The Economy Act, as amended (31 U.S.C. 1535), authorizes the head of an agency to place an order with another agency for goods or services if, among other requirements, a decision is made that the items or services cannot be obtained by contract as conveniently or cheaply from a commercial enterprise. The interagency ordering practice authorized by the Economy Act, sometimes referred to as “contract off-loading,” can save the government duplicative effort and costs when appropriately used. Examples of appropriate use may include circumstances of one agency already having a contract for goods and services similar to those needed by another agency, or an agency having unique capabilities or expertise that qualify it to enter into or administer a contract. In July 1993, the Subcommittee on Oversight of Government Management, Senate Governmental Affairs Committee, held a hearing to examine the practice of off-loading at federal agencies and the abuses of this practice. Its hearing record, which included testimony from the Inspectors General of DOD, the Department of Energy, and the Tennessee Valley Authority, was critical of DOD’s and other agencies’ off-loading practices. Subsequently, the National Defense Authorization Act for Fiscal Year 1994 required the Secretary of Defense to prescribe regulations governing DOD’s use of the Economy Act that included specific statutory limitations intended to rectify identified abuses. The Volpe Center is a federally owned and operated facility located in Cambridge, Massachusetts, and was established in 1970 to fulfill the need of the newly formed Department of Transportation for an in-house systems research capability. Since then, the center’s research, analysis, and project management expertise has been applied to a wide variety of transportation and logistics problems. Its only funding is through formal reimbursable agreements negotiated with individual agencies for specific tasks. Initially, the center’s services were provided almost exclusively to the Office of the Secretary of Transportation and the operating administrations within the Department of Transportation. As its capabilities evolved and its systems approach became better known, demand grew within non-Department of Transportation agencies. Through a formal memorandum of understanding with DOD, the Secretary broadened the center’s mission in 1985 to include work on transportation and logistics problems facing other agencies, including the Joint Chiefs of Staff and the U.S. Transportation Command. Similar arrangements were made with civilian agencies. The Volpe Center’s current labor pool consists of about 1,500 personnel evenly divided among 3 labor categories: federal employees, on-site contractor employees, and off-site contractor employees. On-site contractors provide services in computer analysis, technical information support, and documentation support. The off-site contractor employees comprise a “multiple contractor resource base,” which allows quick, competitive access to a broad range of high technology capabilities and skills needed to meet the Volpe Center’s programmatic requirements. Volpe Center contracting is regulated by the Federal Acquisition Regulation. In response to an audit conducted by the Department of Transportation’s Inspector General, the Volpe Center issued formal work acceptance criteria in February 1995. According to Volpe Center management, the criteria are designed to assure that the center will not accept projects unless it can make substantive contributions derived from its status as part of the federal government. Examples of substantive contributions include project definition and planning in cooperation with the requesting agency, and support of contracts awarded and administered by the Volpe Center. In advance of promulgating regulations, the Secretary issued a policy memorandum in February 1994 that imposed limitations on the use of Economy Act orders by DOD activities. The Secretary’s policy, which addressed Economy Act orders released outside of DOD for contract action, was, however, more stringent than either the National Defense Authorization Act for Fiscal Year 1994 or the Economy Act in the area of cost considerations by requiring a determination that the supplies or services cannot be provided “as conveniently and cheaply” by contracting directly with a private source. The Authorization Act did not address this cost issue and the Economy Act uses the phrase “as conveniently or cheaply.” The Secretary’s use of the “and” rather than the “or” introduces more cost analysis into the decision-making process. The Secretary also changed the level of approval authority for Economy Act purchases. Instead of having contracting officers or other officials designated by the agency head approve Economy Act transactions, the Secretary’s memorandum placed the approval level no lower than a senior executive service official, a general or flag officer, or an activity commander. The Coast Guard, which is a component of the Department of Transportation, has acquired services from the Volpe Center. In November 1994, the Coast Guard issued an instruction providing guidance on its use of the center. The instruction established a review, justification, and approval process to ensure that acquisition of Volpe Center services are in the Coast Guard’s best economic interest. The instruction designates the Director of Finance and Procurement, a senior executive service position within the Office of the Chief of Staff, as the approving official for all Coast Guard work performed through the center. The guidance requires a demonstration that the cost to use the Volpe Center is at least roughly comparable to commercial cost. To document this comparability, Coast Guard sponsors must develop an independent estimate of expected project costs using recognized techniques such as engineering analysis, market research, or application of actual cost data from prior projects. While the Coast Guard instruction acknowledges that the Volpe Center offers convenience, it is the Coast Guard policy that the center shall be used when there are clear economic, technical, and mission-essential reasons for doing so. For example, officials informed us that in one area of the country the Coast Guard is now completing 5 years of environmental compliance and restoration work with the Volpe Center. They explained that the center’s support was critical in the early years of this work for the Coast Guard to gain an understanding of the various technologies involved in restoring areas at Coast Guard installations that were contaminated. Coast Guard officials said it has acquired the technical expertise and it is now ready, at least in that area of the country, to transition away from the center for this work and contract directly with private companies. The Air Force, Army, and Navy have each taken a different approach to implementing the Secretary’s policy memorandum. Collectively, however, they are producing similar mixed results. While there is considerable up-to-date guidance available to contracting officials on interagency purchases, not all DOD files on Volpe Center projects we reviewed contained required information. In addition, DOD has not yet implemented a statutorily mandated monitoring system for interagency purchases; the monitoring system is currently scheduled for implementation in October 1995. The Air Force introduced the Secretary of Defense’s policy changes in June 1994 through a revision to its Federal Acquisition Regulation Supplement. The supplement states that the Air Force shall not place an order with another agency unless adequate supporting documentation, including a Determination and Finding (D&F), is prepared. The D&F must be approved at a level no lower than senior executive service, flag or general officer, or activity commander. The activity’s contracting office is required to retain a record copy of each D&F in a central file. The supplement offers a model format for the D&F, which requires that 12 specific findings be listed, including 1 that states “the supplies or services cannot be provided as conveniently and more economically by private contractors under an Air Force contract.” The Army implemented the Secretary’s policy changes in an August 1994 policy letter from the Office of the Assistant Secretary, Army Contracting Support Agency. The letter states that before an Economy Act order for supplies or services is released outside DOD for contracting action, a written determination prepared by the requiring activity that addresses the elements in the Defense Secretary’s memorandum shall be approved by the head of the requesting agency or their designee. The D&Fs are required to be prepared in the same format required by the Air Force, to include that “the supplies or services cannot be provided at the time required and more economically by contractors under an Army contract.” In contrast to the Air Force and Army’s delegation of approval authority, the Navy initially did not delegate approval authority below the Assistant Secretary of the Navy for Research, Development, and Acquisition. Toward the end of 1994, the Assistant Secretary delegated approval authority to the Deputy for Acquisition and Business Management. In January 1995, as permitted by the Secretary of Defense’s memorandum, the Deputy redelegated authority to approve D&Fs to eight activities with contracting authority. However, approval authority for Economy Act orders placed with the Volpe Center and with agencies not subject to the Federal Acquisition Regulation was retained by the Deputy for Acquisition and Business Management. Despite efforts by the services to strengthen controls over Economy Act purchases, our review of fiscal year 1995 Air Force, Army, and Navy projects with the Volpe Center indicated that the controls were not fully implemented. Of the 13 purchase requests we reviewed, 7 lacked approved D&Fs. The results of our review are summarized in table 1. In two of the three Air Force cases where a D&F was not prepared, the project managers were not aware of the requirement to prepare a D&F; in the other case, a draft D&F was prepared by the requiring activity, reviewed by a contracting officer, but never completed or signed. In the Army case where a D&F was not prepared, Army officials had no excuse other than they “just missed it.” One official suggested that some Army activities may not have understood the August 1994 policy letter. In one of the Navy cases without an approved D&F, ordering officials justified the transfer of 1995 funds on the basis of a D&F that covered 1993 and 1994 funding; subsequent to the transfer of funds, reviewing officials rejected this justification. The other two Navy cases involved purchases by a Marine Corps ordering activity.