Defense Contracting
DOD Has Enhanced Insight into Undefinitized Contract Action Use, but Management at Local Commands Needs Improvement Gao ID: GAO-10-299 January 28, 2010To meet urgent needs, DOD can issue undefinitized contract actions (UCA), which authorize contractors to begin work before reaching a final agreement on contract terms. Such actions are considered to be a risky contract vehicle for the government because contractors lack incentives to control costs during this period. Defense regulations provide that the government determination of contractors' allowable profit or fee should reflect any reduced cost risk. Pursuant to the 2008 National Defense Authorization Act, GAO assessed whether DOD actions taken as required by the act have (1) improved departmental insight and oversight of UCA use and (2) resulted in local commands meeting DOD's standards for documenting the basis for negotiating the contractor profit or fee, definitization timelines, and obligation amounts. GAO reviewed relevant DOD regulations and policies, and contract files for 83 randomly-selected UCAs totaling $6.1 billion at eight local commands. The findings from this contract file review can not be generalized across DOD.
DOD has taken several actions since August 2008 to enhance departmental insight into and oversight of UCAs; however data limitations hinder its full understanding of the extent to which they are used. DOD issued policy that requires centralized, semi-annual reporting of undefinitized actions to gain insight in UCA use, including information on reason for award, obligation amounts at award, and definitization timelines. Over time, reporting requirements have evolved as DOD has taken steps to clarify guidance on the types of contract actions to be reported. DOD has also required components to submit management plans to describe actions taken for improved UCA use. Although these actions have helped enhance insight and oversight of UCA use, not all UCAs are included in the reports. Of the 24 UCAs GAO reviewed that should have been included in the April 2009 semi-annual report, 8 actions valued at $439 million were unreported by the local commands to DOD. Implementation of DOD's recent policies and guidance on the use of UCAs has varied at the local commands GAO visited and the associated management standards were not fully met. For the 66 UCAs GAO reviewed that were eventually definitized, contracting officers generally did not document their consideration of cost risk to the contractor during the undefinitized period of work as required. In 34 cases, the weighted guideline worksheets were not used when required, nor any other documentation of how any reduced cost risk during the undefinitized period of performance was considered in determining the negotiation objective. This was particularly the case for cost-plus-award fee contracts where defense regulations are not clear about how any cost risks are to be considered and documented. Even for the remaining 32 cases in which weighted guideline worksheets were used, the contracting officers' basis for risk calculations were often not clear due to limitations of the weighted guideline documentation. Other management standards were not always met. Only 41 UCAs--about 50 percent of the actions GAO reviewed--met the 180-day definitization requirement. Moreover, 66 of the 83 UCAs GAO reviewed were awarded with obligations near or above the 50 percent maximum.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-10-299, Defense Contracting: DOD Has Enhanced Insight into Undefinitized Contract Action Use, but Management at Local Commands Needs Improvement
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
January 2010:
Defense Contracting:
DOD Has Enhanced Insight into Undefinitized Contract Action Use, but
Management at Local Commands Needs Improvement:
GAO-10-299:
GAO Highlights:
Highlights of GAO-10-299, a report to congressional committees.
Why GAO Did This Study:
To meet urgent needs, DOD can issue undefinitized contract actions
(UCA), which authorize contractors to begin work before reaching a
final agreement on contract terms. Such actions are considered to be a
risky contract vehicle for the government because contractors lack
incentives to control costs during this period. Defense regulations
provide that the government determination of contractors‘ allowable
profit or fee should reflect any reduced cost risk.
Pursuant to the 2008 National Defense Authorization Act, GAO assessed
whether DOD actions taken as required by the act have (1) improved
departmental insight and oversight of UCA use and (2) resulted in
local commands meeting DOD‘s standards for documenting the basis for
negotiating the contractor profit or fee, definitization timelines,
and obligation amounts. GAO reviewed relevant DOD regulations and
policies, and contract files for 83 randomly-selected UCAs totaling
$6.1 billion at eight local commands. The findings from this contract
file review can not be generalized across DOD.
What GAO Found:
DOD has taken several actions since August 2008 to enhance
departmental insight into and oversight of UCAs; however data
limitations hinder its full understanding of the extent to which they
are used. DOD issued policy that requires centralized, semi-annual
reporting of undefinitized actions to gain insight in UCA use,
including information on reason for award, obligation amounts at
award, and definitization timelines. Over time, reporting requirements
have evolved as DOD has taken steps to clarify guidance on the types
of contract actions to be reported. DOD has also required components
to submit management plans to describe actions taken for improved UCA
use. Although these actions have helped enhance insight and oversight
of UCA use, not all UCAs are included in the reports. Of the 24 UCAs
GAO reviewed that should have been included in the April 2009 semi-
annual report, 8 actions valued at $439 million were unreported by the
local commands to DOD.
Implementation of DOD‘s recent policies and guidance on the use of
UCAs has varied at the local commands GAO visited and the associated
management standards were not fully met. For the 66 UCAs GAO reviewed
that were eventually definitized, contracting officers generally did
not document their consideration of cost risk to the contractor during
the undefinitized period of work as required. In 34 cases, the
weighted guideline worksheets were not used when required, nor any
other documentation of how any reduced cost risk during the
undefinitized period of performance was considered in determining the
negotiation objective. This was particularly the case for cost-plus-
award fee contracts where defense regulations are not clear about how
any cost risks are to be considered and documented. Even for the
remaining 32 cases in which weighted guideline worksheets were used,
the contracting officers‘ basis for risk calculations were often not
clear due to limitations of the weighted guideline documentation.
Other management standards were not always met. Only 41 UCAs--about 50
percent of the actions GAO reviewed”met the 180-day definitization
requirement. Moreover, 66 of the 83 UCAs GAO reviewed were awarded
with obligations near or above the 50 percent maximum as shown below.
Figure: Initial Obligation Amounts for 83 UCAs Reviewed:
[Refer to PDF for image: vertical bar graph]
Percentage of not-to-exceed amount obligated at award: 0-25;
Number of UCAs: 6.
Percentage of not-to-exceed amount obligated at award: 25-44;
Number of UCAs: 11.
Percentage of not-to-exceed amount obligated at award: 45-50;
Number of UCAs: 53.
Percentage of not-to-exceed amount obligated at award: 51-75;
Number of UCAs: 10.
Percentage of not-to-exceed amount obligated at award: 76-100;
Number of UCAs: 3.
Source: GAO analysis of DOD data.
[End of figure]
What GAO Recommends:
GAO recommends that the Secretary of Defense revise defense
regulations to provide specific guidance for how to develop, consider,
and document assessments of cost risk for profit or fee for all
undefinitized contract actions. In written comments, DOD agreed with
the recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-10-299] or key
components. For more information, contact John P. Hutton at (202) 512-
4841 or huttonj@gao.gov.
[End of section]
Contents:
Letter:
Background:
DOD Steps to Enhance Insight and Oversight of UCAs Are Hampered by
Incomplete Data:
Local Commands Are Generally Not Meeting DOD's Management Standards:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Undefinitized Contract Actions Reviewed:
Appendix III: Information for UCAs Omitted from DOD's April 2009 Semi-
Annual Report:
Appendix IV: Comments from the Department of Defense:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Differences in Local UCA Management Policies:
Table 2: Definitization Status of UCAs Reviewed:
Table 3: Categories of Goods and Services Procured with the Contract
Actions Reviewed at Eight Local Commands, October 2008 through
February 2009:
Figures:
Figure 1: DOD UCA Policy and Associated Guidance:
Figure 2: Distribution of Assigned Contract-type Risk Factors for
Definitized Contract Actions Reviewed:
Figure 3: Obligation Amounts for UCAs Reviewed:
Abbreviations:
DFARS: Defense Federal Acquisition Regulation Supplement:
DOD: Department of Defense:
FAR: Federal Acquisition Regulation:
NAVICP: Naval Inventory Control Point:
NAVSEA: Naval Sea Systems Command:
OSD: Office of the Secretary of Defense:
OUSD (AT&L): Office of the Under Secretary of Defense for Acquisition,
Technology & Logistics:
TACOM: Tank-automotive and Armaments Command:
UCA: undefinitized contract action:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
January 28, 2010:
Congressional Committees:
To meet urgent needs, the Department of Defense (DOD) can authorize
contractors to begin work and incur costs before reaching a final
agreement on the contract terms and conditions--known as an
undefinitized contract action (UCA).[Footnote 1] This type of
contract, however, poses risk to the taxpayer as contractors lack
incentives to control costs while contract terms and conditions are
negotiated and definitized. UCAs are generally required to be
definitized within 180 days or before more than 50 percent of the
estimated contract price is obligated, whichever occurs first.
[Footnote 2] DOD must ensure that UCAs are used only when necessary
and that it negotiates the contract terms and conditions as quickly as
possible. According to defense regulations, since the cost risk to the
contractor may be low during the undefinitized period, compensation
should be adjusted to reflect any reduced cost risk. The department
reported $18 billion in potential obligations for undefinitized
actions exceeding $5 million, during fiscal year 2008.[Footnote 3]
In June 2007, we reported that DOD did not know the extent to which it
was using UCAs and identified the need to improve DOD's (1) oversight
of UCAs, (2) ability to meet required definitization time frames, and
(3) contracting officer documentation of the basis for negotiating
contractor profit or fee.[Footnote 4] In January 2008, these findings
were reflected in Section 809 of the National Defense Authorization
Act (NDAA) for fiscal year 2008.[Footnote 5] The act requires DOD to
issue guidance that would include (1) circumstances in which it is
appropriate for DOD to use UCAs, (2) procedures for ensuring
compliance with definitization timelines and obligation amounts, (3)
procedures for compliance with regulatory limitations on profit or fee
with respect to costs incurred prior to definitization, and (4)
reporting requirements for UCAs that fail to meet required timelines
for definitization or regulatory limitations on the obligation of
funds or on profit or fee.
In August 2008, the department issued a policy memorandum on UCA
oversight and management, which required DOD components to report semi-
annually on contract actions with an estimated value exceeding $5
million to the Office of the Under Secretary of Defense for
Acquisition, Technology & Logistics (OUSD (AT&L)), Defense Procurement
and Acquisition Policy.[Footnote 6] In addition, the memorandum
advised DOD components to obligate funds for the undefinitized period
consistent with the contractor's requirements for the anticipated
undefinitized period and to comply with existing Defense Federal
Acquisition Regulation Supplement (DFARS) policy on UCA use. The act
also required us to assess the extent to which DOD's guidance resulted
in improvements to its insight and use of UCAs. Accordingly, we
assessed whether actions taken by DOD have (1) improved departmental
insight and oversight of UCA use; and (2) resulted in local commands
meeting DOD's UCA management standards for documenting the basis for
negotiating the contractor profit or fee, definitization time lines
and obligation percentages, and the circumstances in which UCAs are
used.
To identify and assess the actions DOD has taken to improve
departmental insight and oversight, we reviewed relevant DOD policy
memoranda, federal and defense acquisition regulations, and proposed
changes to DFARS; and interviewed senior-level acquisition officials.
We selected eight local commands and developed and reviewed a random
selection of 83 contract actions reported as UCAs and valued at a
total of $6.1 billion. The findings from this contract file review can
not be generalized across DOD but are illustrative of UCA use. We
compared information from those contract actions to DOD's semi-annual
reports and local commands' UCA reports. We selected four of the local
commands based on their placement within the top 50 percent of the
total dollar value of UCAs issued over $100,000 during fiscal year
2008. We selected the remaining four commands based on (1) significant
UCA use according to the military services, (2) geographic location,
and (3) the history of UCA use. For the purposes of this report we
refer to the following eight locations as the local commands.
U.S. Army:
* Tank-automotive and Armaments Command Contracting Center, Warren,
Michigan:
* Rock Island Contracting Center, Rock Island, Illinois:
U.S. Navy:
* Naval Sea Systems Command, Washington, D.C.
* Naval Inventory Control Point, Philadelphia, Pennsylvania:
U.S. Air Force:
* 303rd Aeronautical Systems Wing (Reconnaissance Systems Wing),
Wright-Patterson Air Force Base, Ohio:
* 516th Aeronautical Systems Wing (Mobility Systems Wing), Wright-
Patterson Air Force Base, Ohio:
Defense Agencies:
* Missile Defense Agency, Redstone Arsenal, Alabama:
* United States Special Operations Command, MacDill Air Force Base,
Florida:
We selected the 83 UCA contract actions from UCAs reported in the
Federal Procurement Data System-Next Generation (FPDS-NG) as awarded
during fiscal year 2008 and the first 5 months of 2009. [Footnote 7]
We determined that the FPDS-NG data were sufficiently reliable for the
purposes of this review by comparing the information in FPDS-NG with
UCA information from other sources, such as the Electronic Data Access
program, DOD's semi-annual reports, local command reports, and
information in the contract files.[Footnote 8]
To determine whether DOD's recent actions have resulted in local
commands meeting UCA management standards, we reviewed relevant
policies and guidance to identify the standards for documenting the
basis for negotiating contractor profit and fee, timeliness of
definitization, obligation amounts at the time of contract award, and
the circumstances that justify the use of a UCA. We then reviewed
contract files for the 83 contract actions in our selection and
compared the relevant documentation to the management standards. At
each local command we discussed the circumstances for each UCA with
contracting officials.
We conducted this performance audit from March 2009 to January 2010 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. Appendix I
provides details on our scope and methodology, appendix II lists the
contract actions we reviewed, and appendix III lists contract actions
we reviewed that were unreported in DOD's April 2009 semi-annual
report.
Background:
GAO designated DOD contract management as a high-risk area in 1992.
[Footnote 9] The lack of well-defined requirements, the use of ill-
suited business arrangements, and the lack of an adequate number of
trained acquisition and contract oversight personnel contribute to
unmet expectations and schedule delays and place the department at
risk of potentially paying more than necessary. In fiscal year 2009,
DOD spent nearly $384 billion on contracts.[Footnote 10] In response
to our prior recommendations and congressional direction, DOD has
recently emphasized the need to improve its insight and management of
UCAs.
When a requirement needs to be met quickly and there is insufficient
time to use normal contracting vehicles, defense regulations permit
the use of an undefinitized contract action. These can be quickly
entered into, but at a later date, the contract's final price and
other terms must be agreed upon by the contractor and government, a
process known as definitizing the contract. UCAs can be entered into
via different contract vehicles, such as a letter contract (an
undefinitized stand-alone contract), a task or delivery order issued
against a pre-established umbrella contract, an order against a basic
ordering agreement, or a modification for additional supplies or
services to an existing contract.
UCAs are considered risky contract vehicles for the government. Our
prior work and a DOD Inspector General report found that undefinitized
contracts transfer additional cost and performance risks from
contractors to the government because contracting officers normally
reimburse contractors for all allowable costs they incur.[Footnote 11]
With all allowable costs covered, contractors bear less risk and have
little incentive to control costs. The government also risks incurring
unnecessary costs as requirements may change before the contract is
definitized. Contractors and the government should bear an equitable
share of contract cost risk.[Footnote 12] UCAs shift much of the
burden of cost risk onto the government during the undefinitized
portion of the contract. Because the cost risk to the contractor may
be reduced during this undefinitized period, compensation should be
priced accordingly and negotiations should reflect any reduced cost
risk to the contractor in determining the government's profit or fee
objective, according to defense regulations.[Footnote 13]
DOD's acquisition organization consists of several levels including
department, service or agency, and local contracting commands or
activities where acquisition policy and oversight take place. At the
departmental level, the Under Secretary of Defense for Acquisition,
Technology and Logistics is responsible for supervising and
establishing policy for all DOD matters relating to procurement and
acquisition policy through the Office of Defense Procurement and
Acquisition Policy. At the component or agency level, each military
service has its own senior acquisition executives and acquisition
offices that are to establish contracting policies and conduct
oversight of the local contracting commands or activities for each
service. The defense agencies and combatant commands, such as the
Missile Defense Agency and the U.S. Special Operations Command, also
have procurement or contracting directorates within their organization
that are to perform similar functions as the service senior
acquisition executives in terms of establishing policy and conducting
oversight. Within each military service there are numerous local
contracting commands or activities that provide contracting support to
many service acquisition and operational commands.
DOD Steps to Enhance Insight and Oversight of UCAs:
Are Hampered by Incomplete Data:
DOD has taken a number of steps aimed at enhancing its insight into
and oversight of UCA use among the components and local commands;
however, data limitations hinder its full understanding of the extent
to which UCAs are used. DOD implemented a policy in August 2008 to
require centralized periodic reporting of UCA information and related
management plans to the Defense Procurement and Acquisition Policy
office within OUSD (AT&L). The department's reporting requirements
have evolved over time to include other types of contract actions that
should be reported and DOD has instituted contract peer reviews for
contracts above $1 billion, which may include UCAs. Although these
steps have helped increase insight into UCA use, information gaps
remain. For instance, we found DOD's centralized reporting did not
include 8 of 24 UCAs we reviewed that should have been reported in the
April 2009 semi-annual report.
DOD Has Implemented Policies and Proposed Changes to Enhance UCA
Insight and Oversight:
DOD has instituted policies and proposed additional changes intended
to enhance its departmental insight and oversight of UCA use. See
Figure 1 for the recent changes to policies and guidance intended to
increase insight and oversight of the use of UCAs.
Figure 1: DOD UCA Policy and Associated Guidance:
[Refer to PDF for image: list]
August 2008 Policy Memorandum:
* Consolidated UCA Management Report:
- Semi-annual reporting for UCAs above $5 million;
* UCA Management Plans:
- Semi-annual plans submitted by components;
* UCA reporting format established.
DFARS:
* DFARS Section 217.74:
- Updated in July 2009 to codify August 2008 policy;
* DFARS Section 201.170:
- Peer review of contracts above $1 billion.
October 2009 Policy, Guidance, and Instructions:
* Contract actions exempt from DFARS requirements related to
definitization schedules and initial obligation amounts should be
reported;
* Formalized template to report key information including:
- award, definitization, and receipt of qualifying proposal dates;
- not-to-exceed and obligation amounts;
- reason for award.
Source: GAO analysis of DOD information.
[End of figure]
DOD's August 2008 policy memorandum established centralized semi-
annual reporting for UCAs with a not-to-exceed price above $5 million
to the OUSD (AT&L) Defense Procurement and Acquisition Policy.
According to DOD, the purpose of this centralized reporting is to
enhance departmental insight into and management of UCAs. Starting
October 31, 2008, undefinitized contract actions were required to be
reported if the contract action's not-to-exceed value was above $5
million and it was undefinitized at any point during a 6-month
reporting period--either April through September, or October through
March. These semi-annual reports are to include data on the reason for
award, not-to-exceed amounts, obligation amounts, date of scheduled
definitization, days past definitization deadline, and date the
qualifying proposal is received. DOD finalized its October 2009 semi-
annual report December 22, 2009.
In addition to semi-annual reporting, the August 2008 policy
memorandum also required each DOD component to update and submit a UCA
management plan, each April and October, along with the semi-annual
report as a way to improve oversight of UCA use. These management
plans are required to describe the actions taken by DOD components to
help ensure:
* appropriate use,
* timely definitization,
* minimum obligation at time of award (consistent with the
contractor's requirements for the undefinitized period),
* appropriate recognition and documentation of the contractor's
reduced risk during the undefinitized period in the profit and fee
negotiations, and:
* milestones for completing planned actions.
In October 2009, DOD updated its detailed guidance to clarify that
UCAs to be recorded in the semi-annual report include undefinitized
contracts awarded for foreign military sales, congressionally mandated
long-lead procurement items, initial spares, special access programs,
and contingency operations. A Defense Procurement and Acquisition
Policy official also told us that once UCAs over $100 million are
definitized, components must also submit the weighted guidelines
worksheets along with their semi-annual report. Weighted guideline
worksheets are an organized and structured approach to establish and
document a prenegotiation objective for profit or fee based on an
assessment of contractor risk. In preparing government estimates where
profit is negotiated as an element of price, a reasonable profit shall
be negotiated or determined for each procurement action, according to
defense regulations. Requiring the worksheets to be submitted is
intended to provide departmental insight into whether or not
contracting officers are documenting their assessment of the
contractor's reduced risk when determining profit or fee negotiation
objectives. Although we were told that weighted guidelines are to be
submitted for UCAs over $100 million once definitized, we could not
find documentation of this requirement in the UCA management
Procedures, Guidance, and Instructions. On December 23, 2009, the
department revised DFARS procedures, guidance, and instruction to
require military departments and defense agencies to submit, with
their semi-annual reports, a copy of the record of weighted guidelines
for each definitized UCA with a value of $100 million or more.
DOD also has finalized one amendment to DFARS and has proposed two
additional changes which will affect how UCAs are managed within DOD.
In July 2009, DFARS was amended to codify the changes communicated in
the August 2008 policy memorandum. Also, in July 2009, DOD proposed a
change to clarify that the existing DFARS requirement that letter
contracts be definitized within 180 days or before more than 50
percent of the not-to-exceed amount is obligated will apply rather
than Federal Acquisition Regulation (FAR) policy.[Footnote 14]
Finally, although unpriced change orders are not UCAs, DOD has
proposed a change to DFARS in recognition of the need for increased
insight into and oversight of unpriced change orders to require that
unpriced change orders be managed and overseen in a manner consistent
with UCAs.[Footnote 15]
DOD's recent peer review process initiative may also improve DOD's
insight into and oversight of UCAs. Under the peer review process,
contracts above $1 billion are to be reviewed by senior DOD officials
at three points prior to contract award and then periodic post-award
reviews. This peer review process is intended to increase departmental
awareness of the significant events occurring with contracts valued at
$1 billion or more across DOD.[Footnote 16] According to a DOD
official, at least one UCA contract has been selected as part of the
peer review process.
Centralized Reporting Is Incomplete:
Despite DOD's efforts to collect information on UCAs, not all UCAs
were in the most recent semi-annual report. For example, we found that
of the 83 contract actions we reviewed, 24 met DOD's criteria for
being included in the April 2009 semi-annual report--those contracts
that exceeded $5 million between October 1, 2008, and March 31, 2009.
However, only 16 of them were actually reported in April 2009, leaving
8 contract actions valued at $439 million unreported.[Footnote 17] For
example, because the Naval Sea Systems Command's (NAVSEA) local list
of undefinitized actions was not complete, the local command was not
aware it missed four UCAs valued at $153 million in its submission to
the Defense Procurement and Acquisition Policy office for the April
2009 semi-annual report. Also, at the Tank-automotive and Armaments
Command (TACOM), we reviewed 4 undefinitized actions valued at $286
million that were not included in the semi-annual report. According to
TACOM officials, 2 actions valued at $271 million went unreported
because local officials did not report actions that were definitized
during the reporting period despite DOD's requirements to include
them. The other 2 contract actions, valued at $15 million, were
overlooked. In contrast, all of the 16 contract actions in our
selection at the U.S. Special Operations Command and the Army's Rock
Island Contracting Center were included in local reports and reported
to DOD for the April 2009 semi-annual report as required.
DOD's reporting requirements are still in flux as it takes steps to
gain insight into and oversight of UCA use. For example, when DOD
introduced the new reporting requirements in its August 2008 policy
memorandum, UCAs over $5 million were required to be reported, but
there was some confusion at the local commands as to what type of
contract action this requirement applied. DOD released detailed
guidance to commands for their use in time for the October 2009 report
specifying that contract actions exempt from definitization and
obligation limitations, such as foreign military sales and long-lead
procurement items, were to be included in the semi-annual report. In
addition, the proposed July 2009 amendment to DFARS is intended to
increase DOD's insight of unpriced change orders by requiring these
contract actions to be reported semi-annually and managed in a manner
consistent with UCAs. According to DOD, unpriced change orders pose
similar risks as UCAs, therefore, increased insight and oversight are
warranted. While reporting of unpriced change orders is not yet
required, we identified nine unpriced change orders, within the 83
contract actions we reviewed, with a not-to-exceed value totaling $499
million, which would fit DOD's proposed reporting criteria. Five of
these--totaling $231 million--at the Aeronautical Systems Center are
being tracked locally similarly to UCAs with regard to approval,
obligation, and definitization requirements, but these were not
included in DOD's semi-annual reporting. Another unpriced change order
awarded by the Missile Defense Agency for $14 million is also tracked
according to local command policies but was not included in DOD semi-
annual reporting. In contrast, we found three unpriced change orders,
totaling $254 million at the Rock Island Contracting Center, that were
tracked similarly to UCAs at the local level and reported to DOD.
Notwithstanding the inaccurate data and evolving refinement of UCA
reporting requirements, DOD has begun to use its semi-annual UCA
report to oversee the extent to which local commands are using UCAs.
For example, based on increased use reported in the April 2009 semi-
annual report, the Director, Defense Procurement and Acquisition
Policy, visited the Aeronautical Systems Center in September 2009 to
better understand the situation there, reemphasize the importance of
UCA management, and discuss ideas for how the contracting center can
improve.
Local Commands Are Generally Not Meeting DOD's Management Standards:
Despite DOD's recent UCA management policy, guidance, and instructions
designed to improve their use, implementation varied at local commands
we visited and the management policy standards were not fully met.
DOD's August 2008 policy designed to improve UCA management
reemphasized requirements governing their use, including:
* allowable profit during the undefinitized period when determining
the government's objective for profit or fee,
* documenting any reduced cost risk and profit or fee determinations
in the contract file,
* definitization time frames, and:
* obligation limits.
For 66 of the 83 UCAs we reviewed that were definitized, contracting
officers generally did not document the profit or fee negotiation
objective or consideration of reduced cost risk to the contractor
during the undefinitized period of work as required.[Footnote 18] In
addition, the 180-day requirement for UCA definitization was not met
in half the UCAs we reviewed. Furthermore, despite DOD policy to limit
obligations to the planned work during the anticipated undefinitized
period, the local commands typically obligated at or near the maximum
amount permitted--up to 50 percent of the not-to-exceed amount--
immediately at award of UCAs.[Footnote 19] Despite the risks involved,
we also found situations when the government may have been able to
avoid the use of undefinitized contract actions.
Commands Varied in How They Implemented DOD's Policy Designed to
Improve UCA Management:
The local commands we visited managed their UCA use to varying
degrees. All of the locations used some sort of local management
report to track information about the contracts awarded. A majority of
the locations reported UCA awards and status to local acquisition
management regularly ranging from weekly to monthly. Local commands
also varied in the dollar threshold amounts requiring higher-level
approval, such as the head of contracting authority rather than a
division chief or department head, for their use of UCAs. For example,
the Rock Island Contracting Center, TACOM Contracting Center, U.S.
Special Operations Command, and Missile Defense Agency require
management approval at the highest-level, i.e, the head of contracting
activity, within the command for all UCAs regardless of price, while
other commands only require management approval at the highest level
for UCAs above a $10 million threshold.
The local commands we visited also emphasized key aspects of UCA
management standards to varying degrees. Some commands appear to have
increased their focus in one of the areas identified in the August
2008 policy. For example, the Rock Island Contracting Center has
decreased the 180-day requirement for definitization to 150 days.
According to local command officials, if 150 days from UCA award is
surpassed, management expects continuous updates on the status of
definitization. Table 1 compares UCA management policies for the
commands we visited.
Table 1: Differences in Local UCA Management Policies:
Local command: 303[RD] Aeronautical Systems Wing;
Local command reporting requirement: Weekly: [Check];
Local command reporting requirement: Monthly: [Check];
Local command reporting requirement: Highest level contracting
official approval required for all UCAs [A]: [Empty];
Planned definitization schedule under 180 days: [Empty].
Local command: 516[TH] Aeronautical Systems Wing;
Local command reporting requirement: Weekly: [Check];
Local command reporting requirement: Monthly: [Check];
Local command reporting requirement: Highest level contracting
official approval required for all UCAs [A]: [Empty];
Planned definitization schedule under 180 days: [Empty].
Local command: Rock Island Contracting Center;
Local command reporting requirement: Weekly: [Check];
Local command reporting requirement: Monthly: [Check];
Local command reporting requirement: Highest level contracting
official approval required for all UCAs [A]: [Empty];
Planned definitization schedule under 180 days: [Check].
Local command: TACOM Contracting Center;
Local command reporting requirement: Weekly: [Empty];
Local command reporting requirement: Monthly: [Check];
Local command reporting requirement: Highest level contracting
official approval required for all UCAs [A]: [Check];
Planned definitization schedule under 180 days: [Empty].
Local command: Naval Inventory Control Point;
Local command reporting requirement: Weekly: [Check];
Local command reporting requirement: Monthly: [Empty];
Local command reporting requirement: Highest level contracting
official approval required for all UCAs [A]: [Empty];
Planned definitization schedule under 180 days: [Empty].
Local command: Naval Sea Systems Command;
Local command reporting requirement: Weekly: [Check];
Local command reporting requirement: Monthly: [Empty];
Local command reporting requirement: Highest level contracting
official approval required for all UCAs [A]: [Empty];
Planned definitization schedule under 180 days: [Empty].
Local command: U.S. Special Operations Command;
Local command reporting requirement: Weekly: [Check];
Local command reporting requirement: Monthly: [Check];
Local command reporting requirement: Highest level contracting
official approval required for all UCAs [A]: [Check];
Planned definitization schedule under 180 days: [Empty].
Local command: Missile Defense Agency [B];
Local command reporting requirement: Weekly: [Empty];
Local command reporting requirement: Monthly: [Check];
Local command reporting requirement: Highest level contracting
official approval required for all UCAs [A]: [Check];
Planned definitization schedule under 180 days: [Empty].
Source: GAO analysis of local contracting command UCA management
policies.
[A] All undefinitized contract actions require management approval.
However, some commands authorize lower level management officials,
such as division chiefs or department heads, to approve use of
undefinitized contract actions under $10 million.
[B] Missile Defense Agency requires biweekly and monthly reporting.
[End of table]
Mandatory Consideration of Incurred Cost Prior to Contract
Definitization Is Not Typically Documented in the Contract File:
According to DOD regulations, contracting officers are required to
consider any reduced cost risk to the contractor for costs incurred
before negotiation of the final price. Further, contracting officers
must document this risk assessment in the contract files. Sixty-six of
the 83 contract actions we reviewed were definitized and should have
documented a risk assessment in their contract file and used the
weighted guideline worksheet or an alternative method to determine
allowable profit or fee for negotiation purposes.[Footnote 20]
About half of the cases we reviewed--34 of 66--did not use the
weighted guidelines or document any consideration of cost risk to the
contractor during the undefinitized period when establishing profit or
fee negotiation objectives. Instead, we found these contracting
officers based their profit or fee negotiation objectives on
previously negotiated rates under contracts for similar work or other
factors. None of these included the required consideration of any
reduced cost risk to determine whether the contractor's proposal
included fair and reasonable prices. For example, in 12 cost-plus-
award-fee contract actions, the contracting officers used the base and
award fee structure in contracts previously awarded for similar work,
or in one case, accepted the contractor's proposal when determining
their negotiation fee objectives prior to contract definitization.
However, DOD's contract pricing reference guide notes that
automatically applying predetermined profit or fee percentages without
regard to the unique circumstances of the immediate negotiation is
inconsistent with government profit or fee goals. Although not
required to use a weighted guidelines worksheet for cost-plus-award-
fee contracts, contracting officers are still required to consider and
document any reduced cost risk borne by the contractor during the
undefinitized period.[Footnote 21] For these contract actions we did
not see evidence in the contract file that there was consideration of
any reduced cost risk. However, in one case a contracting officer was
aware of the requirement to document and consider reduced cost risk,
but did not know how to account for any reduced cost risk because
defense regulations do not provide a procedure for how to consider any
reduced cost risk for cost-plus-award-fee type contracts.
In the remaining 32 of 66 UCAs we reviewed, the contract files
included weighted guideline worksheets, but it was not always clear
whether the contracting officers considered any reduced cost risk to
the contractor during the undefinitized period as a factor when
determining allowable profit or fee as required.[Footnote 22] Because
of the weighted guideline worksheet design it did not show the
contracting officer's basis for risk calculations or indicate the
reason for assigning a particular contract-type risk value. The
contract-type risk value reflects the relative risk to the government
associated with the specific contracting method. Therefore, we also
reviewed the contract files for documentation of a risk assessment. In
15 of these 32 contract files, we found no risk assessment
documentation in the file that provided a rationale for the values
assigned to the contract-type risk in the weighted guidelines
worksheet, making it difficult to verify what consideration, if any,
the contracting officer made for incurred costs. In addition, within
these 15 files the contracting officers did not acknowledge the
requirement to ensure that the profit or fee negotiation objectives
reflected any reduced cost risks to the contractor.
In the remaining 17 of the 32 contract files, the contracting
officers' rationale for their decisions on the assigned contract-type
risk value and, when applicable, their consideration of incurred costs
during the undefinitized period, were documented in the contract file.
Contracting officers are required to use the contract-type risk value
in the weighted guidelines worksheet to reflect any reduced contractor
cost risk during the undefinitized period. A higher contract-type risk
value represents a higher risk to the contractor. For example, a
contracting officer may assign a fixed-price type contract a value
ranging from zero to six, while a cost-plus type contract will range
from zero to two.[Footnote 23] If costs have been incurred prior to
definitization, the contracting officer should account for the shift
in risk from the government to the contractor by assigning a contract-
type risk value that is typically lower than the normal range.
According to the department's August 2008 UCA policy, contracting
officers should generally regard the contract-type risk to be in the
low end of the designated range when costs have been incurred prior to
definitization.[Footnote 24] Further, if a substantial portion of the
cost has been incurred prior to definitization, contracting officers
may assign a value as low as zero, regardless of contract-type.
In 8 of these 17 contracts, contracting officers reduced the allowable
profit or fee negotiation objectives based on costs incurred by the
contractor during the undefinitized period. For example, in a firm-
fixed-price UCA awarded by the Navy for compact solid state antennas,
the contracting officer used the weighted guidelines worksheet to
assign low contract-type risk values based upon incurred and projected
costs resulting in a lower profit objective than normal values would
have calculated. In the remaining 9 cases, the contracting officers
considered making an adjustment but indicated a reduction to the
contractor profit or fee negotiation objectives was not warranted. For
example, in a cost-plus-incentive-fee UCA awarded by the Air Force to
develop and test a Global Hawk sensor package, the contracting officer
acknowledged the requirement to consider any reduced cost risk to the
contractor during the undefinitized period, but determined the
government shared responsibility for the definitization delay.
Therefore, the contracting officer assigned a normal contract-type
risk value for this contract.
Despite DOD policy guidance, our analysis of the 32 UCAs that used the
weighted guideline worksheets indicated that the contract-type risk
factors were skewed toward the middle and high end of the DFARS
designated ranges, indicating higher risk for the contractors. In the
absence of documentation of the contracting officers' analysis, we
were unable to determine why the contract risk types were arrayed
toward the middle and high end of the designated ranges. Our analysis
indicated that contracting officers tended to assign middle and high
values for fixed-price contracts rather than cost reimbursement
contracts. Figure 2 shows the distribution of the contract-type risk
values assigned for those UCA contract files containing weighted
guideline worksheets.
Figure 2: Distribution of Assigned Contract-type Risk Factors for
Definitized Contract Actions Reviewed:
[Refer to PDF for image: stacked vertical bar graph]
Assigned contract-type risk factor relative to DFARS designated range:
Below range:
Cost plus: 0;
Fixed price: 2.
Low end of range:
Cost plus: 2;
Fixed price: 2.
Midrange:
Cost plus: 8;
Fixed price: 10.
High end of range:
Cost plus: 2;
Fixed price: 6.
Source: GAO analysis of DOD data.
[End of figure]
UCAs Were Not Definitized within Required Time Frames:
Local commands we visited did not meet the 180-day requirement in the
federal and defense regulations for 51 percent of the UCAs we
reviewed. We have previously reported that this situation places the
government at risk of paying increased costs, thus potentially wasting
taxpayers' money.[Footnote 25] Table 2 shows the number and percentage
of UCAs we reviewed that were not definitized within the 180-day
requirement.
Table 2: Definitization Status of UCAs Reviewed:
Component: Army;
Definitized within 180 days: 23;
Definitized beyond 180 days: 6;
Undefinitized beyond 180 days: 0;
Total: 29;
Percentage of UCAs not definitized within 180 days: 21%.
Component: Air Force;
Definitized within 180 days: 8;
Definitized beyond 180 days: 10;
Undefinitized beyond 180 days: 7;
Total: 25;
Percentage of UCAs not definitized within 180 days: 68%.
Component: Navy;
Definitized within 180 days: 4;
Definitized beyond 180 days: 4;
Undefinitized beyond 180 days: 10;
Total: 18;
Percentage of UCAs not definitized within 180 days: 78%.
Component: USSOCOM;
Definitized within 180 days: 2;
Definitized beyond 180 days: 3;
Undefinitized beyond 180 days: 1;
Total: 6;
Percentage of UCAs not definitized within 180 days: 67%.
Component: MDA;
Definitized within 180 days: 4;
Definitized beyond 180 days: 1;
Undefinitized beyond 180 days: 0;
Total: 5;
Percentage of UCAs not definitized within 180 days: 20%.
Component: Totals;
Definitized within 180 days: 41;
Definitized beyond 180 days: 24;
Undefinitized beyond 180 days: 18;
Total: 83;
Percentage of UCAs not definitized within 180 days: 51%.
Source: GAO analysis of DOD data.
Note: Information in the table was collected during our on-site
contract file reviews from June 2009 through October 2009. Those UCAs
we found to be undefinitized beyond 180 days may have subsequently
been definitized after our file review.
[End of table]
We found 24 contract actions that took more than 180 days to be
definitized, including 4 that took over a year. The longest took over
582 days to definitize. We also found 18 contract actions that were
undefinitized beyond 180 days, including one from the Aeronautical
Systems Center awarded in February 2008, which as of December 2009 had
yet to be definitized after more than 645 days. Officials at the local
commands stated that they attempt to follow defense acquisition
requirements for definitization within 180 days. However, we found
increased management emphasis on definitization time frames at the
Rock Island Contracting Center. Specifically, the Rock Island
Contracting Center focused on definitizing UCAs within 150 days. Of
the 12 UCAs we reviewed at this location, 11 were definitized within
the 180-day time frame. We found no relationship between the dollar
value of the contract action and the length of time it took to
definitize. Likewise, final contract-type did not appear to influence
the timeliness of definitization. We found both fixed-price and cost-
reimbursable contracts that exceeded the 180-day definitization
requirement.
Contracting officers cited several reasons why UCAs may not be
definitized within the 180-day time frame. The most common reasons
cited were problems with contractor and subcontractor proposals,
protracted negotiations between the government and contractor,
timeliness of government audits, and unstable requirements and
funding. Several contracting officers told us that delays were the
result of a combination of these issues.
The Majority of UCAs Were Awarded with Maximum Obligation Allowed at
the Time of Award:
Most of the contract actions we reviewed were awarded at or near the
maximum not-to-exceed price authorized under DFARS.[Footnote 26] Of
the 83 UCAs we reviewed, 66 had initial obligation amounts of 45
percent or more of the not-to-exceed price at award. As we have noted
in prior work, contractors may have little incentive to quickly submit
proposals and agencies have little incentive to demand their prompt
submission, since funds are available to proceed with the work.
[Footnote 27] Of the 66 actions that obligated near 50 percent of the
not-to-exceed price, 34--52 percent--exceeded the 180-day time frame
for definitization. By limiting the amount of funding obligated at
award to reflect contractors' requirements during the anticipated
undefinitized period, the contractor may be incentivized to work with
the government to submit proposals quickly and enter negotiations
sooner, potentially saving the government money.
Contracting officers at each of the eight commands we visited told us
that it was standard practice to obligate at or near the maximum funds
allowed when issuing the UCA. At one command we visited, one
contracting officer told us that obligating at 50 percent has become
force of habit and noted that contractors have come to expect the
maximum allowed at award. Some commands have issued guidance on
assessing the contractor's requirement during the anticipated
undefinitized period. For example, the Aeronautical Systems Center
issued guidance in July 2008 instructing contracting officers to only
obligate the percentage of funds needed by the contractor during the
undefinitized period. At the Aeronautical Systems Center, 17 of the 25
contract actions we reviewed initially obligated 45 percent or more at
award--totaling more than $335 million--including 2 with 100 percent
of funds obligated at award.[Footnote 28] At the Missile Defense
Agency, contracting officers told us they are encouraged by the
Director of Acquisition to obligate only what is needed during the
undefinitized period; however, formal instructions implementing this
policy have not been issued. Three of 5 UCAs we reviewed at the
Missile Defense Agency were obligated with 45 percent or more at
award--totaling almost $18 million--1 of which was obligated at 100
percent. Figure 3 shows the distribution of the initial obligation
percentages of the not-to-exceed amounts for the UCAs we reviewed.
Figure 3: Obligation Amounts for UCAs Reviewed:
[Refer to PDF for image: vertical bar graph]
Percentage of not-to-exceed amount obligated at award: 0-25;
Number of UCAs: 6.
Percentage of not-to-exceed amount obligated at award: 25-44;
Number of UCAs: 11.
Percentage of not-to-exceed amount obligated at award: 45-50;
Number of UCAs: 53.
Percentage of not-to-exceed amount obligated at award: 51-75;
Number of UCAs: 10.
Percentage of not-to-exceed amount obligated at award: 76-100;
Number of UCAs: 3.
Source: GAO analysis of DOD data.
[End of figure]
Although contracting officers are authorized to obligate up to 50
percent or more at award, we found instances where it may not have
been necessary. For example, an Aeronautical Systems Center UCA for
aircraft modernization kits obligated 50 percent at award. However,
the contractor only incurred costs equal to 2.4 percent of the not-to-
exceed amount during the 13-month undefinitized period. At the same
command, a UCA to procure ground control stations for unmanned
aircraft was given approval to obligate 100 percent at award due to
the fact this equipment was required for contingency operations.
However, the contractor incurred costs of only slightly more than 1
percent of the not-to-exceed amount during the 11-month undefinitized
period. Given the low amount of incurred costs during the anticipated
undefinitized period, obligating at or above 50 percent may encourage
extended periods of performance prior to definitization.
UCAs Used to Purchase a Range of Goods and Services but Some Use May
Have Been Avoided:
The UCAs we reviewed were used to fill a variety of goods and services
needs, from providing immediate support to the warfighter in theater
to procuring long-lead items to keep weapon system program schedules
on time. In several cases UCAs were used to prevent a lapse in service
or allow for equipment used in contingency operations to be upgraded.
In one example, the Navy issued a UCA to fund an engineering study on
spares and repair parts to prevent the grounding of helicopters. In
another, the U.S. Special Operations Command used a UCA to expand the
ammunition capacity and add ballistic protective armor on vehicles
already in theater. In yet another example, the Army issued a UCA to
create a forward-deployed water packaging system capable of producing
7,000 bottles of water per day.
The majority of UCAs we reviewed--64 percent--were used to purchase
goods. Examples of goods acquired with UCAs include:
* UCA awarded by Rock Island Contracting Center to fill ammunition
shortages for the F-15, F-16, F/A-18, and AH-1 Cobra aircraft;
* UCA awarded by NAVSEA to procure five compact solid state antennas
to support the Marine Corp's and the Army's ground-based network radar
system; and:
* UCA awarded by the U.S. Special Operations Command to procure a
small armored vehicle to increase survivability, and guard forces with
increased protection.
The other UCAs we reviewed--36 percent--were used to purchase
services. Examples of services acquired with UCAs include:
* UCA awarded by the Rock Island Contracting Center for basic life
support services (e.g., camps, dining facilities, waste, water, other
services/utilities) necessary to support the Logistics Civil
Augmentation Program in Iraq;
* UCA awarded by TACOM for the design, development, and fabrication of
a rocket-propelled grenade active protection system for integration
onto the mine-resistant ambush-protected vehicle; and:
* UCA awarded by the Air Force Aeronautical Systems Center to provide
contract logistics support for unmanned aerial systems efforts known
as Predator/Reaper.
Table 3 provides a list of categories of goods and services, as
reported in FPDS-NG, procured with UCAs at the eight local commands we
visited.
Table 3: Categories of Goods and Services Procured with the Contract
Actions Reviewed at Eight Local Commands, October 2008 through
February 2009:
Supplies, equipment, and services codes: Research & development;
Not-to-exceed amount: $4,642,002,079.00;
Percentage of total: 68.40%.
Supplies, equipment, and services codes: Professional, administrative,
and management support services;
Not-to-exceed amount: $634,412,427.82;
Percentage of total: 9.35%.
Supplies, equipment, and services codes: Aircraft and airframe
structural components;
Not-to-exceed amount: $421,031,453.20;
Percentage of total: 6.20%.
Supplies, equipment, and services codes: Ground effect vehicles, motor
vehicles, trailers and cycles;
Not-to-exceed amount: $369,459,721.74;
Percentage of total: 5.44%.
Supplies, equipment, and services codes: Communication, detection, and
coherent radiation equipment;
Not-to-exceed amount: $275,766,796.00;
Percentage of total: 4.06%.
Supplies, equipment, and services codes: Ammunition and explosives;
Not-to-exceed amount: $123,282,074.00;
Percentage of total: 1.82%.
Supplies, equipment, and services codes: Vehicular equipment
components;
Not-to-exceed amount: $98,476,002.33;
Percentage of total: 1.45%.
Supplies, equipment, and services codes: Other goods;
Not-to-exceed amount: $138,549,210.45;
Percentage of total: 2.04%.
Supplies, equipment, and services codes: Other services;
Not-to-exceed amount: $83,180,815.00;
Percentage of total: 1.23%.
Supplies, equipment, and services codes: Total;
Not-to-exceed amount: $6,786,160,579.54;
Percentage of total: 100.00%.
Source: FPDS-NG and GAO analysis of DOD data.
[End of table]
According to DFARS, UCAs should only be used when the negotiation of a
definitized contract is not possible to meet government requirements
and the government's interest demands the contractor be given a
binding commitment so contract performance can begin immediately. For
the 83 files we reviewed, it appeared that the use of a UCA may have
been avoided in some cases. In one example, the Air Force awarded a
UCA for $54.9 million in April 2008 for an upgrade to the Global Hawk
program that was necessary to meet the September 30, 2008, initial
operational test and evaluation deadline. However, as of November
2009, the Global Hawk program had yet to undergo that testing and
evaluation process due to other program delays. In another example,
the Army justification for awarding a UCA for almost $50 million was
to reevaluate a contractor who was determined to be performing poorly.
It was determined that rather than using provisions in the existing
contract allowing for an extension of services, it would be best if
the contract was extended for a 6-month review period using a UCA, a
contracting tool that is to be used only when time does not permit the
negotiation of a contract action and contractor performance must begin
immediately to meet the government's requirements.
Conclusion:
Undefinitized contract actions can be an important tool for DOD to
meet urgent contracting needs. However, when UCAs are used the
government bears the majority of the cost risk during the
undefinitized period. DOD has issued new policies and guidance and now
requires components to report semi-annually on UCA use as well as
submit updated management plans detailing actions taken to ensure
appropriate use. Such efforts are intended to enable better
departmental insight into the extent to which UCAs are used and how to
manage their use to minimize the risk to the government. While DOD's
recent actions are a positive step and are still evolving, clear
guidance and accurate reporting are key. Further, despite DOD's call
for increased management attention of UCA use at DOD components,
management standards and tools designed to help mitigate UCA-related
cost risk have not always been met or used. Weighted guideline
worksheets, a tool designed to help contracting officers determine
allowable profit or fee for negotiation purposes, have not been used
consistently or included with information for the semi-annual report
as required. When guidelines have been used, it was not always clear
whether contracting officers considered any reduced risk to the
contractor during the undefinitized period because the required
weighted guideline worksheet documentation, as designed, does not show
the calculation and basis for any reduced profit or fee. Also, in
instances when cost-plus-award-fee contracts were awarded and weighted
guidelines were not required, guidance was not clear as to how to
consider and document any reduced risk borne by the contractor during
the undefinitized period. DOD's sustained attention on strengthening
its reporting and insight into the extent UCAs are used and ensuring
UCA management is improved at the component level is essential to
minimizing the government's risk of paying unnecessary costs and
excessive profit or fees.
Recommendations for Executive Action:
We recommend the Secretary of Defense take the following two actions.
To mitigate the risks of paying increased costs when using an
undefinitized contract action, revise DFARS to provide specific
guidance on how to perform an assessment of any reduced cost risk for
profit or fee during the undefinitized period for cost-plus-award-fee
UCAs.
To ensure DOD officials are able to gain insight into the risk
assessment that is required to be documented in the contract file and
the basis for the government's profit or fee negotiation objective,
redesign the weighted guidelines worksheet to explicitly show the
incurred cost calculations and a narrative description of the reason
for assigning a specific contract-type risk value.
Agency Comments and Our Evaluation:
We provided a draft of this report to DOD for review and comment. In
written comments, DOD concurred with our recommendations and cited
planned actions to address them. Specifically, DOD plans to revise
either the DFARS regulations or its corresponding Procedures,
Guidance, and Instruction to provide specific guidance on how to
perform an assessment of any reduced cost risk for profit or fee
during the undefinitized period for cost-plus-award-fee UCAs. In
addition, the department plans to redesign the weighted guidelines
worksheet to explicitly identify the incurred cost calculations and
justification for the assigned contract-type risk value. The draft
report also contained a recommendation for DOD to clarify that
weighted guideline worksheets are to be submitted with the semi-annual
UCA report submission for all definitized UCAs which equal or exceed
$100 million. In its written comments, DOD informed us on December 23,
2009 they revised the DFARS Procedure, Guidance, and Instruction
217.7405 to require military departments and defense agencies to
submit, in conjunction with their semi-annual UCA reports, weighted
guideline worksheets for each definitized UCA with a value of $100
million or more. Because of DOD's action on this recommendation, we
have removed it from the report. In addition, DOD provided technical
comments, which we incorporated as appropriate. The department's
comments are included in their entirety in appendix IV.
We are sending copies of this report to the Secretary of Defense; the
Secretaries of the Air Force, Army, and Navy; the Administrator of the
Office of Federal Procurement Policy; and interested congressional
committees. In addition, the report will be made available at no
charge on GAO's Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions concerning this report, please
contact me at (202) 512-4841. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this
report are listed in appendix V.
Signed by:
John P. Hutton:
Director Acquisition and Sourcing Management:
List of Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Howard P. "Buck" McKeon:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable John P. Murtha:
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
To identify and assess the actions the Department of Defense (DOD) has
taken to improve departmental insight into and oversight of
undefinitized contract actions (UCA), we interviewed senior DOD and
service acquisition policy officials as well as local officials at the
selected commands to identify new policies and guidance that would
affect the amount of insight senior DOD officials have. We reviewed
the August 2008 Defense Procurement and Acquisition Policy memorandum
along with the updated October 2009 guidance, which provided
additional Office of the Secretary of Defense (OSD) policy and
guidance for UCAs. In addition, we reviewed the relevant sections of
the Federal Acquisition Regulation and the Defense Federal Acquisition
Regulation Supplement (DFARS), as well as service-level guidance
pertaining to the use and management of UCAs. We also reviewed
relevant proposed changes to DFARS.
To determine the accuracy of UCA information available to senior
officials, we analyzed and compared information on UCAs from the
Federal Procurement Data System-Next Generation (FPDS-NG), DOD's newly
implemented semi-annual UCA reports, and the local acquisition command-
generated UCA reports. We noted any differences in information among
the various sources and documented those contract actions which did
not appear in DOD's semi-annual report, but were recorded in FPDS-NG
and the local reports. We also discussed these discrepancies with DOD
officials at both the local level and OSD level to try to understand
the underlying cause of these differences.
To identify whether DOD's recent actions have resulted in local
commands meeting DOD's UCA management standards with regard to
documenting the basis for negotiating the contractor profit or fee,
definitization time lines and obligation percentages, and the
circumstances in which UCAs are used, we conducted a contract file
review using a randomized list of UCAs from among six military
commands, one joint service combatant command, and a defense agency.
In order to choose the locations of the contract file reviews, we
analyzed UCA information from FPDS-NG for fiscal year 2008. We used
these data to compile a random selection of UCAs.
We selected the locations for our UCA file review based on two
criteria. First, we selected one contracting command from each of the
three military services (Air Force, Army, and Navy) and one defense
agency based on its placement within the top 50 percent of total-
dollar value of UCAs issued during fiscal year 2008 as recorded in the
FPDS-NG system. Second, for comparative purposes, we selected one
contracting command from each of the three military services (Air
Force, Army, and Navy) and one defense agency that fell outside of the
top 50 percent of total-dollar value of UCAs issued during fiscal year
2008 as recorded in the FPDS-NG system. The contracting commands in
this second group were then selected using subjective criteria which
included commands with significant UCA use recommended by the
services, the command's geographic location, and the command's history
of UCA use. The specific contracting commands we selected for our
review were:
U.S. Army:
* Tank-automotive and Armaments Command Contracting Center, Warren,
Michigan:
* Rock Island Contracting Center, Rock Island, Illinois:
U.S. Navy:
* Naval Sea Systems Command, Washington, D.C.
* Naval Inventory Control Point, Philadelphia, Pennsylvania:
U.S. Air Force:
* 303rd Aeronautical Systems Wing (Reconnaissance Systems Wing),
Wright-Patterson Air Force Base, Ohio:
* 516th Aeronautical Systems Wing (Mobility Systems Wing), Wright-
Patterson Air Force Base, Ohio:
Defense Agencies:
* Missile Defense Agency, Redstone Arsenal, Alabama:
* United States Special Operations Command, MacDill Air Force Base,
Florida:
Using the data provided by FPDS-NG, we established a population of
undefinitized contract actions at each location. We identified all
actions that were either coded in FPDS-NG as letter contracts or other
undefinitized actions for fiscal year 2008 and the first 5 months of
fiscal year 2009. We also identified UCAs in FPDS-NG that referenced
an undefinitized action in the description of the requirement or
reason for modification fields. Using these methods, we derived a
random selection of contract actions to review. For some commands we
verified whether or not a contract action was a UCA through DOD's
Electronic Document Access database, a Web-based system that provides
secure online access, storage, and retrieval of contracts and contract
modifications to authorized users throughout DOD. In addition, the
selections were also checked for accuracy against lists maintained in
DOD's semi-annual report as well as those maintained at each local
command. Over 200 potential UCAs were selected for this review. From
this selection, we expected to collect data on approximately 10 to 12
at each command we visited for a total of 80 to 96 UCAs. In the end,
we collected data on 92 UCAs from which we eliminated 9 and analyzed
the remaining 83 UCAs valued at a total of $6.1 billion.[Footnote 29]
Observations made from our review cannot be generalized to the entire
population of undefinitized contract actions issued by DOD.
We omitted UCAs for foreign military sales, purchases that did not
exceed the simplified acquisition threshold, special access programs,
and initial spares purchases, since these actions are not subject to
compliance with the definitization requirements we were reviewing. To
assess the data reliability of FPDS-NG for the purpose of selecting
locations and identifying UCA contracts, we verified UCA information
in FPDS-NG with other data systems, such as Electronic Data Access,
local command UCA reports, the semi-annual DOD reports, and with the
information recorded in the contract files. On the basis of this, we
determined that the FPDS-NG data were sufficiently reliable for the
purposes of this report.
At each location, we reviewed contract document files and interviewed
responsible contracting officials. During these interviews we asked
the contracting officials to explain the rationale for using a UCA and
the circumstances which led to the decision, as well as the events and
circumstances involved with definitizing the contract action. We also
reviewed local command UCA management policies to determine whether
they were consistent with DOD's management standards and whether these
policies differed from one command to another.
To determine whether contracting officers considered and documented
the basis for their determination of the government's profit or fee
negotiation objective to reflect any reduced risk to the contractor
for the undefinitized period, we analyzed the contract file documents,
including the price negotiation documentation and weighted guidelines
worksheets. We used this information to determine whether the
contracting officers considered and adjusted the contract-type risk
factor using incurred cost and projected cost information.
To determine whether UCAs were meeting definitization timelines, we
recorded data from the contract files on when the contract actions
were awarded and subsequently definitized. We aggregated these data to
determine the number of contracts definitized in less than 180 days,
definitized over 180 days, and those still undefinitized over 180
days. To determine how DOD's policy to limit initial obligations to
only the amount required for the undefinitized period of work was
being implemented, we recorded initial obligation amounts from the
contract files. We analyzed these data to determine how many contract
actions in our review were obligated at or near the 50 percent limit
at the time of award. Finally, to determine how and when UCAs were
being used, we reviewed the contract files and analyzed the types of
requirements being filled with UCAs and the circumstances behind the
decision to use this contracting method. We also discussed each case
with the contracting officers to obtain their rationale for using a
UCA.
We conducted this performance audit from March 2009 to January 2010 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Undefinitized Contract Actions Reviewed:
Army: Rock Island Contracting Center:
Contract no.: 1. W52P1J07D0010-0015;
Description of goods or services: LOGCAP[B] program management;
Award date: 2/13/09;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $30,580,953;
Obligation amount at award: $15,815,183;
Total dollar value at definitization: $29,715,055;
Contract/order pricing type[A]: CPAF.
Contract no.: 2. W52P1J06D0030-0003 Mod 22;
Description of goods or services: Support services for left behind
equipment;
Award date: 1/28/09;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $49,999,999;
Obligation amount at award: $25,000,000;
Total dollar value at definitization: $48,375,366;
Contract/order pricing type[A]: T&M.
Contract no.: 3. DAAA0902D0007-0147 Mod 22;
Description of goods or services: LOGCAP [B] support services in
Kuwait;
Award date: 11/30/07;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $184,820,468;
Obligation amount at award: $19,999,489;
Total dollar value at definitization: $171,754,437;
Contract/order pricing type[A]: CPAF.
Contract no.: 4. DAAA0902D0007-0147 Mod 37;
Description of goods or services: LOGCAP [B] support services in
Kuwait;
Award date: 12/11/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $56,039,142;
Obligation amount at award: $25,000,000;
Total dollar value at definitization: $53,712,769;
Contract/order pricing type[A]: CPAF.
Contract no.: 5. W52P1J05C0072-Mod 13;
Description of goods or services: PGU-28-A/B-30A/B and PGU-28A/B
rounds for Navy and Air Force aircraft;
Award date: 12/17/07;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $13,632,524;
Obligation amount at award: $6,816,262;
Total dollar value at definitization: $13,047,770;
Contract/order pricing type[A]: FFP.
Contract no.: 6. W52P1J08C0008;
Description of goods or services: Qatar-based military personnel
support services;
Award date: 4/1/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $42,000,000;
Obligation amount at award: $7,500,000;
Total dollar value at definitization: $37,230,387;
Contract/order pricing type[A]: CPAF.
Contract no.: 7. W52P1J08C0008 Mod 2;
Description of goods or services: Qatar-based postal services;
Award date: 5/22/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $2,718,707;
Obligation amount at award: $1,359,354;
Total dollar value at definitization: $1,747,895;
Contract/order pricing type[A]: FFP.
Contract no.: 8. DAAA0902D0007-159;
Description of goods or services: LOGCAP [B] support services;
Award date: 9/24/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $4,125,682,123;
Obligation amount at award: $618,589,889;
Total dollar value at definitization: $4,031,862,544;
Contract/order pricing type[A]: CPAF.
Contract no.: 9. W52P1J08C0011;
Description of goods or services: Tank ammunition for training
activities;
Award date: 2/21/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $51,849,900;
Obligation amount at award: $38,887,425;
Total dollar value at definitization: $52,549,592;
Contract/order pricing type[A]: FFP.
Contract no.: 10. W52P1J08C0010;
Description of goods or services: Tank ammunition for training
activities;
Award date: 3/27/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $57,799,650;
Obligation amount at award: $28,899,825;
Total dollar value at definitization: $48,227,200;
Contract/order pricing type[A]: FFP.
Contract no.: 11. W52P1J08D0063-0001 Mod 2;
Description of goods or services: Radioactive and hazardous waste
disposal for the Navy;
Award date: 11/14/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $1,288,414;
Obligation amount at award: $966,311;
Total dollar value at definitization: $1,162,037;
Contract/order pricing type[A]: FFP.
Contract no.: 12. W52P1J08C0003 Mod 3;
Description of goods or services: Production and support of CH-47F
helicopter simulators;
Award date: 2/29/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $37,479,706;
Obligation amount at award: $28,100,000;
Total dollar value at definitization: $37,165,112;
Contract/order pricing type[A]: CPFF.
Army: TACOM Contracting Center:
Contract no.: 1. W56HZV08C0114;
Description of goods or services: Crew protection kits for M915
Tactical Wheeled Vehicle;
Award date: 11/29/07;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $57,196,000;
Obligation amount at award: $28,598,000;
Total dollar value at definitization: $40,823,152;
Contract/order pricing type[A]: FFP.
Contract no.: 2. W56HZV07C0621 Mod 1;
Description of goods or services: Procure steel armor for Mine
Resistant Ambush Protected (MRAP) vehicles;
Award date: 11/1/07;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $21,000,000;
Obligation amount at award: $10,499,998;
Total dollar value at definitization: $20,242,872;
Contract/order pricing type[A]: FFP.
Contract no.: 3. W56HZV08C0537;
Description of goods or services: Tires for MRAP vehicles;
Award date: 7/16/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $4,288,140;
Obligation amount at award: $2,144,070;
Total dollar value at definitization: $4,108,536;
Contract/order pricing type[A]: FFP.
Contract no.: 4. W56HZV08C0447;
Description of goods or services: Procure critical spare parts for
MRAP vehicles;
Award date: 8/7/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $919,333;
Obligation amount at award: $450,473;
Total dollar value at definitization: $838,795;
Contract/order pricing type[A]: FFP.
Contract no.: 5. W56HZV05C0313 Mod 13;
Description of goods or services: Procure Tactical RPG Airbag
Protection System units for MRAP vehicles;
Award date: 7/21/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $7,200,000;
Obligation amount at award: $3,592,800;
Total dollar value at definitization: $7,104,634;
Contract/order pricing type[A]: CPFF.
Contract no.: 6. W56HZV05C0313 Mod 15;
Description of goods or services: Procure Tactical RPG Airbag
Protection System units for MRAP vehicles;
Award date: 9/25/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $3,171,000;
Obligation amount at award: $1,582,300;
Total dollar value at definitization: $2,996,116;
Contract/order pricing type[A]: CPFF.
Contract no.: 7. 56HZV08D0072-0002;
Description of goods or services: Track Shoe Assembly for Army Track
Wheeled vehicle fleet;
Award date: 7/25/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $35,054,057;
Obligation amount at award: $17,527,029;
Total dollar value at definitization: $32,438,336;
Contract/order pricing type[A]: FFP.
Contract no.: 8. W56HZV09C0215;
Description of goods or services: Tires for MRAP vehicles;
Award date: 12/23/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $1,137,805;
Obligation amount at award: $568,903;
Total dollar value at definitization: $1,102,875;
Contract/order pricing type[A]: FFP.
Contract no.: 9. W56HZV07C0576 Mod 1;
Description of goods or services: Retrofit of the Palletized Load
System and Heavy Equipment Mobility Tactical Truck;
Award date: 1/8/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $800,000;
Obligation amount at award: $400,000;
Total dollar value at definitization: $720,150;
Contract/order pricing type[A]: FFP.
Contract no.: 10. W56HZV05G0005-0021 Mod 6;
Description of goods or services: Electronic jamming systems to
protect against radio-controlled IEDs;
Award date: 8/8/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $5,701,088;
Obligation amount at award: $2,850,544;
Total dollar value at definitization: $2,506,609;
Contract/order pricing type[A]: FFP.
Contract no.: 11. W56HZV08C0138;
Description of goods or services: Operation of a forward-deployed
water packaging system;
Award date: 12/10/07;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $2,447,743;
Obligation amount at award: $1,223,638;
Total dollar value at definitization: $2,847,498;
Contract/order pricing type[A]: FFP.
Contract no.: 12. DAAE0701CS001 Mod 1488;
Description of goods or services: Enhanced suspension and improved
door handles for High Mobility Multipurpose Wheeled Vehicle (HMMWV);
Award date: 5/12/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $3,052,200;
Obligation amount at award: $1,526,100;
Total dollar value at definitization: $3,004,200;
Contract/order pricing type[A]: FFP.
Contract no.: 13. DAAE0701CS001 Mod 1489;
Description of goods or services: Fuel kits for HMMWV;
Award date: 5/22/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $13,847,000;
Obligation amount at award: $6,923,500;
Total dollar value at definitization: $13,802,365;
Contract/order pricing type[A]: FFP.
Contract no.: 14. DAAE0701CS001 Mod 1509;
Description of goods or services: Frag kit for HMMWV;
Award date: 6/26/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $257,008,930;
Obligation amount at award: $128,504,465;
Total dollar value at definitization: $143,105,028;
Contract/order pricing type[A]: FFP.
Contract no.: 15. DAAE0701CS001 Mod 1515;
Description of goods or services: Authorized stockage list parts and
frag kit for HMMWV;
Award date: 7/31/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $9,260,602;
Obligation amount at award: $4,630,301;
Total dollar value at definitization: $6,778,753;
Contract/order pricing type[A]: FFP.
Contract no.: 16. DAAE0701CS001 Mod 1516;
Description of goods or services: Enhanced armor for HMMWV;
Award date: 7/30/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $493,796;
Obligation amount at award: $246,898;
Total dollar value at definitization: $437,892;
Contract/order pricing type[A]: FFP.
Contract no.: 17. AAE0701CS001 Mod 1536;
Description of goods or services: Armored personnel troop carrier kits
for HMMWV;
Award date: 8/6/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $73,714,289;
Obligation amount at award: $36,857,144;
Total dollar value at definitization: $71,416,828;
Contract/order pricing type[A]: FFP.
Air Force: ASC/303rd AESW:
Contract no.: 1. FA8620-08-C-4061;
Description of goods or services: Acquire, pilot, modify, repair, and
support C-12 aircraft;
Award date: 8/5/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $119,600,000;
Obligation amount at award: $35,880,000;
Total dollar value at definitization: $117,235,013;
Contract/order pricing type[A]: FFP.
Contract no.: 2. FA8620-08-C-3004;
Description of goods or services: Development of Airborne Signals
Intelligence Payload configuration to meet requirements for Predator
and Reaper unmanned aircraft;
Award date: 12/5/07;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $54,900,000;
Obligation amount at award: $16,678,757;
Total dollar value at definitization: $71,147,842;
Contract/order pricing type[A]: CPIF.
Contract no.: 3. FA-8620-06-G-4033-0006;
Description of goods or services: Mission operation and logistics
support for Angel Fire System;
Award date: 8/29/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $17,102,522;
Obligation amount at award: $3,459,832;
Total dollar value at definitization: $17,448,992;
Contract/order pricing type[A]: CPFF.
Contract no.: 4. FA8620-04-C-3430 Mod 39;
Description of goods or services: Upgrade to Common Airborne Modem
Assembly communication link;
Award date: 3/31/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $332,748;
Obligation amount at award: $166,374;
Total dollar value at definitization: $326,550;
Contract/order pricing type[A]: FFP/FPIF.
Contract no.: 5. FA-8620-06-G-4041-0006;
Description of goods or services: Multi-Spectral Targeting System
Target Location Accuracy improvements for Predator and Reaper unmanned
aircraft;
Award date: 10/17/07;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $3,200,000;
Obligation amount at award: $3,200,000;
Total dollar value at definitization: $3,123,206;
Contract/order pricing type[A]: CPFF.
Contract no.: 6. FA-8620-06-G-4026-0057;
Description of goods or services: Procurement and missionization of 3
aircraft;
Award date: 12/26/07;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $14,797,440;
Obligation amount at award: $10,950,000;
Total dollar value at definitization: $21,171,897;
Contract/order pricing type[A]: FFP.
Contract no.: 7. FA8620-05-G3028-0050;
Description of goods or services: Procurement of Reaper unmanned
aircraft;
Award date: 11/26/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $115,158,656;
Obligation amount at award: $52,927,284;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: FFP.
Contract no.: 8. FA8620-05-G3028-0036;
Description of goods or services: Ground Control Stations and other
related equipment for Predator and Reaper unmanned aircraft;
Award date: 10/30/07;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $59,544,953;
Obligation amount at award: $59,544,953;
Total dollar value at definitization: $53,444,927;
Contract/order pricing type[A]: CPFF/FFP.
Contract no.: 9. FA8620-08-C4015;
Description of goods or services: Provide Remote Piloted Vehicle (RPV)
Pilots and Sensor Operators for training exercises;
Award date: 12/21/07;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $5,031,654;
Obligation amount at award: $2,515,827;
Total dollar value at definitization: $5,031,654;
Contract/order pricing type[A]: FFP.
Contract no.: 10. FA8620-06-G4026-0110;
Description of goods or services: Procure M-28 aircraft for US Special
Operations Command;
Award date: 12/23/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $16,380,000;
Obligation amount at award: $12,121,200;
Total dollar value at definitization: $16,278,109;
Contract/order pricing type[A]: FFP.
Contract no.: 11. FA8620-05-G3028-0035;
Description of goods or services: Provide Contractor Logistics Support
for Predator and Reaper unmanned aircraft;
Award date: 12/21/07;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $63,779,273;
Obligation amount at award: $47,834,454;
Total dollar value at definitization: $170,253,578;
Contract/order pricing type[A]: CPFF/T&M.
Contract no.: 12. F33657-01-C4600 Mod 249;
Description of goods or services: Perform durability tests to Global
Hawk unmanned aircraft;
Award date: 4/2/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $1,800,000;
Obligation amount at award: $900,000;
Total dollar value at definitization: $1,793,330;
Contract/order pricing type[A]: CPAF.
Air Force: ASC/516th AESW:
Contract no.: 1. FA8625-07-C-6473 Mod 3;
Description of goods or services: Procurement and installation of C-5
aircraft Large Aircraft Infrared Countermeasures (LAIRCM) kits;
Award date: 1/14/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $24,839,778;
Obligation amount at award: $12,419,889;
Total dollar value at definitization: $16,339,046;
Contract/order pricing type[A]: FFP/T&M.
Contract no.: 2. FA8625-06-D-6453-0010;
Description of goods or services: Guardian Laser Transmittal Assembly;
Award date: 10/15/07;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $93,239,931;
Obligation amount at award: $46,619,966;
Total dollar value at definitization: $83,511,661;
Contract/order pricing type[A]: FFP.
Contract no.: 3. FA8614-04-C-2004 Mod 196;
Description of goods or services: Guardian Laser Transmittal Assembly;
Award date: 2/22/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $77,000,000;
Obligation amount at award: $34,650,000;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: CPFF/FFP.
Contract no.: 4. FA8614-04-C-2004 Mod 245;
Description of goods or services: Wing Pylon Fairing kits;
Award date: 6/12/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $16,300,000;
Obligation amount at award: $8,000,000;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: CPFF/FFP.
Contract no.: 5. FA8614-04-C-2004 Mod 236;
Description of goods or services: Aeromedical Stations Litter
Augmentation System;
Award date: 3/27/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $13,769,216;
Obligation amount at award: $6,196,147;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: FFP.
Contract no.: 6. A8625-04-D-6452-0003 Mod 8;
Description of goods or services: Replace aircraft flight system to
include pilot vehicle interface;
Award date: 11/24/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $5,000,000;
Obligation amount at award: $1,000,000;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: CPAF.
Contract no.: 7. FA8625-06-D-6453-0014;
Description of goods or services: Design, installation, and flight
test support of LAIRCM pod;
Award date: 2/22/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $923,071;
Obligation amount at award: $461,535;
Total dollar value at definitization: $860,843;
Contract/order pricing type[A]: T&M.
Contract no.: 8. F33657-01-D2000-0020 Mod 25;
Description of goods or services: Develop replacement for the C-17
aircraft Global Positioning System Inertial Reference Unit;
Award date: 12/27/07;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $6,979,931;
Obligation amount at award: $3,489,965;
Total dollar value at definitization: $4,409,376;
Contract/order pricing type[A]: CPAF.
Contract no.: 9. FA8625-05-C6459 Mod 13;
Description of goods or services: Upgrade current Guardian Laser
Transmittal Assembly and LAIRCM processor;
Award date: 2/29/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $2,618,240;
Obligation amount at award: $602,000;
Total dollar value at definitization: $2,354,406;
Contract/order pricing type[A]: CPFF/T&M.
Contract no.: 10. F33657-98-C0006 Mod 206;
Description of goods or services: Procure C-5 aircraft Avionics
Modernization Program kits;
Award date: 3/14/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $66,935,000;
Obligation amount at award: $33,467,500;
Total dollar value at definitization: $58,653,217;
Contract/order pricing type[A]: FFP.
Contract no.: 11. FA8625-08-C6481;
Description of goods or services: Procure C-130 aircraft Avionics
Modernization Program kits;
Award date: 9/30/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $27,200,000;
Obligation amount at award: $7,160,000;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: FFP/T&M/CPIF/CPFF.
Contract no.: 12. FA8625-06-C6456 Mod 49;
Description of goods or services: C-130J aircraft contractor support
equipment;
Award date: 4/24/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $3,379,105;
Obligation amount at award: $1,182,687;
Total dollar value at definitization: $39,070,592;
Contract/order pricing type[A]: FFP.
Contract no.: 13. FA8625-06-C6456 Mod 68;
Description of goods or services: Configure C-130J aircraft into MC-
130J configuration;
Award date: 12/9/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $56,560,000;
Obligation amount at award: $19,634,000;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: FFP.
Navy: NAVICP:
Contract no.: 1. N0038306G067B-5290;
Description of goods or services: Truss assembly;
Award date: 9/23/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $5,113,350;
Obligation amount at award: $2,556,675;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: FFP.
Contract no.: 2. FA810405G0003-GJ72;
Description of goods or services: TF34 engine blades;
Award date: 5/5/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $1,110,725;
Obligation amount at award: $833,044;
Total dollar value at definitization: $1,036,234;
Contract/order pricing type[A]: FFP.
Contract no.: 3. N0038305G003H-0013;
Description of goods or services: Production tooling for F/A-18 Inner
Wing Panels spares;
Award date: 9/23/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $4,350,000;
Obligation amount at award: $2,175,000;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: FFP.
Contract no.: 4. N0038304D028N-0007;
Description of goods or services: Engineering study for Spares and
Repair Parts for H-60 overhaul and repairs;
Award date: 7/17/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $450,000;
Obligation amount at award: $225,000;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: CPAF/CPFF.
Contract no.: 5. N0038305G003H-0012;
Description of goods or services: Production tooling for F/A-18 Inner
Wing Panels spares;
Award date: 9/23/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $3,250,000;
Obligation amount at award: $1,625,000;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: FFP.
Contract no.: 6. N0038306D001J-0004 Mod 08;
Description of goods or services: AESA radar spares for F/A-18
aircraft;
Award date: 3/31/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $38,540,436;
Obligation amount at award: $19,270,218;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: FFP.
Contract no.: 7. N0038306D001J-0004 Mod 18;
Description of goods or services: AESA radar repairs for F/A-18
aircraft;
Award date: 9/26/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $8,010,880;
Obligation amount at award: $4,005,440;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: CPFF.
Contract no.: 8. N0038306D001J-0004 Mod 25;
Description of goods or services: AESA radar repair lay-in material
for F/A-18 aircraft;
Award date: 11/26/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $1,929,649;
Obligation amount at award: $964,825;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: FFP.
Contract no.: 9. FA810405G0003-GK27;
Description of goods or services: T34 engine blades, turbines, and
rotors;
Award date: 5/15/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $709,877;
Obligation amount at award: $532,460;
Total dollar value at definitization: $633,826;
Contract/order pricing type[A]: FFP.
Navy: NAVSEA:
Contract no.: 1. N0002408C5202;
Description of goods or services: Procurement of the Cooperative
Engagement Capability Design Agent sensor netting system for anti-air
warfare capability;
Award date: 1/17/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $62,579,000;
Obligation amount at award: $24,714,360;
Total dollar value at definitization: $53,967,986;
Contract/order pricing type[A]: CPFF.
Contract no.: 2. N0002409C5103;
Description of goods or services: Evolve and maintain the Aegis Combat
System (ACS) at the platform level for the Aegis CG-47 and DDG-51 ship
classes;
Award date: 1/9/09;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $51,000,000;
Obligation amount at award: $25,115,346;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: CPFF.
Contract no.: 3. N0002405C4208 Mod 19;
Description of goods or services: Design, fabrication, testing and
documentation for Submarine Decompression Chambers;
Award date: 12/21/07;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $769,025;
Obligation amount at award: $384,512;
Total dollar value at definitization: $1,092,962;
Contract/order pricing type[A]: CPAF.
Contract no.: 4. N0002405C4208 Mod 23;
Description of goods or services: Procure Submarine Rescue System -
Rescue Capable System spares;
Award date: 2/28/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $121,134;
Obligation amount at award: $60,567;
Total dollar value at definitization: $121,134;
Contract/order pricing type[A]: CPAF.
Contract no.: 5. N0002409C5101;
Description of goods or services: Multi-Mission Signal Processor,
Ballistic Missile Defense equipment, and Aegis Weapon System hardware
upgrades;
Award date: 2/9/09;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $78,623,236;
Obligation amount at award: $38,918,503;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: CPIF/CPFF/FFP.
Contract no.: 6. N0002408C5122;
Description of goods or services: Procurement of software,
maintenance, equipment, and documentation necessary to support the
Ship Self Defense System;
Award date: 9/30/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $8,322,695;
Obligation amount at award: $4,161,347;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: CPFF.
Contract no.: 7. N0002407D5222 Mod 4;
Description of goods or services: Enhancements for the Common Display
Systems System;
Award date: 10/22/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $2,820,097;
Obligation amount at award: $1,410,048;
Total dollar value at definitization: $2,271,907;
Contract/order pricing type[A]: CPAF.
Contract no.: 8. N0002409C5100;
Description of goods or services: Ship Self Defense System kits to
support aircraft carrier and amphibious ship modernization efforts;
Award date: 12/23/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $14,909,781;
Obligation amount at award: $7,084,666;
Total dollar value at definitization: $13,303,184;
Contract/order pricing type[A]: FFP.
Contract no.: 9. N0002408C5203 Mod 1;
Description of goods or services: Procurement of Compact Solid State
Antennas for the Cooperative Engagement Capability subsystem of both
the USMC Composite Tracking Network and the US Army Joint Land Attack
Cruise Missile Defense Elevated Netted Sensor System;
Award date: 11/26/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $4,070,000;
Obligation amount at award: $2,035,000;
Total dollar value at definitization: $4,058,660;
Contract/order pricing type[A]: FFP.
U.S. Special Operations Command:
Contract no.: 1. H9222209C0003;
Description of goods or services: Procure Hatch Lighting Orientation
systems for the RG31 and RG33 Armored Fighting Vehicles;
Award date: 10/31/08;
Definitization status: Undefinitized beyond 180 days;
Not-to-exceed amount: $9,350,750;
Obligation amount at award: $3,282,598;
Total dollar value at definitization: N/A;
Contract/order pricing type[A]: FFP.
Contract no.: 2. H9222208C0034;
Description of goods or services: Procure Remote Weapon Station
installation kits;
Award date: 9/5/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $4,303,797;
Obligation amount at award: $1,300,000;
Total dollar value at definitization: $3,049,898;
Contract/order pricing type[A]: FFP.
Contract no.: 3. H9222208C0028;
Description of goods or services: Stealth Reconnaissance Assault
Transport System vehicles;
Award date: 8/26/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $5,462,484;
Obligation amount at award: $2,458,118;
Total dollar value at definitization: $4,624,974;
Contract/order pricing type[A]: FFP.
Contract no.: 4. H9222207D0015-0014;
Description of goods or services: Procure Psychological Operations
Print System - Light, along with spares and training;
Award date: 9/5/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $7,508,394;
Obligation amount at award: $5,631,295;
Total dollar value at definitization: $7,449,873;
Contract/order pricing type[A]: FFP.
Contract no.: 5. H9222208C0022;
Description of goods or services: Unmanned Aircraft System Information
Gathering, Target Surveillance, and Reconnaissance Services;
Award date: 4/14/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $8,890,000;
Obligation amount at award: $4,445,000;
Total dollar value at definitization: $22,853,974;
Contract/order pricing type[A]: FFP.
Contract no.: 6. H9222207D0015-0013;
Description of goods or services: Procure Psychological Operations
Print System - Light, along with spares and training;
Award date: 7/3/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $4,110,182;
Obligation amount at award: $3,082,637;
Total dollar value at definitization: $4,052,534;
Contract/order pricing type[A]: FFP.
Missile Defense Agency:
Contract no.: 1. HQ000603C0047 Mod 112;
Description of goods or services: Common X-Band Radar Software for
Ballistic Missile Defense System;
Award date: 10/9/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $14,000,000;
Obligation amount at award: $14,000,000;
Total dollar value at definitization: $35,340,206;
Contract/order pricing type[A]: CPAF.
Contract no.: 2. HQ000604C0004 Mod 61;
Description of goods or services: Provide support for Ballistic
Missile Defense System Requirements Review;
Award date: 2/29/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $24,000,000;
Obligation amount at award: $10,000,000;
Total dollar value at definitization: $22,849,959;
Contract/order pricing type[A]: CPFF.
Contract no.: 3. HQ014707C0196 Mod 6;
Description of goods or services: Configuration changes to Canister
Kill Vehicle for the Terminal High Altitude Area Defense program;
Award date: 4/16/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $2,500,000;
Obligation amount at award: $1,250,000;
Total dollar value at definitization: $1,668,779;
Contract/order pricing type[A]: CPAF/CPIF.
Contract no.: 4. HQ014708C0001;
Description of goods or services: Security services for the Sea-Based
X-Band radar program;
Award date: 3/14/08;
Definitization status: Definitized beyond 180 days;
Not-to-exceed amount: $5,000,000;
Obligation amount at award: $2,450,000;
Total dollar value at definitization: $6,542,887;
Contract/order pricing type[A]: CPFF.
Contract no.: 5. HQ014709C0008;
Description of goods or services: Bridge contract for the development
of the Ground-based Midcourse Defense system;
Award date: 12/30/08;
Definitization status: Definitized within 180 days;
Not-to-exceed amount: $397,800,000;
Obligation amount at award: $175,000,000;
Total dollar value at definitization: $325,308,538;
Contract/order pricing type[A]: CPFF/CPAF.
Total:
Not-to-exceed amount: $6,786,160,580;
Obligation amount at award: $1,845,093,925;
Total dollar value at definitization: $6,073,506,557.
Source: GAO analysis of DOD contract files.
[A] CPAF - Cost plus award fee:
CPFF - Cost plus fixed fee:
CPIF - Cost plus incentive fee:
FFP - Firm fixed price:
FPIF - Firm fixed price incentive fee:
T&M - Time-and-Materials:
[B] The Logistics Civil Augmentation Program (LOGCAP) is a program of
the U.S. Army to use civilian contractors to provide the Army with an
additional means to adequately support the current and programmed
force by performing selected services in wartime and other operations.
[End of table]
[End of section]
Appendix III: Information for UCAs Omitted from DOD's April 2009 Semi-
Annual Report:
TACOM Contracting Center:
No.: 1;
Contract number: DAAE0701CS001 Mod 1489;
Description of goods or services: Fuel Kits for HMMWV;
Not-to-exceed amount: $13,847,000;
Award date: 5/22/2008.
No.: 2;
Contract number: DAAE0701CS001 Mod 1509;
Description of goods or services: Frag Kit for HMMWV;
Not-to-exceed amount: $257,008,930;
Award date: 6/26/2008.
No.: 3;
Contract number: DAAE0701CS001 Mod 1515;
Description of goods or services: Authorized Stockage List Parts and
Frag Kit for HMMWV;
Not-to-exceed amount: $9,260,602;
Award date: 7/31/2008.
No.: 4;
Contract number: W56HZV05G0005-0021;
Description of goods or services: Electronic Jamming Systems to
Protect against Radio-Controlled IEDs;
Not-to-exceed amount: $5,701,088;
Award date: 8/8/2008.
NAVSEA;:
No.: 5;
Contract number: N0002409C5103;
Description of goods or services: Evolve and Maintain the Aegis Combat
System at the Platform Level for the Aegis CG-47 and DDG-51 Ship
Classes;
Not-to-exceed amount: $51,000,000;
Award date: 1/9/2009.
No.: 6;
Contract number: N0002409C5101;
Description of goods or services: Multi-Mission Signal Processor,
Ballistic Missile Defense Equipment, and Aegis Weapon System Hardware
Upgrades;
Not-to-exceed amount: $78,623,236;
Award date: 2/9/2009.
No.: 7;
Contract number: N0002408C5122;
Description of goods or services: Procurement of Software,
Maintenance, Equipment, and Documentation Necessary to Support the
Ship Self Defense System;
Not-to-exceed amount: $8,322,695;
Award date: 9/30/2008.
No.: 8;
Contract number: N0002409C5100;
Description of goods or services: Ship Self Defense System Kits to
Support Aircraft Carrier and Amphibious Ship Modernization Efforts;
Not-to-exceed amount: $14,909,781;
Award date: 12/23/2008.
Source: GAO analysis of DOD data.
[End of table]
[End of section]
Appendix IV: Comments from the Department of Defense:
Office Of The Under Secretary Of Defense:
Acquisition, Technology And Logistics:
3000 Defense Pentagon:
Washington, DC 20301-3000:
January 27, 2010:
Mr. John Hutton:
Director, Acquisition and Sourcing Management:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. Hutton:
This is the Department of Defense (DoD) response to the GAO Draft
Report, GAO-10-299, "Defense Contracting: DoD Has Enhanced Insight
into Undefinitized Contract Action Use, but Management at Local
Commands Needs Improvement," dated December 29, 2009 (GAO Code
120819). Detailed comments on the report recommendations are enclosed.
We appreciate GAO's assessment of our progress in adopting and executing
policies and procedures to better manage the Department's use of
undefinitized contract actions (UCAs). As your report indicates, the
actions we have taken in the past 18 months have resulted in enhanced
insight and improved oversight of UCAs. In the coming year, we will
build upon this foundation to ensure that when UCAs are used, they are
used properly.
Finally, in reviewing the draft, we identified technical comments to
call to your attention. We have provided informal feedback to your
staff on these technical points of clarification.
Sincerely,
Signed by:
Shay D. Assad:
Director, Defense Procurement and Acquisition Policy:
Enclosure: As stated:
[End of letter]
GAO Draft Report Dated December 29, 2009:
GAO-10-299 (GAO CODE 120819):
"Defense Contracting: DoD Has Enhanced Insight Into Undefinitized
Contract Action Use, But Management At Local Commands Needs
Improvement"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: The GAO recommends that the Secretary of Defense
revise the Defense Federal Acquisition Regulation Supplement to
provide specific guidance regarding how to perform an assessment of
any reduced cost risk for profit or fee during the undefinitized
period for cost-plus-award-fee undefinitized contract actions (UCAs).
DoD Response: Concur. The Department will revise the Defense Federal
Acquisition Regulation Supplement (DFARS) or the associated DFARS
Procedures, Guidance and Instruction (PGI) to provide specific
guidance regarding how to perform an assessment of any reduced cost
risk for profit or fee during the undefinitized period for cost-plus-
award-fee UCAs.
Recommendation 2: The GAO recommends that the Secretary of Defense
redesign the weighted guidelines worksheet to explicitly show the
incurred cost calculations and a narrative description of the reason
for assigning a specific contract type risk value.
DoD Response: Concur. The Department will redesign the weighted
guidelines worksheet to explicitly show the incurred cost calculations
and a narrative description of the reason for assigning a specific
contract type risk value.
Recommendation 3: The GAO recommends that the Secretary of Defense
clarify in guidance the requirement that DoD components are to submit
the weighted guidelines worksheets for all definitized UCAs which
equal or exceed $100 million to the Office of the Under Secretary of
Defense (Acquisition, Technology and Logistics) Defense
Procurement and Acquisition Policy Office along with their semiannual
UCA report submissions.
DoD Response: Concur. On December 23, 2009, the Department revised
DFARS PGI 217.7405 to require military departments and defense
agencies submit, in conjunction with their semi-annual reports, a copy
of the record of weighted guidelines for each definitized UCA with a
value of $100 million or more. The Department considers this
recommendation to be complete.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
John P. Hutton, (202) 512-4841, huttonj@gao.gov:
Acknowledgments:
In addition to the individual named above, key contributors to this
report were Penny Berrier Augustine, Assistant Director; Megan Hill;
Rob Miller; Brian Smith; J. Andrew Walker; Julia Kennon; John Krump;
Ken Patton; and Bob Swierczek.
[End of section]
Footnotes:
[1] A definitized contract action is one in which all conditions and
terms are agreed to by the parties to the contract at the time of
contract award.
[2] Defense Federal Acquisition Regulation Supplement (DFARS) 217.7404-
3(a) (1) and (2). Under the Federal Acquisition Regulation (FAR)
16.603-2(c)(3), letter contracts are to be definitized before 180 days
or before 40 percent of the work is completed. DOD has proposed an
amendment to the Defense Federal Acquisition Regulation Supplement
(DFARS) (Case 2007-D011) to clarify that DOD letter contracts will be
definitized using the DFARS procedures (before 180 days or prior to 50
percent or more of the not-to-exceed amount is obligated) applicable
to all other undefinitized contract actions. The proposed rule was
still pending as of January 21, 2010.
[3] At the time of this analysis, fiscal year 2008 was the most
current year for which information was available. $18 billion is the
total not-to-exceed amount for the reported undefinitized contract
actions, exceeding the $5 million reporting threshold, during fiscal
year 2008 and represents the highest value of obligations the
government may have to fund for those contract actions once they are
definitized. DOD finalized its October 2009 report December 22, 2009.
[4] GAO, Defense Contracting: Use of Undefinitized Contract Actions
Understated and Definitization Time Frames Often Not Met, [hyperlink,
http://www.gao.gov/products/GAO-07-559] (Washington, D.C.: June 19,
2007).
[5] Pub. L. No. 110-181, § 809, 122 Stat. 217 (2008).
[6] Management Oversight of Undefinitized Contract Actions memorandum
from the Director, Office of Defense Procurement and Acquisition
Policy (Aug. 29, 2008).
[7] The Federal Procurement Data System-Next Generation is a
comprehensive, Web-based tool and database which functions as a
clearinghouse of information for all of DOD's contract actions,
including UCAs, exceeding the micropurchase threshold, which in most
cases is $3,000.
[8] DOD's Electronic Data Access is a Web-based system that provides
secure online access, storage, and retrieval of contracts and contract
modifications to authorized users throughout DOD.
[9] GAO, High-Risk Series: An Update, GAO-09-271 (Washington, D.C.:
January 2009).
[10] DOD's reported obligations in fiscal year 2009 reflected an
approximately $13.9 billion adjustment to correct an error made in
fiscal year 2008. The $384 billion we report accounts for the
correction and reflects DOD's total fiscal year 2009 obligations.
[11] [hyperlink, http://www.gao.gov/products/GAO-07-559] and
Department of Defense, Office of the Inspector General, Audit Report:
Undefinitized Contract Actions. Report Number D-2004-112, Arlington,
Va. (Aug. 30, 2004).
[12] [hyperlink, http://www.gao.gov/products/GAO-07-559], 6.
[13] DFARS 217.7404-6.
[14] The FAR requires letter contracts be definitized within 180 days
after the award date or before 40 percent of the work is complete,
whichever occurs first. See FAR 16.603(2)(c)(3).
[15] For purposes of this report, an unpriced change order is a
unilateral, within scope order on which the parties have not yet
reached agreement on an equitable adjustment. It includes change
orders, administrative changes, funding modifications, or any other
contract modifications that are within the scope and under the terms
of the contract, e.g., engineering change proposals, and value
engineering change proposals. DFARS 217.7401.
[16] GAO, Defense Acquisitions: Further Actions Needed to Address
Weaknesses in DOD's Management of Professional and Management Support
Contracts, [hyperlink, http://www.gao.gov/products/GAO-10-39]
(Washington, D.C.: Nov. 20, 2009).
[17] For more specific information on the UCAs omitted from the April
2009 semi-annual report see appendix III.
[18] Documentation of the government's proposed profit or fee is
typically found in the contract file's price negotiation memorandum
and weighted guideline worksheet. The price negotiation memorandum
details the negotiations between the government and the contractor to
reach final terms of definitization and typically includes the
government's objective, summaries of the contractor's proposals, and
the profit or fee negotiated.
[19] DOD may obligate up to 50 percent immediately at award and up to
75 percent upon receipt of a qualifying proposal from the contractor.
DFARS 217.7404-4. According to DOD policy, contracting officers should
also limit obligating the maximum permissible funding at the time of
the award to discourage extended periods of performance prior to
definitization. DOD may waive limitations on obligations if the head
of the agency determines a waiver is necessary to support a
contingency, humanitarian, or peacekeeping operation. DFARS 217.7404-
5(b).
[20] Seventeen of the 83 UCAs we selected were not definitized or
government negotiation objectives had not been prepared before or
during our review. Therefore, 66 UCAs should have had a weighted
guidelines worksheet or a risk assessment in the contract file,
according to DOD regulations. This number includes the 12 cost-plus-
award-fee contracts which, although not required to use a weighted
guidelines worksheet, were still required to consider any reduced risk
borne by the contractor during the undefinitized period and document
this risk assessment in the contract file.
[21] 216.405-2, procedures, guidance, and instruction to DFARS 216.405-
2 and DFARS 217.7404-6.
[22] DFARS 217.7404-6.
[23] DFARS 215.404-71-3(c).
[24] DFARS 215.404-71-3(d)(2).
[25] [hyperlink, http://www.gao.gov/products/GAO-07-559], 12.
[26] DFARS 217.7404-4.
[27] [hyperlink, http://www.gao.gov/products/GAO-07-559], 16.
[28] Fifteen of the 17 contract actions were awarded before the
Aeronautical Systems Center's guidance that provided additional
instructions and reemphasized DFARS limitations on obligation amounts
at award. In two cases, the Head of Contracting Activity approved a
waiver allowing for obligating of 100 percent at award for Operation
Iraqi Freedom /Operation Enduring Freedom requirements.
[29] Eight UCAs at the Naval Inventory Control Point were removed from
our analysis because they were used to purchase initial spares. One
UCA at the Rock Island Contracting Center was removed because we found
that it was the responsibility of the TACOM Contracting Center and
should not have been included in our review of UCAs at Rock Island.
Additionally, at the TACOM Contracting Center and Naval Inventory
Control Point locations, we reviewed a total of seven UCAs that as of
February 2009 had been transferred to the Defense Logistics Agency as
part of the latest Base Realignment and Closure process.
[End of section]
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