El Salvador:

Limited Use of U.S. Firms in Military Aid Construction

NSIAD-89-132: Published: Jul 12, 1989. Publicly Released: Jul 12, 1989.

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Pursuant to a congressional request, GAO reviewed Military Assistance Program (MAP)-funded construction contracts the Army Corps of Engineers awarded in El Salvador, focusing on the legality, propriety, and effects on U.S. firms of approved offshore procurement waivers, which opened competition to Salvadoran firms.

GAO found that: (1) U.S. firms obtained 5 of 18 Salvadoran construction contracts authorized between fiscal year (FY) 1985 and May 1988, although no U.S. firm has obtained a construction contract since the Defense Security Assistance Agency (DSAA) approved offshore procurement in July 1986; (2) Salvadoran firms were typically able to provide the same services at a lower cost than U.S. firms, whose reasonable, competitive bids included higher costs due to overhead and mobilization and difficulty in obtaining bonding; (3) DSAA lacked written procedures for reviewing or approving offshore procurement waivers or for considering the waivers' impact on labor surplus areas; (4) the Departments of State and the Treasury initially concurred with DSAA regarding the offshore procurement waivers, since MAP funds could be stretched further by permitting local competition; (5) State and Treasury relied on the Department of Defense (DOD) for information about changes in projects' scopes or costs, although DOD lacked a mechanism to inform them of any modifications; (6) the Army complied with procedures and regulations in awarding the contracts to Salvadoran firms; and (7) the Defense Contract Audit Agency (DCAA) had difficulty obtaining relevant documentation regarding Salvadoran contractors and has not conducted any in-country audits of the Salvadoran contracts.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DSAA revised its security assistance regulations, which established guidance and criteria for reviewing and approving offshore procurement determinations, including specifying how to assess the impact on labor surplus areas before making offshore procurement determination decisions.

    Recommendation: The Secretary of Defense should direct the Director, DSAA, to establish guidance and criteria for reviewing and approving offshore procurement determinations, including documenting its assessment of the impact on labor surplus areas before making offshore procurement determination decisions.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: DSAA does not concur with the recommendation.

    Recommendation: The Secretary of Defense should direct the Director, DSAA, to provide more specificity in each offshore procurement determination, including, at a minimum, the scope of work, monetary ceilings, and approximate time frames to provide clear limitations on the extent that a determination can be used.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: DSAA established in its new guidance on offshore procurement determinations a mechanism to inform State and Treasury of significant changes in the scope of work (if the project exceeds that originally anticipated by 50 percent or $1 million, whichever is greater) to previously approved determinations.

    Recommendation: The Secretary of Defense should direct the Director, DSAA, to establish a mechanism to periodically inform the Departments of State and Treasury of significant changes in the scope of work and modifications to previously approved offshore procurement determinations.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: The Corps agreed to work with DCAA on a case-by-case basis to ensure that contracts awarded for construction in El Salvador are audited in accordance with DOD regulations and that DCAA receives the necessary data for the audit. Corps contracting officers will require contractors to provide complete cost or pricing data as required by the contract clauses and DOD regulations.

    Recommendation: The Commanding General, Army Corps of Engineers, should work with DCAA to ensure that contracts awarded for construction in El Salvador are fully audited in accordance with pertinent DOD regulations.

    Agency Affected: Department of Defense: Department of the Army: Corps of Engineers

 

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