Defense Trade

The Pentagon uses contracting data to make decisions on defense procurement and defense industrial base issues. To ensure that the Defense Department (DOD) has sufficient contract data, Congress passed legislation in 1993 requiring advance notification of contract performance outside the United States. Since 1982, DOD has required prime contractors and first-tier subcontractors to report subcontracts placed overseas that meet certain thresholds. In response to congressional concerns about trends in foreign sourcing and whether contractors are reporting their foreign subcontracts, this report examines DOD's foreign procurement data. GAO reviews DOD's reported trends on contracts performed outside the United States. GAO also evaluates DOD's use of foreign subcontract information and the completeness and accuracy of how DOD collects and manages its data.

GAO noted that: (1) for prime contracts, DOD purchases the majority of its defense equipment and services from contractors operating in the United States; (2) though subject to annual fluctuations, DOD's prime contract awards outside the United States remained about 5.5 percent of total DOD contract awards from fiscal year (FY) 1987 to 1997; (3) over this period, the value of DOD prime contracts performed both in and out of the United States declined; (4) prime contracts performed outside the United States tended to be concentrated in certain countries such as Germany, Italy, Japan, South Korea, and the United Kingdom and in certain sectors such as services, fuel, and construction; (5) at the subcontract level, the value of DOD's reported foreign subcontract awards ranged from almost $2 billion in FY 1990 to almost $1.1 billion in FY 1997, but this data has its limitations; (6) the Office of Foreign Contracting does not consider the data needs of industrial base specialists in its efforts to collect foreign subcontract data; (7) industrial base specialists are often unaware that data of this nature are available; (8) furthermore, weaknesses in the Office of Foreign Contracting's data collection and management processes undermine DOD's ability to use the foreign subcontract data for defense trade and industrial base decision-making; (9) the Office has no mechanism for ensuring that contractors provide required foreign subcontract information, which contributes to the underrepresentation of foreign subcontract activity; (10) GAO's review of selected subcontracts disclosed instances in which foreign subcontracts were not reported to the Office because contractors were unaware of the reporting requirement or misunderstood the criteria for reporting a foreign subcontract; and (11) the Office's poor database management also compromises the credibility and usefulness of its foreign subcontract data.

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.

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