Comments on H.R. 2274 and Our Report on Contracting Practices for Military Base Support Contracts

Published by the Government Accountability Office on 1990-04-19.

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

                      United States General Accounting Office          \   t797f
                                                                           I I

  For Release          Comments on H.R. 2274 And Our Report on
  on Delivery          Contracting Practices for Military  Base
  Expected at
  10:00 am EST,        Support   Contracts
  April   19, 1990

                      Statement      for the Record
                      Paul F. Math, Director,        Research, Development,
                        Acquisition,       and Procurement      Issues
                      National    Security    and International        Affairs

                      Before the
                      Subcommittee on Procurement
                      Committee on Small Business
                      United States House of Representatives

  GAO/T-NSIAD-90-34                                                           GAOForm 160(EW’r)
Mr.   Chairman     and Members of the           Committee:

We appreciate       this opportunity      to provide    a statement     to the
Subcommittee      on H.R. 2274, The Small Business           Protection
                                                              ,1 .,,-.     Act, and
highlights     of our report,      Procurement:      Opportunities      to Use More
Preferred     Practices   for Base Support       Contracts     (GAO/NSIADA87-71,
issued in February       1987.

Both H.R. 2274 and our report                 seek to require          additional
justification,          and promote better          analysis     of alternatives,           when
warranted,        before    decisions      are made to consolidate              work
functions       into larger       contracts.        H.R. 2274 would require             a small
business       impact statement         when a procuring         agency proposes          that
work currently          performed     by a small business            be consolidated         and
the proposed         procurement      would not be conducive             to small      business
participation.           Under the proposed          approach,       if the Small
Business Administration              (SBA) believed        alternatives         exist   that
would increase          small business        prime contracting          opportunities,
SBA would be required             to provide      recommendations          to the procuring

Information        we collected      on military         base support        contracts     for
our 1987 report         raised   concerns        about the adverse effect               on
small businesses          of consolidating          single    function       contracts     into
large contracts.            (See attachment         I for the dollar          amount of the
prime contracts         awarded to large and small businesses                      and
attachment       II for the amount of subcontracting                   on selected
contracts.)         Based on our report,            we concluded       that,      under
certain     circumstances,       proposals        to award large consolidated
contracts       need to be justified           in writing       and approved.           We
believe,      if this were also a requirement,                  it would help ensure
that small business'           opportunities          to compete for federal
contract     awards are restricted             only when this has been
demonstrated        to be in the government's              best interests.
We beblieve H.R. 2274 proposes               a reasonable         approach      for ensurinq
that,    before     deciding    whether      to consolidate         contract       work,
procuring  agencies   take into account              the   opportunities        given   to
small businesses    to participate.


Our report        presents     the results       of our review of the contracting
practices       the military       services       used to award large multifunction
("umbrella")         contracts     for base support          services.       The Department
of Defense (DOD) identified               64 umbrella        contracts,      valued at
$3.5 billion,          used to provide        support     services      on military    bases
during     fiscal      years 1977 through          1983.     The use of these
contracts       grew from $20 million            in fiscal      year 1977 to more than
$1 billion        in fiscal      year 1983.        We performed       this   review because
of the substantial           value of the umbrella             contracts.       We not only
analyzed      information       on the 64 umbrella           contracts,      but also
compared the results            with information          from a random sample of
single     function      base support       service      contracts.        In fiscal   year
1983,    the last year covered by the contracts                      we reviewed,     DOD
funded about         6,000   contracts      totaling      $2.4 billion       for base
support      services.       Most of these contracts             were relatively       small,
covering      one function.

Under umbrella      contracts,      contractors      provide    a wide range of
support   services,       such as custodial        work, lawnmowing,      road and
building   maintenance,        trash collection,        food services,     and
security,    rather     than a single       service.      By using an umbrella
contract,    a military       base can reduce the number of contracts               it
needs to award and administer             and can concentrate        responsibility
for the work on a single           contractor.

Our    report    refers    to certain       practices   as preferred        for procuring
routine      or predictable        services.       These include      (1) using a
firmly     priced    contract      rather    than a fixed-price         incentive   or
cost reimbursement           contract,      (2) giving   at least       50 percent   of
the weight to price,           as opposed to nonprice,           factors      in
 evaluating     contractors'          offers,    (3) using contract     statements      of
 work which contain         to a      great or very great extent        performance-
oriented     descriptions        of    the work to be done and standards           with
acceptable      qualitv      levels      for measuring performance,        and
 (4) exercising       contract        options   that were priced     as part of the
initial     contract     award,       rather  than unpriced    options.       We refer
to contracting        practices        other than these as less preferred


Most of the work done under umbrella           contracts    was routine    or
predictable.       However, the military      services   awarded most of the
contracts    using contracting      practices   more suited    for obtaining
technical,    nonroutine      work.  This lessened the likelihood        that
the qovernment       obtained   base support   services   at a fair    and
reasonable    price.

The military       services   provided    little     or no support        for many of
their    decisions     to use the less preferred           contracting        practices.
They said they used them mainly to have flexibility,                        to get the
best service,       and to save time in the contracting                process.
However, the preferred         practices       have been used successfully               in
awarding     some umbrella     contracts.         In addition,      single     ruliction
contracts,      covering    many similar      types of work as the umbrella
contracts,      have often been based on the preferred                 practices.

IIn a separate     report,    GAO/NSIAD-86-59,    we recommended                and DOD
  and other federal      agencies   adopted regulatory     changes              to correct
  problems identified      relating   to contract   options.

Work Mostly      Routine

The work    performed      under umbrella        contracts     consisted     mainly of
routine,    predictable       activities.        DOD contracting       officers
provided    and we analyzed          information     on the work performed           under
56 of the 64 umbrella          contracts.        The analysis      showed that of the
118 different      types of work performed             under the contracts,          113
 (96 percent)     were performed          under both the umbrella          contracts
that were firmly        priced     and those that were not.            Firmly priced
contracts     are best suited          for predictable      types of work.

The less preferred         practices     often used to award umbrella
contracts      are more suited        to unpredictable         or nonroutine        work,
such as developing         a weapons system.           In such work, costs may be
harder to estimate          in advance,     and a contractor's            technical
expertise      may need to weight        more heavily        in making the award.
When used to contract           for routine      work, however,         these practices
may result      in higher     prices.      For example, we found that,                because
nonprice     factors     were given more importance             in evaluating
contractors'       offers,    the 22 umbrella        contract       awards made to
someone     other than the lowest priced             offeror      totaled     $81 million,
or 8 percent,        more than the total         of the lowest offers.              In the
source selection         evaluation     process,     all of the lowest offerors
were judged to be qualified.

Use of Less      Preferred
Contracting      Practices

Overall,    we found that for the 64 umbrella    base support  service
contracts     which DOD identified as having been awarded between
fiscal    years 1977 and 1983, the less preferred    practices  were
often used.       That is
--   43 (67 percent)    were either   cost       reimbursement      contracts     or
     fixed-price   incentive  contracts;

--   33 (52 Percent)   were either  evaluated      predominantly  on the
     basis of nonprice   source selection     criteria    or were awarded

--   30 (47 percent)       were awarded based on work statements      not
     meeting the OMB guidance          to a great or very great extent,
     according      to the contracting     officers responding  to our
     questionnaire;       and

--   11   (17   percent)   had unpriced     options    that   had been exercised.

Ten umbrella    contracts       used only the preferred       practices.      The
other 54 used from 1         to 4 of the less preferred        contracting
practices.    That is,        14 contracts     used 1 such practice,       20
contracts   used 2, 17       contracts     used 3, and the remaining        3
contracts   used all 4       of the less preferred      practices.

Support Lacking   for       Less
Preferred Practices

Federal     law and regulations          require     decisions     to use cost
reimbursement         or incentive     types of contracts          to be justified
either     as (1) likely      to be less costly          or (2) the only
practicable        way to satisfy      the need.        For the 43 umbrella            .
contracts      of such types (costing            $2.3 billion);       we found that 37
had inadequate         documentation      to support       the contract-type
decision.        Interviews     with contracting         officers     did not provide
additional       information      supporting      28 of these 37 decisions.
Similarly      we examined eight contract             awards for which price was
given less than 50 percent             of the weight for evaluating             offers
and found insufficient            support    for assigning        such a low weight in
seven of the eight cases.
..   -

         Use of Preferred         Practices
         Is Feasible

         Some umbrella       contracts     were awarded using the preferred
         practices.        Of the 64 umbrella         contracts,      21 were awarded using
         firmly     priced   contracts.       Also, 17 of the 64 were awarded with
         the dominant       importance     given to price         rather  than to nonprice
         source selection        evaluation      factors     and another     14 contracts   were
         awarded with equal importance              given to price and nonprice
         factors.       The kinds of work performed              under these contracts     based
         on the preferred        practices     were similar        to the work performed
         under most of the others.

         Better   Work
         Statements    Needed

         To increase  the effective   use           of firmly   priced    contracts      and the
         emphasis on price   in awarding            umbrella   contracts,     the services
         need to prepare more precise              contract   work statements       defining
         both the work to be done and              acceptable   performance      levels.

         Comparison      of Umbrella
         and Sinale      Function
         Contracting      Practices

         In addition       to the differences         in the contracting          practices      used
         on different        umbrella   contracts       covering     largely    the same types
         of work, we found substantial              differences        between the contracting
         practices     used to award umbrella             contracts     and single      function
         contracts     covering      many similar       types of work.         When base support
         service     work was consolidated          and awarded using umbrella
         contracts,      instead     of single    function       contracts,     less preferred
         contracting       practices    were often        used instead       of the preferred
         practices.        For example,     33 percent        of the umbrella        contracts
were firmly   priced,     compared to 98 percent         of the single       function
contracts.    In addition,      48 percent     of the umbrella       contracts
were awarded based on source selection            evaluation     criteria       that
gave at least half of the weight to price,               compared to 95 percent
of the single    function    contracts.      Moreover,     on those contracts
for which price was given at least half of the weight,                    the
average price weighting       was significantly        lower for the umbrella
than the single     function   contracts.


Our report    included several other findings     and conclusions
relevant   to the issue of consolidating    contract   work:

     The information       in attachment      1: shows     that    the proportion       of
     the value      of prime contract     awards to         small    business    concerns,
     compared to large business          concerns,        is significantly        lower
     for umbrella      than for single      function        contracts.       Attachment
     II shows, for the umbrella          contracts        at the military        bases we
     visited,     the amount and percentage          of     subcontract      awards to
     small    business    concerns.

--   Despite     contrary     DOD policy     statements,        we found indications
     that umbrella        contract   solicitations         resulted     in less
     competition       than single     function      contracts.       Specifically,
     umbrella     contracts      were awarded based on a range of 1 to 15
     offers    with a mean of 4.3, whereas single                 function     contracts
     had a ranqe of 1 to 45 offers              with a mean of 6.8.            About 53
     percent     of the 64 umbrella         contracts      were awarded based on
     more than 2 offers          compared with 89 percent            of the single
     function      contracts.

--   The military      services     have procured    billions      of dollars      worth
     of base support       services     and supplies     through     umbrella
     contract     awards based on less preferred            contracting      practices.
      A lth o u g h m o s t o f th e work involved w a s o f a predictable
      n a tu r e , c o n tractinq           o fficers         o fte n d e c i d e d to u s e u m b r e l l a
      c o n tracts        b a s e d o n th e less p r e ferred               practices      without
      justifying            th a t th e y w e r e th e m o s t a d v a n ta g e o u s m e th o d o f
      m e e tin g th e g o v e r n m e n t's          n e e d s . Neith e r p r o c u r e m e n t
      regulatio n s           n o r agencies' procedures require th e decisions                              to
      u s e u m b r e l l a c o n tracts          b a s e d o n less p r e ferred         c o n tracting
      practices,            rath e r th a n two or m o r e smaller c o n tracts                      based on
      th e p r e ferred           practices,          to b e justified.             D O D policy       requires
      a cost analysis                   if all or m a n y o f th e fu n c tio n s           for a b a s e a r e
      solicited           to g e th e r .     R o w e v e r , th e policy d o e s n o t address
      consideratio n              o f, or justification               for, n o t using p r e ferred
      c o n tracting          practices.

--    Decisions to u s e u m b r e l l a          c o n tracts     b a s e d o n less p r e ferred
      c o n tracting  practices      for          r o u tin e  b a s e s u p p o r t services    need
      m o r e careful  justification                a n d review.


W e r e c o m m e n d e d th a t th e S e c r e tary o f D e fe n s e require b o th initial
solicitations             a n d resolicitations            to b e b a s e d o n th e a n ticipated
u s e o f th e th r e e c o n tracting             practices     listed      below whenever use
o f a n u m b r e l l a c o n tract         covering a substa n tial          a m o u n t o f r o u tin e
or predictable              b a s e s u p p o r t work is p r o p o s e d , e x c e p t w h e n ( 1 ) th e
c o n tracting        o fficer      certifies,        justifies,       a n d reasonably
s u p p o r ts th e u s e o f a n y o th e r c o n tracting            practice(s)        in writing
as m o r e a d v a n ta g e o u s to th e g o v e r n m e n t a n d (2) th e justification

is approved at a level higher than              the   contracting       officer.2          The
three contracting  practices are:

--   A firm fixed-price  contract    or a fixed-price               contract        with   an
     economic price adjustment    clause.

--   Source selection  evaluation         criteria     which    assign at least
     half of the weight to price          related,     rather    than nonprice,

--   A solicitation       containing      work statements      with (1) clear,
     definitive,      performance-oriented        descriptions      of the work that
     needs to be done and (2) standards             with acceptable       quality
     levels      for measuring     performance.

We believe     that adopting     our recommendation      would help DOD
ensure that      (1) the inappropriate     use of umbrella      contracts   is
limited    and (2) small     businesses'   opportunities      to compete  for
federal    contract    awards are restricted      only when this has been
demonstrated      to be in the government's       best interests.

DOD did not concur with this          recommendation,        saying it would
adversely     impact on the contracting         officer's     responsibility      to
seicct    the most appropriate      contracting       method.       DOD promised    no
specific     corrective    actions,  except guidance,         already     issued,   and
training,     already   being offered,     relating       to better    work

2That is, the requirement          should apply (1) at the time the
 "packaging     decision"    is   made  determining   whether and to what
 extent    work functions      are to be consolidated      into an umbrella
 contract    and (1) before the solicitation          is prepared,     so that
 proper planning       can be done to allow use of the preferred
 practices     whenever use of the less preferred          practice(s)    has not
 been justified       and approved.
Yr. Chairman,   this concludes    my statement. I would be happy to
provide  responses   for the record to any questions   you ,or other
members of the Committee    have.

ATTACHMENT I                                                                                                ATTACHMENT I

                              UMBRELLA PRIME CONTRACT DOLLARSa
                                AWARDED BY TYPE OF BUSINESS
                                           business   awards
Year                  Large                 made outside                          Small
year                businessb               United States                        business                              Total
                -------------------Dollars                          in millions-------------------

1977            S       17,455                  $     2,658                      S            0                  S       20,113

1978                  213,306                   s 31,184                                      0                        244,490

1979                  281,048                       136,994                           6,617                            424,659

1980                  316,135                       175,244                           7,356                            498,735

1981                  321,899                       206,651                          16,599                            545,149

1982                  546,571                       214,652                          14,577                            775,800

1983                  840,884                       166,893                          10,738                          1,018,515

Total          %53?,2ea                         %!2iLui                          $55.887                     $3.527.461

                            SIXGL3 FUNCTION PRIME CONTRACT DOLLARS
                                  AWARDED BY TYPE OF BUSINESSa

                             business   awards                                               Other
Year      Large               made outside                      Small                    nonprofit
year    businessb             United States                    business               institutionsc                       Total
        -----------------------Dollars                              in     millions---------------------

1983      $96,537                    $316,962                 s1,003,795                   sil,928                    $1,429,222

aData   was obtained             from the           Federal       Procurement              Data System.
bThis excludes  awards                   to large businesses                   made outside                the        United
 States,  shown in the                   next column.
cEduca'tiona1,         hospitals,           and other           entities.

           ATTACHMENT II                                                                                         ATTACHMENT II


                            Total prime                                                                      Small
                              contract                 Total                                             business                   Percent of
                             amount    FY          subcontract                                         subcontract                  total  prime
    Base                          1983               amount                     Percent                      amount                     amount
                            ---------------------Dollars                               in      millions--------------------

    Bangor                    $ 36.1                   $10.4                        28.7                       s a.7                     24.1

    Arnold                        64.3                     22.5                     35.0                         10.9                    16.9

    St.     Louis                   5.1                     0.7                     12.7                           0.5                   10.3

    Vance                        28.8                       5.9                     20.5                           5.5                   19.1

    China     Lake                 7.7                      3.9                     50.3                           3.3                   43.1

    China     Lake                 2.7a                     1.1                     41.9                           1.1                   41.9

    Fort     Irwin               23.0                       1.7                      7.5                           1.7                       7.5

    Fort     Gordon              25.8                      14.7                     57.0                          9.9                    38.2

    Greenland                             b                       b                        b                             b                         b

    Turkev                                b                       b                        b                             b                         b

    Total                    s193.5                    ULA                                                      %ldi
    aLess     than    a fiscal           year:       March            13,   1983,     through           September             26,    1983.

    bData     were    not    available.