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Army Contracting Officials CouldHave Purchased Husky MountedDetection System Spare Parts atLower Prices (Redacted)

DODIG-2016-074

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Objective

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 reasonable prices.

Finding

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 ACC‑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, ACC‑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.

Recommendations

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 indefinite‑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 Our Response

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.