SUMMARY OF FINDINGS

Our review of the management of selected phases of the OSO projects showed that, in some instances, NASA management action led to increased project costs which, we believe, could have been avoided. These management actions were the establishment of unrealistic spacecraft delivery dates and the award of a backup spacecraft contract which, in our opinion, was not reasonable in light of the facts known at the time of award.

Our review showed, in addition, instances of poor coordination between NASA technical and administrative personnel. The poor coordination created a situation which unnecessarily limited competition for the first OSO spacecraft contract and resulted in a lack of administrative control over certain work being performed by the contractor.

While our review of the OSO projects showed instances of management action which adversely affected project costs and certain weaknesses in administrative control over contracting operations, these deficiences should not be considered typical of the entire project. For many of the management areas examined, we found no significant weaknesses. We are reporting on those instances of management weakness that we did observe, for the information of the Congress and to assist NASA in minimizing the possibility of recurrence of such situations in carrying out future research and development projects.

Our findings are summarized below and are discussed more extensively on succeeding pages, as indicated.

PROJECT COSTS INCREASED BECAUSE DELIVERY DATES

SET BY GSFC FOR THE S-17 AND S-57 SPACECRAFT
WERE NOT REALISTIC

The amount of the contracts for the S-17 and S-57 spacecraft was increased by about $526,000 when the initial contract delivery dates set by GSFC had to be extended. The delivery dates were extended because the organizations responsible for experiment development and fabrication could not deliver the experiments to the spacecraft contractor at the scheduled time. As a result it became necessary to keep OSO-experienced personnel on OSO work longer than was actually necessary to integrate the experiments and complete the spacecraft. Our review showed that there was ample reason for GSFC to have foreseen, at the time that spacecraft delivery dates were set, that experiment development and fabrication could not keep pace with the scheduled development of the spacecraft at BBRC. We believe that the $526,000 increase because of the extended delivery dates would have been avoided if the initial delivery dates had been consistent with experience available from prior OSO spacecraft projects. (See p. 14).

AWARD OF S-16 BACKUP SPACECRAFT CONTRACT

WAS NOT REASONABLE

About 8 weeks before the scheduled launch of the S-16, GSFC awarded a contract to BBRC for the design and fabrication of a backup spacecraft to be delivered in 36 weeks.

The advantage of having the backup spacecraft under development before launch of the S-16 was that, if the S-16 mission failed, the project would move forward with less loss of time. To obtain this advantage it was necessary to accept the fact that, if the backup was not needed, nonrecoverable costs would be incurred. Our review showed that, at

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
WAS UNNECESSARILY LIMITED

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
FOR THE S-16 SPACECRAFT WAS LACKING

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).

COMPTR

COMPTROLLER

OF THE

APPENDIX 11-CORRESPONDENCE RE GAO REPORT B-146801 OF
JULY 31, 1963 (SERVÖMECHANISMS CASE)

GENERA

COMPTROLLER GENERAL OF THE UNITED STATES

WASHINGTON 25

MOUSE COMMITTEE

B-146801

Dear Mr. ChaiVERNMENT OPERATIONS

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. These 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 AP 09(603)-34097 were largely attributable to inadequacies in its price estimating procedures which it claimed had also resulted in heavy losses under 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 Servomechanisms, 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 Bervomechanisms 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