Metropolitan Washington Airports Authority: Contracting Practices Do Not Always Comply with Airport Lease Requirements
Published: 2002-03-01T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Metropolitan Washington Airports Act of 1986 transferred operating responsibility for Dulles and Reagan National Airports from the federal government to the Metropolitan Washington Airports Authority (MWAA), an independent, nonfederal, public entity. MWAA, which has a 50-year lease to run the two airports, has entered into a wide range of contracts for supplies, construction, and other services.
section_title: What GAO Found
paragraphs: Although MWAA issued guidance in 1993 for the awarding of contracts and concession franchises, GAO found that the guidance does not adequately reflect competitive contracting principles and is out of date in many respects. Moreover, MWAA does not use its guidance to award contracts for non-concession goods and services. MWAA did not obtain full and open competition for 15 of the 35 contracts GAO reviewed, raising concerns about whether MWAA obtained the best value for the goods and services provided. The failure to obtain full and open competition also raises concerns about whether MWAA has (1) deprived prospective contractors of the chance to compete for contracts and (2) fairly evaluated all of the contractors that have competed for procurements. Finally, by not following recognized competitive principles, MWAA could be giving the appearance of favoritism in its contracting decisions.

section_title: Letter
paragraphs: The Metropolitan Washington Airports Act of 1986 provided for the lease  of Washington Dulles International Airport (Dulles) and Ronald Reagan  Washington National Airport (Reagan National) and the transfer of  operating responsibility from the federal government to the Metropolitan  Washington Airports Authority. The Authority is an independent,  nonfederal, public entity that has operated the government-owned airports  since June 7, 1987, under a 50-year lease with the U.S. Department of  Transportation. The transfer of operating responsibility was intended to  facilitate timely improvements at the airports to meet the growing demand  for air transportation.
Under the statutory terms of its lease, the Authority must protect,  promote, operate, and maintain Dulles and Reagan National airports in  Virginia. To carry out this mandate, the Authority enters into a wide range  of contractual relationships to acquire supplies and construction and other  services. Acquisitions range from office supplies to heavy mobile  equipment, from fuel oil and gasoline to replacement parts for air- conditioning systems, and from minor repairs to major construction. The  Authority also contracts for a variety of revenue-generating concessions to  provide, among other things, rental cars, food and beverages, customer  service, parking, taxi services, advertising, and general aviation services  needed by the airports’ users. “. . . in acquiring by contract supplies or services for an amount estimated to be in excess of  $200,000, or awarding concession contracts, the Authority shall obtain, to the maximum  extent practicable, full and open competition through the use of published competitive  procedures. By a vote of seven members , the Authority may grant  exceptions to the requirements of this paragraph.”
In authorizing the airports’ lease, Congress generally intended the airports  to be operated as a business and in a manner similar to other airports.  Congress provided the Authority with considerable discretion in  structuring its procurement process. Although the Authority is not  required to follow federal procurement statutes and regulations, Congress  obligated the Authority to implement, through the use of published  competitive procedures, procurement and concession franchising systems  designed to achieve full and open competition. Furthermore, the  congressional mandate required the Authority to conduct its  procurements, to the maximum extent practicable, in a manner consistent  with the well-established principles underlying full and open competition.  These principles are intended to ensure that all firms that wish to furnish  supplies or services have an equal opportunity to compete for the award.  Appendix I provides additional information about the fundamental  principles underlying full and open competition.
The 1986 act, as amended, requires us to periodically review the  Authority’s contracting practices. Our first review was conducted in 1992  and concluded that the Authority’s contracting practices generally  promoted a competitive environment. However, we identified some  practices that, if not corrected, could adversely affect the Authority’s  competitive process. This report provides our current assessment of  whether the Authority has satisfied its contracting obligations under the  statutory lease provision. Specifically, this report addresses whether the  Authority (1) has published the competitive procedures that it uses to  award contracts and (2) for the contracts that we reviewed, has obtained,  to the maximum extent practicable, full and open competition in  contracting for goods and services whose estimated cost exceeded  $200,000 or, if not, whether the Authority’s board of directors approved  the exceptions. This report also addresses the Authority’s views about the  meaning of full and open competition within the context of airport  contracting. Finally, because the secretary of transportation represents the  interests of the executive branch, this report addresses the Department of  Transportation’s role in ensuring that the Authority fulfills its obligations  under the lease.
We focused primarily on two distinct groups of contracts that either  exceeded $200,000 on the date of award or had exceeded $200,000 as of  December 31, 1999. In total, 646 contracts met these criteria. The first  group of contracts that we chose from this universe consisted of 13  contracts that, according to the Authority’s contracting database, generally  (1) were awarded between 1992 and 1999 using full and open competition  and (2) exhibited the highest cost growth. We selected these 13 contracts  to represent a full range of the Authority’s contracting activities, including  the type and value of the Authority’s contracts. We reviewed the initial  contract awards and all 240 subsequent modifications to the 13 contracts.  The modifications changed the terms of the original contracts by, among  other things, adding work to the contracts. The second group of contracts  consisted of all 22 contracts that, according to the Authority’s database,  were awarded without full and open competition in 1998 and 1999. In total,  the 35 contracts that we examined were valued at about $408 million and  accounted for 5 percent of the 646 contract awards and 19 percent of the  value of the 646 contracts as of December 31, 1999.  Because the Authority  does not have a centralized database of its concession contracts or  documented procedures for awarding these contracts, we did not review  concession contracts.  Instead, we focused our review on the Authority’s  contracts for supplies and services, including construction.
We used the Authority’s written policies and procedures as well as the  fundamental principles underlying full and open competition to evaluate  the Authority’s contracting actions.  Because the Authority is not required  to follow federal procurement statutes and regulations, as detailed in  appendix I, we applied generally recognized principles underlying the  concept of full and open competition.  The results of our contract analyses  are not projectable to the universe of the Authority’s contracts for supplies  and services. Appendixes II and III provide additional information about  our scope and methodology, including our methodology for selecting  contracts.
We discussed our preliminary findings with officials from the Authority,  and, by letters dated June 29, 2001, and July 9, 2001, the Authority  provided additional information for us to consider in drafting our report.  We incorporated this information as appropriate and, thereafter, provided  a draft of this report for review and comment to the Authority and to the  Department of Transportation.  The parties’ responses, including the  Authority’s letter dated January 4, 2002, are summarized in the following  section and discussed in more detail at the end of this letter.
subsections: section_title: Background
paragraphs: Before the airports’ transfer to the Metropolitan Washington Airports  Authority (MWAA), Dulles and Reagan National were operated by the  Federal Aviation Administration and financed with federally appropriated  funds. MWAA’s funding now comes from operational revenues (rents,  payments from concessionaires, landing fees, utility sales, and passenger  fees). MWAA also receives federal grant funds from the Airport  Improvement Program as well as proceeds from bonds issued to finance  its capital development program, which began in 1988.
MWAA is governed by a board of directors which, by law, consists of 13  members, including 5 members appointed by the governor of Virginia, 3  members appointed by the mayor of the District of Columbia, 2 members  appointed by the governor of Maryland, and 3 members appointed by the  president of the United States with the advice and consent of the Senate.The board establishes policies pertaining to the airports’ operation. The  board and its five committees generally meet on a monthly basis. The  committees, comprising 4 to 5 board members, execute delegated  responsibilities in areas such as business administration, finance, and  planning. A chief executive officer appointed by the board performs day- to-day management.
Program offices, such as MWAA’s Office of Engineering, identify  procurement needs and forward them to MWAA’s Procurement and  Contracts Department (its contracting office) for action. Procurement  requests contain an estimate of the cost of obtaining the required goods or  services. Thereafter, the contracting office develops a solicitation to seek  contractors’ interest in supplying the goods and services and subsequently  awards a contract to fill the procurement need. The contracting office is  also responsible for making any changes to the contract after it is  awarded.
According to its contracting database, MWAA awarded 2,843 contracts for  supplies and services, including construction, at an initial award amount  (in constant 1999 dollars) of about $1.43 billion from January 1, 1992,  through December 31, 1999. On average, MWAA awarded about 355  contracts annually over the 8-year period. The average value of the  contracts when awarded was approximately $504,000. Contract  modifications increased the cost of MWAA’s initial contract awards,  however. Specifically, the amount authorized for the 2,843 contracts that  MWAA awarded between 1992 and 1999 grew by about 38 percent—from  about $1.43 billion at award to about $1.98 billion through December 31,  1999 (in constant 1999 dollars). This cost growth most likely resulted from  MWAA’s modification of contracts to extend the period of their  performance and to purchase additional supplies and services.
section_title: MWAA Has Not Satisfied Its Obligation to Publish the Procedures It Uses to Award Contracts Competitively
paragraphs: MWAA’s lease with the federal government requires it to award contracts  for supplies and services exceeding $200,000 and all concession contracts  “through the use of published competitive procedures.” MWAA is aware of  this obligation and, in 1993, issued a contracting manual that it believes  satisfied the requirement. While the 1993 guidance was announced  publicly and is available to prospective contractors upon request, the  guidance is inadequate in numerous respects. Thus, in our view, it does  not satisfy MWAA’s obligation to contract using published competitive  procedures.
The clear intent of the statutory lease provision is to ensure that MWAA  develops, publishes, and follows an orderly set of procedures for awarding  contracts and concession franchises. Such procedures are meant to  enhance competition and, when published, provide the means for  contractors to understand MWAA’s contracting processes. Likewise, the  requirement to publish MWAA’s contracting procedures is intended to  provide assurance to prospective contractors that MWAA will actually  follow its published procedures. Thus, in our opinion, to satisfy its  obligation under the statutory lease provision, MWAA must ensure that its  published procedures adequately explain its contracting practices to prospective contractors, are current, and are those that it actually uses to award contracts and concession  franchises.
None of these requirements has been met. First, the manual that MWAA  published in 1993 offers prospective contractors only limited information  about its contracting processes. Instead of issuing a clear and well-defined  set of procurement procedures governing its contracting processes, the  1993 guidance simply summarizes MWAA’s contracting policies. The detail  that one would expect in a manual intended to familiarize potential  contractors with MWAA’s contracting processes and to foster full and  open competition is lacking. For example, the entire discussion of how  MWAA solicits bids and proposals and makes awards—the heart of the  contracting process insofar as prospective contractors are concerned—  consists of only a brief description of the various procurement methods  that MWAA could elect to use. “The Authority will select the proposal which offers the greatest overall benefit to the  Authority in terms of the evaluation criteria listed in the Request for Proposals. If the  determination is made to negotiate, negotiations generally will be open to all offerors   with a realistic chance of being awarded the contract (those in  the competitive range) as determined by preliminary technical and economic evaluation.
Best and final offers may be solicited from one or more offerors as appropriate.”
The 1993 guidance states that, in certain circumstances, contractors with  competitive proposals will be included in negotiations. The guidance does  not, however, explain when such circumstances will arise. Furthermore,  the 1993 guidance does not specify who will be invited to submit best and  final offers, only that offers may be solicited when MWAA deems such an  action “appropriate.”
Second, MWAA has not updated its 1993 guidance to ensure that it is  current. For example, the guidance states that MWAA’s board of review  must review all contract awards. This board, however, was abolished in  1996. Moreover, MWAA has not updated the guidance to reflect, among  other things, long-standing changes in (1) how its board of directors has  delegated contracting authority, (2) the names and addresses of personnel  currently responsible for MWAA’s contracting activities, or (3) revisions to  MWAA’s ethics requirements.
Finally, MWAA does not use the 1993 guidance to award contracts  involving non-concession-related goods and services. Instead, MWAA uses  an unpublished manual that it developed in September 1998. The 1998  manual is far more detailed, substantive, and prescriptive than MWAA’s  1993 manual. For example, in contrast to the guidance in the 1993 manual,  MWAA’s unpublished 1998 manual specifies that prospective contractors  must be included in the competitive range for purposes of negotiations if  their proposals have a reasonable chance of being selected for award.  Furthermore, unlike the 1993 guidance, the unpublished 1998 manual  provides specific rules governing MWAA’s decision to dispense with  negotiations. MWAA views the 1998 manual as internal guidance and, as a  result, has not published it, posted it to its contracting Web site, or  otherwise made it routinely available to prospective contractors.
In January 2002, when we concluded our review, MWAA was in the  process of updating its 1993 contracting guidance. When the update is  approved, MWAA anticipates (1) posting the guidance on its contracting  Web site and (2) placing a notice in The Washington Post to announce its  availability. MWAA was also updating its detailed 1998 internal contracting  guidance for awarding contracts for non-concession-related goods and  services. According to MWAA, the revision will include information about  its procedures for awarding concession franchises. Acknowledging that its  detailed internal contracting procedures should be made widely available  to interested parties, MWAA indicated that it would take steps to  disseminate the updated guidance, including establishing a link to the  guidance through its contracting Web site.
section_title: MWAA Has Not Always Satisfied Its Obligation to Obtain, to the Maximum Extent Practicable, Full and Open Competition
paragraphs: Despite its obligation under the statutory lease provision, MWAA did not  obtain, to the maximum extent practicable, full and open competition for  15 of the 35 contracts that we reviewed. MWAA’s actions on 12 of the 13  contracts that MWAA identified as awarded using full and open  competition did not comply with one or more of the recognized principles  underlying full and open competition. Furthermore, while the use of less  than full and open competition for 19 of the remaining 22 contracts  appeared acceptable given the contracts’ circumstances, we believe that  MWAA missed opportunities to obtain, to the maximum extent  practicable, full and open competition on 3 of the 22 contracts. The 3  awards as well as 2 others that we did not otherwise question were not  approved by MWAA’s board, as required for sole-source awards. We  discussed these findings with officials from MWAA, and, by letters dated  June 29, 2001, and July 9, 2001, MWAA disagreed with many of the  problems that we identified.  As a result, we incorporated additional  information about MWAA’s views and about our rationale for the concerns  that we identified in our draft report.  MWAA also disagreed with our  analyses of its contracting actions in its January 4, 2002, comments on our  draft report.  (Our discussion of these comments appears at the end of this  letter and in app. IV.)
subsections: section_title: The Benefits of Full and Open Competition Are Well Established
paragraphs: The use of full and open competition has long been recognized as  promoting several important objectives. It saves money by obtaining lower  prices and encouraging prospective contractors to focus on ways to  provide more value to their customers. It also promotes fairness and  equity through the use of open, impartial, and objective selection  processes. Finally, full and open competition promotes innovative  solutions and approaches and technical improvements by encouraging  individual incentive. Such competition is achieved when all prospective  contractors are provided an equal opportunity to compete successfully for  a contract. MWAA’s guidance recognizes the importance of full and open  competition. Its 1993 contracting manual, for example, states that full and  open competition is the “cornerstone” of MWAA’s contracting process and  indicates that it is to be used “whenever practicable.” Similarly, MWAA’s  unpublished 1998 contracting guidance emphasizes the use of full and  open competition “to the maximum extent practicable.”
section_title: Twelve of the 13 Contracts Identified as Awarded Using Full and Open Competition Were Deficient in One or More Respects
paragraphs: As discussed in appendix I, the concept of full and open competition  embodies a number of fundamental principles. To achieve full and open  competition, a contracting organization must, among other things, adhere to the evaluation factors and processes that it specified in its solicit competition for all of the needs that it could reasonably anticipate  acquiring under the contract, and ensure that any modification to a contract is within the scope of work that  it initially solicited.
As shown in table 1, 12 of the 13 contracts that MWAA identified as  awarded using full and open competition were deficient in one or more of  these areas.
Documentation pertaining to 4 of the 13 contracts that we reviewed  revealed deficiencies in MWAA’s evaluation of contractor proposals that  limited the ability of prospective contractors to compete fully for MWAA’s  contracts. Like others with procurement needs, MWAA seeks proposals  from contractors by distributing a solicitation that (1) describes the goods  and services it needs; (2) identifies various factors—such as cost,  technical excellence, management capability, and past performance—that  will be used to evaluate the proposals; and (3) explains how the selection  process will be conducted. To facilitate competition, solicitations must be  clear and complete so that all interested firms have a common  understanding of what is being sought and so that they can prepare  proposals responsive to the organization’s need. While a contracting  organization need not identify all the specific numeric values that it  intends to apply to each evaluation factor, the concept of full and open  competition necessitates that an organization’s solicitations specify the  relative importance of the evaluation factors that it will use in the  selection process and, thereafter, that the organization follow the factors  and processes that it specified. While MWAA’s 1993 contracting guidance  is silent on this matter, its unpublished 1998 contracting guidance requires  MWAA to inform prospective contractors about the relative importance of  its evaluation factors. The 1998 guidance, however, does not discuss the  importance of adhering to the evaluation factors and processes that it  specifies in its solicitations.
Two of the four contracts that we questioned were scored in a different  manner from that specified in MWAA’s solicitation. MWAA’s November  1997 solicitation for design and construction services for a regional airline  terminal at Dulles, for example, identified six evaluation factors, including  “experience providing design/build services on projects of similar dollar  value and complexity.” Although this evaluation factor was listed fourth in  relative importance, MWAA weighed it the same as the first-ranked factor  and higher than two other criteria that MWAA’s solicitation had indicated  would be of greater importance in securing the award. A similar problem  occurred in MWAA’s evaluation of contractors’ proposals for design work  related to the expansion of the main terminal at Dulles. According to  MWAA’s contracting officials, the scoring irregularities on the first  solicitation occurred because of time constraints that had precluded  members of its technical review team from establishing specific scoring  weights for the evaluation factors before issuing the solicitation.  Regarding the other solicitation, MWAA contracting officials explained  that for evaluation purposes, MWAA’s technical review team changed the  relative weight of the factors that had been specified in the solicitation to  reflect the team’s conflicting view about the relative importance of the  evaluation factors that had been specified in the solicitation. In neither  instance were prospective contractors notified of the change or afforded  an opportunity to amend their proposals.
MWAA also did not follow the evaluation processes that it specified in two  other solicitations. The solicitations described an evaluation process in  which cost and technical factors would be evaluated concurrently in  selecting a successful contractor. MWAA assessed the contractors’  proposals against the technical factors identified in the solicitations.  However, instead of considering all of the contractors’ cost proposals,  MWAA considered cost for only those firms that it deemed to be the “most  technically qualified.” As a result, MWAA prematurely eliminated 13 firms  without determining whether the contractors’ proposed cost would have  offset their lower technical scores.
Finally, while MWAA followed the process it specified in two other  solicitations, the process used was, in our view, potentially problematic.  The two solicitations informed prospective contractors that MWAA would  identify the “most qualified” proposals and, from these, choose the  proposal with the lowest cost for award. MWAA assigned predetermined  numerical scores—an 80-percent “threshold” in one instance and an 85- percent “threshold” in the other—and used the scores to reject, on the  basis of technical factors alone, all of the proposals that did not meet or  exceed these scores. Although this process might not have disadvantaged  contractors who competed for these procurements, evaluating  contractors against predetermined technical scores can nevertheless be  problematic. Specifically, because technical merit and price are generally  directly correlated, establishing thresholds to evaluate proposals favors  those firms that score just above the technical threshold, since their price  should be lower, all other considerations being equal. Conversely, such a  process could harm firms with technical scores just below the threshold  since, technically, their proposals would have been roughly equivalent and  might have been available at a lower cost.
In its June 29, 2001, letter to us, MWAA agreed that to have a level playing  field for competition, it must (1) evaluate contract proposals in  accordance with its solicitations and (2) notify all offerors of any changes  it makes to its evaluation processes. According to MWAA, it follows these  practices and the “isolated” examples we identified leaves the reader with  the mistaken impression that these are not MWAA’s accepted practices.  Moreover, MWAA noted that “using a minimal technical acceptance basis  for eliminating unqualified offerors is acceptable if adequately  communicated in the solicitation .” Likewise, MWAA  said that its use of thresholds to evaluate contractor proposals is  acceptable if appropriately documented. Thus, in MWAA’s view, it can  resolve our concerns by ensuring that its solicitations clearly specify the  evaluation processes that it intends to use. In a subsequent letter to us  MWAA further explained that “in the future we will ensure that when  technical evaluation criteria alone are to be used to determine   competitive range , the solicitation will indicate that  MWAA may make this determination based solely on technical criteria”  . According to MWAA, “cost, of course, will be  evaluated for those firms included in the competitive range” [underlining  added]. Finally, MWAA’s June 29, 2001, and July 9, 2001, letters to us  indicated that we have not demonstrated any adverse impact on  contractors who were involved in the procurements that we questioned.
Because the contracts we examined were not selected on the basis of a  statistically valid sampling approach, we cannot determine the frequency  of problems in MWAA’s universe of contracts. However, MWAA’s  unpublished 1998 manual permits the use of thresholds for evaluating  contractor proposals and considers it an acceptable contracting practice.  We disagree that using a predetermined score, or threshold, to evaluate  contractor proposals is a prudent or appropriate contracting practice. As  recognized in MWAA’s unpublished 1998 guidance, to promote full and  open competition, agencies are expected to consider all proposals that  have a reasonable chance of being selected for award. Such a process is  intended to reflect all of the qualitative differences between the proposals  and to identify a natural cutoff point between proposals that have a  realistic chance of receiving the contract award and those that do not. As  discussed, establishing a cutoff point, or threshold, before all of the  benefits and disadvantages of the proposals have been fully considered  could disadvantage firms that have scores just below the threshold score  and might offer a roughly comparable technical proposal at a lower cost.
Furthermore, MWAA’s practice of not considering cost for all  contractors—when it has committed to do so—and its comments  regarding this practice reflect a fundamental misunderstanding about the  purpose and use of determinations pertaining to a proposal’s “technical  acceptability” and a proposal’s subsequent inclusion in the “competitive  range.” A determination that a proposal cannot satisfy an organization’s  needs and is therefore not technically acceptable (i.e., a technical  acceptability determination) differs markedly from a determination that  the firm’s proposal is outside of the competitive range (i.e., a  determination that the proposal has no realistic chance of being selected  for award). A determination about whether a contractor’s proposal is  within the competitive range is based on the evaluation of all of the factors  specified in the solicitation, not just the technical factors.
Moreover, we do not agree that MWAA can overcome our concerns solely  through the use of clearer solicitation language. To the extent that MWAA  expresses its intent to consider cost in awarding its contracts, as indicated  in its policy, MWAA must do so. On the other hand, if MWAA finds that it  needs to evaluate proposals only for technical acceptability (i.e., to  establish whether a proposal meets MWAA’s minimum requirements), it  can request technical proposals from firms and, on the basis of its  evaluation of these proposals, seek cost proposals from only those firms  that it finds acceptable. MWAA could also choose to award a contract  based solely on technical considerations (i.e., select the most qualified  firm). However, given the importance of cost in awarding contracts, public  contracting entities generally would avoid such an approach.
Finally, concerning MWAA’s view that we have not demonstrated any  adverse impact on contractors involved in these procurements, we note  that it is not always possible to quantify the extent to which offerors might  have been harmed by MWAA’s failure to follow its specified evaluation  processes. For example, it is impossible to discern how contractors might  have revised their proposals if they had been advised of changes in the  relative importance of MWAA’s evaluation factors. Likewise, because  MWAA did not open all of the contractors’ cost proposals, we do not know  how individual procurements might have been affected had cost been  considered in making the awards. Most important, in evaluating whether  such practices are appropriate, it is not necessary to demonstrate that  someone was injured by a noncompetitive practice.
subsections: section_title: MWAA Did Not Solicit Competition for All of Its Procurement Needs on 8 of the 13 Contracts Examined
paragraphs: To obtain full and open competition, an organization must solicit  competition on all of the needs that it knows it will procure under the  contract as well as those it can reasonably anticipate procuring under the  contract. Potential needs are generally communicated to contractors in the  form of “options,” which, if exercised, allow the organization to order  additional work by extending the duration of contracts or by purchasing  additional goods and services. To meet the requirement for full and open  competition, contract options must be priced and evaluated in making the  initial or underlying contract award. If a contract was awarded on a fully  competitive basis, the acquisition of additional goods and services through  the exercise of a previously priced and evaluated option would be a  competitive acquisition. In contrast, exercising a contract option that was  not priced and evaluated (an unpriced option) is tantamount to procuring  the additional work on a sole-source basis because, even if the initial  contract work was subject to competition, the additional work specified in  the option was not. Neither MWAA’s 1993 nor its unpublished 1998  contracting guidance specifically addresses options or the necessity of  obtaining and evaluating prices for the entirety of its procurement need to  avoid the subsequent acquisition of work on a sole-source basis.
MWAA did not seek competition for all the goods and services that it  expected to acquire under 8 of the 13 contracts that we reviewed.  Furthermore, while MWAA’s modification of these contracts to acquire the  additional goods and services should have been treated as sole-source  procurements, MWAA did not prepare written justifications for any of the  contract modifications—as required by its contracting procedures—or  seek its board of directors’ approval for exceptions to the use of full and  open competition, as required by both its contracting procedures and its  lease with the federal government. The most common problem involved  MWAA’s practice of exercising unpriced options to extend the duration of  its contracts. Specifically, while MWAA generally awarded 3-year  contracts—contracts with a base year and 2 option years—it did not  evaluate pricing for the expected duration of six of the eight contracts and,  instead, considered the price for only the base period of the contract—  typically the first year. After making the award, MWAA consistently  exercised the unpriced options to extend the contracts’ duration—  typically in 1-year increments for a period of 2 years—and entered into  sole-source negotiations to establish price. Work associated with the  contract extensions was not subject to any price competition and was  expected to cost MWAA at least $11.4 million.
For three contracts, MWAA did not solicit competition for its acquisition  of additional goods and services that had not been priced and evaluated as  part of MWAA’s initial contract awards. For example, while MWAA’s May  1997 solicitation for six buses included an option to purchase up to three  more buses, MWAA did not evaluate the price for the additional buses in  awarding the contract—even though it had requested pricing for all nine  buses. Nevertheless, in August 1998, MWAA exercised the option to  purchase three buses at a cost of about $1 million.
In another example, although MWAA’s solicitation for a mobile radio  system included an option to purchase and install a supplemental  communication system to eliminate “dead spots” in airport facilities,  MWAA did not obtain competitive pricing for the option. According to  MWAA’s contracting officials, pricing was not obtained because  construction had not progressed sufficiently to allow the system to be  designed and installed in the airport facilities. MWAA subsequently stated  that before the initial award it had not yet confirmed whether the new  terminal arrangement at Reagan National would require supplemental  communication coverage. Although this may have been the case for some  of the facilities, at least two facilities—the Thomas Avenue tunnel and the  existing terminal at Reagan National—were in existence years before  MWAA finalized and issued the solicitation. Moreover, two other  facilities—the boiler plant at Reagan National and the extensions to the  main terminal at Dulles—were completed before MWAA awarded the  contract in January 1997. Although MWAA was aware of this, it did not  amend the solicitation to obtain competitive pricing for the option or,  alternatively, to conduct a separate competitive procurement for the  additional work. Furthermore, MWAA never confirmed whether any of the  airports’ facilities would need supplemental communication coverage.  Instead, in March 1997—only 2 months after awarding the contract—  MWAA provided the successful contractor with a list of facilities to survey  for dead spots and in May 1997 modified the contract to purchase the  supplemental communication system for some of the airports’ facilities.  The additional work cost nearly $2.4 million and was not subject to any  price competition.
Finally, even though MWAA anticipated adding about 257,000 square feet  of space to a forthcoming contract for cleaning services related to the  expansion of the main terminal at Dulles airport, MWAA’s contract  solicitation did not seek competitive prices for this eventuality. Instead,  about 4 months after it awarded the initial contract, MWAA entered into  negotiations—on a sole-source basis—with the successful contractor and  modified the contract to satisfy its need for additional cleaning services.  MWAA agreed to pay the contractor about $656,000 more annually for the  additional work. This agreement represented an annual increase of almost  23 percent over the contract’s initial award amount and was not subject to  any price competition. According to MWAA’s July 9, 2001, letter to us,  MWAA did not request and evaluate pricing for cleaning the additional  space as part of its initial award because its cleaning requirements “were  different and changing.” Specifically, MWAA noted that “there were new  types of service related variables such as types of floors, surfaces, and  passenger flow arrangements. In addition, construction carryover  considerations affected the frequency of cleaning needs. Most importantly,  a new ticket counter arrangement with the airlines was anticipated.”
MWAA’s failure to consider the entirety of its procurement need also  resulted in another undesirable consequence. Because MWAA generally  considered contract costs for only the first year of its contracts, MWAA  treated three of the eight contracts as small purchases (contracts valued at  $200,000 or less) and, thus, did not advertise them—as required by  MWAA’s contracting policy—to ensure that all interested contractors had  an equal opportunity to compete for the awards. The three contracts each  exceeded $200,000 and had a total value of about $1.5 million. MWAA  acknowledged that it did not advertise the three procurements.  Nevertheless, it felt that each of the procurements had been subject to full  and open competition. MWAA noted that a newspaper advertisement is  not the only way to achieve full and open competition and indicated that it  takes other steps to advertise its contracting opportunities. Such steps  include posting contracting opportunities to MWAA’s contracting Web site,  which is publicly accessible, and to its bulletin board of solicitations in its  office at Reagan National. While the competition on one of the three  procurements did not fully satisfy MWAA’s requirement for advertising, we  agree that it appears to have been adequate.However, MWAA limited  competition on the other two procurements to a group of “known  suppliers.” Limiting competition to only those suppliers that are known to  MWAA does not constitute full and open competition, since other firms  may also be interested in and capable of accomplishing the work.
Finally, we found little documentation of MWAA’s efforts to determine  that the prices for additional goods and services resulting from changes in  the scope and terms of MWAA’s contracts were fair and reasonable. As  MWAA’s 1998 contracting procedures recognize, sound contracting  principles necessitate that an organization award contracts for goods and  services at fair and reasonable prices. Such prices are expected to result  from full and open competition. Thus, when contract changes are  involved, an organization must use other methods to assure itself that the  cost of the changes is fair and reasonable. Except for the construction- related contracts that we examined, we found little evidence of MWAA’s  efforts to do so. The contract files, for example, rarely demonstrated that  MWAA (1) prepared an independent cost estimate for the proposed  contract changes, (2) obtained market prices from the contractor’s  competitors, or (3) considered prices previously paid for similar goods and  services before entering into sole-source negotiations with a contractor for  additional goods and services. Moreover, the contract files rarely  documented the result of MWAA’s contract negotiations. Without  documentation to the contrary, these findings raise questions about  whether MWAA obtained fair and reasonable prices for its contract  modifications. “. . . if there is risk of a change in the requirements or conditions for  performance…adherence to fundamental principles of evaluating proponents would  dictate that due to technological risk and changing circumstances the options  not  be evaluated otherwise the award is likely to be premised on performance that is not in  accordance with what will be the actual requirements.”
Thus, as a matter of policy, MWAA does not currently require contractors  to price additional option years contemplated in its solicitations. Instead,  according to MWAA officials, MWAA prefers to negotiate the price for  additional work when it exercises the option. According to the contracting  officials, MWAA’s approach is more cost-effective because it avoids being  locked into prices that may be influenced by unstable market conditions,  inflation, or other factors. Finally, while not providing any information  supporting its view, MWAA’s June 29, 2001, letter to us indicated that  MWAA believes that the “commercial world” and other airports commonly  use unpriced options. Thus, MWAA indicated that it plans to revise its  procedures in an “attempt to provide a foundation for  use of this  commercial mechanism.”
We continue to believe that MWAA, using its best judgment, could have (1)  made a relatively accurate assessment of its future requirements under the  communications and cleaning contracts, (2) sought pricing on the basis of  its assessments, and (3) evaluated the contractors’ prices in making its  initial contract awards. For example, using the terminal’s detailed  construction plans and specifications, MWAA could have estimated the  amount of carpeted area in the terminal and the number of times per week  that it would need to be vacuumed as well as the amount and frequency of  tile or other flooring to be mopped and, thereafter, requested contractors  to provide unit pricing for each of these tasks. After award, if changes in  the amount or frequency of the cleaning occurred, MWAA could have used  the contractor’s unit pricing to adjust pricing under the contract.  According to the deputy commissioner of the Public Buildings Service of  the U.S. General Services Administration, the General Services  Administration—the landlord for the federal government—typically uses  this approach to award cleaning contracts for buildings under  construction. Furthermore, MWAA could have used appropriate contract  language to protect itself from uncertainties that might have resulted in  changes to MWAA’s original assessment of its needs. Alternatively, if  MWAA considered the two procurements too uncertain to estimate its  future needs, MWAA could have conducted new procurements. For  example, for the period in which MWAA was defining its future cleaning  needs at Dulles, MWAA could have awarded a short-term contract for the  existing facilities and, thereafter, conducted a new procurement for  cleaning the entire airport.
We also disagree with MWAA’s other views regarding the appropriateness  of using unpriced options. From the broadest perspective, MWAA’s use of  unpriced options represents an “option” in name only. Specifically, for the  contracts we discussed, because MWAA generally did not ask the  contractors to provide pricing for its anticipated options, MWAA did not  establish a unilateral, contractual right to require the contractors to  perform the future work at an agreed-upon price. Thus, when MWAA  subsequently elected to obtain the additional goods and services, it had to  enter into price negotiations. Such a contracting approach results in the  award of preplanned, noncompetitive (sole-source), follow-on contracts. If  these sole-source awards had been adequately justified, MWAA’s board of  directors could have approved them. However, MWAA did not treat the  procurements as sole-source awards and did not seek the board’s  approval.
Additionally, MWAA’s view that its use of unpriced options is more cost- effective than a full and open competitive approach conflicts with both the  guidance in MWAA’s unpublished 1998 contracting manual and the  experience of other public entities, including the federal government.  MWAA’s contracting guidance recognizes, for example, that  “negotiation(s) without the element of competition [i.e., a sole-source  procurement] is difficult” in arriving at a fair and reasonable contract  price. Furthermore, because MWAA is not obligated to exercise a priced  option if its interests are not well served in doing so, MWAA cannot be  locked into paying unfavorable prices. Instead, MWAA can always choose  to resolicit its requirement.
Finally, in our view, the question of whether the use of unpriced options is  common in the commercial world is not relevant to MWAA’s position.  MWAA is not a private entity with authority to operate freely in the  commercial world. Rather, MWAA is a public entity subject to contracting  requirements, including the use of full and open competition, that were set  forth in its lease with the federal government. As a result, we do not agree  that MWAA’s plan to revise its contracting procedures to “attempt to  provide a foundation” for using unpriced and unevaluated options will  resolve our concerns.
section_title: MWAA Added Out-of-Scope Work to 3 of the 13 Contracts
paragraphs: When an organization needs to acquire goods and services, it can either  conduct a separate procurement or use an existing contract. However,  using an existing contract is appropriate only if the acquisition is within  the scope of the original contract. Modifying a contract to obtain goods  and services that are outside the general scope of the contract (i.e., out-of- scope work) is tantamount to awarding the work on a sole-source basis  because the additional work was not subject to competition. MWAA’s  1993 contracting guidance does not address this matter. However, its  unpublished 1998 internal guidance specifically precludes contracting  officers from adding new work to an existing contract when the work is  beyond the general scope of the contract. Instead the work is to be treated  as a new procurement. According to the 1998 guidance, “although it may  be administratively easier to add new work to an existing contract, this is a  sole-source, noncompetitive approach which may not be as cost effective  as treating the work as a new competitive procurement.”
Although initially subject to full and open competition, 3 of the 13  contracts that we reviewed were subsequently modified to obtain goods  and services that were beyond the contracts’ original scope of work. In  each case, the value of the goods and services included in the modification  exceeded $200,000 and the modification was subject to the statutory lease  requirement for full and open competition. The first out-of-scope  modification occurred on MWAA’s 1995 contract for bus services. The  solicitation and subsequent contract required the contractor to provide  drivers and administrative support for the daily operation of a bus system  between the airports and other area locations. The buses were to be  supplied by MWAA. In April 1996, MWAA modified the contract to lease  four used buses for a period of up to 3 years with an option to purchase  the buses. The lease and purchase of the buses were not subject to  competition as part of the contract solicitation and clearly constituted an  out-of-scope contract modification, since neither the lease nor purchase of  the buses had anything to do with obtaining drivers and administrative  support for the bus service. According to contracting officials, the contract  modification was needed to meet operational needs until MWAA could  acquire new buses. Even though MWAA did not prepare a sole-source  justification for the modification or seek the board’s approval for an  exception to the use of full and open competition, MWAA’s July 9, 2001,  letter to us agreed that the contract modification was outside the scope of  the contract. The out-of-scope modification totaled about $360,000.
Another example of contract modifications for out-of-scope work  stemmed from MWAA’s February 1998 contract for a portion of the design  and construction of a regional airline terminal at Dulles. The contract was  awarded for $9.7 million using full and open competition and was part of a  much larger construction effort that included, among other things, the  acquisition of terminal furnishings, such as communications and flight  information display systems, interior furnishings, and public telephone  systems. According to MWAA, it specifically excluded the terminal  furnishings from the contract’s solicitation because it intended to obtain  the furnishings under separate, competitive procurements. MWAA did not  follow through with this plan and, despite guidance in its unpublished 1998  manual, modified the contract on at least 10 occasions in 1998 and 1999 to  acquire the out-of-scope furnishings. According to MWAA personnel,  MWAA modified the contract instead of soliciting competition for the  furnishings because of its successful experience with the contractor on  another airport project. Also, MWAA officials stated that prudent  management dictated that MWAA trade the benefits of obtaining full and  open competition with the necessity of accomplishing the work quickly to  satisfy its operational needs for the new terminal. MWAA did not justify  the modifications as sole-source procurements or seek exceptions to the  use of full and open competition from its board of directors. Contract  modifications for the out-of-scope work totaled about $2.1 million.
MWAA does not agree that its acquisition of terminal furnishings involved  a series of sole-source procurements. According to MWAA, its decision to  obtain the additional work under the existing contract rather than to  procure the work through a series of procurements, as had been originally  planned, was justified by the urgency of the project. According to MWAA’s  July 9, 2001, letter to us, “the only deficiency with this procurement action  may be a lack of adequate documentation of the urgency.” MWAA further  stated that there “was no perceived detrimental effect” but considerable  efficiency in using one contractor to handle the various procurements. We  disagree with MWAA’s assessment that the contract modifications did not  constitute sole-source procurements. Moreover, MWAA’s subsequent  finding of “urgency” is not supported by documentation in the contract  file. Instead, MWAA consciously excluded the work for the terminal’s  furnishing from the contract’s solicitation because, at that time, it intended  to award the work under separate, competitive procurements. Work  specifically excluded from a solicitation cannot, after the contract’s award,  be viewed as being within the contract’s scope. Furthermore, even if there  were efficiencies associated with using one contractor to handle the  procurement, we do not agree that there was no detrimental effect to  other contractors who, if afforded the opportunity, might have been  interested in competing for this work.
The final example of modifications to obtain out-of-scope work involved  MWAA’s contract for architecture and engineering support services for  MWAA’s capital development program at Reagan National and Dulles.  According to the solicitation, the program was expected to take 5 years  and cost from $700 million to $1 billion. MWAA awarded a 3-year contract  in 1988 and extended it for another 3 years in 1991. While this 6-year  period roughly approximates the scope of work specified in MWAA’s  solicitation, MWAA extended the contract in 3-year increments in 1994,  1997, and 2000—for a total of 9 additional years. According to an internal  memorandum discussing MWAA’s rationale for the most recent contract  extension in December 2000, the extension was needed so that the  contractor could, among other things, assist in overseeing (1) the  completion of work related to the airports’ original development plan and  (2) a new 6-year, $3.4 billion development plan that MWAA initiated at  Dulles in August 2000.
MWAA does not agree that the latter three contract extensions should  have been treated as sole-source procurements and did not prepare sole- source justifications for the extensions or obtain exceptions to the use of  full and open competition from MWAA’s board of directors. According to  MWAA officials, while the initial 5-year estimate was overly optimistic,  MWAA envisioned that the contract would span the entirety of its original  development program. In support of this view, the officials noted that the  contract does not specify a maximum time frame for completing the  contract. Thus, according to MWAA, it can legitimately extend the contract  until at least 2008 when the last of the projects identified in the airports’  original development plan are scheduled for completion. We disagree. In  our view, all of the contract extensions beyond 1994—the contract’s  6th  year—represent work beyond the scope of what MWAA offered for  competition in 1988. The solicitation clearly anticipated a contract for  professional services for a period approximating 5 years. Finally, although  the contractor was asked to prepare MWAA’s original capital development  plan, the solicitation did not (1) specify that the contractor was to oversee  the plan’s implementation until completion or (2) anticipate the  contractor’s involvement in the new development plan that MWAA  initiated in August 2000. The contract, which is currently scheduled to  expire in December 2003, is now in its 13th  year and had cost about $230  million through December 31, 2000.
MWAA noted that although its board of directors was aware and  supportive of the contract extensions, it now regrets not having sought the  board’s approvals. According to MWAA, the approvals would have  eliminated even the shadow of a doubt about the propriety of MWAA’s  contract extensions. MWAA explained that it would have been detrimental  to initiate a change in its program management services during the high  growth and highly dynamic period between 1995 and 2000 because of the  need to address, among other things, protracted and ongoing issues  involving an unfinished project in MWAA’s original capital development  project. Thus, in MWAA’s view, we did not adequately consider the  importance of maintaining continuity in its program support during this  period. We disagree. Under the terms of MWAA’s lease with the federal  government, it is the responsibility of MWAA’s board of directors to decide  whether MWAA’s desire for continuity necessitated a series of sole-source  contract extensions. The extensions in question were not competed, and  MWAA staff did not present the sole-source contract extensions, along  with a justification supporting each extension, to the board. Accordingly,  the board did not approve them.
Finally, for the three procurements involving out-of-scope work, we found  little evidence of MWAA’s efforts to establish that the negotiated prices for  contract changes were fair and reasonable. MWAA acknowledged that the  three contract files do not adequately document actions taken by its  contracting officers to determine that pricing was fair and reasonable.  Nevertheless, MWAA indicated that the prices were fair and reasonable.
section_title: MWAA Missed Opportunities to Compete 3 Contracts It Awarded Using Less Than Full and Open Competition in 1998 and 1999
paragraphs: While the use of less than full and open competition for 19 of the 22  contracts in the second group of contracts that we reviewed appeared  acceptable given the circumstances, we believe that MWAA missed  opportunities to obtain competition for 3 of the 22 contracts. The  contracts were awarded to United Airlines for $10.6 million for  improvements at Dulles and included the design and construction of (1)  office space for federal agencies that process international travelers, (2) 12  passenger-screening checkpoints, and (3) an outbound baggage-handling  system. While each of the contracts exceeded $200,000, MWAA did not  consider the statutory requirement for full and open competition  applicable to the awards because, according to MWAA, the work was  accomplished under amendments to its sublease with United and involved  improvements to United’s facilities or areas directly associated with the  airline’s facilities.
MWAA’s lease with the federal government allows MWAA to enter into  subleases with airlines for the use of the airports. Also, MWAA can allow  airlines and other tenants to make improvements in areas that they  sublease from MWAA. Improvements that are made by and for the  exclusive benefit of an airline in space that it sublets from MWAA are not  subject to the requirement for full and open competition. However, as  specified in MWAA’s lease with the federal government, airline subleases  cannot be used to avoid any of MWAA’s obligations under the lease.
In our view, each of the three projects undertaken by United Airlines was  MWAA’s—not the airline’s—acquisition and, therefore, subject to the  requirement for full and open competition. We reached this conclusion  because  the work included in each of the projects was an integral part of MWAA’s  capital development program at Dulles and was performed on MWAA’s  behalf,  the work was performed on MWAA’s premises—not in areas subleased by  United,
MWAA—not United—received immediate title to all of the improvements, each of the projects served interests beyond those of United.
In the first case, MWAA and United agreed that United would, among other  things, construct new offices and other facilities for federal agency staff  who process travelers in the international arrivals building and upgrade  the fire alarm and telecommunications systems in the affected space.  According to MWAA, United arranged to perform the work because it, as  the largest international carrier at Dulles, was the primary beneficiary of  the federal processing services. Representatives of MWAA told us that  United sometimes uses the international arrivals building for international  flights that terminate at Dulles. However, according to the officials, flights  connecting to other United locations generally use a separate United  facility located in the midfield of the airport—an area well away from the  international arrivals building. Thus, although the international arrivals  building is shared by all airlines, it is used predominately by airlines other  than United. Moreover, the international arrivals building is not subleased  by United. Instead, the building is controlled by MWAA and the federal  agencies (the Immigration and Naturalization Service, the Customs  Service, and the Department of Agriculture) that occupy the building.
MWAA and United also agreed that United would (1) acquire, among other  things, 12 passenger-screening checkpoints at Dulles and offices, storage,  and other rooms used by security personnel that operate the checkpoints  and (2) relocate flight information monitors, pay lockers, and several  advertisement displays in the vicinity of the new screening checkpoints.  The checkpoints are located throughout the main terminal at Dulles and  are used to screen all enplaning passengers, regardless of the airline they  are using. During a tour of the airport, representatives of MWAA indicated  that it was more convenient to allow United to contract for the work  because the airline—as the principal party on the airlines’ security  committee—was more familiar with what needed to be done.
Finally, MWAA and United agreed that United would acquire an outbound  baggage system for the east side of Dulles’s main terminal. The baggage- handling system routes bags through the airport for passengers embarking  from the east side of Dulles’s main terminal. United and its affiliated  airlines are located in this area and, as a result, primarily benefit from the  improvement. However, like the other projects, the baggage-handling  system is a fixed improvement that is located within space controlled by  MWAA and, should there be any change in airline tenants, the new tenants  would benefit from the improvement. During a tour of the airport, MWAA  representatives indicated that MWAA had intended to install the baggage- handling system. However, United wanted a higher-capacity system than  MWAA had planned to install so, according to the officials, it was more  convenient to allow United to contract for the work. In addition to  convenience, the amendment to the airline’s use and lease agreement  indicated that using United to perform the work would allow the  expansion of the east side of the main terminal to “be completed earlier  than it otherwise would be.”
According to MWAA’s June 29, 2001, letter to us, using airlines to make  airport improvements is a common practice among airport operators.  MWAA explained that the practice derives from the highly competitive  environment of the aviation industry that necessitates that airport  operators be responsive to, among other things, the needs of their tenant  airlines. Thus, according to MWAA, airport operators need flexibility to be  able to authorize their tenant airlines to make airport improvements that  affect the airlines’ operational needs. MWAA noted that it often considers  it expeditious and prudent to allow airlines to make such improvements.  Moreover, according to MWAA, this flexibility better ensures timeliness,  compatibility, and cost-effective decision-making. Finally, MWAA  indicated that Congress intended MWAA to have flexibility in developing  the airports when it authorized the airports’ lease to an independent entity.  As discussed in the next section of this report, we largely disagree with  MWAA’s view.
In addition to the 3 airline sole-source awards, 2 of the 22 contracts that  we reviewed were not approved by MWAA’s board of directors as required  under the statutory lease provision and MWAA’s internal procedures. The  sole-source awards were for telephone services and parking system  upgrades that appeared appropriate under the contracts’ circumstances.  MWAA agreed that the necessary board approvals were not obtained and  indicated that the requirement had been overlooked.
section_title: MWAA Believes That the Principles of Full and Open Competition Need to Be Defined within the Context of Airport Contracting
paragraphs: While not conceding that the examples cited in this report represent a  violation of “any law or its federal lease,” MWAA indicated in its June 29,  2001, letter to us, that it needed to better embrace and articulate “certain  hallmarks of ‘full and open’ competition.” MWAA stated, however, that our  assessment of its contracting practices using recognized principles of full  and open competition was inappropriate because, in its view, these  principles do not adequately reflect the unique environment applicable to  contracting at commercial airports. MWAA noted that its charter, as  reflected in statutes of the District of Columbia and the Commonwealth of  Virginia, recognized the need for flexibility in MWAA’s contracting and,  consequently, granted it expanded commercial discretion in making and  entering into contracts. In MWAA’s view, it has the power to use  contracting practices and procedures that are based upon business needs  and “not inherently linked to federal concepts” for maximizing  competition. MWAA’s June 29, 2001, letter further explained that, as a self- supporting enterprise, MWAA is obligated to ensure its financial continuity  rather than simply looking at “shortterm least cost alternatives.” MWAA  stressed that it would be wrong and inconsistent with Congress’s intent in  transferring the operation of the airports to eliminate the flexible  framework for contracting at the airports. According to MWAA, the  revised contracting procedures that it intends to publish will eliminate the  concerns we identified in this report. Finally, MWAA indicated that its  revised policies and procedures should put an end to any lingering  misconception about what “full and open competition” is in an airport  setting.
We understand that Congress, in transferring control of the airports,  intended that the airports be operated in a more businesslike manner than  had been possible when the federal government operated the airports.We also understand that MWAA’s charter provided MWAA with flexibility  and discretion to make and enter into contracts. Nevertheless, such  flexibility and discretion are subordinate to the obligations MWAA  assumed under the statutory lease provision. MWAA accepted the  conditions imposed on its contracting when it signed its lease with the  federal government. As a result, MWAA—unlike other airport operators—  is subject to the statutory lease provision for full and open competition, to  the maximum extent practicable. While Congress provided MWAA with  the flexibility to permit exceptions to the use of full and open competition  when authorized by a vote of seven members of MWAA’s board of  directors, the board did not approve exceptions for any of the contracting  actions that we questioned.
We also do not agree with other views expressed in MWAA’s June 29, 2001,  letter to us.  Regarding the meaning of full and open competition as used  in the statutory lease provision, we note that the imposition of the  requirement for MWAA to use full and open competition followed a long  history of development of the fundamental principles applicable to  competitive contracting for public entities in this country. Many of the  authorities on which we relied on to identify the principles applicable to  MWAA predate current federal procurement statutes and regulations.  Thus, as discussed in appendix I, we applied those generally recognized  principles that underlie any requirement for full and open competition by  public entities such as MWAA.
Finally, we do not agree that the fundamental principles are inapplicable  to contracting in an airport environment. Federal, state, and local  governments as well as other public entities conduct thousands of  competitive procurements annually, expending billions of dollars.  Collectively, these procurements have been used to build and maintain the  public infrastructure in this country. On the basis of our knowledge of  Reagan National and Dulles airports, MWAA’s procurements appear to be  no more complex or challenging than many of these procurements. As a  result, MWAA’s intention to reflect its view of the meaning of full and open  competition in an airport setting through a revision of its contracting  policies and procedures will not resolve the contracting concerns that we  identified.
section_title: The Department of Transportation Represents the Interests of the United States in Its Dealings with MWAA
paragraphs: The secretary of transportation’s responsibilities with respect to the lease  are to (1) ensure that the airports are used for their intended purposes, (2)  periodically renegotiate the amount of MWAA’s annual payments to the  federal government that is attributable to inflation, and (3) negotiate any  extensions beyond the 50-year period specified in the lease. The 1986 act  that transferred operating responsibility to MWAA does not define the  specific role of the department with respect to overseeing MWAA’s  compliance with the contracting requirements in its lease with the federal  government.  Nevertheless, as signatory to MWAA’s lease with the federal  government, department officials agreed that the secretary of  transportation is the primary executive branch official responsible for  representing the interests of the United States in its dealings with its  tenant, MWAA. Accordingly, we discussed our findings with Department  of Transportation officials. The officials suggested that MWAA publish a  draft of its revised contracting procedures for the review and comment of  all interested parties and indicated that, on the basis of the information in  our draft report, corrective actions by MWAA are likely to be needed.  According to the officials, the department will take “appropriate actions,”  as necessary, to fulfill its obligations under the lease.  However, noting  that the 1986 act does not define the specific role of the department with  respect to overseeing MWAA’s contracting, the officials did not identify  the actions that the department would take to ensure that MWAA complies  with its contracting obligations under the lease.
section_title: Conclusions
paragraphs: In a number of important respects, MWAA’s procurement practices are not  in compliance with its obligations under its lease with the federal  government. As a result, for many of the contracts that we reviewed,  MWAA may not have realized the important benefits that full and open  competition is intended to achieve. Moreover, because MWAA permits  several of the contracting practices that we questioned as a matter of  policy or practice, we believe that similar problems are likely to exist in  MWAA’s other contracts.
MWAA’s failure to publish the competitive procedures it actually uses to  award its contracts and concession franchises is inconsistent with the  objective of fostering, to the maximum extent practicable, full and open  competition. Moreover, its continued reliance on incomplete and outdated  guidance to satisfy its requirement for “published procedures” disregards  the requirements imposed in MWAA’s lease with the federal government.  Weaknesses in MWAA’s evaluations of contractor proposals also raise  concern about whether contractors have been treated fairly in competing  for MWAA’s contract awards. Likewise, MWAA’s (1) practice of  improperly exercising contract options that MWAA did not compete as  part of its initial solicitation, (2) use of existing contracts to obtain goods  and services that are beyond the scope of work contained in its contract  solicitations, and (3) improper use of sole-source awards fail to ensure  that MWAA obtains the best value available in the marketplace for the  goods and services it purchases and could result in MWAA’s paying higher  prices than necessary. MWAA’s contracting practices also deprive  prospective contractors of the opportunity to compete fully and openly for  all available contracting opportunities and, related to this, could create the  perception of favoritism in MWAA’s contracting process. Finally, although  the lease provides MWAA’s board of directors with the flexibility to  authorize exceptions to the use of less than full and open competition,  MWAA often did not seek the board’s approval for the contracting actions  that we questioned.
Given MWAA’s silence on most of our recommendations and its  fundamental disagreement with our view about the meaning and  applicability of the requirement for full and open competition, it appears  doubtful that MWAA will, on its own initiative, take all of the actions that  we believe are needed to meet the statutory and lease requirement  pertaining to MWAA’s contracting practices.  This is particularly  troublesome given that MWAA recently embarked upon a multibillion- dollar construction program at Dulles.  Furthermore, because the 1986 act  does not specify the Department of Transportation’s role in overseeing  MWAA’s contracting, it is unclear what the department will do to ensure  that MWAA satisfies its obligations under the lease.  Accordingly, we  added a suggestion that Congress consider clarifying the 1986 act to  specify that, as lessor, the department is responsible for ensuring that  MWAA (1) fully complies with the contracting requirements imposed in  the lease and (2) takes all steps needed to correct the problems that we  identified.
section_title: Recommendations for Executive Action
paragraphs: To help ensure that MWAA’s future contracting activities comply with the  requirements imposed in MWAA’s lease with the federal government, we  recommend that the board of directors take steps to ensure that  1.	 MWAA publishes, for review and comment by the public, procedures  for competitively awarding contracts in excess of $200,000 and all of  its contracts for concession franchises and thereafter that MWAA  publishes—and makes readily available to the public—a complete,  adequate, and current set of its contracting procedures;  2.  MWAA’s published procedures provide for, among other things, evaluating all future contractor proposals in accordance with the  factors and processes specified in its solicitations; obtaining and evaluating prices for the entirety of its known or  anticipated need for each procurement before selecting a successful  contractor; ensuring that contract modifications for additional goods and services  are within the scope of work that MWAA solicited and competed; ensuring that all work (i.e., work where the total contract value is  estimated to exceed $200,000) is subject to full and open competition,  to the maximum extent practicable, including all work ordered through  the exercise of options or through other contract modifications; ensuring that any work (i.e., work whose total contract value is  estimated to exceed $200,000) that is awarded using less than full and  open competition is adequately justified and approved by MWAA’s  board of directors, as appropriate; and  3.	 MWAA updates its published contracting procedures regularly and that  MWAA consistently follows the published procedures.
In addition, we recommend that the board reevaluate MWAA’s use of  preestablished thresholds to exclude contractor proposals from award  consideration.  Finally, to help ensure that the board is well-informed, we  recommend that the board require periodic reports on (1) MWAA’s actions  to address our audit findings and (2) the extent of MWAA’s use of less than  full and open competition.
As signatory to MWAA’s lease with the federal government, we  recommend that the secretary of transportation take appropriate actions  to follow up on MWAA’s actions to address our findings and  recommendations.
section_title: Matter for Congressional Consideration
paragraphs: To help ensure that MWAA satisfies its obligations under the lease, we  suggest that Congress consider clarifying the 1986 act to specify that, as  lessor, the Department of Transportation is responsible for ensuring that  MWAA (1) fully complies with the contracting requirements imposed in  the lease and (2) takes all steps needed to correct the problems that we  identified.
section_title: Authority Comments and Our Evaluation
paragraphs: We discussed our preliminary findings with MWAA officials, including the  vice president and general counsel and the vice president for business  administration on June 22, 2001.  By letters dated June 29, 2001, and July 9,  2001, these officials provided additional information for us to consider in  drafting our report.  After a thorough analysis of the letters and extensive  follow-up, we incorporated MWAA’s comments as appropriate.  On  October 9, 2001, we provided a draft of this report for review and  comment to the Department of Transportation and MWAA.  The  department did not comment on the specific steps that it plans to take to  address our recommendation that it follow up on MWAA’s actions to  address our findings and recommendations.  However, the department  indicated that it would take “appropriate actions” to fulfill its obligations  under the lease.  The department also provided technical and clarifying  comments, which we incorporated as appropriate.
In their January 4, 2002, letter to us, MWAA’s board of directors disagreed  with the report’s major conclusions, raised concerns about our scope and  methodology, and reiterated comments made in MWAA’s previous letters.  Furthermore, MWAA commented on some, but not all, of our  recommendations.  MWAA’s comments on our conclusions, scope and  methodology, and recommendations and our evaluation of these  comments are discussed below.  MWAA’s January 4, 2002, letter and our  supplementary comments on it appear in appendix IV.
First, referring to its 1993 contracting manual, MWAA disagreed with our  conclusion that it is not in compliance with its obligation to publish  competitive procurement procedures.  MWAA noted that the manual was  adopted and published and that the 1993 manual is available to the public.  MWAA also noted that all of its solicitation documents contain  procurement-specific procedures.  Thus, according to MWAA, the  manual—considered either individually or in conjunction with the  procedures it specifies in its solicitations—satisfies its obligation under  the lease.  We disagree with MWAA’s view.  The requirement to publish  “procedures” specifically conveys Congress’s intent that MWAA develop,  publish, and follow routinized, orderly, and established processes for  conducting all of its procurements.  MWAA’s 1993 contracting manual (1)  does not adequately explain MWAA’s contracting practices, (2) is  outdated, and (3) is not actually used to award MWAA’s contracts and  concession franchises.  Thus, in our opinion, the manual cannot be  construed as meeting the intent of the statutory lease provision.  Likewise,  we do not believe that the procedures MWAA specifies in its solicitations  can be viewed in conjunction with MWAA’s manual as satisfying MWAA’s  obligation under the lease because the procedures are applicable only to  individual procurements.  Furthermore, on the basis of our findings on the  contracts that we examined, MWAA’s procurement-specific procedures  appear to promote ad hoc and arbitrary contracting actions.Notwithstanding our differences in views, MWAA agreed with our  recommendation to publish its contracting procedures for review and  comment by the public and, thereafter, to make the procedures readily  available.  According to MWAA, it is currently revising the 1993  contracting manual to, among other things, incorporate the more detailed,  internal guidance it developed in 1998.  MWAA further indicated that, after  consideration of any comments received, it would make the revised  manual available on request and through its Web site.
Second, MWAA disagreed with our conclusion that it did not always  satisfy its obligation to obtain, to the maximum extent practicable, full and  open competition, on 15 of the 35 contracts that we reviewed.  MWAA  further disagreed with our belief that a similar conclusion could probably  be reached about MWAA’s other contracts for goods and services.  MWAA  commented that it “is committed to maximizing competition in its  procurement process consistent with reasonable business practices”  applicable to airports and, related to this, that its data on contracting  demonstrate that MWAA obtains full and open competition “where  required.”  We disagree with MWAA’s views.  MWAA’s data on contracting  for supplies and services, including construction, are derived from a  database maintained by MWAA’s Procurement and Contracts Department.  This database cannot be used to quantify the extent of MWAA’s use of full  and open competition on its contracts between 1992 and 1999—the time  frame that we reviewed.  In part, this is because MWAA did not begin  identifying the form of award—full and open competition, limited  competition, or sole-source award—on its contracts for supplies and  services until mid-1997.  Furthermore, our limited tests to evaluate the  integrity and reliability of the database disclosed numerous errors. Most  important, to the extent that the database is accurate about the form of  award for MWAA’s initial awards for these types of contracts, MWAA does  not update the database to reflect any modifications it makes or options it  exercises on a sole-source basis to its initial awards.  Finally, as discussed  elsewhere, the database does not include information about MWAA’s  concession contracts.
Furthermore, regarding our conclusion that MWAA did not always obtain,  to the maximum extent practicable, full and open competition, MWAA  commented that, in its view, we employed a faulty methodology for  selecting contracts for review.  Specifically, MWAA indicated that we did  not employ a statistically valid sampling approach, failed to consider the  full range of MWAA’s contracts, “preselected” only the most complex of its  procurements, and “purposefully skewed” our contract selections “to  include only those contracts with  highest growth.” As a result, MWAA  indicated that our methodological approach did not comply with generally  accepted government auditing standards.  We disagree.  As the office  responsible for developing these standards, we make every effort to  ensure that each of our reviews is, among other things, designed,  implemented, and reported in conformance with applicable standards.  Consistent with these standards, we also routinely disclose any limitations  applicable to our findings.  Thus, because we did not conduct a statistical  sample of MWAA’s contracts, this report clearly indicates that our results  cannot be projected to the universe of MWAA’s contracts.  Nevertheless,  because MWAA permits—as a matter of policy—several of the contracting  practices that we found objectionable, we continue to believe that similar  problems are likely among MWAA’s other contracts.
We also disagree that our methodology for selecting contracts was  deficient.  Contrary to MWAA’s assertion, generally accepted government  auditing standards do not require the use of any particular methodological  approach, including random sampling.  A fundamental consideration in  designing any audit is to ensure that the time and resources needed to  carry out the review are commensurate with achieving the assignment’s  specific objectives.  Thus, while we considered a random sample of all of  MWAA’s contracts, we did not adopt that approach for two reasons.  First,  only contracts exceeding $200,000 are subject to MWAA’s requirement for  full and open competition.  Second, randomly sampling the 646 contracts  that exceeded $200,000 would have taken substantially more time and  resources than we had available to accomplish the detailed contract  reviews that we intended to perform.  Instead, as discussed in appendix  III, we designed a systematic and replicable method for selecting  contracts.  MWAA’s inference that this approach resulted in the arbitrary  selection of its most complex and problematic contracts, including  contracts with multiyear options and modifications, is not true.  First, as  discussed in appendix III and elsewhere, we examined the entire universe  of contracts identified in MWAA’s database as awarded in 1998 and 1999  using less than full and open competition.  Thus, 22 of the 35 contracts that  we reviewed were in no way “preselected.”  Furthermore, far from being  arbitrary, our approach for selecting the 13 remaining contracts that we  reviewed was specifically designed to be free from any selection bias and,  thus, our approach is completely replicable by any outside auditor.  Our  approach for selecting the 13 contracts also resulted in a good cross- section of both the value (above and below $1 million) and type of  contracts (construction-related contracts, non-construction-related  services contracts, and contracts for supplies) that MWAA identified as  initially awarded using full and open competition.  Moreover, even though  most of the 13 contracts that we selected involved multiyear option  periods and all of the contracts were modified, the 13 contracts were no  more complex than others in MWAA’s contracting database.  In this  regard, for example, it should be noted that about 79 percent of the 646  contracts exceeding $200,000 between 1992 and 1999 were modified at  least once.
Likewise, MWAA’s suggestion that we purposely “skewed” our 13 contract  selections toward those with high cost growth because we suspected that  they would be particularly problematic is also incorrect.  As discussed in  this report, we focused our contract selections on contracts with a high  percentage of cost growth solely to determine if the work associated with  the contracts’ cost growth had also been subject to full and open  competition.  Moreover, in contrast to MWAA’s view, given the average  amount of the contracts’ cost growth—about 617 percent—one could  easily argue that the contracts should have been subject to continuous  management scrutiny and, thus, expect that the contracts would be  relatively free of problems.  Finally, we discussed all aspects of our  planned methodology with MWAA officials, including the manager of  MWAA’s Procurement and Contracts Department, before selecting  contracts for review.  At that time, MWAA officials did not voice any  concerns about our planned approach and, in fact, considered it more  complex than necessary because, according to the manager, each of  MWAA’s contracts would likely be found beyond reproach.
Third, MWAA reiterated its view that our assessment of its contracting  practices using recognized principles of full and open competition was  inappropriate because it is not a federal agency and, consequently, is not  obligated to follow federal procurement statutes and regulations.  MWAA  also reiterated that the criteria we applied do not adequately reflect the  “unique environment” applicable to contracting at commercial airports.
Related to this, MWAA commented that the requirement to obtain, to the  maximum extent practicable, full and open competition is broadly stated  by design and that Congress intended to provide MWAA with flexibility to  operate the airports in a manner consistent with the operation of other  commercial airports.  We disagree with MWAA’s view.  Our report clearly  notes that MWAA is not obligated to follow federal procurement statutes  and regulations.  Thus, while the precepts of “full and open competition”  owe much to the federal government’s experience, we did not use federal  procurement statutes or requirements to assess MWAA’s compliance with  the statutory lease provision.  Instead, as detailed in appendix I, we  applied generally recognized principles underlying the concept of full and  open competition.  In addition, we clearly acknowledge that Congress, in  transferring control of the airports, intended the airports to be run in a  more businesslike manner than was possible when the federal government  operated the airports.  Congress also intended to leverage the ability of an  independent, nonfederal, public entity to obtain funding in private money  markets for use in financing the airports’ renovation and operation.  The  fact that Congress sought such a benefit, however, does not provide  MWAA with a basis for not adhering to the conditions imposed upon  MWAA’s contracting.  Finally, although the board of directors’ letter to us  emphasized the need for “flexibility” in MWAA’s contracting, the letter did  not discuss the specific mechanism that Congress provided for achieving  flexibility in MWAA’s contracting.  As explicitly discussed in this report,  the statutory lease provision permits exceptions to the use of full and open  competition when approved by a vote of seven members of MWAA’s board  of directors.  None of the contracting actions that we found objectionable  were approved by MWAA’s board.
Finally, implying that our 1993 report endorsed its contracting procedures  and practices, MWAA questioned what it described as “the foundation for  such a fundamental change” in our views.  According to MWAA, our 1993  report “concluded that the Authority’s approach and understandings  [regarding the meaning and applicability of the requirement for full and  open competition] were acceptable to develop policies, implement  recommendations and execute a successful procurement system.”  Thus,  absent additional audits, guidance, or monitoring in the interim, MWAA  indicated that it had relied on our earlier report to conduct its  procurements.  We disagree with MWAA’s characterization of the  conclusions in our earlier report and, related to this, note that MWAA has  misrepresented our 1993 report in various court proceedings. Our 1993  report concluded that, even though MWAA had not yet published detailed  procedures for awarding its contracts and concession franchises, the  contracting practices that we reviewed in the early years of MWAA’s  contracting program—1989 to 1991—generally promoted a competitive  environment.  However, we also concluded that, if not corrected, certain  practices we identified could adversely affect MWAA’s competitive  process in the future.  The problems that we identified in our 1993 report  are similar to those identified in this report and included awarding  contracts under procedures that were not publicly disclosed and  extending one sole-source contract on several occasions without proper  authorization.  Thus, in contrast to MWAA’s view, these and other  problems appear to have been simply exacerbated in the years between  our audits.
Furthermore, regarding MWAA’s claim that it had no previous knowledge  of the problems that we identified, we must note that, in 1998, MWAA’s  Office of Audit identified problems similar to the ones that we found.  The  audit focused on 34 professional services contracts and found that  MWAA’s use of options and other contract modifications deprived  contractors of opportunities that could otherwise have been competed.  The audit also identified, as we have reported, the use of modifications to  add out-of-scope work to contracts.  Furthermore, the audit found that  required board approvals had not always been obtained.  The office  recommended that MWAA increase its oversight of its contracts to, among  other things, identify work that should be offered as separate  procurements.
We also disagree that we changed the rules applicable to MWAA’s  contracting for the purpose of this audit.  Both our 1993 report and this  report clearly state that MWAA is not obligated to follow federal  procurement statutes and regulations related to full and open competition.  However, as discussed throughout this report, this does not mean that  MWAA is free to define the requirement for full and open competition as it  sees fit.  MWAA is not a private entity with authority to operate freely in  the commercial world. Rather, MWAA is a public entity subject to the  contracting requirement for full and open competition, to the maximum  extent practicable, that was set forth in its lease with the federal  government.  Thus, while MWAA need not follow federal procurement  statutes and regulations, it must comply with the fundamental principles  underlying full and open competition.  To help avoid future confusion on  this point, appendix I provides additional guidance about these principles.
As previously discussed, MWAA agreed to publish its contracting  procedures for review and comment by the public and, thereafter, to make  the procedures readily available.  MWAA also indicated that it would  “consider its approach” to pricing contract options when it revises its  contracting procedures.  However, MWAA did not specifically comment on  our other recommendations, which were aimed at correcting the other  contracting problems that we identified.  Likewise, MWAA did not commit  to regularly update and consistently follow the revised procedures that it  intends to publish.  Finally, MWAA did not comment on our  recommendation that the board  (1) reevaluate MWAA’s use of  preestablished thresholds to exclude contractor proposals from award  consideration and (2) require periodic reports on, among other things,  MWAA’s actions to address our audit findings.
Given MWAA’s silence on most of our recommendations and its  fundamental disagreement with our view about the meaning and  applicability of the requirement for full and open competition, it appears  doubtful that MWAA will, on its own initiative, take all of the actions that  we believe are needed to meet the statutory and lease requirement  pertaining to MWAA’s contracting practices.  This is particularly  troublesome given that MWAA recently embarked upon a multibillion- dollar construction program at Dulles.  Furthermore, because the 1986 act  does not specify the Department of Transportation’s role in overseeing  MWAA’s contracting, it is unclear what the department will do to ensure  that MWAA satisfies its obligations under the lease.  Accordingly, we  added a suggestion that Congress consider clarifying the 1986 act to  specify that, as lessor, the department is responsible for ensuring that  MWAA (1) fully complies with the contracting requirements imposed in  the lease and (2) takes all steps needed to correct the problems that we  identified.
We performed our work from November 2000 through January 2002 in  accordance with generally accepted government auditing standards. A  detailed description of our scope and methodology, including our  methodology for selecting contracts, appears in appendixes II and III.
We are sending copies of this report to the secretary of transportation, the  chief executive officer of MWAA, and each member of MWAA’s board of  directors. Copies will also be made available to others upon request.
Major contributors to this report were Alan Belkin; David Bryant, Jr.;  Arthur James, Jr.; Bert Japikse; Larry Turman; and Kathleen Turner. If you  or your staff have any questions about this report, please contact me on  (202) 512-8387 or at ungarb@gao.gov.
section_title: Appendix I: Principles of Full and Open Competition
paragraphs: As discussed in this report, Congress required that the Metropolitan  Washington Airports Authority (MWAA) award certain contracts by  obtaining, to the maximum extent practicable, full and open competition.This requirement embodies a number of fundamental principles that we  discuss below. We have also provided information on the principles that  apply to ordering goods and services under contracts that were awarded  using full and open competition.
subsections: section_title: Background
paragraphs: Decisions of the comptroller general dating back to the 1920s and 1930s  employed the term “full and open competition” and used it  interchangeably with the phrase “full and free competition.” More  recently, legislative reference to “full and open competition” appears in the  Office of Federal Procurement Policy Act Amendments of 1979. That act  declared it to be the policy of Congress to promote economy, efficiency,  and effectiveness in the procurement of property and services by  promoting the use of full and open competition by the government.  Congress reiterated the policy in 1983, again using the phrase “full and  open competition.” The following year, Congress revamped the federal  procurement statutes by enacting the Competition in Contracting Act of  1984, which also promoted full and open competition. At the same time,  Congress amended the Office of Federal Procurement Policy Act to  declare that “full and open competition, when used with respect to a  procurement, means that all responsible sources are permitted to submit  sealed bids or competitive proposals on the procurement.” Two years  later, upon consideration of the 1986 Metropolitan Washington Airports  Act (which provided for the lease of Dulles and Reagan National), a  senator from Virginia introduced the requirement for full and open  competition at the airports. He explained that the “amendment represents  both good government and good management…. It…is fully consistent  with the efforts  to guarantee the proper and prudent  procurement of goods and services.”
Although the precepts of competitive public contracting owe much to the  federal government’s experience, the fundamental principles outlined here  are not unique to federal contracting practice. The principles find  expression, for example, in the American Bar Association’s (ABA)  Principles of Competition in Public Procurements as well as in the  ABA’s Model Procurement Code for State and Local Governments,  adopted in 1979 and updated in 2000. Sixteen states, including Virginia,  have adopted the model code.
section_title: Fundamental Principles for Competitive Public Procurements
paragraphs: To achieve full and open competition, prospective contractors must be  able to prepare and submit appropriate bids or proposals in response to an  identified contract requirement. Moreover, bids or proposals must be  judged solely on their merits. To help ensure that contract awards are not  arbitrary or preferential and to protect the integrity of the competitive  process, specific procedures must be written and followed. The following  text explains the fundamental principles underlying full and open  competition.
Contracting organizations must conduct procurements using a solicitation  that clearly identifies the requirements to be met as well as the process  that the organization intends to follow to select a contractor.
The solicitation plays an essential role in defining an organization’s  requirements and in establishing the framework for a competitive  procurement. To accomplish its purpose, a solicitation must be sufficiently  clear to permit the preparation and evaluation of bids or proposals on a  common basis.
Contracting organizations must publish their solicitations in a manner that  reasonably ensures that those who might be qualified to compete for a  contract can learn of the solicitation and respond to it.
To obtain full and open competition, a contracting organization must  provide all responsible sources with the opportunity to compete for the  award. This stipulation is achieved if the contracting organization makes a  diligent, good faith effort to inform prospective contractors about a  solicitation and allows the firms to obtain any supplementary information  needed to submit a responsive bid or proposal in time for it to be  considered. At a minimum, this requirement mandates some kind of  public announcement of the contract’s availability. Additionally, the notice  must adequately inform prospective contractors about (1) the nature of  the procurement and (2) how to proceed with their offers if they want to  compete for the contract.
Contracting organizations cannot impose restrictions that do not  reasonably pertain to their needs.
Contracting organizations need not accept products or services that do not  meet their needs. On the other hand, they cannot impose unnecessary  limitations that restrict the field of prospective contractors or the products  or terms that contractors might offer to meet an organization’s needs.  Thus, a specification requiring the use of a specific material, for example,  unduly restricts competition if another, potentially cheaper, material  would also meet the organization’s needs.
Contracting organizations must specify in their solicitations the factors  that they intend to use to evaluate proposals.
Prior to World War II, public contracts were generally awarded to the firm  that submitted the lowest-priced responsive bid. The rules were simple. A  firm had to meet the requirements of the solicitation at a fixed or  determinable price and, thereafter, was awarded the contract if its price  was the lowest. In the post-World War II period, however, public  contracting has increasingly relied on negotiated procurements and “best  value” selection techniques that emphasize both price and technical merit  in selecting a successful firm. Competition cannot be considered full and  open if prospective contractors, lacking sufficient information, base their  proposals on different assumptions about how they will be evaluated and,  consequently, tailor their proposals differently. Thus, if a contracting  organization intends to use multiple evaluation criteria, it must provide  prospective contractors with enough information to permit the firms to  compete on an equal basis. We have long recognized, therefore, that the  basic criteria to be followed in selecting contractors (and some  characterization of their relative importance) must be disclosed in the  solicitation. Moreover, the criteria listed in a solicitation cannot include  irrelevant factors that could mislead potential offerors.
Contracting organizations must treat all firms equally.
Full and open competition is achieved, in part, through fairness and equal  treatment. Thus, a contracting organization must establish and follow  common closing dates and processing procedures. Similarly, if a  contracting organization provides information to one firm that could affect  the preparation of its proposal, it must provide other prospective  contractors with the same information. Likewise, if a contracting  organization provides any firm with an opportunity to participate in  negotiations or to modify its proposal, it must provide all firms in a similar  circumstance—that is, those in the competitive range—with the same  opportunity.
Contracting organizations must evaluate bids and proposals and award  contracts using the criteria and process they specified in their solicitation.
To maintain the integrity of the competitive process, contractors must be  selected using the evaluation criteria and process specified in the  solicitation. Moreover, if the contracting activity changes its evaluation  criteria and/or process, it must inform prospective contractors and  provide them with an opportunity to amend their proposals.
Contracting organizations must limit the scope of a competitively awarded  contract to the work that they originally procured.
To achieve full and open competition, an organization cannot add work to a contract that was not originally subject to competition. For example, if an organization solicits offers to furnish 1,000 items at a fixed unit price, it cannot later add another 1,000 items at the time of award—even if the contractor consents to the change. Instead, since the organization knew at the time of award that its requirement was for 2,000 items, it must cancel the solicitation and reopen competition for the full 2,000 items using full and open competition. Likewise, an organization cannot award a contract with the intention of materially modifying it later. Thus, in the example given, the organization cannot award a contract for 1,000 items knowing that it will increase the quantity to 2,000 items after the award is made.
section_title: Applicability of Principles to Existing Contracts
paragraphs: A requirement for full and open competition establishes a mandate that a contracting organization’s practices will comply with fundamental competitive principles for awarding contracts. A requirement to “obtain, to the maximum extent practicable, full and open competition” recognizes that there may be circumstances when it is not practicable to obtain full and open competition, because it would be futile or infeasible, but otherwise requires that full and open competition be obtained. This mandate applies to the award of all work performed under every contract. The following text explains the fundamental principles applicable to competitive public procurements.
The scope of a contract is determined by examining the binding promises  that are made as well as the obligations assumed by the parties.
From a contracting organization’s perspective, the scope of a contract is  measured by its right to unilaterally obtain or order supplies and services  under the contract. A unilateral right exists if all of the contract terms  pertaining to the contract, including price, are determinable and agreed to  by both parties. Contract language that does not create a determinable  obligation creates little more than an agreement to negotiate additional  items in the future. The need for binding obligations does not preclude  the use of contract options or change order processes. Such practices are  commonplace in the federal government’s procurements. Moreover, ABA’s  model code recognizes the value of multiyear contracting in obtaining  better terms on larger quantities that may be needed in the future. The  model code also establishes a change process for contracts that, like the  process used by the federal government, provides a method for  determining price adjustments when changes occur.
The scope of permitted changes is limited to those changes that  reasonably fall within the terms of the contract.
The scope of a public contract, including the scope of modifications  permitted under a changes clause, is limited to the acquisition of those  goods and services that reasonably fall within the contract. The changes  clause used in public contracts provides the contracting organization with  (1) the ability to order changes during the administration of a contract and  (2) a process for paying for changes ordered. However, to achieve full and  open competition, the changes ordered may not exceed the scope of the  original contract. Changes beyond the purview of those that would have  been reasonably anticipated in carrying out the objectives of the original  contract are outside the scope of the contract. Such changes cannot be  ordered under the contract  because the effect of doing so would be to add  work that had not been subject to competition.
A requirement to obtain full and open competition does not permit the use  of preplanned, noncompetitive, follow-on contracts or any extension or  expansion of the scope of a contract that was not subject to competition.
We have used the phrase “preplanned, noncompetitive, follow-on  contract” to describe contracts that result from the purported exercise of  unpriced and unevaluated options to obtain additional work. Such  “options” are merely agreements to negotiate future follow-on contracts  that, if exercised, constitute noncompetitive awards.
section_title: Appendix II: Scope and Methodology
paragraphs: To determine if MWAA has complied with its obligations under its lease  with the federal government, we reviewed the requirements of the 1987  lease and researched the legislative history of the Metropolitan  Washington Airports Authority Act of 1986, as amended. As discussed in  this report, the statute mandated that specific contracting requirements be  included in MWAA’s lease with the federal government. To understand the  intent of Congress in imposing these requirements, we researched the  meaning of the terms used in the statutory lease provision within the  context of the fundamental principles of competition in contracting.These principles are reflected in federal laws, such as the Competition in  Contracting Act of 1984; federal regulations; and past decisions by the  comptroller general; the American Bar Association’s (ABA) Principles of  Competition in Public Procurements; as well as ABA’s Model  Procurement Code for State and Local Governments, all of which we  examined.
Having determined the intent of Congress, we examined MWAA’s  contracting actions to determine if the actions were consistent with  obtaining full and open competition. Regarding MWAA’s obligation to  award contracts for supplies and services exceeding $200,000 and all  concession contracts through the use of published competitive  procedures, for example, we examined MWAA’s notice announcing the  publication of its 1993 contracting manual as well as the manual itself. We  also searched MWAA’s contracting Web site, examined its contract  solicitations, and held discussions with MWAA officials to determine how  the 1993 manual has been made available to prospective contractors and  other interested parties. In addition, we analyzed MWAA’s 1998  contracting manual to determine how the internal procedures that MWAA  actually uses to award its contracts for goods and services, including  construction, compare with the procedures that MWAA published in 1993.  With MWAA officials, we also discussed plans to update the 1993 and 1998  manuals and the status of MWAA’s actions to develop and publish detailed  procedures for awarding its concession contracts.
To determine if MWAA has obtained full and open competition, to the  maximum extent practicable, for contracts estimated to exceed $200,000,  we examined two distinct groups of contracts that either exceeded  $200,000 on the date of award or that had exceeded $200,000 as of  December 31, 1999. As discussed in more detail in appendix III, the first  group consisted of 13 contracts. We reviewed each of these contracts in  detail to determine how MWAA solicited, awarded, and modified the  contracts and compared these actions with MWAA’s contracting policies  and procedures and to long-standing principles for obtaining full and open  competition. In addition to the initial awards, we examined all 240  subsequent modifications to the 13 contracts. The modifications changed  the terms of the original contracts by, among other things, adding work to  the contracts.
The second group of contracts consisted of all 22 contracts that, according  to MWAA’s database, exceeded $200,000 and that MWAA awarded in 1998  and 1999 without full and open competition. We reviewed these contracts  to determine the purpose of each acquisition and to review documentation  supporting the justification and approval of each of the contracts. We  compared this information with MWAA’s requirements for awarding and  approving contracts using less than full and open competition—that is,  awards that were based on limited competition and sole-source awards—  to determine if the procurements were appropriately approved and  reasonably justified, given the particular circumstances of each  procurement.
We visited Ronald Reagan Washington National Airport and Washington  Dulles International Airport to familiarize ourselves with work conducted  under various contracts that we reviewed, including MWAA’s contract for  installing supplemental communications systems at the airports and  various contracts with the airlines for airport improvements. For projects  undertaken by the airlines, we also examined MWAA’s use and lease  agreements, which govern the airlines’ use and lease of airport premises.
We coordinated our work with MWAA’s Office of Audit and reviewed 26  audits issued between 1994 and 1999. Finally, because the secretary of  transportation represents the interests of the executive branch in ensuring  that MWAA complies with the requirements of the lease, we also discussed  our findings with Department of Transportation officials.
section_title: Appendix III: Contract Selection Methodology
paragraphs: MWAA awarded 2,843 contracts for supplies and services, including  construction, between January 1, 1992, and December 31, 1999, according  to its contracting database. Another 17 contracts were awarded before  January 1, 1992, but were still active as of December 31, 1999, for a total of  2,860 contracts. We performed a limited analysis of the integrity and  reliability of MWAA’s contracting database, including checks to (1)  identify and eliminate duplicate contract entries and (2) identify and  obtain missing information related to the estimated value, award amount,  and the actual value of the contracts as of December 31, 1999. After  duplicate contract entries were deleted and missing data were added, we  considered the database suitable for use in selecting contracts for our  detailed review.
To determine whether MWAA’s contracts were awarded, to the maximum  extent practicable, using full and open competition, we focused on  contracts that either exceeded $200,000 when awarded or had exceeded  $200,000 as of December 31, 1999. Of the 2,860 contracts, 646 met these  criteria. We used the database to select two distinct groups of contracts  from this universe. The first group consisted of 13 contracts that generally  (1) were awarded between 1992 and 1999 using full and open competition  and (2) exhibited the highest cost growth. The second group included 22  contracts that, according to MWAA’s database, had been awarded either  using limited competition or on a sole-source basis. In total, the 35  contracts that we examined were valued at about $408 million and  represented 5 percent of the 646 contracts awarded and 19 percent of the  value of the 646 contracts as of December 31, 1999.
To select the first group of contracts, we sorted the 646 contracts  according to their value at award. After identifying and listing those  contracts valued at $1 million or more and those valued at less than $1  million, we (1) calculated the percentage of increase between each  contract’s initial award value and its value as of December 31, 1999, and  (2) sorted the two groups of contracts from highest to lowest in terms of  cost growth. For each of the two monetary stratifications—contracts  awarded for $1 million or more and contracts awarded for less than $1  million—we chose (1) 2 construction-related contracts, (2) 2 contracts for  non-construction-related services, and (3) 2 contracts for supplies. These  12 contracts generally represented the largest percentage of increase in  value as of December 31, 1999, compared with their initial amount.Finally, we added 1 contract for insurance services, which had been  awarded for less than $1 million, because we had already substantially  examined it during our audit design work. In total, the 13 contracts had an  initial award value of about $51 million and a value of about $368 million  as of December 31, 1999.
To examine the appropriateness of MWAA’s justifications for using less  than full and open competition and to determine if these contracts had  received appropriate approvals, we used MWAA’s database to select a  second group of contracts. Specifically, we chose all 22 contracts over  $200,000 that the database identified as having been awarded using either  limited competition or on a sole-source basis in 1998 and 1999. We  performed limited work to evaluate the integrity and reliability of these  data, including checks to confirm that the 22 contracts had, in fact, been  awarded using less than full and open competition. These contracts, had  an award value of about $35 million and a value of about $40 million as of  December 31, 1999.
Because MWAA does not have a centralized database of its concession  contracts or documented procedures for awarding these contracts, we did  not review concession contracts.  Instead, we focused our review on  MWAA’s contracts for supplies and services, including construction.  The  results of our contract analyses are not projectable to the universe of  MWAA’s contracts for supplies and services. However, because MWAA  permits several of the contracting practices that we questioned as a matter  of policy or practice, similar problems are likely to exist in MWAA’s other  contracts.
section_title: Appendix IV: Comments from the Metropolitan Washington Airports Authority
paragraphs: The following are GAO’s additional comments on the Metropolitan  Washington Airports Authority’s letter dated January 4, 2002.
subsections: section_title: GAO’s Comments
paragraphs: 1.	 While MWAA’s database on contracting indicates that MWAA awarded  2,843 contracts between January 1, 1992, and December 31, 1999, as  discussed in this report, the database cannot be used to quantify the  extent of MWAA’s use of full and open competition.  Thus, any  inference that MWAA has awarded thousands of contracts using  competition to the extent required is, in our view, misleading.  2.	 MWAA’s discussion of the universe of its contract awards (2,843)  between 1992 and 1999 is not relevant to this review.  This is because  only those contracts exceeding $200,000 are subject to the requirement  for full and open competition.  Thus, as discussed in this report, we  focused on two distinct groups of contracts that either exceeded  $200,000 on the date of award or had exceeded $200,000 as of  December 31, 1999.  In total, 646 contracts met these criteria.  The 35  contracts that we examined were valued at about $408 million and  accounted for 5 percent of the 646 contract awards and 19 percent of  the value of the 646 contracts as of December 31, 1999.  3.	 Our use of the term “agency” in our draft report was in no way meant  to infer that MWAA is a federal agency.  Thus, instead of “agency,” we  generally substituted the term “organization.”  4.	 We disagree that we largely ignored or quoted out-of-context the  detailed comments MWAA provided in two letters dated June 29, 2001,  and July 9, 2001.  As reflected in our report, we conducted extensive  follow-up on the comments and, thereafter, incorporated the  comments and revised the report, as appropriate.  5.	 We have not attached MWAA’s earlier letters to us because, as  discussed, we previously incorporated these comments extensively  throughout the report.  Furthermore, one of the letters contains  information that, for business reasons, MWAA asked us not to disclose.  6.	 We revised this report to further emphasize that we did not examine  MWAA’s concession contracts.  7.	 We disagree that the tone of this report is “unduly harsh” and that our  subtitles and headings mislead the reading audience.  We also disagree  that the report overstates and extrapolates our findings.  In our  opinion, both the captions and tone of the report appropriately reflect  the problems that we identified.  Furthermore, the report repeatedly  acknowledges that the results of our contract reviews cannot be  projected to the universe of MWAA’s contracts.  Nevertheless, because  MWAA permits several of the contracting practices that we found  objectionable, we continue to believe that similar problems are likely  among MWAA’s other contracts.  Our findings and conclusions are  based on a combination of factors, including (1) our review of MWAA’s  contract files, (2) our assessment of MWAA’s contracting policies and  procedures, and (3) MWAA’s interpretation and application of the  requirement for full and open competition.  As previously discussed,  MWAA’s interpretation of the requirement is inconsistent with  generally recognized principles underlying the concept of full and open  competition.  8.	 MWAA’s inference that we reviewed its December 1993 Contracting  Policies and Procedures Manual is incorrect.  The manual did not  exist at the time of our last audit and, even if we received the manual  in 1994, we had no reason to review it in the period between our  audits.  9.	 We did not specifically recommend that MWAA seek comments from  the Department of Transportation prior to publishing its competitive  procedures. Nevertheless, we agree with MWAA’s plan to do so.  10.  We agree that MWAA “can have procedures for ‘full and open’  competition that differ from those applicable to a federal agency.”  Nevertheless, as discussed extensively in this report, the procedures  must be in conformance with the fundamental principles underlying  full and open competition.  11.  We agree that the statutes of the District of Columbia and the  Commonwealth of Virginia, which chartered MWAA, exempt MWAA  from procurement statutes applicable to those jurisdictions.  However,  the powers conferred in the charter are subordinate to the conditions  imposed in MWAA’s lease with the federal government.  12.  As discussed in this report, if MWAA’s solicitations express its intent  to consider cost in awarding its contracts, as indicated in its policy,  MWAA must do so.  On the other hand, if the solicitation indicates that  MWAA will evaluate proposals only for technical acceptability (i.e., to  establish whether a proposal meets MWAA’s minimum requirements),  it can request technical proposals from firms and, on the basis of its  evaluation of these proposals, seek cost proposals from only those  firms that it finds acceptable.  MWAA can also choose to award a  contract solely on the basis of technical considerations (i.e., select the  most qualified firm).  However, given the importance of cost in  awarding contracts, public contracting entities generally would avoid  such an approach.  13.  As discussed in this report, exercising unpriced and unevaluated  options is equivalent to the use of preplanned, noncompetitive, follow- on contracts—regardless of whether the initial contract was  competitively awarded.  Thus, exercising such options is tantamount  to making a sole-source award, since the work was not subject to any  competition.  If sole-source awards are adequately justified, MWAA’s  board of directors can approve them.  However, none of the contracts  that we questioned were justified in writing or subsequently approved  by the board.  14.  As discussed in this report, we do not object if MWAA uses airlines to  accomplish work as long as the work is within the scope of MWAA’s  sublease with the airlines.  However, the three projects that we  questioned were clearly outside the scope of the airline’s sublease and  should, in our view, be properly viewed as subject to the requirement  for full and open competition.  15.  As discussed in this report, there is nothing improper about modifying  a contract to obtain additional goods or services as long as the goods  and services are within the scope of the contract, including any  changes clause.  However, modifying a contract to obtain goods and  services that are outside the scope of the contract represents a  noncompetitive (sole-source) award.  16.  We disagree with MWAA’s view that the contracting practices that we  questioned are appropriate and necessary to operate “well run  airports.”  As discussed in this report, federal, state, and local  governments as well as other public entities conduct thousands of  competitive procurements annually, expending billions of dollars.  Collectively, these procurements have been used to build and maintain  the public infrastructure in this country.  On the basis of our  knowledge of the Ronald Reagan Washington National and Washington  Dulles International airports, MWAA’s procurements appear to be no  more complex or challenging than many of these procurements.  Nevertheless, MWAA and other contracting entities are free to use less  than full and open competition when warranted by the situation and  properly approved.  17.  We continue to believe that 12 of the 13 contracts were deficient with  respect to one or more of the principles of full and open competition.  18.  MWAA’s comment regarding its adherence to evaluation factors and  processes appears inconsistent.  On the one hand, MWAA stressed that  its evaluation teams may not alter published evaluation criteria and  that it is not MWAA’s practice to do so.  Nevertheless, MWAA  acknowledged that for the contracts we reviewed, the evaluation team  collectively decided to adjust the criteria to more adequately complete  the evaluation.  According to MWAA, the adjusted criteria were applied  to all proposals and did not limit the ability of any vendor to compete.  We disagree with MWAA’s view.  As discussed in this report, MWAA  did not (1) notify prospective contractors about its intent to deviate  from the evaluation processes specified in its solicitations and (2)  provide the contractors with an opportunity to amend their proposals.  Thus, it is impossible to discern how contractors might have revised  their proposals if they had been advised of changes in the relative  importance of the evaluation factors.  19.  We disagree with MWAA’s assertion that it solicited competition for all  of its needs on the contracts that we questioned.  While MWAA  believes that it does not need to obtain and evaluate the prices for  contracts involving options, as discussed in this report, this view is at  odds with the principles underlying full and open competition.  Moreover, MWAA’s point that the contractors involved in the  procurements did not object to MWAA’s approach is not the correct  standard for judging whether any practice is appropriate.  In fact, one  could expect few if any complaints, since contractors are driven by  self-interest and, thus, would likely prefer dealing directly with MWAA  to establish the price of their options rather than competing against  other contractors in establishing their prices.  Finally, as discussed in  this report, we continue to believe that obtaining and evaluating  pricing for options in awarding contract options does not limit an  organization’s flexibility.  20.  While MWAA contends that the out-of-scope modifications “served the  Authority’s interest,” this does not make MWAA’s actions  “appropriate.”  We continue to believe that MWAA’s “decisions to  expand the scope of work” represented sole-source awards.  Furthermore, while we agree with the necessity to document the  reasons for adding out-of-scope work to a contract, such  documentation does not change the fact that the actions must be  justified and approved on a sole-source basis.  None of the out-of- scope modifications that we questioned were justified in writing or  subsequently approved by MWAA’s board of directors.  21.  We disagree with MWAA’s view that it “has complied with the lease  provision regarding obtaining full and open competition to the  maximum extent practicable through the use of published competitive  procedures.”  As discussed throughout this report, MWAA did not  obtain, to the maximum extent practicable, full and open competition  on 15 of the 35 contracts that we reviewed.  Furthermore, it has not yet  published the procedures it uses to award contracts competitively.  22.  Our report clearly notes that MWAA is not obligated to follow federal  procurement statutes and regulations.  Thus, as discussed throughout  this report, we did not use federal procurement statutes or  requirements to assess MWAA’s compliance with the statutory lease  provision.  Instead, as detailed in appendix I, we applied generally  recognized principles underlying the concept of full and open  competition.