the time of the contract award, only negligible time savings could be expected from having the backup under development in the event of an S-16 failure whereas substantial nonrecoverable costs could be expected in the event of an S-16 success. In our opinion, the award of the contract for the S-16 backup spacecraft was not reasonable in view of facts known at the time. As it developed, a backup spacecraft for the S-16 was not necessary and the nonrecoverable costs totaled about $273,000. (See p. 23). COMPETITION FOR THE S-16 SPACECRAFT CONTRACT NASA regulations, issued pursuant to the Armed Services Procurement Act of 1947, as amended, require that procurements be on a competitive basis to the maximum practical extent. Our review showed that (1) the selection of the S-16 spacecraft contractor was made by technical personnel of NASA apparently without consulting with those administrative personnel responsible for assuring that competitive practices were employed and (2) proposals were not solicited from a reasonable number of interested contractors, thus unnecessarily limiting competition. (See p. 28). ADMINISTRATIVE CONTROL OVER CERTAIN CONTRACT CHANGES The responsibility for the administration of work performed by BBRC under the contract for the S-16 spacecraft rested with the GSFC Contracting Officer. The technical direction of such work was assigned to Technical Representatives of GSFC who, under the terms of the contract, were authorized to give "directions to the Contractor which fill in details, suggest possible lines of inquiry, or otherwise complete the general scope of the work" but such directions could not "constitute new assignment." Our review showed certain instances where the GSFC Technical Representatives exceeded this authority and, without the approval of the Contracting Officer, instructed BBRC to change the scope of work set forth in the contract. This lack of administrative control (1) created fee inequities to both the Government and BBRC and (2) placed the Government in the undesirable position of negotiating fees on contract amendments for several elements of new work on the basis of actual cost rather than estimated cost. (See p. 31). COMPTROLLER APPENDIX II-CORRESPONDENCE RE GAO REPORT B-146801 OF GENERAL COMPTROLLER GENERAL OF THE UNITED STATES B-146801 D' WASHINGTON 25 HOUSE COMMITTEE AUG 5 1963 NLULI LULITI Dear Mr. ChaMENT OPERATIONS JUL 31 1963 Enclosed for the use of your Committee are three copies of our report to the Congress on the increased price for ballistics computers resulting from excessive estimated material costs under Department of the Air Force negotiated firm fixed-price contract AF 09(603)-34097 with Servomechanisms, Inc., El Segundo, California. The report shows that the price proposed by Servomecha– nisms, Inc., and accepted by the Air Force without change, included estimated material costs that were excessive in relation to cost and pricing information available to the contractor when the contract price proposal was prepared. The se excessive costs and related overhead costs and profit, amounting to about $83,800, were included in the contract price of $308,516. The Air Force reviewed the pricing of the contract after we brought this matter to its attention and strongly urged the contractor to make a voluntary refund in the amount disclosed by our examination. The contractor, however, refused to make a refund on the basis that the above-average profits it had realized under contract AF 09(603)-34097 were largely attributable to inadequacies in its price estimating procedures which it claimed had also resulted in heavy losses un der other contracts. The Air Force advised us that, since there was no legal basis under which a refund could be obtained, further effort to obtain a refund was not considered worthwhile. The Air Force further advised us, however, that the price estimating system and procedures of Bervomechanisms, Inc., had been reviewed and that the contractor had agreed to substantially all the recommendations made by the Air Force to improve the system and procedures. We were informed also that the Air Force was taking action to bring the details of this case to the attention of its contracting officials in the field. We believe that Air Force actions requiring Servome chanisms to improve its price estimating procedures should reduce the possibility of further overpricing in future contracts which the Air Force may negotiate with Servomechanisms. However, the importance of negotiating fair and reasonable prices at the outset is clearly illustrated by the inability of the Air Force to obtain a price reduction after the price has been negotiated and performance under the contract has been completed. The position taken by Servomechanisms in refusing to make a voluntary price reduction is not in consonance with the position taken by other contractors which under comparable circumstances have agreed to negotiate adjustments of the prices and have made voluntary refunds to the Government. We are recommending that the Secretary of Defense contime the efforts to obtain a price reduction from Servomechanisms for the excessive estimated material costs and related overhead costs and profit included in the price negotiated for contract AP 09(603)-34097. Also, we are recommending that the Secretary of Defense make this contractor's adamant position own to all procuring activities and that it be given appropriate consideration in connection with contemplated future procurement from this company. Sincerely yours, Joseph Campbell Comptroller General Enclosures - 3 The Honorable William L. Dawson, Chairman Committee on Government Operations House of Representatives 48-132 O - 65 - 47 With reference to your letter of August 5, 1963, to the Secretary of Sincerely, Joseph S. Hoover For and in the absence of Charles J. Hitch Assistant Secretary of Defense (Comptroller) Enclosure Cy ltr to CompGen |