oversight

Contract Management: DLA Properly Implemented Best Value Contracting for Clothing and Textiles and Views the Supplier Base as Uncertain

Published by the Government Accountability Office on 2003-02-28.

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

                United States General Accounting Office

GAO             Report to the Chairman and Ranking
                Minority Member, Committee on Armed
                Services, House of Representatives


February 2003
                CONTRACT
                MANAGEMENT
                DLA Properly
                Implemented
                Best Value Contracting
                for Clothing and
                Textiles and
                Views the Supplier
                Base as Uncertain




GAO-03-440
                a
                                               February 2003


                                               CONTRACT MANAGEMENT

                                               DLA Properly Implemented Best Value
Highlights of GAO-03-440, a report to the      Contracting for Clothing and Textiles and
Chairman and Ranking Minority Member,
Committee on Armed Services, House of          Views the Supplier Base as Uncertain
Representatives




The Defense Logistics Agency                   Based on a random sample of clothing and textile procurements conducted
(DLA) supplies the nation’s military           in fiscal year 2001 by DLA’s Defense Supply Center Philadelphia (DSCP),
services and certain civilian                  GAO estimates that DSCP generally complied with statutory and regulatory
agencies with critical resources               requirements for best value contracting. For example, all of the
needed to accomplish their                     procurements in GAO’s sample considered past performance as an
worldwide missions. During fiscal
year 2001, DLA contracts totaled
                                               evaluation factor in the source selection process. While GAO noted some
$14.8 billion—$1.2 billion of which            discrepancies in several of these procurements, mitigating circumstances
was for clothing and textiles. The             lessened the impact of the discrepancies in most cases. DSCP has employed
House Committee on Armed                       several techniques to promote compliance with best value contracting
Services directed GAO to                       procedures. For example, in 1996, DSCP published Guiding Principles for
determine whether DLA is properly              Best Value Source Selection, a handbook that outlines the functions and
implementing applicable statutory              responsibilities of key personnel in the best value source selection process,
and regulatory guidance for                    as well as various approaches to source selection.
“best value” purchases—those that
in the federal government’s view               According to DLA officials at DSCP, the ability of the domestic clothing and
provide the greatest overall                   textile supplier base to meet future military requirements is uncertain. The
benefits, not just the lowest price.
GAO was also asked to obtain DLA
                                               officials said that, at present, DLA’s domestic supplier base for clothing and
officials’ views on the domestic               textiles is more robust than ever, as numerous domestic suppliers who did
supplier base for key clothing and             not traditionally do business with DSCP are now competing for its contracts.
textile items.                                 However, they characterized this increased competition as the “last gasp of a
                                               dying industry.” Domestic clothing and textile suppliers are competing for
                                               DSCP’s business as the industry copes with a decline in employment and
                                               production and as the supplier base increasingly moves overseas. DSCP
GAO recommends that the                        officials fear that as the clothing and textile industry faces increased
Secretary of Defense require the               imports, second- and third-tier suppliers that provide input to domestic
DLA Director to monitor the health             producers of end items may go out of business, thus eroding the domestic
of the clothing and textile supplier           supplier base for these items. They stated, however, that the “Berry
base and, if warranted, keep the
                                               Amendment,” which requires DOD to purchase certain items such as food,
Congress informed on the
implications for future defense                clothing, and textiles from domestic sources, is helping to maintain the
clothing and textile procurements.             domestic supplier base at present.
One means of informing the
Congress may be through the
Department of Defense’s (DOD)
Annual Industrial Capabilities
Report. In commenting on a draft
of this report, DOD concurred with
the recommendation.




www.gao.gov/cgi-bin/getrpt?GAO-03-440.

To view the full report, including the scope
and methodology, click on the link above.
For more information, contact David Cooper
at (202) 512-4841 or cooperd@gao.gov.
Contents


Letter                                                                                                    1
               Results in Brief                                                                           2
               Background                                                                                 3
               DSCP Generally Followed Best Value Guidance and Has Taken
                 Actions to Promote Compliance                                                            4
               DLA Views Clothing and Textile Supplier Base as Uncertain                                  9
               Recommendation for Executive Action                                                       11
               Agency Comments and Our Evaluation                                                        12

Appendix I     Scope and Methodology                                                                     13



Appendix II    Sample of Clothing and Textile Procurements                                               15



Appendix III   Comments from the Department of Defense                                                   16



Appendix IV    GAO Contact and Staff Acknowledgments                                                     18



Table
               Table 1: Procurements in Our Sample                                                       15


               Abbreviations

               DLA        Defense Logistics Agency
               DOD        Department of Defense
               DSCP       Defense Supply Center Philadelphia
               FAR        Federal Acquisition Regulation


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               Page i                                                 GAO-03-440 Contract Management
United States General Accounting Office
Washington, DC 20548




                                   February 28, 2003

                                   The Honorable Duncan Hunter
                                   Chairman
                                   The Honorable Ike Skelton
                                   Ranking Minority Member
                                   Committee on Armed Services
                                   House of Representatives

                                   The Defense Logistics Agency (DLA) supplies the nation’s military services
                                   and certain civilian agencies with critical resources needed to accomplish
                                   their worldwide missions. During fiscal year 2001, DLA contracts totaled
                                   $14.8 billion—$1.2 billion of which was for clothing and textiles. In a
                                   report on the Bob Stump National Defense Authorization Act for Fiscal
                                   Year 2003, the House Committee on Armed Services directed us to
                                   determine whether DLA is properly implementing applicable statutory and
                                   regulatory guidance for “best value” purchases of clothing and textile
                                   items.1 Best value procurements are those that in the federal government’s
                                   view provide the greatest overall benefits, not just the lowest price. In
                                   addition, in subsequent discussions with Committee staff, we were asked
                                   to obtain DLA’s views on the domestic supplier base for key clothing and
                                   textile items.

                                   To conduct our work, we evaluated DLA’s implementation of statutory and
                                   regulatory guidance for best value purchases of clothing and textiles in
                                   fiscal year 2001 with an emphasis on past performance—a key element of
                                   best value procurements—as an evaluation factor, as agreed to by the
                                   Committee. We took a random sample of 15 of the 142 clothing and textile
                                   procurements, each exceeding $100,000, conducted by DLA’s Defense
                                   Supply Center Philadelphia (DSCP) in fiscal year 2001. Based on this
                                   sample, we were able to make projections about how well DSCP complied
                                   with best value guidance for its fiscal year 2001 clothing and textile
                                   procurements. Twelve of the procurements in our sample used a tradeoff
                                   process to make the award decision, considering factors in addition to
                                   price and technical acceptability. The remaining three procurements were
                                   awarded based on price and technical acceptability alone. We also
                                   solicited DLA’s views on the domestic supplier base for clothing and



                                   1
                                    H.R. Report 107-436 on H.R. 4546, Bob Stump National Defense Authorization Act for
                                   Fiscal Year 2003.



                                   Page 1                                               GAO-03-440 Contract Management
                   textiles. Additional information on our scope and methodology appears in
                   appendix I. Appendix II lists the procurements included in our sample.


                   Based on our random sample, we estimate that the clothing and textile
Results in Brief   procurements conducted in fiscal year 2001 by the Defense Supply
                   Center Philadelphia generally complied with statutory and regulatory
                   requirements for best value contracting. For example, all of the
                   procurements in our sample considered past performance as an evaluation
                   factor in the source selection process. We noted some discrepancies in
                   several of the procurements, but, in most cases, these procurements had
                   mitigating circumstances that lessened the impact of the discrepancies.
                   For example, in about half of the cases using a tradeoff source selection
                   process, the solicitation did not provide for a “neutral” rating of
                   prospective suppliers without relevant past performance. In some of these
                   cases, however, when the suppliers’ proposals were evaluated, a neutral
                   rating was provided for each proposal. In the remaining cases, a neutral
                   rating was not an issue in evaluating past performance because either the
                   offerors had some type of past performance or they were rated
                   unacceptable because they did not provide other required information.
                   The Defense Supply Center Philadelphia has employed several techniques
                   to promote compliance with best value contracting procedures. For
                   example, in 1996, the center published Guiding Principles for Best Value
                   Source Selection, known as the “Best Value Handbook,” which outlines the
                   functions and responsibilities of key personnel in the best value source
                   selection process, as well as various approaches to source selection.

                   According to Defense Supply Center Philadelphia officials, the ability of
                   the domestic clothing and textile supplier base to meet future military
                   requirements is uncertain. The officials said that, at present, the Defense
                   Logistics Agency’s domestic supplier base for clothing and textiles is more
                   robust than ever, as numerous contractors who did not traditionally do
                   business with the Defense Supply Center Philadelphia are now competing
                   for its contracts. However, they stated that this increase in competition
                   among domestic suppliers is the “last gasp of a dying industry.” Domestic
                   clothing and textile suppliers are competing for the center’s business as
                   the industry copes with a decline in employment and production and as
                   the supplier base increasingly moves overseas. Defense Supply Center
                   Philadelphia officials fear that as the clothing and textile industry faces
                   increased imports, second- and third-tier suppliers that provide input to




                   Page 2                                       GAO-03-440 Contract Management
             domestic producers of end items may go out of business, thus eroding the
             supplier base for these items. They stated that the “Berry Amendment,”2
             which requires the Department of Defense (DOD) to purchase certain
             items such as food, clothing, and textiles from domestic sources, is helping
             to maintain the domestic supplier base at present.

             We are recommending that the Defense Logistics Agency monitor the
             health of the clothing and textile industrial base and, if warranted, keep
             the Congress informed on the implications for future defense clothing and
             textile procurements. In commenting on a draft of this report, DOD
             concurred with the recommendation. DOD stated that the Defense
             Logistics Agency will include the health of the clothing and textile
             industrial base as a topic in the next DOD Annual Industrial Capabilities
             Report, which is due March 1, 2004.


             DLA has three defense supply centers located in Philadelphia,
Background   Pennsylvania; Richmond, Virginia; and Columbus, Ohio. DSCP is the only
             center responsible for clothing and textiles, medical, subsistence, and
             general/industrial items.

             According to the Federal Acquisition Regulation (FAR) Part 15,
             Contracting by Negotiation, an agency can obtain best value in negotiated
             procurements by using any one or a combination of source selection
             processes. In different types of procurements, the relative importance of
             cost or price may vary. For example, in procurements where the
             requirement is clearly defined and the risk of unsuccessful contract
             performance is minimal, cost or price may play a dominant role in source
             selection, such as in the lowest price/technically acceptable source
             selection process. In procurements where the requirement is not easily
             defined or the risk of unsuccessful contract performance is relatively high,
             technical capability and other factors such as past performance
             considerations may play a dominant role. In those procurements, it may be
             in the government’s best interest to consider award to other than the
             lowest priced or highest technically rated supplier and to evaluate the




             2
              10 U.S.C. 2533a, as implemented by Defense Federal Acquisition Regulation Supplement,
             Subpart 225.7002.




             Page 3                                               GAO-03-440 Contract Management
                           relative importance of other factors, including past performance,3 in a
                           “tradeoff” process.

                           The FAR requires that past performance be evaluated in all source
                           selections for negotiated competitive acquisitions expected to exceed
                           $100,000, unless the contracting officer documents the reason past
                           performance is not an appropriate evaluation factor.4 While DOD obtained
                           a FAR deviation in 1999 that raised the threshold for requiring evaluation
                           of past performance in procurements to those expected to exceed
                           $5 million, DSCP’s “Best Value Handbook” requires past performance to be
                           included as an evaluation factor for all negotiated competitive acquisitions
                           exceeding $100,000.


                           Based on our random sample, we estimate that procurements conducted
DSCP Generally             by DSCP in fiscal year 2001 generally complied with best value statutes
Followed Best Value        and regulations with an emphasis on past performance, as implemented in
                           major provisions of the FAR5 as well as DLA’s implementing acquisition
Guidance and Has           directive. These criteria pertain to four functional areas of the contracting
Taken Actions to           process: acquisition planning, solicitation content, proposal evaluation,
                           and source selection decision documentation. DSCP has been proactive
Promote Compliance         in taking steps to encourage contracting officers to comply with best
                           value guidance.


DSCP Generally Followed    Of the 15 procurements in our sample, 12 were based on a tradeoff
Best Value Statutory and   source selection process that considered factors other than price and
Regulatory Guidance        technical acceptability, while 3 were based on the lowest price/technically
                           acceptable source selection process. We found that the 15 procurements
                           adequately addressed past performance based on FAR and DLA criteria.
                           For each procurement based on a tradeoff process, past performance
                           was the first or second evaluation factor in order of importance. For
                           procurements based on the lowest price, the contracting officers



                           3
                            Past performance information is relevant information regarding a contractor’s actions
                           under previously awarded contracts. It includes, for example, the contractor’s record of
                           conforming to contract requirements and commitment to customer satisfaction. (FAR
                           42.1501.)
                           4
                           FAR 15.304(3).
                           5
                           The FAR references the statutory requirements it implements and those statutory citations
                           will not be repeated here.




                           Page 4                                                 GAO-03-440 Contract Management
considered past performance in general terms as part of the determination
of the contractors’ eligibility for award.

All 15 of the procurements in our sample were required to have written
acquisition plans under DLA’s acquisition directive implementing the
FAR.6 Thirteen procurements had written acquisition plans, while
2 procurements awarded using simplified acquisition procedures under
a test program for acquisitions of certain commercial items did not.7
A DSCP policy memorandum, dated August 21, 2002, reminded buyers and
contracting officers of the need to prepare written acquisition plans for
contract actions expected to exceed the simplified acquisition threshold,
as the procurements here did. However, this memorandum was issued
after the procurements included in our review had been completed.

The 12 procurements that were based on a tradeoff source selection
process were subject to further requirements pertaining to solicitation
content, proposal evaluations, and source selection decisions.8 Despite
overall compliance with major regulatory provisions of the FAR, we found
some cases where specific requirements were not met. However,
mitigating circumstances lessened the effect of the lack of compliance.
The results of our evaluation in each functional area are presented on the
following pages.




6
 While the FAR does not specifically require written acquisition plans, it does direct
agencies to prescribe procedures specifying cases in which a written plan shall be prepared
(FAR 7.103(d)). Defense Logistics Acquisition Directive 7.102 requires written acquisition
plans for all proposed contract actions expected to exceed the simplified acquisition
threshold, which is $100,000.
7
 These two procurements were conducted under the test program, which was
authorized by FAR Subpart 13.5 and which allows contracting officers discretion in
procuring commercial items exceeding the simplified acquisition threshold but not
exceeding $5 million.
8
 One procurement, conducted as a tradeoff analysis under the test program, was not
subject to all of the criteria we cite in the following sections.




Page 5                                                 GAO-03-440 Contract Management
Source: FAR Part 15, Contracting by Negotiation.



The 12 procurements in our sample that were based on a tradeoff source
selection process generally complied with the solicitation content criteria.
Five solicitations, however, did not authorize prospective suppliers to
provide information on problems encountered on prior contracts and
corrective actions taken. Nevertheless, in these five solicitations, some
suppliers identified problems and corrective actions taken, while others
did not report any problems on their prior contracts. DSCP officials noted
that offerors generally submit this information with their proposals even
when it is not specifically authorized in the solicitation.

In addition, the solicitations for 7 of the 12 procurements that were based
on a tradeoff process did not describe DLA’s approach for evaluating past
performance of offerors with no relevant past performance history. The
solicitations should have provided that a “neutral” rating be assigned to
such offerors.9 The effect of not describing a neutral rating in the
solicitation was mitigated in most of these cases, however. In two cases,
DSCP officials did apply neutral ratings when evaluating the proposals.


9
 The FAR requires that such offerors may not be evaluated favorably or unfavorably on
past performance and that the solicitation describe the approach for evaluating past
performance (FAR 15.305(a)(2)).




Page 6                                                GAO-03-440 Contract Management
In four cases, neutral ratings generally were not an issue in the evaluation
of past performance, because nearly all offerors provided relevant past
performance information in their proposals. In one case, where simplified
acquisition procedures were used based on a tradeoff analysis, the
contracting officer assigned unacceptable ratings to the proposals with no
past performance history because they did not provide other information
required by the solicitation.

On March 1, 2002, DSCP implemented a new proposal rating system to be
used in evaluating clothing and textile best value acquisitions. It includes
notice to offerors that a neutral rating will be assigned to an offeror with
no relevant past performance. DSCP officials expect that all future
solicitations will properly cite the neutral rating approach for offerors
lacking relevant past performance history.




Source: FAR Part 15.



The 12 procurements that were based on a tradeoff source selection
process generally complied with FAR requirements on proposal
evaluations. For one of the procurements, however, DSCP did not evaluate
and assess past performance on all of the factors and subfactors found in
the solicitation. For that procurement, while the solicitation listed
customer satisfaction as a subfactor, this subfactor was not considered
when the proposals were evaluated. In addition, a commercial item
procurement, conducted under the FAR simplified acquisition test


Page 7                                         GAO-03-440 Contract Management
                        program, did not evaluate past performance as discussed in the
                        solicitation. While the solicitation stated that performance on prior
                        contracts in subcontracting and assisting small businesses would be
                        evaluated as a part of past performance, the evaluation of proposals did
                        not consider these factors. Because these instances involved lower
                        evaluation subfactors in the overall evaluation scheme, it is unclear
                        whether the evaluation of these factors would have ultimately affected the
                        source selection decisions.




                        Source: FAR Part 15.



                        The 12 procurements that were based on a tradeoff source selection
                        process complied with the FAR in documenting the source selection
                        decision. For example, a comparative analysis was made of the potential
                        suppliers, as appropriate. DSCP has taken further steps to document
                        the basis of source selection decisions by conducting training for its
                        contracting personnel on the need to thoroughly document all
                        factors considered in making final awards in the source selection
                        decision document.


DSCP Has Employed       A recent DLA review of DSCP procurements found that the center is doing
Techniques to Promote   a good job of documenting best value tradeoff decisions in the files. DSCP
Compliance              has employed several techniques to promote compliance with best value
                        contracting procedures. It has provided specific guidance on best value
                        contracting, and a contract support group provides advice and review as
                        procurements are planned and executed.

                        First, to provide its contracting personnel with detailed procedures for
                        competitive negotiated procurements, DSCP developed and published in
                        1996 its own Guiding Principles for Best Value Source Selection, known
                        as the “Best Value Handbook.” The handbook outlines the functions and
                        responsibilities of key personnel in the best value source selection process
                        as well as various approaches to source selection that are available for
                        use. As stated in the handbook, best value is the preferred method of
                        source selection and should be used to the maximum extent possible.



                        Page 8                                        GAO-03-440 Contract Management
                       While other supply centers have issued policy guidance to implement the
                       FAR as well as DOD directives, a DLA official said that DSCP is the only
                       DLA center that has developed a handbook on best value contracting.

                       Second, like all the Directorates at DSCP, the Directorate of Clothing and
                       Textiles has its own contract support team. Headed by a supervisory
                       procurement analyst, the team consists of five procurement analysts, a
                       contract price/cost analyst, an industrial specialist, and a procurement
                       technician. The team supports the Directorate by providing contracting
                       guidance and direction, developing procurement policies and procedures,
                       and developing and administering procurement training. For example, a
                       training program for contracting personnel emphasizes the need to
                       thoroughly document all factors considered in making the final award.
                       The team also encourages the Directorate to use past performance as an
                       evaluation factor for all purchases over $100,000.10

                       Further, DLA’s procurement management review program is designed to
                       provide local, periodic, and specific subject/area reviews of the agency’s
                       contracting offices by an independent and objective team of contracting
                       professionals from the headquarters and field contracting staff. In April
                       2002, a DLA team reviewed DSCP’s Directorate of Clothing and Textiles
                       procurements. The DLA team found the Directorate had substantially
                       improved its documentation of tradeoff decisions related to best value
                       source selection in the contract files. The best value tradeoff decisions
                       documented in the files were characterized by the DLA team as among the
                       best that the team had seen in the entire agency.


                       DLA officials view the future of the clothing and textile supplier base as
DLA Views Clothing     uncertain. They noted that the Berry Amendment, which requires DOD to
and Textile Supplier   purchase certain items such as food, clothing, and textiles from domestic
                       sources, helps maintain a domestic supplier base to meet some of DOD’s
Base as Uncertain      unique military requirements. They also stated that competition for
                       DOD’s clothing and textile contracts has never been stronger, as clothing
                       and textile companies that have traditionally not done business with DOD
                       are now competing for DLA contracts. In fact, they informed us that some
                       U.S. companies produce items only for DOD. However, they stated that
                       this increase in competition among domestic suppliers is the “last gasp of



                       10
                        Currently, the group responsible for awarding contracts for military insignia
                       procurements uses the higher threshold of $500,000 for best value contracting.




                       Page 9                                                 GAO-03-440 Contract Management
a dying industry.” An increasing number of domestic suppliers are
competing for DSCP’s clothing and textile contracts for a variety of
reasons as the industry copes with a decline in employment and
production, consolidations and bankruptcies, increased imports, and
domestic suppliers moving overseas. If an item cannot be acquired from a
domestic supplier, DLA can obtain a waiver from the Berry Amendment,
allowing it to purchase the item from a foreign supplier.11 To better
understand the future of the clothing and textile supplier base and to
identify potential solutions to keep the industry viable, DSCP has initiated
an industrial base study on the health of the clothing and textile industry.

Over the past few years, various free trade agreements have been
implemented that have affected the clothing and textile supplier base.
DSCP officials said that a further complication to the outlook for the
clothing and textile supplier base is a World Trade Organization agreement
that will eliminate quotas for many imported clothing and textile items by
January 1, 2005.12 According to DSCP officials, the implementation of free
trade agreements and the removal of the quotas may threaten second- and
third-tier suppliers. For example, they stated that one U.S. company
supplies wool fabrics to many domestic companies, including contractors
that make coats for the military services. However, other U.S. companies
are purchasing inexpensive wool fabrics imported from foreign countries,
thus competing with the U.S. supplier. Because this U.S. supplier is losing
business to foreign competitors, it may not have enough business to keep
its factories operating. According to DSCP officials, if the supplier cannot
keep its factories operating, it may eventually go out of business and those
contractors that make coats for the military services will not have the
company as a domestic supplier of wool.




11
 During fiscal years 2001 and 2002, DSCP’s Directorate of Clothing and Textiles obtained
12 Berry Amendment waivers.
12
  The Uruguay Round Agreement on Textiles and Clothing, approved by Congress as part of
the Uruguay Round Agreements Act, 19 U.S.C. 3511(a)(1), provides for the integration of
the clothing and textile sectors into the general rules of the General Agreement of Tariffs
and Trade 1994.




Page 10                                                GAO-03-440 Contract Management
                     In response to the World Trade Organization agreement, DSCP has
                     initiated an industrial base study of the domestic clothing and textile
                     industry to determine what will happen when quotas are removed at the
                     beginning of 2005. The study’s preliminary findings support DSCP’s
                     concern about the overall health of the U.S. supplier base for clothing and
                     textile products. For example, DSCP has found that an increasing number
                     of DSCP contractors are totally dependent on government work. Further,
                     DSCP found that about 300 U.S. textile mills, which performed weaving
                     and finishing and supplied yarn, closed from 1995 to 2001. DSCP is
                     exploring whether the Berry Amendment will be sufficient to protect the
                     domestic industrial base or whether there are other possible solutions to
                     keep the industry viable and support readiness.

                     In those situations that involve critical military clothing and textile items,
                     DSCP officials said that DLA, in the future, could strengthen the supplier
                     base by increasingly providing contracts to a number of suppliers for
                     national defense purposes to achieve industrial mobilization. For example,
                     in fiscal year 2002, two industrial mobilization contracts were awarded at a
                     cumulative value of $2.7 million for cold-weather underclothing.

                     DLA provides input to DOD’s Annual Industrial Capabilities Report,
                     which is to be submitted to the Congress by March 1 of each year. Section
                     2504 of title 10, U.S. Code, requires the report to include, among other
                     things, a description of the methods and analyses being undertaken by
                     DOD to identify and address concerns regarding technological and
                     industrial capabilities of the national technology and industrial base.
                     DLA’s input generally focuses on specific items that are being procured.
                     However, a DLA official told us that it would be possible to include a
                     discussion of the clothing and textile industrial base if the situation
                     warranted. Ultimately, the official said that it is up to DOD as to whether
                     such information will be presented in the final report submitted to the
                     Congress.


                     We recommend that the Secretary of Defense require the DLA Director to
Recommendation for   monitor the health of the clothing and textile industrial base and, if
Executive Action     warranted, keep the Congress informed of the implications for future
                     defense clothing and textile procurements. One means of informing the
                     Congress may be DOD’s Annual Industrial Capabilities Report, which is
                     submitted annually to the Congress.




                     Page 11                                        GAO-03-440 Contract Management
                     DOD provided written comments on a draft of this report. DOD generally
Agency Comments      agreed with the draft report and concurred with the recommendation.
and Our Evaluation   DOD stated that DLA will include the health of the clothing and textile
                     industrial base as a topic in the next DOD Annual Industrial Capabilities
                     Report, which is due March 1, 2004. DOD’s comments appear in
                     appendix III.


                     We are sending copies of this report to interested congressional
                     committees, the Secretary of Defense, and the Director, DLA. We also will
                     make copies available to others upon request. In addition, the report will
                     be available at no charge on the GAO Web site at http://www.gao.gov.

                     Please contact me at (202) 512-4841 if you have questions regarding this
                     letter. An additional contact and staff acknowledgements are listed in
                     appendix IV.




                     David E. Cooper, Director
                     Acquisition and Sourcing Management




                     Page 12                                      GAO-03-440 Contract Management
             Appendix I: Scope and Methodology
Appendix I: Scope and Methodology


             To determine whether the Defense Logistics Agency’s (DLA) Defense
             Supply Center Philadelphia (DSCP) Directorate of Clothing and Textiles
             complied with selected statutory and regulatory guidance for best value
             contracting, including the use of past performance as an evaluation factor,
             we took a random sample of 15 of the 142 competed clothing and textile
             procurements in fiscal year 2001, each exceeding $100,000. Our sample
             size was based upon the assumption that the incidence of problems in
             source selection competition procedures would be 10 percent or less. This
             assumption gives a 95 percent confidence interval for the sample estimate
             that is accurate to within plus or minus 15 percent. The assumption of a
             low incidence of problems was accepted because DLA had just conducted
             a management review of DSCP prior to the start of fiscal year 2001 and
             found few problems.

             Of the 15 procurements selected for our sample, 12 involved a tradeoff
             source selection process comparing price and other factors using criteria
             found in the Federal Acquisition Regulation (FAR) Part 15, Contracting by
             Negotiation or FAR Part 13, Simplified Acquisition Procedures—Test
             Program for Certain Commercial Items, for purchases of commercial
             items exceeding the simplified acquisition threshold but not exceeding
             $5 million. In addition, 3 were awarded based on a lowest price/technically
             acceptable source selection process using criteria found in (1) FAR
             Part 12, Acquisition of Commercial Items, (2) FAR Part 13, Simplified
             Acquisition Procedures—Test Program for Certain Commercial Items, or
             (3) FAR Part 15.

             To assess whether DLA properly implemented statutory and regulatory
             guidance for best value purchases, we reviewed FAR Part 7, Acquisition
             Planning; FAR Part 12; FAR Part 13; FAR Part 15; and the Defense
             Logistics Acquisition Directive. We identified and applied major provisions
             of the FAR and the DLA acquisition directive pertaining to acquisition
             planning, solicitation content, proposal evaluation, and source selection
             decision documentation, with a focus on past performance. Finally, we
             reviewed DSCP’s 1996 Guiding Principles for Best Value Source
             Selection, known as the “Best Value Handbook.”




             Page 13                                      GAO-03-440 Contract Management
Appendix I: Scope and Methodology




To obtain DLA’s views on the domestic supplier base for clothing and
textiles, we contacted DLA officials from DSCP. We also spoke with
officials from the American Apparel and Footwear Association to obtain a
general understanding of the industry. We did not independently verify the
information the officials provided to us. During our review, DSCP was
conducting a clothing and textile study of the industrial base and officials
provided us with documentation dealing with the supplier base. This study
has not yet been completed. In addition, we gathered information on
DOD’s Annual Industrial Capabilities Report submitted to the Congress
by March 1 of each year.

We performed our work from August 2002 to January 2003 in accordance
with generally accepted government auditing standards.




Page 14                                       GAO-03-440 Contract Management
                                              Appendix II: Sample of Clothing and Textile
Appendix II: Sample of Clothing and Textile   Procurements



Procurements

                                              The table below lists the procurements included in our sample. Dollar
                                              amounts shown for the improved physical fitness uniform pants and sound
                                              protector procurements represent actual obligations placed against the
                                              contracts in fiscal year 2001. Dollar amounts shown for the remaining
                                              procurements represent estimated contract values, including the basic
                                              contract period and all option periods.

Table 1: Procurements in Our Sample

 Contract                                    Contractor                          Product                                   Dollar
 SP010001D4014                               Armorworks, LLC                     Body armor                           $35,907,825
 SP010001D4017                               Harris Mfg. Co., Inc.               Coveralls                            $20,000,000
 SP010001D4002                               Mine Safety Appliances Company      Goggles                              $10,000,000
 SP010001D0317                               Propper International, Inc.         Shirts                                $9,500,000
 SP010001D4020                               AOTEC, LLC                          Spectacles                            $6,500,000
 SP010001D0306                               J H Rutter-Rex Mfg. Co., Inc.       Trousers                              $6,300,000
 SP010001DCB17                               Olympic Mills                       Undershirts                           $4,100,000
 SP010001D0328                               Ashland Sales and Service Co.       Trousers                              $3,000,000
 SP010001MCA17                               American Apparel Inc.               Improved physical fitness             $2,967,498
                                                                                 uniform pants
 SP010001D0305                               M & B Headwear Company Inc.         Sun hat                               $2,500,000
 SP010001D4022                               Action Embroidery Corp.             Insignia                              $2,300,000
 SP010001D5063                               Propper International, Inc.         Coveralls                             $2,000,000
 SP010001C5009                               Silencio Safety Direct, Inc.        Sound protectors                        $685,800
 SP010001D4029                               Precision Polymer Mfg.              Clipboards                              $500,000
 SP010001D5017                               Jacqueline Embroidery Company       Insignia                                $250,000
Source: DLA Management Information System.




                                              Page 15                                              GAO-03-440 Contract Management
              Appendix III: Comments from the Department
Appendix III: Comments from the
              of Defense



Department of Defense




              Page 16                                      GAO-03-440 Contract Management
Appendix III: Comments from the Department
of Defense




Page 17                                      GAO-03-440 Contract Management
                  Appendix IV: GAO Contact and Staff
Appendix IV: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Michele Mackin (202) 512-4309
GAO Contact


                  In addition to the name above, Robert L. Ackley, Marie P. Ahearn, Carl S.
Acknowledgments   Barden, Charles D. Groves, John D. Heere, and William E. Petrick, Jr.
                  made key contributions to this report.




(120176)
                  Page 18                                      GAO-03-440 Contract Management
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