Trends in Non-Competitive and Single Source Procurements

Trends in Non-Competitive and Single Source Procurements

Definition Single source procurement is defined as procurement that takes place after soliciting with only one supplier. While single sourcing can help agencies to meet their needs for goods and services it has been pointed out that such contracts are intuitively more prone to corruption Steven Shaw, Deputy General Counsel for Contractor Responsibility USAF debarment and suspension official

Importance Corruption Risk Individual preference of contracting official may impact sourcing decision Possible opportunities of bribery Best Value for Money Subjecting tenders to market forces can result in a more competitive price for the Agency Information asymmetry: defence industry consolidation can lead to increased disadvantage in contracting Agency understanding of appropriate cost levels Transparency and Accountability Increased transparency of single source contracts can lead to greater accountability of how and for what funds are used

Barriers to Competition Interoperability with other forces (eg NATO) Specialised products with only one supplier Only original supplier can perform maintenance and provide spare parts Promote national industry National Security Urgency

I. United States Legislation: - Competition in Contracting Act (1984) Governs competition in federal procurement contracting. Recognizes 7 circumstances (as described in Federal Acquisition Regulation (FAR)) in which noncompetitive procurements can be utilized. - http://www.thecre.com/fedlaw/legal25/253.htm - Office of Federal Procurement Policy Act (section 20) Requires each agency to appoint a competition advocate responsible for promoting full and open competition Federal Acquisition Regulation (FAR) principal set of rules governing the federal acquisition system https://www.acquisition.gov/far/ - Federal Funding Accountability and Transparency Act (2006) requires the government to maintain a publicly accessible website detailing federal procurements. (Federal Procurement Data System Next Generation) - https://www.fpds.gov/fpdsng_cms/

U.S. Exceptions for Other than Full and Open Competition (FAR 6.302) 1. One responsible source and no other supplies or services will satisfy agency requirements 2. Unusual and Compelling Urgency 3. Industrial Mobilization 4. International Agreements 5. Authorized or required by Statute 6. National Security 7. Public Interest Website: https://www.acquisition.gov/far/

U.S. DoD Contract Award (value) DoD contract spending accounts for approximately 70% of all federal contract spending. The Armed Services accounted for 90 percent of the DoD noncompetitive contract award value from FY09- FY11. Source of Data: Federal Procurement Data System Next Generation Competition Report

U.S. DoD Exception for Other than Full and Open Competition Source of Data: Federal Procurement Data System Next Generation Possible correlation between technical requirements (barrier to competition) and the most oft used justification limiting full and open competition

EU Procurement Directive 2009/81 Framework for cross border defence procurements (does not apply to arms trade with non-eu countries) European Commission s effort to increase competition Article 346 of TFEU allows member states to refrain from competition in order to protect national security in connection with production of/trade in arms, munitions, and war material Link:http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:216:0076:0136:en:PDF

II. Slovenia Corresponding with shrinking defence budgets in Europe, Slovenian MoD contract spending has declined approximately 25 percent from 2009 to 2011. Article 8 of the Public Procurement Act (ZJN-2) states that procurement procedures under this Act shall be made public. It was reported that the most frequently used reason for single source procurements was maintenance.

III. United Kingdom Yellow book (government profit formula) governs single source contracts Underlined principle is comparability 3 pillars: government accounting convention, government cost procedures, specific contractual arrangements Process under review because: According to Lord Currie, it emphasizes profit rates rather than efficiency (Review of Single Source Pricing Regulations Lord Currie) Does not account for defence industry consolidation MoD technical expertise to estimate costs of single source contracts has diminished

Particular Concerns for the U.K. According to the Currie Report 70% of projects with major delays and cost overruns were single source. Average delay for single source equipment acquisition was 2.5 months, resulted in cost overrun 0.9-2.1 Billion annually to the MoD (Review of Acquisition for the Secretary of State for Defence Bernard Gray). MoD does not require standardised financial reporting across single source projects

U.K. MoD Contract Award (Value) MoD spends approx. 8.7 billion annually on single source procurements Prices are in billions 2008/09 2009/10 2010/11 Total value of new MOD HQ Contracts placed 18.3 9.4 7.2 Competitive 7.9 (43%) 2.3 (25%) 3.4 (48%) Non-Competitive 10 (55%) 6.9 (73%) 2.6 (36%) Other 0.4 (2%) 0.3 (3%) 1.1 (16%) Non-Competitive Procurement entails: -Contracts priced on estimates by the MoD at outset -Contracts priced on actual costs with incentives to minimise cost -Contracts priced on actual costs plus a percentage fee

Source: UK Defense Statistics 2011. Available at: http://www.dasa.mod.uk/ modintranet/ukds/ukd S2011/pdf/ukds.pdf U.K. Non-competitive procurements by contractor Key: Competitive Non-competitive

IV. Bulgaria Equal split between armaments and other military supplies and equipment MoD contract spend increased by 978%. This was accompanied by a 1128% rise in non-competitive procurement One of a number of countries that makes use of Integrity Pacts.

Concluding thoughts Single source and non-competitive procurement likely to remain a significant part of procurement for many MODs It is therefore essential that the process by which singlesource is chosen as the method of procurement be made transparent. Non-competitive procurement data should be publicly available (currently various European countries provide this data on a voluntary basis) Measures should be introduced to reduce corruption risk. These can include multiple levels of oversight, personal asset declarations of contracting officers, and rigorous internal and external audit.