FedGovContracts.com

Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: March 22, 2000

FROM: Barry McVay, CPCM

SUBJECT: General Accounting Office; Few Competing Proposals for Large DOD Information Technology Orders

SOURCE: General Accounting Office (GAO) Report No. NSAID-00-56, March 20, 2000

SYNOPSIS: In a report to the Senate Armed Services Committee, the GAO found that most of the 22 large Department of Defense (DOD) orders it reviewed under multiple-award contracts for information technology (IT) products and services in support of defense programs "were awarded without competing proposals having been received. Agencies made frequent use of the statutory exceptions to the fair opportunity requirement. Further, contractors frequently did not submit proposals when provided an opportunity to do so."

EDITOR'S NOTE: GAO Report No. NSAID-00-56 is available on the Internet at http://www.gao.gov, by calling 202-512-6000, or by faxing to 202-512-6061.

For more on related testimony provided by GAO on March 16, 2000, see today's FEDERAL CONTRACTS DISPATCH "General Accounting Office; Trends, Reforms, and Challenges in Federal Acquisition."

For more on a related DOD Inspector General report, see the March 15, 2000, FEDERAL CONTRACTS DISPATCH "Department of Defense; Contracts for Professional, Administrative, and Management Support Services."

SUPPLEMENTAL INFORMATION: To promote competition under task- and delivery-order contracts,the Federal Acquisition Streamlining Act of 1994 (FASA) established a preference for awarding these contracts to multiple firms rather than to a single company. Orders placed under such contracts must clearly specify all the tasks to be performed or property to be delivered. In addition, agencies placing orders must ensure that each contractor is afforded a fair opportunity to be considered. However, FASA authorized exceptions to the fair opportunity process when (1) the agency's need for supplies or services is unusually urgent, (2) the agency's needs are so unique or specialized that only one contractor can provide the required quality, (3) placing the order on a sole-source basis will promote economy and efficiency because the order is a logical follow-on to a previous order issued competitively, or (4) the order must be placed with a particular contractor to satisfy a required minimum guaranteed amount.

The U.S. Senate Committee on Armed Services, Subcommittee on Readiness and Management Support, asked GAO to "examine DOD's use of large orders under multiple-award contracts to acquire information technology products and services and assess (1) whether contractors were provided a fair opportunity to be considered and the extent of competition realized and (2) how ordering offices met requirements to clearly specify the tasks to be performed or property to be delivered under the orders." GAO selected 22 orders over $5 million that were awarded for DOD requirements between October 1, 1997, and December 31, 1998, most of which involved IT services for ongoing defense programs. The following are GAO's major findings:

• Competition Not Sought: "In many cases, agency officials used the statutory exceptions to the fair opportunity requirement and did not request competing proposals..."According to agency officials, multiple-award contracting has produced substantial benefits. Officials stated that multiple-award contracts allow them to acquire services and supplies more quickly and simply, alleviating past concerns that awarding traditional contracts took too long. Expedited ordering procedures under multiple-award contracts have also alleviated concerns that DOD may not always be able to acquire the most current information technology. Agency officials also commented that issuing multiple-award contract orders was less burdensome administratively than awarding traditional contracts. Moreover, they expressed satisfaction with the suppliers selected through multiple-award contracts. Several commented that the skills and capabilities of their contractors were critical to their program's success."
  
  Of the 22 orders, 16 were awarded without competing proposals, representing $443.7 million of the total $553.1 million awarded. "We found that when deciding whether to award noncompetitive orders, contracting officers relied on a statement by program officials indicating that the exception was applicable. Contracting office files did not include an analysis of the exception's applicability," GAO stated. As an example, GAO cited a Defense Information Systems Agency award to a multiple-award contractor of a $300,000 order for two-months work. "The agency did not provide other contractors an opportunity to be considered for this order because the program manager stated that the services were unique and highly specialized. Shortly thereafter, the agency awarded a second order covering another 10 months of work at an estimated cost of $6.7 million as a logical follow-on to the initial $300,000 order. Finally, the agency awarded the order included in our review -- a $7 million order covering another 11 months of work-as a logical follow-on to the two previous orders. Thus, contrary to FASA, other contractors were not provided an opportunity to be considered for the work."
  
  GAO also noted that this practice violates the Office of Federal Procurement Policy (OFPP) guidebook "Best Practices for Multiple Award Task and Delivery Order Contracting," which suggests that "follow-on orders should not be substantially broader in scope and dollar value than the original competitive order." GAO cited a National Institutes of Health (NIH) order in support for an Army communications systems over 1 year. The original NIH order was for $1.6 million. The order GAO reviewed was awarded noncompetitively as a logical follow-on to the $1.6 million order, and it was for $32.1 million in effort over 45 months, or about $8.5 million annually. The work description for this follow-on order included two task areas that the original $1.6 million order's work description did not mention. To accomplish the work under the follow-on order, the contractor proposed to increase staffing to almost three times that proposed for the original order. Furthermore, the contractor proposed to increase expenditures for other direct costs (such as supplies and equipment) to about $2.6 million annually compared with about $37,000 under the original order. GAO concludes that "this logical follow-on order was inconsistent with OFPP's best practice guidance."



• Potential Offerors Do Not Submit Proposals: When competition was sought for follow-on orders, only one proposal was normally received -- from the incumbent contractor. "In all but one of 10 cases, all proposals received involved incumbent contractors...In some cases, it was apparent that incumbent contractors had an inherent advantage in competing for an order. For example, the Department of Transportation awarded a $23.7 million order to support a Navy intelligence command over 5 years (including options) and asked contractors to submit proposals in late August to begin work in early October. To provide the required support, contractors would have needed to station about 40 staff at the Navy installation within days after the order was awarded. Staff would have required security clearances and knowledge of the command's information technology system. While command representatives had been considering options for renewing their existing support contract for about 6 months, they had not initiated any contacts to explain their requirements to other contractors. The representatives indicated that the incumbent contractor had been performing satisfactorily. Only one proposal was received: from the incumbent, who already had staff in place providing similar services...Agencies sometimes used practices not designed to elicit competing proposals. For example, one $11.1 million order announced under [a] National Institutes of Health contract covered over 3 years of support (including options) for an Air Force intelligence command. The agency asked contractors to submit proposals within 2 days. Command representatives told us that they were satisfied with the incumbent contractor's performance and that they had not held meetings to explain their requirements to other contractors. One proposal was received for the order, again from the incumbent contractor."



• Work Descriptions Too Broad: "These orders frequently covered several years of effort and, because they defined the work broadly, they did not establish a fixed price for the work but provided for reimbursing contractors' costs...FASA requires that orders include a work description that 'clearly specifies all tasks to be performed.' OFPP, in its best practice guidebook for multiple-award contracts, stresses that orders must clearly define the services ordered. In particular, the guidebook indicates that agencies should not award large, undefined orders and subsequently issue sole-source work orders for specific tasks...Most orders for services, however, described the work in broad categories, and in some cases, the agencies issued work orders to define specific tasks after the order was awarded. For example, the General Services Administration awarded one order to provide information technology support services for a Navy detachment over 3 years (including options). The order stated that the contractor would provide various types of support -- technical, project management, systems engineering, procurement, training, and testing -- in connection with the detachment's review of communications equipment or subsystems for use on Navy ships. The order did not specify the types of equipment or subsystems that would be reviewed. The details of the tasks to be performed were to be negotiated by program officials and the contractor after the order was awarded."

Based on its findings, GAO recommends that OFPP seek to develop and incorporate guidance to "make it clear that agencies should not (1) award follow-on orders whose scope or costs significantly exceed those of orders for which contractors were provided an opportunity to be considered, or (2) award large undefined orders and subsequently issue sole-source work orders for specific tasks; and encourage contracting officers to use fixed-price orders to the maximum extent practicable". GAO goes on to recommend that "the guidance encourage agencies to conduct more outreach activities when providing contractors an opportunity to be considered for orders" ("contractor representatives suggested that program officials and contracting officers could promote broader competition by conducting more outreach activities, such as meetings with potential contractors to explain program requirements, and obtaining feedback on contractors' capabilities").

OFPP, DOD, NIH, the Department of Transportation (DOT), and the General Services Administration (GSA) reviewed a draft of the report. Basically, OFPP and NIH concurred in the recommendations; DOD and GSA concurred except both questioned how effective "outreach activities" would be in encouraging contractors to submit proposals; and DOT did not respond.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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