Study cites gains in DoD contract competition

By Jared Serbu
Federal News Radio

An analysis of Defense contract spending by the Center for Strategic and International Studies finds more competitive acquisition practices across the military, beginning even before the latest directives from the White House and the Defense Department calling for increased competition in contracting.

The study is based on actual contracts awarded by DoD through fiscal 2010. For its data, the Washington think tank relied on the Federal Procurement Data System, which, researchers were quick to acknowledge, does not cover all Pentagon contract spending. Most notably, the federal system excludes classified contracts.

But they identified what they say are promising trends. DoD awarded more dollars through competitive bids over the last few years, and its use of fixed price contracts grew faster than cost-based contracts. Between 1999 and 2010, total DoD spending on contracts with no competition grew by less than eight percent, while contracts that DoD competed and got multiple offers back grew by more than 10 percent. Competitive contests that garnered only one offer grew by more than 20 percent.

But David Berteau, director of the Defense-Industrial Initiatives Group at CSIS, said Friday although they found that competition has been increasing, there will be a point at which those gains will have to level off.

“This data really calls into question one of the fundamental political premises that’s at work in the field of competition,” he said Friday during a presentation in Washington about the research findings. “The political premise is that if we only worked harder at it we could have a lot more competition than we have today. That somehow the government’s falling short and not competing enough. And I think our analysis shows that, by and large, there’s not a lot of additional room available for competition that isn’t already occurring. You can’t double the amount of dollars awarded under competitive contracts. It’s just not physically possible, and there’s a point at which you’ll have a level of diminishing returns from a policy point of view, and it would be useful for more analysis to discover where you put that emphasis and where you have the potential for the most payoff.”

One of those areas may be in the category of contracts in which the government conducts a competitive bidding process, but only one offer comes back.

CSIS found competitions with a single offer made up just $8 billion of DoD contract spending in 1999, but it grew to $53 billion in 2010.

But Berteau said it’s hard to determine exactly how worrisome that change is without more data. He said government contracting officers are clearly caught by surprise when only a single bid comes in, there are good reasons in other cases.

And conversely, just because a solicitation shows up in FPDS as having received multiple offers, there hasn’t necessarily been a genuine competition, he said.

CSIS also examined which firms have been the largest recipients of DoD contracts. Researchers said their findings show little evidence that the Defense industrial base is consolidating into oligopolies.

In contracting for products, the top five companies in 1999 were identical to the top five in 2009: Lockheed Martin, Boeing, General Dynamics, Raytheon and Northrop Grumman.

The top service contractors, on the other hand, have shifted positions significantly. One of the most dramatic changes is that, unlike 10 years ago, one of the top five service contractors is a health insurer.

Humana, a contractor which administers one of the three regions of DoD’s TRICARE managed care system, received more than three times the amount of contract dollars in 2009 than it did in 1999.

“When the Defense Department says the fastest-growing part of the budget is health care, it’s clearly reflected in these numbers,” Berteau said. CSIS figures show all three contractors, who served as administrators for the TRICARE regional health insurance system, which DoD established in 1995, are now in the top 20 list of service contractors.

In terms of contractor size, CSIS found indications that medium-sized contractors are being “squeezed.” Researchers said that was a sign of success for DoD’s small business set-aside program, as well as a reflection of major product buys from large contractors to support the Iraq and Afghanistan wars.

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