Evaluation of TSA’s Contract for the Installation

and Maintenance of Explosive Detection 

Equipment at United States Airports

DEPARTMENT OF HOMELAND SECURITY

Office of Inspector General

Office of Audits

OIG-04-44 September 2004

Preface

The Department of Homeland Security (DHS) Offi ce of Inspector General (OIG) was established 

by the Homeland Security Act of 2002 (Public Law 107-296) by amendment to the Inspector 

General Act of 1978. This is one of a series of audit, inspection, investigative, and special reports 

prepared by the OIG as part of its DHS oversight responsibility to identify and prevent fraud, 

waste, abuse, and mismanagement.

This report assesses the strengths and weaknesses of the program or operation under review. It 

is based on interviews with employees and offi cials of relevant agencies and institutions, direct 

observations, and a review of applicable documents.

The recommendations herein have been developed to the best knowledge available to the OIG, 

and have been discussed in draft with those responsible for implementation. It is my hope that 

this report will result in more effective, effi cient, and economical operations. I express my 

appreciation to all of those who contributed to the preparation of this report.

Clark Kent Ervin

Inspector General

Offi ce of Inspector General

U.S. Department of Homeland Security

Washington, DC 20528

this report will result in more effective, efficient, and economical operations. I express my 

appreciation to all of those who contributed to the preparation of this report.

Clark Kent Ervin

Inspector General

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Contents

Introduction .......................................................................................................................................... 3

Results in Brief .................................................................................................................................... 3

Background .......................................................................................................................................... 5

Review Results ..................................................................................................................................... 6

Contract Administered as a Cost-Plus-A-Percentage-Of-Cost Contract ............................................. 7

Untimely and Improper Award Fee Plan .............................................................................................. 8

Excessive Profit .................................................................................................................................... 9

Recommendations .............................................................................................................................. 12

Management Comments and OIG Evaluation ................................................................................... 12

Appendices

 Appendix 1: Schedule of Contractor Invoices ..................................................................... 15

 Appendix 2: Purpose, Scope, and Methodology .................................................................. 16 

 Appendix 3: Management Comments ................................................................................. 17

 Appendix 4: Major Contributors to this Report ................................................................... 22

 Appendix 5: Report Distribution ......................................................................................... 23

Abbreviations

 AMS Acquisition Management System

 DHS Department of Homeland Security

 EDS Explosives Detection Systems

 ETD Explosives Trace Detection

 FAA Federal Aviation Administration

 FAR Federal Acquisition Regulation

 OIG Office of Inspector General

 TSA Transportation Security Administration
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Contents
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Contents

Introduction

 As part of its review of the federalization of airport security screeners and the 

management of major Department of Homeland Security (DHS) procurements, 

the Office of the Inspector General (OIG) reviewed DHS’ contract with the 

Boeing Service Company (Boeing). The contract was designated as a costplus-award-fee type contract, primarily for the installation and maintenance 

of explosive detection equipment at commercial airports in the United States. 

Issues arose as to whether the contract was properly administered as a costplus-award-fee-contract and whether the level of profits paid to Boeing was 

reasonable.

Our fieldwork began in April 2003 and continued through March 2004 at TSA’s 

Pentagon City and Herndon offices. A more detailed description of our objective, 

scope, and methodology is provided as Appendix B.

Results in Brief

TSA did not follow sound contracting practices in awarding and administering 

the Boeing contract for the installation and maintenance of explosive detection 

equipment. Specifically:

1. Until December 2003, TSA paid contract fees based on a percentage 

of total invoiced costs, which had the effect of creating a cost-plus-apercentage-of-cost type contract. This type of contract is prohibited in the 

federal government.

2. The contract did not contain an award fee determination plan to evaluate 

Boeing’s performance periodically until December 2003, eighteen 

months after the contract award, and it included cost increases unrelated 

to approved scope changes in the calculation of the award fee pool. 
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Through December 2003, TSA had paid more than $44 million in 

provisional award fees without any evaluation of Boeing’s performance.

3. The profit paid to Boeing was disproportionately high when compared 

to Boeing’s cost and risk and compared to what other agencies allow as 

profit under such contracts. Based on these factors, we concluded that 

TSA paid Boeing at least $49 million in excess profit.

We are recommending that TSA: 

1. Modify the contract to avoid even the appearance that it is a cost-plus-apercentage-of-cost type contract;

2. Amend the award fee plan in the contract to ensure that the award 

fee pool does not include cost increases unrelated to approved scope 

changes;

3. Evaluate Boeing’s past performance based on the award fee plan and, if 

warranted, adjust the award fee accordingly; and

4. Recoup any unreasonable fees paid under the contract.

TSA provided written comments on a draft of this report. While TSA recognized 

the shortfalls that exist in the administration of this contract, they took exception 

with our finding that the profit paid to Boeing was unreasonable. TSA does not 

plan to recoup any fees already awarded other than those fees associated with cost 

growth. As a result of our audit work and TSA’s comments, we have added an 

additional recommendation. We are recommending that TSA:

5. Develop guidance for the determination of reasonable base and award 

fees on cost-plus-award-fee-contracts.

We incorporated TSA’s comments into our report and included a copy of the 

comments as Appendix C. TSA has not yet had an opportunity to comment 

on recommendation 5. We ask that TSA submit their comments on this 

recommendation with their action plan responding to this report. 
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Background

The Aviation and Transportation Security Act (P.L. 107-71) created TSA and 

made certain fundamental changes in the way transportation security would 

be performed and managed in the United States. One significant change was 

to exempt TSA from the Federal Acquisition Regulations (FAR) and most 

procurement laws. Instead, TSA was required to use the Federal Aviation 

Administration’s (FAA) Acquisition Management System (AMS), which was 

designed to provide for more timely and cost effective acquisitions.

In April 2003, we began reviews of the management of major DHS procurements 

and of the acquisition process used by TSA to award and administer contracts 

related to the federalization of airport security screeners. As part of this larger 

effort, we selected for review a contract awarded on June 7, 2002, to Boeing. 

Notwithstanding the above exemption, TSA developed the Boeing contract using 

the FAR as its regulatory baseline.

This contract was primarily for the installation and maintenance of approximately 

1,100 Explosives Detection Systems (EDS) and up to 6,000 Explosives Trace 

Detection (ETD) devices at 429 commercial airports in the United States. The 

contract was identified as a cost-plus-award-fee type contract with a base 

performance period of seven months, which was to end on December 31, 

20021

. TSA estimated the value of the contract to be about $508 million during 

the base performance period, and more than $1.3 billion if TSA exercised all 

five of the one year option periods provided for in the contract. The contract 

was structured to allow Boeing to function as the project manager responsible 

for overseeing its subcontractors who have performed about 92% of the work 

requirements.

As of December 2003, TSA had modified this contract 54 times. Among other 

things, TSA extended the base performance period an additional 18 months to 

June 2004 and increased the base performance estimated value to $1.2 billion.

This report and its recommendations are limited to issues related to contract fees 

and profit. 

1

 The Aviation and Transportation Security Act required all United States airports that regularly serviced air carriers to have sufficient EDS to screen all 

checked baggage no later than December 31, 2002.
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Review Results

TSA did not follow sound contracting practices in awarding and administering 

the Boeing contract. TSA described the contract type as cost-plus-awardfee. Such contracts establish maximum base and award fees expressed as set 

amounts, which may be based on percentages of an established fee pool, typically 

the original contract cost estimate. The original contract expressed base fee 

and award fee as percentages but did not specifically fix either fee pool to a set 

amount. The original contract included a potential penalty of a 2% reduction to 

the base fee if TSA determined Boeing failed to substantially meet the established 

contract performance objectives in the base contract performance period. The 

base contract performance period has expired with no penalties being assessed. 

Through December 2003, TSA paid both base and award fees as a percentage of 

total invoiced costs, which, if not adjusted, has the effect of creating a prohibited 

cost-plus-a-percentage-of-cost contact.

Because of the rapidity with which the contract was awarded, interim award fee 

payments were provided for, subject to later increase or repayment based on a 

yet to be established award fee plan and related evaluations. However, the award 

fee determination plan for periodically evaluating Boeing’s performance was 

not added to the contract until December 2003, and that award fee plan included 

cost increases unrelated to approved scope changes in the calculation of the 

award fee pool. TSA paid Boeing $44 million in award fees without conducting 

performance evaluations, thus reducing whatever motivational effects such an 

award fee might have had. In fact, TSA did not assess contractor performance 

during calendar year 2002 until January 2004, and TSA did not complete the 

contractor performance assessment for the bulk of work performed during 

calendar year 2003 until August 20042.

Further, based on an analysis of the rates set by other federal agencies as 

acceptable for cost-plus-award-fee type contracts, the amount of risk assumed 

by Boeing, and the reasonableness of Boeing’s cost to fee ratio, we concluded 

that the amount of profit TSA paid Boeing was disproportionately high. For 

example, TSA paid at least $49 million more than would have been allowed under 

guidelines followed by other agencies we contacted. 

2 A residual amount of work performed during calendar year 2003 was not yet evaluated as of September 8, 2004.
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Contract Administered as a Cost-Plus-A-Percentage-Of-Cost Contract

Until August 2003, TSA administered the Boeing contract as if it were a costplus-a-percentage-of cost contract. Boeing generally invoiced TSA bimonthly, 

with each invoice showing reimbursable cost, a base fee, and an award fee. Using 

the pre-determined rates included in the contract for the base and award fees of 

8% and 5.6%,3 respectively, TSA calculated and paid the fees in direct proportion 

to the increased costs. Boeing invoiced and TSA approved payment of $889 

million since the contract’s inception, which included base and award fees of an 

estimated $106 million.

A contract is considered a cost-plus-a-percentage-of-cost type contract when: 

(1) a pre-determined percentage rate is applied to actual performance cost; 

(2) payment is on a pre-determined percentage rate; (3) Boeing’s entitlement 

increases commensurately with increased performance costs; and, (4) Boeing’s 

fee entitlement is uncertain at the time of contracting. Cost-plus-a-percentage-ofcost contracts are prohibited by 41 U.S.C. 254(b). This prohibition is reinforced 

in both the FAR and the FAA’s AMS.

Additionally, the contract value was not certain at the time of the contract’s 

inception. The contract base period ceiling grew from $508 million to more than 

$1.2 billion over an eighteen-month period. While TSA extended the base period 

of performance from seven months to eighteen months, it made no significant 

changes to the contract scope of work. Because of the uncertainty surrounding 

the contract requirements, the contract contained a clause that allowed Boeing to 

make adjustments to the pricing baseline. Boeing made several changes using 

this clause, and TSA attributes approximately $100 million of the contract’s cost 

increase to these uncertainties. TSA said that they are reconciling the difference 

between the $508 million contract award value to the current value to identify 

scope growth versus cost overruns. 

The contracting officer’s representative said that TSA paid provisional fees 

subject to the results of the evaluations and the reconcilement discussed 

above. Should the reconcilement indicate cost overruns due to poor contract 

management, TSA intends to adjust the award and base fee amounts accordingly.

3 Contract clause H-23 limited TSA’s interim payment of the award fee to the lesser of 80% or the prior period’s evaluation score. Since 

TSA did not periodically evaluate Boeing’s performance, interim payments were limited to 80% of the award fee rate, i.e., 7% award fee 

times 80% = 5.6% billing rate.
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Untimely and Improper Award Fee Plan 

The contract did not contain an award fee determination plan to evaluate Boeing’s 

performance periodically until December 2003, eighteen months after the contract 

award, and it included cost increases unrelated to approved scope changes in the 

calculation of the award fee pool. Through December 2003, TSA had paid more 

than $44 million in provisional award fees without any evaluation of Boeing’s 

performance.

A cost-plus-award-fee contract is a cost-reimbursement contract4

 that provides 

for a fee consisting of: (1) a base amount fixed at inception of the contract; and, 

(2) an award amount that the contractor may earn in whole or in part during 

performance. The award fee should be sufficient to motivate the contractor 

to excel in such areas as quality, timeliness, technical ingenuity, and cost 

effectiveness. Contractor performance under cost-plus-award-fee contracts is 

evaluated at pre-determined intervals during performance so that the contractor 

can be made aware of the quality of its performance and the areas in which 

improvement is expected. Partial fee payments generally correspond to the 

evaluation periods. These periodic payments are intended to motivate the 

contractor to improve poor performance or to continue good performance. 

The amount of the award fee to be paid is determined by the government’s 

judgmental evaluation of the contractor’s performance in terms of the criteria 

included in the contract. This determination and the methodology for determining 

the award fee are unilateral decisions made solely at the discretion of the 

government.

Clause H.23 of the contract, “Interim Award Fee Payment,” provided for 

bimonthly interim payments. The clause also allowed TSA to discontinue or 

reduce future interim award fee payments to Boeing if TSA determined, based 

on an award fee evaluation, that payments exceeded the amount that Boeing had 

earned during the evaluation period. The original contract did not contain an 

award fee plan to provide for periodic award fee evaluations or criteria for judging 

Boeing’s performance. The contract contained only a statement that it was 

anticipated that an award fee plan would be in place prior to initiation of work in 

order for Boeing to know the applicable criteria and weightings.

4

 Cost-reimbursement contract types provide for payment of allowable incurred costs, to the extent prescribed in the contract. 
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TSA did not develop an award fee plan until December 2003, eighteen months 

after contract award, and it included cost increases unrelated to approved scope 

changes in the calculation of the award fee pool. As of December 2003, TSA 

had paid provisional award fees to Boeing, totaling $44 million. In January 

2004, TSA evaluated Boeing’s performance for calendar year 2002 against the 

criteria established in the award fee plan and based on Boeing’s self-assessment. 

That evaluation resulted in Boeing receiving a total fee of 13.6% on total costs 

incurred, which included the 8% base fee and 80% of the potential 7% award fee. 

TSA’s failure to negotiate or impose an award fee plan timely, while paying 

Boeing the interim award fee, reduced whatever motivational effect the award fee 

might have created. 

Excessive Profit

The profit paid to Boeing was disproportionately high when compared to Boeing’s 

cost and risk and compared to what other agencies allow as profit under such 

contracts. Based on these factors, we concluded that TSA paid Boeing at least $49 

million in excess profit.

Neither the United States Code, the FAR, nor the FAA’s AMS set limits on the 

fee or profit rates for cost-plus-award-fee contracts. However, several factors 

are instructive in making such a determination. These factors include, but are 

not limited to, the rates other federal agencies set as acceptable for cost-plusaward-fee type contracts, the amount of risk assumed by the contractor, and the 

reasonableness of the contractor’s cost to fee. 

Other Agency Guidelines. A review of six other federal agencies’5

 guidance and 

FAR supplements showed that they used one of two methods to set acceptable 

limits on the amount of fee or profit for cost-plus-award-fee contracts. One 

method, followed by all six agencies, was to limit the base fee to 3% of cost, 

excluding award fees. The other method was to limit the base plus award fee to a 

maximum of 10%.

We calculated what would have been the allowable profit using the above two 

methods. Our calculations showed that TSA paid Boeing at least $49 million 

5

 The Department of Health and Human Services, the Environmental Protection Agency, the National Aeronautics and Space 

Administration, the Army, the Air Force, and the Navy.
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more in profit than would have been allowed by those agencies. Details are as 

follows:

• Method 1 - TSA set the base rate for this contract at 8%, more than 

double the maximum rate allowed by the six agencies surveyed. If TSA 

had limited Boeing’s base rate to 3%, Boeing would have been limited 

to $13 million.6 However, TSA did not fix the base fee amount at the 

inception of the contract. Consequently, as Boeing’s costs more than 

doubled, the base fee continued to increase at the pre-determined rate. 

As of December 2003, TSA had approved $62 million in base fees, 

approximately $49 million more than it would have paid had it fixed the 

base fee at 3% at the contract’s inception. 

• Method 2 - TSA set the combined base and award fee rate for this 

contract at 15%, 5% more than allowed by those agencies that limit base 

and award fees to a total of 10%. If TSA had limited Boeing’s base and 

award fees to the maximum 10% allowed by those agencies, Boeing 

would have been limited to $44 million for the period expected to end 

December 31, 2002. The difference between the $44 million and the 

$106 million base and award fees paid to Boeing as of December 2003, 

would equate to excess fees of about $62 million.

Contractor’s Risk. Contracts are grouped into two broad categories: fixedprice and cost-reimbursement. Fixed-price type contracts place maximum 

risk and responsibility for performance, cost, and resulting profit or loss 

upon the contractor. Conversely, cost-reimbursement type contacts minimize 

the contractor’s risk and responsibility in the areas of performance and cost 

control. Cost-plus type contracts further reduce the contractor’s risk because the 

contractor’s profit is generally assured.

TSA believes that Boeing’s risk was high, given the short performance period and 

unstable environment in the early stages of TSA’s operations. However, based 

on an analysis of key cost related factors, we concluded that Boeing’s risk was 

minimal and the amount of profit paid to Boeing was disproportionately high for 

the risk assumed. First, this was a cost-reimbursement contract where Boeing 

agreed to deliver only its “best efforts” to perform the requirements in return 

for costs incurred, rather than guaranteeing to perform all contract terms and 

6

 The base fee or profit on cost-plus-award-fee contracts is to be fixed at inception. Since the estimated cost for the base performance 

period was about $442 million, the base amount should have been fixed at $13.2 million, using a maximum base fee amount of 3%.
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conditions at a specified price and within a specified time period. Regardless 

of performance results, Boeing would receive payment of all costs and a base 

fee of at least 6%7, twice the maximum base fee allowed by the agencies we 

surveyed. Additional factors affecting Boeing’s risk included: (1) TSA, not 

Boeing, was responsible for procuring the explosive detection equipment that was 

to be installed at the airports; (2) Boeing’s facility costs were nominal because 

the bulk of the contracted services were to be performed at the 429 airports; (3) 

TSA reimbursed Boeing for cost incurred under the contract and a pre-determined 

amount of profit bimonthly; and, (4) TSA indemnified Boeing against losses 

resulting from terrorist acts. 

Reasonable Profit. Boeing was responsible for carrying out the project 

management requirements outlined in the contract; subcontractors were 

responsible for all other work requirements. Boeing invoiced TSA for profit 

on all contract related costs, including the subcontractors’ cost. As the project 

manager, Boeing incurred costs of about $39 million, or 5.9% of the total invoiced 

costs, through August 2003. Yet, Boeing received about $82 million in profit for a 

rate of return of about 210%. In addition, since TSA paid Boeing profit on all the 

subcontractors’ cost, it ultimately paid Boeing profit on the subcontractors’ profit. 

TSA’s Comments on Excessive Profit. TSA believes the fee structure for this 

contract is reasonable, given the competitive environment under which the 

contract was let. Four contractors submitted proposals in competition for contract 

award. TSA’s evaluation of the proposals determined that the Boeing offer was 

the best value to the Government, technical and price factors considered. A 

full evaluation of TSA’s selection process is beyond the scope of this review. 

However, TSA’s cost/price analysis for this solicitation shows that both Boeing’s 

proposed total cost and total fee as compared to total cost were substantially 

higher than their competitors. Regardless of the competitive environment, TSA 

should have negotiated a reasonable profit with the winning bidder. 

TSA also commented that procurement policies and regulations allow primary 

contractor to earn fees on subcontractor costs. We do not disagree with TSA on 

this point. However, the government has an obligation to enter into equitable 

business deals, including the payment of a reasonable profit for the goods or 

services to be provided. In this case, TSA failed to meet that obligation.

7

 The 8% base fee provided for in the contract less a potential penalty of 2%, should Boeing fail to substantially meet the performance 

objectives.
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Recommendations

We recommend that TSA: 

1. Modify the fee terms of the contract to avoid even the appearance that it 

is a cost-plus-a-percentage-of-cost contract; 

2. Amend the award fee pool in the contract to ensure that it does not 

include cost increases unrelated to approved scope changes;

3. Evaluate Boeing’s past performance on this contract to determine a 

reasonable award fee; and 

4. Recoup any unreasonable fees paid under the contract. 

5. Develop guidance for the determination of reasonable base and award 

fees on cost-plus-award-fee-contracts.

Management Comments and OIG Evaluation

We obtained written comments (Appendix C) on a draft of this report from TSA. 

TSA commented that their position as a new agency with limited staff, demanding 

operational requirements, and an extremely tight performance schedule greatly 

contributed to the circumstances surrounding this contract. However, TSA 

recognized the shortfalls that exist in the administration of this contract and 

provided us additional information regarding the steps they have taken to 

remedy those shortfalls. TSA comments included some technical corrections 

and recommended changes that we have incorporated into the final report. TSA 

also responded directly to each of the recommendations. Generally, TSA agreed 

with the report’s findings and recommendations, with the exception of the finding 

that the profit paid to Boeing was unreasonable. Below is a summary of TSA’s 

responses to each recommendation and our assessment of the response.

Recommendation 1: Reform the fee terms of the contract to avoid even the 

appearance that it is a cost-plus-a-percentage-of-cost contract.

TSA agreed that the contract had the appearance of a cost-plus-a-percentage-ofcost type contract. TSA is currently pursuing a reconciliation of the contract that 
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will document the increased value of the contract due to changed requirements. 

Upon completion of the reconciliation, the contract will be modified to reflect 

consistent pricing. We agree with this course of action and recommend that TSA 

expedite its effort. A description of the reconciliation process and milestones 

for its completion should be included with TSA’s action plan to address the 

recommendations in this report.

Recommendation 2: Amend the award fee pool in the contract to ensure that 

it does not include cost increases unrelated to approved scope changes.

TSA noted that the contract reconciliation, currently underway, would determine 

if cost growth contributed to the contract’s increased value. If so, TSA will 

recover any corresponding award fee through subsequent payment deductions. 

We agree with this course of action. TSA should include its plan for recovering 

excessive award fee with the action plan to address the recommendations in this 

report.

Recommendation 3: Evaluate Boeing’s past performance on this contract 

to determine a reasonable award fee, and Recommendation 4: Recoup any 

unreasonable fees paid under the contract.

TSA did not agree with Recommendations 3 and 4. TSA maintains that Boeing’s 

risk was high for a cost-type contract and, therefore, the award fee structure 

was reasonable, given the competitive market8 conditions and the challenging 

environment associated with the rollout of explosive detection equipment. TSA 

also stated that it had conducted an award fee evaluation for calendar year 2002, 

and made a final determination to pay Boeing 80% of the 7% award fee, bringing 

the total fee paid for this evaluation period to 13.6% of total costs incurred. 

Therefore, TSA does not plan to recoup any fees already awarded other than those 

fees associated with cost growth. 

TSA also took exception to statements in the report that compared Boeing’s 

total project management costs with profit, noting that allowance of fees on 

subcontractor costs is permissible by procurement policies and regulations. 

TSA further stated that the role of a general contractor was critical to meet the 

Congressional mandate of ensuring 100% electronic screening by December 31, 

2002. For the future, however, TSA developed a new procurement strategy that 

eliminated the need for a general contractor. 

8

 More than one competitor submitted independent proposals in response to the solicitation. The assumption is that the market determined 

the contract’s price reasonableness.
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We continue to disagree with TSA’s conclusion that Boeing’s risk was high and 

that the fee structure was reasonable. While fees on subcontractor costs are 

permissible, the practice is not always justified, especially when the general 

contractor does not bear the risk of subcontractor nonperformance. Further, 

we do not agree that the competitive environment was an adequate mechanism 

for determining a reasonable profit percentage. TSA’s cost/price analysis for 

the solicitation showed that both Boeing’s proposed total cost and total fee 

as compared to total cost was substantially higher than their competitors. As 

the federal purchasing agency, TSA is responsible for ensuring that profit is 

reasonable. We still maintain that TSA has not met its obligation to negotiate a 

reasonable profit and recommend that TSA carefully evaluate the performance 

of Boeing when determining future award fees and consider the reasonableness 

of the fee awarded when compared to contractor performance. In response to 

this recommendation, TSA should provide us with copies of all future fee award 

assessments for this contract.

Recommendation 5: Develop guidance for the determination of reasonable 

base and award fees on cost-plus-award-fee-contracts.

TSA has not yet had an opportunity to comment on this recommendation. We 

ask that TSA include its comments on this recommendation with its action plan 

addressing this report. Based on audit work and TSA initial response to our draft, 

we believe TSA needs to define reasonable profit levels for cost-plus-award-fee 

contracts. TSA’s guidelines should set standard risk assessment requirements and 

firm limits for both base and award fee profit. We suggest that TSA look to the 

federal procurement community, such as the six agencies that we surveyed, for 

best practices in setting these guidelines.
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Invoice/Payments as of December 2003

Boeing Invoices ($ in Thousands) TSA Approved Payments ($ in Thousands)

Invoice Date Submitted Cost Base Fee 8% of Cost Award Fee 5.6% of Cost Total Cumulative Cost Base Fee Award Fee Total Cumulative

1 07/03/02 $114 $9 $6 $129 $129 $114 $9 $6 $129 $1292 07/18/02 $144 $12 $8 $164 $293 $144 $12 $8 $164 $2933 07/31/02 $570 $46 $32 $648 $941 $570 $46 $32 $648 $9414 08/15/02 $517 $41 $29 $587 $1,528 $517 $41 $29 $587 $1,5285 08/26/02 $6,617 $529 $371 $7,517 $9,045 $6,617 $529 $371 $7,517 $9,0456 09/12/02 $9,418 $753 $527 $10,698 $19,743 $9,418 $753 $527 $10,698 $19,7437 09/26/02 $11,563 $925 $648 $13,136 $32,879 $11,563 $925 $648 $13,136 $32,8798 10/09/02 $12,484 $999 $699 $14,182 $47,061 $12,484 $999 $699 $14,182 $47,0619 10/24/02 $20,119 $1,610 $1,127 $22,856 $69,917 $20,119 $1,610 $1,127 $22,856 $69,917

10 11/07/02 $19,801 $1,584 $1,109 $22,494 $92,411 $19,801 $1,584 $1,109 $22,494 $92,411

11 11/21/02 $20,788 $1,663 $1,164 $23,615 $116,026 $20,788 $1,663 $1,164 $23,615 $116,026

12 12/05/02 $41,118 $3,289 $2,303 $46,710 $162,736 $41,118 $3,289 $2,303 $46,710 $162,73613 12/19/02 $46,533 $3,723 $2,606 $52,862 $215,598 $46,533 $3,723 $2,606 $52,862 $215,59814 01/03/03 $64,605 $5,168 $3,618 $73,391 $288,989 $64,605 $5,168 $3,618 $73,391 $288,98915 01/25/03 $59,460 $4,757 $3,330 $67,547 $356,536 $59,460 $4,757 $3,330 $67,547 $356,53616 01/30/03 $9,372 $750 $525 $10,647 $367,183 $9,372 $750 $525 $10,647 $367,18317 02/13/03 $87,158 $6,973 $4,881 $99,012 $466,195 $87,158 $6,973 $4,881 $99,012 $466,19518 03/03/03 $12,379 $990 $693 $14,062 $480,257 $12,379 $990 $693 $14,062 $480,25719 03/13/03 $18,083 $1,447 $1,013 $20,543 $500,800 $18,083 $1,447 $1,013 $20,543 $500,80020 03/26/03 $35,994 $2,879 $2,016 $40,889 $541,689 $35,994 $2,879 $2,016 $40,889 $541,68921 04/14/03 $12,890 $1,031 $722 $14,643 $556,332 $12,890 $1,031 $722 $14,643 $556,33222 04/25/03 $42,200 $3,376 $2,363 $47,939 $604,271 $42,200 $3,376 $0 $45,576 $601,90823 05/08/03 $44,046 $3,524 $2,467 $50,037 $654,308 $44,046 $3,524 $0 $47,570 $649,47824 05/23/03 $24,407 $1,953 $1,367 $27,727 $682,035 $24,407 $1,953 $0 $24,660 $674,13825 06/18/03 $27,058 $2,165 $1,515 $30,738 $712,773 $27,058 $2,165 $0 $29,223 $703,36126 07/07/03 $18,277 $1,462 $1,024 $20,763 $733,536 $18,277 $1,462 $0 $19,739 $723,10027 07/16/03 $12,241 $979 $685 $13,905 $747,441 $12,241 $979 $0 $13,220 $736,32028 08/08/03 $46,960 $3,757 $2,630 $53,347 $800,788 $46.952 $3,757 $0 $50,709 $787,02929 08/21/03 $15,893 $1,271 $890 $18,054 $818,842 $15,893 $1,271 $0 $17,164 $804,19330 09/04/03 $9,420 $754 $527 $10,701 $829,543 $9,420 $754 $0 $10,174 $814,36731 09/17/03 $20,008 $1,601 $1,120 $22,729 $852,272 $19,640 $1,601 $0 $21,241 $835,60832 08/21/03 $15,123 $1,210 $847 $17,180 $869,452 $15,123 $1,210 $0 $16,333 $851,941

331 08/21/03 $6,112 $489 $342 $6,943 $889,518 $6,112 $489 $647 $6,601 $858,542

34 11/26/03 $11,552 $924 $647 $13,123 $889,518 $11,552 $924 $0 $13,123 $871,66535 12/12/03 Payment of Withheld Award Fee Invoices #22-#33 $889,518 $0 $0 $15,777 $15,777 $887,44236 12/12/03 Resubmission of Disallowed Amount in Invoice #24 $889,518 $1,700 $0 $0 $1,700 $889,14237 12/12/03 Resubmission of Disallowed Amount in Invoice #28 $889,518 $8 $0 $0 $8 $889,150

Grand Total $783,024 $62,643 $43,851 $889,518 $782,656 $62,643 $43,851 $889,150

8Does Not include $591,000 of cost and fixed fees billed by Boeing for Book 3.

Appendix A

Schedule of Contractor Invoices
Page 16 Evaluation of TSA’s Contract for the Installation and Maintenance of Explosive Detection Equipment

at United States Airports

Purpose, Scope, and Methodology

Our objectives in reviewing the Boeing contract were to determine whether TSA 

properly administered the contract as a cost-plus-award-fee contract, and whether 

TSA paid disproportionately high profits to Boeing. 

Our fieldwork began April 7, 2003, and continued through March 2004. We 

interviewed TSA management and contract personnel, including the contracting 

officer’s representative. We reviewed the contract and all its modifications 

through August 2003. We analyzed contract file documents maintained at TSA’s 

Pentagon City and Herndon, Virginia offices. In addition, we reviewed relevant 

sections of the United States Code, Aviation and Transportation Security Act,

Federal Acquisition Regulations, Federal Aviation Administration’s Acquisition 

Management System, and TSA’s acquisition requirements. We conducted the 

audit pursuant to the Inspector General Act of 1978, as amended, and according to 

generally accepted government auditing standards.

Appendix B

Purpose, Scope, and Methodology
Evaluation of TSA’s Contract for the Installation and Maintenance of Explosive Detection Equipment Page 17

 at United States Airports

Appendix C

Management Comments
Page 18 Evaluation of TSA’s Contract for the Installation and Maintenance of Explosive Detection Equipment

at United States Airports

Appendix C

Management Comments
Evaluation of TSA’s Contract for the Installation and Maintenance of Explosive Detection Equipment Page 19

 at United States Airports

Appendix C

Management Comments
Page 20 Evaluation of TSA’s Contract for the Installation and Maintenance of Explosive Detection Equipment

at United States Airports

Appendix C

Management Comments
Evaluation of TSA’s Contract for the Installation and Maintenance of Explosive Detection Equipment Page 21

 at United States Airports

Appendix C

Management Comments
Page 22 Evaluation of TSA’s Contract for the Installation and Maintenance of Explosive Detection Equipment

at United States Airports

Judy Leonhardt, Director, Management Services

William Schroeder, Audit Manager

Ruth Blevins, Senior Analyst

Beverly Dale, Senior Auditor

Stephen Ondrish, Senior Auditor

Appendix D

Major Contributors to this Report
Evaluation of TSA’s Contract for the Installation and Maintenance of Explosive Detection Equipment Page 23

 at United States Airports

Department of Homeland Security

Secretary

Deputy Secretary

Chief of Staff

General Counsel

Under Secretary, Border and Transportation Security

 Acting Administrator, Transportation Security Administration

 DHS Audit Liaison

TSA Audit Liaison

Office of Management and Budget

Homeland Security Branch Chief

DHS OIG Budget Examiner

Congress

Congressional Oversight and Appropriations Committees, as appropriate

Appendix E

Report Distribution
Page 24 Evaluation of TSA’s Contract for the Installation and Maintenance of Explosive Detection Equipment

at United States Airports

Additional Information and Copies

To obtain additional copies of this report, call the Office of Inspector General (OIG) at 

(202) 254-4100, fax your request to (202) 254-4285, or visit the OIG web site at www.

dhs.gov/oig.

OIG Hotline

To report alleged fraud, waste, abuse or mismanagement, or any other kind of criminal 

or noncriminal misconduct relative to department programs or operations, call the OIG 

Hotline at 1-800-323-8603; write to Department of Homeland Security, Washington, DC 

20528, Attn: Office of Inspector General, Investigations Division – Hotline. The OIG 

seeks to protect the identity of each writer and caller.