Cost Effectiveness of Dual Sourcing for Production Price Competition Is Uncertain

Gao ID: NSIAD-84-111 August 31, 1984

In response to a congressional request, GAO studied dual-source procurement as a method of obtaining competition in the production of supplies and equipment in the Department of Defense (DOD) and six civil agencies during fiscal year 1981. This method of procurement involves two or more sources concurrently producing the same product for the same buying office, with award of the larger share of quantities usually going to the lowest price source.

GAO found that approximately 5 percent of the DOD contract actions which GAO studied were produced by dual sources. However, not all of the procurements within the selected DOD universe of procurements may have been suitable for dual-source production. Of the civil agencies, only the National Aeronautics and Space Administration reported any dual-source activity. GAO found that the opportunities for the use of dual-source procurement are unlikely to increase in civil agencies' procurements, because half of the agencies studied have production requirements which are typically too low for dual sources, and the others procure commercial products readily available from competitive market sources. In DOD dual-source procurements, national defense and industrial base mobilization interests were the primary objective of the procurements rather than competition. All of the DOD items procured by the dual-source method were components or subsystems of major weapon systems. GAO found little DOD or agency policy or guidance pertaining to dual-source procurement. Furthermore, in the absence of cost/benefit analyses, GAO could not conclude whether dual-source procurement is cost effective. However, the advantages most often cited for dual-source procurement include: (1) cost savings; (2) improvement of the industrial base; (3) improved quality assurance; and (4) improvements in meeting delivery schedules. The most widely perceived disadvantage concerns the costs required to develop, qualify, and maintain a second source.

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