coded them as  receiving one offer. Since our review focused on large dollar awards,  which are typically subject to a more rigorous review process within DOD,  the results of our assessment suggest that more errors may exist in  unselected awards. In 2010 we reported that similar coding errors existed  in FPDS-NG one-offer award data. In addition, the DOD Inspector  General determined that 27 percent of the 107 one-offer awards it  reviewed from fiscal year 2011 were miscoded in FPDS-NG.
DOD relies on FPDS-NG data to make important decisions regarding its  new requirement on one-offer awards. For example, DOD directed the  services to increase their effective competition rates—the proportion of  competitive obligations based on multiple offers—by 10 percent per year  as part of the Better Buying Power initiative. The one-offer requirement is  intended to be a means to achieve this goal. However, DOD’s ability to  calculate the quantitative impact of the requirement and improvements  toward effective competition goals is limited by unreliable FPDS-NG data.  Without reliable data, DOD cannot accurately measure the impact of the  new requirement.
section_title: Conclusions
paragraphs: The competition indicators that DOD currently employs shed insufficient  light on the department’s efforts to maximize full and open competition for  the goods and services that it acquires. Although DOD’s overall and  individual component competition rates provide broad indicators of  competitive contracts and task orders, they provide limited insight into the  underlying reasons for competition or its decline since fiscal year 2008.  For example, while foreign military sales accounted for about a fifth of  new, noncompetitive obligations in fiscal year 2012, DOD’s current  calculations do not consider their impact on its competition rates. We  found the Air Force competition rate for new awards increased by 15  percentage points in fiscal year 2012, when foreign military sales were  removed from the calculations. DOD does not systematically identify,  track, and consider the specific factors that may be affecting competition  when setting its annual competition goals. Lacking a set of measures that  provide meaningful insight into the specific factors that drive competition  rates, it is difficult for DOD to accurately gauge the relative effectiveness  of its multifaceted efforts to enhance competition. Without this information  it is also more difficult for DOD to chart a path to improved competition  that offers a greater likelihood of success and to make the necessary  course corrections along the way.
While the justifications and approvals for noncompetitive awards that we  reviewed generally met FAR requirements, they varied in the level of  insight that they provided into the reasons for noncompetitive awards. In  addition, some justifications did little to describe planned actions to bring  about competitive awards in future acquisitions of the same goods or  services. Others provided little information about the market research  findings that helped justify the decision to pursue a noncompetitive award.  Without this information, DOD may be missing opportunities to gain a  richer understanding of why past acquisitions were not competitive and to  apply those lessons to effectively facilitate competition for future  acquisitions.
Lastly, due to unreliable data in FPDS-NG, DOD’s ability to measure the  effectiveness of its new one-offer requirement is limited. Without knowing  its impact, DOD risks continued investment in a requirement that may not  address the most significant factors leading to one-offer awards.
section_title: Recommendations for Executive Action
paragraphs: To better inform DOD’s efforts to enhance competition, we recommend  that the Secretary of Defense take the following three actions:  identify and track the specific factors that affect the competition rate,  such as foreign military sales, and consider this information when  setting annual competition goals for each DOD component; develop guidance that could enable DOD components to apply  lessons learned from past procurements to increase competition for  the same good and services in the future; and develop an action plan for DOD components to collect reliable data on  competitive procurements for which only one offer is received, so that  the department can determine the effect of its new requirement on  one-offer contracts.
section_title: Agency Comments
paragraphs: We provided a draft of this report to DOD for review and comment. In  written comments, DOD concurred with our recommendations. DOD’s  comments are reprinted in appendix II.  DOD described actions it plans to  take the address the recommendations.  In particular, DOD indicated that  it will consider specific factors affecting competition in setting annual  competition goals.  In addition, the department noted that it will work with  components to develop guidance and tools to analyze procurement data  to apply lessons learned to increase competition for the same good and  services in the future.  To address our third recommendation, the  department indicated that it will take two actions.  First, it will review  existing training and procedures for reporting of contract actions in FPDS- NG.  Second, it will update guidance on the reporting of competitive  procurements in which only one offer is received to increase the reliability  of the data and better understand the impact of the new requirement on  one-offer contracts.
We are sending copies of this report to the Secretary of Defense and  interested congressional committees. This report will also be available at  no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-4841 or by e-mail at courtsm@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. Staff who made key contributions  to this report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives for this review were to examine (1) trends in the  Department of Defense’s (DOD) use of noncompetitive awards; (2)  factors influencing DOD’s competition rate; (3) the extent to which  justifications for exceptions to competitive procedures provided insight  into the reasons for noncompetitive awards; and (4) the impact of DOD’s  new requirement on contracts awarded using competitive procedures but  for which only one offer was received.
To address these objectives, we used data in the Federal Procurement  Data System-Next Generation (FPDS-NG), which is the government’s  procurement database. We assessed the reliability of FPDS-NG data by  (1) performing electronic testing of required data elements, (2) reviewing  existing information about the data and the system that produced them,  and (3) comparing reported data to information from the contract files we  sampled. We determined that the data were sufficiently reliable to  examine the trends in DOD’s use of noncompetitive awards and the  factors influencing DOD’s competition rate, including the number of  awards, dollar amount obligated, and the percentage of contracts  awarded competitively overall and by component. However, as described  in this report and later in this appendix, we found the data on one-offer  awards not sufficiently reliable.
To further examine the trends in DOD’s use of noncompetitive awards,  we used data from FPDS-NG to identify DOD obligations under  competitive and noncompetitive contracts from fiscal year 2008 through  2012. Specifically, we identified contracts and task orders funded by  DOD. For competitive contract actions, we included contracts and orders  coded as “full and open competition,” “full and open after exclusion of  sources,” and “competed under simplified acquisition procedures” as well  as orders coded as “subject to fair opportunity” and as “fair opportunity  given.” For noncompetitive contract actions, we included contracts and  orders coded as “not competed,” “not available for competition,” “not  competed under simplified acquisition procedures,” and “follow-on to  competed action” as well as orders coded as “subject to fair opportunity”  and under an exception to fair opportunity, including “urgency,” “only one  source,” “minimum guarantee,” “follow-on action following competitive  initial action,” and “other statutory authority.” We calculated competition  rates as the percentage of obligations on competitive contracts and  orders over all obligations on contracts and orders annually. We  examined the competition rate at the DOD level and at each component  from fiscal year 2008 through 2012. For fiscal year 2012, we analyzed the  competition rate for products, non-research and development (R&D)  services, and R&D services. For new noncompetitive awards in fiscal  year 2012, we determined the dollars obligated by award type. We also  assessed the exceptions cited in FPDS-NG for new noncompetitive DOD  contracts and task orders in fiscal year 2012.
To examine the factors influencing DOD’s competition rate, we analyzed  FPDS-NG data to determine the impact of foreign military sale awards on  DOD’s competition rate. For foreign military sale (FMS) awards, we  included contracts and orders coded as “foreign funds FMS” in FPDS-NG.  We defined the competition rate as the ratio of new obligations at the time  of award on competitive contracts and task orders over all new  obligations at the time of award on all new contracts and task orders in a  fiscal year. We also examined DOD’s Better Buying Power initiative,  DOD’s fiscal year 2011 competition report, which was the most recent  report available at the time of our review, and prior GAO reports. To gain  insight into how DOD sets competition goals, we reviewed DOD policy  and spoke with DOD officials.
To examine the extent to which justifications for exceptions to competitive  procedures provided insight into the reason for noncompetitive awards,  we reviewed a nongeneralizable sample of 56 contracts and orders  awarded noncompetitively by DOD from April 1, 2011, to March 31, 2012,  as coded in FPDS-NG. At the time our review began, data was not  available for the last two quarters of fiscal year 2012. In order to review  justifications for contracts and task orders awarded in all four fiscal year  quarters, our sample included awards from fiscal years 2011 and 2012.  We excluded from our sample:  contracts and orders under the simplified acquisition threshold of  $150,000; noncompetitive orders that were not submitted under multiple award  indefinite-delivery/indefinite-quantity (IDIQ) contracts, because these  orders would not require a justification since the decision not to  compete was made and presumably justified when the base IDIQ  contract was awarded to one contractor; noncompetitive contracts and orders justified under the 8(a) program  because we recently reported on challenges implementing new  requirements for these types of justifications; noncompetitive contracts that do not require a justification, including  awards not competed under simplified acquisition procedures, justified  under the “international agreement” exception or certain contracts  awarded under the “authorized or required by statute” exception.
We initially selected 75 contracts and orders, including: the five largest  contracts from the Air Force, Army, Defense Logistics Agency (DLA),  Navy, and other defense agencies; the two largest orders from each of  these components; and eight randomly selected contracts and orders  from each component. In addition, we added five contracts to our sample  which we had initially selected as part of our review of competitive one- offer awards, but were miscoded in FPDS-NG and actually awarded  noncompetitively. Of these 80 awards, we removed 24 from our review  because either they were miscoded and awarded competitively, a  justification was not required, or the justification was classified for national  security reasons. For the 56 remaining awards, we reviewed 59  justifications—in one case a justification was required but not prepared;  and in two cases awards had multiple justifications.
We reviewed these 59 justifications to determine whether they met criteria  in the FAR for content, timing, approval, and public availability. In  particular, we assessed whether the justifications contained sufficient  information to justify the use of the specific authority cited as required by  the FAR. To gain additional insight into the rationale for noncompetitive  awards, we also reviewed other contract file documentation such as the  acquisition plan, statement of work, price negotiation memorandums,  records of market research, and other key documents. We conducted e- mail and telephone follow-up with contracting and program officials  involved in these awards to obtain additional information as needed.
To examine the impact of DOD’s new requirement on competitive  procurements that received one offer, we examined DOD policies,  regulations, and other related documents. To determine whether recent  awards complied with the requirement, we selected a nongeneralizable  sample of 25 contracts and task orders that received one offer in  response to a solicitation issued using competitive procedures, as coded  in FPDS-NG. In order to review awards from each fiscal quarter, we  selected awards issued between April 1, 2011, and March 31, 2012. We  planned to review a sample of the 25 awards with the highest obligations,  across DOD—5 each from the Army, Navy, Air Force, DLA, and other  defense agencies. However, as we selected awards, we identified 10 that  were out of scope due to coding errors in FPDS-NG. Using the original  selection criteria, we continued to select awards until we reached a  sample size of 25 awards. As previously noted, we found the data on  one-offer awards not reliable for certain analyses.
For the awards in our sample, we obtained and reviewed award  documentation, including the solicitation and evidence of a cost/price  analysis to determine whether the awards complied with DOD’s new  requirement. Our analysis did not consider whether the awards complied  with the new rule to consult about whether requirements may be  unnecessarily restrictive because the rule was not in effect at the time of  our review and therefore did not apply to the awards in our sample. In  addition, we spoke with officials at the Army, Air Force, Navy, and DLA  about the implementation and impact of the new requirement.
We conducted this performance audit from May 2012 to March 2013, in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Penny Berrier, Assistant Director;  Richard Burkard; Alissa Czyz; Alexandra Dew Silva; Jeffrey Fiore;  Danielle Greene; Julia Kennon; Jean McSween; Kenneth Patton;  Roxanna Sun; Kristin Van Wychen; and Andrea Yohe also made key  contributions to this report.