Defense Contracts
Contracting for Military Food Services under the Randolph-Sheppard and Javits-Wagner-O'Day Programs Gao ID: GAO-08-3 October 30, 2007Randolph-Sheppard and Javits-Wagner-O'Day (JWOD) are two federal programs that provide employment for persons with disabilities through federal contracts. In 2006, participants in the two programs had contracts with the Department of Defense (DOD) worth $465 million annually to provide dining services at military dining facilities. The 2007 National Defense Authorization Act directed GAO to study the two programs. This report examines (1) differences in how the Randolph-Sheppard and JWOD programs provide food services for DOD and (2) differences in how contracts are awarded, prices are set, and program beneficiaries (i.e. persons with disabilities) are compensated. GAO interviewed program officials, conducted a survey of states with Randolph-Sheppard programs, and reviewed eight Randolph-Sheppard and six JWOD contracts.
The Randolph-Sheppard and JWOD programs use different procedures to provide food services to DOD. In Randolph-Sheppard, states act as prime contractors, and train and license blind individuals to act as managers of dining facilities. In most cases, the blind vendor relies on a food service company--known as a teaming partner--to assist in operations, provide expertise, and help with start-up costs. About half of the blind vendors are required to employ other persons with disabilities. JWOD is administered by an independent federal agency called the Committee for Purchase from People Who are Blind or Severely Disabled (Committee for Purchase). The Committee for Purchase engages a central nonprofit agency to match DOD's needs with services provided by local nonprofit agencies. Most of the individuals working for these local nonprofit agencies are employed in less skilled jobs such as serving food or washing dishes. The Randolph-Sheppard and JWOD programs differ significantly in the way DOD dining contracts are awarded, how prices are set, and how participants are compensated. For Randolph-Sheppard, DOD awards contracts to the states either through direct negotiations or competition with other food service companies. In either case, DOD and the states negotiate the prices based on factors such as historical prices and independent government estimates. Under JWOD, competition is not a factor because DOD is required to purchase services it needs from a list maintained by the Committee for Purchase, which establishes fair market prices for these contracts. In terms of compensation, Randolph-Sheppard blind vendors generally received a percentage of contract profits, averaging about $276,500 per vendor annually. JWOD beneficiaries are generally paid hourly wages according to rules set by the federal government. For the three sites we visited, we estimate that beneficiaries received an average wage of $13.15 per hour, including fringe benefits. Given the differences in the roles of the beneficiaries of these two programs, comparisons of their compensation have limited value.
GAO-08-3, Defense Contracts: Contracting for Military Food Services under the Randolph-Sheppard and Javits-Wagner-O'Day Programs
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
October 2007:
Defense Contracts:
Contracting for Military Food Services under the Randolph-Sheppard and
Javits-Wagner-O'Day Programs:
GAO-08-3:
GAO Highlights:
Highlights of GAO-08-3, a report to congressional committees.
Why GAO Did This Study:
Randolph-Sheppard and Javits-Wagner-O‘Day (JWOD) are two federal
programs that provide employment for persons with disabilities through
federal contracts. In 2006, participants in the two programs had
contracts with the Department of Defense (DOD) worth $465 million
annually to provide dining services at military dining facilities. The
2007 National Defense Authorization Act directed GAO to study the two
programs. This report examines (1) differences in how the Randolph-
Sheppard and JWOD programs provide food services for DOD and (2)
differences in how contracts are awarded, prices are set, and program
beneficiaries (i.e. persons with disabilities) are compensated. GAO
interviewed program officials, conducted a survey of states with
Randolph-Sheppard programs, and reviewed eight Randolph-Sheppard and
six JWOD contracts.
What GAO Found:
The Randolph-Sheppard and JWOD programs use different procedures to
provide food services to DOD. In Randolph-Sheppard, states act as prime
contractors, and train and license blind individuals to act as managers
of dining facilities. In most cases, the blind vendor relies on a food
service company”known as a teaming partner”to assist in operations,
provide expertise, and help with start-up costs. About half of the
blind vendors are required to employ other persons with disabilities.
JWOD is administered by an independent federal agency called the
Committee for Purchase from People Who are Blind or Severely Disabled
(Committee for Purchase). The Committee for Purchase engages a central
nonprofit agency to match DOD‘s needs with services provided by local
nonprofit agencies. Most of the individuals working for these local
nonprofit agencies are employed in less skilled jobs such as serving
food or washing dishes.
The Randolph-Sheppard and JWOD programs differ significantly in the way
DOD dining contracts are awarded, how prices are set, and how
participants are compensated. For Randolph-Sheppard, DOD awards
contracts to the states either through direct negotiations or
competition with other food service companies. In either case, DOD and
the states negotiate the prices based on factors such as historical
prices and independent government estimates. Under JWOD, competition is
not a factor because DOD is required to purchase services it needs from
a list maintained by the Committee for Purchase, which establishes fair
market prices for these contracts. In terms of compensation, Randolph-
Sheppard blind vendors generally received a percentage of contract
profits, averaging about $276,500 per vendor annually. JWOD
beneficiaries are generally paid hourly wages according to rules set by
the federal government. For the three sites we visited, we estimate
that beneficiaries received an average wage of $13.15 per hour,
including fringe benefits. Given the differences in the roles of the
beneficiaries of these two programs, comparisons of their compensation
have limited value.
Table: Comparison of Randolph-Sheppard and JWOD Program Procedures:
Administration;
Randolph-Sheppard: Department of Education is responsible for
oversight, but program is operated at the state level by a state
licensing agency under the auspices of the state vocational
rehabilitation agency;
JWOD: Administered by the Committee for Purchase through NISH, its
central nonprofit agency.
Who provides service;
Randolph Sheppard: Blind vendor, usually with the assistance of a
teaming partner;
JWOD: Local nonprofit agency using blind or severely disabled workers.
Dining contracts (as of 10/06);
Randolph-Sheppard: 39 contracts worth about $253 million per year;
JWOD: 53 contracts worth about $212 million per year.
Dining contracts (as of 10/06);
Randolph-Sheppard: Our survey indicated that 20 of 39 vendors have such
hiring requirements. On average, about 18 percent of workers are
disabled;
JWOD: The Committee for Purchase requires that participating nonprofit
agencies perform at least 75 percent of direct labor hours with persons
with disabilities.
Source: GAO analysis.
[End of table]
What GAO Recommends:
GAO is not making recommendations in this report. In commenting on a
draft of this report, DOD and the Department of Education provided
technical clarifications, which were incorporated as appropriate.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.GAO-08-3]. For more information, contact William
Woods, (202) 512-8214, woodsw@gao.gov.
[End of section]
Contents:
Letter:
Results In Brief:
Background:
Randolph-Sheppard Places Blind Individuals in Managerial Roles, while
JWOD Employs Persons with Disabilities in Less Skilled Jobs:
Programs Differ Regarding How Contracts Are Awarded and Priced, and How
Program Beneficiaries Are Compensated:
Concluding Observations:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: Comments from the Department of Education:
Appendix IV: GAO Contacts and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Comparison of Randolph-Sheppard and JWOD Program Procedures:
Table 2: Randolph-Sheppard Contracts Reviewed with Contract Award
Information:
Table 3: JWOD Contracts Reviewed with Contract Award Information:
Table 4: Estimated Average Hourly and Annual Wages Earned at Three JWOD
Sites Visited:
Figures:
Figure 1: Location of Randolph-Sheppard and JWOD Military Dining
Facilities as of October 17, 2006:
Figure 2: Randolph-Sheppard Program Overview:
Figure 3: JWOD Program Overview:
Figure 4: Number and Average of Randolph-Sheppard Blind Vendors'
Compensation within Designated Dollar Ranges (rounded to nearest 100
dollars):
Abbreviations:
DCAA: Defense Contract Audit Agency:
DOD: Department of Defense:
FAR: Federal Acquisition Regulation:
JWOD: Javits-Wagner-O'Day:
SCA: Service Contract Act:
United States Government Accountability Office:
Washington, DC 20548:
October 30, 2007:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Duncan Hunter:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Randolph-Sheppard Vending Facility program (Randolph-Sheppard) and
Javits-Wagner-O'Day program (JWOD)[Footnote 1] are two federal programs
that provide employment for individuals with disabilities using federal
contracts. In 2006, participants from both programs had food service
contracts with the Department of Defense (DOD) worth about $465 million
annually to manage and/or support the operation of military dining
facilities. Historically, though both programs provided employment for
disabled individuals, they pursued different types of federal
contracts. Randolph-Sheppard, which is regulated by the Department of
Education (Education) and implemented by the states through state
licensing agencies, arranged for blind vendors to manage snack bars and
to service vending machines on federal properties, while the JWOD
program provided a variety of goods and services to the federal
government, including food-related services. However, changes over time
have led to competition between the two programs. In 1974, amendments
to the Randolph-Sheppard Act expanded the scope of the program to
include the operation of cafeterias on federal property.[Footnote 2] In
2001 and 2003, two court cases determined that cafeterias included
military dining facilities, which ultimately led to competition between
the Randolph-Sheppard and JWOD programs for contracts at DOD dining
facilities.
The National Defense Authorization Act for Fiscal Year 2007 addressed
this competition between the two programs by reserving certain
contracts for each.[Footnote 3] In an effort to obtain additional
insight into how the two programs operate with respect to DOD food
service contracts, the act also required us to examine a sample of
Randolph-Sheppard and JWOD food services contracts that were in effect
as of October 17, 2006. More specifically, we were required to examine
(1) differences in operational procedures for how the Randolph-Sheppard
and JWOD programs provide food services for DOD, and (2) differences in
how the contracts are awarded, how prices are determined, and how
program beneficiaries (i.e. persons with disabilities) are compensated.
To address these objectives, we reviewed pertinent documents and
interviewed officials from DOD, Education, an independent federal
agency called the Committee for Purchase from People Who are Blind or
Severely Disabled (Committee for Purchase); and organizations
representing both the Randolph-Sheppard and JWOD programs. We reviewed
a sample of 14 contracts--8 Randolph-Sheppard and 6 JWOD contracts. We
determined that conducting a representative sample was not feasible
based on our preliminary work, which indicated wide variations in how
the two programs are structured and in how the Randolph-Sheppard
program is administered from state to state. For these reasons, we
selected a number of contracts representing both programs and each of
the military services, as well as contracts that vary in terms of
dollar value, size of military facilities, and geographic location. As
the sample was not representative, results of our review cannot be
projected to the entire universe of contracts. To gather information on
the responsibilities and compensation of blind vendors, and their
relationships with state licensing agencies, we conducted a survey of
the 24 states that have Randolph-Sheppard dining facility contracts
with DOD. All 24 states responded to our survey and provided
information for 39 military dining facilities contracts. In addition,
we visited military installations for 5 of the 14 contracts in our
sample to conduct file reviews, observe dining facility operations, and
conduct in-depth interviews with pertinent officials and staff. We
selected site visits based on contracts administered under either the
Randolph-Sheppard or JWOD program, contract size, geographic
dispersion, and DOD military service. In terms of beneficiary
compensation, we limited our review to Randolph-Sheppard blind vendors
and JWOD workers. Appendix I contains more details about our scope and
methodology. We conducted our work between November 2006 and August
2007 in accordance with generally accepted government auditing
standards.
Results in Brief:
In providing DOD with food services, the Randolph-Sheppard and JWOD
programs use different operational procedures to create employment
opportunities for individuals with disabilities. The Randolph-Sheppard
program uses state licensing agencies to train blind vendors to serve
as managers of DOD dining facilities. The licensing agencies serve as
prime contractors and place the blind vendor with an appropriate dining
facility. In a majority of contracts in our survey, the licensing
agencies utilize commercial food service companies--referred to as
"teaming partners"--who work with blind vendors to provide expertise
and financial resources necessary to operate the military dining
facility. Based on our survey results, about half of the blind vendors
are required to employ at least some blind persons or individuals with
other disabilities, and on average, 18 percent of their employees have
a disability. Under the JWOD program, an independent federal agency--
the Committee for Purchase--works through a central nonprofit agency to
match DOD's needs with services provided by local nonprofit agencies,
such as branches of Goodwill Industries. Most of the disabled
individuals working for these local nonprofit agencies are employed in
less skilled jobs such as cleaning tables, washing pots and pans, or
serving food.
There are significant differences between the Randolph-Sheppard and
JWOD programs in terms of how contracts are awarded and priced, and how
program beneficiaries are compensated. Under the Randolph-Sheppard
program, the state licensing agencies are awarded food service
contracts either by direct negotiations with DOD or through competition
with other food service companies. The prices are negotiated between
the state licensing agency and DOD based on various factors, including
historical prices, independent government estimates, the proposal
submitted by the state licensing agency, or the prices offered by other
competitors. Under the JWOD program, competition is not a factor
because DOD is required by regulation to purchase food services from a
list maintained by the Committee for Purchase. Contracts are awarded at
fair market prices established by the Committee for Purchase. The two
programs also differ in terms of how program beneficiaries are
compensated. The Randolph-Sheppard blind vendors generally receive a
percentage of the profits from the dining facility contracts, while
JWOD beneficiaries receive hourly wages and benefits stipulated by
federal law. Randolph-Sheppard vendors each received, on average,
pretax compensation of about $276,500 annually, while JWOD
beneficiaries at the three sites we visited earned, on average, wages
of $13.15 per hour including fringe benefits. Any direct comparison of
the Randolph-Sheppard and JWOD beneficiaries' compensation is difficult
because Randolph-Sheppard blind vendors have managerial positions
whereas JWOD disabled workers generally have less skilled positions.
The Committee for Purchase, DOD, and Education reviewed a draft of this
report. The Committee for Purchase had no comments. DOD concurred with
the draft and also provided technical comments for our consideration
which were incorporated as appropriate. Education provided
clarifications and suggestions in a number of areas that were
incorporated as appropriate.
Background:
The Randolph-Sheppard Act created a vending facility program in 1936 to
provide blind individuals with more job opportunities and to encourage
their self-support.[Footnote 4] The program trains and employs blind
individuals to operate vending facilities on federal property. While
Randolph-Sheppard is under the authority of the Department of
Education, the states participating in this program are primarily
responsible for program operations. State licensing agencies, under the
auspices of the state vocational rehabilitation programs, operate the
programs in each state. Federal law gives blind vendors under the
program a priority to operate cafeterias on federal property.[Footnote
5] Current DOD guidance implementing this priority directs that a state
licensing agency be awarded a contract if its contract proposal is in
the competitive range. In fiscal year 2006, all of the activities of
the Randolph-Sheppard program generated $692.2 million in total gross
income and had a total of 2,575 vendors operating in every state except
for Wyoming.
In 1938 the Wagner-O'Day Act established a program designed to increase
employment opportunities for persons who are blind so they could
manufacture and sell certain goods to the federal government. In 1971,
the Javits-Wagner-O'Day Act amended the program to include people with
other severe disabilities and allowed the program to provide services
as well as goods.[Footnote 6] The JWOD Act established the Committee
for Purchase, which administers the program. The Committee for Purchase
is required by law to designate one or more national nonprofit agencies
to facilitate the distribution of federal contracts among qualified
local nonprofit agencies. The designated national agencies are the
National Industries for the Blind and NISH,[Footnote 7] which represent
local nonprofit agencies employing individuals who are blind or have
severe disabilities. These designated national agencies charge fees for
the services provided to local nonprofit agencies. Effective on October
1, 2006, the maximum fee is 3.83 percent of the revenue of the contract
for the National Industries for the Blind, and 3.75 percent for NISH.
The purpose of these fees is to provide operating funds for these two
agencies. In fiscal year 2006, more than 600 JWOD nonprofit agencies
provided the federal government with goods and services worth about
$2.3 billion. The JWOD program provided employment for about 48,000
people who are blind or have severe disabilities.
Military dining contracts under the Randolph-Sheppard and JWOD programs
provide varying levels of service, ranging from support services to
full-food services. Support services include activities such as food
preparation and food serving. Full-food service contracts provide for
the complete operation of facilities, including day-to-day decision
making for the operation of the facility. As of October 17, 2006, DOD
had 39 Randolph-Sheppard contracts in 24 different states. These
contracts had an annual value of approximately $253 million and were
all for full-food services. At the same time, DOD had 53 JWOD contracts
valued at $212 million annually.[Footnote 8] Of these, 39 contracts
were for support services and 15 were for full-food service.[Footnote
9] Figure 1 shows the distribution of Randolph-Sheppard and JWOD
contracts with DOD dining facilities across the country.
Figure 1: Location of Randolph-Sheppard and JWOD Military Dining
Facilities as of October 17, 2006:
This figure is a map of the location of Randolph-Sheppard and JWOD
Military Dining facilities as of October, 17, 2006.
[See PDF for image]
Source: GAO presentation of DOD information and GAO survey of state
licensing agencies.
[End of figure]
In 1974, amendments to the Randolph-Sheppard Act expanded the scope of
the program to include cafeterias on federal property. According to a
DOD official, when DOD began turning increasingly to private
contractors rather than using its own military staff to fulfill food
service functions in the 1990s, state licensing agencies under the
Randolph-Sheppard program began to compete for the same full-food
services contracts for which JWOD traditionally qualified. This
development led to litigation, brought by NISH, over whether the
Randolph-Sheppard Act applied to DOD dining facilities. Two decisions
by federal appeals courts held that the Randolph-Sheppard Act applied
because the term "cafeteria" included DOD dining facilities.[Footnote
10] The courts also decided that if both programs pursued the full-food
service contracts for DOD dining facilities, Randolph-Sheppard had
priority.
Congress enacted section 848 of the National Defense Authorization Act
for Fiscal Year 2006 requiring the key players involved in each program
to issue a joint policy statement about how DOD food services contracts
were to be allocated between the two programs. [Footnote 11] In August
2006, DOD, Education, and the Committee for Purchase issued a policy
statement that established certain guidelines, including the following:
* The Randolph-Sheppard program will not seek contracts for dining
support services that are on the JWOD procurement list, and Randolph-
Sheppard will not seek contracts for operation of a dining facility if
the work is currently being performed under the JWOD program; JWOD will
not pursue prime contracts for operation of dining facilities at
locations where an existing contract was awarded under the Randolph-
Sheppard program (commonly known as the "no-poaching" provision).
* For contracts not covered under the no-poaching provision, the
Randolph-Sheppard program may compete for contracts from DOD for full-
food services; and the JWOD program will receive contracts for support
services.
* If the needed support services are on the JWOD procurement list, the
Randolph-Sheppard contractor is obligated to subcontract for those
services from JWOD.
* In affording a priority to a state licensing agency when contracts
are competed and the Randolph-Sheppard Act applies, the price of the
state licensing agency's offer will be considered to be fair and
reasonable if it does not exceed the best value offer from other
competitors by more than 5 percent or $1 million, whichever is less.
Congress enacted the no-poaching provision in section 856 of the
National Defense Authorization Act for Fiscal Year 2007.[Footnote 12] A
recent GAO bid protest decision determined that adherence to the other
provisions of the policy statement was not mandatory until DOD and the
Department of Education change their existing regulations.[Footnote 13]
As of July 2007, neither agency had completed updating its regulations.
Randolph-Sheppard Places Blind Individuals in Managerial Roles, while
JWOD Employs Persons with Disabilities in Less Skilled Jobs:
The Randolph Sheppard and JWOD programs utilize different operating
procedures to provide dining services to DOD. For the Randolph-Sheppard
program, state licensing agencies act as prime contractors, and train
and license blind vendors to operate dining facilities. For the JWOD
program, the Committee for Purchase utilizes NISH to act as a central
nonprofit agency and match DOD needs for dining services with local
nonprofit agencies able to provide the service. JWOD employees
generally fill less skilled jobs such as cleaning dining facilities or
serving food.
Randolph-Sheppard Relies on State Licensing Agencies to Place Blind
Vendors as Managers of Dining Facilities:
Education is responsible for overseeing the Randolph-Sheppard program,
but relies on state licensing agencies to place blind vendors as dining
facility managers. The Department of Education certifies state
licensing agencies and is responsible for ensuring that their
procedures are consistent with Randolph-Sheppard regulations.[Footnote
14] According to our survey, state licensing agencies act as prime
contractors on Randolph-Sheppard contracts, meaning that they hold the
actual contract with DOD. The state licensing agencies are responsible
for training blind vendors to serve as dining facility managers and
placing them in facilities as new contracting opportunities become
available. According to our survey, the state issues the vendor a
license to operate the facility upon the successful completion of the
training program. Furthermore, many states said this process often
includes both classroom training and on-the-job training at a facility.
Figure 2 depicts how the Randolph-Sheppard program is generally
structured.
Figure 2: Randolph-Sheppard Program Overview:
This figure is a chart showing an overview of the Randolph-Sheppard
program.
[See PDF for image]
Source: Randolph-Sheppard Program (data); GAO (analysis and
presentation).
[End of figure]
Responding to our survey, state licensing agencies reported that all
blind vendors have some level of managerial responsibility for each of
the 39 Randolph-Sheppard contracts. Specific responsibilities may
include managing personnel, coordinating with military officials,
budgeting and accounting, and managing inventory. An official
representing state licensing agencies likened the vendor's role to that
of an executive and said the vendor is responsible for meeting the
needs of his or her military customer. At one facility we visited, the
vendor was responsible for general operations, ensuring the quality of
food, and helped develop new menu selections. Of the 37 contracts where
the state licensing agencies provided information regarding whether the
blind vendor visits his or her facility, all stated that their blind
vendors visit their facilities, and in most cases are on site every
day. Additionally, most state licensing agencies told us that they have
an agreement with the blind vendor that lays out the state licensing
agency's expectations of the blind vendor and defines the vendor's job
responsibilities.
Most state licensing agencies rely on private food service companies to
provide the expertise to help operate dining facilities. According to
our survey, 33 of the 39 Randolph-Sheppard contracts relied on a food
service company--known as a teaming partner--to provide assistance in
operating dining facilities. The survey showed that in many cases, the
blind vendor and teaming partner form a joint venture company to
operate the facility with the vendor as the head of the company. The
teaming partner can provide technical expertise, ongoing training, and
often extends the vendor a line of credit and insurance for the
operation of the facility. Officials representing state licensing
agencies told us that states are often unable to provide these
resources, and for large contracts these start-up costs may be beyond
the means of the blind vendor and the state licensing agency. According
to our survey, the teaming partner may assist the state in negotiating
and administering the contract with DOD. Additionally, state licensing
agencies told us that they often enter into a teaming agreement that
defines the responsibilities of the teaming partner.
For 6 of the 39 contracts, the state licensing agencies reported that
the blind vendor operates the dining facility without a teaming
partner. We visited one of these locations and learned that the vendor
has his own business that he uses to operate the facility. This
particular vendor had participated in the Randolph-Sheppard program for
almost 20 years and operated various other dining facilities.
In our survey, state licensing agencies reported that vendors in about
half (20 of 39) of the contracts are required to employ individuals who
are blind or have other disabilities, while others have self-imposed
goals.[Footnote 15] In other cases there may be no formal hiring
requirements, but the state licensing agency encourages the blind
vendor to hire individuals with disabilities. Based on survey responses
we received for 30 contracts, we calculated that the percentage of
persons with disabilities working at Randolph-Sheppard dining
facilities ranged from 3 percent to 72 percent,[Footnote 16] with an
average of 18 percent.[Footnote 17]
The Committee for Purchase Works with NISH and Local Nonprofit Agencies
to Employ Individuals with Disabilities in DOD Dining Facilities:
The Committee for Purchase works with NISH to match DOD's need for
services with nonprofit agencies able to provide food services. For
military food service contracts, NISH acts as a central nonprofit
agency and administers the program on behalf of the Committee for
Purchase. In this role, NISH works with DOD to determine if it has any
new requirements for dining services. When it identifies a need, NISH
will search for a nonprofit agency that is able to perform the required
service. NISH then facilitates negotiations between DOD and the
nonprofit agency, and submits a proposal to the Committee for Purchase
requesting that the specific service be added to the JWOD procurement
list. If the Committee for Purchase approves the addition, DOD is
required by the Federal Acquisition Regulation (FAR) to obtain the food
service from the entity on the procurement list. [Footnote 18] In some
instances, a private food service company is awarded a military dining
facility contract and then subcontracts with a JWOD nonprofit agency to
provide either full or support food services. For example, the Marine
Corps awarded two regional contracts to Sodexho--a large food service
company--to operate its dining facilities on the East and West Coasts.
Sodexho is required by its contracts to utilize JWOD nonprofit agencies
and uses these nonprofit agencies to provide food services and/or
support services at selected Marine Corps bases. Figure 3 depicts the
JWOD program structure.
Figure 3: JWOD Program Overview:
This figure is a chart showing an overview of the JWOD program.
[See PDF for image]
Source: JWOD Program (data); GAO (analysis and presentation).
[A] Occasionally, a local nonprofit agency will use a commercial food
service company for baking and cooking services.
[End of figure]
Most JWOD employees at military dining facilities perform less skilled
jobs as opposed to having managerial roles. At the facilities we
visited, we observed that employees with disabilities (both mental and
physical) performed tasks such as mopping floors, serving food, and
cleaning pots and pans after meals. Officials from NISH said this is
generally true at JWOD dining facilities, including facilities where
the nonprofit agency provides full-food service. Additionally, we
observed--and NISH confirmed--that most supervisors are persons without
disabilities. At one facility we visited, for example, the nonprofit
supervisor oversees employees with disabilities who are responsible for
keeping the facility clean and serving food. The Committee for Purchase
requires that agencies associated with NISH perform at least 75 percent
of their direct labor hours with people who have severe disabilities.
For nonprofit agencies with multiple JWOD contracts, the 75 percent
direct labor requirement is based on the total for all of these
contracts. Therefore one contract may be less than 75 percent but
another contract must be greater than 75 percent in order for the total
of these contracts to meet the 75 percent requirement. NISH is
responsible for ensuring that nonprofit agencies comply with this
requirement, and we previously reported that it performs site visits to
all local nonprofit agencies every three years, in order to ensure
compliance with relevant JWOD regulations.[Footnote 19] At the three
JWOD facilities we visited, officials reported that the actual
percentage of disabled individuals employed was 80 percent or higher.
Table 1 provides a comparison of the Randolph-Sheppard and JWOD
programs' operating procedures.
Table 1: Comparison of Randolph-Sheppard and JWOD Program Procedures:
Administration;
Randolph-Sheppard: Education is responsible for oversight, but Randolph-
Sheppard is operated at the state level by a state licensing agency
under the auspices of the state vocational rehabilitation agency;
JWOD: Administered by the Committee for Purchase through NISH, its
central nonprofit agency.
Who provides service;
Randolph-Sheppard: Blind vendor, usually with the assistance of a
teaming partner;
JWOD: Local nonprofit agency using blind or severely disabled workers.
Dining contracts (as of 10/06);
Randolph-Sheppard: 39 contracts worth about $253 million per year;
JWOD: 53 contracts worth about $212 million per year.
Requirements to employ persons with disabilities;
Randolph-Sheppard: According to responses to our survey, some
requirement exists for 20 of 39 blind vendors. Other vendors may hire
disabled individuals even without a requirement. On average, about 18
percent of workers are disabled;
JWOD: The Committee for Purchase requires that participating nonprofit
agencies perform at least 75 percent of direct labor hours with persons
with disabilities.
Source: GAO analysis.
[End of table]
Programs Differ Regarding How Contracts Are Awarded and Priced, and How
Program Beneficiaries Are Compensated:
The Randolph-Sheppard and JWOD programs have significant differences in
terms of how contracts are awarded and priced, and in the compensation
provided to beneficiaries who are blind or have other disabilities.
Under the Randolph-Sheppard program, federal law provides for priority
for blind vendors and state licensing agencies in the operation of a
cafeteria. This priority may come into play when contracts are awarded
either by direct noncompetitive negotiations or through competition
with other food service companies. Regardless of how the contract is
awarded, the prices are negotiated between the state licensing agency
and DOD. Under the JWOD program, competition is not a factor because
DOD is required to purchase food services from a list maintained by the
Committee for Purchase. Contracts are awarded at fair market prices
established by the Committee for Purchase. The two programs also differ
in terms of how program beneficiaries are compensated. Under the
Randolph-Sheppard program, blind vendors generally receive a share of
the profits, while JWOD beneficiaries receive hourly wages and fringe
benefits under federal law or any applicable collective bargaining
agreement. Randolph-Sheppard blind vendors received, on the average,
pretax compensation of about $276,500 annually, while JWOD workers at
the three sites visited earned on average $13.15 per hour, including
fringe benefits.
Significant Differences Exist in How Randolph-Sheppard and JWOD
Contracts Are Awarded and Priced:
Although contracts for food services awarded under the Randolph-
Sheppard and JWOD programs use the terms and conditions generally
required for contracts by the FAR,[Footnote 20] the procedures for
awarding and pricing contracts under the two programs differ
considerably. Under the Randolph-Sheppard program, Education's
regulations provide for giving priority to blind vendors in the
operation of cafeterias on federal property, provided that the costs
are reasonable and the quality of the food is comparable to that
currently provided. The regulations provide for two procedures to
implement this priority. First, federal agencies, such as the military
departments, may engage in direct, noncompetitive negotiations[Footnote
21] with a state licensing agency. Of the eight Randolph-Sheppard
contracts we reviewed in detail, six had been awarded through direct
negotiations with the state licensing agency. In most of the eight
cases, the contract was a follow-on to an expiring food service
contract. The second award procedure involves the issuance of a
competitive solicitation inviting proposals from all potential food
service providers, including the relevant state licensing agency. The
solicitation will specify the criteria for evaluating proposals, such
as management capability, past performance, and price, and DOD will use
these criteria to evaluate the proposals received. When the competitive
process is used, DOD policy provides for selecting the state licensing
agency for award if its proposal is in the "competitive
range."[Footnote 22] Of the eight Randolph-Sheppard contracts we
reviewed, only two involved a solicitation open to other food service
providers, and there was no case in which more than one acceptable
proposal was received such that DOD was required to determine a
competitive range.[Footnote 23]
The prices of contracts under the Randolph-Sheppard program are
negotiated between DOD and the state licensing agency, regardless of
whether DOD uses direct negotiations or seeks competitive proposals.
Negotiations in either case typically begin with a pricing proposal
submitted by the state licensing agency, and will then involve a
comparison of the proposed price with the prices in previous contracts,
an independent government estimate, or the prices offered by other
competitors, if any. In some cases, DOD will seek the assistance of the
Defense Contract Audit Agency (DCAA) in assessing various cost aspects
of a proposal. All of the Randolph-Sheppard contracts we reviewed were
generally firm, fixed price. Some had individual line items that
provided for reimbursing the food service provider for certain costs
incurred, such as equipment maintenance or replacing items. In most
cases, the contract was for a base year, and provided for annual
options (usually four) that may be exercised at the discretion of DOD.
Of the 39 Randolph-Sheppard contracts within the scope of our review,
the average price for the current year of the contract was about $6.5
million. Table 2 shows the 8 Randolph-Sheppard contracts in our sample
with selected contract information.
Table 2: Randolph-Sheppard Contracts Reviewed with Contract Award
Information:
Military base: Maxwell Air Force Base, AL;
Military service: Air Force;
Acquisition method: Competitive solicitation. Six proposals received
but only the state licensing agency's was acceptable;
Base period award amount[A]: $3,793,197;
Method used to determine fair and reasonable price: Government estimate
based on historic data.
Military base: Fort Carson, CO[B];
Military service: Army;
Acquisition method: Direct negotiation;
Base period award amount[A]: $5,684,038;
Method used to determine fair and reasonable price: Independent
government estimate.
Military base: Aberdeen Proving Ground, MD;
Military service: Army;
Acquisition method: Competitive solicitation issued. Only state
licensing agency competed;
Base period award amount[A]: $4,889,495;
Method used to determine fair and reasonable price: Proposal reviewed
in consultation with DCAA.
Military base: Meridian Naval Air Station, MS;
Military service: Navy;
Acquisition method: Direct negotiation;
Base period award amount[A]: $592,028;
Method used to determine fair and reasonable price: Data not provided.
Military base: Fort Monmouth, NJ;
Military service: Army;
Acquisition method: Direct negotiation;
Base period award amount[A]: $1,310,678[C];
Method used to determine fair and reasonable price: Independent
government estimate.
Military base: Kirtland Air Force Base, NM;
Military service: Air Force;
Acquisition method: Direct negotiation;
Base period award amount[A]: $1,821,383;
Method used to determine fair and reasonable price: Independent
government estimate.
Military base: Fallon Naval Air Station, NV;
Military service: Navy;
Acquisition method: Direct negotiation;
Base period award amount[A]: $1,178,214;
Method used to determine fair and reasonable price: Data not provided.
Military base: Fort Lee, VA[B];
Military service: Army;
Acquisition method: Direct negotiation;
Base period award amount[A]: $9,530,996;
Method used to determine fair and reasonable price: Independent
government estimate.
Source: GAO analysis of selected Randolph-Sheppard contracts:
[A] This amount reflects the contracts' base period award amounts,
which in some cases was less than 1 full year.
[B] For two contracts in our sample, at Fort Lee and Fort Carson, the
Army awarded the full-food service contract to the state licensing
agency, but stipulated in the contract that the state licensing agency
had to subcontract a portion of the work to a JWOD entity that had
previously been performing the work.
[C] This number represents the first option year of the contract
because the base award amount reflected only a 2-week transition
period.
[End of table]
Under Part 8 of the FAR, the JWOD program is a mandatory source of
supply, requiring DOD to award contracts to the listed nonprofit entity
at fair market prices established by the Committee for
Purchase.[Footnote 24] There is no further competition. Table 3 shows
the 6 JWOD contracts in our sample with selected contract information.
Table 3: JWOD Contracts Reviewed with Contract Award Information:
Military base: Vandenberg Air Force Base, CA;
Military service: Air Force;
Base period award amount[A]: $ 3,517,014.
Military base: Naval Training Center Great Lakes, IL;
Military service: Navy;
Base period award amount[A]: $45,808,772[B].
Military base: Holloman Air Force Base, NM;
Military service: Air Force;
Base period award amount[A]: $ 1,218,769.
Military base: Mid Atlantic Regional Bases (Norfolk, Yorktown, Little
Creek, Oceana, and Dam Neck);
Military service: Navy;
Base period award amount[A]: $ 8,460,812.
Military base: Marine Corps Western Regional Bases[C];
Military service: Marine Corps;
Base period award amount[A]: $53,825,936[D].
Military base: Marine Corps Eastern Regional Bases[C];
Military service: Marine Corps;
Base period award amount[A]: $53,737,662[ D].
Source: GAO analysis of selected JWOD contracts.
[A] This amount reflects the contracts' base period award amounts,
which in some cases was less than one full year. These award amounts
include a fee that is used to fund the operations of the central
nonprofit agency.
[B] This amount includes non-dining services work.
[C] For the two Marine Corps contracts, the Marine Corps has eastern
and western regional contracts with a prime contract with a commercial
food service company and several JWOD subcontracts for full-food and
support services.
[D] These amounts represent the first year of a 5-year contract.
[End of table]
Randolph-Sheppard Vendors Generally Receive a Percentage of Profits,
and JWOD Beneficiaries Are Paid Hourly Wages According to Federal Law:
Compensation for Randolph-Sheppard blind vendors is computed
differently from compensation paid to JWOD disabled workers. For the
Randolph-Sheppard program, blind vendors' compensation is generally
based on a percentage of the profits generated by the dining
facilities' operations. Based on the 37 survey responses where we could
determine the basis of how blind vendors' compensation was computed, 34
reported that that the vendor's compensation was computed either
entirely, or in part, based on the profits generated by the dining
facility contract. For compensation based entirely on the facilities'
profits, the blind vendor received from 51 to 65 percent of the
profits.[Footnote 25] For those blind vendors that were compensated
partially based on profits, their compensation was based on fixed fees,
administrative fees or salaries, and a percentage of the profits. Where
compensation was not based on profits, these three blind vendors
received either a percentage of the contract value or a fixed base fee.
Figure 4 shows the annual compensation received by blind vendors for
military food services contracts, within specified ranges, and the
average compensation for each range.
Figure 4: Number and Average of Randolph-Sheppard Blind Vendors'
Compensation within Designated Dollar Ranges (rounded to nearest 100
dollars):
This figure is a bar chart showing the number and average of Randolph-
Sheppard blind vendors' compensation within designated dollar ranges.
The X axis is compensation range, and the Y axis is the number of
vendors.
[See PDF for image]
Source: GAO analysis of blind vendors' compensation.
[End of figure]
As shown in figure 4, 15 of 38 Randolph-Sheppard blind vendors' annual
compensation[Footnote 26] was between $100,000 and $200,000.[Footnote
27] Overall, blind vendors working at DOD dining facilities received
average annual compensation of about $276,500 per vendor. These figures
are based on pretax earnings.[Footnote 28] We did not collect
compensation information for employees of the blind vendors or
employees of the teaming partners.
For the JWOD program, for most workers--including those with and
without a disability--the compensation is determined by either federal
law or collective bargaining agreements.[Footnote 29] The Service
Contract Act (SCA) was enacted to give employees of contractors and
subcontractors labor standards protection when providing services to
federal agencies. The SCA requires that, for contracts exceeding
$2,500, contactors pay their employees, at a minimum, the wage rates
and fringe benefits that have been determined by the Department of
Labor to be prevailing in the locality where the contracted work is
performed.[Footnote 30] However, the SCA hourly rate would not be used
if there is a collective bargaining agreement that sets a higher hourly
wage for selected workers. According to NISH, the collective bargaining
hourly rates are, in general, 5 to 10 percent higher than the SCA's
wage rates. Of the six JWOD contracts in our sample, Holloman Air Force
Base and the Marine Corps' eastern and western regional contracts had
collective bargaining agreements. For the three JWOD sites visited, we
obtained an estimate of the average hourly wages, average hourly fringe
benefits rates, and average number of hours worked and computed their
annual wages. The average hourly wage for the three JWOD sites was
$13.15 including fringe benefits. Table 4 shows the average annual
wages that an employee earned.
Table 4: Estimated Average Hourly and Annual Wages Earned at Three JWOD
Sites Visited:
Average hourly wage;
Fort Lee[A]: $9.36;
Naval Station Norfolk: $8.06;
Great Lakes Naval Training Center: $12.86;
Average: $10.09.
Average hourly fringe benefits;
Fort Lee[A]: $3.29;
Naval Station Norfolk: $3.01;
Great Lakes Naval Training Center: $ 2.87;
Average: $ 3.06.
Total average hourly amount;
Fort Lee[A]: $12.65;
Naval Station Norfolk: $11.07;
Great Lakes Naval Training Center: $15.73;
Average: $13.15.
Estimated annual hours worked;
Fort Lee[A]: 1,380;
Naval Station Norfolk: 1,430;
Great Lakes Naval Training Center: 1,705;
Average: 1,505.
Estimated Annual Wages;
Fort Lee[A]: $17,457;
Naval Station Norfolk: $15,830;
Great Lakes Naval Training Center: $26,820;
Average: $20,036.
Source: GAO analysis of DOD data.
[A] Although Fort Lee was selected as one of our Randolph-Sheppard
sample contracts, it also had a subcontract with JWOD for support
services. During our visit to Fort Lee, we observed both the Randolph-
Sheppard and JWOD dining facilities. Also, the Fort Lee JWOD workers'
wages were under a collective bargaining agreement.
[End of table]
Another law that can affect the disabled worker's wages is section
14(c) of the Fair Labor Standards Act, which allows employers to pay
individuals less than the minimum wage (called special minimum wage
rates) if they have a physical or mental disability that impairs their
earning or productive capacity. For example, if a 14(c) worker's
productivity for a specific job is 50 percent of that of experienced
workers who do not have disabilities that affect their work, and the
prevailing wage paid for that job is $10 dollars per hour, the special
minimum wage rate for the 14(c) worker would be $5 dollars per hour.
[Footnote 31] None of the three JWOD sites we visited applied the
special minimum wage for any of their disabled workers.
Concluding Observations:
The Randolph-Sheppard and JWOD programs have a common goal of serving
individuals who are blind or have severe disabilities, and who are
generally underrepresented in the workforce. However, these programs
operate differently regarding how contracts are awarded and priced, and
are designed to serve distinct populations through different means--
particularly with respect to compensation for program participants.
This is true for contracts with military dining facilities. The blind
vendors who participate in the Randolph-Sheppard program seek to become
entrepreneurs by gaining experience managing DOD dining facilities. In
this respect, although most of these vendors require the assistance of
a private food service teaming partner, they are compensated for
managing what can be large, complicated food service operations. By
contrast, because the participants of the JWOD program perform work
activities that require less skill and experience, and who might
otherwise not be able to secure competitive employment, they are
compensated at a much lower rate than the Randolph-Sheppard vendors. In
this regard, it is apparent that the two programs are designed to
provide very different populations with different types of assistance,
and thus, it is difficult to directly compare them, particularly with
respect to compensation.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Committee for Purchase, the
Department of Defense, and the Department of Education for review and
comment. The Committee for Purchase had no comments. DOD concurred with
the draft and also provided technical comments for our consideration.
We considered all of DOD's technical comments and revised the draft as
appropriate. The DOD comment letter is attached as appendix II.
The Department of Education provided clarifications and suggestions in
a number of areas. First, Education was concerned about comparing the
earnings of the blind vendors under the Randolph-Sheppard program and
the compensation provided to the food service workers under the JWOD
program. The agency suggested we compare the earnings of the blind
vendors with the earnings of employees of the JWOD nonprofit agencies
who perform similar management functions. We agree that there are
significant differences in their responsibilities, but we were required
to report on the compensation of the "beneficiaries" of the two
programs, which are blind managers for the Randolph-Sheppard program
and hourly workers for the JWOD program. Our report highlights these
differences. Our report also highlights in a number of places the
difficulty in comparing the compensation of the two groups of
beneficiaries. We were not required to report on the earnings of the
management personnel of the nonprofit agencies, and we did not collect
this information.
Second, Education urged that we fully describe the permitted uses of
the set-aside fees charged by the state licensing agencies, and that we
recognize that there is a similar assessment under the JWOD program. We
have revised the report to point out that the Randolph-Sheppard set-
aside may be used to fund the operation of the state licensing
agencies. We also added language to a footnote to table 3 to recognize
that the JWOD contract amounts include a fee that is used to fund the
operations of the central nonprofit agency. Third, Education questions
our description of the price negotiations that occur between DOD and
the state licensing agencies. We believe our report is both clear and
accurate on this point as written. In addition, DOD did not have any
comments or questions about how we described price negotiations for the
Randolph-Sheppard program.
Fourth, Education questioned our discussion of the numbers of persons
with disabilities employed under the two programs. Specifically,
Education pointed out that the requirement under the JWOD program that
at least 75 percent of the direct labor hours be performed by persons
with disabilities applies in the aggregate to all work performed by a
nonprofit entity, not at the contract level. We have revised the report
to reflect this. And finally, Education sought clarification concerning
the extent commercial food service companies are used as teaming
partners under the Randolph-Sheppard program or as subcontractors under
the JWOD program. We have revised figures 2 and 3 of the report to more
accurately reflect the use of these companies. The comment letter from
Education is attached as Appendix III.
We will send copies of this report to interested congressional
committees, the Secretary of Defense, the Secretary of Education, and
the Chairperson of the Committee for Purchase, as well as other
interested parties. We will also make copies available to others upon
request. In addition, the report will be available at no charge on
GAO's Web site at [hyperlink, http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact George Scott at (202) 512-7215 or scottg@gao.gov or William
Woods at (202) 512-8214 or woodsw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report are
listed in appendix IV.
Signed by:
George A. Scott:
Director, Education, Workforce, and Income Security Issues:
and:
William T. Woods:
Director, Acquisition and Sourcing Management:
[End of section]
Appendix I: Scope and Methodology:
To accomplish our research objectives, we interviewed officials from
the Department of Defense (DOD), the Department of Education, the
Committee for Purchase, and organizations representing both the
Randolph-Sheppard and Javits-Wagner-O'Day (JWOD) programs. We also
reviewed pertinent documents and regulations governing both programs.
We reviewed a sample of 14 contracts--8 Randolph-Sheppard contracts and
6 JWOD contracts. For these contracts, we requested the source
selection memorandum, the acquisition plan, the basic contract, and the
statement of work. For two of these contracts, the Randolph-Sheppard
prime contractor for full-food services subcontracted with a JWOD
nonprofit agency for support services. We determined that it was not
feasible to review a representative sample of contracts based on our
preliminary work, which indicated wide variations in how the two
programs are structured and how the Randolph-Sheppard program is
administered from state to state. For these reasons, we selected a
number of contracts to review in order to ensure representation of both
programs, as well as ensure a balance of contracts based on dollar
value, size of military facility, branch of the military, and
geographic location. As the sample was not representative, results of
our review cannot be projected to the entire universe of contracts. In
addition, we visited the military installation for 5 of the 14
contracts in our sample in order to observe dining facilities and their
operations, as well as interview pertinent officials and staff,
including the blind vendor or JWOD agency management whenever possible.
Again, these five locations were selected to ensure representation of
both programs, as well as variation in geographic location, contract
size, and military branch. In terms of beneficiary compensation, we
limited our review to Randolph-Sheppard blind vendors and JWOD workers.
For the JWOD program, we obtained average hourly wages, average hourly
fringe benefits, and average total hours worked during the year for
JWOD employees at selected sites. We did not obtain compensation
amounts for the managerial employees for any JWOD nonprofit agencies.
To obtain information on the relationships between state licensing
agencies and blind vendors, we conducted a survey of the 24 state
licensing agencies we determined to have Randolph-Sheppard military
dining contracts. We asked questions regarding the roles and
responsibilities of blind vendors, the vendor's relationship with the
state licensing agencies, and the role played by teaming partners. We
administered this survey between April and July 2007. We pretested this
survey with program directors and modified the survey to take their
comments into account. All 24 state licensing agencies responded to our
survey for a response rate of 100 percent and provided information for
39 military dining facilities contracts. Additionally, we requested
information for the 40 blind vendors with military dining contracts to
determine their annual compensation. For the 39 contracts, there were
40 blind vendors as one contract utilized two vendors. We received
compensation information for 38 of the 40 blind vendors.
[End of section]
Appendix II: Comments from the Department of Defense:
Office Of The Under Secretary Of Defense:
3000 Defense Pentagon:
Washington, DC 203013000:
Acquisition, Technology And Logistics:
September 19, 2007:
Mr. Sigurd Nilsen:
Director, Education, Workforce and Income Security Issues:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Mr. Nilsen:
This is the Department of Defense (DoD) response to the GAO Draft
Report, GAO-08-3, "Defense Contracts: Contracting for Military Food
Services under the Randolph-Sheppard and Javits-Wagner-O'Day Programs,"
(GAO Code 130631), dated August 20, 2007.
The Department concurs with the draft final report which does not offer
any recommendations for DoD. The attached comments relate to technical
accuracy and are provided for your consideration.
Thank you for the opportunity to respond to the report.
Sincerely,
Signed by:
Shay D. Assad:
Director, Defense Procurement and Acquisition Policy:
Attachment:
As stated:
[End of section]
Appendix III: Comments from the Department of Education:
United States Department Of Education:
Office Of Special Education And Rehabilitative Services:
August 31, 2007:
Sigurd R. Nilsen:
Director, Education, Workforce and Income Security Issues:
United States Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Nilsen:
Thank you for the opportunity to review the draft Government
Accountability Office (GAO) report to Congressional Committees: Defense
Contracts”Contracting for Military Food Services under the Randolph-
Sheppard and Javits-Wagner-O'Day Programs, GAO-08-03. In this letter,
the Department of Education is providing clarifications and suggestions
that we believe would add to the understanding of the operations and
outcomes of these programs and, in some cases, their
interrelationships.
The draft report includes several references to Federal regulations
providing blind vendors a priority to operate cafeterias. The priority
is, in fact, a statutory provision found at section 107d-3(e) of the
Randolph-Sheppard Act; the regulatory provisions simply are consistent
with the statute.
Earnings. We appreciate the complex nature of military contracting and
the difficulty of comparing two programs with very different means of
obtaining contracts in the military market. However, we have concerns
about the comparisons between earnings associated with the Randolph-
Sheppard program and the Javits-Wagner-O'Day (JWOD) program. We believe
the draft report's statement on page 14, that Randolph-Sheppard blind
vendors received, on average, $276,500 annually, while JWOD
beneficiaries earned, on average, $13.15 per hour, is misleading. GAO's
comparison is between roughly 40 blind individuals licensed by States
to operate Department of Defense (DoD) food service facilities at the
managerial level and a larger number of individuals performing routine
food service work (e.g., serving and cleaning). While the licensed
blind operators and the individual JWOD food service workers are,
strictly speaking, the "beneficiaries" of the two programs, we believe
the comparison gives an incomplete and selective picture because it
excludes JWOD operational and managerial compensation at both the
contract site and JWOD agency levels, as well as compensation for
individuals employed by the for-profit food service corporations
generally performing work in these contracts. These limitations and
omissions are mentioned, but not explained. Cost comparisons should be
of equivalent functions. Therefore, we believe a more valid comparison
would be the compensation of Randolph-Sheppard vendors licensed by
States to operate DoD food service facilities with the compensation of
managerial employees of the JWOD nonprofit corporations providing
similar operational services for DoD contracts. We believe providing
these data, or a more detailed description of cost structures, would
contribute to the accuracy of the report. Alternatively, a more
extensive description of the methodological and data limitations, and
their effects, would be helpful.
Fees. Randolph-Sheppard set-aside payments are referenced on page 18,
footnote 21 of the draft report. These funds may be subtracted from the
net proceeds of the operation of vending facilities (military
cafeterias, in this instance), as described in regulations at 34 CFR §
395.9. However, the reference, which lists four uses of set-aside
funds, omits use of set-aside funds for "management services," that is,
funds for the operation of the State Randolph-Sheppard agency. See 34
CFR § 395.9(b)(3). Furthermore, JWOD nonprofit organizations are
assessed fees as a condition of their participation in the program.
Those fees, which contribute to their cost structure, are most
analogous to Randolph-Sheppard set-aside fees and should be described
in the report.
Price Negotiations. There are potentially confusing references to price
negotiations on pages 13 and 15 of the draft report. It is not made
clear that price negotiations are a part of the competitive bid process
to which all offerors are subject when State Randolph- Sheppard
agencies compete for a DoD food service contract on behalf of a blind
licensee. We are aware of several Randolph-Sheppard contracts that have
been extended by direct negotiations beyond the initial term for which
those contracts were competitively awarded. In those cases it is a fair
inference that DoD base commanders and their contracting officers
believed that Randolph-Sheppard contractors were meeting DoD's needs
for quality, cost, and overall performance in helping to carry out the
military mission.
Employment of persons with disabilities. The draft report cites a wide
range of figures for employment of individuals with disabilities by
Randolph-Sheppard contractors, notwithstanding the fact that such
employment is not required by the Act or its implementing regulations.
Conversely, no data are presented for JWOD, for which the requirement
is fundamental. Specifically, the draft report refers to a computed
average of 18 percent of workers with disabilities in DoD contracts
held by Randolph-Sheppard contractors (with a range of 3 percent to 72
percent based upon survey responses for 30 contracts). However, GAO
does not provide data on the percentage of workers with disabilities
actually employed on JWOD contracts. Table 1, comparing program
procedures for Randolph-Sheppard and JWOD programs, refers to the
requirement that participating JWOD nonprofit agencies perform at least
75 percent of direct labor hours with persons with disabilities. We
believe, however, that the 75% requirement applies to all work
performed by an agency with multiple contracts and may not hold true
for any particular contract. There are also some DoD contracts where
Randolph-Sheppard and JWOD both participate and employee data may
overlap.
Subcontracts. Figure 2 on page 9 of the draft report, providing an
overview of the Randolph-Sheppard program, does not reflect the
contracts in which the licensed operator does not use a commercial food
service company as a partner. The corresponding overview of the JWOD
program on page 12 does not reflect the use of commercial food service
contractors by JWOD providers. These firms are often the same as, or
similar to, the commercial food service companies used by State
Randolph-Sheppard agencies as "teaming partners." Also, throughout the
draft report, there are references to a total of 53 JWOD dining
contracts with DoD. It is unclear whether this number includes prime
contracts only, or also subcontracts.
Thank you again for the opportunity to review the draft report. We hope
these comments are helpful and lead to clarification in the final
report.
Sincerely,
Signed by:
William W. Knudsen:
Acting Deputy Assistant Secretary:
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
George A. Scott, (202) 512-7215, scottg@gao.gov:
William T. Woods (202) 512-8214, woodsw@gao.gov:
Staff Acknowledgments:
Jeremy D. Cox (Assistant Director), Richard Harada (Analyst-in-Charge),
Daniel Concepcion, Rosa Johnson, and Sigurd Nilsen made significant
contributions to all aspects of this report. In addition, Susannah
Compton and Lily Chin assisted in writing the report and developing
graphics. John Mingus provided additional assistance with graphics.
Walter Vance assisted in all aspects of our survey of state licensing
agencies as well as providing methodological support. Doreen Feldman,
Daniel Schwimer, and Alyssa Weir provided legal support.
[End of section]
Related GAO Products:
Federal Disability Assistance: Stronger Federal Oversight Could Help
Assure Multiple Programs' Accountability. GAO-07-236. Washington, D.C.:
January 26, 2007.
Vocational Rehabilitation: Better Measures and Monitoring Could Improve
the Performance of the VR Program. GAO-05-865. Washington, D.C.:
September 23, 2005:
Service Contract Act: Wage Determination Process Could Benefit from
Greater Transparency, and Better Use of Violation Data Could Improve
Enforcement. GAO-06-27. Washington D.C.: December 7, 2005:
Special Minimum Wage Program: Centers Offer Employment and Support
Services to Workers with Disabilities, but Labor Should Improve
Oversight. GAO-01-866. Washington D.C.: September 4, 2001:
[End of section]
Footnotes:
[1] JWOD has changed its name to AbilityOne but will continue to use
JWOD until it is phased out in 2008. For the purposes of this report,
we will refer to the program as JWOD since that was the name of the
program at the time the contracts we reviewed were awarded.
[2] Pub. L. No. 93-516 (1974).
[3] Pub. L. No. 109-364 (2007).
[4] Pub. L. No. 74-732 (1936).
[5] 20 U.S.C. § 107d-3(e).
[6] Pub. L. No. 92-28 (1971).
[7] NISH was previously known as the National Industries for the
Severely Handicapped.
[8] Of the 53 contracts, the JWOD nonprofit agencies were generally the
prime contractor. However in a few cases, some nonprofit agencies are
the subcontractors, such as under the two Marine Corps contracts.
[9] One contractor provided full-food services at some dining
facilities and support services at another dining facility.
[10] NISH v. Rumsfeld, 348 F.3d 1263 (10th Cir. 2003); NISH v. Cohen,
247 F.3d 197 (4th Cir. 2001).
[11] Pub. L. No. 109-163 (2006).
[12] Pub. L. No. 109-364 (2007).
[13] GAO Decision re: Moore's Cafeteria Services, d/b/a MCS Management:
B-299539, (Washington D.C., June 5, 2007).
[14] Past GAO work, however, found that Education provided little
oversight of this program and performed few on-site reviews of state
licensing agencies in recent years. See GAO, Federal Disability
Assistance: Stronger Federal Oversight Could Help Assure Multiple
Programs' Accountability, GAO-07-236 (Washington, D.C.: Jan. 26, 2007).
[15] The Randolph-Sheppard Act does not require blind vendors to employ
other individuals with disabilities.
[16] This latter value is for Fort Carson, Colorado, where the state
licensing agency subcontracts with a JWOD agency for support services
as part of a settlement of litigation that arose when the Army decided
to convert contracted work from JWOD to Randolph-Sheppard.
[17] An official representing state licensing agencies, however,
cautioned us that some figures reported by states may be low because
the states only recently began to collect this information.
[18] The FAR establishes uniform policies for acquisition of supplies
and services by executive agencies.
[19] GAO-07-236.
[20] The Department of Defense has a supplementary regulation to the
FAR called the Department of Defense FAR Supplement (DFARS). The
current DFARS does not offer any additional guidance on these programs.
[21] Direct negotiations may be undertaken with state licensing
agencies whenever the on-site official with the concurrence of the head
of the agency has determined that the state licensing agency through
its blind licensee can provide the cafeteria services required at a
reasonable cost with food of high quality comparable to that available
from other providers of cafeteria services.
[22] DOD Directive 1125.3, Vending Facility Program for the Blind on
Federal Property (April 7, 1978). The FAR explains that the competitive
range shall be comprised of all the most highly rated proposals.
[23] Our sample of contracts was not representative and findings from
these eight contracts cannot be extrapolated to all Randolph-Sheppard
military dining contracts.
[24] Under FAR section 8.707(f), ordering offices may suggest price
changes to the Committee for Purchase at any time.
[25] Based on our survey, 6 contracts did not have a teaming partner
and most of the responses indicated that blind vendors receive 100
percent of the profits of the dining facilities.
[26] We were unable to obtain compensation data for two Texas contracts
with annual values of $3,570,000 and $18,406,498. In addition, one
other contract had two blind vendors rather than only one.
[27] This compensation was computed after reducing the amount for set-
aside payments. These payments are used by the state licensing agencies
to pay for items such as health insurance, retirement benefits,
equipment, management services (funds for the operation of the State
Randolph-Sheppard agency), and to ensure a fair return to vendors.
[28] The blind vendors may have other expenses that would decrease
their compensation, but the compensation data reviewed did not disclose
these expenses.
[29] Collective bargaining agreements are negotiated between the
employer and representatives of employees and can be used to determine
the employees' hourly wages.
[30] Fringe benefits are health and welfare benefits.
[31] Although a disabled worker may be paid the special minimum wage,
his/her health and welfare benefits are not reduced from the SCA
minimum rates.
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