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. 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. 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. 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. 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. 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. 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. 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. 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.