By Emelie Rutherford
Federal auditors said Pentagon contracting officers need more guidance for overseeing how weapon-systems contractors determine which aspects of programs they handle and which parts they delegate to subcontractors.
The Government Accountability Office (GAO), per Congress’ direction, studied the structure and management of major subcontracts under contracts for large weapons programs. The Pentagon had been directed in the 2009 Weapon Systems Acquisition Reform Act to ensure that prime contractors’ “make-or-buy” decisions, regarding the process they use for determining what work to make in-house and what work should be bought from subcontractors, are fair and objective.
“Congress has raised questions about the extent to which primes are awarding subcontracts competitively,” the GAO says in an Oct. 28 report titled Additional Guidance Needed to Improve Visibility into the Structure and Management of Major Weapon System Subcontracts.
In the 2009 reform law, Congress directed Defense Secretary Robert Gates to “require prime contractors to give full and fair consideration to qualified sources other than the prime contractor for the development or construction of major subsystems and components of major weapon systems,” the GAO says.
The Pentagon has drafted revisions to its acquisition regulations regarding this issue.
The GAO examined issues related to subcontracts including prime contractors’ approach to selecting and managing major subcontracts.
“Prime contractors in our review told us they structure their subcontracts to provide the required items, while reducing their risk exposure and maximizing their profit potential,” the new report says. “For example, prime contractors generally attempted to shift cost risk onto their subcontractors through the use of fixed-price subcontracts even when their own contract with the government was cost-reimbursement.”
“Primes also use make-or-buy processes to define what products and services must be retained internally to exploit their core competencies, and what should be outsourced to qualified suppliers to achieve cost efficiency,” the GAO adds. “While primes define work performed by affiliates as part of their company’s core competency–that is “make” activities–they often select and manage affiliates using similar methods to those used with external subcontractors.”
After completing its review, the GAO recommended Gates direct Pentagon acquisition chief Ashton Carter to develop additional guidance for contracting officers on implementing make-or-buy provisions, including factors to consider when making the required make-or-buy analyses.