Defense Contracting: DOD's Use of Lowest Price Technically Acceptable Source Selection Procedures to Acquire Selected Services

DOD obligated about $300 billion through contracts for goods and services in fiscal year 2016. When awarding a contract competitively, DOD may use the LPTA source selection process to select the lowest-priced offer that is technically acceptable. In contrast, DOD may use the trade-off source selection process to award a higher-priced contract to a firm if the firm's offer provides greater benefit and it is worth paying the additional cost. The National Defense Authorization Act for Fiscal Year 2017 calls on DOD to avoid using the LPTA process for information technology, cybersecurity, and other knowledge-based professional support services.

The Act also included a provision for GAO to report on DOD's use of LPTA procedures for contracts valued at more than $10 million. This report assesses the (1) extent to which DOD used LPTA procedures for certain services, and (2) factors that contracting officials considered when deciding to use LPTA procedures.

GAO reviewed data from the Federal Procurement Data System-Next Generation to identify 781 contracts valued at $10 million or above awarded by the Army, Navy, and Air Force in the first half of fiscal year 2017, the most recent period for which data were available. GAO then selected 133 of these contracts for information technology and support services, which include services reflected in the Act. GAO identified that 9 contracts used LPTA procedures and reviewed 7 of these, including interviewing officials and reviewing contract documents.

During the first half of fiscal year 2017, the Army, Navy, and Air Force rarely used lowest price technically acceptable (LPTA) source selection procedures when awarding contracts valued at $10 million or more for the types of services identified by the National Defense Authorization Act, such as information technology services. Department of Defense (DOD) guidance states that LPTA procedures are typically for requirements that are well-defined, commercial, or non-complex products or services with a minimal risk of unsuccessful contract performance. The figure shows the military departments' limited use of LPTA procedures for contracts for selected services.

For the 7 contracts that GAO reviewed, contracting officials determined that the government would not receive a benefit for paying more than the lowest price. Contracting officials also stated that LPTA was used, in part, because the requirements were well-defined, non-complex, or reoccurring. For example, the Navy used LPTA procedures to award a contract for commercially available monthly telephone maintenance services. In addition, the Air Force used LPTA procedures to award a contract for mail sorting and delivery. Section 813 of the fiscal year 2017 National Defense Authorization Act requires DOD to amend its regulations to require contracting officers to consider specific criteria when deciding to use LPTA procedures. DOD has not yet revised its regulations to implement Section 813. Nevertheless, for the 7 contracts GAO reviewed, contracting officials' considerations when choosing to use LPTA procedures were often consistent with most of these new criteria. DOD officials are currently developing the revisions to the Defense Federal Acquisition Regulation Supplement that are contemplated by Section 813.

The Department of Defense (DOD) obligated about $300 billion through  contracts for goods and services in fiscal year 2016. When awarding a  contract competitively, DOD has several source selection procedures it  can use to evaluate firms’ proposals. For example, DOD may use a best  value, lowest price technically acceptable (LPTA) process. In the LPTA  process, DOD awards the contract to the firm presenting the lowest  priced proposal that is technically acceptable, and no tradeoffs are  permitted. Alternatively, it can use a best value tradeoff process, in which  it can vary the relative importance of cost or price to other factors such as  technical capability or past performance in its solicitations to firms. In  these cases, DOD may award a contract to a firm presenting other than  the lowest-priced proposal if it determines that a higher-priced firm  provides a greater benefit to the department, and this greater benefit is  worth paying an additional cost.

Section 813 of the National Defense Authorization Act (NDAA) for Fiscal  Year 2017 calls for DOD to avoid using LPTA procedures when doing so  would deny DOD the benefits of making cost and technical tradeoffs in  the source selection process. To implement this policy, Section 813  requires that DOD revise the Defense Federal Acquisition Regulation  Supplement (DFARS) to allow the use of LPTA procedures only when  certain criteria are met. For example, one criterion is that contracting  officials must determine that no, or little, value would be gained from a  proposal exceeding the solicitation’s minimum technical requirements.  The specific criteria are discussed in the background section of this  report.

Section 813 also requires that LPTA procedures must be avoided to the  “maximum extent practicable” in procurements of:  Information technology (IT) services, cybersecurity services, systems  engineering and technical assistance services, advanced electronic  testing, audit or audit readiness services, or other knowledge-based  professional services;

Personal protective equipment, such as body armor; and

Knowledge-based training or logistics services in contingency or other  operations outside the United States.

Further, Section 813 included a provision that we report on the number of  instances where DOD used LPTA procedures for contracts exceeding  $10 million, as well as an explanation of how acquisition officials  considered the new criteria identified in Section 813. The objectives of  this report were to assess the (1) extent to which DOD used LPTA  procedures for contracts awarded in the first half of fiscal year 2017 for  certain services and products identified in Section 813 valued at  $10 million and above, and (2) factors that contracting officials considered  when deciding to use LPTA procedures for these contracts. We selected  the first half of fiscal year 2017 because that was the most recent time  period for which data were available.

To determine the extent to which DOD used LPTA source selection  procedures in the first half of fiscal year 2017, we used data from the  Federal Procurement Data System-Next Generation (FPDS-NG) to  identify a population of contracts valued at $10 million or above that were  awarded between October 1, 2016 and March 31, 2017 by the  Departments of the Army, Navy, and Air Force. These military  departments represented almost 80 percent of DOD procurement  spending in fiscal year 2016, and collectively accounted for 781, or over  64 percent, of DOD’s 1,212 new contracts reported in FPDS-NG with total  estimated values of $10 million or above awarded during the 6-month  period we reviewed. We determined that FPDS-NG was sufficiently  reliable for the purposes of identifying these contracts by tracing relevant  FPDS-NG data to the contracts we reviewed and related documents. We  identified a population of 781 new contract awards that were within the  scope of our review. Our scope includes stand-alone contracts and the  initial award of indefinite delivery, indefinite quantity (IDIQ) contracts, but  excludes subsequent orders issued under these contracts because  solicitation data is not readily available for orders. Our scope also  excluded blanket purchase agreements and basic ordering agreements.

We focused our review on contracts for categories of products and  services that could include those listed in Section 813 of the fiscal year  2017 NDAA for which DOD should, to the maximum extent practicable,  avoid using LPTA source selection procedures. Through analysis of  FPDS-NG product and service code information, we identified the  following four categories which could contain such products or services:  Information technology and telecommunications;

Ammunition and explosives, which include tactical sets that may  include personal protective equipment; and

Clothing and individual equipment, which includes protective clothing  and personal armor (or in other words, personal protective  equipment).

From the 781 contracts that were within the scope of our review, we  identified 147 contracts in one of these four categories. Fourteen of these  were in the ammunition category. We did not identify any contracts in the  clothing category. We reviewed descriptions of what was purchased  under these 14 awards and also requested that DOD identify any  contracts that included the purchase of personal protective equipment.  The Army, Navy, and Air Force confirmed that none of the 14 contracts in  the ammunition category included personal protective equipment. The  remaining 133 contracts identified were for services coded as IT or  support services, which include knowledge-based professional services.

Because FPDS-NG does not identify the source selection procedure used  to award contracts, we provided contract numbers for these 133 contracts  to the Army, Navy, and Air Force and requested that these departments  identify contracts for which LPTA procedures were used, and provide  supporting documentation for that determination.

Of the 133 contracts valued at $10 million and over, DOD officials  responded to us that 9 were awarded through LPTA source selection  procedures and 124 were not. To assess the accuracy of LPTA status  information provided by DOD, we reviewed 36 of the 75 unique  solicitations for the 124 contracts that DOD identified as non-LPTA. We  could not find information for 39 solicitations, likely because these  solicitations were no longer available through online portals, and so for  these solicitations, we could not verify the source selection method. For  the 36 solicitations we examined, we found that all had been properly  classified by DOD as non-LPTA. We excluded 2 of the 9 contracts  awarded through LPTA procedures from further study because those  awards were protested, resulting in 7 contracts awarded through LPTA  procedures that were included in our review for more detailed  assessment. Each of these 7 contracts was for IT or support services.

To identify the factors contracting officials considered when deciding to  use LPTA procedures on these 7 contracts, we obtained and analyzed  relevant contract documents including the acquisition plan, solicitation,  and source selection decision memorandum. In addition, we interviewed  contracting officials for each of these 7 contracts. We also reviewed  applicable sections of the Federal Acquisition Regulation (FAR), the  DFARS, and DOD’s March 2016 Source Selection guide. Finally, we  assessed contract documents and interviewed contracting officials to  determine whether they were aware of the new policy of Section 813.  Because the criteria in Section 813 have not yet been incorporated into  the DFARS, we also determined the extent to which criteria similar to  those in Section 813 had been considered in the decision to use LPTA  procedures in the 7 procurements we examined.

We conducted this performance audit from March 2017 through  November 2017 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.

The FAR establishes several types of source selection procedures, which  include the tradeoff procedure on one end of the best value continuum  and LPTA procedures on the other end. (see fig. 1).

DOD may elect to use the LPTA procedure where the requirement is  clearly defined and the risk of unsuccessful contract performance is  minimal. In such cases, DOD has determined that cost or price should  play a dominant role in the source selection. When using LPTA  procedures, DOD specifies its minimum requirements in the solicitation.  Firms submit their proposals and DOD determines which of the proposals  meet or exceed those requirements, no tradeoffs between cost or price  and non-cost factors (for example, technical capabilities or past  performance) are permitted, and the award is made based on the lowest  price technically acceptable proposal submitted to the government. Non- cost factors are rated on an acceptable or unacceptable basis.

By contrast, DOD may elect to use tradeoff procedures in acquisitions  where the requirement is less definitive, more development work is  required, or the acquisition has a greater performance risk. In these  instances, non-cost factors may play a dominant role in the source  selection process. Tradeoffs between price and non-cost factors allow  DOD to accept other than the lowest priced proposal. The FAR requires  DOD to state in the solicitation whether all evaluation factors other than  cost or price, when combined, are significantly more important than,  approximately equal to, or significantly less important than cost or price.

DOD’s March 2016 Source Selection guide offers additional guidance  regarding the use of LPTA source selection procedures. The guidance is  mandatory for acquisitions conducted as part of a major system  acquisition program and all competitive FAR part 15 procurements with  an estimated value over $10 million. The guidance states that LPTA  procedures may be used in situations where there would not be any value  on a product or service exceeding the required technical or performance  requirements. The guidance also states that such situations may include  acquisitions for well-defined, commercial, or non-complex products or  services and where risk of unsuccessful contract performance is minimal,  and when it has been determined there would be no need or value to pay  more for higher performance.

Section 813 of the fiscal year 2017 NDAA required that DOD revise the  DFARS to require that LPTA procedures only be used in situations when  the following six criteria are met.  1.  DOD can clearly describe the minimum requirements in terms of  performance objectives, measures, and standards that will be used to  determine acceptability of offers;  2.  DOD would realize no, or little, value from a proposal exceeding the  solicitation’s minimum technical requirements;  3.  The proposed technical approaches can be evaluated with little or no  subjectivity as to the desirability of one versus the other;  4.  There is a high degree of certainty that a review of technical proposals  other than that of the lowest-price offeror would not identity factors  that could provide other benefits to the government;  5.  The contracting officer has included a justification for the use of LPTA  procedures in the contract file; and  6.  The lowest price reflects full life-cycle costs, including for operations  and support.

Section 813 also established that implementing revisions to the DFARS  were to be completed within 120 days of enactment of the NDAA, but the  revisions had not been put in place as of October 2017. DOD officials  stated that the changes to the DFARS are currently in progress.

Past GAO Reports on DOD Source Selection Procedures

In 2010 and 2014, we reported on DOD’s use of best value tradeoff  source selection procedures. In 2010, we found that, for 60 of the 88  contracts reviewed, DOD used a tradeoff process and weighted non-cost  factors as more important than price. In these cases, DOD was willing to  pay more when a firm demonstrated it understood complex technical  issues more thoroughly, could provide a needed good or service to meet  deadlines, or had a proven track record in successfully delivering  products or services of a similar nature. In addition, we determined that  when making tradeoff decisions, DOD selected a lower priced proposal  nearly as often as it selected a higher technically rated, but more costly,  proposal. In so doing, DOD chose not to pay more than $800 million in  proposed costs by selecting a lower priced offer over a higher technically  rated offer in 18 contracts. The majority of solicitations where non-cost  factors were equal to or less important than cost were for less complex  requirements. DOD faced several challenges when using best value  tradeoff procedures, including:  the difficulties in developing meaningful evaluation factors,  the additional time investment needed to conduct best value  procurements, and  the greater level of business judgment required of acquisition staff  when compared to other acquisition approaches.

To help DOD effectively employ the best value tradeoff process, we  recommended that DOD develop training elements such as case studies  that focus on reaching tradeoff decisions. DOD concurred and  implemented the recommendation in August 2012.

In 2014, we found that DOD had increased its use of LPTA procedures  for new contracts with obligations over $25 million—using LPTA source  selection procedures to award an estimated 36 percent of new fiscal year  2013 contracts compared to 26 percent in fiscal year 2009—and that  officials’ decisions on which source selection method would be used was  generally rooted in knowledge about the requirements and contractors.  For contracts with obligations over $25 million, DOD used LPTA source  selection procedures primarily to acquire commercial products such as  fuel, and we identified relatively few uses of LPTA to acquire higher dollar  services. For contracts with obligations over $1 million and under  $25 million, DOD used LPTA procedures an estimated 45 percent of the  time for a mix of products and services, including fuel, aircraft parts,  computer equipment, construction-related services, engineering support  services, and ship maintenance and repairs. We did not make  recommendations to DOD in this report.

DOD Used LPTA Procedures Infrequently for Contracts Valued at $10 Million or More for Information Technology or Support Services

The Army, Navy, and Air Force rarely used LPTA source selection  procedures for IT and support services contracts valued at $10 million or  more that were awarded in the first half of fiscal year 2017. Our analysis  found that the three military departments awarded 781 new contracts  valued at $10 million or more during this time frame. Of these 781  contracts, 133 contracts were awarded for IT and support services.  However, only 9 of the 133 contracts used LPTA source selection  procedures (see fig. 2).

Table 1 provides information on the 7 contracts we reviewed that were  awarded in the first half of fiscal year 2017 that used LPTA source  selection procedures. As previously noted, we excluded 2 of the 9  contracts from further review due to bid protests.

Factors DOD Officials Considered When Determining to Use LPTA Procedures

DOD Officials Considered Several Factors, Including the Nature of the Requirement, When Determining to Use LPTA Procedures

Contracting officials cited a number of factors that were considered when  determining to use LPTA procedures in the 7 selected contracts we  reviewed. For all of the contracts, officials determined that the  government would not receive a benefit for paying more than the lowest  price. For these contracts, contracting officials also stated that LPTA  procedures were used, in part, because the requirements were well- defined, non-complex, or reoccurring. Additional details on the contracts  follow.

The Army awarded an IDIQ contract, with a one-year base period and  four 1-year options, for support services in Afghanistan with an  estimated ceiling value of $85,000,000. This is a reoccurring  requirement to hire Afghan nationals to provide on-site construction  management, engineering, and technical support services for  reconstruction projects throughout Afghanistan. The acquisition plan  states that Afghan nationals can more freely move about the country  compared to U.S. personnel. Further, a contracting official stated that  it was determined that no additional value would be gained by paying  a premium for these services and that the lowest price was the best  choice. In addition, to mitigate risk of poor performance, one  requirement of the contract is to maintain a qualified workforce.  Officials stated that approximately 90 percent of personnel performing  on the previous contract are working on the current contract.

The Air Force awarded three contracts for base operation support  services—vehicle maintenance, airfield maintenance, fuel  management, and traffic management—at an Air Force Reserve Base  and two Air Reserve Stations. All of the contracts were awarded with  a one-month orientation period, one-year base period, four 1-year  options, and a final 6-month option, with total estimated values  ranging from $24.7 million to $38.2 million. Acquisition plans for these  requirements stated that the services were well defined. Additionally,  contracting officials stated that there is at least a decade of past  experience with these requirements, and, as a result, the  requirements are well known.

The Air Force awarded a contract for centralized mail sorting services  in Germany. The contract consists of a 2-month phase-in period, a 2- month base period, four 1-year options, and one 8-month option, with  a total estimated value of approximately $21.5 million. The acquisition  plan for this requirement stated that a LPTA source selection  procedure was chosen because the requirement was well-defined and  not technically complex. For example, the acquisition plan noted that  there was more than a decade of historical data that helped define  and estimate the volume of mail that would need to be sorted.  Contracting officials reiterated that LPTA was used since the service  was well-defined, the risk of poor performance was low, and that it  was determined that additional trade-offs would not provide an  additional benefit to the taxpayer.

The Army awarded an IDIQ contract to look for vulnerabilities in  software code. The contract, which was set aside for small  businesses, had a 5-year ordering period and an estimated ceiling  value of $17.1 million. The contractor was required to perform a  software review using several government approved code analysis  tools and then characterize any potential vulnerabilities identified by  the tools in terms of risk levels prescribed by established government  cybersecurity standards. Army requirements officials stated that they  determined there was no additional value to be gained from additional  innovations in doing either task. Our review found some indication that  the requirement, however, might not have been clearly understood by  offerors. For example, the Army received 12 offers which ranged from  $800,177 to $46,680,003. The contracting officer attributed the range  of offers to the inexperience of some offerors with preparing proposals  or misunderstanding this type of requirement, and the two lowest  offers were determined to be technically unacceptable.

The Navy awarded a contract to perform commercially available  monthly telephone maintenance, which includes preventive and  remedial maintenance on a specific brand of phone systems that  Navy locations in California use. The contract consists of a one-year  base period and two 1-year options, with an estimated total value of  approximately $15.9 million. The acquisition plan stated that only  certified authorized dealers could perform maintenance on these  phones. A contracting official stated the requirement was well-defined  and required the highest tier of maintenance options that could be  offered, and, as a result, there was no tradeoff available. The highest  tier requires that maintenance be available 24 hours a day, 7 days a  week in multiple Navy locations, and that the contractor must respond  to emergencies within 15 minutes during normal business hours. The  contract also includes maintenance for all switches, inside wiring and  any necessary relocation services, among other support  requirements.

Factors Cited by Contracting Officials When Choosing LPTA Procedures Were Generally Consistent with Criteria Listed in Section 813

1.  One contracting official determined that minimum performance  requirements for the $15.9 million contract for monthly telephone  maintenance services could be described using objective  performance measures, and the contract documents showed the  technical acceptability of offers was tied to the description of these  requirements in the statement of work. In another example,  documents related to the award of a $27.9 million Air Force contract  for base operations services show performance objectives and  standards set forth as evaluation factors. procedures may be used only when DOD would realize little or no  value from a proposal that exceeds the solicitation’s minimum  technical requirements. Our interviews with contracting officials and  review of contract documents found that in each case, DOD officials  assessed whether the department could receive value from a contract  awarded on a tradeoff basis where the proposal exceeded the  minimum technical requirements, and determined that there would be  no additional value to be gained.

3.  Most officials said they felt that it was possible to evaluate the  proposals they received with little subjectivity, although they had not  always explicitly made and documented this assessment. Officials for  two contracts stated, for example, that the threshold question of  technical acceptability for their contracts was whether the offering  firms possessed certain licenses or accreditation to perform services  on specific equipment or in specific locations. No subjectivity was  involved in this assessment; therefore, they viewed the question of  technical acceptability as essentially objective. However, because  they were not required to document this assessment, contract  documents did not provide evidence of an assessment of subjectivity.  4.  Officials for most of the contracts we reviewed stated they had  determined that a review of technical proposals other than that of the  lowest-price offeror would not identity factors that could provide other  benefits. In one case officials ultimately reviewed additional proposals,  which is allowed under current DOD source selection guidance.

DOD’s March 2016 source selection guidance does not require  contracting officers to consider the fifth and sixth criteria listed in Section  813. Accordingly, we found that contracting officers did not always  document justifications for choosing LPTA procedures and did not  determine that the lowest price offered reflected full life-cycle costs.  Specifically, we found that:  5.  Although the files for all 7 contracts contained some record of the  choice of LPTA source selection procedures, files for 3 of the 7  contracts simply stated that LPTA procedures would be used and did  not include an explanation or justification for the choice. Only the  documents for the four Air Force contracts included some explanation  of the reasons for choosing LPTA source selection procedures. While  not required by DOD source selection guidance when our selected  contracts were approaching source selection, providing a justification  for using LPTA is one of the criteria that Section 813 requires DOD to  include among the revisions to the DFARS.  6.  None of the officials for our selected contracts had confirmed that the  lowest price offered reflected full life-cycle costs, which is one of the  criteria that Section 813 requires DOD to include among the revisions  to the DFARS. For the mail delivery, telephone maintenance, and  base operations support contracts we reviewed, two contracting  officials noted that full life-cycle costs were not applicable and a third  stated that life-cycle costs cannot be determined for a service  contract. As previously noted, all of the contracts in our review were  for services, not for products. A Defense Procurement and Acquisition  Policy official acknowledged that the application of the criterion could  cause confusion and that DOD officials are considering this issue as  part of efforts to revise the DFARS.

As previously noted, DOD is currently developing the revisions to the  DFARS that are contemplated by Section 813. DOD officials could not  provide a specific timeframe for when the DFARS would be revised,  noting that the revisions would need to be reviewed by the Office of  Information and Regulatory Affairs at the Office of Management and  Budget, and then released for public comment before the revisions could  be finalized.

We are not making any recommendations in this report. We provided a  draft of this report to DOD for comment. DOD had no comments on the  draft report.

We are sending copies of this report to appropriate congressional  committees and the Secretary of Defense. The report will be available at  no charge on GAO’s website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or dinapolit@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix I.

Appendix I: GAO Contact and Staff Acknowledgments

In addition to the contact named above, the following staff members  made key contributions to this report: Justin Jaynes (Assistant Director),  Matthew T. Crosby, Lorraine Ettaro, Stephanie Gustafson, Julia Kennon,  Victoria Klepacz, W. William Russell, Roxanna Sun, Ann Marie Udale,  Khristi Wilkins, and Lauren Wright.

Savvy customers may seek the lowest prices when choosing to have their neighbor’s kid mow their lawn, but may think twice when selecting a surgeon.

DOD faces a similar choice—it may use the "lowest price technically acceptable" process and pay less or use a "trade-off" process and possibly pay more if additional benefits outweigh the higher cost.

Recent legislation states DOD should avoid using the lowest price process for complex services like cybersecurity. We found that for contracts worth over $10 million, DOD seldom used the lowest price process for complex services, but rather for services like phone maintenance.