Competition falls in Pentagon purchasing

WASHINGTON — One is perhaps the best-known helicopter in the world, Marine One, and uses the south lawn of the White House as its landing pad. The other, the combat rescue helicopter, performs the “sacred mission” of saving downed troops.

Winning the contract for either program would be a major coup for any defense contractor, worth hundreds of millions. But when the bidding opened for both contracts, only one company came forward.

Now, the Army is looking to replace its training helicopters. But the program isn’t being put out to the market for competition. Rather, the Army intends to purchase an additional 100 Lakota UH-72 helicopters from Airbus. No chance for other companies to bid.

With defense budgets tightening, Pentagon acquisitions officials say that fostering competition is one of the best ways to drive prices down and ensure efficiency. And defense officials have made competition top priority, saying in a recent report that it “is the single best way to motivate contractors to provide the best value.”

Despite those efforts, the percentage of defense contract obligations that were competed dropped to 57 percent last year, the lowest in nearly a decade. And in the four years since the Pentagon started setting goals for competition, it has never met them.

The Government Accountability Office said in a recent report that the Pentagon “continues to obligate significant amounts on one-offer awards” — contracts that receive only one bid. In 2013, $22.6 billion was awarded in contracts that only had a single bidder, the GAO found.

A number of factors are behind the decrease in competition, officials say. With less money to go around, service contracts geared to small- or medium-sized companies that often produce the most competition are being cut. Budget cuts are also forcing companies to look for work elsewhere, such as the commercial sector and overseas.

And they have to be judicious about what contracts to pursue.

“Industry has a limited amount of money to prepare proposals, and a company is not going to waste money preparing a proposal if they think the government really wants to keep the incumbent,” said Daniel Gordon, associate dean for government procurement law studies at George Washington University. “Companies are watching for signals about whether the military services and defense agencies really want competition.”

In urging the Pentagon to do more to safeguard against waste, the GAO said that “competitive contracts can help save money, improve contractor performance, curb fraud and promote accountability for results.”

That’s not just true for multi-million dollar helicopters and fighter jets. The General Services Administration, which helps federal government agencies buy all kinds of goods and services, has launched a program to generate competition when agencies buy office supplies.

Previously, many agencies didn’t have access to the prices different companies offer, or what different agencies have paid in the past. So, for example, the federal government had 31 vendors selling the same simple hammer at 31 different prices that ranged from $9.76 to $48.77.

Armed with the new data, government purchasers can now see how in many cases — such as the $48 hammer — they could be overpaying for items that were far more affordable elsewhere. Vendors, meanwhile, could see how overpriced their items were and then make the adjustments to make them more competitive. With the program in place, the amount the government paid for one brand of printer toner, for example, dropped from $458.94 to $152.78, the GSA said. The price for a dozen ballpoint pens went from $33.88 to $5.35.

Since the program was launched in 2010, the effort has saved $140 million on office supplies, the GSA said.

Frank Kendall, the undersecretary of defense for acquisition, technology and logistics, has said he’s “disappointed” that, as he wrote in a recent report, the Pentagon “is losing ground in the percentage of contracted work being 1/8bid3/8 competitively each year.”

Speaking with reporters recently , he said that creating even “the threat of competition” can improve results.

“I think it creates a climate in the corporate environment where if you’re worried about losing your business, you’re going to work a little bit harder to make sure that you hang onto it,” he said. “And that’s the result that we’re after.”

As part of a program, Better Buying Power, Kendall’s office is trying to ignite competition by forcing program managers to resolicit or renegotiate contracts when only one company bids.

As a result, one Army contracting command recently renegotiated 47 of 105 contracts that had received only one bid. That resulted in $44.4 million in savings, according to the Pentagon.

In a pilot program, the Navy recently started ranking its “superior suppliers” in an effort to spur competition. The idea is for companies to see where they – and their competitors – are on the list. The lower companies rank, the more they’ll do to make their business more attractive, officials say.

The list should act as a “very important incentive for them to find out from their customer what the problems are and to do something about it,” Kendall told reporters recently.

Given all the talk about increasing competition, some in the defense industry were surprised that the Army decided not to put its new training helicopters out to bid. Officials at Bell Helicopter, which currently supplies the Army with most of its training helicopters, said they received no warning that the Army was replacing the fleet.

“The aircraft was meeting its mission,” said Mike Miller, Bell’s director of military business development. “We thought things were going along well.”

The average age of its helicopters, the TH-67, is 16 years old, he said. That’s still relatively young, he said, and there was no pressing need to replace them. The TH-67 also is a single-engine helicopter, which means it is easier for novices to learn on and far less expensive to operate than Airbus’s Lakotas, which have two engines.

“We believe this should have been competed,” he said. “We think the Army could have gotten a better deal if they did compete it. … You don’t want to overpay for that capability.”

Rival helicopter manufacturer AgustaWestland said it was taken aback by the Army’s decision as well.

“We are surprised that the Army is planning to make a sole-source procurement to replace helicopters for initial pilot training without consideration of alternative platforms potentially better suited for this important mission,” spokesman Michael Mount said in a statement. “We, and others in the industry, feel we have exceptional aircraft that cost less to procure and operate and they should be considered before billions of dollars are spent. We seek only a fair and open competition in line with government procurement practices and the best use of taxpayers’ dollars.”

The Army said that the decision to use the Lakotas as training helicopters is part of a larger restructuring program that ultimately will save more in the long run, Army officials said.

The Army is reassigning 100 Lakotas it already owns – and were purchased through a competition – and using them for training. Then it plans to purchase 100 more. Upgrading the existing helicopters and buying the new ones will cost about $800 million, officials said.

As part of the restructuring, the Army is getting rid of three lines of helicopters entirely, meaning it will soon operate just four different kinds. That will ultimately save millions of dollars, officials said, and allow a more modern approach to training.

Since all of the helicopters left in the Army fleet will be twin engines, it only makes sense that upcoming pilots learn on a more modern aircraft, said Col. Frank Tate, chief of the Army’s aviation force development.

“It did not make sense to continue forward with the training paradigm that we have been following since the Vietnam war,” he said. “By only having four types 1/8of helicopters3/8 you save hundreds of millions of dollars down the road.”

James Darcy, a spokesman for Airbus, the Lakota manufacturer, said the helicopters have been used in training before and that there is a great efficiency in using something that is “already in the Army inventory.” “We don’t imagine that anyone is more qualified than the Army to know what the Army aviation community needs,” he said.

But industry officials said it would be worth at least looking at other options.

“Competition would have driven to a more cost-effective solution,” said Miller from Bell. “I understand the Army has a tough row to hoe with the current budget environment, and they’re trying to do the best with the assets they’ve got. But you still have to do it in a manner where you husband the resources and not overpay.”

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