Audit Report

02-16-2016
Acquisition Processes and Contract Management
Defense Logistics Agency Did Not Appropriately Determine Fair and Reasonable Prices for F108 Engine Sole-Source Commercial Parts (Project No. D2015-D000AH-0180.000)
DODIG-2016-047
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Objective

Our objective was to determine whether Defense Logistics Agency (DLA) purchased sole-source commercial spare parts at fair and reasonable prices from CFM International.

Finding

The DLA Aviation contracting officer did not appropriately determine fair and reasonable prices for sole-source commercial spare parts purchased from CFM International. This occurred because the contracting officer did not conduct a sufficient price analysis. Specifically, the contracting officer:

  • relied on sales data that did not include customer names;
  • did not review commercial sales quantities; and
  • accepted prices for sole-source commercial parts with no commercial sales.

Further, the contracting officer did not question the commercial off-the-shelf classification for parts with no commercial sales, and did not require CFM International to comply with a contract requirement to submit negotiation documentation within stated timelines. In addition, the contracting officer’s supervisor did not provide adequate oversight and the contracting officer did not elevate contract negotiation problems. As a result, the contracting officer did not request or obtain additional data necessary to determine if the maximum value contract price of nearly $1 billion was fair and reasonable.

Management Action

We briefed the Deputy Commander, DLA Aviation, on our preliminary concerns and he took immediate action. The Deputy Commander requested that CFM provide its updated commercial catalog and un-redacted sales data for option year 4 no later than August 1, 2015, as required by the contract. The Deputy Commander also requested other‑than‑certified cost and pricing data for any parts that do not have commercial sales. CFM agreed and provided its catalog on August 4, 2015. However, CFM provided sales data that did not include customer names. Therefore, the contracting officer requested Defense Contract Management Agency assistance to validate the sales data and to verify whether similar parts that CFM provided to support the prices of parts on contract were appropriate for comparison.

Recommendations

We recommend that the Director, DLA, require the contracting officer to review the classification of the parts with no commercial sales to determine whether the commercial off‑the-shelf classification is appropriate before awarding the next CFM International contract. In addition, the Director should review existing controls for contracting officer oversight, provide additional training on sole-source commercial acquisitions, review the performance of the DLA contracting officer, and take administrative action as appropriate for not following the Federal Acquisition Regulation and defense acquisition guidance.

Management Comments and Our Response

Comments from the Director, DLA Acquisition, responding for the Director, DLA, addressed Recommendations a, b, and c. However, the Director did not address the specifics of Recommendation d. Therefore, we request additional comments to the final report by March 17, 2016.

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