Defense Contract Competition Rate Stands Pat

Last week, the Government Accountability Office (GAO) released the second of three annual reports on the status of competition in Department of Defense (DoD) contracting.

Federal contracting competition is an issue near and dear to the Project On Government Oversight. Full and open competition saves money, improves contractor performance, and promotes accountability. In the words of the GAO, “competition is the cornerstone of a sound acquisition process and a critical tool for achieving the best return on investment for taxpayers.”

Competition has the potential to do the most good at DoD, the largest federal buyer of goods and services. In fiscal year 2013, DoD obligated $308 billion in contracts—roughly two-thirds of the federal government’s total. DoD’s obligation is nearly 13 times larger than that of the second-largest contracting agency, the Department of Energy.

Last year, the GAO found that DoD’s competition rate had steadily declined from 63 percent in FY 2008 to 57 percent in FY 2012. In FY 2012, the Defense Logistics Agency (DLA) had the highest competition rate among DoD components with 83 percent, while the Air Force reported the lowest, at 37 percent. The GAO also found that the competition rate for services was much higher than for products.

This year, despite ongoing initiatives designed to increase contracting competition, the GAO found that DoD’s competition rate remained at 57 percent. In FY 2013, the Army had the highest rate with 66 percent, while the Missile Defense Agency had the lowest with 29 percent. Meanwhile, the Air Force’s rate improved to 41 percent. (The DLA was not included in this year’s analysis.) Once again, the GAO found that the competition rate for services was substantially higher than for products—73 percent vs. 39 percent.

The majority of DoD’s noncompetitive contracts and task orders were awarded under the “only one responsible source” exception. The GAO explains why:

[T]he unique relationship that DOD has with the defense industry…differs from the commercial marketplace. The combination of a single buyer (DOD), few very large prime contractors in each segment of the industry, and a limited number of weapon programs constitutes a structure for doing business that is altogether different from a classic free market. For instance, there is less competition and once a contract is awarded, the contractor often remains the sole vendor capable of providing additional systems and sustainment. These long-term contractual relationships with weapon system contractors limit opportunities for competition.

Many of the noncompetitive awards were due to a lack of technical data, meaning that DoD did not purchase the necessary data rights with the initial award. As we explained last year, failure to acquire technical data rights leaves DoD dependent on one contractor throughout the life cycle of a program, which for some defense systems can be several decades.

The GAO recommends ways to increase competition, such as the use of “open systems architectures,” in which project components can be added, removed, modified, replaced, or maintained by multiple suppliers. But one must wonder how effective these recommendations will be: the uncertain budget environment and downward trend in federal contract spending might be hindering competition by encouraging greater consolidation of the defense industry.

In March, POGO blogged about GAO’s analysis of federal contracts awarded without full and open competition due to an “unusual and compelling urgency.” Not surprisingly, DoD figured prominently in that report, too. DoD’s obligation of $12.5 billion in this type of contract from FY 2010 through FY 2012 accounted for 85 percent of the government total.

The years-long decline in defense contracting competition is a major concern for those taking on federal acquisition reform. Has this reform effort finally taken hold at DoD and started moving the competition rate upward? We’ll find out next year when the GAO releases its third and final analysis.