March 31, 2016 —
Our objective was to determine whether the
Department of the Army was purchasing
sole-source spare parts for the Husky
Mounted Detection System (HMDS) at fair and
reasonable prices from NIITEK, Inc. (NIITEK).
We nonstatistically selected 13 of 340
HMDS spare parts to determine whether
the Department of the Army paid fair and
Contracting officials for the U.S. Army
Contracting Command−Aberdeen Proving
Ground (ACC-APG) generally obtained fair
and reasonable prices from NIITEK for
13 sole-source HMDS spare parts, valued at
$209 million. However, ACC-APG contracting
officials established the minimum quantity for
the HMDS contract as a dollar value, instead
of a number of spare parts, which limited
the contracting officials’ effectiveness in
obtaining lower prices for HMDS spare parts.
This occurred because ACC-APG contracting
officials did not use available spare part
estimates to establish a minimum number
of spare parts to purchase on the contract.
NIITEK could not effectively negotiate with
its suppliers until ACC-APG provided actual
order quantities, which occurred after
ACCâ€‘APG and NIITEK negotiated prices for
HMDS spare parts. NIITEK subsequently
negotiated significantly lower prices with its
suppliers. Instead of using available spare
part estimates to establish the contract
minimum, ACCâ€‘APG contracting officials established the
$50 million contract minimum for HMDS spare parts to
support 3 months of sustainment because it allowed them
flexibility to adjust order quantities if needed. As a result,
ACC-APG contracting officials likely paid NIITEK $27 million
more than they would have paid for those 13 spare parts if
the contract minimum was based on a number of spare parts,
instead of a dollar value.
We recommend that the Executive Director, ACC-APG, require
contracting officials to assess available spare part estimates
and determine and document whether establishing the
minimum quantity limit as a dollar value or number of units
would be more effective in obtaining fair and reasonable prices,
when appropriate, on firm-fixed-price, indefinite-delivery
indefiniteâ€‘quantity contracts for spare parts. In addition, we
recommend the Executive Director determine and document
whether it is appropriate to request a $27 million voluntary
refund from NIITEK for sole-source HMDS spare parts, in
accordance with the Defense acquisition regulation.
Management Comments and
Comments from the Acting Deputy to the Command General,
U.S. Army Contract Command, responding for the Executive
Director, Army Contracting Command−Aberdeen Proving
Ground, addressed all specifics of the recommendations
and no further comments are required.
This report is a result of Project No. D2015-D000AH-0225.000.