DOD’s Use of the National Security Exception Covers a Range of Goods and Services, but Gaps in Data Limit Ability to Determine Full Extent of Use

		DOD Military Departments’ Use of the National Security Exception Is Small Relative to Other Competition Exceptions and Covers a Range of Goods and Services

Based on data from FPDS-NG, DOD dollar obligations under the national  security exception during fiscal years 2007 through 2010 were small  relative to other exceptions to full and open competition. By  contrast, non-military-department components accounted for about 4  percent of DOD’s use under the exception. While the memorandum from OSD exempts three of DOD’s  intelligence agencies (NGA, DIA, and NSA) from reporting procurement  data to FPDS-NG because of the sensitive nature of their procurement  data, OSD and military department officials were not aware of a specific  policy basis for excluding sensitive programs outside of the intelligence  agencies. DOD Often Uses a Single Document to Justify Multiple Actions under the National Security Exception, and All Justifications Met Requirements

		DOD Makes Extensive Use of Class Justifications for the National Security Exception

For most contracts we reviewed, DOD entities used a single justification  and approval document that applies to multiple contracts—referred to in  the FAR as a class justification—for national security exception contract  actions. Class justifications reduce the steps required to proceed with individual  contract actions that are not fully competitive. According to contracting officials at an Air Force program office that has a  class justification in place under the national security exception, the  increased flexibility of their national security exception class justification  helps them meet mission needs. Some Air Force officials also noted that concerns about the level of  review of individual contracts that are awarded without full and open  competition under class justifications have led to efforts to revise the  review process for activity under class justifications. Of  the more than 11,300 DOD military department contract actions citing the  national security exception from fiscal years 2007 through 2010, DOD  received only one proposal for $10.6 billion of its obligations—about 84  percent of the total $12.7 billion in obligations under this exception. The military departments generally continue to use the same exception  for follow-on contract actions to national security exception contracts, as  well as the same vendor, based on our analysis of the contracts in our  sample. Contracting officials told us that the tools that are used to solicit  competition generally cannot be used in a security sensitive contracting  environment. An NSA Inspector General report found that this system improved the  agency’s ability to conduct market research and solicit competition. Conclusions

DOD’s use of the national security exception is necessary in certain  situations when disclosing the government’s needs in a full and open  competition would reveal information that would harm national security. However, more competition is  possible. In written comments, DOD  concurred with the report’s last two recommendations and partially  concurred with the first recommendation. However, we found that DOD  policy was not clear on if and when sensitive, but unclassified, contract  data should be excluded from FPDS-NG. Appendix I: Scope and Methodology

Our mandate required us to review (1) the pattern of usage of the national  security exception by acquisition organizations within the Department of  Defense to determine which organizations are commonly using the  exception and the frequency of such usage; (2) the range of items or  services being acquired through the use of such exception; (3) the  process for reviewing and approving justifications involving such  exception; 4) whether the justifications for use of such exception typically  meet the requirements of the Federal Acquisition Regulation applicable to  the use of such exception; (5) issues associated with follow-on  procurements for items or services acquired using such exception; and  (6) potential additional instances where such exception could be applied  and any authorities available to DOD other than such exception that could  be applied in such instances. Because the Air Force makes up 73.5 percent of all obligations under the  national security exception, we selected 18 contracts from the Air Force,  6 from the Army, and 3 from the Navy. DOD Intelligence Agencies and Special Access Programs

To assess the extent of DOD intelligence agencies’ use of the national  security exception, we obtained data from the four agencies, as these  agencies do not report data to FPDS-NG. We reviewed five contract files at four DOD intelligence agencies.
Why GAO Did This Study

Competition is a critical tool for achieving the best return on the governments investment. Federal agencies are generally required to award contracts competitively, but they are permitted to use other than full and open competition in certain situations, such as when open competition would reveal information that would harm national security. GAO examined DODs use of this provision, known as the national security exception. It requires the use of competition to the greatest extent practicable. GAO assessed (1) the pattern of DODs use of the national security exception;
(2) DODs processes for using the exception; and (3) the extent to which DOD achieved competition under the exception. GAO analyzed federal procurement data; reviewed a selection of 27 contract files and justifications citing the exception from the Army, Navy, and Air Force, based on largest obligations, frequent users, and a range of procurement types, as well as five contracts from DOD intelligence agencies; and interviewed DOD contracting and program officials.

What GAO Found

DODs use of the national security exception is smallabout 2 percent of the dollar value of its total use of exceptions to full and open competition, but gaps in federal procurement data limit GAOs ability to determine the full extent of DODs use. DOD procures a range of goods and services under this exception, and according to federal procurement data, the Air Force accounted for about 74 percent of DODs use during fiscal years 2007 through 2010. However, DOD intelligence agencies and special access programs frequently use the exception, but are generally excluded from reporting procurement data. While an Office of the Secretary of Defense memorandum exempts three of the intelligence agencies from reporting such data, DOD policy on reporting sensitive procurements for other military department programs is not clear.
For most national security exception contract actions GAO reviewed, DOD used a single justification and approval document that applies to multiple contractsknown as a class justification. Among those reviewed, $3.3 billion of $3.4 billion was obligated under contracts that used class justifications, which reduce the steps required to proceed with individual contract actions that do not use full and open competition. According to contracting officials, the increased flexibility of national security exception class justifications helps meet mission needs. However, in the Air Force, concerns about the reduced management review of these contracts have led to changes in the process for approving individual contract actions using class justifications. Nevertheless, all of the justifications GAO reviewed met Federal Acquisition Regulation requirements.
GAOs analysis of federal procurement data on about 11,300 contract actions found that, from fiscal years 2007 through 2010, only 16 percent of all obligations under those actions by the military departments under the national security exception received more than one proposal. Contract files and contracting officials cited a limited pool of companies with the right capabilities, the difficulty of changing from an established vendor, and limited tools for soliciting competitive bids as reasons for their inability to obtain more competition. Twelve of the 27 military department contract files GAO reviewed did not include a record of market research, and others included few details on the results. Two intelligence agencies that reported using the national security exception for all contracting reported achieving comparatively high levels of competition. Both have systems that catalogue firms, capabilities, and solicitations that are used to facilitate security sensitive market research.

What GAO Recommends

GAO recommends that DOD issue guidance clarifying when security sensitive contracting data must be reported, monitor the impact of new Air Force class justification processes, and consider using tools that facilitate market research in a secure environment. DOD concurred with two recommendations and partially concurred with the recommendation on clarifying guidance, citing pending revisions to regulations. GAO continues to believe that clarifying guidance is needed.