GAO-11-318SP: General government: Promoting competition for the over $500 billion in federal contracts can potentially save billions of dollars over time

General government

Promoting competition for the over $500 billion in federal contracts can potentially save billions of dollars over time

Why Area Is Important

Competition is a cornerstone of the federal acquisition system and a critical tool for achieving the best possible return on what has grown to become an annual investment of about $540 billion. The benefits of competition in acquiring goods and services from the private sector are well established. Competitive contracts can save money, improve contractor performance, and promote accountability for results.

Federal agencies generally are required to award contracts competitively, but a substantial amount of federal money is being obligated on noncompetitive contracts annually. Full and open competition, defined as allowing all responsible sources to submit proposals, is the required method for federal agencies to award contracts, unless an exception applies. For example, full and open competition is not required under urgent circumstances, or when the required goods or services are available from only one source. Full and open competition also may not be required for contracts below certain dollar values or some contracts awarded under small business programs, such as the 8(a) small business development program of the Small Business Administration (SBA).

What GAO Found

Although some agency decisions to forego competition may be justified, GAO has found that when federal agencies decide to open their contracts to competition, they frequently realize savings. For example, the Department of State (State) awarded a noncompetitive contract for installation and maintenance of technical security equipment at U.S. embassies in 2003. In response to a GAO recommendation, State subsequently competed this requirement, and in 2007 it awarded contracts to four small businesses for a total savings of over $218 million. In another case, GAO found in 2006 that the Army had awarded noncompetitive contracts for security guards, but later spent 25 percent less for the same services when the contracts were competed.

Federal agencies obligated approximately $170 billion on noncompetitive contracts in fiscal year 2009 alone. While there has been some fluctuation over the years, the percentage of obligations under noncompetitive contracts recently has been in the range of 31 percent to over 35 percent. GAO reported in July 2010 that circumstances precluding competition included the government's lack of access to a contractor's proprietary data, which may be needed by other contractors in order to compete, or in some cases its reliance on a particular contractor's expertise. In other instances, agencies have used the competition exception allowed for the SBA's section 8(a) business development program, which provides agencies with an easy and fast method to award contracts without using full and open competition. Congress created the 8(a) program to help small disadvantaged businesses access the federal procurement market and eventually compete successfully in the U.S. economy. But there have been concerns about the lack of competition in the program, such as large, sole-source contracts awarded to 8(a) firms owned by Alaska Native Corporations, which have special advantages in the 8(a) program. In response to those concerns, legislation now requires agencies to provide more scrutiny of noncompetitive contracts over $20 million awarded under SBA's 8(a) program.

Another issue involves the extent of competition actually achieved. Specifically, the government obligates billions of dollars every year on procurements categorized as competitive even though only one offer was received. There is currently no requirement for agencies to assess the reasons why only one offer was received. GAO reported that the government's requirements can influence the number of offers received under competitive solicitations. For example, when existing contracts expire and are opened to competition, the new contract's requirements may be written so restrictively that they are geared toward the holder of the current contract. GAO has recommended that the Office of Federal Procurement Policy (OFPP) determine whether the regulations should be amended to require agencies to evaluate the circumstances leading to only one offer being received and to identify additional steps that can be taken to increase the likelihood that multiple offers will be submitted in the future. The OFPP Administrator agreed with GAO's recommendation.

GAO work also shows that agencies do not always use a competitive process when establishing or using blanket purchase agreements (BPA) under the General Services Administration's schedules program. These are agreements agencies put in place in advance of known requirements, which then may be used to order goods or services quickly when specific needs arise. Agencies have frequently entered into BPAs with just one vendor, even though multiple vendors could satisfy agency needs. And even when agencies entered into BPAs with multiple vendors, GAO has found that agencies have not always held subsequent competitions among those vendors for orders under the BPAs, even though such competitions at the ordering level are required. GAO recommended that OFPP consider amending the regulations to clarify this requirement, and OFPP agreed. By not consistently promoting competition, federal government agencies have not taken advantage of opportunities for significant cost savings.

Actions Needed

The Office of Management and Budget (OMB), the executive agency that oversees the federal procurement process, has provided additional guidance for agencies to promote competition in contracting, and improve the effectiveness of their competition practices. In July 2009, OMB called for agencies to reduce obligations under new contract actions that are awarded using high-risk contracting authorities by 10 percent in fiscal year 2010. These high-risk contracts include, among other considerations, those that are awarded noncompetitively and those that are structured as competitive but for which only one offer is received. While sufficient data are not yet available to determine whether this goal was met, GAO is currently reviewing the agencies' savings plans to identify steps taken toward that goal, and will continue to monitor the progress agencies make toward achieving this and any subsequent goals set by OMB. Further, OMB has challenged agencies to take immediate action to aggressively seek deeper discounts on BPAs.

In addition to legislation and guidance, promoting competition in contracting to the greatest extent possible requires overcoming conventional thinking. For example, because program officials have an essential role in the acquisition process, it is important that these officials, not just contracting officers, actively promote competition. This means not insisting on retaining incumbent contractors even when competition is possible. Keeping an incumbent contractor in place without competition simply because the contractor is doing a good job, or resisting legitimate suggestions that competition be used even though it may take longer, could result in missed opportunities for savings.

By more consistently promoting competition in contracts, federal agencies would have greater opportunities to take advantage of the effectiveness of the marketplace and potentially achieve billions of dollars in cost savings.

Framework for Analysis

The information contained in this analysis is based on the related products listed under the "Related GAO Products" tab.

Area Contact

For additional information about this area, contact Michele Mackin at (202) 512-4841 or mackinm@gao.gov.