Office of Inspector General

Audit Report

FAA MUST STRENGTHEN ITS COST AND 

PRICE ANALYSIS PROCESSES TO PREVENT 

OVERPAYING FOR NONCOMPETITIVE 

CONTRACTS

Federal Aviation Administration

Report Number: ZA-2011-089

 Date Issued: May 19, 2011
U.S. Department of

Memorandum

Transportation

Office of the Secretary

of Transportation

Office of Inspector General

Subject: ACTION: FAA Must Strengthen Its Cost and Price 

Analysis Processes To Prevent Overpaying for 

Noncompetitive Contracts 

Federal Aviation Administration

Date: May 19, 2011

Report Number ZA-2011-089

From: Lou E. Dixon

Principal Assistant Inspector General 

 for Auditing and Evaluation

Reply to 

Attn. of: JA-60

To: Federal Aviation Administrator

In fiscal year (FY) 2009, the Federal Aviation Administration (FAA) obligated 

over $541 million for more than 16,500 noncompetitive contract actions.1 FAA’s 

Acquisition Management System (AMS) permits noncompetitive procurements 

when awarding new contracts if there is a well-documented rationale to support 

such a decision and if it is in the best interest of the Agency. To make this 

determination, AMS requires that FAA perform cost and price analyses to prevent 

overpaying for noncompetitive contract awards.2 Given the significant number of 

FAA’s noncompetitive contract actions, it is critical that the Agency use sound 

cost and price analysis methods to ensure it obtains goods and services at a 

reasonable price. However, our prior audits have found instances where FAA 

awarded noncompetitive contracts and orders without first determining price 

reasonableness.3

In October 2009, the Office of Management and Budget (OMB) responded to 

Presidential direction and issued instructions to Federal agencies on the use and 

oversight of high-risk contracts. These instructions emphasized ensuring price 

 1 This includes awards for new contracts, modifications, and task orders. 2 Price analysis is always required for noncompetitive (sole source) awards and involves examining and analyzing a 

proposed price using comparisons to other prices for the same or similar products without evaluating individual cost 

elements, such as direct labor, overhead, and profit, comprising the total price. Cost analysis is needed when price 

analysis alone cannot determine price reasonableness and involves a detailed review of individual cost elements and 

profit or fees. 3 OIG Report Number FI-2006-072, “Audit of the Federal Aviation Administration’s RESULTS National Contracting 

Service,” September 21, 2006, and OIG Report Number FI-2007-030, “Audit of Emergency Transportation Services 

Contract: Lessons Learned From the 2005 Gulf Coast Hurricanes,” February 5, 2007. OIG reports are available on 

our website: www.oig.dot.gov.
2

reasonableness for noncompetitive awards and improving controls over the quality 

of contract award data entered into agencies’ procurement systems.4

We reviewed a total of 25 randomly selected FAA contract awards out of a 

universe of 281 noncompetitive contract awards, with a potential maximum value 

of about $44.8 million.

In support of 

the OMB directive, our audit objectives were to (1) determine the extent to which 

FAA procurement offices used sufficient price analysis methods for 

noncompetitive contract actions awarded within FAA and (2) assess FAA’s ability 

to adequately account for its noncompetitive contract awards. 

5

RESULTS IN BRIEF 

We conducted this audit in accordance with generally 

accepted government auditing standards. Exhibit A details our scope and 

methodology. 

FAA did not perform effective cost and price analysis for 8 of the 25 contracts we 

reviewed (totaling about $11.6 million). As a result, FAA was unable to 

demonstrate that prices paid were reasonable and may have overpaid for two 

contracts by about $670,000. Specifically, FAA program offices and contracting 

officials either used inadequate methods to determine price reasonableness or did 

not do any price analysis. We determined that FAA contracting officials took 

shortcuts when planning acquisitions or lacked training on how to do price 

analysis. For example, FAA Headquarters awarded a contract for $834,870 to 

continue programmatic support for the Automatic Detection and Processing 

Terminal program in September 2007, just before the end of the fiscal year. To 

meet the year-end deadline, the contracting specialist merely relied on the rates 

from the prior contract and did not determine whether the prior rates were 

reviewed for reasonableness or whether there were changes for the new contract 

requiring additional analysis. About $303,000 of the new contract award involved 

rates for new labor categories that were never reviewed.6

 4 OMB, “Increasing Competition and Structuring Contracts for Best Results,” October 27, 2009. OMB, “Improving 

Acquisition Data Quality for Fiscal Years 2009 and 2010,” October 7, 2009.

We also found instances 

where contracting officials either used outdated pricing data or incomplete 

government cost estimates. As a result of these deficiencies, FAA had little 

assurance that contract prices were consistently fair and reasonable for the 

noncompetitive awards reviewed. 

5 We used 2 random samples and initially examined a total of 33 contracts. Our first sample of 23 contracts, awarded 

during the period December 2006 through March 2008, mostly included contracts awarded before new AMS pricing 

methodology guidance on completing independent government cost estimates—frequently used for completing price 

analysis—became effective. The second sample included 10 contracts awarded during the period April 2008 through 

December 2008, after the new guidance was implemented. However, of the 33 contracts, 2 were competitively 

awarded, and 6 represented other transaction agreements, which are exempt from price analyses. Therefore, we did 

not include these 8 contracts in our analysis, which narrowed our review sample down to 25. 6 The contracting specialist notified us that no review of current rates was performed.
3

In addition, FAA does not accurately account for its noncompetitive contract 

awards because it does not use a contract writing system, as required by OMB. 

These systems provide for immediate data verification to detect errors at the time 

of contract award and allow for direct electronic submission to the Federal 

Procurement Data System-Next Generation (FPDS-NG)—the Government’s 

database for tracking contracts across Federal agencies.7 FAA also lacks 

compensating management controls, such as validating data entry completeness 

and accuracy. In addition FAA uses its procurement system, the Purchase Request 

Information System (PRISM), to record new contract awards. However, we found 

that PRISM has a significant number of blank data fields where the extent of 

contract competition should be identified. For example, there were no entries for 

the extent of competition for 727 contracts with actions awarded in FY 2009, each 

valued at $100,000 or more.8

FAA has actions underway to implement a contract writing system. It is 

imperative that FAA complete this effort, so that FAA managers can rely on a 

database that allows them to properly oversee noncompetitive procurements. 

Further, without an effective contract writing system, it will be difficult to 

accurately track tax dollars spent on noncompetitive contracts for congressional 

and other Government stakeholders.

Further, 13 contracts we reviewed were incorrectly 

recorded as “Not Competed” when they should have been recorded as either 

“Competed Action” or “Not Available for Competition.” 

We discussed our audit findings with FAA in July 2010 and January 2011. As a 

result, FAA is now implementing corrective actions to improve its cost and price 

analysis process and to enhance the accuracy of its procurement data. Significant 

actions include revising the Pricing Handbook to incorporate our findings and 

other Federal agencies’ best practices and expanding FAA’s National Acquisition 

Evaluation Program (NAEP) coverage of the proper data entry for FPDS. A 

detailed summary of FAA’s planned and ongoing corrective actions is provided at 

Exhibit C. We are recommending further actions to improve FAA’s performance 

of price analysis to prevent overpaying for noncompetitive contract awards and 

enhance the Agency’s ability to account for contract award data.

BACKGROUND

FAA’s AMS recommends that contracting officials obtain adequate information to 

evaluate price reasonableness to prevent overpayments on noncompetitive 

contracts. Common price analysis techniques include comparing proposed prices 

 7 FPDS-NG is the Government’s database for agencies’ contracting data. Contract writing systems are software 

systems that allow agencies to report contract information electronically to OMB via the FPDS-NG. These systems 

include data input validation controls to detect blank data fields and entries requiring correction at time of contract 

award. 8 The blank “extent of competition” entries for the 727 contracts represented about 11 percent of 6,888 entries.
4

to prior prices that were competitively awarded or to published market prices and 

discount arrangements. Common cost analysis techniques involve evaluating the 

separate cost elements (e.g., direct labor, materials, and general and administrative 

costs) and profit or fee that constitute the contractor’s price. Exhibit B provides 

further details on methods for completing price and cost analysis. 

In October 2003, the General Services Administration (GSA) introduced FPDSNG as the backbone system for Government agencies to provide contract award 

data to OMB. This allows the Government to understand where tax dollars are 

spent for contracts across Federal agencies. FPDS-NG was designed to enhance 

the quality and reliability of procurement data by allowing agencies to directly 

upload the data from their contract writing systems. To improve the completeness 

and accuracy of data in FPDS-NG, OMB directed agency and department heads to 

ensure they maintained contract writing systems that were capable of 

electronically transferring data directly to FPDS-NG no later than the end of FY 

2005.9

In FY 2007, FAA began utilizing FPDS, as directed by OMB, to provide a single, 

searchable website that includes specific details on each Federal award.

Information entered into the contract writing system is highly accurate, 

since it represents the same data produced in the contract, including contract type, 

amount, funding, and extent of competition. 

10

However, rather than using a contract writing system capable of verifying data 

accuracy immediately and submitting data directly to FPDS-NG, FAA manually 

inputs data into PRISM, its procurement system, and subsequently enters the data 

into FPDS.11

FAA’S PRICE ANALYSIS METHODS HINDERED ITS ABILITY TO 

ENSURE IT AWARDED CONTRACTS AT REASONABLE PRICES 

While FAA completed sufficient price analysis for 17 of the 25 contract award 

actions we reviewed,12

 9 OMB Memorandum: "Timely and Accurate Procurement Data," August 25, 2004.

the remaining 8—totaling about $11.6 million—either had 

incomplete or improperly completed price analyses to support price 

reasonableness. This was primarily because FAA did not provide needed training 

for its acquisition staff on how to conduct and document price analysis or plan 

10 Government-wide award information on procurements, grants, and loans is reported on OMB’s 

www.USASpending.gov website. 11 PRISM is a browser-based purchasing management system that tracks all phases of procurement from requisition, 

obligation of funds, expenditure, and payment. PRISM is an off-the-shelf software that performs contract 

management functions and integrates with Delphi, DOT’s financial management system, through an 

Oracle/Compusearch interface. 12 Adequate price analysis methods FAA used included comparing proposed prices to those in competitive lists, such 

as GSA’s Federal Supply Schedules; verifying materials costs, labor, and indirect rates; or comparing to reliable 

independent government cost estimates (IGCE). The Federal Supply Schedules Program establishes a streamlined 

approach to procuring long-term Government-wide contracts for commercial supplies and services. The schedules 

assure competitive prices but allows for negotiation of discounts.
5

adequate timelines for price analysis—a problem also found by FAA’s internal 

quality control reviews. We found that FAA personnel either used inadequate 

methods to determine price reasonableness, lacked sufficient documentation to 

support the price analysis technique used, or did not perform any price analysis. 

As a result, FAA was unable to demonstrate that prices paid were reasonable and 

may have overpaid for two contracts by $669,126 (see table 1). 

Table 1. Summary of Inadequate Price Analysis Methods

Methods of Cost or Price 

Analysis

Number of 

Contract Award 

Actions 

Total Estimated 

Potential Value 

(in Dollars) 

Amount

Overpaid 

Acceptance of prior prices 

without establishing their 

reasonableness 

1 $188,612

Use of outdated/escalated 

prices without requesting 

additional data

1 $232,415

Significant costs and profits 

not analyzed 1 $1,495,216

Use of unreliable 

(incomplete or unsupported) 

IGCEs

1 $314,500

Incomplete or inaccurate 

comparison with GSA 

Federal Supply Schedule

1 $113,270 $11,568

Inadequate analysis of 

indirect rates and profit 1 $7,632,366 $657,558

None performed 2 $1,576,585

Totals 8 $11,552,964 $669,126

Source: OIG review of 25 contract files for randomly sampled noncompetitive contract awards. 

*Amounts were rounded up.

Inadequate Workforce Training and Acquisition Planning Impeded 

FAA Officials’ Ability To Perform Effective Price Analysis 

Of the 12 acquisition personnel responsible for the 8 contracts that had inadequate 

price analysis, only 2 had completed specialized training on performing cost and 

price analysis. We found a number of mistakes made on contract awards that 

demonstrate the need for additional price analysis training for FAA contract 

personnel and better acquisition planning. For example, in the case of the two 

overpayments shown in table 1: 
6

• In March 2008, FAA awarded a contract for en route high and low altitude and 

area air traffic control charts, valued at approximately $7.6 million. However, 

FAA officials at the Mike Monroney Aeronautical Center in Oklahoma City 

mistakenly awarded the contract with an excessive profit rate of 30 percent; 

therefore, FAA likely overpaid for the contract by $657,558. This was due to 

an analyst’s lack of training needed to review an indirect rate submission 

included in the contractor’s cost proposal. Specifically, the contractor bid all of 

its indirect costs as part of a single overhead rate, including general and 

administrative (G&A) costs, which include executive salaries and 

administrative costs, such as accounting and legal. However, the FAA analyst 

did not identify that the various G&A costs were combined with overhead 

costs. As a result, the analyst mistakenly concluded that the contractor forgot to 

include G&A costs in its proposed price. Therefore, even though the analyst 

originally determined that a reasonable profit rate could range from 12.41 to 

18.8 percent, he ultimately recommended that FAA award the contract with a 

profit rate of 30 percent to compensate the contractor for the G&A costs he 

thought had been left out of the proposed price. The analyst later stated he had 

no experience reviewing indirect costs and that in his prior job he had relied on 

other price analysts to do such analysis. 

• In January 2008, FAA awarded a contract for an environmental assessment of 

the increased use of a crosswinds runway for $113,000. FAA did not compare 

proposed rates to a competitive Government-wide schedule to verify whether 

the proposed rates were reasonable as claimed. Instead, FAA officials relied on 

an undocumented Independent Government Cost Estimate (IGCE) that was 

unsigned and not retained in the contract file. An FAA procurement specialist 

initially stated she completed the IGCE by comparing labor rates—similar to 

those eventually proposed—to competitive rates for the contractor that were 

published in the GSA Federal Supply Schedule. Ordinarily, this is an 

acceptable price analysis tool, assuming other sources of comparison were 

unavailable.13 However, our review found that the rates in the Federal Supply 

Schedule were 10 percent to 13 percent lower for each labor category. Using 

these rates, we calculated that FAA may have overpaid by about $12,000. 

Additionally, FAA could have saved more if it had attempted to obtain 

discounts from the published blanket purchase agreement rates.14

 13 The Contract Pricing Reference Guides recommend using information gathered to make multiple comparisons in 

determining price reasonableness. 

The 

procurement specialist later admitted she never compared the labor rates to 

those in the GSA Federal Supply Schedule. 

14 On December 22, 2009, the Administrator, Office of Federal Procurement Policy, OMB issued guidance that 

strongly urged agencies to aggressively seek discounts under blanket purchase agreements, such as the Federal 

Supply Schedules, which are specifically designed for agencies to negotiate better deals.
7

In another example from June 2007, FAA Headquarters awarded a bridge contract 

for information technology support services for approximately $742,000. The 

contracting officer used rates from two existing bridge contracts without verifying 

whether they were reviewed for reasonableness. The contracting officer stated that 

he did not determine price reasonableness for this contract because he had just 

been assigned responsibility for administering the contract and was instructed to 

award the new contract within 1 week. Yet, FAA guidance states that acquisition 

planning is required for every contract award action of $100,000 or more. 

Additionally, FAA’s Pricing Handbook states that planning prior to beginning 

price analysis helps provide accurate price recommendations. Without reviewing 

proposed rates or verifying whether prior rates are reasonable, FAA is left with 

little assurance that contracts are awarded at the best value to the Agency. 

Moreover, our review of the prior contract for these services found that a review 

of its rates was never performed to determine reasonableness and that the rates 

were overpriced by about 16 percent compared to average rates for a similar 

contract administered by FAA.15

The Contract Pricing Reference Guides,16

We found other examples of ineffective price analysis methods among the awards 

for the eight contracts, including the following:

used as a best resource for conducting 

price analysis throughout the Government, state that contract personnel should 

ensure that any prior prices or rates being relied upon were found to be fair and 

reasonable. The guide highlights that it is not uncommon to review the purchase 

history for an item or service only to find that there is no basis other than the last 

price paid to accept proposed amounts as reasonable. Therefore, contracting 

officials should not rely on prior contract rates when awarding successive bridge 

contracts without reviewing or ensuring that prices were evaluated for 

reasonableness. This demonstrates the need for improved acquisition planning so 

that acquisition officials have sufficient time to properly consider comparability 

factors, including passages of time and changes in markets and technology. This 

also shows that some FAA acquisition officials may lack knowledge on how to 

compare prices or may be unaware that prices can change dramatically over time. 

• Procurement of 16 Moving Target Simulators. FAA officials at the Mike 

Monroney Aeronautical Center in Oklahoma did not complete a cost analysis 

before awarding this contract in June 2007. Specifically, FAA did not review 

and document an analysis of the direct costs—such as labor rates and costs, 

material costs, and fees—which represented over $729,000 (49 percent) of the 

$1.5 million awarded. Instead, FAA limited its review to confirming the 

 15 The Broad Information Technology and Telecommunications Support Services II multiple award contract. 16 The five-volume Contract Pricing Reference Guides are (1) Price Analysis; (2) Quantitative Techniques for Contract 

Pricing; (3) Cost Analysis; (4) Advanced Issues in Contract Pricing; and (5) Federal Contract Negotiation 

Techniques.
8

reasonableness of proposed overhead and G&A rates,17 with the Defense 

Contract Audit Agency (DCAA).18

• Streamlining Air Traffic Oversight System Data Collection Tools. FAA 

Headquarters awarded a follow-on contract for management consulting 

services in September 2008 for $189,000. However, the program manager used 

outdated contract rates from a prior contract awarded in 1999 (adjusted for 

escalation) without determining whether those rates had undergone adequate 

price analysis. While FAA’s AMS permits using rates from prior contract 

awards when the comparison is valid—that is, for similar items and 

quantities—AMS states that the contracting officer should consider whether 

pricing data are recent when deciding if more current data should be requested. 

Additionally, best practices in the Contract Pricing Reference Guides19

FAA Found That Acquisition Workforce Training Did Not Sufficiently 

Emphasize Cost and Price Analysis 

used by 

other Federal agencies caution that an effort to equate two prices separated by 

5 years, through a simple inflation adjustment, may not be successful because 

too many characteristics of the market are likely to have changed. In this case, 

since the prior contract price was awarded 9 years ago, the program manager 

should have requested and reviewed recent sales or pricing data. 

Price analysis deficiencies were reported in FAA Headquarters’ NAEP reviews, as 

well as FAA’s Assistant Administrator’s Procurement Evaluation Program 

Reviews, which are internal quality control reviews of procurement and contract 

administration practices.20 Similar to our aforementioned findings, FAA’s NAEP 

reviews reported that price analysis was inadequately completed due to 

insufficient training. Additionally, a strategic plan21

 17 Overhead rates ordinarily include costs incurred to support direct labor or direct materials and are allocated to 

multiple contracts over a common base, such as direct labor hours or costs. G&A rates include management, 

financial, and other costs that are allocated to all contracts for the general management within a business unit, 

typically on a base of total costs, excluding G&A. 

for the Department of 

Transportation’s acquisition workforce and a Department-wide analysis of core 

18 The DCAA regularly audits financial submissions and accounting systems of government contractors. The FAR

provides that contracting officers may request audit services directly from the responsible audit agency cited in the 

Directory of Federal Contract Audit Offices, which are primarily comprised of DCAA resident and field offices. 

Using DCAA audits to verify proposed rates is considered a technique for completing cost analysis (see exhibit B for 

more techniques). 19 The Contract Pricing Reference Guides (developed by the Air Force Institute of Technology and Federal Acquisition 

Institute), are used as a best resource for conducting price analysis throughout the Government. 20 “National Acquisition Evaluation Program (NAEP) Procurement Evaluation Review," FY 2009 Report for Mike 

Monroney Aeronautical Center (MMAC); “FY 2008 Procurement Review Summary Report and Action Response,” 

NAEP, FAA, dated March 31, 2009; “Procurement Evaluation Program Reviews of the Western-Pacific (AWP), 

Central (ACE), and Alaska (AAL) Regional Offices,” dated August 15, 2007; and “Procurement Evaluation Program 

Reviews of the New England (ANE), Great Lakes (AGL), and Northwest Mountain (ANM) Regional Offices,” dated 

December 19, 2006. 21 “Strategic Acquisition Workforce Succession Plan,” Department of Transportation, February 2009.
9

competencies22

In October 2008, the NAEP augmented its annual plan to include expanded review 

elements for price analysis and data entry into the Federal Procurement Data 

System (FPDS). Beginning in October 2009, the NAEP assumed responsibility of 

FPDS oversight for FAA including reporting agency compliance to OMB. During 

FY 2011 the NAEP plans to conduct detailed reviews of contract awards at FAA 

Headquarters and three regions. 

concluded that the ability to review contractors’ proposals was 

among those core competencies in most need of improvement.

We met with FAA acquisition executives and managers on July 7, 2009, and 

August 20, 2009, and informed them of the need to implement training on price 

analysis. As a result of these meetings, FAA contracted to obtain a price analysis 

course and has begun providing the training to all contracting officers and other 

acquisition workforce staff managers involved with evaluating cost proposals and 

preparing IGCEs. Also, at the FAA National Procurement Training Conference in 

November 2009, FAA acquisition specialists provided training to senior 

contracting and acquisition specialists on price analysis areas such as conducting 

proposal analysis, performing procurement planning, and using commercial 

escalation forecasts. 

FAA DID NOT IDENTIFY ITS NONCOMPETITIVE CONTRACTS 

DUE TO INCOMPLETE AND INACCURATE DATA SYSTEMS

FAA is limited in its ability to identify high-risk and noncompetitive contracts 

because it does not have an effective contract writing system as required by OMB. 

On July 29, 2009, OMB required Federal agencies to identify high-risk contracts, 

including noncompetitive ones, and reduce the amount obligated for new awards 

for these types of contracts by 10 percent in 2010. OMB also outlined steps 

agencies should take to improve data quality, focusing on agencies’ internal data 

entry and control procedures. However, it is difficult for FAA to comply with 

these guidelines because it still does not use a contract writing system that can

interface directly with the Government’s contract database, FPDS-NG, which 

would flag data entry errors at time of contract award. Rather, FAA uses PRISM 

as a feeder system to enter data into FPDS but does not require contracting 

officials to verify that critical data fields are completed when they enter data into 

PRISM at time of contract award. FAA also cannot identify how many 

noncompetitive contracts are listed in PRISM because it lacks internal controls for 

validating the accuracy of contract award data entered into the system. As a result, 

FAA managers cannot effectively use PRISM data to oversee procurements and 

 22 “Acquisition Workforce Gap Analysis Improvement Plan,” Department of Transportation, February 2009.
10

accurately assess the impact of FAA’s competitive practices to ensure contracts 

are properly administered.

Data Limitations Obstructed FAA’s Knowledge of the Use of 

Competition

Our review of noncompetitive contract award actions recorded in PRISM found

that contracting officials are not consistently recording whether contract actions 

were competitively or noncompetitively awarded. For example, in March 2010 we 

conducted a review to determine whether contracts awarded during the 12 months 

ending September 30, 2009, were recorded as “Competitive,” “Noncompetitive,” 

or “Not Subject to Competition” in the “Extent Competed” field in PRISM. This 

field requires an entry before the contracting officers can record contract award 

information in FPDS-NG. FAA notified its contracting officers requesting that 

they complete the missing information throughout FY 2009 and subsequent 

months. However, we identified 1,940 blank entries in the “Extent Competed” 

field for contract actions awarded for FY 2009 with estimated potential values of 

more than $2 billion.23

FAA officials confirmed that similar problems exist throughout the Agency. For 

example, for FY 2009, FAA’s former Chief Acquisition Officer (CAO) and Vice 

President, Acquisition and Business Services, certified that 12 percent of all 

FAA’s reportable contract actions were not entered into FPDS-NG as fully and 

accurately as possible, and that only 1 percent of FY 2009 procurements were 

reported directly to FPDS-NG through an online web portal. FAA officials stated 

that FAA plans to implement the FPDS-NG software, which requires complete 

fields in order to record an initial transaction. FAA’s former CAO stated that 

implementing a contract writing system is one of FAA’s highest priorities for 

improving its procurement practices. 

An accurate database of noncompetitive awards would provide FAA with a tool to 

determine whether such awards were justified and not overpriced; perform market 

research to develop alternative sources; oversee performance; and conduct 

oversight to identify opportunities to increase the use of commercial practices, 

increasing the likelihood of competition. FAA states it is developing methods to 

improve its controls for data initially entered into PRISM and FPDS when 

contracts are awarded. 

 23 The PRISM User Guide requires the “Extent Competed” field to be completed within PRISM to identify the extent 

of FAA's competitive and noncompetitive contract award actions, such as full and open competition, not available 

for competition, and not competed.
11

Internal Controls Are Insufficient To Validate the Number of 

Noncompetitive Awards Reported in PRISM 

FAA lacks internal controls to validate the accuracy of information entered into 

PRISM when a contract is awarded. While FAA performs semiannual checks of 

PRISM to determine whether required fields are populated so new award data can 

be transferred to FPDS-NG, contracting officials are not correcting data errors 

identified in these checks in a timely manner. FAA contracting officials also 

inaccurately reported noncompetitive awards and procurements that are exempt 

from competitive requirements in PRISM’s “Extent Competed” field. FAA’s 

former Acquisition Executive reported to OMB that FAA contracting personnel 

place a higher priority on awarding contracts and lower priority on entering data 

accurately, although the accuracy of the data is critical for overseeing 

noncompetitive contract awards.24

• Two contracts were awarded using full and open competition and should have 

been recorded as “Competed Action.”

For example, FAA contracting officials 

inaccurately recorded 13 of 33 contract award actions (39 percent) we reviewed as 

“Not Competed,” although they should have been recorded as “Competed Action” 

or “Not Available for Competition.” Specifically: 

• Five contract awards were set aside for small economically disadvantaged 

businesses. According to FAA’s PRISM User Guide, which exempts these 

types of awards from competition requirements, they should have been 

recorded as “Not Available for Competition.” 

• Six contract awards were for “other transactions”—which are agreements that 

are not subject to rules of competition for FAA—and should have been 

recorded as “Not Available for Competition.” FAA is implementing 

regulations to require that other transactions be separately accounted for in 

FPDS.25 Although FAA uses PRISM to record data into FPDS, FAA’s PRISM 

User Guide currently lacks information on how to code other transactions.26

Since FAA inaccurately reports its use of competition, it is limited in its ability to 

oversee proper administration of contracts. On February 22, 2010, FAA’s CAO 

reported to OMB that FAA is challenged in holding contracting personnel 

accountable for placing a priority on reporting procurements in a timely and 

accurate manner—since awarding contracts to support mission needs many times 

takes precedence over data reporting. FAA plans to distribute data discrepancy 

 24 According to the FPDS Data Quality Report that FAA submits to OMB. 25 According to FAA Legal Counsel, other transaction agreements are not subject to competitive requirements, do not 

require single source justification, and are not subject to AMS price analysis requirements. 26 The Duncan Hunter National Defense Authorization Act, Public Law 110-417, Section 874 requires revisions to 

FPDS to facilitate the collection of timely and reliable data on transactions other than contracts, grants, and 

cooperative agreements.
12

reports more frequently; however, this will not ensure that data are valid when 

entered into the system at the time of contract award. 

CONCLUSION

Maximizing the use of Federal funds is more important than ever as the 

Government is now seeking new ways to cut costs. Following proper price 

analysis methods provides FAA with the opportunity to better account for the 

hundreds of millions of dollars spent on noncompetitive contracts, avoid 

overpaying for goods and services, and ensure decision makers have visibility into 

the Agency’s use of those contracts. While FAA has begun improving its 

processes, additional management controls are needed to meet OMB and 

Presidential direction regarding price reasonableness and reliable contract award 

data. 

RECOMMENDATIONS

We recommend that FAA’s Vice President of Business and Acquisition Services:

1. Implement oversight procedures to ensure that price analysis is documented 

and reviewed for completeness and adequacy before negotiating 

noncompetitive contract award actions. 

2. Develop guidance on when current pricing information should be obtained 

and how the current data should be used, such as obtaining and reviewing 

rates available in GSA’s Federal Supply Schedules, before negotiating prices.

3. Complete price analysis training for the acquisition workforce members with 

an identified need for such training. Ensure that program officials and 

engineers responsible for developing IGCEs complete price analysis training.

4. Amend FAA’s PRISM User Guide to separately account for other 

transactions agreements or address how these agreements should be recorded 

in the “Extent Competed” field. 

5. Implement internal control procedures to verify that entries in the “Extent 

Competed” field in PRISM are entered completely and accurately at the time 

contracts are awarded.

6. Implement a contract writing system or FPDS-NG software to validate that 

required fields are completed and valid codes are used when entering data for 

new awards.
13

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

We provided a draft of this report to FAA for comment on March 31, 2011. We 

received FAA’s response on April 27, 2011, which can be found in its entirety in 

the appendix of this report. FAA concurred with all of our recommendations and, 

in April 2011, had already implemented corrective action for recommendation 4. 

We consider this recommendation closed. FAA has also provided sufficient 

planned actions, with target dates for recommendations 1, 2, 3, and 5. We consider 

these actions resolved but open pending completion of the planned actions. For 

recommendation 6, however, FAA indicates that it intends to implement an FPDSNG software module to close the recommendation but only when sufficient 

funding is identified for this effort due to budget uncertainty. Consequently, FAA 

did not estimate a completion date for those actions. In our opinion, since FAA 

states that it intends to implement the recommendation it should be able to 

estimate a future target date for taking the corrective action or provide an 

alternative corrective action and associated implementation dates. Accordingly, 

until we receive that information, we consider this recommendation open and 

unresolved. 

ACTIONS REQUIRED 

FAA provided acceptable actions and timeframes for recommendations 1, 2, 3, 

and 5, and we consider them resolved but open until planned actions are 

completed. For recommendation 4, we verified that FAA implemented its 

corrective action in April 2011, and we consider the recommendation closed. We 

request that within 30 days of this report, FAA provide in writing a target 

completion date for recommendation 6, or an alternative corrective action and 

estimated completion date. We consider this recommendation open and unresolved 

until that time. We appreciate the courtesies and cooperation of FAA 

representatives during this audit. If you have any questions concerning this report, 

please contact me at (202) 366-1427 or Terry Letko, Program Director, at (202) 

366-1478.

#

cc: Vice President, Office of Acquisition and 

 Business Services;

 Anthony Williams, AAE-100

 Carol Johnson, AAE-100

 Martin Gertel, M-100
14

Exhibit A. Scope and Methodology 

EXHIBIT A. SCOPE AND METHODOLOGY

We conducted this audit in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that the 

evidence obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. 

We conducted this audit between February 2008 and March 2011. The objectives 

of our audit were to determine whether FAA: (1) sufficiently justified and properly 

reviewed and approved the use of noncompetitive contract awards and (2) 

adequately performed and properly documented price analysis applicable to the 

contract.

To address our audit objectives, we used data from FAA’s PRISM to identify the 

universe of noncompetitive contracts with award values of $100,000 or more that 

were awarded for the 18-month period ending April 15, 2008, excluding grants 

and cooperative agreements. We identified a universe of 176 noncompetitive 

contracts for this period with estimated potential values of $189.5 million. From 

this universe, we selected a random sample of 23 noncompetitive contracts for 

review. Of the 23 contracts, 17 were awarded before new AMS pricing 

methodology guidance on completing price analysis and IGCEs became effective 

on October 2007, and 6 noncompetitive actions were awarded after the new 

guidance. To further evaluate the effectiveness of the new guidance, we selected a 

second random sample of 10 contracts, with a total estimated potential value of 

$24.8 million, awarded after the new guidance became effective. This second 

sample was selected from a universe of 105 noncompetitive contracts, with an 

estimated potential value of $220.4 million, awarded for the 9-month period 

ending December 24, 2008. Ultimately, we reviewed 25 of the 33 total contracts 

(valued at $44.8 million) selected for review because 2 sampled contracts were 

competitively awarded, and 6 sampled contracts represented other transactions, 

which are exempt from price analyses.

In the Department of Transportation’s FY 1996 Appropriations Act, Congress 

provided FAA with broad authority to develop its own acquisition process without 

having to comply with Federal acquisition laws or regulations, including those 

addressing the award of noncompetitive contract actions. The intent was to allow 

FAA to streamline its acquisition processes so that it could acquire goods, 

services, and systems in a more timely and cost-effective manner. To implement 

the reforms, FAA established its Acquisition Management System (AMS), a set of 

policies and guidance designed to address the unique needs of the Agency and to 
15

Exhibit A. Scope and Methodology 

streamline all three acquisition life-cycle phases (see figure 1). AMS allows 

procurement flexibility, but to ensure this flexibility is properly applied, it requires 

sound judgment on the part of FAA procurement officials. Accordingly, FAA 

officials should consider best practices followed by other Federal agencies for 

awarding noncompetitive contract actions, and appropriate oversight by FAA 

executives is critical.

Figure 1. Acquisition Lifecycle

Plan

(Pre-Award) Procure

Manage &

Administer

(Post-Award)

Plan

(Pre-Award) Procure

Manage &

Administer

(Post-Award)

Source: Information Technology Resources Board

We reviewed documents in contracting files for randomly selected noncompetitive 

awards to determine whether price analysis was adequately completed. This 

included reviewing contract award decision documents, legal reviews, contractor 

price proposals and support, price analysis reports, IGCEs, and other documents 

that were relevant to the award. We also interviewed contracting staff, program 

managers, cost analysts, and other FAA officials to understand how price analysis 

was conducted. In some instances, we also recomputed price analysis. We used 

AMS, the FAA Pricing Handbook, Federal Acquisition Regulation (FAR), and 

guidance from other Federal agencies as a basis for our review. We briefed FAA 

senior acquisition officials on relevant findings throughout our review.

We also relied, in part, on the computer-processed data from FAA’s PRISM 

database. During our audit, we assessed the reliability of the data. For data we 

found to be inadequate, we performed additional procedures to verify the 

information received. For example, we reviewed contract award documents to 

determine whether the action was awarded on a noncompetitive basis and verify 

the amount of the award. However, the lack of complete and accurate PRISM data 

resulted in a scope limitation that impacted the extent of our work. For example, 8 

of 33 noncompetitive awards in our random sample were inaccurately recorded as 

“Noncompetitive,” when they should have been recorded as “Competitive” or 

“Exempt from Competition.” As a result of such errors, we could not complete 

our first audit objective to determine whether use of noncompetitive awards was 

justified and sufficiently approved. Specifically, due to the impracticality of 

obtaining a valid universe of noncompetitive contract actions, we were unable to 

gain assurance that required justifications for the use of noncompetitive contracts 

were sufficient.

 
16

Exhibit B. Techniques for Performing Price and Cost Analysis 

EXHIBIT B. TECHNIQUES FOR PERFORMNG PRICE AND COST 

ANALYSIS

Price Analysis. AMS procurement guidance provides several techniques that 

may be used in performing price analysis for noncompetitive awards:

1. Comparison of prior proposed prices and contract prices with current 

proposed prices for the same or similar end items and services in 

comparable quantities. (The FAR also requires that the reasonableness 

of the prior prices be established to use this method.)

2. Application of rough yardsticks (such as dollars per pound) to highlight 

significant inconsistencies that warrant additional pricing inquiry. 

3. Comparison with competitive published catalogs or lists, published 

market prices or commodities, similar indexes, and discount or rebate 

arrangements.

4. Comparison of proposed prices with independent cost estimates.

5. Ascertaining that the price is set by law or regulation.

Although not included in AMS guidance, the FAR also includes the following 

methods for performing price analysis:

6. Comparison of proposed prices with prices obtained through market 

research for the same or similar items.

7. Analysis of pricing information provided by the offeror (such as sales 

history, vendor quotations, actual cost and rate information, and 

budgetary support).

Cost Analysis. AMS guidance indicates that cost analysis involves examining 

data submitted by the contractor, evaluating the judgmental factors applied in 

projecting estimated costs, and comparing with previous costs and forecasts of 

future costs based on historical experience. It includes the following 

techniques and procedures:

1. Verification of cost or pricing data (rates, etc.) and evaluation of cost 

elements.

2. Evaluating the effect of the offeror’s current practices on future costs.

3. Comparison of costs proposed by the offeror with historical and actual 

costs and previous estimates for the same or similar items.
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Exhibit B. Techniques for Performing Price and Cost Analysis 

4. Analysis of the contractor’s evaluation in determining the 

reasonableness of the subcontract costs.

5. Verification of the offeror’s proposed costs to ensure that it reflects 

cost realism and reasonableness. 

6. Determination of whether any cost or pricing data is necessary to make 

the contractor’s proposal accurate, complete, and current has been 

submitted or identified in writing.

Obtaining field pricing assistance from DCAA or the Defense Contract 

Management Command is a common method of completing cost analysis. The 

contracting officer may request field pricing support when deemed necessary; 

methods include rate verifications, third-party audits, estimating system 

audits, and proposal analysis. Contracting officers are encouraged to use good 

business sense in deciding when to obtain pre-award audits. In comparison, 

FAR provides that the contracting officer should request field pricing 

assistance when the information available at the buying activity is inadequate 

to determine a fair and reasonable price.
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Exhibit C. Significant Corrective Actions for Improving Cost/Price Analysis and 

Accuracy of Procurement Data

EXHIBIT C. SIGNIFICANT CORRECTIVE ACTIONS FOR 

IMPROVING COST AND PRICE ANALYSIS AND ACCURACY OF 

PROCUREMENT DATA

• October 2008: FAA’s NAEP expanded review elements for price analysis and 

proper entry of data into the FPDS. Each NAEP visit includes training on 

proper price analysis and award justifications, and FAA standards on the 

proper entry of FPDS data.

• October 2009: NAEP assumed responsibility of FPDS oversight for FAA, to 

include reporting agency compliance to OMB.

• FY 2009: To address NAEP and OIG findings, the Assistant Administrator for 

Regions and Center Operations provided tailored onsite training to her 

acquisition offices. This included the adequate use of pricing data and the 

proper development of an award justification.

• FY 2010: The National Acquisition Evaluation Group provided three cost and 

price analysis training classes to acquisition managers and contract specialists 

(two at FAA Headquarters and one at the William J. Hughes Technical 

Center).

• FY 2010/FY 2011: FAA is currently revising the Pricing Handbook to 

incorporate OIG findings and best practices from corporate and Federal 

sectors.

• May 24, 2010: To strengthen FAA’s infrastructure and capabilities in cost and 

price analysis, the Director of Acquisition Policy, Workforce Development 

developed a plan to establish a Cost/Price Group and strengthen the training 

and policy for cost and price analysis within FAA.

• December 30, 2010: To strengthen and standardize FAA’s capabilities in cost 

and price analysis, the Office of Acquisition and Business Services established 

the DCAA Audit and Price Analysis Support Team. This team will manage 

FAA’s DCAA audit program, continually assess FAA’s policy on cost and 

price analysis, provide assistance to contract specialists, and provide subject 

matter expertise in the development and delivery of cost and price training.
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Exhibit D. Major Contributors to This Report 

EXHIBIT D. MAJOR CONTRIBUTORS TO THIS REPORT 

Name Title

Terrence Letko Program Director

Gary Fishbein Project Manager

Leslie Mitchell Senior Auditor

Jill Cottonaro Senior Analyst

David Lahey Auditor

Meghann Noon Auditor

Heather Voda Analyst

Angela Hailes Analyst

Petra Swartzlander Statistician

Andrea Nossaman Writer-Editor
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Appendix. Agency Comments

APPENDIX. AGENCY COMMENTS

Federal Aviation

Administration

Memorandum

Date: 

To: Lou E. Dixon, Principal Assistant General for Auditing and Evaluation

From: Clay Foushee, Director, Audit and Evaluations, AAE-1 

Subject: OIG Draft Report: FAA Must Strengthen Its Cost and Price Analysis 

Processes to Prevent Overpaying For Noncompetitive Contracts 

The Federal Aviation Administration (FAA) continues its commitment to conduct 

effective cost and price analysis for its noncompetitive awards. Through policy and 

process improvement and the delivery of effective training to acquisition professionals, 

FAA will improve its cost and pricing capabilities to ensure awards continue to be fair 

and reasonable.

In advance of this report, FAA has taken the following actions to reinforce its capabilities 

in cost and price analysis, oversight and the proper recordation of contract information: 

• October 2008: FAA’s National Acquisition Evaluation Program (NAEP) 

augmented its annual plan to include expanded review elements for price and cost 

analysis and proper entry of data into the Federal Procurement Data System 

(FPDS).

• October 2009: NAEP assumed responsibility of FPDS oversight for FAA, to 

include reporting agency compliance to the Office of Management and Budget. 

• Fiscal Year (FY) 2009: FAA Headquarters and the Assistant Administrator for 

Regions and Center Operations provided focused and tailored onsite training to 

contract offices addressing core requirements of cost and price analysis.

• January 2011: FAA established the Defense Contract Audit Agency (DCAA) 

Audit and Price Analysis Support Team to manage FAA’s DCAA audit program, 

continually assess FAA’s policy on cost/price analysis, provide assistance to 

contract specialists and provide subject matter expertise in the development and 

delivery of cost/price training. 

 
21

Appendix. Agency Comments

The following is provided in response to the Office of Inspector General’s 

recommendations:

OIG Recommendation 1: Implement oversight procedures to ensure that cost and price 

analysis is documented and reviewed for completeness and adequacy before negotiating 

noncompetitive contract award actions.

FAA Response: Concur. FAA will continue to update the Acquisition Management 

System (AMS) and FAA Pricing Handbook to establish effective guidance for cost and 

pricing elements and techniques, and provide refresher training to acquisition 

management addressing cost and pricing standards and roles and responsibilities. AMS 

and the FAA Pricing Handbook will be revised as needed by September 30, 2011, while 

refresher training has already been developed and routinely delivered.

The NAEP will continue its reviews of acquisition offices to ensure effective cost and 

price is conducted and adequate management oversight is being applied. The FY 2011 

NAEP reviews have already been initiated, and will continue through the end of the fiscal 

year.

OIG Recommendation 2: Develop guidance on when current pricing information should 

be obtained and how the current data should be used, such as obtaining and reviewing 

rates available in GSA’s Federal Supply Schedules, before negotiating prices.

FAA Response: Concur. The DCAA Audit and Price Analysis Support Team will 

review AMS and reinforce language supporting when current pricing information should 

be obtained and how it can be effectively used, to include the use of rates available from 

GSA Federal Supply Schedules. AMS and associated guidance will be revised by 

September 30, 2011.

OIG Recommendation 3: Complete price analysis training for the acquisition workforce 

members with an identified need for such training. Ensure that program officials and 

engineers responsible for completing Government cost estimates complete price analysis 

training.

FAA Response: Concur. FAA will continue to deliver price analysis training to 

acquisition managers and Contracting Officers. Additionally, FAA’s Acquisition Career 

Management group will review curriculum content and certification requirements and 

identify opportunities to strengthen training and guidance provided to program managers 

and Contracting Officer’s Technical Representatives responsible for completing 

Independent Government Cost Estimates. Training and certification requirements will be 

reviewed and revised as needed by

September 30, 2011.

OIG Recommendation 4: Amend FAA’s PRISM User Guide to separately account for 

other transactions agreements or address how these agreements should be recorded in the 

“Extent Competed” field.
22

Appendix. Agency Comments

FAA Response: Concur. The instructions for “extent competed” field in the FPDS user 

guide have been interpreted differently by contracting staff, sometimes resulting in 

inconsistent coding of transactions. FAA updated the FDPS user guide in April 2011 to 

provide more explicit instructions about when and how to use the options under the 

“extent competed” field for each award type, to include other transaction agreements.

OIG Recommendation 5: Implement internal control procedures to verify that entries in 

the “Extent Competed” field in PRISM are entered completely and accurately at the time 

contracts are awarded.

FAA Response: Concur. Edit checks are present in the PRISM FPDS to FPDS-NG data 

transfer; however, the checks do not analyze each field. To ensure the “extent competed” 

field is properly addressed; FAA will establish an ongoing review process by May 31, 

2011 to improve consistency and overall accuracy of FPDS data when entered at award.

OIG Recommendation 6: Implement a contract writing system or Federal Procurement 

Data System- Next Generation software to validate that required fields are completed and 

valid codes are used when entering data for new awards.

FAA Response: Concur. FAA’s goal continues to be the implementation of FPDS-NG 

in PRISM; however, recent budget constraints have prevented the implementation of this 

module. FPDS-NG will be implemented when sufficient funding is identified for the 

effort, but due to budget uncertainty no completion dates can be estimated at this time.