Military Contractor-Operated Stores' Contracts Are Unmanageable and Vulnerable to Abuse

Contractor-operated base stores, once envisioned as a practical and cost-effective means for obtaining vehicle repair parts and civil engineering supplies, are now plagued by pricing irregularities, contract abuses, and repeated allegations of fraud. GAO reviewed such contractor-operated stores to determine how well these contracts are controlled and whether they are subject to fraud and abuse. The review concentrated on evaluating Air Force contracting and management procedures developed to implement the contractor-operated store, reviewing audit reports and closed criminal investigation reports from the Air Force, and reviewing 10 out of 120 Air Force store contracts in operation.

Despite past concentrated efforts, the Air Force has been unable to develop a workable store contract for purchasing the thousands of low-cost, commercial items that its bases need daily. Further, the services continue to award complex, fixed-price store contracts containing many pricing uncertainties. The burden of administering these contracts has often been slighted in favor of relying on a contractor to price and deliver goods according to the contract, resulting in some contractors taking advantage of the uncertain contracts and disorganized management. Air Force bases have paid more for automobile parts than the lowest price specified in the contract and have purchased new parts when more economical, rebuilt parts should have been stocked. They have also contracted to pay excessive fixed prices for civil engineering supplies. These unsound buying practices and abuses were traceable to defects in the contracts and breakdowns in internal controls. Since 1977, the Air Force has made 41 criminal investigations of alleged store irregularities. These cases have primarily involved the misrepresentation of goods in order to increase prices and have usually involved a relatively small dollar amount. GAO believes that the contractor-operated store, as implemented, unnecessarily exposes the Government to potential purchasing fraud and abuse because it depends too heavily on the contractor to make the buying decisions. GAO also believes that some aspects of the store contracts are uncontrollable and will continue to result in the Government paying higher prices than is necessary.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: No director on record Team: No team on record Phone: No phone on record