GAO: Contracting vehicle fails to show savings

The Government Accountability Office found that the Defense Department lacked any evidence that a contracting method it is emphasizing generates cost savings.

In the report (GAO-05-966), GAO looked at a contracting method known as performance-based logistics arrangements, under which contractors charge the government fixed rates for specified performance levels. The watchdog agency selected 15 weapon systems programs that the Office of the Secretary of Defense said were successfully using performance-based logistics arrangements.

GAO found, however, that 14 of the 15 program offices failed to conduct cost and performance analyses after the contracts were awarded, and consequently, the offices lacked information about any cost savings generated from the approach. The one program office that did conduct the postaward analysis, which was a Navy program office, found that performance-based logistics arrangements generated no cost savings.

Program offices explained their lack of analysis on several factors: First, they told GAO that they lacked reliable cost and performance data. As a result, they said they were forced to rely on information provided by contractors. Additionally, the report noted that these offices did not conduct post-award cost analysis because "They assumed that the costs… would always be lower than costs under a more traditional contracting approach."

Fourteen of the 15 programs examined performed cost analysis prior to the contract award and projected that the performance-based logistics arrangement would generate significant cost savings.

GAO also found that the Pentagon had not established procedures to monitor program officers. Official guidance requires that program offices perform cost and performance analysis after the award of a performance-based logistics contract.

The report recommended that program offices rely more heavily on the Defense Contract Management agency and Defense Contract Audit Agency, which typically assist program offices with high-risk contracts. Those two agencies informed GAO that they were willing to help monitor performance-based logistics arrangements if they had available resources.

GAO also recommended that the Pentagon emphasize its guidance regarding postaward cost analysis. The department agreed in principle with both recommendations.

The report issued a setback to performance-based contracting vehicles, which the Pentagon had been encouraging and expanding. The Services Acquisition Reform Act Advisory Committee, which is charged with examining service contracts and producing a report at the end of this year, has also been looking at the process.