In fiscal year 2009, DOD obligated about $380 billion on contracts for  goods and services. DOD chose a best value process for  approximately 95 percent of its new, competitively awarded contracts on  which it had obligated $25 million or more in fiscal year 2009. Almost half  of DOD’s contracts—47 percent—were awarded using a tradeoff process  in which non-cost evaluation factors, when combined, were more  more  important than price. Our analysis of selected  characteristics of contracts awarded using a best value tradeoff process in  fiscal year 2009 is shown in figure 3. DOD Used a Best Value Tradeoff Process to Address Complex or Time Sensitive Needs, but Paid Relatively Few Price Differentials

DOD officials tended to use a best value tradeoff process with non-cost  factors weighted more important than price when they were willing to  accept a higher price if a contractor could demonstrate certain  advantages, such as meet a deadline, demonstrate that it understood  complex technical issues, or propose an innovative approach. DOD often  indicated in tradeoff solicitations that non-cost factors would be  significantly more important than price in making award decisions, but our  analysis indicated that DOD selected a lower priced proposal among those  offerors remaining in the final competition almost as often as it selected a  higher technically rated, but more costly, proposal. Overall, DOD paid a  price differential—the difference in the price of the offeror awarded the  contract and the price of the offeror next in line for award—in 21 of the 68  contracts in which a price differential was considered. We found that 88 of the 129 contracts we reviewed used a best value  tradeoff process. In doing so, DOD officials decided not to  pay over $800 million in price differentials. Further, DOD officials stated that  they do not track whether the solicitation approach used correlated with  whether the contractor successfully met the terms of the contract and  noted that many factors ultimately contribute to the success or failure of  an individual acquisition that may not have been foreseeable when  awarding the contract. DOD Faces Several Challenges in Using the Best Value Tradeoff Process

DOD officials acknowledged several challenges in using the best value  tradeoff process such as the difficulties in developing meaningful  evaluation factors, the additional time investment needed to conduct best  value procurements, and the business judgment required of acquisition  staff when compared to other acquisition approaches. DOD officials also  noted that the complexity of the tradeoff process increases the risk of bid  protests. While  most of the protests were denied, DOD took corrective actions in 5 cases,  including 4 cases in which DOD terminated the contract or made a new  source selection decision when it determined that it failed to adhere to the  solicitations’ requirements. With the anticipated influx of more than 6,400 DOD contracting personnel  over the next few years, providing a firm foundation for use of the tradeoff  process is essential. For example,  while DOD’s new source selection guide provides insights on the source  selection process, it is silent on how to reach decisions on when to pay a  price differential, as is DOD’s current training curriculum. Recommendation for Executive Action

To help DOD effectively employ the best value tradeoff process, we  recommend that the Secretary of Defense direct the Director of Defense  Procurement and Acquisition Policy to work with the Defense Acquisition  University to develop training elements, such as case studies or scenarios  that focus on reaching tradeoff decisions, including consideration of price  differentials, as it updates the source selection curriculum. Appendix I: Scope and Methodology

Section 845 of the National Defense Authorization Act for Fiscal Year 2010  directed GAO to report on the Department of Defense’s (DOD) use of the  best value tradeoff process, and specifically for cases in which DOD  evaluated contractors’ proposals on factors other than cost or price, if  these non-cost factors, when combined, were considered more important  than cost or price. To respond to the mandate, we determined (1) how  often and for what types of contracts DOD used the best value tradeoff  process; (2) why and how DOD used the best value tradeoff process; and  (3) what challenges, if any, DOD faces in using the best value tradeoff  process.
Why GAO Did This Study

The Department of Defense (DOD) obligated about $380 billion in fiscal year 2009 to acquire products and services. One approach DOD can take to evaluate offerors' proposals is the best value tradeoff process in which the relative importance of price varies compared to non-cost factors. The National Defense Authorization Act for Fiscal Year 2010 required GAO to review DOD's use of the best value tradeoff process, specifically when non-cost factors were more important than price. In response, GAO determined (1) how often and for what types of contracts DOD used the best value tradeoff process; (2) why and how DOD used such an approach; and (3) challenges, if any, DOD faces in using the best value tradeoff process. GAO identified a probability sample of new, competitively awarded fiscal year 2009 contracts in which DOD obligated $25 million or more. GAO reviewed guidance, solicitations, source selection decisions, and other documents for 129 contracts and interviewed DOD contracting and program staff about the use of the best value tradeoff process.

What GAO Found

In fiscal year 2009, DOD used best value processes for approximately 95 percent of its new, competitively awarded contracts in which $25 million or more was obligated. Almost half of DOD's contracts--47 percent--were awarded using a tradeoff process in which non-cost evaluation factors, when combined, were more important than price. DOD used best value tradeoffs principally to acquire services, such as construction of troop housing, as well as for professional management services. DOD used the best value tradeoff process in 88 of the 129 contracts GAO reviewed. For 60 of the 88 contracts, DOD weighted non-cost factors as more important than price. In these cases, DOD was willing to pay more for a contractor that demonstrated it understood complex technical issues more thoroughly, could provide a needed good or service to meet deadlines, or had a proven track record in successfully delivering products or services of a similar nature. In making tradeoff decisions, GAO found that DOD selected a lower priced proposal nearly as often as it selected a higher technically rated, but more costly proposal. Overall, GAO found that DOD paid a combined total of more than $230 million in price differentials--the difference in price between the awardee and the offeror next in line for award--on 21 contracts, but chose not to pay more than $800 million in proposed costs by selecting a lower priced offer over a higher technically rated offer in 18 contracts. DOD does not track whether the use of best value tradeoff processes correlates with the contractor successfully meeting the terms of the contract and noted that many factors ultimately contribute to an acquisition's success or failure. DOD officials identified several challenges in using the best value tradeoff process, including the difficulty in determining meaningful evaluation factors and the business judgment of acquisition staff required. DOD officials also noted that the complexity of the tradeoff process increases the risk of bid protests. For example, GAO found that 15 of the 88 contracts awarded using a best value tradeoff process reviewed were protested to GAO, resulting in 4 cases in which DOD terminated the contract or made a new source selection decision when DOD determined that it failed to adhere to the solicitations' requirements. Such concerns are heightened given the expected influx of more than 6,400 new contracting personnel over the next few years. According to DOD officials, making sound tradeoff decisions, and in particular, deciding whether or not a price differential is warranted, is one of the most difficult aspects of using a best value tradeoff process. DOD is developing a new departmentwide source selection guide and intends to subsequently revise its training curriculum, but neither the guide nor DOD's current training curriculum provides agency personnel with information on assessing price differentials when performing tradeoff analyses.

What GAO Recommends

GAO recommends that to help DOD effectively employ best value tradeoff processes, DOD develop training elements, such as case studies, that focus on reaching tradeoff decisions, as it updates its training curriculum. DOD concurred with this recommendation.