Poor Procurement Practices Resulted in Unnecessary Costs in Procuring M1 Tank Spares

PLRD-83-21: Published: Jan 18, 1983. Publicly Released: Jan 18, 1983.

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Robert M. Gilroy
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GAO examined sole-source negotiated procurements for M1 tank spare components.

GAO found that, in its procurement of M1 tank spares, the Government incurred unnecessary costs because the contracting officer: (1) accepted ceiling prices for spares negotiated on a sole-source basis before obtaining cost or pricing data and then failed to change the ceiling prices once the cost data were received; (2) combined the sole-source spare ceiling prices with the one competitively established in the original contract; and (3) permitted inappropriate transfers of spares to other contracts. The last two actions resulted in decreasing the contractor's risk of exceeding the ceiling on the original contract price and in allowing the contractor an opportunity to recoup $5.6 million in costs to which it was not otherwise entitled. In addition, the contracting officer did not prepare and maintain memorandum records of negotiations as required by the Defense Acquisition Regulations (DAR).

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD does not agree that GAO established a need to strengthen Defense guidance. It does agree that, if it is possible to strengthen guidance in this area, it should be done. Therefore, by June 30, 1984, DOD plans to review the present DAR coverage and, if needed, issue additional policy guidance. No further followup is necessary.

    Recommendation: The Secretary of Defense should direct the Director, Defense Acquisition Regulatory Council, to strengthen Defense guidance on fixed-price incentive contracts by identifying circumstances which preclude combining ceiling prices under an existing contract with those established under modifications to those contracts, especially when the contract cost will exceed, or are expected to exceed, the target prices.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: On November 3, 1983, the Deputy Undersecretary of Defense issued a memo to the three military departments requiring that a record of price negotiation be prepared at the conclusion of negotiation and that it address all significant issues discussed during negotiation. No further followup on this recommendation is necessary.

    Recommendation: The Secretary of Defense should direct the Secretary of the Army to instruct M1 contracting officers of the importance of complying with the requirement in the DAR to prepare and maintain adequate memorandum records of the negotiations which demonstrate that the negotiated prices were fair and reasonable.

    Agency Affected: Department of Defense


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