Contract Pricing in the Meals-Ready-To-Eat Program

NSIAD-83-29: Published: Aug 8, 1983. Publicly Released: Aug 8, 1983.

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GAO examined the pricing of a contract for the assembly of individual combat meal packages awarded by the Defense Personnel Support Center (DPSC).

The contract was the first in a series of contracts awarded to the same firm for the assembly of the meal packages, called Meals-Ready-To-Eat (MRE). GAO found evidence that DPSC did not follow sound procurement practices in negotiating the contract. For example, it awarded a fixed-price contract even though the contractor was a newly formed division with no production history. DPSC deviated from the government's usual practice by agreeing to directly reimburse the contractor for leasehold improvements to a production facility, and it did not try to increase competition for the program by telling other contractors in the request for proposals that it was willing to directly reimburse for investments in facilities. In addition, DPSC did not follow all of the requirements of the Defense Acquisition Regulations (DAR) in preparing memorandum records of negotiations; the memoranda did not adequately demonstrate the reasonableness of the negotiated prices, the appropriateness of demands and concessions made in negotiations, or the extent to which the government's interests were protected. DPSC obtained a waiver from following the weighted profit guidelines, but the data supporting the basis for the waiver were incomplete. GAO believes that these poor procurement practices, coupled with audit data that should have been considered, led to acceptance of significantly overstated costs, an allowance of greater profit rate than permitted by the weighted guidelines, and direct payment to the contractor for leasehold improvements to an assembly building.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Thus far, DLA collected $77,272 from the contractor applicable to the first contract, MRE-I. The government contracting officer issued Finding of Fact and Decision confirming a demand for $471,857 on MRE-I and $2,612,007 on MRE-II from the contractor. The contractor can appeal this decision at the Armed Services Board of Contract Appeals, and even, subsequently, through the courts.

    Recommendation: The Director, Defense Logistics Agency (DLA), should direct DPSC to determine the extent to which the government is entitled to a price adjustment on this contract.

    Agency Affected: Department of Defense: Defense Logistics Agency

  2. Status: Closed - Implemented

    Comments: Audits were completed and negotiations are underway for recovery of defective pricing amounts from the contractor. An accomplishment report will be prepared when monies are recovered.

    Recommendation: The Director, DLA, should request that an audit be made to review the pricing of the other MRE program contracts to identify any overpricing or defective pricing and obtain appropriate price adjustments, where indicated.

    Agency Affected: Department of Defense: Defense Logistics Agency

  3. Status: Closed - Implemented

    Comments: An accomplishment report will be issued as a consequence of the first recommendation. DLA is now considering a different type of contract to fill its needs.

    Recommendation: The Director, DLA, should ensure that its proposed pricing data evaluation on future MRE contracts include an analysis of the acceptability of the contractors' estimated costs, which should eliminate overpricing and defective pricing as discussed in this report or identified in the recommended review.

    Agency Affected: Department of Defense: Defense Logistics Agency

  4. Status: Closed - Implemented

    Comments: There was a requirement to prepare and maintain accurate and complete records of negotiations. The Director, DLA, merely called attention to the need to follow this requirement. Whether improvements have resulted would be a matter of verification through audits, but none are planned at this time.

    Recommendation: The Director, DLA, should ensure that the contracting officer prepares and maintains accurate and complete records of negotiations as required by DAR.

    Agency Affected: Department of Defense: Defense Logistics Agency

 

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