oversight

Acquisition Reform: Review of Selected Best-Value Contracts

Published by the Government Accountability Office on 1999-04-14.

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

      United States

GAO   General Accounting Office
      Washington, D.C. 20648

      National Security and
      International Affairs Division

      B-281983

      April 14, 1999



      The Honorable Pete Sessions
      House of Representatives

      Subject: Acquisition Reform: Review of Selected Best-Value Contracts

      Dear Mr. Sessions:

      This letter responds to your request for information regarding the government’s best-value
      awards to contractors other than those submitting the lowest-priced offers.’ In addressing
      your request, we identified best-value contracts that included premiums, the dollar amount of
      those premiums, and the documentation government buyers used to support their award
      decisions. We have defined premiums as the difference between the awardee’s evaluated
      price and that of the lowest acceptable offeror. We reviewed the regulations that cover
      best-value awards and over 250 contracts whose solicitations stated that the government was
      willing to consider offerors other than the lowest one. These contracts were awarded by 37
      buying organizations, which were chosen to reflect a broad range of agencies, the goods and
      services they purchased, and geographic locations. These organizations were not selected
      randomly; consequently, our results cannot be generalized to all buying organizations.

      INFORMATION          ON CONTRACTS REVIEWED

      Of the over 250 contracts we reviewed, 53 were awarded to other than the lowest offeror
      because the buying official decided that a higher offeror provided the government the best
      value. Those 53 contracts had evaluated prices totaling about $5.3 billion. The premiums
      accounted for about 7 percent, or about $367 million, of the total value.




      ’ The Federal Acquisition Regulation (FAR) defines “best value” asthe expectedoutcomeof an acquisition that
      provides the &reatestoverall benefit in relation to the government’srequirement. Agenciescan obtain the best
      value using different types of sourceselection approachesto reflect the relative importanceof cost or price. The
      best-valuesourceselection approachdiscussedin this report is one in which the governmentcan award a
      contract to other than the lowest-priced offeror if the buyer determinesthat a particular higher-pricedproposal
      would provide a greatervalue to the governmentand that this greatervalue is worth the extra cost.



                                               /hw7;/                       GAO/NSIAD-99-93R Acquisition Reform
B-281983

The Federal Acquisition Regulation (FAR) does not specify the types of goods or services for
which premiums may be paid. However, we found that the majority of contracts that
involved premiums were for sophisticated government products and services. These included
contracts for cleanup activities at a former nuclear production facility, construction of
chemical weapons disposal facilities, and procurement of various items such as amphibious
transport dock ships and radar shelters.


Laws and the FAR require the government to clearly state evaluation factors and their relative
importance in the solicitation and require award decisions to be based solely on those factors.
For the 53 contracts we reviewed, government buyers complied with the requirements and
linked their decisions for selecting the higher-priced proposals to the key evaluation factors
identified in the solicitations.’ The FAR was changed in 1997 to require agencies to
document, in the contract file, that the perceived benefits of the higher-priced proposal
merited the additional cost.’ Although contracts in our review predated this requirement,
 documentation citing such justifications was included for each of the 53 contracts.


Government buyers frequently based their decisions to choose higher-priced offers on the
offerors’ superior technical ability, exceptional management practices, or outstanding
relevant experience. For instance, information in the contract file supported premium award
decisions by relating the selection to the awardee’s superior technical approach and
exceptional management practices, which in some cases were expected to result in savings
over the contract period. In one instance, the savings were expected to more than compensate
for the premium. Ln another case, the awardee’s ability to earn fees was linked to contract
performance. If the awardee failed to deliver the expected performance, the fee would be
reduced. We also found documentation that related the premium decision to the awardee’s
excellent ability to meet technical requirements within statutory timeframes because of
superior relevant experience with similar previous contracts.

 SCOPE AND METHODOLOGY

 Federal agencies do not maintain central data showing whether government buyers awarded
 contracts to other than the lowest-priced offeror. We therefore used government databases to
 identify contracts for which the solicitation provided for this approach. We focused our
 review on new contracts awarded in fiscal years 1996 and 1997 through full and open
 competition with more than one offeror and initial obligation values of $500,000 or more.3
 For civilian buying organizations, we looked at contracts with initial obligations of $500,000
 to $1 million and of $2.5 million and above. For military buying organizations, we looked at
 contracts with initial obligations of $500,000 to $1 million and of $5 million and above.


 * FAR Part 15.101-l(c) revised in September1997and implementedJanuary 1, 1998.
 3 ‘Full and opencompetition” when usedregarding a contract action meansthat all responsiblesourcesare
 permitted to compete.



 Page 2                                                            GAO/NSIAD-99-93R Acquisition Reform
B-281983

During fiscal years 1996 and 1997, military and civilian buying organizations awarded 1,954
such contracts.

Within this universe of contracts, we selected 37 buying organizations so as to cover the
broad range of military and civilian agencies, the goods and services they purchased, and
geographic locations.4 These organizations were not selected randomly; consequently, our
results cannot be generalized to all buying organizations. For each selected buying
organization, we reviewed all contracts meeting our review criteria. They totaled 404
awards, or about 2 1 percent of the universe. We reviewed solicitation information for these
contracts and identified 262 whose solicitation stated that the government was willing to
consider other than the lowest offeror.5

In those instances where awards were made to other than the lowest offeror, we reviewed
documentation in the contract file to determine the benefit the government expected to
receive in exchange for the premium. When documentation was not clear, we discussed our
analyses with appropriate agency officials. We also obtained and reviewed federal
acquisition regulations and buying organization guidance related to contracting by
negotiation and best-value procurement, including the recently revised FAR Part 15, which
covers negotiated procurements.

We conducted our work from June 1998 to April 1999 in accordance with generally accepted
government auditing standards.


AGENCY COMMENTS
AND OUR EVALUATION

We provided a draft of this letter to the Department of Defense (DOD) and the Office of
Federal Procurement Policy (OFPP) for formal review and comment. We also provided
copies to the civilian agencies included in our review. In its comments, DOD concurred with
our findings. DOD’s comments are enclosed. OFPP did not provide written comments but in
oral comments recommended that we state that the best-value awards we discuss here-those
made to other than the lowest-priced offeror-reflect only one type of best-value approach.
This comment has been incorporated where appropriate. The civilian agencies generally had
no comments on the draft.




‘The agencieswere the Army, the Navy, and the Air Force; the departmentsof Agriculture, Commerce,Energy,
Health and Human Services,Justice,Transportation, and VeteransAffairs; the GeneralServicesAdministration;
the National Aeronautics and SpaceAdministration; and the Social Security Administration.
5Other contractswere eliminated from our review becausethey were to be awardedto the lowest technically
acceptableofferor, they were incorrectly coded in the databasesand did not meet our criteria, or information
was not available.



Page 3                                                                GAO/NSIAD-99-93R Acquisition Reform
           B-281983




           As arranged with your office, we plan no further distribution of this letter until 30 days from
           the issue date unless you publicly announce its contents earlier. At that time, we will send
           copies to the Honorable Deidre A. Lee, Administrator for the Office of Federal Procurement
           Policy; the Honorable William S. Cohen, Secretary of Defense; the Honorable Louis Caldera,
           Secretary of the Army; the Honorable Richard Danzig, Secretary of the Navy; the Honorable
           F. Whitten Peters, Acting Secretary of the Air Force; the Honorable Daniel R. Glickman,
           Secretary of Agriculture; the Honorable William M. Daley, Secretary of Commerce; the
           Honorable Bill Richardson, Secretary of Energy; the Honorable David J. Barr-am,
           Administrator of the General Services Administration; the Honorable Donna E. Shalala,
           Secretary of Health and Human Services; the Honorable Janet Reno, Attorney General; the
           Honorable Daniel S. Goldin, Administrator of the National Aeronautics and Space
            Administration; the Honorable Kenneth S. Apfel, Commissioner of Social Security; the
            Honorable Rodney E. Slater, Secretary of Transportation; and the Honorable Togo D. West,
            Jr., Secretary of Veterans Affairs.

           Please contact me at (202) 512-4841 if you or your staff have any questions concerning this
           report. Major contributors to this effort were Ralph Dawn, Maria Storts, Marion Gatling,
           Philip Goulet, Arthur Cobb, William T. Woods, and Stephanie J. May.


            Sincerely yours,




i \\;.-\“../’., Associate
                David E. Cooper
                          Director, Defense Acquisitions   Issues


            Enclosure




             Page 4                                                     GAO/NSIAD-99-93R Acquisition Reform
    ENCLOSURE                                                                                                            ENCLOSURE

                                COMMENTS FROM THE DEPARTMENT                                         OF DEFENSE



                              OFFICE        OF THE   UNDER       SECRETARY          OF DEFENSE
                                                   SOUJ DEFENSE   PENTAGON
                                                 WASHINGTON     DC ZOX’I -3OW

                                                         April    1,   1999
 ,CO”ISmoN       Am
    TECHHOLWY
    DP/CPF
           Mr.   David E. Cooper
           Associate      Director,     Defense Acquisitions.Issues
           National     Security     and International
             Affairs      Division
           United    States     General   Accounting    Office
           Washington,       DC 20548

           Dear       Mr.   Cooper:

                   This is the D&partment       of Defense      (DOD) response    to the
           Geniral     Accounting Office     (GAO)   draft    report,   ACQUISITION    REFORM:
           Review of Selected     Best-Value       Contracts,     dated March 18, 1999
           (GAO Code 107345/OSD Case 1771).
                 The DOD concurs               with the GAO findings   of the draft                      report.
           The report  contains               no conclusions  or recommendations..

                    The GAO reported              that,      based on its review              of over 250
           contracts       awarded by DOD and other                      government       buying
           organizations,          the government                paid about a seven percent                    premium
            ($367 million)          for best-value'awards                   to contractors             other      than
           those submitting              the lowest-priced               offers.       GAO found that the
           majority       of the contracts                that     involved      premiums      were for
           sophisticated          government            products        and services.         'GAO recortcd'
           that government            buyers        complied         with the laws and Federal
           Acquisition        Regulation            requirements          and generally           linked       their
           decisions       for selecting              the higher-priced             proposals          to the key
           evaluation.factors                identified          in the solicitations.                   in-addition,
           GAO noted that           justification              that.the       perceived       benefits         of the
           higher-priced          proposal          merited        the additional          cost was included.
           in the contract            file      for each of the contracts                   reviewed.
           Government        buyers        frequently          based their         decisions         to choose
           higher-priced          offerors          on the offerors*             superior       technical
           ability,       exceptional           management practices,                 or outstanding
           relevant      experience.

                      Thank you       for    providing       us the     opportunity         to   comment on the
           draft       report.

                                                                       Sincerely,

                                                                        Q----!-M
                                                                       Eleanor      R. Spector
                                                                       Director,       Defense      Procurement




(707345)




Page5                                                                                    GAONSIAD-99-93R Acquisition Reform
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