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Defense Contracting Competition in Free-Fall

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The Project On Government Oversight has long championed full and open competition in government contracting. Contracting competition saves money, improves contractor performance, curbs fraud, and enhances accountability. The place where increased competition would have the most impact is at the Department of Defense (DoD), the government’s largest purchaser of goods and services.

POGO blogged in January that DoD has one of the lowest rates of contracting competition of all the federal agencies, although DoD has lately been making a concerted effort to change that. However, a recent Government Accountability Office (GAO) study found that DoD’s historically low competition rate has been steadily declining in recent years, from 63 percent in fiscal year 2008 to 57 percent in FY 2012.

Among DoD components, GAO found wide variation. The Defense Logistics Agency had the highest competition rate in FY 2012 with 83 percent. The Air Force had the lowest rate that year—37 percent and dropping like a stone. The competition rate for the Navy likewise shows a downward trend.

DoD spent a total of $360 billion in contracts in FY 2012, about 52 percent of which were service contracts. The GAO found that the competition rate for services was much higher than for products. In the case of non-research and development (R&D) services, the rate was nearly twice as high (76 percent vs. 41 percent).

The GAO cites budget uncertainty as a factor in the declining competition rate. Continuing resolutions often delay new contract awards and leave DoD program offices unable to plan for future procurements. One official told GAO that, due to the uncertain budget environment, his program had to abandon competition plans for new equipment and continue with a noncompetitive award to maintain the existing equipment. The GAO also blames DoD’s long-term reliance on original equipment manufacturers of existing major weapons systems. Reliance on one contractor throughout the life cycle of a program often is the result of DoD’s initial decision not to purchase proprietary technical data. Without the technical data rights, it can be difficult to compete a new award, because other vendors would need the technical data in order to meet the contract’s requirements. DoD’s tendency to rely on one contractor in various programs will get worse as the unrelenting pace of mergers and acquisitions in the defense industry (itself a consequence of budget uncertainty) shrinks the pool of available vendors.

Foreign military sales—purchases that DoD makes on behalf of foreign governments—also depress the competition rate. The GAO explains that these government-to-government sales of defense articles and services, which are generally noncompetitive but may sometimes result in cost savings for the government, are included in DoD’s competition rate calculation. The GAO discovered that removing these particular transactions from the calculation boosts the Air Force’s FY 2012 competition rate nearly 15 percent.

Finally, the GAO found that DoD often does not provide clear justification for its noncompetitive awards or make them publicly available. Agencies are allowed to award contracts noncompetitively under certain circumstances, but these awards must be supported by written justifications that address the specific exception to full and open competition.

As troubling as the GAO’s findings are, the rate of noncompetitive contracting at DoD is probably much worse. As we have noted in the past, the government has a fairly broad definition of competition. The government counts as competitive single-bid contracts and task orders that were steered to a contractor under pre-established multiple award contracts.

Image: U.S. Marine Master Sgt. Daniel P. Furiak and Peter Strinden perform jump together out of a U.S. Marine Corps KC-130 Hercules aircraft during a High Altitude-Low Opening jump. From the U.S. Marine Corps.

By: Neil Gordon
Investigator, POGO

Neil Gordon, Investigator Neil Gordon is an investigator for the Project On Government Oversight. Neil investigates and maintains POGO's Federal Contractor Misconduct Database.

Topics: Contract Oversight

Related Content: Competition in Federal Contracting

Authors: Neil Gordon

Submitted by Dfens at: April 16, 2013
I bid on a NASA program once. NASA wanted a contractor to put a certain type of navigation display on an airplane and fly it for the $100,000 they were offering. Given the many safety of flight hoops you have to jump through to put new display on an actual flying airplane, I knew that even if I already had the display software done, I still could not fly it for $100,000 (it seems like a lot of money, but it doesn't go very far in today's aircraft industry), so I offered to put it in a high fidelity training simulator for that amount of money. A competing defense contractor said they'd put it in a flying airplane for the given amount of funding, just as NASA wanted. The competing company won the contract, but never flew the display. They never even built a display. What happened to them as a result? They went on to win more NASA money in other contract bids. I was berated by NASA for being honest in my proposal. So you tell me, is the problem really a lack of competition? That's nothing but a smoke screen for what the real problems are. It's funny how POGO believes competition is the answer for lower costs, but sees nothing wrong with the fact that the typical government contract guarantees a contractor $1.10 for every $1.00 they spend on anything. I guess we are supposed to believe capitalism only works when you want it to.
Submitted by Scubadude at: April 13, 2013
IMO, the true competition rates are worst than reported. DoD and other agencies award indefinite delivery indefinite quantity (IDIQ) contracts through which they award task orders. While the basic IDIQ contract is awarded competitively there is no competition for the specific task to be performed. The basic IDIQ contract has no price competition. For example, the agency awarded an IDIQ contract for repair to the electrical grid - but at the time of the award, no one knows what needs to be repaired. The agency is only looking to evaluate the contractor best capable of performing the potential work. Price is never considered. But, all work performed under the IDIQ is considered to be competitively awarded. And, you can bet that a small contractor has no chance of winning one of these large IDIQ contracts - but they could have been competitive in performing individual tasks.
Submitted by Baiter at: April 11, 2013
Ok, Mr. Neil. Does that mean that your solution is to do away with competitive RFP contests? Please ask Mr.Stanley of PSC to comment on yo thesis. Thanks, and have a nice day.
Submitted by Dfens at: April 11, 2013
There is no proof that competition in proposal writing translates into ANY savings over the life of the contract. Competitive proposals ensure bigger lies are told during the proposal process, period. That does not translate into cheaper programs. It never has. It never will.

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