Report | Sept. 12, 2014

Complaint Regarding the Use of Audit Results on a $1 Billion Missile Defense Agency Contract

DODIG-2014-115

Objective

We conducted this evaluation to determine the validity of a complaint alleging that Missile Defense Agency (MDA) negotiated a $1 billion contract without considering the audit results from Defense Contract Audit Agency (DCAA).

Results

We substantiated the complaint. MDA contracting officials negotiated the $1 billion contract without considering the results of an audit performed by DCAA. If MDA officials had considered the DCAA results, the Government could have negotiated a significantly lower contract value and thereby saved millions of dollars in reduced contract fees. Although MDA officials had requested a DCAA audit, they did not wait for the results and withheld key information from DCAA. MDA officials also did not consider the impact of the contractor’s business system deficiencies, as Federal Acquisition Regulation 15.406-3(a)(4), “Documenting the Negotiation,” requires.

In addition, MDA officials failed to withhold approximately $73 million from the contractor’s billings, as Federal Acquisition Regulation Clause 52.216-26, “Payments of Allowable Costs Before Definitization,” requires.

Management Actions and Recommendations

During the evaluation, MDA took action to develop procedures for improving its communications with DCAA and ensuring appropriate consideration of DCAA audit results.  We will monitor the effectiveness of the procedures.

We recommend that MDA consider appropriate corrective and/or administrative action for not maintaining effective communications with DCAA or using the audit results in establishing a fair and reasonable contract price.  We also recommend MDA provide training to contracting officials on the Federal Acquisition Regulation requirement to withhold a percentage of payments on undefinitized contracts.