Finding Text
2025-003 Internal Control and Compliance Finding Related to FAR 15.404-1(b)(2)(ii)(A), Contracting by Negotiation, Proposal analysis a. Condition Our review of compliance and internal controls testing in accordance with OMB 2025 Compliance Supplement for Part A. Activities Allowed or Unallowed; and Part B. Allowable Cost/Cost Principles; identified an internal control deficiency related to the preparation of adequate price analyses. The contractor failed to perform and document adequate price analyses because buyers did not support that the historical basis prices were fair and reasonable prior to using them as a comparison. Under the contractor’s internal policy, SPP 3.2, historical comparisons may only be made to procurements executed within the prior two years, and the baseline historical price must be documented as reasonable. During our testing of Engineering Management Overhead indirect software purchases from FY2025 we found the contractor did not perform adequate price analysis on thirteen out of fifteen transactions tested. The contractor did not properly retain supporting price documentation to justify price reasonableness. The contractor solely relied on prior purchase order prices that were not adequately documented to be fair and reasonable. This condition occurred due to buyers not following the contractor's Price Analysis policy. We noted multiple instances where the contractor did not retain all pricing documentation. In addition, for historical price comparisons, the buyers only compared current quotes to the prior purchase orders from the same vendor over several years and did not obtain quotes from competitive vendors. Per discussions with SRC Purchasing staff, SRC has utilized the selected software for several years and did not obtain quotes from competitive vendors as the cost to change vendors would be greater than continuing to use the same software vendor. However, the contractor failed to document the cost comparison to change vendors. As a result of this control deficiency, there is an increased risk for the Government as the contractor does not properly maintain supporting documentation and does not establish historical prices as reasonable based on competition in a timely manner. This could lead to potential overpayment, or unreasonable costs being charged to federal awards, and the risk of non-compliance with federal award criteria. b. Criteria We examined FAR 15.404-1(b)(2)(ii)(A), Contracting by Negotiation, Proposal analysis, which states the following requirements: "The prior price must be a valid basis for comparison. If there has been a significant time lapse between the last acquisition and the present one, if the terms and conditions of the acquisition are significantly different, or if the reasonableness of the prior price is uncertain, then the prior price may not be a valid basis for comparison." Additionally, the contractor is failing to follow its internal Policy SPP 3.2 Performing a Price Analysis. The policy states: "Procurements for indirect goods and services do not require utilization of the Price Analysis Model; a written historical price comparison may be conducted against procurements placed within 2 years" and “For a comparison to be valid, the Buyer must be able to identify and consider any item or market differences that might significantly affect contract price. If the Buyer determines the previously paid price to be fair and reasonable, they must reconcile any differences (i.e. quantity, currency, etc.), and compare the prior price with the new price to determine whether it is also fair and reasonable." c. Recommendation The auditee should reinforce its price analysis internal controls by providing staff additional training of policy, SPP 3.2, Performing a Price Analysis, and strengthen its internal controls to ensure proper price analyses are performed for all purchases in accordance with FAR 15.404-1(b)(2)(ii)(A). d. Contractor Response SRC concurs with our findings. SRC’s complete response is included in the Corrective Action Plan for Current Year Findings in Appendix 3.