Army Procurement:

No Savings From Contracting for Support Services at Fort Eustis, Virginia

NSIAD-89-25: Published: Oct 25, 1988. Publicly Released: Oct 31, 1988.

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Pursuant to a congressional request, GAO reviewed the Army's contract for Directorate of Logistics support services at Fort Eustis, focusing on the: (1) comparison of estimated in-house and contractor costs; (2) cost growth since the contract award; and (3) fort's use of a cost-plus-award-fee contract instead of a fixed-price contract.

GAO found that the fort: (1) upwardly adjusted several bids which it felt the contractor understated, bringing the most probable cost estimate to $32.6 million; (2) failed to consider all probable costs in its comparison, causing it to overestimate contracting savings by about $6.4 million; (3) did not negotiate or resolve other bid prices that its Source Selection Board identified as questionable or ensure that contract provisions would control future costs in these areas; (4) would have saved about $600,000 by performing the services in-house; and (5) did not comply with the Federal Acquisition Regulation (FAR) that it obtain the data it needed to conduct follow-on procurements on a fixed-price basis. GAO also found that the: (1) contractor's revised bid increased its first-year option costs from $6.1 million to $8.9 million; (2) overall contract experienced cost growth of 70 percent, from $28 million to $47.5 million; and (3) fort improved its new Directorate of Logistics solicitation and evaluation procedures by setting a minimum number of labor hours per person and a general and administrative expense rate cap and verifying specific costs.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department of Defense (DOD) agreed to direct Fort Eustis to obtain workload data needed for fixed-price contracting and to ensure that cost variations are negotiated with the contractor prior to award. DOD, however, did not agree that cost comparison should include all probable costs. This matter will be addressed further in future A-76 work.

    Recommendation: The Secretary of the Army should direct the Commanding Officer, Fort Eustis, to take the following actions for the follow-on Directorate of Logistics contract and future cost comparisons and contracts: (1) in accordance with FAR, expedite the preparation of a requirements work statement that will permit contracting functions on a fixed-price basis as soon as the statement is available rather than exercising follow-on options on a cost-reimbursement basis; (2) ensure that cost comparisons include all probable costs for in-house and contract performance; and (3) ensure that variations between proposed costs and the most probable cost developed by the fort's Source Selection Board are negotiated with the contractor or otherwise resolved prior to any contract award.

    Agency Affected: Department of Defense: Department of the Army

 

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