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SOLE SOURCE CONTRACTING: Defining and Tracking Bridge Contracts Would Help Agencies Manage Their Use
Certain members of the Committee on Homeland Security and Governmental Affairs, United States Senate, asked GAO to assess the use of bridge contracts by federal agencies. This report examines (1) the insights of selected agencies into their use of bridge contracts; (2) key characteristics of selected bridge contracts; and (3) the reasons why bridge contracts are being used.
When a contract is set to expire and there is a continuing need for services, but the follow-on contract is not ready to be awarded, the government can extend the existing contract or award a short-term sole-source contract to an incumbent contractor. These types of contracting arrangements have been referred to as “bridge contracts” and are used to ensure there is no gap in services. While bridge contracts can be a necessary and appropriate tool, their use has also been associated with negative effects, such as higher contract prices due to a lack of competition and the inefficient use of staff and resources.
Because bridge contracts are not defined in the FAR, GAO constructed a definition based on its prior work and that of other federal agencies. GAO reviewed policies and procedures at three agencies that were among those with the highest number of potential bridge contracts. The agencies included in GAO’s review—the Departments of Defense (DOD), Health and Human Services, and Justice—had limited or no insight into their use of bridge contracts, as bridge contracts were not defined or addressed in department-level guidance or in the Federal Acquisition Regulation (FAR).
However, GAO found that two DOD components, the Navy and Defense Logistics Agency, have instituted definitions, policies, and procedures to manage and track their use. The components took these steps due to concerns that bridge contracts were being used too frequently and reducing competition. Federal internal control standards stipulate that management should identify, analyze, and monitor risks associated with achieving objectives, such as maximizing competition. Staff from the Office of Federal Procurement Policy (OFPP), which provides direction for government-wide procurement policies so as to promote efficiency and effectiveness in government acquisitions, acknowledge that the use of bridge contracts may introduce risks related to a lack of competition.
Without a definition of bridge contracts and guidance for tracking and managing their use, agencies are not able to fully identify and monitor these risks and increase opportunities for competition.
Based on our reviews of contract documentation and information provided by agency officials, we found that the most commonly cited reasons for the use of a bridge contract across the 73 contracts were related to acquisition planning issues—in particular the late completion of key acquisition planning documentation, such as statements of work, that are needed to begin a solicitation. Acquisition planning activities generally begin when the program office identifies a need, involves research and preparation of acquisition documents by both the program office and the contracting office, and concludes when the contracting office issues a solicitation. Our prior work has identified challenges that agencies faced in relation to acquisition planning on contracts for services, such as defining their needs and providing guidance to program offices on timeframes for pre-solicitation activities, such as defining requirements in a statement of work document.
Acquisition planning delays, such as revisions to statements of work and delays in source selection, as well as an inexperienced and overwhelmed acquisition workforce, bid protests, and budget uncertainties contributed to the use of bridge contracts in the cases GAO studied. Often, more than one of these factors led to the use of a bridge contract. Of the 26 cases in GAO's review where follow-on contracts were awarded, 23 were awarded competitively, in some instances leading to savings. The fact that competition occurred in almost all cases, which can save the government money, highlights the importance of better management controls over use of bridge contracts.
To gain insights into the selected agencies’ use of bridge contracts, we collected and analyzed any policies and procedures on bridge contracts and interviewed officials about their knowledge of the use of bridge contracts and any management controls that may be in place. The agencies we reviewed had limited or no insights into their use of bridge contracts. None of the agencies have agency-level policies to manage and track their use of bridge contracts, nor do their acquisition regulations define bridge contracts. HHS officials told us that their agency has no overarching policy because the agency does not have a standard definition for bridge contracts. Officials at DOD said that, at the department-level, the agency did not have any policies because bridge contracts had not previously been raised as a specific concern at the department. DOJ officials indicated they see defining bridge contracts as a government-wide issue, and officials from one of their components told us that the concept of defining bridge contracts was a new one to them.
Because of its role to provide direction for government-wide procurement policies, regulations, and procedures and to promote economy, efficiency, and effectiveness in government acquisitions, we interviewed staff at the Office of Management and Budget’s (OMB) Office of Federal Procurement Policy (OFPP) to discuss their views on the benefits and challenges on the use of bridge contracts. We also used federal internal control standards as criteria for assessing agencies’ insights into the use of bridge contracts.
To identify key characteristics of selected bridge contracts and assess the reasons why bridge contracts are being used, we selected a nongeneralizable sample of 73 bridge contracts for services. We focused on service contracts since agency officials and our prior work indicated that bridge contracts were predominantly used for services. We conducted a high level review of the 73 contracts—collecting and reviewing contract award and extension documentation, such as justification and approval (J&A) documents, price negotiation memorandums, relevant contract modifications, and file memoranda.
We then selected a subset of 29 contracts from 6 of the 8 components for a more in-depth review, based on several factors, specifically the contract value, obtaining a mix of contract extensions and stand-alone bridge contracts, and the location of the contract files. For this in-depth review, we reviewed the bridge contract, the contract preceding it, and, if awarded at the time of our review, the follow-on contract. The results from the sample of contracts included in our review are not generalizable, but are designed to provide illustrative examples of the characteristics and rationale for the use of bridge contracts at the selected agencies and components and supplement the information obtained from our interviews and review of agency policies and procedures. We also interviewed contracting and program officials to discuss the facts and circumstances related to the award of the bridge contracts for the subset of 29 contracts in our sample, and the challenges, if any, related to their use.
The federal government contracts for a variety of services, from elevator maintenance to program management support, and often has a need to continue these services beyond the lifespan of an individual contract. However, in certain situations, it may become evident that a base contract and any option years will expire before a subsequent contract to meet the same need can be awarded. In these cases, because of time constraints, contracting officers generally use one of two options: (1) extend the existing contract for up to 6 months or (2) award a short-term stand-alone contract to the incumbent contractor on a sole-source basis to avoid a lapse in services. While these contracting options have been informally referred to as bridge contracts by some in the acquisition community, no formal definition of bridge contracts exists nor is there a requirement to track them in the Federal Acquisition Regulation (FAR). For the purposes of this report, we established the following definitions:
• Bridge contract. An extension to an existing contract beyond the period of performance (including option years), or a new, short-term contract awarded on a sole-source basis to an incumbent contractor to avoid a lapse in service caused by a delay in awarding a follow-on contract.Contract extensions and the award of stand-alone bridge contracts are established in different ways. If a contracting officer needs a bridge contract and opts to extend an existing, predecessor contract, the contracting officer may use a number of different authorities to do this. If the predecessor contract included the “option to extend services clause,” the contracting officer could use this clause to extend the contract for up to six months, based on the FAR. If the contracting officer determines that a new short-term sole-source contract should be awarded to avoid a gap in services, the FAR generally requires that the contract award be supported by a written justification known as a justification and approval document (J&A). The J&A must include sufficient facts and rationale to justify the use of a sole-source contract.
• Predecessor contract. The contract in place prior to the award of a bridge contract.
• Follow-on contract. A longer-term contract that follows a bridge contract for the same or similar services. This contract can be competitively awarded or awarded on a sole-source basis.
While OMB has stated that noncompetitive contracts can play an important role in helping agencies address the needs that arise during emergencies, we and others have noted that competition is the cornerstone of a sound acquisition process and OMB has issued guidelines for federal agencies to increase competition and reduce their spending on sole-source contracts.
Navy, and Defense Logistics Agency (DLA) DLA—established policies in 2012 and 2013, respectively, regarding the use of bridge contracts. Both components’ policies were established to reduce reliance on bridge contracts and note that bridge contracts can be an impediment to competition. DLA’s policy further states that bridge contracts may be indicative of a lack of adequate preparation for follow-on acquisitions. DLA officials we spoke with told us that there was concern at DLA regarding the impact bridge contracts could have on competition, since they effectively delay competition by extending existing contracts or awarding sole-source contracts to incumbent contractors. Officials said that they hope the policy will increase competition at DLA by focusing management attention on the use of bridge contracts and tracking their use. In both cases, these components’ policies go beyond the standard J&A requirements for sole-source contracts to specifically address bridge contracts:
• Explanation as to why the need for a bridge contract is not due to lack of advanced planning or inadequate procurement execution.Navy further requires:
• Justification for the length of the bridge contract.
• Discussion of actions to be taken to avoid additional bridge contracts.
• Certification of the urgency of the requirement.In addition, one activity within the Army—the Health Care Acquisition Activity (HCAA), which was not included as part of our review—issued a policy memorandum in November 2008 that established a definition and an approval and tracking mechanism for bridge contracts. Similar to the policies at the Navy and DLA, HCAA’s policy was established due to concern over the increasing reliance on bridge contracts at the activity. In particular, the policy stated that there was concern that bridge contracts, which prevent competition, were being awarded to expand the scope of the original requirement, which was increasing costs. The policy and compliance branch at HCAA developed a tracking system to account for the number of bridge contracts awarded. According to HCAA officials, issuing the policy memorandum and requiring officials to report their use of bridge contracts has enhanced the activity’s ability to track bridge contract use and prevented the award of bridge contracts that increase the scope of work established by the predecessor contract.
• Signature of the program manager and the contracting officer.
The fact that the full length of a bridge contract, or multiple bridge contracts for the same requirement, is not readily apparent from the review of an individual J&A presents a challenge for those agency officials responsible for approving the use of bridge contracts. Approving officials, signing off on individual J&As, would not have insight into the total number of bridge contracts that may be put in place by looking at individual J&As alone. Without a definition and a policy for bridge contracts, J&A documentation generally provides information on the individual contract covered by the J&A, and on the anticipated period of performance and estimated contract value at the time of award, rather than a full picture of the cumulative time and cost associated with bridging a gap in services for a requirement.
The FAR requires that contracting officers establish that the prices paid for contracts are fair and reasonable and expresses a preference for comparison of prices obtained through competition. Because competition is absent with the award of a bridge contract, contracting officers’ fair and reasonable price determinations become imperative. To determine the extent to which the price paid by the government changed when a bridge contract was awarded to the incumbent contractor for the same services acquired under a previous contract, we conducted a price analysis for 10 of the 29 bridge contracts included in our in-depth review. We found that for 5 of the 10 contracts, the price paid for services on the initial stand-alone bridge contract or contract extension increased from that of the predecessor contract. Of the remaining 5 contracts, in 4 cases the price paid remained the same, and for the remaining contract the price decreased.
Follow-on contracts were competitively awarded for 23 of 26 contracts included in our in-depth review. The 3 remaining follow-on contracts were awarded on a sole-source basis. As noted above, competition generally leads to more favorable pricing. The fact that the vast majority of follow-on contracts were competed after the bridge contract expired highlights the urgency of ending bridge contracts as soon as possible. For example, one contracting official responsible for a contract told us that by awarding the follow-on contract competitively, the incumbent contractor had to re-evaluate what price the market demands for these services. Competition has generally been considered to be associated with achieving more favorable prices, and we and others have cited potential savings from competition in prior work.
A variety of reasons caused delays that resulted in the use of bridge contracts, but late completion of documentation needed to solicit follow-on contracts was the most frequent reason that we identified across our sample of 73 contracts. Contracting officials told us that acquisition workforce problems—such as inexperienced staff and frequent turnover of contracting and program office staff—also led to the use of bridge contracts and influenced other delays, such as late completion of acquisition planning documentation and challenges during source selection. The majority of agency officials that we interviewed identified bid protests as a common reason for the use of bridge contracts, and we found that bid protests had caused delays in only eight of the 29 contracts included in our in-depth review and that bid protests created substantial delays in awarding follow-on contracts.
Our in-depth review of 29 contracts further underscored that acquisition planning issues frequently led to the use of bridge contracts and provided additional insights into the nature of these issues. For example, the majority of the contracting officials that we interviewed cited the late submission of key acquisition planning documentation from program officials as one of the most common reasons why bridge contracts are needed. For 18 of the contracts, contracting officials told us that the statement of work, in particular, was either submitted late by the program office, required multiple rounds of revisions before it was ready to be published, or a combination of those two factors contributed to the need for a bridge contract. Acquisition planning challenges stemming from the coordination of program and contracting offices have been highlighted in some of our past work.
Contracting officials from multiple agencies told us that late statements of work were often a symptom of a lack of knowledgeable and seasoned staff in program offices. We found that acquisition workforce challenges—in particular, inexperienced and overwhelmed staff, as well as staff turnover—led to the use of bridge contracts and influenced other delays, such as the late completion of acquisition planning documentation and challenges during source selection. Contracting officials from multiple agencies told us that late statements of work were often a symptom of a lack of knowledgeable and seasoned staff in program offices. We have found and reported on government-wide acquisition workforce challenges for many years, including DOD’s efforts to rebuild the capacity of its acquisition workforce.
Contracting and program officials from all three agencies cited staff turnover as another driver of bridge contracts. As a point of comparison, the Navy had greater institutional knowledge regardless of staff turnover due to the high level of detail provided in their J&As and contract documentation.
The majority of agency officials that we interviewed identified bid protests as a common reason for the use of bridge contracts. While contract documentation cited bid protests as reasons for delay in five of the contracts in our high-level review, when we reviewed the contracts in-depth we found that bid protests caused delays in only eight of the 29 contracts but that the protests introduced substantial delays to the acquisition process.
In seven of the eight instances of bid protests that we identified, the incumbent contractor protested the award of a follow-on contract to a new vendor or the terms of the solicitation. However, only two of those protests were sustained. Most of the losing incumbents were unsuccessful in obtaining follow-on contracts. We also found that as a result of the incumbent’s protests, incumbent vendors kept providing services — in a noncompetitive environment — well after the predecessor contracts expired.
While bridge contracts can be a useful tool in certain circumstances to avoid a gap in services, they are typically envisioned to be used for short periods of time. When these noncompetitive contracts are used frequently or for prolonged periods of time, the government is at risk of paying more than it should for goods and services. Because we found that almost all of the bridge contracts in our review were ultimately followed by competitive contracts—which can lead to savings for the taxpayer—the importance of awarding these contracts in a timely manner is heightened.
Bridge contracts have been identified not only across the three agencies and eight components included in our review, but at other agencies as well, as evidenced by our past work and that of others. Thus, the importance of defining and tracking bridge contracts. A uniform, government-wide definition and strategies for tracking and managing the use of bridge contracts would help ensure all agencies have better insights into their use of these contracts and provide agencies with the information necessary to manage their use. Otherwise, agencies are left without a complete picture or understanding of how long a bridge contract has been in place. Without such information, it is difficult for agencies to take steps to reduce their reliance on noncompetitive bridge contracts or remediate internal deficiencies—such as issues related to acquisition planning or challenges with the acquisition workforce—that may lead to delays in the award of follow-on contracts.
we recommend that the Administrator of OFPP take the following two actions:
1. Take appropriate steps to develop a standardized definition for bridge contracts and incorporate it as appropriate into relevant FAR sections, and
2. As an interim measure, until the FAR is amended, provide guidance to agencies on
• a definition of bridge contracts, with consideration of contract extensions as well as stand-alone bridge contracts; and
• suggestions for agencies to track and manage their use of these contracts, such as identifying a contract as a bridge in a J&A when it meets the definition, and listing the history of previous extensions and stand-alone bridge contracts back to the predecessor contract in the J&A.
Further articles on this GAO report: