DOD contracting officers can place  orders directly through many interagency contracts. Franchise Funds Did Not Always Ensure Fair and Reasonable Prices or Competitive Procedures

GovWorks and FedSource did not always obtain the full benefits of  competitive procedures, did not otherwise ensure fair and reasonable  prices, and may have missed opportunities to achieve savings on behalf of  DOD customers for millions of dollars worth of goods and services. In 5 of the 10 cases, GovWorks sought, but did not receive,  competing proposals as required for the types of contracts used. Our findings at GovWorks are consistent with our previous work on DOD’s  use of other agencies’ contracts. In four of the five projects involving staffing support, FedSource paid  contractors higher prices for services than were established in the  contract. DOD customers chose  to use franchise funds based on convenience, rather than as part of an  acquisition plan. DOD conducted little analysis, if any, to determine  whether using franchise funds’ contracting services was the best method  for acquiring a particular good or service. For their part, although  franchise funds’ business operating principles require that they maintain  and evaluate cost and performance benchmarks against their competitors,  they did not perform analyses that DOD could use to assess whether the  franchise funds deliver good value. This focus on  customer satisfaction and generating revenues provides an incentive to  emphasize customer service rather than ensuring proper use of contracts  and good value. Without this type of data, it is difficult to make informed decisions  about the use of other agencies’ contracting services. For example, DOD customers sometimes paid a GovWorks fee, or  service charge, on top of a fee to use another agency’s contract because  GovWorks generally uses other agencies’ contracts to make purchases for  DOD customers. However, the  assignments did not contain criteria for evaluating the work performed by  contract employees. Without this  critical information, neither DOD nor the franchise funds could effectively  measure contractor performance. We found that FedSource generally did not ensure that contractor  oversight occurred. Oversight of Franchise Funds Has Been Limited

Aside from monitoring the contractors’ performance, we also found that  the departments of the Interior and the Treasury, which operate  GovWorks and FedSource, respectively, and the Office of Management  and Budget have conducted infrequent reviews of franchise funds’  procurement activities. A GovWorks’ 2004 Management Review identified such issues as lack of  acquisition planning for work added to existing awards, unanticipated  increases in the amounts of orders, and inadequate documentation of  many requirements such as competitive procedures, determinations that  changes were within the scope of the contract, the basis of award  decisions, and that prices were fair and reasonable. To ensure that DOD customers analyze alternatives when choosing  franchise funds and to provide DOD with the measurable data it needs to  assess the value of the franchise funds’ contracting services, we  recommend that the Secretary of Defense take the following three actions:    Develop a methodology to help DOD customers determine whether  use of franchise funds’ contracting services is in the best interest of the  government. To ensure that GovWorks and FedSource adhere to sound contracting  practices, we recommend that the Secretaries of the Interior and the  Treasury take the following two actions:     develop procedures and performance measures for franchise fund  contracting operations to demonstrate compliance with federal  procurement regulations and policies while maintaining focus on  customer service and    develop procedures for franchise fund contracting officers to work  closely with DOD customers to define contract outcomes and effective  oversight methods. We also reviewed information  available from the franchise funds that would indicate whether the  franchise funds provided a good value, and interviewed franchise fund  officials.
Why GAO Did This Study

The Department of Defense (DOD) is the largest user of other federal agencies' contracting services. The availability of these contracting services has enabled DOD and other departments to save time by paying other agencies to award and administer contracts for goods and services on their behalf. DOD can access these contracting services a number of ways, such as ordering directly from interagency contracts for commonly needed items. DOD also can pay someone else to do the work. For example, DOD uses franchise funds, which are government-run, fee-for-service organizations that provide a portfolio of services, including contracting services. As part of a congressional mandate, GAO assessed whether franchise funds ensured fair and reasonable prices for goods and services, whether DOD analyzed purchasing alternatives, and whether DOD and franchise funds ensured value by defining contract outcomes and overseeing contractor performance.

What GAO Found

GovWorks and FedSource, two of the franchise funds that DOD has relied on for contracting services, have not always ensured fair and reasonable prices while purchasing goods and services. The franchise funds also may have missed opportunities to achieve savings from millions of dollars in purchases, including engineering, telecommunications, or construction services. In the course of its review, GAO examined $249 million worth of orders and work assignments from the contracts the franchise funds used to make purchases on DOD's behalf. In many cases, GovWorks sought but did not receive competing proposals. GovWorks added substantial work--as much as 20 times above the original value of a particular order--without determining that prices were fair and reasonable. FedSource generally did not ensure competition for work, did not conduct price analyses, and sometimes paid contractors higher prices for services than established in contracts with no justification provided in the contract files. For its part, DOD--in the absence of clear guidance on the proper use of other agencies' contracting services--chose to use franchise funds on the basis of convenience without analyzing whether using franchise funds' contracting services was the best method for meeting purchasing needs. DOD also lacks information about purchases made through other agencies contracts, including franchise funds, which makes it difficult to make informed decisions about the use of these types of contracts. The franchise funds' business-operating principles require that they maintain and evaluate cost and performance benchmarks against their competitors. However, the franchise funds did not perform analyses that DOD could have used to assess whether the funds deliver good value. The funds' performance measures generally focus on customer satisfaction and generating revenues. These measures create an incentive to increase sales volume and meet customer demands at the expense of ensuring proper use of contracts and good value. DOD and the franchise funds--which share responsibility for ensuring value through sound contracting practices such as defining contract outcomes and overseeing contractor performance--did not adequately define requirements. Without well-defined requirements, DOD and the franchise funds lacked criteria to measure contractor performance effectively. On a separate oversight-related issue, GAO found that the departments of the Interior and the Treasury--each of which has responsibility in the successful operation of the respective franchise funds--and the Office of Management of Budget have performed little oversight of GovWorks and FedSource.