Report | July 11, 2014

Navy and Marine Corps Have Weak Procurement Processes for Cost-Reimbursement Contract Issuance and Management

DODIG-2014-092

Objective

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 Navy and Marine Corps complied with interim Federal Acquisition Regulation (FAR) revisions on the use of cost-reimbursement contracts. This is the fourth in a series of reports on DoD compliance with the interim rule for the use of cost-reimbursement contracts. We reviewed a nonstatistical sample of 170 contracts (77 basic contracts and 93 orders) out of 9,973 Navy and Marine Corps contract actions, valued at over $32 billion from March 17, 2011, through February 29, 2012.

Finding

Of the 170 contracts reviewed, valued at about $7.7 billion, Navy and Marine Corps contracting personnel did not consistently implement the FAR revisions, called the interim rule, for 134 contracts, valued at about $7.54 billion. Contracting personnel issued contracts that did not follow the interim rule because they were not clear about interim rule requirements or were unaware of the interim rule. As a result, contracting personnel continue to issue cost-reimbursement contracts that may increase DoD’s contracting risks because cost-reimbursement contracts provide less incentive for contractors to control costs. We also completed a subsequent review of 29 contracts at Naval Sea Systems Command Headquarters and Quantico Marine Corps Base approximately 1 year after our initial site visit and determined that minor improvements occurred with the contract issuance processes.

Recommendations

We recommend that Naval Sea Systems Command Headquarters and Naval Supply Center–San Diego emphasize FAR revisions to contracting personnel; include a statement on the contracting officer’s representative acceptance forms that the representative acknowledge and return the form with signature; and include documentation in the contract files discussing an assessment of the contractor’s accounting system. In addition, Naval Sea Systems Command Headquarters should establish better communication between the requiring component and contracting personnel. We recommend that Marine Corps Systems Command emphasize FAR revisions to contracting personnel for the use of cost-reimbursement contracts; establish better communication between the requiring component and contracting personnel; and develop controls to ensure that a contracting officer’s representative is assigned to each contract at award.

Management Comments and Our Response

We received comments from the Navy and Marine Corps in response to a draft report. The Navy and Marine Corps will revise policies and processes to better adhere to the interim rule requirements. Comments addressed all specifics of the recommendations, and no further comments are required.