oversight

Competition for Negotiated Government Procurement Can and Should Be Improved

Published by the Government Accountability Office on 1977-09-15.

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

                          DOCUMENT RESUME
03585 - [A2653840]

Competition for   q-gotiated Government Procurement Can and Should
Be Improved. PSAD-77,152; B-16C725. September 15, 1977. 17 pp. +
9 appendices 25 pp.).

Report to the Congress; by Elmer B. Staats, Comptroller General.
Issue Area: Federal Procurement of Goods and Services (1900).
Contact: Procurement and Systems Acquisition Div.
Budget Function: ational Defense: Department of Defense -
    Procurement    Contracts (058).
Organizaticn Ccncerned: Department of Commerce; Department of
    Health, Education, and Welfare; Department of Housing and
    Urban Development; Department of Labor; Department of
    Transportation.
Congressional Relevance: Congress.
Authority: Federal Property ai.d Administrative Services Act of
    1949. 41 U.S.C. 252(c).

          As part of its oversight activities, the Congress
should require all Federal agencies to provide annual statistics
cn supplies and services procured through noncompetitive
contract and information on actions taken to increase
competitive procurements. The Department of Defense currently
discloses such information. By lw, all agencies should formally
advertise for bids whenever possible. If a procurement office
determines that competition is not feasible, purchases may be
noncompetitively negotiated. An investigation of recent
noncompetitively negotiated procurements showed that many were
unjustified. Reccmmendations: The Secretaries of
Transportation, Ccmmerce, Housing and Urban Development, Labor,
and Health, Education, and Welfare should reduce noncompetitive
procurements by: eliminating conditions which discourage
competitive procurement; requiring that procurement offices be
notified as soon as requirements become known to maximize the
time available to obtain solicitations; permitting only
authorized contracting officials to solicit proposals; and
requiring the procurement offices to publicize all proposed
procurements of $5,000 or more in the "Commerce Business Daily,"
prepare written justifications for all noncompetitive
procurements over $10,000, and prepare and submit to tp
management annual reports of all noncompetitive procurements
over 10,000. The Administrator, Office of Federal Procurement
Pclicy, shculd take steps to insure that adequate and uniform
regulations are developed to enable all Federal agencies to
comply with the national policy to obtain competition whenever
possible. (Author/SC)
     ·                 ~REPORT                'TO THE CONG(RESS

         ,     "   B Y THE COMPTROLILEh'                                  (,ENEIR,7AL
2o       B-,       OF THE UNITED) ST1 ATES




                   Competition For Negotiated
                   Government Procurement Can
                   And Should Be Improved

                   GAO examined contracts neact'ated by five
                   civilian agencies and found many unjustified
                   noncompetitive awards. Procurement weak
                   nesses identified during this review may exist
                   in other civilian agencies.

                   As part of its oversight activities, the Congress
                   should require agencies to keep it informed
                   on the extent of competition in procurement.
                   The agencies involved generally agreed with
                   GAO's recommendations to take actions to
                   increase competitive procurements.




                   PSAD-7'-152                                         SEPTEMBER 15, 1977
               COMPTROLLER GENERAL OF THE UNITED STATES
                          WASHINGTON, D.C.   20564




B-160725




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

     This review was prompted by the excessive use of noncom-
petitive or sole-source procurements after agencies determined
that formal, public advertising was impracticable.

     We surveyed a procurement office in each of five major
agencies and concluded tat competition in awarding Govern-
ment contracts can and should be increased.

     We made this review pursuant to the Budget and Account-
ing Act, 1921 31 U.S.C. 52), and the Accounting and Audit-
ing Act of 1950 (31 J.S.C. 67).

     Copies of this report are being sent to the Director,
Office of Mane.gement and Budget; the Administrators of the
Office of ederal Procurement Policy and General Services;
and the Secretaries of Commerce; Transportation; Labor;
Housing and Urban Development; and Health, Education, and
Welfare.




                                  Comptroller General
                                  of the United States
 COMPTROLLER GENERAL'S                  COMPETITION FOR NEGOTIATED
 REPORT TO THE CONGRESS                 GOVERNMENT PROCUREMENT CAN
                                        AND SHOULD BE IMPROVED
                                        Departments of Transportation
                                        Commerce; Housing and Urban
                                        Development; Labor; and Health,
                                        Education, and Welfare

              DIGEST

              As part of its oversight activities and for
              reasons discussed in this report, the Congress
              should require all Federal agencies to provid,
              annual statistics on supplies and services
              procured through noncompetitive contract and in-
              formation on actions taken to increase competi-
              tive procurements.  The Department of Defense
              currently discloses such information.

              Formal advertising and negotiation are the
              basic methods by which the Government procures
              supplies and services.  By law, agencies
              should formally advertise for bids whenever
              possible.

              The Congress has historically required that
              Government purchases of goods and services
              be accomplished using full and free competition
              to the maximum extent practicable.  Offering
              all qualified firms the opportunity to compete
              helps to minimize favoritism and collusion
              and provides assurance that acceptable products
              and services are obtained at the lowest prices.

             If a procurement office determines that compe-
             tition is infeasible, purchases may be noncom-
             petively negotiated.  GAO found that many recent
             noncompetitively negotiated procurements were
             unjustified.

             Excluding the Federal supply schedule and
             other General Services Administration con-
             tracts, civilian agency procurements in 1975
             totaled $16.4 billion; $4.7 billion or 29 per-
             cent was formally advertised and $11.7 billion
             or 71 percent was negotiated.   (See apps. I
             and II.)  Such a high precentage of negotiated
             contracts warrants additional safeguards to
             accomplish the full and free competition the
             Congress desires and the law stipulates.



TILrfth.     Upon removal, the report
covr at    should be noted hereon.                      PSAD-77-152
Statistics on noncompetitive negotiated procure-
ments were not available; however, GAO devel-
oped this information at individual procure-
ment offices.  (See p. 2 and app. II.)

GAO surveyed a sample of contracts five major
civilian agencies noncompetitively awarded in
1975 to identify the reasons for that method
of procurement.  The agencies reported that
of $248 million in negotiated procurements,
$158 million or 64 percent was noncompeti-
tively awarded.  (See app. II.)

GAO examined 36 noncompetitive contract
awards totaling $10.6 million at the
selected procurement offices of the
Departments of Commerce; Housing and Urban
Development; Transportation; Labor; and
Health, Education, and Welfare.

GAO wanted to determine

-- the extent of and justification for
   awarded noncompetitive contracts,

-- managerial controls to minimize   noncompeti-
   tive procurements, and

-- improvements needed to increase   competi-
   tiun in Government proc-;ement.

Program offices' reasons for noncompetitive
procurements generally fell into two cate-


-- Contractors'   unique capabilities and expe-
   rience.

-- Time constraints mandating that only one
   contractor be solicited.

Specifically, agencies

--concluded, without seeking other firms, that
  only one had the sufficient capability or
  experience to do the job,

-- placed unjustified time constraints on
   procurement offices to award contracts
   without competition,



                        ii
            -- awarded noncompetitive contracts to spend
               funds available at the end of the fiscal
               year because if not spent quickly, the funds
               would be returned to the Department of the
               Treasury,

            -- solicited contractors before notifying
               the procurement offices of their require-
               ments, and

            -- failed to publish their requirements in
               the Government's "Commerce Business Daily"
               before awarding contracts.

            AlFo, GAO found that officials responsible for
            approving noncompetitive procurements fre-
            quently were ineffective in questioning the
            justification for such procurements.  Although
            this review was limited to five procurement
            offices in five agencies, GAO believes that
            the weaknesses identified may exist in other
            civilian agencies.  The Office of Federal
            Procurement Policy agreed to bring GAO's
            findings to the attention of other agencies.

            RECOMMENDATIONS

            The Secretaries of Transportation; Commerce;
            Housing and Urban Development; Labor; and
            Health, Education, and Welfare should reduce
            noncompetitive procurements by (1) eliminating
            the conditions cited in this report if they
            are applicable to their procurement offices,
            (2) requiring that procurement offices be
            notified as soon as requirements become known
            to maximize the time available to obtain
            solicitations, (3) permitting only authorized
            contracting officials to solicit proposals,
            and (4) requiring the procurement offices to:

            -- Publicize all proposed procurements of
               $5,000 or more in the "Commerce Business
               Daily" as soon as requirements are known
               and before sole-source approval.  The
               public announcement should state the capabil-
               ties and experience required for the job.

            -- Prepare written justifications for all non-
               competitive procurements over $10,000 and
               include, if applicable (a) a description



TUibr
   m Siii
  of efforts to find other firms and the cir-
  cumstances makiilg competition infeasible,
  (b) reasons why only one contractor has the
  capability and experience required, (c) de-
  livery deadlines that only the recommended
  contractor can meet and an explanation of
  the urgency, (d) a description of the work
  and cogts for another contractor to provide
  the agency's requirements, and (e) provisions
  made or planned to insure competition in
  the future.
-- Prepare and submit to top management an-
   nual reports of all noncompetitive pro-
   cuirements over $10,000. Reports should
   include reasons for noncompetitive awards
   and   dentify procurements that place time
   ccnstraints on awarding contracts.

GAO recommends also that the Administrator,
Office of Federal Procurement Policy, take
steps to insure that adequate and uniform
regulations are developed to enable all Fed-
eril agencies to comply with the national
policy to obtain competition whenever possible.

AGENCY COMMENTS

For the most part, the agencies agreed that
the conditions cited pertain to Government
procurement and with GAO's recommendations.
Specifically, the Department of Health, Edu-
cation, and Welfare observed that the find-
ings are common to Government procurement.
The Department established a management
review program through which it hopes to
achieve needed inprovements in procurement
practices.

The Department of Housing and Urban Develop-
ment stated that regulations should allow
for exceptions to publishing all procurements
over $5,000 in the "Commerce Business Daily."
The Department of Transportation expressed
concern that the report did not show its large
amount of formally advertised awards. The
Office of Federal Procurement Policy considered
the procurement regulations essentially uni-
form and adequate and if properly implemented,
would minimize noncompetitive procurements.



                    iv
            That Office has begun actions to rectify
            an inconsistency between a regulation used
            by the Department of Defense and one used
            by civilian agencies. Several Departments,
            however, questioned the need to report non-
            competitive procurement statistics to top
            management.
            GAO agrees that regulations or statistics
            alone will not correct the conditions de-
            scribed. However, an informed top manage-
            ment, aware of the need to limit noncompetitive
            procurements, would be more likely to make
            that method the exception rather than the
            rule.




Taar Shot
                          Contents

                                                         Page

DIGEST

CHAPTER

  1        INTRODUCTION                                     1

  2        CIRCUMSTANCES DO NOT JUSTIFY NONCOMPETITIVE
             PROCUREMENTS                                   4
               Unique contractor capabilities and
                 experience                                 4
               Time constraints limit solicitation
                 to one firm                                5
               Noncompetitive contracts awarded to
                 spend end-of-the-year funds                7

  3        INFORMAL AGENCY/SUPPLIER RELATIONSHIPS
             CONTRIBUTE TO NONCOMPETITIVE PROCUREMENTS      8
               "Commerce Business Daily" not used to
                 formally notify the public of planned
                 procurements                               9

  4        PRESENT CONTROLS OVER NONCOMPETITIVE
             AWARDS ARE INEFFECTIVE                       10

  5        CONCLUSIONS AND RECOMMENDATIONS                12
               Conclusions                                12
               Recommendations                            13
               Matter for the consideration of the
                 Congress                                 14
               Agencies' comments and our evaluation      14

  6        SCOPE OF REVIEW                                17

APPENDIX

  I        Civilian agencies' procurements in 1975        18

 II        Breakdown of procurement dollars spent in
             1975                                         21

III        Department of Commerce comments                22

 IV        Department of Health, Education, and
             Welfare comments                             25

  V        Department of Housing and Urban Development
             comments                                     30
APPENDIX

  VI       Department of Transportation comments           32

 VII       Department of Labor comments                    38

VIII       General Services Administration comments        40

  IX       Office of Federal Procurement Policy comments   41


                        ABBRE17IATIONS

FPR        Federal Procurement Regulations

GAO        General Accounting Office

GSA        General Services Administration
                         CHAPTER 1

                       INTRODUCTION

     To initiate procurements for supplies or services, an
agency's program office prepares a requisition which states
the supplies or services to be pr'cured, proposed date, and
designated funds.  Also, the supplies or services required
are described and potential contractors may be noted.  After
approval by the organization head, the requisition is submitted
to the procurement office.

     The procurement office solicits contractors capable of
filling requirements for supplies or services to be acquired
outside the Government.  Requirements are published in the
"Commerce Business Daily," a Government publication, and posted
in public places.  The office may also contact by irail con-
tractors on the potential bidders lists it maintains.

     The Congress has historically required that Government
purchases of goods and services be accomplished using full and
free competition to the maximum extent practicable.  Offering
all qualified contractors the opportunity to compete helps to
minimize favoritism and collusion and provides greater assur-
ance that acceptable supplies and services are obtained a   the
lowest prices.


     The Federal Property and Administration Services Act of
1949 authorized th3 Administrator of the General Services Ad-
ministration (GSA) to issue procurement regulations applicable
to civilian executive agencies.  In 1959 GSA established the
Federal Procurement Regulations  FPR) which set forth detailed
rules for civilian agencies to follow when purchasing supplies
and services directly from commercial sources.

      Formal advertising and negotiation are the basic methods
by which the Government procures supplies and services.   The
law provides that purchases by Government agencies be made by
formal advertising for bids whenever feasible and practicable.
Con.tractors are invited to submit firm bid prices for specified
supplies or services and a contract is awarded to the lowest
rasponsive and responsible bidder.

     Fifteen exceptions to the use of formal advertising are
set forth in the law permitting contracting of icers to nego-
tiate contracts (41 U.S.C. 252(c)).  When a pcurement office
decides to use negotiated procurement, a determination and




                             1
 findings statement is required to justify its use under
 certain exceptions.  This supporting document should give a
 detailed description of the circumstances requiring use of
 the statutory authority.  It is the responsibility of the
 agency head or his designee to determine that the circumstances
 of the proposed procurement are under certain of the exceptions.

      Even when a prccurement cannot be awarded by formal ad-
vertising, agencies are expected to make maximum practicable
use of competition in negotiating contracts.   Contractors are
given requests for proposals which state the Government's re-
quirements and criteria for evaluating offers.   After inter-
ested firms are allowed sufficient time to prepare and submit
offers, negotiation with those in the competitive range fol-
lows.   The firm with the offer most advantageous to the Govern-
ment, price and other factors considered, is awarded the con-
tract.   Thus, negotiated procurement, as opposed to formal
advertising, allows the Government to question and discuss
with the firm the conditions and features of an offer.

     If a procurement office determines that competition is
infeasible, contracts may be noncompetitively negotiated.
For the contracts we reviewed, the exception to formal adver-
tising used most often to justify negotiation stated that pur-
chases may be negotiated "for property or services for which
it is impracticable to secure competition."

     Some agencies require written justifications in addition
to the determination and findings statement for all proposed
noncompetitive procurements.  The requesting program office
prepares the justification and submits it to a contract review
board or a designated procurement official for approval.

     Excluding the Federal supply schedule and other GSA con-
tracts, civilian agency procurements in 1975 totaled $16.4
billion; $4.7 billion or 29 percent was formally advertised
and $11.7 billion or 71 percent was negotiated.   (See apps.
I and II.)  Statistics on noncompetitive negotiated procure-
ments were not available; however, we developed this informa-
tion at individual procurement offices.

      We selected one procurement office in each of the five
agencies reviewed:   the Office of Administrative Services,
Department of Commerce; the Federal Aviation Administration,
Department of Transportation; the Office of Administrative
Programs and Services, Department of Labor; the Office of Edu-
cation, Department of Health, Education, and Welfare; and the
Office of Procurement, Department of Housing and Urban Develop-
ment.




                             2
     These five procurement offices were selected because of
the large amount of mc.ney spent on negotiated procurements.
In 1975 all procurements for these offices totaled $306
million.




                             3
                        CHAPTER 2

       CIRCUMSTANCES DO NOT JUSTIFY NONCOMPETITIVE

                       PROCUREMENT

     We found that many justifications for noncompetitive
procurements were questionable and in most cases adequate
planning would have allowed competition.

     Competition involves receiving offers from at least two
independent firms capable of providing Government require-
ments.  Of the $248 million in negotiated contracts reported
by the five procurement offices, $158 million or 64 percent
was noncompetitively awarded.   (See app. II.)

     We examined justification documents for 36 nncompetitive
contracts totaling $10.6 million.   The program offices' rea-
sons for noncompetitive procurements generally fell into two
categories:   (1) contractors' unique capabilities and experi-
ence and (2) ti.e constraints mandating that nly one firm be
solicited.  We found that a desire to spend funds available
at the end of the fiscal year was a factor contributing to
noncompetitive procurements.   Examples of what we found
follow.

UNIQUE CONTRACTOR CAPABILITIES AND EXPERIENCE

     Noncompetitive justifications stated in 30 cases that
the recommended contractor was uniquely or most qualified or
the only firm with the necessary experience to complete the
job.  The document failed to state if or what other contractors
were considered.  Program office personnel determined that
only one particular contractor could fill their needs.   Pro-
curement office personnel ineffectively questioned these
justifications.

     A management consulting firm was, for example, awarded a
noncompetitive coi tract for $468,210 to develop an economic
planning and analysis model for State and local governments.
The justification stated that the contractor possessed unique
qualifications and experience to complete the project.   Pro-
gram office personnel recommended a noncompetitive award after
informally soliciting and evaluating only one other contrac-
tor's proposal.




                              4
     The justification stated unique qualifications as the
reason for a noncompetitive award but did not explain these
qualifications or why they were needed.  Although the docu-
ment stated that the contractor had experience in economic re-
search development, survey, and communication skills, we found
that other management consulting firms had equivalent experience
in these areas.

     We contacted four management consulting firms and asked
if they would have submitted a proposal for this contract.
After reading the satemert of requirements, three firms re-
sponded that they would hav  submitted a proposal if they had
known about the agency's neds.   All the firms stated also
that they had the necessary capabilities and cited examples of
previous, similar work.

     In another case a noncompetitive contract for $726,980
was justified because of one firm's unique and unmatched ex-
perience.  An agency ofcicial said that he recommei led award-
ing this firm a noncompetitive contract because of   he ex-
perience of two of its employees.   This official said that he
knew both persons, having worked with them at another aency.
Their experience, according to this official, was an im ortant
consideration in selectinig the firm for this contract.

      In this case the procurement office published the require-
ment in the "Commerce Business Daily" and two firms inquired
-- one firm stated that it had performed work in this area.
The   gency told the firms that an "internal sole-source de-
termination had been made for the requirement and requests
for proposals were not available."   Thus, firms interested in
this procurement were not given the opportunity to compete.

     Sole-source determinations are frequently based on pro-
gram office personnel preference for a particular firm or
company rather than the assurance that only one firm can
satisfy the agency's needs.  However, we believe that generally
the market sould be tested with a public announcement of re-
quirements and all responding firms considered before making
a determination that a particular firm is uniquely qualified.

TIME CONSTRAINTS   LIMIT SOLICITATION TO ONE FIRM

     For 11 contracts, insufficient time was part of the rea-
sons given for noncompetitive procurements.  We believe that
many of these procurements could have been awarded competi-
tively without detriment to the project.

     For example, responding to legislation enacted on Sep-
tember 2, 1974, an agency head asked that a study be completed
by September 2, 19760. Program office personnel contacted two


                               5
 firms for this procurement and asked if they would be in-
 terested in performing the study.   One firm responded that it
would not be available at the requested time.     The program
office received a proposal from the second contractor on June
 10, 1975.  The procurement office received the procurement re-
quest from the program office on June 16, 1 9 7 5--moie than 9
months after the law was   nacted--with a recommendation for
a noncompetitive award.   The  roqram office's noncompetitive
justification was the time constraint created by the agency
head.   On September 29, 1975, the procurement office awarded
the recommended firm a noncompetitive contract for $132,630.

     In this case there ws  adequate time to obtain competi-
tion because the procurement office chief told us that usually
a contract can be awarded competitively 3 months after a re-
quest is received.  The contract in this example was awarded
over 1 year after the law was passed and the requirement
established.

     In another case an agency needed a communications plan.
An agency official said that he had a basic idea of what the
project required but needed help in formalizing the plan.
He said that he did not want a competitive contract because
the work would have to begin by January 1975 and that method
would take too long and involve the extra work required in
contractor selection procedures.

      In November 1974 a program office staff member asked a
firm to obtain information from State and local   overnments
and develop a comprehensive plan.   The firm submittel the plan
in an unsolicited proposal dated January 7, 1975, and statEd
that work had begun on December 2, 1974.   The staff member
said that the proposal was good; on January 10, 1975, the
procurement office was sent a memorandum requesting a noncom-
petitive award.   The contract was awarded noncompetitively,
and its justification stated that a time constraint imposed
by a July 1, 1975, statutory mandate required immediate ac-
tion.   A procurement official said that the late request
precluded him from seeking other contractors.

     Time, in this case, was an invalid reason for a noncom-
petitive award because the program office staff member was
aware of this requirement early enough to have attempted to
obtain competition through publication of the requirement in
the "Commerce Business Daily," thus providing all interested
companies an opportunity to compete.
NONCOMPETITIVE CONTRACTS AWARDED TO SPEND
END-OF-THE-YEAR FUNDS

      Funds not obligated by the last day of the fiscal year
are returned to the Department of the Treasury.   One procure-
ment office awarded on June 30, 1975, six noncompetitive con-
tracts totaling $965,143.   An agency official said that this
was done to spend funds available at the end of the fiscal
year.   This official added that the contracts were not re-
viewed by the sole-source board because of the time limita-
tion.

      In another agency $4.5 million or 83 percent of the non-
competitive contract dollars was awarded in June.   The pres-
sure caused by this increased activity during the last quarter
of the fiscal year hinders effective performance by the pro-
curement section.   Consequently, procurement office personnel
often neglect documentation required by Federal and agency
procurement regulations.   Documents usually missing were de-
termination and findings statements, memorandums of iegotia-
tions, and sole-source award justifications.




                             7
                          CHAPTER 3

      INFORMAL AGENCY/SUPPLIER RELATIONSHIPS CONTRIBUTE

               TO NONCOMPETITIVE PROCUREMENTS

      Program personnel informal advance discussions with
                                                           se-
 lected firms are conducive to noncompetitive procurements.

     Program personnel often need help in developing plans
to meet requirements; this assistance comes frequently
                                                        from
an outside firm.  They may informally brief a firm on the
problem and ask that ideas be submitted in the form of
                                                        an un-
solicited proposal.  If a staff member likes the proposal, the
procurement office is given a requisition, as well as a
                                                         justi-
fication for a noncompetitive award to that firm.  This prac-
tice is commonly called wiring a proposal or contract.

      In early 1974, for example, an agency head expressed an
interest in the nature and extent of economic planning
                                                         and
analysis by State and local governments.    During a chance
meeting in June, the Deputy Assistant Secretary of the
                                                         program
office discussed the requirement with the president of
                                                         a man-
agement consulting firm.    (This firm was considered uniquely
qualified as stated on p. 4.)    The agency's program
received an unsolicited proposal from the consulting office
                                                       firm on
July 15, 1974.   In mid-August the prograr: office informed
procurement personnel of the requirement and invited
                                                       them to
participate in a discussion of the proposal with the contrac-
tor.   On the basis of the mid-August meeting, an amended
proposal was received on September 15, 1974.

      The opportunity for competition was present (see pp. 4
and 5) but only the one firm informally contacted was con-
sidered.   After evaluating the proposal, agency reviewing
officials determined that the contractor was uniquely
                                                       quali-
fied.   The consulting firm was awarded a noncompetitive con-
tract on October 21, 1974, for $468,210.

     On January 31, 1975, the contractor requested ad received
a $6,150 payment for work performed before the contract
                                                        was
awarded.  The early expenditure indicates that the contractor
was reasonably confident of a contract award.

     In another case the Bicentennial Executive Director of
an agency decided to have a film produced for the Bicentennial,
and on June 20, 1974, he submitted a request for a noncompe-




                             8
 titive award to the agency's contract review board.   In addi-
 tion to the formal request, the Director sent a memo to the
 board stating that the Under Secretary had already given
                                                           his
 approval for the noncompetitive award.  The board approved the
 request the next day.  The Director told us that he selected
 the contractor because of its background in certain films,
 and he believed it to be most qualified to produce the film.

      Subsequently, on February 21, 1975, the procurement
office published the requirement in the "Commerce Business
Daily," and six firms indicated an interest in submitting a
proposal.   The procurement office responded by letter that
"it was determined to negotiate the contract on a sole-source
basis."   On March 15, 1975, a firm-fixed-price contract for
$175,000 was awarded to the firm the Director recommended.

"COMMERCE BUSINESS DAILY" NOT USED TO NOTIFY
THE PUBLIC OF PLANNED PROCUREMENT

     Federal Procurement Regulations generally require that
proposed civilian agency procurements over $5,0001/ be publi-
cized in the "Commerce Business Daily" to give industry in-
formation on current Government con'  cting and subcontracting
opportunities and increase competition.

     FPR requires agencies to publicize proposed procurements
10 calendar days before making a request for proposals.  If
this is infeasible, the synopsis should arrive at the offices
of the "Commerce Business Daily" not later than the issue date
of the request for proposals.

     We found that 20 of the 36 selected procurements were not
publicized in the "Commerce Business Daily" before contract
award.  Since a procurement office normally initiates publica-
tion action after receiving a requisition, there would be
little reason, except for subcontracting purposes, to notify
the public when the requisition includes a justification for
noncompetitive procurement.  Thus, under current procedures,
a noncompetitive procurement planned by an agency program
office has little chance of being challenged by anyone out-
side the agency.  Moreover, when the procurement office does
publicize the proposed procurement, such action is wasted
                                                          if
informal negotiations have already been conducted and a deci-
sion has been made to award a particular firm the contract.

     We believe that civilian agencies should be required to
publish all proposed procurements of $5,000 or more in the
"Commerce Business Daily" when the program offices become
aware of them and before sole-source approval.
I/The Congress is considering legislation to increase this
  amount to $10,000.

                              9
                         CHAPTER 4

       PRESENT CONTROLS OVER NONCOMPETITIVE AWARDS

                     ARE INEFFECTIVE

     The high percentage of negotiated procurement dollars
awarded noncompetitively and the high incidence of question-
able justifications for the awards identified in 19;5 sug-
gests that agency review boarfs or other officials responsible
for minimizing such procurements are .erforming ineffectively.

     Civilian agencies have issue      .ous regulations re-
quiring prior approval of noncompetitive procurements.   Cer-
tain agency officials are authorized to approve noncompetitive
procurements, and depending on the agency, these officials
may be assisted by a contract review board.

     Three of the five agencies we selected had contract re-
view boards.  In these agencies the program office submits
procurement requests to the contract review board with justi-
fications for sole-source determinations.   The board, composed
of three to five senior level memrners, reviews the justifica-
tions and makes a decision on the requests for sole-source
procurements.

     The board must review all noncclmpetitive requests over a
specified amount.  One agency's regulations state that non-
competitive requests over $10,000 are subject to review by
the contract review board, while  n another agency only
noncompetitive procurements over $100,000 are reviewed.   Non-
competitive requests below the amount specified for board
review are approved by designated officials.

     Other agencies without established contract review boards
require that all requests for noncompetitive actions be re-
viewed by designated officials.  These officials can approve
noncompetitive procurements usually up to a specified amount
decided by the agency head.

     In 1975, 53 perc  t of all negotiated procurement dollars
for three of the five selected agencies was noncompet tive.
These agencies had contract review boards.  The other two
agencies awarded 68 percent of their 1975 negotiated procure-
ment dollars noncompetitively.  These figures indicate that
boards are helpful, but they are not as effective as they
could be.




                             10
     Procurement officials responsible for approving sol.e-
source requests are not verifying whether competition was
possible.  One procurement official said that he was aware oF
his responsibility to seek more than one contractor but con-
sidered it a waste of time.  Another procurement official said
that his office was usually given very little time to award
contracts.




                           11
                        CHAPTER 5

              CONCLUSIONS AND RECOMMENDATIONS

CONCLUSIONS

     The Congress has historically required that Government
purchases of goods and services be accomplished using full
and free competition to the maximum extent practicable.  Of-
fering all qualified contractors the opportunity to compete
helps to minimize favoritism and collusion and provides
greater assurance that acceptable supplies and services are
obtained at the lowest prices.

     We found that many noncompetitive procurements were     un-
justified because agency personnel

     -- concluded, without seeking other firms, that only one
        had sufficient capability and experience to do the
        job;

     -- placed unjustified time constraints on procurement
        offices to award contracts without competition;

     -- awarded noncompetitive contracts to spend funds avail-
        able at the end of the fiscal year because if not spent
        quickly, the funds would be returned to the Department
        of the Treasury;

     -- solicited contractors before notifying t.ie procure-
        ment offices of their requirements; and

     -- failed to publish their requirements in the "Commerce
        Business Daily" before awarding contracts.

     We found also that agency officials responsible for ap-
proving noncompetitive procurements were frequently ineffec-
tive in questioning the justifications for such procurements.

     Although this review was restricted to five procurement
offices in five agencies, we believe that the procurement
weaknesses identified in this report may exist in other civil-
ian agencies.  In 1975 all procurements for civilian agencies
as reported to the General Services Administration (excluding
the Federal supply schedule and other GSA contracts) was $16.4
billion; $11.7 billion or 71 percent was negotiated.   (Sta-
tistics on civilian agencis' noncompetitive negotiated pro-
curements were not available.)  We believe that the high per-
centage of negotiated contracts being awarded warrants ad-




                               12
ditional safeguards to insure full and free competition.  The
Office of Feder.l Procurement Policy agreed to bring our find-
ings to the attention of other agencies.

RECOMMENDATIONS

     We recommend that the Secretaries of Transportation;
Commerce; Housing and Urban Development; Labor; and Health,
Education, and Welfare take actions to minimize noncompeti-
tive procurements.  They should (1) eliminate the conditions
cited in this report if they are applicable to their procure-
ment offices, (2) require that procurement offices be notified
as soon as requirements become known to maximize the time
available to obtain solicitations, (3) permit only authorized
contracting officials to solicit proposals, and (4) require
each procurement office to:


     -- Publicize all proposed procurements of $5,000 or more
        in the "Commerce Business Daily" as soon as program
        offices know of requirements and before sole-source
        approvals. The public announcement should state the
        capabilities and xperience required for the job.

    -- Prepare written justifications for all noncompetitive
       procurements over $10,000 and include, if applicable
       (a) a description of efforts to find other firms and
       the circumstances making competition infeasible,   (b)
       reasons why only one contractor has the capability
       and experience required, (c) delivery deadlines that
       only the recommended contractor can meet and an ex-
       planation of the urgency, (d) a description of the
       work and costs for another contractor to complete the
       agency's requircments, and (e) provisions made or
       planned to insure competition in the future.

    --Prepare and submit to top management annual reports
      on all noncompetitive procurements over $10,000.
      Reports should include reasons for noncompetitive
      awards and identify procurements that place time con-
      straints on awarding contracts.

     We recommend also that the Administrator, Office of
Federal Procurement Policy, take steps to insure that
adequate and uniform regulations are developed to enable
all Federal agencies to comply with the national policy
to obtain competition whenever possible.




                            13
MATTER FOR THE CONSIDERATION OF THE CONGRESS

     We suggest also that the congressional appropriations
and oversight committees require all Federal agencies to pro-
vide annual statistics on noncompetitive procurements and
information on actions taken to increase competitive procure-
ments.  The Department of Defense currently discloses such
information.

AGENCIES'    COMMENTS AND OUR EVALUATION

     We provided copies of the draft report to the agencies
reviewed, GSA, and the Office of Federal Procurement Policy.
(See apps.  III to IX.) With some exceptions or comments, all
agencies generally agreed with our report.  Excerpts from
agency responses and our evaluation follow.

Department of Commerce

     The Department indicated that it was aware of excessive
noncompetitive procurements.  The Department reported that ir
1976 noncompetitive procurements decreased to 27 percent of
procurement dollars.

Department of Health, Education, and Welfare

     The Department acknowledged that the conditions described
are common and stated that its regulations cover virtually all
issues raised in our report.  The Department believes that its
internal procurement management review program, which is sup-
ported by top management, will be most useful in reducing
noncompetitive procurements.

     The Department did not agree fully with our recommendation
to give top management annual data on noncompetitive procure-
ments over $10,000 and said that statistics alone are not a
true measure of effective competition.

     We agree that regulations or statistics alone will not
necessarily correct the conditions described.  However, we
believe that an informed top management, aware of the need to
limit noncompetitive procurements, would be more likely to
make that method the exception rather than the rule.  Such a
commitment was expressed in the Department's response and
recently, publicly endorsed by the Secretary.

Department   of Housing and Urban Development

       The Department agreed with our description of conditions
in   the agencies reviewed and has taken actions to improve its


                               14
regulations. Concern was expressed about publishing all pro-
posed procurements over $5,000 in the "Commerce Business
Daily."  The Department believes that sometimes urgent pro-
curements will occur and preempt such a requirement.

     There may be times when it is impracticable to obtain
competition.  In many cases, however, we found that the con-
ditions on which noncompetitive procurements were justified
did not exist or resulted from poor planning.

Department of Transportation

     The Department of Transportation generally concurred
with the concepts of our report. The Department, however,
took exception to the specifics discussed below.
     -- The terms "negotiated procurement" and "noncompeti-
        tive procurement" were freely interchanged implying
        all negotiated procurement is noncompetitive, and
        GAO incorrectly interpreted the Federal Procurement
        Regulation as requiring solicitations from the maxi-
        mum number of contractors.

     We were very careful to properly use the terms "nego-
tiated" with "noncompetitive" procurement. Also, we fully
endorse the use of negotiated competitive procurement as an
alternative to achie've competition when formal advertising
is not possible.

     We agree that the regulations are proper and realistic
in stating competition should be obtained "to the maximum
practicable extent."

     -- The statistics unfairly compare noncompetitive pro-
        curements to total negotiated procurements without
        showing an appropriate number of awards the Depart-
        ment formally advertised and are also competitive.

     We agree that the Department has an exceptionally high
percentage of formally advertised procurements; this is com-
mendable. However, we restricted this review to noncompeti-
tive procurements--a form of negotiated procurement. We
were concerned with the question:  If formal advertising is
infeasible and negotiated procurements can be justified by
statutory exception, how much is competitive and what can be
done to increase it?

     -- The report does not acknowledge the advantage of
        achieving more favorable prices and terms by negoti-
        ating with a sol-source.



                               15
       The Department apparently believes that
 prices can be obtained by sole-source         more favorable
                                        procurement.   We dis-
 agree, and the statutes clearly require
                                          that noncompetitive
 or sole-source procurement be the exception.
                                                All studies of
 which we are aware and which deal with
 ducing effective price competition into the effect  of intro-
                                          a procurement situa-
 tion conclude that prices are lowered
                                        by such competition.

      -- GAO's rationale for excluding small
                                             business set-
         asides is questionable since these procurements
                                                         should
         be considered competitive.

     As mentioned previously, our review was
                                              concerned with
noncompetitive negotiated procurements,
                                         and we believe that
the best measure of their frequency is
                                        to compare them to total
negotiated noncompetitive and competitive
                                           procurements.    Al-
though the FPR indicates that the authority
asides comes from the statute authorizing    to conduct  set-
                                           the use of negotia-
tion, they may be conducted in the same
                                         manner as formal
advertising.  Thus, we believe that the classification
these awards as negotiated procurements                  of
                                         could result in
misleading conclusions on how well agencies
                                             seek to reduce
noncompetitive procurements.

Department of Labor

     The Department of Labor agreed wit,i
                                          this report.  By
examining Department procurement offices
                                          we did not review,
it found that $65.9 million in contracts
                                          or 30 percent was       ,
noncompetitively awarded.  It is taking actions to revise
and strengthen its regulations.

GSA

     GSA agreed with our findings but did
                                          not offer further
comments or suggestions for reducing
                                     noncompetitive pro-
curements.

Office of Federal Procurement Policy

      The Office of Federal Procurement Policy
adequate and uniform regulations exist.        believes that
                                          However, FPR does
not provide for prior higher level review
                                           of noncompetitive
procurements as does the Armed Services
                                         Procurement Regula-
tion.   The Office added that improved agency
                                              management is
needed, and it plans to bring this to
                                       the agencies' atten-
tion.

     We believe that the Office's intention
                                            to pursue this
matter with agency management is constructive.




                            16
                         CHAPTER 6

                      SCOPE OF REVIEW

     We examined a sample of contracts awarded noncompeti-
tively in 1975 to determine the reasons for that method of
procurement.  We reviewed also supporting documentation and
discussed each procurement with the requesting office.   We
selected 36 contracts totaling $10,615,809 from five pro-
curement offices in five civilian agencies for a detailed
review.  Procurement offices selected were the Office of
Administrative Services, Department of Commerce; the Office
of Procurement, Department of Housing and Urban Development;
the Federal Aviation Administration, Department of Transpor-
tation; the Office of Administrative Programs and Services,
Department of Labor; and the Office of Education, Department
of Health, Education, and Welfare.   These agencies were se-
lected because they are major agencies and required to use
the Federal Procurement Regulations.

     We sought to determine

     -- the extent of and justification for noncompetitive
        awards,

     -- managerial controls to minimize noncompetitive pro-
        curements, and

     -- improvements needed to increase competition in Gov-
        ernment procurement.

     To determine if managerial controls over noncompetitive
procurements were adequate, we reviewed agency procurement
procedures and practices and regulations regarding sole-
source procurements.  We reviewed also the minutes of the
contract review boards.




                              17
APPENDIX I                                                                                                                                                           APPENDIX           I




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APPENDIX III                                                  APPENDIX III
                                                              APP0ODIX III



                                UNITED STATES DEPARTMENT OF COMMERCE
                                The Assistant Secretary for Administration
                                Washington, D.C. 20230




   bl&{ 2   v%77
Mr. Henry Eschwege, Director
Camunity and Eonomic Development Division
United States General Accounting Office
Washington, D.C. 20548

Dear Mr. Eschwege:

The Department of Commerce agrees with the intent of your
February 1977 Draft Report to the Congress of the United States
entitled "Competition for Negotiated Government Procurement Can,
and Should, Be Improved (B-160725)."

The Department's Office of Administrative Services and Procurement
 (OAS&P) became acutely aware of its own excessive non-competitive
procurement early in 1974, and has been working vigorously to
increase competition in procurement ever since. Your report shows
that non-competitive actions represented 82% of negotiated OAS&P
procurement in calendar year 1975. However, diligent efforts of
our procurement staff together with strengthened Departmental
policy helped to reduce the non-competitive proportion of negotiated
procurement to 27% for calendar year 1976 (see1nclosiU). Of courser'U    a"
we expect the competitive ratio to continue to improve. You may wish
to reflect this more current data in your proposed report.

The recommendations in your report have provided us additional ideas
for further improvements, and we are already beginning to develop
these ideas for implementation. In fact, we concur with all of your
proposed recommendations notwithstanding the following cment:

  You recommend that procuring offices be required to publiciz:e
  all proposed procurements over $5,000 "at the time the require-
  ment is known by the Program Office." While immediate publicity
  should be an optimum goal, there are often factors involved in
  particular requirements which would make this impracticable. It
  would probably be a more workable policy to require prorram
  and/or project officials to coordinate their requirements with
  the procuring office immediately upon reaching that stage in




                                   22
APPENDIX III                                                 APPENDIX III




        planning when a general "scope" or description of work
        can be developed. The procurement office could then be
        required to publicize all procurements over $5,000 at the
        time the requirement description is received from the
        program or project office.

     Questions may be referred to   . Donald B. Mbore, Director,
     Office of Administrative Services and Procurement at 377-4501.

     We appreciate the opportunity to comment on this proposed report.

     Sincerely,



     Elsa A. Porter
     Assistant Secretary-designate for
      Administration

     Enclosure




                                  23
APPENDIX III                                   APPENDIX III




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                                   24
APPENDIX IV                                                          APPENDIX IV




              DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE
                           OFFICE OF THE SECRL-'RY
                             WASHINGTON, D.C.    WMI



                                                       APR 1 9 197


  Mr. Gregory Ahart
  Director, Human Resources Division
  United States General Accounting Office
  Washington, D. C. 20548

  Dear Mr. Ahart:

  The Secretary asked that I respond to your request for our comments
  on your draft report entitled, "Competition for Negotiated Govern-
  ment Procurement Can, and Should, Be Improved." The enclosed
  comments represent the tentative position of the Department and
  are subject to reevaluation when the final version of this report
  is received.

  We appreciate the opportunity to comment on this draft report before
  its publication.



                                                Sincerely yours,



                                            Thomas D. Morris
                                            Inspector General

 Enclosure




                                25
APPENDIX IV                                                 APPENDIX IV

DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE COMMENTS ON THE GENERAL

ACCOUNTING OFFICE'S DRAFT REPORT, "COMPETITION FOR NEGOTIATED GOVERN-

MENT PROCUREMENT CAN,   AND SHOULD,   BE IMPROVED'


General Comments

The report does not include agency by agency identification of the
locale of the procurement deficiencies described. Nevertheless, the
deficiencies are, we believe, rather common in Government procurement,
and we are committed to the objective of improving competition within this
Department in particular. However, we do not believe that the recom-
mendations in themselves will ! Sedy the situation. The problem is not,
for instance, one of inadequate regulations. HEW has regulations
covering virtually all issues raised in the report and we consider our
Noncompetitive Procurement Regulation to be more stringent than the
recommendations contained in the report. Nor is it one of providing
statistics - our own reviews have shown that statistics on noncompetitive
procurements, as recommended by your draft report, are not accurate
indicators of the rue extent of competition. We have found that
some units use "competitive procurement methods" for the purpose of
complying with the policy of maximizing competition without creating
effective competition.

This Department has an active procurement management review program
conducted by the Office of Grants and Procurement Management and we have
identified the matters discussed in the 8*M-r*ert-qq  hit-e4ous othe --
components of HEW as well as in the Office of Education. It is through
this review program, supported by top management, that we hope to achieve
improved procurement practices in this Department, including full and
free competition to the maximum extent feasible.


GAO Recommendation

That the Secretary of Health, Education, and Welfare determine whether
conditions cited in this report exist in the Department's other procure-
ment offices in addition to the Office of Education.


Department Comment

We have determined that the conditions cited exist within various other
components of HEW.


GAO Recommendation

That program personnel notify the procurement office when requirements
become known to provide adequate time in obtaining competition.



                                      26
  APPENDIX IV                                                APPENDIX IV




Department Comment

We concur. HEWPR 3-3.5002 states in part that "for each project, as socn
as it appears likely there will be a procurement, the program office will
notify the appropriate procurement office of the anticipated procurement."
The purpose of this requirement is to enable timely and comprehensive
planning and timely itiation of the request for contract. Sole source
awards based on last minute decisions can be avoided with proper coordin-
ation and coopeaLtion between program and contract offices. HEWPR 3-1.452-1(b)
prescribes that personnel responsible for making decisions to buy should
inform procurement staff of contemplated actions as soon as they are
known. This will result in better plavn4ng and more timely, efficient
and economical procurement.


GAO Recommendation

That the Department permit only authorized contracting officials to
solicit proposals.


Department Comment

We concur. HEWPR 3-1.452-1 (c) prescribes that "personnel not delegated
contracting authority may not commit the Government, formally or informally
to any type of contractual obligation." Paragraph (a) of the seme
regulation indicates that the "responsibility for determining how to
buy, the conduct of the buying process, and execution of the contract rests
with the procurement activity, the contracting officer in particular."


GAO Recommendation

That the Department require each of its procuring offices to publicize
all proposed procurement, $5,000 and over in the "Commerce Business
Daily" at the time the requirement is known by the program office and
prior to sole-source approval (tne publication should state the cap-
abilities and experience required for the contract effort).


Department Comment

Prior to receipt of the draft GAO report, the Department revised
HEWPR 3-3.802-50 (Noncompetitive Procurements), because it was felt
that procedures to test the market were inherently unconducive to
transforming noncompetitive procurements into competitive ones in
doubtful cases. The present amended regulation requires that, where
testing of the market is appropriate, a synopsis be published for this




                                    27
   APPENDIX IV                                                 APPENDIX IV




 purpose before any determination is made that sole-source procurement
 is necessary. The synopsis to be used is a sources sought or fitld of
 interest synopsis, which informs potential offerors of the Department's
 need and invites -hem to notify the Department of their interest by
 providing inform..ion about their ability to furnish the required ser-
 vices or supplies.  With the aid of such information the Department will,
 it is expected, be able to udge more accurately whether more than one
 source is i fact available.


 GAO Recommendation

That the Department require each of its procuring offices to prepare a
written justification for noncompetitive procurements over $10,000 and
include if applicable:

      (a) a description of actions taken to find other sources and the
circumstances which make competition not feasible,

      (b) reasons why the capability and experience possessed by only
one source is required,

      (c) aelivery deadlines that only the recommended source is able
to meet and an explanation of the urgency,

      (d) a description of the additional work and cost needed by another
contractor to complete the Agency's current requirements, and

      (e)   provisions to ensure competition in the future.


Department Comment

The revisions to HEWPR 3-3.802-50 published in January 1977 as regulation,
strengthen the criteria for noncompetitive procurements, require a testing
of the market place as described previously under certain conditions,
establish approved levels for noncompetitive procurements and introduce
 the total package buy concept. Basically, this policy goes beyovd the
recommendations covered in the GAO report, especially as it relates to
the total project buy concept, which enables procurement personnel and
reviewing officials to know at the outset what actions are contemplated
for the life of the project. For small purchases over $500, but not over
$10,000 the justification must nonetheless address the criteria and appear
within the requisition or request for contract.




                                    28
  APPENDIX IV                                                 APPENDIX IV




GAO Recoumendation

That the Department prepare and submit to top management an annual
procurement report of all noncompetitive procurements over $10,000.
Reports should include reasons for noncompetitive awards and identify
procurements that put time constraints on the award of contracts.


Department Comment

All procurements of over $10,000 in amount are reported periodically,
generally approximately monthly, to the Office of Grants and Procurement
Management, which serves as the Secretary's manager for procurement.
The reports identify noncompetitive procurements, i.e., those that are made
on a sole-source basis or on unsolicited proposals. They also cite the
negotiation authority section of the Federal Procurement Regulations.
Reviews by OGPM of procuring activities include examination of the use
of sole-source procurement in the offices involved including appropriate
examination of selected action. In addition, sole-source procurements
may be protested to the General Accounting Office or the Secretary by
organizations that believe that they should have been invited to submit
proposals. We believe that actions by HEW to limit sole-source procure-
ment to cases of necessity represent sound method. The GAO draft report
does not indicate what purpose would be served by requiring annual reports
of all noncompetitive procurements over $10,000 including reasons and
identification of those iuvolvng time constraints. Therefore, while not
negating the possible utility f such reports as part of an overall nro-
curement management program, we do not agree with the particular recvmmen-
dation as stated.




                                   29
  APPENDIX V                                                                  APPENDIX V




     1a*    "    A      DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                       WASHINGTON, D,C. 20410

OFICE OF   THE ASSISTANT SECRETARY        May 9,   1977
      FOR ADMINISTRATION
                                                                            IN   REPLY REFER TO:




             Mr. Henry Eschwege
             Director, Community and Economic
               Development Division
             General Accounting Office
             Washington, D. C. 20548

            Dear Mr. Eschwege:

                 The Secretary has referred your draft report entitled
            "Competition for Negotiated Ck rernment Procurement Can, and
            Should, Be Improved" to this office for reply.

                 At the outset, let me say that this office is in full
            agreement with the intent of this report.  We support any
            endeavor to reduce the volume of noncompetitive procurenent
            within the Department. We have vigorously addressed this issue
            with the publication of the HUD Procurement Regulations in
            December 1976.  These regulations are excerpted, in pertinent
            part below, where the recommendations contained in the report
            are discussed.

                 First, the eneral conditions outlined in the report do
            exist in the Department since HUD was one of the agencies reviewed.

                  The second recommendation speaks of the procurement planning
            process. We agree with the concept of advance identification o'
            requirements to the procurement office. However, there are situations
            where needs arise in response to unplanned r immediate program
            denands. Documentation justifying these short leadtime requirements
            is required by the HUD Procurement Regulations as stated at
            Section 24-3.101-J(c), Justification.

                      "(ii)    If time is of the essence, the experience,
                               capabilities, or facilitie the proposed
                               Contractor possesses which ould enable him
                               to complete the requirement ithin the time
                               frame while others would fail."




                                             30
APPENDIX V                                                           APPENDIX V




            The third recommendation concerns authority to solicit
       proposals. This authority clearly rests with the procurement
       officials. There have been instances in the past when program
       officials have solicited proposals. We plan to minimize these
       situations in the future by educating program officials on the
       limits of their duties and responsibilities.

           The remaining recommendations place specific duties and
      responsibilities on the procuring activity. We support the basic
      concept of publishing all proposed sole source procurements over
      $5,000 in the Commerce Business Daily prior to sole source approval.
      However, there may be occasions when time is such a critical factor
      that such a procedure would be impossible to follow. These rare
      instances would occur when the success of a program would be jeop-
      ardi7ed if immediate action were not taken. Any new requirement
      such as you recommend would have to allow for such occurrences.

           At. present, the justification required in support of any
      proposed noncompetitive procurement over $10,000 is spelled out in
      the HUD Procurement Regulations. This justification requires the
      same information which you are recommending in your report. A copy
      of this subpart is enclosed for your reference.

           We endorse your last recommendation that an annual report of
      noncompetitive procurement over $10,000 be prepared. We would
      submit such a report in HUD to the Secretary and Under Secretary.
      It would serve to bring directly to their attention the progress
      being made in the'reduction of noncompetitive procurements.

           In summary, this office supports any effort to reduce the number
      of noncompetitive procurements. We look to the Office of Federal
      Procurement Policy to refine existing procedures and regulatory
      guidaree to frther the objective of obtaining competition wherever
      practicable. It is our intention to continue to support this within
      the Department and welcome the opportunity to provide whatever
      assistance is needed by your office in the future.

           We appreciate the opportunity to respond and are hopeful that
      these comments are of assistance.

                                            Since




                                            Deputy As   tant Secre
      Enclosure




                                    31
APPENDIX VI                                                                 APPENDIX VI




                        OFFICE OF THE SECRETARY OF TRANSPORTA'TION
                                   WASHINGTON,    D.C.   20590


  ASSISTANT SECRETARY



                                                                 May 23, 1977



            Mr. Henry Eschwege
            Director
            Community and Economic Development Division
            U. S. General Accounting Office
            Washington, D. C. 20548
            Dear Mr. Eschwege:
            This is in response to your letter of March 2, 1977, requesting
            comments on the General Accounting Office draft report entitled
            "Competition for Negotiated Government Procurement Can, and
            Should, Be Improved." We have reviewed the report in detail
            and prepared a Department of Transportation reply.
            Two copies of the report are enclosed.
                                                 Sincerely,


                                                 Edward W. Sco(t, Jr.
                                                 Assistant Secretary
                                                   for Administration
            Enclosures (2)




                                       32
    APPENDIX VI                                           APPENDIX VI
                    DEPARTMENT OF TRANSPORTATION REPLY
                                   TO
                    GAO DRAFT REPORT OF FEBRUARY 1977

            COMPETITION FOR NEGOTIATED GOVERNMENT PROCUREMENT
                      CAN, AND SHOULD, BE IMPROVED

SUMMARY OF GAO FINDINGS AND RECOMMENDATIONS

GPO, through an examination of contracts of five procurement offices
within five Departments--DOT, Commerce, Labor, HEW, and HUD--
'oncluded that many noncompetitive procurements were not justified.
'.he report cites five types of department shortcomings contributing
to GAO's findings of unjustified noncompetitive procurement:

    -- assumptions that, without seeking other sources,   only one
       source could perform the work;

    -- unjustified time constraints placed upon the procurement
       office;

    -- award of noncompetitive contracts primarily to expend
       funds still available at year end;

    -- informal solicitation by technical personnel of contractors
       before notifying the procurement office of the requirement;
       and

    --   failure to publish requirements in the Commerce Business
         Daily prior to award.

GAO recommends that Agency heads take action to minimize non-
competitive procurements.  Agency heads should determine if
conditions, as cited in the report, exist within procurement
offices which were not included in the review; ensure that agency
personnel notify the procurement office when requirements become
known, so that adequate time is provided to obtain competition;
and pernit only authorized contracting officials to solicit
proposals.

GAO also recommends that procurement offices publicize all proposed
procurements $5,000 and over in the Commerce Business Daily as
soon as the requirement is known, and, in any case, prior to
sole source approval; prepare written justification for all non-
competitive procurements over $10,000; and prepare and submit to
top management an annual report of all noncompetitive procure-
ment over $10,000.  In addition, the Office of Federal Procure-
ment Policy should take steps "...to assure that adequate and
uniform regulations are developed to enable all Federal agencies
to comply with the national policy to obtain competition whenever
practicable."  GAO also suggests that Congressional appropriations
and oversight committees consider requiring Federal agencies to
provide annual statistics on noncompetitive procurements and
information on steps taken to increase the number of competitive
procurements.



                                  33
 APPENDIX VI                                         APPENDIX VI



DOT POSITION STATEMENT

For the most part, this Department concurs in the concepts set
forth in the draft report.  The report does, however, contain
several misconceptions and inaccuracies.  This Department
believes that it has adequate procedures for controlling the
use of noncompetitive contracts.  It is suggested that the
following clarifications be made before the final report is
completed.

        The discussion of negotiated contracts on page ii
        of the Digest implies that negotiation as a
       method of procurement is not competitive.    While
        it is tue that formal advertising is preferred
        to negotiation where firm specifications, adequate
       time, and two or more suppliers are available,
       and where award can be made on the basis of price,
       negotiation is by no means noncompetitive. We do
       not accept your dismissal of the significance of
       procurement statistics with regard to negotiated
       competitive and noncompetitive awards.   This
       Department does maintain such data in our DOT
       Contract Information System and has provided such
       information to GAO in the past.   Throughout the
       Digest and Chapter I of the report, the terms
       "negotiated" and "noncompetitive" are freely and
       incorrectly substituted for one another, drawing
       the reader to conclude that negotiation, per se,
       is the cause of poor procurement planning or
       practices.   The merits of negotiation as a method
       of procurement, even when appropriately used, are
       apparently misunderstood by many members of Congress
       and other high officials.   This misunderstanding
       complicates procurement manAgement throughout the
       Federal establishment.   We ag-.e that the Office
       of Federal Procurement Policy should take steps to
       insure that adequate policy guidance is promulgated
       with respect to obtaining competition.

       The report is also inaccurate with respect to the
       discussion of Subpart 1-1.3 of the Federal Procure-
       ment Regulations (FPR).  The FPR does not state,
       as GAO claims, that proposals for providing property
       or services "...shall be solicited from the maximum
       number of qualified sources."  What the Federal
       Procurement   gulations do state, in section 1-1.301-1,
       is that "All purchases and contracts, whether by
       formal advertising or by negotiation, shall be made
       on a competitive basis to the maximum practicable
       extent..." and in 1-1.302-1 (b)"...competitive




                              34
APPENDIX VI                                         APPENDIX VI




      offers...shall be solicited from all such qualified
      sources as are deemed necessary by the contracting
      officer to ensure such full and free competition
      as is consistent with the procurement of types of
      supplies and services necessary to meet the require-
      ments of the agency concerned."  We believe the
      present FPR regulation is proper and realistic.

      Data on noncompetitive procurements over $10,000,
      such as you suggest reporting to top management,
      is already available through the DOT Contract
      Information System.   All Federal agencies will
      shortly come under the aegis of the Federal
      Procurement Data System, which will also contain
      such information.   Further, documented justification
      for each noncompetitive transaction is already
      required by DOT regulations.   DOT management is
      already aware of sole source actions above $25,000
      because of the requirements set forth in a DOT
      order designed to control the use of such techniques.
      A special report is not considered necessary because
      of these existing controls.

      The DOT believes that the information contained in
      Appendix II, concerning negotiated procurements
      of the Federal Aviation Administration (FAA)
      during calendar year 1975, should be clarified.
      The data for FAA is misleading in that the   3 percent
      figure represents the ratio of noncompetitive
      negotiated awards to all negotiated awards.   We
      believe that an accurate representation of non-
      competitive awards would be their dollar value in
      proportion to all awards, both negotiated and
      advertised, in which case the 73 percent figure
      would drop to 33 percent.  The report also does
      not acknowledge the advantage of achieving more
      favorable pces and terms by negotiating with
      a sole source.  Moreover, the figures shown pertain
      only to the Washington office, just one of 14
      procurement activities in the FAA.  Our analysis of
      total FAA negotiated procurements for calendar year
      1975 (see attachment) shows that agencywide 75 percent
      were made on a competitive basis, 67 and 84 percent
      in Washington and the fieid, respectively.   When
      small business set-aside procurements are included,
      these percentages increase to 80, 68, and 90,
      respectively.  In addition, percentages based upon
      dollar values of procurements do not accurately




                             35
APPENDIX VI                                            APPENDIX VI



     reflect the relatively low number of noncompetitive
     negotiated procurements (only 67 in the Washington
     office).  The Washington office normally has the
     majority of FAA noncompetitive procurements because
     it buys to meet the requirements of expanded major
     systems.  Such procurements which are made pursuant
     to 41 U.S.C. 252(c)(13) (Technical Equipment Requiring
     Standardization and Interchangeability of Parts)
     are documented to show the savings resulting from
     noncompetitive procurements for this reason.

     The Department believes in securing competition for
     its procurements to the fullest practicable extent.
     We feel that DOT procurement offices db follow
     this concept, both in theory and practice, and that
     their noncompetitive procurements are well documented
     and justified.  However, DOT will be glad to assist
     the Office of Feral Procurement Policy in develop-
     ing uniform regulations on the subject, should that
     recommendation be accepted by the executive branch.




                                     'SI WIUM P.DAVs

                                Deputy Assistant Secretary
                                  for Administration




                           36
APPENDIX VI                                                                                                                                             APPENDIX VI




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APPENDIX VII                                                            APPENDIX VII



                      U.S. DEPARTMENT OF LABOR                                   ,,NlO
                OFFICIE OF THE ASSISTANT SECAETARY FOR ADMINISTRATION              v
                               WASHINGTON, D.C.   20210                      ,




 ?   SSY 1977
Mr. Gregory Ahart
Director
Division of Human Resources
U.S. General Accounting Office
Washington, D.C. 20548

Dear Mr. Ahart:

We appreciate the opportunity to review and comment on
the General Accounting Office (GAO) report to the Congress
concerning the excessive use of noncompetitive procurements
within the Government.  The report clearly demonstrates
that Federal agencies apparently do circumvent the com-
petitive process.  The Department of Labor (DOL) concurs
with GAO's conclusion that "Government Procurements Can,
and Should, Be Improved."

The Department of Labor intends to fully adopt the recom-
mendations delineated in the report.  In fact, certain of
the recommendations are currently being implemented
through existing policies and procedures.

For example, the Department of Labor Procurement Regulations
 (DOLPR) require that procurement officials question procure-
ments which "appear to be solicited from an unreasonably
small number of suppliers" and that all procurements in
excess of $5,000 be advertised in the Commerce Business
Daily in accordance with Federal Procurement Regulations
 (FPR) (41 CFR 1-1.1003).  In addition, a proposed revision
of DOLPR (enclosure 1), which is being transmitted to the
Federal Register for publication, defines specific require-
ments of the DOL procurement management program.   This
program which has been in effect since 1974, has recently
been amended to close loopholes which became apparent in
its operation.   The program requires submission of annual
advance procurement plans and prior review and approval of
proposed sole source procurements above given dollar amounts.
The program is covered in Department of Labor Manual Series
(DLMS) - 2, Chapter 830 (enclosure 2).




                                          38
APPENDIX VII                                        APPENDIX VII




   A survey of the Division of Procurement within the Office
   of Administrative Programs and Services (the office reviewed
   by GAO) indicates that, during Fiscal Year 1976, and the
   transitional period that office issued 139 noncompetitive
   contract and modification awards with a total amount of
   $5.6 million. This amount represents approximately 17% of
   the 32.6 million procurement dollars for that office.

   We have also made a brief survey of the other procurement
   offices within the Department of Labor. This survey
   indicates that out of 180.2 million procurement dollars,
   $65.9 million or 30% was for awards without competition.

   We believe that with the insertion in DOLPR    regulations
   relating to sole source procurement, the strengthening of
   instructions and effective monitoring of sole source pro-
   curements, the Department of Labor will be able to achieve
   maximum competition in its procurement operations.

   Sincerely,



   FRED G. CLARK
   Assistant Secretary for
   Administration and Management

   Enclosures




                              39
APPENDIX VIII                                                    APPENDIX VIII



                       UNITED STATES OF AMERICA
                  GENERAL SERVICES ADMINISTRATION
                            WASHINGTON.   DC   20405




 April 26,      1977


Honorable Elmer B. Staats
Ccmptroller General of the United States
General Accounting Office
Washington, D.C. 20548

Dear Mr. Staats:

Your letter of March 2, 1977, invites cmments frmc     the General

Services Administration with regard to GAO draft report entitled

"Competition for Negotiated Government Procurement Can, and Should,

be Inproved"    (B-160725), February 1977.


We have reviewed the draft report and are in agreement with

its contents.     We do not have any further comments or suggestions.


We appreciate being given the opportunity to review the draft

report.

Sincerely,



 ovcrt I. (riffin
Acting Administrator




                                           40
APPENDIX IX                                                              APPENDIX IX


                   EXECUTIVE OFFICE OF THE PRESIDENT
                        OFFICE OF MANAGEMENT AND BUDGET
                               WASHINGTON,   D.C. 20503


    OFFICE OF FEDERAL
   PROCUREMENT POLICY                                     MAY   2 1977




Mr. R. W. Gutmann
Director, Procurement and
  Systems Acquisition Division
United States General Accounting Office
Washington, D. C.  20548

Dear Mr. Gutmann:

This is in response to your letter of March 2, 1977, requesting
comments on a draft of your proposed report entitled "Competition
for Negotiated Government Procurement Can, and Should, Be
Improved."

Your report, based upon a review of 36 noncompetitive contract
awards in five procurement offices, each in a different civilian
agency, discusses numerous cases of inadequately documented or
apparently unjustified determinations that only one source was
available for the materials or services involved.  In addition
to a number of recommendations for improved procedures within
the agencies, you recommend that the Office of Federal Procure-
ment Policy "take steps to ssure that adequate and uniform
regulations are developed t  enable all Federal agencies to comply
with the national policy to Rotain competition wherever practic-
able."  Our comments address this recommendation.

Section 1-3.101(d) of the Federal Procurement Regulations provides
as follows:

   "Negotiated procurement shall be on a competitive basis
    to the maximum practical extent. When a proposed pro-
    curement appears to be noncompetitive, the procuring
    activity is responsible not only for assuring that
    competitive procurement is not feasible, but also for
    acting whenever possible to avoid the need for subse-
    quent noncompetitive procurements. This action shall
    include both examination of the reasons for the procure-
    ment being noncompetitive and steps to foster competitive
    conditions for subsequent procurements, particularly as
    to the availability of complete and accurate data,
    reasonableness of delivery requirements, and possible
    breakout of components for competitive procurements."




                                      41
APPENDIX IX                                                APPENDIX   IX




Section 3-101(d) of the Armed Services Procurement Regulation
has an identical provision, with the further requirement that
"contracts in excess of $10,000 shall not be negotiated on a
noncompetitive basis without prior review at a level higher than
the contracting officer to assure compliance."

We believe that these existing directives establish adequate
requirements for justifying and minimizing noncompetitive pro-
curements, except that the Federal Procurement Regulations
might be modified to include a requirement for prior higher
level review of noncompetitive procurements such as contained
in the Armed Services Procurement Regulation. We shall initiate
action to make the two regulations uniform in this respect.

Although the existing regulations are otherwise adequate, it is
clear that they are sometimes not followed, and that, in some
cases, improved agency management attention is warranted.  We
look forward to issuance of your final report, which we plan  to
use to bring these problems to the attention of agency management.
We are pleased to have had the opportunity to furnish you these
comments.

                                    Sincerely,




                             ,-/    James D. Currie
                                    Acting Administrator




 950308


                                   42