Defense Department competing fewer contracts, increasing taxpayer risk

The number of companies the Defense Department contracts with has slowly been dwindling, concerning investigators that the drop in competition might lead to higher prices.

“Competition is the cornerstone of a sound acquisition process and a critical tool for achieving the best return on investment for taxpayers,” said a report by the Government Accountability Office, Congress’ watchdog arm.

GAO’s review found the number of competed contracts and task orders has dropped about five percent in the last five years, from 62.6 percent in 2008 to 57.1 percent in 2012.

It’s a small drop, but the amount of money is high.  Last year the Pentagon spent $360 billion on outside contracting.

The Air Force has the lowest rate of competition at 37.1 percent, the GAO said.  Meanwhile, the Defense Logistics Agency, which oversees combat supplies and services, had the highest at 83.3 percent.  These two agencies also occupied the top and bottom of the list, respectively, in 2008.

There are many reasons a contract could be awarded to one company and not competed, federal regulations show.  If the item or service is produced by a single company or if the contract is considered sensitive to national security, agencies may award contracts without competition.

And investigators found the Pentagon wasn’t counting “foreign military sales,” special contracts with a single ally government to purchase U.S. services or hardware.  Investigators said the sales are generally beneficial, and including them in calculations would raise the reported competition rates of several departments, including the Air Force.

Still, the drop in competition across the Pentagon concerned investigators.

There is “limited insight into the underlying reasons for competition or its decline since fiscal year 2008,” the GAO said.

Competition was lowest for contracts for purchasing products, the GAO report found.  Only 40.8 percent of the agreements to purchase physical items were competed. Services, excluding research and development, were the most competed, with 75.5 percent of contracts open to bidding.  It also saw the largest chunk of money, at $112 billion.

The ongoing battle in Congress over the budget has been partly at fault for the drop in competition.  With most funding levels kept the same due to lawmakers’ inability to pass a budget, the Pentagon has often rewarded contracts to the same source each year.

“DOD officials told us that continuing resolutions often delay new awards until later in the fiscal year because program offices do not know if they will receive funding for a new award,” the GAO said.  “Also, with uncertain budgets, program offices may struggle to adequately plan for future procurements.”

When a high-value contract was not competed, investigators found that an acceptable reason was usually given.  As the value of the contract decreased, however, investigators said they found less complete and acceptable reasons for a contract not being competed.

“Without this information, DOD may be missing opportunities to gain a richer understanding of why past acquisitions were not competitive and to apply those lessons to effectively facilitate competition for future acquisitions,” GAO said.

The Pentagon said it was working to improve competition rates, including better analysis of why a particular contract was not competed.

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