Report | Oct. 19, 2012

Defense Logistics Agency Could Improve Its Oversight of the Maintenance, Repair, and Operations Prime Vendor Contract for Korea (Redacted)

DODIG-2013-006

What We Did

We performed the audit at the request of the Chairman, U.S. House of Representatives Subcommittee on National Security and Foreign Affairs, Committee on Oversight and Government Reform. Our objective was to determine whether the Maintenance, Repair, and Operations prime vendor contractor for South Korea, Universal Services (now Sodexo Remote Sites) received volume discount savings or rebates for items associated with contract SPM500-05-D-BP07, and if so, determine whether the prime vendor credited these savings and rebates to DoD.

What We Found

The prime vendor obtained volume discounts through price competition on items purchased for DoD and credited those discounts to DoD. Additionally, the prime vendor did not seek rebates related to the Maintenance, Repair, and Operations prime vendor contract purchases and returned thos rebates it received in error. However, DefenseLogistics Agency (DLA) Troop Support, Construction and Equipment Directorate contract management personnel did not consistently monitor airfreight charges and fixed markup fees the prime vendor charged to DoD for purchases made under the Maintenance, Repair, and Operations prime vendor contract.

Specifically, DLA Troop Support Construction and Equipment contract management personnel did not:

  • review and approve delivery orders withairfreight charges, or
  • verify that delivery orders with fixed fee markup pricing complied with the maximum contractually established markup rate.

This occurred because DLA Troop Support Construction and Equipment contract management personnel did not have adequate purchase review and approval procedures in place. As a result, the prime vendor charged questionable costs of $200,224 for purchases the prime vendor made between May 10, 2010, and August 1, 2011. The total amount of questioned costs may be greater if all the delivery orders that occurred on the 7-year contract were reviewed.

What We Recommend

Among other recommendations, we recommended that the Director, DLA Troop Support, establish procedures to identify, analyze, and determine the allowability of delivery orders that include airfreight and fixed markup fees.

Management Comments and Our Response

The Director, DLA Troop Support, agreed with our recommendations. We considered their commentsto be responsive.