Defense Contracts: DOD Should Develop a Strategy for Assessing Contract Award Time Frames

DOD's contracting process is designed to protect taxpayers' interests, among other things, and can take time. DOD leadership and contractors have expressed concern about the length of time to award contracts and DOD has proposed reducing that time.

GAO was asked to evaluate the length of time to award weapon systems contracts. This report examines (1) DOD's efforts to determine the time it takes to award contracts; (2) data on the time interval from solicitation to contract award for selected contracts; and (3) factors identified as contributing to contract award time frames.

GAO used the Federal Procurement Data System-Next Generation to identify new weapon systems-related contracts awarded in fiscal years 2014 through 2016, valued over $5 million, among other factors. GAO selected a nongeneralizable sample of 129 contracts at four DOD components with the highest total dollar value and highest number of contracts from those fiscal years for further analysis. GAO analyzed contract documentation and surveyed contracting officials on a subset of contracts to determine the factors affecting the time between solicitation issuance and award.

Although the Department of Defense (DOD) has proposed reducing the time it takes to award contracts related to weapon systems, the department has a limited understanding of how long it currently takes and therefore lacks a baseline to measure success. The DOD components GAO reviewed—Air Force, Army, Defense Logistics Agency, and Navy—collect data on their time frames for awarding contracts. However, they do so in different ways in the absence of a DOD-wide strategy for what information should be collected. For example, the Air Force measures the time to award beginning with solicitation issuance, while the other components use a different starting point. As a result, information the components collect is not comparable and is of limited use for understanding contract award time frames department-wide. Determining what information is needed to monitor time taken to award contracts consistently across components should help DOD assess its progress toward reducing the time.

GAO analyzed the time from solicitation issuance to award for 129 weapon systems-related contracts and found it ranged from less than a month to over 4 years. Although some DOD and industry officials stated that contract value could affect contract award time frames, GAO observed a wide range of time intervals and did not observe any patterns based on this characteristic. (See figure below.)

According to DOD contracting officials GAO surveyed, factors that can help reduce—or, alternatively lengthen—the time between when a solicitation is issued to when a contract is awarded include a decision to make the contract award an office priority and how quickly contractors respond to requests for additional information after initial proposals are received.

GAO recommends that DOD develop a strategy that identifies the information it needs to collect and how it will use the information to assess contract award time frames. DOD concurred.

The Department of Defense (DOD) uses contracts to procure many  different types of supplies and services—including weapon systems.  Because DOD spends billions of dollars annually to support the  warfighter’s missions, having an efficient contract award process is  critical. DOD leadership, as well as contractors, has expressed concern  about the length of time it takes to award contracts, and Congress has  directed DOD to take steps to define and report on these times. DOD  leadership has also proposed reducing that time.

You asked us to review the time frames involved in awarding weapon  systems-related contracts. This report examines (1) DOD’s efforts to  determine the time it takes to award weapon systems contracts; (2) what  available data show regarding the time between solicitation issuance and  award for selected weapon systems-related contracts; and (3) factors  identified as contributing to contract award time frames. For the purposes  of our review, we considered the time it takes to award contracts as the  time from solicitation issuance through contract award.

To examine DOD’s efforts to determine the time it takes to award  contracts, we selected four DOD components (Air Force, Army, Defense  Logistics Agency, and Navy) based on the highest total number of  contracts awarded and highest total contract value. We analyzed DOD  and component-level guidance, policies, memorandums, and studies on  the contract award process. We interviewed acquisition officials at DOD  and the selected components regarding data related to the time to award  contracts, such as quarterly or monthly management briefings.

To examine what available data show regarding the time between  solicitation issuance and award, we used the Federal Procurement Data  System-Next Generation (FPDS-NG) to identify newly awarded DOD  weapon systems-related contracts from fiscal years 2014 through 2016,  with a contract value of $5 million or more, among other factors. From  the selected components, we selected contracts from the largest  commands (Air Force Materiel Command, the Army Contracting  Command, Defense Logistics Agency-Aviation, the Naval Air Systems  Command, and the Naval Sea Systems Command) based on the highest  total number and highest total value of the contracts awarded. We  identified a nongeneralizable selection of 129 new contracts awarded at  these five commands. We verified the contract data in the contract  documentation based on value, extent competed, and contract type, and  compared the data reported in FPDS-NG. We determined that the FPDS- NG data were sufficiently reliable for identifying and analyzing the  nongeneralizable sample of contracts.

To identify factors that affected the time it took DOD commands to award  weapon systems-related contracts, we randomly selected a  nongeneralizable sample of 60 contracts, which is a sub-set of the 129  selected contracts, for a more in-depth web-based survey of contracting  officials, such as contracting officers or contracting specialists. Our  analysis is based on 37 eligible responses from the 60 contracts we  surveyed. We then selected 7 of the 37 surveyed contracts as case  studies to assess how the various factors affected the contract award  time frames. For the 7 case studies, we reviewed contract documentation  and conducted interviews with available contracting officials, program  office officials, and contractor representatives. For additional information  on our scope and methodology, see appendix I.

We conducted this performance audit from January 2017 to July 2018 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.

DOD’s contracting process—governed by laws and regulations—seeks to  promote competition, be transparent in conducting business and  ultimately satisfy DOD users in terms of cost, quality, and timeliness to  protect taxpayers’ interests. DOD’s acquisition process begins at the point  when agency needs are established; it includes requirements  development and acquisition planning, a process for awarding contracts,  and contract administration. While we recognize that requirements  development and acquisition planning can affect the time it takes to  award a contract, this review focuses on the time from solicitation  issuance to contract award. An overview of competition in contracting,  contract phases, and DOD initiatives follows.

Federal statutes and the Federal Acquisition Regulation (FAR) generally  require that federal agencies award contracts through full and open  competition, but recognize that such competition is not always feasible or  desirable, and authorize the use of other than full and open competition  under certain conditions. The exceptions include: only one responsible source exists and no other supplies or services  will satisfy agency requirements; unusual and compelling urgency exists; or when authorized or required by statute (for example, statutorily  allowed sole-source awards to small businesses).

Even when using other than full and open competition, agencies must  solicit offers from as many potential sources as is practicable. Generally,  contracts awarded using other than full and open competition must be  supported by written justifications and approvals that contain sufficient  facts and rationale to justify the use of the specific exception to full and  open competition. The approval level for these types of contracts varies  according to the dollar value of the procurement.

The acquisition planning phase includes pre-solicitation activities such as  market research and defining requirements, among others. We identified  four contract phases subsequent to acquisition planning: solicitation,  initial evaluation, discussion/negotiation, and contract award. See figure  1.

Solicitation: Agencies solicit offers from prospective contractors by  issuing a request for proposals. The request for proposals informs the  prospective contractors of the government’s requirements, the  anticipated terms and conditions that will apply to the contract, the  information required in a proposal and, in a competitive acquisition,  the factors used to evaluate proposals and their relative importance.  Those who wish to respond must submit their proposal to the  government office in the time and manner stated in the request for  proposals. We consider the solicitation phase to begin with solicitation  issuance and end at the deadline to submit the initial proposals.

Initial Evaluation: Proposal evaluation is an assessment of the  proposals and the offerors’ ability to perform the prospective contract  successfully. For example, proposals undergo technical evaluation to  determine offerors’ ability to meet the technical requirements and cost  or price evaluation to determine whether the price is fair and  reasonable. Agencies also evaluate proposals when using other than  full and open competition as part of agency preparation for negotiation  with the offerors. We consider the evaluation phase to begin when  contractors submit initial proposals and to end once government  contracting personnel receive approval to enter into negotiations or  discussions.

Discussion/Negotiation: Negotiations are exchanges, in either a  competitive or sole-source environment, between the government and  offerors that are undertaken with the intent of allowing the offerors to  revise the proposals. Negotiations allow the offerors to address any  concerns with the proposals or provide additional information on  relevant past performance, among other things. We consider this  phase to start when the contracting officer receives approval to enter  into negotiations and end when contracting personnel receive  approval to award the contract.

Contract Award: We consider the contract award phase to start  when the approval to award the contract is given and end when the  contracting officer signs the contract.

DOD Initiatives: Source Selection Procedures and Peer Reviews

The following DOD initiatives identify certain tasks that contracting  officials should address between solicitation issuance and contract award:

Source Selection Procedures: DOD updated its source selection  procedures in April 2016 to help standardize the process to deliver  products at the best value. These procedures outline a common set  of principles and procedures for conducting acquisitions in  accordance with applicable statutes and regulations. Unless waived,  the source selection procedures apply to all acquisitions conducted as  part of a major system acquisition and all competitively negotiated  acquisitions with an estimated value of more than $10 million.

Peer Reviews: The Office of Defense Procurement and Acquisition  Policy is responsible for all pricing, contracting, and procurement  policy matters within DOD and has required peer reviews of certain  DOD acquisitions since 2009. The office currently conducts peer  reviews for all procurements with an estimated value of over $1 billion  and for noncompetitive procurements for new contract actions valued  at $500 million or more. The office generally conducts peer reviews  prior to issuance of the solicitation, prior to request for final proposal  revisions, and prior to contract award, as well as periodic post-award  reviews. Peer review teams include contracting officials from the  military departments and defense agencies as well as legal advisors.  For acquisitions below $1 billion, the military components must  establish their own policies for conducting reviews based on expected  acquisition value and the extent of competition.

DOD Components Have Taken Steps to Track the Time Frames for Awarding Contracts, but DOD Does Not Have a Strategy for Assessing the Information

DOD components in our review have efforts underway to track and  reduce the time to award contracts, but these efforts are not coordinated  across the department. The DOD components collect information on the  time to award contracts, but differ on what information they collect and  how they use it. DOD is taking a number of actions to understand the  information the components collect such as determining what events are  tracked, but DOD does not have a department-wide strategy for collecting  and assessing the components’ information. DOD has proposed reducing  how long it takes to award contracts.

DOD Components Collect Varying Levels of Information about the Time Frames for Awarding Contracts

Each component we reviewed collected information on the length of time  to award certain contracts, but the information varied. The differences  include: (1) the types of contract actions tracked; (2) the start of the  period measured; (3) whether components track interim dates between  solicitation issuance and award; and (4) how goals to reduce the length of  time are determined. For example, the Air Force limits its scope to  discrete contract value ranges while the other components include  broader dollar ranges. The components also use different starting points  to measure the time frames. For example, the Army Contracting  Command currently tracks time starting from the submission of an  adequate requirements package to contracting officials, which occurs  before solicitation issuance. The Air Force, however, tracks how long it  takes to award a contract starting from solicitation issuance. The selected  components in our review also differ in collecting data for interim phases  of the contract award process—such as evaluation or negotiation. Both  Navy commands capture multiple data points, such as when negotiations  begin, among other events, but there is no common practice for including  certain data across the commands that is provided to DOD. Table 1  shows the broad categories of information collected.

Concerns within the Air Force about the length of time taken to award  contracts led to a process, begun in 2014, for tracking award times for  sole-source contracts, including identifying practices and procedures that  contributed to the time, according to Air Force contracting officials. The  officials stated that this effort helped to reduce the average time to award  sole-source contracts between $50 million and $500 million from about 16  months in fiscal year 2014 to about 12 months in fiscal year 2017. Air  Force officials attributed the reductions in time to various streamlining  initiatives, such as asking for contractors’ feedback on draft solicitations  and clarifying as needed.

Beginning with new contracts awarded in fiscal year 2014, the Air  Force collected information on sole-source contracts between $50  million and $500 million. In early fiscal year 2018, the Air Force  expanded its data collection to include competitive contracts from $50  million to $1 billion.

The Air Force tracks the time starting from solicitation issuance to  contract award. It also tracks interim phases of contract awards such  as the start of evaluation or negotiation.

According to Air Force officials, they establish fiscal year goals to  measure progress based on the average of schedule dates.

The data for both the sole-source contracts and now the competitive  contracts are collected through a manual data call and are entered  into a spreadsheet. The data are reported to the Office of the  Assistant Secretary of the Air Force for Acquisition.

In November 2017, the Deputy Assistant Secretary of the Army  (Procurement) called for the formation of an Army-wide team to examine  approaches for improving procurement time frames similar to one already  underway at the Army Contracting Command. The command began  tracking the lengths of time to award contracts in 2015, and expanded the  effort across the command in January 2017. The Army Contracting  Command:

Tracks all procurements based on dollar thresholds, dividing the  contracts by competitive and non-competitive actions.

Tracks the time from the receipt of the requirements package to  contract award. The process does not capture interim phases of  contract award such as the start of evaluation or negotiation.

Establishes goals by averaging historical data. For instance, a  competitively awarded contract between $50 million and $250 million  is estimated to take 600 days. Army officials stated that they track  actual performance against their goals on a quarterly basis.

Collects data through its Virtual Contracting Enterprise system, which  includes electronic contract files that can be used to obtain contract  data such as solicitation issuance date. The command computes  averages by aggregating the data by dollar threshold, contracting  organization, and portfolios—such as weapon systems or services  contracts.

In November 2014, the Defense Logistics Agency examined awards from  2011 to 2013 to determine areas to focus on to make the contract award  process more efficient. Defense Logistics Agency contracting officials  stated that they have reduced the award time since they began their  assessment by streamlining their procedures. The agency:

Collects contract data for all of its procurements.

Measures the time period from receipt of purchase requirement  package to contract award, but not the phases in between solicitation  and contract award—such as evaluation or negotiation.

Establishes a goal based on historical averages for the various  contract types, such as long-term contracts or delivery orders, in order  to aggregate contracts with similar characteristics. The agency varies  the goals according to the kind of contract, such as those using  simplified acquisition procedures or larger value contracts. For  example, the Aviation command’s goal is to award contracts that  require certified cost or pricing data with a period of performance that  exceeds 3 years within 315 days for fiscal year 2018. For those  contracts that do not require certified cost or pricing data, the goal is  215 days.

Collects contract data using its contract management systems,  continues to assess whether it is meeting timeliness goals on a  monthly basis, and revises goals each fiscal year to reflect changes in  trends and volume of contract actions.

Starting in May 2015, the Navy contracting commands presented data  quarterly on execution of contracts and areas for improvement within the  contract award process to the Office of the Assistant Secretary of the  Navy, (Research, Development, and Acquisition) in response to concerns  about the length of time for contract awards. The Navy commands we  selected have made efforts to identify bottlenecks within the contract  award process. For example, their analysis of the data highlighted the  timeliness and quality of the procurement request as a common issue  among the Navy contracting commands as well as the justification and  approval cycle for sole-source awards. The analyses also included areas  for improvement during the process, such as improving guidance and  training for technical evaluation teams and exploring opportunities to  streamline or waive some peer reviews.

Naval Air Systems Command piloted the Procurement Management  Tool in fiscal year 2013. The Procurement Management Tool is an  electronic system to collect information on contracts, which allows  contracting officials to forecast and manage procurement time frames.  The system:

Maintains data from all of the Naval Air Systems Command’s  contracts, starting from acquisition planning (pre-solicitation  efforts), in addition to various interim dates such as proposal  receipt. The tool allows contracting officials to compare planned,  revised, and actual dates.

Tracks the overall length of time to award contracts. Navy  contracting officials said they use the planned dates as the  baseline to compare to the actual dates to determine the variance.  Their goal is to reduce the variance between the dates.

Uses data from the Command’s contract writing systems, but  updates are done manually. Data are made available to Naval Air  Systems Command officials and provide them a high-level view of  the cost and cycle time drivers that may be selected for further  investigation. Reports can be generated at any time, on an as- needed basis.

Naval Sea Systems Command, starting in 2005, conducted analyses  on the contract award phases that were used to identify problem  areas that added time beyond what was anticipated. The analyses  also capture data from entities outside of the contracting office, such  as program offices. Naval Sea Systems Command has used the  analyses to implement streamlining initiatives as well as establish  performance measures to assess progress on a quarterly basis. A  Naval Sea Systems Command official told us that the command has  reduced the average length of time to award contracts above  $750,000. Specifically, for competitive contracts, the average was  reduced from 467 days to 387 days (about 18 percent), and for sole- source contracts the average was reduced from 336 to days to 278  days (about 18 percent) from fiscal year 2013 through fiscal year  2017.

The Naval Sea Systems Command tracks its contracts valued at  $750,000 or greater using an electronic data base—E-milestone— to collect contract information. The data base collects information  starting from pre-solicitation efforts, which includes the purchase  request to contract award. The system includes interim dates  within the contract award process, such as the beginning of  evaluation.

Contracting officials are responsible for capturing both planned  and actual dates in the system. Analysis of the variation between  the planned and actual dates can be used to identify areas where  difficulties occur.

Command officials stated that their goal is to reduce the variance  between the planned and actual dates. The system reports  performance metrics monthly to program executive offices as well  as to higher offices. The metrics the command collects reveal  acquisition process bottlenecks and facilitate corrective action and  acquisition streamlining.

DOD Has Proposed Reducing the Length of Time to Award Contracts but Does Not Yet Have a Strategy for Assessing the Information Components Collect

According to Defense Procurement and Acquisition Policy officials, DOD  is taking steps to address its concerns about the time to issue sole-source  contract awards for major weapon systems. DOD has proposed reducing  this time by 50 percent over a 3-year period, as measured from the  receipt of the requirements to contract award. DOD officials also plan to  expand this effort to include competitively awarded contracts.

While DOD has proposed reducing the length of time to award contracts  by as much as 50 percent, according to DOD officials, it does not have a  department-wide strategy for the information components are to collect  and report because it has not defined what is to be measured. Internal  control standards for the federal government state that management  should use relevant information to make informed decisions and evaluate  an agency’s performance in achieving key objectives and establish a  baseline as a measure to assess progress in achieving its goals.

As discussed above, DOD components have made some efforts to collect  information to understand the length of time to award contracts for their  own management purposes. Since the components differ on when they  start measuring the time to award contracts and whether they collect data  on interim dates between solicitation issuance and contract award, it is  difficult for DOD to ensure that the data from the various components are  comparable and comprehensive. This issue was highlighted in the  National Defense Authorization Act for Fiscal Year 2018, which contained  a provision for DOD to develop a definition of “procurement administrative  lead time” to be used throughout the department and a plan for  measuring and publicly reporting data on procurement administrative lead  time. DOD proposed a definition for the procurement administrative lead  time as the time between the date on which DOD issues the initial  solicitation for a contract or task order and the date of the award in a  February 2018 notice in the Federal Register. The proposed definition  applies to DOD contracts and task orders above the Simplified Acquisition  Threshold. In addition to issuing the Federal Register notice, Defense  Procurement and Acquisition Policy officials have started working with the  military components (Army, Navy, and Air Force) to understand the  information they have on the time frames for awarding contracts. Further,  DOD officials stated that they are starting to identify events common  across the components, relative to contract award time frames. According  to DOD officials, DOD plans to include pre-solicitation events and some  interim events between solicitation issuance and contract award in its  DOD-wide data collection efforts. Because DOD’s efforts are in the early  stages, they have not established which specific events to measure and  how they will use the information collected. Without a strategy for data  collection and assessment, DOD will be limited in its ability to assess  progress toward achieving its proposed goal and addressing challenges  across components.

Most of the Selected Weapon Systems- Related Contracts Were Awarded within a Year

Our review of a nongeneralizable selection of 129 weapon systems- related contracts had a wide range of time intervals from solicitation  issuance to award. The time intervals from solicitation to award ranged  from less than a month to more than 4 years, with a median of about 9  months. Based on our analysis, 88 of the 129 contracts were awarded  less than a year from the solicitation issuance date, while 38 were  awarded between 1 and 2 years. The remaining 3 selected contracts took  more than 2 years to award. We analyzed the time taken to award  contracts based on three characteristics identified by some DOD officials  and contractor representatives that may affect the time taken to award  contracts: contract value, extent competed, and contract type. We did not  observe any patterns based on these characteristics. The results of our  analysis are as follows.

We found a wide range of time intervals for the 129 contract awards we  reviewed, which ranged from about $5 million to over $12 billion. We  observed that both shortest and the longest time intervals from solicitation  to contract award were for contracts valued under $50 million. One of the  two contracts that were awarded within 20 days had a contract value of  about $7 million for commercial software services. Figure 2 summarizes  information on the time interval based on contract value.

DOD contracting officials and industry representatives we interviewed  stated that contracts awarded using full and open competition could have  a longer time interval than contracts awarded using other than full and  open competition due to the need to evaluate proposals from multiple  offerors. Twenty-seven of the 129 contracts in our review used full and  open competition, and the remaining 102 contracts used other than full  and open competition. Based on our analysis, roughly two-thirds of the  selected contracts in either group took less than 1 year to award.  Specifically:

Eighteen of the 27 selected contracts awarded using full and open  competition were awarded within a year of solicitation issuance, and  the remaining 9 were awarded between 1 and 2 years.

Seventy of the 102 selected contracts awarded using other than full  and open competition were awarded within a year and 29 of the 102  were awarded between 1 and 2 years.

DOD contracting officials and industry representatives we interviewed  asserted that firm-fixed-priced contracts would generally take a shorter  amount of time to award. For example, Navy contracting officials told us  that other than firm-fixed-priced contracts—such as contracts with award  or incentive fees—could take longer to award because the government  would need to negotiate the fee structure with the contractor. We found a  wide range of time intervals based on contract type. Roughly two-thirds of  the 129 selected contracts were awarded in less than 1 year regardless of  contract type. Specifically:

Thirty-eight of the 53 firm-fixed-price contracts were awarded within a  year of when the solicitation was issued and 50 of the 76 other  contracts were awarded within a year of solicitation issuance.

Survey Respondents Identified Several Factors Affecting the Time Frame for Awarding Contracts

The results of our survey of contracting officials for 37 contracts showed  that contracting officials cited a number of factors—such as the quality of  the proposal—that helped reduce or increase the time to award the  selected contracts. They did not identify any one factor that consistently  affected the time to award. Officials for more than half of the contracts  reported needing more time to award the contracts than they initially  anticipated.

Survey Respondents Reported that Most of the Contracts Took Longer than Anticipated to Award and Identified Various Factors That Affected Overall Length of Time to Award Contracts

DOD contracting officials we surveyed for 23 of 37 contracts reported  needing more time to award their contract than anticipated at the time  they issued their solicitation. Table 2 summarizes how respondents in  our survey characterized differences between the anticipated contract  award date and the actual date.

DOD contracting officials cited the decision to make the award an office  priority and contractor responsiveness as factors helping to decrease the  overall time. In addition, contracting officials for four contracts awarded  using full and open competition cited receiving waivers or deviations from  relevant federal and service-level acquisition regulations as a factor that  reduced the time. In case study interviews, contracting officials for two  of these four contracts added that peer review waivers and delegation of  the decision authority level to a lower level helped decrease the overall  time. According to these contracting officials, they received these waivers  because the procurements were considered low risk since the  requirements that the offerors needed to meet were straightforward. DOD  policy officials said peer review waivers are infrequently requested and  granted on case-by-case bases. According to these officials, as of March  2018, 14 peer review waivers had been requested since fiscal year 2016  and all of them were granted.

In contrast, contracting officials responding to our survey cited several  factors that lengthened the time for contracts that were awarded later  than anticipated. For example, in the solicitation phase, contracting  officials for contracts awarded using full and open competition cited the  lack of quality of the solicitation as a factor that lengthened the time  needed, while contracting officials for contracts awarded using other than  full and open competition cited the contractor’s inability to provide a timely  proposal and government changes in requirements. In an Air Force  cost-plus-award-fee contract awarded using other than full and open  competition for a ballistic missile-related system valued over $400 million,  a contracting official noted that the government changed some of the  requirements after solicitation issuance. This resulted in amendments to  the solicitation and revisions to the contractor’s proposal, which increased  the time needed in the solicitation phase, and led to the contract being  awarded later than anticipated.

Various Factors Affected Specific Phases from Solicitation Issuance to Contract Award

Based on survey responses, we also found variation in the factors that  shortened or lengthened the time needed in the different phases—  solicitation, initial evaluation, and negotiation. Contracting officials  pointed out, however, that additional time needed in one phase could  result in less time being needed in other phases.

Contracting officials cited factors related to the quality of the solicitation  and whether there were government changes in requirements as  shortening or lengthening the time in this phase.

Contracting officials for contracts awarded using other than full and  open competition cited the contractor’s inability to provide a timely  proposal as a factor that lengthened this phase. For an Army sole- source contract for aircraft maintenance and sustainment support,  contracting officials told us that the solicitation phase took longer than  anticipated. This phase took over 10 months from the solicitation  issuance to when the contractor submitted a proposal. According to  the contractor, after solicitation issuance, the government made some  changes to the requirements, including the quantities of items. During  that period, labor rates had changed, which increased the time  needed to submit a proposal so that these changes could be  incorporated.

Some of the factors cited by contracting officials as shortening or  lengthening the evaluation phase included those related to the quality of  the proposal, the acquisition workforce, or the staff performing  evaluations or approving the analyses. Technical and cost or price  evaluations, among others, assess the offerors’ ability to perform  successfully, ensure that offerors’ proposals meet the requirements listed  in the solicitation, and establish that the price is fair and reasonable.  Contracting officials we surveyed cited different factors based on the cost  or price evaluation, technical evaluations, and the extent competed.

Contracting officials with contracts awarded using full and open  competition cited the number and quality of the proposals—whether  they needed revisions or not—as shortening or lengthening the time  needed to complete technical evaluations. For cost or price  evaluations, they cited the number of proposals received and the  completeness of the information provided by the contractor.

Contracting officials with contracts awarded using other than full and  open competition cited contractor responsiveness to requests for  additional information as a factor regardless of the time needed to  complete both types of evaluations. For cost or price evaluations,  contracting officials cited factors related to the proposal, such as its  quality and timeliness, as among the factors that helped shorten the  time. In a case study involving a Navy sole-source research and  development contract valued over $1 billion for the Next Generation  Jammer, contracting and program officials said it took the contractor  about 4 months after submitting the initial proposal to provide the  contracting office a complete proposal due to delays in getting  subcontractor information. According to these officials, despite the  delay, they did not need more time in this phase since they were able  to start evaluating the initial proposal consisting of the prime  contractor’s technical and cost information, and incorporate analyses  for the subcontractor information once they received it.

Contracting officials that used other than full and open competition also  cited requesting audit assistance from the Defense Contract Audit Agency  as a factor that lengthened the time needed for cost or price  evaluations. For example, in a Navy firm-fixed-price contract that was  awarded using other than full and open competition for radar engineering  services valued at $221 million, an audit took longer than anticipated— about 5 months—due in part to a complex pricing model and delays in  receiving subcontractor pricing data. While the Defense Contract Audit  Agency and the contractor communicated on the pricing data and cost  structure, the agency was unable to complete its audit without the  subcontractor data.

In addition to agreeing on the price of a contract, the negotiation phase  also includes any additional evaluations of revised proposals.  Contracting officials cited the need for subsequent evaluations due to  revised proposals as a factor that lengthened this phase. Among other  factors, contracting officials cited the contract approval authority level and  the approving authority’s availability or responsiveness as factors that  shortened this phase. In contrast, contracting officials also cited bid  protests or agreement on fees as factors that lengthened it.

A contracting official for an Air Force contract awarded using full and  open competition cited pre-award bid protests as a factor that  lengthened the discussion phase. One of the offerors protested the  evaluation of its proposal, which was found technically unacceptable.  The offeror’s protest was denied because it was found that the  evaluation of the proposal was reasonable and consistent with the  terms of the solicitation. In addition, the offeror initially selected for  award of the approximately $17 million contract was the lowest priced  proposal that was found technically acceptable. However, the  contracting officer subsequently found the offeror nonresponsive due  to several challenges. These challenges and the pre-award bid  protest resulted in a longer than anticipated discussion phase, and the  award was made to the next lowest priced offeror.

Contracting officials for 2 contracts awarded using other than full and  open competition cited obtaining agreement on profit or fee as a factor  that lengthened the negotiation phase. For example, in an Army  contract for spares, maintenance, and overhaul of an airframe, the  government and the contractor disagreed over the profit margin.  Negotiations for the approximately $54 million contract stalled until the  issue was elevated to higher levels at both the contractor and the  government. This contract took about 22 months from solicitation  issuance to contract award, with the negotiations phase taking about  8 months from approval to enter into negotiations to approval for  contract award.

For additional information on the survey results, see appendix II.

DOD has proposed reducing the time to award contracts in order to  address concerns that it is taking too long. To measure progress against  its goal, DOD will need relevant information about the time frames  involved. DOD components are collecting information on the length of  time to award contracts, but their efforts differ. DOD does not have a  comprehensive strategy to use the component information already  available or to collect other information that may be needed to assess  contract award time frames. Having a DOD-wide strategy could enable  DOD to consistently and comprehensively track contract award time,  assess the factors contributing to this time, leverage the various efforts  that the components have taken, identify any best practices, and measure  progress toward any goals for reducing the time to award contracts.  Currently, DOD does not define the events that should be measured  occurring prior to solicitation or those that occur between solicitation  issuance and contract award. While the military components collect  various information about the length of time to award contracts based on  their specific needs and organizational structures, at a minimum, DOD  should have relevant information for its own management purposes. As  DOD implements provisions in the National Defense Authorization Act for  Fiscal Year 2018, the department has an opportunity to identify what  data, if any, beyond just the overall procurement administrative lead time  should be collected and reported. Identifying the information that is to be  collected is a necessary first step for DOD to assess its progress in  reducing the time taken to award contracts.

We recommend that the Secretary of Defense direct the Director,  Defense Procurement and Acquisition Policy to develop a strategy  regarding contract award time frames that identifies:  the information the department needs to collect; and how the department will use the information to assess the time it takes  to award contracts.

The strategy should seek to communicate the department’s goals related  to contract award time frames, seek to leverage ongoing data collection  efforts by the various components, and specify the events prior to  solicitation and between solicitation issuance and contract award that the  department believes should be tracked. (Recommendation 1)

We provided a draft of this report to DOD for comment. DOD concurred  with the recommendation. DOD provided written comments which have  been reproduced in appendix III. DOD also provided technical comments  which we incorporated as appropriate.

We are sending copies of this report to the Secretary of Defense; the  Under Secretary of Defense for Acquisition, Technology and Logistics;  the Secretaries of the Army, Navy, and Air Force; the Director, Defense  Logistics Agency; appropriate congressional committees; and other  interested parties. This report will also be available at no charge on  GAO’s website at http://www.gao.gov.

If you or your staff have any questions concerning this report, please  contact me at (202) 512-4841 or by e-mail at 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.

Appendix I: Objectives, Scope, and Methodology

We were asked to evaluate the length of time taken to award weapon  systems-related contracts. This report examines (1) the Department of  Defense’s (DOD) efforts to determine the time it takes to award weapon  systems contracts; (2) what available data show regarding the time  between solicitation issuance and award for selected weapon systems- related contracts; and (3) factors identified as contributing to contract  award time frames.

To understand the procedures DOD follows to award contracts and  DOD’s efforts to determine the time it takes to award contracts, we  reviewed relevant sections of the Federal Acquisition Regulation (FAR),  such as Part 6: Competition Requirements, and Part 15: Contracting by  Negotiation, and relevant sections of the Defense Federal Acquisition  Regulation Supplement. In addition, we analyzed DOD-level and  component-level guidance, policies, memorandums, and training  materials on the contract award process. We also reviewed Standards for  Internal Control in the Federal Government and prior GAO reports.

To determine the extent DOD components (Air Force, Army, Navy and  the Defense Logistics Agency) collected and analyzed data and how they  are managing the time from solicitation issuance to contract award, we  analyzed relevant documentation, such as monthly or quarterly  management reviews and briefings. We interviewed acquisition officials at  DOD and the components regarding studies or analysis conducted  related to the time to award contracts. We selected the components  based on the highest total number of contracts and highest total contract  value. We discussed contract award time frames included in studies or  analysis to determine the selected components’ or commands’ reasons  for conducting the analysis, any challenges identified, actions taken to  address those challenges, and ongoing efforts to reduce the time needed  to complete the contract award process. We also discussed their data  collection and verification process, but we did not independently verify the  data that were reported in the studies and analyses. We determined that  the data reported by the military components were reliable for the  purposes of describing data collection and analyses done by DOD  components. We also met with industry associations for their perspective  regarding the length of time to award weapon systems-related contracts.

Identifying Weapon Systems-Related Contracts

To understand the length of time taken to award DOD weapon systems- related contracts, and how contract value, extent competed, and contract  type relate to that time, we analyzed contract data for a nongeneralizable  sample of weapon systems-related contracts from the Federal  Procurement Data System-Next Generation (FPDS-NG). We used FPDS- NG to identify DOD weapon systems-related contracts that were newly  awarded from fiscal year 2014 through fiscal year 2016, with a contract  value of $5 million or more. To include weapon systems-related contracts,  we initially selected major defense weapon systems contracts as  identified by DOD and identified the supplies or service codes (Product  Service Code and North American Industry Classification Systems  codes). We then compared the list of contracts with contract information  in FPDS-NG to identify the contracts that contain the same codes to  identify similar supplies and services. We narrowed the number of  contracts using the DOD acquisition program field in FPDS-NG as a  proxy to identify weapon systems-related contracts. For multiple award  contracts, we selected the first contract awarded among those that were  awarded under the same solicitation as indicated by the contract number.  We excluded contracts that were awarded under specific circumstances  that use different acquisition procedures, such as contracts awarded  under simplified acquisition procedures. In addition, we excluded basic  ordering agreements; blanket purchase agreements; orders of any type,  including task and delivery orders; and extensions of existing contracts.  We excluded undefinitized contract actions and contracts that included  foreign funds or foreign military sales because of the peculiarities  associated with these procurements. We also excluded contracts coded  as Ballistic Missile Defense Organization in FPDS-NG because this field  was used broadly to include contracts for both weapon systems and non- weapon systems.

We further limited our selection of contracts to selected military  components—Air Force, Army, Navy and the Defense Logistics Agency  based on the highest number of contracts and highest total contract  value. We then identified the largest commands within these components  also based on the number of contracts and total contract value.

Navy- Naval Sea Systems Command  Defense Logistics Agency-Aviation, Air Force Materiel Command, and the  Army Contracting Command awarded the higher number of contracts and  the highest total value within their respective components. For Navy, the  Naval Air Systems Command awarded the higher number of contracts,  but the Naval Sea Systems Command awarded a higher total value, so  we included both.

For multiple award contracts, we selected the first contract awarded  among those that were awarded under the same solicitation as indicated  by the contract number. We excluded contracts that were awarded under  specific circumstances that use different acquisition procedures, such as  contracts awarded under simplified acquisition procedures. In addition,  we excluded basic ordering agreements; blanket purchase agreements;  orders of any time, including task and delivery orders; and extensions of  existing contracts. We excluded undefinitized contract actions and  contracts that included foreign funds or foreign military sales because of  the peculiarities associated with these procurements. We also excluded  contracts coded as Ballistic Missile Defense Organization in FPDS-NG  because this field was used broadly to include contracts for both weapon  systems and non-weapon systems. As a result, we initially identified a  nongeneralizable sample of 145 contracts. In addition, we used the  information contracting officials reported in our web-based survey to  confirm whether the 60 contracts we surveyed met our selection criteria,  and excluded those that did not. These exclusions resulted in a  nongeneralizable selection of 129 weapon systems-related contracts.

To assess FPDS-NG data reliability, we compared the FPDS-NG data to  the contract documentation that we obtained for the solicitation issuance  and contract award dates to verify the dates. We verified the contract  value, extent competed, and contract type by comparing the data  reported in FPDS-NG, such as the contract number and award value, to  information in the contract documentation. We also verified the solicitation  and contract award dates using contract documentation. We determined  that the FPDS-NG data was reliable for the purposes of identifying a  nongeneralizable sample of contracts and analyzing time between  solicitation and contract award dates, contract value, extent competed,  and contract type.

To obtain information on the factors that helped or hindered the length of  time to award contracts, we conducted a web-based survey of contracting  officials—such as contracting officers or contract specialists—for 60  contracts. The survey collected information from contracting officials on  the start and end dates of the solicitation, initial evaluation, discussion or  negotiation, and contract award phases. We also collected information on  factors that helped mitigate the time interval or hindered contracting  officials from completing the solicitation, initial evaluation, and discussion  or negotiation phases. For the survey, we additionally screened out  contracts awarded using sealed bidding. We also did not include the  Defense Logistics Agency-Aviation as part of the survey because it is a  combat support agency providing weapon systems parts for the military  services. From 145 of the 171 selected weapon systems-related  contracts, we randomly selected 20 contracts from the Air Force Materiel  Command, 20 from the Army Contracting Command, 10 from the Naval  Air Systems Command, and 10 from the Naval Sea Systems Command  for a nongeneralizable survey sample.

For the survey, we identified the time to award contracts by phases, from  solicitation issuance to contract award. These phases are based on  discrete events found in the FAR or component-specific guidance as  necessary steps in awarding a contract by negotiation.

Solicitation: from solicitation issuance to solicitation closing date or  Initial Evaluation: from solicitation closing date or receipt of initial  proposal to when contracting personnel receive approval to enter into  discussion or negotiation

Discussions/negotiations: from approval to enter into discussion or  negotiation to approval to award the contract

Contract award: from approval to award the contract to the date the  contract was signed by the contracting officer.

We conducted a total of eight telephone pre-tests on the contents and  format of the survey with officials from the Air Force Materiel Command,  Army Contracting Command, Naval Air Systems Command, and Naval  Sea Systems Command to determine if the questions were  understandable and answerable, in addition to verifying that the  terminology used in the survey was accurate, and that the survey was  unbiased. As a result of the pre-tests, we refined the survey as  appropriate. We emailed a link to the web-based survey to contracting  officials for the 60 selected weapon systems-related contracts on October  19, 2017. To encourage respondents to complete the survey, we sent  reminder emails and made telephone calls to contracting officials after the  initial email was sent. We closed the survey on January 10, 2018. Of the  60 contracts we surveyed, we excluded 18 contracts that did not meet our  selection criteria based on the responses from the contracting officials.  These included contracts that were not newly awarded, used sealed bid  procedures, or contained foreign funding or foreign military sales. Of the  42 remaining contracts, we received responses from contracting officials  for 37 contracts, for an overall response rate of 88 percent.

The survey included event dates, which differentiate between the phases.  We did not verify the start and end dates of the phases reported in the  survey and relied on contracting officials’ responses. We did, however,  verify the dates for solicitation issuance and contract award against the  FPDS-NG reported data and contract documentation as part of the  verification process for the 129 selected contracts. We emailed  contracting officials in certain instances where we needed clarification on  survey responses. For example, we followed-up on responses that  differed from FPDS-NG reported data and responses that indicated that a  contract was awarded using both full and open and other than full and  open competition, among others. We made corrections to the data as  needed.

For more in-depth information on the factors and circumstances that  affected the time from solicitation issuance to contract award, we selected  7 contracts from the survey for further analysis. To obtain a variety of  contract characteristics, we selected the case studies based on certain  criteria including: (1) representation of different DOD components; (2) a  range of longer and shorter time intervals between solicitation and  contract award date; (3) contracts with larger contract value; and (4) the  extent the contracts were competed. We selected 4 contracts awarded  using other than full and open competition and 3 awarded using full and  open competition. For the purposes of our report, full and open  competition after exclusion of sources is considered to be full and open  competition. We did not select contracts from the Naval Sea Systems  Command as part of our case study because the extent of competition  was not confirmed at the time of selection.

For these 7 contracts, we reviewed the survey results, analyzed contract  file documentation, and conducted interviews with available contracting  officials and program office officials, as well as contractor representatives  to obtain their perspectives on the factors that helped or hindered the time  from solicitation issuance to contract award.

Appendix II: Supplemental Survey Results for Selected Questions from GAO’s Survey of Factors Affecting the Length of Time to Award Contracts

We distributed a web-based survey to a random sample of contracting  officials for 60 weapon systems-related contracts and reviewed  responses for 37 contracts. The survey results presented in tables 4  through 13 are nongeneralizable. For more information on our  methodology for designing and distributing the survey, see appendix I.

Appendix III: Comments from the Department of Defense

In addition to the contact named above, Penny Berrier (Assistant  Director), Peter Anderson, David Ballard, Sonja Bensen, Lorraine Ettaro,  Kurt Gurka, Gina Hoover, Julia Kennon, Carol Mebane, Anh Nguyen,  Bonita Oden, Jenny Shinn, Abby Volk, and Robin Wilson made major  contributions to this report.

Department of Defense leadership and defense contractors have expressed concerns about the length of time it takes to award contracts, and DOD has proposed reducing that time.

We found DOD does not know how long it currently takes to award contracts and therefore does not have a baseline to measure progress in reducing time frames. DOD components—for example, the Air Force—collect some data on award time frames. But varying scopes and methods limit the usefulness of those data across DOD.

We recommended that, to assess time frames for awarding contracts, DOD determine what information it should collect and how to use that information.


Federal Health Insurance Exchange: CMS Needs to Ensure Complete Accurate Data on Terminations of Coverage for Nonpayment of Premiums

CMS has noted that it is important for enrollees to maintain continuous health insurance coverage to ensure the stability of the FFE. Certain rules allow for enrollment flexibilities—such as special enrollment periods and a 3-month grace period that is allowed before coverage is terminated for recipients of federal income-based subsidies who default on their premiums. However, some issuers have stated that these rules could be misused, resulting in non-continuous coverage. There are little data on the extent to which enrollees maintain continuous coverage during a year and, more specifically, on the extent to which coverage is terminated for nonpayment of premiums.

GAO examined (1) the extent to which FFE enrollees maintained coverage in 2015 and (2) the extent to which CMS has reliable data on termination of enrollees' coverage for nonpayment of premiums. GAO analyzed CMS's 2015 FFE enrollment data (the most recent year of available data); interviewed CMS officials and selected issuers; and reviewed applicable laws and guidance from CMS.

In 2015, 9.2 million individuals enrolled in the federal health insurance exchange in 37 states. Eligible individuals (e.g., U.S. citizens or those lawfully present in the United States) are able to enroll in health coverage during the annual open enrollment period. Outside of open enrollment, eligible individuals may enroll in coverage or change their coverage selection during special enrollment periods. Individuals may enroll under a special enrollment period if, for example, they lost their coverage from another source, such as Medicaid or an employer, or due to relocation. Under federal regulations, enrollees may not sign up for coverage under a special enrollment period citing loss of coverage if the coverage was lost due to nonpayment of premiums.

About half (53 percent) of the 2015 federally facilitated exchange (FFE) enrollees maintained continuous health insurance coverage throughout the year—that is, they began coverage between January 1 and March 1, 2015, and maintained it through December 31, 2015. These individuals had an average of 11.6 months of coverage. The remaining 47 percent of FFE enrollees started their coverage later or ended it during the year; they averaged 5.0 months of coverage. Enrollees could have voluntarily ended coverage—due to gaining other coverage, for example—or have had it terminated by the Centers for Medicare & Medicaid Services (CMS) or the issuers of coverage for valid reasons, including losing eligibility for exchange coverage or for nonpayment of premiums.

CMS does not have reliable data on issuer-generated terminations of coverage for enrollees' nonpayment of premiums. Although CMS and issuers share data on the terminations each generates and reconcile their data on a monthly basis to ensure data accuracy, the agency does not require issuers to consistently report data on the reasons for terminations. Officials told us they do not track these data because they are not critical to ensure the accuracy of the federal subsidy amounts—which is the main function of the monthly reconciliation process. Further, CMS lacks a transparent process to ensure the accuracy of these data, as the monthly reconciliation files transmitted between CMS and issuers do not include a place to capture data on termination reasons. Issuers said that they are therefore unable to ascertain whether data they provide on the reasons for termination match CMS's data, and thus they cannot make corrections where necessary.

The agency's lack of reliable data on terminations for nonpayment limits its ability to effectively oversee certain federal regulations. For example, because CMS is not systematically tracking these data, it cannot tell whether enrollees applying for coverage under a special enrollment period had lost their coverage for nonpayment of premiums—in which case they would be ineligible for the special enrollment period per federal regulations. CMS could capitalize on its existing process, already familiar to issuers, by adding a variable that captures data on termination reasons to the monthly reconciliation file. By taking this step, in addition to requiring issuers to report these data, CMS could help ensure it has reliable and transparent data on terminations of enrollee coverage for nonpayment of premiums, and it could use these data to assess the effects of CMS policies and the overall stability of the exchange.

GAO recommends that CMS ensures it has (1) complete data on terminations of coverage for nonpayment of premiums; and (2) a transparent process to reconcile discrepancies and ensure the accuracy of these data. The Department of Health and Human Services concurred with both recommendations.

The Patient Protection and Affordable Care Act (PPACA) required,  beginning in 2014, the establishment of exchanges (or marketplaces) in  each state where eligible consumers can directly compare and select  among a variety of qualified health plans offered by participating private  issuers. The Centers for Medicare & Medicaid Services (CMS)—the  agency within the Department of Health and Human Services (HHS) that  oversees the federally facilitated exchange (FFE) in 39 states that elected  to use the FFE in 2017—has noted that, while consumers enrolled in  health insurance need to maintain continuous coverage for the entire year  to ensure a stable and affordable marketplace, exchange rules should  also allow individuals the flexibility to make changes to their enrollment in  response to life circumstances. However, some issuers offering health  insurance plans in the FFE have noted that certain of these rules could  also undermine enrollees’ incentives to maintain continuous coverage.

Specifically, issuers have raised concerns about enrollment that occurs  outside of the open enrollment period (OEP), which generally runs near  the start of the coverage year, and about enrollees ending their coverage  before the end of the year. Individuals may use special enrollment periods  (SEP) to sign up for coverage outside of open enrollment if they  experience a triggering event, such as losing coverage from another  source including Medicaid or an employer. However, issuers have noted  that an SEP could be misused if individuals, instead of signing up during  OEP, delayed enrollment until they were sick and had imminent health  care costs to be covered. Some issuers also noted that CMS could be  allowing individuals whose coverage was terminated due to nonpayment  of premiums to re-enroll under an SEP due to loss of coverage although,  under federal regulations, this is not allowed. Finally, some issuers have  stated that enrollees receiving Advance Premium Tax Credits (APTC),  which reduce the cost of coverage for eligible individuals, may  intentionally stop paying their premiums before the end of the year to take  advantage of the 3-month coverage grace period allowed by law while still  meeting requirements for PPACA’s individual mandate.

There is, however, little data about the extent to which these specific  problems have occurred. Further, enrollees may stop paying premiums  and terminate their coverage for valid reasons including unexpected  reductions in household income or gaining other government or  employer-sponsored coverage, and other research has found that short  periods of coverage were common in the individual market even prior to  PPACA. Officials from both CMS and issuers indicated that individuals  often do not provide notification that they are ending their coverage due to  a change of circumstance. Instead, they stop paying premiums and let  their exchange policies “passively” terminate.

You asked us to examine the extent to which exchange enrollees  maintained coverage and paid their premiums during the plan year. This  report: 1.  describes the extent to which enrollees who purchased health  insurance coverage through the FFE in 2015 maintained their  coverage during the plan year; and  2.  evaluates the extent to which CMS has reliable data on the rate at  which enrollees in the FFE are terminated from coverage due to  nonpayment of premiums.

To describe the extent to which enrollees who purchased health  insurance coverage through the FFE in 2015 maintained their coverage  during the plan year, we obtained and analyzed enrollment and  demographic data from CMS. According to CMS officials, 2015 was the  most recent full year of data available at the time of our review.  Specifically, CMS provided us with data from its centralized enrollment  system, the Multidimensional Insurance Data Analytics System, for each  enrollee who obtained health insurance coverage—that is, selected a  plan and paid their first premium—through the FFE for coverage year  2015. These data included, among other information, the enrollees’  coverage start and end dates; type of plan, premium, and any APTC  amounts; and demographic information reported by enrollees, including  gender, state of residence, and household income. We used these to  analyze the extent to which enrollees maintained continuous FFE  coverage throughout 2015—which we defined as coverage that began  from January 1, 2015, to March 1, 2015, and ended on December 31,  2015. We compared the demographic and coverage characteristics of  enrollees who maintained continuous coverage throughout 2015 with  those of all other enrollees. We also examined the demographic and  coverage characteristics of all FFE enrollees in 2015. Further, CMS  provided us with FFE enrollment data for the time period of January 1,  2016, through June 30, 2016, which we used to analyze the extent to  which the 2015 FFE enrollees re-enrolled for coverage year 2016. We  assessed the reliability of the data provided by CMS in several ways,  including discussing the reliability of the data with CMS officials, reviewing  relevant CMS data manuals and other documentation, performing manual  and electronic tests of the data to identify any outliers or anomalies, and  comparing the data with data from published sources. We also  interviewed representatives from a small selection of issuers to discuss  the reliability of relevant issuer-reported data maintained in CMS’s  centralized enrollment system. We determined that the data were  sufficiently reliable for the purposes of our reporting objectives.

To evaluate the extent to which CMS has reliable data on the rate at  which FFE enrollees are terminated from coverage due to nonpayment of  premiums, we examined data from CMS’s enrollment system on the  reported reasons for termination of enrollee coverage in 2015. For a small  selection of enrollees identified by CMS as having their coverage  terminated for nonpayment, we examined the termination reasons listed  in issuer data. We also interviewed officials from CMS, industry stakeholders, and selected issuers to learn about how the data on  termination reasons are collected. In addition, we reviewed relevant  PPACA provisions and federal regulations and guidance, including  technical guidance from CMS governing the transfer of information  between CMS and issuers participating in the FFE, and determined  whether the agency’s relevant policies and procedures are consistent with  standards for internal control in the federal government.

We conducted this performance audit from July 2016 to March 2018 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 exchanges (including the FFE and those operated by individual  states) provide a seamless, single point of access for eligible individuals  to enroll in qualified health plans. For the FFE, CMS established a  website—Healthcare.gov—as the public portal through which individuals  may apply for coverage and select and enroll in health plans, which are  offered at different levels of coverage, or “metal tiers”—bronze, silver,  gold, and platinum—that reflect the percentage of covered medical  expenses estimated to be paid by the insurer. The data that individuals  provide in their application is stored in the FFE’s centralized enrollment  system, which is maintained by CMS.

Although CMS oversees the centralized enrollment system, both CMS  and issuers have shared responsibility for enrollment and coverage  functions once individuals apply for coverage:

CMS is responsible for determining an individual’s eligibility for  coverage and income-based federal subsidies, enrolling the  individual, and processing subsequent coverage changes or  terminations. For example, individuals may change their existing  coverage by signing up under an SEP due to the birth of a child or  relocation, or they may voluntarily terminate their coverage, or CMS  may terminate coverage if the agency is unable to verify key  information such as citizenship status. CMS is also responsible for  making payments for APTCs and determining whether an enrollee is  eligible for any cost-sharing reductions that lower enrollees’ out-of- pocket costs for expenses, such as deductibles and copayments.

Issuers are responsible for, among other things, collecting premiums  from enrollees, arranging for coverage through provider networks, and  paying claims. Issuers are also responsible for processing, and  notifying CMS of, terminations related to nonpayment of premiums or  fraud.

As a result of this shared responsibility, CMS and issuers notify each  other of coverage updates by transferring data back and forth through  electronic files known as “transaction files.” It is critical that both issuers  and CMS have consistent, accurate, and current information on enrollees,  because monthly APTC payments are based on enrollment data in CMS’s  centralized system. Federal regulations require CMS to reconcile  enrollment information with issuers on at least a monthly basis.  Accordingly, CMS and issuers reconcile certain key data elements on a  monthly basis through an automated enrollment reconciliation process, in  which issuer and CMS data are compared and discrepancies are  resolved. Through this process, APTC amounts and their effective dates  are compared and reconciled. CMS’s data system is considered to be  correct when considering discrepancies on overall enrollment counts or  with key data elements, such as coverage start and end dates between  issuer and CMS data. Therefore, CMS will not change the APTC  payments based on issuers’ data that may differ from CMS’s data unless  there are significant discrepancies.

There are several specific steps involved in transferring data between  CMS and issuers for initial enrollment, subsequent updates, and  reconciliation (see fig. 1 for a high-level overview of the data transfer  process):  Initial enrollment: CMS forwards an outbound electronic transaction  file to the issuer with information on the applicant, the plan selection,  the premium, and the APTC amount. Once the issuer receives the  initial premium payment, the issuer sends an inbound electronic  transaction file back to CMS to confirm the enrollment. Issuers may  not refuse to issue coverage to an individual CMS has deemed  eligible once that individual has made the initial premium payment.  Transaction files are transmitted electronically on a daily basis.

Subsequent changes/terminations: Subsequent changes to the  individual’s coverage may be initiated by enrollees, CMS, or issuers.  For example, enrollees may request changes to their coverage  through the portal if they experience a change in circumstance (such  as needing to enroll under an SEP due to the birth of a child, or to  terminate their coverage if they move to a different state); CMS may  terminate coverage if the agency cannot verify key eligibility  information (such as citizenship status); or issuers may terminate  coverage if enrollees fail to pay their premiums. If CMS initiates  changes in coverage, it notifies issuers through subsequent outbound  transaction files, and similarly, if issuers initiate changes they notify  CMS through subsequent inbound transaction files.

Monthly reconciliation: CMS sends issuers a snapshot of key  elements of the enrollment data in its centralized enrollment system in  an outbound reconciliation file. Issuers compare the data from the file  to their enrollment systems and identify missing enrollments or other  discrepancies. Issuers make updates as necessary and send CMS an  inbound reconciliation file with information about current enrollees,  cancellations, and terminations in their systems. CMS then performs an automated comparison of the data in the inbound reconciliation  files with its centralized enrollment system and identifies any further  discrepancies that may need to be resolved either by CMS or issuers.  If necessary, CMS makes further updates to its data.

In an April 2017 final rule, CMS implemented several actions that, in part,  responded to issuer concerns about special enrollment periods and  stability of enrollment. Specifically, CMS stated that the agency would  require documentation from all individuals applying to enroll in coverage  under an SEP to verify their eligibility for the SEP prior to enrollment.  CMS also stated that, starting in June 2017, it would allow issuers,  subject to state law, to apply a new premium payment to an individual’s  past due payments before applying that premium towards a new  enrollment. CMS stated that issuers would be allowed to refuse to  provide coverage to an enrollee applying under an SEP due to loss of  existing coverage if the issuer had previously terminated the enrollee’s  coverage for nonpayment of premiums, unless the enrollee paid the past  due premiums. CMS further stated that this provision was intended to  encourage individuals to maintain continuous coverage rather than start  and stop coverage (and thereby avoid incurring past due premiums).

Just over Half of FFE Enrollees Maintained Continuous Coverage throughout 2015; Length of Coverage Varied by Enrollee Characteristics

Approximately 4.9 million enrollees (53 percent of the 9.2 million FFE  enrollees in 2015) maintained continuous coverage throughout the year— that is, their coverage began between January 1 and March 1, 2015, and  lasted through December 31, 2015. These individuals therefore had 10 or  more months of continuous coverage, with an average length of coverage  of 11.6 months. Most of these enrollees (83 percent) re-enrolled in  coverage by June 2016.

The remaining 4.3 million enrollees (47 percent of the FFE enrollees in  2015) did not maintain continuous FFE coverage throughout the year, as  defined above. The average length of coverage for these enrollees was  about 5.0 months and, for most (72 percent), coverage ended prior to the  end of the year. (See fig. 2 for information on enrollee length of  coverage.)

Of the 4.3 million enrollees, 38 percent re-enrolled in exchange coverage  for 2016, although enrollees that held coverage through the end of the  year—regardless of their length of coverage—were far more likely to have  re-enrolled than enrollees whose coverage ended prior to the year’s  end.

In general, we did not find notable differences in attributes of enrollees’  coverage (for example, by benefit level of selected plan or monthly  premium after APTC) or enrollee demographics when comparing the two  groups of enrollees—those who maintained continuous coverage  throughout 2015, and those who did not. (For data on coverage and  demographics of FFE enrollees who did maintain continuous coverage  throughout 2015 and those who did not, see app. I.)

However, in examining the demographic and coverage characteristics of  all FFE enrollees, we found that enrollees with certain characteristics  tended to remain covered for a longer period of time in 2015 compared to  other enrollees. For example:

Enrollment period. Enrollees who enrolled during the open  enrollment period had a higher average length of coverage than  enrollees who enrolled through an SEP—9.1 months compared to 5.2  months (see fig. 3). However, more individuals who enrolled through  an SEP remained enrolled through December 31, 2015, compared to  individuals who enrolled during open enrollment—72 percent  compared to 64 percent.

Age. Enrollees aged 55 or older had the highest average length of  coverage, while those aged 25 to 34 had the lowest—9.2 months  compared to 7.8 months.

Reported household income. APTC-eligible enrollees who reported  having a household income between 301 and 400 percent of the  federal poverty level had the highest average length of coverage,  while those who reported having a household income less than, or  equal to, 100 percent of the federal poverty level had the lowest—8.9  months compared to 8.0 months.

Eligibility for APTC. Enrollees who were eligible for APTC had a  higher average length of coverage than enrollees who were not  eligible for APTC—8.6 months compared to 7.8 months

Benefit level of selected plan. Enrollees who selected higher- benefit, gold plans had the highest average length of coverage, while  enrollees who selected lower-benefit catastrophic, plans had the  lowest—8.8 months compared to 6.7 months. Enrollees who selected  silver plans—the most common plan selection—had an average  length of coverage of 8.6 months.

State of residence. Enrollees residing in Maine had the highest  average length of coverage, while enrollees residing in Mississippi  had the lowest—9.4 months compared to 8.0 months.

See appendix II for additional data on the average length of coverage for  enrollees by various characteristics.

CMS Lacks Complete and Transparent Data on Terminations of Enrollee Coverage for Nonpayment of Premiums

CMS’s data on terminations of enrollee coverage due to nonpayment of  premiums are not complete and accurate. CMS officials told us that they  collect some information from issuers on their terminations of enrollee  coverage for nonpayment of premiums. When issuers terminate policies,  the inbound transaction files they send to CMS must include, among  other elements, a revised coverage end date taking the termination into  account. CMS uploads these data into its centralized FFE enrollment  system. However, while the issuers may also include codes that  designate the reasons for the terminations, there is no requirement for  them to consistently do so. Data on termination codes may therefore not  be consistently reported by issuers. CMS officials told us that data on  reasons for termination are not tracked because they are not critical to  ensure the accuracy of APTC payments—which is the main function of  the reconciliation process. Officials stated that key essential variables that  CMS does track are whether coverage is effectuated (that is, whether the  first premium payment has been made), whether the enrollee is eligible  for APTC payments, and whether coverage was terminated.

In addition, when issuers do report termination reason codes, these data  are not always accurate. Specifically, CMS told us that, historically,  issuers may have incorrectly used the nonpayment termination code for  other types of terminations, and two issuers we interviewed  acknowledged having done so. We compared data on terminations for  nonpayment from CMS’s centralized enrollment system with data we  obtained from three issuers for a small selection of enrollees. We found  that for one large issuer operating in multiple states, the CMS data  indicated that coverage for 18 of the 26 enrollees that we examined had  been terminated for nonpayment of premiums, while the issuer data  indicated that coverage had been terminated for other reasons, in most  cases because it had expired at the end of the year. The issuer indicated  that it likely reported these year-end terminations to CMS incorrectly as  terminations for nonpayment of premiums.

CMS has recently taken actions that may improve the reliability of data on  terminations for nonpayment, but these actions do not ensure the data  are consistently reported and recorded by CMS. Specifically, in July 2017,  CMS indicated that it would add new codes to the transaction files for  issuers to use to help prevent inaccurate reporting of the nonpayment  termination code. CMS told us that it expects issuers to begin using the  new codes in 2018. CMS’s data on terminations for nonpayment therefore  may be more reliable beginning in 2018. However, CMS has not required  issuers to report the termination reasons in the transaction files because,  according to CMS officials, these data are not essential to tracking the  accuracy of APTC payments. The agency also does not have plans in the  near future to use the data in tracking trends in enrollment and  termination of enrollee coverage in the FFE to assess the overall stability  of the exchange.

Further, CMS does not have a transparent, systematic process for issuers  to ensure that data on terminations they initiate due to nonpayment are  complete and accurate in the CMS system. Issuers we interviewed told us  that they are unable to ascertain whether CMS is correctly updating the  FFE enrollment system with the termination reason codes issuers provide  when policies are terminated. While issuers can determine from the  monthly reconciliation files whether CMS has updated certain issuer data  for enrollees whose coverage was terminated (for example, the revised  coverage end date), the files do not capture data on reasons for  termination. Therefore, issuers are unable to determine if the CMS FFE  data on termination reason codes matches theirs and make corrections  where necessary. Some issuers told us they had requested that CMS  add a variable to capture data on termination reasons in the monthly  reconciliation files sent to issuers. CMS officials stated that the agency is  in the initial stages of exploring whether this would be feasible for CMS  and issuers, but that it will require significant resources and time to  develop.

Although CMS’s recent changes may improve its data, they do not ensure  the agency will have complete and transparent data on terminations for  nonpayment of premiums. According to federal internal control standards,  federal agencies should obtain and use relevant, reliable data to achieve  their objectives. Without complete and accurate data, CMS may be  allowing enrollees who lost exchange coverage for nonpayment of  premiums to re-enroll under SEPs although, under federal regulations,  these individuals are ineligible to do so. Issuers reported that this had  occurred. CMS officials told us that the agency is exploring options to  have its system automatically prevent certain enrollees with prior  terminations for nonpayment from enrolling in coverage under an SEP for  loss of existing coverage, but noted that this functionality would depend  on receiving reliable data on terminations for nonpayment from issuers.  Further, without reliable data, CMS may not be able to assess the effects  of its April 2017 policy allowing issuers to apply enrollees’ new premium  payments toward unpaid premiums over the past 12 months. This is  because the agency lacks the complete and accurate data that would be  necessary to ensure that issuers are correctly identifying enrollees  terminated for nonpayment.

In its role as administrator of the FFE, it is important for CMS to assess  the overall stability of the exchange by, among other things, tracking  trends in enrollment and termination of enrollee coverage and addressing  issuers’ concerns, where appropriate, to ensure their continued  participation in the exchange. Issuers have raised concerns that the SEP  regulations potentially allow individuals to enroll in coverage despite  having their coverage terminated for nonpayment of premiums. However,  CMS does not have the data needed to determine the extent of these  problems. While CMS has made some efforts to improve the accuracy of  the agency’s data on terminations for nonpayment, it has not indicated  whether the agency will require issuers to consistently and accurately  report these data. Moreover, CMS has no way to ensure the reliability and  transparency of the data, because the existing process—the exchange of  monthly reconciliation files between CMS and issuers—does not have a  place to capture these data. CMS could capitalize on this existing  process, already familiar to issuers, by adding a variable that captures  data on termination reasons to the monthly reconciliation file and tracking  its accuracy. By taking this step, in addition to requiring issuers to report  these data, CMS could help ensure it has reliable and transparent data on  terminations of enrollee coverage for nonpayment of premiums, and it  could use these data to assess the effects of CMS policies and the overall  stability of the exchange.

We are making the following two recommendations to CMS:

The Administrator of CMS should ensure that CMS has complete data  on terminations of enrollee coverage for nonpayment of premiums by  requiring issuers to report these data. (Recommendation 1)

The Administrator of CMS should provide a transparent process for  issuers and CMS to systematically reconcile discrepancies in their  data on terminations of enrollee coverage for nonpayment of  premiums. (Recommendation 2)

We provided a draft of this report to HHS. HHS provided written  comments, which are reprinted in appendix III. HHS concurred with our  first recommendation to require issuers to report data on terminations of  enrollee coverage for nonpayment of premiums. HHS noted that it  currently collects information on termination reasons on enrollment  transactions with issuers, and that it would review the requirements for  collection of these data to identify possible improvements. HHS also  concurred with our second recommendation to ensure a transparent  process for issuers and CMS to systematically reconcile discrepancies in  their data on terminations of enrollee coverage for nonpayment of  premiums. HHS stated that it would consider how to incorporate  reconciliation of these data into its existing monthly data reconciliation  process with issuers, balancing issuer and agency burdens against the  benefits of doing so.

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If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or dickenj@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 major contributions to this report  are listed in appendix IV.

Appendix I: Demographic and Coverage Characteristics of Federally Facilitated Exchange Enrollees, 2015

Table 1 provides information on demographic characteristics for federally  facilitated exchange (FFE) enrollees that maintained continuous coverage  throughout 2015—defined as beginning coverage by March 1, 2015, and  maintaining it without any gaps through December 31, 2015—and for all  other 2015 FFE enrollees. Table 2 provides information on the  characteristics of these enrollees’ coverage. Table 3 provides the extent  to which enrollees maintained continuous coverage throughout 2015 by  their state of residence.

Appendix II: Average Length of Coverage for Federally Facilitated Exchange Enrollees, 2015

Table 4 provides information on average length of coverage for all 9.2  million federally facilitated exchange enrollees in 2015 by various  demographic characteristics. Table 5 provides information on average  length of coverage for these enrollees by characteristics of the enrollees’  coverage. Table 6 provides information on average length of coverage for  enrollees by their state of residence.

Appendix III: Comments from the Department of Health and Human Services

Appendix IV: GAO Contact and Staff Acknowledgments

In addition to the contact named above, William Hadley (Assistant  Director), Iola D’Souza (Analyst in Charge), Richard Lipinski, Peter Mann- King, and Priyanka Sethi Bansal made key contributions to this report.  Also contributing were Muriel Brown, Laurie Pachter, and Emily Wilson.

The Affordable Care Act federal health insurance exchange allows people to enroll outside of the annual open enrollment period under certain circumstances, such as losing coverage from an employer.

Insurers are concerned that some people are misusing this flexibility by reenrolling after their coverage was terminated for nonpayment of premiums. Not only is this against the rules, but it undermines the stability of the exchange.

The Centers for Medicare & Medicaid Services doesn't collect complete data that would allow it to gauge the extent of the problem. We recommended gathering data on coverage terminations for nonpayment of premiums.