Inquiry Into Contentions of Irregularities in Contract Administration and Premature Progress Payments

Published by the Government Accountability Office on 1971-07-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                     COMPTROLLER     GENERAL      OF      ~-IE       u
                                   WASHINGTON.     D.C.          20342

Dear Mr.     Chairman:                  ofs       736                                            17

       In response to your request of July 24, 1970, we have
completed our'inquiry      into contentions  of irregularities         in
contract    administration    and premature progress    payments con-
tained in two letters      to you dated February 14 and July 10,
1970, from an unidentified       employee of the Pacific       Missile
Range, Point Mugu, California.
                                                                                                i , -.- ,-,
                                                                                                        I :,_
       Three contractors      were involved--Symetrics       Engineering                        : ,i.: ,
Corporation,     the Philco-Ford     Corporation,      and Dynatronics
Incorporated      (merged with General Dynamics in 1966).             These                     ' " "
contractors    provide    electronic   equipment used to collect
flight    data on guided"%iiss.zles,     s=eIlXtes,      and space vehi-

       We were able generally    to confirm many of the employee's
contentions.      We did not find any evidence,       however,  that
top-level    personnel  were overruling    their   subordinates    with-
out good reason or were coddling        the contractors.

       We interviewed     technical    personnel    who conducted    the per-
formance testing      of electronic      equipment over the past sev-
eral years.       They were involved      in the testing     of 25 antenna
systems procured from Symetrics           and Dynatronics     and four fixed
and five mobile telemetry         systems from Philco-Ford.         Also, we
reviewed procedures      for controlling       acceptance.of    equipment
and for protecting      property.

      The specific        contentions            and our findings                follow.

       Faulty   and out-of-specification         electronic     equipment
was accepted by the Range over the objections                of technical
personnel     who conducted performance        tests,     and the equipment
either    had to be junked,       put to limited      use, or repaired    at
Range expense.

                             50 TH ANNIVERSARY                    1921-   1971
c   .



               We found only one instance      where the Range accepted equip-
        ment over the objections      of the test engineer.           The first    of
        seven GKR-8A high-gain     antenna systems procured           from Symetrics
        did not meet the acceleration        and tracking     rates required      un-
        der the contract.      The test engineer's       supervisor      accepted
        the antenna systems with the condition           that the contractor
        would provide,     at no cost to the Range, any material             or data
        required    to correct  the tracking    deficiency.        Six additional
        antennas were delivered      by the contractor       and conditionally
        accepted by the Range at the time of our inquiry.

                 Symetrics,    at its expense, made some adjustments                  to two
        antenna systems which did not require                installation         of addi-
        tional     hardware and successfully         demonstrated         that the equip-
        ment met the tracking         specifications        of the contract.            Range
        officials      informed us that adjustments            to the remaining          sys-
        tems would be performed         during periodic         maintenance         by Range
        personnel      and should not involve        significant         additional      costs
        to the Range.

              We did not find evidence  that any equipment had been
        junked or applied   to limited use during fiscal  years 1968-70.


                 Five air-conditioned        trailers     purchased by the Range at
        a cost of $3 million           to house telemetry        equipment and in?
        tended for tropical          use were not tested environmentally               prior
        to acceptance        by the Government,       although     this testing     was a
        contractual       requirement.       The air-conditioning         system of a
        trailer      shipped to Johnston Atoll         had to be repaired         entirely
        at Government expense.            It cost the Government $1,800 to test
        the four other trailers,            none of which passed the test.              The
        Government will         incur an additional        $800 to repaint      the



        Contract   N00123-69-C-0241        was awarded to Philco-Ford                   on
August 2, 1968, and included            five air-conditioned             trailers        at
a cost of $2,264,964.            Some were intended         for use in the trop-
ical zone.       According     to contract      specifications,          the air-
conditioning      systems were to operate from a loo-ampere                       power
source and meet environmental             specifications          of 0- to 100~
percent humidity        and -65' to 125' Fahrenheit.                 The contract
did not require       the contractor        to perform environmental                tests.
Range officials       felt   that the risk involved             in accepting          the
systems without       environmental       tests was not sufficient                to
warrant     the expense of having the contractor                  perform them.

         One of the first          two systems accepted by the Range de-
veloped an icing problem while in operation                          at Johnston Atoll
but was repaired            with parts from a system in an older trailer
not in use at the time.                As a result        of this failure,         the
third      system received        from the contractor            was tested environ-
mentally        at Range expense.          Since the tests disclosed              operat-
ing problems,           all mobile telemetry          air-conditioning          systems
were deemed, unacceptable.                After    a second environmental             test,
for which the contractor               was to assume the cost, Philco-Ford
modified        three trailers       at its expense, furnished               material      to
modify two other trailers               located      at Johnston Atoll,          and re-
painted       three trailers.          Estimated      Range costs are about $830
to install         the material      in the two trailers.              In addition,
the Navy incurred             $147 to transport         the trailers        for repaint-
ing and assumed the cost of both environmental                           tests amounting
to about $4,200.              Because two trailers          were accepted uncon-
ditionally,          the Navy concluded         that, unless a latent            defect
could be proven,            the contractor        was not legally         responsible        to
rectify      deficiencies        noted later.
        The Commander of the Range recently                  issued instructions
placing    greater       responsibility       for the acceptance        of equipment
under a contract           and established       a reporting      system to ensure
that top management would be aware of any deviation                        from con-
tract    specifications.           We believe     that this action       is suffi-
cient if properly           implemented.


       A Range supervisor   who allegedly   favored    contractors was
involved   in a Dynatronics   antenna contract     which cost the Gov-
ernment $64,000 in repairs.


      On June 30, 1965, the Range contracted           for five teleme-
try antennas at a cost of about $1.5 million.              The antennas
were accepted without     objections     by a test engineer      who re-
ported to the supervisor      in question.      The supervisor,     how-
ever, was not directly     involved    in testing    these antennas.
Subsequently  a defect was found that apparently            could not
have been determined    from the acceptance       testing.

       According to the specifications,       the antennas were to           be
designed to operate a minimum of 4,000 hours.            Approximately
10 months after    the Range accepted these antennas and after                an
average use of about 400 hours, two antennas broke down.                   The
cost to overhaul     and modify the two antennas is estimated              at
about $65,700.     In addition,    it is estimated    that it will         cost
about $4,300 to modify the three other antennas.

     Range officials       conducted       an investigation   of the break-
down and reported:

      "The method of attaching    the output gear upper bear-
      ing retainer   plate is inadequate.    Under normal cir-
      cumstances,   however, this inadequacy   would only be
      discovered   by a failure."
The Range inspection        report     indicates     that there may have been
a latent    defect in the antennas.             Range officials     considered
the possibility     of seeking recovery           for the latent      defect un-
der the inspection       clause of the contract           but decided that the
chances of proving       that a latent        defect existed      were remote.
We asked Range officials          for documents showing the specific
facts considered      in this determination.             We were advised by
the contract     administrator       that an attorney        at the Navy


Regional     Procurement      Office     in Los Angeles,          California,      was
consulted     but that the question           asked him was of a general
nature rather       than specifically         applying       to the situation         ex-
isting    under this      contract.        We discussed        the problem with an
attorney     at the Regional         Procurement      Office      who stated     that
a legal    opinion     regarding      the advisability           of attempting      to
recover    for a latent       defect     had not been obtained             but that
such a determination          should be made.

       The Range also investigated     the possibility      that poor
maintenance   by Range personnel    contributed       to the antenna
breakdowns   and concluded    in the report     that:

          “All    indications    were that the maintenance   proce-
          dures specified       by the instruction  book were being
          followed.     ”

       Because the Range inspection             report    of the      breakdown      of
the antennas      indicates     the possibility        that it      was caused by
a latent    defect,     we recommend that the Secretary                of Defense
have Range officials         reexamine     the matter.        If    a latent      defect
caused the breakdown,          appropriate      action    should      be initiated
to recover     costs incurred       by the Government         to    repair     and mod-
ify the antennas.


       Philco-Ford     failed to deliver   acceptable    operation               and
maintenance      manuals for telemetry   trailers     as stipulated               in
the contract.       Further , the manuals were delivered         from
10 months to 1 year late.


        We found that the contractor         was 4 to 10 months late in
delivery     of the manuals.      Discrepancies    are in the manuals and
corrections      are being made at the contractor’s        expense.  The
Range is withholding       about $250,000 from payment under the
contract     pending final   delivery     and approval   of all the man-



       The Government     could have saved $2 to $3 million  had the
Philco-Ford   contract     work been performed by the Range.


       The Range did not consider         doing the work itself         on the
basis that the amount of work involved              precluded    in-house     per-
formance.    Range officials       estimated     that the contractor         spent
about 30 man-years in producing           the equipment and needed more
than a year to deliver       the systems.       Although      Range officials
agreed that they had-the        technical     expertise     to perform the
work, they felt    that the effort        would have required        the entire
capacity   of the Technical       Support Department.

       This department  maintains  an engineering       and shop capa-
bility   and normally  modifies,  overhauls,      or repairs  equipment.
We noted that a backlog of work existed         in this department
during the period of the Philco-Ford        contract.

        We concur with the Range officials'            view that this      pro-
curement was too large to be performed              in-house   without     dis-
rupting    other Range activities.


       Range contract administration  personnel    made premature
progress payments under the Philco-Ford      telemetry  systems con-

        We did not find that any premature progress payments
were made under the Philco-Ford            contract.       We found that
Symetrics received       a premature     payment of $229,500 authorized
by the Defense Contract        Administration        Services    Region (DCASR),
Atlanta,     Georgia.    Range officials       discovered     the premature
payment prior      to our review and requested           that DCASR offset
the payment against       other amounts due Symetrics.             This money


was held by Symetrics     for over 7 months.     We estimate    that
interest   for this period    of time computed at 6 percent        a year
would be about $8,000.       This error occurred   because a DCASR
employee did not follow      prescribed procedures    for controlling
and processing    payment documents.

       We were told that a low-level         employee processed            the pay-
ment on the basis of invoices          and a contractor        official’s
statement     that the items had been accepted.             Final acceptance
documentation       had not been received      as required.          DCASR makes
a periodic      spot-check     review of contract    vouchers        prior    to
payment ; however,        this payment was not selected          for review.

      On the basis of a survey that we performed      of these DCASR
procedures  for auditing     contract payments, we believe   that
this was an isolated     error rather  than a weakness in the sys-


     Contractor       personnel bring    to and remove           equipment     from
the base without       proper documentation.


        While three telemetry        systems were undergoing            inspections
and tests     at the Range, Philco-Ford            removed certain        items and
defective     parts from the base for repair              and correction       with-
out obtaining        the required    authorization.          The Supply Depart-
ment, contrary         to the Range’s procedures          for controlling        Gov-
ernment property          prior to final     acceptance,      did not issue a
permanent     identification      tag inscribed       with the assigned          plant
account     number for delivery       with the equipment          to inspection
and test personnel.

      Range officials        stated  that corrective     measures would            be
taken to ensure that         the established    procedures   were imple-



          Items   were being delivered   by the contractor              to individ-
uals      other   than the Range Receiving    Officer.


         We found that documentation             (as-built     plans,      technical
publications,         etc.)    had not always been delivered               to the Range
Receiving      Officer.        For example,      a Philco-Ford        representative
delivered      two sets of manuals and the accompanying                      material
and inspection          report   to the officer       in charge of the Range
Contract      Division      who at the time was not authorized                 to re-
ceive such property            and reports.       Since then, however,             Range
officials      have authorized        deliveries      to this     officer.


        Contractor correspondence       is either  addressed  to or hand-
carried    to the addressee    instead    of via the Commander of the
Range and this circumvention         causes chaos and losses.


        We noted that correspondence          received    through     the mail
is routed     to the Range Commander as required             by written        pro-
cedures.      In several   cases, however,        correspondence        was hand-
carried    to the contract     administrator,        and bypassed       the mail-
room and subsequent      routing    to the Range Commander.               This
practice     has now been discontinued.

         We plan to make no further             distribution      of this report
unless     copies are specifically            requested,       and then we shall

*   L


            make distribution     only   after your agreement has been obtained
            or public    announcement    has been made by you concerning  the
            contents    of the report.

                                                  Comptroller  General
                                                  of the United States

            The Honorable  William    Proxmire,       Chairman
            Subcommittee on Priorities      and             .~
               Economy in Government
            Joint Economic Committee
            Congress of the United States