Report | June 25, 2015

Improvements Needed on DoD Procurements fromRobertson Fuel Systems (Redacted)

DODIG-2015-137

Objective

Our objective was to determine whether DoD effectively procured items from Robertson Fuel Systems (Robertson). Specifically, we reviewed the commercial item determination and impact a sole-source, commercial procurement strategy had on the fair and reasonable price determination.

Finding

DoD did not effectively procure fuel systems and parts from Robertson on the nine nonstatistically selected, sole-source contracts reviewed. Specifically, contracting officers could not support the commercial item or fair and reasonable price determinations because contracting officers did not:

  • have clear guidance when they made commercial item determinations and identified a minor modification, specifically when no evidence of commercial sales existed for items purchased on six contracts;
  • obtain certified cost or pricing data or a waiver for items determined noncommercial on three contracts;
  • request, or Robertson refused to provide, other-than-certified cost or pricing data for eight contracts; and
  • perform adequate price analysis on eight contracts.

As a result, contracting officers applied the commercial item definition to items procured on Robertson sole-source contracts without evidence of commercial sales and without evidence that the item was of a type customarily used by the general public. This inhibited the contracting officers’ ability to develop an effective bargaining position and gave the contractor significant control in contract negotiations. In addition, DoD did not obtain the necessary data to determine if the $77 million it spent on these contracts was fair and reasonable.

The Director, Defense Pricing made efforts to improve this area. For one of the nine contracts we reviewed, the Director’s involvement resulted in the Army using a Navy Price Fighters “should cost” analysis in their negotiations with Robertson. As a result of these negotiations, Robertson accepted an amount less than its original proposal.

Recommendations

We recommend that the Under Secretary of Defense for Acquisition, Technology, and Logistics issue guidance to clarify the commercial item definition in a sole-source environment when no evidence of commercial sales existed and provide clarification on when a commercial item modification is minor. We recommend that the Director, Defense Logistics Agency; Commanding General, U.S. Army Contracting Command; and Assistant Commander for Contracts, Naval Air Systems Command require the contracting officers to:

  • obtain adequate documentation to support the commerciality of Robertson’s products or deem the items noncommercial;
  • obtain additional cost data or report Robertson’s refusal to provide cost data in the contract files and to the head of the contracting activity; and
  • initiate “should cost” analyses on all sole-source contracts when Robertson refuses to provide cost or pricing data.

Management Comments and Our Response

We received comments from the Director, Defense Pricing; Director, Defense Logistics Agency Acquisition; Acting Executive Deputy to the Commanding General, U.S. Army Materiel Command; and Deputy Assistant Secretary of the Navy (Acquisition and Procurement). Comments addressed all specifics of the recommendations, and no further comments are required.