, "

I t, I

• t

DCCUI1ENT BESUME

03954 - [A2S3~062]

rReview of the Pricing of a ~egotiated Firm-Fixed Price Contrac t ]. September 20, 1977. 3 PI=.

Let 'er i o Langholn~ M. Bond, Administratcr, Federal Aviat ion Administl'ati on; bV Hugh J. Wessin g€r , Associa t€ Director, Communi ty and Economic Development Div.

Issue Area: federal Procurement of Goods and S€r~:ce5 : Peasonableness cf Prices Under Negotiated Contracts anc Subcontracts (1 9C4).

Contact: Community and Economic Develop ment Div. Budget rction : General Gcvernment: Other General Government

(S ('6). Orqaniz ati cn Concerned: Sperry Rand Corp.: Sperry Univac Defense

Systems Div., Saint Paul, ~N.

~----------------------------------- - ------- -

"

UNITED STATfS GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548

COMMUNIT'/ AND ECONOMIC DEVELOPMENT OI\(.S.ON

The Hono~able Langhorne M. Bond Administrator, Federal Aviation

Administration Department of Transportation

Dear Mr. Bond:

IN IRPLY a:P&It1Ot

S£p 201977

As part of our survey of negotiated noncompetitive contracts awarded by selected civil agencies, we have re­viewed the pricing of ~egotiated firm-fixed price contract DOT-FA75WA-3624, awarded by the Federa l Aviation Adminis­tration (FAA) to Spe:rry Uni.vac Defense Systems Divi sion, St. Paul, Minnesota. The contract, awarded on March 27, 1975, ir the amo~nt of $2,400,000, provided for the design, development, cat, and installation of a Minimum Safe Alti­tude WarniI.g System at a·ir control facilities across the country. Contract performance was completed in February 1977.

The Federal Procurement Regulations (FPR) require con­tracting officials to obtain from contractors, with certain exceptions, certified cost or pricing data in support of proposed prices for all noncompetitlvely negotiated con­tra.cts expec ted to exceed $100, 000. FPR al so prov ides for adjustment of the contract price whel. the price is increased because the contractor furnished cost or pricing data that was not current, complete or accurate (defective).

The obj ec : ives of our su~vey were to determine w~ether (1) contracting officials obtained cost or pricing data to support the propos~d contract price, (2) data obtained was evaluated and relied on in negotiating the . contract price, and (3) the price negotiated was reasonable in relation to the cost or pricing data available at the time of negotia­tions.

Our review disclosed that the contracting officer would have had a ~ound basis for reducing the contract price by approximately $58,000 had S?erry submitted current, com­plete and accurate cost or pricing data.

I

L L

SPERRY COST OR PRICING DATA WAS NOT CURRENT, -COMPLETE OR ACCURATE

Sperry's original price proposal, dated February 17, 1975, included $767,472 for 16K memory systems, 8K memory sy~ c ems, and 8K memory modification kits based on a pricp quot3ti0n from Dataprodu_ts, Incorporated, Sunnyvale, California. During FAA's fact finding mission on March 5, 1975, Sperry reduced its cost estimate for the memory items to $656,952. This reduction of $70,520 was based on (1) eliminating all 16K memory systems, ~2) increasing the number of 8K memory systems, and (3) a February 4, 1975, pricing agreement between Sperry and Dataproducts (su?plier of the memory units) which permitted Sperry to combine exist­ing and future order quantities to determine price levels for 8K memory systems and modification kits.

Our review of Sperry's negotiation memorandum with the Government show~d that the memory units were purchased for $653,770 or $43,182 ·1ess than represented to the Government. Sperry was able to purchase the units at the reduced price by ordering four additional memory units in anticipation of future requirements In order to reach a new pricing level of 1uO units. Sperry's price to the Government was based on the =ost of oraerins bE~ween 50-99 ~nits. Although Sperry's pur­chase order files show that it intended at the time of nego­tiations with FAA to order the larger quantity and thus obtain the lO·."er pr ice, thi 5 inform tion was not forwarded to the FAA negotiators.

Sperry executed a ceLtit~cate of current cost o r pricing data as of March 10, 1975, ~he date price negotiations on the basic contract were concluded.

CONCLUSION

We believe that if complete prIcIng informa:ion on the Da taprod ucts 8K memor y uni t s had been fur ni shed 1:0 FAA r the cor.tracting officer would have had a sound basis for reduc­ing the contract pri ce by about $58,000, ($43,182 plus add-ons) •

RECOr~~ ' E NDATION

We rec0~mend tha~ you consider the above findings, along with any additional i nformation avai l able, to determine the

- 2 -

xtent to which the Government may be enti"tled to price lIdjustments.

We appreciate the courtesy and cooperation extended to our r~presentatives during our survey.

We would ~ppreciate a written reply within 30 days expressing youc views and comments on the matters ois­~ussed in this letter.

Should you or your staff desire further details on the matters discussed, please ~ontact Mr. John R. Henderson on 275-3171.

Sincerely yours,

h.1;'~~ · 8ugh J. Wessinger Associate Director

., - J

j