UNITE!) STATES GENERAL Acc0f~N-r~ OFFICE . REGlePNAL QFFICE fn#m Wpo. M W. 26-l-H AVEUUE DENVER. COLORADO 80211 . J Dr. W. R, Lucas, Director George C. Harshall Space Flight Center Hational Aeronautics And Space Administration M8rshall Space Flight Center, Alabama 35812 Dear Dr. Lucas: The General Accounting Office has completed a review of Contract EAS 8-31665 awarded August 13, 1975, by the Harshall Space Flight Center -(Marshall) to the Martin Marietta Corporation (:4artin Marietta), Denver I)ivisioa. The.basic contract was for 322 Pyrotechnic Initiator Controllers . (PIG), three test sets and data at a value of $1,900,000. The current value of the.contract through modification 30 is $2,600,911. This contract was selected as part of a survey of procedures and practices used by civil agencies to negotiate noncompetitive contracts with prices exceeding $lOO,GOO. Our objectives were to determine wSether tk Warshall Space Flight Center.required Martin Marietta to famish cur- rent, complete, and accurate c3st or pr iting.'data as required by Title 10 W,S.C, 2304, Truth in Negotiations Act, and the National Aeronaut its and SPace.Administraeion's implementing procurement regulations, and whether lferahall evaluated and relied upon that data in negotiating the contract .-_ pX?iCle. _.. - -- ----- . . _. The Truth in Negotiations Act, requires that with certain exceptions, contractors be required to submit cost or pricing data in support of pro- posed prices for noncompetitive contracts and contract modifications expected to exceed $100,000. In addition, contractors are required to certify at the time of negotiations that data submitted is current, complete, and accurate. A clause is inserted in the contract which gives the Government a right to a price reduction where it is determined that the price was increased because the data submAted were not in 6 accord with the certification. Our conclusions and recommendations are summarized below. Eriefly; we believe that had Martin i4arietta provided current, complete, and accurate data concerning the cost reduction studies ongoing at the time of negotiations, the contracting officer would have had 3 sound basis for reducing the current price by $83,649.-Mditionally, Martin Marietta will realixe-a sabstantial _ unantic%pated profit resulting from savings on material purchases, because the contracting officer at Marshall failed to follow up on recoamndations . coatained in the Defense Contract Audit Agency (DCAA) audit report. i . ~_VVWPICIKG CAUSED BY CfYWGBS IN PIC iW!UYACTURIf~G PXXESS Prior to negotiations held on July I and 2, 13: i, :;;?rtin :.Iarietta project personnel on the PIC program becam aware OF a potential overrun in PIG production hours on an existing contract. Xartin Xariettn could not provide documented data on the exact date or mount of tile overrun; however, subsequent infornation disclosed that the Potential omunt cculd be $150,300. As a result, studies were started in the Electronics >ianu- facturing Facility to determine how ta reduce production r~irur~. Tne recommendations for reduction in production hours ha.1 beer developcj about Jun.? 23, 1975, but were not disclosed to Liarshall. Participants iu these studies included responsible Martin Xarietta personnel in the following positions: --- PIC Project PIG Project Manager Chief, Electronics Manufac:uring Facility Kanufacturing Manufacturing Engineers Haterial Engineer Quality Control -. Packaging Engineer The recommendations for actions to be taken to reduce product.ion hours, which were arrived at by personnel in the' Electronics Manufacturing Facility, were submitted in writing to the PI6 Project Manager on July 7 and 9, 1975. These submissions identified the following cost reduction a;tions: ' 1. Transformer - strippi-ri 6f magnetic wires 2. Cure cycles - change: in materials* times, and temper&urec 3. Insulation tape - investigate new type material , . 4, Part sleeving - e?iminate,sleeving Flicking of conformal coating - evaluate wicking OF,%? heat sink ii: Go/no go tool - clesign tool 7: Weighing - restrict to sampling 8. Removal of parts - unsolder and reuse rather than clip . 9. Kitting by PIC assembly - use of bins. _. 10. Dedicated fabricators - need for monitoring and motivating 11. Torque - use of a new torque tool 12. Flow solder - machine (wave) soldering in place of hand soldering. The machine (wave) solderiag study, dated June 23, 1975, was the onl*: study for which there was documentation. This study began at least L. to a weeks prior to June 23, 1975. - -~ ----. _ Problems.in PIC production and possible solutions were presented CO the Executive Xmagment Xeviev panel on July 24, 1375, by the PIC project . ,. : manager. The proposed reeamenkitisns Par the reduction of pro,iJcfion’ hours . .. presented at that 'meeting were the arcas. covered in the rccnorantlu~ of t ; July 9, 1975, and identified a potential reduction of 6.7 hours per FIC in manufacturing labor. As a result, a PIC study committee was Eorlncd to tcvizw productior! costs and make reco;aaendations. This comxxittee concIudriI that the PIC could be manufactured a& a profit provided their recom:x+ndations -xere implemented, Their recommendations included those cost reduct io.1 act ions identified by the Electronics Manufacturing Facility studies and isple- _ ~-_-mentation .._.*_ began on August 8, 1975. We determined the overpricing by using prices, rates, and factors in Martin Marietta's revised proposal dated Way 19, 1975. The amount was determined as follows: Estimated labor hour reduction per PIC 8.7 Total PICs in basic contract 322 Total estimated labor hotr savings 2,801 Average hourly manufackring labor rate $8.28 Estimated labor honr dollar savings $23,192 Average manufacturing overhead rate 167% . Estimated overhead dollar savings 38,731 Subtotal 61,923 Average general and administrative rate 21.7% Estimated general and administrative ciillar savings 13,437 Eatimeted~cost s&Tings 75,360 Refit rate (datewined reasonable by Marshall) 11% t Profit on estimated savings 8,289 TOhl moaat attiributeble to cdst r**:atioa8 $83,649 Ia response to our draft report, the contractor contends that the "studies" referred to were only prelitiaaty efforts on the part of Martin llariett’a personnel to resolve an overrun position it Lhe PIC program, and were not pursued as in-depth studies prior to final contract negotiation8 with Ikrshall . However, l&USARocurement Regulations define cost or pricing data ar consisting of aay management decisions or facts “. . . which could reasonably be expected to have a significant bearing on costs under the proposed contract." Therefore, we believe that the cost reduction studies, . which were in process prior to final negotiations and Martin Xarietta’s aigaiag the Certificate of Current Cost or Pricing Data, are data which could reasonably be expected to have a significant impact on negotiations. DWLNTICIPATEDPRDFIT ON ElATEHAL PURCHASES ---. Ia the initial proposal, Martin krietta proposed material costs of $532,026. War&all requested the Air Force Plant Heprosentative Office J, .- <AFPKG) at.Martin .iYarietta to conduct a price analysis. The AFPRO price aualysis included an audit of rates and factors by the DCAA at &rein Marietta. DCAA's audit report number 7501-03-5-0123 dated April 22, 1975, was reported to the APPRO. One of the recouzendations in the report was that current prices for all anticipated and potential materia! quantities be obtained. DCAA found that lartin Xarietta's material costs were proposed on quantities necessary to produce only 70 PI&. The AFPRO re;:orted their price analysis to Natshall on April 24, 1975, and included DCAA's audit report as an enclosure. The APPRO's report concurred with the DCAA audit report recommendations. - Yarshall performed a technical analysis without naking a visit to the Martin arietta plant facilities. A cost analysis report was prepared by the price analyst at Marshall on June 20, 1?75, which incorporated the Marshall technical evaluation and the AFPRO price analysis. The Marshall cost analysis report accepted the material costs; Powever, it questioned -. / the material adjustment factor and the escalation rate. It did not include a follow-up on the earlier AFPRO price analysis recommending that current material prices be obtained. The total material costs in the revi-ed proposal w&e $484,393. Martin Zfarietta provided the General Accounting iiffice data on nine material itezns which were proposed at a cost of $124,403. The actual cost for these items was $93,724 or 24.7 percent less than prbposed. The nine items selected byllartixa Marietta were the following: -_ COST Part Number Proposed Actual Difference M385~0/01201 BAC/BAB $ 4,104 $ 1,137 $ 2,967 - M38510/06205 %AC 3,278 1,191 a,087 - 8S99DlO8A-1 _ 34,357 31,878 2,479 SS99Olll-1. 41,181 36,708 4,473 sT99041923-l/ JANTXV4U23 1 28,336 -. 15,224 13,112 . JANTXV2102219A 1,288 SO2 786 JANTXI-21022228 -4,444 2,801 1,643 JANTXWH297OA 4,346 1,868 2.478 JANTXV2N2920 3,068 2,415 -653 Totals $124,402 $93,724' $30,678 Martin Yarietts’s material cost savings were ehelt of: _- --_ -.- --procuring parts on one lot buy, I -obtaiaing price options and delaying deliveries uatil funding was available. . L _ . -4- . ..-e 1 _._. .. _ ’ I , --. ‘_ i _.I j. .. --obtaining more favorable prices by contact in:; more ?;uppI icr:;, and --taking advantage of the general reduction of electronic prices being experienced. COSCLUSIONS ANii RECOXXE3l.4TIO~~S We believe that as a result of Xartin Xarictta’s ovcrru.~ position on an existing PIC contract, cosc reduction studies warp ini t i.7ts-J- but. not disclosed to Marshall officials prior to negotiating contract ;:AS 8-31665. Had Hartin Marietta provided the contracting officer current, coaplcte, and accurate data concerning the cost reduction studies ongoing at the time of negotiations, the contracting officer would have had a sound basis for ‘f reducing the contract price by $83,649. In addition, as a result of the Warshall contracting officer not following up on the recommendations in DC&I’s audit report, NASA incurred excess material costs. Accordingly, we recommend that you detemine whether the Goverment is entitled to a price adjustment or recovery of costs attributable to the cost reduction actions under contract NAS 8-31665. Additionally, we reco:mnd that you emphasize to contracting officials the i??ortance of obtaining, evaiuating, and using current, complete, and accurate ccst or pricing data to negotiate noticompetitTive contract prices. We would appreciate receiving your cbmmeats on these matters. Sincerely yours, ___ . -- . . - William D. Martin, Jr. .. Regional Manager ._ ‘ .- ._ .“a . * . .. _-- _. - --. . ..-- - . .) . . . ) . I- t . ! -.,.._ . - -..- a.. . .- . . .-- . -. -j- - (r ! . I-- *.
Review of NASA Contract To Determine Procedures Used in Negotiating Noncompetitive Contracts
Published by the Government Accountability Office on 1977-02-03.
Below is a raw (and likely hideous) rendition of the original report. (PDF)