UNITEDSTATES@EIVERALACCOUT\ITING OFFICE REGIONAL OFFICE ROOM 7054. FEDERAL 300 NORTH LOS ANGELES BUILDING STREET lllllll\llllll$lllllIlllllll LM092955 Los ANGELES~CALWORNIA 90012 Rear Admiral 3. A. Scott CommandingOfficer I U, S. Havy Ships Parts Control Cmtar Mechanicsburg, Pennsylvania l.7'OSS H&q % 103 1Lc -h-,Yq Dear Admiral Scott: A.3 8 As part of our revietq of the negotiation of contract prices under the provisions of Public Law 87-6539 we have exzmined into the price proposed and negotiated for firm fixed-price contract ~0010~-68-C-34~1&awarded to RCACorporat;ion9 Electromagnetic and Aviation Systems Division, Van Xqrso California, by the IT. S. Eavy Ships Parts Control Cecter (SPCC), The contract, ori&ally issue& as a lsttor contract in .J~WXI,X~~1968, was definitized on &.xneJ-9, : .J 1968, and provided for the production of 40,200 fuze monitors, XX 25, Mod 0, at a total price of $1,002,990. ,’ ’ ‘1, Our excmination was primarily concerted with the reasonableness of the price negotiated in relation to cost or pricing data exxil- able at the date of contract negtiations and the adequacy of Government technical and audit evalua”tions of the contractorPs coat . proposal. : : Ths results of our review show that the proposed contract price was $I+6,5OOhi&her than indicated by the most current cost in~ozma- tion available at the tixe of contract negotiations: This resulted because the contractor did not update the cost proposal. prior to negotiations to reflect "de most ciu2m-k production &ata oxpcricnced under the letter contract. We aLso found that the rcvicwa of the eontractor*s cost proposal by Gover1xx3~trepresentatives were not performed in sufficient depth to identify the most current, complete, c and accurate cost information available at the time of contraot ne~t~ations. These matters are discussed in greator detail as follows. contracts awxded to RCA the period &UWJ 1965 ‘, ‘. Raax .i&nixal J. A. Scot;t ’ cow OffioQrp u. s. si?cc -2- Roar A&nixkI. 3. 1. Scott Command Offiaeq P. s. !s?cc - 3- APK 16 1971 AssembIy labor costs WQfound that the assembly labor costs negotiated under the COD- tmut wera hi&her than indicated by available cost information pxios to negotiations by &out &l,200 including ap~lica'ole overhead ad profit. 'Jlhis resulted p!rWily became the contzactor did not q&to the cost proposal to reflect the most cuzxent assembly labor data I' available at the time of nagotfatfons. RCAproposed assembly labor of 1.0249 hours a unit, or $101,186 for the totaL ~on-tract IceqairemenLs. ttha propoeiod bows wore based on a standard time of 0.6486 hours a unit &xLch was adjusted upward to 0.9469 hmxcs by a labor c~ficiency hctor of 68,s percent. !!%o Jabox afficiency faetor, kxown as the Labor Utilization Index (IXL) is a produotion control aubsystm used by RCAto coqaxe a woxke~?s efficiency against CO& aatimata standards for aXL ta,sks of a production oporatior, As the work force lsecomeamore efficient d32dnon-sroduotive ttie docraasesy the LUX will fncwaae. Ow rczviaw showed that the contractox did not UGQthe most cuxrcn-i; and avaUable LUI in ita proposed asambly labor hours, At tIno time of negotiations in Jui263 1968, tlm contmctor had available 12302 efficiency dab fxom coqAa"cod productioil jobs u&er the px:caacUngf'uo moni-iar oontzlact DAAG39-67-C-0033 (recorded under RCAjob nu&cro 575 and GOP), and from the letter cont;tot -j,!$& (recorded u.ndor RCAjob ' numbsr 627). 9?hscontractor, howevars utilized labor efficiozxy d&k available throw.@ 3Yebxuary8, 1968, which did not t&c into contidem- tion the IXIX experienced during sroduotion under the latter c~a'(;za.c~~ A oonrrparisonof the neg%ated assembly hours with data availably at t2-i~ time of negotfatloas is as follows: 3ata atilable at the time of ne:qotiations I Proposed and ne,gotiated Wai&tad Computed Increase in LTJI factor Hours a avem;Co LTJI houra contmct price 68.5$ 38,065 627 78.4$ 33&G $3SpGoO 627 609 70.@ 36,880 8,600 575 I . .* .. I Webelieve tie I;oJ e~o%ionoed undex‘the 1ottex contract (Job $521) would have baen the most xelevant and cuxxent cost data availabls at “theetime of negotiations. T~Q DCAS9ndusttia.l engineer took ~10excepki.on to the proposed labox hours based upon a review of t??e contxactor~s assembly op@xationsp drawings, worbheets, and estimati~ pxocedmes. DCBIS, did not xoview proposed houxs sines r&Liable labor hour data q~oxionced on the preceding fuzs contract was not avaiTab2.o baaawe thG contxact was not uompleta at the t$.mo of the gxoawaxd audit. ITeither DCASnox PCAAevaluated the eontxaotox9s pxoposod LIE faotor either at ths time of their cost pxososal.. reviews in BG~L~ 1968 or at the time of the contr%oting offic&s sequost on June so 2.968, for mppLementa,ry zi.nfo%mationon the contractores proposed costs. DCAAoffioials infoxm& us that in late 1968 the xeaident office bogan to XOV~QW LUI*s in preawaxd audits of cost pxoposals where pxoductiou. eq~xience was available. An RCAofflcia3. advised us that management xocog&zed the bi,gh@x L’M: factor fox ansembly Labox under the l~ttex oontraot~ howover, rnam,aent dacidod against xevising the psogosaJ to x&loo% the high~s: efficiency faotor because the ctistin g trend of decrasiq production levels would lead to roduasd labor @ffiGh'lGi0# ti the fut~~?. RCA did not d.isolose the mom currant LUX factora to the Govc~ont d~in@l contxact no~~tiaticms nox WQXQ ths xeasons fox mana,~cntga decision not to revise the proposal disclosed to the cJ6ntxacti.n: officer. 331addition to the proposed assembly ~CSLXCS,the contractor addad , , a E; psxcsnt factox fox a br&+tipxoduction to covcz a txaneitioil poriotl between pxoduction on tha pxecoding fuz~s monitor con&-& and , lettex oontraat -3434. The pxogoaed factor was negotiated into the contxaot znd amounted to 1,903 houxs. We found that the oontmctox had er;pexienoed the break-in-pxoiiuction prior to neg0tiations of contract -Jl& in the amount of LPI25 hours, ox 778 hcrcus Zess than pmpoaed, The Labox hour diffarcncc ~~~ountod ; to about $5,600 kncludin~ overbead and pxofit. The break--in-pxoducfion oc~xod in Pebxuaxy 1968 at appromtely the SEIJIM time as the Gwm-matt~ ao&t propoea.ILr~tiewe; howevex thy szqexiancsd data WELT not xaviewed by SAA ox 3X%3., ’ Rsar Admiral J. A. Scott CommandingOfficer, U. S. SPCC - 5 - An RCA offioial agreed that the ac~r;ujt break-in-production labor hours charged to the contract was sigxxific~tly lower than the negotiated amount; however, we wore advised that ahditional hours w0re actually experienced but were chargod to th0 wrong contract. The aontractor aould not fkrnish us any evidence to this effect. Xn oux opinion, the experienced breek-in-production labor hours under letter contract -&& should hav0 been disolosed to th0 contract- ing offioer during negotiations. Test techn3xi.a.n labor cos'cs We estimate that tast t0chnician labor oosts napki.atod under tha contract wem higher than indicated by cost info-Son prior to nqotiations by about $6,700. Similar& to assembly labor, this rasultad because th0 contractor did not uplate its pro~osaZ. to roflsot the most current and avail~tble Sabor how &,%a. RCAproposed test tecGhn%ci~~labor of 0.2713 houzcsa u&e, or $38,849 for the tot&. contract rsqiiiranents, Tho proposed hours were based on a standard "&e of O.2OZphouccsa urcit adjusted to 0,2713 hours by axeLUX factor of 74.8 percent. Our review showed that the oontractor was expsriencing a hi&0r Lu3: factor for teat techni&,n labor hours under the most cuxront production jobs than the rme@fated LUf factor. A coqarison of tho negotiated test technician hours with data available at the timo of neEfoti.ations is as followss Data available at the time of negotiations Proposed and negotiated Wsighted COIXj+X-2d hcrease in LUI fawtor Bours Job $ averam LUX hours conLraot mice 74.8% 10,goQ 627 7986% 10,247 $6,700 * 627 609 794% 108259 6, Go0 627 609 74.s 10,906 -0. 575I 1 Rear A&xiral J. A. Scott comraaa~ Officer, P. S. SPCC - 6 - Webolievo that the LUI expsrienced under the letter contract (Job #627) would have been the most relevantand ourrent cost data available at the time of negotiations. The DCASindustrial engineer took no exception to the proposed labor hours based 01 an evakatfon of estimated time to perform tests of eight different componentso subassemblies, and asrsemblies. DCAA did not review the proposed hours. Similarly to the condition previously identified for assembly hourso neither DCASnor DCM reviewed the contractorvs proposed LCX factor or related production records to ascertain tim xzoat curssn’c labor efficiency factor available at the time of negotiations. An RCAofficial advised us that the hi&er test technician LUX factor was not disclosed to the contracting officer during ne@istlona for the samereason as was oitod for assembly labor. . Production engineering labor costs In consideration of Defense P!roc~m~~% Ci%culm No. 77 roan the l'setofftt principles of tudorstated cost or pricing dxLa, WQ estimate that i-210oontractor9s proposed production cn,gineering labor costs were lower than J.ndicatsd by cost inforn3tion awLlab at nogAia-, tiona by about $1,400 5.ncluding applicable overhead axedprofit. !lJhecontractor proposed a production on@neoring labor rate of $6.03 an hour althou& the approved bid rate was $6.30 an hour. The cost proposal identified that all direct labor rates were based upon approved bid rates. DCAAdid not identify the error in the contraotorga labor rate and subsequently the proposed labor %ate was nog&iatod Vito "he contract piCX3. We believe that the contracting officer should consider the above findings, aloq with any additional information available, to detetine whether the Government may be legally entitled to a price reduction with respeot to contract -3%. I , 7 . ‘0 .* ‘. .. We would appreciate being advined of actiona t&en 0% con-kempl&xxl with regard to the matters discussed ti -iShi~letter. Copies of t223.s let%er are being sent $0 the Comma&or013efenseCon-tract Administi&tion Servicee RegionD ayld the Regi.onal N%ager, Pel"enasCon"crac'cAudit Apncy, Loe Angeles. Sincaraly yowap aor Commander Deferme Contmot fGid.tistxation Services Re&on, Los lbgeles . , ’
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)