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Auditors Say Contractors Should Use More Competition for Parts

January 11, 1986

WASHINGTON (AP) _ The Pentagon, in attempting to foster competition for weapons contracts, needs to do a better job of ensuring that prime contractors select their subcontractors on a competitive basis, according to an internal audit report.

The audit dated Nov. 1 and released this week, estimated that almost 60 percent of the major subcontracts awarded by prime contractors in fiscal 1983 were awarded on ″a single-source basis.″

Even worse, according to the auditors, most of those sole-source contracts were ″awarded without documented evidence of contractor-conducted market searches to identify potential competing sources.″

Those findings indicated ″that the first step required to maximize competition, a thorough search of the marketplace to identify potential competing sources, may not have been performed for 51 percent of the fiscal 1983 subcontract procurements,″ the audit concluded.

The audit, conducted by the Defense Department’s inspector general, faulted Pentagon procurement agents for ″not adequately reviewing prime contractors’ subcontracting practices.″

″The effect of not conducting adequate market searches is that subcontract competition may not have been maximized, which may have resulted in increased prices and lost opportunities to broaden the industrial base,″ it said.

The auditors based their findings on a review of records for a selected sample of 20 prime contractors that awarded a total of $38.9 billion in subcontracts in fiscal 1983.

Of that total, subcontracts worth $23.1 billion were awarded on a single- source basis, and $20 billion of those were awarded without any documented effort to discover whether other companies might be able to perform the work, the auditors said.

In discussing the awards with the contractors, the auditors said the companies justified their decisions by claiming either that the subcontractor they dealt with had ″unique capabilities,″ or that they were reluctant ″to test the market and develop additional qualified sources where no significant technical problems had been encountered with current subcontractors.″

But such reasoning could not be justified ″without an adequate market search,″ the auditors wrote, and the Pentagon until recently had done little to impress on contractors the need to avoid sole-source awards.

The auditors said top Pentagon officials had responded to their findings by approving amendments last summer to a ″management surveillance guide,″ specifying that Defense Department procurement agents must review subcontracting procedures on a regular basis.

The amendments also tighten the requirements for market surveys ″and should improve subcontract competition,″ the report said.

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