Report | March 21, 2013

Air Force Needs Better Processes to Appropriately Justify and Manage Cost-Reimbursable Contracts

DODIG-2013-059

What We Did

We are required to perform this audit in accordance with the FY 2009 National Defense Authorization Act, section 864, “Regulation on the Use of Cost Reimbursement Contracts.” Our objectives were to determine whether Air Force complied with interim Federal Acquisition Regulation (FAR) revisions on the use of cost-reimbursable contracts by documenting: that approval for the costreimbursable contract was at least one level above the contracting officer; that costreimbursable contracts were justified; how the requirements under contract could transition to firm-fixed-price in the future; that Government resources were available to monitor the costreimbursable contract; and that contractors had an adequate accounting system in place during the entire contract. This is the first in a planned series of audit reports on DoD compliance with the interim rule for the use of cost-reimbursable contracts. 

What We Found
Of the 156 contracts reviewed, valued at about $10.5 billion, Air Force contracting personnel did not consistently implement the interim rule for 75 contracts, valued at about $8.8 billion. Air Force contracting personnel issued contracts that did not follow the interim rule because they were unaware of the rule, assumed it did not apply to task or delivery orders when the basic contract was issued before the rule, or did not document actions taken to conform to the rule. As a result, Air Force contracting personnel may
increase the Air Force’s risk because costreimbursable contracts provide less incentive for contractors to control costs. We identified internal control weaknesses for implementing the interim rule changes regarding the use of cost-reimbursable contracts.
 
What We Recommend
We recommend that the Deputy Assistant Secretary of the Air Force (Contracting) emphasize the FAR revisions to contracting personnel; consider issuing more hybridcontracts; establish better communication
channels to identify areas to transition to firm-fixed-price contracts; and require contracting officers to document instances where they maintained oversight functions. We recommend that the Director, Defense
Procurement and Acquisition Policy, initiate a process to reduce the potential contradiction between Defense Federal Acquisition Regulation Supplement 242.75 and FAR revisions. We recommend that Director of
Contracting, Warner Robins Air Force Sustainment Center, adjust templates to include approval above the contracting officer.
 
Management Comments and Our Response
The Deputy Assistant Secretary of the Air Force (Contracting) agreed and will issue clarifying memoranda and adjust templates used in the acquisition planning phase. We consider these comments responsive. The Director, Defense Procurement and Acquisition Policy agreed and will review potential contradictions. We consider these comments responsive. The Director of Contracts, Warner Robins Air Force Sustainment Center agreed and stated that they will require a Streamlined Acquisition Strategy Summary or a Determination and Findings for cost-reimbursable contracts, both of which document approval one level above the contracting officer. We consider these comments responsive.