Federal Contracting: Use of Contractor Performance Information
Published: 2007-07-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The federal government is the largest single buyer in the world, obligating over $400 billion in fiscal year 2006 for a wide variety of goods and services. Because contracting is so important to how many agencies accomplish their missions, it is critical that agencies focus on buying the right things the right way. This includes ensuring that contracts are awarded only to responsible contractors, and that contractors are held accountable for their performance. Use of contractor performance information is a key factor in doing so. This testimony covers three main areas concerning the use of contractor performance information: (1) the various ways in which a contractor's performance may be considered in the contracting process; (2) how information on past performance is to be used in selecting contractors, as well as the various mechanisms for how that occurs; and (3) some of the key issues that have arisen in considering past performance in source selection, as seen through the prism of GAO's bid protest decisions. GAO has previously made recommendations for improving the use of contractor performance information, but is not making any new recommendations in this testimony.
section_title: What GAO Found
paragraphs: The government contracting process provides for consideration of various aspects of contractor performance at multiple points: (1) Source selection: Past performance is required to be an evaluation factor in selecting contractors, along with factors such as price, management capability, and technical approach to the work. (2) Responsibility determinations: Once a contractor is selected for award, the contracting officer must make a responsibility determination that the prospective awardee is capable and ethical. This includes, for example, whether the prospective awardee has a satisfactory performance record on prior contracts. (3) Surveillance under the current contract: Once a contract is awarded, the government monitors a contractor's performance throughout the performance period, which may serve as a basis for performance evaluations in future source selections. (4) Debarment: To protect the government's interests, agencies can debar, that is preclude, contractors from receiving future contracts for various reasons, including serious failure to perform to the terms of a contract. Agencies are required to consider past performance in all negotiated procurements above the simplified acquisition threshold of $100,000 and in all procurements for commercial goods or services. Although past performance must be a significant evaluation factor in the award process, agencies have broad discretion to set the precise weight to be afforded to past performance relative to other factors in the evaluation scheme. Whatever they decide about weights, agencies must evaluate proposals in accordance with the evaluation factors set forth in the solicitation, and in a manner consistent with applicable statutes and regulations. In evaluating an offeror's past performance, the agency must consider the recency and relevance of the information to the current solicitation, the source and context of the information, and general trends in the offeror's past performance. The key consideration is whether the performance evaluated can reasonably be considered predictive of the offeror's performance under the contract being considered for award. Although a seemingly simple concept, using past performance information in source selections can be complicated in practice. GAO bid protest decisions illustrate some of the complexities of using past performance information as a predictor of future contractor success. Some of the questions raised in these cases are: (1) Who: Whose performance should the agencies consider? (2) What: What information are agencies required or permitted to consider in conducting evaluations of past performance? (3) When: What is the period of time for which agencies will evaluate the past performance of contractors? (4) Where: Where do agencies obtain contractor performance information?

section_title: Letter
paragraphs: Thank you for inviting me here today to discuss the use of contractor  performance information. The federal government is the largest single  buyer in the world, obligating over $400 billion in fiscal year 2006 for a  wide variety of goods and services. Spending on contracts across the  government has increased significantly in recent years and currently  represents about a quarter of discretionary spending governmentwide.  Because contracting is so important to how many agencies accomplish  their missions, it is critical that agencies focus on buying the right things  the right way. This includes ensuring that contracts are awarded only to  responsible contractors, and that contractors are held accountable for  their performance.
Today I would like to cover three main areas concerning the use of  contractor performance information. First, I will discuss the various ways  in which a contractor’s performance may be considered in the contracting  process. Second, I will discuss in more detail how information on past  performance is to be used in selecting contractors, as well as the various  mechanisms for how that occurs. And third, I will highlight some of the  key issues that have arisen in considering past performance in source  selection, as seen through the prism of GAO’s bid protest decisions.
In preparing this statement, we analyzed federal statutes, regulations, and  government-wide guidance, as well as more specific guidance from the  Departments of Defense (DOD), Energy (DOE), and Homeland Security  (DHS) concerning the use of contractor past performance information in  awarding contracts. We selected these agencies because they were the  three largest agencies in terms of federal contracting dollars obligated  during fiscal year 2006. We also reviewed prior GAO reports on related  topics, as well as relevant bid protest decisions. This statement is based  primarily on prior GAO work that was conducted in accordance with  generally accepted government auditing standards.
subsections: section_title: Contractor Performance Is to Be Considered at Multiple Points in the Contracting Process
paragraphs: The government contracting process provides for consideration of various  aspects of contractor performance at multiple points:    Past performance as source selection factor: Only relatively recently  have federal agencies been required to consider past performance in  selecting their contractors. In 1997, the Federal Acquisition Regulation  (FAR) was modified to require that agencies consider past  performance information as an evaluation factor in source selection.
Past performance is now required to be an evaluation factor in  selecting contractors, along with factors such as price, management  capability, and technical approach to the work.
Responsibility determinations: Once a contractor is selected for  award, the contracting officer must make an affirmative determination  that the prospective awardee is capable and ethical. This is known as a  responsibility determination, and includes, for example, whether a  prospective awardee has adequate financial resources and technical  capabilities to perform the work, has a satisfactory record of integrity  and business ethics, and is eligible to receive a contract under  applicable laws and regulations. As part of the responsibility  determination, the contracting officer also must determine that the  prospective awardee has a “satisfactory performance record” on prior  contracts. This determination of the prospective awardee’s  responsibility is separate from the comparison of the past performance  of the competing offerors conducted for purposes of source selection.
Surveillance of performance under the current contract: Once a  contract is awarded, the government should monitor a contractor’s  performance throughout the performance period. Surveillance includes  oversight of a contractor’s work to provide assurance that the  contractor is providing timely and quality goods or services and to help  mitigate any contractor performance problems. An agency’s monitoring  of a contractor’s performance may serve as a basis for past  performance evaluations in future source selections. GAO reported in  March, 2005 on shortfalls at DOD in assigning and training contract  surveillance personnel, and recommended improvements in this area.
Suspension and debarment: Contractor performance also comes into  play in suspensions and debarments. A suspension is a temporary  exclusion of a contractor pending the completion of an investigation or  legal proceedings, while a debarment is a fixed-term exclusion lasting  no longer than 3 years. To protect the government’s interests, agencies  can debar contractors from future contracts for various reasons,  including serious failure to perform to the terms of a contract.  Suspensions and debarments raise a whole set of procedural and policy  issues beyond past performance, not the least of which is the question  of whether these are useful tools in an environment in which recent  consolidations have resulted in dependence on fewer and larger  government contractors. Questions have also been raised about  whether delinquent taxes or an unresolved tax lien should result in  suspension or debarment. A proposed revision to the FAR would list  these tax issues as grounds for suspension or debarment. In July 2005,  GAO reported on the suspension and debarment process at several  federal agencies and recommended ways to improve the process.
section_title: Past Performance Should Play a Key Role in Source Selection
paragraphs: In the Federal Acquisition Streamlining Act (FASA) of 1994, Congress  stated that in the award of contracts, agencies should consider the past  performance of contractors to assess the likelihood of successful  performance of the contract. FASA required the adoption of regulations to  reflect this principle, and the FAR now requires the consideration of past  performance in award determinations. The Office of Federal Procurement  Policy (OFPP) has issued guidance on best practices for using past  performance information in source selection, and individual agencies have  issued their own guidance on implementing the FAR requirements.
For agencies under the FAR, a solicitation for a contract must disclose to  potential offerors all evaluation factors that will be used in selecting a  contractor. Agencies are required to consider past performance in all  negotiated procurements above the simplified acquisition threshold of  $100,000 and in all procurements for commercial goods or services.  Although past performance must be a significant evaluation factor in the  award process, agencies have broad discretion to set the precise weight to  be afforded past performance relative to other factors in the evaluation  scheme. Whatever they decide about weights, agencies must evaluate  proposals in accordance with the evaluation factors set forth in the  solicitation, and in a manner consistent with applicable statutes and  regulations. Agencies must allow offerors to identify past performance  references in their proposals, but also may consider information obtained  from any other source. In evaluating an offeror’s past performance, the  agency must consider the recency and relevance of the information to the  current solicitation, the source and context of the information, and the  general trends in the offeror’s past performance. Offerors who do not have  any past performance may not be evaluated favorably or unfavorably. That  is, they must receive a neutral rating.
In addition, the OFPP has issued guidance on best practices for  considering past performance data. Consistent with the FAR, OFPP  guidance states that agencies are required to assess contractor  performance after a contract is completed and must maintain and share  performance records with other agencies. The guidance encourages  agencies to make contractor performance records an essential  consideration in the award of negotiated acquisitions, and gives guidelines  for evaluation. It also encourages agencies to establish automated  mechanisms to record and disseminate performance information. If  agencies use manual systems, the data should be readily available to  source selection teams. Performance records should specifically address  performance in the areas of: (1) cost, (2) schedule, (3) technical  performance (quality of product or service), and (4) business relations,  including customer satisfaction, using a five-point rating scale.
Agencies may also issue their own supplemental regulations or guidance  related to past performance information. All of the three largest  departments in federal procurement spending - the Department of  Defense, the Department of Energy, and the Department of Homeland  Security - provide at least some additional guidance in the use of past  performance data, addressing aspects such as the process to be followed  for considering past performance during contract award and what systems  will be used to store and retrieve past performance data. Below are some  examples that illustrate the types of guidance available.
DOD offers instruction on using past performance in source selection  and contractor responsibility determinations through the Defense  Federal Acquisition Regulation Supplement and related Procedures,  Guidance, and Information. DOD’s Office of Defense Procurement and  Acquisition Policy also has made available a guide that provides more  detailed standards for the collection and use of past performance  information, including criteria applicable to various types of contracts.
DOE also provides additional guidance to contracting officers in the  form of an acquisition guide that discusses current and past  performance as a tool to predict future performance, including  guidelines for assessing a contractor’s past performance for the  purpose of making contract award decisions as well as for making  decisions regarding the exercise of contract options on existing  contracts.
At DHS, the department’s supplemental regulations outline which  systems contracting officers must use to input and retrieve past  performance data. Specifically, contracting officers and contracting  officer representatives are required to input contractor performance  data into the Contractor Performance System, managed by the National  Institutes of Health, and use the Past Performance Information  Retrieval System (PPIRS) - which contains contractor performance  ratings from multiple government systems - to obtain information on  contractor past performance to assist with source selection.
section_title: Issues in Using Past Performance in Source Selection
paragraphs: Although a seemingly simple concept, using past performance information  in source selection can be complicated in practice. GAO has not evaluated  the practices that agencies use regarding contractor past performance  information in source selection or whether those practices promote better  contract outcomes. Our bid protest decisions, however, illustrate some of  the complexities of using past performance information as a predictor of  future contractor success. Some of these issues are listed below. In all of  these cases, the key consideration is whether the performance evaluated  can reasonably be considered predictive of the offeror’s performance  under the contract being considered for award.
Who: One issue is whose performance agencies should consider.
Source selection officials are permitted to rate the past performance of  the prime contractor that submits the offer, the key personnel the  prime contractor plans to employ, the major teaming partners or  subcontractors, or a combination of any or all of these. For example, in  one case, GAO found that the agency could consider the past  performance of a predecessor company because the offeror had  assumed all of the predecessor’s accounts and key personnel, technical  staff, and other employees. In another case, GAO held that an agency  could provide in a solicitation for the evaluation of the past  performance of a corporation rather than its key personnel.
What: Also at issue is what information agencies are required or  permitted to consider in conducting evaluations of past performance.  The issue is one of relevancy. Agencies must determine which of the  contractor’s past contracts are similar to the current contract in terms  of size, scope, complexity, or contract type. For example, is past  performance building single family homes relevant to a proposal to  build a hospital? Agencies do not have to consider all available past  performance information. However, they should consider all  information that is so relevant that it cannot be overlooked, such as an  incumbent contractor’s past performance. In one case, GAO found that  an agency reasonably determined that the protester’s past performance  on small projects was not relevant to a contract to build a berthing  wharf for an aircraft carrier.
When: Agencies also have to determine the period of time for which  they will evaluate the past performance of contractors. Agencies are  required to maintain performance data for 3 years after the conclusion  of a contract although agencies have discretion as to the actual length  of time they consider in their evaluation of past performance and  could, for example, choose a period longer than 3 years. In one case,  GAO held that although the solicitation required the company to list  contracts within a 3-year time frame, the agency could consider  contract performance beyond this timeframe because the solicitation  provided that the government may “consider information concerning  the offeror’s past performance that was not contained in the  proposal.”
Where: Once agencies determine who they will evaluate, what  information they will consider, and the relevant time frame, they still  may have difficulties obtaining past performance information. Agencies  can obtain past performance information from multiple sources,  including databases such as PPIRS - a centralized, online database that  contains federal contractor past performance information. However, in  2006, the General Services Administration noted that PPIRS contains  incomplete information for some contractors. Agencies may also  obtain information from references submitted with proposals and  reference surveys. One case illustrates how an agency evaluated a  company based on limited past performance information. The agency  assigned the company a neutral rating because the agency did not  receive completed questionnaires from the company’s references  listing relevant work and the solicitation provided that it was the  company’s obligation to ensure that the past performance  questionnaires were completed and returned.
These are just some of the many issues that have been the subject of  protests involving the use of past performance. Our cases are not  necessarily representative of what may be occurring throughout the  procurement system, but they do provide a window that allows us to get a  glimpse of how the issue is handled across a number of agencies. At a  minimum, however, our cases suggest that the relatively straightforward  concept of considering past performance in awarding new contracts has  given rise to a number of questions that continue to surface as that  concept is implemented.
Mr. Chairman, this concludes my statement. I would be happy to respond  to any questions you or other Members of the Subcommittee may have at  this time.
For further information regarding this testimony, please contact William T.  Woods at (202) 512-4841 or woodsw@gao.gov. Individuals making key  contributions to this testimony included Carol Dawn Petersen, E. Brandon  Booth, James Kim, Ann Marie Udale, Anne McDonough-Hughes, Kelly A.  Richburg, Marcus Lloyd Oliver, Michael Golden, Jonathan L. Kang,  Kenneth Patton, and Robert Swierczek.
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