Military Contractor-Operated Stores' Contracts Are Unmanageable and Vulnerable to Abuse

MASAD-81-27: Published: Jul 8, 1981. Publicly Released: Jul 8, 1981.

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Contractor-operated base stores, once envisioned as a practical and cost-effective means for obtaining vehicle repair parts and civil engineering supplies, are now plagued by pricing irregularities, contract abuses, and repeated allegations of fraud. GAO reviewed such contractor-operated stores to determine how well these contracts are controlled and whether they are subject to fraud and abuse. The review concentrated on evaluating Air Force contracting and management procedures developed to implement the contractor-operated store, reviewing audit reports and closed criminal investigation reports from the Air Force, and reviewing 10 out of 120 Air Force store contracts in operation.

Despite past concentrated efforts, the Air Force has been unable to develop a workable store contract for purchasing the thousands of low-cost, commercial items that its bases need daily. Further, the services continue to award complex, fixed-price store contracts containing many pricing uncertainties. The burden of administering these contracts has often been slighted in favor of relying on a contractor to price and deliver goods according to the contract, resulting in some contractors taking advantage of the uncertain contracts and disorganized management. Air Force bases have paid more for automobile parts than the lowest price specified in the contract and have purchased new parts when more economical, rebuilt parts should have been stocked. They have also contracted to pay excessive fixed prices for civil engineering supplies. These unsound buying practices and abuses were traceable to defects in the contracts and breakdowns in internal controls. Since 1977, the Air Force has made 41 criminal investigations of alleged store irregularities. These cases have primarily involved the misrepresentation of goods in order to increase prices and have usually involved a relatively small dollar amount. GAO believes that the contractor-operated store, as implemented, unnecessarily exposes the Government to potential purchasing fraud and abuse because it depends too heavily on the contractor to make the buying decisions. GAO also believes that some aspects of the store contracts are uncontrollable and will continue to result in the Government paying higher prices than is necessary.

Recommendations for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Defense, if it is determined that an A-76 study is unnecessary, should direct the military services to discontinue the COPARS and COCESS contracting program with as little disruption of maintenance operations as possible. COPARS and COCESS contracts should not be renewed once they expire. Instead, the military services should establish either Government-operated automotive and civil engineering supply stores or develop other workable alternative methods of supply.

    Agency Affected: Department of Defense

  2. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Defense, if COCESS contracts are continued, should direct that: (1) the request of proposals contain a complete material requirements list showing valid item descriptions, a local trade price, and an estimated annual requirement for each item based on the Air Force's consumption data; (2) an alternate contract proposal arrangement be used whereby offerors propose percentage discounts or premiums for supplying the listed items at the established trade prices developed by the base; (3) an adequate procedure be developed to handle changes in manufacturer's model numbers and packaging practices when these identifiers are included in material requirements lists; and (4) adequately trained contract monitoring personnel be assigned to receive goods to assure that the items delivered are the items billed, the most favorably priced items, and the item needed.

    Agency Affected: Department of Defense

  3. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Defense, if COPARS contracts are continued, should direct that: (1) bid evaluation procedures be revised to include a satisfactory means for determining what each bidder's parts prices will be and to use this data in making the award; (2) bid evaluation procedures include a history of each bidder's performance and a complete evaluation of contractor responsibility, and DOD consider providing contracting officers with specific objective criteria by means of the Defense Acquisition Regulations to aid in determining what constitutes adequate evidence of unsatisfactory performance and integrity; (3) the solicitation contain a separate line item for research services, including complete catalogs, cross references, and industry indexes; (4) that an adequate number of full-time, trained contract personnel be assigned to order and receive goods from the store and that receiving controls assure that the item delivered is the item billed, the lowest priced item available, and the item needed; and (4) the contractor's monthly invoice be arranged so that sales by each market category are listed separately to aid the bases in estimating annual requirements by category.

    Agency Affected: Department of Defense

 

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