1 /07sA2 .9, I.' DOCoUMf 1 '33 07520 - C296804@ ] stlt ricte - .ofonse Departmet Is lot Doing iegh TSo IMaziam Coapttion wt-eu lardlig Contracts for. lrgeigslitmay Sales. 1fJ3-78-147s B-165731. October 17, 1978. 33 pp..- 2 appendices (6 pr.- epoet to Rop. Jack Dtookf' C lou Ciittt a-: -'.-;' Goernment OperatiousIt Igeislast 0d0 Itioa3: Se·c ity Subcommittee; byb.- lor Stants, Cottollr nel. -- Isse Area: federal ftocuzoretn of goods an- Services: Definitiom of Performance- R I e s a Relaotion tb Ted of the Procurig Agency (1902J ;. ederal Pronment of Goods and Services (1900).. Contact: ProcNIement and Systems Ac"uistiou Div. Bud"qt functios: National Dfemss oDeprtm nt..f ef ean - Procurement outnacts (SJ).O ' organixation Concernedt Departmt of Deeae e rtm of the aw; Deprtment of the Ari; e- rtmmof. tWhe- aIr orc lorthrop Corp.: 'ircarft Di'V,, lauthoe-: CA' - Congressional Relevace: biose Committee Con overnent Operations: Leglslation and4 ltia SOculty .,boitto. Rep. Jack Bhocks. Authority: Defense frocurement Cicular 76-. when trausating fon.eign sl the Department of Defense (DOD) generaly follows thie me polcites anl proeodue required. by the Aried Servl.es Tocorent Regulations (Sifi whether the contract is ared- for U.S. forces or for foreolg ailitary sales (INS). Poerign cotries. re hogwever., f alloe to make sole-source designations in thetr remt ,fsor por. ceemWt. A sta tistical a:ple of DOD .contacts: w.vasstudie. to. deternae the eotent of coaptitio . ipn uS.. Irindinges/oalesionf-:.ry U.s. fitns lose- the opportumity to compete -for.:OD cotracts because the DOD is crlently placin coatsmatos.valuid at' billions of dollars on a sole-soceo basis to--bu goods and services for boher countzs.: D activities often ignorze or were nsware that AM applies to foreig mititar 86, requested other contries to mkeo soe-somrce dlsigntiions, awarded contracts that could have h.dled through: normalobel comercial channels, and fostered a ord gmto of high- priority reqddsitios mch icflo .t-hemiof sole-soarce procuremnt. The lecthIop Cogpottior" was designated as the sole-orce sqp i4 for the-!Pesa..lk progra for Saudi Arabia. Doigt of ortbrop as pmlier for certain related efforts was logical, bt the Saudi arab also designated lorthrop as the mob sonce: for amae of the program that would not normally be awarded to an. aircraft manufacturer. as a result, may U.S. flans lost. th.- oportudity to compete on hundred'. -f tli ona of dollars of contaects i their own aeas of oepets!ae. retons: I. Secretary of Defense should: ecourCa other coont3toi and e.as. Pogrmn managers to avoid settR g time scbhdules that cospel. mole-so ce rahts witr/Xi ' J.. o l-ritj - 34"lslt*A3 carin by a fafrlure teey aoZ .a1.:Dw. Priority *et..~ -si~~whgiiitiegrtk.iii~*ri iutioa of othr cocuaty af-t w"itOII1 c Xqu.i1 i m Bol-3 _o0einrc* ui ...tegibinuifrq p X* , l war- tat r~.atui~s. thszpli~oi tsStf · bpe t avalaM tXr;,cstoutit avn zrckaicazt pl-.bea. Sg-:teproprat o t a.irendy~cowuasftm iri (33n - r .. KDEPORfT BY THE Comptroller General THE_UNITED STATES -.· J - !_e ' Toso re:el e:ar.rl 6t thr,e aer0a by tV1 C-fifv of :;;5resisnal heals334 Defense Department IsNot Dcing Enough To Maximize Competition When Awarding Contracts For Foreign Military Sales Programs The Department of Defense could awara more contracts on a competitive basis for Ioreigr governments. This would improve the L,.S. industrial base, provide oppcrtuni- ties to U.S. firms not currently bidding on co itracts, and enable DOD to better fulfill i: ro e as mediator between foreign buyers and American sellers. r'ED S7.? ~~~~~~P~~~~Cb Ad·i>~~~~ ~PSAD-78-147 crC'~ou, OCTOBER 17. 1978 WAISMTONC.D.C0 B-165731 The Honorable Jack Brooks Chairman, Subcommittee on Legislation and National Security Committee on Government Operations House of Representatives Dear Mr. Chairman: In response to your Subcommittee's December 7, 1977, request, we examined the extent of competition in foreign military sales and the reasons for award of sole-source (noncompetitive) contracts. At the Subcommittee's request, we did not take the additional time to obtain written Defense Department or contractor comments. The matters covered in the report were discussed with Department officials and Northrop Cor- poration personnel, and their comments are incorporated where appropriate. As arranged with your office, we will provide copies to the Secretary of Defense and make a general distribu- tion of this repvrt 30 days after you receive it. Since y yours Compfroller General of the United States COMPTROLLER' GENERAL'S DEFENSE DEPARTMENT IS NOT REPORT TO THE SUBCOMMITTEE ON DOING ENOUGH TO MAXIMIZE LEGISLATION- AND NATIONAL SECURITY COMPETITION WHEN AWARDING COMMITTEE ON GOVERNMENT OPERATIONS CONTRACTS FOR FOREIGN HOUSE OF REPRESENTATIVES . MILITARY SALES PROGRAMS D I:G.E S T -. M any UU.Sf'trmsIlose the opportunity to- compete for Department.of: Defense (DOD) contracts because DOD- currently., is plac- ing contracts. valued at.billions of dol- lars-on a sole-source basis.,to buy goods and services for other countries. The Armed: Services Procurement Regula- tion, 1/ which according to DOD-policy ap- plies to. foreign. military sales'-provides that, competition: be. obtained in..'awarding, - Government contract 'whenever Practical and: advertised procurement. is. the-preferred method of contracting.. However, DOD has a policy of permitting-countries that. are pay- ing for items:ordered to designate the U.S. company that will provide the goods and services:'desired .; In-some. cases, these designations exist for several years. The services' have not.:maximized competi- tion when awarding contracts to satisfy foreign requests.. GAO.found instances where DOD activities had --ignored or were unaware that the- Armed Services Procurement -Regula-- tion applies to foreign military sales, -- requested other countries to make sole- source designations, --awarded contracts that could have' been handled through normal commercial channels, and --fostered and encouraged designation of high-priority requisitions which influence the award of sole-source procurements. 1/The Armed Services Procurement Regula- tion is now called the Defense Acquisi- tion Regulation. TX h i PSAD-78-147 Sh=uid beew ~WWn Result: a high percentage of contracts awarded sole source. Of course, some factors make the use of competition in foreign military sales difficult, such.as the --short time to meet delivery require- ments frequently placed on DOD, --peculiarity of some weapon systems sold to other countries not common to U.S. systems, --uncertainty of integrating foreign logistics systems with U.S. logis- tics systems, --political factors influencing many foreign programs, and --funding problems encountered in fi- nancing some foreign military sales. Notwithstanding that some of these factors are outside DOD's control, it is important that procurement authorities do everything, whenever possible, to maximize competition. RECOKMENDATIONS TO THE SECRETARY O DEFENSE .. GAO recommends that the Secretary of De- fense make a strong and continuing com- mitment to provide greater management at- tention and emphasis on the desirability of obtaining competition in procurements for foreign military sales by --encouraging other countries and U.S. program managers to avoid setting time schedules that compel sole-source pro- curement; --determining whether the predominance. of high-priority requisitions is caused by a failure to apply normal DOD priority rules; --determining whether greater integration of other country needs with DOD logistics ii systems could hold sole-source procurements to the minimum; --making--procurement-personnel at' all. levels aware that disciplinary action will be jtake.:-if- they- reuest other;-countries. to -make''-sole-source 'designat'ions " -. --assessing the desirability of foreign country designations requiring-DOD' to make all subsequent procurements from the same vendors- that provided, the original items; - -- tak4ng advantage of available commercial channels,. whenever possible,. to reduce ·-the administrative burden imposed by . oreign. military sales; and -- explaining to customer countries the-poten- tial savings and other benefits available through competitive procurement' and attempt- ing to obtain agreement for; procurement on this basis. , The- growth of foreign-military sales and the attendant growth in the admin- istrative burden associated with such sales have strained DOD manpower re- sources. This:-manpower shortage led the Air-Force 'to contract'with Northrop Cor- poration for management functions-that Government personnel normally perform. This arrangement creates a potential organizational conflict of interest be- cause Northrop is a major supplier of foreign military sales items. Organiza- tional conflicts of interest in the con- text of Government contracts deal pri- marily with situations where a company, by virtue of work performed on one con- tract, would be in an unfair competitive position to obtain other contracts or would be in a position to influence the work to be performed on other contacts. RECOMMENDATION TO THE SECRETARY OF THE AIR FORCE GAO recommends that the Secretary of the Air Force return sensitive functions, such as To L5hrt iii monitoring foreign military sales requirements and purchasing plans, to appropriate Air Force Commands. In the event personnel ceiling limita- tions will not.permit returning these functions to Air Force personnel, the Secretary should contract for these services with an-organiza- tion not involved with production or sale of military goods or services. RECOMMENDATION TO THE CONGRESS GAO recommends that the Congress consider the impact of foreign military sales on DOD man- power when establishing personnel ceilings. As requested by the subcommittee,. GAO did not take the additional time to obtain written DOD or contractor comments. The matters covered in the report were discussed.with DOD officials and Northrop Corporation personnel, and their comments are incorporated where appropriate. Generally, DOD believes GAO!s report over- emphasizes the negative aspects- of sole-source procurements and does not sufficiently recognize that there are valid reasons for making such.