Report | Nov. 7, 2014

DoD Needs to Improve Processes for Issuing and Managing Cost-Reimbursement Contracts

DODIG-2015-029

Objective

Our objective was to determine whether DoD complied with interim Federal Acquisition Regulation (FAR) revisions on the use of cost-reimbursement contracts. We performed this audit in accordance with the FY 2009 National Defense Authorization Act, section 864, “Regulations on the Use of Cost Reimbursement Contracts.” This summary report is the fifth and final in a series of reports on DoD compliance with the interim rule for the use of cost-reimbursement contracts.

Finding

Of the 604 contracts reviewed, valued at about $82.7 billion, contracting personnel did not consistently implement the FAR revisions, (the interim rule), for 411 contracts, valued at about $31.7 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.

Recommendations

We recommend that the Deputy Director, Contract Policy and International Contracting, Defense Procurement and Acquisition Policy, issue memorandums or other guidance specifically to:

  • reinforce current guidance or clarify when cost?reimbursement contracts should be approved one level above the contracting officer,
  • reinforce current regulations regarding the requirement to consider how a cost-reimbursement contract could transition to a firm-fixed-price contract in the future,
  • identify best practices to assess a contractor’s accounting system and codify the efforts that should be taken by contracting personnel to assess the adequacy of the contractor’s accounting system,
  • clarify whether FAR revisions are applicable to task and delivery orders issued on previously issued basic contracts,
  • discuss whether broader contracting policies are sufficient support to meet the increased criteria before issuing a cost-reimbursement contract, and
  • clarify to what extent initial decisions for a basic contract can be relied on for analysis on the subsequent orders and options pertaining to the contract.

Management Comments

We did not receive comments from the Deputy Director, Contract Policy and International Contracting, Defense Procurement and Acquisition Policy, in response to the draft report. We request that the Deputy Director comment on the final report.