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Evaluation of Contracting Officer Actions on Contractor Pricing Proposals Deemed Inadequate by Defense Contract Audit Agency DODIG-2019-019

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Objective:

We evaluated whether contracting officer actions were appropriate and consistent with the Federal Acquisition Regulation (FAR) when Defense Contract Audit Agency (DCAA) determined that a contractor price proposal was inadequate. As part of the evaluation, we selected 23 contractor price proposals valued at $6.4 billion that Air Force, Army, Navy, and Defense Logistics Agency contracting officers negotiated. DCAA determined that all 23 contractor price proposals were inadequate because they did not comply with FAR Subpart 15.4, “Contract Pricing.”

Background:

When contractors are required to submit certified cost or pricing data in accordance with FAR 15.403-4, “Requiring Certified Cost or Pricing Data,” contracting officers must obtain accurate, complete, and current data from a contractor to establish fair and reasonable prices for Government contracts. Generally, the cost or pricing data that the contractor submits in support of its price proposal must comply with the requirements in FAR Table 15-2, “Instructions for Submitting Cost/Price Proposals When Certified Cost or Pricing Data are Required.” The table provides general instructions for preparing price proposals, including how to identify basic cost elements and line item summaries.

The contracting officer is responsible for determining the extent of support required to evaluate a contractor’s price proposal, including whether the contracting officer should request a DCAA audit. If the contracting officer requests an audit, DCAA first determines whether the contractor’s price proposal complies with the FAR requirements. If it does not, DCAA issues a memorandum to the contracting officer that identifies the noncompliance areas and the actions required to correct them.

For all 23 contractor price proposals we evaluated, DCAA advised the contracting officers that the proposals did not comply with the FAR requirements, including FAR Table 15-2.

FAR 15.406-3, “Documenting the Negotiation,” requires that contracting officers document in the contract file the principal elements of the negotiated agreement. For example, FAR requires that contracting officers document any cost or pricing data inadequacies identified by DCAA and the actions taken to address the inadequacies.

Findings:

For all 23 contractor price proposals, the contracting officers took appropriate actions to address the proposal inadequacies identified by DCAA. However, for 9 of the 23 proposals, contracting officers did not comply with the FAR requirements for documenting the negotiation because they did not adequately document the contractor price proposal inadequacies or the actions taken to address the inadequacies in the contract file. Without adequate documentation, the contracting officers could not readily demonstrate that they had appropriately addressed the contractor price proposal inadequacies before they negotiated a fair and reasonable price with the contractor. We determined that a lack of DoD policy and instruction contributed to contracting officers not adequately documenting their actions. Establishment of a DoD policy or instruction should provide reasonable assurance that contracting officers will comply with the FAR requirements for adequately documenting the actions taken to address contractor price proposal inadequacies.

Additionally, during our evaluation of one of the contractor price proposals, we determined that the Logistics Civil Augmentation Program (LOGCAP) Chief at the Army Contracting Command in Rock Island, Illinois (ACC-RI) increased a contract cost ceiling by $92 million without including adequate justification in the contract file. The LOGCAP Chief could not demonstrate that the contractor needed the increase to fulfill the contract terms.

The negotiation memorandum is a critical part of the contract file because it serves as the primary means of contracting officers documenting the actions they took during price negotiations. For 10 of 23 proposals, we determined that contracting officers did not comply with the FAR requirement to distribute negotiation memorandums to the agencies that provided support. Further, for 8 of 23 proposals, we determined that contracting officers did not comply with the Defense Federal Acquisition Regulation Supplement (DFARS) requirement to upload negotiation memorandums to DoD’s Contract Business Analysis Repository. A majority of the contracting officers were not aware of the FAR and DFARS requirements for distributing and uploading the negotiation memorandum.

Recommendations:

We recommend that Defense Pricing and Contracting develop and issue guidance to ensure contracting officials document actions taken to address contractor price proposal inadequacies.

Also, we recommend the ACC-RI Commander implement controls to ensure that contracting actions are adequately documented and supported in accordance with FAR. In addition, the Commander should review the LOGCAP Chief’s actions to determine whether any administrative action should be taken.

Finally, we recommend that DoD Component management provide refresher training to contracting personnel on the requirements of FAR and DFARS for filing and distributing negotiation memorandums.

Management Comments and Our Response:

DoD Component management agreed with the recommendations. The comments and planned corrective actions addressed all specifics of the recommendations, and no additional comments are required. All recommendations are resolved, but will remain open until DoD Component management furnish the DoD Inspector General with evidence that the planned corrective actions have been implemented.

Defense Pricing and Contracting Principal Director agreed to implement guidance that requires contracting officers to document the actions they take on contractor price proposal inadequacies. ACC-RI Commander agreed to implement controls that ensure contracting officials adequately document and justify contract funding increases. Eight DoD commands agreed to provide refresher training on the requirements for filing and distributing negotiation memorandums.

We request that DoD Component management furnish the DoD Office of Inspector General with documentation supporting the corrective actions taken once completed.

This report is a result of Project No. D2017-DAPOCF-0192.000.