GAO Advocates More Analysis Prior to Pass-Through Contract Awards

Published: January 14, 2015

Acquisition ReformUSAIDDEFENSEPolicy and LegislationSTATESubcontracting

A recently released study by GAO recommends that contracting officers perform more due diligence prior to awarding pass-through contracts, contracts where more than 70% of the total cost of the work to be performed is slated for subcontracts.

Congress is concerned that the government could be overpaying for contracts where work is predominately accomplished by lower-tier subs.  Section 802 of the FY 2013 NDAA calls for DOD, State and USAID contracting officers to conduct additional analysis before awarding pass-through contracts.  Additionally, GAO is tasked with evaluating progress in implementing the new guidelines.   

The new Section 802 requirements state that the contracting officer must do the following when evaluating the award of a pass-through contract:  

  • Consider the availability of alternative contract vehicles and the feasibility of contracting directly with a subcontractor or subcontractors that will perform the bulk of the work 
  • Make a writing determination that the contracting approach selected is in the best interest of the government  
  • Document the basis for such determination

GAO’s analysis of Section 802 implementation at DOD, State and USAID showed that USAID had issued directives and updated contracting checklists restating Section 802 requirements.  GAO’s research also showed that State issued a procurement bulletin restating Section 802 requirements, but neither agency has taken any further implementation action.  DOD is waiting for March 2015 FAR revisions before determining whether or not they need to take any action.

GAO recommends that all three agencies take the following actions:  

  • Issue guidance to help contracting officers perform the additional steps required by Section 802  
  • Revise management review processes and guidance to verify implementation or Section 802 requirements   

Further implementation of Section 802 requirements will cause more scrutiny of pass-through contracts, jeopardizing awards to prime contractors who are not performing 30% or more of the total cost of work.  Primes should be diligent regarding their strategy and work breakdown when it comes to subcontracting and lower-tier contracting arrangements.