Pursuant to a congressional request, GAO reviewed: (1) The Department of Defense's Office of Civilian Health and Medical Program of the Uniformed Services' use of contracting procedures to obtain fiscal intermediary services for processing health insurance claims to determine whether they were suited to ensuring high-quality performance at the lowest possible cost to the government; and (2) the performance of Blue Cross of California, a fiscal intermediary that was awarded a contract to process claims for the southeast region of the United States.

GAO found that certain areas of the process for procuring and monitoring fiscal intermediary services needed strengthening to: (1) better document proposal evaluation criteria and the rationale for contract award decisions; (2) better assess an offerer's price, past experience, and operations performance ability; and (3) provide more systematic and thorough assistance to and evaluations of contractor operations. GAO noted that the program office did not resolve fiscal intermediary problems encountered when preparing for operations under a new contract which resulted in contractors beginning operations before the systems were fully tested and ready. GAO also found that the program office did not adequately measure Blue Shield of California's performance against office standards or check compliance with provisions contained in the technical proposals to determine whether they were implemented. Blue Shield only met the program's critical performance standards 32.5 percent of the time during the first year of its contract. Although it took steps to improve its performance, the program office did not renew its contract. GAO believes that the program office has taken corrective actions which should improve the procurement process.