NASA OIG Audit of International Space Station Contracts Government Cost and Price Analyses
Executive Summary
Our review of the four ISS contract files showed that 17 of 35 modifications, which may consist of several negotiated contract actions, had all documentation necessary to allow us to verify NASA’s position on rates used. However, we were unable to obtain all documentation for 18 of 35 modifications, including contracting officers’ spreadsheets, which identify NASA’s negotiation position; Forward Pricing Rate Agreements1
(FPRAs) or Forward Pricing Rate Recommendations2 (FPRRs); or when required, Independent Government Cost Estimates (IGCEs). This incomplete documentation prevented us from verifying NASA’s position for some or all of the rates for line items, such as labor, general and administrative expenses, business support, and labor overhead, within the contract modifications reviewed.
For 26 of 35 modifications, we found that NASA did an adequate job of substantiating their position. However, for the other 9 modifications, we found that NASA did not always substantiate, as required by Federal Acquisition Regulation (FAR), the use of a higher rate than proposed by the contractor or a different rate than recommended by the Defense Contract Management Agency (DCMA). While the total dollar value negotiated was minor [$260,330 of $213,977,647 (0.12 percent) or $2,065,311 projected to the entire population], the documentation deficiencies should be corrected to substantiate why the government negotiated the higher rates. We are not questioning3 any of the $260,330 because the contractors will be paid their actual rates for both labor and overhead, which may be higher or lower than the negotiated rates once the Defense Contract Audit Agency (DCAA) completes the fiscal year end incurred (actual) cost audit. In addition, 26 of the 35 modifications we reviewed required an IGCE because the contract change request was valued at more than $1 million and changed the contract baseline (new development or new content); however, we could not find evidence that an IGCE was completed for 7 of those 26 modifications.
The FAR requires that the head of offices performing contracting functions establish files containing records of all contractual actions including providing a complete background as a basis for informed decisions at each step of the acquisition process. As such, ISS contracting officers should document the rationale for cost and price determinations and maintain that documentation within the contract file, especially when the lowest costs and prices are not used. Additionally, ISS personnel should include in the contract file copies of the contracting officer’s spreadsheets and all FPRAs used for negotiating a modification. The ISS Office took corrective action to address incorporating spreadsheets and FPRAs into the contract files prior to completion of this audit. Therefore, our only recommendation is that the ISS procurement management reinforce the Station Program Implementation Plan4 requirements for development and documentation of IGCEs when required and reinforce compliance with FAR requirements to sufficiently document the contract file to support contract actions taken to include use of rates other than those recommended by DCMA.
Management’s comments on the draft of this memorandum are responsive (see Enclosure 2) and the recommendation is closed.
1 FAR 2.101, “Definitions,” a “forward pricing rate agreement” is a written agreement negotiated between a contractor and the Government (Defense Contract Management Agency) to make certain rates available during a specified period for use in pricing contracts or modifications. Such rates represent reasonable projections of specific costs that are not easily estimated for, identified with, or generated by a specific contract, contract end item, or task. These projections may include rates for such things as labor, indirect costs, material obsolescence and usage, spare parts provisioning, and material handling.
2 FAR 2.101, “Definitions,” a “forward pricing rate recommendation” is a rate set unilaterally by the administrative contracting officer for use by the Government in negotiations or other contract actions when forward pricing rate agreement negotiations have not been completed or when the contractor will not agree to a forward pricing rate agreement.
3 Per the Inspector General Act of 1978, a questioned cost is one that is questioned by the OIG because of (1) an alleged violation of a provision of a law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the expenditure of funds; (2) a finding that, at the time of the audit, such cost is not supported by adequate documentation; or (3) a finding that the expenditure of funds for the intended purpose is unnecessary or unreasonable.
4 The Station Program Implementation Plan defines the objectives, organizational structure, responsibilities, and processes associated with the ISS Program Planning and Control Office.
