The Federal Acquisition Regulation (FAR) Part 15 allows the use of several best value competitive source selection techniques to meet agency needs. Within the best value continuum, DOD may choose an approach that it considers the most advantageous to the government, including the lowest price technically acceptable (LPTA) process and the tradeoff process. DOD may elect to use the LPTA process in acquisitions where the requirement is clearly definable and the risk of unsuccessful contract performance is minimal. In such cases, DOD may determine that cost or price should play a dominant role in source selection. When using the LPTA process, DOD specifies its minimal technical requirements in the solicitation. Once DOD determines that the contractors meet or exceed the technical requirements, no tradeoffs between cost or price and non- cost factors are permitted and the award is made based on the lowest price offered to the government. By contrast, DOD may elect to use a tradeoff process in acquisitions where the requirement is less definitive, more development work is required, or the acquisition has greater performance risk. In these instances, non-cost evaluation factors, such as technical capabilities or past performance, may play a dominant role in the source selection and tradeoffs among price and non-cost factors allow DOD to accept other than the lowest priced proposal. This report focuses on DOD’s use of the tradeoff process, and specifically, in which non-cost factors, when combined, were considered more important than cost or price. When using a tradeoff process, the FAR requires that evaluation factors and significant subfactors that affect contract award and their relative importance be clearly stated in the solicitation; and the solicitation must provide whether all evaluation factors other than cost or price, when combined, are significantly more important than, approximately equal to, or significantly less important than cost or price. Additionally, the FAR requires that each factor represent key areas of importance and emphasis to be considered in the source selection decision and that support meaningful comparison and discrimination between and among competing proposals. The FAR also requires the source selection authority document the perceived benefits of the higher priced proposal and the rationale for tradeoffs in the contract file. The resulting source select decision should be based on a comparative assessment of proposals against all source selection criteria in the solicitation. The decision must also include the rationale for any business judgments and tradeoffs made or relied on by the source selection official, including benefits asso ciated with additional costs. Although the rationale for the source selection decision must be documented, the documentation need not quantify the tradeoffs that led to the d ecision. In fiscal year 2009, DOD obligated about $380 billion on contracts for goods and services. Our analysis of data reported by DOD to FPDS-NG indicates that $69.9 billion or 18 percent of DOD’s obligations were made on new contracts competitively awarded in fiscal year 2009 (see figure 1). By contrast, about $176 billion were modifications to or orders issued under contracts that were awarded prior to fiscal year 2009 and $133 billion were awarded non-competitively, which in combination totaled to nearly 82 percent of DOD’s reported contract obligations in fiscal year 2009. Properly managing the acquisition of goods and services requires an acquisition workforce with the right skills and capabilities. In March 2009, however, we reported that DOD lacked complete information on the skill sets of the current acquisition workforce and whether these skill sets were sufficient to accomplish its missions. In April 2009, the Secretary of Defense announced his intent to grow the acquisition workforce by 15 percent by fiscal year 2015. As part of this strategy, DOD indicated that it intends to grow its contracting career field by more than 6,400 personnel, an increase of more than 28 percent from fiscal year 2008 staffing levels. DOD relies heavily on the use of the best value process to evaluate offers from potential contractors. DOD chose a best value process for approximately 95 percent of its new, competitively awarded contracts on which it had obligated $25 million or more in fiscal year 2009. Almost half of DOD’s contracts—47 percent—were awarded using a tradeoff process in which non-cost evaluation factors, when combined, were more more important than price. Figure 2 shows how often DOD used the different important than price. Figure 2 shows how often DOD used the different best value processes and other source selection approaches. best value processes and other source selection approaches. Bet ve process (95%) Bet ve trdeoff process (69%) In 69 percent of the contract awards, DOD used the best value tradeoff process. When doing so, it acquired services approximately four times as often as it acquired products. Over half of these procurements were for building or civil engineering construction services, including projects for troop housing, administrative facilities, and hurricane protection systems. Other services procured using the tradeoff process were equipment maintenance and professional management services. For example, in fiscal year 2009, the Army Corps of Engineers awarded a contract worth more than $963 million to construct one of the largest pumping stations in the world, along with floodgates and floodwalls for hurricane protection. Similarly, the Air Force awarded the Contract Field Team program multiple-award contract, with an estimated base value of $2.6 billion for modification, maintenance and repair of systems including aircraft and missile defense for the departments of the Army, Navy, Air Force and several federal agencies. Small arms and electronic countermeasure equipment were among the products most frequently procured using a tradeoff process, including the contracts for the Squad Automatic Weapons—lightweight, automatic rifles issued to each Army and Marine rifle squad—and an Army contract to procure devices that counteract radio-controlled improvised explosives. Our analysis of selected characteristics of contracts awarded using a best value tradeoff process in fiscal year 2009 is shown in figure 3. Percentages may not sum to 100 percent due to rounding. Combination refers to contracts that allow for orders to be placed using more than one pricing arrangement. As part of our work, we reviewed 10 IDIQ contracts that had been awarded using a best value tradeoff process and 23 task and delivery orders under these contracts which had obligations ranging from $11 million to over $319 million. In most cases, DOD did not issue the task or delivery orders we reviewed using a tradeoff process. For example, an Air Force official explained that the initial task orders for the Contract Field Team program, including 13 orders in our sample, were issued under an LPTA process because data needed to assess contractor performance and timeliness were not yet available to use given the short time between award of the base contract and issuance of the first orders. An Air Force official indicated that once they had obtained sufficient performance data, they intended to issue task orders using a tradeoff process when possible. DOD officials issued six other task orders on the basis of negotiating with a contractor who had been awarded a single award IDIQ contract. The four remaining orders were awarded using a tradeoff process. For example, the Army wanted infrared vision enhancement equipment for nighttime and battlefield use in Iraq and Afghanistan to be delivered as quickly as possible. Consequently, the Army used a contractor’s ability to meet delivery requirements as the principal evaluation factor in selecting the contractor for delivery order award. Some DOD officials noted that the use of various source selection evaluation methods can change over time. For example: Defense Logistics Agency (DLA) officials noted that they have recently transitioned from principally using the tradeoff process to using the LPTA process for most fuel purchases because the majority of their procurements were for a commercial product in relatively stable domestic and international markets. They noted, however, that they still use the tradeoff process in less stable areas, such as Iraq and Afghanistan, where they require more information about vendors’ past performance and technical capability when operating in war zones. Conversely, Army Corps officials in New Orleans reported that they have been using the tradeoff process more frequently since the increase in civil works construction projects following Hurricane Katrina. While they typically used sealed bids in the past, they told us that use of the tradeoff process enabled them to better assess contractors’ ability to meet safety and schedule requirements. DOD officials tended to use a best value tradeoff process with non-cost factors weighted more important than price when they were willing to accept a higher price if a contractor could demonstrate certain advantages, such as meet a deadline, demonstrate that it understood complex technical issues, or propose an innovative approach. DOD often indicated in tradeoff solicitations that non-cost factors would be significantly more important than price in making award decisions, but our analysis indicated that DOD selected a lower priced proposal among those offerors remaining in the final competition almost as often as it selected a higher technically rated, but more costly, proposal. Overall, DOD paid a price differential—the difference in the price of the offeror awarded the contract and the price of the offeror next in line for award—in 21 of the 68 contracts in which a price differential was considered. Most differentials were less than 5 percent. While DOD officials told us that the tradeoff process provides an essential tool to obtain desired capabilities, they rely on the case-by-case judgment of contracting and program officials to determine the best acquisition approach suited to program requirements and do not specifically track whether use of the tradeoff process is in DOD’s interest. The FAR and DOD guidance generally provide acquisition staff flexibility to develop evaluation factors that meet their procurement needs and does not indicate which evaluation factors should be most important. The FAR requires that DOD officials consider, among other things, past performance on all negotiated competitive acquisitions exceeding $100,000, but DOD officials have broad discretion in selecting other non- cost factors and their relative importance. The factors are intended to provide meaningful discriminators to evaluate proposals. Army, Navy, and Air Force officials told us that they formed interdisciplinary teams that developed evaluation factors and the factors’ relative importance by consensus.