Pricing of a Noncompetitive, Fixed-Price Incentive Contract for Maintenance and Modification of Three Special Purpose Aircraft

Examination of the pricing of a negotiated, noncompetitive, fixed-price incentive contract awarded to E-Systems, Inc., by the Aeronautical Systems Division of the Air Force Systems Command indicated that the contract target price was overstated by as much as $1.4 million because contracting personnel did not adequately evaluate the proposal. The contract provided for the maintenance and modification of three special purpose C-135 aircraft, including programmed depot maintenance as well as design, fabrication, and installation of special electronic systems and equipment.

The government evaluators accepted, without adequate evaluation, questionable allowances for labor hours and an understated sales forecast as the basis for overhead rates. The questionable labor hours were related to a break in production and other schedule changes. The evaluators also did not identify inconsistencies in E-Systems' application of learning curves. About $100,000 of the overstated cost resulted because E-Systems did not adequately disclose estimating methods. Air Force officials believe that the outcome of this contract, an underrun of slightly over 8 percent, is within the bounds of a well-evaluated and negotiated incentive contract. They also recognize opportunities for improving evaluation of priced proposals. The Air Force has initiated a review to determine whether E-Systems' failure to adequately disclose certain estimating procedures should entitle the government to an adjustment in contract price.