UNITED STATES GENERAL ACCOUNTING OFFXE REGIONAL OFFICE ROOM 7054, FEDERAL BUILDING 300 NORTH LOS ANGELES STREET Los ANGELES,CALIFORNIA 90012 , Vice President and General Xanager Eleatromagnetio and Aviation Systems I&vision RCA Coxpoxation 8500 Balboa Boulevard Van Ehys, California 9U.09 Dear b!kc. K.rantzr This is to advise you that we have completed a xcvis;r of the prices newtiated for co&xact X00104-6&C-j&; awarded to X,1 Corgoxation, Zlectxoma~e%.c and Aviation Systcss Divisicn by kc IT. S. Eavy Ships laxts Coiitxol Center (Si?CC). We also e:z.mireQ selected aspects of the negotiation of contxact XOOO2&6%'XOp2 awaxded by the Naval Ship Systems Command(X3X). Our review of oontxact -3434 was directed -pximaxily towaxd detexminin6 the reasonableness of proposed costs in accox&~.~ce with the xeqy.irements of ?ublio Law 87-653 and the im@ementiq provi- sions of the Aimed Services Pxocuxesnt Regulatior. We found that the negotiated contract costs were 'h&hex Thor indicated by available cost irJomnation pxiox to negotiations by about $46,500 including applicable overhead and profit. This resulted pximaxily because RCA did not update the cost p~~~?osal prior to ne@iations to reflect the most current data OXI labor hours and other costs ex--exienced under letter coiztxact -3434. b.xtz review of contract -1092 was directed toward eValI?.ating (1) the adequacy of BCAss cost az&ysis of major subcontxact proposals, (2) the feasibility of direct procurement by the Govern- ment of traveling wave tubes9 and (3) the reasonableness of nc;oti&ted profit rates for major field modifications involving the pxocuxcmeri; of s-to& repair paxts. .!. The results of OUT review which were discussed wit3, -khe ?kne.~ox, Operations Control, aud othex RCA fiziancial. and coztxact officials a Hr. F. 3. I-ccantz -2- AR? I 6 1973 better contract -3l43&, d.atec~ January 11, 1968, provided for tie production of 27,200 I4K 25$ Nod O9 fuze MOXL~O~S. On Fcbr~~q 89 lpG8, RCA ~ubulitted a cost proposal in the mount of $715,G54 In reaponae to the requiremnts of the letter contraot. !The proposed price was reduced to $Gpl+,p60, th0 -0 as;~oun% k3i3tb.eea i.11 ti0 w~t~2~ contrmd price. On Mamh I9 1968, the cont~~&G.~~gofficer exercised a contract option increasing the total units to 40,200. RCA was not requested to submit a revised proposal for the new qua&i@. Contraot negotiations took place between Eay 24. and June lls, 1968. As of s&y 23p 1968, 139600 UEL~S or 34 percent of the ~~&xw- tual units had been defivered. A tit prime 02 $24.95; ~af-3nc@&tud resulting in a total contraot prica of $2,002,990. RCA oxeoutcd a Cartifioats of Currsnt Cyst or Pricing Data on June Up 1968, and a defective pricm clause waC3included in the oont~ao-i;. RCA pr0po~dd asssmbly labor of ~0249 'noms a tit or $101,186 S3r the total contact The proposed hours wers bawd reg,timnents. on B &md.a.rd Crm of 0.6486 bourn a uxdt adjuotxd upwad to 0.9469 hours by a Labor Utcilizatfon Index (IXL) factor of 68.5 percent, Our rev&w disoloaed that at ths tim3 of nc@iationa IXA had available LUEls fron cornploted production jobs under the prm&i.ng fuzo contraot IoiL&-39-67-C-0033 ( recorded under RCA job nurdbors 57s and 609) and from the lottex contract -3434 (racorded -under RCA job number 627). The company, however, utilized data available throu& , Z'ebmaxy 8, 1968, &ich did not ix&o i&o consideration production data under thc3 lsttor contract. A coqmxiuon of the nogdiated asao~bly hours with data availabls at the tizm or0 n~~@&xkxus is as followst . ”: -3- APR 16 1971 Data available at 627 609 70.@ 36,380 8,600 575 ?sb believe that the LUI experienced under the letter cmstract (Job #627) wouldl lzav0 been the most relevant and cxmert data available at the t&m of nagotiations since it represents mqerienoed data for at , least one-third of the co&%a&xm,l wtita. WQwcxre infomed by an RCA official that the ruors oIxrm3nt LXX factors were not disclosed to the contmcting officer. According to the official, the proposal was not revised at the time of coxatr~~ot ne&iaw tion bacause of a mmagemnt decision that (1) the portion of letter contract -31~34 com&oted gzior to ne@tiations was not a mfficicnt basis for gxedkting the outcorss of contzx~ct perfomanceg and (2) the trend of decreasing pmductim levels at RCA would lead to roduecd labor efficiencies. In addition0 we were advised that a lump sum rcduotion in the cont2ac-k ptice resulted primxcily fzon reduotionr; in proposed labor costs. We beliwe that the LUX fm&xc cxp&.onced under the letter conLract should have been d.isclor;ed to the conkacting of2icex duxkng , ne&g fiations. Also, the contracting eff;icm~~s record of no@zrkLalion indicated no reduotion Ln assembly labor cosix, In addition to the proposed assembly homsV RCA proposed a 5 per- cant faotos for a break-in-y,roduotion to cover a transition period between production on the preceding f&e mxxLtor contraot and letter contraot -3b34. The proposed factor was nqptiated into tlus contra& and araountod to 1,903 hours. , APR 16 1971 less &an the negotiated amour&; howevor9 we wire advised "&at additional 'noms wese actually qpcrienced bu'c were ohar~:d to the wrong oont3zaot. The oontraotor oould not furnish us any evidence to this QffQCl. In 0~2 opinion, the exprienced labor hove-s tier lsttor contract -3434 should have been discLozd to the contracting officer during iiegotiatiom. Test tecMcian labor costs We estimale that -teaL tecMc$an labor costs neptiatcd under the contraot were hi@er than indicated by cost in,"ormtion available prior to negotiations by about $6,?03, Similaxly to asaernbly labor, ttis azosultod primarily bsc2uso i?CA did not update th.0 progoasl to reflect "de most current ad available labor how data. RCR proposed teat tcohnioizn labor of 0.2713 hours a zmit, or $30&p for thc3Lotal aontract r+$lir~oits. 9-m pwgocod h0u.m wc!33 based on a star~d.azd tiue of 0.2029 houxs a unit adj~ted to 0.2713 howm by an I;'fJf f&BtGr oaf 74.8 percant. Our reviai showod that RCA was eqexioncing a higi-mr IXZ factor for teat tecltisian labor hours undcrr the u~oat cmsnt production jobs than the nqotiated LUX faotor. R comparison of the ne;;otiatcd test teuhnioian hours with data available at the time of Ys9gotiatSons 2s as follows: Data available at the time of nc,qtiationn Proposed. md negotiated Iki&ted COEip"uOd ~Iit-~~oase in TdSTfactar hours contract nrc5aa 427 609 74.% 10,906 -CL 575 I -1 ‘. . zxr. F. H. IIcxaatz, -5- APR 16 1971 An RCA offioial advised us that the more cu~ront LUT factors 'c~ero not disoloaed to tne contracting officer for the same xeaaon as previously cited for assembly labor- Profiuction en&xxxinf~ labor costs Xn consideration of the requirements of Defense Procurement Cirdar Xc. 77 xeLgardin~ tho 'ssetoffll principles of understated costs or prioing data, WC"eatimzte thak ECABs proposed production en&neering labor costs were understated by about $1,400 incItudiz~g applicable overhead and profit. IX.& proposed a produotion cn@neering labor rate of $6.03 an houzc although tho approved bid rate was $6.30 an hour. !UI cost prososnl identified that all direct labor rates ore banod upon approved bid rate3 D The erroneous labox xate was suboeqwn-bly negotiated into t& contraot grice. Contract 4092, awarded on Kovembor If;, 1967, provided that RCA furnish stock repair parts, supply sosport backup %I& ovsr'haul and repair capability to maintxki electronic oqti~mont ~revioua1y pzoc~~d ,.... by the Navy from EGA under 0th~ pimc contracts, 'Snder the term; of the contract, the nozotiation of prices for repair parts and ssaozblici;/ subassemblies to be repaired, is the responsibility of the DoT~~sz Contract Administration So;c7ricos (BCAS). At the com@etion of our revicwp field modifications totaling over $4.6 million had boon negotiated under $5~ contract. Review of proposed subcontract costs We reviewed three major contract modifications involving the procmemat of txavdi~ wave tubes (TWZ*s) from &~-&es Airoraft C;o~~g~any as followso Contract -1092 RCA pm2oaa.l for TVT'a /‘ S"iodification inoluding add-on nlxmbor Data nerptintod Begotiated price pricin!~ fGcfOklS '! I' 17 Y/24/69 ii4909477 ";7$;4$ 12 .5/1w9 3031m-i 10 4/S/69 S639363 402:7;4 4 Nr. 8. Es. I!i3xUt5 -Q- APR 16 1971 ’ ??ho TWPs wcxe gromd on a sofs souse basis and, aa a romlt, RCA was wzpired to obtain cost or pricing data from ths supplier axd perfcmn a coat analyaks of the data obtained. WQfound that RCA poxfomod an adequate aost analysis of the su~?plfar's ]?ropoatzls ~rith the oxce-gfion of labor hours and yield f~~ctors which we?% not vorifi& . In OUT opinion, the RCA cost azalyais should have inuludcd mrch a verification since proposed subcantract labor costs wore a sig~Lf= iCaslt faotor i.Xl the pZicin/J Of FiiJy's. Xi3 sfu-hnro grocxcome~zts ixvolving major nonoompotitiva subcoyrtract price pi-oposals, we bolieve that RCA should verify ni.glifica;nt cost or p;"jcing data or obtain such analyses thxou.,$a DCAS whex@ qgro>riate~ Xn reviewing 421sR&4 processing of the !l?ltiTfrom rsccipt to ismop WB found that RCA mended about 16 hours of dixeot labor for each !iWl!. This effor% prtiily cox-kstod of (1) ixxrkallation of a tube mounting b3x&et, and (2) alootronic tc?oting. !Phe labor effort IXLS sSgn.ificantly reduced ;in Exizch 1970 when RCA stogped ~~~fozriing olootrotia testiy3e; of !twT! SparQs. Xn vhw of the nddad in-house labor effort required and tho substantial marbpo in the price of tho tubes, we discuss&i with RCA9 RU&QEI, and Xavy officials "Jne possibility of dire& Cw~mr;l~nt ~IUC~TXEI of "be m*s. ws found that2
Review of Selected Defense Contracts Negotiated Under Public Law 87-653
Published by the Government Accountability Office on 1971-04-16.
Below is a raw (and likely hideous) rendition of the original report. (PDF)