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Defense Contracting Competition in Free-Fall

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.