- -- _ 0 P;s c- + UNITEDSTATES GENERALACCOUNTING OFFICE REGIONAL OFFICE ROOM 7066 FEDERAL BUILDING SOW NORTH LOS ANGELES STREET L.~SANGELES,CALIFORNIA 90012 Rear Admiral T. J. Walker Co’iandlng Officer Naval Air Systems Command Navy Department Washington, D. C. 20360 I Dear Admiral Walker: We recently completed a survey of the przcing of negotiated defense contracts at Douglas Aircraft Company, a divlslon of McDonnell Douglas Corporation, Long Beach, California. The objective of our survey was to review the procurement process and determine the extent of compliance by contractor and Government personnel with the require- ments of Public Law 87-653 and the implementing provisions of the Armed Services Procurement Regulation (ASPR). During our work, we noted certain matters concerning the use of basic ordering agreements (BOA’s) and the timeliness of price negotiations which we are pre senting for your consideration and any action you may deem appropriate. Included in our survey were several orders over $100,000 awarded to Douglas during the period July 1, 1968, to November 30, 1970, under BOA’s NOOO19-690ArOOll and N00019-70-A-0004. Considerable delays were experienced in the procurement process for these orders. For example, an average of 9 months elapsed between the order issue and proposal submission dates; also, an average of 3.3 months elapsed between the order fssue and negotiation dates. The major factor contributing to the txme lags appears to be the utilization of firm fixed-price orders to procure A-4 aircraft modifi- cation kits which require considerable developmental effort. Due to the substantial engineering and developmental effort required, the contractor deferred the submission of cost proposals to the Government until this effort was essentrally complete and a more sound basis existed for estimating production costs. This delay along mth the time required to evaluate and negotiate the cost proposals resulted in many of these orders being negotiated after a substantial portion of the total effort had been completed. 5OTH ANNIVERSARY 1921-1971 JF?!zzzfl Rear Admiral T, J, Walker -29 f!m 1 2 997j As you ars aware, ASPR provides that firm fixed-price contracts are suitable when amilable cost or pricing data permit the development of realistic estimates of probable performance costs. When uncertain- ties surrounding the contract price cannot be sufficiently identified to evaluate their impact on contract prices, the use of other than a firm fixed-price contract should be considered. We also noted that order LB-24 under BOA -0Oll and LB-01 under 308 -0004 were utilized to procure two prototype A-M aircraft at a total price of about $13.7 million. The use of R0A orders to acquire prototype aircraft does not appear to be a proper application of this form of contracting. Ihe contractor recognized the need for timely negotiation of orders and recommended to the Naval Air Systems Command (UBVBIR) that a more flexible-priced contractual arrangement be considered. In May 1967 and March 1968, the contractor requested that future BOA orders be awarded on a fixed-pzlce incentive basis. Although these requests were favorably endorsed by the Naval Plant Representative, subsequent orders were awarded on a firm fixed-prme basis. Contractor and Naval Plants Repre- sentative officials are still of the opinion that highly developmental A-4 aircraft kit procurements should be awarded on a more flexible-priced basis. We have been advised that NWUR plans to procure f~scsl year 1972 &-4 aircraft modification kit requirements from Douglas on a firm fixed-price order basis. It should be recognized that our observations are based solely on information and documentation obtaaned from the Naval Plant Representa- tive and contractor personnel. We have not reviewed any documentation at NAV&IR cotmerning the use of Bats or discussed our observations with your staff. We would appreciate receiving your comments on the matters discussed above together with advice as to any actions taken or planned with respect to these-issues. We would be glad to discuss these &tiers in greater- detsilifymso desire. Sincerely yours, ( 30 &cJ .TmTFTE3 Ho L. KRIEGER Regional Manager
Defense Contract Survey
Published by the Government Accountability Office on 1971-03-12.
Below is a raw (and likely hideous) rendition of the original report. (PDF)