The application of cost-benefit analysis in raising the noncompetitve small purchase threshold.

Abstract

The purpose of this thesis is to determine the economic impact of a proposed acquisition policy change. As an interim measure, a class deviation to the Federal Acquisition Regulation was issued 4 June 1987. The change increases the small purchase noncompetitive threshold from $1,000 to $2,500 for a test period of one year. This deviation was issued after the research commenced but before this report was issued. The primary reason for this change is to reduce the administrative cost associated with obtaining competition. Consequently, the government should be prepared to make a trade-off between the administrative cost of competing and any savings realized from competition. Using the data collected from two field activities, NAS Point Mugu and NWC China Lake, an analysis was conducted to determine the costs and benefits associated with increasing this threshold. This research will focus on administrative order costs, shortage costs, procurement administrative lead time, and productivity of acquisition personnel. This thesis will conclude with observations about the noncompetitive threshold and make recommendations concerning a policy change.