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Report | June 7, 2013

Improved Guidance Needed to Obtain Fair and Reasonable Prices for Sole-Source Spare Parts Procured By the Defense Logistics Agency From The Boeing Company (Redacted)


What We Did

The objective of the audit was to determine whether Defense Logistics Agency (DLA) Aviation obtained best value and purchased sole-source spare parts at fair and reasonable prices from The Boeing Company (Boeing). We reviewed contract actions associated with SPM4A1-09-G-0004 and SPM400-02-D-9407 that were awarded to Boeing. Specifically, we reviewed costs for 60 spare parts on 2,659 delivery orders, valued at about $81.1 million, to determine if DLA Aviation received a fair and reasonable price.

What We Found

DLA Aviation contracting officers did not negotiate fair and reasonable prices on 1,469 delivery orders, valued at $27.2 million, thereby not getting best value for the Government. Pricing problems occurred because DLA Aviation contracting officers did not conduct a fair and reasonable price analysis. In addition, DLA Aviation guidance did not require contracting officers to:

  • obtain and review contractor purchase order histories when determining fair and reasonable prices, or to
  • complete a subsequent review of pricing for spare parts after the parts were initially placed on long-term contracts, as allowed by the contract.

Furthermore, Boeing did not maintain complete cost and pricing data for 20 delivery orders, valued at $3.4 million, because contracting officers did not conduct adequate contract oversight.

As a result, DLA Aviation paid approximately $13.7 million in excess of fair and reasonable prices for 1,469 delivery orders. DLA Aviation also may have made payments in excess of the fair and reasonable price for an additional 20 delivery orders. If prices are not corrected, DLA Aviation will continue to overpay on future sole-source spare parts procured from Boeing on SPM4A1-09-G-0004 and SPM400-02-D-9407.

What We Recommend

We recommend the Director, DLA implement available options to recover from Boeing the overpayment of approximately $13.7 million; renegotiate prices for overpaid parts; revise “DLA Aviation Acquisition Procedures” to require contracting officers to obtain and review contractor purchase orders histories when determining fair and reasonable prices for solesource acquisitions and complete periodic reviews of the contractor’s cost basis for spare parts purchased multiple times on a long-term contract; and conduct periodic evaluations of contract files for long-term contracts to verify that the contractor maintained contract data.

Management Comments and Our Response

Comments from the Director, Defense Logistics Agency, Acquisition, were responsive and no additional comments are required.

This report is a result of Project No. D2012-D000AT-0199.000.