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Following the terrorist attacks of 2001, the federal government determined that it would need additional medical countermeasures (e.g., diagnostic tests, drugs, vaccines, and other treatments) to respond to an attack using chemical, biological, radiological, or nuclear (CBRN) agents. The enactment of the Project BioShield Act of 2004 ( P.L. 108-276 ) was designed to be an important part of federal efforts to obtain new civilian medical countermeasures. It provides countermeasure developers with a guaranteed government market for their products. As Congress continues oversight of federal efforts to protect the United States, the effectiveness and efficiency of the Project BioShield implementation may draw legislative attention.
This report discusses actions taken by Congress and the Administration that have affected this program, describes the decision-making process for choosing countermeasures, describes the countermeasures for which the Department of Health and Human Services (HHS) has contracted, and discusses accounting discrepancies between the President's Budget and HHS reporting of Project BioShield awards.

	Overview of Project BioShield

The Project BioShield Act of 2004 ( P.L. 108-276 ) contains three major provisions. One relaxes some procedures for bioterrorism-related procurement, hiring, and research grant awarding. Another permits the emergency use of countermeasures not approved by the Food and Drug Administration (FDA). The third authorizes a 10-year program to encourage the development and production of new countermeasures for chemical, biological, radiological, and nuclear (CBRN) agents. This last provision is usually referred to as Project BioShield and is the focus of this report.
In contrast to federal programs that directly fund research and development of biomedical countermeasures, Project BioShield is a procurement program. It acts as a guarantee that the federal government will buy successfully developed countermeasures for the Strategic National Stockpile (SNS). It allows the government to enter into contracts to procure countermeasures while they still are in development, up to eight years before product delivery is expected. The government guarantees that it will buy a certain quantity at a specified price, once the countermeasure meets specific requirements. The government pays the agreed-upon amount only after these requirements are met and the product is delivered to the Strategic National Stockpile. If the product does not meet the requirements within the specified time frame, the contract can be cancelled without any payment to the contractor. Thus, Project BioShield is intended to reduce the developer's market risk; that is, the possibility that no customer will buy the successfully developed product. However, it does not reduce the development risk; that is, the possibility that the countermeasure will fail during development. The Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ) modified the Project BioShield Act to allow for milestone-based payments for up to half of the total award before countermeasure delivery.

		Project BioShield Procurement Process

The Project BioShield procurement process requires actions by the Department of Homeland Security (DHS), HHS, and the President, and relies on interagency working groups. Figure 1 illustrates the Project BioShield decision-making and acquisition process.

			DHS Roles

The first step in the BioShield acquisition process is to determine whether a particular CBRN agent poses a material threat to national security. This analysis, generally referred to as a Material Threat Assessment (MTA), is performed by DHS. Between 30 and 40 subject matter experts are consulted during an MTA. On the basis of this assessment, the DHS Secretary determines whether that agent poses a material threat to national security. The Project BioShield Act of 2004 requires such a written Material Threat Determination (MTD) for procurement using BioShield funds and authorities. This declaration neither addresses the relative risk posed by an agent nor determines the priority of its acquisition. Furthermore, the issuance of an MTD does not guarantee that the government will pursue countermeasures against that agent.
DHS has issued MTDs for 13 agents. These included the biological agents that cause anthrax, multi-drug resistant anthrax, botulism, glanders, meliodosis, tularemia, typhus, smallpox, plague, and the hemorrhagic fevers Ebola, Marburg, and Junin. Additionally, DHS issued a single MTD covering radiological and nuclear agents. According to HHS, the first four MTDs (anthrax, radiological/ nuclear agents, botulinum toxin, and smallpox) were completed before or shortly after the enactment of the Project BioShield Act. No other MTDs were issued until September 2006, when nine were issued. HHS predicted no additional MTDs would be issued unless "technology advances or if our understanding of the potential threats changes."
Homeland Security Presidential Directive (HSPD)-10 and HSPD-18 direct DHS to perform additional risk assessments. HSPD-10 directs DHS to develop, and periodically update, risk assessments that include a ranking of relative risks for biological agents. HSPD-10 states that this overall biological agent risk assessment is to be used to prioritize federal government-wide planning and response to the threat of biological agent attacks. The first iteration of this assessment was delivered in 2006. Following its completion, this overall biological agent risk ranking helped determine which agents should have MTAs and MTDs. HSPD-18 requires DHS to develop a comprehensive risk assessment that integrates all CBRN agents into a single ranking of relative risk. This risk assessment is required to be completed by June 1, 2008. HSPD-18 directs that this assessment be used to prioritize CBRN countermeasure research, development, and acquisition.
In addition to making MTDs and performing risk assessments, DHS contributes to the interagency process by developing credible attack scenarios to help establish countermeasure requirements and response planning.

			HHS Roles

For agents that have received an MTD, HHS assesses the public health consequences of an attack using that agent. This analysis relies on interagency working groups (see below) and is now coordinated by the HHS Office of Public Health Emergency Medical Countermeasures (OPHEMC). OPHEMC is within the Office of the Assistant Secretary for Preparedness and Response (ASPR). Following this assessment, HHS determines whether this material threat lacks an existing, effective countermeasure and whether a countermeasure should be procured using Project BioShield authorities and funds. If so, the HHS and DHS Secretaries may jointly submit a recommendation for presidential approval to use BioShield funds to acquire such a countermeasure.
The HHS Secretary is also responsible for establishing countermeasure requirements, such as dosage, patient administration method (e.g., injection or pill), minimum effectiveness, and quantity. This process is coordinated by OPHEMC and relies on input from interagency working groups. HHS is responsible for the entire Project BioShield contracting process, including issuing Requests for Information, Requests for Proposals, awarding contracts, managing awarded contracts, and determining whether contractors have met the minimum requirements for payment. OPHEMC maintains a website detailing all Project BioShield solicitations and awards.
HHS implementation of Project BioShield and its management of the procurement process have been widely criticized. These issues provided some of the impetus for creating the Biodefense Advanced Research and Development Authority (BARDA) through the Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ). Despite concerns that OPHEMC was not optimally executing its BioShield responsibilities, HHS has chosen to implement P.L. 109-417 by adding the new BARDA responsibilities and authorities to this office. To reflect this increase in responsibilities, HHS also plans to rename OPHEMC as the Biodefense Advanced Research and Development Authority. These new duties include directly funding the advanced development of countermeasures which are not yet deemed eligible for Project BioShield contract awards.

			Presidential Roles

Presidential approval is required before HHS enters into any Project BioShield countermeasure procurement contract or issues a call for countermeasure development. The President may only make such approval subsequent to a joint recommendation from the Secretaries of HHS and DHS. The President delegated this approval responsibility to the Director of the Office of Management and Budget.
The Executive Office of the President also had coordinated the interagency process, largely through the Homeland Security Council (HSC), the National Security Council (NSC), and the National Science and Technology Council (NSTC). This was changed by HSPD-18, which directed the HHS Secretary to lead the interagency process (see below).

			Interagency Roles

Much of the priority-setting and requirement-determining activities have input from multiple agencies, such as HHS, DHS, Department of Defense, and some of the intelligence agencies. The interagency process has been changed multiple times in the past, most recently by the issuance of HSPD-18 and the enactment of the Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ).

				Weapons of Mass Destruction Medical Countermeasures Subcommittee

In the past, the interagency process relied on expertise resident in the Weapons of Mass Destruction Medical Countermeasures (WMD MCM) Subcommittee. As part of the National Science and Technology Council (NSTC), this interagency group predated Project BioShield. The NSTC, a cabinet-level council, acts to coordinate science and technology policy across the federal research and development enterprise. The WMD MCM Subcommittee is a part of the NSTC Committee on Homeland and National Security. According to HHS, the charter of the WMD MCM Subcommittee was changed in 2005, and it began reporting to the joint HSC/NSC Biodefense Policy Coordinating Committee. According to NSTC, the Subcommittee also continues to remain within NSTC. The WMD MCM Subcommittee contains representatives from Centers for Disease Control and Prevention, Food and Drug Administration, National Institutes of Health, DHS, Department of Defense, Department of Agriculture, Nuclear Regulatory Commission, Department of Energy, Department of Veterans Affairs, Environmental Protection Agency, Homeland Security Council, National Security Council, Office of the Vice President, Office of Science and Technology Policy, Office of Management and Budget, and various intelligence agencies.
The WMD MCM Subcommittee's role in the Project BioShield process appears to have been assumed by the Public Health and Emergency Countermeasure Enterprise Governance Board (see below).

				Public Health and Emergency Medical Countermeasures Enterprise

The Public Health and Emergency Medical Countermeasures Enterprise (PHEMCE) is an interagency working group that was established in July 2006 during a HHS Office of Public Health Emergency Preparedness reorganization. It is to:
(1) define and prioritize requirements for public health medical emergency countermeasures, (2) coordinate research, early and late stage product development and procurement activities addressing the requirements [including BioShield procurement], and (3) set deployment and use strategies for medical countermeasures held in the Strategic National Stockpile.
PHEMCE is distinct from the HHS Office of Public Health Emergency Medical Countermeasures (OPHEMC). PHEMCE is an interagency working group while OPHEMC resides solely within HHS. However, the Director of OPHEMC is also responsible for coordinating PHEMCE. Neither its establishing regulation nor the PHEMCE strategy states to whom this interagency group reports nor details its membership.
According to HHS, the WMD MCM Subcommittee's duties were transferred to the PHEMCE Governance Board. However, the apparent continuance of the WMD MCM Subcommittee in the NSTC suggests that not all of its duties have transferred to PHEMCE. It is unclear what effect this transfer of duties from a subcommittee of a Cabinet-level Council to an interagency working group associated with an office under the Assistant Secretary for Preparedness and Response will have on the interagency process and the efficiency of the Project BioShield acquisition process.

				HSPD-18

Homeland Security Presidential Directive 18 (HSPD-18) was issued on January 31, 2007. When fully implemented, HSPD-18 may change the interagency process described above. HSPD-18 establishes a government-wide strategy for developing and acquiring civilian WMD countermeasures. One of its provisions requires the HHS Secretary to
establish an interagency committee to provide advice in setting medical countermeasure requirements and coordinate HHS research, development, and procurement activities.
HSPD-18 also requires the HHS Secretary to establish a
dedicated strategic planning activity to integrate risk-based requirements across the threat spectrum and of the full range of research, early-, mid- and late-stage development acquisition and life-cycle management of medical countermeasures.
The Secretary is to align all relevant HHS programs to support this plan.
These roles are similar to those of PHEMCE whose draft strategy was published prior to the issuance of HSPD-18. The final PHEMCE strategy appears to support the interpretation that HHS intends PHEMCE to fulfill the interagency committee and dedicated strategic planning activity requirements of HSPD-18. HSPD-18 requires the interagency committee to "apprise" the joint HSC/NSC Biodefense Policy Coordination Committee of countermeasure development and acquisition progress.

				The Pandemic and All-Hazards Preparedness Act

The Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ), enacted December 19, 2006, may also affect the Project BioShield interagency decision-making process. It gives the HHS Secretary until June 19, 2007 to
develop and make public a strategic plan to integrate biodefense and emerging infectious disease requirements with the advanced research and development, strategic initiatives for innovation, and the procurement of... countermeasures
This role is similar to that directed by HSPD-18. The finalized PHEMCE Strategy and PHEMCE Implementation Plan appear to only partially fulfill this requirement in that they address the biodefense plan but do not address emerging infectious diseases. HHS is preparing a separate strategic plan to fulfill the requirements of P.L. 109-417 .

	Appropriations, Rescissions, and Future Funding Options

		Appropriations

The Department of Homeland Security Appropriations Act, 2004 ( P.L. 108-90 ) provided an advance appropriation of $5.593 billion to procure civilian medical countermeasures for a 10-year period (FY2004-FY2013). This appropriation was enacted October 1, 2003, almost a year before the July 21, 2004 enactment of the Project BioShield Act of 2004 ( P.L. 108-276 ). The appropriations act established the "Biodefense Countermeasures" account for "necessary expenses for securing medical countermeasures against biological terror attacks."
Although all the funds for this account were provided in the 2004 appropriations act, only a portion became available for obligation upon enactment. The Department of Homeland Security Appropriations Act, 2004 specified that no more than $890 million could be obligated in FY2004, and no more than $3.418 billion could be obligated from FY2004 through FY2008 ( Table 1 ). Any money not obligated within these defined periods would remain available through FY2013. Thus, before rescissions were enacted, DHS had $890 million available as budget authority for this account in FY2004. In FY2005, an additional $2.528 billion would have become available. The remaining $2.175 billion would become available in FY2009 ( Table 2 ).
The Project BioShield Act of 2004 ( P.L. 108-276 ) designated the "Biodefense Countermeasures" account established by the Department of Homeland Security Appropriations Act, 2004 ( P.L. 108-90 ) as the special reserve fund for Project BioShield acquisitions. P.L. 108-276 placed additional restrictions on the use of these funds, including requiring a determination that an agent constitutes a material threat to national security, requiring Presidential approval before a countermeasure can be purchased, and restricting these funds to procurements only (i.e., not for administrative costs). It also broadened the types of countermeasures that may be acquired from this account to include those against biological, chemical, radiological, and nuclear agents.

		Rescissions

Although Congress provided the entire appropriation for the 10-year program, Congress retains the power to increase or decrease the amount available for Project BioShield. Two separate rescissions have removed a total of $25 million from the Project BioShield special reserve fund.
The Consolidated Appropriations Act, 2004 ( P.L. 108-199 ) contained an across-the-board rescission of 0.59%. This rescission applied to the amount of the Project BioShield advance appropriation that became available for obligation in FY2004 ( Table 2 ). This rescission removed $5 million from the amounts available for obligation in FY2004, as well as reducing the total special reserve fund by an equal amount. Thus, the amount available for obligation in FY2004 was reduced from $890 million to $885 million, and the total amount available for FY2004-FY2013 was reduced from $5.593 billion to $5.588 billion ( Table 1 and Table 2 ).
The Consolidated Appropriations Act, 2005 ( P.L. 108-447 ) contained an across-the-board rescission of 0.8%. This rescission applied to the $2.528 billion that became available for obligation in FY2005 ( Table 2 ). This removed $20 million from the amount available for obligation for FY2005-FY2008 as well as reducing the total special reserve fund by an equal amount. Thus, the amount that became available for obligation in FY2005 was reduced from $2.528 billion to $2.508 billion, and the total amount available until FY2013 was reduced from $5.588 billion to $5.568 billion ( Table 1 and Table 2 ).

		Future Funding Options

Across-the-board rescissions generally only affect those amounts that become available in that fiscal year. Therefore, the special reserve fund is unlikely to be affected by future across-the-board rescissions, except in FY2009, when the remaining $2.175 billion becomes available ( Table 2 ). However, Congress retains the power to make both specific appropriations and rescissions to this account and could thus directly increase or decrease the amount available for Project BioShield obligations.

	Acquisitions

The HHS has reported awarding $2.331 billion worth of Project BioShield contracts ( Table 3 ). These contracts address four material threats: Bacillus anthracis (the bacteria which cause anthrax), smallpox, botulinum toxin, and radiological and nuclear agents. The distribution of contract awards has been uneven between these threats, with $1,429 million against Bacillus anthracis (61%), $500 million against smallpox (21%), $364 million against botulinum toxin (16%) and $38 million against radiological and nuclear weapons (2%). While HHS has made additional requests for information from companies developing CBRN countermeasures, none have resulted in contract offers.
On December 17, 2006, HHS terminated an anthrax countermeasure contract for failure to meet a contract milestone. This contract was the first, and largest to date, awarded using Project BioShield funds. This cancellation took place after the preparation of both the HHS' Project BioShield Annual Report to Congress and the President's FY2008 Budget. Thus, neither of these documents reflect the recovery of these funds. Taking this cancellation into account, the HHS has obligated $1.454 billion to date ( Table 3 ).
Government acquisitions often follow a pattern of gathering information about available products, contract solicitation, award of the contract, and finally product delivery. Figure 2 displays a time line of Project BioShield acquisition activity.
A Request for Information (RFI) is a mechanism for the government to determine what products are available or that are under development that might fulfill a specified government need. It can cover a broad area or be narrowly focused. For example, in September 2006, HHS issued an relatively broad RFI to help in "identifying and characterizing the current and projected status of the research and development programs related to CBRN medical countermeasures" (CBRN General in Figure 2 ). In contrast, an RFI issued in December 2003 focused on a specific type of treatment for a specific disease, anthrax therapeutics, based on antibodies ( Figure 2 ).
Agencies can use the information in RFI responses to help shape policy and to help develop requirements for a contract solicitation. However, RFIs do not necessarily lead to contract solicitations. Four of the eight Project BioShield RFIs have not lead to contract solicitations. These RFIs were seeking countermeasures against CBRN in general, nerve agents, one of the two anthrax therapeutic RFIs, and one of the two acute radiation syndrome RFIs ( Figure 2 ). RFIs are also not required before issuing a contract solicitation. Four of the eight contract solicitations did not have an RFI. These contracts were for AVA based anthrax vaccine, botulinum antitoxin, and the radiation treatments Zn- and Ca-DTPA and potassium iodide (KI) ( Figure 2 ). These contract solicitations were for specific products from specific companies and not subject to open competition.
Contract solicitations are invitations for companies to submit proposals to provide goods or services to fulfill government needs. Project BioShield solicitations fall into two basic categories, sole source and Requests for Proposals (RFP). The sole source solicitations were for specific products from specific companies and not subject to open competition. Four of the eight contract solicitations were sole source. These are the same four contracts which did not go through the RFI process discussed above, AVA-based anthrax vaccine, botulinum antitoxin, and the radiation treatments Zn- and Ca-DTPA, and KI ( Figure 2 ). Four of the eight contract solicitations were RFPs. Each RFP specified certain characteristics required by the government and multiple companies could submit proposals. The government could then choose the proposal or proposals that best fit its requirements needs or decide that none of the proposals met the minimum requirements. The contract solicitations which went through the RFP process were those seeking an rPA-based anthrax vaccine, an MVA-based smallpox vaccine, and treatments for acute radiation syndrome ( Figure 2 ). Three of the four RFPs have resulted in contract awards to date, rPA-based anthrax vaccine, anthrax therapeutics, and MVA-based smallpox vaccine. The anthrax therapeutics RFP resulted in contracts with two companies for two different products. The government may decide that none of the companies responding to an RFP have products that meet the government's minimum requirements. This appears to be the case with the acute radiation syndrome RFP, which was terminated without an award on March 7, 2007.
HHS has awarded ten Project BioShield contracts to six different companies. Of these contracts, four have been completed (two for AVA-based anthrax vaccine, one for the radiation treatments Zn-DTPA and Ca-DTPA, and one of the two for the radiation treatment KI), four remain open (one of the two for the radiation treatment KI, two for anthrax therapeutics, and one for smallpox vaccine), and one was terminated (rPA-based anthrax vaccine). All of the completed contracts resulted from sole source contracting rather than an open bidding RFP process. These completed contracts were for products which required no further development time. It is not clear why HHS chose to acquire these products through the Project BioShield process rather than using the standard process for acquiring similar off-the-shelf products for the Strategic National Stockpile.
Of the ten contracts awarded by HHS, five were for products that required further development: rPA-based anthrax vaccine, smallpox vaccine, botulinum antitoxin, and the two anthrax therapeutics. None of these contracts have yet resulted in deliveries to the Strategic National Stockpile. The rPA anthrax vaccine contract was cancelled and development continues on the remaining four products with open contracts.

		Anthrax

The Project BioShield countermeasures against anthrax fall into two categories, vaccines and treatments. The vaccines would likely be used after an attack to prevent those people who were exposed to Bacillus anthracis from developing the disease anthrax, a procedure called postexposure prophylaxis. This contrasts with the manner in which most vaccines (e.g., childhood vaccines) are administered before exposure.

			rPA Vaccine

The vaccine based on recombinant Protective Antigen (rPA) is often referred to as the "second generation anthrax vaccine," to differentiate it from the anthrax vaccine adsorbed (AVA) vaccine, which is currently used by the Department of Defense (DOD). In 2002, the Institute of Medicine (IOM) stated, "Although AVA appears to be sufficiently safe and effective for use, it is far from optimal." The IOM supported the development of a new anthrax vaccine. Officials at HHS believe that, when fully developed, the rPA vaccine will address many of the shortcomings of the AVA vaccine as identified in the IOM report.
In November 2004, HHS awarded VaxGen, Inc. an $877.5 million contract for the delivery of 75 million doses of rPA vaccine to the Strategic National Stockpile ($11.70 per dose). On December 17, 2006, HHS terminated this contract for VaxGen's failure to meet a contract milestone.
HHS had planned that each person would require a three dose regimen of this vaccine for protection. Thus, 75 million doses would be sufficient for 25 million people. The Food and Drug Administration (FDA) has not licensed this vaccine. Although FDA licensing is not required for delivery to the stockpile, this vaccine required additional clinical testing before it could be accepted by the government. Under the contract with VaxGen, delivery was to begin by the end of 2006 and be completed by the end of 2007. Technical difficulties repeatedly delayed delivery.
This first, largest Project BioShield contract has drawn intense scrutiny. Critics of this contract award point to VaxGen's previous unsuccessful attempts to develop products, financial difficulties, and problems meeting the contract deadlines as indicative of problems in HHS' implementation of Project BioShield authorities. HHS responded to such criticisms by stating VaxGen won the contract through open competition after all the proposals were subjected to "a robust technical and business evaluation process." HHS portrayed the delays as part of the normal drug development process. VaxGen reportedly denied responsibility for the delays, stating that they arose from the government changing its requirements.
Following the cancellation of the contract, HHS restated its commitment to obtain an rPA-based anthrax vaccine for the Strategic National Stockpile.

			AVA Vaccine

The AVA anthrax vaccine was originally licensed in 1970. It is currently approved by the FDA for use in 18- to 65-year olds prior to exposure to Bacillus anthracis (pre-exposure prophylaxis). Neither this vaccine nor the rPA vaccine is approved by the FDA for post-exposure prophylaxis. The FDA-approved regimen for pre-exposure prophylaxis requires a series of six doses administered over the course of 18 months.
The DOD currently uses this vaccine for troops and other personnel deployed in certain areas, including South Korea, Afghanistan, and Iraq. Complaints of adverse reactions and questions about the vaccine's efficacy prompted judicial review of its use. In October 2004, a federal judge ordered the DOD to stop mandatory vaccinations pending FDA review. After this order, DOD continued to use this vaccine on a voluntary, rather than mandatory, basis. The FDA completed its review in December 2005. In October 2006, DOD announced plans to resume mandatory vaccinations. Reportedly, several DOD employees plan to sue to block implementation of mandatory vaccinations.
In May 2005 and May 2006, HHS awarded contracts to Emergent BioSolutions (formerly BioPort Corp.) for the delivery of AVA vaccine to the Strategic National Stockpile. Combined, the contracts are for 10 million doses of AVA vaccine for $242.7 million ($24.27 per dose). According to the company, 9 million doses have been delivered to the government, and the remainder is to be delivered in 2007.
This contract award has also drawn criticism on the basis of cost and questions of policy. Despite the manufacturer carrying no developmental risk, the AVA vaccine cost per dose is twice the cost per dose of rPA. Additionally, critics observe that DOD studies indicate that up to 35% of people have adverse reactions to this vaccine and that 6% of vaccine recipients have reported serious complications to the FDA's Vaccine Adverse Event Reporting System. Critics point to this and observations in the IOM report to support their conclusion that AVA is an inferior product. Lastly, since AVA is the only currently licensed vaccine, critics question whether its acquisition has resulted from its unique status rather than filling a Project BioShield need. Emergent BioSolutions defended its product stating that both the IOM report and the FDA found its product safe and that, as the only FDA-approved anthrax vaccine available, it is filling an urgent need.

			ABthrax

ABthrax is an antibody-based treatment that works in a manner similar to anti-venom treatments for snake bites. It is currently under development and it is not yet licensed by the FDA. In June 2006, HHS awarded a $165.2 million contract to Human Genome Sciences for the delivery of 20 thousand doses of ABthrax ($8,260 per dose). Human Genome Sciences expects to complete the delivery of ABthrax to the government in 2008. This high cost per dose, the mechanisms of action, and method of patient administration suggest that ABthrax would be used as a treatment for people who have already developed the symptoms of anthrax, rather than as a post-exposure prophylactic.

			Anthrax Immune Globulin

Anthrax Immune Globulin is also an antibody-based therapeutic. It is derived from the blood of people who have received the anthrax vaccine. It is currently under development and is not yet licensed by the FDA. In July 2006, HHS awarded a $143.8 million contract to Cangene Corp. for the delivery of 10 thousand doses of Anthrax Immune Globulin ($14,380 per dose). This high cost per dose, the mechanism of action, and likely method of patient administration suggest that Anthrax Immune Globulin would be used as a treatment for people who have already developed the symptoms of anthrax, rather than as a post-exposure prophylactic.

		Smallpox

Although the World Health Organization eradicated naturally occurring smallpox, it remains a terrorist threat. Following the terrorist attacks of 2001, the Untied States acquired for the Strategic National Stockpile enough of the currently FDA-licensed vaccine (Dryvax ® made by Wyeth Laboratories) to vaccinate 300 million people. However, this vaccine has a high rate of complications, which could be especially serious in people with certain conditions including pregnancy, compromised immune systems, and eczema. The HHS determined that a different smallpox vaccine is required to protect such vulnerable populations.
In June 2007, HHS awarded a $500 million contract to Bavarian Nordic A/S for 20 million doses of smallpox vaccine ($25 per dose), enough for 10 million people. This vaccine is based on the Modified Vaccinia Ankara (MVA) viral strain, which is a different viral strain than the currently licensed vaccine. Experts at HHS believe that this will make it safer for use in vulnerable populations. HHS plans to use this vaccine as a pre-exposure prophylactic in those populations following a known or suspected smallpox release. Additional research is required before this vaccine can be accepted into the stockpile and licensed by the FDA. According to the company, this contract contains options worth up to $1.1 billion for 60 million additional doses and clinical research to extend the license to include children, the elderly, and people infected with HIV.

		Botulinum Toxin

Botulinum antitoxin is an antibody-based treatment for botulism, a life threatening illness caused by a toxin produced by Clostridium botulinum bacteria. In June 2006, HHS awarded a $362.6 million contract to Cangene Corp. for 200 thousand doses of a botulinum antitoxin ($1,813 per dose). The company expects to begin delivery by the end of 2007. Botulinum toxin has several different types; an antitoxin against one type will not be effective against other types. This contract calls for a combination of antitoxins that will work against seven types of botulinum toxins. This combination is known as heptavalent antitoxin. Following an intentional release of botulinum toxin, this antitoxin would probably be administered to people who have developed symptoms of toxin exposure, consistent with the way that similar trivalent products are currently used to treat naturally occurring exposures.
Botulinum antitoxin is produced in a manner similar to anthrax immune globulin, except in this case, it is extracted from horse blood instead of human blood. In 2004, after the Department of Homeland Security Appropriations Act, 2004 provided the advance appropriation, but before the Project BioShield Act was enacted, HHS obligated $50 million from this account to support the botulinum antitoxin program. These funds were used to process existing horse blood that had been collected by the DOD and to establish horse farms needed to provide new horse blood. This expenditure would probably not have been eligible for funding from this account after enactment of the Project BioShield Act, as it limited the use of these funds to procuring products. Because these funds were not obligated as part of Project BioShield, they are not included in Table 3 , but they are included in Table 4 (see below).

		Radiological and Nuclear Agents

In addition to direct blast effects, attacks using radiological or nuclear agents can produce injuries resulting from ionizing radiation, which can damage or kill living cells. HHS determined that the threat posed by both acute radiation sickness and internal contamination with radioactive particles require countermeasures. HHS has contracted for two types of countermeasures designed to reduce internal contamination. An RFP for countermeasures to address acute radiation sickness did not lead to a contract award. The RFP was cancelled, apparently because none of the proposals met the minimum requirements determined by HHS.

			Potassium Iodide

The HHS awarded contracts in March 2005 and February 2006 to Fleming & Company Pharmaceuticals for the delivery of a total of 4.8 million doses of liquid potassium iodide (KI) for a total cost of $15.9 million ($3.31 per dose). This product is FDA-approved and available without a prescription to treat people exposed to radioactive iodine.
Potassium iodide might be distributed following a release of radioactive iodine into the air, possibly following an attack on a nuclear power plant. Because the thyroid gland extracts and stores iodine present in the blood, it is vulnerable to injury from radioactive iodine. If administered in time, potassium iodide would block extraction and storage of radioactive iodine by the thyroid. Potassium iodide does not protect against the effects of any other type of radioactive material. Even before these acquisitions, potassium iodide tablets were included in the Strategic National Stockpile, but the tablet formulation was considered poorly suited for children. This liquid preparation, in contrast, is designed for pediatric use.

			Chelators

In February and April 2006, HHS awarded a $21.9 million contract to Akorn, Inc. for 395 thousand doses of calcium diethylenetriaminepentaacetate (Ca-DTPA) and 80 thousand doses of zinc diethylenetriaminepentaacetate (Zn-DTPA). (a nominal average of $46 per dose). These chelators might be used to treat those exposed to radioactive material through the detonation of a radiological dispersal device ("dirty bomb"), improvised nuclear device, or terrorist attack against stored radioactive material. These products are FDA-approved for this type of internal decontamination.
Radioactive materials that may be inhaled or ingested following a dirty bomb or nuclear attack are treated as minerals in the body. Thus, they enter into biological processes like other minerals and become incorporated into internal organs. Once incorporated, they are very difficult to remove and continue to emit radiation, potentially sickening those exposed. Chelators help remove these radioactive particles from the body by binding to them and facilitating their excretion through normal physiological processes.

	Differences in HHS Contract Awards and Annual Budget Document Accounting

The Project BioShield special reserve fund, established by the Department of Homeland Security Appropriations Act, 2004, is managed by DHS. In FY2006, the DHS management of this appropriations account passed internally from the Federal Emergency Management Agency to the Preparedness Directorate. However, the contracts obligating the appropriated funds are executed through the HHS OPHEMC.
 Table 4 shows the accounting from the President's annual budget documents. In FY2004, $885 million from the advance appropriation became available for obligation. According to the DHS section of the budget, all available budget authority was obligated in FY2004; no budget authority was carried into the following fiscal year. In FY2005, another $2.508 billion became available for obligation. The budget documents state that $189 million of this was obligated in FY2005, leaving $2.324 billion to be carried over into FY2006. For FY2006, the budget states that $856 million was obligated, leaving $1.468 billion to be carried over into FY2007. DHS anticipates obligations of $1.045 billion in FY2007, leaving only $423 million available for obligation in FY2008. The next part of the advance appropriation does not become available for obligation until FY2009 (see Table 2 ).
These figures conflict with totals calculated from the countermeasure awards reported by HHS ( Table 3 ). Table 5 lists all of the contracts that HHS has announced for this account along with their dates of award and fiscal year subtotals.
According to HHS, the only obligation from this account in FY2004 was $50 million to support the botulinum antitoxin program. In contrast, the President's FY2006 Budget documents state that $885 million was obligated in FY2004. Additionally, it describes this obligation as falling under two object classifications; with $190 million for "other services" (object classification 25.2) and $695 million for "other purchases of goods and services from Government accounts" (object classification 25.3). It is not clear what these amounts represent. The $50 million HHS obligated for the botulinum antitoxin program support could fall under the "other services" category, since it was not an acquisition per se , but the amount of this contract does not correlate to the amount categorized as "other services."
Another possibility is that President's Budget accounted for the rPA vaccine contract (awarded in November 2004) in FY2004 rather than FY2005. This interpretation is supported by the FY2007 Budget reporting that only $189 million was obligated in FY2005. However, the total of the $878 million rPA obligation and the $50 million botulinum antitoxin program obligation is greater than the budget authority made available in FY2004 ($885 million). This interpretation also would not account for the division of the funds into the two object classifications. Furthermore, the FY2007 DHS Preparedness Directorate BioDefense Countermeasures Congressional Justification materials list acquiring the rPA vaccine as one of its FY2005 accomplishments. The source of the FY2004 account discrepancy of $835 million is not apparent.
In FY2005, HHS reported awarding three contracts for a total of $1.008 billion. The FY2007 Budget states that the actual amount obligated in FY2005 was $189 million. The DHS FY2007 Congressional Justification documents state that its FY2005 accomplishments include the rPA, KI, and AVA contracts. These would equal the $1.008 billion calculated from the HHS figures. It is not apparent to what the $189 million stated in the Budget correlates.
Like the preceding two years, the stated obligations for FY2006 are different according to HHS and the President's Budget. For FY2006, HHS reported awarding six contracts, with obligations totaling $824 million. This is $32 million less than the $856 million stated as "actual obligations" in FY2006 in the President's FY2008 Budget.
Combining all of the differences in reporting through FY2006, the President's Budgets state that $48 million more have been obligated than the HHS documents report.

	Remaining Available Funds

Effective management and Congressional oversight of Project BioShield require specific and clear knowledge of the funds remaining available. For the Administration to most effectively plan and prioritize future acquisitions, it must know the amount of funds remaining available. For Congress, knowing the amount of funds remaining can be important in assessing program management, the implementation pace, and general program effectiveness. Due to conflicting statements from executive branch agencies, the amount of funds remaining available for obligation for this program is not clear.
According to HHS, as of June 2007, it has obligated $2.331 billion from this account. This figure does not include the $878 million that should be recovered in FY2007 from the cancellation of the rPA anthrax vaccine contract. Taking this recovery into account, $1.889 billion would be available for obligation in FY2007-FY2008 and $4.064 billion would be available until the end of the program in FY2013. As stated above, using the President's Budget figures to calculate obligations would reduce these numbers by $48 million.

	Concluding Observations

Project BioShield plays a key role in the federal government's response to the threat of chemical, biological, radiological, and nuclear terrorism. It created a process for the government to agree to purchase countermeasures while they still are in development. In addition to increasing the holdings of the Strategic National Stockpile, it was hoped that this government market guarantee would encourage companies to continue to develop promising countermeasures that they might have otherwise abandoned, and induce other companies to begin countermeasure development. It remains unclear how well Project BioShield is meeting these goals.
Many stakeholders, industry leaders, and policymakers have criticized the rate at which DHS completes Material Threat Determinations. To address these concerns, legislation has been introduced in the previous and current Congresses. In the 110 th Congress, the Project BioShield Material Threats Act of 2007 ( H.R. 1089 , Langevin) and the Department of Homeland Security Authorization Act for Fiscal Year 2008 ( H.R. 1684 , Thompson) would require an assessment, and an MTD if appropriate, for all currently known CBRN agents likely to pose a significant national security threat. These assessments would be required to be completed by December 31, 2007. By assessing all known threats and issuing those MTDs necessary, the full spectrum of material threats may be considered when developing a countermeasure acquisition strategy. Such a comprehensive acquisition strategy may allow for more efficient prioritization and balance of countermeasures, providing optimized protection from CBRN attacks using finite funds in the shortest time. Since HHS has not issued contracts for the all of the agents that already have MTDs, an increase in this number may not increase the rate of countermeasure awards. However, HHS has predicted that no additional MTDs would be issued unless "technology advances or if our understanding of the potential threats changes."
Appropriators set limits on how much could be obligated during specified periods of time. The pace by which HHS awards countermeasure contracts roughly corresponds to these limits. By this criterion, this program is on track to fulfill its goals; HHS cannot obligate the money faster than it becomes available.
Stakeholders, industry leaders and policymakers have criticized HHS for some of the countermeasures it has chosen. In decisions as complicated and weighty as these, any choice is likely to be criticized. Given the failure of the largest contract to date, some critics may conclude that Project BioShield has fallen short of its goals, since the majority of the money that has been obligated, though not the majority of contracts, has not yet resulted in products in the stockpile. However, one of the unique features of Project BioShield contracts is that the government may contract for products that require up to eight years more of development. It was designed to allow the government to promise to buy something, but only pay for it on delivery. Thus the company, rather than the government, bears the majority of the development risk, i.e. that the product will never be deliverable. One industry group estimates that more than half of all pharmaceuticals will fail during the last eight years of development. Thus, it may be expected that at least some Project BioShield contracts will be cancelled. The government bears some development risk in the form of opportunity costs since the money available for obligation is finite, i.e., money obligated to a countermeasure that will ultimately fail in development cannot be simultaneously obligated to another needed countermeasure.
It is possible that the establishment of the Biodefense Advance Research and Development Authority (BARDA) in HHS will reduce the likelihood that future Project BioShield contracts will fail during the advanced development phase. Established by the Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ), one of BARDA's roles is to support the advanced research and development of promising countermeasures. In theory, funding this part of the development process through such a dedicated mechanism could allow countermeasures to further mature through the development process longer before competing for a Project BioShield contract. This could reduce the risk that a countermeasure will fail while under a Project BioShield contract. P.L. 109-417 included authorization for approximately $1 billion to support this type of activity for FY2007 through FY2008. Although, Congress did not appropriate money for BARDA in FY2007, the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 ( P.L. 110-28 ) transferred $99 million from National Institutes of Health accounts to fund BARDA. Even if BARDA becomes operational in FY2007, it will take some time to determine what projects to fund, provide funding, and receive returns on this investment. It remains to be seen how HHS' decision to combine BARDA with the HHS office responsible for executing Project BioShield (Office of Public Health Emergency Medical Countermeasures) will affect the execution of both programs.
Additional criticism of the Project BioShield procurement process may stem from the perceived opacity of its decision-making process. HHS is moving to address some of these issues by publishing its PHEMCE Strategy for Chemical, Biological, Radiological and Nuclear Threats , inviting public comment, and reaching out to the public and companies that might develop needed countermeasures through stakeholder meetings.
Some critics also suggest that the Project BioShield process has been poorly managed overall. Such suggestions are reinforced by the annual accounting discrepancies between HHS and DHS. It remains to be seen whether these concerns will be allayed through the management changes being implemented subsequent to: the establishment of the Public Health and Emergency Medical Countermeasures Enterprise (PHEMCE) and publication of its strategy; the enactment of the Pandemic and All-Hazards Preparedness Act ( P.L. 109-417 ); and the issuance of HSPD-18.

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The Project BioShield Act of 2004 (P.L. 108-276) established a 10-year program to acquire civilian medical countermeasures to chemical, biological, radiological, and nuclear (CBRN) agents for the Strategic National Stockpile. Provisions of this act were designed to encourage private companies to develop these countermeasures by guaranteeing a government market for successfully developed countermeasures.
Congress has expressed concern about the implementation of Project BioShield. It has held multiple oversight hearings and considered several pieces of legislation to improve the execution of this program, including the Pandemic and All-Hazards Preparedness Act (P.L. 109-417), H.R. 1089, and H.R. 1684. Stakeholders and policymakers have criticized specific contract award decisions and the rate at which they are made. Additionally, contract awards reported by the Department of Health and Human Services (HHS) do not directly correspond with figures provided in the President's annual budget documents, which may suggest problems with interagency coordination and communication.
Both the Department of Homeland Security (DHS) and HHS have responsibilities in this program. Funds for this program are appropriated to DHS, while contracts are executed through HHS. The interagency process responsible for deciding which countermeasures to procure has changed multiple times since this program's inception.
The Homeland Security Appropriations Act, 2004 (P.L. 108-90) provided an advance appropriation of $5.6 billion to acquire CBRN countermeasures over a 10-year period (FY2004-FY2013). This act also limited the amount that could be obligated during specified time periods. The Project BioShield Act of 2004 (P.L. 108-276) assigned the $5.6 billion advance appropriation to Project BioShield countermeasure acquisitions. Two separate rescissions reduced the total amount available for Project BioShield by a total of $25 million. Congress retains the power to make additional appropriations and rescissions to this account.
HHS has awarded Project BioShield contracts for a countermeasures against anthrax, smallpox, botulinum toxin, and radiological or nuclear agents. These awards total approximately $2.331 billion. However, the largest contract, $878 million for an anthrax vaccine, was cancelled in December 2006 for failure to meet a contract milestone. Taking this into account, approximately $1.889 billion remains available for obligation through FY2008 and $4.064 billion available for obligation through the end of the program in FY2013.
This report discusses actions taken by Congress and the Administration that have affected this program, describes the decision-making process for choosing countermeasures, describes the countermeasures for which the Department of Health and Human Services (HHS) has contracted, and discusses accounting discrepancies in Project BioShield budget documents. This report will be updated periodically.


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	Background

The Randolph-Sheppard Act created a vending facility program in 1936 to  provide blind individuals with more job opportunities and to encourage  their self-support. The program trains and employs blind individuals to  operate vending facilities on federal property. While Randolph-Sheppard is  under the authority of the Department of Education, the states  participating in this program are primarily responsible for program  operations. State licensing agencies, under the auspices of the state  vocational rehabilitation programs, operate the programs in each state.  Federal law gives blind vendors under the program a priority to operate  cafeterias on federal property. Current DOD guidance implementing this  priority directs that a state licensing agency be awarded a contract if its  contract proposal is in the competitive range. In fiscal year 2006, all of the  activities of the Randolph-Sheppard program generated $692.2 million in  total gross income and had a total of 2,575 vendors operating in every state  except for Wyoming.
In 1938 the Wagner-O’Day Act established a program designed to increase  employment opportunities for persons who are blind so they could  manufacture and sell certain goods to the federal government. In 1971, the  Javits-Wagner-O’Day Act amended the program to include people with  other severe disabilities and allowed the program to provide services as  well as goods. The JWOD Act established the Committee for Purchase,  which administers the program. The Committee for Purchase is required  by law to designate one or more national nonprofit agencies to facilitate  the distribution of federal contracts among qualified local nonprofit  agencies. The designated national agencies are the National Industries for  the Blind and NISH, which represent local nonprofit agencies employing  individuals who are blind or have severe disabilities. These designated  national agencies charge fees for the services provided to local nonprofit  agencies. Effective on October 1, 2006, the maximum fee is 3.83 percent of  the revenue of the contract for the National Industries for the Blind, and  3.75 percent for NISH. The purpose of these fees is to provide operating  funds for these two agencies. In fiscal year 2006, more than 600 JWOD  nonprofit agencies provided the federal government with goods and  services worth about $2.3 billion. The JWOD program provided  employment for about 48,000 people who are blind or have severe  disabilities.
Military dining contracts under the Randolph-Sheppard and JWOD  programs provide varying levels of service, ranging from support services  to full-food services. Support services include activities such as food  preparation and food serving. Full-food service contracts provide for the  complete operation of facilities, including day-to-day decision making for  the operation of the facility. As of October 17, 2006, DOD had 39  Randolph-Sheppard contracts in 24 different states. These contracts had  an annual value of approximately $253 million and were all for full-food  services. At the same time, DOD had 53 JWOD contracts valued at $212  million annually. Of these, 39 contracts were for support services and 15  were for full-food service. Figure 1 shows the distribution of Randolph- Sheppard and JWOD contracts with DOD dining facilities across the  country.
In 1974, amendments to the Randolph-Sheppard Act expanded the scope  of the program to include cafeterias on federal property. According to a  DOD official, when DOD began turning increasingly to private contractors  rather than using its own military staff to fulfill food service functions in  the 1990s, state licensing agencies under the Randolph-Sheppard program  began to compete for the same full-food services contracts for which  JWOD traditionally qualified. This development led to litigation, brought  by NISH, over whether the Randolph-Sheppard Act applied to DOD dining  facilities. Two decisions by federal appeals courts held that the Randolph- Sheppard Act applied because the term “cafeteria” included DOD dining  facilities. The courts also decided that if both programs pursued the full- food service contracts for DOD dining facilities, Randolph-Sheppard had  priority.
Congress enacted section 848 of the National Defense Authorization Act  for Fiscal Year 2006 requiring the key players involved in each program to  issue a joint policy statement about how DOD food services contracts  were to be allocated between the two programs.  In August 2006, DOD,  Education, and the Committee for Purchase issued a policy statement that  established certain guidelines, including the following:    The Randolph-Sheppard program will not seek contracts for dining  support services that are on the JWOD procurement list, and Randolph- Sheppard will not seek contracts for operation of a dining facility if the  work is currently being performed under the JWOD program; JWOD  will not pursue prime contracts for operation of dining facilities at  locations where an existing contract was awarded under the Randolph- Sheppard program (commonly known as the “no-poaching” provision).
For contracts not covered under the no-poaching provision, the  Randolph-Sheppard program may compete for contracts from DOD for  full-food services; and the JWOD program will receive contracts for  support services.  If the needed support services are on the JWOD procurement list, the  Randolph-Sheppard contractor is obligated to subcontract for those  services from JWOD.  In affording a priority to a state licensing agency when contracts are  competed and the Randolph-Sheppard Act applies, the price of the  state licensing agency’s offer will be considered to be fair and  reasonable if it does not exceed the best value offer from other  competitors by more than 5 percent or $1 million, whichever is less.
Congress enacted the no-poaching provision in section 856 of the National  Defense Authorization Act for Fiscal Year 2007. A recent GAO bid protest  decision determined that adherence to the other provisions of the policy  statement was not mandatory until DOD and the Department of Education  change their existing regulations. As of July 2007, neither agency had  completed updating its regulations.

	Randolph-Sheppard Places Blind Individuals in Managerial Roles, while JWOD Employs Persons with Disabilities in Less Skilled Jobs

The Randolph Sheppard and JWOD programs utilize different operating  procedures to provide dining services to DOD. For the Randolph-Sheppard  program, state licensing agencies act as prime contractors, and train and  license blind vendors to operate dining facilities. For the JWOD program,  the Committee for Purchase utilizes NISH to act as a central nonprofit  agency and match DOD needs for dining services with local nonprofit  agencies able to provide the service. JWOD employees generally fill less  skilled jobs such as cleaning dining facilities or serving food.

		Randolph-Sheppard Relies on State Licensing Agencies to Place Blind Vendors as Managers of Dining Facilities

Education is responsible for overseeing the Randolph-Sheppard program,  but relies on state licensing agencies to place blind vendors as dining  facility managers. The Department of Education certifies state licensing  agencies and is responsible for ensuring that their procedures are  consistent with Randolph-Sheppard regulations. According to our survey,  state licensing agencies act as prime contractors on Randolph-Sheppard  contracts, meaning that they hold the actual contract with DOD. The state  licensing agencies are responsible for training blind vendors to serve as  dining facility managers and placing them in facilities as new contracting  opportunities become available. According to our survey, the state issues  the vendor a license to operate the facility upon the successful completion  of the training program. Furthermore, many states said this process often  includes both classroom training and on-the-job training at a facility.  Figure 2 depicts how the Randolph-Sheppard program is generally  structured.
Responding to our survey, state licensing agencies reported that all blind  vendors have some level of managerial responsibility for each of the 39  Randolph-Sheppard contracts. Specific responsibilities may include  managing personnel, coordinating with military officials, budgeting and  accounting, and managing inventory. An official representing state  licensing agencies likened the vendor’s role to that of an executive and  said the vendor is responsible for meeting the needs of his or her military  customer. At one facility we visited, the vendor was responsible for  general operations, ensuring the quality of food, and helped develop new  menu selections. Of the 37 contracts where the state licensing agencies  provided information regarding whether the blind vendor visits his or her  facility, all stated that their blind vendors visit their facilities, and in most  cases are on site every day. Additionally, most state licensing agencies told  us that they have an agreement with the blind vendor that lays out the  state licensing agency’s expectations of the blind vendor and defines the  vendor’s job responsibilities.
Most state licensing agencies rely on private food service companies to  provide the expertise to help operate dining facilities. According to our  survey, 33 of the 39 Randolph-Sheppard contracts relied on a food service  company—known as a teaming partner—to provide assistance in  operating dining facilities. The survey showed that in many cases, the  blind vendor and teaming partner form a joint venture company to operate  the facility with the vendor as the head of the company. The teaming  partner can provide technical expertise, ongoing training, and often  extends the vendor a line of credit and insurance for the operation of the  facility. Officials representing state licensing agencies told us that states  are often unable to provide these resources, and for large contracts these  start-up costs may be beyond the means of the blind vendor and the state  licensing agency. According to our survey, the teaming partner may assist  the state in negotiating and administering the contract with DOD.  Additionally, state licensing agencies told us that they often enter into a  teaming agreement that defines the responsibilities of the teaming partner.
For 6 of the 39 contracts, the state licensing agencies reported that the  blind vendor operates the dining facility without a teaming partner. We  visited one of these locations and learned that the vendor has his own  business that he uses to operate the facility. This particular vendor had  participated in the Randolph-Sheppard program for almost 20 years and  operated various other dining facilities.
In our survey, state licensing agencies reported that vendors in about half  (20 of 39) of the contracts are required to employ individuals who are  blind or have other disabilities, while others have self-imposed goals. In  other cases there may be no formal hiring requirements, but the state  licensing agency encourages the blind vendor to hire individuals with  disabilities. Based on survey responses we received for 30 contracts, we  calculated that the percentage of persons with disabilities working at  Randolph-Sheppard dining facilities ranged from 3 percent to 72 percent,  with an average of 18 percent.

		The Committee for Purchase Works with NISH and Local Nonprofit Agencies to Employ Individuals with Disabilities in DOD Dining Facilities

The Committee for Purchase works with NISH to match DOD’s need for  services with nonprofit agencies able to provide food services. For military  food service contracts, NISH acts as a central nonprofit agency and  administers the program on behalf of the Committee for Purchase. In this  role, NISH works with DOD to determine if it has any new requirements  for dining services. When it identifies a need, NISH will search for a  nonprofit agency that is able to perform the required service. NISH then  facilitates negotiations between DOD and the nonprofit agency, and  submits a proposal to the Committee for Purchase requesting that the  specific service be added to the JWOD procurement list. If the Committee  for Purchase approves the addition, DOD is required by the Federal  Acquisition Regulation (FAR) to obtain the food service from the entity on  the procurement list.  In some instances, a private food service company  is awarded a military dining facility contract and then subcontracts with a  JWOD nonprofit agency to provide either full or support food services. For  example, the Marine Corps awarded two regional contracts to Sodexho—a  large food service company—to operate its dining facilities on the East  and West Coasts. Sodexho is required by its contracts to utilize JWOD  nonprofit agencies and uses these nonprofit agencies to provide food  services and/or support services at selected Marine Corps bases. Figure 3  depicts the JWOD program structure.
Most JWOD employees at military dining facilities perform less skilled jobs  as opposed to having managerial roles. At the facilities we visited, we  observed that employees with disabilities (both mental and physical)  performed tasks such as mopping floors, serving food, and cleaning pots  and pans after meals. Officials from NISH said this is generally true at  JWOD dining facilities, including facilities where the nonprofit agency  provides full-food service. Additionally, we observed—and NISH  confirmed—that most supervisors are persons without disabilities. At one  facility we visited, for example, the nonprofit supervisor oversees  employees with disabilities who are responsible for keeping the facility  clean and serving food. The Committee for Purchase requires that  agencies associated with NISH perform at least 75 percent of their direct  labor hours with people who have severe disabilities. For nonprofit  agencies with multiple JWOD contracts, the 75 percent direct labor  requirement is based on the total for all of these contracts.  Therefore one  contract may be less than 75 percent but another contract must be greater  than 75 percent in order for the total of these contracts to meet the 75  percent requirement. NISH is responsible for ensuring that nonprofit  agencies comply with this requirement, and we previously reported that it  performs site visits to all local nonprofit agencies every three years, in  order to ensure compliance with relevant JWOD regulations. At the three  JWOD facilities we visited, officials reported that the actual percentage of  disabled individuals employed was 80 percent or higher. Table 1 provides  a comparison of the Randolph-Sheppard and JWOD programs’ operating  procedures.

	Programs Differ Regarding How Contracts Are Awarded and Priced, and How Program Beneficiaries Are Compensated

The Randolph-Sheppard and JWOD programs have significant differences  in terms of how contracts are awarded and priced, and in the  compensation provided to beneficiaries who are blind or have other  disabilities. Under the Randolph-Sheppard program, federal law provides  for priority for blind vendors and state licensing agencies in the operation  of a cafeteria. This priority may come into play when contracts are  awarded either by direct noncompetitive negotiations or through  competition with other food service companies. Regardless of how the  contract is awarded, the prices are negotiated between the state licensing  agency and DOD. Under the JWOD program, competition is not a factor  because DOD is required to purchase food services from a list maintained  by the Committee for Purchase. Contracts are awarded at fair market  prices established by the Committee for Purchase. The two programs also  differ in terms of how program beneficiaries are compensated. Under the  Randolph-Sheppard program, blind vendors generally receive a share of  the profits, while JWOD beneficiaries receive hourly wages and fringe  benefits under federal law or any applicable collective bargaining  agreement. Randolph-Sheppard blind vendors received, on the average,  pretax compensation of about $276,500 annually, while JWOD workers at  the three sites visited earned on average $13.15 per hour, including fringe  benefits.

		Significant Differences Exist in How Randolph- Sheppard and JWOD Contracts Are Awarded and Priced

Although contracts for food services awarded under the Randolph- Sheppard and JWOD programs use the terms and conditions generally  required for contracts by the FAR, the procedures for awarding and  pricing contracts under the two programs differ considerably. Under the  Randolph-Sheppard program, Education’s regulations provide for giving  priority to blind vendors in the operation of cafeterias on federal property,  provided that the costs are reasonable and the quality of the food is  comparable to that currently provided. The regulations provide for two  procedures to implement this priority. First, federal agencies, such as the  military departments, may engage in direct, noncompetitive negotiations  with a state licensing agency. Of the eight Randolph-Sheppard contracts  we reviewed in detail, six had been awarded through direct negotiations  with the state licensing agency. In most of the eight cases, the contract  was a follow-on to an expiring food service contract. The second award  procedure involves the issuance of a competitive solicitation inviting  proposals from all potential food service providers, including the relevant  state licensing agency. The solicitation will specify the criteria for  evaluating proposals, such as management capability, past performance,  and price, and DOD will use these criteria to evaluate the proposals  received. When the competitive process is used, DOD policy provides for  selecting the state licensing agency for award if its proposal is in the  “competitive range.”  Of the eight Randolph-Sheppard contracts we  reviewed, only two involved a solicitation open to other food service  providers, and there was no case in which more than one acceptable  proposal was received such that DOD was required to determine a  competitive range.
The prices of contracts under the Randolph-Sheppard program are  negotiated between DOD and the state licensing agency, regardless of  whether DOD uses direct negotiations or seeks competitive proposals.  Negotiations in either case typically begin with a pricing proposal  submitted by the state licensing agency, and will then involve a  comparison of the proposed price with the prices in previous contracts, an  independent government estimate, or the prices offered by other  competitors, if any. In some cases, DOD will seek the assistance of the  Defense Contract Audit Agency (DCAA) in assessing various cost aspects  of a proposal. All of the Randolph-Sheppard contracts we reviewed were  generally firm, fixed price. Some had individual line items that provided  for reimbursing the food service provider for certain costs incurred, such  as equipment maintenance or replacing items. In most cases, the contract  was for a base year, and provided for annual options (usually four) that  may be exercised at the discretion of DOD. Of the 39 Randolph-Sheppard  contracts within the scope of our review, the average price for the current  year of the contract was about $6.5 million. Table 2 shows the 8 Randolph- Sheppard contracts in our sample with selected contract information.
Under Part 8 of the FAR, the JWOD program is a mandatory source of  supply, requiring DOD to award contracts to the listed nonprofit entity at  fair market prices established by the Committee for Purchase. There is no  further competition. Table 3 shows the 6 JWOD contracts in our sample  with selected contract information.

		Randolph-Sheppard Vendors Generally Receive a Percentage of Profits, and JWOD Beneficiaries Are Paid Hourly Wages According to Federal Law

Compensation for Randolph-Sheppard blind vendors is computed  differently from compensation paid to JWOD disabled workers. For the  Randolph-Sheppard program, blind vendors’ compensation is generally  based on a percentage of the profits generated by the dining facilities’  operations. Based on the 37 survey responses where we could determine  the basis of how blind vendors’ compensation was computed, 34 reported  that that the vendor’s compensation was computed either entirely, or in  part, based on the profits generated by the dining facility contract. For  compensation based entirely on the facilities’ profits, the blind vendor  received from 51 to 65 percent of the profits. For those blind vendors that  were compensated partially based on profits, their compensation was  based on fixed fees, administrative fees or salaries, and a percentage of the  profits. Where compensation was not based on profits, these three blind  vendors received either a percentage of the contract value or a fixed base  fee. Figure 4 shows the annual compensation received by blind vendors  for military food services contracts, within specified ranges, and the  average compensation for each range.
As shown in figure 4, 15 of 38 Randolph-Sheppard blind vendors’ annual  compensation was between $100,000 and $200,000. Overall, blind  vendors working at DOD dining facilities received average annual  compensation of about $276,500 per vendor. These figures are based on  pretax earnings.  We did not collect compensation information for  employees of the blind vendors or employees of the teaming partners.
For the JWOD program, for most workers—including those with and  without a disability—the compensation is determined by either federal law  or collective bargaining agreements. The Service Contract Act (SCA) was  enacted to give employees of contractors and subcontractors labor  standards protection when providing services to federal agencies. The  SCA requires that, for contracts exceeding $2,500, contactors pay their  employees, at a minimum, the wage rates and fringe benefits that have  been determined by the Department of Labor to be prevailing in the  locality where the contracted work is performed. However, the SCA  hourly rate would not be used if there is a collective bargaining agreement  that sets a higher hourly wage for selected workers. According to NISH,  the collective bargaining hourly rates are, in general, 5 to 10 percent higher  than the SCA’s wage rates. Of the six JWOD contracts in our sample,  Holloman Air Force Base and the Marine Corps’ eastern and western  regional contracts had collective bargaining agreements. For the three  JWOD sites visited, we obtained an estimate of the average hourly wages,  average hourly fringe benefits rates, and average number of hours worked  and computed their annual wages. The average hourly wage for the three  JWOD sites was $13.15 including fringe benefits. Table 4 shows the  average annual wages that an employee earned.
Another law that can affect the disabled worker’s wages is section 14(c) of  the Fair Labor Standards Act, which allows employers to pay individuals  less than the minimum wage (called special minimum wage rates) if they  have a physical or mental disability that impairs their earning or  productive capacity. For example, if a 14(c) worker’s productivity for a  specific job is 50 percent of that of experienced workers who do not have  disabilities that affect their work, and the prevailing wage paid for that job  is $10 dollars per hour, the special minimum wage rate for the 14(c)  worker would be $5 dollars per hour.  None of the three JWOD sites we  visited applied the special minimum wage for any of their disabled  workers.

	Concluding Observations

The Randolph-Sheppard and JWOD programs have a common goal of  serving individuals who are blind or have severe disabilities, and who are  generally underrepresented in the workforce. However, these programs  operate differently regarding how contracts are awarded and priced, and  are designed to serve distinct populations through different means— particularly with respect to compensation for program participants. This is  true for contracts with military dining facilities. The blind vendors who  participate in the Randolph-Sheppard program seek to become  entrepreneurs by gaining experience managing DOD dining facilities. In  this respect, although most of these vendors require the assistance of a  private food service teaming partner, they are compensated for managing  what can be large, complicated food service operations. By contrast,  because the participants of the JWOD program perform work activities  that require less skill and experience, and who might otherwise not be able  to secure competitive employment, they are compensated at a much lower  rate than the Randolph-Sheppard vendors. In this regard, it is apparent  that the two programs are designed to provide very different populations  with different types of assistance, and thus, it is difficult to directly  compare them, particularly with respect to compensation.

	Agency Comments and Our Evaluation

We provided a draft of this report to the Committee for Purchase, the  Department of Defense, and the Department of Education for review and  comment.  The Committee for Purchase had no comments.  DOD  concurred with the draft and also provided technical comments for our  consideration.  We considered all of DOD’s technical comments and  revised the draft as appropriate.  The DOD comment letter is attached as  appendix II.
The Department of Education provided clarifications and suggestions in a  number of areas.  First, Education was concerned about comparing the  earnings of the blind vendors under the Randolph-Sheppard program and  the compensation provided to the food service workers under the JWOD  program.  The agency suggested we compare the earnings of the blind  vendors with the earnings of employees of the JWOD nonprofit agencies  who perform similar management functions. We agree that there are  significant differences in their responsibilities, but we were required to  report on the compensation of the “beneficiaries” of the two programs,  which are blind managers for the Randolph-Sheppard program and hourly  workers for the JWOD program.  Our report highlights these differences.    Our report also highlights in a number of places the difficulty in comparing  the compensation of the two groups of beneficiaries.  We were not  required to report on the earnings of the management personnel of the  nonprofit agencies, and we did not collect this information.
Second, Education urged that we fully describe the permitted uses of the  set-aside fees charged by the state licensing agencies, and that we  recognize that there is a similar assessment under the JWOD program.  We  have revised the report to point out that the Randolph-Sheppard set-aside  may be used to fund the operation of the state licensing agencies.  We also  added language to a footnote to table 3 to recognize that the JWOD  contract amounts include a fee that is used to fund the operations of the  central nonprofit agency.  Third, Education questions our description of  the price negotiations that occur between DOD and the state licensing  agencies.  We believe our report is both clear and accurate on this point as  written.  In addition, DOD did not have any comments or questions about  how we described price negotiations for the Randolph-Sheppard program.
Fourth, Education questioned our discussion of the numbers of persons  with disabilities employed under the two programs.  Specifically,  Education  pointed out that the requirement under the JWOD program that  at least 75 percent of the direct labor hours be performed by persons with  disabilities applies in the aggregate to all work performed by a nonprofit  entity, not at the contract level.  We have revised the report to reflect this.   And finally, Education sought clarification concerning the extent  commercial food service companies are used as teaming partners under  the Randolph-Sheppard program or as subcontractors under the JWOD  program.  We have revised figures 2 and 3 of the report to more accurately  reflect the use of these companies.  The comment letter from Education is  attached as Appendix III.
We will send copies of this report to interested congressional committees,  the Secretary of Defense, the Secretary of Education, and the Chairperson  of the Committee for Purchase, as well as other interested parties. We will  also make copies available to others upon request. In addition, the report  will be available at no charge on GAO’s Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  George Scott at (202) 512-7215 or scottg@gao.gov or William Woods at  (202) 512-8214 or woodsw@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix IV.

Appendix I: Scope and Methodology

To accomplish our research objectives, we interviewed officials from the  Department of Defense (DOD), the Department of Education, the  Committee for Purchase, and organizations representing both the  Randolph-Sheppard and Javits-Wagner-O’Day (JWOD) programs. We also  reviewed pertinent documents and regulations governing both programs.  We reviewed a sample of 14 contracts—8 Randolph-Sheppard contracts  and 6 JWOD contracts. For these contracts, we requested the source  selection memorandum, the acquisition plan, the basic contract, and the  statement of work. For two of these contracts, the Randolph-Sheppard  prime contractor for full-food services subcontracted with a JWOD  nonprofit agency for support services. We determined that it was not  feasible to review a representative sample of contracts based on our  preliminary work, which indicated wide variations in how the two  programs are structured and how the Randolph-Sheppard program is  administered from state to state. For these reasons, we selected a number  of contracts to review in order to ensure representation of both programs,  as well as ensure a balance of contracts based on dollar value, size of  military facility, branch of the military, and geographic location. As the  sample was not representative, results of our review cannot be projected  to the entire universe of contracts. In addition, we visited the military  installation for 5 of the 14 contracts in our sample in order to observe  dining facilities and their operations, as well as interview pertinent  officials and staff, including the blind vendor or JWOD agency  management whenever possible. Again, these five locations were selected  to ensure representation of both programs, as well as variation in  geographic location, contract size, and military branch. In terms of  beneficiary compensation, we limited our review to Randolph-Sheppard  blind vendors and JWOD workers. For the JWOD program, we obtained  average hourly wages, average hourly fringe benefits, and average total  hours worked during the year for JWOD employees at selected sites.  We  did not obtain compensation amounts for the managerial employees for  any JWOD nonprofit agencies.
To obtain information on the relationships between state licensing  agencies and blind vendors, we conducted a survey of the 24 state  licensing agencies we determined to have Randolph-Sheppard military  dining contracts. We asked questions regarding the roles and  responsibilities of blind vendors, the vendor’s relationship with the state  licensing agencies, and the role played by teaming partners. We  administered this survey between April and July 2007. We pretested this  survey with program directors and modified the survey to take their  comments into account. All 24 state licensing agencies responded to our  survey for a response rate of 100 percent and provided information for 39  military dining facilities contracts. Additionally, we requested information  for the 40 blind vendors with military dining contracts to determine their  annual compensation. For the 39 contracts, there were 40 blind vendors as  one contract utilized two vendors. We received compensation information  for 38 of the 40 blind vendors.

Appendix II: Comments from the Department of Defense

Appendix III: Comments from the Department of Education

Appendix IV: GAO Contacts and Staff Acknowledgments

	Staff Acknowledgments

Jeremy D. Cox (Assistant Director), Richard Harada (Analyst-in-Charge),  Daniel Concepcion, Rosa Johnson, and Sigurd Nilsen made significant  contributions to all aspects of this report. In addition, Susannah Compton  and Lily Chin assisted in writing the report and developing graphics. John  Mingus provided additional assistance with graphics. Walter Vance  assisted in all aspects of our survey of state licensing agencies as well as  providing methodological support. Doreen Feldman, Daniel Schwimer,  and Alyssa Weir provided legal support.

Related GAO Products

Federal Disability Assistance: Stronger Federal Oversight Could Help  Assure Multiple Programs’ Accountability. GAO-07-236. Washington,  D.C.: January 26, 2007.

Output:
Why GAO Did This Study

Randolph-Sheppard and Javits-Wagner-O'Day (JWOD) are two federal programs that provide employment for persons with disabilities through federal contracts. In 2006, participants in the two programs had contracts with the Department of Defense (DOD) worth $465 million annually to provide dining services at military dining facilities. The 2007 National Defense Authorization Act directed GAO to study the two programs. This report examines (1) differences in how the Randolph-Sheppard and JWOD programs provide food services for DOD and (2) differences in how contracts are awarded, prices are set, and program beneficiaries (i.e. persons with disabilities) are compensated. GAO interviewed program officials, conducted a survey of states with Randolph-Sheppard programs, and reviewed eight Randolph-Sheppard and six JWOD contracts.

What GAO Found

The Randolph-Sheppard and JWOD programs use different procedures to provide food services to DOD. In Randolph-Sheppard, states act as prime contractors, and train and license blind individuals to act as managers of dining facilities. In most cases, the blind vendor relies on a food service company--known as a teaming partner--to assist in operations, provide expertise, and help with start-up costs. About half of the blind vendors are required to employ other persons with disabilities. JWOD is administered by an independent federal agency called the Committee for Purchase from People Who are Blind or Severely Disabled (Committee for Purchase). The Committee for Purchase engages a central nonprofit agency to match DOD's needs with services provided by local nonprofit agencies. Most of the individuals working for these local nonprofit agencies are employed in less skilled jobs such as serving food or washing dishes. The Randolph-Sheppard and JWOD programs differ significantly in the way DOD dining contracts are awarded, how prices are set, and how participants are compensated. For Randolph-Sheppard, DOD awards contracts to the states either through direct negotiations or competition with other food service companies. In either case, DOD and the states negotiate the prices based on factors such as historical prices and independent government estimates. Under JWOD, competition is not a factor because DOD is required to purchase services it needs from a list maintained by the Committee for Purchase, which establishes fair market prices for these contracts. In terms of compensation, Randolph-Sheppard blind vendors generally received a percentage of contract profits, averaging about $276,500 per vendor annually. JWOD beneficiaries are generally paid hourly wages according to rules set by the federal government. For the three sites we visited, we estimate that beneficiaries received an average wage of $13.15 per hour, including fringe benefits. Given the differences in the roles of the beneficiaries of these two programs, comparisons of their compensation have limited value.