The Navy has overpaid defense contractors nearly $4 million to repair radar systems on its F/A-18 Hornet fighter jets, according to a Defense Department inspector general report released Wednesday.
The Pentagon IG reviewed in the report costs for the repairs of AN/APG-65 and AN/APG-73 radar systems on the fighter jets from February 2018 to September 2022 under a single-source, basic ordering agreement contract.
Despite following Federal Acquisition Regulation (FAR) reasonable price determination requirements, the contracting arm in charge of these repairs, Naval Supply Systems Command Weapon Systems Support, paid at least $3.9 million “in excess of fair and reasonable prices” for the repair of 211 parts across the radar systems on the F/A-18 Hornet, the IG report said.
V2X subsidiary Vertex Modernization and Sustainment is the only approved source of repairs for the suite of all-weather multimode airborne radar systems designed for the fighter jets. NAVSUP WSS awarded Raytheon a contract in late January 2018 to repair the AN/APG-65 and AN/APG-73 radars on the F/A-18 Hornets, which transitioned when the company sold the operation to the business that would become V2X.
The IG argued the excess payment was a result of NAVSUP WSS’s failure to identify on an itemized level the changes in actual touch costs from the initial touch costs agreed upon in the contract, as well as an “inconsistent allocation of support costs” across delivery orders from Vertex.
NAVSUP WSS officials told the Pentagon IG they do not review touch costs -- which are easily traceable to individual items, such as the direct labor done by workers who touch the product being repaired -- on an itemized level, but typically review total labor and material cost estimates from each proposal and searches for outliers from previous years’ actual costs, according to the report.
The IG pushed back on the method, saying the Defense Federal Acquisition Regulation Supplement requires contracting officers to refrain from determining a contract price to be fair and reasonable based only on previous prices the government has paid.
NAVSUP WSS officials also attributed the failure to identify cost fluctuations on an itemized level because of the inherent uncertainty in repair contracts, given the contractor does not know the level of repair each part requires when drafting the proposal, according to the report. The IG said it was able to identify the differences after requesting additional data from the contractor, which was an option available to NAVSUP WSS, as well.
Though it should not have determined whether a contract price was fair and reasonable based solely on historical cost data, NAVSUP WSS could have used the 25 years’ worth of historical cost data available for the radar systems repair to help manage expectations for fluctuations in cost, DOD IG said in the report.
The IG’s major recommendations were that NAVSUP WSS contracting officials determine whether the contracting arm in charge paid more than actual costs for the five delivery orders and exercise available options to recover those costs, including voluntary refunds of at least $3.9 million. The Pentagon IG also recommended contracting officials identify and execute a methodology to consistently allocate itemized support costs for the repairs and require the contractor to follow that methodology.
The chief logistician for aviation at NAVSUP WSS, responding for the commander, agreed with the recommendation that contracting officials be directed to identify and implement a methodology to consistently allocate support costs on a line-item basis for the repairs and require contractors to comply.
The official did not agree with the IG’s recommendation to determine if the contracting arm in charge paid more than actual costs for the delivery orders and exercise available options to recover those costs, including voluntary refunds.
“The Chief Logistician stated that we should never expect the contract specialist’s negotiated costs prior to contract performance to match the actual costs incurred after contract performance,” according to the inspector general’s report.
The official told DOD IG that the difference between negotiated and actual costs under a firm-fixed-price contract does not signal the requirement of a voluntary refund or the contract specialist’s failure to procure fair and reasonable prices.
Given the official did not address the latter recommendation, the Pentagon IG declared it unresolved and requested the NAVSUP WSS Commander provide comments addressing the unresolved recommendation “within 30 days of the final report.”