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B-173639 1 (1971-10-13)

handle is hein.gao/gaobabkpf0001 and id is 1 raw text is: • 3 ETRMTED - Not Is be vIeaed vbado tte General cj71 Acsowmtig Office ax~jt ojn tiwc bg o f 1 R[-LEAS[D COMPTROLLER GENERAL OF THE UNI1 'IT9!0 WASHINGTON. D.C. 20348 =,, // I, . B-173639 OCT 1 1 llll11il11I1111I11111i INII LM089712 Dear Senator Dominick: By letter dated July 8, 1971, you requested that we provide you with a report on our reactions to certain Department of Transport'tion cost accounting procedures. Your letter enclosed copies of letters to you from Mr. 0. E. Bartoe of Ball Brothers Research Corporation and from the Office of the Secretary of Transportation concerning the Department's policy on allowable costs under prime contracts for systems management. Mr. Bartoe, in his letter to you, expressed his concern that the Department of Transportation was deviating from uniform Government pr- curement practices in a manner which could result in (I) a contractor not recovering all reasonable and necessary costs associated with a con- tract, or (2) an inequitable allocation of a contractor's costs among its various customers. Mr. Bartoe's concern arose from a provision in a request by the Department for proposals for management services which stated: It is the governments desire to subcontract as much of the effort as possible. In addition, the Department of Transportation does not wish to pay the prime contractor a fixed fee, overhead or G&A charges on subcontract work. In order to benefit from the contractor's organization, a fixed amount or nominal charge arrangement may be con- sidered against subcontracts. Department officials advised us that this provision was not included in the request in an attempt to preclude any contractor from recovering the reasonable and necessary costs associated with a contract. They stated that the provision was included because of the Department's recognition that the type of systems management contract it planned to award varied considerably from conventional research and development type contracts-- which call for extensive in-house effort--and that under the planned con- tracting arrangements, up to 80 percent of the total prime contract dollars would relate to subcontractors' work. The Department has indicated that a considerable portion of a contractor's indirect costs, necessary and rea- sonable to support in-house work, would not be of direct benefit in the management of the subcontracts, and has concluded that, if it followed the normal contracting practice of applying a standard fixed rate to sub- contract dollars for a contractor's overhead and general and administrative expense, a very substantial and unwarranted additional cost to the Govern- ment would be incurred. 50T H ANNIVERSARY 1921-1971-

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