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Hotline Allegation Regarding the Actions of a Defense Contract Management Agency Contracting Officer on a Subcontractor’s Termination Settlement Proposal DODIG-2018-128

DODIG-2018-128

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Objective:

We evaluated a Defense Hotline allegation that a Defense Contract Management Agency (DCMA) termination contracting officer (hereafter referred to as “DCMA Contracting Officer”) failed to comply with the Federal Acquisition Regulation (FAR) and the contract terms when she did not uphold any of the Defense Contract Audit Agency’s (DCAA) questioned costs of $825,910 identified in the DCAA audit of an Air Force subcontractor’s termination settlement proposal of $1,860,001. It was also alleged that the DCMA Contracting Officer authorized the full payment of $1,860,001 to the subcontractor.

Background:

On December 18, 2009, an Air Force termination contracting officer issued a notice of partial contract termination for convenience regarding the subcontract for the purchase of titanium for the F-22 aircraft fuselage.

On November 5, 2012, the Air Force termination contracting officer requested that DCAA audit the subcontractor’s termination settlement proposal. The audit objective was to examine the subcontractor’s proposed termination costs for compliance with the FAR and the contract terms.

On April 29, 2014, DCAA issued the audit report to the Air Force termination contracting officer. The audit report stated that the subcontractor’s termination settlement proposal and supporting data did not comply with the FAR and identified $825,910 in unallowable costs.

In accordance with the FAR, DCMA was responsible for negotiating the subcontractor’s termination settlement proposal and addressing the DCAA-questioned costs of $825,910. On April 28, 2016, the DCMA Contracting Officer authorized the full amount of the termination settlement proposal of $1,860,001 requested by the subcontractor. By authorizing full payment, the DCMA Contracting Officer did not uphold any of the DCAA-questioned costs.

Finding:

We determined that the DCMA Contracting Officer failed to comply with the FAR and the contract terms when she did not uphold the DCAA-questioned costs of $825,910. We also determined that the DCMA Contracting Officer did not take reasonable steps to ensure that only allowable costs were reimbursed to the subcontractor. Of the $825,910, the DCMA Contracting Officer did not ensure that:

  • $353,577 in subcontract costs complied with FAR Clause 52.242-15, “Stop-Work Order,” and
  • $472,333 in subcontract costs complied with FAR 31.201-2, “Allowability.”

In addition, the DCMA Contracting Officer did not prepare a price negotiation memorandum to document the reason for not upholding the DCAA-questioned costs, as FAR 15.406-3, “Documenting the Negotiation” requires.

We also determined that the DCMA Contracting Officer lacked experience in negotiating DCAA-questioned costs. Additionally, the DCMA Contracting Officer was not adequately supervised. We concluded that the lack of experience and supervision contributed to her not complying with the FAR and reimbursing the subcontractor $825,910 in termination costs.

During our review, DCMA took corrective actions. Specifically, the DCMA contracting Officer’s current supervisor:

  • rescended the DCMA Contracting Officer's warrant,
  • conducted one-on-one coaching sessions with the DCMA Contracting Officer,
  • conducted training to all DCMA Terminations Group contracting officers located in her area of responsibility, including the Dallas, Texas, and Carson, California, field offices, and
  • verified that the DCMA Contracting Officer had not performed any other contract negotiations.

Recommendations:

We recommend that the Defense Contract Management Agency Director, through the Terminations Group Director:

  • determine the allowability of the subcontractor’s costs questioned by Defense Contract Audit Agency and
  • take reasonable steps to recover any unallowable costs reimbursed to the subcontractor.

Management Comments and Our Response:

The DCMA Director agreed with our recommendation to determine the allowability of the subcontractor’s costs questioned by DCAA. DCMA reviewed the DCAA audit information and the subcontractor’s termination proposal and determined that the DCAA-questioned subcontract costs of $825,910 were unallowable. Therefore, the recommendation is closed.

The DCMA Director also agreed with our recommendation to take reasonable steps to recover any unallowable cost reimbursed to the subcontractor. The DCMA Contracting Officer issued a request for a voluntarily refund to the prime contractor. However, the contractor declined the request because the signed contract modification settling the termination costs was final and because the contractor had already paid the subcontractor. DCMA determined that, because the DCMA Contracting Officer acted within the scope of her official duties, the Government is bound by the finality of her actions and, as a result, the funds cannot be recouped. Therefore, the recommendation is closed.

This report is a result of Project No. D2017-DAPOCM-0138.000.