Federally Funded R&D Centers:

Use of Fee by the MITRE Corporation

NSIAD-96-26: Published: Nov 27, 1995. Publicly Released: Jan 3, 1996.

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Pursuant to a congressional request, GAO examined the use of Department of Defense (DOD) management fees provided to the Mitre Corporation, focusing on: (1) the adequacy of federal guidance on how fees may be used; (2) ways to reduce contractor management fees and strengthen DOD management fee oversight; and (3) DOD efforts to improve the fee management process for its federally funded research and development centers (FFRDC).

GAO found that: (1) neither the Office of Management and Budget nor DOD has prepared sufficient guidance on negotiating FFRDC contract fees; (2) consequently, recurring questions are raised about Mitre's use of fees, as well as the use of fees by other DOD FFRDC; (3) the services have delayed providing contract funding at the start of a fiscal year; (4) consequently, Mitre has needed large amounts of fee to cover interest expenses; and (5) DOD oversight of contract fees has not ensured that fee awards to Mitre are reasonable and consistent.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD has developed improved guidance for the determination of the FFRDC fee award. The guidance requires FFRDCs to provide details on the nonreimbursable costs fee is being requested to cover and prohibits providing fee to cover expressly unallowable costs that may not be reimbursed under the procurement statutes. The guidance affords the services flexibility to determine the exact nature and extent of other nonreimbursable costs that may be covered by fee.

    Recommendation: The Secretary of Defense should issue guidance that, to the extent practicable, specifically identifies the nature and extent of nonreimbursable costs that may be covered by fee and the costs for which fees should not be provided.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DOD considered the feasibility of including guidance specifying when various funding and payment methods should be used, but decided instead to focus efforts on fostering a more structured approach to determining fee awards and reducing the overall amount of fee awarded.

    Recommendation: The Secretary of Defense should consider the feasibility of issuing guidance specifying the circumstances in which each of the various funding and payment methods devised by the services should be used.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: DOD guidance assigns the Director, Defense Research and Engineering, responsibility to concur in and identify areas of special emphasis for periodic comprehensive reviews of FFRDC operations. The guidance further identifies management controls over fees as a required topic for comprehensive reviews. The Director, Defense Research and Engineering has been active in monitoring and recommending improvements in the services' fee-granting practices.

    Recommendation: The Secretary of Defense should assign responsibility to the Director of Defense Research and Engineering for routinely surveying the services' fee-granting processes for FFRDC, identifying and promoting the use of effective or innovative analytical practices, and recommending needed changes to eliminate inconsistencies in awarding fees.

    Agency Affected: Department of Defense

 

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