March 31, 2015 —
The objective of the audit was to provide DoD information on contracting problems with spare-parts pricing and inventory that the DoD Office of Inspector General (OIG) identified and reported. This report includes contracting problems with spare-parts pricing. Contracting problems with spare-parts inventory is discussed in report number DODIG-2015-104, “Summary Spare-Parts Inventory Audits: Additional Guidance is Needed,” March 31, 2015.
DoD did not have adequate processes to obtain fair and reasonable prices for spare parts. Since 1998, DoD OIG has issued 32 reports related to spare-parts pricing. In 3 of the 32 reports, DoD obtained fair and reasonable prices for spare parts. However, 20 of the 32 reports 1 identified that DoD did not receive fair and reasonable prices for spare parts. This occurred because DoD did not perform adequate cost or price analysis when it purchased commercial and noncommercial spare parts. As a result, DoD overspent approximately $154.9 million more than fair and reasonable prices for numerous spare parts. At the time of the reports, DoD potentially spent an additional $282.8 million more than fair and reasonable prices for numerous spare parts based on expected use for future years. In addition, for 18 of the 32 reports, DoD OIG identified additional, nonrecurring problems with spare-parts pricing.
The Director, Defense Pricing and the Director, Defense Procurement and Acquisition Policy (DPAP) were aware of the ongoing spare-part pricing problems. The Director,Defense Pricing, in conjunction with the Director, DPAP, issued a policy memorandum, “Commercial items and the Determination of Reasonableness of Price for Commercial Items,” on February 4, 2015. Also, the Director, Defense Pricing and Director, DPAP planned to:
- issue proposed Defense Financial Regulations Supplement rule 2013-D034 on Evaluating Price Reasonableness for Commercial Items;
- update the DoD commercial item handbook;
- coordinate with the Defense Contract Management Agency to introduce the Commercial Item Module in the Contractor Business Analysis Repository system; and
- hold training sessions for pricing analysts in 2015.
We recommend the Director, Defense Pricing, in conjunction with the Director, DPAP, finalize and issue policies to the Military Services and Defense Agencies that reiterate and strengthen the Federal Acquisition Regulation and the Defense Federal Acquisition Regulation Supplement requirements to obtain fair and reasonable prices when purchasing spare parts and require the Military Services and Defense Agencies to provide plans on how they intend to verify the consistent implementation of pricing policies, guidance, and training issued by the Office of the Secretary of Defense.
Management Comments and Our Response
The Director, Defense Pricing, addressed the specifics of the recommendations, and no further comments are required.
1 Number of reports will not add to 32 since some reports fall in multiple categories.
This report is a result of D2014-D000AT-0215.000.