The objective of the audit was to determine whether U.S. Air Force (AF) officials used cost effective measures to sustain the F117 engine. This report is the first in a series that will address this objective. For this report, we focused on evaluating whether the AF’s commerciality determination for F117 engine fleet management program (sustainment) services provided by Pratt and Whitney was supported. A commerciality determination is critical because it affects the type of cost or pricing information needed to support contract negotiations and develop the Government’s negotiation position. Pratt and Whitney F117 engines power the C-17 aircraft.
AF contracting officers did not support their determinations that the sustainment services for the F117 engine obtained through the GISP contract were, in fact, commercial services. The AF acquired the sustainment services as sole-source, commercial services. However, the AF contracting officers did not assess whether a commercial market existed for those services. This occurred because the contracting officers accepted Boeing’s and Pratt and Whitney’s commerciality claims and AF engineers’ opinions on commerciality without evaluating the research and rationale used to conclude that the sustainment services met the Federal Acquisition Regulation commercial item definition.
In commercial, sole-source situations, suppliers may exploit the lack of competitive markets and demand unreasonable prices. In this case, Pratt and Whitney increased its negotiation leverage by refusing to provide critical information that the AF needed to evaluate the prices for the F117 engine sustainment services labeled as commercial. Without that information, the AF does not know whether the $1.54 billion already spent on the GISP contract through October 2014 for F117 engine sustainment services or if the estimated billions of dollars it intends to spend over the next 7 years is a fair and reasonable price.
We recommend that the Assistant Secretary of the Air Force (Acquisition) require the contracting officer to obtain the necessary documentation to support the commerciality of the F117 engine sustainment service to be acquired in the FY 2015 through FY 2017 GISP contract option and any future contracts. If adequate support is not obtained, the contracting officer should deem the service noncommercial. The contracting officer should also report Pratt and Whitney’s refusal to provide requested information. We also recommend that the Assistant Secretary prepare a written plan that allows for the development of a competitive market for F117 engine sustainment.
We recommend that the Director, Defense Pricing establish policy for oversight of future AF contracts or subcontracts with Pratt and Whitney and establish policy to instruct contracting officials as to what circumstances a contractor’s modified invoices would be acceptable as support for determining commerciality or fair and reasonable prices. The Director should not allow the AF to contract with Pratt and Whitney for F117 engine sustainment services unless Pratt and Whitney provides the necessary information to support commerciality or fair and reasonable price determinations. We recommend that the Director, Contracting Directorate, Air Force Life Cycle Management Center, perform a quality review of Air Force Life Cycle Management Center contracting officials’ compliance with the specified regulations for commerciality determinations and consider corrective actions as appropriate.
This report is a result of Project No. D2014-D000AG-0133.000.