Procurement Policy

Air Force rapped for inappropriate contract costs

DAGR image

A contract for the Defense Advanced Global Positioning System Receiver has falled under IG scrutiny because of apparently unnecessary costs. (Air Force photo

The push within defense agencies to a choose a contract's fixed-price option caused the Air Force to inappropriately authorize $102.4 million in performance-based payments and pay nearly $50,000 in administrative costs, according to a report released Nov. 8.

The contract was for the Defense Advanced Global Positioning System Receiver (DAGR), a handheld, dual-frequency device for various vehicular and sensor applications. The payment structure, however, did not meet Federal Acquisition Regulation requirements, the DOD inspector general reported. FAR requires a six-month time from order to delivery of items to justify the structure.

Under a performance-based payment arrangement, an agency pays a contractor for forthcoming performance, before it has received a product or service. A contracting officer can provide the financing if the contractor will be unable to bill the government for the first delivery of products or services for at least six months after work begins. For the Air Force’s DAGR contract, the IG reported, the use of payment structure was unnecessary because the contractor had very little risk and needed no early financing.

The contracting officer awarded the contract with that payment structure because the previous DAGR contract had the same structure. Moreover, defense officials have encouraged agencies to use fixed-price contracts over the previous 12 years. The officer pointed auditors to a Defense Department memo from 2000 that said DOD must take advantage of the benefits of performance-based payments.

The result of the 15 performance-based payments was $49,788 in additional processing fees. Moreover, the IG reported, it caused an administrative burden for Defense Contract Management Agency (DCMA) and the Defense Finance and Accounting Services (DFAS) in their accounting and reconciliation of 1,800 payments and related transactions.

Because of the audit, the Air Force contracting officer halted the payment structure where deliveries would be made within six months.

Timothy Pink, chief of contracts at the Air Force’s Global Positioning Systems Directorate, agreed with the IG’s recommendation to emphasize training for how and when to use the payment system before the directorate awards any more such contracts. Contracting personnel received training Oct. 23, according to the report.

However, Pink questioned some of the IG’s figures, including the $49,788 of additional costs. He wrote the Air Force would have had to pay some accounting fees whether or not it had used the performance-based payment, thus decreasing the IG’s figures for “unnecessary accounting processing fees.” Pink also wrote he was unsure how auditors determined the DCMA and DFAS had 1,800 more accounting and reconciliation payments and transactions because of the payment structure.

In response, the IG wrote that the audit team excluded the invoice payment transaction when it calculated the unnecessary payments and recoupments.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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