Procurement: March 17, 2000


THIS IS ABOUT MONEY, NOT WAR: An internal audit by the Pentagon has found that 105 contracts involving $6.7 billion in government spending were inadequately overseen. In 81 of the contracts, the contracting officers did not have cost estimates (or the ones they had lacked detail or were simply not adequate.) In dozens of cases, the contract officers did not check on progress themselves, but relied on the contractor's status reports, which sometimes were not accurate. The audit noted that 63 of the 105 contracts were awarded without competition. The audit found that in 22 contract there was a total of $535 million in spending without any paperwork to justify the expense or show that a reasonable price had been paid. 

The audit sharply criticized the overuse of "cost plus" contracts in which the government pays all of a contractor's costs plus a specified profit. Such deals should be used only when the project is new or technically challenging, and the government must assume most of the financial risk in order to get anyone to bid on it at all. The audit noted that in many cases the same contractor was used year after year on cost plus contracts, when it should have been forced to accept a fixed price contract as the actual costs were well established. In one example, the Army gave Raytheon a $36 million engineering services contract without competition on a cost-plus basis, even though the Hawk missile system it covered had been in service since 1958. The Army insisted that it did not have enough data for a fixed price contract, but the audit noted that the same contractor had the job for 39 consecutive years. The audit noted that the 84 cost-plus contracts had seen costs rise $80 million above the original estimates. The auditors complained that while the government was assuming the financial risks, it was not conducting the detailed estimates and rigorous oversight needed to control that risk. 

The Pentagon spent $51.8 billion on service contracts last year, up from $39.9 billion in 1992. The Pentagon's inspector general noted that while the value of contracts had climbed 25%, the amount of oversight is not keeping pace.--Stephen V Cole


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