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Defense Contracts: Improved Information Sharing Could Help DOD Determine Whether Items Are Commercial and Reasonably Priced

GAO-18-530 Published: Jul 31, 2018. Publicly Released: Jul 31, 2018.
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Fast Facts

DOD contracting officers buy products "off the shelf" to take advantage of innovations and save money. But at times they must navigate a complex process to determine if an item is available commercially and at a fair price.

We found that:

Required market information on specialized products may be hard to find

Contractors may be slow to provide information

Additional steps may be needed to determine if a commercial item needs modification before it is DOD-ready

Earlier determinations on products may not be valid

We recommended DOD develop a strategy for sharing information on determining commerciality and price reasonableness across DOD.

DOD's process for determining if an item can be considered commercial and reasonably priced

A flow chart showing market analysis, commercial item determination, price reasonableness determination and contract award.

A flow chart showing market analysis, commercial item determination, price reasonableness determination and contract award.

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What GAO Found

The Department of Defense (DOD) has a process to determine if an item is available for purchase in the commercial marketplace at a reasonable price. Among selected case studies, GAO found four interrelated factors, each with its set of challenges that influenced how and whether DOD determines if an item is commercial and if its price is reasonable. These factors are:

Availability of marketplace information: Market research is a key component that informs commercial item and price reasonableness determinations. However, GAO found that obtaining market-related information can be challenging because the products DOD requires may not be widely available in the commercial marketplace.

Ability to obtain contractor data: When adequate market information is not available, DOD officials turn to the contractor for information to support the commercial item determination or data to make a price reasonableness determination. In the case studies GAO reviewed, most contractors provided relevant information, but not without delays and challenges. For example, while pricing data is key to DOD's ability to determine price reasonableness, several contracting officers reported that contractors were less willing to provide this data once an item was determined commercial.

Extent of modifications to an item: When a commercial item must be modified to meet DOD's requirements, DOD officials may have to take additional steps, such as completing a comparative analysis of commercial items to the modified item. For example, in one case, a commercial navigation system had to be modified to withstand an explosion. To make the commercial item determination DOD officials had to make an on-site visit to the manufacturer to gain in-depth understanding of the services provided and to ensure they met DOD requirements.

Reliability of prior commercial item determinations: Contracting officers may presume that an item is commercial if a DOD component had previously made that determination. However, GAO found that, in some cases, contracting officers reviewing a prior determination discovered that it was based on inaccurate information.

DOD has taken steps to share more information across the department to inform these determinations, but efforts are in early stages of development or informal. No comprehensive information sharing strategy exists. In 2016, DOD established the Commercial Item Group within the Defense Contract Management Agency to provide recommendations on commercial item determinations. This group created a publicly available database to centralize commercial item information across DOD. However, this effort is incomplete. Also, according to DOD officials, they have not yet established who is responsible for the funding and upkeep of the information. Additionally, GAO case studies included instances where informal information sharing resulted in better outcomes, such as a lower price. Creating more opportunities to share information internally is crucial for DOD to facilitate a timely and efficient process in making these determinations and ensuring the best financial outcome for the government.

Why GAO Did This Study

DOD buys goods and services from the commercial market to take advantage of new innovations and save on acquisition costs. However, the department's process for determining whether an item can be purchased commercially—and, at a fair and reasonable price—can be long and challenging in certain situations.

GAO was asked to review this process. This report identifies (1) factors that influenced DOD's commercial item and price reasonableness determinations, and (2) the extent to which DOD has taken steps to make information available to facilitate these determinations.

To conduct this work, GAO examined federal regulations and guidance and selected case studies, which included a non-generalizable sample of 15 contracts awarded between fiscal years 2010 and 2018. GAO identified the case studies based on input from multiple sources that those contracts involved commercial item or price reasonableness determination challenges. GAO interviewed government and contractor officials responsible for those contracts.

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GAO recommends that DOD develop a strategy for how information related to commerciality and price reasonableness determinations should be shared across the department, including making improvements to the existing database and determining responsibilities for its funding and upkeep. DOD agreed with GAO's recommendation and stated that actions will be taken starting in 2018 to address it.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense The Director of Defense Procurement and Acquisition Policy should work with the Defense Contract Management Agency to develop a strategy for sharing information related to commerciality and price reasonableness determinations across DOD, including (1) a plan to increase the information available in the Commercial Item Group database; (2) alternative mechanisms to share information, either formal or informal; and (3) assignments of roles and responsibilities with regard to sharing commercial item information, including how the database should be funded, supported, and maintained.
Closed – Implemented
DOD agreed with the recommendation. In December 2018 DOD's Defense Pricing and Contracting (DPC) organization issued a memorandum which stated the Defense Contract Management Agency (DCMA) Commercial Item Group Officers will serve as determining officials for all commercial item review requests sent to DCMA and that these determinations will be stored in a commercial item database. Additionally, a Procedures, Guidance, and Information section for the Department of Defense Federal Acquisition Regulation Supplement was updated and published. This updated section now requires contracting officers to send copies of commercial item determinations to the Commercial Item Group to be uploaded in the Group's database. The Department of Defense Guidebook for Acquiring Commercial Items, Part A has been updated to reflect this change. In July 2020, a DOD official told us the commercial item determination database has been deployed as a searchable database in the Procurement Integrated Enterprise Environment (PIEE). It currently contains data on more than 13,000 parts and stores and displays Commercial Item Determinations made by contracting officers. Contracting officers and Specialists with PIEE accounts automatically have access to the database; other users may request access. Additionally, a memorandum of agreement (MOA) was signed between DCMA and DPC regarding the sharing of information within the database. The MOA details the transfer of certain procurement oversight responsibilities from DPC to DCMA, outlining specific functions being delegated and the obligations of the parties to effectuate and to sustain such transfer.

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