This is the accessible text file for GAO report number GAO-08-3 
entitled 'Defense Contracts: Contracting for Military Food Services 
under the Randolph-Sheppard and Javits-Wagner-O'Day Programs' which was 
released on October 31, 2007. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

October 2007: 

Defense Contracts: 

Contracting for Military Food Services under the Randolph-Sheppard and 
Javits-Wagner-O'Day Programs: 

GAO-08-3: 

GAO Highlights: 

Highlights of GAO-08-3, a report to congressional committees. 

Why GAO Did This Study: 

Randolph-Sheppard and Javits-Wagner-O’Day (JWOD) are two federal 
programs that provide employment for persons with disabilities through 
federal contracts. In 2006, participants in the two programs had 
contracts with the Department of Defense (DOD) worth $465 million 
annually to provide dining services at military dining facilities. The 
2007 National Defense Authorization Act directed GAO to study the two 
programs. This report examines (1) differences in how the Randolph-
Sheppard and JWOD programs provide food services for DOD and (2) 
differences in how contracts are awarded, prices are set, and program 
beneficiaries (i.e. persons with disabilities) are compensated. GAO 
interviewed program officials, conducted a survey of states with 
Randolph-Sheppard programs, and reviewed eight Randolph-Sheppard and 
six JWOD contracts. 

What GAO Found: 

The Randolph-Sheppard and JWOD programs use different procedures to 
provide food services to DOD. In Randolph-Sheppard, states act as prime 
contractors, and train and license blind individuals to act as managers 
of dining facilities. In most cases, the blind vendor relies on a food 
service company—known as a teaming partner—to assist in operations, 
provide expertise, and help with start-up costs. About half of the 
blind vendors are required to employ other persons with disabilities. 
JWOD is administered by an independent federal agency called the 
Committee for Purchase from People Who are Blind or Severely Disabled 
(Committee for Purchase). The Committee for Purchase engages a central 
nonprofit agency to match DOD’s needs with services provided by local 
nonprofit agencies. Most of the individuals working for these local 
nonprofit agencies are employed in less skilled jobs such as serving 
food or washing dishes. 

The Randolph-Sheppard and JWOD programs differ significantly in the way 
DOD dining contracts are awarded, how prices are set, and how 
participants are compensated. For Randolph-Sheppard, DOD awards 
contracts to the states either through direct negotiations or 
competition with other food service companies. In either case, DOD and 
the states negotiate the prices based on factors such as historical 
prices and independent government estimates. Under JWOD, competition is 
not a factor because DOD is required to purchase services it needs from 
a list maintained by the Committee for Purchase, which establishes fair 
market prices for these contracts. In terms of compensation, Randolph-
Sheppard blind vendors generally received a percentage of contract 
profits, averaging about $276,500 per vendor annually. JWOD 
beneficiaries are generally paid hourly wages according to rules set by 
the federal government. For the three sites we visited, we estimate 
that beneficiaries received an average wage of $13.15 per hour, 
including fringe benefits. Given the differences in the roles of the 
beneficiaries of these two programs, comparisons of their compensation 
have limited value. 

Table: Comparison of Randolph-Sheppard and JWOD Program Procedures: 

Administration; 
Randolph-Sheppard: Department of Education is responsible for 
oversight, but program is operated at the state level by a state 
licensing agency under the auspices of the state vocational 
rehabilitation agency; 
JWOD: Administered by the Committee for Purchase through NISH, its 
central nonprofit agency. 

Who provides service; 
Randolph Sheppard: Blind vendor, usually with the assistance of a 
teaming partner; 
JWOD: Local nonprofit agency using blind or severely disabled workers. 

Dining contracts (as of 10/06); 
Randolph-Sheppard: 39 contracts worth about $253 million per year; 
JWOD: 53 contracts worth about $212 million per year. 

Dining contracts (as of 10/06); 
Randolph-Sheppard: Our survey indicated that 20 of 39 vendors have such 
hiring requirements. On average, about 18 percent of workers are 
disabled; 
JWOD: The Committee for Purchase requires that participating nonprofit 
agencies perform at least 75 percent of direct labor hours with persons 
with disabilities. 

Source: GAO analysis. 

[End of table] 

What GAO Recommends: 

GAO is not making recommendations in this report. In commenting on a 
draft of this report, DOD and the Department of Education provided 
technical clarifications, which were incorporated as appropriate. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-08-3]. For more information, contact William 
Woods, (202) 512-8214, woodsw@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results In Brief: 

Background: 

Randolph-Sheppard Places Blind Individuals in Managerial Roles, while 
JWOD Employs Persons with Disabilities in Less Skilled Jobs: 

Programs Differ Regarding How Contracts Are Awarded and Priced, and How 
Program Beneficiaries Are Compensated: 

Concluding Observations: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: Comments from the Department of Education: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Comparison of Randolph-Sheppard and JWOD Program Procedures: 

Table 2: Randolph-Sheppard Contracts Reviewed with Contract Award 
Information: 

Table 3: JWOD Contracts Reviewed with Contract Award Information: 

Table 4: Estimated Average Hourly and Annual Wages Earned at Three JWOD 
Sites Visited: 

Figures: 

Figure 1: Location of Randolph-Sheppard and JWOD Military Dining 
Facilities as of October 17, 2006: 

Figure 2: Randolph-Sheppard Program Overview: 

Figure 3: JWOD Program Overview: 

Figure 4: Number and Average of Randolph-Sheppard Blind Vendors' 
Compensation within Designated Dollar Ranges (rounded to nearest 100 
dollars): 

Abbreviations: 

DCAA: Defense Contract Audit Agency: 

DOD: Department of Defense: 

FAR: Federal Acquisition Regulation: 

JWOD: Javits-Wagner-O'Day: 

SCA: Service Contract Act: 

United States Government Accountability Office: 

Washington, DC 20548: 

October 30, 2007: 

The Honorable Carl Levin: 
Chairman: 
The Honorable John McCain: 
Ranking Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Ike Skelton: 
Chairman: 
The Honorable Duncan Hunter: 
Ranking Member: 
Committee on Armed Services: 
House of Representatives: 

The Randolph-Sheppard Vending Facility program (Randolph-Sheppard) and 
Javits-Wagner-O'Day program (JWOD)[Footnote 1] are two federal programs 
that provide employment for individuals with disabilities using federal 
contracts. In 2006, participants from both programs had food service 
contracts with the Department of Defense (DOD) worth about $465 million 
annually to manage and/or support the operation of military dining 
facilities. Historically, though both programs provided employment for 
disabled individuals, they pursued different types of federal 
contracts. Randolph-Sheppard, which is regulated by the Department of 
Education (Education) and implemented by the states through state 
licensing agencies, arranged for blind vendors to manage snack bars and 
to service vending machines on federal properties, while the JWOD 
program provided a variety of goods and services to the federal 
government, including food-related services. However, changes over time 
have led to competition between the two programs. In 1974, amendments 
to the Randolph-Sheppard Act expanded the scope of the program to 
include the operation of cafeterias on federal property.[Footnote 2] In 
2001 and 2003, two court cases determined that cafeterias included 
military dining facilities, which ultimately led to competition between 
the Randolph-Sheppard and JWOD programs for contracts at DOD dining 
facilities. 

The National Defense Authorization Act for Fiscal Year 2007 addressed 
this competition between the two programs by reserving certain 
contracts for each.[Footnote 3] In an effort to obtain additional 
insight into how the two programs operate with respect to DOD food 
service contracts, the act also required us to examine a sample of 
Randolph-Sheppard and JWOD food services contracts that were in effect 
as of October 17, 2006. More specifically, we were required to examine 
(1) differences in operational procedures for how the Randolph-Sheppard 
and JWOD programs provide food services for DOD, and (2) differences in 
how the contracts are awarded, how prices are determined, and how 
program beneficiaries (i.e. persons with disabilities) are compensated. 

To address these objectives, we reviewed pertinent documents and 
interviewed officials from DOD, Education, an independent federal 
agency called the Committee for Purchase from People Who are Blind or 
Severely Disabled (Committee for Purchase); and organizations 
representing both the Randolph-Sheppard and JWOD programs. We reviewed 
a sample of 14 contracts--8 Randolph-Sheppard and 6 JWOD contracts. We 
determined that conducting a representative sample was not feasible 
based on our preliminary work, which indicated wide variations in how 
the two programs are structured and in how the Randolph-Sheppard 
program is administered from state to state. For these reasons, we 
selected a number of contracts representing both programs and each of 
the military services, as well as contracts that vary in terms of 
dollar value, size of military facilities, and geographic location. As 
the sample was not representative, results of our review cannot be 
projected to the entire universe of contracts. To gather information on 
the responsibilities and compensation of blind vendors, and their 
relationships with state licensing agencies, we conducted a survey of 
the 24 states that have Randolph-Sheppard dining facility contracts 
with DOD. All 24 states responded to our survey and provided 
information for 39 military dining facilities contracts. In addition, 
we visited military installations for 5 of the 14 contracts in our 
sample to conduct file reviews, observe dining facility operations, and 
conduct in-depth interviews with pertinent officials and staff. We 
selected site visits based on contracts administered under either the 
Randolph-Sheppard or JWOD program, contract size, geographic 
dispersion, and DOD military service. In terms of beneficiary 
compensation, we limited our review to Randolph-Sheppard blind vendors 
and JWOD workers. Appendix I contains more details about our scope and 
methodology. We conducted our work between November 2006 and August 
2007 in accordance with generally accepted government auditing 
standards. 

Results in Brief: 

In providing DOD with food services, the Randolph-Sheppard and JWOD 
programs use different operational procedures to create employment 
opportunities for individuals with disabilities. The Randolph-Sheppard 
program uses state licensing agencies to train blind vendors to serve 
as managers of DOD dining facilities. The licensing agencies serve as 
prime contractors and place the blind vendor with an appropriate dining 
facility. In a majority of contracts in our survey, the licensing 
agencies utilize commercial food service companies--referred to as 
"teaming partners"--who work with blind vendors to provide expertise 
and financial resources necessary to operate the military dining 
facility. Based on our survey results, about half of the blind vendors 
are required to employ at least some blind persons or individuals with 
other disabilities, and on average, 18 percent of their employees have 
a disability. Under the JWOD program, an independent federal agency-- 
the Committee for Purchase--works through a central nonprofit agency to 
match DOD's needs with services provided by local nonprofit agencies, 
such as branches of Goodwill Industries. Most of the disabled 
individuals working for these local nonprofit agencies are employed in 
less skilled jobs such as cleaning tables, washing pots and pans, or 
serving food. 

There are significant differences between the Randolph-Sheppard and 
JWOD programs in terms of how contracts are awarded and priced, and how 
program beneficiaries are compensated. Under the Randolph-Sheppard 
program, the state licensing agencies are awarded food service 
contracts either by direct negotiations with DOD or through competition 
with other food service companies. The prices are negotiated between 
the state licensing agency and DOD based on various factors, including 
historical prices, independent government estimates, the proposal 
submitted by the state licensing agency, or the prices offered by other 
competitors. Under the JWOD program, competition is not a factor 
because DOD is required by regulation to purchase food services from a 
list maintained by the Committee for Purchase. Contracts are awarded at 
fair market prices established by the Committee for Purchase. The two 
programs also differ in terms of how program beneficiaries are 
compensated. The Randolph-Sheppard blind vendors generally receive a 
percentage of the profits from the dining facility contracts, while 
JWOD beneficiaries receive hourly wages and benefits stipulated by 
federal law. Randolph-Sheppard vendors each received, on average, 
pretax compensation of about $276,500 annually, while JWOD 
beneficiaries at the three sites we visited earned, on average, wages 
of $13.15 per hour including fringe benefits. Any direct comparison of 
the Randolph-Sheppard and JWOD beneficiaries' compensation is difficult 
because Randolph-Sheppard blind vendors have managerial positions 
whereas JWOD disabled workers generally have less skilled positions. 

The Committee for Purchase, DOD, and Education reviewed a draft of this 
report. The Committee for Purchase had no comments. DOD concurred with 
the draft and also provided technical comments for our consideration 
which were incorporated as appropriate. Education provided 
clarifications and suggestions in a number of areas that were 
incorporated as appropriate. 

Background: 

The Randolph-Sheppard Act created a vending facility program in 1936 to 
provide blind individuals with more job opportunities and to encourage 
their self-support.[Footnote 4] The program trains and employs blind 
individuals to operate vending facilities on federal property. While 
Randolph-Sheppard is under the authority of the Department of 
Education, the states participating in this program are primarily 
responsible for program operations. State licensing agencies, under the 
auspices of the state vocational rehabilitation programs, operate the 
programs in each state. Federal law gives blind vendors under the 
program a priority to operate cafeterias on federal property.[Footnote 
5] Current DOD guidance implementing this priority directs that a state 
licensing agency be awarded a contract if its contract proposal is in 
the competitive range. In fiscal year 2006, all of the activities of 
the Randolph-Sheppard program generated $692.2 million in total gross 
income and had a total of 2,575 vendors operating in every state except 
for Wyoming. 

In 1938 the Wagner-O'Day Act established a program designed to increase 
employment opportunities for persons who are blind so they could 
manufacture and sell certain goods to the federal government. In 1971, 
the Javits-Wagner-O'Day Act amended the program to include people with 
other severe disabilities and allowed the program to provide services 
as well as goods.[Footnote 6] The JWOD Act established the Committee 
for Purchase, which administers the program. The Committee for Purchase 
is required by law to designate one or more national nonprofit agencies 
to facilitate the distribution of federal contracts among qualified 
local nonprofit agencies. The designated national agencies are the 
National Industries for the Blind and NISH,[Footnote 7] which represent 
local nonprofit agencies employing individuals who are blind or have 
severe disabilities. These designated national agencies charge fees for 
the services provided to local nonprofit agencies. Effective on October 
1, 2006, the maximum fee is 3.83 percent of the revenue of the contract 
for the National Industries for the Blind, and 3.75 percent for NISH. 
The purpose of these fees is to provide operating funds for these two 
agencies. In fiscal year 2006, more than 600 JWOD nonprofit agencies 
provided the federal government with goods and services worth about 
$2.3 billion. The JWOD program provided employment for about 48,000 
people who are blind or have severe disabilities. 

Military dining contracts under the Randolph-Sheppard and JWOD programs 
provide varying levels of service, ranging from support services to 
full-food services. Support services include activities such as food 
preparation and food serving. Full-food service contracts provide for 
the complete operation of facilities, including day-to-day decision 
making for the operation of the facility. As of October 17, 2006, DOD 
had 39 Randolph-Sheppard contracts in 24 different states. These 
contracts had an annual value of approximately $253 million and were 
all for full-food services. At the same time, DOD had 53 JWOD contracts 
valued at $212 million annually.[Footnote 8] Of these, 39 contracts 
were for support services and 15 were for full-food service.[Footnote 
9] Figure 1 shows the distribution of Randolph-Sheppard and JWOD 
contracts with DOD dining facilities across the country. 

Figure 1: Location of Randolph-Sheppard and JWOD Military Dining 
Facilities as of October 17, 2006: 

This figure is a map of the location of Randolph-Sheppard and JWOD 
Military Dining facilities as of October, 17, 2006. 

[See PDF for image] 

Source: GAO presentation of DOD information and GAO survey of state 
licensing agencies. 

[End of figure] 

In 1974, amendments to the Randolph-Sheppard Act expanded the scope of 
the program to include cafeterias on federal property. According to a 
DOD official, when DOD began turning increasingly to private 
contractors rather than using its own military staff to fulfill food 
service functions in the 1990s, state licensing agencies under the 
Randolph-Sheppard program began to compete for the same full-food 
services contracts for which JWOD traditionally qualified. This 
development led to litigation, brought by NISH, over whether the 
Randolph-Sheppard Act applied to DOD dining facilities. Two decisions 
by federal appeals courts held that the Randolph-Sheppard Act applied 
because the term "cafeteria" included DOD dining facilities.[Footnote 
10] The courts also decided that if both programs pursued the full-food 
service contracts for DOD dining facilities, Randolph-Sheppard had 
priority. 

Congress enacted section 848 of the National Defense Authorization Act 
for Fiscal Year 2006 requiring the key players involved in each program 
to issue a joint policy statement about how DOD food services contracts 
were to be allocated between the two programs. [Footnote 11] In August 
2006, DOD, Education, and the Committee for Purchase issued a policy 
statement that established certain guidelines, including the following: 

* The Randolph-Sheppard program will not seek contracts for dining 
support services that are on the JWOD procurement list, and Randolph- 
Sheppard will not seek contracts for operation of a dining facility if 
the work is currently being performed under the JWOD program; JWOD will 
not pursue prime contracts for operation of dining facilities at 
locations where an existing contract was awarded under the Randolph- 
Sheppard program (commonly known as the "no-poaching" provision). 

* For contracts not covered under the no-poaching provision, the 
Randolph-Sheppard program may compete for contracts from DOD for full- 
food services; and the JWOD program will receive contracts for support 
services. 

* If the needed support services are on the JWOD procurement list, the 
Randolph-Sheppard contractor is obligated to subcontract for those 
services from JWOD. 

* In affording a priority to a state licensing agency when contracts 
are competed and the Randolph-Sheppard Act applies, the price of the 
state licensing agency's offer will be considered to be fair and 
reasonable if it does not exceed the best value offer from other 
competitors by more than 5 percent or $1 million, whichever is less. 

Congress enacted the no-poaching provision in section 856 of the 
National Defense Authorization Act for Fiscal Year 2007.[Footnote 12] A 
recent GAO bid protest decision determined that adherence to the other 
provisions of the policy statement was not mandatory until DOD and the 
Department of Education change their existing regulations.[Footnote 13] 
As of July 2007, neither agency had completed updating its regulations. 

Randolph-Sheppard Places Blind Individuals in Managerial Roles, while 
JWOD Employs Persons with Disabilities in Less Skilled Jobs: 

The Randolph Sheppard and JWOD programs utilize different operating 
procedures to provide dining services to DOD. For the Randolph-Sheppard 
program, state licensing agencies act as prime contractors, and train 
and license blind vendors to operate dining facilities. For the JWOD 
program, the Committee for Purchase utilizes NISH to act as a central 
nonprofit agency and match DOD needs for dining services with local 
nonprofit agencies able to provide the service. JWOD employees 
generally fill less skilled jobs such as cleaning dining facilities or 
serving food. 

Randolph-Sheppard Relies on State Licensing Agencies to Place Blind 
Vendors as Managers of Dining Facilities: 

Education is responsible for overseeing the Randolph-Sheppard program, 
but relies on state licensing agencies to place blind vendors as dining 
facility managers. The Department of Education certifies state 
licensing agencies and is responsible for ensuring that their 
procedures are consistent with Randolph-Sheppard regulations.[Footnote 
14] According to our survey, state licensing agencies act as prime 
contractors on Randolph-Sheppard contracts, meaning that they hold the 
actual contract with DOD. The state licensing agencies are responsible 
for training blind vendors to serve as dining facility managers and 
placing them in facilities as new contracting opportunities become 
available. According to our survey, the state issues the vendor a 
license to operate the facility upon the successful completion of the 
training program. Furthermore, many states said this process often 
includes both classroom training and on-the-job training at a facility. 
Figure 2 depicts how the Randolph-Sheppard program is generally 
structured. 

Figure 2: Randolph-Sheppard Program Overview: 

This figure is a chart showing an overview of the Randolph-Sheppard 
program. 

[See PDF for image] 

Source: Randolph-Sheppard Program (data); GAO (analysis and 
presentation). 

[End of figure] 

Responding to our survey, state licensing agencies reported that all 
blind vendors have some level of managerial responsibility for each of 
the 39 Randolph-Sheppard contracts. Specific responsibilities may 
include managing personnel, coordinating with military officials, 
budgeting and accounting, and managing inventory. An official 
representing state licensing agencies likened the vendor's role to that 
of an executive and said the vendor is responsible for meeting the 
needs of his or her military customer. At one facility we visited, the 
vendor was responsible for general operations, ensuring the quality of 
food, and helped develop new menu selections. Of the 37 contracts where 
the state licensing agencies provided information regarding whether the 
blind vendor visits his or her facility, all stated that their blind 
vendors visit their facilities, and in most cases are on site every 
day. Additionally, most state licensing agencies told us that they have 
an agreement with the blind vendor that lays out the state licensing 
agency's expectations of the blind vendor and defines the vendor's job 
responsibilities. 

Most state licensing agencies rely on private food service companies to 
provide the expertise to help operate dining facilities. According to 
our survey, 33 of the 39 Randolph-Sheppard contracts relied on a food 
service company--known as a teaming partner--to provide assistance in 
operating dining facilities. The survey showed that in many cases, the 
blind vendor and teaming partner form a joint venture company to 
operate the facility with the vendor as the head of the company. The 
teaming partner can provide technical expertise, ongoing training, and 
often extends the vendor a line of credit and insurance for the 
operation of the facility. Officials representing state licensing 
agencies told us that states are often unable to provide these 
resources, and for large contracts these start-up costs may be beyond 
the means of the blind vendor and the state licensing agency. According 
to our survey, the teaming partner may assist the state in negotiating 
and administering the contract with DOD. Additionally, state licensing 
agencies told us that they often enter into a teaming agreement that 
defines the responsibilities of the teaming partner. 

For 6 of the 39 contracts, the state licensing agencies reported that 
the blind vendor operates the dining facility without a teaming 
partner. We visited one of these locations and learned that the vendor 
has his own business that he uses to operate the facility. This 
particular vendor had participated in the Randolph-Sheppard program for 
almost 20 years and operated various other dining facilities. 

In our survey, state licensing agencies reported that vendors in about 
half (20 of 39) of the contracts are required to employ individuals who 
are blind or have other disabilities, while others have self-imposed 
goals.[Footnote 15] In other cases there may be no formal hiring 
requirements, but the state licensing agency encourages the blind 
vendor to hire individuals with disabilities. Based on survey responses 
we received for 30 contracts, we calculated that the percentage of 
persons with disabilities working at Randolph-Sheppard dining 
facilities ranged from 3 percent to 72 percent,[Footnote 16] with an 
average of 18 percent.[Footnote 17] 

The Committee for Purchase Works with NISH and Local Nonprofit Agencies 
to Employ Individuals with Disabilities in DOD Dining Facilities: 

The Committee for Purchase works with NISH to match DOD's need for 
services with nonprofit agencies able to provide food services. For 
military food service contracts, NISH acts as a central nonprofit 
agency and administers the program on behalf of the Committee for 
Purchase. In this role, NISH works with DOD to determine if it has any 
new requirements for dining services. When it identifies a need, NISH 
will search for a nonprofit agency that is able to perform the required 
service. NISH then facilitates negotiations between DOD and the 
nonprofit agency, and submits a proposal to the Committee for Purchase 
requesting that the specific service be added to the JWOD procurement 
list. If the Committee for Purchase approves the addition, DOD is 
required by the Federal Acquisition Regulation (FAR) to obtain the food 
service from the entity on the procurement list. [Footnote 18] In some 
instances, a private food service company is awarded a military dining 
facility contract and then subcontracts with a JWOD nonprofit agency to 
provide either full or support food services. For example, the Marine 
Corps awarded two regional contracts to Sodexho--a large food service 
company--to operate its dining facilities on the East and West Coasts. 
Sodexho is required by its contracts to utilize JWOD nonprofit agencies 
and uses these nonprofit agencies to provide food services and/or 
support services at selected Marine Corps bases. Figure 3 depicts the 
JWOD program structure. 

Figure 3: JWOD Program Overview: 

This figure is a chart showing an overview of the JWOD program. 

[See PDF for image] 

Source: JWOD Program (data); GAO (analysis and presentation). 

[A] Occasionally, a local nonprofit agency will use a commercial food 
service company for baking and cooking services. 

[End of figure] 

Most JWOD employees at military dining facilities perform less skilled 
jobs as opposed to having managerial roles. At the facilities we 
visited, we observed that employees with disabilities (both mental and 
physical) performed tasks such as mopping floors, serving food, and 
cleaning pots and pans after meals. Officials from NISH said this is 
generally true at JWOD dining facilities, including facilities where 
the nonprofit agency provides full-food service. Additionally, we 
observed--and NISH confirmed--that most supervisors are persons without 
disabilities. At one facility we visited, for example, the nonprofit 
supervisor oversees employees with disabilities who are responsible for 
keeping the facility clean and serving food. The Committee for Purchase 
requires that agencies associated with NISH perform at least 75 percent 
of their direct labor hours with people who have severe disabilities. 
For nonprofit agencies with multiple JWOD contracts, the 75 percent 
direct labor requirement is based on the total for all of these 
contracts. Therefore one contract may be less than 75 percent but 
another contract must be greater than 75 percent in order for the total 
of these contracts to meet the 75 percent requirement. NISH is 
responsible for ensuring that nonprofit agencies comply with this 
requirement, and we previously reported that it performs site visits to 
all local nonprofit agencies every three years, in order to ensure 
compliance with relevant JWOD regulations.[Footnote 19] At the three 
JWOD facilities we visited, officials reported that the actual 
percentage of disabled individuals employed was 80 percent or higher. 
Table 1 provides a comparison of the Randolph-Sheppard and JWOD 
programs' operating procedures. 

Table 1: Comparison of Randolph-Sheppard and JWOD Program Procedures: 

Administration; 
Randolph-Sheppard: Education is responsible for oversight, but Randolph-
Sheppard is operated at the state level by a state licensing agency 
under the auspices of the state vocational rehabilitation agency; 
JWOD: Administered by the Committee for Purchase through NISH, its 
central nonprofit agency. 

Who provides service; 
Randolph-Sheppard: Blind vendor, usually with the assistance of a 
teaming partner; 
JWOD: Local nonprofit agency using blind or severely disabled workers. 

Dining contracts (as of 10/06); 
Randolph-Sheppard: 39 contracts worth about $253 million per year; 
JWOD: 53 contracts worth about $212 million per year. 

Requirements to employ persons with disabilities; 
Randolph-Sheppard: According to responses to our survey, some 
requirement exists for 20 of 39 blind vendors. Other vendors may hire 
disabled individuals even without a requirement. On average, about 18 
percent of workers are disabled; 
JWOD: The Committee for Purchase requires that participating nonprofit 
agencies perform at least 75 percent of direct labor hours with persons 
with disabilities. 

Source: GAO analysis. 

[End of table] 

Programs Differ Regarding How Contracts Are Awarded and Priced, and How 
Program Beneficiaries Are Compensated: 

The Randolph-Sheppard and JWOD programs have significant differences in 
terms of how contracts are awarded and priced, and in the compensation 
provided to beneficiaries who are blind or have other disabilities. 
Under the Randolph-Sheppard program, federal law provides for priority 
for blind vendors and state licensing agencies in the operation of a 
cafeteria. This priority may come into play when contracts are awarded 
either by direct noncompetitive negotiations or through competition 
with other food service companies. Regardless of how the contract is 
awarded, the prices are negotiated between the state licensing agency 
and DOD. Under the JWOD program, competition is not a factor because 
DOD is required to purchase food services from a list maintained by the 
Committee for Purchase. Contracts are awarded at fair market prices 
established by the Committee for Purchase. The two programs also differ 
in terms of how program beneficiaries are compensated. Under the 
Randolph-Sheppard program, blind vendors generally receive a share of 
the profits, while JWOD beneficiaries receive hourly wages and fringe 
benefits under federal law or any applicable collective bargaining 
agreement. Randolph-Sheppard blind vendors received, on the average, 
pretax compensation of about $276,500 annually, while JWOD workers at 
the three sites visited earned on average $13.15 per hour, including 
fringe benefits. 

Significant Differences Exist in How Randolph-Sheppard and JWOD 
Contracts Are Awarded and Priced: 

Although contracts for food services awarded under the Randolph- 
Sheppard and JWOD programs use the terms and conditions generally 
required for contracts by the FAR,[Footnote 20] the procedures for 
awarding and pricing contracts under the two programs differ 
considerably. Under the Randolph-Sheppard program, Education's 
regulations provide for giving priority to blind vendors in the 
operation of cafeterias on federal property, provided that the costs 
are reasonable and the quality of the food is comparable to that 
currently provided. The regulations provide for two procedures to 
implement this priority. First, federal agencies, such as the military 
departments, may engage in direct, noncompetitive negotiations[Footnote 
21] with a state licensing agency. Of the eight Randolph-Sheppard 
contracts we reviewed in detail, six had been awarded through direct 
negotiations with the state licensing agency. In most of the eight 
cases, the contract was a follow-on to an expiring food service 
contract. The second award procedure involves the issuance of a 
competitive solicitation inviting proposals from all potential food 
service providers, including the relevant state licensing agency. The 
solicitation will specify the criteria for evaluating proposals, such 
as management capability, past performance, and price, and DOD will use 
these criteria to evaluate the proposals received. When the competitive 
process is used, DOD policy provides for selecting the state licensing 
agency for award if its proposal is in the "competitive 
range."[Footnote 22] Of the eight Randolph-Sheppard contracts we 
reviewed, only two involved a solicitation open to other food service 
providers, and there was no case in which more than one acceptable 
proposal was received such that DOD was required to determine a 
competitive range.[Footnote 23] 

The prices of contracts under the Randolph-Sheppard program are 
negotiated between DOD and the state licensing agency, regardless of 
whether DOD uses direct negotiations or seeks competitive proposals. 
Negotiations in either case typically begin with a pricing proposal 
submitted by the state licensing agency, and will then involve a 
comparison of the proposed price with the prices in previous contracts, 
an independent government estimate, or the prices offered by other 
competitors, if any. In some cases, DOD will seek the assistance of the 
Defense Contract Audit Agency (DCAA) in assessing various cost aspects 
of a proposal. All of the Randolph-Sheppard contracts we reviewed were 
generally firm, fixed price. Some had individual line items that 
provided for reimbursing the food service provider for certain costs 
incurred, such as equipment maintenance or replacing items. In most 
cases, the contract was for a base year, and provided for annual 
options (usually four) that may be exercised at the discretion of DOD. 
Of the 39 Randolph-Sheppard contracts within the scope of our review, 
the average price for the current year of the contract was about $6.5 
million. Table 2 shows the 8 Randolph-Sheppard contracts in our sample 
with selected contract information. 

Table 2: Randolph-Sheppard Contracts Reviewed with Contract Award 
Information: 

Military base: Maxwell Air Force Base, AL; 
Military service: Air Force; 
Acquisition method: Competitive solicitation. Six proposals received 
but only the state licensing agency's was acceptable; 
Base period award amount[A]: $3,793,197; 
Method used to determine fair and reasonable price: Government estimate 
based on historic data. 

Military base: Fort Carson, CO[B]; 
Military service: Army; 
Acquisition method: Direct negotiation; 
Base period award amount[A]: $5,684,038; 
Method used to determine fair and reasonable price: Independent 
government estimate. 

Military base: Aberdeen Proving Ground, MD; 
Military service: Army; 
Acquisition method: Competitive solicitation issued. Only state 
licensing agency competed; 
Base period award amount[A]: $4,889,495; 
Method used to determine fair and reasonable price: Proposal reviewed 
in consultation with DCAA. 

Military base: Meridian Naval Air Station, MS; 
Military service: Navy; 
Acquisition method: Direct negotiation; 
Base period award amount[A]: $592,028; 
Method used to determine fair and reasonable price: Data not provided. 

Military base: Fort Monmouth, NJ; 
Military service: Army; 
Acquisition method: Direct negotiation; 
Base period award amount[A]: $1,310,678[C]; 
Method used to determine fair and reasonable price: Independent 
government estimate. 

Military base: Kirtland Air Force Base, NM; 
Military service: Air Force; 
Acquisition method: Direct negotiation; 
Base period award amount[A]: $1,821,383; 
Method used to determine fair and reasonable price: Independent 
government estimate. 

Military base: Fallon Naval Air Station, NV; 
Military service: Navy; 
Acquisition method: Direct negotiation; 
Base period award amount[A]: $1,178,214; 
Method used to determine fair and reasonable price: Data not provided. 

Military base: Fort Lee, VA[B]; 
Military service: Army; 
Acquisition method: Direct negotiation; 
Base period award amount[A]: $9,530,996; 
Method used to determine fair and reasonable price: Independent 
government estimate. 

Source: GAO analysis of selected Randolph-Sheppard contracts: 

[A] This amount reflects the contracts' base period award amounts, 
which in some cases was less than 1 full year. 

[B] For two contracts in our sample, at Fort Lee and Fort Carson, the 
Army awarded the full-food service contract to the state licensing 
agency, but stipulated in the contract that the state licensing agency 
had to subcontract a portion of the work to a JWOD entity that had 
previously been performing the work. 

[C] This number represents the first option year of the contract 
because the base award amount reflected only a 2-week transition 
period. 

[End of table] 

Under Part 8 of the FAR, the JWOD program is a mandatory source of 
supply, requiring DOD to award contracts to the listed nonprofit entity 
at fair market prices established by the Committee for 
Purchase.[Footnote 24] There is no further competition. Table 3 shows 
the 6 JWOD contracts in our sample with selected contract information. 

Table 3: JWOD Contracts Reviewed with Contract Award Information: 

Military base: Vandenberg Air Force Base, CA; 
Military service: Air Force; 
Base period award amount[A]: $ 3,517,014. 

Military base: Naval Training Center Great Lakes, IL; 
Military service: Navy; 
Base period award amount[A]: $45,808,772[B]. 

Military base: Holloman Air Force Base, NM; 
Military service: Air Force; 
Base period award amount[A]: $ 1,218,769. 

Military base: Mid Atlantic Regional Bases (Norfolk, Yorktown, Little 
Creek, Oceana, and Dam Neck); 
Military service: Navy; 
Base period award amount[A]: $ 8,460,812. 

Military base: Marine Corps Western Regional Bases[C]; 
Military service: Marine Corps; 
Base period award amount[A]: $53,825,936[D]. 

Military base: Marine Corps Eastern Regional Bases[C]; 
Military service: Marine Corps; 
Base period award amount[A]: $53,737,662[ D]. 

Source: GAO analysis of selected JWOD contracts. 

[A] This amount reflects the contracts' base period award amounts, 
which in some cases was less than one full year. These award amounts 
include a fee that is used to fund the operations of the central 
nonprofit agency. 

[B] This amount includes non-dining services work. 

[C] For the two Marine Corps contracts, the Marine Corps has eastern 
and western regional contracts with a prime contract with a commercial 
food service company and several JWOD subcontracts for full-food and 
support services. 

[D] These amounts represent the first year of a 5-year contract. 

[End of table] 

Randolph-Sheppard Vendors Generally Receive a Percentage of Profits, 
and JWOD Beneficiaries Are Paid Hourly Wages According to Federal Law: 

Compensation for Randolph-Sheppard blind vendors is computed 
differently from compensation paid to JWOD disabled workers. For the 
Randolph-Sheppard program, blind vendors' compensation is generally 
based on a percentage of the profits generated by the dining 
facilities' operations. Based on the 37 survey responses where we could 
determine the basis of how blind vendors' compensation was computed, 34 
reported that that the vendor's compensation was computed either 
entirely, or in part, based on the profits generated by the dining 
facility contract. For compensation based entirely on the facilities' 
profits, the blind vendor received from 51 to 65 percent of the 
profits.[Footnote 25] For those blind vendors that were compensated 
partially based on profits, their compensation was based on fixed fees, 
administrative fees or salaries, and a percentage of the profits. Where 
compensation was not based on profits, these three blind vendors 
received either a percentage of the contract value or a fixed base fee. 
Figure 4 shows the annual compensation received by blind vendors for 
military food services contracts, within specified ranges, and the 
average compensation for each range. 

Figure 4: Number and Average of Randolph-Sheppard Blind Vendors' 
Compensation within Designated Dollar Ranges (rounded to nearest 100 
dollars): 

This figure is a bar chart showing the number and average of Randolph-
Sheppard blind vendors' compensation within designated dollar ranges. 
The X axis is compensation range, and the Y axis is the number of 
vendors. 

[See PDF for image] 

Source: GAO analysis of blind vendors' compensation. 

[End of figure] 

As shown in figure 4, 15 of 38 Randolph-Sheppard blind vendors' annual 
compensation[Footnote 26] was between $100,000 and $200,000.[Footnote 
27] Overall, blind vendors working at DOD dining facilities received 
average annual compensation of about $276,500 per vendor. These figures 
are based on pretax earnings.[Footnote 28] We did not collect 
compensation information for employees of the blind vendors or 
employees of the teaming partners. 

For the JWOD program, for most workers--including those with and 
without a disability--the compensation is determined by either federal 
law or collective bargaining agreements.[Footnote 29] The Service 
Contract Act (SCA) was enacted to give employees of contractors and 
subcontractors labor standards protection when providing services to 
federal agencies. The SCA requires that, for contracts exceeding 
$2,500, contactors pay their employees, at a minimum, the wage rates 
and fringe benefits that have been determined by the Department of 
Labor to be prevailing in the locality where the contracted work is 
performed.[Footnote 30] However, the SCA hourly rate would not be used 
if there is a collective bargaining agreement that sets a higher hourly 
wage for selected workers. According to NISH, the collective bargaining 
hourly rates are, in general, 5 to 10 percent higher than the SCA's 
wage rates. Of the six JWOD contracts in our sample, Holloman Air Force 
Base and the Marine Corps' eastern and western regional contracts had 
collective bargaining agreements. For the three JWOD sites visited, we 
obtained an estimate of the average hourly wages, average hourly fringe 
benefits rates, and average number of hours worked and computed their 
annual wages. The average hourly wage for the three JWOD sites was 
$13.15 including fringe benefits. Table 4 shows the average annual 
wages that an employee earned. 

Table 4: Estimated Average Hourly and Annual Wages Earned at Three JWOD 
Sites Visited: 

Average hourly wage; 
Fort Lee[A]: $9.36; 
Naval Station Norfolk: $8.06; 
Great Lakes Naval Training Center: $12.86; 
Average: $10.09. 

Average hourly fringe benefits; 
Fort Lee[A]: $3.29; 
Naval Station Norfolk: $3.01; 
Great Lakes Naval Training Center: $ 2.87; 
Average: $ 3.06. 

Total average hourly amount; 
Fort Lee[A]: $12.65; 
Naval Station Norfolk: $11.07; 
Great Lakes Naval Training Center: $15.73; 
Average: $13.15. 

Estimated annual hours worked; 
Fort Lee[A]: 1,380; 
Naval Station Norfolk: 1,430; 
Great Lakes Naval Training Center: 1,705; 
Average: 1,505. 

Estimated Annual Wages; 
Fort Lee[A]: $17,457; 
Naval Station Norfolk: $15,830; 
Great Lakes Naval Training Center: $26,820; 
Average: $20,036. 

Source: GAO analysis of DOD data. 

[A] Although Fort Lee was selected as one of our Randolph-Sheppard 
sample contracts, it also had a subcontract with JWOD for support 
services. During our visit to Fort Lee, we observed both the Randolph- 
Sheppard and JWOD dining facilities. Also, the Fort Lee JWOD workers' 
wages were under a collective bargaining agreement. 

[End of table] 

Another law that can affect the disabled worker's wages is section 
14(c) of the Fair Labor Standards Act, which allows employers to pay 
individuals less than the minimum wage (called special minimum wage 
rates) if they have a physical or mental disability that impairs their 
earning or productive capacity. For example, if a 14(c) worker's 
productivity for a specific job is 50 percent of that of experienced 
workers who do not have disabilities that affect their work, and the 
prevailing wage paid for that job is $10 dollars per hour, the special 
minimum wage rate for the 14(c) worker would be $5 dollars per hour. 
[Footnote 31] None of the three JWOD sites we visited applied the 
special minimum wage for any of their disabled workers. 

Concluding Observations: 

The Randolph-Sheppard and JWOD programs have a common goal of serving 
individuals who are blind or have severe disabilities, and who are 
generally underrepresented in the workforce. However, these programs 
operate differently regarding how contracts are awarded and priced, and 
are designed to serve distinct populations through different means-- 
particularly with respect to compensation for program participants. 
This is true for contracts with military dining facilities. The blind 
vendors who participate in the Randolph-Sheppard program seek to become 
entrepreneurs by gaining experience managing DOD dining facilities. In 
this respect, although most of these vendors require the assistance of 
a private food service teaming partner, they are compensated for 
managing what can be large, complicated food service operations. By 
contrast, because the participants of the JWOD program perform work 
activities that require less skill and experience, and who might 
otherwise not be able to secure competitive employment, they are 
compensated at a much lower rate than the Randolph-Sheppard vendors. In 
this regard, it is apparent that the two programs are designed to 
provide very different populations with different types of assistance, 
and thus, it is difficult to directly compare them, particularly with 
respect to compensation. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Committee for Purchase, the 
Department of Defense, and the Department of Education for review and 
comment. The Committee for Purchase had no comments. DOD concurred with 
the draft and also provided technical comments for our consideration. 
We considered all of DOD's technical comments and revised the draft as 
appropriate. The DOD comment letter is attached as appendix II. 

The Department of Education provided clarifications and suggestions in 
a number of areas. First, Education was concerned about comparing the 
earnings of the blind vendors under the Randolph-Sheppard program and 
the compensation provided to the food service workers under the JWOD 
program. The agency suggested we compare the earnings of the blind 
vendors with the earnings of employees of the JWOD nonprofit agencies 
who perform similar management functions. We agree that there are 
significant differences in their responsibilities, but we were required 
to report on the compensation of the "beneficiaries" of the two 
programs, which are blind managers for the Randolph-Sheppard program 
and hourly workers for the JWOD program. Our report highlights these 
differences. Our report also highlights in a number of places the 
difficulty in comparing the compensation of the two groups of 
beneficiaries. We were not required to report on the earnings of the 
management personnel of the nonprofit agencies, and we did not collect 
this information. 

Second, Education urged that we fully describe the permitted uses of 
the set-aside fees charged by the state licensing agencies, and that we 
recognize that there is a similar assessment under the JWOD program. We 
have revised the report to point out that the Randolph-Sheppard set- 
aside may be used to fund the operation of the state licensing 
agencies. We also added language to a footnote to table 3 to recognize 
that the JWOD contract amounts include a fee that is used to fund the 
operations of the central nonprofit agency. Third, Education questions 
our description of the price negotiations that occur between DOD and 
the state licensing agencies. We believe our report is both clear and 
accurate on this point as written. In addition, DOD did not have any 
comments or questions about how we described price negotiations for the 
Randolph-Sheppard program. 

Fourth, Education questioned our discussion of the numbers of persons 
with disabilities employed under the two programs. Specifically, 
Education pointed out that the requirement under the JWOD program that 
at least 75 percent of the direct labor hours be performed by persons 
with disabilities applies in the aggregate to all work performed by a 
nonprofit entity, not at the contract level. We have revised the report 
to reflect this. And finally, Education sought clarification concerning 
the extent commercial food service companies are used as teaming 
partners under the Randolph-Sheppard program or as subcontractors under 
the JWOD program. We have revised figures 2 and 3 of the report to more 
accurately reflect the use of these companies. The comment letter from 
Education is attached as Appendix III. 

We will send copies of this report to interested congressional 
committees, the Secretary of Defense, the Secretary of Education, and 
the Chairperson of the Committee for Purchase, as well as other 
interested parties. We will also make copies available to others upon 
request. In addition, the report will be available at no charge on 
GAO's Web site at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact George Scott at (202) 512-7215 or scottg@gao.gov or William 
Woods at (202) 512-8214 or woodsw@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. Key contributors to this report are 
listed in appendix IV. 

Signed by: 

George A. Scott: 

Director, Education, Workforce, and Income Security Issues: 

and: 

William T. Woods: 

Director, Acquisition and Sourcing Management: 

[End of section] 

Appendix I: Scope and Methodology: 

To accomplish our research objectives, we interviewed officials from 
the Department of Defense (DOD), the Department of Education, the 
Committee for Purchase, and organizations representing both the 
Randolph-Sheppard and Javits-Wagner-O'Day (JWOD) programs. We also 
reviewed pertinent documents and regulations governing both programs. 
We reviewed a sample of 14 contracts--8 Randolph-Sheppard contracts and 
6 JWOD contracts. For these contracts, we requested the source 
selection memorandum, the acquisition plan, the basic contract, and the 
statement of work. For two of these contracts, the Randolph-Sheppard 
prime contractor for full-food services subcontracted with a JWOD 
nonprofit agency for support services. We determined that it was not 
feasible to review a representative sample of contracts based on our 
preliminary work, which indicated wide variations in how the two 
programs are structured and how the Randolph-Sheppard program is 
administered from state to state. For these reasons, we selected a 
number of contracts to review in order to ensure representation of both 
programs, as well as ensure a balance of contracts based on dollar 
value, size of military facility, branch of the military, and 
geographic location. As the sample was not representative, results of 
our review cannot be projected to the entire universe of contracts. In 
addition, we visited the military installation for 5 of the 14 
contracts in our sample in order to observe dining facilities and their 
operations, as well as interview pertinent officials and staff, 
including the blind vendor or JWOD agency management whenever possible. 
Again, these five locations were selected to ensure representation of 
both programs, as well as variation in geographic location, contract 
size, and military branch. In terms of beneficiary compensation, we 
limited our review to Randolph-Sheppard blind vendors and JWOD workers. 
For the JWOD program, we obtained average hourly wages, average hourly 
fringe benefits, and average total hours worked during the year for 
JWOD employees at selected sites. We did not obtain compensation 
amounts for the managerial employees for any JWOD nonprofit agencies. 

To obtain information on the relationships between state licensing 
agencies and blind vendors, we conducted a survey of the 24 state 
licensing agencies we determined to have Randolph-Sheppard military 
dining contracts. We asked questions regarding the roles and 
responsibilities of blind vendors, the vendor's relationship with the 
state licensing agencies, and the role played by teaming partners. We 
administered this survey between April and July 2007. We pretested this 
survey with program directors and modified the survey to take their 
comments into account. All 24 state licensing agencies responded to our 
survey for a response rate of 100 percent and provided information for 
39 military dining facilities contracts. Additionally, we requested 
information for the 40 blind vendors with military dining contracts to 
determine their annual compensation. For the 39 contracts, there were 
40 blind vendors as one contract utilized two vendors. We received 
compensation information for 38 of the 40 blind vendors. 

[End of section] 

Appendix II: Comments from the Department of Defense: 

Office Of The Under Secretary Of Defense: 
3000 Defense Pentagon: 
Washington, DC 203013000: 

Acquisition, Technology And Logistics: 

September 19, 2007: 

Mr. Sigurd Nilsen: 
Director, Education, Workforce and Income Security Issues: 
U.S. Government Accountability Office: 
441 G Street, N.W.: 
Washington, D.C. 20548: 

Dear Mr. Nilsen: 

This is the Department of Defense (DoD) response to the GAO Draft 
Report, GAO-08-3, "Defense Contracts: Contracting for Military Food 
Services under the Randolph-Sheppard and Javits-Wagner-O'Day Programs," 
(GAO Code 130631), dated August 20, 2007. 

The Department concurs with the draft final report which does not offer 
any recommendations for DoD. The attached comments relate to technical 
accuracy and are provided for your consideration. 

Thank you for the opportunity to respond to the report. 

Sincerely,

Signed by: 

Shay D. Assad: 

Director, Defense Procurement and Acquisition Policy: 

Attachment: 
As stated: 

[End of section] 

Appendix III: Comments from the Department of Education: 

United States Department Of Education: 
Office Of Special Education And Rehabilitative Services: 

August 31, 2007: 

Sigurd R. Nilsen: 
Director, Education, Workforce and Income Security Issues: 
United States Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Nilsen: 

Thank you for the opportunity to review the draft Government 
Accountability Office (GAO) report to Congressional Committees: Defense 
Contracts—Contracting for Military Food Services under the Randolph-
Sheppard and Javits-Wagner-O'Day Programs, GAO-08-03. In this letter, 
the Department of Education is providing clarifications and suggestions 
that we believe would add to the understanding of the operations and 
outcomes of these programs and, in some cases, their 
interrelationships. 

The draft report includes several references to Federal regulations 
providing blind vendors a priority to operate cafeterias. The priority 
is, in fact, a statutory provision found at section 107d-3(e) of the 
Randolph-Sheppard Act; the regulatory provisions simply are consistent 
with the statute. 

Earnings. We appreciate the complex nature of military contracting and 
the difficulty of comparing two programs with very different means of 
obtaining contracts in the military market. However, we have concerns 
about the comparisons between earnings associated with the Randolph-
Sheppard program and the Javits-Wagner-O'Day (JWOD) program. We believe 
the draft report's statement on page 14, that Randolph-Sheppard blind 
vendors received, on average, $276,500 annually, while JWOD 
beneficiaries earned, on average, $13.15 per hour, is misleading. GAO's 
comparison is between roughly 40 blind individuals licensed by States 
to operate Department of Defense (DoD) food service facilities at the 
managerial level and a larger number of individuals performing routine 
food service work (e.g., serving and cleaning). While the licensed 
blind operators and the individual JWOD food service workers are, 
strictly speaking, the "beneficiaries" of the two programs, we believe 
the comparison gives an incomplete and selective picture because it 
excludes JWOD operational and managerial compensation at both the 
contract site and JWOD agency levels, as well as compensation for 
individuals employed by the for-profit food service corporations 
generally performing work in these contracts. These limitations and 
omissions are mentioned, but not explained. Cost comparisons should be 
of equivalent functions. Therefore, we believe a more valid comparison 
would be the compensation of Randolph-Sheppard vendors licensed by 
States to operate DoD food service facilities with the compensation of 
managerial employees of the JWOD nonprofit corporations providing 
similar operational services for DoD contracts. We believe providing 
these data, or a more detailed description of cost structures, would 
contribute to the accuracy of the report. Alternatively, a more 
extensive description of the methodological and data limitations, and 
their effects, would be helpful. 

Fees. Randolph-Sheppard set-aside payments are referenced on page 18, 
footnote 21 of the draft report. These funds may be subtracted from the 
net proceeds of the operation of vending facilities (military 
cafeterias, in this instance), as described in regulations at 34 CFR § 
395.9. However, the reference, which lists four uses of set-aside 
funds, omits use of set-aside funds for "management services," that is, 
funds for the operation of the State Randolph-Sheppard agency. See 34 
CFR § 395.9(b)(3). Furthermore, JWOD nonprofit organizations are 
assessed fees as a condition of their participation in the program. 
Those fees, which contribute to their cost structure, are most 
analogous to Randolph-Sheppard set-aside fees and should be described 
in the report. 

Price Negotiations. There are potentially confusing references to price 
negotiations on pages 13 and 15 of the draft report. It is not made 
clear that price negotiations are a part of the competitive bid process 
to which all offerors are subject when State Randolph- Sheppard 
agencies compete for a DoD food service contract on behalf of a blind 
licensee. We are aware of several Randolph-Sheppard contracts that have 
been extended by direct negotiations beyond the initial term for which 
those contracts were competitively awarded. In those cases it is a fair 
inference that DoD base commanders and their contracting officers 
believed that Randolph-Sheppard contractors were meeting DoD's needs 
for quality, cost, and overall performance in helping to carry out the 
military mission. 

Employment of persons with disabilities. The draft report cites a wide 
range of figures for employment of individuals with disabilities by 
Randolph-Sheppard contractors, notwithstanding the fact that such 
employment is not required by the Act or its implementing regulations. 
Conversely, no data are presented for JWOD, for which the requirement 
is fundamental. Specifically, the draft report refers to a computed 
average of 18 percent of workers with disabilities in DoD contracts 
held by Randolph-Sheppard contractors (with a range of 3 percent to 72 
percent based upon survey responses for 30 contracts). However, GAO 
does not provide data on the percentage of workers with disabilities 
actually employed on JWOD contracts. Table 1, comparing program 
procedures for Randolph-Sheppard and JWOD programs, refers to the 
requirement that participating JWOD nonprofit agencies perform at least 
75 percent of direct labor hours with persons with disabilities. We 
believe, however, that the 75% requirement applies to all work 
performed by an agency with multiple contracts and may not hold true 
for any particular contract. There are also some DoD contracts where 
Randolph-Sheppard and JWOD both participate and employee data may 
overlap. 

Subcontracts. Figure 2 on page 9 of the draft report, providing an 
overview of the Randolph-Sheppard program, does not reflect the 
contracts in which the licensed operator does not use a commercial food 
service company as a partner. The corresponding overview of the JWOD 
program on page 12 does not reflect the use of commercial food service 
contractors by JWOD providers. These firms are often the same as, or 
similar to, the commercial food service companies used by State 
Randolph-Sheppard agencies as "teaming partners." Also, throughout the 
draft report, there are references to a total of 53 JWOD dining 
contracts with DoD. It is unclear whether this number includes prime 
contracts only, or also subcontracts. 

Thank you again for the opportunity to review the draft report. We hope 
these comments are helpful and lead to clarification in the final 
report. 

Sincerely, 

Signed by: 

William W. Knudsen: 

Acting Deputy Assistant Secretary: 

[End of section] 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

George A. Scott, (202) 512-7215, scottg@gao.gov: 

William T. Woods (202) 512-8214, woodsw@gao.gov: 

Staff Acknowledgments: 

Jeremy D. Cox (Assistant Director), Richard Harada (Analyst-in-Charge), 
Daniel Concepcion, Rosa Johnson, and Sigurd Nilsen made significant 
contributions to all aspects of this report. In addition, Susannah 
Compton and Lily Chin assisted in writing the report and developing 
graphics. John Mingus provided additional assistance with graphics. 
Walter Vance assisted in all aspects of our survey of state licensing 
agencies as well as providing methodological support. Doreen Feldman, 
Daniel Schwimer, and Alyssa Weir provided legal support. 

[End of section] 

Related GAO Products: 

Federal Disability Assistance: Stronger Federal Oversight Could Help 
Assure Multiple Programs' Accountability. GAO-07-236. Washington, D.C.: 
January 26, 2007. 

Vocational Rehabilitation: Better Measures and Monitoring Could Improve 
the Performance of the VR Program. GAO-05-865. Washington, D.C.: 
September 23, 2005: 

Service Contract Act: Wage Determination Process Could Benefit from 
Greater Transparency, and Better Use of Violation Data Could Improve 
Enforcement. GAO-06-27. Washington D.C.: December 7, 2005: 

Special Minimum Wage Program: Centers Offer Employment and Support 
Services to Workers with Disabilities, but Labor Should Improve 
Oversight. GAO-01-866. Washington D.C.: September 4, 2001: 

[End of section] 

Footnotes: 

[1] JWOD has changed its name to AbilityOne but will continue to use 
JWOD until it is phased out in 2008. For the purposes of this report, 
we will refer to the program as JWOD since that was the name of the 
program at the time the contracts we reviewed were awarded. 

[2] Pub. L. No. 93-516 (1974). 

[3] Pub. L. No. 109-364 (2007). 

[4] Pub. L. No. 74-732 (1936). 

[5] 20 U.S.C. § 107d-3(e). 

[6] Pub. L. No. 92-28 (1971). 

[7] NISH was previously known as the National Industries for the 
Severely Handicapped. 

[8] Of the 53 contracts, the JWOD nonprofit agencies were generally the 
prime contractor. However in a few cases, some nonprofit agencies are 
the subcontractors, such as under the two Marine Corps contracts. 

[9] One contractor provided full-food services at some dining 
facilities and support services at another dining facility. 

[10] NISH v. Rumsfeld, 348 F.3d 1263 (10th Cir. 2003); NISH v. Cohen, 
247 F.3d 197 (4th Cir. 2001). 

[11] Pub. L. No. 109-163 (2006). 

[12] Pub. L. No. 109-364 (2007). 

[13] GAO Decision re: Moore's Cafeteria Services, d/b/a MCS Management: 
B-299539, (Washington D.C., June 5, 2007). 

[14] Past GAO work, however, found that Education provided little 
oversight of this program and performed few on-site reviews of state 
licensing agencies in recent years. See GAO, Federal Disability 
Assistance: Stronger Federal Oversight Could Help Assure Multiple 
Programs' Accountability, GAO-07-236 (Washington, D.C.: Jan. 26, 2007). 

[15] The Randolph-Sheppard Act does not require blind vendors to employ 
other individuals with disabilities. 

[16] This latter value is for Fort Carson, Colorado, where the state 
licensing agency subcontracts with a JWOD agency for support services 
as part of a settlement of litigation that arose when the Army decided 
to convert contracted work from JWOD to Randolph-Sheppard. 

[17] An official representing state licensing agencies, however, 
cautioned us that some figures reported by states may be low because 
the states only recently began to collect this information. 

[18] The FAR establishes uniform policies for acquisition of supplies 
and services by executive agencies. 

[19] GAO-07-236. 

[20] The Department of Defense has a supplementary regulation to the 
FAR called the Department of Defense FAR Supplement (DFARS). The 
current DFARS does not offer any additional guidance on these programs. 

[21] Direct negotiations may be undertaken with state licensing 
agencies whenever the on-site official with the concurrence of the head 
of the agency has determined that the state licensing agency through 
its blind licensee can provide the cafeteria services required at a 
reasonable cost with food of high quality comparable to that available 
from other providers of cafeteria services. 

[22] DOD Directive 1125.3, Vending Facility Program for the Blind on 
Federal Property (April 7, 1978). The FAR explains that the competitive 
range shall be comprised of all the most highly rated proposals. 

[23] Our sample of contracts was not representative and findings from 
these eight contracts cannot be extrapolated to all Randolph-Sheppard 
military dining contracts. 

[24] Under FAR section 8.707(f), ordering offices may suggest price 
changes to the Committee for Purchase at any time. 

[25] Based on our survey, 6 contracts did not have a teaming partner 
and most of the responses indicated that blind vendors receive 100 
percent of the profits of the dining facilities. 

[26] We were unable to obtain compensation data for two Texas contracts 
with annual values of $3,570,000 and $18,406,498. In addition, one 
other contract had two blind vendors rather than only one. 

[27] This compensation was computed after reducing the amount for set- 
aside payments. These payments are used by the state licensing agencies 
to pay for items such as health insurance, retirement benefits, 
equipment, management services (funds for the operation of the State 
Randolph-Sheppard agency), and to ensure a fair return to vendors. 

[28] The blind vendors may have other expenses that would decrease 
their compensation, but the compensation data reviewed did not disclose 
these expenses. 

[29] Collective bargaining agreements are negotiated between the 
employer and representatives of employees and can be used to determine 
the employees' hourly wages. 

[30] Fringe benefits are health and welfare benefits. 

[31] Although a disabled worker may be paid the special minimum wage, 
his/her health and welfare benefits are not reduced from the SCA 
minimum rates. 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation, and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "E-mail Updates." 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office: 
441 G Street NW, Room LM: 
Washington, DC 20548: 

To order by Phone: 
Voice: (202) 512-6000: 
TDD: (202) 512-2537: 
Fax: (202) 512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 
E-mail: fraudnet@gao.gov: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Gloria Jarmon, Managing Director, JarmonG@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, DC 20548: 

Public Affairs: 

Susan Becker, Acting Manager, BeckerS@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, DC 20548: