Overseas Military Construction: Observations on U.S. Contractor Preference
Published: 2014-11-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since the 1980s, Congress has mandated a preference for U.S. contractors for military construction contracts in certain overseas countries. In the Joint Explanatory Statement of the Consolidated Appropriations Act for Fiscal Year 2014, Congress mandated that GAO examine the potential benefits and problems of expanding this preference to the countries that make up the CENTCOM area of responsibility.
This report (1) examines the extent to which DOD has awarded military construction projects in accordance with the U.S. contractor preference and (2) describes DOD and State Department officials' views on the potential benefits and problems with expanding the U.S. contractor preference to include all countries within CENTCOM.
To examine the extent to which DOD awarded contracts in accordance with the U.S. contractor preference, GAO analyzed information concerning the contracts awarded from October 2010 to May 2014 subject to the preference to determine whether DOD applied the preference and whether the preference affected the contract award. To identify the potential benefits and problems with expanding the preference, GAO interviewed officials with knowledge of this issue.
section_title: What GAO Found
paragraphs: GAO found that the Department of Defense (DOD) did not apply the U.S. contractor preference in accordance with the current statute from October 2010 through May 2014. The fiscal year 2014 Consolidated Appropriations Act directs that military construction contracts valued over $1 million and located in countries bordering the Arabian Sea, U.S. territories in the Pacific, and the Kwajalein Atoll, be awarded to a U.S. contractor unless their price is 20 percent higher than the price from a competing non-U.S. contractor with an equally responsive and responsible bid. However, DOD incorrectly applied the preference to countries bordering the Arabian Gulf, which is geographically distinct from the Arabian Sea (see figure). DOD officials were unaware the statute changed the preference from “Arabian Gulf” to “Arabian Sea” in 2002 and therefore had not updated DOD's acquisition guidance. DOD's application, however, included the geographic area in which the majority of military construction in the Arabian Sea and Arabian Gulf locations took place from October 2010 through May 2014. GAO also found that due to other factors that are also considered, such as a contractor's experience, the preference potentially only affected 2 of the 35 award decisions for military construction contracts since fiscal year 2011. DOD updated its guidance during GAO's review, but it could become outdated, again, if a congressional bill becomes effective, as the bill would change the locations subject to the preference in fiscal year 2015.
GAO also found that DOD and State Department officials identified potential benefits and problems with expanding the statute to include all of the countries within the U.S. Central Command area of responsibility. For example, according to the officials, one potential benefit of contracting with U.S. firms would be greater familiarity with U.S. contracting and construction procedures. However, these officials also told GAO the 20 countries in the CENTCOM area vary widely in their local capacities, economies, and strategic concerns. Therefore, an expansion may run counter to specific U.S. policy goals in certain locations.
section_title: What GAO Recommends
paragraphs: GAO is not making recommendations in this report. DOD and State Department reviewed the draft of the report but did not provide any comments.

section_title: Letter
paragraphs: Since the 1980s, Congress has mandated that the Department of  Defense (DOD) provide a preference for U.S. contractors when awarding  contracts for U.S. military construction projects at certain overseas  locations, such as U.S territories in the Pacific or countries bordering the  Arabian Sea. The current U.S. contractor preference provision appears in  Section 112 of the Department of Defense title within the fiscal year 2014  Consolidated Appropriations Act (hereafter referred to as Section 112).  Section 112 provides that  None of the funds made available in this title for military construction  in the United States territories and possessions in the Pacific and on  Kwajalein Atoll, or in countries bordering the Arabian Sea, may be  used to award any contract estimated by the Government to exceed  $1,000,000 to a foreign contractor: Provided, That this section shall  not be applicable to contract awards for which the lowest responsive  and responsible bid of a United States contractor exceeds the lowest  responsive and responsible bid of a foreign contractor by greater than  20 percent: Provided further, That this section shall not apply to  contract awards for military construction on Kwajalein Atoll for which  the lowest responsive and responsible bid is submitted by a  Marshallese contractor.
Congress is considering expanding this preference to apply to all  countries within the U.S. Central Command (CENTCOM) area of  responsibility, a region consisting of 20 countries where, according to  DOD, the department is planning an estimated $699.5 million in military  construction from fiscal year 2015 through fiscal year 2021. The Joint Explanatory Statement accompanying the Consolidated Appropriations  Act for Fiscal Year 2014 mandated that we examine the potential benefits  and problems of expanding the geographical area for the U.S. contractor  preference from the current 5 countries that border the Arabian Sea to the  20 countries within the CENTCOM area of responsibility. This report (1)  examines the extent to which DOD has awarded contracts for military  construction projects in accordance with Section 112 since fiscal year  2011 and (2) describes DOD and Department of State (State) officials’  observations of the potential benefits and problems with expanding the  Section 112 preference to include all countries in the CENTCOM area of  responsibility.
To examine the extent to which DOD has awarded military construction  contracts in accordance with Section 112 since fiscal year 2011, we  reviewed the statute and DOD’s implementing regulations to identify and  develop criteria for assessing the department’s actions. Using the Federal  Procurement Data System–Next Generation and in coordination with  DOD officials, we then identified the DOD military construction contracts  that were awarded from October 2010 through May 2014 that met the  dollar value and geographic location requirements of the preference.those contracts, we then worked with the DOD agencies responsible for  awarding the contract to determine whether the project was funded with  appropriations that were subject to the preference.
We then obtained and analyzed contract documentation for those awards  to determine (1) whether DOD included the preference language, (2)  whether the 20 percent preference was applied to the proposed offers of  competing non-U.S. firms in these contracts, and (3) whether the  preference affected the award. We interviewed DOD officials who have  knowledge of these contracts about the extent to which the Section 112  preference was applied to these contracts and whether the preference  was a contributing factor in awarding the contracts. We assessed the  reliability of the Federal Procurement Data System–Next Generation and  U.S. Army Corps of Engineers data by reviewing related documentation,  interviewing knowledgeable officials, and testing the data for obvious  errors and completeness. We concluded the data were sufficiently reliable  to determine the extent to which DOD awarded military construction  contracts in accordance with Section 112 since fiscal year 2011.
To describe DOD and State officials’ observations of the potential benefits  and problems of expanding the Section 112 preference to include all  countries in the CENTCOM area of responsibility, we identified and  reviewed guiding principles of the federal acquisition system as stated in  the Federal Acquisition Regulation (FAR). These principles include (1)  delivering the best value product or service to the customer in a timely  manner using contractors with successful track records or superior ability  to perform; (2) promoting competition; (3) minimizing administrative costs;  (4) promoting openness, integrity, and fairness; and (5) fulfilling public  policy objectives. To identify the potential benefits and problems of  expanding the preference, we interviewed officials in the following offices  and asked them about the effect of the preference on those guiding  principles: five U.S. Army Corps of Engineers field offices located in  countries bordering the Arabian Sea, bordering the Arabian Gulf, or within  the CENTCOM area of responsibility that had military construction  projects within the time frame of our review; U.S. Army Corps of  Engineers headquarters and U.S. Army Corps of Engineers, Middle East  District; two offices within the Office of the Under Secretary of Defense;  U.S. State Department headquarters; and six embassies located in an  Arabian Gulf border country, an Arabian Sea border country, or within  CENTCOM; and a private-sector association with knowledge about this  issue. This report focuses on DOD’s views of the U.S. contractor  preference for military construction contracts. We have included only  those comments made by State officials that focus on potential diplomatic  benefits and challenges since (1) officials at four embassies referred us to  DOD officials for comment, and (2) State headquarters officials deferred  to DOD since this report focuses on military construction. We also asked  officials about their general views on the preference as it has been  applied and the potential expansion of the preference to all countries  within the CENTCOM area of responsibility. While the information from  these interviews is not generalizable, it provides varying perspectives  about potential benefits and problems related to the U.S. contractor  preference. In all cases, the information presented is a summary of  officials’ viewpoints and is not generalizable.
Further details on our scope and methodology, including a list of DOD  and State offices we interviewed, can be found in appendix I.
We conducted this performance audit from March 2014 through  November 2014 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Section 112 and Prior Preference Legislation
paragraphs: Since the 1980s, military construction appropriations have contained  provisions similar to Section 112 in various forms that have provided a  preference for U.S. contractors in certain overseas locations. For  example, in 1984, the preference applied to “United States territories and  possessions in the Pacific and on Kwajalein Island” for any military  construction contract exceeding $5 million. For fiscal year 1996,  Congress decreased the threshold for the preference from $5 million to  $1 million, the current threshold, and included countries bordering the  Arabian Gulf as countries covered by the preference. In fiscal year 2002  legislation, Congress modified the preference provision to change the  locations where the preference was to be applied. Instead of the Arabian  Gulf, the preference was to be applied to construction located in countries  bordering the Arabian Sea, which is a geographically distinct area. The  Pacific locations and the dollar value at which the preference would apply  to a contract remained the same. The preference provisions enacted  since 2002 have continued to refer to countries bordering the Arabian  Sea. Figure 1 reflects these geographical modifications.
By its terms, the Section 112 U.S. contractor preference as it appears in  the fiscal year 2011 through 2014 appropriations acts applies only to  projects funded by the military construction title of the act. As such, the  Section 112 U.S. contractor preference provision does not apply to other  overseas construction or construction-related projects—such as  construction services funded through Foreign Military Sales programs or  facilities sustainment projects funded through Operation and Maintenance  appropriations.
In the Joint Explanatory Statement accompanying the fiscal year 2014  Consolidated Appropriations Act, Congress mandated that we examine  the potential benefits and problems of amending Section 112 to apply the  preference to all of the countries within the CENTCOM area of  responsibility, which includes countries bordering the Arabian Sea and  Arabian Gulf, as shown in figure 2. As previously stated, the version of  the 2015 Military Construction Appropriations Act passed by the House of  Representatives would expand the preference to all countries in the  CENTCOM area of responsibility.
section_title: DOD’s Defense Federal Acquisition Regulation Supplement (DFARS)
paragraphs: DOD implements the U.S. contractor preference, including the current  Section 112 provision, through DFARS section 236.273 and DFARS  clause 252.236-7010. DFARS clause 252.236-7010 is to be included in  solicitations that are subject to the evaluation preference and defines  “United States firm” for purposes of this section. The clause allows firms  submitting offers to self-identify as a U.S. or non-U.S. firm, as shown in  figure 3. DOD officials told us if both U.S. and non-U.S. firms compete  for the contract, the contracting official increases the non-U.S. firms’ bids  by 20 percent for evaluation purposes. However, according to DOD, the  actual amount paid to a non-U.S. firm, if it wins the contract, is not  increased by the additional 20 percent.
The DOD contracting agencies responsible for implementing the U.S.  contractor preference include the U.S. Army Corps of Engineers, which  manages DOD’s construction in the Middle East and the Kwajalein Atoll,  and the Naval Facilities Engineering Command, which manages DOD’s  construction on U.S. territories in the Pacific.
section_title: DOD’s Application of the U.S. Contractor Preference Was Not in Accordance with Section 112 and Included Other Locations Where Military Construction Took Place
subsections: section_title: DOD Applied the U.S. Contractor Preference to Contracts in Countries Different from Those Required by Section 112 Due to an Outdated Regulation but Took Action to Correct DFARS
paragraphs: We found that DOD did not apply the U.S. contractor preference in  accordance with the current Section 112 from October 2010 through May  2014. Since fiscal year 2002, Congress has required the preference to  apply to contracts in countries bordering the Arabian Sea instead of  countries bordering the Arabian Gulf. However, DOD did not modify the  DFARS clause to reflect this change in the statutory language. Officials  from the Office of the Under Secretary of Defense for Acquisition,  Technology and Logistics told us that consequently the department’s  contracting offices, which follow this implementing guidance, continued to  apply the U.S. contractor preference to military construction contracts  performed in countries bordering the Arabian Gulf. As shown in table 1,  from October 2010 to May 2014 more military construction contracts were  awarded in Arabian Gulf border countries than Arabian Sea border  countries. From October 2010 to May 2014, the United States did not  award military construction contracts in any of the Arabian Sea border  countries, which include Yemen, India, Pakistan, and Somalia—except for  in Oman, which is both an Arabian Sea border country and an Arabian  Gulf border country. As a result, DOD’s application of the preference  included more contracts than it would have if it had been implemented in  accordance with the current language in Section 112. In addition, DOD  officials told us the department does not have any planned military  construction in the CENTCOM area of responsibility for fiscal years 2015  through 2021 other than for projects located in Arabian Gulf countries.
Officials from the Office of the Under Secretary of Defense for Acquisition,  Technology and Logistics told us that the DFARS clause was inaccurate  and identified the incorrect geographic locations because DOD officials  had not noticed the change when the language in the statute was  amended in 2002 from “Arabian Gulf” to “Arabian Sea.” As a result of our  review, on July 31, 2014, DOD issued an interim rule that aligned the  DFARS locations to match the locations identified in Section 112.  However, if the version of the 2015 Military Construction Appropriations  Act passed by the House of Representatives is enacted DFARS will once  again be out of line with statute.
section_title: The U.S. Contractor Preference Potentially Affected 2 of 35 Military Construction Contracts Awarded in the Arabian Gulf Countries and in the Pacific
paragraphs: Based on our analysis, there were 35 contracts awarded from October  2010 and May 2014 that were subject to the U.S. contractor preference in  accordance with DFARS. Of those contracts, the preference potentially  affected the source-selection process in only two award decisions, both  of which used a best-value selection process in which the selection of  competing offerors was not based solely on price. In these two projects,  a non-U.S. contractor submitted a lower-priced offer than any U.S.  contractors. However, after applying the Section 112 evaluation  preference by increasing the non-U.S. firm’s price by 20 percent for  evaluation purposes, the U.S. firm’s offer was considered lower-priced.  Since both of these projects were awarded using a best-value selection  process, the contracting officer was not obligated to accept the lowest- priced offer and could potentially have still selected the non-U.S.  contractor based on technical factors. However, according to the  contract-award decision documents, the U.S. contractors’ technical  proposals were considered stronger than those of the non-U.S.  contractors in both instances.
For the remainder of the contracts we examined, there were various  reasons the preference did not affect the award. For example, for more  than half of the remaining contracts, only U.S. firms or only non-U.S. firms  competed, so there was no requirement to apply the preference. In  others, while the preference was applied to non-U.S. firms’ proposed  prices, other non-pricing factors, such as technical experience,  determined award. In no other case did the preference provision alter the  award decision.
section_title: DOD and State Officials Identified Potential Benefits and Problems with Expanding Section 112 to Include All of the Countries in the CENTCOM Area of Responsibility
subsections: section_title: Officials Identified Some Potential Benefits to Expanding the U.S. Contractor Preference
paragraphs: DOD officials identified the benefits they see in providing a preference to  U.S. contractors based on their observations and experiences with  working with U.S. and non-U.S. contractors in the officials’ own country of  operation. In addition, while we asked each office to provide observations  on the potential benefits of expanding the preference throughout the  CENTCOM area of responsibility, many of the offices did not provide  responses about the specific potential benefits of expanding the  preference. The information presented below is a summary of officials’  viewpoints and is not generalizable.
subsections: section_title: Officials: U.S. Contractors May Have More Familiarity with U.S. Contracting Requirements and Construction Standards
paragraphs: Officials from three Army Corps of Engineers offices and the U.S. Air  Force Civil Engineer Center told us that U.S. contractors may be more  familiar with U.S. contracting processes, regulations, codes,  requirements, procedures, and quality-assurance standards, as well as  U.S. business practices and engineering criteria. These officials said  additionally that U.S. contractors may be better able to build higher- quality construction products, and have fewer problems in carrying out  contracts.
section_title: Officials: U.S. Contractors May Have More Leadership and Management Experience
paragraphs: Officials from three Army Corps of Engineers offices told us that the U.S.  contractor preference benefits military construction by providing U.S.  leadership and experience in both site and project management. Officials  from the U.S. Air Force Civil Engineer Center also told us that having a  U.S. contractor acting as a single point of contact and integrator for  multiple subcontractors and taking care of local requirements may make  communication easier for the DOD contracting officials. These officials  stated that U.S. management can teach local subcontractors how to  manage complex contracts, U.S construction standards, and quality  requirements, while also instructing local laborers in construction  methods.
section_title: Officials: U.S. Contractors May Have Better Accountability
paragraphs: Officials from two Army Corps of Engineers offices told us that U.S.  contractors can be held more accountable if there is an issue with the  construction project. U.S. contractors may also be more responsive to  addressing construction issues. Officials from the U.S. Air Force Civil  Engineer Center told us that when working with a U.S. prime contractor,  the U.S. Air Force Civil Engineer Center may have more control over  payments and warranty calls. The officials stated that if a U.S. contractor  refuses to honor warranty work after finishing and being paid for a fixed- price contract, the U.S. Air Force Civil Engineer Center would be able to  take legal action in a U.S. court.
section_title: Officials: Providing a Preference for U.S. Contractors May Increase the Number of U.S. Contractors Competing for Overseas Work
paragraphs: Officials from five Army Corps of Engineers offices told us that the  contractor preference may enhance the competitiveness of U.S. firms.  One Army Corps of Engineers office told us that the 20 percent price  increase added to offers by non-U.S. contractors allows U.S. companies  to be more competitive by offsetting some of the overhead costs they  face, such as transportation costs. Officials stated that the preference  may have more of an effect in some countries than others. For example,  the preference may have more of an effect in helping U.S. firms be more  competitive in Arabian Gulf countries. These officials said it is their  experience that the difference in price between U.S. and non-U.S.  vendors is usually about 15 percent, so in their view the preference helps  U.S. firms be more competitive.
section_title: Officials: Providing a Preference for U.S. Contractors May Provide Additional Financial Returns to the United States
paragraphs: Officials from three Army Corps of Engineers offices told us that the  United States may see more financial benefits if a U.S. contractor is  awarded a project. These benefits may include tax revenue going to the  United States Treasury as well as the purchase of domestically sourced  equipment or supplies for the construction projects. These officials said  U.S. contractors would pay taxes in the United States, while non-U.S.  contractors would not. Additionally, they said that U.S. contractors may be  more likely to employ U.S. nationals as management staff, who would  also pay taxes in the United States.
section_title: Officials: Providing a Preference for U.S. Contractors May Also Benefit Host-Nation Economies
paragraphs: Officials from two Army Corps of Engineers offices told us that the  preference may contribute to host-nation economies even if a U.S.  contractor wins the bid, because in some countries U.S. contractors  routinely share work with local companies. For example, according to  officials from one Army Corps of Engineers office, foreign contractors  operating in Kuwait must have a Kuwaiti counterpart or sponsor. Because  of this requirement, if a U.S. contractor gets the award, the local economy  will still benefit through a U.S. contractor’s payments for materials, labor,  and sponsorship services. An official from another Army Corps of  Engineers office said contractors operating in Bahrain must be licensed in  that country, and foreign contractors in Bahrain generally partner with  Bahraini-owned contractors or are sponsored by Bahraini-owned  contractors. These measures bring revenue to Bahrain even if a non-local  contractor wins a construction project. According to officials from three  Army Corps of Engineers offices and one Naval Facilities Engineering  Command office, both U.S. and non-U.S. contractors hire from the same  local labor pool, which benefits the local economy regardless of the  nationality of the prime contractor. They said that workers hired onto a  project may be from a variety of countries, benefiting those nations as  well.
section_title: Officials Identified Some Potential Problems with Expanding the U.S. Contractor Preference
paragraphs: DOD and State officials also identified problems they see in providing a  preference to U.S. contractors based on their observations of and  experiences with working with U.S. and non-U.S. contractors in the  officials’ own countries of operation. In addition, while we asked each  office to provide observations on the potential problems of expanding the  preference throughout the CENTCOM area of responsibility, many offices  did not provide responses about the specific potential problems of  expanding the preference. In all cases the information presented below is  a summary of officials’ viewpoints and is not generalizable.
subsections: section_title: Officials: Preference May Be Inconsistent with Other U.S. Public Policy and Security Goals
paragraphs: Officials from three Army Corps of Engineers offices, the U.S. Air Force  Civil Engineer Center, an office within the Office of the Under Secretary of  Defense for Policy, a CENTCOM office, and a U.S. embassy told us that  the preference may counteract U.S. policy goals such as building local  capacity. For example, they said that both civilian and U.S. military  agencies have promoted the Afghanistan First Initiative, which seeks to  award contracts to Afghan-owned firms. One State office told us that the  Afghanistan First Initiative seeks to encourage Afghan ownership on  infrastructure projects as part of its program to build local capacity.  Officials from one State office said while the Afghanistan First Initiative  may not be favorable to U.S. firms seeking to compete for that business,  the overall policy goal is to increase Afghanistan’s self-sufficiency.
Officials from the Office of the Under Secretary of Defense for Policy and  one Army Corps of Engineers office said the economic strength of each of  the countries within the CENTCOM area of responsibility varies  significantly, and the United States has policies to strengthen local  economies by encouraging local procurement, such as CENTCOM’s  Central Asian States and Afghanistan Procurement Initiative.CENTCOM officials stated that these initiatives aim to provide  opportunities for economic expansion, entrepreneurship, and skills  training for the people of the Central Asian states and Afghanistan in  order to maximize positive long-term effects on local economies and  workforces, support economic development, good governance, stability,  and enduring trade and commerce in the region. These officials said a  policy that provides a preference to U.S. contractors could be in conflict  with these existing U.S. policy goals.
section_title: Officials: Preference May Limit Flexibility
paragraphs: The Office of the Under Secretary of Defense for Policy said the  preference may limit senior diplomatic or senior defense officials’ flexibility  to make decisions based on the local security situation, economy, or  infrastructure. CENTCOM officials told us that its component  commanders require maximum flexibility to execute construction  requirements and that there should be an emphasis on maximizing the  use of host-nation companies to support their economic growth, stability,  and capacity development.
section_title: Officials: Preference May Discourage Local Contractors from Competing
paragraphs: Officials from three Army Corps of Engineers offices told us that the  preference may discourage local contractors from competing for  contracts. An official from one of these offices told us that the local  contractors might be discouraged from bidding on a construction project  because they know they can work as subcontractors and do not feel they  need to compete for the contract by reducing their prices.
section_title: Officials: Preference Does Not Address the Difficulty of Construction in CENTCOM Area of Responsibility for U.S. Contractors
paragraphs: Officials from two Army Corps of Engineers offices and the U.S. Air Force  Civil Engineer Center told us that construction in countries in the  CENTCOM area of responsibility can be challenging as a result of the  need to meet host-country requirements. For example, officials from the  U.S. Air Force Civil Engineer Center told us that host nations like the  United Arab Emirates may require a U.S. firm to obtain business licenses  to operate in the host nation, and an official from one Army Corps of  Engineers office said Bahrain also requires foreign firms to obtain  business licenses to operate there. Officials in another Army Corps of  Engineers office told us that Qatar requires that a non-Qatari contractor  have one or more local partners that have at least 51 percent share of the  capital. In addition to local registration, U.S. contractors may lack  knowledge of the local market.
section_title: Agency Comments
paragraphs: DOD and State Department reviewed a draft of this report but did not  provide any comments.
We are sending copies of this report to the appropriate congressional  committees; the Under Secretary of Defense for Acquisitions, Technology  and Logistics; the Under Secretary of Defense for Policy; the  Commanding General and Chief of Engineers, U.S. Army Corps of  Engineers; the Commander, Naval Facilities Engineering Command; the  Chief of Civil Engineers, Naval Facilities Engineering Command; the  Director, U.S. Air Force Civil Engineer Center; the Commander, U.S.  Central Command; the Commander, U.S. Pacific Command; and the  Secretary of State. In addition, the report is available at no charge on the  GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-4523 or leporeb@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: Scope and Methodology
paragraphs: To examine the extent to which the Department of Defense (DOD) has  awarded military construction contracts in accordance with Section 112  since fiscal year 2011, we reviewed Section 112 and DOD’s implementing  guidance, the Defense Federal Acquisition Regulation Supplement  (DFARS), to identify and develop criteria for assessing the department’s  actions. Using the Federal Procurement Data System–Next Generation  and in coordination with DOD officials, we identified the DOD military  construction contracts that were awarded from October 2010 through May  2014 that were valued over $1 million and either were awarded in  countries bordering the Arabian Sea, as mandated by Section 112, or  were awarded in countries bordering the Arabian Gulf, as implemented by  DOD in DFARS. We focused our analysis on contracts awarded in the  Arabian Sea border countries or Arabian Gulf border countries because  those are the locations where the U.S. contractor preference is applicable  to either Section 112 or DFARS. In addition, we focused on these  locations because they include 10 of the 20 countries that may be  included in a potential expansion of the preference throughout the U.S.  Central Command (CENTCOM) area of responsibility. We provided the  contract data identified by the Federal Procurement Data System–Next  Generation to the U.S. Army Corps of Engineers–Middle East District,  which is responsible for managing the contracts located in the Arabian  Gulf and Arabian Sea. We requested that Army Corps of Engineers– Middle East District compare its record of contracts to the Federal  Procurement Data System–Next Generation records of contracts to  determine the accuracy and completeness of the data from the Federal  Procurement Data System–Next Generation. Army Corps of Engineers– Middle East District identified one additional military construction contract  in its area of responsibility that was not identified by the Federal  Procurement Data System–Next Generation, resulting in 77 contracts.
Of those 77 contracts, we then worked with the DOD agencies  responsible for awarding the contracts to determine whether the project  was funded with appropriations that were subject to the preference. In the  cases in which Army Corps of Engineers–Middle East District did not  award the contract, we contacted other DOD offices—including U.S.  Central Command–Joint Theater Support Contracting Command, Air  Force Material Command, Air Combat Command, Air Force Central  Command, Army Contracting Command, and Army Material Command— to obtain contract documentation to determine whether the contract was  awarded with appropriations subject to the preference. Through this  process, Army Corps of Engineers–Middle East District and the other  DOD agencies responsible for managing these awards found that 29 of  the 77 contracts were subject to the U.S. contractor preference. For the  remaining 48 contracts, we worked with the responsible DOD agencies to  determine why those awards were not subject to the preference. As  shown in figure 4, the remaining 48 contracts were not military  construction contracts and therefore not eligible for the preference.
For the 29 contracts that were subject to the preference in accordance  with DFARS, we then obtained and analyzed contract documentation for  those awards to determine (1) whether DOD included the preference  language, (2) whether the 20 percent preference was applied to the  proposed offers of competing non-U.S. firms, (3) whether the preference  affected the award.the preference in accordance with DFARS, we found a military  construction–operations and maintenance contract that the Army Corps of  Engineers had incorrectly applied the preference to; however, we did not  include this contract in our analysis since this type of contract was not  covered by either Section 112 or the DFARS provision—and was thus  outside of the scope of our engagement.
In addition to these 29 contracts that were subject to  To determine the extent to which DOD awarded military construction  contracts on U.S. territories in the Pacific and on the Kwajalein Atoll in  accordance with Section 112 we requested data from Naval Facilities  Engineering Command and Army Corps of Engineers–Honolulu District,  which are responsible for military construction in those respective  locations. The Naval Facilities Engineering Command identified two  construction projects awarded in Guam that were subject to the U.S.  contractor preference provision. The Army Corps of Engineers–Honolulu  District identified four military construction contracts associated with  projects on Kwajalein Atoll that were subject to these provisions.
We assessed the reliability of the Federal Procurement Data System– Next Generation and Army Corps of Engineers data by reviewing related  documentation, interviewing knowledgeable officials, and testing the data  for obvious errors and completeness. We concluded the data were  sufficiently reliable to determine the extent to which DOD awarded military  construction contracts in accordance with Section 112 since fiscal year  2011.
We interviewed the following U.S. government offices during this  engagement:
Office of the Under Secretary of Defense for Policy;
Office of the Under Secretary of Defense for Acquisition, Technology
Army Corps of Engineers Headquarters;
Army Corps of Engineers–Middle East District;
Army Corps of Engineers–Kuwait Area Office;
Army Corps of Engineers–Bahrain Area Office;
Army Corps of Engineers–Qatar Area Office;
Army Corps of Engineers–United Arab Emirates / Central Asian
Army Corps of Engineers Transatlantic Division–Afghanistan;
Army Corps of Engineers–Honolulu District;
U.S. Air Force Civil Engineer Center;
U.S. Pacific Command Headquarters;
U.S. Central Command Headquarters;
Naval Facilities Engineering Command;
U.S. Department of State Headquarters;
U.S. Embassy Oman;
U.S. Embassy Bahrain;
U.S. Embassy Afghanistan;
U.S. Embassy United Arab Emirates;
U.S. Embassy Kyrgyzstan;
U.S. Embassy Turkmenistan; and
U.S. Agency for International Development–Kabul.
To describe DOD and Department of State (State) officials’ observations  on potential benefits and problems to expanding Section 112 to include all  countries in the CENTCOM area of responsibility, we reviewed and  identified guiding principles of the federal acquisition system as stated in  the Federal Acquisition Regulation. These principles include (1)  delivering the best-value product or service to the customer in a timely  manner using contractors with successful track records or superior ability  to perform; (2) promoting competition; (3) minimizing administrative costs;  (4) promoting openness, integrity, and fairness; and (5) fulfilling public  policy objectives. To identify the potential benefits and problems of  expanding the preference, we interviewed officials from DOD, State, and   and asked  a private-sector association with knowledge about this issue,them about the effect of the preference on those guiding principles. We  also asked officials about their general views on the preference as it has  been applied and the potential expansion of the preference to all  countries within the CENTCOM area of responsibility. In all cases, the  information presented is a summary of officials’ viewpoints, is not  generalizable, and was not subject to further analysis by GAO.
We conducted this performance audit from March 2014 through  November 2014 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Tommy Baril (Assistant Director);  Jacob Beier; Richard Burkard; Virginia Chanley; Tara Copp; Ashley Hess;  Julia Kennon; Joanne Landesman; Amie Lesser; Carol Petersen; Marc  Schwartz; Kimberly Walton; and Weifei Zheng made key contributions to  this report.