0333z-L3 OW UNITEDSTATESGENERAL ACCOUNTING OFFICE REGIONAL OFFICE ROOM 7068 FEDERAL BUILDING 900 NORTH LOS ANGELES STREET LQSANGELES, CALIFORNIA 90012 Captain K. B. Mattson Naval Plant Representative Douglas Aircraft Company McDonnell Douglas Corporation 3855 Lakewood Boulevard lrong Beach, California 90801 i Dear Cap&&n Mattsonl We recently completed a survey of the pricing of negotiated defense contracts at Douglas Aircraft Company, Long Beach, California. The objective of our survey was to review the procurement process and determine the extent of compliance by contractor and 6ovemmen-t personnel with the requirements of Publzc Law 87-653 and the ample- meuting provisions of the Armed Serrices Procurement Regulation. We included in our survey 25 firm fixed-przce procurements over $100,000 awarded to the contractor during the period July 1, 1968, to November 30, 1970. Based on the results of our work, we do uot plan to perform any detailed examinations of the pricing of these procure- ments at this time. Although the results of our survey were discussed with you and your staff at the completion of our work, we thought zt would be useful to sunnnarlze those procurement and contract adminis- tration issues which we believe warrant your attention. Need to improve technical evaluation procedures The Naval. Plant Representative Office (IWPRO) performed technical evaluations for.23 of the procurement actions included zn our survey. Although these evaluations appeared to cover the significant cost elements, they were performed by nontechnical personnel of the Contracts Division. We noted that evaluations performed for basic ordering agreement@CA) orders lacked explanation for the conclusions reached and the recommendations made. We also noted that documentation in mpport of the work performed was not maintained. - ,507H ANNJVERS Captain K. 8. Mattson -2- A recent Contract Management Review (CMR) of NAVPRGoperations identified the same issues. The GMR draft report dated December 1970 recommended that your office issue guideline6 for the evaluation of proposals that will assure relevant technical comments and include the rationale used in the proposal evaluation process. We have been advised that your office ha6 recently established a technical evaluation capability in the Industrial Division and are currently in the process of preparing guidelines for use during technical evaluations. We believe that actions taken in response to the CMR findings wilX Improve: the proposal evaluation process and ass3st the coz&racti.ng officers in negotiating fair and reasonable prices. Need to obtain current cost estimates prior t0 contract negotiation6 We noted that several order6 under BGAts had not been negotiated until a 6ubstantial portion of the effort had been completed. This occurred primarily on those A-4 aircraft modification kit order6 which required considerable developmental effort. Due to the substantial engineering and developmental effort required, the contractor deferred the submission of cost proposals to the Government until the work was substantially complete and a more sound basis existed for estimating production costs, The cost proposals were essentially based on forward prxcing data; however, contract price negotiations were conducted on the basis of recorded costs plus an estimate to complete (ETC). There- fore, the cost data in the original proposal6 were not relied on by the Government contracting officer. These data, however, were certified to by the contractor at negotiations. We found that prior to negotiations the contractor developed estimates of cost6 to complete these order6 but did not disclose the estimates to the Government contracting officer. Contractor official6 advised us that the estimates are not submitted unless the cost of performance plus ETC vary significantly from the original cost proposals. In addition, we were advised that the contractor places greater reliance on the estimates contarned in the original proposals. In cur opinion, the ET@ s constitute pertinent cost or pricing data that should be disclosed in writing to the Government contracting officer prior to negotiations. $160, we are concerned with the pOSSibil.ity that the Governmentt6 rights to recover under the defective pricing clause may be impaired since the certified cost or pricing data are not being relied cm by tie condxacting officer. Captain XC. B. Mattson -39 Use of fkm fixed-prrce orders for highly developmental aircraft modification kits As previously discussed, orders for A-4 aircraft modification kits fxequently have not been negotiated in a timely manner primarily because of the uncertainty in establishing firm prices at the outset. The use of firm fixed-price orders to procure hardware which requires a hrgh level of engineering and developmental effort has apparently contributed to these delays. The contractor recognized the need for timely negotiation of these orders and recommended to the Naval &ir Systems Command (NAVASR) that a more flexrble contractual arrangement be considered. In May 1967 and March 1968, the contractor requested that future BCA orders be awarded on a fixed-price incentive basis. Although these requests were favorably endorsed by your office, subsequent orders were awarded on a firm fixed-price basrs. We plan to bring this matter to the attention of NAVAIR for their consideration fn the award of future order8. We would appreciate whatever comments you may wish to make on the matters discussed in this letter. &so, we wish to acknowledge the courtesy and cooperation extended to our replcesentat&ves by your 8taffdUz%ng t&i8 8UVq. Ii. Id KRIECER 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)