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Highlights

The Department of Defense's (DOD) U.S. Army Corps of Engineers (Corps) awarded the $2.5 billion Restore Iraqi Oil (RIO I) contract to Kellogg Brown & Root in March 2003 in an effort to reestablish Iraq's oil infrastructure. The contract was also used to ensure adequate fuel supplies inside Iraq. RIO I was a cost-plus-award-fee type contract that provided for payment of the contractor's costs, a fixed fee determined at inception of the contract, and a potential award fee. The Defense Contract Audit Agency (DCAA) reviewed the 10 RIO I task orders and questioned $221 million in contractor costs. We were asked to determine (1) how DOD addressed DCAA's RIO I audit findings and what factors contributed to DOD's decision and (2) the extent to which DOD paid award fees for RIO I and followed the planned process for making that decision. To accomplish this, we reviewed DOD and DCAA documents related to RIO I and interviewed Corps, DCAA, and other officials.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of the Army 1. To ensure that cost-plus-award-fee contracts provide the intended benefits, the Secretary of the Army should, in contingency situations, as a part of weighing the costs and benefits of using a cost-plus-award-fee contract, ensure that an analysis of the administrative feasibility of following a rigorous award fee process is conducted before the contract is awarded.
Closed - Implemented
On July 12, 2011, the U.S. Army Corps of Engineers (USACE) issued a procurement instruction letter (PIL) with regards to cost-plus-award-fee type contract actions that addresses this recommendation. Specifically, the PIL states that all cost-plus-award-fee contract actions require documentation that a cost benefit analysis was performed, and that this analysis should determine if the benefits of using a cost-plus-award-fee contract vehicle is worth and/or exceeds the administrative costs of using this contract type. The stated goal of the policy is, in part, to ensure an analysis of the administrative feasibility of following a rigorous award fee process has been conducted.

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