Contract Management: DLA Properly Implemented Best Value Contracting for Clothing and Textiles and Views the Supplier Base as Uncertain
Published: 2003-02-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Defense Logistics Agency (DLA) supplies the nation's military services and certain civilian agencies with critical resources needed to accomplish their worldwide missions. During fiscal year 2001, DLA contracts totaled $14.8 billion--$1.2 billion of which was for clothing and textiles. The House Committee on Armed Services directed GAO to determine whether DLA is properly implementing applicable statutory and regulatory guidance for "best value" purchases--those that in the federal government's view provide the greatest overall benefits, not just the lowest price. GAO was also asked to obtain DLA officials' views on the domestic supplier base for key clothing and textile items.
section_title: What GAO Found
paragraphs: Based on a random sample of clothing and textile procurements conducted in fiscal year 2001 by DLA's Defense Supply Center Philadelphia (DSCP), GAO estimates that DSCP generally complied with statutory and regulatory requirements for best value contracting. For example, all of the procurements in GAO's sample considered past performance as an evaluation factor in the source selection process. While GAO noted some discrepancies in several of these procurements, mitigating circumstances lessened the impact of the discrepancies in most cases. DSCP has employed several techniques to promote compliance with best value contracting procedures. For example, in 1996, DSCP published Guiding Principles for Best Value Source Selection, a handbook that outlines the functions and responsibilities of key personnel in the best value source selection process, as well as various approaches to source selection. According to DLA officials at DSCP, the ability of the domestic clothing and textile supplier base to meet future military requirements is uncertain. The officials said that, at present, DLA's domestic supplier base for clothing and textiles is more robust than ever, as numerous domestic suppliers who did not traditionally do business with DSCP are now competing for its contracts. However, they characterized this increased competition as the "last gasp of a dying industry." Domestic clothing and textile suppliers are competing for DSCP's business as the industry copes with a decline in employment and production and as the supplier base increasingly moves overseas. DSCP officials fear that as the clothing and textile industry faces increased imports, second- and third-tier suppliers that provide input to domestic producers of end items may go out of business, thus eroding the domestic supplier base for these items. They stated, however, that the "Berry Amendment," which requires DOD to purchase certain items such as food, clothing, and textiles from domestic sources, is helping to maintain the domestic supplier base at present.

section_title: Letter
paragraphs: The Defense Logistics Agency (DLA) supplies the nation’s military services  and certain civilian agencies with critical resources needed to accomplish  their worldwide missions. During fiscal year 2001, DLA contracts totaled  $14.8 billion—$1.2 billion of which was for clothing and textiles. In a  report on the Bob Stump National Defense Authorization Act for Fiscal  Year 2003, the House Committee on Armed Services directed us to  determine whether DLA is properly implementing applicable statutory and  regulatory guidance for “best value” purchases of clothing and textile  items. Best value procurements are those that in the federal government’s  view provide the greatest overall benefits, not just the lowest price. In  addition, in subsequent discussions with Committee staff, we were asked  to obtain DLA’s views on the domestic supplier base for key clothing and  textile items.
To conduct our work, we evaluated DLA’s implementation of statutory and  regulatory guidance for best value purchases of clothing and textiles in  fiscal year 2001 with an emphasis on past performance—a key element of  best value procurements—as an evaluation factor, as agreed to by the  Committee. We took a random sample of 15 of the 142 clothing and textile  procurements, each exceeding $100,000, conducted by DLA’s Defense  Supply Center Philadelphia (DSCP) in fiscal year 2001. Based on this  sample, we were able to make projections about how well DSCP complied  with best value guidance for its fiscal year 2001 clothing and textile  procurements. Twelve of the procurements in our sample used a tradeoff  process to make the award decision, considering factors in addition to  price and technical acceptability. The remaining three procurements were  awarded based on price and technical acceptability alone. We also  solicited DLA’s views on the domestic supplier base for clothing and  textiles. Additional information on our scope and methodology appears in  appendix I. Appendix II lists the procurements included in our sample.
subsections: section_title: Background
paragraphs: DLA has three defense supply centers located in Philadelphia,  Pennsylvania; Richmond, Virginia; and Columbus, Ohio. DSCP is the only  center responsible for clothing and textiles, medical, subsistence, and  general/industrial items.
According to the Federal Acquisition Regulation (FAR) Part 15,  Contracting by Negotiation, an agency can obtain best value in negotiated  procurements by using any one or a combination of source selection  processes. In different types of procurements, the relative importance of  cost or price may vary. For example, in procurements where the  requirement is clearly defined and the risk of unsuccessful contract  performance is minimal, cost or price may play a dominant role in source  selection, such as in the lowest price/technically acceptable source  selection process. In procurements where the requirement is not easily  defined or the risk of unsuccessful contract performance is relatively high,  technical capability and other factors such as past performance  considerations may play a dominant role. In those procurements, it may be  in the government’s best interest to consider award to other than the  lowest priced or highest technically rated supplier and to evaluate the  relative importance of other factors, including past performance, in a  “tradeoff” process.
The FAR requires that past performance be evaluated in all source  selections for negotiated competitive acquisitions expected to exceed  $100,000, unless the contracting officer documents the reason past  performance is not an appropriate evaluation factor. While DOD obtained  a FAR deviation in 1999 that raised the threshold for requiring evaluation  of past performance in procurements to those expected to exceed  $5 million, DSCP’s “Best Value Handbook” requires past performance to be  included as an evaluation factor for all negotiated competitive acquisitions  exceeding $100,000.
section_title: DSCP Generally Followed Best Value Guidance and Has Taken Actions to Promote Compliance
paragraphs: Based on our random sample, we estimate that procurements conducted  by DSCP in fiscal year 2001 generally complied with best value statutes  and regulations with an emphasis on past performance, as implemented in  major provisions of the FAR as well as DLA’s implementing acquisition  directive. These criteria pertain to four functional areas of the contracting  process: acquisition planning, solicitation content, proposal evaluation,  and source selection decision documentation. DSCP has been proactive  in taking steps to encourage contracting officers to comply with best  value guidance.
subsections: section_title: DSCP Generally Followed Best Value Statutory and Regulatory Guidance
paragraphs: Of the 15 procurements in our sample, 12 were based on a tradeoff  source selection process that considered factors other than price and  technical acceptability, while 3 were based on the lowest price/technically  acceptable source selection process. We found that the 15 procurements  adequately addressed past performance based on FAR and DLA criteria.  For each procurement based on a tradeoff process, past performance  was the first or second evaluation factor in order of importance. For  procurements based on the lowest price, the contracting officers  considered past performance in general terms as part of the determination  of the contractors’ eligibility for award.
All 15 of the procurements in our sample were required to have written  acquisition plans under DLA’s acquisition directive implementing the  FAR. Thirteen procurements had written acquisition plans, while  2 procurements awarded using simplified acquisition procedures under  a test program for acquisitions of certain commercial items did not.  A DSCP policy memorandum, dated August 21, 2002, reminded buyers and  contracting officers of the need to prepare written acquisition plans for  contract actions expected to exceed the simplified acquisition threshold,  as the procurements here did. However, this memorandum was issued  after the procurements included in our review had been completed.
The 12 procurements that were based on a tradeoff source selection  process were subject to further requirements pertaining to solicitation  content, proposal evaluations, and source selection decisions. Despite  overall compliance with major regulatory provisions of the FAR, we found  some cases where specific requirements were not met. However,  mitigating circumstances lessened the effect of the lack of compliance.  The results of our evaluation in each functional area are presented on the  following pages.
The 12 procurements in our sample that were based on a tradeoff source  selection process generally complied with the solicitation content criteria.  Five solicitations, however, did not authorize prospective suppliers to  provide information on problems encountered on prior contracts and  corrective actions taken. Nevertheless, in these five solicitations, some  suppliers identified problems and corrective actions taken, while others  did not report any problems on their prior contracts. DSCP officials noted  that offerors generally submit this information with their proposals even  when it is not specifically authorized in the solicitation.
In addition, the solicitations for 7 of the 12 procurements that were based  on a tradeoff process did not describe DLA’s approach for evaluating past  performance of offerors with no relevant past performance history. The  solicitations should have provided that a “neutral” rating be assigned to  such offerors. The effect of not describing a neutral rating in the  solicitation was mitigated in most of these cases, however. In two cases,  DSCP officials did apply neutral ratings when evaluating the proposals.
In four cases, neutral ratings generally were not an issue in the evaluation  of past performance, because nearly all offerors provided relevant past  performance information in their proposals. In one case, where simplified  acquisition procedures were used based on a tradeoff analysis, the  contracting officer assigned unacceptable ratings to the proposals with no  past performance history because they did not provide other information  required by the solicitation.
On March 1, 2002, DSCP implemented a new proposal rating system to be  used in evaluating clothing and textile best value acquisitions. It includes  notice to offerors that a neutral rating will be assigned to an offeror with  no relevant past performance. DSCP officials expect that all future  solicitations will properly cite the neutral rating approach for offerors  lacking relevant past performance history.
The 12 procurements that were based on a tradeoff source selection  process generally complied with FAR requirements on proposal  evaluations. For one of the procurements, however, DSCP did not evaluate  and assess past performance on all of the factors and subfactors found in  the solicitation. For that procurement, while the solicitation listed  customer satisfaction as a subfactor, this subfactor was not considered  when the proposals were evaluated. In addition, a commercial item  procurement, conducted under the FAR simplified acquisition test  program, did not evaluate past performance as discussed in the  solicitation. While the solicitation stated that performance on prior  contracts in subcontracting and assisting small businesses would be  evaluated as a part of past performance, the evaluation of proposals did  not consider these factors. Because these instances involved lower  evaluation subfactors in the overall evaluation scheme, it is unclear  whether the evaluation of these factors would have ultimately affected the  source selection decisions.
The 12 procurements that were based on a tradeoff source selection  process complied with the FAR in documenting the source selection  decision. For example, a comparative analysis was made of the potential  suppliers, as appropriate. DSCP has taken further steps to document  the basis of source selection decisions by conducting training for its  contracting personnel on the need to thoroughly document all  factors considered in making final awards in the source selection  decision document.
section_title: DSCP Has Employed Techniques to Promote Compliance
paragraphs: A recent DLA review of DSCP procurements found that the center is doing  a good job of documenting best value tradeoff decisions in the files. DSCP  has employed several techniques to promote compliance with best value  contracting procedures. It has provided specific guidance on best value  contracting, and a contract support group provides advice and review as  procurements are planned and executed.
First, to provide its contracting personnel with detailed procedures for  competitive negotiated procurements, DSCP developed and published in  1996 its own Guiding Principles for Best Value Source Selection, known  as the “Best Value Handbook.” The handbook outlines the functions and  responsibilities of key personnel in the best value source selection process  as well as various approaches to source selection that are available for  use. As stated in the handbook, best value is the preferred method of  source selection and should be used to the maximum extent possible.
While other supply centers have issued policy guidance to implement the  FAR as well as DOD directives, a DLA official said that DSCP is the only  DLA center that has developed a handbook on best value contracting.
Second, like all the Directorates at DSCP, the Directorate of Clothing and  Textiles has its own contract support team. Headed by a supervisory  procurement analyst, the team consists of five procurement analysts, a  contract price/cost analyst, an industrial specialist, and a procurement  technician. The team supports the Directorate by providing contracting  guidance and direction, developing procurement policies and procedures,  and developing and administering procurement training. For example, a  training program for contracting personnel emphasizes the need to  thoroughly document all factors considered in making the final award.  The team also encourages the Directorate to use past performance as an  evaluation factor for all purchases over $100,000.
Further, DLA’s procurement management review program is designed to  provide local, periodic, and specific subject/area reviews of the agency’s  contracting offices by an independent and objective team of contracting  professionals from the headquarters and field contracting staff. In April  2002, a DLA team reviewed DSCP’s Directorate of Clothing and Textiles  procurements. The DLA team found the Directorate had substantially  improved its documentation of tradeoff decisions related to best value  source selection in the contract files. The best value tradeoff decisions  documented in the files were characterized by the DLA team as among the  best that the team had seen in the entire agency.
section_title: DLA Views Clothing and Textile Supplier Base as Uncertain
paragraphs: DLA officials view the future of the clothing and textile supplier base as  uncertain. They noted that the Berry Amendment, which requires DOD to  purchase certain items such as food, clothing, and textiles from domestic  sources, helps maintain a domestic supplier base to meet some of DOD’s  unique military requirements. They also stated that competition for  DOD’s clothing and textile contracts has never been stronger, as clothing  and textile companies that have traditionally not done business with DOD  are now competing for DLA contracts. In fact, they informed us that some  U.S. companies produce items only for DOD. However, they stated that  this increase in competition among domestic suppliers is the “last gasp of  a dying industry.” An increasing number of domestic suppliers are  competing for DSCP’s clothing and textile contracts for a variety of  reasons as the industry copes with a decline in employment and  production, consolidations and bankruptcies, increased imports, and  domestic suppliers moving overseas. If an item cannot be acquired from a  domestic supplier, DLA can obtain a waiver from the Berry Amendment,  allowing it to purchase the item from a foreign supplier. To better  understand the future of the clothing and textile supplier base and to  identify potential solutions to keep the industry viable, DSCP has initiated  an industrial base study on the health of the clothing and textile industry.
Over the past few years, various free trade agreements have been  implemented that have affected the clothing and textile supplier base.  DSCP officials said that a further complication to the outlook for the  clothing and textile supplier base is a World Trade Organization agreement  that will eliminate quotas for many imported clothing and textile items by  January 1, 2005. According to DSCP officials, the implementation of free  trade agreements and the removal of the quotas may threaten second- and  third-tier suppliers. For example, they stated that one U.S. company  supplies wool fabrics to many domestic companies, including contractors  that make coats for the military services. However, other U.S. companies  are purchasing inexpensive wool fabrics imported from foreign countries,  thus competing with the U.S. supplier. Because this U.S. supplier is losing  business to foreign competitors, it may not have enough business to keep  its factories operating. According to DSCP officials, if the supplier cannot  keep its factories operating, it may eventually go out of business and those  contractors that make coats for the military services will not have the  company as a domestic supplier of wool.
In response to the World Trade Organization agreement, DSCP has  initiated an industrial base study of the domestic clothing and textile  industry to determine what will happen when quotas are removed at the  beginning of 2005. The study’s preliminary findings support DSCP’s  concern about the overall health of the U.S. supplier base for clothing and  textile products. For example, DSCP has found that an increasing number  of DSCP contractors are totally dependent on government work. Further,  DSCP found that about 300 U.S. textile mills, which performed weaving  and finishing and supplied yarn, closed from 1995 to 2001. DSCP is  exploring whether the Berry Amendment will be sufficient to protect the  domestic industrial base or whether there are other possible solutions to  keep the industry viable and support readiness.
In those situations that involve critical military clothing and textile items,  DSCP officials said that DLA, in the future, could strengthen the supplier  base by increasingly providing contracts to a number of suppliers for  national defense purposes to achieve industrial mobilization. For example,  in fiscal year 2002, two industrial mobilization contracts were awarded at a  cumulative value of $2.7 million for cold-weather underclothing.
DLA provides input to DOD’s Annual Industrial Capabilities Report,  which is to be submitted to the Congress by March 1 of each year. Section  2504 of title 10, U.S. Code, requires the report to include, among other  things, a description of the methods and analyses being undertaken by  DOD to identify and address concerns regarding technological and  industrial capabilities of the national technology and industrial base.  DLA’s input generally focuses on specific items that are being procured.  However, a DLA official told us that it would be possible to include a  discussion of the clothing and textile industrial base if the situation  warranted. Ultimately, the official said that it is up to DOD as to whether  such information will be presented in the final report submitted to the  Congress.
section_title: Recommendation for Executive Action
paragraphs: We recommend that the Secretary of Defense require the DLA Director to  monitor the health of the clothing and textile industrial base and, if  warranted, keep the Congress informed of the implications for future  defense clothing and textile procurements. One means of informing the  Congress may be DOD’s Annual Industrial Capabilities Report, which is  submitted annually to the Congress.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD provided written comments on a draft of this report.  DOD generally  agreed with the draft report and concurred with the recommendation.  DOD stated that DLA will include the health of the clothing and textile  industrial base as a topic in the next DOD Annual Industrial Capabilities  Report, which is due March 1, 2004.  DOD’s comments appear in  appendix III.
We are sending copies of this report to interested congressional  committees, the Secretary of Defense, and the Director, DLA. We also will  make copies available to others upon request. In addition, the report will  be available at no charge on the GAO Web site at http://www.gao.gov.
Please contact me at (202) 512-4841 if you have questions regarding this  letter. An additional contact and staff acknowledgements are listed in  appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine whether the Defense Logistics Agency’s (DLA) Defense  Supply Center Philadelphia (DSCP) Directorate of Clothing and Textiles  complied with selected statutory and regulatory guidance for best value  contracting, including the use of past performance as an evaluation factor,  we took a random sample of 15 of the 142 competed clothing and textile  procurements in fiscal year 2001, each exceeding $100,000. Our sample  size was based upon the assumption that the incidence of problems in  source selection competition procedures would be 10 percent or less. This  assumption gives a 95 percent confidence interval for the sample estimate  that is accurate to within plus or minus 15 percent. The assumption of a  low incidence of problems was accepted because DLA had just conducted  a management review of DSCP prior to the start of fiscal year 2001 and  found few problems.
Of the 15 procurements selected for our sample, 12 involved a tradeoff  source selection process comparing price and other factors using criteria  found in the Federal Acquisition Regulation (FAR) Part 15, Contracting by  Negotiation or FAR Part 13, Simplified Acquisition Procedures—Test  Program for Certain Commercial Items, for purchases of commercial  items exceeding the simplified acquisition threshold but not exceeding  $5 million. In addition, 3 were awarded based on a lowest price/technically  acceptable source selection process using criteria found in (1) FAR  Part 12, Acquisition of Commercial Items, (2) FAR Part 13, Simplified  Acquisition Procedures—Test Program for Certain Commercial Items, or  (3) FAR Part 15.
To assess whether DLA properly implemented statutory and regulatory  guidance for best value purchases, we reviewed FAR Part 7, Acquisition  Planning; FAR Part 12; FAR Part 13; FAR Part 15; and the Defense  Logistics Acquisition Directive. We identified and applied major provisions  of the FAR and the DLA acquisition directive pertaining to acquisition  planning, solicitation content, proposal evaluation, and source selection  decision documentation, with a focus on past performance. Finally, we  reviewed DSCP’s 1996 Guiding Principles for Best Value Source  Selection, known as the “Best Value Handbook.”
To obtain DLA’s views on the domestic supplier base for clothing and  textiles, we contacted DLA officials from DSCP. We also spoke with  officials from the American Apparel and Footwear Association to obtain a  general understanding of the industry. We did not independently verify the  information the officials provided to us. During our review, DSCP was  conducting a clothing and textile study of the industrial base and officials  provided us with documentation dealing with the supplier base. This study  has not yet been completed. In addition, we gathered information on  DOD’s Annual Industrial Capabilities Report submitted to the Congress  by March 1 of each year.
We performed our work from August 2002 to January 2003 in accordance  with generally accepted government auditing standards.
section_title: Appendix II: Sample of Clothing and Textile Procurements
paragraphs: The table below lists the procurements included in our sample. Dollar  amounts shown for the improved physical fitness uniform pants and sound  protector procurements represent actual obligations placed against the  contracts in fiscal year 2001. Dollar amounts shown for the remaining  procurements represent estimated contract values, including the basic  contract period and all option periods.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the name above, Robert L. Ackley, Marie P. Ahearn, Carl S.  Barden, Charles D. Groves, John D. Heere, and William E. Petrick, Jr.  made key contributions to this report.