Defense Contracting: DOD Contracts with Companies Having Employee Stock Ownership Plans

What GAO Found

The Department of Defense (DOD) obligated almost half of all contracting dollars to companies that had employee stock ownership plans (ESOP) during calendar years 2014 through 2017. Specifically, DOD’s obligations to companies with ESOPs were about $563 billion of $1.2 trillion on contracts with annual obligations greater than $150,000. GAO also found:

• DOD’s contract obligations to companies with ESOPs went to 622 companies.
• DOD officials do not consider whether a company has an ESOP during the contracting process. Rather, DOD officials said that their award decisions are based on a prospective contractor’s ability to deliver quality products and services and other applicable factors, such as the proposed price.
• Performance ratings for quality, cost, and schedule for contracts with companies that had ESOPs were generally “satisfactory” or better.

Why GAO Did This Study

ESOPs are employee benefit plans designed to invest primarily in shares of the sponsoring company, but ESOPs can also invest in other assets, such as the stocks of other companies or government securities. Companies can be wholly or partially owned by the ESOP, but there are no readily available data to determine what percent of a company is owned by an ESOP. The figure below illustrates the relationship of the various parties in the contracting process.

Figure: Department of Defense Contracting with Companies that Have Employee Stock Ownership Plans

GAO was asked to analyze DOD’s contracting with companies that had ESOPs. This report identifies what federal procurement data show regarding DOD contracting with companies that had ESOPs during calendar years 2014 through 2017, which is the latest year for which complete data were available. The report focuses on areas such as obligation amounts and contractor performance.

GAO used data from the Department of Labor’s Form 5500 Series reports, the Federal Procurement Data System-Next Generation, and the Contractor Performance Assessment Reporting System to analyze DOD’s contracting with companies that had ESOPs. GAO selected DOD contracts, including orders, during calendar years 2014–2017, with annual obligations greater than $150,000, which was the simplified acquisition threshold at that time. The simplified acquisition threshold is a dollar value under which contracting officials can use a streamlined acquisition approach.

For more information, contact William T. Woods at (202) 512-4841 or woodsw@gao.gov.