Review of DOD Contracts Awarded Under OMB Circular A-76

In response to a congressional request, GAO reviewed a sample of contracts awarded by the Department of Defense (DOD) under the provisions of the Office of Management and Budget Circular A-76, which prescribes the policies for acquiring commercial or industrial products and services needed by the Government. DOD implements the Circular through its Commercial and Industrial-Type Activities (CITA) program. GAO objectives were the following: (1) to determine whether decisions to contract out might have been different if contractor price increases and performance shortfalls were known prior to contract awards, and (2) to identify and summarize any related findings by DOD audit agencies.

Most of the conversions reviewed did not result in price increases or performance shortfalls, but unsatisfactory contractor performance was experienced in nearly one-third of the conversions reviewed. If the information GAO found after the fact had been known prior to contract awards, different decisions might have been made in some of the cases. Unsatisfactory contractor performance was attributed to the following: (1) a high personnel turnover rate; (2) an unreasonably low staffing level resulting from a buy-in; (3) untimely, improper, and poor quality of work; (4) too few skilled technicians; and (5) inadequate training. Contract price increases resulted from the following: (1) contract modifications reflecting wage increases required by the Department of Labor wage determinations; (2) increased requirements or support required by Government direction or changing conditions at the installation; (3) emergency repairs or supplies; (4) work over and above the contract requirements; (5) delays or downtime caused by the Government; and (6) quantities of service ordered in excess of minimum expected quantities on an indefinite quantity contract. The Defense Audit Service concluded that contractors of CITA functions were not bidding low and then unrealistically raising their prices and that some price increases exceeded inflation rates, but nearly half were attributable to increases in work requirements. GAO was unable to identify any military audit reports which addressed price increases and performance shortfalls by contractors involved in conversions under the CITA program.