GAO Upholds Navy Sole-Source Award To Preserve Defense Industrial Base Capacity

Key Takeaways

• GAO affirmed the Navy’s authority to use sole-source contracting to preserve critical manufacturing capacity. GAO denied a protest challenging the Navy’s decision to award a contract to a second qualified manufacturer of submarine escape suits, finding that the award was reasonably justified by industrial mobilization needs.
• Agencies need not prove that a manufacturer will exit the market without a contract. GAO concluded that the Navy was not required to conduct a financial analysis establishing that the manufacturer would cease production absent the award, provided the agency had a reasonable basis for its determination.
• The decision highlights the importance of supply-chain resilience in defense procurement. Contractors should recognize that agencies may rely on industrial mobilization authority to maintain alternative sources of supply, even when an incumbent contractor is capable of meeting the government’s requirements.

The Government Accountability Office (GAO) recently upheld the Department of the Navy’s decision to award a sole-source contract to preserve a second qualified manufacturer of critical submarine equipment. In RFD Beaufort, Inc., B-424661, B-424661.2 (Oct. 7, 2026), GAO denied a protest challenging the Navy’s award of a contract for submarine escape and surface survival personnel equipment (SESSPE) suits to Mustang Survival Manufacturing, Inc. (Mustang), rather than conducting a full and open competition.

The decision illustrates how defense agencies may use existing industrial mobilization authority under 10 U.S.C. § 3204(a)(3)(A) to preserve essential manufacturing capabilities and reduce reliance on single-source suppliers. Importantly, GAO concluded that agencies need only establish a reasonable basis for exercising this authority, rather than demonstrate with certainty that a manufacturer would otherwise discontinue production.

Background: Navy Seeks to Preserve a Second Qualified Manufacturer

SESSPE suits are life-saving devices that allow submariners to evacuate a submerged submarine during an emergency. Because submarines cannot leave port without sufficient suits, maintaining a reliable source of supply is essential to naval readiness.

Historically, the Navy relied on RFD Beaufort, Inc. (RFD Beaufort) as the sole qualified manufacturer of these suits. Recognizing the risks associated with depending on a single supplier, the Navy encouraged the development of an alternative manufacturing capability. Over approximately five years, Mustang invested substantial private capital and resources into research, testing, and establishing a dedicated production facility to satisfy the Navy’s technical requirements.

Although Mustang became a qualified manufacturer in 2022, it had not received a production contract and consequently had not recovered its investment costs. Meanwhile, the Navy’s most recent competitive procurement for 1,000 suits, with an option for an additional 1,000, was being prepared for award to the incumbent, RFD Beaufort.

Concerned that Mustang might abandon its production capability without an opportunity to recover its investments, the Navy issued a sole-source solicitation to Mustang on July 2, 2026, for 542 suits. The agency relied on the industrial mobilization exception to competition requirements under 10 U.S.C. § 3204(a)(3)(A).

In its Justification for Other than Full and Open Competition (J&A), the Navy explained that losing Mustang would return the agency to reliance on a single manufacturer, creating a potential single point of failure for critical life-saving equipment. The Navy determined that purchasing 542 suits represented the minimum quantity necessary to maintain an operational production line while it developed a longer-term acquisition strategy.

RFD Beaufort protested the procurement, arguing that the Navy lacked sufficient evidence to justify excluding competition.

GAO Finds Industrial Mobilization Justification Reasonable

Under 10 U.S.C. § 3204(a)(3)(A), military agencies may use procedures other than full and open competition when necessary to maintain a facility, producer, manufacturer, or other supplier for industrial mobilization purposes. The authority is also reflected in FAR 6.302-3, which addresses industrial mobilization and the preservation of essential capabilities.

GAO explained that decisions concerning which manufacturers should be included in the industrial mobilization base involve complex judgments entrusted to military agencies. Accordingly, GAO will question such decisions only where the evidence convincingly demonstrates that an agency abused its discretion.

RFD Beaufort challenged the Navy’s determination that Mustang would likely exit the submarine escape suit market without a production contract. Specifically, RFD Beaufort argued that the agency relied on speculation rather than concrete evidence demonstrating that Mustang would discontinue manufacturing the equipment.

GAO rejected that argument, finding that the Navy had reasonably supported its decision through two principal considerations.

First, the Navy reasonably determined that preserving a second manufacturer was essential to maintaining a resilient industrial base. Agency officials identified the strategic risks associated with relying on a single supplier for equipment critical to submarine operations. The Navy’s internal correspondence also documented previous difficulties associated with single-source dependence, including significant price increases and problematic design modifications. GAO found that these considerations supported the Navy’s determination that maintaining two active manufacturers would promote cost control, technical compliance, supply-chain resilience, and operational readiness.

Second, the Navy reasonably concluded that Mustang’s production capability was at risk without additional government business. The record demonstrated that Mustang had invested considerable time and resources into qualifying its manufacturing capabilities but had not received production revenue sufficient to recover those investments. Agency officials also considered Mustang’s relatively small size and limited ability to absorb prolonged development and production costs without corresponding revenue.

Significantly, GAO rejected the contention that the Navy was required to conduct a financial analysis establishing that Mustang would definitively close its production line without the sole-source award. GAO explained that neither the applicable statute nor regulations required that degree of certainty.

Instead, the Navy needed a reasonable basis for exercising its industrial mobilization authority, which GAO concluded the administrative record adequately established. GAO therefore denied the protest.

Implications for Defense Contractors

Although federal procurement generally favors full and open competition, the industrial mobilization exception permits defense agencies to direct contracts to particular manufacturers when necessary to preserve essential capabilities. As demonstrated in RFD Beaufort, an agency may exercise that authority even when an incumbent contractor remains qualified and capable of performing the requirement.

The Navy’s justification focused not simply on Mustang’s ability to manufacture submarine escape suits, but on whether that capability would remain commercially sustainable without production opportunities. Defense contractors, particularly those investing in specialized manufacturing capabilities or seeking to enter markets dominated by established suppliers, should consider how industrial mobilization considerations may affect future procurement opportunities. Similarly, incumbent contractors should recognize that an agency’s interest in maintaining alternative sources of supply may justify directing work to another qualified manufacturer, even where the incumbent has an established record of performance.

Although GAO did not require the Navy to conduct a financial analysis, the decision does not eliminate the need for agencies to substantiate their industrial mobilization determinations. The Navy’s J&A and internal correspondence documented its concerns about supplier concentration, prior pricing and technical issues, Mustang’s unrecovered investments, and the potential loss of an alternative production capability. Together, these considerations provided a reasonable basis for the agency’s decision, showing how documentation remains critical.

For contractors considering protests of awards made under the industrial mobilization exception, the decision also demonstrates the difficulty of overcoming the substantial discretion afforded to military agencies. Challenging an agency’s prediction about future market conditions may be insufficient where the record otherwise supports a reasonable determination that preserving a particular supplier serves national defense interests.

As the federal government continues to prioritize defense industrial base capacity and supply-chain resilience, RFD Beaufort provides a useful illustration of how existing procurement authorities can support those objectives.