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Authorization of DoD Progress Payments For Ground Combat Vehicle Contracts Needs Improvement

DODIG-2014-039

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Objective

We determined whether DoD officials authorized and administered progress payments in DoD contracts in accordance with selected Federal Acquisition Regulation (FAR) and DoD policies. We examined progress payments for two contracts for the Ground Combat Vehicle (GCV) Technology Development Phase.  

Findings

U.S. Army Contracting Command–Warren (ACC–Warren) procurement contracting officers (PCOs) inappropriately permitted unusual contract financing when they modified two GCV development contracts with award values totaling $889.7 million. The contract modifications authorized the contractors to receive additional financing payments, although the contracts already included customary progress payments.  

In addition, the PCOs did not follow FAR and DoD guidance when negotiating consideration for the modifications. This occurred because the PCOs misunderstood the proper use and approval of contract financing payments. In one instance the PCO disregarded advice from the administrative contracting officer that the proposed contract actions did not comply with the FAR.  

As a result, ACC–Warren PCOs provided two DoD contractors the ability to obtain $110 million more in financing payments than were allowable under the FAR and increasing the effective progress payment rate above the 80 percent FAR threshold without proper approval. Additionally, ACC–Warren PCOs did not request or obtain an adequate amount of consideration. Using DoD guidance, the PCOs should have requested at least an additional $1.3 million in consideration from the contractors.  

Recommendations

Among other recommendations, the Executive Director, U.S. ACC–Warren, should:  

  • review and initiate contracting actions to ensure the GCV contracts comply with the FAR contract financing requirements;  
  • issue internal guidance that prohibits the authorization of contracts containing both progress payments and performance-based payments, and  
  • consider appropriate action against the PCOs, including requiring additional contracting officer training.  

Management Comments

Comments from the Director, Defense Procurement and Acquisition Policy addressed all of the specifics of the recommendation. As a result of the Director’s comments, we are referring Recommendation 2 to the Director, Defense Pricing. Since the Director, Defense Procurement and Acquisition Policy coordinated with the Director, Defense Pricing to implement the recommendation we are not requesting additional comments. Comments from the Executive Director, ACC–Warren, were generally responsive. However, comments on Recommendations 1.d and 1.e did not adequately address the recommendations. Because the contract ends in less than six months, we do not request additional comments.

This report is a result of Project No. D2013-D000DD-0135.000.