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FAA's Manage Systems
Engineering 2020 Contracting Practices Insufficient By Daniel Baxter |
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April 16, 2012 – The Department of Transportation’s
Office of Inspector General released is final report on
the Federal Aviation Administration's (FAA) Systems
Engineering 2020 (SE-2020) contracts. SE-2020 is a
portfolio of contracts that FAA is using to obtain
professional and technical services to support its
development and implementation of NextGen.
The National Airspace System handles almost 50,000
flights a day and more than 700 million passengers each
year. To accommodate the Nation’s air traffic, which is
expected to triple by 2025, the Federal Aviation
Administration (FAA) is developing the Next Generation
Air Transportation System (NextGen)—an effort that
involves multibillion-dollar investments from both the
Government and the airline industry.
The FAA awarded seven SE-2020 base contracts between
April and October 2010, which have a cumulative maximum
value of $7.3 billion the largest award in FAA's
history. On February 4, 2010, the Chairmen of the House
Committee on Transportation and Infrastructure and its
Aviation Subcommittee, Representatives Mica and Petri
requested OIG review FAA's SE-2020 effort.
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OIG
assessed whether FAA manages its SE-2020 contract costs
effectively, and uses sound contracting practices to select
contractors and oversee their performance. OIG found that
unclear FAA Acquisition Management System requirements resulted
in unreliable cost baselines and overstated contract values,
which impedes FAA's ability to manage total contract costs.
The FAA’s
Acquisition Management System (AMS) establishes a number of
requirements for managing FAA’s contracts; however, the
requirements for ensuring fair and reasonable labor rates are
unclear, which has led to unreliable cost baselines. Without a
reliable baseline, the FAA cannot effectively monitor and
control contract costs. For example, AMS lacks clear requirements for addressing significant differences between contractors’ proposed contract costs and the FAA’s estimated contract costs. FAA awarded the SE-2020 contracts using the contractors’ proposed labor rates, which cumulatively were 29 percent, lower than the FAA estimated. The FAA also included 18 million more labor hours than needed in the contracts’ ceilings to provide more flexibility during contract administration, although the contracts already allow for such flexibility. |
Consequently, the
FAA’s baseline is overstated as the labor hours included in it exceed
FAA’s estimate. Further, AMS does not clearly define requirements for
Defense Contract Audit Agency (DCAA) audits. As such, the FAA did not
verify five of seven prime contractors’ proposed labor rates, which may
have provided a basis for determining a reliable cost baseline.
Weaknesses in its
monitoring tools and critical acquisition data errors further impede the
FAA’s ability to ensure it does not overpay for professional and
technical services. For example, the FAA predicted that one of its
SE-2020 task orders will experience an overrun of more than $55 million,
but our calculations showed the task order is actually projected to be
under budget by about $10 million.
In addition, the
FAA's practices to select contractors and oversee their performance are
not sufficient. OIG made 12 recommendations to improve the FAA's cost
management and contracting practices, the agency concurred or partially
concurred with 10 recommendations.
1. Require the
SE-2020 program office to submit to the CFO a written reconciliation of
the difference between its IGCE and the contractors’ proposals and use
this reconciliation as a basis to develop a reasonable cost baseline.
2. Revise AMS to
require that, when IGCEs exceed contractor proposals by 15 percent or
more, program officials submit an explanation and recommended corrective
actions to the CFO before contract award.
3. Revise AMS to
specifically require pre-award and post-award audits of contracts in
excess of $100 million and define the types of pre-award audits
required, including—at a minimum—direct labor rates, indirect rates, and
accounting system reviews.
4. Amend SE-2020
awarded contract values using contractors’ proposed rates and the FAA’s
estimated need for 40 million hours and adjust fixed fees to reflect
revised contract costs.
5. Require the
SE-2020 program office to develop policies and procedures to ensure
timely reconciliations and corrections to acquisition databases and
revise its cost monitoring spreadsheets to ensure accurate data for
effective cost control of SE-2020 contracts.
6. Revise AMS to
establish controls that require more comprehensive evaluations of
contractor past performance.
7. Require the
FAA’s contracting and program staff to use performance-based acquisition
principles in their SE-2020 task orders and ensure staff is adequately
trained to develop and monitor such awards.
8. Require the
SE-2020 program office to define criteria that specify when competing
task orders are in the Government’s best interest.
9. Revise AMS to
include guidance on how to identify and mitigate risks of potential OCIs
prior to contract or task order award.
10. Require the
FAA contracting personnel to develop, maintain, and use a record of
active prime contractors and subcontractors to identify and mitigate
risks of potential OCIs.
11. Require the
SE-2020 program office to develop policies and procedures to ensure
adequate documentation of task order award decisions.
12. Require the
SE-2020 program office to amend the standard performance monitoring
templates to include measurable criteria to evaluate desired performance
outcomes, such as quality, cost, and schedule. |
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