Acquisition Reform:

DOD's Guidance on Using Section 845 Agreements Could be Improved

NSIAD-00-33: Published: Apr 7, 2000. Publicly Released: Apr 7, 2000.

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Pursuant to a congressional request, GAO provided information on the Department of Defense's (DOD) authority, which was established under Section 845 of the Fiscal Year 1994 National Defense Authorization Act, to use nonstandard contracting approaches to procure research and development services, focusing on: (1) the extent to which DOD has used Section 845 agreements; (2) the benefits reported from their use; (3) how DOD tailored these agreements to address issues normally governed by standard contract provisions; and (4) recent DOD efforts to provide additional guidance on their use.

GAO noted that: (1) DOD has awarded 97 Section 845 agreements as of October 1998; (2) these agreements were most frequently used to support studies of future weapon systems or to design and develop subsystems or components; (3) DOD's financial commitment was concentrated on 10 agreements that accounted for about $2.1 billion, or more than 80 percent, of the $2.6 billion awarded under Section 845 agreements; (4) this financial commitment constituted a relatively small percentage of DOD's overall research and development spending; (5 in a February 1999 report to Congress, DOD cited numerous benefits from using Section 845 authority; (6) these benefits included attracting firms that typically did not contract with DOD, enabling use of commercial products or processes, providing more flexibility to negotiate agreement terms and conditions, and reducing program costs; (7) however, the report provided only limited data to assess the agreements' usefulness; (8) however, the terms and conditions found in Section 845 agreements provided contractors more flexibility in the business processes and practices they employed than typically provided by standard contract provisions; (9) among Section 845 agreements, GAO found little variation in the approaches to financial management, subcontractor management, and termination and disputes processes; (10) in two other areas, DOD officials made greater use of the standard contract clauses in agreements awarded to traditional defense contractors, while using tailored clauses in agreements with commercial firms; (11) the use of a model agreement contributed to this uniformity, but DOD officials often did not address why they selected either the standard contract provision or a tailored approach; (12) DOD has recently proposed new guidance to assist its personnel in determining when to use a Section 845 agreement and how to structure key provisions; (13) the guidance also calls for additional information that would provide senior acquisition executives better insight on selected terms and conditions for agreements involving major weapon systems; (14) it requires that DOD personnel establish metrics to evaluate the benefits from using Section 845 agreements, but does not provide examples or guidelines to help them develop metrics that are measurable and directly related to the agreement's use; and (15) it is not clear that establishing metrics without providing guidelines will lead to appropriate assessments of the benefits of using Section 845 agreements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On December 21, 2000, the Under Secretary of Defense (Acquisition, Technology and Logistics) issued updated guidance that identifies the appropriate conditions for using Section 845 agreements and discusses options for tailoring key terms and conditions as appropriate for the project. The guidance discussed the key areas identified by GAO, including financial management, intellectual property, government property, and termination.

    Recommendation: To assist personnel in determining whether to use a Section 845 agreement, the Secretary of Defense should provide updated guidance that lays out the conditions for using Section 845 agreements and provides a framework to tailor the terms and conditions appropriate for each agreement.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: On December 21, 2000, the Under Secretary of Defense (Acquisition, Technology and Logistics)issued updated guidance on the use of Section 845 agreements. The updated guidance requires DOD personnel to collect and report information on whether the prime contractor(s)was a traditional defense contractor or a commercial firm, as well as to identify all other commercial firms that were participating to a significant extent on the project. The guide also encourages DOD personnel to establish and track other metrics that measure the value or benefits directly attributed to the use of Section 845 agreements, but it does not provide specific examples or guidelines for doing so. As we noted in our report, this approach may not result in DOD personnel developing meaningful indicators of the expected benefits.

    Recommendation: The Secretary of Defense should establish and require the use of a set of metrics, including the number of commercial firms participating in Section 845 agreements, which are measurable and directly related to the agreement's use. These requirements should be in place in time to assist in the deliberations on whether to extend the authority past September 30, 2001.

    Agency Affected: Department of Defense


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