Defense Acquisitions: DOD's Use of Other Transactions for Prototype Projects Has Increased

In 2015, Congress granted DOD permanent authority to use agreements known as other transactions to acquire prototype projects that, among other things, demonstrate whether technologies and products can be adapted for DOD's use. This contracting approach can help DOD attract companies that do not typically do business with DOD—such as commercial science and technology firms. This is because other transactions are not subject to certain federal contract laws and requirements.

GAO was asked to review DOD's use of other transactions for prototype projects. For the purposes of this report, GAO refers to these instruments as prototype other transactions. This report examines, among other issues, (1) DOD's use of prototype other transactions for fiscal years 2016 through 2018 and (2) the extent to which agreements officers followed established review processes before awarding selected transactions.

GAO analyzed Federal Procurement Data System-Next Generation data and examined relevant documents from a non-generalizable sample of 11 prototype other transactions. These transactions represented various dollar values from the four DOD components that had the highest obligations through prototype other transactions in fiscal year 2018. GAO also examined DOD and component policies and interviewed DOD officials.

The Department of Defense (DOD) significantly increased its use of agreements known as other transactions for prototype projects from fiscal years 2016 through 2018 (see figure).

DOD data shows that companies that typically did not do business with DOD participated to a significant extent on 88 percent of the transactions awarded during this time. The Army awarded the most transactions; some of which were on the behalf of other DOD components that wanted to leverage transactions the Army previously awarded to meet their own components' needs.

In nine of the 11 prototype other transactions GAO reviewed, DOD contracting officials, known as agreements officers, followed their components' established review policies before awarding the transactions. Agreements officers did not obtain higher level reviews on the two remaining transactions. In both cases, agency officials reviewed the transactions after GAO brought these situations to their attention and found no issues with the awarded transactions.

A Defense Advanced Research Projects Agency agreements officer did not have a higher level review of a $7.8 million transaction before it was awarded, as required.

An Army Contracting Command-New Jersey Center Director served as the agreements officer on a $10 million transaction. The Director, who would typically review transactions of this value, had his Branch Chief review this transaction prior to award.

The Defense Advanced Research Projects Agency also plans to complete an internal file review of awarded transactions to check compliance with its review policy in fiscal year 2020 and take corrective actions, if necessary. The Army Contracting Command-New Jersey plans to clarify who should review transactions in such situations.

GAO is not making recommendations based on the stated intent of senior contracting officials to address these issues.

Department of Defense’s (DOD) investments in research and  development have helped commercial companies pioneer innovative  technologies that, in turn, have supported U.S. technological superiority  on the battlefield and spurred the development of new commercial  products. For example, the Army funded research that led to the  development of powerful, lightweight lithium batteries for use in a variety  of military products, such as night vision equipment. Today, lithium  batteries are widely used in consumer electronics products and electric  vehicles.

DOD’s influence on the type of technologies developed by U.S.  companies has diminished over the past several decades as companies  significantly increased the amount of their own funds they invested in  research and development relative to the amount of DOD funding they  received. DOD continues to be interested in adapting the technology  developed by commercial companies, such as those related to cyber,  space, artificial intelligence, and unmanned vehicles, to upgrade or  develop new weapon systems. However, as we have previously reported,  concerns about intellectual property, the length of time it takes DOD to  award a contract, and the need to establish a government-unique cost  accounting system make DOD an unattractive customer for some  companies.

Congress gave DOD the authority to use agreements known as other  transactions, which allows DOD to attract companies or other entities that  have not done business with DOD. These could include, for example,  commercial science and technology companies and non-profit research  institutions, which we refer to as non-traditional companies in this report.

While DOD can use other transactions for research, prototyping, and  production purposes, this report is focused only on other transactions  used to support prototyping efforts, which, among other things,  demonstrate whether technologies and products developed by companies  can be adapted for DOD’s use. We refer to these other transactions as  prototype other transactions and the DOD officials who award these  transactions are known as agreements officers. With a few exceptions,  Congress requires that non-traditional companies participate to a  significant extent on prototype other transactions.

Other transactions enable DOD and companies to negotiate terms and  conditions specific to a project without requiring them to comply with most  federal regulations that apply to government procurement contracts. This  flexibility can also help DOD address non-traditional companies’ concerns  about establishing a government-unique cost accounting system or  intellectual property rights, among other concerns. We and others have  previously reported, however, that the use of other transactions carries  the risk of reduced accountability and transparency, in part because such  transactions are exempt from the Federal Acquisition Regulation (FAR)  and related controls and oversight mechanisms that apply to government  procurement contracts.

The conference report that accompanied the Department of Defense and  Labor, Health and Human Services, and Education Appropriations Act,  2019 and the Continuing Appropriations Act, 2019 included a provision for  GAO to review DOD’s use of other transactions for prototype projects.  This report examines (1) the extent to which DOD used prototype other  transactions for fiscal years 2016 through 2018; (2) how DOD  agreements officers determine non-traditional company status and  participation in prototype other transactions; and (3) the extent to which  agreements officers followed their contracting offices’ established review  processes before awarding prototype other transactions.

To determine the extent to which DOD used prototype other transactions,  we analyzed data from the Federal Procurement Data System-Next  Generation (FPDS-NG) from fiscal years 2016 through 2018, the most  recent complete year of data when we began our review. Our analysis  assessed the number of other transactions awarded, the number of  modifications and orders related to these other transactions, and the  number of modifications and orders made during this period on other  transactions awarded prior to fiscal year 2016, as well as the amount of  funds obligated by these actions. Unless otherwise stated, for the  purposes of this report, we use the term “actions” to refer to modifications  and orders that result in a change in obligations. We also examined  DOD’s guides and memorandums that specify reporting requirements for  other transactions. In addition, we interviewed officials from the Defense  Pricing and Contracting office, which, among other things, is responsible  for overseeing and implementing initiatives related to DOD-wide pricing  policies and strategies supporting the procurement of major defense  system programs, as well as DOD policies related to FPDS-NG.

We assessed the reliability of FPDS-NG data by electronically testing for  missing data, outliers, and inconsistent coding. At the time of our review  FPDS-NG did not distinguish prototype transactions from production  transactions and procurements for experimental purposes, the latter of  which allows DOD to buy chemical, telecommunications, aeronautical,  and other types of supplies and designs that DOD considers necessary  for test purposes when developing defense supplies. By reviewing  information about the types of other transactions from DOD components  that were responsible for 85 percent of other transaction obligations and  71 percent of the number of these transactions, we were able to  determine the type of other transactions awarded by these components.  Based on these steps, we identified eight other transactions out of 244  that were incorrectly identified as prototype other transactions. Four were  awards for the production of products, while the other four were  procurements for experimental purposes. After excluding these eight  other transactions from our analysis, we determined that the FPDS-NG  data were sufficiently reliable for discussing DOD’s use of prototype other  transactions.

To determine how DOD agreements officers assessed non-traditional  company status and participation in prototype other transactions, we  reviewed relevant statutes and DOD policy related to the award of  prototype other transactions, including sections 2302 and 2371b of title  10, U.S. Code, and DOD’s January 2017 and November 2018 Other  Transactions Guides. We then selected a non-generalizable sample of 11  prototype other transactions that were awarded in fiscal year 2018, and  reviewed documentation about the methods used by DOD agreements  officers to determine whether a company was a non-traditional defense  company and whether the non-traditional company was participating to a  significant extent, as appropriate, on these other transactions. We  selected these 11 prototype other transactions from four DOD  components—the Army, Air Force, Defense Advanced Research Projects  Agency, and Washington Headquarters Services—that had obligated the  most funds on prototype other transactions in fiscal year 2018. We  selected four prototype other transactions from the Army, one from Air  Force, four from Defense Advanced Research Projects Agency, and two  from Washington Headquarters Services to represent a range of dollar  values and a mix of different recipients such as non-traditional  companies, traditional defense contractors, and a consortium, which in  general is a group of companies that work together to achieve a common  objective.

To determine the extent to which agreements officers followed their  contracting offices’ established review processes before awarding a  prototype other transaction, we reviewed policies from DOD and the four  components listed above. We compared the processes used to review  and approve the 11 prototype other transactions we selected to the  applicable policies. Specifically, we used Air Force Research Laboratory  and Army Contracting Command-New Jersey policies when reviewing Air  Force and Army prototype other transactions in our sample, respectively.  We used Defense Advanced Research Projects Agency and Washington  Headquarters Services policies when reviewing prototype other  transactions from those DOD components. We reviewed selected  documentation about the prototype other transactions in our sample, such  as those related to management and legal reviews, acquisition planning,  and non-competitive awards. We also interviewed agreements officers  and senior contracting officials from these organizations to obtain  additional insights regarding the review process.

We conducted this performance audit from January 2019 to November  2019 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

Congress provided DOD the authority to use other transactions in the late  1980s and has expanded the authority over time.

In 1989, Congress provided the Defense Advanced Research  Projects Agency the authority to temporarily use other transactions for  research projects. These transactions were intended to spur  research and development that would benefit both commercial  companies and the government. In 1991, Congress allowed the  military departments to use the authority as well and made the  authority permanent.

In 1993, Congress provided the Defense Advanced Research  Projects Agency the authority to award other transactions for  prototype projects. Congress expanded the authority to the military  departments and other defense agencies in 1996.

In 2001, Congress allowed DOD to provide for follow-on production in  prototype other transactions. Further, DOD could award follow-on  production other transactions, without using competitive procedures,  to the participants of a successfully completed, competitively awarded  prototype project, provided several conditions were met. Congress  codified DOD’s other transaction authority for prototype and follow-on  production other transactions at section 2371b of title 10, U.S. Code,  in 2015.

Congress did not define a prototype project in statute. DOD’s November  2018 Other Transactions Guide, however, defined a prototype project as  addressing a proof of concept, model, novel application of commercial  technologies for defense purposes, or a process including a business  process, among other types. Under section 2371b, DOD can use other  transactions for prototype projects that are directly relevant to enhancing  the mission effectiveness of military personnel and the supporting  platforms, systems, components, or materials proposed to be acquired or  developed by DOD, or to improve those in use by the armed forces.

In addition, Congress has required DOD to meet at least one of the  following four conditions to use a prototype other transaction:  1.  There is at least one non-traditional defense contractor or non-profit  research institution participating to a significant extent in the prototype  project.  2.  All significant non-government participants in the transaction are small  businesses or non-traditional defense contractors.  3.  At least one-third of the total cost of the prototype project is to be paid  out of funds provided by sources other than the federal government.  4.  The senior procurement executive determines in writing that  exceptional circumstances justify the use of a transaction that  provides for innovative business arrangements or structures that  would not be feasible or appropriate under a contract, or would  provide an opportunity to expand the defense supply base in a  manner that would not be practical or feasible under a contract.

Section 2371b of title 10, U.S. Code, does not limit DOD to awarding  prototype other transactions to non-traditional companies. DOD could  award traditional defense contractors a prototype other transaction under  the first, third, and fourth conditions listed above. It could also award  prototype other transactions to consortiums, which may be comprised of  non-traditional companies, traditional defense contractors, and others  such as non-profit research institutions. These consortiums may be  administratively managed by a single firm. Consortium management firms  in general provide administrative support to consortium members, such  as distributing requests for proposals, holding proposal writing  workshops, negotiating the general terms and conditions of prototype  projects with consortium members, and making payments to consortium  members. For example, Advanced Technology International, a  consortium management firm, reported that it represented 298 members  in the Countering Weapons of Mass Destruction consortium as of  September 2019, according to its website. The website also states that 87  percent of the consortium’s members were non-traditional companies.

Contracting offices generally designate a subset of their contracting  officers to award other transactions, including prototype other  transactions. In this capacity, these individuals are referred to as  agreements officers. According to senior contracting officials at offices we  included in this review, agreements officers are typically more  experienced contracting officers that have demonstrated the ability to  exercise business acumen and judgement in a less structured contracting  environment and have a strong working knowledge of intellectual  property. All of the contracting offices we included in this review required  agreements officers to complete training courses offered by their office or  the Defense Acquisition University related to the award of other  transactions.

The Director, Defense Procurement and Acquisition Policy, issued an  Other Transaction Guide for Prototype Projects in January 2017 that  included general information about planning, evaluating, and awarding  prototype other transactions. The Office of the Under Secretary of  Defense for Acquisition and Sustainment issued updated guidance in  November 2018 that covered all types of other transactions, including  case studies and lessons learned to help agreements officers when  awarding other transactions. For example, the November 2018 guide  states the following:

An agreements officer should consider whether a company is  supplying a new key technology, providing a material increase in the  performance of a product, or making some other contribution when  determining if a non-traditional company or non-profit research  institution will be participating to a significant extent.

DOD components should not establish predetermined percentages of  total costs or labor hours to determine significant participation. As  such, agreements officers can use their own discretion when using  cost and labor hour information to determine if a non-traditional  company is playing a significant role on a prototype other transaction.

The Competition in Contracting Act does not apply to other  transactions, but competition and fairness are still important  considerations and agencies may determine how competition will be  structured.

Other transactions may take longer to award than FAR-based  contracts due to factors such as drafting and negotiating all the terms  and conditions in an other transaction.

Fiscal law requirements are applicable to other transactions and the  decision to use an other transaction does not expand or restrict  available appropriations. Therefore, multiple funding types, including  research, development, test, and evaluation; procurement; and  operations and maintenance appropriations may be appropriate  depending on the intent and stage of the prototype.

Modifications of ongoing transaction projects are fairly common and  other transactions should address how changes will be handled.

DOD’s Use of Prototype Other Transactions Increased from Fiscal Years 2016 through 2018

DOD significantly increased its use of prototype other transactions from  fiscal years 2016 through 2018, both in terms of the number of prototype  other transactions awarded and the amount obligated on prototype other  transactions. Most prototype other transactions involved at least one non- traditional company that was participating to a significant extent. About 71  percent of the obligations were awarded to three consortiums and two  traditional defense contractors. DOD is currently preparing a report to  Congress on its use of the other transaction authority and working to  address certain limitations in its data collection efforts, including  improving data related to consortiums.

DOD’s Use of Prototype Other Transactions Grew Significantly from Fiscal Years 2016 through 2018

FPDS-NG data showed that DOD obligated a total of $7.2 billion on  prototype other transactions from fiscal years 2016 through 2018. The  total number of new prototype other transactions increased five-fold from  34 to 173 during this time frame. According to a Defense Pricing and  Contracting official, DOD is encouraging the use of these transactions as  a way to acquire innovative technology from non-traditional companies  that it could not typically access. There were also modifications and  orders related to these prototype other transactions and those awarded in  prior years that resulted in a change in obligations, such as providing  funding to members of consortiums to carry out new projects. As  discussed in more detail later in the report, FPDS-NG did not identify the  number of projects carried out by consortiums. Overall, obligations made  on prototype other transactions nearly tripled from $1.4 billion to $3.7  billion (see fig. 1).

The Army, Defense Advanced Research Projects Agency, and the Air  Force accounted for 97 percent of all new awards and actions that  resulted in a change in obligations from fiscal years 2016 through 2018.  They also accounted for 97 percent of the total amount obligated on these  new awards and actions (see table 1). Appendix I shows more detailed  information.

The Army was responsible for over two-thirds of the new awards and  actions made from fiscal years 2016 through 2018—valued at nearly $5.3  billion—but some of these were awarded on behalf of other DOD  components, such as the Air Force, Navy, and Defense Innovation Unit.  Officials from the Air Force Research Laboratory and Navy’s Office of  Naval Research told us that they relied on the Army to award prototype  other transactions on their behalf because, in some cases, the Army had  previously awarded a transaction, such as to a consortium, which they  could leverage to meet their own components’ needs. The Army awarded  prototype other transactions on behalf of the Defense Innovation Unit, as  it did not have the authority to award prototype other transactions, until  November 2018.

Majority of Awards Cited That at Least One Non- Traditional Company or Non-Profit Research Institution Was Participating to a Significant Extent

DOD reported that at least one non-traditional company or non-profit  research institution participated to a significant extent—one of four  statutory conditions that Congress established for the appropriate use of  a prototype other transaction—in 88 percent of the 1,250 new awards and  actions made from fiscal years 2016 through 2018 (see fig. 2).

Majority of Dollars Were Obligated to Consortiums and Traditional Defense Contractors

We found that from fiscal years 2016 through 2018, the top five recipients  by obligations were either consortiums or traditional defense contractors.  Awards to these five recipients accounted for $5.1 billion or 71 percent of  the obligations on new awards and actions during this time frame (see  table 2).

Three of the top five recipients were consortium management firms— Advanced Technology International, Consortium Management Group,  and National Center for Manufacturing Sciences. In general, a consortium  management firm does not complete the prototype, but rather helps  manage consortium members.

The other two companies among the top five were traditional defense  contractors—Lockheed Martin and Aerojet Rocketdyne. As stated earlier,  according to statute, traditional defense contractors can be awarded  prototype other transactions under three possible conditions: by  partnering with at least one non-traditional defense contractor or non- profit research institution participating to a significant extent, paying at  least one-third of the total project cost, or having the government  agency’s senior procurement executive determine in writing that  exceptional circumstances justify the use of a prototype other transaction.  Paying one-third of the project’s costs is an example of cost-sharing. For  the eight new prototype other transactions these two companies were  awarded from fiscal years 2016 through 2018, four involved non- traditional companies or non-profit research institutions that participated  to a significant extent and the remaining four involved cost-sharing  arrangements.

In the one prototype other transaction awarded to Lockheed Martin that  we reviewed, the Army entered into the transaction, currently valued at  $17.5 million, to prototype two removable sensors for unmanned aircraft.  According to the Army agreements officer, Lockheed Martin was awarded  an other transaction instead of a FAR-based contract because Lockheed  Martin needed to collaborate with four other companies that were  awarded prototype other transactions. The Army agreements officer told  us he concluded that it would have been difficult for all the contractors to  collaborate if some were operating under prototype other transactions  and Lockheed Martin was subject to the requirements of a FAR-based  contract. Since Lockheed Martin did not have a non-traditional company  participating to a significant extent on the prototype other transaction it  was awarded, the company was required to pay at least one-third of the  cost of the project to comply with statutory requirements. Lockheed Martin  used a combination of in-kind contributions, such as test articles, and  independent research and development funds for its share of total project  costs.

DOD Is Preparing a Report on Its Use of the Other Transaction Authority and Addressing Certain Data Limitations

In response to congressional direction, DOD expects to submit a report in  November 2019 on its use of the prototype other transaction authority in  fiscal year 2018. This report will include, among other elements, data on  new prototype other transactions awarded in fiscal year 2018; actions  made in fiscal year 2018 on these prototype other transactions and ones  awarded in prior fiscal years; detailed information on the DOD  organizations using the authority; the purpose and status of projects; and  those prototype other transactions that led to a follow-on production other  transaction. This report, which was originally due to be delivered in  December 2018 was delayed, according to DOD, as FPDS-NG was not  configured to capture all the data needed to prepare the report. DOD’s  Defense Pricing and Contracting is collecting the required data directly  from DOD components.

DOD and military component officials whom we interviewed  acknowledged limitations in the FPDS-NG data on prototype other  transactions. DOD officials stated they have addressed some of these  limitations and officials are discussing how to improve the information  collected in the future. For example, as noted above, we found four other  transaction awards for the production of products and four procurements  for experimental purposes identified as prototype other transactions in  FPDS-NG. According to Defense Pricing and Contracting officials, until  June 2019, DOD did not have the ability to differentiate between  prototype and production other transactions in FPDS-NG; therefore, both  prototype and production other transactions were reported as prototype  other transactions. The General Services Administration—the  organization that is responsible for managing and updating FPDS-NG— added an option in FPDS-NG that would allow users to identify other  transactions as either for a prototype or production, as appropriate,  beginning in June 2019. DOD officials stated that they are discussing the  best approach for consistently identifying procurements for experimental  purposes in FPDS-NG. This could include adding an option to FPDS-NG  for users to identify these procurements or including unique letters in the  award number.

DOD officials are also working to address FPDS-NG data limitations  related to consortiums that reduce DOD’s management insight on the use  and award of prototype other transactions. Army contracting officials  noted that FPDS-NG tracks information about the base prototype other  transaction that is awarded to a consortium, but does not track data about  each project conducted through the consortium, such as whether a non- traditional company is participating on each project. The Army Deputy  Assistant Secretary for Procurement issued a policy, effective October 1,  2019, that changes how the Army reports other transactions into FPDS- NG to improve data on projects conducted by consortium members. The  policy, however, does not discuss how it will track non-traditional  company participation. Further, FPDS-NG does not track the extent of  competition among consortium members. DOD officials stated that, while  FPDS-NG data shows DOD competitively awarded 48 percent of all  prototype other transaction obligations for fiscal years 2016 through 2018,  they believed this figure understates the degree of competition actually  achieved. These issues are illustrated in the following examples.

FPDS-NG shows that Advanced Technology International was  awarded a prototype other transaction in fiscal year 2018 with a  ceiling of $10 billion for the Countering Weapons of Mass Destruction  Consortium. FPDS-NG also shows that, as of March 2019, the Army  had obligated $116 million as modifications under the base  transaction, and, according to the Army Contracting Command-New  Jersey agreements officer, were for consortium members to carry out  various prototype projects. FPDS-NG did not identify the number of  projects that are being carried out by the consortium or which  consortium members were participating on the projects. The Army  Contracting Command-New Jersey agreements officer that awarded  this prototype other transaction, however, maintained her own records  to help her manage and oversee the consortium’s efforts. According  to this agreements officer, as of March 2019, all 44 projects carried  out by consortium members involved non-traditional companies—37  prototype projects were carried out by non-traditional companies that  served as prime contractors and seven prototype projects were  carried out by traditional defense contractors with subcontractors that  were non-traditional companies that participated to a significant  extent.

FPDS-NG shows that the base contract, as well as all the  modifications, for a different prototype other transaction the Army  Contracting Command-New Jersey awarded to Advanced Technology  International was non-competitively awarded. These modifications  accounted for 69 percent or $2.6 billion of the non-competitive  obligations DOD made through new awards and actions from fiscal  years 2016 through 2018. However, according to command  contracting officials, during this time frame, all the obligations on  modifications were associated with projects that were competitively  awarded among consortium members. DOD senior contracting  officials stated that FPDS-NG tracks only whether the base  transaction was competitively awarded and that modifications made to  transactions awarded to consortiums automatically retain the same  competitive or non-competitive designation as the base contract.

DOD Agreements Officers Used Multiple Methods to Evaluate Non-Traditional Company Status and Participation Agreements Officers Used Various Methods to Determine Whether a Company Was a Non- Traditional Company

Agreements officers used multiple methods to determine whether and to  what extent non-traditional companies were participating on the prototype  other transactions we reviewed. We found that agreements officers first  determined whether a company was traditional or non-traditional by  reviewing government databases and consulting with subject matter  experts, among other approaches; and then determined the extent to  which a non-traditional company was expected to participate on a  prototype other transaction.

In accordance with DOD’s November 2018 Other Transactions Guide,  agreements officers determined whether non-traditional companies  participated on nine of the 11 transactions in our non-generalizable  sample that met this statutory condition. For the other two transactions,  one involved a cost sharing arrangement between the Army and a  traditional defense company; therefore, the agreements officer did not  have to make this determination. The other instance involved the award  of an other transaction to a consortium. In this instance, the consortium  and agreements officer set out to negotiate general terms and conditions  that would flow down to subsequent prototype projects carried out by  consortium members. The agreements officer plans to make the  determination about whether a non-traditional company is participating or  meeting another statutory condition on a case-by-case basis for each  subsequent prototype project that is funded.

Agreements officers typically used more than one method to determine if  a company was a non-traditional company for the nine transactions in our  sample. For example, agreements officers considered, in varying  combinations, a contractor’s assertion, data from government information  systems, subject matter expert input, or market research when making  the determination (see table 3).

As reflected in table 3, in none of the cases we reviewed did an  agreements officer rely solely on the contractor’s assertion that a  company was a non-traditional company. The following two examples  illustrate the type of actions agreements officers took to determine that a  contractor was a non-traditional company:  In a $19.3 million prototype other transaction awarded by Washington  Headquarters Services for a large autonomous ship, the prime  contractor stated that it and a subcontractor were non-traditional  companies. This was because neither had performed work on a DOD  contract or subcontract that was subject to full cost accounting  standards in the preceding year, which is one of the statutory criteria  to be considered a non-traditional company. To confirm that the prime  contractor and the subcontractor were non-traditional companies, the  agreements officer checked the System for Award Management,  leveraged market research, and relied on input from technical officials  from the Navy’s Surface Warfare Directorate and Unmanned Maritime  Systems Program Office with industry knowledge about contractors.

In a $10 million Army prototype other transaction for an artificial  intelligence war-gaming capability, the contractor that was to perform  all the work stated that it met the statutory definition of a non- traditional company. To verify its status, the agreements officer  determined that the contractor did not have a record in the System for  Award Management, which would ordinarily be required if the  company had previously done business with the federal government.  The agreements officer also conducted market research to verify that  the company was not a DOD subcontractor that was subject to cost  accounting standards in the preceding year.

Agreements Officers Then Used Various Methods to Determine Whether the Non-Traditional Company Was Participating to a Significant Extent

After determining whether a company was a non-traditional company,  agreements officers then used various methods to determine whether one  or more non-traditional companies would play a significant role on the  nine prototype other transactions before they were awarded. These  methods included assessing whether the contractor was performing all  the work on the prototype, evaluating whether the services or  technologies provided by the non-traditional companies were critical,  using input from subject matter experts, or considering the percentage of  total costs or labor hours performed by the contractor (see table 4).

As shown in table 4, the proportion of award values received by non- traditional companies on the prototype other transactions, which ranged  from 16 to 100 percent, did not always indicate the significance of the  non-traditional companies’ contributions. Consistent with DOD guidance,  agreements officers took various factors into account when determining  whether a non-traditional company is participating to a significant extent.

In the transaction in which the non-traditional company was expected  to receive about 16 percent of the total award value, the agreements  officer considered the engineering work performed by a non-traditional  company—which was a subcontractor on the effort—to be critical to  developing the data port for a robotic satellite servicing vehicle.

In another example, the agreements officer and Navy subject matter  experts determined a non-traditional company that would receive less  than 25 percent of a transaction’s overall award value was  participating to a significant extent since it was providing the vessel  and crew necessary to execute testing of the large autonomous ship  that was being prototyped.

DOD Agreements Officers Generally Followed Established Review Processes for Awarding Selected Prototype Other Transactions DOD Contracting Offices Established Processes for Reviewing Prototype Other Transactions

Agreements officers followed their commands’ established review  processes, which involved higher level reviews by senior officials and  legal reviews, in nine of the 11 transactions in our sample. Agreements  officers did not obtain higher level reviews in the two remaining  transactions, but senior contracting officials plan to take action to address  the issues we identified. Award times for these transactions ranged from  45 to 370 days.

Each of the DOD contracting offices we assessed established policies for  reviewing prototype other transactions before award, though the  processes differed. For example, the contracting offices we evaluated  generally required other transactions to be reviewed by an official at least  one level above the agreements officer and to be subject to a legal  review. Some contracting offices required additional reviews at higher  dollar thresholds. In addition, the officials responsible for reviewing  transactions within a contracting office sometimes differed based on the  expected dollar value of the transaction. For example, at the Army  Contracting Command-New Jersey, the Branch Chief can review only  transactions valued at less than $10 million. Transactions exceeding that  amount would be reviewed by a higher ranking official, such as the  Center Director.

According to senior contracting officials, the review process is intended to  ensure that prototype other transactions meet the statutory requirements  for use of the authority before award. The review process also facilitates  component efforts to obtain the “best deal” for the government based on  decisions by the agreements officers, senior contracting and program  officials, and legal advisors about factors such as whether to compete the  transaction and whether to obtain technical data rights for the prototype.  Table 5 provides more specific information on the review process  required by the Air Force Research Laboratory, Army Contracting  Command-New Jersey, Defense Advanced Research Projects Agency,  and Washington Headquarters Services.

Agreements Officers Documented Various Decisions Prior to Awarding Prototype Other Transactions

Agreements officers in our review documented aspects of their decision  making prior to awarding a transaction. For example, agreements officers  generally documented the condition under section 2371b of title 10, U.S.  Code, that was met to use a prototype other transaction, and some  documented the negotiation process with the commercial companies  regarding terms and conditions of the transactions. We also found that  the Air Force Research Laboratory, Defense Advanced Research  Projects Agency, and Washington Headquarters Services required  agreements officers to document acquisition planning for prototype  projects to some extent. Senior contracting officials from these  organizations stated that acquisition planning helps programs manage  risks and provides direction to agreements officers who are new to  awarding other transactions. For an Air Force other transaction we  reviewed, documentation included the purpose and objectives for the  prototyping project, the anticipated cost and type of funding needed for  the project, and the transaction award schedule. We found the Army  agreements officer who awarded the prototype other transaction to the  Countering Weapons of Mass Destruction Consortium developed an  acquisition planning document, even though policy did not require her to  do so. The agreements officer said she did this because the transaction  had a $10 billion ceiling and she considered this a best practice. Legal  counsel, several senior level contracting officials, and program officials  reviewed the acquisition planning document before the agreements  officer awarded the transaction.

Defense Advanced Research Projects Agency also required agreements  officers to document the reason for non-competitive awards in a  memorandum. We previously reported that competition promotes the  efficient use of taxpayer resources and establishes accountability for  results by helping to drive down prices and motivate better contractor  performance. We found that an Air Force Research Laboratory  agreements officer also documented the reasons why a $1.2 million  prototype other transaction to develop a manufacturing process to reduce  a missile engine’s production costs was awarded non-competitively, even  though policy did not require such documentation. The agreements officer  said the reason for the non-competitive award was that a non-traditional  company is the manufacturer of the engine and has the experience to  create cost-saving innovations to its manufacturing process. The  agreements officer stated legal counsel reviewed this documentation prior  to awarding the other transaction and that management was aware of the  non-competitive status of this transaction during acquisition planning.

Contracting officials from the Army Contracting Command-New Jersey  stated that, consistent with statute, they did not require acquisition  planning or non-competitive award documentation because they wanted  to maintain few requirements to award prototype other transactions.

Award Times Varied Significantly for the Prototype Other Transactions We Reviewed

While senior contracting officials told us that they were able to streamline  the review process for other transactions compared to the actions  typically required before awarding other procurement contracts, they  cautioned that the time needed to award a prototype other transaction  can vary significantly. We found that, for the 11 prototype other  transactions we reviewed, award times—which we defined as the time a  contracting office released a solicitation until the time the government  awarded the other transaction—ranged from 45 to 370 days. By way of  reference, we recently reported that the time from solicitation issuance  until the time the government awarded 129 weapon systems-related  procurement contracts ranged from less than a month to over 4 years,  with a median of about 9 months.

For the 11 prototype other transactions we reviewed, contracting officials  noted that the times varied due to factors such as prior knowledge about  the contractor and the complexity of the prototype project.

An Air Force prototype other transaction for improving missile engine  manufacturing processes was awarded in 45 days because the  agreements officer said she had extensive knowledge about the  capabilities of the contractor prior to awarding this transaction and  was, therefore, able to plan for and develop other transaction  documentation early. The agreements officer told us that she had  knowledge of this company because it had previously been a  subcontractor on a technology demonstration.

Conversely, the Army took 370 days to award a prototype other  transaction because the government needed time to assess what  contracting instrument to use to ensure multiple contractors  collaborated to build an autonomous airborne network of sensors.  According to the agreements officer, the government needed time to  research the effects of several possible teaming arrangements,  including creating a new consortium, using an existing consortium,  awarding a FAR-based contract, placing all of the contractors on a  single other transaction, or awarding individual other transactions to  each contractor.

Agreements Officers Generally Followed Management Review Processes Prior to the Award of the Prototype Other Transactions GAO Reviewed

In nine of the 11 prototype other transactions we reviewed, agreements  officers followed their contracting offices’ policies to have prototype other  transactions reviewed before awarding the other transactions.

In a $4.6 million Army prototype other transaction to develop a  capability to modernize legacy hardware systems, the appropriate  senior-level contracting official reviewed the transaction, such as by  checking terms and conditions and ensuring that the contract file was  complete. Legal counsel also reviewed the transaction prior to award,  as required.

In a $6.1 million Defense Advanced Research Projects Agency  prototype other transaction, the agreements officer consulted the  Deputy Director about this transaction before negotiations and a  contracting official one level above the agreements officer reviewed  the transaction, as the agency’s policy required. The agreements  officer also consulted legal counsel, an optional policy action, to draft  and negotiate a clause that would waive specific topics of the  commercial rights license that did not apply to the government. The  agreements officer stated that by working with legal counsel to  develop a clause, he was able to meet the program’s objective to  prototype a capability to emulate and validate microchip designs and  accommodate the contractor’s desire to use its commercial license.

For the remaining two prototype other transactions, we found, and  contracting officials agreed, that agreements officers did not meet policy  requirements for obtaining higher level review before award.

In the first case, a Defense Advanced Research Projects Agency  agreements officer did not have a higher level official review a $7.8  million prototype other transaction before it was awarded. Agency  policy required the agreements officer to consult with the Deputy  Director of the Contract Management Office about the negotiation  strategy and discuss any issues that arose during negotiations. In  addition, policy required the agreements officer to have a contracting  official one level above the agreements officer review the prototype  other transaction before award, regardless of dollar value. The  agreements officer told us that he did not consult with the Deputy  Director or obtain the required review because he thought the terms  and conditions were straightforward and the dollar value was too low  to require a review by an official above him.

Senior-level Defense Advanced Research Projects Agency  contracting officials told us they were not aware that this prototype  other transaction was awarded without the required consultation and  review until we brought this to their attention. According to these  officials, internal controls were in place that should have prevented  the award of prototype other transactions without the required  consultation and review—such as making current policy documents  readily accessible to agreements officers, communicating policy  changes to agreements officers, and using a data system to track the  development of other transactions prior to award. These officials  stated that they plan to check compliance with the required pre-award  consultation and review during their next internal file review of  awarded other transactions that will be completed in fiscal year 2020.  If they find instances of noncompliance, officials stated that the  agency will take corrective actions, such as providing additional  training for agreements officers. They also stated that they  subsequently reviewed the $7.8 million prototype other transaction  and determined that no changes needed to be made to the other  transaction in this instance.

In the second case, the Army Contracting Command-New Jersey  agreements officer—who was also the Center Director—had his  Branch Chief review a $10 million prototype other transaction prior to  award. Command policy, however, generally requires the Center  Director to review prototype other transactions valued at or greater  than $10 million. The Center Director stated that he did not serve as  the reviewer on this transaction because he would have been  reviewing his own work.

Army Contracting Command-New Jersey officials stated that the  management review should have been conducted by another Center  Director or a higher contracting official, but noted that this was an  atypical situation not addressed in the command’s policies. As such,  Army Contracting Command-New Jersey officials plan to revise their  management review policy by fall 2019 to address who should be  responsible for conducting a higher level management review when  someone who is designated to conduct the management review  serves as the agreements officer for the transaction. The officials  stated that they reexamined the prototype other transaction and found  that there were no issues with the terms and conditions and,  therefore, no changes needed to be made to the transaction.

Based on the stated intent of Defense Advanced Research Projects  Agency and Army Contracting Command-New Jersey contracting officials  to address issues we identified in our review, we are not making  recommendations at this time but will monitor their actions to address the  issues.

We provided a draft of this product to DOD for comment. DOD provided  technical comments, which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional  committees and the Secretary of Defense; the Acting Principal Director of  Defense Pricing and Contracting; the Secretaries of the Air Force and  Army; and the Directors of the Defense Advanced Research Projects  Agency and the Washington Headquarters Services. In addition, the  report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or dinapolit@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix II.

Appendix I: Department of Defense (DOD) Use of Prototype Other Transactions by Command

Appendix II: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Cheryl Andrew, Assistant  Director; Carmen Yeung, Analyst-in-Charge; Pete Anderson; Lorraine  Ettaro; Kurt Gurka; Daniel Glickstein; Julia Kennon; Roxanna Sun; and  Leanne Violette made key contributions to this report.

To attract innovative companies that may not traditionally do business with DOD, the department can use flexible agreements known as “other transactions.” Other transactions are not subject to certain federal contract laws and requirements.

We found DOD’s use of these transactions for prototype projects significantly increased since 2016 and 88% of those awarded included companies with whom DOD does not typically do business.

Our in-depth review of 11 transactions found two transactions that were not reviewed by appropriate officials before award. To address such issues, DOD plans to strengthen internal controls and improve guidance.


COVID-19: Opportunities to Improve Federal Response and Recovery Efforts

The outbreak of COVID-19 quickly spread around the globe. As of June 17, 2020, the United States had over 2 million reported cases of COVID-19, and over 100,000 reported deaths, according to federal agencies. Parts of the nation have seen severely strained health care systems. The country has also experienced a significant and rapid downturn in the economy. Four relief laws, including the CARES Act, were enacted as of June 2020 to provide appropriations to address the public health and economic threats posed by COVID-19. In addition, the administration created the White House Coronavirus Task Force.

The CARES Act includes a provision for GAO to report regularly on its ongoing monitoring and oversight efforts related to the COVID-19 pandemic. Yesterday, GAO issued its first report ( GAO-20-625 ).

Like the report, this testimony focuses on key actions the federal government has taken to address the COVID-19 pandemic, GAO recommendations for improvement, and evolving lessons learned relevant to the nation’s response to pandemics, among other things. GAO reviewed data and documents from federal agencies about their activities and interviewed federal and state officials as well as industry representatives. GAO also reviewed available economic, health, and budgetary data.

In response to the national public health and economic threats caused by COVID-19, four relief laws were enacted as of June 2020 that appropriated $2.6 trillion. This funding provided support to individuals, health care providers, businesses, and state and local government.

While complete government-wide data will not be available until July, GAO determined that as of May 31, 2020, a total of about $1.2 trillion of assistance has been provided—close to $700 billion in expenditures and over $500 billion in loan guarantees. Consistent with the urgency of responding to widespread health issues and economic disruptions, agencies have worked hard to give priority to moving swiftly. In moving quickly, however, agencies made trade-offs; thus, only limited progress has been made so far in achieving transparency and accountability goals.

GAO also identified challenges with the federal response to the crisis, including:

Paycheck Protection Program (PPP). The Small Business Administration (SBA) moved quickly to establish a new nationwide program, but the pace contributed to confusion and questions and raised program integrity concerns. GAO recommends that SBA develop and implement plans to identify and respond to risks in PPP to better ensure program integrity. SBA neither agreed nor disagreed. Implementing GAO’s recommendation is essential.

Economic impact payments. The Internal Revenue Service (IRS) and the Department of the Treasury (Treasury) faced difficulties delivering payments to some individuals, and made some payments to ineligible individuals, such as decedents. GAO recommends that IRS should consider cost-effective options for notifying ineligible recipients how to return payments. IRS agreed.

Unemployment Insurance (UI). The program could have an unintentional overlap with benefits provided under PPP. GAO recommends that the Department of Labor (DOL) immediately provide help to state unemployment agencies that specifically addresses PPP loans, and the risk of improper payments associated with these loans. DOL is planning additional guidance.

Aviation-preparedness plan. In 2015, GAO recommended that the Department of Transportation (DOT) work with federal partners to develop a national aviation-preparedness plan for communicable disease outbreaks. Thus far, no plan exists. GAO recommends Congress require DOT to produce a plan.

Full access to death data. It is important to consistently use safeguards when providing assistance to individuals. The Treasury and Bureau of Fiscal Service do not have access to the Social Security Administration’s full set of death records. GAO recommends that the Congress give Treasury that access and require that Treasury consistently use it.

Medicaid. GAO previously found that during economic downturns, the Federal Medical Assistance Percentage (FMAP) formula does not reflect current state economic conditions. GAO recommends that, during an economic downturn, Congress use a formula to provide timely and targeted assistance during economic downturns.

In the report, GAO makes three new recommendations for agencies and three matters for consideration for Congress that address these issues.

Thank you for the opportunity to discuss the federal government’s  response to Coronavirus Disease 2019 (COVID-19). As the virus has  spread around the globe and within the United States, it has left a  devastating wake of human and economic loss. On behalf of my  colleagues, I want to express my condolences for those who have lost  loved ones to COVID-19. Additionally, I want to commend the heroic  efforts of health care workers across the country who have cared for  those individuals infected with the virus. I also want to recognize the  dedication and agility of the federal, state and local workforces and others  throughout our society.

In response to this unprecedented global crisis, Congress and the  administration have taken a series of actions to protect the health and  well-being of Americans. Notably, in March 2020, Congress passed, and  the President signed into law, the CARES Act. It provides over $2 trillion  in emergency assistance and health care response for individuals, health  care providers, businesses, and state and local governments affected by  COVID-19. Agencies across the federal government have acted quickly to  execute the law, including standing up new programs, while also  responding to the pandemic.

The CARES Act includes a provision for us to conduct monitoring and  oversight of the use of funds made available to prepare for, respond to,  and recover from the COVID-19 pandemic. GAO is to report on, among  other things, the pandemic’s effects on the public health, economy, and  public and private institutions of the United States, including the federal  government’s public health and homeland security efforts. The act  requires us to submit a report within 90 days of enactment on our ongoing  monitoring and oversight efforts related to the COVID-19 pandemic, with  subsequent bimonthly reports.

Yesterday we issued the first of these reports, which will continue on a  bimonthly basis through March 2021. My comments today will  summarize the key findings from this report. Specifically, I will discuss  1.  the key actions the federal government has taken, to date, to respond  to and recover from COVID-19, recommendations for executive  action, and matters for legislative action by the Congress; and   2.  evolving lessons learned relevant to the nation’s response to the  COVID-19 pandemic.

To conduct the work for our initial report, we examined federal laws and  agency documents, guidance, processes, and procedures, and available  agency budgetary data. In addition, we interviewed federal and state  officials and industry representatives. We also reviewed Federal  Procurement Data System-Next Generation data through May 31, 2020.  We identified obligations related to COVID-19 using the National Interest  Action code, as well as the contract description. We also reviewed prior  GAO work, information from relevant federal agencies responsible for the  pandemic response and oversight of the health care system, selected  studies produced by experts in public health and epidemiology, data  collected by state health departments, and examples of federal  government response to past national emergencies. To monitor areas of  the economy supported by federal response to the pandemic, we also  reviewed prior GAO reports, releases from federal statistical agencies,  and input from internal GAO experts. More detailed information on our  objectives, scope, and methodology for that work can be found in the  issued report.

We conducted the work on which this statement is based in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on  our audit objectives.

Key Federal Actions to Respond to and Recover from COVID- 19 and Our Recommendations for Executive Action and Matters for Legislative Action

In response to the national public health and economic threats caused by  COVID-19, four relief laws were enacted as of June 2020, including the  CARES Act in March 2020. These laws have appropriated $2.6 trillion  across the government. Six areas—the Paycheck Protection Program  (PPP), Economic Stabilization and Assistance to Distressed Sectors,  unemployment insurance, economic impact payments, the Public Health  and Social Services Emergency Fund, and the Coronavirus Relief Fund— account for 86 percent of the appropriations (see fig. 1).

Total federal spending data are not planned to be readily available until  July 2020. It is unfortunate that the public will have waited more than 4  months since the enactment of the CARES Act for access to  comprehensive obligation and expenditure information published by  federal agencies about the programs funded through these relief laws.

In the absence of comprehensive data, we collected obligation  (government financial commitments) and expenditure data from agencies,  to the extent practicable, as of May 31, 2020. For the six largest spending  areas, we found that obligations totaled $1.3 trillion and expenditures  totaled $643 billion. The majority of the difference was due to PPP, for  which the Small Business Administration (SBA) obligated $521 billion.  The amounts for loan guarantees will not be considered expenditures  until the loans are forgiven, and, for those that are not forgiven, whether  they are timely repaid.

We also collected spending data on other programs affected by the  federal response. For example, we found that the Department of Health  and Human Services (HHS) has provided $7 billion in COVID-19  Medicaid funding related to a temporary increase in the Federal Medical  Assistance Percentage (FMAP), the statutory formula the federal  government uses to match states’ Medicaid spending. Based on the  information we collected, government-wide spending totaled at least $677  billion, as of May 31, 2020.

Given the sweeping and evolving public health and economic crisis,  agencies from across the federal government were called on for  immediate assistance, requiring an unprecedented level of dedication and  agility among the federal workforce, including those serving on the front  lines, to quickly establish services for those infected with the virus.  Consistent with the urgency of responding to serious and widespread  health issues and economic disruptions, agencies have given priority to  moving swiftly where possible to distribute funds and implement new  programs. In moving quickly, however, agencies made trade-offs, and  they have made only limited progress so far in achieving transparency  and accountability goals.

In particular, we identified several challenges related to the federal  response to the crisis, as well as recommendations to help address these  challenges, including the following:  Viral testing. The Centers for Disease Control and Prevention (CDC)  reported incomplete and inconsistent data from state and jurisdictional  health departments on the amount of viral testing occurring nationwide,  making it more difficult to track and know the number of infections,  mitigate their effects, and inform decisions on reopening communities.  However, HHS issued guidance on June 4, 2020, to laboratories that  identifies required data elements to collect and how to report them to  CDC.

Distribution of supplies. The nationwide need for critical supplies to  respond to COVID-19 quickly exceeded the quantity of supplies contained  in the Strategic National Stockpile, which is designed to supplement state  and local supplies during public health emergencies. HHS has worked  with the Federal Emergency Management Agency and the Department of  Defense to increase the availability of supplies. However, concerns  remain about the distribution, acquisition, and adequacy of supplies.

Paycheck Protection Program. As of June 12, 2020, the Small  Business Administration (SBA) had rapidly processed over $512 billion in  4.6 million guaranteed loans through private lenders to small businesses  and other organizations adversely affected by COVID-19. As of May 31,  2020, SBA had expended about $2 billion in lender fees. SBA moved  quickly to establish a new nationwide program, but the pace contributed  to confusion and questions about the program and raised program  integrity concerns.

First, borrowers and lenders raised a number of questions about the  program and eligibility criteria. To address these concerns, SBA and  the Department of the Treasury (Treasury) issued a number of interim  final rules and several versions of responses to frequently asked  questions. However, questions and confusion remained. In June  2020, Congress passed, and the President signed into law, the  Paycheck Protection Program Flexibility Act of 2020, which modified  key program components.

Second, to help quickly disburse funds, SBA allowed lenders to rely  on borrower certifications to determine borrowers’ eligibility, raising  the potential for fraud.

We recommend that SBA develop and implement plans to identify and  respond to risks in PPP to ensure program integrity, achieve program  effectiveness, and address potential fraud. SBA neither agreed nor  disagreed, but we believe implementing this recommendation is essential.

Economic impact payments. The Internal Revenue Service (IRS) and  Treasury moved quickly to disburse 160.4 million payments worth $269  billion. The agencies faced difficulties delivering payments to some  individuals, and they face additional risks related to making improper  payments to ineligible individuals, such as decedents, and fraud. For  example, according to the Treasury Inspector General for Tax  Administration, as of April 30, almost 1.1 million payments totaling nearly  $1.4 billion had gone to decedents. We recommend that IRS consider  cost-effective options for notifying ineligible recipients how to return  payments. IRS agreed.

Unemployment insurance (UI). States are implementing three new,  federally funded UI programs created by the CARES Act and, as of May  2020, states had received 42 million UI claims. The Department of Labor  (DOL) has taken steps to help states manage demand, but DOL is  developing its approach to overseeing the new UI programs. We will be  evaluating DOL’s monitoring efforts in future reports. Further, the UI  program is generally intended to provide benefits to individuals who have  lost their jobs; under PPP, employers are generally required to retain or  rehire employees. According to DOL, no mechanism currently exists that  could capture information in real time about UI claimants who may  receive wages paid from PPP loan proceeds. We recommend that DOL,  in consultation with SBA and Treasury, immediately provide help to state  unemployment agencies that specifically addresses PPP loans and the  risk of improper payments associated with these loans. DOL neither  agreed nor disagreed with the recommendation, but noted it was planning  forthcoming guidance.

Contract obligations. Government-wide contract obligations in response  to the COVID-19 pandemic totaled about $17 billion as of May 31, 2020.  Goods procured include ventilators, and services contracted for include  vaccine development. In addition, the CARES Act provided $1 billion for  Defense Production Act purchases—$76 million of which was awarded to  increase production of N95 respirators.

Evolving Lessons Learned from Initial COVID-19 Response and Past Emergencies Highlight Areas for Continued Attention

The nation has made some progress in fighting COVID-19. However, the  virus continues to pose risks to all Americans, and there is a concern of  another wave of infection this fall. This could coincide with the seasonal  influenza and hurricane season—further straining federal agencies  responsible for responding to these events, as well as the health care  system. Additionally, the nation’s initial response to COVID-19 highlights  the challenges presented by an inherent fragmentation across  responsibilities and capabilities in the federal biodefense response and  health care system, which includes private, public (local, state, and  federal governments), and nonprofit entities.

Lessons from the initial response, as well as experience from past  economic crises, disasters, and emergencies, highlight areas where  continued attention and oversight are needed—with the focus on  improving ongoing response efforts and preparing for potential additional  waves of infection. These lessons include the following:

Establishing clear goals and defining roles and responsibilities for the  wide range of federal departments and other key players are critically  important actions when preparing for pandemics and addressing an  unforeseen emergency with a whole-of-government response.

Providing clear, consistent communication in the midst of a national  emergency—among all levels of government, with health care  providers, and to the public—is key.

Collecting and analyzing adequate and reliable data can inform  decision-making and future preparedness—and allow for midcourse  changes in response to early findings.

Establishing transparency and accountability mechanisms early on  provides greater safeguards and reasonable assurance that federal  funds reach the intended people and are used for the intended  purposes. Such mechanisms also help ensure program integrity and  address fraud risks.

While Congress has taken a number of actions to help address the  pandemic, it continues to consider additional actions—both to improve  ongoing efforts and implement new ones—and develop plans for  congressional oversight of the nation’s response to and recovery from  COVID-19. Congressional oversight plays a vital role in spurring agency  progress on matters of national importance. On the basis of our work on  past large-scale government responses to economic downturns and other  crises, we recommend Congress consider taking legislative action in the  following areas:  Aviation-preparedness plan. In 2015, we recommended that the  Department of Transportation (DOT) work with federal partners to  develop a national aviation-preparedness plan for communicable disease  outbreaks. DOT agreed, but as of May 2020, maintained that HHS and  DHS should lead the effort. Thus far, no plan exists. We recommend that  Congress take legislative action to require DOT to work with relevant  agencies and stakeholders to develop a national aviation-preparedness  plan to ensure safeguards are in place to limit the spread of  communicable disease threats from abroad while at the same time  minimizing any unnecessary interference with travel and trade.

Full access to death data. The number of economic impact payments  made to decedents highlights the importance of consistently using key  safeguards in providing government assistance to individuals. IRS has  access to the Social Security Administration’s full set of death records,  but Treasury and its Bureau of the Fiscal Service, which distribute  payments, do not. We recommend that Congress provide Treasury with  access to the Social Security Administration’s full set of death records  and require that Treasury consistently use it to help reduce similar types  of improper payments.

Medicaid. We previously found that during economic downturns—when  Medicaid enrollment can rise and state economies weaken—the FMAP  formula does not reflect current state economic conditions. We previously  developed a formula that offers an option for providing temporary  automatic, timely, and targeted assistance. We recommend that  Congress use this formula for any future changes to the FMAP during the  current or any future economic downturn to help ensure that the federal  funding is targeted and timely.

In the report we issued yesterday, we also describe potential indicators  that could be used to monitor public health and economic recovery. The  report also contains 41 enclosures that contain information about a wide  range of federal programs or initiatives that were created, expanded, or  funded in the COVID-19 relief laws.

In conclusion, both Congress and the administration have acted to  respond to public health and economic threats posed by COVID-19.  Federal agencies and personnel acted quickly to stand up new programs  or expand existing programs to, among other things, aid individuals,  states, and businesses. But much work remains in protecting the health  and well-being of Americans, both today and in the coming months, as  the nation may be forced to simultaneously confront new waves of  COVID-19 infections and seasonal influenza.

In our initial report we make recommendations to help improve the  effectiveness of the federal government’s ongoing response. Our ongoing  oversight will continue to focus on improving the government’s response  and recovery efforts as well as the nation’s preparedness for future  outbreaks. Chairman Clyburn, Ranking Member Scalise, and Members of  the Subcommittee, this concludes my prepared statement. I would be  pleased to respond to any questions that you may have at this time.

For further information about this testimony, please contact A. Nicole  Clowers, Managing Director, Health Care, at (202) 512-7114 or  clowersa@gao.gov; Katherine Siggerud, Chief Operating Officer, at (202)  512-5600 or siggerudk@gao.gov; or Orice Williams Brown, Managing  Director, Congressional Relations, at (202) 512-4400 or  williamso@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.

This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.

In response to the COVID-19 pandemic, Congress appropriated $2.6 trillion in emergency assistance for people, businesses, the health care system, and state and local governments.

How are federal agencies spending these funds?

We testified that the Small Business Administration processed over $512 billion in guaranteed small business loans, but isn’t ready to address fraud risks and hasn’t said how it plans to oversee the loans. Also, the IRS and the Treasury made 160.4 million payments worth $269.3 billion to taxpayers as of May 31—including payments to more than a million deceased individuals.

Our recommendations address these and other issues.