Publicly Released: April 23, 2021
Objective
The objective of this audit is to determine whether the DoD planned and executed other transactions (OTs) awarded through consortiums in accordance with applicable other transactional authority laws and regulations. We reviewed a non‑statistical sample of 13 base OT awards, valued at $24.6 billion that were active in FYs 2018‑2019.
Background
According to the United States Code (U.S.C.), the DoD can enter into transactions other than procurement contracts, grants, or cooperative agreements for basic, applied, or advanced research. OT authorities give the DoD the flexibility necessary to adopt and incorporate business practices that reflect commercial industry standards and best practices into its award instruments. OTs provide the DoD with technology solutions from traditional and non‑traditional defense contractors. The DoD can award OTs through a consortium (two or more individuals, companies, or organizations), to allow the DoD and industry to communicate in one forum. A Consortium Management Organization (CMO) acts as the consortium’s single point of contact and manages its membership. Usually, the DoD awards a base OT agreement to a CMO, selects a member to perform a project, and awards the project to the CMO. The CMO enters into a separate agreement with the member selected to perform the project. The Office of the Secretary of Defense requires contracting personnel to track OTs in the Federal Procurement Data System‑Next Generation database.
Finding
DoD contracting personnel did not always plan and execute OTs awarded through consortiums in accordance with OT laws and regulations. Specifically, of the 13 base OT awards we reviewed, valued at $24.6 billion, DoD contracting personnel did not:
- properly track OTs awarded through consortiums and did not have an accurate count of OTs and associated dollar values because the Federal Procurement Data System‑Next Generation was not set up to track consortium OTs or individual consortium projects and there was no guidance on how to award the projects to a consortium;
- consistently award OTs in accordance with applicable laws and regulations because there is little guidance or training on awarding consortium OTs; or
- have a consistent basis to negotiate CMO fees because there was no guidance in place for establishing these fees.
In addition, DoD contracting personnel did not ensure the security of controlled or restricted information being sent to the consortium because DoD contracting personnel relied on the CMOs to vet consortium members and ensure proper safeguarding of controlled and restricted data. Further, the DoD did not require consortium members to register in the System for Award Management (SAM). Additionally, DoD personnel were not performing security reviews of cumulative technical information provided to consortium members, and instead only performed security reviews on a per‑project basis.
As a result, DoD officials do not have access to important information associated with OTs awarded through consortiums, such as which contractor received the OT award and the specific costs associated with funded OT projects. Without this information, the DoD does not have the necessary oversight of the projects it is funding, which may hinder its ability to make important real‑time decisions that enhance mission effectiveness.
Additionally, the DoD may not always obtain the best value or properly apply OT requirements to ensure DoD Components are responsibly investing in technologies that produce longstanding capabilities to support lethality within its current funding. Furthermore, not properly protecting sensitive prototype data could increase risk to our national security.
Recommendations
We recommend that the Principal Director, Defense Pricing and Contracting:
- Develop policies for awarding and tracking OTs when using a consortium and coordinate with the General Services Administration to update the Federal Procurement Data System‑Next Generation to accurately capture OT data.
- Reinforce guidelines or provide best practices to ensure OTs awarded through a consortium use competition to the maximum extent practicable, and require contracting personnel to maintain documentation for major OT‑related decisions.
- Clarify policy for determining the approval level required for project awards when using consortiums, and establish a process or best practice to address protests.
- Establish DoD‑level training for awarding OTs through a consortium and a DoD‑level agreement officer delegation and warrant process.
- Implement guidelines or best practices for contracting personnel to consider when negotiating consortium management fees.
- Establish controls to ensure proper vetting of consortium members and dissemination of solicitation information only to members with the proper security clearance.
- Develop procedures to require security reviews of the aggregate of solicitation information provided to members and SAM checks of individual members prior to project award.
Management Comments and Our Response
The Defense Pricing and Contracting Principal Director agreed with 12 of the 13 recommendations and partially agreed with one recommendation, stating that Defense Pricing and Contracting will update the OT Guide to address the recommendations. Management addressed all specifics of the recommendations and the recommendations are resolved but will remain open. We will close the recommendations when we verify that the Principal Director has implemented the corrective action plans.
Although not required to comment, the Director of Policy, Deputy Assistant of the Secretary of the Navy (Procurement) stated that the Marine Corps market research and review of consortiums that could meet their requirement provided a reasonable basis for not conducting formal competition, but they do not take exception to the report conclusions. We disagree with the Director’s response that market research provides a reasonable basis for not conducting formal competition. The market research showed that there were enough qualified contractors for competition, but contracting personnel chose not to compete the agreement.
This report is the product of Proj. No.D2019-D000AX-0203.000.