AUDIT REPORT IG-03-008 

Report Recipients: 

H/Assistant Administrator 

 for Procurement 

JSC/AA/Director, Johnson 

Space Center 

KSC/AA/Director, Kennedy 

Space Center 

MSFC/DA01/Director, 

 Marshall Space Flight 

 Center

NASA’S REDUCTION OF 

UNDEFINITIZED CONTRACT ACTIONS 

March 3, 2003 

cc: 

JM/John Werner, June 

Flickinger, Margy Myles, 

Margie Team 

JSC/BD5/Audit Liaison 

Representative 

KSC/QA-D/Audit Liaison 

Representative 

MSFC/RS40/Audit Liaison 

Representative 

 National Aeronautics and 

Space Administration

OFFICE OF INSPECTOR GENERAL 

Released by: __[original signed by]_________

Alan J. Lamoreaux, Assistant Inspector General for Audits 
IG-03-008 March 3, 2003

 A-02-018-00

NASA’s Reduction of 

Undefinitized Contract Actions 

In conducting this audit, we found that NASA had significantly reduced both the number 

and dollar amount of undefinitized contract actions (UCAs) since the U. S. General 

Accounting Office highlighted UCAs as one reason for identifying contract management 

as a major management challenge for NASA. Issuing contract changes as UCAs is a 

risky way of doing business, because contractors are performing the work before the cost 

is established, which increases the risk of unanticipated cost growth. On March 31, 2000, 

NASA had 186 UCAs with an estimated value of more than $2 billion. On June 7, 2001, 

the NASA Administrator issued a letter to senior NASA managers requiring a reduction 

of at least 50 percent in the number and dollar amount of UCAs over the next year. In 

addition, new NASA policy required Center Directors to approve all UCAs in excess of 

$100,000. By November 30, 2002, the Agency had reduced the number of UCAs to 19 

with an estimated value of $61 million (see Appendix D), which represents reductions of 

about 90 percent in the number of UCAs and 97 percent in the estimated dollar value of 

UCAs. 

Reduction in the Number and Dollar Value 

of UCAs from March 31, 2000, to November 30, 2002

0

500

1,000

1,500

2,000

2,500

Mar-00Mar-01Mar-02

Nov-02

Dollars in millions 

0

50

100

150

200

250

Number of open UCAs

Dollar Value 

Number 
2

The NASA Assistant Administrator for Procurement requested that we identify those 

controls that were effective in reducing the number of UCAs so he could apply similar 

controls to other management issues. We believe the following strong centralized 

management actions at NASA Headquarters contributed to the significant reduction in 

UCAs. 

• The NASA Administrator issued a letter to senior NASA managers on the need to 

reduce UCAs. 

• NASA changed the UCA approval process by requiring Center Directors to 

approve all UCAs in excess of $100,000 instead of the previous approval level of 

$1 million. 

• The Assistant Administrator for Procurement required Centers to report the 

number and dollar value of UCAs to Headquarters on a monthly basis. 

Furthermore, Center Directors placed greater emphasis on the consideration of UCAs as a 

management issue rather than a procurement issue. NASA must continue to be vigilant 

in managing UCAs in order to limit their use to an exception basis for urgent 

requirements only, as required by the Federal Acquisition Regulation (FAR) and the 

NASA FAR Supplement. 

Categorizing and Reporting UCAs 

NASA could further improve its policy by categorizing and reporting as UCAs, 

undefinitized contract changes in excess of $100,000 but below contract dollar threshold 

levels. Contract dollar threshold levels are the contract-specific levels below which 

changes can be made without further negotiation. The dollar threshold levels vary among 

contracts and can be as high as $1 million. 

The three Centers we reviewed had differing policies for classifying and reporting 

changes above $100,000 but below contract dollar threshold levels: Johnson Space 

Center (Johnson) and Marshall Space Flight Center (Marshall) treated such changes as 

UCAs, but Kennedy Space Center (Kennedy) did not (see Appendix E). Kennedy 

allowed for contract changes below the contract dollar threshold to take place without 

being treated as UCAs, which could cause inaccurate UCA reporting and could adversely 

affect program spending if unanticipated cost growth occurred. 

Recommendation 

The Assistant Administrator for Procurement should establish guidelines for consistent 

treatment of all undefinitized contract changes in excess of $100,000 but below the 

contract dollar threshold level as UCAs requiring Center Director approval. 

Management’s Response. Concur. When the estimated cost of a change at the time of 

submission is unknown, or exceeds the negotiated dollar threshold negotiated in the basic 

contract, the change will be treated as a UCA. Procurement Officers will be reminded of 

this policy by the Assistant Administrator for Procurement not later than March 31, 2003. 
3

Evaluation of Management’s Response. Management’s planned action for the 

recommendation is responsive. The recommendation is resolved but will remain 

undispositioned and open until the agreed-to corrective action is completed. 

Appendices 

Among the appendices, note Appendix E, in particular, which discusses the different 

Center policies for classifying and reporting contract changes above $100,000 but below 

contract dollar threshold levels. 
4

List of Appendices 

Appendix A – Status of Recommendation 

Appendix B – Background 

Appendix C – Objectives, Scope, and Methodology 

Appendix D – NASA Actions to Reduce the Use of Undefinitized Contract 

 Actions (UCAs) 

Appendix E – Center Policies for Processing Changes Below Contract 

 Dollar Threshold Levels 

Appendix F – Other Matters of Interest 

Appendix G – Management’s Comments 

Appendix H – Report Distribution 

Acronyms Used in the Report 

FAR Federal Acquisition Regulation 

FY Fiscal Year 

GAO General Accounting Office 

UCA Undefinitized Contract Action 
5

Appendix A. Status of Recommendation 

Recommendation No. Resolved Unresolved Open/ECD* Closed

1 X 03-31-03 

* Estimated Completion Date 
6

Appendix B. Background 

In the past, NASA has relied heavily on undefinitized contract actions (UCAs) to modify 

work or initiate new work on its contracts for major programs such as the International 

Space Station and the Space Shuttle. In May 2000, the General Accounting 

Office (GAO) issued a letter to the Chairman, Committee on Science, House of 

Representatives, on Space Station prime contract changes.1 The letter showed that 

unnegotiated change orders in fiscal years (FYs) 1998 and 1999 accounted for more than 

half of all authorized changes and 98 percent of the costs for changes. NASA 

management acknowledged that beginning work on contract changes that have not been 

negotiated is not the preferred way of doing business, because the cost of the change is 

unknown while the work is being done. 

UCAs are a major reason that the GAO included contract management as a major 

management challenge for NASA. As of September 1996, NASA had 271 open UCAs 

with a total value of more than $450 million. By the year 2000, the number of UCAs was 

still about 200, but the total dollar value had increased to more than $2 billion. In a 

January 2001 report,2

 GAO stated that “relying on unnegotiated changes as a way of 

doing business is risky because it increases the potential for additional unanticipated cost 

growth.” GAO further stated that NASA’s frequent use of UCAs on the International 

Space Station prime contract is contrary to the Federal Acquisition Regulation (FAR) and 

puts NASA at risk for unanticipated cost increases. 

The FAR states that work on unnegotiated changes should occur on an exception basis 

and be limited to urgent requirements. NASA FAR Supplement Part 1843.7003, 

“Procedures,” incorporates the FAR requirement. The NASA FAR Supplement also 

requires that Center Directors approve in writing all UCAs with an estimated cost or 

price greater than $100,000.3 The NASA FAR Supplement does not specifically address 

the treatment of undefinitized contract changes that exceed $100,000 but are below the 

contract dollar threshold level. 

 

1

 The GAO letter, B-284721, “Space Station: Prime Contract Changes,” was dated May 11, 2000. 2

 GAO’s January 2001 report, “Major Management Challenges and Program Risks, National Aeronautics 

and Space Administration,” GAO-01-258, cited contract management as a major management challenge. 3

 The previous Center Director approval level was $1 million. 
7

Appendix C. Objectives, Scope, and Methodology 

Objectives

The overall objective was to determine whether NASA had adequately managed 

undefinitized contract actions (UCAs). A UCA is an action that allows the contractor to 

begin work on contract changes before NASA and the contractor have agreed on the final 

estimated cost and fee for those changes. Specifically, we determined whether NASA 

contracting officers did the following: 

• obtained cost estimates prior to issuance of change orders in accordance with 

NASA Federal Acquisition Regulation (FAR) Supplement Part 1843 (see 

Appendix F), 

• definitized change orders within NASA’s goal of 180 days (see Appendix F), and 

• accurately reported change order activity to NASA’s Office of Procurement. 

Scope and Methodology 

We reviewed applicable regulations, policies, and documentation from NASA and other 

Government agencies and performed the following: 

• Reviewed applicable sections of the FAR, NASA FAR Supplement, and other 

NASA guidance relevant to UCAs. 

• Met with GAO officials to determine the extent of their work regarding UCAs at 

NASA. 

• Conducted field work at NASA Headquarters and the three NASA Centers that 

historically had issued the largest number and dollar value of UCAs: Johnson 

Space Center (Johnson), Kennedy Space Center (Kennedy), and Marshall Space 

Flight Center (Marshall). 

• Reviewed a total of 83 UCAs at Johnson (45), Kennedy (27), and Marshall (11) to 

determine whether those actions were completed in accordance with existing 

criteria. 

• Reviewed seven additional UCAs from a list contained in a FY 2002 Johnson 

Procurement Management Survey Report4

 to determine whether the Center had 

revised its processing steps in response to the guidance issued June 29, 2001, by 

the Assistant Administrator for Procurement. 

• Evaluated a sample of seven changes that Centers classified as supplemental 

agreements to determine whether the changes should have been classified as 

UCAs. 

 

4

 The report was titled, “Procurement Management Survey Report, Johnson Space Center,” and covered the 

period February 22 through March 8, 2002. 
8

Appendix C

Management Controls Reviewed 

We reviewed the following management controls over the use of undefinitized contract 

actions: 

• FAR Part 43, “Contract Modifications” 

• FAR Part 16, “Types of Contracts” 

• NASA FAR Supplement 1843, “Contract Modifications” 

• NASA Procurement Information Circular (PIC) 01-16, “Class Deviation to the 

NASA FAR Supplement” 

• NASA Procurement Notice 97-67, “Undefinitized Contract Actions” 

Audit Field Work 

We conducted audit field work from March through December 2002 at NASA 

Headquarters, Johnson, Kennedy, and Marshall. We performed the audit in accordance 

with generally accepted government auditing standards. 

Prior Audit Coverage 

The NASA Office of Inspector General has issued reports related to the use of 

undefinitized contract actions. The reports are summarized below. Copies of NASA 

reports are available at http://www.hq.nasa.gov/office/oig/hq/audits.html. 

“Undefinitized Change Orders,” Report Number HA-95-001, November 9, 1994. 

The audit of undefinitized change orders issued under the Space Station Freedom Work 

Package contracts at Johnson Space Center showed that managers and contracting 

officers were not adequately administering contract changes. As a result, the risk of 

unnecessary cost growth under the contracts was high. Management concurred with our 

recommendations to limit the use of contract changes and to obtain cost estimates prior to 

the issuance of change orders. 

“Space Station Change Order Process,” Report Number IG-97-015, March 5, 1997. 

We found that the Space Station Program Office had not completed an effort to definitize 

old and high-priority changes within a self-imposed deadline. However, the effort was 

viable in that the program definitized many of the changes by the deadline, and had 

developed realistic plans to definitize the remaining changes within a 4-month period. 

We also found that the program had not issued undefinitized changes on an exception 

basis as recommended by Federal procurement regulations. The program’s extensive use 
9

Appendix C

of undefinitized changes was dictated by a need to maintain schedule. A delay in starting 

change directed work pending definitization of the changes orders would have 

significantly increased the risk of not completing the Space Station on time. 
10

Appendix D. NASA Actions to Reduce the Use of 

Undefinitized Contract Actions (UCAs) 

Following the June 2001 emphasis by top NASA management, the number of UCAs 

decreased as shown below. 

Reduction in the Number and Dollar Value 

of UCAs from March 31, 2000, to November 30, 2002

Date 

Number 

Of 

UCAs 

Percent 

Change from 

Prior Period 

Dollar Value 

(in millions) 

Percent 

Change from 

Prior Period 

March 31, 2000 

March 31, 2001 

March 31, 2002 

November 30, 2002 

186 

218 

 24 

 19 

-- 

 +17.2 

 -89.0 

 -20.1 

$2,025 

 1,528 

 78 

 61 

-- 

-24.5 

-94.9 

-21.8 

Cumulative Percent 

Change* 

 -89.8* -97.0* 

* We calculated the percentages by subtracting the November 30, 2002, figure (either the number of UCAs 

or the dollar value) from the corresponding March 31, 2000, figure and then dividing the result by the 

March 31, 2000, figure. 
11

Appendix E. Center Policies for Processing 

Changes Below Contract Dollar Threshold Levels 

Johnson policy required that contracting officers treat all changes that are in excess of 

$100,000 but are below the contract dollar threshold as UCA’s if urgency requires that 

the contractor begin work before the change is definitized. 

Marshall policy required that a Configuration Control Board (Board) review contract 

changes including those that were less than the contract dollar threshold. The Board, the 

Project Manager, and the Contracting Officer would approve the changes before work 

began. The Center Director was not required to approve definitized changes above 

$100,000 but below the contract dollar threshold, because the dollar value of the 

threshold had been negotiated in the basic contract, and no further contractual adjustment 

was required for such changes. However, the Team Lead, Marshall Procurement Office 

Policy and Review, stated that if it was necessary for the contractor to begin work on a 

change because of urgency before its cost had been definitized, Marshall would treat that 

change as a UCA even if the Center anticipated that the cost would be less than the 

contractor dollar threshold. 

Kennedy’s Joint Base Operations Support Contract did not require that changes in excess 

of $100,000 and below the contract dollar threshold level be treated as UCAs and did not 

require Center Director approval for these changes. 
12

Appendix F. Other Matters of Interest 

The audit also identified the following issues that require no further management 

attention. 

• We found that NASA complied with NASA Federal Acquisition Regulation 

(FAR) Supplement 1843.7003(b)(1). NASA had not issued change orders 

without setting a ceiling price or “not to exceed” estimated cost figure. 

• We found that contracting officers had not definitized 49 of 83 undefinitized 

contract actions (UCAs) within NASA’s goal of 180 days. The 49 UCAs were at 

three Centers: 27 at Johnson, 14 at Kennedy, and 8 at Marshall. Sixty of the 83 

UCAs reviewed, including all 49 that had been open over 180 days, had 

originated before the Administrator’s letter of June 7, 2001. Following the 

issuance of that letter, NASA procurement and program management personnel 

began timely action to reduce the number of open UCAs. As of October 31, 

2002, NASA had only two UCAs, valued at $611,000, that were over 180 days 

old. 

• For one UCA on the International Space Station contract at Johnson Space 

Center, the contracting officer did not obtain oral approval from the Center 

Director as required by the NASA FAR Supplement part 1843.7003. On June 28, 

2002, after advising the Procurement Officer, the contracting officer issued an email authorization for the contractor to proceed with the contract change 

estimated to cost $1.6 million before the Center Director had approved the UCA. 

The contracting officer took this action because of the urgency of the work and 

the nonavailability of the Center Director. On July 24, 2002, the Johnson Center 

Director approved the change. 
13

Appendix G. Management’s Comments 
14

Appendix G
15

Appendix H. Report Distribution 

National Aeronautics and Space Administration (NASA) Headquarters 

A/Administrator 

AA/Chief of Staff 

ADI/Associate Deputy Administrator for Institutions and Asset Management 

ADT/Associate Deputy Administrator for Technical Programs 

B/Deputy Chief Financial Officer for Financial Management 

B/ Deputy Chief Financial Officer for Resources (Comptroller) 

BF/Director, Financial Management Division 

G/General Counsel 

H/Assistant Administrator for Procurement 

HK/Director, Contract Management Division 

HS/Director, Program Operations Division 

J/Assistant Administrator for Management Systems 

L/Assistant Administrator for Legislative Affairs 

M/Associate Administrator for Space Flight 

R/Associate Administrator for Aerospace Technology 

S/Associate Administrator for Space Science 

Y/Associate Administrator for Earth Science 

NASA Centers 

ARC/D/Director, Ames Research Center 

DFRC/X/Director, Dryden Flight Research Center 

GRC/0100/Director, John H. Glenn Research Center at Lewis Field 

GSFC/100/Director, Goddard Space Flight Center 

JPL/1000/Director, Jet Propulsion Laboratory 

JSC/AA/Director, Lyndon B. Johnson Space Center 

KSC/AA/Director, John F. Kennedy Space Center 

KSC/CC/Chief Counsel, Kennedy Space Center 

LaRC/106/Acting Director, Langley Research Center 

MSFC/DA01/Director, George C. Marshall Space Flight Center 

SSC/AA00/Director, John C. Stennis Space Center 

Non-NASA Federal Organizations and Individuals 

Assistant to the President for Science and Technology Policy 

Deputy Associate Director, Energy and Science Division, Office of Management and 

 Budget 

Branch Chief, Science and Space Programs Branch, Energy and Science Division, Office 

 of Management and Budget 
16

Appendix H 

Non-NASA Federal Organizations and Individuals (Cont.) 

Managing Director, Acquisition and Sourcing Management Team, General Accounting 

 Office 

Senior Professional Assistant, Senate Subcommittee on Science, Technology, and Space 

Chairman and Ranking Minority Member – Congressional Committees and 

Subcommittees 

Senate Committee on Appropriations 

Senate Subcommittee on VA, HUD, and Independent Agencies 

Senate Committee on Commerce, Science, and Transportation 

Senate Subcommittee on Science, Technology, and Space 

Senate Committee on Governmental Affairs 

House Committee on Appropriations 

House Subcommittee on VA, HUD, and Independent Agencies 

House Committee on Government Reform 

House Subcommittee on Government Efficiency, Financial Management and 

 Intergovernmental Relations 

House Subcommittee on Technology and Procurement Policy 

House Committee on Science 

House Subcommittee on Space and Aeronautics 

Congressional Member 

Honorable Pete Sessions, U.S. House of Representatives 
17

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Major Contributors to the Report 

Lorne A. Dear, Program Director, Procurement Audits 

Patrick A. Iler, Program Manager, Procurement Audits 

Walter K. Curtis, Auditor-in-Charge 

Amy L. Larkin, Auditor 

Kimberly R. LaRock, Auditor 

Lydia C. Lyn, Auditor 

Iris T. Purcarey, Program Assistant