Acquisition Reform

DOD's Guidance on Using Section 845 Agreements Could be Improved Gao ID: NSIAD-00-33 April 7, 2000

To meet the national security challenges of the 21st century, the Pentagon is funding a vast array of research and development projects to exploit emerging technologies, produce start-of-the-art weapons systems, and improve the capabilities of existing weapons systems. Congress and the Defense Department (DOD) have raised concern that government procurement requirements inhibit the military's ability to take advantage of technological breakthroughs in the private sector and could boost the cost of goods and services that DOD acquires. Section 845 of the National Defense Authorization Act for Fiscal Year 1994 gives the Defense Advanced Research Projects Agency--the military's central research and development organization--the authority to enter into agreements for prototype projects using nonstandard contracting approaches, known as "other transactions," that are generally not subject to federal procurement laws and regulations. Congress expanded the use of Section 845 agreements to the military services and other defense agencies in 1996. This report discusses (1) the extent to which DOD has used Section 845 agreements, (2) the benefits reported from their use, (3) how DOD tailored these agreements to address issues normally governed by standard contract provisions, and (4) recent DOD efforts to provide additional guidance on their use.

GAO noted that: (1) DOD has awarded 97 Section 845 agreements as of October 1998; (2) these agreements were most frequently used to support studies of future weapon systems or to design and develop subsystems or components; (3) DOD's financial commitment was concentrated on 10 agreements that accounted for about $2.1 billion, or more than 80 percent, of the $2.6 billion awarded under Section 845 agreements; (4) this financial commitment constituted a relatively small percentage of DOD's overall research and development spending; (5 in a February 1999 report to Congress, DOD cited numerous benefits from using Section 845 authority; (6) these benefits included attracting firms that typically did not contract with DOD, enabling use of commercial products or processes, providing more flexibility to negotiate agreement terms and conditions, and reducing program costs; (7) however, the report provided only limited data to assess the agreements' usefulness; (8) however, the terms and conditions found in Section 845 agreements provided contractors more flexibility in the business processes and practices they employed than typically provided by standard contract provisions; (9) among Section 845 agreements, GAO found little variation in the approaches to financial management, subcontractor management, and termination and disputes processes; (10) in two other areas, DOD officials made greater use of the standard contract clauses in agreements awarded to traditional defense contractors, while using tailored clauses in agreements with commercial firms; (11) the use of a model agreement contributed to this uniformity, but DOD officials often did not address why they selected either the standard contract provision or a tailored approach; (12) DOD has recently proposed new guidance to assist its personnel in determining when to use a Section 845 agreement and how to structure key provisions; (13) the guidance also calls for additional information that would provide senior acquisition executives better insight on selected terms and conditions for agreements involving major weapon systems; (14) it requires that DOD personnel establish metrics to evaluate the benefits from using Section 845 agreements, but does not provide examples or guidelines to help them develop metrics that are measurable and directly related to the agreement's use; and (15) it is not clear that establishing metrics without providing guidelines will lead to appropriate assessments of the benefits of using Section 845 agreements.


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