Contract Management

The Defense Department (DOD) is increasing its use of commercially available products and services. In response to congressional concerns about the pricing of spare parts for military aircraft, GAO compared the purchasing and pricing practices of commercial passenger and freight airlines with those of DOD. Airlines use various practices to obtain spare parts at reasonable prices. These practices include analyzing prices, procuring competitively, using catalog prices, negotiating long-term agreements, buying new surplus or reconditioned parts, and asking for justifications of price increases. When faced with a sole-source supplier that demands a price that they believe is unreasonable, some airlines will consider re-engineering the part and establishing a second source. DOD policies call for using similar practices when buying commercial spare parts. Contracting officers often rely on competition to ensure reasonable prices. DOD often receives discounts on catalog prices from suppliers, and it has also begun to negotiate longer-term agreements that set prices. In sole-source situations, contracting personnel do some price analyses, but GAO's recent review of the analyses found that they could be very limited in scope. Less commonly, DOD will buy surplus parts or consider re-engineering a part.

GAO noted that: (1) airlines use a variety of practices to obtain spare parts at reasonable prices; (2) these practices include analyzing prices, procuring competitively, utilizing catalog prices (commonly discounted), negotiating long-term agreements, purchasing new surplus or reconditioned parts, and sometimes asking for justifications of price increases; (3) when faced with a sole-source supplier demanding a price that they believe is unreasonable, some airlines will consider re-engineering the part and establishing a second source; (4) DOD policies call for using similar practices when buying commercial spare parts; (5) contracting officers often rely on competition to ensure reasonable prices--about 42 percent of fiscal year 1998 spending on commercial spare parts for aircraft was awarded through full and open competition; (6) DOD frequently receives discounts on catalog prices from suppliers, including sole-source suppliers; (7) DOD has also begun to negotiate longer-term agreements that set prices; (8) in sole-source situations, contracting personnel perform some price analyses, but GAO's recent review of these analyses indicated they could be very limited in scope; and (9) less commonly, DOD will purchase surplus parts or consider re-engineering a part.