Defense Contracting:

Improved Policies and Tools Could Help Increase Competition on DOD's National Security Exception Procurements

GAO-12-263: Published: Jan 13, 2012. Publicly Released: Jan 13, 2012.

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What GAO Found

DOD’s use of the national security exception is small—about 2 percent of the dollar value of its total use of exceptions to full and open competition, but gaps in federal procurement data limit GAO’s ability to determine the full extent of DOD’s 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 DOD’s 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 contracts—known 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.

GAO’s 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.

Why GAO Did This Study

Competition is a critical tool for achieving the best return on the government’s 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 DOD’s 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 DOD’s use of the national security exception;

(2) DOD’s 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 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.

For more information, contact Belva Martin at (202) 512-4841 or martinb@gao.gov.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of Defense should issue guidance establishing the circumstances under which security sensitive contracting data are required to be reported to the Office of the Secretary of Defense (OSD) and in the Federal Procurement Data System-Next Generation (FPDS-NG), including the decision authority for excluding a given program or contract from the database.

    Agency Affected: Department of Defense

    Status: Open

    Comments: DOD partially concurred with our recommendation that the Secretary of Defense should issue guidance establishing the circumstances under which security sensitive contracting data are required to be reported to the Office of the Secretary of Defense (OSD) and in the Federal Procurement Data System-Next Generation (FPDS-NG), including the decision authority for excluding a given program or contract from the database. The Federal Acquisition Regulations (FAR) were changed to clarify that classified information is not to be included in FPDS-NG. However, the FAR changes did not address security sensitive contracting data as we recommended. Additionally, the Director of Defense Procurement and Acquisition Policy extended the existing National Security Agency waiver to the reporting of unclassified actions in FPDS-NG due to concerns that aggregation of classified contract action data may reveal operational sensitive mission information to the National Geospatial and Defense Intelligence Agencies. Although we do not expect further DOD action on this recommendation, we are keeping this recommendation open at this time.

    Recommendation: The Secretary of Defense should evaluate the effect of the Air Force's new review process on competition and management oversight of national security exception actions under a class justification; if the changes are found to be beneficial, consider implementing similar changes across DOD.

    Agency Affected: Department of Defense

    Status: Open

    Comments: DOD held discussions with the Air Force while waiting for the updated class J&A process to mature enough at the Air Force before assessing its effectiveness and the feasibility of using this process across the agency. DPAP provided the Air Force class J&A process at a meeting of DOD competition advocates as a way to increase competition under the national security exception. In addition, in DOD's follow up with the Air Force it was reported that the contract actions initiated under the class J&A were not competed primarily due to propriety data rights. DOD is pursing technical data rights, where appropriate, to enable future competition. Although we do not expect further DOD action on this recommendation, we are keeping this recommendation open at this time.

    Recommendation: The Secretary of Defense should assess the feasibility of providing contracting officials in military department programs that routinely use the national security exception with access to tools that facilitate market research and competitive solicitation in a secure environment, either through development of new tools or access to existing intelligence community systems.

    Agency Affected: Department of Defense

    Status: Open

    Comments: NSA and NRO have taken steps to provide DOD-wide access to their Acquisition Resource Center (ARC) databases. NSA's ARC is available through the Joint Worldwide Intelligence Communications Systems (JWICS). DOD services may access the ARC through JWICS to perform conduct and save searches and send market surveys for use in preparing acquisition packages. The Office of the Director of National Intelligence communicated the availability of this database through the Intelligence Community Procurement Executive Council. DOD provided additional information at a competition advocates meeting. Although GAO expects no further action from DOD on this recommendation, we are keeping it open at this time.

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