Federal Contracts: Agencies Widely Used Indefinite Contracts to Provide Flexibility to Meet Mission Needs
Published: 2017-04-13T00:00:00

Fast Facts:
The federal government obligated over $130 billion annually during fiscal years 2011-2015 on indefinite delivery/indefinite quantity contracts—which are used when the exact quantity and timing of products or services are not known at contract award.
We found that the Departments of Defense, Homeland Security, Health and Human Services, and Veterans Affairs were the main users of these contracts. DOD used these contracts more than all other federal agencies combined. DOD officials cited flexibility as the main advantage of these types of contracts, noting that they were faster and easier to use.

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over the past 5 years, the federal government obligated over a hundred billion dollars annually through the use of IDIQ contracts. IDIQ contracts are awarded to one or more contractors when the exact quantities and timing for products or services are not known at the time of award. DOD uses IDIQ contracts more than all other agencies combined. The FAR establishes a preference for awarding multiple-award IDIQ contracts under a single solicitation such that a number of contract holders compete for subsequent orders.
GAO was requested to examine federal agencies' use of IDIQ contracts. This report addresses (1) federal agencies' use of IDIQ contracts from fiscal years 2011 through 2015, the latest year for which complete data were available; (2) the role of competition when awarding selected IDIQ contracts and placing orders at DOD; and (3) when and how DOD contracting officers established prices for these contracts and orders. GAO analyzed Federal Procurement Data System-Next Generation data on civilian and DOD obligations for fiscal years 2011 through 2015; reviewed and analyzed a nongeneralizable sample of 31 IDIQ contracts and 76 IDIQ orders selected across four DOD components—Army, Navy, Air Force and Defense Logistics Agency; and interviewed DOD contracting and program officials.
section_title: What GAO Found
paragraphs: From fiscal years 2011 through 2015, the proportion of spending by federal agencies on indefinite delivery/ indefinite quantity (IDIQ) contracts remained stable and accounted for about a third of total government contract obligations. Agencies obligated more than $130 billion annually on these types of contracts, as shown in the figure.
The Departments of Defense (DOD), Homeland Security, Health and Human Services, and Veterans Affairs were the main users of IDIQ contracts, with DOD accounting for about 68 percent of all IDIQ obligations from 2011 through 2015. About two-thirds of government-wide IDIQ obligations were for services, with the remainder for products. Although the Federal Acquisition Regulation (FAR) states a preference for multiple-award IDIQs, the majority of dollars government-wide, approximately 60 percent, were obligated through single-award IDIQs. About 70 percent of single-award IDIQ obligations and more than 85 percent of order obligations under multiple-award contracts were competed. Contracting officials at DOD cited flexibility as the main advantage for using IDIQ contracts, noting that it was easier and faster to place an order under an existing IDIQ contract than to award a separate contract when a specific need arose.
Ten of the 18 single-award IDIQ contracts GAO reviewed at DOD were not competed, generally because only one contractor could meet the need. For the competed single-award contracts, contracting officials cited various reasons for choosing a single-award IDIQ approach, such as the need to build and maintain knowledge as orders were awarded over time. For about one-third of the multiple-award IDIQ orders GAO reviewed, DOD did not provide an opportunity for all contract holders to compete due to urgency or other reasons.
Prices on IDIQ contracts and orders at DOD were established at different points, depending on how well-defined the requirements were at the time of contract award. For example, for a Navy contract to buy commercial radios used in fixed-wing aircraft, the pricing was established upfront in the contract since the radios were defined products that have been used for many years. In contrast, for an Air Force contract to buy research and development services for cybersecurity and malware detection, all pricing was established at the order level since specific research needs were not known when the contract was awarded.
section_title: What GAO Recommends
paragraphs: GAO is not making any recommendations at this time. DOD had no comments on a draft of this report.

section_title: Letter
paragraphs: The federal government has obligated over a hundred billion dollars in  each of the past 5 years through the use of indefinite delivery / indefinite  quantity (IDIQ) contracts. IDIQ contracts—which can be awarded to one  or more contractors for the same or similar products or services—are  used when the exact quantities and timing for products or services is not  known at the time of award. An IDIQ contract provides for the issuance of  orders, which are used to procure specific products or services during the  period of the contract. The Department of Defense (DOD) uses IDIQ  contracts more than all other agencies combined. The Federal Acquisition  Regulation (FAR) establishes a preference for awarding multiple-award  IDIQ contracts, under a single solicitation, such that a number of  contractors are awarded contracts and compete for subsequent orders.  However, in certain circumstances, such as when only one contractor can  provide the needed products or services or when the expected cost of  administration of multiple contracts outweighs the benefits of making  multiple awards, agencies also have the ability to award IDIQ contracts to  a single contractor, in which case all subsequent orders are placed  without additional opportunities for competition.
Given the large amount of IDIQ contract obligations, you asked us to  examine federal agencies’ use of IDIQ contracts. This report addresses  (1) federal agencies’ use of IDIQ contracts from fiscal years 2011 through  2015, the latest year for which complete data were available; (2) the role  of competition when awarding selected IDIQ contracts and placing orders  at DOD; and (3) when and how DOD contracting officials established  prices for these contracts and orders.
To examine the use of IDIQ contracts by federal agencies, we analyzed  government-wide Federal Procurement Data System-Next Generation  (FPDS-NG) data on IDIQ obligations from fiscal year 2011 through 2015.  Data that were adjusted for inflation were adjusted to fiscal year 2015  dollars using the Fiscal Year Gross Domestic Product Price Index.
To assess the reliability of the FPDS-NG data, we electronically tested for  missing data, outliers, and inconsistent coding, and we compared the  data on selected IDIQ contracts to contract documentation we obtained.  Based on these steps, we determined the data were sufficiently reliable to  present IDIQ contract obligations for fiscal years 2011 through 2015. To  provide context on agency use of IDIQ contracts, we also interviewed  DOD contracting officials.
To address IDIQ competition and pricing at DOD, we selected the four  DOD components with the highest obligations on IDIQ contracts—the  Army, Navy, Air Force, and Defense Logistics Agency. From these  components, we selected a nongeneralizable sample of 31 IDIQ  contracts, 53 single-award IDIQ orders and 23 multiple-award IDIQ  orders. We selected these contracts and orders based on factors such  as obtaining a mix of products and services, whether the contracts were  competed or noncompeted, and the number of offers received. For the  contracts and orders selected, we collected and analyzed contract  documentation, including acquisition plans, justification and approval  documents, price negotiation memoranda, and other pertinent  information. In addition, we conducted interviews with DOD contracting  and program officials. A more detailed description of our scope and  methodology, including how we selected contracts and orders, is  presented in appendix I.
We conducted this performance audit from January 2016 to April 2017 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings based  on our audit objectives.
subsections: section_title: Background
paragraphs: The federal government may consider a wide selection of contract types  when purchasing products and services. One of those types is an IDIQ  contract. An IDIQ contract provides flexibility in cases where the  government cannot determine the exact quantities and required timing of  a product or service. Under an IDIQ contract, the government must order,  and the contractor must provide, a minimum agreed-upon quantity of  products or services, also known as a minimum guarantee. In addition,  the contractor must provide any other quantities ordered by the  government up to a stated maximum.
A contracting officer determines whether, for a specific solicitation, to  award multiple IDIQ contracts or only one. The FAR establishes a  preference for “multiple-award contracts.” For purposes of this report, we  describe these two approaches as “single-award IDIQ contracts” and  “multiple-award IDIQ contracts.”  “Single-award IDIQ contracts” refers to situations when only one  contract is awarded under a solicitation. These contracts may have  been competed or may have been awarded on a non-competitive  basis. If a contract is awarded without competition, it must follow  certain procedures, for example, a justification and approval  document must be prepared and approved. In addition, if a single- award IDIQ contract is expected to exceed a certain threshold—raised  from $103 million to $112 million on October 1, 2015—a written  determination by the head of an agency is required. Single-award  IDIQs are used under certain circumstances, such as when only one  contractor is capable of providing the products or services.  “Multiple-award IDIQ contracts” refers to situations when contracts are  awarded to two or more contractors under a single solicitation. These  contracts allow agencies to establish a group of prequalified  contractors to compete for future orders under streamlined ordering  procedures once agencies determine their specific needs. Contracting  officers must avoid situations in which contractors specialize in one or  a few areas of the work, creating the likelihood that orders would be  awarded noncompetitively.
An order, which is placed when a concrete need arises, obligates funds  and authorizes work. Orders must be within the scope, period of  performance, and maximum value and or quantities agreed to in the  contract. The ordering processes for a multiple-award IDIQ contract and  single-award IDIQ contract differ somewhat. For orders under single  award IDIQ contracts, once a requirement is known, contracting officials  can place an order following the procedures outlined in the contract.  When multiple-award IDIQ contracts have been awarded, and a need  arises, the requirement must be generally competed, through “fair  opportunity”, among all of the IDIQ contract holders. The specific  procedures required to provide fair opportunity differ based on the dollar  value of the orders. Contracting officers must provide each contractor a  fair opportunity to be considered for each order unless exceptions apply.  Exceptions to fair opportunity requirements for orders are permitted in  certain circumstances, such as when only one source is capable of  providing the particular products or services sought. Beyond the  requirement to meet a minimum guarantee, contractors can choose to  submit offers or not.
subsections: section_title: Pricing Contracts and Orders
paragraphs: The FAR requires that before purchasing supplies and services,  contracting officers must determine that the prices proposed by  contractors are fair and reasonable. The FAR states that adequate price  competition normally establishes a fair and reasonable price, but in some  situations contracting officers may need to, or be required to, obtain other  types of data to help establish pricing. Generally, the information that is  used by contracting officers to determine the reasonableness of price  depends on a series of circumstances, including whether the particular  product or service procured is for a commercial or noncommercial item,  and whether the requirement is being competed or awarded  noncompetitively. The data examined could be cost data, such as the  cost of materials, labor, and overhead, or pricing information, such as  invoices for the same or similar items sold to commercial customers.  When required, contracting officers must ask contractors for certified cost  and pricing data. Once contracting officers obtain the data needed, there  are several techniques they can use—singly or in combination—to  determine price reasonableness, such as comparing proposed prices to  historical prices paid, or comparing prices to an independent government  cost estimate.
section_title: Agencies Obligated over $130 Billion Annually on IDIQ Contracts, Primarily for Services
paragraphs: About one-third of all federal government contract obligations from fiscal  years 2011 through 2015 were through IDIQ contracts. Obligations on  IDIQ contracts were more than $130 billion annually during these years,  with DOD accounting for more than two-thirds of all IDIQ obligations.  IDIQs were used more often for services than products across  government agencies and most IDIQ contracts and orders were  competed. While the FAR states a preference for multiple-award IDIQs,  federal agencies obligated more dollars through single-award IDIQs than  through multiple-award IDIQs. Most single-award IDIQ contracts were  competed. DOD contracting officials cited various reasons for the wide  use of IDIQ contracts, including flexibility and administrative ease.
subsections: section_title: IDIQ Obligations Accounted for about One- Third of Government-wide Contract Spending
paragraphs: From fiscal years 2011 through 2015, the proportion of IDIQ obligations  relative to total government contract obligations remained relatively  constant, accounting for about a third of total obligations (see figure 1).  Total IDIQ obligations ranged from about $180 billion in fiscal year 2011  to about $130 billion in fiscal year 2015. Overall, total contract obligations  declined from fiscal year 2011 through 2015, and the changes in IDIQ  obligations during this time frame were consistent with this decline.
From fiscal years 2011 through 2015, DOD accounted for more than two- thirds of total IDIQ obligations annually, while all civilian agencies  combined accounted for less than one-third (see figure 2).
The three civilian agencies with the highest amounts of IDIQ obligations  were the Departments of Homeland Security (DHS), Health and Human  Services (HHS) and Veterans Affairs—(VA). From fiscal years 2011  through 2015, these agencies combined accounted for about 8 to 13  percent of government-wide IDIQ obligations each year. For example, in  2015, DHS, HHS, and VA each accounted for about 4 percent of IDIQ  obligations, as shown in figure 3.
section_title: Agencies Primarily Bought Services through IDIQ Contracts
paragraphs: From fiscal years 2011 through 2015 about two-thirds of government- wide IDIQ obligations were for services, while about one-third were for  products. For example, in fiscal year 2015, government-wide IDIQ  obligations for services accounted for about 70 percent of total IDIQ  obligations. However, the proportion of IDIQ obligations on services  versus products differed between DOD and civilian agencies—with IDIQ  obligations on services accounting for 62 percent of total 2015 IDIQ  obligations at DOD, but 85 percent at the civilian agencies.
Figure 4 shows the annual breakdown of products and services by civilian  agencies and DOD from fiscal years 2011 through 2015.
section_title: Agencies Obligate the Majority of IDIQ Dollars through Single-Award IDIQ Contracts and Most IDIQ Contract and Order Obligations Were Competed
paragraphs: While the FAR states a preference for multiple-award IDIQs, the majority  of all government-wide IDIQ contract dollars were obligated through  single-award IDIQ contracts from fiscal years 2011 through 2015.  Specifically, across the government, approximately 60 percent of IDIQ  obligations were awarded through single-award IDIQs and 40 percent  through multiple-award IDIQs. Approximately eighty percent of all single- award IDIQ obligations were at DOD. See figure 5 for a breakdown of  single- and multiple-award IDIQs by DOD and civilian agencies.
From fiscal years 2011 through 2015, IDIQ contract and order obligations  were generally competed. About 70 percent of all single-award contract  obligations were competed from fiscal years 2011 through 2015, and that  percentage was fairly consistent across DOD and civilian agencies, as  shown in figure 6.
For multiple-award IDIQ orders government-wide—more than 85 percent  of all order obligations were competed from fiscal years 2011 through  2015. In each year, a higher percentage of order obligations were  competed at DOD than at civilian agencies, as shown in figure 7.
Based on FPDS-NG data, agencies identified a variety of exceptions to  fair opportunity for multiple-award IDIQ orders, for example, that only one  contractor was capable of providing the products or services required, a  noncompetitive order was needed to satisfy a contract’s minimum  guarantee, or that there was an urgent need.
section_title: DOD Contracting Officials Cited Various Reasons for the Wide Use of IDIQ Contracts
paragraphs: Our review of DOD contracts revealed several reasons for the use of IDIQ  contracts. Contracting officials noted it was easier and faster to place an  order under an IDIQ contract than to solicit and award a separate contract  each time a need arose. Price and technical approach can still be  evaluated at the time of placing an order, but the overall turnaround time,  they said, is significantly less than for a new contract. Contracting officials  also stated that IDIQ contracts were easier to administer. First, they noted  that it was more efficient to track funds and requirements for different  customers through orders, rather than making modifications to stand- alone contracts for the same purpose. Second, officials told us that the  close-out of orders from IDIQ contracts was much faster, as each order  can be closed-out individually when the last payment is made rather than  waiting until the entire contract was complete.
According to DOD contracting officials, IDIQ contracts also provide more  funding flexibility as funds are obligated as needed through orders and  not at contract award—as may be required for some other types of  contracts. Once the minimum guarantee is satisfied on an IDIQ contract,  there is no further government obligation to procure additional products  and services under an IDIQ contract. For example, on an Air Force IDIQ  contract for roofing services, contracting officials established a pricing  structure that allowed for repairs to different types of roofing. The Air  Force placed an order only when a specific need arose. These needs  may vary—such as when repairs are needed due to wear and tear. This  contract allows work to be performed on an as needed basis, which may  help the Air Force begin or continue work in an uncertain funding  environment.
In addition, DOD officials told us that the contracts they used served a  broader customer base, for example, multiple commands, other federal  agencies, and foreign military sales. By not needing to specify an exact  quantity or timing of delivery at the time of contract award, program  offices can accommodate unforeseen needs on an ongoing basis through  issuance of orders. For example, an Army contract for Aerial Target  Systems training and testing is intended for use by all military  departments as well as foreign military partners. Since the need for  testing and training varies depending on the customer, these  requirements were less defined at contract award, and will be more  clearly specified at the time of order.
section_title: Extent of Competition on DOD’s IDIQ Contracts and Orders Depended on Various Factors
paragraphs: DOD can award IDIQ contracts on a competitive or noncompetitive basis.  Ten of the 18 single-award IDIQ contracts we reviewed were not  competed, generally because only one contractor could meet the need.  The remaining single-award IDIQ contracts reviewed were competed. For  these contracts, a single-award contract was used for a variety of  reasons; for example, orders under the contract were to be for integrally  related tasks and therefore there was a need to build knowledge with  each order. Orders under multiple-award contracts also can be awarded  on a competitive or noncompetitive basis. The orders we reviewed that  were not competed cited a variety of reasons, such as that there was an  urgent need, there was only one contractor capable of completing the  work, or the order was a follow-on to other work. Some orders we  reviewed were competed, but only one contract holder chose to submit an  offer. In most cases, the competitive orders for which the government  received one offer were either in compliance with DOD’s policy that  solicitations for competitive actions be open for at least 30 days, or the  order met one of the exceptions to that policy.
subsections: section_title: DOD Awarded Single- Award IDIQ Contracts for a Variety of Reasons
paragraphs: DOD awarded single-award IDIQ contracts—which are awarded to one  contractor on a competitive or noncompetitive basis—for a variety of  reasons. Of the 18 single-award IDIQ contracts we reviewed at DOD, we  found that 10 contracts were awarded noncompetitively because only one  contractor was capable of fulfilling the need. Eight single-award IDIQ  contracts in our sample were competed (see figure 8).
For the 10 single-award IDIQ contracts that were not competed, contract  files contained the required justification and approval memorandums in all  cases. In terms of the reasons why DOD chose not to compete the  contract, in 8 of the 10 contracts we found that the government  determined that it did not possess the data rights to proprietary  technologies or processes needed to perform a service, for example:
The Navy awarded a noncompeted single-award IDIQ contract with a  value of up to $15 million per year for the deactivation of Tomahawk  missiles, missile testing, and engineering services. Officials stated  that they used an IDIQ because they could not determine the number  or types of missiles that would be selected for deactivation and added  that the manufacturer of the missiles was the only source capable of  providing this service as the government lacked the data rights and  certified facilities needed to perform this service.
The Army awarded a noncompeted single-award IDIQ contract with a  value of up to $1.7 billion to procure engines and associated data for  several types of helicopters, including the Army’s UH-60 helicopter.  The Army anticipates an ongoing need for these products and  services over 5 years, but could not pinpoint the exact schedule for  these deliveries. In addition, according to DOD, it does not own the  manufacturing drawings, specialized processes, or technical data that  would be required for production of the engines.
For the 8 single-award IDIQ contracts we reviewed that were competed,  contracting officials cited various reasons for using a single-award IDIQ  contract, such as that orders were being used for interrelated tasks and  therefore there was a need to build knowledge over time. For example:
The Air Force competitively awarded several single-award IDIQ  contracts under its program to procure research and development  efforts to improve aviation engine technology. We reviewed one of the  single-award IDIQs with a value of up to $75 million. The single-award  IDIQ contract we reviewed was part of a larger research and  development effort that included several government agencies,  including DOD, the National Aeronautics and Space Administration,  and the Department of Energy. In this case, the Air Force awarded  single-award IDIQs using a broad agency announcement—a general  announcement of an agency’s research interest used to procure and  advance broad scientific knowledge or understanding, rather than  focusing on unique research required to develop a specific system or  hardware solution. Contracting officials told us that single-award  IDIQs were used rather than multiple-award contracts because each  of the contractors had specialized expertise in a specific propulsion  research area such as fuel efficiency. Additionally, each order would  be built upon prior research; therefore, orders could not be competed  among multiple contractors.
The Army competitively awarded a single-award IDIQ contract with a  value of up to $38 million to procure a suite of seven different aircraft  maintenance and repair toolkits. Officials cited the need for  commonality among the tool kits and manuals, and the requirement  that replacement tools match previous purchases.
Nine of 18 single-award IDIQ contracts that we reviewed required a  determination and findings document due to an estimated value of over  $103 million. All 9 IDIQ contracts met the requirement.
section_title: About One-Third of Multiple-Award IDIQ Orders Reviewed Where Only One Offer Was Received Were Not Competed
paragraphs: To understand the reasons why competition was not obtained, we  reviewed 23 multiple-award IDIQ orders where DOD received only one  offer. Specifically, we found for 9 of the 23 orders reviewed, contracting  officers did not provide IDIQ contractors a chance to compete and cited  exceptions to fair opportunity. We found that the remaining 14 orders  were all competed, but only one contractor chose to submit an offer.  Figure 9 depicts whether or not one-offer orders we reviewed were  competed, and the reasons cited for exceptions to fair opportunity.
For the 9 orders that were not competed, contracting officers obtained the  required justification and approvals that provided reasons for using an  exception to fair opportunity. The reasons included: urgent need, only one  contractor was capable of completing the work, the order was a logical  follow-on to other work, or there was a need to satisfy a minimum order  guarantee.
We reviewed two contracts awarded by the Navy to procure land- based and sea-based Unmanned Aircraft System (UAS) Intelligence,  Surveillance, and Reconnaissance services. Specifically, we reviewed  three noncompeted orders that were awarded under these two  contracts to provide support for overseas contingency operations.  Urgency was the primary factor in not providing fair opportunity in two  of the orders. Contracting officials cited the need for flight clearances,  explaining that only two of their three contractors possessed this  capability. The remaining contractors did not have enough capability  at the time to perform the work, and the contracting officer decided to  split the work between the two contractors. For the third order, only  one contractor was capable of providing the needed services.
The Army awarded multiple-award IDIQ contracts that included two  contracts for the procurement of aviation systems modifications. We  reviewed one order which was for the installation of threat detection  systems for the UH-60 helicopters. The contracting officer cited  urgency as the reason for not providing fair opportunity. The Army  placed the order, describing the threat detection system as  survivability equipment, and explained that failure to install the  modifications would likely interfere with troop deployments.
The Air Force awarded multiple-award IDIQ contracts that included 34  contracts to provide roofing maintenance services across the United  States. We reviewed one order with a value of $1,000 to participate in  a post-award orientation, which satisfied the IDIQ contract minimum  guarantee. According to contracting officials, all 34 contractors were  awarded orders to meet the minimum guarantee.
As shown in figure 9 above, 14 orders under multiple-award contracts we  reviewed, where DOD received only one offer, were competed. In  addition, only one offer was received because only one contractor chose  to submit an offer.
DOD regulations generally require that, when only one offer is received in  response to a competitive solicitation, certain steps need to be taken if  the solicitation was not open for at least 30 days, including allowing for an  additional solicitation period of at least 30 days. DOD allows exceptions  to this requirement in certain instances, such as when a contract or order  is part of a broad agency announcement, or is a small business set- aside. Of the 14 orders we reviewed that were competed but DOD  received only one offer, 7 of them had solicitations that were open for less  than 30 days. Of these, 1 order was exempted because it was a broad  agency announcement, 3 orders were exempted because they were  small business set-asides, and 3 orders did not comply with DOD  regulation. These 3 orders were all awarded under the same multiple- award IDIQ vehicle. The contracting officer acknowledged that although  the orders did not meet any of the exceptions listed in the DFARS, he did  not revise the solicitations or allow for an additional solicitation period.  The contracting officer further stated that the orders were not resolicited  due his lack of familiarity with the DFARS requirement. The contracting  officer added that, apart from delaying award, he did not believe that a  30-day extension would have had any effect on competition. After we  discussed our findings and the DFARS requirements with this contracting  officer, he stated that he now understands the requirement and will  comply with the provision when placing future orders.
section_title: DOD Established Prices at the IDIQ Contract or Order Level Based on How Well-Defined Requirements Were at Contract Award
paragraphs: For the contracts we reviewed, prices for well-defined products and  services were typically established at the IDIQ contract level. For less  defined products and services, prices were established at the order level.  In situations where an IDIQ contract had both well-defined and less  defined items, some price elements were established in the IDIQ contract  and some were established in the order. Contracting officials use a  variety of data and methods to help establish pricing, such as comparing  historical prices for similar items, and obtaining certified cost and pricing  data, among others.
IDIQ prices can be established at the time of contract award, at the time  of order award, or both. We reviewed 31 contracts. For 5 of the IDIQ  contracts, all of the pricing was established upfront and agreed to at  contract award. For 8 contracts pricing was established only at the time of  the order. And for 18 IDIQ contracts, pricing was established in both, with  some price elements established at IDIQ contract award and some at  order award (see figure 10).
subsections: section_title: Prices for Well-Defined Products Established at Time of IDIQ Contract Award
paragraphs: For the 5 DOD IDIQ contracts for which pricing was established upfront in  the IDIQ contract, all had well-defined requirements at the time of contract  award. Once prices are established at contract award, those prices were  referred to when placing an order, for instance:
The pricing for a noncompeted Navy single-award IDIQ contract with  a value of up to $420 million to procure commercial radios used in  fixed wing aircraft was established in the IDIQ contract. The radio is a  well-defined product and has been a requirement for many years.  With known requirements and historical knowledge of the need, Navy  contracting officials were able to establish prices before contract  award. To establish prices, contracting officials compared commercial  pricing of the product to the contractor’s proposal, reviewed published  prices obtained from federal supply schedules, and reviewed historical  prices paid in previous contracts. The 3 orders we reviewed followed  the pricing established in the contract.
The Navy awarded a competed single-award IDIQ contract with a  value of up to approximately $789 million to procure six different  variants of sonobouys, devices used to detect and identify underwater  objects. Sonobouys are well-defined products that have been used by  the Navy since the 1940s. Contracting officials established prices for  each variant. The government’s estimate was based on certified cost  or pricing data submitted by contractors. In addition, contracting  officials also enlisted support from the Defense Contract Audit  Agency, and the Defense Contract Management Agency, both of  which helped examine and determine if labor rates were reasonable.  In addition to reviewing the contract, we reviewed three orders placed  under this IDIQ and found that the prices paid for in the orders were  consistent with what was agreed to in the IDIQ contract.
The Army competitively awarded a single-award IDIQ contract with a  value of up to $38 million to procure a suite of seven different aircraft  maintenance and repair toolkits. All pricing for this contract was  established before contract award as this requirement was well  defined. Contracting officials relied on competition to establish pricing.  This contract was awarded to the contractor who had the lowest price  and whose proposal was deemed technically acceptable.
section_title: Prices for Less Defined Products and Services Were Established at the DOD Order Level
paragraphs: DOD contracting officials established prices at the order level when they  were not established at the contract level, primarily for services and  undefined products. Within our selected sample of 31 DOD contracts,  there were 8 contracts where prices were determined at the order level  only, and the contracts only included a ceiling value. Six of these 8  contracts were primarily for research and development efforts. The  following are examples where prices were established at the order level.
The Air Force awarded a competed single-award IDIQ contract for up  to $24.9 million that, according to a program official, was to procure  research and development for cybersecurity and malware detection.  No prices were established at the time of IDIQ contract award  because specific requirements were not known at the time of contract  award. The orders we reviewed were for the development of software  and hardware to detect malware and other cybersecurity threats  within medical equipment. Once a well-defined requirement arose  pricing was established at the order level. To establish the pricing on  the orders we reviewed, the program office performed a technical  evaluation to determine if the proposed labor mix was appropriate.  Subsequently, contracting officials collected and analyzed certified  cost and pricing data or other cost data provided by the contractor.
We reviewed two multiple-award IDIQ contracts awarded by the Navy  to procure UAS imagery services. Though it was known that imagery  services would be procured, it was not known where, when or for how  long these services would be needed until an actual mission need  arose. We reviewed 3 orders awarded under these IDIQ contracts. All  three orders were noncompeted and were for deployment of  personnel to provide imagery services from specific platforms such as  ship or ground in specific locations. Since the platforms, locations,  and timeframes for the missions could not be known at time of IDIQ  contract award, the prices were established at the order level once the  scope and location of each mission need was known. To establish  pricing for one of the orders, we found that contracting officials  compared the contractor’s proposal with historical pricing, as well as  verified labor rate information provided by the contractor.
section_title: Prices for DOD IDIQ Contracts with a Mix of Well-Defined and Less- Defined Products and Services Established at Both IDIQ Contract Award and Order Levels
paragraphs: Eighteen DOD IDIQ contracts, which include both multiple- and single- award, in our selected sample had some price elements established at  the time of contract award and some price elements established at the  time of order award. This arrangement occurred in situations where some  elements of the requirement were well defined and pricing could be  established upfront at the contract level, while other requirements were  less defined and the prices were established when the order was placed.  For instance, in DOD’s multiple-award IDIQ contracts, some pricing  elements may be negotiated upfront at contract award, such as not-to- exceed labor rates; however, since further competition is expected at the  order level contractors may offer labor rates below the not-to-exceed  rates. Therefore, actual labor rates were determined when an order was  placed, for instance:
The Air Force established a multiple-award IDIQ vehicle for roofing  repairs with a ceiling of $325 million. According to officials, each IDIQ  contract has a not-to-exceed price for 11 different roofing scenarios.  When a need arises, the contracting officer solicits offers from the  multiple-award IDIQ contract holders. According to contracting  officials, these contractors submit proposals and base their pricing on  defined requirements such as the type of roof, extent of repair, and  location. The proposal with the lowest price that is technically  acceptable—which cannot exceed a contractor’s not-to-exceed  pricing—is awarded the order.
A Navy noncompeted single-award IDIQ contract was awarded for the  deactivation and disposal of Tomahawk missiles with a value of up to  $15 million per year. Pricing for the deactivation of the missiles was  established upfront in the IDIQ contract; however, some elements of  the contract, such as unscheduled maintenance and testing, were not  defined at contract award and therefore no price was established. We  found that in one of the orders we reviewed, the contractor was to  provide software for missile testing. In order to establish pricing on  this order, contracting officials conducted a cost analysis of the  proposed offer. They asked the Defense Contract Management  Agency to review the labor pricing that was submitted and pricing for  similar labor categories the government paid on a different contract.
The Army awarded a noncompeted single-award IDIQ contract with a  value of up to $42 million that, according to a contracting official, is for  a broad range of efficiency management services, such as  determining ways to improve the function and efficiency of logistical  processes. Not-to-exceed values for labor rates and the fee were  determined for the IDIQ contract, but actual prices are determined at  the order level. To establish the not-to-exceed rates in the IDIQ  contract, contracting officials used certified cost and pricing data and  support from the Defense Contract Management Agency to determine  reasonable rates. For the 3 orders we reviewed under this IDIQ, a  technical evaluation was conducted to ensure that the labor mix was  acceptable, and contracting officials compared proposed labor rates  with those not-to-exceed rates agreed to in the IDIQ contract.
section_title: Agency Comments
paragraphs: We provided a draft of this report to DOD for review and comment. DOD  had no comments.
We are sending copies of this report to the Secretary of Defense and  interested congressional committees. In addition, the report is available at  no charge on the GAO website at http://www.gao.gov.
If you or your staff has any questions about this report, please contact  William T. Woods at (202) 512-4841 or woodsw@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this report. GAO staff who made key  contributions to this report are listed in appendix II.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report addresses (1) federal agencies’ use of indefinite delivery /  indefinite quantity (IDIQ) contracts from fiscal years 2011 through 2015,  the latest year for which complete data were available; (2) the role of  competition when awarding and using selected IDIQ contracts and orders  at the Department of Defense (DOD); and (3) when and how DOD  contracting officials established prices for these contracts and orders.
To examine the use of IDIQ contracts by federal agencies, we analyzed  government-wide Federal Procurement Data System-Next Generation  (FPDS-NG) data on IDIQ obligations from fiscal year 2011 through 2015  to identify information such as overall agency obligations on IDIQ  contracts, obligations for products and services, obligations for single-and  multiple-award IDIQ contracts, and extent of competition for single-award  IDIQ contracts and multiple-award orders. Data that were adjusted for  inflation were adjusted to fiscal year 2015 dollars using the Fiscal Year  Gross Domestic Product Price Index. To assess the reliability of the  FPDS-NG data we used, we electronically tested for missing data,  outliers, and inconsistent coding, and we compared data on selected IDIQ  contracts to contract documentation we obtained. Based on these steps,  we determined the data were sufficiently reliable to present IDIQ contract  obligations for fiscal years 2011 through 2015. To provide context on  agency use of IDIQ contracts, we also interviewed DOD contracting  officials.
For our second and third objectives, we focused our review on DOD since  DOD was the largest user of IDIQ contracts. Within DOD, we focused on  the four DOD components with the highest obligations on IDIQ  contracts—the Army, Navy, Air Force, and Defense Logistics Agency.  From these components, we selected a nongeneralizable sample of 31  IDIQ contracts, 53 single-award IDIQ orders, and 23 multiple-award IDIQ  orders. The 53 single award IDIQ orders were placed under 18 single- award IDIQ contracts, while the 23 multiple-award IDIQ orders were  placed under 13 multiple-award IDIQ contracts (see table 1). Only one  offer was received on each of the 23 multiple-award orders selected,  either because DOD only solicited one contractor or because only one  contractor submitted an offer. We selected orders where only one offer  was received so as to understand reasons why competition did not take  place. We selected these contracts and orders based on factors such as  obtaining a mix of products and services and whether the contracts were  competed or noncompeted. The selection process for the components,  commands, contracts and orders is described in detail below.
To address the role of competition when awarding and using selected  IDIQ contracts and orders at DOD, we collected and analyzed contract  documentation, including acquisition plans, justification and approval  documents, and other pertinent information, for contracts in our sample of  IDIQ contracts and orders. In addition, we conducted interviews with DOD  contracting and program officials to further discuss the reasons why  single-award IDIQ contracts were needed, and why the government  received only one offer on multiple-award IDIQ orders.
To address when and how DOD contracting officials established prices  for contracts and orders in our sample, we collected and analyzed  contract documentation, including contract and order award documents,  price negotiation memoranda, and other pertinent pricing information. In  addition, we conducted interviews with contracting and program officials  for the selected contracts and orders to discuss changes, if any, to pricing  since award and to clarify information found in contract documentation.  Furthermore, for orders where prices were established in the contract, we  ensured that the orders followed the pricing agreed to in the contract.
subsections: section_title: Methodology for Selection of Components, Commands, Contracts and Orders
paragraphs: We selected the following four components within DOD—the Army, Navy,  Air Force and the Defense Logistics Agency—because they had the  highest obligation dollars on IDIQ contracts within the department from  fiscal years 2011 through 2015. Within these components, we selected  one command and location for review taking into consideration factors  such as the total obligations at the command/location for single-award  IDIQs from fiscal years 2011 through 2015, the proportion of contracts for  products and for services, and the extent to which contracts at the  command/location were competed or noncompeted. With consideration of  these factors, we selected the following commands for review—the Army  Materiel Command in Redstone Arsenal, Alabama; Navy Air Systems  Command in Patuxent River, Maryland; Air Force Materiel Command in  Dayton, Ohio; and the Defense Logistics Agency (Energy) in Fort Belvoir,  Virginia.
Within commands and locations listed above, we selected single-award  IDIQ contracts awarded from fiscal years 2011 through 2015, ensuring  our selections included a mix of products and services contracts, and  competed and noncompeted contracts. We further selected orders from  each of the single-award IDIQ contracts that were awarded in fiscal years  2014 and 2015, and were among those with the highest obligations. In  addition, within the selected commands and locations, we selected  multiple-award IDIQ orders where the government only received one offer  and were placed in fiscal years 2014 and 2015. We also selected the  multiple-award IDIQ contracts associated with these orders.
We conducted this performance audit from January 2016 to April 2017 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings based  on our audit objectives.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Janet McKelvey, Assistant  Director, Guisseli Reyes-Turnell, Analyst-in-Charge, Karen Cassidy,  Lorraine Ettaro, Kurt Gurka, Stephanie Gustafson, Julia Kennon, Victoria  Klepacz, Carol Petersen, Roxanna Sun, and Alyssa Weir made key  contributions to this report.