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Agencies Getting Too Attached to Incumbent contractors

August 27, 2010

Federal agencies are failing to maximize opportunities to make contracts competitive, often because of poor management or because officials have grown comfortable with incumbent contractors, according to a new report from the Government Accountability Office.

The watchdog reviewed trends in noncompetitive contracts during the past several years and discovered a number of questionable business practices by contracting officials and program managers. GAO found 44 percent of all federal contracts in fiscal 2009 either were not placed up for competition or attracted only one bid.

The report (GAO-10-833), which the House Oversight and Government Reform Committee requested, highlighted contracts that appeared to be written with such narrowly defined requirements that only one company could reasonably compete. In other instances, program offices pressed for follow-on contracts to be awarded without competition to the existing company because it would be more expeditious since the offices already had formed a relationship with the firm.

“A Navy program official stated that, when one contractor has been performing a requirement for many years, it is easier to go back to the contractor personnel who understand the requirement rather than taking the time to find a new vendor,” the report said.

From fiscal 2005 to fiscal 2009, the reported obligations for noncompetitive contracts declined from 36 percent of total procurement spending to 31 percent, investigators found. But contracts in which only one offer was received remained steady at around 13 percent.

The report cited a host of reasons for contracts with only one bid. Often, companies are scared off by a competent incumbent contractor considered an overwhelming favorite to continue with the work, the watchdog said. Other times, solicitations might appear to favor one company, the report noted. In addition, some vendors that might have competed for work are forming teams to submit one offer, industry officials told GAO.

“Given the nation’s fiscal constraints, it is not acceptable to keep an incumbent contractor in place without competition simply because the contractor is doing a good job, or to resist legitimate suggestions that competition be imposed even though it may take longer,” the report said.

GAO recommended the Obama administration assess the reasons contracts are receiving only one offer. Daniel Gordon, administrator of the Office of Federal Procurement Policy at the Office of Management and Budget, has argued that one bid is not enough to constitute competition and that the practice limits agencies’ ability to consider qualified alternatives.

Recent OFPP guidance requires agencies to begin separating data collected on these contracts and to code them as “noncompetitive procurements using competitive procedures.” Gordon concurred with GAO’s recommendation.

But, it might be difficult to get sound data on contract competition. GAO randomly selected a sample of 107 contracts and orders that were coded as noncompetitive or receiving one bid, and reviewed the contract files. Eighteen percent of the contracts were coded incorrectly — as either not competed when they had been, or as competed with one offer received when they had not been competed at all, the report said.

In fiscal 2009, the Navy and the Air Force had some of the worst competition rates, with about 45 percent of contracts not competitive, GAO said. The Energy Department and Office of Personnel Management had among the lowest rates of noncompetition, at 7 percent and 5 percent, respectively.

The most common explanation for failing to conduct any competition was that “only one reasonable source” was available to perform the work, according to the GAO sample. In some cases, such as an Immigrations and Customs Enforcement contract for communications equipment and supplies, one contractor essentially owns the market.

In other instances, particularly with Defense Department weapons programs, the government is hamstrung by a lack of access to proprietary technical data, according to the watchdog. Companies’ expertise, experience and reluctance to sell technical data for a reasonable price generally preclude the possibility of competition, the report said.

Several contracting officials blamed the lack of competition on receiving short notice from program offices for acquisitions. With little time to conduct market research or properly define requirements — elements of a robust acquisition process — contracting officials often turn back to the incumbent, investigators said.

The second most frequently cited exception to competition was the authority to award sole-source contracts to firms in Small Business Administration’s 8(a) business development program. Through the program, agencies are encouraged to award participating 8(a) firms noncompetitive contracts worth less than $3.5 million when procuring services, or less than $5.5 million for manufacturing.

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