Report | Aug. 23, 2013

Army Needs Better Processes to Justify and Manage Cost-Reimbursement Contracts



We are required to perform this audit in accordance with the FY 2009 National Defense Authorization Act, section 864, “Regulations on the Use of Cost Reimbursement Contracts.” Our objective was to determine whether the Army complied with interim Federal Acquisition Regulation (FAR) revisions on the use of cost-reimbursement contracts by documenting that approval for the costreimbursement contract was at least one level above the contracting officer; that cost-reimbursement 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 cost-reimbursement contract; and that contractors had an adequate accounting system in place during the entire contract. This is the second in a planned series of audit reports on DoD compliance with the interim rule for the use of cost-reimbursement contracts.  


Of the 161 contracts reviewed, valued at about $53.3 billion, Army contracting personnel at four sites did not consistently implement the interim rule for 107 contracts, valued at about $10.5 billion. Contracting personnel issued contracts that did not follow the interim rule because they were unaware of the rule. As a result, contracting personnel may increase the contracting risk because costreimbursement contracts provide less incentive for contractors to control costs. We identified internal control weaknesses for implementing the interim rule changes regarding the use of costreimbursement contracts.  


We recommend that the Assistant Secretary of the Army for Acquisition, Logistics, and Technology (ASA[ALT]) emphasize the importance of the FAR revisions to contracting personnel for the use of cost-reimbursement contracts; update Army guidance to eliminate the threshold for cost-type contracts and include the other three areas of the interim rule; consider issuing more hybrid contracts so that contract type can be selected on each task or delivery order; and establish better communication channels to identify opportunities to transition to firm-fixed-price contracts. We recommend that the Director, Army Contracting Command Redstone, establish procedures for contracting officers to document the possibility of transitioning to firm-fixed-price contracts each time a cost-reimbursement contract is used. We recommend that the Director of Contracting, Fort Huachuca Army Contracting Command – Aberdeen Proving Ground, reemphasize the requirement that contracting officers should determine that contractors have an adequate accounting system in place before issuing a cost-reimbursement contract.  

Management Comments and Our Response

ASA(ALT) agreed and issued the June 19, 2013, memorandum, “Implementation Directive for Better Buying Power 2.0 (BBP 2.0).” ASA(ALT) will also issue a Policy Alert to contracting personnel to emphasize the importance of BBP 2.0. Redstone agreed and will include procedures to document the possibility to transition to firm-fixed-price contracts in a Determination and Finding. Fort Huachuca agreed and included a requirement for assessing the contractor’s accounting system to be in pre-award documentation. We consider these comments to be responsive.

This report is a result of Project No. D2013-D000CG-0102.000.