profit | The Contracting Education Academy

April 8, 2019 By AMK

OIG seeks voluntary refund despite contractor’s adherence to TINA requirements

DoD’s Office of Inspector General (OIG) for the Department of Defense (DoD) has recommended that a contractor be requested to provide a refund based on “excessive profits.”

On February 25, 2019, the Office of Inspector General (OIG) for the Department of Defense (DoD) issued an audit report analyzing the prices of spare aviation parts purchased by the Defense Logistics Agency (DLA) and the Army from TransDigm Group, Inc.

The audit was conducted in response to letters from certain Members of Congress, who had inquired whether the spare parts were sold at fair and reasonable prices and in compliance with the Truthful Cost or Pricing Data Act (formerly known as the Truth in Negotiations Act or TINA).

The OIG’s audit confirmed that both TransDigm and the responsible DoD contracting officers fully complied with the Act and related regulations governing the price negotiations, but the OIG nonetheless concluded that the contractor earned excess profit on the majority of parts sold. In a highly unusual move, the OIG recommended that DoD request a “voluntary refund” from TransDigm of its allegedly “excessive” profits, and the OIG also recommended a number of changes to statutory, regulatory, and administrative policies governing the provision of cost or pricing data.

The OIG’s Findings

At the request of U.S. Representatives Ro Khanna and Tim Ryan and Senator Elizabeth Warren, the OIG reviewed the price reasonableness of 47 spare aircraft parts DoD procured from TransDigm between January 2015 and January 2017. Using uncertified cost or pricing data that it collected during the audit, the OIG calculated the apparent profit realized by the contractor on the sale of each part, and concluded that the contractor realized “unreasonable” profits (defined as profits of greater than 15% in the report) on all but one of the parts. (The OIG arrived at the 15 percent profit percentage, in part, by looking at maximum profit percentages allowed in the FAR for three different types of contracts, none of which were fixed price.) The OIG applied this finding to a broader sampling of contracts held by TransDigm, and concluded that the contractor had earned $16.1 million in “excess profit” (i.e., profit over 15 percent) for the parts at issue.

The OIG concluded that a number of factors contributed to these supposedly “excessive” profits.

Keep reading this article at: https://www.insidegovernmentcontracts.com/2019/03/when-compliance-is-not-enough-oig-seeks-voluntary-refund-despite-contractors-adherence-to-tina-requirements/

March 27, 2019 By AMK

DoD seeking comment on how ‘undefinitized contract actions’ are definitized

In the National Defense Authorization Acts for 2017 and 2018, Congress required the Department of Defense (DoD) to implement certain reforms for issuing and definitizing Undefinitized Contract Actions (UCAs).

After a long delay, DoD has issued a proposed rule and requested comments from industry.

UCAs are meant to be used when the Government has urgent needs that do not leave enough time for the parties to agree on all the terms, conditions, and pricing of a formal contract. In those circumstances, the parties can agree to a general framework that allows work to begin and payments to be made on a modified cost-reimbursement basis under a UCA, and the parties agree to definitize the contract in the near future – aspirationally, no later than 180 days after the UCA award date, or before 50 percent of the work is complete, whichever is earlier. (See: DFARS 217.7404-3)

The Defense Federal Acquisition Regulation Supplement (DFARS) currently allows the contracting officer to extend that date to 180 days after the date on which the contractor submits a “qualifying proposal” for definitization. In practice, as the GAO repeatedly has highlighted and as Congress has noted, poor acquisition planning has led to the unnecessary use of UCAs, and UCAs often are not definitized within the 180-day time set by regulation.

One particularly inequitable result of the delayed definitization of UCAs is its effect on profit. Because UCAs are cost-type agreements with the contractor bearing minimal cost risk, the DFARS provides guidance for acceptable profit rates when “a substantial portion of the required performance” is completed before definitization. If a contractor completes a large proportion of the work before the contract is belatedly definitized, an agency often will insist on a profit rate that is materially lower than it would have been if the agency had promptly definitized the contract.

Keep reading this article at: http://www.mondaq.com/article.asp?articleid=787536

February 18, 2016 By AMK

Robins Air Logistics Base has not effectively negotiated depot contractor profit, says IG

The Air Force has not effectively negotiated depot labor profit at its logistics complex at Robins Air Base in Warner Robins, Georgia, the Defense Department watchdog concluded, missing an opportunity to cut contractor profit and fees by $9.6 million to $24.9 million.

“Contracting officials did not adequately reduce or eliminate profit and fees paid for work performed” through a public-private partnership, said an inspector general’s report dated Feb. 8. “This occurred because program officials either did not prepare or update the business case analysis supporting the partnership type selected.”

The labor charges based on repair and maintenance affect such weapons programs as the Boeing C-17 Globemaster III heavy-lift aircraft and the AN/APN-241 high resolution radar system developed by Northrop Grumman.

Keep reading this article at: http://www.govexec.com/contracting/2016/02/air-force-told-save-millions-contractors-depot-labor/125912

July 15, 2014 By AMK

What you need to know about the top federal contractors

In his farewell address to the nation, President Eisenhower warned against the economic and political influence of the rising military industrial complex: the relationship between government entities and private government contractors.

Yet almost 60 years later, with the government contracting industry so large that many call it a fourth branch of government, Eisenhower’s warning appears unheeded.

Proponents of the industry say that contractors keep the nation safe, doing work the government does not have the capability to do. Its critics, on the other hand, assert that contractors have an incentive to perpetuate war—the more weaponry contractors produce, the more profits they make.

Keep reading this article at: http://time.com/2917578/government-contractors-lockheed/

DoD’s Office of Inspector General (OIG) for the Department of Defense (DoD) has recommended that a contractor be requested to provide a refund based on “excessive profits.”

The OIG’s Findings

In the National Defense Authorization Acts for 2017 and 2018, Congress required the Department of Defense (DoD) to implement certain reforms for issuing and definitizing Undefinitized Contract Actions (UCAs).

The Air Force has not effectively negotiated depot labor profit at its logistics complex at Robins Air Base in Warner Robins, Georgia, the Defense Department watchdog concluded, missing an opportunity to cut contractor profit and fees by $9.6 million to $24.9 million.

Search this Website