DOD Contracting:

Efforts Needed to Address Air Force Commercial Acquisition Risk

GAO-06-995: Published: Sep 29, 2006. Publicly Released: Sep 29, 2006.

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The Department of Defense (DOD) has been urged by commissions, legislation, and a panel to make increased use of commercial acquisition to achieve certain benefits. To help ensure the increased use of commercial acquisition, the Office of the Secretary of Defense (OSD) established and the Air Force implemented two commercial acquisition goals to be achieved by the end of fiscal year 2005. In setting these goals, OSD expected that the increased use of commercial acquisition would provide DOD with greater access to commercial markets (products and service types) with increased competition, better prices, and new market entrants and/or technologies. The committee asked GAO to identify (1) the extent to which the Air Force has increased its use of commercial acquisition to obtain expected benefits and (2) the risks that are associated with this use.

From 2001 to 2005, the Air Force increased spending using commercial acquisition from $4.8 billion to over $8 billion in an effort to provide greater access to commercial markets to increase competition, obtain better prices, and attract new market entrants (nontraditional contractors) and/or technologies. Even though the Air Force has significantly increased this spending, it has not measured the extent to which this increased use resulted in the benefits that were expected. For example, our analysis shows that for at least one of the expected benefits, attracting new market entrants, the expected benefit has not materialized. For the most part, traditional defense contractors received these contracts. Government contracting officials face risks in using commercial acquisition. For example, improperly classifying an acquisition as a commercial acquisition can leave the Air Force vulnerable to accepting prices that may not be the best value for the department. A high-ranking DOD acquisition official testified that he is concerned about items and services being identified as commercial that are not sold in an existing marketplace because under these circumstances, the government lacks assurances that the price is reasonable. At times, Air Force officials have disagreed about the classification of some acquisitions as commercial. The Air Force's use of commercial acquisition has also been accompanied by an increased amount of dollars being awarded for sole-source contracts. Despite DOD policy to avoid sole-source commercial acquisitions because of increased risk, sole-source commercial acquisition dollars awarded by the Air Force have more than doubled from 2000 to 2005. Further, of the 20 larger Air Force commercial product awards in 2004, half were awarded as sole-source.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOD concurred with this recommendation and had reported its intent to implement a process to comply. The Air Force had issued a mandatory procedure, Air Force Federal Acquisition Regulation Mandatory Procedure 5334.7002, which requires that, annually, after the acquisition of major weapon systems as commercial items, Air Force officials identify whether new market entrants (non-traditional defense contractors) have been realized. Collecting this information could allow for the evaluation of whether the Air Force is achieving greater access to non-traditional contractors, to help ensure they are able to measure the benefits expected from commercial acquisition. The cited Air Force mandatory procedure 5334.7002 only applied to major weapon systems, was never used, and has now been cancelled. Similarly, DFARS 234-70 applies only to major weapon systems and does not require DOD components to assess whether the approach attracted non-traditional contractors or addressed the other elements of the recommendation. DOD officials reported that it has also decided not to pursue this matter.

    Recommendation: To help ensure that it is able to measure the benefits expected from commercial acquisition, the Air Force should collect information that would allow evaluating the extent of cost savings, increased access to commercial markets, and greater access to nontraditional contractors. For example, the Air Force could measure the number of nontraditional contractors it reaches using commercial acquisition.

    Agency Affected: Department of Defense: Department of the Air Force

  2. Status: Closed - Implemented

    Comments: The Air Force will limit the acquisition of commercial products and services in sole source environments in accordance with DOD guidance. The Air Force also issued Mandatory Procedure 5334.7002, Acquisition of Major Weapons Systems as Commercial Items, on August 23, 2007. This procedure will allow the Air Force to collect information to evaluate the benefits of awarding a commercial verses a non-commercial contract. Specifically, in the acquisitions of major weapon systems as commercial items the Air Force must provide supporting documentation including projections of the extent the Air Force, by using commercial practices in FAR Part 12, will (1) increase competition, (2) have greater access to commercial markets, and (3) receive better prices and/or new market entrants or technologies. Also, this procedure requires that annually after the award of this type of commercial acquisition, the program manager or contracting officer shall identify whether increases in competition, greater access to commercial markets, better prices, and new market entrants or technologies have been realized.

    Recommendation: To help improve commercial acquisition and reduce the potential for risk by limiting situations where commercial acquisition contracts are being awarded sole-source, the Secretary of the Air Force should strive to limit the acquisition of commercial products and services in sole-source environments in concert with OSD guidance. However, in the cases where it is necessary to award sole-source, the Secretary should collect the information necessary to evaluate the benefit(s) of awarding commercial verses a noncommercial contract.

    Agency Affected: Department of Defense: Department of the Air Force

 

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