oversight

Fair Prices Paid for Small Purchases by Department of Defense

Published by the Government Accountability Office on 1971-01-29.

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

                     CONGRESS
                              f llllllllllllllllllllllllllllll
                                            LM095732




Fair Prices Paid
        all Purchases
              nt 8f Defense     8.162313




BY THE COMPTROLLER GENERAL
OF THE UNITED STATES



                      JAN. 29,19       7I
                                COMPTROLLER        GENERAL      OF    THE      UNITED   STATES
                                                 WASHINGTON.     D.C.       20548




      B-162313


                                                                                                     I 1
/    To the      Fresident   of the Senate    and the
‘J   Speaker       of the House   of Representatives

               This    is our    report
                                     on f                                    r small       purchases
                                                                             ~.-“~~.__...-~,,~ ~~;,.iy”I~“c-- by.-the
                                                                                                           .-.x- h-...d.
I                                    The report                  presents    our findings        together         with            ?
                                   ns taken by                 the Department         of Defense         to im-
     prove  small-purchase        operations.                  This review      was made pursuant                 to
     the Budget    and Accounting       Act,  1921                (31 U.S.C.    53), and the Accounting
     and Auditing     Act of 1950 (31 U.S.C.                   67).

             In an earlier         examination          we found that buyers               had not been aware
     that some of the items              they procured            were     listed     in suppliers’        catalogs
      or Federal      stock     catalogs       at lower       prices.        We found       also that in many
      cases the buyers         lacked       sufficient       information          concerning         the items
     they were      buying     to enable        them to adequately               evaluate       the reasonable-
     ness of prices        charged        by the suppliers.             One company             sold a number
     of items    to the Government                at prices       substantially         greater       than the
     prices    shown in the company’s                  catalog      but sold the items             to its com-
     mercial     customers         at catalog        prices.

               Our recent       examination        indicated      that most of the locations                we
     visited      had effectively       implemented          the corrective         measures        estab-
     lished      by the Department          of Defense         and the military         services      after
     the hearings         held in the fall of 1967 by the Subcommittee                        for Special
     Investigations,          Committee       on Armed         Services,       House     of Representa-                    ’ 1.’ r ! .’
     tive s . As indicated           in the report,       our tests      showed      that generally
      small     purchases       were fairly      priced.        We believe,       however,       that, be-
     cause of the large            number     of small      purchases        that are made          annually
     and the significant           number      of personnel        who are engaged            in making
      small     purchases,       the Department          of Defense        should     continue     to closely
     monitor       this area.

             We are issuing this report     to advise   the Congress     of the progress
     made by the Department      of Defense    in correcting    problems      identified
     in this area earlier.
B- 162313




        Copies    of this report    are being   sent to the Director,    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
      REASONABLENESS
                   OF PRICES PAID FOR SMALL PURCHASES

       BY DEPARTMENTOF DEFENSEPROCUREMENTACTIVITIES

      A small purchase is described in the Armed Services
Procurement Regulation. as the procurement of supplies and
nonpersonal    services the aggregate amount of which does not
exceed $2,500.      In fiscal  year 1969 Department of Defense
small purchases amounted to $1.6 billion       for about 6.9 mil-
lion transactions.       Of the $1.6 billion about $926 million,
or 58 percent,     was awarded without competition.

       In August 1967 Congressmti Otis G. Pike'&       New York
requested our assistance     in determining   the reasonableness
of prices   paid for a number of small purchases by Depart-
ment of Defense procurement offices.        In the transactions
we examined, it appeared that buyers had not been aware that
some of the items they procured were listed       in suppliers'
catalogs or Federal stock catalogs at lower prices.           It ap-
peared also that in many cases the buyers lacked sufficient
information    concerning the items they were buying to enable
them to adequately evaluate the reasonableness        of the prices
charged by the suppliers.      One company sold a number of
items to the Government at prices substantially        greater than
the prices shown in the company's catalog but sold the items
to its commercial customers at catalog prices.

       Shortly    thereafter,     as a result    of attention    drawn by
this investigation        to the area of small purchases,         the then-
Assistant     Secretary     of Defense (Installations        and Logistics)
requested the military          services and the Defense Supply
Agency to appraise the adequacy of small-purchase                operations   is
by reviewing procurement           staffing,  training,     and supervision
and the accomplishment of daily tasks.               Later,   the Assistant
Secretary     indicated     that the Department of Defense had
launched a comprehensive program built              around 16 specific
improvement actions.

       In the fall of 1967, the Subcommittee for Special In-
vestigations,      Committee on Armed Services,   House of Repre-
sentatives,     conducted hearings on Department of Defense pol-
. .
acres,    procedures,     and practices in making small purchases.
In its interim      report of January 22, 1968, the Subcommittee


                                     1
recommended, among other things,  that the General Accounting
Office review and appraise the corrective  measures taken by
the Department of Defense.

        Our October 7, 1968, report to the Subcommittee
 (B-162313),     indicated    that the Department of Defense, the
military     services,     and the Defense Supply Agency had taken
actions,     in varying degrees, to comply with the Subcommit-
tee's recommendations.,         We indicated    also that, because
there had been a shortage of manpower in the procurement
offices    and because instructions        had only recently   been is-
sued, implementation         had been delayed at several locations.
Consequently,      we advised the Subcommittee that we would de-
lay further      appraisal    of the corrective     measures until   a
sufficient     period of time had elapsed to permit their          full
implementation.

        Our recent examination   was performed at 10 procurement
offices    of the Army, Navy, Air Force, and the Defense Supply
Agency.     During the period January 1 through March 31, 1969,
these 10 installations      awarded about 138,000 small purchase
actions    amounting to about $58 million.     We reviewed 1,136
of these actions amounting to about $557,000.

        Our review indicated         that most of the locations       we
visited    had effectively         implemented the corrective       measures
established      by the Department of Defense and the military
services     after the hearings by the Subcommittee.               Among the
improvements noted were better training                 of buyers, improved
procurement data, and more extensive                internal  reviews of
small purchase activities.              In September 1968 the Armed Ser-
vices Procurement Regulation              was revised to require     that,
for purchases in excess of $250, a statement be placed in
the contract       file    setting   forth the basis for the determina-
tion that the price was fair and reasonable when only one
price quotation         was received or when the price variance be-
tween multiple         responses reflected       a lack of true competi-
tion.     Also, the Department of Defense published               a Small
Purchase Manual in December 1969.                This manual was designed
to provide concise guidance to the small-purchase                  buyer or
purchasing      clerk.




                                     2
       We did not encounter significant    instances of over-
pricing   similar to those previously   identified.   Our tests
showed that generally    small purchases were fairly   priced.

       We believe             that, because of the large number of small
purchases that               are made annually   (about 7 million   transac-
tions)   and the             significant   number of personnel who are en-
gaged in making                small purchases (an estimated    70 percent of
the Department's                procurement man-hours),   the Department of
Defense should               continue to closely monitor this area.

             We performed       our review   at the following   locations.

             Army:
                  Missile    Command, Huntsville,      Alabama
                  Fort Lewis, Washington
                  New York Procurement Agency, New York, N.Y.
             Navy:
                  Electronics    Supply Office,     Great Lakes, Illinois
                  Naval Supply Center, Norfolk,         Virginia
                  Ships Parts Control Center, Mechanicsburg,          Pennsyl-
                     vania
             Air Force:
                  San Antonio Air Materiel        Area, San Antonio,    Texas
                     (Central Procurement)
                  Sacramento Air Materiel       Area, Sacramento, Califor-
                     nia (Central    and Base Procurement)
             Defense Supply Agency:
                  Defense Construction     Supply Center, Columbus, Ohio
                  Defense Industrial     Supply Center, Philadelphia,
                     Pennsylvania

         We examined purchase order folders,            prior procurement
history     data, drawings for selected noncompetitive              actions,
available      suppliers'    catalogs,     price lists,      and Federal
Supply Schedules.          Our review samples were selected by sta-
tistical     sampling methods, except that items purchased with
nonappropriated        funds and procurement       actions for utility
and other services obtained at fixed rates were excluded.
Where appropriate         we discussed purchase actions with pro-
curement and technical          personnel.



U.S.   GAO   Wash..   D.C.


                                             3