Review of the Relocation of Railroad Facilities, Walter F. George Lock and Dam, Fort Gaines, Georgia, Corps of Engineers (Civil Functions)

B-156516: Published: Mar 11, 1966. Publicly Released: Mar 11, 1966.

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The General Accounting Office has made a review of a negotiated firm fixed-price contract awarded by the Mobile District (District), Corps of Engineers (Civil Functions) (Corps), Department of the Army, to a railroad company for the relocation of the railroad's facilities, necessitated by the construction of the Walter F. George Lock and Dam near Fort Gaines, Georgia. Our review was made pursuant to the Budget and Accounting Act, 1921 (31 U.S.C. 53), and the Accounting and Auditing Act of 1950 (31 U.S.C. 67). Because Corps regulations provide for the use of cost-reimbursable contracts for major relocations, our examination was directed at the justification for the deviation from Corps regulations. We examined the Corps' policies and procedures for awarding contracts for the relocation of facilities and reviewed cost estimates, correspondence, and other pertinent records at the Office of the Chief of Engineers, Washington, D.C.; Office of the Division Engineer, Atlanta, Georgia; and Office of the District Engineer, Mobile, Alabama. We also examined the records of the railroad at Savannah, Georgia, and at Washington, D.C., to verify certain information furnished to us by railroad officials. Although our examination was limited to the circumstances involving one contract and we are unable to state whether similar deficiencies have existed with respect to other relocation contracts, we believe that the deficiencies disclosed were of such significance that specific instructions should be issued by the Chief of Engineers to all division and district engineers in order to minimize the possibility of the occurrence of a situation similar to that described in this report.

Our review of the railroad's general ledger accounts indicated that the Corps paid about $770,000 more than it cost the railroad to have the relocation work performed. The railroad was able to perform the relocation work for less than the contract price, primarily because of favorable terms received in subcontracting certain work and because of a Government allowance for additional operation and maintenance costs, which the Corps should have known would not be incurred because of a change in the type of bridge to be constructed. Also included in the relocation costs recorded by the railroad were the costs of certain facility betterments valued at about $21,000. This amount should be considered an added payment to the railroad because the Government generally is reimbursed for the cost of betterments. Although it is the general policy of the Corps to use cost reimbursable-type contracts for major relocations, the Corps entered into a firm fixed-price relocation contract with the railroad because it believed that the use of the fixed-price contract would result in savings to the Government. A more complete evaluation of the cost estimates, which we believe reasonably should have been made in the circumstances, would have indicated that the proposed amount of the fixed-price contract would not have resulted in the savings anticipated by the Corps and, therefore, that there was no need to deviate from the general policy which prescribes the use of cost-reimbursable contracts. The railroad does not agree that it was paid $770,000 more than the cost of the relocation, because certain costs for supervision and other overhead expenses were not allocated and recorded in its records as part of the contract costs and because considerations other than construction costs were involved in the contract. When we requested that the railroad make available to us the subsidiary accounting records or work orders, so that we might examine the nature of the charges to the contract or provide us with a reasonable estimate of the unallocated costs, we were advised that the work orders could not be located and that the railroad was not in a position to make an estimate of the -amount of unallocated costs without exhaustive accounting work. While it is possible that some costs may not have been allocated to the relocation and that these costs would have reduced the $770,000 difference between the contract amount and the railroad's costs, on the basis of data included in the cost estimates of the Corps and the railroad, it is unlikely that these costs would have resulted in a substantial reduction. Our reasons for this conclusion and the considerations referred to by the railroad are discussed in the report. To minimize the possibility of the occurrence of similar situations in the future, we proposed that existing regulations be amended to require that requests by division or district engineers to enter into fixed-price contracts for major relocations be fully supported by detailed cost analyses or other justifications to enable the Chief of Engineers to adequately evaluate the circumstances requiring a deviation from the prescribed procedures. The Corps agreed to give further consideration to extending the requirements for the approval of the use of fixed-price contracts for major relocations and advised us that the Chief of Engineers had emphasized to division and district engineers the need to minimize the use of such contracts. Subsequently, however, we were informed that the existing regulations were considered adequate and that no revision was contemplated.

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