Tuesday, August 17, 2010

DoD Purchases Made With Earmarks

The Office of Management and Budget (OMB) defines an earmark as unrequested funding in an appropriation act in which Congress (i) circumvents a merit-based or competitive allocation process, (ii) specifies the location or recipient, or (iii) otherwise curtails the ability of the Government to control critical aspects of the fund's allocation. A Congressional earmark is a provision of law, a directive, or a report accompanying a bill that specifies the identity of an entity or project for which funds are authorized or made available in a conference report or bill that was not requested by the President in a budget submission to Congress.

In 2007, the DoD-IG initiated an audit to determine whether DoD activities awarded contracts using funds earmarked in the FY 2005 DoD budget in accordance with the Federal Acquisition Regulation (FAR) and DoD procurement regulations. The IG just issued its report on the study. The IG examined 17 judgmentally selected earmarks valued at $125 million and found that DoD activities did not always comply with the FAR and the DoD FAR Supplement when procuring services. The IG identified concerns with market research, competition, and fair and reasonable price determinations. Understandably, these conditions occurred because language in the appropriation committee report gave DoD little or no latitude in how to use the funding. Because many of the earmarks related to existing programs, DoD officials generally awarded contract actions to the incumbent vendors without considering whether competition between vendors for the products or services was viable. As a result, the IG concluded that Dod not conduct adequate market research that may have resulted in increased competition, and DoD may have paid more than it should have if competition occurred or if price reasonableness was properly documented.

As a result of this study, the DoD issued guidance to its procurement folks reminding them that contract actions associated with earmarks, unless otherwise noted in supplemental guidance, must comply with FAR and the DoD FAR Supplement. Additionally, in the case of all statutory earmarks, procurement officials should consult with legal counsel concerning what actions are required. It remains to be seen whether there will be any tangible differences in the awards of contracts based on earmarked funds.

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