Defense Contracting: Competition for Services and Recent Initiatives to Increase Competitive Procurements
Published: 2012-03-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Competition is a critical tool for achieving the best return on investment for taxpayers. In fiscal year 2011, the Department of Defense (DOD) obligated about $375 billion through contracts; more than half that amount was for services. Agencies are required to award contracts on the basis of full and open competition, but are permitted to award noncompetitive contracts in certain situations.
The Senate Armed Services Committee report on the National Defense Authorization Act for Fiscal Year 2012 directed GAO to report on competition for DOD contracts and task orders for services. GAO examined (1) how competition rates for services compare to competition rates for products and trends in competition for services, (2) the reasons for noncompetitive contracts and task orders for services, and (3) steps DOD has taken to increase competition.
GAO reviewed federal procurement data for 2007 through 2011 and a non-generalizable sample of 111 justifications for noncompetitive awards, which were from different DOD components and for different types of services. GAO defines competition rates as the dollars obligated under competitive contracts and task orders as a percentage of all obligations. GAO focused on non-research and development (R&D) services to concentrate analysis on contracts not related to development of weapons systems. GAO reviewed DOD policies and competition reports, and prior GAO reports.
GAO is not making any new recommendations. DOD responded to a draft of this report with no comments.
section_title: What GAO Found
paragraphs: In fiscal year 2011, the competition rate for DODs non-R&D services was almost twice the competition rate as that of products, and almost 20 percent higher than that of R&D services.
From fiscal year 2007 through 2011, competition rates for non-R&D services have been nearly 80 percent and have not changed significantly across DOD, but have declined at the Air Force, dropping from 75 percent to 59 percent. According to a DOD procurement policy official, the Air Force competition advocate is assessing the reasons for lower competition rates. When non-DOD agencies procured non-R&D services on behalf of DOD in fiscal year 2011, their average competition rate was 81 percent, slightly higher than the average rate of 78 percent for DODs own contracting offices.
The majority of DOD noncompetitive obligations for non-R&D services in fiscal year 2011 were due to the contractor being the only responsible source for the procurement. The second most cited exception was authorized by statute, for example, awards under the Small Business Administrations 8(a) business development program. Based on prior GAO work, a variety of factors can affect competition, including reliance on contractor expertise and data rights, the influence of program offices, and unanticipated events such as bid protests. GAO analysis of the justifications for noncompetitive contracts identified examples of these factors affecting competition for DOD procurements in fiscal year 2011.
Since 2009, the Office of Management and Budget (OMB) and DOD have undertaken initiatives related to competition, including actions to address some opportunities GAO previously identified. DOD has taken steps aimed at increasing competition, in particular effective competition which DOD defines as situations where more than one offer is received in response to a competitive solicitation. For instance, DOD has implemented requirements to provide additional response time to solicitations when only one offer is received for a solicitation that initially provided less than 30 days for receipt of proposals. Outside of recent efforts to increase competition, OMB and DOD have additional opportunities to address prior GAO recommendationssuch as promoting the role of program officials in influencing competition and better understanding the circumstances leading to only one offer on competitive contracts.

section_title: Letter
paragraphs: Competition is a cornerstone of the federal acquisition system and a  critical tool for achieving the best possible return on investment for  taxpayers. Competitive contracts can help save money, conserve scarce  resources, improve contractor performance, curb fraud, and promote  accountability. In fiscal year 2011, the Department of Defense (DOD)  obligated about $375 billion through contracts; more than half of that  amount was for services. In recognizing the need to make more efficient  use of resources, DOD’s 2010 “Better Buying Power” initiative placed an  emphasis on maximizing opportunities for competition in the acquisition of  products and services.
While the Competition in Contracting Act (CICA) of 1984 generally  requires federal agencies to award contracts using full and open  competition, agencies are allowed to award contracts noncompetitively  under certain circumstances. Generally, noncompetitive contracts must  be supported by written justifications and approvals (J&A) that address  the specific exception to full and open competition that is being applied to  the procurement. In addition, federal agencies can establish indefinite  delivery/indefinite quantity (IDIQ) contracts with one or more contractors  and issue orders under these contracts. When more than one contractor  is involved, agencies are generally required to provide all contractors a  fair opportunity to be considered for each order above certain dollar  thresholds; however, agencies can award noncompetitive orders under a  process called an exception to the fair opportunity process—again with a  documented justification. For purposes of this report, we consider use of  the fair opportunity process to be competition. Finally, the General  Services Administration (GSA), under its schedules program, awards  IDIQ contracts to multiple vendors for commercially available goods and  services, and federal agencies place orders under the contracts. When  doing so noncompetitively, procuring agencies must justify the need to  restrict the number of vendors considered, known as a limited sources  justification and approval.
The Senate Armed Services Committee report on the National Defense  Authorization Act for Fiscal Year 2012 expressed concerns that DOD may  not be competing service contracts as much as it could. The Senate  committee report directed us to report on competition for DOD contracts  and task orders for services. Accordingly, we examined (1) how  competition rates for services compare to competition rates for products,  and trends in competition for services; (2) the reasons for noncompetitive  contracts and task orders for services; and (3) steps DOD has taken to  increase competition for services.
FPDS-NG is the government’s procurement database. We assessed the reliability of  FPDS-NG data by (1) performing electronic testing of required data elements, and (2)  reviewing existing information about the data and the system that produced them. We  determined that the data were sufficiently reliable for the purposes of this report.
FAR 16.505(b) or under limited sources provisions for orders issued  under GSA’s schedules program in FAR Subpart 8.405-6.
We calculated competition rates as the percentage of dollars obligated  annually through competitive contracts and orders to dollars obligated  through all contracts and orders. While we focused our analysis of FPDS- NG on non-research and development (R&D) services to concentrate our  analysis on contracts not related to development of weapons systems, we  assessed fiscal year 2011 competition rates for R&D services and  compared them to competition rates for non-R&D services and for  products. We also identified trends in competition rates for non-R&D  services at DOD and its components from fiscal year 2007 through 2011.  For the purposes of this report, we divided DOD into four components: Air  Force, Army, Navy, and other defense agencies. competition rates for the non-DOD organizations that obligated funds for  services on DOD’s behalf through the use of interagency contracting in  fiscal year 2011. Interagency contracting allows an agency needing  contracting services (the requesting agency) to obtain them from another  agency (the assisting agency) by an assisted or a direct acquisition and,  when used correctly, can offer improved efficiency in the procurement  process. All competition rate information was based on our analysis of  FPDS-NG data. We present the trend data in this report, but did not  determine the reasons for any fluctuations in trends over time. We did not  assess competition rates for contracts related to specific circumstances,  such as contracts in support of contingency operations.
Other defense agencies data include obligations made by any DOD contracting office  that is not part of the Air Force, Army, or Navy. These include, but are not limited to:  Defense Logistics Agency, Defense Supply Center, Defense Contract Management  Agency, Defense Information Technology Contracting Organization, Missile Defense  Agency, TRICARE Management Activity, and Defense Threat Reduction Agency. highest DOD obligations as well as the J&As requiring the highest level of  review within the department. We selected justifications that were posted  to the FedBizOpps.gov website in fiscal year 2011 and also reviewed  J&As provided by DOD components in response to our request for all  J&As approved by senior procurement executives in fiscal year 2011.  Some of these documents were for a mix of products and services  providing weapons system support. We did not evaluate the J&As for  completeness or reasonableness or validate how they were coded in  FPDS-NG.
To identify steps DOD has taken to increase competition, we reviewed  recently issued GAO reports and previous interviews with DOD  acquisition officials including component competition advocates. We also  reviewed Office of Management and Budget (OMB) and DOD policies  and guidance related to competition, and DOD competition reports for  fiscal years 2009 and 2010.
A more detailed description of our scope and methodology is presented in  appendix I. Appendix II contains additional information on competition  rates for various categories of services and by DOD component. We  conducted this performance audit from September 2011 to March 2012,  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
paragraphs: Federal agencies are generally required to use full and open competition  to award contracts, with certain exceptions. This requirement was  established through CICA, which required agencies to obtain full and  open competition through the use of competitive procedures in their  procurement activities unless otherwise authorized by law.  Using full  and open competition to award contracts means that all responsible  sources—or prospective contractors that meet certain criteria—are  permitted to submit proposals. Agencies are generally required to perform  acquisition planning and conduct market research to promote and provide  for, among other things, full and open competition. However, Congress,  by enacting CICA, also recognized that there are situations that require or  allow for contracts to be awarded noncompetitively—that is, without full  and open competition. Generally, noncompetitive contracts must be  supported by written J&As that contain sufficient facts and rationale to  justify the use of the specific exception to full and open competition that is  being applied to the procurement. Examples of allowable exceptions  include circumstances where the contractor is the only source capable of  performing the requirement or where an urgent need precludes adequate  time for competition. Justifications generally are required to be published  on the FedBizOpps.gov website and must be approved at levels that vary  according to the dollar value of the procurement. J&As may be made for  an individual procurement or on a class basis for a group of related  acquisitions. Noncompetitive contracts are not permitted in situations in  which the requiring agency has failed to adequately plan for the  procurement or in which there are concerns related to availability of  funding for the agency, such as funds expiring at the end of the year.
Although full and open competition is generally required, agencies can  also competitively award contracts after limiting the pool of available  contractors—a process called “full and open competition after exclusion  of sources.” For example, agencies set aside procurements for small  businesses. In these cases, agencies are required to set aside  procurements for competition among qualified small businesses if there is  a reasonable expectation that two or more responsible small businesses  will compete for the work and offer fair market prices.
subsections: section_title: Competitive Requirements for Indefinite Delivery / Indefinite Quantity Contracts
paragraphs: When agencies issue task orders under IDIQ contracts, they are required  to follow different procedures than those for full and open competition. As  established under the Federal Acquisition Streamlining Act (FASA) of  1994, IDIQ contracts can be single award (to one contractor) or multiple  award (to more than one contractor through one solicitation), but FASA  establishes a preference for multiple award contracts. Agencies are  generally required to compete orders on multiple award contracts among  all contract holders. However, agencies can award noncompetitive  orders—through a process called an exception to a fair opportunity to be  considered—for reasons similar to those used for awarding contracts  without full and open competition, such as only one contractor being  capable of providing the supplies or services needed, or for an urgent  requirement. As with noncompetitive contracts, the reasons for issuing  task orders under multiple award IDIQ contracts under an exception to  the fair opportunity process must generally be documented in writing and  approved at levels that vary according to the dollar value of the  procurement.
GSA, under its schedules program, awards IDIQ contracts to multiple  vendors for commercially available goods and services, and federal  agencies place orders under the contracts. Ordering procedures under  the schedules program vary according to the dollar value of the  procurement. For example, to meet competition requirements for orders  exceeding the micro-purchase threshold ($3,000) but not exceeding the  simplified acquisition threshold ($150,000), agencies must survey or  request quotes from at least three schedule contractors. However, to  meet competition requirements for proposed orders exceeding the  simplified acquisition threshold, agencies must post a request for  quotation on GSA’s posting website or provide it to as many schedule  contractors as practicable to reasonably ensure that agencies receive at  least three quotes from contractors that can fulfill the requirement.  Agencies must document in the file if fewer than three quotes are  received from contractors capable of fulfilling the requirement. For  orders issued noncompetitively under the schedules program, the  ordering agency must justify in writing—with specific content required by  the FAR—the need to restrict competition and also obtain approval at the  same dollar values and by the same officials as for contracts awarded  without full and open competition.
section_title: Competitive Procurements Where Only One Offer Is Received
paragraphs: Contracts that are awarded using competitive procedures but for which  only one offer is received have recently gained attention as an area of  concern. OMB’s Office of Federal Procurement Policy recently noted  that competitions that yield only one offer in response to a solicitation  deprive agencies of the ability to consider alternative solutions in a  reasoned and structured manner. Under DOD’s Better Buying Power  policy, competitive procurements where only one offer to a solicitation  was received even when publicized under full and open competition are  termed as “ineffective competition.” The Navy has identified the potential  for cost savings when effective competition is achieved. Specifically, in  2010, the Navy conducted a commodity study on the acquisition of  information technology services that identified cost savings when more  than one offer was received. Currently, FPDS-NG distinguishes these  contracts by recording how many offers were received on any  procurement.
section_title: Competition Rates for Non-R&D Services Substantially Higher Than for Products with Little Change over Time
paragraphs: In fiscal year 2011, the competition rate for dollars obligated across DOD  on contracts and task orders for non-R&D services was substantially  higher than the competition rate for products—78 percent compared to  41 percent. R&D services had a competition rate of 59 percent. (See  figure 1.) DOD’s overall competition rate for all services and products was  58 percent. According to a DOD procurement policy official, non-R&D  services may be more commercial in nature than products, so there are  more providers available to compete for these contracts. In contrast, the  official said that opportunities for competition for R&D services are limited  because they are generally provided by a limited number of vendors,  such as university research laboratories, which each have their own area  of specialized expertise.
From fiscal years 2007 through 2011, the rate at which non-R&D services  were competed did not change significantly across DOD, the Army, or the  Navy. Across DOD, competition rates went from 79 percent in 2007 to  78 percent in 2011. Among the major components, the Air Force had a  significant decline, dropping from 75 percent to 59 percent. According to a  DOD procurement policy official, the Air Force competition advocate is  assessing the reasons for lower competition rates. Other defense  agencies had a small increase in competition rates, from 85 percent to  89 percent. (See figure 2.)
Competition rates for obligations on only new contracts and orders for  non-R&D services across DOD over the same 5-year period exhibited the  same general trend as for obligations on all non-R&D services contracts  and orders, with two main exceptions. The competition rate for new  actions at the Navy declined, from 76 percent to 71 percent, and the  competition rate at other defense agencies increased significantly, from  78 percent to 91 percent. In fiscal year 2011, almost half of obligations for  non-R&D services were made on new contracts and task orders awarded  in that year. The remaining obligations were under contracts and task  orders that had been awarded in prior years.
We also examined competition rates for non-DOD agencies providing  assisted acquisition services to DOD. These agencies are commonly  referred to as assisting agencies. For example, in fiscal year 2011,  Department of the Interior (Interior) and GSA contracting offices, among  other agencies, obligated a total of $3.8 billion in DOD funds for non-R&D  services. While the assisting agencies had varying competition rates, their  average competition rate was slightly higher than that of DOD’s  contracting offices—81 percent compared to 78 percent. However, one  non-DOD contracting office within Interior, which was among the assisting  agencies with the highest DOD obligations, had a substantially lower  competition rate for non-R&D services—51 percent. (See figure 3.) A  DOD procurement policy official stated that the competition advocates do  not currently track competition rates by assisting agencies as part of their  overall competition assessments.
section_title: Majority of Noncompetitive Awards Coded as “Only One Responsible Source” and Competition Rates Were Affected by Several Key Factors
paragraphs: Based on our analysis of FPDS-NG data, in fiscal year 2011 the majority  of DOD’s noncompetitive non-R&D services contracts and task orders  were coded under the “only one responsible source” category. In addition,  based on our prior work, a variety of factors can affect competition,  including reliance on contractor expertise and data rights, the influence of  program offices on the acquisition process, and unanticipated events  such as bid protests.
subsections: section_title: Majority of DOD Non-R&D Services Noncompetitive Obligations Were Coded under “Only One Responsible Source”
paragraphs: In fiscal year 2011, the majority of DOD’s non-R&D services obligations  under noncompetitive contracts and task orders not coded as subject to  fair opportunity were coded under the competition exception “only one  responsible source” in FPDS-NG. The second most cited exception was  “authorized by statute.” Together, these two exceptions comprised more  than 80 percent of all obligations on noncompetitive contract actions.See figure 4 for obligations across competition exceptions for  noncompetitive non-R&D services contracts and task orders not subject  to fair opportunity.
Major weapon systems programs have cited the “only one responsible  source” exception to justify not competing large contract actions in class  J&As. Under a class J&A, one justification supports not competing  consolidated product and service requirements across DOD activities and  multiple programs. In our review of J&As, we identified several examples  where DOD cited the “only one responsible source” exception,  including:
The Air Force justified a $200.7 million noncompetitive contract under  a class J&A to a subcontractor of one of its long-standing incumbent  contractors for communication equipment and support services for an  aircraft system. Market research indicated that the subcontractor was  the only source of the equipment and services, and by eliminating  pass-through costs associated with subcontracting the Air Force could  save up to $66 million or 33 percent of the estimated contract value.
The Army justified extending an $8.3 million task order  noncompetitively for training and support services for soldiers going  into and returning from overseas deployment following a decision to  change the location where the services would be required under a  planned follow-on competitive procurement. The J&A noted that  planning for the follow-on contract had started in December 2009, but  in late October 2010 the contracting office learned that all required  support services would be fully transferred to other Army locations by  December 2011. According to the J&A, officials noted that it would not  be advantageous to pursue full and open competition for a 1-year  service contract.
Noncompetitive obligations categorized as “authorized by statute” include  contracts that are authorized or required to be made through another  agency or from a specified source, including awards under the HUBZone  Act of 1997, the Veterans Benefit Act of 2003, and the Small Business  Administration’s 8(a) business development program. For example, the  Defense Commissary Agency cited this exception for a noncompetitive  contract for emergency repairs valued at $308,759 to a service disabled  veteran-owned small business. The agency urgently needed to upgrade  its computer room air conditioning and noted that the contractor had  performed similar work in the past with excellent results.
In addition, 5 percent of noncompetitive obligations on contracts and task  orders not subject to fair opportunity were categorized under the “national  security” exception, which is used when the disclosure of the agency’s  needs would compromise national security. This exception, however, is  not to be used merely because the acquisition is classified or because  access to classified matter is necessary.
Task orders issued under multiple award contracts and coded as subject  to the fair opportunity process represented only 12 percent of  noncompetitive non-R&D services obligations in fiscal year 2011. Of the  over $4 billion obligated under noncompetitive non-R&D task orders that  were subject to the fair opportunity process, over 80 percent were coded  under two exceptions to the fair opportunity process in FPDS-NG.  Specifically, “follow-on action following competitive initial action” was cited  for 46 percent of the obligations and “only one source” was cited for  36 percent. Agencies can noncompetitively award a logical follow-on to  an order already issued under an IDIQ contract if all awardees were given  a fair opportunity to be considered for the original order.
section_title: Several Key Factors Influence Competition for Service Contracts
paragraphs: In July 2010, we identified key factors affecting competition, including  reliance on contractor expertise and proprietary data. Also, program  officials can influence competition by expressing vendor preferences,  planning acquisitions poorly, or specifying overly restrictive  requirements. Unanticipated events such as bid protests or unforeseen  requirements with time frames that preclude competition can also impact  competition.
We have previously reported that DOD needs access to technical data  related to its weapon systems in order to help control costs and maintain  flexibility in the acquisition and sustainment of those weapon systems.  Technical data can enable the government to complete maintenance  work in-house, as well as to competitively award acquisition and  sustainment contracts. For contracts pertaining to DOD weapons  programs, which can involve products as well as support services, the  lack of access to proprietary technical data and a heavy reliance on  specific contractors for expertise limit, or even preclude the possibility of,  competition. Even when technical data are not an issue, the government  may have little choice other than to rely on the contractors that were the  original equipment manufacturers, and that, in some cases, designed and  developed the weapon system.
In our review of selected fiscal year 2011 J&As, we identified many  instances where DOD lacked either the expertise or the technical data  necessary to conduct a full and open competition. Two examples, which  were justified under the “only one responsible source” competition  exception, are:
The Navy approved a class J&A for noncompetitive contract actions  valued at $2.3 billion to acquire the next generation of aircraft along  with supporting supplies and services. Officials noted that the  contractor had been the sole designer, developer, and manufacturer  of the system since 1964 and would not sell the government the  technical data required to compete the acquisition.
The Army justified a noncompetitive $455.3 million contract to  remanufacture helicopters because the Army lacked the technical  data and expertise necessary to compete the requirement. According  to the J&A, although a related contract from the late 1980s allowed  the government to have technical data packages suitable for  competition, the data was never obtained. According to the J&A, the  contractor’s estimated cost for this data was nearly $4 billion. In  approving the J&A, the senior procurement official noted, “I hope that  all contracting activities can persistently monitor how to be more  competitive, despite the noncompetitive positions we have gotten  ourselves into over the years.”
In 2010, we reported that program officials play a significant role in the  contracting process, particularly in developing requirements and  interfacing with contractors. Program officials may put pressure on the  contracting process to award contracts to a specific vendor without  competition. Contracting officials have said that a program office may be  comfortable with the incumbent contractor because a relationship had  developed between the program office and the contractor, who  understands the program requirements. Program officials pressure the  contracting office to remain with that contractor, thus inhibiting  competition. In one J&A we reviewed, the Office of Military Commissions  expressed a strong preference for the incumbent contractor. Specifically,  the office justified noncompetitively awarding a contract extension valued  at up to $15 million for courtroom services at Guantanamo Bay, under the  competition exception for expert services. According to the J&A, since  2007, the contractor representatives had become fully integrated  members of the litigation teams. These services included handling and  securing sensitive documents and protecting sensitive information in the  courtroom. Given that the government did not expect to need these  services for longer than a year, the government did not want to risk  delays and inefficiencies in the trial process by bringing on a new  contractor.
In 2010, we also reported that, according to contracting officials, program  officials are often insufficiently aware of the amount of time needed to  complete acquisition planning, including performing market research,  properly defining requirements, and allowing contractors time to respond  to requests for proposals, which may hinder opportunities to increase  competition. In 2011, we reported that program officials at civilian  agencies may not know how long these key steps can take, and we have  recommended that agencies establish time frames for when program  officials should begin acquisition planning. Similarly, in one DOD J&A we reviewed, the Army justified awarding an $11.2 million noncompetitive  bridge contract for mission support services at Ft. Bliss, Texas under the  “only one responsible source” competition exception. Bridge contracts are  typically short-term to avoid a lapse in service while the award of a follow- on contract is being planned or an awarded contract is being  implemented. According to the J&A, this bridge contract was necessary  after unexpected delays in the acquisition planning process for a planned  competitive follow-on task order. The delays were due to, among other  things, the program office changing managers multiple times and  difficulties writing requirements that met the contracting officer’s  standards, conflicting end-of-year responsibilities for contracting office  staff, and the senior procurement officials taking 6 months to approve the  acquisition strategy.
We have also previously reported that the government’s requirements  can influence the number of offers received under competitive  solicitations if these requirements are written too restrictively. Contracting  officials explained that it is challenging to identify program office  requirements that are written so restrictively that they are geared toward  the incumbent. These officials said that their technical backgrounds and  having the assistance of technical staff in evaluating the requirements can  help them determine whether the requirements can be broadened. They  noted that if they lack technical expertise in the specific area, it is more  difficult to question whether a statement of work is written too restrictively.
Finally, we identified instances when unanticipated events stalled planned  competition, leading to bridge contracts. Unforeseen events that can lead  to bridge contracts include unexpected expansion of requirements and  competitors filing bid protests of competitive follow-on contract awards. Of  111 J&As we reviewed, 18 were bridge contracts valued at a total of over  $9 billion. Five of these bridge contracts were due to bid protests.  Examples of bridge contracts due to unanticipated events include:
DOD’s TRICARE program justified negotiating noncompetitive options  that extended the performance on each of the two existing TRICARE  contracts for 1 year valued at $6.6 billion under the “only one  responsible source” competition exception to provide managed care  support services. According to the J&A, these options were  necessary after unexpected delays in the acquisition process were  triggered by protests at the agency level and to GAO of the prior  competitive awards for these services. The extensions allowed  TRICARE to compete a large follow-on contract while implementing  recommendations stemming from the sustained GAO protest without  disrupting the delivery of health care services to TRICARE  beneficiaries.
The U.S. Army Corps of Engineers justified a $22 million  noncompetitive modification of an existing contract under the “only  one responsible source” competition exception after learning of a  major construction requirement in Afghanistan with little notice. As a  result, current plans for prison construction already under way were  unexpectedly expanded and had to be completed within a short time  frame. According to the J&A, the only way to meet this time frame was  to not compete a new contract. Officials noted that using the existing  contract could save 30 days or more “off an almost unachievable  schedule, making every single day saved absolutely critical.”
section_title: OMB and DOD Are Taking Steps to Increase Competition
paragraphs: Since 2009, OMB and DOD have implemented efficiency initiatives  related to competition—including actions to address some opportunities  we previously identified. In July 2010, we reported that recent  congressional actions to strengthen competition opportunities in major  defense programs may take some time to demonstrate results.  Additionally, we reported that OMB’s efforts to reduce agencies’ use of  high-risk contract types may help agencies refocus and reenergize efforts  to improve competition. Despite these actions, we identified additional  opportunities to increase competition and we recommended that OMB  take several actions—including emphasizing the role of program officials  in influencing competition, taking steps to better understand the  circumstances leading to only one offer on competitive contracts, and  examining how competition advocates are appointed.
OMB has taken steps to increase efficiency and enhance competition in  government contracting, including responding to previous GAO  recommendations and issuing guidance to DOD among other agencies.  Recent initiatives include:  In July 2009, OMB implemented an initiative to reduce obligations  through new contracts in fiscal year 2010 by 10 percent in certain  high-risk categories—including noncompetitive contracts and  competitive procurements that only receive one offer. We recently  reported on challenges with this initiative.  In October 2009, OMB established initial guidelines to help chief  acquisition officers and senior procurement executives evaluate the  effectiveness of their agencies’ competition practices and processes  for selecting contract types.
The Office of Federal Procurement Policy released new guidance with  respect to competition in establishing GSA schedule blanket purchase  agreements in December 2009 in response to our recommendation  that OMB take greater advantage of the opportunities that competition  provides under schedule blanket purchase agreements.
GAO, Contract Management: Agencies Are Not Maximizing Opportunities for  Competition or Savings under Blanket Purchase Agreements despite Significant Increase  in Usage, GAO-09-792 (Washington, D.C.: Sept. 9, 2009). In March 2011, the FAR  Council issued an interim rule (effective May 16, 2011), amending the FAR to implement  section 863 of the Duncan Hunter National Defense Authorization Act for Fiscal Year  2009, Pub. L. No. 110-417. The interim rule establishes enhanced competition  requirements for placing orders under multiple-award contracts, including schedule  contracts, and competition requirements for the establishment and placement of orders  under schedule blanket purchase agreements. It also restricts the circumstances when  blanket purchase agreements may be established based on a limited-source justification.
Pursuing open systems architecture and establishing rules for the  acquisition of technical data rights;
Seeking opportunities to increase the role of small businesses in  defense marketplace competition and opportunities to compete  multiple award IDIQ service contracts among small businesses;  and
Presenting a competitive strategy at each program milestone for  defense acquisition programs.
DOD has put particular emphasis on increasing “effective  competition”—when more than one offer is received under a  competitive solicitation—and has issued enhanced guidance for  situations when competitive procedures are used but only one offer is  received. Specifically, in November 2010 DOD issued a memorandum  that requires contracting officers to provide additional time for  contractors to respond to solicitations when only one offer is received,  if less than 30 days was provided for the receipt of proposals under  the original solicitation. In addition, if a solicitation allowed at least 30  days for receipt of offers and only one offer was received, the  contracting officer must determine prices to be fair and reasonable  through price or cost analysis or enter negotiations with the offeror.
In addition, in July 2010, in response to our recommendations and  as part of the Better Buying Power initiative, the Chairman of  DOD’s Panel on Contracting Integrity established a new  subcommittee tasked with examining improvements for  competitive opportunities and ways to be more effective at  reducing single source buys. According to a DOD procurement  policy official, the subcommittee is in the process of reviewing and  responding to comments on the proposed rule on competitive  procurements with only one offer, which is expected to be finalized  in late spring 2012.
DOD has also taken actions to enhance the competition advocate  role, such as requiring each component or agency competition  advocate to develop a plan to improve the overall rate of competition  by at least two percent per year, and the rate of “effective competition”  by at least 10 percent per year. DOD also holds quarterly meetings  where competition advocates from the military services and other  DOD agencies review the progress toward meeting competition  procurement goals and discuss challenges and best practices. In  December 2011, DOD issued a department-wide memorandum  stating that DOD did not meet its fiscal year 2011 competition goals  under the Better Buying Power initiative. DOD’s competition advocate  stated that the department is paying too much for products and  services and that competition is the key to driving down prices. He  urged the component competition advocates to continue to identify  shortcomings in competitive procedures and to communicate new  ideas with each other on how to implement and improve competition.  The memorandum also outlines fiscal year 2012 competition goals for  DOD overall as well as for individual departments and components.  DOD does not establish separate goals for products and services.  The fiscal year 2012 goal for DOD overall (60 percent) is lower than  the fiscal year 2011 goal (62.8 percent). According to a DOD  procurement policy official, competition goals for fiscal year 2012 were  established based on actual competition rates over the past few  years.
During our previous work, DOD officials reported they have taken  additional steps at the component level to enhance competition—such as  efforts to educate and hold program officials accountable and additional  review of individual contract actions under class J&As.
In July 2010, we reported that the Navy has made competition training  mandatory for personnel engaged in the acquisition process, including  program managers, program executive officers and logistics  personnel. In addition, in 2009 a senior Navy official told us that the  Navy is following up with program managers who previously  submitted J&As but stated that the requirement would be competed  the next year to see if program managers are actually competing  these requirements in the future.
In January 2012, we reported that the Air Force revised its process for  a recently approved national security class justification for an  intelligence, surveillance, and reconnaissance program office,  requiring individual contract actions over $85.5 million to be submitted  to the Air Force senior procurement executive for expedited review.  According to an Air Force General Counsel official, the Air Force has  not yet determined what type of documentation will be required as  part of that review, but it believes the increased review may identify  additional opportunities for competition. We recommended that DOD  evaluate the Air Force’s new review process for national security  exception actions under class justifications and implement a similar  process across the department if it is found beneficial; DOD agreed  with this recommendation.
In addition to the recent actions DOD has taken, in July 2010, we  identified other opportunities to increase competition across the federal  government. These include emphasizing the role of program officials in  influencing competition, better understanding the circumstances leading  to only one offer on competitive contracts, and examining how  competition advocates are appointed. We continue to track the agencies’  progress in implementing these recommendations.
section_title: Agency Comments
paragraphs: We provided a draft of this report to DOD and the department responded  that it had no comments.
We are sending copies of this report to interested congressional  committees and the Secretary of Defense. This report will also be  available at no charge on GAO’s website at http://www.gao.gov.
If you or your staff have any questions about this report or need additional  information, please contact me at (202) 512-4841 or huttonj@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. Staff  acknowledgments are provided in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives for this review were to examine (1) how competition for  non-research and development (R&D) services compares to competition  for products, and trends in competition for non-R&D services at the  Department of Defense (DOD); (2) the reasons for noncompetitive  contracts and task orders for services; and (3) steps DOD has taken to  increase competition for services.
To address these objectives, we identified through the Federal  Procurement Data System-Next Generation (FPDS-NG) DOD obligations  under competitive and noncompetitive contracts in fiscal years 2007  through 2011, the most recent data available when we conducted our  review. For competitive contract actions, we included contracts and  orders coded as “full and open competition,” “full and open after exclusion  of sources,” “competitive delivery order,” and “competed under simplified  acquisition procedures” as well as orders coded as subject to fair  opportunity and as “fair opportunity given.” For noncompetitive contract  actions, we included contracts and orders coded as “not competed,” “not  available for competition,” “not competed under simplified acquisition  procedures,” “follow-on to competed action,” and “non-competitive  delivery order” as well as orders coded as subject to fair opportunity and  under an exception to fair opportunity, including “urgency,” “only one  source,” “minimum guarantee,” “follow-on action following competitive  initial action,” and “other statutory authority.” In addition, we identified  fiscal year 2011 obligations under contracts where more than one offer  had been received. We calculated competition rates as the percentage of  obligations on competitive contracts and orders over all obligations on  contracts and orders. We focused our review on non-research and  development (R&D) services to concentrate our analysis on contracts not  related to development of weapons systems, but conducted limited  analysis to understand competition rates for R&D services as compared  to non-R&D services and to products, in fiscal year 2011. We also  identified trends in competition rates for non-R&D services at DOD  components from fiscal years 2007 through 2011. We assessed  competition rates across the 23 non-R&D service categories in FPDS-NG  as well as across DOD and non-DOD contracting organizations (those  organizations that obligated funds for services on DOD’s behalf in fiscal  year 2011).
We also examined the reasons cited in FPDS-NG for not competing DOD  contracts and orders for services in fiscal year 2011. To do so, we  selected and reviewed a non-generalizable sample of 111 justification  and approval (J&A) and exception to fair opportunity documents to  identify what circumstances led to the award of noncompetitive contracts  and orders. While agencies are generally required to post J&As to the  FedBizOpps.gov website, we did not assess whether the available data  represented the full universe. We used a non-generalizable sample to  provide illustrative examples of J&As, which was an appropriate approach  to meet our reporting objective. The J&A documents we reviewed  included:
A selection of 77 documents provided by DOD components in  response to our request for all justification and approval documents  approved by the senior procurement executives in fiscal year 2011.Some of these documents were for a mix of products and services  providing weapons system support.
A selection of 34 DOD J&As posted on the FedBizOpps.gov website.
We selected these to obtain a mix of J&As from: the non-R&D service  categories with the highest obligations (Maintenance, Repair, and  Rebuilding of Equipment, Professional, Administrative and  Management Support, and Construction of Structures and Facilities);  each major DOD component (Air Force, Army, Navy, and other  Defense agencies); and approvals at various points throughout fiscal  year 2011.
In addition, we reviewed previous GAO reports, Office of Management  and Budget and DOD policies and guidance, and DOD competition  reports for fiscal years 2009 and 2010 to identify reasons for not  competing contracts as well as actions that have been taken to improve  competition at DOD. We also reviewed recent GAO interviews with DOD  officials to identify barriers to competition as well as actions underway or  planned for the future to improve competition. Interviews were conducted  as part of previous work related to government-wide competition, national  security competition exception, and acquisition planning.
We conducted this performance audit from September 2011 to March  2012, 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: Fiscal Year 2011 DOD Competition Rates by Service Category and Component
paragraphs: In fiscal year 2011, competition rates varied significantly among the 23  non-R&D service categories in FPDS-NG—from 43 to 97 percent.  Competition rates also varied among the three service categories with the  highest obligations, which together made up over half of all non-R&D  services obligations. See table 1.
In fiscal year 2011, the major DOD components had varying competition  rates for non-R&D services. The Air Force had the lowest overall  competition rate (59 percent) while other defense agencies had the  highest (89 percent). Effective competition—a subset of overall  competition which DOD defines as competed actions that received more  than one offer in response to a solicitation—rates also varied across the  major components (52 percent at the Air Force to 82 percent at other  defense agencies). The Navy had the highest percentage of competed  actions with only one offer (16 percent). See figure 5 for competition  percentages at each major DOD component.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact names above, Michele Mackin, Acting Director;  Alexandra Dew Silva; Peter Anderson; Georgeann Higgins; Julia Kennon;  Jean McSween; Cary Russell; Kenneth Patton; Sylvia Schatz; Roxanna  Sun; and Andrea Yohe made key contributions to this report.