Defense Department Is Not Doing Enough To Maximize Competition When Awarding Contracts for Foreign Military Sales

PSAD-78-147: Published: Oct 17, 1978. Publicly Released: Oct 26, 1978.

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When transacting foreign sales, the Department of Defense (DOD) generally follows the same policies and procedures required by the Armed Services Procurement Regulations (ASPR) whether the contract is awarded for U.S. forces or for foreign military sales (FMS). Foreign countries are, however, allowed to make sole-source designations in their requests for procurement. A statistical sample of DOD contracts was studied to determine the extent of competition in FMS.

Many U.S. firms lose the opportunity to compete for DOD contracts because the DOD is currently placing contracts valued at billions of dollars on a sole-source basis to buy goods and services for other countries. DOD activities often ignored or were unaware that ASPR applies to foreign military sales, requested other countries to make sole-source designations, awarded contracts that could have been handled through normal commercial channels, and fostered and encouraged designation of high-priority requisitions which influence the award of sole-source procurements. The Northrop Corporation was designated as the sole-source supplier for the Peace Hawk program for Saudi Arabia. Designation of Northrop as supplier for certain related efforts was logical, but the Saudi Arabians also designated Northrop as the sole source for phases of the program that would not normally be awarded to an aircraft manufacturer. As a result, many U.S. firms lost the opportunity to compete on hundreds of millions of dollars of contracts in their own areas of expertise.

Recommendation for Executive Action

  1. Status: Closed

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

    Recommendation: The Secretary of Defense should: encourage other countries and U.S. program managers to avoid setting time schedules that compel sole-source procurement; determine whether the predominance of high-priority requisitions is caused by a failure to apply normal DOD priority rules; determine whether greater integration of other country needs with DOD logistics systems could hold sole-source procurements to a minimum; make procurement personnel aware that disciplinary action will be taken if they request other countries to make sole-source designations; assess the desirability of foreign country designations requiring DOD to make subsequent procurements from the original vendors; take advantage, where possible, of commercial channels to reduce administrative burdens imposed by FMS; and explain to customer countries the potential benefits available through competitive procurement. The Secretary of the Air Force should return sensitive functions, such as monitoring FMS requirements and purchasing plans, to appropriate Air Force commands.

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