Audit Report

07-07-2014
Acquisition Processes and Contract Management
Defense Logistics Agency Aviation Potentially Overpaid Bell Helicopter for Sole-Source Commercial Spare Parts (Redacted) (Project No. D2013-D000CH-0151.000)
DODIG-2014-088

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Objective

We determined whether the Defense Logistics Agency (DLA) was purchasing sole-source commercial parts at fair and reasonable prices from Bell Helicopter Textron (Bell). We selected a nonstatistical sample to perform price analysis, sales analysis, and cost analysis to determine whether the prices were fair and reasonable.

Finding

The contracting officer did not sufficiently determine whether prices were fair and reasonable for sole-source commercial parts negotiated on contract SPE4AX-12-D-9005. This occurred because the contracting officer did not perform an adequate analysis when procuring sole-source commercial parts. Specifically, the contracting officer used the previous DoD purchase price without performing historical price analysis and accepted Bell’s market-based pricing strategy in a noncompetitive environment without performing a sufficient sales analysis. As a result, the contracting officer did not obtain cost data to perform cost analysis, and DLA potentially overpaid Bell about $9 million on 33 of 35 sole-source commercial spare parts reviewed. In addition, DLA may overpay as much as $2.6 million over the next 12 months on future orders under this contract.

Recommendations

The Director, Defense Pricing, should issue guidance to establish a percentage of commercial sales that is sufficient to determine fair and reasonable prices when items are being acquired on a sole-source contract and market-based prices are used. The guidance should also require contracting officers to request “information other than cost or pricing data,” to include cost data, if sales data are not sufficient.

The Director, DLA, should:

  • establish a quality assurance process that reviews whether the contracting officer verifies and documents that sufficient analysis was performed to determine that the previous prices paid were fair and reasonable when conducting price analysis, in accordance with DFARS PGI 215.403-3(4);
  • require the contracting officer to establish pricing for the 2-year extension for contract SPE4AX-12-D-9005 and future sole-source contracts with Bell for commercial parts by performing an adequate review of historical prices, sales data, and requesting “other than cost or pricing data” when commercial sales are not sufficient to support the use of a market-based pricing approach for sole-source commercial parts;
  • require the contracting officer to assess and implement available options to voluntarily recover from Bell about $9 million in excessive payments; and
  • require the contracting officer to perform a sales analysis and, if necessary, a cost analysis, on the remaining sole-source commercial spare parts on contract SPE4AX-12-D-9005 and request a voluntary refund from Bell for any identified overpayments.

Management Comments

Comments from the Director, Defense Pricing, addressed Recommendation 1. No further comments are required. Comments from the Director, DLA addressed Recommendation 2.a, but did not address Recommendation 2.b.(2) and partially addressed Recommendations 2.b.(1) and 2.b.(3).


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