DOCUEBNT BSIh 04144 - [ B31544 12; [Pricinq of a Noncompetitive, Fixed-price Incentve Contract for maintenance and modification of Three Special Purpose Aircraft]. PSAD-78-9; B-168450. November 10, 1977. 3 pp. Report to Secretary, Department of Defense; by Bichard . Gutmann, Director, Procurement and Systems Acquisition Div. Issue Area: Federal Procurement of cods and Services: Reasonableness of Prices Under Negotiated Contracts and Subcontracts (1904). Contact: Procurement and Systems Acquisition Div. Dudget Function: National Defense: Department of Defense - Procurement & Contracts (058). organization Concerned: Department of the Air orce; -Systems, Inc. Conqressional Relevance: ouse Committee on Arued Services; Senate Committee on Armed Services, Autbor.ty: P.L. 87-653. Examination of the pricing cf a negotiated, noncompetitive, ixed-price incentive contract awarded to E-Systems, Inc., by the Aeronautical Systems Division of the Air Force Systems Command ir.dicated that the contract target price was overstated by as much as $1.4 million ecause contracting personnel did not adequately evaluate the proposal. The contract provided for the maintenance ad modification cf three special purpose C-135 aircraft, including programmed depot maintenance as well as design, fabrication, and installation of special electronic systems and equipment. indings/Conclusions: The Government evaluators accepted, without dequate evaluation, questionable allowances for labor hours and an understated sales forecast as the basis for overhead rates, he questionable labor hours were related to a beak in production and othex schedule chanqes. The evaluators also did not identify inconsistencies in E-Systems' application of learning curves. About $100,000 of the overstated cost resulted because E-Systems did not adequately disclose estimating methods. Air Force officials believe that the cutcome of this contract, an underrun of sli'htly over 8, is within the bounds of a well-evaluated and negotiated incentive contract. They also recognize opportunities for improving evaluation of priced proposals. The Air Ecrce has initiated a review to determin . whether B-Systems' failure to adequately disclose certain estimating procedures should entitle the Government to an adjustment in contract price. (Authcr/SC) UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 205'3 PIOCUMMII AND YUTaMS AC.UIIFION DIVISION B-16845t Nov AO 1,7 e-I '~;· The Honorable 0 The Se,:retary of 'e!fense Dear Mr. Secretary: We h:ne examined the pricing of contract F33657-74-C-0597--a negotiated, noncompetitive, fixed-price incentive contract-awarded to E-Systems, Inc., Greenville, Texas, by the Aeronautical Systems Division, Air Force Systems Command. This contract, awarded July 29, 1974, provided for maintenance and modification of three special purpose C-135 aircraft including programmed depot maintenance as well as design, fabrication, ad installation of special electronic systers and equipment. A target price of $14,990,000 was negotiated. The objective of the review was to determ.ne whet.er (1) the contracting officer obtained cost or pricing data tc suport the proposed contract price, (2) data obtained was evaluated and relied on in negotiating the contract price, and (3) the price negotiated was reasonable based on cost or pricing data available to the con- tractor at the time c negotiations. With certain exceptions, PuLllc Law 87-653 and the Armed Services Procurement Regulation require that contracting officers obtain from contractors cost or pricing data to support proposed prices for negotiated noncompetitive contracts expected to exceed $100,000. Contractors are required to certify that cost or pricing data used as a basis for --ntiating contract prices is accurate, curzent, and complete. A c. X inserted in the contracts giving the Go-ernment a right to reco a -' actors any amount by which the contract price is oversta, ; its rel.lnce on inaccurate, noncurrent, or incomplete data . iata). We believe the c target prics was overstated by as much as $1.4 million beca, acting personnel did not adequately evaluate E-Systems' propobs.. The Government evaluators accepted, without adequate evaluation, questionable allowances for labor hours and an understated sales forecast as the basis for overhead rates. The questionable labor hours were related to a break in production ann other schedule changes. The evaluators also did not identify PSAD-78-9 (950378) B-168450 inconsistencies in E-Systema' application of learning curves. Approximately $100,000 of the overstated ccst resulted because E-Systems aid not adequatrly disclose estimating methods. Details of our observations, findings, and aly-sis were pro- vided to officials of the headquarters 2750th Air Base Wing, Air Force Logistics Command, current manager of the contract. For this reason, details are not being restated in this report. The Air Force officials believe the outcome of this contract, an underrun of slightly over 8 percent, is within the bounds of a well evaluated and negotiated incentive contract. These officials also recognized opportunities for improving evaluation of priced proposals. Specifically, they statee: "Pzocedures under hich evaluation of tis contract vere accomplished have been improved. A a result later technical evaluations have been steadily more penetrating and comprehensive. Since we recognize the need for continuity of the methods employed and for a basis upon which to build improved techniques, our evaluations f major contract proposals are now accomplished by a team based upon a cadre of two officers and one senior NCO." "In addition to the solid core of experience and evaluation methodology resulting from his cadre, the project engineer and quality assu-ance inspector for the contract being evaluated participate to pro- vide specific technical guidance on the project:- oriented details of the proposal. We are confident that this system will provide for continuous improve- ment of the effectiveness of the technically cogniz-nt agency of the collocated Government team." Additionally, the Commander of the Headquarters 2750th Air Base Wing informed us that a review has been initiated'to determine whether E-Systcms' failure to adequately disclose certain estimating pcedures should entitle the Government to an adjustment in contract price. E-Systems officials reviewed our findings on its supporting cost or pricing data and acknowledged that its use of certain improvement curves in estimating cost for the proposal had not been disclosed. E-Systems does not acknowledge, however, the Government's entitlement to a price adjustment because of the error. Rather, E-Systems believes a basis for cffset may exist. 2 B-168450 We would appreciate receiving a copy of the report, and your assessment thereof, on the review initiated to determine whether he Government is entitled to a price adjustment for contract 33657-74-C- 0597. We are sending copies of this report to the Secretary of the Air Force, and the Commander of the Air Force Aeronautical System Division. We are also sending copies of this report to the Chairmen o the House Committee on Government Operations and the Senate Committee on Govern- ment Affairs, and to the Chairmen of the House and Senate Comittees on Appropriations and Armed Services. Sincerely yours, W. Gutlann Director 3
Pricing of a Noncompetitive, Fixed-Price Incentive Contract for Maintenance and Modification of Three Special Purpose Aircraft
Published by the Government Accountability Office on 1977-11-10.
Below is a raw (and likely hideous) rendition of the original report. (PDF)