oversight

Contract Management: DOD Pricing of Commercial Items Needs Continued Emphasis

Published by the Government Accountability Office on 1999-06-24.

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

                  United States General Accounting Office

GAO               Report to Congressional Requesters



June 1999
                  CONTRACT
                  MANAGEMENT

                  DOD Pricing of
                  Commercial Items
                  Needs Continued
                  Emphasis




GAO/NSIAD-99-90
United States General Accounting Office                                                      National Security and
Washington, D.C. 20548                                                              International Affairs Division




                                     B-280125                                                                  Letter



                                     June 24, 1999

                                     The Honorable James Inhofe
                                     Chairman
                                     The Honorable Charles Robb
                                     Ranking Minority Member
                                     Subcommittee on Readiness and Management Support
                                     Committee on Armed Services
                                     United States Senate

                                     The Department of Defense (DOD), with the support of the Congress, is
                                     increasing its purchases of commercially available products and services.
                                     While the current level of commercial purchasing is relatively small and
                                     sole-source commercial purchases even smaller, DOD expects commercial
                                     purchases to increase in the future and believes determining fair and
                                     reasonable prices for commercial sole-source items will continue to be
                                     challenging. The Federal Acquisition Regulation (FAR) cautions DOD
                                     contracting officers not to obtain more information than is necessary for
                                     determining price reasonableness and it emphasizes the need to limit
                                     information requests of the contractor. However, when needed,
                                     contracting officers may ask contractors to provide sales prices for the
                                     same or similar items, an explanation of the contractor’s discount policy, or
                                     cost data.

                                     The FAR defines price analysis as the process of examining and evaluating
                                     a proposed price without evaluating its separate cost elements or profit.
                                     Price analysis techniques include (1) comparing proposed prices in
                                     response to a competitive solicitation; (2) comparing a currently offered
                                     price to previously paid prices if both the validity of the comparison and
                                     the reasonableness of the previous prices can be established; (3) using
                                     parametric methods such as dollars per pound or other measurement units;
                                     (4) comparing offers to competitive published price lists, published market
                                     prices, and discount or rebate arrangements; (5) comparing proposed
                                     prices with independent government cost estimates; and (6) comparing
                                     proposed prices with prices obtained through market research for the same
                                     or similar items.

                                     As you requested, we (1) determined the extent of price analysis DOD
                                     contracting personnel were performing to arrive at fair and reasonable
                                     prices for commercial sole-source items, (2) evaluated how well contract




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                   personnel performed price analyses, and (3) determined what guidance
                   and training was available to assist them in determining price
                   reasonableness. We reported our preliminary observations during
                   testimony before the Senate Subcommittee on Acquisition and Technology,
                   Armed Services Committee, in March 1998. 1 This report supplements the
                   information presented in that testimony.



Results in Brief   In 33 of the 65 commercial sole-source purchases we reviewed, price
                   analysis consisted of comparing the offered price to an offeror’s catalog or
                   price list, and/or to the price(s) the government previously paid for the
                   same or similar items. Contracting officers accepted the offered price in
                   30 of the 33 purchases and negotiated lower prices in 3 cases (9 percent).
                   In the other 32 purchases, contracting personnel used one or more
                   additional price analysis tools such as obtaining commercial sales cost
                   information. Contracting officers accepted the offered price in 19 of the
                   32 purchases and negotiated lower prices in 13 cases (41 percent).

                   The price analysis performed by contracting personnel were often too
                   limited to ensure that prices were fair and reasonable. For example, some
                   contracting personnel believed that when the offered price was the same as
                   the catalog or list price, it could be considered a fair and reasonable price.
                   In several cases, contracting personnel did not use pertinent historical
                   pricing information contained in contract files that should have raised
                   questions about the reasonableness of offered prices. Further, contracting
                   officers, generally, were not using a discretionary solicitation clause that
                   requires offerors to provide information other than certified cost and
                   pricing data, such as sales data, in support of their offered prices. In
                   addition, some contracting officers paid prices that included unneeded
                   services. Finally, many contracting officers were not documenting in the
                   contract file how they determined that a price previously paid for an item
                   was fair and reasonable and, therefore, could be relied on in evaluating the
                   currently offered price.

                   Reasons given for the limited price analysis included workload burdens
                   and urgent requirements for items. DOD officials also noted the reduced
                   negotiation leverage that contracting officers now have when purchasing
                   commercial items in a sole-source environment.



                   1 Defense Acquisition: Improved Program Outcomes Are Possible (GAO/T-NSIAD-98-123, Mar. 18, 1998).




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                        DOD continues to provide guidance and training to assist contracting
                        personnel in contracting for commercial items and in performing sound
                        price analysis. However, based on our work, DOD’s efforts have yet to be
                        fully understood or embraced by all DOD contracting personnel. In time,
                        the training should improve their price analysis and negotiating skills.
                        Also, recent legislation requires increased guidance for contracting
                        personnel on price analysis tools, the appropriate use of information other
                        than cost or pricing data, and the role of support agencies. The guidance
                        should also help government contracting personnel become smarter buyers
                        in the commercial marketplace. As of May 1999, regulations to implement
                        the act had not been published.

                        We are making recommendations to the Secretary of Defense to improve
                        the price analysis performed by DOD contracting personnel.



Price Analysis          While the FAR grants DOD contracting officers wide latitude on the type
                        and extent of price analysis techniques they can use, contracting officers
Performed by            are required to perform sufficient price analysis to determine whether
Contracting Personnel   offered prices are fair and reasonable. The more knowledgeable
                        contracting personnel are about the basis and makeup of commercially
                        offered prices, the better the position they will be in to evaluate the
                        reasonableness of offered prices. Our review of 65 commercial sole-source
                        purchases showed that for 33 purchases, price analysis consisted of
                        comparing the price offered to a catalog or price list, and/or to the price(s)
                        previously paid for the same or similar items by the government.
                        Contracting officers accepted the offered price in 30 of these 33 purchases
                        and negotiated lower prices in 3 (9 percent).

                        For the other 32 purchases, contracting personnel used one or more
                        additional price analysis tools. For 21 of these purchases, some
                        commercial sales information was obtained. Depending on the
                        circumstances, sales information can be useful in comparing the
                        reasonableness of prices offered by contractors to prices paid by
                        commercial customers for the same or similar items sold in comparable
                        quantities. However, in many of the 21 cases, the quantities the
                        government required were significantly larger than the quantities reflected
                        in the commercial sales information. Contracting officers accepted the
                        offered price in 13 of these 21 cases and negotiated lower prices in 8 cases
                        (38 percent). With regard to sales information, contracting personnel have
                        another tool available to them. A 1998 Defense Contract Audit Agency
                        (DCAA) memorandum emphasized its availability to review sales and other



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                             data provided by contractors in support of their offered prices for
                             commercial items. However, contracting personnel requested this support
                             for only one of the purchases we reviewed. A number of contracting
                             personnel told us they were unaware that this DCAA support was available.

                             For the remaining 11 purchases, contracting personnel used other pricing
                             tools such as obtaining cost information. Contracting officers accepted the
                             offered price in 6 of these 11 purchases, and negotiated lower prices for
                             5 purchases. In total, contracting officers accepted the offered price in 49
                             of the 65 purchases (75 percent) and negotiated a price reduction in 16
                             cases (25 percent).



Price Analysis Often         We found that price analysis being performed by contracting personnel
                             were often too limited to ensure fair and reasonable prices. For example,
Limited                      some contracting personnel believed that when the offered price was the
                             same as the catalog or list price, it could be considered a fair and
                             reasonable price. In several instances the price analysis performed by
                             contracting personnel did not address pertinent historical pricing
                             information. In addition, some contracting officers paid prices that
                             included unneeded services. Further, contracting personnel, generally,
                             were not using a discretionary solicitation clause that requires offerors to
                             provide information other than certified cost and pricing data, such as sales
                             data, in support of their offered prices. Finally, many contracting officers
                             were not documenting in the contract file how they determined that a price
                             previously paid for an item was fair and reasonable and, therefore, could be
                             relied on in evaluating the currently offered price. While we believe some
                             price analyses were often too limited, we cannot say whether the prices
                             would have been different had better price analysis been performed.



Comparing Price Offered to   FAR and service guidance make it clear that contracting personnel cannot
Catalog or List Price        simply rely on catalog or list prices in making a price reasonableness
                             determination. While catalog prices are an appropriate source of pricing
                             information, contracting personnel must evaluate catalog prices while
                             considering such things as quantities to be purchased, delivery times,
                             market conditions, and sales to other customers. Contracting personnel
                             must do sufficient price analysis to enable them to determine the
                             reasonableness of an offered price and to document the results of their
                             price analysis.




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                            In our review, we found 22 purchases where the price analysis was based
                            only on catalog prices. For eight of these purchases, the price analysis
                            consisted of simply comparing the offered price to a current catalog or list
                            price less whatever discount was offered. For 14 additional purchases, the
                            offered price was also compared to previous prices that were the same as
                            the catalog or list price less whatever discount was offered. In all 22 cases,
                            the contracting officer accepted the offered price. In our discussions with
                            contracting personnel, some believed that catalog or list prices could be
                            accepted as fair and reasonable because they assumed that these are the
                            prices paid by commercial customers.



Not Using Pertinent         In several cases, contracting personnel did not use pertinent historical
Contract File Information   pricing information contained in contract files that should have raised
                            questions about the reasonableness of offered prices. For example, in June
                            1998, a DOD contracting officer paid $7,320 each for 31 generator adapter
                            kits, in part, based on a comparison to prior government purchases since
                            April 1995 at the same price and other small quantity commercial sales in
                            1998 at $9,727 each. The price analysis for this purchase referred to an
                            August 1997 management directive cautioning that historical prices should
                            only be used if they were prior to 1993 because more recent purchases
                            from this contractor were overpriced by about 300 percent. Nevertheless,
                            the 1995 price was used to support a price reasonableness determination
                            for the 1998 price of $7,320. According to information in the files, DOD had
                            purchased eight of these items in 1989 for $1,129 per unit. The price analyst
                            told us that because of her workload she did not have time to research the
                            price reasonableness of the 1989 purchase made by another DOD buying
                            office.

                            In a second case, in October 1996, using a commercial contract, an Air
                            Force contracting officer paid $1,307 each for 81 aircraft engine vanes for
                            the KC-135 aircraft. The commercial price was based on the catalog price
                            less a 7.5-percent discount. This part is also used on the F-16 engine and
                            was bought by the Air Force in September 1995 under a separate
                            noncommercial contract for $300 each. The contracting officer was aware
                            of lower prices for common parts but did not believe that it was
                            appropriate to use another contract to purchase the vanes. In discussing
                            this situation with Air Force contracting personnel, they advised us that the
                            noncommercial contract could have been used to purchase the vanes.

                            In a third case, in November 1996, a parts distributor offered a price of
                            $453 per unit for 381 wiring harnesses used on C-130 aircraft. The Defense



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                         Logistics Agency (DLA) contracting officer accepted this price based on a
                         comparison to commercial sales prices, with the largest purchase being for
                         seven units at $495 each. According to information in the contract files,
                         DOD purchased 461 wiring harnesses directly from the manufacturer in
                         1993 for $103 each and 194 units in 1994 at $91 each. Subsequently, the
                         manufacturer declined to sell the item directly to the government but
                         instead referred DLA to its authorized distributor. The contracting officer
                         did not use the historical pricing information to attempt to negotiate a
                         lower price with the distributor for the 1996 purchase. A DLA official told
                         us it has initiated a review of the price paid for this purchase.

                         In another case, an Air Force contracting officer determined that an offered
                         unit price of $2,718 for 83 B-1B hydraulic-cylinder blocks was fair and
                         reasonable when compared to a 1996 unit price of $2,535, a 7-percent
                         increase over 17 months. However, the contracting officer told us she did
                         not consider other information in the contract file showing that the unit
                         price paid for this item had increased from $441 in 1989 to $2,535 in 1996, a
                         475-percent increase. She said she was only required to compare the
                         currently offered price to the last price paid.



Not Using Solicitation   We found that contracting officers, generally, were not using a
Clause for Obtaining     discretionary solicitation clause requiring offerors to provide information
Information              other than certified cost and pricing data, such as sales data, in support of
                         their offered prices. The FAR allows contracting officers to insert this
                         clause in solicitations when they determine that such data will likely be
                         needed to evaluate price reasonableness. 2 For a commercial item, this
                         clause requires offerors to submit, at a minimum, information on the prices
                         at which the same or similar items have been sold in the commercial
                         market that is adequate for evaluating the reasonableness of prices offered
                         the government. For commercial items where the price is listed in a
                         catalog, the clause also requires offerors to explain the basis of each
                         offered price, its relationship to the established catalog price, and an
                         explanation of how the proposed price relates to the price of recent sales in
                         quantities similar to those requested by the government. DLA guidance
                         recommends this clause in all solicitations and contracts for sole-source
                         commercial items.




                         2 FAR clause 52.215-20 or its predecessor FAR clause 52.215-41.




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                              We found that some contracting personnel were unfamiliar with this clause
                              while others did not have a clear understanding about when it should be
                              used for commercial purchases. Some contracting supervisors believe that
                              because this clause is also applicable to noncommercial contracts, there
                              may be some confusion among contracting personnel about its
                              applicability to commercial contracts.



Paying Prices That Included   The FAR and military service guidance emphasize that in determining price
Unneeded Services             reasonableness, contracting personnel must understand the basis for an
                              offered price. Accepting offered prices without considering such things as
                              quantities to be purchased, delivery times, market conditions, or sales to
                              other customers can result in prices that are not fair and reasonable. For
                              example, the catalog prices of commercial aircraft parts are often based on
                              small quantities delivered rapidly; in contrast, government requirements
                              may be for larger quantities to be placed in inventory and delivered over
                              much longer periods of time.

                              We identified two instances where contracting officers paid commercial
                              catalog-based prices to restock inventories rather than to meet urgent
                              requirements requiring rapid delivery. In the first instance, the contracting
                              officer purchased 11 wing components in December 1996 for $38,693 each,
                              which was the contractor’s published catalog price. The catalog prices
                              were based on a 10-day delivery period. However, the government’s
                              required delivery was July 1998--19 months later--for routine restocking of
                              spare parts. In the second instance, in March 1997, the Air Force placed an
                              order for 404 engine acoustical panels at the commercial catalog-based
                              price of $588 each based on a 10-day delivery period. However, because of
                              the large quantity ordered, the contractor indicated that delivery could not
                              start until the end of August 1997 and would not be completed until April
                              1998, over a year after the order was placed. Nevertheless, the order was
                              placed at a price based on 10-day delivery. In both cases, we found no
                              indication that contracting personnel inquired about the possibility of
                              lower prices for extended delivery times.

                              In contrast to these two situations, we found another buying activity that
                              negotiated a large discount for items not requiring rapid delivery. The
                              contracting officer negotiated a 61-percent discount off the offeror’s
                              commercial catalog prices for about 8,000 engine spare parts. Delivery
                              would be based on the time required to manufacture the items ordered
                              rather than the short delivery times provided for in the catalog. The
                              government would, however, be required to pay the premium prices paid by



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                            commercial customers if the shorter catalog delivery times were required
                            to meet urgent needs.



Not Documenting the         The FAR provides that a contracting officer can compare currently offered
Reasonableness of Prior     prices to prior prices, if both the validity of the comparison and the
Prices                      reasonableness of the previous price(s) can be established. However, we
                            found that many contract files did not show how contracting officers
                            determined that a price previously paid for an item was fair and reasonable
                            and, therefore, could be relied on in evaluating the currently offered price.
                            This issue has been previously recognized as a potential problem. For
                            example, an Air Force Institute of Technology and Federal Acquisition
                            Institute Contract Pricing Resource Guide, referenced in the FAR, cautions
                            that, “It is not uncommon to review an item purchase history and find that
                            no basis other than the last price paid has been used for years to determine
                            price reasonableness.”



Reasons Given for Limited   Contracting personnel offered a number of reasons why they did not
Price Analysis              perform more extensive price analysis. Some said that given their
                            workload, the most they could do was to compare the offered price to the
                            catalog price or to the last price paid by the government. They said they
                            did not have enough time to obtain commercial sales information or
                            develop detailed independent cost or parametric estimates. At two
                            activities, managers acknowledged that workforce downsizing had
                            increased the workload of contracting personnel. At one activity, they said
                            management’s priority had been to clear a large backlog of purchase
                            orders, which made price a secondary consideration.

                            In some cases, contracting personnel said pressures from their customers
                            to meet urgent requirements prevented more extensive price analysis and
                            negotiations over price. In these instances, customers told contracting
                            personnel that they were less concerned about price than meeting mission
                            requirements or keeping to overhaul and repair schedules. In a few cases,
                            contracting personnel said that additional price analysis was not needed
                            because the offered prices compared favorably to prices previously paid.

                            DOD officials noted that one difficulty facing contracting officers is that
                            some contractors take advantage of their position as sole-source
                            commercial item providers. Further, one official stated that some
                            contractors refuse to negotiate what the government would consider fair
                            and reasonable prices. DOD officials noted that in these situations



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                     contracting officers do not have enough leverage. For example,
                     negotiations by DLA with one sole-source supplier resulted in a price that
                     DLA did not believe was fair and reasonable because it was almost double
                     the cost of the item. In this instance, the negotiated price was about three
                     times the price previously paid. Nevertheless, DLA decided to purchase the
                     item at a price it considered excessive, but limited the quantity to the
                     amount needed until an alternative source could be developed from among
                     manufacturers who make similar items.



Efforts to Improve   DOD continues to add to the training and guidance it offers contracting
                     personnel to assist them in performing price analysis in a commercial
Price Analysis       contracting environment. Between June and August 1997, each of the
                     military services and DLA issued additional guidance on the pricing of
                     commercial items. The guidance recognizes the challenges that
                     contracting officers face in determining whether prices for commercial
                     items are fair and reasonable, especially when there is no competition. The
                     guidance also stresses the importance of negotiating prices when buying
                     commercial items, and reemphasized FAR guidance regarding the pricing
                     of commercial items and the contracting officer’s responsibility to ensure
                     that prices paid by the government are fair and reasonable. The guidance
                     cautioned contracting officers about the need to fully understand the basis
                     of commercial catalog prices and not to assume that they are fair and
                     reasonable just because they are in a published commercial catalog.
                     Further, the guidance reminded contracting personnel that for commercial
                     acquisitions, the FAR allows them to request information other than
                     certified cost and pricing data to the extent necessary to determine price
                     reasonableness.

                     In fiscal year 1998, the Office of the Deputy Under Secretary of Defense
                     (Acquisition Reform) sponsored a series of satellite broadcasts to provide
                     training on acquisition reform, including the pricing of commercial items.
                     Specific subjects covered included commercial pricing practices;
                     performing market research; and the use of historical, comparative, and
                     parametric pricing techniques. A June 1998 session was devoted entirely to
                     the pricing of commercial spare parts in a sole-source environment. In
                     addition, during calendar year 1998, both DLA and the Air Force provided
                     contracting personnel with 1-day training courses on commercial
                     acquisition and pricing. The topics covered by this training were similar to
                     DOD’s satellite broadcasts.




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                     Also, in February 1998, the Deputy Under Secretary of Defense (Acquisition
                     Reform) issued a Commercial Pricing Information Guide. The guide
                     emphasizes the link between good market research and the ability of
                     contracting officers to negotiate fair and reasonable prices for commercial
                     items. In June 1998, the Air Force Materiel Command issued its own
                     supplementary Commercial Acquisition Guide. In addition to discussing
                     price analysis techniques that can be used for commercial purchases, the
                     guide emphasizes the importance of sound market research in determining
                     price reasonableness and the need for contracting personnel to adequately
                     document the results of their research in the contract files. Further, DOD,
                     DLA, and military services have established Internet Web sites with
                     additional guidance and tools to assist contracting personnel in performing
                     market research and in acquiring and pricing commercial items.

                     Other opportunities to obtain training on pricing commercial items
                     included presentations by DOD and DLA officials during DOD’s 1998
                     Acquisition Reform Week Activities, and classes sponsored by DOD’s
                     Defense Acquisition University. DOD is continuing its efforts to develop
                     additional training on commercial pricing, including computer-based
                     training.



Recent Legislation   The Fiscal Year 1999 Strom Thurmond National Defense Authorization Act
                     required clarification of the procedures and methods used by government
                     contracting personnel to determine the reasonableness of commercial
                     prices. This act requires FAR revisions to provide specific guidance on
                     (1) the application and precedence of specified price analysis tools; (2) the
                     circumstances under which contracting officers should require contractors
                     to provide prior sales prices for the same or similar items, or other
                     information, other than certified cost and pricing data, in support of their
                     commercially offered prices; and (3) the roles and responsibilities of DOD
                     support organizations, such as the DCAA, in procedures for determining
                     price reasonableness. The act also requires DOD to track price trends for
                     commercial items, and to take appropriate action to address any
                     unreasonable escalation in prices identified by the price trend analysis.

                     The same act also directed that the FAR be revised to require offerors, as a
                     condition for entering into a contract, to provide sales and other
                     information, other than certified cost and pricing data, in support of their
                     offered prices when such information is requested by the contracting
                     officer. This requirement would be subject to any exceptions that the




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                  Federal Acquisition Regulatory Council determines appropriate. As of May
                  1999, regulations to implement the act had not been published.



Conclusions       The current contracting environment for sole-source commercial items
                  presents negotiating challenges for DOD contracting personnel. Based on
                  our work, DOD’s efforts to improve the quality of price analysis have yet to
                  be fully understood or embraced by all DOD contracting personnel.
                  However, it is important to recognize that DOD is in the midst of training its
                  contracting personnel on commercial pricing. In time, effective training
                  should improve their price analysis and negotiating skills. Recent
                  legislation requiring increased guidance for contracting personnel on price
                  analysis tools, the appropriate use of information other than cost or pricing
                  data, and the role of support agencies should also help government
                  contracting personnel become smarter buyers in the commercial
                  marketplace.

                  Beyond these actions, we believe that two areas deserve additional
                  attention. One is the lack of awareness or understanding by contracting
                  personnel concerning the use of a solicitation clause that requires
                  contractors to provide information other than certified cost and pricing
                  data in support of their offered prices. The second is the failure of
                  contracting personnel to use pertinent historical pricing information
                  contained in contract files that should have raised questions about the
                  reasonableness of offered prices. Recent commercial prices paid by some
                  DOD contracting officers may reflect insufficient training or a lack of
                  understanding of what constitutes good price analysis in a sole-source
                  environment.



Recommendations   We recommend that the Secretary of Defense direct the Under Secretary of
                  Defense for Acquisition and Technology to

                  • include, as part of DOD’s efforts to implement recent legislation,
                    clarification of the circumstances when it is appropriate to use the FAR
                    clause (52.215-20) requiring an offeror to provide information on the
                    prices at which the same or similar items have been sold in the
                    commercial market and
                  • issue a memorandum to contracting personnel emphasizing the
                    importance of understanding and using historical pricing information
                    for sole-source commercial item purchases.




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Agency Comments   In commenting on a draft of this report, DOD concurred with our
                  recommendations. DOD said it would issue the guidance recommended by
                  the draft report as part of its implementation of the requirements of the
                  Strom Thurmond National Defense Authorization Act for Fiscal Year 1999.



Scope and         To determine and evaluate the price analysis DOD contracting personnel
                  were performing to arrive at fair and reasonable prices for commercial
Methodology       sole-source items, we focused on the purchase of aircraft parts. We did this
                  because aircraft parts and related end items represented the largest
                  category of commercial sole-source purchases DOD made during fiscal
                  year 1997. Within aircraft spare parts, we selected those DOD buying
                  activities that were major purchasers of commercial sole-source items. We
                  obtained this information by analyzing DOD’s DD350 database, which
                  contains all contract transactions over $25,000. Based on our analysis, we
                  selected the following DOD buying activities for review:

                  •   Air Force’s Air Logistics Center, San Antonio, Texas;
                  •   Air Force’s Air Logistics Center, Oklahoma City, Oklahoma;
                  •   U.S. Special Operations Command, Fort Eustis, Virginia;
                  •   Defense Supply Center, Columbus, Ohio;
                  •   Defense Industrial Supply Center, Philadelphia, Pennsylvania; and
                  •   Defense Supply Center, Richmond, Virginia.

                  In addition, we selected the Naval Inventory Control Point, Philadelphia,
                  Pennsylvania, because it was located at the same address as the Defense
                  Industrial Supply Center in Philadelphia.

                  For each of these buying activities, we obtained additional information
                  from the activity on commercial sole-source purchases. From this
                  information, we further narrowed the universe down to those sole-source
                  commercial purchases over $100,000 where the price was negotiated
                  during fiscal years 1997-98. Finally, we judgmentally selected a total of 65
                  contract actions amounting to about $79 million for review. For each
                  contract action, we reviewed the information in the contract file, including
                  the price analysis and negotiation memorandums, and identified the price
                  analysis tools contracting personnel used to determine fair and reasonable
                  prices. We also discussed this information with selected contracting
                  personnel who conducted the price analyses. Based on these reviews and
                  discussions, we evaluated how well contract personnel performed their
                  price analyses.



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To identify the guidance and training available to contracting personnel to
assist them in determining a fair and reasonable price, we asked DOD,
DLA, and military service representatives to provide us with available
guidance and training on commercial purchases. We reviewed this
information and discussed it with selected contracting personnel and
management at DOD buying offices.

Our work was performed in accordance with generally accepted auditing
standards.


We are sending copies of this report to the Honorable William Cohen,
Secretary of Defense; the Honorable Jacob J. Lew, Director, Office of
Management and Budget; and Lieutenant General Henry T. Glisson,
Director, Defense Logistics Agency. Copies will also be made available to
others on request.

Please contact me at (202) 512-4587 if you or your staff have any questions
concerning this report. Major contributors to this report are listed in
appendix II.




David E. Cooper
Associate Director
Defense Acquisitions Issues




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Contents



Letter                                                                                              1


Appendix I                                                                                         16
Comments From the

Department of Defense



Appendix II                                                                                        20
Major Contributors to

This Report




                        Abbreviations

                        DCAA      Defense Contract Audit Agency
                        DLA       Defense Logistics Agency
                        DOD       Department of Defense
                        FAR       Federal Acquisition Regulation



                        Page 14                                    GAO/NSIAD-99-90 Contract Management
Page 15   GAO/NSIAD-99-90 Contract Management
Appendix I

Comments From the Department of Defense                       ApIenxdi




             Page 16        GAO/NSIAD-90-99 Contract Management
Appendix I
Comments From the Department of Defense




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Appendix I
Comments From the Department of Defense




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Appendix I
Comments From the Department of Defense




Page 19                                   GAO/NSIAD-90-99 Contract Management
Appendix II

Major Contributors to This Report                                               ApIpx
                                                                                    Ien
                                                                                      di




National Security and   Paula J. Haurilesko
                        Thomas W. Hopp
International Affairs   Julia M. Kennon
Division, Washington,   Leslie E. Schafer
                        Charles W. Thompson
D.C.




Boston Field Office     Paul M. Greeley




Los Angeles Field       Carlos M. Garcia
                        Noel J. Lance
Office




(707321)      Leetr     Page 20               GAO/NSIAD-99-90 Contract Management
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