Contract Management:

A Comparison of DOD and Commercial Airline Purchasing Practices

NSIAD-00-22: Published: Nov 29, 1999. Publicly Released: Nov 29, 1999.

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Louis J. Rodrigues
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Pursuant to a congressional request, GAO provided information on the Department of Defense's (DOD) purchasing and pricing of commercially available spare parts, focusing on: (1) a comparative analysis between the purchasing and pricing practices of selected commercial passenger and freight airline companies and the practices of DOD; and (2) how airlines and DOD ensure that they are obtaining reasonable prices when buying commercial items from sole-source suppliers.

GAO noted that: (1) airlines use a variety of practices to obtain spare parts at reasonable prices; (2) these practices include analyzing prices, procuring competitively, utilizing catalog prices (commonly discounted), negotiating long-term agreements, purchasing new surplus or reconditioned parts, and sometimes asking for justifications of price increases; (3) when faced with a sole-source supplier demanding a price that they believe is unreasonable, some airlines will consider re-engineering the part and establishing a second source; (4) DOD policies call for using similar practices when buying commercial spare parts; (5) contracting officers often rely on competition to ensure reasonable prices--about 42 percent of fiscal year 1998 spending on commercial spare parts for aircraft was awarded through full and open competition; (6) DOD frequently receives discounts on catalog prices from suppliers, including sole-source suppliers; (7) DOD has also begun to negotiate longer-term agreements that set prices; (8) in sole-source situations, contracting personnel perform some price analyses, but GAO's recent review of these analyses indicated they could be very limited in scope; and (9) less commonly, DOD will purchase surplus parts or consider re-engineering a part.

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