What We Did:
The objective of this audit was to determine whether the DoD awarded Other Transactions (OT) for prototypes in accordance with applicable Federal laws and DoD policies.
What We Found:
Although DoD agreement officers awarded OTs for prototypes in accordance with the U.S.C., additional OT policies are needed. Specifically, we reviewed 34 prototype OT awards, valued at $5 billion, and found agreement officers did not always:
• verify the status of NDCs because there is no requirement for agreement officers to do so;
• validate NDCs participating in prototype awards to a significant extent actually completed the significant work because there is no requirement for the agreement officers to validate the work performed by the NDC throughout the project; or
• approve costs incurred prior to award or appropriately award resource share OTs because the agreement officers did not comply with the U.S.C. and compliance with the OT Guide is not a requirement.
The DoD takes on more risk when it uses OTs to get participation from NDCs. However, without validating NDC status, conducting appropriate oversight to ensure the NDC performs the requirements of the OT agreement as proposed, or validating resource share contributions, agreement personnel may not meet the conditions of the U.S.C., the Government may be paying more than the amount required in the resource share agreement, and traditional contractors may obtain an OT for which they were ineligible. Because of agreement personnel’s noncompliance with U.S.C. and failure to approve costs incurred before award, the Department of the Navy incurred $800,000 in questioned costs associated with an Armored Reconnaissance Vehicle Research Area 2 Full-System Technology Demonstrator.
What We Recommend:
We recommend that the Principal Director, Defense Pricing and Contracting:
• Require agreement officers to validate the NDC status prior to award and include documentation of the verification in the OT file.
• Implement guidance or best practices for agreement personnel to consider when validating NDC significant participation throughout the duration of the project.
• Reinforce the requirements in the U.S.C. and require agreements officers to ensure the OT files for resource sharing clearly document contractor contribution, approval of costs incurred before the effective date, and contractor contribution verification procedures.
We also recommend that the Chief, Office of Naval Research, review the $800,000 in questioned costs to determine whether the agreement officer properly approved it in writing and if the costs were appropriate. If the costs were not properly approved or appropriate, then take action to recover the funds.