May 8, 2015 —
Our objective was to determine whether the Defense Logistics Agency (DLA) purchased sole-source commercial spare parts from Meggitt Aircraft Braking Systems (MABS) Corporation at fair and reasonable prices.
The DLA Aviation contracting officer did not obtain fair and reasonable prices for 51 of 54 statistically sampled sole-source commercial spare parts procured from the MABS companies. This occurred because the contracting officer did not conduct sufficient price analysis in accordance with federal and defense acquisition regulations. Specifically, the DLA Aviation contracting officer:
- relied on previous over-inflated contract prices to determine the 2013 contract prices;
- did not sufficiently analyze the “commercial of a type” parts1 to determine whether the sales of comparable parts supported the contract prices;
- accepted excessive prices for new quantity ranges; and
- did not compare commercial sales to Government sales to determine whether sales were sufficient to support commercial part prices.
In addition, the contracting officer did not obtain cost data or perform a cost analysis on parts with prices that were not supported by the commercial sales data. The contracting officer also included language in a contract clause that limited DLA Aviation’s ability to fully negotiate prices of parts added after the initial contract award.
As a result, DLA potentially overpaid MABS companies approximately $8.5 of $17 million paid for 32 sole-source commercial spare parts reviewed. In addition, DLA may overpay as much as $70.5 million on 47 of 51 parts over the remaining term of the contract. When projected across the contract for all 5 years, DLA will overpay approximately $106.8 of $294.9 million (see Appendix E).
The Director, Defense Pricing, should issue guidance to establish a percentage of commercial sales that is sufficient to determine fair and reasonable prices when commercial items are acquired on a sole-source contract. In addition, the Director should assess and issue guidance to prohibit contracting officers from placing clauses in sole-source commercial contracts that limit DoD’s ability to obtain cost data.
The Director, DLA, should establish quality assurance processes to ensure that contracting officials elevate data request denials to the appropriate level. In addition, the Director should assess the contract clause that states cost data is not required and should review the contracting officer’s performance and, as appropriate, initiate administrative action.
The Director, DLA, should also require the contracting officer to establish fair and reasonable pricing for future parts added to the 2013 contracts and all future sole-source contracts with MABS for commercial parts by performing a thorough review of previous prices, sales data, and requesting “other than certified cost or pricing data,” to include cost data, when commercial sales data are not sufficient to determine fair and reasonable prices for sole-source commercial parts.
Management Comments and Our Response
The Director, Defense Pricing, and the Director, DLA Acquisition, responding for the Director, DLA, agreed with the recommendations. The comments addressed the specifics of the recommendations, and no further comments are required.
Commercial of a type parts are items similar to those sold to the commercial market but have been slightly modified to meet DoD requirements
This report is a result of Project No. D2014-D000AH-0180.000.