oversight

More Competition in Emergency Defense Procurements Found Possible

Published by the Government Accountability Office on 1971-03-25.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

REPORT TO THE CONGRESS




More Competition In
Emergency Defense Procurements
Found Possible          B-177561




Department of Defense

 FILE COPY - COMP GEN




BY THE COMPTROLLER GENERAL
OF THE UNITED STATES


                                   HARCH 25, 1 971
            COMPTROLLER GENERAL OF T-IHE UNITED STATES
                        WASHINGTON. D.C. 20548




B- 171561




To the President of the Senate and the
Speaker of the House of Representatives

      This is our report on more competition in emergency
defense procurements foun4 possible, Department of Defense.

      Our review was made pursuant to the Budget and Ac-
counting Act, 1921 (31 U.S.C. 53), and the Accounting and
Auditing Act of 1950 (31 U.S.C. 67).

      Copies of this report are being sent today to the Di-
rector, Office of Management and Budget; the Secretary of
Defense; the Secretaries of the Army, Navy, and Air Force;
and the Director, Defense Supply Agency.




                                     Comptroller General
                                     of the United States




                                    5033 1921-p71
                                          ANNIERSARY
        ---- --   50TH ANNIVERSARY        1921-1971
COMPTROLLER GENERAL'S              MORE COMPETITION IN EMERGENCY DEFENSE
REPORT TO THE CONGRESS             PROCUREMENTS FOUND POSSIBLE
                                   Department of Defense   B-171561

DIGEST


WHY THE REVIEW WAS MADE

      The Armed Services Procurement Act requires that in all negotiated pro-
      curements in excess of $2,500 proposals be solicited from the largest
      possible number of qualified suppliers provided (1) that prices are not
      fixed by law or regulation and (2) that time for delivery will permit.
      (See p. 5.)
      Defense regulations under the act provide that, when urgently needed
      supplies or services are procured by negotiation, competition to the
      greatest extent practicable, within the time allowed, be obtained.
      During fiscal year 1968 the Department of Defense (DOD) negotiated
      emergency procurements amounting to $5.4 billion, of which 72 percent
      were made without obtaining competition. Although the dollar amount of
      emergency procurements declined from $6 billion in fiscal year 1967 to
      $2.5 billion in fiscal year 1970, the percentage of noncompetitive pro-
      curements remained at about the fiscal year 1968 level.
      At the request of (Representative Fred B. Rooney~ he General Accounting
      Office (GAO) made a DOD-wide review of emergency procurements to deter-
      mine whether it was possible to increase competition in these procure-
      ments.

FINDINGS AND CONCLUSIONS

      Many items designated as urgently needed that were procured noncompeti-
      tively might have been procured competitively, at lower costs, and with
      acceptable time for deliveries.
      GAO selected for detailed review 54 procurements, valued at about
      $33 million, which had been awarded on a noncompetitive basis due to
      the urgency of the requirements. GAO believes that 36 of these pro-
      curements, amounting to about $31.5 million, could have been made on
      a competitive basis, apparently without adversely affecting the mis-
      sions of the military services. (See p. 7.)
      Information available at the time of the awards indicated that there
      were other suppliers who could have delivered at lower prices and
      within similar times. (See p. 10.)

Tear Sheet



                                     1            MARCH 25 19 7 1
     The military services could have reduced costs by $3.1 million on
     14 noncompetitive procurements amounting to about $10 million, GAO
     estimates, had competition been obtained. Cost reductions were not
     readily determinable on the remaining 22 procurements. (See p. 7.)

     In a typical emergency procurement, the military activity indicated
     its urgent need for an item on a purchase requisition. Sometimes it
     indicated the supplier from whom it would prefer the item to be pur-
     chased. The requesting organization might have known little about
     the capabilities of other suppliers to produce the item or about the
     ability of the supplier it had designated to furnish the item sooner
     than others. The requester might have been unaware of differences in
     the price at which each supplier was willing to offer the item. The
     procuring activity, however, is responsible for obtaining this infor-
     mation. (See p. 7.)

    In awarding noncompetitive procurements, agency officials relied heav-
    ily on the "urgency" designation and did not consider sufficiently the
    capabilities of other sources to meet delivery requirements nor ques-
    tion restrictions specified as to source by the requisitioning parties.
    Additional costs that would result from noncompetitive awards were not
    considered in determining whether competition should be obtained on
    emergency procurements. ('See pp. 7 and 8.)

    For example, the Army awarded contracts for multiplexers to two sup-
    pliers. In making an emergency procurement of the item, the Army elim-
    inated from consideration supplier A, because it determined that sup-
    plier A could'not begin deliveries until July 1968, 1 month later than
    requested. However, supplier B, who was awarded the contract, was
    given until August 1968 to begin deliveries. GAO estimated that if
    competition had been obtained the Army might have reduced costs by as
    much as $1.65 million, on the basis of a competitive award for multi-
    plexers made about 5 weeks earlier. (See pp. 10 to 14.)
     GAO believes that there is a need for establishing guidance for pro-
     curement officials in determining whether competition should be ob-
     tained for urgent procurements. Noncompetitive solicitations for the
     procurement of urgently needed supplies and services should be made
     only when it is clear that the Government's interest will be served by
     the solicitation of a single source.

RECOMMENDATIONS OR SUGGESTIONS


    In view of its findings, GAO is recommending that the Secretary of De-
    fense provide additional guidance to procurement officials for use in
    determining when noncompetitive solicitation for urgently needed items
    could be justified. (See p. 30.)



                                  2
      Specifically, the following actions should be taken prior: to the ap-
      proval of noncompetitive solicitations for urgent procurements. (See
      pp. 30 and 31.)
         --A determination should be made from current information (production
           capability, financial capability, experience, etc.), that the se-
           lected source can deliver the requirements ' a-specified number of
           days, weeks, or months ahead of the other potential source'or
           sources.
         --An estimate should be made of the additional unit cost which could
           be expected as a result of the proposed noncompetitive procurement.
         --A statement should be obtained from the commander of the using ac-
           tivity that the estimated time to be saved by procuring from the
           selected source is essential to the successful completion of the
           assigned mission and that, in his opinion, the.additional cost in-
           volved is justified.
      Information needed to make these determinations generally is readily
      available and should not materially delay contracting for urgently
      needed supplies and services. GAO is recommending also that.the Sec-
      retary of Defense require that internal audit groups, during their
      regularly scheduled procurement reviews, evaluate and report to.appro-
      priate higher levels on the effectiveness of procurement officials in
      obtaining competition for urgently needed supplies and services.
      Audits of such procurements have not been made in recent years at the
      installations reviewed by GAO. (See p. 31.)

AGENCY ACTIONS AND UNRESOLVED ISSUES

      The Deputy Assistant Secretary of Defense (Installations and Logistics)
      advised GAO that there was no need for the Secretary of Defense to im-
      plement GAO's proposals. He stated that procurement officials gave
      great weight in their decisions to the urgency of need cited by the
      using or requesting activity and that these officials generally con-
      sider the capability of other sources, price factors, and other rele-
      vant matters in making the decisions to solicit and award sole source.
      (See pp. 26 and 27.)
      GAO believes that too much weight may have been given by procurement
      personnel to an undefined urgency. The degree of urgency generally was
      indicated only by reference to a high priority number on the purchase
      request and was not supported by information on the urgency of mission,
      date material was required, or effect of a delay in receipt of the re-
      quested material. Because of the indicated urgency, procurement per-
      sonnel did not require the using or requesting activity to furnish such
      information. (See p. 27.)

Tear Sheet


                                       3
     Although procurement personnel generally believed that the selected
     source could deliver sooner than any other source, GAO found little
     factual support for such determinations. Little attempt was made to
     determine whether the projected expedited delivery was worth the ad-
     ditional costs which might result from a noncompetitive procurement.
     It is essential, GAO believes, that the additional costs involved in
     a noncompetitive procurement and the delay in receipt of the item if
     it were procured competitively be determined and made available for
     review and evaluation by the using activity. (See p. 27.)

MATTERS FOR CONSIDERATION BY THE CONGRESS

    Congress has a continuing interest in the manner in which Government
    procurement is being accomplished. The findings of this report show
    the need for improvement in awarding emergency procurements. The
    specific recommendations are set forth under the "Recommendations or
    Suggestions" above. GAO believes that these improvements should be
    made by DOD.
                          C   n ten    t s       - ;s
                                                          -. Page
DIGEST                                                        1

CHAPTER

      1    INTRODUCTION                                       5

      2    LACK OF COMPETITION FOR EMERGENCY PROCURE-.
           MENTS MIGHT HAVE RESULTED IN INCREASED.COSTS      7
               Additional sources not solicited. .,         10
                   Multiplexers                             10
                   Rejectors                                15
                   Grenade launchers                        16
                   Battery assemblies                       20
                   Tractors                                 21
               Competition obtained on emergency pro-
                 curements                                  24

      3    AGENCY COMMENTS AND OUR EVALUATION               26

      4    CONCLUSIONS AND RECOMMENDATIONS                  29
               Conclusions                                  29
               Recommendations                              30

      5    SCOPE OF REVIEW                                  32

APPENDIX

      I    Letter dated October 21, 1970, from the
             Office of the Assistant Secretary of De-
             fense (Installations and Logistics) to
             the General Accounting Office                  37

  II       Principal officials of the Department of
             Defense responsible for administration
             of activities discussed in this report         51

                          ABBREVIATIONS
DOD        Department of Defense
GAO        General Accounting Office
I&L        Installations and Logistics
COMPTROLLER GENERAL'S             MORE COMPETITION IN EMERGENCY DEFENSE
REPORT TO THE CONGRESS            PROCUREMENTS FOUND POSSIBLE
                                  Department of Defense   B-171561   '



DIGEST


WHY THE REVIEW WAS MADE

     The Armed Services Procurement Act requires that in all negotiated pro-
     curements in excess of $2,500 proposals be solicited from the largest
     possible number of qualified suppliers provided (1.)that pr~ices are not
     fixed by law or regulation and (2)that time for delivery will permit.
     (See p. 5.)
     Defense regulations under the act provide that, when urgently needed
     supplies or services are procured by negotiation, competition to the
     greatest extent practicable, within the time allowed, be obtained.
     During fiscal year 1968 the Department of Defense (DOD) negotiated
     emergency procurements amounting to $5.4 billion, of which 72 percent
     were made without obtaining competition. Although the dollar'amount of
     emergency procurements declined from $6 billion in'fiscal: year 1967 to
     $2.5 billion in fiscal year 1970, the percentage of noncompetitive pro-
     curements remained at about the fiscal year 1968 level.          ''
     At the request of Representative Fred B. Rooney, the General: Accounting
     Office (GAO) made a DOD-wide review of emergency procurements to deter-
     mine whether it was possible to increase competition in these procure-
     ments.

FINDINGS AND CONCLUSIONS                                  ;.

     Many items designated as urgently needed that were procured: noncompeti-
     tively might have been procured competitively, at lower-costs, and with
     acceptable time for deliveries.
     GAO selected for detailed review 54 procurements, valued at about
     $33 million, which had been awarded on a noncompetitive basis due to
     the urgency of the requirements. GAO believes that 36 of these pro-
     curements, amounting to about $31.5 million, could have been made on
     a competitive basis, apparently without adversely affecting the mis-
     sions of the military services. (See p. 7.)
     Information available at the time of the awards indicated that there
     were other suppliers who could have delivered at lower prices and
     within similar times. (See p. 10.)
     The military services could have reduced costs by $3.1 million on
     14 noncompetitive procurements amounting to about $10 million, GAO
     estimates, had competition been obtained. Cost reductions were not
     readily determinable on the remaining 22 procurements. (See p. 7.)

     In a typical emergency procurement, the military activity indicated
     its urgent need for an item on a purchase requisition. Sometimes it
     indicated the supplier from whom it would prefer the item to be pur-
     chased. The requesting organization might have known little about
     the capabilities of other suppliers to produce the item or about the
     ability of the supplier it had designated to furnish the item sooner
     than others. The requester might have been unaware of differences in
     the price at which each supplier was willing to offer the item. The
     procuring activity, however, is responsible for obtaining this infor-
     mation. (See p. 7.)

     In awarding noncompetitive procurements, agency officials relied heav-
     ily on the "urgency" designation and did not consider sufficiently the
     capabilities of other sources to meet delivery requirements nor ques-
     tion restrictions specified as to source by the requisitioning parties.
     Additional costs that would result from noncompetitive awards were not
     considered in determining whether competition should be obtained on
     emergency procurements. (See pp. 7 and 8.)

     For example, the Army awarded contracts for multiplexers to two sup-
     pliers. In making an emergency procurement of the item, the Army elim-
     inated from consideration supplier A, because it determined that sup-
     plier A could not begin deliveries until July 1968, 1 month later than
     requested. However, supplier B, who was awarded the contract, was
     given until August 1968 to begin deliveries. GAO estimated that if
     competition had been obtained the Army might have reduced costs by as
     much as $1.65 million, on the basis of a competitive award for multi-
     plexers made about 5 weeks earlier. (See pp. 10 to 14.)
     GAO believes that there is a need for establishing guidance for pro-
     curement officials in determining whether competition should be ob-
     tained for urgent procurements. Noncompetitive solicitations for the
     procurement of urgently needed supplies and services should be made
     only when it is clear that the Government's interest will be served by
     the solicitation of a single source.

RECOMMENDATIONS OR SUGGESTIONS


    In view of its findings, GAO is recommending that the Secretary of De-
    fense provide additional guidance to procurement officials for use in
    determining when noncompetitive solicitation for urgently needed items
    could be justified. (See p. 30.)



                                   2
    Specifically, the following actions should be taken prir: to the ap-
    proval of noncompetitive solicitations for urgent procurements. (See
    pp. 30 and 31.)
       --A determination should be made from current information (production
         capability, financial capability, experience, etc..), that the se-
         lected source can deliver the requirements a specified-number of
         days, weeks, or months ahead of the other potential source or
         sources.
       --An estimate should be made of the additional unit cost which could
         be expected as a result of the proposed noncompetitive procurement.
       --A statement should be obtained from the commander of the using ac-
         tivity that the estimated time to be saved, by procuring from the
         selected source is essential to the successful completion of the
         assigned mission and that, in his opinion, the additional cost in-
         volved is justified.
     Information needed to make these determinations generally is readily
     available and should not materially delay contracting for urgently
     needed supplies and services. GAO is recommending also that the Sec-
     retary of Defense require that internal audit groups, during their
     regularly scheduled procurement reviews, evaluate and report to appro-
     priate higher levels on the effectiveness of procurement officials in
     obtaining competition for urgently needed supplies and services.
     Audits of such procurements have not been made in recent years at the
     installations reviewed by GAO. (See p. 31.)

AGENCY ACTIONS AND UNRESOLVED ISSUES

     The Deputy Assistant Secretary of Defense (Installations and Logistics)
     advised GAO that there was no need for the Secretary of Defense to im-
     plement GAO's proposals. He stated that procurement officials gave
     great weight in their decisions to the urgency of need cited.by the
     using or requesting activity and that these officials generally con-
     sider the capability of other sources, price factors, and other rele-
     vant matters in making the decisions to solicit and award sole source.
     (See pp. 26 and 27.)
     GAO believes that too much weight may have been given by procurement
     personnel to an undefined urgency. The degree of urgency generally was
     indicated only by reference to a high priority number on the purchase
     request and was not supported by information on the urgency of mission,
     date material was required, or effect of a delay in receipt of the re-
     quested material. Because of the indicated urgency, procurement per-
     sonnel did not require the using or requesting activity to furnish such
     information. (See p. 27.)



                                       3
     Although procurement personnel generally believed that the selected
     source could deliver sooner than any other source, GAO found little
     factual support for such determinations. Little attempt was made to
     determine whether the projected expedited delivery was worth the ad-
     ditional costs which might result from a noncompetitive procurement.
     It is essential, GAO believes, that the additional costs involved in
     a noncompetitive procurement and the delay in receipt of the item if
     it were procured competitively be determined and made available for
     review and evaluation by the using activity. (See p. 27.)

MATTERS FOR CONSIDERATION BY THE CONGRESS

     Congress has a continuing interest in the manner in which Government
     procurement is being accomplished. The findings of this report show
     the need for improvement in awarding emergency procurements. The
     specific recommendations are set forth under the "Recommendations or
     Suggestions" above. GAO believes that these improvements should be
     made by DOD.




                                  4
                         CHAPTER 1

                       INTRODUCTION

     The General Accounting Office has reviewed procurements
by the Department of Defense of urgently needed items--com-
monly called emergency procurements. Such procurements are
frequently made by the military services without obtaining
competition. We examined into selected emergency procure-
ments made during fiscal year 1968 by nine procurement of-
fices. We wanted to find out whether, for each procurement,
there had been enough time to get competition without ad-
versely affecting the missions of the military services and
whether such competition could have resulted in reduced
prices. The review was made at the request of Representa-
tive Fred B. Rooney.

     The Armed Services Procurement Act, as amended Septem-
ber 10, 1962, requires that, in all negotiated procurements
in-excess of $2,500 in which rates or prices are not fixed
by law or regulation and in which time of delivery will per-
mit, proposals be solicited from the maximum number of quali-
fied sources consistent with the nature and requirement of
the supplies or services to be procured. The Armed Services
Procurement Regulation, which implements the act, provides
that urgently needed supplies or services may be procured by
negotiation in lieu of formal advertising. Section 3-202 of
the regulation, which is entitled "Public Exigency," provides
the following guidance for such procurement actions.

     "In order for the authority of this paragraph
     3-202 to be used, the need must be compelling and
     of unusual urgency, as when the Government would
     be seriously injured, financially or otherwise,
     if the supplies or services were not furnished by
     a certain date, and when they could not be procured
     by that date by means of formal advertising. When
     negotiating under this authority, competition to
     the maximum extent practicable, within the time
     allowed, shall be obtained."  (Emphasis supplied.)

     About $6 billion worth of emergency procurements were
negotiated in fiscal year 1967. Of this amount, 62 percent
had been awarded without competition. In fiscal year 1968

                               5
this percentage rose to 72 percent on procurements of about
$5.4 billion. Although procurements under the public exi-
gency exception declined to about $4.4 billion in fiscal
year 1969 and to about $2.5 billion in fiscal year 1970,
the percentage of noncompetitive procurements remained at
about the fiscal year 1968 level.

     At the nine locations we visited (see p. 8), noncompeti-
tive emergency procurements during fiscal year 1968 amounted
to over $860 million. From these procurements we selected
and reviewed in detail 54, valued at about $33 million, that
had been justified on the basis of urgent need. The scope
of our review, including the basis for the selection of lo-
cations visited and transactions reviewed, is discussed
on page 32.

     Internal audits of noncompetitive emergency procurements
had not been made at these installations in recent years.

     The principal officials of DOD responsible for admin-
istration of the activities discussed in this report are
listed in appendix II.




                              6
                        CHAPTER 2

     LACK OF COMPETITION FOR EMERGENCY PROCUREMENTS

         zIIGHT HAVE RESULTED IN INCREASED COSTS

     We believe that, of the 54 noncompetitive procurements
we reviewed, which had been justified on the basis of urgent
need, 36 could have been awarded competitively without ad-
versely affecting the missions of the military services.
The 36 procurements had a value of about $31.5 million. On
the basis of competitive prices obtained earlier or subse-
quently for the same items, we estimate that, if competition
had been obtained, the agencies might have saved about
$3.1 million on 14 of the procurements valued at about
$10 million. Savings were not readily determinable on the
remaining 22 procurements.

     In a typical emergency procurement, a military activity
requesting a purchase indicated its urgent need for an item
on a purchase requisition and usually indicated its desired
delivery date or schedule. Sometimes it designated the sup-
plier from whom it would prefer the item to be purchased.
This designation was usually based on a user's past satis-
faction with the supplier's products or the belief that only
one supplier could deliver the item in time to suit its pur-
poses.

     In fact, the requesting organization might have known
little or nothing about the capabilities of other suppliers
to produce the item or about the ability of the supplier it
had designated to furnish the item sooner than others. The
requester might have been unaware of differences in the
price at which each supplier was willing to offer the item.
The procuring activity is responsible for obtaining this
information.

     Procurement personnel, however, seldom asked the req-
uisitioning organizations to justify their designations of
specific sources or to explain why an early delivery was re-
quired. Further, in many cases they did not adequately con-
sider the capability of other suppliers to meet the urgent
requirements at lower prices.

                              7
     Had the purchase requests been carefully considered
from the standpoint of available sources of supply, procure-
ment lead time, and the time the item would be put into
service, we believe that it would have been evident that
opportunities for competitive procurement were present.

     These opportunities were severely reduced when an item
carried an "urgency" designation and a tight delivery
schedule. We recognize that the procurement activities
gave considerable weight to these conditions. In some in-
stances, however, they decided to forego obtaining competi-
tion, although competing suppliers had requested that they
be considered for an award.

     Although the Armed Services Procurement Regulation in-
dicates that in some instances noncompetitive awards may be
made for urgently needed items, it does not describe the
circumstances that might justify such awards. As prescribed
by the regulation, officials at a level higher than that of
the contracting officer were responsible for review and ap-
proval of noncompetitive awards over $10,000. These offi-
cials did not challenge the validity of the justification
for the designated source nor question whether competition
could have been obtained and the effect it would have on
price and delivery.

     The following schedule summarizes, by location, the
number and value of contract awards we reviewed and those
for which we believe competition could have been obtained.
                                             Noncompetitive          Awards on which
                                               awards for           competition could
                                           urgent requirements     have been obtained
                Installation              Number       Amount     Number       Amount

Department of the Army:
    Army Mobility Equipment Command           10    $ 2,836,000    10       $ 2,836,000
    Army ElectronicsCommand                   11      4,883,000     5         4,552,000
    Army Weapons Command                       5     19,141,000     4        18,471,000
Department of the Navy:
    Navy Purchasing Office, Los Angeles
    Naval Supply Depot, Bremerton             3         50,000                   -
    ,Ships Parts Control Center               9      1,441,000      8         1,119,000
Department of the Air Force:
    Warner Robins Air Materiel Area           9        280,000      3           156,000
    Aeronautical Systems Division             5      4,424,000      4         4,342,000
Defense Supply Agency:
    Defense General Supply Center             2          58,000     2           58,000

        Total                                 54   $33,113,000     36       $31,534,000




                                          8
     The Deputy Assistant Secretary of Defense, Installa-
tions and Logistics (I&L), commented on a draft of this re-
port by letter dated October 21, 1970.  (See app. I.) His
comments and our evaluation thereof are included in the ap-
plicable sections which follow.




                              9
ADDITIONAL SOURCES NOT SOLICITED

     For 36 of the contracts awarded without competition,
other potential suppliers that were not solicited could have
produced the items. It appeared that the contracts could
have been awarded on a competitive basis without adverse
effect on the military services' missions. Information
available at the time of the awards indicated that the other
potential-suppliers could have delivered at lower prices and
within a time frame similar to that of the selected source.
Examples of such competitive procurements follow.

Multiplexers

     In January 1968 the Army Electronics Command purchased
noncompetitively 812 multiplexers, components of a radio
relay system, at a cost of about $3.24 million. The con-
tracting officer justified the award on the basis that the
multiplexers were urgently needed and that only one of two
known suppliers could meet the Army's specified delivery
schedule. On the basis of prices paid for other multiplexers
under a competitive contract awarded about 5 weeks earlier,
we estimate that savings of as much as $1.65 million might
have resulted if negotiations had been conducted with the
competitor. We did not find any demonstration by the com-
mand that the need for early delivery of the item had been
so compelling as to warrant this additional cost.

      In July 1967, purchase requisitions were prepared for
2,225 urgently required multiplexers. The Electronics Com-
mand considered June 1968 to be the earliest realistic date
for the start of delivery. At the time the requests were
prepared, two contractors were producing or were in the pro-
cess of producing multiplexers for the Army under prior con-
tracts. One had received a competitive award in May 1967
following the solicitation of several potential suppliers.
The second contractor had been awarded a contract noncompeti-
tively.

     The Electronics Command first considered obtaining the
additional quantities under the contract which had been
awarded competitively. The command requested this contrac-
tor to submit a proposal for the additional quantities and
for accelerated delivery.

                             10
     The contractor did this in August 1967. Under the ex-
isting contract, deliveries of the original quantities were
to have begun in November 1968. The contractor then pro-
posed to start deliveries in March 1968, 8 months ahead of
schedule. In addition to providing for accelerated deliv-
eries of 2,395 multiplexers already under contract, at an
increased price of $1.6 million, the contractor's proposal
provided for an additional 1,775 units of the new require-
ment of 2,225 units.

     The Electronics Command concluded that this contractor
would be unable to meet its proposed schedule. Among the
reasons cited by the command for rejecting the proposal were:

     --Additional engineering changes were anticipated in
       the contractor's item, which would delay first-article
       approval.

     --The contractor had no firm commitments from subcon-
       tractors for accelerated deliveries.

     --The contractor's production cycle would not permit
       acceptable units to be ready for delivery before July
       1968 (1 month after the desired delivery date).

     --The contractor's proposal to accelerate was felt to
       be optimistic.

     --The contractor's plan to manufacture concurrent with
       and prior to pre-production-sample approval was not
       acceptable.

     Subsequent to this determination, the competitive con-
tractor in September 1967 submitted additional data to dem-
onstrate its ability to meet the accelerated delivery sched-
ule, including firm commitments from all of its vendors.
The contractor stated that its proposal had taken into ac-
count the time required to make engineering changes identi-
fied during testing. The contracting officer advised us
that the additional information had not been considered, be-
cause the engineers had already concluded that the contrac-
tor could not accelerate delivery as proposed. Subsequently,
it was determined that only 812 units were needed to meet
urgent requirements. Negotiations were conducted solely
with the second contractor. We found no evidence that the
competitive contractor had been asked to quote on the re-
vised requirement. The contract for the 812 units called
for the first deliveries to begin in August 1968.

      In our opinion, the Army had no firm basis for exclud-
ing the competitive contractor from competing for this pro-
curement. Additional information furnished by the contrac-
tor in support of its accelerated schedule was not consid-
ered and the capability of the contractor was evaluated on
the basis of accelerated deliveries of 2,395 units rather
than the required quantity of 812 units. Although indus-
trial specialists of the Electronics Command concluded that
the earliest this contractor could begin making deliveries
was in July 1968, 1 month after the desired delivery date,
this was still 1 month earlier than the date the contractor
awarded the contract for the 812 multiplexers was required
to make its first delivery.

     A comparison of the prices paid for the multiplexers
under the noncompetitive contract awarded in January 1968
with the prices paid under a competitive contract awarded
in November 1967 indicated that the Army might have realized
savings of about $1.65 million on this procurement had com-
petition been obtained.

     We believe that the substantially lower prices which
apparently could have been obtained through competition
warranted careful reconsideration by Army officials as to
whether there would be any harmful effect of a few weeks'
delay in delivery.

    The Deputy Assistant Secretary of Defense (I&L), in
    commenting on this procurement by the Army, advised
    us that, at the time this procurement was being consid-
    ered, sufficient data were not available to determine
    whether the new competitive contractor could produce
    within an "accelerated time frame." Further, this con-
    tractor had requested an increase in cost of $1.6 mil-
    lion for providing accelerated delivery, whereas GAO
    estimated a saving of only $1.65 million if competition
    had been obtained. Considering the risks involved in
    starting up a production line under an accelerated
    schedule and considering the higher unit prices

                            12
     requested by this contractor for acceleration, the
     Army project manager had recommended that a sole-source
     contract be awarded to the contractor currently in pro-
     duction. The Deputy Assistant Secretary also pointed
     out that this sole-source procurement of multiplexers
     had been approved by the Assistant Secretary of the
     Army (I&L).

     As discussed on page 12, we found that the Army had not
considered all the information furnished by the competitive
contractor in support of the proposed accelerated delivery
schedule. In addition, the contractor's proposal, which
included a request for an increase in price of about
$1.6 million, provided for the accelerated delivery of 2,395
units under a prior contract, including delivery of the ini-
tial units under that contract 8 months ahead of schedule.

     Thus the contractor was proposing substantially greater
acceleration than was actually required by the Army; that
is, delivery starting in March instead of June 1968 and ac-
celeration of 2,395 units instead of 812 units. We found
no evidence that the Army had attempted to resolve the dif-
ference between the terms of the proposal offered by the
competitive contractor and the Army's actual needs. There-
fore the contractor's request for a $1.6 million increase
to a prior contract bears no relationship to the production
and delivery of the Army's requirement of 812 multiplexers.

     We noted that the sole-source procurement of multi-
plexers was approved by the Assistant Secretary of the Army
(I&L). This approval was based on the Army Materiel Com-
mand's request which indicated that the noncompetitive con-
tractor could start delivery in June 1968, but that a com-
petitive contractor would not be able to begin delivery un-
til approximately August 1969. We found no factual support
for the August 1969 date. In fact, as discussed on page 12,
the Electronics Command estimated that the competitive con-
tractor could begin accelerated deliveries in July 1968.
Also we noted that the sole-source contractor was not re-
quired to begin delivery until August 1968.

     We found no evidence during our review, nor did the
Deputy Assistant Secretary furnish such evidence, that the
Army's evaluation included a detailed analysis of the effect

                             13
on the mission of a few weeks' delay in delivery of the
multiplexers versus the known substantial increase in cost
as a result of the noncompetitive buy.




                            14
Rejectors

     Air Force officials at Warner Robins Air Materiel Area
awarded a contract in May 1967 for 303 quadrature rejec-
tors, a part applicable to the B-52 aircraft, on a noncom-
petitive basis even though another supplier was in the pro-
cess of producing the item under a competitively awarded
contract. The noncompetitive award was authorized on the
basis that the rejectors were urgently needed and that the
selected contractor had previously supplied the item,
whereas the other supplier whose reliability was unproven,
was still to make the initial delivery.

     In February 1967, when the item manager computed the
quantity urgently needed, 295 rejectors due from the com-
petitive supplier were excluded from the computation. The
item manager stated that he did not believe that this con-
tractor could produce an acceptable item and indicated
that, because of the urgent need, this quantity could not
be considered for the requirements determination. The sole-
source justification approved by the Director, Production
and Planning Division, stated that the sole-source procure-
ment was necessary since the competitive contractor had yet
to produce a proven product and still required first-
article testing.

     We could find no factual support for this negative
opinion of the competitive supplier's production or delivery
capability. In fact, Warner Robins' engineering personnel
informed us that the only problem this supplier had in pro-
ducing an acceptable first article was that a piece of
Government-furnished test equipment was received 3 months
after it had been requested.

     Even with this delayed delivery of test equipment, the
rejectors produced by the competitive supplier were approved
by the Air Force and first delivery was made in November
1967, or about 1 month prior to that obtained under the
noncompetitive contract awarded in May 1967. Further, this
supplier received a subsequent competitive award for 400
additional rejectors. The unit price under the competitive
procurement was approximately $81 less than that paid under
the noncompetitive procurement.


                            15
     It appears to us that competition could have been ob-
tained for the procurement of the 303 quadrature rejectors.
Considering the lower prices obtained through competition,
the Air Force may have been able to save about $25,000 on
the procurement without adversely affecting the mission.

     The Deputy Assistant Secretary advised us that the
     subject contract for rejectors was awarded on a sole-
     source basis because the item manager did not believe
     that another supplier, currently in production under a
     prior contract, could furnish an acceptable product.

     We could find no support for this determination. En-
gineering personnel advised us that they were not aware of
any problems that this contractor had had in producing an
acceptable product; in fact, this competitive producer de-
livered initial quantities ahead of the sole-source sup-
plier.

Grenade launchers

     In April 1968 the Army Weapons Command purchased non-
competitively 12,239 M79 grenade launchers at a unit price
of $173 for a total cost of about $2.1 million. The award
was approved on the basis that (1) the contractor, who was
currently producing the item under a prior contract and who
had Government tooling and equipment valued at $600,000,
was the only manufacturer capable of meeting the required
delivery schedule and (2) the performance record of other
producers was poor.

     Two other contractors, who had previously requested
that they be invited to submit proposals on future procure-
ments of the launchers, were not contacted. One such sup-
plier advised the Weapons Command that it was presently
manufacturing eight components of the launcher on subcon-
tract and had assurances from most, if not all, major sub-
contractors that arrangements could be made to purchase all
necessary parts. This supplier asked the command on Febru-
ary 19, 1968, for information on planned procurement of the
launcher. The command did not provide the information, ap-
parently because a decision had previously been made to re-
strict solicitation to the current prime contractor.


                            16
     In making its determination to limit competition, the
Weapons Command estimated that a new supplier would require
at least 12 months' production lead time to begin deliver-
ies, which were desired in 7 months. Although one of the
suppliers who had asked to be considered for the award of-
fered to begin deliveries 4 months after receiving a con-
tract, we found no evidence that procurement officials had
attempted to confirm the soundness of the offer. Further,
the command granted the selected contractor 9 months in
which to begin delivery, apparently with no expectation of
incurring any ill effects as a result of the 2-month delay.

     Less than 1 year later, the Army contracted for 10,000
urgently required launchers on a competitive basis (six
bids received) at a unit price of $139. The contractor
who received the prior noncompetitive award at $173 a unit
was the fourth lowest bidder. On the basis of the price
paid on this competitive award, we estimate that the Army
might have saved as much as $400,000 had it obtained compe-
tition on the earlier award for 12,239 units.

     It appears that factors such as the capability of other
suppliers to meet the required delivery schedule, the ad-
ditional costs associated with a noncompetitive procure-
ment, and the delivery requirements of the users, were not
adequately considered before the decision was made to
forego competition.

     The Deputy Assistant Secretary, in commenting on this
     procurement by the Army, stated that the reliability
     of the contractor was a factor of critical importance
     in making the decision to procure grenade launchers
     noncompetitively in April 1968. The Army had advised
     us that its decision to procure the launchers noncom-
     petitively had been properly based on the following
     considerations:

     1. Of the four firms which had previously been awarded
        contracts for the launcher, one had never produced
        a weapon and two had been forced to obtain "relief
        from the Army Contract Adjustment Board." Thus
        only one of the four contractors was considered re-
        liable.


                             17
     2. Another firm which expressed an interest in this
        procurement offered to begin deliveries within
        4 months. This offer could not be considered real-
        istic since one of the major components, otherwise
        unavailable, had a minimum production lead time of
        5 months.

        This firm also said it was a subcontractor for eight
        major components of the launcher but had actually
        supplied only eight components of the sight assembly.
        Further, the firm had been cited by one of the prime
        contractors as a cause for its failure to meet de-
        livery.

     The Army had further stated that the soundness of the
     decision to procure noncompetitively had been reaf-
     firmed by the fact that the subsequent contract awarded
     competitively to a new contractor had permitted a pro-
     duction lead time of 13 months, and yet the contractor
     had encountered major production problems and had
     failed to meet the delivery schedule.

     Although previous producers of the launchers might have
encountered difficulties in producing the launcher, we do
not agree that there were no other contractors to choose
from. The Army reply indicates that one supplier who ex-
pressed interest in the procurement appeared to be unreli-
able. This supplier, who offered a 4-month delivery sched-
ule, had been disregarded because the Army estimated that
one component part had a production lead time of at least
5 months. We found no indication that the Army had at-
tempted to resolve this discrepancy with the supplier, or
determined whether it could deliver within the required
7-month lead-time period.

     The Army also stated that this supplier had not been
producing any major components of the launcher and had
caused the prime contractor to not meet delivery schedules.
The record showed, however, that this supplier had been pro-
ducing eight components of the critical sight assembly and
that it had encountered production difficulties primarily
because of a fire at the production facilities. We believe
that further investigation was warranted to determine


                             18
whether this offeror was capable of producing the launchers
and meeting the delivery schedules.

     No comment was made as to why another firm which had
expressed interest in the procurement had not been asked to
bid.

     As discussed on p. 17, six replies were received to a
competitive procurement of the launchers less than a year
after the noncompetitive award. Although, as the Army
stated, the successful contractor has experienced some pro-
duction problems, it is currently producing satisfactory
launchers and is only about 2 months behind in deliveries.

     In view of the availability of detailed specifications
and a number of potential suppliers, we believe that the
Army should have held discussions with those suppliers in-
dicating interest in an attempt to obtain the most favorable
procurement.




                            19
Battery assemblies

      In 1968 the Navy Ships Parts Control Center awarded a
 contract noncompetitively for 34 battery assemblies, a mis-
 sile component, at a total cost of $15,266 even though other
 suppliers were known to be capable of providing the assem-
blies. The determination and findings statement signed by
the contracting officer stated that, since the requisition
cited a high priority number, the use of formal advertising
would be impracticable. The contracting officer also in-
cluded in the determination and findings the statement that
the use of a negotiated contract, without formal advertis-
ing, was justified because the public exigency would not per-
mit the delay incident to formal advertising. The purchase
request, however, did not cite a required delivery date nor
describe the urgency of the request. We found no evidence
that the contracting officer or other procurement officials
had questioned the absence of the information.

     We found that the Navy had drawings and specifications
needed to solicit competition. On three of four previous
procurements of this item, two or more bids were received.
These procurements were awarded to three different suppliers
on the basis of the lowest bid submitted. Under a competi-
tive solicitation issued 9 months after the award of the
noncompetitive contract, three bids were received and the
award price (quoted by a previous supplier of the item) was
$49 a unit less that the price quoted by the contractor who
received the May 1968 noncompetitive award. This bidding
pattern also occurred when both suppliers bid on a previous
solicitation.

     We believe that the information available at the time
the purchase request for 34 battery assemblies was received
did not justify excluding other known sources from compet-
ing for the procurement. On the basis of the results of
previous and follow-on procurement of this item, we believe
that a lower price could have been obtained through competi-
tive procurement.

     The Deputy Assistant Secretary agreed that this pro-
     curement should have been made on a competitive basis.
     The award was made on a noncompetitive basis, because


                            20
     information indicating that there were competitive and
     capable suppliers available had been erroneously omit-
     ted from the purchase request.

     Regardless of what information is given on the purchase
request regarding source identification or restriction, pro-
curement personnel are charged with the responsibility for
obtaining competition to the maximum extent practicable.
It appears that in this case procurement personnel overre-
acted to the high priority of the purchase request and
gave little consideration to locating other potential
sources. We found that information regarding other sup-
pliers was readily available at the procurement office.

Tractors

     In March 1968 officials of the Army Mobility Equipment
Command purchased noncompetitively 10 commercial tractors
for a total cost of about $34,000. This contract price was
subsequently increased to about $42,000 by purchasing spare
parts and two additional tractors. The contracting officer,
in requesting approval for a noncompetitive procurement,
stated that other sources could not be solicited because
the specified manufacturer was the only known source of
supply.

     In approving this request for a noncompetitive procure-
ment, the chairman of the Mobility Equipment Command's So-
licitation Review Board, made the following statements.

     "The Board is of the opinion that documents in
     the file support the need for procurement from
     *** [note 1] because it is indicated that the
     tractors are required to drive (propel, power
     take-off, hydraulic controls) and operate exist-
     ing *** [note 1] mowers *** [note 2].     The urgent
     required delivery will not permit the delay
     which would be necessary for engineers to deter-
     mine if the *** [note 1] mower could be used on
     a tractor produced by another company or what

 Specified manufacturer's name omitted.
2 Specified   manufacturer's model number omitted.

                                21
     modifications or additional accessories, if any,
     would be required to make a compatible marriage
     between the *** [note 1] mower and a tractor pro-
     duced by a company other than *** [note 1]. These
     facts were not included in the Contracting Of-
     ficer's sole-source justification, otherwise, the
     Board considers that the file is adequately docu-
     mented and that the proposed approach to accom-
     plish the procurement is sound."


 Specified manufacturer's name omitted.

     Even though the Review Board's comments indicate that
this noncompetitive procurement was approved primarily be-
cause of uncertainty as to whether tractors manufactured by
other sources could operate the mowers currently in use, no
engineering personnel were members of the Review Board con-
ducting the review. Neither did we find any evidence that
technical personnel were otherwise contacted in an attempt
to clarify this uncertainty.

     The Review Board's comments indicate also that such a
determination would have required considerable time. At
our request, however, Army personnel telephoned a local
dealer for the tractor purchased and was informed that
other tractor manufacturers could have furnished a commer-
cial product which would operate the mowers in question.

     It appears that, if responsible officials had been dil-
igent in attempting to obtain competition, possibly a lower
price could have been achieved. In commenting on this case,
a procurement official stated that the decision to procure
noncompetitively was a matter of judgment.

    The Deputy Assistant Secretary advised us that consid-
    eration of other contractors would have required coor-
    dination for a substitute or modified purchase descrip-
    tion with the requesting activity which would have
    caused a substantial delay in a high-priority procure-
    ment.

     Apparently little if any delay would have been en-
countered if a competitive procurement of a commercial
                            22
tractor had been attempted. Procurement officials, however,
did not find out from the requesting activity whether a
competitive-type item would meet requirements or whether
the delay caused by modifying the purchase description would
seriously affect the mission for which the tractors were
being procured. Had they done so, all factors, including
savings, could have been considered.




                             23
COMPETITION OBTAINED ON EMERGENCY PROCUREMENTS

     Our review indicated that procurement officials did
not always accept recommendations that awards be made non-
competitively. The following example shows how one con-
tracting official obtained competition and realized savings
despite such recommendations.

     A request was received by the Army Weapons Command
during the latter part of 1968 for 378 XM129 grenade
launchers. The purchase request cited a high priority num-
ber, indicating an urgent or exigent need.

     The launchers had been previously procured on a non-
competitive basis because of the lack of adequate drawings
and specifications. The last purchase in December 1967
was for 744 launchers at a basic unit price of $6,032.
Drawings and specifications suitable for competitive pro-
curement, however, have since been acquired by the Army.

     In response to the request for 378 launchers, the
Chief of the Production Planning Division of the Weapons
Command recommended in October 1968 that the procurement be
made on a noncompetitive basis to the then-current producer
for the following reasons.

     -- The present producer had $450,000 invested in spe-
        cial tools to manufacture nine components of the
        launcher and these tools were considered a minimum
        for any producer.

     -- The quantity of 378 launchers was considered an un-
        economical production run.

     -- Delivery requirements did not indicate the need for
        a second source.

     -- For a new producer to quote a sufficiently low
      price, an unusual and perhaps undesirable set of
      circumstances would be required to offset tooling
      costs of $1,200 a unit and a learning curve estimated
      cost of $1,000 a unit.



                            24
     --Additional costs for start-up and requirements for a
       test range would be involved if other sources were
       considered.

     -- Lead time available for production was rapidly de-
        creasing.

     Although agreeing that formal advertising procedures
should not be used, because the urgent need of the launchers
required a material reduction of procurement, administra-
tive, and production lead time, procurement officials de-
termined that sufficient time was available to obtain com-
petition.

     In November 1968 price proposals were requested from
eight suppliers. As a result of publicizing the proposed
procurement, 19 additional'suppliers requested and were fur-
nished with data packages. The Army received seven proposals
and awarded the contract to the lowest offeror at a price
of $2,050 a unit. The previous sole-source producer pro-
posed a ~price of $3,045 a unit compared with its earlier
noncompetitive price of $6,032. We estimate that the Army,
by obtaining competition, may have saved as much as
$1.5 million on this procurement.

     In this example statements similar to those used in
the preceding examples were presented to justify the use
of noncompetitive procurement procedures. When properly
evaluated, however, the noncompetitive procurement could
not be sustained.




                            25
                         CHAPTER 3


            AGENCY COMMENTS AND OUR EVALUATION

     We proposed, in our draft report dated August 18, 1970,
that, in order that competition might be obtained to the
maximum extent practicable, the Secretary of Defense take
action to ensure that noncompetitive solicitations for the
procurement of urgently needed supplies and services be made
only when it is clear that the Government's interests will
be served by the solicitation of a single source. Specifi-
cally, we proposed that, as a minimum, the following actions
be taken by agency officials prior to their approving a non-
competitive solicitation under the public exigency provision
of the Armed Services Procurement Act.

     -- A determination should be made from current informa-
        tion (production capability, financial capability,
        experience, etc.), that the selected source can de-
        liver the requirements a specified number of days,
        weeks, or months ahead of the other potential source
        or sources.

     -- An estimate should be made of the additional costs
        which could be expected as a result of the proposed
        noncompetitive procurement.

     -- A statement should be obtained from the commander of
        the using activity that the estimated time to be
        saved by procuring from the selected source is essen-
        tial to the successful completion of the assigned
        mission and that, in his opinion, the additional cost
        involved is justified.

     As discussed in previous sections of the report, we be-
lieve that the information needed to make these determina-
tions generally is readily available and should not materi-
ally delay contracting for urgently needed supplies and ser-
vices.

     In a letter dated October 21, 1970 (see app. I), the
Deputy Assistant Secretary commented on the conclusions and


                              26
proposals presented in the draft report. The following dis-
cussion relates to the pertinent portion of those comments.
    The Deputy Assistant Secretary stated that there was no
    need for the Secretary of Defense to implement GAO's
    proposals; that procurement officials give great weight
    in their decisions to the urgency of need as cited by
    the using or requesting activity; and that procurement
    officials generally consider the capability of other
    sources, price factors, and other relevant matters, in
    making the decisions to solicit and award sole source.
     We recognize that procurement officials generally give
great weight to the urgency of need cited by the using ac-
tivity--so much so, in fact, that many opportunities for
achieving competition may be overlooked. Further, the ur-
gency of need is generally indicated only by reference to a
high priority number in the purchase request and not by such
detailed support as the type of mission involved, dates re-
quired, and effect of delayed delivery. Because of the in-
dicated urgency, procurement personnel did not request that
this information be furnished.
     Also procurement personnel generally based their deci-
sion to procure sole source on the assumption that the se-
lected source could deliver quicker than any other source.
We found that little or no effort had been made to estimate
the time period that the selected source could have delivered
ahead of other potential sources or to evaluate whether the
expedited delivery was worth the additional costs which
might have resulted from a noncompetitive procurement. Al-
though the item in question may be urgently required, it
seems essential that information as to the additional cost
involved in a noncompetitive procurement and the delay in
receipt of the item, if it were procured competitively, be
made available for consideration by the responsible using
activity.

     The Deputy Assistant Secretary questioned the relative
     significance of the dollar value of awards under the
     public exigency exception and the number of such awards
     examined by GAO.

     We recognize that, although the number and value of
public exigency procurements have been decreasing since 1968,
the percentage of noncompetitive procurements has remained
                            27
at about the 1968 level of 72 percent. The number and value
of public exigency procurements, however, could increase, as
they did during the period 1962 through 1967; the value of
public exigency procurements in 1967 was approximately 14
times that in 1962.

     The number of procurements we reviewed was limited by
the amount of time required to research the events leading
to the decision to limit competition. We believe that the
conditions we discovered are representative of the emergency
procurements at the nine locations we visited. We have made
no attempt to project the dollar value of savings on a DOD-
wide basis. Inasmuch as these conditions indicate a need
for more definitive guidance for determining when to limit
competition, however, we believe that all DOD procurement
offices are likely to benefit from such guidance.

     The Deputy Assistant Secretary of Defense also indi-
     cated that GAO was not accurately reporting the number
     of transactions reviewed. For instance, on page 4 of
     the comments (see app. I) it is stated that the Defense
     Supply Agency also advised that your auditors examined
     15 contracts at the Defense General Supply Center and
     found the Center using correct procedures and conduct-
     ing emergency procurements properly. The report states,
     however, that only two contracts were selected for re-
     view at this Center.

     We believe that a misunderstanding exists concerning
the number of contracts we initially listed and those which
we actually reviewed. For example, at the Defense General
Supply Center, we initially listed 12 contracts to be re-
viewed. According to agency records, however, only two of
these contracts were awarded on a noncompetitive basis be-
cause of urgency of need. Upon detailed analysis of these
two contracts, we concluded that the agency should have at-
tempted to obtain competition prior to making the awards.
(See p. 8.)




                            28
                        CHAPTER 4

              CONCLUSIONS AND RECOMMENDATIONS

CONCLUSIONS

     The Congress has directed that, in all negotiated pro-
curements in excess of $2,500 in which rates or prices are
not fixed by law or regulation and in which time of delivery
will permit, proposals be solicited from the maximum number
of qualified sources.

     The Armed Services Procurement Regulation directs that
competition be obtained in emergency procurements where prac-
ticable. The regulation, however, does not provide the nec-
essary guidance to procurement officials describing the cir-
cumstances that might justify noncompetitive procurements.
The designation of an item as urgently needed often deters
procurement officials from seeking out suppliers other than
the one who has been supplying the item in the past, partic-
ularly where that supplier has been identified as the di-
rected source by the organization preparing the purchase
requisition.

     In many instances emergency procurements are awarded
noncompetitively when other suppliers are available who
could produce the item. We believe that substantial savings
could accrue to the Government if additional suppliers were
given an opportunity to compete for emergency procurements.
We believe also that 36 of the 54 emergency procurements we
examined into could have been made on a competitive basis.
We considered five of theseprocurements to be representa-
tive of the 36. These five cases, and the Deputy Assistant
Secretary's comments, were discussed in detail above.

     The Deputy Assistant Secretary also commented   on 15 of
the remaining 31 cases. 1 In general, the comments   on these
15 cases emphasized that procurement personnel had   exercised
proper judgment in making the individual decisions   to



 Because of their volume these additional comments were not
 made a part of this report.

                              29
procure on a noncompetitive basis and that these judgments
had been based on an evaluation of all pertinent factors.
It was again emphasized that, in making these decisions,
procurement personnel gave considerable weight to the ur-
gency of need.

     We found no indication in any of the procurements that
we examined into that procurement personnel had determined
that the selected supplier could deliver the required quan-
tities a specific time period ahead of other suppliers or
that any projected savings in delivery time were so impor-
tant that the cost savings generally associated with compet-
itive procurements should be disregarded. We found no in-
stances where the procuring personnel had requested the
using activity to consider whether potential additional
costs associated with a sole-source procurement were justi-
fied by possible savings in delivery time.

     We believe that valid procurement decisions cannot be
made solely by reliance on an "urgency" designation. It
seems reasonable that, when procurement officials become
aware that urgency has restricted competition and additional
costs will be incurred thereby, they should find out from
the requesting activity whether the indicated time savings
justifies the additional costs.

     We believe that competitive procurements would increase
if the additional costs of noncompetitive procurements were
given greater consideration. In some cases it may be pos-
sible to relax the specified delivery requirements to at-
tract competition without impairing the mission. In many
cases this may not be necessary.

RECOMMENDATIONS

     In view of our findings that many of the noncompetitive
procurements of items designated as urgently needed might
have been procured competitively at lower cost and within
acceptable time limits, we recommend that the Secretary of
Defense provide additional guidance to procurement officials
for use in determining when noncompetitive solicitation for
urgently needed items could be justified.  Specifically,
the following actions should be taken prior to the approval
of noncompetitive solicitations for urgent procurements.

                             30
     --A determination should be made from current informa-
       tion (production capability, financial capability,
       experience, etc.), that the selected source can
       deliver the requirements a specified number of days,
       weeks, or months ahead of the other potential source
       or sources.

     --An estimate should be made of the additional unit
       cost which could be expected as a result of the pro-
       posed noncompetitive procurement.

     --A statement should be obtained from the commander of
       the using activity that the estimated time to be
       saved by procuring from the selected source is essen-
       tial to the successful completion of the assigned
       mission and that, in his opinion, the additional cost
       involved is justified.

Information needed to make these determinations generally is
readily available and should not materially delay contracting
for urgently needed supplies and services.

     Further, we recommend that the Secretary of Defense re-
quire that internal audit groups, during their regularly
scheduled procurement reviews, evaluate and report to appro-
priate higher levels on the effectiveness of procurement of-
ficials in obtaining competition for urgently needed sup-
plies and services. Audits of such procurements have not
been made in recent years at the installations we reviewed.




                             31
                         CHAPTER 5

                      SCOPE OF REVIEW

     Our review was directed to an examination of the poli-
cies, procedures and practices of DOD related to the justi-
fication and approval of noncompetitive solicitations for
emergency procurements made during fiscal year 1968. Our
review was limited to those procurements negotiated pursu-
ant to the public exigency exception to formal advertising.
We conducted our review at the installations listed below.

     Department of the Army:
         Army Weapons Command, Rock Island, Illinois
         Army Mobility Equipment Command, St. Louis, Missouri
         Army Electronics Command, Philadelphia,Pennsylva-
           nia
     Department of the Air Force:
         Warner Robins Air Materiel Area, Robins Air Force
           Base, Georgia
         Aeronautical Systems Division, Wright-Patterson
           Air Force Base, Ohio
     Department of the Navy:
         Navy Purchasing Office, Los Angeles, California
         Naval Supply Depot, Bremerton, Washington
         Ships Parts Control Center, Mechanicsburg, Pennsyl-
           vania
     Defense Supply Agency:
         Defense General Supply Center, Richmond, Virginia

     In general the locations we visited were selected on
the basis of the greatest volume and value of emergency
procurements. One location having only a small number of
such transactions, however, was also selected. Transactions
to be reviewed were selected by means of sampling techniques
(statistical, random, etc.).

     Our review included an examination of the supporting
documentation for selected procurement actions. We inter-
viewed responsible officials at the locations visited and
reviewed pertinent regulations and instructions. We also
discussed our findings with appropriate agency officials.



                             32
     In addition we contacted installation internal review
and audit groups to determine the extent of their reviews
of procurements for urgently needed supplies and services
negotiated without obtaining competition.




                            33
i
APPENDIXES




 35
                                                                 APPENDIX I
                                                                     Page 1


                              ASSISTANT SECRETARY OF DEFENSE
                                   WASHINGTON, D.C. 20301




INSTALLATIONS AND LOGISTiCS                                    21 OCT 1970


         Mr. C. M. Bailey
         Director, Defense Division
         U. S. General Accounting Office
         Washington, D. C. 20548

         Dear Mr. Bailey:

         This is in response to your request of August 18, 1970 for comments on
        'draft report titled "Opportunities for More Competition in Emergency
         Procurements" (OSD Case #3161).

         The draft report provides the results of the GAO examination of pro-
         curements made by the Department of Defense for urgently needed items
         during Fiscal Year 1968. These procurements were negotiated pursuant
         to 10 U.S. C. 2304(a)2 Public Exigency.

         Selected contracts at nine procurement offices were examined. The
         purpose of this examination was to find out whether there was enough
         time to obtain competition, "...without adversely affecting the mission
         of the military services, and to ascertain whether such competition could
         have resulted in reduced prices." At the nine locations, procurements
         awarded under this negotiation authority during Fiscal Year 1968 amounted
         to over $860 million. GAO auditors selected 54 procurements valued at
         about $33 million that had been justified on the basis of urgent need, for
         further review. Of these you believe that 36 procurements amounting
         to $31.5 million could have been made on a competitive basis, "...apparently
         without adversely affecting the mission of the military service." It was
         estimated that the military services could have saved $3.1 million on 14
         of these 36 awards if competition had been obtained. It is your recommen-
         dation that the Secretary of Defense take action to assure that the non-
          competitive solicitation for urgently needed items be made only when it
          can. be "clearly and convincingly" demonstrated that the Government's
         interest will be served by the solicitation of a single source. You suggest,
         in addition, certain corollary actions to complement this recommendation.



                                             37
  APPENDIX I
       Page 2

DoD Position

The GAO report concludes that procurement officials relied heavily on
the "urgency" designation of the procurements and did not sufficiently
consider the capability of other potential sources or the additional costs
that would result from non-competitive awards. In our review of this
matter we agree that procurement officials did give great weight in
their decisions to the urgency of need as cited by the using or requesting
activity. Since procurement activities are charged with procuring "urgent"
material on an expedited basis, we would expect them to give this factor
great weight. However, we also conclude that these same officials
generally considered the capability of other sources, price factors, and
other relevant matters in making their procurement decision to solicit
and award sole source. Therefore, we do not concur that the findings in
the report support the GAO conclusion or that there is a need for DoD to
issue further guidance as is recommended.

History and Current Application of the "Public Exigency" Negotiation
 Authority

The genesis of this negotiation authority lies in an 1860 "landmark" statute.
The substance of this statute was later incorporated in Section 3709 of the
Revised Statutes and in part provided:

    "All purchases and contracts for supplies or services in any
    of the Departments of the Government, except for personal
    services, shall be made by advertising a sufficient time
    previously for proposals respecting the same, when the public
    exigencies do not require immediate delivery of the articles
    or performance of the service. When immediate delivery or
    performance is required by the public exigency, the article
    or service required may be procured by open purchase or
    contract...." (underlining added)

This authority has continued through to the present day as a recognized
exception when there is a compelling need and unusual urgency as when the
Government would be seriously injured, financially or otherwise, if the
supplies or services were not furnished by a certain date, and when they
could not be procured by that date by means of formal advertising. The




                                  38
                                                             APPENDIX I
                                                                 Page 3


Armed Services Procurement Regulation (ASPR) Section III, Part 1,
paragraph 3-202 provides guidance to the contracting officer on the use
of this negotiation authority. The ASPR specifically states: "When
negotiating under this authority, competition to the maximum extent
practical, within the time allowed, shall be obtained. " The ASPR further
provides illustrative circumstances where this authority may be used,
such as:

     · Supplies needed at once because of disaster,

     · Essential equipment or repair needed at once for the performance
       of operational missions, and

     * Purchase requests citing an issue priority designator 1-6
       inclusive under the Uniform Material Movement and Issue Priority
       System (UMMIPS).

The ASPR implementation of this authority requires a determination and
findings justifying its use signed by the contracting officer. In addition,
ASPR 3-102(c) provides that contracts in excess of $10, 000 shall not be
negotiated on a non-competitive basis without prior approval at a level
higher than the contracting officer. This is to assure that negotiated
procurements shall be on a competitive basis to the maximum possible
extent.

Current Usage of the "Public Exigency" Negotiation Authority

A significant reduction in the dollars of awards made under this authority
has occurred in the past several years. For Fiscal Year 1968, the period
of the GAO review, the dollars of awards under this authority totaled
$5.4 billion of which about 24% or $1.3 billion were awarded on the basis
of price competition. In comparison for Fiscal Year 1970, $2.5 billion
of contracts were awarded under this authority with about 22%, $556
million awarded on the basis of price competition. As is evident, we
have halved the contract awards citing this negotiation authority since
Fiscal Year 1968.




                                     39
 APPENUDIX I
      Page 4

Specific Comments on Report Findings

On page 7 of the draft report there is summarized by procurement
installation the contracts selected for review as well as those the GAO
believes could have been awarded competitively. It is observed that
the review sample of contracts valued at $33 million appears quite
narrow when related to total awards in Fiscal Year 1968 citing this
authority. Of interest, the Air Force advises that GAO auditors
actually reviewed 30 contracts for $35. 6 million at the Aeronautical
Systems Division and found Z6 to be justified for reasons other than
urgency. The report on the other hand refers to only five contracts
valued at $4. 4 million selected for review at this installation. The
Defense Supply Agency also advised that your auditors examined 15
contracts at the Defense General Supply Center and found the Center
using correct procedures and conducting emergency procurements
properly. However, the report states that only two contracts were
selected for review at this Center.

The report cites several examples of contract awards wherein it
appeared to GAO that the awards could have been made on a competitive
basis. We will discuss each briefly. We have enclosed further detail
comments on these contracts as well as other contracts referenced in
the report.

Multiplexer s

The report states that $3.1 million could have been saved on 14 awards
if competition had been obtained. Over 50% of this alleged savings
pertains to one case -- the procurement of Multiplexers by the Army
Electronics Command cited on page 8 of the draft report. The report
 states that a new supplier for this item, who had received an award
 based on competition, could accelerate its delivery schedule and produce
the item within the desired delivery time. Based on lower prices of
the competitive award made a few weeks earlier, it is estimated by
GAO a savings of $1.65 million could have resulted if competition had
been obtained.

The Army has advised that among other matters, sufficient data was
not available to determine whether the contractor could produce within




                                    40
                                                            APPENDIX I
                                                                Page 5

the accelerated time frame and the contractor requested a substantial
cost increase for the acceleration along with a request to relax several
contract provisions. The project manager considering these factors
recommended that a sole source award be made to the contractor
currently in production.. This procurement was approved by the Assistant
Secretary of the Army (I&L). It should also be noted that this requirement
was a part of a high priority program for urgent communication needs in
Southeast Asia initiated by the Army Chief of Staff.

Rejectors

On page 11 of the report you refer to a contract let by the Air Force
Warner Robins Materiel Area for quadrature rejectors for B-52
aircraft. The item manager did not believe the competitive supplier
could produce an acceptable item and therefore went sole source to one
that had previously supplied the item. The Air Force advises that in
May 1967 when the decision to award sole source to the prior producer
was made, the new competitive supplier had not proven its capability.
On the other hand, the prior source had proven its capability and support
of'the B-52 aircraft was deemed essential. This procurement was
approved by the Air Force Logistics Command.

Grenade Launchers

On page 12 of the report you cite an April 1968 procurement of grenade
launchers by the Army Weapons Command awarded on a sole source
basis. It is your view that had other sources been considered, a savings
of $400,000 would have been obtained. The Army advises that the record
of the past producers of this weapon clearly indicate that the reliability
of the contractor was a factor of critical importance. This item was
part of an urgent program for upgrading equipment for the RVN Army.
Of the four firms which had been awarded contracts previously, one
never produced a weapon and two had been forced to obtain relief from
the Army Contract Adjustment Board. Offers of other firms to produce
the item were just not realistic. In view of the past experience and the
urgency, the only appropriate course was to procure from a source
whose reliability was known. This procurement was approved by the
Assistant Secretary of the Army (I&L).




                                   41
APPENDIX I
     Page 6


Battery Assemblies

On page 14 of the report you cite a contract for 34 battery assemblies at
a total cost of $15,266 awarded on a non-competitive basis by the Navy
Ships Parts Control Center. It is acknowledged that there were other
suppliers capable of providing this item. Information indicating that
there were competitive and capable suppliers available was erroneously
omitted from the purchase request. This was an oversight.

Tractors

On page 15 of the report you cite a sole-source award by the Army
Mobility Equipment Command for 10 commercial tractors. You concluded
that other tractor manufacturers could supply the requirement. According
to-the Army consideration of other tractors --   non-standard equipment --
would have required coordination of a substitute or modified purchase
description with the requesting activity causing a substantial delay in a
high priority procurement.

General Conclusion

Itis the basic responsibility of the procurement function to procure for
operational forces those equipments and services as are needed when
needed. The cases cited in the GAO report, to the best of our knowledge,
were all of high priority. All were categorized as urgent requirements.
Procurement officials react promptly to urgent requirements; but at the
same time they attempt to obtain competition whenever possible. The
primary report recommendation is that single sources be solicited
only when it is in the best interests of the Government. This is our
published policy guidance and in total context the cases cited in the
report were adequately justified for sole source procurement.



In summary, it is the DoD view that the procurement officials acted
in accordance with the need and urgency of requirements and to the
extent feasible they considered and attempted to gain competition. As




                                  42
                                                           APPENDIX I
                                                               Page 7
is often the case, each transaction required the exercise of judgment
and experience. We find no basis to conclude that the judgments
overall were other than reasonable.

We appreciate this opportunity to comment upon your report.

                                        Sincerely,




                                             Glenn V. Gibson
                                    Deputy Assistant Secretary of Defense



Enclosures
a/s




                                  43
APPENDIX I
    Page 8


                                   ATTACHMENT A




               ADDITIONAL COMMENTS
                  ON CASES CITED
             IN THE GAO DRAFT REPORT


                "OPPORTUNITIES FOR
               MORE COMPETITION IN
             EMERGENCY PROCUREMENT"


                  OSD Case #3161




                      44
                                                           APPENDIX I
                                                               Page 9

Multiplexers - Page 8 of the GAO Draft Report


      The Army nonconcurs with the findings of the GAO with respect to
the multiplexers. There were two active contractors for these items at
the time the urgent requisitions were received in July 1967. One was in
production at that time and the other had been awarded a contract in
March 1967 with a production lead time of eighteen months. The Army
solicited a proposal from the latter contractor for an accelerated
production schedule, and in September 1967, an Army team visited the
contractor to evaluate his capability to meet the accelerated schedule.
These efforts revealed that (1) the contractor was in the initial phase
of ordering hardware for the pre-production equipments and performing
general production planning, with the First Article Test Report still
eight months away, (2) sufficient data was not available to determine if
the contractor could produce within the accelerated time frame, and
(3) the contractor's proposal required the relaxation of several con-
tractual provisions and included an increase in cost of $1. 6 million
(for the total initial requirement) for the acceleration. Considering the
risks involved in starting up a production line under an accelerated
schedule, and considering the higher unit prices of the new contractor
for acceleration, the Project Manager recommended that a sole source
contract be awarded to the contractor currently in production. The
procurement was subsequently approved by ASA(I&L) and resulted in
awarding a sole source contract to the current producer for the urgent
quantities with the balance of the Army requirement procured competi-
tively.




                                   45
 APPENDIX I
    Page 10

Rejectors - Page 111 of the GAO Draft Report


     The procurement of rejectors, PSN 1280-398-1077, 'cited on pages
11 and 12 of the report is not a valid example of improper sole-source
emergency procurement due to following circumstances:

     · During production of the B5Z aircraft and in the early sixties,
the sole producer of quadrature in question was Mechatrol Div, Servo-
Mechanism, Inc., which was acquired by Teledyne Industries, Inc. in
1965.

     · On 3 September 1965, action was initiated by WRAMA to procure
295 each of subject item to satisfy USAF requirements. Two firms,
Teledyne and Eastern Air Devices, Inc. submitted bids. Neither firm
received favorable Facility Capability Report (FCR)by Defense Contract
Administration Service. Due to numerous bidder protests,-a contract
was not awarded until 27 September 1966, almost 13 months later, to
Eastern Air Devices. The award required overriding an unfavorable
FCR and necessitated stringent reproduction and first article testing.

     . Due to the 13 month procurement delay and extensive use of B52
aircraft in SEA, this quadrature rejector became critically short. The
rejector is mission essential to the B52.

        First
        ]     article testing on Eastern Air Devices contract was
scheduled for April 1967 but slipped to July 1967 due to contractor
failure to requisition Government furnished equipment. The production
which was not scheduled until 180 days after test, consequently slipped
to January 1968 under the terms of the contract. In view of Teledyne
acquisition of Mechatrol Division of Servo-Mechanism, emergency sole-
source procurement of 227 rejectors from Teledyne was made on
9 December 1966 with first receipt (15 ea) under contract of 7 April 1967.

     . --In April 1967, not operationally ready supply (NORS) hours of
USAF B52 fleet reached over 1540 hours for the month due to lack of
replacement rejectors. During the three month period (February 1967 -
May 1967), 65 B5Z aircraft (10 percent of SAC fleet) were NORS due to
lack of rejectors.

     · In this critical support situation, WRAMA management determined
an additional procurement of quadrature rejectors was necessary. In




                                  46
                                                          APPENDIX I
                                                             Page 11

May 1967, a decision to award a sole-source emergency pi-ocuremnent to
Teledyne was made, based on the following factors: (1) Eastern Air
Devices had not proven capability with first item acceptance and production
was not anticipated to begin until 180 days after acceptance. (2) Teledyne
had proven production ability with April 1967 receipt and had shown
ability to deliver in short time from contract award. (3)Immediate
improvement in B52 support was essential. At time of award, zero assets
were on hand with total AF requirements of 1473 each and only 472 each
due irrfrom contracts other than that cited in GAO report. Therefore,
the decision was made to award to the only source already producing a
qualified item thereby minimizing any risk of production delay.




                                   47
APPENDIX I
   Page 12

Grenade Launches - Page 12 of the GAO Draft Report



          The Army nonconcurs with the findings of the GAO with respect
 to the grenade launcher. The record of past producers of this weapon
 clearly indicates that the reliability of the contractor was properly
considered a factor of critical importance in the award of a contract
 for an urgently needed OUX requirement. Of the four firms who had
been awarded contracts previously, one never produced a weapon and
two of the others had been forced to obtain relief from the Army
Contract Adjustment Board. Of the three firms who have produced
an acceptable weapon, all have slipped in their delivery schedules.
There were no other contractors from which to choose. The firm
alleged to produce "eight major components" actually produces eight
components of the sight assembly, none of which are classified as
major components. Furthermore, the delivery record of this firm as
a subcontractor had been cited by one of the prime contractors as a
major reason for the failure of the prime contractor to meet his
delivery schedule. The offer by another firm to begin deliveries
within four months could not be considered realistic since one of
the major components, otherwise unavailable, had a minimum production
lead time of 5 months. In view of this past experience and the urgency
of the requirement, the only rational course for the command to have
taken was to procure from a source whose reliability was known. The
soundness of this decision has been reaffirmed by the fact that the
subsequent contract awarded competitively to a new contractor at a
unit price of $139 - the price cited by the GAO as an indication of
the savings which could have been realized on the accelerated contract -
permitted a production lead time of thirteen months, and yet the
contractor encountered major production problems and failed to meet the
delivery schedule.




                                  48
                                                             APPENDIX I
                                                                Page 13

Battery Assemblies - Page 14 of the GAO Draft Report


                   The Priority 03 purchase request did not cite a "Required
Delivery Date." This is not in itself an unusual situation for an Issue
Group I requisition as many are received without a Required Delivery Date
assigned or with a Required Delivery Date which is. already ' past due'.'. The
urgency of the request is described by the priority designator 03.- The
Ships Parts Control Center does not routinely take exception to or'require
written narrative justification from supportedl activities on Issue Group I
requisitions as this is contrary to the purpbse of- the priority 'coding system.
In these cases, the buyer must p'rocess 'the procurement in a minimum of time
and exert every effort to get the best possible delivery. Thus, the deter-
mination and findings issued in this case was proper'-in that the use of formal
advertising would have delayed the delivery of 'a high priority- requirement.

                   This procurement was a non-competitive award.'. At the time
of the award no procurement history was available to the buyer -and Sonotone
was apparently the only known source. When' this, spot buy was processed
through the pricing code, the system then in effect was EAM and the applic-
able card was apparently out of file for posting purposes thus depriving the
buyer of source and pricing information. Therefore, the buyer considered
that the high priority requirement could be met most quickly by negotiating
with the only known source, Sonotone. Had the source and price information
been available to the buyer, competitive negotiations and a more accurate
determination of the fairness and reasonableness of the final price would
have resulted.




                                   49
APPENDIX I
   Page 14


Tractors - Page 15 of the GAO Draft Report


          The Army nonconcurs with the findings of the GAO with respect
to the tractors. A requirement for 10 tractors to be delivered 3 April
196-8 was received on 5 February 1968 with a priority of 02. Procurement
of non-standard equipment, such as these tractors, necessitates coordi-
nation of any deviations from the requirement with the customer. Since
preparation and coordination of a substitute or modified purchase de-
scription with the requesting agency would have substantially delayed
meeting the customers need, the decision was made to solicit only the
specified source. As a result, a contract was awarded on 12 March 1968
at a unit price which is 10% lower than the price charged dealers on the
commercial market. Delivery was made on 12 June 1968, two months after
the required delivery date. Had competition been held, delivery would
have been further delayed with no assurance that cost savings would
result or that the tractor purchased would meet all the performance
characteristics required by the customer.




                                 50
                                                    APPENDIX II
                                                         Page 1

                  PRINCIPAL OFFICIALS OF

                 THE DEPARTMENT OF DEFENSE

      RESPONSIBLE FOR ADMINISTRATION OF ACTIVITIES

                 DISCUSSED IN THIS REPORT


                                       Tenure of office
                                       From          To

                   DEPARTMENT OF DEFENSE

SECRETARY OF DEFENSE:
    Melvin R. Laird                 Jan.     1969    Present
    Clark M. Clifford               Mar.     1968    Jan. 1969
    Robert S. McNamara              Jan.     1961    Feb. 1968

ASSISTANT SECRETARY OF DEFENSE
  (INSTALLATIONS AND LOGISTICS):
    Barry J. Shillito               Feb. 1969        Present
    Thomas D. Morris                Sept. 1967       Jan. 1969
    Paul R. Ignatius                Dec. 1964        Aug. 1967


                  DEPARTMENT OF THE ARMY

SECRETARY OF THE ARMY:
    Stanley R. Resor                July     1965    Present


                  DEPARTMENT OF THE NAVY

SECRETARY OF THE NAVY:
    John H. Chafee                  Jan. 1969        Present
    Paul R. Ignatius                Sept. 1967       Jan. 1969
    John R. McNaughton              July 1967        Aug.  1967




                             51
APPENDIX II
     Page 2

                                       Tenure of office
                                       From          To

                DEPARTMENT OF THE AIR FORCE

SECRETARY OF THE AIR FORCE:
    Dr. Robert C. Seamans, Jr.      Jan.   1969    Present
    Dr. Harold Brown                Oct.   1965    Jan. 1969


                   DEFENSE SUPPLY AGENCY

DIRECTOR:
    Lt. Gen. E. C. Hedlund, USAF    July   1967    Present




                             52                   U.S. GAO Wash., D.C.