AM General has credited the Defense Logistics Agency (DLA) Land and Maritime with  $1.62 million after a Defense Department Inspector General (DoD IG) audit found the government made numerous missteps and paid too much for High Mobility Multipurpose Wheeled Vehicle (Humvee) repair parts.

During the audit, the IG notified contracting officials of the overpayments; DLA Land and Maritime agreed that overpayments were made to AM General and began recouping the overpayment. AM General credited DoD about $1.62 million for overpayments related to the HMMWV repair part.

The DoD IG audit,  Project No. D2013-D000JA-0098.000, was conducted to

Humvee Photo: AM General
Photo: AM General

to determine if DLA received “fair and reasonable” prices for its integrated logistics partnership (ILP) contract with AM General to manage Humvee repair parts. The IG also looked at whether DLA Land and Maritime contracting officials properly approved AM General invoices associated with repair parts for payment.

The audit found the government contracting officials negotiated “questionable prices” for Humvee repair parts.

“Specifically, contracting officials applied escalation rates that exceeded U.S. Bureau of Labor Statistics market rates,” the IG auditors said. “Contracting officials did not justify these rates used in their fair and reasonable price determination. As a result, contracting officials paid an additional $26.3 million for escalation rates that were not supported. “

The audit also found several other issues: contracting officials did not request commercial sales data or cost data before buying $563.2 million of commercial repair parts; perform sufficient analysis and limited their review to using past procurements from AM General to establish pre-negotiation objectives, or a target price range, for $182 million in repair parts; effectively use pre-negotiation objectives for $221.4 million in repair parts; and maintain contract files containing pricing support for $233.6 million in repair parts.

This happened because contracting officials relied on having a primary and secondary source, DoD or AM General as the repair part provider, instead of obtaining sufficient data to ensure fair and reasonable prices, auditors said.

“Applying such practices to future [Humvee] repair parts contracts or follow-on contracts will continue to provide limited assurance that negotiated [Humvee] repair parts prices are fair and reasonable,” auditors said. “Before DLA Land and Maritime contracting officials procure these [Humvee] repair parts again, improved pricing practices are needed.”

Additionally, the report said AM General overbilled DLA Land and Maritime 34 times for a Humvee repair part purchased on the ILP contract from November 2012 through June 2013. These overbillings occurred because contracting officials did not ensure that AM General’s unit price aligned with the unit of issue for that repair part. As a result, contracting officials authorized overpayments to AM General of at least $1.5 million for a repair part provided through the ILP contract.

Among other recommendations, the DoD IG said DLA should examine and implement options to recover an additional $26.3 million from AM General, and in addition review ILP contract invoices and vouchers and collect any overpayment from AM General and require that AM General align its repair part prices with the government standard units of issue on future delivery orders and invoices associated with the ILP contract and its planned follow-on contract.

Also, the report recommends the DLA director take other actions to ensure enough data is collected so prices are fair and reasonable.

The Acting Director of DLA Acquisition responded in part by saying DLA provided policy and will provide tools and training to assist DLA contracting personnel with contract pricing and negotiations.

“However, DLA’s analysis of the contract escalation was insufficient,” auditors said, adding that the agency should take further steps, including obtaining the $224 million in ILP contract billing records through November  2011 and review them to see if additional payments to AM General occurred.

DoD IG wants comments to the final report by May 5.