Test Program Contracts Constitute Small Portion of Commercial Buying Activity, but Components Do Not Monitor or Assess Its Use

Federal agencies’ use of the commercial item test program represents a  relatively small portion of all commercial buying activity. In fiscal year  2011, of the $90 billion agencies obligated on new awards for commercial  items and services, federal agencies obligated $1.9 billion or about two  percent using the test program based on data reported in FPDS-NG. We identified significant variation in test program use between and within  the components we reviewed which agency and component officials  attributed to a variety of factors including the types of goods and services  being acquired, the complexity of the acquisition, and the existence of  other contracting approaches. Similarly, within the Coast Guard, the Aviation Logistics  Center used the test program for 139 of 370 new commercial awards; in  contrast, the Coast Guard’s Headquarters Contract Operations used the  test program for only 3 of 164 new awards. Coast Guard officials  explained that the nature of the products and services purchased by the  Aviation Logistics Center—including parts and services for aircraft  maintenance, upgrades, and repair—lends itself to using the test  program. For example, based on data reported in FPDS-NG, the  Army Materiel Command’s Mission Installation Contracting Command- Fort Knox reported that it used the test program for 2 of 538, less than 1  percent, of new commercial awards in fiscal year 2011 that fell within test  program thresholds. Test Program Can Reduce the Time to Award Contracts with Manageable Risk

The test program contracts we reviewed were generally awarded more  quickly and with less administrative burden than had the contracts been  awarded using negotiated procedures and generally did not incur risks  above those experienced on other federal acquisition efforts. Further, contracting officers generally documented their efforts  to identify commercial sources, but nevertheless awarded 16 of the 26  test program contracts noncompetitively. While these awards were  justified and approved in accordance with federal regulations when  required, our work and that of others has found that noncompetitive  contracting poses risks of overspending because these awards lack a  direct market mechanism to help establish pricing. DOD regulations  require a written and approved commercial item determination in some  cases to mitigate risks associated with misapplication of the commercial  item definition; neither DHS nor DOI have a similar requirement. Based on our review of the test program contracts, the use of the test  program reduced contracting lead time and administrative burdens in  comparison to the agencies’ estimated lead times for awarding contracts  using negotiated procedures. Test Program Does Not Generally Introduce Additional Risk When Internal Controls Are in Place

According to officials from the agencies and components we reviewed,  test program contracts are reviewed using existing internal controls and  standard contract review processes, which are often based on dollar  thresholds. As we found in 2006,  improper classification of an item as commercial can leave the  government vulnerable to accepting prices that may not be the best value  if the item is not sold in numbers sufficient for the government to  determine the reasonableness of the vendor’s prices as the government  is precluded from requesting certified cost or pricing information for  commercial items. Recommendations for Executive Action

To increase the potential benefits from using the test program and  mitigate potential risks, we are making the following two  recommendations:
We recommend that the Secretaries of Defense, Homeland Security,  and the Interior collect and assess data to determine whether their  agencies are using the simplified procedures authorized by the test  program to the maximum extent practicable, as required by the FAR. DHS and DOI both disagreed, noting they  questioned the value of such an assessment and that current procedures  were adequate. This report  addresses (1) the extent to which federal agencies have used the test  program, and (2) its benefits and risks, if any. To determine the extent to which federal agencies have used the test  program, we analyzed data on contract actions awarded using the  authority from the Federal Procurement Data System-Next Generation  (FPDS-NG). Based on obligations reported for fiscal year 2011, we determined that  the departments of Defense (DOD), Homeland Security (DHS), and the  Interior (DOI) were the largest dollar users of the test program,  collectively accounting for 74 percent of test program obligations. To assess the extent to which agencies used the test program, we  analyzed the number of new awards for commercial items and services in  fiscal year 2011 that fell within the test program thresholds of $150,000 to  $6.5 million (based on the estimated value at award) and identified the  percentage that used the test program.
Why GAO Did This Study

Federal agencies rely on the commercial marketplace for a range of goods and services. In 1996, Congress authorized the use of simplified acquisition procedures for commercial items now valued up to $6.5 million under the Test Program for Certain Commercial Items. The test program is currently authorized until January 2015. However, due to a lack of reliable data, Congress has had limited insights into the actual use and benefits of the test program.
The House Armed Services Committee report that accompanied the National Defense Authorization Act for Fiscal Year 2013 mandated GAO to report on the use of the authority provided under the test program. This report addresses (1) the extent to which federal agencies have used the test program, and (2) its benefits and risks, if any. DOD, DHS, and DOI accounted for 74 percent of test program use in fiscal year 2011 based on data reported in FPDS-NG. For five components within these three agencies, GAO assessed data, reviewed regulations and agency policies, analyzed 26 of the largest test program contracts, and interviewed contracting officials.

What GAO Found

Federal agencies use the test program for a relatively small portion of all commercial items and services bought. In fiscal year 2011, of the $90 billion agencies obligated on new awards for commercial items and services, federal agencies obligated $1.9 billion or about 2 percent using the test program, based on data reported in the Federal Procurement Data System-Next Generation (FPDS-NG). Within the largest reported users of the test program--the Departments of Defense (DOD), Homeland Security (DHS), and the Interior (DOI)--the five components GAO reviewed used the test program for about 9 percent of obligations, and 12 percent of the components' new commercial awards that fell within test program thresholds in fiscal year 2011. Agency officials cited the types of goods and services being acquired, the complexity of the acquisition, and the existence of other contracting approaches as factors affecting test program use. For example, the Coast Guard's Aviation Logistics Center used the test program for 139 of 370 new awards that fell within test program thresholds, whereas its Headquarters Contract Operations used the test program for only 3 of 164 new awards. Coast Guard officials explained that the commercial nature of the parts and services bought by the Aviation Logistics Center lends itself to using the test program, while the headquarters office used existing contracts, which can be another means to fulfill recurring needs for commercial supplies such as information technology services. DOD, DHS, and DOI officials acknowledge that they do not collect or assess data to determine whether the test program is used to the maximum extent practicable. As such, its limited use may indicate missed opportunities.
GAO found that the test program reduced contracting lead time and administrative burdens and generally did not incur additional risks above those on other federal acquisition efforts for those contracts GAO reviewed. GAO compared agencies' estimated timeframes for awarding contracts using negotiated procedures--which officials reported would be used in the absence of the test program--with actual lead times for eight competitively awarded test program contracts and found that test program contracts were generally awarded in fewer days. For example, the Army awarded a $1.3 million contract for blast barriers and bunkers in 20 days, about 160 days less than suggested by command guidance. According to officials from the agencies and components GAO reviewed, test program contracts are reviewed using existing internal controls and standard contract review processes. GAO found that contracting officers generally documented their efforts to identify commercial sources, but 16 of the 26 test program contracts GAO reviewed were awarded noncompetitively. While these awards were justified and approved in accordance with federal regulations when required, GAO and others have found that noncompetitive contracting poses risks of not getting the best value because these awards lack a direct market mechanism to help establish pricing. In some cases, DOD requires contracting officers to prepare a determination that the acquisition meets the commercial item definition. Neither DHS nor DOI have a similar requirement, potentially increasing their risks. Not ensuring the proper classification of an item as commercial can leave the government vulnerable to accepting prices that may not be the best value.

What GAO Recommends

GAO recommends that (1) DOD, DHS, and DOI collect and assess data to evaluate program use; and (2) DHS and DOI require a commercial item determination for certain acquisitions to better manage risk. DOD concurred, but DHS and DOI did not, stating that current procedures were adequate. GAO maintains that both recommended actions are still warranted for DHS and DOI.