IG-00-039

AUDIT

REPORT SPACE FLIGHT OPERATIONS CONTRACT PHASE II

August 4, 2000

National Aeronautics and

Space Administration

OFFICE OF INSPECTOR GENERAL
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Acronyms

DCAA Defense Contract Audit Agency

FAR Federal Acquisition Regulation

FY Fiscal Year

SFOC Space Flight Operations Contract

USA United Space Alliance
W August 4, 2000

TO: A/Administrator

FROM: W/Inspector General

SUBJECT: INFORMATION: Space Flight Operations Contract Phase II

Report Number IG-00-039

The NASA Office of Inspector General has completed an audit of the Space Flight Operations

Contract (SFOC) Phase II. We found that NASA management of Phase II of the SFOC

needs improvement. As we reported earlier, NASA did not perform a cost-benefit analysis.1

The lack of a cost-benefit analysis precluded proper determination of contract requirements and

establishment of a baseline with which to later measure accomplishment of potential cost savings

and other goals. During this phase of the audit, we found that NASA cannot be assured it

received fair and reasonable pricing because the fiscal year (FY) 1998 flight rate credit2 analysis

was not fully documented in the contract file in accordance with Federal Acquisition Regulation

(FAR) requirements. Specifically, the SFOC file did not contain the evidence of technical,

price, or cost analysis, or verification of direct and indirect rates that the contracting officer

should have used to determine whether the FY 1998 flight rate credit of $33.3 million was fair

and reasonable. As a result, there is no evidence that adequate technical, price, or cost analysis

was performed. Consequently, NASA cannot be assured that the $33.3 million represents a

full contract price3 reduction from the two cancelled flights and, therefore, NASA may be

paying more incentive fee4 than necessary.

Background

 

1We issued Report Number IG-00-015, "Space Flight Operations Contract Phase II - Cost-Benefit Analysis,"

March 14, 2000.

2

In FY 1998, the contract price was reduced for two fewer flights than the seven flights originally estimated.

3Contract price is the sum of target cost and fees.

4

The report section entitled Effect of Flight Rate Credit explains why NASA may be paying more incentive

fee than appropriate.
In September 1996, Johnson awarded a noncompetitive contract to United Space Alliance

(USA)5 as the prime Space Shuttle contractor responsible for operations and maintenance of

the Shuttle fleet. Early in 1996, a NASA acquisition team was tasked to develop an

 

5USA is a joint venture between Boeing and Lockheed Martin.
2

approach to initiate an SFOC by September 1996. Accordingly, the team developed a

concept termed "activity-based costing"6 that was intended to expedite negotiation of the SFOC

and protect the Government's interest.

Under activity-based costing, Johnson and USA personnel jointly agree on the resources

needed for a task and sign an agreement on which USA bases its proposal. When the

contracting officer receives the proposal, the contracting officer verifies that the proposal is

based on the partnering agreement and that the contractor used the correct forward pricing

rates7 for the agreed-to resources in the proposal.

Johnson awarded the original contract based on an annual rate of seven Shuttle flights. Because

of the uncertainty of the annual Shuttle flight rate, the contract provided for an adjustment to the

contract price when the actual flight rate varied from the baseline by more than one flight. In

FY 1998, NASA and USA experienced a reduced flight rate that required an adjustment to the

contract price. Johnson requested and received a proposal for the reduction of two flights in

FY 1998. Subsequently, Johnson and USA negotiated an adjustment credit to the contract

using activity-based costing. In FY 1999, NASA and USA again experienced a reduced flight

rate that required an adjustment to the contract price.8 Johnson and USA are again using

activity-based costing to expedite the negotiation.

Recommendations

We recommended that the Director, Johnson Space Center:

• Determine whether Johnson should continue to use activity-based costing.

• If activity-based costing is to be used, establish policies and procedures that explain

how that process can be used to comply with FAR requirements.

• Perform an adequate technical, cost, or price analysis on each SFOC pricing action,

and document the analysis in the contract file.

• Verify that the appropriate forward pricing rates are used in the FY 1999 flight rate

credit proposal, and document the verification in the SFOC contract file.

 

6

Johnson is the only Center using the activity-based costing approach and is using it only on the SFOC.

Under activity-based costing, the technical personnel for the Government and contractor jointly agree on

the necessary resources. The contractor then prepares the proposal based on the agreements by both

parties. The contracting officer verifies that the proposal is based on the partnering agreement and on the

latest forward pricing rates.

7

Forward pricing rates are direct and indirect rates that have been audited and approved by the

administrative contracting officer for pricing proposals. Forward pricing rates are updated periodically.

8

Johnson requested an FY 1999 flight rate credit proposal from USA in April 1999; however, USA has not

yet submitted its proposal. Johnson scored USA lower in schedule/manifest effectiveness for award fee

purposes because the proposal is late.
3

Management Response

Management concurred with all recommendations. The Director, Johnson Space Center, has

determined that the activity-based costing process is a viable option, has begun the process of

updating and expanding guidance for activity-based costing, agreed to strengthen the contract

file documentation, and will verify that the contractor has used the correct forward pricing rates

in its flight rate credit proposal for FY 1999.

Details on the status of the recommendations are in the recommendations section of the report.

[Original signed by]

Roberta L. Gross

Enclosure

Final Report on Audit of Space Flight Operations Contract Phase II
FINAL REPORT

AUDIT OF SPACE FLIGHT OPERATIONS CONTRACT PHASE II
W August 4, 2000

TO: AA/Director, Lyndon B. Johnson Space Center

FROM: Assistant Inspector General for Auditing

SUBJECT: Final Report on the Audit of Space Flight Operations Contract Phase II

Assignment Number A9906401

Report Number IG-00-039

The subject final report is provided for your information and use. Our evaluation of your response is

incorporated into the body of the report. Management comments were responsive to the recommended

corrective actions. Management's actions are sufficient to close Recommendation 1 for reporting

purposes. Recommendations 2, 3, and 4 will remain open for reporting purposes until corrective

actions are completed. Please notify us when actions have been completed on those recommendations,

including the extent of testing performed to ensure corrective actions are effective.

If you have questions concerning the report, please contact Mr. Dennis E. Coldren, Program Director,

Human Exploration and Development of Space Audits, at (281) 483-4773, or Mr. Dennis Clay,

Auditor-in-Charge, at (281) 483-0482. We appreciate the courtesies extended to the audit staff. The

final report distribution is in Appendix E.

[Original signed by]

Russell A. Rau

Enclosure

cc:

AI/Associate Deputy Administrator

B/Chief Financial Officer

B/Comptroller

BF/Director, Financial Management Division

G/General Counsel

H/Associate Administrator for Office of Procurement

M/Associate Administrator for Office of Space Flight

JM/Acting Director, Management Assessment Division
3

MA/ Assistant Manager, Space Shuttle Program Office
2

bcc:

AIGA, IG, Reading Chrons

W/Program Director, Human Exploration and Development of Space Audits

W/Auditor-in-Charge

JSC/BD5/Audit Liaison Representative
NASA Office of Inspector General

IG-00-039 August 4, 2000

 A9906401

Space Flight Operations Contract

Phase II

Introduction

The NASA Office of Inspector General has performed an audit to evaluate management of Phase II of

the SFOC. Specifically, our objectives were to determine whether contract requirements were properly

determined, fair and reasonable pricing was obtained, and cost savings and other SFOC goals have

been achieved. During an earlier phase of the audit, we reported the need for a cost-benefit analysis

before further consolidation of the Space Shuttle contracts under SFOC at Johnson. We recommended

that NASA perform this analysis before further consolidation of Space Shuttle contracts and evaluate at

least annually whether estimated benefits are realized. NASA agreed to take corrective action on those

recommendations. This report discusses the audit objective related to obtaining fair and reasonable

pricing and the need for NASA to document its activity-based procurement process used on the SFOC

if the Agency continues to use the process. Details on our overall objective, scope, and methodology

are in Appendix A.

Results in Brief

NASA management of Phase II of the SFOC needs improvement. We found that NASA cannot be

assured it received fair and reasonable pricing because the FY 1998 flight rate credit analysis was not

fully documented in the contract file in accordance with FAR requirements. Specifically, the SFOC file

did not contain the evidence of a technical, price, or cost analysis or verification of direct and indirect

rates that the contracting officer should have used to determine whether the FY 1998 flight rate credit of

$33.3 million was fair and reasonable. Absent documentation for activity-based costing, there is no

basis on which to conclude that an adequate technical, price, or cost analysis was performed. As a

result, NASA cannot be assured that the $33.3 million represents a full contract price reduction from

the two cancelled flights and, therefore, NASA may be paying USA more incentive fee than necessary

(see the Finding).

Background

In 1996, Johnson awarded a noncompetitive contract to USA as the prime Space Shuttle contractor

responsible for operation and maintenance of the Shuttle fleet.9 (See Appendix B for

 

9

 The NASA Acquisition team briefed the activity-based costing approach for the SFOC to the NASA Associate

Administrator and Deputy Associate Administrator for Office of Procurement, Defense Contract Audit Agency
2

overall contract details.) As the prime contractor on the SFOC, USA assumed responsibility for

ensuring Shuttle missions manifested by NASA are successfully accomplished. The contract has two

phases within which Johnson consolidates prior prime contracts over time as USA assumes more

responsibility.

Flight Rate Credit for Fiscal Year 1998

Finding. The SFOC procurement file did not contain evidence of a technical, price, or cost analysis or

verification of direct and indirect rates that the contracting officer should have used to determine whether

the FY 1998 flight rate credit of $33.3 million was fair and reasonable, as required by the FAR. NASA

relied solely on the activity-based costing process to negotiate the FY 1998 flight rate credit. The

process relied heavily on the experience of NASA's technical managers rather than on a traditional

FAR-required technical analysis to support a contract pricing action. However, no formal guidance

exists on activity-based costing. Moreover, that process did not fulfill FAR requirements for

documentation of a technical, price, or cost analysis or verification of direct and indirect rates. As a

result, NASA cannot be assured that the $33.3 million represents a full contract price reduction from

the two cancelled flights and, therefore, NASA may be paying more incentive fee10 than necessary.

Requirements of the Federal Acquisition Regulation

FAR Part 15, "Contracting by Negotiation," prescribes policies and procedures governing competitive

and noncompetitive negotiated acquisitions.11 The FAR makes the contracting officer responsible for

the following:

• obtaining information that is adequate for evaluating the reasonableness of the price or for

determining cost realism;

• performing a cost or price analysis to develop a negotiation position that facilitates agreement by

the contracting officer and the offeror on a fair and reasonable price;

• performing a cost analysis and evaluating the reasonableness of individual cost elements when

cost or pricing data12 are required;

• documenting all audit and field pricing information, whether written or reported telephonically or

electronically, in the official contract file; and

• examining and analyzing the contractor's proposal even if the contractor has signed a Certificate

of Current Cost or Pricing Data.13

 

(DCAA), and Defense Contract Management Agency. The DCAA provides audit services to NASA. The Defense

Contract Management Agency provides contract administration services to NASA.

10See discussion on Effect of Flight Rate Credit, which explains why NASA may be paying more incentive fee than

appropriate.

11A negotiated contract is any contract awarded using other than sealed bidding procedures. Sealed bidding is a

method of contracting that employs competitive bids, public opening of bids, and awards.

12"Cost or pricing data" are all facts that prudent buyers and sellers would reasonably expect to affect price

negotiations significantly, as of a certain date, and as close as practicable to the date of agreement on price.
3

The FAR also requires that a technical analysis be performed that, at a minimum, examines the types

and quantities of material proposed and the need for the types and quantities of labor hours and the

labor mix. (See Appendix C for pertinent text of FAR Part 15.)

The FAR essentially requires civil servants to maintain an arm's-length relationship between the

Government and the contractor, avoiding any conflict of interests, and documentation of the negotiation

process. An arm's-length relationship means both the Government and contractor will act in their

respective interests and negotiate with each other in good faith. FAR Subpart 3.1, "Safeguards," states:

Government business shall be conducted in a manner above reproach and, except as authorized

by statute or regulation, with complete impartiality and with preferential treatment for none.

Transactions relating to the expenditure of public funds require the highest degree of public trust

and an impeccable standard of conduct.

Field Pricing Support

Field pricing support is the traditional approach that is used to procure goods and services for the

Government. Under this approach, the contracting officer requests cognizant Government parties14 to

perform a technical, price, or cost analysis and to provide the analysis to the contracting officer for

development of the Government's position. This support contributes to the basis of the contracting

officer's prenegotiation position. However, in December 1998, the Johnson Pricing Office waived field

pricing support for the FY 1998 flight rate credit because the contracting officer used activity-based

costing. The Johnson Pricing Office also considered information available to the contracting officer

adequate for determining reasonableness of the cost. The contracting officer had a copy of a signed

agreement between USA and the Government for determining resources,15 forward pricing rates for

indirect cost, and a forward pricing process for direct labor. But the waiver did not relieve the

contracting officer from his responsibility to ensure that the Government's interest is protected and that

the pricing is fair and reasonable as prescribed by the FAR. To show that the pricing was fair and

reasonable, the contracting officer should maintain a contract file with documents that show his or her

compliance with the FAR requirements and that he or she has acted in the Government's best interest.

Specifically, the documentation should include information on the team partnering meetings and the

verification that USA used the current forward pricing rates in its proposal, even though USA had

signed a Certificate of Current Cost or Pricing Data at the end of negotiations.

 

13When the contractor submits cost or pricing data for negotiation of a contract and as close as possible to the date

that negotiations are complete, the FAR requires the contractor to revise the data to make it current and to sign a

statement that the cost or pricing data is current.

14DCAA provides NASA with audits of contractor proposals when requested. NASA engineers and technical

personnel perform the technical evaluation and provide the results to the contracting officer.

15The Space Shuttle Business Manager and Space Shuttle Program Assistant Manager signed an agreement with the

USA Business Manager, referred to as a decision package, that laid out the estimated cost for flight-specific

resources required for launch support, mission and recovery operations, overtime, travel support, procurement of
4

Shuttle Flight Marginal Cost

A representative from the Johnson Space Shuttle Business Office told us that the marginal cost16 of a

Shuttle flight is the variable cost associated with the addition or reduction of one flight from the Shuttle

manifest, independent of any other change. The marginal cost includes consumables, expendable

hardware, and labor that can be added or removed due to temporary adjustments in the flight rate. The

marginal cost to add a flight can start accruing as much as 3 years before a flight occurs and continues

for about a year after the flight. However, the cost savings of eliminating a flight with a 1-year notice

begins about a year before a flight and continues for about 3 years after the flight.17 The dollar impact

depends on:

• timing of the decision by NASA to eliminate a flight,

• nature of the mission,

• effect on other operational activities,

• ongoing flight rate, and

• manifest.

NASA's estimate is very subjective due to the many variables associated with the flight rate. The

estimated cost involves a significant element of judgment by NASA in order to calculate the savings

associated with a cancelled flight or the cost of an additional flight. Also, flights are seldom cancelled;

rather, the flights are usually postponed.

NASA estimated the cost and potential savings of canceling a Shuttle flight in 1998 at about $57.1

million for the total Shuttle Program with a 1-year notice.18 We calculated the SFOC-related cost at

about $18.9 million.19

Effect of Flight Rate Credit

USA proposed $33.3 million for the FY 1998 flight rate credit. The following table shows the breakout

of target cost and fees for the $33.3 million:

 

repair and spare flight hardware, minor consumables/functional material, and subcontract effort related to the flight

rate decrease.

16Marginal cost is the cost associated with the manifest for adding or deleting a Shuttle flight. Marginal cost is much

lower than average cost, because marginal cost does not consider the fixed cost of the large infrastructure needed to

support the Shuttle Program.

17The savings extend over a 3-year period following a cancelled flight because some items, such as external tanks, will

have already been finished or nearly finished when the flight is cancelled (with a 1-year notice). Subsequently,

NASA has to build these items in the next cycle. Therefore, the savings extend over a period of about 3 years.

18NASA estimated the marginal cost of a Shuttle flight in 1998 as part of the FY 2000 budget process.

19The solid rocket boosters were consolidated into SFOC in June 1998. Therefore, for one flight, we calculated the

$18.9 million by adding $12.9 million for the SFOC to $6 million for solid rocket boosters. The $38.2 million difference

between the total Program cost of $57.1 million and the SFOC-related cost of $18.9 million represented Flight

Equipment Processing Consumables of $.2 million, Kennedy Launch Operations of $2.4 million, Space Shuttle Main

Engines of $1.5 million, External Tanks of $19 million, and Reusable Solid Rocket Motors of $15.1 million.
5

FY 1998 Flight Rate Credit

(Millions)

 Description Amount

Flight Operations $1.1

Ground Operations 7.5

Integrated Logistics 6.6

Orbiter cost 2.5

Program Integration cost .8

Target cost $18.5

Fees* 14.8

Total $33.3

*

 The amount of fees appears to be out of proportion to the cost; however, fees consist of award fee, incentive fee,

and performance fee. The performance fee is based on a successful flight and is $13.8 million for the two flights,

regardless of how much of the cost was incurred.

When NASA agreed to the $33.3 million flight rate credit, the total credit to the contract price was the

sum of the target cost and fees. Since USA is entitled to 35 percent of each dollar underrun on the

contract target cost, USA benefits by keeping the target cost as high as possible. For example, if the

contract target cost should have been reduced by another $5 million for the flight rate credit, but was

not reduced, then USA would declare an additional $5 million of contract underruns. Because USA

earns an incentive fee based on 35 percent of underruns, the calculated benefit to USA would be an

additional $1.75 million (35 percent of $5 million).20

NASA Lacks Formal Guidance on Activity-Based Costing

Neither NASA nor Johnson has established policies and procedures for using activity-based costing to

procure goods and services from contractors. While Johnson has provided some informal training on

activity-based costing to its procurement personnel involved in the SFOC, the FAR is the only formal

guidance. Even though the FAR contains guidance on contracting and pricing, the FAR does not

specifically address activity-based costing. However, the FAR does require the contracting officer to

obtain information that is adequate for evaluating the reasonableness of the prices and to document all

audit and field pricing information, whether written or oral, in the official contract file.

Contracting Officer Reliance on Activity-Based Costing

The contracting officer relied solely on the activity-based costing process to price the FY 1998 flight

rate credit instead of obtaining field pricing support. The process relies on the experience of its technical

managers in the partnering sessions to take the place of the FAR-required technical analysis to support

a pricing action. Such a partnering process may be more efficient than obtaining field pricing support

 

20SFOC is a cost-type contract, which means that NASA reimburses USA only for its allowable incurred costs and

contract fees. (See Appendix B for overall contract details.)
6

after a proposal is received because, with activity-based costing, NASA's managers are involved early,

instead of later in the process. Also, the partnering may have fulfilled the intent of the FAR had the

results been documented. However, none of the sessions were documented or attended by the

contracting officer, and there is no documentation that the proposed rates were verified with the

approved forward pricing rates.

Guidance for Activity-Based Costing

Absent guidance or evidence in the contract file, it is not clear how NASA is complying with FAR Part

15. The use of activity-based costing does not ensure compliance with the FAR. The contracting

officer must show that the Government's best interest was protected and that fair and reasonable pricing

was obtained by documenting the technical, cost, or price analysis on each SFOC pricing action in the

contract file. The participation of the technical managers in the process does not automatically satisfy

the FAR. Nor does a signed Certificate of Current Cost or Pricing Data ensure that the contractor is

using the correct forward pricing rates. The FAR requires a documented analysis and that the

contracting officer ensure that the results are adequate and documented.

An analysis of a contractor's proposal is essential to determining the fairness and reasonableness of the

price. If the Johnson Space Center continues to use activity-based costing, the Agency should establish

guidance to ensure its procurement personnel understand their responsibility to comply with the FAR

regardless of the procurement process used. The guidance should specify the contract file

documentation needed to show compliance with the FAR. Without documentation, there is not

sufficient evidence that the Government's interest has been adequately protected or that fair and

reasonable pricing has been obtained.

If NASA does not continue to use activity-based costing, it should still ensure that adequate technical,

cost, or price analysis is performed and documented in the contract file to support the Government's

prenegotiation position and final price agreed to by all parties.

Recommendations, Management's Response, and Evaluation of Response

The Director, Johnson Space Center, should:

1. Determine whether Johnson should continue to use activity-based costing.

2. If activity-based costing is used, establish policies and procedures for using activitybased costing that explain how that process can be used to comply with FAR

requirements.

3. Perform an adequate technical, cost, or price analysis on each SFOC pricing action,

and document the analysis in the contract file, in accordance with the FAR.
7

4. Verify that the appropriate forward pricing rates are used in the FY 1999 flight rate

credit proposal, and document the verification in the SFOC contract file.

Management's Response. Concur with all recommendations. In response to the recommendations,

the Director, Johnson Space Center, has done the following:

• Determined that the activity-based costing process is a viable option.

• Begun the process of updating and expanding guidance for activity-based costing.

• Agreed to strengthen the contract file documentation.

• Agreed to verify that the contractor has used the correct forward pricing rates in its flight rate

credit proposal for FY 1999.

The complete text of management's comments is in Appendix D.

Evaluation of Response. The actions taken or planned by management are responsive to the

recommendations. In a separate correspondence, management provided estimated completion dates of

October 31, 2000, and January 31, 2001, for Recommendations 3 and 4, respectively. We consider

Recommendation 1 closed for reporting purposes. The remaining recommendations are resolved, but

will remain undispositioned until agreed-to corrective actions are completed.
8

Appendix A. Objective, Scope, and Methodology

Objective

The overall objective was to evaluate management of the SFOC Phase II. The specific objective

covered in this report was to determine whether fair and reasonable pricing was obtained.

Scope and Methodology

Our audit included a review of the rationale and plan for SFOC consolidation. We reviewed budget

and spending data for fiscal years 1994 through 1999 provided by the Shuttle Program Office. We also

reviewed contract files for the completed Phase II negotiations and fiscal year 1998 flight rate credit.

We interviewed Shuttle Program personnel to understand the history of the procurement and the

possible future of the SFOC. We did not assess the reliability of computer-processed data because we

did not rely on it to achieve our objective.

Management Controls Reviewed

For this report, we reviewed management controls relative to analysis and documentation requirements

for procurements as described in FAR Part 15, "Contracting by Negotiation."

We determined that controls needed to be strengthened to ensure that analysis and documentation in

contract files are in accordance with FAR Part 15 (see the Finding).

Audit Field Work

We performed the audit field work for the issues discussed in this report from February through April

2000. We conducted the audit in accordance with generally accepted government auditing standards.
9

 Appendix B. Space Flight Operations Contract

Brief Description of the Statement of Work. USA has overall responsibility as the prime contractor

to include all Space Shuttle Program21 and International Space Station Program22 activities defined in

the contract. The work shall be performed so that all missions manifested by NASA are successfully

accomplished in accordance with the NASA Space Transportation System 07700, Volume III, Space

Shuttle Flight Definition and Requirements Directive; and NASA Space Transportation System 08178,

Space Shuttle Program Schedules, for:

• overall flight definition and planning guidelines;

• near-term flight assignments, characteristics, and configuration;

• flight preparation configuration freeze point definitions;23

• follow-on flight rate requirements by fiscal year;

• required capability enhancements in support of flight missions; and

• orbiter maintenance and down time schedule.

During the contract period, USA shall perform all work necessary and appropriate to support

scheduled missions pursuant to the mission profile. The Space Shuttle vehicle elements for which USA

has overall responsibility consist of the fleet of orbiter vehicles; solid rocket boosters and reusable solid

rocket motors; external tanks; Space Shuttle main engines; flight crew equipment; and ground support

systems, flight software, and integration of payloads manifested by NASA.

Date Awarded and Price. The SFOC (contract number NAS 9-20000) was awarded

September 26, 1996, for $6.9 billion. The contract value was $8.6 billion as of March 29, 2000

(through contract modification number 450).

Contract Type. The contract is a cost-plus-award fee, incentive fee, and performance fee contract.

Completion Date. The basic contract is a 6-year contract with a period of performance from October

1996 through September 2002. The contract has two options to extend the period of performance for

2 years each that, if exercised, would extend the contract another 4 years through September 2006.

Contractor. The contractor is USA, a joint venture between The Boeing Company and Lockheed

Martin Corporation.

 

21NASA's plan for the SFOC was designed to include a subset of the Shuttle Program contracts and activities

specifically focused on the operational functions of the Shuttle Program. Development activities were not targeted

for consolidation and neither were science activities or institutional activities required to support the Shuttle

Program.

22The International Space Station Program activities targeted for SFOC were very limited and focused primarily on the

mission operations functions integrally associated with flight controller support, mission planning, and training.

23Program freeze points are points in time when the cargo, vehicle hardware and software, launch site flow, and other

key aspects of a flight have been defined and baselined.
10

Appendix B

Primary Locations of Performance. The Johnson Space Center and the Kennedy Space Center are

the primary locations of performance on the contract.

Costs Incurred to Date. As of March 30, 2000, NASA had disbursed $4.8 billion on the contract.

Cost And Schedule Performance. As of March 30, 2000, USA had declared $105 million of cost

underruns.

Other Performance Information. USA's award fee scores have ranged from 81 to 86, out of a

possible score of 100.
11

Appendix C. Requirements of the Federal Acquisition Regulation

FAR Part 15, "Contracting by Negotiation," prescribes the following policies and procedures

governing competitive and noncompetitive negotiated acquisitions.

FAR Subpart 15.403-3, "Requiring information other than cost or pricing data," states:

The contracting officer is responsible for obtaining information that is adequate

for evaluating the reasonableness of the price or determining cost realism....

FAR Subpart 15.404-1, "Proposal analysis techniques," states:

The contracting officer is responsible for evaluating the reasonableness of the

offered prices. ... Price analysis shall be used when cost or pricing data are not

required. ... Cost analysis shall be used to evaluate the reasonableness of

individual cost elements when cost or pricing data are required. ... The

contracting officer may request the advice and assistance of other experts to

ensure that an appropriate analysis is performed. ...

Cost analysis is the review and evaluation of the separate cost elements and

profit in an offeror's or contractor's proposal (including cost or pricing data or

information other than cost or pricing data), and the application of judgment to

determine how well the proposed costs represent what the cost of the contract

should be, assuming reasonable economy and efficiency. ... The Government

may use various cost analysis techniques and procedures to ensure a fair and

reasonable price, given the circumstances of the acquisition. ...

The contracting officer may request that personnel having specialized

knowledge, skills, experience, or capability in engineering, science, or

management perform a technical analysis of the proposed types and quantities of

materials, labor, processes, special tooling, facilities, the reasonableness of scrap

and spoilage, and other associated factors set forth in the proposal(s) in order to

determine the need for and reasonableness of the proposed resources, assuming

reasonable economy and efficiency. ... At a minimum, the technical analysis

should examine the types and quantities of material proposed and the need for

the types and quantities of labor hours and the labor mix. Any other data that

may be pertinent to an assessment of the offeror's ability to accomplish the

technical requirements or to the cost or price analysis of the service or product

being proposed should also be included in the analysis.

FAR Subpart 15.404-2, "Information to support proposal analysis, " states:

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. The contracting officer must tailor requests to reflect the

minimum essential supplementary information needed to conduct a technical or

cost or pricing analysis. ...

The contracting officer must tailor the type of information and level of detail

requested in accordance with the specialized resources available at the buying

activity and the magnitude and complexity of the required analysis. Field pricing

assistance is generally available to provide--(i) Technical, audit, and special

reports associated with the cost elements of a proposal, including subcontracts;

(ii) Information on related pricing practices and history;
12

Appendix C

(iii) Information to help contracting officers determine commerciality and price

reasonableness, ... (iv) Information relative to the business, technical,

production, or other capabilities and practices of an offeror. ...

When field pricing assistance is requested, contracting officers are encouraged

to team with appropriate field experts throughout the acquisition process,

including negotiations. Early communication with these experts will assist in

determining the extent of assistance required, the specific areas for which

assistance is needed, a realistic review schedule, and the information necessary

to perform the review. ...

Audit and field pricing information, whether written or reported telephonically

or electronically, shall be made a part of the official contract file ....

FAR Subpart 15.405, "Price negotiation," states:

The purpose of performing cost or price analysis is to develop a negotiation

position that permits the contracting officer and the offeror an opportunity to

reach agreement on a fair and reasonable price.

FAR Subpart 15.406-2, "Certificate of Current Cost or Pricing Data, " states:

When cost or pricing data are required, the contracting officer shall require the

contractor to execute a Certificate of Current Cost or Pricing Data .... Possession

of a Certificate of Current Cost or Pricing Data is not a substitute for examining

and analyzing the contractor's proposal.
13

Appendix D. Management's Response
14

Appendix D
15

Appendix D
16

Appendix D
17

Appendix E. Report Distribution

National Aeronautics and Space Administration (NASA) Headquarters

A/Administrator

AI/Associate Deputy Administrator

B/Chief Financial Officer

B/Comptroller

BF/Director, Financial Management Division

G/General Counsel

H/Associate Administrator for Procurement

HK/Director, Contract Management Division

HS/Director, Program Operations Division

J/Associate Administrator for Management Systems

JM/Acting Director, Management Assessment Division

L/Associate Administrator for Legislative Affairs

M/Associate Administrator for Space Flight

NASA Centers

Director, Lyndon B. Johnson Space Center

Director, Marshall Space Flight Center

Director, John F. Kennedy Space Center

Chief Counsel, John F. Kennedy 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

Associate Director, National Security and International Affairs Division, Defense

 Acquisitions Issues, General Accounting Office

Professional Assistant, Senate Subcommittee on Science, Technology, and Space
18

Appendix E

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 Management, Information, and Technology

House Subcommittee on National Security, Veterans Affairs, and International Relations

House Committee on Science

House Subcommittee on Space and Aeronautics, Committee on Science

Congressional Member

Honorable Pete Sessions, U.S. House of Representatives
NASA Assistant Inspector General for Auditing

Reader Survey

The NASA Office of Inspector General has a continuing interest in improving the usefulness of our

reports. We wish to make our reports responsive to our customers’ interests, consistent with our

statutory responsibility. Could you help us by completing our reader survey? For your convenience,

the questionnaire can be completed electronically through our homepage at

http://www.hq.nasa.gov/office/oig/hq/audits.html or can be mailed to the Assistant Inspector General for

Auditing; NASA Headquarters, Code W, Washington, DC 20546-0001.

Report Title: Audit of Space Flight Operations Contract Phase II

Report Number: Report Date: 

Circle the appropriate rating for the following statements.

Strongl

y

Agree

Agree Neutra

l

Disagre

e

Strongl

y

Disagre

e

N/A

1. The report was clear, readable, and logically

organized. 5 4 3 2 1 N/A

2. The report was concise and to the point. 5 4 3 2 1 N/A

3. We effectively communicated the audit

objectives, scope, and methodology. 5 4 3 2 1 N/A

4. The report contained sufficient information to

support the finding(s) in a balanced and

objective manner.

5 4 3 2 1 N/A

Overall, how would you rate the report?

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If you have any additional comments or wish to elaborate on any of the above responses,

please write them here. Use additional paper if necessary. 

 

 

 

 

 

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How could we improve our report? 

 

 

 

 

 

 

How would you identify yourself? (Select one)

Congressional Staff Media

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Government: Federal: State: Local: 

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Thank you for your cooperation in completing this survey.
Major Contributors to the Report

Dennis E. Coldren, Program Director, Human Exploration and Development of Space Audits

Dennis Clay, Auditor-in-Charge

Nancy Cipolla, Report Process Manager

June Glisan, Program Assistant